Halford v Halford [No 3]

[2020] WASC 207

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   HALFORD -v- HALFORD [No 3] [2020] WASC 207

CORAM:   ALLANSON J

HEARD:   6 & 7, 10 ‑ 13 FEBRUARY 2020

DELIVERED          :   11 JUNE 2020

FILE NO/S:   CIV 2106 of 2016

BETWEEN:   KAI PHILLIP HALFORD

Plaintiff

AND

JEFFREY GEORGE HALFORD

First Defendant

PAMELA DOROTHY HALFORD

Second Defendant

EWART EVAN HALFORD

Third Defendant

Catchwords:

Trusts - Where plaintiff and first and third defendant are brothers and beneficiaries of a trust created by the deceased's will - Where plaintiff and first defendant are entitled to the trust estate as tenants in common on death of the life tenant - Where estate comprises farm properties - Where farming business carried on in partnership on the farm properties before death of deceased - Where farming business continued after death of deceased by partnership including trustee, plaintiff and first defendant - Where plaintiff left the farm partnership and had no contact with family for 34 years - Where first defendant carried on farming business in partnership with his wife until the death of the life tenant - Where partnership borrowed with consent of trustee with the farm land as security - Whether defendant entitled to discharge mortgages from proceeds of sale of farms before division of proceeds or whether plaintiff entitled to share of proceeds before discharge of encumbrances

Wills and trusts - Construction of will - Whether executor trustee authorised to defer sale of farm land and continue business of farming the land - Whether business carried on by defendants within the authority of the trustee under the will - Whether defendants' borrowings for purpose authorised by the will - Whether authority to maintain trust property authorises carrying on farming business on that property

Equity and trusts - Laches - Where plaintiff has no contact with family for 34 years - Where plaintiff aware that farm land in estate was being farmed by the defendant - Where plaintiff now claims that farming was in breach of trust under the will - Where delay prevents the court granting just relief for breach of trust by defendant

Contract - Where agreement that defendant will pay plaintiff rent for use of farm pending sale - Whether rent payable from proceeds of sale before distribution to plaintiff

Legislation:

Limitation Act 2005 (WA)
Partnership Act 1985 (WA), s 57
Trustees Act 1962 (WA), s 7, s 30, s 43, s 71, s 75

Result:

Plaintiff's claim allowed in part

Category:    B

Representation:

Counsel:

Plaintiff	:	M L Bennett & F R Sharbanee
First Defendant	:	P MacMillan
Second Defendant	:	P MacMillan
Third Defendant	:	No appearance

Solicitors:

Plaintiff	:	Bennett + Co
First Defendant	:	Pacer Legal
Second Defendant	:	Pacer Legal
Third Defendant	:	No appearance

Case(s) referred to in decision(s):

Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd [2008] WASCA 119

Brennan v Permanent Trustee Company of New South Wales Ltd [1945] HCA 17; (1945) 73 CLR 404

Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603

Fysh v Page [1956] HCA 13; (1956) 96 CLR 233

Grundt v Great Boulder Proprietary Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641

Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221

Nowell v Palmer (1993) 32 NSWLR 574

Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507

Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319

Walsh v Sloan as executor of the estate of Keddie [2019] WASCA 107

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

ALLANSON J:

Introduction

1. On 15 February 2016, Jeffrey Halford, as trustee of a trust created by the will of his late father, sold the remaining asset of the estate ‑ the Glen Iris Farms Properties (Glen Iris).  At the time of the sale, Jeffrey was entitled to two thirds of the residuary estate and, his brother, Kai, was entitled to one third.[1]

   [1] Because the parties to this action are all members of the Halford family, and other family members were referred to by name in the evidence, I will follow the usual practice of referring to the members of the family by their given names. 

2. Glen Iris was mortgaged to secure bank loans, and part of the proceeds of sale was applied to repay those loans.  Kai contends that the loans secured against Glen Iris were personal debts of Jeffrey and his wife, Pamela.  The primary question in this action is whether Kai is entitled to one third of the net sale proceeds before repayment of the loans, or only to one third of the balance after repayment.  Put another way, is Jeffrey entitled to be indemnified from the proceeds of sale for the debts secured against Glen Iris.

3. Kai further claims that a smaller sum, which Jeffrey had agreed to pay for the rent of Glen Iris in the period before sale, was payable by Jeffrey and should not have been paid from the sale proceeds.

4. Kai brings an alternative claim for the taking of an account, based on the failure of Jeffrey to keep proper accounts from when he was appointed trustee in 1999, and to account for any profits obtained by the defendants from using the mortgage debt and Glen Iris for the purpose of their farming partnership from 14 June 1984. 

5. Kai, Jeffrey, and Ewart are the children of Maurice and Iris (both now deceased).  Pamela, is Jeffrey's wife.  From about 1984, Jeffrey and Pamela carried on business in a partnership (JG & PD Halford).

6. No relief is sought against Ewart, and he has taken no part in the proceedings.  In these reasons I will refer to Jeffrey and Pamela collectively as the defendants, and individually by name.

The evidence

1. Evidence was by witness statement, with the witnesses attending for cross‑examination.   The witness statements included considerable background material of marginal relevance.

2. The plaintiff relied on the evidence of Kai.  The defence called Jeffrey, Pamela, and their son Blake.  The defendants also called evidence from Alexander Whitley Egan, their accountant. 

3. The defendants called two expert witnesses: Julian Nichols, a valuer; and Timothy Johnston, a farm management consultant.

4. The documentary evidence adduced by all parties eventually extended to 20 volumes.

The witnesses

1. The credibility of witnesses was of limited significance, with most of the facts either agreed or evidenced by the extensive contemporaneous documents.   The limited significance of credibility was not reflected in the time and effort put into cross‑examination going to credit, particularly in the cross‑examination of the defendants.

2. Where it is necessary to refer to matters of credibility I will do so in the context of particular issues, but I will make some preliminary observations.

Kai Halford

1. Kai's evidence was largely immaterial to the primary factual issues.   The issues to which his evidence, and his credibility, were most relevant arise out of the defence of laches.  The defendants relied on the passage of more than 30 years from the first alleged breaches of trust, by unauthorised use of trust property, to when Kai made any claim.  Kai's evidence about what he knew in relation to Glen Iris over that period requires scrutiny.

2. I did not wholly accept Kai's evidence, for reasons which are given in greater detail below.

Jeffrey and Pamela Halford

1. I had reasons to doubt the reliability of the evidence of both defendants.  There are several reasons for this finding. 

2. First, as I mentioned in the course of the trial, I observed both Jeffrey and Blake, while they were giving evidence, looking to Pamela at the back of the court, and apparently being prompted by her.  During his evidence, Jeffrey referred to some figures from a note which had been written for him by Pamela.[2]  This demonstrated an unfamiliarity with court process, and I do not attribute anything sinister to it.  But it leads me to question to what extent he was giving evidence from his own recollection.

   [2] ts 183.

3. Second, for several years, Jeffrey and Pamela claimed deductions in the partnership tax returns for JG & PD Halford for the mortgage payments and other expenditure on a property in Grange Street, Claremont, for the purpose of minimising the partnership's tax liabilities.[3]  They said that they acted on the instructions of their accountant.  But both knew that the Grange Street unit was not leased, except for one period of about three months.     

   [3] ts 226 - 228, 264 - 265.

4. The defendants' accountant, Mr Egan, confirmed their evidence.  He explained the lease as a leasing by the defendants to their two children for tax purposes, with rent debited against the defendants' drawing account in the partnership.  He described it as 'an arrangement between the family themselves', and treated it as a genuine lease for the purpose of preparing the income tax returns for the partnership.[4]  Mr Egan appeared entirely unconcerned that the lease was a sham. 

   [4] ts 316 - 317.

5. Counsel for Kai also referred to information provided by the defendants to the bank, for the purposes of borrowing, in which they declared Glen Iris at its full value.  Jeffrey was cross‑examined on the basis that the full value was given to maintain the loan to value ratio required by the bank, and that only his two-thirds interest should have been given.  Jeffrey said that the declaration of the full value was on the instructions of the bank. 

6. Jeffrey's explanation is consistent with the mortgage documents which required a mortgagor, who was a trustee, to charge the whole of the legal and beneficial interest in the Secured Property.[5]  It is also consistent with trust law, under which the trustee holds the legal estate.     

   The beneficiaries' interest is not, however, to be conceived of as cut out of the trustee's legal estate but rather as engrafted onto it as a restriction on the manner in which the trustee may deal with trust assets.[6] 

   [5] Exhibit 1.13, Common Provisions cl 4.6.

   [6] Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20 [82].

7. If the trustee had power to mortgage the farms, it was a power to mortgage the legal estate and was not confined to the interest Jeffrey held as a beneficiary.  For the purposes of the bank, including the loan to value ratio, the full value of the property was the value of the security. 

Blake Halford

1. Blake gave evidence of working on Glen Iris, in particular from 2006 until its sale in 2016.  In his witness statement, he referred to the financial report of JG & PD Halford for each of those years as containing a record of the wages he was paid, and included a summary of wages in his witness statement.  It was apparent, however, that Blake had no knowledge of the documents to which he referred.  The wages summary in his witness statement was taken from the profit and loss statement for each financial year, and not from Blake's records or tax returns.[7]  In the years that Mr Egan prepared the partnership accounts, he saw no records of PAYG withholding, or the payment of the superannuation guarantee charge, or any other records to show that Blake was receiving a wage as an employee.  It is more likely that Blake was not paid wages, but received amounts that were recorded as drawings of either Jeffrey or Pamela.[8] 

   [7] ts 302.

   [8] ts 310.

2. Blake's evidence was, however, only marginally relevant.  Regardless of whether he received payment as a wage or from drawings, it was part of the cost of operating Glen Iris.

Alexander Egan

1. Mr Egan made a witness statement, dated 26 June 2019,[9] and was cross‑examined. I have already referred to his evidence regarding the purported lease of the Grange Street property.

   [9] Exhibit 9.

2. Mr Egan's evidence largely assumed the accuracy of the financial statements provided to him by the defendants (prepared by Pamela).  He did not audit them; nor was that something he was expected to do.

3. Mr Egan attached two tables to his witness statement showing income and expenditure in the JG & PD Halford financial statements; and a summary of drawings from farm accounts (including drawings for shopping, medical, educational, and personal needs) and contributions by the defendants.  They were not challenged, and I accept them as an accurate summary of the source material.  

The facts

1. I will set out the factual background in some detail, although, on my view of the relevant law, the issues are more limited. 

Maurice's will and estate

1. Maurice Halford died on 3 January 1966.  By his will dated 28 December 1962, he appointed his mother, Sophia Emily Halford, and his widow, Iris Elvie Halford, as joint executors and trustees of the trust created by his will (the Trust). 

2. The relevant parts of his will are short enough to set out in full:

   2.I DEVISE AND BEQUEATH all my property and estate of what nature soever and wheresoever situate unto my Trustees UPON TRUST to sell call in and convert the same into money (with power in their uncontrolled discretion to postpone the sale calling in and conversion of any part thereof for such time as they shall deem fit without being liable to account notwithstanding that it may be of a wasting speculative or reversionary nature) and to pay thereout my debts funeral and testamentary expenses and all State Probate Duty and Federal Estate Duty and all other duties costs charges and expenses assessed or payable upon or by reason of my death or the succession to my estate AND TO STAND POSSESSED of the residue thereof UPON TRUST:-

   (a)For my said wife IRIS ELVIE HALFORD during her life and

   (b)after her death for such of my children as shall survive me and if more than one in equal shares as tenants in common.

