Supreme Court New South Wales Medium Neutral Citation: Thorn as Executrix of the Estate of the Late Betty McAuley v Boyd (No 2) [2015] NSWSC 199 Hearing dates: 12 February 2015 Date of orders: 13 March 2015 Decision date: 13 March 2015 Jurisdiction: Equity Division Before: Robb J Decision: Declarations that the defendant holds his interest in the property comprising Lot 10 in Deposited Plan 28150 at Sutherland (the Property), upon a constructive trust for the plaintiff to the value of $200,000. Declaration that so much of the judgment debt in the sum of $260,000 created by order 3 made by the Court on 6 November 2014 as represents a principal sum of $200,000, and an award of pre-judgment interest under the Civil Procedure Act 2005 (NSW) s 100 on that principal sum, together with interest accruing after judgment on that principal sum, pursuant to s 101 of the Civil Procedure Act, constitutes an equitable charge on the defendant's interest in the Property. Grant liberty to apply in respect of the implementation of these orders, including for an order for sale to realise the charge, and an order in respect of the sale of the Property pursuant to s 66G of the Conveyancing Act 1919 (NSW). Order the defendant to pay the plaintiff's costs of the proceedings on the ordinary basis to 31 December 2014 and on the indemnity basis from 13 December 2013. Direct that exhibits and documents produced on subpoena may be returned in accordance with the requirements of the Uniform Civil Procedure Rules. Catchwords: EQUITY – tracing part of invalid gift procured by unconscionable conduct into property owned by defendant – part of gift used to repay mortgage over property. COSTS – Calderbank offer – portion of costs payable on indemnity basis. Legislation Cited: Civil Procedure Act 2005 (NSW) Conveyancing Act 1919 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Category: Principal judgment Parties: Catherine Margaret Thorn as executrix of the estate of the late Betty McAuley (plaintiff) Ian Geoffrey Boyd (defendant) Representation: Counsel: Catherine Gleeson (plaintiff) Solicitors: Shaw McDonald (plaintiff) Ian Geoffrey Boyd - self represented (defendant) File Number(s): 2011/91377 Publication restriction: None Judgment 1. In these proceedings the plaintiff, Mrs Catherine Margaret Thorn, has sued the defendant in her capacity as the executrix of the estate of the late Betty McAuley. The defendant, Mr Ian Geoffrey Boyd, was a nephew of Mrs McAuley. 2. Mrs Thorn sought orders setting aside a gift of $260,000 that Mrs McAuley made to Mr Boyd on 6 August 2009, on the ground that Mr Boyd had exercised undue influence over his aunt or, alternatively, that he had acted unconscionably in procuring the making of the gift by Mrs McAuley. 3. I delivered reasons for judgment in the proceedings on 25 August 2014. I will not repeat the discussion of the evidence or the reasons for my findings that may be found in those reasons for judgment. I found that an order should be made setting aside the transfer of Mrs McAuley's $260,000 to Mr Boyd, and requiring Mr Boyd to repay the money to Mrs Thorn. I also found that Mr Boyd should be ordered to pay interest, as well as Mrs Thorn's costs of the proceedings. 4. Mrs Thorn had sought orders tracing the $260,000 into property acquired by Mr Boyd using the money, principally by repaying the loan on property that he owned; so increasing his equity in the property. Mrs Thorn sought orders that Mr Boyd held any property that he acquired using the money on trust for Mrs Thorne. Documentary evidence concerning what happened to the money was scant. It was difficult to determine with confidence how Mr Boyd had applied the $260,000. 5. I directed the parties to bring in short minutes of order to implement the conclusions reached in my reasons for judgment. 6. I made orders that gave effect to my reasons for judgment on 6 November 2014. In particular, I made the following order: 5. The plaintiff is entitled to trace the sum of $260,000 obtained from Mrs Betty McAuley in circumstances involving unconscionable conduct and breach of fiduciary duty, into any property that the defendant acquired with that money, or in respect of which the defendant repaid the mortgage secured on the property with that money, or any part thereof. 1. I also reserved the costs of the proceedings for later determination. 2. As the evidence that was before the Court concerning what Mr Boyd did with the money he received from Mrs McAuley was not adequate, I made the following direction for the purpose of facilitating the efficient determination of whether Mrs Thorn was entitled to trace any of the money into any property held by Mr Boyd: 1 By 15 December 2014, the defendant is to file and serve a full detailed account, verified by affidavit, to the best of his knowledge and belief, of his dealings with the sum of $260,000 received by him on 6 August 2009 from Mrs Betty McAuley. 