Reported Decision : (2007) ANZ Conv R 290 New South Wales Supreme Court CITATION : Tesoriero & Anor v Tesoriero & Anor [2007] NSWSC 54 HEARING DATE(S) : 29 & 30 January 2007 JUDGMENT DATE : 9 February 2007 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Judgment for Plaintiffs. CATCHWORDS : RESULTING TRUST – whether presumption rebutted by evidence of actual intention by Plaintiffs to make a gift. - UNCLEAN HANDS – Plaintiffs created resulting trust to avoid capital gains tax and land tax – whether purpose of Plaintiffs has immediate and necessary relation to equity sued for. LEGISLATION CITED : Real Property Act 1900 (NSW) – s.57(2) - Meyers v Casey (1913) 17 CLR 90 CASES CITED : - Nelson v Nelson (1995) 184 CLR 538 - Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 - Tonkin v Cooma-Monaro Shire Council [2006] NSWCA 50 Robert Tesoriero – First Plaintiff PARTIES : Marjorie Tesoriero – Second Plaintiff Lee-Ann Vicki Tesoriero – First Defendant Frank Boskovic – Second Defendant FILE NUMBER(S) : SC 4429/04 COUNSEL : L.J. Ellison SC – Plaintiffs S.A. Sirtes – First Defendant Dormers Legal – Plaintiffs SOLICITORS : De Losa Burke & Elphick – First Defendant Adrian Holmes – Second Defendant (no appearance) 4429/04 Tesoriero & Anor v Tesoriero & Anor JUDGMENT 9 February, 2007 Introduction 1 The First Defendant ("Mrs Boskovic") was formerly the de facto wife of the Plaintiffs' son, Mr John Tesoriero ("John"). She is the sole registered proprietor of a residential property in Legana Close, Fingal Bay ("the subject property"). It is not now in dispute that the whole of the acquisition cost of the subject property was provided by the Plaintiffs. 2 The subject property was purchased in July 2003. The relationship between Mrs Boskovic and John broke down in August 2003. Mrs Boskovic continued living in the property. In January 2005 she married the Second Defendant, who now lives in the property with her. 3 The Plaintiffs claim that the subject property, having been acquired wholly with their money, is held by Mrs Boskovic upon a resulting trust for them. They seek a declaration to that effect, an order that Mrs Boskovic transfer the land to them, an order for possession as against both Defendants, an account of mesne profits and damages. 4 By her Further Amended Defence, as modified by final submissions, Mrs Boskovic says that: – the Plaintiffs provided the whole of the acquisition cost of the subject property with the intention that Mrs Boskovic would have the whole of the legal and beneficial interest absolutely and unconditionally; – alternatively, the Plaintiffs represented to her that she had an interest in a property at Elanora Heights registered in their names, that they had purchased the subject property from the proceeds of sale of the Elanora Heights property, and that the subject property was to be unconditionally and exclusively owned by Mrs Boskovic; – Mrs Boskovic relied on these representations to her detriment so that the Plaintiffs are now estopped from asserting a resulting trust; – alternatively, if the subject property is beneficially owned by the Plaintiffs upon a resulting trust, that trust was created for the purpose of allowing them to avoid capital gains tax and land tax, so that the Court should refuse to give effect to it or to assist the Plaintiffs, because of illegality or unclean hands; – alternatively, if the Plaintiffs did not intend to make a gift of the subject property to Mrs Boskovic, they intended that their beneficial interest in the property should be held by them upon a secret trust for John, so as to defeat his bankruptcy creditors or so as to defeat Mrs Boskovic's rights to a settlement out of the property upon termination of her relationship with John, so that the Court should refuse to give aid to the Plaintiffs because of illegality or unclean hands. Uncontested facts 5 The First Plaintiff is now eighty-seven years of age and the Second Plaintiff is eighty-six. Prior to his retirement, the First Plaintiff owned a car dealership business which John managed for some time. 6 John and Mrs Boskovic commenced living together in a de facto relationship in 1994. Both had been previously married. There were two children of their relationship. Mrs Boskovic had two children from her previous marriage. 7 In about May 1996 John purchased in his name alone a property at Elanora Heights for $380,000 in which he, Mrs Boskovic and the four children resided. The deposit was provided by the Plaintiffs and the balance of the acquisition cost was provided by a mortgage. 8 By July 2001 John was in severe financial difficulties. On 28 September 2001 he sold the Elanora Heights property to the Plaintiffs for $680,000. There is no dispute that the Plaintiffs paid this amount to purchase the property, that the purchase price was a reasonable market price and that the proceeds of sale were used by John to discharge the mortgage over the property and to pay his other debts. 