Graeme Linke and ORS (According to the attached schedule) v Victor Harold Linke and ORS(According to the attached schedule)

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0161

GRAEME LINKE & ORS (According to the attached schedule)	Applicants
v
VICTOR HAROLD LINKE & ORS (According to the attached schedule)	Respondents

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JUDGES:	McLEISH, NIALL and EMERTON JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	2 August 2019
DATE OF JUDGMENT:	24 September 2019
MEDIUM NEUTRAL CITATION:	[2019] VSCA 210
JUDGMENT APPEALED FROM:	Linke v Linke [2018] VSC 505 (Keogh J)

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WILLS – Construction of will – Whether will conferred power of sale on trustees – Trustee Act 1958 s 13.

EQUITY – Constructive or resulting trust – Estate assets transferred by trustees to beneficiary – Whether trust arose from transfer of assets – Whether assets transferred at significant undervalue in breach of trust – Whether assets acquired through unconscionable transaction giving rise to constructive trust – Evidence Act 2008 s 140 – Black v S Freedman & Co (1910) 12 CLR 105 considered.

TRUSTS AND TRUSTEES – Release – Respondents alleged to have knowingly received property in breach of trust – Whether release effective to release respondents from liability – Incomplete documentary record – No lack of disclosure – Documents not deliberately concealed – Applicants received legal advice – Release effective – Application for leave to appeal refused – Bullhead Pty Ltd v Brickmakers Place Pty Ltd (in liq) [2018] VSCA 316 considered.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr T Mitchell	Stephen Peter Byrne
For the First and Second Respondents	Mr J Delany QC with Mr P Crofts	Taits Legal
For the Third and Fourth Respondents	No appearance	Dwyer Robinson Pty Ltd Lawyers
For the Fifth and Sixth Respondents	No appearance	Brown McComish Solicitors

McLEISH JA

NIALL JA
EMERTON JA:

Introduction

At the time of his death in 1962, Johannes Linke was a farmer and grazier. He lived on a farm, Abbey Hills, in Western Victoria, with his wife Emma Linke and his five children: Leonard Linke,[1] Victor Linke,[2] Agnes Baensch,[3] Peter Linke[4] and Graeme Linke.[5] Johannes purchased Abbey Hills in 1946. The grazing and farming business consisted principally of a flock of Corriedale and Merino sheep producing wool and lambs, with a much smaller herd of Hereford and dairy cows. The farm was the principal asset of Johannes’ estate. Probate of his will was granted to his wife Emma and brother Walter.
[1]Leonard died in 1965. His son, Andrew Cornish, is the fourth applicant.
[2]The first respondent.
[3]The second applicant.
[4]The third applicant.
[5]The first applicant.

In 1973, the executors transferred Abbey Hills to Victor and his wife Judith,[6] for a stated consideration of $100,800. Victor’s three surviving siblings and his nephew (the applicants) commenced proceedings in the Trial Division in August 2016, seeking to establish that Abbey Hills was held on trust for them on the basis of an absence of power to sell the estate assets or, alternatively, on the basis that Victor and Judith held the property on a constructive trust, arising from the circumstances of the transfer.
[6]The second respondent.

The judge rejected the applicants’ case and held that Johannes’ will conferred on the trustees a power of sale,[7] and the applicants had failed to establish that Victor and Judith knowingly received estate assets for less than full value[8] or that the circumstances otherwise gave rise to a trust. In addition, the judge held that the claims had been compromised by an enforceable release entered into between the parties in May 2015.[9]
[7]Linke v Linke [2018] VSC 505 [74] (‘Reasons’).
[8]Ibid [115].
[9]Ibid [141].

The application for leave to appeal raised four principal issues. First, whether the deceased’s will contained a power of sale. Secondly, whether the transfer of the assets of Johannes’ estate gave rise to a trust because the assets were transferred under value, without the knowledge or consent of the beneficiaries. Thirdly, whether the circumstances of the transaction were unconscionable, requiring the imposition of a constructive trust. Fourthly, whether the release was unenforceable because of Victor and Judith’s failure to disclose matters that they were duty bound to disclose.

Each of those issues was decided adversely to the applicants at trial and, for the reasons that follow, there was no error by the judge. We would refuse leave to appeal.

The Will

Johannes’ last will was dated 23 December 1941 (‘Will’). It contained seven clauses. Clause 1 of the Will revoked all previous wills and cl 2 appointed Emma and the testator’s brother, Walter Linke, as executors and trustees. Clause 3 provided for a gift of furniture and household effects to Emma. Clauses 4 and 5, which formed the centrepiece of ground 1 of the appeal, were in the following terms:

4.I GIVE DEVISE AND BEQUEATH all my real and residuary personal estate unto my trustees upon the following trusts, namely –
(a)To carry on the farming and/or grazing business carried on by me prior to my death either solely or jointly with any other person or persons with whom I shall be then carrying on such business until my youngest child for the time being, attains twentyone years of age or during such shorter period as my trustees think it desirable to carry on the same with liberty for that purpose to occupy and use my real estate and employ my live stock and plant and such part of my personal estate as they shall think fit with power to buy and sell live stock and generally act in all matters relating to any such property as if they were the absolute owners thereof AND I DECLARE that my trustees shall not be responsible for any loss or lessening in value in the carrying on of such business.
(b)Subject to the foregoing provision for carrying on my said farming and/or grazing business to stand possessed of my real and residuary personal estate UPON TRUST to sell call in collect and convert the same into money in such manner and upon such terms and conditions as they shall think fit with power to give time for the payment of any purchase money and to postpone the sale calling in or conversion of the whole or any part or parts thereof during such period as they shall think fit and to retain the same or any part thereof in its then present form of investment without being responsible for loss.
(c)After payment of my just debts funeral and testamentary expenses and all duties payable on my death in respect of my estate to invest the residue of the moneys arising from such sale calling in and conversion in the names of my Trustees in any of the forms of investment for the time being authorised by the law of the State of Victoria for the investment of trust moneys or upon fixed deposit with any Banking Company carrying on business in the Commonwealth of Australia with power to vary such investments at their discretion.
(d)To pay the net income derived from my estate whether from carrying on my farming and/or grazing business or from the investment of moneys forming part of my estate (after payment of all rents taxes rates insurances repairs expenses of management and such other outgoings as in the opinion of my trustees are properly chargeable to income) to my wife during her widowhood until my youngest child for the time being attains twentyone years of age but charged with the maintenance education and bringing up in a manner suitable to their station in life of my sons for the time being under the age of twentyone years and my daughters for the time being under that age who have not married.
(e)In the event of the death or remarriage of my wife before my youngest child for the time being attains twentyone years of age my Trustees shall apply the whole or such part as they in their discretion shall think fit of the income of the expectant or presumptive share or shares of any children or child grandchild or grandchildren of mine in my estate for or towards his or her maintenance education or benefit or for or towards the common maintenance education or benefit of the children and grandchildren for the time being entitled expectantly or presumptively to share in my estate and may either themselves so apply the same or may pay the same to the parent or guardian of such children or child grandchildren or grandchild for the purpose aforesaid without seeing to the application thereof.
5.ON my youngest child for the time being attaining twenty one years of age I DIRECT my Trustees to stand possessed of my real and residuary personal estate including any parts of my real and personal estate for the time being unconverted and the investments for the time being representing such part thereof as has been converted UPON TRUST
(a)to pay to my wife Emma Marie Linke so long as she remains my widow an annuity of One hundred and fifty pounds to begin upon my youngest child for the time being attaining twentyone years of age and to be payable by equal halfyearly payments, the first payment to be made on the expiration of six months, and subject thereto.
(b)to hold my said real and residuary personal property for all or any my children or child living at my death who attain the age of twenty one years if more than one as tenants in common but so that the share of each son of mine shall be half as much again as the share of each daughter PROVIDED ALWAYS AND I HEREBY DECLARE that if any child of mine shall die whether in my lifetime or after my death before attaining a vested interest in my estate leaving a child or children who attain the age of twentyone years such child or children shall stand in place of such deceased child of mine and take if more than one as tenants in common in equal shares the share in my estate which their parent would have taken had he or she survived me and attained a vested interest.

Clause 6 conferred a number of powers on the trustees ‘in connection with every part of [Johannes’] real and personal property’, which were expressed to be in addition to any powers conferred on them by statute. They included the power to determine whether money is capital or income; to lease the whole or any part the estate; and to mortgage the real estate, as may be required for the purpose of administering the estate or for any purposes provided by the Will. In addition, sub-cl (f) conferred:

All powers which would be conferred upon [the trustees] by statute had [Johannes’] real and personal estate been devised and bequeathed to [his] trustees upon trust for sale.

Sub-clause 6(g) relieved the trustees of the obligation to keep a detailed account of the receipts and payments in connection with carrying on the farming or grazing business and required only a general balance sheet to be rendered at each year’s end, on the basis that ‘it is very burdensome in farming to keep an exact account in writing of every item going out and coming in’.

