Wheatley v Kavanagh

Pleadings

1. As adverted to above, the claim against Mrs Kavanagh is a claim for breach of contract by her failure to pay the deposit of $600,000 in accordance with the contract for sale. Against Mr Kavanagh, the claim is premised on Mrs Kavanagh having entered into the contract for sale as trustee for Mr Kavanagh and having at all material times held on trust for him the whole, or alternatively half, of the benefit of the contract. Ms Wheatley claims, as a creditor, to be subrogated to Mrs Kavanagh's rights of indemnity (as trustee) out of, and exoneration from, Mr Kavanagh's assets in respect of any liability owed by her to Ms Wheatley under the contract for sale or as a result of any judgment in these proceedings.

The Kavanaghs' position

1. Before turning to the determination of the issues in the proceedings, it is relevant to note some further background to the dispute which was the subject of evidence and/or submissions from the Kavanaghs (much of which was contested in cross-examination and should not be taken, by this summary, to be accepted as fact).
2. Mr Kavanagh swore two affidavits in the proceedings, one on 6 May 2018 and one on 4 June 2018. Mrs Kavanagh, an aged care worker, swore one affidavit on 6 May 2018.

Mr Kavanagh

1. Mr Kavanagh describes himself in much of the email correspondence in evidence in these proceedings as "chairman" (see, for example, Exhibit A, p 61), seemingly of an organisation or entity using the logo "7 Mountain Group" (see Exhibit A, p 65). He referred in his first affidavit to being a director of "my commodities and international financial business". He also refers to having set up a private charitable foundation, The Way Foundation. His current occupation (or perhaps one of his current occupations) is that of meter reader. He appears (on his own account of events) to have had a chequered business career and a not uncomplicated personal life, including a history of depression. He gave an account in submissions of a diagnosis (at some unspecified time) of partial liver failure and a cyst on one of his kidneys; and a history of post-traumatic stress disorder, bi-polar and major depression (see [18] of Mr Kavanagh's written submissions).
2. In his second affidavit, Mr Kavanagh set out what he refers to as "additional background" in relation to the motivations behind "the failed negotiation". As I understand it, this is in support of his denial of the allegation that the benefit of the contract for sale was held wholly or partly on trust for him. Mr Kavanagh maintains that his intention was to assist his wife to purchase the property in her own name (in effect to compensate her for losing her interest in their jointly owned property due to the difficulties that had beset him in around 2015/2016). That additional background commences, chronologically, in April 2000.
3. Mr Kavanagh deposed ([16] of his second affidavit) that in April 2000 his first wife requested that he leave her and his four children and that a week later, on 25 April 2000, he was piloting an aircraft with five passengers on board that had double engine failure.
4. He says that he then worked in San Francisco, Sydney and Melbourne and moved to London in December 2000 as a director of a British multi-national ([17]); that he "threw [himself] into work" and, following the loss of a major bid, suffered post-traumatic stress disorder and major depression. Mr Kavanagh deposed that on 4 April 2001 he was hospitalised in a private psychiatric hospital in Roehampton in London for major depression and was there for 7 weeks following several suicide attempts ([15]). He deposed that, following the 7 weeks, during which he was heavily medicated and had 36 ECT treatments, he was moved into the care of his sister for a few weeks and in July was placed in the care of a local psychologist ([18]).
5. Mr Kavanagh deposed that he returned to Australia on 15 July 2001 and was under the care of both psychiatrist and psychologist. He says that he recovered over the next 6 months and started his own business in February 2002 ([19]). He remarried on 10 January 2004 and he says his wedding present to his (second) wife was a house in Pymble which at that time cost over $2m ([19]).
6. Mr Kavanagh's evidence was that, in approximately October 2004, a woman invested $980,000 "in one of my joint ventures" to develop houses in Pymble but that it turned out that those funds were superannuation funds which were not able to be invested in geared property investments ([20]). He says that the investor demanded the money back but that it had already been used to purchase a property contiguous with the development.
7. Mr Kavanagh deposed that in September 2005, while in South Africa working on a housing cooperative, his joint venture partner "who held power of attorney" agreed a deed (in Mr Kavanagh's name solely) to repay in 21 days the full amount to the investor referred to above ([21]). It was this event that Mr Kavanagh variously deposes (see below) either led to him going into bankruptcy or was a contributing factor to him declaring bankruptcy on 6 April 2006.
8. In his first affidavit, Mr Kavanagh deposed that he "had to declare bankruptcy … due to a claim against myself stemming from a business partner I gave power of attorney while overseas setting up a charitable housing cooperative in Africa" (see [9] of his first affidavit). Mr Kavanagh deposed that his business partner (who he identified in his affidavit simply as a partner in a well-known law firm in Sydney but who he identified by name and by law firm in the witness box) "agreed a deed in my name to pay out an investor who illegally invested superannuation moneys" ([9]). Mr Kavanagh says that in his absence (in Africa setting up the charitable housing cooperative) a summary judgment issued and "as a consequence all finance for my property developments were called, as was my $6.2m guarantee for a not-for-profit organisation running aged care of which I was President".
9. In his second affidavit, Mr Kavanagh deposed that being unable to repay the money in the 21 days provided for under the deed led to an act of bankruptcy which breached the bank covenants on all his projects and a cash crisis ensued, as interest that was being capitalised became payable. He deposed that "[t]he only way out was for me to sell out at a loss so that the projects could survive" and that this was a contributing factor to his declaration of bankruptcy.
10. Mr Kavanagh went on to say, in his first affidavit, that 18 months later the judgment was "overturned on appeal" ([10]). In his second affidavit (at [21]) he said that the original judgment was overturned on appeal "but it was too late as the damage had been done".
11. Cross-examination of Mr Kavanagh as to the judgment and subsequent appeal to which he had referred in his affidavits shed little light on those events. His evidence as to when the original proceedings from which there was an appeal had taken place was not consistent (T 58.40-60.41): Q. What was the date of the original judgment to which you are referring? A. I think it was in 2005. Q. I see. Do you remember when in 2005? A. The whole thing was being handled by HDY. I can't remember the exact date. I've thrown all those documents out. … A. No. The appeal came through, I thought, about 18 months later and that was in August 2006, so I would suggest around about March 2005. Q. March or thereabouts? A. Yes. … Q. And what I am merely trying to establish is that the judgment to which you are referring in the last sentence, the original judgment, that occurred after September 2005, being the events you have referred to in that paragraph, is that so? If it helps to‑‑ A. Yes, it would have been. Sorry, yes, it would have been, so, perhaps it is. Q. Then on appeal, the appeal judgment occurred in August 2006, is that so? A. It might have been 2007. Q. 2006 or 2007? A. Well, I haven't said the date of the appeal judgment, but it was 18 months. Q. Well, you have said that in August 2006 the original judgment was overturned on appeal? A. That ‑ okay. Well, that's ‑ it was overturned on appeal completely and utterly.
12. After an adjournment (necessitated as the evidence was not concluded in the one day that had been set down for hearing), Mr Kavanagh gave evidence that he had made some enquiries through the online registry and said there were two cases in the Equity Division, one in 2004 and one in 2005 (T 135.23) (then he agreed that the 2005 proceeding was in the Court of Appeal - T 136.3). A search of JusticeLink, the results of which were conveyed to the parties in Court, disclosed that the 2004 case number related to a proceeding where default judgment had been obtained on 19 May 2004 in the sum of $943,281.23 inclusive of costs and that this was later set aside by consent orders on 3 June 2005, at which time the proceedings were dismissed with no order as to costs (see T 136.36); but that the 2005 case number given by Mr Kavanagh related to an unrelated bail application and not to proceedings involving Mr Kavanagh at all.
13. The most that could be gleaned, therefore, was that there had been a default judgment entered against Mr Kavanagh in the sum of around $943,000; and that in June 2005 the order for default judgment was set aside by consent and the proceedings dismissed. Mr Kavanagh's recollection of those events was unreliable at least in relation to the timing of the proceedings that he said led to, or were a contributing cause of, his entry into bankruptcy in April 2006; and as to the mechanism by which the default judgment was set aside. His explanation for this, in summary, was that he had thrown all the papers out; that he had left it to his lawyers to deal with the matter; and that he had tried to put it out of his mind. Mr Kavanagh maintained, however, that the setting aside of the default judgment did not end the matter and that the investor had continued to pursue her claim for recovery of the funds but that he was not "actually a part of that venture at the time" (see T 138.1-T 139.12) (the meaning of the latter statement not being wholly clear). Nothing further is known as to the outcome of the dispute with the investor.
14. Annexed to Mr Kavanagh's second affidavit (Attachment 11) was a copy of a report to creditors dated 27 June 2006 from his trustee in bankruptcy, reporting the total amount owing to creditors as $2,330.087.41.
15. Mr Kavanagh's second marriage did not survive the bankruptcy (see [22] of his second affidavit) and Mr Kavanagh deposed that following this he had a second bout of major depression and was diagnosed with "bipolar (manic depression)" in 2006/2007 (see [24] of his second affidavit).
16. Mr Kavanagh deposed that he was discharged from bankruptcy on 5 April 2009 (see [8] of his first affidavit) and that he had only recently been discharged from bankruptcy when he met his current wife (Mrs Kavanagh) in 2009 (see [25] of his second affidavit).
17. Mr and Mrs Kavanagh were married in 2010. Mr Kavanagh deposed that at the time they were married Mrs Kavanagh owned a house in Castle Hill and a rental property; and that she was in a comfortable financial position (see [26] of his second affidavit).
18. In about September 2013, the Kavanaghs acquired a property called "Morestone" in Berrilee. Mrs Kavanagh accepted (at T 44.19) that the property was acquired in September 2013 and that it was their matrimonial home, in which the couple lived through to 2015. Both the Kavanaghs (Mr Kavanagh's first affidavit at [5]; Mrs Kavanagh's affidavit at [4]) gave evidence that the Berrilee property was "substantially larger and, on more land" than the Dural property.
19. Mr Kavanagh deposed that from 2013 he was "engaged in international financial and commodity transactions"; that he established The Way Foundation as an avenue for Christian Mission to help persons in need and for humanitarian ventures ([27] of his second affidavit); that much of his "activity" was in Hong Kong, Dubai, Africa and Europe; and that a small amount was in the USA, China and Russia (see [28]) of his second affidavit).
20. At [12] of his first affidavit, Mr Kavanagh deposed that: Mrs Kavanagh lost Morestone in order to pay my business debts resulting from fraud against my business and having to pay ransom money and costs associated with my being kidnapped in Africa.
21. Thus was introduced (almost by a side wind) one of the more bizarre aspects of the evidence given in this case. Mr Kavanagh expanded on the circumstances of his kidnapping in some detail in his second affidavit at [29]. He said that "[a]s a result of an humanitarian engagement", he travelled to Nigeria, then to Benin and Togo and that, while there in 2015, he was kidnapped and held for ransom; that during this time, his business and personal accounts were emptied; and that the chief who held him initially took him to the police station "and had me thrown in goal [sic] in Benin outside of Cotonou".
22. In cross-examination, Mr Kavanagh put his kidnapping as occurring in around March 2015. He said that he travelled to Benin in Africa in around March 2015 and while he was there he was kidnapped and held for ransom. The purpose of his trip to Africa (the so-called "humanitarian engagement") was, he said, that he had been retained to help rescue one of the daughters of the late King of Libya from the Boko Haram in Nigeria - an account that (if true) would certainly meet the description of truth being stranger than fiction (to use Mr Kavanagh's own words albeit in a different context) as is apparent from the following evidence that he gave in cross-examination (T 76.18-76.43): Q. When you say "deal with that situation" what situation was that? A. There was a woman that had escaped from, they now call it ISIS, and she was being hunted by the people in Nigeria. She had come across from Nigeria, Boko Haram, and that is part of the reason I went there was to get her out. She had a lot of money as well. I had arranged for Israeli people to come in and pick her up and take the money out. That is why I went to Israel, and there is no record of going in or out of Israel because they don't do that and I was working to get her out and that is also why I was in Dubai and I was then trying to use Ethiopian Airlines which has a direct flight into Cotonou. Q. Is this lady to whom you refer, what was her name? Do you remember? A. Her name I think is Em Ka ‑ Em is one word, Em‑Katia and she was the ‑ one of the daughters of the late King in Libya prior to Gaddafi taking over. Q. Did you travel to Nigeria to meet this lady? A. I went to Nigeria not to meet her. I met her in Cotonou. Q. She is from Nigeria though? A. She is from Libya. Q. I thought you said earlier she was from Nigeria? A. She had come ‑ she had been in a number of places but she had been smuggled across the border into Benin from Nigeria. The north‑west of Nigeria is controlled by Islamic extremists called Boko Haram and they were after other people. It is just at the time of the Islamic sunrise or something and as part of what I was doing was seeking to have her extricated from that country.
23. As to how Mr Kavanagh came to be involved in this rescue mission, he said (T 77.4-77.12): A. I had been contacted by an Arabic person here in Sydney and I was engaged to assist with this. I was paid an amount of, I was supposed to be paid an amount of $175,000 to assist. That was to help pay my expenses. Q. Did that money ever come through? A. No, no, it didn't, am, because of a number of different reasons but I was there and some of that money $194,000 was paid actually to get aircraft to fly in and in that part of world you need to use money. I was working with a fellow called Apollagin, a minister, an employee, A‑P‑O‑L‑L‑A‑G‑I‑N I think.
24. Mr Kavanagh's evidence was that he was imprisoned by a local chief in Cotonou and then taken to Togo "which is next door and, yeah, basically Benin and then Togo". His account in cross-examination was that (T 74.1-76.16): A. While I was in Benin I was taken to Logou for a day during that process. I was taken to ‑ those dates when I was in Logou. I was there, so that was what, 8 March? I don't have it all in front of me but I think it was 8 March. Now I was there for - Q. 8 March is when you went from Nigeria to Benin? A. That's right, and it was later that week and then it included the time going to Lome and that was part of my negotiations to get released. Q. Where was it that you were held in gaol? A. Okay. Just out of Cotonou I was picked up from the hotel by two African gentlemen and my passport, wallet, phone, luggage was taken and I was taken to a police station out of the city and the ‑ the main person there was actually a local chief and he put me there and told the police, which I found out later, that I was a thief and had to be locked up. I was locked up there for a while until he came and got me out again. Q. Was the name of the prison the Prison Civile de Cotonou? Is that the name of the prison you were held in? A. No, no. It wasn't in Cotonou. It was outside of Cotonou. It was cells in a police station. Q. And what was the name of the village or the town? A. I am unaware of the name of the village or town. Q. You cannot remember? A. No. I was in the back of a car taken there because of some of the reasons I was in the country and there was no paved streets, they were all dirt and, yeah, no ‑ I was put in the gaol - Q. How long were you held there? A. ‑‑in Lout (?). I was only in the gaol, the actual gaol, ten hours, twelve hours and then he came and got me and then I was put in a room in another building for three days. Q. In the same area you say? A. In the same town. Q. Same town for three days? A. Yes. Q. What was the total period of your incarceration? A. That ‑ I was in that room for three days until I was moved to another room. That room - Q. So when you say you were moved to another room, do you mean the second room that you were talking about‑‑ A. The first room I was in only had a chair and nothing else. Q. That was the police cells? A. No, that wasn't the police ‑ the police cells had a bench and that is all. No, this had a wooden chair. I was there for three days. It was very hot and I was not supposed to have food or water but one of the people there gave me a croissant that was the size of the palm of your hand (indicated) and a little cup of coffee one morning, very French, sneaked it in and another one threw me some insect repellant out of his pocket, but all up it would have been over two weeks. I ‑ I can't exactly remember. Q. Over two weeks? I thought you said you were only in the second cell for a period of a few days? A. Three days in that one, yes. Q. Three days, and the police cell with a wooden bench? A. Less than a day. Q. Less than one day. I'm sorry, I am just not following how it comes to two weeks if you‑‑ A. After that I was in, which was more like a basic motel room I think you would say that, it had a bed and what have you and they would take me each day to the bank to get money and I had to keep on giving them bits of money until I could communicate with people. Q. Where was the bank? A. The bank was in the town and it was ‑ that is the only bank that has a relationship with Westpac. Q. Which bank was that? A. It is a major bank in Africa. It will come to me in a minute but I had lots of little slips that I would get and I kept saying, you know, "The computer is not working, I can't do it", anything I could, but I had to keep on giving them money until I managed to basically talk my way out of it. Q. Right, and yet when you were released from custody in Benin you kept going with your international travels, is that right? A. Yes. In the end they actually drove me to the airport but ‑ and that is ‑ was the trip to Lome. It was ‑ I actually helped them with some of their business dealings and that is how I managed to get out. … Q. Why didn't you go straight home when you were released from being held against your will in custody? A. Because the reason I was there still existed and that is why I was working to do everything I could to deal with that situation [this being the situation referred to in the passage extracted earlier].
25. By reference to Mr Kavanagh's passport, produced under a notice to produce in these proceedings, it appears that in March 2015 he travelled as follows: on 8 March 2015 he went from Nigeria into Benin; on 25 March 2015 he exited Benin; the same day, 25 March 2015, he entered Togo; the following day, 26 March 2015, he exited Togo and re-entered Benin; on 29 March 2015 he exited Benin. There appears then to be a gap which is unaccounted for in terms of passport entries (Mr Kavanagh thought that he was in Israel at this time - see below at [91]). Then on 8 May 2015, according to his passport, Mr Kavanagh entered Ethiopia; and on 9 May 2015 he exited Ethiopia and the same day he entered Dubai. There is another gap before there appears an immigration entry stamp on 28 May 2015 for Luton airport in London. Mr Kavanagh says that he left London on 29 May 2015 (after picking up his passport and seeing a psychiatrist all on the same day). Then on 17 June 2015 there is a stamp to show that he exited Dubai. It is not clear when or from where he entered Dubai on this occasion. At some stage he must have entered Tanzania because on 19 June 2015 he exited Tanzania. On 20 June 2015 he again entered Dubai. On 19 July 2015 he entered Los Angeles, via London (so there must have been an entry back into the United Kingdom at some point), and then he returned to Sydney in July 2015.
26. Mr Kavanagh had initially suggested in the witness box that he had travelled back to Sydney from Benin (not from Benin to Dubai or any of the other countries referred to in the account of his travels as disclosed by his passport) but then he recalled that he might have gone to Dubai (T 66.39-66.44): Q. And then you went from Benin to Dubai? A. No. Actually went from Benin back to Sydney. Q. When did you come back to Sydney? A. I ‑ unless I went to Dubai on the way back to Sydney. I mean, I came back to Sydney at the end of July.
27. Questioned about the gap between leaving Benin and arriving in Dubai, there was the following exchange (T 70.9-70.15): Q. There is a gap, and what was happening during that gap? A. As I mentioned, not everything that they put in the passport. I think I was in Israel. Q. Israel? A. I went to Israel twice in that time. Tanzania and Ethiopia and Dubai and Benin and ‑ a lot of countries.
28. Asked about the purpose of his travel, once he had left Africa, Mr Kavanagh gave the following evidence (T 79.33-79.40): Q. On to Dubai and then Ethiopia and London and Dubai again and Tanzania. What was the point of all this travel? A. The point of the travel was to try and earn some money and also a lot of the time we were trying to get the lady out of Benin and that is why I travelled twice to Tel Aviv and that is a lot of what I was doing in Dubai. While I was in Dubai as well I also tried to do another transaction that didn't come off but the main focus there was to get those funds out and I spent a lot of time and effort trying to do so, trying to get the funds out.
29. In Mr Kavanagh's second affidavit at [29], there was no mention of the travels to the various different countries around the world between his release from prison in Benin and his return to Australia. He simply deposed that "[i]t took me some time to extricate myself, and return to Australia, through the assistance of friends and local political figures and paying money".
30. Questioned in cross-examination as to whether he had reported his kidnapping to the authorities, Mr Kavanagh gave the following evidence (T 77.28-78.25): Q. Is it the case then that after you were incarcerated against your will you went to the sequence of countries that we have identified. I think that's you went from Benin to Togo, back to Benin, to Dubai, to Ethiopia, to London, to Dubai, to Tanzania, to London, to Los Angeles, all pursuing the goal of assisting this lady in the way that you have mentioned? A. Am, yes, it's tied up with some other transactions but yes. Q. If you had been incarcerated against your will, why didn't go straight to the authorities and report it? A. The authorities. The closest embassy is in Accra which is a long way away and it looks after the whole of West Africa, so that's, I can't say anything very positive about a representation of that part of the world but there is no use. The authorities in those countries are just as complicit. Nothing would be gained plus that was my objective was actually to try and work with a couple of other people and of organisations to extricate this lady plus the funds that she had‑‑ Q. So you didn't think it was important to report to the Australian authorities in Dubai or‑‑ A. I actually did try. … Q. Where did you try? A. At some point I actually did try and get hold of the Australian Embassy in Accra but they basically said there was nothing they could do. There was nothing to be gained by it, absolutely nothing. Q. I'm sorry, you said you did contact them or you‑‑ A. I did. Q. Or you‑‑ A. I spoke to somebody there but there is no value in doing so and also the, I was working in these places and it would not assist in any way. There is nothing you can do. The police are part of it, I mean, it's, the customs officials are part of it. They wanted a bribe of a few hundred thousand. I mean, it's endemic. Q. You didn't have a few hundred thousand to give them though, did you? A. No, I wasn't going to give them anything. Q. You never gave the captors anything? A. I did. Q. How much did you give them? A. I continued to give them money and it would have been ‑ I don't know, I never added it up. It was thousands.
31. Mr Kavanagh in cross-examination seemed readily to accept that there would be nothing in terms of a contemporaneous news report or the like referring to such a kidnapping (T 83.25-83.34): Q. Is that [the lack of any news report of the incident] because you have never told anyone about it? A. No. It's because, the whole sort of things that I was working on you don't want any publicity. The last thing you want is publicity. I have told you what I was trying to do and the last thing you wanted was people to know what was going on. Q. In 2016 your wife‑‑ A. There were people who knew, all my friends knew. My friends knew, my wife and others, but, no, I didn't go to the newspapers. It happened so often. You don't hear about most of them; it happens all the time.
32. At [30] of his second affidavit, Mr Kavanagh deposed that "[a]t the same time [in context this seems to refer to the period in which he was kidnapped and held for ransom], there was fraud against my business transactions which cost approximately $1.5m". It is not clear to what fraud Mr Kavanagh is here referring (presumably it is not a reference to the dispute the subject of the proceedings involving an investor and his former joint venture partner that he said led or contributed to his bankruptcy, since that was some ten years earlier).
33. Mr Kavanagh went on in his second affidavit to depose (at [31]-[32]) that: My wife Katalin had to face bailiffs, countless calls from collection agencies and court appearances, as I was being held and there was no one else to support her. She had to put our house, that we had bought largely thorough [sic] the sale of my wife's properties, on the market. After the urgent sale, for arguably less than market value, the real estate agent agreed to not take $5,000 of their fee at that time (we repaid after settlement) so as to ensure that we had sufficient funds to settle. After this is taken into account, we had $240.11 left from the sale, plus a lot of personal debt and I had business debts as well. … Katalin suffered significantly while I was away and being held captive, the loss of the house the business collapse. We moved into rented accommodation which she had arranged before I returned. I returned from Africa after she had moved. [my emphasis] [Mr Kavanagh in cross-examination agreed that this last sentence was incorrect: T 82.39.]
34. In opening submissions for Mr Kavanagh (at [3]) it was said that Mrs Kavanagh: … owned two residential properties in 2009 and ended up in 2015 walking out of the home in Berrilee with $240.11 and a host of personal debt. The trauma of the bullying and harassment suffered at the hands of creditors in the lead up to that sale, while her husband was locked up in Africa with his business and personal funds being drained, was horrific.
35. The timing of the Kavanaghs' move from the home at Berrilee (in juxtaposition with Mr Kavanagh's return from Africa, via the series of countries referred to earlier) was somewhat unclear. The transfer of that property from the Kavanaghs to the purchaser was registered on 8 October 2015 but Mr Kavanagh emphasised in the witness box that it was sold before that date. Mrs Kavanagh could not recall the time but put the sale as occurring in around late 2015 (T 44.22-44.25). There was in evidence a letter dated 6 August 2015 from Alternative Conveyancing confirming that settlement of the sale had been arranged for 12 pm on 7 August 2015 (Attachment 13, Mr Kavanagh's second affidavit). Mr Kavanagh's recollection was that settlement took place "at some time in … August" but he thought that the 7 August 2015 date may have been deferred (T 81.50).
36. After Mr Kavanagh's return to Australia in July 2015, and the sale of the Berrilee property, it appears that Mr Kavanagh resumed his business activities. He deposed in his first affidavit to having "entered into a series of contracts in Hong Kong for financing and commodity transactions in 2016 with a number of overseas entities" (see [13] of his first affidavit) and he deposed that "[b]ased on these contracts as security along with security over Dural" he was able to procure for Mrs Kavanagh "sufficient funds to purchase, and pay the associated costs such as stamp duty, to restore Mrs Kavanagh to repay the financial loss she had suffered due to my business and charitable work overseas" which he said "would go some way to compensate for the emotional trauma" ([14] of his first affidavit).
37. The account given by Mr Kavanagh in communications with Mr Brown in relation to the transaction here in dispute as to the business activities in which he was engaged at around the relevant time in 2016 was not entirely clear - at one stage he referred to his company being engaged in managing or investing funds in relation to humanitarian projects.
38. Annexed to Mr Kavanagh's first affidavit were letters dated 26 April 2018 from a foreign firm of attorneys and conveyancers, addressed to Alliance Wealth Investment Limited, and dated 18 March 2018 from an entity known as Alliance Wealth Investment Limited in Hong Kong, that Mr Kavanagh in his first affidavit said concerned a transaction that was still ongoing at the time of making the affidavit. From the text of the letters it appears that they relate to the anticipated payment of "capital funds" to Alliance Wealth. It is not clear on the face of the documents what was proposed to occur with any capital funds so transferred. (Exhibit 2 is an email chain from Mr Kavanagh to a Mr Craig Morris - someone that Mr Kavanagh said was the colleague who introduced him to Alliance Wealth - and from Mr Kavanagh to Oliver de Chalain at Alliance Wealth; those being relied upon by Mr Kavanagh as going to his use of language and, in particular, that he there referred to statements by him that his wife could not buy the property and that "Katalin will lose her house".)
39. Annexed to Mr Kavanagh's second affidavit is a copy of an "Investment Contract" dated 9 February 2017 seemingly relating to an investment in or with a "Partner", being a company named Adonai Ventures Pty Ltd and represented by Mr Kavanagh, of funds in three tranches, totalling some €107,000,000 "for the financing of the Partner's social, ecological and humanitarian Projects/Programs of development the [sic] PARTNER, for social and humanitarian, Heritage projects of the company and realization business of [sic] plans".
40. Mr Kavanagh says that funds were sent to Australia, and that the issues that prevented them from being accepted in Australia were outside his control. He refers to an email dated 15 February 2017 from Mr Bolos of Kapital FX (Exhibit 1, p 7) which states: This morning, we had a meeting with our banker who, as advised previously, communicates with NAB'S head office in Melbourne. The whole file, inclusive of the transmission report contracts and due diligence reports on the remitting entities and the beneficiaries as well as the information (such as contracts) as to were [sic] the funds will be deployed; has now been submitted to the head of banking services. This department oversees all corporate and institutional banking; inclusive of all related services. In addition to the information provided, Kapital Group, has provided a detailed dossier of its adherence to all AML/CTF legislative requirements. NAB that put the onus of compliance on Kapital FX. It has been imperative, that all the boxes have ben [sic] ticked off and validated. We thank you for your patience and understand the frustration that this has occurred. Once we have bedded down, this initial proposal, we have a clearer path forward; as the structures, process and protocols will be and are in place. We must put this in perspective, in that no banks in Australia, offer this service. This is usually in the domain of government departments and related agencies. Furthermore, the bank itself has had to justify, why, it is affording this service to us, and our client (Adonai). Please convey this to your partners, and we will revert back to you shortly[.]
41. Mr Kavanagh says that, in the end, NAB decided not to accept the funds sent via SWIFTNET (Mr Kavanagh's opening outline, [24]). Mr Kavanagh also submits (opening outline, [25]) that: Much was made sarcastically of persons such as Bill Withers, (A lawyer in New York) or Stephen Margolis (a retired Colonel from the Israeli forces) who is a licenced arms dealer in Switzerland. Or letters from Alliance Wealth not personally addressed. These people and/or companies are real and could be contacted if the Court sees fit. Needless to say, it was not for the Court to contact potential witnesses in the Kavanaghs' case and no evidence was adduced from any of the people referred to in this part of the opening outline.

