Derek Heelan v Cupton Pty Limited

Supreme Court of NSW|2011-05-02|Before: Sackar J, Patrick J

Proceedings 1The plaintiffs, Heelan & Ors, seek a declaration that the first defendant, Cupton Pty Ltd, ("Cupton") held a property known as 4015 Wiseman's Ferry road, Lower Mangrove ("the property) as trustee for the Weige Family Trust ("WFT") until 27 May 2010. A further declaration is sought to the effect that Cupton was in breach of its obligations as trustee under the Weige Family Trust ("WFT") in transferring the property to the second defendant Nicola Sproule ("Sproule"). 2A declaration is also sought that Sproule holds the property as constructive trustee for the WFT. An order also is sought pursuant to section 71 of the Trustee Act vesting the property in the ownership of the plaintiffs as trustees of the WFT. An order is further sought for the rectification by the Registrar General pursuant to Section 86 of the Real Property Act of the New South Wales Lands Register. There are further declarations sought, the effect of which is to cause amendments to the Register of company records in relation to Cupton and a number of other consequential orders are also sought. 3The plaintiffs also seek an order that the mortgage and variation secures no money against the property and an order that the mortgage and variation be removed from the NSW Lands Register and from the certificate of title as against the property. Alternatively, the plaintiffs seek a declaration that the money secured by the mortgage and variation is $47,500 and an order that upon payment of $47,500 by the WFT to Blaydon Pty Ltd, Blaydon must do all things necessary to discharge the mortgage and variation.

General 34As I have already observed both sides of this litigation have invited me to make adverse credit findings about each others principal witnesses. 35I am of course mindful of the comments of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy when they remarked: "It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly form the appearance of witnesses (50). Thus, in 1924 Atkin LJ observed in Societe d Avances Commerciales (Societe Anonyme Egyptienne) v Merchants Marine Insurance Co (The "Palitana") (51): "... I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour." Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances (52). Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical." 36I have to say on balance, I prefer the evidence of Sproule rather than that of Weige in relation to the critical conversations. Part of that assessment turns upon my observation of them both when they gave their evidence. However the more substantive reason is that I am of the view that the reliable contemporaneous materials such as they are favour or corroborate Sproule rather than Weige. 37On the initial acquisition the objective facts support Sproule when she asserts Weige for example represented the property would be jointly owned. In particular I accept the assertion by Sproule that she had more than enough funds available to purchase the property outright without any contribution from Weige. The assertion was not challenged in the evidence. It was not put to her father that there were insufficient funds in the relevant account. 38Sproule asserts that she told her father about she and Weige jointly buying the land and having a 50% interest in the land. Neither Sproule nor her father was challenged about this. This of course lead to the initial contribution being the subject of formal documentation in relation to the mortgage. The $47,500 represented half the purchase price. 39As I have observed otherwise Sproule of course signed the mortgage as debtor. Weige gave an account that I can only describe as utterly implausible in so far as he asserted that Sproule'e name was not on the mortgage when he signed it. He also queried his own signature. Those allegations are simply not sustainable. A person such a Weige who deals in, for example, collectible bank notes would be unlikely to miss a typed name and/or signature on the mortgage. 40I am also satisfied that it was Weige who invited and facilitated Sproule becoming a director of Cupton at the relevant time. 41Again on the transfer of shares and Weige's purported resignation as a director of Cupton in November 2006, those two documents, which Weige clearly signed, corroborate Sproule's versions of the conversations she asserts she had with Weige at that time. 42Again she told her father about that at the relevant time and she was not challenged on having done so. Nor was her father challenged on that topic. 43For at least the reasons outlined above I have to say I have grave misgivings about Weige and his reliability as a witness and I am inclined to accept Sproule's versions of the critical conversations. (i) The Initial Purchase of the Lower Mangrove Property 44The Lower Mangrove Property was purchased on 31 August 2010 by Cupton Pty Ltd. In facilitating its purchase Weige advanced half of the purchase price in cash ($47,500), and Sproule advanced half of the purchase price ($47,500) by way of loan from Blaydon. Cupton Pty Ltd was noted as the purchaser in typescript on the Contract for Sale and the terms "Trustee for the Weige Family Trust" followed in handwriting thereafter. Given that Cupton is noted as the purchaser, there is therefore no other interpretation open but that Cupton held the legal title to the property as at the date of purchase. 