Pennimpede v Pennimpede

Court of Appeal (NSW)|2010-05-21|Before: Hodgson JA, Tobias JA, Macfarlan JA, Bryson AJ, MacFarlan JA

CITATION: Pennimpede v Pennimpede [2010] NSWCA 121

JUDGMENT OF: Hodgson JA at 1; Tobias JA at 42; Macfarlan JA at 43

DECISION: Appeal dismissed with costs.

CATCHWORDS: TRUSTS - Transfer of property between family members - Whether evidence established creation of a trust.

LEGISLATION CITED: Conveyancing Act 1919 ss 23C and 54A

CASES CITED: Watson v Foxman (1995) 49 NSWLR 315

Vito PENNIMPEDE (appellant) PARTIES: Gerard PENNIMPEDE (first respondent) Rita PENNIMPEDE (second respondent) Pasquale PENNIMPEDE (third respondent)

M R ALDRIDGE SC/ M EVANS (appellant) COUNSEL: D A SMALLBONE (first and second respondents) Submitting Appearance (third respondent)

Kells The Lawyers (appellant) SOLICITORS: Russell Mclelland Brown Lawyers (first and second respondents) Autore & Associates (third respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 27 February 2009

LOWER COURT MEDIUM NEUTRAL CITATION: Vito Pennimpede v Gerard Pennimpede & 2 Ors [2009] NSWSC 85

13 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298221

HODGSON JA TOBIAS JA MACFARLAN JA

Friday 21 MAY 2010 Vito PENNIMPEDE v Gerard PENNIMPEDE and Others Judgment 1 HODGSON JA: On 27 February 2009 Bryson AJ gave his decision in proceedings concerning the beneficial ownership of a factory at Cringila near Wollongong involving a number of members of one family. I will identify the parties by their forenames for ease of reference. 2 The plaintiff was Vito and the defendants were Vito's brother Gerard, Gerard's wife Rita, and Vito's brother Pasquale. 3 In the proceedings Pasquale put on a cross-claim against Gerard and Rita, and Gerard and Rita put on a cross-claim against Pasquale and Vito. The primary judge's orders disposing of the cross-claims are not relevant to this appeal. 4 Relevantly to this appeal, the primary judge gave judgment for Gerard and Rita on Vito's claim against them, and ordered Vito to pay Gerard and Rita's costs of those proceedings. Vito appeals from that decision. Pasquale has put on a submitting appearance. 5 The respondents in their submissions raised a question whether leave to appeal was necessary. It seems to me that, where there are final orders disposing of a claim and the only outstanding matters concern cross-claims, there is generally a final order so that leave is not necessary. 6 I will outline the circumstances giving rise to the proceedings and the appeal. 7 Vito and Pasquale were the only directors and shareholders of a company Rainbow Constructions Pty Limited (Rainbow), which carried on a steel fabrication business. In June 1993 the four parties became registered co-owners of the subject land, having purchased it from Rainbow. A 50 per cent share was owned by Gerard and Rita as joint tenants. A 25 per cent share was owned by Vito, and another 25 per cent share was owned by Pasquale. The purchase price of the land from Rainbow was $280,000. 8 According to the findings of the primary judge, not challenged on appeal, Gerard and Rita paid for their half share by foregoing at least $140,000 of debts owed to them by Rainbow, arising from earlier loans made by them for the benefit of Rainbow. At the time of this purchase, there was a loan of $202,000 made by National Australia Bank on the security of the property, which was used by Vito and Pasquale to pay debts of Rainbow, and also a share of the stamp duty; and this payment of debts of Rainbow satisfied their half share of the purchase price. 9 Between the time of this transaction and September 1996, there were further advances from National Australia Bank, ultimately giving rise to an advance of $340,000 in February 1995. The additional advances were used generally to improve the property. As at September 1996, there was about $324,000 owing to National Australia Bank. 10 On 20 June 1996 Gerard and Pasquale and Vito entered into a lease of the land to Baulderstone Hornibrook for five years from 1 July 1996, at an annual rental of $98,500. 11 On or about 23 September 1996, Gerard and Vito saw a solicitor, Mr Lagopodis, in conference. A file note of this conference, made by Mr Lagopodis on the primary judge's findings about one week later, was as follows: Rainbow Const P/L /9/96

