Young v Lalic [2006] NSWSC 18 | Case summary

(c) various other parcels of real estate or cash sums from his parents. 13 The draft contained a provision to the effect that Mr Lalic, to the exclusion of Ms Young, would retain all real estate transferred to him by his parents or cash sums provided by them, and all inheritances received by him from them. 14 Ms Young sought a number of amendments, without which she refused to sign the agreement, and which she endorsed on the draft in hand. They included (but were not limited to) Recital G(b), which she proposed be amended to read as follows:- (b) the property situate at and known as Lot 205 Eagleview Road, Minto Heights upon which Michael and Tracey is currently attending to construction of a dwelling from income generated by both parties ; 15 Ms Young says that she and Mr Lalic visited Mrs Lalic at her Hinchinbrook home, and that following a conversation in Serbian between Mrs Lalic and Mr Lalic, Mr Lalic said to her: "My mother was asking about the pre-nuptial agreement and whether you had signed it or not. I told her you had not signed it yet and she said to me that she was worried about the house we were building, and also about the land". Mrs Lalic is said to have then interjected: "I will put the land in your and Michael's name once you are married as a wedding present. I only want the pre-nuptial to protect my assets in case you and Michael don't stay together". Mrs Lalic denies that there was any such conversation; she says she knew nothing of any prenuptial agreement, and she adds, and Mr Lalic agrees, that she had already advanced substantial sums to him, and was not minded to provide further property to him. 16 Although it was not referred to in the affidavit evidence, it emerged during the hearing that following Ms Young's request for amendments, Mr Lalic had his solicitors prepare a revised draft of the proposed financial agreement, which Mr Lalic signed, apparently in the presence of Mr Duncombe, who gave the appropriate certificate under Family Law Act, s 90G, on Thursday 4 July 2002, with the marriage to take place on Sunday 7 July. A version of this revised draft was produced in the course of the hearing, which bears a signature in the space provided for the signature of "Tracey Michelle Young", and which purports to be witnessed by "J Maait", a solicitor who practices in Parramatta, and whose signature purportedly appears on the appropriate certificate of advice to Ms Young. It was when this document came to the notice of Mr Maiden SC, who at first appeared for both Mr Lalic and Mrs Lalic, that, on the second day of the hearing, the defendants sought an adjournment to permit them to obtain separate representation. During the adjournment, a subpoena was issued to Mr Maait, who attended to answer it on the adjourned hearing. However Mr Kasep, who thereafter appeared for Mr Lalic, did not call Mr Maait, but asked that he be excused. 17 In the revised draft signed by Mr Lalic, Recital G(b) had been amended to read as follows:- (b) the property situate at and known as Lot 205 Eagleview Road, Minto Heights upon which Michael is currently attending to construction of a dwelling from income generated by his company Lalic Corp Holdings Pty Limited trading as 'Metro Motor Traders' and to which Tracey will also be contributing the sum of $50,000. 18 A new operative clause 6 was inserted, which provided as follows:- 6. Michael shall pay to Tracey the sum of $50,000 contributed by her to construction of the dwelling on the property situate at and known as Lot 205 Eagleview Road, Minto. 19 Ms Young recalled having been provided with the revised draft to read, but said that she paid little attention to it. She denied that she had ever signed it. An attempt was at one stage foreshadowed to show that Ms Young's handwriting appeared on the revised draft financial agreement, and Mrs Lalic claimed to recognise Ms Young's handwriting on that document. That evidence of Mrs Lalic was plainly incorrect; inspection of the documents and comparison of the handwriting showed clearly that what Mrs Lalic claimed was Ms Young's handwriting was not; and the foreshadowed submission was ultimately not made. Mrs Lalic's evidence in this respect is adverse to her credit generally. 20 Mr Lalic gave evidence that he and Ms Young together attended a solicitor's office in George Street, Parramatta, and that Ms Young entered the solicitor's room and emerged with the revised draft financial agreement signed and attested, which also cannot be accepted. Ms Young denies ever having consulted Mr Maait, and says that the signature over her name is not hers. The signature is plainly not her ordinary signature. Mr Lalic was able to describe neither where in George Street, Parramatta, the office they allegedly attended was, nor anything else about the office. Despite Mr Lalic's evidence which, if accepted, would have supported an inference that Ms Young had signed the revised draft financial agreement in the solicitor's office, it was not submitted on behalf of Mr Lalic that there was in fact a duly executed financial agreement. Mrs Lalic suggested that on occasions Ms Young signed with her left hand in order to disguise her signature, but no suggestion was put to Ms Young that she had done so in this instance. Had she signed the document in Mr Maait's office, then Mr Maait's evidence might have cast light on the issue, but, although subpoenaed on behalf of Mr Lalic, he was not called. 