9 The Plaintiffs permitted John, Mrs Boskovic and the children to continue living in the Elanora Heights property, paying no rent. The Plaintiffs say, and I accept, that they did so because they wanted to assist John and his family by providing secure accommodation for them until John's financial situation improved. 10 John's financial situation did not improve. On 8 July 2002 he was made bankrupt. The following month he had a stroke. He and Mrs Boskovic moved to rented accommodation at the subject property. As John had no assets and was not employed, they were assisted in their living expenses by the Plaintiffs. 11 The Plaintiffs had assisted John financially for many years. They had mortgaged their family home at Lindfield to provide cash for a property settlement between John and his former wife. They had mortgaged two properties in September 1995 to secure a loan of $150,000 to John. In August 1998 they refinanced their mortgage debts to provide a further $77,000 to John. They had purchased the Elanora Heights property from John in September 2001 and had mortgaged that property to provide the purchase price. 12 There is no dispute that by November 2001 the Plaintiffs themselves were in financial difficulty because of the borrowings which they had undertaken in order to assist John. They defaulted under their mortgage over the Elanora Heights property and the mortgagee gave a notice under s.57(2)(b) Real Property Act 1900 (NSW). By November 2002 they had also defaulted under their mortgage over their Lindfield home and a s.57(2)(b) Notice was served. 13 In December 2002 the Plaintiffs placed on the market for sale a property in Horace Street Shoal Bay which they owned as an investment. They did not receive an acceptable offer. They then sold the Lindfield home for $930,000. The sale was completed on 28 April 2003 and, after discharge of the mortgage on the property and the payment of costs and expenses of sale, the net proceeds of sale, about $400,000, were paid into the Plaintiffs' joint bank account. The Plaintiffs went to live at a home unit which they owned in Nelson Bay. 14 The Plaintiffs also placed the Elanora Heights property on the market for sale. It was sold for $850,000, the sale being completed on 4 July 2003. The proceeds of sale, namely about $212,000, were placed in the Plaintiffs' joint bank account. 15 In early 2003, the subject property, which Mrs Boskovic and John had been renting, came onto the market for sale. John discussed with the Plaintiffs the purchase of the property. The Plaintiffs decided to purchase the property and to sell their property at Horace Street. The Horace Street property was sold on 14 May 2003 although the sale was not completed until September. 16 In circumstances to which I will come shortly, on 15 May 2003 Mrs Boskovic entered into a contract to purchase the subject property for $530,000. John instructed the solicitor acting on the purchase and the Plaintiffs paid the solicitor's costs of the conveyance. The sale was completed on 9 July 2003. As I have noted, Mrs Boskovic does not dispute that all the acquisition cost of the subject property was provided by the Plaintiffs, out of the proceeds of sale of the Elanora Heights property and the Lindfield property. 17 On 25 August 2003, just over a month after the purchase of the subject property was completed, the relationship between Mrs Boskovic and John came to an end and John vacated the property. Mrs Boskovic and her children remained in occupation of the property. 18 On 2 October 2003, the Plaintiffs' solicitor wrote to Mrs Boskovic as follows: "We act for Mr & Mrs Tesoriero Senior, from whom we have instructions in relation to the property in which you presently reside at 10 Legana Close. As you are aware, Mr & Mrs Tesoriero are the parents of John, with whom you have been living in a de facto relationship for many years. We are instructed that your relationship with John has now ended and you are separated from him. You have remained in the house with your children but we are instructed that the situation cannot continue indefinitely. Shortly stated, we are instructed the facts are as follows:– 1. On about 15 May 2003 a contract for the purchase of 10 Legana Close, Fingal Bay was exchanged by Graham Barrett Solicitor of Nelsons Bay. You were nominated in the contract as purchaser. 2. A 5% deposit was paid on exchange of contracts from monies provided by Mr & Mrs R. Tesoriero, as you were aware. 3. The balance of purchase monies together with stamp duty and expenses were paid by Mr & Mrs Tesoriero out of their own funds, as you are also aware, on or about 9 July 2003. 4. The contract was completed on or about 9 July 2003 and the title eventually issued in your name alone as the registered proprietor. 