FEDERAL COURT OF AUSTRALIA

Sheikholeslami v Tolcher [2011] FCA 1050

THE COURT ORDERS THAT:

1.    The proceeding stand over to a date to be fixed for the hearing of any argument on the form of orders to be made and the question of costs.

2.    The parties exchange a draft of the orders each proposes (including as to costs), and provide a copy to my Associate, by 30 September 2011.

Note:    Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    This proceeding concerns the question of ownership of a home unit at 609/168 Kent Street, Sydney, New South Wales (the Kent Street property).

2    The respondent is the trustee of the bankrupt estate of Roya Sheikholeslami (the bankrupt), against whose estate a sequestration order was made on 24 September 2008. The sequestration order was made on a creditor’s petition based on a judgment debt for costs in proceedings brought unsuccessfully by the bankrupt against the University of New South Wales (the University) relating to the termination of her employment as a lecturer at the University: Sheikholeslami v University of New South Wales (No 3) [2008] FMCA 35.

3    At the time of making the sequestration order, the bankrupt was the registered proprietor of the Kent Street property. The respondent contends that the Kent Street property forms part of the bankrupt’s divisible property. The respondent is currently registered as the proprietor of that property.

4    The applicant contends that she is the beneficial owner of the Kent Street property pursuant to an express trust which came into existence at the time the property was purchased by the bankrupt in 1997. Alternatively, she claims that the Kent Street property has been held at all times by the bankrupt upon either a resulting trust or constructive trust for her. The applicant claims declaratory relief in relation to her claimed beneficial ownership and an order that an account be taken of certain money allegedly due to her in relation to the rental of the Kent Street property.

5    The respondent contends that the Court should not find any trust as alleged. Alternatively, he contends that, should grounds be established for the claimed relief, that relief should be denied to the applicant, in whole or in part, by reason of the application of the equitable doctrine of unclean hands. He contends that, in seeking to establish her beneficial entitlement to the Kent Street property, it is inevitable that the applicant must prove a mutual intention between herself and the bankrupt to avoid or circumvent the application of the provisions of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA) or to mislead the bank that provided finance to facilitate the purchase of the property.

6    There is no doubt that the bankrupt became registered as proprietor of the Kent Street property in 1997 and, on completion of the purchase, granted a mortgage over the property to the then Colonial State Bank (now the Commonwealth Bank) (the Bank) which had advanced the sum of $240,000 towards the purchase price of $355,000. The mortgage was arranged entirely through the bankrupt’s own efforts in dealing with the Bank. The applicant had no personal dealings with the Bank. A home loan account with the Bank was subsequently established in the bankrupt’s name which was linked with another account at the Bank in her name, from which fortnightly mortgage repayments were automatically deducted and paid into the home loan account.

7    Although, as a matter of appearance, the purchase of the Kent Street property was made and funded by the bankrupt with the assistance of the Bank, the applicant contends that she was the true funder of the purchase and that at all times her sister, the bankrupt, was acting on the applicant’s instructions pursuant to an arrangement which the applicant and the bankrupt had agreed upon in the period from June 1996, before the property was purchased.

8    Before turning to the evidence on which the applicant relies to make her claims, it is convenient to record some general facts about the respective positions of the applicant and the bankrupt.

The applicant and the bankrupt

9    The applicant is the bankrupt’s elder (and only) sister. The applicant and the bankrupt were both born in Iran and are Canadian citizens. Both are single.

10    The applicant lives in Canada. Immediately prior to taking up her appointment at the University, the bankrupt also lived in Canada. At that time the applicant and the bankrupt lived with their elderly mother (now deceased).

11    The applicant is a certified general accountant. She holds a Bachelors’ degree in Insurance and a Masters’ degree in Business Administration. The applicant practised in an accounting firm in Canada for about seven to eight years from about 1979, undertaking accounting and bookkeeping duties and preparing financial statements and tax returns (including auditing tax returns), among other activities. In 1996 she was the managing director of her own firm, Trans-Pac Resources. She is currently the general manager of a firm called Canadian Wood Products.

12    The bankrupt holds a Bachelors’ degree in Chemistry (1981), a Masters’ degree in Applied Science in Chemical Engineering (1984) and a Doctorate of Philosophy in Chemical Engineering (1990). She is a Professional Engineer (PEng) in Canada, a Chartered Engineer (CEng) in the United Kingdom, and a Chartered Chemist and Chartered Chemical Engineer in Australia. She is a Fellow of various professional organisations. She is on the Editorial Boards of the Desalination Journal and the Journal of Desalination and Water Treatment. She is the founding President of the Australasian Desalination Association (the ADA). She was employed by the University in teaching and research capacities between 1996 and 2004. Her employment was terminated by the University in 2004. At that time she was a Senior Lecturer. Between 2004 and late 2007 she remained unemployed and earned no income, although she continued to hold a number of honorary positions. In 2008 she left Australia to take up an overseas professorial appointment.

13    At the time of the critical events in question in 1996 and 1997, the applicant was a person who was experienced in financial and business affairs. There is no evidence to suggest that the bankrupt had any such experience. Indeed, if her oral evidence is to be accepted, she is a person who has only a rudimentary understanding of business and financial matters, despite her considerable academic qualifications and achievements in other areas.

14    Notwithstanding the fact that the applicant, at least, was experienced in financial and business affairs, this experience was not brought to bear so far as concerns the formalisation of the arrangement which she advanced as existing between herself and the bankrupt in respect of the purchase of the Kent Street property. The purport of the applicant’s and the bankrupt’s evidence was that the arrangement between them was a private family matter between siblings who trusted each other, without attendant formality. It is within that setting that the applicant presented her case.

the applicant’s CASE

15    I now turn to the evidence on which the applicant relies. Even though the evidence deals with events well before Roya Sheikholeslami’s bankruptcy, it is nevertheless convenient, when dealing with the evidence about those events, to continue to refer to her as “the bankrupt”.

16    Both the applicant and bankrupt gave evidence. Their evidence in chief was given by way of affidavit supplemented, in each case, by short oral evidence. They were each cross-examined on the evidence they gave. The version of events in their affidavit evidence changed in a number of important respects during the course of their oral evidence, not only in cross-examination but also in chief.

17    As the reliability of the applicant’s and the bankrupt’s evidence about these events is central to the findings that each party has urged me to make, it becomes necessary for me to recount the more important aspects of the evidence as it unfolded during the hearing, and to state my conclusions about that evidence.

18    The starting point is the applicant’s case as advanced by the affidavits.

The applicant’s affidavit evidence

19    The applicant said that in “mid/late 1996” (but, by the sequence in her affidavit, before 5 November 1996) she travelled to Sydney for a holiday and to visit the bankrupt, who had “recently relocated from Canada to Australia”. During that trip the applicant said she had a conversation with the bankrupt, in which:

(a)    the bankrupt said she was “paying a huge rent” and had “practically no money left … to do anything”;

(b)    the applicant suggested that she could purchase a home unit and rent it to the bankrupt under arrangements whereby the rent could be paid “flexibly”, thereby assisting the bankrupt who was “settling in a new country”; and

(c)    the applicant and the bankrupt agreed to look at “some places” to obtain an idea of market prices.

20    The applicant and bankrupt, during this trip, then looked at “a couple of places” for sale and gained an idea of the prevailing market prices. The applicant said she then had a conversation with the bankrupt in which she specified her requirements in relation to her intended purchase. Those requirements were that:

1.    the property had to be a home unit of one or two bedrooms;

2.    the home unit had to be well-built and in good condition;

3.    the home unit had to be in “the downtown area in the Sydney CBD” and “not in the area you [the bankrupt] are living now”; and

4.    the applicant could pay about $130,000 towards the purchase price, with the balance of the purchase price being funded by a bank mortgage.

21    Notably, the affidavit does not identify the area in which the bankrupt was then living or the total purchase price which, according to the applicant, she was prepared to pay for such a unit.

22    The applicant said that she instructed the bankrupt “to check and liaise with the banks for the mortgage”. The applicant said that she left the task of contacting banks and estate agents with the bankrupt, and returned to Canada.

23    The next event recorded by the applicant in her affidavit was that, on 5 November 1996, she was informed by the bankrupt that she (the applicant) could not become a registered owner of a home unit in Australia or obtain a mortgage. This advice was said to have been communicated by a letter from the bankrupt sent as a facsimile transmission. The document in evidence, said to be “a copy of the facsimile”, is in the following form:

5 November 1996

Gita,

I tried phoning you several times but Rita said you were in meetings.

Just wanted to let you know that I was told by both the real estate agent and by the bank that you cannot be the owner of a property here in addition to the fact that you have no income in Australia and as such it is very unlikely for the bank to approve a mortgage under your name. However, they told me that if it is ok with you I could have the unit in my name and get the mortgage in my name as I have employment here and live here. I can then make the mortgage payment on a monthly basis which will be deducted from my pay check.

I told them that you trust me and are buying this in fact to help me and it should be ok with you but anyhow think about it and if that is ok with you we can do it that way.

So please think about it and we can talk over the phone and decide what to do.

Roya

[also signed “Roya”]

24    It is important to note at this juncture that the document in evidence does not bear any “tracer” information showing from whom or to whom the communication was sent, or the date on which or time at which the communication was made as a facsimile transmission. It does not bear, therefore, the hallmarks that, as a matter of ordinary experience, one is accustomed to see on facsimile transmissions.

25    In her affidavit the applicant said that, later in November 1996, she had a telephone conversation with the bankrupt, to the following effect:

Roya:    Gita, as I said in the fax, the bank doesn’t give you a mortgage here because you do not have an Australian income; it is not like Canada and they do not consider your Canadian employment sufficient. Also since you are not an Australian resident you cannot own a unit; it is different here from that in Canada. But I was told that if you agree to my name being the owner on the record, I could have the unit and get a mortgage in my name as I am employed and live here. But you will be the owner of the unit for all intents and purposes. I can then make the mortgage payment monthly.

Me:    I can understand that the bank might not want to give me a loan because I don’t have income there. But why in principle can I not own a unit there?

Roya:    They say because the government wants to help Australian residents as foreign developers come and purchase lots of properties here, the property prices go up and then the locals cannot afford to purchase properties. So, apparently it is a measure to help and make housing affordable for Australian residents.

Me:    Ok, that makes sense. I am not a developer or a property investor. I am trying to help you but I don’t want helping you to cause any problems for me or for you. Please check and make sure that everything is ok before we proceed.

Roya:    As I said in the fax they tell me that everything is ok and the only issue is your agreement to have the unit registered in my name although you will be the owner.

