Parianos v Melluish

REASONS FOR JUDGMENT INTRODUCTION 1 These proceedings arise out of the insolvency of the estate of the late George Parianos ("Mr Parianos") and the failure, prior to the date of his death of his marriage to the applicant ("Mrs Parianos"). 2 The respondent, ("the Trustee") is the trustee of the estate of Mr Parianos. The Trustee is administering the estate under the provisions of Part XI of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"). 3 Mrs Parianos seeks a declaration that the former matrimonial home situated at 63 Alexandra Street, Drummoyne ("the Drummoyne property") is, and was, prior to the death of Mr Parianos, held on a constructive trust for her under the well-known principles stated in Muschinski v Dodds (1985) 160 CLR 583 ("Muschinski") and Baumgartner v Baumgartner (1987) 164 CLR 137 ("Baumgartner"). 4 The Drummoyne property was purchased in 1966 at the time of the marriage of Mr and Mrs Parianos. It was registered solely in Mr Parianos' name. Mrs Parianos claims that the Drummoyne property was held on trust for her either as a joint-tenant with Mr Parianos, or alternatively, as a tenant in common as to a one half share with her late husband. If it was held beneficially under a joint tenancy, Mrs Parianos is entitled to the whole of the Drummoyne property on survivorship. 5 The proceedings were commenced in the Family Court in October 1999 shortly before the death of Mr Parianos. Declarations were sought under ss 78 and 79 of the Family Law Act 1975 (Cth). The matter was transferred to this Court by an order of Cohen J made on 3 May 2002 pursuant to s 5(5)(b)(ii) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). The Facts 6 Mr and Mrs Parianos were married on 25 March 1966. Mr Parianos was an immigrant from Greece. Mrs Parianos had emigrated to Australia from Scotland about 17 months prior to their marriage. During the marriage, Mr Parianos accumulated substantial property interests, mostly in his own name. However, the evidence shows that without the financial assistance of Mrs Parianos, it would not have been possible for Mr Parianos to purchase the Drummoyne property in 1966. 7 Shortly before their marriage, the future Mr and Mrs Parianos were searching for a family home. They found the Drummoyne property which was for sale at Ł7000.00 (or $14,000, the purchase taking place about the time of conversion to decimal currency). A deposit of Ł700 was required. There was a discussion between them, the terms of which were not given in evidence, but after it Mrs Parianos gave Mr Parianos the sum of Ł400 which she received as a gift from her uncle. 8 Thus, Mrs Parianos contributed a little over half of the deposit. The balance of the deposit was provided by Mr Parianos. 9 Contracts were exchanged on 8 February 1966. Shortly before that date, Mr and Mrs Parianos approached the Manager of the Commonwealth Bank at Drummoyne for a loan for the whole or some part of the balance of the purchase price. The Manager told them that they did not have enough funds and the loan application was rejected. 10 Following this meeting, Mrs Parianos telephoned her sister in Scotland and wrote to her mother, also in Scotland, about the need for further funds to purchase the Drummoyne property. As a result, Mrs Parianos' mother, Mrs Mary Donaldson-Smith, sent Ł1,000 sterling to Mrs Parianos for the express purpose of assisting Mr and Mrs Parianos in the purchase of the Drummoyne property. Mrs Parianos gave this sum, which she exchanged for $A2,250 to Mr Parianos. She told him that the money was "to help us buy Drummoyne". Mr Parianos replied "Write to your mother and thank her very much." 11 Mrs Donaldson-Smith and Mrs Parianos' sisters, Ms Campbell-McGuigan and Ms Campbell-Henderson, have all given affidavit evidence in these proceedings. Mrs Donaldson-Smith, who was 91 when she swore her affidavit last year, deposed to the communications Mrs Parianos had with her in 1966 about the purchase of the Drummoyne property by "George and I". The same words were used by Mrs Parianos in conversations which she had with her sisters in 1966 and 1967. 12 After the Ł1,000 arrived in Australia, Mr and Mrs Parianos went to the Rozelle branch of the Commonwealth Bank where Mr Parianos completed a loan application. The evidence does not disclose the amount of the loan but Mrs Parianos was apparently aware that the loan application and the eventual loan approval were in the name of Mr Parianos. Mrs Parianos was employed at the time by the Sunbeam Company as a factory worker and she provided the details of her wages to the Bank as part of the loan application. 13 The solicitor who was acting on the purchase of the Drummoyne property had an office in Drummoyne. Mrs Parianos went with her husband to see him. I accept Mrs Parianos' evidence that, on her visits to the solicitor's offices with her husband, Mr Parianos described the Drummoyne property as "our home". I also accept Mrs Parianos' evidence that she believed that the title was to be taken in both names and that she did not know that the Drummoyne property was to be acquired in the sole name of Mr Parianos. 