Clause 7 provided that, in the due administration or distribution of the estate, the trustees may appropriate and retain part of the estate as a fund to provide for the annuity given to Emma under cl 5.

The issue of construction that arises in the present application is whether the Will conferred a power of sale of the real and personal property held in the estate, exercisable once the youngest child turned 21 years of age. The applicants submitted that the power of sale was exclusively located in cl 4 and was not available after the youngest child turned 21 years of age. However, before turning to that question of construction and the remaining grounds of appeal, it is convenient to set out the facts.

Working the farm

Prior to his death, Johannes operated the farming and grazing business and was the principal worker on Abbey Hills.

Leonard and Victor were born in 1936 and 1938, respectively. They both left school at a young age to work on Abbey Hills. Before Johannes’ death, Leonard suffered serious ill health and obtained a job driving a local school bus, but was unable to undertake most farm work. He died in 1965, before the estate was distributed. Victor continued to work on the farm with his father.[10]
[10]Ibid [18].

When Johannes died on 19 August 1962, Leonard was 26 years of age, Victor was nearly 24 years of age, Agnes was 22 years of age, Peter was 13 years of age and Graeme was 10 years of age. Victor said that, after his father’s death, Emma asked him to stay on and run the farm for her. At that time, he was engaged to Judith and the two of them agreed to stay to work on the farm for 10 years, until the youngest sibling, Graeme, turned 21 years of age and the estate was to be wound up.

For the initial period following her husband’s death, Emma played an active role on the farm. However, her involvement diminished over time and, in 1965, she moved with her youngest child, Graeme, to live at a house in Myrtle Avenue, Newcomb[11] (‘Myrtle Avenue’), which had been acquired for that purpose.
[11]A suburb of Geelong, Victoria.

Agnes left Abbey Hills within six months of her father’s death and returned most years during the shearing season. Peter left school when he was 14 years of age to work full-time on the farm with his brother Victor. In 1968, Peter left Abbey Hills and moved to Geelong to play football and to work. Graeme, who had left the farm with his mother, returned to replace his brother Peter in 1968. He remained there for one year, after which he returned to Geelong to play football and to work.

The partnership agreement

On 31 August 1964, a formal partnership agreement was executed by Emma and Victor. It recorded the commencement of the partnership between them on 1 July 1964. Clause 5 of the agreement provided:

DURING the continuance of the partnership the firm shall have the exclusive right to use free of occupation rent for the purposes of the partnership business the lands livestock and plant described in the Schedule hereto. Such lands livestock and plant shall remain the sole and separate property of the estate of the said Johannes Reinhold Linke deceased and nothing herein contained shall be deemed or intended to create any partnership in or joint ownership of the said lands livestock and plant or constitute the Trustee of the Estate of Johannes Reinhold Linke deceased an agent or trustee of or for the partnership in relation to such lands livestock and plant it being expressly agreed that it is only the right to use the said lands livestock and plant during the continuance of the partnership that is brought into the partnership.

The partnership agreement provided that:

(a)the partnership was responsible for payment of all ‘rates, taxes and outgoings payable in respect of’ Abbey Hills, and was obliged to maintain the estate assets;
(b)if improvements in carrying capacity led to an increase in livestock numbers, the additional livestock belonged to the partners in equal shares;
(c)a partnership account was to be maintained at the National Bank of Australasia Limited, Penshurst branch; and
(d)the partners were both obliged to devote their whole available time to the partnership business, and were entitled to the net profits in equal shares.

In 1969, the partnership agreement was varied to remove the requirement that Emma devote her time to the partnership business and to provide for distribution of each year’s profit as to the first $500 to Emma, the next $7,500 to Victor, and of the balance, 25 per cent to Emma and 75 per cent to Victor. A further variation of the partnership agreement, effective on 1 July 1970, admitted Judith as a partner. Although the validity of the partnership agreement was in issue at trial, no challenge to the existence or terms of the agreement was made on the application for leave to appeal.

The principal accounts

Johannes held two principal accounts: the ‘farm account’[12] and the ‘wool-brokers’ account’.[13] After his death, the farm account was held in the name ‘Estate J R Linke’ and, after the partnership agreement commenced, that account was used by the partnership for grazing business transactions until, at some point after the events with which we are concerned, Victor and Judith established their own farm account. Emma and Victor had joint authority to sign the farm account cheques and, at least from 1965, after Emma had left Abbey Hills, cheques were able to be signed solely by Victor. From that time, Victor undertook almost all transactions on the farm account.
[12]An account with an overdraft facility at the Penshurst branch of the National Bank of Australasia Ltd.
[13]An account with wool-brokers Strachan & Co Ltd.

Payments made from the farm account which were not directly related to the conduct of the grazing business included payments relating to the purchase of Myrtle Avenue[14] and interest on a loan obtained to pay estate duty.
[14]Including stamp duty, mortgage interest and rates.

Both Emma and Victor drew money from the farm account for their personal needs, but farm machinery and motor vehicles were also purchased from this account.

The wool-brokers’ account was continued after Johannes’ death in the name ‘Estate J R Linke’. Proceeds from the sale of wool and stock by the grazing business were paid into the account. Throughout the year, farm merchandise and stock were purchased with funds advanced, resulting in a debit balance with interest accruing. The major credits to the account came from wool sales in December or January each year. These funds were used to pay off any debit balance and the remaining credit was then paid into the farm account.

Victor said that, in the mid-1960s, at the insistence of Walter, the grazing business changed wool-broking firms from Strachan & Co Ltd to Dennys, Lascelles Limited. Victor gave evidence that his uncle Walter had thought it advantageous to change firms so that Walter could have a greater input into stock purchases, and so that the stock agent would be the same for both Abbey Hills and his property.

The purchase of Myrtle Avenue

Entries in Victor’s diary recorded that, in August 1965, his mother, Walter and he went to Geelong to look for a house to buy for his mother, and another visit to Geelong for that purpose in September that year. On 1 November 1965, an amount of £3,000 was transferred from the wool-brokers’ account to the farm account for the purpose of partially funding the purchase.

In April 1974, $6,240 was paid to discharge the mortgage and interest in relation to the house. The applicants accepted that this was paid by Victor and, in effect, enabled the trustees to satisfy the obligation under cl 5 of the Will to pay Emma an annuity.

Winding up the estate

Before referring to the facts surrounding the winding up of the estate, it is necessary to observe some things about the evidence. First, Emma, Walter and the solicitor Mr Collery, who was involved in the documentation of the estate, are all deceased. Secondly, Victor suffers from a cognitive deficit as a result of a medical condition. The judge noted the uncontested evidence of a clinical neuropsychologist that Victor’s ‘mood difficulties and cognitive weaknesses mean that he will appear confused and flustered if asked to recall events surrounding the death of his parents and the administration of their affairs, especially under the pressure of a cross-examination’.[15] The judge noted that his observations of Victor as a witness were consistent with this evidence.[16]
[15]Reasons [59].
[16]Ibid.

Victor kept a succinct diary of events, parts of which were in evidence. However, it was apparent from the evidence he gave that he had little memory of the events to add to the sparse details of his diary.

Thirdly, the events stretch back over 50 years and, as might be expected, the documentary record of dealings in respect of the estate is incomplete. What was available at trial included Victor’s diary entries, correspondence with and documents prepared by Melville, Orton and Lewis[17] and the farm ledger book, which gave an account of the manner in which the business was conducted. As will appear, some of the documents were discovered, in recent years, by Judith. They were found in a box on top of a cupboard. We shall return to the circumstances of their discovery later in these reasons.
[17]The solicitors involved in the transfer of the estate.

Clause 4 of the Will authorised the executors to carry on the farming and/or grazing business until the youngest child attained 21 years of age, or for such shorter period of time as the trustees thought desirable. Graeme turned 21 years of age on 17 November 1972.

The entry in Victor’s diary for 28 November 1972 reads:

Went to Hamilton about winding up the estate. Uncle Walter came with.

An entry on 11 December 1972 reads:

Went to Hamilton re winding up of the estate. Agreed that I pay out Peter $8000, Graeme $8000 and Agnes $5000, also probate debt $12,000 and house Geelong $6000 and keep all the property.

In cross-examination, Victor was unable to provide any recollection of attending a meeting on 11 December 1972 beyond the terms of the diary entry, other than recalling that ‘our solicitor worked it out and just told us what to do’. Accepting that he did not negotiate with the other beneficiaries, Victor added in his evidence that ‘they worked it all out, and when they visited them they gave us the details’. He denied that Judith was involved in the process.

The farm ledger book recorded a number of payments being made to Peter, Agnes and Graeme in late December 1972, early 1973 and December 1976. The judge found that these payments reflected distributions from the estate.[18] Peter received $9,520,[19] Graeme received $10,000,[20] and Agnes received $7,000,[21] making a total of $26,520. We note that the sums are greater than those referred to in Victor’s diary entry of 11 December 1972.
[18]Reasons [113].
[19]Paid on 29 December 1972 and 10 December 1976.
[20]Paid on 10 January 1973, 25 May 1973 and 30 December 1976.
[21]Paid on 22 January 1973, 3 March 1973, 29 March 1973 and 30 December 1976. Agnes gave evidence that she received the payments in a single payment.

