Criminal Property Confiscation Act 2000 (WA)

Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567

Calverley v Green (1984) 155 CLR 242; [1984] HCA 81

Campana v The State of Western Australia [2008] WASC 230

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (Codelfa/Eastern Suburbs Railway Case) [1982] HCA 24; (1982) 149 CLR 337

Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91

Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127 EWHCCh

DPP v Centurion Trust Company Ltd (No 5) [2008] WASC 107

Henry v Hammond (1913) 2 KB 515

Hewett v Court [1983] HCA 7; (1982) 149 CLR 639

Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583

Pettit v Pettit [1969] UKHL 5; (1970) AC 777

Re Stephenson Nominees v Official Receiver (1987) 76 ALR 485

Sivritas v Sivritas [2008] VSC 374

Walker v Corboy (1990) 19 NSWLR 382

1 This litigation shows the perils of trusting the word of a drug dealer on anything, even when the drug dealer is a close relation. Bruce Wilson Smith is a drug trafficker. He has a 50% interest in land as registered proprietor as joint tenant of Lot 101 on Diagram 89355 in Certificate of Title Volume 2050 Folio 742 commonly known as 16 Wittenoom Road, High Wycombe. The other 50% interest is held by his wife, Lynette Charmaine Smith, the second plaintiff. His mother is Elizabeth Mary Wilson Smith, the third plaintiff. Rhonda Wilson Jacobs (nee Smith), the fourth plaintiff, is Bruce's younger sister. To avoid any confusion similar to that of the Kalgoorlie postal service adverted to by Dryblower Murphy in his poem The Smiths, I shall refer to the parties by their first names.

2 On 7 September 2007, Bruce pleaded guilty to two serious drug offences. The sentencing judge accepted that Bruce was not a purely commercial dealer but more of a user who also sought to pay off a drug debt. Nevertheless, as required by the circumstances of Bruce's previous convictions, the judge made a declaration that Bruce was a drug trafficker. By reason of that declaration under the Criminal Property Confiscation Act 2000 (WA) (CPC Act) s 8(1), all of Bruce's property owned or effectively controlled by him at the time of declaration was automatically confiscated.

3 Both Elizabeth and Rhonda loaned money to Bruce in circumstances which they assert gives each of them an equitable interest in 16 Wittenoom Road. They seek a declaration of their respective interests under the CPC Act.

4 On 6 March 2008, Templeman J ordered that the actions be consolidated and made other programming orders, including the filing of affidavit material. The affidavits filed by Elizabeth and Rhonda are the evidence upon which they seek to make good their assertions of an interest in 16 Wittenoom Road. Unsurprisingly, in the circumstances the State is unable to file any contrary material in respect of conversations and the conduct said to have taken place. Neither Elizabeth nor Rhonda were obliged to attend for cross-examination. Their affidavits become the evidence on the point. Their evidence is not inherently implausible and must be accepted by me. Their claims arise in slightly different ways. To the extent that each can establish an equitable interest, that interest has not been and can not be confiscated. An equitable interest is property capable of ownership: CPC Act s 84(2). The Glossary to the CPC Act defines 'owner' and 'property' as:

owner, in relation to property, means a person who has a legal or equitable interest in the property;

property means -

(a) real or personal property of any description, wherever situated, whether tangible or intangible; or

(b) a legal or equitable interest in any property referred to in paragraph (a);

5 The State opposes each assertion and denies that either Elizabeth or Rhonda has an equitable interest in 16 Wittenoom Road.

6 Lynette and Bruce are now divorced. Lynette was the other joint proprietor of the land and the State has recognised her half share as joint tenant in the property. That half share was in fact never the subject of a freezing notice. Nevertheless, her joint ownership is important in determining Elizabeth's and Rhonda's claims.

7 A preliminary issue arises. 16 Wittenoom Road is the subject of a freezing notice. If property has been confiscated, can a court order or freezing notice be set aside or frozen property be released? In DPP v Centurion Trust Company Ltd (No 5) [2008] WASC 107 Templeman J said no.

8 In Campana v The State of Western Australia [2008] WASC 230 [38] to [40] Jenkins J held that the practical way to address the situation was to consider whether, absent the freezing notice, the property described in the freezing notice was owned or effectively controlled by the convicted person at the time he was declared to be a drug trafficker or whether the items of property were property that the drug trafficker had given away at any time prior to the declaration being made and if the frozen property did not meet these criteria the freezing notice in respect of the property ought to be set aside.

9 The CPC Act s 38(2) provides that a freezing notice for registerable real property stops being in force when a memorial is registered under s 113(1). The property continues to be frozen until a memorial is registered. In this case there is no such memorial even though the applicant was required to lodge a memorial of the issue of the notice: s 36(2). It is submitted that although the property has been confiscated it remains frozen until a memorial is filed and therefore an application may be treated as an objection to confiscation. The State seeks a declaration that Bruce's property listed in the application, including his interest in 16 Wittenoom Road, has been confiscated.

10 If an innocent person has an equitable interest in 'property' as defined sufficient to satisfy the definition of 'owner' under the CPC Act then that equitable interest is not subject to confiscation. Only the interest of the drug trafficker is confiscated. This obviously creates difficulties in cases such as the present involving real property. However, a single piece of real estate may be encumbered with many interests at law and in equity.

