Kellett v Schriever
[2020] SASC 96
•9 June 2020
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
KELLETT v SCHRIEVER
[2020] SASC 96
Judgment of The Honourable Justice Blue
9 June 2020
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST - WHO MAY BE LIABLE - RECIPIENT OF MISAPPLIED TRUST PROPERTY
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST - RELIEF FROM LIABILITY
The plaintiff sues on a claim that the disposition of a farming property by the trustee, Brimmage Pty Ltd, of a discretionary trust was made without power and thereby in breach of trust. He seeks the return of the property or in the alternative equitable compensation for its value. He seeks the appointment of a new trustee of the trust to receive the return of the property because the original trustee has been deregistered.
The defendants were the directors of Brimmage. The first defendant is the stepfather, and the second defendant a half-brother, of the plaintiff.
The second defendant was excluded as a beneficiary under the original terms of the trust deed of the trust. Amending deeds were executed excluding the first defendant as a beneficiary but there is an issue whether they were conditional on being necessary to obtain a stamp duty exemption on the transfer of an earlier farming property to the trust and whether that condition was satisfied.
In 1998 the first defendant and Brimmage executed a transfer whereby the first defendant transferred a farming property to the trust. It was provided to a bank to register the transfer but, unknown to the parties, the bank did not do so. The property was shown in the financial statements of the trust as an asset of the trust gifted by the first defendant.
In 2006 a new farming property was purchased in the name of the trust for $420,000 in substitution for the original property, which was sold for $420,000. It was discovered that the original property was still registered in the name of the first defendant. The first defendant executed a deed declaring that he held the original property, and would hold its proceeds of sale, on trust for Brimmage as trustee of the trust.
The accountants for the trust subsequently prepared financial statements for the trust showing the original property as an asset of the trust (even though it had been sold) and a loan of $420,000 from the first defendant and his wife as having funded the purchase of the new property, which was also shown as an asset of the trust.
In 2013 the first and second defendants executed consecutive transfers of the new property by Brimmage to the first defendant and by him to the second defendant. Brimmage was then deregistered.
Held:
1. The amending deeds were not conditional and were operative to exclude the first defendant as a beneficiary of the trust (at [166]).
2. The first defendant did not lend $420,000 to the trust (at [181]).
3. In any event, the first defendant made an operative declaration of trust of the original property and its sale proceeds in favour of the trust in 2006 (at [191]).
4. In any event, beneficial ownership of the original property had been conveyed to the trust in 1998 (at [210]).
5. The plaintiff has standing to bring the action (at [222]).
6. Brimmage could not be relieved of liability for the 2013 breach of trust under section 56 of the Trustee Act in a manner that would avail the defendants (at [227]).
7. The second defendant was not a bona fide purchaser for valuable consideration of the legal estate in the property without notice of the breach of trust (at [263], [271], [272]).
8. Relief should not be refused because the Court cannot make orders to appoint a new trustee without further evidence (at [279]).
9. The discretion should be exercised to grant relief (at [290]).
10. The transfers of the property should be set aside and the property re-vested in the trust; the parties to be heard on appropriate orders to effect this (at [291]-[292]).
Stamps Act 1958 (Victoria) s 71; Trustee Act 1936 (SA) s 56; Law of Property Act 1936 (SA) ss 29(1), 41AA, referred to.
Corin v Patton (1990) 169 CLR 540, discussed.
Anning v Anning (1907) 4 CLR 1049; El Sayed v El Hawach (2015) 88 NSWLR 214; Milroy v Lord [1861-1873] All ER 783; Ramage v Waclaw (1988) 12 NSWLR 84; Stainton v Carron Co (1854) 52 ER 58; Travis v Milne (1851) 68 ER 449, considered.
KELLETT v SCHRIEVER
[2020] SASC 96Civil
BLUE J:
The plaintiff, Michael Kellett (Michael), sues on a claim that the disposition of a farming property in Victoria by Brimmage Pty Ltd (Brimmage) as trustee of the Schriever Family Trust (the Schriever Trust) was made without power and thereby in breach of trust. He seeks the return of the property to the Trust or in the alternative equitable compensation to the Trust for its value. He seeks the appointment of a new trustee of the Trust to receive the return of the property because the original trustee has been deregistered.
The defendants (the Schrievers) were directors of Brimmage. The first defendant, Alan Schriever (Alan), is the stepfather of Michael. The second defendant, Dean Schriever (Dean), is a son of Alan and half-brother of Michael.
Dean was excluded as a beneficiary under the original terms of the trust deed of the Schriever Trust. Amending deeds were executed excluding Alan as a beneficiary but there is an issue whether they were conditional on being necessary to obtain a stamp duty exemption on the transfer of an earlier farming property to the Trust and whether that condition was satisfied.
In 1998 Alan and Brimmage executed a transfer whereby Alan transferred a farming property to the Trust. It was provided to the ANZ Bank to register the transfer but, unknown to the parties, the bank did not do so. The property was shown in the financial statements of the Trust as an asset of the Trust gifted by Alan.
In 2006 a new farming property was purchased in the name of the Trust for $420,000 in substitution for the original property, which was sold for $420,000. It was discovered that the original property was still registered in Alan’s name. Alan executed a deed declaring that he held the original property, and would hold its proceeds of sale, on trust for Brimmage as trustee of the Trust.
The accountants for the Trust subsequently prepared financial statements for the Trust showing the original property as an asset of the Trust (even though it had been sold) and a loan of $420,000 from Alan and his wife as having funded the purchase of the new property, which was also shown as an asset of the Trust.
In 2013 Alan and Dean executed consecutive transfers of the new property by Brimmage to Alan and by Alan to Dean. Brimmage was then deregistered.
Background
Parties and land
Alan was born in about 1926. He has two children from his first marriage: Ross Schriever (Ross), born in about 1949; and Helen Lynch (Helen), born in about 1953.
Louise Mae Schriever (Mae) was born in about 1936. She had four children from her first marriage: Michael, born in about 1954; Debra Telfer (Debra), born in about 1956; Terry Kellett (Terry), born in about 1958; and Joanne Kellett (Joanne), born in about 1960.
In 1971[1] Alan acquired 349 acres of land at Dorodong, near Dergholm in western Victoria, by Crown Grant described in register book certificate of title volume 8876 folio 845. This was the first part of the land known variously as “Back of Ross” or “The Swamp”.
[1] The Crown Grant is dated 6 September 1971 and states that this is the date “on which the grantee became entitled to this Grant”.
