New South Wales Supreme Court CITATION : Burch v Cone [2009] NSWSC 1430 HEARING DATE(S) : 10/12/09 JUDGMENT DATE : 17 December 2009 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : See paragraph 38 CATCHWORDS : EQUITY - resulting trust - where property purchased with money belonging solely to plaintiff but title taken by plaintiff and defendant jointly - no relationship etween the parties - whether plaintiff agreed to give defendant an interest in the property - held she did not - resulting trust for plaintiff of interest held by defendant - EQUITY - exoneration - where property found to be beneficially owned by plaintiff mortgaged to secure loan made to plaintiff and defendant - where loan moneys applied in part for plaintiff's sole benefit in part for defendant's sole benefit and in part for their joint benefit - plaintiff entitled to be indemnified by defendant for proportion of liability under mortgage CATEGORY : Principal judgment Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 CASES CITED : Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120 PARTIES : Cheryl Anne Burch - Plaintiff Anthony Charles Cone - Defendant FILE NUMBER(S) : SC 5861/08 COUNSEL : Mr A J McInerney/Mr D J Barnett - Plaintiff Mr P R Glissan - Defendant SOLICITORS : Foott, Law & Co - Plaintiff McNamara James & O'Connor - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J THURSDAY, 17 DECEMBER 2009 5861/08 CHERYL ANNE BURCH v ANTHONY CHARLES CONE JUDGMENT 1 The claims advanced by Cheryl Anne Burch ("plaintiff") relate mainly to a property of some 60 acres at Coutts Crossing, near Grafton. She and Anthony Charles Cone ("defendant") are registered as the proprietors of the property as tenants in common in equal shares. They were initially registered proprietors as joint tenants but the plaintiff took action to sever the joint tenancy. 2 The plaintiff claims a declaration that the defendant holds his undivided one-half share in the property upon trust for her and an order that he transfer that interest to her. 3 It is the contention of the plaintiff that she provided the whole of the purchase moneys for the Coutts Crossing property, with the result that there was, from the outset, a resulting trust of the defendant's interest in favour of her. It is relevant to note immediately that the parties are not married to one another and have never been in a relationship of de facto marriage; nor is there any other family relationship between them. 4 The process of fact-finding is assisted in this case by a large number of admissions made by the defendant. The following facts are uncontroversial: 1. In 2002, the plaintiff purchased a property at Cedar Creek near Tambourine Mountain in Queensland. She purchased this property with her own money. 2. In about April 2004, the defendant and three of his children became boarders or lodgers at the Cedar Creek property. 3. The defendant performed various work around the house. 4. The plaintiff sold the Cedar Creek property in October 2005 for $365,000. She received from the sale cheques totalling $359,932.29. 5. On 21 November 2005, the plaintiff and the defendant entered into a contract for the purchase of the Coutts Crossing property for $225,000. Settlement took place on 16 December 2005. The plaintiff and the defendant took title as joint tenants. 6. The plaintiff is not clear as to the reason for joint tenancy. She thinks that she told Mr Flynn (the solicitor who acted on the purchase) that she did not want the property to go to the defendant if she died. She had that situation rectified when she consulted the solicitor who acted in these proceedings and became aware that the situation was one of joint tenancy. She then took steps to have the title converted from joint tenancy to tenancy in common. This conversion occurred on 8 November 2007. 7. In about late 2007, the plaintiff moved to a property at Pottsville. She has not lived at the Coutts Crossing property since that time. 8. On or about 7 February 2006, the plaintiff and the defendant borrowed $50,000 from Secure Funding Pty Ltd and mortgaged the Coutts Crossing property as security. On or about 16 January 2007, the loan was increased to $80,000. 9. The borrowed moneys were spent partly (as to $24,090.42) for the joint purposes of the plaintiff and the defendant, partly (as to $16,554) for the plaintiff's separate and exclusive purposes and partly (as to $18,355.58) for the defendant's separate and exclusive purposes. 5 The defendant also admitted that, during the time he and his children were boarders or lodgers at Cedar Creek, he had paid no money as rent or board to the plaintiff. His counsel applied at trial for leave to withdraw that admission. Evidence was received from the defendant on that matter. It was accepted that my decision on the question of withdrawal should be given as part of my judgment on the proceedings as a whole. I therefore digress to deal with that matter. 