Resulting trusts: what they are, how do they arise and their effect …

In December 2008, Jade Hill suffered serious injuries in a car accident. From the money received from the settlement of a personal injury claim, Jade purchased a property in Dubbo in April 2013 for $305,000. Prior to the purchase, Jade was in a de facto relationship with Jai Dunn and they had two children. Jade not only paid the full purchase price for the property but all of the expenses associated with the property. Because of pressure from Jai and his mother, the property was purchased in both names.

The relationship between Jade and Jai ended in August 2014 and Jai left to live with his mother. In early 2015 Jade decided to sell the property and move away from Dubbo. Jai refused to sign any documents to allow the sales the property to proceed.

In court proceedings that Jade commenced against Jai, His Honour, Justice James Henry of the Supreme Court of NSW found that Jai held the half share of the property on trust for Jade and must transfer it to her. The resulting trust arose because Jade paid for the purchase of the property and it was never her intention that Jai should be a joint owner.

There are some occasions when such a purchase results in the second party being a joint owner and not a trustee. The first is if the party in Jade’s position intends that the other party be a joint owner, the second is if there is a presumption of advancement. One example which would provide clarification on the latter can exist in a scenario where a husband purchases a property on behalf of himself and his wife, that is, there is a presumption that he intends that she be a joint owner of the property. Currently, the law does not recognize a presumption of advancement where a wife puts a property in the name of her husband or where a woman puts the property into the name of her de facto partner.

Justice James Henry ordered that Jai transfer his interest in the property to Jade and if he refused to cooperate the transfer could be signed by the Registrar of the court.

The approach taken by the Court to the calculation of compensation to be awarded in a case involving a breach of fiduciary duty and breach of directors duty …

In late 2012 Mr Schmidt entered to discussions with Mr Haim Bzezinski, Danny Ruschin and companies that they controlled about entering into a joint venture to export live cattle to Israel. Mr Schmidt became a direction of AHRKalimpa Pty Ltd, the company that would conduct the export trade. It was part of the negotiation that in the event of the agreement for Mr Schmidt to attend to the general management of the joint venture was terminated the parties and related entities of AHRKalimpa Pty Ltd would not sell, trade or facilitate delivery of livestock for 2 years.

A number of export shipments were made but the first two of these were not profitable. In late 2013 Mr Schmidt and his company Otway Livestock Pty Ltd devised a plan to takeover the business. After the negotiations on the joint venture terms broke down Mr Schmidt resigned as a director of AHRKalimpa Pty Ltd and he took steps to continue the export trade to the exclusion of AHRKalimpa and the other joint venturers. To aid him in carrying on the business, in late 2013 he broke into the offices of AHRKalimpa Pty Ltd and stole information needed to conduct the live export trade.

The Court found that Mr Schmidt took advantage of information, which was confidential to the joint venture, in order to continue to conduct the business through his company Otway Livestock Pty Ltd. The Court further found that Mr Schmidt breached duties owed as a director of AHRKalimpa Pty Ltd by planning to divert revenue and ultimately profits from AHRKalimpa Pty Ltd to himself or his associated entities using the confidential information he stole to advance his purpose.

Because of Mr Schmidt’s conduct Otway Livestock Pty Ltd breached fiduciary duties it owed to AHRKalimpa Pty Ltd. Otway Livestock Pty Ltd was also found liable, as an accessory for Mr Schmidt’s breaches of his director’s duties. Mr Schmidt was also found liable, as an accessory for the breaches of fiduciary duties by Otway Livestock.

Judge Elliott of the Supreme Court of Victoria ordered that the defendant pay the plaintiffs more than $2.7 million dollars in damages.

Breaches of director’s duties and fiduciary duty can arise in a multitude of scenarios. If any of our newsletter readers require more guidance in this aspect, they can contact Peter Jackson at pjacksonassoc.com.au or Costin Stan at cstan@jacksonassoc.com.au

In what circumstances can a judgment for possession of land be set aside … …

On 22 June 2015, RHG Mortgage Corporation Limited (“RHG”) entered judgment for more than $400,000 and later obtain a writ for the possession of the land owned by Brian and Catherine Summerfield (“borrowers”).

The borrowers filed a Notice of Motion in the Supreme Court of NSW to set aside the judgment and be granted leave to defend the action for possession of the land that had been commenced by RHG.

The loan was entered into in 2002 and the borrowers fell into arrears in 2013. After this default RHG sued for possession and recovery of the money owing. This action was settled on the basis that the borrowers pay $51,544 towards arrears immediately, that they pay $24,978 in payment of the costs of RHG and lastly that they make their regular payments. The $51,544 was paid and the fortnightly payments were made.

In 2015, RHG again sued the borrowers claiming that they had missed some of the fortnightly payments. This was not the case although they had not paid the $24,978 that they had earlier agreed to pay on account of costs.

RHG obtained judgment against the borrowers.

