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Does the house the Husband&Wife purchased from the Grandparents 22 years ago still belong to the Grandparents?

This is a Family Law Property dispute with a twist, the grandparents sell the Marital Couple a house and now 22 years later, it is claimed it was an informal arrangement regarding real property between the Husband, Wife and Maternal Grandparents.  The Wife sought equitable relief for the Maternal Grandparents through a declaration of constructive trust and declaration of interests.  

FACTS: 

  • The husband is 49yrs old, the Wife 48yrs, marriage lasted 22 years.
  • Husband earns $2.2K per week, with $198K Super, Wife earns $850 with $154K Super;
  • The Grandparents ‘the Falsons”;
  • The property was owned by the “Falsons” and sold to the Husband&Wife.
  • The proceeds of that sale was used to payout a debt the Falsons had from a failed business.
  • The agreed value of the property is $720K.

Relevant Orders sought by the Applicant Husband

  1. That within 42 days of the date of these Orders, The Applicant Husband make a payment to the Respondent Wife in the sum of $360,000 by way of property adjustment; Meaning 50/50 share.
  1. That simultaneously with the payment in Order 1 above, the Respondent Wife do all such acts and things and sign all such documents as may be required to Transfer to the Applicant, at the expense of the Applicant, all of her right, title and interest in the real property.

Relevant Orders sought by the Wife

  • A declaration that the property is held in constructive trust for Ms Falzon and Mr Falzon. Alternatively, a declaration that the property is held on resulting trust for Ms Falzon and Mr Falzon.
  • An order directing the applicant husband and respondent wife to sign all such transfers and other instruments that may be necessary to cause the B Street, Town C property to be transferred to Ms Falzon and Mr Falzon within 21 days of the making of the order.

 Oral evidence of the Applicant Husband

  • The Husband confirmed that he was aware that the maternal Grandparents, and until recently the great maternal Grandmother, were residing at the B Street, Town C property. He also confirmed that he knew the maternal Grandfather, and great maternal Grandmother, are both unwell.
  • In his oral evidence, the Husband said that he probably spent another $30,000.00 on “the house” when he was living there for a time.
  • The Husband said that he bought tools that were used to undertake repairs on the house while he was living there. These repairs included some installation of Gyprock.
  • The Husband confirmed that the actual amount paid for the purchase of the property was $180,000, and not the amount of $350,000 recorded in the contract and transfer.
  • He said that the funds raised were used to buy the property (which was originally owned by the maternal Grandparents) and that the maternal Grandparents, in turn, used the proceeds of sale to cover a debt incurred from an earlier failed business venture.
  • The Husband said that he lived at the property for 10 years.
  • He confirmed that he knew that, prior to the registration of the transfer of the property, the maternal Grandparents were in debt to the tune of about $180,000, and that they were unable to work in order to pay out this debt. It was put to him that a scheme was devised whereby he and the Wife would raise the funds that would be used by the Grandparents to pay out their debt, using the B Street, Town C property as collateral.
  • The Husband confirmed that he signed the contract and transfer saying that the purchase price of the property was $350,000, when in fact only $180,000 was paid.

Analysis

  • It seems, on these basic facts, too much of a coincidence that the amount borrowed was (apparently) precisely (or almost so) the amount of the indebtedness of the maternal Grandparents.
  • On any version of events, the Husband and Wife got a significant property at a heavily discounted price.
  • He contended that, quite simply, he and the Wife made an “offer” for the property which the maternal Grandparents accepted.
  • Given their indebtedness, and their inability to earn income, even on the almost disingenuous account of something suggested to be an arms-length transaction – which in my view it plainly was not and could never be so described – the Grandparents were always going to “accept” the terms of the putative purchase price.
  • The Husband contended that the balance between the stated purchase price, of $350,000 and the actual amount paid, of $180,000, was in fact “made up” by a form of “subsidised rent”, which (on his evidence) amounted to more than $200,000. He said that the property became a “rental” in 2009.
  • The Husband also confirmed that, in his view, acquiring the property for $180,000 was a “bargain price”, and that in so doing, there was nothing untoward, and nothing further needed to be paid. Moreover, in his view, the “subsidised rent” for the Grandparents – he said they were not paying market rent for the property – more than compensated for the difference between the stated purchase price and the actual amount paid.
  • The Husband confirmed that his Orders sought in the current proceeding included to acquire the property for himself.
  • The Husband confirmed, in my view highly significantly, that he knew that:
    1. the Grandparents’ only income was the Grandfather’s armed forces pension;
      1. the Grandfather had lost his business in Town E in approximately late 2000, had incurred significant debt, and had had a breakdown;
        1. he was part of discussions between the Wife and the Grandparents about how to deal with the Grandfather’s debts from the failed business;[4] and
          • the Grandparents would be using the funds received from the “sale” of the property to pay out their debts. The Husband denied that he took advantage of their vulnerability. The Husband confirmed that he raised the funds (with the Wife) that would be, and which were, used by the Grandparents to pay out the Grandfather’s debts.
        • The judge noted that the Grandparents did not receive legal advice at the time of the property transfer.
        • The judge examined whether the transaction fell into a category where relief would typically be granted, perhaps most relevantly under the principles that apply to “catching bargains”.
          • Put simply the considerations were
        • the almost desperate financial plight of the Grandparents (plus the Grandfather’s ill health), and
        • that plight clearly placed financial and other strain on the Grandparents such that their only choices were either to accept the transaction offered to them by their daughter and son-in-law, or have the Bank very likely foreclose.
        • Further, the extremely large difference between the actual price paid compared to the price stated on the transfer, together with the lack of independent legal (or other advice, g. financial) advice, all suggest that the “deal” was, potentially, legally suspect.
        • The Husband confirmed that the Grandparents have paid payments since the breakdown of the marital relationship between Husband and Wife in 2017. Those payments, at the time of the trial, totalled approximately $32,000. He had not re-paid or returned these funds to the maternal Grandparents. He confirmed that the payments did not reflect the market rental for the property. He said that he had not returned any funds to the Grandparents because, in his view, it was a ploy by them to set up, or to contrive, a circumstance that would lead to the Court finding that there was, or should be, a constructive trust in relation to the property.
        • He maintained that the difference between the price listed on the transfer ($350,000) and the actual amount paid ($180,000) – namely $170,000 – was not a “gift” from the maternal Grandparents.
        • You’re the son-in-law. You know he has had a breakdown, and you take advantage of him by buying his house and Ms Falzon’s house for roughly half its value. That’s what you did?‑‑‑Yes. I also gave up my military career to follow them into a business for a whole heap of promises ‑ ‑ ‑
        • In his view, the price settled upon by all parties was “a good price.” It also represented, he said, a good deal, as earlier noted. He said it was his understanding that if this “deal” was not done, the bank would intervene.

