Broken promises & resulting trusts

The recent decision of Justice Kenneth Martin in Wilms v Wilms¹, is a warning to those who enter into informal arrangements about the purchase of property which are not recorded on the title to the property.

Background

In 1997, a gentleman tried unsuccessfully to purchase a property to reside in as a family home in the joint names of him and his wife. He was unable to do so due to his age, employment status, and financial circumstances.

At the suggestion of his mortgage broker, he approached his son and an agreement was reached between them that the son would purchase the property in his name.

All relevant discussions took place over the telephone as the son lived in Sydney (1997 Discussions).

Following the purchase of the property, the father and his wife lived in the property. The father carried out significant renovations and extensions to it over the years at his own cost, and made all payments towards the home loan, paying it off in January 2013.²

Following repayment of the home loan, the son refused to transfer the title in the property to his father.³

Hearing

The following facts were not in dispute in relation to the 1997 Discussions:

• an agreement was reached between the father and son that the property would be purchased in the son’s name;
• the deposit and acquisition costs would be paid by the father;
• the balance of the purchase costs would be provided by a home loan secured on the property taken out in the son’s name;
• the property would be occupied by the father, his wife, and his mother; and
• all home loan payments and other ongoing costs associated with the property, including the cost of any renovations or improvements to the property, would be paid by the father.⁴

Three issues remained in dispute:

• whether it was agreed that the property would be transferred from the son to the father once the home loan was discharged. The son denied that he had ever agreed to transfer the title in the property to his father once the home loan had been repaid; that the reference to the property ultimately belonging to his son, was a reference to the son inheriting it after his death; and payments of rent, conditional upon those payments being applied by the son to meet the home loan repayments.⁵
  
• whether the father had advised the son that the property would ultimately be his anyway. The father alleged
• whether or not the monthly mortgage instalments to be paid by the father were

The father sought a declaration of a resulting or constructive trust favouring his full beneficial ownership based on the fact that he had paid all of the acquisition costs of the property and he had paid off the home loan.

The facts referred to above were not in dispute. Further, the son did not dispute that his father was entitled to a life interest in the property.⁶

Judgment

In relation to the facts in dispute (referred to at [8] above), Martin J preferred the son’s evidence on all issues, stating that he was initially ‘more than cautious;’ about accepting the son’s evidence that the regular monthly payments of the mortgage by the father were ‘rent’, but ultimately accepting that the payments by the father were made pursuant to a ‘loose rental arrangement’.⁷

Constructive Trust

Martin J, citing Edelman J in Anderson v McPherson [No 2]⁸ (Anderson) stated that the existence of a trust and the beneficial interest to which parties are entitled under that trust must be determined at the date of the purchase of the property, or ‘so immediately afterwards as to constitute part of the transaction’.⁹

Martin J stated that the consequence of his acceptance of the son’s evidence on the factual issues referred to above is that there was an underlying lack of factual foundation for a common intention constructive trust.¹⁰

Resulting Trust

Martin J went on to examine the principles in relation to resulting trusts. He referred to the decision of Mason and Brennan JJ (as their Honours then were) in Calverley v Green¹¹ and confirmed that the starting point for the determination of the respective beneficial interests for the father and son is that at the time of acquisition of the property, it was held on a resulting trust for them both - according to their financial contributions towards the purchase price and acquisition costs.¹²

Based on this statement, and on the agreed factual evidence that the father had paid all of the acquisition costs of the property, and then paid off the purchase price, one would assume that a resulting trust would be found in favour of the father.

However, Martin J then stated that this starting presumption is rebuttable by admissible evidence and stated as follows:

• given that he had accepted the evidence of the son, the presumption of a resulting trust arising from the ‘part funding’ of the acquisition of the property in 1997 is rebutted¹³; property was not relevant to the issue of a resulting trust determination; loan were the price of his ongoing occupancy of the property.¹⁶
  
• referring to the decision of Edelman J in Anderson¹⁴, the fact that the father had carried out ongoing improvements to the
• importantly, following his finding that the father and son had a ‘loose rental arrangement¹⁵, he found that the contributions that the father had made to the home

The father’s application for a declaration of both a constructive or resulting trust was dismissed.¹⁷

This led to the unsatisfactory result that, whilst the father had contributed all of the funds to acquire and purchase the property, and had carried out extensive renovations to the property, he only had an agreed life interest in the property, and his wife had no rights in relation to the property at all.

Lavan Comment

The decision of Martin J is a red flag to those who have entered into, or are proposing to enter into, informal agreements in relation to property.

Circumstances often arise where arrangements are made in relation to the acquisition of property which are not reflected on the title to the property.

This decision, although largely turning on its facts, highlights the importance of fully documenting any agreements at the time that they are entered into.