Coshott v Coshott [2013] FCA 907
FEDERAL COURT OF AUSTRALIA
Coshott v Coshott [2013] FCA 907
CORRIGENDUM
1 The first word in the name of the fourth cross-respondent be spelled “Schlotzsky” or “Schlotzsky’s”, as the case may be, wherever it occurs.
I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Buchanan. |
Associate:
Dated: 22 November 2013
IN THE FEDERAL COURT OF AUSTRALIA | |
BETWEEN: | MAXWELL WILLIAM PRENTICE IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF ROBERT GILBERT COSHOTT, A BANKRUPT Cross-Claimant |
AND: | JAMES COSHOTT First Cross-Respondent LJILJANA COSHOTT Second Cross-Respondent ROBERT GILBERT COSHOTT, A BANKRUPT Third Cross-Respondent SCHLOTSZKY'S NOMINEE COMPANY PTY LIMITED Fourth Cross-Respondent |
DATE OF ORDER: | |
WHERE MADE: |
In respect of the application in this Court in NSD 1412 of 2009
THE COURT ORDERS THAT:
1. The application filed in the Supreme Court of New South Wales on 24 June 2009, later transferred to this Court, is dismissed.
2. The applicants in this Court are to pay the costs of the second respondent, as taxed, on an indemnity basis.
In respect of the further amended cross-claim in this Court in NSD 1412 of 2009
THE COURT DECLARES THAT:
3. The property 1 Bunyula Road, Bellevue Hill being the whole of the land contained in Certificate of Title Folio Identifier 2/336490 (“the property”) was acquired by the second cross-respondent and the third cross-respondent beneficially as joint tenants.
4. Upon the date of bankruptcy of the third cross-respondent, the joint tenancy between the second cross-respondent and the third cross-respondent in the property was severed and the ownership became:
4.1 the second cross-respondent as to an undivided one half share;
4.2 the cross-claimant as to an undivided one half share
as tenants in common.
5. The half interest in the property registered to the third cross-respondent vested in the cross-claimant pursuant to sections 58, 115(1) and 116(1) of the Bankrupty Act 1966 (Cth), as and from the date of the commencement of the bankruptcy of the third cross-respondent.
THE COURT ORDERS THAT:
6. The property vest in the cross-claimant as trustee for sale.
7. The property be sold by the cross-claimant as trustee for sale, with all the obligations and privileges pertaining thereto (including signing for and on behalf of the second cross-respondent any contract for the sale of land and any transfer pursuant to the Real Property Act 1900 (NSW) and determining the price at which the property is to be sold) and the proceeds after payment of all expenses of and incidental to such sale to be divided equally between the cross-claimant and second cross-respondent, pursuant to order 11.
8. For the purposes of giving effect to order 7, the second cross-respondent, by herself her servants and agents do all such things, acts and deeds and sign all documents to list for sale and sell the property, and for that purpose, including but not limited to the following:
8.1 maintain the property in a clean and presentable manner as required for the proper and effective marketing of the property;
8.2 allow and permit for an inspection of the property on 24 hours notice of a request made by the cross-claimant or agent for sale.
9. Each cross-respondent deliver up vacant possession of the property 42 days from these orders.
10. Pending the sale of the property and to the extent to which she is able, the second cross-respondent shall continue to meet one half of the outgoings (including electricity, gas, telephone and council rates) in respect of the property.
11. Upon completion of the sale of the property, the proceeds thereof be distributed in the following manner and priority:
11.1 Firstly, in discharge of any valid encumbrance over the title to the Property;
11.2 Secondly, in payment of agent’s commission, auctioneers and auction fees associated with the sale of the property;
11.3 Thirdly, expenses and reasonable legal costs and disbursements incurred upon the sale of the property;
11.4 Fourthly, in adjustment of council rates, water rates and other statutory imposts;
11.5 Fifthly, in payment of the cross-claimant’s professional and legal costs of the proceedings;
11.6 Sixthly, and subject to orders above, the remains to be divided equally between the cross-claimant and the second cross-respondent subject to any charge or lien.
12. The cross-respondents are to pay the costs of the cross-claimant, as taxed, on an indemnity basis.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 1412 of 2009 |
BETWEEN: | JAMES COSHOTT First Applicant LJILJANA COSHOTT Second Applicant
|
AND: | ROBERT GILBERT COSHOTT, A BANKRUPT First Respondent MAXWELL WILLIAM PRENTICE IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF ROBERT GILBERT COSHOTT, A BANKRUPT Second Respondent |
BETWEEN: | MAXWELL WILLIAM PRENTICE IN HIS CAPACITY AS TRUSTEE OF THE PROPERTY OF ROBERT GILBERT COSHOTT, A BANKRUPT Cross-Claimant |
AND: | JAMES COSHOTT First Cross-Respondent LJILJANA COSHOTT Second Cross-Respondent ROBERT GILBERT COSHOTT, A BANKRUPT Third Cross-Respondent SCHLOTSZKY'S NOMINEE COMPANY PTY LIMITED Fourth Cross-Respondent |
JUDGE: | BUCHANAN J |
DATE: | 10 SEPTEMBER 2013 |
PLACE: | SYDNEY |
REASONS FOR JUDGMENT
Introduction
1 The first respondent/third cross-respondent, Robert Gilbert Coshott (“Mr Coshott”) was made bankrupt on 7 November 2008. The trustee appointed to administer his bankrupt estate was John Christopher Burke. Mr Burke was granted leave on 25 February 2013 to resign his appointment as trustee (Coshott v Burke [2013] FCA 155). The present trustee is Maxwell William Prentice. The change of trustee of Mr Coshott’s bankrupt estate has no significance for the issues to be addressed in the present case.
2 Mr Coshott and the second applicant/second cross-respondent (his wife Ljiljana) are the registered proprietors of real estate known as 1 Bunyula Road, Bellevue Hill, New South Wales (“the Bunyula Road property”). The house at that address is apparently a substantial one. It is the matrimonial home of Mr and Mrs Coshott. It is also the house where their two sons live, one of whom is the first applicant/first cross-respondent (“James Coshott”).
3 The trustee of Mr Coshott’s bankrupt estate formed the view that the 50 percent interest held by Mr Coshott in the Bunyula Road property, in which Mr Coshott, his wife and two sons reside, was an asset to be brought to account in his bankrupt estate. Mr Coshott, however, took the position that the 50 percent interest in the Bunyula Road property, which had been purchased in his name, was held by him as trustee for the Coshott Family Superannuation Fund (“the superannuation fund”), a regulated superannuation fund established under the Superannuation Industry (Supervision) Act 1993 (Cth) (“the Supervision Act”).
4 The present proceedings concern an examination of those competing contentions and an alternative contention which was advanced by Mr Coshott in the proceedings for the first time in final submissions – that he holds his 50 percent interest in the Bunyula Road property pursuant to a resulting trust in favour of the fourth cross-respondent, Schlotzky’s Nominee Company Pty Limited (“Schlotzky”). This argument accepts that Schlotzky is (and was at all relevant times) the corporate trustee of the superannuation fund and that Mr Coshott is not (and was not) the trustee. The two contentions contradict each other because they postulate different trustees of the superannuation fund at the time the Bunyula Road property was purchased.
5 I shall address in due course the question of who the trustee of the superannuation fund is, and was, at the time the Bunyula Road property was purchased in June 2003. However, both of the contentions advanced by Mr Coshott, to which Ljiljana Coshott and James Coshott (“the applicants”) and Schlotzky each subscribed in the present proceedings, are without merit. For the reasons which will be explained in this judgment, any suggestion or arrangement tending to suggest that Mr Coshott purchased the 50 percent interest in the Bunyula Road property, which was registered in his name, otherwise than in his own interest, was and is a sham, as that term has come to be used in the jurisprudence of this Court and the High Court. There is no foundation for either of the two contentions which were advanced in this Court.
Proceedings in the Supreme Court of New South Wales
6 On 24 June 2009, after Mr Coshott was made bankrupt, James Coshott commenced proceedings by summons in the Supreme Court of New South Wales, naming his mother and father as first and second defendants respectively and seeking a declaration that they (his mother and father) held the Bunyula Road property in trust for the Coshott Family Trust (“the family trust”) and the superannuation fund.