5. As you are also very well aware, the primary reason why the house was put into your name by arrangement with Mr & Mrs Tesoriero, through their son John, was that he is a bankrupt and therefore cannot hold property. 6. You were also aware at the time that Mr & Mrs Tesoriero provided the necessary funds for the purchase of the house, partly for the reason that John and you and the family could remain in the area where they were also living and in order to keep the family together. 7. There was never any intention on the part of Mr & Mrs Tesoriero to make a gift of the title of the property to you. 8. You hold the title to the property upon trust for Robert and Marjorie Tesoriero. 9. You have not made any financial contribution to the purchase of the property. In order to give effect to our clients' instructions and request that the title to the subject property now be placed in their name as the beneficial owners, we are enclosing herewith a form of Memorandum of Transfer. We would ask you to make the necessary arrangements for the execution of the Transfer by signing it where indicated, having your signature witnessed by some independent adult person who knows you, and returning it to us. It would for example, be desirable if you could see the solicitor who acted for you on the purchase of the property to witness your signature to the Transfer. We are also instructed to advise you that the Transfer must be executed and returned to us within fourteen days from the date of this letter, otherwise we anticipate our clients will issue instructions for process to issue for an Application to the Supreme Court of New South Wales for appropriate orders and the costs of those proceedings will be sought against you." 19 On 14 October 2003 Mrs Boskovic's solicitor responded as follows: "We act for Lee-Ann Tesoriero who is in receipt of your letter of the 2nd October, 2003 relating to the abovementioned property. We are instructed that it is correct that the relationship between Mr and Mrs Tesoriero has broken down irretrievably. While not all the claims in your letter are denied it is correct that our client is the registered proprietor of the premises. Your letter carefully avoids siting [sic] a number of salient facts which we believe will be of great relevance should your clients carry out their threat. Our client does not presently intend to transfer the premises." On 10 August 2004 the Plaintiffs commenced these proceedings. 20 Mrs Boskovic married the Second Defendant in January 2005. She and the Second Defendant remain in possession of the subject property. The Second Defendant has not participated in the trial and submits to such order as may be made, save as to costs. Whether the Plaintiffs intended to make a gift 21 Ms Sirtes of Counsel, who appears for Mrs Boskovic, rightly concedes that, as the whole of the acquisition cost of the subject property was provided by the Plaintiffs, a presumption of a resulting trust arises in their favour and that Mrs Boskovic bears the onus of rebutting the presumption by establishing that the Plaintiffs had an actual intention to make a gift of the property to her. 22 The Plaintiffs' actual intention in procuring the purchase of the subject property in the name of Mrs Boskovic is a question of fact, to be ascertained by reference to what the Plaintiffs said and did at the time, in the context of the surrounding circumstances. The Plaintiffs' evidence as to their subjective intentions is certainly admissible but, of course, it must be examined critically in the light of the facts and circumstances existing at the time of the transaction. 23 Mrs Boskovic does not say that the Plaintiffs ever told her that they were making a gift to her of any legal or beneficial interest either in the Elanora Heights property or in the subject property. She relies on a number of statements made by John to her as to her position in relation to the Elanora Heights property and in relation to the subject property (which are denied by John) but she neither pleaded nor proved that the Plaintiffs expressly or implicitly authorised John to make any statements to her as to her interests in either property so as to bind the Plaintiffs. 24 In essence, Mrs Boskovic's case is that the court should infer an actual intention on the part of the Plaintiffs to make a gift of the subject property to her absolutely, by reason of the following circumstances: – the Plaintiffs caused the subject property to be purchased in Mrs Boskovic's name; – Mrs Boskovic is the mother of their grandchildren and was at the time the de facto wife of their son; – the Plaintiffs had a prior history of providing financial assistance for the benefit of their son and his family. 