Timeless Sunrise Pty Ltd v BigJ Enterprises Pty Ltd [2023] VSC 524 | Case summary

Timeless Sunrise Pty Ltd v BigJ Enterprises Pty Ltd [2023] VSC 524 | Case summary | Zoe

[97]

(a) I find that Ernie had implied authority to execute the PDJ Crew Unit Trust Deed on behalf of PDJ Crew and that the execution of the Trust Deed was sufficient to establish the PDJ Crew Unit Trust.

(b) If I am wrong about the execution of the Trust Deed itself being sufficient to establish the PDJ Crew Unit Trust, I accept that the evidence of the events and communications between 2004 and 2018 constituted an express intention by David and Jason to create a trust relationship in accordance with the terms of the PDJ Crew Unit Trust Deed, with equal unit holdings, 50% held by MPG and 50% held by BigJ on behalf of discretionary trusts established for the benefit of each brother.

(c) I find that Newsom Street, the Adjacent Land and consequently the proceeds of sale of those properties are assets of the PDJ Crew Unit Trust.

(d) I am not persuaded on the balance of probabilities that Mr Landlord has the entitlement to a 50% interest in the PDJ Crew Unit Trust or an entitlement to the 50% interest in the proceeds of sale of Newsom Street that it claims. The claim by Mr Landlord is dismissed.

(e) I am not persuaded on the balance of probabilities that Timeless Sunrise holds 50% of the PDJ Crew Units.

(f) In the alternative scenario, if I was persuaded that there was no effective transfer of the PDJ Crew Units from MPG to Timeless Sunrise in July 2014, I would have held that on and from 16 November 2020 any and all assets of the Brandi Family Trust, including the 60 units in the PDJ Crew Unit Trust, immediately vested in Mr Landlord as trustee.

(g) The question of who is now properly entitled to 50% of the PDJ Crew units held by MPG in its capacity as trustee of the Brandi Family Trust in 2008 is a matter that may need to be determined in the future by the trustee of the PDJ Crew Unit Trust.

(h) I am satisfied that David owed fiduciary duties to Jason, BigJ and to PDJ Crew in relation to the signing of the PDJ Crew Unit Trust Deed and the Application for PDJ Crew units by Jason, but that it was not a part of David's fiduciary duty to avoid a conflict of interest. I do not accept that David breached his duties in relation to these events.

(i) I am satisfied that David owed fiduciary duties to Jason, BigJ and to PDJ Crew which he breached in relation to the CEG and Atida transactions. The Jason Brandi parties have proved that they suffered damage as a result. I am not persuaded that the claimed legal costs of $173,403.65 claimed by the Jason Brandi parties are all referable to the CEG and Atida transactions. I will award equitable damages in the sum of $61,831.07 to compensate Jason and PDJ Crew for legal costs incurred by them. In addition, I will order that David pay penalty interest on that amount pursuant to the Supreme Court Act 1986 (Vic) ('Supreme Court Act').

(j) I am satisfied that David breached his fiduciary duties to PDJ Crew in relation to the Leaning Back loan. I am satisfied that the appropriate order is for the taking of an account.

(k) I am not satisfied on the balance of probabilities that the Jason Brandi parties have established that David is personally indebted to PDJ Crew in the sum of $593,532. That claim is dismissed.

(l) I find that Mr Landlord has no standing to seek relief in relation to the PDJ Crew Unit Trust and the accessorial liability claims against Jason. I am separately not persuaded that there is any basis to make an order for Jason to provide an account of profits. The accessorial liability claim against Jason is dismissed.

(m) I am not persuaded that it is more likely than not that the transactions between ITM, PDJ Crew, David, Jason or Tania involved loans to ITM as alleged by each of PDJ Crew, Jason and Tania.

(n) I am not persuaded on the balance of probabilities that David personally guaranteed loans from ITM to PDJ Crew, to Jason or to Tania. Each of the guarantee claims against David in the counterclaim in the Timeless Sunrise proceeding and by Tania in Tania's proceeding is dismissed.