14 Completion of the purchase of the Drummoyne property took place on 22 February 1966, that is to say three days before the date on which Mr and Mrs Parianos were married. 15 It is not clear whether Mr Parianos contributed any cash to the purchase other than the sum of Ł300 which was paid as part of the deposit. He told Mrs Parianos that he had $3,000 to put into the purchase but he told her that he wanted to keep some of that money to start a business. 16 Shortly after the marriage, Mr Parianos started an electrical business. Mrs Parianos continued to work at the Sunbeam factory for a short time. She had two children, Bill Parianos and Debra Parianos, born in March 1967 and July 1971 respectively. Mrs Parianos did not engage in full time paid employment outside the home after the birth of her children. This was because Mr Parianos said to her on many occasions:- "Women should not work outside the home; their place is in the home. Wives of Greeks don't work; it's an (sic) slur on the family." 17 Mrs Parianos' evidence, which I accept, was that she did not learn that the Drummoyne property was in Mr Parianos' sole name until just before the birth of Bill Parianos in March 1967. However, I also accept her evidence that Mr Parianos said to her at about that time and on many other occasions throughout the marriage: "It doesn't matter that the house is in my name, because it's yours too. What's mine is yours." 18 Mr and Mrs Parianos had a very frugal lifestyle. Within a few months of their marriage they closed off two rooms of the Drummoyne property and converted that area into a flat. Construction of the flat commenced in May 1966. They purchased materials for the flat from savings that they had both made. Mrs Parianos assisted in the building of the flat with her own physical labour. She cleaned and carried the bricks and pulled wires down cavities. This was necessary because the Drummoyne property was rewired as a part of the conversion of the two rooms into a flat. 19 The flat was rented out to tenants over a period of about ten years and the rent was used to pay off the mortgage. Mrs Parianos collected the rent. Sometimes she gave it to her husband to be used for mortgage payments. Sometimes she went to the Bank and deposited the monies directly into the mortgage account. 20 Mr Parianos explained to his children on many occasions the reason why the flat was built and rented to tenants. He said words to the effect:- "We are renting out the flat so that we can pay the loan on this house (ie the Drummoyne property) and buy other property so that we can give you a good education and so that we can all be comfortable when we are old." 21 The mortgage to the Bank over the Drummoyne property was discharged in April 1975. It is not clear from the evidence whether the loan was paid off entirely out of the rental monies but the amount of the rent (even after allowing for tax) would have provided a sum which was, or which was close to sufficient to enable that to be achieved. 22 Mrs Parianos made other indirect financial and non-financial contributions to the acquisition and maintenance of the Drummoyne property. As I have said above, at Mr Parianos' insistence, Mrs Parianos ceased full time paid employment outside the home shortly after her marriage. Nevertheless, Mr Parianos often failed to give her housekeeping money. She supplied housekeeping funds for the family from working as a nanny, from a Christmas club account established by her sister, Ms Campbell-Smith and from regular payments in an amount of Ł20 sent to her every four to six weeks from Mrs Donaldson-Smith in Scotland. 23 Mrs Parianos' financial and non-financial contributions to the maintenance of the Drummoyne property included carrying out all the gardening, paying for plants, fertilizers, insecticides and gardening equipment, replacing the fences at her own expense, painting the interior of the house and painting the exterior woodwork of the house. 24 In 1969, Mr Parianos established a business known as N & B Electrics. Mrs Parianos was a partner in the business and she worked there for a time as a receptionist. She received a salary for the first few weeks but thereafter her wages were deposited directly into the mortgage loan account. She received no dividends or profits from the business. 25 Mrs Parianos was also a partner with Mr Parianos in other businesses from which, with one exception, she received no dividends or profit shares. The only exception was that the profits of a coffee business were used to purchase an investment property at 87 Crown Street, Wollongong, which was owned by Mr and Mrs Parianos as tenants in common. This was the only investment property in which Mrs Parianos had a proprietary interest. The property was leased but rental payments were not made to Mrs Parianos even though the rent was declared as part of her income in her tax returns. 