Mrs Kavanagh

1. Mrs Kavanagh is Hungarian in origin. English is not her first language. In a number of respects Mrs Kavanagh's affidavit followed the format of her husband's first affidavit (see for example [4] and [5], which are in terms relevantly identical to [5] and [6] of Mr Kavanagh's affidavit) and she did not hide the fact that she had discussed her evidence with him and that some of the wording was his (see, for example, the reference to a "vexatious claim" at [4]) (T 39.33-40.41): Q. Who prepared the affidavit that you signed? A. My husband and I prepared that affidavit. Q. I see how did that work. Who was typing it up? A. My husband typing it up, and I will give him the basically my words put it that way. Q. Right? A. And yeah and then he typing it up in which is apply for a loan. Q. When you be say you gave him your words, were there some cases where he used his words? A. I put it down mainly by grammar and the way I can I can't express myself in English in words which is stand in the court put it this way. Q. You have no doubt discussed this case a lot with your husband? A. Of course, I did. Q. That's because it is a very important case for you both isn't it? A. Yes, it is. Q. And have you discussed at length the detail of the case with your husband? A. Of course, I did. Q. And have you discussed what your defence to the case will be? A. Yes. Q. Have you discussed the contents of your respective affidavits? A. Yes. Q. So you have read his affidavit? A. Yes, I did. Q. And he has read yours? A. Yes. Q. And did you take care to ensure that they were consistent? A. Yes. Q. To make sure that your affidavits were consistent? A. Yes. Q. What I am asking you is whether you actually took steps to make sure that what you were saying in your affidavit lined up with what Mr Kavanagh was saying in his affidavit. Is that‑‑ A. I read his affidavit, and I read mine, and we submitted in. And I am not sit down and analysed it, you‑‑ Q. Right? A. If that was your question. Q. Is this the case, that you discussed this case between you daily or more than daily, less than daily, how often do you discuss this case? A. We not really discussed on the daily basis. We discussed it when we need prepare the paperwork for all of this. And yeah, we don't really discussed it much. We come from sort of a clean view of this, and we stick to that basically. We have an understanding between us about we can do in the first place, in purchasing this property. And yeah. So we not really discussing this case. My answer is no.
2. Mrs Kavanagh's evidence in the witness box was that Mr Kavanagh was not involved in the process of selling the property at Berrilee (and she was the main person who dealt with the agent) because Mr Kavanagh was overseas at the time (see T 45.9-45.36); and that he returned to Sydney "from Africa" about a week or two weeks before the move (T 44.44; T 46.7) and that he was "involved in moving and everything" (T 44.48). (That would be consistent with a settlement in early to mid-August 2015, since Mr Kavanagh returned to Sydney in July 2015, but again nothing turns on the precise dates in this regard.) Mrs Kavanagh said that "when I was selling the property at Morestone, he was just before the sale been - went through, he was in Africa. And before that, he was a few times in various countries for business purposes" (nominating those countries as Benin, Ghana, Dubai and England) (T 45.39-46.4). Mrs Kavanagh did not think that Mr Kavanagh had been in Africa since 2015 and agreed that she would know if he had (T 46.14-17).
3. In her written opening submissions, Mrs Kavanagh recounted the story in relation to her husband's kidnapping: "He went to Africa to get a lady out because of boka hareem [sic] cut off her finger and kill her family". (I interpose that that understanding could only have come from Mr Kavanagh, even if, as Mrs Kavanagh said, she had spoken with him on the telephone when he was in Africa - see T 43.30). She emphasised that "looking at our circumstances we agreed with my husband ONLY purchase the property if the loan arranged from my husband business dealings will come true"; and that "the house will be on my name only" (emphasis as per written submissions). The reason stated for that was that "when we married in 2010 I owned 2 properties myself and Steve is just discharged from bankruptcy. This is only fare [sic] and he want to do it this way so there no problem if something happen to him. He often scares me going to bad places to help people".
4. Mrs Kavanagh was adamant that the contract was given to the agent "only for good faith" and was not the same that she signed. She also referred to Attachment 9 of her husband's first affidavit to support the proposition that "the 66W only been asked for if the funds fully arrived in our bank accounts".
5. In her submissions, Mrs Kavanagh also made reference to her matrimonial difficulties at the time (she says that her marriage was "really rocky" as she was angry about losing everything) and she attributes the decisions made by Mr Kavanagh while she was away to "his love for me and the fear of loosing me [sic] if he could not by [sic] me the house" (and to the enormous pressure she says there was from the selling agent to commit). In cross-examination, there was the following evidence as to Mrs Kavanagh's understanding of the basis on which the property was to be purchased: Q. In your affidavit at paragraph ten, if I could just take you to that? A. Yeah. Q. You see you say there that: "My husband offered to approach colleagues who he knew wanted to invest in Australia, to see if he could arrange a loan to purchase Dural as part of a larger investment." Do you see that? A. Yes. Q. And what do you mean by that? A. What he means or what I mean. Q. This is your affidavit? A. Yeah, okay. Q. What do you mean, yeah? A. I just had a conversation with him, and because we loved the property, and probably with our circumstances, surrounded our private circumstances, he desperately wanted to give back what was mine before I lost it. And then he had all this business dealings which is I am not really involved with. I am not really understand the depth of it. And I just believed he has got the right people who actually help him to do that. That's all. See also at T 47.30-47.33: A. Look, we both liked it. We both liked it very much, that was the main thing. So we wanted to have something which is this property ticked all the boxes, if you know what I mean, in our life and in our circumstances. But I was always intended to purchase the property only if we have got the money for it. [my emphasis]
6. As to Mr Kavanagh's role, Mrs Kavanagh's description in the course of cross-examination was as follows (T 48.45-49.11): A. Steve involved in humanitarian investors are he refer with colleagues in here, which is I can't name for anything because I don't know the people. And they wanted to invest in Australia, in various investments. And that he refer to that, approach this colleagues. And people who has a lot of money and wanted to invest in Australia in certain areas, like humanitarian or property or certain things. So that was that based on that base of that. Q. So is it the case that you understood that these overseas investors wanted to give money to Steve so that he could invest in real estate, including the Dural property. Is that the position? A. Steve would be a person who basically ‑ what would be the right word ‑ who manage this funds for that particular investor to invest in certain areas, and that one of them was a property investment. Q. An investment by Steve on behalf of the overseas buyers, is that what you understood? A. Yes.
7. Mrs Kavanagh readily accepted that she authorised her husband to negotiate the purchase (T 49.13-49.29): Q. When you left for Hungary, you in effect left it up to Steve to ensure the purchase got done. Is that right? A. Yes, we had a conversation. We had an agreement between us. And I signed the first page of the contract marked only submitted to the agent or anybody when the funds would be available to purchase it. Q. You gave him though your approval to negotiate with the agent, that's right? A. Yes. Q. And you gave him your approval to negotiate where necessary with the vendor, and the vendor's solicitor? A. Yes. Q. You were in effect leaving it to him to get the contract finalised and finished? A. Yes.
8. Cross-examined as to the letter she had written on 22 November 2016 (see [55] above), Mrs Kavanagh's evidence was (T 52.2-52.17): Q. And you said in the next paragraph that you were shocked and dismayed to read your letter. What were you shocked and dismayed about? A. Okay. When I was left for Hungary, I ‑ we had the agreement with my husband. The first page of the contract which has my signature on it, it's only, only to be submitted to the agent if the funds are in the account we just pay for it. When I came back from Hungary, after I saw the house on the Internet and so on, I came back and then I ‑ and obviously, my husband put it through my ‑ the contract with my signature on it. And at that time, I was aware, I became aware of what basically happened. And I am bound to the contract which is I am not agreed to. Q. Is it the case that what you became aware of was that your husband hadn't been able to come up with the money? A. I know on the way my husband didn't receive the money. But our agreement was he is not going to put through the contract with my signature on unless the money available.
9. Mrs Kavanagh agreed that she never told the vendor at any time prior to the defence in these proceedings that there was no binding contract because finance had not been obtained (T 54.12) but she says that was because she "never believed it was a binding contract because a binding contract it means of my knowledge is a signed contract, exchanged contract, and paid a deposit. And that is never happened"; but she also accepted that they were things left with her husband to take care of (T 54.23).

