Engwirda v Engwirda & Ors [2000] QCA 61

SUPREME COURT OF QUEENSLAND CITATION: Engwirda v Engwirda & Ors [2000] QCA 61 PARTIES: DENISE MARILYN ENGWIRDA (plaintiff/appellant) v JOHN ENGWIRDA (first defendant/first respondent) REGIS PROJECTS PTY LTD ACN 009 924 761 (second defendant/second respondent) JOHN ENGWIRDA PTY LTD ACN 009 815 829 (third defendant/third respondent) JULIE PATRICIA ENGWIRDA (fourth defendant/fourth respondent) FILE NO/S: Appeal No 321 of 1999 Appeal No 1860 of 1999 SC No 880 of 1994 DIVISION: Court of Appeal PROCEEDING: General civil appeal ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 10 March 2000 DELIVERED AT: Brisbane HEARING DATE: 19 November 1999 JUDGES: Pincus and Davies JJA and Helman J Judgment of the Court ORDER: Appeals dismissed with costs. CATCHWORDS: EQUITY – TRUSTS AND TRUSTEES – CONSTITUTION AND CLASSIFICATION OF TRUSTS GENERALLY – CLASSIFICATION OF TRUSTS IN GENERAL – IMPLIED TRUSTS – CONSTRUCTIVE TRUSTS – INDEPENDENT OF INTENTION – GENERAL PRINCIPLES – de facto relationship of 15 years – significant difference of assets and earning capacity of partners at start of cohabitation – no joint ownership of assets – first respondent retired eight years after relationship commenced – appellant deriving significant benefits through cohabitation – whether there existed a common intention that assets were held on constructive trust for appellant – whether constructive trust existed based on contributions to a joint endeavour – whether retention by first respondent of separate assets was unconscionable – consideration of assessment principles where contributions to relationship consists of domestic services -- 1 of 10 -- 2 Property Law Act 1974 (Qld), s 286, s 291, s 292, s 298, s 299, s 303, s 304, s 305 Baumgartner v Baumgartner (1987) 164 CLR 137, considered Brown v Manuel (1996) DFC 95–170, distinguished Dunne v Turner Appeal No 196 of 1995, 20 August 1996, distinguished Fuller v Meehan [1999] QCA 37; Appeal No 1323 of 1998, 26 February 1999, distinguished Muschinski v Dodds (1985) 160 CLR 583, considered Peter v Beblow (1993) 101 DLR (4th) 621, considered The Public Trustee v M Kukula (1990) 14 FamLR 97, distinguished COUNSEL: Mr W J Hodges for appellant Mr D R Gore QC, with him Ms K A McMillan, for respondents SOLICITORS: Philippa Power Solicitor for appellant Clayton Utz for respondents The proceeding [1] THE COURT: These are appeals against orders dismissing the appellant's action and ordering her to pay the respondents' costs, including reserved costs. The appellant's claim, as originally framed, was for a declaration that three of the respondents held certain property on trust for the appellant as to a one-half share thereof. The trust alleged was a constructive trust based on a pooling of resources between the appellant and the first respondent, her de facto husband, upon or shortly after the commencement of their cohabitation and a common intention that they would enjoy the benefit of the capital, effort and income contributed by each in equal shares. The other two respondents against which that declaration was sought were companies controlled by the first respondent. [2] An alternative basis for a constructive trust having been canvassed during the course of trial, on the second last day of the five day trial the appellant was granted leave to amend her statement of claim to add an allegation that the first respondent held property on trust for himself and the appellant "in proportion to their respective contributions in circumstances where it would otherwise be unconscionable"; and a claim for a declaration of trust in such proportions as may be determined by the Court. This basis was accepted in argument at the trial and in his Honour's judgment as embracing a contention that, notwithstanding the absence of common intention, the contributions made by the appellant to a joint endeavour by the appellant and the first respondent, in the circumstances, required the imposition of a constructive trust.1 1 It was not open in these proceedings to allege any wider basis upon which the appellant was entitled to relief. See now, however, Property Law Act 1974, s 286 which permits a court to make any order it considers just and equitable about the property of either or both de facto spouses, adjusting the interests of the de facto spouses in the property. See also s 291, s 292, s 298, s 299, s 303, s 304 and s 305. -- 2 of 10 -- 3 The domestic and financial relationship between the parties [3] The appellant and the first respondent commenced cohabiting a little after the middle of 1973. The first respondent was then aged approximately 31 and the appellant 23. The first respondent had, by then, been working for about 15 years and was already remarkably successful. A statement of his assets and liabilities, prepared at about that time for the purpose of obtaining finance, shows a surplus of assets over liabilities of about $330,000.2 The appellant, in contrast, had no assets to speak of and no job. She had previously worked as a waitress but was at the time on Social Security benefits. She was untrained for any occupation and it is fair to say that she had no substantial income earning potential. She also had the financial burden of a child from a previous relationship, a daughter, Leslie, then