In 1974 Alan and Mae married. Their son Dean was born in about 1975.
In 1976[2] Alan acquired 280 acres of land at Dorodong by Crown Grant described in register book certificate of title volume 9617 folio 807. This adjoined the 349 acres. I refer to the combined land totalling 629 acres as the Swamp property.
[2] The Crown Grant is dated 20 October 1976 and states that this is the date “on which the grantee became entitled to this Grant”.
In 1976[3] Alan acquired 931 acres of land at Dorodong by Crown Grant described in register book certificate of title volume 9287 folio 132. This was on the opposite side of Dorodong Road to the Swamp property. This land was known variously as Spot-On or the Home property. I refer to it as the Spot-On property.
[3] The Crown Grant is dated 20 October 1976 and states that this is the date “on which the grantee became entitled to this Grant”.
Alan and Mae lived in the farmhouse on the Spot-On property. They carried on a farming business in partnership on the Spot-On and Swamp properties.
In 1985 a mortgage over the Swamp property in favour of the Commonwealth Development Bank was discharged. Thereafter, the Swamp property was not the subject of any mortgage.
In 1985 a mortgage over the Spot-On property in favour of the Commonwealth Development Bank was discharged. In 1988 Alan granted a mortgage in favour of the ANZ Bank over the Spot-On property.
Alan at some point acquired a third farming property nearby comprising 620 acres (Ross’s property). At some point he gave that property to Ross. At least in more recent times, Ross did not himself use that property but allowed Alan and Mae, and then Alan and Dean, to use it for cattle grazing. Ross also owned a second property that he used himself.
Dean started working on the properties in 1994 or 1995. He undertook a 12 month agricultural management course at TAFE while working on the properties.
By 1996 Stephen Evans of RJC Evans & Co, accountants based in Adelaide, was the accountant for the Schriever family.
Trusts and transfers
In 1996, taking into account that he had already given Ross’s property to Ross, Alan intended that the Spot-On property would eventually be given to Dean and the Swamp property would eventually be given to the remaining five children (Helen, Michael, Debra, Terry and Joanne). After attending an estate planning seminar, Alan decided to transfer the Spot-On property to a family trust that would eventually be controlled and operated by Dean.
On 20 August 1996 Alan and Mae attended on Bill DeGaris of WS DeGaris & Co, lawyers. WS DeGaris & Co had offices in Mount Gambier and Millicent. Alan gave instructions to Mr DeGaris as summarised in the previous paragraph.
Mr DeGaris advised the creation of a discretionary trust, which became the Spot-On Trust, to which the Spot-On property would be transferred by Alan. He advised that it should have capital beneficiaries including Alan, Mae and Dean and a broad range of income beneficiaries. Mr DeGaris recommended that the trustee should be a corporate trustee and advised that his firm could make available a shelf company called “Brimmage Pty Ltd”. Alan, Mae and Dean should be the directors and equal shareholders of the trustee company. Alan and Mae should be joint appointors of the trust. Ultimately they could resign as appointors and appoint Dean in their place.
Mr DeGaris advised the creation of a second discretionary trust, which became the Schriever Trust, to which the Swamp property would be transferred by Alan. He advised that it should have capital beneficiaries including Alan and Mae and the five children (Helen, Michael, Debra, Terry and Joanne) and a broad range of income beneficiaries. Mr DeGaris recommended that the trustee should be a corporate trustee and could be the same company as the trustee of the Spot-On Trust. Alan and Mae should be joint appointors of the Trust. Ultimately the power of appointment could be left to the five children.
On 27 August 1996 Mr DeGaris wrote to Alan, Mae and Dean confirming the discussion on 20 August and enclosing, amongst other things, trust deeds for the two trusts and documentation to transfer ownership and control of Brimmage.
On 30 June 1997 Mr DeGaris as settlor and Alan and Mae as director and secretary of Brimmage executed the trust deed for the Spot-On Trust (the Spot-On Trust deed).
On 30 June 1997 Mr DeGaris as settlor and Alan and Mae as director and secretary of Brimmage executed the trust deed for the Schriever Trust (the Schriever Trust deed). The Designated Person was defined by paragraph 2(c)(i) to be Alan and Mae.
“Beneficiaries” were defined by subclause 2(c) to mean, amongst others:
(i) ALAN JEFFREY SCHRIEVER and LOUISE MAY SCHRIEVER (“Designated Person”) and each spouse of the Designated Person;
(ii) each child and each grandchild, great-grandchild and remoter issue of the Designated Person or of a spouse of the Designated Person (except and excluding DEAN JEFFREY SCHRIEVER and ROSS ALAN SCHRIEVER and their remoter issue);
“Capital Beneficiaries” was defined by subclause 2(f) mean:
…the designated person, and other persons defined in clause 2(c) (i) and (ii), and each spouse of the persons described therein, provided in any event the term “Capital Beneficiaries” does not mean or include any person who does not satisfy the definition of “relative” under Section 63 of the Stamps Act 1958 (Victoria) at the date of execution of this deed.
This was followed by a proviso:
PROVIDED HOWEVER that this clause may not be amended to include any further capital beneficiaries pursuant to clause 17 of this Deed or otherwise.
“Original Appointor” was defined by subclause 2(l) to mean Alan and Mae. Clause 18 empowered the appointor to remove the trustee and appoint a new trustee. It provided that the first appointor was the Original Appointor. It empowered the appointor to appoint another person as a successor as appointor.
“Spouse” was defined by subclause 2(n) to include a present or former legal or de facto husband or wife.
Clause 7 empowered the trustee to make an interim distribution of capital of the trust fund to one or more Capital Beneficiaries. Clause 8 provided for a final distribution by the trustee of capital to one or more Capital Beneficiaries on the Date of Distribution (defined as when the trust reached a defined perpetuity-inspired date or the trustee determined to wind up the trust before that date).
Clause 8.3 provided that, if at the Date of Distribution there was no Capital Beneficiary, the trustee was to hold the trust fund on trust for the beneficiaries of the estate of the Designated Person and otherwise for charitable purposes determined by the trustee.
Clause 9 empowered the trustee to make an in specie distribution.
Clause 10 applied when a beneficiary was an infant or under a legal disability. It empowered the trustee among other things to apply capital or income for the maintenance, education, benefit or advancement of the beneficiary and for that purpose to pay it to their parent or custodian.
Clause 17 empowered the trustee to vary any provision of the trust deed, subject to defined limitations. This power did not extend to adding a capital beneficiary due to the proviso referred to above.
