New South Wales Supreme Court CITATION : Turnbull v Gorgievski [2000] NSWSC 365 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2513/98 HEARING DATE(S) : 5 August 1999; 25 February; 16 and 31 March 2000 JUDGMENT DATE : 8 May 2000 Stephen Turnbull (P) PARTIES : Dobra Gorgievski (D1) Ristana Gorgievski (D2) JUDGMENT OF : Hamilton J COUNSEL : D R Sibtain (P) Miss R Winfield (D1 & 2) SOLICITORS : Williams (P) Delwyn A Bishop (D1 & 2) CATCHWORDS : BANKRUPTCY [209] - Fraudulent disposition of property - Conveyancing Act 1919 s 37A - Proof of intent to defraud. LEGISLATION CITED : Conveyancing Act 1919 s 37A Brown v Brown (1993) 31 NSWLR 582 Calverley v Green (1984) 155 CLR 242 Cannane v J Cannane Pty Limited (In Liquidation) (1998) 192 CLR 557 CASES CITED : Muschinski v Dodds (1985) 160 CLR 583 Napier v Public Trustee (WA) (1980) 55 ALJR 1 Nelson v Nelson (1994) 33 NSWLR 740 Jacobs on Trusts (6th ed 1997) [1210] - [1215] DECISION : Plaintiff's claim to set aside transfer of interest in house property fails. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J MONDAY, 8 MAY 2000 2513/98 STEPHEN TURNBULL v DOBRA GORGIEVSKI & ANOR JUDGMENT His Honour: 1 These are proceedings brought by Stephen Turnbull for an order setting aside pursuant to s 37A of the Conveyancing Act 1919 ("the CA") a transfer of real property as being made with the intention of defauding creditors. The property concerned is a house property known as 10 Megan Avenue, Bankstown ("the property"). The transfer sought to be set aside is a transfer by the first defendant, Dobra Gorgievski ("the son"), and the second defendant, Ristana Gorgievska ("the mother"), as joint tenants, to the mother alone. The consideration is expressed to be $1. The transfer is dated 16 October 1995 and was registered 676184L. The plaintiff is a judgment creditor of the son. 2 The sequence of events relating to the acquisition and transfer of the property and also to the circumstances in which the plaintiff became a creditor of the son is as follows. On 11 January 1988 the plaintiff commenced employment with the Royal Prince Alfred Hospital as a theatre orderly. On 18 January 1988 the son, the mother and Rade Gorgievski, who was the son's father and mother's husband ("the father"), became registered as proprietors as joint tenants of the property. On 22 December 1988 the plaintiff, also an employee of the Royal Prince Alfred Hospital, alleges that there was an incident at work in which the son punched him in the face, breaking his spectacles and driving glass into his right eye, so that it had subsequently to be surgically removed. As a result of this incident, the son was charged with criminal offences. On 24 October 1990 he was acquitted by a jury in the Sydney District Court on a charge of maliciously inflicting grievous bodily harm on the plaintiff, but convicted of an assault upon him occasioning actual bodily harm. He was subsequently sentenced by Gibson DCJ to 300 hours community service, which sentence he served. On 20 March 1991 the father died. On 22 May 1991 the plaintiff was awarded $40,000 by the Victims' Compensation Tribunal in respect of the injury inflicted on him. On 25 October 1994 he commenced civil proceedings in the District Court at Sydney ("the District Court action") against the son for the assault, and the statement of claim in those proceedings was served on 9 November 1994. On 30 November 1994 the son filed a defence in the District Court action. On 9 May 1995 there is a letter from MacMahon Drake Balding, solicitors, to the effect that they had "been instructed to act in the Transfer by Dobra Georgievski [sic] of his interest in" the property. (The letter was to valuers to request a valuation for stamp duty purposes.) In October or November 1995 there were lodged with the Registrar General, first, a notice of death seeking to have the mother and the son registered as the sole proprietors as joint tenants of the property by reason of the father's death, and, secondly, the transfer. Both instruments were registered on 9 November 1995. On 5 December 1997 judgment for the plaintiff on liability was entered by consent in the District Court action and the matter went to hearing for assessment of damages on 29 July 1998. The proceedings having been referred to arbitration, an arbitrator made the assessment of damages. His award was handed down on 18 August 1998. The award in favour of the plaintiff was in the sum of $181,451 together with costs. Judgment was entered accordingly for the plaintiff in the District Court on 18 September 1998. Save in one respect, there was no dispute on the evidence as to the above facts. The son, who admitted in his sworn defence in the District Court action punching the plaintiff in the face, when asked in this Court whether he had hit the plaintiff, denied that he had hit him, although conceding that he had pushed him. 3 The gravamen of the plaintiff's case is that it will be inferred from the sequence of events above that the intention with which the property was transferred by the son to the mother was to remove it from the reach of the judgment which it was anticipated the plaintiff might obtain in the District Court action. The intention to defraud creditors may, where appropriate, be inferred from the circumstances in which the transfer took place: Cannane v J Cannane Pty Limited (In Liquidation) (1998) 192 CLR 557 per Brennan CJ and McHugh J at 566 - 7; Gaudron J at 572; Kirby J at 591 - 2. 