Property Disputes Involving Siblings – An Incredible Case of Betrayal

This case study explores a property dispute between siblings, whose previously strong relationship turned sour following numerous breaches of trust, including the unknowing removal of directorship from a company, the sale of property and misappropriation of funds.

Robinson Gill’s Commercial Litigation Team has acted for a married couple Tom and Tina (pseudonyms), in relation to a dispute with Tina’s younger brother Jack (also a pseudonym). It serves as a cautionary narrative for individuals embarking on any property-related agreements, irrespective of whether they involve trusted family members.

Background

Jack had migrated to Australia first and was familiar with its property market. In preparation for joining Jack in Australia, Tom and Tina began applying for resident visas, but wanted to start investing in properties before they had obtained them. So in 2009, Tina approached her brother and decided that she and her husband would provide the funds to buy properties and have him manage them in Australia. In return, they agreed to pay him a management fee and give him 5% interest in any profit in the sale of the properties, like a business partner. As part of this, they incorporated a company ‘ABC Pty Ltd’, where they were all directors. Tom and Tina together held 95% of the shares, and Jack held 5%.

The parties did not sign any written agreement. As sister and brother, they trusted each other and believed that this would be a very secure family arrangement.

Without Tom or Tina’s knowledge, Jack then set up a family trust for the sole benefit of his immediate family and with him as the controlling person, and ABC Pty Ltd was nominated the trustee of the Trust.

In 2009 and 2010 two properties were purchased in the name of ABC Pty Ltd for over $2 million. Tom and Tina funded the entire purchase price and believed that they held 95% interest in the properties - but that was not the case. When the properties were purchased, they were put in the name of ABC Pty Ltd but as trustee for Jack’s family trust. This actually meant that legally both properties were held for the sole benefit of Jack’s family, and Tom and Tina had no interest in the properties at all.

In late 2010, Jack also removed Tom and Tina as directors of the Company without their knowledge or consent.

Jack rented the properties out and received rental income which was paid into the company’s account. As the sole director of the company, he also caused funds to be transferred out of the company’s accounts for his sole benefit. While residing in China at that time, his sister opted not to review or access the company's bank account, trusting her brother to manage all financial matters and uphold the agreed-upon arrangements regarding income and profits.

In 2014, Jack also sold one of the properties. He was able to do so and sign the contract without Tom and Tina’s knowledge, as they had been removed as directors. Tom and Tina also did not know what Jack had done with the proceeds of sale.

Investigating the betrayal and commencing proceedings

When Tom and Tina eventually came to Australia in 2016, they engaged Robinson Gill to undertake an investigation, where they found out for the first time that they had been removed as directors of ABC Pty Ltd, and that one of the properties had, to their surprise, been sold.

Robinson Gill’s team were able to conduct thorough online searches to determine the facts stated above and commence proceedings. During discovery, bank statements were acquired, revealing that Jack had misappropriated a considerable sum from the company's account.

Tom and Tina claimed that Jack’s conduct was in breach of the agreement (although only verbal) and the fiduciary duties he owed to them as joint venture partners. Through settlement negotiations, Jack agreed to transfer the remaining property into Tom and Tina’s sole name, and paid additional compensation to them by way of damages.

Painful lessons learnt

Irrespective of whether you are close family members or even friends, if you go into a joint venture or an arrangement to buy/develop properties together, you must consider the following points:

Make sure you engage lawyers to draft a proper joint venture (‘JV’) agreement, which clearly sets out the parties’ respective roles, responsibilities and rights. If you are the party who is providing the funds (or majority of them), you must also consider how the funds should be treated and repaid. The JV agreement should also contemplate an exit strategy. People’s circumstances do change and one party may not be able (or want) to stay in the venture until the end.
Legal documents are not everything. Ensure diligent monitoring of the property or the company, either by yourself or through professional advisors. At the very least, you should ensure that you have the ability to access the bank account and know what’s going on. Our team can help in setting up alerts which can trigger a notification of any change to a company. This will avoid a surprise that you are no longer a company’s director.
Lodging a caveat. In this case study, if Tom and Tina had sought Robinson Gill’s advice when they entered into the arrangement with the brother, our team would have recommended that certain arrangements be put in place to enable them to lodge a caveat on both properties. This would avoid the property being sold without their knowledge.
Commencing proceedings is the last resort, but is sometimes inevitable. In this case, Tom and Tina did try to negotiate with Jack before commencing proceedings, but he was not willing to admit his liability or pay any money back. Tom and Tina achieved their desired outcome thanks to the expertise of experienced lawyers who navigated the litigation process and formulated an effective strategy from the outset.

Our Commercial Litigation Team have significant experience in handling disputes that relate to investors, financiers, builders, real estate agents, landlords, tenants, contractors and other service providers.

As this case study demonstrates, it is imperative that anyone entering into a property related business arrangement does so with the guidance of experienced legal professionals. The risks are too great, regardless of how well you know or trust those you are doing business with.

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How can I learn more?

Lu Cheng.

Principal.

Disputes & Business Law
03 9890 3321
Email Address: l.cheng@robinsongill.com.au

Make an Appointment

03 9890 3321
l.cheng@robinsongill.com.au

Make an Appointment

Lu is an Accredited Specialist in Commercial Litigation. She holds a Bachelor of Law from the University of Melbourne and was admitted to practice in 2008.

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