Elder's Trustee and Executor Co Ltd v Higgins

[1963] HCA 48

HIGH COURT OF AUSTRALIA

Dixon C.J., McTiernan, Windeyer and Owen JJ.

ELDER'S TRUSTEE AND EXECUTOR CO. LTD. v. HIGGINS

(1963) 113 CLR 426

1 November 1963

Trusts and Trustees

Trusts and Trustees—Liability for breach of trust—What constitutes breach of trust when trustee has a discretion—Trustee carrying on grazing business—Failure to exercise option to purchase portion of the property on &hich business carried on—Portion essential to proper carrying on of business—Duty to preserve trust property—Manner of calculating loss flowing from breach of trust—Trustee company—Matter dealt with by officer of company and not by board.

Decisions

August 30.
The following written judgments were delivered:-
DIXON C.J., McTIERNAN AND WINDEYER JJ. This is an appeal from a judgment of the Supreme Court of South Australia in a case heard by Mayo J. His Honour found that the appellant company, which was the sole trustee of the will of the late Hugh William Desmond Higgins, the father of the respondents, had committed breaches of trust in its administration of his estate. (at p430)

2. Hugh William Desmond Higgins, the testator, died on 5th June 1937. During his lifetime he had carried on a grazing business at Currency Creek in South Australia. The lands used for this purpose were known as "The Brook", an area of 3,000 acres, and "Burnt Oak", 2,687 acres. The two properties were held under separate titles; but they were used together as one property on which a single grazing business had been conducted for very many years. Parts of "The Brook" had been in the possession of the Higgins family since the early days of the settlement of South Australia. "Burnt Oak", or part of it, had, it seems, been added to the family holding by the marriage of the testator's father and mother, as it was the subject of their marriage settlement made in 1874. However, we are not concerned with the origin and chain of the titles to the two properties, but with the legal position at the date of the testator's death. The testator was then entitled to "The Brook", absolutely for an estate in fee simple, subject to certain mortgages. "Burnt Oak", also a freehold property except for a small part held on Perpetual Crown Lease, was held by the testator and his two sisters, Mrs. Cave and Mrs. Borrow, as tenants in common in equal shares. The two properties were not separated by any defined physical boundary. The fencing of the paddocks was related to the character and conformation of the land, not to the separate titles and tenures. However it originally came about, the various parts of the two properties seem almost to have been arranged to ensure that both must be worked as one. For example, in one place forty acres of "Burnt Oak" were completely surrounded by lands belonging to "The Brook", and in another place two contiguous areas, each of forty acres, of "Burnt Oak" cut off one half of "The Brook" from the rest, and from the waters of Currency Creek. In short the two properties were not merely contiguous. They were interlocked, or dovetailed as the learned trial judge expressed it. And in an economic sense they were interdependent. Stock depasturing on parts of "The Brook" had to traverse parts of "Burnt Oak" to get to water. The woolshed, a workshop and other buildings and yards were on "The Brook". The main sheep and cattle yards, and the dip and its drying pens were on "Burnt Oak". There was a house with outbuildings on each. That used by the testator and his family as the homestead was on "The Brook". The testator had worked the whole area as one. At the date of his death this was being done pursuant to a written agreement dated 3rd October 1935 whereby he, his executors, administrators and assigns had the use and occupation of "Burnt Oak", holding the interests of his two sisters as their tenant for five years from 1st January 1935, at a yearly rental of 200 pounds , payable, 50 pounds to each sister, half yearly. This agreement contained a clause giving the testator, his executors, administrators and assigns an option to purchase his sisters' interests at any time during the term of five years for 4,278 pounds 11s. 0d. This sum was the result of a valuation made, it was said, in 1932, a time when land values were low because of the economic depression. (at p431)

3. The testator also had a separate holding of 1,515 acres of freehold known as "Finnis Point". This was some ten miles away from "The Brook" and "Burnt Oak". (at p431)

4. By his will (dated 28th August 1928 and confirmed in 1935 by a codicil which made no alterations that are material for present purposes), the testator appointed the appellant, Elder's Trustee and Executor Co. Ltd., as his executor and trustee. After giving certain pecuniary legacies, he left his residuary estate to his trustee upon trust for sale and conversion subject, however, to a direction to carry on his pastoral business, and with a power to postpone conversion. The direction about the business reads as follows: "I direct authorize and empower my Trustee to continue the pastoral business at present being carried on by me or any other pastoral business in which I may be interested at the time of my death until my youngest surviving child for the time being shall attain the age of twenty-one years or for such shorter period as my Trustee in its absolute and uncontrolled discretion shall think fit". (at p432)

5. The main trusts of the will were as follows: to pay the income to the testator's wife until her re-marriage or death, or the youngest surviving child attaining the age of twenty-one, she maintaining and educating infant children and spinster daughters: on the re-marriage or death of the wife or the youngest child attaining twenty-one, to distribute the whole estate between the children, the share of a son to be double that of a daughter; but subject, if the widow were then still alive, to the payment to her of an annuity of 400 pounds during her life: and so long as the lands used in connexion with the business were unsold the widow was to have the free use and enjoyment of the dwelling-house. The will contained an express power for the trustee to raise by mortgage such moneys as, in its absolute and uncontrolled discretion, it should be of opinion were required for the purpose of carrying on the business. (at p432)

6. The testator left him surviving his wife and five children, the respondents to this appeal, who were all, except the eldest son Alan, infants when their father died. The youngest child became twenty-one on 22nd December 1953. The widow dies on 15th June 1961. The testator's two sisters, Mrs. Cave and Mrs. Borrow, both survived him. (at p432)

7. The testator's estate was valued for the purposes of succession duty at 21,472 pounds, after deducting debts including mortgage debts. Of this 12,286 pounds was the value of personalty including therein 8,575 pounds for stock and plant on the farm. The financial position of the lands may be summarized broadly as follows: (a) "The Brook" was valued for duty purposes at 15,896 pounds. Part of it was subject to a fixed mortgage for 6,000 pounds to the Savings Bank of South Australia; and subject thereto the whole of it also formed part of the security held by Elder, Smith &Co. Ltd. for an overdraft that company had allowed to the testator. Elder, Smith &Co. Ltd. is a company that had acted as the testator's wool broker and also, to a large extent, as his banker. It is a different body from, but apparently associated in a business way with, Elder's Trustee and Executor Co., the trustee and present appellant. (b) "Burnt Oak" was valued at 6,048 pounds but this was later increased for the purposes of federal estate duty to 7,574 pounds. The value of the testator's interest was taken as one third of this, that is 2,524 pounds . "Burnt Oak" was unencumbered. (c) "Finnis Point" was valued at 7,531 pounds. Part of it was mortgaged to the executors of one Pitt for 1,500 pounds. The rest of it was mortgaged to the Savings Bank of South Australia for 3,700 pounds. (at p433)

8. After the testator's death the grazing business was, according to the direction in the will, carried on by the trustee. The testator's eldest son Alan was appointed as manager. He was then aged twenty-one and had been working on the place before his father's death. Mrs. Higgins, the testator's widow, continued to live in the homestead on "The Brook". It remained the family home. The children lived there except when they were away at school. Mrs. Higgins took a close, and to some extent a directing, interest in the affairs of the business. She was in frequent communication with the officer of the trustee company, a Mr. W. A. Upton, who was directly concerned with the administration of the estate until his death in 1947. Although he did not often visit the property, he maintained a close and friendly interest, mainly through Mrs. Higgins, in the affairs and the needs of the family. Mrs. Higgins frequently expressed gratitude for his interest in the welfare of the family and satisfaction with his administration of the estate. Alan Higgins devoted himself in a competent way to the running of the property. Until his marriage he lived with his mother in the homestead. He received a small wage from the estate. (at p433)