6 The defendant's admission that he paid the plaintiff no money as rent or board while he and his children lived at her Cedar Creek house was clearly and expressly made by affidavit. It was submitted, however, that "there may have been a misunderstanding"; and it was for that reason that counsel for the defendant was permitted to lead evidence from him. The evidence in chief, so far as relevant was: "Q. I have just taken you through her affidavit where she said, 'Tony did not pay any monetary sum as board'. I have drawn to your attention the fact that you have agreed with that in your affidavit and I am asking you now do you still agree with that? A. No, I don't. Q. Why did you agree with that fact in your affidavit of 5 August 2009? A. Because I had no records to prove that, so I didn't want to - I just couldn't prove - all my paperwork's been lost, so, yeah. I've got no reason why I've got no evidence to prove that bar that my records have been lost and there was a complication for Cheryl to be acknowledging she was accepting rent. Q. Did you pay board or not? A. Yes, I did." 7 When the defendant was cross-examined on this aspect, it was pointed out to him that he had said in a later affidavit that he had paid $100 per week board in cash and that, if that were so, the matter of lack of written records and loss of "paperwork" on which he relied as a basis for having made the admission was simply irrelevant and in no way explained why he had said something in his first affidavit that he sought to retract in his second. 8 The admission, contained as it is in an affidavit prepared by a solicitor, must be taken to have been made on advice and to have been deliberate. It is quite clear. The basis on which it is attempted to withdraw it is entirely unconvincing. The application to withdraw came, moreover, after the trial had begun. All these factors lead me to exercise the relevant discretion by refusing the application for leave to withdraw the admission. 9 To the facts already recited may be added, therefore, the fact that the defendant paid no money as rent or board to the plaintiff while he and his children were living at her Cedar Creek house. It is accepted that the defendant contributed to the cost of electricity and other utilities, but that is of no relevance to the matters before me. 10 It is also possible to add a fact that was agreed at trial, namely, that documents produced on subpoena by Mr Flynn and his firm do not contain any documents recording any instructions as to why the Coutts Crossing property was purchased by the plaintiff and the defendant in joint names. I might add that, when approached by the solicitor for the defendant, Mr Flynn declined to make any statement in relation to the circumstances of the acquisition of the property. 11 Against this factual background, I turn to a contention of the defendant to the effect that he had an entitlement to part of the proceeds of the sale of the Cedar Creek property and therefore the moneys outlaid on the purchase of the Coutts Crossing property. That alleged entitlement is said to have arisen because the defendant did work on the Cedar Creek property. It is clear that he did attend to some repairs and maintenance and also made some improvements. There is a dispute as to exactly what he did and the extent, if any, to which it enhanced the property. For reasons I am about to explain, I do not need to decide this. 12 As is illustrated in Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101, a person who works on developing and improving the property of another may thereby come to have an interest in the property by reason of constructive trust. But this will be so only where it would be unconscionable for the owner of the property to retain unqualified enjoyment of the improved property. A finding to that effect will usually depend on some form of inducement or encouragement by the property owner and reliance thereon by the other party in undertaking the improvements. 13 No such findings can be made in this case. The defendant was an unemployed pensioner with time on his hands while living at Cedar Creek. Because the plaintiff's house had become the home of himself and three of his children, he had an incentive of his own to make it a more pleasant place to live. Because he paid no rent or board to the plaintiff, it was reasonable that he give her benefits in kind by way of work on repairs, maintenance and improvements. There is nothing in the evidence to suggest any basis for an expectation on his part that he should, by his labours, earn an interest in the property. 14 The defendant also bases his claim to an interest in the Coutts Crossing property on an alleged oral contract. I quote from his second affidavit: "When Cheryl sold her Cedar Creek property, we had a conversation in words to the effect, Me: 'I want to be paid for all my work here. I want $75,000.00 from the sale.' Cheryl: 'If I pay you, I won't be able to buy Kangaroo Creek [ie, the Coutts Crossing property]. Are you prepared to come in with me as partners in Kangaroo Creek? Since you know how to build houses with mud bricks, I want you to come in with me. I'll give you half the land. At the same time you can help me build a house and you can build one for yourself.' Me: 'Okay'." 15 Later in the same affidavit, the defendant refers to a subsequent conversation in Mr Flynn's office in which he said to the plaintiff, "I'd sooner take the cash out". 16 The plaintiff denies any conversations in these terms. She explained in cross-examination that, before she had decided to sell Cedar Creek but at a time when she was thinking of doing so, she came to a loose arrangement with the defendant that if she in due course sold Cedar Creek and then bought vacant land, the defendant would build two mud brick houses on that land, one for her and one for himself and, once he had done so, she would "see how good the house was" and "what land he got would depend on" that – in other words, she would give him part of the new land as a reward for building a house for her, but only after the house had been completed. She said that this was the reason why "his name was put on the deed so that later on I didn't have to spend the expense of putting it on the deed later". 