Mr Bolos' evidence

1. It is relevant at this point to note that at the commencement of the hearing Mr Kavanagh sought to adduce evidence in his case from a Mr Barry Bolos, though no affidavit from Mr Bolos had been served in accordance with the directions made prior to the hearing; nor had any outline of evidence been served. Mr Bolos was not put forward as an expert witness and there was no attempt to qualify him as such. Objection was taken to the reception of this evidence.
2. Mr Kavanagh said that he had not intended to call Mr Bolos but that Mr Bolos had offered "last night" when they had had a discussion about another business matter. Mr Kavanagh indicated that the two topics about which he sought to adduce evidence from Mr Bolos were as to his knowledge of the funds that had come into Australia "and sat here for some weeks prior to the NAB refusing to accept those funds" (T 23.26) and as to why Mr Kavanagh was in Africa and the trauma he suffered there (T 22.30), the latter being said to go to Mr Kavanagh's veracity.
3. I provisionally allowed the evidence to be taken and indicated that I would rule in due course as to whether or not that became evidence in the Kavanaghs' case. That evidence having been taken, I am of the view that it has no more than marginal relevance at best (and then only on the issue of credit) but I will admit it (other than in relation to Mr Bolos' evidence as to his awareness of Mr Kavanagh's kidnapping - which I rejected during the hearing itself on the basis that the source from which that awareness was derived was not established), as it is of some limited relevance on the question of credit. That said, ultimately I do not consider that any of the evidence given by Mr Bolos in relation to the transfer and rejection of funds advances the Kavanaghs' case, as I explain below.
4. Mr Bolos, who gave as his occupation that he was a consultant, primarily driving new business development (T 26.17), was at the relevant time associated with or employed by a company by the name of Kapital FX.
5. As to the evidence he gave in relation to the first of the two issues (the funds that Mr Kavanagh said had come into the country but were not accepted and were then remitted), Mr Bolos explained (at T 26.29) that: A. … We were approached to be able to undertake a process of bringing funds into Australia. Those funds had to go through AML [anti money laundering laws], CTF [counter-terrorism finance laws] and compliance checks prior to being accepted here as being clean and clear and callable. We endeavoured to work with Steven, who, if my memory recalls me correctly, was to be the beneficiary or the trustee of funds coming into Australia, which you [there addressing Mr Kavanagh] were meant to manage for projects if I recall correctly. Ultimately the funds that were endeavoured to come through did not pass AUSTRAC or AML and CTF compliance laws and as a consequence that transaction was rejected.
6. When I asked Mr Bolos to clarify what transactions he was there referring to, he was able only to say that there were some funds coming in from overseas into an account controlled by Mr Kavanagh and "that" was rejected because it did not pass compliance under Australian banking law. It did not appear that he was privy to the contractual or other arrangements in relation to the funds that were being transferred.
7. Mr Bolos had a recollection that the process by which the funds were "meant to be" received "was not your traditional, quintessential NT103, which is your standard transfer of funds"; rather his recollection was that this was to be done by Swiftnet (a process that he said was used "[v]ery, very rarely, extremely rarely" in Australia - T 27.29). Questioned about this by Mr Kavanagh, Mr Bolos said (T 27.29-27.43): A. …. It's pretty much given at the discretion of the banks. We had an opportunity to do so but that again is all subject to a relevant CTF and AUSTRAC compliance. That's the bench mark for all transfers of funds in and out of Australia, and the funds that you had earmarked to come in didn't pass compliance. Q. And what was my [Mr Kavanagh's] role in relation to those funds? A. When they landed here in Australia that they were to come into an account controlled by yourself where you were like the beneficiary or the custodian and from there once the funds were here you had if I recall correctly contracts with other counterparties here to actually manage those funds. Q. Were those funds to be my funds or funds that I managed? A. That you had to manage. These were funds that Steven had to manage on behalf of other counterparties.
8. In cross-examination, Mr Bolos said that at the relevant time he was an employee of Kapital FX, whose role was just to "put the files together and they just earn the fee for doing, for doing the compliance" (T 30.3-30.4). He said that it was it was left to the "actual head of compliance" to go through and put the "whole package" together and that "[w]e then presented that to the banks and then the banks always make the actual final call and at the end of the day the banking system rejected that, rejected that proposal" (T 30.7-30.11).
9. There was the following exchange (T 30.15-31.24): Q. So is it the case then that you worked for a firm that assisted or gave facilitation and assistance to the intercountry transfer of funds? A. In effect, to simplify it for you, we put, we put the proposal together. We do checks like, for example, Veda and World‑Check and things like that, which we were required to do. Then we pass it on to‑‑ Q. So part of your role is to try to ensure that these transfers are given the green light? A. We put the submission together. We can't try and ensure but we put the whole proposals together and then obviously when it comes through the actual banking system there are so many checks along the way and it didn't pass compliance. Q. You put the submission together on this case, did you? A. It was, it was one of the heads of senior effects. Q. But the submission was rejected, is that the position? A. The ‑ no, like, for example, we did some checks on Steven, like World‑Check and Veda and things of that nature. Steven did not come up on any bulletin board, like, for example, let's just say global alert list that Steven was an unsavoury character ‑ just to give you an example of the checks that go through. And then from there with regards to the actual transmissions of funds, that's done between, that's done between the actual banks. Q. You never did any checks on the supposed transferee, transferor person or entity? A. At the time. I don't really recall, to be quite frank with you. This was‑‑ Q. What country were the moneys coming from? A. To be quite frank with you, I don't, this is going back some time ago now. Q. Could this have been a scam? A. Look, at the end of the day AUSTRAC does reject quite a number of transactions because there's just non‑compliance. Q. I asked you could this have been a scam? A. And I'm saying to you, sir, to be honest with you, I really don't think so because there are a lot of transactions that just don't pass compliance. If they don't pass compliance they don't pass compliance. Q. You don't know where the funds were coming from, do you? That's what you told her Honour just a moment ago? A. I do not recall, to be quite frank with you. Absolutely I do not recall, yes. It was only like last night having discussions with Steven and him saying and here I am today. Q. That being so, if you don't know where the funds were coming from, you couldn't possibly speculate one way or the other as to whether this was a scam or not. That must be the case, isn't it? A. To look at it from an objective point of view I would agree with that comment. [my emphasis] Q. So why then did you say it was unlikely it was a scam, just a few moments ago? A. Because there was and then there was a transfer of funds, so if there was a transfer of funds it just didn't pass compliance and I have just kept it as simple as that. Q. The funds never reached any account held by Mr Kavanagh, did they? A. No.
10. Pressed on this in re-examination, he said (T 32.15-32.17): Q. Are you aware whether the funds were ever dispatched and available to NAB? A. The funds did come into the Australian banking system, that I do recall. They were definitely not credited, accredited to, into Mr Kavanagh's account. If I recall correctly, NAB just rejected the actual funds.
11. On the question of Mr Bolos' awareness of Mr Kavanagh's kidnapping in Africa, as adverted to above I rejected that evidence (given at T 28.24) on the basis that the basis of the witness' knowledge had not been established; and in those circumstances I could not have placed any weight on the answer in any event. The most likely explanation as to how Mr Bolos could have become aware of anything happening to Mr Kavanagh in Africa (given that Mr Kavanagh said there was no publicity about it) is that it was derived from what Mr Kavanagh himself had told Mr Bolos. Mr Bolos certainly did not give any evidence (nor was he asked anything) to suggest that he had personal knowledge of the alleged kidnapping. In any event, the relevance of the alleged kidnapping and imprisonment to the issues in question still escapes me. Mr Kavanagh seems to have put this evidence forward as pointing to his motivation in attempting to procure funds and assist Mrs Kavanagh to acquire the Dural property in her own right. The link between any trauma suffered by Mr Kavanagh in Africa and the subjective intentions of Mr and Mrs Kavanagh when the latter signed the contract for sale (even assuming such intentions to be relevant to the objective assessment of Mrs Kavanagh's intention as to the beneficial ownership of the property at the relevant time) is tenuous in my opinion.

The Kavanaghs' submissions

1. The Kavanaghs submit: that Mr Kavanagh was representing Mrs Kavanagh in the negotiation of the purchase in her absence and subsequently; that he was/had arranged for loan funds to purchase the property; that English was Mrs Kavanagh's second language and she is not confident, "especially when dealing with aggressive lawyers and agents"; that the property was to be solely hers and "certainly not in trust" for Mr Kavanagh; and that Mr Kavanagh was also suffering some physical and mental incapacity.
2. It is submitted that there are numerous documents that show that all funds for the property were to come from external sources "whether, earned or loaned" and that the use of earned funds was solely as a stop gap or bridging before loan funds would be used (Mr Kavanagh's opening outline, [19]). (The only documents to which I was taken were those referred to earlier.)
3. It is submitted for the Kavanaghs that the "offer" (presumably to purchase the Dural property) was only made after Mr Kavanagh returned from Hong Kong "with a firm contract with a highly reputable organisation, regulated by the HKMA, to provide substantial funds and had agreed to advancing a loan to purchase a property for Mrs Kavanagh". He asserted that the principal of that organisation had worked with him previously and knew of his circumstances "as he knew the parties that sent me to Benin when [Mr Kavanagh] got kidnapped". This may perhaps be a reference to the "Investment Contract" referred to above at [103].
4. It is said that the offer for the property was based on this loan; that Mr Kavanagh "had no capacity to purchase myself, none whatsoever"; and that his trip to Hong Kong was paid for by a colleague, Mr Enrico Rovelli. He says that "[i]t turned out that the contract required the action of a third party who I had met with and who reneged on their commitment. Hence, it fell through and I then started to call in favours from other people. The final outcome was that for one reason or another they did not eventuate" (Mr Kavanagh's written outline at [22]).
5. The Kavanaghs submit that the signed front page of the contract was sent to the real estate agent, at the insistence of the agent, as proof that Mrs Kavanagh wished to purchase the Dural property. The Kavanaghs contend that when the signed "draft" first page was sent to the agent "it was made absolutely clear (as it was multiple times thereafter) that no binding arrangement would be entered into until such time as the full purchase price was in a bank account in Australia".
6. There is also an assertion in the submissions that the draft contract was "then subsequently amended, multiple times" and that "at no time was the final form of the contract signed by either defendant"; and the Kavanaghs point to the fact that there had been no any "initialling of the changes or re-signing" of the contract.
7. It was asserted in submissions for the Kavanaghs that the property "was on the market and being actively marketed" (after September 2016); and that various misrepresentations were made by the real estate agent's "marketing arm" and by the lawyers acting for Ms Wheatley. (None of that was established in the evidence - all that was in evidence was a copy of an advertisement apparently sent or downloaded from the agent's website in November 2016 - but in any event, none of those allegations goes to the matters in issue in these proceedings, as I will explain in due course.)
8. In her oral evidence, Mrs Kavanagh confirmed that the Dural property was going to be their matrimonial home and was being bought for the couple to live in together (T 47.41-41.47); that she had her heart set on it and her husband had told her that he had too and it was their dream home (T 48.3-48.10). She readily accepted that she gave her husband her approval to negotiate with the agent (T 49.21); that she gave him her approval to negotiate where necessary with the vendor, and the vendor's solicitor (T 49.25); that in effect she was leaving it to him to get the contract finalised and finished (T 49.29); that he was in charge of sourcing the funding for the purchase (T 49.39); and that she did not really keep track of his attempts to obtain financing (T 49.42).