9. To facilitate the carrying on of the business after the testator's death the trustee arranged with Elder, Smith &Co. Ltd. for the continuance of the overdraft with that company, which at the date of the testator's death stood at 5,038 pounds. In agreeing to this proposal, Elder, Smith &Co. Ltd. wrote to the trustee: "The general limit in respect to this account has been 6,000 pounds but during the depression years under special arrangement this was increased, and if required we have no doubt a similar latitude would be approved of by our Board whilst the property was being worked under your supervision". It was agreed that the trustee company in its corporate capacity was not to be indebted to Elder, Smith &Co. Ltd., but that that company would look solely to the assets of the estate for repayment. Elder, Smith &Co. Ltd. became in effect the trustee's banker, a new account being opened for the Higgins estate. This estate account fluctuated from time to time. It was at times in debit, at times in credit. But, of course, to determine the true indebtedness at any date the amount of the testator's debt to Elder, Smith &Co. Ltd., namely 5,038 pounds, had to be brought into account. (at p433)

10. In 1938 consideration was given by the trustee to selling "Finnis Point". In a letter to Mrs. Higgins reporting on this proposal, the manager of the trustee suggested that if the property were sold the proceeds should be used to discharge the mortgages on it, and that the surplus "might be used to advantage towards development of portions of the Homestead property as circumstances permitted", and that "until such surplus was so used it be credited to the Estate's overdrawn account with Elder, Smith &Co. Limited in order to effect a saving in interest". "Finnis Point" was not an old family holding. It had been acquired by the testator during his lifetime. It was not essential to the conduct of the pastoral business and both Mrs. Higgins and Alan Higgins approved the proposal to sell it. Elder, Smith &Co. Ltd. on the instructions of the trustee conducted an auction; but the reserve price, which at the request of Mrs. Higgins and Alan Higgins had been fixed by the trustee at 7 pounds per acre, was not reached, and the property was passed in. In August 1941 an offer was received to purchase it for 9,000 pounds. This exceeded the probate value by nearly 1,500 pounds. Moreover the completion of the barrage at Goolwa had caused part of the land to come under water, so that the price offered was said to be approximately 6 pounds 17s. 0d. per acre on the reduced area. The trustee accepted the offer, Mrs. Higgins and Alan Higgins approving. (at p434)

11. Before the time when "Finnis Point" was sold important events had occurred. It will be remembered that the "Burnt Oak" lands were held by the Higgins estate under the agreement made between the testator and his sisters - a lease of their interests for five years with an option to purchase during that period. That term would expire on 31st December 1939; so that, unless some new agreement were made, the option would have to be exercised before then, otherwise the estate might lose the "Burnt Oak" lands. To lose them would be disastrous. Some discussions apparently occurred in 1938 between Mrs. Higgins and Alan Higgins, Mrs. Cave and Mrs. Borrow; and in 1939 the trustee was in touch with the solicitor for Mrs. Cave and Mrs. Borrow, Mr. N. J. Hargrave, concerning the matter. The outcome was that on 3rd April 1940 a new agreement was executed between Mrs. Cave and Mrs. Borrow, of the one part, and the trustee, of the other part. By this the trustee became a tenant of the interests of Mrs. Cave and Mrs. Borrow in the "Burnt Oak" land for a term of five years from 1st January 1940 at a total rental of 200 pounds per annum, and again with an option to purchase. This differed from the option in the earlier agreement in that, instead of being an option to purchase the whole of the interests the subject of the lease for the fixed sum of 4,278 pounds 11s. 0d., it was a "right at any time during the term . . . to purchase the shares and proportions of the landlords (scil. Mrs. Cave and Mrs. Borrow) of and in any part or parts of the said land set out in the first column of the schedule hereto for the sum or sums set opposite such part or parts in the second column of the said schedule or in the whole of the said land for the total of the sums set out in the second column". The several parcels specified in the first column in the schedule - there were eighteen in all - were described by reference to section numbers in the Hundred of Goolwa. The prices set opposite them in the second schedule were, it seems, based upon the amounts at which they had been assessed when the valuation had been made for the purposes of the earlier agreement, the total of the several sums being 4,278 pounds 11s. 2d., the same amount (except for twopence) as the price in the earlier agreement. The estate thus retained for another five years the right to buy the interests of Mrs. Cave and Mrs. Borrow in "Burnt Oak" as the testator had had in his life-time, and at the same price: but now it could be exercised piecemeal and from time to time. From the correspondence between the trustee and the solicitors for Mrs. Cave and Mrs. Borrow, it appears that this arrangement was desired by them to enable the estate to acquire their interests in "any part or the whole of the land at any time it might be found possible to do so". One gets the impression that there had been some understanding between the testator and his sisters that he would buy out their interests when he could - thereby enabling them to have their share of their parents' estates, and enabling him to consolidate the titles to "The Brook" and "Burnt Oak", making them not merely one grazing property but one holding in point of law. An expectation that this result might be progressively realized was, it seems, what led to the agreement of 3rd April 1940 taking the form that it did. (at p435)

12. This narrative of the events preceding the period that is critical in this case shows that there were certain matters that a trustee administering the testator's estate ought to have had always in mind. The main asset of the estate was the freehold interest in "The Brook". Its value depended on whether and for how long "Burnt Oak" could be retained, so that it and "The Brook" could continue to be carried on as one economic entity. The estate would become divisible when the youngest child attained twenty-one. Until then the trustee was authorized to carry on the pastoral business. It was its duty to preserve the capital of the estate including the capital structure of the business. While the estate had a right to purchase "Burnt Oak" at the fixed price, it was in full control of the future. If it lost that right the value of the main capital asset of the estate would be greatly diminished. (at p436)

13. Upton had some at least of this in mind. When the sale of "Finnis Point" for 9,000 pounds was under consideration he wrote a memorandum. In the course of it he said: "After discharge of the Mortgages on 'The Point' viz. 5,200 pounds and allowing for commission on sale, there would remain a surplus of 3,525 pounds, to which would be added the proceeds of Stock Plant etc., leaving approximately 5,000 pounds to be applied towards liquidation of the Estate's Overdraft to Elder Smith &Co. Ltd. now standing at 6,890 pounds (approximately). The Trustees have recently acquired an extended Lease of the interest of the deceased's two sisters, Mesdames Borrow and Cave, in the property known as 'Burnt Oak' of 2,687 acres which adjoins 'The Brook' (Homestead Property) at a rental of 200 pounds per annum and have a report (sic, in copy; semble 'right') of purchase during the currency of the Lease (five years) of the whole or any individual Section at a price as fixed by the Lease thus permitting the purchase and development of such part or parts of 'Burnt Oak' as and when desired and as finances permit which was the Trustees object when originally deciding to place 'The Point' property on the Market". Whether this memorandum ever went before the board, and what the manager told the board about the matter we do not know. The board minute says only that it was resolved that the offer of 9,000 pounds for "The Point" be accepted. Nothing is said about the application of the proceeds of the sale. They amounted to 3,627 pounds, and were paid to Elder, Smith &Co. Ltd. in reduction of the overdraft. Why no part was used to buy in any parts of "Burnt Oak" it is not possible now to know. Upton and the manager at the time had died before the hearing of the action. Mr. C. S. Minson, manager of the trustee at the time of hearing, had no personal knowledge of the matter. But, having studied the relevant accounts, he gave evidence for the appellant. In cross-examination he was asked whether, assuming that Elder, Smith &Co. had been prepared to meet the cheque - and there was no suggestion that it would not - there was "any practical reason why 3,627 pounds could not be spent as far as it would go, being the proceeds of one capital asset in buying another capital asset, part of 'Burnt Oak'". He answered "Yes.": and he was then asked, "What is the practical reason?". He answered, "That this estate had been at all times since 5th June 1937 encumbered with considerable liabilities. Whether or not it was in the interests of the estate to incur further liabilities in purchasing additional assets would be a matter of judgment. That's my best answer to your question." (at p437)

