Byrnes & Anor v Kendle

[2010] HCATrans 226

[2010] HCATrans 226

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A6 of 2010

B e t w e e n -

MARTIN FRANCIS BYRNES

First Applicant

JOHN WILHELMINA BYRNES

Second Applicant

and

CLIFFORD FRANK KENDLE

Respondent

Application for special leave to appeal

FRENCH CJ
CRENNAN J
BELL J

TRANSCRIPT OF PROCEEDINGS

FROM MELBOURNE BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 3 SEPTEMBER 2010, AT 9.57 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC:   May it please the Court, in that matter I appear with my learned friend, MR A.L. TOKLEY, for the applicants.(instructed by Haarsma Lawyers)

MR M.A. FRAYNE, SC:   May it please the Court, I appear for the respondent.  (instructed by Corsers Lawyers)

FRENCH CJ:   Yes, thank you, Mr Bennett.  Mr Frayne, you can hear us and see us?

MR FRAYNE:   Yes, thank you, your Honour.

FRENCH CJ:   Yes, Mr Bennett.

MR BENNETT:   If the Court pleases.  Your Honours, this application raises in a very pure form two basic and important issues of trust law.  The facts are very simple and raise the issues squarely, so one could hardly imagine a more convenient vehicle in relation to each of the issues.

FRENCH CJ:   There is an extension of time necessary in this case, is there not, Mr Bennett?

MR BENNETT:   Yes, there is, your Honour.

FRENCH CJ:   I think that is opposed, is it not?

MR BENNETT:   I think so, your Honour, yes. 

FRENCH CJ:   We will need to hear from you on that as well.

MR BENNETT:   Your Honour will.  The point about the extension of time is, first it was over the Christmas period and, secondly, there was an application to the Full Court in South Australia to recall its decision and reconsider it and while theoretically we should have put on this application contemporaneously with that, the view was taken that that should be determined first as this Court would have determined had the application for special leave come on before that application.  So the result is the same as if we had made the application in time and then adjourned it until after that application.

BELL J:   I suppose one matter to be considered in this regard is that, I think, both the respondent and the second applicant are of advanced years, we are dealing with a relatively small sum, personal litigants.  The respondent faced the prospect of litigation involving an endeavour to reopen before the Court of Appeal, ultimately unsuccessful.  During that time, as you have indicated, the applicants omitted to comply with this Court’s rules in terms of filing their application.  Then after the unsuccessful endeavour to reopen in the Court of Appeal, the respondent is confronted with this application.  As I understand it, the aspect on which you failed in the Court of Appeal on the reopening application is not pressed.  When one considers the sorts of observations that the Court made in Ketteman about the strain of litigation on individual litigants, that might be an issue to weigh in the balance, may it not?

MR BENNETT:   Well, your Honour, the test is this.  It would have been worse.  If we had taken the correct stand of applying to this Court as well as well as putting our application in South Australia and had this application come on first, the Court would almost inevitably have said, “This application should be adjourned until after we see what the Full Court does with your application reopen.”  That would have meant an extra hearing, extra costs and no saving of time.  So although we are in breach of the time rule, there is, in our respectful submission, no adverse consequence and it is a type of circumstance in which, we would submit, it is appropriate for an extension to be granted.

FRENCH CJ:   Perhaps, Mr Bennett, you can continue with the substance of your application on the special leave and we will hear from Mr Frayne on both the issues.

MR BENNETT:   Yes, as your Honours please.  Your Honours, the primary special leave question is this, does a trustee of real property or specifically an owner of real property who is a trustee as to a half interest in it, in the absence of any other provision, have a duty to let it and recover rent or at least a duty not to let rent free to a close relative?  That, your Honours, we would submit, is a very simple straightforward question.  The form of trust is at page 11 of the application book and your Honours will see it is a very simple document.  It says that because the beneficiary has paid some money to the trustee and they have agreed that that payment would entitle that beneficiary to a half interest subject to certain life interests, the operative clause is that the trustee:

stands possessed of and holds one undivided half interest in the Property as tenant in common upon trust for –

the beneficiary absolutely, and then there are mutual life interests if either predeceases the other.

CRENNAN J:   So this is the source of the tenant in common point which seemed to be the basis of the Chief Justice’s decision?