(o) Because I am not satisfied there were the personal guarantees alleged by PDJ Crew, Jason or Tania, it follows that the caveats lodged by PDJ Crew, Jason and Tania over Wellington Parade are not sustainable and must be removed. Orders will be made accordingly.

(p) I am satisfied that Zigaroo entered into the Secure Funding transaction which, as to the transfer of $255,000 to Fernanda's personal account, was not for the benefit of the MK No 13 Trust and constituted a breach of trust on the part of Zigaroo. I am satisfied that Jason is liable for his knowing involvement in Zigaroo's breach of fiduciary duty as to the amount of $255,000. The remaining claims by the David Brandi parties alleging Zigaroo's breach of duty and Jason's involvement in the breach are not made out.

(q) The claim brought by the David Brandi parties against Jason relying on the alleged Zigaroo/Jason loan agreement is not proved. That claim is dismissed.

(r) The David Brandi parties' claim that Mr Landlord holds 25 of the units in the JAG Group Unit Trust fails.

(s) I will order that upon payment by Jason of $315,661.69 to David, David transfers his interest in Cooper Street to Jason.

(t) The amount payable to David in respect of his contributions to Holmes Road is $558,706.70. The amount payable to Jason in respect of his contributions to Holmes Road is $202,097.35.

(u) I am satisfied that David and Tina have established that 'at some point' Ascot Vale Road would be theirs. They have established that they, and Tina's parents, acted to their detriment in reliance on that representation. I accept that David and Tina have made out their proprietary estoppel claim. I will order that the sum of $615,231.43, less any land tax referable to the property in the hands of MK No 13 Trust from 30 June 1998, be paid to David and Tina.

(v) Subject to them consenting to such appointments, I appoint Messrs Carrafa and Micheletto as trustees of:

i. The PDJ Crew Unit Trust;

ii. The MK No 13 Trust;

iii. The JAG Group Unit Trust;

iv. The Tarwin Group Unit Trust;

v. The Tarwin River Holdings Unit Trust; and

vi. Lot 28, 157 Epsom Road.

(w) Subject to them consenting to such an appointment, I appoint Messrs Carrafa and Micheletto as receivers and managers of the PDJ Crew Unit Trust.

(x) Subject to them consenting to such appointments, I appoint Messrs Carrafa and Micheletto as receivers and managers of the assets and undertakings of Zigaroo and the MK No 13 Trust.

(y) I will arrange for a copy of these reasons for judgment to be provided to the ATO, to ASIC and to the State Director of Public Prosecutions.

[370]

...[S]ome caution is required in relation to the application of that judgment. It concerned a somewhat extraordinary set of facts, and a most unusual conclusion by the trial judge that both versions of events put before him were extremely improbable. It was in that context that the House of Lords held that the trial judge had erred in choosing one improbable version of events simply because he considered the other version so improbable that it was effectively excluded on the evidence.
There will be very few cases where the evidence before a trial judge is of that nature. Further, where a party to a proceeding goes into evidence and advances a version of events that is contrary to the version of events put by the party who bears the onus, the judge does not - and must not - ignore the evidence so advanced in determining whether the relevant onus has been satisfied. Rhesa Shipping does not undermine that proposition; nor do the Australian cases that have followed Rhesa Shipping.
It is of course true - by definition - that the party that bears the onus must discharge that onus. But, as Santamaria JA observed in Melbourne Orthopaedic Group Pty Ltd v Stamford Aus‐Trade & Press Pty Ltd, it 'is proper for a judge to assess which of several competing hypotheses is to be preferred provided the court always keeps in mind upon whom the onus lies'. In considering whether a party has discharged its onus, it will often be appropriate, or even necessary, for the judge to determine whether the alternative version of events put forward by the opposing party is to be accepted; for if that alternative version of events were to be positively accepted, then plainly the party that bore the onus would not have discharged it.
The real question in this case is whether the trial judge's reasoning reveals an error of the kind identified in Rhesa Shipping, such that it could not be said that his Honour had felt an 'actual persuasion' that Jessica and Lance had discharged their onus. In our opinion the trial judge did not err in that manner. It is quite clear from his Honour's reasons that he felt an actual persuasion about the existence of the joint venture agreement.