Judith gave evidence that, in order to facilitate the purchase of Abbey Hills, the bank manager came to the farm, put them on a strict budget and allowed them an overdraft of $40,000. Further, Judith described a family friend, Albert Uebergang, coming to the farm and agreeing to provide a $10,000 loan at five per cent interest. She said this gave them confidence to proceed with the purchase. However, she had no memory of how the purchase price was worked out and was not involved in negotiations about how the estate would be divided up.[22]
[22]Reasons [51].

On 2 July 1973, a transfer of land in respect of Abbey Hills (comprising a number of separate parcels of land) was executed by Emma and Walter as transferors and Victor and Judith as transferees. The transfer records consideration of $100,800 paid by Victor and Judith. The transfer was witnessed by Mr Collery, the estate solicitor. It was accepted at trial that $100,800 represented the value of the property.

In 2003, Victor and Judith transferred part of Abbey Hills to their son Colin and his wife Maria as a gift. Colin had worked on Abbey Hills since 1987, and Maria since 1993. From around 1990, Colin farmed Abbey Hills in partnership with Victor and Judith, and, in about 2000, the partnership was extended to include Maria.

Subsequent payments and release

In early 2015, Victor paid $7,000 to each of Agnes, Peter and Graeme. These payments comprised the amount that Victor thought he still owed each of his siblings from Johannes’ estate, being $2,000, with an additional $5,000 each for interest. In his view, with those payments made, he no longer owed money to Agnes, Peter and Graeme. In this respect, he noted his journal entries from late 1976, recording ‘last payments’ to each sibling.

On 11 April 2015, Graeme wrote to Victor, stating that he was unhappy with the delay in making the payment and the adequacy of the interest component. Graeme said that, at this time, it was his belief that he was entitled to $10,000 from Johannes’ estate, and that he had left $2,000 to assist Victor to continue to operate the farm. He calculated his entitlement to interest on the $2,000 as a sum of $100,000.

Following this, a number of family meetings occurred, at which the administration of Johannes’ estate and the entitlements of the beneficiaries were discussed. It was at this time that Agnes, Peter and Graeme first obtained copies of the Will. Although his siblings asked him for an explanation as to what happened to Johannes’ estate, Victor said that he had no explanation to give them. This was because he had no memory of the winding up of the estate, and he had tried to find out but was unsuccessful.

In an attempt to resolve the issues that had arisen in relation to the administration of their father’s estate, Graeme, Agnes and Peter gave Victor the choice of either explaining his actions in the administration of the estate or paying the sum of $50,000 to each of his three siblings. Victor accepted the latter.

Graeme instructed a solicitor to prepare a release, which was executed in May 2015 by the applicants Agnes, Peter and Graeme as releasers and Victor, Judith, Colin and Maria as releasees (‘the release’).

The release contained a number of recitals, including the following:

R10 A number of transactions occurred in relation to Estate between 1962 and distribution date including but not limited to:
(a)the Trustees raised funds, by way of loan secured by mortgage over Estate land, to pay Probate duty. The Releasors have been informed by the First Releasee [Victor] that, to the best of his recollection, this amount was in the sum of approximately TWELVE THOUSAND DOLLARS ($12,000.00);
(b)the Trustees and the Second Releasees [Victor and Judith] entered into a farming partnership in respect of the Estate’s livestock and plant and equipment, the basis of which partnership and the capital (if any) introduced by the Second Releasees into such partnership is unknown by the Releasors;
(c)the Trustees permitted the partnership to conduct the farming business on the Estate land on a basis whereby it is unclear to the Releasors whether the partnership paid rental or any other form of recompense to the Estate for use of an Estate asset;
(d)the Second Releasees acquired the Estate’s farming land on a basis which is unclear to the Releasors and in particular as to whether the price paid to acquire the farming land was:
Afair market value at the time;
Bever paid in full.

(e)the Second Releasee [sic] acquired the Estate’s remaining 50% share of the assets of the farming partnership referred to in R10(b) on a basis which is unclear to the Releasors
…

R15(a) The Releasors are dissatisfied with the responses received from the First Releasee and the Second Releasees about the administration and distribution of the Estate and have formed the view that the payments to each of them in 1972 and 2015 totalling FIFTEEN THOUSAND DOLLARS ($15,000.00) represent significantly less than the total moneys due to them for each Releasors share of the Estate;
(b)It is unclear (at best) to the Releasors to what extent (if at all) the directions referred to in R2(c) and (d) [as to distribution of the residuary estate] have been complied with in the distribution of the Estate.
…

R18Accordingly, there is a dispute between the parties about whether the Releasors have received the full extent of their entitlements to a share of the Estate.
R19All parties accept and agree that because of:
(a) the passage of significant time;
(b) the death of each Trustee;
(c)incomplete records held by third parties such as solicitors

there are difficulties in definitively establishing the amount which might be due to each of the Releasors.
R20All parties wish to avoid this matter escalating into formal legal proceedings.
R21Each party has either had, or has had reasonable opportunity to obtain, independent legal advice on the dispute, the issues which need to be clarified in order to definitively resolve the dispute, the cost, inconvenience and further damage to familial relationships which would be caused by legal proceedings and have agreed to the resolution of the dispute contained in this Release.

By its substantive terms, the release provided:

NOW THIS DEED RECORDS:
1.That the First Releasee and Second Releasees jointly and severally agree to pay to each of the Releasors the sum of FIFTY THOUSAND DOLLARS ($50,000.00), over and above the sum of SEVEN THOUSAND DOLLARS ($7,000.00) previously paid to each Releasor.
...

3. Upon the payment of the moneys provided in clause 1:
(a)each Releasor does RELEASE AND FOREVER DISCHARGE the First Releasee, the Second Releasees and the Third Releasees [Victor, Judith, Colin and Maria] from all claims suits actions or demands which the Releasors or any one or more of them have or might have against the First Releasee and the Second Releasee [sic] in respect of the distribution of the Estate;
(b)the First Releasee and the Second Releasees indemnify and keep safe each Releasor from all claims (if any) which might be made in the future by Leonard’s children (or either of them) for payment to them or either of them of a share of the Estate pursuant to the gift over provisions of the Will.

4.This Release may be pleaded by any of the Releasees as a complete defence to any future action brought by any of the Releasors against any of the Releasees for the taking of accounts, the production of documents, the payment of moneys or seeking any relief whatsoever relating to the distribution of the Estate.
5. All parties agree that upon execution of this Release and the performance of its terms, this dispute shall be at an end. All of the Releasors agree that, after payment of the amounts due to them respectively, none of them shall contact or communicate with any of the Releasees about the dispute or the matters covered in this Release.[23]

[23]Emphasis in original.

On 12 May 2015, the release was executed by all parties, and Victor and Judith paid each of Agnes, Peter and Graeme $50,000 pursuant to its terms.

In his evidence, Graeme said that at the time he signed the release he had no knowledge of the payment of the purchase price stated in the transfer of Abbey Hills; the terms on which other assets had been transferred; the details of the partnership; or the payment of stamp duty on the transfer of Abbey Hills. Peter said that at the time he executed the release, he was not aware that part of Abbey Hills had been transferred to Colin and Maria, nor did he know anything about the partnership agreement. Agnes said she thought Victor and Judith were responsible for administering the estate because they were running the farm. She was also not aware that Colin and Maria owned part of Abbey Hills.

The case as pleaded

Although there was some shift in the pleaded case, the judge summarised the four strands of the applicants’ case as follows:

(a) First, they submitted that the trustees had no power under the Will to sell Abbey Hills to Victor and Judith and, by reason of the sale without the consent of the beneficiaries, the property was subject to a Black v Freedman[24] constructive or resulting trust.
[24]Black v S Freedman & Co (1910) 12 CLR 105 (‘Black v Freedman’).

(b) Secondly, they submitted that the circumstances of the transfer made it unconscionable for Victor and Judith to assert beneficial title, and equity imposed a constructive trust over the estate in favour of the applicants (as plaintiffs).

(c) Thirdly, it was contended that Victor and Judith had no authority to take possession of Abbey Hills and, by reason of their conduct, they were de facto trustees of the property and held the assets on trust for the applicants.

(d) Finally, it was submitted that Victor and Judith fraudulently concealed the impropriety of the transfer of the estate assets and were liable for the loss suffered by the applicants.[25]

[25]Reasons [63].

Judge’s reasons

The judge rejected each of the four bases advanced. In addition, the judge found, as a complete answer to the proceeding, that the applicants had released Victor and Judith from all claims in relation to Johannes’ estate.[26]
[26]Ibid [137].

