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- Unreported Judgment
DISTRICT COURT OF QUEENSLAND
King & Anor v Fister & Anor  QDC 333
ANDREW KING AND JODI KING
KAREN AMANDA FISTER
CHRISTOPHER ROBERT HALL
22 December 2020
27 and 28 July 2020
EQUITY – TRUSTS AND TRUSTEES – IMPLIED TRUSTS – CONSTRUCTIVE TRUSTS – COMMON INTENTION – where siblings agreed that one party would buy a property in which the other would live with his family and ultimately acquire the property – where the occupier made payments and undertook improvements to the property – where the occupier did not acquire the property – where the other sibling took possession and sold the property – whether the agreement reached between the parties and their subsequent conduct support a finding that there was a common intention constructive trust – whether the net proceeds of sale of the property are held on a constructive trust for the occupier
Civil Proceedings Act 2011 (Qld) s 58
Evidence Act 1977 (Qld) s 92
Property Law Act 1974 (Qld) s 11
Residential Tenancies and Rooming Accommodation Act 2008 (Qld)
Baumgartner v Baumgartner (1987) 164 CLR 137
Baumgartner v Baumgartner (1985) 2 NSWLR 406
Byrnes v Kendle (2011) 243 CLR 253
Calverley v Green (1984) 155 CLR 242
Clancy v Salienta Pty Ltd  NSWCA 248
Gissing v Gissing  AC 886
Grant v Edwards  2 All ER 426
Green v Green (1989) 17 NSWLR 343
Iman Ali Islamic Centre v Iman Ali Islamic Centre Inc  VSC 413
Muschinski v Dodds (1985) 160 CLR 583
Nathan v Williams & Anor  QCA 138
Shepherd v Doolan  NSWSC 42
C Ryall for the plaintiffs
M Jonsson QC for the first and second defendants
Preston Law for the plaintiffs
Murray Lyons for the defendants
- This is a family dispute between a brother and sister, and their respective partners. The sister (Karen) and her partner (Christopher) bought a house for her brother (Andrew) and his family to live in. They intended that Andrew would ultimately acquire the house from them. Andrew agreed to make certain payments with respect to the house. For several years, Andrew and his family lived in the house. They made payments against the mortgage and paid rates and other expenses. They maintained and improved the property. Over time, Karen and Christopher grew frustrated that Andrew had not acquired the house from them, and relations between the parties broke down. Karen and Christopher recovered possession of the property and sold it on the open market. The balance of the proceeds of the sale, after repayment of the mortgage, was about $64,000. Those funds are now held in their solicitors’ trust account.
- Andrew and his wife Jodi seek a declaration that that sum is held on trust for them, and equitable damages. Karen and Christopher defend those claims, and counterclaim for costs allegedly incurred rectifying Andrew’s defective work.
- The legal issues agitated in the proceeding concerned questions of express and constructive trusts, fiduciary obligations and remedies. The complexity of those legal issues was utterly disproportionate to the very modest sums in dispute. If declaratory relief were not sought, the proceeding would be well within the financial jurisdiction of the Magistrates Court.
- The parties did not participate in a mediation, either consensually or court ordered. In a case crying out for a financial settlement, it would have been sensible for them to do so.
- The following facts were not in dispute.
- The First Plaintiff, Andrew King, and the First Defendant, Karen Fister, are brother and sister. The Plaintiffs, Andrew and Jodi King, were married. The Defendants, Karen and Christopher, were de facto partners.
- At some point before 17 September 2011, Andrew and Karen, acting on their own behalf and on behalf of their respective spouses, agreed that:
- the Defendants would buy a house and land at 77 Tills Street, Cairns (the property);
- the Plaintiffs would live in the property after its purchase;
- the Plaintiffs would meet the Defendants’ outlays incurred in respect of the property, such as council rates and charges and insurance; and
- the agreement had other terms which the parties are in dispute about.
- By a contract entered into on about 10 October 2011, the Defendants purchased the property in their own names.
- Ila King, the mother of Andrew and Karen, provided $26,500 paid by way of a deposit for the purchase of the property.
- The Defendants paid the balance of the purchase price, stamp duty and legal costs incurred in the purchase by monies borrowed by them from Westpac bank.
- The Plaintiffs took possession of the property after its purchase on about 24 October 2011 and remained in possession of it until on or about 5 January 2018.
- The Plaintiffs paid to or on behalf of the Defendants the amounts set out in paragraph 10 of the Second Amended Statement of Claim (“the Statement of Claim”) (“the Plaintiffs’ payments”).
- The Plaintiffs’ payments mentioned in paragraphs 10.1 to 10.54, 10.58, 10.59, 10.61, 10.63, 10.66, 10.67, 10.70, 10.72, 10.75, 10.77, 10.79, 10.82, 10.85, 10.87, 10.89, 10.91, 10.96, 10.99, 10.101, 10.103, 10.106, 10.107, 10.111, 10.114, 10.117, 10.119, 10.121, 10.123, 10.127, 10.129, 10.130, 10.132, 10.134, 10.137, 10.139, 10.141, 10.143, 10.146, 10.150 and 10.152 to 10.163 of paragraph 10 of the Statement of Claim were made on account of the loan facility.
- The Defendants made withdrawals on the loan facility used to purchase the property as set out in paragraph 14 of the Statement of Clam.
- The Defendants made deposits to the loan facility as set out in paragraph 14A of the Statement of Claim.
- During the period 30 October 2012 to 21 December 2016, the Defendants did not incur, or pay, any costs or charges in respect of the repair, maintenance or improvement of the property.
- The parties exchanged email correspondence and text messages between themselves and their agents contained in an Agreed Bundle of Documents.
- The Second Plaintiff, Jodi, and the Defendants signed a General Tenancy Agreement in respect of the property covering the period 24 October 2011 to 24 October 2013 at a rental of $350 per week.
- The property was sold by the Defendants for a price of $340,000.
- The sale was completed on 20 March 2018.
- Upon the sale, an amount of $259,767.49 was paid to Westpac bank.
- After the sale, the amount of $64,032.90 that remained as the sale proceeds of the property was paid into, and remains held in, the trust account of the Defendants’ solicitors.
- By agreement, the parties framed the issues in dispute as follows.
- What were the terms of the agreement between the parties?
- Did the agreement made between the parties:
- create a trust relationship as alleged by the plaintiffs and, if so, was it on the terms alleged by the plaintiffs?
- and, if so, an express trust which is enforceable by the plaintiff?
- mean that the payments made by the plaintiffs set out in paragraph 10 of the Statement of Claim (“the plaintiffs’ payments”) were received on trust by the defendants for the benefit of the plaintiffs?
- result in there being a fiduciary relationship between the parties?
- If the parties were in the trust relationship or fiduciary relationship alleged by the plaintiffs:
- was that trust breached or the fiduciary obligations breached by the defendants increasing the amount of the loan facility in the amounts alleged by the plaintiffs or at all?
- If there were any breaches, did they result in the plaintiffs suffering a loss of $101,853.98, being the balance amount that ought to have been received from the defendants’ sale of the property after repayment of the loan facility and other costs of sale, were it not for the breaches?
- If the agreement was as alleged by the plaintiffs or otherwise found to be on terms that the plaintiffs were to have some beneficial interest in the property:
- did the plaintiffs make the plaintiffs’ payments in reliance upon such agreement?
- did the plaintiffs expend their own money, time and labour improving the property in reliance upon such agreement?
- were the defendants, by the first defendant receiving the plaintiffs’ payments and visiting the property and observing the plaintiffs works as they progressed, aware of those payments and works, or aware of some of those works?
- did the defendants request and accept the plaintiffs’ payments by way of reimbursement or for the purposes of meeting the loan payments and property expenses, or were any payments in excess of amounts due under the Residential Tenancy Agreement and of expenses paid pursuant to the agreement made without the consent, authority or approval of the defendants and without the defendants having made any express or implicit request for a payment to be made?
- did the defendants by the email of 7 September 2016 (admitted to have been sent on behalf of both defendants) expressly acknowledge the existence of the trust relationship in respect of the property or make a complaint about the plaintiffs’ failure to comply with the term of the agreement alleged in the Defence that the plaintiffs agreed to buy the property at an unspecified price when saying “… it’s not my house. We got the loan for you Andrew & Jodi King. I want this house out of our names (Karen Fister & Chris Hall)…”
- Did the plaintiffs’ works on the property improve the property or increase its value and were some of those works undertaken unlawfully and in breach of the residential tenancy agreement because they were not made or undertaken with the written consent of the defendants?
- If the plaintiffs prove that they have made payments that reduced the indebtedness of the defendants in respect of that amount loaned to the defendants to purchase the property with the express or implied approval of the defendants, and/or had with the express or implied approval of the defendants completed works which were capable of improving or did improve the value of the property, would it be unconscionable for the defendants to deny that the net sale proceeds of the property held in trust are the beneficial property of the plaintiffs and are the defendants accordingly estopped from denying the plaintiffs’ interest in those funds?
- In all of the circumstances and particularly in light of the plaintiffs’ payments and the plaintiffs’ works being paid and undertaken in reliance upon either the agreement alleged by the plaintiffs, the agreement alleged by the defendants, or such agreement as may be found to have been made between the parties:
- is it unconscionable for the defendants to take the benefit of the net sale proceeds of the property and are the plaintiffs entitled to relief by way of a constructive trust over those net sale proceeds of the property? or
- if it is found it was agreed the plaintiffs would purchase the property, was any such assumption, expectation or associated equity in favour of the plaintiffs satisfied by the plaintiffs’ occupancy, use and enjoyment of the property during the period from 24 October 2011 until on or about 5 January 2018, and given the plaintiffs’ failure to accept and act upon the defendants’ offers or invitations made on numerous occasions between 2011 and 2018 to sell or negotiate a sale of the property to the plaintiffs?
- Is the whole or any part of the amount of $64,032.90 retained in the trust account of the defendants’ solicitors held on trust for the benefit of the plaintiffs’?
- Did the plaintiffs breach the Residential Tenancy Agreement set out in the Counterclaim and did any such breach cause the defendants to suffer loss and damage as alleged or at all?
Summary of pleadings
- The plaintiffs plead that the defendants held the property on trust for the plaintiffs pursuant to an express trust on the terms expressly or impliedly provided for by the terms of the agreement as varied, namely that:
- the legal title in the property would be held by the defendants until the plaintiffs could arrange for the discharge of the mortgage over the property, securing the funds needed to allow for the purchase of the property;
- the plaintiffs were to indemnify the defendants in respect of the loan and property expenses; and
- the defendants as trustees were entitled to an indemnity from the trust property for any liabilities they incurred that were not met by the plaintiffs.
- They plead that the defendants received the payments made by the plaintiffs for the loan and property expenses on trust to be applied to reimbursement, or payment, of loan payments, property expenses, and reduction of the loan facility.
- In the alternative, the plaintiffs plead that the joint endeavour of the parties in acquiring the property on the terms provided for by the agreement meant the parties were in a fiduciary relationship for the purposes of, and during, that endeavour and therefore owed each other fiduciary obligations.
- They further plead that the defendants breached the trust or alternatively the fiduciary obligations by increasing the amount of the loan facility without the knowledge or consent of the plaintiffs, and by making withdrawals on the facility.
- They further plead that the defendant, in beach of their fiduciary obligations, failed or refused to render true accounts and full information about the loan facility, despite request from the plaintiffs.
- They plead that the net proceeds of sale are held on trust for the plaintiffs. Further or alternatively, that it would be unconscionable for the defendants to deny that the net sale proceeds are the beneficial property of the plaintiffs, that they are estopped from doing so, and the defendants hold the proceeds on sale on a constructive trust for the plaintiffs.
