CITATION: Durnford v Chief Commissioner of State Revenue [2003] NSWADT 269 DIVISION: Revenue Division APPLICANT PARTIES: Gordon Alexander Durnford RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 026028 HEARING DATES: 03/12/03 SUBMISSIONS CLOSED: 12/12/2003 DATE OF DECISION: 12/17/2003 BEFORE: Block J - Judicial Member APPLICATION: Duties Act - dutiable property transferred back to transforer by trustee MATTER FOR DECISION: Principal matter LEGISLATION CITED : Duties Act 1997 CASES CITED: APPLICANT REPRESENTATION: B Bilinsky, solicitor RESPONDENT H Roberts, solicitor ORDERS: The decision under review is affirmed 1 The decision under review in this matter is the refusal by the Respondent of an application for a refund of stamp duty amounting to $13490; that amount was levied on 30 January 2002 in relation to a transfer dated 23 January 2002 of the property at Merry Hill, Exeter, New South Wales, Folio Identifier 7/653768 (the "Property") by Heavitree Farms Australia Pty Limited (the "Company") to the Applicant and his wife Jane Lyle Durnford ("Mrs. Durnford") as joint tenants. (The Applicant and Mrs. Durnford are collectively referred to as the "Durnfords"). 2 All of the documentation refers to a matter between the Applicant and the Respondent. It occurred to me after the hearing had taken place, and as I considered all of the evidence before me, to wonder whether it would not have been more appropriate for the application to have been brought by the Durnfords jointly as Applicants; as will be noted the relevant transactions involved both of them. The point was not raised; accordingly I intend to treat the application as properly brought by the Applicant alone and on the basis that if the requirements of section 56 of the Duties Act 1997 (the "Act") had been properly made out the refund claimed should be granted to the Applicant. 3 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act and in addition a very large body of additional written evidence referred to below. 4 The Applicant's bundle of documents consisted of a large spring back folder containing documents separated by lettered tabs, and running initially from A to T (inclusive). During the hearing the Tribunal admitted additional exhibits tendered on behalf of the Applicant and inserted behind tabs UV and W respectively. The documents contained in the Applicant's bundle are denoted firstly by A to refer to the Applicant, and secondly by the letter referable to the relevant tab, and then (where relevant) by the number of the page referable to that particular exhibit. As an example A A 4 would refer to page 4 of tab A of the Applicant's bundle. 5 The Respondent's bundle of documents is even larger that the Applicant's bundle. The documents are also contained in a large folder but where the tabs are numbered and initially from 1 to 31 inclusive. In the case of the Respondent too there were additional tenders during the hearing; the most notable addition was a statement by Mr. Paul Kennedy, ("Kennedy"), a solicitor, and which was inserted behind tab 34. (In addition correspondence between Mr. Byrnes and the Crown Solicitor in November 2003 was inserted behind tabs 32 and 33). Accordingly and again by way of example a reference to R 34 3 would refer to page 3 of exhibit 34 in the Respondent's bundle. 6 The Tribunal also received from each of the parties written submissions (at the commencement of the hearing) and after the hearing had ended. The final submission on behalf of the Applicant consolidated the earlier submission by him and is referred to simply as "A Sub". The Respondent's submissions are denoted R Sub 1 or R Sub 2 in respect of the original and the later submission respectively. 7 Oral evidence was given by each of the Durnfords, called on behalf of the Applicant, and by Kennedy, called on behalf of the Respondent. Each of them was cross-examined, and excepting in the case of Mrs. Durnford, at some length. The oral evidence took up the whole of the hearing day (4 December 2003) allotted and each of the parties was allowed until 12 December 2003 for final submissions. 8 The quantity of written evidence before the Tribunal might suggest that there are very complex issues involved. Any such suggestion would be inaccurate, and in fact the Tribunal considers that much of the evidence tendered is of little or marginal relevance. Lengthy cross-examination as to credibility at times strayed somewhat far afield; the Tribunal does not consider it necessary to deal in any great detail or indeed in some cases at all with evidence, which did not bear on the main issue. 9 R Sub 1 contains a helpful chronology of relevant events; however it is not necessary for me to repeat it in these reasons because the main issue is such that the main focus is and must be on the sale of the Property to the Company in 1992 and its transfer to the Company in 1993. 10 There are in fact only two issues before the Tribunal and as will be seen the Tribunal is not called upon to resolve the second (and legal) issue. The first and major issue and to which nearly all of the evidence related is one of fact. In May 1993 the Durnfords transferred the Property to the Company having sold it to the Company for $350000 approximately a year previously. In January 2002 the Company transferred the Property back to the Durnfords. The relevant issue of fact (the "main issue") is as to whether in the period during which the Company was the registered owner of the Property, it held the property on trust for the Durnfords; I refer in this particular context to section 56 (1) (a) of the Act. The second issue is one of law; the legal issue relates to the question of whether a mortgagee of real property has a beneficial interest in that property for the purposes of section 56 (1) (b) of the Act. Section 56 (1) of the Act reads: "56 (1) If: (a) dutiable property (other than marketable securities) that was transferred to a person is held by that person as trustee for the transferor is transferred back to the transferor by the trustee, and (b) no person other than the transferor has had a beneficial interest in the dutiable property (other than the trustee's right of indemnity) between its transfer to the trustee and its transfer back to the transferor, the duty chargeable on the transfer back to the transferor is $10." 11 Clauses 12 to 20 of A Sub read as follows: 12. Insofar as the unsigned Deed of Trust of 1992 is concerned, the Applicant states that he had a number of files of papers relating to the various transactions and that, as this case progressed, he was able to discover additional documents. He states these files came from Kennedy's office. At the time of his original written Statement of Evidence (AA) he had not been aware of the existence of this document until found amongst his papers after the hearing of the present application had commenced. There is no reason or justification for not accepting this evidence. It is preposterous for Kennedy to suggest that this document may have been prepared whilst his papers were in the possession of Mr. Byrnes, solicitor. Correspondence tendered by the Respondent from Byrnes in no way supports any such allegation. 