PI Ba JS (974 JUDGMENT No. 2.2.24, CATQHYORDS avnaniwe usp Sreeeatemeere ay Denkruyptey — whether property Leld upon trust bye tha dankenpt Por a, cenpony or Whetnoxr preperty tesa bonefdletalty For boakpuph ~ resulting trust, ves RONALD BAUNETT HYAMS EX PARTE, WELLTAM EDWARD AMOR No. W174 of 1976 'LOCKHART J, 15 OCHORER 1979 i EN, TUP_REDEP sf COURT OF AUSTRAT A GUNEHAL DIVISSON BANKRUPTCY DISTRICT OF THE StATh - No, W 17% of 1976 CP NEW SOUT WALES AND THR AUSTRALIAN CAPITAL TERRTTORY RE} RONALD BARNETT JIVAMS BX PARTE: WILLIAM EDWARD _ANDPYY Applicant LIBERTY MORTGASE TNDERWRITERS (S.A.) PTY, LIMLIED are aees First Respondent D. J. EVANS (a male) and P. D, NURRAY (a2 male) Second Respondents ORDER JUDGE MAKING ORDER: LOCKHART J. ° WHERE MADE: SYDNEY DATE OF ORDER: 15 OCTOBER 1979 THE COURT ORDERS THAT: 1. It be declared that the sum of $16,699.12 (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 is not a divisible asset in the bankrupt estate of Ronald Barnett Hyams, 2, __It be declared 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, . 3: 'The said sum of $16,699.12 together with interest Aenea alee! oe e/2 therecn be paid to the first respondent, dow fhe costs of al) parties, those of the g6econa respondents being as submitting respondents, be paid out of the fund. This order is made. by consent, -l- IN THE SEOERAL COUNT OP AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE NO. W174 OF 1976 OF_NEW soUTH WALES AND THR AUSTRALIAN CAPITAL TERRITORY meer mes teeters nd: 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 TOR JUDGMENT oo "fs ff ie 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 resposdents, 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 saie 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 5 -3- respondent or was the banirupt's own preperty beneficially, It is agreed by the trustee and the first 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. de 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 off 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 -4- by Englebert Ledwoch and Magdalene Ledwoch. The consideration for the grant of the option was the sum of $10.00 and the purchose 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 hin from the funds of the first respondent. On 3 August 1972 the first respondent entered into an agreement in writing with Englebert and Magdalene Ledwoch tol purchase the house from them for the purchase price of $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 ~5= the firrt respondent from the date of its incorporat'on 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 Wational Bank of Australasia Limited ("the bank"). Mr. A. R,. Barnes, the then INManager 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 for the use of its South Australian manager and that it was to 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 purpese of purchasing a house for the use of the local manager of the first respondent and successive local managers. Mr. Barnes told him that it 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. =6~ Barnes to' rhe bankrupt at their earlier meeting. Mr. Anable said that he would gut 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 lcan by a mortgage over the 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 i times, was controlled by the benkrupt. By memorandum of transfer dated 4 Octover 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 banzing acccunts with the bank, $150.00 in reduction of the principal of $12,800.00. 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) (b) 23 instalments of $150.00 each, tctralling $3,450.00, paid by the first respondent and drawn on its account with the Morphett Street branch of the bank; 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 ~8- authorised by the bankrupt; (¢) payment of $8,657.66 being part of the proceeds of the subsequcnt sale of the house. The first respondent use2 its funds to pay the 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 of 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 Wunter 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 November 1975, the bankrupt transferred the house to Mr. and Mrs. Hamlin. ~~ 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 eerning interest since then and together represent the fund. ! I now turn to the facts which are in dispute, The bankrupt claims that suksequent tc 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 Mc. Anable for his occupation so long as he remained the South Australian manager of the first respondent and subsequently would, at the discretion of the bankrupt, be available for occuption from time to tine for future managers for South Australia of the first respondent; {c) that the instalments paveble to the bank under the mortgage would be paic by the first respondent; and (d) that those payments would nok be charyed to the bankrupt. The bankrupt says that, in ferming those intentions, his purposes were as follows:- {a} that Mr. Anable was an undischarged hankenpt 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 inccease 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 maée under s. 131 of the Bankruptcy Act 1966 ("the Act") for an order for payment cf part of the income of the bankrupt to the trustee of his -ll- estate for the menefit cof his creditors; (b) the bank was not prepared to lend money to the first respondent for the purpose of purchasing the house, but was prepared to Jend money te 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 mortgaga would ultimately be discharged hy the first respendent,. The bankrupt gave evidence which is vague and unclear, but is to the effect that in some way, when the mortgage to the bunk was discharged, $1,200 or $1,500.09 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 -12- former owners of the house was to the bankrupt, not the first respondent, He mortgaged the house to the bank and becane 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, it 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 it was a good buy and worthwhile for me to take the matter up personally". I do not regard the bankrup: as untruthful; but he is not a reliable witness. I formed the €irm 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 vcepayment of principal and interest, to the point where he cegarded himself as being the equitable owner of the house, It is, perhaps, 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 net 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 perscnally 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 bankcupk's group ofr ~Ld- companies and that he had been sentenced to a term of imprisonment. In all the cizcumstances of the cease, I do not regard those matters as having any adverse bearing on the bankrupt's credibility. The probabilities do not supoort 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 inevitadle 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 Wational Bank?