Bankruptcy trustee for husband fails in bid to claim more from wife
Mrs McAuley’s contentions
- Mrs McAuley defends this case on the following basis.
- The legal title in the property vests in the bankrupt, now in his trustee, as to five per cent and Mrs McAuley 95 per cent.
- The trustee contends that the equitable interest vests equally between him and Mrs McAuley, such that Mrs McAuley holds 45 per cent of the legal interest in the property on trust for him.
- The basis for this contention is said to be the Cummins principle and the other so-called “marriage cases”.
- On the basis of those cases, the trustee maintains that since the bankrupt contributed to the purchase price of the matrimonial home, through contributing as a joint borrower under the mortgage and, more contentiously, through his “householder labour and spending funds on household expenses”, is it to be inferred that the parties intended to have equal ownership of the matrimonial home.
- The trustee’s contentions are said to be flawed both as a matter of principle and on the facts.
- The starting point in exposing the flaws is a proper analysis of the legal principles contended for by the trustee.
- Mrs McAuley submits that the Court can put aside reliance upon the so-called “marriage cases”. As Fullagar J explained in Thwaites v Ryan, those cases demonstrated a generous approach by the courts to find evidence of a trust in favour of a wife where the husband was the legal owner of the property of a share in the matrimonial home, and that such a trust arose from the outset.
- That approach is said to offer the trustee no assistance in this case against a wife.
- What the trustee really relies upon is the Cummins principle.
- What exactly the Cummins principle is, and how it affects other traditional equitable trust principles, and in particular the presumption of advancement, is by no means clear.
- Mrs McAuley submits that, at its highest, the Cummins principle is that, in the case of matrimonial homes where both husband and wife contributed to the purchase price, the starting point in determining equitable interests is not the legal interest (as per Murphy J, dissenting, in Calverley v Green), nor the presumptions of equity – i.e. resulting trusts and advancement (being the traditional approach adopted by the plurality in Calverley v Green) but that each intended to have a one-half interest in the property.
- That was a radical departure from previous principle and the only reasoning behind that departure appears to be the endorsement of Professor Scott’s textbook.
- But assuming that this was the effect of the High Court’s decision, and as subsequent cases have shown, it is not clear what the effect of the High Court’s decision is, in particular as to whether it intended to abrogate the long-established presumption of advancement in the arena of the matrimonial home, it is important to bear in mind that all that the principle stands for is that, as a starting point, it is to be inferred that joint ownership was intended.
- Cummins and the other cases in this area do not suggest that the inferred intention of the husband and wife prevails over their actual intention.
- The presumption of a resulting trust, the presumption of advancement and the Cummins principle are all tools that the Court can apply to infer an intention when there is not clear evidence of the parties’ actual intentions.
- Ordinarily, the Court’s inference of intention is embraced by the party in whose favour it operates, such that the inference strengthens evidentiary gaps in the alleged actual intentions. For example, a wife owning the legal interest will readily argue that the husband intended to gift her the house as a defence where he paid for the house; a person who has paid for a property put in the name of a friend will readily argue that the friend held the property on a resulting trust for that person.
- In the facts of this case, the Court must determine the intention of the bankrupt and Mrs McAuley at the time that the matrimonial home was acquired (or, if a constructive trust is contended for, at a subsequent time).
- The trustee, understandably, seizes upon the Cummins principle to claim an inferred intention that they intended to own a half-share each.
- However, the trustee is met with evidence from Mrs McAuley that displaces that inference.
- Mrs McAuley explains that her husband and she expressly agreed that her ownership in the matrimonial home was to be absolute.
- If that evidence is accepted, the trustee’s claim will fail.
Assessment of the evidence
- It is necessary to consider what the evidence discloses of the intention of the bankrupt and Mrs McAuley at the time the property was purchased in 1998. In that connection, it is instructive to consider the prior history of the couple in the purchase of various properties during the course of the marriage. The bankrupt and Mrs McAuley were married in about 1965. In 1973 they acquired land in Lindfield as joint tenants. Three years later the bankrupt acquired a property at Killara in his own name and the couple lived in it. In 1986 the bankrupt inherited land at Pagewood. In January 1987 Mrs McAuley purchased the house at Cremorne which became the family home. The property was purchased wholly in her name. This occurred prior to the disposal of the property at Pagewood and prior to the purchase of further land by the bankrupt in his own name at Gloucester. What can be seen from this history is that the couple purchased land at various times in joint names or singularly. That history supports an inference that the couple intended that they both should benefit from the properties collectively but does not support an inference that the couple intended any particular property would benefit both of them equally.
- The Cremorne property was sold by the mortgagee in June 1992. Although this property was solely in Mrs McAuley’s name, she had unwisely permitted her husband to pledge it in support of his unsuccessful business ventures and neither she nor the bankrupt obtained any benefit from the sale.