13. The evidence of Mrs. Durnford is minimal. It would appear that she saw Kennedy once in relation to these various transactions and did not attend his office other than on that one occasion. She is, however, certain that it was always the intention that Merry Hill be continued to be used and occupied by her husband and herself. She was never advised of the legal nature of the transactions proposed. She did not sign the Transfer of Merry Hill in front of Kennedy. 14. The only evidence (other than the bundle of documents) submitted on behalf of the Respondent was the oral evidence of Paul H. Kennedy. He acted for the Durnfords at all relevant times. He was also the subject of negligence actions commenced against him by the Durnfords and also by Wiggins, the company from whom he arranged loans for the Durnfords and for himself. 15. Kennedy's conduct in relation to the transactions relating to Merry Hill can only be described as extraordinary. In particular, the following action taken by him should be noted as indicative of the manner in which he advised his clients and supposedly acted in their interests:- His instructions from Mr. Durnford were quite clear. Merry Hill was to be protected against creditors. He claims that he explained to Durnford the difference between a transfer to a corporation as against a transfer to a corporate trustee. Durnford denies this. He supposedly instructs his friends, Boom and Herbert, to have Winston Readford, Solicitor, act on behalf of Heavitree whilst all the work is actually performed in his office ("in-house"). He explains that this was necessary to avoid a "conflict of interest". He instructs Corporate Network Limited to incorporate a shelf company for Boom and Herbert but to ensure that no reference in the documentation is made of his firm's involvement in the transaction (AC). The instructions to Corporate Network Limited specifically state that the shares are not held in trust for any person. (AC), instructions which he admits were designed to deceive the Commonwealth Bank, so as to place him in a "better position to negotiate a settlement". He explains the need to avoid having Merry Hill transferred to a corporate trustee as being necessary in case the Bank made an enquiry as to whether the company held the property in trust for any person. He is not concerned, however, with deceiving the Bank by not disclosing the existence of two Declarations of Trust in relation to the shares in Heavitree. His explanation as to the legal difference between the company acting as a trustee and the directors/shareholders acting as trustees of the shares is difficult to follow and achieves no different legal result. In each case, a creditor wishing to execute against Merry Hill would be able to do so whether the trust was embodied in the corporation as opposed to the sole directors and sole shareholders. The fact that Kennedy was quite prepared (and probably did) deceive the Bank should suffice in his evidence being regarded as unreliable and being rejected wherever it conflicts with that of Mr. Durnford. Evidence of Kennedy's deception is not only evident in relation to the transactions which led to the original transfer of Merry Hill from Durnford to Heavitree but also in relation to subsequent mortgage transactions. 16. Kennedy denies that Sean Trevelyan was employed by him. Nevertheless, Trevelyan wrote to the Applicant on Kennedy's letterhead requesting that he and his wife sign blank pages to be used to overcome "last minute hiccups". Kennedy also admits that he borrowed money from Trevelyan and that he sought to replace Trevelyan as a director/shareholder of Heavitree. Durnford appears not to have been informed of the nature of the involvement of Trevelyan. 17. Kennedy states that the Commonwealth Bank accepted a settlement of Sixty thousand dollars ($60,000) as opposed to a claim in the order of $3,500,000 to $4,000,000. There is no evidence, whatsoever, of such a settlement other than Kennedy's oral evidence. The evidence should be rejected. The only acceptable conclusion must be that Kennedy represented to the Bank that the Durnfords had no assets other than Merry Hill and that they had sold Merry Hill to a bona fide purchaser for value and that the only funds available to discharge the Bank's mortgage were funds in the order of Sixty thousand dollars ($60,000). 18. Kennedy admits that $80,000 of the additional amount advanced by Wiggins upon the security of Merry Hill was paid, not to him, but to Kennatran Motor Corporation Pty Limited. This corporation had Kennedy's wife and daughter as directors and shareholders and had Kennedy (then an undischarged bankrupt) as Corporate Counsel to that company. He claims that "there was full disclosure to Durnford". In this manner, he felt that there was no conflict of interest, notwithstanding the fact that he considered there would be a conflict of interest in acting for both Durnford and Heavitree in the original transfer of Merry Hill. Moreover, he did not consider it necessary to advise Durnford to obtain independent legal advice in relation to the transaction whereby he was arranging a loan to a corporation involving the solicitor's family, but upon the security of his client's home. 19. The only conclusion which can reasonably be drawn from this evidence was that Kennedy deceived both the Durnfords and Wiggins in arranging for loan funds to be made to a corporation in which he had a substantial controlling interest through members of his family. His conduct in relation to these transactions must lead to the conclusion that they were improper and constituted acts of deception unacceptable of a legal practitioner. Such conduct must also taint his oral evidence and should lead to his evidence being rejected whenever it conflicts with that of the Applicant and his wife. In this regard, it is relevant to note that the Respondent's Counsel sought it necessary to draw to the attention of the Tribunal that Kennedy was not required to give self-incriminating evidence. 20. It is submitted that the Tribunal has no alternative but to reject the evidence of Paul H. Kennedy and to accept the evidence of Mr. and Mrs. Durnford as being truthful and honest. 12 Clauses 8, 9,10, 18, 20, 21 and 22 of R Sub 1 read as follows: "8. The relevant issue, for the purposes of section 56(l)(a) Act is whether Heavitree from 5 May 1993 until 23 January 2002 held the property as trustee for Mr and Mrs Durnford. The Respondent submits that, upon an analysis of all the documentation contained in the matter, it cannot be said that the legal effect of the transactions surrounding Heavitree, its shares and the property gives rise to the conclusion that Heavitree held the property as trustee for Mr and Mrs Durnford. The Applicant bears the onus in this regard: s. 100(3) Taxation Administration Act 1996 (NSW). 9. The shareholders in Heavitree were, at all material times, Terry Boom and Robert Herbert. In accordance with document 2 in the Respondent's bundle of documents, they were still the owners of the shares as at 31 October 2003. However it is also clear that they held those shares in trust for the Durnfords in accordance with the declarations of trust executed on 18 May 1992 (document 23) in the Respondents bundle. However, this does not mean that any asset of Heavitree's (which includes the property) was held in trust for the Dumfords. Indeed, the property was not even held in trust for Messrs Boom and Herbert. 