   3.I DECLARE that my Trustees shall have the following powers (in addition to and without limiting any powers they may have by law: -

   (a)To carry on or join in carrying on any business which I may own or be interested in as partner or otherwise at my death until the same shall vest in the respective persons beneficially entitled to the same under the provisions of this my Will and for that purpose to retain and employ therein the capital or my share of the capital which shall at my death be employed therein and such additional capital as my Trustees shall think fit to advance from time to time out of my residuary estate with power to employ or concur in employing at such salary wages or remuneration as my Trustees shall think fit any manager or managers servants workmen and contractors (including any beneficiary entitled under this my Will) in connection with the said businesses or business and generally to act or concur in acting in all matters relating to the said business or businesses as if my Trustees were beneficially entitled thereto or to my share or interest therein and also with power to delegate all or any of the powers vested in my Trustees in relation to the said businesses or business to any person or persons whom they may think fit and my Trustees shall be free from all responsibility in respect of any loss arising in relation to the carrying on of the said businesses or any of them.

   (b)To lease any real or personal estate belonging to me or my estate for such term or terms at such rent or rents and upon such terms and conditions (including options for extension and for purchase) as they shall deem fit.

   (c)For the purpose of paying and discharging my funeral and testamentary expenses and the State Probate Duty and/or Federal Estate Duty payable in respect of my estate and/or my debts and/or for the purpose of paying and discharging the liability of my Trustees of and incidental to carrying on any businesses or business of mine and my estate or any partnerships or partnership in which I am or may be interested at my death to raise or borrow or join in raising and borrowing from any Bank or other corporation firm or person either on fixed mortgage or mortgages or on one or more fluctuating current account or accounts or otherwise such sums or sum of money as my Trustees may deem necessary for the purposes aforesaid or any of them.

   (d)For the purpose of securing the due payment of the moneys so borrowed together with interest thereon at the usual current banking rate from time to time charged by banks in the said State or any such other rate or rates as to my Trustees shall deem fit (and which interest may be capitalised in accordance with the usual banking practice) to mortgage and/or pledge the whole or any part of my estate and to execute or join in executing such securities as they may think fit over my real and personal property (including the wool increase and progeny of any livestock and of all crops now or hereafter to be sown in or growing upon any property of mine or property in which I am interested as a partner or otherwise and any after acquired stock plant chattels and effects) and that such securities may be in such form and may contain such covenants powers and provisions (including a power of sale) as my Trustees may deem proper or as such bank corporation firm or person may require and such bank or other lender of any money in pursuance of the powers herby conferred on my Trustees shall not be liable to see or enquire as to the application of any moneys so borrowed or be liable for the misapplication of the same or any part thereof.[10]

   [10] Exhibit 1.3.

3. In 1962, when the will was executed, Iris was only 31, and the children were aged 10 years or younger.[11]  Kai was born in 1952, Jeffrey is two years younger, and Ewart is seven years younger.

   [11] Exhibit 1.231.

4. Immediately before his death, Maurice was a member of a partnership trading as 'Halford Bros', the other members of the partnership were:

   (1)Kai;

   (2)Jeffrey;

   (3)Iris;

   (4)Credo Pastoral Co Pty Ltd; and

   (5)Halford Pastoral Co Pty Ltd.

5. Halford Bros carried on a farming business at Glen Iris, and at Credo Station, a pastoral station near Kalgoorlie.

6. Following Maurice's death, and after payment of his debts and other expenses, the estate property included:

   (1)Glen Iris, being five contiguous parcels of land at Gibson, within the Shire of Esperance:

   a.Esperance Location 1292;

   b.Esperance Location 1403;

   c.Esperance Location 654 and 655; and

   d.Esperance Location 1413;

   (2)Half of the pastoral leases registered over Credo Station; and

   (3)a four-twentieth share in the residue (if any) of the assets of Halford Bros upon a final settlement of partnership accounts pursuant to s 57 of the Partnership Act 1895 (WA).

The operation of the Halford Bros partnership from 1966 to 1980

1. Between 3 January 1966 and 11 May 1968 the farming business at Glen Iris that was previously carried on by Halford Bros was carried on, in partnership, by:

   (1)Maurice's mother and Iris (as trustees of Maurice's estate);

   (2)Kai;

   (3)Jeffrey;

   (4)Iris in her personal capacity;

   (5)Credo Pastoral Co; and

   (6)Halford Pastoral Co.

2. The partnership kept the Halford Bros name.

3. At first, Kai and Jeffrey were still at school.  Iris's brother, Evan Ball, moved to Credo Station to run it with her until Kai finished school in 1967 and was able to take over responsibility with Iris.[12]

   [12] Exhibit 2 [42] - [45].

4. Halford Bros borrowed money, secured by mortgages over Glen Iris.  Mortgages were registered in 1969, 1972, 1975, and 1979.  The loan in 1975 was for restocking, following a prolonged drought in the early 1970s.[13]

   [13] Exhibit 2 [47], [62].

5. On 11 May 1968, Maurice's mother died, leaving Iris the sole trustee of the Trust.  Iris then held Glen Iris and Maurice's residuary share in Halford Bros on the trusts created by the will.

1. From Maurice's death until 30 July 1980, Iris was the sole director of each of Credo Pastoral Co and Halford Pastoral Co.  From 30 July 1980, Iris and Jeffrey were the directors of each company until they were deregistered on 26 August 2003.

2. From 1975 to 1978, Kai and his wife lived on Glen Iris, while Iris, Jeffrey and Ewart lived on Credo Station. In 1978, Kai and his family returned to Credo Station.[14]  Before Kai moved to Glen Iris, Iris employed a couple to manage the farm.[15]  After Kai returned to Credo Station, another couple were employed to manage Glen Iris.[16]  

   [14] Exhibit 2 [72] - [76], [79].

   [15] Exhibit 3.1 [29].

   [16] Exhibit 3.1 [39].

3. Around 1978, differences about the management of the family business arose between Kai and Jeffrey.  Kai's evidence was that he wanted to implement changes, but the other family members did not agree to them.[17]  Jeffrey said there were other disagreements, escalating to a physical confrontation between the brothers.[18]  Kai denied that it was anything more than a disagreement about the changes he wanted to make.  

Kai retires from the partnership

[17] Exhibit 2 [88] - [91].

[18] Exhibit 3.1 [116] - [122].

1. Following a meeting on 30 April 1980, Kai retired from Halford Bros.  The partners executed a deed, dated 10 July 1980, by which:

   (1)the partnership was dissolved by mutual consent from 30 April 1980;

   (2)from 1 May 1980, a partnership known as Halford Bros was carried on by the remaining partners and Ewart as an incoming partner;

   (3)Kai agreed to transfer his shareholding in Credo Pastoral Co and Halford Pastoral Co to Jeffrey and Ewart;

   (4)Iris and Jeffrey were to pay Kai the sum of $21,260, being the agreed value of his interest in the partnership, with $10,260 of the agreed amount satisfied by the transfer to Kai of land in Esperance;

   (5)the remaining partners indemnified Kai against the debts and liabilities of the partnership as at 30 April 1980; and

   (6)Kai released the other parties from all actions, accounts, claims and demands in relation to the former partnership.^.[19]

   [19] Exhibit 1.19.

2. Ultimately, the reason why Kai chose to leave the partnership is immaterial.  But after he left the farm, he had no personal contact with Jeffrey before these proceedings began, and did not see his mother again.[20]  What information Kai had about the family (and Glen Iris and Credo Station) came from visits from relatives or friends, and 'occasional accounting enquiries' (discussed below).[21]  Kai said that he did not believe Jeffrey and Ewart would want to share information about the partnership with him, he did not feel entitled to it, and did not ask.  He also did not ask for any information about the estate or the Trust.  

   [20] ts 86.

   [21] Exhibit 2 [109].

3. From 30 April 1980, the farming business at Glen Iris and Credo Station was carried on by a partnership constituted by the former partners and with Ewart as the incoming partner replacing Kai.  Iris continued as a partner in her personal capacity and as trustee. 

4. Kai left the Esperance region in about July 1980 and moved to the northwest, eventually settling in Kununurra. 

5. After Kai left, Jeffrey moved to Esperance to manage Glen Iris, initially renting the house that had been given to Kai in the partnership dissolution.  Iris remained on Credo Station with Ewart.

6. In 1981, the defendants moved onto Glen Iris.

7. On 10 March 1982, Kai wrote to Jeffrey regarding an outstanding matter from the dissolution of the partnership ‑ the failure by the continuing partners to repay $5,000 which Kai had raised on the security of a life insurance policy.[22]  Kai received a reply, signed 'Halford Brothers', advising that things had improved over the last 18 months, and they were trying to pay it off 'as quick as possible'.[23]  In April 1983, Kai had a solicitor write to his brothers, foreshadowing legal action unless the amount was paid.[24] 

   [22] Exhibit 1.133.  The letter refers to an earlier letter:  exhibit 1.132.

   [23] Exhibit 1.134.

   [24] Exhibit 1.137.

8. Kai also corresponded with his uncle, Evan Ball, in April 1984.  Kai at least suspected that Jeffrey was borrowing through the partnership for the accumulation of personal assets.  Kai was also aware of the possibility that Ewart would buy Jeffrey out of Credo Station.   Kai wrote:

   It has been Jeff's stated intention for many years that he would sell out at the first opportunity that arose, he is not interested in the properties.  I have heard that Jeff now owns flats in Perth.  If this is true then he has obviously bought them from funds generated from the farm of which Ewart probably did not receive his share, but being a partner is liable for half the borrowings and debts Jeff is running up.  As you stated on the phone, if the borrowings are being made without Ewart's approval, then it is being done illegally, and putting partnership funds into personal assets constitutes misappropriation of funds.  When you get the partnership accounts I think Jeff's personal accounts would have to be looked at very closely also, because it wouldn't surprise me to find that Jeff has put money into things other than flats in his or his wife's name.

   … If he is allowed to continue in this way he will get out of the properties when he has bled them dry but still be well off because of his other investments but Ewart would be left with nothing except half the debts.[25]

   [25] Exhibit 1.139.

9. The reference to Ewart being liable for 'half the debts' suggests that Kai then believed the partnership running Glen Iris and Credo Station to be between Jeffrey and Ewart.  In any event, Kai knew that Glen Iris had been kept, and that Jeffrey was farming it.[26]

The 1984 agreement between Jeffrey and Ewart and the formation of the JG & PD Halford partnership

[26] ts 124.

1. On 14 June 1984, Jeffrey and Ewart executed an agreement by which, for a consideration of $60,000 to be paid by Jeffrey to Ewart:

   (1)Jeffrey transferred his interest as joint lessee in Credo Station to Ewart;

   (2)Jeffrey took over responsibility for payment when due of 'instalments etc.' of two identified loans, and hire purchase agreements and accounts and debts relating to Glen Iris;

   (3)Jeffrey and Ewart each agreed to pay Iris $250 a month for her personal living expenses, with Iris to continue to reside at Credo Station for as long as she wished;

   (4)Ewart transferred to Jeffrey his right as a beneficiary in the estate of Maurice to the land, buildings and plant of Glen Iris;

   (5)Ewart took responsibility for liabilities relating to Credo Station.[27]

   [27] Exhibit 1.24.