11 16 Wittenoom Road has not yet vested absolutely in the State. Under the CPC Act s 9:

(1) Registrable real property that is confiscated under section 6, 7 or 8 vests absolutely in the State when -

(a) the court declares under section 30 that the property has been confiscated; and

(b) a memorial of the making of the declaration is registered under section 113(1).

(2) When registrable real property vests in the State under subsection (1) -

(a) the property vests free from all interests, whether registered or not, including trusts, mortgages, charges, obligations and estates, (except rights of way, easements and restrictive covenants);

(b) any caveat in force in relation to the property is taken to have been withdrawn; and

(c) the title in the property passes to the State.

(3) If registrable real property has been confiscated under section 6, 7 or 8, but has not vested in the State under subsection (1), sections 50 and 51 and Part 7 apply to the property as if it were subject to a freezing order.

12 There are two conditions before the property vests absolutely in the State. Only one of them has been fulfilled but the other must follow the first.

13 When the two conditions are satisfied then all unregistered equitable interests in the real property are extinguished. An innocent person's equitable interest may be declared prior to registration of a memorial but once the real property vests in the State that interest will still be extinguished. If 16 Wittenoom Road was confiscated when Bruce was declared to be a drug trafficker, the end result of confiscation - transfer to the State - will take place when both conditions under s 9(1) are fulfilled.

14 It is submitted on behalf of Elizabeth and Rhonda that as the applicant for the notice freezing Wittenoom Road has not lodged a memorial under s 30(1) the property remains frozen. Accordingly, it is submitted that the approach suggested by Jenkins J in Campana does not apply because although the property has been confiscated it remains frozen. It is therefore submitted that these proceedings may be treated both as an application objecting to confiscation under Part 6 by the objectors and an application for confiscation by the State following the drug trafficker declaration.

15 The evidence establishes that on 7 September 2007:

• Bruce was a registered proprietor as joint tenant of 16 Wittenoom Road.
• He was a person to whom the Misuse of Drugs Act 1982 (WA) s 32A applied.
• On the application of the prosecutor, the judge declared Bruce to be a drug trafficker.
• The DPP has applied for a declaration that all Bruce's property owned by him has been confiscated, including 16 Wittenoom Road.

16 On that evidence I find that Bruce's interest in 16 Wittenoom Road has been confiscated and I make a declaration to that effect.

17 In consequence the DPP is under a statutory obligation to lodge a memorial of confiscation with the Registrar of Titles. Upon registration, any equitable interest of Elizabeth or Rhonda in 16 Wittenoom Road will cease by operation of law: CPC Act s 9. Their objections to confiscation cannot avail against the scheme of the CPC Act.

18 Nor do they have a valid objection. Their objection to confiscation is hard to maintain. It is not suggested that they, not Bruce, are the legal or beneficial owners of 16 Wittenoom Road. Their position is that their interest in 16 Wittenoom Road arises from equity. It is not an interest over the whole of the property but an interest to the extent only of an equitable lien or a trust equivalent to moneys that each of them advanced to Bruce at a time of personal crisis for he and Lynette. If their arguments are accepted each of them would establish an interest in the property that is personal to each and different from the legal interest of Bruce. It is not an interest that can be confiscated by the State under the CPC Act. As I will explain shortly I do not find that either Elizabeth or Rhonda have established an interest in 16 Wittenoom Road. But even if I did so find, their success would likely be fleeting. The inevitable progress following declaration and lodging of the memorial will extinguish any equitable (or other) interest in 16 Wittenoom Road. This is the scheme of the CPC Act. If it is unfair, others must seek to change it. I can only declare the law.

19 As none of this has yet come to pass, inevitable though it is, Elizabeth and Rhonda are entitled to a consideration of their claims and if necessary a declaration of their interests and so it is to those claims I now turn.

20 The first interesting question is whether an equitable lien or charge is an interest in land or a remedy. An equitable lien does not transfer title and cannot be enforced by foreclosure. An equitable lien requires the payment of money to satisfy it and prevents further dealing with real property without that payment.

21 However, I will proceed on the basis that an equitable lien is capable of establishing an interest in real property. An equitable lien is property under the CPC Act and is a chose in action.

22 The second interesting question is whether an equitable lien would prevail against a confiscation of real property pursuant to statute. It might well be doubted that equity would imply a lien or charge on land that extended beyond the capacity of the landowner to control its disposition. The cases establishing or explaining the principle of equitable liens over real property all involve the parties to the arrangement; persons standing in the shoes of a party - ie, a liquidator; or persons who take from a party whether with or without notice, and whether for value or not. The cases do not speak directly about situations such as the present where Bruce is unable to discharge any charge or lien equity may impose on him because the real property has been confiscated.

23 Interesting as these questions may be, I do not need to answer them because I do not find that any equitable lien or trust exists and I shall now explain why.

24 Elizabeth swore an affidavit on 11 June 2008 which was read into evidence. In February 2005 she became aware from a telephone call from Bruce that he had been arrested, and was in custody. He remained in custody waiting for the charges to be heard. At that time he and Lynette had separated, she having moved out in September 2004.