10. A company is not a trustee of its own property for its members: Bowman v Secular Society Limited [1917] AC 406 at 440 - 441; Re Pyke [1974] VR 788. Accordingly, Heavitree did not hold any property on trust for Messrs Boom and Herbert. In such circumstances, it did not hold any property on trust for the Durnfords. 18. It was never the intention that the property be held by Heavitree on trust for the Durnfords. It was the intention that the shares held by Messrs Boom and Herbert be held on trust for the Durnfords but not the property "Merry Hill". Mr Kennedy's evidence is that Heavitree was to be the sole legal and beneficial owner of the property at all times. There was never any trust intended in respect of the property. His evidence is to be preferred over that of Mr Durnford. Mr Kennedy has no material interest in the outcome of the proceedings. Despite the commencement and settlement of professional negligence proceedings against him by the Durnfords, there is simply no reason as to why he would fabricate the intention of the parties to the transaction. Un executed Deed of Trust Prepared in 1992 20. Additionally, in the event that it is accepted that intention is relevant or sufficient then the Respondent submits that the document does not disclose that it was the intention of the parties that the property be held on trust by Heavitree in favour of the Durnfords. Once again, the Respondent submits that the evidence of Mr Kennedy is to be preferred in this regard. He has no knowledge of the document. It was not prepared by him or anyone in his firm. He does not know where it emanated from. Indeed, he specifically states that it is quite contrary to the intention behind the transaction that Heavitree not hold the property on trust for the Durnfords. The author of the Deed of Trust document is unknown nor is it known where it came from. Mr Kennedy is quite adamant in his evidence that the document did not emanate from him or anyone from his firm. Mr Byrnes, in his telephone discussion with the Respondent's solicitor, Mr Twohill, also has no recollection where it came from or who prepared it. He sent his whole file on the professional negligence proceedings back to the Durnfords. 21. Once again, the onus rests on the Applicants. Without specific evidence as to who prepared the document and where it came from, the Tribunal cannot be satisfied, in light of Mr Kennedy's evidence, that it indicates the intention of the parties. The Respondent therefore submits that the unexecuted Deed of Trust does not assist in reaching any determination as to whether it was the intention that Heavitree hold the property on trust for the Durnfords. Guarantee 22. A guarantee and indemnity is contained in document U in the Applicant's bundle of documents filed 20 November 2003. The guarantee is undated. The guarantors are named as the Applicants. Wiggins is the lender. Heavitree is the borrower. Payments are to be made by the Durnfords to Wiggins pursuant to this guarantee: clauses 3 and 10.5. The Applicants enter into the guarantee on their own behalf and as trustee of the Trust: clause 11. "Trust" is not relevantly defined in Item 3 of Annexure "A", the Schedule. Indeed, this item states that "None is known to the Lender at the date of this Guarantee and Indemnity". The guarantee is signed by both Applicants. It is submitted that this document is evidence that it was not the intention of the parties that Heavitree hold the property on trust for the Durnfords. Indeed, no trust is known to Wiggins as at the date of the guarantee. Had it been the intention of the parties, that the property be held on trust for the Durnfords then one would have expected appropriate clauses to be inserted into the Guarantee and Item 3 would have been worded quite to the contrary." 13 Clauses 3 to 8 of R Sub 2 read as follows: 3...The evidence of Mrs Durnford. While Mrs Durnford signed the two statements tendered in the proceedings, her evidence cannot, with respect, be given a great deal of weight. She gave evidence that she was not present on any of the occasions that Mr Kennedy was giving advice or taking instructions in relation to the sale of Heavitree. She said that she did not recall signing the declaration of trust (over the shares) although she agreed she had done so when shown the document; and conceded in cross-examination that her knowledge of matters both at the time and in her statement was based upon what her husband had told her. Significantly, in relation to her understanding of matters at the relevant time, she said in evidence: "My only concern was that we remained in our home". 4. The evidence of Mr Durnford. The oral evidence of Mr Durnford differed somewhat from the evidence in his signed statement, to the extent that he conceded that he did not have an understanding of some of the particular legal terms used in his statement. When asked about the choice of "corporate trustee" rather than "corporation", he agreed that he did not appreciate the legal difference between the two and still does not. He gave evidence that the idea of a trust over the property was never discussed between himself and Mr Kennedy at the time the transaction was being discussed. He would not have known the legal difference between a trust over the property, and the shares in Heavitree being held on trust. He did not have an understanding of the difference between a legal owner and a beneficial owner to any degree of sophistication. In short, Mr Durnford's evidence was that he "trusted his lawyer" to make the necessary arrangements. 5. Importantly, he said that what he wanted to ensure was that his house would be protected from either the ANZ bank or the creditors of Vagatin. He said, further, that he wanted to be in a position where he could have the home re-transferred into his and his wife's name in the future if the situation improved. These were his concerns. He conceded that they had been addressed in practice, by the structure created by Mr Kennedy. He agreed that his understanding that a different trust arrangement would produce different liability to stamp duty was something he gained later, once these proceedings had commenced. 