[660]

Persons who assume a position of director though not validly appointed (de facto director) may also attract the duties and liabilities attached to that office. MPG submitted that a de facto director includes a person who purports to resign as director but who continues to act as a director: Williams v Bearing Traders Pty Ltd and a person who is removed as a director but who continues to act as a director: Resource Equities Ltd v Garrett.
The facts, as limited as they are, are capable of giving rise to the inference that Ms Charalambous was continuing to act in the position of a director when she purported to sign on behalf of Rayner Street. The company was a single purpose property holding company in a group of companies involved in the development of property. The sole director at the time of the signing of the Agreement was also a signatory, albeit on behalf of other companies.
The sole director at the time (Mr Michanicos), who signed on behalf of other borrowers, may also be taken, in the circumstances of her prior and subsequent directorship, and the nature of the company as a single purpose property holding company, to have held her out as an authorised agent for the purpose of executing the Consolidated Loan Agreement so as to attract the assumptions in ss 128 and 129 of the Corporations Act.
...
In my view, Ms Charalambous falls within the extended definition of director in section 9 of the Corporations Act, and therefore that the requirements of section 53(1)(a) of the Property Law Act have been met in relation to execution by 47 Rayner Street of the Consolidated Loan Agreement. Further, and in any event, there is some evidence of Ms Charalambous being held out as having authority as agent of the company so as to enable MPG to make the assumptions in s 129(3) of the Corporations Act. Thus, having regard to the original pleading, her position as a de facto director and the operation of the assumption, I am satisfied that Rayner Street duly executed the Consolidated Loan Agreement.

[923]

(a) The Brandi Family Trust was established by deed dated 9 February 1998. MPG was appointed as the trustee of the Brandi Family Trust (and Davtin retired from that role) on 1 November 2003.

(b) The Brandi Family Trust deed contains an 'ipso facto' clause (clause 8.8), pursuant to which '[t]he office of Trustee shall ipso facto be determined and vacated if ... the Trustee being a company shall enter into liquidation whether compulsory [sic] or voluntarily...'.

(c) In February 2019, MPG was wound up. Clause 8.8 had the effect of rendering the office of trustee automatically and immediately vacant upon MPG entering into liquidation on 25 February 2019; MPG thereupon ceased to be the trustee of the Brandi Family Trust and became a bare trustee of the assets of the Brandi Family Trust.[47]

(d) MPG was deregistered on 6 December 2019. It has not been reinstated. The effect of deregistration on the property that was held by MPG as trustee is regulated by the provisions of Part 5A.1 of the Corporations Act.

(e) Upon the deregistration of MPG on 6 December 2019, by operation of ss 601AD- 601AH of the Corporations Act, the property of MPG which was held on trust vested in the Commonwealth. ASIC may perform all the duties and exercise all the powers of the Commonwealth as trustee in relation to property so held on trust by the Commonwealth.[48]

(f) The Commonwealth 'takes only the same property rights that the company itself held',[49] and so the 60 units in the PDJ Crew Unit Trust in the Commonwealth's hands were still impressed by the trust and subject to all interests and claims which existed when those units were vested in MPG as trustee of the Brandi Family Trust.

(g) This has the result that the 60 units in the PDJ Crew Unit Trust previously held by MPG as trustee for the Brandi Family Trust vested in the Commonwealth as trustee for the Brandi Family Trust, subject to that trust, including in accordance with the Brandi Family Trust deed.