14. This answer expressed a view that ran right through the case for the appellant - namely that whether money should be spent on exercising the option and "buying another capital asset" was a matter for the judgment of the trustee. So it was, provided that the trustee acted honestly and reasonably, not ignoring the ordinary counsels of prudence or unmindful of its duty. But it is a mistake to think of the question that the trustee had to consider as whether an additional liability should be incurred to enable a further capital asset to be acquired. Rather it was what should be done to preserve the existing assets of the estate. If "Burnt Oak" were lost the value of "The Brook" would be diminished. The carrying on of the business would be seriously hampered: to enable it to be carried on at all efficiently, even on a reduced scale, considerable expenditure, running into perhaps 3,000 pounds-4,000 pounds or more, would have been necessary - to reconstruct fencing, to provide on "The Brook" facilities such as yards, a dip and sheds in place of those on "Burnt Oak" and to construct additional water supplies, dams or bores for the stock on "The Brook" denied access to the parts of the creek running through "Burnt Oak". Yet the trustee is not to be reproached because it did not buy in "Burnt Oak", or any part of it, as soon as "Finnis Point" was sold. It had until the end of 1944 in which to do so. Provided that it did nothing to prejudice its doing so, it had no duty to act before then. Until 31st December 1944 it was in control of the situation. It is upon an appreciation of what occurred in a period of a few weeks at that time that this case turns. It is therefore necessary to recount the events in some detail. There is no one who can tell the whole story, Upton being dead. But correspondence tells what happened as the end of the year approached. It seems to have been expected that Mrs. Cave and Mrs. Borrow would be agreeable to renewing the existing arrangement for a further period; although, so far as the records show, they were not actually asked to do so by the trustee until time was running out. Then each wrote a letter addressed to the manager of the appellant company. Both letters, one dated 29th December 1944, one undated, were in the same words: "I write to confirm my intimation to your Mr. Upton on Friday 29th instant, to the effect that I am agreeable to extend the Tenancy Agreement of the Burnt Oak property for a further period of one Calendar Month including therein the right of purchase as provided by the said Agreement." (at p437)

15. With two days to go, Upton had thus gained control of the situation for another month. Whether this extension of time for the exercise of the option was a contravention of the National Security Regulations then, in wartime, in force, we need not consider; because whether or not it was so, the option would not have been void: O'Neill v. O'Connell (1946) 72 CLR 101 . It seems that Upton had put aside any idea of exercising the estate's right of purchase. He later told Alan Higgins that this was because there were no funds available. Instead a new plan had been evolved by him in consultation with Mrs. Higgins. In substance it was that Mrs. Higgins should purchase Mrs. Borrow's interest, and that Mrs. Cave should give a lease of her interest for a further five years with a renewal of the right of purchase during that period. The purchase money for Mrs. Borrow's one-third interest was to be 2,139 pounds 5s. 7d., namely half the price fixed by the agreement for the purchase of the interests of herself and Mrs. Cave. It was to be provided by Mrs. Higgins out of moneys that were in part accumulations in her income account and in part profits of the business, earned but undeclared, prospectively becoming due to her and which the trustee approved of her having. (at p438)

16. The whole plan was an irregular proposal for the trustee to put forward and agree to. In the first place, the right of purchase given by the existing agreement was not a right to purchase the interest of one of the tenants in common for half the option price. It was a right to purchase the interests of both of them, in the whole or parts of the land, paying to each half the stipulated price for what was purchased. Secondly, it was not a right of purchase by or on behalf of the widow, the person entitled to income, but a right exerciseable on behalf of the estate for the benefit of the corpus. There would have been no reason why the trustee should not, if it wished to do so and Mrs. Higgins agreed, have financed the transaction by borrowing from her, she becoming entitled to a lien for the money advanced. But there was no justification for merely relinquishing for her benefit an interest that belonged to the inheritance. It may be that it was thought that the consent necessary under the wartime control of land sales would be more easily obtainable if Mrs. Higgins and not the estate were the purchaser, although why this would be so is not apparent. The trustee did not seem to have a very clear view of what was to be the legal consequence of the transaction, for it first spoke of it as a purchase in the name of Mrs. Higgins as its nominee. And the circumstances might suggest that she would become a constructive trustee, subject to a right of recoupment for her expenditure: cf. Rowley v. Ginnever (1897) 2 Ch 503 . But at the hearing, and on this appela, it was asserted by both sides that Mrs. Higgins became the beneficial owner of Mrs. Borrow's interest. This has been accepted throughout and cannot now be disputed. How she herself thought of the transaction at the time is not clear. Some six months after it was completed she wrote, "I should make a will leaving the land recently purchased from Mrs. Borrow back to the estate". Whatever the legal character of the transaction by which she bought Mrs. Borrow's undivided one-third interest it was no doubt thought by her, and by the trustee, to be in the best interests of the family. Nevertheless it is one of the matters now complained of as a breach of trust; and Alan Higgins says that when he heard of it, apparently shortly after it was arranged, he told Upton that he was not happy about it. His attitude in this respect may seem unfilial. But that does not mean that it is not a breach of trust to allow a life tenant to have, for no consideration, a right or benefit belonging to corpus. Had the whole plan been carried into effect as Upton and Mrs. Higgins had supposed it would be, probably no more would ever have been heard of this; but it could not be carried into effect because Mrs. Cave declined to take part in it. The events of January 1945 are critical. They are best told by simply quoting the contemporaneous correspondence. On 10th January 1945 the assistant manager of the trustee wrote to Mrs. Borrow, the letter having been composed for his signature by Upton:

"Dear Madam, We refer to Tenancy Agreement herein dated 3rd April 1940 of the 'Burnt Oak' property as extended by letters from you and your co-owner, Mrs. Cave, under date the 29th ultimo and we now write to advise of our intention to exercise the right of purchase thereby given to purchase your share and interest in such property at the fixed purchase price of 2,139 pounds 5s. 7d. The sale and purchase would, of course, be subject (as to the leasehold portion of the property) to the Consent of the Commissioner of Crown Lands and to the Consent under National Security (Economic) Regulations of the Delegate of the Federal Treasurer. For the reasons already explained to you today by our Mr. Upton per telephone the purchase will require to be made in the name of Mrs. M. Y. Higgins as nominee of the Trustees. Pending receipt of the above Consents we acknowledge holding in escrow on your behalf the sum of 213 pounds 18s. 6d. received from Mrs. Higgins, representing 10% of the above purchase money, the balance whereof to be payable within fourteen days of the issue of the last of the above Consents when an appropriate payment will be made to you on account of rental accrued up to the date of payment of such balance purchase money. A formal transfer to Mrs. Higgins is now being prepared in readiness for your signature in due course. Will you kindly write us intimating your approval of the foregoing." (at p440)

16. On 12th January Mrs. Borrow replied in a letter addressed to the manager:

"Dear Sir, I have to acknowledge receipt of your letter of the 10th instant intimating your intention to purchase my share of the 'Burnt Oak' property at the fixed purchase price of 2,139 pounds 5s. 7d. I am in complete agreement with the details as set out in your letter and await your furhter advices when consent has been obtained for the sale and purchase of the property." (at p440)

18. On 13th January the manager wrote to Mrs. Cave, the letter having been composed by Upton:

"Dear Madam, We refer to recent correspondence and our Mr. Upton's conversation with you per telephone and now write to advise that we are prepared, as Trustees of the above Estate, to rent your interest in the 'Burnt Oak' property for a further period of five years as from the 1st January last at the like rental and upon similar terms and conditions as applying under the Tenancy Agreement dated the 3rd April, 1940 including a right of purchase by the Trustees or their nominee in manner and price appropriate in the circumstances to the right of purchase contained in the Agreement above referred to. We shall have prepared for your signature in due course the necessary Agreement covering the period of extension of the Agreement and shall advise you when same is in readiness for signature. For your information we mention that the Trustees have advised Mrs. Borrow of their intention to purchase the latter's interest in 'Burnt Oak' in the name of their nominee, Mrs. M. Y. Higgins, and in that connection the necessary steps are now being taken to obtain the required consents to the sale and purchase."