MR BENNETT:   It was the sole basis of his decision and, in our respectful submission, it is an erroneous basis.  It appears at pages 42 to 43 of the application book and your Honours will see at paragraph 36 his Honour begins by saying, “If the device of a trust had not been used”.  I am not quite sure why it is a device, but it is a method perhaps of achieving a result and one might ask rhetorically, why not the result of a trust if that is what it says?  But he says, if we had not done that, then another way it might have been done is to make her a co‑owner and if we had done it that way, there would have been different consequences, therefore, he says, those consequences are relevant to denying from the trust the most essential elements of the law of trusts.  Your Honours see, after setting out that there would have been no duty if they had just been co‑owners, which is what they chose not to do, he says:

These points are not decisive, but must be relevant when considering the nature of the trust in this case, and the duties of Mr Kendle.

CRENNAN J:   I think his Honour goes then to paragraph 37 and then down to paragraph 42.

MR BENNETT:   Yes, he does.  He says, “In my opinion the legal relationship provides a guide”, et cetera, “and it was not a breach of any duty because he was not, in my opinion, subject to the duties that would normally be imposed on a trustee.  He acted as one of two co‑owners.”  Well, why?  How?  He did not say, “I am doing this in my capacity as a co‑owner” when he was not a co‑owner.  What had been set up was a trust as to one half and it is a total non sequitur to say, well, if the parties had chosen to do it some other way, there might have been different consequences, and we submit that that reasoning is totally flawed, whereas, on the contrary, one of the most essential elements of a trust in relation to real estate is that one has a duty to let it or, very least, a duty not to let it to a close relative effectively rent free. 

Your Honours, that appears from a short passage in a recent decision of this Court in the CGU Case.  It is CGU v One.Tel [2010] HCA 26 and it is paragraph 36. We do not need to get into the question of bare trust and what bare trust means. That is a rather circular argument because bare trust is defined as a trust where there is no active duties and it begs the question to say is it or is it not a bare trust. So I do not get involved in that, but the Court did say, four lines down:

the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee –

Now, the trust property in that case was a cause of action.  There is only one thing you can do with a cause of action.  Unlike real property, there is a range of possible things one can do with it.  Then –

One obligation of a trustee which exists by virtue of the very office –

not by virtue of any active duty expressly imposed –

is the obligation to get the trust property in, protect it, and vindicate the rights attaching to it.  That obligation exists even if no provision of any statute or trust instrument creates it.  It exists unless it is negated by a provision of any statute or trust instrument.

Now, this case is needed to develop that one step to make it clear that that applies to real property.  It might be said, I suppose, otherwise that because there is only one thing you can do with a cause of action, the case is distinguishable from the general proposition.  But, in our respectful submission, that case does suggest the general proposition, a general proposition that was rejected in this case and one which we submit follows.

There is an early English case we have given your Honours reference to of Earl of Egmont v Smith (1877) 6 Ch D 469 where it said that a trustee of real estate has a duty to let it. I will not take your Honours to it on this application, but there does not seem to be clear recent authority, other than the general statement in CGU, and it is, we submit, a very basic and very simple proposition of law.  Indeed, one would not be exaggerating if one were to submit that if leave is granted in this case, the case may well be one which is mentioned by lecturers in their first lecture to classes on trusts.  The second issue is also important.  It concerns the question of ‑ ‑ ‑

FRENCH CJ:   You are almost casting it as a visitation case?

MR BENNETT:   Well, your Honour, in some ways, yes.  Some definitional problems with that description too.

FRENCH CJ:   Yes, of course.

MR BENNETT:   The issue of acquiescence is the other issue and in the Full Court what the Chief Justice said in paragraph 46 at page 44 of the application book was that:

the Judge found that Mrs Byrnes “cooperated” in the breach, or as I would put it, that she concurred or acquiesced in the matter being let drift.  The Judge made a clear finding of fact in that respect, which finding was not really challenged on appeal.

Now, it was not a finding of fact at all, we would submit, it was a finding of ultimate fact.  The findings of fact were that she knew and she did not commence proceedings.  She complained, or her son complained on her behalf in her presence, and that failure to take action in a woman in her eighties is said to be co‑operation or concurrence or acquiescence or whatever of the synonyms is used.