21 It is not necessary to rely on any Jones v Dunkel inference which might arise from the failure to call Mr Maait to conclude that the document was not signed by Ms Young, and that the signature which purports to be hers is not hers, but has been forged: there is no direct evidence that she signed it; a comparison of the questioned signature with her signature on other documents supports her denial that she signed it; and although an inference that she did might be supported by Mr Lalic's version of the visit to a solicitor's office, his description of the circumstances is so lacking in any detail which might corroborate it that it is unpersuasive - more so in the light of the other matters adverse to his credit to which I refer above and below. [Mr Kasep submitted that it was inappropriate to draw a Jones v Dunkel inference in circumstances where no party contended that there was a valid financial agreement, and in particular Mr Lalic did not propound or rely on any such agreement, and additionally because Mr Maait could not be said to be a witness who Mr Lalic should have been expected to call. Although there was an issue of fact in the proceedings - even if not a material pleaded fact - about execution of the financial agreement, and although, in the light of Mr Lalic's evidence of the circumstances in which he asserts that the financial agreement was executed, it might well be expected that Mr Maait would be able to corroborate that version if it were true, and that Mr Lalic was in the best position to know what Mr Maait would say if called, I have resolved this issue without resort to any such inference]. 22 A copy of the financial agreement was, however, forwarded to Mrs Lalic's address, where Mr Lalic apparently placed it in her safe. Mrs Lalic says that when the financial agreement was received at her home through the mail, Mr Lalic told her that it was a pre-nuptial agreement with Ms Young, and when she asked why he had done it he said "Mum, in the future you will give me some property. I don't like Tracey take anything from me". 23 The draft financial agreement was prepared on Mr Lalic's instructions and for his (and possibly his mother's) benefit. He executed the revised version. It was put to Ms Young in cross-examination that it contained the true agreement of the parties, which she denied, but which if admitted would have assisted advancement of a case that she was limited to looking to Mr Lalic for repayment of $50,000, and was not entitled to have recourse to the property, and rebuttal of Ms Young's case against Mr Lalic's mother - which was all the more significant when her claim was pressed, as it then was, as one for a half interest in the property. Accordingly, there was some benefit for Mr Lalic in asserting (as he did, at least indirectly, in his oral evidence, by his description of the events at the Parramatta solicitor's office) that Ms Young had executed the revised draft. The only other person potentially interested in having a prenuptial agreement was his mother. Although Mrs Lalic says that she had nothing to do with the pre-nuptial agreement, it is to say the least curious that once "executed" it was forwarded to her address; and as Mr Lalic at the time had no assets of significance which he might want to "protect" by such an agreement, it is probable that he was under some pressure from his mother to secure his position vis-à-vis Ms Young before the wedding. 24 Mr Lalic and Ms Young were married on 7 July 2002. Ms Young says, but Mrs Lalic denies, that that day, at her Hinchinbrook home, Mrs Lalic said to them: "I am going to give you and Michael the property. I will sign over the land. I am going to investigate the cost to do that". 25 Between 18 January 2002 and 4 October 2002, moneys totalling about $150,000 were expended by Mr Lalic and Ms Young on construction costs, largely but not exclusively from Mrs Lalic's cheque account. The sources for these funds included Ms Young's $50,000, and apparently also other moneys already in Mrs Lalic's account, and, to some extent, income received by Mr Lalic and Ms Young. Ms Young says that in addition to the payments which were made or reimbursed from Darinka Lalic's account, she also personally paid from her own pocket $715 to Bioseptic on 22 March 2002; $100 to the Department of Fair Trading on 11 January 2002; $23.40 to Kopy Kolor on 19 April 2002; $78.00 to Kinko's on 15 January 2002; $30.00 to Kmart on 5 June 2002; and $676.50 to National Hire, on 1 July and 6 November 2002 - a total $1,622.90, all referrable to the construction of the Minto house. 26 Ms Young maintained a record of this expenditure in a notebook, she says with Mr Lalic's knowledge and encouragement. Mr Lalic denied any knowledge of any such record, and said that the only record was one kept by him in a notebook. He produced a copy of that notebook. However, the entries in his notebook contain certain discrepancies as to the sequence and date of payments. The overwhelmingly probable explanation for those discrepancies is that Mr Lalic's record was copied from Ms Young's - since one of the discrepancies in his record appears to be the result of a misreading of an entry in Ms Young's record: neither Mr Lalic nor his counsel could offer any other explanation. It follows that Mr Lalic's evidence that he did not know of Ms Young's record, and that his was the only record, is incorrect, and is adverse to his credit generally; and as I find that he copied his record from Ms Young's, but presented it as his own original record, it raises questions as to the authenticity and provenance of other, similar, records produced by him. 27 The marriage deteriorated rapidly and the parties separated between late August and early October 2002. Ms Young says that Mr Lalic left in October 2002. He says that she left in late August 2002, to live with one Stephen Carbonaro. In any event, by the end of September 2002 Ms Young was pregnant by Mr Carbonaro, to whom she gave birth to twins on 2 July 2003. 28 Ms Young says that shortly after Mr Lalic left in October 2002, she asked him: "When am I going to get my money back?", and he replied: "Never". On 6 February 2003, Ms Young lodged a caveat in respect of the Minto land. 29 On 10 February 2004, solicitors for Ms Young wrote to Mrs Lalic, asserting that Ms Young had provided Mrs Lalic with a bank cheque for $50,000 that had been applied to improvements to the Minto land with Mrs Lalic's knowledge and agreement. The letter asserted that in May or June 2002 Mrs Lalic had said to Mr Lalic and Ms Young: "I will put the land in your and Michael's name once you are married as a wedding present", and on several occasions in following months had said: "I am going to transfer the land into your names". The letter demanded conveyance of the property to Mr Lalic and Ms Young, or alternatively $420,000 - which was said to be one-half of its then value. Mrs Lalic says that it was following this correspondence that, as a result of inquiries made by her of Mr Lalic, she first learnt that the $50,000 had been deposited to the credit of her account. Although there is some slight evidence from Mrs Lalic that Ms Young told her that she had paid money to her, Mrs Lalic dates this to 11 June 2004; in any event, on Mrs Lalic's version she made enquiry of her son who told her that it was nonsense, and there is no suggestion that she believed that $50,000 had been deposited to her account, let alone that she had been given that sum, before the demand for repayment was made. 30 Ms Young commenced these proceedings on 11 June 2004. Following the service of a lapsing notice, her caveat was extended by order made on 16 September 2004. 