Heather Grace Klein (As Executor of the Will of the Late Blanche Adeline Kanny (Dec)) v Donald Lyster (As Executor of the Will of the Late Paul Kanny (Dec))

Case •

[2017] WASC 368

•

14 DECEMBER 2017

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   HEATHER GRACE KLEIN (As Executor of the Will of the Late BLANCHE ADELINE KANNY (DEC)) -v- DONALD LYSTER (As Executor of the Will of the Late PAUL KANNY (DEC)) [2017] WASC 368

CORAM:   TOTTLE J

HEARD:   16 OCTOBER 2017

DELIVERED          :   14 DECEMBER 2017

FILE NO/S:   CIV 2708 of 2016

MATTER                :Section 45 of the Administration Act 1903 (WA), section 92 of the Trustees Act 1962 (WA) and Order 58 rule 2 of the Rules of the Supreme Court 1971 (WA)

The Will and estate of Blanche Adeline Kanny, late of 41 Seymour Street Busselton in the State of Western Australia

BETWEEN:   HEATHER GRACE KLEIN (As Executor of the Will of the Late BLANCHE ADELINE KANNY (DEC))

Plaintiff

AND

DONALD LYSTER (As Executor of the Will of the Late PAUL KANNY (DEC))
First Defendant

EILEEN BARBARA PESSOTTO
Second Defendant

REMO PESSOTTO
Third Defendant

MARGARET LOUISE KANNY DELLA-SALE
Fourth Defendant

ROGER KANNY
Fifth Defendant

CANCER COUNCIL OF WESTERN AUSTRALIA (INC)
Sixth Defendant

NATIONAL HEART FOUNDATION (INC)
Seventh Defendant

Catchwords:

Succession - Wills, probate and administration - Determination of questions as to interest of estate in land

Partnership - Whether trust may be a partner - Whether purported admission of trust as partner results in dissolution of partnership

Trusts - Interest in land - Whether written declaration of trust lost or destroyed, or did not exist

Trusts - Intention to create a trust

Estoppel - Estoppel by convention - Estoppel by deed - Whether estoppel may be asserted in context of separate legal relationship - Whether common assumption of fact by parties entering into deed - Whether unjust for one party to depart from common assumption

Legislation:

Administration Act 1903 (WA), s 45
Property Law Act 1969 (WA), s 34
Rules of the Supreme Court 1971 (WA), O 58 r 2
Supreme Court Act 1935 (WA), s 18
Trustees Act 1962 (WA), s 6, s 92

Result:

Questions answered in part
(1)(a) The Glengarren Trust does not have an interest in the Glengarren Farm
(1)(b) The estate of the late Blanche Adeline Kanny has a one-third interest in the Glengarren Farm
(1)(c) The estate of the late Paul Kanny has a two-thirds interest in the Glengarren Farm

Category:    B

Representation:

Counsel:

Plaintiff:     Mr B W Ashdown

First Defendant              :     No appearance

Second Defendant         :     Mr J N D'Angelo

Third Defendant            :     Mr J N D'Angelo

Fourth Defendant           :     Mr J R Brooksby

Fifth Defendant              :     No appearance

Sixth Defendant             :     Ms S E Bruce

Seventh Defendant         :     Ms S E Bruce

Solicitors:

Plaintiff:     Howard Evans

First Defendant              :     No appearance

Second Defendant         :     D'Angelo Legal

Third Defendant            :     D'Angelo Legal

Fourth Defendant           :     Young & Young

Fifth Defendant              :     No appearance

Sixth Defendant             :     Jackson McDonald

Seventh Defendant         :     Jackson McDonald

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

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; (2000) 202 CLR 588

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61

Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253

Conlan v Registrar of Titles [2001] WASC 201; (2001) 24 WAR 299

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

Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 538

Garrett v L'Estrange [1911] HCA 67; (1911) 13 CLR 430

Greer v Kettle [1938] AC 156

Herdegen v Federal Commissioner of Taxation [1988] FCA 699; (1988) 84 ALR 271

Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86

Kelly v Commissioner of Taxation [2012] FCA 423

Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 439

Kriketos v Livschitz [2009] NSWCA 96

McEvoy v McEvoy [2012] NSWSC 1494

Re Patrick Corp Ltd and the Companies Act [1981] 2 NSWLR 328

Reitano v Reitano [2012] NSWSC 1127

The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2009] WASC 239; (2008) 39 WAR 1

VS v MM [2009] QSC 393

TOTTLE J: 

Introduction

  1. The plaintiff, Ms Heather Klein, as executor of the estate of the late Blanche Adeline Kanny, has applied to the Court for the determination of questions that have arisen in the course of the administration of Mrs Kanny's estate.  The primary question concerns the ownership of farming land, known as the Glengarren Farm.[1]  Secondary questions concern the validity of a lease of the Glengarren Farm and the liabilities of a partnership that farmed the land.

    [1] Lots 2339 and 2684 on Deposited Plan 129244 the subject of Certificate of Title Volume 1375 Folio 028, and lot 2340 on Deposited Plan 125256 the subject of Certificate of Title Volume 1375 Folio 026.