- There is a further alternative claim that if not for the defendants’ withdrawals from the loan facility, the amount remaining after repayment of the loan would have been $37,821.08 greater than the amount in fact derived from the sale of the property and now held in trust.
- The plaintiffs seek by way of relief:
- a declaration that the net sale proceeds are the beneficial property of the plaintiffs;
- equitable compensation equal to the amounts lost by reason of the defendants’ breach of trust and/or fiduciary duty (in the amount of $37,821.08 as identified by Mr Hastings);
- interest pursuant to section 58 of the Civil Proceedings Act 2011 on any amount found to be payable as equitable compensation.
- In their defence, the defendants plead that:
- the agreement included terms that the plaintiffs would purchase the property within two year and if they did not, the defendants would sell it on the open market;
- the defendants offered to sell the property to the plaintiffs several times but the plaintiffs refused, neglected or failed to accept the offer;
- the defendants treated the purchase of the property as a commercial arms-length transaction.
- The defendants submit that while the parties contemplated that the plaintiffs would purchase the property from the defendants, a price or mechanism to quantify a price was not settled upon.
- The defendants deny that an express, or any, trust was created.
- Further or alternatively, if the defendants manifested an express or implicit intention to purchase and hold the property on trust for the plaintiffs (which is denied), the defendants invoke and rely upon section 11(1) of the Property Law Act 1974 and say that any such intention was not manifested or recorded in writing and is unenforceable.
- The defendants deny that there was any joint endeavour, a payment trust, or that they owed any fiduciary obligations.
- They say they were entitled to draw down on, and make deposits to, the loan facility.
- The defendants plead that the works done by the plaintiffs to the property were not authorised or approved by them, were contrary to the tenancy agreement, and did not improve the value of the property.
- Finally, the defendants plead that they have not acted unconscionably and it would not be unconscionable for them to retain the net sale proceeds.
- The defendants counterclaim for $7,787.12 in damages being costs allegedly incurred by them in rectifying the plaintiffs’ works to the property, building work to make the property safe, replacing locks and maintenance and cleaning costs. They also seek a declaration that the sum of $64,032.90 held on trust is to be paid to them.
- I have been particularly assisted by the recent summary of relevant principles with respect to common intention constructive trusts by Brown J in Nathan v Williams & Anor at  –  and later in those reasons.
- The court said at :
A common intention constructive trust, while the subject of some debate in terms of the legitimacy of its existence, has been recognised in Australian law. … In Staatz v Berry (No 3) (Staatz), Derrington J recently summarised the circumstances in which the courts have recognised the existence of a constructive trust, either on the basis of a failed joint endeavour or on the basis of a common intention. In that respect, his Honour referred with approval to McMillan J in Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc (Imam), where McMillan J identified the relevant principles as follows:
“Common intention constructive trust
- The second class of constructive trust is a common intention constructive trust, which is distinct from the joint venture constructive trust. The court will construe a common intention constructive trust where:
- (a)there is an actual or inferred common intention of the parties as to their beneficial interest in a property;
- (b)there has been detrimental reliance on that common intention by the claimant; and
- (c)it would be an equitable fraud on the claimant to deny his or her interest in the property.
The onus of proving such a trust lies on the party asserting the beneficial interest against the legal owner.
- The parties’ intentions can be found or inferred from the party’s contemporaneous words and conduct, also having regard to the surrounding circumstances and context in which they were uttered or performed. The relevant intention may arise after the property has been acquired. The intention to be established need not designate a specific share of the property; it is sufficient that the claimant should have a beneficial interest.
- The cases considering this form of constructive trust have commonly concerned persons in a domestic relationship, but the principle can be applied to disputes between parties to a commercial relationship.
- A common intention constructive trust creates substantive rights and is not merely a remedy that arises when a court makes a declaration to that effect. The trust will generally take effect from the moment at which the conduct giving rise to its imposition occurs. The interest created may, however, be deferred in accordance with principles governing priority between competing equitable interests.” (citations omitted)
- A constructive trust arises in circumstances where it would be unconscionable for the holder of the legal title to property to assert that that property was held free of any beneficial interest in the claimant. Equity will intervene to prevent the unconscientious denial of a plaintiff’s legal rights if it is established the parties agreed to that plaintiff having an interest in the property or that it was their common intention that the plaintiff have such an interest, and it is further established that the plaintiff has acted to his or her detriment on the basis of that agreement or common intention.
- The requisite intention may be established by agreement between the parties or by expressed statements as to their intention, or may be inferred from their conduct. In considering the question of common intention, the intention may be inferred from financial contributions, direct or indirect, relevant to the acquisition of property. Here, the common intention that the plaintiffs would have a beneficial interest in the property is said to arise from the oral agreement and the parties’ conduct including the plaintiffs’ payment of all costs and expenses associated with the loan facility to acquire the property and their improvements to the property.
- The requisite detriment arises if the plaintiffs have acted in a way referrable to the agreement or intention that they have that beneficial interest. A person will have acted on that common intention, if that person has engaged in conduct that could not reasonably have been expected to have occurred unless that person was to have an interest in the property. The interest will be that agreed upon or intended if it can be established.
- A common intention constructive trust remains a constructive trust for the purposes of s 11(2) of the Property Law Act 1974, meaning that s 11(1), which restricts the creation of interest in land by parol, does not apply.
- In Ford and Lee: The Law of Trusts it is said at paragraph 22A.360:
The common intention constructive trust is an institutional (as opposed to a remedial) constructive trust, in the sense that it takes effect from the date on which the acts undertaken in reliance on the common intention occur, and not, as a remedy, from the date of the court’s judgment: Parsons v McBain (2001) 109 FCR 120; 192 ALR 772;  FCA 376. Where Y’s detrimental reliance consists of acts or omissions occurring over a period of time, the constructive trust will arise when the acts or omissions are held to amount to a substantial detriment to Y.
- In Baumgartner, Mason CJ, Wilson and Deane JJ referred to “the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.”
- Their Honours also referred to the earlier statement of Deane J (with whom Mason J agreed) in Muschinski that:
… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.
- The principle in Baumgartner is founded on unconscionable conduct. The constructive trust is a remedy which equity imposes regardless of actual or presumed agreement or intention “to prelude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.”
- It is not sufficient merely to point to a relationship and characterise it as a joint endeavour which has failed. It has been said that the Baumgartner equity may properly be not a separate principle but a manifestation, in particular circumstances, of a proprietary estoppel.
- The terms of the agreement between the parties are to be identified from the words actually used, the emails and other documents, the conduct of the parties, the surrounding circumstances and the context.
- The oral agreement here under scrutiny involved discussions that occurred between Karen and Andrew almost nine years ago. It is inevitable that the accuracy of the competing accounts – on both sides of the record – would inevitably be undermined by the passage of time. There is also the potential for the effect of hindsight self-interest to undermine the competing accounts, and any associated or supporting testimonial evidence.
- As Kirby P pointed out in Baumgartner v Baumgartner, when the court is discussing proof of actual common intention to create a beneficial interest in property for the non-proprietary party, there is an element of artificiality in the question:
The last thing on the minds of the parties, when they discussed the property at Leumeah, were the intricacies of the law of trusts. In the nature of these cases, such conversations as de facto partners have about their property, will rarely, if ever, involve with precision the notion of trust. Nor will disputed cases often involve agreed and specific exchanges of mutual intentions. During happy days of a relationship, discussion of property and of interests in it will rarely be ventured, either because it is regarded as embarrassing or unnecessary or divisive or simply unromantic. It is lawyers who impose the obligation to look for the intention of the parties at the time when, almost inevitably, they will not have clarified that intention with fine precision. But a modicum of realism dictates that the search for intention should not stop at recollections of oral exchanges, rediscovered years later when the relationship had broken down. Far safer, is a scrutiny of the conduct of the parties at the relevant time: see Currie v Hamilton  1 NSWLR 687 at 691. This is not to confuse the distinction drawn by Glass JA in Allen v Snyder between an unarticulated but actual intent (upon which the law will operate) and an imputed intent (upon which it will not). It is simply to say that, in the nature of such cases, there are special dangers in placing undue weight upon declarations recalled months or years later when the processes of memory are likely to be distorted both by personal advantage and emotion, bitterness or disillusionment.
- In those circumstances, the safest approach is to test the competing accounts of what was said by reference to the conduct of the parties, including as revealed by the documentary evidence, and such inferences and conclusions as might properly be drawn from them.
- In this context the court’s inquiry would be directed towards the intention manifested by the players, that is, the intention which their words and conduct would reasonably convey to an objective bystander.
- Words or conduct by Karen, tending to acknowledge Andrew and Jodi’s beneficial interest in a property to which she and Christopher held title would carry particular weight as being against her interest.
- With those principles in mind, I summarise the relevant evidence.
What were the terms of the underlying agreement between the parties?
Context and background circumstances
- Andrew is a qualified cabinet maker who had worked in the building trade as a subcontractor. He was experienced in quoting on jobs. He was married to Jodi and they had four teenage children. In mid 2011 they were in difficult financial circumstances. Andrew was struggling with work, had been forced to sell their properties in Victoria and Cairns, and had nowhere to go. Andrew’s mother, Ila King, took them in and they lived with her in Cairns.
- Karen is a laser therapist. She and her partner Christopher own and manage a laser therapy business. Christopher is a psychotherapist.
- In 2010, Karen asked Andrew to renovate her house at 3 Aspen Close, Mount Sheridan, for her. For about two years, Andrew did renovation work on Karen’s home at her request. Karen told Andrew that she did not really have the money to pay him. He asked her to cover the raw costs, and they agreed that she would pay him when she got the finances.
- Between September 2010 and July 2012, Andrew sent to Karen detailed quotations and variations for the works done by him to Karen’s home, which became exhibit 6. The building works included renovations to bathrooms, internal and external doors, windows and walls, kitchen, laundry, bedrooms, wardrobes, tiling, staircases, installation of bifold doors, and construction of a new undercover area and outside verandah. The variations included electrical work such as removing old and fitting new electrical switches and power points, lighting and fans.
- The value of those works to Karen’s home in the quotations was substantial. Andrew’s original quote in 2010 was for $20,780. There were then a number of variations including for $23,010 (undated), $11,860 (undated), $14,930 (undated), $12,910 (5 August 2011), $23,800 (11 September 2011) and $23,237 (10 January 2012).
- The quotations and variations were the only paperwork Andrew sent to Karen. He said he did not invoice her because it was not a “normal job”. The agreement was that she would pay the raw costs of material. Andrew did not keep a record of how much Karen owed him as he went along, because he trusted her.
Agreement to buy the property at Tills Street
- From 2011, Andrew and his family were living with his mother, Ila. It was hard for Ila to have them all living with her. By about July or August 2011 it had become a bit uncomfortable for everyone.
- Andrew’s credit history was seriously blemished and he had no chance of getting a loan in his own name. He spoke to Karen about his wish to buy a house. He said he was getting to a stage where they needed to move on.
- Andrew saw a “for sale” sign for the property. The house, an old Queenslander, was run down. It was being sold at a mortgagee auction. Andrew enquired about the purchase price. The real estate agent said it was around the $200,000 mark. Andrew approached Karen and asked if she would be able to help them to get a loan to buy the property. She said “I’ll help you out, would love to, but will take it up with bank”. At that time, Andrew saw Karen most mornings because he was working on her home renovations. Andrew said “[w]e were best of mates. We discussed it constantly.” Karen’s evidence supports that. At that stage they got on very well including socialising together.
- In cross-examination, Karen agreed that Andrew had explained to her that the property was run down and that this suited him, because the price was lower and he could fix it up to make it better for the family to live in. She later clarified that she meant when he bought it, he could renovate it.
