Harpur v Levy
[2011] VSC 653
•15 DECEMBER 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2003 09527
| PAUL HENRY HARPUR (who sues as the Trustee of the PETER RAND TRUST (also known as the CLAIBORNE TRUST) | Plaintiff |
| v | |
| FRANCIS ERNEST WILLIAM LEVY (who is sued as the Executor of the Estate of PETER THOMAS EVAN RAND, deceased) & ORS (according to the attached schedule) | Defendants |
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JUDGE: | DIXON J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 3-5, 8-10, 15-17 AUGUST 2011 | |
DATE OF JUDGMENT: | 15 DECEMBER 2011 | |
CASE MAY BE CITED AS: | HARPUR v LEVY & ORS | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 653 | Revised: 27 January 2012 |
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Equity – equitable remedies – recoupment – trust – mortgaged real property settled on trust – settlor remained liable to lender on a loan agreement that was secured over property following settlement of that property on the trust – loans paid by trust – whether recoupment available to trustee from settlor – whether vis-à-vis settlor, obligation of trustee to repay loans was an ultimate or secondary obligation – recoupment refused.
Equity – equitable remedies – Rule in Milroy v Lord – perfection of incomplete gift of foreign land – whether transfer of land in Thailand and/or proceeds of its sale by Australian resident owner to an Australian resident trustee of a trust effectively completed by transferor – land being marketed for sale – death of trustee prior to sale – legal title remained with transferor – whether executors obliged in equity to complete the transfer – possession and title to land lost to adverse possessor prior to trial – relief refused.
Evidence – claims against deceased estate – general requirement for scrutiny and caution – particular circumstances dictating a cautious approach discussed.
Evidence – opinion evidence – valuation of land – methodology – direct comparison method using an unaccepted offer to sell or asking price – whether opinion admissible – Evidence Act 2008 s 76, 79.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G McEwen of counsel | Mills Oakley Lawyers |
| For the Defendants | Mr DA Klempfner and Mr ST Pitt of counsel | Sackville Wilks Pty Ltd |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Issues to be decided........................................................................................................................... 2
Hawaiian properties..................................................................................................................... 2
Thai Property................................................................................................................................. 3
The circumstances giving rise to Mr Harpur’s claims................................................................. 4
My approach to the evidence......................................................................................................... 17
Caution is required in evaluating the evidence of Messrs Harpur, Levy and Tesoriero 17
Mr Harpur.................................................................................................................................... 19
Mr Levy and Mr Tesoriero........................................................................................................ 22
Conclusions about key witnesses............................................................................................. 23
How did Rand, as settlor/transferor, constitute the assets and liabilities of the Peter Rand Trust? 24
Statement of the applicable rules for recoupment................................................................. 25
Analysis of what occurred concerning obligations to the Bank of Hawaii........................ 36
Creation of the initial debt obligations....................................................................................... 36
The settlement of the Peter Rand Trust.................................................................................... 39
Transfers of property to the trust.............................................................................................. 40
The operation of the trust.......................................................................................................... 43
Conclusions on this issue.......................................................................................................... 47
Did the assets of the Claiborne Trust include a right of indemnity from Rand when Mr Harpur became its trustee?.......................................................................................................................................... 50
An agreement or an estoppel?.................................................................................................. 51
Mr Harpur as trustee.................................................................................................................. 54
Motivation for appointment as trustee...................................................................................... 54
Management of the trust.......................................................................................................... 54
Conclusions on the claims in respect of the Hawaiian apartments........................................ 57
Prior to his death, what property in Thailand, if any, did Rand transfer to Mr Harpur as trustee of the Claiborne Trust?............................................................................................................................... 57
The purported transfer documents........................................................................................... 57
Applicable Thai law.................................................................................................................. 59
Was the transfer a completed gift?................................................................................................ 63
Conclusions on the claim in relation to the Thai condominium............................................ 69
Does the court have jurisdiction to determine Mr Harpur’s claim?........................................ 69
Other issues....................................................................................................................................... 71
A postscript – if the Trust lost an opportunity for a completed gift, what was its value?.. 72
Judgment & orders........................................................................................................................... 76
HIS HONOUR:
Introduction
This proceeding is the latest chapter in the litigious history of the estate of Peter Thomas Evan Rand, now in its 14th year. Rand died on 7 October 1997. Rand inherited a substantial estate from his parents and was, apparently, an astute investor. Rand owned and operated a brothel in South Yarra. Apparently, he preferred to minimise, even avoid, his obligations to pay tax. Rand left an estate declared in the probate application at $19 million, comprising Victorian real estate: $13,725,000, personal estate in Victoria: $6,075,915, liabilities: $844,920 and real and personal estate elsewhere: nil.
The defendants, as named executors, obtained probate of Rand’s last will dated 8 September 1997. Numerous specific devises and bequests were made by the will with the residue held on trust principally for, as to income for life, Douglas Claiborne and Michael Aquilina, each of whom had an intimate personal relationship with Rand. Mr Aquilina lived with Rand in South Yarra. Mr Claiborne, who abused drugs and could not responsibly look after money and property, then lived in Hawaii.
On 31 August 1992, Rand declared and settled The Peter Rand Trust, providing that during Rand’s lifetime the net income and the principal of the trust estate be disposed of as Rand, who was trustee, directed. On Rand’s death, the trustee, now the plaintiff Mr Harpur, holds the residuary estate of the Peter Rand Trust as The Claiborne Trust, for the benefit of Doug Claiborne during his lifetime.
During the 1990’s, Rand acquired real estate outside Victoria: apartments in Hawaii and Thailand. Rand acquired the apartments in Hawaii partly with his own funds and partly with borrowed moneys. The borrowings, from the Bank of Hawaii, were by Adjustable Rate Notes secured by mortgages over the properties purchased. Rand purchased the apartments in Thailand without borrowing any part of the price paid. The parties to the proceeding sue, or are sued, in their representative capacity in respect of dealings involving these apartments in Hawaii and Thailand.
The dispute has arisen because the Hawaiian apartments, which were trust assets, have all been sold, one by Rand, two by Mr Harpur and two by the mortgagee exercising power of sale. The capital of the trust has been dissipated. Its current financial position was not clearly explained. It seems to consist of an asset in the form of an unsecured loan of about AU$400,000 to a private company related to Mr Harpur and liabilities of at least that value in the form of legal costs and expenses. The condominium in Thailand was, Mr Harpur contends, gifted to the trust by Rand shortly prior to his death, which intervened to prevent completion of the transfer of title. The Thai condominium not only has not returned any income to the trust, but title to it was lost out of Rand’s name to an adverse possessor by the judgment of a Thai court in 2010. The condominium has since been sold. Where, between the estate and the trust do these losses lie?
Mr Harpur now claims, in his capacity as trustee and for the benefit of the trust, recoupment of the amount paid to discharge the Notes together with consequent expenses of the sales and foreclosure processes in Hawaii. That sum totals US$305,256.64. Further, Mr Harpur claims the market value of the Thailand condominium assessed at AU$200,000 or TB6.4M.
Issues to be decided
Each of the claims made by Mr Harpur have failed and will be dismissed. In order to determine Mr Harpur’s claims, the following issues arise, and are distinct, depending on the location of the properties.
Hawaiian properties
1.How did Rand, as settlor/transferor, constitute the assets and liabilities of the trust?
· First, after establishing the Peter Rand Trust in 1992, when he transferred to the trust the title to the five apartments; and
· Later, on 27 August 1997, when he executed the third declaration of the trust.
In particular, in the relation between Rand as settlor and Rand as trustee, that is, as between his personal assets and the assets of the trust, where did the obligation to repay to the Bank of Hawaii the funds advanced by the Notes lie?
2.What was the property of the Claiborne Trust when Mr Harpur became its trustee? In particular:
· Did the assets of the Claiborne trust include an enforceable entitlement against Rand personally that the debt created by the Notes and secured by the mortgages would be discharged or, alternatively, serviced?
· Did Rand state to Mr Harpur that if he agreed to assume the trusteeship, Rand would pay out the Notes to ensure the trust was self-financing?
3.Following the sale, whether by the owner or the mortgagee of the Hawaii apartments and repayment of the Notes by the trust, did the trust have a right of recoupment from Rand’s estate?
4.Is the quantum of the sum necessary to restore the trust US$305,256.64 or if it is some other sum, how is it calculated?
Thai Property
1.Prior to his death, what property in Thailand, if any, did Rand transfer to Mr Harpur as trustee of the Claiborne Trust?
2.What is the law of Thailand in relation to the requirements to complete transfer of title to property and in respect of revocation of wills?
3.Was the transfer a completed gift? Did Rand do all that he could to transfer to the trust title to the Thailand condominium or the proceeds of its sale?
4.Does the court have jurisdiction to determine Mr Harpur’s claims?
5.What is the current market valuation of the Thailand condominium? Is it 6.4 million Thai Baht (AU$200,000)?
6.Assuming Mr Harpur lost the opportunity to recover the title to and possession of the Thailand condominium, was that loss of trust property or loss of a valuable opportunity to recover trust property? Is that lost opportunity correctly valued at the current market valuation of the Thailand condominium, or at some discounted assessment?
The circumstances giving rise to Mr Harpur’s claims
Over a period of approximately 12 months, commencing in January 1989, Rand acquired a two-bedroom apartment and four single-bedroom apartments in Hawaii. Three of these apartments, 2301, 2205 and 1405, were in Aloha Towers at 1, 430 Lewers Street, Honolulu. The other apartments were 1815 at Aloha Lani, 2211 Alawai Boulevard, Honolulu, and 1810 at 444 Nahua Street, Honolulu. For convenience, I will refer to these properties by their apartment number.
Rand outlaid approximately $1.189 million purchasing the five Hawaiian apartments. He borrowed a total of $482,000, from the Bank of Hawaii, at the time of purchase by loan agreements called Adjustable Rate Notes with security by mortgage registered on title to the apartments. Rand probably provided the balance of the funds necessary to complete those purchases, approximately $707,000, but the evidence did not reveal the precise source of those funds.
Rand engaged a local realtor, Terry Hand to assist in the purchase and management of the apartments. Rand retained Apartment 2301 for personal use and only rented it out occasionally. Doug Claiborne used an apartment. Rand rented out the other apartments.
Upon the declaration of The Peter Rand Trust by Rand as settlor, he transferred the Hawaiian apartments to himself in his capacity as trustee of the trust. The mortgages to the Bank of Hawaii encumbering the properties were transferred to the trust. Hawaii has a Torrens system of title by registration. Rand was not released by the bank from either his obligations under the Notes or his personal covenants by the mortgages to repay the loans. During Rand’s lifetime, Rand applied the net income of the trust estate towards paying the outgoings and maintenance of the apartments and in servicing the loans from the bank of Hawaii. Rand never directed distribution of any of the trust principal.
Rand did not keep financial records for the trust. There were no tax returns. There were no minutes of trustee’s directions. There was no file or separate collection of correspondence or other papers evidencing the conduct of the trust’s affairs. While an object of the trust was to provide accommodation for Mr Claiborne, and otherwise assist with his financial security, and Rand directed its activities to that end, Rand was accumulating assets for his own purposes.
Rand also acquired two condominiums in the Jomthien Complex Condotel in Thailand. He acquired condominium 348 on 21 December 1992, and the adjacent condominium 349 on 19 May 1993. They were renovated into a single large condominium (“the condominium”). It appears that these Thai purchases were for cash. The amount paid for these condominiums, and the source of those funds, was not revealed in evidence. At about this time Rand, as trustee of The Peter Rand Trust, borrowed further funds from the Bank of Hawaii on mortgage security over the Hawaii apartments, but the evidence does not suggest those further advances were applied in Thailand. Rand was registered at the local district Thailand land court as the owner of the condominium. He was in possession of the title deeds, which he had deposited in a security packet with his solicitor Frank Levy, the first defendant. There was no evidence that Rand ever rented out the condominium, although it appears that he permitted his friends to use it. I cannot say how the maintenance and outgoings associated with it were paid. Mr Harpur did not produce to the court any accounting records in relation to the purchase, ownership, use or maintenance of the condominium.