  2. Without intending any disrespect, I will refer to Mrs Kanny and her husband, the late Paul Kanny, by their first names.

  3. The first defendant, the fourth defendant and the fifth defendant have filed notices of intention to abide.  The first defendant, Mr Lyster, is the executor of Paul's estate. In other proceedings Mr Lyster has sought directions from the Court concerning the administration of Paul's estate.  The determination of those proceedings has been postponed pending the determination of the questions raised in these proceedings.

  4. The second, third, sixth and seventh defendants made submissions as to the determination of the questions raised by the application.

  5. At the hearing, the parties agreed to the determination of the questions concerning the validity of the lease and the partnership's liabilities being deferred until after the question of the ownership of Glengarren Farm had been answered.

Questions raised by the application

  1. The following questions are raised by the application.

  1. Interests in the Glengarren Farm

(1)What are the interests in and entitlements to the land known as the Glengarren Farm ‑

(a)Does the Glengarren Trust, by its trustees, have an interest in the Glengarren Farm as to the whole of the right, title and estate therein, or alternatively as to one-third, or alternatively any other proportion?

(b)Does the estate of the late Blanche Adeline Kanny have an interest in the Glengarren Farm as to one-third, or alternatively any other proportion?

(c)Does the estate of the late Paul Kanny have an interest in the Glengarren Farm as to one-third, or alternatively two-thirds, or alternatively any other proportion?

  1. Lease of the Glengarren Farm

(2)Is the deed of lease dated 15 February 2007 between Paul and Blanche (in their capacities as trustees of the Glengarren Trust) as lessors, and Mr Remo Pessotto and Mrs Eileen Pessotto as lessees, a valid and subsisting lease of the Glengarren Farm?

  1. Liability to the partnership

(3)Is the estate of the late Paul Kanny indebted to the P & BA Kanny partnership in the sum of $149,796.00 or any other sum?

(4)Does the Glengarren Trust, by its trustees, have an interest in the Partnership (as defined below)?

(5)How are the assets or capital of the Partnership to be distributed or applied?

(6)Are the assets or capital of the Partnership to be distributed in the following amounts or in proportion to the following amounts ‑ $41,246.00 to the estate of the late Blanche Adeline Kanny and $142,064.00 to the Glengarren Trust, or alternatively in some other amount or proportion?

Jurisdiction to make directions

  1. On the application of a trustee, including an executor, the Court may make directions concerning any property subject to a trust; management or administration of that property; or the exercise of a power or discretion vested in the executor.[2]

    [2] Trustees Act 1962 (WA) s 6, s 92(1).

  2. Likewise, the Court may make orders with reference to any question arising in respect of a will or administration, or with reference to the distribution or application of any real and personal estate.[3]  Such an order is binding not only on those who survive a testator, but also on the estates of those who do not.[4]

    [3] Administration Act 1903 (WA) s 45(1).

    [4] Administration Act 1903 (WA) s 45(2).

  3. Further, the Court may, on the application of an executor, answer any question arising in the administration of an estate, and give relief as required in the circumstances of the case.[5]

    [5] Supreme Court Act 1935 (WA) s 18; Rules of the Supreme Court 1971 (WA) O 58 r 2.

  4. Accordingly, the Court has power to determine the questions posed by Ms Klein in her application.

Evidence

  1. Ms Klein relied on two affidavits sworn by her: a principal affidavit sworn on 10 September 2016, and a supplementary affidavit sworn on 16 October 2017.[6]  Ms Klein attached to her affidavits copies of the wills made by Blanche and Paul and a number of relevant personal and business records.  The sixth and seventh defendants relied on two affidavits, one sworn by Mr Mark Harris on 25 January 2017 and one sworn by Mr Graham Burrows on 1 February 2017.  Some paragraphs in Mr Harris' affidavit and some paragraphs in Mr Burrows' affidavit were struck out.  Mr Harris and Mr Burrows were both accountants who had acted for Paul and Blanche.

    [6] First Klein Affidavit and Second Klein Affidavit, respectively.

Factual overview

  1. The evidence about the primary facts was largely uncontroversial.  The issues that separated the parties were the inferences that might be drawn from the primary facts.

Paul and Blanche, their family and beneficiaries

  1. Blanche died on either 9 or 10 December 2015.[7]  She had executed a will on 26 August 2010.[8] Probate of Blanche's will was granted to Ms Klein on 11 February 2016.[9]

    [7] First Klein Affidavit [4], Annexure HK1.

    [8] First Klein Affidavit [6].

    [9] First Klein Affidavit [6], Annexure HK2.

  2. Blanche was married to Paul, who died before her on 7 September 2014.[10]  Paul had executed a will on 17 June 2005.[11]  Probate of his will was granted to the first defendant, Mr Donald Lyster, on 15 December 2014.[12]

    [10] First Klein Affidavit [8], Annexure HK3.

    [11] First Klein Affidavit [10].

    [12] First Klein Affidavit [10], Annexure HK4.