The judge rejected the first basis by concluding that the Will contained powers of sale in cls 4(b) and 6(f) that were available to the trustees, notwithstanding that the youngest child had turned 21 years of age.[27] The judge relied on the fact that there were a number of demands on the estate that might need to be met by the sale of assets, including the annuity payable to Emma; debts associated with the ongoing running of the farming business; and the payment of estate duty.[28]
[27]Ibid [70]–[74].
[28]Ibid [73].

The judge rejected the Black v Freedman trust claim on the basis that there had been no theft or fraud, and Victor and Judith did not take the assets as volunteers.[29] In that respect, the judge held that in order to set up a Black v Freedman trust, it is not sufficient that the estate assets were transferred without power and without the knowledge or consent of the beneficiaries.[30]
[29]Ibid [78].
[30]Ibid [77].

The judge next rejected the submission that Victor and Judith held Abbey Hills as de facto trustees.[31] That finding was not challenged on appeal. We note that the de facto trustee claim was the sole basis in the pleadings on which the applicants asserted that Victor and Judith owed fiduciary obligations to the applicants.
[31]Ibid [88]–[92].

The judge dealt with the second and fourth bases together and rejected them.[32] His Honour noted the agreed position that the consideration of $100,800 represented the value of Abbey Hills at the time of transfer. The judge was unable to ascribe a value to the other assets of the estate in 1972.
[32]Ibid [94]–[115].

In relation to the liabilities of the estate, his Honour noted that the probate inventory recorded debts of just under £11,000. However, the judge considered that to be an incomplete statement of the liabilities, as it did not include a debt of £562 in respect of the purchase of a tractor; the estate duty loan of £6,000; and legal fees of approximately $650. The judge also noted that the farm had operated an overdraft account which, shortly after the death of Johannes, was extended by £500 and again extended in 1964, secured by a mortgage. The evidence did not disclose the increase in debt associated with that mortgage.

In addition, the judge noted that funds were advanced for the purchase of Myrtle Avenue and that, in about the mid-1960s, there had been discussions between Victor, Judith, Emma and Mr Collery about the value, credit or reimbursement to Victor for improvements he had made to Abbey Hills in the period before the estate was wound up.

In short, given the exiguous state of the evidence on the assets and liabilities of the estate, the judge was unable to conclude that Victor and Judith, with the knowledge of Emma, Walter and Mr Collery, paid less than the agreed value for the property.[33] Faced with the uncertainty as to the value of the estate’s assets and liabilities, the judge concluded it was likely that Victor’s diary note of 19 December 1972 represented an incomplete summary of the agreement for the transfer of the estate assets to Victor and Judith and winding up the estate. It did not deal with estate debts owing when probate was granted; the increase in borrowings from the bank shortly after Johannes’ death and again in 1964 when the bank mortgage was registered; interest paid on the estate debts and the loan used to purchase Myrtle Avenue; transfer of the grazing business assets; arrangements for satisfying the annuity due to Emma or treatment of testamentary expenses; and estate legal costs.
[33]Ibid [112].

After noting that the agreement was ‘put into effect in stages over a period of time’ by the payment of distributions, the discharge of mortgages over Myrtle Avenue and securing the payment of estate duty, the judge concluded that it was unlikely a settlement occurred involving payment of $100,800 by Victor and Judith in exchange for the transfer and the titles to Abbey Hills.[34] His Honour added:

However, this does not mean Victor and Judith paid less than the value of assets transferred to them. It is more likely the consideration recorded in the transfer was satisfied by Victor and Judith over a period of time by them paying the distributions to Agnes, Peter and Graeme, and assuming responsibility for the estate debts and the Myrtle Avenue mortgage. It is possible that the consideration was satisfied in part by Victor and Judith receiving credit for payment of interest, costs or debt on behalf of the estate, and for improvements to Abbey Hills. I accept Victor’s evidence that Mr Collery ‘worked it out’, and that he and Judith paid what was asked of them for purchase of the estate assets.[35]

[34]Ibid [113].

[35]Ibid.

In addition, the judge rejected the applicants’ submission that the farm account was estate property. Rather, as his Honour explained, by late 1972 the balance of the farm account represented income generated by the partnership, or by Victor and Judith after the partnership ended.[36]
[36]Ibid [114].

It followed that the judge was not satisfied that Victor and Judith knowingly received the estate assets for less than full value.[37]
[37]Ibid [115].

The judge also held that the release was effective to preclude the bringing of the action. In that regard, the judge rejected the submission that because the applicants did not have all of the relevant documents at the time they executed the release, the release was rendered unenforceable. The judge concluded that, had the applicants made out their claim, the release was effective to release Victor, Judith, Colin and Maria from liability.[38]
[38]Ibid [140].

Grounds of Appeal

The applicants sought leave to appeal on the following five proposed grounds:

(1)The judge erred in holding that the Will conferred on the trustees a power of sale exercisable after Graeme attained 21 years of age.
(2)The judge erred in finding that the involuntary transfer of the applicants’ beneficial interest in the estate, without their knowledge or consent, was insufficient to give rise to a resulting trust, in the absence of theft or fraud.
(3)The judge wrongly rejected the applicants’ claim that Abbey Hills had been transferred to Victor and Judith at significant undervalue, in breach of trust.
(4)The judge erroneously found that Victor and Judith did not acquire Abbey Hills through an unconscionable transaction, that gave rise to a constructive trust.
(5)The judge erred by employing incorrect principles relating to the enforceability of the release; failing to determine whether Victor and Judith had proven that they obtained the fully informed consent of the applicants to enter into the release; and, consequently, in holding that the applicants had released Victor and Judith from the claims raised in the proceeding.

Parties’ submissions on ground 1 — Power of sale

By their first proposed ground of appeal, the applicants contended that the judge erred in holding that the Will conferred on the trustees a power of sale of Abbey Hills once Graeme had turned 21 years of age.

It is convenient to note that success on this ground would not, in and of itself, result in a favourable outcome on the appeal. That would require success on both grounds 1 and 2. Ground 2, which was predicated on the absence of a power of sale, contended that the involuntary transfer gave rise to a trust.

The starting point for the applicants’ submission was that cls 4 and 5 of the Will established two distinct trusts. Clause 4 provided a power and duty to carry on the farming and grazing business, but only until the youngest child’s 21^st birthday, or such earlier time as the trustees determined. On the happening of that event, the trust created by cl 4, and the powers which attached to it, ceased and the estate was then subject to the trust created by cl 5.

The applicants pointed to the contrast in language between cls 4 and 5, and, specifically, to the conferral of the powers for carrying on the farm under cl 4 and the bare power found in cl 5 to hold the real and residual estate for all of the testator’s surviving children who attained the age of 21 years. It was submitted that, once the precondition for the operation of cl 5 was satisfied on the youngest child turning 21 years of age, the trustees were obliged, subject to the payment of the annuity, to convey the real and residual personal property to the beneficiaries in specie.

The respondents contended that a power of sale was conferred by cls 4(b) and 6(f), or is to be implied because otherwise there would be no power to sell personalty and no power to invest. Therefore, there would be no capacity to fund the annuity. Further, it was contended that the power in cl 5 to distribute the estate to the children necessarily carries the power to sell.

Consideration of ground 1

There is some textual support for the applicants’ contention that the Will created two separate and distinct trusts. That includes the repetition of the condition in cls 4(b) and 5 that the trustees are to stand possessed of the testator’s real and residuary personal estate, but for different purposes. This suggests that the trust to hold the estate conferred by cl 4 is spent once the purpose of that clause is achieved. It is important, however, to read the Will as a whole.

Some, but not all, of the sub-clauses to cl 4 are expressly tied to the period before the youngest child turns 21 years of age. These are sub-cls 4(a), (d) (in part) and (e). Sub-clauses 4(b) and (c) are not expressly so limited.

The power in cl 4(b) to stand possessed of the entire estate and to sell, call in, collect and convert the same into money on such terms and conditions as the trustees think fit, is subject to the obligation to carry on the farming or grazing business for the period stipulated in cl 4(a). Although subject to that obligation, the text of cl 4(b) does not limit the trust for that purpose and, in its terms, is not exhausted once the period identified in paragraph (a) comes to an end.

The corresponding power in cl 4(c), to invest the residue of the moneys arising from such sale is equally apt to continue after the end of the period in cl 4(a).

Similarly, the obligation in cl 4(c), to pay debts, funeral and testamentary expenses and death duties is not connected, either logically or by text, to the age of the youngest child or the obligation to carry on the farming or grazing business. Of course, the obligations to pay such expenses will inevitably fall upon an executor and would be implied in the absence of an express provision. However, there is no reason why the express power would be limited to those circumstances where cl 4(a) is engaged.

Although, as things transpired, Johannes died before his youngest child turned 21 years of age, and cls 4 and 5 operated sequentially, that was not inevitable at the time the Will was executed. Clause 5 could apply even if the youngest child had already turned 21 years of age at time of the testator’s death.