4 The case for the mother and the son before me was as follows. The property was purchased for $175,000. There was no clear evidence as to the amount paid for stamp duty and costs, although obviously there would have been expenses of this sort. Of the purchase price, $140,000 was provided by the mother and the father out of their own funds. The balance of $35,000 was raised from the Commonwealth Bank ("the Bank") on the security of a mortgage under which father, mother and son were the borrowers. That loan, together with interest, was subsequently paid off by the father and the mother out of their own funds. The son paid nothing. The defendants' case as to how the son came to be on the title of the property and he, therefore, before the father's death, the owner of a one third, and, upon the registration of the notice of death, the owner of a one half share in the legal estate in the property is as follows. The parents owned outright a house at Newtown ("the Newtown house"). Late in 1987 they desired to sell the Newtown house and buy the property. To purchase the property for $175,000 it would be necessary for them to borrow some $35,000. At the time the mother was not employed. It was necessary from the point of view of the Bank, from which the money was to be borrowed, for the borrowers to include two wage earners. The father therefore asked the son to become a party to the mortgage and to the borrowing and to go upon the title, but on the basis that the parents would repay the whole of the borrowing; that he would not have to pay any part of it; and that his name would be removed from the title if they so requested after the mortgage was paid out. 5 If a purchaser pays a vendor and directs the transfer of the property into the name of another person without consideration passing from that person there is a presumption that that person holds the property upon trust for the purchaser: Napier v Public Trustee (WA) (1980) 55 ALJR 1 per Aickin J at 2. If two or more persons contribute the purchase moneys of property in unequal shares and this property is purchased in joint names, in the absence of a relationship which gives rise to a presumption of advancement, there is a presumption that the purchasers hold it in trust for themselves as tenants in common in the proportions in which they contributed the purchase money: Calverley v Green (1984) 155 CLR 242 at 245 - 7, 266 - 7. There is a presumption of advancement when the purchase money is provided by a parent and the title is taken by a child, Calverley at 267, even an adult child: Brown v Brown (1993) 31 NSWLR 582; Nelson v Nelson (1994) 33 NSWLR 740. All the above presumptions are rebuttable by evidence: Calverley at 267; Muschinski v Dodds (1985) 160 CLR 583 at 589 - 9, 613 - 4, 624. As to the foregoing, see generally Jacobs on Trusts (6th ed, 1997) [1210] - [1215]. Thus, in this case, the son would take his interest beneficially unless the evidence established that it was not the intention of the parties to the transaction that he should do so. And, although he provided some $12,000 of the purchase money by engaging in the borrowing under the mortgage (Calverley at 251), he would not take a beneficial interest even to that extent if it were intended that he should not do so, ie, it is established that it was intended that the parents should repay the loan (particularly if it be proved that they did in fact do so). 6 The son's evidence that went to this question of intention was as follows. In his first affidavit he deposed as follows: "8 I am aware of the arrangements my parents made in respect of the purchase because my father said to me: 'We've got the money from the sale of the house in Newtown and some money in the account but we've got to borrow some money' or words to that effect. 'We need to borrow $35,000 to buy the house and pay the expenses. Your mum is not working and the bank won't lend me the $35,000. If you put your name on the loan, the bank will lend me the $35,000' or words to that effect. He said further: 'Just put your name on it and don't worry about the money. I'll be repaying it' or words to that effect. He said: 'Just as long as they give us the $35,000, don't worry, I'll repay it.' 9 I did not have any conversations with my mother at that time. My father said to me: 'Don't tell her the lot, just tell her we got a small amount of money from the bank.'" Cross examined, the son said: "SIBTAIN: Q. At the time of the conversation which you have set out in paragraphs 8 and 9 of your affidavit, your father said nothing to you about you transferring your interest in the house in which you now live, to your mother after the mortgage had been repaid, did he? A. I can't remember if it was towards that or afterwards. Q. You can't remember? On the evidence you have given, all he said to you was that even though you were signing the mortgage, he wouldn't call on you to pay the money back? A. That's correct. …… Q. The fact is that, on your own evidence, your father never said anything to you about a [sic] arrangement to transfer the house back to your mother at the time the mortgage was signed? HIS HONOUR: I reject that question. ……… SIBTAIN: Q. The fact is, is it not, that there was no such arrangement? A. He said to me that he would take me off the house at any time after the mortgage has been paid. He could take me off it whenever he felt like it, once he had paid the mortgage off." 7 The mother deposed in her first affidavit: "My husband said to me : 'We have to have Dobra's name on the house and on the mortgage because we have to have two people working to get the money from the bank.'" In a second affidavit the mother deposed as follows: "In late 1987, my husband and I went to the Commonwealth Bank at Erskineville to ask for a loan. We saw a bank manager. The bank manager said to me: 'Are you working?' I said 'I am not working.' He said 'We can't give you a loan.' My husband said to me: 'We have to have Dobra's name on the house and on the mortgage because we have to have two people working to get the money from the bank. When you've got a job and we've paid it off, we'll take him off the house' or word [sic] to that effect. We went home to our house in Newtown." In cross examination the mother said that the conversations of which her accounts in her first affidavit and in her second affidavit are respectively is set out above were the same conversation. In that regard she gave the following answers: "Q. Is that the same conversation with your husband as also appears in your second affidavit? A. It was the same. Q. This was after you had spoken to the bank manager? A. Yes. Q. And where did you have that conversation with your husband? A. At home." 8 Both the mother and the son deposed that it was at her instance that his name was removed from the title to the house in 1995. 