  3. Paul and Blanche were survived by three children:  the second defendant, Mrs Eileen Pessotto; the fourth defendant, Ms Margaret Kanny Della‑Sale; and the fifth defendant, Mr Roger Kanny.[13]  Mrs Pessotto is married to the third defendant, Mr Remo Pessotto.[14]  Mrs Pessotto has commenced proceedings in CIV 1888 of 2015 seeking provision out of Paul's estate.

    [13] First Klein Affidavit [12].

    [14] First Klein Affidavit [13].

  4. The sixth and seventh defendants, the Cancer Council of Western Australia Inc and the National Heart Foundation Inc, are beneficiaries under Paul's will.[15]  By cl 3 of his will, Paul called on Mr Lyster to join with Blanche to sell the Glengarren Farm, or, if she did not consent, to apply for an order for sale.  By cl 6.8, Paul left his share of the proceeds of the sale of the Glengarren Farm equally between the sixth and seventh defendants for the purposes of medical research.

The Glengarren Farm

[15] First Klein Affidavit, Annexure HK3.

  1. Paul and Blanche were the registered proprietors of the Glengarren Farm.

  2. The Glengarren Farm had been originally registered solely in Paul's name, on 4 July 1957.[16]  A one-third interest was transferred by Paul to Blanche on 29 March 1974.  Details of the transaction that gave rise to the transfer were summarised in a letter to Paul dated 23 May 1974 from his accountants at the time, C P Bird & Associates.[17]

    [16] First Klein Affidavit [20].

    [17] First Klein Affidavit, Annexure HK9.

  3. Thus, at the time of his death, Paul was the registered proprietor as to '2/3 undivided shares', and Blanche was the registered proprietor as to '1/3 undivided shares' of the Glengarren Farm.[18]

The P & BA Kanny Partnership and the Glengarren Trust

[18] First Klein Affidavit [16] - [19], Annexures HK5, HK6, HK7, HK8.

  1. By deed dated 20 February 1960 (the Partnership Deed), Paul and Blanche established a partnership under the name of 'P & BA Kanny' (the Partnership).[19]  Paul and Blanche later registered the business name 'Glengarren Farm', under which the Partnership traded.[20]  Ms Klein deposes, and I find, that the Partnership also traded under the name 'P & BA Kanny'.[21]

    [19] First Klein Affidavit [27], Annexure HK12.

    [20] First Klein Affidavit [29], Annexure HK13.

    [21] First Klein Affidavit [32].

  2. Clause 8 of the Partnership Deed contained a covenant by Paul to the effect that he would make available the Glengarren Farm for the exclusive use of the Partnership free of rent for the duration of the partnership.

  3. By trust deed dated 23 June 1989, the Glengarren Trust was established.[22]  Paul and Blanche were the original trustees of the Glengarren Trust.[23]  Mr Harris deposed that in his capacity as an accountant with the firm of accountants Ernst & Young he undertook accounting work for Paul and Blanche, and in 1989 assisted them in establishing the Glengarren Trust.  He deposed, and I find, that the purpose of establishing the trust was to enable it to 'become a partner in the Kanny farming partnership, so that a proportion of the partnership income from the partnership could be split between members of the Kanny family, as beneficiaries of the trust, and overall tax minimised'.

    [22] First Klein Affidavit [36], Annexure HK15; Affidavit of Mark Anthony Harris sworn 25 January 2017 [5], Annexure MAH1 (Harris Affidavit); Affidavit of Graham Leslie Burrows sworn 1 February 2017 [3], Annexure GLB1 (Burrows Affidavit).

    [23] First Klein Affidavit [37].

  4. Although there was no change in the legal persons who constituted the partnership (as the Glengarren Trust was not a legal entity and therefore could not be a partner), Paul and Blanche proceeded on the basis that a new partnership had been established in which Paul and Blanche each held a one‑third interest, and together held a one‑third interest as trustees for the Glengarren Trust.

  5. Mr Harris deposes that he does not recall, while he was working for Paul and Blanche, seeing any declaration of trust over the Glengarren Farm, or conveyance of it to the Glengarren Trust.[24]  Mr Burrows states that he also cannot recall seeing any declaration of trust over the Glengarren Farm, or any conveyance of it to the Glengarren Trust.[25]

    [24] Harris Affidavit [8].

    [25] Burrows Affidavit [6].

  6. Mr Burrows deposes that he did not prepare financial statements for the Glengarren Trust because the only income it received was distributions from the Partnership.

Lease of the Glengarren Farm

  1. On 17 July 1991, 1 April 1999, and 15 February 2007, Paul and Blanche entered into deeds by which they leased the Glengarren Farm, plant and equipment, and livestock to Mr and Mrs Pessotto (1991 Lease, 1999 Lease, 2007 Lease; collectively, the Leases).[26]

    [26] First Klein Affidavit [39], [41], [43], Annexures HK16, HK17, HK18.