26 In about August 1999, Mr Parianos underwent surgery for a brain tumour. On a number of occasions prior to and just after his operation, Mr Parianos said to his son, Bill Parianos, words to the following effect:- "All of the properties belong to your mother and you must look after her, however I believe that by the time she dies, the government will have imposed an inheritance tax. If that happens all of our hard work will be for nothing. I am going to die of this (meaning brain tumour) as a result of too hard a life. I am therefore going to divide the properties between you and your sister. Mum will have a life interest in Drummoyne but it will be your sister's. That means that she will live there til she dies. Debbie will move in with her and look after her when she gets old. That's what my sister did for my mother. I am only doing this because of inheritance tax that will eventually come in. Also mum won't cope when I am gone so it's better for you two to manage the properties, collect rents, pay rates and manage the assets etc. Mum is a good person and she stuck by me all this time even when times were tough. She would get ripped off in business. Make sure you look after mum." 27 On 12 October 1999, approximately two weeks before his death, Mr Parianos made a new will. He referred in it to the "constant personal care" he had received since 1987 from his "de facto wife", Lexie Joy Watt. He gave legacies to Ms Watt, Mrs Parianos and his children. He left the residue of his estate to be divided equally between his children, Bill Parianos and Debra Parianos as tenants in common. Clause 5(b) of the will provided as follows:- "As to the sum of twenty thousand dollars ($20,000) to be held upon trust to be paid toward rental assistance (if required for my wife, Isabella Parianos, after the sale of my property at 63 Alexandra Street, Drummoyne." 28 Mrs Parianos did not learn of her husband's relationship with Ms Watt until August 1999. She then decided to separate from Mr Parianos although she continued to live at the Drummoyne property. She commenced these proceedings on 13 October 1999. Interim orders were made in the Family Court on 21 October 1999 providing, inter alia, for Mrs Parianos to be given exclusive occupation of the Drummoyne property. 29 Mr Parianos died on 27 October 1999. Probate of his will was granted on 21 August 2000 to Mr BLJ Hedley who was the named executor. On 28 August 2001, the Federal Magistrates Court made an order under s 247 of the Bankruptcy Act appointing the Trustee as the trustee of the deceased estate. A Statement of Affairs filed with the Official Receiver on 28 November 2001 disclosed that at the date of Mr Parianos' death, the estate had an estimated surplus of assets of over $1,600,000 but, at the time of the appointment of the Trustee, there was a deficiency of assets estimated to be in the order of $600,000. This was because the initial estimates of value of assets were too high. Constructive Trust 30 The principles under which equity will intervene to declare the existence of a constructive trust over a family home in a dispute between former spouses or de facto partners are now well settled. As Gleeson CJ said in Green v Green (1989) 17 NSWLR 343 at 353, the unifying underlying principle is that a constructive trust will be imposed where it would be unconscionable on the part of one of the parties to refuse to recognise the existence of an equitable interest in the other. His Honour referred to the decision of the High Court in Baumgartner at 147. 31 As Deane J said in Muschinski at 614, the constructive trust is a remedial institution which is imposed by equity regardless of actual or presumed intentions of the parties. However, it is open to a court of equity to find that a constructive trust has been established upon the basis of an actual intention. This would be so where it is proved that the parties had a common intention that both should have beneficial interests and that the claimant acted to his or her detriment on the basis of that common intention; see Green v Green at 354-355 per Gleeson CJ. 32 The evidentiary material from which the Court may draw inferences as to the intentions of the parties was described by Mason and Brennan JJ in Calverley v Green (1984) 155 CLR 242 at 262 and by Sheller JA in Bryson v Bryant (1992) 29 NSWLR 188 at 215. Their Honours said that it includes the acts and declarations of the parties before or at the time of the transaction or so close in time after the transaction as to constitute a part of it. Such evidence is admissible for or against the party but subsequent declarations are only admissible against interest. 