1. For a brief period after the reasons for judgment were delivered, Mr Boyd was legally represented. His solicitor ceased to act for Mr Boyd by a notice of ceasing to act filed on 29 December 2014. Mr Boyd prepared an affidavit himself that he swore on 6 January 2015 for the purpose of complying with the order that I made on 6 November 2014. The affidavit does not fully comply with the directions that I made on 6 November 2014. Mr Boyd only provided limited and incomplete evidence as to what he did with the $260,000. He provided no evidence as to what happened to $60,000. As to the other $200,000, all Mr Boyd sought to do was to prove that that money is not traceable into property owned by Mr Boyd. 2. The substance of the evidence given by Mr Boyd in his affidavit was as follows: 3. The information and evidence in the annexure to the affidavit prove that the National Australia Bank misappropriated the deposited gift to eliminate an unsecured business loan contrary to my specific instructions and without the knowledge or authority of the four signatories to the eliminated loan. 4. The funds from the gift were not applied to my property or to any banking product associated with my property, my former business or me personally. 5. The NAB's misappropriation of the funds from the gift form part of the business lending dispute relating to alleged lending fraud in 2006 and 2009 which the FOS investigated. 6. In August 2013 the Financial Ombudsman found the NAB guilty of maladministration and applied their maximum capped compensation. 1. Mr Boyd annexed a 54 page document to his affidavit, which contained the information he relied upon to support the claims that he made in his affidavit. A great deal of that information did not comply with the rules of evidence. 2. Mrs Thorn claims that the evidence justifies a finding that Mr Boyd applied $200,000 of the money he received from Mrs McAuley to repay part of the mortgage on the matrimonial home that he owned with his wife. She seeks a declaration to that effect, and an order that Mr Boyd holds his interest in the property on trust for Mrs Thorn to the extent of the $200,000 that may be traced into it. 3. Mrs Thorn also claims that an order should be made that Mr Boyd pay her costs for part of the time the proceedings have been on foot on the indemnity basis, because Mr Boyd failed to accept a Calderbank offer that was made to him by her solicitor. 4. I dealt with these outstanding matters at a hearing on 12 February 2015. These reasons for judgment deal with those matters. 5. I will deal first with the issue of whether any part of the $260,000 gift made by Mrs McAuley to Mr Boyd may be traced into Mr Boyd's property, as alleged by Mrs Thorn. 6. It is appropriate to start with the evidence that was available at the principal hearing that would support a finding that Mr Boyd used $200,000 of the gift money to reduce the amount of the mortgage secured on the property. 7. On 8 March 2010 Mr Boyd wrote a letter to a senior legal officer of NSW Trustee and Guardian to provide an account of how Mr Boyd used the gift he received from Mrs McAuley. He said at par 237: "As mentioned earlier my Aunt's gift was used to pay off my home which is what my aunt wanted me to do". 8. In a subsequent letter dated 15 March 2010 to the same officer of NSW Trustee and Guardian Mr Boyd said: "my Aunt's gift was used to pay off the mortgage on my family home which was in keeping with my Aunt's wishes". 9. In the principal proceedings an account balance summary for Mr Boyd's NAB Base Variable Rate Home Loan was in evidence that appeared to show a credit of $200,000 on 12 August 2009 by internet transfer against Mr Boyd's mortgage. Mr Boyd was cross-examined about this transaction. He accepted that the loan account was secured against his property, and also that he repaid an additional amount of $109,000 from his superannuation funds to clear the loan. 10. Mr Boyd claimed, however, that after the loan had been repaid and the account closed "[the bank] had use these funds and this is why this money that was applied here on this statement didn't in fact pay off our house. It was used in another loan, one of the business loans, which we can't trace but the financial ombudsman managed to apparently (T 107)". It was this claim by Mr Boyd that created the doubt as to whether any part of Mrs McAuley's gift had been used to reduce the mortgage secured on any property owned by Mr Boyd. The import of the evidence was that Mr Boyd had tried to apply $200,000 of the gift to reduce the mortgage on his property, but the bank had in some unexplained way applied the money to reduce some other loan. 11. Mr Boyd now appears to claim that the bank statement upon which he was cross-examined at the principal hearing was produced fraudulently by the NAB in response to a subpoena that he caused to be served on the bank. Mr Boyd produced no evidence to support that claim, or to explain what the NAB, in fact, did with the $200,000. He did not explain why the NAB would have fraudulently prepared a document the effect of which was to prove the making of a payment by Mr Boyd that involved a credit to his account. Perhaps more significantly, Mr Boyd did not lead any evidence to establish that at the time he paid the $200,000 to the bank he owed it a debt on some account that was not secured by the mortgage over his property. It is a matter of common experience that, in the case of borrowers of ordinary means, if a bank agrees to lend money to the borrower on a number of accounts, perhaps some business and some private, the bank will require that all of the debts be secured by a mortgage over the borrower's residential property, if not all of the borrower's assets. 