  2. The 1991 Lease is expressed to be between 'Paul Kanny and Blanche Adeline Kanny … as Trustee for the Glengarren Trust ("The Lessor")' and 'Remo Pessotto and Eileen Barbara Pessotto … ("The Lessee")'.  Recital A states that '[t]he Lessor is entitled to occupation of and entitled to lease all that piece of land being ("The Land")', recital B states '[t]he Lessor is the owner of the plant and equipment listed in the First Schedule hereto ("The Plant")' and recital C states '[t]he Lessor is the owner of the livestock on The Land ("The Livestock") in the Second Schedule hereto'.  Payment of rent was to be made to the lessor.  The 1991 Lease was signed by Paul and Blanche, and by a witness.

  3. Importantly, the 1991 Lease does not state that Paul and Blanche, in their capacities as trustees of the Glengarren Trust, are the owners of the Glengarren Farm ‑ only that they were entitled to occupy or to lease it.

  4. The 1999 Lease is similarly expressed to be between 'Paul Kanny and Blanche Adeline Kanny … in their capacity as trustees of The Glengarren Trust ("the Lessor")' and 'Remo Pessotto and Eileen Barbara Pessotto … ("the Lessee")'.  However, recital A in the 1999 Lease states '[t]he Lessor is registered or entitled to be the registered proprietor of [the Glengarren Farm]'.  Recital B refers to an agreement to lease 'the Lessor's plant and equipment and livestock'. Payment of rent was to be made to the lessor.  The 1999 Lease was signed by Paul and Blanche, and a witness.

  5. The 2007 Lease contains equivalent terms to those identified above in the 1999 Lease.  The 2007 Lease was signed by Paul and Blanche, and a witness.

Tax returns and financial statements

  1. Ms Klein attached to her affidavits copies of tax returns lodged by Blanche and Paul for various years, tax returns and financial statements lodged by the Partnership, and tax returns prepared on behalf of the Glengarren Trust.  She also attached a copy of a balance sheet, and profit and loss account for the Glengarren Trust as at 30 June 2011.  It is unnecessary to refer to these documents in any detail.  They show:

    (1)the income derived from the Leases was recorded in the Partnership financial statements and not in the tax returns of Paul, Blanche or the Glengarren Trust;

    (2)the tax returns of Paul, Blanche and the Glengarren Trust recorded distributions of income from the Partnership;

    (3)the Partnership's financial statements did not record the Glengarren Farm as an asset of the Partnership; and

    (4)the balance sheet for the Glengarren Trust as at 30 June 2011 did not record the Glengarren Farm as an asset of the Glengarren Trust.

  2. The absence of any income flowing from the Partnership to Paul and Blanche as consideration for the Partnership's use and occupation of the Glengarren Farm is explicable on the basis that the arrangement contemplated by cl 8 of the Partnership Deed continued, that is, that Paul and Blanche allowed the Partnership to use and occupy the land free of rent.  I make a finding to that effect.

National Australia Bank account

  1. Ms Klein attached to the Second Klein Affidavit copies of bank statements issued by the National Australia Bank covering different periods.  The statements were addressed to 'The Proprietors, Glengarren Farm' and under the heading Account Details the following words appeared, 'Glengarren Farm ‑ Paul Kanny & Blanche Adeline Kanny as Trustees for the Glengarren Trust Trading as'.  It appears that income derived from the leases was paid into this account.  The statements also record deposits of dividends from shares held by Paul and Blanche, apparent payments from Centrelink, health insurance payments, refunds from the Australian Taxation Office, payments to other accounts held by Paul and Blanche, the deposit of varying amounts from Mr and Mrs Pessotto, and other unidentified deposits and withdrawals.

An overview of the parties' positions

  1. Ms Klein's position is that the Glengarren Farm was held on trust by the Glengarren Trust, despite:  the certificates of title for the Glengarren Farm not recording any notice of the existence of the Glengarren Trust; Paul and Blanche both purporting in their wills to deal with the Glengarren Farm in their personal capacities; and the matters recorded in the tax returns and financial statements to which I have referred.

  2. Ms Klein contends, however, that there was a written declaration of trust which now cannot be found.[27]  Alternatively, Ms Klein says that the Leases are themselves sufficient to constitute evidence of a declaration of trust,[28] or that the plaintiff and the first defendant are estopped from asserting that the Glengarren Farm was not held on trust.

    [27] Plaintiff's Submissions [59].

    [28] Plaintiff's Submissions [59].

  3. In support of her position that Paul and Blanche did not hold the Glengarren Farm in their personal capacities, Ms Klein says that neither received income from the Leases.[29]

    [29] Plaintiff's Submissions [14], [18] - [21].

  4. Mr and Mrs Pessotto support Ms Klein's position.

  5. The sixth and seventh defendants' position is that the Glengarren Farm is beneficially owned by the estates of Paul and Blanche in the unequal shares referred to earlier.  The sixth and seventh defendants contend that there has been no change in the ownership of the Glengarren Farm since 1974, when Paul transferred a one-third interest to Blanche by way of sale.[30]

    [30] Sixth and Seventh Defendants' Submissions [13].