33 As Gleeson CJ observed in Green v Green at 353-354, the most common case in which a constructive trust has been imposed is where a person for whom the trust is found has, directly or indirectly, made financial contributions toward the cost of acquiring, improving or maintaining the property. In those cases, it would be unconscionable to deny the beneficiary an equitable interest either because the Trustee has induced the cestui que trust to act to his or her detriment in the reasonable belief that he or she was acquiring a beneficial interest or, alternatively, because resources have been pooled for a joint relationship which has come to an end. 34 Baumgartner was a case in which the parties had pooled their earnings for the purposes of their joint relationship. The pooled earnings had been supplied by the de facto partners in the relationship of 55% for the man and 45% for the woman. The pooled earnings had been used to meet household expenses and mortgage commitments. When the relationship came to an end, the Court imposed a constructive trust in those proportions upon the basis of the general equitable principle stated by Deane J (with whom Mason J agreed) in Muschinski at 620, under which there is to be restored to a party the contributions which he or she has made to a joint endeavour which has failed where the contributions were not intended by the party who made them to be enjoyed by the other after the relationship has come to an end. 35 Mason CJ, Wilson and Deane JJ referred to this principle in Baumgartner at 147-148 and they said at 149:- "The case is accordingly one in which the parties have pooled their earnings for the purposes of their joint relationship, one of the purposes of that relationship being to secure accommodation for themselves and their child. Their contributions, financial and otherwise, to the acquisition of the land, the building of the house, the purchase of furniture and the making of their home, were on the basis of, and for the purposes of, that joint relationship. In this situation the appellant's assertion, after the relationship had failed, that the Leumeah property, which was financed in part through the pooled funds, is his sole property, is his property beneficially to the exclusion of any interest at all on the part of the respondent, amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent." 36 The contributions need not be exclusively financial. As Deane J said in Muschinski at 622, the contributions may include direct contributions of money or labour and indirect contributions in other forms such as support, homemaking and family care. 37 Where it is possible to infer an actual intention to share ownership it is, as Gleeson CJ observed in Green v Green at 355, rare that the parties will be so sophisticated as to have turned their minds to the particular form of legal title. 38 The flexibility of the institution of the constructive trust is such that, in an appropriate case, events which occur after acquisition may lead to the imposition of such a trust and beneficial interests may change in the course of the relationship between the parties; see Green v Green at 355-356 per Gleeson CJ. Decision on the Facts 39 In my view, the circumstances in which Mr and Mrs Parianos found, paid for and took title to the Drummoyne property in 1966 gave rise to an inference that they both intended Mrs Parianos to have a beneficial interest in the property. 40 The circumstances which most clearly illustrate this are that they searched for the home together and, in particular, that it could not have been acquired but for the contribution of Ł1,000 supplied by Mrs Donaldson-Smith. Prior to the receipt of this money, the loan application made by Mr Parianos had been refused. It is plain that this contribution enabled Mr Parianos to make a successful loan application to the Commonwealth Bank at Rozelle without which the purchase could not have been made. 41 It was not suggested by the Trustee that Mrs Parianos did not intend to obtain a beneficial interest. Any such suggestion would have been fatuous. All of the contemporaneous statements made by Mrs Parianos to her mother and sisters and, indeed, by Mrs Parianos in the presence of Mr Parianos, were to the effect that the Drummoyne property was Mr and Mrs Parianos' home. Given the contributions of Ł1,000 and the Ł400 inheritance from her uncle, it would be extraordinary if Mrs Parianos intended otherwise. She could hardly have intended to have made a gift to her husband. There is, of course, no presumption of advancement in these circumstances. 42 The Trustee's case was, rather, to the effect that it was not possible to infer from what Mr Parianos did or said that he had any such intention. However, it was perfectly clear that Mr Parianos knew that the gift from Mrs Parianos' mother was to enable the engaged couple to purchase the Drummoyne property together. That is to say, he must have known and intended that they were both to have a beneficial interest in it. He could not have assumed that the Ł1,000 from Mrs Donaldson-Smith was to be a gift to him to enable him to purchase the property to the exclusion of any beneficial interest on the part of Mrs Parianos. His conversation with Mrs Parianos when he asked her to thank Mrs Donaldson-Smith makes this quite clear. 