EQUITABLE INTERESTS IN FAMILY LAW

Transcription

1 EQUITABLE INTERESTS IN FAMILY LAW Andrew Stenhouse BARRISTER Family Law Chambers

2 Equitable interests in Family Law, College of Law, Advanced Family Law Day, August Andrew Stenhouse 1 Introduction For many family law practitioners, equity remains a mystery. It need not be so. Equity is in fact a well organised and grounded jurisdiction that, while not without some complexity, has at its heart the righting of wrongs occasioned by the strict application of the law, and the creation of a just result and the prevention of an unconscionable one. In the family law context much of the prior necessity to rely on equity has, at least in Australia, been relieved by the application of the Family Law Act 1975 (the Act). Rarely as between spouse parties will it be necessary or even desirable to claim relief in equity, when there is a perfectly valid and welltrodden path altering party s property interests under sections 79 and 90SM, respectively. That said, equity owes a debt to de facto spouse parties in the development of constructive trusts. The principles that have emerged from well-known cases such as Mischinki v Dodds 2 and Baumgartner 3 have laid a formidable groundwork for the righting of wrongs, and the prevention of unconscionability, not least in relation to third parties who, most commonly in the family law jurisdiction, are oft much put upon parents. With the increased cost of home ownership in Sydney, and centralization of wealth in the hands of the ageing baby boomers, it is becoming more and more common to see parents mixing their funds with spouse parties, whether by means of contribution to the purchase price of the former matrimonial home, by improving a spouse parties property or improving a spouse parties financial position. Often this is done as a contribution, and little dispute arises, at least while the marriage is on foot. Sometimes, however, it is not, and was never intended to be. The other situation that arises is where one or both of the spouse parties have acted badly, and relieved a parent of funds they were not entitled to. Equity in those cases has a roll to play as well. 1 Barrister, Family Law Chambers, Sydney. LLB (Hons) with First Class Honours, Cantab, NZ, (1985) 160 CLR (1987) 164 CLR 137 1

3 For my talk today I want to focus on the two most commonly pleaded trust in family law cases resulting trusts and unconscionable conduct constructive trusts. Equity is by its development a large body of case law. Constructive trusts alone cover many circumstances and fact scenarios and of course there are many different types. However I only have an hour or so, and so will attempt to cut to chase, and give you an overview of principles applicable to two common trusts we see in family law. If I have time I would also like to discuss some cases to illustrate how these principles have been applied. As an aside to that discussion, I thought it may be helpful to discuss some subsidiary issues, such as when an equity plead in the Family Court can support a caveatable interest. While perhaps largely of academic interest the usual practice in family law matters being to caveat real property first and ask questions later it may be instructive to know what the legal position actually is, when the inevitable lapsing notice is filed. Before I begin my talk, I thought I might cover off a few preliminary issues which I commonly see in my practice, and about which perhaps some clarity may be welcomed. Preliminary Matters Section 79 alters an interest, it does not define an existing interest 1. It is trite to observe that the Family Court of Australia (the Family Court). does not have discretion, pursuant to s 79 of the Family Law Act 1975 (Cth) ( the Act ) or indeed otherwise, to determine that a person is a beneficial owner of property. The court may find and declare that to be the position but it will do so based on general legal and equitable principles (Stanford v Stanford (2012) 247 CLR 108). : El Saeid & Masih And Ors [2015] FamCA 516 per Aldridge J at [39]. 2. The starting point in any proceedings under section 79 (or 90SM mutatis mutandis) 4 of the Act is to determine the assets and liabilities of the parties. 5 The spouse party s respective legal and beneficial interests are determined by the application of general legal and equitable principles. 3. A common error in Initiating Applications is to see an application for declaration consequent upon order based in section 79. It cannot be. Section 79 alters already existing property interests, it 4 Throughout this paper I refer to section 79, but of course include in that section 90SM for de facto relationships. 5 Stanford v Stanford (2012) 247 CLR 108 2

4 does not define those property interests. To the extent the property interest is altered, it is otiose to seek declaration of it. To the extent it requires definition, prior declaratory relief is needed. 4. Declaratory relief is made pursuant to section 78 of the Act and is grounded in law or equity not under section 79. As Murphy J said in Watson & Ling [2013] FamCA 57 at [15]: 15. The emphasis by the High Court in establishing the existing legal and equitable interests of the parties as a precursor to answering the question required by s 79(2)/s 90SM(3) can be seen to derive from the fact that s 79/s 90SM is concerned with rights in property which have their source in [the] relationship but which are created by curial order ; orders made under s 79 [cf s 90SM] perform a dual function by creating and enforcing rights in one blow, so to speak (per Mason and Deane JJ, Fisher at 453). Given that the relationship does not itself create interests in property, due recognition must be given to existing legal and equitable interests because, as Macrossan CJ said (in a different context) in Turner v Dunne [1996] QCA 272 [i]f it were otherwise, it might have to be concluded that ordinary categories of legal ownership could be not much more than provisional in all domestic relationships. Pleadings 5. While pleadings are not relevant per se to section 79 applications, they are mandatory in claims for equitable relief pursuant to section 78. That is, the relief sought, and the basis for that relief must be specified, whether in a Statement of Claim, Points of Claim and Affidavit or otherwise. 6. An Initiating Application must include, when sought, the equitable relief sought - usually a declaration that a resulting or constructive trust exists and certain property is held upon trust for a third party and the basis for that claim. 7. The first thing to do when faced with a claim for equitable relief is to ensure that what you are being asked to meet is understood. My experience when I am briefed to settle a Response in these type of matters is that a claim for equitable relief is seldom well plead, or even plead at all. The first direction I draft is almost always for particularisation, with a supporting affidavit outlining the facts of the matter said to support the claim for equitable relief. I usually seek an Order that: 1. The Applicant with 28 days file and serve an Amended Initiating Application identifying the relief they seek against the Respondent and any proposed third parties and to file and serve a document particularising the claims made against the proposed third parties and the legal and equitable basis on which those claims are made in the form of a Statement of Claim in the Supreme Court of New South Wales. 3