9 It was put to me by Mr Sibtain, of counsel for the plaintiff, that I ought not accept that any such conversations as are set out above occurred at or around the time of the transaction in 1987. Mr Sibtain says that the only evidence of the relevant intention is in those conversations; that they are accounts given years later; and that they serve the defendants' now cause. They must therefore be approached with circumspection. He points to the fact that the later versions given by each, in the mother's case in her later affidavit and in the son's case in cross examination, are improvements from the point of view of the defendants' case on their earlier versions. He points to the inconsistency between her two versions as to the place where the conversation took place. He points to her acknowledged anxiety to keep the house for which she worked hard throughout a lifetime and which is now her only significant asset as a motivation either for untruth or for a rationalisation which would lead her to believe in an incorrect recollection of the conversations. So far as the son's credit is concerned, Mr Sibtain relies upon the apparent inconsistency of the son's evidence as to the incident with the plaintiff, contrasting his denial before me of a punch with his admission of a punch on oath in his defence in the District Court action. These matters all have considerable weight, and Mr Sibtain is entirely correct in saying that the evidence of the mother and the son must be approached with circumspection. I have also taken into account that the son at the father's request did not inform the mother of the amount of the loan. I am not impressed by Mr Sibtain's submission that it is significant that the son did not ask his father for a writing to verify the father's promise that the son would not have to pay to the Bank the moneys which he had obliged himself to pay by signing the mortgage. Many parents make financial promises to children, or vice versa, which are mostly carried out (although sometimes broken), without either party dreaming to ask the other to put the promise in writing. 10 I have approached the evidence of the conversations with circumspection. Nonetheless, I have come to the conclusion that, on the balance of probabilities, the father did make statements as deposed to to the mother and to the son at or about the time of the purchase of the property. To be quite explicit, I accept that, in addition to the other matters deposed to, he did say both to the mother either at the Bank or after their return home from it, that the son could or would be removed from the title after the mortgage was paid out. I also accept that he said words to the same effect to the son, either at the time of his requesting him to become a party to the mortgage or reasonably shortly afterwards. In making these findings, whilst considering the difficulties that counsel for the plaintiff has raised, I bear in mind my observation of the witnesses in the box and I also bear in mind the surrounding circumstances. Those circumstances include the following. The parents were working people less than 50 years old at the time. Their house comprised most of their financial substance. They had at least two children, the son, and a married daughter, whom they were also inclined to help, as evidenced by the fact that the mother says that at about the time of the purchase of the property they gave that daughter $5,000 towards the purchase of a house, which evidence I accept. It does not seem to me likely in that context that it was their intention to give to their son one third of the property in return for his going on the title and becoming a borrower under the mortgage for a comparatively short time, the amount borrowed being only about 20 per cent of the price of the house. Bearing in mind their age, it is likely that they would themselves anticipate living in the property, or a substitute dwelling purchased from its proceeds, for 20 or 30 years after its purchase, albeit the father unfortunately died only about four years later. In all the circumstances, I have come to the conclusion that the father said that the son would not be expected to contribute any portion of the moneys to be paid under the mortgage; that he said that the son could be removed at his option from the title after the mortgage was paid out; and that the intention of the parents was that the son should not take a beneficial interest in the property under a presumption of advancement. 11 I also find on the evidence that the parents in fact paid all of the purchase money of the house, including the mortgage repayments, and that it is not established that the son ultimately paid any part of the purchase price. Both the mother and the son swear that the son contributed no moneys. The moneys contributed break down into three categories: (1) The deposit of $17,500, which the evidence shows was paid. (2) The balance of the purchase moneys paid on settlement (other than the bank loan of $35,000). (3) The bank loan of $35,000. 