25 After a discussion with Lynette in relation to renting, Elizabeth deposed:

1. In the meantime, I had paid $2,000.00 into Lynette and Bruce's mortgage account on 14 February 2005. I told Lynette that I had done so when she came to see me in March 2005. She told me she was grateful for my help.
2. Some mail came in from the bank about the mortgage not being up to date. So that the mortgage would not be in default, I was required to transfer $4,000.00 into the mortgage account. I did this by increasing my own mortgage to get the money. I told Lynette and Bruce that I had done this. They both thanked me for my help.
3. I have kept copies of transaction statements given to me by BankWest, at the time I made payments into Bruce and Lynette's two mortgage accounts. I deposited funds into Bruce and Lynette's equity account number 306-145005416-8 ('Equity account') and also into a mortgage account number 306-145-005414-2 ('Mortgage account').

1. On 1 April 2005, I attended BankWest in Kalamunda in order to deposit $4,000.00 into the Equity account. However, due to an error by the teller at the bank, the funds were incorrectly deposited into Bruce's BankWest savings account number 075-029364-2 rather than into Bruce's and Lynette's Mortgage account as I had intended. Attached hereto and marked with the letters 'EMWS1' is a BankWest transaction statement confirming the deposit of funds into Bruce's savings account.

1. I was later contacted by Sandy who telephoned me and asked me why I had not yet deposited the required funds into Bruce and Lynette's Equity account. I checked the deposit slip and discovered that the $4,000.00 had been paid to the wrong account.
2. I assured Sandy that I would have the funds transferred to the correct account. On 5 April 2008 (sic) BankWest, upon my request, transferred the funds from Bruce's savings account as follows:

19.1 $3,100.00 was transferred to the Mortgage account. Hereto attached and marked with the letters 'EMWS2' is a copy of a BankWest statement recording the deposit of funds into the Mortgage account.

19.2 $750.00 was transferred to the Equity account. Hereto attached and marked with the letters 'EMWS3' is a copy of a BankWest statement recording the deposit of funds into the Equity account.

1. I believed that after making these transfers that the Equity account would be under the required threshold of $60,000.00. However, I was later contacted by BankWest who informed me that I would be required to deposit a further $300.00 into the account due to BankWest deducting $300.00 in account servicing fees.
2. I had not previously been informed of the account servicing fee. On 6 April 2005 I deposited a further $300.00 into the Equity account. Hereto attached and marked with the letters 'EMWS4' is a copy of a transaction slip recording the deposit of funds into the Equity account. Annexure 'EMWS3' is a BankWest statement confirming the deposit of funds into the Equity account.

26 By par 22 of her affidavit, Elizabeth deposes as to each deposit she made between 20 May 2005 and 25 January 2006. Some deposits were into a joint account of Bruce and Lynette known as an equity account and other payments were into their joint mortgage account. The payments totalled $12,250.

1. Bruce always said, when I told him that I had made payments to the mortgage, that I would be paid back from the sale of the house when it sold. He said this to me on a number of occasions. Every time I told him I had put money into the mortgage he would say words to the effect 'Thanks mum, sorry about this, as soon as the house sells you will get the money back'. Bruce knew my financial position well, being my son, and knew that I was a pensioner and had to borrow the money I was paying into his mortgage by increasing my own mortgage. I told Bruce this on a number of occasions but he was in any case aware of my financial circumstances because of our close relationship. Bruce often reassured me I would get all my money back, and although I could not really afford to, I was prepared to because of those circumstances to keep paying money into the mortgage. I never had any doubt that I would be paid back, because I trusted Bruce to keep his word.
2. The money that I had paid into the mortgage was never intended as a gift. I paid the mortgage to stop the house being sold by the bank, and because I knew and expected that when the house was eventually sold I would get my money back. I was not in any financial position to make gifts of these sums of money to Bruce and Lynette. Had I not expected that the money would all be repaid to me when the house sold, I would not have lent the money or made the payments in the first place.

1. I turn 69 in October 2008. I am worried by the size of my mortgage, and as I get older and need more money for health care and other things, that I will not be able to afford the mortgage, and may have to sell my house. I did not expect to be left in this position, because I had always expected that I would have the payments that I made to the mortgage on Wittenoom Road returned to me, once Wittenoom Road was sold.
2. I had expected that the property was going to be sold when Bruce and Lynette made their family law property settlement, but that has not happened.

27 Elizabeth's claim is mounted on the basis that the promises by Bruce give rise to an equitable lien against the property for the repayment of the amounts advanced. It is submitted that the payments were made in relation to the acquisition and preservation of the property. Equity, it is said, would not permit Bruce to dispose of the property without Elizabeth being reimbursed for her contributions and it would be unconscionable for him to be allowed to do so.

28 In relation to that point it should again be noted that Bruce is not voluntarily disposing of the property. The property is being confiscated by operation of the CPC Act.

29 The classic Australian definition of an 'equitable lien' is taken from Hewett v Court [1983] HCA 7; (1982) 149 CLR 639 per Deane J:

An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness. Though called a lien, it is, in truth, a form of equitable charge over the subject property in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout. Equitable lien differs from traditional mortgage in that it does not transfer any title to the property and therefore cannot be enforced by foreclosure. While it arises by implication of some equitable doctrine applicable to the circumstances, its implication can be precluded or qualified by express or implied agreement of the parties. It can exist over land or personalty or both.