WS DeGaris & Co engaged Barbour Arnold & Cousins, solicitors in Melbourne, to arrange for stamping of the trust deeds and land transfers. On 28 July 1997 the two trust deeds were stamped by the Victorian Comptroller of Stamps.
On 19 August 1997 Kylie Gould, of WS DeGaris & Co, wrote a letter to Alan and Mae enclosing a transfer of the Spot-On property by Alan to Brimmage, a transfer of the Swamp property by Alan to Brimmage, and declarations by Alan under the Stamps Act 1958 (Victoria) (the Stamps Act) for execution and return for lodgement for stamping. The declaration in relation to the Swamp property stated that the transferee was the trustee of the Schriever Trust, annexed a copy of the trust deed, stated that the purpose of the transfer was to ensure the continued operation of the family farm to younger family members, and stated that all capital beneficiaries of the trust were children of Alan or Mae and their remoter issue.
Alan and Mae executed the transfers and declarations.
On 16 September 1997 Barbour Arnold & Cousins lodged the executed transfers and declarations with the Victorian State Revenue Office.
On 30 October 1997 Mr Arnold wrote a letter to Ms Gould. The letter was not tendered but its contents can be inferred from Ms Gould’s letters dated 12 November 1997. Mr Arnold said that the State Revenue Office had informed him that it would not accept the transfers on a non-dutiable basis unless the trust deeds were amended by variation deeds:
1to exclude the transferor [Alan] as a beneficiary;
2to define a spouse to match the definition in the Stamps Act;
3to amend clause 9 to ensure that an in specie distribution of capital could not be made to a person other than a capital beneficiary; and
4to amend clause 10 to ensure that a distribution of capital for a person under a legal disability could not be made to a person other than a capital beneficiary.
On 12 November Ms Gould replied to Mr Arnold.
On 12 November 1997 Ms Gould wrote a letter to Alan and Mae confirming that the documentation had been lodged with the State Revenue Office. She said that the State Revenue Office had informed Barbour Arnold & Cousins that it would not accept the transfers on a non-dutiable basis notwithstanding the January 1995 guidelines regarding family farm exemptions from duty. It said that they would only accept them on that basis if the trust deeds were amended by variation deeds to exclude Alan as a beneficiary and making the other amendments summarised above. She said that it was probably better to comply than to challenge them. She asked them to contact her to discuss the matter further.
On 25 November 1997 Alan and Mae attended upon Ms Gould to sign Deeds of Amendment to each trust deed. The Schriever Trust Deed was amended by a Deed of Amendment (Amending Deed 1) that removed Alan as a “beneficiary” from subclause 2(c) paragraphs (i) and (ii) and substituted a definition of “spouse” in subclause 2(n) that picked up the definition in the Stamps Act.
On 1 December 1997 Ms Gould wrote a letter to Alan and Mae enclosing copies of the executed Deeds of Amendment and reporting that she had sent the originals to Mr Arnold for lodgement with the State Revenue Office.
On 4 December 1997 Ms Gould wrote a letter to Alan and Mae saying that the Stamps Act had been amended, amongst other things, to provide that the transferor cannot be the appointor of the trust. She said that Barbour Arnold & Cousins had prepared further Deeds of Amendment. She enclosed them and requested that Alan and Mae sign them and return them to her. She said that they:
1excluded Alan from the definition of Capital Beneficiaries in subclause 2(f);
2removed Alan from the definition of the Original Appointor in subclause 2(l);
3substituted a new definition of spouse in subclause 2(n);
4substituted a new clause 8.3 providing that, if at the Date of Distribution there was no Capital Beneficiary, the trustee was to hold the trust fund on trust for the beneficiaries of the last surviving Capital Beneficiary;
5substituted a new clause 9 so that capital can only go to Capital Beneficiaries; and
6amended clause 10.
On 9 December 1997 Ms Gould wrote a letter to Alan and Mae enclosing fresh declarations and transfers to be executed by Alan. This letter was not tendered but its existence is inferred from Ms Gould’s letter dated 8 January 1998.
On 12 December 1997 Ms Gould wrote a letter to Alan and Mae enclosing transfers of the Spot-On property and the Swamp property from Alan to Brimmage and noting that the consideration was referred to as a gift. She said that Mr Arnold proposed to submit the documents to the Stamp Duties Office for an opinion because of the uncertainty created by the recent amendments to the Act.
Sometime before 8 January 1998 Alan and Mae as director and secretary of Brimmage signed the Deed of Amendment of the Schriever Trust deed (Amending Deed 2) and the Deed of Amendment of the Spot-On Trust deed forwarded to them on 4 December 1997. Alan signed an acknowledgement on the Deeds of Amendment consenting to his removal as appointor and his signature was witnessed by Ms Gould. They were dated 1 December 1997. Alan signed separate transfers of the Spot-On property and the Swamp property and his signature was witnessed by Ms Gould. Alan as director and Mae as secretary signed acceptances on behalf of Brimmage. The consideration shown in the transfer of the Swamp property was recorded as:
A GIFT BY THE TRANSFEROR TO THE TRANSFEREE IN ITS CAPACITY AS TRUSTEE OF THE SCHRIEVER FAMILY TRUST.
Alan also signed the two stamp duty declarations.
Alan and Mae returned the signed documents to Ms Gould.
In late 1997 or early 1998 Dean moved to Queensland. He initially worked on a land based aquaculture facility and later established a roofing and guttering business.
On 8 January 1998 Ms Gould wrote a letter to Mr Arnold enclosing the executed transfers, Deeds of Amendment and declarations. On the same date she wrote a letter to Alan and Mae enclosing copies of the executed Deeds of Amendment and transfers and her letter to Mr Arnold.
In April 1998 the Stamp Duties Office told Mr Arnold that they requested further deeds of variation making it clear beyond all doubt that the capital cannot in any circumstances be distributed to anyone other than the capital beneficiaries of the trusts. Mr Arnold did not necessarily accept their interpretation but prepared a third set of Deeds of Amendment in case they should be required (it transpired that they were not ultimately required). On 23 April 1998 Mr Arnold reported this to Ms Gould.
On 2 June 1998 Ms Gould wrote a letter to Alan and Mae reporting what she had been told by Mr Arnold as summarised in the previous paragraph. She enclosed a copy of the third set of Deeds of Amendment but recommended that they not sign them unless absolutely necessary. She advised instead that they should complain to the Victorian Ombudsman and enclosed a draft letter of protest.
