Bailey v Bailey

[2010] NSWSC 948

CITATION:	Bailey v Bailey [2010] NSWSC 948
HEARING DATE(S):	26/08/10
JUDGMENT DATE :	30 September 2010
JUDGMENT OF:	Slattery J at 1
DECISION:	See paragraphs 75 - 77.
CATCHWORDS:	EQUITY - Trusts and trustees - evidence - powers, duties, rights and liabilities of trustees - issue about terms of trust - alleged trust instrument lost - trust found to exist and terms of trust inferred from secondary evidence - a half interest in real property as tenant in common was conveyed to a family member on trust for her grandchildren - trustee discharges mortgage in respect of the trust property and in respect of the other half interest in the property - trustee claims reimbursement for mortgage payments - whether payments were a gift or a loan - held - payments were a gift - trustee claims interest on payments - claim dismissed.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW), s 66G Family Law Act 1975 (Cth) Limitation Act, (1969) (NSW), s 14 Trustee Act (NSW) (1925), s 59(4)
CATEGORY:	Principal judgment
CASES CITED:	Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 Mushinski v Dodds (1985) 160 CLR 583 R W G Management Ltd v Commissioner for Corporate Affairs (1985) VR 385 Young v Queensland Trustees Limited (1956) 99 CLR 560
TEXTS CITED:	Heydon & Leeming Jacobs’ Law of Trusts in Australia, 7th edition, Butterworths, Lexis Nexis, paragraph 2104
PARTIES:	Plaintiff- Iris Bailey Defendant- Kim Bailey
FILE NUMBER(S):	SC 08/279267
COUNSEL:	Plaintiff- R. Marshall Defendant- D.Higgs SC; J.Chambers
SOLICITORS:	Plaintiff-Braye Cragg Solicitors Defendant-Jackson Lalic Lawyers

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SLATTERY J

THURSDAY, 30 SEPTEMBER 2010

08/279267 IRIS BAILEY v KIM BAILEY & ORS

JUDGMENT

1 HIS HONOUR: In this case a grandmother sues her grandchildren and her former daughter-in-law. Counsel rightly described the matter as a sad case. But the dispute only arises because of the grandmother’s generosity twenty-five years ago.

Early Family History

2 Iris and Noel Bailey’s son, Neville John (“John”) was born in March 1955. John Bailey was married at a young age. In October 1974, at 19 he married Kim who was about to turn 17. As all the parties to these proceedings are close relations by blood or marriage and have the same surnames, for convenience and without disrespect to any of them, these reasons will described them by their first names.

3 John and Kim had their first child, Jason Bailey in April 1975. The couple bought a house together in Catherine Street, Cessnock (“the Catherine Street Property”) in 1976. John and Kim moved to Western Australia for a period where their second son, Mark Bailey was born in November 1977.

4 John and Kim moved back to New South Wales in 1979. To help re-establish back in this State, in September 1980 they purchased a house in Cruickshank Street, Bellbird (“the Cruickshank Street Property”) for $36,500. The Cruickshank Street Property was partly financed from the proceeds of sale of the Catherine Street property. The balance of the purchase price was funded by a mortgage that John and Kim negotiated with the Greater Newcastle Permanent Building Society Limited (“Greater Newcastle Permanent”).

5 Financial pressures put John and Kim into debt. On 24 November 1981 they granted a second registered mortgage to Avco Financial Services, a high interest rate lender, as security for repayment of a loan of just under $10,000.

6 The couple’s third child, Joshua Bailey was born in July 1982. By the time Joshua was born significant marital tension existed between John and Kim, leading to their separation in December 1982. They sought resolution of their child custody issues in the Family Court of Australia. Kim gained custody of the three children, Jason, Mark and Joshua and John was given rights of access to them.

The Family Court Proceedings

7 Proceedings for financial settlement were also brought in the Family Court of Australia but not until three years later. Those proceedings were resolved by agreement on 23 December 1986. John and Kim personally signed this settlement agreement (“the December 1986 agreement”), which was also witnessed by their respective solicitors.

8 The Family Court settlement was completed by Family Court of Australia consent orders also dated 23 December1986 which orders were approved on 21 January 1987. Under the December 1986 agreement John transferred his half share in the Cruickshank Street Property to Iris. In the settlement John and Kim’s joint tenancy in the Cruickshank Street Property was severed and the property was to be transferred to Iris and Kim as tenants in common. The Cessnock law firm Emery Partners acted for both Iris and John in relation to the Family Law proceedings. Kim was independently advised.

9 The evidence of the December 1986 agreement, which is set out in detail in the analysis of more contentious facts below, contains strong indicators that Iris was to hold John’s interest in the Cruickshank Street property on trust for the three children until they attained the age of eighteen years. Kim also agreed to pay all monies due to Greater Newcastle Permanent under the mortgage on the property. The December 1986 agreement also required John to pay all monies due to Avco Financial Services. Under the terms of the December 1986 agreement Iris’ only role was to hold the half share in the Cruickshank Street Property as tenant in common with Kim.

10 Allocating the obligation to make motor vehicle payments to John and the mortgage payments on the house to Kim was unrealistic. Kim did not have the money to make the mortgage payments to Greater Newcastle Permanent and John did not have the money to continue instalments under the loan to Avco Financial Services. Iris ultimately took responsibility for these payments. She did so after steps were taken to implement the December 1986 agreement. On 30 March 1987 John and Kim executed a memorandum of transfer of the Cruickshank Street Property to Kim and Iris, which was expressed to be in “consideration of $1.00…pursuant to Orders made by the Family Court on 28 January 1987 and Deed of Appointment of Trustee made 23^rd December 1986”.

