toe 15e|77 LN THO PEDERAL COTIRT_ OF _AMSTRALTA — GENTRAL DIVTSTON BANKRUPTCY DLSTRICT OF TH STATD Wo. W174 of 1976 OF NEW SOUTH WALES AND THE AUSTRALIAN CaPLTAL TERRLTORY RE: RONALD BARMCUP BY to EX PARTE: WI LTAM EDWARD ANDRE ml TJLRWE TE ERS 1) TANS (a mair) and Second Pesepoudents ORDER JUDGE MAKING ORDER: LOCKHART u. WHORE MADE: SYDNEY DATE OP ORDER: 75 OCTOBER 1979 THE COURT ORDERS THAT: Le It be declared that the sum of 16,699.12 (toreiher with interest that has accrued thereon) held by the hambmars Lt Building Society of 55 Gawler Place, Adelaide, South Auslrelie in the yoint names of the bankrupt and the second respondenis 2s not a divisibie asset in the bankrupl estate of Roraid Barnett Jlyams. 2. It be declared that the said sum of 816,699.12 logethes with anterest accrued thereon 1s held by the said building soctiee, upon trust for the first reepondeut. 3. The said sum of $16,699.12 togelher with irterest ~ -2- thereon be paid to the first respondenr. AY The costs of all parties, those of the second respondents being as submitiing respondents, be paid out of the Pund. This order is made by consent. -l]- IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE NO. W174 OF 1976 OF NEW SOUTH WALES AND THE eee we ee AUSTRALIAN CAPITAL TERRITORY RE: RONALD BARNETT HYAMS EX PARTE: WILLIAM EDWARD ANDREW Applicant LIBERTY MORTGAGE UNDERWRITERS (S.A. PTY. LIMITED First Respondent D.J. EVANS (a male) and P.D. MURRAY (a male) Second Respondents REASONS FOR JUDGMENT LS bch 1979 LOCKHART J. This is an application by the trustee of the estate of Ronald Barnett Hyams ("the bankrupt") for a declaration that the sum of $16,699.12 held by the Hindmarsh Building Society of Adelaide in the joint names of the bankrupt and the second respondents, together with accrued interest (I shall refer to the said sum and the accrued interest as "the fund"), is a divisible asset in the bankrupt's estate and a declaration that the trustee is entitled to the fund and an -2- order that the fund be paid to the trustee. The first respondent opposes the application on the following grounds:- (a) that the fund is not a divisible asset in the bankrupt's estate; and (b) that the fund, which represents the net proceeds of sale of certain land at Belair in South Australia on which a house is erected ("the house"), should be paid to the first respondent, now in liquidation, on the ground that the house was held by the bankrupt upon trust for the first respondent. The second respondents are landbrokers of Adelaide who acted on the sale of the house and deposited the net proceeds of sale namely $16,699.12 with the Hindmarsh Building Society of Adelaide. The second respondents submit to the court's order in this application. The issue is whether at all material times the house was held upon trust by the bankrupt for the first neeet met -~3- respondent or was the bankrupt's own property beneficially. It 1s agreed by the trustee and the ficst respondent that the beneficial entitlement to the fund will follow automatically the beneficial entitlement to the house. The following facts are not in dispute. The bankrupt became bankrupt on 12 April 1976. He controlled a number of companies including the first respondent. The first respondent was incorporated in South Australia on 15 June 1972 and was wound up on 14 April 1975. ALL the issued shares in the capital of the first respondent were owned beneficially by the bankrupt. He was a director of the first respondent. A company, Adelaide Estates Pty. Limited, was a director of the first respondent; but it was owned and controlled by the bankrupt. The other director of the first respondent, Philip John Beacroft, resigned on 31 December 1973. He took little, if any, part in the affairs of the first respondent and no part in relation to the activities of the first respondent relevant to this case. Thus the bankrupt controlled the first respondent. On 27 July 1972, an option in writing to purchase the house was granted to the first respondent or its nominee oer ye ee a wan ee eee ee -4- by Englebert Ledwoch and Magdalene lLedwoch. The consideration for the grant of the option was the sum of $10.00 and the purchase price of the house was $18,975.00. The option was to be exercised by notice in writing on or before 3 August 1972. The option fee of $10.00 was paid by one, Gordon Anable, the South Australian manager of the first respondent, and subsequently repaid to him from the funds of the first respondent. an agreement in writing with Englebert and Magdalene Ledwoch I to purchase the house from them for the purchase price of On 3 August 1972 the first respondent entered into $19,065.00. The difference of $90.00 between the purchase price provided for in the option and the actual purchase price is represented by the inclusion of certain furniture in the sale. The agreement for the sale of the house treated the option fee of $10.00 paid on 27 July 1972 as the deposit payable under the agreement. Gordon Anable was the South Australian manager of owe elee em we mes wees ee ase ee eee ee ers o- pe ree me