Nelson v Nelson
[1995] HCA 25(Judgment by: Dawson J)
Nelson
vNelson
Judges:
Deane J
Dawson JToohey J
Mchugh J
Gummow J
Legislative References:
Defence Service Homes Act 1918 (Cth) - s 4(1); The Act
Real Property Act 1900 (NSW) - The Act
Defence Service Homes Amendment Act 1988 (Cth) - The Act
Land Act 1962 - s 91; s 296
Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) - s 19
Life Assurance Act 1774 (UK) - The Act
Crimes Act 1914 (Cth) - The Act
Banking Act 1959 (Cth) - The Act
Family Law Act 1975 (Cth) - Section 66B(1); The Act
Statutory Declarations Act 1959 (Cth) - s 11; The Act
Banking Act 1959 (Cth) - s 8
Case References:
-
Judgment date: 9 November 1995
Sydney
Judgment by:
Dawson J
This is a case in which a mother provided the purchase money for a house which was transferred into the names of her son and daughter, both of whom were adults. The purpose of this arrangement was to enable the mother, should she subsequently wish to purchase another house for herself, to obtain a subsidised advance upon favourable terms under the Defence Service Homes Act 1918 (Cth). Under that Act, the mother would not have been eligible for the subsidised advance if she were the owner of another house.
2. More than a year and a half later the mother did purchase another house for herself. She applied for and received a subsidised advance under the Defence Service Homes Act, falsely declaring that she did not own or have a financial interest in a house other than the one for which the advance was sought. This declaration was false because the mother claimed, as she does in this litigation, that she was the beneficial owner of the house for which she had previously provided the purchase money.
3. In falsely declaring that she had no interest in another house, the mother may have committed offences under other legislation [110] , but the Defence Service Homes Act did not make it an offence. It merely provided that the Commonwealth might recover as a debt the amount of the subsidy paid as the result of a false statement [111] . It also provided that the Commonwealth might waive the debt or allow it to be paid by instalmentsm [112] . However, the illegality involved was not a breach of the Defence Service Homes Act. It was the fraud involved in obtaining a subsidised advance upon a false basis. The illegality of that act was not dependent upon any policy revealed by the Defence Service Homes Act but arose from the nature of the act itself.
4. The house which was in the names of the son and daughter was sold and the mother claims to be entitled to the proceeds. The son concedes his mother's entitlement, but the daughter, having fallen out with her mother, claims half of those proceeds.
5. Two questions arise. The first is whether the presumption of advancement applies to the payment of the purchase price and the transfer of the house to the son and daughter. If it does not, the son and daughter hold the proceeds of sale upon a resulting trust in favour of their mother because she provided the purchase price. The other question is whether the mother is precluded from recovering the proceeds because of the illegal purpose of the arrangement whereby the house was placed in the names of the son and daughter.
6. This appeal is from the New South Wales Court of Appeal which applied a recent decision of its own [113] and held that a presumption of advancement now applies to a gift made by a mother to her children as it has applied in the past in the case of a gift made by a father to his children. The effect of the presumption is to displace any resulting trust with the inference that a transfer of the beneficial, as well as legal, ownership was intended.
7. The presumption of advancement can, like a resulting trust, be rebutted by evidence of actual intention, but in attempting to rebut the presumption in this case the mother was forced to reveal the true purpose of the arrangement between her and her children. That purpose, being to defraud the Commonwealth, was illegal and had been carried into effect. The Court of Appeal held that those circumstances precluded the mother from being granted relief.
8. In my view, the Court of Appeal was correct in concluding that, in accordance with its previous decision in Brown v Brown [114] , the presumption of advancement should now be regarded as applying in the case of gifts by a mother, as well as a father, to a child. In Scott v Pauly [115] , Isaacs J observed that the drawing of a distinction between a mother and a father in this regard had not been judicially doubted [116] . Even then, apparently, some text writers doubted whether the presumption should have been viewed so narrowly. But circumstances have changed since Isaacs J made his observation. He viewed the presumption as being founded upon "an obligation in conscience to provide for a child" [117] . Now, unlike then, the Family Law Act 1975 (Cth) imposes upon both parents "the primary duty to maintain the child", the object being to ensure "that parents share equitably in the support of their children" [118] . Those provisions reflect the changed responsibility as between parents for the maintenance of their children and hence in their relationship with their children.