--Yes. On the finalisation of the mortyage there was a.complex series of tcansactions between me personally and the National Bank. This followed the sale of the house?---No. That was a question of some ~L5= of the settloament cf the proceeds, Whatever was owing at the date of settlement by you to the tational Bank WAS paynent out of the settlement monies and paid to the National Bank?---Ne. I think 2 had certain monies on deposit with the Waticnal Rank and oe series of transactions, which I annoe quite recall, where some of those monies were supplied against the mortgage. Can you tell me what was applied against the mortgage?-~-I think $1200.90 or $1500.00, as I recall. Do you have any decumentary evidence in your possession to substantiate that statement ?---No. You are simply relying on your memory to Support the statenenc?---I remamber it quite clearly because it as complex and I did not quite understend 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 dehited against your loan account?--~No. In fact, you did not make any payments whatsoever under the mortgage?---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 Australian -16= company?~--io, by the New South wales companies of the monies Scanding ta my credit in ny loan account, That lump sum payment was te assist in the diminuticn of the amouits owing under the mortgayo?--~-Yes. Was that $5000?-~-Of that order. Would you look at JHJIJ 14 to that affidavit: it is a photestat 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 meney 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 JNJ 16, the fourth paragraph which refers to 4a payment of $5,000 out of a shopping centre settlement undertaken by Liberty Mortgage Underwriters (S.A.) pty. Ltd?--~Yes. It appears from that latter which you wrote the $5000 was paid out of funds of Liberty Mortgage Underwriters (S.A.) Pty. Ltd?--~I do not say that is Gefinitely correct. I cannot say that is the position. As I understand it, the funds 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. o The dates of your letter is 2 April 1674 and Lf vou tuscan back to JHJ 14 tha date on the cheyve is 5 April 1974?---Yes, DA yeu still contend the $3090.00 payment of that cheque came from sume cther company than f£rem Liberty Mortdage Underwriters (S.A.) Pty. Ltd?---rt would appear from this that may be incorrest, but that was my understanding of the position." The bankrupt's evidence as to the payment of $1,200.00 or $1500.09 is too vague to be accepted and it has no documentary support. Further, his attempc to assert that abcut $5,006.00 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. blso some $6,713.10 part of the purchase price was paid neither by the first respondent nor the bankrast but by Liberty Developments. I do not regard that fact 4&8 subporting 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. -18- Certainly no submission has been made, nor would the evidence support it, that [Tiherty Developments has a beneficial interest in the honse. The bankrupt's case might hava 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, accorjing to the bankrupt, that although it was Mr. Anablats 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 reguired to pay moneys to the first respondent because of what he called the quid pro quo; but these matters tené against accepting the bankcupt's case as relible and accurate. -19~ hy the bankvupk pala the ssaall emounts totalling $22.50 in celation to lerd tax is not clear f£rem the evidence, No explanation was offered either way on the matter. I do not regard it as having any decisive effect on the ontcone of this case. Correspondence is 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 is 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 naite, 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. Fach of those steps i8 explicable on what £ regard as the more credible and probable avidencea, namsly that all the events that eccurred after the discugsions 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 c£& the first respondent. It was submitted, in the alternative, on behait of the first respondent that the circuastances surronnding the purchase of the house were such as to create a resulting trust in favour of the first respondent, giving rise to a ptima 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 is true that tne 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 Liberty Developments as to the balauce, Liberty Developments was the convenlunt vehicla at the time for payuens of the balance. The precise relationship helween the bankrupt, the first respondent and Liberty Developments in relation to the payment by Liberty Developments of the balance of the purchase vrice Ls 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 credit or 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 give rise to a resulting trust, Even if there were a resulting trust, it would be my opinion, for the reasons I have given, that the presumption of resulting trust had not been rebutted, Accordingiy I make the following declarations and ordersi~ 1. A deslacation that the sun of $16,699.12 (together with inkerest tnat has acerued thereon) held by the Hindmarsh Building Socieny of 55 Gawler Place, Adelaide, South Australia in the joint names of the bankrugk and the second respondents is not a divisible asset in the bankrupt estate of Ronald Sarnett Hyams; A declaration 2. /that the said sum of $16,699.12 tocether with interest accrued thereon is neid by the said building society upon trust for the first respondent; 3. That the said sum of $16,699.12 together with interest thereon, be paid to the first respondent; and 4. That the costs of all parties, those of the second respondents being as subsitting respondents, be paid out of the fund. This order is made by consent. [meteor wortmansn meen | cortify that this and the ov utc pe wee joy) | prececing apes art a tron capy af the fe Reasons for Judgment herein ¢f his Hesour | Bainds SY oe a Doe t