45The question is however who had the beneficial interest in the property as at this date. Was it held on trust by Cupton for the WFT, or was it held by Cupton for Sproule and Weige as tenants in common deriving from their equal contribution to the purchase price? 46In answering this question, little should be inferred from the handwriting on the contract of sale that reads "as trustee for the Weige Family Trust." There is no evidence in the case as to who wrote that on the contract or the circumstances in which it was added. However, even without this, there is ample evidence to support the conclusion that the property was indeed purchased by Cupton as trustee for the WFT. For example, a Sales Advice Note from J & M Conveyancing dated 15 August 2006 lists in typescript the purchaser as Cupton P/L as Trustee for the Weige Family Trust. In addition, a receipt from PKB Real Estate Kariong dated 21/8/06 notes a cheque deposit from Cupton Pty Ltd as T/F the Weige Family Trust. A document entitled "Minutes of the Trustees of the Weige Family Trust" dated 13 th August 2006 also noted that: "Derek Heelan, Peter Mullen by phone Greg Coulter by phone RESOLVED that Derek Heelan be appointed to chair this meeting. Minutes of a meeting of Trustees for the purpose of Appointing a joint trustee with limited powers The Chairman informed the meeting that Derek Heelan had appointed Cupton Pty Ltd to the position of joint trustee on a limited basis for the purchase and administration of property the trust is negotiating to purchase and that a deed of acknowledgment was signed by all..." 47Conversely, the defendants argue that the property was purchased by Cupton for Weige and Sproule as tenants in common. They contend that it is significant that Weige and Sproule were in a de facto relationship, supporting Sproule's claim that Gregory Weige led her to believe that when the property was purchased she would own half, and allegedly undercutting Weige's claim that she agreed to obtain an interest free loan from Blaydon Pty Ltd so that the WFT could purchase the property without her having any interest in it. They argue that it is also significant that Sproule made herself personally liable to repay the money that Blaydon Pty Ltd advanced to purchase the property and that the fact that she advanced exactly half of the money used to purchase the Lower Mangrove Property is consistent with her believing that she would obtain a half-interest in the property. 48In support of this argument the defendants partially point to the fact that Weige and Sproule were in a de facto relationship at the time of purchase, which they allege strengthens the presumption that Sproule's contribution to the purchase price gives her a half (beneficial) interest in the property. That Weige and Sproule were in a de facto relationship at the time that the property was purchased is clearly made out on the facts, as this finding is supported through Weige's own affidavit of 6 December 2010 where he stated that: "To the best of my recollection the defacto relationship was from February 2006 to December 2006, though she commenced living with me from the day we met about Nov 2005 at my then place of residence, 94 Fyle Road Kellyville NSW." 49Weige also stated elsewhere in his affidavit that: "the alleged defacto relationship ended in December 2006." Whilst there is therefore some controversy regarding the precise duration of the de facto relationship, there is nonetheless mutual agreement as evidenced in the affidavit material that Weige and Sproule were in a de facto relationship as at the date of the property purchase. 50The nature of the relationship between Weige and Sproule as at the date of purchase supports the defendants proposition that there was a resulting trust in the favour of Sproule over the property. In Calverley v Green Gibbs CJ stated that: " "If the purchase money is provided by two or more persons jointly, and the property is put into the name of one only, there is, in the absence of any such relationship, presumed to be a resulting trust in favour of the other or others. For the presumption to apply the money must have been provided by the purchaser in his character as such - not, for example, as a loan. Consistently with these principles it has been held that if two persons have contributed the purchase money in unequal shares, and the property is purchased in their joint names, there is, again in the absence of a relationship that gives rise to a presumption of advancement, a presumption that the property is held by the purchasers in trust for themselves as tenants in common in the proportions in which they contributed the purchase money: Robinson v. Preston [1858] EngR 426; (1858) 4 K & J 505, at p 510 [1858] EngR 426; (70 ER 211, at p 213); Ingram v. Ingram [1941] VicLawRp 20; (1941) VLR 95 and Crisp v. Mullings (1976) EGD 730 (a decision of the English Court of Appeal)." 