Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd - [2016] NSWSC 1344 - NSWSC 2016 case summary — Zoe

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Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd

[2016] NSWSC 1344

Supreme Court of NSW|2016-09-20|Before: Sackar J

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Source facts

Court

Supreme Court of NSW

Decision date

2016-09-20

Before

Sackar J

Source

Original judgment source is linked above.

Judgment (20 paragraphs)

[1]

egory [2012] NSWSC 681 Palk v Mortgage Services Funding PLC [1993] Ch 330 Penny Nominees PL v Fountain (No 3) (1990) 5 BPR 97,348 Pettkus v Becker (1980) 117 DLR (3d) Rathwell v Rathwell (1978) 83 DLR (3d) 289 Re Global Finance Group Pty Ltd (in liq) (2002) 26 WAR 385 Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337 Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75 Ross v Ross [2010] NSWCA 301 Russell Gould Pty Ltd v Ramangkura [2014] NSWCA 310 Sood v Christianos [2008] NSWSC 1018 Sorochan v Sorochan (1986) 29 DLR (4th) Spathis v Nanas [2008] NSWSC 418 Tadrous v Tadrous [2012] NSWCA 16 Thorn, as Executrix of the Estate of the Late Betty McAuley v Boyd (No 2) [2015] NSWSC 199 Tory v Tory [2007] NSWSC 1078 Woodson (Sales) Pty Limited v Woodson (Australia) Pty Limited (1996) 7 BPR 14,685 Yarrangah v National Australia Bank Ltd [1999] NSWSC 97 Texts Cited: J D Heydon and M J Leeming, Jacobs' Law of Trusts (7th ed, 2006, Lexis Nexis Butterworths) Peter Butt, Land Law (6th ed, 2009, Thomson Reuters) Category: Principal judgment Parties: Catherine Margaret Thorn (plaintiff) Ian Geoffrey Boyd (first defendant) Dawn Kathleen Boyd (second defendant) Representation: Counsel: V Brigden (plaintiff) In person (first defendant) In person (second defendant)

[2]

Solicitors: Shaw McDonald Lawyers (plaintiff) In person (first defendant) In person (second defendant) File Number(s): 2011/91377 Publication restriction: N/A

[3]

Nature of proceedings

These proceedings arise as a result of a dispute surrounding $260,000 which was transferred from the late Mrs McAuley to the First Defendant on 6 August 2009. By various judgments of this court, it has been held that this $260,000 was to be repaid by the First Defendant to the Plaintiff, as executor of Mrs McAuley's estate. The Second Defendant has been joined in these proceedings as a tenant in common, holding an equal share of the property at Lot 10 in Deposited Plan 28150 at Sutherland ('Property') with the First Defendant (Exhibit P6).
The Property is subject to these proceedings because the Plaintiff alleges the First Defendant applied the money towards the repayment of loans over the Property. The evidence suggests the First Defendant's only assets are his interest in the Property, approximately $11,000 in a bank account and approximately $16,000 available on a credit card (Affidavit of Ian Boyd - 28 July 2016 [3]). As such, the Property is the only asset by which the judgment debt may be fully or partially met by the First Defendant.
In these proceedings, the Plaintiff seeks declarations that: "1. The first defendant holds his unencumbered interest in the property comprising Lot 10 in Deposited Plan 28150 at Sutherland, upon a constructive trust for the plaintiff to the value of $200,000. 2. So much of that judgment debt as represents the principal sum of $200,000 and an award of pre-judgment interest under s100 of the Civil Procedure Act, together with interest accruing after judgment on that portion of the judgment debt, pursuant to s101 of the Civil Procedure Act, constitutes an equitable charge on the first defendant's title to the property."
Further, the Plaintiff seeks orders that: "3. Timothy William Daley and Liam Bailey are appointed as Trustees for sale of the Property, pursuant to section 66G of the Conveyancing Act 1919 (NSW). 4. The Property be vested in such Trustees subject to any encumbrances affecting the entirety of the land but free from encumbrances (if any) affecting any undivided share or shares thereof to be held by the said Trustee upon the statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act 1919 (NSW). 5. That the Trustees pay out of the proceeds of sale: a. Council rates, water rates, strata levies and any other statutory duties or charges if any; b. The real estate agent's commission and charges; and c. The amounts owing to any person having a secured interest. 6. That the Trustee pay out of the first defendant's share of the proceeds of sale: a. so much of the judgment debt as represents a principal sum of $200,000 plus pre-judgment interest under the Civil Procedure Act, in the amount of $82,829.46 and interest accruing after judgment under s101 of that Act on that principal sum the subject of declaration 2 above; b. the costs of the plaintiff referred to in order 4 of the orders made by Robb J on 13 March 2015. 7. That the trustee Timothy William Daly is authorised to charge at a rate not exceeding $400.00 per hour including GST and in the total sum not exceeding $10,000 including GST plus disbursements and is authorised to deduct all such expenses from the proceeds of sale. 8. That the trustee Liam Bailey is authorised to charge at a rate per hour not exceeding $638.00 including GST and in the total sum not exceeding $15,000 including GST plus disbursements and is authorised to deduct all such expenses from the proceeds of sale. 9. That the defendants remove all their stored personal goods from the Property within 28 days of this order being made. 10. The costs of this application be paid by the defendants. 11. Liberty to the parties and to the trustees to apply to the Court on seven days' notice, including to seek the advice of the Court as to distribution and as to the expenses of the trustees or to obtain such further or other relief to enable effect to be given to these Orders as are considered necessary or appropriate. 12. Such other order as the Court sees fit."
In presenting its case in-chief, the Plaintiff indicated that she was not pressing order 9 (T 79) because the Second Defendant suggested that other members of her family occupied part of the Property and 28 days would be too short a time to vacate the premises.
Both Defendants, who are self-represented, oppose all of the declarations and orders sought by the Plaintiff.