- Karen got back to Andrew within a few days. She said the bank could lend her up to $250,000. Andrew said he would cover the loan as if it were in his name and his loan and property. He said he would cover all the costs: the mortgage, council rates, water charges, anything associated with the cost of the property, and the insurance. Andrew said that he and Karen were the only parties to this discussion. He said that on a couple of later occasions, their mother Ila was present as the discussions occurred at her house too. The agreement was that Andrew and his family were to live in the house.
- Andrew and Karen agreed that Andrew and Jodi would cover the costs and when in a financial position to do so, would take over the mortgage and put it in their names. Karen was well aware of Andrew’s difficult financial position and that he had defaulted on loans in the past. Andrew said that when they made the agreement, he and Karen never discussed the time when the money was to be paid back and they (he and Jodi) took over loan. He said their agreement was that they would do it just as soon as they could.
- In cross-examination, it was suggested to Andrew that: he promised Karen that he would buy the house from her within two years; that Karen had said that she and Chris would purchase the property together; that she said that they would have the right to sell the property if Andrew did not buy it from them within two years; and that she said he would need to sign a tenancy rental agreement on certain conditions. Andrew denied all of those propositions.
- He denied that he ever spoke to Chris about the terms of the purchase or those conditions. He denied having any discussions with Chris about rent, or buying the property within two years. He said that he never dealt with Chris when negotiating the terms of the agreement or before the auction.
- To an extent, Karen’s evidence supports Andrew’s account that Chris was not present when agreement was reached because she accepted that the conversations were between her and Andrew. But she later said that Chris was there when they talked at Aspen Close.
- In his evidence-in-chief, Chris said that he was privy to discussions with Andrew at Aspen Close before the property was bought, about the circumstances in which he and Karen were prepared to purchase the property. This was not pleaded. He said that the conversations were “largely” between Andrew and Karen. When asked “did you agree to participate in those arrangements?” he said: “Well, I was – I was observing – I was present for those conversations. I wasn’t really directly involved in the conversations themselves. I was there. I was in the same room.” In my view, the qualified nature of his answers also supports Andrew’s account that the agreement was initially made directly between he and Karen, although I accept that Chris discussed the matter with Karen privately.
- Chris said that the discussions culminated in a conversation between the three of them in the kitchen at Aspen Close in which “I very carefully and very succinctly as I could outlined the terms by which I would be comfortable supporting the purchase.” He said that he told Andrew the house would be purchased by Chris and Karen jointly, they would need complete legal ownership of it, they required a residential tenancy agreement, Andrew would have to pay all their expenses and costs, and would have to commit to buying the house within two years, and that Andrew agreed to those terms.
- In cross-examination, Chris’s evidence shifted slightly. He said that Karen had told him that Andrew had promised to buy the house from her within two years and “[t]hat was the proposal that Karen related to me that Andrew had – had made to her”. This leaves open the possibility that Chris was not personally present for any conversation in which Andrew agreed to buy the property within two years.
- In cross-examination, Chris accepted that Andrew and Jodi had agreed to meet all the costs, the expenses and the mortgage. He accepted that the tenancy agreement was not intended to record the entire agreement between the parties. He accepted that money was paid by Andrew and Jodi but never at the rate of $350 per week in the tenancy agreement. He agreed that no property report was done at the start of the tenancy.
- Karen’s evidence was that Andrew asked her if she would help him buy a property and he would rent it from her, pay all the maintenance and rates, and within two years he would buy it from her. She said that Andrew said he and M (a person they both knew) would buy the property from her within two years. She asked Andrew why he didn’t ask M to help him now instead of her, and Andrew had said that M was too strapped and had too many commitments at the moment. Karen said the bank told her she could borrow $250,000 but she would need Christopher on the loan as well. Karen’s evidence was that she told Andrew that Chris would have to be on the loan, and that she wanted to sell the Aspen Close house within two to three years.
- Andrew accepted that he promised to Karen to pay for all of the costs of the purchase and rates, upkeep and everything, so it would not cost her anything. His intention was that he would not leave Karen “out of pocket” in any way. He was adamant that Karen was the only one he spoke to about the terms of their agreement. He said he only found out after the auction that the loan was to Chris as well as Karen.
- In cross-examination, Karen said that Andrew had said to her she would not be “out of pocket”, that he agreed to cover all expenses, and that there would be no risk to them. It was suggested to her that the agreement was that she (or she and Christopher) would sell or transfer the property to Andrew and Jodi if they discharged their liability over the property by paying out the mortgage. Her initial answers were indirect and not entirely responsive, but she eventually agreed:
I’m asking you again about what was discussed prior to the auction. Wasn’t it said ‑ ‑ ‑?‑‑‑To cover all the costs, like he said ‑ ‑ ‑
‑ ‑ ‑ that if he was able to pay out the loan, then the house would be his?‑‑‑If he buys it off us, yes, it would be his.
So when you say “buys” us, that means making arrangements to pay out the loan to the satisfaction of the bank so the house could be transferred?‑‑‑Yes.
- Karen was referred to the Further Amended Defence which stated that the agreement reached between the plaintiffs and the defendants was that the plaintiffs would sign a residential tenancy agreement and pay rent to the defendants, and that the plaintiffs would further meet the defendants’ outlays involved with the property such as rates charges and building insurance. Karen said that there was a separate private agreement with the plaintiffs that on top of the rent payments, that the plaintiffs would pay extra money. This is inconsistent with the fact that the tenancy agreement was with Jodi only, not Andrew. There was no reference in that tenancy agreement to paying additional sums for rates and insurance. Karen conceded that the tenancy agreement with Jodi did not reflect all of what had been agreed between her and Andrew.
- Karen said that Andrew said to her “I will buy the property from you within two years if not sooner….. They were the exact words he said to me.” She maintained that Andrew had promised to buy it within two years, and that it was not an open ended arrangement. She said that Andrew told her Malcolm or M was going to come and be a partnership.
- The documents do not support Karen’s version that there was an express agreement to acquire within two years. In text messages and emails, Karen referred to other time periods. For example, she accepted that on 8 March 2014 she sent a text message to Andrew saying:
We helped you out ment [sic] to be for 12 mths but now 3 years (October) we can’t borrow money our hands are tied. I say nothing but your winging We did a great favour … but who cares …
You said “sorry for 2 week late house payment” that cost me I didn’t charge but hey I text Jodie this little payment and NO respect to answer or pay
Fuck yes I’m not happy chasing … It’s your house. [emphasis added].
- Karen also accepted that in an email dated 6 July 2017 sent to Zen Harkness, she said “Andrew said a few years (2 years that means to me) not 7 years!” [emphasis added].
- Despite those communications, in cross-examination Karen refused to accept that it was possible that there was no agreement about the period within which Andrew would buy the house. She said “That was just two. There was about 35 to 40 in different [indistinct] and the discussions were there.” Although many emails and texts were in evidence, no party identified any documentary communication referring to an agreement to acquire within two years.
- On this issue, Karen declined to make reasonable concessions and presented as defensive. I found her evidence on this point unconvincing. I accept that, with the passage of time and the benefit of hindsight, Karen may have honestly come to believe that Andrew had promised to acquire the property within a two year period. I found Christopher’s oral evidence on this point self-serving. Despite numerous electronic communications between Karen and Andrew, there is no document that expressly supports Karen and Christopher’s evidence that Andrew agreed to acquire the property within two years. At best, the defendants point to the tenancy agreement being for a two year term, and submit that this supports the defendants’ evidence of an agreement to acquire the house within two years. But the tenancy agreement was with Jodi only, not Andrew. And Karen, Christopher and Andrew each gave evidence that it did not reflect all of the terms of the oral agreement that had been made.
- Andrew denied that he told Karen that M had promised to help Andrew buy it or that he would buy the property back within two years. He denied that he and Karen discussed M at that early stage. Andrew’s evidence was that M was never discussed at the time of purchase. He said that the only time that he told Karen that M would help him to buy the property was when he had a conversation with Karen about repayment and she told Andrew she had $50,000 in the loan (discussed later in these reasons). On the issue of the involvement of M, again I prefer Andrew’s evidence.
Loan and payment of the deposit
- Andrew said he had quite a few conversations with his mother Ila about the house. He said that she was excited because the house was cheap and he and Jodi could afford it. Andrew gave evidence that his mother was more than happy to lend him the deposit for the property. He rejected her offer a few times but said she was adamant that she wanted to help them out. Andrew said he made it clear to his mother that they were not in a great financial position and the money would be repaid, but that there was no discussion between them about the time frame for repaying her.
- In cross-examination, Karen accepted that she was not a witness to any of the conversations between Andrew and Ila about this.
- Ila contributed $26,500 to purchase the property, in the form of a cheque to the real estate agent, which was applied to the deposit. Andrew said he assumed responsibility for repayment of that debt to his mother. He rejected the suggestion that Karen had assumed responsibility for that debt to his mother.
- Karen said that Ila gave her a note said to be signed and dated 15 September 2011 in which Ila said words to the effect that she did not trust Andrew and Jodi to repay the deposit because of problems with another of her children not repaying money she had loaned. The note said that Ila was lending money to Karen so Karen could use it for deposit on the house and she trusted Karen to repay it.
- That note was tendered by the defendants without objection. Ila did not give evidence. Karen gave evidence that Ila was living in a nursing home, was fragile and had “early stages of dementia”. Karen was not qualified to express this opinion. There was no medical evidence of Ila’s condition. The note is documentary hearsay. The defendants did not refer to, or seek to rely upon, s 92(2) Evidence Act 1977 to assert that Ila was unfit by reason of bodily or mental condition to attend, and that the document was admissible as evidence of the truth of the statements in it. I do not rely upon it for that purpose, or as evidence of the facts referred to in it.
- Andrew and Karen agreed that Andrew would go to the auction and bid on the property. Andrew went to the auction with his mother Ila, his wife Jodi, and their four children. There is a photograph of them all at the auction. When the bidding got to $250,000 Andrew told his mother that was their limit. Andrew gave evidence that Ila said “don’t be stupid, keep going”. He won the bid at $265,000. Andrew explained to the agent that Karen had obtained the loan for the property and he sent the agent to Karen to sign the paperwork for the purchase.
- Andrew spoke with Karen about the costs involved “in the legal side of things”. About $10,000 in costs was mentioned. Karen said that money would be put onto the loan. Andrew gave evidence that Karen later said everything was done and they were waiting “on the legals”.
- On Andrew’s evidence, as far as he was aware at the auction and for up to a few weeks after it, the only one involved in the loan was Karen. He later found out that Christopher’s name was also on the contract.
What was the conduct of the parties at the time and subsequently?
- Andrew gave evidence that he was never a tenant, he was an owner. He said that Karen and Christopher never discussed any tenancy with him. In cross-examination, he denied that after the auction Karen raised with him the possibility of a tenancy agreement or that he reacted saying “you can always sell it if we don’t pay the rent”. He said he was never presented with a tenancy agreement. He agreed that Jodi had entered into a tenancy agreement with Karen and Christopher, and said she did so for her own peace of mind. Andrew said he had nothing to do with a written tenancy agreement because he knew nothing about it.
- Karen’s evidence was that she did discuss a rental agreement with Andrew and he said that was fine. She remembered going with Christopher to the property, that Andrew said something along the lines that Jodi would sign on behalf of the family, that he would not. Christopher said Andrew agreed that Jodi would sign the tenancy agreement on behalf of the family.
- I found Andrew’s evidence that he knew nothing about the tenancy agreement somewhat implausible, given that his wife Jodi signed it and at that time they were still living together. But I accept that Andrew was a person who tended to leave the detail or paperwork to others, and that this may also have extended to Jodi.