31 A decree nisi for dissolution of the marriage became absolute on 25 February 2005. The Jurisdictional Question 32 In these proceedings, Ms Young claims an interest in property, which is held legally by Mrs Lalic, but in which she alleges that Mr Lalic also has an equitable interest. Thus Ms Young is seeking, against her former husband Mr Lalic as well as his mother, Mrs Lalic, orders relating to the proprietary interests of each of them in the Minto land. Proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings arising out of the marital relationship, or in relation to concurrent, pending or completed divorce proceedings between those parties, are a matrimonial cause within paragraph (ca)(i) or (ii) of the definition of that term in Family Law Act 1975 (Cth), s 4(1). These proceedings are, at least in part, between the parties to a marriage, they are with respect to property alleged to be of them or either of them (namely, beneficial interests in the Minto land), and they arise out of the marital relationship and/or relate to completed divorce proceedings between them. They are, therefore, at least in part a matrimonial cause. 33 At the pre-trial directions hearing, Mr Rollinson sought leave to amend the statement of claim to invoke Family Law Act, s 78, which confers on courts having jurisdiction under that Act, in proceedings between the parties to a marriage with respect to existing title or rights in respect of property, the power to declare the title or rights, if any, that a party has in respect of the property. As between Ms Young and Mr Lalic, these are proceedings between the parties to a marriage with respect to existing title or rights in respect of property, namely the Minto land, in which Ms Young asserts that they have an equitable interest, in respect of which she seeks a declaration of the rights, if any, that she has. Accordingly, the plaintiff's claim in these proceedings is, at least against Mr Lalic, properly brought under the Family Law Act, s 78. 34 Since the repeal, in 1988, of sub-s 78(3), the power conferred by the section extends to bind third parties: as the Full Court of the Family Court (Nicholson CJ, Finn and Strickland JJ) said in Warby & Warby (2001) 166 FLR 319; (2001) 28 Fam LR 443; (2000) FLC ¶93-091 (at 88,792):- Section 78 of the Family Law Act confers the power to make a declaration with respect to existing title or rights. Since the amendment of the Act in 1988, the provision is not expressly confined to the property of the parties to the marriage or either of them and there is no authority which says that such a declaration may not bind a third party. Relevantly too, the ratio decidendi of Gould & Gould; Swire Investments Ltd (1993) FLC ¶92-434 makes clear that this is within the constitutional power of the Commonwealth Parliament in so far as s 85 (as it then was) of the Family Law Act is concerned and, by way of obiter dicta , such validity should be assumed with respect to the exercise of other powers conferred by Part VIII of that Act. 35 Accordingly, the whole of Ms Young's claim, including as against Mrs Lalic, is within s 78. In any event, to the extent that s 78 did not confer power on courts exercising jurisdiction under the Family Law Act to make such declarations in respect of the property of third parties to the marriage so as to bind them, this court would plainly have power to do so. 36 At the outset of the hearing, Mr Maiden SC, who then appeared for both defendants, made an application to the effect that the leave granted at the pre-trial directions hearing to file the amended statement of claim, invoking Family Law Act, s 78, be revoked, and that the proceedings be transferred to the Family Court of Australia. I refused that application, for reasons that I outlined then, but indicated would be explained in the final judgment. 37 In my opinion, this court has, since the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) ("the Commonwealth Cross-vesting Act"), all the jurisdiction of the Family Court of Australia in matrimonial causes (subject to a limitation which is irrelevant for present purposes in respect of proceedings under Family Law Act, s 60G). 38 Originally, under Family Law Act, s 39, matrimonial causes could be instituted in the Supreme Court of a State or Territory as well as in the Family Court of Australia [Family Law Act, s 39(1)], and the Supreme Courts were invested with federal jurisdiction with respect to matrimonial causes [Family Law Act, s 39(5)]. However, provision was made for the Governor-General to fix by proclamation a date from which matrimonial causes and other proceedings referred to in s 39(5) may not be instituted in or transferred to the Supreme Court of a State or Territory [Family Law Act, s 40(3)]. A proclamation dated 27 May 1976, published in Gazette 1976, No S86, 1 June 1976, fixed 1 June 1976 as the date on and after which proceedings of certain classes may not be instituted in, inter alia, the Supreme Court of New South Wales, so as effectively to make the jurisdiction of the Family Court in matrimonial causes exclusive from that date, except in relation to causes already pending or related to those already pending. A further proclamation dated 23 November 1983, published in Gazette 1983, No S288, 24 November 1983, fixed 25 November 1983 as the date on and after which proceedings that are the matrimonial causes referred to in s 39(5)(a) or (b), or proceedings referred to in s 39(5)(c), (d) or (e), may not be instituted in, inter alia, the Supreme Court of New South Wales. Its effect was to ensure that the Supreme Courts were divested of any jurisdiction they may have (probably unintentionally) acquired in relation to matrimonial causes within those paragraphs of the definition of matrimonial cause which had been added since the first proclamation, and thus might not have been covered by the first proclamation: see Perlman v Perlman (1984) 155 CLR 474 (per Gibbs CJ). That brought to an end the jurisdiction of this court in matrimonial causes, until the commencement in 1998 of the cross-vesting scheme created by the various Jurisdiction of Courts (Cross-vesting) Acts of 1997 of the various States and the Commonwealth ("the Cross-vesting Acts"). 