Harpur v Levy
[2007] VSCA 128
•22 June 2007
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 6796 of 1999
| PAUL HENRY HARPUR & ORS |
| v |
| FRANK ERNEST WILLIAM LEVY (& ORS IN THEIR CAPACITY AS THE EXECUTORS OF THE ESTATE OF PETER THOMAS EVAN RAND DECEASED) & ANOR |
---
JUDGES: | MAXWELL P, NEAVE JA and REDLICH JA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 26 JUNE 2006 | |
DATE OF JUDGMENT: | 22 JUNE 2007 | |
MEDIUM NEUTRAL CITATION: | [2007] VSCA 128 | |
---
TRUSTS – Construction of trust deed – Whether the deed expressed an intention to create a trust in the future, or whether it was an immediate declaration of trust with the enjoyment of the beneficial interests postponed – Clear words of deed not affected by the recitals – Appeal dismissed.
PRACTICE AND PROCEDURE – Summary judgment - Test for striking out a defence under Supreme Court (General Civil Procedure) Rules, r 23.01(2).
COSTS – Whether certain plaintiffs were proper parties to the proceeding so that it was appropriate to award costs against them – Appeal against costs dismissed.
---
| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr J D Merralls QC, with Mr M N Wise | Mills Oakley Lawyers |
| For the First, Second and Third Respondents | Mr A J Myers QC, with Mr R I Rosenberg | Sackville Wilks & Co |
| For the Fourth Respondent | Mr D Weinberger (Solicitor) | Nathan Kuperholz |
MAXWELL P:
Neave JA has set out the circumstances giving rise to this appeal. I gratefully adopt her Honour’s summary. For the reasons which follow, however, I have reached a different conclusion on the question of construction. I would therefore allow the appeal on the principal issue. As mine is a minority view, I say nothing about the other issues.
In my opinion, the deed was effective as an immediate declaration of trust, with the properties to be transferred in the future. I consider that the operative provisions of the deed clearly evince an intention on the part of Mr Rand that he become trustee then and there. At worst for the appellants, the operative provisions are ambiguous, and reference to the recitals – justified in a case of ambiguity – confirms that Mr Rand intended to create a trust immediately.
The search for intention
In deciding whether a trust has been created, the court of equity looks to the intent rather than the form.[1] At the same time, the “equitable partiality for intention over form” has its limits.[2] In Heartley v Nicholson, Bacon VC said:
“All such questions are, from their very nature, of difficulty, and sometimes of very great nicety. The difficulty is occasioned by the desire which the court must feel to give full effect to the intention of the party or parties to the transaction, and by the duty which the court is under of preserving unimpaired those rules which have been established and which form the law, even though they should frustrate the plain intention. The nicety often arises from the attending circumstances, because they require the closest consideration in order to arrive at a satisfactory conclusion as to what was the true intention, and as to the propriety of carrying that intention into effect.”[3] (emphasis added)
[1]A J Oakley, Parker and Mellows: The Modern Law of Trusts (7th ed, 1998) 82.
[2]R P Meagher, J D Heydon and M J Leeming, Meagher Gummow and Lehane’s Equity Doctrines and Remedies (4th ed, 2002) [3-200].
[3](1873) LR 19 Eq 233, 239 cited in Re Armstrong [1960] VR 202, 205 (Herring CJ).
In Re Armstrong, Herring CJ said:[4]
“To constitute himself a trustee it is not necessary that a person should use precise words. For, as Jessel MR pointed out in Richards v Delbridge (1874), LR 18 Eq 11 at p 14: ‘It is true he need not use the words, ‘I declare myself a trustee’, but he must do something which is equivalent to it, and use expressions which have that meaning; for, however anxious the court may be to carry out a man’s intentions, it is not at liberty to construe words otherwise than according to their proper meaning.”
[4]Ibid 205 (emphasis added).
As the Court said in Walsh Bay Developments Pty Ltd & Anor v Federal Commissioner of Taxation,[5] the test of whether a trust has been created is –
“whether in the circumstances of the case, and on the true construction of what was said and written, a sufficient intention to create a trust has been manifested.”[6]
In the present case, it is not disputed that Mr Rand intended to create a trust. What is in issue is whether he intended to create the trust immediately or intended instead that the trust should first come into existence on “the commencement day”, some weeks after the execution of the deed.
[5](1995) 130 ALR 415, 422 (Beaumont & Sackville JJ).
[6]Ibid, citing Tito v Waddell (No 2) [1977] Ch 106, 211 (Megarry VC); see also J D Heydon & M J Leeming, Jacobs’ Law of Trusts in Australia (7th ed, 2006) 56.
The “attending circumstances” require, as Bacon VC said, “the closest consideration,” as they can very significantly influence the construction given to the words used. The recent decision of the Privy Council in T Choithram International SA v Pagarani[7] is an instructive example of words being construed expansively in the light of surrounding circumstances. At what was described as “an elaborate ceremony”, Mr Choithram established a trust foundation and appointed himself to be a trustee. He then said words to the effect “I now give all my wealth to the trust”.
[7][2001] 1 WLR 1.
As their Lordships noted, the words used were “apparently words of outright gift”, not a declaration of trust. If it was a gift, it was incomplete, because Mr Choithram had not vested the gifted property in all of the trustees of the foundation. Their Lordships held, however, that the words used had been effective, in the circumstances, to create a trust:
“Although equity will not aid a volunteer, it will not strive officiously to defeat a gift. ... [T]here is no breach of the principle in Milroy v Lord if the words of [Mr Choithram] gift (ie to the Foundation) are given their only possible meaning in this context … [which is] ‘I give to the Trustees of the Foundation trust deed to be held by them on the trusts of Foundation trust deed.’ Although the words are apparently words of outright gift they are essentially words of gift on trust.
…
... [Mr Choithram] has, in the most solemn circumstances, declared that he is giving ... property to a trust which he himself has established and of which he has appointed himself to be a Trustee. ... There can in principle be no distinction between the case where the donor declares himself to be sole trustee for a donee or a purpose and the case where he declares himself to be one of the Trustees for that donee or purpose. In both cases his conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from his gift.”[8]
[8]Ibid 11-12 (emphasis added).
The Privy Council thus interpreted words of outright gift as “words of gift on trust” which were, in turn, construed as a declaration by Mr Choithram that he (as one of the trustees of the foundation) held the gifted wealth on trust for the purposes of the foundation. Substance prevailed over form. The context supplied the meaning of the words.[9]
[9]The decision has not escaped criticism: see D J Hayton, Underhill and Hayton Law Relating to Trusts and Trustees (16th ed, 2003) 148.
The deed of 27 August 1997
The critical clause of the deed is clause 1, which provides as follows:
“1.The trustee is the owner of the property and assets specified in Schedule A and he now irrevocably declares that as from the commencement day he holds the property and assets specified in Schedule A for the beneficiary specified opposite each of those specified properties and assets.”
Stripped to its essentials, and expressed in the first person, the declaration was in these terms:
“I now irrevocably declare that as from the commencement day I hold the property and assets ... for the beneficiary.”
The declaration comprises two expressions by Mr Rand describing his own actions. Each of them is a statement in the present tense. Thus:
·“I now irrevocably declare ...”; and
·“I hold the property and assets ... for the beneficiary.”
Clause 1 must, of course, be read as a whole – and in its context. The words “as from the commencement day” apparently qualify the statement “I hold”. It was those words which led the judge to conclude that clause 1 expressed an intention to create a trust in the future ie “as from the commencement day”. Neave JA has come to the same conclusion. For reasons which follow, I respectfully disagree.