The reference to "recent correspondence" in the above letter is to the letter of 29th December 1944, quoted above, from Mrs. Cave, and an acknowledgment of it on 30th December. (at p441)

19. On 16th January Mrs. Higgins wrote a formal letter, obviously prepared for her, to Mrs. Borrow offering to purchase "all that your one third share and interest in the "Burnt Oak" property . . . for the sum of 2,139 pounds 5s. 7d. cash payable at Adelaide within 14 days of the receipt of the last of the Consents of the Commissioner of Crown Lands and of the Delegate of the Federal Treasurer". By an endorsement on this letter, dated 19th January, Mrs. Borrow said: "I . . . hereby agree . . . to accept the offer of the above-named Mabel Yseult Higgins to so purchase my said share and interest . . . ". From this it appears that Mrs. Higgins was not regarded as purchasing direct from Mrs. Borrow rather than that she was to be the nominee of the trustee. And this is the construction that the appellant placed on the matter in par. 9 of its statement of defence, where it said: "The defendant suggested to the plaintiff's mother that she should purchase the lands or interests which were the subject of the options and the plaintiff's mother purchased the one-third interest in "Burnt Oak" owned by Blanche Isobel Mary Borrow". It may be that the original plan was that Mrs. Higgins should purchase not merely Mrs. Borrow's interest but Mrs. Cave's also. But by the middle of January Mrs. Cave had said she did not wish to sell her interest then, but that she was willing to give a lease with a renewed option to purchase. However, after having consulted her solicitor, Mr. Hargrave, she changed her mind, probably on his advice, and said that she would give a lease, but not an option of purchase, that that should be left open. It may be said here, because of the criticism of Hargrave's conduct by Upton and later by members of the Higgins family, that his advice throughout seems to have been entirely sound from the point of view of his client. On 23rd January, Upton wrote a personal letter to Mrs. Higgins:

"Dear Mrs. Higgins, Since last seeing you, Mrs. Borrow called on me and I had all papers necessary to the completion of the sale by her finalized. Mrs. Cave was to call the following day to complete the Lease (with Right of Purchase) of her portion, to the Estate. Instead however, our 'friend' Hargraves 'phoned me to ask for the Lease to be sent to him for completion by Mrs. Cave, and the next development was an advice from him to the effect that 'Mrs. Cave in writing us intimating that she was prepared to extend the Lease for a further term with a Right of Purchase, she did not fully understand what she was doing'. Any other excuse or lie from the gentleman (?) in question would have had just as little effect on me, as I went to no end of trouble to explain the proposal very fully to Mrs. Cave. The gentleman went on to say that he felt it his duty to point out to his client that the future may hold many

implications affecting Currency - (and a few other 'mays' and

'mights' and 'ifs', which to me, all spelt 'COSTS') and that Mrs. Cave would not consider a sale of her interest based on 1935 Values but should she be approached at any time in the future, she would of course be in a position to consider a sale or a value comparable with the values ruling at the time of any such approach. He thought also that a term of five years was somewhat long and considered a three years' lease ample etc. etc. To me, it appeared in all the circumstances, that any

comment on our part would not be judicious and beyond remarking

that I had no doubt in my own mind that Mrs. Cave fully understood what was intended to be done, and had in fact intimated to Mr. Alan Higgins prior to our approach to her, that she did not wish to sell at this juncture but preferred to lease her interest on lease to the Estate with a Right of Purchase similarly as applied to the last term. However, I do not think any harm has been done nor that the Estate is likely to be prejudicially affected by Hargrave's intervention. I do know, on the other hand - assuming we get Federal Treasurer's Consent to the sale by Mrs. Borrow - that Mrs. Cave's position in the future will be correspondingly as weak as ours is strong - we will be on the Box Seat and therefore in a position to control Mrs. Cave's interest at will. You will, I think, agree with me that your and the family's attitude locally, will require to be carefully watched, to ensure that 'no spanners are thrown into the Works' - in fact and better still - 'know nothing'. My kindest regards, Yours sincerely, W. A. Upton."

What the last paragraph meant is not apparent but the rest of the letter is revealing. Upton seems to have thought that because the estate and Mrs. Higgins would together have two third shares they would be "on the Box Seat and in a position to control Mrs. Cave's interest at will". Minson, in his evidence, said he could think of no other explanation of the passage: and he agreed that, as expressed, it shows a misconception of the position of co-owners. That Upton misunderstood the legal position then, and that he continued to do so, seems to be borne out by what occurred some years later when, as a result of a letter he wrote after Mrs. Cave's death, Hargrave wrote to him: "it appears . . . that you have not appreciated the rights of tenants in common desiring to put an end to community ownership. Under the Law of Property Act, 1936 the trustee of Mrs. Cave's Estate is entitled to an order for the partition of the land or alternatively to an order for its sale as a whole". This perhaps over simplifies the effect of ss. 70 and 71 of the Act: Pitt v. Jones (1880) 5 App Cas 651 ; Perman v. Maloney (1939) VLR 376 ; and Upton may not have been as mistaken as was suggested. But that is immaterial. Whatever was the reason, he was too sanguine. Had he better understood what had happened he and the manager, who signed the correspondence, must have realized that the consequences that could ensue for the estate could be serious if nothing were done to retrieve the position. And until the end of January, still a few days off, it was retrievable. The trustee, when it learnt that Mrs. Cave had changed her mind and would not agree to a renewal of the option, could have exercised it forthwith and thus obtained Mrs. Cave's interest for 2,139 pounds 5s. 7d. There might have been some technical difficulty in complying, in manner and form, with the requirements for its exercise in respect of Mrs. Cave's interest alone, Mrs. Higgins having already bought or agreed to buy Mrs. Borrow's interest. But any such difficulty could then have been overcome with Mrs. Higgins' co-operation. Indeed it was not disputed that the trustee could have exercised the option up to 30th January 1945. On that day the manager wrote to Mrs. Cave's solicitors acknowledging a letter from them that expressed her attitude and saying, "We note that Mrs. Cave is prepared to agree to the leasing of her interest in the Burnt Oak property for a further term of five years, but desires the question of selling such interest to be left open at the end of the term": and the letter went on to agree to a suggestion by Mrs. Cave's solicitors that the trustee and Mrs. Higgins should be joined as lessees of Mrs. Cave's interest. The trustee had bowed to Mrs. Cave's attitude. It had allowed the future of "Burnt Oak", and thus of the estate as a whole, to slip from its control. That was now in the hands of Mrs. Higgins and Mrs. Cave and their successors in title. Of course Mrs. Higgins might be relied upon to exercise her rights as co-owner in co-operation with the trustee and in the interests of her children. All that she asked was that the estate pay the rates and taxes on "Burnt Oak". Yet her interests and those of her children might not necessarily coincide in the years to come. And, as the trustee disclaims any idea that she held her purchase on behalf of the estate, she could dispose of it as she chose. So far as Mrs. Cave was concerned, there could be no expectation that she or her successors in title would wish to advance the interests of the Higgins estate at the expense of her or their own interests. The trustee's failure to exercise the right to buy the outstanding interests in "Burnt Oak" had thus created a position that was fraught with the possibilities of serious loss and damage to the trust estate in the future. And so it turned out. (at p444)