ee -5- the first respondent from the date of its incorporation until his death in 1975. He resided in the house between 1972 and 1975. In 1972, the first respondent opened bank accounts with the Morphett Street branch of the National Bank of Australasia Limited ("the bank"). Mr. A. R. Barnes, the then Manager of that branch, was approached shortly before 2 August 1972 by the bankrupt who requested the bank to lend the first respondent $12,500.00 to assist in the purchase of the house. During the conversation the bankrupt told Mr. Barnes that the first respondent wished to purchase a house tdr the use of its South Australian manager and that it was | td be used by successive managers of the first respondent. The bankrupt requested that the loan be a long term loan. Mr. Barnes had a discussion with Mr. Anable on 2 August 1972 when Mr. Anable reaffirmed that the first respondent wished to borrow the moneys for the purpose of purchasing a house for the use of the local manager of the first respondent and successive local managers. Mr. Barnes told him that 1t was not the policy of the bank to grant housing loans to a company and the such loan would need to be made to an individual. This had also been made clear by Mr. maa + CATCHWORDS: Bankruptcy - whether property held upol tiust: by the bankrupt for a company or wheltner property held beneficially for bankrupt ~ resulting trust. ve; RONALD BARNNTI HYAMS CX PARTE: WILATAN FDWARD ANDREW No. W174 of 1976 LOCKHARE J. 15 OCTOBER 1979 -6- Barnes to the bankrupt at their earlier meeting. Mr. Anable said that he would get in touch with his principal in Sydney and inform Mr. Barnes of the result of the discussion. There was a further meeting on 4 August 1972 between Mr. Barnes and Mr. Anable in which Mr. Anable requested that the loan be made in the name of the bankrupt. He told Mr. Barnes that the repayments would be made by the first respondent with the local manager paying rental to the first respondent. Mr. Barnes told Mr. Anable that this appeared to be a reasonable request, provided the bank's conditions were met. He told Mr. Anable that he had not encountered this type of loan before. Subsequently an application for a loan of $12,500.00 was made by the bankrupt to the bank. It was approved and granted. The bank secured repayment of the loan by a mortgage overithe house. The purchase price of the house was paid as to $12,500.00 by the said loan from the bank to the bankrupt and, as to $6,713.10, by a company, Liberty Developments Pty. Limited ("Liberty Developments"). Liberty Developments, also now in liquidation, is a company which, at all material meen os + - woes ee et ee ee ee meee - oe [rem rem eee ~7- times, was controlled by the bankrupt. By memorandum of transfer dated 4 October 1972 the house was transferred by Englebert and Magdalene Ledwoch to the bankrupt. The first respondent authorised the bank to pay each month from one of its banking accounts with the bank, $150.00 in reduction of the principal of $12,500.00. The requisite authority was signed on behalf of the first respondent by the bankrupt. ' The said sum of $12,500.00 together with interest tHereon was repaid to the bank as follows:- (a) 23 instalments of $150.00 each, totalling $3,450.00, paid by the first respondent and drawn on its account with the Morphett Street branch of the bank; (b) payment of the sum of $5,000.00 by the first respondent on 5 May 1974 drawn on the imprest account of the first respondent with the bank. This payment was specifically om -3- authorised by the bankrupt; (c) payment of $8,657.66 being part of the proceeds of the subsequent sale of the house. The first respondent used its funds to pay the r stamp duty payable on the purchase of the house and the mortgage Fees relating to the loan by the bank. Payments were made from time to time by the first respondent out cf its funds for the purpose of maintaining the house and paying the electricity bills. The bankrupt made two payments of land tax in respect of the house out of his own account with the Commercial Banking Company of Sydney Limited at its @ Castlereagh and Hunter Streets Sydney branch, one for $11.55 and the other for $11.00. By contract note dated 8 June 1975, the bankrupt agreed to sell the house to Charles Anthony Hamlin and Phyllis Patricia Hamlin, for the sum of $26,500.00. By memorandum of transfer dated 28 Novembecs 1975, the bankrupt transferred the house to Mr. and Mrs. Hamlin. meee See ee re er woe ee ee ee ae meee ae -9- After deducting from the sum of $26,500.00 certain costs and expenses and the sum of $8,657.66 payable to the bank as mortgagee, the net proceeds amounted to $16,699.12 and were deposited with the Hindmarsh Building Society by the second respondents. The moneys have been earning interest since then and together represent the fund. I now turn to the facts which are in dispute. The bankrupt claims that subsequent to his conversations with Mr. Barnes in or about August 1972, he decided that the following transactions should take place:- (a) that the house would be purchased