The presumption of advancement is alive and well intended

Where two parties have contributed to the purchase price of a property, but legal title is held by only one of the parties, the law assumes that the party with legal title holds it on trust for the other party to the extent of that other party’s contribution.

This is called “a resulting trust” and dates from the medieval “Wars of the Roses”.

However, there is an exception to this principle by which the law presumes that because a particular relationship existed between the parties, the contribution was intended to be a gift.

This is called “the presumption of advancement”.

The presumption has been held to apply to a number of relationships, for example, to transfers from:

• Husband to wife;

• Male to female fiancés; and

• Parent to child.

One might think that both presumptions are anachronistic and inappropriate in a modern society which recognises by statute de facto relationships in proceedings concerning property and same‑sex marriage.

The UK has passed legislation to abolish the presumption of advancement expressly on the basis that it involves unlawful discrimination.

In Australia, in Bosanac v Commissioner of Taxation, the High Court of Australia most recently commented that: “The presumption of advancement, understandably, is especially weak today” and that: “it has long been recognised that the limited classes of relationships of close trust from which the ‘presumption’ arises may not accord with contemporaneous practices and modes of thought".

Nonetheless, in the Bosanac case the High Court unanimously allowed an appeal from the Full Court of the Federal Court and in so doing, confirmed that the law in Australia is that, in the absence of any evidence to the contrary, a spousal relationship is a circumstance of fact which will give rise to a presumption of advancement. Put another way (as it was by Gordon and Edelman JJ), a spousal relationship is one circumstance of fact in which the presumption of a resulting trust does not arise.

Conversely, the High court rejected the respondent’s contention that the presumption of advancement should be abandoned as a legal doctrine.

Indeed, the High Court could be seen as having breathed further life into the presumption saying: “Given the significance of a relationship of close trust in finding the objective facts, there may well be scope in the future to extend the "presumption" of advancement to a broader range of relationships”.

Mr Bosanac and Ms Bosanac were husband and wife. Ms Bosanac purchased a property financed by loans taken out jointly with Mr Bosanac. The deposit of $250,000 was also paid from a joint account.

Legal title in the property was held by Ms Bosanac only, and both Mr Bosanac and Ms Bosanac lived together in the property for 7 years.

In April 2016, the Commissioner of Taxation obtained a judgment against Mr Bosanac for over $9 million.

In the context of trying to recover the debt, the Commissioner sought a declaration in the Federal Court that Ms Bosanac held 50% of the property on a resulting trust for Mr Bosanac, so that Mr Bosanac had an equitable interest in the property which could be realised to pay the judgment debt.

The Commissioner argued that the presumption of resulting trust applied but that the counter-presumption of advancement did not. Key to determining the answer to these questions was the intention of Mr Bosanac at the time the property was purchased.

The Commissioner was unable to produce any evidence as to Mr Bosanac’s actual intention at the time of the purchase of the property.

So, the Commissioner argued that as the property was the matrimonial home, an inference could be drawn that it was intended that each spouse would hold a one-half interest in the property. The Commissioner contended that Mr Bosanac did not intend to gift to Ms Bosanac his contribution to the purchase of the property, as evidenced by the facts that:

1. Mr and Ms Bosanac moved into the home and lived together for more than 7 years, meaning Mr Bosanac also benefitted from the purchase of the Property.

2. Mr Bosanac borrowed funds to contribute to the property which were in part secured by a mortgage over the property in favour of Westpac granted by Ms Bosanac.

3. Mr and Ms Bosanac were both liable to repay the loan for the purchase of the Property, meaning Mr Bosanac assumed a substantial liability without the benefit of having legal title.

Ms Bosanac argued that:

1. Ms and Mr Bosanac had a history of holding their substantial assets separately.

2. Ms Bosanac contracted to purchase the property alone and the purchase contract required Ms Bosanac to acquire finance.

3. Mr Bosanac was doing no more than facilitating Ms Bosanac's acquisition of the property by assisting in paying the deposit and entering into the joint loans for the purpose of funding the purchase.

4. Ms Bosanac was and remained the sole registered proprietor of the property.

5. Ms and Mr Bosanac could have jointly purchased the property, signed the contract together, and registered it in their joint names, but did not.

The Federal Court found against the Commissioner, but that decision was overturned on appeal by the Full Court, which declared that Ms Bosanac held 50% of her interest in the property on trust for Mr Bosanac.

The High Court disagreed with the Full Court, reasoning that no inferences could be drawn from the evidence of the circumstances that would give rise to a presumption of a resulting trust, and as such the presumption of advancement applied due to the relationship of husband and wife.

Takeaway

In any case where the legal title to a property doesn’t reflect the contributions to the purchase price of the parties who funded the purchase, the critical factor is the intentions of the parties.

Where it is impossible to prove the actual intention of the parties (from evidence given directly by them), inferences can be drawn from evidence of the circumstances of the purchase.

But, if that evidence is equivocal, the presumptions of a resulting trust and of advancement will determine the matter.

It is best then, for parties to clearly record their intentions in writing. Otherwise, they may well find themselves embroiled in long, expensive and stressful Court proceedings which have unintended consequences.

At Bartier Perry we are experienced in advising and representing clients who find themselves caught in property and trust disputes of this kind. Please contact the author or any of our Commercial Disputes partners if you require assistance.

Author: David Creais