Other operative clauses of the deed contain statements by Mr Rand describing present action on his part, and one describing intended future action. Thus:
·“Where a property is subject to a mortgage ... the trustee from the commencement day holds the property subject to the mortgage” (clause 2);
·“From the commencement day the trustee... hereby authorises his attorney ...” (clause 4).
By contrast, clause 3 states:
“From the commencement day the trustee will ... transfer the property ...”
The use of a different tense in clause 3 seems to me to be significant. This kind of differentiation – between present and future – is a commonplace in ordinary speech, and is usually deliberate. Where Mr Rand contemplated that something would occur in the future – namely, the transfer of the properties – he used the future tense – “I will transfer ...”. It is a reasonable assumption, in my view, that if Mr Rand’s true intention had been that the creation of the trust itself would also occur in the future, he would have used the future tense (“I will hold ...”) and not the present tense (“I hold”).
Had it been his intent that the trust was to be created in the future, it would have been particularly important to make this clear, given that clause 1 was expressed as a present declaration. The phrase “now irrevocably declares” is doubly emphatic. Mr Rand was making his declaration then and there, by the execution of the deed, and it was a declaration which (he intended) would not and could not be undone. If, notwithstanding that it was an immediately operative declaration, Mr Rand had intended the creation of the trust to be deferred, he would surely have said “I will hold”, not “I hold”.
There is a vital difference between the words actually used –
“now irrevocably declares that as from the commencement day he holds the property and assets ...”,
and the interpretation which the judge placed on the words, and which the respondents seek to uphold, namely –
“now irrevocably declares that as from the commencement day he will hold the property and assets ...”
The latter reading – involving a change of tense – could only be justified, in my view, if the text – and the surrounding circumstances – showed it to be “the only possible meaning in this context.”[10]
[10]T Choithram International SA v Pagarani [2001] 1 WLR 1, 11.
Counsel for the respondents conceded in argument that the words “he holds” in clause 1 (and in clause 2) appeared to signify an intention to create a present trust. He submitted, however, that the words were governed by the reference to the commencement date, and that recital 13 exposed a misunderstanding by the drafter of the deed, and by Mr Rand himself, of the principles of trusts. Clause 1 reflected, so counsel for the respondents argued, an erroneous belief that a trust could effectually be created by a promise to create the trust in the future. I turn therefore to the recitals.
Reference to the recitals
As Neave JA has noted, the appeal was conducted on both sides on the basis that recourse to the recitals was permissible in order to elucidate Mr Rand’s intention. As her Honour has pointed out, however, and as counsel for the appellants conceded, authority establishes that recourse to the recitals is permissible only if there is ambiguity in the operative clauses.
As there is ambiguity in the present case, it is unnecessary to consider whether the recitals might not be examinable even in the absence of ambiguity, given equity’s willingness to examine surrounding circumstances in order to ascertain what was intended.[11] In the present case, as Neave JA has explained, the “recitals” are expressed as declarations by Mr Rand of the circumstances in which he came to make the deed. These circumstances both clarify, and explain, his intention to create the trust. (Moreover, as statements made in a document by a person now deceased, they would ordinarily be admissible under s 55(1)(a) and (5)(a) of the Evidence Act 1958 (Vic) to prove those circumstances.)
[11]See, for example, Kauter v Hilton (1953) 90 CLR 86, 100 (Dixon CJ, Williams and Fullagar JJ); Tito v Waddell (No 2) [1977] Ch 106, 222 (Megarry VC).
The ambiguity in the present case is in both clauses 1 and 3. It derives from the inconsistency between the words “he holds” and the phrase “from the commencement date”. The one is in the present, the other in the future.
I now set out the relevant recitals. The first four are stated to be “declarations” by Mr Rand. For ease of comprehension, I have reformulated them as statements in the first person by Mr Rand.
“11.I have decided to take precautions against what might happen to me over the next few months and transfer certain of my assets by declaring a trust in respect of them.
12.Paul Harpur has advised me and I am fully aware that by executing this deed I will be transferring the beneficial interest in the assets ... to the trustees specified as trustees of the trusts specified under the heading beneficiaries in Schedule A.
…
13.I am fully aware that by executing this deed I am taking the assets ... outside my estate and that they will not pass under my Will even if I make a new Will after the execution of this document.
16.I am aware that by transferring these properties and assets other than through my Will the transfers will incur large sums of duty.
…
B.I hereby intend to settle the property specified in Schedule A on the beneficiary specified in Schedule A as a gift and I have executed this declaration of trust for that purpose. The P & G R Harpur Trust is a discretionary trust constituted pursuant to a Deed of Trust between Kai Tak Pty Ltd as trustee and Kenneth Walter Tunbridge as settlor.
C.I have this day been appointed trustee of the P & G R Harpur Trust and I am aware that I will subsequently be replaced by Kai Tak Pty Ltd.”[12]
[12]Emphasis added.
In my view, these recitals make unambiguously clear that Mr Rand intended to create the trust then and there, by executing the deed. Far from exposing any misunderstanding of trust law, recitals 12 and 13 reflect an appreciation that Mr Rand could, by declaration of trust, create a trust immediately. He expressly acknowledged that the execution of the deed would vest the beneficial interest in the beneficiary. That act would “take the assets ... outside [his] estate”, and prevent them being caught by any will he might make – or be prevailed on to make – at any time after the execution of the deed. The recitals confirm the immediacy, urgency and firmness of purpose conveyed by the words “now irrevocably declares” in clause 1.
How then, to explain, the phrase in clause 1 “as from the commencement date”? I am inclined to think that references to the commencement date were regarded by Mr Rand as simply matters of machinery, or implementation. He clearly did not intend those words to detract in any way from the immediate creation of a trust. When Mr Rand declared in clause 1 “I hold for the beneficiary”, he meant what he said.
If – contrary to my view – there were any remaining uncertainty about clause 1, I would not hesitate to apply the maxim verba ita sunt intelligenda ut res magis valeat quam pereat. As Underhill and Hayton have said,[13] the maxim may be applied –
“where the donor’s intentions are unclear ..., in order to give effect to the general intention of the donor to benefit the donee.”[14]
[13]Hayton, above n 10, 146.
[14]See, for example, in Re Baden’s Deed Trusts [1969] 2 Ch 388, 399-400 (Harman LJ), 402 (Karminski LJ).
In the present case, Mr Rand’s “general intention” to benefit the beneficiaries of the P & G R Harpur Trust – in particular, his godson Guy Harpur – is unmistakable. The interpretation which I prefer gives effect to this intention.
NEAVE JA:
Background
Peter Thomas Evan Rand, a very wealthy man, died on 7 October 1997, after a long illness. This case concerns the disposition of his extensive property holdings.
In September 1997, about a month before Mr Rand died, he executed a will appointing his solicitor, Mr Levy, and two other executors. About a month after his
death, the solicitor for Mr and Mrs Harpur, the first and second defendants, sent the executors a copy of a deed of trust executed in August 1997, which appeared to dispose of almost all of Mr Rand’s property. The Harpurs claimed that Mr Rand had executed the deed to avoid pressure which was being brought to bear on him by his partner, Mr Acquilina, about the contents of his will. Mr Harpur said that Mr Rand had given him the original deed on the day it was executed, and that Mr Harpur had handed it to his accountant the following day, but that the original was later stolen from the accountant’s car and has never been recovered.
Under the deed Mr Rand purported to declare himself trustee of his property for the beneficiaries of the P & G R Harpur Trust, a discretionary trust established on the same day as the deed was executed. Kai Tak Pty Ltd, the third defendant, was the trustee of that trust. Mr and Mrs Harpur were the directors of Kai Tak Pty Ltd.