12 As to the records of payment, there are some lacunae. These are in part explained by the policy of the Bank proved in evidence to destroy much of its documentation, including client vouchers, after seven years, ie, in the present case, documents before, say, 1992, are not available. Secondly, the mother has produced many of the relevant financial records, such as bank books, but some are missing. In particular, as to item (1) above, one bank book is missing that covers the period of payment of the deposit, although the other relevant bank books are available. The mother in her evidence suggests that during the period covered by the missing bank book she received $24,000 upon the termination of her employment by a clothing factory, and deposited that sum into her joint savings account with her husband, subsequently withdrawing part of it to provide the deposit. It is suggested on the plaintiff's behalf that the loss of this bank book from 1987 is strategic. Perhaps the countervailing view could be taken that it is remarkable and fortunate, going back a dozen years or so, that she is able to produce five out of the six relevant bank books, and that only one is lost. In any event, I accept on the evidence that the $17,500 was not provided by the son. 13 So far as item (2) is concerned, ie, approximately $122,500 paid in cash on completion of the purchase, I accept that about $95,000 of this came from the proceeds of sale of the Newtown house and that the balance was provided by the parents out of their own funds. I accept that the sale price of the Newtown house was $95,000 and I accept the evidence that that house was unencumbered at the time of its sale. Whilst the stamp duty and costs of the transaction are not precisely quantified in the evidence and although the figures do not correspond exactly, the evidence shows that funds were available from the parents' savings to make up the difference between about $95,000 from the Newtown house and the $122,500 necessary (with the $17,500 deposit) to make up the cash component of the purchase price. I find that the parents paid the cash balance of the purchase moneys. 14 As to item (3), I also find that the parents totally repaid the moneys owing under the mortgage. During the father's lifetime the evidence is that he paid the mortgage payment monthly in cash and there are withdrawals from the joint savings account, which do not exactly correspond with, but would cover, those payments. The situation is less clear as to the payments after the father's death, and there is one withdrawal from a bank account of the son of $1,000 on the same day as $1,000 was paid to the Bank in reduction of the mortgage. In my view, it is not established on the evidence that that $1,000 out of the son's account was paid towards the mortgage. Even if it were, a payment by the son to assist the mother at that stage shortly after the father's death would in my view not be of any great significance in this case. 15 It is, of course, for the son and the mother to establish that the presumption of advancement is rebutted. On the other hand, it is for the plaintiff to establish the existence of the requisite intention under s 37A of the CA if he is to obtain relief. If the only evidence were the sequence of events set out in [2] above, there would be a strong case for drawing the inference that the requisite intention under s 37A existed. But the situation becomes quite different once it is established that the son had no beneficial interest in the property. Once that is the situation, it matters little whether the mother simply decided in 1995 that it was time for her affairs to be put in order and that, to do that, the notice of death should be filed, and the son's legal interest in the property transferred to her, or, whether, the son at that stage being the subject of the District Court action in which judgment might be entered against him, either the mother or the son decided that it was more prudent for his legal estate in the property to be transferred to her. In the event, I accept the evidence of the mother and the son, that it was she who asked that the share in the property be transferred, although I cannot and do not make any finding on the evidence as to precisely what it was that led her to do that. But, as she was asking simply that his legal title be transferred, so that the legal title would match the equitable title, it cannot in my view be inferred that the son had an intention responding to s 37A in effecting the transfer. Against that background, I do not find the expression of consideration of $1 as tending towards an inference that there was an intent to defraud. Indeed, it seems to me that the way of proceeding by the solicitor who drew the document reflected the true situation, in that he inserted in the transfer a consideration of $1, and sought a valuation for stamp duty purposes, rather than inserting a consideration that reflected the value of the property. Equally, I am not impressed by Mr Sibtain's submission that honest people would simply have left the title as it was, and, if and when the plaintiff sought to take the house in execution, would then have engaged in some argument in a court that it could not or should not be taken in execution because the son held it as a trustee only. 16 It follows from the foregoing that I decline to find that the son transferred the property with the intention required by s 37A. The plaintiff's claim will therefore fail. …oOo… Last Modified: 09/25/2000 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.