I said:    Ok, I trust you. Please make sure that the mortgage payments are made on time so there would be no issue with the bank.

Roya:    I will do. That is great.

26    The applicant then said that, in January and February 1997, she sent two bank wire-transfers providing funds for the purchase. There is documentary evidence of one transfer of $66,462.85 made on 27 January 1997 from a bank account with The Bank of Nova Scotia in Canada. The outgoing payment/transfer form in relation to this transfer bears the signature of the applicant as customer. It also makes reference to an account number with The Bank of Nova Scotia. No attempt was made in the evidence to link this account number with the applicant, other than by her signing the transfer as the bank’s customer. The transfer form shows that the beneficiary of the funds was the bankrupt and that the destination of the funds was an account with the Bank at its University of New South Wales branch. The outgoing payment/transfer form in evidence also bears a handwritten message from the applicant to the bankrupt advising that the funds had been transferred, with a request that the bankrupt “ask your bank” to “follow up” the transfer.

27    There is no documentary evidence of the second transfer or its amount. The applicant’s evidence was that the other transfer was for about $64,000 from an account with The Royal Trust Bank of Canada. The funds were said to have been deposited in the same account with the Bank. The applicant said that, because of the age of the transaction, she must have destroyed the documents she had in relation to it, there being no legal obligation on her in Canada to keep such documents. She also said that The Royal Trust Bank had been taken over a long time ago by another company, and no longer exists.

28    The applicant’s evidence was that she paid these funds to the bankrupt in the belief that, “in principle”, she would be the owner of the Kent Street property and that she “would not have made those monies available unless I had that belief”.

29    The applicant then said that in early 1997 she had a conversation with the bankrupt about the amount of the rent that the bankrupt would pay in respect of the Kent Street property. She said that the bankrupt suggested that, as the mortgage repayments for the property were to be $722 “every two weeks fixed for the period of the loan”, and as “[the] going rent in the area is over $2000/month”, she would pay a total rental of $912 every two weeks (“which would be basically the going rent in the area”). This rent was calculated by reference to two components: the mortgage repayment of $722 plus an additional sum of $190, payable every two weeks. According to the applicant’s affidavit evidence, the bankrupt said that, as it had been agreed that the rent could be paid “flexibly”, she would “pay the extra $190 whenever I can and … also … interest for its late payment”. The applicant says that she agreed with this arrangement.

30    Completion of the purchase of the Kent Street property took place on 2 June 1997.

31    The applicant said that between May 1997 and August 2000, the bankrupt paid the loan repayments in relation to the mortgage with the bank, but “(s)he did not have sufficient income to pay me $190 fortnightly, which was the difference between the rent and the loan repayment”. Her evidence was that, in that period, the bankrupt paid $61,009 to the mortgage account “in lieu of rent” (representing $722 every two weeks in that period), leaving a balance of $16,055 plus interest owing to the applicant for rent.

32    The applicant then said that, in about June 2000, she had a conversation with the bankrupt in which the bankrupt suggested that, in view of increasing rents, and out of fairness, the rent should be increased from $912 to $1072 every two weeks, calculated by reference to the mortgage repayment of $722 plus an additional sum of $350. Her evidence is that the bankrupt said:

… I can now pay you the full rent. It might not be exactly every month but I will pay it overall when I have the excess cash. How do you want me to pay you?

33    The applicant said that she and the bankrupt agreed that both components of the rent would be paid into the home loan account “so my unit clears the mortgage quicker”.

34    The applicant said that, after this conversation, the bankrupt deposited the difference between the mortgage repayment and the total rent into the home loan account whenever the bankrupt had excess cash. These payments were irregular in time and amount. Nevertheless she regarded these payments as having been made as part of “a flexible arrangement between ourselves as we had agreed originally”.

35    The applicant said that, in mid-2003, she had a conversation with the bankrupt in which the bankrupt suggested, once again, that, as “the rent here has gone up”, the rent for the Kent Street property should again be increased from $1,072 to $1,222 every two weeks, calculated by reference to the mortgage repayment of $722 plus an additional sum of $500. Once again, she said it was agreed that all the rent would be deposited into the home loan account. The applicant said that these payments were not regular in amount or in time of payment. However, the applicant said that in the period August 2000 to July 2004 the applicant paid $115,388 into the mortgage account, representing the full amount of the rent agreed to be paid in that period.

36    The applicant said that in late July 2004 she had a conversation with the bankrupt in which the bankrupt told her that the University had “cut my salary and also my access to the University, lab, work and documents”, with the result that she had no income and that she needed to borrow money from the applicant. The applicant said that she informed the bankrupt, that as “I have credit in my home loan account”, the bankrupt could “borrow” money from that account and that after the bankrupt had “resolved your issues with the University”, she could repay the borrowed amounts with interest.

37    The applicant said that between July 2004 and December 2007 the bankrupt borrowed $81,668 from her. The applicant says that, in this period, the bankrupt paid $65,702 into the mortgage account (representing $722 every two weeks), leaving a balance of $45,500 owing to the applicant for rent. Thus, the applicant said, in the period July 2004 to January 2008, the bankrupt had effectively borrowed from her the sum of $127,168 ($81,668 plus $45,500).

38    The applicant said that in late 2007 she had a conversation with the bankrupt in which the bankrupt informed her that she had found employment outside Australia and that she was leaving the Kent Street property. The applicant said that she asked the bankrupt to “contact some real estate agents that are active in the area and arrange for the rental of my unit”.

39    In her affidavit the applicant also gave evidence of a conversation she had with the bankrupt in late December 2007. The applicant said that, by this time, there were no more funds available in the home loan account from which the bankrupt could borrow. The applicant said that the bankrupt informed her that she needed to borrow about $22,000 to pay for “the rent and some more legal fees [relating to her court case against the University] and other expenses to live”. The applicant agreed to advance these funds and, on 3 January 2008, transferred the sum of $22,318.94 into the bankrupt’s personal account that was linked to the home loan account.

40    In her affidavit the applicant gave evidence of being informed by the bankrupt in January 2008 that a tenant had been found for the Kent Street property. The applicant said that she told the bankrupt to make sure that the rent was paid into the bankrupt’s personal account linked to the home loan account to enable the mortgage payments to be automatically deducted. The applicant said that she also told the bankrupt to “keep an eye on the bank account to make sure the rent is paid on time so there are no problems with the mortgage payments”.

41    In her affidavit the applicant gave evidence of a conversation with the bankrupt in January 2008 in which the bankrupt informed her that her court case against the University had been unsuccessful and the bankrupt had told her that “I … cannot pay you immediately for all the money that I owe you”.

42    She also gave evidence of a conversation in late September 2008 in which the bankrupt informed the applicant of her bankruptcy. The applicant said that she told the bankrupt “to make sure that your bankruptcy does not affect my unit”. The applicant also said that, in the course of this conversation, she said the following to the bankrupt:

You are going to Sydney next week. Make sure that you arrange to see a lawyer there and formalize [sic] that the unit is mine and not yours and that I am the owner of the unit and that though the unit is registered in your name it belongs to me for all intended [sic] purposes.

43    In her affidavit the applicant also gave evidence of other payments made by her into the bankrupt’s personal account with the Bank. For present purposes it is not necessary to detail that evidence, other than to note that the applicant said that those payments were made to cover the fortnightly mortgage payments that were being automatically deducted from this account and paid into the home loan account. The circumstance prompting that action seems to have been the fact that rent from the Kent Street property was no longing being deposited into the bankrupt’s personal account but paid to the respondent as the bankrupt’s trustee in bankruptcy. The applicant’s affidavit annexed a copy of email correspondence with the Bank in January 2009 in which she informed the Bank that she wanted to transfer funds from Canada directly to the Bank to cover future mortgage payments. She informed the Bank at that time that she was “the stakeholder in this unit” and that, although the Kent Street property had been registered in the bankrupt’s name, “it belongs to me and has been in trust in her [the bankrupt’s] name”. As events have turned out, following the making of court orders, the rent for the Kent Street property is now being deposited directly into the home loan account.

The bankrupt’s affidavit evidence

44    The bankrupt said that in May or June 1996 she moved to Sydney and rented a unit. She said that in June or July 1996 the applicant came to Sydney to visit her. She gave evidence of a conversation at that time, in which:

(a)    the bankrupt said she was “paying a very high rent” and had “no further money left for expenses”;

(b)    the applicant suggested that she could purchase a home unit and rent it to the bankrupt because rental payments could be applied in part to pay a loan;

(c)    the unit was to be “in the heart of Sydney”; and

(d)    the bankrupt said that she could “pay the loan and you [the applicant] depending on the money I have at the time”.

45    The bankrupt said that she and the applicant then “looked at a few units in Sydney, as we wanted to find out the market price for a reasonably good unit”.

46    This evidence accords, in broad terms, with the applicant’s affidavit evidence on these matters.

47    The bankrupt then said that, in about October 1996, she was advised by “a couple of estate agents” that the applicant could not obtain a mortgage in Australia because “she had no employment and no income in Australia” and that the home unit could not be registered in the applicant’s name because “she was not an Australian resident”.

48    The bankrupt also said that a manager at the Bank told her substantially the same thing: the bank would not give a loan to the applicant because “she had no employment and income in Australia”. The bankrupt also said that the manager told her that, if the applicant wanted to purchase the unit, she could do so, but that she should “register it in my name and get a mortgage for the unit in my name”.

49    In her affidavit the bankrupt gave evidence that she then conveyed that information in a telephone conversation with the applicant. The bankrupt said that the conversation was to the following effect:

Me:    Gita, here things are different from Canada; real estate agents say that you cannot register a unit in your name since you are not an Australian resident and the bank says that the bank does not give mortgage in your name because you have no income in Australia. The bank has suggested that, if you agree and I register the unit in my name, then the bank gives the mortgage as I am employed here. The unit will be fully yours for all purposes but only registered in my name. Please I hope that you agree to register the unit in my name and I will make all the mortgage payments on time for you and take good care of the unit like my own for you.

Gita:    Why can I not own a unit there?

Me:    They say foreign investors or developers purchase properties and inflate the property market and disadvantage locals.

Gita:    I am not a property developer or a property investor. You are asking me to help you and I am willing and trying to help you but make sure that everything is ok as I do not want any problems in the future.

Me:    Gita, everything will be absolutely fine. I have checked. Please help me. The only issue is your agreement to have the unit registered in my name and you will be the owner and there will absolutely be no problem. Please agree.

Gita:    Ok, I agree; it is Ok for you to have the unit registered in your name as I trust you.