5 Followed by: 2. The Applicant with 28 days file and serve an affidavit disclosing the factual basis relied upon for the relief sought in Order In short, a respondent (usually a third party) is entitled to known exactly what claim is being made against them in equity, just as they would in the NSW Supreme Court. Joinder 9. There is a duty to join persons affected by an issue in a case: Rule 6.02(1), which provides: A person whose rights may be directly affected by an issue in a case, and whose participation as a party is necessary for the court to determine all issues in dispute in the case, must be included as a party to the case. 10. Rule 6.03 provides: (2) A party may add another party after a case has started by amending the application or response to add the name of the party. (3) A party who relies on subrule (2) must: (a) file an affidavit setting out the facts relied on to support the addition of the new party, including a statement of the new party's relationship (if any) to the other parties; and (b) serve on the new party: (i) a copy of the application, amended application, response or amended response; and (ii) the affidavit mentioned in paragraph (a); and (iii) any other relevant document filed in the case. 11. This rule provides the mechanism by which a party may add another party. Importantly, subject to any restrictions that may apply to amending the application or the response, new parties may be joined simply by amending the application or response. 12. Caveat: think very carefully before you do it. If you don t have a basis for a claim supported by proper evidential foundation, do not put it in contention. It may be struck out, or better still, 4

6 summarily dismissed, with costs: Rule Family Law Rules In El Saeid & Masih And Ors [2015] FamCA 516 Aldridge J struck out (with costs ) an ill thought out and poorly drafted claim. His Honour said at [43]: [43] I am concerned that, having regard to evidence of the wife, that the husband s parents were of modest means and that the husband seems to regard the commercial property in Suburb L as his asset, that there may be some force in the position of the wife. However, the purpose of requiring the wife to plead the case in the form of a Statement of Claim was to identify the basis upon which she sought the relief claim. The Statement of Claim fails to do so. To preserve the position of the wife Aldridge J at [44] I propose to strike out therefore paragraphs 5 and 6 of the relief claimed and paragraphs 14 to 17 inclusive of the pleadings as contained in the Statement of Claim. They do not identify a power of the court or the facts necessary to support the relief claimed. Such an order fits appropriately within r I do not propose to summarily dismiss the relief sought. The approach I am taking leaves it open to the wife to revisit this issue should the evidence become available enabling her to do so where a summary dismissal would not. This, I consider, is the best way to do justice between the parties. Threshold 13. While obviously a decision to be made upon by the Judge hearing a matter, based upon the circumstances of each case, there is in my respectful view much to be said for a threshold hearing on issues related to trusts, as the answer to that question often defines the property of the parties available for alteration pursuant to section 79 of the Act. A corollary is that often the answer to the threshold question paves the way for settle discussions to occur, as the parties know the factual matrix under which they then operate. 14. It also limits the costs exposure of the Applicant, and any third party, to the proceedings. This quarantining of costs can be valuable from a third party point of view in terms of recovery from an unsuccessful Applicant. 7 6 For a recent discussion by the Full Court of the applicable principles relating to Rule see Ebner & Pappas [2014] FamCAFC See by way of example Garibaldi & Garibaldi, (2013) Unreported, 12 April 2013, where Collier J made an indemnity costs order against an unsuccessful applicant following a threshold hearing. 5

7 Disclosure 15. It is often overlooked, but note well Rule 13.02, which limits the financial disclosure required to be provided by a non-spouse party to a fact in issue. Rule states: This Division does not apply to a party to a property case who is not a party to the marriage or de facto relationship to which the application relates, except to the extent that the party's financial circumstances are relevant to the issues in dispute. 16. Again a common mistake is for an Applicant or Respondent to demand full financial disclosure from, for example, a third party non spouse party when there is no basis for that disclosure. Trustees in Bankruptcy 17. Trustees in bankruptcy are routinely faced with equitable claims by both a spouse party and a non-spouse party (for instance a parent) as against a bankrupt estate. 18. The disclosure obligations of Trustees are usually limited to filing an affidavit attaching the bankrupt s statements of affairs, and perhaps the Report to Creditors. 19. If you join a trustee in bankruptcy you must do in the correct form, which in accordance with Rule 6.22 and section 161 (2) Bankruptcy Act 1966, states a trustee in bankruptcy should be named as: [Individual s name] as Trustee of the Property of [the bankrupt person s name], A Bankrupt 20. It is a small point, but one which habitually causes trustees in bankruptcy consternation, and one which need not arise. 21. Joinder of a bankrupt spouse party is usually unnecessary unless orders are sought altering a superannuation interest of that spouse party. 6