Rand set up an operating account with the Bank of Hawaii. He had a relationship manager at the bank, one Heidi Emory. There were some statements of account in evidence, but there was not a complete picture of the transactions passing through it. This account was the only account operated by Rand in Hawaii. The account was in his name personally, not as trustee. However, from August 1992 the account was only used for the trust. All transactions related to the apartments or, occasionally, small payments made to Mr Claiborne. Mr Hand collected the rents of the tenanted apartments. Except for loan repayments, Mr Hand paid all outgoings, including outgoings incurred on the apartments that were not tenanted, and deposited the net proceeds into the account. Mr Hand no longer had records of the transactions through his trust account, having disposed of the records after seven years. The funds that accumulated in the bank account in this way were insufficient to meet the monthly repayments to the Bank of Hawaii secured on the five apartments. Rand regularly sent funds, by deposit into the bank account, to meet the shortfall in income. He also supported Mr Claiborne financially. It was unclear whether Rand regularly provided that financial support through the bank account or by direct payment to Mr Claiborne.
In 1994, Rand suffered significant health issues, including a cancer diagnosis. By late 1996, anxious about Mr Claiborne’s future welfare, Rand sought advice from American attorneys about his Hawaiian affairs. The affairs of the trust were not in a satisfactory state. The trust had never lodged tax returns. Mr Harpur assisted Rand with these inquiries, which were ongoing. The American attorneys inquired about the assets and value of the trust and Mr Harpur replied for Mr Rand in terms that recognised that the:
·net value of the trust’s US assets was about US$675,000;
·debts secured by mortgage totalled about US$400,000;
·mortgage secured debts were the responsibility of the trust; and
·Thai Condominium was thought to be worth about AU$300,000.
Correspondence at the time reveals that Rand wanted to gift the Thailand condominium to the Peter Rand Trust and that Rand was contemplating selling the condominium to use the sale proceeds to discharge, or pay down, the Hawaiian mortgages.
I find that Rand was, by late 1996, proposing to gift the Thai Condominium to the trust and his expectation was that including the condominium, the net worth of the trust would be at least US$500,000 (depending on his understanding of the prevailing exchange rate). There is no evidence as to what capital sum he considered adequate for the welfare of Mr Claiborne.
In April 1997, American attorneys advised that the trust was exposed to Federal and Hawaiian income and general excise taxes on the commercial use of the apartments. The structure of the trust exposed Rand’s personal estate on his death to tax liability in the form of gift, estate and ‘generation skipping’ taxes. To minimise this impost, one option was for a trust company associated with the Bank of Hawaii to accept the trusteeship but there was reticence in that quarter because of compliance and management issues, a lack of solvency and the personal exposure of Rand to the bank on the Notes. Another recommendation was to move the trust offshore, appointing as trustee a company resident in the Bahamas. The American attorneys advised Rand that complying with US revenue laws would come at a substantial cost.
In May 1997, Rand’s doctor informed him that he only had a short time left to live. The witnesses described one of his pressing concerns at this time was Mr Claiborne’s welfare. The issues arising on the advice of his American attorneys concerning the restructure of his affairs in Hawaii presented difficult choices. In early May, when the Bank declared its reluctance to accept administration of the trust, Rand asked Mr Harpur to accept the role of trustee of the Claiborne Trust. The executors contested the substance of this and a later conversation as recent invention. Mr Harpur said he stipulated that he would agree to act as the trustee if Rand paid out the loans over the Hawaii apartments, so the trust would be self-financing. Rand replied, according to Mr Harpur, that he intended to discharge the Notes and to contribute more money to the trust — he wanted the trust to expand in Honolulu. Inferentially, Mr Harpur invites the conclusion that Rand then intended the trust would keep the apartments as assets.
Mr Harpur was contemplating, not that Rand discharge a personal obligation to the Bank of Hawaii but rather, that Rand make a gift to the trust of the funds necessary to clear the mortgage repayments that prevented the trust from being self-funding. Nothing in the evidence suggests that at any time after he transferred the apartments to the trust, Rand recognised that he retained the ultimate obligation to repay the Notes. The evidence is consistent with Rand, at least by May 1997 if not at a much earlier point in time, viewing the debt obligation to the Bank of Hawaii to be held by him as a trustee, payable primarily out of the assets of the trust. Rand’s view in this respect did not, I think, preclude a prospect of further advances of capital to the trust if warranted by Mr Claiborne’s circumstances, but it was that latter consideration, not any personal obligation to the bank, that was likely to motivate any payments by Rand to or on behalf of the trust.
At this stage in May 1997, assuming Mr Harpur’s recollection of his conversation with Rand, Rand had not acted upon his intention to gift the Thai condominium to the trust and may have had that gift in contemplation as the source of a contribution to the trust.
Either Rand did not agree to pay out the Notes in May 1997 from funds sourced elsewhere within his assets or he changed his mind. What he intended cannot now be determined. He may have prevaricated about how to resolve these difficult issues or he may have decided on a different course. It is possible Rand intended to solve the issues with US regulatory authorities by converting the trust to cash and exiting Hawaii, perhaps leaving behind a single apartment for Mr Claiborne. It is probable that he had not decided on a complete plan to resolve all issues. I approach this evidence with suspicion, in the sense that it warrants very careful scrutiny, and I will say more about my approach to the evidence shortly. In part, events as they unfolded reveal what Rand decided.
Rand never paid out the Notes. He immediately decided, in May 1997, to sell the Hawaiian apartments and the Thai condominium. On Rand’s behalf, Mr Harpur instructed Richard Ellis (Thailand) to sell the Thai condominium. What became of the instructions to Richard Ellis (Thailand) was not revealed. There was some evidence of communications between Rand and a Mrs Chollada, apparently a solicitor in Thailand, about a quick sale of the condominium. If instructions were given, Mr Harpur did not know what became of them.
Rand personally instructed Mr Hand to list all the Hawaiian apartments for sale. Mr Hand responded that the apartment market was depressed — it was not a good time to sell. Mr Hand obtained the mortgage balances from the bank and reported to Rand, in US$ as follows:
Apartment Purchase price Mortgage balance List price 1405 $234,581 $109,622 $250,000 2205 $293,581 $16,500 $255,000 2301 $405,596 $52,265 $315,000 1810 $145,000 $105,000 $135,000 1815 $110,000 $71,124 $157,000 Totals $1,188,758.00 $354,511.00 $1,112,000.00
Rand’s copy of Mr Hand’s fax is annotated with the word ‘Agreed!’ Rand was unconcerned with Mr Hand’s advice about the timing of the sales, which is consistent with other factors including his health and the advice of his American attorneys. He was agreeing that the listings of the apartments for sale proceed at Mr Hand’s suggested listing prices. It seems probable that Rand anticipated a net value of his trust, on conversion to cash, and with the Thai condominium added, of about US$750,000, less expenses. I am satisfied that Rand intended that the mortgages were to be paid out of the proceeds of sale of the apartments.
On 23 June 1997, Rand gave Mr Harpur a Power of Attorney, predominately to authorise Mr Harpur to deal with his Hawaiian affairs. The Power is an enduring power in a common form and includes the power and authority to act as ‘my said attorney in all countries, states, and jurisdiction in this world.’ At the same time, Rand made a new will appointing Mr Harpur as his executor. That will was not in evidence. While it would not be his last will, it is significant that Mr Harpur did not learn of the later will until after Rand died.
Mr Harpur described a second discussion in early August 1997 with Rand about the trusteeship. Rand again asked Mr Harpur to take on the trust and Mr Harpur said he would, if ‘we fix up this liquidity problem’. Mr Harpur said Rand said he did not expect him to get involved in a trust in that situation and Mr Harpur stated that Rand undertook to fix the liquidity problem. Rand also offered to include Mr Harpur’s sons as remaindermen in the trust.
In late August 1997, The Peter Rand Trust was amended and restated, although the amendments are not material to any issue in this proceeding. At the same time, Mr Harpur was appointed, in place of Rand, as the trustee of this trust. On Rand’s death in October 1997, being survived by Doug Claiborne, Mr Harpur now held the residuary estate of The Peter Rand Trust as The Claiborne Trust to pay to, or apply for the benefit of, Mr Claiborne all of the net income of the trust during Mr Claiborne’s lifetime. Mr Claiborne also had the right to live rent-free in apartment 2301, or such substitute apartment as Mr Harpur in his sole discretion determined. All expenses incurred by Mr Claiborne, including real property taxes, maintenance fees, insurance and utilities were to be paid out of the trust estate. On Mr Claiborne’s death, the trust estate then remaining would be distributed outright and free of trust to Adam Paul Rand Harpur, Ryan Henry Rand Harpur and Guy Edward Peter Rand Harpur, who are the sons of Mr Harpur and his wife, Pamela Faye Rand Harpur.
The restatement of the trust in August 1997 gives some insight into Rand’s intentions, as it states:
I direct that the Trust estate be invested in real estate. I suggest and recommend that the trustee sell all apartment properties at a favourable time except the apartment used by Douglas Joseph Claiborne, the beneficiary, while he resides there and invest the proceeds in fee simple commercial property with or without a mortgage with strong long-term tenants in the Pearl City area.
By the time of this statement, Rand was better informed of the values of the properties and the amounts owing under the mortgages. Rand instructed Mr Hand to list the apartments for sale in the knowledge that the timing was not favourable. There was reasonable prospect, on the advice of Mr Hand, that the sale of four apartments might pay out the mortgages and provide proceeds for investment.
When Mr Harpur consented to act as trustee, the Notes had not been paid out. Despite the importance to Mr Harpur of Rand’s undertaking to pay out the Notes, as he would now have the court accept, Mr Harpur did not document this obligation when other obligations were documented. His explanation was revealing:
Counsel:Yes, and I suggest that it [a desire to avoid any responsibility for an illiquid trust] was such an important factor that if it had occurred you would have insisted that it be included in the documentation?
Mr Harpur:I don’t agree with that. I saw no reason to include it in the documentation at all. There are a number of reasons for that. Firstly, I was an executor. It was a debt, in my view, of Peter and a debt of the estate. While I was executor there was going to be no-one arguing about it, or I didn’t think there would be, and I had his power of attorney. Unfortunately everything accelerated and he died before anything more could be attended to, and that was the end of my power of attorney.
What did happen in August 1997 was that Rand then took steps towards gifting the Thai condominium to the trust. This conduct is not inconsistent with the intention attributed to Rand by Mr Harpur that Rand provide funds to the trust because the condominium was on the market. Rand also made a further will. As I have noted above, Mr Claiborne was an income beneficiary for life by this will. Whether this was a different benefit for Mr Claiborne to that provided by earlier wills, I cannot say. It is plainly a means of providing income support for Mr Claiborne that does not involve relocating the capital underpinning that benefit to an environment where there are significant regulatory compliance issues with risks of penalties and taxes.
It cannot be discounted that in 1997, Mr Harpur may have been satisfied with Rand’s response to his request that, as a condition of accepting the trusteeship, the financial position for the trust and Mr Claiborne be improved rather than simply paying out the Notes. This might explain why, when he discovered to his disappointment that he was not the executor of Rand’s estate, Mr Harpur did not demand that the estate pay out Rand’s personal liability on the Notes.
Immediately after Rand’s death, in a brief letter, Mr Harpur informed Mr Claiborne that Rand’s express wish was for all of the apartments to be sold.
Mr Harpur also maintained that Rand decided, before he died, to transfer the Thai condominium into the trust. Mr Harpur documented this decision in a deed. Rand executed the deed before the Consul General for Thailand to transfer ‘all my rights, title and interest in the [Thai condominium] and/or the proceeds of sale’ to Mr Harpur, to be held pursuant to the terms of the Claiborne Trust. This deed recognises that the condominium was on the market and was, in essence, a cash contribution to the trust. Rand also signed a power of attorney written in the Thai language. This power of attorney empowered a Thai national to sell the condominium. Mr Harpur believed that he was the appointed attorney. Rand also contacted his solicitor instructing him to release the original title deeds, which came into Mr Harpur’s possession. The power of attorney would lapse on Rand’s death.