50    The bankrupt did not, in her affidavit, give evidence about previously sending a letter on these matters by facsimile transmission to the applicant. However, the evidence she gave in her affidavit of the terms of her conversation with the applicant broadly accords with the applicant’s affidavit evidence of this conversation.

51    The bankrupt said that the Kent Street property was then purchased in her name; that the applicant contributed cash in the sum of about $130,000 which was transferred from the applicant’s bank accounts at the Bank of Nova Scotia and the Royal Trust Bank in Canada to the Bank; and that she (the bankrupt) obtained a loan from the Bank for $240,000 which was secured by mortgage over the property.

52    In this connection the bankrupt said that she had a conversation with the applicant in which she told the applicant that the bank required the mortgage payments to be deducted directly from a designated account linked to the home loan account and that she would pay rent through this account, from which the mortgage payments would be automatically deducted every two weeks.

53    The bankrupt then gave evidence in her affidavit about the following conversations: a conversation in about May 1997 about paying rent in the sum of $912 every two weeks; a conversation in about July 2000 about paying rent in the amount of $1,072 every two weeks; and a conversation in about July 2003 about paying rent in the sum of $1,220 every two weeks. The bankrupt’s evidence of these conversations accords, in broad terms, with the corresponding evidence in the applicant’s affidavit.

54    The bankrupt also gave evidence in her affidavit of a conversation with the applicant in late July 2004 in which she informed the applicant that the University had stopped paying her a salary and in which the applicant agreed to permit the bankrupt to borrow from the home loan account to pay her expenses. The bankrupt gave evidence in her affidavit of borrowing over $125,000 from the applicant in the period between July 2004 and December 2007, using the home loan account. Once again, this evidence accords with the corresponding evidence in the applicant’s affidavit.

The applicant’s oral evidence

55    In her examination in chief the applicant departed from the affidavit evidence she had given in relation to her visit to Sydney in “mid/late 1996”. She said that:

(a)    she came to Australia on two occasions in 1996. The first occasion was in about June and the second occasion was in December, at which time she stayed for the Christmas holidays “for a couple of weeks” before departing for Canada in January 1997;

(b)    on this occasion she and the bankrupt looked at home unit properties. At this time she gave the bankrupt “an option to also look in other areas such [as] North Sydney because she was living close by at the time”; and

(c)    after returning to Canada in January 1997 she had a telephone conversation with the bankrupt in which the bankrupt told her that “she [had] spotted a nice property somewhere in North Sydney”. Although the applicant instructed the bankrupt to “go ahead” with this property, it “did not go through for whatever reason”. Subsequently the applicant and the bankrupt “decided to go with” the Kent Street property.

56    The circumstances in which this evidence was given are significant. The respondent had obtained passenger movement records showing that the applicant had visited Australia on two occasions in 1996. On the first occasion she arrived on 5 June 1996 and departed on 2 July 1996. On the second occasion she arrived on 14 December 1996 and departed on 8 January 1997. It is clear that the applicant was aware of those records before giving her oral evidence in chief.

57    In cross-examination the applicant initially said (although not without some uncertainty) that, on the first visit in June 1996, she stayed with the bankrupt, who was already present in Australia, renting a home unit in an area close to North Sydney (later said to be Milsons Point). But the evidence came to show (from the passenger movement records) that the bankrupt and the applicant had arrived in Australia together on 5 June 1996. It follows that the version of events given by the applicant in her affidavit, and subsequently modified by her oral evidence in chief, cannot be correct. It is clear that, at the time of the applicant’s first arrival, the bankrupt had not “recently relocated from Canada to Australia”, because they had arrived together. This fact calls into question whether the applicant and the bankrupt had a conversation, at this time, about the bankrupt “paying a huge rent”.

58    It is, of course, possible that such a conversation did take place during the respondent’s second visit in December 1996. By that time the bankrupt had “recently relocated from Canada to Australia” and, it would seem, had been renting a home unit. This would also accord with the applicant’s oral evidence in chief in which she said that, during this visit, she and the bankrupt looked at home unit properties and the applicant had given the bankrupt an option of purchasing a property somewhere in North Sydney. However, when asked in cross-examination whether this might be the case, the applicant denied this to be so. The import of her oral evidence in cross-examination was that she could not remember the precise terms of the conversation, which had been recounted in her affidavit as having occurred in “mid/late 1996”, only (in her words) “the concept” (namely, that the applicant would purchase a home unit and rent it to the bankrupt who would pay a rent that would be applied to pay the mortgage payments on a mortgage to be taken out by the applicant). She said that the conversation took place during the first visit at a time after the bankrupt had commenced renting a home unit. This is also possible, but it is not the impression that is given from the applicant’s affidavit or her oral evidence in chief, without further explanation.

59    It can be seen, therefore, that, by the end of her cross-examination, the applicant had given, effectively, three versions of the circumstances in which the applicant and the bankrupt came to discuss “the concept” to which the applicant referred.

60    The timing of this conversation is not a matter of mere detail. The applicant places significant reliance on the 5 November 1996 letter which she said had been sent to her by the bankrupt by facsimile transmission. The contents of the letter only make sense if a conversation about the applicant buying a unit and renting it to the bankrupt had taken place before the applicant’s arrival in Sydney on 14 December 1996, for her second visit.

61    The respondent made a direct challenge to the authenticity of the letter. It was put to the applicant that the letter had not been sent by facsimile transmission to her by the bankrupt, but had been prepared by the applicant herself to bolster a claim that she was entitled to the Kent Street property. The applicant denied this suggestion. It was also put to the applicant that she had had no conversation with the bankrupt in June 1996 about the applicant purchasing a property in Sydney. The applicant denied that suggestion.

62    There is an obvious interrelationship between the alleged conversation and the authenticity of the 5 November 1996 letter. My acceptance or otherwise of the applicant’s evidence that the conversation took place, and took place in June 1996 before the applicant’s second visit, is clearly relevant to my consideration of the authenticity of the letter. Alternatively, if I am satisfied that the 5 November 1996 letter is authentic, then my acceptance of that fact is relevant to my consideration of whether the conversation took place as stated by the applicant.

63    In cross-examination the applicant also said that either during or after this conversation (but, it would seem, during the applicant’s first visit to Australia in June 1996) the bankrupt told her that she (the bankrupt) had approached a local bank for a loan to buy a property but was told that she would not get a loan because she had no deposit. The following exchange took place:

So is that something that she had told you at the time of this visit in June 1996? --- Yes. During that time we knew that she did not – she cannot only do it without her salary without any help and how she got it – by over [sic] phone or visiting the bank I don’t know.

64    This fact was not referred to by either the applicant or the bankrupt in their affidavit evidence. If correct, that evidence may provide an alternative explanation as to why the applicant would have transferred funds from Canada to Australia; namely, to assist the bankrupt by lending her an amount which could be used by the bankrupt to make her own purchase of a home unit. The version of the events given by the applicant and the bankrupt in their affidavits would lead one to think that the bankrupt only approached a bank to obtain finance on the applicant’s bidding and not in her own right.

65    But, in cross-examination, the applicant maintained that the arrangement she had with the bankrupt was that she (the applicant) would get a bank loan to finance the purchase of the unit. She accepted, however, that she did not visit any bank, finance company or other financial institution while she was in Sydney in June 1996 to make any inquiries about whether it was possible for her to obtain such a loan. The applicant’s evidence was that she simply left it to the bankrupt to do the groundwork on that matter. The applicant said that, after returning to Canada after the first visit in June 1996, she was aware that the applicant was having meetings with banks and real estate agents, but that she was not aware of the details of those meetings.

66    In cross-examination the applicant was taken to her income tax returns for each year in the period from 2004 to 2008. It is clear that, at least for those years, the applicant did not disclose her claimed beneficial ownership of the Kent Street property or any income by way of rent paid in respect of the property, although she did disclose other foreign-sourced income. There is evidence that, for the purpose of preparing Canadian income tax returns for those years, a tax payer was required to report on property that was “specified foreign property”. That property included “land and buildings located outside Canada, such as foreign rental property”. The respondent placed considerable reliance on the fact that there were no such disclosures by the applicant.

67    When challenged with these facts, the applicant gave evidence to the effect that, for income tax purposes in Canada, the registration of property is all important. She suggested that she was not obliged to disclose her beneficial ownership of the Kent Street property or the income derived from that property because she was not the registered proprietor of it.

68    I hold significant reservations that this explanation is soundly based. The extent of the evidence on that matter does not permit me, however, to come to any firm or safe conclusion about it.

69    Even if the requirements of Canadian income tax law did require the applicant to disclose assets and income beneficially owned, contrary to the explanation provided by the applicant, it would not necessarily follow from the fact that she did not disclose the Kent Street property to the Canadian authorities, or the rent derived from that property, that she was not truly the beneficial owner of the property, as she claims to be. There may be other explanations, but not justifications, for such non-disclosure.

70    But to be clear: the respondent’s position was that, in not disclosing any beneficial ownership or rental income, the applicant was acting perfectly honestly because, on the respondent’s case, the applicant was not the beneficial owner of the Kent Street property and did not earn any rental income from that property.

71    In the course of the applicant’s cross-examination it also emerged that, when she became aware of her sister’s bankruptcy, she took steps to protect her claimed interest in the Kent Street property. Her evidence was that she asked the bankrupt “to talk to a lawyer and discuss the situation and establish or protect my interest”. This resulted in a Real Property Act mortgage being prepared and executed, in which the bankrupt purportedly granted a mortgage over the Kent Street property to the applicant, to secure repayment of the principal sum of $450,000. The evidence does not disclose when, precisely, the mortgage document was executed. There is no evidence that the mortgage was registered. The applicant said that this document was prepared on legal advice by a former solicitor. Although she claimed to be the beneficial owner of the property, and although the mortgage treated her as no more than a lender of money, the applicant said that she “did not question the detail of it because I assumed that he knows what he is doing”. She gave evidence that she was later informed, by another solicitor, that the executed mortgage document was inappropriate to protect her claim to be the beneficial owner of the Kent Street property.

The bankrupt’s oral evidence

72    In her examination in chief, the bankrupt said that she and the applicant had had a conversation at the time of the applicant’s second visit to Australia in December 1996 to the effect that, because of price considerations, the applicant would agree to a home unit being purchased in North Sydney. This accorded with the oral evidence in chief given by the applicant on that particular matter.