(h) In accordance with these principles, on 16 November 2020, Mr Landlord was appointed by deed as trustee of the Brandi Family Trust with immediate effect, pursuant to clause 7.1 of the Brandi Family Trust deed. Clause 7.1 provides that the 'power to appoint a new Trustee in the place of an existing Trustee or in addition to and jointly with an existing Trustee and the power to remove a Trustee shall subject to the following provisions of this clause be vested in ... David Brandi during his lifetime...'. Clause 7.4 provides for the vesting of the trust fund in the new trustee 'without the necessity for any vesting, declaration, transfer, conveyance or other assurance'.

(i) Therefore, on and from 16 November 2020, perforce of clause 7.4 of the Brandi Family Trust deed, any and all assets of the Brandi Family Trust, including the 60 units in the PDJ Crew Unit Trust, immediately vested in Mr Landlord as trustee. There are no other steps required under the deed (or at law) to appoint a new trustee and to effect a vesting of any and all assets of the Brandi Family Trust.

[1037]

I consider that Gillard J's analysis in Chalker of the effect of s 601AD and s 601AE of the Act reflects the proper interpretation of those provisions rather than the observation of Barrett J in Danich that ASIC did not become the trustee of the trust property of the deregistered company until it positively exercised the power to do so. The idea of the scheme set up by s 601AD and s 601AE of the Act is to ensure that there is an entity to deal with the property owned by a deregistered company upon its ceasing to exist. This has particular relevance in respect of the trust property held by the deregistered company as trustee, as the statutory vesting of the trust property in the Commonwealth may facilitate dealing with the trust property for the benefit of the beneficiaries under the relevant trust. It does not resolve the first issue by determining whether the Commonwealth is a full trustee or not in respect of the trust property held by a deregistered company that vested in it under s 601AD(1A) of the Act. Even if the Commonwealth were a full trustee, the statutory scheme under part 5A.1 of Chapter 5A of the Act anticipates the rights vested in the Commonwealth as the holder of the trust property may be affected or divested by the application of the other laws within which the scheme operates. This is implicit in the note to s 601AE(1) of the Act. If the relevant trust deed or a statutory provision such as s 12(1) or s 80 of the [Trusts Act 1973 (Qld)] regulates the appointment of a new trustee when a corporate trustee has been deregistered, there is nothing in part 5A.1 of Chapter 5A of the Act that mandates the consent of, or notice to, the Commonwealth before such an appointment can take effect. The power the Commonwealth has pursuant to s 601AE(1) may be used to facilitate the transfer of the trust property to the new trustee or there may be practical reasons in a particular case for notifying the Commonwealth of the appointment of a new trustee, but that does not make the transfer to, or the appointment of, the new trustee conditional on the prior consent of, or notice to, the Commonwealth.

The statutory vesting of the trust property held by a deregistered company in the Commonwealth is therefore defeasible, where there is a relevant exercise of powers under the trust deed or a statutory provision such as s 12(1) or s 80 of the [Trusts Act 1973 (Qld)] for appointing new trustees when a corporate trustee has been deregistered.

(emphasis added)

[1156]

Counsel for the appellant submitted that the relationship between the appellant and Mrs Dash was that of brother and sister and that it was not intended to give rise to legal obligations. ... Hence, it was submitted, the appellant owed no enforceable fiduciary duty to his sister ...

I am prepared to assume for the purposes of this appeal that no enforceable contract of retainer was made between Mrs Dash as client and the appellant as her solicitor and that the relationship of solicitor and client did not come into existence between the appellant and his sister between 1982 and 1985 in relation to the investment and disposition of her funds deposited in the bank account at Muswellbrook. However even on this assumption, favourable to the appellant, the undisputed facts disclose serious and wilful breaches of duty on the part of the appellant which were disgraceful and amount to professional misconduct.

The relationship between the appellant and his sister was clearly a fiduciary one. The absence of any legally enforceable contract of retainer far from establishing the absence of a fiduciary duty owed to the sister in this case demonstrates the opposite. The appellant and his sister were not dealing with each other at arms length. She was trusting him to look after her money and her interests. There is in general no contract between trustee and beneficiary but the fiduciary relationship in such a case is clear and so it is in the present case, although of course the appellant was not a trustee of his sister's funds while they remained in the bank account.