- A tenancy agreement was entered into with Jodi only, not Andrew, from 24 October 2011 for a two year term at $350 per week and $1400 bond. Karen gave evidence that the rental of $350 was based on advice from a real estate agent. Christopher accepted that Andrew was not present when it was signed.
- Christopher said that the reason the tenancy agreement had a 24 month term was because Andrew had promised to buy the house within two years. For reasons discussed earlier and below, on the issue whether there was an agreement to acquire within two years, I prefer Andrew’s evidence.
Work done by the plaintiffs on the property
- Andrew and his family moved in after settlement. The property was old and very run down. Andrew described it as “just liveable”.
- During his occupation, Andrew did substantial work to maintain and improve the property. Immediately after moving in, he tidied the property up, cleaned it, repaired the toilet and replaced the oven. Then he renovated the entire top floor including the bedrooms and bathrooms.
- Exhibit 8 contained “before and after” photographs of the renovations and improvements done by Andrew. In the yard he removed a pool, levelled out soil, got rid of rubble, built a rear carport and shed, and built a new driveway. Under the house, he built storage rooms or basic bedrooms. He prepared and repainted the entire exterior of the house. He completely renovated the second bathroom including replacing all fixtures, tiling, vanity and other works. He renovated the middle bedroom. He replastered it, removed the old wardrobe, painted it, carpeted it and installed new lights. Another bedroom was reconfigured and completely rebuilt as an ensuite for the main bedroom. In the main bedroom, he replaced the stud walls and ceiling, installed lighting and doors, and built a new wall of wardrobes and cupboards including over the doorway.
- Andrew carried out those renovations personally, with the assistance of his two sons and Jodi. Andrew purchased all the materials for the renovations. He gave evidence that if he had not been doing those renovations, he would have been working and earning money.
- The details of the renovations done by Andrew to the property, and his estimate of their commercial value, were set out in exhibit 9, schedule A to the further amended statement of claim. His estimate totalled $174,000. That document was not challenged in cross-examination. Even allowing for some inflation of the figures by Andrew, the photographs and extent of the works done show that the value of the works made by Andrew to the property was substantial. I accept his evidence, which was not challenged, about the work done by him.
- Andrew said that Karen was aware of the works done by him to the property. He said that while he was doing those renovation works, Karen visited the property constantly, or often. Andrew and his family also looked after Karen’s dog when she was unable to. During those periods, Karen came to the property to give them dog food. Andrew estimated that they had the dog for probably two years. Andrew said that when Karen came to the property, she would come in and look at the house renovations. She told Andrew they were doing a good job. I am satisfied that the nature of the works was such that Karen would have been aware of them when she visited the house.
- Andrew’s evidence was corroborated by Aaron King, his adult son. He was also a carpenter. He lived at the property between 2011 and 2015, save for six to eight months in 2013. He gave evidence that Karen came to the property quite often, including for birthdays, casual visits, to drop off mail and to drop off food for her dog on a fortnightly or monthly basis. Aaron King also corroborated broadly Andrew’s evidence about the renovation works done by them to the property. Aaron was not cross-examined so there was no challenge to his evidence.
- I do not accept Karen’s evidence that she went to the property on only two occasions in the seven years that Andrew was living there. On this issue I consider her evidence implausible, and I prefer the evidence of Andrew and Aaron.
- Andrew and Jodi also looked after the garden of the property. No one else maintained the garden.
- Karen and Chris admitted, or did not dispute, that during the period 30 October 2012 to 21 December 2016, they did not incur, or pay, any costs or charges in respect of the repair, maintenance or improvement of the property.
Payments made by Andrew and Jodi
- I will start with the evidence with respect to repayment of the deposit. Andrew’s evidence was that from the first month or so, he repaid his mother Ila for the deposit in cash. She kept in the top drawer of her kitchen a little book recording how much he repaid and she would sign it. Andrew also did work for his mother on her house by way of repayment.
- In cross-examination, Karen denied that the loan for the deposit was Andrew’s loan and he had to pay it. Karen also denied that Andrew was paying off the loan from Ila, despite Karen not having direct knowledge of the terms of that arrangement.
- In her evidence, Karen took every opportunity to paint Andrew in a poor light, claiming (more than once) that Ila had told her that she was frightened of Andrew and that he intimidated her.
- Karen’s evidence was that, apart from about $6,000 of the deposit which Andrew repaid by doing renovations on Ila’s house, Karen had repaid the balance deposit to Ila by paying her $20,500 from the property’s loan account. She accepted that she had never told anyone that before, claiming that she had promised her mother she wouldn’t tell.
- Karen’s oral evidence about the deposit was inconsistent with her email communications. In an email to Zen Harkness on 7 January 2017, Karen wrote “Andrew still owes mum money she lent him $26,500 ish I know he has paid most back most by jobs that he’s done in her house.” In an email of 8 August 2017, Karen wrote “Mum could have been receiving interest for 4 years (this is after the 2 years she agreed to interest free) on the amount she lent to Andrew! She wanted her money back to enjoy – it is hers.” In that email she also claimed that Ila had loaned the money on the basis it would be paid back within 12 to 18 months. But Karen was not party to that agreement between Ila and Andrew, and Andrew’s evidence was that he and Ila did not agree a particular timeframe for repayment.
- On this issue, I found Karen’s oral evidence unconvincing, self-serving, and contrary to documentary evidence. Where their evidence differs, I prefer the evidence of Andrew.
Loan repayments and property expenses
- I turn to the evidence with respect to the loan repayments and property expenses.
- It is not in dispute that the plaintiffs paid to or on behalf of the defendants the amounts set out in paragraph 10 of the Second Amended Statement of Claim. It lists some 163 transactions with a total value of approximately $132,445.88.
- It is also not in dispute that of those payments above, a certain number were made on account of the loan facility. The total value of those was approximately $112,485.
- The parties gave evidence about the various amounts paid by Andrew and Jodi.
- In the first months of their occupation, Andrew and Jodi paid less than the rental specified in the tenancy agreement of $350 per week. Karen initially denied this but later accepted it was correct when shown her affidavit in the QCAT proceedings in which she deposed that she initially directed Jodie to pay rent of $300 per week. She also accepted that Jodi paid the rates, insurance and water for the property. Andrew and Jodi made regular payments of $300 (or multiples thereof) until May 2013.
- Karen accepted that there were other departures from the strict terms of the tenancy agreement in that there were late payments, and the bond was not paid. Christopher agreed that no condition report was done at the start of the tenancy. This evidence also supports a finding that the tenancy agreement did not reflect all of the terms of the agreement between the parties (as Karen and Christopher conceded). I am satisfied that the parties never conducted themselves on the basis that the tenancy agreement reflected all the terms of the agreement between them.
- From about mid 2013 Andrew and Jodi started paying $1,600 per month into the loan account, and continued to do so until early 2017, when it increased to $1,650 per month. The change in 2013 occurred in the following way. After Andrew and his family moved into the house in October 2011, Karen still owed Andrew money for the work done by him renovating her home at Aspen Close. Andrew agreed with Karen that she would pay the mortgage for him until the money she owed him for the renovation work on Aspen Close was paid out. When Karen told Andrew that the money she owed him for her renovations had been paid back, Andrew then took over making the mortgage repayments on the property.
- Once Karen had notified Andrew that the work to Aspen Close was paid off, she asked he and Jodi to pay the mortgage in one lump sum of $1,600 per month, which they did. Andrew initially paid electronically or in cash. Eventually, Andrew’s friend and the bookkeeper of his employer, Zen Harkness, took over making the repayments on Andrew’s behalf.
- As to the timing of Andrew taking over the mortgage repayments, Andrew said that at some point Karen told him in a telephone call that “they were all square”, and that the money she owed him had been paid back. He said “I needed confirmation because I had no figures from her at all at any stage as to where the loan – or not the loan, but where the – where the money that she was paying me back was documented, because I’ve trusted her since day one with all this, but she hadn’t provided anything to me in writing as to how much was paid back or to where or to what.”
- Andrew said that some months after that, Karen sent to Andrew a spreadsheet she had prepared. He said it was her version of the money owed for renovations on her house and how she was paying it back to Andrew. Andrew had a look through it and said to her “this is – I mean, to me it was just a lot of garble. I couldn’t really read it properly. But the figures just didn’t – I couldn’t make any sense of it.” He couldn’t make any sense of it and told Karen that. Andrew needed confirmation as he had no figures as to how much had been paid back and to what.
- This became an ongoing theme during his occupation of the house. Andrew’s evidence is supported by emails later sent by him (for example, in 2015) expressing concern about how Karen’s proposed payout figures for the mortgage could be correct and requesting the details of how they were calculated (discussed below).
- Karen sent Andrew other versions of the spreadsheet. He said that he saw these documents but didn’t pay much attention to them because he could not work them out.
- Over the course of their occupation of the property, the insurance costs went up and the payments went up. Andrew said that the payments made by him did not bear a relationship to what was in the spreadsheets prepared and sent by Karen. The spreadsheets were in an agreed book of documents tendered by consent. They were undated, and they were not referred to in detail in submissions.
- Karen and Christopher were cross-examined about the income they declared, and the deductions they claimed, for the property in their tax returns.
- In Karen’s 2014 tax return “rental property schedule”, under “income” she declared “gross rental income” from the property as $19,200 per annum. That equated to the $1,600 per month that Andrew and Jodi were paying against the mortgage.
- In cross-examination, Karen accepted that she had claimed tax deductions for property expenses that she had not in fact incurred and which had been paid by Andrew and Jodi. For example, in 2014 Karen claimed as expenses council rates of $2,460, insurance of $2,100, and gardening/lawn mowing of $1,128. Karen admitted that Andrew and Jodi had in fact paid the rates and insurance, and that she had never incurred any liability for gardening or lawn mowing. She agreed that she had made false claims in that return and was aware that they were false. She agreed that she asked a gardening contractor to say on his tax invoices that the invoice was for the property when in fact the work had been carried out at her home at Aspen Close. That also occurred in other years’ tax returns.
- Chris was also cross-examined about claiming tax deductions for property expenses he had not incurred. He accepted that he provided the information to his accountant but sought to deflect responsibility, saying:
I would have to refer this back to my accountant. … I’d have to ask my accountant … I’m not an accountant, so I would have to refer it back to him. … I’m busy running a clinic. I have other people do things for me. … And these documents come back to me and I look at them and if they appear to be correct, I sign them. I trust my accountant.
Eventually he accepted that the claims for lawn mowing and repairs and maintenance were incorrect, and that he had not in fact incurred those expenses for the property.
- That Karen and Chris were prepared to make those false claims with respect to expenses for the property is a matter that reflects adversely on their credibility, particularly with respect to their evidence about the terms of the agreement with Andrew.
- Andrew said that he attempted to pay the mortgage out, with the help of M and Zen Harkness. Andrew said at one point he approached Karen out the front of her laser business. He told her that he could pay the loan out. Karen said that she had $50,000 “tied up” in that loan, and asked Andrew whether he thought M could pay that out too. Andrew told Karen “No, we’re struggling to pay that out. M and Z were going to pay it out for me.” Andrew said that Karen told him she would see if there was some way of paying out the $50,000.
- In cross-examination, Andrew said he did not mention a figure of $250,000. He reaffirmed that Karen told him she had $50,000 tied up in a work machine that she had purchased and attached to the loan, and she asked Andrew to ask M whether he could pay that for her. Andrew agreed that he told Karen that if she could pay out that $50,000, he could pay out the loan. He said that he followed it up with Karen but kept getting the same answers, to the effect that Karen was looking into it, or said “leave it with me”. In cross-examination, it was suggested that there was nothing in writing about this discussion or that $50,000 loan. Andrew rejected that, saying it was in the documents.