On 28 July 1998 Ms Gould sent to Alan and Mae for instructions a draft complaint addressed to their local Member of Parliament. On 31 July she sent a final version of that letter to the Member of Parliament, with a copy to the Victorian Attorney-General and Ombudsman. The letter referred to the first and second sets of Deeds of Amendment.
In August 1998, which I infer was as a result of the sending of that letter, a Senior Stamp Duties Assessor informed Ms Gould that the Stamp Duties Office would not persist with the requirement for a further set of Deeds of Amendment and the transfers would now be accepted as non-dutiable.
On 19 August 1998 Ms Gould wrote a letter to Alan and Mae informing them of the acceptance of the position by the Senior Stamp Duties Assessor. She enclosed new declarations to be signed by Alan.
The declaration in relation to the transfer of the Swamp property stated that Alan annexed a copy of the Schriever Trust Deed and a copy of Amending Deed 2. It stated by paragraph 5 that the Trust Deed by subclause 2(f) limited capital beneficiaries of the Trust to Mae and each child or remoter issue of Mae, excluding Dean and Ross. It stated by paragraph 7 that the purpose of the transfer was to ensure the continued operation of the family farm to younger family members, and more particularly the children of Alan and Mae other than the excluded beneficiaries.
Alan signed the declarations in the presence of. and they were witnessed by, Ms Gould. I infer that Ms Gould sent them to Mr Arnold for lodgement at the Stamp Duties Office.
On 7 October 1998 the Stamp Duties Office stamped each transfer as not chargeable and returned them to Barbour Arnold & Cousins, who returned them to Ms Gould. The transfers had by now been dated 4 September 1998.
On 2 November 1998 Ms Gould wrote a letter to Mr Sinclair at the ANZ Bank at Mount Gambier. The ANZ Bank held a mortgage over the Spot-On property but not over the Swamp property. It appears that the Bank held the duplicate certificates of title for both properties. Ms Gould implicitly requested the Bank to lodge the transfers for registration.
On 2 November 1998 Ms Gould wrote a letter to Alan and Mae informing them that the transfers had now been stamped not chargeable under the family farm exemptions. She enclosed a copy of her letter to Mr Sinclair and said that she understood that the Bank would attend to lodging the documents.
On 11 January 1999 Ms Gould wrote to Mr Evans at RJC Evans & Co. She advised that the transfers had been stamped and forwarded to the ANZ bank for the purpose of registration. She enclosed copies of the transfers.
On 17 February 1999 Ms Gould wrote to Mr Evans enclosing copies of the Spot-On Trust Deed and Schriever Trust Deed.
Mr DeGaris gave evidence that he believed at the time that the ANZ Bank lodged the transfers for registration and that the Swamp property and the Spot-On property were now registered in the name of Brimmage, which held them as trustee for the Schriever Trust and Spot-On Trust respectively. I infer that Alan and Mae also believed this. Dean gave evidence that he believed that Brimmage held the Swamp property as trustee for the Schriever Trust and the Spot-On property as trustee for the Spot-On Trust.
Financial statements
RJC Evans & Co prepared financial statements for the Schriever Trust and the Spot-on Trust for the financial years ended 30 June 1999 onwards.
The financial statements for the Schriever Trust for the financial year ended 30 June 1999 comprise a balance sheet and notes to the accounts.[4] The balance sheet shows the Swamp property as a non-current asset at a value of $140,000, which is matched by a gifting reserve of $140,000 in the equity section. It shows a current asset of cash on hand of $20, which is matched by the settled sum in the equity section of the balance sheet. It shows as a non-current asset land transfer costs of $697,[5] which is matched by $697 as a non-current liability being a loan from Alan and Mae.
[4] The document tendered does not include a profit and loss statement. It is possible that one was not prepared because the Trust did not have any revenue or expenses in that financial year.
[5] All dollar figures are rounded to the nearest whole dollar, unless otherwise shown.
The entries in relation to the amounts of $140,000 were effected by a handwritten journal entry that debited the land at $140,000 and credited a gifting reserve at $140,000. The narration to the journal was “[b]eing land transferred under stamp duty concessions at 4/9/98”, which I infer was a reference to the transfer dated 4 September 1998 that had been sent to RJC Evans & Co by Ms Gould on 11 January 1999.
Michael pleads, and Alan and Dean in their defence admit, that Alan caused the land and gifting reserve to be recorded in successive balance sheets of the Schriever Trust up to and including the financial year ended 30 June 2011.
The financial statements for the Schriever Trust for the financial years ended 30 June 2000 to 30 June 2006 were not tendered and it appears that they have been destroyed. However, the financial statements for the year ended 30 June 2007 contain comparative figures for the year ended 30 June 2006. Subject to one exception, they continue to show the same assets, liabilities and equity as the financial statements for the year ended 30 June 1999 (the exception being the addition of an asset being a deposit on land of $21,000 and a corresponding increase in the loan from Alan and Mae by $21,000). I infer that each year between 2000 and 2006 for which financial statements were prepared, they show the same assets, liabilities and equity.
The financial statements for the Spot-On Trust for the financial years ended 30 June 1999 to 30 June 2006 were not tendered. However, the financial statements for the year ended 30 June 2007 comprise a balance sheet and notes to the accounts and contain comparative figures for the year ended 30 June 2006 and show no change between 2006 and 2007. The balance sheet shows the Spot-On property as a non-current asset at a value of $300,000, which is matched by a gifting reserve of $300,000 in the equity section. It shows a current asset of cash on hand of $20, which is matched by the settled sum of $20 in the equity section of the balance sheet. It shows as a non-current asset land transfer costs of $1,493, which is matched by $1,493 as a non-current liability being a loan from Alan and Mae. I infer that statements in the same terms were prepared each year from the financial year ending 30 June 1999.
Sale of Swamp and purchase of Heathcote property
In 2006, Lee and Jennifer Castine and Emma Koch (collectively the Castines) owned a property, described in certificates of title register book volume 10,587 folio 697 and volume 10,794 folio 147, at Dorodong (the Heathcote property) on the opposite side of Dorodong Road to the Spot-On property. They were willing to sell it for $420,000.
In 2006, Michael and Kirstin Palm (collectively the Palms) were willing to buy the Swamp property for $420,000.
Alan negotiated with the Castines and the Palms to buy the Heathcote property for $420,000 and sell the Swamp property for $420,000, with settlement to occur consecutively.