Attendance in office by Vito & Gerard

Gerard discussed the problems with payments back to him of monies owed by Vito & Pasqualie - Vito acknowledged that he is prepared to pay $175,000 being his share to Gerard - but Pasqualie due to his attitude and the fact that he has gone to seek legal advice is not acknowledging any debt - in fact he wants Vito & Gerard to transfer to him the property and pay him a further monies. He will allege the Vito has taken funds from the company and used it personally Vito agreed with Gerard to transfer to Gerard his (Vito) 25% share in the property so that Gerard keeps this in safe-custody for Vito to avoid claims by Pasqualie etc Gerard will transfer the property back to Vito whenever Vito wants and asks Gerard to do so Gerard also insisted that a Deed be prepared so that the transaction of the transfer of 25% does not appear to be a sham. Told me what to include in the drafted deed but advised them that although I will prepare it they must go and seek independent advice about the matter as I could not be seen to be acting for both parties - and the Deed is obviously in contrast to the intention of the parties as expressed and advised to me

40 min 12 By transfer dated 24 September 1996, Vito transferred his 25 per cent interest in the property to Gerard and Rita for an expressed consideration of $1. $5052.50 stamp duty was paid on this transfer on 24 September 1996. The transfer was subsequently registered. 13 At about the same time, Vito executed a deed in the following terms: DEED OF AGREEMENT

THIS DEED OF AGREEMENT made this day of One thousand nine hundred and ninety six BETWEEN VITO PENNIMPEDE of Unit 3/63 Kembla Street, Wollongong (of the first part) AND GERARD PENNIMPEDE and RITA ANGELA PENNIMPEDE of 69 Heaslip Street, Coniston (of the second part)

The parties are registered proprietors of a property situated at Lot 50 Five Islands Road, Cringilla.

Vito Pennimpede holds a 25% share of that property and Gerard Pennimpede and Rita Angela Pennimpede hold, as joint tenants, 50% share of that property with the remaining 25% share being held by Pasquale Pennimpede.

Due to matters involving Vito Pennimpede's capacity to meet the repayments to the National Australia Bank, being the registered mortgagee on the title of the property being Folio Identifier 3/SP47101, the parties have agreed that Vito Pennimpede is to transfer his title, right and interest in the property to Gerard Pennimpede and Rita Angela Pennimpede.

NOW THIS DEED WITNESSETH that pursuant to the premises above, and in consideration of the sum of $1.00, the parties have agreed to the following:-

Vito Pennimpede will transfer his share in the property at Lot 50 Five Islands Road, Cringilla being Folio Identifier 3/SP47101 to Gerard Pennimpede and Rita Angela Pennimpede.

Any expenses including Stamp Duty is to be paid by Gerard Pennimpede and Rita Angela Pennimpede.

The parties note that Stamp Duty has been paid on the value of $187,500.00.

Gerard Pennimpede and Rita Angela Pennimpede hereby indemnify Vito Pennimpede against all claims, damages and actions now or in the future which may arise by any Creditor including the National Australia Bank against Vito Pennimpede in respect of his share in the property.

Vito Pennimpede is hereby discharged from any further obligations, payments and claims associated with the property.

IN WITNESS WHEREOF the parties hereto have executed this agreement on the day and year first hereinbefore written.

SIGNED SEALED AND DELIVERED ) by the said GERARD PENNIMPEDE ) and RITA ANGELA PENNIMPEDE in ) the presence of: )

