BETWEEN : THE OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE FOR THE PROPERTY OF DAVID MAXWELL JAMES, A BANKRUPT

Caveats - Caveatable interest - Extension of caveat - Turns on own facts

Trusts - Resulting trusts - Constructive trusts - No new point of principle

Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137

Jandric v Jandric [1999] WASC 22

Kais v Turvey (1994) 11 WAR 357

McMahon v McMahon [1979] VicRp 23; [1979] VR 239

1 WHEELER J: This is an application for extension of caveat until trial or further order. Pursuant to s 138C(2)(a) of the Transfer of Land Act, the court may make such an order if it is satisfied that the caveator's claim has "or may have" substance. Although it is for the caveator to establish that there is a serious question to be tried as to whether a caveatable interest exists, a caveat will not generally be removed pending trial unless it is "patently clear" that the interest in the land sought to be protected cannot be made out: Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 at 141 per Brinsden J, Custom Credit v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 48.

2 It is convenient to set out first the facts which the plaintiff suggests establish the existence of a caveatable interest, and then turn to what I might call the rebutting material put forward by the first defendant.

3 The bankrupt, Mr James, married the first defendant approximately nine years ago. Approximately three years ago a house was purchased, the sole registered proprietor of which is the first defendant. A settlement statement provided by the National Australia Bank at the time of purchase shows the source of funds for the purchase of the house to come from two sources: approximately $6,000 from a "Flexi Account" and $480,000 by way of a home loan. The flexi account number corresponds with the number of a bank account in the joint names of the bankrupt and the first defendant. The contract for the home loan shows both the bankrupt and the first defendant as the borrowers and is signed by each of them. The customer nominated to receive notices under the home loan contract is the bankrupt. The "nominated account", for debiting of periodical payments and fees, is an account held by "James Commodity Exports Pty Ltd" ("James Commodities"), to which I will return. A mortgage over the property secures the loan.

4 It appears not to be disputed that at the time of borrowing the amount of $480,000 from the National Australia Bank, the first defendant's income as a schoolteacher was inadequate to meet the repayments. Her income was approximately $36,000 gross per annum, while the repayment which were made were initially at the rate of $664 approximately per week, rose to $1,000 per week and thereafter have fluctuated considerably, with payments of $250 per week being made at times and significant lump sums being paid at others.

5 For approximately the first year of the loan, the repayments under it appear from the bank statement to be transferred from the accounts of either Nizam Pty Ltd ("Nizam") or James Commodities. For approximately four or five months, the repayments appear to have come primarily from the Education Department, and thereafter sources of funds are variously Education Department, James Commodities, and Westrum Pty Ltd ("Westrum"). Further bank statements made available by the first defendant show payments from late 1999 also being made on a number of occasions by Agrimarketing. James Commodities and Nizam appear to have the same bank account number.

6 The bankrupt was previously a director of James Commodities and the holder of 29,999 of its 30,000 shares. He disposed of the shares to Mr Kingsley James, his father, in May 1999 and his father is presently its sole director. The sole director of Westrum is Mr Peter James, the brother of the bankrupt. It is apparently a trustee company and the trustee of the James Ryu Unit Trust (replacing James Commodities in December 1998). That trust had 10,000 units, owned by discretionary trusts, they being the trustees for two beneficiaries, being the David James Trust and the James Holding Trust. The trustee company for these trusts is one of which the bankrupt and his wife are the shareholders; he was a director and secretary until March 1999, and his father and brother are currently directors. Agrimarketing is a company of which the first defendant is the sole director, and of which the bankrupt is an employee, receiving a relatively small salary.

7 The plaintiff asserts that the inference which follows from these facts is that the payments made by the various companies and trusts referred to were payments made at the direction or request of the bankrupt and in satisfaction of the liability which he had together with the first defendant, under the National Australia Bank home loan. It is submitted that the bankrupt would be entitled to a beneficial interest in the land proportionate to the extent of his contributions and that the plaintiff is therefore entitled to claim that beneficial interest.