39 However, the Commonwealth Cross-vesting Act, s 4(1), invests all State Supreme Courts with jurisdiction with respect to civil matters with respect to which the Family Court of Australia has jurisdiction (subject to a limitation in respect of "special federal matters", of which the only relevant instance is that created by Family Law Act, s 60G). This new investing of State Supreme Courts with jurisdiction superseded the removal of jurisdiction by the proclamations of 1976 and 1983 pursuant to Family Law Act, s 40(3). 40 In Mulhall v Hartnell (1988) 12 Fam LR 361, Young J, as his Honour the Chief Judge then was, held that this court had jurisdiction in respect of the custody of a child in proceedings which, though they had been instituted before the commencement of the Commonwealth Cross-vesting Act, came to be heard after its commencement. Family Law Act, s 63A, which was included in Pt VII by the Family Law Amendment Act 1987 (Cth), made it mandatory to proceed under that Part for an order for custody. His Honour accepted that s 63A had the effect that the jurisdiction of the Supreme Court to deal with parental rights and responsibilities in respect of ex-nuptial children was prima facie excluded, but observed that the Commonwealth Cross-vesting Act, which had since come into force, reinvested the Supreme Court with jurisdiction in cases in which, because of the Family Court's exclusive jurisdiction, it would not otherwise have had jurisdiction. 41 Although s 63A is not relevant in the present case, the Commonwealth Cross-vesting Act has the same effect in respect of matters that were removed from the jurisdiction of the Supreme Courts not by s 63A but by the proclamations made pursuant to Family Law Act, s 40(3). This is illustrated by the circumstance that in Sapir v Sapir (No 2) (1989) 13 Fam LR 362; FLC ¶92-047 - in which proceedings for property adjustment under Family Law Act, s 79 had been transferred to this Court - Young J also, in exercise of cross-vested jurisdiction, pronounced a decree nisi for dissolution of marriage. 42 It is a misconception that before cross-vested jurisdiction can be exercised, the proceedings must first be "cross-vested" pursuant to some application or order of either Court. The Supreme Courts are simply invested, by the Commonwealth Cross-vesting Act, with the jurisdiction of the Family Court, notwithstanding the previous exclusivity of the jurisdiction of that Court. The invocation of the cross-vested jurisdiction in inappropriate matters is controlled by the power to transfer, contained in s 5 of the Commonwealth Cross-vesting Act, so that if a party commences family law proceedings in the Supreme Court when the Family Court is clearly the appropriate forum, the Supreme Court - although it has jurisdiction to entertain and determine the proceedings - may transfer them to the Family Court. 43 This position is unaffected by the decision of the High Court in Re Wakim; ex parte McNally (1999) 198 CLR 511; (1999) 163 ALR 270; (1999) 73 ALJR 839; (1999) 24 Fam LR 669, in which the High Court held that the Commonwealth Cross-vesting Act, s 9, which purported to confer state jurisdiction on federal courts (and an equivalent provision in the Corporations Act 1989 (Cth)), was invalid. That decision struck down the cross-vesting scheme only in so far as it purported to vest State jurisdiction in federal courts, including the Family Court, but not in so far as it invested State courts with federal jurisdiction. The Commonwealth Cross-vesting Act (and the Commonwealth Corporations Act) purported to confer on each of the Federal Court, the Family Court and the Supreme Courts of the Territories, the jurisdiction conferred on such court by the Commonwealth Cross-vesting Act, and by any state Cross-vesting Act. Each state Cross-vesting Act purported to confer on the Federal Court, the Family Court, the Supreme Court of other States and Territories, and the State Family Court of another State, original and appellate jurisdiction with respect to state matters (other than criminal proceedings). State matters were defined as matters in which the Supreme Court of the State had jurisdiction otherwise than by reason of a law of the Commonwealth or of another State. The respective Corporation Acts made similar provision. 44 The leading judgment in the High Court was that of Gummow and Hayne JJ, with whom Gleeson CJ and Gaudron J concurred. Their Honours held that the effect of the Commonwealth Cross-vesting Act and the Commonwealth Corporations Act was to attempt to confer jurisdiction in State matters on the Federal (and Family) Courts. Their Honours said that while it may be that the parliament of a State could pass a law that provides, in effect, that the courts of another polity (such as another State, or the Commonwealth), within or outside the federation, would have jurisdiction over certain kinds of matter, that law will be of no effect unless the courts of that other polity give it effect. That, in turn, directs attention to what the law of that other polity provides. What gives courts the authority to decide a matter, is the law of the polity of the courts concerned, and not some attempted conferral of jurisdiction on those courts by the legislature of another polity. 