Did Paul and Blanche execute a written declaration of trust?

The parties' submissions

  1. Ms Klein submits that, where a written declaration of trust has been lost or destroyed, the Court, if satisfied that it cannot be found, may have regard to secondary evidence to determine whether or not there was a declaration of trust, and, if there was, its terms.[31]

    [31] Plaintiff's Submissions [60] - [64].

  2. In the absence of witnesses who could confirm having seen a declaration of trust, Ms Klein relies on the fact that the Leases were prepared by legal practitioners in terms consistent only with the Glengarren Farm being held on trust in the Glengarren Trust.[32]

    [32] Plaintiff's Submissions [67].

  3. Mr and Mrs Pessotto submit that Ms Klein's submissions constitute a sufficient explanation justifying admission of secondary evidence of the existence of a written declaration of trust.[33]

    [33] Second and Third Defendants' Submissions [23].

  4. As to whether the Glengarren Farm was the subject of a declaration of trust, the sixth and seventh defendants make three points.[34]  First, there is no evidence of a subsequent instrument of transfer, conveying all or any part of the Glengarren Farm into the joint names of the trustees of the Glengarren Trust.  Second, there is no evidence of a declaration of trust having been made by Paul and Blanche ‑ individually or together ‑ which document would be expected to exist if Paul and Blanche had determined that they would hold their interests in the Glengarren Farm on trust for the Glengarren Trust.  And third, if the Glengarren Trust held an interest in the Glengarren Farm, it would be expected to appear as an asset in the financial statements of the Glengarren Trust, but it was not recorded in the only balance sheet adduced in evidence.

    [34] Sixth and Seventh Defendants' Submissions [14].

  5. Next, the sixth and seventh defendants point to the purpose of the Glengarren Trust, which they say was to become a partner in the Partnership and to minimise tax liabilities; the purpose was not to take ownership of any interest in the Glengarren Farm.[35]

    [35] Sixth and Seventh Defendants' Submissions [15].

  6. Additionally, the sixth and seventh defendants submit that it is evident from the terms of Paul and Blanche's wills that they considered that their interest in the Glengarren Farm was held by them in their personal capacities.[36]

    [36] Sixth and Seventh Defendants' Submissions [18].

  7. The sixth and seventh defendants made detailed submissions in response to the submissions made on Ms Klein's behalf that 'secondary evidence' was admissible in this case.  I will only refer to one of the submissions made by the sixth and seventh defendants on this issue.  They submitted that the only reasonable explanation for the non-production is that a written declaration of trust does not exist. That is because:

    (1)other relevant documents have been produced, including the partnership deed executed in 1960, a letter from 1974, the trust deed from 1989 and the Leases from 1991, 1999 and 2007;

    (2)there is no evidence to explain why a document as important as the declaration of trust was lost while others have been produced;

    (3)there is no evidence of Paul and Blanche discussing the transfer of the Glengarren Farm to the Glengarren Trust;

    (4)there is no evidence that Paul and Blanche sought any advice about transferring the Glengarren Farm to the Glengarren Trust; neither of Paul and Blanche's accountants over a period of 25 years or so have any recollection of a declaration of trust or conveyance of the Glengarren Farm to the Glengarren Trust being discussed;

    (5)it is extraordinary that Mr Harris, who assisted Paul and Blanche to set up the Glengarren Trust, would not then be aware of Paul and Blanche entering into a transaction as significant as the declaration of trust; and

    (6)if a declaration of trust was made it ought to have been lodged with the Office of State Revenue (OSR) for assessment of duty, but there is no evidence that inquiries were made to the OSR.

Paul and Blanche did not execute a declaration of trust

  1. I have reached the conclusion that Paul and Blanche did not execute a declaration of trust for the following reasons.

  2. First, Paul and Blanche appear to have been careful to keep documents which affected their legal affairs.  The availability of documents prepared as long ago as 1960 supports the conclusion that, if a written declaration of trust existed, it would have been kept in by Paul and Blanche and would now be available.

  3. Second, the evidence of Paul and Blanche's accountants, who were involved in their partnership and trust dealings, is that neither Paul nor Blanche discussed with them preparing a written declaration of trust over the Glengarren Farm.  Had Paul and Blanche prepared and executed such a document, it is highly likely they would have discussed this with their accountants.  That is particularly the case where Paul and Blanche were mindful of minimising their tax liabilities, and apparently structured their affairs on the basis of advice from their accountants about how best to manage those liabilities.  As counsel for the sixth and seventh defendants pointed out, declaring a trust over the Glengarren Farm would have given rise to potentially substantial tax liabilities with no apparent benefit to Paul and Blanche.[37]

    [37] ts 40.

  4. Third, and this point overlaps with the second point, assessed objectively there was no reason for Paul and Blanche to make a declaration of trust in respect of the Glengarren Farm.