73    In cross-examination the bankrupt said that after she arrived in Australia in June 1996 she commenced looking for a unit to rent, initially around the University, and was “devastated” at the high rents being asked for what she found to be low quality accommodation. She then rented a home unit in Milsons Point, where “the quality was okay” but “the rent was huge”. She said that it was in this context that the applicant suggested that she (the applicant) should buy a home unit and rent it to the bankrupt. The bankrupt said that it was at this time that the applicant asked her to talk to a bank, on behalf of the applicant, about obtaining a loan to enable the applicant to purchase such a property. She said that, in approaching the Bank, she was acting on the applicant’s instructions.

74    In cross-examination she also said that she sent the 5 November 1996 letter from a personal fax machine she had at the Milsons Point unit. She rejected the suggestion that she did not send this document as a facsimile transmission. The absence of “tracer” information on the copy document in evidence was raised with her. Her explanation was to the effect that the presence of “tracer” information was a matter of how one chooses to set-up the fax machine. She said that she was not “in the habit” of putting “my details in my personal fax”.

75    In her cross-examination the bankrupt was asked a series of questions about loan applications she had made with the Bank. In that connection she said that there was never any discussion between herself and the applicant that she (the bankrupt) “would put some money into this transaction”.

76    Her attention was directed to a home loan application made to the Bank on 24 January 1997. This application related to the purchase of a two bedroom home unit in Walker Street, North Sydney. I infer that this related to the prospective purchase referred to by the applicant in her oral evidence in chief. The loan application was made in the bankrupt’s name. The application form was partly completed by the bankrupt and, it would seem, partly by the manager of the Bank’s branch at the University. The bankrupt was closely questioned on the statement of financial position given in the loan application form, which showed the existence of a number of assets, including land, motor vehicles and money in Canada which reasonably could be taken as referring to assets owned by the bankrupt. However she denied ownership of these assets and, although saying that she was unable to recall how the information came to be included in the loan application (notwithstanding that part of it would appear to be in her handwriting), the bankrupt suggested that, as the bank manager knew of her personal situation, and had made the suggestion that, with the applicant’s concurrence, the loan could be taken out in the bankrupt’s name, these assets related to “family assets” involving the applicant and possibly the applicant’s and bankrupt’s mother.

77    The loan application form also showed the receipt of monthly income other than from the bankrupt’s University salary. The document showed income in the form of rental income, investment income, and “other” income. Although this part of the application form was completed by the bankrupt, she denied having any rental, investment or “other” income at that time. Once again she suggested that this income related to the applicant’s income. The bankrupt said that she did not “recall about [sic] filling in this document at all”.

78    Another significant matter about the loan application is the fact that it contemplated a loan of $220,000 from the bank against a purchase price of $420,000. If the balance of $200,000 was to be provided by the applicant, then that was significantly in excess of the amount of $130,000 which the applicant claims she told the bankrupt back in June 1996 was the amount that she could pay as a “down payment”.

79    In the course of the cross-examination it was put to the bankrupt that after making the home loan application with the bank on 24 January 1997, and after knowing that the bank would be prepared to advance $220,000 for the purchase of the North Sydney home unit, the bankrupt travelled to Canada in February 1997 to make arrangements to secure the rest of the purchase price. There is no doubt that, according to the evidence, the bankrupt did leave Australia for Canada on 3 February 1997, returning on 8 March 1997. The bankrupt did not dispute the fact that she had travelled to Canada in February 1997, but she denied that this visit was undertaken to make arrangements to secure finance for the purchase price. The bankrupt pointed out that, since arriving in Australia in 1996, she had travelled to Canada on many occasions. The evidence shows this to be the case.

80    The evidence shows that the bankrupt made a further home loan application to the Bank on 22 May 1997. This application appears to have been based on the information contained in the application made on 24 January 1997, although, this time, the intended purchase was of the Kent Street property. This application was for a loan of $240,000.

81    The respondent put to the bankrupt that there was never any conversation between the bankrupt and the applicant about the bankrupt paying rent, largely because at no time in the period from May 1997 to the middle of 2000 did the bankrupt ever pay the applicant any component of the alleged rent beyond the sum required to be paid to the bank by way of fortnightly mortgage payments. In short, it was put to the bankrupt that at no time did the bankrupt agree to pay the applicant rent. The bankrupt denied this. The bankrupt also denied that, upon receiving a pay increase in the middle of 2000, the additional payments she made to the Bank (beyond the fortnightly mortgage payments) were “further payments off your mortgage debt”, as opposed to rent that she had agreed to pay the applicant.

82    The bankrupt was also questioned on an application she had made for a credit card with the ANZ Bank in 2002. At that time she had provided information as to her financial circumstances, including that she owned a house valued at $500,000 and that she had an account with the Bank with a balance of $75,000. In another credit card application made to the ANZ Bank in 2005, the bankrupt represented that her assets included a house valued at $500,000.

83    In her cross-examination the bankrupt was also taken to an affidavit she had made in her proceedings against the University in the Federal Magistrates Court, in which she stated that she was willing to offer the Kent Street property as security for costs, should the Court require. The bankrupt said that she had discussed this with the applicant and obtained the applicant’s permission to provide the Kent Street property as security for costs. She defended the wording of her affidavit on the basis that she was registered as the owner of the Kent Street property, although not its true owner.

84    The bankrupt was also questioned on her personal account with the Bank and, in particular, the fact that, after she had left the Kent Street property, rent was paid into that account by the then tenant of the property. It was put to the bankrupt that all funds generated from the payment of rent by the tenant were never handed over to the applicant but spent by the bankrupt “as though it was entirely yours, free to deal with …”. The bankrupt responded to the effect that those were funds the applicant permitted her to use, by way of loan.

Other evidence

85    Evidence was also given by Ms Catherine Ossolinski. Ms Ossolinski described herself as a close friend of the bankrupt, whom she has known since approximately 1999. Ms Ossolinski was the Secretary of the ADA. She attended monthly meetings of the Association. These meetings were held in the library of the building in which the Kent Street property was located.

86    Ms Ossolinski said that she also considered the applicant to be her friend. There is evidence that Ms Ossolinski allowed her address to be used for communications to be sent to the applicant in connection with the present dispute, and more generally after the bankrupt had left the Kent Street property.

87    Ms Ossolinski said that her friendship with the bankrupt developed in around mid-2003 when the ADA was formed. She recounted an event in approximately April 2004 when the bankrupt invited her to the Kent Street property for the first time. She said that while visiting the property she had the following conversation with the bankrupt:

I said:        What a lovely apartment you have Roya.

Roya said:    Thank you Catherine. It is very nice but it’s not mine, it is my sister’s apartment.

88    Ms Ossolinski said that she did not have any further conversation with the bankrupt on this subject until some time in about mid-2007 or possibly mid-2008, when, over dinner one evening, the following conversation occurred:

Roya said:    I have been having some issues at the University of New South Wales. My sister is very concerned that her interest in the property be protected.

I said:        What do you mean?

Roya said:    I have an arrangement with my sister where I purchased the (u)nit in my name because Gita is not a resident or employed in Australia. It is important that her interest be noted in a second mortgage. I approached one of my friends, Inara, and asked her to contact a lawyer to prepare the second (m)ortgage document to register Gita’s interest in the property.

89    No objection was taken to this evidence: cf. Shephard v Cartwright [1955] AC 431 at 445; Charles Marshall Proprietary Limited v Grimsley (1956) 95 CLR 353 at 365; Calverley v Green (1984) 155 CLR 242 at 262.

90    Ms Ossolinski was cross-examined on these conversations and other matters. Her recollection of the first conversation was directly challenged. It was suggested to her that, rather than making the first statement recorded above, the bankrupt might have said “my sister helped me to purchase that”. Ms Ossolinski was definite in her denial that this might have been said. She explained that she recalled the conversation, as I have recorded it, because it struck her at the time as being “an unusual situation”. She was not challenged on the second conversation I have recorded. Indeed, the respondent made submissions relying, positively, on the second conversation.

91    Overall, on seeing and hearing Ms Ossolinski, I was impressed by the forthright and considered way in which she gave her evidence. She impressed me as an honest witness. I am confident that her recollection of these events is sound. I accept that the conversations to which she referred took place substantially in the terms that I have recorded.

92    These conversations support the broad thrust of the applicant’s and bankrupt’s evidence that the applicant and the bankrupt had agreed that the Kent Street property was, as between themselves, to be treated as purchased and owned by the applicant, not the bankrupt.

93    I say this even though, in the second conversation, the bankrupt referred to the need to have the applicant’s interest protected by a second mortgage, indicating, on one view, a relationship between the applicant and bankrupt of lender and borrower rather than of beneficiary and trustee.

94    I regard the reference in the conversation to the applicant’s interest being noted in a second mortgage as no more than a reference to a device to be employed or means to be taken to protect the applicant’s interest in the property, whatever that interest might be. I do not, without more, take that reference to describe or define, either appropriately or in any considered way, the precise legal relationship that existed between the applicant and the bankrupt in relation to the Kent Street property at the time the conversation was held, or at any other time.

the parties’ submissions

95    I have been assisted in my consideration of the facts by full written submissions from the applicant and the respondent, supplemented by focussed oral submissions. Those submissions, both written and oral, identified, described and analysed the available documentary evidence as well as the evidence of the applicant and the bankrupt, as it evolved, in some considerable detail and urged on me two plausible but quite different conclusions on the facts.

96    I will not repeat all the detail of those submissions in these reasons. It is sufficient for me to record the major steps in the analysis that was undertaken by each party.

The applicant’s submissions

97    The applicant’s principal case was that the facts ultimately given in evidence demonstrated that the bankrupt held the Kent Street property on trust for the applicant.

98    The applicant submitted that I should start with facts that were agreed or established beyond doubt (in particular, by contemporaneous documents), and the inferences to be drawn from such facts, and to evaluate the remaining factual controversies within that matrix.

99    Proceeding with that approach, the applicant drew attention to the following matters:

(a)    The bank transfer of $66,462.85 made by the applicant to the bankrupt’s bank account on 27 January 1997. The evidence shows that the applicant signed this transfer as the “customer” of the Bank of Nova Scotia. The applicant submitted that I should conclude that these were her funds, not the bankrupt’s. In this connection the applicant submitted that I could safely infer that, by being permitted by the Bank of Nova Scotia to sign the transfer in that capacity, it demonstrated that she was the holder of the account from which the funds were drawn. The applicant pointed to the fact that it was not put to her that this transfer represented a gift to the bankrupt.

