By and -

Key decisions

  • El-Debel v Micheletto (Trustee) [2021] FCAFC 117
  • Epic Games, Inc v Apple Inc [2021] FCAFC 122


Appeals from decision finding whole or part of interests in properties held on resulting trust for bankrupt – properties registered in names of parties associated with bankrupt – whether bankrupt provided all or part of purchase price – presumption of resulting trust

El-Debel v Micheletto (Trustee) [2021] FCAFC 117 (30 June 2021) (Markovic, Derrington and Colvin JJ).

Background: The trustees of the bankrupt estate of Mr Bachar El-Debel (‘Current Trustees’) alleged that all or part of the purchase price for four parcels of land registered in the names of parties associated with the bankrupt had been provided by him and therefore the whole or part of the interests of those associated parties in the properties were held on resulting trust for the bankrupt and was property divisible among the creditors of the bankrupt.

Two appeals were brought against the decision by the primary judge who upheld the claims of the Current Trustees. The first appeal, brought by the bankrupt, his wife and his mother, was confined to discrete points of law while the second appeal, by a company associated with the bankrupt, challenged the inferential reasoning process used by the primary judge in upholding the claims by the Current Trustees.

The decision provides a timely and helpful reminder of the principles concerning resulting trusts, including the circumstances in which a presumption of a resulting trust will be rebutted, the proper approach to factual findings on appeal and guidance as to the process of inferential reasoning.

Principles concerning resulting trusts: The legal reasoning by the primary judge as to the principles to be applied in determining whether property is held on resulting trust was accepted as being correct by all parties to the appeals. This reasoning was:

  • a presumption of a resulting trust arises where one person provides the purchase price of property which is conveyed into the name of another person;
  • in deciding whether a presumption of a resulting trust has been rebutted the Court must reach a conclusion on the whole of the evidence;
  • the presumption of a resulting trust may be rebutted by evidence which manifests an intention to the contrary, but should not give way to slight circumstances;
  • the extent of the beneficial interest of the parties arising by reason of a resulting trust must be determined when the property was purchased;
  • it is the intention of the person who provides part of the purchase price that is relevant when considering whether the presumption may be displaced by contrary evidence;
  • if part of the purchase price is provided by being borrowed on a mortgage, the presumption of a resulting trust is applied by treating the moneys raised by the mortgage as a contribution by the person who is liable to repay that money.

Proper approach to factual findings on appeal: To succeed, an appellant must demonstrate an error of law or an error infecting a finding of fact (see Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at [20]-[30] and Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC 93; (2018) 261 FCR 301 at [45]-[53]).

Where factual error is alleged, an appellate court must show restraint with respect to interference with such primary or secondary factual findings by the trial judge as were likely to have been affected by the trial judge’s impressions as to witness credibility or reliability; an appellate court should only interfere with factual findings of this kind where the factual findings were ‘glaringly improbable’ or ‘contrary to compelling inferences’. Subject to this, an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge (Lee v Lee [2019] HCA 28; (2019) 266 CLR 129 at [55]).

The process of inferential reasoning: Although permissible inference and mere conjecture exist on a continuum, there is a distinction between them (Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262 at [84]).

An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. ‘It is a process that requires the application of general human experience to determine whether the hypothesis that is sought to be proved is a conclusion that can be drawn given the alternatives that reasonably may be suggested and the standard of proof required.’ In a civil case, a permissible inference is one which is more probable on the evidence. However, where two or more competing inferences are equally probable on the evidence, the choice between them is mere conjecture, and is not permissible reasoning (Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163 at 173; G v H (1994) 181 CLR 387 at 390).

The result: As to the first appeal, the Court found:

  1. the primary judge was in error in failing to bring to account a finding that the bankrupt had not been shown to have provided a one-fifth interest in one of the properties;
  2. whether one of the properties was held on resulting trust for the trustees of the bankrupt’s earlier bankruptcy was a procedural issue only, as an exchange of correspondence between the Current Trustees and the earlier trustees in bankruptcy disclosed that the earlier trustees were content for the Current Trustees to make any claim to a resulting trust for the relevant property on the basis that it was property of one or other of the bankrupt estates. It could be accommodated by upholding the appeal to a limited extent and amending the relief to reflect the nature of the informal procedure that had been adopted between the two sets of trustees.

The first appeal was otherwise dismissed.

As to the second appeal, the Court rejected the contention that the reasoning of the primary judge went beyond the evidence and was based on inferences that were not open. It was upheld to a limited extent as there was insufficient evidence to support a conclusion that moneys in the nature of a deposit were provided by the bankrupt and an associate. Accordingly, the calculation of the percentage interest of the resulting trust in relation to that property required some minor adjustment.