2. The transfer of Jeffrey's interest in Credo Station was subject to ministerial approval.  On 28 February 1985, following that approval, Ewart transferred his beneficial interest in Glen Iris to Jeffrey, subject to encumbrances specified in the deed.[28]

   [28] Exhibit 1.10.

3. From 1984, or at the latest February 1985, the defendants farmed Glen Iris in the partnership of JG & PD Halford.  The business name JG & PD Halford was registered from 3 August 1984.[29]  Jeffrey said that this was a change in trading name, due to Ewart leaving the partnership leaving him as the only Halford brother farming Glen Iris.[30]

   [29] Exhibit 1.424.

   [30] Exhibit 3.1 [252] ‑ [257].

4. Iris lived on Credo Station.  She was not active in the business but continued, as trustee, to use Glen Iris as security for money borrowed by JG & PD Halford.  It was agreed on the pleadings that Iris consented to or acquiesced in the defendants farming Glen Iris in the JG & PD Halford partnership.[31]

   [31] Statement of claim [17]; defence [14].

5. The early days of the JG & PD Halford were difficult.  In 1984, Jeffrey was granted drought relief.[32]  Between 1986 and 1988, Jeffrey needed to work part time for another local farmer.[33]

   [32] Exhibit 3.1 [235] - [249].

   [33] Exhibit 3.1 [284].

6. One of the 'accounting enquiries' to which Kai referred in his evidence was made in 1986.  Kai contacted Bird Cameron, the former accountants to Halford Bros.  He was advised that he no longer had any financial interest in Halford Bros; that he had transferred his shares in the two pastoral companies; that he had sold his interests in the Credo Station and Callion Station pastoral leases under a Deed of Family Arrangement;[34] and the property at Gibson (that is, Glen Iris)

   is to be held in trust for the benefit of your Mother during her lifetime, and after her death for the benefit of yourself and your two Brothers in equal shares as tenants in common…. Up till five years ago, being the date in which we were actively involved in the Partnership affairs, this property had been mortgaged to secure advances by Westpac Banking Corporation, Commonwealth Development Bank and The Rural Reconstruction Authority.  It may be that at the current moment it is similarly encumbered as security for the partnership borrowings.

   … Your Mother is the surviving Executrix of the Estate of your late Father, and if confirmation of your entitlement under the Will of your late Father was necessary, then we suggest that contact be made with your Mother.[35]

   [34] The evidence at trial did not explain the reference to the deed of family arrangement, unless it is to the 1980 Deed.  

   [35] Exhibit 1.149.

7. Kai did not contact Iris. 

8. In 1989, Iris left Kalgoorlie and she and Jeffrey purchased a house in Nugent Street, Esperance, for her to live in.  Jeffrey paid the deposit, and the balance was borrowed.  The mortgage was discharged in May 1990.[36]

   [36] Exhibit 3.1 [292] ‑ [298]; exhibit 1.106.

9. Jeffrey said that he and Pamela again went through tough times between 1988 and 1990 due to drought.  In 1990 they were struggling.[37]

   [37] Exhibit 3.1 [307] ‑ [309].

10. In 1990, through his then accountant, Peter Forbes, Jeffrey approached Kai to ask whether he would consider transferring his interest in the estate 'in lieu of exercising your right on your Mother's death'.[38]  Jeffrey offered consideration of $100,000.

    [38] Exhibit 1.158.

11. Kai responded by offering, 'in view of his apparent financial difficulties', to purchase Jeffrey's share for $200,000.[39]  The counter offer was refused.  Kai was assured that Jeffrey did not have financial difficulties.

    [39] Exhibit 1.158.

12. In April 1995, Iris was approved by an aged care assessment team for admission to a hostel.[40]  She was admitted to the Esperance Community Nursing Home later that year.[41]  Iris was only 64 years old, but was a chronic alcoholic.[42]

    [40] Exhibit 1.250.

    [41] Exhibit 1.251.

    [42] ts 212.

13. The fee for Iris to enter the hostel was paid from the partnership accounts.[43]

Jeffrey is appointed trustee in 1999

[43] Exhibit 3.1 [351] ‑ [352].

1. On or about 13 May 1999, in her capacity as trustee, and pursuant to her powers under s 7 of the Trustees Act 1962 (WA), Iris appointed Jeffrey as an additional trustee.[44]  From then until Iris's death, Iris and Jeffrey were joint trustees of the Trust.  At the same time, Iris appointed Jeffrey as her attorney.  The power of attorney was never used.[45]

   [44] Exhibit 1.54.

   [45] Exhibit 3.1 [385] ‑ [388].

2. As part of the agreement between Jeffrey and Ewart in 1984, Iris had received a monthly payment.  Once Iris received the pension, the payments were no longer made on a regular basis and Jeffrey and Pamela relied on the pension to meet the cost of Iris staying in a hostel.[46]  During the time that Glen Iris was operated by the JG & PD Halford partnership, the business was operated for the benefit of the defendants and they paid nothing to the estate.[47]  Iris did not receive income as life tenant.[48]  Jeffrey described the benefit Iris received as 'a son that stayed and looked after her until she died'.[49] 

   [46] ts 212.  There is evidence, however, that Jeffrey made payments from time to time when required.

   [47] ts 221.

   [48] ts 222.

   [49] ts 223.

3. There is no evidence that Iris was unhappy with these arrangements.  The defendants' unchallenged evidence was that Iris had, for some years, been unable to cope with the business of farming and, before she moved into the aged hostel, was a chronic alcoholic.[50]  The evidence does not show for how long, or to what extent Iris was incapacitated.  Jeffrey said that Iris was actively involved in the farms up until 1989, after which he regularly discussed finances with her.  He said that he believed she remained of sound mind until she died.[51]  

   [50] Exhibit 1.186; ts 212.

   [51] Exhibit 3.1 [388].

4. In 2001, it appeared that Iris would no longer be able to receive a full pension from Centrelink.  This affected the extent to which her hostel fees would be subsidised.  The defendants said that they could not afford to pay hostel fees and living expenses for Iris, and were desperate.  That evidence was shown, in cross‑examination, to be exaggerated, if not false.[52]

   [52] ts 213 - 214; 270.

5. The defendants approached Centrelink (including through a solicitor)[53] and wrote to their local member of parliament, seeking to have the Centrelink decision changed.  Pamela wrote, in particular, that the debts secured against Glen Iris would significantly reduce Iris's net asset position.[54]

   [53] Exhibit 1.180.

   [54] Exhibit 1.181.

6. The pension was reinstated.

7. The conduct of the defendants in relation to Iris's pension was strongly criticised by counsel for Kai.  Their conduct demonstrated willingness to put their financial interests ahead of other considerations, including Jeffrey's obligations as a trustee.

8. From about 1999 until her death in 2014, the benefits Iris received appear to have been limited, but there is no evidence that her needs were not met: payments were made from partnership drawings for medical and dental bills, hairdressing, and shopping.[55]  The most significant expenditure was on Iris' accommodation.  The defendants made payments as required when there were not sufficient funds in Iris' bank account for her fortnightly accommodation charge.  In total, between 2 April 1997 and 14 August 2014, the defendants paid $37,657.76.[56]  From 2009 to 2011, these payments were relatively frequent and amount to about half the total. 

   [55] ts 223.

   [56] Exhibit 3.1 [688].

9. Jeffrey's evidence portrayed farming at Glen Iris as a series of challenges: wind damage to the crops in 1993, resulted in the loss of half the crop;[57] 1998 was extremely wet, with the crop downgraded;[58] a tornado in November 2000 caused damage to sheds and destroyed a silo;[59] Cyclone Isobel in 2007 caused substantial damage;[60] live exports were banned in 2011.[61]  Despite those events, the defendants were able to build up substantial 'off‑farm' personal assets (discussed below).

   [57] Exhibit 3.1 [339] ‑ [345].

   [58] Exhibit 3.1 [378].

   [59] Exhibit 3.1 [391] ‑ [393].

   [60] Exhibit 3.1 [410] ‑ [420].

   [61] Exhibit 3.1 [446].

10. In 2007, Blake left the army and returned to Esperance to work on Glen Iris.[62]  Jeffrey said in evidence that they paid Blake a nominal wage because they could not afford to pay more.[63]   It seems more likely from the JG & PD Halford accounts, that Blake was not paid a wage at all, but received drawings which were aggregated in the drawings of the partners.[64]  The drawings recorded as advances for Blake were modest.

The mortgages over Glen Iris

[62] Exhibit 3.1 [429] ‑ [430].

[63] Exhibit 3.2 [431].

[64] ts 310.

1. The parties agreed the following table setting out the particulars of 10 mortgages over Glen Iris from 1958 to 15 February 2016:[65]

   [65] Defence [7] in particulars; Reply [4]. The table sets out the mortgagor, but not the debtor for the relevant secured loan.

Mortgage Number	Mortgagee	Registered	Discharged	Mortgagor
15352/1958	Bank of NSW	31.12.1958	22.4.1969	Maurice Halford
A157306	Bank of NSW	22.4.1969	3.6.1987	Iris Halford as executrix of Estate of Maurice Halford
A519325	The Rural Reconstruction Authority	10.5.1972	18.2.1991	Iris Halford as executrix of Estate of Maurice Halford
B57172	Commonwealth Development Bank of Australia	21.11.1975	19.4.1991	Iris Halford as executrix of Estate of Maurice Halford
B652387	Bank of NSW	23.1.1979	3.6.1987	Iris Halford as executrix of Estate of Maurice Halford
C940550	Westpac Banking Corporation	21.1.1985	19.5.2006	Iris Halford as executrix of Estate of Maurice Halford
D215666	Commissioners of the Rural Industries Bank of WA	17.3.1986	12.5.1994	Iris Halford as executrix of Estate of Maurice Halford
J382034	Elders Rural Bank Ltd	2.8.2005	9.2.2010	Iris Halford as executrix of Estate of Maurice Halford & Jeffrey Halford
L226573	Bankwest	21.1.2010	15.2.2016	Iris Halford as executrix of Estate of Maurice Halford & Jeffrey Halford
L311490	Bankwest	30.4.2010	15.2.2016	Iris Halford as executrix of Estate of Maurice Halford & Jeffrey Halford

1. The evidence includes the mortgage documents, but not the loan documents.  The mortgage documents and letters from the banks show that the mortgage to Elders Rural Bank Ltd in 2005 originally secured a sum of $420,000, which was increased by subsequent drawings to $575,000 on 14 July 2005.[66]  The balance of the Elders loan in the accounts of the partnership fluctuated.  For example, the closing balance in June 2006 was approximately $1.5 million.[67]  In May 2009, the facility limit was increased to $1,980,000.[68]  In January 2010, the closing balance for the Elders Account in the JG & PD Halford monthly report was approximately $1.9 million.[69] 

   [66] Exhibit 1.12.

   [67] Exhibit 1.101, 3722.

   [68] Exhibit 1.207.

   [69] Exhibit 1.101, 3407.

2. By letter dated 18 December 2009, Bankwest offered facilities 'for the takeover of the Elders debts'.[70]   On 21 December 2009, Bankwest offered facilities totalling $2.1 million.[71] The Elders Account was cleared in February 2010, with refinancing from Bankwest.[72]   

   [70] Exhibit 1.210.

   [71] Exhibit 1.212.

   [72] Exhibit 1.101, 3400.

3. The two Bankwest mortgages registered in 2010, mortgages L226573 and L311490,[73] were both in place when Glen Iris was sold.

   [73] Exhibit 1.13; exhibit 1.14.