aged approximately five. [4] The appellant and the first respondent cohabited for approximately 15 years. They separated towards the end of 1988. There was never any question of the parties marrying and the appellant understood that. Nevertheless, with the first respondent's consent, she adopted his name and they had two children together, a daughter Julie born on 12 October 1973 and a son Ben born in May 1976. The appellant's child Leslie became a member of the household of the appellant and the first respondent from the time they commenced cohabitation and thereafter throughout the period of that cohabitation the appellant, the first respondent, and the children were, to outward appearances, a normal family unit. [5] After the commencement of cohabitation the first respondent continued to be successful in his business which was that of building and development, mostly in partnerships, through companies, with his brother, principally of home units on the Gold Coast. It had been the first respondent's long term ambition to retire when he was 40. His success enabled him to achieve this, retiring in 1981, eight years after the commencement of cohabitation and seven years before it ceased. [6] Although, as we have said, there was evidence that, when the parties commenced cohabitation, the nett value of the first respondent's assets was about $330,000, there is no evidence of what that was by the time he retired in 1981. By that time the appellant had acquired a number of assets, to which reference will be made in more detail below but there is no evidence, either, of what their nett value was at that time. Nor is there any evidence of what the nett value was of the first respondent's assets at the time they separated at the end of 1988. However there is some evidence, referred to below, of the value of the appellant's assets at that time.3 [7] The appellant relied on evidence of the value of the parties' assets at the date of trial which was in August 1998. At that time the appellant's assets had a nett value of about $350,000 and the respondents' assets had a nett value of about $7.7M. It is not entirely clear how the appellant relies on those values or the substantial 2 To give some idea of what the value of those assets would have been at later dates it is worth recording that, brought forward to June 1988, shortly before separation, at the rates of inflation in each of the intervening years, that sum would then have represented approximately $1.3M. Brought forward on the same basis to June 1998, that is, shortly before the date of trial, it would have represented approximately $1.9M. That sum did not include the value of projects in progress. 3 Mr Calabro's report sets out the book value of the nett assets of each shortly after that time (30 June 1989) but it is useful, if at all, only as some measure of their comparative wealth at that time; ie the nett book value of the appellant's assets was $250,000 and the first respondent's $1,750,000, proportions of 1:7. -- 3 of 10 -- 4 difference between them. The learned trial judge noted that he was left with the impression that it was being submitted to him by the appellant that this substantial difference in values at the time of trial, of itself, founded a basis for intervention by the court. Ten years had elapsed since the parties separated and the evidence showed that, in the meantime, both had sold some and acquired other assets. It was not possible from these values, or the difference between them, to draw any inference as to the values of their respective property, or the difference between those values, at the time of separation. We do not think that this evidence can have any relevance to any issue in this appeal. [8] At no stage during their cohabitation did the appellant and the first respondent own any assets jointly. The appellant had her own bank account from 1976 into which she was paid a salary and other income referred to below. [9] Until 1978 she had no substantial assets. The first respondent said, and the learned trial judge accepted him, that towards the end of 1978 he decided that the appellant should have some assets in her own name to give her some security for herself and in the relationship and to give her experience in handling money and in commercial enterprise. He accordingly caused the appellant to acquire four home units, two in a development called Pacific Regis, the other two in a development called Oceania. [10] The units in Oceania were sold in the year in which the parties separated, 1988, one of them in March for $176,000, the other in October for $195,000. The proceeds of the first were applied to reduce the appellant's borrowings and the tax liabilities of both parties. The appellant retained the proceeds from the second sale. She retained the other units which, in February 1989 were estimated by the first respondent to have a value of $455,000. Mr Hodges, for the appellant, pointed out that this was merely an estimate of the first respondent, unsupported by any valuation, but no other reason was given for doubting its correctness and, having regard to the first respondent's knowledge of the home unit market, we think his Honour was justified in accepting it. On this basis the appellant's nett assets, at the time of separation, were