7 An amended summons filed by consent on 10 July 2009 sought the following declarations and orders:
1. A declaration that the defendants held 1 Bunyula Road, Bellevue Hill (folio identifier 2/336490) in trust for The Coshott Family Trust and the Coshott Family Superannuation Fund.
2. A declaration that the second defendant is no longer a trustee of The Coshott Family Trust or the Coshott Family Superannuation Fund.
3. A declaration that the first defendant and the plaintiff are the current trustees of The Coshott Family Trust and the Coshott Family Superannuation Fund and are entitled to be registered as the registered proprietors of the land in folio identifier 2/336490 and known as 1 Bunyula Road, Bellevue Hill.
4. An order that James Coshott and Ljiljana Coshott be registered on the Register as the joint proprietors of the land in folio identifier 2/336490 as from 7.11.08.
5. An order that the Registrar General, pursuant to section 86 of the Real Property Act, 1900, upon service upon him of an office copy of this order, make such recordings in the Register as are necessary to give effect to this order.
8 At the same time, “Consent Orders” were signed by each of the parties to the same effect. Relying on those consent orders, a judge of the Supreme Court made the declarations and orders sought. The trustee in bankruptcy became aware of the situation, protested and the orders were set aside. Subsequently, Mrs Coshott was added as a plaintiff and removed as a defendant. Mr Coshott became first defendant. The trustee in bankruptcy was added as second defendant.
9 A statement of claim was then filed by the applicants in which it was pleaded, amongst other things, that the applicants were the trustees of the family trust and of the superannuation fund. A declaration was sought to that effect, as well as an order that the Bunyula Road property be vested in the applicants as trustees (Trustee Act 1925 (NSW) s 71).
10 More specifically, it was pleaded that Ljiljana Coshott had been a trustee of the superannuation fund since 1 May 2003 and a trustee of the family trust since 1 June 2003. In the present proceedings, no attempt was made to prove either of those assertions.
11 It was pleaded that James Coshott had been a trustee of the superannuation fund since 7 November 2008. That assertion was unable to be proved in the proceedings. It was pleaded that James Coshott had been a trustee of the family trust since 30 November 2008. No attempt was made in the proceedings to prove that assertion.
12 On 28 October 2009, the trustee of Mr Coshott’s bankrupt estate, now second defendant to the proceedings commenced in the Supreme Court of New South Wales, filed a defence and a cross-claim. It will be convenient hereafter to refer to the trustee of Mr Coshott’s bankrupt estate as “the cross-claimant”. In relation to the application, the cross-claimant did not admit that the applicants were trustees of either the superannuation fund or the family trust.
13 By his cross-claim, the cross-claimant pleaded that Mr Coshott and his wife acquired their respective interests in the Bunyula Road property (which they held as joint tenants) in their own right and sought declarations and other orders, including an order for the sale of the property.
14 A large number of technical issues were pleaded by the cross-claim, which concerned alleged defects and deficiencies in the administration of the superannuation fund with which it will not be necessary to deal. It will also not be necessary to deal with assertions that Mr Coshott was insolvent from as early as 2003. Such an allegation has no relevance in light of my conclusion that Mr Coshott did not, as he claimed, make any effective contribution to the superannuation fund in 2003 which was then used to purchase his interest in the Bunyula Road property.
15 The proceedings commenced in the Supreme Court of New South Wales were, together with the cross-claim (which was later twice amended), transferred to this Court. They are the proceedings with which this judgment deals.
The standing of the applicants
16 As earlier indicated, the applicants made virtually no attempt to establish that they were, as they alleged, trustees of the superannuation fund and the family trust and entitled to commence and maintain the present proceedings. Ljiljana Coshott did not give evidence. James Coshott did give evidence, but it was wholly insufficient to establish that either applicant had the requisite standing or interest to seek the declarations set out earlier.
17 The failure of the applicants, by any form of respectable effort, to attempt to establish their own standing supports only the conclusion that there was never any prospect that they could do so. The proceedings in their name were doomed at the outset, if contested. They could never yield the relief claimed – that the Bunyula Road property should be vested in them as trustees.
18 Taken with the rest of the evidence to which I refer later, and the conclusions to be drawn from that evidence, the further conclusion is inescapable, in my view, that the proceedings in the Supreme Court of New South Wales were an abuse of the process of that court. Maintenance of the proceedings in this Court by the applicants was an abuse of the process of this Court.
19 The applicants’ case must therefore be dismissed, whatever view I take of the cross-claim.
20 I shall nevertheless discuss some aspects of the applicants’ contentions, to which Mr Coshott also subscribed, because it is necessary to bear in mind the case advanced against the cross-claimant, and against the attempts to administer Mr Coshott’s bankrupt estate, when I come to deal with the cross-claimant’s submissions about costs, including the way in which costs should be met from the sale of the Bunyula Road property.
Coshott Family Superannuation Fund
21 I shall deal more precisely in due course with the facts and circumstances pertaining to the purchase of the Bunyula Road property, and the source of funds for the purchase of the 50 percent interest taken in Mr Coshott’s name. However, it is convenient to make some observations now about the operation and significance of the regulatory regime applying to the superannuation fund, the obligations imposed on its corporate trustee (Schlotzky) and the directors of the corporate trustee (initially Mr and Mrs Coshott), and the limitations imposed upon the trustee by the trust deed of the superannuation fund. Attention to those matters also shows that the position taken in the present proceedings by Mr Coshott, the applicants and Schlotzky had no prospects of success.
22 The Deed of Trust for the superannuation fund was executed on 22 September 2000 by the “members” of the fund and under the seal of the nominated trustee, Schlotzky. The members of the fund were stated to be Mr Coshott, his wife Ljiljana Coshott, their son James Coshott and their son Michael Coshott, notwithstanding that at the time both James and Michael Coshott were not adult. I propose to put potential complications of that kind to one side because they do not affect the conclusions which I have reached.
23 On 5 October 2000, Mr Senan Meaney, then a partner of Trood Pratt and Co, Chartered Accountants, signed a certificate stating that the superannuation fund “complies with The Superannuation Entities (Taxation) Act 1987 (formerly the OSS Act 1987) and the Insurance and Superannuation Commission Legislation”. The certificate recorded that the superannuation fund had elected to become “regulated” and had been issued with an Australian Business Number. By letter dated 6 November 2000, the ATO advised that the superannuation fund had, on 2 November 2000, been issued with a tax file number. By letter dated 6 November 2000, the ATO confirmed that the notice of election to become a regulated superannuation fund was received on 3 October 2000 and that the fund was “now a regulated superannuation fund”.
24 Mr Douglas Arthur Trood, the principal of Trood Pratt & Co, gave evidence in the proceedings. His evidence was that he had no knowledge of the establishment of the superannuation fund and was not aware of it until recently shown documents. After the establishment of the fund, there is no record of Trood Pratt & Co ever having acted in any capacity for the fund or the trustee. There is no record of the firm being a tax agent, having conducted any audit function or any record that would indicate compliance by the superannuation fund with the Superannuation Entities (Taxation) Act 1987 (Cth) (now known as the Superannuation (Self Managed Superannuation Funds) Taxation Act 1987 (Cth)) or the Supervision Act.
25 There was no suggestion in the evidence that any other firm or person had ever acted in any of those capacities for the superannuation fund. That picture confirms the inevitable inferences arising from the evidentiary picture as a whole. Each of the applicants, Mr Coshott and Schlotzky was under an obligation of discovery in the proceedings. It was accepted by Mr Spencer, who acted for the applicants and for Schlotzky, that their failure in any list of discovered documents to identify any accounts, financial statements, statements of members’ interests, statements of assets and liabilities, income tax returns or any other record of any kind in relation to the superannuation fund led inevitably to the inference that no such documents exist or had ever existed. So much was not denied by Mr Coshott. The only conclusion is that the fund remained inactive from the time of its establishment or, if there was any activity at all, no record was ever made of it.
26 In fact, the only things that were ever claimed in the proceedings as activity on behalf of the superannuation fund (and then only selectively in any event) were transactions reflected in statements from a bank account operated by Schlotzky, nominally as trustee for the superannuation fund. Bank statements and cancelled cheques from that account were put into evidence in the case for the cross-claimant but, otherwise, no effort was made by the applicants, Schlotzky or Mr Coshott to place any records of Schlotzky before the Court or to support any proposition that any dealings of Schlotsky were truly ones on behalf of the superannuation fund. More detailed consideration will be given in due course to the records of Schlotsky’s activities which were in evidence.