The Thai condominium was neither sold nor its title transferred to Mr Harpur. After Rand died, Mr Harpur made some inquiries about the condominium but at no stage did he actually take possession of it, collect any rent from it, or pay any of the outgoings associated with it.
It subsequently emerged that one Peter Richardson was probably in possession of the Thai apartment, paying the outgoings but not paying rent. Not revealed in evidence was whether Richardson had any agreement, arrangement, or understanding with Rand. Mr Richardson made contact, in Melbourne, with Mr Tesoriero, one of Rand’s executors, telling him that he had the keys to the condominium, was paying its outgoings, and had been negotiating with Rand to buy it. Mr Tesoriero told Mr Richardson to contact Mr Harpur. He did not tell Mr Harpur that Mr Richardson had made contact. Later in January 2001, Mr Tesoriero travelled to Thailand to meet with Mr Richardson and his Thai attorney. Mr Tesoriero described Mr Richardson as pestering, aggressive in his dealings. Mr Tesoriero considered he had no role as executor in relation to assets not situated in Australia.
There was an earlier will made in 1992 in Thailand and in the Thai language. Why that will mattered was unclear since Mr Tesoriero referred Mr Richardson to Mr Harpur, presumably because of the knowledge of his co-executor, Mr Levy, of Rand’s intention to transfer the condominium to the trust. On the other hand, Mr Richardson’s Thai attorney advised him that the later Australian will revoked the Thai will and, in order to complete his negotiations to purchase the condominium, Mr Richardson should deal with the Australian executors.
The executors did not take possession of the condominium. They did not ask Mr Richardson to pay rent nor has the estate ever made any payment towards the condominium’s outgoings. The executors did not notify Mr Harpur of their dealings with Mr Richardson in relation to the condominium. Mr Richardson’s Thai attorney provided evidence to Mr Tesoriero that Rand was still the registered owner of the condominium.
Much later, in about October 2003, by powers of attorney in the Thai language, the executors appointed Mr Tesoriero as their attorney to conduct civil law suits in all Thai courts, including applications to become inheritance manager of Rand with the Pattaya Provincial Court. I am satisfied that at this time the executors intended to deal with the Thai condominium, probably by completing a transaction with Mr Richardson. To the extent that the executors suggested otherwise in evidence, I reject that evidence. In particular, I am not satisfied that the executors honestly believed Mr Harpur had abandoned the Thai condominium, as they stated in evidence. They were aware that Rand had directed the release of the title deeds to Mr Harpur and had signed the transfer deed.
The evidence is inconclusive about the negotiations between the executors and Mr Richardson except in this respect: the executors did not complete any negotiation. On Mr Richardson’s application in May 2010, the Pattaya Provincial Court declared that Mr Richardson had acquired the ownership of the condominium by adverse possession. In October 2010, Mr Richardson sold the condominium at a price of 5.5 million Thai Baht.
Thus, neither the trust through Mr Harpur, nor the estate through the executors, has since Rand’s death in 1997 taken possession of the condominium, received any income, or paid any expenses. The asset is now lost. There was evidence, to which I will later refer, that the market value of the condominium as at 26 July 2011 was 6.4 million Thai Baht.
Returning to the Hawaiian apartments, the sale of apartment 1810 was negotiated by Rand before he died. He agreed with the tenant in July 1997 to part with the apartment on the basis that the tenant took an assignment of the mortgage and the loan. When the transaction closed, the loan was paid out with the adjustments and the expenses of the transaction being paid by the trust.
In October 1997, apartment 2205 sold for US$220,000. When the sale was completed, US$108,688 remained in an escrow account to the benefit of the trust.
About this time, Mr Harpur faced new difficulties. Mr Claiborne was dissatisfied with Mr Harpur’s management of the trust and complained. Mr Harpur told Mr Claiborne that Rand left the trust in a dreadful state because it was negatively geared and the bank was insisting upon repayment of its loans. Mr Harpur contemporaneously stated:
When Peter passed away the ongoing funding of the negative gearing ceased. Until apartments other than the one you live in are sold the trust has no income to pay you an annual distribution.
Mr Harpur’s response, curiously, makes no mention of the obligation upon Rand’s estate, that Mr Harpur now asserts, to pay out the Notes. This was the very circumstance that Mr Harpur now contends that he discussed with Rand, leading to Rand’s agreement to pay out the Notes to adequately fund the trust. Yet there was no suggestion that the conditional event for a distribution to Mr Claiborne was discharge of the Notes by the estate.
Mr Claiborne appears to have found this explanation unsatisfactory. He petitioned the court in Hawaii for Mr Harpur’s removal as trustee, an accounting, and damages. The court dismissed two of the petitions and the third petition has been inactive for more than nine years. However, there were consequences from the existence of these proceedings. A lis pendens prevented the sale of apartment 1405 for US$185,000. Mr Harpur negotiated with Mr Claiborne for its release in return for a payment of US$25,000. Mr Harpur made that payment but Mr Claiborne did not honour the bargain by lifting his lis pendens. Mr Harpur also incurred legal expenses defending these proceedings, which he paid out of trust assets. A third matter was that Mr Harpur became concerned that he might need to call on the trustee’s right of indemnity from the trust fund and that right appeared to him to be under threat from inadequate solvency.
The sale of apartment 2301 resulted in net proceeds of US$224,008, disbursed directly to Mr Harpur in Australia. He opened a bank account in Australia for the trust with those funds. Mr Harpur lent the funds in the Australian bank account on an unsecured loan to Flemalle Pty Ltd, a private company controlled by Mr Harpur, at an interest rate of 7% per annum.
In October 1998, the amount secured to the Bank of Hawaii on the two remaining unsold apartments was $177,386. The trust had available to it $274,464 arising from the sale of apartments 2301, 2205 and 1810 (less the amounts paid in expenses, taxes and servicing mortgages). By the first anniversary of Rand’s death, Mr Harpur could have paid out all mortgages. The trust could have held unencumbered title to apartments 1405 and 1815, and cash reserves of US$97,000. Further, as Mr Harpur asserts, the trust would have a claim against Rand’s estate to recoup approximately US$348,352 paid in discharge of the Notes contrary to the agreement he alleged he had reached with Rand shortly prior to his death.
By August 2000, the maintenance fees that are payable in multiple dwelling structures were in arrears and the mortgages were in default. In July 2001, foreclosure proceedings commenced. There was no defence other than to remedy the default, and Mr Taylor, then representing Mr Harpur, advised that course. Mr Harpur told Mr Taylor there were no funds.
Shortly after Rand’s death, the executors wrote to Mr Harpur informing him of their appointment and inquiring whether assets owned by Rand in the United States of America and Thailand had been disposed of during Rand’s lifetime or whether there were assets to be detailed in the application for probate. Mr Harpur’s response was that the United States and Thailand assets of Rand were transferred to the Claiborne Trust on 27 August 1997 and did not form part of Rand’s estate. Mr Harpur made no mention to the executors of the agreement or arrangement he now alleges — that Rand would pay out all debts owed to the Bank of Hawaii, secured over the Hawaii apartments. The executors made no inquiry to verify Mr Harpur’s statement.
On 19 December 2003, when Mr Harpur’s solicitors first made demand that the estate pay to the trust the amount paid to the Bank of Hawaii in discharge of Rand’s liability under the Notes, the agreement or arrangement between the trust and Rand, which Mr Harpur now asserts, was again not mentioned. In fact, it was not to be mentioned at all until Mr Harpur filed and served a further amended reply on 29 July 2011, about 14 years after the conversation on which it is based. The demand first made of the estate was in the sum of US$426,630, which was the amount that had been recovered, by December 2003, through sales by Mr Harpur and the mortgagee sales of apartments 1405 and 1815. It is remarkable that no such demands had been made of the executors of Rand’s estate at any earlier point in time, particularly as there were several occasions when the impact of the obligations of the Notes on the solvency of the trust was stark.
By the same letter, Mr Harpur’s solicitor raised the issue of the Thai condominium. The solicitors asserted that Rand had completed the gift of the condominium to the trust prior to his death and that the executors held title as a bare trustee. Mr Harpur sought the co-operation of the executors by completing the power of attorney to enable the registration of title. Apart from acknowledging receipt of the letter, the executors made no substantial response. They did not inform Mr Harpur of their dealings with Mr Richardson. The executors were aware of the basis of the claim by the trust to the Thailand condominium. I do not accept the explanation of Mr Tesoriero that they thought Mr Harpur had abandoned the trust’s claims to that property.
Mr Harpur commenced this proceeding but neither party did anything in relation to the Thai condominium and Mr Richardson’s successful claim of title to the condominium by adverse possession was only discovered in preparation for the trial of this proceeding. In fact, for that reason, a trial date was vacated. There was no satisfactory explanation given of the failure to secure possession of a condominium with disputed title, despite a claim to mesne profits.
My approach to the evidence
Caution is required in evaluating the evidence of Messrs Harpur, Levy and Tesoriero
As Rand is dead, I approach the evidence of Rand’s statements and intentions with caution. Were Rand alive and able to state his position, the court could test Mr Harpur’s proofs and the executor’s defences in the ordinary way. The court must guard against the possibility of a false claim against the interests of a deceased person who cannot give evidence about that claim. The opportunity, where evidence cannot be contradicted, to favour self-interest can be taken without necessarily presenting a false claim. A witness with the best of intentions may sub-consciously favour self-interest. I need to sift through the evidence presented to me with great care and with a mindset of initial suspicion that is amenable to persuasion where the truth and reliability of the evidence satisfies the standard of proof required. Although this approach tends to focus attention on contemporaneous documents, care is still required, as those documents may not be placed in proper context in the relevant dealings, absent tested oral evidence of the whole course of the communications between the actors involved. Statements in documents, which may have been clearly understood at the time, may be interpreted differently when read by, or to, a court by those not involved in the original communication. Another issue is whether all available evidence has been presented. On the one hand, is the question whether there is other evidence of which the deceased might have been aware? On the other hand, any failure of the claimant to bring forward corroborative evidence which was, or ought to have been, available will bear particular significance. It may often be necessary to discern the apparent logical probability of events carefully and cautiously for the fallibility of judicial certainty so dictates, hence, the need for careful scrutiny.
Plunkett v Bull[1] involved an action for debt against a deceased estate. Isaacs J noted that the plaintiff bore the burden of establishing ‘the original creation’ of the deceased’s indebtedness and stated:
Undoubtedly it is established in cases of this sort the Court scrutinizes very carefully a claim against the estate of a deceased person. It is not that the Court looks on the plaintiff’s claim with suspicion and as prima facie fraudulent, but it scrutinizes the evidence very carefully to see whether it is true or untrue.
Here, Mr Harpur contends for Rand’s retention personally of the debt obligation to the Bank of Hawaii on the Notes when disposing of the apartments that secured that obligation and for the acquisition of which the obligation was accepted — an obligation of proof that resembles the burden on the plaintiff considered by the High Court in that case.
[1](1915) 19 CLR 544, 548.
Stick-On Signs Pty Ltd v Sign Gear Pty Ltd,[2] raised an issue of an oral agreement with a deceased person that was uncorroborated. Osborn J said:
It is clear that a court may accept uncorroborated evidence of an interested party as to conversations or arrangements with a deceased person,[3] however the attitude a court should take to such evidence is explained in Plunkett v Bull … This principle is applicable even where, as here, the claim is not made against the estate of the deceased - the important point being that the deceased is no longer able to confirm or deny any claim made against his or her (prior) interests… One factor which is important in the court’s scrutiny of such evidence is whether the claimant has brought forward all available evidence.
[2][2002] VSC 320 (12 August 2002).
[3]Citing Tone v Brolly (1891) 17 VLR 467, 470; Re Garnett; Gandy v Macaulay (1885) 31 Ch D 1, 9 and 16; Re Hodgson; Beckett v Ramsdale (1885) 31 Ch D 177, 183.