8 The Difference between Resulting and Constructive Trusts 22. Resulting trusts rely on the intention of the creator. Constructive trusts do not require intention, although it may feature. 23. Resulting trusts are imposed from presumed intention. They are institutional or proprietary in nature. They arise, and date, from the intention. 24. Constructive trusts are trusts imposed by law. They can arise with no presumed, implied or actual intention to create a trust. Most importantly though, they can arise completely independently of any common intention. 25. Resulting trusts carry with them full fiduciary responsibility, constructive trusts are primarily concerned with the delivering up of the trust property, and do not carry with them the full gamut of fiduciary responsibility. 26. Resulting trusts require certainty of intention (although this may be implied or presumed) and certainty of subject matter. Constructive trusts do not require intention nor certainty of subject matter. Constructive trusts are sometimes employed where there is no identifiable trust property Resulting (and express) trusts define relationships between persons that come into existence when the parties conduct gives rise to it. Once established, the relationships between the parties are governed by that trust. They are a form of property institution. 28. Constructive trusts have been variously held to be both a property institution and a remedy. The difference is important in that equitable remedies arise from the date of order by the court, whereas institutions flow from the date of the conduct that is found to give rise to the trust. 9 Similarly a remedy is discretionary but an institution is not. 29. In Australia the generally accepted view is that constructive trusts are remedial-institutions 10 This classification as being remedial institutional, 11 means a court may date the trust in certain cases from the date of intention, rather than the date of the order, equity treating as done that which ought to have been done, and treating such act as an institution from that time. This is particularly so in the unconscionable conduct constructive trusts that arise in family law. In Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120 the Full Court of the Federal Court again 8 For example see Bofinger v Kingsway Group Ltd (2009) 260 ALR 71, where the High Court imposed a constructive trust to force a mortgagee to properly account for payments made by guarantors under a mortgage liability. 9 Westdeutsche Landesbank Girozentralev Islaington LBC [1996] AC 669; Re: Polly Peck International v MacIntosh [1998] 3 All ER 812 at Per Deane J in Mushinski V Dodds, ibid. 11 Evans v European Bank Ltd (2004) 61 NSWLR 75 at 99 per Spigelman CJ who described the trust he imposed over theft proceeds being automatic and institutional, akin to a resulting trust. 7

9 rejected the notion that a constructive trust first comes into existence only when so declared by the Court. It is now well settled law: as a general statement of principle a constructive trust will be treated as coming into existence at the time of the conduct which gives rise to the trust The jurisprudential categories for resulting and constructive trusts while not closed, are not exactly open either. There are established categories which are only extended by the High Court and sparingly. The categories are firmly based in the jurisprudence of stare decisis in Australia, equity of course being solely case based. 31. It is no doubt trite to observe that it is always necessary for your case to follow the facts, not for your case to follow a legal construct, however clever it may thought to be. It is important to also understand that simply relying on a general equitable principle, for example unjust enrichment, is not a jurisprudential basis for relief in Australia. Australia has not, to date, extended the categories of constructive trust to include unjust enrichment per se, unlike Canada for example. 32. Trust law is also not binary. That is, the facts and circumstances of a matter may give rise to a resulting trust, a constructive trust, or both, or indeed different types of constructive trust within the one fact scenario. What must be answered follows what what is plead. 33. Following on from that, it may be that in circumstances where there is an express trust, the facts and circumstances may or may not potentially give rise to an antecedent or co existent constructive or resulting trust. Of course where there is an express trust, all things being equal, it will take priority, the intention being clear from the face of the Deed, without recourse to the application of a resulting trust or the imposition of a constructive trust. That said, you cannot give what you do not own (the nemo dat rule), and a prior equity (for instance under a resulting trust) may be recognised if it is inconsistent with a later express trust, all things being equal (and they often are not). That of course is a subject in and of itself, and I say no more other than with equity, it is important to analyse a matter carefully before committing a client to a path which may be unsustainable. 12 Australian Building and Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at para