- At times, Karen gave Andrew a proposed payout figure for the loan, for example, by sending him a screenshot of a number. When she did that, he asked her to provide him with evidence of the loan so that they could establish exactly what was left on the loan, but he never received it. Andrew said that Karen could never give him clear information as to what was owed on the loan. Andrew rejected the suggestion that he and M were just not prepared to pay out a simple purchase price, or that part of the loan attributable to the property. I accept Andrew’s evidence on this point.
Payments and withdrawals made by Karen and Christopher
- I consider now the defendants’ dealings with the loan facility.
- In cross-examination, Karen accepted that the aim of the transaction was to help Andrew and Jodi, and that the best way to achieve that was to get the mortgage paid down so that Andrew and Jodi had a better chance of discharging it, and would have a property with some equity in it. She agreed that when attempts were made for a buyout, the buyout would be for what was owed on the mortgage and anything else they agreed to pay.
- Although the purchase price of the property was $265,000, the amount borrowed by Karen and Christopher exceeded that and was in fact $320,000. In her evidence-in-chief, Karen said she had to “redo” her existing loan with Aspen Close that had an outstanding liability of about $70,000. Exhibit 3, the defendants’ bank statement shows an initial drawdown of $320,000 and on the same day a deposit against it of $70,795.15. The defendants’ case was that “there was an aggregate loan drawn of $320,000, of which $70,000 was appropriated and applied to settle the pre-existing facility.” The $320,000 loan was secured over Aspen Close as well as the property.
- When cross-examined about the $70,795, Karen said: “That was for our use. That was for our use to [do] things. … It’s our loan.” When challenged about her earlier evidence that the $70,795 was to pay off 3 Aspen Close, she denied that saying:
No. It was transferred from having a loan from 3 Aspen Close to then combine it to this one. That is the way that it is. And we drew down to pay for like renovations for the Kings’ work at Aspen Close and other personal things which have nothing to do with anybody else. That’s our loan.
- It is not in dispute that the defendants made withdrawals on the loan facility as set out in paragraph 14 of the Second Amended Statement of Claim. There were 93 transactions totalling approximately $188,504.30. The individual withdrawals ranged from a few hundred dollars to over $10,000.
- It is also not disputed that the defendants made deposits to the loan facility as set out in paragraph 14A of the Second Amended Statement of Claim. There were 103 transactions totalling approximately $237,723.61.
- It was suggested to Karen that for a long time in 2014 and 2015, the loan was still drawn down in excess of $300,000. This was some three to four years after the loan was taken out. Karen presented as defensive, saying:
That doesn’t make any difference. It’s my loan. … It’s my loan. I can do what I like with it. Do I go into your bank account and say, “You can’t do things with it”? I did things with it which is not even important even [sic] to mention to Andrew because it’s not his loan. The day it is, that’s a different story, and it won’t be his loan because he has to get his own.
- In cross-examination, Karen conceded that she did not tell Andrew about her dealings with the mortgage which resulted in there being extra interest paid on it. She kept this private from him. Even in May 2015 when Andrew was texting her saying her mortgage calculations did not add up and he was concerned about them, she never disclosed to him that she had been withdrawing from the loan facility for her own purposes.
- On this issue, Karen’s responses were defensive and at times confusing. When she was pressed on financial detail and Andrew buying her out, she claimed “That’s what I’m not so good at, I must admit.” Karen denied having a conversation with Andrew in which she told him she owed an extra $50,000 and that if he and Malcolm wanted to buy the property, he would have to ask Malcolm for an extra $50,000.
- Karen suggested that if there had ever been a serious discussion about a buyout, she would have engaged “a special accountant” to go through the figures and work out what the proper price would be. She conceded “So we had to get someone to go through it because, yes, we did use money and then we did put money back and then we did all that. We wanted the loan to be exactly what it was owed without our stuff, so that’s – that was never discussed. He wouldn’t even come to a party to that. He didn’t even try.”
- With respect to engaging someone to work out what the proper price should be, Karen said she had “every record” of the withdrawals made by her and Chris. Karen was then reminded that in 2018 she had sworn an affidavit with respect to disclosure in which she said that she could not find any documents evidencing the nature and purpose of the withdrawals from the loan account, other than the bank statements. That is, she could not locate any quotes, purchase orders, contracts, invoices or receipts evidencing those withdrawals. Karen was not able to explain what had happened to those documents. She initially said she had a lot of them and had given them to her lawyers. Later, she suggested documents may have been lost moving house.
- Karen was cross-examined about how she could possibly have engaged an accountant or bookkeeper to reconcile the loan account and work out what was actually owing by Andrew and Jodi, if there were no documents explaining what Karen’s withdrawals from the loan were for.
- Her answers were vague and non-responsive. For example, she claimed one of the withdrawals was for timber, but could not be more specific and said “So – but anyway, look, it doesn’t matter. It’s only small talk, isn’t it?”, “And anyway, it didn’t matter what it was, it was what we took out, so we put it back. What’s the difference? We just count it. It’s a number. So say if it’s $20,000 and five here and six here, then why do you need an invoice when you know we’ve paid it? We used it, and if we sell the property, that’s what we [indistinct]. We don’t have to say what it’s for. Do you understand?” When it was suggested to her that she had never done the exercise of working out whether she did in fact pay it all back, Karen claimed: “Yes, I have. But I’m not good with figures, remember.”
- I found her evidence on this issue self-serving and unconvincing. Karen said they did not want to charge Andrew interest on “what we were using”, but it is difficult to see how this would have been possible given the absence of recordkeeping.
- I am satisfied that Karen and Christopher used the loan facility for their own purposes and did not disclose this to Andrew, notwithstanding that it inflated the interest payable on the loan and the final payout figure. I am satisfied that Karen and Andrew benefitted from that use of the loan.
- Karen said that she lost a sale of Aspen Close because the mortgage was secured over it as well and she could not sell Aspen Close because Andrew was not in a position to acquire the property from her. However Karen eventually sold Aspen Close in March 2017, while retaining ownership of the Tills Street property, so the existence of the loan facility did not ultimately prevent the sale of Aspen Close.
- The plaintiffs engaged an accountant, Ken Hastings, to:
- Recalculate the loan balance assuming that the only transactions reflected were:
- (a)The deposit made on 19 October 2011 of $70,795.15;
- (b)A list of deposits identified by the plaintiffs’ solicitors;
- (c)Bank fees and charges payable under the loan facility; and
- (d)Interest charges reflecting the above.
- Determine the additional interest paid under the facility as a result of the transactions that occurred; and
- Determine the anticipated loan balance as at 20 March 2018 assuming that only the transactions advised occurred.
- Mr Hastings concluded that:
- Additional interest had been paid on the loan facility amounting to $16,075 as a result of the transactions that had occurred;
- The final loan reflected a final payout $37,821.08 higher than the anticipated loan payout as per the transactions advised by the plaintiff.
- In cross-examination, Mr Hastings accepted that he had undertaken only those calculations requested by the plaintiffs’ solicitors. He had not quantified the parties’ respective capital contributions nor whether any party had disproportionately contributed towards repayments nor made any adjustment for occupation rental.
Discussions about when Andrew would purchase the property
- I turn to the evidence about when Andrew would acquire the property.
- In cross-examination, Andrew denied that Karen raised with him after occupation the matter of the proposed purchase, and that she suggested to him October 2013 as a target date for the purchase. Karen said she raised the issue with him in mid 2013 when he was working on her home at Aspen Close and he got angry with her and said it was too early to bring it up.
- Andrew agreed that between 2013 and 2015 Karen raised with him the matter of purchase of the property and that they discussed it face to face or over the phone. He accepted that he may have said to her words to the effect that she would have to take her time, and she would need to be patient. He denied avoiding her and not taking her calls. He accepted that, towards the end of their occupation, Karen was becoming more and more anxious that he proceed with the purchase, but he denied that she was anxious in 2015.
- On 2 April 2015 Karen sent Andrew a text saying “I just spoke to the bank and you need to only pay $100,000 off loan to Tills or get your own loan of course. Because I’m seeking house I have already had an offer, so quickly. Selling not seeking. They want 30 days to settle”.
- On 17 May 2015 at 6:17pm Karen sent Andrew a text saying:
Here is your balance from 25 April 2015
$245,739.44 for tills street.
You can buy the house for that amount. I’ll need it settled by June 19th 2015. …
Cheers Karen PS.
Let me now [sic] be [sic] the end of the week your plans for tills street Thx.
- The next day, 18 May 2015, Andrew replied. He sent two text messages. In the first message at 6:57pm he said:
Figure re till street can’t be right.
We paid 265,000 for it.
Mum paid $28,000.
So that makes balance owing at start of loan
We have been paying well over the amount due as to [sic] the interest rates have dropped yet we have kept payments the same as the start.
How can we owe more than the loan????
I need the details so M can go through to clarify.
Sorry but I don’t trust Chris figures.
I need to see the original papers ect [sic].
Just does not add up at all.
- In the second message at 8:40pm he sent:
Oct 2011 loan taken out
= 3 yrs 7 mths
= 43 mths @ $1600 per mth
Plus Mum’s input which was $25,500.00 (not $28,000.00)
= total of $94,300.00
Plus stamp dutys [sic] and other fees we paid on set up ect [sic] …
So I don’t understand how we can owe what you are stating??
It must be wrong somewhere
- Andrew was taken aback by Karen’s payout figure. He was unaware that Karen and Christopher had, in fact, borrowed more than was required to purchase the property because they wanted access to additional loan funds for personal reasons. Karen and Christopher did not tell Andrew and Jodi that. The first Andrew was alerted to this was when Karen told Andrew she had $50,000 tied up in the loan. It was a significant omission by the defendants. This, together with the fact that Karen and Christopher were drawing down on the loan account for their own purposes, likely explains why Karen would not provide to Andrew or Harkness (despite request) the source documents from the bank showing the original loan, and the current balance.
- In cross-examination it was suggested to Karen that by that stage (May 2015) they had “kept private their private dealings with the mortgage that resulted in there being extra interest paid on that mortgage because they had drawn down an extra $50,000 to $70,000”. Karen’s initial answer was non-responsive: “It’s our loan.” But she later accepted that she had kept that private from Andrew.
- Andrew was associated with M through their mutual involvement in a church. Andrew held a position within the church in its Cairns parish. Andrew agreed that at this stage M was interested in considering the acquisition of the property in his capacity as a representative of the church. Andrew said that M was willing to help them out but they had to “crunch the figures” first to see if they were correct. He subsequently spoke to Karen about the possibility of he and M proceeding with the purchase. Andrew said the difficulty Karen had was that she owed $50,000 on the loan (see the earlier evidence about the business machine). Andrew was anxious that Karen had to get rid of the $50,000 so they could buy the property from her and get it out of her name.
- On 1 June 2015 Karen sent Jodi a text message saying “Ps I can tell andrew feels down. If you were renting you would have paid $450 over 52 weeks or may be more it was cheaper for you to own. The [sic] renovate a little cosmetic sell it. Think carefully about it write up different ideas Good luck k”.
- On 20 July 2015 Karen sent Andrew a text message saying: “On the latest re tills. After our talk the other day things have changed. So Now Best you buy as soon as M can (mid July now so end August to Sep the latest). Would really help me out. Good luck keep in touch with what’s happening with M and you buying. Karen xx”.
- Andrew denied that Karen had lost a potential sale of her Aspen Close house because of her borrowings. He said he did not know anything about that and that Karen did not make that known to him. She suggested she had a buyer for her property but she never said to him or attached the property to the sale of the Aspen Close house.