In Nolan v Nolan,[4] the plaintiff sought a declaration that she was the full beneficial owner, and entitled to possession, of three paintings by the late Sir Sidney Nolan. The plaintiff needed to prove the necessary elements of a perfect gift of artworks to her, an obligation that resembles the onus that Mr Harpur must discharge in this proceeding concerning the Thai condominium. Dodds-Streeton J identified her approach to be:
In the present case, both the alleged donor and the alleged donee are dead, the donee for nearly 30 years. In seeking to discharge the onus of establishing the necessary elements of a perfect gift, the plaintiff must rely on documents, rather than on oral testimony which may be tested by cross-examination. Where the alleged donor is dead, the authorities require the claimant donee’s account of events to be approached with caution. Where both the alleged donor and donee are dead, and reliance is placed on documents, caution is particularly necessary.
[4](2003) 10 VR 626, 650–652 [146]–[160]; see also Stick-on Signs Pty Ltd v Sign Gear Ltd [2002] VSC 320 (12 August 2002); and Richardson v Armistead [2000] VSC 551 (22 December 2000) and the cases cited therein.
Her Honour added that in addition to the caution generally appropriate to claims against the estate of a deceased person, there might be additional circumstances that may independently dictate a cautious approach.
Mr Harpur
The executors urged careful assessment of several further circumstances relevant to Mr Harpur’s evidence. Mr Harpur admitted that, owing to a stroke that he suffered in 1999, he had and continues to suffer problems with his memory. That he had a poor memory could be one explanation of his answers given under cross-examination. There were many occasions when he made that concession. Mr Harpur did not help his cause by a late commencement of the proceeding, a little under six years after probate was granted. Then for a variety of reasons, it has taken 7½ years for the trial to get underway. Such a dilatory attitude to litigation by a wronged plaintiff, himself a solicitor, is inexplicable, particularly where the recall of conversations and events from the period 1993 to 1997 was critical. Mention was made of other litigation running, but I see no justification in that quarter.
The executors contended Mr Harpur was not a truthful witness. The executors referred to two prior decisions in other earlier litigation involving unconnected matters where adverse credit findings had been made against Mr Harpur.[5] Initially, this reference was in the context of an application that Mr Harpur give his evidence-in-chief orally rather than by his witness statement standing as his evidence-in-chief. It was unnecessary to read these decisions to resolve that issue and I have not done so since that time as the reasons why another judge in another dispute may have made adverse credit findings is not only irrelevant, but might be seen as unfairly prejudicial. I have not taken any account of whatever observations were made in those decisions in resolving this proceeding.
[5]Valoutin Pty Ltd v Furst [1998] FCA 339 (6 April 1998); Harpur v Ariadne Aust Ltd [1996] QCA 483 (29 November 1996).
I ruled that all lay witnesses should give their evidence-in-chief orally for two reasons. By reference to the principles that I have set out governing my obligation to scrutinise carefully the evidence where claims are made against the estate of a deceased person, observed oral evidence, not witness statements, was appropriate, indeed necessary. The other matter was that the statement of Mr Harpur was not in proper form, being inordinately lengthy and containing much irrelevant and inadmissible material. In its form, Mr Harpur’s witness statement revealed a great deal of reconstruction and counsel contended that because of Mr Harpur’s memory difficulties it would be unfair to him not to permit him to rely on his statement. I did not accept this submission.
Having carefully observed Mr Harpur in the witness box, I have concluded that he was an unsatisfactory witness. His poor memory of relevant matters exposed the degree to which he reconstructed events, and a tendency to proffer either a reconstruction or a lack of memory was evident when he was cross-examined. The parties had been involved in other proceedings arising out of Rand’s affairs, bitterly fought over a long period, commencing with a caveat lodged in late 1997 against a grant of probate to the executors and ending in the Court of Appeal. The animosity, if not already felt from an earlier point, had plainly developed throughout the course of that dispute; it was apparent in the evidence on both sides. I will deal separately with the evidence of the executors but record now that what resulted from the attitude of the witnesses was a curious sense of advocated self-interest despite each party, and Mr Harpur and Mr Levy are solicitors, presenting in a representative capacity as a trustee or an executor. In Mr Harpur’s case, I am not satisfied that he was an impartial trustee because that description, being inapplicable to his conduct in the management of the trust for reasons that are discussed elsewhere in this judgment, was inappropriate to describe his conduct in this litigation.
Mr Harpur’s answers to interrogatories in a related matter were tendered against him as a prior inconsistent statement on the peripheral topic as to whether he gave legal advice to Rand.
I do not accept the submission that Mr Harpur was lying, as I think he was doing his best. The matters that I have set out are the reasons why I do not accept his evidence as reliable, and I have only taken his evidence into account when corroborated by a contemporaneous document or where matters are common ground.
Importantly, my finding affects Mr Harpur’s evidence of his conversations with Rand in 1997. There were two critical conversations between Rand and Mr Harpur. I have dealt elsewhere with these conversations in context but it is appropriate to note now two further considerations that militate against accepting Mr Harpur’s evidence of these conversations. Mr Harpur did not initially plead the conversations with Rand. It was not until Mr Harpur filed an amended reply in March 2011, about 14 years after the event and about 8 years after the proceeding was commenced, that it was first alleged that Rand had promised to pay out the Notes.
Mr Harpur’s alleged conversations with Rand concerned the solvency of the trust, yet the first occasion when Mr Harpur contended for a right of recoupment was by a letter from his solicitors to the executors dated 19 December 2003. Mr Harpur is a solicitor. He was actively involved in litigation with the executors virtually from the time of Rand’s death and legally represented. There was no suggestion that Mr Harpur was ignorant of relevant principles, or poorly advised, and no basis to so conclude. The solicitor’s letter did not mention that Rand had, or had assumed, any responsibility to pay the Notes in conversations with Mr Harpur. Rather, the solicitors asserted that responsibility for the Notes followed because Rand was the original borrower who had failed to service the liabilities owed to the bank, resulting in the enforcement of the mortgages. The amount of US$426,630.48, with interest, was demanded ‘under ordinary restitutionary principles’ from the estate to recoup the loss. The solicitors also claimed recoupment under a clause of the trust deed, a basis not advanced in this proceeding.
The context of this letter is significant, for it follows virtually all of the dealings and events that define this dispute. During the course of those dealings, Mr Harpur, as trustee, confronted more than once the precarious solvency of the trust. Examples include his transfer of funds to Australia to protect the value of his personal right of indemnity from the trust, litigation with Doug Claiborne in Hawaii, and the mortgagee sales of two apartments because the trust failed to service the debts secured by the mortgages. In this context, Mr Harpur’s failure to assert the agreement of Rand to pay out the Notes, had such an agreement been reached, is unexplained and, if it were true, improbable.
Mr Levy and Mr Tesoriero
For the executors, both Mr Levy and Mr Tesoriero gave evidence. Each of them was on many occasions unable to recall events or explain contemporaneous documents when the lack of such recall or explanation appeared surprising. Pressed under cross-examination, as each of them was about the improbable explanation they presented concerning their dealings with Richardson, this type of response became markedly more frequent. Less inclined than Mr Harpur to reconstruct events, I consider they each sought refuge from the cross-examiner in a lack of recall or an inability to explain. True it is that they have waited a long time to present their defence, and their counsel urged that excuse, but like Mr Harpur, in giving their evidence they displayed in their attitude the battle scars of earlier litigation. I doubt that, during the 11 years since Rand’s death, in bitterly fought litigation there has not been occasion to recall and remember the events in dispute. I consider that, on at least some occasions, Mr Levy and Mr Tesoriero were prevaricating or were presenting an inability to recall as a defence against a cross-examination that by its lack of penetration permitted that strategy.
Although both Mr Levy and Mr Tesoriero readily conceded that answers to interrogatories sworn in 2005 were inconsistent with Mr Tesoriero’s evidence at trial, that inconsistency arose in the explanation of their dealings with Richardson. I found this evidence unsatisfactory, in part because of the inconsistency with the answers to interrogatories. The prompt concession of inconsistency in their sworn responses on aspects of their dealings with Mr Richardson, while it persuaded me that they were not lying to me from the witness box, did not persuade me that either Mr Levy or Mr Tesoriero gave reliable evidence.
I consider that the antagonistic adversarial mentality that the disputes over Rand’s affairs seem to have engendered also infected Mr Levy and Mr Tesoriero. I do not find their evidence to be reliable and I have only considered their evidence where corroborated by a contemporaneous document or where it is common ground. Their limited involvement in the circumstances of the dealings with the Hawaiian properties was documented mostly by acceptable contemporaneous documents. It is in relation to their dealings with the Thai condominium that I largely reject their evidence, except where corroborated by contemporaneous documents or common ground.
Conclusions about key witnesses
The view that I have taken of the principal lay witnesses is that none of Mr Harpur, Mr Levy or Mr Tesoriero has given reliable evidence on key events. In the result, the careful scrutiny of the claims in the proceeding has required reliance on the contemporaneous documents, the money trail when evident, and, drawn from these sources and the matters that are common ground, the apparent logical probability of events.
I can make one further observation about my approach to the contemporaneous documents. One category of such documents is important transactional documents, such as the trust declarations, Notes, assignments and the like. As Gummow and Hayne JJ recently affirmed in Byrnes v Kendle,[6] the fundamental rule of interpretation of [a trust] Deed is that the expressed intention of the [settlor] is to be found in the answer to the question, ‘What is the meaning of what the [settlor has] said?’, not to the question, ‘What did the [settlor] mean to say?’ Gummow and Hayne JJ added:[7]
There is good sense in such a rule. Issues of the construction to be placed upon the words or actions of alleged settlors are apt to arise long after the event. For example, the dispute in Kauter v Hilton (1953) 90 CLR 86 arose between the executors of the will of Mr Hickey (who had died in 1950) and his niece, and concerned the construction to be placed upon his words and acts respecting certain bank accounts in the last five years of his life. Further, trusts give rise to proprietary interests, dealings which may engage third parties who are strangers to the original actors.
There was, in the course of evidence, an attempt to bring a certain focus on what Rand meant to achieve, what he intended, particularly in relation to the welfare of the principal beneficiary of the trust, Doug Claiborne. Such evidence is irrelevant and inadmissible on the interpretation of the meaning of these transactional documents. However, I have had limited, carefully confined, regard to such considerations in other contexts, particularly the assessment of probabilities and the logical context of events.
[6](2011) 243 CLR 253, 273 [53], 263 [18] (French CJ), 286 [105], 289 [113] (Heydon & Crennan JJ).
[7]Ibid 274 [56].
I will now turn to the issues arising in respect of the Hawaiian properties.
How did Rand, as settlor/transferor, constitute the assets and liabilities of the Peter Rand Trust?
The first issue involves a particular question whether Rand, as a necessary consequence of his dealings, retained the ultimate obligation as between his personal assets and the assets of the trust to repay the Notes to the Bank of Hawaii. The trust’s claim is for recoupment, not contribution. Either that liability arises in equity or from the agreement reached with Rand when Mr Harpur accepted the office of trustee. For the trust to succeed, it must be clear that in the circumstances of the relationship between the trust and the estate, to do justice as between them equity demands recoupment by the trust from Rand’s estate of the payment of Rand’s debt on the Notes. I will consider this issue before returning to Mr Harpur’s alternative contentions based on an agreement or an estoppel.
Statement of the applicable rules for recoupment
Rights of recoupment, like rights of contribution, arise from the injustice of the defendant having its burden relieved by the plaintiff.[8] There are three possible outcomes: the plaintiff’s satisfaction of its obligation discharged the defendant’s obligation, the plaintiff is entitled to indemnity or recoupment from the defendant for satisfaction of the obligation or the defendant must contribute to the plaintiff’s satisfaction of the obligation. Recoupment and contribution are closely related doctrines and the same principles underpin the doctrines of marshalling.
[8]Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 (17 November 2000) [239].