Generally speaking, the established examples of equitable lien are between parties in a contractual or quasi-contractual relationship. [references omitted] (663)

The word "lien" is used somewhat imprecisely in the phrase 'equitable lien' to describe not a negative right of retention of some legal or equitable interest but what is essentially a positive right to obtain, in certain circumstances, an order for the sale of the subject property or for actual payment from the subject fund. (664)

The basis of equitable lien between parties to a contract lies in an equitable doctrine that the circumstances are such that the subject property is bound by the contract so that a sale may be ordered not in performance of the contract but to secure the payment or repayment of money. (665)

32 Deane J summarised the circumstances sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship at 668. They are:

(i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either cf consideration in relation to the acquisition of the property or of an expense incurred in relation to it; (ii) that that property (or arguably property including that property be specifically identified and appropriated to the performance of the contract; and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged. [references omitted] (668)

33 In Re Stephenson Nominees v Official Receiver (1987) 76 ALR 485, Gummow J (though in dissent in the ultimate result) in persuasive obiter dicta remarked:

The equitable lien is not confined in its operation to cases where the parties are in contractual relations (as with vendor and purchaser). It has been described as an equitable remedy, created by the court, regardless of the intent of the parties, as a remedial device to protect a party against some inequitable loss: McClintock, Equity 2nd ed, par 118. See also Pomeroy, Equity Jurisprudence par 1238 - 1241; Note 'Equitable Liens' (1931) 31 Col L Rev 1335. (504)

34 Gummow J noted that an equitable lien may attach to both corporeal and incorporeal property. In Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127 EWHCCh, Neville J held that the plaintiffs in that case were entitled to a lien upon the plaintiffs assigned to another in respect of the royalties payable by him under the agreement.

35 Against that background of principle, I now return to the evidence as outlined in Elizabeth's affidavit.

36 The first thing to note is that there is no common intention between the registered proprietors of the land (Bruce and Lynette) and Elizabeth. There is no statement by Lynette indicating any common intention on her part shared with Bruce or Elizabeth. Such a common intention is not of course a necessary requirement for the implication of an equitable charge although it is relevant in the case of a trust which is the alternative basis of Elizabeth's claim. The finding of a common intention would however assist Elizabeth's case for equitable lien. I cannot find one.

37 Critically, the money does not seem to have been advanced as the result of a specific request by Bruce or Lynette for assistance. The evidence only shows that the money was advanced by Elizabeth because of her appreciation (no doubt accurate) that the financial position of Bruce was such that there was a danger, to use a common expression, that he and Lynette would lose the house if payments were not kept up. Paragraphs 12 and 13 of Elizabeth's affidavit illustrate the point, further illustrated by par 34. Far from raising any form of charge on Wittenoom Road, the comments by Bruce are no more than an indication as to a possible source of funds to repay Elizabeth.

38 The payment of repairs does not disclose any common intention that she should acquire any beneficial proprietary interest: Pettit v Pettit [1969] UKHL 5; (1970) AC 777.

39 The amounts paid for repairing the Wittenoom Road property from time to time are unquantified. In any event, not every sum of money expended by another on a property gives rise to an interest in the property.

40 Finally it is necessary to consider the precise legal position of the payments made by Elizabeth. Bruce and Lynette were registered proprietors as joint tenants. In Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 Mason and Brennan JJ said:

It is understandable but erroneous to regard the payment of mortgage instalments as payment of the purchase price of a home. The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed. (257)

Thus the plaintiff and defendant both contributed to the purchase price of the Baulkham Hills property. They mortgaged that property to secure the performance of their joint and several obligation to repay principal and to pay interest. The payment of instalments under the mortgage was not a payment of the purchase price but a payment towards securing the release of the charge which the parties created over the property purchased. (257 - 258)

42 If Lynette and Bruce failed to meet their obligations under the mortgage, then the mortgagee (the bank) had remedies which would presumably include foreclosure. Payments by Elizabeth into a joint account at BankWest, operated by Bruce and Lynette, and from which the bank from time to time withdrew moneys due to it under the mortgage, does not give rise to any equitable interest in 16 Wittenoom Road in the nature of a lien or charge. At most (and this is by way of an aside) the payments by Elizabeth into the account might give rise to an equitable charge in due course against any balance in that account. If the money was, as I find, volunteered by Elizabeth, then Bruce has no liability to repay. If paid under circumstances that give rise to legal liability, that liability is at law, sounding in debt, not in equity impressing 16 Wittenoom Road with a charge.

43 Elizabeth's claim for an interest in 16 Wittenoom Road under an equitable lien fails. The alternative claim advanced on her behalf is that there was a common intention constructive trust.

44 I have already pointed out that there was no common intention proved in respect of Lynette, the other registered proprietor as joint tenant.

45 In oral submissions, Elizabeth's counsel did not press an argument for a constructive trust although he did not abandon it either.

46 When approaching the task of construing a trust from factual situations it is important to bear in mind the words of Deane J in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583:

The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles. Viewed as a remedy, the function of the constructive trust is not to render superfluous, but to reflect and enforce, the principles of the law of equity.

Thus it is that there is no place in the law of this country for the notion of 'a constructive trust of a new model' which, '[b]y whatever name it is described, ... is ... imposed by law whenever justice and good conscience' (in the sense of 'fairness' or what 'was fair') 'require it'. Under the law of this country -- as, I venture to think, under the present law of England proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party 'ought to win' and 'the formless void of individual moral opinion'. [references omitted] (615 - 616)

47 Of course, as Deane J noted, general notions of fairness and justice have not become irrelevant. They remain relevant to the traditional equitable notion of unconscionable conduct.