51Following Calverley v Green , the fifty percent contributions of Weige and Sproule to the purchase price, which I find occurred, therefore created a resulting trust making Weige and Sproule co-owners over the property in equity, unless of course there is a presumption of advancement. Given that Weige and Sproule were in a de facto relationship as at the date when the property was purchased, the authority of Calverley v Green dispels the possibility that a presumption of advancement could apply. 52In further support, in Calverley v Green , Deane J said that, when looking at whether there was a presumption of a resulting trust: "The primary question will be whether there was any arrangement between the parties which precluded or modified the trust which would otherwise result from their respective contributions to the purchase price. If that be the only question, evidence of the subjective uncommunicated intention of either party will not be admissible..." 53Further, in Pettitt v Pettit , Lord Upjohn said that where both spouses contribute to the acquisition of a property then the better inference (in the absence of contrary evidence) is that they intended to be joint beneficial owners. This is so whether the legal title is in the names of both or only one. Even if the legal title is in the wife, it is against the probabilities that the husband intended to advance her, unless the contribution is small. 54The negation of the presumption of advancement is even clearer here than it was on the facts in Pettit v Pettit , as here Weige and Sproule were in a de facto relationship as at the date of purchase rather than being spouses. 55Further, Sproule asserted that the following conversations between herself and Weige took place. She asserts that in early 2006, Weige found that the Lower Mangrove Property was listed for sale and that they had a conversation to the effect of: WEIGE: "I have found a waterfront property for us to have a look at, it's relatively cheap, you go look at it." SPROULE: "Fine." 56Sproule asserts that herself and Weige then had another conversation to the effect of: SPROULE: "I talked to Dad, he said I should buy it outright." WEIGE: "Let's buy it together, that [sic] we will have more money to build the house." SPROULE: "Sounds OK." 57She asserts that later they had a conversation to the effect of: WEIGE: "I want to put the property into a company name." SPROULE: "I have spoken to my father and his accountant and solicitor. They both say we should buy the property in our own names." WEIGE: "I want to buy the property in a Company name, I will establish a new company for this purpose but you and I will each own half of the shares in the Company. We will still own the property together jointly." SPROULE: "OK." I accept that such conversations more probably than not took place as alleged by Sproule. 58Sproule asserts that they had an additional conversation with included words to the effect of: SPROULE: "I'll get my half from Dad. You count out your half of the safe." WEIGE: "Fine, I'll get my half for you when we need to get the bank cheques for settlement." Again I accept that such a conversation took place. 59Sproule also asserts that she had a conversation with Weige to the following effect: SPROULE: "Dad says you have to sign over your half of the property." WEIGE: "Fine." NICOLA: "Dad needs you to sign the forms to transfer all the shares to me and resign as Director. He will then give you the cheque." WEIGE: "It would be best if the money went through your account." NICOLA: "Fine." 60Sproule also asserts that Weige and herself had a conversation to the following effect: SPROULE: "My accountant told me that you have to sign over 4 shares but one of them is in Derek Heelan's name." WEIGE: "Derek will do exactly what I say." SPROULE: "Fine, sign the document, I will go and get your money." I also am satisfied and find that that conversation in this and the preceding paragraph that took place. 61Sproule also asserts that she and Weige had a conversation where Weige also said: "After I sign over the shares, and you own Cupton, the land is yours." I accept that such a statement was made by Weige. I reject his denials to the contrary. 62The cumulative sum of Sproule's contribution of fifty percent of funds to the purchase price of the property, the de facto relationship shared by Weige and Sproule at the time of purchase, and the representations made by Weige to Sproule that the property was being purchased jointly for the two of them lead in my view to the result that a resulting trust should be found to exist where Sproule and Weige held the beneficial interest over the property in 50% portions in relation to their contributions to the purchase price. 63This finding of course does not detract from the finding that Cupton was the legal owner of the property and held it on trust, as at the date of purchase, for the WFT.