12. Mr Boyd agreed in cross-examination at the latest hearing (T 22) that, at the time of the principal hearing, he did not raise his allegation that the relevant bank statements had fraudulently been prepared by the bank. He said that he did not do so "because I didn't think to at the time". 13. When asked (T 23) to explain why the bank would fraudulently make entries in his account statement that credited his account, Mr Boyd said: "I can only answer to that that the bank was found guilty of maladministration and none of the bank documents can be used or should have been used – well, honestly could not be used even in this trial". 14. In making this response Mr Boyd was apparently referring to certain findings made by the Financial Ombudsman Service (FOS) that were disparaging of certain administrative steps taken by the NAB in relation to Mr Boyd's accounts. The FOS did not make any finding that the bank had engaged in fraudulent conduct. It is not necessary to examine in detail the proceedings before the FOS, or the FOS's findings. They did not have the effect of casting any doubt on the bank statements that the NAB produced during the ordinary course of its business. With respect, Mr Boyd appears to have misled himself as to the significance of the findings, and they do not have the effect that he attributed to them. 15. Given the seriousness of Mr Boyd's allegation of fraudulent conduct on the part of the NAB, and the total absence of evidence to support that claim, it is important I record that I find it is completely baseless. 16. I should also record that Mr Boyd agreed in cross-examination (T 24) that he made no allegation to the FOS that the bank had acted in the fraudulent manner that he has claimed in this case. 17. Mr Boyd was cross-examined (T 24, 25) about a paragraph in the FOS report that recorded the bank had claimed Mr Boyd and his wife had offered their property as security for all of their loans. Mr Boyd accepted that all of the relevant loans (with a total of $773,000) were secured against the property "at that point". Mr Boyd also accepted that the FOS report did not record any complaint made by him that the bank had misappropriated $200,000. 18. Mr Boyd annexed to his affidavit a copy of an email dated 16 September 2009 from Mr Boyd to an officer of the bank in which Mr Boyd said: "After we instructed you to deposit the $200,000 into our home loan account, we expected repayments to reduce immediately but I even had to ring and request that this be amended". 19. Mr Boyd has primarily relied upon a document annexed to his affidavit, which he describes as "Figure 5 – File Summary Report – 16 September 2009." Mr Boyd claimed that the document came to his notice as part of the FOS investigation. He asserts that it is a business document prepared by the NAB. Mr Boyd has included with Figure 5 somewhat more than two pages of contentions as to the meaning and effect of the File Summary Report. If the document upon which Mr Boyd's submissions were based did come from the bank, the document does not appear to be complete, and is not explained in any official way. There are unexplained hand written annotations on the document. The first assertion made by Mr Boyd is that: "This is the only document required to prove that the NAB misappropriated the funds from the gift to eliminate the unsecured business loan". The difficulty with this proposition is that Mr Boyd has not proved by his evidence that there was a business loan that was not secured over his property. Mr Boyd has put forward a complicated argument as to the significance of the File Summary Report that requires unsubstantiated assumptions to be made as to the meaning of the various entries on the document. Mrs Thorne's counsel responded to Mr Boyd's arguments with a carefully reasoned explanation as to why the entries in the document did not have the effect for which Mr Boyd contends. It is not necessary for me to review the contending arguments in detail. Mr Boyd has not provided the necessary evidentiary foundation for his contention that the bank applied the $200,000 in reduction of a business loan that was not secured by a mortgage over his property. 