of a value of at least about $650,000.4 [11] Despite the valiant efforts of the appellant's counsel, at trial and in this Court, to prove and convince otherwise, it is plain that the appellant made no significant direct contribution to the first respondent's businesses. It is true that she was a director of a number of Engwirda companies at various times. But the evidence is against her having had any expertise to contribute to their businesses and any such directorships are more likely to be explicable by convenience or by the first respondent's need to have a director who would do what he wanted in respect of company matters than by any contribution which she would have made. [12] From 1973 to 1988 the appellant was paid a salary by various entities associated with the first respondent. Both the amount of that salary and the entity or entities from which it was paid varied from year to year. Moreover the salary which she was paid was grossly disproportionate to any contribution which she made or could have made to the affairs of those entities. In total over this period she was paid over $160,000 which was only a little less than the total award wages of a full time clerk over that period. On the most generous view of the appellant's evidence she did not 4 That does not take into account any of the substantial income, referred to below, which the appellant received during cohabitation. The appellant agreed that the arrangements made on separation included her release from debts which she then owed to Engwirda companies. It can be seen that the above sum is substantially more than the book value. See fn 3. -- 4 of 10 -- 5 perform work for any of those entities in any of those years of a duration or quality even approaching that. It is not difficult to draw, from the objective evidence of the variation in amounts and sources and the disproportion between amounts paid and value of work performed, the inference that the amount of her salary in each year and the source from which it came depended on the income tax position of the first respondent and those entities and that the payments were made, not so much to reward the appellant for the value of any work done by her, but for the purpose of "income splitting" by the first respondent to relieve him from tax liability. That is also the effect of the respondent's evidence and that is the conclusion which the learned trial judge reached. No doubt this income splitting provided some financial benefit to the first respondent. But it also gave the appellant a substantial benefit. [13] From the 1979 income year the appellant also received rental from the home units which she then owned. From about that time also she commenced to receive trust distributions mostly from the John Engwirda Family Trust of which the trustee was Regis Projects Pty Ltd. The total of distributions to her from this trust for the 1982 to 1988 income years was over $320,000. She also received small amounts of dividends from her shareholding in John Engwirda Pty Ltd ("John Engwirda") and some, mostly small, distributions from the Oceania Trust and the Pacific Regis Trust, although in the 1980 income year she received over $50,000 from that latter trust. None of the trust deeds of any of these trusts were put before this Court but it may be inferred from the variation in income which she received from these trusts that they were all discretionary trusts. [14] All of the income which the appellant received over the period of her cohabitation with the first respondent, which exceeded $600,000, was paid into her bank account. A substantial part of this was used for the day to day living of the family unit. However the first respondent also contributed a substantial amount to that. Some of the appellant's income was invested in film schemes, no doubt for the purpose of reducing her income tax liability. A substantial part of it was used by her for her own benefit. [15] The means by which the first respondent caused the appellant to acquire the two units in Pacific Regis was from a one-eighth beneficial interest in a trust the trustee of which owned the land on which the home unit building was built. Another beneficiary of that trust was John Engwirda Investments Pty Ltd ("John Engwirda Investments") in which, it was contended before this Court, the appellant was a shareholder at relevant times. Consequently, the appellant contended, she should have been entitled to an interest in those units which John Engwirda Investments acquired from its beneficial interest. [16] There was no claim against John Engwirda Investments and little evidence of its function; in particular whether or not it, in turn, was also a trustee. Nor is there any evidence which proved or from which it could reasonably have been inferred that the appellant was a shareholder of John Engwirda Investments at any relevant time; that is at any time before the building was developed and the units in it allotted to the beneficiaries of the trust and, in turn, to the shareholders or beneficiaries of John Engwirda Investments. The distribution of the units to the appellant appears to have occurred in 1979. The only evidence that the appellant was ever a shareholder of John Engwirda Investments appears to have been a report of an accountant Mr Calabro, prepared