25 The Plaintiffs have given evidence of their actual intentions. Both Plaintiffs are somewhat frail but their comprehension is perfectly sound. The First Plaintiff has a good grasp of business matters and of the legal implications of the transactions in which he engaged, although in layman's terms. Sometimes the First Plaintiff was a little confused by questions in cross examination but, on the whole, he gave his evidence clearly and firmly. The Second Plaintiff has much less understanding of business transactions and their consequences because, as she said, she left such matters to her husband. However, she gave her evidence firmly and clearly on the essential issues. 26 Both Plaintiffs were unshaken in their evidence that they had never had any intention of making a gift to Mrs Boskovic of any interest in the subject property or, for that matter, in the Elanora Heights property. Their evidence was consistent in all material respects. They said that they had purchased the Elanora Heights property because John was in financial difficulties and they wanted to assist him with cash to meet his debts, and also because they wanted to provide secure accommodation for him and his family in case he was made bankrupt. 27 The First Plaintiff said that he and his wife were "pretty annoyed" when John first suggested to them that they should buy the subject property for his family to live in because they had had to sell their Lindfield home, in which their family had lived for more than forty years, as a result of their previous attempt to help John out of his financial difficulties. However, he said, John later suggested that the Plaintiffs sell the Horace Street property, which was an investment, and buy the subject property as an investment in substitution. The First Plaintiff said that he agreed with the suggestion, because it would also provide secure accommodation for John and his family. As John had no money, he decided that he would not require John and Mrs Boskovic to pay rent, at least until John's financial situation improved. 28 The First Plaintiff said that he decided to purchase the subject property in the name of Mrs Boskovic rather than in the Plaintiffs' names because he wanted to avoid capital gains tax and land tax. He could not buy the property in John's name as John was an undischarged bankrupt. He said that he understood that if he put the property in Mrs Boskovic's name, she would hold it on a resulting trust for him and his wife because they had provided all of the acquisition cost. He said that he was familiar with the concept of a resulting trust from previous property dealings. 29 The Second Plaintiff, while unaware of the details of the transactions which were decided upon by her husband, corroborated his evidence that the subject property was an investment for themselves but was also provided to John and his family as rent-free accommodation while John was bankrupt and in financial difficulty. 30 I accept the Plaintiffs' evidence as to their intentions of the time of acquisition of the subject property. My reasons are as follows. 31 First, it is highly improbable, in my opinion, that the Plaintiffs would have intended to make an absolute gift of a very substantial part of their remaining assets to Mrs Boskovic, John's de facto wife, or to make a secret gift to John himself. They were elderly and in difficult financial circumstances and they had already suffered substantial financial loss as a result of financial assistance which they had previously given to John, to the point of having been forced to sell their family home. While the Plaintiffs are obviously very supportive of John, they are not, to my observation, generous to the point of blindness to their own interests. It is inherently probable, in my view, that they wished to retain the subject property as an investment for themselves. 32 Second, I do not find it implausible that the Plaintiffs would want to put the subject property in the name of someone other than themselves in order to avoid capital gains tax and land tax. The First Plaintiff has had some little history of property dealings, particularly for investment. He would be well aware of the tax consequences of having the Plaintiffs' investment in the subject property in their own names. 