in his name; (b) that the house would be made available to Mr. Anable for his occupation so long as he remained the South Australian manager cf the first respondent and subsequently would, at the discretion of the bankrupt, be available for occuption from time to time for future Managers for South Australia of the first respondent; aoe ener me a em ee er ee - Qa ee Oe rr, mT ER ST eT Tee eR ree Rr are em (c) (d) The -10- that the instalments payable to the bank under the mortgage would be paid by the first respondent; and that those payments would not be charged to the bankrupt. bankrupt says that, in forming those intentions, his purposes were as follows:- (a) . that Mr. Anable was an undischarged bank.iupt and, therefore, it was undesirable in his interests that his salary should be increased. It was more in his best interests that he should receive accommodation rather than an increase in salary. The reason For this is obvious namely that, the greater the income of Mr. Anable as an undischarged bankrupt, then the greater the likelihood that an application would be made under s. 131 of the Bankruptcy Act 1966 ("the Act") for an order for payment of part of the income of the bankrupt to the trustee of his -ll- estate for the benefit of his creditors; (b) the bank was not prepared to lend money to the first respondent for the purpose of purchasing the house, but was prevared to lend money to the bankrupt for that purpose; (c) the quid pro quo which the bankrupt required for making himself personally liable to the bank on the mortgage was that the mortgage would ultimately be discharged by the first respondent. The bankrupt gave evidence which is vague and unclear, but is to the effect that in some way, when the mortgage to the bank was discharged, $1,200 or $1,500.00 of the moneys applied to discharge the mortgage were moneys previously deposited by him with the bank. The question is whether the bankrupt held the house on trust for the first respondent. The bankrupt was the registered properietor of an estate in fee simple in the house. The transfer from the rare -12- former owners of the house was to the bankrupt, not the first respondent. He mortgaged the house to the bank and became liable to it to repay the principal and interest. He paid some land tax due in respect of the house, albeit small sums. In these circumstances, 1t would not be lightly concluded that the bankrupt was a trustee of the house. The negotiations that led up to the purchase of the house were conducted by the bankrupt and Mr. Anable. The house was to be purchased by the first respondent until the bank's requirement, that a housing loan must be made to an individual, was made known to the bankrupt. It was then that the decision was made by the bankrupt that he be the purchaser of the house and that he grant the mortgage to the bank to secure the greater part of the purchase price, namely $12,500.00. The bankrupt accepts this; but he claims that, after the discussions with Mr. Barnes, he decided that the house would be purchased in his name, and that he would be the owner of the house. He said in evidence that he took this decision partly because the bank would not lend the money to the company and partly because "I felt 1t was a good buy and worthwhile for me to take the matter up personally". I do not regard the bankrupt as untcuthful; but he is not a reliable witness. I= formed the firm impression that he had rationalised the facts, stemming from his becoming the purchaser of the house, granting the mortgage to the bank and assuming personal liability to the bank for repayment of @ principal and interest, to the point where he regarded himself és being the equitable owner of the house. It is, perhaos, easy for a person to think this when he is at the helm of a group of companies in which he is intensely interested and which he controls, and to regard the funds and property of each member of the group as being, in a global sense, his own property. In my opinion, this is what the bankrupt has done in the present case in relation to the house. I did not find his evidence convincing. I do not accept his explanation that, at or about the time of the purchase of the house, he @ decided that the quid pro quo which he required for making himself personally liable to the bank on the mortgage was that it would be discharged ultimately by the first respondent. My view of the bankrupt is based, not only on his demeanour in the witness box, but on an evaluation of the objective facts. It emerged in evidence that the bankrupt had been convicted of a number of offences including the misuse of property of the first respondent and of another of the bankrupt's group of stu ee ee soe eee wre eee ee ee en a - Pe Fhe meen om ~-14- companies and that he had been sentenced to a term of imprisonment. In ail the circumstances of the case, I do not regard those matters as having any adverse bearing on the bankrupt's credibility. The probabilities do not support the bankrupt's case. If the mortgage payments had been made to the bank out of the funds of the bankrupt and not those of the first respondent, the bankrupt's case would be much stronger; but the fact is that, notwithstanding that the mortgage was granted to the bank by the bankrupt personally (the inevitable result because of the bank's policy as to housing loans) all repayments were made by the first respondent to the bank out of its funds and not the funds of the bankrupt. The bankrupt gave some evidence to the contrary. He said under cross examination:- "Did you make any payments under the mortgage granted to you by the National Bank?