11 In July 1987 Iris and Kim re-financed with Greater Newcastle Permanent. Iris and Kim took a fresh mortgage in the sum of $34,050 over the Cruickshank Street Property from the Greater Newcastle Permanent. Emery Partners acted on behalf of the mortgagors upon the mortgage transaction. The fresh Greater Newcastle Permanent mortgage advance of $34,050 was applied to discharging existing Avco Financial Services obligations of $6,070.28, repaying John and Kim’s existing Greater Newcastle Permanent mortgage debt of $26,586.99 and meeting Emery Partners registration and agency fees of $929.50, making a total of $33,586.77. This left a very small surplus from the mortgage advance.

12 Iris and Kim were jointly liable to Greater Newcastle Permanent on this July 1987 mortgage. Despite that, because of Kim’s financial situation, Iris made almost all the payments to Greater Newcastle Permanent on this mortgage. Kim made a small number of payments when she was in employment.

13 This arrangement provided the stability for Jason, Mark and Joshua, which it was designed to create. Iris kept paying the mortgage payments until the mortgage obligation to Greater Newcastle Permanent was fully discharged in 1994. At that stage the youngest boy Joshua was still only 12. Initially the payments to Greater Newcastle Permanent on what was a variable interest rate mortgage were $450 per month. By the time the mortgage was fully paid off in August 1994 Iris was paying $469.29 per month to Greater Newcastle Permanent. Kim was never in a financial position to make these mortgage payments. So Iris generously made them.

14 In the medium term the arrangement did not create much difficulty for Iris. She resided elsewhere and did not contemplate that she might need to use the property. But more time went by and the last child, Joshua, turned 18 in July 2000. At the time of hearing Jason was 35, Mark 32 and Joshua 28. The children have long ago obtained jobs and commenced to live independent lives.

15 Kim now has her own family. She is the mother of a 15-year-old boy, Caleb, with significant disabilities. Caleb was diagnosed with moderate to severe autism at 18 months of age, with epilepsy at the age of 11 and more recently with Tourette syndrome. Kim is Caleb’s primary carer. She now has another child Jacob, aged 17. Caleb is very settled at the Cruickshank Street Property. Caleb’s immediate situation is not relevant to the primary issue for trial. But in the event that Iris were to be successful in these proceedings, the timing of and terms upon which relief might be granted compelling a sale of the Cruickshank Street property would have to take into account Caleb’s situation.

16 Little was said or done between the parties about their past financial arrangements until 2005. In February of that year documents relating to the December 1986 agreement were collected from Emery Sheriff & Watson. There is a dispute between the parties about who collected these documents. To the extent that it is significant, I will deal with that contest later.

These Proceedings

17 Upon these facts Iris commenced these proceedings in 2008 seeking orders under Conveyancing Act (1919) (NSW), s 66G for the appointment of trustees for sale of the Cruickshank Street Property. Iris claims she is the beneficial owner of the Property. Kim resists that claim and says that Iris holds her half share as tenant in common of the Cruickshank Street Property on trust for the three children.

18 Iris joined Kim as first defendant to the proceedings. Kim and John’s three children Mark, Jason and Joshua are joined respectively as the second, third and fourth defendants. Mr R. Marshall of counsel represented Iris. Mr D. Higgs SC and Ms J. Chambers represented Kim. The children were unrepresented in the proceedings although at times, Mr Higgs put submissions which would assist their interests. By her amended first cross-claim and cross-summons Kim sought a declaration that Iris holds her interest in the Cruickshank Street Property on trust for Mark, Jason and Joshua upon the basis that Iris would transfer title to the property to the three children when the youngest attains the age of 18 years or upon Iris’ death. The cross-summons further sought a declaration that Iris and Kim had agreed that Kim was allowed to occupy the Cruickshank Street Property for so long as she remained registered as co-owner of the property as tenant in common. In her reply to Kim’s cross-claim Iris denied she held the property on trust for the children and denied an agreement to allow Kim and the children to any right of occupation of the property.

19 Through her Further Amended Summons filed in the course of the hearing Iris sought alternative relief in the event that Kim and the children were successful on the Cross Claim. She sought a declaration that she had incurred expenses in discharging the July 1987 Greater Newcastle Permanent mortgage loan of $34,050 for the benefit of Jason, Mark and Joshua. She sought judgment against the three grandchildren for the amount of such expenses so incurred.

20 There are two main disputes of fact to be decided before analysis of the legal issues. The first dispute is whether Iris, John and Kim executed a trust deed on 23 December 1986 in which Iris declared that she held her half share in the Cruickshank Street Property on trust for Jason, Mark and Joshua. The second main dispute of fact is whether Iris was involved in collecting documents associated with the December 1986 agreement from the office of Emery Partners in February 2005. I will deal with these two contentious factual issues in this order. There are some other minor disputes of fact but these may be dealt with in the course of analysis of the legal issues.

The December 1986 Agreement

21 Kim contends that the December 1986 agreement involved the execution of (1) consent orders in the Family Court of Australia, and of (2) a document entitled “Deed of Appointment of Trustee”(hereon referred to as “Deed of Appointment”). No final executed copy of the Deed of Appointment was available at the hearing. When searches were undertaken for the Deed of Appointment in preparation for these proceedings, it could not be found. Secondary evidence though is available about the document. Iris disputes that the Deed of Appointment was ever executed. If it were executed in the form of the available secondary evidence her contention that she is the beneficial owner of the Cruickshank Street property will fail. The Consent Orders though are available in their final executed form.

