The Trustees of the Property of John Daniel Cummins, A Bankrupt v Cummins

The Trustees of the Property of John Daniel Cummins, A Bankrupt v Cummins - [2006] HCA 6 - HCA 2006 case summary — Zoe

[12]

The largest creditor by far in the bankruptcy is the Commonwealth in the guise of the Australian Taxation Office ("the ATO"). This indebtedness of Mr Cummins followed the issue of assessments upon the lodgment on 14 February 2000 of income tax returns for the years ended 30 June 1992 to 30 June 1999 and the ATO had instituted proceedings to recover $955,672.92.
Before lodging these returns on 14 February 2000, Mr Cummins had not lodged any income tax return since about 1955. Section 208 of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act") stipulates that income tax when due and payable is a debt due to the Commonwealth, and s 222 provides for the imposition of additional tax, by way of penalty, upon a taxpayer who has failed to furnish a return[4]. Part XXIV of the Taxation Laws Amendment Act 1984 (Cth) had introduced into the Taxation Administration Act 1953 (Cth) detailed offence provisions[5] for failure to furnish returns when required under a taxation law. No default assessments under s 167 of the Assessment Act were made against Mr Cummins. The upshot was that, during the whole of the period in which he had practised as a barrister, Mr Cummins had paid no income tax.
Upon success in their appeal to this Court, the Trustees seek two declarations and consequential relief with respect to two transactions in August 1987 ("the August transactions"). The first declaration is that the transfer made on or about 26 August 1987 by Mr Cummins to Mrs Cummins of his legal and beneficial interest as joint tenant in the property at 77 Alexandra Street, Hunters Hill, a Sydney suburb, ("the Hunters Hill property") is void against the Trustees, pursuant to s 121 of the Act. The Hunters Hill property is land registered under the provisions of the Real Property Act 1900 (NSW). The second declaration is that the transfer of 6,000 shares in Counsel's Chambers Ltd ("the Shares") made by Mr Cummins to Aymcopic on or about 26 August 1987 is void as against the Trustees, again pursuant to s 121 of the Act. The Shares entitled Mr Cummins to occupancy of a double room on a floor of barristers' chambers in Wentworth Chambers in Phillip Street, Sydney.
In addition to his chambers in Phillip Street, Mr Cummins maintained chambers at Parramatta. In 1986 he acquired for $30,000 units in the Barristers Chambers Parramatta Unit Trust. These formed part of the bankrupt estate and ultimately were sold by the Trustees for $100,000. Mr Cummins had intended in 1987 to transfer these units to Aymcopic by way of gift, but his instructions to his solicitor were not implemented.
The documents to give effect to the August transactions were prepared by Mr Harris, a solicitor practising as "B C Harris & Co". Mr Harris did not give evidence but his file notes and some of his correspondence with Mr Cummins respecting the August transactions were in evidence. None of the other participants in the August transactions gave evidence respecting them. Mrs Cummins gave evidence but upon what were then other live issues. Little of the documentary evidence was in dispute; the principal area for debate at all stages of the litigation has been the nature of the inferences to be drawn from that evidence.

[14]