Mrs Dash did not make a gift of these monies to the appellant. On the contrary he was given clear instructions to manage these funds on her behalf and for her benefit.

Instead of the funds being invested safely at interest for her they were used for his own purposes without authority and without the informed consent of his sister. On the evidence he must have spoken and written to his sister many times between 1982 and 1985 without ever disclosing this use of her funds.

It is clear that the appellant committed a gross breach of his fiduciary duty when he withdrew the $80,000 from his sister's bank account and used it for his own purposes.

[1425]

Loan from me, Tania and David from ITM

In around early January 2010, I went to my parents' home for dinner after returning from an overseas holiday.

My dad said that the plan was for each of us (being me, Tania and David) to advance $250,000 to ITM (a total of $750,000) which would be funded by the bank loan secured against Cooper Street. I said to my dad that I did not know anything about this plan to advance further funds to ITM.

My dad said that he thought that the loan was fine because the money was in effect going to David, there would be a 20% interest rate and the loan would be fully secured. By fully secured I understood that my dad was referring to David's guarantee. I do not recall the precise words that my dad and I used, however this was the substance of our conversation.

...

The ANZ loan was taken out in David's, Tania's and my name jointly. The loan was for $880,000 and David subsequently confirmed that of that amount '$750K was put towards ITM'.

Execution of the ITM loan agreements

I subsequently signed two separate agreements for the loans to ITM. The first agreement was for the PDJ Crew loan and the second was for the loan from me, David and Tania. I do not recall the precise date that I signed the agreements, but I believe that it was not long after I agreed to the second loan of $750,000 (at paragraphs 102 - 106 above).

The agreements looked the same and I signed both of them in my parents' dining room before a Sunday night dinner. David, Tania and I signed the documents together while my mum and Tina were in the loungeroom playing with the children. The agreements had tabs indicating where to sign. I flicked through the pages to check that the document included a guarantee from David and the other directors, which it did. Both agreements contained three personal guarantee pages (one for each of David, Robert and Peter). Those guarantee pages were at the back of each agreement. The guarantees for Robert and Peter were already pre-signed. I recall that David signed the guarantee page for both agreements in front of me. I then signed both agreements. After I signed the agreements, David took them away with him and did not provide me with a copy. I did not ask for a copy because at the time, David kept documents that I signed, together with paperwork relating to my companies, at his office (see paragraph 110 below). I trusted that David would keep my documents safe and secure. David has not produced the ITM loan agreements that I signed (which include the personal guarantees).

The execution of documents - my general practice

David asked me, and also my parents and my sister, to sign documents on a regular basis. David would give me documents to sign when I saw him at his office or, more commonly, he would bring documents to my parents' home on a Sunday night when we all got together for dinner. While my dad was alive, and until about late 2018 when my parents' relationship with David deteriorated, my parents held a family dinner at our family home (Cooper Street) each Sunday evening. Sunday night dinner was usually attended by me, David, Tania, our partners, and later David and Tania's children. My parents expected us to come for dinner on Sunday night when we could.

The signing of documents (whether at Brandi & Co or at my parents' home) was usually done quickly. The documents usually had tabs on them indicating the places to be signed. David's usual practice was to put the document in front of me and show me where to sign. David did not explain what the document was for or why it needed to be signed. Once I had signed the document, David would take it away with him so that it could be kept on file at the Brandi & Co office. I rarely asked detailed questions and just signed where indicated because the signing of documents was usually done in a hurry. I trusted my brother would not ask me to sign documents that were against my interests.

[1435]

...