Mrs Harpur and the Harpurs’ son, Guy, are the beneficiaries of the P & G R Harpur Trust and Mrs Harpur is the appointor. If the trust was effectively constituted on 27 August 1997, Mr Rand retained little or no property to pass to the beneficiaries under his will. Apart from provisions giving Mr and Mrs Harpur the right to occupy a Sorrento property known as “The Sisters” for a limited period and providing for a payment out of the residuary estate to Guy Harpur, members of the Harpur family were not named as beneficiaries in Mr Rand’s will.
Mr Rand’s executors commenced proceedings against Mr and Mrs Harpur and Kai Tak Pty Ltd, claiming that the deed of trust was invalid because it was not authentic. Alternatively they contended that even if the deceased did execute the deed, he was not acting freely and independently of the Harpurs, because his judgment was impaired by his physical and mental condition. Kai Tak Pty Ltd later obtained leave to file and serve a counterclaim asserting that the declaration of trust was valid and seeking orders requiring the executors to hand over the relevant property to the trustee. Mr Acquilina was joined as a defendant to the counterclaim. In April 2003 Master Evans directed that the proceeding on the counterclaim should be stayed until the hearing and determination of the plaintiffs’ claim.
Mr Levy and the other executors sought a judgment under r 23.01(2) of the Supreme Court (Civil Procedure) Rules, on the basis that the defence to the claim brought by the executors was bad in law. They contended that, even if the deed were validly executed, the declaration of trust was ineffective on its face. This application succeeded in the court below. Mr Acquilina did not actively participate in those proceedings and made an undertaking to abide by any orders which might be made. The Harpurs and Kai Tak Pty Ltd now appeal against that judgment.
Issues
The question to be determined in this appeal is whether the judge below correctly gave summary judgment against the defendants, under r 23.01(2).[15] As I explain below, the power to strike out proceedings under this provision is exercised very cautiously. Mr Levy and the other executors must show that the defendants’ claim that the trust deed disposed of beneficial interests in Mr Rand’s property is obviously untenable or unsustainable in law.[16] If the executors’ claim succeeds and the terms of the trust deed are held not to create a binding trust, further proceedings contesting the validity of the deed will become unnecessary.
[15]The decision was made in interlocutory proceedings. Rule 23.01(2) of the Supreme Court (Civil Procedure) Rules, allows the Court to give judgment in proceedings where the defence does not disclose an answer to a claim.
[16]General Steel Industries Inc v Commissioners for Railways (NSW) (1964) 112 CLR 125.
Mr and Mrs Harpur also appeal against the costs orders made by his Honour.[17] This aspect of the appeal is discussed in more detail below. Mr Acquilina’s involvement in this appeal is limited to seeking an order that Kai Tak Pty Ltd pay his costs of the appeal.
[17]See Levy & Ors v Harpur & Ors [2004] VSC 461.
What is the test for striking out a defence under r 23.01(2)?
Mr Levy and the other executors could have initiated proceedings under r 47.04, which allows the court to order that any question in a proceeding be tried before the trial of the proceeding. Instead they chose to invoke the court’s power under r 23.01(2) to give summary judgment, on the basis that the defence “does not disclose an answer” to the plaintiffs’ claim.
On one view this procedure is only “appropriate to cases which are plain and obvious, so that any master or judge can say at once that the statement of claim [or in this case the defence] as it stands is insufficient, even if proved, to entitle the plaintiff to what he asks.”[18] According to this view this power can only be exercised in cases where the matter is beyond argument.[19] In other situations the proper procedure is for the objecting party to seek determination of the matter as a preliminary question under r 47.04.[20]
[18]Hubbuck & Sons Ltd v Wilkinson, Heywood & Clark Ltd [1899] 1 QB 86, 91 (Lindley MR).
[19]This view was expressed by Dixon J in Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 90-91. The case concerned a summons to strike out the plaintiff’s action, rather than to strike out a defence.
[20]Rule 47.04 provides for the separate trial of a preliminary question, the result of which may be that judgment is entered in accordance with r 47.05.
The alternative view is that, if there is full argument on the matter and the court comes to a clear view that the defence cannot succeed, the power should be exercised,[21] because this approach can save a party from futile and expensive proceedings.[22]
[21]This view was taken by Latham CJ in Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 84-85 where he discussed the view that the procedures should only be used in cases that were ”plain and obvious”. His Honour disagreed with that approach, finding that “If, as a result of argument, the court reaches a clear decision which could not be altered by any evidence which could be adduced at the trial, then it is proper in the interests of both parties to dismiss the action...” For a discussion of the two approaches see UFH Holdings Pty Ltd v Ord Minnett Corporate Finance Ltd And Ors (Unreported, Supreme Court of Victoria, Chernov J, 28 May 1998, 24 June 1998).
[22]Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 85 (Latham CJ). See also General Steel Industries Inc v Commissioners for Railways (NSW) (1964) 112 CLR 125, 130 (Barwick CJ), where his Honour commented that the fact that argument might be necessary to establish the futility of a claim did not preclude it from being struck out under the summary proceeding power.
Whichever view is taken on this issue, it is clear that the power to give summary judgment must be “sparingly exercised” and that the mere fact that the argument has slim prospects of success does not justify striking out a defence.[23] In UFH Holdings Pty Ltd v Ord Minnett Corporate Finance[24] Chernov J referred to both these approaches and concluded that it was necessary for a party to:
“satisfy a very high onus; they must establish that it is clear from the pleading or from extrinsic evidence that the … claim is obviously untenable or unsustainable in fact and law.” [25]
[23]General Steel Industries Inc v Commissioners for Railways (NSW) (1964) 112 CLR 125, 130 (Barwick CJ). Note that this case concerned the jurisdiction to strike out a plaintiff’s claim on the ground that it was an abuse of process. See also Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, 271 (McHugh J). This case dealt with the power to strike out a plaintiff’s claim under rule 46.18 of the South Australian Supreme Court Rules.
[24]UFH Holdings Pty Ltd v Ord Minnett Corporate Finance Ltd And Ors (Unreported, Supreme Court of Victoria, Chernov J, 28 May 1998, 24 June 1998).
[25]UFH Holdings Pty Ltd v Ord Minnett Corporate Finance Ltd And Ors (Unreported, Supreme Court of Victoria, Chernov J, 28 May 1998, 24 June 1998) 1. Note that the case was concerned with the exercise of the similar power in R 23.01(1).
Counsel for the appellants submitted that their defence “was neither so obviously untenable that it could not possibly succeed or obviously so manifestly groundless that it did not admit of argument. The judge should not have determined the issue but should have left it to trial.”
In my view the executors have satisfied the “very high onus” of showing that the claims made by the Harpurs and Kai Tak Pty Ltd were unsustainable, because the terms of the deed do not create an enforceable trust. My reasons for this view are set out below.
Did Mr Rand Declare Himself Trustee of the Property?
Ground of appeal 3(a) alleges that the learned judge below erred in finding “that the deed… constituted only a declaration of intention to transfer interests in property to or upon the trusts of the P & G R Harpur Trust… in the future.” The remainder of Ground 3 and Ground 4 state the same proposition in different ways. The appellants’ sixth ground of appeal is that “[t]he judge erred if he held or proceeded on the assumption that for the trusts declared by the Deed to be effective it was necessary for the settlor to affirm the trusts in the period between 27 August 1997 and his death.” This ground also turns on the submission that Mr Rand’s declaration of trust took effect on the date when the deed was executed, making it unnecessary to show that the settlor took steps to affirm the trust at a later date.