for the purposes of the trial, which records that fact. But even if it be accepted that it was accurate in that respect it does not say when that was. -- 5 of 10 -- 6 The appellant contended that it could be inferred, from the evidence that she became a director and shareholder of John Engwirda in 1977, that she became a shareholder of John Engwirda Investments at the same time. However neither that evidence nor any other led to an inference that it was more probable than not that the appellant became a shareholder of John Engwirda Investments at any time before the end of 1979. The evidence therefore did not prove any entitlement in the appellant to any additional units in Pacific Regis by reason of any shareholding which she may have had in John Engwirda Investments. The claim based on common intention [17] In a claim of this kind it may be accepted that the common intention necessary to found it is not often expressed but must be inferred from the conduct of the parties. Nevertheless the difficulty facing the appellant in contending before this Court that there was a common intention by the parties that the first respondent would hold assets which he owned or effectively controlled in trust, in part, for the appellant is, as the appellant's counsel frankly acknowledges, that the first respondent denied any such common intention and the learned trial judge accepted his evidence. His Honour concluded that the first respondent's intention was, at all relevant times, that the appellant should acquire the specific interests which she did in the trusts for development of both the Pacific Regis and the Oceania units and consequently the units which she derived in consequence of those equitable interests; but that she should not acquire any interest in any of his property. His Honour thought that the first respondent's evidence in this respect was supported by contemporaneous documentation evidencing the parties' respective separate interests in property and the absence of evidence of any joint ownership of property. [18] His Honour discussed the evidence upon which the appellant relied and still relies for a contrary conclusion but said that, even ignoring the evidence to which we have just referred, this evidence was, at best, equivocal. In our view his Honour was right. It is sufficient to take as examples those pieces of evidence most strongly relied on by the appellant. [19] The first is a letter written in September 1978 on behalf of each of the appellant and the first respondent to SGIO Building Society, applying for loans. The letter is relied on because it contains a statement of the assets and liabilities of the appellant and the first respondent without distinguishing between them. However the letter said specifically, after setting out those assets and liabilities, that the property referred to was owned either solely by one of the applicants or jointly or owned by John Engwirda Investments or John Engwirda both of which were owned and controlled by the first respondent. Read as a whole, therefore, the letter did not evidence any intention on the part of the first respondent to share with the appellant any of the property in his sole ownership. [20] The second is a letter written by the first respondent to his solicitor for the purposes of giving instructions in this dispute in which he referred to "our" development projects and "our earnings". We would not construe this as an unequivocal concession that the appellant had any joint interest with the first respondent; it is consistent with acknowledgment of her separate interest in and earnings from the same developments. [21] The third, which is relied on by the appellant to sustain both this basis for the constructive trust and the alternative basis of contributions to a joint endeavour, -- 6 of 10 -- 7 consisted of some answers which the first respondent gave in the course of his cross-examination. Counsel for the appellant posed a dilemma for the first respondent; in working and acquiring assets he was either looking only after himself, without consideration for the appellant or his children, or his main aim was to make as well off as he could his household which included himself, the appellant and his children. Unsurprisingly he chose the latter alternative. Also, unsurprisingly, he agreed with the suggestion that he and the appellant pooled their efforts towards raising their children, for the benefit of the family. Again, later on in his cross-examination, when it was suggested to him that he went about business as a member of a family and that he was attempting to improve his family's financial position, not just his own he answered: "I did everything I could to do the best I could for my kids and for the plaintiff." It is sufficient to say, at this stage, that, in the light of what in fact occurred, that evidence gives no support to a contention for a common intention such as that alleged. [22] There is nothing in the appellant's contentions or in the evidence just referred to which justifies this Court in rejecting his Honour's acceptance of the first respondent's evidence that he had no intention of conferring upon the appellant any interest in his assets. The claim based on contributions to a joint endeavour [23] The appellant submits that, notwithstanding