SIGNED SEALED AND DELIVERED ) by the said VITO PENNIMPEDE ) in the presence of: ) 14 It appears that through the indemnity in clause 4 of this deed and the discharge in clause 5, and perhaps otherwise, Vito was relieved of liability under a covenant by Rainbow, secured by personal guarantees of the parties to these proceedings, to construct a road benefiting the subject property and another property owned by a Mr Scavarelli. This road was subsequently installed in 2005 by Gerard and Rita, at a cost to them of $40,000. 15 On 30 September 1996, there was a new mortgage to the National Australia Bank, in which the mortgagors were Gerard and Rita and Pasquale. $350,000 was advanced under that mortgage, of which about $324,000 was used to pay out the previous mortgage and the remaining $26,000 was used to pay out past outgoings on the property. 16 From that time, the rent from Baulderstone Hornibrook was applied to repayment of mortgage instalments, and was more than sufficient to cover these instalments. 17 From about June 1999, demands were made by Vito to Gerard and Rita for a re-transfer of the 25 per cent of the property, which was the subject of the September 1996 transaction. Gerard expressed a willingness to do so once he got all of his money back with interest. No agreement was reached as to a re-transfer of the property. 18 These proceedings were commenced in February 2004, and in them Vito claimed that the 25 per cent of the property was held in trust for him. 19 As I have said, the primary judge dismissed that claim. 20 In his decision the primary judge referred to Watson v Foxman (1995) 49 NSWLR 315 at 318-19, and he said that the observations of McLelland CJ in Eq in that case on problems of proof of oral representations applied well to a case where there were allegations of oral agreements or arrangements to deal with property in a way different from what appears on the written record. 21 The primary judge said that he did not have much confidence in the evidence of the brothers; and he said that, although Mr Lagopodis was sincere in giving evidence, his evidence could not be completely correct in some respects. Most importantly, the primary judge made the following findings concerning the evidence of Gerard: [120] Gerard's account in his affidavit of 30 October 2006 paras 107 and following is to the effect that about August or September 1996 Pasquale said to him "Vito has ripped me off $300,000. I want you to give me your 50% of the land and get your money back from Vito." Gerard said that this was the first he knew of any dispute concerning the land. He said: (109) "Whilst there was a dispute between Vito and Pasquale I thought it quite strange that Pasquale requested the land from me and that I then obtain money from Vito … (110) I understood that there were threats of legal action by Pasquale against Vito. I began to be concerned about my position with respect to loans that we had taken on with Pasquale and Vito with the National Australia Bank … (111). I wanted to protect my position with respect to the loans at the National Australia Bank. I negotiated with Vito that he transfer to me his 25% share of the land to cover his share of the loan at the National Australia Bank. I said to Vito, "I am concerned about your dispute with Pasquale. He claimed you ripped him off $300,000. I am concerned that Rita and I are responsible for 50% of the National Australia Bank loan which is about $330,000. Rita and I weren't involved in the National Australia Bank loan for the first $202,000. Will you transfer to me your 25% on the basis that Rita and I will be responsible for about 60% of the loan". He replied "Yes that seems okay".

[121] Gerard's affidavit evidence confirms that he told Mr Lagopodis "Please make sure the documents are done properly so that the transfer is made properly and legally."

[122] In my finding Gerard's evidence gave a substantially correct account of the origin of the transaction. It was reasonable, prudent and honest to seek to disengage Vito from Gerard and Rita's position with respect to ownership of the land and dealings with NAB. In this sense the transaction would, in the words of Mr Lagopodis' file note, avoid claims by Pasquale, but not with any object of dishonestly or improperly evading enforcement measures.

[123] In closing submissions Vito's counsel contended to the effect that Gerard had overborne Vito with false or exaggerated statements of danger presented by Pasquale. Counsel referred to Louth v Diprose (1992) 175 CLR 621 in this connection. In my opinion there is no substantial evidence that Vito was overborne, and it was reasonable to take measures to disengage Gerard and Rita from conflict between Pasquale and Vito. It is not possible that Vito was unaware of his developing difficulty with Pasquale, or learnt of it only from Gerard.

[124] I am satisfied that at that time Pasquale was adopting a difficult attitude on several matters, wanted Vito and Gerard to transfer the property to him and pay him further moneys, and was expected to allege that Vito had taken funds from Rainbow Constructions and used it personally. If the real explanation of the transaction was that Pasquale's difficult attitude, conflict with Vito, seeking legal advice and not acknowledging debt led Vito and Gerard to join in putting assets out of Pasquale's reach, it would not be possible to understand how Pasquale could have joined in the refinancing and release of Vito from liability to NAB.

[125] In his oral evidence Gerard gave an account of events at Mr Lagopodis' office in September 1996 in which the reference to his readiness to reconvey the land to Vito was made at the end of the conference, as it were as an afterthought, and was not part of the discussion about the transaction or the basis of a transaction. Gerard puts it as a comment at the conclusion of the meeting: (289, l.27) A. - Yes, there was an agreement that if Vito wanted his land back then he would have to take over the responsibility of his share of the NAB loan and also pay back to me any outstanding loans due to me, yes.

A. - The comment was said in Lagopodis' office after we had the meeting regarding the instruction that both Vito and myself gave to Lagopodis to do the transfer. At the conclusion of the meeting, we are two brothers, we say if you ever want it back you can get it back. You don't get it back in three years time or 10 years time, if I have had the responsibility of all the loans on it. That is what I mean. He also said that: (290) There was not a formal agreement. It was a comment that was made. It didn't go any further. That comment did not go any further.