22 Although by the time of trial the affidavit evidence included the Consent Orders and a draft version of the Deed of Appointment that is not how Iris initially filed her evidence. Her first affidavit sworn in the proceedings on 10 October 2008: did not refer to either the Consent Orders or the Deed of Appointment; denied that she agreed orally or in writing to hold the Cruickshank Street Property on trust for Kim or the children; said that the arrangement by which Kim and the children lived at the property was just a “family gesture” on her part which was open to Iris to terminate at any time; referred to her own repayment of the Mortgage to Greater Newcastle Permanent and, denied that Kim or the children had any right to remain on the property.

23 In her affidavit of 9 July 2009, which was filed shortly prior to a scheduled hearing before Forster J, Kim first referred to the Consent Orders, the Memorandum of Transfer to Iris and Kim and the July 1987 Mortgage to Greater Newcastle Permanent. She did not have any copy of the Deed of Appointment. The hearing before Forster J was vacated in mid July 2009. After that date was vacated diligent searches found the former Emery Partners employed solicitor, Judith Dredge who had worked on this file at that firm. Ms Dredge who now lives in Victoria happened to be keeping a draft copy of the Deed of Appointment among her papers for use as a precedent. It was made available to the parties and tendered in the proceedings. But an issue remained as to whether it was ever executed and if so in what form. It is useful to look at the Consent Orders and then the draft Deed of Appointment.

The Consent Orders

24 On 23 December 1986 the parties signed an agreement which became Consent Orders under Order 31, Rule 8 of the Rules made under the Family Law Act 1975. These Consent Orders provided for the finalisation of property arrangements between the parties and an agreed basis for the future maintenance of the children Jason, Mark and Joshua. The Consent Orders recorded an agreement that John would pay Kim maintenance for the three children of $40 per week in total. There had been default on John’s part in paying maintenance between 1982 and December 1986. John was thus forgiven all his past maintenance arrears under the Consent Orders.

25 In five clauses of the Consent Orders, clauses 1, 2, 3, 6 and 7 the parties made agreements about the continuance of maintenance orders and about the disposition of the Cruickshank Street Property. Those clauses provided as follows:-

“FAMILY LAW ACT 1975

CONSENT ORDERS PURSUANT TO ORDER 31 RULE 8

IN THE FAMILY COURT
OF AUSTRALIA
AT NEWCASTLE
IN THE MARRIAGE OF NEVILLE JOHN BAILEY (Husband) of C/- 279 Wollombi Road, Bellbird

AND KIM BAILEY (Wife)
Of 25 Cruickshank Street, Bellbird
DATE OF FILING: 15 JAN 1987 21 JAN 1987

1. (a) The husband pay to the wife maintenance for the children of the marriage ….in the sum o f $40.00 per week total.
…
1. (c) That arrears of maintenance to this date are agreed to be nil.
…
2. That the husband transfer to his mother Iris Bailey all his right, title and interest in the land situated at 25 Cruickshank Street, Bellbird and being Certificate of Title Volume 11928 Folio 243 as Trustee for the children of the marriage namely Jason Leigh Bailey, Mark John Bailey and Joshua Adam Bailey upon trust until the youngest surviving child obtains eighteen years of age and to enable Iris Bailey to be registered as tenant in common in equal shares with Kim Bailey. Provided that should the said Iris Bailey die then Mrs Janet Anne Murray be appointed as new Trustee.

3. That the wife do all acts and things and execute all necessary instruments, authorities, deeds and writings effectively to complete the transfer to the Trustee of the husband’s right, title and interest in the matrimonial home at 25 Cruickshank Street, Bellbird and that the wife execute such documents and do such acts within fourteen days of receipt of a request to do so.
6. The husband shall pay as and when they fall due the following outgoing:
a. All instalments and money due under the Avco Financial Services Loan.
7. The wife covenants to pay:
a. All instalments and money due to the Newcastle Permanent Building Society under Mortgage in respect of the home.
b. All municipal water and sewerage rates in respect of the home.
c. The cost of all reasonably necessary repairs and maintenance to the home and indemnifies the husband in relation to all such amounts, including arrears…”

The Deed of Appointment

26 Judith Dredge, when employed as a solicitor with Emery Partners in December 1986 drafted the Deed of Appointment. Judith Dredge’s recollection is that she finalised the Deed of Appointment from a hand amended draft two-page document of the same name. The draft document to which John, Iris and Kim were proposed parties is set out below in full. Mr Philip Watson, a partner of Emery partners, made certain handwritten amendments to the Deed of Appointment. These amendments, including crossings out and additional words, are represented below by lines and in italics:-

“THIS DEED of Appointment of a Trustee made the day of , 1986 Between NEVILLE JOHN BAILEY of 2/33 Cypress Street, Launceston (hereinafter called the husband) and KIM BAILEY of 25 Cruickshank Street, Bellbird (hereinafter called the wife) and IRIS BAILEY of 279 Wollombi Road, Bellbird (hereinafter called the Trustee) WHEREAS:
1. The husband and wife have separated on the 22 ^nd March, 1983 to and have live d separately and apart and do not intend to resume cohabitation.
2. The husband and wife have three infant children of the marriage under the age of eighteen years namely Jason Leigh Bailey, Mark John Bailey and Joshua Adam Bailey.
3. The husband and wife jointly own the ex-matrimonial property at 25 Cruickshank Street, Bellbird.
4. The husband and wife are desirous of finalising financial arrangements between them and have agreed to consent orders, whereby the husband will transfer his interest etc to the children.
5. The husband and wife are desirous of appointing Mrs Iris Bailey as Trustee of the children’s husband’s one half share in the property at 25 Cruickshank Street, Bellbird.
6. The husband and wife and Trustee are desirous of benefiting and protecting the infant children of the marriage by this deed.
Now this deed witnesses that in consideration of the natural love and affection for the children of the marriage the husband and wife agree:
1. To appoint Mrs Iris Bailey as Trustee of the children’s husband’s half share of the property situate(sic) at 25 Cruickshank Street, Bellbird.
2. The Trustee is to hold the said property as tenant in common with the wife and such appointment is to be for the a period till the youngest surviving child attains eighteen years of age.
3. The Trustee shall then transfer the half share to such of the three children as shall survive to the period of distribution as tenants in common in equal shares absolutely.