45 From the proposition that the Commonwealth parliament may not confer original jurisdiction on the High Court except in relation to a "matter" - because s 76 of the Commonwealth Constitution is the exclusive source of power to confer original jurisdiction on the High Court - it followed that the jurisdiction that may be conferred on a federal court under s 77 of the Commonwealth Constitution was similarly limited to the heads identified in ss 75 and 76, and no other polity could confer jurisdiction on a federal court. Ultimately, their Honours concluded [Re Wakim, [127]], the Commonwealth legislation that purported to confer state jurisdiction on federal courts was invalid - although some of the proceedings before the Court in Re Wakim were held to be within the jurisdiction of the Federal Court on the basis of its accrued jurisdiction [Re Wakim, [134-150]]. 46 McHugh J, with whom Callinan J concurred, also held that the Commonwealth Corporations Act and the State Corporations Act, and the Commonwealth Cross Vesting Act and the State Cross Vesting Act, were invalid in so far as they purported to confer on the Federal Court jurisdiction to exercise state judicial power [Re Wakim, [33], [50]]. 47 Neither in Re Wakim, nor in Gould v Brown, which preceded it, was it held - or even suggested - that the cross-vesting legislation was invalid or beyond power, in so far as it conferred federal jurisdiction on state courts. Each judgment expressly limited the holding to the operation of the Commonwealth Cross-vesting Act in purporting to confer state jurisdiction on federal courts. The reasoning, as explained above, is unique to the conferral of jurisdiction on Commonwealth, not State, courts. Plainly, the Commonwealth has power to invest State Courts with federal jurisdiction [Commonwealth Constitution, ss 71, 77 (iii)]. The Commonwealth Cross-vesting Act purports to do so, and to that extent has not been held invalid. Accordingly, jurisdiction in matters with respect to which the Family Court has jurisdiction under the Family Law Act is cross-vested, still, in all the state Supreme Courts. All that has been struck down is the conferral of state jurisdiction on Federal Courts, including the Family Court. This means that the jurisdiction of the Family Court remains - as it has been since 1988 - non-exclusive, to the extent that pursuant to the Commonwealth Cross-vesting Act its jurisdiction is also vested in the State Supreme Courts. 48 It follows that this court, as one of the State Supreme Courts, continues to enjoy all the jurisdiction of the Family Court of Australia in matrimonial causes. Accordingly, this court has jurisdiction in these proceedings, in so far as they include a matrimonial cause. And this court is plainly not a clearly inappropriate forum to entertain proceedings between wife, husband and mother-in-law for equitable relief. 49 It was for these reasons that the application for revocation of the leave granted to amend the statement of claim to invoke Family Law Act, s 78, and otherwise to transfer the proceedings to the Family Court, was dismissed. Once consequence of the exercise by this Court of cross-vested jurisdiction, however, is that any appeal from this judgment apparently lies to the Full Court of the Family Court, and not to the Court of Appeal of this Court [Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), s 7(5)(a)]. 50 Mr Maiden suggested that the issue of the jurisdiction of this court to entertain matrimonial causes was one that required notification to the Attorneys-General under Judiciary Act 1903 (Cth), s 78B. However, as will be apparent from the foregoing discussion, no question under the Commonwealth Constitution arises. At the highest, the question is one involving construction of the Family Law Act (in particular ss 39 and 40), and the Commonwealth Cross-vesting Act. That is not a question "under the Constitution" such as to require notice under s 78B of the Judiciary Act. Was the $50,000 repaid? 51 Although, as appears from the factual background above, there was extensive disagreement on factual matters, ultimately only one major factual issue is crucial to the decision: Mr Lalic's assertion that he repaid the $50,000 to Ms Young. 52 In his original affidavit evidence, Mr Lalic simply asserted that, having told Ms Young at the time when the deposit was first discussed, "My mother will not know the money is in the account and you can have it back in cash when you want it", he repaid Ms Young in cash payments over a period of time as and when she requested it. In other words, what he described was a proposal simply to "park" the $50,000 in his mother's account, and to repay Ms Young as and when she requested. 53 In a later affidavit, sworn on 29 September 2005, Mr Lalic says that after an extensive search of his business records, he located a notebook in which he claims to have recorded the repayments to Ms Young, entitled "Tracey's $50k repayment", which purports to record the repayment to her of cash totalling $52,000 on numerous occasions between 15 October 2001 and 24 May 2002. A copy of this notebook was annexed to his affidavit, and the original became DX10. 54 The revised draft financial agreement is telling on this issue. Prepared on or about 4 July 2002 - after the repayments had been completed according to Mr Lalic's notebook - it recites Ms Young's contribution of $50,000 to the construction project, and records Mr Lalic's obligation to repay her $50,000. Mr Lalic's said that the $50,000 referred to in the draft financial was a contemplated further $50,000 yet to be contributed, but this is implausible: not only because of the unlikely coincidence of the amount of $50,000 referred to in the draft agreement with that admittedly already advanced, and because the draft agreement would have imposed an obligation on him to repay it but not on Ms Young to make it, but also because there was no basis for supposing that Ms Young had any way of raising a further $50,000. Mr Lalic suggested that the revised agreement did not sufficiently deal with the contribution of a further $50,000, and the intention was that when Ms Young contributed it, they would organise another agreement acknowledging that the money had been deposited; yet the revised draft sufficiently provided for the repayment by Mr Lalic of the $50,000. He acceded to Mr Loofs' suggestion that at the time of the negotiations for the financial agreement the $50,000 was sitting in his mother's V2 account and had sat there for a number of months, which tends to identify the $50,000 referred to in the proposed financial agreement with Ms Young's original October 2001 advance. 