When Brian Summerfield realised in September 2015 that a writ for possession had been entered he contacted RHG and was told that the only way to stop the writ of possession was to pay $7,000 immediately. He did this and the writ for possession was stopped.

The borrowers then filed the Notice of Motion to set aside the writ and for leave to defend the claims made by RHG.

At the hearing of the Notice of Motion it was agreed that the borrowers had never defaulted on the fortnightly payments. The claim made by RHG arose because of an auditing error. This in turn satisfied the requirement that a defence was available to the claim.

In order for the borrowers to succeed in their Notice of Motion to set aside the judgment, they had to explain the delay in taking action. Mr Summerfield denied knowing about the statement of claim and further gave evidence that his computer had become corrupted and therefore he did not see some of the important emails.This satisfied the court that there was an explanation for the delay in taking action to defend the claims made by RHG

Justice Adams held that it was in the interests of justice that the judgment be set aside and that the applicants be permitted to defend the claim made by RHG.

The consequences of a 2nd ranking mortgagee paying the debt owing to the 1st ranking mortgagee…

In this edition of our newsletter we are going to briefly examine what rights a 2nd ranking mortgagee has in respect of collateral securities and guarantees given to a 1st mortgagee after it pays out the debt owing by mortgagor (borrower) to the 1st ranking mortgagee.

In 2011, Geltonia Pty Ltd borrowed money from Westpac in order to develop a property at Annandale (“Westpac Mortgage”). Magasi Pty Ltd and John Lyons Rigelsford gave guarantees and collateral mortgage securities in respect of the Westpac Mortgage. During the development of the Annandale property, Huizhong Investment Group Pty Ltd (“Huizhong”) lent money to Geltonia Pty Ltd and were granted a second mortgage by Geltonia Pty Ltd over the property.

In early 2015, Huizhong took the decision to pay in full the Westpac Mortgage and in return took assignment of this 1st ranking mortgage. Subsequently, Huizhong proceeded to exercise its power of sale and ultimately sold the property in Annandale for $7.9 million. Huizhong applied this money in reduction of the money owing to it under the 2nd ranking mortgage.

Huizhong believed that it was also entitled to then seek to recover the balance of the money owing by Geltonia Pty Ltd from Magasi Pty Ltd and Mr Rigelsford who were identified as guarantors. The guarantors resisted this claim and were successful.

The Court held that when Huizhong took an assignment of the Westpac Mortgage, Huizhong held all of the rights under that mortgage but no more. Huizhong did not have the right to seek recourse against the collateral securities. In addition, the Court held that Huizhong should have paid the money it received on the sale of the Annandale property first in payment of the Wesptac Mortgagee, which would have been paid in full, and the balance in reduction of their debt owing under the 2nd ranking mortgage.

Ultimately, Huizhong found themselves in the position of having their debt of more than $14 million paid only in part and were unable to recover the money they had paid to Westpac – a very unsatisfactory commercial result.

A borrower who was the victim of a Nigerian scam failed in her attempt to have loans that supported her investment in the scam set aside …

Ms Wu was an experienced and astute businesswoman who unfortunately fell victim to a Nigerian scam. Between February 2009 and October 2010, Ms Wu borrowed money from Mr Ling on five occasions to advance what she believed was a good investment in Nigeria. Ms Wu made no repayments of interest or principal.
By the time of the fifth loan Mr Ling believed that Ms Wu was being defrauded. He warned her that it was not in her best interest to borrow further money or invest in the Nigerian business. Ms Wu begged Mr Ling to lend her the money. Ultimately, Mr Ling agreed to lend Ms Wu a further $90,000 in October 2010.
Mr Ling sued for recovery of the money he had loaned Ms Wu. Ms Wu defended the claim on the basis that she was a victim of the scam and Mr Ling was aware of this . Mr Ling was successful and Ms Wu appealed. Her appeal was heard in September 2016 and the decision as delivered in December 2016. Ms Wu was again unsuccessful. The Court of Appeal considered when a loan should be set aside because it was unconscionable particularly when the borrower claims to be a victim.
If Mr Ling had taken surreptitious advantage of Ms Wu’s weakness the court may have intervened and relieved her of the obligation to repay the loans. The court went on the say that people do foolish things and knowledge of that foolishness by the lender is not enough to attract the type of relief Ms Wu sought. If Mr Ling were to be deprived of the benefit of his bargain Ms Wu would be required to prove a predatory state of mind. There must be either an active exploitation or a passive acceptance of a benefit in unconscionable circumstances.
On the facts, Mr Ling was aware, at least by the time of the fifth loan that Ms Wu was the victim of a Nigerian scam and was being defrauded. He warned her against taking out the final loan and Ms Wu also had the benefit of legal and accounting advice.
Based on the particular circumstances of this case, the court held that Mr Ling was entitled to judgment for the principal and interest of each of the loans to Ms Wu.