Henderson v Harburg

[2000] QCA 228

SUPREME COURT OF QUEENSLAND

CITATION:

Henderson v Harburg [2000] QCA 228

PARTIES:

EDITH HENDERSON
(plaintiff/respondent)
v
PETER VICTOR HARBURG
(defendant/appellant)

BY ORIGINAL ACTION

MAXINE CHERYL HENDERSON
(as Executor of the Estate of Edith Henderson deceased)
(plaintiff/respondent)
v
PETER VICTOR HARBURG
(defendant/appellant)

FILE NO/S:

Appeal No 9116 of 1999
DC No 3529 of 1993

DIVISION:

Court of Appeal

PROCEEDING:

General civil appeal

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

13 June 2000

DELIVERED AT:

Brisbane

HEARING DATE:

6 June 2000

JUDGES:

de Jersey CJ, White J, Dutney J
Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

ORDER:

Appeal allowed to the extent of varying the amount of the judgment, substituting for $97,500 the amount of $60,750.
The order made as to costs of the trial undisturbed.
Respondent to pay one-third of the appellant’s costs of the appeal to be assessed.

CATCHWORDS:

EQUITY – TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES -  LIABILITY FOR BREACH OF TRUST – OTHER MATTERS – appellant fraudulently sold respondent’s land in breach of trust – trial Judge awarded $97,500 compensation to respondent – whether sum assessed on correct basis – whether speculative – whether trial Judge unreasonably disregarded one of two valuers’ evidence – valuers’ evidence compared – whether sum should have been further discounted where subdivision of land would not have been possible for substantial period – whether respondent should have been limited to account of profits

The Corporation of the Trustees of the Roman Catholic Archdiocese of Brisbane v Discovery Bay Developments Pty Ltd & Anor SC No 1945 of 1991, 17 October 1995, considered
United States Surgical Corporation v Hospital Products International Pty Ltd (1983) 2 NSWLR 157, referred to

COUNSEL:

PJ Lyons QC with KS Hoare for the appellant.
AM West for the respondent.

SOLICITORS:

Cranston McEachern for the appellant.
Walker Pender for the respondent.

1. de JERSEY CJ:  The learned District Court judge gave judgment in favour of the respondent against the appellant in the amount of $97,500.  That sum included $75,000 compensation for the appellant’s sale of  two acres of land, included within a larger block, to a bona fide purchaser for value, but fraudulently, in breach of trust.  The balance represented interest.  In the notice of appeal, the appellant challenges the respondent’s standing to have brought the claim which resulted in the judgment, and the basis of assessment of the compensation.  Only the latter matter was pursued at the hearing of the appeal.

1. The two acres are located at Redbank Plains, in the north western corner of an area known as “Hogan’s Paddock”.  They constitute an unsubdivided area within lot 69 on registered plan S151854 in the County of Stanley Parish of Bundamba.  The relevant original owner of lot 69 was Robert John Hallett.  Mr Hallett died on 4 May 1973.  He left a will which was, on 22 August 1973, admitted to probate.  By that will he appointed his brother, Thomas Rodger Hallett, and his brother in-law Allan Watson, as his executors and trustees.  After providing for some personal legacies, he left the residue of his estate to his trustees for sale with division of the proceeds among his surviving brother (Thomas) and sisters, together with one Ruby Adelaide Yarrow. 

1. One of the deceased’s sisters was Edith Henderson, the mother of the plaintiff Maxine Cheryl Henderson in whose favour the learned judge gave judgment against the appellant. Edith Henderson (the original plaintiff) died on 19 October 1996, before the trial.  The current plaintiff is her late mother’s sole executrix and trustee.  Prior to her death, Edith Henderson made a gift of her interest in the two acre area to her daughter, Maxine, the plaintiff.

1. On the basis of an affidavit sworn by Edith Henderson, admitted as evidence at the trial by consent, the learned judge held that Edith had entered into a contract with the executors of Robert Hallett’s estate (together with her co-beneficiaries) to purchase from the estate the two acres of land previously referred to, for the sum of $4,000.  As Edith Henderson swore in that affidavit:

“Subsequent to the death of Robert John Hallett, deceased, I entered into oral agreements with the executors of the Will and my co-beneficiaries under the Will to purchase the interest in the said two acres for the sum of $4,000.  I duly paid the sum of $4,000 to purchase the said two acres.  Exhibited hereto and marked with the letter “A” are true copies of receipts for payment of the purchase moneys.”