4. In the event of the death of the said Iris Bailey Trustee JANET ANNE MURRAY is to be appointed as new Trustee., in her stead.
5. In the event of the sale of 25 Cruickshank Street, Bellbird, the one half share to be held in trust is to be converted into money and such money is to be invested in authorised trustee investments. , until the happening of the event referred to in para 2 hereof.
In witness whereof the parties have hereunto set their hands this day of , 1986.

SIGNED SEALED AND DELIVERED )
By the said NEVILLE JOHN BAILEY )
in the presence of- )

SIGNED SEALED AND DELIVERED )
By the said KIM BAILEY )
in the presence of )

SIGNED SEALED AND DELIVERED )
By the said IRIS BAILEY )
in the presence of )”

27 Judith Dredge’s draft document traces out the profile of a simple scheme in which Iris agreed to be appointed as trustee of what was intended to become the children’s share of the Cruickshank Street Property which they could enjoy after they turned 18.

28 The marital tensions between John and Kim at the time of their separation and Iris’ interest in providing some benefit to her grandchildren made the arrangement reflected in the December 1986 agreement a very sensible one. Kim was not prepared to accept John as trustee of the Cruickshank Street Property in the future. Iris would have the responsibility of ensuring that John’s interest in the property would go to his children and her grandchildren in due course. In the meantime the property would not have to be sold, thereby leading to unnecessary instability for the children.

29 Before making findings on the issues relating to the Deed of Appointment and the collection of documents from Emery Partners it is useful to review the performance of the main witnesses.

Assessment of the Principal Witnesses

Mrs Iris Bailey

30 Iris is a person very confident of the correctness of her own opinions. She is strong minded and well able to communicate her own opinions. She was well able to comprehend the questions asked of her. I had more than an impression that there was a degree of artfulness in her answers. Mr Higgs of Senior Counsel asked clear questions of her. But in response to those questions she would often retreat into reading the documents she was being asked about without directly answering the question. At other times she would ask a question back of the questioner. Yet at other times she would make a comment showing puzzlement about the question being asked but without answering it directly. None of these techniques gave the Court much confidence in the quality of the answers to the questions she was being asked.

31 She candidly admitted a degree of impairment in the quality of her own memory. She explained that in 1988 she had suffered two cerebral haemorrhages, which had the consequence that she had to give up work. She also explained that about the time these proceedings were commenced in 2008 that she had two other minor cerebral haemorrhages. Her account of these matters was a prelude to an explanation that her memory was not as good as it used to be. There was no doubt that she was correct that at times her memory was not good. But I formed the impression that her failure to answer questions was not wholly accounted for by a poor memory.

32 In my view she had a sound capacity to identify a line of questions directed at her, which was likely to damage the position she was taking. She showed a capacity to obfuscate to attempt to defeat the thrust of such questioning. An example of this was the receipt that she signed on 1 February 2005 when she uplifted a series of documents from Emery Partners. The receipt for documents given to her by Emery Partners included, at item (5), the Deed of Appointment and the copy of the Deed. She had signed the receipt. Her signature appeared to be witnessed in a regular way on what was an ordinary business record. This signed Acknowledgement had the potential to base an inference against her that the original executed Deed of Appointment had been traced into her possession in February 2005 and not been seen since. She responded to the potential of this inference in a way that seriously impaired her credibility. Notwithstanding the fact that she had sworn an affidavit deposing to having signed the February 2005 Acknowledgment, when confronted with it, she expressed doubt that the signature was hers. I have no doubt that she was well aware that the signature was hers. I equally have no doubt that she was reluctant to acknowledge that in her oral evidence because she was conscious of the disadvantage to her that such an acknowledgment would bring.

33 Another problem with Iris’s evidence was that the absence from her first affidavit sworn in the proceedings on 10 October 2008 of any reference to the Deed of Appointment. Her first affidavit is couched in generalities describing the relative rights of herself and Kim in terms that suit the case that she is now making. She described the nature of the arrangement in that affidavit as one in which “I agreed with and informed the defendant that she could live on the property for the time being with the three young children until the children obtained employment in each case, I envisaged that such employment would be obtained at the age of 17 or 18 years in each case….In allowing the defendant to occupy the property in this manner I did not enter into any contractual agreement oral or otherwise nor was it my intention at any stage to create a legally binding contract or legal relations otherwise with respect to that arrangement and occupation by the defendant.”. It is certainly strange that such a firm assertion of lack of legal relations between herself and Kim did not trigger some memory on her part that documents like the Consent Orders and the Deed of Appointment were signed as part of the December 1986 agreement. Her failure to remember those documents shows either that she is correct that she has a very bad memory or that she was attempting to conceal her prior execution of the documents. In choosing between these two possibilities I am prepared to accept that the situation was the former. Her memory is poor and unreliable. As a result I am prepared to accept Kim’s evidence wherever Iris’ and Kim’s evidence is in conflict.