        Oral evidence of the Wife

          1. Her parents got into financial difficulty in 2001;
          1. She and the Applicant Husband made an appointment with J Bank, and both of them went to that appointment;
          1. She denied that $180,000 was the maximum that could be borrowed. She said that this was the sum they applied for;
          1. She confirmed that the property was not worth [only] $180,000 at the time;
          1. She confirmed that, after the collapse of the business venture of her Father, the Husband was “furious”. He was not in a state of mind to help out her family.
          2. There was much discussion about the accuracy of information provided by the Wife to the ATO in relation to one or more of the parties’ properties. To most of these questions she said that she relied upon the advice from their accountant and the Husband.
          3. The Wife confirmed that the property had been transferred into her and her Husband’s names. To this, somewhat elliptically, she stated that this was to enable her parents “to pay back the mortgage.” (by renting the property back at mortgage cost).
          4. Exhibit 4 is a copy of a “tenancy agreement” between the Husband and Wife and the Grandparents regarding the property. It records that it was to commence on 10th July 2009, and provides for a “nominal rent of $245.00”, which was to be paid into a nominated account in the name of the Husband and Wife.
          5. In fact, the only signatories to it are the Grandmother and the Wife. Somewhat surprisingly, nothing was ever made about, or commented on, in this regard. It was yet another instance of an incomplete and not fully explained (or with competing explanations), documentary record and history. My query here also relates to the [relatively] “nominal rent” proposed to be paid by the Grandparents. Equally so in relation to its characterisation as “rent”, which was described by the Wife as “mortgage payment.”
          6. In 2009, the Husband and Wife refinanced the mortgage and used the property as security. Mr Falzon said in cross examination that she understood that if they defaulted on the loan, the property could be sold.
        • Trust
          • In her Response filed 10 May 2018, the Wife seeks a declaration that she and the Husband hold the property on trust for the Grandparents and that such a trust is a constructive trust.
          • A constructive trust is a remedy that seeks to avoid the consequences of unconscionable conduct by one party, to the detriment of a beneficiary. This type of trust is artificially imposed by equity on a person who has control of property where it would be contrary to equitable principles for such person to assert both legal and beneficial ownership.
          • In Baumgartner v Baumgartner [1987] HCA 59(1987) 164 CLR 137, the High Court affirmed the dissent of Deane J in Muschinski v Dodds [1985] HCA 78(1985) 160 CLR 583where he stated that a constructive trust “can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement”.

            In the absence of unconscionable conduct, no constructive trust arises.

            A joint Formal Valuation was completed on the property dated 30 August 2019 providing a value of $720,000.00. A formal valuation was completed at the time of the transfer (2002) and at that time the property was valued at $350,000. The Grandparents resided in the property from 2009 to the present day with no rental increase.

        HELD :
        The factual circumstances as found by the Court give rise to the need for equitable relief, predominantly, but not only, in favour of the Grandparents. Their interests are not to the exclusion of the relevant interests of the Husband and Wife.

        The determination of the relevant interests, declarations and Orders be as follows:

          1. The relevant value of the property should be as per the agreed value at trial ($720,000);
          2. There be a declaration of constructive trust in favour of the Second and Third Respondents, in relation to the property, subject to the following further Declarations and Orders.

        (2) There be a declaration of interest in relation to the property in favour of:

        (a) The Applicant Husband

        (b) The First Respondent Wife, and

        (c) The Second and Third Respondent.

        The declaration of interest shall be as to one third equal parts; the Second and Third Respondents being treated as a single entity entitled to a one-third interest.

        CITATION :

        Sancomb & Sancomb & Ors [2020] FCCA 842 (26 June 2020)

         

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