Mrs Henderson actually paid $573.02 short of the $4,000, which reflects her entitlement as a beneficiary to “share” in the sum of $4,000 upon an ultimate distribution of the residue of the estate.

1. The two acres were never conveyed to Edith Henderson.  She took the view that the land “was unable to be excised as it fell outside the guidelines laid down by Moreton Shire Council” (para 7 affidavit).  But subsequent transfers nevertheless contemplated a subdivision. 

1. On 23 July 1973, the executors sold the larger area to Booker Industries Pty Ltd, obliging the purchaser “to carry out at his own expense all necessary survey work regarding excise of … an area of approximately two acres on the north western corner of portion 69”.  When on 26 August 1983 Harburg Holdings Pty Ltd, the appellant’s company, tendered to purchase the larger area from Booker Industries, then called Lombank Properties Pty Ltd, Harburg Holdings acknowledged, as provided for in the conditions of sale by tender, that “there is a certain reservation of land to be excised and transferred to the original vendors T R Hallett and A Watson pursuant to …  contract … dated …  3.7.73 such reservation being an area of approximately two acres on the north western corner of portion 69 …”. 

1. The land was in fact on 23 September 1983 conveyed by Lombank directly to the appellant, and on 20 December 1983 he became registered proprietor free of any  registered encumbrance.  On 17 March 1992 the appellant contracted to sell the land, without making any reservation in respect of the two acre area, to Evanwood Investments Pty Ltd – which His Honour viewed as a bona fide purchaser for value without notice.  Title was transferred to Evanwood on 16 August 1993.

1. The learned judge found that Edith Henderson purchased the unsubdivided two acre area from the executors of the estate of Robert John Hallett, and that the land remained impressed with a trust in her favour until acquisition, ultimately, by Evanwood.  He found the appellant guilty of fraudulent breach of trust in conveying title to that area to Evanwood. 

1. The judge was faced with competing valuations, but accepted the evidence of the respondent’s valuer Mr McNabb that the value of the two acres in 1993 was $80,000, and proximately to the trial in 1999, $75,000.  The respondent limited her claim to $75,000 (plus interest).  The judge also accepted the view of the appellant’s valuer Mr Purcell, that values of land in the area had not changed since 1993. 

1. But the judge did not assess compensation directly with reference to the value of the land.  He held that the appellant had been unjustly enriched, not just by gaining that part of the overall price notionally attributable to the two acres, but through his enhanced ability to sell land of otherwise doubtful saleability.  As the judge put it:

“It seems to me that it is somewhat artificial to proceed in this case on the basis of the value of a block which cannot be excised from a larger portion. It seems to me that the benefit the defendant obtained involves the benefit of being able to on-sell the land to a purchaser who will be able to develop the land without the restriction of the excision which excision may indeed be impossible.  If the defendant had observed his obligation to recognise the plaintiff’s interest he may never have been able to sell the portion at all.  Looked at in that light it seems to me the benefit he obtained is almost incalculable.  Since however the plaintiff has limited her claim to $75,000 it seems to me she is entitled to at least that sum, the value of the benefit obtained by the plaintiff being at least worth that amount.  Alternatively I would prefer the evidence of valuation called by the plaintiff … “

1. In addition to the $75,000, His Honour allowed interest at 5 percent per annum for six years, the action having been commenced in June 1993 with judgment in September 1999.

1. The first ground of appeal which was covered in the appellant’s written submissions was that the respondent “had no right or entitlement to bring the action”, based on a contention that Edith Henderson had no right in relation to the property.   This rested in turn on her position as a residuary beneficiary, by which she acquired no proprietary interest in the estate (Commissioner of Stamp Duties (Queensland) v Livingstone (1965) AC 694,712). This submission involves misconception as to the nature of the respondent’s claim, and was understandably abandoned at the hearing.

1. The claim for damages or compensation contained in the amended statement of claim, and pursued at the trial,  was based on the appellant’s fraudulent disregard of an interest in the particular property which Edith Henderson had purchased for value from the executors of the estate of Robert Hallett.  She was not, as the original plaintiff prior to her death, asserting an interest in particular property because of her standing as beneficiary in an estate which had not been fully administered: she was asserting her independent right as equitable owner under an uncompleted contract of purchase.

1. The second challenge to the judgment, the only matter pursued on the hearing of the appeal, concerned the manner of assessment of compensation.