  5. Fourth, Paul and Blanche instructed solicitors to prepare their wills, in which both dealt with the Glengarren Farm in their personal capacities.  Had Paul and Blanche executed a written declaration of trust over the Glengarren Farm of their own initiative, I am sure they would have disclosed this to the solicitors who prepared their respective wills.  Counsel for Ms Klein contended that it was more likely that Paul and Blanche provided mistaken instructions for the preparation of their wills and that the description of the capacity in which they made the Leases - as trustees of the Glengarren Trust - was correct.[38]  The Glengarren Farm was a major asset, if not the major asset, which Paul and Blanche owned during their lives. It seems inherently improbable that ‑ when it came time to decide how to dispose of that asset on their deaths ‑ they would not have known whether they owned it or whether it was owned by the Glengarren Trust.  Accordingly, in preparing their wills, it seems unlikely that they would have attempted to deal with the Glengarren Farm in their personal capacities had they not retained the beneficial ownership of it.

    [38] ts 13.

  6. Fifth, the most substantial evidence pointed to by Ms Klein which ‑ if admitted for this purpose ‑ could support the existence of a written declaration of trust, was the description in the Leases of the lessors as being Paul and Blanche in their capacities as trustees and the references in the recitals of the 1999 Lease and 2007 Lease to them being either the registered proprietor or being entitled to be registered as the registered proprietor of the Glengarren Farm. Assessing all the circumstances objectively, in my view, a more likely explanation for that description is that the solicitors preparing those documents made a mistake.  That explanation is supported by the inclusion within the Leases of a description of Paul and Blanche as the owners, in their capacities as trustees, of plant and equipment, which were also the subject of the Leases.  The Partnership financial statements support the conclusion that the Partnership and not the Glengarren Trust owned the plant and equipment.  Thus, there is evidence a mistake was made about the ownership of the plant and equipment which increases the likelihood of a mistake about the capacity in which Paul and Blanche entered into the Leases.

Did the Leases constitute written evidence of a declaration of trust?

The parties' submissions

  1. Ms Klein submits that the deeds of lease themselves satisfied the formal requirements for a declaration of trust over the Glengarren Farm.[39]

    [39] Plaintiff's Submissions [69] - [75].

  2. Mr and Mrs Pessotto submit that because the Leases recorded Paul and Blanche as trustees for the Glengarren Trust, and the Glengarren Trust existed at that time, the signing of the Leases by Paul and Blanche in that capacity expressly or impliedly constituted a declaration of trust over the Glengarren Farm.[40]

    [40] Second and Third Defendants' Submissions [34] - [35].

  3. The sixth and seventh defendants make the following submissions in reply.[41]  First, because Paul and Blanche purported to enter into the Leases in their capacities as trustees, the Leases could not be effective as a declaration of trust over property by the beneficial owners.  Second, the cases cited by Ms Klein as supporting the view that Paul and Blanche subsequently acknowledged an oral declaration of trust can be distinguished from the present situation, in which the signing of a lease in which a party is described as trustee of a trust is said to constitute a subsequent acknowledgment amounting to a declaration of trust.  Third, the naming of the trustees of the Glengarren Trust in the Leases was a mistake, just as the recitals which stated that the lessors owned the plant and equipment were mistaken.

    [41] Sixth and Seventh Defendants' Submissions [30] - [38], [46] - [63].

  4. The sixth and seventh defendants contend that Paul and Blanche's true intent was to make the Glengarren Farm available to the Partnership, for the Partnership to lease it out, and for the profit to be distributed between the partners.  That is supported, it was submitted, by the lessor being shown on the cover page of the Leases as 'P & BA Kanny', the trading name of the Partnership, and the payments of rent being recorded in the financial statements of the Partnership.

Relevant legal principles

Intention to create a trust

  1. An express trust cannot be created unless the person said to be creating it intends to do so.[42]  In determining whether there was such an intention, the Court has regard to the objective circumstances and not the settlor's subjective intention.[43]  Where an express inter vivos trust in respect of an interest in land is said to have been created by informal writing or orally, then a dispute as to the presence of the necessary intention, despite inexplicit language, is resolved by considering 'all the relevant circumstances'.[44]  Those circumstances include 'the language used by [the parties], … the nature of the transaction and … the circumstances attending the relationship between the parties'.[45]

    [42] Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 [16] (French CJ) citing Garrett v L'Estrange [1911] HCA 67; (1911) 13 CLR 430, 434 (Griffith CJ, Barton & O'Connor JJ agreeing); Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86, 97, 100 (Dixon CJ, Williams & Fullagar JJ).

    [43] Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 [55] (Gummow & Hayne JJ); [114] - [115] (Heydon & Crennan JJ); Kelly v Commissioner of Taxation [2012] FCA 423 [155] (Besanko J).

    [44] Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 [54] (Gummow & Hayne JJ) citing Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86, 100 (Dixon CJ, Williams & Fullagar JJ).

    [45] Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; (2000) 202 CLR 588 [34] (Gaudron, McHugh, Gummow & Hayne JJ).