- On 7 April 2016 Karen sent Andrew a text message saying: “Re Tills Street house payments only pay directly now into house [bank account details provided] Instead of $1600.00 on the 19th of each month you should be paying at least $2000.00 mthly. The principal will come down a lot now as interest has stopped and you can really get ahead now.” [emphasis added]
- On 17 June 2016 Karen sent Andrew the following email:
I’ve been thinking a bit more since we spoke about the arrangements with your mortgage. You mentioned that you would be able to buy the house back off me in the next few months, so let’s decided some dates that we can target to make this happen. Do you think it’s realistic that you could settle by the end of August? (ie. arrange the loan with the bank to pay me the value of the house, at which point the house will go into your name). Otherwise let me know what timing you have in mind? As you know 2 years ago I ha da buyer and you fm [sic] did say M was going to deal with this in the next few months. Also it’s been a since Oct 19th 2011 nearly 5 years. Sooner would be better for both of us. Thanks Karen. [emphasis added]
- In about September 2016 there was a falling out between Andrew and Karen and their mother Ila, because of Ila’s decision to appoint Karen as her attorney and because of Karen’s attitude towards their father’s death. Andrew said that caused a lot of trouble in the whole family. Andrew stopped communicating with Karen except through Zen Harkness. Andrew said that Harkness was “handling all the paperwork” for the home loan and all the money.
- By September 2016 Karen was demanding that Andrew complete the intended purchase of the property.
- On 7 September 2016 Karen sent an email to Andrew, copied to M, saying:
Hi I text & ask Andrew ahead to pay the rates and now the account is over drawn. I’m always texting reminding you Andrew or Jodi over the years. It’s not fair it’s not my house. We got the loan for you Andrew & Jodi King. I want this house OUT of our names mine (Karen fister & Chris Hall). I wrote an email to andrew and Melcome mths ago yet no respect to me to reply. (I know you read it as I can see that). So personally I am over it … been used & YOU not giving a Shit. So you or Melcome last time I asked nearly 2 years ago (when I had a buyer for my house) Said only a few mths. And so it keeps going & goo g [sic] & going and NO communication for Andrew or Melcolm is not acceptable any longer. So now I’ll give you a date 1st December 2016 (The date of your ownership of 77 Tills). You’ll both need to get a bank loan [sic] costs of transfer to title. I’ll find out what we get change for profit made or you can do that. I want in Writing of the date commitment for transfer of 77 Tills st Westcourt by you both by 15 September 2016. From Karen (a very disappointed sister) [emphasis added]
- Despite being shown that email, Karen denied that she said “it’s not my house” because the arrangement was that the house was Andrew and Jodi’s. She sought to explain away those words saying she was upset and angry. I do not accept her evidence about this.
- Andrew gave evidence that there was one occasion on which he believed he had missed one of the rate payments because Karen did not provide the bill in enough time for them to pay it. Andrew arranged for the bookkeeper responsible for paying his wages, Harkness, to make payments on his behalf by direct debit.
- Andrew was not in a position to proceed with Karen’s stipulated deadline of 1 December 2016.
- In September 2016 the church acquired for $250,000 a house in the same street (66 Tills Street). The transferees were Andrew and M as trustees for the church. In cross-examination, it was suggested to Andrew that he and M could very easily have applied the money paid for that property to the purchase of the property Andrew was occupying at 77 Tills Street. Andrew said “Absolutely not. … I don’t have control. It’s not my property [referring to the one bought by the church]. I don’t make those decisions.” He gave evidence that the property acquired was church property, that he did not own it, that he was a trustee, and not an owner.
- On this issue, I do not accept the defendants’ submissions that the acquisition by Andrew and M of the house at 66 Tills Street proved that it was within the plaintiffs’ power to acquire the property they were occupying and they failed to do so, thereby failing to satisfy the precondition to their intended succession to title. While the defendants sought to make much of the purchase at 66 Tills Street, in my view nothing turns on this because the transfer documents make it clear that the two named purchasers were trustees for the church. There is no suggestion or evidence that Andrew had a beneficial interest in the property at 66 Tills Street, or that he used his own funds to acquire it. It is a distraction.
- I also do not accept the defendants’ submissions that the expectation and assumption from the very start of the arrangement was that M and/or the church would be the source of funds for, or involved in, the acquisition of the property. It was not pleaded. And it is not made out on the evidence which I accept. On this issue, I prefer Andrew’s evidence to that of Karen.
- Andrew rejected the suggestion in cross-examination that he was happy to continue to occupy the property at 77 Tills Street without assuming the financial burden of it. He said that he had assumed all of the financial burden for the property: he was paying for everything. He said that Karen and Christopher did not bear the financial burden, although he accepted they were liable to the bank for it. Andrew said that Karen could never give him an exact figure to pay out, that he asked her for the evidence to see what they owed on that loan, and that she never provided it. I accept his evidence on this. Although Karen provided various payout figures, she did not provide calculations for them or supporting documents to explain the figures.
- In January 2017 Karen attempted to put in place another tenancy agreement (the earlier one having expired). Andrew agreed that a real estate agent telephoned him and that he refused to sign a lease agreement. Andrew said that he told the agent words to the effect that he and Jodi had a verbal agreement with Karen that superseded any tenancy agreement the agent was trying to make. He said he was unwilling to enter into a tenancy agreement because they believed it was their property, they were not renters, and they owned the property.
- On 6 January 2017 Harkness sent an email to Karen apologising for the problems he had caused with Andrew’s payments. He made a “catch up rent payment” for three months, provided details of future automatic direct debits he had set up for “rent” and asked Karen to contact him personally in future if there were any issues with “rent payments from Carpentry4Me” (an entity associated with Andrew). Harkness forwarded that email to Andrew explaining “I just fixed up the rental payments for Carpentry, and it was a mistake at my end.”
- When questioned in cross-examination about Harkness’s use of the expression “rent”, Andrew maintained that there was never any rent, they did not pay rent and he did not know what Harkness was referring to when he referred to “rent”. He said that was between Karen and Harkness. He said he had no involvement in it and did not know why there was a catch up payment.
- During 2017 Harkness made payments on Andrew’s behalf. During 2017 there were multiple emails between Harkness and Karen in which Harkness sought to clarify with Karen what payments were due and when, so that he could make arrangements to pay them on Andrew’s behalf. Harkness confirmed his understanding of the arrangement Karen had with Andrew saying it “is not a normal rental situation”, Andrew paid more than just rent, he was fully covering the mortgage on the property, and he also paid all additional outgoings including rates and water.
- In July 2017 Harkness requested from Karen details such as “what is the minimum monthly repayment to the bank? What is the current interest rate? What is the remaining capital outstanding (i.e. how much is left of the original loan)?” Karen provided the current interest rate and minimum monthly repayment. There was no evidence that Karen provided details of the remaining capital outstanding on the loan. Harkness referred to the possibility of purchase by the church and asked Karen to try to negotiate a lower interest rate with her bank.
- Notwithstanding the reference by Harkness to “rent” payments, the emails and texts sent by Karen over the years provide powerful evidence that Karen acknowledged the existence of the trust, as alleged in paragraph 18(c) of the Statement of Claim. The emails sent by Karen and her oral evidence undermine the pleaded position that the entire agreement was encapsulated in the tenancy agreement. It is also contrary to Christopher’s evidence. The electronic communications from Karen encouraging the plaintiffs to make higher monthly repayments in order to reduce the principal on the loan to get ahead, are also consistent with the existence of a trust.
- On 6 July 2017 Karen sent an email in response to Harkness saying:
That’s ok but I don’t want Tills in our names any longer. Andrew said a few year (2 years that means to me) not 7 years! I’m over checking the accounts to see if Andrew and zjodie [sic] are doing the right thing. Time to move on thx. I need time to talk to bank then change banks if they won’t I don’t want to do that. When does Malcome propose to buy 77 Tills street? Regards to you both. Karen. [emphasis added].
- This email also undermines Karen’s and Christopher’s evidence that Andrew expressly agreed to acquire the house within two years.
- On 11 July 2017 Harkness sent an email to Karen:
Please tell me:
1) What was the starting loan amount when you got the loan?
2) What’s the total remaining (“capital”) now?
- On 16 July 2017 Karen sent an email to Harkness saying “I’m spending my time for years now on this Tills house and it was only to help Andrew but it’s only been a burden of chasing money checking that payments are made and much more. It’s not my responsibility. … I ask for the payments to be done because it’s their responsibility, not mine.” [emphasis added]
- Harkness replied to Karen saying, amongst other things: “I want to know the status of the loan – this is related to any insurance repayments.” He also repeated the request for the original loan amount and the outstanding amount of the loan.
- On 17 July 2017 Karen sent an email to Harkness. She identified the original loan as $238,500.83 and the total cost of the property including fees and repayment of the deposit as $274,883.75. She identified a total of $20,573 paid by Andrew and Jodie, and the “loan as from today” as “$254,063.03”.
- The “loan as from today” figure appeared to be arrived at by simply deducting the amounts Karen said Andrew and Jodi had paid, rather than any payout figure provided by the bank. According to Karen, despite the minimum monthly repayments being made for six years, in 2017 Andrew and Jodie still owed more than the amount of the original loan and more than the original purchase price.
- On 8 August 2017 Karen sent an email to Andrew, M and Harkness stating:
Straight to the point, as I’ve said multiple times before Chris and I needour names taken off the 77 Tills Street house.
1) Do you want to buy 77 Tills Street Westcourt for $258,188.24? My solicitor will draw up the contract.
2) If so, I need the full names of purchasers, address and contact details. Acceptance of this sale offer must be no later than the 15th August 2017 before 12pm. The reason for the short date is because it’s been over 18 mths since I asked the same question of purchase and again recently. Then just a deposit of 10% $25,500 is required by 16th August 2017 deposited into the solicitors trust account as follows: …
Settlement date to be 19th October 2017 (if you agree to buy the property).
If I do not hear back from you I will start to take some steps to get the house listed with a real estate agent to sell it to another party. If you turn around and then want to buy the place, the price will have to increase to cover the agent’s commission.
With regard to Mum’s money – seriously the point is:
A) Mum lent the money interest free on agreement it would be paid back within 12-18 months she said. Round it off to 2 years at a then interest rate of 6.91% far exceeds 4.98% which was the rate when Mum’s money was paid back 28 December 2016.
B) Mum could have been receiving interest for 4 years (this is after the 2 years she agreed to interest free) on the amount she lent to Andrew! She wanted her money back to enjoy – it is hers.” [emphasis added]
- It was suggested to Karen that she said “I need our names taken off the 77 Tills Street house” because the reality was that it was not her and Chris’s house, it was just in their names legally. She denied that, saying it was just her way of speaking. On this issue, I found her evidence unconvincing. In my view, the words recognised the plaintiffs’ beneficial interest in the property.
- On 17 August 2017 Karen sent a further email:
I need to know if you intend to buy 77 Tills Street by October 2017? I have communicated this to you servals [sic] times over the passed [sic] 3 years the opportunity to purchase at only what the house is owed to date plus insurance you owe etc. I can not wait any longer as financially we need to sell. It is now a serious matter for us! I would rather you buy (as Malcom has said you still want it) but you need to communicate your intentions now. Please respond.
- When asked whether he responded, Andrew said it would probably have been M or Harkness who responded.
- On 20 August 2017 Karen sent a further email notifying Andrew that half yearly rates were due and asking when he would pay the insurance which was six months in arrears. Andrew said that Harkness would have been responding to those emails as he “was in charge of that”. Andrew would have responded through Harkness and asked him what was going on.
Karen and Christopher recover possession of the property
- On 29 August 2017 Karen and Christopher gave Jodi a Notice to Leave under the Residential Tenancies and Rooming Accommodation Act 2008 on the basis that the residential tenancy term had expired.
- Andrew and Jodi did not vacate the property.