1. The learned judge proceeded on the basis that it was not possible to excise the two acres from the rest of the lot “immediately prior to sale by (the appellant)”.  That was presumably based on the difficulty of complying with local authority guidelines. But whatever the practical difficulty about excision, until the intervention of the appellant’s fraud, Edith Henderson’s entitlement to the interest she had purchased was consistently recognised by those who dealt with the land. It is plain enough, as His Honour found, that respecting Edith Henderson’s interest in the land would have reduced the saleability of the larger portion containing it.  The judge presumably reasoned that this would have left the respondent in a strong bargaining position, in which she could, in return for a surrender of her interest, possibly have demanded more than the assessed value of the land, assuming it could be excised.  It was, one infers, in that sense that the judge described the amount she could have obtained as “incalculable”.  In proceeding to determine that she had lost “at least” $75,000, the judge does appear however, as submitted for the appellant, not to have relied on evidence, but to have engaged in a degree of speculation.  This first criticism of His Honour’s approach was, with respect, justified.

1. The learned judge’s selection of $75,000 could however be justified by reference to the evidence of the respondent’s valuer, Mr McNabb, and the judge did rely on that evidence as providing an alternative basis for his selection of that sum.  The appellant submitted that His Honour could not reasonably have relied on the evidence of Mr McNabb, and that he should reasonably have preferred the evidence of the appellant’s valuer, Mr Purcell.

1. Each valuer provided a written report, and each gave oral evidence.  Unfortunately the learned judge expressed no reasons as to why he preferred the evidence of Mr McNabb. He does refer specifically to his rejection of Mr Purcell’s evidence “in particular about the negative effect of smoke stacks at Swanbank”.  Mr Purcell gave evidence (p 50) that during an inspection of the land, his wife drew his attention to smoke stacks distantly visible, and Mr Purcell expressed the view that this would affect the worth of the land.  But he ultimately suggested that this feature carried little significance in his valuation exercise (p 61).  It is impossible reasonably to regard His Honour’s specific rejection of that evidence as justifying the rejection of Mr Purcell’s evidence in whole.

1. It is important to contrast the approach of the valuers.  Mr McNabb, called by the respondent, provided a valuation as at 15 July 1993 in the amount of $80,000.  He referred, without analysis, to four other sales.  What he nominated in his oral evidence as his “main sale” concerned a 2.023 hectare block (the area of the subject land is 8,094 square metres) sold in January 1992 for $95,000.  Mr McNabb was apparently unaware that that block had been resold in May 1992, again prior to his valuation, for the sum of $128,000.   Mr McNabb also provided a letter of valuation dated 10 June 1999, nominating a current value of the property in the sum of $75,000.  He referred in that letter to “recent sales evidence” and “current sales evidence”, but provided no particulars at all.  He was not cross-examined about that.

1. By contrast, Mr Purcell, called by the appellant, provided a comprehensive valuation, valuing the property at $45,000 as at August 1993 and June 1999.  It provided full apparent justification for the adoption of that value, including extensive reference to sales of other properties.  His vacant land sales, numbered 8-19, provided substantial support for the adoption of the amount of $45,000.  Significantly, so apparently did the other sales advanced by Mr McNabb – other, that is, than his sale 3. 

1. Mr McNabb was cross-examined on the basis that there were significant points of distinction between the land involved in sale 3, and the subject land.  One is left with lack of assurance about its comparability, especially in view of Mr McNabb’s apparent ignorance of the resale in May 1992. 

1. Counsel for the appellant at the trial put to Mr McNabb that his valuation in the amount of $80,000 was “at the top end of the range”, or “the upper level of values for this particular lot”.  That was not, however, a concession which should now be held against the appellant where there is otherwise ground to question the reasonableness of the judge’s preference for the evidence of Mr McNabb.

1. A reading of the oral evidence given by the valuers discloses no reason why the judge should rationally have preferred Mr McNabb’s evidence to Mr Purcell’s.  There was no criticism through cross-examination of Mr Purcell’s methodology.  On paper, his views seemed clearly more compelling than those of Mr McNabb. All of the relevant comparable sales evidence advanced by both valuers, save for Mr McNabb’s sale 3, tended to support the value adopted by Mr Purcell, and there is, in addition, real ground for doubting the reliability of Mr McNabb’s fastening upon sale 3 in any event. 