17 She waited two years. No mud brick houses were built. She moved to Pottsville in late 2007 and later commenced these proceedings. 18 There are several unsatisfactory aspects of the defendant's evidence in paragraph [14] above. First, that evidence was given in the defendant's second affidavit. He could give in cross-examination no reason why something of such significance to the case he sought to make had not been included in the first affidavit. It was, he said, "just a slip of the memory or timing". 19 Second, the defendant resiled in cross-examination from the proposition that the conversation alleged by him took place "when Cheryl sold her Cedar Creek property" (these being the words in his affidavit). It was put to the defendant in cross-examination that the conversation was a fabrication. This question and answer followed: "Q. When is it you say that this conversation in paragraph 6 of your affidavit of 8 September 2009 took place? A. Prior to the renovation work being done." 20 After the defendant had been reminded of the timing stated in his affidavit, the cross-examination continued: "Q. Miss Burch hadn't sold the Cedar Creek property before the renovation work was done had she? A. No she hadn't. Q. And you agree don't you that the conversation in paragraph 6 occurred after the renovation work but and after she had sold the Cedar Creek property, correct? A. No, during the renovation work that conversation took place between me and Cheryl. Q. Do you say that the conversation in paragraph 6 occurred before she sold the property or after she sold the property? A. Prior to the sale of the property." 21 With the evidence in this quite unsatisfactory state, it is not possible to find that the plaintiff made to the defendant the representation or promise referred to at paragraph [14] above. That, coupled with my earlier findings, means that the only conclusion reasonably open in relation to the money applied to purchase the Coutts Crossing property is that it was owned beneficially, as to the whole, by the plaintiff, being part of the proceeds of the sale of her Cedar Creek property in which the defendant had no interest; also that the plaintiff had not agreed, whether by way of contract or otherwise, to give the defendant any interest in those proceeds or in the other land she later bought with them. 22 The equitable principle relevant to this case is that a trust arises in favour of the person who provides the whole of the purchase moneys when the property is conveyed into the joint names of that person and another: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 245. The operation of that principle may be displaced by evidence of some different intention. It would be for the defendant to produce rebutting evidence. No different intention has been proved by the defendant. 23 The plaintiff is accordingly entitled to be recognised as the sole owner of the Coutts Crossing property and to an order that the defendant transfer his interest to her. 24 The plaintiff's next claim relates to the mortgage of the Coutts Crossing property and the funds borrowed under it. Again, there are significant admissions: see item 9 at paragraph [4] above. The sums allocated to the plaintiff, to the defendant and to their joint benefit and the subject of the admission represent, in total, all but $20,997.50 of the funds advanced under the mortgage. There is a dispute regarding the $20,997.50. 25 The sum of $20,997.50 in question was paid into an account with Bananacoast Credit Union in the names of both plaintiff and defendant. Each was separately able to operate that account. The periodic statements for the account are in evidence. It is possible to identify cash withdrawals made by the plaintiff and cash withdrawals made by the defendant. The withdrawals were made at automatic teller machines. Each of the plaintiff and the defendant had a separate ATM card. It is possible to tell from the statements whose card was used to make each cash withdrawal. 26 Another clearly identifiable withdrawal was by cheque for $5,000 in favour of "Howard Hall P/L". It is clear that this was for the purchase of a machine to be mentioned presently and therefore for the defendant's benefit. 27 Having regard to the matter just mentioned and the teller machine card identifications, it is appropriate to determine that a total of $17,000 (being the whole of the $5,000 and 75% of the remaining balance) of the $20,997.50 in dispute was applied for the exclusive use of the defendant and the balance was applied to the parties' joint use. 28 On this basis, $35,358 may be taken to have been applied for the sole benefit of the defendant, $16,554 for the sole benefit of the plaintiff and $28,088 for the joint benefit of both. If the last-mentioned sum is allocated half-and-half to the parties, the respective beneficial enjoyments are seen to be $49,402 for the defendant and $30,598 for the plaintiff. 