55 Moreover, there is no suggestion that there was any discussion, in the context of negotiation of the financial agreement, about contribution of some amount additional to the original advance: if this was to be a new or further $50,000, one would have expected that it would have been a feature of the argument over the proposed financial agreement and the amendments to it. Mr Lalic said that Ms Young wanted to invest $50,000 towards the house, "But the money was never given so originally the original document had nothing to do with the fifty grand. It wasn't until the final document which we, sort of, added the fifty grand. In the original document, there was no suggestion of her putting money in". Yet reference to the $50,000 was not one of the amendments proposed in writing by Ms Young, and Mr Lalic said that Minto was not one of the topics of argument in connection with the proposed financial agreement. He also said that Ms Young had, in the course of their discussions about the financial agreement, said that she was going to lend him $50,000 to go towards "that house or a house" - at first Mr Lalic said that which property the house was to be built on was still under discussion at the time of the negotiations for the financial agreement, but he was then compelled to concede that which property the house was to be built on had been decided when he approached the architect - which was some six months or more earlier. 56 Together, the terms of the revised draft financial agreement - which Mr Lalic executed - and the inconsistencies in his evidence on the topic, point strongly in favour of the view that the $50,000 referred to in it had already been advanced and not repaid, and thus contradict Mr Lalic's notebook. 57 Mr Lalic says that the "repayments" came out of his company Lidcombe Motors (although he was neither a director nor shareholder at the time), and that there were occasions on which he handed Ms Young some thousands of dollars in cash, out of revenue generated by the business, which he said was his "commission" on the sale of cars. Ms Young does not dispute that on occasion Mr Lalic handed her amounts of cash at the office of Lidcombe Motors, where for a time she was also employed, but denies that they were in repayment of the $50,000 deposit. She says that this occurred in circumstances when he had sold a car and "cashed up the deal" - so that the price was recorded in the books at less than the true selling price, and the difference paid in cash - and the cash was taken to his mother's place and placed in the safe. Mrs Lalic confirmed that Mr Lalic sometimes had moneys put in her safe. 58 Mr Ibrahim, an associate of Mr Lalic in the motor vehicle sales industry, who until about 2002 was employed by Mr Lalic at Lidcombe Motors, gave evidence that in about October 2001, Mr Lalic told him, "Tracey asked me to invest the money she got from the sale of the house, and now she wants me to pay it back to her", and that on a number of occasions over a period of some months thereafter he observed Mr Lalic hand Ms Young amounts of cash in the office of Lidcombe Motors. However, Mr Lalic's version, that the money was simply "parked" in his mother's account repayable as and when required by Ms Young, is inconsistent with him describing it as an investment and being troubled that she wanted it back. In cross-examination, Mr Ibrahim said that he stopped working for Mr Lalic in late 2001 - so he could not have seen many of the alleged repayments. He denied that the cash which he saw being handed over to Ms Young was from business takings, adding that he knew that it was not work-related money, because on a number of occasions Mr Lalic said that he was handing back money that she had given him - an assertion which had not appeared in his affidavit, although it would have been very relevant to the very matter which his affidavit was intended to prove. Mr Ibrahim's denial that the cash he saw being handed over was generated by the business is improbable, in the light not only of Ms Young's but also of Mr Lalic's evidence that it was sourced in the business. 59 The background related earlier in this judgment reveals important respects in which the evidence of Mr Lalic, and to a lesser extent that of Mrs Lalic, cannot be accepted, and that there are grounds for entertaining significant reservations as to the authenticity and provenance of documents which aid the defendants' cases and for which Mr Lalic alone can vouch. There was no hint in his earlier affidavit that he had kept any such record as that which became DX10. Although the record is internally inconsistent - in that while it purports to record total repayments of $50,000, in fact they amount to $52,000 - that circumstance, as Mr Kasep for Mr Lalic submitted, is at best equivocal as to the authenticity of the document. However, my conclusion that it is contradicted by the provisions in the revised draft financial agreement, coupled with the significant doubts which attend the authenticity and provenance of documents which aid the defendants' cases and for which Mr Lalic alone can vouch, means that in the circumstances I am unpersuaded that his notebook is an authentic contemporaneous record. 60 On any view, there were no repayments from the V2 account, nor the cheque account into which the moneys were later transferred. While I accept that Mr Lalic from time to time handed Ms Young amounts of cash at Lidcombe Motors, I do not accept that those payments were referable to repayment of the $50,000 deposit. To the extent that any such payments were made by him to her, they were out of income generated by him during the relationship, and the payment by one party to a relationship to the other of some of the first's income is not without more to be treated as repayment of a capital contribution made by the other; it is at least equally likely to be a contribution to their ongoing joint living expenses. And if indeed Mr Lalic had repaid those amounts, the $50,000 having been applied to the construction of the house on the Minto property, he would in effect have made himself a creditor or beneficiary of his mother by doing so, yet no such suggestion has ever been advanced. I am not satisfied that any part of the advance of $50,000 has been repaid. Resulting or constructive trust 61 Once it is determined that the $50,000 has not been repaid, the case can be resolved without necessarily rejecting the defendants' version as to the circumstances in and basis on which it was deposited in Mrs Lalic's account, and as to the knowledge - or absence thereof - of Mrs Lalic. 