Determination

1. I consider first the credibility of the various witnesses.

Mr Kavanagh

1. For Ms Wheatley, it was submitted that Mr Kavanagh's "ex post facto" evidence of intention solely to benefit Mrs Kavanagh should be rejected and that Mr Kavanagh proved to be an unreliable historian. In that regard, reference is made to Mr Kavanagh's evidence in relation to the dispute with his former joint venture partner and the proceedings in this Court in which default judgment was entered against him and his evidence as to his movements in 2015.
2. Weight is placed on the fact that, in his 29 October 2016 email (to which I have referred at [45] above) Mr Kavanagh was prepared to put forward what can only have been a false account of his location at that time. In this regard, it is submitted that Mr Kavanagh's response in cross-examination to questions about the 29 October 2016 email was instructive (T 116.24-117.9): Q. You weren't in Africa at that time; were you? A. I was in the Middle East. Q. You weren't in Africa? A. I wasn't in West Africa. Q. You weren't in Africa? A. You have my passport. Q. Is there a difficulty saying "no" Mr Kavanagh? A. I'm trying to recollect. Q. That was a false statement in that e‑mail that you were in Africa; wasn't it? A. If you let me have my passport, I can check. Q. By all means. Do you have it in Court? A. I think it was in the notice to produce that you have from the previous ‑ I actually don't. I don't have my Australian passport. Q. I'll hand you MFI 1 which is a photocopy of the documents produced in answer to the notice to produce if that assists you. (Provided to the witness)? A. I cannot find it there. I must have been mistaken. I did travel to Dubai but that's not Africa. Q. When you say you were mistaken, you can't have been mistaken about your geographical location; can you. Were you telling an untruth; that's right isn't it? A. I cannot recall. On 29 October - Q. ‑‑can't recall whether you were telling an untruth or you can't recall wherever you were in Africa? A. I cannot recall where I was. I know I did travel at some point there to the Middle East. Q. You weren't in Africa? A. I was not in West Africa.
3. As to the above evidence, even taking into account the frequency with which Mr Kavanagh seems to have travelled between countries in 2015, it beggars belief that in October 2016 Mr Kavanagh would not have known in what continent he was when the email was actually sent (even if he could not later recall where he had been when it was sent). Particularly in light of Mr Kavanagh's evidence that he did not return to Africa after the alleged kidnapping, the reference in this email to him being in Africa in October 2016 (and to the strife "in Congo" at that time, suggesting some personal knowledge of that strife) gives rise to the obvious inference that Mr Kavanagh was prepared, at least on that occasion, to misstate the facts (whether an attempt to obtain some kind of indulgence from the vendor or otherwise).
4. Similarly, while the relevance to the matters in issue of Mr Kavanagh's account of his various business activities is probably moot, what does emerge from Mr Kavanagh's communications is that he was variously suggesting seemingly inconsistent positions to various people involved in the transaction: such as that funds were available in his account waiting to be cleared or were to be "cleared into" his account; that funds were imminently to be transferred from various international sources; and that the funds to be used for the purchase of the Dural property were to be an investment by overseas investors (i.e., as I understand it, either a loan from the overseas investors to Mr Kavanagh's company or perhaps to him or his wife; or the provision of investment funds to Mr Kavanagh or his company which Mr Kavanagh would be able to utilise in order for his wife, or he, to acquire the property); or perhaps payable out of the 3% he said his company would receive out of the moneys from the "humanitarian projects" he was managing. Whether and how investor funds for humanitarian or sociological purposes could properly have been invested in the purchase of a residential property in Mrs Kavanagh's name is an interesting question but one which does not need to be considered for present purposes. Suffice it to note that it is unsurprising that the constant promises of funds from mysterious overseas investors, and the continued postponement of the expected time of arrival of those funds in Mr Kavanagh's Australian bank account and excuses based on internal problems in Deutsche Bank in Germany (or a heart attack suffered by someone admitted to a clinic in Switzerland) to holidays in mainland China and the like, would have given rise to scepticism on the part of the vendor.
5. Many (if not most) of the assertions made in Mr Kavanagh's correspondence at the time (and in his evidence in the proceedings) were uncorroborated. For example, other than providing a (limited) measure of corroboration for Mr Kavanagh's account of funds having come into the country (at some unspecified stage) and having been rejected for non-compliance (for some unknown reason) with whatever checks were required under Australian banking or other relevant laws, Mr Bolos' evidence was uninformative in the extreme and was seemingly not even based on his personal knowledge. On Mr Bolos' own account, it was not he who put the "whole package" together for the purpose of the requisite compliance checks; he could not recall the contractual arrangements in relation to the transfer, including the identity of the transferor; and he gave no evidence as to the amounts in question or when the transfer and rejection of the funds took place. The basis on which he came to the understanding that moneys were received into the NAB banking system in Australia was not explained.
6. Hence my view that only limited corroboration of Mr Kavanagh's account (if at all) was provided by Mr Bolos. That said, ultimately, nothing turns on this because I have concluded (see below) that the contract for sale was not conditional on funds being cleared and available for the payment of the deposit. The issue is thus not whether funds ever became available in Mr Kavanagh's (or his company's) bank account out of which the deposit could have been paid (so as to satisfy a condition precedent to this becoming a binding contract); nor is it whether or not the funds said to have been transferred involved a scam of some kind.
7. As to Mr Kavanagh's account of the alleged kidnapping, certainly there was evidence to support Mr Kavanagh's claim that he was in Africa at the time that he now says he was kidnapped and imprisoned (by reference to his passport); but the fact is that there is only Mr Kavanagh's word for what took place in Africa at that time.
8. Mrs Kavanagh's evidence as to the kidnapping was based on what Mr Kavanagh had told her (as was the evidence I rejected from Mr Bolos at T 26.17).
9. There is nothing objectively to support Mr Kavanagh's account of being kidnapped and held for ransom in Africa (or, indeed, of him having embarked upon this unconventional rescue mission or, to use his words, "humanitarian engagement" in the first place); and I am simply unable to accept the account proffered by Mr Kavanagh based on his word alone. True it is, as Mr Kavanagh said, that truth may be stranger than fiction, but there is simply nothing by way of contemporaneous objective evidence to enable me to conclude that this dramatic sequence of events took place as Mr Kavanagh said it did. It may be that this kind of thing happens often or, as Mr Kavanagh says, "so often" that the authorities are not interested in reports of it occurring, but that does not enable me to be satisfied that it happened to Mr Kavanagh on this occasion.
10. That said, nothing in my view turns on whether or not the kidnapping for ransom actually occurred other, perhaps, than that (when viewed with the string of promises and assertions later made as to the progress of funds said to have been forthcoming for payment of the deposit), it suggests at the very least a tendency on Mr Kavanagh's part either (on his version of events), to become involved in unconventional business dealings; or (if his version of events not be accepted), overly to dramatise events (if not, indeed, going so far as to fabricate them).
11. The reason nothing turns on whether the kidnapping actually occurred is that it has no direct relevance to any of the issues in the hearing. It was referred to in Mr Kavanagh's submissions as one of a number of issues: "…incarceration in Africa, the loss of a business, all money and health concerns (worried it may have been malignant) and the extremely strong desire to ensure my wife was looked after", that he says led to his "exceedingly poor judgement and the ability to be manipulated by unscrupulous real estate agents". However, in determining whether a binding contract existed, the commerciality of the decision (seemingly accepted by Mr Kavanagh to have been his) to send the signed page of the contract for sale to the real estate agent (or later to authorise exchange of contracts) is not to the point.
12. It was put to Mr Kavanagh in cross-examination that the account of his alleged imprisonment in Africa put in his second affidavit was in order to answer the claim made by Ms Wheatley as to the existence of a trust (i.e., to put forward evidence to support his denial that there was an intention that Mrs Kavanagh hold the benefit of the contract for sale on trust for him). Mr Kavanagh denied that and denied even having read the plaintiff's outline of submissions at the time he made that second affidavit (referring in the witness box to the thousands of unread emails that he says he has - an account that bore all the hallmarks of exaggeration in order to bolster his version of events - there, the proposition that he had not read the plaintiff's submissions when he prepared his second affidavit and hence had not been tailoring his account to respond to matters raised in those submissions).
13. A further illustration of what I regard as Mr Kavanagh's tendency to exaggeration is his statement at [31] of his second affidavit that his wife "had to face bailiffs, countless calls from collection agencies and Court appearances as I was being held". Even on Mr Kavanagh's account of the kidnapping he was only held for ransom for a couple of weeks - the rest of his time overseas having been spent in a variety of travel and purported business activities. (And, as I have earlier noted, Mr Kavanagh accepted that some of his evidence in relation to the timing of the sale of the Berrilee property was incorrect.)
14. For Ms Wheatley, it was submitted that, throughout the course of the correspondence concerning the default under the contract, Mr Kavanagh "proved time and time again to be at best unreliable and at worst dishonest", pointing to the statements made by him as to the fact that funds were imminent or had been transferred when that could not have been correct. Certainly, Mr Kavanagh's professed expectations and assurances in relation to the funds were not ever fulfilled, though I make no finding that those expectations were not honestly (if perhaps misguidedly) held at the time.
15. It was submitted (and I accept) that Mr Kavanagh's evidence in the proceedings was both convenient (for his case) and incredible. It was also submitted (with some force in my opinion) that very few of Mr Kavanagh's assertions have been corroborated by documentary evidence; in particular, his assertion, in these proceedings, that the contract was subject to finance when he "bemoaned at the time the fact that the contract was not subject to finance"; his concession in cross-examination that what he had said in his affidavit was not correct and that he "stuffed up" in this regard; his assertions as to the alleged kidnapping; his contention that the judgment that led to his bankruptcy was ultimately overturned on appeal and his explanation of his response to the notice to produce calling for those documents ("destroyed 2005"); his assertion that he had not seen the plaintiff's written submissions before his second affidavit was served at 11 pm on 4 June; and the assertion that funds were received from a foreign investor (Ay Yin), while producing no evidence that such funds were actually received and conceding in cross-examination that the funds were never received; and his statement that he deliberately "stopped" the cheque that he provided the plaintiff (Exhibit A, p 74) but saying in his affidavit (and in the witness box - see T 57.35ff) that he never intended the cheque to be banked (see his first affidavit, [25]-[30]).
16. My conclusion is that Mr Kavanagh was an unreliable witness who was prone to exaggeration and seeming grandiosity of thought. It is not necessary to go so far as to make any finding as to dishonesty. Rather, insofar as this forms the context in which the Kavanaghs submit that their intentions in relation to the purchase of the Dural property should be determined, suffice it to note that I approach Mr Kavanagh's account of events with a high degree of scepticism (not simply by reason of the extraordinary nature of aspects of that account but, more specifically, by reason of the unreliability of his recollection as to matters such as the timing of events to which he has deposed and the fact that his account is to a very large extent uncorroborated). Even where Mr Kavanagh put forward documents to explain his alleged business dealings in relation to the funds he says were to be (or were) transferred for the purposes of the transaction, those documents were not readily comprehensible and their connection to a purchase of residential property in his wife's name was unclear. I cannot accept his evidence on any critical issue unless corroborated by contemporaneous documents.
17. That said, I do not accept the submission made for Ms Wheatley to the effect that the entirety of Mr Kavanagh's case depends on his ex post facto evidence that his subjective (and uncommunicated) intention was that he intended the property to be a gift to his wife. Insofar as it was submitted that, as a matter of law, that evidence is insufficient to give rise to any presumption of advancement or alternatively to give rise to any relevant intention; it seems to me that this effectively reverses the onus of proof. It is not for Mr Kavanagh to establish on the balance of probabilities that his intention was to make a gift of the property to his wife. That would be so only if there was a presumption of resulting trust that had arisen which it was for him to rebut. For the reasons I come to in due course, this is not a case where any presumption of resulting trust has arisen. Nor is it a case where, by some kind of analogy, Mr Kavanagh bears the onus of rebutting a presumption that the benefit of the contract of sale was held wholly or partially on trust for him.
18. Thus, ultimately, the fact that I do not accept Mr Kavanagh's evidence to be reliable (or his account of events such as the asserted kidnapping in Africa to be credible) does not lead me to conclude that the claim against him must succeed.

Mrs Kavanagh

1. As to Mrs Kavanagh, it was submitted for Ms Wheatley that no real weight could be placed on her evidence, she being someone who acts at the direction of her husband, having regard to the facts that: she accepted in cross-examination that her husband drafted her affidavit; she and her husband discussed each other's evidence in preparing the case and each took care to make sure their affidavits "lined up" with that of the other; and that, although Mr Kavanagh said that she was not confident in her English, she was able to put together a relatively well written affidavit and give oral evidence without any assistance. Further, Ms Wheatley points to the fact that Mrs Kavanagh professed to having some knowledge of the finance and negotiation of the purchase yet appeared in her letter of 22 November 2016 to assert that she had no idea what is happening on the transaction.
2. Mrs Kavanagh's command of English was not that of someone for whom English was her first language. Her use of language and choice of expression made that clear. My assessment of Mrs Kavanagh in the witness box (and when she made her oral closing submissions) was that she is genuinely distressed by the events which have occurred (she was clearly emotional in her closing oral submissions). I regarded her as someone endeavouring honestly to give her account of events.
3. However, to a large extent her evidence is based on what her husband has told her about the events in question - not simply as to the events in March 2015. She left it to her husband to negotiate the purchase of the Dural property and (being overseas at the time) she was not privy to much of the early communications in relation to the purchase. Insofar as she gave evidence about what she and her husband agreed and intended at the time, the weight to be placed on this is affected by the fact that she and her husband have obviously discussed the case, and their evidence, or at least their "understanding" of what transpired in some detail. This necessarily diminishes the weight to be accorded to that evidence, particularly where it is of critical import to the case (for the reasons considered in Macquarie Developments Pty Limited v Forrester [2005] NSWSC 674; Seamez (Australia) Pty Ltd v McLaughlin [1999] NSWSC 9; both of which I have cited in recent cases: Ardestani v Doss [2018] NSWSC 1084; Brown v Tavern Operator Pty Ltd [2018] NSWSC 1290).
4. To her credit, Mrs Kavanagh did not seek to hide the fact that her husband had assisted in the preparation of her affidavit and I accept that she genuinely believes that the position is as she there deposed. Nevertheless, the process by which the affidavits were admittedly prepared, and the similarity of language and content in the May 2018 affidavits of the Kavanaghs, gives rise to the risks identified in the cases referred to above and in my view undermines the reliability of Mrs Kavanagh's account of events. It is in my view quite possible that Mrs Kavanagh simply has accepted Mr Kavanagh's ex post facto explanation as to how or why things were done at the time rather than having consciously turned her mind at the time to explanations such as that this was his attempt to make it up to her for the loss of her assets.

Mr Bolos

1. The vagueness of the account given by Mr Bolos as to what funds were transferred and then rejected for failure to pass compliance checks means that his evidence in this regard is of little assistance. Moreover, it is clear that he did not understand whether Mr Kavanagh was to be the beneficiary or the custodian of the funds (two very different concepts); nor was he clear as to Mr Kavanagh's role in relation to the funds. He simply asserted that Mr Kavanagh's role was to "manage" those funds on behalf of "other counterparties".

Ms Wheatley

1. Ms Wheatley's evidence was largely unchallenged and I have no reason not to accept her account of events.

Issues

1. At the outset of the hearing, at which the defendants represented themselves, Counsel for Ms Wheatley identified five issues to be determined (Ms Wheatley's claim being confined to the claim for recovery of the unpaid deposit and there being no claim now pressed that Mrs Kavanagh entered into the contract for Mr Kavanagh as undisclosed principal).
2. Those five issues are: whether there was a binding contract; whether the contract was conditional on the purchaser obtaining funds for either the deposit or the whole of the purchase price; if it was a binding contract and lawfully terminated, what moneys are recoverable for default by the purchaser; whether Mr Kavanagh was beneficially interested in the contract - i.e., whether Mrs Kavanagh held the benefit of the contract in whole or in part for him; and, if so, whether Ms Wheatley can recover against Mr Kavanagh by enforcing a right of indemnity on the part of Mrs Kavanagh as trustee. I address each of those issues in turn.

(i) Was there a binding contract?

1. Although in their pleadings, submissions and affidavit evidence, the Kavanaghs raised a variety of issues as going to the denial of a binding contract for sale, in substance the basis on which they dispute the existence of a binding contract relates to the circumstances in which the contract was provided to Mr Christie and instructions given to him in relation thereto. Most of those arguments can be disposed of relatively quickly.
2. First, insofar as the argument (not made particularly clear, perhaps unsurprisingly since neither of the Kavanaghs practises as a lawyer, though Mr Kavanagh deposed that he had studied law - and confirmed this in the course of submissions at T 24.17) is that a complete contract was not provided at the time Mrs Kavanagh signed the first page or that the then terms of the contract were later amended (and not initialled by her) (for example to include the new Special Condition 39), that argument suffers from the fact that by 25 September 2016, when notional exchange of contracts took place at Mr Brown's hand, it is clear that the Kavanaghs were represented by a licensed conveyancer (Ms Alt) whom they (or at least Mr Kavanagh, acting with Mrs Kavanagh's authority) had clothed with actual authority to represent them (or, more precisely, the purchaser) in the sale transaction. The correspondence makes clear that Ms Alt authorised exchange of contracts to take place on the terms, as amended to include Special Condition 39, agreed between the parties. In the absence of any suggestion that the two counterpart contracts were not in the same terms, the complaints made as to the incomplete form of the contracts when the cover page was first signed by Mrs Kavanagh or the form of the contracts when exchanged (such as the fact that the pages were not initialled by Mrs Kavanagh) goes nowhere.
3. Second, insofar as the complaint is that there was an escrow condition placed on the contract (or in relation to the deposit cheque) at the time the contract (or deposit cheque) was provided, the difficulty is that Ms Alt expressly sought instructions from Mr Kavanagh in relation to exchange of contracts in September 2016 and conveyed those instructions to Mr Brown. Vis à vis the vendor, the purchaser is bound by the exchange authorised by the purchaser's agent in that regard. The fact that no issue was raised at the time about exchange having properly taken place makes the Kavanaghs' argument untenable.
4. Third, insofar as there is complaint that the property was still being marketed in late 2016, the evidence does not establish more than that as at late November 2016 a marketing email was sent to Mr Kavanagh's email address with a "Property Alert" from Black Diamondz Property Concierge in relation to the Dural property (as being a listing matching "your Property Alert search requirements") (see attachment 2 to Mrs Kavanagh's affidavit and attachment 7 to Mr Kavanagh's second affidavit). Moreover, even if the property was then still appearing on an online website as available for sale, or the subject of property alerts to persons who had listed search requirements to which it matched, this does not alter the fact that there was at that time a binding contract for sale. No claim for repudiation or anticipatory breach of contract was brought (and any such claim would be inconsistent with the Kavanaghs' denial of a binding contract in the first instance).
5. Fourth, insofar as complaint was made by both Mr and Mrs Kavanagh as to pressure from the real estate agent (or misleading conduct on his or the vendor's solicitor's part about other potential purchasers or the like), there is no claim raised on the pleadings in relation to any such conduct; nor is there any basis on the evidence before me on which I could make any such finding. (Given the serious nature of those allegations, I would have needed to be satisfied on the application of the standard indicated by Briginshaw (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34); and before make a finding of that kind as to the conduct of a third party, including in this case a solicitor, an officer of this Court, I would have required that the third party solicitor be afforded the opportunity at the very least to make submissions and be heard on that aspect of the matter.)
6. Finally, insofar as the argument was raised that there could be no binding contract because the deposit was not paid (seemingly based on a statement on the NSW Fair Trading website - see attachment 1 to Mrs Kavanagh's affidavit and Mrs Kavanagh's affidavit at [17], which I read as a submission), that involves a misapprehension of the principles of contract law. Payment of the deposit (though required as a term of the contract for sale, and for breach of which certain consequences may flow) was not necessary in order for a valid and binding contract here to be concluded. Sufficient consideration to support the contract as a binding contract was comprised by the promise to transfer on the one hand and the promise to purchase on the other.
7. For completeness, I note that Ms Wheatley submits that the Kavanaghs' contention that no binding contract came into existence is inconsistent with their own statements and conduct during the relevant period. Reference is made in this context to the following communications: the email from Ms Alt on 10 October 2016 requesting that the contract not be terminated "pending receipt of the monies into the agents [sic] trust account this week" (Exhibit A, p 69); the email from Mr Kavanagh on 14 November 2016 stating that "I still wish to proceed, although acknowledge the Vendor is within their rights to terminate the contract and seek to recover the deposit" (Exhibit A, p 87); the email from Mr Kavanagh on 4 November 2016 in which he appeared to accept that the contract was entered into despite his wish that he wait until he had cleared funds in his account (Exhibit A, p 82); the email from Mr Kavanagh on 10 November 2016 in which reference was made to exchanging contracts before he had the funds due to the risk of losing the property if he did not do so (Exhibit A, p 84); and the email from Mr Kavanagh on 2 March 2017 in which he acknowledged that Ms Wheatley had the right to sell to another party but requested that she not do so and made reference to the fact that Mrs Kavanagh had no assets from which a judgment amount would be able to be recovered (Exhibit A, p 149); the said communications being set out earlier in these reasons.
8. Further, Ms Wheatley notes that at no stage did the Kavanaghs or their representative, Ms Alt, demur from the proposition that they were in default as a result of the failure to pay the deposit (referring to communications on 10 October 2016, 25 October 2016, 28 October 2016, 31 October 2016 and 13 January 2017).
9. In cross-examination, Mr Kavanagh did not recall giving Ms Alt the instruction to exchange contracts (T 106.6) and maintained that "[e]verything I consistently said that we would - we had to wait for the funds to be there" (T 106.9) but ultimately accepted that, from the time of the email from Mr Brown as to exchange of contracts (at Exhibit A, p 54) he understood that there was on foot a binding contract (T 106.43). Further, Mr Kavanagh accepted that the statement in his email of 14 November 2016 (Exhibit A, p 87) was a clear acknowledgement by him that there was on foot a binding contact which the vendor was entitled to terminate at that time (T 107.42).
10. While Mr Kavanagh's understanding would not establish that there was a binding contract at the time if, as a matter of law, no such contract had come into existence, it is relevant to note that there was no challenge made to the position communicated to Mr Kavanagh at that time as to there being on foot a binding contract and I accept that the conduct of the Kavanaghs throughout the period from exchange of contracts up to the termination of the contract by Ms Wheatley was consistent only with there being a binding contract on foot; and that Mr Kavanagh, at least, acknowledged as much.
11. That said, while that supports my conclusion that there was in existence a binding contract, it is not necessary for that conclusion. Rather, that conclusion rests on the evidence of an exchange of written contracts, with the authorisation of the Kavanaghs' licensed conveyancer, supported by the consideration expressed in the contract, which objectively establishes a common intention of the parties immediately to be bound thereby.
12. Thus, I find that there was a binding contract in the terms of the contract for sale dated 25 September 2016 between Ms Wheatley and Mrs Kavanagh.