48 The monetary assistance voluntarily provided by Elizabeth included the payment of Bruce's legal fees. This is important. This payment cannot be linked to the land as a trust. Moreover, it is cogent evidence that Elizabeth's purpose or intention was to help out her son in his time of need. This intention extended to helping Lynette and the children. The evidence simply does not allow a conclusion that there was a common intention between the registered proprietors of the land and Elizabeth so that equity should intervene to construe a trust in favour of Elizabeth to the extent of Bruce's joint proprietorship, in a sum equal to the deposits made by Elizabeth into the two accounts. Despite Elizabeth's assertion that the moneys advanced were in the nature of a loan, I am far from persuaded on the balance of probabilities that this was so. Bruce and Lynette's distressed financial circumstances were such that eventual repayment was unlikely. The circumstances outlined by Elizabeth strongly suggest a mother trying to help her son and his family in a difficult situation without more than a hope that the money might eventually be repaid. This was notwithstanding the hardship borne by her in making the funds available. No question of a trust or indeed an equitable lien could then arise. In the event that I am wrong in that factual finding, the money Elizabeth advanced was at most a loan giving rise to an unsecured debt for which Bruce would in due course be liable to account.

49 I conclude that Elizabeth has no equitable interest in 16 Wittenoom Road. Her objection is dismissed.

50 Rhonda swore an affidavit dated 17 April 2008 and a supplementary affidavit of 7 July 2008. These were read into evidence. She deposed that she is married to Andreas Wilhelm Jacobs. She deposed that Bruce and Lynette were made bankrupt and that the Insolvency and Trustee Service of Australia accepted $1,000 on 25 July 2001 acknowledging the purchase by Bruce of the nominal equity for the house property at 16 Wittenoom Road, High Wycombe.

51 In 2001 Rhonda and Andreas agreed to pay $60,000 into the mortgage account of Bruce and Lynette:

1. Bruce came to Pyrus Way in or about June 2001. He told me that he wanted to discuss something with Andreas. I left Bruce and Andreas alone to talk, but a little while later then Andreas asked me to come and join the conversation as what Bruce wanted to talk about involved both of us.
2. Bruce told us that he was going to be sent to jail, and because of that he would not be able to support Lyn, and they would lose Wittenoom Road, and Lyn and the children would have nowhere to live. He asked if we would help them by paying $60,000.00 into their mortgage account until he got out of jail and got back to work, to reduce the interest payments they would have to make to the bank during that time.
3. Bruce said to us words to the effect 'It will be like an investment for you, as our home will be used as collateral'.
4. Bruce also said words to the effect 'When you need the money back, we will be able to draw it back out of the mortgage account, once I am out of this crisis and back at work'.
5. After Bruce had left, I had a discussion with Andreas. We both knew that Lyn and Bruce had 2 young children, and that she was heavily pregnant with their third, and that she would not be able to look after three young children (including a newborn) as well as working to support herself and pay the mortgage. Andreas said that he was prepared to help them, and so was I, but I told Andreas that we should have a lawyer draw up a legal document to ensure that we would be able to recover our monies. Andreas agreed.
6. I told Bruce that Andreas and I would lend $60,000.00 to him and Lyn to reduce their mortgage until he got out of jail, but we wanted it recorded in a legal document. Bruce said that he and Lyn had a legal firm that they had dealt with before for their business, and he could get them to draw up a document. The lawyer was James Chong of James Chong and Co. We had no involvement in instructing the lawyer. Bruce took care of getting the papers drawn up by James Chong.
7. My husband returned to Riyadh in July 2001.
8. On 30 August 2001 I met with Bruce and Lyn. Bruce had with him the agreement that the lawyer had drawn up. We went to a chemist on Kalamunda Road, High Wycombe, who was a Justice of the Peace, to have him witness both my and Bruce's signature on the Agreement.
9. I had a discussion with Lyn and Bruce about the agreement on that day Wittenoom Road. Lyn thanked me for helping them and said words to the effect 'as soon as we can, we will get the money back from the bank and pay you back'. I said words to the effect 'I'm doing this because of the children, I'm very distressed about all of this and I hope that it will be all over soon and you can move forward with your lives'.

1. Lyn then said to me words to the 'Thank you again for helping us like this, I don't know what we would have done if I had to pack up and leave the home'. We then had a discussion about her situation generally, and I recall telling her to stay positive and keep working to keep the kids in as stable an environment as possible in the circumstances. I said to Lyn 'I hope it will never come to it that you have to sell the home, because with just one mortgage now you should be able to manage and keep on track until Bruce gets back home and starts working' (or words to that effect).

1. In May 2004, Lyn came to Pyrus Way. She told me that she and Bruce had a huge fight. She was very angry, and she said to me 'I'm going to make him pay forever for stuffing everything up' (or words to that effect). I told Lyn that if she needed my support I would be there for her and her children. We discussed financial matters, and she told me that they had spoken to the bank and the bank would not increase their loan to pay me back the $60,000.00. I told her it was ok, and that Andreas and I were prepared to wait until 4 years were up, and we would cross that bridge when we came to it. I said these things because I did not want to cause Lyn to be upset anymore than she already was.

52 The loan agreement was prepared by a lawyer nominated by Bruce. It was made between Bruce and Rhonda:

(a) The Lender is the sister of the Borrower.

