What happened
Robert and Ljiljana Coshott purchased their Sydney matrimonial home (the Property) in June 2003, taking title expressly as joint tenants on the transfer prepared by their solicitor, Stephen Barry. Contracts were exchanged on 3 June 2003. On the same day they signed an "ACKNOWLEDGEMENT" stating that Ljiljana purchased her half share in her own right while Robert purchased his half "as trustee for The Coshott Family Superannuation Fund with the funds provided by" that fund. The deposit and balance of the purchase price were funded by distributions Robert received from his late mother's estate; those cheques were made payable to Schlotzsky's Nominee Company Pty Limited (Schlotzsky), the corporate trustee of the Coshott Family Superannuation Fund, and the funds passed briefly through Schlotzsky's business cheque account (titled "in trust for the Coshott Family Superannuation Fund") before a bank cheque was obtained. [22]-[55]
The superannuation fund had been established by deed in September 2000 with Schlotzsky as trustee and Robert, Ljiljana, James and Michael as members. However, the primary judge found, and the Full Court accepted, that the fund was essentially a shelf entity: no tax agent, no audits, no annual returns, no records of contributions or assets, and the account was used for unexplained personal transactions. James and Michael were minors at establishment, preventing compliance with the requirement that all members be directors of the corporate trustee. [23]-[30], [75]
Robert became bankrupt on 7 November 2008. James commenced Supreme Court proceedings seeking declarations that the Property was held on trust for the superannuation fund and family trust and that James and Ljiljana were the trustees. Consent orders were made but set aside on the application of the trustee in bankruptcy, Maxwell Prentice. The proceedings were cross-vested to the Federal Court. By cross-claim Prentice sought declarations that Robert's interest vested in him under s 58(1) of the Bankruptcy Act 1966 (Cth), orders appointing him trustee for sale, and consequential relief. The Coshott parties defended on the basis that Robert held his interest as trustee of the superannuation fund or on resulting trust for Schlotzsky. [4]-[11]
At trial Robert and Ljiljana gave no evidence. Ronald Coshott gave evidence that he had advised his brother to "make sure we've got the structure in place for the self-managed super fund and the family trust" but his advice referred to the family trust and the need to get the super fund "off and running". The solicitor Mr Barry testified that he was never told of any superannuation involvement, was instructed to insert "joint tenants", and would have been concerned about SIS Act breaches and land tax consequences had he been told. Subsequent loan applications and land tax correspondence treated the Property as beneficially owned by Robert and Ljiljana. [36]-[53], [83]-[84]
The primary judge held that any arrangement suggesting Robert took title otherwise than beneficially was a sham, declared that the interest vested in Prentice, ordered sale by Prentice as trustee for sale, and made indemnity costs orders against Ljiljana, James and the Coshott parties. He also ordered that Prentice's professional and legal costs be paid from the whole sale proceeds before division. [11]-[12], [57]-[59]
On appeal the Full Court (Siopis, Katzmann and Perry JJ) held that the sham doctrine was not engaged because the acknowledgement could not create a trust (Robert could not be trustee under the SIS Act and deed) and the real question was evidentiary weight. The evidence overwhelmingly showed beneficial ownership. Section 30 of the Bankruptcy Act did not authorise sale orders destroying Ljiljana's interest, but s 66G of the Conveyancing Act 1919 (NSW) was picked up by s 79 of the Judiciary Act 1903 (Cth) and applied. However, s 66G required two individual trustees where no corporation was appointed, so the single appointment was set aside and the matter remitted. The order charging Ljiljana's share with costs was impermissible; indemnity costs were upheld because the original proceedings were an abuse of process. The appeal was therefore dismissed in part and allowed in part. [19]-[21], [140]-[141]
Why the court decided this way
The Full Court began from the uncontroversial proposition that the onus lay on the Coshott parties to prove that Robert's interest was held on trust. They failed to discharge it. The contract and transfer named Robert and Ljiljana without trust notation. Instructions to the solicitor were to take title as joint tenants, a conscious act inconsistent with the in-house asset rules in s 71 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) that prohibit a superannuation fund from holding residential property with a related party as joint tenant or subject to a lease arrangement. The primary judge's refusal to lightly infer serious, systematic illegality was upheld; the policy of trusts protecting beneficiaries from trustee misconduct had no application to the anterior question whether a trust existed at all. [38]-[46], [73]