(ii) Was the contract conditional on funds being available?

1. The Kavanaghs assert that they made clear to the agent that they did not want to enter into the contract until all the funds (either to pay the deposit or to complete the contract) were available. Indeed, the main error of judgment that Mr Kavanagh says he made was in acceding to pressure to exchange contracts before that time. I accept that the correspondence at the time the contract was signed and prior to exchange included statements to that effect.
2. However, nothing in the contract makes it subject to finance or conditional upon receipt or clearance of the funds necessary either for the payment of the deposit or for completion of the contract. Certainly, Mr Kavanagh's initial instructions contemplated that there would be a "subject to" term but the fact is that a licensed conveyancer represented the Kavanaghs in the course of negotiations, and no such term was required by her to be, or was, incorporated as part of the final contract. As pointed out by Counsel acting for Ms Wheatley, the suggestion that the obligation to pay the deposit (or the contract as a whole) was conditional upon the deposit being paid or finance being obtained is inconsistent with the express terms of the contract (there referring to Special Condition 34, which I have extracted later in these reasons). At the time exchange was authorised by Mr Kavanagh (with the authority of Mrs Kavanagh), there was no insistence on any such condition.
3. I find that this was not a conditional contract, as alleged by the Kavanaghs.

(iii) What consequences flow from default in payment of the deposit?

1. I have found above that the contract for sale was a binding contract and that it was not conditional on the Kavanaghs (or Mrs Kavanagh) obtaining the necessary funds to complete the purchaser's obligations under that contract. That gives rise to the third issue, namely what flows from a lawful termination of that contract.
2. I have already noted that the purchase price under the contract was $6,000,000 and the deposit payable was $600,000. Completion was to take place the 90th day after the contract date (i.e., on 24 December 2016).
3. Clause 2 of the contract for sale dealt, relevantly, with payment of the deposit in the following terms: 2 Deposit and other payments before completion 2.1 The purchaser must pay the deposit to the depositholder as stakeholder. 2.2 Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential. 2.3. If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential. … 2.5 If any of the deposit is not paid on time or a cheque for any of the deposit is not honoured on presentation, the vendor can terminate. This right to terminate is lost as soon as the deposit is paid in full.
4. Special Condition 34 provided: 34 DEPOSIT In the event that: (a) the Purchaser defaults in the observance of any obligations hereunder; and (b) the Purchaser has paid a deposit of less than 10% of the purchase price; and (c) the Vendor terminates this contract; the Vendor shall be entitled to recover from the Purchaser an amount equal to 10% of the purchase price less the deposit paid as liquidated damages and it is agreed that this right shall be in addition to and shall not limit any other remedies available to the Vendor herein contained or implied notwithstanding any rule or law or equity to the contrary. This clause shall not merge on completion of this Contract.
5. Clause 9 (headed "Purchaser's default") provided, relevantly, that: 9. If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can: 9.1 keep or recover the deposit (to a maximum of 10% of the price); and … 9.3 sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover - • the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and • the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract.
6. There is no dispute that Mrs Kavanagh failed to pay the deposit in accordance with the contract. The initial cheque in HKD (albeit provided in escrow) was dishonoured once it was presented after exchange of contracts. Even if, as Mr Kavanagh contends, it was agreed with the agent (or the agent represented to him) that the cheque would not be banked, the failure to pay the balance, or indeed any part of, the deposit was a clear breach of contract. Despite numerous promises by Mr Kavanagh no funds were ever provided for payment of the deposit. Nor is there a dispute that the contract was validly terminated on 19 January 2017 (Exhibit A, p 127-129).
7. Therefore, pursuant to Special Condition 34, as the purchaser has paid a deposit (nil) of less than 10% of the purchase price, Ms Wheatley is entitled to recover the whole of the unpaid deposit as liquidated damages for breach of contract. (The unpaid deposit would also be recoverable under cl 9.1 of the contract.)
8. Accordingly, I find that Mrs Kavanagh is liable to pay Ms Wheatley the sum of $600,000 plus interest and costs. I was provided with a schedule setting out the calculation of pre-judgment interest to the date of hearing, in the amount of $55,947. To that, must be added interest from 7 June 2018 to date.

(iv) Did Mrs Kavanagh hold the benefit of the contract on trust, wholly or in part, for Mr Kavanagh?

1. This is, as adverted to earlier, a more difficult issue. Ms Wheatley contends that the whole (or alternatively half) of the benefit of the contract for sale was held by Mrs Kavanagh on trust for Mr Kavanagh and herself; or alternatively for Mr Kavanagh alone. (Her claim against Mr Kavanagh is premised on (though not necessarily determined by) there being a finding to that effect.)

Was an argument based on a presumed resulting trust pressed?

1. At the outset, it must be noted that there was some ongoing uncertainty in the course of submissions for Ms Wheatley as to whether the trust analysis was one founded on an express trust or a presumed resulting trust. The outline of submissions for Ms Wheatley at the commencement of the hearing referred to the principles applicable both as to the creation of an express trust and as to a resulting trust.
2. In the course of opening submissions, Counsel for Ms Wheatley indicated that the correct analysis might be that of an express trust because (despite the tendering of the initial cheque in HKD) no purchase moneys were ever paid.
3. However, in closing written submissions, reference was again made to the principles as to when a resulting trust may arise (by reference to Calverley v Green (1984) 155 CLR 242 at 266-267, 246-247 and 258; [1984] HCA 81; The Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278; [2006] HCA 6 at [71]-[72]; Silvia (Trustee) v Williams [2018] FCA 189 at [146]).
4. It was argued in closing written submissions that a resulting trust (as I understand the argument, a resulting trust of the benefit, or a one half share of the benefit, of the contract) had arisen on one of two bases.
5. First, by analogy with the position where a person pays wholly or partly the purchase price of a property (see Caverley v Green - what is commonly referred to as a "purchase moneys resulting trust"), having regard to the fact that Mr Kavanagh himself purported to pay the deposit (i.e. by the HSBC cheque which was drawn on an account in Mr Kavanagh's name - see his first affidavit, [27]) and undertook (in the course of the communications seeking extensions of time) to pay the entirety of the purchase price of the property himself.
6. Second, given that the property was (on the Kavanaghs' evidence) to be purchased as a matrimonial home, by analogy with the position where a couple in fact purchases a matrimonial home (referring to The Trustees of the Property of Cummins v Cummins at [71]-[72]), said to reflect the notion that spouses may wish their assets to be enjoyed together during their joint lives (Calverley v Green at 259-260). Ms Wheatley submits that there is a presumed intended commonality of property in the marital context - there also referring to Silvia (Trustee) v Williams, in the matter of Williams (Bankrupt) [2018] FCA 189 at [146] and to ss 79 and 80 of the Family Law Act 1975 (Cth) to which reference was made in Calverley v Green (at 260 -261).
7. In closing oral submissions, there was an express disavowal of any contention that a resulting trust arose in the present case by the tender of the purchase moneys (presumably meaning the deposit cheque that was later dishonoured) though Counsel for Ms Wheatley maintained reliance upon all of the communications, statements of intention, and indications by Mr Kavanagh that he would source the funds, as going to the question of the intention of the parties as to the true beneficial ownership of the Dural property.
8. Later, in the course of oral argument, the proposition put for Ms Wheatley was as follows: I should for completeness say that, your Honour, it is our contention that, apart from the tender of the unsuccessful tender of the deposit there are promises to pay the balance of the purchase price and the deposit by Mr Kavanagh and the submission is that those promises are enough, when coupled with the tender of the deposit cheque, are enough to give rise to a resulting trust, even though ‑ your Honour is quite right that the presumption of a resulting trust by payment of the actual purchase price may not arise; but whether the presumption arises or not, the critical question is one of intention. (my emphasis)
9. In that context, I was then taken to various passages from Calverley v Green: at 251; 252 per Gibbs CJ as to the presumptions of advancement and of resulting trust; at 261 per Mason and Brennan JJ as to the proposition that the equitable presumption of a resulting trust can be rebutted or qualified by evidence of a contrary intention common to the contributors of the purchase price which is to be inferred from what the parties do or say; at 267, per Deane J, as to the recognition that there are certain relationships in which equity infers that any benefit which was provided for one party at the cost of another has been provided by way of advancement, with the result that the prima facie position remains that the equitable interest is presumed to follow the legal estate.
10. Reference was also made to the decision of Edelman J, then sitting in the Supreme Court of Western Australia, in Anderson v McPherson (No 2) [2012] WASC 19 at [136] in relation to his Honour's adoption of the approach that the presumption of advancement is not a presumption as such but simply a circumstance in which the presumption of a resulting trust does not arise.
11. Counsel for Ms Wheatley submitted as follows (T 155.21-155.30): … Whether there is a trust depends on the actual intention of the parties as to the beneficial ownership; presumptions of resulting trust and presumptions of advancement are of limited assistance; actual intention is the determinative question. In a marital context, regardless in whose name the property is put and regardless of any disparity in contributions, the usual presumption is that the intention is that the property would be owned jointly by the spouses and to this may be added the observation that, in equity, as always, the emphasis is on the substance, not the form; the emphasis and the inquiry is to the real ownership, the real intended ownership, not necessarily the strict legal ownership. And (T 156.50-157.9): We put the trust issue on two alternative bases: First, a resulting trust, although I accept what your Honour says about the fact that no purchase moneys were ever paid, therefore, what follows from that is that there is no presumption of a resulting trust, but that doesn't exclude a resulting trust that might arise if the evidence before the Court is that the intention of the parties was that Mr Kavanagh was going to be the one tendering the purchase money, paying the deposit, paying interest, paying compensation, that can still give rise to a resulting trust; or, alternatively, what it gives rise to is a proper basis for an inference that there was an express trust, although not stated in those technical legal terms.
12. Anticipating any reliance by Mr Kavanagh upon the so-called presumption of advancement, it was said that this would not assist him: first, because he has not put forward any contemporaneous evidence that would be sufficient to give rise to the "presumption" (and so far as it was contemplated that Mr Kavanagh was concerned to repay Mrs Kavanagh for funds provided by Mrs Kavanagh or lost in the Berrilee sale, that this is not within the rationale of the 'presumption' (the rationale of the 'presumption' being a husband's moral obligation to provide for his wife: referring to Anderson v McPherson (No 2) at [128])); and, second, that the 'presumption' will not prevail over the evidence of the intention of the purchaser at the time of the purchase (referring to Calverley v Green, 251).
13. It was then submitted that the case could be tested by reference to what would have been the position had Mr Kavanagh followed through on his attempts to finance the property and paid the whole of the purchase price as he said he was going to do; and had Mr and Mrs Kavanagh then lived in the property as husband and wife. It was submitted that Mr Kavanagh would unquestionably be recognised in equity as holding a beneficial interest in the property and that it follows that in the present circumstances equity will recognise Mrs Kavanagh as holding the benefit of the contract partly on trust for Mr Kavanagh.
14. The confusion that thus arose (and certainly Mr Kavanagh in his closing oral submissions was left unclear as to whether what was being argued was a resulting trust or not) was that, having seemingly disavowed reliance on a resulting trust arising in the present case as a result of the tender of the deposit cheque, and having conceded that it would be a novel situation for such a trust to arise where no moneys had actually been paid, the alternative claim for Ms Wheatley as to the existence of a trust of the benefit of part or all of the contract nevertheless seemed to be based on promises to pay the deposit and some form of analogy with the circumstances in which a purchase money resulting trust will be presumed.

Determination as to existence of a resulting trust

1. Insofar as Ms Wheatley's case does remain pressed by reference to the principles applicable to presumed resulting trusts (whether the seemingly disavowed purchase money resulting trust or, as I understood the argument ultimately to be put, by way of analogy with a presumed resulting trust of that kind), I make the following observations.
2. What seems here to be argued, in essence, is that the benefit of a contract to purchase property can be presumed to be held on trust for another (in the Trident sense) if it is established that it was intended that the purchase money payable under the contract would in due course be provided by someone other than the party to whom legal title to the property was to be conveyed; or, perhaps, that the equitable interest acquired by the purchaser, under a binding contract for sale that is liable to specific performance, prior to completion of the contract for sale, can be presumed to be held on trust for that other person in those circumstances. I can find no authority to support such a proposition and it does not appear to me to fall neatly (even by way of analogy) into the Calverley v Green line of cases.
3. As I have noted elsewhere (see Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495 at [110]), the role that presumptions play in this context is that a particular "presumption" may assist in the face of deficiencies or gaps in the evidence (hence the evocative description of presumptions as being "the bats of the law, flitting in the twilight, but disappearing in the sunshine of actual facts" - see Mackowik v Kansas City, St. J. & C. B. R. Co. 94 SW 256 at 262, quoted approvingly by Mason P in Neilson v Letch (No 2) [2006] NSWCA 254 at [26]; McColl and Basten JJA agreeing with his Honour's judgment).
4. Of the various kinds of presumed resulting trust (and leaving aside the debate as to the desirability or otherwise of identifying clear-cut categories of resulting trust), the only relevant kind for present purposes is the so-called purchase money resulting trust. In Calverley v Green, the circumstances in which a purchase money resulting trust is presumed to arise were explained by Deane J (at 266-267) as follows: … where two or more persons advance the purchase price of property in different shares, it is presumed that the person or persons to whom the legal title is transferred holds or hold the property upon resulting trust in favour of those who provided the purchase price in the shares in which they provided it. See also Gibbs CJ at 246-247; and Mason and Brennan JJ at 258.
5. One need go no further to expose the difficulty in the present case. No purchase price was ever advanced. At most, there was the tender of a cheque by Mr Kavanagh (payment on which was stopped at his subsequent direction). Promises were made by Mr Kavanagh (indeed a succession of promises of varying kinds were made) of payment out of funds to be sourced from third parties or, at one stage, to be drawn from his own account. Those funds never eventuated. True it is that there appears never to have been any expectation on the part of either of the Kavanaghs that Mrs Kavanagh would herself provide the funds (though at least one possibility in relation to the internationally sourced funds may have been that the funds would be advanced to her either directly from those international sources or indirectly from them through an entity associated with Mr Kavanagh). But the fact of the matter is that no funds were advanced. Hence the primary facts to give rise to the presumption of a purchase money resulting trust (i.e., that Mr Kavanagh had provided part or all of the purchase price where the legal title was to be vested in another, Mrs Kavanagh) has not been asserted (and could not ever, on the facts of this case, be established).
6. There is thus nothing to give rise to the presumption of a resulting trust in respect of the Dural property or, more precisely, any equitable interest in the Dural property that was created at the time the binding contract was entered into between Ms Wheatley and Mrs Kavanagh.
7. Insofar as the presumption of resulting trust is the "starting point of a factual enquiry" about the intention of the party (or parties) who provided the funds for the purchase in question (Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060 at [136]; 12 BPR 22,421 (Black Uhlans); Dyer v Dyer (1788) 2 Cox Eq Cas 92 at 93; 30 ER 42 at 43; Fowkes v Pascoe (1875) LR 10 Ch App 343 at 352; Re Kerrigan; Ex parte Jones (1946) 47 SR (NSW) 76 at 83; 63 WN (NSW) 288), the facts of the present case do not even reach that starting point. Thus no question as to any "presumption" of advancement (or whether such a "presumption" might be rebutted on the facts of the present case) arises.
8. Properly understood, the arguments raised by Ms Wheatley based on an analogy with the position where a presumed resulting trust might arise thus seem to me to be arguments as to why it should be inferred that there was an actual intention to create a trust in respect of the interest (yet to be acquired) in the Dural property or to hold the benefit of the contract for sale on trust for Mr Kavanagh. Whether such an intention has been established (by recourse to a presumption based on analogy or otherwise) is considered below.

Submissions as to express trust: was there an intention to hold the benefit of the contract (or the contractual promise) on trust?

1. The question, it seems to me, is thus whether, on the evidence, it has been established on the balance of probabilities that Mrs Kavanagh intended to hold the benefit of the contract of sale on trust for or, put in lay terms, for the benefit of, Mr Kavanagh (or, perhaps, whether there was an agreement between the Kavanaghs sufficient to constitute Mrs Kavanagh a trustee for Mr Kavanagh of the benefit of the contractual promises made to her in that contract by Ms Wheatley).