John Bailey

34 The affidavit evidence in these proceedings read as though John’s instability was the cause of much of he and Kim’s and marital problems in the early 1980’s. He was disarmingly frank about the correctness of this assessment. Of the period just before the break-up of his marriage and just before and after the separation from Kim he says “I was hell belt on destruction”. His retrospective view of his inadequate discharge of his marital responsibilities was “I wasn’t much support to her morally or financially”. Whether he recognised that at that time, he certainly did so by the time he gave evidence, providing an important buttress to his credibility. He presented as an essentially credible witness who was attempting to present a reliable account of events almost a generation ago. But all his evidence was captured by an exquisitely difficult dilemma. He was attempting to protect both his former wife’s interests and those of his mother or at least to do no harm to either. His evidence was underpinned by this impossible mission, which coloured his reliability to a degree. But I do not think he consciously exaggerated or distorted what he knew to be true.

Kim Bailey

35 Although Kim’s formal presentation was that of a quietly spoken somewhat timid witness, when pressed as to her recollection of important events she was quite firm in her conviction as to the correctness of her account. Her diffident nature did not disguise a strong conviction that her recollection of important events was correct.

36 Kim was not a witness whose evidence was obviously distorted by the influence of self-interest. She frankly acknowledged that some of what she remembered may be inconsistent with other parts of what she had remembered and was ready to agree with her cross-examiner to that effect.

37 An interesting feature of the quality of her memory is that she had obviously taken to heart every major contact that she had had with Iris about the financial arrangements for the Cruickshank Street Property. She gave a good account of what Iris had said to her on various occasions in the 1980’s and 1990’s and I accept her evidence as to these conversations as correct. The pattern of those statements becomes an important ground for inferring the Court’s preference for her version over that of Iris.

Judith Dredge

38 I had no reason to doubt any of Ms Dredge’s evidence. Although she was cross examined by telephone her obvious careful professionalism emerged from her oral evidence and I have no hesitation in accepting all that she said.

Findings as to the Deed of Appointment

39 The first issue is whether the Deed of Appointment was ever executed and if so what were its contents when executed. There are many reasons to infer that the draft Deed that is now available to the Court was executed in the form that it now appears but modified by Mr Watson’s handwritten amendments as represented above. Judith Dredge says that it was executed and I accept her evidence as to this. The Deed is in an advanced stage of drafting and makes complete sense when its handwritten amendments are included. Subject to being typed up with the handwritten amendments, the Deed was readily capable of immediate execution by the parties. The document commences with the same title as its name in the Emery Partners security packet number 599, “DEED of appointment of a trustee”. The document must have existed in a final executed form. As Judith Dredge explained only such a finally executed document would be expected to find its way into security packets maintained by Emery Partners in the ordinary course of that firm’s office practice. There was no reason to store draft documents at the firm.

Iris Bailey’s Will Theory

40 The evidence that the Deed of Appointment was executed in the form in which it was found by Judith Dredge is compelling. To attempt to answer that conclusion Iris Bailey propounded another version of what she says must have happened when they visited Judith Dredge. Her case was that she intended to give the property to the children in her will, not when the youngest one Joshua turned 18.

41 Iris’ will theory does not fit the facts. First, it is inconsistent with clauses 2 and 3 of the draft Deed of Appointment which provide that that the trustee will hold the property as tenant in common with Kim until the youngest surviving child turns 18 and “shall then transfer the half share to such of the three children as shall survive to the period of distribution as tenants in common in equal shares absolutely”. Iris Bailey says that this is explained by the fact that the version of the Deed of Appointment that we now have is not the one that was signed. She says that what we now see in evidence was a version of the Deed of Appointment that must have been rejected by Iris Bailey. She says that Judith Dredge must have redrafted the draft now in evidence, so that it was executed later in different terms.

42 This is quite improbable for several reasons. The reason that the draft Deed came to light is that Judith Dredge actually took the trouble to preserve this document as a precedent for 25 years. She kept it with other papers in her garage in Victoria. It is highly unlikely that she would not have preserved something close to the very final form of the document. Moreover, if Iris Bailey had found upon explanation of the Deed of Appointment that it did not reflect her wishes it could be expected that the Consent Orders would have been tightened up as well as the Deed so they conformed to her wishes as accurately as possible. Clause 2 of the Consent Orders only deals with the Cruickshank Street Property until Joshua turns 18. It does not provide for the property to go back to Iris. This is consistent with Clauses 2 and 3 of the Deed as we now see them in draft.

43 Furthermore, if the real thrust of Iris’ intention was to leave her half of the Cruickshank Street Property in her will to the three children, then one wonders why the agreement took the form that it did, structured as it was with Iris as a trustee. If she was to take the property back to her own use absolutely when the youngest turned 18 but bind herself to give it to the children on her death then one would expect to find some document: ensuring Kim and the children had a right of residence until Iris’ death; with Iris binding herself to maintain a will in the form that would devise the property to the children on her death; and, that ensuring that she would not sell the property in the meantime without their consent. None of that legal apparatus appears in Judith Dredge’s draft, which was reviewed with Mr Philip Watson’s more experienced oversight. Nor was there evidence of a will created at that time as one might expect containing then and there a promise to leave the children a half share of the property. The absence of this structure from the December 1986 agreement strongly suggests that there was no other version of the Deed, which supports Iris’ will theory and I so infer.

44 There is evidence of Iris making a will on 18 February 2005, after she had the December 1986 agreement documents collected form Emery partners earlier that month. Her 18 February will gives what she describes as “her” share of the Cruickshank Street property to Jason, Mark and Joshua. But this is twenty years, after the Deed of Appointment when she had conceived her current view that the original arrangement was really to give the property to the grandchildren in her will.

45 There is more than a hint of what must have passed between Mr Watson and Ms Dredge in the form of Mr Watson’s amendments to the Deed of Appointment. Mr Watson added in his own handwriting the words “whereby the husband will transfer his interest etc to the children” to clause 4 of the Deed’s recital, which was a description of the Consent Orders. It seemed to be the consensus among the lawyers at the time that the moment of transfer to the trustee, Iris Bailey, was simultaneous with the moment that the husband, John was in substance transferring the property to the children. There is no suggestion in Mr Watson’s amendments that the transfer was to Iris absolutely. This is entirely consistent with Kim’s version and inconsistent with Iris Bailey’s will theory.