--Yes. On the finalisation of the mortgage there was a complex series of transactions between me personally and the National Bank. This followed the sale of -the house?---No. That was a question of some capa tree - wee - we ee ee - meee -15- of the settlement of the proceeds. Whatever was owing at the date of settlement by you to the National Bank was payment out of the settlement monies and paid to the National Bank?---No. I think I had certain monies on deposit with the National Bank and the series of transactions, which I cannot quite recall, where some of those monies were Supplied against the mortgage. Can you tell me what was applied against the mortgage?---I think $1200.00 or $1500.00, as I recall. Do you have any documentary evidence in your possession to substantiate that statement?--—No. You are simply relying on your memory to Support the statement?---I remember it quite clearly because 1t was complex and I did not quite understand the transaction. Other than that payment, did you make any other payments under the mortgage?---Yes, amounts paid charged to my loan account. The payment was $150.00 a month?--~Yes. Who made those payments?---Liberty Mortgage Underwriters (S.A.) pty. Limited. Do you say those payments were debited against your loan account?~--No. In fact, you did not make any payments whatsoever under the moriyage?~--Yes. There were payments made - as I recall, there was one lump sum payment made. And do you say you made that payment?---Made on my behalf. On your behalf by the South Austcalian seine see ee ee -16- company?---No, by the New South Wales companies of the monies standing to my credit in my loan account. That lump sum payment was to assist in the diminution cf the amounts owing under the mortgage?--~-Yes. Was that $5000?~~-Of that order. Would you look at JHJIJ 14 to that affidavit: it 1S a photostat copy of a cheque dated 5 April 1974 for $5000.00?-~-Yes. Is that the sum you were referring to?---As I recall it, that was the money transferred from the New South Wales companies to the South Australian company. is that the sum to which you refer?---Yes. You say that $5000.00 was funded by the New South Wales companies?~--As I recall, yes. Would you please turn to JHJ 16, the fourth paragraph which refers to a payment of $5,000 out of a shopping centre settlement undertaken by Liberty Mortgage Underwriters (S.A.) Pty. Ltd?---Yes. It appears from that ietter which you wrote the $5000 was paid out of funds of Liberty Mortgage Underwriters (S.A.) Pty. ULtd?---I do not say that is definitely correct. I cannot say that is the position. As I understand it, the funes were to have been coming from New South Wales. The settlement referred to in that letter waS a settlement of property owned by Liberty Mortgage Underwriters (S.A.) Pty. Ltd?---Yes. troy -17- The date of your letter is 2 April 1974 and 1f you turn back to JHJ 14 the date on the cheque is 5 April 1974?--~Yes. Do you still contend the $5000.00 payment of that cheque came from some other company than from Liberty Mortgage Underwriters (S.A.) Pty. Ltd?---It would appear from this that may be incorrect, but that was my understanding of the position." @ The bankrupt's evidence as to the payment of $1,200.00 or $1500.00 is too vague to be accepted and it has no documentary support. Further, his attempt to assert that about $5,000.00 was paid to the bank on his behalf under the mortgage was unconvincing, and I do not accept it as a correct statement of fact. Also some $6,713.10 part of the purchase price was paid neither by the first respondent nor the bankrupt but by @ Liberty Developments. I do not regard that fact as supporting the case of the bankrupt, or for that matter, lending any strong support to the case of the first respondent. It is a somewhat neutral matter. Presumably, Liberty Developments had the funds available to enable it to contribute to the purchase of the house, although the evidence is by no means clear as to why it was used as the vehicle for payment of the balance of the purchase price. eye een ee ee - : aAeew ee a a a we me ee wie -~18- Certainly no submission has been made, nor would the evidence support it, that Liberty Developments has a beneficial interest in the house, The bankrupt's case might have been supported if the books and records of the first respondent had been tendered in evidence to establish that, notwithstanding that the mortgage payments were made to the bank by the first respondent, nevertheless they were treated in the books of the