Submissions for Ms Wheatley on this issue

1. It is, of course, well recognised that a person may hold the benefit of a contractual promise on trust for another (see Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 120-121, 135, 146-147; [1988] HCA 44 (Trident)) and that such a trust can attach to the benefit of the whole contract or to the benefit of the whole or part of some particular obligation (Trident at 147). Reference is made by Ms Wheatley to Bahr v Nicolay (No 2) (1998) 164 CLR 604; [1988] HCA 16, where Mason CJ and Dawson J found that such an express trust had been created (at 619).
2. The question is whether it was the intention of the promisee (Mrs Kavanagh) that the relevant third party (Mr Kavanagh) should be "entitled to insist upon performance of the promise and receipt of the benefit", and whether a trust is the appropriate mechanism for giving effect to that intention (Trident at 147 (Deane J); see also the formulation in Bahr v Nicolay (No 2) at 618-619); or, as the test was stated by the Court of Appeal in Western Australia in La Housse v Counsel [2008] WASCA 207 (at [38]), whether on the balance of probabilities the relevant person (here, Mrs Kavanagh) intended to place himself or herself under a personal obligation to hold the trust property (here, the chose in action comprised by the benefit of the contract) for the benefit of the other person or persons (here, Mr Kavanagh).
3. In submissions for Ms Wheatley, reference was made to the proposition that, in respect of the creation of a trust, equity looks to intent or substance over form (citing Parkin v Thorold (1852) 16 Beav 59 at 66-67; 51 ER 698 for that proposition) and to the concern of trust law being to prevent a legal owner from using his or her common law rights as owner to abuse or subvert the intention which underlay the acquisition and possession of those rights (referring to Muschinski v Dodds (1984) 160 CLR 583 at 613; [1985] HCA 78).
4. The submission for Ms Wheatley is that: As the evidence was that the defendants intended to own the property jointly, it follows that the benefit of the contract by which they were to purchase that property would likewise be owned by them jointly. Thus, although the contract was in the sole name of Mrs Kavanagh, she held the benefit of the contract as to one half (at least) for Mr Kavanagh.
5. Counsel for Ms Wheatley notes that for an express trust to be created there must be: a sufficiently certain manifestation of an intention to create a trust; certainty of subject-matter; and certainty as to the beneficiaries of the trust (see Knight v Knight (1840) 3 Beav 148 at 173; 49 ER 58 at 68; Kauter v Hilton (1953) 90 CLR 86 at 97; [1953] HCA 95). The requisite intention is an objective intention to be implied from the circumstances, including the nature of the documents or dealings, the nature of the transactions and the circumstances attending to the relationship between the parties (see Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 at [3] (Korda); Salvo v New Tel Ltd [2005] NSWCA 281 at [32]-[34]). It is noted that intention may be deduced solely from the conduct of the parties provided the intention is sufficiently certain (see Korda at [10] per French CJ).
6. Counsel for Ms Wheatley notes that it is not necessary to establish that the parties specifically or formally turned their minds to the fact that a trust was created; nor does the absence of special or technical language mean that the requisite intention was not present (referring to Nguyen v Phan (No 2) [2015] VSC 634 at [237]), pointing out that it has been recognised that in "private family dealings" "some imprecision of thought and expression might perhaps be expected" (quoting from Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 277). It is submitted that the traditional reluctance to infer a trust without specific expression of such an intention (see Bahr v Nicolay at 618) is no longer necessary on the weight of present authority (referring to Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 at 67; [1956] HCA 8; Trident at 146; Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 502-503).
7. Applying the above principles to the facts of the present case, it is submitted for Ms Wheatley that the objective evidence contemporaneous with the purchase of the property supports the existence of a trust. In that regard, Ms Wheatley points to the following matters.
8. First, to the communications (after the exchange of contracts) in which Mr Kavanagh undertook to pay the deposit and the purchase price of the contract: namely, his email of 23 September 2016, stating that "I have made a contingency plan for the full 10% deposit to be sent direct from Hong Kong... in A$, from a business I have there" (Exhibit A, p 58); the offer made by Mr Kavanagh on 25 October 2016 to pay the deposit "myself from my Westpac business account" (Exhibit A, p 75); the references in Mr Kavanagh's email of 14 November 2016 to the success of various international transactions of his own companies (as a source of funds for the deposit) (Exhibit A, p 87); the statement by Mr Kavanagh on 1 December 2016 that the funds for the Dural property were to be coming from an investment in which he was a 25% shareholder (Exhibit A, p 98); the email from Mr Kavanagh on 7 December 2016 to the effect that the funds were to be paid from "one of my accounts" (Exhibit A, p 101); and the promise by Mr Kavanagh on 5 January 2017 that "I will pay the $600k by cob Friday 13th..." (Exhibit A, p 120).
9. Second, that it was Mr Kavanagh who purported to pay the first instalment of the deposit (by a cheque drawn on an account in his name - see Mr Kavanagh's first affidavit at [27]) and Mr Kavanagh who later stated that he had cancelled the cheque.
10. Third, that the negotiations and the communications in respect of the purchase were all conducted by Mr Kavanagh, Mrs Kavanagh having authorised her husband to negotiate the contract (referring to Mrs Kavanagh's affidavit at [4], [14]).
11. Fourth, the use by Mr Kavanagh of the first-person pronoun in communications in relation to the purchase (such as his statement in the email of 14 November 2016 to the effect that he was emotionally attached to the property, had made an error of judgment "to put the contract forward" but that "I still wish to proceed" (Exhibit A, p 87); and the offer on 1 December 2016 that he himself would pay interest to compensate Ms Wheatley for the delay (Exhibit A, p 98)).
12. Reliance is also placed on references by Mr Kavanagh to the purchase of the property as being a joint one: on 23 September 2016, "[m]y wife and I stand by our word that we wish to purchase the property for $6m on a date to be set by the vendor after 11 November 2016" (Exhibit A, p 58); on 4 November 2016, that "I … have told the agent many time [sic], including yesterday, we wish to proceed with the purchase. There is no way we want to back out or cancel the contract. Although we have had difficulties [...] We want this peoperty [sic]. We have our heart set on it and things have progressed significantly" (Exhibit A, p 82); on 10 November 2016 that "I am not sure if Cheryl [Alt] is still representing us" and that "[w]e were emotionally attached to the property, that fitted our requirements like a glove, that caused me to bow to the pressure of the salesmen" (Exhibit A, p 84); on 7 December 2016 as to the hope that funds would be forthcoming "sometime this week or latest early next, so we can pay deposit, provide proof of funds for settlement and arrange a date for same": (Exhibit A, p 101); and, to similar effect, the statement in the email sent on 8 December 2016 (Exhibit A, p 108); on 20 December 2016, that "I have done everything I can to ensure that we can pay the deposit this week. [...] We will be able to settle early in the New Year" (Exhibit A, pp 113-114); on 17 February 2017 that "[w]e propose [to proceed] on the same terms as the original contract..." (Exhibit A, p 138); and on 2 March 2017 that "We still want to purchase the property when funds are available. We are prepared to fully compensate the vendor for the lost time" (Exhibit A, p 149).
13. Finally, Ms Wheatley submits that the communication sent by Mr Kavanagh on 2 March 2017 (which, it is submitted, was sent in order to encourage her not to terminate the contract) permits the inference that, by putting the contract in the name of Mrs Kavanagh, Mr Kavanagh was seeking to insulate himself from liability.
14. On the basis of the above matters Ms Wheatley submits that the contemporaneous evidence supports the existence of a trust in favour of Mr Kavanagh, the trustee of which was Mrs Kavanagh.

Submissions of the Kavanaghs on this issue

1. Mr Kavanagh submits, to the contrary, that there is no logical reason for it to be concluded that the intention was for him to have a beneficial interest in the property. He submits that "the arguments for a trust … rest on the assumption that the funds came from me, and/or, that I have or control wealth - neither is the case" (Mr Kavanagh's opening outline, [27]). He goes on to submit (opening outline, [28]-[29]) that: There was no intent to protect the interests of myself by placing the property contract in my wife's name. To do so firstly presumes that I had known that the offer to purchase was going to fail prior to making the offer, and secondly that there is personal wealth to protect. The conduct of the parties was dictated by two main factors. One that initially, Mrs Kavanagh was overseas. Secondly, that she is reticent to commit to writing or negotiations and left that in my (as it turned out, not so competent) hands. Nothing can be inferred from the conduct of the parties other than Mrs Kavanagh was adamant that until the funds were within our control, no deposit was to be paid and the offer should not be binding, and that I tried to represent her in keeping the offer alive in the face of consistent threats of signing with other parties.
2. Mr Kavanagh argues that since all of the funds for the property were to come from third parties, and he had no capacity to provide the funds, there cannot be a trust formed "from the purchasing and then vesting in" Mrs Kavanagh. He submits that, if this were to be the case, mortgage brokers would be caught by this principle.
3. Insofar as reference was made for Ms Wheatley, by way of analogy to the modern approach in the family law context, to the assumption that married couples will share equally in the assets of the marriage, Mr Kavanagh (seemingly with some feeling given the emphasis he gives this in his submissions) submits (at [34]) that: … my experience has been the opposite in both my previous marriages, the contributions and settlements were completely one sided. In my first divorce, my ex-wife obtained 90% of my total assets! In my second, I walked away a bankrupt with a $2.3m debt after our house was sold and she took everything of value.
4. As to his use of the first-person pronoun in correspondence, Mr Kavanagh submits that this is akin to that of a salesman and argues that, when representing someone, the use of the first-person pronoun does not denote ultimate beneficial interest. He likens himself to a mortgage broker. Mr Kavanagh further submits (opening outline at [41]) that "the whole action is vindictive and not based on a desire to obtain anything from it other than satisfaction of ruining people's lives". He maintains that he sought to facilitate his wife's purchase of the property by arranging for loan funds to do so.