Both the appellants and the respondents agree that the effect of the deed depends on whether, in the words of the judge below, clause 1 of the trust deed, read in the context in which it appears, expresses the deceased’s intention “to create a trust in the future” or, on the other hand, expresses an intention to create a trust immediately “with a postponement of enjoyment by the beneficiaries”.[26]
[26]A Scott and W Fratcher, Scott on Trusts, Vol 1 (4th ed, 1987) [26].
In the former case, equity will not assist a volunteer by enforcing the intention to create a future trust.[27] In the latter case, a trust is created immediately and can be enforced by volunteer beneficiaries, although their enjoyment may be postponed. For example, if an owner declares that she holds property on trust to pay the income to herself for life and after her death to pay the capital to specified beneficiaries, those beneficiaries have an immediately enforceable interest in the property, even though they will not be entitled to the capital of the fund until the settlor dies.
[27]In their defence the Harpurs and Kai Tak denied the alleged lack of consideration. Harper J held that if they wished to argue that consideration had been given they carried the evidential burden of proving it, see Levy & Ors v Harpur & Ors [2004] VSC 241, [20]-[22]. This aspect of his Honour’s judgment was not challenged on appeal.
The terms of the deed
The deed contains four recitals, which are said to explain the background to the execution of the deed. Recital A, which is drafted in a colloquial rather than a legal manner, sets out the circumstances in which the deed is made. It refers to Mr Rand’s very close relationship with the Harpur family (“he loves Pamela and Guy Harper greatly”) and speaks disparagingly of his own long term friend and partner, Michael Acquilino. It expresses Mr Rand’s concern about being “pressured and bullied into making a Will in terms he does not wish to make” and says that Michael Acquilino has threatened to leave him if he does not make greater provision for Michael. It says that Mr Harpur has asked Mr Rand to speak to an independent solicitor of his choice, that he has refused to do so, and that he feels unable to discuss the matter with Mr Levy, his solicitor, “as he has concerns about him keeping the information confidential from Michael Acquilino or [another friend] Deborah Williams.”
Paragraphs 12 and 13 of Recital A provide that:
“12.Paul Harpur has advised [Mr Rand] and he is fully aware that by executing this deed he will be transferring the beneficial interest in the assets specified in Schedule A to this deed to the trustees specified as trustees of the trusts specified under the heading beneficiaries in Schedule A.
13.He is fully aware that by executing this deed he is taking the assets in Schedule A outside his estate and they will not pass under his Will even if he makes a new Will after the execution of this document.”
Recital B says that the trustee (the deceased):
“hereby intends to settle the property specified in Schedule A on the beneficiary specified in Schedule A as a gift and has executed this declaration of trust for that purpose. The P & G R Harpur Trust is a discretionary trust constituted pursuant to a Deed of Trust between Kai Tak Pty. Ltd. as trustee and Kenneth Walter Tunbridge as settlor”.
Recital C records his understanding of the nature of the discretionary trust and notes that Guy Harpur is the specified beneficiary and that Mrs Harpur is the appointor.
The relevant operative clauses of the deed are as follows:
“NOW THIS DEED WITNESSES:
1.The trustee is the owner of the property and assets specified in Schedule A and he now irrevocably declares that as from the commencement day he holds the property and assets specified in Schedule A for the beneficiary specified opposite each of those specified properties and assets.
2.Where a property is subject to a mortgage as specified in Schedule A the trustee from the commencement day holds the property subject to the mortgage for the beneficiary specified opposite the property in Schedule A.
3.From the commencement day the trustee will, at the request of a beneficiary specified in Schedule A, transfer the property specified in Schedule A opposite the name of the beneficiary to the beneficiary and will execute all documents including transfers of land and all things necessary for that purpose.
4.From the commencement day the trustee, without limiting the generality of anything contained in his power of attorney dated 3 June 1997, hereby authorises his attorney Paul Henry Harpur to do all things necessary including the execution of transfers of the property and assets specified in Schedule A to vest such property and assets or any item or part thereof in the beneficiary specified opposite such property in Schedule A.
5.The commencement date of this deed shall be the 1st October, 1997.”
The appellants’ case
Counsel for the appellants submitted that the deed, as a whole, “employed unambiguous language objectively demonstrating an intention to create a present trust”.
He said that this interpretation of the effect of the deed was supported by:
·use of the words “now irrevocably declares” and “he holds” in clause 1 of the deed; and
·the recitals to the deed and in particular Recital A, which showed that Mr Rand intended to create a trust which would operate when the deed of trust was executed.
Both the recitals and clause 1 were said to show that, when Mr Rand declared himself trustee in August 1997, he intended to immediately hold the property in the Schedule for the beneficiaries of the P & G R Harpur discretionary trust, although their enjoyment of the right to share in distributions under the discretionary trust was postponed until the commencement date of the deed.
Counsel for the appellants relied on a number of cases to support his submission that the deed created an immediately enforceable trust. He equated the facts of this case with the facts of Re Armstrong.[28] In that case Armstrong deposited two amounts with a bank for 24 months. He told the bank manager that the principal amount was to go to his sons on the maturity of the investments following his death, but that the interest was to be paid to him during his life. Deposit receipts issued by the bank acknowledged the payments as “George Armstrong in re William Armstrong” (William was one of his sons) and “George Armstrong in re Bernard Armstrong” (Bernard was another son). Herring CJ held that Armstrong had constituted himself a trustee of the chose in action represented by the deposits, on terms entitling him to interest of the trust fund for his life, with his sons having an interest in remainder in the capital.
[28][1960] VR 202.
Along similar lines, in Kauter v Hilton[29] it was held there had been an effective declaration of trust of monies deposited in a bank account in the name of a man who had handed the bank passbook to the beneficiary and said that he intended to create an immediate trust in favour of that beneficiary.
[29](1953) 90 CLR 86.
Counsel for the appellants also referred the Court to the recent Privy Council decision of T Choithram International SA v Pagarani.[30] The issue in that case was whether, before he died, Mr Choithram had made an effective gift to the trustees of a philanthropic foundation, which was to hold the property for the benefit of various charitable trusts. The deceased executed a trust deed establishing a foundation under which he was to be one of six trustees. Immediately afterwards he stated orally that he gave all his wealth to the trusts and told the company accountant, Mr Param, that Mr Param should transfer credit balances in Mr Choithram’s four companies to the foundation.
[30][2001] 1 WLR 1 (“Choithram”). This was an appeal from a decision of the Court of Appeal of the British Virgin Islands.
At directors’ meetings of the four companies held on the same day, resolutions were passed acknowledging that the trustees of the foundation were “henceforth the holders of the shares and assets in the company.” Mr Param altered entries in the books of one of Mr Choithram’s companies substituting the foundation for Mr Choithram, as a creditor, but the deceased man did not execute share transfers or formal assignments or sign any declaration of trust.
Although Mr Choithram did not vest his property in all of the trustees of the foundation prior to his death, the Privy Council held that Mr Choithram had an intention to make an immediate and unconditional gift to the foundation and that he had validly declared himself trustee of that property. It was held that no distinction should be drawn between the situation where a person declares him or herself a sole trustee and the situation where that person declares him or herself one of the trustees for that purpose.[31] Lord Browne-Wilkinson, delivering the judgment of their Lordships, said:
“In both cases his conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from that gift.” [32]
[31]Ibid 12.
[32]Ibid.
Counsel for the appellants submitted that, in the case before us, Mr Rand had also made a solemn declaration which was binding on his conscience, so that the terms of the trust were enforceable against him from the time the deed was executed.