Alan instructed Mr DeGaris in relation to the transactions. Alan informed Mr DeGaris that the Swamp property was being replaced by the Heathcote property.
Mr DeGaris discovered, to his surprise, that the transfer of the Swamp property to Brimmage had not been registered and it was still registered in the name of Alan. He prepared a deed to be executed by Alan and Brimmage acknowledging that:
·Alan had transferred by gift the Swamp property to Brimmage as trustee of the Schriever Trust;
·Brimmage had always accounted for the land as an asset of the Trust;
·Brimmage as trustee of the Schriever Trust was the equitable owner of the land;
·as equitable owner, Brimmage directed Alan to either register the transfer to it or execute a transfer at its direction to the Palms; and
·Alan agreed to execute documents to settle on the land and to direct all net proceeds from the sale to the Trustee of the Schriever Trust as the equitable owner of the land.
The deed was executed by Alan as director and Mae as director and secretary of Brimmage and by Alan in his own right in the presence of a witness (the 2006 deed).
WS DeGaris & Co prepared a transfer of the Swamp property to the Palms, which was executed by Alan and witnessed by Ms Pascoe of WS DeGaris & Co. Transfers of the two titles comprising the Heathcote property were prepared and executed on behalf of Brimmage as transferee by Alan and Mae. Settlement of the sale of the Swamp property occurred on 18 July 2006, followed by settlement of the purchase of the Heathcote property on 19 July 2006. The proceeds of the sale of the Swamp property were used to fund the purchase of the Heathcote property.
Subsequent events
In 2007 Michael and his family moved into the house on the Heathcote property. Michael and his wife Jo farmed on the Heathcote property. Michael also worked on the Spot-On property and Ross’s property for the benefit of the partnership between Alan and Mae.
In 2007 or 2008 RJC Evans & Co prepared financial statements for the Schriever Trust for the year ended 30 June 2007. They showed a new non-current asset being the Heathcote property at cost of $439,225. They continued to show the Swamp property as an asset, notwithstanding that it had been sold during the financial year and its sale proceeds used to purchase the Heathcote property. They showed an increase in the loan from Alan and Mae by $439,225, thereby implying that they had provided the funds to purchase the Heathcote property, notwithstanding that it was purchased with the proceeds of sale of the Swamp property.
The financial statements for the Schriever Trust for the year ended 30 June 2010 (and, I infer, the intervening years) were identical to the financial statements for the year ended 30 June 2007.
In 2008 Mr DeGaris attended on Alan and Mae to take instructions to prepare new wills. They instructed him that they wished to leave the power of appointment of the Spot-On Trust to Dean. They instructed him that Michael was living on Heathcote and working the land with Alan. They wished for Michael to take control of the Schriever Trust, which had a value of $420,000. This was on condition that he or the Trust pay $20,000 to each of Helen, Debra, Terry and Joanne.
On 21 April 2008 Mr Evans wrote a letter to Mr DeGaris. He referred to the establishment of two trusts with Brimmage as trustee and “noted that in recent years when a property was sold that the actual physical transfer of the land had not occurred”. He enquired whether Mr DeGaris was in the process of transferring any lands to the trusts as that may impact on Alan’s entitlement to Centrelink benefits.
On 5 May 2008 Mr DeGaris replied to Mr Evans. He clarified that the Swamp property, and its sale proceeds, had been beneficially owned by the Schriever Trust and that Alan had executed a declaration to this effect. He said:
As you have noted in that letter, the land which was sold to Mr and Mrs Palm was still in Alan Schriever’s name. We executed a document in which Alan declared that the block had been held upon trust for Brimmage Pty Ltd as Trustee of the Schriever Family Trust.
When the land was sold, we understood that any of the capital gained from the transaction, and therefore the sale proceeds of the transaction were credited to the Schriever Family Trust which was the ultimate owner of that land.
The remainder of the land (that is the land purchased from Castine in 2006) is properly registered to Brimmage Pty Ltd. Brimmage Pty Ltd owns this land as Trustee of the Schriever Family Trust.
You should note that the beneficiaries of the Schriever Family Trust are Alan and Mae Schriever and each of their children, grandchildren and remoter issue (etc.) excepting and including Dean Schriever and Ross Schriever and their remoter issue.
Mr DeGaris gave evidence that the statement in the last paragraph extracted above that Alan was a beneficiary was an error on his part because Alan had been removed as a beneficiary by the Amending Deeds.
Mr DeGaris said in the letter that Alan’s and Mae’s new wills appointed Dean as the appointor of the Spot-On Trust. He said that Alan had instructed him that he wished Michael to take control of the Schriever Trust on condition that Michael or the Trust pay $20,000 to each of Helen, Debra, Terry and Joanne.
On 5 May 2008 Mr DeGaris wrote to Alan and Mae enclosing draft wills in accordance with their instructions.
On 15 May 2008 Alan and Mae executed their wills. Mae appointed Dean, Michael and Mr Evans as her executors and trustees. She gave her power of appointment under the Schriever Trust to Michael and the trustees of her will. She directed that the appointors must ensure that either the trustees or Michael pay $20,000 to Helen, Debra, Terry and Joanne and, upon such payment, the trustees must resign as appointors of the Schriever Trust in favour of Michael absolutely.
On 19 May 2008 Mr DeGaris wrote a further letter to Mr Evans. He enclosed copies of Alan and Mae’s new wills. He suggested that, taking into account eligibility for the aged pension, it may be desirable to accelerate the change of control of the two trusts by their resigning as directors of Brimmage and appointors of the trusts and relinquishing their entitlements to capital and income in each trust.
In October 2009 Mr Evans attended on Alan to take instructions to prepare tax returns. He was given by Alan a bundle of documents.
On 10 December 2009 Mr Evans wrote a letter to Alan and Mae, copied to Mr DeGaris. He said that he had now reviewed the documents provided by them to him, which he listed in a schedule. Document 9 in the schedule was described as “Copy of Deed of Amendment of Trust, Spoton Trust and Schriever Family Trust and a letter from WSD wherein Mae is described as the designated person and Dean and Alan are excluded”. Document 24 in the schedule was described as “Various correspondences, letter of advice, original advice regarding the establishment of the Trust, dated 27 August 1996”. He said amongst other things:
It would appear that the Deed undertook to exclude both Dean and Alan from the two Deeds.
This appears to be contrary to the documents held in envelope 24 which was the original letter of advice provided to you of 28 August 19996 [sic] regarding the establishment of the Trusts.
On 11 June 2010 Mae executed an enduring Power of Attorney in favour of Alan and Mr Evans.