6. In the respondent's submission, this is consistent with the instructions that Mr Kennedy said he took, and the advice he gave as to how the transaction should be structured in order to protect the home from creditors, whilst still leaving the Durnfords in their home. It is submitted that the potential liability to ad valorem stamp duty at a future time when the property was re-transferred, if indeed it was, would have been a matter of little or no significance in the context of a potential debt of several million dollars and the virtual certainty of loss of the family home had steps not been taken. None of the witnesses suggested that it was discussed at any time and no doubt it was not. 7. The unexecuted trust deed. Mr Kennedy gave firm evidence that the unexecuted trust deed was not drafted by him. Mr Durnford conceded in cross-examination that the document was not found in the files that Mr Kennedy returned to him in 2001. He found it in a file he kept, called "Merry Hill", which contained a variety of documents pertaining to the property. Although he maintained that he could not see from where else it could have come, if not from Mr Kennedy, he could not shed any further positive light on the document's origin. Although curious, there is simply insufficient evidence about the document from either party to allow the Tribunal to find that it was a deed intended to be executed by the parties, and reflecting the intentions of the parties at any certain point in time. 8. In the Respondent's respectful submission, the Tribunal is able to make a satisfactory finding of fact in relation to the intentions of the parties to the transaction, without the necessity to make adverse findings of credit against any witness. There is simply no evidence that there was, at the time of the sale of the property to Heavitree, an intention in the mind of either Mr Durnford (or Mrs Durnford) or their solicitor Mr Kennedy that the property Merry Hill would be held on trust for the Durnfords. Such a structure would have been quite contrary to the intention of the parties as it would have defeated the primary purpose of the transaction, that purpose being one on which all witnesses were agreed, to allow the Durnfords to remain in their home and not have it subjected to sale by a mortgagee. 14 The Durnfords furnished two statements one dated 29 July 2003 (contained in A A and referred to as the "first statement") and the other a supplementary statement dated 12 September 2003 (and contained in A B and referred to as the "second statement"). Those statements are additional to a statutory declaration (the "statutory declaration") executed by them on 23 January 2002 15 The evidence of Mrs. Durnford was that her husband, the Applicant (who then reported to her as to what had taken place), conducted virtually all of the relevant negotiations. It follows then that much of the content of their joint statements is, so far as Mrs. Durnford is concerned of a hearsay nature, and to which little weight can be attributed. I should however mention two factual differences between her evidence and that of Kennedy. Her evidence was that she had little or no contact with Kennedy whereas he said that she came to his office at least once in connection with a mortgage variation and that there were a number of visits by him and his wife to the Property. Insofar as there were differences I prefer the evidence of Mrs. Durnford who was in my view an honest witness. This particular question arose in particular in the context of the transfer of the Property to the Company signed by the Durnfords and witnessed by Kennedy. Kennedy's evidence was that she signed the transfer in his presence. Her evidence was, as I have noted, that there was virtually no contact between her and Kennedy. It is likely on balance that Kennedy witnessed the transfer even though he did not see it signed by Mrs. Durnford; however nothing very much turns on this aspect. In respect of another factual difference however the evidence of Kennedy must be preferred because the facts support it. Mrs. Durnford said that she had no interest in Vagatin Pty Limited ("Vagatin") and had given no security on behalf of Vagatin. Kennedy said that both Durnfords granted security on behalf of Vagatin; that this is likely is borne out by the fact that Commonwealth Bank ("CBA") was a mortgagee (although not the first mortgagee) of the Property. This could not have occurred unless Mrs. Durnford, as a joint tenant, had provided security to CBA. To transfer the Property to the Company required a discharge by CBA; the need for that discharge and the manner in which it was procured figured substantially in Kennedy's evidence. 16 The first statement (clauses 10 to 18 only) reads as follows: 10. In 1992 "Merry Hill" was transferred by us to Heavitree for its then full value of $315,000. No deposit was paid by "Heavitree". Of the funds required for the transfer, the sum of $280,000 was advanced by the Wiggins Superannuation Fund, with the balance being provided by us. All monies (both the loan and the amounts provided by us) were applied to pay the debts of Gordon Durnford and Vagatin, as well as discharging the mortgages to the Commonwealth Bank of Australia and the ANZ Bank. Attached hereto and marked "2" is a copy of the settlement statement received following completion of that sale. 11. The stamp duty on the purchase of "Merry Hill" by "Heavitree" was provided by Jane Durnford from her account with ANZ Bank, Young Branch. Attached hereto and marked "3" is a copy of the bank statement and the entry dated 28 July 1992 showing a withdrawal of $11,500, this being approximately the amount of stamp duty payable on the Contract for Sale to "Heavitree". 12. At the time of this transaction, Mr. Kennedy made it quite clear that a trust was being created and that, at any time, we could demand the re-transfer of "Merry Hill" into our names without the payment of further stamp duty, subject only to the repayment of the debt secured on the property. 13. Having received legal advice from Mr. Kennedy, and having been assured by him that the proposed arrangement was to set up a genuine trust which required "Merry Hill" to be re-transferred to us whenever we required, we proceeded to accept the advice and to implement the particular proposal. 14. Although the sum of $296,250.73 was required to discharge the debts to the banks, the amount advanced to us by the Wiggins Superannuation Fund was $280,000 only. 15. Throughout the period of the loan, we continued to pay interest on the sum of $280,000 only. Approximately 12 months later Mr. Kennedy informed us that Wiggins Superannuation Fund had further funds available for loans. We had no need for any further loans. Mr. Kennedy then suggested that the loan be made to him but that "Merry Hill" be used as security for both advances made by Wiggins Superannuation Fund. Subsequently, Mr. Kennedy defaulted in his interest payments and a claim was made for the full amount of the loan. To discharge this loan, we borrowed $280,000 from the National Australia Bank, providing a further amount of $82,000 from our own funds for this purpose. Subsequently, approximately $60,000 was paid to us by the Law Society of New South Wales from the Solicitors Fidelity Fund. In addition to the monies borrowed by Mr. Kennedy on the security of "Merry Hill", he borrowed a further sum of $40,000 from me to assist him to overcome his financial difficulties. This amount was never repaid. 16. At the time Mr. Kennedy's services were terminated by us, we received from him some of our papers. These included the unexecuted Deed of Trust relating to the original arrangement pursuant to which "Heavitree" acquired "Merry Hill". We were not aware of the existence of this document, a true copy of which is attached hereto and marked "4". We were, however, informed that the Deed of Trust should have been executed by "Heavitree" and its directors in 1992. No reason was ever provided to us as to why this was not done. 17. The Deed of Trust accurately reflects the trust arrangements in relation to the sale of "Merry Hill" to "Heavitree" as we then understood it. The reference in the trust deed to the whole of the land in Certificate of Title Volume 11305 Folio 182 is a reference to the land which is now comprised in Folio Identifier 7/653768. 