BELL J:   Can I just take up with you, in your submissions at paragraph 21 on application book page 75 the point that you make is taking the Full Court at its highest and accepting acquiescence on the part of the second applicant only goes to the question of acquiescing and delay in assertion of the right and not in abandonment of the right, and then you go on in the next paragraph to point out that, “The right to recover rent is a chose in action vested in the trustee” and you point to the consequences of the Full Court’s reasoning being that the respondent might be free to enjoy whatever fruits of the action he can obtain.  Just as a practical matter, I think it is put against you that the right to recover rent is now time barred.  That is in paragraph 1.1 of the respondent’s submissions on application book page 77.

MR BENNETT:   Yes.  I think we dealt with that.  But if it is time barred, that is the consequence of the trustee continuing not to claim or sue for the rent after our position was made completely clear.

BELL J:   But if the Full Court was right in holding that there was acquiescence, what is the point that you are making in paragraph 22 if it is right that the right to recover has now become time barred?

MR BENNETT:   Paragraph 22 is really concerned with the first point rather than the second point, and if one goes to the judgment the facts demonstrate this.  If all that happened was that there was a failure to sue for a period, one has to apply the tests of laches, not the tests of acquiescence and laches, of course, requires prejudice and it is not shown, as I understand it, that the time expired prior to it becoming absolutely clear that we were pressing when these proceedings were commenced.  So I have not checked through the timings on that.

BELL J:   In any event, notwithstanding the way you frame your paragraph 21, you challenge the finding acquiescence?

MR BENNETT:   Yes, your Honour, we do.  Can I just show your Honour what the trial judge did find because the finding that is attributed to him is very much ultimate fact rather than primary fact.  If your Honours go to paragraph 42 of the primary judgment on page 9 his Honour starts by saying:

The onus is on the trustee to establish the facts upon which such co‑operation may be inferred. 

“Co‑operation” is another word, but one assumes it is code for acquiescence, rather than laches –

Sometimes those facts may be presumed from lapse of time . . . In this case, not only did Mrs Byrnes sign the Acknowledgement of Trust in 1997, it was she who instigated it.  She was well aware of her need to protect what she saw as her proprietary rights.  Kym –

that is the husband’s son –

lived in the house for a little over six years.  For all of that time, or nearly all of it, she was fully aware that he was not paying rent.  Further, during those 6 years, she was present at numerous discussions with her son and her husband at which Martin Byrnes spelled out his view that Mr Kendle owed a duty to Mrs Byrnes to collect rent from Kym. 

So there is an assertion of rights on her behalf, in her presence –

She was well aware of the rights her son claimed for her but –

and this is the only finding against her –

for the sake of matrimonial harmony, she took no action.

In other words, it is not suggested that she came forward and said, “I consent, I agree, I concur” by conduct or by words.  What she did was, having protested that things ought to happen, she did not do anything to enforce it and that is all –

I find that, although unwillingly, she consented to her husband’s decision not to press for rent.

That, with respect, your Honours, is a misuse of the word “consent”.  It is a colloquial usage of it perhaps, but it is not finding any additional fact than that stated in the previous paragraph.  Perhaps in paragraph 20, which is on page 5, where his Honour says:

Mrs Byrnes and Mr Kendle were both upset at Kym’s failure to pay rent.  So was Martin Byrnes.  On occasions the three of them discussed the problem but Mr Kendle took no action.  To use his own words, he “just let the problem drift”.  Nor did Mrs Byrnes take action.  She chose not to do so for the sake of matrimonial harmony.

Well, one can well understand why people in this context take no action.  Laches is not what is put against us, although it could not succeed for the reasons I have given, and this is said to be some sort of acquiescence or consent or concurrence and, in our respectful submission, it just is not.  That is a basic and important principle of trust law too, that the trustee does not escape from the essential duties of a trustee by the beneficiary doing nothing for a period and nothing more.  That on its own is insufficient.

FRENCH CJ:   I think your time is up, Mr Bennett, thank you.

MR BENNETT:   If your Honour pleases.

FRENCH CJ:   Yes, Mr Frayne.