Andrew and I attended the investor presentation at the Brandi & Co office. My dad was in hospital at the time (at the Epworth Freemasons Hospital) and I went directly to the Brandi & Co office from the hospital. I recall that there were about a dozen other people in attendance, including Jason. David was also there together with ITM's co-directors, Robert Whitbourne and Peter Wilson. David gave a brief introduction welcoming everyone to the investor presentation and then introduced Peter and Robert. David handed around a presentation booklet and he then gave a presentation, based on the booklet, about the ITM business and the funding ITM was seeking. I kept a copy of the presentation booklet... While presenting David also wrote on a whiteboard. To the best of my recollection, David said that investors who participated would be loaning money to ITM. David said that the loan term would be for five years with 20% interest per annum. David also said that if ITM defaulted on its repayments to investors it would repay investors at a default interest rate of 30%. David then wrote out the key terms of the loan on the whiteboard. To the best of my recollection, he wrote that the loan would be for a five-year term, with interest payable at 20% per annum or at 30% per annum in the event of default. The investor evening lasted about two hours.

...

... I saw David again a few days later. David asked me what I thought about the evening and whether I was prepared to lend money to ITM. I said to David that I was happy to lend the $250,000. I do not recall discussing the terms of the loan with David at that point in time. I knew about the loan terms broadly because they were contained in the presentation booklet and David had written them out on a whiteboard when he was presenting at the investor eventing [sic] (see paragraph 18 above). Not long after I spoke to David, I drew a cheque for $50,000, being the deposit amount (the loan was payable in two amounts - the deposit of $50,000 with the balance payable a few weeks later). Andrew delivered it to David's office. I paid the balance of the loan (being $200,000) not long after paying the deposit of $50,000. I paid the balance by way of cheque (as I had done for the deposit). Prior to lending money to ITM, my only investment experience was the purchase of shares.

A few weeks later, I attended my parents' home for Sunday night dinner. ...

During the dinner, David spoke about ITM again. I recall that Jason was not at this Sunday night dinner because he was overseas at the time, but David spoke to me and my parents. David said that he still needed money for ITM. David said that it was a really good investment and that he had personally put 'a few million' into the company. David also said that he had come up with a proposal whereby we (being Jason, David and I) could obtain a loan secured against the property at 86 Cooper Street, Essendon ... for $750,000 and lend that money to ITM. David said that ITM would make interest repayments that would cover the bank interest and that it would be a 'win-win' for all of us. David also said that he would be personally guaranteeing the loan and that he would return the $250,000 that I had paid him in the weeks earlier (see paragraph 21 above) if I went into this joint loan with him and Jason. I do not recall the precise words that David used, however this was the substance of what he said. I distinctly recall him saying that he would personally guarantee the loan of $750,000 against 86 Cooper Street. I listened to David's proposal, however, I did not provide a formal response during the dinner.

David, Jason and I were the registered owners of 86 Cooper Street, however we had agreed with my parents that we would not do anything in relation to the property without seeking their permission first.

I had lunch with my dad a few days later and I asked him what he thought about the ITM loan and David's proposal. My dad said he thought that it was a good idea, particularly as the three children (me, David and Jason) would be lending the money together. ...

I subsequently spoke to David and I said to him that I agreed to his proposal.

David returned the $250,000 that I had initially paid to him by cheque (see paragraph 21 above), however I do not recall exactly how or when that money was repaid to me.

David managed the loan application process for the joint loan secured against 86 Cooper Street. I was not involved. I recall that David asked me to sign some documents for a loan with ANZ bank on a Sunday evening while I was at my parents' home for dinner ... however I do not have a copy of those documents. I signed the loan documents after signing the ITM loan agreement and on a different Sunday night...

Execution of the ITM loan agreement

At around the same time that I signed the ANZ loan documentation (although not on the same date), David also asked me to sign an ITM loan agreement. I recall that David gave me the loan agreement and asked me to sign it on a Sunday evening while I was at my parents' home for dinner. Jason was also at dinner. David gave the agreement to Jason first and asked him to sign it. Once Jason had signed the agreement, David gave it to me and showed me where to sign.