(b)    The letter dated 5 November 1996. The applicant submitted that her evidence, supported by the bankrupt’s oral evidence, that the document was sent by the bankrupt to her by facsimile transmission, should be accepted. Perhaps more importantly, the applicant submitted that the copy letter in evidence was a genuine communication sent by the bankrupt to her on or about the date it bears. She submitted that any contention that the copy document in evidence was not a genuine communication made on or about 5 November 1996 was a serious one and a finding to that effect ought not be made in the absence of “some evidence impugning either the form or contents of the letter itself”. The applicant submitted that the language and tone of the letter, specifically “its terms of easy familiarity” as a communication between siblings on a problem which needed to be addressed by them, supported the genuineness of the document. She submitted that the authenticity of the document as a facsimile transmission should not be judged by the absence of “tracer” information, given that there was no evidence before me “as to whether facsimile machines in Canada and Australia in 1996 were more likely than not to generate tracer messages”. The applicant submitted that the terms of the letter are consistent with the case she propounds, and no other.

(c)    Ms Ossolinski’s evidence. The applicant submitted that Ms Ossolinski’s evidence of her conversations with the bankrupt should be accepted as truthful and accurate. She submitted that these conversations were consistent with the case she propounds. The applicant submitted that any case theory by the respondent to the effect that the applicant’s claims to ownership of the Kent Street property were made to defeat the consequence of the bankrupt’s bankruptcy, is countered by the fact that the first conversation between Ms Ossolinksi and the bankrupt was in April 2004, well before the bankrupt came into conflict with the University, which initiated a chain of events culminating in her bankruptcy.

100    Thus the applicant submitted that these three matters corroborated her claims.

101    In submissions the applicant also placed reliance on her statements to the Bank in January 2009 that she was “the stakeholder” of the Kent Street property, and her open-ended commitment to the Bank to make the mortgage payments on that property directly from her bank account in Canada. The applicant submitted that this last-mentioned matter stood as a powerful reason for accepting her as a credible witness.

102    The applicant also pointed to the fact that her oral evidence revealed that she had an “understanding” with her deceased mother about her mother’s residence in Canada, “which did not reflect what the title showed”. The applicant submitted in this regard that, in assessing the background circumstances, I should take this evidence into account in finding that the arrangement which existed with respect to the Kent Street property “was not a one-off transaction”. I should say at once that this aspect of the applicant’s oral evidence was not developed or explained in any meaningful way and was not, in any event, advanced as part of her case in chief. Consequently I place very little weight on it.

The respondent’s submissions

103    The respondent’s principal case was that the bankrupt purchased the Kent Street property as its legal and beneficial owner. Whilst conceding the possibility that the applicant and the bankrupt may have had discussions in 1996 about how the purchase of a home unit in Sydney for the bankrupt may have involved the possibility of the applicant contributing to the purchase price, the bankrupt’s subsequent discussions with the Bank in early 1997 made it apparent to her that she could purchase a unit herself, albeit with a “sizeable mortgage advance”. Thereafter, the bankrupt purchased the Kent Street property in her own name and the applicant and the bankrupt conducted themselves in their dealings with others on the basis that the bankrupt was the owner of the property both legally and beneficially. The respondent says that the bankrupt made the required mortgage payments and, following salary increases, contributed additional funds to pay off the mortgage more quickly. It was only when a sequestration order was made against the bankrupt that she began to maintain that the property did not belong, beneficially, to her.

104    The respondent emphasised, quite properly, that it was not necessary for him to prove a positive case and that it was the applicant who bore the onus of proving the facts relied on to support her claim. He submitted that the case was based on almost entirely on the affidavit and oral evidence of the applicant and the bankrupt about the events said to have occurred in 1996 and 1997 concerning the purchase of the Kent Street property. Thus, the respondent submitted, the account of that evidence was of critical importance.

105    The respondent accepted that the assessment of that evidence was “by no means, a simple undertaking, given the passage of time during which even the best of memories can dim and contemporaneous documents can be misplaced or, innocently, discarded”.

106    Nevertheless he submitted that the applicant and the bankrupt were “extremely poor historians”, not only in respect of minor aspects of the history but also of events that were critical to the applicant’s case.

107    He submitted that the evidence of the applicant and the bankrupt should not be accepted on critical issues in the case, except where that evidence “is corroborated by, or at least is unequivocally consistent with, unimpeachable documentary evidence or objectively established facts”.

108    The respondent emphasised the importance of the timing of the conversations described in the applicant’s and respondent’s affidavits with respect to the events in 1996 and 1997. He submitted that the conversations relating to the bankrupt’s concerns about the high level of rents in Sydney, and the applicant’s interest in purchasing property in Sydney, could only be reasonably understood as occurring in December 1996 (at the time of the applicant’s second visit to Sydney in that year) and not during her first visit. If so, this squarely called into question the authenticity of the document dated 5 November 1996.

109    The respondent submitted that the fact that neither the applicant nor the bankrupt accurately recorded that they had arrived in Sydney together in June 1996 (when this was an event of some significance) rendered their recollection of events in 1996 and 1997 “highly suspect”.

110    He submitted that the additions and corrections made by the applicant and the bankrupt to their affidavits (particularly relating to the fact that the applicant had visited Sydney on a second occasion in 1996 and, on that occasion, gave authorisation to the bankrupt to consider property in North Sydney as suitable for purchase) was another reason “to treat the evidence of both witnesses with a degree of care” and that their oral evidence in relation to these particular matters should be rejected.

111    The significance of this last-mentioned submission is that, if accepted, it leaves the bankrupt’s first loan application, and subsequent loan application made in respect of the Kent Street property, as ones made for her own purposes and not part of an arrangement with the applicant under which the applicant would be the owner of the Kent Street property.

112    I should add that acceptance of that submission is not dependent on rejecting the authenticity of the 5 November 1996 letter. This is because, in the respondent’s submission, whatever arrangements might have been discussed by the applicant and the bankrupt in 1996, by early 1997 the bankrupt was proceeding on her own and ultimately came to purchase the Kent Street property for herself.

113    In addition to the matters to which I have referred, the respondent submitted that the applicant’s evidence on critical issues should not be accepted unless corroborated by documents or objectively proven facts, for the following reasons:

(a)    There were particular aspects of that evidence which cast doubt on the veracity of the applicant’s explanation for giving certain denials in cross-examination (a subject to which I will return).

(b)    It was curious that the affidavit evidence contained no reference to any conversation at all about the bankrupt finding the Kent Street property or the applicant authorising its purchase (given that, on the applicant’s case, it was a purchase to be made for her benefit).

(c)    The applicant’s oral evidence “suffered from a complete inability to recall many of the events and circumstances” in the period 1996 to 1997 relevant to discussions the applicant said she had with the bankrupt.

(d)    There was an unexplained failure by the applicant to produce documents pursuant to a notice to produce calling for the production of bank records from the period January to February 1997 relating to the withdrawal of funds said to have been sent to the bankrupt at that time from the applicant’s own account(s).

114    The respondent submitted that I should be reluctant to accept, as credible, evidence from the bankrupt as to important conversations or events that are said to have taken place in 1996 and 1997 (once again, except where such evidence is corroborated by or consistent with the documentary evidence or objective proven facts) because:

(a)    The bankrupt’s affidavit evidence “demonstrated either a careless attitude to detail or a complete inability to recall anything at all about important conversations and events in 1996 and 1997”. In particular, the bankrupt’s affidavit evidence jumps from events in November 1996 to settlement of the purchase of the Kent Street property in June 1997, omitting reference to the applicant’s second visit to Sydney in December 1996 in which the bankrupt was authorised to search for property outside the Sydney CBD area; any conversation with the applicant in January 1997 concerning the making of an offer to purchase a home unit in North Sydney; any conversation in January or February 1997 concerning the transfer of funds from Canada to Australia; and any discussions with the applicant seeking her approval to make an offer for the purchase of the Kent Street property.

(b)    The bankrupt’s oral evidence “was punctuated by a serial inability to recall major, and minor events and circumstances” which, as detailed by the respondent, “must have taken place” if the applicant’s claim is to be accepted.

(c)    One such matter was the completion of the loan application form in January 1997, in respect of which the bankrupt could not recall whether, at the time the application was being completed, she was asked any information about the applicant’s financial position. Another matter was that the bankrupt had no recollection of the circumstances in which the second tranche of money was allegedly sent from Canada to Australia, or even the amount of the transfer.

115    The respondent submitted that the Court should not be satisfied that the 5 November 1996 letter is authentic. He submitted that:

(a)    Its provenance was inexplicable when considered in light of the chronology provided by the applicant’s and bankrupt’s affidavit evidence.

(b)    It was not a document sent or received as a facsimile transmission because of the absence of tracer information.

116    He submitted that, in any event, the 5 November 1996 letter does not evidence the making of an agreement or an intention to create a trust; properly understood the letter was equivocal (consistent with the applicant merely providing financial assistance to the bankrupt) or represented no more than discussions about a possible arrangement, which other evidence suggested had never been put into effect.

117    The respondent also pointed to the following matters which he submitted told against the applicant’s and bankrupt’s account of events and supported the respondent’s case that the bankrupt purchased the Kent Street property as beneficial owner:

(a)    The apparent disconformity between the applicant’s and respondent’s accounts in their affidavits of their respective arrivals in Australia in 1996, compared with the disclosures in the documentary passenger records.

(b)    The absence of evidence linking the outgoing payment/transfer document with the actual receipt by the bankrupt of funds which were applied towards purchase of the Kent Street property (although the respondent did not submit that the outgoing payment/transfer document was not authentic).

(c)    The outgoing payment/transfer document does not disclose the origin of the money that was transferred.

(d)    The home loan application made by the bankrupt in January 1997 required (after the provision of mortgage funds) a contribution of $200,000 towards the then intended purchase of the unit in North Sydney. This was well above the $130,000 down payment the applicant allegedly told the bankrupt she was able to contribute to the purchase of a unit by her (the applicant). The respondent submitted that this showed that, by January 1997, the bankrupt was satisfied that she would be able to obtain finance enabling her to purchase the North Sydney home unit as beneficial owner and that any prior arrangement between the applicant and the bankrupt in respect of purchasing a home unit “had been well and truly abandoned”.

(e)    The loan application made by the bankrupt in January 1997 contained reference to assets and income which contradicted the bankrupt’s position that she was without personal means to purchase a suitable home unit in Sydney.

(f)    The absence of evidence about the facts and circumstances leading to the intended purchase of the Kent Street property, as background to the making of the further bank loan application in April 1997 in respect of that purchase.