MR FRAYNE:   If the Court pleases, there are three matters of substance I wish to put and one matter relating to the issue of time I need to address, given that the applicants need an extension of time.  In relation to the extension of time, the matters have been essentially summarised by the Court.  I would put against the application for an extension of time.  I will not repeat those save to add it is clear from the material that is before the Court that Mr Kendle is in his mid‑eighties.  There is information in the evidence of the judgment that he was sick at that time from a stroke, frail, seeking finality in relation to these issues.  The application for an extension of time is opposed. 

In relation to the three matters that go to the issue of leave, the first issue that has been identified is alleged duty to collect rent.  The second is if there is a duty, whether it was acquiescence or consent.  The third matter is whether there is any practical utility in the Court resolving those matters given that the defendant has raised and maintains a defence of set‑off which has not been finally resolved, but which on the respondent defendant’s case means that there is no balance due.  Even if the modest sum claimed is assessed appropriately, the appropriate amount will be a nil return to the applicants.  So there is no practical utility in the matter proceeding for the academic interest of lecturers, as it appears Mr Bennett would wish.  In relation to the topic of duty ‑ ‑ ‑

FRENCH CJ:   It is more than the academic interest of lecturers, is it not?  There is the question whether there is a judgment of the Full Court of the Supreme Court of South Australia which, on the contentions put by the applicant, is erroneous in a fairly fundamental respect?  I mean, there is a public interest dimension there. 

MR FRAYNE:   There is, if the Court pleases.  I acknowledge that public interest, but whether this is a suitable vehicle at the end of it for the parties, I suppose, is a matter that the Court must also weigh in the exercise of granting special leave.  In relation to the issue of duty, the primary position of the respondent is that the Full Court was correct in concluding that there was no duty in the particular circumstances of this case.  The Court has been taken, and I do not propose to retake the Court, to the terms of the deed.  There are no express provisions contained in the acknowledgement of trust relating to the topic of what should happen in relation to any proceeds or rent from the premises so that the deed is silent.

It is my submission that it is not contrary to the core fiduciary duties of loyalty and not to make a profit that there should be imposed in the particular circumstances of this case a duty to collect rent from a tenant.  It is the submission I put that it depends on the particular circumstances and the relationship of the parties has been identified by the Full Court and, in essence, the position of the respondent is that the matters in paragraphs 35, 36, 37 and 42 of the Full Court judgment, to which the Court has already been taken, are an appropriate answer to the assertion that there is a duty in the circumstances. 

The second proposition is if there is a duty on Mr Kendle, whether there was acquiescence.  The Court has been taken to the paragraphs in the Full Court judgment and the judgment of the trial judge, particularly paragraph 42 of the trial judge’s decision at pages 9 and 10 of the application book.  It is my submission that the finding that the Court made, in particular the last three lines at paragraph 42 on page 10:

I find that, although unwillingly, she consented to her husband’s decision not to press for rent.  Equity should not hear her complaints now, only after the marriage has broken down –

is a compelling reason for the Court to reject an application for special leave in the circumstances.  I remind the Court that the Full Court has referred to that finding and that is at application book 44 at paragraph 46.  The court said:

In any event, as I noted earlier in these reasons, the Judge found that Mrs Byrnes “cooperated” in the breach, or as I would put it, that she concurred or acquiesced in the matter being let drift.  The Judge made a clear finding of fact in that respect, which finding was not really challenged on appeal.

It appears now what is sought to have been done on this application to seek to do what has not occurred previously and that is to seek to undermine or challenge that finding of fact.  In my submission, that should not be omitted.  The other matter that I wish to draw the Court’s attention to is that Mr Byrnes, who has been the subject of the assignment of the interest in the trust, gave evidence in the court below.  I trust the Court has received some supplementary materials from the respondent?  I wish to take the Court briefly to the supplementary materials, if that is convenient?

FRENCH CJ:   Yes, Mr Frayne.

MR FRAYNE:   The supplementary materials have tabs.  If the Court could go to tab 2

FRENCH CJ:   This is the transcript in the District Court?