27 Mr Coshott’s initial claim was that he purchased his interest in the Bunyula Road property as trustee for the superannuation fund. The premise upon which that claim depended was that, at some time prior to 3 June 2003, he became the trustee (or a trustee) of the superannuation fund in substitution for Schlotzky. However, as will be demonstrated, under the terms of the trust deed of the superannuation fund that was not possible.
28 The conditions to be satisfied for a superannuation fund to be “regulated” are set out in s 19 of the Supervision Act. Section 19(1), (2), (3), (4) and (5) provide as follows:
19 Regulated superannuation fund
Definition
(1) A regulated superannuation fund is a superannuation fund in respect of which subsections (2) to (4) have been complied with.
Fund must have a trustee
(2) The superannuation fund must have a trustee.
Trustee must be a constitutional corporation or fund must be a pension fund
(3) Either of the following must apply:
(a) the trustee of the fund must be a constitutional corporation pursuant to a requirement contained in the governing rules;
(b) the governing rules must provide that the sole or primary purpose of the fund is the provision of old-age pensions.
Election by trustee
(4) The trustee or trustees must have given to APRA, or such other body or person as is specified in the regulations, a written notice that is:
(a) in the approved form; and
(b) signed by the trustee or each trustee;
electing that this Act is to apply in relation to the fund.
…
Election is irrevocable
(5) An election made as mentioned in subsection (4) is irrevocable.
…
29 Under the trust deed, the superannuation fund did not have the sole or primary purpose of providing old-age pensions. On the contrary, it was stated to be a “lump sum fund”. Under s 19(3), therefore, and also under the provisions of the trust deed itself (clause 15.17.3), the trustee of the superannuation fund was required to be a “constitutional corporation”. There could be no sub-trustee or other trustee (clause 15.17.3.5 of the trust deed). The trust deed did not permit the substitution of the corporate trustee by an individual or individuals. Those circumstances are destructive of the foundation for the case commenced in the Supreme Court of New South Wales and of any assertion in the present proceedings that Mr Coshott was the trustee of the superannuation fund in 2003.
30 The only conclusion available from the terms of the trust deed, and the evidence, is that Schlotzky was the initial trustee appointed under the trust deed and was never replaced as trustee. Schlotzky was deregistered between 14 January 2007 and 30 July 2010. Upon its restoration to the register on 30 July 2010 it resumed its role as trustee nominally, never having been replaced. The various propositions advanced by Mr Coshott (that he became the trustee at some time prior to 3 June 2003) or by the applicants (that they became trustees at some time prior to the commencement of proceedings in the Supreme Court) are without any substance. By the end of the proceedings, each such contention appeared to have been abandoned by Mr Coshott, the applicants and Schlotzky. The contentions, in my view, were never sustainable.
31 In any event, there was no evidence (or any satisfactory attempt to provide evidence) of any attempt to replace Schlotzky as trustee, assuming that had been possible. At one point, Mr Spencer attempted to tender a document in evidence, which was said to have been sent to the Australian Taxation Office (“the ATO”), taking effect in 2003, which nominated Mr Coshott as trustee. There were multiple problems with the tender and with the document. The document appeared to be incomplete. There was no satisfactory evidence that it was lodged with the ATO. The document was on a form which, on its face, came into use in 2007. I rejected its tender. That makes it unnecessary to give further attention to its potentially fraudulent content.
32 The only other evidence was a document of a similar character, purportedly completed in 2008 and purportedly lodged by James Coshott with the ATO, suggesting that James Coshott had been appointed trustee of the superannuation fund. That was not possible under the trust deed for the reason stated earlier, namely that the trust deed did not permit the substitution of the corporate trustee by an individual or individuals.
33 As the cross-claimant’s case was developed, and the difficulties to which I have referred emerged, Mr Coshott, the applicants and Schlotzky all took refuge in the proposition that Mr Coshott held his 50 percent interest in the Bunyula Road property on a resulting trust for Schlotzky. That proposition depended on the assertion that Schlotzky had provided funds for the purchase from Schlotzky’s assets. By this time, any suggestion that Mr Coshott had acted in June 2003 as trustee for the superannuation fund was in tatters. I shall deal with the equally unmeritorious suggestion of a resulting trust later.
34 The term “self managed superannuation fund” is defined by s 17A of the Supervision Act, which provides (by s 17A(1)):
17A Definition of self managed superannuation fund
(1) Subject to this section, a superannuation fund, other than a fund with only one member, is a self managed superannuation fund if and only if it satisfies the following conditions:
(a) it has fewer than 5 members;
(b) if the trustees of the fund are individuals – each individual trustee of the
fund is a member of the fund;
(c) if the trustee of the fund is a body corporate – each director of the body corporate is a member of the fund;
(d) each member of the fund:
(i) is a trustee of the fund; or
(ii) if the trustee of the fund is a body corporate – is a director of the body corporate;
(e) no member of the fund is an employee of another member of the fund, unless the members concerned are relatives;
(f) no trustee of the fund receives any remuneration from the fund or from any person for any duties or services performed by the trustee in relation to the fund;
(g) if the trustee of the fund is a body corporate – no director of the body corporate receives any remuneration from the fund or from any person (including the body corporate) for any duties or services performed by the director in relation to the fund.
35 One complication (which, as I said earlier, I do not propose to attempt to resolve) arises from s 17A(1)(c) and (d)(ii). At the time the superannuation fund was established, neither James Coshott nor Michael Coshott could be a director of Schlotzky. They could not, therefore, be a member of the fund if it was to be a self managed superannuation fund. The result may simply be that they did not become members of the superannuation fund. That is a matter of no practical significance for the establishment of the superannuation fund because there is no evidence of any kind that at the time of establishment, or at any later time, either James Coshott or Michael Coshott held any interest in the superannuation fund. I do not propose to attempt to resolve issues of that kind in the present judgment because it is not necessary to do so. I will assume that the fund was validly established and that Mr Coshott and Mrs Coshott were validly nominated as members of it. They were each directors of Schlotzky at that time and hence, so far as they were concerned, the requirements of s 17A were satisfied. That also satisfied similar requirements arising under the trust deed of the superannuation fund.
36 Section 31 of the Supervision Act provides for prescribed standards to be established for the operation of regulated superannuation funds. Section 34 of the Supervision Act requires a trustee of a regulated fund to ensure that prescribed standards are complied with at all times and establishes penalties, including criminal penalties, for contravention of that obligation but s 34(3) provides that contravention of s 34(1) does not affect the validity of a transaction. Section 35A requires a trustee to ensure that proper accounting records are kept. It is an offence to contravene this requirement. The offence is one of strict liability. Section 35B requires a trustee of a self managed superannuation fund to prepare identified accounts and statements in respect of each year of income of the fund. The records must be kept for at least five years. They must be signed by at least two directors of a corporate trustee. It is an offence of strict liability not to comply. Section 35C requires that an auditor be appointed for each year of income. It is an offence of strict liability not to comply. Section 35D requires a trustee of a self managed superannuation fund to furnish a return to the Commissioner of Taxation for each year of income. It is an offence of strict liability not to comply.
37 On the evidence in the present case, none of the obligations to which I have referred were satisfied by Schlotzky, or by the directors of Schlotzky, at any time. Apart from the period when Schlotzky was deregistered (14 January 2007 to 30 July 2010), the directors of Schlotzky were Mr Coshott and Mrs Coshott until 2010 and then (purportedly) Mr Coshott (notwithstanding that he was an undischarged bankrupt) and James Coshott from 2010 to the present time.