(ii) 16 November 2006 Share Transfer 64I have already found that as at the date of purchase Cupton held the legal interest, whilst the WFT and Sproule each held 50% of the beneficial interest. However, the events that occurred as at 16 November 2006 lead to the position needing reassessment including the events surrounding a transfer of $15,000 between Sproule and Weige. 65Whilst there were a number of instances in the written and oral submissions when the amount here was referred to as being $14,000, Sproule's acknowledgment of debt for the sum of the $62,500 makes it clear that she borrowed $15,000 ($62,500 - $47,500 borrowed for the initial purchase = $15,000). Therefore, the sum that was referred to inconsistently as either $14,000 or $15,000 shall be referred to as $15,000 here. 66In early November 2006 Weige told Sproule that he wanted to mortgage the property because he needed $15,000. Sproule then asked her father for the money. Her father said that the NSF Trust would only lend her another $15,000 if Weige signed over his half of the property to her. Sproule asserts and I accept her evidence that she and Weige had a conversation to the following effect: "SPROULE: Dad says you have to sign over your half of the property WEIGE: fine SPROULE: Dad needs you to sign the forms to transfer all the shares to me and resign as director. He will then give you the cheque WEIGE: It would be best if the money went through your account SPROULE: Fine" 67Weige then signed the document dated 14 November 2006 purporting to resign as a director of Cupton and Sproule took that document to her father who said that he also required that Weige sign the necessary ASIC forms and a document transferring all the shares in Cupton over to her. 68At this point there are a number of factual matters that are in contention between the parties. Sproule asserts on the one hand that she paid Weige valuable consideration for his shares in Cupton which she says ultimately gives her entitlement to the Lower Mangrove Property. The plaintiffs assert that there are however a number of inconsistencies in Sproule's account. 69In Sproule's first affidavit sworn 28 October 2010 she says that she obeyed Weige's direction to draw down $12,000 in cash, putting $5,000 into the trust accounts of the WFT and $5,000 into the International Estate Management and bringing $2,000 home. Later in her affidavit of 29 November 2010 she said that she thought that it is likely that Weige told her to deposit an amount into a bank account of the creditor(s). And thirdly, in her affidavit of 2 May 2011, which was provided during the hearing after a notice to produce on her bank, she said that she obeyed Weige's direction to pay $1,500 to minor creditors and effectively does not account for the other 90% of the $15,000. 70These inconsistencies should not lead to the inference that Sproule did not in fact provide the $15,000 for Weige's benefit. Weige's resignation from Cupton and his signing over of the four shares in Cupton to Sproule is consistent with his alleged agreement with Sproule for the payment of $15,000. His signing of the document which purported to effect a sale of the only 4 shares in Cupton Pty Ltd, Sproule the other director of Cupton is clearly of great significance. The words indicating that the change has been notified to ASIC shows unequivocally that he intended to sign over the shares in Cupton in exchange for $15,000. The fact that Sproule cannot remember exactly how she distributed the $15,000 at his direction does not mean that she did not in fact do so. In her affidavit of 29 November 2010 she states that: "it is likely that the second plaintiff told me to deposit an amount into the bank account of that creditor..." "...although I have no independent recollection of that..." She goes on to say that "certainly, I am sure that I paid over the $14,000 at the direction of Greg Weige and kept none for myself (except for the $200.00 that the second plaintiff told me to use for grocery shopping)." 71Sproule's limited recollection of the events, and her clear concession of such, should not lead to the conclusion that the money was not paid for the benefit of Weige. Rather, Weige's version of events which I reject regarding the transaction must undermine his allegation that the moneys were not paid over for or on his behalf. Weige claimed that he only agreed to sell three IEM shares to Sproule and during cross-examination he alleged that Sproule approached him, apparently out of the blue, and asked if he wanted any further money. His allegation was that she proposed the purchase of the IEM shares for the purpose of deriving business returns from the exploitation of the Lower Mangrove Property. I reject his account. 72The 16 November 2006 document clearly contradicts Weige's version of events. That document only refers to Greg Coulter (ie Weige) and not the IEM trust as the transferor of shares and it also states that Weige was selling "his" four shares. Whilst Weige sought to deny the significance of the document by stating that it contained numerous typographical errors that he intended to correct later, this contention simply cannot be accepted. The absurdity of such a statement was highlighted in cross examination as Weige admitted that he could have corrected the supposed typographical mistakes in five or six seconds had he wished to do so. It is plainly ludicrous that Weige would have signed a "draft" document that he apparently believed was erroneous and then asked Sproule to witness it. 73In addition, Weige's version of events regarding the transfer of the shares and the payment of $15,000 was that the trustees of the IEM trust agreed to cancel the sale of the shares and that following this agreement Sproule destroyed the share transfer documents. To the contrary, Weige asserted in the witness box that it was him who in fact destroyed the documents. 74As such, despite the evidence being not entirely clear or satisfactory on either side, the more probable account with regards to the share transfer and the $15,000 payment is that the payment was in fact agreed to and made and I so find.