[4]

Proceedings before the Financial Ombudsman

Sometime in 2012, the Defendants complained to the Financial Ombudsman Service ('FOS') about their treatment at the hands of their banker, the National Australia Bank ('NAB').
By way of background to the FOS' findings, in 2006, NAB provided to the Defendants a number of loans; a home loan for $320,000 which was refinanced from another financial services provider, a variable rate interest loan for $269,500 and an instalment loan for $190,000. In 2009, NAB consolidated the variable rate interest-only loan and the instalment loan into an interest-only facility and provided extra funding.
The FOS issued its final determination on 8 August 2013 (CB 11 and following). The FOS determined that there had been maladministration in lending. The maladministration arose principally because NAB, contrary to its own policy and standards of basic lending principles, had failed sufficiently to analyse the Defendants' acquisition of a retail business. Part of the inadequate analysis was NAB's failure to take into account the fact that the Defendants were totally inexperienced in retail business. However, crucially, the FOS determined that only two loans, namely the business loans for $269,500 and $190,000, were the subject of maladministration. The FOS specifically found that the $320,000 home loan was not the subject of any maladministration. The FOS also dismissed any suggestion that the bank owed fiduciary obligations to the Defendants.
Importantly, for the purposes of the current proceedings, the FOS found that the Defendants had offered the Property as security for the loans.
In addition, the FOS found that there was nothing to establish that the bank used illegitimate pressure in 2006, or by implication in 2009, upon the First and/or Second Defendant to provide the Property as security for the purposes of the various loans.
Whilst the FOS found that a principal sum was left owing by the Defendants, it nonetheless adjusted for interest, fees, stamp duty and other bank fees charged on the business loans which were the subject of its maladministration findings.

[5]