MR FRAYNE:   Yes, it is the transcript in the District Court and it is pages 55 and 56 of the re‑examination of Mr Byrnes.  The particular matters that I wish to draw the Court’s attention to commence at line 15 and continue to line 29 on page 55 and on the following page commence at line 1 and go to line 20.  The effect, in my submission, is that Mr Byrnes is there indicating that he was not seeking to press any claims relating to the rent if he got a half share of the sale price of the premises, which he did.  It would be inappropriate, in my submission, for him to change from taking no action or not seeking to take action to now wishing to pursue the matter or seek now for Mr Kendle to have taken some action in relation to the matter.

The last matter that I wish to take the Court to relates to the topic of the set‑off that is claimed on behalf of Mr Kendle for outgoings and improvements.  Mr Kendle made payments relating to the mortgage and the various rates and taxes and insurance throughout the period of the claim.  Mrs Byrnes made no such contribution, but she was seeking the half share of the rent.  What was put against that in the District Court and in the Full Court was that there was no balance due.  That was the subject of some written submissions because no agreement could be reached.  Behind tab 1 is a joint memorandum which was provided to the Full Court in relation to that topic.  I do not want to weary the Court with the detail.  If I can just take you to the points briefly. 

The Court will see there is a table which is split into two portions; on the left‑hand side the appellant’s submissions, the right‑hand side the respondent’s submissions.  In relation to the respondent’s submissions, at paragraph 6, which is on the left‑hand side of the page at the bottom, the respondent was submitting that it was appropriate to take into account improvements that Mr Kendle had made to the premises as part of the set‑off, and that was an amount of $14,000.  In addition, it was put at paragraph 8 that for the period January 2002 to January 2007 the total amount of rent would have been $36,150.  The applicant’s portion was $18,075 for that period. 

Then paragraph 9 refers to the total amount of the set‑off, $17,707.69, on the bottom of paragraph 9 and at paragraph 10 the respondent claimed that there was therefore for that period at its highest $367, which would have been in favour or the applicant, not taking into account the improvements.  The applicant’s position in relation to that calculation in paragraph 10 on the left‑hand side and the applicant is claiming for that period $9,221.16, but in relation to that portion has made no contribution to the outgoings.  So it is the respondent’s position that the amount is overstated. 

The second period of rent is from variously January 2007 or July 2007, depending upon the start date.  The premises were vacated in January.  Another relative commenced occupation in July and at paragraphs 13 onwards there are some calculations on the right‑hand side in paragraph 15.  There is an indication that taking into account the expenses paid, no balance due and if the period goes beyond June to July to September but goes back to January, the calculations are in paragraphs 18 and 19 showing no balance due.  So it would be, in the respondent’s submission, a futile exercise at the end of the process.

BELL J:   Well, there has been no finding on these factual matters, has there?

MR FRAYNE:   No, there has not.

BELL J:   The applicant is seeking orders that the judgment of the Full Court be set aside and the appeal to that court be allowed.  In the event that special leave were granted and the applicant were successful, you say the matter would have to go back, do you?

MR FRAYNE:   Yes, for resolution of that aspect.

BELL J:   Were these matters pleaded?

MR FRAYNE:   Yes, they were.  Points of defence and set‑off are behind tab 3, if the Court pleases, and the matters were pleaded.  If the Court goes to page 4 at the top and drops down to a heading “Equitable Set Off” and drops down to paragraphs 2 and 3, the court made findings in relation to what amounts were contributed by Mr Kendle in the course of improvements.  The court made findings in relation to the amounts which were expended by way of the rent, mortgage payments and the other associated expenses. 

All the findings in relation to those matters have been dealt with by the court and these submissions, in essence, were put to the District Court, but because the court was otherwise disposed to deal with the matter as it

did and found that there was no liability, the court did not go on to consider and resolve the issue of set‑off by making orders as sought by the defendant respondent.  So those matters are the respondent’s submissions in reply.

FRENCH CJ:   Thank you, Mr Frayne.  Yes, Mr Bennett.

MR BENNETT:   If the Court pleases.  Your Honour, dealing with the question of set‑off, that is not a matter with which this Court would be concerned.  It was dealt with by Chief Justice Doyle at paragraph 58 of his judgment at page 46 of the application book and that seems to indicate that if these things have to be worked out, it would have to go back to a single judge to do so, but that is just working out the orders.  What we are seeking from this Court is a reversal of the decision that there is no duty on the trustee to collect the rent and that we acquiesced in it not being done. 