10 Resulting Trusts 34. The classic resulting trust occurs where an item of property is purchased wholly or in part for by one person, but legal title resides wholly or in part in another. The property may be land, shares, or much less commonly a chattel. Commonly it is land. 35. The prima facie position that the beneficial ownership of real property is commensurate with the legal title 13, is displaced by the presumption of a resulting trust arising from payment of the purchase price, unless that presumption is in turn rebutted by a presumption of advancement, or by evidence Thus where parties contribute unequally to the purchase price of property, they are, ceteris paribus, presumed to hold their interest beneficially pro-rata to their contributions to the purchase price The following can be discerned from the cases: Firstly, whether a resulting trust is to be applied is founded in the intention of the parties to the transaction: it is a competition of presumptions: the presumption that beneficial title is to be held according to the party s respective contributions to the purchase price does not apply when the presumption of advancement applies. That is the starting point is that a party is the legal owner of a property in accordance that party s legal title. Second, the fact that for instance a mother and father put property in the name of their son or daughter leads to a presumption of advancement, that is, that the parents intended to give the share to their child as a gift Secondly, like all evidentiary presumptions that give way to facts showing the contrary 17 the presumption of advancement is rebuttable by evidence that it was intended that a spouse party would hold their on trust for their parents. As Dixon CJ, McTieman, Williams, Fullagar and Taylor JJ explained in Charles Marshall Pty Ltd v Grimsley (1956) 956 CLR 353 at 36: 13 Currie v Hamilton (1984) 1 NSWLR 687, 690 (McLelland J) 14 Martin v Martin (1959) 110 CLR 297; Calverley v Green (1984) 155 CLR Martin v Martin (1959) 110 CLR 297; Calverley v Green (1984) 155 CLR 242, 246, Buffrey v Buffrey [2006] NSWSC 1349 Palmer J at [14] where his Honour provided a comprehensive summary of the law with exhaustive analysis of the authorities, and see Chao v Chao (No 3) [2008] NSWSC 1166 Brereton J in the Family law context Kawada & Kawada [2012] FamCA 273 at l32]-[42] per O Reilly J. 17 Buffrey, ibid. 9

11 the relation of parent and child is only evidence of the intention of the parent to advance the child, and that evidence may be rebutted by other evidence, manifesting an intention that the child shall take as a trustee Thirdly, the contribution must be to the purchase price. This means the price of e.g. the real property that was purchased, including legal expense and stamp duty. The entering into a mortgage for the purposes of purchasing a property will be regarded as a contribution to the purchase price, and so give rise to a resulting trust Mortgage contributions per se do not give rise to a resulting trust. They may give rise to a right of contribution, or if the circumstances support it a constructive trust, but not to a resulting trust Fourthly, evidence as to what was said and done by the parties at the time that the spouse party became the legal owner of property is particularly relevant Fifthly, it is solely the intention of the parents who gave the share as to whether they intended to make a gift of the property or nor, although their evidence must be scrutinized with care as it comes from an interested witness: Damberg v Damberg (2001) 56 NSWLR 492 per Spigelman CJ, Sheller and Heydon JJA at [44]-[45]. As Palmer J explained in Buffrey v Buffrey [2006] NSWSC 139 at [14] (emphasis added):... the Court is more assisted in determining the subjective intention of the person making the payment by evidence of that person's contemporaneous statements of intention, subsequent admissions against interest, subsequent dealings with the property, and by evidence of other relevant surrounding circumstances (emphasis added) As Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ held in Trustees of the Property of John Daniel Cummins v Cummins [2006] HCA 6 at [65], [ 67], evidence of facts as to subsequent dealings and of surrounding circumstances of the transaction may be received as, if evidence is limited to the date on which an asset is purchased would produce a distorted and artificial result, at odds with practical and economic realities". 18 Cited with approval by the Full Court in Vadisanis & Vadisanis & Anor [2014] FamCAFC 97 at [45]. 19 See for example Dinsdale bht Protective Commissioner v Arthur [2006] NSWSC 809 per Brereton J. 20 Ibid. 10

12 37.7. Sixthly, the Briginshaw principle does not apply to evidence needed to rebut the presumption of advancement, but proof is required of a 'definite intention' to retain beneficial title in the property, rather than a nebulous intention to rely upon the... relationship as a source of control over the property A common situation in family law is where a parent funds, either wholly or in part, an item of property which is legally owned, in whole or in part, by one of the spouse parties. It may be the former matrimonial home, it may be shares, or may be some other item of personalty. 39. Frequently in that the fact scenario the money is advanced as a family loan that has been made on a pay it back when and if you can basis without documentation. In these circumstances, save your client money and time and treat it as a contribution: family loans that would not be repayable but for the dissolution of the relationship are almost always held to be gifts, and go on that party s ledger whose parents made the financial provision. That is even if the circumstances support the pleading of a resulting trust, the presumption of advancement will apply to defeat the presumed intention. 40. An example of a presumption giving way to facts may be where the evidence discloses that a parent meant to lend money to the spouse parties (for instance where the payment of the purchase price is accompanied by a loan agreement, with interest payable, supported by an unregistered mortgage and a caveat). In this circumstance it is clear that the contribution to the purchase price was intended neither as a gift, nor that the donor meant to be as a beneficial owner. 41. Examples of two cases in the family jurisdiction which led to the imposition of a resulting trust are Kawada & Kawada [2012] FamCA 273 at l32]-[42] and Garibaldi & Garibaldi [2013] FamCA (unreported 12 April 2013). 42. In Kawada v Kawada, the husband's parent advanced $190,000 to the husband for use as a bond. O'Reilly J found on the evidence the parents did not intend to advance the husband by the beneficial ownership of the money but allowed him to use it for an express purpose (a Quistclose trust), there being a clear understanding between the parents and the son that interest earned on the monies also belonged to the parents: at [92]. His Honour found that the monies, and interest earned on the monies, were the subject of a resulting trust in favour of the parents (the express trust having failed). Similar findings were made in respect of monies advanced by the parents to acquire a property and car. 21 Damberg v Damberg, ibid, at [44]. 11