Robb J's findings

In early 2014 proceedings were conducted against the First Defendant by the Plaintiff, who sought to recover certain moneys transferred to the First Defendant from his elderly aunt.
On 25 August 2014, Robb J delivered judgment in Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159. Ultimately, although a number of allegations were made, Robb J determined that the First Defendant's conduct regarding his aunt was unconscionable: Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 at [129]-[144]. In particular, his Honour determined that the First Defendant had no credible explanation for his conduct: Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 at [9]. His Honour also found that the First Defendant, prompted by his dire financial situation at the time, unconscionably influenced his aunt, procured the transfer of money to himself and persuaded her to terminate the retainer of her then lawyer: Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 at [79]-[82], [87], [89], [94], [134]-[136], [141]-[143].
Specifically, Robb J concluded that the First Defendant acted unconscionably in relation to the transfer $260,000 on 6 August 2009 and that he breached the fiduciary duty he owed to his aunt. As a result, his Honour ordered that the transfer of $260,000 be set aside and that the First Defendant repay the $260,000 with interest, to the Plaintiff as executor of Mrs McAuley's estate: Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 at [157]-[159]. Further, his Honour held that the Plaintiff was entitled to appropriate orders that would enable her to trace the money into any property owned by the First Defendant: Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 at [162].
In the context of the current application, it is important to set out in greater detail some pertinent paragraphs of his Honour's judgment: "[159] The third question is whether an order should be made that Mrs Thorn, as the executor of Mrs McAuley's estate, has a charge over any property owned by Mr Boyd by reason of the fact that Mr Boyd applied the money he received to acquire, or reduce the mortgage over, property owned by him. [160] The court has jurisdiction, when it orders that a gift be set aside on the ground that it was procured by the unconscionable conduct of the donee, to declare that property acquired with the gift is held on constructive trust for the donor, and order that the property be transferred to the donor, or such other proprietary relief as may be appropriate in the circumstances: see Louth v Diprose [1992] HCA 61; 175 CLR 621, where the High Court dismissed an appeal on the facts as to whether the gift had been unconscionably procured, without making any negative observations about the proprietary relief that had been granted by the trial judge. See also McCulloch v Fern [2001] NSWSC 406 at [114] - [116] per Palmer J, and Smith v Smith [2004] NSWSC 663; (2004) 12 BPR 23,051 at [68] per Barrett J (as he then was). [161] As Mrs McAuley's attorney, Mr Boyd owed a fiduciary duty to her that required him to act in her interests rather than his own. For the reasons that I have set out above, I find that Mr Boyd acted entirely in his own interests and ignored the interests of Mrs McAuley. In the manner in which he deployed the power of attorney to cause the Bank to transfer McAuley's $260,000 to his own account, Mr Boyd breached his fiduciary duty. [162] Consequently, Mrs Thorn is entitled to appropriate orders that will enable her to follow the money into any property owned by Mr Boyd, where that property was either acquired with the money, or where any mortgage over the property was reduced using the money. [163] As Ms Gleeson observed in her closing submissions: "The documentary evidence of what became of the money is scant." It does appear that on 12 August 2009, $200,000 was paid to reduce Mr Boyd's NAB Base Variable Rate Home Loan. There are other transactions (referred to in par 105 of Ms Gleeson's closing submissions) but those transactions do not with sufficient clarity establish what eventually happened to all of the funds represented by Mrs McAuley's $260,000 gift. [164] I am satisfied that Mrs Thorn is entitled to trace that money, and if necessary to an accounting from Mr Boyd. It may be that Mrs Thorn is also entitled to some interlocutory relief to prevent Mr Boyd from disposing of any property over which Mrs Thorn might be entitled to a charge. [165] I am satisfied that Mrs Thorn is entitled to trace that money, and if necessary to an accounting from Mr Boyd. It may be that Mrs Thorn is also entitled to some interlocutory relief to prevent Mr Boyd from disposing of any property over which Mrs Thorn might be entitled to a charge."
On 6 November 2014, Robb J made orders that the First Defendant held the $260,000 on trust for Mrs McAuley and that the transfer of $260,000 on 6 August 2009 be set aside. His Honour then gave judgment in favour of the Plaintiff for the sum of $260,000, with interest, and made a tracing order in relation to the $260,000.
On 13 March 2015, Robb J delivered another judgment in the matter: Thorn, as Executrix of the Estate of the Late Betty McAuley v Boyd (No 2) [2015] NSWSC 199. His Honour declared that the First Defendant held his interest in the Property upon constructive trust for the Plaintiff to the value of $200,000 and that the judgment debt constituted an equitable charge on the First Defendant's interest in the Property. His Honour granted liberty to apply in respect of the implementation of those orders, including for an order for sale to realise the charge, and an order in respect of the sale of the Property pursuant to section 66G of the Conveyancing Act 1919 (NSW).
In his judgment, Robb J made findings at [8]-[27] in relation to the First Defendant as follows: "[8] As the evidence that was before the Court concerning what Mr Boyd did with the money he received from Mrs McAuley was not adequate, I made the following direction for the purpose of facilitating the efficient determination of whether Mrs Thorn was entitled to trace any of the money into any property held by Mr Boyd: 1. By 15 December 2014, the defendant is to file and serve a full detailed account, verified by affidavit, to the best of his knowledge and belief, of his dealings with the sum of $260,000 received by him on 6 August 2009 from Mrs Betty McAuley. [9] For a brief period after the reasons for judgment were delivered, Mr Boyd was legally represented. His solicitor ceased to act for Mr Boyd by a notice of ceasing to act filed on 29 December 2014. Mr Boyd prepared an affidavit himself that he swore on 6 January 2015 for the purpose of complying with the order that I made on 6 November 2014. The affidavit does not fully comply with the directions that I made on 6 November 2014. Mr Boyd only provided limited and incomplete evidence as to what he did with the $260,000. He provided no evidence as to what happened to $60,000. As to the other $200,000, all Mr Boyd sought to do was to prove that that money is not traceable into property owned by Mr Boyd. [10] The substance of the evidence given by Mr Boyd in his affidavit was as follows: 3. The information and evidence in the annexure to the affidavit prove that the National Australia Bank misappropriated the deposited gift to eliminate an unsecured business loan contrary to my specific instructions and without the knowledge or authority of the four signatories to the eliminated loan. 4. The funds from the gift were not applied to my property or to any banking product associated with my property, my former business or me personally. 5. The NAB's misappropriation of the funds from the gift form part of the business lending dispute relating to alleged lending fraud in 2006 and 2009 which the FOS investigated. 6. In August 2013 the Financial Ombudsman found the NAB guilty of maladministration and applied their maximum capped compensation. [11] Mr Boyd annexed a 54 page document to his affidavit, which contained the information he relied upon to support the claims that he made in his affidavit. A great deal of that information did not comply with the rules of evidence. ... [20] Mr Boyd claimed, however, that after the loan had been repaid and the account closed "[the bank] had use these funds and this is why this money that was applied here on this statement didn't in fact pay off our house. It was used in another loan, one of the business loans, which we can't trace but the financial ombudsman managed to apparently (T 107)". It was this claim by Mr Boyd that created the doubt as to whether any part of Mrs McAuley's gift had been used to reduce the mortgage secured on any property owned by Mr Boyd. The import of the evidence was that Mr Boyd had tried to apply $200,000 of the gift to reduce the mortgage on his property, but the bank had in some unexplained way applied the money to reduce some other loan. [21] Mr Boyd now appears to claim that the bank statement upon which he was cross-examined at the principal hearing was produced fraudulently by the NAB in response to a subpoena that he caused to be served on the bank. Mr Boyd produced no evidence to support that claim, or to explain what the NAB, in fact, did with the $200,000. He did not explain why the NAB would have fraudulently prepared a document the effect of which was to prove the making of a payment by Mr Boyd that involved a credit to his account. Perhaps more significantly, Mr Boyd did not lead any evidence to establish that at the time he paid the $200,000 to the bank he owed it a debt on some account that was not secured by the mortgage over his property. It is a matter of common experience that, in the case of borrowers of ordinary means, if a bank agrees to lend money to the borrower on a number of accounts, perhaps some business and some private, the bank will require that all of the debts be secured by a mortgage over the borrower's residential property, if not all of the borrower's assets. [22] Mr Boyd agreed in cross-examination at the latest hearing (T 22) that, at the time of the principal hearing, he did not raise his allegation that the relevant bank statements had fraudulently been prepared by the bank. He said that he did not do so "because I didn't think to at the time". [23] When asked (T 23) to explain why the bank would fraudulently make entries in his account statement that credited his account, Mr Boyd said: "I can only answer to that that the bank was found guilty of maladministration and none of the bank documents can be used or should have been used - well, honestly could not be used even in this trial". [24] In making this response Mr Boyd was apparently referring to certain findings made by the Financial Ombudsman Service (FOS) that were disparaging of certain administrative steps taken by the NAB in relation to Mr Boyd's accounts. The FOS did not make any finding that the bank had engaged in fraudulent conduct. It is not necessary to examine in detail the proceedings before the FOS, or the FOS's findings. They did not have the effect of casting any doubt on the bank statements that the NAB produced during the ordinary course of its business. With respect, Mr Boyd appears to have misled himself as to the significance of the findings, and they do not have the effect that he attributed to them. [25] Given the seriousness of Mr Boyd's allegation of fraudulent conduct on the part of the NAB, and the total absence of evidence to support that claim, it is important I record that I find it is completely baseless. [26] I should also record that Mr Boyd agreed in cross-examination (T 24) that he made no allegation to the FOS that the bank had acted in the fraudulent manner that he has claimed in this case. [27] Mr Boyd was cross-examined (T 24, 25) about a paragraph in the FOS report that recorded the bank had claimed Mr Boyd and his wife had offered their property as security for all of their loans. Mr Boyd accepted that all of the relevant loans (with a total of $773,000) were secured against the property "at that point". Mr Boyd also accepted that the FOS report did not record any complaint made by him that the bank had misappropriated $200,000 (emphasis not in original)."
After making these findings, his Honour came to the conclusion that: "[29]…Mr Boyd has not provided the necessary evidentiary foundation for his contention that the bank applied the $200,000 in reduction of a business loan that was not secured by a mortgage over his property. [30] Mrs Thorne is entitled to the findings by the Court that she sought in her counsel's submissions. I find the evidence establishes that on the balance of probabilities all of the loans to Mr Boyd referred to in the File Summary Report were secured against the property. Secondly, on 12 August 2009, $200,000 was paid into Mr Boyd's home loan account, and that payment came from the money which Mr Boyd received from Mrs McAuley. Thirdly, the total indebtedness secured by means of the mortgage over Mr Boyd's property was reduced by $200,000, and the equity in that property was increased by a corresponding amount."
In the current proceedings, no additional evidence, in fact no evidence at all, has been put before me to suggest that Robb J's findings in this regard were incorrect. I have however carefully reviewed the evidence tendered before me and formed my own conclusions, to which I shall come in due course.