that the first respondent had no intention of holding any part of his property in trust for her, she made a contribution to the gaining, improvement or retention of that property, or of property from which that property was derived, on the basis and for the purposes of their joint relationship. In those circumstances, she submits, that relationship having failed, it was unconscionable that he should retain it entirely.5 There should therefore be a constructive trust for her, proportionate to that contribution. [24] Stated in that way the submission ignores the fact that the assets, to the gaining, improvement or retention of which the appellant contends she contributed, were assets from which she also derived capital assets valued at not less than $650,000 at the time of separation and income of not less than $600,000 during the period of cohabitation. So that, even if that contention succeeds, it will be necessary to consider whether, having regard to the extent to which the appellant also derived capital assets and income from those assets, the retention by the first respondent of his separate property was unconscionable. However, for reasons which appear below it is not necessary to consider that second question. [25] A contention of this kind is usually made and sometimes succeeds in a context in which both parties to a relationship such as this have provided their resources, in money and labour,6 for the purpose of acquiring or improving assets to be used by the parties in their joint relationship;7 usually a residence8 but sometimes a business in 5 Muschinski v Dodds (1985) 160 CLR 583 at 620; Baumgartner v Baumgartner (1987) 164 CLR 137 at 148 – 149. 6 It is not necessary that the contributions be of a financial kind. See Dunne v Turner Appeal No 196 of 1995, 20 August 1996 at 5 per Pincus JA and the authorities there referred to. 7 The Public Trustee v M Kukula (1990) 14 FamLR 97 at 99 per Handley JA. 8 As in Baumgartner and Brown v Manuel (1996) DFC 95–170. -- 7 of 10 -- 8 which they were or expected to become involved together.9 In many of these cases there has been a pooling of funds although that is not essential. The present case may, however, be distinguished from cases of this kind in several ways. [26] In the first place, the assets acquired were of a purely commercial kind and there was no question of an expectation that both parties would be involved in their use. Where assets acquired in the name of one of the parties are of a domestic kind or comprise a small business in which the parties contemplate working together, domestic work done or domestic payments made by one of the parties can readily be seen as contributing to the acquisition of those assets even where there has been no pooling of funds. But it is much more difficult to see any such nexus between domestic expenditure or work and the acquisition of assets the acquisition of which requires the successful management of a large business enterprise of the kind and size which the first respondent conducted with his brother. [27] Secondly, although there was some pooling of resources in this case, it was of a limited kind and for a limited purpose. It is true that both the appellant and the first respondent contributed from their own bank accounts, albeit separately, to the general running of the household; and that the first respondent, as he conceded, wished to benefit the family which included the appellant. But none of this, in our view, shows a pooling of resources or any expectation of it except for the limited purpose of running their household and then only in the sense that each contributed labour and money to that purpose, the source of the appellant's money being, in substantial effect, a gift from the first respondent. [28] In no other way can any connection be seen between the appellant's domestic services and the acquisition of the first respondent's separate assets or the assets from which they were derived. That is not to denigrate, in any way, the quality or value of the domestic contribution of the appellant to the welfare of the parties and their children. No serious criticism was made of the quality of the services which the appellant provided in the domestic environment both in caring for and doing domestic work for the first respondent and in caring for the children. All that was said in this context was that the first respondent also made a contribution to their domestic obligations, a contribution which increased substantially after his retirement in 1981. [29] However to recognise the quality of the appellant's domestic contribution to the happiness and welfare of members of the family unit including the first respondent is not to say that that contribution had any significant effect on the gaining, improvement or maintenance of the assets from which each derived their separate capital assets and income. In considering that question it must be borne in mind that, of the 24 years in which the first respondent was in the development business, 15 of them were before cohabitation commenced and only eight thereafter, the first eight of their 15 year cohabitation; and that the first respondent was already wealthy when cohabitation commenced. The likelihood is that those assets were acquired, and their value increased, entirely