In Caledonia North Sea Ltd v London Bridge Engineering Ltd,[9] to distinguish between cases where payment by one obligor discharges another obligor, and cases where it does not, Lord Hoffman explained that, as a general principle, a person who has more than one claim to indemnity is not entitled to be paid more than once. There are two different ways of giving effect to this principle. One is to say that the person who has paid is entitled to be subrogated to the rights against the other obligor, the solution ordinarily adopted when the liability of the person who paid is secondary to the liability of the other party liable. The other is to say that one payment discharges the liability, the solution adopted when the liability of the party who paid was primary or the liabilities are equal and co-ordinate. The appropriate question to pose was ‘Who is first liable?’
[9][2002] UKHL 4; [2002] Lloyds Rep IR 261, 280 [89]–[92].
Lord Bingham explained that question:[10]
When, in Mason v Sainsbury (1782) 3 Dougl 61, 64, Lord Mansfield CJ asked “who is first liable?” his question was directed not to any issue of chronology but to establishing where the primary responsibility lay to make good the loss. The terms of the Riot Act 1714 made plain that the primary responsibility lay with the inhabitants of the hundred, and it mattered not that the insurer had indemnified the insured. So in the present case: the contract between the parties and the commercial scheme of which it was part make it plain that primary liability was to fall on the contractor, just as in North British and Mercantile Insurance Company v London, Liverpool and Globe Insurance Company (1877) 5 ChD 569, on very different facts, it was held that a loss should be borne by the wharfinger’s insurer because “the primary liability” (per Baggallay JA at p.587) was that of the wharfinger.
[10]Op cit, 269 [14].
Lord Mackay considered that similar principles in the field of suretyship, provided by the decision of the Privy Council in Scholefield Goodman & Sons v Zyngier,[11] are helpful in considering whether a particular liability under a contract is primary or secondary. His Lordship concluded:
There is no reason in the present case why the contract between the operator and the insurance company should be construed as placing the insurance company on an equal footing with the parties to the contract, and I think the analogy of the relationship in this case between the contract and the indemnity insurance and that between the bill of exchange and the surety in the Zyngier case would suggest that similar reasoning would apply. There is no reason, as it seems to me, why the operator and the insurer should have the intention that the insurer should put himself on an equal footing with the contractor in respect of the indemnity which the contractor has given under the contract.
[11][1986] AC 562, 574–575.
Mr Harpur does not contend that this is a case for contribution and does not seek that remedy.[12] Mr Harpur contends that Rand bore the primary obligation to pay the Bank of Hawaii on the Notes. The obligation of the trust, as mortgagor, was secondary. Mr Harpur submits that having satisfied that obligation, it is inequitable to deny the trust recoupment of the costs of doing so. Mr Harpur submits the trust is a guarantor who has paid the principal’s debt. He relies on Brook’s Wharf & Bull Wharf Ltd v Goodman Brothers,[13] an indemnity case, where Lord Wright MR explained that:
The essence of the rule is that there is a liability for the same debt resting on the plaintiff and the defendant and the plaintiff has been legally compelled to pay, but the defendant gets the benefit of the payment because his debt is discharged either entirely or pro tanto, whereas the defendant is primary liable to pay as between himself and the plaintiff. The case is analogous to that of a payment by a surety which has the effect of discharging the principal’s debt and which, therefore, gives a right of indemnity against the principal.
[12]Precisely how the claim was put was initially unclear, later clarified by express concession from Mr Harpur’s counsel in final submission.
[13][1937] 1 KB 534, cited with approval by Walsh JA.
In Armstrongv Commissioner of Stamp Duties,[14] a contribution case, Walsh JA applied the principle deriving from Brook’s Wharf, which he stated as:
Where complete indemnity is sought on the ground that, although both plaintiff and defendant were liable to pay the debt, the defendant was, as between himself and the plaintiff, primarily liable, such a claim can be sustained where the debt is created by a revenue law.
[14](1967) 69 SR NSW 38, 47; 86 WN (NSW) (Pt 2) 259, 267. See also Balkin v Peck (1998) 43 NSWLR 706, 712.
In Balkin v Peck,[15] Mason P, with Priestley JA and Sheppard A-JA agreeing, said in a different context that I need not pause to describe:
The notion of a right to contribution, recoupment or indemnity is not peculiar to equitable relationships. Such rights, unless grounded in contract or statute, derive from the unfairness of a person who gets all or part of the benefit of property or a legal transaction not bearing all or the proportionate part of the burden associated with it. Lord Lindley described this concept of correlative benefit/burden as “the plainest principle of justice” in Hardoon (at 123). In Causley v Countryside (No 3) Pty Ltd (Court of Appeal, 2 September 1996, unreported) this Court approved the statement of McGarvie J in J W Broomhead (Vic) Pty Ltd v J W Broomhead Pty Ltd [1985] VR 891 at 936 that “… the basis of the principle is that the beneficiary who gets the benefit of the trust should bear its burdens unless he can show some good reasons why the trustee should bear the burdens himself”: see also Mahoney v McManus (1981) 180 CLR 370 at 388; Paul A Davies (Australia) Pty Ltd v Davies [1983] 1 NSWLR 440 at 450. Many later authorities have preferred to use the concept of unjust enrichment to describe the same basal principle: cf Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256- 257. Whatever its label, it is a concept that informs doctrines of equitable and legal contribution (Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184; Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 350-352), marshalling (Ramsay v Lowther (1912) 16 CLR 1 at 23-24) and recoupment by varieties of sureties against those principally liable (Moule v Garrett (1872) 7 Ex 101 at 104).
The President cited with approval the earlier decisions of Brook’s Wharf and Armstrong.
[15]Ibid.
In two recent cases, the High Court has considered equitable contribution.[16] Aspects of the doctrine of equitable contribution assist in identifying the principles applying to Mr Harpur’s claim to recoupment. Equity will relieve, by contribution, where there is common exposure of the obligors (or ‘debtors’) to the obligee (or ‘creditor’) and the equality of burden is disturbed or defeated by the accident or chance that the creditor has selected or may select one or some, rather than all, for recovery. Charging one surety with the common obligation discharges the other when ‘each therefore ought to contribute to the onus’.[17]
[16]Friend v Brooker (2009) 239 CLR 129, 148 [38]–[39] (French CJ, Gummow, Hayne and Bell JJ); HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31 (22 August 2011).
[17]Reflecting the maxim qui sentit commodum sentire debet et onus — he who derives the advantage ought to sustain the burden – which merges in equity’s more comprehensive rule ‘equity is equality’, as to which, see Herbert Broom, A Selection of Legal Maxims (Sweet & Maxwell, 10th ed, 1939) 482-485, cited by the plurality in HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31 (22 August 2011), 13 [37].
In the context of a common burden, to determine the remedy equity inquires whether obligations can be characterised as ‘of the same nature and to the same extent’.[18] The same question arises when courts examine whether the liabilities of two obligors are hierarchical, that is, the liability of one obligee is primary, or ultimate, and that of the other obligee is secondary. The plurality observed in HIH Claims Support Ltd v Insurance Australia Ltd:[19]
As the requirement of co‑ordinate liabilities is essential for the operation of the doctrine of equitable contribution between obligors, the duty to contribute is not based on “some general principle of justice, that a man ought not to get an advantage unless he pays for it.”[20]
Where the liability is hierarchical, and the secondary obligor relieves the common exposure of the obligors, that obligor is entitled in equity from the ultimate obligor, not contribution, but indemnity or recoupment.
[18]BP Petroleum Development Ltd v Esso Petroleum Co Ltd (1987) SLT 345, 348 (Lord Ross), employing the expression of Lord Chelmsford in Caledonian Railway Co v Colt (1860) 3 Macq 833, 844.
[19][2011] HCA 31 (22 August 2011) 15 [42].
[20]Citing Ruabon Steamship Company v London Assurance [1900] AC 6, 12 (Earl of Halsbury LC) and Cockburn v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624, 634 [42]–[43].
Where a guarantor’s liability to the principal creditor has accrued, the guarantor has a right in equity to require the principal debtor to exonerate him from his liability by paying off the creditor. The equitable right to mitigate the hardship that the common law imposed upon a guarantor, by requiring him to pay the principal debt before pursuing his right of indemnity against the principal debtor, is a quia timet action in equity. Such relief might have protected the trust from first having to pay the mortgage debt by requiring Rand, or later his estate, to take appropriate steps to discharge the Notes.
In Abigroup Ltd v Abignano,[21] following a review of the cases, the Full Federal Court restated the principles applying on a quia timet action in equity for contribution or indemnity. In the context of this proceeding, the trust would assert a right in equity to a declaration for recoupment before actual payment is made as mortgagor or loss sustained by mortgage enforcement, provided that the payment or loss is imminent.[22] The court explained the right in these terms:
It is well and long established in equity that a person entitled to an indemnity may obtain relief from the indemnifying party as soon as the person’s liability to the third person arises and before he has made payment himself, except where the contract otherwise provides or certain exceptional circumstances exist: see National Financial Co; Ex parte Oriental Commercial Bank (1868) LR 3 Ch App 791; Wooldridge v Norris (1868) LR 6 Eq 410 Wolmershausen v Gullick [1893] 2 Ch 514 and other cases conveniently collected in Halsbury’s Laws of England, 4th ed, vol 20, para 315. The person may therefore, where appropriate, obtain an order to compel the person who has given the indemnity to set aside a fund from which liability may be met (Re Richardson; Ex parte Governors of St Thomas’s Hospital [1911] 2 KB 705 per Cozens-Hardy MR at 709) or to pay the amount due directly to the third person (Ascherson v Tredegar Dry Dock and Wharf Co Ltd [1909] 2 Ch 401) or where the giver of the indemnity is under no liability to the third person, in some circumstances even to pay the amount to himself (ie the person entitled to the indemnity: Lacey v Hill, Crowley’s Claim (1874) LR 18 Eq 182 per Jessel MR at 191). But, as is noted correctly, in the passage mentioned above from Halsbury, the equitable right to enforce an indemnity does not constitute a debt (see the cases cited in Note 12 to para 315 of Halsbury which support the proposition for which they are cited).
[21]Ibid 82–83.
[22]Citing Starke J in McLean v Discount and Finance Ltd (1939) 64 CLR 312, 341 and Gibbs CJ in Mahoney v McManus (1981) 180 CLR 370, 374.
In another contribution case, Willis v Teparyl Pty Ltd,[23] the Court of Appeal rejected, in the context of assignment of guaranteed lease obligations, a contention that the assignee’s guarantors were released from liability to the lessor under their guarantee by the lessor’s release of the original lessee’s guarantor from all liability under his guarantee and therefore under the lease. The primary basis of the argument was that the assignee’s guarantors had a right of contribution vis-à-vis the original lessee’s guarantor that they had lost from the release in his favour by the lessor. The Court of Appeal held that the liability of the original lessee’s guarantor and the liability of the assignee’s guarantors were not ‘co-ordinate liabilities’ because the respective liabilities did not arise from a ‘common obligation’ and because the liabilities were not ‘of the same nature and the same extent’.[24] Accordingly, there was no entitlement to contribution as between them.
[23][2010] VSCA 318 (26 November 2010).
[24]Citing Friend v Brooker (2009) 239 CLR 129 and HIH Claims Support Ltd v Insurance Australia Ltd [2010] VSCA 255 (29 November 2010) [24].
Although the present proceeding does not raise this issue, I am, with respect, assisted by Mandie JA’s careful restatement of the basis for a right of recoupment in an assigned lease context. His Honour identified the following principles:
(a)For the purpose of contribution, co-sureties must be guarantors of the same principal debtor or the same debt;[25]
(b)The general proposition applicable to a right of recoupment in equity, as against a subsequent assignee who is ultimately responsible for the relevant default, is that where one person is compelled to pay damages by the legal default of another he is entitled to recover from the person by whose default the damage was occasioned the sum so paid;[26] and
(c)The court will take into account the ultimate responsibility of a party for the default in question.[27] It has also been recognised that the question of culpability is relevant to determining whether particular liabilities are to be treated as ‘coordinate liabilities’ for the purposes of contribution.[28]
[25]Applying Deering v The Earl of Winchelsea [1787] EngR 40; (1787) 2 Bos & P 270; 126 ER 1276; Ellesmere Brewery Co v Cooper [1896] 1 QB 75, 79; and McLean v Discount and Finance Ltd (1939) 64 CLR 312.