8 The primary thrust of the plaintiff's submission is that a constructive trust arises, since the "consensual commercial venture and personal relationship" between the parties has "failed" by reason of the bankruptcy, by analogy with Muschinski v Dodds [1985] HCA 78; (1986) 160 CLR 583. I have difficulty in understanding the submission. It appears to me that the heart of the "venture" is the marriage, which I understand still subsists. However, it appears to me that the alternative submission - that a resulting trust arises as to a one-half the beneficial interest in the property - is both comprehensible and arguable. The payment of a deposit from a joint account, the joint liability for the loan, and the (arguable) contributions to the mortgage repayments on behalf of the bankrupt would give rise to a serious question to be tried in this respect.

9 So far as the first defendant is concerned, a number of submissions are advanced. First, it is said that given the marital status of the bankrupt and the first defendant, the presumption of advancement applies and there is no evidence to rebut that presumption. It is probably convenient to return to this issue after looking briefly at the facts asserted on behalf of the first defendant.

10 The first defendant has sworn an affidavit in which she deposes that either shortly before or shortly after their marriage, she and the bankrupt had a number of conversations discussing what would be the position in respect of any house bought during their marriage. The background to these conversations was that at the time of marriage the first defendant owned a property but had rented it out, while the bankrupt had no assets. She said that words were said by both of them to the effect that she would be responsible to meet any commitments on any house bought and would own them (ie the houses) and that the bankrupt would not have any equity or interest in such property. She further said that no conversation to the contrary effect has ever taken place between them.

11 The first defendant submits that this evidence "must" be accepted. With respect, it appears to me that this misconceives the effect of direct evidence in affidavit form at this stage of the proceedings. Were there no evidence from which any contrary inference could be drawn, the submission would be correct. However, the evidence at this stage also suggests that at the time at which the property was purchased it would not have been possible for the first defendant to be "responsible" to meet the repayments of the loan on her own. This circumstance, together with others (such as the length of time which had elapsed between the earlier conversation and the purchase) might give rise to an inference that the common intention expressed in that prior conversation was no longer in operation. In my view, the first defendant's evidence does not at this stage go so far as to establish conclusively a common intention that the bankrupt would have no interest in the property purchased.

12 The evidence relating to purchase of the property and to the wife's assets prior to marriage also may be relevant to the presumption of advancement. Assuming for the moment that the bankrupt had made a significant contribution to the purchase of the property, then it might seem odd that the presumption of advancement would be expected to apply to these facts. The presumption of advancement is one which applies in respect of a person who is under a duty to provide for another. It has always been considered to apply in respect of the purchase of the property by a husband in the name of the wife, but not vice versa. In the present situation however, it appears that the wife had an asset of her own at the time of marriage, and it is clear that she had and exercised a not insubstantial earning capacity. The notion that a husband apparently without assets of his own would in those circumstances wish to make significant contributions to the purchase of a property to be the matrimonial home, but which would be owned by the wife to the exclusion of any interest of his, seems on its face unlikely.

13 It has been said that the weight to be given to a presumption of advancement in circumstances where the relationship between the parties does not, as a matter of modern experience, provide any firm rational basis for presuming an intention to confer the beneficial interest on the other party, is such that it may be of limited assistance: see Deane J's observations in Calverley v Green (1984) 155 CLR 270-271. Although I assume for present purposes that the presumption of advancement continues to be part of the modern law of equity, I think it is also appropriate to take into account at this stage of the proceedings that the way in which the presumption operates where both spouses contribute significantly to the acquisition of property, may require some re-consideration: Pettit v Pettit [1969] UKHL 5; [1970] AC 777, and see Calverley v Green per Deane J and also Mason and Brennan JJ at 259-60. In my view, neither the presumption of advancement nor the evidence of the first defendant as to conversations with the bankrupt is sufficient at this stage of proceedings to establish that there is no serious question to be tried.

14 A further argument of the first defendant is that the moneys paid from the various companies and trusts referred to were not the bankrupt's moneys but those of the relevant companies and trusts, and therefore cannot be regarded as a "contribution" by him. Certainly, if the moneys remained in the hands of the relevant companies or trusts, they could not be considered to be the bankrupt's funds. That is clear both as a matter of general principle and from the authorities cited on behalf of the first defendant: Sharrment Pty Ltd v Official Trustee in Bankruptcy [1988] FCA 179; (1988) 18 FCR 449 and Donnelly v Edelstein [1994] FCA 992; (1994) 49 FCR 384.