9. In Calverley v Green Gibbs CJ said [119] :
"The principle upon which the presumption of advancement rests does not seem to me to have been convincingly expounded in the earlier authorities, nor do the two presumptions, of a resulting trust and advancement, together always lead to a result which coincides with that which one would expect to occur in ordinary human experience. ... In Wirth v Wirth [120] Dixon CJ put the law on a more rational basis."
10. Wirth v Wirth was a case in which the presumption of advancement was extended in its application to a transfer of property by a prospective husband to his intended wife in contemplation of marriage. In that case Dixon CJ took a wider view of the basis for the presumption. He said [121] :
"While the presumption of advancement doubtless in its inception was concerned with relationships affording 'good' consideration, it has in the course of its growth obtained a foundation or justification in the greater prima facie probability of a beneficial interest being intended in the situations to which the presumption has been applied."
In modern society there is no reason to suppose that the probability of a parent intending to transfer a beneficial interest in property to a child is any the more or less in the case of a mother than in the case of a father.
11. In Calverley v Green Gibbs CJ thought that the presumption of advancement should be raised when the relationship between the parties is such that it is more probable than not that the transfer of a beneficial interest was intended, whether or not the purchaser owed the other a legal or moral duty of support. He was alone in this view, but not, I think, in the view that it would not be characteristic of the doctrines of equity "to treat established categories as frozen in time" [122] . As Deane J pointed out [123] the categories of relationships giving rise to the presumption of advancement "are not ... finally settled or closed, at least in this Court" [124] .
12. In my view, whether the basis for the presumption is a moral obligation to provide for a child or the reflection of actual probabilities, there is no longer any justification for maintaining the distinction between a father and a mother. In the United States the presumption of advancement applies alike to a mother as well as a father [125] and that should now be the situation in this country.
13. The mother in this case must, therefore, rebut the presumption of advancement to establish a beneficial entitlement to the proceeds of sale of the house. That is to say, in order for there to be a resulting trust in her favour, she must rebut the presumption of advancement, which is in reality an exception to the basic presumption that a resulting trust occurs where the legal title to property is vested in a person other than the person who provided the purchase price. In doing so she must, of necessity, explain why she did not intend to make a gift to her son and daughter and so reveal her illegal purpose.
14. The attitude of the common law towards illegality is contained in the principle that a court will not lend its aid in enforcing a cause of action which is founded upon an immoral or illegal act [126] . It is expressed in the maxim ex turpi causa non oritur actio and is based upon public policy. Although a party to litigation cannot succeed if he has to rely upon his own illegality, the mere fact that a transaction is illegal does not prevent property from passing under it [127] . As Lord Denning said in Singh v Ali [128] :
"The reason is because the transferor, having fully achieved his unworthy end, cannot be allowed to turn round and repudiate the means by which he did it - he cannot throw over the transfer. And the transferee, having obtained the property, can assert his title to it against all the world, not because he has any merit of his own, but because there is no one who can assert a better title to it." [129]
Thus in Bowmakers Ltd v Barnet Instruments Ltd the Court of Appeal said [130] :
"In our opinion, a man's right to possess his own chattels will as a general rule be enforced against one who, without any claim of right, is detaining them, or has converted them to his own use, even though it may appear either from the pleadings, or in the course of the trial, that the chattels in question came into the defendant's possession by reason of an illegal contract between himself and the plaintiff, provided that the plaintiff does not seek, and is not forced, either to found his claim on the illegal contract or to plead its illegality in order to support his claim."
15. In equity, however, the relevant principle is to be found, not in the common law maxim ex turpi causa, but in the maxim that he who comes to equity must come with clean hands [131] . The related equitable principle has had a wider application than the common law maxim because, notwithstanding the existence of an equitable interest, equity has refused to lend its aid in enforcing it if it is the result of an illegal transaction or has been acquired for an illegal purpose. It has been considered that it is a sufficient bar to equitable relief that the person claiming the relief is tainted with the illegality. The principle was expressed by Lord Eldon in Muckleston v Brown [132] :
"the Plaintiff stating, he had been guilty of a fraud upon the law, to evade, to disappoint, the provision of the Legislature, to which he is bound to submit, and coming to equity to be relieved against his own act, and the defence being dishonest, between the two species of dishonesty the Court would not act; but would say, 'Let the estate lie, where it falls.'"
16. However, an illegal purpose will not prevent an equitable interest from arising, because the law recognises a locus poenitentiae and, if the illegal purpose has not been carried out, a court will uphold the interest [133] . But there are cases which decide that if the illegal purpose has been carried out, a claimant will not be heard to assert a claim to the equitable interest notwithstanding that, because of the existence of a locus poenitentiae, that interest must have arisen.
17. That principle has been applied in a number of cases to defeat a claim of a resulting trust where the claimant has, in attempting to rebut the presumption of advancement, been forced to reveal an illegal purpose to the transaction. More recent examples are to be seen in Gascoigne v Gascoigne [134] , In re Emery's Investments Trusts [135] and Palaniappa Chettiar v Arunasalam Chettiar [136] .
18. In Tinsley v Milligan [137] a house was purchased by two single women using their joint funds. The house was placed in the name of one of the women, the plaintiff, to assist in the perpetration of frauds on the Department of Social Security. The plaintiff claimed beneficial ownership of the house. The other woman, the defendant, counterclaimed for a declaration that the house was held on trust for both of them in equal shares. The relationship between the two women raised no presumption of advancement and the only question was whether a resulting trust of the Gissing v Gissing [138] type arose because of the manner in which the purchase price was provided. The plaintiff, in answer to the defendant's counterclaim, revealed the illegal purpose for which the house was transferred to her alone.
19. The Court of Appeal held [139] by a majority (Nicholls and Lloyd LJJ; Ralph Gibson LJ dissenting) that even if there were in the past a rule of equity requiring a court to refuse relief where it appeared that property was transferred for an illegal purpose - a rule that the estate should lie where it fell - by analogy with cases at common law involving the maxim ex turpi causa, a more flexible approach should now be adopted. In several cases [140] there had evolved what became known as "the public conscience" test which required a court in the application of the maxim to balance the adverse consequences of granting relief against the adverse consequences of refusing relief. Applying that test in the case before them, the Court of Appeal held that there was no bar to a declaration of a resulting trust notwithstanding the revelation of the illegal purpose of the arrangement between the plaintiff and the defendant.
20. An appeal to the House of Lords was dismissed (Lord Keith of Kinkel and Lord Goff of Chieveley dissenting), but Lord Browne-Wilkinson, with whom Lord Jauncey of Tullichettle and Lord Lowry agreed, rejected a test depending "on such an imponderable factor as the extent to which the public conscience would be affronted by recognising rights created by illegal transactions" [141] . He accepted, however, that the same rule ought to apply both at common law and in equity in relation to a property right acquired under an illegal transaction.
21. He concluded that at common law, property in chattels and land can pass under a contract that is illegal and therefore unenforceable; that a plaintiff can at law enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right; and that it is irrelevant that the illegality of the underlying agreement was either pleaded or emerged in evidence: if the plaintiff has acquired legal title under the illegal contract that is enough [142] .
22. In order that the same rule should apply whether a claim is founded upon a legal or equitable title, the correct principle was said to be that a claimant is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relies was acquired in the course of carrying out an illegal transaction [143] . The recent cases which appeared to apply the wide principle laid down by Lord Eldon were explained as being in truth cases in which the presumption of advancement could not be rebutted without reliance upon the illegality.
23. Agreeing, as I do, that disconformity is undesirable in the rules relating to illegality at law and in equity, I find difficulty in accepting the distinction drawn in Tinsley v Milligan between a resulting trust established without the need to rebut the presumption of advancement and a resulting trust that can only be established by rebutting that presumption. In the former case, according to the decision, an illegal purpose does not preclude relief because the resulting trust will be presumed upon proof that the purchase price was paid by the party asserting the trust without any need for that party to place reliance upon the illegal purpose. In the latter case, however, where the presumption of advancement cannot be rebutted without revealing the illegal purpose, there can be no assertion of a resulting trust. The distinction can hardly be based upon a policy of discouraging the transfer of property for an illegal purpose because a knowledgable transferor would choose a transferee other than one who could take advantage of the presumption of advancement. Moreover, where a presumption of advancement applied, the distinction would be such as to lead the transferee to encourage the carrying out of the illegal purpose so as to acquire a benefit for himself. And, if the presumption of advancement cannot be rebutted because of the revelation of an illegal purpose, the result is a windfall gain to the transferee who may in fact share the illegal purpose.
24. Once it is recognised that Lord Eldon's broad rule exceeds the true scope of the equitable maxim that he who comes to equity must come with clean hands and that a party who the evidence reveals is tainted with illegality may nevertheless succeed, as in Tinsley v Milligan, in establishing a resulting trust, it seems to me to be unacceptable that a party, tainted by a similar illegality, cannot establish a resulting trust merely because evidence advanced to rebut the presumption of advancement reveals the illegality. The different result is entirely fortuitous being dependent upon the relationship between the parties and is wholly unjustifiable upon any policy ground. That the transfer of property by a husband to his wife for an illegal purpose and not intended as a gift should not give rise to a resulting trust whereas a similar transfer of property by a man to his de facto wife [144] for a similar illegal purpose should do so, because in the former instance the husband is required to rebut the presumption of advancement and cannot do so merely because he would reveal the illegal purpose, cannot, in my view, have any basis in principle. If, as it does, a locus poenitentiae exists, then there is an existing equitable interest in each instance [145] . It is simply that in the former instance the husband will not be heard to assert its existence. In the words of Lord Browne-Wilkinson in Tinsley v Milligan [146] in each instance:
"The effect of illegality is not substantive but procedural. The question therefore is, 'In what circumstances will equity refuse to enforce equitable rights which undoubtedly exist.'"
25. Nor, in my view, can it be said that a party seeking to rebut the presumption of advancement in the case of a transaction for an illegal purpose is forced to rely upon his own illegality. What must be established in order to rebut the presumption is that no gift was intended. There may be an illegal purpose for the transfer of the property and that may bear upon the question of intention [147] , but it is the absence of any intention to make a gift upon which reliance must be placed to rebut the presumption of advancement. Intention is something different from a reason or motive. The illegal purpose may thus be evidentiary, but it is not the foundation of a claim to rebut the presumption of advancement [148] . Both the presumption of a resulting trust and the presumption of advancement may be rebutted by showing the actual intention of the parties [149] . Each presumption dictates where the evidentiary burden of doing so lies. But that affords no basis for drawing a distinction between the effect of an illegal purpose where the presumption of advancement applies and where it does not. Reliance is placed in each case upon the intention of the parties, whether aided by a presumption or not, and not upon the illegality.
26. Justification for the view that the presumption of advancement may be rebutted so as to allow a resulting trust to arise, notwithstanding that the rebuttal reveals that the transaction involved was for an illegal purpose, is to be found in the principle that illegal conduct on the part of a person claiming equitable relief does not in every instance disentitle that person to the relief. The illegality must have "an immediate and necessary relation to the equity sued for" [150] . Where reliance is not placed upon the illegality - where the court is not asked to effectuate the illegal purpose but merely to recognise an interest admittedly in existence - there is not, in my view, an immediate and necessary relation between the illegality and the claim. The illegal purpose in those circumstances has been effectuated without any intervention by the court and the property right has passed. If there is to be a correspondence between the rules at common law and in equity, then the property right ought to be recognised notwithstanding that it is the result of an illegal transaction. The relevance of the illegal transaction is confined to explaining how the property right arose; to "providing the basis of (a) claim to a property right" [151] .
27. In the present case, the purchase of the first house by the mother and the placing of it in the names of the son and daughter took place a considerable time before the failure of the mother to disclose her interest in her application for an advance. During the whole of that time the mother was in a position to rebut the presumption of advancement and to claim the beneficial interest in the house which had passed to her. Given the existence of that interest and the fact that, had it been a legal interest, it would have been recoverable withstanding the maxim ex turpi causa, I do not think that it should be concluded that the mother in her claim for equitable relief placed reliance upon her fraudulent conduct in any direct or necessary way. The purchase of the house did not of itself involve any fraud and the relevance of the illegal purpose, which was at the time of the purchase yet to be carried into effect, was at most to explain why the purchase did not constitute a gift to the children. The amount of the subsidy paid as a result of the mother's fraud is recoverable by the Commonwealth so that the mother cannot, without qualification, be said to be entitled to the benefit of having carried out her illegal purpose.
28. I would allow the appeal and make the declarations and order sought by the mother and son. The mother is, on the view which I have expressed, entitled to the relief which she seeks and I see no reason to place conditions upon granting it. The Commonwealth may or may not wish to recover the amount of the subsidy from the mother and to do so wholly or in part or upon terms. That is a matter for the Commonwealth and I do not think that it is any part of the Court's function to assist it in these proceedings to which it is not a party. As I have said, the illegality in this case arose from the fraudulent conduct of the mother upon which any policy revealed by the Defence Service Homes Act throws no light. It is not, in my view, a case which is comparable with cases such as Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd [152] where the policy of the Banking Act 1959 (Cth), in making it illegal to carry on business as a banker without an authority, gave the answer to the question whether transactions carried out in the course of conducting an unauthorised banking business should or should not be viewed as illegal and void.