Third party claims for declarations of a resulting or constructive trust in real property and repayment of loans – a consideration of the importance of credible evidence

30 April 2024

This case offers a helpful refresher in relation to the principles of constructive and resulting trusts, the presumption of advancement and a reminder of the Court’s discretion to make findings about whether asserted loans will form a liability in the property pool available for division between the parties. It also reminds professionals to carefully consider the steps which should be taken/considered before a loan is advanced to a family member.

The Husband’s parents were joined to the proceeding seeking court orders such that, in summary:

  • A real property held in the names of the Husband and Wife was held beneficially for them either on the basis of a constructive or resulting trust.
  • There were numerous significant loans payable to them by both the Husband and the Wife.

The Court dismissed the contentions of the Husband and his parents that a real property was held on trust by the Husband and Wife for the parents. The Court also dismissed the contentions that the majority of their asserted ‘loans’ required repayment, except for one loan where the Wife conceded the existence of the loan and where she had signed the loan agreement for part of the funds.

The relevant facts and findings

The parties were in a relationship from either 2005 or 2006 until mid-2018. They had two children together.

There are preliminary comments set out in the judgment which provides some insight in the case generally. For example:

  • “Although the factual contentions as presented in the affidavit material filed were chaotic, the matters of significance in dispute were somewhat narrowed in final submissions”.
  • …”the financial history of the various parties remained highly confused”.
  • “some of this confusion flowed from either an unwillingness or incapacity to provide fulsome documentary material to support the various claims made”.

The Husband’s parents sought declarations, amongst other things, that:

  • The Husband and Wife held their interest in Suburb K property subject to a resulting or constructive trust and as such the property should be transferred to them unencumbered.
  • The chattels at Suburb K property were theirs.
  • That the sums of $319,916 and $375,000 were loans owing to them by the Husband and Wife and were to be paid by the Husband and Wife. There were previously also additional loans sought to be repaid but they were abandoned by the Husband’s parents.

The Judge made comments about the issues of the credibility of the evidence about the purchase of the Suburb K property and the asserted loans from the Husband’s parents throughout the judgment. The Judge noted that the Husband’s evidence (including that on his behalf) could not be treated as reliable, including where the Husband’s father accepted that he had memory problems.

Turning then to the substance of the proceeding:

  1. The Suburb K property:
    1. it was not contentious that the Husband’s parents provided the funds to purchase the Suburb K property, which was purchased in the name of the Husband and the Wife. The property was purchased in late 2008 for $460,000 unencumbered, with the funds for the purchase transferred into an account in the sole name of the Husband. At trial, the property had an agreed value of $840,000 and a mortgage of $159,128.
    2. The Court summarised in relation to the arguments about the resulting or constructive trusts made by the Husband and his parents that:
      1. “In Calverley v Green a resulting trust was presumed to arise in favour of a purchaser in the proportion in which the purchaser contributed the purchase money. The resulting trust, however, was determined not to arise where there are circumstances that remove reason to presume that the title does not sit with beneficial interest, such as where a so-called presumption of advancement arises. A presumption of advancement (and hence no resulting trust) has been held to arise where property is purchased in the name of a child”.
      2. “In Butler v Craine Marks J identified three elements to find the particular constructive trust that was determinative in that case. The first is that the parties must form a common intention as to ownership of the beneficial interest in the property… the second is that the claimant must have acted to his or her detriment in relation upon that common intention. The third is that it must be fraud upon the claimant for the other party to deny the beneficial interest”.
    3. The Court considered the evidence of the intention of the Husband’s parents. There were various documents produced on behalf of the Husband and his parents, for example historical loan agreements in relation to the funds provided to purchase the property. One of those documents ‘Exhibit W4’ the Court described as “Exhibit W4 should be considered to be a fabrication designed to bolster the claim that the Suburb K property is held beneficially by his [the Husband’s] parents”. In relation to a further agreement at Exhibit W3 the Court commented “These matters could only lead to a conclusion that the document was a falsehood, created and executed some time after the husband the husband received his citizenship and was issue[d] with a passport”.
    4. The Wife denied being involved in the discussions about the funds being provided by the Husband’s parents.
    5. The Court found that the combined evidence of the Husband and his parents, even coupled with the documents relied upon by them, was of insufficient reliability to establish an intent that the funds were a loan at the time of the payment of monies and purchase of the property. The Court considered that the presumption of advancement did arise and that there was no resulting trust.
    6. The Court did not consider that there was any constructive trust in favour of the Husband’s parents.
    7. The Court indicated that the contribution of the funds to the Husband by his parents would be weighed in relation to the assessment of each party’s contributions in the determination of the overall matters between the parties.
  2. The loans from the Husband’s parents:
    1. The Husband’s parents sought the repayment of various sums paid by them to the Husband. The Wife gave evidence about her lack of knowledge about the source of those funds.
    2. The Court dismissed the contentions of the Husband and his parents regarding the assertions that the funds provided were loans requiring repayment, except in one instance where a loan agreement was executed by the Wife for at least part of the funds. There was partial repayment of the loan. The Wife asserted that an additional $20,000 not reflected in the banking record was also repaid to the Husband’s parents. The Court accepted that contention, with the Judge commenting “the wife does not labour under the same credibility issues as do the second and third respondents, and her testimony is sufficient to establish the additional $20,000 was repaid”.

The outcome

The Court determined that the property pool should be divided in proportions of 60% to the Wife and 40% to the Husband having regard to the various contribution and future needs factors present in the case. The court orders sought by the Husband’s parents were mostly dismissed, except with respect to the requirement for the Husband to repay the sum of $229,916 loaned to both parties.

Key takeaways

  1. The issues surrounding arguments of constructive and resulting trusts can be complex. It is important that any funds provided are documented to reflect the manner they are intended to be provided (i.e. as a loan or a gift) at the time that they are provided, with any conditions of such agreement being acted upon (for example through the repayment of the loan in accordance with the agreement).
  2. Issues of dispute can still arise even where loans are formally documented. Legal and accounting advice should be obtained prior to the provision of funds if there is any future intention to claim that the funds advanced are loans and/or are repayable.
  3. The Court has a wide discretion to make findings about witness and documentary credibility. Those matters will be assisted where it is possible through the provision of consistent evidence through historical documentation.

Xin & Qinlan (No 6) [2024] FedCFamC1F 8

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