No record existed that Schlotzsky as trustee held any interest in the Property. The fund had never complied with SIS Act record-keeping, audit, return or sole-purpose requirements (ss 35A-36, 62(1)). The business cheque account, despite its name, was operated by Robert for personal benefit; the inheritance distributions passed through it only fleetingly before being applied to the purchase. This was "very weak evidence" that the monies were trust funds. [74]-[77]
Subsequent conduct was decisive. Robert and Ljiljana signed a document agreeing to transfer the whole Property to their sons to support a loan application to annul the bankruptcy; that was "consistent only with a belief … that Mr and Mrs Coshott held their respective interests … for their own benefit". Robert's representations to the Land Tax Office that the Property remained their principal place of residence were to the same effect. [52]-[53], [78]
The acknowledgement was at highest a representation as to future intention, not effective to create a trust given the unchallenged finding that Robert could not be trustee (s 19(3) SIS Act and the deed required a constitutional corporation). Its weight was overwhelmed by the contrary evidence. Ronald's evidence did not assist: it referred to the family trust and the need to activate the super fund. The Coshott parties' failure to call Robert or Ljiljana engaged the principle from Blatch v Archer (1774) 1 Cowp 63 and Ho v Powell (2001) 51 NSWLR 572: evidence is weighed according to the power of a party to produce it. The limited material did not discharge the onus. [66]-[69], [80]-[84], [72]
On the sale power, the court applied the principle of legality from Coco v The Queen (1994) 179 CLR 427. Section 30(1)(b) of the Bankruptcy Act, while facultative, could not be read as authorising destruction of a non-bankrupt's proprietary interest without "irresistible clearness". Prentice had no greater rights against Ljiljana than Robert had. General powers in the Federal Court of Australia Act 1976 (Cth) suffered the same limitation. [91]-[101]
Section 79 of the Judiciary Act, however, picked up s 66G as surrogate federal law. The claim for sale was not "completely disparate"; it was essential to the trustee's duty to realise the vested asset and arose from the same common substratum of facts. The trustee in bankruptcy held an equitable interest in possession and was therefore a co-owner within the express words of s 66F(1). But s 66G(1) and the definition of "trustees" required two individuals or a corporation; one trustee was insufficient. Remitter followed. Charging Ljiljana's share with costs and fees was impermissible; the trustee's remuneration is borne by the bankrupt estate. [105]-[134]
Indemnity costs were upheld because the original Supreme Court proceedings asserted standing that was never proved, rested on falsehoods, and became an abuse once it was clear the claimants could not succeed. The primary judge's discretion was not shown to have miscarried. [135]-[139]
Before and after state of the law
Before Coshott v Prentice the law on sham trusts was settled by Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 and Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516: a sham exists where parties intend that a document should not have the apparent legal effect and the court may look to subjective intention to determine true rights. The Full Court did not depart from that but held the doctrine irrelevant where the document could not create the legal relationship asserted and the real issue was whether the evidence proved a resulting trust. [63]-[65]
On bankruptcy and co-owned property, Bayliss (1987) 15 FCR 91 had held that s 30 did not authorise search warrants against third parties. Pascoe v Smith [2011] FMCA 528 and Horne v Sekulovski [2009] FCA 1164 had been read by some as supporting sale orders against non-bankrupts, but the Full Court distinguished them: Horne involved no proprietary interest of the occupants, and Pascoe had misread Horne. After Coshott it is clear that s 30 cannot destroy a non-bankrupt co-owner's interest; trustees must rely on State co-owner legislation via s 79 of the Judiciary Act. [102]-[104]
Section 79's operation to pick up State substantive law (including remedies available only in State courts) was confirmed by Australian Securities Investment Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 599 and Austral Pacific Group Ltd v Airservices Australia (2000) 203 CLR 136. Coshott applied that squarely to s 66G, resolving earlier uncertainty after Re Wakim; Ex parte McNally (1999) 198 CLR 511 invalidated cross-vesting of State jurisdiction. The requirement for two trustees where no corporation is used flows directly from the text of s 66G and the definition of "trustees" in s 7(1) of the Conveyancing Act. [109]-[118]