[126] Notwithstanding the last passage I have set out, I find that the assurance of reconveyance was clearly voiced to Mr Lagopodis, but it could not have been reasonably understood by anyone to relate to any circumstances except full restoration of the previous position. Gerard acknowledged this in a clear way in the letter he sent to Messrs Atkins Jones dated 17 May 2000. There is also evidence that he acknowledged it during a meeting in 1998 attended by a family friend Mr Gino D'Amico, whose evidence was that the meeting took place on 7 April 1998 at Mr Lagopodis' home in the evening, and that after exchanges between Gerard and Pasquale about what he had claimed and what he should do, Gerard said "I want the money I contributed back plus interest" and also said "Once I get all my money back plus interest, I will release the property." A few weeks later Gerard said to much the same effect at a meeting with Mr Gino D'Amico at a coffee shop. I accept that these statements were in fact made. They were made in the course of negotiations, and did not purport to be a complete statement of the position, but they do express in a general way the position which Gerard then took. However the position he then took was not taken up or complied with, and he cannot be taken to be bound by it forever. It was not a comprehensive statement of what his rights were, or of how they had arisen.

[127] In my finding Gerard's narration of the event is correct: his chief concern was to protect his own interest as Vito was financially unreliable and conflict was developing between Vito and Pasquale. Gerard and Rita conferred large advantages on Vito and undertook large obligations to NAB. Readiness to reconvey the property was expressed in a context which showed that if Vito took advantage of it the transaction was to be fully reversed. It cannot have been understood by Vito and he cannot have acted on the basis that the opportunity to seek a reconveyance was to remain open to him for an indefinite future, during which Gerard and Rita would bear and meet burdens of responsibilities, the assets would be managed, all dealings with NAB would be managed, financial responsibilities would be met and obligations to Mr Scavarelli would be borne. It must have been understood by Vito that his opportunity was only open for a reasonable time, that is for so long as the position could be reversed and all concerned could be put back in substantially the state they were in on 24 September 1996. While it cannot be said with precision when a reasonable time had passed, in my finding it had passed after the events in 1999 and 2000 when, through two different solicitors, Vito demanded reconveyance in terms which did not recognize or protect the interests of Gerard and Rita. The first demand from Messrs Cox Wiseman & Davidson claimed 35% which on any view was the wrong proportion. Neither demand was made on the basis that anything would be restored to Gerard and Rita. Gerard replied on 17 May 2000 to Messrs Atkins Jones' demands in terms which pointed out that there had not been any proposal to protect the interests of Gerard and Rita or restore the position; there was no response from Vito. The next significant event was the commencement of the present proceedings almost four years later, and there was no offer to do equity or to protect the position of Gerard and Rita in the Statement of Claim. By the time the proceedings were commenced, a reasonable time had expired by several years. 22 On the basis of those findings, the primary judge found that the September 1996 transaction was not intended to create rights which would be classified as a trust, but rather the effect was an agreement or arrangement by which Vito could get the property back if he decided to ask for a re-conveyance and if he restored the position of Gerard and Rita. 23 In his judgment, the primary judge dealt with other matters, but the findings I have referred to were sufficient to justify dismissal of the claim for a trust made by Vito. 24 In the notice of appeal, Vito relies on the following grounds: 1. That His Honour failed to give due weight to the agreement noted by Mr Lagopodis and Mr Lagopodis' evidence on the agreement between the plaintiff and the first and second defendants.

His Honour failed to give due weight and recognise the evidence of Mr Sellers on the accounts.