33 The Plaintiffs were asked why they did not put the subject property in the name of someone other than Mrs Boskovic. The First Plaintiff said that he could not really think of anyone else. The Second Plaintiff said that her other son was intellectually disabled and that her daughter would not have agreed. In those circumstances, if the Plaintiffs wanted this investment to be held on a trust in the name of someone else, but not John because of his status as an undischarged bankrupt, and if they wanted the investment to be used, at least temporarily, as rent-free accommodation for John's family, putting the subject property into the name of John's de facto wife would have been an obvious choice, particularly as the Plaintiffs did not know of the fragility of the relationship between John and Mrs Boskovic at the time. 34 Third, I accept that the Plaintiffs, by reason of previous property dealings, were aware of the concept of a resulting trust. Both Plaintiffs explained the position of Mrs Boskovic as resulting trustee as being "like a caretaker" for them. 35 I do not find it significant that the Plaintiffs did not procure Mrs Boskovic to enter into some sort of written agreement acknowledging her position before they procured the property to be placed in her name. First, in their understanding, a resulting trust would arise simply by virtue of their having provided the acquisition cost for the property. Second, because of the family relationship with Mrs Boskovic, there may well have been an element of informality and trust in the Plaintiffs' attitude to the transaction. 36 For these reasons, I am satisfied that the Plaintiffs had no intention of making a gift of the subject property to Mrs Boskovic and to John and that they had an actual intention at the time of the acquisition that the property should be held by Mrs Boskovic on a resulting trust for them, as an investment in the long term and, in the short term, to provide secure, rent-free accommodation for John and his family during their financial difficulties. Representations 37 Mrs Boskovic contends that prior to the acquisition of the subject property the Plaintiffs represented to her that: – the money that they were providing for the acquisition had come from the proceeds of sale of the Elanora Heights property, in which both she and John had an interest; – the subject property was unconditionally and exclusively to be owned and used by her as her family home in which to raise her children. 38 Mrs Boskovic says that she relied upon these representations to her detriment in entering into the contract to purchase the subject property in her name, whereby the Plaintiffs are estopped from asserting a resulting trust. 39 Ms Sirtes properly concedes that there is no evidence that either of the Plaintiffs made either of the alleged representations to Mrs Boskovic. 40 John says in his evidence that prior to the acquisition of the subject property he explained to Mrs Boskovic that his parents would be purchasing the property as their investment but in her name and that she understood that she would be holding it on a resulting trust, "like a caretaker" . 41 Mrs Boskovic's defence of estoppel founded upon representations fails, for the following reasons. 42 First, there is no evidence that the Plaintiffs actually made the alleged representations. As I have noted above, it was not pleaded or proved that the Plaintiffs authorised John to make any representations to Mrs Boskovic on their behalf. In any event, John denies that he made such representations. 43 Second, I am far from satisfied that Mrs Boskovic believed at any material time that the subject property was to be owned beneficially by her. It is significant that when the Plaintiffs' solicitors wrote to Mrs Boskovic in October 2003 setting out carefully the facts and circumstances in which the Plaintiffs had provided the acquisition cost of the property and asserting a resulting trust, Mrs Boskovic, through her solicitors, did not deny those facts nor did she assert that she had been led to believe that the property would be owned beneficially by her. She simply refused to give possession for reasons not stated. 44 Third, John's evidence that at the time of the acquisition he explained his parents' actions and intentions to Mrs Boskovic is inherently probable, particularly in the light of Mrs Boskovic's failure to assert in her solicitor's letter a belief that she owned the property beneficially. Secret trust 45 Because of the findings I have made as to the actual intentions of the Plaintiffs in acquiring the subject property, Mrs Boskovic's defence founded upon the allegation of a secret trust fails. Illegality and unclean hands 46 I accept that, as the Plaintiffs have asserted, the reason that they purchased the subject property in the name of Mrs Boskovic was to avoid having to pay capital gains tax and land tax on their investment. Mrs Boskovic says that the resulting trust was constituted to further an illegal purpose and that it should not be enforced by the Court. 47 There is no general proposition that equity will let the loss lie where it falls in the case of illegality consisting of the contravention of a statute. The Court's refusal to enforce a trust on the ground that it furthers or is associated with a purpose made illegal by statute depends upon identifying a public policy to that effect manifested in the statute: Nelson v Nelson (1995) 184 CLR 538. Close attention must be given to the scope and purpose of the statute in order to determine whether it intends that a contravening transaction should be unenforceable or should attract only the sanctions which are specifically provided: Tonkin v Cooma-Monaro Shire Council [2006] NSWCA 50. 