Private international law – competition law

Exclusive jurisdiction clause in agreement nominated foreign jurisdiction – proceedings commenced in Australia – stay application – forum for determination of disputes under Part IV of Competition and Consumer Act 2010 (Cth)

In Epic Games, Inc v Apple Inc [2021] FCAFC 122 (July 2021) the Full Court of the Federal Court of Australia (Middleton, Jagot and Moshinsky JJ) considered whether Australian proceedings should be stayed on the basis of an exclusive jurisdiction clause nominating a foreign jurisdiction, which clause appeared in an agreement between some (but not all) of the parties. Their Honours also considered the role of the Federal Court of Australia (‘FCA’) as the preferable forum for certain disputes under the Competition and Consumer Act 2010 (Cth) (‘CCA’).

Background: Epic Games, Inc (‘Epic Games’) is the developer of the game Fortnite, which may be played on smartphones produced by Apple, Inc (‘Apple’), in addition to other platforms. There are approximately three million players of Fortnite on Apple devices in Australia alone.

Pursuant to an agreement between Epic Games and Apple, apps (such as Fortnite) for use on Apple devices may only be sold through the App Store, and likewise in-app purchases may only be made through the App Store, from which purchases Apple takes a 30 per cent commission. Further, the agreement contained an exclusive jurisdiction clause, limiting litigation arising out of or relating to the agreement, Apple software or Epic Games’ relationship with Apple to the State and Federal courts of the Northern District of California (where Apple is headquartered).

On 13 August 2020, Epic Games introduced its own system for in-app purchases in Fortnite, outside the App Store, whereupon Apple immediately exercised its power under the agreement to cease to distribute Fortnite. Epic Games commenced proceedings in California alleging breaches of various US and Californian competition statutes (‘Californian proceedings’).

On 16 November 2020, Epic Games also initiated proceedings against Apple in the FCA for alleged contraventions of Part IV of the CCA and of the Australian Consumer Law (‘ACL’) (‘Australian proceedings’). The provisions of the CCA and ACL are similar, but not identical, to the statutes which were at issue in the Californian proceedings. On 9 April 2021, the primary judge in the FCA granted Apple a stay of the Australian proceedings, pending Epic Games’ initiating proceedings for the alleged contraventions of the CCA and ACL in California. On 16 April 2021, Epic Games appealed to the Full Federal Court. In the meantime, the Californian proceedings were heard and judgment was reserved on 24 May 2021.

Decision: The Full Federal Court allowed the appeal and set aside the stay of the Australian proceedings. Their Honours confirmed that the onus of proof lay on Epic Games, as the party resisting a stay application based on an exclusive jurisdiction clause, but went on to find that, in determining whether to stay the Australian proceedings, the primary judge had made three significant errors in his reasoning.

First, in applying the High Court’s judgment in Akai Pty Ltd v People’s Insurance Co Ltd [1996] HCA 39; (1996) 188 CLR 418, the primary judge had failed to assess whether or not there was a strong reason for refusing the stay having regard to the various considerations on a cumulative basis, and had incorrectly taken each consideration separately.

Second, the primary judge had failed to properly assess the disadvantage of litigation of provisions of high Australian public policy being conducted in the United States. The disadvantage was significant, as the findings of a US court would not be able to be relied on in subsequent Australian proceedings as readily, the Australian Competition and Consumer Commission could not intervene in US proceedings, and the full range of remedies under the CCA would not be available (remedies being part of the law of the forum (Stevens v Head [1993] HCA 19; (1993) 176 CLR 433)). Further, the far-reaching impact which the Australian proceedings would have on Australian consumers diminished the significance of the fact that Epic Games, as an individual company, had agreed to the exclusive jurisdiction clause in its agreement with Apple.

Third, the primary judge had failed to properly evaluate the significance of the Second Defendant, Apple Pty Ltd (an Australian subsidiary of Apple), not itself being party to the agreement which contained the exclusive jurisdiction clause.

Epic Games’ claims against Apple Pty Ltd were substantive, and not merely ‘parasitic’ on the claims against the parent company Apple, and this weighed against a stay being granted.

Their Honours also held that an analysis of the provisions of the CCA and other relevant legislation revealed there was a legislative policy that claims under Part IV of the CCA should be determined in an Australian court and preferably in the Federal Court (at [99]-[122]). Notwithstanding the desire to avoid clashing outcomes in the Australian proceedings and the Californian proceedings, there were strong reasons not to grant the stay of the Australian proceedings.

Aftermath: Apple has applied to the High Court of Australia for special leave to appeal. At the time of writing, the special leave application has not yet been decided.

Judgment was delivered in the Californian proceedings on 10 September 2021, largely in favour of Apple, although with one ground in favour of Epic Games. Both Apple and Epic Games have appealed to the US Court of Appeals (9th Circuit) in respect of the grounds on which each party was unsuccessful and Apple has applied for a stay of the injunction issued against it in the decision below pending outcome of its appeal. Apple has reportedly declined to re-admit Fortnite to the App Store until the conclusion of all legal proceedings in the United States.

Anthony Lo Surdo SC is a barrister, arbitrator and mediator in 12 Wentworth Chambers, Sydney; Lonsdale Chambers, Melbourne; William Forster Chambers, Darwin and Outer Temple Chambers, London, Abu Dhabi and Dubai.
Dr David J Townsend is a barrister in Third Floor Wentworth Chambers.