Determination as to existence of an express trust

1. In Kauter v Hilton, the High Court (Dixon CJ, Williams and Fullagar JJ) referred to "the established rule" that "in order to constitute a trust the intention to do so must be clear" and that "it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries" (at 97).
2. In Re Australian Elizabethan Theatre Trust at 502, Gummow J said: The question as to the existence of any express trust will always have to be answered by reference to intention. … Ordinarily, the relevant intention is that of the alleged settlor, but where the subject matter of the trust is contractual rights against the settlor, conferred by the settlor upon the alleged trustee, the objective (or "purpose") of the transaction being to benefit third parties, it may be appropriate to look to the mutual intention of settlor and trustee …
3. His Honour also said (at 503): The relevant intention is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them: see Walker v Corboy (1990) 19 NSWLR 382; Scott, The Law of Trusts (4th ed, 1987), s25.2. There is no need for particular caution in drawing the inference that a trust was intended: see Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 618-619.
4. The first sentence of the passage just quoted was referred to with approval by Heydon and Crennan JJ in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [110].
5. In Furlong v Wise & Young Pty Ltd [2016] NSWSC 1839, Sackar J, referring to the requirements for the creation of an express trust as the "three certainties", said (at [102]-[104]): Firstly, there must be certainty of intention. This intention must be determined objectively by the Court on the basis of what the parties said. … No formal or technical words are required; there must simply be a sufficient expression of intention. … Intention may be inferred from the circumstances of the case and nature of the parties' transaction. … Reference may also be had to commercial necessity in determining the parties' intention. … Intention may be rebutted by evidence of contrary intention… Secondly, certainty of the trust's subject matter or property must be established … Finally, there must be a certainty of the objects or beneficiaries of the trust. … A trust will not be declared invalid by a mere difficulty in determining its objects, as long as a "loose class" of objects can be identified. … [citations omitted]
6. In La Housse v Counsel at [37], to which Counsel for Ms Wheatley referred, the Court of Appeal of Western Australia said: For an express trust to arise, there must be certainty of subject matter and object, certainty as to the trustee and, relevantly in this case, certainty of the personal obligation annexed to the property. In the absence of evidence of an express declaration of trust, it is essential to the creation of a trust that there be proof of an intention to create a trust … This is not a case where there is any evidence of an express declaration of trust at the time of the deposit of the moneys. This is a case where the respondents contended that upon a consideration of all of the circumstances including relevant oral evidence, the court should infer that Mr Counsel [the deceased] intended to create a trust in favour of his daughters[.] [my emphasis]
7. As to what is required to establish an "intention" to hold a contractual promise on trust, which is necessary (but not sufficient) for the creation of an express trust of such a promise, in Trident, Deane J said (at 147): In equity, "intention alone will not constitute a trust obligation [and] … mere conduct without such intention is ineffectual to impose it, or, as Lewin, 12th ed. (1911), p. 88, says, to 'impute' it": per Isaacs J., Commissioner of Stamp Duties (Q.) v. Jolliffe and see, now, Lewin, 16th ed. (1964), p. 35. The requisite intention to create a trust of a contractual promise to benefit a third party can, however, be formed and carried into effect (either by the contract itself or some other act) by a promisee who would be bemused by the information that the chose in action constituted by the benefit of a contractual promise is property. … In the context of such a contractual promise, the requisite intention should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention. A fortiori, equity's requirement of an intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee. [my emphasis]
8. The last sentence in the above passage makes it clear that the joint intention, if any, of the contracting parties, is relevant only if it assists to establish the promisee's intention. The intention, if any, of the third party (the putative beneficiary) does not have any relevance in the above analysis.
9. Deane J then observed (at 147-148): Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant.
10. For Ms Wheatley, reliance is placed upon Trident for the proposition that "[a] person may hold the benefit of a contractual promise on trust for another" (see the closing outline at [3]). However, Trident was a case about an exception to (or non-application of) the "privity of contract" doctrine, in the limited category of insurance contracts, that being a common instance where a contract is made for the benefit of a third party. The decision of the Court of Appeal, which was affirmed by the High Court, did not turn on a finding of an express trust of the relevant contractual promise. Deane J was in the minority. The remainder of his Honour's remarks are specific to the terms of a policy of insurance, in which context his Honour said, "the terms of the contract itself will … ordinarily manifest an intention to the effect that each non-party assured is to be fully entitled to the benefit of the promisor's promise to indemnify him" (at 149). In that particular case, his Honour held that the effect of the policy "was to create a trust for McNiece of the benefit of Trident's promise to indemnify it against relevant loss" (at 149). His Honour, rather than dismissing the appeal, would have made orders permitting the determination of the case on that basis.
11. The other members of the High Court in Trident did not consider at any length the principles relating to express trusts of contractual promises: the majority (Mason CJ, Wilson, Toohey and Gaudron JJ) dismissed the appeal; and Brennan and Dawson JJ would have allowed the appeal, but on different grounds from those of Deane J (who was the only member of the minority who would have relied on a finding of express trust). Amongst the majority, Mason CJ and Wilson J, in a joint judgment, directed consideration to a submission (at 120-121) by the respondent regarding the "palliative" effect of the law relating to express trusts of contractual promises, and in that context, remarked (at 121) that: … [T]he courts will recognize the existence of a trust [of a contractual promise] when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. …. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention…
12. However, Mason CJ and Wilson J went on to add (at 121) that "the creation of a third party trust rests on ascertaining the intention of the promisee, rather than on the intention of the contracting parties".
13. Neither of the other two members of the majority (Toohey and Gaudron JJ, in separate judgments) based his or her judgment on the notion of an express trust of a contractual promise.
14. I also note that there is no remark in Trident about a promisor, as distinct from a promisee, being a trustee. (I return to this issue below.)
15. In La Housse v Counsel, at [38], the Western Australian Court of Appeal said: What had to be proved by the respondents on the balance of probabilities was that Mr Counsel intended to place himself under a personal obligation to hold the trust property, namely the choses in action, for the benefit of the respondents…
16. It is clear that a contractual right, or what is sometimes described as the benefit of a contractual promise, can be held on trust. In David Hayton (General Editor), Paul Matthews and Charles Mitchell, Law of Trusts and Trustees (19th ed, 2016, LexisNexis), at [1.26], it is said: Contractual rights, like other choses in action, may be the subject matter of a trust unless precluded by the terms of the contract. Thus, if S is entitled to be repaid a loan of £100,000 at 10% per annum he may assign this to trustees to hold on trust for certain beneficiaries. He may similarly assign to trustees rights to royalties or competition prize rights entitling him or his assignees to £500 per week for ten years. … Such person as trustee must then hold the fruits of the benefit of the contract for his beneficiary, but such beneficiary cannot directly sue the other party to the contract as he would then be in the same position as an assignee of the benefit of the contract which is not permitted.
17. In Lynton Tucker, Nicholas Le Poidevin and James Brightwell, Lewin on Trusts (19th ed, 2015, Sweet & Maxwell) (at [4-013]) it is said: … [A third party] might be able to establish that the promisee entered into … [a] contract as trustee for him. If this can be established, the trustee can sue on the contract and will be able to recover damages in full, even though he personally has suffered no damage; and the beneficiary can sometimes sue directly, for instance where the trustee refuses to sue for the benefit of the beneficiary. It makes no difference that the contract is under seal. Even the benefit of a contract which is personal in nature, and which is expressed to be non-assignable, can be held on trust, unless the contract specifically prohibits such a trust from arising in addition to prohibiting any assignment.
18. Those two texts have divergent remarks about whether a beneficiary can sue the promisee directly but it is not necessary here to consider that issue.
19. What is raised by the argument for Ms Wheatley in the present case is the more difficult (and as far as I can see largely unexplored) conceptual problem as to whether an obligation can be held on trust. The cases, including the judgment of Deane J in Trident, and the academic commentary to which I have referred, all refer to the holding of a contractual promise or right on trust; they do not refer to holding "a contract" on trust.
20. Ms Wheatley's submissions framed the issue in different ways: for example, in some places the submissions referred to "the benefit of a contractual promise" (closing outline at [3]) and to the "benefit of the contract" (closing outline at [32]), whilst elsewhere there are references to Mrs Kavanagh holding "the contract for the benefit of her husband" (at [4], closing outline) and holding "the legal title to the contract" (at [22], closing outline).
21. Although it is clearly possible to have a trust of a contractual promise or right, there are significant doubts as to whether a contract (including both rights and obligations thereunder) can be held on trust. Without having had the benefit of considered argument on the point, it would not be appropriate here to decide it. However, suffice it note that there seem to me to be formidable analytical obstacles to a conclusion that an obligation, as distinct from a promise, is something which can be held on trust for another.
22. One question which arises in this context would be how a promisor holding an obligation on trust could reconcile his or her obligations under the contract, on the one hand, and his or her duties as a trustee. A situation in which an obligation was held on trust might also introduce obstacles of enforcement, and prejudice to the promisee.
23. There is a rule that the "burden" of a contractual obligation cannot be assigned: see, as to that rule, Greg Tolhurst, The Assignment of Contractual Rights (2006, Hart Publishing) at [6.101]: It is a rule of assignment that, unless there exists a statutory instrument to the contrary or unless a burden devolves by operation of law, it is possible to assign only contractual rights and not contractual duties or burdens.
24. In Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668 (referred to in Marcus Smith, The Law of Assignment (2007, Oxford University Press), [12.21]), Collins MR said: It is, I think, quite clear that neither at law nor in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to someone else; this can only be brought about by the consent of all three, and involves the release of the original debtor… On the other hand, it is equally clear that the benefit of a contract can be assigned … and can be put in suit by the assignee in his own name after notice.
25. In his text, Smith suggests that this rule is justified on the bases that "no-one should be able to transfer an onerous obligation to an unknowing third party" and that the promisee "is entitled to have 'his' benefit performed by the person he contracted with - or at least, in the manner laid down by the contract" (The Law of Assignment, [12.18]).
26. It may be that the analogy with assignment should be approached with caution, given that a trust is not created by the transfer of rights to the beneficiary, but rather, by the creation of a new equitable right belonging to the beneficiary, with the legal title remaining in the trustee: see Edelman and Elliott, "Two Conceptions of Equitable Assignment" in John McKenna and Helen Jeffcoat (eds), Queensland Legal Yearbook 2013 (2014, Supreme Court Library Queensland), 280, at 281; 285.
27. In any event, contrary to the conclusion suggested by the analogy with assignment is the statement of Lord Shaw, delivering the judgment of the Privy Council, in Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd [1926] AC 108 at 124: The scope of the trusts recognized in equity is unlimited. There can be a trust of a chattel or of a chose in action, or of a right or obligation under an ordinary legal contract, just as much as a trust of land. A shipowner might declare himself a trustee of his obligations under a charterparty, and if there were such a trust an assignee, although he could not enforce specific performance of the obligation, would fail to do so only on the broad ground that the Court of equity had no machinery by means of which to enforce the contract …
28. In an article published in 2004, P G Turner argued that "it is hard to ignore the extent to which that case [Lord Strathcona] has been distinguished or confined and the cogency of argument against it" (P G Turner, "Charges of Unassignable Rights" (2004) 20 Journal of Contract Law 97 (at 109)), and went on to observe (at 109-110): Practically, in substance if not form, a "beneficial interest" in an obligation would put the beneficiaries in the same invidious position as the assignee of an obligation - that is, a position where performance of the obligation they "own" equitably could be enforced by a party to the contract to which the beneficiaries are not privy. … At another level … [t]he obligations being actionable against the trustee, the trustee would have to sue himself as trustee. The result is not only absurd, for no person can have a legal claim against himself.
29. Turner concludes (at 110) that "a declaration of trust of an obligation is … as impossible as assignment of an obligation".
30. In light of the foregoing, and noting that the point was not adverted to or argued, I would treat Ms Wheatley's submissions as referring to the holding of the benefit of the vendor's contractual promises on trust; not the holding on trust of "the contract" as a whole.
31. Turning back then to whether an express trust of the vendor's contractual promises has been established, I note that the Kavanaghs accept (as was emphasised by Ms Wheatley) that it was their intention that the Dural property was to be used as their matrimonial home. However, that, to my mind, does not establish that it was Mrs Kavanagh's intention (La Housse v Counsel) that (the contract for sale having been signed in Mrs Kavanagh's name alone) Mr Kavanagh should nevertheless have a beneficial interest in the property once it was acquired by his wife, nor does it lead me to conclude that it was Mrs Kavanagh's intention that she would hold the benefit of the contractual promises under the contract for sale wholly or partly on trust for her husband. (Still less could I conclude that it was the intention of the parties to the contract of sale (Ms Wheatley and Mrs Kavanagh) that this be the case.)
32. The difficulty I have is that there was obviously a decision made by one or both of the Kavanaghs that Mrs Kavanagh would acquire the legal title to the Dural property (as reflected in the fact that Mrs Kavanagh alone was named as purchaser on the contract and she signed the contract as such). Whatever might have been the position had the acquisition gone ahead (or, assuming it had gone ahead, if there were later to be a division of matrimonial assets as between Mr and Mrs Kavanagh) does not seem to me to be to the point. The inference to be drawn from the fact that the contract for sale was in Mrs Kavanagh's sole name (and that that remained the position throughout the time when Mr Kavanagh was clearly the person negotiating the purchase with the agent on her behalf) is that she and Mr Kavanagh together or separately made a decision that she alone would hold the title to the property (even though it was intended by both of them that he would live with her in the property as their matrimonial home).
33. In Korda, French CJ said (at [3]): The question whether an express trust exists must always be answered by reference to intention. An express trust cannot be created unless the persons or persons creating it can be taken to have intended to do so. Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties.
34. I note that, in the context of the express trust here alleged, the "person or persons" who must be found to have created it was Mrs Kavanagh, who was the party to the contract. It is therefore her intention which is relevant to the present inquiry - not that of Mr Kavanagh. Ms Wheatley relied extensively on statements made by Mr Kavanagh from time to time (as outlined below). Yet these can, in my view, have only limited relevance to the question whether Mrs Kavanagh held the requisite intention.
35. I accept that in determining Mrs Kavanagh's intention, one must focus on the contemporaneous statements of intention, subsequent admissions against interest, and subsequent dealings; and that her ex post facto statements of intention will be treated with caution (see Buffrey v Buffrey [2006] NSWSC 1349; 12 BPR 23,619 at [14], although noting that Palmer J was there concerned with assessing the existence of a resulting trust).
36. What I do not accept is the submission that all the contemporaneous evidence indicates that the purchase was either wholly for the benefit of Mr Kavanagh "to form part of some larger international transaction" or the "joint" purchase of a matrimonial home for common enjoyment during the course of the Kavanaghs' marriage.
37. Turning to the matters relied upon by Ms Wheatley to support such a conclusion, the first and fourth of those matters relate to the language used by Mr Kavanagh in contemporaneous correspondence: to the effect that the purchase was either his or theirs; his reference to Ms Alt as "no longer representing us" (my emphasis); the use of the personal pronoun "I" in various of the communications (see Exhibit A, p 84; p 87); and the reference to the purchase of the property being a joint one.
38. I do not consider that much can be drawn from the terms in which Mr Kavanagh corresponded or communicated with the agent and the solicitor involved in the transaction. As I have noted above, in the present inquiry I am concerned with the intention of Mrs Kavanagh, not that of Mr Kavanagh. Moreover, it seems clear from the emails that I have extracted earlier that Mr Kavanagh does not compose his emails with precise attention to grammatical or linguistic rules. He uses language in an informal colloquial sense and his communications ranged from blandishments (such as the promise of information to be conveyed to Ms Wheatley's advantage at the meeting he requested in December 2016) to implicit threats (such as the email in which he advised that his wife had no assets so any claim against her would be of no use to the vendor). In that regard, Mr Kavanagh's submission that he used the pronoun "I" in the same way as would a salesman has the ring of truth - throughout the course of dealings he certainly seems to have represented (or "sold") himself as someone involved in international business dealings involving large sums of money. However, the very fact that he alternated between references to himself personally and references to himself and his wife jointly suggests an imprecision of thought that is not conducive to the conclusion that he was using language in a precise way. In other communications it is clear that Mr Kavanagh understood that the contract was one to which his wife (not he) was party (such as when he communicated to the agent that his wife would not be able to initial or sign any amendments while she was away).
39. As to the second matter - that Mr Kavanagh tendered the deposit cheque drawn on his own account - in the particular circumstances of this case I do not regard that as conclusive of Mrs Kavanagh's intention in relation to the beneficial ownership of the contract.
40. On the Kavanaghs' account of events, the provision of the signed contract and deposit cheque is characterised as some sort of "holding" step in order to secure to them the ability to purchase the property over other prospective purchasers, while funds for the purchase were being procured. Whether or not that was their understanding at the time, I have concluded that on the balance of probabilities the deposit cheque was forwarded to Ms Alt at the time she forwarded the signed contract and s 66W certificate in escrow pending finalisation of contract terms; and that she subsequently, as the Kavanaghs' authorised conveyancer, conveyed the purchaser's instructions to proceed to exchange of contract. The tender of a deposit cheque drawn on Mr Kavanagh's account seems to me to be consistent with a number of alternative scenarios, including not only (as Ms Wheatley contends) that it was Mrs Kavanagh's intention that Mr Kavanagh ultimately have a beneficial interest in the property to be acquired under the contract but also (as the Kavanaghs contend) that Mr Kavanagh drew the cheque pending the receipt of investment funds from his international sources to assist his wife in the purchase by her of the Dural property.
41. As to the third matter (that the negotiations and communications were all conducted by Mr Kavanagh), again that does not seem to me to be conclusive.
42. Mr Kavanagh suggested that his role was no more than that of a mortgage broker (see his first affidavit at [15]). Ms Wheatley argues that his conduct was far from that of a mortgage broker, in that that he purported to pay the deposit with a cheque drawn from his own account (see his first affidavit at [27]) and he undertook to pay the entirety of the purchase price, as well as interest, out of his own funds. Ms Wheatley submits that Mr Kavanagh drove the negotiations of the purchase of the property either for his own benefit or for the joint benefit of the couple.
43. While I accept that Mr Kavanagh's conduct in the course of the negotiations was not analogous to that of a mortgage broker (and I do not accept his "floodgates" submission as to the effect on mortgage brokers generally of the making of a finding of the kind for which Ms Wheatley here contends), the difficulty I have is that Mr Kavanagh's negotiation of contract terms and the like in relation to the proposed purchase can quite plausibly be seen as him representing his wife (both while she was away and, perhaps due to a perception that her language difficulties or lesser business experience than his made him the more appropriate person to do so, even after her return). It might be thought not uncommon, as a matter of day to day experience, for one or other of a married couple to engage in negotiations on behalf of the other in respect of all manner of domestic or other transactions without that person necessarily intending to bind himself or herself personally to the transaction at hand, and I see no reason why this could not extend to matters relating to the acquisition of property in that other person's name.
44. In the circumstances of this particular married couple, especially given the (albeit limited) evidence of Mr Kavanagh's business dealings with contacts in Asia and Europe, and having regard to his self-promotion as an experienced businessman, it seems not implausible that Mr Kavanagh would have taken it upon himself (and Mrs Kavanagh would have allowed him so to do) to carry on the negotiations - not necessarily because Mrs Kavanagh intended him to obtain a legal or beneficial interest in the property to be acquired (other possibilities being that she may have considered him as a better negotiator or may have deferred to his experience generally or in all such matters). The fact that he would benefit in the practical sense of living with Mrs Kavanagh, as her husband, in the property to be acquired does not change my view in that regard.
45. As to Mr Kavanagh's personal offer of compensation to Ms Wheatley for the loss of access to funds (see Exhibit A, p 98), I am not persuaded that this amounts to an admission that he would otherwise have been liable to pay the deposit. Such conduct is in my opinion consistent with Mr Kavanagh continuing to adopt the role of dealing with agents on behalf of his wife (and making yet another in a succession of grandiose promises in order to stave off what by then appeared to be the inevitable - namely, the loss of the contract).
46. Finally, it is submitted that Mr Kavanagh's statement in the email of 2 March 2017 (Exhibit A, p 149) as to his wife's lack of assets is a matter of concern. It is submitted that Mr Kavanagh was a person well aware of the significance of the legal ownership of property having regard to his bankruptcy and that this gives rise to the inference that the legal title to the contract in the present case conceals the true and ultimate beneficial interest. As to that proposition, whilst the statement regarding Mr Kavanagh's state of mind may be an accurate one, it does not permit me to draw any inference regarding the intention of Mrs Kavanagh as to the beneficial ownership of the benefit of the contract.
47. Having considered all the above, I am not satisfied on the balance of probabilities that the intention of Mrs Kavanagh at any relevant time was to hold the benefit of the contract on trust (wholly or partly) for her husband. While I accept that ex post facto statements of intention must be treated with caution, even putting those statements by Mrs Kavanagh to one side I do not consider that the contemporaneous evidence establishes with sufficient certainty that the benefit of the contract (or, rather, of the vendor's contractual promises thereunder) was intended by Mrs Kavanagh to be held on trust for Mr Kavanagh. I consider that there is an equally likely (if not, indeed more likely) available inference, namely, that Mrs Kavanagh intended the legal (and beneficial) title to the property to rest with herself, as provided for under the contract for sale; and that Mr Kavanagh was simply acting on her behalf throughout the negotiations (albeit that he stood in a practical sense to benefit from the transaction).
48. I am thus not persuaded that it has been established that Mrs Kavanagh held the benefit of the vendor's contractual promises under the contract of sale on behalf of her husband. Nor am I persuaded that it was the intention of the named parties to the contract that this was to be the case.

(v) Creditor's right to subrogation

1. The second limb of the argument for the claim made against Mr Kavanagh, who was not a party to the contract, is the proposition that a trustee who incurs liabilities as a trustee is personally liable for those debts but is entitled to be indemnified against (or has a right of exoneration in relation to) those liabilities from the trust assets and possesses a charge or lien (or some preferred beneficial interest) over those assets for the purposes of enforcing the indemnity (see Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; [1979] HCA 61); and the proposition that a trustee also has the right to be indemnified or exonerated by the beneficiaries personally for liabilities properly incurred in the course of administering the trust (Hardoon v Belilios [1901] AC 118 at 125; Marginson v Ian Potter & Co (1976) 136 CLR 161 at 175-176; [1976] HCA 35). (A right of indemnity arises where the trustee has personally accounted for or discharged the relevant liabilities; a right of exoneration arises where the trustee has personally incurred the liability but has not discharged that liability.)
2. Ms Wheatley submits that she is entitled to be subrogated to the rights of Mrs Kavanagh (in her capacity as trustee) in enforcing Mrs Kavanagh's right of indemnity against Mr Kavanagh in respect of any judgment obtained in relation to the recovery of the unpaid deposit, Ms Wheatley's claim (as creditor) being one to which the indemnity relates (see Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319 at 324 - 325 and 335; [1945] HCA 37; Marginson v Ian Potter & Co at 176; Ron Kingham Real Estate Pty Ltd v Edgar [1997] QCA 242; [1999] 2 Qd R 439; Arkmill Pty Ltd v Tippers & Co Pty Ltd [2006] QSC 248). It is noted that the right of subrogation may be available in respect of both the trustee's right of indemnity (or exoneration) out of the trust assets and right of indemnity (or exoneration) from the beneficiaries personally (see Ron Kingham Real Estate Pty Ltd v Edgar).