  2. Subsequent conduct is admissible as an indicator of the existence of a trust, just as it is admissible to determine the existence of an agreement.[46]  In some cases, the admissibility of subsequent conduct has been limited to circumstances where it is against the interest of the alleged trustee to admit that the trust exists, and the evidence is of acts of the alleged trustee against that interest.[47]

Disposition

[46] McEvoy v McEvoy [2012] NSWSC 1494 [3] (Pembroke J); Reitano v Reitano [2012] NSWSC 1127 [23], [25] (Pembroke J) citing Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 [25] (Heydon JA); Kriketos v Livschitz [2009] NSWCA 96 [5] (Allsop P), [109] (McColl JA).

[47] Herdegen v Federal Commissioner of Taxation [1988] FCA 699; (1988) 84 ALR 271, 276 - 277 (Gummow J).

  1. The focus in Ms Klein's submissions on whether the Leases are capable of satisfying the requirements of s 34(1)(b) of the Property Law Act 1969 (WA) distracts from the first and critical question: did Paul and Blanche intend to create a trust over the Glengarren Farm?

  2. As French CJ emphasised in Korda v Australian Executor Trustees (SA) Ltd, '[t]he question of whether an express trust exists must always be answered by reference to intention', and '[t]he implication of intention precedes the ascertainment of an express trust'.[48]

    [48] Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 439 [3], [8] (French CJ).

  3. In the present case, I am not satisfied that Paul and Blanche ever intended to create a trust over the Glengarren Farm.

  4. The evidence from which an intention to create a trust may be inferred or imputed to Paul and Blanche is that:

    •they were described as parties to the Leases in their capacities as trustees of the Glengarren Trust, and the recitals in the 1999 Lease and the 2007 Lease record that the 'Lessor' is registered or is entitled to be the registered proprietor of [the Glengarren Farm];

    •rent due under the 2007 Lease was paid into the NAB account; and

    •as described earlier, the statements for that account recorded the account details as 'Glengarren Farm - Paul Kanny & Blanche Adeline Kanny as trustees for the Glengarren Trust trading as'.[49]

    [49] Second Klein Affidavit, Annexure HK 37, 11.

  5. As stated earlier, the Leases constitute equivocal evidence at best because, contrary to what was recited in the Leases, the Glengarren Trust did not own the plant and equipment.  The existence of a mistake about the ownership of the plant and equipment makes it more likely that a mistake was made about the capacity in which Paul and Blanche entered the Leases.

  6. Similarly, the evidence as to the payment of rent into the NAB account does not provide any significant support for the existence of an intention on the part of Paul and Blanche to create a trust over the Glengarren Farm.  It appears that Paul and Blanche did not strictly differentiate between trust funds and other amounts which were deposited into that account.[50]  I cannot draw an inference that the rent was paid into the NAB account because it was due to the Glengarren Trust. That is particularly the case where the accounts of the Partnership record the rent as having been received by the Partnership as income,[51] and that income is not recorded in the only profit and loss statement of the Glengarren Trust that was produced.[52]  Additionally, as counsel for the sixth and seventh defendants pointed out, the balance sheet for the Glengarren Trust did not contain any record of an interest in the Glengarren Farm.[53]  Nor, in the profit and loss account prepared for the Glengarren Trust, is there a record of deductions claimed in respect of the incidents of ownership, such as rates payable, of the Glengarren Farm.[54]

    [50] Second Klein Affidavit, Annexures HK 37, HK 38.

    [51] Second Klein Affidavit, Annexures HK 37, HK 38.

    [52] Second Klein Affidavit, Annexure HK 35, 9.

    [53] Second Klein Affidavit, Annexure HK 35, 8; ts 41.

    [54] First Klein Affidavit, Annexures HK 30, HK 31, HK 32.

  7. Further, there is evidence going the other way.  As considered above, the fact that Paul and Blanche did not seek advice from their accountants as to a declaration of trust, and that they purported to deal with the Glengarren Farm in their wills in their personal capacities, support an inference that they never formed the intention to declare a trust over the Glengarren Farm.

  8. As I concluded above, I consider it far more likely that the misdescription in the Leases extended to the recitals that Paul and Blanche were, in their capacities as trustees of the Glengarren Trust, entitled to occupy or lease, or were entitled to be registered or were the registered proprietors of, the Glengarren Farm.

Whether the Leases estop the parties from asserting that the Glengarren Farm was not held on trust

The parties' submissions

  1. In the further alternative, Ms Klein submits that, because Paul and Blanche entered into the deeds of lease in their capacities as trustees, an estoppel arises such that no party to those deeds may now deny the basis upon which they were entered into.[55]  Accordingly, Ms Klein says, all those claiming by, through, or in succession to Paul and Blanche are estopped by the deeds of lease from denying that Paul and Blanche held the Glengarren Farm as trustees of the Glengarren Trust.[56]  Mr and Mrs Pessotto support Ms Klein's estoppel submissions.  Reliance is placed on estoppel by convention and estoppel by deed.

    [55] Plaintiff's Submissions [74] - [79].

    [56] Plaintiff's Submissions [80].