46 Iris attempted to show that there must have been a number if meetings between Judith Dredge and the family in December 1986, which would allow Iris the opportunity to give instructions to the firm for a different and amended form of Deed of Appointment. Mr Marshall undertook a subtle cross-examination of Ms Dredge to attempt to show this. But Ms Dredge did not recall this happening and she was convinced that if it did happen that she would have kept the final version, not an interim version of the Deed of Appointment. I accept her evidence as to this.

The Events of February 2005

47 I conclude that Iris collected the Deed of Appointment, the Consent Orders, a copy of her own Will and other documents from Emery Partners in February 2005. It should also be inferred that the originals of these documents have not been seen since they went into Iris’ possession in 2005. Indeed Iris’ denial that she collected these documents from Emery Partners and her attempts to parry the cross-examiners questions about her involvement in these events in February 2005 were some of the least satisfactory parts of her evidence.

48 The starting point for the story of the events of February 2005 is an Emery Partners business record receipt, which records Iris’ collection of the documents from the firm. The February 2005 document entitled “Acknowledgment” relevantly provides as follows:-

“ EMERY PARTNERS
ACKNOWLEDGEMENT
…
Date Uplifted: 01 February 2005
I, the below signatory, acknowledges receipt of the documents listed below:
1. Application for Dissolution of Marriage
2. Marriage certificate
3. Will of Iris Bailey
4. Consent Orders
5. Deed of Appointment and copy
6. Maintenance Orders
Signature of Uplifting Party (signature of I. Bailey)”

49 There are many reasons to believe that Iris collected these documents from Emery Partners on 1 February 2005.

50 All the documents were available for collection from Emery Partners, an important assumption in the inference as to their collection. Emery Partners had acted for John and Iris back in 1986. Mr Norman Emery, the principal of the firm was in practice continuously throughout the period from 1986 to 2005. Mr Philip Watson was with the firm during the same period. The firm had not undergone any major reconstructions. The firm’s practice was to store material of this kind in its safe and to ask for personal identification when documents were collected. It is likely that documents of this character were left with the firm in December 1986. There is every reason to expect that the documents would still have been there in 2005 without having been disturbed in the interim. Indeed both John and Iris Bailey expected that they would be there. No-one else had reason to ask for them. John agrees that he asked Iris to go and collect “all his documents” and that is what she did. They expected to find the documents there, because they left them there in 1986.

51 Iris collected the parcel of documents from Emery Partners packet 599 on 1 February 2005. The only remaining matter in issue is exactly what documents she collected on that occasion. She agrees that she went to the firm on that day. She gave her current driver’s licence number as proof of her identification to the firm at the time that she collected the documents. She had no doubt that it was her licence number recorded on the document. I infer from this evidence that she collected all the five documents recorded on the “Acknowledgment” on 1 February 2005. I also infer from the form of the document that not only did she collect the original of the Deed of Appointment but also she collected a copy of it.

52 Iris sought to blunt this ordinary inference in several ways. But all her attempts to do so were unconvincing.

53 First she said that she was puzzled that among the documents she had apparently collected it was recorded that she had collected document (3) entitled “Will of Iris Bailey”. She said that she could not recall making a Will and leaving it with Emery Partners. The simple answer to that puzzle on her part is that her recollection was not reliable. Her evidence about when she made her wills so vague that it cannot be used to assist her. I do not accept that she has any strong view that she did not make a will with Emery Partners. It is quite likely that she had made a Will prior to 1 February 2005, left it with Emery Partners, and that she cannot now recall doing so.

54 Her second response to the Acknowledgment was to say that she could not remember collecting the Deed of Appointment referred to in the Acknowledgment. Again, I reject this evidence. The probabilities are high that she did collect the Deed of Appointment. Her son John asked her to collect “everything”. His evidence that he asked her to pick “everything” up is another basis to infer that the collection took place. It could be expected that the original Deed of Appointment would be with the other papers that were collected and was likely to have been collected too.

The Agreed Issues

55 The parties agreed upon the issues for determination arising from the Further Amended Summons and the Cross-Summons. They were as stated by the First Defendant as follows:

1. The following arise on the Amended First Cross-Claim/Cross-Summons:

(a) Does the plaintiff hold her rights, title and interest in the Cruickshank Street property (“the Property”) on trust for the second to fourth defendants?

(b) If the answer to 1(a) above is “yes”, should the plaintiff be ordered to transfer her rights, title and interest in the Property to the second to fourth defendants?

2. If the plaintiff is a trustee of one half share in the Property:

(a) were the monies she seeks to recover in these proceedings paid in and about the execution of her appointment as a trustee and in accordance with her powers as a trustee?; and

(b) is the plaintiff entitled to be reimbursed as claimed?

3. Irrespective of whether the plaintiff is a trustee of one half share in the Property:

(a) were the monies paid by the plaintiff in discharge of the mortgage paid for the benefit of the first defendant?; and

(b) if the answer to 3(a) above is “yes”, are the payments properly characterised as:

(i) a gift; or
(ii) a loan?

(c) if the answer to 3(b) above is a loan, is the plaintiff precluded from recovering those payments by virtue of sections 14(and/or s.23) of the Limitation Act 1969 (NSW)?