[6]

White J's findings

On 11 May 2016, on the application of the Second Defendant, White J set aside the two declarations and one order made by Robb J on 13 March 2015: Boyd v Catherine Margaret Thorn as executrix of the estate of the late Betty McAuley [2016] NSWSC 588 at [41]. White J held that these declarations were made irregularly because the Second Defendant was not a party to the proceedings when her rights and interests were directly affected by them: Boyd v Catherine Margaret Thorn as executrix of the estate of the late Betty McAuley [2016] NSWSC 588. White J further ordered that the Second Defendant be joined as a second defendant to these proceedings, for the purposes of a rehearing on those limited items described at [9], [11], [41] and [42] in Boyd v Catherine Margaret Thorn as executrix of the estate of the late Betty McAuley [2016] NSWSC 588.
On 6 April 2016, the First Defendant commenced proceedings against the Plaintiff, seeking to set aside, amongst other things, orders made by Robb J in his judgment of 25 August 2014.
On 14 June 2016, in Boyd v Thorn [2016] NSWSC 837, White J heard a notice of motion filed by the Plaintiff, which sought to have those proceedings brought against her by the First Defendant summarily dismissed. In those proceedings, the First Defendant had alleged orders made by Robb J on 6 November 2014 be set aside on the grounds that they were procured by fraud and also that the grant of probate made in favour of the Plaintiff in respect of Mrs McAuley's estate be set aside. During the hearing, the First Defendant alleged bias on the part of the Court in favour of the Plaintiff and pointed to many alleged procedural irregularities which he alleged placed the Plaintiff "in default": Boyd v Thorn [2016] NSWSC 837 at [18]. White J found that there was "no substance to these submissions": Boyd v Thorn [2016] NSWSC 837 at [20]. In particular before White J, the First Defendant agitated many issues including:

The Plaintiff fraudulently described herself as Mrs McAuley's stepdaughter, daughter or next of kin: Boyd v Thorn [2016] NSWSC 837 at [83]-[85].
The Plaintiff's solicitor acted under a conflict of interest in acting for Mrs McAuley and the Plaintiff at the same time: Boyd v Thorn [2016] NSWSC 837 at [86]-[87].
The Plaintiff had normal capacity at the time she gave money to the First Defendant: Boyd v Thorn [2016] NSWSC 837 at [88]-[89].
Mr Thorn, the Plaintiff's husband, abused a power of attorney made in his favour by Mrs McAuley: Boyd v Thorn [2016] NSWSC 837 at [92]-[94].
The Plaintiff filed a false and misleading application to the Guardianship Tribunal for a financial management order: Boyd v Thorn [2016] NSWSC 837 at [96]-[97].

White J rejected all of these submissions and summarily dismissed the First Defendant's case: Boyd v Thorn [2016] NSWSC 837 at [99], [106].