His Honour erred generally, in finding that the transfer of the plaintiff's interest in the subject property beneficially to the first and second defendants, rather than a transfer in each instance, as security. 25 As argued, the appeal focused on the contention that, by reason of the circumstances of the transaction and Mr Lagopodis' file note, the primary judge erred in not finding a trust in favour of Vito. 26 Mr Aldridge SC for Vito submitted that the contemporary file note by Mr Lagopodis, particularly in its reference to Gerard keeping the property in safe custody for Vito, clearly indicated an intention to create a trust. Mr Aldridge submitted that the fact that the deed that was executed did not give effect to parts of the file note did not weigh against that conclusion, because Mr Lagopodis had been instructed to prepare the deed so that the transaction would not look like a sham and Gerard told Mr Lagopodis what to include in the deed. 27 He submitted that the unreliability of the terms of the deed was confirmed in that recital 3, referring to matters involving Vito's capacity to meet the payments to National Australia Bank, was incorrect because those repayments were comfortably covered by rent from Baulderstone Hornibrook. Mr Aldridge pointed out that the deed indicated a value of Vito's 25 per cent at $187,500, and he submitted it was highly implausible that Vito would agree to transfer property of that value in return for a release from a liability for one-quarter of a mortgage of $324,000, that is about $80,000. 28 Mr Aldridge also submitted that the primary judge's reasoning in pars [126] to [127] of his judgment displayed error in that it did not take account of the fact that Gerard and Rita would have the benefit of $24,625 per annum of what otherwise would have been rent payable to Vito, which was more than enough to pay what would otherwise have been Vito's share of the National Australia Bank instalments. Mr Aldridge submitted that, while the primary judge was correct to hold that Mr Lagopodis' file note did not record everything about the transaction, nevertheless he was in error in failing to hold that the note was sufficient in the circumstances to prove an intention to create a trust. 29 In my opinion, it is appropriate first to consider the financial effects of the transaction of September 1996, assuming it took effect without any trust arising. 30 It was Gerard's contention that, prior to that transaction, the liability inter se of Gerard and Rita and of Vito and Pasquale in respect of the National Australia Bank mortgage was roughly 20 per cent to Gerard and Rita and 40 per cent to each of Vito and Pasquale, by reason of the application of the original advance of about $200,000 for the benefit of Vito and Pasquale. This contention explains the reference in Gerard's evidence of his conversation in about September 1996 to Gerard and Rita becoming liable after the transaction for 60 per cent of the loan - see par [120] of the primary judge's judgment. 31 In my opinion, this view of Gerard was substantially supported by findings of the primary judge in pars [173] to [176] of his reasons. The only error by Gerard referred to in par [176] was an error which, if anything, disadvantaged Gerard's position as against Pasquale. On that basis, the amount in respect of which the September 1996 transaction removed Vito's liability was of the order of $130,000, that is about 40 per cent of $324,000, plus about 25 per cent of the $26,000 applied to past property expenses, making a total of about $136,500. 32 In addition, under the transaction Gerard and Rita paid the stamp duty of about $5,000 and relieved Vito of liability under a guarantee which was ultimately satisfied by $40,000. It is unclear whether Vito's individual liability under this guarantee would have been $20,000 or some other figure. On that basis, the effect of the transaction, in the absence of creation of a trust, would be that Vito got benefits very roughly of the order of $160,000 in return for property worth $187,000, as well as being relieved of risks from contingencies. 33 There is force in Mr Aldridge's submission that the existence of the five year lease, yielding sufficient rent to cover mortgage payments, and indeed with 25 per cent of that rent sufficient to cover Vito's 40 per cent of mortgage instalments, does suggest that the transaction was not a usual commercial transaction from Vito's point of view. However, the ultimate question for this court is whether the primary judge is shown to be in error in not being satisfied that the conversations occurring in September 1996 were apt to create a trust. Ultimately, the contention that error by the primary judge is shown comes down to two main propositions. 34 First, there is the contention that where in par [127] the primary judge referred to Gerard and Rita conferring large advantages on Vito and undertaking large obligations to the National Australia Bank, the primary judge showed that he did not have regard to the circumstance that the Baulderstone Hornibrook rental more than covered the obligations to the National Australia Bank. 35 The second proposition is that, in referring to the solicitor's memorandum as incomplete, the primary judge erroneously disregarded that what it did say was clearly enough to support the existence of a trust. 36 In my opinion error is not shown in either respect. 37 In other parts of the judgment, the primary judge referred to the amount of the rent and its relationship to the mortgage instalments, and I would not infer that he disregarded this in par [127]. Even accepting that the rent more than covered instalments to the National Australia Bank, in my opinion it was not inaccurate to say that Gerard and Rita were conferring large advantages on Vito and undertaking large obligations. 38 As regards the memorandum, although the words "Gerard keeps this in safe custody for Vito" could suggest the creation of a trust, in my opinion it was not unreasonable to conclude that the whole memorandum reflected a family understanding that Gerard would procure a transfer back to Vito if and when Vito paid whatever was owing to Gerard. Having regard to the cautionary words of McLelland CJ in Eq in Watson, it was in my opinion entirely open to the primary judge not to be satisfied by the memorandum that on this particular occasion the words spoken were apt to create a trust. 39 For those reasons, I do not consider the primary judge was in error in not being satisfied that a trust was created. 40 In this case no claim was made for specific performance of any agreement to re-transfer the property. In my opinion such a claim could not, in any event, have succeeded. There is a real question whether the court could have been satisfied that whatever words were spoken were apt to manifest an intention to enter into binding legal relations, as opposed to indicating a family understanding. Even if the court were so satisfied, in my opinion the primary judge was correct to hold that any option to require a re-transfer of the property would have to be exercised within a reasonable time and was not; and in any event, in my opinion sections 23C and 54A of the Conveyancing Act 1919 would have been fatal to such a claim. 41 For those reasons, in my opinion the appeal should be dismissed with costs. 42 TOBIAS JA: I agree with the orders proposed by the presiding Judge for the reasons he has given. 43 MACFARLAN JA: I agree also. oOo

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