4. The issues which appear to arise on the Further Amended Summons are whether payments made by the plaintiff pursuant to a loan agreement between the plaintiff and first defendant on the one hand, and the Greater Building Society Ltd on the other:

(a) were made by mistake;

(b) resulted in the unjust enrichment of the second to fourth defendants;

(c) warrant an order for restitution against the second to fourth defendants in favour of the plaintiff;

(d) give rise to a constructive trust whereby the second to fourth defendants holds their interest in the Property on trust for the plaintiff; and/or

(e) confer an equitable lien over the Property in favour of the plaintiff.”

56 I will now deal with such of these issues as arise in light of my findings above.

(1) Does Iris hold the Cruickshank Street property on trust?

57 The Deed of Appointment was executed by Kim, John and Iris in the form that is in evidence, including the handwritten amendments made by Mr Watson. It follows in my view from combination of the Consent Orders and the Deed of Appointment that Iris holds her half share as tenant in common in the Cruickshank Street Property on trust for Jason, Mark and Joshua. This conclusion follows from a joint reading of the Consent Orders and paragraphs 1, 2 and 3 of the Deed of Appointment. Clause 1 of the Deed of Appointment appoints Iris as trustee of the “children’s share of the property”, clause 2 provides that the trustee should hold the property for the period until “the youngest surviving child attains 18 years of age”. Then, under clause 3 the trustee’s duty is to transfer the property to the three children who survived to the age of eighteen.

58 In substance the same trust is provided for in clause 2 of the Consent Orders. To the extent that at various places in her evidence Iris says that the arrangement was only a “family gesture on my part” and that it was “always open to me to terminate or vary that arrangement at any time”. I reject that evidence, which is not an accurate account of the true relationship that was created.

59 Only John and Kim were parties to the Consent Orders. But the requirement that Jason, Mark and Joshua’s interests be evidence by some writing signed by Iris as registered proprietor (Conveyancing Act (1919), s 54A) is satisfied by my finding that Iris executed the document although that executed form is no longer available.

60 The written form of Deed of Appointment is sufficient to establish the trust and bind Iris. However, I also accept Kim’s evidence that in 1983 Iris said to her, before the final separation from John and the execution of the December 1986 agreement:

“I will buy John’s half of the house. I want to make sure the boys have some security and a roof over their heads and I will hold the share that I will buy for them. I won’t give them anything else in my will. This way, if John’s share of the house is in my name he won’t be able to borrow more money on the security of the house.”

61 In response to this I also accept that Kim said to Iris that she was prepared to sell the house, pay the outstanding debts and split the remaining money with John and start over again with the children.

(2) Were Iris’ payments to Greater Newcastle Permanent paid as trustee?

62 Iris made all the mortgage payments to Greater Newcastle Permanent between the 4^th of May 1988 and the final discharge of the mortgage on 22 September 1994. The individual payments over that period totalling $53,209.14 are recorded in Exhibit C. The same Exhibit records that Kim paid land rates to Cessnock City Council of $16,444.36 and water rates to Hunter Water of $16,432.27 making total payments by her $32,876.63 on account of these expenses. When Iris made her payments to Greater Newcastle Permanent she was not only discharging her liability as trustee to Greater Newcastle Permanent but she was discharging Kim’s co-ordinate liability on the July 1987 mortgage to Greater Newcastle Permanent. There has been much debate in these proceedings about the character in which these two kinds of payments were made but in my view, for the reasons which follow, the clear inference is that both kinds of payments that Iris made were as a gift to Kim and her grandchildren. I do not think that she had any expectation of repayment from any of them in respect of either the payment she made to discharge Kim’s liability as her co-mortgagor or the discharge of her own liability as trustee/mortgagor. In my view she felt an overwhelming sense of obligation to create stability for Kim and the grandchildren and generously arranged and made all these payments to them as gifts. To a very considerable extent this analysis entirely resolves the remaining issues between the parties to these proceedings.

63 First, a striking feature of the evidence in this case is that Iris did not make any formal or informal demand for the repayment of the money she had paid to Greater Newcastle Permanent up until 1994. She created no document, sent no solicitors’ letter, and had no conversation with Kim in which she reserved her right to demand the money back after 1994. Whilst it might be understood that she did not wish to make such demand in 1994 when Jason was 12, he turned 18 in 2000 and no demand was made then either. She did not collect the will from Emery Partners until Jason was 23 and did not launch these proceedings until he was 26. The 14 years that elapsed between her last Greater Newcastle Permanent payment and the commencement of these proceedings without making such demand is strong evidence in my view that she was quite content to leave her prior generosity with the persons she had benefited. It was her and Kim’s intention that these payments would all be made as gifts.

64 Second, the compact represented by the December 1986 agreement was very suitable to Iris at the time it was made. Under clause 1(c) of the Consent Orders Kim gave up any right to a claim for arrears of maintenance, freeing up John to establish a new life. At the time Kim wanted to sell the Cruickshank Street Property and split the proceeds so John could pay out Avco Financial Services. I find that Iris said to Kim “no I don’t want that. I want my grandchildren nearby and to have a roof over their heads. I will pay the Avco liability”. Keeping the grandchildren close to her in stable situation was very important Iris at the time. In my view she made payments to Greater Newcastle Permanent with a view to simply achieving that objective.

65 Third, it was recognised at the time that Kim did not have an income of any significance and had no ability to contribute half of the mortgage repayments. She explained this to Iris at the time “as you know I have no income. I cannot afford the mortgage payments. I think I should sell t he house.” In response Iris said “I will take out a loan to pay out John’s debts, including the Avco car loan and his share of the property and mortgage”. John had been making all the mortgage repayments up until the December 1986 agreement. Iris then took them all over. In my view from Iris’ perspective she was principally taking over her son’s financial responsibilities for his family because no one else was in a position to do so. Both John and Kim would also receive benefits from Iris’ mortgage payments. But the incidental gifts involved to them were less important to Iris than creating stability for the children close to her.