4. Each mortgage provided that, for the purpose of securing to the Bank the payment of the Secured Money the Mortgagor mortgaged to the Bank:

   a)all the Mortgagor's estate and interest described in this mortgage in the land described in this mortgage; and

   b)each fixed structure, or improvement on the land or fixed to it; and

   c)any growing or mature crops on the land…

5. The mortgages had the same Common Provisions.  Relevantly, each secured the payment or repayment of all money which from time to time formed part of 'all the liabilities and obligations of the Mortgagor to the Bank under or by reason of:  (i) any facility Document; or (ii) any other transaction, matter or event'.[74] 

   [74] See exhibit 1.13, definitions of Obligations and Secured Money in Memorandum of Common Provisions, cl 1.1.

6. Clause 4.6 of the Common Provisions provided for a mortgagor who entered into the mortgage as trustee of a trust, to give undertakings that the Mortgagor:

   (a)(mortgage binding) acknowledges that this mortgage is binding on it personally and in its capacity as trustee of the Trust;

   (b)(legal and beneficial interest charged) in giving this mortgage, charges the whole of the legal and beneficial interest in the Secured Property;

   …

   (d)(right of indemnity) upon the occurrence of an Event of Default and on demand by the Bank, shall exercise the Mortgagors' rights of indemnity in relation to the Trust Fund and its rights against the beneficiaries of the Trust to cause payment of the Secured Money to the Bank or otherwise hold such rights for the Bank;

   (e)(no conflict of interest) acknowledges that the giving of this mortgage does not constitute a conflict of interest by the Mortgagor nor does the giving of this mortgage constitute a breach of the terms of the Trust;

   …

   (o)(no distribution) the Mortgagor will not make any distribution of:

   (i)the capital of the Trust;

   (ii)the income of the Trust if an Event of Default has occurred.

1. The mortgages were security for facilities provided by Bankwest to the defendants, trading as JG & PD Halford, as borrowers.

2. On 23 March 2010, Iris and Jeffrey signed a joint statutory declaration, witnessed by Jeffrey's daughter Sheree, confirming that the mortgage was given for a purpose set out in cl 3(c) of Maurice's will.[75]  Jeffrey and Iris made similar statutory declarations, before other witnesses, in 2005 and April 2010.[76] Counsel for Kai commented on Sheree being the witness in March 2010; but she was qualified to witness statutory declarations, as a registered teacher, and there was nothing irregular in her doing so. 

   [75] Exhibit 1.82.

   [76] Exhibits 1.12; exhibit 1.14.

3. The Bank provided a letter of variation on 27 April 2010, by which the facilities were structured as:

   (1)Existing Agrione Overdraft Facility, for working capital and general business purposes, with the facility limit of $400,000;

   (2)Business Bonus Overdraft Facility, for working capital and general business purposes, with the facility limit of $20,000;

   (3)Fixed Interest Rate Loan, for working capital for farming operations, with facility limit of $1 million, expiring 12 months from drawdown date;

   (4)Fixed Interest Rate Loan, for working capital for farming operations, with facility limit of $1 million, expiring 24 months from drawdown date.[77]

   [77] Exhibit 1.226, 4697 ‑ 4707.

4. Iris was guarantor for each facility.  Each provided for the guarantor to acknowledge that she had obtained independent financial and legal advice regarding her obligations.  Iris did not at any time obtain independent advice.

5. On 11 May 2010, Bankwest disbursed $2 million to the defendants' Bankwest Agrione account (037-066734-2) pursuant to the two fixed interest commercial loans.  The terms included interest only repayments.[78]

   [78] Exhibit 1.379.

6. On 14 April 2011, Bankwest sent a second letter of variation increasing the overall facility limit by $100,000 by an increase in the Existing Agrione Overdraft Facility.[79]

   [79] Exhibit 1.226, 4708.

7. On 2 May 2013, Bankwest sent another letter of variation, adding a Temporary Agrione Overdraft Facility with a facility limit of $200,000.[80]

   [80] Exhibit 1.226, 4720.

8. On 6 August 2013, the Bank sent a further variation letter.[81]

   [81] Exhibit 1.226, 4781.

9. On 21 May 2014, the facility was again restructured to:

   (1)Existing Bankwest Agrione Overdraft Facility with the facility limit of $500,000, for working capital and general business purposes;

   (2)Existing Bankwest Business Bonus Overdraft Facility with the facility limit of $20,000, for working capital and general business purposes;

   (3)BankWest Commercial Advance Facility, for the purpose of 'restructure of existing Bankwest lending facility originally for the purchase of agricultural lands', with a facility limit of $2 million with an expiry date 12 months from the initial drawdown date;

   (4)BankWest Business Fixed Rate Loan, for the purpose of 'provide working capital', with the facility limit of $500,000 and an expiry date 12 months from the initial drawdown date.[82]

   [82] Exhibit 1.228.

10. On 25 June 2014, Bankwest disbursed $2,976,886.95 into accounts of the partnership.[83]

Drawings

[83] Exhibit 1.229.

1. The defendants did not receive wages as such but, as is common in family farming businesses, they took drawings.  Their income was almost wholly derived either from those drawings, or investments made and funded out of farm income.  The amount drawn fluctuated widely throughout the years the defendants farmed Glen Iris.

2. In the last two years, after Iris' death, Jeffrey drew substantial amounts.  In 2016, he drew more than $400,000.  Jeffrey said, and I accept, that the amount was due to a clearance sale of stock and equipment.[84]

The defendants' personal bank acounts

[84] ts 164.

1. Both defendants maintained 'Telenet Saver Accounts', which were used for various purchases. 

2. Pamela opened a Telenet Saver Account in her name in May 2010, with a transfer of $80,000 from a Rural Bank account.  The evidence did not show the source of funds in the Rural Bank account.[85]  Other than interest, all credits to the account, before the sale of Glen Iris in February 2016, were recorded as from 'Rural Bank JG & PD Halford' or 'Rural Bank PD Halford'.  Payments described as '1^st House Instalment' ($94,000) and 'house payment' ($64,500) were paid from this account in 2012 and 2013. 

   [85] Exhibit 1.459.

3. Jeffrey opened a Telenet Saver Account in March 2011 with a $205,000 deposit, described as 'house funds'.[86]  In his evidence, Jeffrey said that he borrowed $200,000 in 2011, $100,000 of which was transferred to the farm account.[87]  His evidence is supported by bank statements.

   [86] Exhibit 1.457.

   [87] ts 165.

4. In 2012 and 2013, $191,000 was paid from his Telenet Saver Account in three 'house payments'.[88]

The defendants' trading and investment activity

[88] Exhibit 1.457.

1. The defendants built up significant personal wealth, including shares and real property, from their farming partnership.

2. In about 1984, or perhaps earlier, they bought a unit in Maylands which was treated as an asset of the partnership.  Entries in the accounts of JG & PD Halford show land and buildings, and claims for depreciation, relating to the Maylands property from about 1985.[89]  The mortgage on the unit was, at least in part, paid out of farm income.[90]  The defendants received rent on the unit.

   [89] See ts 282 ‑ 284.

   [90] ts 285.

3. The profit from the sale of the Maylands unit ultimately was invested in another property in Grange Street, Claremont, which was purchased in about 2004.[91]  The Grange Street property was treated as a partnership asset.  Mortgage payments were made from the Bankwest Farm Account.[92]

   [91] ts 287 ‑ 288; exhibit 1.479.

   [92] See, for example, exhibit 1.101, 3312, 3323. 

4. In May 2007, Pamela's mother died.  In 2008, Pamela purchased her brothers' share of a house in Padbury Street, Esperance, from their mother's estate.[93]  She borrowed $300,000, secured by a mortgage.  The mortgage payments, capital and interest, were paid from a JG & PD Halford account,[94] although the property was not included in the partnership assets.

   [93] Exhibit 1.488; exhibit 6 [123] ‑ [129].

   [94] ts 275.

5. In 1985, the defendants also purchased a block of land in Matthews Street, Esperance.  Subsequently they spent at least $600,000 building a home on that land which was completed in 2014.[95]  There was some dispute at trial regarding the extent to which the building at Esperance was financed from the defendants' personal funds, rather than partnership funds.  But other than a small inheritance that Pamela received on the death of her mother, and some part-time work, the ultimate source of their income was from farming Glen Iris.  Payments for the building on Matthews Street can be traced back to the Telenet Accounts, but those accounts, at least in part, were funded from farm accounts.  The house was not a partnership asset.

   [95] ts 150, 288.

6. Jeffrey also invested extensively, and profitably, in both property and shares.

7. The property investment was through a company, Esperance Property Investments Pty Ltd, which was formed between members of an investment group, Le Grande Investments.[96]  The investment group also traded profitably in shares.

   [96] Exhibit 3.3 [36] ‑ [37].

8. Jeffrey traded independently of Le Grande Investments, and for that purpose operated a margin loan account with St George Bank.  In cross‑examination, Jeffrey was taken through regular and significant drawings from the partnership accounts, sometimes from capital, for either share purchases or Le Grande Investments.  He explained that he regarded these sums as his drawings from the partnership.[97]  At least initially, some investment funds may have come from drilling work he did off the farm, but that amount is insignificant against the total withdrawn from farm income for the purposes of investment.  In an annexure to closing submissions, counsel for Kai provided a table (which I accept is accurate by reference to the financial documents referenced) which demonstrates approximately $600,000 drawn from partnership income for share investment purposes between October 1985 and October 2014.  Although the total is large, it was drawn over 29 years.

The death of Iris, Jeffrey as sole trustee and the sale of Glen Iris

[97] ts 205.

1. Iris died on 1 September 2014, leaving Jeffrey as the sole trustee.  He caused Glen Iris, by transmission, to be registered in his name.

2. Iris's death certificate recorded 'Dementia (10 years)' as a contributing cause of death.[98]  Jeffrey disputed that was correct, and there is no direct evidence about Iris' mental capacity.  

   [98] Exhibit 1.231.

3. On 24 April 2015, there was a further variation of facilities, in effect consolidating the Commercial Advance Facility and the Fixed Rate Loan into a single Commercial Advance Facility of $2.5 million.[99]

   [99] Exhibit 1.232.

4. On 10 July 2015, an Agrione Overdraft Facility of $120,000 was added to the overall facility.[100]

   [100] Exhibit 1.233.

5. Kai was told of his mother's death by Ewart's wife.[101]  Within a couple of weeks, he saw an advertisement on the Internet for the sale of Glen Iris.  He then sought legal advice and representation from the firm of Durack & Zilko, resulting in a caveat being lodged over each of the Glen Iris properties.[102] 

   [101] Exhibit 2 [116].

   [102] Exhibit 2 [118] ‑ [120].

6. Kai said that he did not know that Jeffrey had been appointed as trustee until September 2014, when he received Landgate documents that listed Jeffrey as an additional trustee.[103]

   [103] Exhibit 2 [12].

7. On or about 25 September 2015, Jeffrey, acting in his capacity as trustee, entered into two contracts for the sale of the Glen Iris properties for the total sale price of $4,800,000.   

8. Kai was told in December 2015 that Jeffrey had entered into the contracts, and that settlement was to take place on or before 15 February 2016.  Durack & Zilko corresponded with Jeffrey's solicitors, Pacer Legal, in relation to arrangements for the caveats to be removed at settlement.  Kai said that it was only on 10 February 2016 that he was informed, by a letter from Pacer Legal to Durack & Zilko, that there were bank loans secured over Glen Iris totalling approximately $3.06 million.[104]

   [104] Exhibit 2 [120] ‑ [125].