However, on the applicants’ construction, cl 4 could have had no operation if the testator had died after his youngest child turned 21 years of age. That would mean that the express power to call in and sell assets for the purpose of meeting the annuity, debts, funeral expenses and death duties would be unavailable. Given the potential for the farming or grazing business to be an ongoing concern at the time of death, there could be debts and loan obligations that might need to be satisfied. Further, any delay between the death of the testator and the ability of the trustees to convey the estate to the beneficiaries may require the trustees to operate the farming or grazing business in the interim.

The nature of the demands on the estate after the youngest child turned 21 years of age, were the testator to die after that point, strongly points to a need for a power of sale in order to discharge the executors’ duties.

In our opinion, rather than viewing cls 4 and 5 as separate and distinct, the two clauses can be read together. Although, as reflected in cls 4 and 5, the obligations on the trustees are different, depending on whether or not the youngest child has turned 21, the powers in 4(b) and (c) are not limited by that event. They operate continuously. This construction of the Will allows for the annuity payable to Emma, and other obligations, to be funded by the sale of estate assets whenever such obligations arise. It provides an harmonious construction of the Will as a whole. The power of sale would need to be exercised appropriately having regard to the duties and obligations of the trustees, but there is no reason to consider that its existence would give rise to any unintended or improbable consequences.

This approach is also consistent with the introductory words to cl 5, which identify the obligation to stand possessed of the real and residuary personal estate ‘for the time being unconverted’ and the investments ‘for the time being’. This suggests that the process of converting assets and changing investments may extend beyond the date on which the youngest child turns 21 years of age. The applicants’ construction of the phrase ‘for the time being’ as meaning at that point in time, is open, but strained.

The applicants submitted that the annuity could be met either by taking steps before the youngest child turned 21 years of age and using the powers in cl 4 to acquire an asset to fund the annuity or, after cl 5 is engaged, by mortgaging the estate under cl 7 to borrow funds to pay the annuity.

One obvious problem with that construction is that it does not cover the situation where the testator dies after the youngest child turns 21 years of age and, in relation to the mortgage, does not explain how the trustees could fund repayment of the loan.

In considering the Will as a whole, it is also notable that it is not possible to infer an intention that the farming or grazing business should necessarily be transferred in specie to the children of the deceased. The trustees were free to terminate the farming or grazing business before the youngest child turned 21 years of age and, in that circumstance, were able to convert the entire estate. The freedom to do this is inconsistent with an overarching intention that the farming or grazing business should be preserved for the purpose of it passing to the children in specie and renders an ongoing power of sale more probable.

In our view, the construction of sub-cls 4(b) and (c) in a way that gives them ongoing operation is to be preferred.

That construction is reinforced by the fact that the Will does not relevantly distinguish between real and personal property. In the absence of cls 4(b) or 6(f) being available, there would be no power to sell the personal assets of the testator. That would be highly improbable and would require imputing an intention that all of the assets in the estate at the time the youngest child turns 21 years of age were to be transferred in specie to the surviving children.

The applicants submitted that, even if, contrary to their submissions, a power of sale could be implied in relation to personalty, there would be no basis to extend the implication to real property. There may be different considerations in implying a power of sale in respect of personal assets and the farm, which was the main asset of the estate. However, the necessity to imply any power is avoided once the provisions of the Will are read as a whole.

In addition, for the reasons that follow, even if cl 4(b) were not available, cl 6(f) provides a power of sale.

The applicants accepted that the powers in cl 6 are available in the execution of the duties conferred on the trustees under both cls 4 and 5. The powers in cl 6 include the power to lease, mortgage and appropriate any part or parts of the estate. They are apt to be employed during the running of the farming or grazing business, but, equally, they may be necessary during the period when the trustees are required to hold the real and personal property under cl 5(b), before conveying the estate to the beneficiaries.

Clause 6(f) confers on the trustees all powers which would be conferred upon them by statute, had Johannes’ real and personal estate been devised and bequeathed to the trustees upon trust for sale. The hypothesis on which cl 6(f) is drafted is that the estate is held by the trustees on a trust for sale.

In relation to land, a trust for sale means an immediate binding trust for sale, whether or not exercisable at the request or with the consent of any person, and with or without power at discretion to postpone the sale.[39] It may be contrasted with a power of sale.
[39]Trustee Act 1958 s 3 (definition of ‘trust for sale’). Although the Will predates the Trustee Act 1958, that Act applies to trusts created before or after the commencement of that Act and, in any event, an identical power was contained in the Trustee Act 1928.

Section 13 of the Trustee Act 1958 provides that where a trust for sale or a power of sale of property is vested in a trustee, he may sell or concur with any other person in selling all or any part of the property. On their plain terms, the words of sub-ss 13(1) and (2) confer a power or authority to sell trust property where there is a trust for sale. The section also regulates how the power may be exercised, including, for example, by permitting sale by public auction or private contract.

The applicants’ submission that cl 6(f) only operates in circumstances where another power to sell can be found in the Will — for example in cl 4(b) — should be rejected. Although a trust for sale will necessarily carry with it a power of sale and therefore make a statutory power of sale in such cases strictly unnecessary, it is clear from its terms that s 13 confers rather than presupposes a power of sale. A power of sale attaches to a trust for sale under the statute and therefore comes within the language of cl 6(f). There is no reason to read that clause down. Moreover, it would be a striking construction of cl 6(f) if it were to give to the trustee all the powers that attach to a trust for sale other than the primary power of sale itself. There is no reason to think that the Will exhibits such a narrow approach to the power of sale.

If the Will created a trust for sale, then the Trustee Act, of its own force, would provide a power of sale and regulate how the power may be exercised. Clause 6(f) puts the trustees in the same position as if there were a trust for sale, which, in our view, must carry with it the power of sale conferred by the Trustee Act.

Given our conclusion that cls 4(b) and 6(f) were available to the trustees to sell the estate, it is not necessary to consider whether the Will contained an implied power of sale.

Parties’ submissions on ground 2 — Involuntary transfer impressed Abbey Hills with a trust

Given that ground 2 depends on the absence of a power of sale, it is unnecessary to decide this ground. However, it was argued in full and it is convenient to deal with it briefly.

The applicants submitted that, contrary to principle, the judge held that an involuntary transfer of the applicants’ beneficial interest in Johannes’ estate, without the applicants’ knowledge or consent, was insufficient to give rise to a resulting trust because the assets were not stolen.

The applicants submitted that the judge by limiting the analysis to theft,[40] misunderstood the basis on which the trust arises. In their submission, theft is only one example of where a recipient will acquire inferior equitable title. They submitted that although a Black v Freedman trust traditionally arises in cases where a thief passes on stolen goods to a volunteer, it is an illustration of resolving the question of who has better title. In their submission, a trust (whether it be called a constructive trust or a resulting trust) will be impressed upon trust property which is transferred in circumstances where there was no power to do so. Once that occurs, the burden shifts to the recipient to establish, by way of defence, that they were a bona fide purchaser for value without notice.
[40]Reasons [77].

The respondents referred to the following findings of the judge, which they submitted established that, even if there was no power of sale in the Will, there was no ‘involuntary transfer’ that could give rise to a resulting trust:

(a)the estate assets were transferred pursuant to an agreement and arrangements between the purchasers (Victor and Judith) and the trustee vendors (Emma and Walter);
(b)the trustee vendors acted on advice from Mr Collery;
(c)it is likely that the parties involved all believed that the Will gave the trustees the power to sell the estate assets to Victor and Judith;
(d)Victor was told by Mr Collery that he had to pay for the estate assets and Victor and Judith made those payments; and
(e)there is no evidence upon which allegations of fraud or theft against Victor, Judith, Emma, Walter or Mr Collery can be made out.[41]
[41]Ibid [78]–[79].

Consideration of ground 2

The factual predicate on which the Black v Freedman trust was said to arise in this case was not made entirely clear. As the judge noted, the case was not pleaded or opened on the basis of a Black v Freedman trust.[42]
[42]Ibid [68].

It was accepted that the ground depended on a finding that there was no power of sale. Beyond that, it was not clear whether the applicants’ submissions depended on a failure to provide any, or full, consideration for the acquisition, and the state of knowledge of Victor and Judith.

If the Black v Freedman argument was dependent on establishing a failure to pay the purchase price, which could not have been inadvertent, then it seems to us to add little or nothing to the argument regarding a constructive trust under proposed grounds 3 and 4. Under those grounds, in addition to the absence of a power to sell, the applicants rely on a number of other factors that render the transaction unconscionable, leading to the imposition of a constructive trust.

Accordingly, we will consider proposed ground 2 on the basis that it proceeds on the foundation that the mere absence of a power of sale led to the imposition of a constructive or resulting trust, which could only be defeated by the recipients proving that they were bona fide purchasers for value without notice. It was said the respondents never sought to establish that they were bona fide purchasers for value without notice.