Counsel for the respondents submitted that the cases relied upon by the appellants were simply examples of situations in which the court was satisfied that the alleged trustee had a clear intention to create a trust which would operate
immediately. In Re Armstrong[33] and Kauter v Hilton,[34] this was clear from the oral statements made by the alleged trustee contemporaneously with the making of the deposits. Similarly, the trust was binding in the Choithram case because Mr Choithram intended “to make an immediate, unconditional gift to the foundation” which was acknowledged and accepted by the other trustees.[35]
[33][1960] VR 202.
[34](1953) 90 CLR 806.
[35][2001] 1 WLR 1, 12.
Conclusion
The authorities cited by the appellants and the respondents do little more than re-state the fundamental proposition that if a person manifests an immediate intention to declare a trust, the trust is binding on its declarant, even though the enjoyment of the beneficiaries may be postponed until a future date. These cases provide examples of situations in which courts have held that a person did, or did not, have an intention to confer a beneficial interest immediately, in circumstances where the person declaring the trust clearly intended that possession of the property in which an interest may have been conferred was postponed. None of these cases assists us in determining whether the deceased intended to create a trust immediately, or only to bind himself from the commencement day of 1 October 1997.
In Choithram,[36] which was relied upon by the appellants, Mr Choithram had a clear and unconditional intention to transfer his shares to the charitable foundation. The decision has been criticised by some academic commentators because the Privy Council treated an imperfect transfer of property to trustees as a declaration of trust, despite the established principle that an imperfect gift cannot be saved in this way.[37] That is not the question which arises here. Mr Rand did not purport to create a trust by transferring his property to the trustees. Rather, he declared that he would hold the property in trust “from the commencement date.” The question which must be resolved is whether the words used in the trust deed were effective to dispose of an interest to the beneficiaries of the P & G R Harpur Trust.
[36][2001] 1 WLR 1.
[37]Hayton, above n 10, 148. Hayton suggests that the explanation is that the declaration of trust was perfected by a later confirmation.
Where the words of a deed are ambiguous, an exception to the parol evidence rule allows admission of extrinsic evidence to clarify the intention of the person executing it.[38] In the hearing before the judge below, however, counsel for the appellants said:
“My learned friend appears to be addressing argument exclusively on the verbiage used in the deed. With respect we are happy to do that.”
[38]Lutheran Church of Australia v Farmers Cooperative Executors & Trustees (1970) 121 CLR 628; Boranga v Flintoff (1997) 19 WAR 1.
Consistently with this concession, on the hearing of the appeal counsel for both appellants and respondents again relied on the words of the deed, including the recitals, to support the construction for which they contended.
Despite the use of the words “irrevocably declares” and “holds” in clause 1, I am not satisfied, on the balance of probabilities, that clause 1 expresses an intention to create an immediately binding trust. As counsel for the respondents submitted, these words must be read in the context of the remainder of clause 1. In the words of Lord Hoffman in R v Brown[39] reliance on particular parts of clause 1 is an example of a common fallacy:
“among lawyers, namely to treat the words of an English sentence as building blocks whose meaning cannot be affected by the rest of the sentence. … This is not the way language works. The unit of communication by means of language is the sentence and not the parts of which it is composed. The significance of individual words is affected by other words and the syntax of the whole.” [40]
[39][1996] 1 AC 543.
[40]Ibid 561.
In my view the unequivocal meaning of the clause read as a whole is that the deceased holds the property and assets specified in Schedule A on trusts which come into operation on the “commencement day” of 1 October 1997. Clauses 2 to 6 also make it clear that the trust does not operate until the commencement day. I can see no other reason why reference to “the commencement day” could be included in these provisions. There is no provision in the deed which says that Mr Rand is to be entitled to the income of the trust until the commencement day. Rather, the deed makes it clear that he retains both the legal and beneficial interest in the property until that date.
The use of the words “irrevocably declares” does not manifest a clear intention to create an immediately operative trust. The presence of these words cannot overcome a clear indication that the trust is not intended to come into effect immediately, as was the case in this trust deed. Further, a validly constituted trust can contain a power of revocation - most trust deeds contain such a power. The issue of whether a trust has been created is conceptually separate from the issue of whether it is revocable.
To purport to declare a trust, but to state that it will not come into operation until a later date, is inconsistent with an intention to relinquish the beneficial interest in the property from the date of execution of the deed. Although paragraph 13 of Recital A provides some support for the appellants’ submission that the trust was intended to come into effect immediately, the recitals cannot qualify clear references in the operative clauses to the commencement day.[41] In The Commissioner of InlandRevenue v Raphael[42] this position was accepted by Lord Warrington, citing the opinion of Lord Halsbury that:
“it seems to me to be absolutely unarguable that the true meaning of those words, and the purposes of the trust so set forth, can be in any way controlled, qualified, or modified by the initial statement of what the motive of the author of the deed was. It would to my mind be disastrous to introduce such a system of construing a deed.”[43]
[41]O’Loughlin v Mount (1998) 71 SASR 206, 217–8, which summarises a line of English authority supporting the position that has subsequently been accepted, and applied in Chacmol Holdings Pty Limited v Handberg (in his capacity as administrator of Australian Risk Analysis Pty Limited) [2005] FCAFC 40 and Koops Martin v Dean Reeves [2006] NSWSC 449.
[42][1935] AC 96.
[43]Ibid 134–135, citing McKenzie & Ors v The Duke of Devonshire & Ors [1896] AC 400, 405–406.
Although the effect of the deed can be determined by construing clause 1, reference was also made in the judgment below to the provisions of Mr Rand’s will, which was executed after the date of execution of the deed. His Honour referred to the will for two main reasons.
First, in the case of In Re Northcliffe[44] it was held that a person who makes a covenant with trustees that he or she will hold after-acquired property on certain trusts may perfect that trust by confirming in his or her will that the trust applies to property which has been acquired by the time the will is executed. I agree with his Honour[45] that this provides no assistance to the appellants, because Mr Rand did not confirm an intention to hold the property on the discretionary trusts set out in the P & G R Harpur Trust Deed, when he executed his will.
[44][1925] 1 Ch 651.
[45]See Levy & Ors v Harpur & Ors [2004] VSC 241, [15].
Secondly, his Honour said that because the deed did not create a trust:
“it is perhaps unnecessary to consider whether the Will of 8 September 1997 evidenced a change in Mr Rand’s intentions as expressed in the deed. The defendants submit that it did not; and, if the matter were to go to trial [Kai Tak Pty Ltd and the Harpurs] would, I was informed, call evidence to the effect that the discrepancies between deed and Will are explicable on the basis that the latter was intended to deceive. It was not intended, the defendants suggest the evidence will show, that the Will should have the effect of contradicting the deed, no matter what the Will might say.
Nothing was put in evidence before me, however to support this tangled tale. On its face, the Will undoubtedly expressed Mr Rand’s intention to dispose of his property, or part of it, in a way which was quite contrary to that to which the deed gave expression. The two cannot stand together. This, in my opinion, is in the circumstances conclusive. Were the defendants seriously to press this part of their case, then it was incumbent upon them to put before me some evidence in support. They produced none. If it is relevant, I for these reasons find that by his Will Mr Rand evidenced an intention that the deed be revoked.
But, in my opinion, it is not relevant. If by what he did on 27 August, Mr Rand created an interest, in favour of the defendants (or anybody else) in the property described in the deed, then that interest will not be affected by whether a declaration expressed in the deed was there said to be irrevocable. And if no such interest was then brought into being, the fact that the declaration was irrevocable will not assist in bringing that interest later into life.”[46]
[46]Ibid [45]-[47].