9. Kai said he was shocked at the amount of debt, not at the fact that there was secured debt.[105]  Due to Kai's separation from his family, he would not have known the details of the mortgages or the level of debt.  But Kai had been in the agricultural industry for much, if not all, of his adult life.  He had been part of the partnerships carrying on farming at Glen Iris from before his father's death.  He had been a partner in Halford Bros when mortgages were registered in 1969, 1972, 1975, and 1979.  It is inconceivable that he believed that Glen Iris had operated from 1985 without borrowing.  It is equally unlikely that he believed the borrowing would not be secured.

   [105] Exhibit 2 [126].

10. Jeffrey's solicitors, Pacer Legal, advised Kai that Jeffrey was agreeable to Kai attending settlement to collect his cheque 'for 1/3 of the sale proceeds after the discharge of encumbrances and associated settlement fees in exchange for the withdrawal of caveat'.[106]  Pacer Legal also said that Jeffrey required a deed of release, and enclosed a draft deed.  Counsel for Kai described the deed of release as 'improperly sought' and showing a conscious awareness by Jeffrey that he had acted in breach of trust.  I do not accept that submission.  Kai and Jeffrey had been estranged for such a long time that the conduct of his solicitors in asking for a release is equally characterised as prudent.   

    [106] Exhibit 1.235A.

11. As at 15 February 2016, there were two mortgages in favour of Bankwest, securing debt against Glen Iris, which remained undischarged.[107]  Both mortgages were 'all moneys' mortgages, securing all the liabilities of the Mortgagor to the Bank under or by reason of any transaction, matter or event.

    [107] Exhibit 1.13; exhibit 1.14.

12. At settlement of the sale, Bankwest received the amounts of $3,017,859.62 and $201,463.40 to remove limits on and discharge the liabilities under four accounts or facilities held by JG & PD Halford and secured by mortgages L226573 and L311490:

    (1)Bankwest Agrione account 037-066734-2 (Overdraft account);

    (2)Bankwest Commercial Advance 037-071511-9;

    (3)Bankwest Equity Access 089-295690-2; and

    (4)Bankwest Business Bonus 037-067112-9.[108]

    [108] Agreed summary of first and second defendants' bank accounts and debt facilities.  See also exhibit 1.236 and exhibit 1.237.

13. A liability of $6354.76 on a Bankwest Business Mastercard 5586 **** **** **** was also discharged.[109]

    [109] Exhibit 1.241.  Card number redacted.

14. The total sum secured by the mortgages and discharged on settlement was $3,225,677.78.

15. By agreement between the parties, the balance of the net proceeds has been held in an interest-bearing trust account pending determination of the parties' beneficial interests in those monies.   

The expert evidence

1. I will comment only briefly on the expert evidence because, for the reasons given below, it was of limited assistance in my determination of the issues.

Mr Nichols

1. Mr Nichols gave evidence of three retrospective valuations of Glen Iris at 14 June 1984, 13 May 1999, and 30 April 2010.  In summary, his conclusion was as follows:

   (1)Market Value with Vacant Possession as at 14 June 1984: $700,000, with $645,000 notionally apportioned to land and land improvements, and $55,000 to fixed farm improvements (including buildings, integral plant and equipment).

   (2)Market Value with Vacant Possession as at 13 May 1999: $1,330,000, with $1,220,000 notionally apportioned to land and land improvements, and $110,000 to fixed farm improvements.

   (3)Market Value with Vacant Possession as at 30 April 2010: $4,365,000, with $4,155,000 notionally apportioned to land and land improvements, and $210,000 to fixed farm improvements.[110]

   [110] Exhibit 11 [1.5] (as amended).

2. Mr Nichols was not asked to value Glen Iris at the time of its sale in 2016.

3. Mr Nichols used the same methodology for each valuation.  In summary, he based his valuations on 22 comparable sales which he detailed in his report.  Mr Nichols attributed the increase in value between 1984, 1999 and 2010 to a strong increase in the market, as evidenced by the comparable sales.[111]

   [111] ts 346; exhibit 11 [16].

4. The defendants farmed and maintained Glen Iris from 1984 ‑ it is not possible to find the extent to which it was improved.  Counsel for Kai referred to the limited value attributed to 'improvements' in Mr Nichols' valuation.  But Mr Nichols was referring only to structural improvements ‑ the buildings and integral plant and equipment.  That is not a measure of the extent to which work and expenditure on the land (for example, in applying fertiliser, a major expenditure in the partnership accounts), or on repairs and upkeep maintained or improved its value. 

5. The evidence does not enable me to say to what extent any increase in value resulted from the farming and maintenance of the land.  It is likely that the maintenance of Glen Iris as a working farm was important to it holding its market value.

6. Mr Nichols' evidence was effectively unchallenged.  I am satisfied that I should accept it.

Mr Johnston

1. Mr Johnston described himself as having been a farm management consultant for 30 years. He produced a report dated September 2019,[112] and a supplementary report dated 1 November 2019.[113] 

   [112] Exhibit 10.1.

   [113] Exhibit 10.2.

2. In his first report, Mr Johnston addressed two questions:

   (1)whether it was necessary to have the services of a farm manager and farm labour on a farm of similar size to Glen Iris and the average salaries and range of salaries for farm employees for the period 1980 to 2016;

   (2)whether the farm costs set out in Jeffrey's witness statement were considered to be within the average range of farm expenditure in the Esperance region.[114]

   [114] Exhibit 10.1, pt 3.

3. In his supplementary report, Mr Johnston was asked for his opinion on whether the drawings by the partners of the JG & PD Halford partnership were reasonable and within the normal range.

4. Mr Johnston relied on benchmarks published as 'Planfarm Bankwest Benchmarks' which are compiled annually from the records of four consulting firms, including BJW Agribusiness ‑ an agricultural consulting firm for which Mr Johnston is principal consultant.

5. In his first report, Mr Johnston acknowledged the difficulty in answering the first question because the majority of farms in the vicinity of Glen Iris are family owned and operated.  Direct comparison with corporately owned and operated farms, which employ a farm manager and all staff, was difficult because those farms are usually much larger than Glen Iris.[115]  There are no publicly available salary records for the relevant period.

   [115] Exhibit 10.1 [5.3].

6. Mr Johnston, however, offered an opinion on the appropriate range for a full-time farm manager and farm staff based on his experience in management consultancy to a number of corporate farms since 1994 and to numerous family farms since 1989.[116]  Mr Johnston adopted the method of estimating the salary range for 2015/16 based on his experience, then discounting those figures backwards based on Australian wages in the consumer price index table.[117]

   [116] Exhibit 10.1 [5.5].

   [117] Exhibit 10.2 [5.7].

7. The starting point, however, remained Mr Johnston's experience, on which he based his estimate of appropriate salaries.

8. Similarly, in addressing whether the costs outlined in his letter of instructions were within the average range of farm expenditure in the Esperance region, Mr Johnston's opinion was supported solely by his experience as a farming consultant in Western Australia:

   … I have also relied on my experience in the Esperance area, more broadly work I have done in the area over a long period of time, and my experience with a large number of clients in the mixed farming regions of Western Australia contributing their data to the Planfarm Benchmarking series since 1994.[118]

   [118] Exhibit 10.2 [6.6].

9. With respect to Mr Johnston, I accept the plaintiff's criticism of his evidence.  It is not possible for this court to form an independent judgment as to the accuracy of Mr Johnston's conclusions on wage or salary ranges, or the average range of farm expenditure, based simply on his 'experience'.

10. A different problem emerged in his evidence about the reasonable range of drawings.  In his supplementary report, Mr Johnston included a table which showed that, with few exceptions, from 1988 onwards the drawings on Glen Iris were substantially higher per hectare than Planfarm Benchmarks.[119]  In oral evidence, however, he described that table in his report as, in some respects, a 'meaningless comparison'.[120]

    [119] Exhibit 10.2 [7.4].

    [120]  ts 333.

11. Mr Johnston said that the most important aspect of benchmarking analysis is why an individual business may vary from the average.[121]  He further said that, in the case of Glen Iris, much of the variation from the average could be explained by such factors as difference in effective area and cropping percentage.[122]  But when he sought to further explain his conclusion, Mr Johnston said:

    And the issue is ‑ that I have is that my experience and ‑ and in terms of trying to substantiate that opinion, has come from personal client data which is not in a form that I can readily provide as evidence.  So ‑ so what I did is, I went back and looked at my own client data over those periods, and some of that is in the form of ‑ of drawings ‑ well, sorry, personal costs as conforms with the Planfarm benchmarking survey. Because obviously we tabulate that data before we put it into ‑ anonymously into the survey.

    … And then what I did is, I looked at the range for many of those years, and they correspond with - exactly as you've said, from I think 2015, you know, was ‑ the last year was 24,000 to 240,000 was the range across just 30 of my clients that I looked at on that ‑ on that particular occasion across the Planfarm data.  And so I ‑ that's ‑ that's the range.  But the problem I have is, I can't provide that as evidence because it's client data. It's confidential.[123]

    [121] Exhibit 10.1 [8.2].

    [122] Exhibit 10.1 [8.3].

    [123] ts 334.

1. Whether this is a question of admissibility, or the value of the evidence once admitted, the result is the same.  The facts on which Mr Johnston has based his conclusion are not supported by evidence.  I am unable to evaluate his opinion, and I am not satisfied that I should accept it.

2. The evidence does not allow a conclusion about the level of drawings, comparable to the costs that would have been incurred in employing farm managers and labour.

Construing the will

1. The principles to be applied in construing a will are well settled.[124]

   [124] See, for a recent summary, Walsh v Sloan as executor of the estate of Keddie [2019] WASCA 107.

2. The object of construing a will is to ascertain the testator's intention as expressed in the will.  The question is what are the 'expressed intentions' of the testator - what do the written words he used mean.  In identifying the meaning of the words used the court must focus on the intention of the testator, objectively ascertained, as at the time that the will was executed. 

3. The language must be read in the sense that the testator appears to have attached to the expressions used.  'The language of the testator should be moulded to carry into effect as far as possible the intention which, in the opinion of the court, the testator has, on the whole will, sufficiently declared'.[125]

   [125] Brennan v Permanent Trustee Company of New South Wales Ltd [1945] HCA 17; (1945) 73 CLR 404, 414 (Dixon J).

4. Kai contended that, on its proper construction, the 'primary direction'  to the trustees was unambiguous - they were to sell, call in and convert the property to money and hold the residue, after payment of debts, duties and expenses, on trust for Iris for life and then the residuary beneficiaries.  The power to postpone sale, and the powers in cl 3 to carry on any business, borrow money and mortgage the property in the estate, were subordinate to the primary direction.  Those powers were to be exercised for the purposes of complying with the direction to sell.

5. On that construction, Kai submitted that the duty of the trustees, following Maurice's death, was to retain Glen Iris for no longer than was necessary to permit its prudent realisation.

6. In my opinion, the powers conferred by the will are more extensive.   The trustees were expressly given power to carry on any business in which Maurice may have been interested at the time of his death, and to retain and employ capital for that purpose.  

7. The argument put on behalf of Kai is also unrealistic in the circumstances of this case.  Even if the submission about construction was accepted, by the time Jeffrey was appointed trustee in 1999, and could exercise any of the trustee's powers jointly with Iris, the farm had been retained and operated for about 33 years with the consent of the life tenant.  For approximately 14 years, Kai had participated in the running of the farming business.