I looked through the pages of the loan agreement and I asked David how the loan was going to work. David said that he would be handling the interest repayments and that it would all be 'ok'. David said that he was the Chief Financial Officer of ITM and he would be personally guaranteeing the loan. David again said that he was putting his own money into the company. While I was looking through the agreement, I saw that there was a specific page that contained a personal guarantee from David. That personal guarantee was at the back of the document.

Jason, David and I signed the loan agreement together. To the best of my recollection, Jason signed first, I signed second and David signed third. I saw David sign the guarantee page of the agreement. I also saw David sign the agreement as a lender. To the best of my recollection, I recall that the agreement included the following terms:

[1591]

"[46] ... [Sham] refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences."

That is to say, it is essential that there be an intention that the true transaction is different from that which would ordinarily be attributed to the transaction on the face of the documents. As Lord Wilberforce put it, "to say that a document or transaction is a 'sham' means that while professing to be one thing, it is in fact something different": WT Ramsay v Inland Revenue Commissioners [1981] UKHL 1; [1982] AC 300 at 323.

Basic to the legal notion of sham is that it is a confined and exceptional aspect of the process of giving legal meaning to a document, as Professor Conaglen has pointed out ("Sham Trusts" (2008) 67 Cambridge Law Journal 176 at 206):

"The relevance of the sham doctrine, and the difference between it and normal processes of construction, lies in the fact that it justifies the court in ignoring (as opposed to construing) the usual primary material regarding that transaction, and focusing its attention instead on all other material factors which indicate the arrangement that the parties in fact intended."

That echoes the words of Windeyer J in Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265 at 279:

"The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front ... concealing their real transaction."

The sham doctrine is thus one of those relatively rare doctrines in the law where legal meaning is given to a document by reference to a subjective intention...

Because a finding of sham requires a finding of an intent to deceive, considerations associated with Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 require a cautious approach: Raftland Pty Ltd v Commission of Taxation at [36]. Thus there is a "strong and natural presumption against holding a provision or a document a sham": National Westminster Bank plc v Jones [2001] 1 BCLC 98 at [59] per Neuberger J. "A court will only look behind a transaction's ostensible validity if there is a good reason to do so, and 'good reason' is a high threshold, since a premium is placed on commercial certainty": Official Assignee v Wilson [2007] NZCA 122; [2008] 3 NZLR 45 at [52] per Robertson and O'Regan JJ. Lockhart J referred to "a strong finding, and one which cannot be made if another inference is at least equally open" in Sharrment Pty Ltd v Official Trustee in Bankruptcy at 461.

Sham in the sense relevant to this appeal is to be distinguished from other transactions to which legal opprobrium attaches, such as transactions entered into for an improper purpose, which have long been the subject of statutory attention, such as voidable settlements or conveyances to defraud creditors. Sham is also to be distinguished from the body of law (which ultimately turns on questions of statutory construction) as to whether apparently artificial transactions attract taxation advantages: see Fletcher v Federal Commissioner of Taxation [1991] HCA 42; (1991) 173 CLR 1 at 19 and Tower MCashback LLP I v Revenue and Customs Commissioners [2011] UKSC 19; [2011] 2 AC 457, decisions referred to by G Pagone, "Sham trusts" [2012] 5 and which reflect what Lord Walker described in the latter appeal at [80] as the "unremitting ingenuity of tax consultants and investment bankers determined to test the limits". The High Court criticised applying the notion of sham to transactions which were legally effective, albeit that they had no "economic effect" and which did not involve "real money" in at [46]-[51].

[1691]

It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty." To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet "[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts".

Because the inquiry about this last aspect may take account of the subject-matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the "intention to create contractual relations" requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.

In this context of intention to create legal relations there is frequent reference to "presumptions". It is said that it may be presumed that there are some "family arrangements" which are not intended to give rise to legal obligations and it was said in this case that it should not be presumed that there was an intention to create legal relations because it was a matter concerning the engagement of a minister of religion. For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition.