20. Mrs Thorne is entitled to the findings by the Court that she sought in her counsel's submissions. I find the evidence establishes that on the balance of probabilities all of the loans to Mr Boyd referred to in the File Summary Report were secured against the property. Secondly, on 12 August 2009, $200,000 was paid into Mr Boyd's home loan account, and that payment came from the money which Mr Boyd received from Mrs McAuley. Thirdly, the total indebtedness secured by means of the mortgage over Mr Boyd's property was reduced by $200,000, and the equity in that property was increased by a corresponding amount. 21. I will now turn to the issue of the costs orders that should be made against Mr Boyd. 22. On 9 December 2013 Mrs Thorne's solicitors were advised at a directions hearing before the Registrar that occurred on that date that the solicitors who were then acting for Mr Boyd would be filing a notice of ceasing to act. 23. On 12 December 2013 Mrs Thorne's solicitors sent an offer to Mr Boyd's solicitors to settle the proceedings. Mrs Thorne has accepted that, although this offer purported to be an offer of compromise under Uniform Civil Procedure Rules r 20.26(3), it was not effective as such because it did not comply with the rules concerning the treatment of costs. The offer of settlement was, however, put alternatively as a Calderbank offer. 24. The substance of the offer was that Mrs Thorne would accept payment of $200,000 on the basis that the claims of both parties would be dismissed, and each party would bear their own costs. That offer is substantially more favourable to Mr Boyd than the orders that he has suffered as a result of the contested proceedings, as he has been ordered to pay Mrs Thorne $260,000, plus interest and costs. 25. On the same day Mrs Thorne's solicitors sent a copy of their letter to Mr Boyd's solicitors to Mr Boyd at his home address. 26. On 31 January 2014 Mrs Thorne's solicitors sent an additional copy of their 12 December 2013 letter to Mr Boyd's former solicitors as an attachment to an email of that date. 27. Mrs Thorne has also put in evidence a letter dated 5 January 2014 from Mr Boyd's former solicitors to Mr Boyd, which enclosed a copy of Mrs Thorne's solicitors' 12 December 2013 letter, together with Mr Boyd's solicitors' notice of ceasing to act. 28. Mr Boyd's evidence was that he did not receive notice of the 12 December 2013 letter, because he was advised by his former solicitor on 5 December 2013 that the solicitor was ceasing to act, and that he was going to exercise a lien over his files. 29. Mrs Thorne submitted that, even if Mr Boyd did not receive notice of the Calderbank offer at an earlier time, he must have done so by means of the 31 January 2014 email, which should be interpreted as a re-communication of the offer. 30. Mrs Thorne seeks an order that Mr Boyd pay her costs of the proceedings on the ordinary basis to 12 December 2013 and on the indemnity basis from 13 December 2013. I find on the evidence that Mr Boyd probably received notice of the Calderbank offer, although it is not clear when that occurred. As Mr Boyd's solicitor had not ceased to act by 12 December 2013, the Calderbank offer was effective from that date. 31. Mrs Thorne also seeks a declaration that Mr Boyd holds the unencumbered interest in the property upon a constructive trust for the plaintiff to the value of $200,000. However, Mrs Thorne accepts that Mr Boyd holds his interest in the property as a joint tenant with his wife, and there is no evidence that the property is unencumbered. Consequently, the Court should only make a declaration concerning Mr Boyd's own interest in the property, whatever that might be. 32. I make the following orders: 33. The Court: 1. Declares that the defendant holds his interest in the property comprising Lot 10 in Deposited Plan 28150 at Sutherland (the Property), upon a constructive trust for the plaintiff to the value of $200,000. 2. Declares that so much of the judgment debt in the sum of $260,000 created by order 3 made by the Court on 6 November 2014 as represents a principal sum of $200,000, and an award of pre-judgment interest under the Civil Procedure Act 2005 (NSW) s 100 on that principal sum, together with interest accruing after judgment on that principal sum, pursuant to s 101 of the Civil Procedure Act, constitutes an equitable charge on the defendant's interest in the Property. 3. Grants liberty to apply in respect of the implementation of these orders, including for an order for sale to realise the charge, and an order in respect of the sale of the Property pursuant to s 66G of the Conveyancing Act 1919 (NSW). 4. Orders the defendant to pay the plaintiff's costs of the proceedings on the ordinary basis to 31 December 2014 and on the indemnity basis from 13 December 2013. 5. Directs that exhibits and documents produced on subpoena may be returned in accordance with the requirements of the Uniform Civil Procedure Rules. ********** 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. Decision last updated: 18 March 2015