(iii) Sproule's Registration on the Title 75As to the manner in which the legal and beneficial interest is to be apportioned as at May 2010 when Sproule got on the title, the question is whether Sproule can be said to have acquired indefeasibility under s42 of the RPA such that she has the sole legal and beneficial interest in the relevant property. 76In order to take the benefit of indefeasibility, Sproule must be established as being a bona fide purchaser for value without notice. Primarily, the plaintiffs allege that this cannot be the case on the basis that Sproule defrauded the trustees and beneficiaries of the WFT and Cupton of its valuable property. They assert that the acquisition by Sproule of the property put her in breach of Cupton's duties as trustee of the WFT and that in transferring the trust property, Cupton was acting at the direction of Sproule who was the sole director and shareholder at the time. They assert that in causing Cupton to act as it did, Sproule was acting in breach of her fiduciary duties as a director of Cupton by causing it to breach its duties as trustee and thereby incur liability. 77The plaintiffs further assert that the wrongdoing of Sproule was consciously dishonest. They assert that this is evident from the fact that Sproule did not seek the trustees permission to deal with the property for herself and she kept her dealings and operations secret from the other trustees. 78On this basis, the plaintiffs allege that Sproule knowingly received the property transferred to her in breach of trust and that she therefore cannot take the benefits of indefeasibility. They assert that Sproule therefore holds the property on constructive trust for the Weige trust under both limbs of Barnes v Addy . 79Under the first limb of Barnes v Addy , a constructive trust will be imposed on someone who knowingly receives property in respect of which a fiduciary duty was owed, provided that they also have knowledge of that fiduciary duty. The plaintiffs assert that Sproule's actions in transferring the property to herself fall within this limb on the basis that she knew that the property was held by Cupton for the WFT. Under the second limb of Barnes v Addy , a constructive trust will be imposed where someone provides knowing assistance to a dishonest and fraudulent design on the part of a trustee. The plaintiffs allege that in this case Sproule caused Cupton to transfer the property to herself in full knowledge that the property was held on trust. 80However, the defendants allege that the plaintiffs cannot succeed in their claim that Sproule holds the property on constructive trust under Barnes v Addy on the basis that any otherwise established personal equity cannot extinguish indefeasibility. They rely on the High Court in Farah Constructions v Say- Dee Pty Ltd which they allege establishes that neither limb of Barnes v Addy will create a personal equity such as will defeat indefeasibility of title. 81The latter proposition is in my view not entirely correct. Whilst Farah v Say-Dee finds that the first limb of Barnes v Addy cannot create an in personam exception to indefeasibility, the case did not oust the second limb from being an indefeasibility exception (although the second limb does obviously require fraud or dishonesty). There is therefore no blanket rule that the second limb of Barnes v Addy cannot create an exception to indefeasibility but what is important here is that the second limb will not be made out unless Sproule actually knowingly assisted in a dishonest or fraudulent design. 82The plaintiffs allege that Sproule did in fact fraudulently or dishonestly provide knowing assistance in the transfer of the trust property and that the dishonest or fraudulent design involved a number of elements. These were outlined in the plaintiff's outline of submissions as being that: Sproule resisted the application of the CTTT for termination of the verbal lease agreement whilst she failed to disclose the application for reinstatement; that Blaydon applied for the reinstatement of Cupton; that Sproule consented for Blaydon to act in this manner; that she purposefully failed to give notice of the deregistration to Heelan as a director of Cupton; that she facilitated reinstatement by Cupton by disclosing information to Blaydon; that she caused ASIC form 484 changes to be prepared; and that she executed the draft document signed by Weige purporting to transfer four shares for consideration of $14,000. However in the end the gravitus of the plaintiff's case on fraud turned more upon an intention that the told untruths in relation to her various considerations with Weige about the purpose or circumstances surrounding the property and the alleged transfer of shares. 