29 The situation is therefore one in which property of which the plaintiff has been found to be the sole beneficial owner stands as security for joint borrowings which have benefited the plaintiff to the extent of 38.25% and the defendant to the extent of 61.75%. 30 The plaintiff contends that, in relation to he position as mortgagor, she is entitled to the benefit of the equitable principle to which the Full Federal Court referred in Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120: "The equity of exoneration is an incident of the relationship between surety and principal debtor. It usually arises where a person has mortgaged his property to secure the debt of another, whether or not that other has covenanted to pay the debt. However, it will also arise in a case where, although not an actual suretyship, the relationship is treated as one of suretyship. This is Lord Selbourne's third class of suretyship mentioned in Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 at 10. For the doctrine to apply in this class, the following facts will usually exist. First, a person must charge his property. Where the person is the beneficial owner of the property it will be sufficient if the charge is by his trustee. Secondly, the charge must be for the purpose of raising money to pay the debts of another person or to otherwise benefit that other person. Thirdly, the money so borrowed must be applied for that purpose. See generally Re Berry (a Bankrupt) [1978] 2 NZLR 373." 31 In this case, it has been found that the mortgage of the Coutts Crossing property to Secure Funding was a mortgage of property of which the plaintiff alone is the beneficial owner. The mortgage was undertaken to obtain moneys to be used for the benefit of the plaintiff and money to be used for the benefit of the defendant. The money obtained was used, as to 38.25%, for the benefit of the plaintiff and, as to 61.75%, for the benefit of the defendant. 32 An equity of exoneration therefore arises in favour of the plaintiff and against the defendant. In order to give effect to that equity, the defendant must indemnify the plaintiff against 61.75% of all liabilities to the mortgagee in respect of the total advances of $80,000 secured by the mortgage of the Coutts Crossing property including, of course, interest. 33 It is necessary to deal finally with the plaintiff's claim that she is the sole beneficial owner of a Nissan truck, a diesel generator and a brick-making machine. Again, there are relevant admissions. In particular, the defendant, by his defence, consents to the making of a declaration that he holds the Nissan truck on resulting trust for the plaintiff. Such a declaration will therefore be made. 34 In relation to the diesel generator and the brick-making machine, the defendant admits that (a) on or about 26 February 2006, he and his brother bought those items from Howard Hall and Wayne Seymour for about $15,000; (b) the purchase moneys were provided from the plaintiff's own funds and from moneys advanced under the Secure Funding mortgage; (c) the plaintiff borrowed $7,000 from her mother and withdrew $3,000 from her credit card. The remaining $5,000 used to purchase the brick-making machine was obtained by the defendant from the proceeds of the mortgage loan: see paragraph [26] above. 35 The correct characterisation of events with respect to the diesel generator and the brick-making machine is therefore that the plaintiff provided two-thirds of the purchase moneys from her own separate funds and that the defendant provided one-third from the mortgage loan proceeds, that is, from the 61.75% which, for reasons already stated, must be regarded as having been applied for the defendant's benefit so as to attract the requirement that he indemnify the plaintiff for 61.75% of the mortgage liability. In these circumstances, the $5,000 must be regarded as provided by the defendant. 36 In the result therefore, there should be a declaration that the defendant holds the diesel generator and the brick-making machine upon trust for the plaintiff and himself in the proportions two-thirds to one-third. 37 Because the plaintiff has been very substantially successful, there will be an order that the defendant pay her costs of the proceedings. 38 The following declarations and orders will be made: 1. Declare that the defendant Anthony Charles Cone holds the undivided one-half interest in the whole of the land in Folio Identifier 184/752810 (being Lot 184 Kangaroo Creek Road Coutts Crossing) of which he is the registered proprietor upon trust absolutely for the plaintiff. 2. Order that the said defendant execute and deliver to the plaintiff a transfer in registrable form of the said undivided one-half interest. 3. Order that the said defendant indemnify and hold harmless the plaintiff against 61.75% of all moneys secured by registered mortgage AC144547 affecting the whole of the said land in Folio Identifier 184/752810. 4. Declare that the said defendant holds Nissan commercial truck Queensland registration 371JGO upon trust absolutely for the plaintiff. 5. Declare that the said defendant holds the 125kva diesel generator and an S&S brick-making machine both purchased from Howard Hall and Wayne Seymour on or about 26 February 2006 on trust as to two-thirds for the plaintiff and as to one third for himself. 6. Order that the defendant pay the plaintiff's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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