Counsel for the appellants submitted that evidence called at trial on behalf of the Kai Tak and the Harpurs would show that the discrepancies between Mr Rand’s will and the earlier deed were explicable on the basis that the will was “intended to deceive.” It was said that his Honour had “applied the wrong test” to r 23.01(2) by saying that “were the defendants seriously to press this part of the case, then it was incumbent on them to put before me some evidence in support. They produced none.” It was submitted that his Honour should have assumed that the allegations of fact in the defence were true, for the purposes of the application.
I reject this submission. As I have already said, the parties agreed that the effect of the deed was to be determined by reference to its terms. Thus the question of whether the defence discloses an answer to the executors’ claim turns on the meaning of the words used in the deed and cannot be affected by the provisions of the later will.
It is unnecessary (and may be impermissible) to rely on the terms of the will in construing the deed. If the deed was effective to create a trust, the will could not dispose of property previously included in that trust. If, on the other hand, the deed did not manifest an intention to create a trust immediately, the provisions of the will are irrelevant to the appellants’ claim, as his Honour recognised. In my view he was saying no more than that the execution of the will, so shortly after the date of the execution of the deed, fortified his conclusion that the trust was not intended to operate until the commencement date of 1 October 1997.
Courts may be prepared to find that an informal oral declaration of trust has passed an equitable interest to a beneficiary, when the court is “dealing with simple people unaware of the subtleties of equity.”[47] However this deed was drafted by Mr Harpur, who is a solicitor. A lawyer can reasonably be expected to understand the difference between expressing an intention to establish a trust in the future and creating a trust which operates immediately.
[47]Paul v Constance [1977] 1 All ER 195, 197 (Scarman LJ). In that case the question was whether the defendant had orally declared himself trustee of the property for his de facto wife.
In my opinion, the deed executed by Mr Rand on 27 August 1997 expressed an intention to create a trust beginning at a future date (the “commencement day”), which was therefore unenforceable by the purported beneficiaries because they were volunteers.[48] Mr Rand did not declare himself trustee of a trust which would operate immediately, while at the same time postponing the possessory interests of the objects of the discretionary trust. The question determined by his Honour was one of construction only and was not dependent on disputed issues of fact. For these reasons I would find that the defence was unsustainable and that the learned judge below was correct in striking it out under r 23.02.
Should the judge below have ordered that the defendants bear the plaintiff’s costs of the proceedings?
[48]See above n 27.
The appellants sought to set aside the costs orders made by the judge below. Grounds 8 - 11 contend that the learned trial Judge erred in awarding costs against the Harpurs.[49] It was submitted that Mr and Mrs Harpur were not necessary or even proper parties to the proceedings, that the only proper party was the trustee company, Kai Tak Pty Ltd, and that his Honour should have dismissed the proceedings against them, and awarded them costs on an indemnity basis.[50]
[49]The issue of costs was the subject of a separate judgment by Harper J, namely Levy & Ors v Harpur & Ors [2004] VSC 461.
[50]This related to the costs of the application by summons. Separate costs orders were sought in relation to the cost of the appeal.
Rule 9.03(2) provides that:
“Where the plaintiff claims relief against a defendant who is liable jointly with some other person and also liable severally, that other person need not be made a defendant to the proceeding.”[51]
[51]See also r 9.03(1).
Under this rule the Harpurs were not necessary parties to the proceedings, because the applicant claimed relief against Kai Tak Pty Ltd, the trustee of the discretionary trust.
The learned trial Judge, however, held that the Harpurs were proper parties. In Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd (No 1),[52] Hollingworth J held that a person is a proper party to proceedings if he or she satisfies the conditions for joinder under either r 9.02(a) or r 9.06(b). Rule 9.02(a) provides that persons may be joined as plaintiffs or defendants in any proceeding:
“(a) where
(i)if separate proceedings were brought by or against each of them, some common question of law or fact would arise in all the proceedings; and
(ii)all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the transaction or series of transactions.”
[52][2004] VSC 390.
Rule 9.06(b) provides that:
“At any stage of a proceeding the Court may order that —
….
(b) any of the following persons be added as a party, namely —
(i)a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii)a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding.”
His Honour gave four reasons for concluding that the Harpurs were proper parties to the proceeding.[53] First, Mrs Harpur opposed the grant of probate of Mr Rand’s will, on the ground that he lacked testamentary capacity. Under a settlement reached in those proceedings, it was agreed that the executors as plaintiffs would commence proceedings:
“to test the validity of the deed of trust dated 27 August 1997 and made or alleged to have been made by the deceased. The defendants to [these proceedings] will be Kai Tak Pty Ltd in its capacity as the trustee of the P & G R Harpur Trust, Paul Harpur, Pamela Fay Rand Harpur and Michael Acquilina.”
[53]See Levy & Ors v Harpur & Ors [2004] VSC 461, [11]-[13].
The Harpurs could have applied to the Court for a release from their joinder as parties[54] but did not do so. They were willing participants in the proceedings and had enjoyed whatever advantages flowed from their joinder.
[54]See r 9.06(a).
Secondly, the Harpurs were occupiers of a property known as “The Sisters” in Sorrento, which would form part of Mr Rand’s estate unless it was the subject of a valid disposition effected by the deed of trust. The first and second defendants would lose their right of occupancy of “The Sisters” after a certain date and would also lose any other interests they might have under the deed, if the deed of 27 August 1997 were ineffective to create a trust.
Thirdly, his Honour said that:
“the individual defendants’ position as proper parties (albeit one in which Mrs Harpur has but an indirect interest) is that Mr Harpur’s credit is very much in issue. If the plaintiffs’ allegations about his part in the creation of the deed of trust were made out, the first defendant has been and is guilty of very serious fraud.”[55]
[55]Levy & Ors v Harpur & Ors [2004] VSC 461, [13].
Fourthly, his Honour took account of the fact that both Mr & Mrs Harpur were directors of Kai Tak Pty Ltd, the company which was the trustee of the P & G R Harpur Trust, and Mrs Harpur was an appointor of that trust, as well as being a general beneficiary under it.
The Harpurs contended that they were not proper parties because any interest that they had in the outcome of the proceedings derived “entirely from their position as beneficiaries of the P & G R Harpur Trust.” This was the case even though they were directors of Kai Tak Pty Ltd and Mrs Harpur was an appointor under the Trust. They relied on r 16.02(1), which provides:
“Where a party sues or is sued as executor, administrator or trustee —
(a)it shall not be necessary to join as a party any of the persons having a beneficial interest in the estate or under the trust;
(b)a judgment or order in the proceeding shall bind those persons as it does the executor, administrator or trustee.”
For similar reasons, it was contended that the fact that the Harpurs were occupiers of the Sorrento property did not require them to be joined, because if the deed was void the property would form part of the estate, whether or not they were parties to the proceedings.
It was further submitted on behalf of the Harpurs that his Honour erred because:
·the plaintiffs were called upon to discontinue proceedings against them but failed to do so;
·it was incorrect to assume, as his Honour had done, that additional costs were occasioned by the joinder of three defendants rather than one;
·Mr Levy and the other executors were in breach of clause 3 of the terms of settlement, because Mr Acquilina had not been joined as a defendant; and
·Mr Harpur’s credit was an insufficient basis for him or Mrs Harpur to be regarded as proper parties.
The fact that r 16.02 makes it unnecessary to join the beneficiaries of a trust where a person is sued as trustee does not preclude beneficiaries from being proper parties to proceedings in appropriate circumstances, any more than the specification of “necessary parties” under r 9.03 precludes the joinder of a “proper party” under r 9.02. This interpretation of r 16.02 is confirmed by r 16.02(2), which provides that the provision does not limit the power of the Court to order the addition of a party under r 9.06.