- Mrs McAuley gave evidence, which I accept, that she regarded the Cremorne property as security for her future because of previous strains in the marriage. That may be so but she acted inconsistently in permitted her husband to use that property as security for his business activities. The bankrupt may have been a good accountant but he was a poor businessman. He acted in the manner of Mr Micawber. For her part, Mrs McAuley attempted, not very successfully, to follow the maxim of the long suffering Mrs Micawber: experientia docet. With the benefit of hindsight, Mrs McAuley was foolish to facilitate his activities. The bankrupt avoided bankruptcy in 1992 by entering into a Part X agreement with his creditors. Mrs McAuley conceded under cross-examination that she was aware of this.
- This brings us to the purchase of the property now in issue. The principles, which I have accepted, establish as a starting point the presumption that the bankrupt gifted any over contribution to the purchase price of the property to Mrs McAuley. The affidavit evidence of her and her son supported that presumption and they resisted attacks upon their credibility under cross-examination. Mrs McAuley gave evidence of several conversations with her husband which established a mutual intention that the property was to be hers completely. In short, having lost her entire investment previously, Mrs McAuley wanted to secure her future.
- That intention could not be completely secured because of the insistence of the bank that the bankrupt be on the title. Mrs McAuley conceded under cross-examination that she had discussed with the bankrupt in 1997-1998 the need for a bank loan to purchase a property and of the bank’s requirements for a mortgage security over the property selected for both the home finance and a business overdraft to support the business activities of the bankrupt. Both the home loan and the overdraft were approved by the bank on 2 November 1998.
- In my view, the concessions made by Mrs McAuley under cross-examination do not establish that she and the bankrupt abandoned their mutual intention that the property should be Mrs McAuley’s. There was a partial retreat, to the extent of five per cent, and, generally, Mrs McAuley and her husband accepted that the advancement of Mrs McAuley would be burdened both as to the five per cent legal title in favour of the bankrupt and the business overdraft. Mrs McAuley’s reluctant acceptance of the bankrupt’s interest in the property weakened but did not eliminate the presumption of her advancement. Further, the mutual intention of Mrs McAuley and the bankrupt, though modified, did not in essence change. The property was to be Mrs McAuley’s alone to the maximum extent permitted by the bank in the provision of its mortgage and business finance.
- The trustee sought to reduce the weight of the evidence of the intentions of Mrs McAuley and the bankrupt on the basis that the bankrupt did not give evidence. There is, however, no property in a witness and either party could have called him. Both appeared reluctant to do so, possibly due to uncertainty about what he would say. In my view no inference should be drawn from that absence of evidence but, if an inference were to be drawn, it would be that the bankrupt’s evidence would not have assisted either party.
- I find that, in contrast to the outcome in Cummins, there was no resulting trust in favour of the bankrupt and Mrs McAuley was entitled to retain 95 per cent of the net proceeds of the sale of the property.
- The trustee is aggrieved not just about the outcome of the sale of the property but also the process by which the proceeds of the sale found their way into the hands of Mrs McAuley and were substantially spent in short order. In these proceedings, however, the trustee is suing to alter the outcome and does not claim any final relief because of the process. That process was opaque. The trustee had consented to the sale of the property on the understanding or condition that the proceeds of the sale would be held in a solicitor’s trust account while any competing claims to the proceeds were resolved. That did not happen because, unbeknownst to the trustee, Lachlan McAuley acted on the sale for the bankrupt and his mother and disbursed the proceeds of the sale to them from his trust account. Lachlan McAuley was cross-examined at some length about his role in the transaction. I accept his evidence that he was unaware of his father’s bankruptcy at the time he agreed to act and, on becoming aware, he was extremely angry and ceased to act for his father. He was not prevented from continuing to act for his mother and one can readily understand the moral pressure he felt to continue to assist her. When he was made aware of the trustee’s concern about the proceeds of the sale of the property, he acted on express instructions from his mother to disburse the proceeds of the sale.
- In my opinion, Lachlan McAuley was entitled (and probably obliged) to act on those instructions. He had not given any undertaking to the trustee to retain the proceeds of the sale. Neither had the bankrupt or Mrs McAuley. The trustee was understandably surprised and concerned on learning that the proceeds of the sale had been disbursed and Mrs McAuley was no doubt anxious to get her hands on what she regarded as her entitlement before the trustee intervened to attempt to stop her, but I do not draw any adverse conclusion about the role played by Lachlan McAuley.
- Having found that Mrs McAuley was entitled to receive 95 per cent of the net proceeds of the sale of the property, it follows that the claim by the trustee must fail. I will order that his application as amended be dismissed.