first respondent as being made on behalf of the bankrupt. None of those books were produced, the reason being, according to the bankrupt, that although it was Mr. Anable's duty to engage an accountant to write up the books of the first respondent, this was not done. Not only is there no evidence that the payments made by the first respondent to the bank under the mortgage were made on behalf bankrupt, nor did he make any repayments to the first respondent in respect thereof. On the bankrupt's case, he would not be required to pay moneys to the first respondent because of what he called the quid pro quo; but these matters tend against accepting the bankrupt's case as relible and accurate. on ee - nee tee nee - eee we ee COT TRU GA SOT -19- Why the bankrupt paid the smail amounts totalling $22.50 in relation to land tax is not clear from the evidence. No explanation was offered either way on the matter. I do not regard it as having any decisive effect on the outcome of this case. Correspondence 18S in evidence between various persons, including correspondence between the first respondent and the bankrupt relating to events that occurred at or about the time of purchase of the house by the first respondent. I do not regard this correspondence as being of any real assistance in resolving the issues in this case. Some of it supports the case of the first respondent and some the case of the bankrupt. Most of it 1s equivocal so far as concerns the issues in this case. The bankrupt emphasised that his case is supported by the steps which he took after he formed the intention to purchase the house for himself. Those steps were entering into the contract in his own name, completing it, granting the mortgage to the bank himself, the making of payments by the first respondent to the bank pursuant to the mortgage, and the fact that Mr. Anable lived in the house with his family until his death in 1975. spree eee me ee ee mee ee eee tee ee cer nee CR En mene Smee eee ee eee ~20— Each of those steps 1s explicable on what I regard as the more credible and prebable evidence, namely that all the events that occurred after the discussions with Mr. Barnes were because of the bank's requirement that a housing loan be made to an individual, not to a company, and that there was no change in the intention of any relevant person, including the bankrupt, that the house be the property in both law and equity of the first respondent. It was submitted, in the alternative, on behalf of the first respondent that the circumstances surrounding the purchase of the house were such as to create a resulting trust in favour of the first respondent, giving rise to a prima facie presumption in its favour, which was not rebutted on the evidence. A resulting trust is presumed where the person who provides the purchase price directs that the property be transferred into the name of another. The purchase price may be provided in more than one form. In my opinion this is not a case of a resulting trust. It 1s true that the house was purchased in the name of the bankrupt; but the purchase price came from two sources: the bank as to $12,500.00 and . eee a ry rae re ee ery - - Fe RRM I LEN MLTR ene We eee cpr mre ea nt = martes a oe Liberty Developments as to the balance, Liberty Developmenis was the convenient veliicle al the time for payment o1 the balunce. 'The precise velationship between the bankrupt, the faivst respondent and Liberty Developments in reJation to the payment by Liberly Developments of the balance of the purchase price 1s not clear [from the evidence, except that it did not leave Liberty Developments as a beneficiary under a resulting trust. It may have been left as an unsecured creditor of the first respondent. Whatever else the position may be, in my opinion it has not been established that the first respondent provided (the purchase price in the sense spoken of in the decided cases so as to gare rise lo a resulting ltrust. Even if there were a resulling trust, 1t would be my opinion, for the reasons I have gaven, that the presumption of resulting trust had not been rebutled,. Accordingly I make the following declarations and orders:- 1. -22- A declaration that the sum of $16,693.12 (together with interest that has accrued thereon) held by the Hindmarsh Building Society of 55 Gawler Place, Adelaide, South Australia in the joint names of the bankrupt and the second respondents 1s not a divisible asset in the bankrupt estate of Ronald Barnett Hyams; A declaration /that the said sum of $16,699.12 together with interest accrued thereon is held by the said building society upon trust for the first respondent; That the said sum of $16,699.12 together with interest thereon, be paid to the first respondent; and That the costs of all parties, those of the second respondents being as submitting respondents, be paid cut of the fund. This order is made by consent. es Fa " | I certty that thio and tne Yet Seat (1) Pprecec'rg poc-s are a true copy of tha Reasons fer Judgqu-ient herein cf hs K Mr, Justico Loe bart Dated /) sly ft Ae fe Ny a