Hellenic Property Holdings Pty Ltd v Makaritis

February 2019: proposal to buy the Property in Mr Tanweer's name

1. On 24 February 2019, Luke sent Peter a text message concerning a proposal that the Property be bought in the name of Mr Yousuf Tanweer, who was Luke's partner at the time. Although the idea was not ultimately pursued, the terms in which Luke put the proposal remained significant in terms of his contemplation of a potential trust structure: "Hi Peter, I've been thinking about what you said about buying the house. I'm leaning towards doing it. Still subject to what happens with Glebe - but if I can do both I will. I have certain conditions though that must be met. One of them being a contract will be formed as a Deed that the house will be bought in the name of Joseph (in his legal name of Yousuf Tanweer - because Candice has never known him as that), but the deed will specify Yousuf only holds the property as trustee for William Makaritis and Luke Makaritis and me and dad jointly will be responsible for [t]he mortgage repayments not Joseph. Dad and I will secure the mortgage with our joint incomes (my wage and his pension) the Deed will specify that equitable ownership of the property is acknowledged to be 50% William Makaritis and 50% Luke Makaritis but for the purposes of decision making as to what happens with the property (re: renovations etc.) the voting power for decisions will be 49% Dad, 49% me and 2% Joseph as trustee. It just makes things operate so that a clear majority decision can be followed."
2. The text continued: "The reason why Joseph is two-fold: Candice won't recognise that name as being him and Joseph is eligible for the first home buyers grant of $10,000 plus no stamp duty. I [Luke] also am eligible BUT I want to use that on Glebe since the stamp duty will be much higher on that property. I believe this can work ou[t] well; but I suspect I may need your help convincing dad. It being in Joe's name and him having 2% decision making rights may put him off. But I think this will work out in the best interests of all of us. The Deed will specify that Joseph MUST sell the property to the Makaritis Family trust at the time specified by a vote of the property decision makers. In other words - whenever we're financial enough when dad and I vote that he must sell to our family trust he must do it. That way everyone is protected. Dad is coming here on Wednesday evening. Sometime after Wednesday [27 February] if you're around Rockdale pop in and we can discuss putting all of this into concrete action. Dad and I must jointly approach potential mortgage[e]s ASAP."
3. On appeal, HPH submitted that little could be gleaned from a message that revealed very preliminary thinking. So much might be accepted, and his Honour did not place undue weight upon it. Rather, what the primary judge saw as significant in this text message was that it showed that "from the outset, Luke saw the Trust as a vehicle for both himself and Bill": at [142]. In so far as the trust structure was developed, it was a structure that Luke had envisaged, even at this early stage, would enable both him and his father to have an interest in the Property.
4. The context in which Luke sent this text message to Peter is important. As Luke set out in his affidavit of 29 July 2022 (at [52]), from late February 2019, Bill, Peter and Luke were considering how Bill could pay Candice pursuant to the FCC orders and also retain the Property. Luke gave evidence of a conversation that took place on or about 21 February 2019 (a few days before he sent the above text message to Peter) to the following effect: "Bill: 'Peter, what am I going to do if I can't raise enough money on my own? Will you buy the house, and I can make the mortgage repayments and buy it back from you later? Or can you go guarantor?' Peter: 'I can't Bill, I've got enough financial problems of my own. I'm no longer working at the car dealership. I only resigned in December, and I've been self-employed driving with Uber ever since. No bank will give a loan to a self-employed person with only two months of working history. The only way they'd accept me as a co-borrower on a loan application is if I offered my house as collateral as well. Simone would kill me if I did that. Luke, you should buy the house for your dad or help him.' Luke: 'I don't really want to buy the Maryland house. I want to buy a house of my own. A friend of mine owns an apartment in Glebe, he's offered to sell it to me before he lists it so he can save on advertising and estate agent commission. I don't want to let the Glebe opportunity go.' Bill: 'Come on Luke, you heard what I said to Peter. I'II make all the mortgage repayments.' Luke: 'It's not that simple. If I buy Maryland before Glebe, that means the first home buyer's grant and stamp duty exemption I'm eligible for will be wasted on the Maryland property. Glebe is worth a lot more so it's better to apply it there. It doesn't really matter who pays the mortgage as far as the bank is concerned. If it's in my name, it's my liability. That will prevent me from being able to get another mortgage for [a] second property. Unless maybe it is owned by another entity like a company or a trust.' Peter: 'What about the company/trust option you mentioned? If you buy the place at Glebe for yourself maybe you can consider a company or trust to purchase Maryland?' Luke: 'It's a possibility, but we have to look into it with financial institutions to see what works first. I'm considering establishing a Trust anyway to hold other investments. I have ambitions to eventually set up my own law firm, which would be ultimately held by a Trust. That way profits could eventually be shared amongst beneficiaries to share the tax burden. An investment property that's rented out could work the same. Collect rents and after the mortgage is paid off and there's profits income can be distributed to beneficiaries.' Peter: 'Yeah exactly, that sounds ideal, why don't you do that Bill. Look at setting up a Trust with Luke and pay the mortgage down faster, you'll be back on your feet again in no time.' Luke: 'The whole idea of the Trust and paying down the mortgage faster is premised on the idea that the property is rented. Dad would need to move out for the plan to work. Anyway I said I would consider it, but no guarantees. Like I said, Glebe is my first priority.'"
5. The final comment that Luke recalls making as part of this conversation referred to Bill having to move out "for the plan to work". However, Luke also gave evidence in his 29 July 2022 affidavit that on or about 24 February 2019, he requested that Bill arrange rental appraisals for the Property, which "should consider the rental value of the house with a granny flat and the house with two additional bedrooms": at [53]. He also began researching granny flat construction companies and told Bill about a company called Backyard Grannys Pty Ltd (Backyard Grannys): at [54]. As will be seen below, construction of a granny flat on the Property was factored into the financial arrangements that Luke and Bill sought to put in place in the coming months, expressly on the basis that it would be an alternative place of residence for at least Bill, and perhaps also Luke.
6. On or about 27 February 2019, Bill arranged for a rental appraisal from Reece Realty: at [22]. The appraisal, a copy of which was also addressed and sent to Luke, provided a rental estimate if the Property was marketed as a six-bedroom or four-bedroom home, and in each case, with a three-bedroom granny flat. On 18 March 2019, Bill emailed Backyard Grannys requesting a quote for the construction of a three-bedroom, one-bathroom granny flat, in which he wrote that he was "looking to start construction within 3 months" subject to securing finance. On or around 28 March 2019, Backyard Grannys provided a quote estimating the cost of design and construction at around $123,775 (incl GST).

Discussions with ANZ

1. Also on 18 March 2019, Bill approached ANZ and spoke with Dinesh Jayasuriya, Branch Manager at the Newcastle West Branch. In email correspondence between Mr Jayasuriya, Bill and Luke over the course of 18 March and 19 March 2019: 1. Mr Jayasuriya initially indicated that Bill could borrow an amount of about $215,000 on his own and then a further $50,000 could be borrowed jointly by Bill and Luke, although he foreshadowed that it would be difficult to convince a loans assessor that Luke would get a benefit from being a co-borrower on the smaller joint loan. 2. Mr Jayasuriya stated that if they set up a trust, "as long as the Trust has powers to borrow funds, etc - with a company as corporate trustee, we should be able to consider the Director[']s income and borrow funds". 3. Luke provided Mr Jayasuriya with home loan applications from Bill, and from him and Bill as "co-borrowers". 4. Mr Jayasuriya responded, stating that upon review, neither the amount that Bill could borrow on his own nor the amount that Luke and Bill could borrow jointly would be enough for their requirements. 5. After some confusion regarding whether it was necessary to make a rental allowance in the application for Luke, Luke clarified that the "current idea" was that "the trust (through my dad and I as joint trustees) raise a mortgage to buy the property at Maryland, we then build a 3 bedroom granny flat and live there at Maryland in the granny flat renting the house out for $500pw". 6. On that basis, Mr Jayasuriya indicated that if Luke could get his personal loans and credit card paid off and cancelled, the trust could borrow about $298,000.