There are a number of circumstances in which a recipient of trust property, which is paid or transferred in breach of trust, holds the property on a constructive trust in favour of the beneficiaries.[43] In Agip (Africa) Ltd v Jackson,[44] Millett J identified the liability of a third party who receives trust property, transferred in breach of trust, in the following way:

He is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust; or if he received it without such notice but subsequently discovered the facts. In either case he is liable to account for the property, in the first case as from the time he received the property, and in the second as from the time he acquired notice.[45]

[43]Grimaldi v Chameleon MiningNL (No 2) (2012) 200 FCR 296, 356 [242] (‘Grimaldi’).

[44][1990] Ch 265.

[45]Ibid 291.

The circumstances in which equity will render a third party liable as a trustee, and confer proprietary remedies in respect of the property held by them, depend on a number of factors. Commonly they involve participation in or knowledge of the breach on the part of the recipient.[46] As the Full Court of the Federal Court observed in Grimaldi,[47] those circumstances include (i) the nature of the breach of duty; (ii) the nature of the third party’s role and participation; and (iii) the extent of the third party’s knowledge of the wrongdoing by the fiduciary.[48]
[46]Barnes v Addy (1874) 9 Ch App 244.
[47](2012) 200 FCR 296.
[48]Ibid 358 [247].

One of the categories, established by the High Court in Black v Freedman, concerns stolen property. The principle is that where property is stolen and then passed on to a third party, not being a bona fide purchaser for value without notice, the property is subject to a trust in favour of the owner. As the reasons for judgment of Leeming JA in Fistar v Riverwood Legion and Community Club Ltd[49] demonstrate, there are some peculiar features of a Black v Freedman trust, including that the thief lacks any title to the stolen goods, yet is considered a trustee based on possession.[50] The facts that give rise to such a trust may also give rise to other forms of relief, including, for example, a common law claim for money had and received.
[49](2016) 91 NSWLR 732 (Fistar).
[50]Ibid 740 [37].

A Black v Freedman trust arises not because the money or property is paid over in breach of trust, but on a more narrow basis, namely, ‘where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character’.[51] Where that occurs, there is an obligation on the recipient, touching his or her conscience, to recognise the entitlement of the owner to restoration of the funds derived from the theft to the extent that, as a volunteer, the recipient retains the property when on notice of the claim.[52]
[51]Black v Freedman (1910) 12 CLR 105, 110 (O’Connor J).
[52]Heperu Pty Ltd v Belle (2009) 76 NSWLR 230, 267–8 [163] (Allsop P).

There is nothing in the decision in Black v Freedman itself, or in the cases that have applied it, that suggests that it stands for the broader proposition that a constructive trust arises in respect of every receipt of property transferred in breach of trust, without more.

The circumstances postulated in Barnes v Addy, in which a third party is accountable as a constructive trustee, are not exhaustive.[53] That means that the applicants’ case should not be rejected merely because it provides a different pathway to liability than that provided in Barnes v Addy. However, the authorities do not support the conclusion that the recipient’s liability is strict, subject to making out a defence such as bona fide purchaser for value without notice, or a change of position defence.[54] That would be the effect of accepting the applicants’ submission.
[53]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 159 [161]; Grimaldi (2012) 200 FCR 296, 356 [242].
[54]Grimaldi (2012) 200 FCR 296, 360–1 [258].

That is not to deny that, as explained by Leeming JA in Fistar, equity may permit the assertion of a property right in respect of the traceable proceeds of trust property in the hands of a third party.[55] If the recipient is not a bona fide purchaser for value without notice, the recipient’s title is potentially liable to being defeated by the superior title of the beneficiary. If the recipient is a volunteer or has notice of the defaulting trustee, equity may intervene.
[55](2016) 91 NSWLR 732, 742 [43].

However, in the absence of theft, which was not pleaded, the applicable principle is not to be found in Black v Freedman.[56]
[56]See Coleman v DPP [2018] VSCA 264 on the principles applicable to the theft of land.

In any event, Black v Freedman could not apply in the present circumstances because, as found by the judge, Victor and Judith were not volunteers because they paid at least part of the transfer price.[57] In order to get around that fact, the applicants were forced to call in aid one or more of the other factors that were said to render the transaction unconscionable. At that point, this ground becomes indistinguishable from grounds 3 and 4.
[57]Reasons [78].

It follows that, even if the trustees had no power to sell, no Black v Freedman trust arose.

Ground 3 — Constructive trust

The applicants contended that the transfer of the trust estate, comprising the farm, farming business, plant, equipment and the farm account, to Victor and Judith was done for undervalue and involved a breach of trust.

They submitted that the judge’s view that there was no evidence to support a conclusion that the assets were knowingly transferred at an undervalue could not be reconciled with the findings of fact made by the judge.

The applicants commenced their analysis by accepting that the stated consideration of $100,800, recorded in the transfer dated 2 July 1973, represented the true value of the farm. However, they noted the judge’s finding that it was unlikely that a settlement occurred at which that amount was paid. In addition, they noted that Victor and Judith had no recollection of how the purchase price was made up, what amount they paid or whether they paid for stock, plant and equipment at all.

In that context, the applicants relied on the following findings to support the conclusion that the farm had been transferred at an undervalue. First, Victor and Judith knew of the applicants’ entitlements under the Will from 1963, but did not disclose them to the applicants. Secondly, the diary note of 19 December 1972 recorded an arrangement, or ‘side deal’,[58] by which Victor would pay $39,000 and keep Abbey Hills. Thirdly, state and federal probate duties were paid from the assets of the trust in 1964. Fourthly, the farm ledger book recorded payments to the applicants totalling $26,500, but the records substantiated just two payments after the date of transfer. The first was a payment of $6,240, in respect of the purchase of Myrtle Avenue. The applicants accepted that Victor had paid this to meet the trustees’ obligation to make good the annuity. The second was a payment of $6,050 to the beneficiaries after the transfer of the land.
[58]Ibid [95].

Consideration of ground 3

In their statement of claim at trial, the applicants pleaded that the transfer of Abbey Hills from the estate was effected in dishonest and fraudulent breach of trust. This was because the purchase price was not paid and, accordingly, the consideration stated in the transfer was false. Before turning to the evidence, it is necessary to refer to the principles that apply where a court is asked to find dishonesty or fraud.

The applicants bore the onus of proof. Section 140 of the Evidence Act 2008 provides that the case is to be proved on the balance of probabilities. The court may take into account the nature of the cause of action, the nature of the subject matter of the proceeding and the gravity of the matters alleged.[59] That brings into play the principles discussed in Briginshaw v Briginshaw.[60]
[59]Evidence Act 2008 s 140(2).
[60](1938) 60 CLR 336 (‘Briginshaw’).

In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd,[61] Mason CJ, Brennan, Deane and Gaudron JJ said:

the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary ‘where so serious a matter as fraud is to be found’. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[62]

[61](1992) 67 ALJR 170; [1992] HCA 66.

[62]Ibid 171.

With those principles in mind, we return to the evidence in the present case.

The evidence established that distributions of $26,500 were made, to which an amount representing Victor’s entitlement needed to be added. As the judge found, this meant that $36,500 of the purchase price was potentially accounted for, subject to addressing where that money came from.[63]
[63]Reasons [109].

Two issues arise with respect to the distributions that were admittedly paid. First, whether those payments were made from estate funds, rather than funds advanced by Victor and Judith as part of the consideration for the acquisition. Secondly, whether the payments represented the working out of a fraudulent ‘side deal’ or agreement reached between Victor, Emma and Walter.

The payments were made in late 1972, early 1973 and December 1976. By the earliest of those dates, a decade had passed since the death of Johannes and the farming and grazing business had been conducted by the partnership. Importantly, Victor and Judith were in possession of Abbey Hills, responsible for the conduct of the grazing business and entitled to their share of the benefits of the partnership. A claim at trial that they were in possession as de facto trustees failed[64] and that conclusion is not the subject of any challenge.
[64]Ibid [88].

Under the Will, the net income derived from the estate was to be paid to Emma. The income payable was that left after payment of all rents, taxes, rates, insurances, repairs, expenses of management and such other outgoings as, in the opinion of the trustees, were properly chargeable to income.

The judge found that the farm account was used for all grazing business transactions and that it represented an asset of the partnership, not the estate. There was no express challenge to that finding in the application for leave to appeal, however, it was contended that the farm account was an estate asset. That laid the foundation for the further submissions that the payments to the beneficiaries came from the estate and not from the fruits of the sale to Victor and Judith.

The partnership agreement made in 1964 recorded that Abbey Hills carried a flock of around 1,663 sheep and 53 head of cattle. It also recorded the livestock as an estate asset. However, any net income derived from the livestock, from wool and stock sales, including from natural accretion to the herds, was subject to the partnership agreement. The balance of the farm account reflected income, subject to meeting any existing debts or liabilities. We note that net amounts standing to the credit of the wool-brokers’ account were ultimately paid into the farm account.

