Supreme Court New South Wales

• Medium Neutral Citation: Willmott Forests Limited v Fernandes [2012] NSWSC 928
• Hearing dates: 9 August 2012
• Decision date: 09 August 2012
• Jurisdiction: Equity Division
• Before: Pembroke J

Decision

Answer to separate question: "No"

• Catchwords: TRUSTS - requirements for existence - certainty of intention to create a trust; TRUSTS - indicia of existence - requirement for trust property to be maintained in separate fund and not mixed; VENDOR AND PURCHASER - monies paid prior to completion - characterisation as trust monies or debt
• Cases Cited: Cohen v Cohen [1929] HCA 15; (1929) 42 CLR; Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR; Henry v Hammond [1913] 2 KB 315; Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86; Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135; Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117; Walker v Corboy (1990) 19 NSWLR 382
• Category: Separate question
• Parties: Willmott Forests Limited (receivers and managers appointed) (in liquidation) - plaintiff; Manuel Augusto Rodrigues Fernandes - defendant
• Representation: Counsel: B J Tronson - for the plaintiff; D S Weinberger - for the defendant; Solicitors: Allens - for the plaintiff; Deutsch Partners - for the defendant
• File Number(s): 2011/00373778

ex tempore Judgment

1 This is the hearing of a separate question. It concerns the proper characterisation of a payment made by the plaintiff as purchaser under a contract for sale dated 10 November 2009.

2 The precise question is as follows:

Whether the Advance Payment (as defined at paragraph 16(b)(ii) of the Statement of Claim filed 22 November 2011) was required to be held by the defendant on trust for the plaintiff.

The Parties' Agreement

3 The contract for sale of land related to a property known as Comara Station in New South Wales. The purchase price was $9.2 million. The purchaser paid the deposit of $920,000 on 10 November 2009. The completion date stated in the contract was 15 July 2010.

4 Clause 2 of the contract is headed "Deposit and Other Payment Before Completion". Clause 2.8 provides that:

If any of the deposit or of the balance of the purchase price is paid before completion to the vendor or as the vendor directs, it is a charge on the land in favour of the purchaser until termination by the vendor or completion subject to any existing right.

(emphasis added)

5 Clause 9 is headed "Purchaser's Default". It provides that:

If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice.

6 It goes on to state that after the termination the vendor can:

9.1 keep or recover the deposit (to a maximum of 10 percent of the price);

9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause -

9.2.1 for 12 months after the termination; or

9.2.2 if the vendor commences proceedings under this clause within 12 months until those proceedings are concluded.

7 Special condition 8.1 provides that:

It is an essential term of this contract that the purchaser will pay to the Vendor on completion, in addition to any other moneys payable to the Vendor, interest on the balance of the purchase moneys calculated at the daily rate of ten per cent (10%) per annum from the completion date till the date on which completion actually takes place.

8 The completion of the contract was delayed. On 20 August 2010, during the morning, the plaintiff's agent requested an extension of the completion date until 6 September 2010. The terms of his request were as follows:

Further to your letter outlining Mr Fernandes' counter offer as received yesterday via email, we confirm that these proposed terms are not accepted. As mentioned we now request an extension to 6 September 2010.

In consideration of Mr Fernandes' agreement to extend the settlement date, Willmott Forests will make a payment of $600,000 on 23rd August, 2010. This amount is made up of penalty interest at the contracted rate of 10% p.a. for the period 15th July to 6th September, 2010 ($118,383.00) and a further payment in reduction of the settlement balance, as follows:

Penalty Interest (15 July to 6 September 2010) @ 10% = $118,383.00

Reduction of settlement balance = $481,617.00

Total = $600,000.00

In the event that Willmott Forests elects to settle prior to 6 September, 2010, the excess 'penalty interest' paid for the period between the settlement date and the 6 September 2010 will be applied against the balance due at settlement.

9 Later in the day the vendor's agent sent a letter in response to the offer from the purchaser. It was in effect a counter offer which proposed a similar regime, also based on a payment of $600,000, but differing in relation to the component amounts of that sum.

10 I am not in a position today to resolve the difference between the parties as to whether there was a concluded agreement in terms of the first letter or the second letter. I accept the assurance of counsel for the defendant that other evidence may be available which will cast light on the resolution of that question. Among other things, the second letter bears the handwritten notation "this is final agreement" but neither party is in a position to assist with the identification of the authorship of that notation or the circumstances in which it was made.

11 The substance of both proposals was that the purchaser would pay $600,000 to the vendor in order to obtain an extension of the settlement date. If I work on the basis of the second letter, the $600,000 consisted of $168,383 representing penalty interest from 15 July to 6 September 2010 and a further sum of $431,617 which was described as reduction of settlement balance. If I work on the basis of the second letter, the $600,000 consisted of $118,383 representing penalty interest and a further sum of $481,617 as a reduction of settlement balance.