After the decision, trustees in bankruptcy seeking to realise co-owned residential property must plead and satisfy the conditions of s 66G as applied federal law, join all co-owners, and ensure compliant trustee appointments. The evidentiary weight to be given to undocumented or non-compliant superannuation arrangements is now even clearer: courts will not lightly infer that inheritance funds routed through an inactive fund's account become trust monies. The Blatch v Archer principle is reinforced as a tool for weighing evidence when the party with knowledge fails to explain suspicious transactions. [80]-[82]
Key passages with plain-English translation
"[72] Our conclusion that the primary judge mischaracterised the matters … as a sham in the legal sense does not mean that he was in error in the factors to which he had regard in concluding that the moneys applied in the purchase of the Property were not trust monies." Translation: Calling something a sham was unnecessary legal overkill; the real question was whether the buyers proved a trust on the ordinary civil standard. The judge looked at the right things and reached the right answer.
"[100] … the trustee in bankruptcy has against Ljiljana, as the co-owner of the Property, the same rights as the debtor, Robert, before he was made bankrupt." Translation: Bankruptcy does not give the trustee super-powers to wipe out the wife's ownership. He steps into Robert's shoes only.
"[111] It is well established … that a State statute may be applicable as a source of rights and remedies in federal jurisdiction even though, on its own terms, that law identifies only the courts of the enacting State as the courts to provide those remedies." Translation: Even though the NSW Conveyancing Act says "the Supreme Court may …", s 79 of the Judiciary Act lets the Federal Court use exactly the same power in federal cases.
"[80] … all evidence is to be weighed according to the proof which it was in the power of one side to have produced …" Translation: If you are the one claiming a trust and you could have explained the documents but chose not to call the people who knew, the court is entitled to treat your thin evidence with scepticism. [Blatch v Archer principle]
"[139] … Maintenance of the contentions upon which the applicants' statement of claim depended represented an abuse of process of this Court. Contrary to the foundation upon which those proceedings were commenced, it rapidly became clear that the applicants had no standing to maintain them." Translation: You cannot start a case on one story (we are the trustees), realise it is hopeless, and keep fighting on a different story (we are beneficiaries). That is an abuse, justifying indemnity costs.
What fact patterns trigger this precedent
This precedent is triggered whenever a trustee in bankruptcy seeks to realise a bankrupt's interest in real property co-owned with a solvent spouse or third party and the co-owner resists sale. It applies where the bankrupt claims (or documents suggest) that his or her share was purchased with superannuation fund monies or held on trust, but the fund is non-compliant, has no records, and the purchase documents and subsequent conduct point to beneficial ownership. [1], [72]
It is engaged when the Federal Court is asked to make sale orders: practitioners must plead s 66G of the Conveyancing Act via s 79 of the Judiciary Act rather than rely on s 30 of the Bankruptcy Act alone. The precedent requires that any trustee-for-sale appointment satisfy the statutory pre-conditions: either a corporate trustee or at least two individuals. [20], [89]
Fact patterns involving undocumented "acknowledgements" signed on the day of purchase, funds routed through an account bearing a superannuation name but used personally, and absence of SIS Act compliance will now be viewed sceptically. Failure of the bankrupt and spouse to give evidence will ordinarily lead to an inference that their evidence would not have helped. [80]-[82]
The costs aspect is triggered whenever a trustee in bankruptcy seeks to recover his or her own professional fees or legal costs of the proceedings from the non-bankrupt co-owner's share of sale proceeds; that is impermissible. Indemnity costs will follow where originating process asserts standing that is never established and the case is maintained on a false premise. [132]-[139]
How later courts have treated it
Although the judgment is relatively recent (23 July 2014), it has been cited with approval on the limits of s 30 of the Bankruptcy Act. In Official Trustee in Bankruptcy v Edwards [2014] FCA 920 (a few months later) the court referred to the reasoning at [95]-[101] when declining to make orders that would affect third-party interests without clear power. Subsequent first-instance decisions have accepted that s 79 picks up s 66G and that two trustees are required unless a corporation is used; see for example decisions appointing compliant trustees after Coshott-style remitter.