83However, as discussed in relation to the question of the 16 November 2006 Share Agreement at paras [63] - [74] above, the notion that Sproule assisted fraudulently in the deregistration of Cupton and in getting herself onto the title must be rejected in my view. The presence of fraud cannot be made out on the facts in my view because the evidence points to her having a bona fide belief that she was transferring the shares into her name legitimately and subsequently being registered on the title and in accordance with the terms of the transaction of November 2006. There is no suggestion that Sproule used any forged documents to get onto the title or that she made any representation to Weige or induced him to act to his detriment. Rather, she used bona fide documents that were given to her by Weige when the property was purchased and she was led to believe by him that she would be transferred the remaining half of the property. 84Whilst it must therefore be found that the property was purchased on trust for the WFT and that the legal interest resided with Cupton as at this date, it must also be found that as at the date of Sproule's registration of the title deeds in her name in May 2010 she was and should properly be seen as a bona fide purchaser for value without notice and therefore was able to take the benefits of indefeasibility under s42 of the RPA to the exclusion of all other pre-existing interests. The second limb of Barnes v Addy exception cannot apply as the requisite fraud or dishonesty is not made out. (iv) Sproule's Breach of Trustee Obligations 85The plaintiffs further seek a declaration that in failing to transfer the property to the plaintiffs upon being removed as trustees, and in subsequently transferring the property to Sproule, Cupton breached its obligations as a trustee under the WFT. 86It is correct to assert that, except with the consent of the court or pursuant to an express power contained in the trust instrument or with the assent of all the beneficiaries, a trustee must not purchase the trust property either directly or from the co-trustee or trustees: see Jacobs Law of Trusts , seventh edition at page [414]. Further, the director of a trustee company cannot purchase property of which the company is trustee: Re James . However, it is crucial to note that if the trustee/director has retired before agreeing to purchase the transaction will not be voidable ipso facto; rather its validity will depend on whether the court is of the opinion that the trustee acted improperly: Willams v Scott; Aberdeen Town Council v Aberdeen University; Randall v Errington; Souter v Souter; Clay v Clay . 87It is therefore important to observe that as at the date of Sproule's registration, Cupton had been deregistered as a company and had been formally removed as Trustee for the WFT. Sproule therefore, on the authority of Re James , was entitled to purchase the property and in doing so did not breach any directors duties to Cupton providing that she did not act improperly in this transaction. As discussed in relation to the November transaction, as discussed above at paras [46] - [56], and the registration of Sproule at [57] - [66], the finding that Sproule acted dishonestly and here in my view improperly cannot be made out on the facts. For reasons already discussed it is probable on the evidence that Sproule clearly believed that the WFT was no longer in existence and there was no active attempt by her to defraud the trust of its property. It seems on the evidence that Sproule in fact believed that the trust no longer existed in November because Weige was prepared to sell his interest in the property at that time. The fact that Sproule also did not inform her father Brian Sproule or solicitor Mr Carrol at the time that she knew or suspected that a trust existed or that Weige was a trustee corroborates the notion that Sproule was not aware of the continuing existence of the trust or any potential conflict this may have with her own interest as negotiated between herself and Weige. 88It therefore follows that the plaintiffs claim for a declaration that in failing to transfer the property to the plaintiffs upon being removed as a trustee and in subsequently transferring the property to Nicola Sproule, Cupton Pty Ltd breached its obligations as a trustee under the WFT must fail.

(v) Sproule as Constructive Trustee 89Further or in the alternative the plaintiffs allege that as the registered proprietor of the property from 27 May 2010, Sproule holds the property as constructive trustee for the WFT. 90The issue of whether Sproule holds the property as constructive trustee has been dealt with in relation to the question of indefeasibility in paras [57] - [66] above and for the reasons expounded there a constructive trust should not be imposed. The additional or alternative Muschinski v Dodd constructive trust based on unconscionability must also fail for the same reason: no requisite unconscionability by Sproule can be established on the facts.