12 The sum of $600,000 was paid on 23 August 2010. On 6 September receivers were appointed as managers of certain assets charged by the purchaser. On 13 September the solicitors for the receivers notified the solicitors for the vendor that the purchaser would not complete the purchase of the property. They said that the purchaser accepted the forfeiture of the deposit of $920,000 and the penalty interest component of the $600,000 payment. However they requested the return of the component that was described in both letters as "reduction of settlement balance".

13 The payment in reduction of settlement balance is either $431,617 or $481,617. For the purposes of the resolution by me of the substantive issue, I do not need to decide which is the correct amount. Nor am I in a position to do so.

14 The claim by the purchaser is that the sum of $481,617 represents moneys held on trust by the vendor. I am afraid that I do not accept this contention. This conclusion inevitably requires me to resolve the separate question in the negative.

Trust or Debt

15 In order for a trust to be established, there are several well-known essential prerequisites. The first is that there must be certainty of intention to create a trust. It is really not necessary to do more than repeat what was described as the established rule by Dixon CJ and Williams and Fullager JJ in Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86. They referred at 97 to:

... the established rule that in order to constitute a trust the intention to do so must be clear and that it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries.

16 A second feature which provides a strong indication of whether or not there is a trust, and which is almost invariably determinative, is that the intention of the parties is that the trust property be kept separate and not be mixed in any other fund of the trustee. In Walker v Corboy (1990) 19 NSWLR 382, Priestley JA emphasised this point, once again acting on the basis of a decision by Dixon J as he then was in Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91. In that case Dixon J relied upon and repeated what had been said by Mr Justice Channell in Henry v Hammond [1913] 2 KB 315 at 521:

It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his [beneficiary]. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then in my opinion he is not a trustee... but merely a debtor.

(emphasis added)

17 Critical to a proper analysis of the facts in this case is the absence of evidence of a clear intention that the sum of $481,617, or the sum of $431,417, be held on trust. Equally important is the absence of any requirement that that sum be held in a separate fund, as trust moneys would normally be held.

18 What appears to have occurred is that the persons who wrote the letters on behalf of the purchaser and the vendor did not even turn their mind to the question of whether the moneys offered to be paid in reduction of the settlement balance would be trust moneys or not. It is far more likely that they intended that the disposition of those moneys should be dealt with in accordance with clause 2 which deals, among other things, with "other payments before completion". As I mentioned, clause 2.8 expressly contemplates the payment of any of the balance of the price before completion. It goes on to provide a charge in favour of the purchaser in relation to such a payment.

19 Clause 9.2 provides that the vendor will hold "any other money" paid by the purchaser under this contract as security. The language of clause 2 and clause 9 is notable for the absence of any reference to a trust. It is more consistent with a different legal concept, namely, the provision of a charge as security for the payment of a debt.

The Authorities

20 There are several decisions of this Court which provide additional support for this reasoning. They include Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135, Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 and Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117.

21 In Frankcombe v Foster Investments, the facts were similar to the facts of this case. The vendor agreed to an extension of time for completion of the contract for sale on terms that a further $40,000 on account of the purchase price be paid to him forthwith. Clause 16 of the contract provided for the forfeiture of the deposit in certain circumstances. It did not provide for what should happen to a payment such as the $40,000 payment. Holland J construed, characterised and analysed the facts and reached the following conclusion:

In my opinion, the proper view, on the evidence, is that the $40,000 was paid as part of the purchase price, in anticipation of settlement, and upon the assumption that the purchaser would not be defaulting. From this it is not to be implied that, if the purchaser did default and settlement failed to take place, the vendor was to be entitled to forfeit the $40,000. I think that the proper implication is that, in the adjustment of the rights of the parties consequential upon default by the purchaser, the sum of $40,000 was to be brought into account as a credit to the purchaser and, subject to any claims which the vendor was entitled to set off against it, to be recoverable by the purchaser...

(emphasis added)

22 That analysis is apposite to the facts of this case. In fact counsel for the defendant has made clear that there is no intention by the vendor to profit from the payment of the moneys paid by the purchaser in reduction of the settlement balance. The vendor's contention is that there should be a set off of those moneys against the vendor's cross-claim for damages in these proceedings. For those reasons the answer to the separate question is no.

23 The defendant is responsible for the fact that I am not in a position to determine whether the amount owed to the purchaser is $431,417 or $481,617. This is an important matter that will need to be resolved in due course. Although the defendant has succeeded on the separate question, the appropriate costs order is that the plaintiff should pay 75 percent of the defendant's costs.

oOo

Decision last updated: 14 August 2012