1. In these circumstances, noting that the learned judge provided no reason for his preference for the views of Mr McNabb, and acknowledging the circumspection with which an appellate court should consider departing from the factual approach of a primary judge who has heard the relevant evidence, this is nevertheless plainly a case where this court should take a different approach. 

1. This court should proceed on the basis that the value of the two acres in 1993 was $45,000, as advanced by Mr Purcell.  To that should be added interest at 5 percent per annum for seven years, that is to the date of the determination of the appeal, amounting to $15,750, giving a total for the revised judgment of  $60,750.

1. The appellant’s third contention was that the learned judge should in any event have discounted the sum further, to allow for the receipt now of an amount as compensation, where subdivision would have been unlikely for a substantial period into the future.  This contention stems from evidence given by Mr Purcell that to obtain the present value of a sum to be paid in 20 years time, before which subdivision would be unlikely, one should multiply the sum by between .31 and .37 (p 44).  There are a number of points to be made in response.

1. First, the proposal assumes without necessary justification that the value of this area of two acres would not over the next 20 years increase beyond its present value of $45,000.  Second, it is not right on the evidence to assume that Edith Henderson would have been prepared to wait 20 years for her compensation: as at December 1992 her solicitors raised the prospect of her then being paid “the reasonable value of the two acre area of ground on today’s market in lieu of the transfer of the land” (Ex 20).  Third, and by way of general observation, courts do not approach these tasks with any particular tenderness for fraudulent trustees (United States Surgical Corporation v Hospital Products International Pty Ltd (1983) 2 NSWLR 157, 242). No discounting of that amount of $45,000 would in this case be justified.

1. It remains to mention a point developed in the appellant’s written material, although not pursued in detail orally at the hearing, but nevertheless raised; and that is, an alternate contention that the respondent should be limited to an account of net loss of profits, a sum which on the evidence would be substantially less than the value of the two acres.  In this case, the respondent was entitled to an account of profits or compensation, and sought compensation, as was her right.  In The Corporation of the Trustees of the Roman Catholic Archdiocese of Brisbane v Discovery Bay Developments Pty Ltd & Anor, an unreported judgment of the Supreme Court given on 17 October 1995 (No 1945 of 1991), a judgment on which the appellant relied, the defendants had profited by the wrongful development of trust land, and the account of profits which the plaintiff elected to take was an obviously appropriate remedy.  In the present case, the appellant simply acquired the land aware of Edith Henderson’s interest, held it and then sold it free of that interest.  In those circumstances, it was proper to approach the assessment on the basis that appropriate compensation amounted to the value of the interest lost.

1. The appeal should be allowed to the extent of varying the amount of the judgment, substituting for $97,500 the amount of $60,750.  The order made as to the costs of the trial should remain undisturbed.   As to the costs of the appeal, although the appellant has secured a substantial reduction in the amount of the judgment, he abandoned, at the hearing of the appeal, most of the grounds in the notice of appeal and many of the points developed in the written material, some of which challenged the judgment in its entirety.  Balancing all these considerations, the respondent should pay one-third of the appellant’s costs of the appeal to be assessed.

1. WHITE J:  I have read the reasons for decision of the Chief Justice and agree with his Honour that the appeal should be allowed so far as it relates to the quantum of the compensation which ought to be awarded to the respondent for the fraudulent conduct of the appellant.

1. I agree with his Honour that there was no reasonable basis for preferring the valuation evidence advanced by Mr McNabb who gave evidence for the respondent over that of Mr Purcell, the appellant’s valuer.  The trial judge did not identify any reason for doing so apart from a passing reference to Mr Purcell’s comment in his written valuation about the negative effect of the distant Swanbank smoke stacks on the value of the subject land.  In his oral evidence Mr Purcell said he placed little or no reliance on that matter in arriving at his valuation.  When the two valuations (including Mr McNabb’s up‑to‑date valuation) and the oral evidence are examined nothing is revealed which would cause Mr McNabb’s less than compelling analysis to be preferred against Mr Purcell’s detailed reference to many comparable sales.

1. I agree with the Chief Justice that the amount of compensation, based as it is on a valuation of the two acres in 1993, should be $45,000 as advanced by Mr Purcell.  The interest on that should be as indicated by the Chief Justice, namely $15,750, which gives a total amount of compensation of $60,750.

1. I also agree with the orders as to costs proposed by the Chief Justice.

1. DUTNEY J:   I agree with the reasons of the Chief Justice and the orders his Honour proposes.