38 There is no record, whether in the records of Schlotzky or in any record of the superannuation fund, recording any contribution made to the superannuation fund by any person, any asset ever held by it or any interest held by it or on its behalf. Specifically, there is no record that the superannuation fund ever received a contribution from Mr Coshott, or took any interest in the Bunyula Road property. There is no record of any money being expended by the superannuation fund, or by Schlotzky on its behalf, for any purpose. I shall deal independently with the significance to be attached to records of transactions in the bank account operated by Schlotzky, upon the signature of Mr Coshott, which purported to name Schlotzky as trustee for the superannuation fund. Funds for the deposit and the purchase of the balance of 50 percent interest in the Bunyula Road property purchased in Mr Coshott’s name were taken from this account. Mr Coshott claimed initially that the funds in the account were (at least in part) the funds of the superannuation fund. He later claimed that the funds were Schlotzky’s. It will be seen, in due course, that I conclude that this account was operated for the personal benefit of Mr Coshott, and that the funds in it which were applied to the purchase of the Bunyula Road property were his funds.
39 Section 71 of the Supervision Act defines the meaning of “in-house asset”. Subject to exceptions set out in s 71(1)(a)-(j), the basic meaning is given as follows:
71 Meaning of in-house asset
(1) For the purposes of this Part, an in-house asset of a superannuation fund is an asset of the fund that is a loan to, or an investment in, a related party of the fund, an investment in a related trust of the fund, or an asset of the fund subject to a lease or lease arrangement between a trustee of the fund and a related party of the fund, but does not include:
…
40 “Related party” includes a member of a superannuation fund. The exceptions listed in s 71(1) permit a superannuation fund to own property with a related party, as tenants in common, provided the property is not subject to a lease or lease arrangement between them (s 71(1)(i)). “Lease arrangement” is defined as follows:
lease arrangement means any agreement, arrangement or understanding in the nature of a lease (other than a lease) between a trustee of a superannuation fund and another person, under which the other person is to use, or control the use of, property owned by the fund, whether or not the agreement, arrangement or understanding is enforceable, or intended to be enforceable, by legal proceedings.
41 As will be discussed in more detail in due course, the interest which Mr Coshott claimed to have taken on behalf of the superannuation fund in the Bunyula Road property was not taken as a tenant in common but as joint tenant with his wife. Moreover, the arrangement for habitation of the Bunyula Road property would clearly constitute a lease arrangement as defined if the interest taken by Mr Coshott had been held by or on behalf of the superannuation fund. It follows that the claim made by Mr Coshott (and the applicants and Schlotzky), that his 50 percent interest in the Bunyula Road property was held in trust for the superannuation fund, effectively asserted breach of the in-house rules. Section 84 of the Supervision Act provides that a trustee of a regulated superannuation fund must take all reasonable steps to ensure that the in-house asset rules are complied with. Civil penalties and criminal consequences may apply in the event of contravention (s 84(2)) but a contravention does not affect the validity of a transaction (s 84(3)).
42 The position adopted by Mr Coshott, the applicants and Schlotzky in the proceedings invited the Court to conclude that Schlotzky as trustee of the superannuation fund and Mr Coshott as its director engaged in systematic, deliberate and ongoing breach of the in-house asset rules, apart from all the other failures to comply with the provisions of the Supervision Act. Mr Coshott unashamedly sought to deflect any criticism of that consequence by relying upon the fact that breach of the in-house asset rules does not invalidate a transaction. However, the conclusion which is sought is one which requires inferences and assumptions to be made that illegal conduct has occurred. Apart from the fact that the evidence as a whole is plainly against the conclusion which is sought, I would not lightly draw an inference or make an assumption of illegal conduct by a party so that the party could rely upon that illegal conduct to make out its case. In any event, as I have said, I am more than satisfied that the propositions advanced by the applicants, Schlotzky and Mr Coshott are devoid of any factual or legal merit. They are part of a sham which was clearly exposed in the present proceedings.
43 The trust deed of the superannuation fund is expressed, in various ways, to be subject to the statutory regime established by a series of Commonwealth enactments, including the Supervision Act. The trust deed limits the power of the trustee in a way which prohibits an investment which would contravene a standard fixed by the Supervision Act. That has the effect that the trustee had no power to make or permit an investment in breach of the in-house asset rules (clause 3.4). Further, and specifically, the trustee was prohibited from making any investment not permitted by the Supervision Act (and other Acts) (clause 3.5.3). It follows that the trustee had no power to authorise, or take part in, the purchase of the Bunyula Road property. Nor did Mr Coshott as its director. Even though a transaction of that kind may not have been invalidated by the Supervision Act, neither the members of the superannuation fund, nor the trustee, could claim an interest in the investment as there was never any authority to make it. Had funds belonging to the superannuation fund in fact been used by Mr Coshott he would, no doubt, be liable to restore them, but on the findings which I make in this judgment that did not happen.
44 The result of the foregoing matters is that there was no possibility that Mr Coshott was the trustee of the superannuation fund when the Bunyula Road property was purchased. The trustee, Schlotzky, had no authority either to participate in the purchase or provide funds from the superannuation fund for that purpose. There was, in any event, no evidence that the superannuation fund had any assets, much less that it applied them in any way to the purchase. Those are further reasons why the applicants’ case could not succeed. On those facts alone the position taken in the proceedings by Mr Coshott, the applicants and Schlotzky was a hopeless and unmeritorious one.
45 The position does not improve when regard is paid, as it will be in due course, to the circumstances of the purchase of the Bunyula Road property.
Coshott Family Trust
46 The applicants purported to have standing not only as trustees of the superannuation fund, but also as trustees of the Coshott Family Trust (“the family trust”). The deed establishing the family trust was not put into evidence in the applicants’ case, although part of the deed went into evidence in the cross-claimant’s case as part of documents provided on subpoena by the Commonwealth Bank of Australia. Only about ten pages of the deed were provided in that fashion. The document bore a date 20 August 1998. It indicated that Schlotzky would be the trustee. The settlement sum was $10.
47 There was no evidence that any trustee of the family trust other than Schlotzky had ever been appointed (assuming that to have been possible under the deed of the family trust). It was accepted by Mr Spencer who appeared for the applicants that their failure to identify in any list of discovered documents any document representing a financial statement, statement of assets, tax return or any other record of the family trust led to the inevitable inference that no such record exists or had ever existed. Mr Coshott did not deny the proposition.
48 As there is no evidence that either of the applicants was ever validly appointed as a trustee of the family trust, that part of the applicants’ case also must fail. Mr Spencer accepted as much in his submissions. In any event, for reasons yet to be discussed, such evidence as there is about the suggestion that the family trust took an interest in the property in the Bunyula Road property requires rejection of the contention. In a document relied upon in the present proceedings as executed at the time of the purchase, Mrs Coshott affirmed that she took her 50 percent interest in the property in her own name and for her own benefit.
Schlotzky’s Nominee Company Pty Limited
49 Schlotzky’s Nominee Company Pty Limited was registered on 9 July 1998. From 9 July 1998, its directors were Mr Coshott and his wife Ljiljana. Its sole shareholder was and remains Ljiljana Coshott. It lodged annual returns in 1999, 2001, 2002 and 2003. It was deregistered on 14 January 2007 and re-instated by order of this Court on 30 July 2010. Bank statements which were tendered in the cross-claimant’s case show that, from 9 October 2000 until 4 February 2005, a business cheque account was maintained and operated in Schlotzky’s name. Initially, the account bore the name “Schlotzky’s Nominee Company in trust for Coshott Superannuation Fund” and from 1 August 2001 it bore the name “Schlotzky’s Nominee Company Account N2 in trust for Coshott Family Superannuation Fund”. Over the period that the account was operated there were a considerable number of transactions, including large deposits and regular withdrawals by cheque. The great bulk of those transactions were unexplained by any evidence. The applicants, Schlotzky and Mr Coshott treated them as irrelevant. There was no suggestion made, and no foundation available for any suggestion, that the great bulk of the transactions had anything to do with the superannuation fund. That relationship was claimed for a small and selected number of transactions to which I will refer later.