Further, Mr Harpur was not an object of the P & G R Harpur Trust, so that r 16.02 has no relevance to him. Similarly, the fact that “The Sisters” property would form part of the estate, whether or not they were parties to the proceedings, means that the Harpurs are not “necessary parties” but does not prevent their joinder as “proper parties” if the requirements of r 9.02 or r 9.06(b) are satisfied, as is the case here.
Rule 9.06(b)(ii) refers to a person “whose presence before the Court is necessary to ensure that all questions in the proceedings are effectually and completely determined and adjudicated upon.” Although the learned trial Judge did not specifically refer to this provision, he referred to the Harpurs’ “depth and interest in the outcome of the case”, to the fact that “they have throughout been active in maintaining and advancing their opposition to the plaintiffs’ claims”, and to “the fact that Mr Harpur’s credit is very much in issue.” All these factors clearly bring them within r 9.06(b).
In my view the learned trial Judge was also correct in finding that the terms of settlement in relation to the probate application precluded the defendants from claiming that initially they were not proper parties to the proceedings. The fact that Mr Acquilina was not joined, because he agreed to be bound by any order which was made, does not change the situation as far as the Harpurs were concerned.
Given their agreement to be joined as parties to the proceedings, it does not lie in the mouths of Mr and Mrs Harpur to contend that the executors of Mr Rand’s will should have discontinued the proceedings against them. It would have been open to them to seek an order that they be excluded as proper parties under r 9.06, but they did not do so.
Although matters relating to costs were fully argued before the Judge below, the proposition that no additional costs were incurred as a result of the Harpurs’ joinder does not appear to have been clearly put to his Honour. Counsel for the Harpurs made submissions on the issue of whether the Harpurs should have withdrawn from the proceedings. He said:
“The idea that a person should walk away and just ignore the proceedings is one fraught with immense danger one would think, and not one which the law should expect. So far as bringing their own application to have the matter dismissed, that was open I suppose, but little costs - additional cost has been incurred by not going it, and waiting until this time to say well, you can’t get the relief you seek against us.”
This submission does not appear to clearly address the proposition that the executors’ costs were no greater by virtue of the fact that the Harpurs actively participated in the summons hearing.
In their amended notice of appeal the appellants sought to set aside all orders made by the Judge below, including the order that Kai Tak Pty Ltd pay Mr Acquilina’s costs. Mr Acquilina’s counsel opposed the application on the ground that his client had already undertaken to abide by any orders that were made and that the only order sought against him was an order for costs. It was said that any order made by this court on the merits of the matter would not necessarily affect the order for costs in favour of Mr Acquilina. In his reasons for granting leave to amend the notice, Nettle JA said that:
“until and unless the judgment in Mr Acquilina’s favour is set aside, it is binding on the applicants and the only way in which they can have that judgment set aside is to appeal against it. If, as is said, Mr Acquilina wishes not to participate in the proceedings and is prepared to abide by any order that the Court may make, I have no doubt that arrangements to achieve that objective can readily be put in place.”[56]
[56]Harpur and Ors v Levy and Ors, Application on Summons (Unreported, Supreme Court of Victoria Court of Appeal, 18 February 2005).
Although Mr Acquilina was a necessary party to the appeal, his counsel’s role was limited to opposing an order that his client pay the defendants’ costs of the original proceedings below or of this appeal.[57] The appellants gave no reason why the costs order relating to the counterclaim, which was made by the Judge below in favour of Mr Acquilina, should be set aside, either in their outline of argument or in their oral argument. There is therefore no basis for setting aside his Honour’s order in relation to Mr Acquilina’s costs.
[57]Mr Acquilina sought an order that Kai Tak Pty Ltd pay the costs of his appeal, including the defendant’s Summons dated 23 December 2004, for leave to file the Amended Notice of Appeal, because the defendants had “not advanced a single credible argument to support the reversal of Justice Harper’s Order requiring Kai Tak to pay Acquilina’s costs”.
Quantum of Costs
His Honour did not accede to the plaintiff’s submission that all costs of the proceedings incurred prior to (and including the costs of the hearing of) the summons, should be borne by the defendants. He declined to make this order, because it would have been open to Mr Levy and the other executors to take a less expensive path to judgment by issuing the summons at an earlier stage of the proceedings. Instead he ordered that the plaintiffs were entitled against all defendants to the costs:
“(a) of the summons;
(b)separately attributable to the determination of the issue decided by judgment on that summons; and
(c) up to and including the date of service of that defence.”
After that date neither party was to be entitled to a costs order, since either could have made the application which would have brought proceedings to an end.
Under the Supreme Court Act 1958, s 24(1) the court has a very broad discretion in awarding costs. An appellate court will only interfere with such an award when the discretion has not been exercised judicially, for example because the court has failed to take account of a relevant consideration or taken an irrelevant consideration into account.[58] In this case there is no basis for interfering with the exercise of his Honour’s discretion. I would therefore reject the Harpurs’ claim that the plaintiffs pay their costs on an indemnity basis.
[58]Donald Campbell & Co v Cave [1927] AC 372, 812; Oshlackv Richmond River Council (1998) 193 CLR 72 (Gaudron, Gummow and Kirby JJ).
REDLICH JA:.
It is common ground that the appeal raises the following question for determination: is a voluntary deed poll executed on 27 August 1997, which states that it has a “commencement date” of 1 October 1997, and contains the words:
“The trustee … now irrevocably declares that as from the commencement day [1 October 1997] he holds property … for the beneficiary”
to be construed as:
(a)amounting to a statement of intention incapable in itself of alienating the beneficial interest in that property (as was found in the court below and as the respondents contend); or
(b)creating a trust with a postponement of enjoyment by the beneficiary, giving an immediate interest which would vest in possession on the commencement date (as the appellants contend)?
It was further common ground before the trial Judge and this Court that the parties relied solely upon the terms of the deed of 27 August 1997 and abandoned any right to rely upon extrinsic evidence to clarify or explain Mr Rand’s intent, each party submitting that the operative clauses were unambiguous. Thus extrinsic evidence of the will, executed shortly after the deed and which revealed an intent inconsistent with the deed, was to be ignored. The trial Judge, given the parties’ agreed approach and after hearing full argument, came to a clear view that the defence was not sustainable and that it would be futile for the issue to be further pursued. I agree with Neave JA that it was open to the Judge to reach such a conclusion and make an order pursuant to r 23.01(2).
A purported declaration of trust which is not stated to be of immediate effect will not have any proprietary consequences, either at the time of the declaration, at a later nominated date or upon the occurrence of the event which is nominated in the declaration. It must be a present declaration,[59] that is to say, it must be a “manifestation of intention to create a present trust and not merely to create a trust to arise at some future time.”[60] In the oft-cited passage from Richards v Delbridge,[61] Jessell MR, quoting Chancellor Bacon, said:
“The one thing necessary to give validity to a declaration of trust – the indispensable thing – I take to be, that the donor, or grantor or whatever he may be called, should have absolutely parted with that interest which had been his up to the time of the declaration, should have effectually changed his right in that respect and put the property out of his power, at least in the way of interest …..[he] may by one or other of the modes recognised as amounting to a valid declaration of trust, constitute himself a trustee… and declare that he will hold it from that time forward on trust for the other person.”[62]
[59]Underhill & Hayton, The Law Relating to Trusts and Trustees (16th ed, 2003) 148 and the cases therein referred to.
[60]Scott & Fratcher, above n 26, [26].
[61](1874) LR 18 Eq 11.
[62]Ibid 13-14. See also White v Shortall [2006] NSWSC 1379, [211] (Campbell J).