20. The rest of the history may be recounted fairly briefly. The business continued to be profitably carried on with Alan Higgins as manager. He and his brother Kevin (the third named respondent) worked on the property. Mrs. Higgins continued to take a close interest in the management and affairs of the property. In 1946 she paid 2,000 pounds off the estate's debt to the Savings Bank, and obtained a release from mortgage of part of "The Brook"; and 2,000 pounds to Elder, Smith &Co. Ltd. which, with the credit then in the estate account, sufficed to discharge the whole of the estate's liability to that company. The trustee thereupon executed a mortgage to her for 4,000 pounds. All seemed to be going smoothly. Then in 1948 Mrs. Cave died. Hargrave, her solicitor, was the executor and trustee of her will. He soon made it known that the Higgins estate would not be allowed to remain in possession of the whole of "Burnt Oak" after the lease expired in 1950. "The trustee of Mrs. Cave's estate is not prepared to renew the existing lease, but is desirous of putting an end to the existing co-ownership", he wrote in September 1949. From then on, protracted, and not very happy, negotiations went on between the appellant, as trustee of the Higgins estate, and Hargrave, as the trustee of Mrs. Cave's estate, he insisting on a partition. Various proposals for sub-division were considered and rejected. Ultimately "Burnt Oak" was put up for auction and sold in four lots in August 1951. Mrs. Higgins bought Lot 1. It consisted of 1,606 acres and was the most valuable part of "Burnt Oak", and the part that was essential for the efficient working of "The Brook". Mrs. Higgins allowed the estate to have the use of it upon paying the rates and taxes. The future of the business had therefore been saved by Mrs. Higgins, although the loss of the remainder of "Burnt Oak" reduced the number of sheep that could be carried by, it was said, about three hundred. The prices received at the sale brought strikingly home to the beneficiaries in the Higgins estate what they had lost and might have had if the estate had exercised its option and spent 4,278 pounds in 1944, for the total price obtained for "Burnt Oak" at the sale was 45,050 pounds. The price paid for Lot 1 was 27,626 pounds. Contrast two-thirds of that with the total price, under 3,350 pounds, for which the estate could have obtained the outstanding interests in the particular parcels that comprised Lot 1. (at p445)

21. Even before the sale, Alan Higgins had become reproachful. On 30th January 1951 he wrote to the manager of the trustee company:

"I am utterly disgusted with the manner in which your Company has handled the whole business. . . . . As a result of the failure by your company to exercise that right or to offer to any member of our family the right to exercise it before the expiry of the lease, we now find

ourselves facing the highest of values." (at p445)

22. In the course of its reply, dated 3rd February 1951, the trustee wrote, the letter being signed by the assistant manager,

". . . whilst it is admitted that certain difficulties have arisen out of the action of Mrs. Cave's Trustees in suing for a partitionment of the "Burnt Oak" property - it cannot be denied that these difficulties have been unavoidable and we accept full responsibility for same. Notwithstanding that you have been already full informed in connection with the Trustees decision not to exercise the right of purchase contained in the several Leases of that property, you appear to be still under a complete

misapprehension as to the reasons leading to such decision which, after all,

was entirely a matter for the Trustees determination. . . . . " (at p445)

23. Alan Higgins then asked to be told in writing what were the trustee's reasons for not exercising the option. In reply the manager wrote, on 28th March 1951:

"Following your talk with me on the 19th February I have, as promised, investigated the position regarding the Trustees' decision made some years ago not to exercise the option to purchase Mrs. Cave's and Mrs. Borrow's one-third interests in the Burnt Oak property. The result of my investigation has been that this was an official decision of the Trustees made by the then Manager of the Company (Mr. Oswal Tipping) in his official capacity after he had thoroughly examined and considered the Estate's financial position and other material factors affecting the exercise of such option. The reasons for such decision were firstly that the estate had no capital funds to enable such a purchase to be made and further that the estate's assets were then heavily

encumbered with mortgage and other liabilities, which had been

owing at the time of your father's death and which for lack of capital monies the Trustees were not able to discharge and that the Trustees were not prepared to incur further mortgage debts whilst original estate debts were still unpaid. You raised the point on the question of lack of finance that between 1,000 pounds and 1,500 pounds cash was lying in the Bank in December 1944 and that a wool cheque was due between the following January and March and that there were also proceeds to come in from sale of surplus stock. This is substantially true, but these monies were all income which in law could not be used by the Trustees to purchase capital assets."

In substance, the company adhered to what it there said as the justification for its action, or inaction. Before examining it, it is necessary to complete the story of the events. (at p446)

24. On 22nd December 1953 the testator's youngest child, Raymond, the fifth named respondent, became twenty-one. The estate thereupon became divisible among all the children according to the terms of the testator's will. The sons were to have an option to purchase the land and the livestock, plant, chattels and effects used in connexion with the business at a valuation to be made. The widow was to have an annuity. How the matter of the distribution of the estate was ultimately adjusted among the beneficiaries need not concern us. Their attitude towards the trustee is, however, of some importance in view of the defence of acquiescence and delay. (at p446)

25. On 17th December 1953, that is a few days before his brother became twenty-one, Alan Higgins said in a letter to the trustee: "It is our intention to take proceedings to recover damages from your company". After some delay due to prosecution of enquiries by the solicitors and so forth, this action was commenced by a writ of summons dated 15th February 1957. The statement of claim alleges breaches of trust in various forms. They all centre, however, upon the failure by the trustee to exercise the options to purchase with, added to that, certain incidental complaints. The relief claimed was: "(a) a declaration that the defendant has been guilty of the said breaches of trust and negligence in the performance of its duties and in the exercise of its discretion ; (b) an enquiry as to the loss or damage suffered by the plaintiffs ; (c) an order for payment to the plaintiffs of the amount of such loss or damage ; (d) all such other or further accounts enquiries directions and relief as may be proper in the circumstances." (at p447)

26. These claims seem to be somewhat misconceived. If a breach of trust were established, the ordinary order would be that any resulting loss be made good to the estate, not to the beneficiaries. Secondly, when the action was commenced Mrs. Higgins was alive. Yet she was not made a party, either as plaintiff or defendant, as according to the principles governing proceedings in equity would have been proper. She was interested in the relief sought, for she was entitled to an annuity which was charged upon corpus. Moreover she had participated in one of the acts alleged to be a breach of trust. However, no objection was taken to the form of the proceedings in relation to either the parties joined or the relief asked. The defendant by its defence denied any breach of trust and alleged laches and acquiescence on the part of the plaintiffs and claimed that, if it had been guilty of any breach of trust it had acted honestly and reasonably and ought fairly to be excused according to the statute. (at p447)

27. The case came on for hearing on 20th February 1962 and lasted several days. Later, in a reserved judgment, his Honour set out the facts, made various observations upon them, surveyed at some length a number of principles of law and then found in favour of the plaintiffs. His Honour's reasons show that, in his view, the trustee could have exercised, and ought to have exercised, the option to purchase the interests of Mrs. Borrow and Mrs. Cave. He rejected the defences of acquiescence and delay. In the upshot his Honour made a declaration that "the defendant has been guilty of breaches of trust and negligence in the performance of its duties and in the exercise of its discretions as the sole trustee of the estate of Hugh William Desmond Higgins deceased particulars of which said breaches of trust and negligence are set forth in the statement of claim". The formal judgment then went on to order "that an enquiry be made by the Master as to the loss suffered by the plaintiffs by reason of such breach of trust as aforesaid" ; and that "the plaintiffs be at liberty to sign final judgment for the amount of the loss ascertained by the said enquiry to have been sustained by the plaintiffs and that the plaintiffs be allowed to add to the judgment the costs of such enquiry to be taxed". Finally it was ordered that the defendant pay the plaintiffs' costs of the action. (at p447)