[7]

The current proceedings

This is a rehearing. Its sole purpose is for the court to consider, this time with the Second Defendant as a party, whether the declarations and orders set aside by White J should now be made. The Plaintiff also seeks additional orders. Neither the First nor Second Defendant has served any affidavits nor documents upon which they wish to rely, in accordance with the order of White J on 11 May 2016. They both remain unrepresented, and have made oral submissions on a range of matters.
On 19 September 2016, prior to the commencement of the main proceedings, the Defendants sought to move on two notices of motion, both filed on 13 September 2016. The First Defendant sought three orders: 1. An Order to summarily set aside, ex debito justitiae, the order for the partial re-hearing of the original trial made by Justice White on 11 May 2016 in proceedings 2016/00091811. 2. An Order for costs to be met by the plaintiff. 3. Any other Order the court considers appropriate.
The Second Defendant sought seven orders: 1. An Order to summarily set aside, ex debito justitiae, the judgment and all other determinations made by Justice Robb on 25 August 2014. 2. An Order to summarily set aside, ex debito justitiae, the orders made by Justice White on 11 May 2016 joining me as second defendant and convening a partial retrial. 3. An Order to summarily dismiss and void the proceedings as an abuse of process. 4. An Order for the immediate withdrawal of the caveats from my property. 5. An Order to stay the proceedings until this Notice of Motion has been heard and decided. 6. An Order for all costs for the entire proceedings to be met by the plaintiff. 7. Any other Order the Court considers appropriate.
For reasons set out in two ex-tempore judgments, I refused the orders set out in each notice of motion.
At the end of the Plaintiff's case in-chief, the Defendants made an application which in effect, sought that the proceedings be adjourned. I again refused that application and gave my reasons in an ex-tempore judgment.
On the second day of the hearing, in the course of the First Defendant's case in-chief, the First Defendant made another application for an adjournment to allow the Defendants to make a special leave application to the High Court of Australia. I rejected this application.

[8]

The principles of equitable tracing

Tracing is a doctrine which, in certain circumstances, allows the owner of property converted into a different form to be treated as the owner of this property in its new form: J D Heydon and M J Leeming, Jacobs' Law of Trusts (7th ed, 2006, Lexis Nexis Butterworths) at 666 [2701]. It must be noted that tracing rules are different at law and in equity. Only the equitable rules of tracing allow a plaintiff to trace into and out of a mixed fund, as in the present case: Brady v Stapleton (1952) 88 CLR 322 at 337; Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75 at [143]-[145]; Re Global Finance Group Pty Ltd (in liq) (2002) 26 WAR 385 at 406-407 [96]; Russell Gould Pty Ltd v Ramangkura [2014] NSWCA 310 at [32].
Tracing is not a remedy, right or a claim, but an 'evidentiary process' of identifying assets and determining the rights of a plaintiff: Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337 at 371 [117]; Foskett v McKeown [2001] 1 AC 102 at 113, 128; Re Global Finance Group Pty Ltd (in liq) (2002) 26 WAR 385 at 406 [94]; Jones (as Trustee of the property of Heather MacNeil-Brown, A Bankrupt) v Southall & Bourke Pty Ltd [2004] FCA 539 at [59].
As Millett LJ explained in Foskett v McKeown [2001] 1 AC 102 at 128: "It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property." (Approved in Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75 at [133])
Given its nature, there is nothing "inherently legal or equitable about the tracing exercise": Foskett v McKeown [2001] 1 AC 102 at 128 per Lord Millett affirmed in Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337 at 371 [117]. It is simply a process which may lead to the making of a personal or proprietary claim, or to the enforcement of a legal or equitable right: Foskett v McKeown [2001] 1 AC 102 at 128.
As Millet LJ again explained in Boscawen v Bajwa [1996] 1 WLR 328 at 334: "If the plaintiff succeeds in tracing his property, whether in its original or in some changed form, into the hands of the defendant, and overcomes any defences which are put forward on the defendant's behalf, he is entitled to a remedy. The remedy will be fashioned to the circumstances. The plaintiff will generally be entitled to a personal remedy; if he seeks a proprietary remedy he must usually prove that the property to which he lays claim is still in the ownership of the defendant. If he succeeds in doing this the court will treat the defendant as holding the property on a constructive trust for the plaintiff and will order the defendant to transfer it in specie to the plaintiff. But this is only one of the proprietary remedies which are available to a court of equity. If the plaintiff's money has been applied by the defendant, for example, not in the acquisition of a landed property but in its improvement, then the court may treat the land as charged with the payment to the plaintiff of a sum representing the sum by which the value of the defendant's land has been enhanced by the use of the plaintiff's money."
Applying the above principles of equitable tracing to the current proceedings, the relevant asset which may be traced is the amount of $260,000 transferred to the First Defendant. As above, the evidence presented before the Court only allows $200,000 of this amount to be traced. Therefore, the remedies sought by the Plaintiff can only be granted in respect of $200,000. I will consider this further at [72]-[83] below.