[26]Citing Moule v Garrett (1872) LR 7 Ex 101; and Becton Dickinson UK Ltd v Zwebner [1989] QB 208.
[27]Citing Becton [1989] QB 208, 210; Re Downer Enterprises Ltd [1974] 1 WLR 1460, 1468; Kumar v Dunning [1989] QB 193, 201: and Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 (17 November 2000).
[28]Burke v LFOT Pty Ltd (2002) 209 CLR 282, 293.
Mandie JA also quoted, with apparent approval, what McNeill J said in BectonDickinson UK Ltd v Zwebner[29] about terminology. He said:
McNeill J noted that Pennycuick V-C found ambiguity in the phrases ‘primary’ and ‘secondary’ liability and preferred ‘ultimate’ to ‘primary’. He said that there was no question but that the assignee was ‘ultimately’ liable for the rent etc and that the defendant had the prior liability as the assignee’s guarantor. He further referred to what was said by Pennycuick V-C that ‘this right of reimbursement, which carries with it the right of subrogation is not confined to the case of a guarantee, but applies in any case where there is a primary and secondary liability for the same debt’. [citations omitted]
[29][1989] QB 208.
The distinction between ultimate and secondary liability is a critical link in the contentions for Mr Harpur, as he submits the trust was a secondary obligor and that the ultimate responsibility to repay the Notes remained with the settlor, Rand.
This characterisation of the obligations is the nice question in this case. As will become clear, Rand is identifiable as first liable, chronologically, to the Bank of Hawaii. He was borrower and mortgagor, the mortgage including a covenant to pay. Thus, Rand, as borrower and as mortgagor, was liable to the same principal creditor for the same debt. Afterwards, when he settled the apartments on the trust, he voluntarily disposed of the asset acquired using the proceeds obtained by the Notes and mortgage security. Rand probably could not, and in any event did not, seek or obtain exoneration of his personal obligation on the Notes to the Bank of Hawaii. Mr Harpur contends that Rand intended, as obligor to the Bank of Hawaii in his capacity as borrower and also in his capacity as mortgagor, that he would retain ultimate or primary liability to repay the Notes when he, as settlor, created the trust and settled on it the property charged by the mortgages. Attention necessarily focuses on the circumstances of the settlement rather than the initial creation of the liability.
In another contribution case, Street v Retravision (NSW) Pty Ltd,[30] Retravision obtained judgment against each of the applicants on guarantees of the indebtedness of Terry’s Sound Lounge Pty Ltd (Terry’s), which was in liquidation. When it incurred the debts to Retravision that were the subject of the guarantees, there were reasonable grounds to expect that Terry’s would not be able to pay all its debts as and when they became due. Gummow J determined a preliminary question whether the respondents, persons who took part in the management of Terry’s (“the obligors”), were jointly and severally liable pursuant to s 592 of the Corporations Law for the debts. Gummow J held that the effect of s 592(1) of the Law was to render the obligors jointly and severally liable to the creditor as a matter of primary obligation. The liabilities of the guarantors under the instrument of guarantee were not primary obligations. As a matter of legal principle, the obligations were conceptually distinct. His Honour observed:[31]
That the obligation of the class is not in the same degree as the obligation of those who have given an indemnity or guarantee is emphasised by s 592(5). I have set out the text of that subsection earlier in these reasons. Persons who had given an indemnity or guarantee would have a right of exoneration by the debtor company. At law the action was one for money paid: Rowlatt on the Law of Principal and Surety (4th ed, 1982), p 134. The common law right of exoneration was supplemented by equity in the manner discussed in Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1 at 28 and in Abigroup Ltd v Abignano (1992) 39 FCR 74 at 81-3 ; 112 ALR 497. However, if liability to pay a debt incurred by a company has been imposed by s 592(1), payment by a person so liable of the whole or any part of that debt does not render the company liable to recoup that person: s 592(5).
Later, Gummow J determined, on examining the source of the suggested obligation of the obligors to keep the guarantors harmless against their loss in suffering the judgment against them on the guarantees, that there was no equity to contribution.
Plainly there is no contract to that effect. Nor, on the agreed facts, is there a relationship between them, an incident of which, implied by law or equity, is an obligation upon the respondents to indemnify the applicants. The obligation of the applicants on their guarantees to Retravision was not an obligation for the discharge of which the respondents were in a relevant sense ultimately liable. This is not the sort of case for application of the principle illustrated by such authorities as Moule v Garrett (1872) LR 7 Ex 101. That case illustrates the proposition that as between the lessor and the original lessee and subsequent assignees of the lease, each is liable to the lessor on the covenants to pay rent, but nevertheless as between the lessees the ultimate liability falls on the current assignee: see generally Halsbury’s Laws of England, 4th ed Reissue, 1993, vol 20, paras 345-50. The applicants guaranteed the obligations to Retravision of Terry’s. They did not undertake to Retravision to answer for the obligation imposed upon any parties pursuant to s 592(1) of the Law. Therefore, they did not enjoy, in addition to any right of exoneration by Terry’s, a right of exoneration by any other party rendered jointly and severally liable with Terry’s by s 592(1). Essentially, the issue is one of contribution or no contribution, and indemnity is not an alternative any more than it was in Commercial and General Insurance Co Ltd v Government Insurance Office of New South Wales (1973) 129 CLR 374.[32]
[30](1995) 56 FCR 588 (11 April 1995).
[31]Ibid 594–595.
[32]Ibid 599–600.
In Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd,[33] an issue was whether a contractual liability in Speno to indemnify Hamersley was co-ordinate with a liability in Zurich to indemnify Hamersley under a liability policy. Speno arranged the policy naming Hamersley as an insured as required by the contract. Zurich claimed to be entitled to contribution from Speno in respect of its liability to indemnify Hamersley. The WA Full Court held that the two liabilities were intrinsically different in character; a conclusion founded in an analysis of the nature of the liabilities, and thus refused to order equitable contribution. Delivering the leading judgment on this issue, Wheeler J examined the terms of the particular indemnity provision in context for whether the contract intended to allocate primary responsibility by the indemnities created. Wheeler J described the works and services contract, there in issue, as a document dealing, in detail, with all of the rights and liabilities of the parties arising in relation to the work of Speno. In the context of that contract, the indemnity clause allocated primary responsibility. The insurance clause, protecting against the possibility of non-recovery from Speno under the indemnity clause, cannot affect the contractual obligations. Wheeler J noted that the Victorian Court of Appeal took a rather similar view of the relationship between indemnity and insurance clauses in the context of a lease. In Buller Ski Lifts Ltd v Mount Buller Alpine Resort Management Board,[34] the court observed that the need for insurance cover recognises ‘the commercial possibility of insolvency or some other obstacle standing in the way of the lessee meeting the call for an indemnity, when made.’
[33](2000) 23 WAR 291, 300 [24], 312 [92]–[93], 325–327 [158]–[170].
[34][2000] VSCA 31 (9 March 2000) [8] (Phillips JA).
The evidence of the Thai lawyers, Mr Sukparangsee and Mr Thongkam, referred to sale and purchase agreements as being the common transaction document for a transfer. It was not suggested that the transfer deed that Mr Harpur had drawn could readily operate as a sale and purchase contract of the condominium. None of the experts in Thai law opined specifically on the enforceability of the transfer deed in isolation. Mr Sukparangsee refers to it in his report as part of a bundle that might achieve registration of Mr Harpur as owner. In the same reference, he appears to misunderstand the purport of the power of attorney that is also part of that bundle of documents. I have only accepted what he said about the power of attorney as it was clarified in cross-examination and is consistent with Mr Patradoon’s translation.
Mr Sukparangsee’s statement about the efficacy of the bundle of documents to which he refers is qualified by the inapplicable pre-condition ‘were Rand still alive and without Rand’s further assistance.’ Whether the ambiguity inherent in the words of transfer expressed by Rand in the transfer deed would be significant in a Thai context has not been considered by either witness. I am not prepared to assume that the transfer deed would operate as an effective instrument of transfer in Thailand. In the same way as I would not accept, for the purposes of the rule in Milroy v Lord, the completeness of a gift of land in Victoria without an instrument of transfer in registrable form, I am not satisfied that Mr Harpur has established that registration of a transfer of title to him would probably have been obtained without other documents being completed.
Accordingly I am satisfied that, notwithstanding the reference in the transfer deed to the transfer of right, title, and interest, all that Rand effectively did was to appoint Mr Piromyotee to complete the sale of the apartment, while intending by the deed to transfer to Mr Harpur, as trustee, the proceeds of the sale of the apartment and presumably provide Mr Harpur with some authority to assist Mr Piromyotee, including gaining possession of the titles.
Mr Sukparangsee told me that, by Thai law, the power of attorney dated 29 September 1997 became ineffective on Rand’s death. It follows that the authority for Mr Piromyotee to sell the condominium then terminated. Both of Messrs Sukparangsee and Thongkam informed me that, under Thai law, Rand’s estate devolved on his heirs as determined by his last will.
A further disputed issue arose at this point. The executors contended that the will admitted to probate only affected Australian assets and the condominium, if not an asset of the trust, passed under the Thai will.
Evidence about the law of wills and succession in Thailand was given to the court by Mr Apivut Thongkam. Mr Thongkam informed me that Rand’s Thai will, dated 22 January 1993, complied with the formal requirements of Thai law and would be considered binding unless changed or revoked under Thai law. A later valid will revokes an earlier will. Under Thai law, where there are different declared testamentary intentions, the intention under the later will prevails. Mr Thongkam’s opinion was that the statement in the Australian will dated 8 September 1997 in the first paragraph that it ‘hereby revokes all wills and codicils heretofore made by me and declares this will made 8th day of September 1997 to be my last will’ was a form of statement of revocation of a prior will that was recognised to have that effect by Thai courts. Assuming that the Australian will is legally binding, in Mr Thongkam’s opinion in Thai law, that will effectively revokes the will made by Rand in the Thai language dated 22 January 1993.
The validity of the Australian will dated 8 September 1997 is not in issue — it has been admitted to probate by this Court. Accordingly, I find that under Thai law, Rand’s will dated 22 Janaury 1993 in the Thai language was revoked by him and is of no effect. The question of whether the condominium formed part of Rand’s estate under the will admitted to probate by this court therefore turns on whether the purported transfer to Mr Harpur as trustee was effective, in equity, prior to Rand’s death.
Before turning to that question, Mr Sukparangsee informed me that under Thai law the executors, as nominated in Rand’s last will and appointed by order of this court, could transfer the registration of the condominium into their names. Formalities for registration, as prescribed in s 82 of the Thailand Land Code, involved filing the following documents:
·condominium title deed; and
·a certified, notarised and translated (by a certified Thai translator) copy of the probate parchment.
Mr Sukparangsee described this process as an administrative application. The process described seems broadly equivalent to registration by transmission in Victoria under s 49 of the Transfer of Land Act 1958. Mr Sukparangsee added that the land officials may be reluctant to register the executors, not being Thai nationals, as the owners of the condominium but practical difficulties could be avoided by the executors obtaining a court order from a competent court in Thailand for appointment as administrators of the Thai property. Such an order could be obtained upon the same documentation.
Was the transfer a completed gift?
I am satisfied that what Rand did was to set up the sale of the condominium, most probably in order that the proceeds of sale could assist to capitalise the Claiborne Trust. I am not satisfied that he went any further with that planning. Rand signed the transfer deed presented to him by Mr Harpur and he asked Mr Levy to provide him with documents that were in the custody of Mr Levy’s firm. At this point in time Rand did not consult with Mrs Chollada, the Thai solicitor to whom he had spoken some months earlier about a quick sale of the condominium. The glaring omission from these arrangements for the sale is the terms for the payment of the proceeds. There is simply no evidence of any instruction to Mr Piromyotee or anyone else, as to how the proceeds were to be held and disbursed.