(b) The Borrower has been made a bankrupt on 26 March 2001 (Bankruptcy Number 586/1/4).

(c) Notwithstanding, the Lender is fully aware that the Borrower is a bankrupt, at the request of the Borrower, the Lender has agreed to loan to the Borrower a sum of $60,000.00 ('Loan Sum') in order to reduce the BankWise Home Loan granted to the Borrower and his wife by BankWest which was secured over the property known as 16 Wittenoon Road, High Wycombe, Western Australia ('Property') by BankWest.

(d) The Lender hereby acknowledges that the Lender agrees to loan the Loan Sum to the Borrower purely as part of the Borrower's family and are desirous of assisting the Borrower and his wife to reduce the Borrower's $72,000.00 BankWise Home Loan with BankWest to $12,000.00 for the period of the Borrower's personal crisis situation.

(e) Accordingly, the Lender has agreed to lend money to the Borrower in the manner and upon the subject to the covenants, agreements and provisions as set out in this Agreement.

53 The operative clauses included clause 3 'Repayment':

3.1 The Borrower covenants with the Lender that the Borrower shall repay the Principal Sum or any Moneys Owing in the manner specified in Schedule.

3.2 It is hereby agreed and declared that all moneys received by the Lender in reduction of the Moneys Owing may be applied by the Lender in any manner in the Lender's sole discretion in the reduction of any part of the Moneys Owing.

54 In the special conditions in The Schedule Item 5 was as follows:

(a) The Lender hereby acknowledges that the Lender has been advised to obtain independent legal advice with respect of this loan, granting the Loan Sum, and with respect to this Loan Agreement.

(b) The Borrower agrees and undertakes to repay the Principal Sum by way of the redraw facilities available on his BankWise Home Loan as stated in Recital (e) as soon as the Borrower is released from his personal crisis situation or four (4) years from the date of advance of the Principal Sum by the Lender to the Borrower, whichever is the earlier.

55 Rhonda and Andreas did not have $60,000 of their own so they varied the mortgage on their own property at Pyrus Way in order to provide the money. Two thousand dollars was paid by Rhonda making two mortgage repayments on behalf of Bruce and Lynette and the balance ($58,000) was drawn on a bank cheque made payable to Lynette. That money was paid into Bruce's mortgage account on 10 December 2001.

56 With hindsight it seems inevitable that things would not go according to plan. On 31 January 2002, $31,000 was withdrawn from Bruce's BankWise home loan account increasing the outstanding balance in that account from $8,152.55 to $39,197.55. Rhonda was unaware of this withdrawal which had been made by Lynette.

1. Bruce was released from prison in January 2003, having served 22 months.
2. A short time later, Bruce came to visit me regarding the loan. I was expecting him to bring me a bank cheque for the $60,000.00. Instead, he gave me a bank cheque for $23,500.00. He said 'this is a payment to show that we are trying to pay, but since the agreement for the loan was for 4 years we will pay you the full amount then' (or words to that effect). I told him 'we were prepared to accept the full $60,000.00' and he said 'the full amount of $60,000.00 will be paid in full, consider this a payment for the interest and fee's that you have incurred' (or words to that effect). Bruce said 'Remember, the loan was for four years, we will pay you then' (or words to that effect).
3. I said to Bruce 'That's not what I believed the agreement to be, I thought you were going to pay me back as soon as you got out of jail' (or words to that effect). Bruce then said 'There has just been a mix up with the Bank, that's why we haven't been able to draw the $60,000.00 back out of the account, but it's all sweet and your money is safe because the property values are only going up and you will never lose your money. It's a sure investment. Don't worry, we will fix every thing up' (or words to that effect).

1. In April 2004 I had a discussion with Bruce at Pyrus Way regarding the loan. I told Bruce that we would like to get the money back and have everything settled before we left Perth. Bruce said (as he had done before) that 'The agreement is until August 2005, which is four years, and we will pay everything back then' (or words to that effect). I asked Bruce what he would do in August 2005 to pay us the money back. He said 'Don't worry, you have made a capital investment into this property. We are either going to sell or subdivide it, and when we do, we're all going to profit. You will get your money back, as well as interest' (or words to that effect).

1. At about that time, Bruce visited mum's house and we had a discussion regarding the loan money, and I again told Bruce that I really wanted to have the matter sorted out and the money paid back before I left to join Andreas in Tamworth. Bruce then said to me words to the effect 'I'm sorry, but Lyn withdrew the money you lent us to reduce the mortgage account to pay out another debt. I'm sorry for stuffing it all up' (or words to that effect). Bruce then said to me 'You are a capital investor in that property, and at the time you invested your money it was valued at $160,000.00 and its worth a lot more now. If things don't work out between me and Lyn, and the house is sold, you will get your capital investment back plus your interest'.

57 Bruce continued to promise arrangements for repayment but these never came to pass.

58 I will assume, without finally deciding, that the relevant conversations are admissible in the sense that they are not hearsay. However, the conversations prior to the loan agreement are of very limited relevance because the terms of the written agreement speak for themselves. The prior material is said to be relevant, however, to a claim sought by Rhonda, in effect, to imply a term into the agreement. Alternatively, rectification of the contract is sought. There are considerable difficulties, procedural and otherwise, in the latter course.