[10]

Imposing an equitable charge

The remedies available upon a finding of unconscionability are "broad and flexible": Mainieri & Anor v Cirillo [2014] VSCA 227 at [29]. An equitable charge often accompanies, or is ordered in the alternative to the imposition of a constructive trust to remedy the unconscionable retention of a benefit. The appropriate equitable remedy is fashioned to the circumstances of each case.
As McLelland J explained in Morris v Morris (1982) 1 NSWLR 61 at 64 (referring to Chalmers v Pardoe [1963] 1 WLR 677 at 681-682): "In my opinion, on the facts of this case, it would be unconscionable and inequitable that the defendants should now retain the benefit of the expenditure by the plaintiff of his money on their property free of any obligation of recoupment to him. Consequently an equity arises in favour of the plaintiff and the court must determine how in all the circumstances justice requires that that equity be satisfied. What a plaintiff in such a case as this should in justice receive will not necessarily B correspond with what, when the relevant expenditure was made, he expected to receive. … in the particular circumstances of the present case the plaintiff's equity would in my opinion be satisfied by his having an equitable charge over the Kingsgrove property…"
Further, in Delaforce v Simpson-Cook [2010] NSWCA 84 at [3], Allsop P (with whom Giles JA agreed) said: "Equity will look at all the relevant circumstances that touch upon the conscionability (or not) of resiling from the encouragement or representation previously made, including the nature and character of the detriment, how it can be cured, its proportionality to the terms and character of the encouragement or representation and the conformity with good conscience of keeping a party to any relevant representation or promise made, even if not contractual in character."
It has been well accepted then that an equitable charge may be granted over property to remedy unconscionability and "to satisfy the demands of justice and good conscience": Morris v Morris (1982) 1 NSWLR 61 at 64; Jundi v Saco [2015] NSWSC 1835 at [16]; Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 at 38; Tadrous v Tadrous [2012] NSWCA 16 at [46]-[53].

[12]

"Co-owner"

Section 66G only applies where a property is held in "co-ownership". An application for the appointment of trustees for sale may be brought by one or more of the co-owners.
"Incumbrancer" is not defined in the Conveyancing Act, and the only sections in which it appears are sections 66F and 66G. It has been held that the term means a person taking the benefit of an incumbrance, with a mortgagee being an incumbrancer for the purposes of the section, or in this case, if the Plaintiff is an equitable chargee: Australia and New Zealand Banking Group Ltd v Scott (1993) 6 BPR 13,217; Penny Nominees PL v Fountain (No 3) (1990) 5 BPR 97,348.
Counsel for the plaintiff drew my attention to a decision of Young J in Commonwealth Bank of Australia v Macdonald (2000) BPR 97,832. The purpose in her doing so was to put fairly what might at first blush be perceived as an expression of a contrary judicial view to those earlier expressed in cases referred to in [68] above. Counsel submitted that if those latter views were contrary to previous authorities they were obiter. There is no doubt the particular remarks of Young J were obiter.
However, upon my reading of what Young J said in Commonwealth Bank of Australia v Macdonald (2000) BPR 97,832, I see it as entirely consistent with the views expressed in the earlier authorities.
The particular case concerned a husband and wife who held shares in what the judge describes as a "home unit company". The husband, a solicitor was a bankrupt and both he and his wife had given a series of equitable charges to the bank. It was alleged that both the husband and wife were in default, but more importantly, the bank sought the appointment of a statutory trustee for sale of the wife's interest under section 66G.
At [34], the learned judge came to the view that although shares qualified as property for the purposes of section 66G, the section required that there be co-owners of that property who were either joint tenants or tenants in common. His Honour decided that the defendants were not obviously joint tenants. The question however was whether they held the shares as tenants in common: Commonwealth Bank of Australia v Macdonald (2000) BPR 97,832 [34].
Young J formed the view that they could not be tenants in common because there was no unity of possession. The first defendant held his shares and the second defendant, his wife, held her own. There was therefore no tenancy in common in the shares and no order could be made under section 66G: Commonwealth Bank of Australia v Macdonald (2000) BPR 97,832 [46], [47], [53].
His Honour then concluded, although it was unnecessary for him to do so, that the bank was not entitled to an order pursuant to section 66G. As an 'incumbrancer', it could not be a co-owner simply because of the existence of an equitable charge because there was neither a joint tenant nor a tenant in common and therefore there could be no "co-ownership" in the sense intended by the section. Read in that way, this authority is, as I have already said, entirely consistent with what Young J and Bryson J had earlier said. Indeed Young J, specifically approved: Penny Nominees at [18], [59] and Bryson J in ANZ v Scott at [59]. Here, of course, the problem encountered by Young J does not arise because there is a tenancy in common (Exhibit P6).
As such, there are clearly two pre-requisites for a person to be a 'co-owner' under section 66F of the Conveyancing Act. First, there must be property owned, at law or in equity, by joint tenants or tenants in common. Secondly, there must be a person who is the 'incumbrancer' of the interest of these joint tenants or tenants in common.

[13]

Granting a section 66G order

An applicant is entitled to a section 66G order almost as of right: Callahan v O'Neill [2002] NSWSC 877 at [8]; Tory v Tory [2007] NSWSC 1078 at [42]; Ross v Ross [2010] NSWCA 301 at [36]; Forrest v Nix [2012] NSWSC 493 at [44]. The Court's discretion is not to be exercised by reference to personal views about hardship or unfairness: Spathis v Nanas [2008] NSWSC 418 at [19]-[20]; Grizonic v Suttor [2004] 12 BPR 22,797 at [8]-[9]. The Court therefore has a very 'limited' discretion to refuse an application under section 66G: Ngatoa v Ford (1990) 19 NSWLR 72; Re Permanent Trustee Nominees (Canberra) Ltd [1989] 1 Qd R 314 at 317.
However, there are circumstances in which the court would refuse to make an order under section 66G for the appointment of trustees for sale. These circumstances, and the law generally on section 66G, are described by Hallen AsJ (as he then was) in NSW Trustee & Guardian as Executor of the Will of Michael Robert Walsh (Deceased) v Gregory [2012] NSWSC 681 at [33]-[47].
It should be observed that the parties opposing sale under a section 66G order bear the onus of dissuading the court from making such an order: NSW Trustee & Guardian (as executor of the will of Walsh (dec'd) v Gregory [2012] NSWSC 681 at [44]; Woodson (Sales) Pty Limited v Woodson (Australia) Pty Limited (1996) 7 BPR 14,685 at 14,701; Eathorne v Araya-Marvin [2011] NSWSC 782 at [19]. Situations where the court may decline to make an order for sale are identified in Peter Butt, Land Law (6th ed, 2009, Thomson Reuters) at 267 and include:

Where legal title is held by trustees and the trust instrument contains its own procedure for sale;
Where the applicant's conduct raises an estoppel against the application;
Where an order would be inconsistent with a contractual or equitable duty binding the applicant, or inconsistent with the parties' contractual rights under an agreement that binds them to deal with the property in a certain way;
Where a sale would undercut a party's right to seek remedies under legislation.

The court has a complete discretion as to who it will appoint to conduct a sale under section 66G: Crocombe v Pine Forests of Australia Pty Ltd [2005] NSWSC 151 at [88]; NSW Trustee & Guardian as Executor of the Will of Michael Robert Walsh (Deceased) v Gregory [2012] NSWSC 681 at [46].

[15]

Consideration

As I have earlier indicated the Defendants filed no evidence. Instead, they both took it in turns to make submissions and assertions from the bar table.
The recurring theme of these submissions, which involved frequent reference to the decision in Cameron v Cole (1944) 68 CLR 571, was that they were entitled to a rehearing of all matters which had been before Robb J and that White J's judgment of 11 May 2016 was or should be construed as having that effect. As I understood it, they believed they were entitled to a rehearing, or as the Second Defendant submitted, a hearing de novo, according to general notions of procedural fairness. This submission has no basis in law and I reject it.
The Defendants pointed me to the comments of Rich J in Cameron v Cole (1944) 68 CLR 571 at 589 and submitted that that compelled me to set aside the remaining orders of Robb J as there had been "no valid trial at all". However, the Defendants failed to appreciate the context in which these comments were made, as they simply quoted the last line of the relevant passage at 589. In full, Rich J said: "It is a fundamental principle of natural justice, applicable to all Courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person who is affected is entitled, ex debito justitiae, to have any determination which affects him set aside; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside … in such a case there has been no valid trial at all."
In the full context of 589, Rich J clearly stated that only the orders binding on the person affected, in the present case, the Second Defendant, could be set aside on the basis that she had not been afforded a 'valid trial'. It is for these reasons that this central and repeated submission of both Defendants has no merit.
I was at pains on numerous occasions to emphasise it was only the items set out in [11] of White J's judgment of 11 May 2016 which were the subject of the rehearing before me. However, both Defendants were simply unable or unwilling to accept that situation.
Other matters were raised by the Defendants from the bar table, for example, the alleged fraud on the part of NAB in the preparation of bank statements, which was previously raised before Robb J on 12 February 2015. There were also assertions made as to who may, or may not have, what the Second Defendant described as "equitable interests" in the relevant property. None of these allegations, or others of the kind, were the subject of evidence or currently have any foundation in fact.

[16]