The Hunters Hill property had been purchased in 1970 and the title was taken by Mr and Mrs Cummins as joint tenants. They were registered as proprietors on 10 August 1970. The solicitors acting for the purchasers were Messrs J P Grogan and Co. The property so acquired was then vacant land. A dwelling was erected on it shortly thereafter which served as their matrimonial home.
Sackville J found that Mrs Cummins had contributed 65.8 per cent of the purchase price of $31,000; in the Full Court, further allowance was made in Mrs Cummins' favour for the whole of the deposit she provided, raising her contribution to 76.3 per cent. In the second judgment, Sackville J held that any presumption of resulting trust in shares proportionate to the respective contributions of Mr and Mrs Cummins had been rebutted, and that in 1970 they had shared the intention to acquire the Hunters Hill property as joint tenants, legally and beneficially[11]. It was the disposition in favour of Mrs Cummins, made in August 1987 by severance of that joint beneficial interest of Mr Cummins, which s 121 of the Act rendered an ineffective subtraction from his bankrupt estate. The disposition being void against the Trustees by operation of s 121, the upshot would be that the joint tenancy was severed by the bankruptcy of Mr Cummins[12].
Given the conclusion by the majority of the Full Court that the case for the Trustees under s 121 failed, it was unnecessary for their Honours to go on to consider the resulting trust issue. However, they did so and differed from Sackville J, holding that the presumption of a resulting trust to reflect the contributions to the purchase price in 1970 had not been rebutted[13]. In this Court, the first respondent supports that conclusion and the Trustees challenge it.
The contract and transfer in respect of the interest of Mr Cummins as joint tenant in the Hunters Hill property were executed on the same day, 26 August 1987. A valuation had been obtained by Mr Harris on account of Mr and Mrs Cummins for the stated purpose of "stamp duty assessment", and the five bedroom residence was valued at $410,500. The price was stated in the contract and transfer to be one‑half of this sum, namely $205,250, and the transfer included an acknowledgment by Mr Cummins that he had received that consideration.
It was, however, common ground before Sackville J that Mrs Cummins did not pay the purchase price or any part of it. She did pay ad valorem stamp duty on the contract and provided the $300 for payment of the valuer's fee. The transfer was registered and Mrs Cummins thereby became registered proprietor of an estate in fee simple in the Hunters Hill property.
The Hunters Hill property was sold after the bankruptcy and by agreement between the parties. The share of the net proceeds of sale for which Mrs Cummins was obliged by the orders of Sackville J to account to the Trustees was $1,064,417.82 with accrued interest.
The transfer of the Shares to Aymcopic, also executed on 26 August 1987, had recited payment of consideration of $360,000 paid by Aymcopic. Sackville J found that it had been the intention of the parties that the two transactions effected on 26 August were to be completed together. Again, it was common ground that Aymcopic did not pay any part of the purchase price. (It will be necessary later in these reasons to revert to the significance of the absence of payment both by Aymcopic and Mrs Cummins.) The funds to meet the stamp duty on the transfer were provided by Mrs Cummins. The Shares were registered in the name of Aymcopic in December 1987.
The Shares also were sold. The proceeds of sale for which Aymcopic was obliged by the orders of Sackville J to account to the Trustees was $405,882.73 and $120,010, each with interest, in respect of two parcels of 4,000 and 2,000 of the Shares.

[45]

Mr Cummins was a gentleman of the turf. At one stage he was a member of the Committee of the Australian Jockey Club and records later assembled by an accountant, Mr Morelli, in connection with preparation of the income tax returns for 1992‑1999, showed items of significant expenditure in betting and the maintenance of race horses. It may be, though the reasoning of Sackville J did not rely upon the point, that it was to be inferred that the expenditure on turf interests pre‑dated 1992, and was an element in the manner of living enjoyed by Mr Cummins at the time of the August transactions.
At trial, counsel for the respondents identified several possible explanations of the August transactions. One was that Mr Cummins had sought to alleviate what in 1987 were matrimonial difficulties. Another was a wish to provide for his wife and children. (Hence, perhaps, the absence of a plea of market value consideration under s 121(4)(a) of the Act.) The primary judge described the first explanation as no more than unsupported speculation and, as to the second, a desire by Mr Cummins to benefit his family played no more than a minor part in the decision-making process; in any event, it was consistent with a main purpose of defeating or delaying the creditors of Mr Cummins[30].
With respect to the second explanation, some reference should be made, by way of contrast, to Williams v Lloyd[31]. In that case, both the bankrupt and his wife had died at the time of the hearing of applications to set aside various transactions upon grounds including the Elizabethan statute and s 37A of the Conveyancing Act. Evidence, however, was given by two of the bankrupt's adult children. The applications succeeded at first instance but an appeal to this Court was successful. Dixon J described the source of the impugned dispositions as the persuasions of the wife of the bankrupt. These were directed not to protecting the property of the husband against future creditors, but to withdrawing capital from apprehended improvident hazardous investments[32]. His Honour also remarked that at the time of the dispositions the bankrupt had been "in a perfectly sound financial position" with "nothing to fear"[33].
The third hypothesis to explain the August transactions was a concern that, given what was on 26 August 1987 the pending appeal to this Court in what became Giannarelli v Wraith[34], the law relating to the liability of counsel in negligence might be changed, and a desire of Mr Cummins to avoid his assets being at risk if a future client sued him for in‑court work[35]. Sackville J questioned whether such a "main purpose" would not in any event answer s 121(1)(b) of the Act[36]. He concluded that protection against such claims had been seen by Mr Cummins as but a "side benefit" of the transfers in question, and held that Mr Cummins' "main purpose in transferring his assets was being to prevent the assets being divisible among his creditors, specifically [the ATO]"[37].
Sackville J put to one side, as being made too late in the course of the litigation, the contention of the Trustees that it was significant support for their case that, on 2 April 1987, the Senate had rejected for the second time the Australia Card Bill 1987, which would have provided a precursor to the present compulsory tax file number system, and that the government of the day, whose bill it had been, had been returned at a general election held on 11 July 1987[38]. Thereafter, the tax file number system was introduced by the Taxation Laws Amendment (Tax File Numbers) Act 1988 (Cth) and commenced on 1 January 1989.