50 The cross-claimant put into evidence many of the cancelled cheques which were drawn on the account. They were each signed by Mr Coshott. On many occasions they were simply cheques made out to “cash” accompanied by a request that they be paid in cash. Frequently the amount was $1,000. Many of the other cheques were made out to entities having no apparent relationship with the superannuation fund or any possible asset of the superannuation fund. One cheque, dated 14 November 2003, was made out to Ljiljana Coshott for $30,000. It was not explained. Neither Mr Coshott nor Ljiljana Coshott gave evidence in the proceedings. One cheque was made out to the “Supreme Court”. One cheque was made out to “Registrar, Local Court”. One cheque, dated 30 June 2004, was made out to Mr Coshott in the sum of $200,000. It was not explained. The funds for that cheque appear to have been provided by a deposit of $211,027.90 on 29 June 2004, identified as “Principal paid on term deposit”. Neither transaction was explained. On 24 December 2004, Mr Coshott made a cheque out to himself for $36,000 and on the same day made out a cheque to cash for $3,000. The funds to meet those cheques came from a deposit on 23 December 2004 of $45,000. None of those transactions was explained. On 20 January 2005, Mr Coshott made out a cheque to cash for $7,000. The funds for that cheque came from a deposit on 13 January 2005 of $7,500. Neither transaction was explained.
51 In the period from 1 August 2001 to 2 June 2003 (just before purchase of the Bunyula Road property), the business cheque account operated by Schlotzky received, in varying amounts, a total of $448,897.10 shown as “Principal paid on term deposit”. Further large deposits, similarly described and similarly unexplained, occurred after the purchase. There was no suggestion that any term deposit of this kind represented an asset of the superannuation fund. Schlotzky’s activities, which were almost wholly unexplained, were clearly not confined, despite the name of its business cheque account, to acting as trustee for the superannuation fund. Indeed, there is no evidence that anything done by or in the name of Schlotzky related to the superannuation fund in any way.
52 I conclude, as the cross-claimant submitted, that the business cheque account in Schlotzky’s name was conducted by Mr Coshott as his personal account and that any appearance that it represented an account reflecting the affairs of Schlotzky as trustee for the superannuation fund was deceptive.
53 One matter, however, arises from the conduct of this account which is inconvenient for Mr Coshott’s claim to have been the trustee of the superannuation fund in 2003. Well before and well after 2003, Mr Coshott represented to all with whom he dealt, by signing cheques on Schlotzky’s account, that Schlotzky remained trustee of the superannuation fund.
The distribution from the estate of Elizabeth Yates Murray
54 Mr Coshott and his brother Ronald Coshott were the trustees of the deceased estate of their mother, Elizabeth Yates Coshott/Murray. The final amount available for distribution from the estate to the three beneficiaries (Ronald Coshott, Mr Coshott and Russell Sinclair Coshott) was $5,685,063.61. They were each entitled to $1,895,021.20. A first distribution to each of them was made on 26 May 2003 in the sum of $800,000. A second distribution was made on 14 July 2003 in the sum of $400,000. The cheques were made out in each case on an account entitled “Estate of the late Elizabeth Y Coshott”. They were counter-signed by Mr Coshott and Ronald Coshott. In the case of the distributions to Ronald Coshott, the two cheques were banked into an account in the name of Fewin Pty Limited, an entity controlled by Ronald Coshott. In the case of the distributions to Mr Coshott, the cheques were made out to Schlotzky. Schlotzky’s bank account records do not show any deposit corresponding to the first distribution into the business cheque account held in the name of the superannuation fund. However, at about this time Schlotzky also had a term deposit of about $700,000 which was rolled over weekly until 14 July 2003. Although the term deposit was in Schlotzky’s name, the name of the account did not suggest that Schlotzky was trustee for the superannuation fund. As it was the case for the applicants, Mr Coshott and Schlotzky that the $800,000 first distribution was paid to Schlotzky, it may be inferred that this term deposit represented the bulk of the first distribution.
55 The amount of $711,000 (representing the value of the term deposit) was transferred to the business cheque account on 14 July 2003, the same day as a deposit of $400,000 representing the second distribution to Mr Coshott was banked to that account. On the same day, a withdrawal of $1,102,463.95 was made from the account. That withdrawal was made in cash to provide a bank cheque. It corresponds broadly to 50 percent of the balance of the purchase price of the Bunyula Road property, which was $1,001,250 but upon which stamp duty was also payable. There is no evidence as to how any monies provided to purchase the 50 percent interest of Ljiljana Coshott were provided except that it is clear that the whole of the deposit came from the Schlotzky bank account.
56 There was a further distribution of $650,000 to Mr Coshott from his mother’s estate on 3 October 2003, which is shown as deposited into the business cheque account on the same day. During the proceedings, Mr Coshott argued for his solvency at this period by reference to that amount. Mr Coshott made the same claim with respect to a further $45,000 distributed to him in February 2004. Despite the deposit into the business cheque account in the name of Schlotzky, supposedly in trust for the superannuation fund, Mr Coshott did not suggest that this was money paid to the superannuation fund. On the contrary, he contended that it remained available to him to satisfy his creditors. I accept that was so, but it is a stark contradiction of his assertions that the earlier distributions should be regarded as contributions to the superannuation fund.
57 On 3 October 2003, Mr Coshott signed a cheque drawn on the Schlotzky account in trust for the superannuation fund to Fewin Pty Ltd, his brother’s company, for $201,000. Mr Ronald Coshott was given an opportunity to explain what this payment related to but professed a lack of recollection. He did, however, deny that he had ever received a payment from the superannuation fund and declared himself sure of that position. I accept that the cheque for $201,000 was not a payment from the superannuation fund. It appears to be another example of transactions carried out in Mr Coshott’s personal interest. Mr Coshott gave no evidence about any of these matters and it must be inferred that had he given evidence, his evidence would not have assisted the position he took in the proceedings.
The purchase of the Bunyula Road property
58 The property at 1 Bunyula Road, Bellevue Hill was apparently purchased at auction. Contracts were signed and exchanged on 3 June 2003. The signed and exchanged contract specified that the purchasers were Mr Coshott and Ljiljana Coshott. The contract did not specify whether they would take title as joint tenants or as tenants in common.
59 The solicitor instructed to act for the purchasers was Stephen Michael Barry who had acted for Mr and Mrs Coshott in various other litigation in the preceding years. Mr Barry gave evidence in the proceedings. He testified that he received instructions to act on the purchase on about 4 June 2003. He testified that he did not ever receive instructions that the property was being purchased in trust for any entity. Had any suggestion of that kind been made he would have been concerned about at least three matters.
60 The first was that it would be necessary for the two interests in the property to be taken as tenants in common to avoid blending of those interests by survivorship in case of the death of one purchaser except, perhaps, in a case where the two purchasers were co-trustees of the same trust. No suggestion of that kind was made in the present proceedings. The second concern was that, to his knowledge at the time, a superannuation fund could not own the home in which its members resided. The third issue was that land tax would be substantially more if a superannuation fund took an interest in the property because the principal place of residence exemption from land tax would be lost in such a circumstance. In my view, these are powerful circumstances which provide practical confirmation of Mr Barry’s recollection that it was never suggested to him that a superannuation fund was involved in the purchase of the property. Furthermore, acting on instructions from Mr Coshott (although he could not identify any precise conversation), Mr Barry directed that the words “joint tenants” be typed on the transfer form and signed the transfer on behalf of the purchasers.
61 Under s 26 of the Conveyancing Act 1919 (NSW), two persons purchasing property together are deemed to take their interests as tenants in common, but not “where the instrument expressly provides that persons are to take a joint tenants”. Had the transfer, like the contract of sale, remained silent as to the form in which Mr and Mrs Coshott were to take their interests in the property, they would have taken their interests as tenants in common. It was the fact that the transfer expressly nominated that they would take their interests as joint tenants which altered the legal relationship. That was a conscious and deliberate act done on behalf of the purchasers. I accept Mr Barry’s evidence that it was done on instructions from Mr Coshott.
62 Mr Barry’s conduct must be regarded as the conduct of the purchasers. He was acting on their instructions and, in any event, as the solicitor acting for them on the purchase he is presumed to act with their full authority. No evidence was given that Mr Barry did not receive such instructions. Neither Mr Coshott nor Ljiljana Coshott gave evidence in the proceedings. Mr Barry’s evidence is therefore uncontradicted.
63 Mr Barry’s evidence is yet another sufficient answer to the whole of the applicants’ case. The fact that no evidence to the contrary was given raises an inescapable inference that any evidence which might have been given by Mr Coshott or Ljiljana Coshott would not have assisted their position with respect to the applicants’ case or with respect to the cross-claim.