28. The plaintiffs could not complain of this order. It was what they had asked for in their statement of claim. But, whatever view be taken of the merits of the case, an order in this form cannot stand. It leaves it uncertain what are the breaches of trust and negligences found to have been committed and in respect of which damages are to be assessed by the Master ; and it directs that the amount found by the Master be paid to the plaintiffs not made good to the testator's estate. These are remediable defects. It is not of them that the appellant complains, but of the finding that it was guilty of a breach of trust. As the matter comes before us as a re-hearing, it is more convenient to examine that issue directly than to pursue the various criticisms that have been made of passages in the judgment of the learned trial judge. (at p448)

29. In considering whether the trustee duly performed its duty we must take our stand at the end of 1944 or in January 1945, and look at the position as it would then have appeared to a prudent man acting as trustee of the testator's estate. We are not to judge what the trustee then did or failed to do by the light of later events that could not then have been surely foreseen. They are relevant in determining what loss resulted from the breach of trust if there were one. They do not help to determine whether or not there was one. The appellant's argument was simple. Summarized, it was : The trustee was well aware of the option to purchase : in its discretion, it decided not to exercise it : a trustee who exercises honestly a discretion with which he was entrusted does not commit a breach of trust because it turns out that he exercised it in an unwise way. The last proposition was illustrated by a wealth of cases, commencing with Gisborne v. Gisborne (1877) 2 App Cas 300 . It is unnecessary to go through them. There is no question that a trustee to whom a discretion is specifically given is protected if he exercises it in good faith, whether the result turn out to be good or bad. And, as the court will presume that he acted bona fide, the onus is thus on those impeaching his acts to prove the contrary. But we are not in this case concerned with a particular discretion specifically given by the trust instrument, but with the general duty of a trustee holding property for persons in succession and carrying on a business, the principal asset of the trust estate. The testator empowered the trustee to postpone conversion of his estate and "to make out of the income or capital of my real or personal estates any outlay which my Trustee may consider proper for the benefit or in respect of my real or personal estate". He had expressly directed that his pastoral business or businesses be continued . . . and provided that "my Trustee shall have the fullest powers and discretions as to the mode of conducting my said business or businesses or any of them and otherwise in relation thereto as if my Trustee were the absolute owner thereof". The duty of the trustee was to exercise due diligence, care and prudence in the conduct of the business, bearing in mind the need to preserve the capital of the testator's estate for those entitled in remainder : Speight v. Gaunt (1883) 22 ChD 727 ; Learoyd v. Whiteley (1886) 33 ChD 347 ; (1887) 12 App Cas 727 . If it did not do this it was guilty of a breach of trust. The argument that the trustee having, it was said, exercised a discretion, its conduct is now unchallengeable is sufficiently answered by a passage from the judgment of Fry L.J. in Re Brogden ; Billing v. Brogden (1888) 38 ChD 546 : "A trustee undoubtedly has a discretion as to the mode and manner, and very often as to the time in which and at which he shall carry his duty into effect. But his discretion is never an absolute one ; it is always limited by the duty - the dominant duty, the guiding duty - of recovering, securing, and duly applying the trust fund. And no trustee can claim any right of discretion which does not agree with that paramount obligation" (1888) 38 ChD, at p 571 . (at p449)

30. The testator's estate included the right of himself, his executors, administrators and assigns to buy his sisters' interests in "Burnt Oak" for 4,278 pounds 11s. 0d. That was one of the assets of the business which the trustee was carrying on. Whether or not one calls letting it go in the way it was let go an exercise of discretion, the question remains, was it the act of a prudent trustee. The trustee's explanation of the failure to buy it is that there was no ready money in the estate and that it was not considered prudent to add to the liabilities of the estate. This, however, is to look at the question as if it were whether or not it would be expedient for the estate to buy a new asset : whereas the true question is whether the estate could afford not to buy something which it must have if the value of its main asset were to be preserved. The intrinsic value of the interests of Mrs. Cave and Mrs. Borrow is thus in a sense a secondary consideration. But it is worth noticing that the option was in fact in itself a valuable right. On the basis of the Estate Duty assessment the interests of Mrs. Cave and Mrs. Borrow were worth 5,048 pounds at the testator's death. A valuer, who gave evidence, estimated that the market value of "Burnt Oak" as at 31st December 1944 was 4 pounds 10s. 0d. per acre. On that basis the value of the outstanding two third interests was then 8,052 pounds. The true value in 1944 may be debatable, as under the wartime regulations the selling price of land had been pegged at 1942 values. But whatever it was, the outstanding interests of Mrs. Cave and Mrs. Borrow would then have been well worth the option price, 4,278 pounds, indeed would have been cheap, regardless altogether of the special value of the "Burnt Oak" lands for the business. (at p450)

31. There is no question that the money needed could have been raised. The mortgage debts were frozen. The business was profitable. The trustee had power to borrow money and to give a mortgage for the purpose of carrying on the business. Even if the powers given by the will had not sufficed, they were supplemented by the Trustee Act, 1936-1941 (S.A.), s. 28b (1), introduced by the amending Act of 1941. The alternative suggestion to borrowing that was canvassed before the learned trial judge, and approved by him, was that a reserve fund sufficient for the exercise of the options should have been created by keeping back income during the period the trustees had Mrs. Borrow's and Mrs. Cave's interests on lease. No doubt this could have been done with Mrs. Higgins' approval. And if she had been asked she might perhaps have approved, as the maintenance of the capital of the business was as much to her interest as to that of the remaindermen. Nevertheless the cost of purchasing the interests of Mrs. Cave and Mrs. Borrow was an expense that properly would fall upon corpus. And, with respect to his Honour, it seems doubtful whether the diversion of income to a reserve fund for this purpose could properly have been done without Mrs. Higgins' authority or an order of the Court. The power given to the trustee to determine what moneys were capital and what income, on which his Honour relied, would not authorize a wholly erroneous decision. On the other hand the express power to make out of income or capital any outlay the trustee might consider proper for the benefit or in respect of the real and personal estate need not be narrowly construed. If the trustee had approached the Court with a proposal for the creation of a reserve by withholding income to meet the expenditure when the need arose, the proposal might perhaps have been approved. However that may be, the matter was apparently never considered by the trustee. And it need not be further considered here, because the obvious and direct way to have found the money would have been by borrowing. The trustee could have raised the money without itself incurring any liability beyond the assets of the estate. It could, it seems, have availed itself of the overdraft that it appears Elder, Smith &Co. Ltd. would have allowed the estate account against the security that it held. If it had been necessary to give further security, the "Burnt Oak" lands were unencumbered ; and there is no reason to suppose that permission to mortgage them, which under wartime regulations was required, could not have been obtained. Indeed it was conceded in the course of the argument, as in the light of the evidence it had to be, that the moneys needed could have been obtained by the trustee. Because of this concession, it is unnecessary to examine in detail the estate's financial position in 1944. Had the money required been raised, Mrs. Higgins, being entitled to income, would have had to keep down the interest ; but as against that, income would no longer have had to meet the outgoing for rent to Mrs. Borrow and Mrs. Cave, and income would not be reduced by the truncation of capital assets. It is worthwhile looking at one further aspect, for it is illuminating. Let it be assumed that the trustee for some reason thought it ought not to borrow as much as 4,200 pounds to acquire the whole of the "Burnt Oak" lands, it would have been possible, by exercising the right to purchase particular parts for much less a sum, to have obtained those parts possession of which was essential for the effective conduct of the business and the enhancement of the value of "The Brook". For example, the two small parts of "Burnt Oak", a hundred and twenty acres in all, which cut parts of "The Brook" off from the rest, could have been had for 213 pounds 6s. 8d. and 93 pounds 6s. 8d. respectively. And section 2162 could have been had for 173 pounds 6s. 8d. ; and section 2163, adjoining it, for 673 pounds 6s. 8d. On the latter were the sheep drafting yards and cattle yards, sheds, the dip and its yards and the "Burnt Oak" homestead where Alan Higgins lived after his marriage. To have acquired this area would have increased the frontage of "The Brook" to Currency Creek. Thus, for an expenditure of only 1,153 pounds the more serious consequences of losing "Burnt Oak" could have been avoided. And by a further expenditure of 1,139 pounds the parcel listed as sections 2087-2089 and 2153-2155 could have been had. Its acquisition would have added very considerably to the value of "The Brook", making it a more balanced and workable property well watered by Currency Creek. Had the trustee, appreciating in this way what various portions of "Burnt Oak" meant to the estate as a whole, purchased some of them and let go the right to purchase the rest, it is probable that its decision would not have been questioned by a court. But it did not do this : there is no record of it ever having considered doing it : and the course it in fact took suggests that it did not. Nevertheless the appellant has asked us to infer that, since mala fides or neglect is not to be imputed to a trustee from his silence alone, the various possibilities must have all been considered and a decision made to reject them. If that were so, the decision would seem to have been one that a prudent man, duly considering the relevant facts, could not reasonably reach. The proposition is in the circumstances unconvincing ; but in any event we are not now called upon to say that some particular alternative to the purchase of the whole might have been adopted, unless we should think the exercise of the option as a whole was impracticable, or would have been improvident or inexpedient. It was urged for the appellant that this was so. It was said that quite apart from having no ready money in hand, the trustee must have considered that the uncertain prospects of the future made any purchase imprudent. The end of the war was not in sight ; it was no time, it was said, to be increasing the liabilities of the estate or embarking money in pastoral enterprises. But, we repeat, this was not a case of entering upon some new enterprise. The trustee was, pursuant to a direction in the trust instrument, carrying on a pastoral business, a going concern. If the lands on which it was being carried on were separated, that business would be damaged, and the value of what remained, "The Brook", would be greatly diminished, whether in the future land values rose or fell. The uncertainties of the future could not justify the trustee in neglecting to safeguard the trust estate. (at p452)