- In November 2017 Karen and Christopher commenced proceedings in the Queensland Civil and Administrative Tribunal to recover possession. Andrew prepared a notice of objection but it did not reach the QCAT file by the date of the hearing. An order for possession was made. Andrew and Jodi lodged a caveat over the property and applied to QCAT for a reopening, but that was refused. Karen and Christopher recovered possession. By then, relations between the parties had completely broken down.
- The defendants sold the property. After payment of the mortgage, the net proceeds of sale were placed into their solicitors’ trust account.
- Christopher said he engaged contractors to make repairs to the property at a cost of $7,645.41, which is the subject of the counterclaim. He said these expenses were charged to the property. He drew down on the mortgage to pay those expenses.
- For reasons explained earlier and below, where their accounts of the crucial disputed facts differed, I prefer the evidence of Andrew to that of Karen and Christopher, except where their evidence is supported by independent documents.
The underlying agreement
- On the issue of whether Andrew agreed to acquire the property within two years, I prefer the evidence of Andrew that there was no agreement about a specific timeframe within which he was to acquire the house, but that he said he would do so as soon as he was financially able to.
- I do not accept the defendants’ oral evidence that the plaintiffs would purchase the property from the defendants within two years, and that if the plaintiffs did not purchase the property within two years, the defendants would sell the property on the open market.
- That such a long time passed during which Andrew took no steps to acquire the property, other than the occasions he identifies, supports the inference that there was no agreed timeframe for acquisition of the property. It also supports the inference that, as time passed, Karen and Christopher may have come to consider they needed to force his hand and insist on the acquisition or retake possession. But if Andrew were making all the relevant repayments (as was generally the case), there would have been no reason for them to insist on the acquisition within a particular time because they were not suffering any direct detriment. They argued that the increased mortgage, which was secured over Aspen Close as well as the property, affected their capacity to buy another house. However in the end the defendants’ legal ownership of the property did not prevent them selling Aspen Close and buying another house.
- The emails and text messages exchanged do not support Karen and Christopher’s evidence that there was an express agreement that Andrew would acquire the house within two years. There is no reference in any documents to such a term.
- Given his parlous financial position, Andrew would not have been in a position to make such a definite promise, and I find it unlikely that he would have done so. Karen and Christopher were well aware of his poor financial position.
- Although at first blush it may seem unlikely that parties would enter into such an agreement without a definite deadline for the acquisition of the property in mind, these were not independent commercial parties at arms length entering into a contract with the benefit of legal advice. It was a domestic or familial relationship. They were a brother and a sister who made an oral agreement. Andrew was unsophisticated in financial matters and Karen professed to be, but was more financially sophisticated than him. There is no suggestion they received any legal advice.
- They had previously entered into an oral agreement for Andrew to do work of significant value to Karen’s home without charging her, without any written contract, on the basis that Karen would pay him not by a particular date but when she had the funds to do so. Andrew was prepared to act on the basis of such an agreement with his sister Karen, without seeing any documentation and trusting that she would do the right thing by him in the end. To enter into the agreement about the property without agreeing an express term for when Andrew would acquire it, is consistent with their arrangements for renovations to Aspen Close.
- When Karen told Andrew that she had paid sufficient mortgage repayments to cover the cost of her debt to him for his renovation works to her home, he accepted that at face value, and he then took over the mortgage repayments. In cross-examination, Karen volunteered “I didn’t understand the banking and Andrew didn’t understand the banking but I understood it better than he did.” I am satisfied that Andrew trusted Karen to do the right thing by him with the loan repayments.
- I found Karen’s evidence sometimes self-serving. When pressed on financial details, she said that maths was not her strong suit, that her partner was “always good on the finance side of things”, that she would defer to her partner, and she “didn’t understand the banking”. She overstated the specificity of the terms of her oral agreement with Andrew. She said that in her initial discussion with Andrew in August or September 2011 she told him that “I do want to sell this house, Aspen Close, within two or three years time. So I don’t want anything holding it up.” That evidence was not opened by Queen’s Counsel for the defendants (despite an otherwise detailed opening of her evidence of the express terms of the agreement) and was not put to Andrew in cross-examination. I infer that Queen’s Counsel for the defendants may have been unaware that Karen was going to give that oral evidence.
- I am satisfied that there was no agreement about the property being acquired within a specified time. I am satisfied that Andrew told Karen he would acquire the property as soon as he was in a position to do so financially.
- I do not accept the defendants’ evidence that it was a term of the agreement that the plaintiffs would live in the property as their tenants and that the plaintiffs would both sign a residential tenancy agreement. Although Jodi signed a tenancy agreement for an initial two year term, that agreement did not reflect all the terms of the agreement between the parties. Andrew was never party to a tenancy agreement. The parties did not conduct themselves in accordance with the tenancy agreement. The initial tenancy agreement expired and the plaintiffs declined to enter a further agreement, consistent with their position that they were never in truth tenants. I am satisfied, objectively, that the relationship with respect to occupancy was not governed and defined by the tenancy agreement.
- I am satisfied on Andrew’s evidence (supported by written communications from Karen) that it was Andrew and not Karen who borrowed the deposit from his mother Ila, contributed it to the purchase, and was obliged to repay it. The defendants relied upon the fact that the trust account receipt for the deposit issued by the stakeholder was in the name of Karen. That is unsurprising given that Karen was one of the named purchasers. The fact that Karen may have later used the loan facility to repay the deposit to Ila is not determinative.
- I am satisfied that the terms of the agreement between the parties were essentially in the terms alleged by the plaintiffs. That is, that in or about September 2011 Andrew and Karen agreed to cooperate in the purchase of the property with the objective that the property would become the residence for Andrew and his family, that would ultimately be wholly owned in law and equity by Andrew and Jodi on the following terms:
- the parties would attempt to acquire the property at auction;
- the plaintiffs would borrow sufficient money for the deposit from Ila;
- the defendants would borrow funds sufficient to complete the purchase including stamp duty and legal costs;
- the purchasers would be the first defendant or both defendants;
- the plaintiffs would be responsible for payment of all mortgage loan repayments and other charges related to the borrowings to complete the purchase, together with council rates, water charges, insurance, maintenance, and other holding expenses;
- the plaintiffs and their family would occupy the property;
- if the plaintiffs were able to obtain the finance necessary to do so, the plaintiffs would discharge the balance of the indebtedness of the defendants remaining in respect of the purchase of the property and the defendants would convey the legal title in the property to the plaintiffs.
- I am satisfied that that the agreement did not include any or all of the following terms:
- the plaintiffs would live in the property as the defendants’ tenants;
- both plaintiffs would both sign a residential tenancy agreement;
- the plaintiffs would purchase the property from the defendants within two years by payment of an agreed purchase price; and
- if the plaintiffs did not purchase the property within two years, the defendants would sell the property on the open market.
Common intention constructive trust
- On the basis of the evidence that I accept and for reasons explained earlier and below, I am satisfied of the following matters.
- The plaintiffs contributed the deposit and made other payments in reliance upon the agreement. Payments were made and received on trust for the benefit of the plaintiffs. The payments made by the plaintiffs were significantly more than the rent payable pursuant to the tenancy agreement.
- The plaintiffs expended their own money, time and labour improving the property in reliance upon the agreement. I am satisfied they did so on the faith of an expectation they would later acquire the property. In making those payments and improvements, they acted to their detriment in reliance on the agreement.
- I do not accept the defendants’ submission that when the plaintiffs made payments going beyond the agreed monetary obligations in the tenancy agreement, they did so as volunteers, at their own risk, and without any express or tacit agreement on the defendants’ part, because I am well satisfied that the evidence establishes otherwise.
- The defendants (by the first defendant, Karen) were receiving the plaintiffs’ payments and visiting the property and observing the plaintiffs works as they progressed. The defendants were aware of those payments and works, and did nothing to suggest they had any concerns about the improvements. On one occasion Karen suggested the property be improved and sold.
- I am satisfied that the improvements were done with the defendants’ consent.
- The defendants requested and accepted the plaintiffs’ payments by way of reimbursement or for the purposes of meeting the loan payments and property expenses.
- The defendants acknowledged the existence of the trust relationship in respect of the property by their conduct, including by the email of 7 September 2016. The evidence shows that at the time of the property’s purchase, and for the years thereafter, Karen and Andrew exchanged correspondence indicating they each regarded the property as having been bought and held by Karen and Christopher on behalf of Andrew and Jodi. In her communications, Karen referred to it being Andrew’s mortgage and house, saying: “It’s your house”, “your mortgage”, “it’s not my house. We got the loan for you Andrew & Jodi King. I want this house OUT of our names”, and “It’s not my responsibility. … I ask for the payments to be done because it’s their responsibility, not mine.” In my view, the tenor of those communications shows that the parties were concerned with the substance of the arrangement – that they recognised the plaintiffs’ beneficial interest in the property.
- The plaintiffs’ works on the property improved the property and increased its value.
- The works were not undertaken unlawfully and in breach of the residential tenancy agreement. The defendants were aware of the works and consented to them.
- The plaintiffs made payments that reduced the indebtedness of the defendants in respect of that amount loaned to the defendants to purchase the property with the express or implied approval of the defendants. The plaintiffs had with the express or implied approval of the defendants completed works that improved the value of the property.
- I do not accept the defendants’ submission that the continuing financial burden imposed by the borrowings on the defendants was substantial, in circumstances where the evidence establishes that the loan repayments and other expenses were being paid by the plaintiffs. Nor do I accept their submission that the plaintiffs suffered no detriment that can be attributed to the defendants or any expectation associated with the defendants, because the evidence establishes otherwise.
- The defendants submitted that in quantifying the relative contributions towards loan repayments, allowance must be made for the amounts that the defendants deposited into the loan facility, and there should be an adjustment for occupation rent. The latter was never pleaded. The court should, where possible, strive to give effect to the notion of practical equality, rather than pursue complicated factual inquiries which will result in relatively insignificant differences in contributions and consequential beneficial interest. The authorities do not support an approach that requires a precise accounting of the contributions of the parties.
- I am satisfied that the value of the improvements made by the plaintiffs to the property was substantial, that those improvements increased the value of the property, and that the payments made by the plaintiffs including the deposit, loan repayments and expenses, far exceeded any monetary obligation under the tenancy agreement.
- Unbeknownst to Andrew and Jodi, Karen and Christopher were drawing on the loan facility for their own purposes, and making repayments, that resulted in additional interest being incurred, and the final payout figure being higher. Karen and Christopher refused to provide to Andrew and Jodi a calculation of a payout figure that took into account the consequences of the defendants’ transactions on the loan facility, as well as the plaintiffs’ repayments. In circumstances where Andrew was faced with payout figures he could not understand and for which no sensible calculations were ever provided, it is unsurprising that he did not ultimately acquire the property from the defendants.
- In all the circumstances, I am satisfied that it would be unconscionable for the defendants to now deny that the net sale proceeds of the property held in trust are the beneficial property of the plaintiffs, and it would be unconscionable for the defendants to retain the benefit of the net sale proceeds.
- The parties’ agreement, and their subsequent conduct, supports a finding that it was their common intention that the defendants would hold the property on a constructive trust for the benefit of the plaintiffs.
- The plaintiffs are entitled to relief by way of a constructive trust over the net sale proceeds of the property.
- Given the factual findings I have made, I do not accept the defendants’ submission that the plaintiffs’ expectation as to their eventual succession to title to the property was subject to a condition precedent (that they pay for the property) that was never satisfied, and that is fatal to the plaintiffs’ claims however they are characterised.