(g)    The fact that, after the purchase of the Kent Street property, the monthly mortgage commitment (as a component of the rent the applicant says the bankrupt agreed to pay) was greater than the bankrupt’s existing rental commitment in respect of the Milsons Point unit, thereby undermining the rationale for the arrangement for which the applicant contends (namely, that the bankrupt’s existing rental commitment took a disproportionately large part of her monthly salary, leaving little money for other expenses).

(h)    The fact that the applicant did not disclose any beneficial interest in the Kent Street property, or her income from that property by way of rent from the bankrupt, in her Canadian income tax returns (supporting the fact that she was not the beneficial owner of that property).

(i)    The fact that when making credit card applications with the ANZ Bank in 2002 and 2005, the bankrupt represented that the Kent Street property was owned by her, without reference to any interest or claim therein by the applicant (thereby indicating the bankrupt’s beneficial ownership of the property).

(j)    The fact that in the course of her bankruptcy proceedings, the bankrupt pledged the Kent Street property as security for costs (again indicating her beneficial ownership of the property).

(k)    The fact that, after mid-1997 when the bankrupt left the Kent Street property and took up employment overseas, the rent from the Kent Street property (over and above the amount required for mortgage repayments) was banked in the bankrupt’s personal bank account and used by her (once again indicating her beneficial ownership of the property).

(l)    The fact that, when first asserting a claim in respect of the Kent Street property in November 2008, the applicant did so as mortgagee and not as beneficial owner.

(m)    Ms Ossolinski’s evidence did not provide “a sound basis for disregarding the mountain of unimpeachable evidence that tends the other way”. The respondent pointed to the fact that this evidence formed part of a much larger conversation which occurred over six and a half years ago, the detail of which Ms Ossolinski could not recall. The respondent also pointed to the fact that part of Ms Ossolinski’s evidence supported the fact that the applicant initially sought to protect her claimed interest in the Kent Street property as a mortgagee, and not as beneficial owner.

findings of fact

Preliminary observations

118    The evidence in support of the applicant’s case, when tested in cross-examination of both the applicant and the bankrupt, presents a confused and, in some respects, perplexing account of events and circumstances.

119    The evidence of the applicant and the bankrupt also displayed a number of other unsatisfactory features.

120    The applicant’s evidence underwent a process of correction from her affidavit evidence through to her cross-examination. These corrections included the sequence and timing of events from June 1996 to May 1997 in which she and the bankrupt discussed the bankrupt’s accommodation concerns and the prospect of a home unit being purchased in which the bankrupt would live. While these corrections throw into question the reliability of that evidence, I make allowance for possible lapses of memory given that, at the time the applicant made her affidavit in mid-2009, a period of approximately 13 years had passed since these events had taken place.

121    I also accept that, in the case of relationships built principally on genuine trust between siblings (as I believe the case to be here), the need for full or proper record-keeping, as well as the need to recall precise events or details of events, relating to transactions entered into in the course of those relationships, may not have, at the time of those events, the importance they might otherwise have in transactions entered into with others. I also accept that, with the passage of time, such documents as may have thrown light on events particularly in the period 1996 to 1997, may not have been kept or have been lost. I take these matters into account when assessing not only the applicant’s, but also the bankrupt’s, evidence.

122    I would add, in that connection, that the overall form of the applicant’s and bankrupt’s affidavits is poor in a number of respects. One reason for this would seem to be a lack of attention, on the part of those who had been initially entrusted with the task of obtaining instructions from the applicant and the bankrupt for the preparation of those affidavits, to the need for appropriate detail and precision. Any such lack of attention may have been affected by difficulties in communication given that the applicant and the bankrupt both reside overseas. If so, that is not a matter of excuse. It may, however, be a possible (and likely) explanation for a number of the criticisms made of that evidence and its coherency.

123    Of more concern is the fact that, at least in one respect, the applicant admitted to giving untruthful evidence. This concerned her denial, in cross-examination, about seeing, relatively shortly before the hearing, the passenger records to which I have referred. Through her counsel the applicant sought leave to correct that evidence. She explained that, although these documents had been shown to her by her counsel shortly before the hearing, in cross-examination she denied having seen them because she thought that evidence of that fact was protected by privilege. Even if that belief was soundly based (a matter on which I express no view given that no objection was made to the questions eliciting that evidence), in this particular respect the applicant was prepared to give knowingly untruthful evidence.

124    In the same way, she also corrected another denial she had given about seeing the initial loan application made by the bankrupt with the Bank in January 1997. She corrected her evidence by saying that these documents had also been shown to her by her counsel shortly before the hearing. Her explanation for giving the evidence in cross-examination was that she had “misunderstood the question completely”, although a review of the transcript leaves me in no doubt that the questions eliciting the applicant’s denials in this regard were clear and direct. Having said this, at the beginning of her oral evidence the applicant did disclose that she wore hearing aids and was taking medication for certain illnesses. How this might have affected her at the time, I do not know. I would add, however, that the applicant was obviously nervous when giving her evidence. Not without some hesitation, I am prepared to accept the applicant’s explanation for giving this denial.

125    These various features of the applicant’s evidence give me reason to treat her evidence, generally, with some real caution.

126    In cross-examination, the bankrupt was excitable and gave her evidence in an animated way. Sometimes she appeared to be quite disengaged from the seriousness of the occasion of giving evidence. On occasion her answers were unstructured and difficult to understand. On occasion her demeanour was inappropriate, her responses accompanied by laughter when no humour was apparent in either the content of the question or the way in which the question was asked. This was most notable in relation to the bankrupt’s cross-examination on her various loan applications and what she had represented to be her assets. Her inability to explain how those representations came to be made was unconvincing, particularly when some of them were admitted to be in her own handwriting and others could only reasonably have come from her during the course of her interview with the Bank’s loans officer. I do not accept that a person of the obvious intelligence of the bankrupt would not know how those representations came to be made or the basis on which they were made at the time, even though the evidence was dealing with events approximately 13 years ago. This leads me to treat her evidence, generally, with some real caution as well.

127    Notwithstanding these unsatisfactory features and the caution with which I treat both the applicant’s and the bankrupt’s evidence, one can discern within that evidence, and against the background of the informality of a trusting relationship between siblings, the existence of circumstances and events that reveal the real possibility of an objective truth, namely that, between themselves, the applicant and the respondent did enter into the arrangement they described, with (a) the bankrupt purchasing the Kent Street property in name only, and with (b) each of them intending at all times that the applicant would be the true owner of that property, not the bankrupt.

128    This core of the applicant’s case is supported by the following matters.

129    First, as I have already noted, I accept Ms Ossolinski’s evidence about the conversations she had with the bankrupt. I refer in particular to the first conversation, in which, in an apparently innocent and unguarded moment, the bankrupt revealed that the applicant, and not she, was the owner of the Kent Street property. There was no reason, at that time, for the bankrupt to say what she did if it did not represent, in simple terms, the effect of her arrangement with the applicant. This assists in giving meaning to the second conversation, in which the bankrupt referred, in general terms, to the existence of an arrangement between herself and the applicant in relation to the purchase of the Kent Street property based on the fact that “Gita is not a resident or employed in Australia”.

130    Secondly, on balance, I accept that the 5 November 1996 letter in evidence is a copy of a document sent by the bankrupt to the applicant by facsimile transmission on or about the date it bears. Although the absence of “tracer” information calls into question the authenticity of that copy document as a facsimile transmission, I am not persuaded on the evidence that “tracer” information must inevitably or necessarily appear on a message sent or received by that form of transmission, regardless of the make or model of the facsimile machine employed, or the way in which that facsimile machine may have been set up for operation. Moreover, the text of the 5 November 1996 letter is consistent with the content of the second conversation between Ms Ossolinski and the bankrupt, given independently by Ms Ossolinski. Furthermore, the reasons expressed in the letter for the Kent Street property being acquired in the bankrupt’s name with finance provided to her as an employee of the University by the Bank’s University branch, are plausible. I do not accept, therefore, that the 5 November 1996 letter was fabricated by the applicant to assist her case.

131    Thirdly, my acceptance of the authenticity of this document has significance for other aspects of the applicant’s and bankrupt’s evidence. As I have already noted, if that document is authentic, its subject matter only makes sense if a conversation about the applicant buying a home unit and renting it to the bankrupt had taken place in about June 1996, before the applicant’s arrival in Sydney on 14 December 1996 for her second visit. It is perfectly plausible that such a conversation took place at that time, in the context of the bankrupt seeking to satisfy her immediate accommodation needs as a new arrival in Australia.

132    Fourthly, I am satisfied that the applicant sent funds to the bankrupt’s personal bank account with the Bank that were to be applied, and were applied, in relation to the purchase of the Kent Street property. I am satisfied, on the balance of probabilities, that these funds were the applicant’s funds, sourced from an account or accounts maintained by her in Canada.

133    Fifthly, and consistently with her asserted beneficial ownership, the applicant took immediate steps to protect her interest by assuming direct responsibility to make the repayments on the home loan for the Kent Street property when it came to her attention that rent was no longer being deposited in the bankrupt’s personal account with the Bank from which those repayments were conventionally sourced.

Findings

134    My review and consideration of all the evidence, assisted by the detailed submissions of the parties, therefore leads me to make the following findings of fact, on the balance of probabilities.

135    The applicant and the bankrupt travelled to Sydney in June 1996. The reason for travelling was, in the bankrupt’s case, her relocation from Canada to Australia to take up employment as a lecturer at the University and to engage in research activities, and, in the applicant’s case, in part to accompany and assist the applicant in her relocation.

136    Shortly after her arrival, in June 1996, the bankrupt rented a home unit in Milsons Point. At that time she was unprepared for the fact that rental accommodation of the standard she expected was relatively expensive compared to the salary she was to be paid by the University and that the rent she would be required to pay for such accommodation would use up a disproportionately large part of that salary, relative to her other living expenses.

137    I accept that it was in these circumstances and at that time that the applicant raised the prospect that she could purchase a home unit, with financial assistance from an Australian bank, and rent it to the bankrupt, whose regular rental payments would at least cover the mortgage loan repayments. I accept that, at that time, the applicant and the bankrupt proceeded on the basis that, in her current financial circumstances, the bankrupt could not herself make such a purchase by either providing any down payment or obtaining financial assistance from a bank relying on her own means and resources.

138    Thereafter, the applicant and the bankrupt looked at some home units for sale without, at that time, finding a suitable property to purchase.

139    After the applicant returned to Canada from this visit, the bankrupt proceeded to put this plan into action by looking for what she regarded to be a suitable property for her accommodation that would also be acceptable to the applicant for purchase. She also put the plan into action by making a general enquiry at the University branch of the Bank as to the availability of funds to be borrowed by the applicant for the purpose of making such a purchase.