In the absence of valuable consideration, a promise to create a trust at some appointed time in the future will be unenforceable[63] as equity does not recognise an obligation to give effect to such an intention.[64] Such a declaration is inconsistent with the relinquishment by the settlor of the ability to deal with the beneficial interest until the arrival of that appointed time. The author of Scott on Trusts explains why a deed evincing a present intention to declare a trust on a future date will not be effective:
“If an owner of property declares his intention to create a trust of the property in the future, or promises that he will create such a trust, whether by transferring property to another as trustee or by constituting himself trustee, no trust is presently created. Although a manifestation of intention to create a trust is all that is needed for its creation, it must be a manifestation of intention to create a present trust and not merely to create a trust to arise at some future time. A promise to dispose of the beneficial interest in property at some time in the future is not a present disposition of the beneficial interest. This is true where the intending settlor owns the property at the time he makes the promise: it is true also where he has not yet acquired the property of which he intends to create a trust.”[65]
[63]H Ford & W Lee, Principles of the Law of Trusts (1996) [2010].
[64]Grant v Grant (1865) 34 Beav 623, 55 ER 776, 777 (Romilly MR); Re Cozens [1913] 2 Ch 478, 486 (Neville J); Anning v Anning (1907) 4 CLR 1049, 1080 (Higgins J); Allen v Commissioners of Inland Revenue (1925) 133 Law Times 9, 13 (Lord Buckmaster); Corin v Patton (1990) 169 CLR 540, 580 (Deane J); Underhill & Hayton, The Law Relating to Trusts and Trustees, (15th ed, 1995) 128. I leave to one side any principles of estoppel.
[65]Scott & Fratcher, above n 62, [26].
It is not disputed that an owner may create an immediate trust in which the interests of beneficiaries are postponed in enjoyment. A trust, terms of which are only to come into effect at a future date, may be perfectly valid.[66] The appellants submitted that the deed created a trust with a postponement of enjoyment by the beneficiaries, giving them an immediate interest which would vest in possession on the commencement date. But in order to constitute a trust the intention must be clear.[67] The creation of a present trust intended to have immediate effect is to be contrasted with a promise that a trust will come into existence at some future time. The latter will have no proprietary consequences, whether the property is after- acquired (Re Northcliffe)[68] or is not yet in existence (Brennan v Morphett)[69] or is already in the hands of the settlor (Allen v Commissioner of Inland Revenue).[70]
[66]Ibid [26.3]–[26.5]. See also Walters, Law of Trusts in Canada, (3rd ed, 2005) 134-5.
[67]See the authorities discussed in Commissioner of Stamp Duties v Jolliffe (1920) 28 CLR 178, 188 (Isaacs J) and Kauter v Hilton (1953) 90 CLR 86.
[68][1925] 1 Ch 651.
[69](1908) 6 CLR 22.
[70][1925] 133 LTR 9.
I agree for the reasons given by Neave JA that Mr Rand did not declare himself the trustee of a trust which was to operate immediately and which was effective to dispose of an interest to the beneficiaries of a P & G R Harpur Trust. The deed executed by Mr Rand, by clause 1, in my view, expressed an unambiguous intention to create a trust which would begin on a specified future date described in the deed as the “commencement day”.
The operative clauses of the deed have been set out in the judgment of Neave JA[71] and the recital clauses have been set out in the judgment of Maxwell P[72] and need not be repeated. The form and substance of the deed do not evince an intent to create an immediate trust. In the absence of ambiguity, the operative clauses must be construed according to their proper meaning.[73] The cases referred to by Neave JA make clear that the recitals, even if they conveyed a contrary intent, would not have the effect of qualifying or altering any clear statement of purpose contained within the operative clause.[74]
[71]Above [45].
[72]Above [7].
[73]In Re Armstrong [1960] VR 202, 205 (Herring CJ).
[74]Above [63].
The appellants in their outline of submission contend that the use of the phrases “now irrevocably declares” and “he holds” demonstrates a present intention to create a trust. That submission cannot be sustained when those words are read within the context of clause 1 considered in its entirety. It is not in issue that the “commencement day” referred to in operative clauses 1 to 4 is the commencement date of the deed which is set out in clause 5. The trustee declares that “he holds the property and assets” for the beneficiaries from the commencement date of the deed. By clause 2, from the commencement date of the deed, the trustee holds property which is subject to a mortgage for the specified beneficiary. By clause 3, from the commencement date, the trustee will, at the request of the beneficiary, transfer the property to that beneficiary. Clause 4 provides that from the commencement date, Paul Henry Harpur is authorised to do all things necessary to transfer the property and assets to the specified beneficiary. In each case the specified beneficiary is Mr Rand as trustee of the P & G R Harpur Trust. In short, the operative clauses unequivocally contemplate that the property, held on trust from the commencement date of the deed, may thereafter be transferred to the beneficiary.
With great respect to the view expressed by Maxwell P, I am unable to agree that the word “holds”, appearing in the phrase “as from the commencement day he holds the property and assets … for the beneficiary” in clause 1, signifies an intent to immediately hold the property and assets for the beneficiary. Both clauses 1 and 2 express Mr Rand’s intention to hold the property and assets for the beneficiary from the commencement date. In each of operative clauses 1 to 4 Mr Rand declares his present intention as to a state of affairs which shall only occur on or after the commencement date. The trial Judge was correct in my view to construe clause 1 as a declaration that from the commencement day the trustee “will hold” the property and assets for the beneficiary.
Counsel for the appellant submitted that there was nothing in the language of the deed which would explain why the trustee “holds” the property from the commencement date. It may be accepted that the deed provides no discernible reasons why the trust was to take effect from the commencement date or why the enjoyment of the beneficiary’s interest was deferred. But there is also an absence of reasons to support a view that the trust was to commence immediately. None of these arguments can alter the plain meaning of the words, to which we are duty bound to give effect.[75] The consequence of the language employed was that the legal effect of the deed was postponed until 1 October 1997. Moreover, this is not a case where an intention is revealed which would be frustrated by giving effect to the plain meaning of the operative clauses.
[75]Re Armstrong [1960] VR 202, 205 (Herring CJ).
I do not regard the recitals as revealing an intent by Mr Rand to create an immediate trust at the time of the execution of the deed. References to the transfer of assets to the trustee which are referred to in paragraphs 11, 12 and 16 of the recitals must be understood as being references to the transfer of those assets as explained in the operative clauses of the deed, which provide that such transfers may take place on or after the commencement of the deed. The recitals reflect Mr Rand’s intent, that by executing the deed, he intended to act in accordance with the terms of the operative clauses and would transfer the beneficial interest in the assets to the trustee of the P & G R Harpur Trust on or after the specified date. They are consistent with the plain meaning of the operative clauses.
As the trial Judge stated and as the outline of submission of the respondents indicates, the appellants at trial had contended that clause 1 meant “that he is now irrevocably declaring that the trust will be established on 1 October and that the words mean what they say and that it was a present trust in that sense.” Certain of the observations made by the trial Judge must be understood in light of the submission then made.
The appellants now contend that the word “irrevocably” demonstrates a present intention to create an immediate trust as distinct from a trust that will be established in the future. The employment of the term “irrevocable” does not advance the question as to whether there was an intention to create a present trust, just as the reservation of a right to revoke the trust would not prevent an immediate trust from arising.[76] The irrevocability of Mr Rand’s intention does not affect the date upon which he intended that the trust would commence to operate, namely 1 October 1997.
[76]Kauter v Hilton (1953) 90 CLR 86, 101 (Dixon CJ, Williams and Fullagar JJ).
For the reasons given by Neave JA I also agree that grounds 8 to 11 fail.
The appeal should therefore be dismissed.
---
35
8
0