62 If one were to accept Mr Lalic's version, that the $50,000 was deposited in his mother's account, without her knowledge, for the purpose of concealing it from Ms Young's former husband and/or the Child Support Agency, then there is still no suggestion that it was intended to be a gift to Mrs Lalic. On his version it was placed there on the basis that it would be repayable to Ms Young as she might require, and it remained beneficially her property. There was no intention to transfer to Mrs Lalic any beneficial interest in the $50,000. 63 A voluntary recipient of moneys can become a trustee of them for the party beneficially entitled to them, even without knowledge of the receipt or the circumstances which give rise to the trust. In Black v S Freedman & Co (1910) 12 CLR 105, money stolen by an employee and given to his wife was characterised by the High Court as "trust moneys" and its repayment to the employers ordered. Griffith CJ said [at 109] that if the transferee was a volunteer the estate may be followed into his hands whether he had notice of the trust or not. A useful analogy for present purposes is Chase Manhattan Bank v Israel-British Bank (London) Limited [1981] Ch 105, in which the plaintiff bank by error paid the defendant bank a sum of money that it had been instructed to remit to it, twice. Goulding J held that a person who paid money to another under a factual mistake retained equitable property in it, and the conscience of the recipient of the mistaken payment was subjected to a fiduciary obligation to respect that proprietary right, so that the plaintiff was entitled to recover the amount of the mistaken payment by way of tracing. In my opinion, there is no reason why the position should differ in the analogous case of a payment which though not mistaken was made for a limited purpose with the intention that the payer retain beneficial ownership. 64 It may be assumed, for present purposes, that Mrs Lalic received the $50,000 into her account without notice of Ms Young's equitable claim. Mrs Lalic maintains that she remained completely unaware that the $50,000 was in her account at all, so it cannot be suggested that she expended it in reliance upon any belief that it was hers to spend. In the absence of a relevant change of position, it is not possible to see why Mrs Lalic, as a volunteer, would, in respect of the $50,000, be in a superior position to a recipient with notice of Ms Young's beneficial interest. Accordingly, Ms Young remained beneficially entitled to the $50,000, and Mrs Lalic held it as a bare trustee. 65 Generally speaking, if trust property is converted in breach of trust into some other form, the property into which it has been converted becomes subject to the trust and is held for the benefit of the persons entitled under the trust [Re Lovett [1966] VR 65, 70 (Hudson J)]. In Lake v Bayliss [1974] 1 WLR 1073; [1974] 1 All ER 1114, it was held that where a trustee had given a ring purchased with moneys obtained by the sale of trust property to a friend, who sold the ring and put the proceeds into a savings account, the beneficiary had a right to trace the trust property to the savings account, or earlier to trace the ring to the friend, or earlier to the trustee, or earlier still to the proceeds of sale of the trust property. 66 Thus, in the absence of consideration, Ms Young's beneficial property can be traced in the hands of the trustee (Mrs Lalic), even though its nature has been changed, so long as it can still be identified [In re Hallett's Estate; Knatchbull v Hallett (1880) 13 Ch D 696, 708 (Jessell MR); New Zealand & Australian Land Co v Watson (1881) 7 QBD 374; Buckeridge v Glasse (1841) Cr & Ph 126; 41 ER 438; Lane v Dighton (1762) Amb 409; 27 ER 274; Lake v Bayliss]. The $50,000, together with the other moneys that were in the V2 account, has been transferred to Mrs Lalic's cheque account and expended upon construction of the house on the Minto land. The $50,000 can therefore be traced into the Minto land. 67 The same result may be reached by a slightly different route, that of the "windfall equity" [cf Henderson v Miles (No 2) [2005] NSWSC 867, [14]-[19]]: in a case where the substratum of a joint relationship or endeavour is removed without attributable blame, and the benefit of money contributed by one party, on the basis and for the purposes of the relationship or endeavour, would otherwise be enjoyed by the other party in circumstances in which it was not intended that the other party should do so, equity will not permit the other party to assert or retain the relevant benefit to the extent that it would be unconscionable to do so [Muschinski v Dodds (1985) 160 CLR 583, 620 (Deane J); see also Baumgartner v Baumgartner (1987) 164 CLR 137, 147-8; Luke v Chamberlain [2000] NSWSC 626. The term "windfall equity" is the usage of Young CJ in Eq in Henderson v Miles (No 2) [2005] NSWSC 867]. 68 Although the "windfall equity" has its origin in joint relationships that fail, its substance is equity's concern with the conscience of a person who might at law be strictly entitled to retain a benefit that he or she was never in the circumstances intended to enjoy. Although in the present case it might be said that Mrs Lalic was not a party to a relevant joint relationship, the circumstance that she gave no value and did not act to her detriment on the basis that she had the $50,000, places her in an equivalent position. 69 Accordingly, Mrs Lalic having received the $50,000 as a volunteer - and Ms Young having had no intention of transferring a beneficial interest to her - Mrs Lalic held it, and property into which it can be traced, upon trust for Ms Young; alternatively, it is unconscionable for her to retain what would otherwise be the windfall of $50,000. None of this is affected by Ms Young's purpose being to evade her child support responsibilities, if it was: even in a claim directly to enforce a resulting trust, there is no general rule that equity will refuse to enforce the trust at the suit of the transferor just because the purpose of the transferor in placing title in the name of another was to contravene the policy of a statute [Nelson v Nelson (1995) 184 CLR 538]. 