15 However, in this case, moneys have passed from those entities to the National Australia Bank. I accept for the present that they did so at the direction of the bankrupt. One of the competing inferences may well be that they were paid in satisfaction of his liability under the home loan. In that situation, it appears to me that, just as if the bankrupt had arranged for funds to be provided not from a company but by a relative, the transaction might be characterised in a number of ways. Such funds might be made available by way of loan or gift to the bankrupt or might in a number of ways be regarded as payment made indirectly by him or on his behalf. One would need to consider the detail of the relevant transaction, including what was said by all relevant parties and the way in which relevant accounts were treated, in order to arrive at a sensible conclusion.

16 The evidence on behalf of the first defendant has a number of strands. She said that she recalls a conversation in which the bankrupt said to her words to the effect that he would arrange for Nizam to advance moneys to her to make payment to the National Australia Bank. She said that payments annotated Nizam and James Commodities in the loan account are payments of this kind. However, I note that there is no evidence as to how the payments came to be made. In the absence of any other evidence, it is difficult to see how moneys which found their way apparently by a direct transfer from the account of Nizam to the home loan in the joint names of the bankrupt and the first defendant, can be seen as an "advance" to her.

17 The evidence of Mr Peter James, the bankrupt's brother, was that there was a conversation in which the bankrupt said to him that the trust (or perhaps "James Commodities") was providing moneys to the first defendant to meet payment of the mortgage. Mr Peter James said that when Westrum became the trustee of the trust, he would ensure that the "arrangement was kept going". This account suffers from difficulties very similar to those affecting the first defendant's.

18 The bankrupt himself swears an affidavit in which he says that the matters deposed to by both his brother and the first defendant are true and correct. He goes on to say that he as a director of James Commodities never intended that the moneys paid into the loan account would be a gift to his wife, and that he told her that that was the case. Her evidence does not purport to record such a conversation. He further deposes that he "presumed" that the accounting treatment of those payments would record them as a loan.

19 Finally, an affidavit of Mr Ball, being an accountant for the James Ryu Unit Trust_,_ establishes essentially that payments made out of the assets of the trust in respect of the home loan had not been recorded in the trust accounts as representing an asset, namely, a loan. At the request of the first defendant's solicitors, however, he said that he had gone back over the financial statements and made corrections to reflect what he refers to as the "loan to the first defendant". The source of his belief that the payments were a loan is not revealed. The fact that the accounts had not until recently treated the payments as a loan tends not to support the first defendant's case.

20 Although the plaintiff's case faces significant difficulties, having regard to the source of the funds in entities other than the bankrupt himself, the presumption of advancement, and the evidence of conversations between the bankrupt and the first defendant which may suggest that it was a common intention that the property be hers alone both legally and beneficially, it is my view at the present time that it cannot be said that the plaintiff's case cannot be made out.

21 It is not, therefore, necessary to deal with a further argument put on behalf of the plaintiff, to the effect that because the caveat has been lodged "under" the Bankruptcy Act, being a Commonwealth Act, the procedure set out in sections 138B-138D of the Transfer of Land Act cannot be invoked by reason of s 138A(f). That argument was but faintly pressed, and does not appear to me at this stage to have merit, but because of the conclusions which I have reached in relation to the serious question to be tried issue, I do not canvass it further.

22 I would therefore decline to vary at this stage the order of Roberts-Smith J made 8 December 2000, extending the operation of the caveat until further order. However, I raised with the plaintiff at the hearing of this application the question of the substantive relief which is sought, namely a declaration that the first defendant holds the land as a constructive trustee or, alternatively, pursuant to a resulting trust, for herself and the plaintiff in equal shares. In my view that is not a matter appropriate to be dealt with by an originating summons. There are likely to be significant factual disputes and the legal issues are of a complexity which suggests that appropriate pleadings would be desirable. The plaintiff should, in my view, therefore, proceed expeditiously to file and serve a writ and statement of claim in these proceedings. I will hear counsel as to whether it is desirable to make directions for that purpose.