[51]

The force of the first sentence is not diminished by the following two sentences. It was entirely appropriate for Sackville J to have placed the significance he did upon the duration of Mr Cummins' practice at the bar, particularly as senior counsel. The circumstances that must have attended his taking silk in 1980 have been referred to earlier in these reasons. It is in the highest degree unlikely that a junior counsel with an insubstantial practice would obtain a favourable recommendation by the President of the New South Wales Bar Association to the New South Wales Attorney-General. It is also unlikely that a senior counsel with a meagre practice would be able to maintain two sets of chambers, one being generous accommodation in Phillip Street.
The majority in the Full Court also emphasised that the purchase of the Shares and the units, relating to the two sets of chambers maintained by Mr Cummins, may have been funded by loan moneys[44]. That could have been the case but, if so, Mr Cummins would have needed the means to service the indebtedness.
As was pointed out in the course of argument in this Court, the competing possibilities seem to have been that, rather than relying upon receipts from his practice, Mr Cummins had been supported for many years by Mrs Cummins. As to that, there was no evidence from Mrs Cummins. Another possibility might have been that Mr Cummins was sustained by resort to capital. But that would only raise the further question as to why it should be assumed that that was not income-producing capital.
The majority in the Full Court also accepted criticism by the present respondents of the use by Sackville J of the figures of gross receipts and net business income shown in the returns eventually filed for the years 1992‑1999. The respondents appeared to have persuaded the majority in the Full Court that it was an inference of equal probability that in respect of the years 1987 and earlier the net taxable income of Mr Cummins had been below the taxable threshold[45].
It was well within the application of accepted principle for Sackville J to have approached the matter in the way he did. In the joint judgment of five members of this Court in Kizbeau Pty Ltd v W G & B Pty Ltd[46], authorities were collected upon an analogous point to that considered by Sackville J. The takings of a business subsequent to purchase are generally admissible to prove the value of the business at the date of purchase. The state of affairs disclosed in the returns for the period commencing 1992 was not so remote as to be incapable of throwing light on the level of receipts from Mr Cummins' earlier practice as senior counsel[47].
As to the significance attached by the majority in the Full Court to the Giannarelli litigation, Tamberlin J in his dissenting judgment remarked[48]:

[60]

What was there to conclude in August 1987 that the face of the register did not represent the full state of the ownership of the Hunters Hill property, and that the ownership as joint tenants was at odds with, and subjected to, the beneficial ownership established by trust law?
No part of the purchase price of $205,250 was paid by Mrs Cummins and the August 1987 transfer was voluntary, as explained earlier in these reasons. However, Mrs Cummins did pay the ad valorem stamp duty on the contract and the valuer's fee. There is force in the submission for the Trustees that it is unlikely these steps would have been taken by Mrs Cummins and that the August transaction with respect to the Hunters Hill property would have been cast in the way that it was had she believed that she already held approximately a two-thirds beneficial interest. At all events, these matters suggest that in August 1987 the parties were proceeding on the conventional basis that the equitable estate was at home with the registered estate of joint tenancy[58]. There is no necessary inconsistency between this conventional basis as to the nature of the ownership being dealt with in August 1987 and the later conventional basis on which the litigation was conducted, namely that the consideration stipulated was not paid and that the property interest, ascertained as just described, was being dealt with on a voluntary basis.
It is important for a consideration of the issues concerning the operation, if any, of the principles respecting resulting trusts that the registered title was that of joint tenants rather than tenants in common. The severance effected in August 1987 had the effect of putting to an end the incident of survivorship.
The dislike by equity of survivorship and of what Deane J described as "the gamble of the tontine"[59] was the expression of its preference for proportionate carriage of benefit and burden; equity reacted against the operation of chance to produce a result at odds with proportionate distribution between claimants. In Corin v Patton[60], Deane J said that there were two aspects of joint tenancy which attracted the operation of overriding equitable doctrine, based upon notions of good conscience and actual or presumed intention. They were[61]:

[63]

In Malayan Credit Ltd v Jack Chia-MPH Ltd[63], Lord Brightman, in delivering the advice of the Privy Council, considered an argument that, in the absence of an expressed agreement, persons who take as joint tenants at law hold as tenants in common in equity only in three classes of case. The first was the provision of purchase money in unequal shares, where the beneficial interest is held to reflect those unequal shares; the second, security taken jointly by parties who advance the loan moneys in unequal shares; and the third, partnership property[64]. The Privy Council held that the circumstances in which, in the absence of express agreement, equity may presume joint tenants at law to be tenants in common in equity of the beneficial interest of property were not limited in this way.
In the circumstances of Malayan Credit, the Privy Council inferred from "[a]ll the circumstances"[65] that, since the commencement of a lease of property for the business purposes of the joint lessees, they had held beneficial interests in the lease as tenants in common in unequal shares representing the distinct and differing areas of the leased premises they occupied. Upon the sale of the leasehold premises, the net proceeds were to be divided not equally but in accordance with these proportions. This manifested the precept that among merchants the right of survivorship has no place[66].
Among the features taken into account in Malayan Credit[67] as pointing in equity unmistakably towards a tenancy in common in unequal shares were the facts that, after the grant of the lease, the parties had paid stamp duties and survey fees in the same unequal shares and that the rental service charges had been paid in the same way.
In Malayan Credit, there was, of course, no scope for any "competing" presumption of advancement seen in family relations cases. In Charles Marshall Pty Ltd v Grimsley[68], and subsequently in Calverley v Green[69], this Court was concerned with family dealings in property: shares in the first case and improved land in the second case.
In Charles Marshall, the plaintiffs were daughters of the donor and the Court said that the presumption of an intention of advancement, that they be made beneficial as well as legal owners of the shares, might be rebutted by evidence manifesting a contrary intention. Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ said of the rebuttal of presumptions by manifestation of a contrary intention[70]:

[66]

What then was the "transaction" to which attention must be directed in determining whether, subsequent admissions or conventional assumptions or arrangements apart, the registered title to the Hunters Hill property acquired by Mr and Mrs Cummins was not at variance with an equitable title? The Hunters Hill property, at the time of their registration as joint proprietors on 10 August 1970, was vacant land. The purchase moneys were contributed, as explained earlier in these reasons, in the proportions 76.3 per cent (Mrs Cummins) and 23.7 per cent (Mr Cummins). A mortgage over the Hunters Hill property executed by Mr and Mrs Cummins in favour of the Commonwealth Savings Bank of Australia on 16 July 1971 secured an advance to them jointly of $8,000 on a covenant that they would erect and complete within six months of that date a dwelling house at a cost of not less than $33,500. The tax return by Mrs Cummins for the year ended 30 June 1971 but lodged by her tax agent in 1972 showed the Hunters Hill property as her place of residence.
The "transaction" to which attention must be directed, in the sense given in Charles Marshall respecting the principles of resulting trusts, is a composite of the purchase of the Hunters Hill property followed by construction of a dwelling house occupied as the matrimonial home for many years preceding the August transactions. The relevant facts bearing upon, and helping to explain, the nature of the joint title taken on registration on 10 August 1970 include the other elements in that composite. To fix merely upon the unequal proportions in which the purchase moneys were provided for the calculation of the beneficial interests in the improved property which was dealt with subsequently in August 1987 would produce a distorted and artificial result, at odds with practical and economic realities[73]. Looked at in this way, this is not a case which requires consideration of the authorities where an equitable lien or charge secures expenditure on improvements made but no beneficial interest in the land is conferred[74].
Calverley v Green concerned the beneficial ownership of an improved property acquired as joint tenants by a man and a woman who had lived together for about 10 years as husband and wife. The decision of this Court was that the presumption that they held the registered title in trust for themselves in shares proportionate to their contributions was not rebutted by the circumstances of the case. Mason and Brennan JJ[75] referred to the statement by Lord Upjohn in Pettitt v Pettitt[76] that, where spouses contribute to the acquisition of a property then, in the absence of contrary evidence, it is to be taken that they intended to be joint beneficial owners. Their Honours said that Lord Upjohn's remarks reflected the notion that both spouses may contribute to the purchase of assets through their marriage "as they often do nowadays"[77] and that they would wish those assets to be enjoyed together for their joint lives and by the survivor when they were separated by death. However, Mason and Brennan JJ considered such an inference to be appropriate only between parties to a lifetime relationship, being the exclusive union for life undertaken by both spouses to a valid marriage, though defeasible and oftentimes defeated[78].
It is unnecessary for the purposes of the present case to express any concluded view as to the perception by Mason and Brennan JJ of the particular and exclusive significance to be attached to the status of marriage in this field of legal, particularly equitable, discourse. It is enough to note that, as Dixon CJ observed 50 years ago in Wirth v Wirth[79], in this field, as elsewhere, rigidity is not a characteristic of doctrines of equity. The reasoning of the Privy Council in Malayan Credit[80] is an example of that lack of rigidity.
In the present case, Sackville J referred in the second judgment to the operation of statute law to produce divergent outcomes in particular classes of case[81]. In particular, his Honour referred to the regimes established by the Family Law Act 1975 (Cth), s 79, and, in New South Wales, by the Property (Relationships) Act 1984 (NSW)[82]. The New South Wales statute provides for the declaration of title or rights in respect of property held by either party to a "domestic relationship". That term is broadly defined in s 5 as extending beyond the already broad definition of "de facto relationship" in s 4. The extent to which these statutory innovations may bear upon further development of the principles of equity is a matter for another day[83].
The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott's work respecting beneficial ownership of the matrimonial home should be accepted[84]:

[70]

That reasoning applies with added force in the present case where the title was taken in the joint names of the spouses. There is no occasion for equity to fasten upon the registered interest held by the joint tenants a trust obligation representing differently proportionate interests as tenants in common. The subsistence of the matrimonial relationship, as Mason and Brennan JJ emphasised in Calverley v Green[86], supports the choice of joint tenancy with the prospect of survivorship. That answers one of the two concerns of equity, indicated by Deane J in Corin v Patton[87], which founds a presumed intention in favour of tenancy in common. The range of financial considerations and accidental circumstances in the matrimonial relationship referred to by Professor Scott answers the second concern of equity, namely the disproportion between quantum of beneficial ownership and contribution to the acquisition of the matrimonial home.
In the present litigation, the case for the disinclination of equity to intervene through the doctrines of resulting trusts to displace the incidents of the registered title as joint tenants of the Hunters Hill property is strengthened by further regard to the particular circumstances. Solicitors acted for Mr and Mrs Cummins on the purchase in 1970. The conveyance was not uneventful. The contract was dated 14 April 1970 and was settled on 27 July 1970, but only after the issue by the solicitors for the vendor on 10 July of a notice to complete. It is unrealistic to suggest that the solicitor for the purchasers, Mr and Mrs Cummins, did not at any point advise his clients on the significance of taking title as joint tenants rather than as tenants in common. Secondly, use of the valuation obtained in 1987 to fix what was shown as the purchase price for the acquisition by Mrs Cummins of the interest of her husband is consistent, as already indicated, with the conventional basis of their dealings which treated the matrimonial home as beneficially owned equally.
Finally, there is the question of the funding of the building operations which were necessary for the use of the previously vacant land as the matrimonial home. Reference is made earlier in these reasons to the treatment of the purchase of the unimproved land and the subsequent building operations as the one transaction for the purpose of considering the principles respecting resulting trusts. Since October 1967, Mr and Mrs Cummins had owned as joint tenants a property at 12A Ferdinand Street, Hunters Hill. This was sold in December 1971. The proceeds of that sale were paid on 22 December 1971 into a bank account styled "John Daniel Cummins and Mrs Mary Elizabeth Cummins Fully Drawn Loan Account". Sackville J held that in these circumstances it appeared likely that the net proceeds of sale of the Ferdinand Street property had been paid to Mr and Mrs Cummins jointly. While there was no finding to this effect by the primary judge, there is force in the submission in this Court by counsel for the Trustees that the likely source of funds for the building operations were, first, the joint borrowing of $8,000 on the mortgage to the Commonwealth Savings Bank of Australia, supplemented after December 1971 by the joint proceeds of the sale of the other property.
Sackville J correctly concluded in the second judgment that the subject of the disposition in 1987 was that which appeared on the transfer, namely the interest of Mr Cummins as joint tenant of the Hunters Hill property, without any displacement to allow for a beneficial tenancy in common in shares, of which the larger was that of Mrs Cummins[88].

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