13 43. In Garibaldi 22 a company called Imtese Pty Limited (Imtese) was acquired in 1982 to purchase a block of land. At the time the Companies Act 1961 (NSW) required two shareholders and two directors. The father elected for his son, then a 20 year old University student, to be the other shareholder and director. 4 years later the son married. 44. Unhelpfully the husband had included Imtese in his financial statement as his asset without stating he held his share beneficially. His evidence was that he didn t understand the difference between legal and beneficial ownership. Collier J found that the husband was an unsatisfactory witness, and it could not accepted that, as an accountant, the husband did not understand what was meant by beneficial ownership and legal ownership in relation to his shareholding in Imtese. 45. The evidence was that: The husband had not paid for his share in Imtese, nor the costs of setting up the Company; The husband had made no contribution to the purchase price of the property owned by Imtese (it coming from the superannuation entity controlled by the father and a mortgage in his sole name); The husband had not included Imtese as his property in any loan applications, while the father had The father treated Imtese as his own, without reference to the husband and had exclusive control over Imtese s finances and operations; and The husband did little more than sign the annual returns prepared by an external accountant when asked to do so by the accountant or his father. Occasionally he drove by the property to look at it and cut the grass. 46. His Honour found that whatever the husband s intention or belief, it was ultimately irrelevant to the imposition of a resulting trust, it being the father s intentions at the time of making his son a director and shareholder of Imtese that was relevant. This intention was made plain by the subsequent actions of the father in dealing with the property of Imtese to the exclusion of the husband, in all material respects. 47. His Honour found that the husband (son) held his share in Imtese on resulting trust for the father; and awarded indemnity costs against the wife, who was claiming that the husband owned the share beneficially. His Honour held that, having found a resulting trust, there was no to consider the constructive trust that was plead in the alternative. 48. A common mistake seen in the Family Courts is to claim a resulting trust in respect of improvements to an item of property e.g. paying for the building of a house on a block of land 22 12

14 some years after that property has been purchased (although note the extension in Cummins 23 to such a transaction where it was held that the subsequent building of the former matrimonial home on earlier purchased land was always envisaged and therefore formed one transaction within the construct of the marriage relationship). 49. Improvements to land generally do not give rise to a resulting trust although depending on the circumstances may ground a common intention (Baumgartner) or unconscionable retention of benefit constructive trust. 23 In Trustee of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 where the High Court inter alia found that where a husband and wife purchased a matrimonial home together it will generally be inferred that the property will be divided equally between them irrespective of the contributions that were made. It was on this basis that the extension of principle was said to be justified. 13

15 Constructive Trusts 50. The recognised categories of constructive trusts 24 are those that: Arise because of the failure of an agreement (the common intention constructive trust); Remedy breach of fiduciary duty; Imposed on third parties to a breach of trust (Barnes v Addy: a)trustee du son tort, b) first limb - knowing receipt and c) second limb - knowing assistance); Are imposed on stolen property; Are imposed on moneys paid by mistake; Arise in unlawful killing cases (you cannot profit by your own illegality); and Arise in respect of unconscionable conduct/ unconscionable retention of benefit. 51. Of these the commonly occurring trusts in the family law context are the common intention constructive trust and unconscionable retention of benefit constructive trusts. It is proposed to speak to each under the same head, as the latter jurisprudence arose in large measure from the former, and for all intents and purposes while the trusts are jurisprudentially different, they are usually plead together in the family law context, often without much distinction. 52. Many of you will be familiar with Muschinksi v Dodds and Baumgartner type of trusts. They are pleaded frequently in the granny flat cases; where for instance an elderly widowed parent (say a mother of a wife) sells her property, and applies the net proceeds in whole or in part to the reduction of the spouse parties mortgage or to the building costs of an extension or granny flat with the agreement she has a home with them for the rest of that her life or until she is put in a nursing home. Separation then occurs, and it is necessary to sell the former matrimonial home and so the basis on which the elderly parent contributed money to the spouse parties is disrupted. 53. The governing principle is that equity will impose a constructive trust to prevent the unconscionable retention of benefit or windfall equity. 26 In Henderson v Miles (no.2) Young J said: 27 looks not to the detriment that might be suffered because the arrangement did not continue, but merely to the detriment of losing a fund to the other party to the arrangement through 24 Radan & Stewart, Principles of Australian Equity & Trusts, First Edition, at [28.20]. 25 The topic of Barnes v Addy, and what constitutes knowledge is both as voluminous as it is interesting. It is beyond what can be covered today; I anticipate presenting another paper on it in due course. 26 Henderson v Miles (no2) [2005] NSWSC 867 at [19]. 27 Ibid 14