by the business acumen and the entrepreneurial skills of the first respondent and his brother. [30] For those reasons, we think that the learned trial judge was correct in concluding, as he did in effect, that there was no sufficient nexus between the domestic and other work done by the appellant and the gaining, improvement or retention of those assets to justify the imposition of the constructive trust which she sought. But even 9 As in Fuller v Meehan [1999] QCA 37; Appeal No 1323 of 1998, 26 February 1999 and Dunne v Turner. -- 8 of 10 -- 9 if the appellant had established that nexus, we do not think that she would have been able to prove that, having regard to the assets and income which she received from those assets, the retention by the first respondent of his separate assets would have been unconscionable. The following indicates why we reach that conclusion. [31] In the first place the resolution of this question would require some measurement of value of the respective nett assets of each at the time of separation. As appears from what has been said so far the evidence does not permit that to be done. Whilst it is possible to make some rough estimate of the appellant's nett assets at that date10 it is not possible to do so at all in respect of the first respondent's.11 The best that the appellant can do is to point to the respective book values of their assets shortly after the date of separation12 which, whilst it is likely to be a most unreliable guide to the real value of those assets, may be some guide to their comparative values. On that basis it would show that the comparative values of the appellant's and the first respondent's assets were in the proportions of 1:7. But without having some reliable measure of the value of the first respondent's assets at separation or of the totality of their assets at that date that seems an unsatisfactory basis of assessing either of those values. [32] Next it would require an assessment of the extent to which the appellant contributed work and the first respondent contributed work, expertise and money to the acquisition, maintenance and preservation of the totality of the assets from which the separate assets of the parties were acquired. Such an assessment may provide little difficulty where there has been a pooling of funds by the parties for the acquisition of assets for their domestic use. In many such cases equity will favour equality of interest in those assets or, where there has been sufficient disparity between individual contributions, it is appropriate to apportion the parties' interests in proportion to the amounts of their contributions.13 However in a case like the present where the appellant's contribution consisted of domestic work, caring for the respondent and their children over a period of 15 years and a small amount of work for the Engwirda companies and the first respondent's included a substantial money contribution as well as entrepreneurial skill and business acumen which enabled him to acquire a substantial fortune partly before and partly during cohabitation, both the way in which the task of assessment should be approached and the consequence of its application are very much more difficult. [33] It may be assumed that the proper method of approach will be by assessing the respective proportions in which the appellant's and the first respondent's contributions resulted in the acquisition, maintenance or preservation of the assets from which their separate assets and income were derived; by concluding then that the appellant was entitled to that proportion of the total assets which corresponds with her proportional contribution; and, if that entitlement exceeds the assets and income which she received, by declaring a trust, to the extent of that excess, over the first respondent's assets.14 10 See [10]. 11 See [6]. 12 See fn 3. 13 Baumgartner fn 5 is an example of this. 14 That approach appears to accord with that taken by the Canadian Supreme Court in Peter v Beblow (1993) 101 DLR (4th) 621 at 650 – 652 where a constructive trust is held to be the appropriate remedy for unjust enrichment in a domestic relationship like this. See also K Farquhar, "Unjust Enrichment – Special Relationship – Domestic Services – Remedial Constructive Trust: Peter v Beblow" (1993) 72 Canadian Bar Review 538. -- 9 of 10 -- 10 [34] However we could not be satisfied that if, contrary to the view expressed earlier, the appellant's work did contribute to the acquisition, maintenance or preservation of those assets, it did so to a greater proportion, when compared to the first respondent's contribution, than is represented by the amounts of capital and income which the appellant received from those assets. That is not just because of insufficiency of evidence. Even on the assumption that the proportions in which the parties received assets and income from those assets were such that the first respondent's proportion were seven times that of the appellant's, we could not be satisfied that, having regard to the overwhelming extent to which the first respondent contributed to the acquisition of those assets, that was unconscionably high. [35] For the reasons given earlier, in our opinion, these appeals must fail. We would therefore dismiss them with costs. -- 10 of 10 --