The Trustees Act

1. Jeffrey also relied on the power conferred by s 30(1)(a) of the Trustees Act by which a trustee may 'expend money subject to the same trusts for the repair, maintenance, upkeep or renovation of the property, whether or not the work is necessary for the purpose of the salvage of the property.'  He submitted that the only way to maintain a farm is to farm it. 

2. That submission goes beyond the intention disclosed by s 30(1)(a). Carrying on the business of farming would require the farm property to be maintained, and s 30(1)(a) would authorise the necessary expenditure where there was power to carry on the business; but the power to repair or maintain the property would not itself confer the power to carry on the business.

3. Having regard to my views on the proper construction of the Trust, it is unnecessary to consider in detail the additional powers conferred by the Trustees Act s 30(1)(a).

4. Section 30(1)(h) authorises a trustee, as mortgagor, 'for such period and on such terms and conditions as it thinks fit' to raise money by mortgage of the property, but only where the trustee would have power under s 43.

5. Section 43(1) provides:

   Where a trustee is authorised by the instrument (if any) creating the trust or by or under this Act or any other Act or by law to pay or apply capital money subject to the trust for any purpose or in any manner, he has and shall be deemed always to have had power to raise the money required by sale, conversion, calling in or mortgage of all or any part of the trust property for the time being in possession ...

6. The question raised by s 43 is whether the defendants borrowed money for a purpose which, on the proper construction of the will, was a purpose authorised by the Trust.

7. It is necessary to comment briefly on the application of s 75, by which the court may relieve a trustee, either wholly or partly, for personal liability for breach of trust. The section was not pleaded by the defendants, but was addressed in their submissions. Kai objected to the defendants relying on s 75. It was, in my opinion, too late to introduce that issue in submissions at trial.

Findings on construction of the will

1. The critical question is whether the borrowing over many years was for the purpose of discharging the liability of the trustees for a purpose authorised by the will.

2. In construing the will, no restrictive view should be taken of the business which the trustee was authorised to carry out.  Maurice was a farmer and was leaving his estate to his family.  The terms of his will should not be construed by reference to strict concepts of partnership law, but should be read in the sense which he himself appears to have attached to the expressions he used.

3. By cl 3(a), Maurice conferred power on his trustees to 'carry on or join in carrying on any business which I may own or be interested in as partner or otherwise at my death'.  Maurice, by the terms of his will, intended to permit his trustee to carry on the business which had previously been carried on by Halford Bros, including the running of Glen Iris and Credo Station.

4. Kai submitted that, on Maurice's death, there was a technical dissolution of the Halford Bros partnership, so that Glen Iris and Credo Station were then farmed in a new partnership.  That submission is not controversial.

5. Kai further submitted that, by 1984 at the latest, the estate was no longer carrying on any business that was owned by Maurice at the time of his death. Nor was the partnership a continuation of one in which Maurice was interested.  Glen Iris and Credo Station were being operated separately.  Glen Iris was being operated by, and for the benefit of, the defendants and their family in the JG & PD Halford partnership.  JG & PD Halford did not account to the estate in relation to income earned. All income from Glen Iris was paid or credited in the accounts of JG & PD Halford, including for tax purposes, and all expenses associated with earning that income were claimed in the partnership's tax returns.  The estate was not carrying on any business.

6. The power to borrow in cl 3(c) of the will was limited by purpose:

   (1)for paying and discharging the liability of the trustee of and incidental to carrying on any businesses or business of Maurice  and his estate; or

   (2)for paying and discharging the liability of the trustee of and incidental to any partnerships or partnership in which Maurice was or may be interested at his death.  

7. The power to mortgage, in cl 3(d), was limited to the purpose of securing the due payment of money so borrowed.

8. In my opinion, Kai's submission is correct.  The business being carried on by JG & PD Halford was not a business carried on by the estate.  And while it included the farming of Glen Iris, it was now so removed from the Halford Bros partnership that it could not properly be regarded as a business that Maurice owned or was interested in at the time of his death.

9. The purpose of paying or discharging liabilities incidental to carrying on the business of JG & PD Halford did not come within the trustee's borrowing power.  This is, perhaps, another aspect of an argument advanced on behalf of Kai: the defendants were personally liable for the debts that they incurred, whether they purported to contract in their own names or, in Jeffrey's case, as trustee.  The equitable right of indemnity is a right for a trustee to be reimbursed from trust assets, 'in respect of liabilities he has incurred in the proper performance of his duties or exercise of his powers'.[126]

   [126] Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319, 324, 335 ‑ 336. See also Trustees Act s 71.

10. In summary, I do not accept Kai's argument that the trustees of Maurice's estate were not entitled to postpone the sale of Glen Iris.  But under the terms of the will the trustees were not entitled to borrow other than for the purposes permitted by the will.  The business of JG & PD Halford was not a business of Maurice and his estate.  The money borrowed by the partnership was a personal liability and Jeffrey was not entitled to indemnify himself out of trust property for his (and Pamela's) personal borrowing.

11. On the facts set out above, I am satisfied that the liabilities incurred by the defendants, and secured by the all money mortgages that were in place at the time of Iris' death, were personal liabilities.  

12. The defendants pleaded and submitted that the farming land, which was the major asset of the estate, did not lose value during the time they farmed it. That is not an answer to whether they were entitled to reimburse personal liabilities from trust property.

13. Before dealing with the defences, there is a second aspect to Kai's claim.

The rent agreement

1. Kai pleaded, and the defence admitted:

   By on or about 25 January 2016, the plaintiff and the first defendant agreed:

   35.1the amount of rent payable by the first defendant to the plaintiff in respect of the first and second defendants' use and occupation in their own right of the Glen Iris Farms Properties for the period from 1 February 2015 to 31 January 2016, in the sum of $53,733.43 ('the Agreed Rent');

   35.2that the first defendant would pay the plaintiff the Agreed Rent upon settlement of the sale of the Glen Iris Farms Properties.[127]

   [127] Statement of claim [35]; defence [48].

2. Kai further pleaded that, on settlement of the sale, Jeffrey used the settlement proceeds to pay the Agreed Rent.[128]  Kai claimed that, in using the settlement proceeds to pay the Agreed Rent, Jeffrey:

   (1)used the property of the Trust to discharge a personal liability;

   (2)was in a position of conflict between his interests and the interests of the beneficiaries of the Trust as a whole; and

   (3)obtained a benefit or advantage, or caused Pamela to obtain a benefit or advantage, by use of his position as a trustee.[129]

   [128] Statement of claim [43].

   [129] Statement of claim [44], [47].

3. Kai further alleged that, by not personally paying the Agreed Rent and causing it to be paid from the net proceeds of sale, Jeffrey was in breach of an agreement between Kai and Jeffrey that Jeffrey would cause the balance of the net proceeds after payment of the mortgage debt to be paid into an interest-bearing trust account held by Pacer Legal, pending determination of their respective beneficial interests.[130]

   [130] Statement of claim [45].

4. Jeffrey admitted that the Agreed Rent was paid from the net proceeds of sale, but otherwise denied the claims in statement of claim [43] and [47].[131]

   [131] Defence [53].

5. There is no evidence about the terms of the agreement, and the court is confined to the admissions on the pleading.  In his witness statement, Kai said the agreement was confirmed in correspondence between the solicitors, but the only reference in the tendered correspondence is 'Rent payable to K P Halford' in the draft settlement statement.[132]

   [132] Exhibit 2 [123] ‑ [124]; exhibit 1.235A.

6. Despite the scant evidence, on the admitted plea, the rent was payable in respect of the defendants' use and occupation of Glen Iris in their own right.  That is not a liability incurred by Jeffrey as trustee, and he was not entitled to be indemnified from trust assets for that liability. 

7. I would uphold the claim for rent.

The defences

The pleading

1. The defendants pleaded several legal consequences from the delay between when they began farming Glen Iris in the JG & PD Halford partnership, when they entered the loan agreements in place at the time of the sale of Glen Iris, and when these proceedings were commenced.

2. First the defendants plead laches, pleading that:

   (1)with respect to the money that Iris borrowed as trustee, from 1984, there has been a delay of more than 30 years;

   (2)with respect to the money borrowed by Iris and Jeffrey, as trustees, in 2005 and 2010, there has been a delay of 11 and 6 years.[133]

   [133] Defence [37].

3. The defendants further say that there was no loss to the Trust from the decision to retain and farm Glen Iris; that it was necessary to employ a farm manager and farm labour; and that the trustees, alternatively JG & PD Halford provided funds to maintain, repair, renovate, keep up, and farm Glen Iris.  The defendants further say that the value of Glen Iris in the bank debt increased between 1984 and 2016 and that the bank debt was applied to the maintenance, repair, improvements, upkeep and farming of Glen Iris.[134]

   [134] Defence [26] - [36].

4. The defendants pleaded that they were prejudiced by Kai's 'late call to equity in respect of such receipts' and had it been made earlier they would not have continued to farm Glen Iris and used the borrowed money to do so.[135]

   [135] Defence [37(c)].

5. Further and alternatively, the defendants pleaded that claims for funds received more than six years before the commencement of this action are statute barred.[136]

   [136] Defence [39].

6. Finally, as an alternative, the defendants pleaded that between 1966 and 2016, Kai encouraged or induced them to assume that he did not object to Glen Iris being used to secure the borrowing of funds used to farm it.  They pleaded that they acted to their detriment in relying on that assumption and that it would be unconscionable for Kai to now resile or depart from that assumption.[137]

Limitation Act 2005 (WA)

[137] Defence [40] ‑ [41].

1. I will deal first with the limitation point.

2. The defendants pleaded a statutory bar, based on Kai's plea that the relevant receipt or receipts of funds by the defendants was from in or about 2 August 2005 to a date subsequent to 30 April 2010.[138]

   [138] Statement of claim [27].

3. If the relevant time was the dates funds were disbursed, $2 million was disbursed into the defendants' Agrione Account on 11 May 2010.[139]  That was more than six years before the writ.  But the defendants' borrowing was restructured in May 2014, and Bankwest disbursed $2,976,886.95 across various accounts on 25 June 2014.[140]  The action was commenced in 2016.

   [139] Exhibit 1.379.

   [140] Exhibit 1.229.

4. If the relevant date is when the funds were repaid to the bank, that is, when the defendants used trust property to discharge a personal liability, that is clearly within the limitation period.

5. I am not satisfied that there is a limitation issue.

Estoppel

1. The defence of estoppel is based upon the plea that Kai encouraged or induced the defendants to assume that he did not object to Glen Iris being used to secure the borrowing of funds to farm it.[141]

   [141] Defence [40].

2. In opening submissions, the defendants addressed both estoppel by convention and estoppel by acquiescence.  The pleading, however, is not consistent with estoppel by convention - that is, an estoppel based on assumptions of fact adopted by both parties as the basis of their relationship.[142]  Further, the evidence does not support a finding of any such shared assumption.

   [142] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226, 244. See also Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd [2008] WASCA 119 [164]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 [573] ‑ [574].

3. The defendants do not allege any direct representation to found a promissory estoppel.  They rely on estoppel based on the failure of Kai to inquire as to the preservation of trust assets or to request an account during the 34 years from when he left Glen Iris to the death of his mother.  The defendants submitted that, during that period, Kai made no inquiries and took no steps despite his concern (expressed in the letter to Mr Ball) that Jeffrey would 'hock the property'.[143]  The defendants submitted that the trustees were entitled to assume, and did assume, that Kai was content to leave management of the trust assets to them.[144]

The evidence

[143] ts 119.