59 Rhonda deposes she paid $1,000 to enable the Trustee in Bankruptcy to release the nominal equity in the property to Bruce and Lynette. It is submitted that the entire purchase price of Bruce's equity having been paid by Rhonda, equity presumes his interest in the property to be held in a resulting trust for Rhonda's benefit. That presumption is rebuttable and is rebutted on the facts. A payment of $1,000 was made about 25 July 2001 which purchased for Bruce the nominal equity in Wittenoom Road. In August 2001, Lynette became bankrupt. A payment of $1,000 is reflected in a letter dated 26 November 2001 confirming that the Trustee had no further interest in the Wittenoom Road property.

60 The clear purpose of these payments was to allow Bruce, and later Lynette, to retain 16 Wittenoom Road for their own use and benefit, they also accepting the burdens and encumbrances and in particular the mortgage repayments. While it may be accepted that Rhonda advanced moneys which were in essence a nominal sum for the purpose that Bruce should re-acquire 16 Wittenoom Road, it cannot be accepted that a trust thereby resulted.

61 The payment of the $1,000 referred to is part of the background by which the later payment must be construed and I take it into account in that way. The first question is whether the loan agreement expressly charged the land.

62 Clearly enough it did not. The purpose of the loan was stated to reduce the BankWise home loan from $72,000 to $12,000 for the period of Bruce's 'personal crisis situation', a euphemism for the fact that he was in gaol.

63 The BankWise home loan was itself secured over Wittenoom Road by BankWest but the fact that the home loan was so secured does not lead to the conclusion that the loan agreement was intended to secure the land. The deed is entitled 'Loan Agreement' and significantly provided no security for the repayment of the loan. It provided for a covenant with the lender that the borrower shall repay the principal sum or any moneys owing in the manner specified in the schedule.

64 The schedule does not refer to the eventual sale of 16 Wittenoom Road. Rather, the loan is to be repaid by way of redraw facilities when the borrower is released from his personal crisis situation or four years from the date of advance of the principal sum, whichever is the earlier. This conforms with Rhonda's understanding as expressed in her affidavit at par 45 - assuming this to be admissible evidence for the construction of the loan agreement. However, I do not place reliance on it. The plain words of the agreement are sufficient.

65 Counsel for Rhonda, in the course of discussion, described the BankWise loan this way:

In a normal situation it's probably not linked to the land other than in the sense that it's treated as a payment against the mortgage and to the extent that that payment has been made the mortgage is treated as having been paid off to that extent. So if you pay $60,000 into your mortgage your interest payments will be reduced accordingly whilst that $60,000 remains in your mortgage but the bank allows you to then borrow it back in a sense by redrawing it. If you do borrow it back then you will be paying interest on the amount so borrowed back. (ts 9 - 10)

66 I accept counsel's description of this type of redraw facility as reasonably accurate.

67 It confirms, however, that by paying money into the BankWest account to reduce the balance owing at that point, Rhonda was not acquiring any interest in land, legal or equitable.

68 Moreover, the sum of $60,000 was in fact advanced not to Bruce but to Lynette. Rhonda deposes that two amounts of $1,000 were given in cash to Lynette and the balance of $58,000 was by way of a bank cheque on 10 December 2001 payable to 'Mrs L C Smith'.

69 In order to counter the overwhelming conclusion that the loan agreement did not give rise to an interest of the land, the submissions on behalf of Rhonda acknowledge:

The deed does not contain, in so many words, an expressed covenant that Rhonda's funds must remain in the account as equity in the property, not be withdrawn from the mortgage account for any other purpose.

70 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (Codelfa/Eastern Suburbs Railway Case) [1982] HCA 24; (1982) 149 CLR 337 sets out the conditions for implication of a term having regard to the objective intention of the parties. It is submitted that Rhonda's contribution must have been intended to be in the nature of equity in the Wittenoom Road property because if it were merely a personal loan it would have become part of the bankrupt estate: Bankruptcy Act 1966 (Cth) s 116. It is said that it cannot have been the intention of Bruce and Rhonda to make a personal payment of $60,000 for the benefit of Bruce's creditors. The latter part might be accepted but the former cannot, having regard to the recitals within the loan agreement, especially recitals (b) and (c). Nor is it necessary to imply such a term in order to give the agreement business efficacy. The agreement does exactly what it purports to do.

71 Finally, it is not a term that is so obvious that it goes without saying. The money was always intended to be and was in fact paid into Bruce and Lynette's joint account. Lynette was not a party to the agreement. Whether or not Lynette was heavily pregnant at the time of the agreement (and so I assume it is contended unable in some way to be a party to the agreement), the fact remains that she was not a party to the agreement and therefore once the money was paid into the joint account she was at liberty to draw on it from time to time. She did so. For these reasons I would not imply the term that Rhonda would seek to have added to the agreement.

72 Counsel on behalf of Rhonda also submits that the deed does not contain the entire agreement between the parties, particularly the agreement between Rhonda and Bruce that the loan amount would be used as collateral. In other words, it is said Bruce agreed to charge his property with the repayment of the money. This failure to include the oral agreement is said to have been omitted by mutual mistake. It is argued that it is apparent from Bruce's representations after the deed was executed that his understanding was that Rhonda remained entitled to be paid from the equity in the property.

73 The facts do not support the submission. The conversation recorded at par 16 of Rhonda's affidavit, and the conversation at par 21, in the presence of Bruce, do not unequivocally support a repayment from the equity in the property but rather a repayment when the bank might advance money at a time when Bruce was out of prison and back at work.