  2. In response, the sixth and seventh defendants say the following:[57]  Estoppel by deed prevents a party to a deed from making an assertion contradictory to the position as stated in the deed, but does not make the position true.  Instead, it prevents a party to the deed from denying the truth of the position in the context of proceedings between parties to the deed.  Because (putting questions of mistake to one side) the parties to the deeds were the trustees of the Glengarren Trust, it is only in proceedings by the lessees against the trustees as purported lessors that the estoppel could be asserted.

Relevant principles

Estoppel by convention

[57] Sixth and Seventh Defendants' Submissions [39] - [45].

  1. An estoppel by convention arises where the relevant parties make an assumption about the basis of their relationship.[58]  Estoppel by convention is not founded on a representation of fact made by a representor and acted on by a representee to their detriment, but on the conduct of the relations between the parties on the basis of an agreed or assumed state of facts, which both are estopped from denying.[59]

    [58] Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 538, 549 (Isaacs J); Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 [22] (Gibbs CJ, Wilson, Brennan & Dawson JJ).

    [59] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 [22] (Gibbs CJ, Wilson, Brennan & Dawson JJ).

  2. To rely on an estoppel by convention, it is necessary for a plaintiff to establish that they have adopted an assumption as to the terms of their legal relationship with a defendant; that the defendant has adopted the same assumption; that both parties have conducted their relationship on the basis of that mutual assumption; that each party knew or intended that the other act on that basis; and, that departure from the assumption would cause detriment to the plaintiff.[60]

Estoppel by deed

[60] The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2009] WASC 239; (2008) 39 WAR 1 [3517] (Owen J).

  1. In an action on a deed, a party is estopped from disputing any distinct, precise and unambiguous allegation of fact which they made in it.[61]  If the parties to a deed, on its true construction, agree for the purposes of a transaction to state certain facts as true, then, for the purposes of that transaction, neither party may depart from that position, whether or not the agreed facts are true.[62] That principle extends to statements made in a recital to a deed, as well as the deed's operative provisions.[63]

Disposition

[61] VS v MM [2009] QSC 393 [33] (Martin J); Conlan v Registrar of Titles [2001] WASC 201; (2001) 24 WAR 299 [306] (Owen J) citing Greer v Kettle [1938] AC 156 (Lord Maugham).

[62] Dabbs v Seaman [1925] HCA 26; (1925) 36 CLR 438, 549 (Isaacs J); Re Patrick Corp Ltd and the Companies Act [1981] 2 NSWLR 328, 331 - 332 (Needham J).

[63] Re Patrick Corp Ltd and the Companies Act [1981] 2 NSWLR 328, 332 - 333 (Needham J).

  1. The doctrine of estoppel has no role to play in the resolution of the question to be answered.  This is because an estoppel only operates within the context of the legal relationship between the parties in which the 'unambiguous allegation of fact' (in the case of estoppel by deed) or the common assumption (in the case of estoppel by convention) was made.  In this case the relevant legal relationship was that of lessor and lessee.  No unambiguous allegation of fact or common assumption was made in the context of Blanche's testamentary dispositions and Mr and Mrs Pessotto's position as potential beneficiaries.

  2. Moreover, in the context of the lessor‑lessee relationship there is no evidence that the capacity in which Paul and Blanche purported to enter the Leases was of any significance to Mr and Mrs Pessotto.  And, even if one assumes in favour of Mr and Mrs Pessotto that there was a common assumption that Paul and Blanche entered the 2007 Lease as trustees of the Glengarren Trust, it is difficult to understand why it would be unjust in the context of the lessor-lessee relationship for there to be a departure from that position when, in truth, the Glengarren Farm was owned by Paul and Blanche beneficially.  Certainly, there was no evidence that to permit such a departure would be unjust.

Answers

Interests in the Glengarren Farm

  1. For the reasons set out above, I answer the questions in the first category as follows:

  1. Interests in the Glengarren Farm

(1)What are the interests in and entitlements to the land known as the Glengarren Farm (as defined below) -

(a)Does the Glengarren Trust, by its trustees, have an interest in the Glengarren Farm as to the whole of the right, title and estate therein, or alternatively as to one-third, or alternatively any other proportion?

  1. No, the Glengarren Trust, by its trustees, does not have an interest in the Glengarren Farm.

    (b)Does the estate of the late Blanche Adeline Kanny have an interest in the Glengarren Farm as to one-third, or alternatively any other proportion?

  2. Yes, the estate of the late Blanche Adeline Kanny has an interest in one-third of the Glengarren Farm, as recorded on the relevant certificates of title.

    (c)Does the estate of the late Paul Kanny have an interest in the Glengarren Farm as to one-third, or alternatively two-thirds, or alternatively any other proportion?

  3. Yes, the estate of the late Paul Kanny has an interest in two-thirds of the Glengarren Farm, as recorded on the relevant certificates of title.

  4. I will hear the parties as to the appropriate form of the orders, and on the question of costs.


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Cases Citing This Decision

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Cases Cited

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Statutory Material Cited

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Byrnes v Kendle [2011] HCA 26
Garrett v L'Estrange [1911] HCA 67
Kauter v Hilton [1953] HCA 95