18. At all times, both before and after the transfer of "Merry Hill" to "Heavitree", we remained in possession of "Merry Hill". At no time did the company hold or own any other assets or engage in any business. It was a trustee only. Terry Boom and Robert Herbert at no time took any active part in the company, nor did they guarantee the performance of the company's obligations in relation to any loans. The loan acquired from the Wiggins Superannuation Fund was guaranteed by us and not by the directors of the company. 17 The second statement (clauses 1 and 2 only) reads as follows: 1.We refer to our Statement of 29 July 2003 and by way of further explanation of some of the matters referred to in the said Statement we make the following additional comments:- (a) As to paragraph 5, the advice provided to us by our solicitor, Paul H. Kennedy, was accepted by us as constituting the appropriate means whereby our family home would be protected from creditors. At all times we assumed that our solicitor was acquainted with the law and that the action recommended by him was the appropriate action to be taken in the circumstances. (b) As to paragraph 6, Mr. Durnford met Terry Boom on one occasion at the office of Paul H. Kennedy. Neither of us has ever met Robert Herbert. Both persons were either friends and/or clients of Mr. Kennedy and neither of us had any association or contact with them throughout the whole period that our family home was registered in the name of Heavitree Farms Australia Pty Limited ("Heavitree"). (c) As to paragraph 16, we re-state that we were never aware that a Deed of Trust had been prepared or had to be executed by the Directors of "Heavitree". Had we been made aware of the existence of the document and the need for that document to be signed, we would have insisted on such action being taken. On the evening of Thursday, 11 September 2003, further documents were discovered which are more fully dealt with in paragraph No.2 of this Statement. (d) As to paragraph 18, we re-state that neither Terry Boom nor Robert Herbert took any active part in the Company, performed any of the duties, functions or obligations of Directors of the Company or of the owners/occupiers of the property, "Merry Hill". All outgoings in relation to the property and to the Company were met by us. The only persons who have enjoyed a beneficial interest in "Merry Hill" and obtained any benefit from that property have been ourselves who, at all times, have continued to occupy the property as our home. (e) As to paragraph 19, at the time of the making of that Statement we are not aware as to why the shares in "Heavitree" were not transferred to us at the time Terry Boom and Robert Herbert resigned as Directors of the Company. We have, however, since made enquiries of our present accountant who has confirmed that the Company has no assets and that the Company has not traded. It is proposed to liquidate the Company, in which case no transfers of the shares from Boom and Herbert to us will be necessary. (f) We do not know either Terry Boom or Robert Herbert personally, nor do we know their present whereabouts in order to have them corroborate the statement made by us as to the purpose for which "Merry Hill" was originally transferred from us to "Heavitree", and as to the role they played in the operation of the Company and the enjoyment of the Company's only asset, namely "Merry Hill". 2. On the evening of Thursday, 11 September 2003, we checked a substantial file which had been sent to us by Mr. Kennedy's office approximately two years ago in case there were documents in the file which may be relevant to the present Appeal. The file itself contains many documents which are totally unrelated to the present Appeal. Upon checking the file we found the following documents:- (a) A Deed of Trust dated 18 May 1992 between Terence Reginald Boom as trustee and Gordon Alexander Beaumont Durnford as beneficiary relating to one share held in "Heavitree". A true copy of the Declaration of Trust is annexed hereunto and marked with the letter "A". (b) A Declaration of Trust dated 18 May 1992 between Robert Maurice Herbert as trustee and Jane Lyle Durnford as beneficiary relating to one share in "Heavitree". A true copy of the said Declaration of Trust is annexed hereunto and marked with the letter "B". (c) An undated Transfer of Shares from Robert Maurice Herbert to Jane Lyle Durnford, duly signed by Robert Maurice Herbert, in respect to one share in "Heavitree". A true copy of the said Transfer of Shares is annexed hereunto and marked with the letter "C". (d) A Transfer of Shares dated 2 November 2000 from Terence Reginald Boom to Gordon Alexander Beaumont Durnford, duly signed by Terence Reginald Boom, relating to one share in "Heavitree". 18 The Applicant said that Kennedy acted for him and his wife when they originally purchased the Property, and over the years, which followed, he consulted Kennedy on a number of matters. The Applicant consulted Kennedy in 1992 in connection with his financial difficulties. A media representation business conducted in the name of Lyle Alexander & Co Pty Limited had run down. A development company, Vagatin, in which had had an interest, and on whose behalf he had furnished guarantees, was in severe difficulties. He and his wife were very concerned about the situation of the Property, which was (and still is) their home. There was an area of very real danger in that CBA held security furnished on behalf of Vagatin and the amount owing to CBA was very large (and in the region of $4m). The Applicant was also concerned about the fact that the first mortgage in favour of ANZ Bank ("ANZ") had fallen into arrears and ANZ was pressing for payment of the amount owing. The Applicant said that he usually saw Kennedy on his own although sometimes his wife accompanied him. He was asked in examination in chief whether Kennedy ever discussed the distinction between a transfer to a company in its own right and a transfer to a company in its capacity as trustee of trust. His answer (which was repeated thereafter) was that this was never discussed at all. 19 In cross- examination by Miss Roberts the Applicant repeated that Kennedy did not discuss the distinction between a company and a corporate trustee. He was then referred to clause 5 of the first statement reading as follows: "5. Faced with the threat of losing our home due to our inability to make mortgage payments (being payments of both principal and interest) we consulted our solicitor, Paul H. Kennedy. Mr. Kennedy advised us that we should transfer our family home, "Merry Hill", School Lane, Exeter, to a corporate trustee until the problems with the bank and Vagatin were resolved. He advised that we form a company but that the money required to purchase the home and discharge the debt to the ANZ Bank be provided by one of his clients, Wiggins Superannuation Fund, who would hold a mortgage over the property but which required us to pay interest only. We would continue to remain in our home as tenants until the loan was repaid and the home re-transferred to us." 20 The Applicant said that he could not