16 unexpected circumstances, where such loss would result in the other having an unconscionable gain. 54. The notion of unconscionability began with the dicta of Dean J in Muschinski v Dodds. In that case Muschinski bought land at Picton. She funded the entirety of the purchase price from the sale of her previous home. It was registered jointly as tenants in common in equal shares. The house on the land was very run down. The parties planned on repairing that house and constructing a new pre-fabricated dwelling from which they were going to run an arts and craft business. Dodds agreed to apply his earnings and whatever moneys he got from his settlement to the prefabricated house and renovations. While some repair work was done by Dodds, the parties separated before their plan could be put into place. Ultimately it was found that the total financial contributions by the parties to the property were: $25,260 Muschinski to $2550 Dodds. 55. At trial and on appeal the matter was plead as a resulting trust, with the presumption arising in Muschinski s favour being rebutted by her intention to grant Dodds an interest in return for his promise of later work and financial contribution. No constructive trust was plead, or found. The High Court found for Muschinski and imposed a constructive trust. The judges each took a different path to the end result. Deane J s approach (later accepted by the majority of the High Court in Baumgartner) was to apply a constructive trust to a failed joint endeavour of the parties akin to an aborted joint venture, where joint venturers are entitled to the proportionate repayment of their capital contributions Deane J pointed out (at p 614) that the constructive trust serves as a remedy which equity imposes regardless of actual or presumed agreement or intention "to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle". In rejecting the notion that a constructive trust will be imposed in accordance with idiosyncratic notions of what is just and fair his Honour acknowledged (at p 616) that general notions of fairness and justice are relevant to the traditional concept of unconscionable conduct, this being a concept which underlies fundamental equitable concepts and doctrines, including the constructive trust. 57. The principle that Deane J espoused was this: where a joint relationship or endeavour fails, equity will not permit one party to assert or retain the benefit of the property if it would be unconscionable for the party to do so. 29 As stated this principle was accepted by the majority of the High Court in Baumgartner and has been accepted as the proper jurisprudential basis for the imposition of this type of constructive trust since that time (1987). 28 Muschinki v Dodds ibid at CLR Ibid at CLR

17 58. In Baumgartner, a de facto wife claimed a half interest in a property owned by the de facto husband. The property was purchased during the marriage and the de facto husband was found to have made many statements to the effect it was purchased for both parties to enjoy. The couple had a child, and the wife otherwise worked and made financial and non-financial contributions to the property and the relationship. The parties pooled their income from which the mortgage was paid. The trial judge said that as there was no intention to create a trust no constructive trust could be found on the facts (following on from the antecedent common intention cases). The High Court left the trial judge s finding intact the question of intention being a finding of fact but had no difficulty imposing a constructive trust: Mason CJ, Wilson & Deane JJ imposed a constructive trust as a remedy to prevent the unconscionable retention of benefit. They said: The case is accordingly one in which the parties have pooled their earnings for the purposes of their joint relationship, one of the purposes of that relationship being to secure accommodation for themselves and their child. Their contributions, financial and otherwise, to the acquisition of the land, the building of the house, the purchase of furniture and the making of their home, were on the basis of, and for the purposes of, that joint relationship. In this situation the appellant's assertion, after the relationship had failed, that the Leumeah property, which was financed in part through the pooled funds, is his sole property, is his property beneficially to the exclusion of any interest at all on the part of the respondent, amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent. 30 Baumgartner ibid at [36]. 16

18 The elements of the unconscionability constructive trust 59. In Turner v Dunne 31 Pincus JA summarised Baumgartner as follows: A constructive trust may be imposed without reference to intention of the trustee An intention to create a trust may be imputed where it is necessary to do so in good faith and in conscience A principle which may be applied is that which restores to a party contributions made to a joint endeavour that fails, when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them Contributions, financial and otherwise, to the purposes of the joint relationship are relevant to this purpose. 60. The fact and scope of the joint endeavour must be established by the claimant: West v Mead [2003] NSWSC 161 at [59] per Campbell J. Agreements, oral or written, are relevant to the inquiry: Waterhouse v Power [2003] QCA 155, but the absence of an agreement is not fatal to the imposition of a constructive trust: Brown v Manuel [1996] QCA In respect of contributions to which a constructive trust can apply Krou J, after examining the authorities, in my respectful submission neatly summarised the position in Sivratis v Sivratis [2008] VSC 374 that: [132] In determining the scope of any Muschinski v Dodds constructive trust, a court can take into account direct financial contributions to the purchase price of the property and incidental costs such as stamp duty, registration fees, solicitors fees and bank fees. However, a court is not limited to such expenditure. It can also take into account the pooling of financial resources,[33] other financial contributions even in the absence of pooling,[34] contributions of labour,[35] and non-financial contributions or contributions in kind such as homemaking and parenting contributions.[36] Further, the inquiry into whether the assertion by a party of his or her legal rights would be unconscionable can encompass events that occurred after the property was initially acquired. Expenditure on repairs and renovations of the property by a person asserting a constructive trust in respect of the property, where the expenditure is accepted by the legal owner of the property in the knowledge that it would improve the home and add to its value, can be considered as a contribution in quantifying the first person s equitable interest under the constructive trust.[37] 31 [1996]QCA 272 at [4] [5] cited with approval in Bateman & Bowe [2013] FamCA 253, Daymond And Anor & Daymond And Ors [2013] FamCA 215, Friar & Friar And Anor [2013] FamCA 121, Baglio & Baglio [2013] FamCA 105, Watson & Ling [2013] FamCA 57; Crafter And Ors & Crafter And Ors [2012] FamCAFC 199, Family Court of Australia - Full Court 17