[144] Defendants' written opening [155].

1. In his first witness statement, Jeffrey stated that:[145]

   (1)If Iris, Kai or anyone else had said they had an issue with the way he farmed Glen Iris, he would have seen a lawyer.

   (2)He was unaware there were any problems with his farming Glen Iris.

   (3)When Kai left there was a mortgage debt and Kai was aware of it.

   (4)Iris was aware of the change of trading name, and Jeffrey did not think it was significant (he does not comment on the exclusion of Iris from the partnership).

   (5)Before the first mediation he had not heard from Kai since the day Kai left Esperance, except for the letters Kai exchanged with an accountant in the 1980s.

   [145] Exhibit 3.1 [471] ‑ [483].

2. Jeffrey stated that if he had known Kai had a problem he would not have borrowed funds and would not have continued to farm Glen Iris.[146]  He said that, due to the delay, he has had to refinance 'to continue to pay our legal fees', and any judgment including interest and costs would not leave him much money to live.[147]

   [146] Exhibit 3.1 [484].

   [147] Exhibit 3.1 [485] ‑ [486].

3. In his second witness statement, Jeffrey referred to having heard nothing from Kai and said that, as far as he was aware, when Iris died he would receive two thirds and Kai would receive one third of the balance of the trust assets.  Jeffrey repeated that if Kai had said he had a problem, he would not have carried on farming Glen Iris. [148]

   [148] Exhibit 3.2 [37] ‑ [46].

4. Kai was aware that Jeffrey was farming Glen Iris.  In 1984, he knew that Jeffrey was intending to buy out Ewart's interest in Glen Iris.  Kai knew, or assumed, that Glen Iris was being used to secure borrowings.  In 2015 or 2016, when he learned of the amount secured against Glen Iris, he was shocked at the amount of debt, not at the fact that there was secured debt.[149] 

   [149] Exhibit 2 [126].

5. The last financial statements Kai had seen for Glen Iris, before these proceedings, were in 1980.[150]  After he left in 1980, he did not have anything further to do with his immediate family, even when Iris died.  Kai was not told that Glen Iris was being sold until December 2015, after the contracts had been signed.[151]

   [150] Exhibit 2 [98] ‑ [99].

   [151] Exhibit 2 [121].

6. Kai took no steps to obtain information.  Kai's conduct was the result of two factors: first, his belief that he had no say in the properties until after Iris died; second, his belief that the borrowing could not be against his 'share'.

The principles

1. The elements of an equitable estoppel were stated by Brennan J in Waltons Stores (Interstate) Limited v Maher.[152]  Relevantly, the defendants must prove that they held the assumption or expectation on which they rely; and that Kai induced them to adopt it and, knowing of their reliance on it, failed to deny the correctness of the assumption. 

   [152] Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, 428 ‑ 429.

2. In Grundt v Great Boulder Proprietary Gold Mines Ltd, Dixon J said:

   The justice of an estoppel is not established by the fact in itself that a state of affairs has been assumed as the basis of action or inaction and that a departure from the assumption would turn the action or inaction into a detrimental change of position.   It depends also on the manner in which the assumption has been occasioned or induced.  Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it.[153]

Consideration

[153] Grundt v Great Boulder Proprietary Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, 675; (emphasis added); see also Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507, 547.

1. I am not satisfied that the defendants have established an estoppel as pleaded.

2. First, Jeffrey's evidence falls short of demonstrating that he made or held any relevant assumption or expectation.  He said, in effect, that he was unaware that anyone had any problem with how he farmed Glen Iris, and if anyone had told him that they had an issue he would have seen a lawyer, or asked Iris to obtain legal advice.[154]  He relied more on Iris' knowledge and agreement than anything Kai said or did.[155]  It is more likely that he did not turn his mind to the effect of what he was doing on the rights of either the life tenant or those entitled on her death.

   [154] Exhibit 3.1 [471] ‑ [472]; exhibit 3.2 [37] - [39].

   [155] Exhibit 3.1 [477] - [480].

3. Second, if Jeffrey's state of mind can be properly described as an assumption, the evidence does not show that it was as a result of anything said or done by Kai.  

4. The defendants allege no direct representation by Kai. There was no direct contact between Jeffrey and Kai from about 1982.  Kai's letter to Mr Ball in April 1984 shows that Kai knew or suspected that Jeffrey was borrowing against Glen Iris.[156]  But Jeffrey was not aware of that letter.

   [156] Exhibit 1.139.

5. The defendants rely on the fact that Kai did not indicate that he 'had an issue' with what Jeffrey was doing.  That must be considered in the context of Kai's knowledge when he left in 1980 and his complete estrangement from his family.  Kai's conduct could reasonably have led the defendants to assume that he knew that Glen Iris continued to be farmed, and that they were farming it.  It is not a sufficient basis for Jeffrey to assume that Kai did not object to Glen Iris being used to secure personal borrowings.

6. Third, Jeffrey does not assert that he believed he was the beneficial owner of Glen Iris and could deal with it as his own.  He does not deny that he knew of Kai's right to one third of the estate on the death of Iris.

7. Finally, the defendants must show that Kai knew that they were relying on the pleaded assumption from his failure to object.  They had no direct contact with him - apart from the limited correspondence in the 1980s.[157]  Kai's knowledge of how Glen Iris was being operated was scant.  I accept that he had a long standing distrust of Jeffrey, but that is not a substitute for knowledge of the relevant facts.  I am not satisfied that the relevant knowledge has been shown.

Laches

[157] Exhibit 3.1 [483].

1. The defence of laches calls for consideration of the delay in Kai advancing a claim, prejudice caused by that delay, and the balance of justice in granting or withholding a remedy.  The relevant evidence has been summarised in the discussion of estoppel.

2. The classic statement of principle is found in Lindsay Petroleum Company v Hurd, where Lord Selborne said:

   Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine.  Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material.  But in every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable.  Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.[158]

Delay

[158] Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221, 239 ‑ 240; see also Fysh v Page [1956] HCA 13; (1956) 96 CLR 233, 243 ‑ 244.

1. In considering the defence of laches, the first matter to consider is the delay, that is, 'the period of time beyond that within which, in ordinary expectation, the act in question should have been done'.[159]

   [159] Nowell v Palmer (1993) 32 NSWLR 574, 580.

2. First, the delay in this case is gross.  The defendants carried on the business of farming Glen Iris from about 1984.  Kai knew Jeffrey was farming the land, but for about 30 years, Kai did nothing. 

3. With regard to Kai's claim that the trustee(s) exceeded the power of postponement under the will, including for about 14 years while Kai participated in the Halford Bros partnership in farming Glen Iris, the delay is unexplained.

4. In otherwise assessing the significance of the delay, I take into account Kai's position.  He had left Esperance in 1980.  From late September 1980, he lived in Kununurra[160] ‑ about as far away as he could be while remaining in Western Australia.  He had almost no contact with his immediate family.  He did, however, have the ability to make contact and obtain information, including through his uncle.  No request for information was ever made and denied, and there is no evidence from which I would infer that a request would have been denied.

   [160] Exhibit 2 [104] ‑ [105].

5. I take into account that Kai's interest was in the remainder of the estate on the death of Iris.  He could not, during Iris' life claim his share of the estate.  But, as a beneficiary, he had an interest in enforcing the provisions of the Trust to ensure his interest was preserved.

6. The delay is not explicable by Kai being unaware that money was being borrowed for the purpose of carrying on farming operations on Glen Iris, and would normally be secured against the property.  There were mortgages in place while he was still active in the Halford Bros partnership.  In June 1981, he was told by the family accountants that there were mortgages over the land.[161]  Kai's letter to Mr Ball, dated 7 April 1984, shows that Kai was aware, or at least suspected, that Jeffrey was borrowing and potentially exposing Ewart, as a partner, to liabilities.  In 1986, Kai corresponded with the family's former accountant, who referred to the mortgages in place in 1981 and said that the farm may currently be similarly encumbered as security for partnership borrowings.[162]

   [161] Exhibit 1.131.

   [162] Exhibit 1.149.

7. Although there is no later documentary evidence, I am satisfied Kai would have known that the practice of borrowing against the farm would continue.  Kai may have been shocked by the amount of the mortgage, but he did not say he was surprised that mortgages were in place.

8. Kai also said that he did not believe that the defendants could borrow against his share.[163]  That belief (if genuinely held) was wrong in law.  The trustee held the legal interest in Glen Iris, subject to the trusts under the will, and duties imposed on the trustees (such as the duty to act impartially between the life tenant and those who took on her death).  When borrowing for a purpose authorised by the will, the trustee could encumber the whole of the legal estate as security. 

Prejudice

[163] Exhibit 2 [129]; ts 119.

1. The second issue is prejudice from the delay:  'the nature of the acts done during the interval, which might affect either party, and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy'.[164]  In Fysh v Page, Dixon CJ, Webb and Kitto JJ said:

   If a plaintiff establishes prima-facie grounds for relief the question whether he is defeated by delay must itself be governed by the kind of considerations upon which the principles of equity proceed.  If the delay means that to grant relief would place the party whose title might otherwise be voidable on equitable grounds in an unreasonable situation, or if, because of change of circumstances, it would give the party claiming relief an unjust advantage or would impose an unfair prejudice on the opposite party, these are matters which may suffice to answer the prima-facie grounds for relief.[165] 

   [164] Lindsay Petroleum Company v Hurd, 240.

   [165] Fysh v Page, 243.

2. One of the possible consequences of delay is the potential loss of evidence.  In considering an account of profits since 1980 when Kai left the farm (as in Kai's alternative claim),[166] the potential loss of evidence could be important. 

   [166] Statement of claim [41].

3. In considering Kai's primary claim, it is tempting to look at the position in 2014, when Iris died, and the level of borrowing then against the value of Glen Iris. The plaintiff points to the drawings made in the last years of the partnership, and the assets accumulated in the previous decade.  That, however, is a distorted picture.  The level of borrowing was a consequence of repeated refinance over a prolonged period.  The borrowing over that period must be assessed against the expenditure on Glen Iris from when Kai left the partnership.

4. There are other potential sources of prejudice.  Meagher Gummow and Lehane's Equity: Doctrines and Remedies (5^th ed) at [38-025], refer relevantly, to:

   (1)the impossibility of granting equitable relief on just terms; and

   (2)where a plaintiff seeks to recover profits, but has knowingly stood by while the defendant was making profits.

5. In the present case, while the defendants have profited from operating Glen Iris, they have done so at their risk, and by their labour.  It is true that the defendants profited, and were able to build up off-farm assets.  That was from a lifetime of work.  The defendants stood to lose everything should Glen Iris fail.  After 1980, Kai contributed nothing and risked nothing.

6. It is relevant, in considering the equity between Kai and the defendants, that Iris, who was the trustee and life tenant, acquiesced in the defendants operating Glen Iris.  Kai has criticised the extent to which the defendants operated Glen Iris for their own benefit, rather than for Iris.  But there is no evidence that she ever had needs that were not met.  More importantly, there is no evidence that her wishes regarding the operation of Glen Iris were not followed.

7. Having regard to the length of the delay, during which Kai did nothing to either assert his rights, or even to enquire about Glen Iris, and having regard to the nature of the enterprise in which the defendants were engaged, I am not satisfied that making the orders sought by Kai would be just. 