agree or disagree with that clause because he was not familiar with the distinction between a company acting as a corporate trustee and one which is merely a company. He said also that according to Kennedy, the Property would be transferred to the Company and that the Durnfords could take it back when all Vagatin matters and difficulties had been settled. Kennedy advised that the Property should be transferred to the Company, and said that he had friends who would act as directors and shareholders and that they would hold the Property on trust for him and his wife. 21 The Applicant said that the first statement and the second statement were prepared and executed with the assistance of Mr. Bilinsky, after the latter came into the matter, and according to the Applicant, in order to prepare the statements. (Section 56 of the Act was first raised as an issue after Mr. Bilinsky came into the matter; however no criticism is intended and bearing in mind that the Applicant had no legal knowledge) 22 The Applicant was then referred to clause 6 of the first statement which reads as follows: "6. Mr. Kennedy arranged for two of his friends, Terry Boom and Robert Herbert, to act as directors and shareholders of the company. Mr. Kennedy made it quite clear to us that the two proposed directors/shareholders of the new company would hold their shares in trust for us, one to be held in trust for Gordon Durnford and the other for Jane Durnford. He stated that he would draw up the necessary documents to give effect to this trust arrangement. Much later, we discovered that, whilst the necessary trust document had been prepared, it was never executed by the two directors. No explanation was ever provided to us as to why this omission came about." 23 The Applicant's attention was drawn specifically to the content of clause 6 of the first statement with regard to the share trust arrangement referred to in that clause. His attention was also drawn to R 23 which contains the share trust documents (declarations and transfers) and asked whether these documents did not constitute the trust referred to in clause 6. He was referred in particular to the second sentence. Although that sentence refers, in the view of the Tribunal, in clear terms to the share trust arrangements (and the word "this" in that sentence has the effect that this must be so) the Applicant insisted that he was talking about the trust over the Property. In this contention he was of course not correct. 24 The Applicant said in relation to the second statement (clause 2) that he and his wife had in their possession two files one of which came from Kennedy's office and the other containing miscellaneous documents concerning the Property (and including the unexecuted deed of trust which is annexure 4 to the first statement. That unexecuted deed is referred to in these reasons as the "property document") The second statement contains as annexures the share trust documents which were executed, and consisting in respect of the two issued shares in the Company of a declaration of trust and transfer by Terence Reginald Boom ("Boom") in favour of the Applicant in respect of one share and by Robert Maurice Herbert ("Herbert") in favour of Mrs. Durnford in respect of the other share. The Applicant said that these documents came from the Kennedy file, and that they had been there for some considerable time but that he first checked that file in September 2003. Moreover the property document was in his possession prior to his search of the Kennedy file. (It is in fact referred to in the statutory declaration). 25 The Applicant was asked whether the property document could have come from anyone other than Kennedy. His answer was that this was unlikely. He agreed that the Durnfords took Kennedy's advice and did not discuss it with Kennedy. In general terms the evidence of the Applicant was consistent. The Durnfords wanted to save the Property and consulted Kennedy. He recommended that it be transferred to the Company and they simply accepted his advice. The Applicant did not ever appreciate or understand the legal distinction between a company which owns beneficially and a company owning as a trustee; indeed he said that he still does not understand the distinction. 26 The Applicant was also examined as to clause 15 of the first statement and the settlement with the Law Society. It was put to him that he took action against Kennedy in respect of professional negligence and that the settlement amount was paid, not by the Law Society but rather by Kennedy's insurers, Law Cover. He said that he thought payment was made by the Law Society. 27 The Applicant also gave evidence as to the mortgage in favour of Wiggins Superannuation Fund ("Wiggins") and an on-loan to a company in which Kennedy's wife and daughter were interested. (This will be referred to more fully later in these reasons) He also said that he did not know that Kennedy was an undischarged bankrupt in the early nineties. 28 Each of the first and second statements contains detailed references as to the fact that it was at all times intended that the Company would hold the Property on trust for the Durnfords. In fact the Applicant's evidence, in the clearest possible terms, was that there was no discussion at all of trust concepts or of legal and beneficial ownership, and that these are concepts which, to this day, he does not understand. He and his wife were concerned only with the need to preserve the Property; they consulted Kennedy as to what could be done and then simply followed his advice. He said that he and his wife were concerned only to transfer the Property out of their names on the basis that at some time in the future when all Vagatin difficulties had been resolved they would be able to get the Property back into their names, but would in the interim be able to live in it as they had done for many years past. It follows then that positive and specific allegations contained in the first and second statements as to a property trust arrangement cannot be correct or true since they are inconsistent with the Applicant's oral evidence. I should here mention that it is my view that the Applicant is an honest gentleman whose evidence was clear and unhesitating even when (although he may not have fully appreciated that this was so) that evidence was against him. I very much doubt whether at the time of the transfer of the Property to the Company stamp duty was either mentioned or considered; the primary consideration was the preservation of the Property from the creditors of the Durnfords. The Applicant consulted Kennedy as to a solution and then followed the advice given; as he said on a number of occasions, this was the reason why he consulted a solicitor in the first place. It is possible also in my view that the Applicant did not fully appreciate the fact that to hide assets from one's creditors is both legally and morally wrong; it may be that any moral misgivings were outweighed by a desperate need to save their home, and so that moral scruples (if there were any) were simply put on one side. That stamp duty did not (in all probability) figure in the relevant deliberations is consistent with Kennedy's evidence, to which I will revert later in these reasons. 