The purchase price of the Bunyula Road property
64 The deposit to be paid on exchange of contracts was $222,500. On 4 June 2003, a deposit of $220,000 was made to the Schlotzky business cheque account. The source of funds was not identified by the evidence. On 5 June 2003, a cheque corresponding to the amount of the deposit was drawn on the account. It appears likely that this cheque was used to obtain a bank cheque in the same amount.
65 Passage of the deposit through the Schlotzky business cheque account within one day clearly did not serve to indicate that the funds belonged to the superannuation fund, or to Schlotzky.
66 In any event, the deposit related to the whole of the purchase. It was 10 percent of the total purchase price. It was not referable to a particular 50 percent interest.
67 The balance of the purchase price for the 50 percent interest taken in Mr Coshott’s name was provided from the Schlotzky business cheque account in the manner indicated earlier. First, the balance of a term deposit, which appeared to have its origins in the first distribution to Mr Coshott from his mother’s estate, was deposited to the business cheque account. The term deposit was held in Schlotzky’s name but not purportedly as trustee for the superannuation fund. The same day, the second distribution to Mr Coshott from his mother’s estate was deposited to the business cheque account. The same day a cheque was made out to cash for $1,102,463.95. That was used to obtain a bank cheque from the Rose Bay branch of Westpac in the same amount. The balance payable for Mr Coshott’s 50 percent interest in the Bunyula Road property was $1,001,250. Mr Barry gave evidence that the funds for this amount, and for stamp duty on the purchase, was provided by bank cheque.
68 In my view, the picture is a very clear one. The funds to pay for the 50 percent interest taken by Mr Coshott in his own name in the Bunyula Road property came directly from the first and second distributions to him from his mother’s estate. They passed through Schlotzky bank accounts including, very briefly, the business cheque account purportedly operated by Schlotzky as trustee for the superannuation fund. There is no evidence of any kind that the distributions were applied as contributions to the superannuation fund, and such inferences as are available are that the superannuation fund never had assets of this kind.
69 No conclusion is available, therefore, that funds for the purchase were provided from assets of the superannuation fund. Any such contention must be rejected. That is a further reason why the applicants’ case fails, apart from the reasons earlier identified.
70 I shall deal later with a submission that the transactions to which I have referred demonstrate that funds for the purchase were provided from the assets and property of Schlotzky, independently of Mr Coshott, and that any interest he took in the Bunyula Road property in his own name he took necessarily subject to a resulting trust in favour of Schlotzky in its own right. However, even without further analysis, the proposition is self-evidently without any merit in light of the facts to which I have referred.
Acknowledgement of trust
71 One further matter requires attention in connection with the purchase.
72 Ronald Coshott gave evidence that on the day the contract was signed, Mr Coshott and Ljiljana Coshott signed a document in his office. The authenticity of this document was initially disputed by the trustee but during the proceedings the trustee accepted that there was evidence (from Ronald Coshott) to support its authenticity. The document is in the following terms:
ACKNOWLEDGEMENT
It is hereby acknowledged that a one half share/interest in property known as 1 Bunyula Road, Bellevue Hill is purchased by Ljiljana Coshott in her own right and with her own funds and the other one half share/interest is purchased in the name of Robert Gilbert Coshott as trustee for The Coshott Family Superannuation Fund with the funds provided by The Coshott Family Superannuation Fund.
It is also acknowledged that Ljiljana Coshott and her invitees and licensees are entitled to exclusive possession and occupation of the property.
73 I am satisfied that whenever this document was brought into existence it is part of a sham. The second paragraph suggests a clear breach of the in-house asset rules under the Supervision Act. It would be a clear breach of the trust deed if it was a statement to which the trustee of the superannuation fund was a party. But the trustee of the superannuation fund was not a party to this statement. Mr Coshott was not the trustee of the superannuation fund and was incapable of being the trustee. Any statement that he was the trustee was part of the sham. The very account on which the funds were drawn was purportedly conducted by Schlotzky as trustee. That was, if nothing else, a plain and apparently contemporaneous contradiction of the assertion in this document that Mr Coshott was trustee of the superannuation fund. The funds were not provided by the superannuation fund. There is no evidence that the superannuation fund had assets from which such funds might be provided. The fact that money found its way through the account operated by Mr Coshott in Schlotzky’s name makes no difference to that conclusion.
74 On the other hand there would be no room, in the light of this document, for any assertion by the applicants that Ljiljana Coshott took an interest in the property otherwise than in her own right. The document is destructive of a substantial part of the case maintained by her, first in the Supreme Court of New South Wales and then in this Court.
The bankruptcy
75 Mr Coshott was made bankrupt by sequestration order of the Federal Magistrates Court of Australia (“the FMCA”) on 7 November 2008. That order had the effect of severing any joint tenancy if Mr Coshott was a joint tenant in his own right. I have already expressed the view that it was not possible for the superannuation fund to take an interest as a joint tenant with Mrs Coshott and that such an interest was not in fact taken.
76 During the proceedings before the FMCA, Mr Coshott disputed his insolvency. He did so, in part, upon the foundation that he was a joint registered proprietor and part owner of unencumbered real estate in New South Wales with a value of more than $6,000,000. That real estate was identified by him as the property at Bunyula Road. In an affidavit filed on 17 April 2008, Mr Coshott said:
4. I am a part owner of unencumbered real estate in New South Wales currently valued at over $6 million. My current liabilities, including contingent liabilities, total less than $400,000.00. The debt claimed by the respondent is included in this amount. My liability for that debt will be determined in the said Federal Court appeal. I have other non-real estate assets, contingent and liquidated, totalling more than $4 million. I am solvent and able to pay my debts.
77 In a later affidavit filed on 26 August 2008, Mr Coshott said:
4. I am the joint registered proprietor with my wife of 1 Bunyula Road, Bellevue Hill. It is a 700 square metre block of land upon which is erected a five bedroom residence. It is unencumbered. The land was purchased in 2003 at public auction for $2,225,000.00. The five bedroom residence was erected at a cost of more than $2,000,000.00. Recently, an unsolicited offer of $6,500,000.00 was made to purchase the property. A copy of the Certificate of Title to the property is in exhibit “1” hereto.
78 Those assertions, on oath, are dramatically inconsistent with the significance which was attempted to be given to the acknowledgement, which I referred to above, in the present proceedings. In oral evidence before the FMCA on 2 September 2008, the following exchanges occurred:
Mr Coshott, at page 1 of the bundle?--- Page 1, yes.
Page 1, is a title search extract?--- Yes, I have it.
And you say that is the family home in Bunyula – B-u-n-y-u-l-a – Road, Bellevue Hill?---That’s correct.
And you own that jointly with a Liliana Coshott?---My wife, yes.
… Schedule A and the ownership of the house and land in Bunyula Road, Bellevue Hill are what I rely on to show that I am able to pay my debts within a reasonable period of time.
…
My ability to pay debts today or in the immediate or sorry in the near future is schedule A and the ownership of the land.
FEDERAL MAGISTRATE: … Mr Coshott, do you want to clarify any of the answers you have given?---Your Honour, if I could just go through. Page 1 in the bundle is the title search.
Well, I can see what the documents are?---Yes, it evidences that my wife and I own unencumbered that land in Bellevue Hill.
…
MR COSHOTT: The first starting point your Honour is the ownership of the land.
FEDERAL MAGISTRATE: Yes.
MR COSHOTT: It is a very large asset.
79 Those representations are unmistakeably to the effect that Mr Coshott held his 50 percent interest in the Bunyula Road property for his own benefit. I accept that he did. Any suggestion that he held it for the superannuation fund, whether made before or after this evidence was given, is simply false.
80 Mr Spencer, who appeared for the applicants and Schlotzky, argued that this evidence, although it might constitute admissions by Mr Coshott, was not admissible against his clients. Upon reflection, the submission appears to me to be sound but it will make no difference of any kind because of the overwhelming nature of the other evidence which points in the same direction, and the fundamental defects in the applicants’ own case to which I have already referred.