43 It is true that the loan application, the mortgage and title to the Drummoyne property were in the name of Mr Parianos. The reason for this is not explained. Nevertheless, it is sufficient that contemporaneously with the purchase, Mr Parianos described the Drummoyne property as "our home" and that he accepted $2,250 from Mrs Donaldson-Smith in the circumstances which I have described. I do not think those words when viewed in the light of Mr Parianos' acceptance of moneys from Mrs Parianos are so equivocal that they would prevent me from drawing an inference that the true common intention of the parties was that the property was to be beneficially owned by both of them. 44 Moreover, Mr Parianos reinforced his statement of intentions as to the true beneficial ownership when he said in February or March 1967 "It doesn't matter that the house is in my name, because it's yours too. What's mine is yours." It is difficult to understand what else he could have meant but that his intention was that Mr and Mrs Parianos were co-owners of the Drummoyne property. This must have been his intention bearing in mind in particular the sums of money contributed by Mrs Parianos and Mr Parianos' knowledge of the circumstances in which those contributions were made. Also, by March 1967, the flat had been built and Mr Parianos' words must be understood in light of Mrs Parianos' substantial contribution of cash and labour to that venture. 45 In my opinion, the circumstances in which Mr and Mrs Parianos searched for and purchased the Drummoyne property and the contemporaneous words spoken by them, not only by Mrs Parianos to her family, but also between husband and wife, must have led Mrs Parianos to believe that it was Mr Parianos' intention, in common with hers, that she had a beneficial interest in the property. She acted to her detriment upon the basis of this by contributing the Ł1,000 from her mother and the Ł400 inheritance from her uncle to the purchase of the Drummoyne property. Her evidence was that the Ł1,000, which by then had been converted to $A2,250 was not handed over until about the date of completion of the purchase. Mrs Parianos' cash contribution to the purchase was $3,050. Mr Parianos contributed, at most, $3,000. 46 In addition, Mrs Parianos acted to her detriment by accepting, at her husband's insistence, a frugal lifestyle which enabled the mortgage to be repaid in whole or in part out of the rent from the flat. Her contributions of money and labour to the construction of the flat provided further evidence that Mrs Parianos believed she had a beneficial interest and that she acted to her detriment upon the basis of a common intention engendered by Mr Parianos that she had such an interest in the Drummoyne property. 47 This is not a case in which an intention is to be imputed to the parties. To do so would be contrary to established principle; see Bryson v Bryant at 216; Pettitt v Pettitt [1970] AC 777 and Gissing v Gissing [1971] AC 886. Here in my view it is to be inferred that the parties had a common intention that the Drummoyne property was to be acquired by both of them. This intention was manifested in the words and conduct of Mr and Mrs Parianos. Moreover, Mr Parianos induced Mrs Parianos to act to her detriment in the reasonable belief that she was acquiring a beneficial interest in the Drummoyne property. 48 It follows, in my view, that it is appropriate to impose a constructive trust to avoid the unconscionable denial of an inferred common intention created by Mr Parianos and acted upon by Mrs Parianos to her detriment. 49 It seems to me that the decision of the Court of Appeal in Bryson v Bryant upon which the Trustee relied is distinguishable on its facts. There, the wife made no direct financial contribution to the purchase of the property. Nor was there any conduct on her part which she could not reasonably have been expected to embark upon unless she was to have an interest in the matrimonial home. 50 The question then is what form should the title take. Mr and Mrs Parianos did not turn their minds to that question. 51 Nevertheless, it seems to me that the words spoken by Mr Parianos to which I have referred above on a number of occasions, namely "It doesn't matter that the house is in my name, because it's yours too. What's mine is yours.", suggested that, in 1966, if the parties had been asked, they would have said that they intended to hold the Drummoyne property beneficially as joint tenants. In my view, this would be particularly so if an explanation had been given to them of the difference between tenancy in common and joint tenancy. As Gleeson CJ said in Green v Green at 358:- "… in my opinion the proper approach to the resolution of this issue is to seek a result which will most closely give effect to the common intention of the parties bearing in mind, first, that they did not themselves specifically address the matter of the legal form which would be conducted to give effect to their intention, and secondly, that this is an area in which equity is at its most flexible." 