- The defendants relied particularly upon the New South Wales Court of Appeal decision of Clancy. I do not accept the defendants’ submission that the circumstances here are “largely analogous” to those in Clancy. The facts of that case are completely different. It involved a commercial relationship between unrelated parties who were at arms’ length. The appellants occupied and farmed a property pursuant to licence agreements (including an option to purchase), which obliged them to carry out improvements of a certain value. The appellants entered into legally binding contracts for the sale of the property but refused to complete the contract by payment of the agreed purchase price. The court found that the relationship between the parties was based on contract, and could not be characterised as a joint endeavour or arrangement giving rise to a Baumgartner equity. The court found that the appellants did not spend money on improvements on the faith of an expectation they would later acquire the property. That case can be readily distinguished on its facts.
- Having found it was agreed the plaintiffs would purchase the property, I am satisfied that any such assumption, expectation or associated equity in favour of the plaintiffs was not entirely satisfied by the plaintiffs’ occupancy, use and enjoyment of the property during the relevant period, particularly given the additional payments made and improvements carried out by the plaintiffs.
- I am satisfied that the whole of the amount of $64,032.90 retained in the trust account of the defendants’ solicitors is held on trust for the benefit of the plaintiffs and should be paid to the plaintiffs.
- The defendants submitted that the alleged trust was unenforceable on the basis that it applied to land and was not manifested in writing, or signed by or on behalf of the defendants, contrary to s 11(1) of the Property Law Act 1974. But s 11(2) provides that s 11 “does not affect the creation or operation of resulting, implied, or constructive trusts”. Having found a common intention constructive trust, I am satisfied s 11(1) does not apply.
- I am satisfied that the plaintiffs acted or conducted themselves on the basis of an agreement that they held a beneficial interest in the property. That conduct was to their detriment, unless the plaintiffs were to have the beneficial interest in the property. The plaintiffs’ conduct could not reasonably have been expected to have occurred without such an interest. In such circumstances, equity should intervene, subject to the protection of others from unjust consequences. Given my factual findings, requiring payment to the plaintiffs of the funds held on trust would not be unjust to the defendants.
- I am satisfied that the trust relationship and any fiduciary obligations were breached by the defendants increasing the amount of the loan facility and making withdrawals on the facility without the knowledge or consent of the plaintiffs, and declining to provide the documents and calculations requested.
- However I cannot be satisfied, on the balance of probabilities, that those breaches resulted in the plaintiffs suffering a total loss of $101,853.98, being the balance amount the plaintiffs allege ought to have been received from the defendants’ sale of the property after repayment of the loan facility and other costs of sale, were it not for the breaches. That amount comprises the net sale proceeds of $64,032.90 held on trust plus an amount of equitable damages of $37,821.08 as calculated by Mr Hastings.
- I accept the defendants’ submission that the calculation arrived at by Mr Hastings was a mechanical exercise necessarily based on certain instructions received from the plaintiffs’ solicitors. The calculation and assumptions did not take into account or quantify a number of matters including the parties’ respective capital contributions nor whether any party had disproportionately contributed towards repayments. The plaintiffs accepted in final addresses that the equitable compensation claim was not “perfectly calculated” and that it did not take into account the benefit from the set-off for the renovation works. The plaintiffs abandoned a claim for relief in the form of an account.
- On the state of the evidence, I cannot be satisfied of the proper extent of any further loss suffered by the plaintiffs. Therefore their claim for equitable damages in the sum of $37,821.08 fails.
- Having found that there was a common intention constructive trust, it is strictly unnecessary to consider the plaintiffs’ alternative basis for relief: that the relationship between the parties and the work carried out by the appellants can also be characterised as a joint enterprise or joint endeavour of the type referred to in Baumgartner or Muschinski v Dodds.
- But if I am wrong about the trust, in my view the plaintiffs would be entitled to the same declaratory relief on the alternative basis.
- Was there anything in the transaction for Karen? The defendants submit that there was no mutuality of benefit because there was no benefit of any tangible kind to the defendants: it was just a sister doing a brother a favour.
- I accept that the predominant reason Karen agreed to buy the property was to help her brother and his family eventually acquire their own home. But it was not the only reason or consideration.
- When asked what was in it for Karen, Andrew gave evidence that Karen was able to help him, her brother, as he had helped her by doing the renovation works on her home without invoicing her. Karen’s evidence also supports an inference that there was some mutual benefit to her to repay her brother for his help to her and to assist other members of her family including her mother.
- At the date of the transaction Karen owed Andrew money for the renovation works he was doing to her house. Agreeing to his request to assist him by buying a house for he and his family to live in, until they could acquire it from Karen, was one way of repaying the favour Andrew had done for Karen of working on her home renovations without payment until she could afford to pay him. It also provided a mechanism for Karen to repay Andrew over time by a set-off arrangement.
- In addition, Karen and Christopher borrowed more than was required to acquire the property and used the surplus funds of $70,795 for their personal use, without accounting to Andrew and Jodi.
- In addition, Karen was aware that it was becoming uncomfortable for her mother Ila to have Andrew’s family remaining in the house so Karen knew that this arrangement would also benefit Ila.
- Thus the arrangement was not entirely altruistic on the defendants’ part.
- On the evidence which I accept, I am satisfied that there was a joint endeavour for the purchase of the property as a home for the plaintiffs and the ultimate acquisition of that by the plaintiffs, and that the joint endeavour failed.
- The question whether it failed prematurely and without attributable blame is less straightforward. Given the amount of time that passed (over six years of occupancy), the joint endeavour cannot be said to have failed “prematurely”.
- The defendants did not plead that any joint endeavour failed due to blameworthiness on the plaintiffs’ part, although they argued this in submissions. The plaintiffs objected to the issue being raised in submissions, given it was not pleaded. They submitted that had it been pleaded they would have conducted their case differently including by calling other evidence to rebut it. The defendants submitted that they were matters of legal conclusion arising out of the plaintiffs’ and defendants’ versions of events.
- The defendants made withdrawals from the loan facility without notifying the plaintiffs, thereby increasing the interest incurred and the final payout figure, and failed to provide calculations of the proper payout figure for the loan having regard to the plaintiffs’ payments (despite request). The plaintiffs made their expected financial contributions largely as required, albeit on some occasions they were late. Andrew identified at least one occasion when he approached Karen about buying the property with M, but she advised him she had $50,000 tied up in the loan. Thereafter he did not point to evidence that the plaintiffs took steps to acquire the property within a reasonable time. In the end it seems the plaintiffs could not raise the funds necessary to discharge the mortgage over the property.
- However, it was never intended that the defendants would retain the entire benefit of the plaintiffs’ payments and the value of the improvements made by the plaintiffs, should the relationship come to an end. The joint endeavour here was not framed to meet the contingency of failure of the endeavour. The parties did not turn their minds to, or make provision for, what would happen if their relationship broke down, or if plaintiffs did not acquire the property. In the circumstances, in my view there should be a declaration that the property was held on trust by the defendants for the plaintiffs pursuant to a constructive trust because the only parties who made a significant positive contribution to its purchase, maintenance and improvement were the plaintiffs. Any liabilities incurred by the defendants have already been recovered or indemnified by funds drawn on the loan facility which in turn was discharged on the sale of the property.
- In cross-examination Christopher gave evidence that, after retaking possession, he paid the costs of repairs of $7,645.41 by drawing down from the loan facility. That facility was discharged on the sale of the property. Therefore, the net sale proceeds remaining in trust have been reduced by the amount of the expenses claimed in the counterclaim, so the counterclaim is now academic. In final addresses, the plaintiffs elected not to seek any extra relief for an adjustment in its favour arising from that evidence.
- I have already found that the works done by the plaintiffs were undertaken without the defendants’ approval and were not in breach of the tenancy agreement. The defendants have failed to establish that they suffered loss and damage as alleged. Even if the plaintiffs had not been successful, I would not have allowed the counterclaim because evidence was not led by the defendants to show what the state of the premises was at the start and end of the occupation, that the repair works were in fact done, and that the works were reasonable and necessary.
- The plaintiffs have established an entitlement to a declaration that the net proceeds of sale are held on trust for them. I will declare that the net proceeds of sale of the property in the amount of $64,032.90 are held on trust for the plaintiffs and order that sum be paid to the plaintiffs.
- The plaintiffs have not established an entitlement to an order that the defendants pay them equitable damages. No order should be made for equitable damages.
- The defendants’ counterclaim should be dismissed.
- By 4pm Monday 18 January 2021 the parties should provide submissions of no more than three pages as to costs. Costs will be determined on the papers.
- I will grant liberty to apply in the event that a party seeks a different order.
For simplicity, and without intending any disrespect, I will refer to the parties by their first names.
Agreed List of Facts and Matters Not in Dispute filed 15 July 2020, Court Document no. 18.
Agreed List of the Real Issues in Dispute, filed 15 July 2020, Court Document no. 19.
Second Further Amended Statement of Claim .
Although the pleading also sought that an account to be taken, this was abandoned during submissions.
Further Amended Defence .
Submissions on behalf of the defendants .
Ibid  and .
Ibid paras 14 and 14A.
Ibid para 16.
Ibid para 23.
Although a common intention construction trust (as opposed to an express trust), was not expressly pleaded, the plaintiffs’ case was run on that basis and the defendants confirmed that they did not object (see final addresses at TS 2-63 l 8 – 20).
 (1987) 164 CLR 137 (‘Baumgartner’).
 QCA 138 (‘Nathan’).
Muschinski v Dodds (1985) 160 CLR 583, 615-616 (‘Muschinski’); Shepherd v Doolan  NSWSC 42 at  (‘Shepherd’).
Shepherd  NSWSC 42 at ; Iman Ali Islamic Centre v Iman Ali Islamic Centre Inc  VSC 413 at ,  (‘Iman Ali Islamic Centre’).
Shepherd  NSWSC 42 at ; Green v Green (1989) 17 NSWLR 343 at .
Shepherd  NSWSC 42 at , cited with approval by the Queensland Court of Appeal in Nathan at .
Shepherd  NSWSC 42 at ; Iman Ali Islamic Centre  VSC 413 at .
Grant v Edwards  2 All ER 426 at .
Thomson Reuters, Ford and Lee: The Law of Trusts (online at 22 December 2020) [22A.360].
Baumgartner at 148 citing Muschinski at 614.
Clancy v Salienta Pty Ltd  NSWCA 248  per Stein JA (‘Clancy’).
(1985) 2 NSWLR 406 at 417
Gissing v Gissing  AC 886, 906; Byrnes v Kendle (2011) 243 CLR 253, 263 (French CJ), 274–7 (Gummow and Hayne JJ), 289–90 (Heydon and Callinan JJ).
Calverley v Green (1984) 155 CLR 242, 262.
TS 2-48 l 15-20.
TS 2-48 1 32-36.
TS 2-52 l 17-25.
TS 2-21 l 25-32
TS 2-25 l 3-5.
TS 2-28 l 27 - 28
TS1-33 l 1-6
TS 1-32 l 29-31
TS 2-55 – 2-56.
TS 2-2 l 39 – 46.
TS 2-30 l 7 - 10
TS 2-30 l 38 – 45.
TS 2-31 l 1 – 2.
TS 2-31 l 27 – 30.
 TS 2-37 l 1-5.
 TS 2-28 l 1-2.
TS 2-34 l 24 – 30.
Ex 18. The counterclaim pleaded $7,787.12 but the defendants in submissions reduced this to $7,645.41.
TS 2-32 l 45 – 46.
MFI A Plaintiffs’ financial summary table 2014 – 2017.
Baumgartner at 150.
 NSWCA 248. Referred to in the Defendants’ Outline of Submissions and in oral submissions.
TS 2-95 l 1 – 10.
- Published Case Name:
King & Anor v Fister & Anor
- Shortened Case Name:
King v Fister
 QDC 333
22 Dec 2020