140    I accept that, either on or shortly before 5 November 1996, and as a result of her enquiries, the bankrupt was made aware, in a general sense, that, because of local requirements relating to the foreign ownership of real property, there was an impediment to the applicant purchasing and holding a home unit in her name, and that, in any event, the Bank would not entertain a home loan application by the applicant as a foreign resident. I accept that, in those circumstances, the Bank expressed a willingness to entertain a home loan application by the bankrupt for the purpose of purchasing a home unit in her name, against the background knowledge that, by making arrangements with her family (and, in particular, with the applicant), the bankrupt would be able to provide an amount towards the purchase of a suitable property and show the availability of other assets that the Bank, on that basis, would be prepared to accept as satisfying its lending criteria.

141    As I have noted, I accept that the 5 November 1996 letter is a copy of a document sent by the bankrupt to the applicant as a facsimile transmission on or about the date it bears, and that the applicant and the bankrupt discussed a modification to their plan in light of the information contained in that letter. That modification was that the bankrupt would, with the applicant’s consent, purchase a suitable home unit and obtain a bank loan for that purpose, but that the bankrupt would do so in name only, first to avoid any difficulties presented by the applicant being a foreign owner of Australian real property and, secondly, to facilitate the obtaining of loan finance from the University branch of the Bank.

142    In this way the essential elements of the original plan would remain in place: the applicant would provide the funds to be applied towards the purchase of the property and, after the purchase, the bankrupt would rent the property from the applicant by paying at least an amount of rent sufficient to cover the fortnightly mortgage repayments due to the bank. The details of this were left up to the bankrupt, it being accepted by the applicant and the bankrupt that rental payments sufficient to cover the fortnightly mortgage payments were to be made by automatic deduction from the bankrupt’s personal account with the Bank which was linked to the home loan account. The management of the bankrupt’s personal bank account to provide funds for these deductions was left entirely to the bankrupt. It was intended by the applicant and the bankrupt that the bankrupt would pay the balance of the rent, but only at a time and in such amounts as the bankrupt’s financial circumstances would allow. This was left to the bankrupt’s discretion. The core of the plan was an agreement between the applicant and the bankrupt that, as between themselves, the applicant, and not the bankrupt, would be the owner of the Kent Street property.

143    I am satisfied that it was in these circumstances, and pursuant to this plan, that the bankrupt made the loan application in January 1997, and the subsequent application in May 1997 with respect to the purchase of the Kent Street property. As I have noted, I am also satisfied that it was in these circumstances, and pursuant to this plan, that the applicant sent funds to the bankrupt’s personal bank account with the Bank and that these funds were applied to the purchase of the Kent Street property. I am satisfied that these funds were the applicant’s funds, sourced from an account or accounts maintained by her in Canada.

144    Proceeding with this plan, the bankrupt obtained loan finance from the Bank and purchased the Kent Street property, which was then registered in her name as proprietor. It was, however, the mutual intention of the applicant and the bankrupt that the applicant would be the true owner of the property.

145    To the extent that it is necessary for me to decide, I am satisfied that payments automatically deducted from the bankrupt’s personal account with the Bank and deposited in the home loan account were payments made pursuant to this arrangement and were regarded by the applicant and the bankrupt as payments made by the bankrupt to the applicant by way of rent. I am also satisfied that, as between the applicant and the bankrupt, the home loan account was treated as the applicant’s home loan account, and that the applicant permitted the bankrupt to draw on funds from that account when, because of her financial circumstances, the bankrupt found it necessary to do so, with the intention that, ultimately, the bankrupt would, somehow, repay those borrowings to the applicant.

146    I am also satisfied that, after the bankrupt left the Kent Street property, the funds paid into the bankrupt’s bank account by way of rent were regarded by the applicant and the bankrupt as rent due to the applicant as the owner of the Kent Street property, notwithstanding that those funds were deposited in the bankrupt’s personal bank account, it being understood that there were would continue to be automatic deductions from that account by the Bank to make the fortnightly mortgage repayments on the loan account.

147    I am also satisfied that the bankrupt made the applicant aware, in a general way, of her employment dispute with the University and of the existence of the proceeding she had brought against the University. I am satisfied that the applicant was consulted on whether the Kent Street property could be used as security for costs in that proceeding, and that she permitted the property to be so used.

148    These findings do not answer every challenge by the respondent to the applicant’s evidentiary case. There are some questions raised by the respondent that the evidence does not answer, and, in the circumstances, that cannot be answered, save by a measure of speculation on my part. I do not propose to engage in that speculation.

149    Such questions include whether the financial objectives of the bankrupt in seeking to rent a home unit purchased by the applicant, and thus whether the original rationale for the plan, were, or more importantly, could be, met by the purchase of the Kent Street property. That question is not answered by merely comparing “before and after” financial details. It involves a consideration of the attributes of the Kent Street property compared with other properties, as part of a value for money analysis, as well as a lifestyle issue, that the evidence simply does not deal with. In short, the bankrupt, with her relatively limited resources, may have been prepared to spend more on rent than she was paying in respect of the Milson Point home unit, if it provided her with better accommodation, according to her own tastes and likes.

150    In the end result, however, these unanswered questions do not persuade me to depart from the view I have taken of what is shown, on the balance of probabilities, by the evidence, or cause me to qualify the findings of fact I have made.

relevant legal principles: EXPRESS TRUSTS

151    The parties were in agreement as to the relevant legal principles that would apply in the present case, certainly as to what is necessary to be shown in order to establish the existence of an express trust.

152    The foundational principle is that, before an express trust can arise, there must an intention to create a trust: The Commissioner of Stamp Duties v Jolliffe (1920) 28 CLR 178 at 181.

153    The relevant test for recognising an express trust was stated by Mason CJ and Wilson J in Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1988) 165 CLR 107 at 121 thus:

… the courts will recognize the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention: see Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 189.

154    The learned authors of Jacobs’ Law of Trusts in Australia (7th ed, LexisNexis Butterworths, 2006) at [501] describe the required certainty of intention to create a trust, in the following terms:

A court cannot hold that an express trust exists unless it is satisfied that there was the intention to create such a trust. The question will be whether there is language or conduct which shows a sufficiently clear intention to create such a trust. No formal or technical words are required; any apt expression of intention will do. The conclusion that the intention existed may be drawn as an inference from the available evidence. In order to infer intention, the court may look to the nature of the transaction and the whole of the circumstances attending the relationship between the parties, including commercial necessity. If the inference to be drawn is that the parties intended to create or protect an interest in a third party, and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then an intention to create a trust may be inferred. Such a trust is an express, not a constructive, trust and the earlier reluctance to infer such a trust no longer obtains, at least in Australia.

[Citations omitted]

155    In The Registrar of the Accident Compensation Tribunal v Commissioner of Taxation of the Commonwealth of Australia (1993) 178 CLR 145 Mason CJ, Deane Toohey and Gaudron JJ said (at 165-166):

… (U)nless there is something in the circumstances of the case to indicate otherwise, a person who has “the custody and administration of property on behalf of others” or who “has received, as and for the beneficial property of another, something which he is to hold, apply or account for specifically for his benefit” is a trustee in the ordinary sense.

[Citations omitted]

156    In Walker v Corboy (1990) 19 NSWLR 382 Meagher JA, when considering the imputation of intention to create a trust, referred (at 397) to the necessity “to look at the nature of the transaction, the particular provisions of the agreement of the parties, and the whole of the circumstances attending the relationships between the parties”. In that case, his Honour identified a “general reluctance of the courts to extend the law of trusts into ordinary commercial transactions”: see at 398. However, the present case is plainly not of that character. It is a case where the alleged trust is an emanation of “private family dealings where some imprecision of thought and expression might perhaps be expected”: Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 277.

conclusions on findings

157    My findings of fact, considered in light of the principles to which I have briefly referred, lead me to conclude that, upon the purchase of the Kent Street property by the bankrupt, and at the time of her registration as proprietor of that property, the bankrupt and the applicant intended that the bankrupt would hold the property for the benefit of the applicant, pursuant to the arrangement I have found existed between them. These findings plainly support the existence of an express trust in respect of the Kent Street property. Accordingly, I find that, prior to the commencement of her bankruptcy, the bankrupt held the Kent Street property on trust for the applicant as beneficial owner.

158    This finding makes it unnecessary for me to consider the alternative cases advanced by the applicant.

159    It becomes necessary, however, for me to consider the defence of unclean hands that has been advanced by the respondent.

the DEFENCE of unclean hands

160    The applicant claims declaratory relief (with respect to her beneficial ownership of the Kent Street property), a mandatory injunction that the respondent transfer the Kent Street property to her, and an order that accounts be taken of the amounts due to her for moneys paid as rent in respect of the property.

161     The respondent submitted that the applicant should be denied all relief because, in seeking to establish her beneficial entitlement to the Kent Street property, the applicant is forced to prove a mutual intention between herself and the bankrupt:

(a)    to avoid or circumvent the statutory regime which governs the regulation of foreign ownership of land in Australia (being in particular s 26A of the FATA); and

(b)    to mislead the Bank with a view to inducing it to make a loan to the bankrupt so as to facilitate the purchase of the Kent Street property when, had the true position been made known to the Bank, it is unlikely that any such loan would have been provided.

162    I am able to deal with the second of those matters in short measure. In my view a defence of unclean hands, on that basis, cannot be sustained in light of the findings of fact I have made: see [140]. The evidence does not show that the applicant and the bankrupt had a mutual intention to mislead the Bank as the respondent has argued, or that the Bank was misled in any material way in relation to its consideration of whether finance should be granted to the bankrupt for the purchase of the Kent Street property. Moreover, there is no evidence about what the Bank would or might have done with respect to advancing loan funds had it regarded itself as having been misled in some material particular.

163    It is necessary to say something more about the first matter.

164    Section 26A(2)(a) of the FATA provides that, where a natural person not ordinarily resident in Australia (such as the applicant) enters into an agreement by which he or she acquires a legal or equitable interest in Australian urban land (such as the Kent Street property) and does not, before entering into the agreement, furnish to the Treasurer a notice stating his or her intention to enter into that agreement, then that person is guilty of an offence, punishable on conviction by fine or imprisonment.

165    However, s 38 of the FATA provides that an “act” is not invalidated by the fact that it constitutes an offence against the FATA. The “act” referred to is the act of entering into the agreement, not the failure to give the required notice: Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18 at 20 and 30-31.