8. On the basis of the gross delay, I would dismiss the primary claim.

The claim against Pamela

1. None of the parties addressed the separate position of Pamela in any detail.

2. Kai pleaded that Pamela received the benefit of the repayment of the mortgage debt for which she was jointly and severally liable with Jeffrey, knowing that the net proceeds were the property of the Trust and thus that the repayment constituted a breach of trust.

3. Alternatively, Kai pleaded that the amount paid out of trust funds to discharge the mortgage debt is a liability of JG & PD Halford for which each of the defendants, in their capacity as partners, are jointly and severally liable.

4. The mortgages were given as security for facilities provided by Bankwest to the defendants, trading as JG & PD Halford.  On either party's case, the borrowing was in the ordinary course of the business of JG & PD Halford.  The discharge of the liability to the bank from the proceeds of sale of Glen Iris was a liability of the partnership for which both partners were liable.  On that basis, in my opinion, Pamela would be jointly and severally liable for the use of those funds.

Conclusion

1. Kai is entitled to one third of the net proceeds of the sale of Glen Iris, after deduction of selling costs and mortgage repayment.  Jeffrey is not entitled to deduct the Agreed Rent from the amount due to Kai.

2. Kai's claim is otherwise dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CG
Associate to the Honourable Justice Allanson

11 JUNE 2020

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION: HALFORD -v- HALFORD [No 3] [2020] WASC 207 (S)

CORAM:   ALLANSON J

HEARD:   8 SEPTEMBER 2020

DELIVERED          :   12 FEBRUARY 2021

FILE NO/S:   CIV 2106 of 2016

BETWEEN:   KAI PHILLIP HALFORD

Plaintiff

AND

JEFFREY GEORGE HALFORD

First Defendant

PAMELA DOROTHY HALFORD

Second Defendant

EWART EVAN HALFORD

Third Defendant

Catchwords:

Costs - Where defendants successful at trial - Whether defendants should recover their costs or be liable for costs of plaintiff - Turns on own facts

Costs - Application for special costs order - Turns on own facts

Legislation:

Nil

Result:

Plaintiff to pay costs of defendants
Special costs order awarded

Category:    B

Representation:

Counsel:

Plaintiff	:	M L Bennett & F R Sharbanee
First Defendant	:	P MacMillan
Second Defendant	:	P MacMillan
Third Defendant	:	No appearance

Solicitors:

Plaintiff	:	Bennett + Co
First Defendant	:	Pacer Legal
Second Defendant	:	Pacer Legal
Third Defendant	:	No appearance

Case(s) referred to in decision(s):

Frigger v Professional Services of Australia Pty Ltd (No 2) [2011] WASCA 103 (S)

Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

ALLANSON J:

Introduction

1. Following judgment in this action, the parties sought to make submissions on the issue of the costs of the action, including special costs orders.  Contested costs applications are sometimes decried as wasteful satellite litigation.  But given the enormous burden of legal costs on the parties, they are often a necessary element of dispute resolution in the courts.  

2. By chamber summons filed 16 July 2020, the defendants[167] sought orders that the plaintiff pay the defendants' costs of the action, including reserved costs.  The defendants further sought a special costs order for the specified items to be taxed or assessed without regard to the scale limits imposed under the relevant legal costs determinations.[168]

   [167] I will refer to the first and second defendants collectively as the defendants.  The third defendant did not participate in the proceedings.

   [168] The costs determinations were amended during the course of the action.

3. In contrast, the plaintiff sought an order that the defendants pay his costs of the proceedings, including any reserved costs, to be assessed if not agreed.

4. The costs of and incidental to all proceedings in court are in the discretion of the court:  Supreme Court Act 1935 (WA) s 37(1). The discretion must be exercised judicially, but it is otherwise unconfined: see, for example Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [21] ‑ [22], [134].

5. That the parties can advance such contrary positions, after judgment in the action in which the plaintiff's claim was largely dismissed, might suggest that the discretion to award costs is not guided by well‑established principles.  But that is far from the case.  The discretion as to costs was explained by the court in Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 [24] ‑ [25]:

   It is well established that the power to award costs is a discretionary power, but that it is a power that must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation[.  While the width of the discretion 'cannot be narrowed by a legal rule devised by the court to control its exercise', the formulation of principles according to which the discretion should be exercised does not 'constitute a fetter upon the discretion not intended by the legislature'.  Rather, the formulation of principles to guide the exercise of the discretion avoids arbitrariness and serves the need for consistency that is an essential aspect of the exercise of judicial power. 

   A guiding principle by reference to which the discretion is to be exercised ‑ indeed, 'one of the most, if not the most, important' principle ‑ is that the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party.  The application of that principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome.  (Citations omitted)

6. The general rules as to costs are set out in O 66 r 1 of the Rules of the Supreme Court 1971 (WA). Reference is often made to O 66 r 1(1), which provides that, without limiting the general discretion conferred on the Court, the Court will generally order that the successful party to any action or matter recover his costs.

7. Whether a party is successful is to be determined by the reality of the circumstances, by which party has succeeded in the underlying real contest, and is not always revealed merely by reading the orders of the court:  Frigger v Professional Services of Australia Pty Ltd (No 2) [2011] WASCA 103 (S) [12]; Oshlack v Richmond River Council [70].

8. Order 66 r 1(2) and r 1(3) provide two exceptions to the general rule:

   (2)If the Court is of opinion that the conduct of a party either before or after the commencement of the litigation or that a claim by a party for an unreasonably excessive amount has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part.

   (3)Where a party though generally successful in an action has, by the introduction of some issue or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues.

9. While a successful party might be deprived of all or part of their costs, or even ordered to pay all or part of the costs of the other side, there should be some reason for departing from the general rule that a successful party should be compensated for the costs they have incurred.  

The decision

1. After trial, the formal order of the court was:

   1.A declaration that the plaintiff is entitled to one third of the net proceeds of the sale of Glen Iris, after deduction of selling costs and mortgage repayment together with the interest paid on those funds in the trust account in which the funds have been held.

   2.A declaration that the first defendant is entitled to two thirds of the net proceeds of the sale of Glen Iris, after deduction of selling costs and mortgage repayment together with the interest paid on those funds in the trust account in which the funds have been held.

   3.The plaintiff's claim be otherwise dismissed.

2. The plaintiff had sought orders against the first defendant that he was entitled to the whole of the proceeds of the sale of Glen Iris, after deduction of selling costs. 

3. The plaintiff had also sought, against both defendants, equitable compensation and the taking of an account with respect to the failure by the first defendant to keep proper accounts and records, and to account for profits obtained from the use of the Glen Iris Farms since 14 June 1984.

4. The defendants did not contest the plaintiff's claim for one third of the net proceeds of the sale of Glen Iris.

The plaintiff's contentions

1. The plaintiff contended that, in reality, he was successful in relation to his claim for one third of the proceeds of the sale of the trust assets the subject of these proceedings, and for the rent payable on the trust asset.  The effect of the judgment was to require the defendants to pay those amounts, which were substantial, and which were being held in the defendants' solicitor's trust account by agreement.

1. The plaintiff also submitted that the Court accepted his claim that the first defendant acted in breach of trust in farming Glen Iris, borrowing against the land for that purpose, and in using trust funds to repay his personal debt.

2. The plaintiff submitted that the conduct of the first defendant, in requiring the plaintiff to enter into a deed of settlement and release as a condition of releasing the plaintiff's funds was, in effect, to hold his funds hostage until he had released the first defendant from any further claims.

The defendants' contentions

1. The defendants submitted that, on the findings made, the defendants did not act improperly in seeking a release from the plaintiff.

2. Further, it was by agreement between the parties that the balance of net proceeds of the sale of Glen Iris were held in an interest-bearing trust account pending determination of the parties beneficial interests.  They did not, at any stage of the proceedings, deny the plaintiff's entitlement to one third.

3. The defendants succeeded on the defence of laches.  While they did not succeed on the other defences they raised, those defences and the evidence relevant to them, did not add to the cost in a significant and discernible way.

4. While the court was critical of some aspects of the defendants' conduct, including the first defendant's advancement of his interests over a long period in preference to his obligations as a trustee, and conduct in relation to tax minimisation, none of those matters were public wrongs so as to disentitle the defendants' from a costs order.  In particular, none of that conduct was of such a nature as to 'goad' the plaintiff into litigation which he would not otherwise have embarked on.

5. The defendants submit that the overall thrust of the judgment was that, notwithstanding the first defendant's breaches of trust, in all the circumstances it was just that the plaintiff be denied relief.

Consideration

1. I do not accept the plaintiff's contentions regarding the holding of his one third share in the solicitor's trust account pending the resolution of the proceedings.  The plaintiff pleaded in [45] of the statement of claim:

   Prior to settlement of the Contracts for Sale, it was agreed between the plaintiff and the first defendant that the first defendant would cause the balance of the net proceeds after payment of the mortgage debt to be paid into an interest-bearing trust account held by the first defendant's solicitors … pending determination of the plaintiff's and the first defendant's respective beneficial interests in those monies.

2. The conduct of the first defendant in requiring the plaintiff to enter into a deed of settlement and release, and in making the agreement pleaded in [45], was neither pleaded nor identified in the statement of issues as a breach of trust. On the plaintiff's pleaded case, the retention of the money until determination was not disentitling conduct. 

3. The amount for which the plaintiff was successful is irrelevant to the issue of costs.  The defendants did not deny that the plaintiff was entitled to a third of the net amount.  

4. I also accept the defendants' submission that, while I made findings critical of their conduct, those findings do not relate to their conduct of the litigation or to conduct which 'goaded' the plaintiff into bringing the action.  The defendants' conduct became relevant, in large measure, because of the extent to which the plaintiff chose to attack their credibility in cross‑examination, despite the limited significance of credibility as an issue at trial. 

5. Much of the time at trial, and much of the extensive documentary evidence, was directed to the conduct of the defendants from about 1980 when the plaintiff left the farm partnership.  To the extent that evidence was relevant, it went also to issue on which I found in favour of the defendants.  The facts relating to the breach of trust involved the whole of the conduct of the defendants in farming Glen Iris since 1984 and were directly relevant to the justice of holding the defendants liable when the plaintiff had stood by for over 30 years without query or complaint.  

6. The plaintiff was successful on many issues.  But he failed on the issue of whether the defendants were liable to him for the whole of the proceeds of sale of Glen Iris.  The issues of limitation and estoppel raised by the defendants overlapped so extensively with the defence of laches that, in my assessment, their effect on the length and complexity of the trial was not significant.

7. In my opinion, it is not a case to order the defendants to pay the costs of the issues on which they failed.  I doubt those costs could be disentangled from the costs to which they are entitled.

Special costs orders

1. Having managed this matter to trial over four years from when the writ was filed, and having conducted the trial, I am of the opinion that the amount of costs allowable in respect of a matter under the relevant costs determinations is inadequate ‑ that is, there is a fairly arguable case that the applicant's costs may tax at an amount which is greater than the limit that would be imposed by the relevant cost determination.  In my opinion, that inadequacy arises because of the complexity and importance of the case.  The action concerned the conduct of the defendants (and to a much lesser extent the plaintiff) over a very long period.  The plaintiff put in issue not only the defendants' conduct in the operation of Glen Iris farm, but their personal conduct over that period.  The hourly limits in the determination could be shown to fall short of the time reasonably required.  That is a question for the taxing officer.

2. I am not, however, satisfied that the defendants have shown any basis for lifting the rates of the practitioners who acted. 

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MG
Associate to the Honourable Justice Allanson

12 FEBRUARY 2021