On 16 June 2010 Mae executed a new will. She appointed Dean, Michael, Mr Evans and Mr Palm as her executors and trustees. She gave her power of appointment under the Schriever Trust to Michael.
On 14 April 2011 Dr McArthur, Mae’s general practitioner, wrote a referral to Dr Makkada, saying that her family was concerned about her memory loss, she appeared to have a loss of cognitive function and it appeared that she may have early Alzheimer’s disease. The letter also said that Mae had been diagnosed with cancer, had had surgery and was to undertake chemotherapy.
On 16 May 2011 Peter Westley, of Westley DiGiorgio solicitors, attended on Alan, Mae and Michael. They expressed concern that farming assets may need to be sold if Mae or Alan needed supported aged care and enquired whether the trusts should be restructured to minimise exposure to an aged care asset assessment.
On 17 May 2011 Mr Westley wrote a letter to Mr Evans confirming those instructions and enquiring whether Mr Evans had any suggestions with respect to restructuring.
On 30 May 2011 Michael left a telephone message for Mr Westley saying that Mae had been diagnosed with mild to middle range Alzheimer’s disease.
On 7 June 2011 Mr Westley wrote a letter to Alan and Mae. He said that Mr Evans had recommended that they retire as appointors of the two trusts and appoint in their place Dean, Michael and Mr Evans to act jointly. He also advised that the shareholding and directorship of Brimmage be transferred to Dean and Michael. He said that he had prepared documents for them to sign. He said that he had also prepared powers of guardianship.
In June 2011 Alan and Mae signed a deed appointing Dean, Michael and Mr Evans as joint appointors of the Schriever Trust and retiring as appointors. The deed was also signed by Dean, Michael and Mr Evans. The deed bore the typewritten date 30 June 2010 but this was obviously incorrect because execution must have post-dated Mr Westley’s letter of 7 June 2011. The deed was stamped on 29 July 2011. I infer that the deed was signed by Alan, Mae, Dean and Michael on 24 June 2011 at the same time as Mae signed an enduring power of attorney (medical treatment).
In 2011, Mae moved into the Oaks Aged Care Facility in Mount Gambier.
On 31 January 2012 Dr Gale of the Oaks Aged Care Facility signed a letter expressing the opinion that Mae was no longer of sound mental capacity to legally manage her own affairs.
On 23 August 2012 Alan signed on behalf of Mae a notice of resignation as director and secretary of Brimmage. Mr Evans lodged with the Australian Securities and Investments Commission (ASIC) a notice of change of officeholders showing the cessation of Mae as director and secretary and appointment of Alan as secretary.
In about September 2012 Michael and Jo decided to leave the Heathcote property in the New Year to travel around Australia. Dean arranged with Michael and Jo’s son Carey for Carey and his family to move into the Heathcote property to take Michael’s place. Michael gave evidence, which I accept, that he discussed this with Alan on several occasions and Alan said that he was very happy with this arrangement.
Vesting of Schriever Trust
In December 2012 Mr Westley prepared a Deed of Vesting (the Deed of Vesting). The operative provisions were:
1. The Trustee does vest all of the residual assets of the SCHRIEVER FAMILY TRUST in favour of ALAN JEFFREY SCHRIEVER as a beneficiary thereof with such vesting to be effective on the date of this Deed.
2. The Trustee shall take all steps as may be required now to vest in, pay to or transfer the assets of the Trust to ALAN JEFFREY SCHRIEVER.
3. The Trust shall then be wound up pursuant to the terms of the Trust Deed in all respects.
The Deed of Vesting was signed by Dean as director and Alan as director/secretary of Brimmage. It was given the date 19 December 2012. It was stamped by the South Australian Stamp Duties Office on 20 December 2012.
In December 2012 Mr Westley prepared a transfer of the Spot-On property from Alan to Dean recording the consideration as $586,000. The transfer was signed by Alan as transferor and Dean as transferee. It was given the date 19 December 2012.
On 7 January 2013 Mr Westley lodged the transfer for registration and it was registered by the Victorian Registrar-General on that date.
In January 2013 Mr Westley prepared two transfers of the Swamp property:
·the first transfer was from Brimmage to Alan recording the consideration as “an entitlement in equity”;
·the second transfer was from Alan to Dean recording the consideration in handwriting as “natural love & affection” in place of the struck out typewritten words “By way of gift”.
The first transfer was signed by Alan and Dean as directors of Brimmage as transferor and by Alan as transferee. The second transfer was signed by Alan as transferor and Dean as transferee. Each transfer was given the date 23 January 2013.
In the second half of January 2013 Michael and Jo left the Heathcote property to travel around Australia.
On 21 March 2013 Mr Westley lodged the two transfers of the Swamp property for registration and they were registered by the Victorian Registrar-General on that date.
In 2013 RJC Evans & Co prepared three sets of minutes of purported meetings of directors of Brimmage at the offices of RJC Evans & Co, each of which was shown as being dated 19 December 2012:
·minutes of a meeting of directors of Brimmage purporting to have been held on 19 December 2012 at 10 am; showing Alan and Dean as present; and resolving that Brimmage be deregistered;
·minutes of a meeting of directors of Brimmage as trustee for the Schriever Trust purporting to have been held on 19 December 2012 at 1 pm; showing Alan and Dean as present; and resolving that the company appoint 19 December 2012 as the vesting date of the Schriever Trust;
·minutes of a meeting of directors of Brimmage as trustee for the Schriever Trust purporting to have been held on 19 December 2012 at 3 pm; showing Alan, Mae and Dean as present; and resolving that confirming resolutions before 30 June 2013 be made for the appointment of income in accordance with a trust distribution worksheet attached to the minutes.
RJC Evans & Co prepared an undated Notice of Appointment of Vesting Date of Trust Deed giving notice that the vesting date of the Schriever Trust was to be 19 December 2012.
RJC Evans & Co prepared minutes of a meeting of directors of Brimmage as trustee for the Schriever Trust purporting to have been held on 25 June 2013 at 3 pm; showing Alan, Mae and Dean as present; and resolving that confirming resolutions before 30 June 2013 be made for the appointment of income in accordance with a trust distribution worksheet attached to the minutes. The minutes were in very similar terms to the minutes of the purported meeting on 19 December at 3 pm, with some variations.
The minutes of the purported meetings on 19 December 2012 at 10 am and 3 pm and on 25 June 2013 at 3 pm were signed by Alan. The minutes of the purported meeting on 19 December 2012 at 1 pm were not signed. The undated notice was signed by Alan and Dean.