29 Kennedy's advice was that when the Applicant consulted him about the protection of the Property he did indeed devise and orchestrate the whole structure and scheme. He said that he initially asked the Applicant to provide two nominee directors and shareholders but that the Applicant was unable to do so; mention was made of the Applicant's brother but that he (the Applicant's brother) could not assist because he was overseas. It was in these circumstances that Kennedy procured Boom and Herbert to be the nominee directors and shareholders, and on the basis that they executed the share trust documents. 30 Kennedy's evidence was that it was necessary in order to protect the Property to transfer it out of the names of the Durnfords and so as to establish a low equity for them in the Property (taking into account the ANZ first mortgage) and so as enable Kennedy to negotiate with CBA, in order to induce CBA to grant a mortgage release in consideration of the payment of a comparatively small amount, and small in particular in relation to the very large sum then owing to CBA arising from the failure of Vagatin. The scheme was devised in the first instance to put Kennedy into a position where he could achieve a favourable settlement with CBA. To this end a contract of sale with a long completion period was entered into between the Durnfords and the Company for a price of $350000, which was according to Kennedy a reasonable price at the time. He referred on a number of occasions to the Company as an arms length party in relation to the transfer; of course it was not but it was perhaps integral to the scheme that CBA would be told that the Company was just that. The contract of sale provided for a deposit in the usual way, but, and unusually, the deposit was not paid to a stakeholder but was paid (immediately) to the vendors. In fact no actual money changed hands; the deposit was part of a round robin arrangement. Kennedy said that there would have been a conflict of interest had he acted for the Company and accordingly a solicitor selected by him (Mr. Winston Readford) did so. It is likely that this course of action was also designed to persuade CBA that the sale was a genuine arms-length sale. Suffice it to say that it appears to have succeeded. CBA granted a release so as to enable the transfer to proceed, in consideration for the payment of an amount, which was calculated, according to his evidence, having regard to the apparent equity remaining to the Durnfords, in the Property. 31 It was necessary also to pay out the ANZ mortgage, and in order to obtain a release of their mortgage. To finance the whole scheme Kennedy arranged a loan from Wiggins in an amount of $280000 secured by mortgage and where the Durnfords executed guarantees, which in their terms negated the existence of any trust. The guarantees were couched in the usual strict manner and so that the Durnfords could be sued even without action being taken first against the Company. Kennedy acted for both borrower and lender; he perceived no conflict on the basis that each side knew that he was acting for the other. (His evidence in this context can be contrasted with his evidence as to the need for a separate solicitor in relation to the transfer of the Property to the Company.) 32 Kennedy was adamant about the fact that is that it was never contemplated that there would be a property trust; he said that for the Company to have held the Property on bare trust for the Durnfords would have totally defeated the object of the exercise, since in that event they would have remained the owners (beneficially albeit not legally) of the Property. However, and to protect them the share trust arrangement was entered into; when it was put to Kennedy that the share trust arrangements achieved in substance an objective similar to that which would have been achieved by the property trust his answer in effect was that it was a step removed and moreover resulted in the protection of the Durnfords without their being owners of the Property. He said that he explained all of the implications to the Applicant. 33 Kennedy's evidence was in some respects self-congratulatory in tone. As he saw it he had successfully achieved his mandate. CBA granted a release for a low consideration. The Property was in effect saved and the Durnfords were at all times protected by the share trust arrangement. It was his view that it was never intended, and there was no need, for a retransfer since the Durnfords, through the share trust arrangement controlled the Company, which in turn owned the Property. He said also that a 5A lease between the Durnfords and the Company was prepared. In fact of course and in relation to CBA the successful completion of his mandate depended on a degree of non-disclosure (and including non-disclosure of the share trust arrangement) and probably including the fact that it was at all times intended that the Durnfords did not intend to vacate the Property. It was not put to him that there might be tax reasons (referable in particular to capital gains tax and land tax), which would render a retransfer of the Property desirable. 34 The Wiggins loan gave rise to some complications. Wiggins became entitled according to Kennedy, to repayment of the loan after it previously was extended. The Durnfords (so he said) would have found it difficult to refinance the Property. Wiggins had another $100000 available for investment and wanted one loan and mortgage only. The Durnfords did not need another $100000 and, according to the Applicant, could not afford the extra interest. In the result the Company borrowed the additional $100000 and on-lent $80000 to a company (Kennatran Motor Corporation Pty Limited) in which Kennedy's wife and daughter were interested and where Kennedy acted as its special counsel. Kennedy said that the Applicant was interested in obtaining an equity stake in the borrower company. Notwithstanding that he was then an undischarged bankrupt, he, Kennedy, guaranteed the on-loan of $80000; in respect of that on-loan there does not appear to have been adequate or for that matter any security. A few payments of interest were made before there was default. 35 In all these circumstances it is hardly surprising that actions alleging negligence were brought by both the Applicant and Wiggins against Kennedy. The Applicant said (as I have noted) that the Law Society made a settlement payment but here the evidence of Kennedy that payment was made by his professional indemnity insurers, Law Cover must be correct. Mention was made in brief terms of the fact that there may have been disciplinary action against Kennedy but the result was not in evidence before me. Nor was there evidence as to the outcome of the action by Wiggins and indeed such evidence would have been of marginal relevance only. The legality (and for that matter morality) of the scheme as a whole does not appear to have troubled Kennedy. 