19 And: 134 The common intention constructive trust is another species of constructive trust. It is different from a Muschinski v Dodds constructive trust, but will often arise in similar circumstances. A common intention constructive trust will arise where there is an actual or inferred common intention of the parties as to their entitlements to the beneficial interest in the property, and there has been detrimental reliance on that common intention by the claimant such that it would be an equitable fraud on the claimant to deny his or her interest in the property.[41] The onus of proving the parties had a common intention lies on the party asserting the property is held on trust for his or her benefit.[42] 62. The contributions need not be financial. In Salibu v Tarmo [2009] NSWSC 581, a constructive trust was imposed where the claimants proved care and support in return for the granting of a half interest in the deceased s home. In Swettenham v Wild [2005] QCA, a father bought a home and put it in his daughter s name in return for her care of him. It was held her failure to provide the care she agreed she would after the breakdown of their relationship made it unconscionable for her to retain her legal title to the exclusion of her father. 63. Dinsdale bht Protective Commissioner v Arthur [2006] NSWSC 809 is a decision of Brereton J, the facts of which are neatly illustrative of the differences between resulting trusts and constructive trusts Anthony Dinsdale & Dale Arthur were tenants in common in equal shares in a property in Albany. Mr Dinsdale, a chronic alcoholic, was represented by the Protective Commissioner. Mr Arthur was the former de facto of Mr Dinsdale s daughter Mr Dinsdale and Mr Arthur purchased the Albury property on 22 December 1999 for a price of $98,166 including stamp duty and legal fees. The purchase price was funded by: $75,000 from Mr Dinsdale; $23, 166 from Hume Building Society Ltd, which was secured by a mortgage over the Albany property. The loan was a joint obligation (& joint mortgage) of Mr Dinsdale and Mr Arthur and had a limit of $45, Mr Dinsdale lived at the property. From December 1999 May 2001 Mr Arthur unilaterally made drawdowns against the loan account of $22,000, which were for his sole benefit. Mr Arthur made periodic payments of $246 p.c.m. to the loan account between December 1999 and January 2001 with payments totalling $3, In October 2001 the Protective Commissioner was appointed to manage the affairs of Mr Dinsdale, who by that time as a chronic alcoholic has suffered irreversible brain damage. 18

20 Mr Arthur had ceased to make any mortgage payments after May 2001, and Mr Dinsdale had made all the mortgage payments since that date. During that period to the date of trial, in 2006, Mr Dinsdale had made repayments on the Loan Account totalling $18,222. The periodical monthly payments also increased over that period from $285 to $320 p.c.m At the date of trial the Albury property was worth between $175,000 and $225,000, and was subject to the joint mortgage registered by Mr Dinsdale and Mr Arthur as mortgagors to Hume Building Society Ltd as mortgagee which secured a then current balance of the loan account of $39, Mr Dinsdale, by his trustee, claimed that he was entitled to a beneficial interest in Mr Arthur s legal share of the Albury property, pursuant to a combination of (1) a resulting trust arising from unequal contributions to then purchase moneys (in the amount of $75,000: $98,166), (2) a constructive trust based on a Baumgartner equity (of the remaining 23,166: 98,166 interest, half was claimed under a constructive trust) (3) equitable contribution in respect of mortgage repayments made by Mr Dinsdale in excess of his share, and (4) an equity of exoneration in respect of borrowings made for the exclusive benefit of Mr Arthur on a joint security. 64. Brereton J analysed the case thus: Mr Dinsdale was regarded as having contributed $75,000 to the purchase price from his resources, and half of the mortgage moneys of $23, Mr Arthur was to be regarded as having contributed the other half of the mortgage moneys. There was no evidence that would rebut the presumption of a resulting trust, nor any circumstances that would support a presumption of advancement. Accordingly, the Albury property was held upon resulting trust for the parties in proportions 86,583 for Mr Dinsdale and 11,583 for Mr Arthur, which his Honour rounded up to 88: In distinction to a resulting trust, a Baumgartner trust does not arise from contributions, disparate or otherwise, to the acquisition of property. It is imposed where it would be unconscionable for a party upon failure of a joint endeavour to retain the benefit of the other s contributions which were not made on the basis that they would be for the benefit of the other if the joint endeavour failed Where the doctrines of resulting trust, accounting and contribution provide an adequate remedy, there was no unconscionability in insisting upon the position that they produce There was no evidence in that case of a joint endeavour between the parties, in which expenditure is shared for the common benefit, or even of a pooling of resources. There was 19