The three sets of minutes dated 19 December 2012 are in different typefaces and different styles. Dean gave evidence that he did not attend any meeting at the offices of RJC Evans & Co on 19 December 2012 and he believed that the notice was sent to him in Queensland to be signed and returned to RJC Evans & Co.
I find that these minutes, and the notice of vesting, were prepared sometime in 2013 and were backdated to 19 December 2012. I find that none of these purported meetings occurred. The meetings could not logically have happened in the order shown. Logically they would have occurred in reverse order. It is likely that the 3 pm minutes were not prepared until June 2013. There is no logical reason for the preparation of both sets of 3 pm minutes.
On 31 May 2013 RJC Evans & Co lodged with ASIC an application for voluntary deregistration of Brimmage.
On 7 August 2013 ASIC deregistered Brimmage.
Subsequent events
In August 2015 Michael instituted this action against Alan and Dean.
At some point Mr McLaren was appointed as an inspector by the Court. He interviewed, amongst others, Mr Evans. He produced a report in February 2016. His report was not tendered at the trial but certain annexures were tendered.
On 4 December 2015 Mae died.
Trial
Michael called Mr DeGaris to give evidence. Alan and Dean called Mr Evans to give evidence. Dean gave evidence.
At that point, I granted permission to Michael to amend his statement of claim, essentially to abandon a plea that the Schrievers breached their fiduciary duties as directors of Brimmage and to plead a basis for standing in light of a contention advanced at trial (but not pleaded) by the Schrievers that he lacked standing. I granted permission to the Schrievers to amend their defence, essentially to plead a lack of standing by Michael, a defence by Dean that he was a bona fide purchaser for value without notice, a plea that Brimmage was entitled to be relieved from liability under section 56 of the Trustee Act 1936 (SA) (the Trustee Act), and a plea that equity in the exercise of the discretion ought not to intervene.
It was agreed that the Schrievers would not contend that the fact that Brimmage has not been re-registered and joined as a party to the action is a bar to the relief sought by Michael. This was confirmed in their amended defence.
Dean was re-called to give evidence in support of the defence that he was a bona fide purchaser for value without notice. Michael gave evidence in rebuttal.
Notice of the action was given to Helen, Debra, Terry and Joanne. Helen gave evidence that she supported the Schrievers in the action. Documentary evidence was adduced that Terry supported the Schrievers and Debra and Joanne did not wish to become involved in the action.
Helen also gave evidence that she would have been prepared to receive a distribution of the Heathcote property by the Schriever Trust and immediately transfer it to Dean in accordance with Alan’s wishes.
Both parties tendered various documents.
Witness assessment
Mr DeGaris was an impressive witness. I consider that he was an honest and reliable witness.
Michael was a straightforward witness. I consider that he was an honest and reliable witness.
Helen’s evidence was relatively inconsequential.
I do not regard Dean as a reliable witness. I have made a general adverse credibility finding in relation to his evidence under the heading of Bona Fide Purchaser for Value without Notice below.
I did not regard Mr Evans as an impressive witness. Objectively it was in the interests of his client Alan that there be a loan by Alan of $420,000 to the Schriever Trust and that Alan remained a beneficiary of the Schriever Trust.
In relation to the $420,000 loan shown in the Schriever Trust balance sheet, I found Mr Evans’ evidence of the reason for recognising a loan on the balance sheet of the Trust implausible and unpersuasive and his evidence in relation to subsequent dealings with Mr DeGaris implausible. I address this in relation to the objective issue concerning the existence of a loan below.
In relation to Alan remaining a beneficiary of the Schriever Trust, Mr Evans gave evidence in cross-examination that he did not retain a copy of the amending deed removing Alan as a beneficiary, being the document referred to in his letter of 10 December 2009. He gave as a reason for this that he does not know whether the document was signed. I found this implausible because his letter dated 10 December 2009 proceeds on the basis that the document was signed, the document is in fact signed and he made no enquiry in the letter about its execution. He also said that he did not retain the amending deed because it had not been referred to him by the solicitor. I found this answer also to be implausible.
Mr Evans was questioned whether the three minutes of meetings bearing the date 19 December 2012 were backdated and did not represent actual meetings. I found his answers to be evasive, avoiding admitting that they were backdated without actually asserting that they were minutes of genuine meetings.
Mr Evans was not impartial and I consider that his evidence was unconsciously influenced by his awareness of its effect upon Alan’s case.
Evidence was adduced that Barbour Arnold & Cousins’ file has been destroyed. Although documents were produced and tendered from the file of WS DeGaris & Co, it is clear that the file was incomplete and Mr DeGaris gave evidence to that effect.
Mr Evans gave evidence that RJC Evans & Co maintained a file for Brimmage and kept in the file documents relating to the current year and the previous year; documents from earlier years being stored separately in another file. He gave evidence that his firm’s general practice was to keep a file that contains tax papers for seven years. He gave evidence that his firm would have maintained a separate statutory record book for Brimmage, containing formal documents such as minutes, and it was the practice of his firm to keep company records for seven to 10 years and, once a company has been struck off, to keep the file for five years. Although evidence was not adduced that the files of RJC Evans & Co have been destroyed, they were not produced and Mr Evans gave evidence that he was doubtful that the Brimmage file or statutory record book has been retained.
Parties’ contentions
Michael’s case is that the transfer of the Heathcote property to Alan was beyond power and thereby in breach of trust because Alan was not, by reason of the amendments to the Schriever Trust Deed, a capital beneficiary. Brimmage as trustee therefore had no power to distribute the property to Alan. Alan therefore held the property on constructive trust for Brimmage as trustee of the Schriever Trust. Dean in turn holds the property on constructive trust for Brimmage as trustee of the Schriever Trust. The property should be restored to the Trust.
The Schrievers contend that, although the amending deeds were executed, they were only executed for the purpose of obtaining a stamp duty exemption for the transfer of the Swamp property. They were not ultimately needed for that purpose. The operation of the Amending Deeds was contingent upon their being necessary to obtain the stamp duty exemption. Michael takes issue with these contentions.
The Schrievers contend in the alternative that, if the disposition of the Heathcote property was in breach of trust, the Trust assets would be subject to a loan of $420,000 owing by the Trust to Alan. In support of the existence of such a loan, the Schrievers rely on the financial statements of the Trust prepared by RJC Evans & Co and/or a contention that, immediately before the purchase of the Heathcote property, Alan remained the beneficial owner of the Swamp property and the sale proceeds of that property of $420,000 comprised a loan by Alan to the Trust.