If those decisions of law are set aside, it goes back to this detail about calculation and if your Honours read paragraph 58 on page 46, that is basically what Chief Justice Doyle seemed to assume.  Because of the findings that his Honour was making on the two basic questions, it was not concerned, but we certainly would not seek to raise those financial details before this Court. 

BELL J:   The orders that you would seek in the event that you were successful in this Court would be the setting aside of the orders made in the Full Court and that the matter be remitted to the trial judge for the determination of the outstanding claim?

MR BENNETT:   Yes, your Honour, precisely.  In relation to duty, we have submitted that there is a duty, the duty has to be excluded.  The absence of any reference to it in the document is, for the reasons given in the CGU Case, simply not decisive.  It is not quite correct to say that the duty depends on the circumstances in every case.  It is true in once sense in that the circumstances may exclude a duty, but what is being said here is that the mere fact that a person is the legal owner and that there is a trust over half the property for someone else, is enough to exclude the duty and that, with respect, simply cannot be right.

CRENNAN J:   On the question of Mr Martin’s acquiescence and the transcript to which we were taken, I understand you say in your reply that the references in the transcript are taken out of context.  Can you better explain that?

MR BENNETT:   Yes certainly, your Honour.  It is page 44 of the respondent’s other material.

CRENNAN J:   Yes, and particularly the comment that, “I would let go of the other claims”, what I would apprehend the respondent is relying on?

MR BENNETT:   Well it is, in effect, I suppose, an offer of settlement.  It is saying, “Well, look, if you sell the property and give me my half share, I am happy to work on that basis.”  That never happened.  The proceeds of sale of the property or half of them are in my learned friend’s solicitor’s trust account and we sought orders in relation to the half.  Those orders were never made because of the other reasons.  But your Honours can see that from page 10 of the application book in paragraph 44 of the trial judge’s judgment:

The plaintiffs seek a declaration that Mr Kendle holds half of the net proceeds of sale of the property on trust for one or other of them.  Because Mr Kendle has never disputed that Mrs Byrnes was entitled to half of the proceeds of the sale, the tests for the grant of declaratory relief have not strictly been made out.  But the court has a wide discretion . . . there will be a declaration that Mr Kendle holds half the net proceeds of sale –

et cetera, but that has not happened because of the proceedings and, in any event, the indication that if that happens “I might be prepared to let it go” at that stage clearly cannot be applied to a situation whereafter litigation over the whole issue my clients may or may not be successful as to that half.

FRENCH CJ:   Should we be concerned – and I suppose this is perhaps more in relation to the extension of time issue than anything else – about the subject matter value of this debate and sort of the protraction of what looks like a legal nightmare of process into which two elderly people have found themselves engaged?

CRENNAN J:   All over $12,000?

MR BENNETT:   Well, your Honour, the mere sums of money on their own have never been determinative in deciding whether to grant or not to grant special leave.

FRENCH CJ:   I was talking about extension of time really.

MR BENNETT:   Well, your Honour, the same consideration applies.  What may be important to individuals as a sum of money may seem unimportant in the large scheme of things of some of the cases this Court deals with, but parties are entitled to have their disputes determined in the courts and if they determine erroneously on matters of important principle, it is appropriate for this Court to interfere. 

The extension of time is not a large one but, particularly, for the reasons I gave, the extension is sought in circumstances where, had the proceedings been commenced in time, we would have been no further advanced because they would have been adjourned until after the Full Court determination and then have come on around the time that they came on.  So it is not as if the extension is extending anything or seeking a large indulgence.  It is simply something which has occurred in the course of procedural aspects of the litigation.

FRENCH CJ:   Thank you, Mr Bennett.  We will adjourn briefly to consider what course we take in this matter.

AT 10.42 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.49 AM:

FRENCH CJ:   The Court is of the view in this matter that there should be an extension of time and a grant of special leave.  Mr Bennett, this would be a half‑day to a day?

MR BENNETT:   I would think so, your Honour, yes.

FRENCH CJ:   Mr Frayne, would you agree with that?

MR FRAYNE:   Yes, I would, if the Court pleases.

FRENCH CJ:   Yes, all right.  Thank you. 

AT 10.46 AM THE MATTER WAS CONCLUDED