32. We agree with the learned trial judge that the trustee must be held liable for a breach of trust. We agree too that the defences of acquiescence and laches fail on the facts. The defence based upon s. 56 of the Trustee Act, 1936-1953 (S.A.) fails too, for it cannot be said that the trustee acted reasonably. Moreover, although a professional trustee is not beyond the protection of the section, "such a trustee . . . would have to establish a strong case before the court would apply the section in its favour" : Partridge v. Equity Trustees Executors and Agency Co. Ltd. (1947) 75 CLR 149, at p 165 and see National Trustees Executors and Agency Co. of Australasia v. Dwyer (1940) 63 CLR, at p 23 . (at p452)

33. It was submitted for the respondents that the trustee had been at fault because the question of exercising the options never came before the board of the company. That is a circumstance to be considered : but it is not of itself a decisive consideration. The directors of a trustee company are not concerned merely with the interests of shareholders in a business. They are concerned with the interests of the beneficiaries on whose behalf the company is administering trusts. The legislature empowered the company to be a trustee. It holds itself out to the public as ready and able to perform properly the duties of a trustee. But that does not mean that the directors must themselves supervise all aspects of the administration of all its trusts. A trustee company, like any other company, acts by its officers. It discharges its futy if its officers are competent to perform, and to properly perform, the trusts it undertakes. If they fail to do so, it is responsible. (at p453)

34. The next question is what is the relief to which the plaintiffs were entitled? The liability of a trustee committing a breach of trust is measured by the loss or depreciation which his act or omission has caused to the trust estate. He must make good any depreciation and damage which the estate has suffered. In this case the loss arose because the trustee failed to acquire Mrs. Borrow's and Mrs. Cave's interests in "Burnt Oak". The extent of that loss, which is a loss of corpus, is to be determined at the date when the corpus vested in the remaindermen in possession, namely on 22nd December 1953. At that date the trustee would, had it acted prudently in 1944, have held "The Brook" and "Burnt Oak", subject to encumbrances, upon trust for them. As it was, the only land it held upon trust for them was "The Brook". The estate had, however, received its one third share of the proceeds of the sale of "Burnt Oak" in 1951. And as a result of the transactions that Mrs. Higgins entered into, including her purchase at the sale, the use of the whole of "Burnt Oak" had in fact been preserved for the estate until 1951 and a large part of it thereafter. By her will Mrs. Higgins left her "Burnt Oak" land, that is Lot 1 that she had bought at the auction, to two of her sons with a contingent charge in favour of her other children. But that the bounty of their mother, upon her death in 1961, then brought part of "Burnt Oak" to some of the beneficiaries in the testator's estate is a fortuitous circumstance. It does not in any way alter the fact that they did not all succeed to all of it in 1953, as they would have done if the trustee had prudently and properly performed its trusts. (at p453)

(4) Order that, unless the Supreme Court otherwise orders, the costs of ascertaining the amount of such loss be costs in the action to be paid by the appellant.

(5) The parties to have liberty to speak to the form of this order if they be so advised and for this purpose adjourn the further hearing of the appeal and the making of a final order until the next sittings of this Court in Adelaide.

(6) Appeal otherwise dismissed with costs. (at p469)

15. J. F. Astley Q.C. and R. A. Blackburn, for the appellant, as to the form of order. (at p469)

16. S. J. Jacobs and F. R. Fisher, for the respondents. (at p469)

November 1.
The following written judgment was delivered: - (at p469)

2. DIXON C.J., McTIERNAN AND WINDEYER JJ. This appeal stood in the list for judgment on 30th August last. On that day a majority of the Court held that, for the reasons then given, the appeal should be in substance dismissed: but that nevertheless the judgment of the Supreme Court should be set aside with a view to substituting an order in a different form. As this course raised questions that had not been considered at the hearing, the matter was stood over to the next sittings of the Court in Adelaide, that the parties might have an opportunity of speaking to the form of the order proposed. They availed themselves of this opportunity, and Mr. Astley, for the appellant, contended that an order in the form suggested ought not to be made. The Court took time to consider his submissions, which dealt with three matters that may be separately considered. The first concerned the way in which the nature of the breach of trust that the Court found had occurred should be stated in the formal order: the second concerned the way in which the loss resulting from that breach of trust should be calculated: the third was as to the costs. (at p470)

3. The majority of the Court held that the trustee had failed in its duty, because it had negligently failed to preserve, for the benefit of the trust estate, the property committed to its care. The estate consisted substantially of a grazing business and the capital assets with which it was carried on. The evidence, read in the light of an ordinary knowledge of pastoral undertakings, established that for the effective conduct of that business the lands known as "Burnt Oak" and "The Brook" must be worked together. Together they had a very much greater value than the total of their values if separated. None of this was really in controversy. The retention of the total holding could be secured if the option to purchase Mrs. Cave's and Mrs. Borrow's interests in "Burnt Oak" were exercised in the interest of the estate. If not, the "Burnt Oak" lands might be lost. And, as events turned out, the failure of the trustee to exercise that option resulted in the occurrence of the very loss against which the trustee, if it had acted prudently, would have provided. In the circumstances, therefore, the breach of trust may be said to have been the failure to exercise the option to purchase the outstanding two-third interests in "Burnt Oak". But it is urged for the trustee that it should not be chargeable with the consequences of its failure to exercise this option to the full, because it could have obtained the parts of "Burnt Oak" which were most vital for the continued conduct of the business and for securing the value of "The Brook" by exercising its options in respect of those parts only. Mr. Astley points to a passage in the majority judgment where this is discussed; and in particular to the sentence "Had the trustee, appreciating in this way what various portions of "Burnt Oak" meant to the estate as a whole, purchased some of them and let go the right to purchase the rest, it is probable that its decision would not have been questioned by a court" (1963) 113 CLR, at p 451 . That sentence must be read in its context - with what precedes it and what follows it. All that it means is that if the trustee, after considering the matter as a prudent trustee should, had bought only the more essential parts of "Burnt Oak", and had either let the peripheral lands go unbought or bought them and sold them off later, then probably its decision to do this would not have been impeached. The matter was referred to only to show, along with the rest of the evidence, how unconvincing was the trustee's argument that it had properly appreciated its duty, given it due consideration and performed it. Its case was not that it ought in the proper performance of its duty to have bought some part of the land and not the whole. Its case was that it was justified in not buying any part. It was not disputed that the whole could have been bought - the money to do so was obtainable. And no sound reason for not exercising the option was shown. All that is what the majority judgment decided. The conclusion is that the trustee is chargeable with the consequences of its failure to exercise the option to acquire the whole of the outstanding interests in "Burnt Oak". (at p471)