81 After he was made bankrupt, Mr Coshott and members of his family attempted to raise funds upon the security of the Bunyula Road property to secure an annulment of the bankruptcy. There appears to have been no suggestion to any prospective lender that Mr Coshott’s title in the Bunyula Road property was held in trust for any other entity or for the superannuation fund. The contrary is the case. In mid-2010, James Coshott and Michael Coshott proposed to the Commonwealth Bank of Australia that they be given a line of credit for $2,000,000 upon the security of the Bunyula Road property. The proposal involved the idea that title to the property would be transferred from Mr Coshott and Ljiljana Coshott to James and Michael Coshott. To that end, Mr Coshott and Ljiljana Coshott signed the following document dated 9 August 2010:
We hereby confirm that we shall, when requested, deliver a duly executed Memorandum of Transfer of 1 Bunyula Road, Bellevue Hill vesting the fee simple in the property in James Coshott and Michael Coshott.
82 In mid-2011, James Coshott and Michael Coshott proposed to Westpac that a loan be made to them as trustees for the family trust. The proposal suggested that Schlotzky was removed as trustee on 3 June 2003 (i.e. as trustee of the family trust), but there was no evidence in the present proceedings which would support that suggestion nor any suggestion that James and Michael Coshott were trustees of the family trust. Curiously, an earlier loan application to the Commonwealth Bank signed by James Coshott on 31 December 2010 named Schlotzky as trustee of the family trust. That application proposed that Schlotzky borrow the necessary funds. It was signed as proposed guarantors by both James and Michael Coshott. It does not appear that statements about trusteeship in applications of this kind were reliable.
83 The approach to the Commonwealth Bank resulted in approval. The intended loan was to provide the foundation for the annulment of Mr Coshott’s bankruptcy. That did not happen for reasons explained by Rares J in Coshott v Burke [2012] FCA 517. The proposal to the Commonwealth Bank named Schlotzky as trustee of the family trust as proposed borrower. The borrowing was to be guaranteed by James and Michael Coshott. They were to become registered proprietors of the Bunyula Road property, obviously enough by transfer of the fee simple from their parents. The proposal, in which Mr and Mrs Coshott, James Coshott and Michael Coshott were all implicated, is consistent in my view only with a belief by each of them that Mr and Mrs Coshott held their respective interests in the Bunyula Road property for their own benefit.
84 Meanwhile, Mr Coshott had been engaged in some dealings with the New South Wales Land Tax Office which were complicated by the proceedings commenced in the Supreme Court of New South Wales on 24 June 2009, as earlier indicated, by James Coshott who named his parents as defendants. I referred earlier to the consent orders which were signed, and then made, in those proceedings. In July 2009, correspondence from the Land Tax Office had been addressed either to L & R Coshott or L and R G Coshott. The Land Tax Office was pressing them to register for land tax purposes and to complete a questionnaire. In October 2009, the Land Tax Office apparently became aware of the consent orders in the Supreme Court granting the declarations sought by James Coshott that the Bunyula Road property was owned by Mr and Mrs Coshott as trustees for the family trust as to 50 percent and Mr and Mrs Coshott as trustees for the superannuation fund as to 50 percent. The Land Tax Office in due course assessed land tax, sent a final notice and lodged a caveat on the Bunyula Road property. The records of the Land Tax Office indicate that Mr Coshott protested and inquired how the Land Tax Office had become aware of the suggestion that a trust was involved in beneficial ownership of the property. The records of the Land Tax Office record the following conversations on 13 September 2011:
13 SEPT 2011 Robert Coshott rang asking about caveats lodged on pptys. I advised that there is LT outstanding, he stated that there should be nothing liable as the ppty is PPR [principal place of residence] of owner. I advised that the ppty is listed as owned by trust and a disc trust is ineligible for the PPR [principal place of residence]. He said the ppty is not owned by a trust and that the case is with the federal court to determine ownership …
Call put through to me, Robert Coshott … He questioned our right to lodge a caveat on the assessed land as the prop ownership is being disputed in the Federal Court. I said we have every right b/c as it stand now, the assessments are correct & land is liable for LT. He wanted to know how we obtained info it was held in trust, claims it is not held in trust. He said settlement is scheduled around 29/9/11 and if our caveat stops settlement then we’d be held liable. I asked that he put his concerns in writing to me …
85 In correspondence dated 15 September 2011, Mr Coshott made the following representations to the Land Tax Office:
The Court proceedings were commenced in 2009 in the Supreme Court of NSW by my son James. The proceedings sought declarations and orders that the land was held by my wife and I as trustees. Exparte orders were made and shortly thereafter set aside. The Supreme Court transferred the proceedings to the Federal Court, which had exclusive jurisdiction. These proceedings are NSD1412/2009. The proceedings were assigned to Rares J. On 30th March, 2011, Rares J made orders that dismiss the proceedings. Thus, the claim for declarations and orders that the property is held by my wife and I in trust fail. A sealed copy of these Orders is attached. Your attention is directed to Order 7(a) thereof.
Number 1 Bunyula Road, Bellevue Hill has been and remains the primary (only) place of residence for my wife and I. The Orders of 30th March, 2011 effectively remove any basis for land tax liability.
86 Those representations seriously misstated the effect of the orders made by Rares J on 30 March 2011. Order 7(a) of those orders was in the following terms:
7. The Court notes that in anticipation of the above events being effected the parties will seek an order of the Court on 29 June 2011:
(a) Dismissing these proceedings and an order that the Applicants pay the First Respondents costs, including reserved costs such costs to be indemnified to the Second Respondent from the estate of Robert Gilbert Coshott, a bankrupt, such amount being included within the sum of $862,847.95 to be held on trust by The Business Physician Pty Ltd until finalisation of the taxation process referred to herein.
87 The proceedings were not in fact dismissed. The proceedings continued. They are the subject of the present judgment. More importantly, Mr Coshott’s statements that the Bunyula Road property were the principal place of residence for he and his wife, and that there was no basis for any land tax to be assessed, are consistent only with the fact that the beneficial interest in the property was not held by him for the superannuation fund. That is a position which is consistent with the whole of the evidence in the present case, and which falsifies the position taken in the proceedings by Mr Coshott, the applicants and Schlotzky.
Sham
88 The jurisprudential significance to be attached to a contention that something is a “sham” is relatively well established. In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, the High Court said (at [46]):
46 … “Sham” is an expression which has a well-understood legal meaning. It refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences …
89 This statement was supported by a reference to Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 (“Sharrment”). The passage which is usually cited from Sharrment appears in the judgment of Lockhart J who, after discussing a number of earlier cases said (at 454):
A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.
90 In Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516, the High Court gave the issue further attention. The majority judgment said (at [35]-[36]):
35. The term “sham” may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Official Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd, Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a “sham”; the term, when “[c]orrectly employed”, denoted an objective of deliberate deception of third parties.
36. The presence of an objective of deliberate deception indicates fraud. This suggests the need for caution in adoption of the description “sham”. …
91 Kirby J gave the matter more detailed attention. His Honour said (at [133]-[136]):
133. Equuscorp thus stands for the proposition that, where parties express their rights and obligations in what appear to be binding legal instruments, courts will accord such instruments their purported legal effect, according to their tenor, even if the transactions described do not appear to “have been commercially sensible” (that is, entered into with an economic motive in mind other than tax avoidance).
134. However, Equuscorp does not deny the existence of sham as a legal category. On the contrary, this Court expressly accepted that sham has a well-understood legal meaning, and that whether a sham is established or not depends on whether the parties intend their respective rights and obligations to derive from what appears to be a legal instrument.
135. It could hardly be supposed that Equuscorp had written the sham classification out of revenue law in Australia. The place of sham in legal analysis has been acknowledged since the early days of this Court. Its continuing relevance has been repeatedly recognised over the years. There is thus no reason for this Court to avoid either the concept or the word. The word “sham” derives from Old English. It may probably be traced to the same root as the similar Old English word “shame”, with which its core notions of duplicity and deceit are connected. One of its dictionary meanings (“something that is not what it purports to be”) is the primary meaning assigned to it by current legal doctrine in Australia.
136. It follows that it is perfectly proper for Australian courts, and other decision-makers, to invoke the concept of sham in legal analysis, as acknowledged in Equuscorp. It may be helpful in revenue cases so long as the need for intentional deception is kept in mind. And because what is intended, in the context of a sham, may itself be disguised, the objective facts are by no means irrelevant. They may assist to prove the relevant intention of the participants where (as will usually be the case) a forthright admission by those who have resorted to the sham is lacking.