The tracing of the money

In Thorn, as Executrix of the Estate of the Late Betty McAuley v Boyd (No 2) [2015] NSWSC 199, Robb J observed: "[29]…Mr Boyd has not provided the necessary evidentiary foundation for his contention that the bank applied the $200,000 in reduction of a business loan that was not secured by a mortgage over his property. [30] …I find the evidence establishes that on the balance of probabilities all of the loans to Mr Boyd referred to in the File Summary Report were secured against the property. Secondly, on 12 August 2009, $200,000 was paid into Mr Boyd's home loan account, and that payment came from the money which Mr Boyd received from Mrs McAuley. Thirdly, the total indebtedness secured by means of the mortgage over Mr Boyd's property was reduced by $200,000, and the equity in that property was increased by a corresponding amount."
Indeed, in letters dated 8 March 2010 and 15 March 2010 sent to the Senior Legal Officer of the NSW Trustee and Guardian, the First Defendant admitted that the money was used to repay the mortgage over his home. These letters were tendered as evidence in proceedings before me as Exhibits P1 and P2. In the letter of 8 March, the First Defendant stated "…my Aunts gift was used to pay off my home which is what my Aunt wanted me to do" (CB 68; Exhibit P1). In the letter of 15 March, the First Defendant re-iterated his statement from the 8 March letter by explaining "my Aunt's gift was used to pay off the mortgage on my family home which was in keeping with my Aunt's wishes" (CB 70; Exhibit P2). He also stated "I informed you that my Aunts gift was used to pay off the mortgage on my family home. I advised you that I would have to sell my home to repay the gift. This matter should have ended there" (CB 76; Exhibit P2).
The NAB statement for the First Defendant's NAB Base Variable Rate Home Loan shows a credit of $200,000 on 12 August 2009, listing the particulars "Internet Transfer Mortgage" (CB 78). This date was six days after the transfer of $260,000 of Mrs McAuley's funds to an account held by the First Defendant.
In the proceedings Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 before Robb J, during cross-examination, the First Defendant stated (T of 23/04/14 115-116): "Q. Can we take it step by step. You accept, don't you, that the money from Betty's account was transferred into your account with Sutherland Credit Union? A. That's right. Q. Using the best of your memory, what transfers were then made from the account that you can reference to? A. To the statements? Q. Yes. A. There was a $200,000 transfer to what we believe at that time, okay this is where we can't go much further because I can't substantiate it, it shows up on the statements you've got, transferred into the National Australia Bank account and that was to be applied to our mortgage, our loan account. Q. And what happened to the balance? A. The balance $60,000? Q. Yes? A. From that Credit Union which I'm still trying to get a copy of the statement back that date. The company was owed money by us. We paid into that from Betty's account which basically reduced the loan payments so in essence it reduced our loan repayments. Q. Were those moneys paid into the same loan account that the 200 was transferred into? A. We transferred the money into the National Australian Bank Account but again which I can't comment greatly on, the money that was placed including my superannuation cheque, the money was in October - September, October, it was placed in there for the express purpose of finalising our portion of the home loan were misappropriated by the bank and applied elsewhere. Q. Can I show you a document (shown). The first two pages of the document I have just handed up? A. Yes. Q. Is an account statement? A. Yes. Q. For the statement period 4 April 2009 to 23 September 2009? A. Yes. Q. And it is for account number 082-367 BSB account number 791876913 - is that correct? A. That's correct. Q. Is this sir the document that you produced in response to the notice to produce this morning? A. I think it is yes. My wife put this together so I just took the documents from her, because its got the 200 on it yes it is. Q. Do you recognise the circle and the handwritten mark that was on the document when you produced it to the Court? A. Yes. Q. Can I ask you some questions about some of the transactions in the statement? There is an internet transfer entitled mortgage dated 12 August 2009? A. Yes, sorry. Q. And that's in the sum of $200,000? A. Yes. Q. Is that the transfer you are referring to in your evidence from your Challenge Finance Account? A. Not from Challenge. Q. Sorry from Sutherland Credit Union account? A. Yes. Q. And is that particular loan account or was this particular loan account at the time secured against your house? A. Yes it was."
The First Defendant also stated in the proceedings Catherine Margaret Thorn as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd [2014] NSWSC 1159 that he credited the amount of $109,000 from his superannuation funds into the NAB account (T of 23/04/14 117; CB 83). He claimed that this money was used in another loan (T 117; CB 83), but in any event accepted that the business loan was secured against the Property (T 118; CB 84).
The FOS' findings (CB 37-48) reveal that as at 12 August 2009, the Property secured three loans; the home loan in the amount of $320,000, an interest-only business loan in the amount of $269,500 and a principal and interest business loan in the amount of $190,000 (CB 12, 13, 19). The NAB bank statements (CB 77-79) indicate that each of the accounts was closed on 22 September 2009. The Defendants were granted, at their request, an interest only home loan of $560,000 secured by the Property which consolidated the above three facilities (CB 13-19). The First Defendant's receipt of $200,000 reduced the total amount secured on the Property by that amount, which enabled the First Defendant to refinance the loans for a much lesser amount than the total sum of the three previous loans, increasing the equity in the Property. The Plaintiff submitted that the First Defendant's share of the Property was therefore charged with the amount of $200,000 as at 12 August 2009 (Plaintiff's written submissions [18]).
On the basis of this evidence, which was only contested by way of oral submissions, I am satisfied that the $200,000 was transferred from Ms McAuley's account and applied to pay down or reduce the debts which were mortgaged against the property. The admissions made by the First Defendant referred to at [73] and [75]-[76], and the bank statements referred at [74], more than corroborate that conclusion.

[17]

Imposition of a constructive trust

It is only appropriate to award a constructive trust in proportion to the detriment incurred by the Plaintiff. In the present case, this detriment is the unconscionably procured $200,000 which may, as established above, be traced into the Property.
As the Second Defendant rightly stated in oral submissions, a constructive trust may only be imposed after consideration of whether there is an appropriate remedy which falls short of the imposition of a constructive trust: Giumelli v Giumelli (1999) 196 CLR 101 at [10]; Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at [42]; John Alexander's Clubs Pty Limited v White City Tennis Club Limited; Walker Corporation Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [128]-[129].
Whilst this is true, a wealth of case law supports the proposition that a constructive trust is an appropriate remedy to impose upon a person's legal entitlement to property, where it would prevent that person from exercising their legal right in respect of that property, in circumstances where it is unconscionable for them to do so, or where it was unconscionably procured: Muschinski v Dodds (1985) 160 CLR 583 at 614, 620; Baumgartner v Baumgartner (1987) 164 CLR 137 at 149; Bryson v Bryant (1992) 29 NSWLR 188. As is evident in the authorities identified above, a constructive trust may be appropriately ordered to preclude a defendant from retaining a benefit which is contrary to equitable principle. In the present case, it would be contrary to equitable principle to allow the First Defendant to retain the benefit of the $200,000 because it was unconscionably procured.
It is also relevant to consider whether the relief proposed would impact adversely on other persons: Giumelli v Giumelli (1999) 196 CLR 101 at [10], [50]; Tadrous v Tadrous [2012] NSWCA 16 at [49]. In the present case, I am satisfied that the imposition of the constructive trust will not adversely impact other persons, because a constructive trust is only to be imposed over the First Defendant's interest in the Property to the value of the traceable $200,000, and not over the Property as a whole.
In the present case, because the traceable $200,000 was unconscionably procured and because it would be contrary to the principles of equity for the First Defendant to retain any benefit from this $200,000, I am satisfied that in light of the above authorities, a constructive trust is the appropriate remedy. In my view, the First Defendant's interest in the property should also be charged to the value of that amount (together with interest) in favour of the Plaintiff.

Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd

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