The facts therefore supported the judge’s conclusion that the balance of the accounts were assets of the partnership and that payments out of the farm account were not payments from the estate, but from Victor and Judith.

It follows that there was no error in the judge’s finding that, at least in part, the consideration was satisfied by Victor and Judith paying the distributions to Agnes, Peter and Graeme.[65]
[65]Ibid [113].

In addition, the judge accepted Judith’s evidence that she and Victor had obtained finance by way of overdraft and a loan from Mr Uebergang to assist with the purchase of Abbey Hills.[66]
[66]Ibid [51].

Of course, an amount of $36,500 represented a fraction of the purchase price. If that was the totality of the evidence, then an inference of underpayment might be warranted. However, as the judge recognised, it is also necessary to have regard to the liabilities and debts of the estate, to the extent they could be established on the evidence. Again, to reiterate, the applicants bore the onus of proof, with proper regard being had to the serious nature of the allegations.

In February 1964, £3,222 was paid from the farm account for state probate duty. Subsequently, in May 1964, a loan of £6,000 was arranged through solicitors, Melville, Orton & Lewis (‘the estate duty loan’). Of the funds advanced, just over £2,800 was paid for federal estate duty, and a small additional amount of state probate duty. As the judge found, the loan balance of just over £3,000 was paid to the farm account, most likely to cover the earlier payment of state probate duty from that account.[67] The funds to pay the estate duty loan were advanced by two private lenders and were secured by mortgages registered on Abbey Hills. The mortgages securing the estate duty loan were finally discharged on 29 July 1974.
[67]Ibid [22].

A payment of $6,240 was made in 1974 to discharge the mortgage on Myrtle Avenue. The evidence suggests that this was paid by Victor and was a debt due to him from the estate, which had the obligation to fund Emma’s annuity.[68]
[68]Ibid [29].

Although those debts do not match the deficit between the purchase price and the sum of the cash distributions, the judge found that the evidence precluded any firm finding as to the net value of the assets that were transferred to Victor and Judith.[69]
[69]Ibid [110].

Without that finding, and given the ongoing operation of the farm, it is not possible to infer that the balance of the purchase price was not consumed by estate duties, the refund of payments made on account of estate liabilities, or represented in improvements to the land that inhered to the benefit of Victor and Judith.

The poor quality of the evidence as to the financial position of the estate at the time of Johannes’ death, at the time Graeme turned 21 years of age and at the date of transfer, meant that the applicants’ case of fraud was unable to be established. It was also necessary, as the judge did, to have regard to whether it was likely that the trustees and the estate solicitor would be involved in the defrauding of the estate.

The judge gave a number of reasons why Victor’s diary note, which recorded a proposed payment of $39,000, including in respect of estate duties, provided an incomplete summary of the agreement for the transfer of the estate assets. It did not deal with estate debts, the amounts actually paid being greater than the amounts recorded in the diary note and the matter of timing. In our view, those matters were all properly taken into account and were consistent with the evidence of Judith and Victor that they paid an amount that had been discussed with and worked out by the estate solicitor, Mr Collery.

The judge regarded the accusation that Emma, Walter and the estate solicitor, Mr Collery, knew that the transaction was a false one, which would deprive the beneficiaries of their just entitlement, as ‘inherently unlikely’.[70]
[70]Ibid [112].

Some caution should be exercised in this respect. There are any number of instances where executors or trustees have acted fraudulently or to defeat the interests of one or more beneficiaries. But the essential point is that there was simply an insufficient factual basis for the conclusions to be drawn in this case.

The evidence supported an inference that Walter and Emma would have had a working understanding of the operations of the farm. Emma had been involved in farm operations in the early years following her husband’s death and decided to run the farm in partnership with Victor. The evidence that Walter played a role in the change of wool-brokers and the fact that he ran his own farm provide a basis to infer a degree of understanding on his part of the farm and its financial position.

Similarly, the evidence supported a finding that Mr Collery was the estate solicitor and was consulted on the winding up of the estate. The judge accepted the evidence of Judith and Victor that they relied on Mr Collery to work out a financial settlement to allow them to purchase the farm as a going concern.

There was nothing to suggest that Emma, Walter or Mr Collery had any reason to effect a fraud on the other beneficiaries. The working out of the financial affairs of the estate would have involved some estimation and an inevitable lack of precision. The Will itself recorded the difficulties associated with keeping exact financial records.

In those circumstances, there was no reason for the judge to reject the evidence of Victor that he had left the calculations as to what was payable in cash from the purchase price to the solicitor. The applicants needed to establish more than a mere concern that there remained a differential between the purchase price and the value of the payments made by Victor and Judith. The case of fraud needed to be distinctly pleaded and proven. Given the passage of time, the availability of an alternative explanation, the absence of documents and the death of witnesses, the applicants failed in that endeavour.

There was nothing speculative in the judge’s conclusions that the evidence did not establish the deliberate wrong-doing that the applicants alleged. To our minds, the applicants’ submission invited the Court to conclude there must be fraud, given the absence of documents or accounts that would establish, with precision, how the purchase price was accounted for. Acceptance of that approach would, in effect, reverse the onus of proof and ignore the requirement that serious allegations of fraud be distinctly proved. In our view, the applicants failed to prove that the farm was knowingly transferred to Victor and Judith at below value. Accordingly, we reject ground 3.

Parties’ submissions on ground 4 — Unconscionability

The applicants submitted that Victor and Judith acquired Abbey Hills through an unconscionable transaction that gave rise to a constructive trust, arising upon acquisition.[71]
[71]Muschinski v Dodds (1985) 160 CLR 583.

The applicants pointed to six factors to establish that the transaction was unconscionable. First, the transfer of the trust assets, including Abbey Hills, the grazing business, the plant and equipment, the stock and the farm account, comprised a transfer of property to which fiduciary obligations were attached. Those fiduciary obligations were owed to the applicants. Secondly, when the transfer was made, it disregarded the applicants’ beneficial interest in the property. Thirdly, the transfer was made to Victor and Judith in circumstances of secrecy. Fourthly, the transaction involved deception, as Victor had told his siblings that their entitlement from Johannes’ estate was a sum of money, even though he knew that it was a share of Abbey Hills. Fifthly, Victor and Judith knew that they were purchasing the land for under value. They had seen the stated consideration in the transfer that they signed, and they did not pay that amount. Sixthly, the transaction involved Victor and Judith receiving and retaining trust property.

In these circumstances, the applicants submitted that the transaction was unconscionable. Accordingly, the applicants submitted that the transaction is liable to being set aside in equity.[72] They contended that the Court should recognise a constructive trust, which arose immediately upon the transfer of the land. This would mean that Victor and Judith had an obligation to hold the trust property for the benefit of all of the beneficiaries.
[72]In support of this submission, the applicants cited Muschinski v Dodds (1985) 160 CLR 583; McNab v Graham (2017) 53 VR 311.

The respondents contended that the applicants’ unconscionability submissions were impermissibly broad and could not be supported.

Consideration of ground 4

We have already explained why there was no error in the judge’s rejection of the case based on an absence of a power to sell estate property before distribution and a knowing transfer for less than full value. The applicants accepted that, if they failed to establish that the property had been transferred for less than its fair value, this would undermine their claim for a constructive trust based on unconscionable dealing. However, they submitted that the balance of the matters on which they relied justified the intervention by equity.

The first matter relied on may be accepted. At the time of the transfer of Abbey Hills, the testator’s surviving children had an interest in the residuary estate, subject to accounting for the annuity payable to their mother.

Once the executorial functions had been performed, the executors became trustees by merely continuing to hold the property after their functions as executors had been performed.[73] Once the executors became trustees of ascertained property, the beneficiaries became owners of the equitable interest in that property. Up until that point, the beneficiaries only had a right to have the Will administered in accordance with its terms.
[73]Pagels v MacDonald (1936) 54 CLR 519, 526 (Latham CJ).

However, there was no obligation to transfer the property in specie and the Will supplied a power of sale.

Given that Victor and Judith had run the farm for many years and had agreed to acquire the property, and there was no realistic expectation that the children would run the farm as tenants in common, it was not unconscionable for the trustees to sell the property to them. In the circumstances, it was inevitable that the farm would be sold and the proceeds of sale distributed. The applicants failed to establish that this transaction was without power and for inadequate consideration.

The fact that Victor appears to have played a significant role in the transaction and had superior knowledge to his siblings as to the terms of the Will does raise issues. However, we are not persuaded that his failure to inform his siblings as to the terms of the Will rendered the transaction unconscionable. More would be needed to establish that the substantive transaction, albeit made while the beneficiaries lacked knowledge of the terms of the Will, was unconscionable.

The judge was not satisfied that the evidence established that the trustees were derelict in their duties and, in our view, no error has been demonstrated with respect to that conclusion.

Parties’ submissions on ground 5 — The release

Under cover of their final proposed ground, the applicants submitted that the release, entered into in May 2015, was ineffective.