(Emphasis in original)
and at [151]-[152]:
151. It follows that the primary value of sham analysis is that, where justified, it may rescue the decision-maker from being led by the nose into the artificial task of defining the legal rights and obligations of the parties by reference to their proved documents and related conduct alone, where extrinsic evidence demonstrates that they constitute a sham and were not intended to be effective or have their “apparent, or any, legal consequences”.
152. For a court to call a transaction a sham is not just an assertion of the essential realism of the judicial process, and proof that judicial decision-making is not to be trifled with. It also represents a principled liberation of the court from constraints imposed by taking documents and conduct solely at face value. In this sense, it is yet another instance of the tendency of contemporary Australian law to favour substance over form. As such it is to be welcomed in decision-making in revenue cases.
92 When the evidence in the present case is carefully sifted, the only evidence that the superannuation fund had an interest in the property at Bunyula Road is reduced to two matters. One is the fact that funds for the deposit, the balance of Mr Coshott’s 50 percent interest and, perhaps, stamp duty pursuant to the contract of sale, passed through the business cheque account of Schlotzky, after coming into that account as a partial distribution of Mr Coshott’s inheritance, coupled with the fact that the account was operated by Mr Coshott in the name of Schlotzky as trustee for the superannuation fund. The second circumstance is that, by a document bearing the date 3 June 2003, Mr and Mrs Coshott represented that Mr Coshott’s 50 percent interest was taken beneficially for the superannuation fund. I have no hesitation in branding each of those circumstances as a sham to the extent that they are relied upon to support the contention that the superannuation fund took any interest in the Bunyula Road property. I have explained the basis for my conclusion that the Schlotzky business cheque account was used by Mr Coshott for his own purposes. I have explained why I give no credence to the “acknowledgement”.
Resulting trust
93 By the end of the proceedings, faced with the impossibility of showing that Mr Coshott could have been the trustee of the superannuation fund in June 2003, Mr Coshott, the applicants and Schlotzky had turned their attention to a contention articulated first by Mr Coshott in his final submissions. That contention was that, as Schlotzky had provided the funds for the purchase of Mr Coshott’s 50 percent interest in the Bunyula Road property, Mr Coshott held his interest in that property pursuant to a resulting trust for Schlotzky and not for himself. The contention was based upon the proposition that by directing that two cheques ($800,000 and $400,000) representing the partial distribution of his inheritance be made out to Schlotzky, and thereafter banking them into an account held by Schlotzky, Mr Coshott had transferred his property and interest in those amounts of money to Schlotzky. The contention did not extend, apparently, to the third distribution of $650,000 or the fourth distribution of $45,000, which Mr Coshott argued in the present proceedings represented evidence of his solvency in 2003. In any event, the contention is without merit. The chain of events which I have described is wholly consistent with Mr Coshott retaining full title and interest in his inheritance and simply causing it to be passed through a bank account on its way to its final destination, which was represented by his 50 percent interest in the Bunyula Road property.
94 The authority which Mr Coshott, the applicants and Schlotzky relied upon to support their contention about a resulting trust was Calverley v Green (1984) 155 CLR 242 and, in particular, the judgment of Gibbs CJ. The submissions made misstated the effect of that, and other, judgments. Gibbs CJ said (at 246):
Where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchase money, acquires a beneficial interest in the property depends on the intention of the purchaser.
95 Reliance on this passage, and other passages to similar effect, presupposes, rather than establishes, that the purchaser was Schlotzky. The proposition depends upon the same fallacy I have already identified. There is no evidence that Schlotzky set out to purchase an interest in the Bunyula Road property or that it had resources with which to do so. The evidence yields only the conclusion that the money in Schlotzky’s account which was used for the purchase was money held in that account for Mr Coshott, and that it was drawn from that account to satisfy his own obligations. Gibbs CJ said (at 251):
Where one person alone has provided the purchase money it is her or his intention alone that has to be ascertained.
96 There was no evidence of any intention which might be attributed to Schlotzky. Its directors did not give evidence about any such intention. One such director (Mr Coshott) contented himself with assertions from the Bar table. The other director at the time (Ljiljana Coshott) did not give evidence either. There is no doubt that all of the money which was used to purchase Mr Coshott’s 50 percent interest in the Bunyula Road property came from the inheritance to which Mr Coshott became entitled upon the death of his mother. There is no evidence of any kind that he alienated that property or surrendered control of its disposition, whether by passing it through the accounts of Schlotzky or otherwise, until the purchase was complete and he became registered on the title.
97 The presumption underpinning a resulting trust is that, in the absence of rebutting evidence, property is held according to contribution to the purchase price. I am quite satisfied, on the evidence in the present proceedings, that Mr Coshott made the whole of the contribution to the purchase of his 50 percent interest in the Bunyula Road property from monies to which he became, and remained, entitled as a result of his inheritance. I reject the contention that there was a resulting trust in favour of Schlotzky. The contention had no greater merit than the sham arrangements used to support the contention that the interest in the Bunyula Road property had been taken by the superannuation fund.
Orders
98 The whole of the proceedings commenced by the applicants must be dismissed. The cross-claimant is entitled to judgment on the further amended cross-claim. No submissions were addressed by any of the applicants or cross-respondents to the orders which were sought, nor to the application for indemnity costs which was made by the second respondent / cross-claimant.
99 So far as specific orders are concerned, the cross-claimant is, in my view, entitled generally to the relief sought in proposed orders 1 – 9 (including 5A), as set out in the further amended cross-claim filed on 8 February 2013. I have made some amendments to the proposed orders to delete some matters which are not self-evidently necessary and to which no submissions were addressed by the cross-claimant. The remaining, alternative claims for relief (which were the subject of a further 48 proposed orders) do not require attention.
100 As sought in the proposed orders, I will order that the Bunyula Road property be sold. Given the history of this matter, I am not satisfied that any other approach will result in the efficient realisation of the present commercial value of Mr Coshott’s 50% interest in the property.
101 I regard it as appropriate, in the particular circumstances of this case, that the trustee of Mr Coshsott’s bankrupt estate be entitled to recover his costs of the present proceedings from the proceeds of the sale of the Bunyula Road property before any distribution of the proceeds between Mr Coshott’s bankrupt estate and the other co-proprieter, Mrs Coshott. That will avoid complications arising from the fact that Mr Coshott is an undischarged bankrupt. The trustee would be entitled to have his costs of the present proceedings (so far as they concerned Mr Coshott) regarded as a cost in the administration of the bankrupt estate. The order which is proposed will avoid the possibility that the trustee will elect to take all his costs only from the bankrupt estate, to the possible prejudice of other creditors, rather than assuming the more difficult burden of seeking a contribution from parties other than Mr Coshott.
Indemnity costs
102 The trustee sought that his costs be awarded on an indemnity basis.
103 The position taken by the applicants, by Schlotzky and by Mr Coshott in the present proceedings was, as I have said, without any merit and represented an attempt to mislead the Court in serious ways. It is not going too far to describe the proceedings commenced in the Supreme Court, and the attempted surrender to the declarations sought in those proceedings, as an abuse of process of that court. Maintenance of the contentions upon which the applicants’ statement of claim depended represented an abuse of process of this Court. Contrary to the foundation upon which those proceedings were commenced, it rapidly became clear that the applicants had no standing to maintain them. Contrary to the “admissions” in his defence it became clear also that Mr Coshott’s attempted surrender to the applicants’ case was based on a falsehood.
104 The principles which guide the exercise of a discretion to award indemnity costs are often traced to the judgment of Sheppard J in Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248. His Honour said (at 256-257):
In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England … there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice.
105 Sheppard J gave, as examples, the following circumstances which might justify an order for indemnity costs:
… the fact that the proceedings were commenced or continued for some ulterior motive … or in wilful disregard of known facts or clearly making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions …
106 Those matters were features of both aspects of the present proceedings.
107 I am satisfied that the applicants should pay the costs of the dismissed application on an indemnity basis. The position taken by Mr Coshott, the applicants and Schlotszky (as cross-respondents) in relation to the cross-claim can be regarded in no better light. The arguments put were devoid of factual and legal merit and were based on falsehood. The trustee as cross-claimant is entitled to be indemnified in relation to the costs of the cross-claim also.
I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan. |
Associate:
