By Bonnie McMahon a Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
When an individual becomes a bankrupt, it is not unusual for their spouse or de facto partner, to claim they have a beneficial interest in the bankrupt’s real property, pursuant to either a resulting or constructive trust.
In Yeo & Rambaldi v Arifovic & Anor  FCCA 604, the Federal Circuit Court was faced with this very issue, when the trustees of Mr Arifovic’s (“the Bankrupt”) bankrupt estate, applied for the sale of a property owned solely by the Bankrupt. The Bankrupt’s de facto partner, Ms Hocking, alleged that she held a 100% beneficial interest in the property, which she described in her caveat on the property as an interest under an “implied, resulting or constructive trust”. The trustees accepted that Ms Hocking did hold a beneficial interest in the Property on the basis of a constructive trust, however, they asserted that this interest was limited to 32.5%.
Ms Hocking’s for 100% of the property was based on claims regarding payment of mortgage amounts, plus $80,000 in renovations and improvements and her application of “many funds to expenses associated with the property. In addition she claimed non-financial contributions regard labouring tasks at the property to save on fees for trade services.
The Court rejected the suggestion of a resulting trust quickly. A resulting trust is based upon presumptions of law arising from the payment of the purchase price of a property. However in this matter:
- The bankrupt had purchased the property solely in his name;
- The bankrupt was the sole borrower under the mortgage; and
- Ms Hocking made no financial contributions to the purchase price.
The Court followed recent authorities that there are considered to be 2 types of constructive trusts:
- A common intention constructive trust – where the claimant acted to her detriment on a common intention that she had an interest in the property, even if not registered; and
- A Muschinski / Baumgartner constructive trust (based on the 2 principal High Court authorities) where it would be unconscionable for the legal owner of property to deny an interest of another person who had made non-/financial contributions to a joint relationship.
In Arifovic the Court held there was no evidence of any common intention for Ms Hocking to have an interest in the property, and no evidence that she had relied on any such intention to her detriment.
However, the Court was prepared to find that Ms Hocking had acquired a beneficial interest in the property under a Muschinski / Baumgartner Constructive Trust”, based on her financial (but not her non-financial contributions) to the property and the payment of the expenses of the relationship.
The trustees set out detailed calculations (based on analysis of the couples’ bank statements and other evidence) of Ms Hocking’s financial contributions which the Court accepted added up to 32.52% of the total contributions made by the parties (after various adjustments).
As to her non-financial contributions, Ms Hocking also argued that she had contributed a further $60,000 towards the property, in the form of labour, charged at a rate of $30 an hour. The Court did not agree with Ms Hocking’s claim, noting that most homeowners do not charge a fee “in relation to personal exertion expended on improvements of their principal place of residence.” For this reason, the Court found that there was no lawful basis to allow Ms Hocking any amount, for her work improving the property.
The Court has not yet determined the question of costs in this case, but suggested that Ms Hocking’s lack of assistance and cooperation with the trustees may contribute to how costs are assessed in this case, with the Court noting that:
“Ms Hocking is not entitled to express her frustration in the result that has been obtained in this case by mounting the personal vitriol that she has shown towards the trustees. They are officers of the court charged with the difficult task of examining the often confusing and conflicting financial arrangements of bankrupts.”
Trustees in bankruptcy faced with claims relating to resulting or constructive trusts should contact Matthews Folbigg, to obtain specialist legal advice on this issue.
Read the judgment here https://jade.io/article/527656.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Bonnie McMahon at firstname.lastname@example.org or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or email@example.com
Stephen Mullette on (02) 9806 7459 or firstname.lastname@example.org.