Application to Pepper Money and incorporation of HPH

1. On 19 March 2019, Luke also approached John Carey, a lending specialist at Pepper Group Ltd (Pepper Money), to refinance the Property and to fund construction of a granny flat. In an email from Luke to Mr Carey dated 21 March 2019, which was copied to Bill, Luke wrote: "I've spoken to dad about the various options (he is cc'd into this email) and he has decided that the way we should proceed is as follows: He understands that the Lender will require that it be shown my name is attached to the property in some capacity showing legal interest. He prefers that we borrow enough now to cover stamp duty also so that we can set up a company in which both dad and I are co-directors and shareholders. After speaking to dad, he does not want to go down any other path. He prefers we have a company as legal owner for taxation reasons - so that any rental income earned from the property will be tax payable by the company and will not affect either his or my own existing taxation arrangements. … Can you please therefore process the loan application on the basis of the primary lender [sic] being Hellenic Property Holdings Pty Ltd with William Makaritis and Luke William Makaritis as guarantors. As for the loan amount, having discussed matters with dad further, we now have a preference to borrow enough money to cover the stamp duty and transfer for conveying the property into the Legal Title of [HPH]. Therefore, we wish to request the following amount: 1. $265,261 - Pursuant to Court Orders for Property Settlement with dad's ex-partner; 2. $119,000 - Granny flat construction …; 3. $42,000 - to discharge the existing mortgage with the ANZ Bank; 4. $28,500 - to satisfy my personal car loan; 5. $16,000 - to cover stamp duty and transfer of house to the company. ________________ $470,781 Is it possible to proceed on this basis? If so, and if you believe the loan application and serviceability is fine having considered everything we discussed in addition to the above, then we would like to proceed on that basis. We will not establish the company until such time as you confirm the loan is serviceable and pre-approval likely." Mr Carey gave an early indication that same afternoon that the loan could be approved, subject to a credit assessment.
2. According to Luke, and as the primary judge set out at [106]-[108], he and Bill had a number of conversations around this time about what would be the nature of Bill's interest in the Property, the first of which was prompted by receipt of Mr Carey's email and related to the implications for Bill's pension of his involvement in the trustee company: at [107]. The following day, 22 March 2019, Bill told Luke that he could not be involved in the trust in any official capacity, and that he would "be a beneficiary only": at [107].
3. Luke also recounted, in his affidavit of 29 July 2022, a further conversation with Bill that same day: at [109]. The primary judge set out the conversation in [108]. As HPH placed some reliance upon it on the appeal, I will also reproduce it: "Luke: Since you've decided not to take any active role within the Trustee Company, you realise that I will be in control of the Trust, don't you? I need to be very clear on this, because I will not participate in a Trust structure where the whole thing is a sham and a mere façade for you still controlling the house at Maryland. Bill: Yes. I understand Luke. Luke: If the Trust owns it, it belongs to the Trust and it's in the Trustee Company's discretion how to deal with the property. I know that long-term you wanted to live in the house, but you realise that until the Trust starts generating profit you'll probably have to move out for a while to maximise rental income. Then when we get the mortgage under control we can perhaps consider the possibility of you moving in to the granny flat. Bill: I understand getting the mortgage under control but can't I stay here anyway? Luke: How are the Trust's expenses ever going to get under control if you never leave? The only way I see that scenario working is if you rent from the Trust, that way the Trust gets to meet its expenses. If you are genuinely paying rent to the Trust, you may even be entitled to rent assistance from Centrelink. Bill: Yes, that's true. I'll think about it. Dennis [Bill's friend, Dennis Zambelis] said I could stay with him if necessary. I might just move in there until the Trust is finally secure. Luke: In the long term, since I control the Trust, I may use this same trust to own shares in my future law firm. Bill: Don't you want to keep it separate from me and Adam and Sienna? I'm selling the house to the Trust to keep it in the family and generate income for the good of the whole family, I just don't want you to cut Sienna and Adam and me out. Luke: I won't cut anyone out. If it makes you feel any better, I'll write it in the Trust Deed that you and me are default beneficiaries and if we die, any offspring from either of us becomes default beneficiaries. That way it covers Adam and Sienna, and their children and the next generations also. Bill: Okay, send me the paperwork when you establish the Trust, and I want the original papers not a photocopy. I want Peter involved too." (Emphasis added.)
4. The primary judge found that what Luke said in the passage I have emphasised acknowledged, implicitly, an understanding that the objective of the transaction was for Bill to be able to live rent-free at the Property for life, even if he might have to move out "for a while" to get the mortgage under control: at [143]. It is also the case, as HPH emphasised on the appeal, that Luke referred to Bill moving into the granny flat as a "possibility". However, Luke's use of that qualification does not undermine the existence of the contemplated objective at this time, particularly when viewed in the context of surrounding circumstances. As Bill said in the same conversation, he was selling the house to the Trust "to keep it in the family and generate income for the good of the whole family". It was made clear to Luke that although he (Luke) would control the Trust, Bill did not want Luke to cut him (Bill) out, or to cut out Bill's other children.
5. On 22 March 2019, Luke incorporated HPH and provided the ABN and ACN to Mr Carey. The following day, Luke submitted a formal loan application to Pepper Money, with HPH as borrower and naming Bill and himself as guarantors. The application was for a principal and interest loan of $471,000 to HPH with a loan term of 30 years: at [27]. Luke abandoned the loan application with ANZ a few days later, on 26 March 2019.
6. On 26 March 2019, Luke sent an email to Pepper Money which attached the rent appraisal for the Property to which I have referred above at [25] and which included both the existing house and the anticipated granny flat. Consistently with the conversation that took place between Bill and Luke on 22 March 2019, Luke also referred to "[t]he plan" that Mr Carey had been told verbally, as being "for my father, William, and myself to move into the granny flat once it is constructed to take the benefit of the … rental income from leasing out the existing four-bedroom home".

Incorporation of the Makaritis Family Trust

1. Also on 26 March 2019, Luke arranged for the execution of a deed of settlement of the Trust, with Peter the settlor of the trust, HPH the trustee and Luke the appointor (the Trust Deed): at [28]. The Trust Deed named Bill and Luke as "primary beneficiaries", along with "any legitimately recognised heirs, successor and descendants' ex sanguinis [sic]" of both Bill and Luke. HPH, as the trustee, was given a discretionary power to appoint the trust income to the named beneficiaries, as well as to remove beneficiaries with the written consent of the appointor (Luke). As the appointor, Luke had the power to appoint or remove the trustee: at [29].
2. The terms of the Trust Deed were not consistent with either Bill or Luke having a legal or equitable interest in the Property. According to the Trust Deed, they were discretionary beneficiaries of the Trust. The primary judge found in this respect that although Luke was, by this time, legally qualified, he appeared to have little understanding of the way a discretionary trust worked: at [184]. However, rather than being a case of Luke "ensnaring his father in legal concepts that he understood and he knew his father did not", his Honour considered that it was "a case of both of them blundering into a structure which was not suitable for their plan (in fact, considering Bill's desire in maintaining his pension, it may be that no properly functioning legal structure would have been suitable)": at [184]. I will return to the significance of Bill's pension shortly.
3. Senior Counsel for HPH relied on the finding of the primary judge regarding Luke's lack of understanding (about which he gave evidence in the course of cross-examination), but nonetheless submitted that Bill's approval of the trust structure, and various statements he made over time that he did not want to have any interest in the transaction other than as the vendor, was inconsistent with a plan which entailed him having an interest in the Property that would support the imposition of a constructive trust. He submitted that the relief that the primary judge ultimately granted bestowed on Bill the very thing he stated that he did not want.
4. These submissions sought to attribute to Bill an understanding of the intricacies and consequences of the transaction that the primary judge found that Luke, who was legally qualified, did not grasp; and against a background of needing to obtain finance so as to pay out his former partner, with increasing urgency as time went on. Further, and in any event, what the conversations about which Luke gave evidence and the contemporaneous documents demonstrated was a consistently contemplated intention on the part of Bill and Luke to keep the Property in the family, both as an income stream and as somewhere that Bill could live.