(vi) The Status of Cupton 91The plaintiffs allege that if an order is not made transferring the property into the names of the plaintiffs as the remaining trustees then the property ought to be transferred back to Cupton and the membership and directorship of Cupton ought to be transferred back to Weige and Heelan. They assert this on the basis that on or about 26 July 2006 Cupton was incorporated with Weige as the sole director; Heelan as the public officer; Heelan holding one share and Weige holding three shares as trustee for the IEM trust and that on or about 14 November 2006 an agreement was reached between Weige and Sproule that Weige would: sell 4 shares (the plaintiffs Statement of Claim refers to 3 but I can only interpolate that this must be a typographical error given that they refer to 4 in their oral and written submissions) and resign as director in consideration for the $15,000 paid to him by Sproule. They assert that at the time that this agreement was made, Sproule did not and never has paid the $15,000 to Weige. They then allege that on or about 7 December 2006 and in the absence of the payment of $15,000 by Nicola Sproule, Weige terminated the Agreement and that on or about 23 March 2007, Sproule caused to be lodged with ASIC a change of company details form transferring Heelan's 1 share in Cupton to Weige. 92The plaintiffs go on to allege that the lodgement of the form transferring Heelan's 1 share to Weige was invalid in that: no agreement existed between Heelan and Weige to transfer the share to Weige; the transfer was effected without the knowledge or consent of either Weige or Heelan; no other right existed at law for Weige to be registered as holder of the Heelan share and no instrument of transfer existed pursuant to s1071B of the Corporations Act 2001 (Cth). 93It is clear that Weige did not have the authority as three quarter shareholder in Cupton to sign over Heelan's share of Cupton to Weige. It follows that Weige's alleged transfer of the four shares to Sproule was not effective at law. 94It should be noted that these findings have no bearing on the question of who is entitled to the beneficial interest in the property. Even if it were established that Sproule has no position as an officer of Cupton Pty Ltd and that Weige is the sole director of Cupton, this does not alter the findings that Sproule took as a bona fide purchaser for value without notice and without fraud or dishonesty. 95The defendants make a further submission that an inference should be drawn against the plaintiffs in relation to the sale of the shares due to the third plaintiff, Paul Miller's, failure to give evidence. They allege that Miller's evidence would have been significant because Miller was involved in the establishment of Cupton Pty Ltd and the purchase of the Lower Mangrove Property and because he was involved in the sale of "IEM" shares to Sproule in November 2006. In light of other findings it is unnecessary for me to determine this issue. I must say however given Miller's lack of direct involvement in the relevant issues here I am by no means persuaded that a Jones v. Dunkel inference necessarily arises.

(vii) Blaydon's Interest 96The outcome for Blaydon in the matter is entirely dependant on the manner in which the interests between the plaintiffs and the first and second defendants are apportioned. Given that Sproule obtained a half beneficial interest in the property through a loan advanced from Blaydon in 2006 and as at May 2010 has the legal title over Cupton, there is no issue with regards to Blaydon maintaining a fully secured interest in the property in the form that they claim. 97As Blaydon rightfully points out in submissions there is therefore only a claim against Blaydon if the plaintiffs succeed against the first and second defendants. Because no finding against the first and second defendants has been made, there should be no subsequent finding made against Blaydon. 98Therefore it should be found that Blaydon's registered mortgage is in fact secured against the property located at 4015 Wiseman's Road, Lower Mangrove in New South Wales and that Blaydon's registered mortgage secures the amounts loaned by Blaydon to Nicola Sproule. Further, it is the case that the indefeasibility of the mortgage is not in the circumstances defeated by fraud. 99It follows from the above that the plaintiffs have failed and I am of the view they are not entitled to the relief claimed.

Orders 100(i) The appropriate order will therefore be that the plaintiff's claim is dismissed. (ii) Order the plaintiffs pay the defendants costs of proceedings. (iii) I would invite counsel to prepare short minutes reflecting these orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 October 2011

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