Determination

1. This issue does not arise in light of my conclusion on the previous issue. Had it arisen, I would nevertheless have had difficulty with the proposition that Mrs Kavanagh (assuming her to have held the benefit of the contract - or, more precisely, of the contractual promises - wholly or partially on trust for Mr Kavanagh) would have a claim against Mr Kavanagh for indemnity or exoneration in respect of a claim for damages for breach by her of her contractual obligations as purchaser under the contract.
2. At the outset on this issue, it must be noted that Ms Wheatley's argument that Mrs Kavanagh is entitled to be indemnified by Mr Kavanagh for liability incurred by her to Ms Wheatley in respect of the unpaid deposit is hardly a conventional application of the principles articulated in the cases dealing with a trustee's right to indemnity or exoneration from the beneficiaries of the trust. I have not identified (nor was I taken to) any cases which support the proposition that an obligation to pay a deposit which, having been impressed with the character of security for the performance of the trustee/promisor's obligations under the contract, has been forfeited upon breach of a contract, is an expense incurred in the administration of the trust, such that the trustee is entitled to indemnity in respect of it; nor to any cases where the relevant obligation is to pay liquidated damages, as has here arisen. In my view, such a submission cannot be sustained either in light of the established jurisprudence on the nature of the trustee's indemnity for expenses; or having regard to the nature of the obligation to pay a deposit.
3. First, I advert to the nature of a suit for an unpaid deposit. A deposit is an earnest for performance by the purchaser (Brien v Dwyer (1978) 141 CLR 378 at 385; 398; 401; 407; [1978] HCA 50; W & R Pty Ltd v Birdseye (2008) 102 SASR 477; [2008] SASC 321 at [26]-[27]; Ma v Adams [2015] NSWSC 1452 at [49]). Under cl 9.1 of the contract for sale between Ms Wheatley and Mrs Kavanagh (which was in the standard Law Society of New South Wales form in its 2016 edition), upon termination by Ms Wheatley for default by Mrs Kavanagh, Ms Wheatley was entitled to "keep or recover the deposit (to a maximum of 10% of the price)"; and see also Special Condition 34, to which I have referred above, which referred to the recovery of the deposit "as liquidated damages". This is consistent with the general law position, flowing from the nature of the deposit as security or a pledge for performance, that, upon fundamental breach by the purchaser, followed by termination by the vendor, the vendor is entitled to claim the deposit as forfeited. (See, e.g., James O'Donovan, The Modern Contract of Guarantee (2016, Thomson Reuters) at [1.320], citing Howe v Smith (1884) 27 Ch D 89.)
4. I turn then to the nature of the trustee's right of indemnity or exoneration out of the trust estate in respect of expenses incurred in the administration of the trust.
5. A trustee may incur liabilities in his or her personal capacity in the administration of a trust (Australian Securities and Investments Commission v Letten (No 17) [2011] FCA 1420; (2011) 286 ALR 346; 87 ACSR 155 (Gordon J, when her Honour was sitting on the Federal Court) at [12]). Trustees who personally incur liability in the course of properly administering a trust "are entitled to be indemnified out of the trust assets and, in some circumstances, by the beneficiaries or other person related to the trust" (H A J Ford and William Anthony Lee, The Law of Trusts (4th ed, 2010, Thomson Reuters), [14.110]; Trim Perfect Australia Pty Ltd v Albrook Constructions Pty Ltd [2006] NSWSC 153 at [20] (Austin J)). In Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 (Macedonian Orthodox), Gummow ACJ, Kirby J, Hayne and Heydon JJ observed (at [69]): … [T]he office of a trustee is a gratuitous one unless a special arrangement to the contrary is made. … But as Danckwerts J said [In re Grimthorpe [1958] Ch 615 at 623]: [P]ersons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred. … The general rule is quite plain; they are entitled to be paid back all that they have had to pay out. While trustees acting gratuitously are entitled both under the general law and s 59(4) of the Act to an indemnity out of the trust assets for expenses incurred in administering the trust, it was understandable that the legislature should enact provisions enabling them to take advice before embarking on any course which might carry a risk of incurring costs that might be outside the indemnity.
6. As adverted to above, having incurred a liability, a trustee may choose to discharge it from his or her own resources, and then obtain payment out of the trust assets; the trustee's entitlement to do so, which is sometimes described as a right of reimbursement or recoupment, is commonly said to be secured by a lien over the trust assets, and if the lien is realised or funds otherwise released, the funds generated will be the personal property of the trustee (Jones (Liquidator) v Matrix Partners Pty Ltd [2018] FCAFC 40 at [35]). Alternatively, the trustee may choose to appropriate the trust assets in order to discharge its liability: this is known as exoneration, and the entitlement is also commonly said to be secured by a lien over the trust assets (Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [47-[48]. On the characterisation of this right and supporting lien in the context of the Corporations Act insolvency regime, see recent discussion in Jones v Matrix Partners Pty Ltd at [145]; [189]-[190]; [210]-[211]; and Commonwealth v Byrnes [2018] VSCA 41 at [282]-[284]; 354 ALR 789.
7. In addition to the right of indemnity out of the trust assets which is recognised by courts of equity, a trustee also has an equivalent right under s 59(4) of the Trustee Act 1925 (NSW) (and its various equivalents) to "reimburse himself or herself, or pay or discharge out of the trust property, all expenses incurred in or about execution of the trustee's trusts or powers" (see the observation in Macedonian Orthodox at [69] that the statutory right co-exists with the general law right).
8. As noted above, here Ms Wheatley relies on Octavo Investments Pty Ltd v Knight. In that case, the High Court described the following as "general principles" concerning trading trustees (at 367): It is common ground that a trustee who in discharge of his trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Vacuum Oil Co Pty Ltd v Wiltshire. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Vacuum Oil Co Pty Ltd v Wiltshire.
9. Vacuum Oil Co Pty Ltd v Wiltshire was a case where an executor had carried on a business which had belonged to the testator. Latham CJ (at 324) observed that the executor, having carried on the business since the death of the deceased and having thus incurred personal liabilities to the trading creditors, was entitled to be indemnified out of the estate assets in respect of those liabilities. (I note that some commentary distinguishes between such a case (a "trading trust" case) and a case of a more typical testamentary or family trust (see, for example, Austin Scott, The Law of Trusts (3rd ed, 1967, Little, Brown and Company), 2169-2170).)
10. According to John McGhee (General Editor), Snell's Equity (32nd ed, 2010, Sweet & Maxwell), [7-031], it has "always" been a rule of equity that a trustee is entitled "to be indemnified out of the trust property against all costs, expenses and liabilities … properly incurred in administering the trust".
11. Turning, in particular, to the position where a trustee enters into a contract, in Austin Scott, The Law of Trusts (3rd ed, 1967, Little, Brown and Company) at 2223, it is said that: Where the trustee is personally liable to a third person upon a contract made by him in the administration of the trust, he can be sued by the third person in an action at law upon the contract and execution may be levied upon his individual property. If the contract was properly made by the trustee in the administration of the trust, he is entitled to indemnity out of the trust estate. If the trustee discharges his obligation on the contract with his own funds, he is entitled to reimbursement from the trust estate. Instead of using his own funds, he can properly apply the trust funds to the discharge of the obligation.
12. The principles espoused in those paragraphs are seemingly directed to the position where a trustee of an existing trust enters into a contract "in the administration of" or "in the course of administering" the trust. They are not in terms directed to a case where the contract (or at least the benefit of the promises made thereunder) is the trust property (and the only trust property).
13. In Scott, The Law of Trusts, at 2144, it is said: A trustee can properly incur expenses which are necessary or appropriate for the carrying out of the purposes of the trust. When such expenses are properly incurred, they should ultimately be borne by the trust estate rather than by the trustee personally. … Under the English rule "the trustee, though allowed nothing for his trouble, is allowed everything for necessary expenses in executing the trust. His duties relate to the property and interests of others, and he is to be indemnified for necessary expenses in protecting such trust property, and has an equitable lien upon it for such expenses." [emphasis in original]
14. The author goes on to say this, regarding the reason for the existence of the indemnity (at 2144-2145): It is obvious that the cost of administering a trust should be borne by the trust estate and not by the trustees personally if those costs are properly incurred. … He is entitled to indemnity for expenses incurred by him in defending actions, where the litigation is not the result of his own fault. He is entitled to indemnity for liabilities properly incurred for the payment of taxes, for repairs, for improvements, for brokers' commissions on sale of land or securities or other property.
15. Later, at 2162, it is said: Where the trustee acting within his powers makes a contract with a third person in the course of the administration of the trust, although the trustee is ordinarily personally liable to the third person on the contract, he is entitled to indemnity out of the trust estate. [my emphasis]
16. I also note what is said at 2163, regarding the ability of a trustee who has incurred liability for damages to access the right of indemnity from the trust estate: Where the trustee in the proper exercise of his powers makes a contract with a third person and later breaks the contract with the result that he is liable for damages to the third person, he is not ordinarily entitled to indemnity out of the trust estate since the liability was incurred through his fault. [my emphasis]
17. Also relevant is the following statement in the fifth edition of Scott on Trusts (Austin Scott, William Fratcher and Mark Ascher, Scott and Ascher on Trusts (5th ed, 2007, Aspen Publishers) (at 1640): If, however, the liability has been incurred or increased as a result of a breach of trust, the trustee is not entitled to indemnity. Thus, if the trustee has funds on hand but nonetheless fails to pay taxes, so that the trust incurs a penalty, the trustee is not ordinarily entitled to indemnity for the penalty. On the other hand, a trustee who reasonably delays paying taxes, as when the trustee reasonably expects that the executor will pay them, so that the trust beneficiaries will have the benefit of the use of the money, may be entitled to indemnity.
18. As discussed further below, those qualifications upon the trustee's entitlement to indemnity from the trust assets would seem to have application here. However, even putting those statements aside, I consider that the obligation under cl 9.1 of the contract to forfeit (and, implicitly, if unpaid to pay and then forfeit) the deposit to Ms Wheatley, or the implicit obligation to pay the unpaid deposit which correlates to the entitlement of Ms Wheatley under Special Condition 34 to recover that amount, which has arisen by reason of Mrs Kavanagh's breach of contract, cannot properly be described as an expense or liability incurred in the course of the administration the trust (nor is it in the due execution of the trust). The promise to pay the deposit was part of the consideration for the vendor's contractual promises. It seems problematic to argue that this promise was entered into "in the course of the administration of the trust"; rather, according to Mrs Kavanagh's premise, the contract (or contractual promise to transfer the property) itself is held on trust. This arguably precludes an argument that the entry into the contract was an act done in the administration of the trust.
19. I return to that difficulty further below. First, for completeness, I make the following observations as to what is commonly referred to as the lien over the trust assets supporting the right of indemnity, and as to the trustee's entitlement to indemnity from the beneficiaries personally.
20. In Re Pumfrey (1882) 22 Ch D 255, a trustee, Mr Pumfrey, borrowed from the plaintiff bank in his personal capacity the sum of £449 to permit the trust to complete a purchase of land. He purported to grant a mortgage over the property purchased, by depositing the title deeds with the plaintiff together with what was described as a "deed poll", but this was ineffectual to convey the legal estate in the land. In those circumstances, following Mr Pumfrey's death, the plaintiff sought to be subrogated to Mr Pumfrey's right of indemnity against the trust assets, including the land (noting that the beneficiary, Mr Mappin, was insolvent). Kay J said (at 260): Now prima facie, according to the well known case of the German Mining Company [4 D. M. & G. 19], a trustee who bona fide, without any intention of benefiting himself, advances money of his own for the purposes of the trust estate, has a right to be indemnified.
21. At 262, Kay J said (although in the course of considering a distinct point) that: His right of indemnity gives him a right of charge or lien upon the trust estate …
22. The right of indemnity may be satisfied by recourse to the trust assets; as described above, the alternative possible methods are sometimes described as reimbursement and exoneration (see Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust v Deputy Commissioner of Taxation [2017] NSWCA 81 at [55]-[60]).
23. In Jones (Liquidator) v Matrix Partners Pty Ltd, Allsop CJ said (at [31]): Subject to statute, a trust has no legal personality, being an equitable institution comprised of rights, duties and obligations, personal and proprietary, constituting (in private trusts) the relationship between beneficiaries, trustee and property. The institution involves the equitable obligation binding on the trustee to deal with the trust property for the benefit of the beneficiaries and for the purposes of the trust.
24. At [34], his Honour observed: Subject to the provision of a contract, the trustee is personally liable for debts and liabilities incurred in execution of its duties and powers in the business or affairs of the trust: Re Johnson (1880) 15 Ch D 548 at 552; Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; 72 CLR 319 at 324 and 335; and Octavo Investments 144 CLR at 367. The liability arises in accordance with ordinary principles of law, whether statute, contract, tort, equity or restitution…
25. At [75], Allsop CJ referred to Re Enhill [1983] VR 564, in which Young CJ expressed the view that the right of exoneration was "solely personal property able to be used for any purpose … because it was for personal exoneration". At [76], Allsop CJ observed: … With respect, the nature of the personal interest in the right of exoneration is to use trust assets to alleviate a personal obligation entered into as trustee for trust purposes.
26. His Honour concluded at [79]: The right of exoneration and the lien in its support are property of the company which is the trustee. … The creditors are not beneficiaries of a trust in which the right of exoneration is held on trust for them. It is the property of the trustee. But that does not mean that it is a proprietary interest unattended by inhering equitable obligation. Its nature and character are that it is exercisable only to pay trust creditors.
27. The view preferred by Allsop CJ, therefore, was that a trustee company's right of indemnity (whether by recoupment or exoneration) was property of the company which passed to the control of the liquidator on liquidation.
28. In Commonwealth v Byrnes, the Court of Appeal of Victoria (Ferguson CJ, Whelan, Kryou, McLeish and Dodds-Streeton JJA) said (at [22]): Subject to the terms of any instrument creating the trust, the trustee is entitled to be indemnified from the trust assets against liabilities properly incurred. The trustee has a charge or lien over the trust assets for the purpose of enforcing that indemnity. In some circumstances creditors of the trustee whose debts were incurred in discharge of the trust may be subrogated to the trustee's rights.
29. At [34], the Court of Appeal said: In Re Frith; Newton v Rolfe [[1902] 1 Ch 342] Kekewich J described the unpaid trust creditor's rights as follows: The [unpaid trust creditor] … has no right whatever against the estate, but he has a right to sue the trustee who has incurred the debt. If the trustee on his part has a clear account, and has a right of indemnity against the estate, the creditor is subrogated to that right, and for that purpose the creditor is allowed to intervene. He may sue the trustee, and he may claim the benefit of the indemnity to which the trustee is entitled out of the estate.
30. Regarding the requirement that the trustee have a "clear account", referred to by the Court of Appeal in the paragraph just cited, see also Lewin on Trusts at [21-049]: So as to establish a claim against the trust property, it is necessary that the creditor or other claimant establishes that the trustee is entitled to indemnity, for the claim cannot exceed the trustee's own rights. Thus if the trustee is in default, and is not entitled to indemnity except upon the terms of making good the default, the creditors are entitled to claim against the trust property only on the same terms.
31. Like other equitable remedies, an order that the creditor be subrogated to the lien will be subject to consideration of whether it is an appropriate remedy in all the circumstances of the case (see Lewin on Trusts at [21-052]-[21-053]).
32. In Re Johnson; Shearman v Robinson (1880) 15 Ch D 458 (cited in Commonwealth v Byrnes at [29]), Jessel MR explained the grant of a right of subrogation to such a creditor as follows (at 555-556): [T]he injustice to be avoided is the injustice of the cestui que trust walking off with the assets which have been earned by the use of the property of the creditor: but where the cestui que trust does not get that benefit, there is no injustice as between him and the creditors, and there is no reason for the Court interfering at the instance of the creditors to give them a larger right than that they bargained for, namely, their personal right against the trustee.
33. There is also the separate principle that a trustee is entitled to a "personal indemnity … [from] a beneficiary who is of full age and capacity and absolutely entitled to the property which occasioned the liability" (see Lewin on Trusts at [21-056]; see also Hardoon v Belilios at 124; Snell's Equity at [7-035]). As the texts recognise, this is separate to any contractual right of indemnity which may have been agreed between a beneficiary and a trustee.
34. Hardoon v Belilios was a case where the plaintiff, the registered holder of some company shares, claimed to be entitled to be indemnified (personally) by the beneficial owner (as distinct from out of the trust assets) in respect of calls made upon the shares in the winding-up of the company. The Privy Council held that the Supreme Court of Hong Kong was wrong to enter a non-suit against the plaintiff. Having held (at 123) that the defendant was the beneficial owner of the shares, Lord Lindley said (at 123-124): The plainest principles of justice require that the cestui que trust who gets all the benefit of the property should bear its burden unless he can show some good reason why his trustee should bear them himself. … Even where trust property is settled on tenants for life and children, the right of their trustee to be indemnified out of the whole trust estate against liabilities arising out of any part of it is clear and indisputable. … But where the only cestui que trust is a person sui juris, the right of the trustee to indemnity by him against liabilities incurred by the trustee by his retention of the trust property has never been limited to the trust property; it extends further, and imposes upon the cestui que trust a personal obligation in equity to indemnify his trustee. [my emphasis]
35. Lord Lindley later observed (at 125) that the obligation to indemnify extends to "liabilities arising from the mere fact of ownership", saying: When a trustee seeks indemnity from his cestui que trust against liabilities arising from the mere fact of ownership, there is neither principle nor authority for saying that the trustee need prove any request from his cestui que trust to incur such liability. In the case supposed the trust involves such liabilities, and the trustee, whilst he remains such, cannot get rid of them. He is subject to them as legal owner; but in equity they fall on the equitable owner unless there are good reasons why they should not. [my emphasis]
36. It is possible for there to be an indemnity of this kind even where there is more than one beneficiary (see J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891 (McGarvie J)). I note, before leaving this point, that Ms Wheatley in fact pleaded (statement of claim at [22]) a right to be subrogated to the first defendant's right of "exoneration from the assets of the second defendant". The relevant indemnity is an indemnity (by recoupment or exoneration) from the beneficiary personally, not out of the beneficiary's assets as such. (However, in light of my other conclusions, it is not necessary to consider this further.)
37. Were it necessary to decide the indemnity issue (which it is not because I have concluded that Mrs Kavanagh was not a trustee of the benefit of the vendor's contractual promises in this case), I would have concluded that Mrs Kavanagh would not have been entitled to be indemnified either out of the trust assets or by Mr Kavanagh, as beneficiary, personally. In my view it would not be coherent to hold that an obligation to pay a deposit which, having been impressed with the character of security for the performance of the trustee/promisor's obligations under a contract, has been forfeited upon breach of a contract is an expense incurred in the administration of the trust of the benefit of that contract or the contractual promises thereunder (nor is an obligation to pay liquidated damages able so to be characterised).
38. I am not persuaded that the correct view is that the obligation to pay the deposit is an "expense" incurred "in the course of the administration of the [on this assumption, assumed] trust" by Mrs Kavanagh. I have been taken to no case which establishes that this is so. The deposit has been forfeited, and the liability to pay the unpaid deposit as liquidated damages has arisen, upon breach of Mrs Kavanagh's obligations under the contract, resulting in termination of the contract in accordance with the terms. This liability does not, in my view, fit within the well-established meaning of the word "expense"; nor has it been incurred for the benefit of the trust estate. The obligation to pay the deposit has arisen as a result of Mrs Kavanagh's breach of the contractual promises which are (on this hypothesis) held on trust. Rather than enhancing or preserving the value of the trust property, Mrs Kavanagh's breach has resulted in effect in the extinguishment of the trust property (the contractual promises made by Ms Wheatley).
39. In my view, the closest analogy here is with the cases on the trustee's right of indemnity in respect of expenses associated with the maintenance of trust property. I refer to the passage extracted above from Scott and Ascher on Trusts (5th ed,) (at 1640), where the authors remark that "if the trustee has funds on hand but nonetheless fails to pay taxes, so that the trust incurs a penalty, the trustee is not ordinarily entitled to indemnity for the penalty". I also refer to Jessel MR's observation (in Re Johnson; Shearman v Robinson) that the injustice to be avoided by the recognition of the trustee's right to indemnity out of the trust assets is the avoidance of "the injustice of the cestui que trust walking off with the assets which have been earned by the use of the property of the creditor". Similarly, in respect of the right of indemnity from the beneficiaries personally, Lord Lindley observed in Hardoon v Belilios that "the cestui que trust who gets all the benefit of the property should bear its burden".
40. That rationale does not pertain where the subject matter of the trust (the benefit of the contract or the contractual promises thereunder) has in fact been extinguished by an act of the trustee (the breach of contract). For those reasons, as between the trustee and the beneficiary, I do not consider it at all clear that the trustee (on this hypothesis, Mrs Kavanagh) would be entitled to an indemnity either from the trust assets or from the beneficiary personally for such a liability and hence there would be no claim to which Ms Wheatley would be able to be subrogated. However, I do not here need to decide this point, because I have concluded that Mrs Kavanagh was not a trustee of the contractual promises in question.

Conclusion

1. For the above reasons, I consider that the claim against Mrs Kavanagh is made good but that the claim against Mr Kavanagh has not been made good. In the ordinary course, costs would follow the event in relation to the respective claims. As the Kavanaghs did not have the benefit of legal representation, any costs recoverable by Mr Kavanagh as a result of his successful defence of the claim might be expected to fall within a relatively narrow compass. That said, that is no reason not to order such costs as he may have incurred that are properly recoverable as costs of defending the claim brought against him to be payable by Ms Wheatley.

Orders 1. Judgment for the plaintiff against the first defendant in the sum of $600,000 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) to the date of judgment (quantified up to and including 6 June 2018 at $55,947 and thereafter to be calculated pursuant to s 100 of the Act), plus costs. 2. Dismiss the plaintiff's claim against the second defendant with costs.

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