Whether there was a completed gift of the condominium would seem a straightforward application of the rule in Milroy v Lord,[53] the application of which, in Australia, has been considered in a line of cases in the High Court, culminating in Corin v Patton.[54] I note the marked similarity between the facts of Milroy v Lord and those of this case. In Milroy v Lord, one Medley executed a voluntary deed purporting to assign certain shares to Lord, to be held by him on trust for Milroy and his wife. Transfer of the shares required appropriate entries in the books of the company, which had not been done before Medley died. Lord held a general power of attorney from Medley authorising Lord to transfer the shares, and a further power of attorney authorising him to receive the dividends on the shares. Lord received the dividends for the following three years until Medley’s death. The issue for decision was whether Medley had effected a gift of the shares in equity prior to his death. The Court held that the gift was imperfect; the instrument of transfer was insufficient to constitute Lord a trustee of the shares. It was not a specifically enforceable contract. Medley left imperfect and incomplete that which he might have perfected and completed by making a transfer of the shares to confer legal ownership upon Lord.
[53][1862] EngR 951; (1862) 4 De GF & J 264; 45 ER 1185.
[54](1990) 169 CLR 540.
Two propositions are evident from Milroy v Lord. First, the donor must have done everything necessary to be done according to the nature of the property in order to transfer the property and render the gift binding. Second, if the donor intended to effect the gift by one means, the court will not give effect to it by another means.
Mr Harpur contends that Rand did all that could be done to complete the settlement of the Thai condominium on the trust, and equity would have compelled the executors to assist in the registration of title in Thailand in Mr Harpur’s name. Mr Harpur must now so contend, as the deed, power of attorney and delivery to him of the title deeds is, as I have found, ineffective under Thai law to transfer title to the condominium to Mr Harpur. It cannot constitute a declaration of trust nor an enforceable contract. In order to make it operative in equity, Mr Harpur contends that the rule in Milroy v Lord applies. Mr Harpur further contends the additional complication — that the opportunity was lost to Mr Harpur to compel the executors to act when the Thai court granted title by adverse possession to Richardson, who has on sold the condominium for value — is not fatal to his contentions, although amendment of the pleadings was required after 6½ years to claim equitable compensation.
The inability to register the transfer of title in Thailand is analogous to the facts of Anning v Anning.[55] There, the donor executed a voluntary deed conveying real and personal property to his wife and children, including mortgages of land under the Torrens system and a Crown lease. Although the deed was executed and delivered, the mortgages were transferable only by registration of a transfer instrument in the prescribed form. No such transfer was executed. Nor did the donor execute a prescribed form instrument of transfer of the lease, the registration of such an instrument being necessary to transfer title to the Crown lease. Each member of the Court held that the transfers of the donor’s estate and interest in the real property were void because they were not in the forms prescribed by statute. However, in this and subsequent cases, divergent views of the content of the first of Turner LJ’s propositions in Milroy v Lord emerged.
[55](1907) 4 CLR 1049.
In Corin’s case,[56] which concerned severing a joint tenancy, Deane J explains the established principle to be that an intended gift by voluntary assignment will be effective in equity only if the overall circumstances of the case are such that the stage is reached where equity regards the gift as complete.[57] That is to say, as having been actually made. Until that stage is reached, equity will neither recognise the existence of a trust nor protect the donee from the donor exercising any legal rights remaining in him. The reason why that is so is that, in the absence of special circumstances giving rise to particular doctrines such as the doctrine of equitable estoppel, equity does not recognise an obligation in conscience that requires a person who remains the owner of property to adhere to or to give effect to an intention to give it away: ‘a man who forms an intention to make a gift is under no conscientious or other obligation to complete the gift.’[58] However, if the stage is reached where equity regards a gift of specific property as having already been made, it will necessarily treat the beneficial interest in that property as having passed to the donee.
[56](1990) 169 CLR 540.
[57]Ibid 580. Deane J was, in large part, in agreement with the joint judgment of Mason CJ and McHugh J (at 571).
[58]Anning v Anning (1907) 4 CLR 1049, 1080 (Higgins J).
Mason CJ and McHugh J stated the applicable principle in like terms:[59]
[59]Corin v Patton (1990) 169 CLR 540, 559.
Accordingly, we conclude it is desirable to state that the principle is that, if an intending donor of property has done everything which it is necessary for him to have done to effect a transfer of legal title, then equity will recognise the gift. So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity. “Necessary” used in this sense means necessary to effect a transfer. From the viewpoint of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part.
The question is whether Rand did all that was necessary for him to do in order to effect a transfer of the legal title to the condominium to Mr Harpur under Thai law. I find that Rand did not and that the gift to the trust, being incomplete, fails. I identify several obstacles to contending for a completed gift.
First, although Mr Harpur was armed with a delivered deed of transfer of ‘all my rights, title and interest in the [Thailand condominium] and/or the proceeds of sale’, there was no evidence that this deed was in a form that was acceptable to Thai officials for the reasons I have given. Rand had not done all that he could to complete the gift nor had he put it beyond his power to recall the gift.
Second, assuming the transfer deed was operative under Thai law and noting that Mr Harpur was in possession of the title deeds, he had no authority from Rand to register a transfer in Thailand. The power of attorney that Rand provided did not authorise Mr Harpur to act as Rand’s attorney in effecting a transfer of the title to the condominium. It was to different effect, as I have discussed. Rand had not authorised Mr Piromyotee to transfer title to Mr Harpur.
In submissions, Mr Harpur, perhaps in desperation, pointed to a power of attorney in his favour executed on 23 June 1997, plainly directed to the Hawaiian assets. I was informed that by s 26 of the Provision of Administrative Procedure Act B.E. 2539 in Thailand, a document submitted to an official must be in Thai and in the case of documents in a foreign language, a certified Thai translation is necessary. Although it would, I expect, be possible for a certified translation of that power to be obtained, there was no evidence that it had ever been translated. Nor was it put to the Thai law experts for their opinion of whether the power was in a form acceptable to the Thai land officials or the Thai Land Court. Both Mr Sukparangsee and Mr Thongkam had commented in evidence on the enabling reference in Mr Piromyotee’s power of attorney to giving evidence to land officials. I say in desperation, as it appeared that submissions were based on this power of attorney, because Mr Harpur wrongly believed he was the donee of the power in favour of Mr Piromyotee. Assumption founds his belief. I am unable to find that the power of attorney, executed 23 June 1997, would have enabled Mr Harpur to become registered as the owner of the Thai condominium. Again, Rand had not done all that he could to complete the gift nor had he put it beyond his power to recall the gift.
Third, although the transfer deed purported to transfer the proceeds of sale and Mr Piromyotee was empowered to sell, there was no evidence of Mr Harpur’s entitlement to the proceeds of a sale by Mr Piromyotee. Rand did not empower Mr Piromyotee to pay the proceeds to Mr Harpur. Presumably, under Thai law, Mr Piromyotee would be obliged to account to Rand, or if he had died, to his executors, but there was no evidence of what Thai law is on this point.
Fourth, the rationale for refusing to complete an incomplete gift is that a donor should not be compelled to make a gift, the decision to give being a personal one for the donor to make. Mason CJ and McHugh J explained in Corin v Patton[60] that process of doing all that needed to be done in the context of the underlying principle. They said:
The rationale for refusing to complete an incomplete gift is that a donor should not be compelled to make a gift, the decision to give being a personal one for the donor to make. However, that rationale cannot justify continued refusal to recognise any interest in the donee after the point when the donor has done all that is necessary to be done on his part to complete the gift, especially when the instrument of transfer has been delivered to the donee. Just as a manifestation of intention plus sufficient acts of delivery are enough to complete a gift of chattels at common law, so should the doing of all necessary acts by the donor be sufficient to complete a gift in equity. The need for compliance with subsequent procedures such as registration, procedures which the donee is able to satisfy, should not permit the donor to resile from the gift. Once the transaction is complete so far as the donor is concerned, he has no locus poenitentiae. Viewed in this light, Griffith CJ’s approach has the advantage that it gives effect to the clear intention and actions of the donor rather than insisting upon strict compliance with legal forms. It is a reflection of the maxim “equity looks to the intent rather than the form”. By avoiding unnecessarily rigid adherence to the general rule and endeavouring to give effect to the donor’s intention, the law avoids unjust and arbitrary results. See Zines, “Equitable Assignments: When Will Equity Assist a Volunteer?”, (1965) 38 Australian Law Journal 337.
[60](1990) 169 CLR 540, 558.
Here, the need for compliance with the subsequent processes of registration is not a procedure that the donor can satisfy. In my view, it cannot be described as a matter of insisting on strict compliance with legal form. Rand’s acts of transfer of legal title fell well short of sufficient, as I have stated. Had the condominium sold before he died, Rand might have insisted that Mr Piromyotee remit the proceeds of sale to him in Australia and applied them to another use. Mr Harpur could not have prevented that remittance or that application. On the other hand, the executors could have applied for transmission of the title to themselves following Rand’s death, but had they done so they had no obligation to complete the gift. Their obligation was to collect in the deceased’s assets and administer the testamentary estate in the terms of the will. There is nothing unjust or arbitrary in that result, at least not until a light is focussed on the manner in which the executors attended to their duty, but that is a separate question. Their duty was not owed to Mr Harpur.
Conclusions on the claim in relation to the Thai condominium
That Mr Harpur has not been able to obtain the legal title to the condominium is not consequent on any rejection by me of an attempt by him to do so. Apart from a faint suggestion of an inquiry, unsupported by documents, there was no evidence before me that Mr Harpur ever instructed Thai attorneys to seek to register a transfer of the title to him. Neither did Mr Harpur take possession of the condominium. He gave evidence of some faint efforts to obtain possession of it; Mr Harpur asked Mr Hand, who regularly spent time in Thailand, to check on the condominium, and Mr Hand did so on two occasions. On the first occasion, Mr Hand inspected the property, describing it as being in a dirty condition. On the second occasion, in December 1998, Mr Hand could not gain access as the locks had been changed and someone was obviously occupying the apartment. It is probable that Richardson was in possession of the apartment by this time, as his possession of it would fit chronologically with the statements attributed to him by the executors. Neither Mr Hand nor Mr Harpur followed up on this discovery. Mr Harpur’s approach has been to demand that the executors assist him.
It follows that I have decided for the reasons I have expressed, that Mr Harpur’s contention that Rand did all that could be done to complete the settlement of the Thai condominium on the trust and that equity would have compelled the executors to assist in the registration of title in Thailand in Mr Harpur’s name fails. There was no opportunity to obtain title to the condominium that was lost to the trust. I do not accept that the executors might be registered on title to the condominium as bare trustees, obliged to complete the gift, the condominium formed part of Rand’s estate.
Does the court have jurisdiction to determine Mr Harpur’s claim?
The executors contend that Mr Harpur’s claim involves a determination of the trust’s possessory or proprietary rights to the Thai condominium and that this court has no jurisdiction to determine that question.[61] I accept, for the purposes of considering the submission that, in certain situations, there is a common law rule denying jurisdiction to this court in respect of possessory or proprietary rights to land situated abroad. I do not accept the submission that the rule has any relevant application in this proceeding. Neither title to nor possession of the condominium are in issue. Both have been irretrievably lost. Moreover, Mr Harpur’s claim is one where he contends the conscience of the executors is affected by their failing or refusing to assist him to obtain that title. At its highest, Mr Harpur can contend that he has lost the opportunity to obtain title to and possession of the property, that such loss was occasioned by the unconscionable conduct of the executors, and he is entitled to equitable compensation for the loss of the property from the trust. At best, the question of title to or possession of the condominium has become incidental.
[61]British South Africa Co v Companhia de Mocambique [1893] AC 602, 625; Dagi v The Broken Hill Proprietary Co Ltd (No 2) [1997] 1 VR 428.