74 The fact that it is not a mutual mistake is further evidenced by par 33 and Rhonda's comments to Lynette. These show no mutual understanding that the loan was to be secured by the property. Apart from the procedural difficulties of rectifying an agreement in the absence of Bruce, I would not, in any event, do so.

75 For the reasons I have given in relation to the terms of the loan agreement and the lack of implication of terms or the need to rectify, I do not find any express trust has been created. The terms of the loan agreement belie such a trust in respect of the property jointly held by Bruce and Lynette. The money was not advanced in order to take an interest in the property by way of an express trust. The money was advanced in order to temporarily lower the minimum payments to BankWest on the mortgage.

76 In Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567 money was advanced to a financially distressed company for the specific purpose of meeting an ordinary share dividend which had been declared. The money was paid into a special account with the bank.

77 Before the dividend could be paid, the company went into liquidation and the person who advanced the money succeeded in a claim that the money was held in trust on its behalf.

78 Constructive trusts of this nature have come to be known as Quistclose trusts.

79 Quistclose Investments was a case with some slight similarities to the present. In each case money was advanced to a person or entity in serious financial circumstances. Events intervened.

80 The House of Lords judgment was delivered by Lord Wilberforce. There is no question that a Quistclose trust can arise in circumstances such as the loan agreement in this case. Lord Wilberforce said:

There is surely no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies: when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose: when the purpose has been carried out (ie the debt paid) the lender has his remedy against the borrower in debt: if the primary purpose cannot be carried out, the question arises if a secondary purpose (ie repayment to the lender) has been agreed, expressly or by implication: if it has, the remedies of equity may be invoked to give effect to it, if it has not (and the money is intended to fall within the general fund of the debtor's assets) then there is the appropriate remedy for recovery of a loan. [references omitted] (581)

81 Abstracting this principle and applying it to the present case, a Quistclose trust arose under the loan agreement to ensure that the sum of $60,000 was advanced for the specific purpose of applying it to reduce the BankWise home loan equity account. If it had not been applied to that purpose, then Rhonda could have sought the return of the money in equity against the claims of other creditors. As it happens, the money was applied for the purpose advanced. It is a trust over a fund. A Quistclose trust does not of itself create an equitable interest in land. Once the money has been applied for the purpose for which it is advanced, the non-repayment of the money by the borrower becomes an action sounding in debt. The fact that the action is in debt is reinforced by reference to Henry v Hammond (1913) 2 KB 515 per Channell J:

It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then in my opinion he is not a trustee ... but merely a debtor. (521)

82 This quotation has been approved in Australia: Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91; Walker v Corboy (1990) 19 NSWLR 382.

83 The very nature of a payment into the BankWest BankWise account into which other moneys might from time to time be paid, and from which BankWest and Lynette could from time to time draw, negates the notion that this was money to be kept by Bruce as a fiduciary, untouched.

84 But even if I am wrong in that conclusion I accept par 83 of Rhonda's submissions:

Under the Quistclose principle, Bruce became a fiduciary of the equity created by the mortgage payment. He is therefore bound to that equity to Rhonda and to return it to her under the express trust created.

85 Such a trust is a trust in respect of the money and does not create any interest in the land at 16 Wittenoom Road. It is an interest in the land that must be established by Rhonda. She has failed to do so.

86 For the reasons that I have explained in relation to other claims by Rhonda, there is no basis in equity to attach a charge or lien to the land to secure the payment of a debt. There is no nexus between the temporary reduction of the BankWest loan account leading to lower mortgage repayments and an interest in the land.

Muschinski v Dodds constructive trust

87 It is submitted that there is either a Muschinski v Dodds constructive trust as described in Sivritas v Sivritas [2008] VSC 374, or alternatively, a common intention constructive trust.

1. The question which arises in determining whether a constructive trust arises in favour of Rhonda is respect of her contributions is whether Bruce would be entitled (were he not the subject of a drug trafficker declaration) to have to disposed of the property without accounting to Rhonda for her contributions. It is submitted that the answer must be no, for the following reasons:

(a) it was at the time of Rhonda's advance the common intention of the parties that her interest be secured in the property;

(b) Rhonda has clearly relied on Bruce's assertions;

(c) the clear intention of the parties was for Rhonda's contributions to be met from the equity she thereby created in the property (ie from a redraw under the mortgage facility of that equity);

(d) it would be unconscionable for Bruce, having intentionally diminished that fund by the unauthorised withdrawal of money, to deny Rhonda's equitable interest;

(e) in any event, it was the common intention of Rhonda and Bruce for Rhonda's interests to be satisfied out of the property;

(f) it would be unconscionable for Bruce to now dispose of the property, without accounting to Rhonda for her interest.

89 The submission cannot be accepted. Paragraph (a) cannot be accepted for the reasons I have previously given. Paragraph (c) is circular. Rhonda did not create equity in the property. As to paragraph (d) there is no evidence that Bruce intentionally diminished the fund by the unauthorised withdrawal of money. Lynette withdrew the money. Paragraph (f) poses the wrong question. Bruce is not disposing of his property. The State is confiscating his interest.

90 Rhonda has failed to establish an equitable interest in 16 Wittenoom Road. Her objections to confiscation are dismissed.

91 The objections to confiscation are dismissed. I make a declaration of confiscation in the terms sought by the State.