4. Mr. Astley, mistaking the effect of the majority judgment, argued that the case should be treated as if it were one in which a trustee who had a duty to invest trust moneys, at his option, in either of two kinds of security, failed to invest in either. In such a case the beneficiary cannot choose one of the securities and insist on having the amount that would have been available if the trustee had invested the trust funds in it. The trustee had a discretion. Had he carried out his trust, he might not have invested in the particular security thus chosen by the beneficiary; and the beneficiary would not be entitled to have more than the principal sum that should have been invested and interest: Robinson v. Robinson (1851) 1 DeG M &G 247 (42 ER 547) .That principle, however, does not apply here. This is not a case of the failure of a trustee to invest a trust fund, but of a failure to get in an asset that it was essential to have to preserve the value of the estate as a whole. The case is not at all like one in which the trust instrument expressly gives the trustee an election, and directs him to choose between several stipulated methods of performing his trust. The duty the trust instrument imposed was the overmastering duty of careful and prudent management of the trust estate. What the trustee must do is to make good the whole loss which its negligent act or omission has caused to the trust estate. (at p471)

5. The question next raised was as to the date at which the loss should be determined. In the order the Court proposed, the date suggested was 22nd December 1953. That is the date at which the testator's youngest child became twenty-one, when the corpus vested in possession. The trust for conversion in the will would, subject to any other arrangement, have then taken effect: the corpus would become distributable among the remaindermen, the respondents (subject only to the due securing of the widow's annuity of 400 pounds and to her right of residence until conversion should actually take place). At that date the interests that Mrs. Cave and Mrs. Borrow had had in "Burnt Oak" were, of course, no longer purchasable by the trustee. But the best way of assessing the loss appears to be to ascertain what the notional market value of two undivided one-third interests in "Burnt Oak" would have been at that date. Admittedly that sum would not necessarily recoup the beneficiaries for the full amount of the loss, for the notional market value of the two shares would not reflect their special value to the estate. Nevertheless, it seems that the trustee ought not to be chargeable, so far as the remaindermen are concerned, with a greater sum than that for which the outstanding interests in "Burnt Oak" could notionally have been acquired at the date when the remaindermen became absolutely entitled thereto. (at p472)

6. Mr. Astley criticized the proposal to assess the loss at the date when the interests in remainder vested in possession. One of his grounds of criticism may be disposed of at once. He said that it was uncertain, because the youngest child might have died earlier and the time of distribution have been thus accelerated. But it is fallacious to base a conclusion on something that might have happened, but which in fact did not. Facts, when available, are to-day preferred to prophecies (see cases collected by Dixon J. in Willis v. The Commonwealth (1946) 73 CLR 105, at p 116 ) and to speculations about what might have been. (at p472)

7. Mr. Astley next urged that the proper date at which to calculate the loss was 1st February 1945. He put his argument as follows: "The option expired on 31st January. On 1st February the breach of trust was complete. The loss, whatever it was, that was incurred by that breach was incurred then, once and for all. No further loss was incurred; no loss was incurred from that time on". But that is not so. The loss, to the pastoral business as a going concern, arose only when the estate lost the use of the "Burnt Oak" lands. That was not until 31st December 1950. And the loss to the remainder-men occurred when the time of distribution of corpus arrived and the trustee should hand over the estate to them. The trustee could not then hand over "Burnt Oak" along with "The Brook" because it had failed to exercise the option to purchase the interests of Mrs. Cave and Mrs. Borrow. It was this failure that was the imprudent act of the trustee, and thus a breach of trust. It occurred in 1945. But the loss to be made good was the later consequence of it: cf. Bennett v. Colley (1832) 5 Sim 181, at pp 191,192 (58 ER 305, at p 309); affirmed (1833) 2 My &K 225 (39 ER 930). .If at any time before 1953 the trustee had repaired its omission by acquiring the outstanding interests in the "Burnt Oak" lands for the estate, the loss, if any, would have had to be measured by what it then cost the estate to acquire them, as against what it might have got them for earlier. But this is not what happened. And, even if it were correct to estimate the loss as at January 1945, it is hardly necessary to say that it would not be measured by the sum for which at that date the trustee could have bought the outstanding two-third interests. A loss to be made good is not measured by the sum by which, had it been expended, the loss would have been avoided. As an illustration: if a trustee in breach of trust fails to insure a building against fire he will be liable for the loss of it if it be burnt down. The amount that he must make good depends upon the value of the property destroyed. It is not measured by the amount of the insurance premium by the expenditure of which the loss could have been avoided. (at p473)

8. The assessment of a loss by reference to the value of property at a past date necessarily has its difficulties: see McCathie v. Federal Commissioner of Taxation (1944) 69 CLR 1, at p 16 .But, once the material date be determined, the assessment can be undertaken. And in our view the material date is 22nd December 1953. In making the assessment it is relevant to remember that had the trustee bought the outstanding interests in "Burnt Oak" when, in 1945, they were available to be bought for 4,278 pounds, the estate would have become subject to a continuing interest burden. From the point of view of the life tenant that burden would have been, up to a point, offset because the liability of the estate for rent would have ceased. But in assessing the loss that the trustee must make good to the estate, we think that in all the circumstances the amount that it must pay should be abated by a sum representing interest at five per cent. per annum on 4,278 pounds from 1st February 1945 to 22nd December 1953. (at p473)

9. The remaining question is as to the costs of the appeal. The appellant vigorously denied that there had been any breach of trust. In this contention it failed. But the argument on the appeal made it apparent that the order made at the trial would have to be varied. In the circumstances the appellant ought not to be required to pay the whole of the respondents' costs of the appeal. We consider that the order of the Court should be as follows: (at p473)

Orders

(1) Declare that the appellant committed a breach of trust in failing to exercise for the benefit of the estate of Hugh William Desmond Higgins deceased the option it had to purchase from Blanche Isobel Mary Borrow and Mabel Janet Celia Cave their interests in the lands known as "Burnt Oak".

(2) Judgment of the Supreme Court varied accordingly. Case remitted to the Supreme Court to ascertain what is the amount of the loss that by reason of the said breach of trust the appellant should make good to the estate of the testator. Such loss to be calculated by ascertaining the value as at 22nd December 1953 of two one third shares of a tenancy in common notionally then existing in "Burnt Oak" and deducting from the value so ascertained the sum of 4,278 pounds and interest on such sum at five per cent. per annum from 1st February 1945 to 22nd December 1953.

(3) Order that the amount of the loss so ascertained with interest thereon at five per cent. per annum from 22nd December 1953 until date of payment be paid by the appellant to the estate of the testator.

(4) Order that, unless the Supreme Court otherwise orders, the costs of ascertaining the amount of such loss be costs in the action to be paid by the appellant.

(5) Appeal otherwise dismissed. The appellant to pay three quarters of the respondents' costs of the appeal.