[1696]

(a) First, there is the complication that the asserted agreement was one between Jason and his father by which his father supposedly bound Zigaroo as trustee of the MK No 13 Trust, even though Ernie was not recorded as a director of Zigaroo and, according to the 2001 documents, was no longer the guardian or appointor of the MK No 13 Trust.

(b) Second, there was no document recording or evidencing the agreement made between them or recording its terms.

(c) Third, when Jason gave evidence about the conversation with Ernie, his evidence only went so far as to establish that he intended to make the repayments on the loans taken out by Zigaroo. He was not cross-examined about whether it was intended that the agreement be legally enforceable As discussed in Ermogenous, it was for David to establish that there was a legally enforceable contract. It was not directly put to Jason that there was an intention that he would be legally bound to make the repayments.

(c) Fourth, each of the security properties were properties of the MK No 13 Trust, a discretionary family trust of which Jason was a specified beneficiary, a trust controlled by Ernie and Fernanda.

(d) Fifth, in the case of Clovelly Avenue, one of the security properties, Ernie had amended his 2013 will by hand to expressly record his wish that it be held by the MK No 13 Trust for Jason.

(e) Sixth, while later in time, in the 2017 statement of wishes, Jason was to get 'Units 1-2-3/83 Cuthbert Street, Broadmeadows'. These units, together with unit 4/83 Cuthbert Street, nominated in the statement of wishes as to go to David, were security for the Resimac and La Trobe loans.

(f) Seventh, unlike some of the other cases involving family members,[188] where the asset being made available was the family home or the single largest asset available, in this case the security assets formed part of a larger pool of properties in the MK No 13 Trust.

(g) Eighth, at the time, Jason's financial circumstances were parlous. The prospect of default on the obligation to repay the loans and to satisfy the mortgage obligations was objectively real. So too was it objectively real that Ernie wanted to look after and help his youngest son.

[1830]

[T]he maxim ... has not an unrestricted application. In the leading case of Dering v. Earl of Winchelsea Lord Chief Baron Eyre ... said:- "It is not laying down any principle to say that his ill conduct disables him from having any relief in this Court. If this can be founded on any principle, it must be, that a man must come into a Court of equity with clean hands; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for; it must be depravity in a legal as well as in a moral sense."[199]

As to the first element, the facts of Meyers are instructive. The stewards of the Victorian Racing Club disqualified the plaintiff and his horse for suspicious practices in connection with the running of the horse in a race. The plaintiff brought an action seeking to have his disqualification declared invalid and to restrain the club from expelling him from his membership without being afforded procedural fairness. It was held that his misconduct in respect of the running of the horse did not disentitle the plaintiff to the relief claimed. This is because the relief he sought was independent of any misconduct. Isaacs J said:

[T]he rights asserted by the [plaintiff], namely, membership of the club and public right under the by-laws to enter the racecourse, of course exist, if at all, by reason of circumstances wholly independent of the alleged misconduct; the wrong he complains of, namely, his condemnation by an incompetent and unauthorized tribunal in the one case, and a disregard of natural justice in the other, are equally independent of any misconduct by him. ...

It is altogether different from the cases where the right relied on, and which the Court of equity is asked to protect or assist, is itself to some extent brought into existence or induced by some illegal or unconscionable conduct of the plaintiff, so that protection for what he claims involves protection for his own wrong.[200]

As Lord Brougham said in Attwood v Small[201] in a passage adopted by the Victorian Court of Appeal in Anaconda Nickel Ltd v Edensor Nominees Pty Ltd:[202]

... general fraudulent conduct signifies nothing; that general dishonesty of purpose signifies nothing; that attempts to overreach go for nothing; that an intention and design to deceive may go for nothing, unless all this dishonesty of purpose, all this fraud, all this intention and design, can be connected with the particular transaction, and not only connected with the particular transaction, but must be made to be the very ground upon which the transaction took place, and must have given rise to this contract.[203]

Timeless Sunrise Pty Ltd v BigJ Enterprises Pty Ltd

At a glance

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Judgment (2149 paragraphs)

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Legislation Cited (12)

Cases Cited (57)