70 A case to this effect was not pleaded, and when it was raised in the course of submissions, Mr Loofs fairly objected that in the absence of such an allegation it had not been necessary for Mrs Lalic to adduce evidence of what had happened to the $50,000. Ultimately, however, that objection does not preclude reliance upon this basis for resolution of the case, because:- * It was always part of Ms Young's case that the $50,000 had been expended on construction costs in respect of the house on the Minto land, and there was evidence to that effect; * As Mrs Lalic denies any knowledge that the $50,000 had been placed in her account at all until she received a letter of demand from Ms Young's solicitors - from which time she would have been on notice of the claim - it is not possible to see how she could have changed her position to her detriment in the belief that the $50,000 was hers; * In any event, Mr Loofs was offered an adjournment to adduce such evidence, which he responsibly declined, indicating that inquiries had apparently established that no relevant bank records were available. 71 Accordingly, accepting for present purposes Mr Lalic's version, $50,000 belonging to Ms Young was deposited into Mrs Lalic's V2 account without any intention that it become the beneficial property of Mrs Lalic, and without consideration, albeit without the knowledge of Mrs Lalic. Together with other moneys in the V2 account, it was transferred to Mrs Lalic's cheque account, and has now been expended on construction of the home on the Minto land. I do not accept that Ms Young has been repaid. Mrs Lalic holds the $50,000 upon trust for Ms Young; alternatively, it would be unconscionable for Mrs Lalic to retain the $50,000 as a windfall. As the $50,000 can now be traced into the Minto land, Ms Young is entitled to a charge for that amount on the Minto land. In my opinion, therefore, even accepting Mr Lalic's version of the basis on which the payment was made, and that there was no relevant expectation of acquiring an interest in the property, Ms Young remains beneficially entitled to the $50,000, which can now be traced into the Minto property. Equitable estoppel 72 However, as that was not the basis on which the case was primarily conducted - although I prefer to found my decision on it - I should address Ms Young's case as it was primarily put: ultimately, on the basis of equitable estoppel, in respect of which it was submitted that the appropriate remedy was a charge for Ms Young's expenditure. 73 Equity comes to the relief of a plaintiff who has acted to his or her detriment on the basis of a fundamental assumption in the adoption of which the defendant has played such a part that it would be unfair or unjust if he or she were left free to ignore it, on the footing that it would be unconscionable for the defendant to deny the assumption [Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641, 675; Thompson v Palmer (1933) 49 CLR 507, 547; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 404 (Mason CJ and Wilson J)]. It is essential to an equitable estoppel that the defendant knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation [Crabb v Arun District Council [1976] Ch 179, 188; Waltons v Maher, 423 (Brennan J)]. Such knowledge or intention may easily be inferred where the adoption of the assumption or expectation is induced by the making of a promise, but may also be found where the defendant encourages a plaintiff to adhere to an assumption or expectation already formed, or acquiesces in an assumption or expectation when in conscience objection ought to be stated [Waltons v Maher, 423 (Brennan J)]. The unconscionability which attracts the intervention of equity is the defendant's failure, having induced or acquiesced in the adoption of the assumption or expectation with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise avoid the detriment which that failure would occasion [Waltons v Maher, 423 (Brennan J)]. 74 Numerous judicial and academic attempts have been made over the years to identify the elements of estoppel of this type [see, for example, Fry J's five probanda in Willmott v Barber (1880) 15 Ch D 96; Brennan J's six proofs in Waltons v Maher; Priestley JA's seven propositions in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466, as modified in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582; and Meagher Gummow and Lehane's six common factors, in Equity: Doctrines & Remedies, (4th ed., 2002), [17-105]]. At least generally speaking, the matters which a plaintiff must establish to found an equitable estoppel may be characterised as including certain conduct of the plaintiff, certain conduct of the defendant, and certain qualities of the subject matter, which for present purposes may sufficiently be summarised as follows:- * First, as to the conduct of the plaintiff: that the plaintiff acted (or abstained from acting) in reliance upon an assumption or expectation that a particular legal relationship existed or would exist between the plaintiff and the defendant, or that the plaintiff had or would acquire some interest in the defendant's property; * Secondly, as to the conduct of the defendant: that the defendant induced the plaintiff to adopt the assumption or expectation and encouraged the reliant activities of the plaintiff, or at least failed to deny the assumption or expectation with knowledge that the plaintiff was relying on it to the plaintiff's potential detriment and that it could be fulfilled only by transfer of the defendant's property, a diminution of the defendant's rights or an increase in the defendant's obligations; * Thirdly, as to the subject matter: that the assumption or expectation in respect of it was one that the defendant could lawfully satisfy.

Young v Lalic

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Judgment (22 paragraphs)

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Legislation Cited (8)

Cases Cited (24)

Cited By (34)