166    In Ikeuchi v Liu (2001) 160 FLR 94, Muir J (at [103]) said:

… s 26A is not directed to prohibiting agreements by non-residents to acquire Australian urban land or even the acquisition of such land. The section seeks to ensure the giving of notification to the Treasurer prior to the entering into of any such agreement to acquire so that the Treasurer may make a determination under s 21A. If the Act is to be construed as prohibiting the acquisition of land, the prohibition must thus be one which arises by implication. But, in my view, no such implication is possible in the light of s 38.

167    In the present case, the applicant did not give notice under s 26A(2)(a) of the FATA of her intention to acquire her beneficial interest in the Kent Street property. But the respondent’s submissions were not directed to arguing that the applicant’s failure to give such notice in respect of her intended acquisition resulted in a contravention of the Act, for which the applicant should thereby be denied the relief she claims. In short, the respondent did not rely upon a defence of illegality, as such.

168    Rather, the respondent’s submissions had a different focus. He distinguished the defence of unclean hands from the defence of illegality. He contended that an applicant for equitable relief in respect of rights arising under or by virtue of a transaction, will be denied that relief if that person has engaged in conduct which has been, in a relevant respect, “improper in respect of [that] transaction”. He submitted that where an applicant needs to prove his or her own “bad conduct”, in order to prove the circumstances which he or she says entitles him or her to an equitable remedy, that bad conduct has an immediate and necessary relation to the equity sued for, and thus engages the doctrine of unclean hands.

169    In making these submissions, the respondent did not identify what constituted the applicant’s “bad” or “improper” conduct, beyond the generalised contention that the applicant and the bankrupt had a mutual intention to avoid, specifically, s 26A of the FATA. In the context of that contention it is, of course, the applicant’s state of mind that is of primary relevance, because the defence of unclean hands fixes on the requirement of good conscience as it affects the applicant for the claimed relief. It is thus necessary to consider what the evidence reveals in that regard.

170    I have already set out the terms of the 5 November 1996 letter and the subsequent conversation between the applicant and the bankrupt in relation to that letter. The letter informed the applicant that she could not be “the owner of a property here” and, on the applicant’s version of the conversation, that “since you are not an Australian resident you cannot own a unit”. According to the bankrupt’s version of the conversation, she told the applicant that “you cannot register a unit in your name since you are not an Australian resident”. None of these statements is correct: there is nothing in the FATA that imposes a blanket prohibition on a non-resident owning Australian urban land, such as the Kent Street property. There is, of course, the requirement of s 26A providing for the compulsory notification of an intention to acquire an interest in Australian urban land which, when given, might result in the Treasurer making an order prohibiting the proposed acquisition: see s 21A. But that is quite different to the information on which the applicant and the bankrupt were proceeding.

171    There is nothing in the letter or in either version of the conversation that speaks of the FATA or its actual requirements. This is not surprising. The evidence does not show that either the applicant or the respondent had any real understanding of the requirements of Australian law, beyond the rather vague anecdotal information that the bankrupt had received, which she, with her own imperfect understanding, then conveyed to the applicant. This evidence does not reveal that the applicant or the bankrupt had any notion of the machinery provisions of the FATA or, specifically, the requirements of s 26A, as those requirements might affect the acquisition of the Kent Street property, or apply more generally.

172    The applicant was tested on her state of mind on these matters in the course of her cross-examination. The effect of her evidence was that she “came to appreciate”, some time before May 1997, that, as a non-resident, she could not lawfully own property in Australia in her own name. After her discussion with the bankrupt, she decided that, if a home unit property was purchased in the bankrupt’s name, she could thereby avoid the restriction she understood to have been imposed by Australian law respecting the ownership of property by non-residents.

173    This evidence does not advance matters beyond what is apparent from the applicant’s own evidence in chief. It proceeds on the same misunderstanding of Australian law, and in ignorance of the provisions of s 26A of the FATA.

174    The most that can be said of the evidence on these matters is that the applicant had a desire to avoid what she understood to be a restriction imposed by Australian law on the ownership of real property by non-residents. However, the evidence does not show that her desire was to do so by illegal or otherwise improper means. Her understanding was that a non-resident could not hold Australian real property in his or her own name. She believed that this restriction could be overcome by the bankrupt purchasing, and later registering, the Kent Street property in her (the bankrupt’s) name. In that way the Kent Street property would be registered in the name of an Australian resident. There is no evidence that the applicant thought that, in those circumstances, her acquisition or retention of the beneficial ownership of the property would be illegal or otherwise improper.

175    As events turned out, the applicant’s arrangement with the bankrupt could not, and did not, avoid the requirements of s 26A. But, more importantly for present purposes, the applicant and the bankrupt acted in complete ignorance of those requirements.

176    For these reasons, I am unable to see how it can be said that the applicant and the bankrupt had a mutual intention to avoid, specifically, s 26A of the FATA. Therefore I am not satisfied that the respondent has established the factual basis for the defence on which he relies.

177    I should add that, in any event, I am not persuaded that the defence would apply to deprive the applicant, unconditionally, of the relief she seeks.

178    In Ikeuchi Muir J dealt with a submission that equitable relief should be refused (in circumstances where notice under s 26A of the FATA should have been given) because it would undermine the policy of the FATA by making it advantageous for non-residents to conceal their acquisitions from the Treasurer.

179    Although it was not necessary for his Honour to decide that question, he made the following observations (at [106]):

Although there is some force in the submission that the efficacy of the Act is capable of being subverted by conduct such as that engaged in by the plaintiff, the Act, by the anti-avoidance provisions of s 38A, expressly acknowledges and addresses that matter. It is apparent that this section and the penalties provided for in s 26A, were thought by the legislature to constitute sufficient deterrence against avoidance of the Act’s provisions. Section 38, which expressly excludes invalidity as a consequence of breach, exists notwithstanding the acknowledgement of the prospect of avoidance implicit in s 38A. Consequently, I do not accept the submission that public policy requires the denial of equitable assistance to the plaintiff. …

180    In Menezes v Salmon [2009] NSWSC 2 Macready AsJ dealt with the question of whether enforcement of a trust might further an illegal purpose in breach of the FATA. This was another case dealing with the failure to give notice under s 26A. Although no illegality or unclean hands had been pleaded, his Honour gave consideration to that question on the basis that it was relevant, generally, to the exercise of discretion to grant relief. In giving consideration to that question, his Honour rejected a submission that the imposition of a trust in favour of the plaintiff in respect of certain real property would be inconsistent with the policy of the FATA. His Honour noted that the provisions of the FATA did not make it illegal for a natural person not ordinarily resident in Australia to enter into a contract to acquire an interest in urban residential land when notice under s 26A had not been given, even though penalties were provided for the breach of the notice provision. His Honour reached the following conclusion (at [118]):

I would agree with plaintiff’s submissions that by refusing the plaintiff his beneficial interest the Court would be imposing a further sanction where the parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute and its policies.

181    This conclusion followed upon his Honour noting that the plaintiff had accepted that, if successful, he must notify the Treasurer of his acquisition of an interest in the subject property: see at [116].

182    In Nelson v Nelson (1995) 184 CLR 538 a question arose, in a different context, as to the possible refusal of equitable relief in circumstances where a trust was asserted in respect of the proceeds of sale of a property tainted by illegality because of its association with, or furtherance of, a purpose contrary to the policy of the law.

183    In that case a mother paid the purchase price for a property that was transferred into the names of her two adult children. The purpose of the arrangement was to permit the mother to purchase another house with the benefit of a subsidy provided under the Defence Services Homes Act 1988 (Cth). She could not obtain that benefit if she already owned a house. The mother thereafter purchased a house with the benefit of the subsidy. The first house was subsequently sold and the mother asserted the existence of a resulting trust in respect of the sale proceeds.

184    The High Court did not decline to grant relief in the circumstances of that case. The majority (Deane, McHugh and Gummow JJ) were of the view, however, that the relief to be granted should be moulded “to do equity according to the requirements of good conscience”: Deane and Gummow JJ at 571; see McHugh J at 617-618. A declaration was made that the sale proceeds were held on trust for the mother, conditioned on her prior payment to the Commonwealth of a sum calculated by reference to the difference between the subsidised rate of interest (which she had paid) and the usual rate of interest charged by the lending bank (which she should have paid). The minority (Dawson J at 581; Toohey J at 597-598) would have made an unconditional declaration of the mother’s ownership of the sale proceeds.

185    These cases show that, if established, the defence of unclean hands does not operate inflexibly to deprive an applicant of all relief. Regard must be had to the circumstances of the case and, in particular, whether those circumstances require the applicant “to do equity according to the requirements of good conscience”: Nelson at 571. No doubt the relevant circumstances will vary from cases to case. Where a breach of s 26A of the FATA has been shown, the decisions in Ikeuchi and Menezes indicate, by example, that the occasion to do equity does not necessarily arise, although, in Menezes, it was understood that the plaintiff would, if successful, then give notice of his property interest to the Treasurer.

186    The applicant has not submitted that, in the particular circumstances of this case, she was not under a legal obligation to give such notice prior to the purchase of the Kent Street property. Rather, she has submitted that the failure to give such notice would not automatically result in the withholding of the equitable relief to which she would otherwise be entitled. Had the defence of unclean hands been made out in the present case, I would not have denied the applicant the relief she seeks, but, because of the operation of the defence, I would have required her to give notice of her beneficial ownership of the Kent Street property to the Treasurer, as a condition of granting that relief.

disposition

187    Although the respondent has not demonstrated that the defence of unclean hands applies in the present case, and the applicant has otherwise established a case for the relief she seeks, I do not think that the matter ends there. The fact that the required notice under s 26A of the FATA was not given remains a matter of some concern. I do not think that it should be ignored.

188    Section 23 of the Federal Court of Australia Act 1976 (Cth) provides that the Court has power, in relation to matters in which it has jurisdiction, to make “orders of such kinds … as the Court thinks appropriate”.

189    In my view the appropriate orders for the Court to make in the particular circumstances of this case should provide for the applicant to give notice of her interest in the Kent Street property to the Treasurer as a condition of granting the relief she seeks. My provisional view is that the relief should be conditioned on the giving of prior notice. I am prepared, however, to hear the parties on that particular matter, and on the form of the orders generally, after they have had an opportunity to consider these reasons.

190    I will simply order that the proceeding stand over to a date to be fixed for the hearing of any argument on the form of orders to be made. At that time I will also hear the parties on the question of costs. To facilitate any debate on those matters, I will order that the parties, within 21 days, exchange a draft of the orders each proposes (including as to costs) and, at the same time, provide a copy to my Associate.

Associate:

Dated:    9 September 2011