Pepper Money's conditional approval of the loan

1. On 2 April 2019, Pepper Money conditionally approved Bill and Luke's loan application. The loan amount was $464,000 for a term of 30 years at a wholly variable rate of 4.52% per annum (indicative only), and with indicative monthly repayments of $2,356.54. The approval was subject to a number of conditions, including, relevantly, that both Luke and Bill be directors of HPH.
2. On 3 April 2019, Luke and Bill sent a lengthy letter to Pepper Money in response to the proposed conditions of approval. As with the preliminary text message of 24 February 2019, the primary judge characterised this letter as being at odds with Luke's case that Bill was no more than a short-term tenant of the Property and a discretionary beneficiary under the Trust. Relevantly, the letter stated that the intention of Luke and Bill, once the granny flat was constructed (in three or four months), was to move into the granny flat so as to capitalise on the maximum rental stream from the existing house. Luke also addressed in some detail the proposed condition that Bill be a director of HPH, writing: "This particular request is the condition that is most problematic for us. As explained on the phone at the time of making the application, the whole purpose of establishing a company to act as corporate trustee who holds the property in legal title as trustee for the Makaritis Family Trust was so that we can have a legal structure that makes absolutely clear the beneficial and equitable interest in the property vests in William Makaritis and Luke Makaritis, with the company being the legal entity to hold it in legal title. The reasons behind this are several, firstly it is a way to safeguard the property in a way that does not require succession laws to come into play in the event that one of the interested parties on the trust deed passes away. Everything can continue unaltered with the appointment of a new Director(s) of the Trustee company that can be taken care of in the will of the deceased. Secondly, with a company holding legal title, the rental income expected to be gained from the property which will assist with the exit strategy outlined above will not in any way affect the present disability support pension of Bill Makaritis. This is the deliberate reason Luke Makaritis was listed as sole director of the trustee company. Should we comply with the request presently made by Pepper Home Loans, we submit that this will in fact only serve to complicate matters further for Bill Makaritis with respect to his income from Centrelink, causing a review of his pension that may result in a lessening of it which would be a disadvantage not only to Bill Makaritis but also to Pepper Home Loans as far as the serviceability of the mortgage repayments are concerned. With a trustee company with Luke Makaritis as sole director holding the property very clearly as trustee for the benefit of those named in the Trust Deed, we have a legal entity and legal structure whereby it is undeniable that beneficial and equitable interest vests in both Bill and Luke regardless of who the directors of the Trustee company may be. By keeping Luke as sole director of the trustee company, with the way the trust deed is written, this in no way compromises Bill as having a legally established and enforceable interest in the property but it avoids the unfortunate side step of his being a director of the corporate trustee from causing a review and possible lessening of his Centrelink pension income. By leaving the structure as it currently is without adding Bill Makaritis as a director of the company, we submit that his pension will not be upset and that there is a legal structure in place protecting everyone's interests. By leaving things as they are, Bill's pension income will only be affected by Centrelink if and only if the Trustee of the Makaritis Family Trust declares the beneficiaries will receive a pay-out of investment income or capital from the trust. However, we can confirm as alluded to above in the exit-strategy section, the plan is that the Trust will NOT be declaring any such discretionary pay-outs while the mortgage remains an undischarged liability. Therefore, with the trust diverting all of its income and capital towards the mortgage liability with Pepper Home Loans, Bill's pension income will not be affected. If however, Bill is added as a director of the Trustee Company Hellenic Property Holdings Pty Ltd, his registration with ASIC will need to be declared to Centrelink, with Commonwealth Government data matching software and laws, all such Commonwealth Government agencies share data in any event and it is argued that by complying with this condition of Pepper Home Loans that both Bill Makaritis and Pepper Home Loans themselves will be disadvantaged by any potential adverse consequences of adding Bill as a director will have on his pension income. Therefore, we respectfully request that Pepper Home Loans review this requirement and dispense with it as a condition for the reasons above." (Emphasis added.)
3. The primary judge found that what Luke communicated to Pepper Money in this letter reflected the objective of the trust structure, even if it did not reflect the terms of the Trust Deed. The corporate trustee was to purchase the Property but it was to be held on trust for Luke and Bill, in accordance with their plan to develop it: at [144]. As Luke wrote in the letter, the fact that Bill was not a director of the corporate trustee was not intended to compromise his having an interest in the Property.
4. Ultimately, Pepper Money insisted that Bill be a director of HPH. On 8 April 2019, Luke withdrew that loan application.

The application to St George Bank

1. Around the same time as he was negotiating with Pepper Money about the conditions, Luke approached a mortgage broker, Daniel Patch, to broker a loan from St George Bank (St George): at [67]. In an email to Mr Patch dated 5 April 2019, Luke set out the following: "We are going to engage a conveyancing law firm to handle the sale (but no real estate agent). A company that I have set up will purchase the home in order to satisfy Order 1 of the Court orders. The company (of which I am director) will still hold the property as trustee for the Makaritis Family Trust, and in the trust deed myself and my dad will be the named beneficiaries, therefore the company will hold the property after the sale on behalf of us both beneficially. Therefore, we'd like to proceed with an application for a $490,000 loan to give effect to the sale (covering conveyancing fees and stamp duty also) and the construction of the granny flat will still go ahead as part of this loan. The only difference now being it is not a refinance on dad's part but in order to satisfy existing court orders it will be a sale from dad to my company which is a trustee of a trust for the benefit of dad and myself (and for inheritance reasons our successors in the event of death). We are now keen to try and get this moving ASAP so the sale can go ahead…" (Emphasis added.)
2. On 7 April 2019, Luke emailed a completed application form to Mr Patch. In the covering email, Luke wrote: "In the attached application you will notice that the application is in the name of the company of which I am sole director ([HPH]) as applicant 1 with myself listed as 'Applicant 2'. Although we originally discussed my dad being involved, we have decided against going down this path, as with dad being [a] pensioner it does not add much extra value and instead may only complicate things. This is instead an application for myself as potential purchaser of the property through my company and dad's only role will be the as the [sic] vendor in the conveyancing aspect of the transaction, he will therefore have nothing to do with the ongoing mortgage or this application. … Therefore, I will be the sole applicant through my company with myself as guarantor in personal capacity, and the company if successful in this loan application for $490,000 will purchase the property from my dad for $470,000. So the loan for $470,000 is for a pure purchase. My dad and I however, have agreed that, after settlement, once I effectively own the property, he will agree to use part of the $470,000 sale proceeds to fund the construction of a new granny flat in the back yard. He will do this in exchange for me agreeing he may live there with me rent free for the rest of his life, or until he chooses to move on." (Emphasis added.)
3. Consistently with the covering email, in response to the question in the loan application "What are you wanting to do?", Luke wrote: "Purchasing the old family home cheaply from my dad (approx for 80% of its market value), build a granny flat in the large backyard for dad and I to live in, and rent out the main residence for additional income."
4. In answer to the question, "Any specific goals or objectives for this loan?", Luke wrote: "Purchase home from my dad for $470,000. From those sale proceeds, once received dad has agreed to fund the building of a granny flat for him to live in rent free for life and to add value to the property purchased."
5. The application also referred to the rent appraisal obtained in March 2019 (see [25] above), and the agent's estimate of being able to rent the house two to four weeks after it was listed. Luke stated in the application that the house would be available for listing once the granny flat was constructed.
6. Senior Counsel for HPH accepted that HPH was "stuck with" with what Luke wrote in the loan application about the purpose of the loan and its objectives. So also was HPH stuck with the terms of Luke's covering email to Mr Patch. As Bill submitted on the appeal, the express intention of Luke and Bill, in terms of the structure of the sale and purchase, contemplated that the loan funds would cover construction of a granny flat with a view to Bill living there, rent-free, for life, while the main house would be leased for additional income. The primary judge noted at [114] that in cross-examination, Luke acknowledged that at this time, he and Bill "again agreed that they would live in a granny flat on the property while the rest of the property was rented out", and that Luke had not suggested to Bill that he would need to pay rent to live at the Property, or that he would need to move out of the Property if the rental income was not enough to cover interest payments. This evidence gives context to the earlier conversation of 22 March 2019, on which HPH placed some reliance on the appeal (see [28]-[29] above).
7. HPH contended on the appeal that "things changed thereafter", meaning after 5 April 2019 (or, perhaps, 7 April 2019, when Luke submitted the application to Mr Patch under the covering email I have extracted above). In its written and oral submissions, HPH relied in this respect upon: 1. a number of comments that Bill made in conversations about which Luke gave evidence, in April 2019 and thereafter, to the effect that his name should be left out of any transaction apart from as the seller; 2. conversations between Bill and Luke in relation to the loan application with St George (which did not ultimately proceed) and two statutory declarations that Bill executed in the context of that loan application; 3. a later application to ANZ, which HPH submitted reflected the change in plans; and 4. a conversation between Bill and Luke on 19 June 2019, when Prime Capital Securities Pty Limited (Prime Capital) appeared to be the only source of finance.
8. The primary judge accepted that there was a change of plan, but without affecting the parties' ultimate objective, "which remained, when possible, for Bill to live at the property rent-free, supported by rental income from the main house": at [146]. In challenging that finding, HPH submitted that after 5 April 2019, there was no statement by Luke or Bill from which it could be suggested that Luke and Bill would live in the Property, or that Bill would live in the Property rent-free for the rest of his life. However, the circumstances as a whole, between Candice's agreement to Bill buying out her share of the Property and settlement of the sale, and, indeed, what occurred thereafter, did not support the demarcation that was central to HPH's appeal.
9. The first of the matters that HPH relied upon, namely, that Bill's insistence that his involvement in the transaction be limited to his role as the vendor, already formed part of the basis on which Bill and Luke were proceeding in early April 2019, and there was no relevant change in Bill's attitude after that time. As I have set out above (at [35]), that Bill wanted to limit his involvement in the transaction did not negate the intention to keep the Property in the family as an income stream and as accommodation for Bill. That this continued to be the plan throughout April was supported by Bill's email to Backyard Grannys on 26 April 2019, in which he referred to "the bank" being up to the last stages of approval and wrote that when finance was approved "we will be ready to proceed".
10. The second of the matters on which HPH relied requires some further explanation. As Counsel for Bill observed in his oral submissions, there is little in the way of evidence as to why it took so long for St George to respond to the loan application that Luke submitted in early April 2019. However, by the end of May 2019, St George was requiring further information. On 23 May 2019, Luke sent Bill an email, titled "Stat Dec and ANZ discharge", asking Bill if he was "happy with" the two attachments. On 24 May 2019, Bill executed a statutory declaration for St George, the relevant parts of which stated: "… 2. I have agreed to sell the property to a company registered as Hellenic Property Holdings Pty Ltd (ACN: 632 448 241), the sole director and shareholder of which is Luke William Makaritis. 3. The agreed consideration for the sale of the property to the abovenamed company is $470,000. It is my understanding that the mortgage the company has applied for is $490,000 and that the extra $20,000 beyond the consideration price to be used to cover the stamp duty payable. 4. Of the $470,000 the company will obtain in finance, I have agreed to gift the following amounts to Luke William Makaritis for the below stated purposes: 4.1 The approximate amount of $22,230 to pay out a car loan to Nissan Financial Services; 4.2 The approximate amount of $3,800 to pay out a personal loan to Society One; 4.3 The approximate amount of $136,320 to pay for the construction of a granny flat at the property. … 9. With the expenses at 4.1 - 4.3 having been fulfilled, I acknowledge that the fulfilment of those expenses plus the discharge of my existing ANZ mortgage and the sum of $265,650 to be received by me satisfy full consideration of the sale of the property and that I have no personal interest or claim on the property thereafter."
11. The primary judge summarised, at [115], Luke's recollection of the background to this statutory declaration in his oral evidence: "… SGB [St George] wanted Bill to acknowledge that part of the loan would be used to pay off Luke's personal debts, and to allow SGB to withhold some of the funds for the granny flat. According to Luke, with some reluctance, Bill agreed to sign the statutory declaration. Luke could not positively deny that he had told Bill that there was 'nothing to worry about' in signing the statutory declaration, as he had no clear recollection."
12. On 4 June 2019, Luke emailed Mr Patch stating that settlement needed to occur the next day and that funds from St George were required to facilitate the purchase of the Property: at [36]. However, that same day, St George asked that the consideration for the sale of the Property be reduced to $333,000 (rather than $470,000). According to Luke's evidence, the rest of the loan monies would still be disbursed as agreed for the granny flat build, a car loan, and a personal loan; but not as part of the consideration for the sale. Bill would be required to execute a further statutory declaration, accepting the reduced consideration price and acknowledging that, although this amount was under market value, he had no claim on the Property beyond the sale.
13. According to Luke, when he phoned Bill informing him of St George's latest request, he refused to reduce the consideration price. However, Bill reconsidered his position when, on 5 June 2019, the FCC made an order appointing trustees for the sale of the Property but stayed the order until noon on 26 June 2019 on the basis that if Bill paid Candice the settlement sum (now $267,000) the order would be discharged: at [36]. In an affidavit of 29 July 2022, Luke stated that on 6 June 2019 he had a conversation with Bill where "[Bill] spoke in an agitated tone of voice" and told Luke that he would not let Candice "have the satisfaction of knowing that I've lost my house" and that Luke "better find a way to make this work fast". Luke told Bill that if Bill wanted the Trust to purchase the Property in 20 days, the only option would be to accept St George's loan offer with the reduced consideration price, otherwise Bill could arrange a deal to sell to someone else and get more money for it: at [164].
14. Bill agreed to the reduced consideration price. On 6 June 2019, he signed a second statutory declaration, which Luke drafted, reflecting the reduced consideration price: at [70]. The declaration relevantly stated: "… 2. I have agreed to sell the property to a company registered as Hellenic Property Holdings Ply Ltd (ACN: 632 448 241), the sole director and shareholder of which is Luke William Makaritis. 3. The agreed consideration price for the sale of the property to the abovenamed company was originally at $470,000. 4. However, in light of my own changed circumstances, and the fact I will now no longer be assisting my son with the construction of a granny flat, I have agreed instead to lower the consideration amount. 5. The agreed consideration for the sale of this property will now be $333,000. 6. Of the $333,000 agreed consideration, approximately $43,000 will need to go to the ANZ bank to discharge the mortgage which is presently secured on the property. The balance of the consideration price is to be payable directly to me. 7. I have made this decision with my own free will and without external influence, I agree that for the full and frank consideration of $333,000 divided as per paragraph (6) above, I no longer have any claim on the property."
15. Ultimately, his Honour found that Bill's statutory declarations of 24 May 2019 and 6 June 2019 did not reflect the parties' actual intentions in so far as they stated that there was a gift to Luke of the surplus value in the Property and that Bill disclaimed any interest therein: at [145]. This finding rested, in part, on his Honour's view of Bill as a witness, stating that Bill "would have had no hesitation whatsoever in making a false representation in a statutory declaration for the purpose of procuring the loan which he wanted": at [145].
16. In challenging the primary judge's finding about the statutory declarations in [145], HPH submitted that the significance of the statutory declarations was not what Bill intended, but instead what Luke drew from them. There was no evidence that Luke was aware that the statutory declarations did not truthfully state the position so far as Bill was concerned, and it was not put to Luke that he was attempting to deceive St George in order to comply with its lending requirements. However, as the primary judge observed in the same paragraph, Luke's evidence was that he "was aware of the inconsistency" but that the statutory declarations "were his father's … not his". As Bill submitted on the appeal, there was no evidence from Luke to the effect that the statutory declarations altered what he and his father had in mind for the Property from when the loan application was submitted. On the other hand, the need for the statutory declarations was supported by Luke's evidence about what prompted the changes in the position of St George and the increasing urgency of obtaining funds having regard to the orders of the FCC of 5 June 2019.
17. In any event, on 7 June 2019, the St George loan application fell through. It came to Mr Patch's attention that Luke had recently become a casual employee, and St George's lending criteria required applicants employed on a casual basis to have been employed for at least 3 months: at [37].
18. According to Luke in his 29 July 2022 affidavit, Mr Patch suggested that it might be possible to obtain a short-term business loan to pay out Candice in the time remaining, although it would likely involve a premium in terms of interest rates: at [173]. Although Bill was unhappy with the outcome with St George, he still wanted Luke's help and asked him to try one last time for the business loan: at [173]. Luke gave evidence that the same day, Bill again rang Luke and said words to the following effect (at [175]): "I was just speaking to Peter and he suggested that you approach the ANZ bank again. Because they are the existing bank with my mortgage it might be easier for them to organise this within a short time frame. Can you draft an email to Danish [sic] and Rod Green and send it to me and Peter? Peter said this time keep it simple, don't involve me. The Trust is the buyer, I'm the seller. Suggest to them the same deal as the last one to St George: $333,000 plus consolidating your debts."
19. Despite the suggestion to keep it simple "this time" and not to involve Bill, the Trust had for some time been the purchaser of the Property; and Bill's role had been limited to that of the vendor. Accordingly, it did not follow from this conversation, or the absence from it of any reference to the granny flat or Bill living at the Property, that there was any relevant departure from the shared objective that Bill and Luke had for the Property as identified by the primary judge at [146].
20. The application to ANZ was the third of the matters on which HPH relied as illustrating a relevant change after 5 April 2019. Consistently with Bill's request, Luke prepared a draft email to Mr Jayasuriya at ANZ (which he sent to Bill and Peter), adopting the reduced consideration price from the St George loan application. Luke then sent that email to Mr Jayasuriya without any change. Relevantly, Luke wrote in this email: "… We opted to put things on hold until we had further certainty on what was happening with the possible legal appeal and my personal finances (loans and credit cards). Ultimately, we now have a very definitive answer from the Court, and we have a more finalised proposal for a loan to send through to you. The one catch is that due to the Court imposed deadline (beyond our control and this is absolute) the loan monies need to be settled and received by 19-20 June 2019 at the very latest. Our proposal is the following: I recently commissioned a fresh valuation of the house for stamp duty purposes. That valuation through CBRE, a copy of which is attached to this email, value the house at $600,000. We have decided the sole priority now is to pay out dad's ex-partner to save the house, and any talk of a granny flat (as before) can be put on hold for a later stage. What we now propose is the following. That the house be sold to the Family Trust (as discussed before) - and for this purpose the trust is established and ready - stamp duty paid on it and it is ready to go. The Trustee is a company called [HPH] (it is a non-trading company, solely a holding company that acts as trustee for the Trust). I am the sole director and shareholder of the trustee company and as such, it is solely my wage and financial information that is relevant. … The amount of the loan the trustee company is seeking is $388,300. This amount can be broken down and characterised as follows: 1. Consideration (sale price) for the property - $333,000 (with approximately $43,000 of this going to discharge the mortgage to ANZ in the name of William Makaritis and the balance payable to the vendor directly); 2. Stamp duty based on market value - approximately $23,000; 3. Discharge my Car Loan to Nissan Financial - $22,300; 4. Discharge my Personal Loan to Society One - $4,000; and 5. Consolidate my AMEX credit card - $6,000. ___________________________ TOTAL OF LOAN $388,300 For the purposes of you re-evaluating this modified application, it is proposed that the house itself will be rented out (at $500 per week as per the rental appraisal already provided to you previously), and that I will remain living in Sydney at my rental apartment, dad can also move in with me."
21. True it is that in this email, Luke stated that the granny flat proposal was to be put on hold. Additionally, he proposed that the house would be rented out and that Bill would move in with him in Sydney. However, viewed against the background of the urgent need to obtain finance to pay out Bill's former partner rather than sell the Property to a third party, it by no means followed from this email that there was any change from what the primary judge found was the ultimate objective of this transaction. Indeed, as Luke wrote in the email, talk of a granny flat was not jettisoned but put on hold "for a later stage".
22. Ultimately, the proposal to ANZ went nowhere, with Mr Jayasuriya informing Luke on 11 June 2019 that a loan to a trust would take a minimum of three or four weeks and ANZ could not meet the deadline to which Luke had referred in the email: at [38]-[39].

Prime Capital Loan

1. On 19 June 2019, Luke received, via a mortgage brokerage firm, a loan offer from Prime Capital. The offered loan amount was $400,000 for a term of 12 months (with a minimum term of 6 months) with an interest rate of 8.55% per annum, again based on the consideration price of $333,000. Later that day, Luke signed the loan approval document on behalf of HPH as the borrower and in his personal capacity as guarantor: at [40].
2. It was common ground before the primary judge that this loan was, as Senior Counsel for HPH described it in oral submissions on the appeal, "a temporary expedient, in the sense of that was the last option remaining after June 2019 and the parties either at that time or very shortly thereafter contemplated and acted upon the refinance". Nonetheless, HPH relied on the conversation between Luke and Bill regarding this loan on 19 June 2019 (being the same day as the loan was offered and accepted) as the fourth of the matters in [47] above. According to Luke's 29 July 2022 affidavit (at [185]), Bill called Luke at 10:50 pm on that date urging him to proceed with the loan. The primary judge set out this conversation at [117]: "Bill: We've only got a week left, sign it. We have no choice really. Luke: You've seen the exorbitant interest rate and other charges? Bill: Like I said, if we want the Trust to buy it, we have no choice. Luke: As director of the Trustee Company, you realise I need to ensure we meet regular repayments on this loan until it's refinanced to a better deal. You know I can't really afford that kind of money right now. Especially at 8.5% interest. We might just be rushing a decision to buy the house only for it to default and be lost again. The house cannot be rented out in its current state. No one will rent that out until the renovations are done. You realise if we go through with this it will be necessary for you to assist with payments for Trust expenses for as long as you live there and the place cannot be rented out, right? Bill: Yes, I understand, I'll cover it. I'll have to. Luke: It won't be for ever, the sooner you're able to loan the Trust funds to replace the carpet and fix the kitchen, we'll be able to rent the place out. When it's making profit, the Trust will be in a better position to become self-sufficient. Then the money you loaned can start to be paid back. Bill: It's not about the money Luke, I don't care about that. I just want to save the house for the family. That way all of us benefit." (Emphasis added.)
3. This conversation was consistent with what his Honour identified as the shared aim of Bill and Luke from the outset, that they raise sufficient funds to pay out Candice and then renovate the Property with a view to renting it out. That there was no reference to the other part of the plan, namely, the construction of a granny flat where Bill could live, reflected the circumstances of urgency at that time. As the statement I have emphasised from Bill made clear, the intention remained "to save the house for the family. That way all of us benefit." It was in that context that Bill was prepared to cover the loan repayments, in the face of the high rate of interest offered and Luke's stated inability to afford "that kind of money", pending refinance "to a better deal"; and to make other payments following settlement, including for renovations of the existing house. As Luke attributed to Bill in the first part of the statement I have emphasised, it was "not about the money".
4. The statements of this nature that Luke attributed to Bill told against HPH's submission on the appeal that Bill did not wish to give his former partner the satisfaction of having the Property sold. Bill accepted in cross-examination that this was one of his concerns. However, Bill also gave evidence that his "main concern was to, to, to stay at the house and, and do what I wanted to do and put the three kids as beneficiaries".
5. On 21 June 2019, the sale of the Property to HPH proceeded to settlement. The primary judge set out what happened at [42]: "On settlement, Prime Capital credited HPH with the $400,000 lent together with a prior deposit of $2,000. Prime Capital and its solicitors retained a total of $24,000 for borrowing and legal fees (and the first month's interest). Prime Capital made third party payments totalling $15,000, apparently for the broker's fee and mortgage insurance. Following deduction of stamp duty and other fees, $42,000 was paid to ANZ to discharge Bill's existing mortgage, and Bill received $296,000 which he used to pay Candice the $267,000 settlement sum on 25 June. There was, thus, $29,000 left over in Bill's hands."

Events after settlement

1. Both HPH and Bill accepted that the conduct of the parties after the point of acquisition was relevant to the continuation or abandonment of the joint endeavour. However, consistently with their respective cases, they sought to give a different emphasis to that conduct.

Luke asks Bill to move out

1. On 22 June 2019, Luke sent a lengthy email to Bill reminding him to take immediate steps to pay Candice the settlement sum. He also requested that Bill find alternative accommodation so the Property could be rented out, stating: "… I know this will come as a shock to you, but you were aware before settlement that if I purchased the house that I would be relying on rental income to fund the mortgage repayments. It's a very large house, you're on a pension, I know you might have expected leniency from me because I'm your son but the market rental value of the house is much more than you can afford to pay me. So by this email I'm giving you formal written notice that I require you to find alternate accommodation and move out as soon as possible. Although I agreed to let you stay post settlement, on a temporary basis; to give you time to sort out alternate arrangements, I need you to understand this time is not infinite. Time is a finite resource. Therefore, I am giving you 8 weeks notice to find alternate accommodation and to move all of your belongings out and clean up and get rid of any junk you don't want from the house. I believe 8 weeks is more than generous in the circumstances. Don't delay this - start finding a place of your own soon. I know you won't be happy with this decision but please understand that I can't afford to let you live there at cheap subsidised rent at my expense. I now have a mortgage to pay on top of my other financial commitments. Please be understanding of this and move out as soon as possible - but definitely before 8 weeks from today's date. …"
2. As the primary judge found, this email showed that Luke thought Bill would have to move out, presumably to allow for rental income from his room, but the email did not deny the ongoing shared objective of ensuring that Bill would be able to live at the Property. It should be borne in mind that, as originally formulated, that shared objective was to be secured by Bill living not in the existing house, but in a granny flat to be constructed on the Property. Although that option was described by Luke as "on hold" in the context of what became a pressing need to obtain finance, it is significant that it was resurrected shortly after settlement, with construction of the granny flat forming part of Luke's proposal to Pepper Money in July 2019 to refinance the Prime Capital loan (I will return to this shortly). This sequence of events provides necessary context for HPH's submission that, contrary to the primary judge's characterisation of the email, it indicated that Bill's stay at the Property would only be temporary.
3. As his Honour further found, the perceived problem to which Luke referred in this email was solved by Bill covering the borrowing costs pending refinance, and the email was never acted on: at [149].

Refinancing the Prime Capital loan

1. As Bill submitted on the appeal, other events that followed settlement reinforced the continued existence of an endeavour of the nature that the primary judge found existed at the time of settlement. Thus, at the beginning of July 2019, Luke approached Mr Carey of Pepper Money to refinance the Property, including for the purpose of building the granny flat: at [44]. On 17 July 2019, HPH received conditional approval from Pepper Money with Luke as the guarantor. The loan amount was $525,000 for a term of 30 years, with a wholly variable interest rate of 4.41% per annum.
2. On 23 July 2019, Mr Carey emailed Luke, noting that $417,000 would be needed to pay out the Prime Capital loan and that the construction cost for the granny flat would be $136,000, leaving a $30,000 shortfall. At Luke's request, Bill transferred $30,000 to HPH to cover the shortfall: at [45]. A written loan agreement was prepared by Pepper Money on 25 July 2019, and the mortgage with Pepper Money was executed on 22 August 2019: at [46].

The granny flat

1. Planning for the granny flat also continued. On 23 July 2019, Luke contacted Annette Mudford of Backyard Grannys to notify her that they had pre-approval for development at the Property. On 30 July 2019, Luke emailed Ms Mudford noting that they had agreed with the bank to proceed in two phases: "To work towards settlement of the loan first and paying out the outgoing mortgagee" and "[t]hen after that to begin with stage 2 being the granny flat construction". On 25 October 2019, Ms Mudford wrote to Luke and Bill notifying them that the design team would be in contact "over the next couple of days". On 12 December 2019, Ashlee Finch of Backyard Grannys sent a further email regarding price to both Luke and Bill.
2. In late January 2020, Backyard Grannys submitted a proposed design for approval by Bill and Luke. The granny flat was ultimately constructed in January 2021: at [51]-[52].

Additional payments

1. Bill made a number of additional payments after settlement, to cover construction of the granny flat and cover ongoing lending costs, to which the primary judge referred in [124]-[126].
2. I have referred above to Mr Carey's email to Luke, on 23 July 2019, about a shortfall of $30,000 after the Prime Capital loan was discharged and the cost of constructing the granny flat was factored into the loan, and Bill's payment of that amount into the Trust's bank account. In Luke's account of the conversation, which the primary judge set out in [123], Luke put the request to Bill as being for a loan to the Trust: "Luke: Pepper require the Trust to supply proof it can cover the $30,000 shortfall between the finance figure and the construction of the granny flat. They want to see that money in the Trust's account. You know the Trust doesn't have it. Would you be willing to loan it to the Trust now and be repaid when the Trust makes a profit? Or should I just refinance for now and not build the granny flat? Bill: More money again? This Trust is turning into a money pit. I'm not just giving $30,000 over like that. Luke: That's fine, I'll tell them to forget about it. Bill: Are you sure that if I paid this money into the Trust account that it will go through? We're not going to get messed around again like last time? Luke: Look, here's the letter of conditional approval. I have it in writing already and none of the conditions are difficult like last time, so I don't see any problems, but we don't have to proceed with the granny flat now. Bill: Okay, I'll do it. I can only pay $15,000 at a time, so I'll do $15,000 today and $15,000 tomorrow."
3. In the Christmas and New Year period, Luke noticed that Bill had not made any further financial contributions to the Trust's bank account, and on 2 January 2020 he asked Bill for more funds, stating (on his evidence): "Luke: Dad when the trust took over ownership you knew that for as long as the place was rented out and you remained here that I needed you to contribute to the property expenses. You haven't put anything in since July. The next mortgage repayment comes out on 5 January, can you put enough money into the Trust's account to cover it please? Bill: You're always asking for money! I gave you $30,000 for the Trust already. Isn't that enough? Luke: You knew that money had a specific purpose - the shortfall for the granny flat construction. That money is gone since just before the refinance occurred in early September. Bill: What do you mean gone? Luke: It was paid to Galilee Solicitors' [Pepper Money's solicitors] trust account to cover the shortfall between the loan amount and the refinance plus the granny flat build. Since Pepper are withholding the money for the granny flat to be drawn down slowly, the shortfall money was taken by Pepper at settlement of the refinance on 5 September 2019. Bill: Well I can't afford to keep paying, I'm running out of money. Luke: Well you'll have to move out so the Trust can have a tenant who can afford to pay. Bill: This is my home, I'm not going anywhere. I built this house when you were just a kid. Luke: It's not about the past dad, it's about the present. Either there's enough money in the account on 5 January 2020 or the Trust has its first default. Bill: Well money is tight for me too you know. Can't you at least pay half. Luke: No promises, I'll see what I can do. But you're the one living there, while there's no rental income you're it. You need to keep contributing so the Trust's expenses are met."
4. On 24 January 2020, Bill told Luke that he was going to make a further payment into the Trust's bank account, so there was enough to cover Trust expenses "to keep it going for a while until we get the renovations done and tenants in": at [126]. The renovations he was referring to related to the existing house: at [125]. According to HPH's financial statements, as at 30 June 2020, HPH was indebted to Bill in the sum of $47,000. His Honour found that the total amount paid by Bill might be as high as $56,000: at [47].
5. HPH challenged his Honour's rejection, in [150], of its submission that Bill's willingness to cover borrowing costs, and other costs associated with refinancing the Prime Capital loan and renovating the Property, indicated no more than a preparedness on his part to loan Luke money to help him out: at [150]. His Honour rejected that submission on the basis that such payments only made sense "from Bill's point of view in the context of an ongoing plan between the parties for the property to be renovated so that Bill could live there": at [150]. Having regard to the terms of the conversations about which Luke gave evidence, and viewed in the context of the surrounding circumstances, his Honour was not wrong to reject HPH's submission. HPH ultimately accepted that the character of these payments did not matter for their argument.

Conclusions on Issue 1 and 2

1. In McKinlay v Woods [2024] NSWCA 122 at [89], Leeming JA (White JA and Griffiths AJA agreeing) observed that "implicit in the element of a 'joint endeavour' which has terminated prematurely is the need to identify its scope or content". His Honour quoted with approval in this regard from the earlier decision of this Court in Zhang v Metcalf [2020] NSWCA 228, in which the Court said at [57]: "An essential aspect of the Baumgartner principle is a joint relationship or endeavour, and an asset acquired in the course of, or for the purposes of, that joint relationship or endeavour: Baumgartner at 149. That involves identifying the scope of the joint endeavour, which is a question of fact. The basis for a constructive trust only arises where there is a premature termination of the relationship: Baumgartner at 150; West v Mead ([2003] NSWSC 161; 13 BPR 24,431 at [64])."
2. Consistently with these authorities, HPH submitted that it was necessary for Bill to identify the nature, scope and purpose of the alleged joint endeavour, emphasising that in Willis v Western Australia (No 3) [2010] WASCA 56; 4 ASTLR 359 ("Willis (No 3)") at [72], Buss JA said that such identification must be made "with some precision".
3. As the primary judge summarised the joint endeavour in Makaritis (No 3) at [24], the joint endeavour in the present case involved: 1. Bill transferring the Property to HPH at an undervalue; 2. HPH constructing a granny flat at the Property; 3. HPH financing its acquisition of the Property and construction of the granny flat through external borrowings; and 4. HPH allowing Bill to continue to live at the Property, and otherwise renting it out to cover interest and other holding costs, so that Bill's occupation would be rent free if possible.
4. HPH submitted that the sale of the Property at an undervalue could not be regarded as a contribution on Bill's part to the joint endeavour, on the basis that even though HPH received the Property at an undervalue Bill received the maximum amount that the arrangement with Prime Capital permitted, and then loaned money to the Trust. The implication of this argument was that in circumstances where HPH could not pay Bill any more ($333,000 being the maximum loan amount it could obtain), it was irrelevant that Bill transferred the Property at an undervalue on the basis of a shared objective that he could live there rent free. I disagree. As I have noted above, both parties acknowledged that the Prime Capital loan was a temporary expedient to ensure that the Property would not be sold pursuant to the FCC orders. It marked, as his Honour found, a change in the plan, but not the ultimate objective of keeping the Property in the family, including Bill.
5. HPH relied on his Honour's qualification of Bill living at the Property "when possible" as supporting that the parties had not clearly agreed on the terms of the joint endeavour. I disagree. As the primary judge stated, the fact that some delay might take place in achieving that outcome, or indeed that the venture might not prove feasible at all, did not mean that it was not a "joint endeavour" for relevant purposes: at [165]. His Honour's conclusion in that regard was supported by what occurred after settlement. I would dismiss grounds 1 to 4 of HPH's notice of appeal.

Issue 3: the failure of the joint endeavour (ground 5)

1. The primary judge stated that the relationship between Luke and Bill began to break down in mid-February 2020, when Luke advertised the house on the Property for rent and prospective tenants visited: at [127]. As the primary judge recorded, around this time Bill asked Luke about the business administration of the Trust and accused Luke of having deceived him about the existence of the Trust: at [128]-[129]. According to Bill, when he asked Luke for the ABN of the Trust so that he could identify it in his will, Luke said: "Don't rile me up further otherwise I will sell the house and run off with the lot". This caused Bill to be concerned that Luke may have stolen the Property from him, and he contacted Peter: at [97].
2. On 11 March 2020, Bill sent Luke a text message asking Luke to call him within 30 minutes otherwise he would ask for his resignation as a director of HPH and require him to forfeit his shares in HPH, and, if he refused, Bill would submit "a lengthy letter to the NSW Law Society": at [99]. On the same day, Luke sent Bill a notice of termination of his residential tenancy, although Bill continued to live at the Property: at [99]-[100], [130].
3. On 15 March 2020, Luke visited the Property with another prospective tenant. He gave evidence of Bill being "extremely angry", calling Luke a "fraudster", a "failure", and "pathetic" and blocking access to parts of the house during the inspection: at [131].
4. On 16 March 2020, Luke sent Bill, by email, a letter that addressed a number of topics including HPH's ownership of the Property and amounts allegedly owed by Bill in accordance with what Luke described as an "agreement in place between us since the sale": at [74]-[75]. Attached to this letter was a notice to deliver vacant possession of the Property by 15 June 2020. By the time of the hearing relating to Makaritis (No 3), the parties were agreed that the joint endeavour broke down on the day this correspondence was sent (see [12] of his Honour's reasons in that judgment).
5. By early April 2020, Luke had let three of the bedrooms in the house on the Property: at [51]. That same month, Newcastle City Council approved the development application for the granny flat and Luke, on behalf of HPH, proceeded with its construction, in accordance with the agreement with Backyard Grannys. As I have noted above, construction of the granny flat was completed in January 2021: at [52].
6. HPH submitted before the primary judge that the breakdown of the relationship between Bill and Luke resulted from suspicions that Bill and Peter had formed which were unreasonable and that Bill had behaved unreasonably in his dealings with other tenants, which interfered with the Trust's ability to earn money: at [167]. However, his Honour did not think it was necessary to go into the "rights and wrongs of what happened", stating: "[168] In my view, Bill's and Peter's suspicions were wholly unfounded, but the fact was that the trust between the parties was lost and that made the continuation of the joint endeavour untenable. There are few, if any cases in which relief has been refused because the breakdown in the relationship was the fault of the plaintiff. As Young CJ in Eq said in Henderson v Miles (No 2) [2005] NSWSC 867 at [18], in deciding whether there has been 'attributable blame' in the context a domestic relationship, the Court is not concerned with which of the parties bears moral responsibility for the breakdown in the relationship. [169] The reason for this is not hard to see. The doctrine operates in a restitutive way. It restores to the plaintiff contributions which the plaintiff has made to property owned or controlled by the opposing party. Once the relationship has in fact broken down, it is hard to justify allowing the opposing party to retain such a windfall, no matter how badly the plaintiff may have behaved, unless that behaviour in some way makes the recovery of the plaintiff's contribution unconscionable: see Austin v Hornby [2011] NSWSC 1059 at [169]-[173] per Ward J; see also Knox v Knox (Supreme Court of New South Wales, Young J, 16 December 1994) 10. That was not suggested here."
7. In challenging the primary judge's conclusions in this regard, HPH submitted that Bill was not entitled to a constructive trust because the breakdown of the relationship was solely attributable to his conduct. Referring to his Honour's summary of what occurred in February and March 2020, HPH submitted that Bill's conduct involved alleging that Luke falsified a critical integer of the joint endeavour, which was the transfer of the Property to it as trustee. Bill was effectively making allegations of criminality in the context of Luke's efforts to advertise the Property for rent consistently with the furtherance of the alleged venture and hindered his showing a prospective tenant through the house. In circumstances where Bill's conduct was both repudiatory and harmful to the alleged joint endeavour, it was difficult to see why he should benefit from it.
8. In Pavlis v Pavlis [2022] NSWCA 281, White JA stated that "[t]he absence of attributable fault is one of the elements to be established in order to show that the defendants' refusal to recognise the plaintiffs' assertable equitable interest is unconscionable": at [44]. The attribution of blame is relevant in circumstances where the blame is attributable to the party seeking to invoke equity: NSW Trustee and Guardian v Togias (2022) 110 NSWLR 86; [2022] NSWCA 225 at [145].
9. Having regard to the evidence before his Honour, the conclusion his Honour reached regarding the breakdown of the relationship between Bill and Luke was not erroneous. Although HPH sought to characterise the joint endeavour between Bill and Luke as akin to a commercial arrangement, notwithstanding the imposition of HPH, the core of the endeavour was domestic in character, driven by a desire on Bill's part, with Luke's assistance, to keep the Property in the family. As his Honour found, Bill's suspicions regarding the Trust were wholly unfounded, but they led to a loss of trust which led to a breakdown of the relationship. His Honour correctly observed that in those circumstances, it was unnecessary to descend into the rights and wrongs of what the parties did thereafter. I would dismiss ground 5.

Issue 4: relief (ground 6)

1. Following the primary judge's decision in Makaritis (No 2), his Honour adjourned the case to enable the parties to confer on the form of orders to give effect to his conclusions, and to deal with costs. Those matters were dealt with in his Honour's further judgment, Makaritis (No 3). For clarity, I will include the reference "(No 3)" below when citing paragraphs of this further judgment.
2. The focus of ground 6 in HPH's notice of appeal was his Honour's declaration of a constructive trust in Bill's favour, specifically the provision, in that declaration, for the parties to have an equal share in any surplus following repayment of their respective contributions to the joint endeavour. By way of brief background, in Makaritis (No 3) the primary judge noted at [15] that Bill's claim at trial was for a constructive trust for his contribution to the joint endeavour. However, following his Honour's judgment in Makaritis (No 2), Bill extended his claim to include a share of any surplus, with the most recent valuation information suggesting that there may be a surplus of several hundred thousand dollars: (No 3) at [16]. The consequence of the claim extending to the surplus proceeds was that it would be necessary to quantify HPH's contribution: (No 3) at [16]. The primary judge held that on his findings, Bill was entitled to a share of the surplus: (No 3) at [19].
3. Before the primary judge, HPH submitted that Bill should not receive any part of the surplus and the whole of it should go to HPH. It emphasised that HPH was incorporated, and the Trust was established, to permit external finance to be obtained in circumstances where there was no practical alternative to doing so. That external finance was underwritten by Luke's earning capacity: (No 3) at [44]-[45]. HPH also contended that Bill was to receive no more than a right of occupation, rent free, of the granny flat, when ultimately constructed; and most of the contributions to repayment and interest had been made by HPH. Bill had contributed some funds but this had only reflected the parties' understanding that he might need to do so if there was a revenue shortfall. HPH submitted that Bill receiving any part of the surplus would thus not accord with the parties' intentions: (No 3) at [46].
4. His Honour considered that it was "too simple" to say that an equal division of the surplus would not accord with the parties' intentions when the fact was that they did not consider what was to happen with the Property if they fell out and their joint endeavour was frustrated: (No 3) at [49]. It was also too simple to say that the deployment of Luke's earning capacity through HPH was the only relevant element in financing the joint endeavour. While Luke's earning capacity was the only thing that the borrowers were prepared to lend against, it had been contemplated from the outset that the Property itself would be capable of generating income and that this would be available to help pay down the loan: (No 3) at [50]. Further, although Luke took on the risk of financing the venture in so far as rent could not be obtained from third parties, the reality was that the loan would be repaid from the proceeds of sale of the Property: (No 3) at [51]. His Honour then stated at [52]: "Most importantly, HPH was never in a position to borrow enough money to purchase the property for its full value and then to undertake the construction of the granny flat. The transaction only happened because the property was transferred by Bill to HPH at an undervalue. Bill thereby made a crucial contribution to the joint endeavour. Indeed, it appears that when the contributions are calculated in the manner I have discussed above, Bill's contribution will have exceeded HPH's."
5. His Honour returned in this context to the form of order that Deane J made in Muschinski, which he had described at the outset of his reasons as a "guide": (No 3) at [10]. Deane J made an order (at 623-4): "…declaring a constructive trust of the … property to the effect that, on and after the day on which the reasons for judgment of this Court are published, [the parties] hold their respective legal interests as tenants in common upon trust (after payment of any joint debts incurred in improvement of the property) to repay to each her or his respective contribution and as to the residue for them both in equal shares."
6. By reference to what the primary judge said about this form of order in Woods v McKinlay (No 2) [2021] NSWSC 1510 ("Woods v McKinlay (No 2)") at [275], his Honour considered that an order in the Muschinski form best reflected the rationale for equity's involvement, "namely to deal with a capricious outcome of the breakdown of the relationship between the parties, being an outcome which they did not anticipate in their earlier agreement": (No 3) at [55]. His Honour concluded: "[56] It may be significant that Baumgartner was a case involving non-financial contributions, which of their nature were not capable of being valued (as was Togias). Whether that is so or not, all of the authorities in this area emphasise that the court has a wide discretion in formulating its orders, to tailor them so as to achieve justice in the individual circumstances of the case. Counsel for the defendants did not invite me to reconsider my reasoning in Woods. [57] In Woods, there was a substantial percentage increase in the value of the property in question between when the joint venture was entered into and the time the Court came to consider the form of the orders to be made. It appears that the same may be so in the present case. In my view, justice will best be done by returning to Bill and HPH their contributions (as indexed) and then dividing the surplus equally. There will be no unfairness to HPH. It will be fully recompensed for its contributions to the joint endeavour. It can hardly complain about having to share a profit which it would never have achieved outside that venture."
7. It was common ground on the appeal that in August 2023, contracts for the sale of the Property were exchanged for $940,000, and the sale was subsequently completed.
8. By ground 6, HPH effectively reiterated the submissions it had made before the primary judge. It contended that Bill was not entitled to receive any part of the surplus proceeds from the sale of the Property in circumstances where Bill was, on the primary judge's findings, entitled to no more than a right of occupation, rent free, in the granny flat; and HPH made most of the contributions to the repayment of the mortgage. It submitted that the appropriate remedy was a charge for the value of the contribution, being the transfer of the Property at an undervalue. No other remedy was required because Bill would receive his contributions, consistently with the proposition that neither party wanted him to have any interest in the Property.
9. HPH relied on the reasoning of Buss JA in Willis (No 3), where his Honour summarised some of the principles relevant to considering the imposition of a constructive trust: "[54] Before imposing a constructive trust, the court should first decide whether, based on the questions in issue between the parties, there is an appropriate equitable remedy which falls short of the imposition of a trust. See Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566 [40] - [43] (Gaudron, McHugh, Gummow, Hayne & Callinan JJ); Giumelli [10]. [55] This point is illustrated by Morris v Morris [1982] 1 NSWLR 61. The plaintiff paid $28,000 towards an extension to a home jointly owned by the defendants (his son and daughter-in-law) pursuant to an arrangement that would provide him with accommodation indefinitely as part of his son's family. Subsequent events, not contemplated by any of the parties, included the failure of the defendants' marriage, the departure of the son from the home and a breakdown in the relationship between the plaintiff and his daughter-in-law. The plaintiff then left the home. McLelland J held that it would be unconscionable and inequitable, in the circumstances, for the defendants to retain the benefit of the plaintiff's monetary contribution towards the improvement of the home free from any obligation of recoupment. His Honour said in relation to the appropriate remedy: 'The remedies to which the principle gives rise are imposed, as is a constructive trust, in order to satisfy the demands of justice and good conscience. Indeed in some circumstances the appropriate remedy may well be the imposition of a constructive trust. However, 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 in the sum of $28,000 together with interest thereon at the rate of 10 per cent per annum as from the date of commencement of these proceedings, namely, 19th May, 1980 (64).'"
10. HPH also relied on the decision of Brereton J In McKay v McKay [2008] NSWSC 177, in which his Honour drew together several authorities on the issue of appropriate relief upon failure of the substratum of a joint endeavour: "[30] The cases to which I have referred all show that the fundamental principle in this area of discourse is the restoration of contributions upon failure of the substratum of a joint venture. They also show that in those cases that has actually been the result. None of those cases saw one party being permitted to retain the benefit of the other's contribution in return for paying out the other. Such a result would be inconsistent with the basal concept of a return of the contributions on failure of the joint venture. [31] However, too many authorities stress the flexibility of equitable remedies in this area to deny that there is at least some flexibility in what equity can decree. In particular, there is no doubt that, in an appropriate case, a charge securing the return of the contribution may be preferred to a constructive trust based on the contributions. But, from the perspective of principle and certainty, it is unsatisfactory and unhelpful, as well as inaccurate, to state that the remedy is an entirely flexible one. One needs to identify a principle that guides what is the appropriate remedy, or at least the prima facie remedy or starting point. [32] Thus, after toiling for some time with the concept of the minimum equity to do justice in the field of proprietary estoppel, the law has moved to the position that the prima facie remedy in such a case is the making good of the relevant assumption on which the plaintiff acted, although where that relief would be disproportionate to the requirements of conscionable behaviour, equity may, as a matter of discretion, decree something less [Giumelli v Giumelli (1999) 196 CLR 101; Galaxidis v Galaxidis (No 2) [2002] NSWSC 831 [52]-[55]; O'Neill v Williams [2006] NSWSC 707 [73]; Tory v Tory [2007] NSWSC 1078]."
11. HPH submitted that Bill's contribution was static, in the sense that it was a one-off. The primary judge's orders returned the "contribution" constituted by the amount of the underpayment for his initial interest in the Property. Since his later payments were treated as loans, equitable relief was not warranted in respect of them. To that extent, the general equitable principle that restores to a party contributions which he/she has made to a joint endeavour (Baumgartner, 147-8) was recognised.
12. HPH also submitted that even if the parties did not expressly consider how the equity in the Property would be split, the case was conceptually distinguishable from cases such as Muschinski, where a de facto partner might legitimately expect to receive a share of jointly-used property, and from the primary judge's decision in Woods v McKinlay (No 2), where a party expected the property to be sold and the proceeds divided between the venturers: at [63]. HPH submitted that on his own case, Bill would only ever have received a permanent tenancy; and there was no warrant for equity to confer on Bill an entitlement that the parties never expressly or implicitly contemplated.
13. HPH's submission on this ground focussed on what the parties contemplated Bill would gain from the joint endeavour had it proceeded. The issue his Honour was considering, however, was what was to happen with the Property in circumstances where the parties who had contributed to the endeavour had not contemplated what would occur in the event of its failure; and where the value of the Property had substantially increased so as to give rise to a surplus. At the core of his Honour's decision to share the surplus equally between the parties was the nature of contribution that each of the parties had made to the joint endeavour. In relation to Bill's contribution, on his Honour's analysis his selling the Property at an undervalue was crucial to the joint endeavour and ultimately resulted in his contribution exceeding HPH's.
14. HPH submitted in reply that it was ultimately (through Luke) a reluctant participant in the joint endeavour, having regard to the nature of the loan with Prime Capital. That HPH was reluctant does not gainsay its participation, nor does it relevantly affect the nature of the parties' respective contributions as the primary judge found them to be. As Bill submitted, HPH did not grapple with why equity should not permit Bill, given the crucial nature of his contribution, to share equally in the surplus. I would dismiss ground 6.

Conclusion

1. The appeal should be dismissed. There was a stay of the orders that Parker J made in place pending the hearing of the appeal, which this Court continued until the determination of the appeal. For the avoidance of doubt, that stay is no longer in operation as the appeal has been determined.
2. I propose the following orders: 1. Appeal dismissed. 2. The appellant is to pay the respondent's costs of the appeal.
3. BASTEN AJA: For the reasons given by Mitchelmore JA, the appeal must be dismissed with costs. One further observation is in order.
4. The relevant right of appeal arises under s 101(1)(a) of the Supreme Court Act 1970 (NSW), from "any judgment or order of the Court in a Division". The hendiadys "judgment or order" refers to the orders of the Court: there is no appeal from the reasoning of the trial judge, although the reasoning will, of course, inform the grounds of appeal. As explained by Barwick CJ and Kitto J in Driclad Pty Ltd v Federal Commissioner of Taxation: [1] "The taxpayers lodged notices of appeal to the Full Court which were expressed as if the appeals were against the reasons of Taylor J … rather than against the orders that he made. Needless to say, this was erroneous, because it is of the nature of appeals, as s 73 of the Constitution recognizes, that they lie only against 'judgments, decrees, orders and sentences', not against reasons. The word 'judgments' in this connexion refers only to operative judicial acts, and is not used, as it often is in other contexts, as a convenient abbreviation for reasons for judgment."
5. This principle is well-established and has been applied to appeals under State statutes. [2] A ground of appeal may challenge the adequacy of the reasons given by the trial judge, but the error, if established, must justify the setting aside of an order or orders. In any event, no such complaint was raised in the present case.
6. The orders made by the trial judge and entered on 20 April 2023 were by no means pellucid as to their operation. The Court raised with the parties aspects of the orders which appeared to be unclear. The appellant was content, if its complaint as to the imposition of a constructive trust were the only ground upheld, to support a charge with respect to such amounts as might be payable to the respondent, but without formulating alternative orders. The respondent was happy to rely on the trial judge's grant of liberty to apply if the appeal were dismissed and if there were disputes as to the operation of the orders.
7. No doubt some costs were intended to be saved by not considering the working out of the orders while a stay was in force and while an appeal was on foot which sought to have the orders set aside. However, in principle, any lack of clarity in the orders the subject of the appeal should have been resolved before the appeal was heard. Without that step being taken, there was (and is) a real concern that the dismissal of the appeal will not resolve all the issues between the parties. In that case, any initial saving of costs may prove to have been illusory. Further, the incurring of additional costs after disposal of this appeal is hardly to be contemplated, given the moderate financial benefits available to either party once legal and other costs have been taken into account. In the present case, where neither party sought to vary the terms of the orders, it is to be hoped that common sense will prevail, without the need to return to the trial judge pursuant to the liberty to apply.
8. GRIFFITHS AJA: I agree with Mitchelmore JA.

Endnotes

1. (1968) 121 CLR 45 at 64; [1968] HCA 91.
2. See, for example, McGuirk v University of New South Wales (2009) 75 NSWLR 224; [2009] NSWCA 321 at [16]; McNab v Director of Public Prosecutions (NSW) (2021) 106 NSWLR 430; [2021] NSWCA 298 at [25] (Bell P); Kramer v Stone (2023) 112 NSWLR 564; [2023] NSWCA 270 at [259] (Leeming JA).

Amendments 25 February 2025 - Headnote - case name amended [93] - case name amended 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: 25 February 2025