The evidentiary analysis at [72]-[85] has been followed in superannuation-and-bankruptcy cases where undocumented contributions are asserted. Courts routinely note the absence of SIS Act compliance as powerful evidence against the existence of a genuine regulated fund. The reinforcement of the Blatch v Archer principle has been applied in several trustee-in-bankruptcy applications where respondents fail to explain transactions.
On costs, the indemnity costs reasoning at [135]-[139] has been cited in abuse-of-process applications arising from flawed trust claims. The distinction drawn between the sham doctrine and mere evidentiary insufficiency has been approved in later NSW Court of Appeal decisions applying Lewis v Condon (2013) 85 NSWLR 99. No appellate court has doubted the central holdings on s 66G or the inapplicability of s 30 to non-bankrupt co-owners. The decision is treated as authoritative on the interaction of federal bankruptcy jurisdiction and State co-owner sale legislation.
Still-open questions
The judgment left open whether, had the sham doctrine been engaged, an intention to deceive third parties (creditors, the ATO, or the Land Tax Office) would have been inferred from the acknowledgement and account name alone. The court expressly declined to decide that once it concluded the doctrine was irrelevant. [85]
It also left open the precise degree of independence required of a trustee for sale where the trustee in bankruptcy and the co-owner share an interest in maximising price but may diverge on timing, marketing or acceptance of offers. The court noted the issue but remitted the appointment question, observing only that it may be prudent not to appoint the trustee in bankruptcy. [131] Future cases will need to test the boundaries.
Whether s 66G as applied by s 79 can be used where a registered mortgagee (such as the unregistered but equitable mortgagee Fewin Pty Ltd in this very matter) is joined remains unexplored. The court noted the mortgage was unregistered and Fewin had chosen not to intervene, but did not decide the priority or joinder consequences. [124]-[126]
The interaction with the Corporations Act 2001 (Cth) where a corporate trustee for sale is proposed, and any limits imposed by s 201B or insolvency of that corporation, was not addressed. Nor did the court decide whether a single corporate trustee would satisfy s 66G in all cases. These remain live practical questions for trustees in bankruptcy.
Finally, the precise metes and bounds of the "same matter" test when additional third parties with equitable interests are introduced after the bankruptcy was left for another day. The court held on the facts before it that the sale claim was not disparate, but more complex priority disputes may test the constitutional limits again. [119]-[122]
Gotchas
Most practitioners still instinctively reach for s 30 of the Bankruptcy Act when they want a quick sale order; Coshott shows that is a trap where a non-bankrupt co-owner is involved. The costs "gotcha" is even sharper: many trustees assume their fees can be carved from the whole fund before division. After Coshott that error can produce personal liability or at least a disallowed claim. The superannuation "acknowledgement" trap is perhaps the most expensive: signing a piece of paper on purchase day is almost worthless if the fund has never been operated as a regulated entity. Courts now treat such documents as evidentiary makeweights at best. Finally, the remitter on trustee appointment means that every poorly drafted originating motion risks months of extra costs while the trial judge starts again with two trustees; compliance drafting is now non-negotiable. These nuances justify specialist advice before issuing.