In Dagi v The Broken Hill Proprietary Co Ltd (No 2),[62] the plaintiff’s claims included causes of action in trespass, nuisance and negligence asising from discharge of certain by-products of a copper mine into a river in Papua New Guinea. Applications to strike out the statement of claim succeeded in part. Byrne J applied the Moçambique rule. In his analysis of the rule, Byrne J identified three exceptions to the rule that would permit the court to entertain actions affecting the title to or the right to possession of foreign land:
[62][1997] 1 VR 428, 441.
·The defendant’s conscience is affected by some contract, trust or breach of fiduciary duty. Thus, where the action depends on the existence of some personal obligation arising out of contract or implied contract, fiduciary relationship or fraud, or other conduct that, in the view of a Court of Equity, would be unconscionable and does not depend for their existence on the law of the locus of the immovable property, the court may assume jurisdiction.[63]
·The issue as to title arises incidentally.
·The issue arises in the Admiralty jurisdiction.
After reviewing the cases, Byrne J identified as relevant the distinction between claims where the plaintiff must show title or possessory right to foreign land and claims that did not essentially concern that issue.
At common law, the court will refuse to entertain a claim where it essentially concerns rights, whether possessory or proprietary, to or over foreign land, for these rights arise under the law of the place where the land is situate and can be litigated only in the courts of that place. The claim must, not merely concern those rights; it must essentially concern them. This is because the rights must be the foundation or gravamen of the claim.
[63]Citing Deschamps v Miller [1908] 1 Ch 856, 863–4 (Parker J).
Not ever having the legal title to the condominium, Mr Harpur had to first show a completed gift by Rand to him, as trustee. The jurisdiction of the court to determine this question is not constrained by the Moçambique rule.
Other issues
Numerous other issues arose during the trial and were the subject of submissions. In view of my conclusions, it is unnecessary to consider them all. The executors have wrongly maintained that the condominium did not form part of Rand’s estate governed by the terms of the will that they proved in this court. It will be apparent that I would prima facie consider the loss by adverse possession of the Thai condominium to Richardson to be a loss for which the executors are responsible. At least as between Mr Harpur and the executors, that is the conclusion I have reached. Once that conclusion is reached, there are serious issues about the conduct of the executors in relation to the circumstances in which that asset was lost to the estate. As I have stated, I have formed an unfavourable view about the evidence given by the executors concerning their dealings with Richardson and their defence that the condominium was vested in one Donald James Scott, the executor named by the Thai language will of 22 January 1993. I will say no more about it, as it is unnecessary now to explain that view, and why I have formed it, to resolve any issue between the parties to this proceeding; there may be a prospect of further litigation.
I cannot let the moment pass without recording that, frankly, the profligate attitude of the parties regarding the use of the court’s resources is extraordinary. It defies belief that litigation was commenced in this court in December 2003 between practising solicitors claiming title to the condominium and mesne profits, when neither party made sufficient enquiry about possession of the property that was in issue. That the parties have continued their dispute until May 2011 without realising that an ex parte claim to adverse possession was not only made but also succeeded a year earlier, reflects poorly on the litigants and their advisers. A trial date was vacated as a result. When the matter finally came on for trial, the task of the court in assessing the evidence of events in 1997 scarcely benefited from the oral evidence led by the parties. It has only been during the last months of this long and sorry saga that the overarching obligations under the Civil Procedure Act 2010 have applied.
A postscript – if the Trust lost an opportunity for a completed gift, what was its value?
In case it later becomes relevant, I will deal with a further matter.
Mr Harpur sought to establish the current market value of the condominium in Thailand by evidence of an assessment by a valuer from Sallmanns, in Bangkok. Ms Chanvimol Rakanantachai gave evidence that in her opinion the ‘estimated indicative’ market value of the condominium was 6.4 million Thai Baht, the equivalent of which is AU$200,000. I reject this evidence for a number of reasons. The primary reason for its rejection is the inappropriate methodology adopted by the witness, and I shall return to that.
Prima facie, by operation of s 76 of the Evidence Act 2008 (Vic) Ms Rakanantachai’s evidence was inadmissible for use to prove that the current market value of the condominium was AU$200,000 as at 22 July 2011 and that the loss to the trust was in that sum. Mr Harpur needed to establish that the exception under s 79 applied. Ms Rakanantachai provided no evidence of her qualifications, training or experience as a land valuer by her report. Further, she did not say that she had read, understood and agreed to be bound by the Expert’s Code of Conduct. No letter of instruction was produced and I infer that her failure to express adherence to the Code of Conduct was attributable to the conduct of Mr Harpur’s solicitors. This was never rectified. However, I granted leave to Mr Harpur to adduce evidence of the witness’ qualifications, training and experience as a land valuer.
Evidence was taken by video link. Mr Harpur’s solicitors had not made arrangements for an interpreter and it readily became apparent that Ms Rakanantachai’s grasp of English was inadequate for the task. Initially, she was assisted by a Mr Langdon, but he was not an interpreter. He told me he was a former managing director of Sallmanns. Upon forming the view that Mr Langdon was helping Ms Rakanantachai give evidence rather than interpreting, I intervened. The only process that was convenient was to swear in Mr Sukparangsee who was waiting to give evidence over the same video link, and whose grasp of both English and Thai enabled him to perform the task satisfactorily.
Counsel led evidence from Ms Rakanantachai that she is the director of the valuation department of Sallmanns Thailand, has more than 20 years experience in valuation, is a Fellow of the Thai Valuers Association (FTVA), a Fellow of the Valuers Association of Thailand (FVAT) and a member of the Royal Institute of Chartered Surveyors (MRICS) in the UK. That was the extent of Ms Rakanantachai’s evidence and on the basis of that evidence I do not accept that the witness has the necessary qualifications, training and experience as a land valuer to enliven the exception under s 79 of the Evidence Act. Presumably, if the witness had relevant qualifications, training and experience, counsel could have led that evidence. On that ground, Ms Rakanantachai’s evidence is rejected as inadmissible under s 76 of the Evidence Act 2008 (Vic).
It is probable that someone else prepared Ms Rakanantachai’s report, given her limited command of English on display over the video link. She stated that she adopted the ‘Market Comparison Valuation Approach’. She described this approach to involve a comprehensive market survey of residential condominiums in the Jomthien Condotel to identify properties for comparison, market conditions and ‘perception’. There are about 450 apartments in the complex. Ms Rakanantachai refers to a range indicated by the survey of both ‘asking’ prices and ‘sale/transaction’ prices for apartments of like size, floor, type and location. The range was based on six selected apartments. She adjusted the range for dissimilarities in location and other factors when arriving at an assessment for the condominium. On analysis, it became clear that Ms Rakanantachai’s opinion was based wholly on a survey of ‘asking’ prices for comparable apartments and that, at its highest, her evidence amounted to an opinion of the indicative asking price at which an estate agent might list the condominium for sale.
Under cross-examination, Ms Rakanantachai agreed that agreed sales are usually discounted from the asking price and she nominated 10% as the approximate discount. I could not assess whether her opinion was reliable; it was unsupported by any data or transparent reasoning process. Ms Rakanantachai rejected the relevance of the sale by Richardson in October 2010 as, possibly, not an arms-length transaction. Again, no data or inquiries were advanced in support of this suggestion. For example, evidence of sales showing the trend between July 2010 and July 2011 might have shown that the market was flat or declining.
A very similar approach to valuation of land in China was proffered before Byrne J in China Construction Realty Ltd v Sino Business Services Pty Ltd.[64] The issue was whether the balance sheet entry for the value of land in China varied from the true value, so that the accounts did not disclose a true and fair view of the affairs, financial position, assets and liabilities of the company at the relevant dates. In that case, the court was informed that in China the sale prices of property are not publicly available. This makes a direct comparison valuation very difficult as a valuer must make enquiries of parties to a contract of sale in the hope that they will accurately disclose the sale price. An alternative strategy adopted is to obtain a copy of the sales material showing the price being asked by a vendor of a potentially comparable property. This price is then taken as being an achievable price and, after sale, the price actually achieved.
[64][2004] VSC 91 (26 March 2004).
In McDonald v Deputy Federal Commissioner of Land Tax (NSW),[65] evidence of an offer made by a vendor of land to a prospective purchaser was not admitted as evidence of the value of the land. Justice Isaacs pointed out the difficulties in inferring from this evidence what price the suppositious purchaser might pay for the land, this being the legal test of value.[66] Byrne J acknowledged there were circumstances in which evidence of an offer to sell land has been admitted,[67] none of which are relevant here. I accept, as his Honour did, that evidence of an unaccepted offer to sell comparable land at a particular price is not admissible as direct evidence of the value of the subject land. Ms Rakanantachai, unsurprisingly, did not give evidence that from her experience or understanding of valuation theory and practice, there was any basis that warranted reliance on such evidence as a legitimate exercise in direct comparison valuation method.
[65](1915) 20 CLR 231, 237.
[66]Spencer v Commonwealth (1907) 5 CLR 418, 432, 441; Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651.
[67]China Construction Realty Ltd v Sino Business Services Pty Ltd [2004] VSC 91 (26 March 2004) [46].
For these reasons, I am not satisfied that Ms Rakanantachai’s evidence satisfies the criteria for admissibility under s 79 of the Evidence Act. Those criteria are, first, that the witness who gives the evidence ‘has specialised knowledge based on the person’s training, study or experience’; and second, that the opinion expressed in evidence by the witness ‘is wholly or substantially based on that knowledge’.[68] I reject Ms Rakanantachai’s evidence as admissible.
[68]Dasreef Pty Ltd v Hawchar [2011] HCA 21 (22 June 2011) [32].
Were it necessary to assess the loss of opportunity to the trust to sell the property and for that purpose arrive at a valuation of the property at the date of the trial, the only acceptable basis would be the evidence of a single direct sale by Richardson to Mellor in October 2010 at 5.5 million Thai Baht. That evidence was found in the searches of the Land Office records conducted by Mr Sukparangsee. There was no evidence that the sale to Mellor was other than an arms-length sale at market value. Starting with that figure as the current market value, a discount is necessary as the trust lost, not the property itself, but the opportunity to obtain title to, and possession of, the property. I accept the evidence of the executors that Richardson was making demands of the executors based on an asserted agreement with Rand made prior to Rand’s death, and payment of money by Richardson in respect of the property. Assessment on the impact of Richardson’s demands was a matter affecting the value of this opportunity that was not explored in evidence. Given that litigation in Thailand, or a sale to Richardson at a significantly discounted price, might have been necessary for the trust to recover anything, a substantial discount from the assumed market value would have been warranted.
Doing the best that I can with the evidence as it stands, I would have assessed the discount at 60%: comprising 10% for the uncertainty in the assessment of the market value as at the time of trial, 50% for the prospect of dispute in Thailand or negotiation as to competing entitlement with Richardson, and a further 10% for the prospect of litigation or other expense. On this basis, I assess the value of the opportunity alleged to have been lost by the trust at the date of trial at 2.2 million Thai Baht. At the exchange rate apparently adopted during the trial,[69] this equates to AU$68,685.00.
[69]AUD 1 = Thai Baht 32.03, as at 22 July 2011.
Judgment & orders
There will be judgment for the defendants and I will hear further from counsel on the question of costs.
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SCHEDULE OF PARTIES
| S CI 2003 09527 | |
| BETWEEN: | |
| PAUL HENRY HARPUR (who sues as the Trustee of the PETER RAND TRUST (also known as the CLAIBORNE TRUST) | Firstnamed Plaintiff |
| v | |
| FRANCIS ERNEST WILLIAM LEVY (who is sued as the Executor of the Estate of PETER THOMAS EVAN RAND, deceased) | Firstnamed Defendant |
| LEON MOSCOVITCH (who is sued as the Executor of the Estate of PETER THOMAS EVAN RAND, deceased) | Secondnamed Defendant |
| ANGELO TESORIERO (who is sued as the Executor of the Estate of PETER THOMAS EVAN RAND, deceased) | Thirdnamed Defendant |
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