66 Fourth, although she was legally advised at the time by obviously competent legal practitioners Iris did not even in conversation seek to distinguish between benefiting Kim and benefiting her grandchildren. I do not think that Iris was simply avoiding a difficult conversation that she would have to have with Kim to pointing out to her that she (Iris) might be claiming contribution from her (Kim) later. Iris was not someone who would baulk at having such a conversation with Kim. She simply decided the better course in all the circumstances was to make a gift of these monies.

67 Fifth, I accept Kim’s evidence that Iris continued to make the repayments between 1988 and 1994 without there ever being any discussions between Iris and Kim about Kim taking over responsibility to repay the balance of the original loan. The continuing and regular nature of these payments without any such conversation re-enforces the inference of a gift of all these monies which arises from the structure of the December 1986 agreement.

68 With this discussion in mind it is possible to deal with the remaining questions in the proceedings. Under the present heading Iris claimed an entitlement to indemnity from the trust property in respect of payments made on behalf of the three grandchildren. But this is not a case where such a right of indemnity arises. The trustees right of indemnity exists where the trustee acting within his powers makes a contract with a third person in the course of the administration of the trust although the trustee would ordinarily be personally liable to the third person on the contract’ and, if he has discharged the liability out of his individual property, he is entitled to reimbursement: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at [47]. The same principle is reflected in Trustee Act (NSW) (1925), s 59(4) which confirms that a trustee may reimburse himself or herself out of trust property for “all expenses incurred in or about execution of the trustees’ trusts or powers”. There are several reasons why Iris does not succeed on this claim.

69 First, the question of authorisation of the payments before the right of indemnity arises is always crucial and if the trustees’ activities were not authorised by the trust instrument prima facie no right of indemnity can arise: R W G Management Ltd v Commissioner for Corporate Affairs (1985) VR 385 at 396-7 and Heydon & Leeming Jacobs’ Law of Trusts in Australia, 7^th edition, Butterworths, Lexis Nexis, paragraph 2104. Here Iris took out the mortgage to secure John’s debts as well as discharging the existing mortgage liability to Greater Newcastle Permanent. Iris’ sole duty as trustee was to hold the property until Joshua turned 18 and then transfer it to the three children. Of course a trustee has a duty to preserve trust property. Even if some implied authorisation is to be relied upon from that duty Iris’ conduct in encumbering the property with John’s obligations to Avco Financial Services does not conform to that simple duty.

70 Second, the Consent Orders record a clear agreement that John and Kim were to be liable for all mortgage payments. If Iris were now to cause the beneficiaries of her trust to assume a liability which they were not obliged to undertake she would in my view be breaching her duties to them as trustee. Rather, what was occurring here was Iris was making a gift to Kim and the children through the making of these payments.

71 In my view the plaintiff is not entitled to reimbursement from Jason, Mark and Joshua in respect of the payments made to Greater Newcastle Permanent in her capacity as trustee.

(3) Were Iris’ Payments a gift or a loan?

72 The monies that Iris paid to Greater Newcastle Permanent undoubtedly discharged Kim’s co-ordinate liability to that financial institution and benefited her. But I have found that payments were made and received with the intention on both sides that they be a gift. They were not alone.

73 The contention that the payments were a loan would in any event have met another obstacle. The statute of limitations for Iris’ claim to recover monies due on a loan to Kim has expired long ago. In the absence of an express agreement between lender and debtor as to the terms on which a loan is to be repaid the lenders’ cause of action to recovery arises instanteously upon the advance of the funds: Young v Queensland Trustees Limited (1956) 99 CLR 560 at 566-567. Here, there was no discussion or agreement as to repayment. The cause of action on the last payment in October 1994 expired 6 years later in about November 2000: Limitation Act, s 14.

(4) Any basis for relief against Jason, Mark and Joshua?

74 I do not think that any other cause of action based upon doctrines of unjust enrichment produces any different result between Iris and the grandchildren. A claim for equitable contribution seemed to have been faintly pressed against Kim but that claim does not survive my findings that Iris intended to make a gift of these payments to Kim. A right to claim for equitable contribution can be excluded or modified by contrary common intention on the part of the co-obligors: Mushinski v Dodds (1985) 160 CLR 583 at 597, 617. In any event a claim for equitable contribution would have faced significant obstacles from Iris’ laches. Kim has ordered her affairs and had two more children who she was bringing up at the house without being aware of Iris’ claim. In my view Iris has not made out any other basis for relief against Kim or the grandchildren.

Conclusion and Orders

75 In the result therefore, I have found that the plaintiff, Iris Bailey holds her half share as tenant in common in the Cruickshank Street Property on trust for Jason, Mark and Joshua Bailey. She has so held her interest in the Cruickshank Street Property since December 1986. Under the terms of the trust Jason, Mark and Joshua Bailey have been entitled to call for the Property to be transferred to them from the time the youngest of them, Joshua, turned 18 in 2000. Accordingly, I decline to grant the plaintiff relief under Conveyancing Act, s 66G, pending Jason, Mark and Joshua Bailey determining what course they wish to take in relation to the half share of the Property that Iris holds for them as trustee.

76 I have further found that all the payments that Iris made to Greater Newcastle Permanent between 1988 and 1994 were made as gifts to Kim and her three children Jason, Mark and Joshua and that her intention to benefit Kim and the children by making these payments as gifts displaces any rights that she would otherwise have to claim against Kim for equitable contribution or against Jason, Mark and Joshua to be indemnified in respect of payments on behalf of the trust. Accordingly I also dismiss the alternative way that she puts her claim.

77 The parties will need to discuss the final form of orders in these proceedings. I direct the parties to bring in short minutes of order to give effect to these reasons.

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