21 no reason to suppose that each was not pursuing their own separate interest, albeit through investing in one property which each could use for his own advantage. There was no evidence of anything that would ordinarily suggest contemplation of a long-term relationship beyond that of co-ownership. His Honour rejected the submission of a Baumgartner trust As between themselves, persons who are under co-ordinate obligations, such as joint debtors or co-sureties, share the burden pro rata, with the consequence that one who pays more than his or her share is entitled to recover the excess by way of contribution from the other [Albion Insurance Company Limited v GIO (NSW) (1969) 121 CLR 342, 350 (Kitto J)] Mr Arthur s 12% interest in the property was based upon a contribution by him of half of the mortgage advance, which carries with it a commensurate liability to contribute one half of the mortgage repayments. Mr Dinsdale had, to date, made mortgage repayments amounting to $18,222, whereas Mr Arthur had made repayments amounting to only $3,432. Assuming that as between themselves they were each liable for one half of the mortgage repayments, Mr Dinsdale was entitled to contribution for the amount which he had paid or paid in the future in excess of one-half His Honour then dealt with the equity of exoneration, which is a separate topic in and of itself, and is not recorded here. 20

22 Family Law Matters 65. Of course, section 79 deals with disputes following the dissolution of marriages. A long body of case law built upon the bone and cartilage of the Act allows for reasonably defined alteration of property interests based on contribution and future need, allowing for the wide application of judicial discretion. Between spouse parties, the Act has largely done away with the need to frame claims in equity. However as between spouse parties and third party, related or otherwise, equity frequently raises its head. 66. There are many cases that deal with constructive trusts in the family law context. Two examples below are discussed: Gabini [2014] FamCAFC 18 and Vadisanis and Anor [2014] FamCAFC In Gabini [2014] FamCAFC 18 (17 February 2014) the Full Court (Bryant CJ, Finn & Crisford JJ) considered an appeal where the trial judge (Crooks J) had excluded from the asset pool the wife s pre-cohabitation interests in two properties ( the B property and the K property ). In 1992 the wife s mother, aunt and uncle inherited the B property from the estate of the wife s late father in equal shares. The wife borrowed money to buy the two thirds interest of her aunt and uncle (para 48) and the wife s mother s share was transferred into the wife s name with no apparent cash adjustment, meaning the wife was the sole legal title holder of the property (para 15). 68. The wife contended that she agreed to purchase the shares of the mother s two siblings on the basis that she and her mother would hold an equal share in the B property (para 20). The husband relied upon the registered title, arguing that the wife had bought two thirds of the property and held the remaining one third interest by virtue of the presumption of advancement, so that the full value of the B property should have been included in the pool not simply the half share the trial judge included. The Full Court said at paras 22-24: 22. The wife accepts she has a half interest in the B property, but says the remaining half interest, albeit held by her legally, is beneficially held on her mother s behalf. 23. The wife says her sole name is on the title as a matter of convenience. She asserts her mother was unable to obtain finance to assist in the payment of the purchase of her siblings shares. The wife s mother was unable to demonstrate any capacity to repay a loan and given the wife s longstanding employment with a lending institution, her ability to obtain finance was the sole basis for the borrowings. 32 The summary is taken, with permission, from the case notes provided as part of my subscription to The Family Law Book, an online service provide by Rob Glade-Wright. I endorse this service, particularly the Notable Cases summary received each month as part of the subscription. 21

23 24. The wife says that there was an informal agreement that her mother would repay her $13,500 plus interest on the loan to increase her inherited one third share to a one half share in accordance with the arrangement described above. After about three years with her parents having paid her approximately $5000, the agreement changed to the mother paying all the outgoings and the wife paying the balance of the mortgage. 69. It was common ground that in an application for Income Protection Insurance made on or about 19 February 2004 the wife included the B property as her asset ; the wife included the B property in a Bank Statement of Position ; the wife also executed a will dealing with the B property in a manner inconsistent with her position at trial ; previous financial statements of the wife deposed that she owns a 100 per cent interest in the B property and that she utilised her interest in the property to secure loans (para 49). 70. The trial judge concluded that the wife and her mother had a common intention that the wife held one half of the B property for her mother s benefit (para 43). 71. The Full Court said (from para 54): [54]. It was his Honour s task to determine what legal conclusion should have been drawn from the evidence. On the husband s case the presumption of advancement applied; the wife had purchased the interests of her mother s siblings but had been gifted her mother s one third interest. On the wife s case, the facts supported a rebuttal of that presumption and the imposition of a common intention constructive trust [56] Where the presumption of advancement arises, an onus rests on the person seeking to rebut it (Calverley v Green (1984) 155 CLR 242). The wife bore the onus of providing evidence of a contrary intention. [57] The presumption of advancement will be rebutted where there is admissible evidence that the transferor did not intend to gift the property or part of it. In Cummins v Cummins (2006) 227 CLR 278 the High Court held at [65]: whilst evidence of subsequent statements of intention, not being admissions against interest, are inadmissible, evidence as to subsequent dealings and of surrounding circumstances of the transaction may be received. (footnote omitted) [58] The High Court held in Calverley v Green (supra) that the correct time to determine beneficial interests in a property is at the time of acquisition. This is to be ascertained by drawing upon evidence of the acts and declarations before and at the time of purchase or so immediately 22