They submitted that the judge failed to determine the validity of the release in accordance with the correct principle, namely, that a fiduciary can only be released from a breach of fiduciary duty when the beneficiary has full knowledge of the facts and gives informed consent.[74] They submitted that Victor and Judith needed to show that they had fully informed the beneficiaries of their rights and claims before execution of the release.
[74]Farrant v Blanchford (1863) 46 ER 42; Maguire v Makaronis (1997) 188 CLR 449; Bullhead Pty Ltd v Brickmakers Place Pty Ltd (in liq) [2018] VSCA 316 [95]–[106] (‘Bullhead’).

In support of their submission that the applicants were not fully informed, the applicants said that the following documents only came to light at trial:

(a)a letter from Melville, Orton & Lewis, solicitors, to Victor dated 9 May 1975 in relation to the estate, which recorded that there was a mortgage for $10,000 for unencumbered title being transferred. A bill was attached to the letter, which referred to ‘the discussion concerning the winding up of your mother’s[75] estate whereby it was agreed that the land be transferred to you and that your brothers and sisters be paid out’ — this was said to show that the solicitors were acting for Victor and not only for the estate (or not for the estate at all);

(b)the farm ledgers, which gave a detailed account of the manner in which the business was conducted; and
(c)cheque stubs, which demonstrated that the farm account was drawn on by Victor and Judith for their own purposes, as well as to pay trust debts and for Emma’s house at Geelong.

[75]The reference to ‘your mother’s’ estate appears to be a slip. Presumably Johannes’ estate was meant. Emma died in 1979.

The respondents submitted that the terms of the release made it clear that the parties knew that they were entering into the release on the basis of incomplete information, and that what had happened over decades was unclear. They noted that the applicants were represented by a lawyer, who provided them with advice and had drafted the release.

Although they contested the applicants’ submission that Victor and Judith owed fiduciary duties, the respondents submitted that, even if they did owe such duties, the issues of consent and whether the trustees were bound were not resolved on the propositions put by the applicants.

In this respect, the respondents submitted that it was significant that Judith did not locate the relevant documents, including the estate documents, from Melville, Orton & Lewis, in her cupboard until after the release was signed.

Consideration of ground 5

In Bullhead,[76] at issue was whether an agreement entered into between a trustee and beneficiaries, which resolved allegations of breach of trust, was enforceable. This Court identified the principles that apply where a defaulting trustee seeks to rely upon a release in respect of an alleged breach of trust.[77] The Court held that a defaulting trustee cannot rely on a release unless the trustee proves that, when the beneficiary gave the release, the beneficiary had full knowledge of the circumstances constituting the breach of trust and of the consequent rights and claims which the beneficiary has against the trustee arising from that breach.[78]
[76][2018] VSCA 316.
[77]Ibid [94]–[102].
[78]Ibid [96].

The Court relied on what was said by Lord Westbury in Farrant v Blanchford:[79]

The duty of proving an effectual discharge lies on the trustee. Where a breach of trust has been committed, from which a trustee alleges that he has been released, it is incumbent on him to shew that such release was given by the cestui que trust deliberately and advisedly, with full knowledge of all the circumstances, and of his own rights and claims against the trustee; for it is impossible to allow a trustee who has incurred personal liability to deal with the cestui que trust for his own discharge upon any other ground than the obligation of giving the fullest information, and of shewing that the cestui que trust was well acquainted with his own legal rights and claims, and gave the release freely and without pressure or undue influence of any description.[80]

[79](1863) 1 De G J & S 107; 46 ER 42.

[80]Ibid 119–120; ER 46–7. See also Byrnes v Kendle (2011) 243 CLR 253, 294 [136] (Heydon and Crennan JJ); Corporate Systems Publishing Pty Ltd v Lingard [2009] WASCA 158 [94] (Owen JA); Spellson v George (1992) 26 NSWLR 666, 670 (Handley JA); Edmunds v Pickering (No 3) (1999) 75 SASR 407, 571–2 [1426]–[1427]; Deutsch v Deutsch [2012] VSC 227 [107].

The Court noted that the principle applied with equal force to a fiduciary such as a partner, joint venturer or co-unitholder in a unit trust.[81] It also applies to those who knowingly assist the relevant breach of trust or fiduciary duty.[82]
[81]Bullhead [2018] VSCA 316 [96].
[82]Ibid.

In their pleadings at trial, the applicants alleged that Victor and Judith owed them fiduciary duties on the basis that they were de facto trustees. That claim failed and was not renewed on appeal. It follows that the applicants cannot rely on that relationship to establish the basis for their contention that Victor and Judith were required to prove informed consent.

The applicants also pleaded that Victor and Judith induced the executors to breach the trust by transferring the property to them at below value.

In Bullhead, the Court applied the principle in relation to claims against third parties, who were alleged to have assisted the breach of trust. Where a deed of release applies to a trustee and a third party, who is said to be a constructive trustee on the basis of inducing the breach, it would accord with principle that the beneficiaries must give full and informed consent to the release of both the trustee and the third party.

In the present case, there was no dispute that Emma and Walter were trustees and owed duties to the beneficiaries, who had entitlements under the Will. However, they passed away long ago and were not parties to the release or the litigation.

The issue in this proceeding was whether Victor and Judith held the property as constructive trustees. If they did, they held the property for the benefit of the beneficiaries and owed fiduciary duties in respect of the property.[83] Accordingly, the subject matter of the litigation was the nature of the relationship between the parties.
[83]The only pleaded basis for a fiduciary duty was that Victor and Judith were de facto trustees. This failed at trial and was not renewed on appeal.

At the time the release was made, the parties were aware of the Will; the existence of the transfer and the transfer price; and the amount of money that had been paid to the beneficiaries, purportedly as distributions under the Will. What was in dispute was whether Victor and Judith held the property as constructive trustees, or had induced or participated in a breach of trust.

To proceed on the basis that the release would only be effective if Victor and Judith had satisfied the obligations of disclosure that would be imposed in order to release a trustee from liability, would be to make an assumption on a matter which was in dispute. The extent of the relevant obligations of disclosure would only be known once the relationship had been determined. This would, in effect, require the determination of the very dispute that the release was endeavouring to resolve.

Ultimately, it is not necessary to determine whether a person against whom allegations of participation or knowledge of a breach of trust are made, in circumstances where the existence of a trust is disputed, must establish fully informed consent before being able to rely on a release. That is because, on the facts, we are not satisfied there was any inadequate disclosure or proper basis to deny effect to the release.

First, the recitals to the release made it clear that there was a lack of knowledge on the part of the parties, and that the effluxion of time had made it difficult for a complete picture of the relevant transactions to emerge. There remained uncertainty about whether it could be properly established whether or not the purchase price had been paid in full.

The parties recorded that they were prepared to resolve the dispute in the context of the passage of significant time, the death of each of the trustees, and incomplete records. They expressly recorded that they wished to avoid the escalation of the matter into formal legal proceedings.

We are not persuaded that there was a lack of disclosure on the part of Victor and Judith. The circumstances in which documents came to be discovered were explained by Judith in her evidence at trial. They were located in a box of records in her house, on top of a cupboard. Victor and Judith had suffered the tragedy of a loss of a son in a motor vehicle accident, and Judith gave evidence that she was reluctant to look for further documents for fear of facing matters about her late son.

There was no basis on which to conclude that there was any deliberate attempt to conceal documents from the applicants. Further, as the judge correctly recorded, it was not established that the documents that were produced in discovery, or documents that had been destroyed at an earlier point of time, would have materially improved the position of the applicants in the prosecution of their claims.[84] The judge concluded that the significance of the documents was not understood by Victor at the time that they were destroyed, and he declined to draw any inference against Victor and Judith because of the ‘innocent’ destruction of documents.[85] That conclusion was well open on the evidence and to our minds was correct.
[84]Reasons [137]–[138].
[85]Ibid [139].

We are satisfied that the applicants gave sufficiently informed consent, in accordance with the acknowledgements in the release, when they entered into the release. There was nothing about the circumstances in which the release was made, or the conduct of Victor and Judith that would render reliance upon it unreasonable.

The release was effective to release Victor, Judith, Colin and Maria from liability.

Disposition

For the reasons set out above, none of the grounds of appeal have been made out. In circumstances where the subject matter of the dispute was dealt with by an effective release based on the informed consent of the applicants, we will refuse leave to appeal.

SCHEDULE OF PARTIES

GRAEME DAVID LINKE	First applicant
AGNES MARIE BAENSCH	Second applicant
PETER MICHAEL LINKE	Third applicant
ANDREW CORNISH	Fourth applicant
v
VICTOR HAROLD LINKE	First respondent
JUDITH ANN LINKE	Second respondent
COLIN MICHAEL LINKE	Third respondent
MARIA GRACE LINKE	Fourth respondent
GLENIS WALTER LINKE	Fifth respondent
IAN DAVID LINKE	Sixth respondent

[2019] VSCA 210

24 September 2019