52 The words spoken by Mr Parianos to which I have referred in [17] were spoken for the first time in about February 1967 or March 1967. They are sufficiently close to the time of purchase for me to take them into account on the question of the parties' intentions as to the form of title. In any event, they constitute an admission against interest by Mr Parianos; see Calverley v Green at 262 and Bryson v Bryant at 215. 53 It should be noted that in Green v Green, Gleeson CJ (with whom Priestley JA agreed) held that the conclusion which best gave effect to the intention of the parties was that at the relevant time the parties were beneficially entitled to the property as joint tenants. 54 The statement made by Mr Parianos which I have set out at [26] above is of no assistance in resolving the issue of the form of the title. It was made by Mr Parianos 33 years after the acquisition of the property and was not an admission against his interest. 55 If I am wrong in what I have said above, it is plain that a constructive trust ought to be imposed irrespective of any intentions of Mr Parianos in order to give effect to the principle which underlies the decisions in Muschinski and Baumgartner. 56 That is to say, this is a case in which the parties pooled their earnings and their contributions, both financial and non-financial, toward the acquisition and maintenance of the Drummoyne property. They did so to secure the accommodation of themselves and their children. The relationship having come to an end in August 1999, it would be unconscionable to deny to Mrs Parianos the benefit of her contributions made to a failed joint endeavour. 57 The contributions which Mrs Parianos made were numerous. I have referred to them above and it is unnecessary to repeat them. They included the contribution of the inheritance from her uncle and the gift from her mother. They also included the financial and non-financial contributions to the conversion of the rooms in the Drummoyne property to a flat, the housekeeping funds which she provided from her work as a nanny and from the Christmas club account together with the other matters to which I have referred in paragraphs [22] to [25] above. 58 If the case is to be determined under the "pooling" principle, notions of practical equity must prevail; see Baumgartner at 150 (per Mason CJ, Wilson and Deane JJ). Thus, the maxim that equity favours equality would have to be applied and the Drummoyne property would then be held for Mrs Parianos on a constructive trust as to a one-half share as a tenant in common with the Trustee as trustee of the estate of the late Mr Parianos. From when does the constructive trust exist? 59 In Parsons v McBain (2001) 109 FCR 120, a Full Court (Black CJ, Kiefel and Finkelstein JJ) held that a constructive trust does not first come into existence when it is declared by the Court. Their Honours referred to a passage from the judgment of Deane J in Muschinski at 614 in which his Honour said there does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust. 60 The constructive trust in Parsons v McBain was founded upon a common intention. It seems to me that the same approach to the question of when the constructive trust will take effect applies regardless of whether the trust is imposed by reason of an inferred intention or under the pooling principle stated in Baumgartner. 61 In either case, the facts which give rise to an eventual court order create a personal equity between the parties which may be defeated by competing claims. However, the equity will not be defeated merely because the legal title has passed to a trustee in bankruptcy who stands in the shoes of the bankrupt; see Parsons v McBain at 16; see also Sonenco (No 77) Pty Ltd v Silvia (1989) 24 FCR 105 at 112 (per Beaumont J). 62 I do not accept the Trustee's submission that Mrs Parianos' claim must fail because she did not lodge a caveat or because she failed to take any steps to assert her beneficial ownership prior to August 1999. I accept the submissions made by Mrs Parianos' counsel that the Drummoyne property has not been the subject of any dealings for value which could take priority over Mrs Parianos' equitable interest. 63 It follows in my view that Mrs Parianos' equitable interest in the Drummoyne property stands outside the bankruptcy. Orders 64 I propose to make the following declarations:- 1. the late George Parianos held his interest in the Drummoyne property upon trust for the Applicant and himself as joint tenants 2. that upon his death his legal personal representative held the Drummoyne property upon trust for the Applicant 3. that the Drummoyne property is not divisible among the creditors of the late George Parianos in bankruptcy pursuant to the Bankruptcy Act, s 116(2) 65 I propose to order that the respondent transfer the Drummoyne property to the applicant. 66 I also propose to order the respondent to pay the costs of these proceedings other than the costs incurred in the Family Court as to which there is to be no order as to costs. I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.