36 Kennedy was, as I have noted, firm about the fact that to execute the property trust would have defeated the object of the arrangement. It is clear enough that it was unnecessary to have both of the share trust and the property trust arrangement in place at the same time. In this particular regard the evidence of Kennedy is likely to be correct. It is consistent with his whole approach that the indirect measure of protection afforded by the share trust arrangement was entered into but not (presumably) disclosed, whereas it is unlikely in the extreme that he would have thought it necessary (and indeed would have considered it undesirable as counter-productive) to have the property trust in addition. He denied that the property deed was prepared in his office; he also denied that Sean Trevelyan was ever an employee of his even when confronted with evidence that Trevelyan wrote to the Applicant on Kennedy's stationary in order to procure the signature of the Applicant of pages in blank for a purpose not in evidence before me. Kennedy proffered the suggestion that the property document was prepared after the event in order to make the facts fit the requirements of section 56 of the Act. 37 The evidence of Kennedy was not in all respects satisfactory. He said that he had advised the Applicant that the scheme could not be certain of success and that he explained the implications. His attitude was that the scheme was in the end result successful because the Property was saved. Of course the means employed were distinctly dubious. However the sale and transfer to the Company cannot in my view be regarded as a sham; these transactions did indeed achieve the legal results and consequences which they were designed to achieve. 38 When and in what circumstances was the unexecuted property document prepared? This is unknown. Kennedy said that he did not prepare it and indeed for him to have done so would, as he said, have run counter to the scheme which he had devised. Kennedy said that the solicitor (Beadford) who acted for the Company did not prepare it. It is possible that Kennedy is able to make that assertion because Beadford was in fact acting on his instructions and he was instructed purely in order to indicate to CBA that the sale was bona fide and arms-length in all respects. Nor was any there evidence as to why it was not executed. But the fact that it was never executed (whereas the share trust arrangement was duly executed) must be adverse to the Applicant's assertion that there was a trust of the Property. 39 The probabilities strongly favour the proposition that the need for a property trust was never contemplated or discussed or within the thoughts of any of the participants. The Durnfords would have been concerned about preserving the Property and their control of it; it is likely on the facts that Kennedy assured them that the share trust arrangement would furnish the necessary level of protection. At the very best for the Applicant, he cannot satisfy the onus on him. This being so the provisions of section 56 (1) (a) of the Act are not satisfied, and it is unnecessary for me to consider the legal issue and the complex submissions made for and against the proposition that a mortgagee has a beneficial interest in the mortgaged real property. 40 This case focussed almost exclusively on whether or not there was a trust within section 56 (1) (a) of the Act. Clause 11 of A Sub suggests that the share trust arrangement evidenced the property trust arrangement; that contention is clearly without foundation. However the Applicant's submissions then continue with allegations as to the constitution of a resulting trust. To contend, as does the Applicant, that the existence of the (unexecuted) property deed evidences an intention to transfer the legal ownership only cannot be valid, even assuming that a transfer of the legal title only in this manner is legally possible. It is important to remember that the success of the scheme depended for its efficacy on a transfer of the whole legal and beneficial estate. 41 I should indicate that I feel sympathy with the Durnfords in their predicament; whatever the moralities and regardless of the extent to which they should have been conscious of them, the Durnfords relied on Kennedy. But he was their agent and so that they must bear the consequences of his actions, on their behalves and to which they were willing parties. The scheme depended on their divesting themselves of the Property and so that to retain beneficial ownership though a bare trust would have been, as I have said counter-productive. This being so the probabilities favour the view that there was indeed a share trust arrangement but that there never was a trust over the Property. 42 The Applicant has not sought to rely in specific terms on section 55 of the Act even though that section deals with the concept of a resulting trust, and notwithstanding the fact that A Sub indicates that it is contended on behalf of the Applicant that there was a resulting trust and that that resulting trust was sufficient for the purpose of section 56 (1) (a) of the Act. As Hill in his loose-leaf service says at paragraph 3.3000: "It is necessary that there be two persons, an apparent purchaser and a real purchaser". And Hill make it clear a few pages later, that "It would seem necessary that the whole of the purchase money be provided by the real purchaser and not only some of it" In this instance of course the Company paid the purchase consideration having borrowed $280,000 from Wiggins; that loan was later replaced by finance provided by National Australia Bank. It follows then that the concept of a resulting trust cannot apply, since the Durnfords did not and could not provide the whole purchase price. It is likely indeed that they provided a small part only of the money required to implement the transfer, and indeed this is revealed by their own written evidence. The deposit was, as I have said purely a round robin; it is perhaps this factor which is responsible for the fact that the purchase consideration referred to in clause 10 of the first statement differs from that reflected in the contract of sale,(and see R 22 1) but it does not explain why clause 10 of the first statement asserts that there was no deposit when the contract clearly makes provision for a deposit. It is conceivable that the round robin nature of the deposit had the effect that the Applicant in effect ignored it. It must be remembered that the sale occurred at a time when they (the Durnfords) were experiencing severe financial difficulties, and so much so that the ANZ first mortgage was in arrear and ANZ was seeking payment. 43 The Respondent contended in R Sub 2 that it would be unnecessary for me to make findings of credibility in relation to the oral evidence before me. In my view that contention was broadly correct. As I have noted, the evidence of Kennedy was in some respects open to criticism, but it does not follow from that that I should reject his evidence as to the fact that there was a share trust and not a property trust. Indeed the nature of his evidence was such as to lead me to consider that it is likely that he would, in formulating the scheme, have selected a method which granted a measure (and an indirect measure) of protection to the Durnfords but which did not require the transfer of the retention of the beneficial interest in the Property itself. 44 In the circumstances the decision under review must be affirmed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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