48 Ms Sirtes has not taken me to any of the legislation dealing with capital gains tax or land tax in order to identify any public policy which may be said to deny the enforcement of the resulting trust in this case. She has not taken me to any decided case which discusses the question of enforcement of resulting trusts constituted for the purpose of avoiding land tax or capital gains tax. She has done no more than make the bald assertion that the resulting trust in the present case is unenforceable for illegality. Naturally, Mr Ellison SC, who appears for the Plaintiffs, made no submission of any particularity at all in order to rebut the contention of illegality and unenforceability. 49 Whether the policy of a statute is to make unenforceable a resulting trust in the facts and circumstances of a particular case is often a complex and difficult question. When Counsel declines to advance to the Court any submission at all to support an assertion of unenforceability for illegality, it is not the Court's function to devise for itself arguments to flesh out that assertion in order to deal with it. If the Court were to do so, there would be a real risk that it would devise arguments in support of the submission of greater force than Counsel could have devised, persuading itself of the validity of those arguments in the process, particularly as opposing Counsel would not have had the opportunity of arguing to the contrary. The Court's impartiality should not be compromised in this way. 50 I decline to uphold the contention that the resulting trust in the present case is unenforceable for illegality in the absence of any worthwhile submission in support of that contention. 51 To the extent that the defences of illegality and unclean hands are founded upon an alleged intention on the part of the Plaintiffs to defraud John's bankruptcy creditors by means of a secret trust, those defences must fail because no such intention was established by the evidence, for the reasons which I have given above. 52 To the extent that the defence of unclean hands is founded upon the intention of the Plaintiffs to avoid capital gains tax and land tax by placing the subject property in the name of Mrs Boskovic, that defence also fails, for the following reasons. 53 First, purchasing the property in the name of Mrs Boskovic with an intention to avoid revenue impositions does not constitute a legal wrong done by the Plaintiffs to Mrs Boskovic. To allow the Plaintiffs to have the benefit of the resulting trust would not be to permit them to take advantage of a wrong done by them to Mrs Boskovic. 54 Second, the creation of the resulting trust cannot in itself be a contravention by the Plaintiffs of any statute. The subject property has not been sold so that the Plaintiffs have not yet failed to pay any capital gains tax. There is no evidence as to what, if any, land tax might have been payable by the Plaintiffs had the subject property been purchased in their name. 55 Third, if the equity sued for by the Plaintiffs, namely a declaration of resulting trust and an order for transfer of the property into their name, is granted then the Plaintiffs will be registered on the title and will be assessable for any capital gains tax or land tax which may ultimately be payable. In other words, if the equitable relief sought by the Plaintiffs is granted, the revenue cannot be defrauded. 56 These circumstances show that no relevant wrong has been done by the Plaintiffs such as would found a defence of unclean hands and there is no "immediate and necessary relation" between the equity sued for by the Plaintiffs and their intention to avoid capital gains tax and land tax: see e.g. Meyers v Casey (1913) 17 CLR 90; Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 at 650. Orders 57 All of the defences of Mrs Boskovic having failed, and Mr Boskovic having agreed to abide the Court's orders save as to costs, I will make declarations and orders as sought in paragraphs (a) to (d) of the Plaintiffs' Amended Statement of Claim. 58 The parties have agreed that the Plaintiffs' claims for mesne profits and damages will be determined separately. I will stand the proceedings over for a short time to enable the Plaintiffs to prepare Short Minutes of Order. When the matter is brought back, I will hear argument, if any, as to the issue of a writ of possession and as to costs, and I will make directions for the hearing of the Plaintiffs' remaining claims. – oOo – 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.