Michael contends in response that the recording of a loan in the financial statements of the Trust was an error made by RJC Evans & Co and in reality there was no loan. Alan had not remained the beneficial owner of the Swamp property, either because it was transferred in equity to the trustee in 1998 or alternatively because Alan executed a declaration of trust in 2006.
The Schrievers contend that Michael, as a mere object of a discretionary trust, lacks standing to bring this action.
The Schrievers contend that, if Brimmage distributed the Heathcote property to Alan in breach of trust, it nevertheless acted honestly and reasonably and should be relieved of liability for the breach under section 56 of the Trustee Act.
Dean contends that in any event he obtained good title to the Heathcote land in 2013 because he was a bona fide purchaser for valuable consideration of the legal estate in the Heathcote property without notice of the breach of trust.
The Schrievers contend that no relief should be granted restoring the Heathcote property to the Trust because the trustee, Brimmage, has been deregistered, Michael did not adduce evidence at the trial in support of appointment of a new trustee and he ought not to be given an opportunity to do so subsequently.
The Schrievers contend that, for various reasons, the Court should decline to exercise its discretion to grant relief.
Michael takes issue with each of the Schrievers’ contentions.
The issues are therefore as follows:
1Were the Amending Deeds conditional and, if so, was the condition satisfied?
2Did Alan lend $420,000 to the Schriever Trust?
(a) Was the record of such a loan in the financial statements of the Trust erroneous?
(b) Did Alan make an operative declaration of trust of the Swamp property or its sale proceeds in favour of the Schriever Trust in 2006?
(c) Did Alan convey beneficial ownership of the Swamp property to Brimmage as trustee of the Schriever Trust in 1998?
3Does Michael have standing to bring this action?
4Can and should Brimmage be relieved of liability for any breach of trust under section 56 of the Trustee Act and is this an answer to the action?
5Was Dean a bona fide purchaser for valuable consideration of the legal estate in the Heathcote property without notice of the breach of trust?
6Should relief be refused because the Court cannot make orders to appoint a new trustee without further evidence and Michael should not be given an opportunity now to adduce such evidence?
7Should the Court exercise its discretion to grant relief?
Operation of amending deeds
I accept that a substantial motivation for making the Amending Deeds was to obtain an exemption from stamp duty of the transfer of the Swamp property under section 71 of the Stamps Act. However, the Schrievers have not proved that this was the sole motivation for making the Amending Deeds. Alan did not give any evidence. Mae is deceased and did not give evidence. Dean did not give evidence that the purpose of making the Amending Deeds was to obtain a stamp duty exemption.
It is possible that another motivation was to maximise the prospects of Alan obtaining an aged pension and/or government-funded aged care. Mr Evans gave evidence that, before Alan and Mae went to see Mr DeGaris in 1996, he had discussions with them about how they could get the pension and suggested that people were putting assets into land trusts so that the corporate veil hid their assets. In addition, Mr DeGaris in his first letter dated 27 August 1996 referred to the fact that Alan was aged 70 years and Mae was aged 60 years and it is likely that the transfer of their assets to trusts, rather than merely leaving them by their wills, was motivated by concerns about entitlements to government benefits. In addition, Dean gave evidence that he attended meetings with Mr DeGaris and his parents in 1997/1998 at which the main thing discussed was the ability of his parents to get the government pension and they believed that their assets would not allow them to access the aged pension. Removing Alan as a beneficiary and appointor of the trusts would have advanced such a motivation.
In any event, assuming that the sole motivation was to obtain an exemption from stamp duty of the transfer, there is no evidence that the operation of the Amending Deeds was intended to be conditional. On their face, the Amending Deeds are unconditional and there is no reason to infer that they were conditional. Moreover, a condition that an amendment be necessary to obtain a stamp duty exemption would be fraught with uncertainty. It is a very unlikely intention to impute to Brimmage that there be uncertainty whether the Amending Deeds were operative.
In addition, on 19 August 1998 Ms Gould wrote a letter to Alan and Mae informing them that the Stamp Duties Office was now prepared to accept that the transfers were exempt from stamp duty but it required new declarations to be signed by Alan. The declaration in relation to the Swamp property stated that subclause 2(f) of the Trust Deed limited capital beneficiaries of the Trust to Mae and each child or remoter issue of Mae, excluding Dean and Ross. Alan signed the declarations in the presence of Ms Gould. It is clear from this that Alan did not intend the Amending Deeds to be conditional and, on the contrary, they were required to obtain the stamp duty exemption.
The Schrievers point to the fact that the copies of the Amending Deeds that were tendered are not stamped and contend that it should be inferred from this that they were not intended to be operative unless they were necessary to obtain a stamp duty exemption. The Schrievers do not contend that the Amending Deeds are not enforceable because a stamped version was not tendered: rather they contend that, if they were not stamped, this is evidence that they were intended to be conditional.
It is clear from the documents that were tendered, and Mr DeGaris confirmed, that the executed Amending Deeds were sent to Barbour Arnold & Cousins to be stamped and for the purpose of obtaining a stamp duty exemption in respect of the transfers. Mr DeGaris said that it was possible that Barbour Arnold & Cousins retained the original stamped Amending Deeds. Mr DeGaris also said that in general the correspondence from Barbour Arnold & Cousins was not contained in the file that has been retained by his firm relating to the matter and he believed that it must have been kept in a different file. I infer that the Amending Deeds were stamped and the stamped versions were either retained by Barbour Arnold & Cousins, whose file has been destroyed, or were returned to WS DeGaris & Co and kept in a different file which cannot now be located. I draw this inference because the Victorian Stamp Duties Office had made it very clear that it required execution and lodgement of amending deeds to that effect and it is clear from the documents tendered that the amending deeds were lodged with the Victorian Stamp Duties Office, and were lodged for the purpose of obtaining the stamp duty exemption. This is put beyond doubt by the declaration signed by Alan in August 1998 referred to at [156] above.
The Schrievers also point to the fact that Mr DeGaris wrote a letter to Mr Evans on 5 May 2008 in which he said that the beneficiaries of the Schriever trusts were Alan and Mae and on 19 May 2008 in which he referred to the possibility of Alan and Mae relinquishing their entitlements to capital and income in each of the trusts. However, Mr DeGaris gave evidence that he believed that the reference to Alan being a beneficiary was incorrect and a mistake on his part and that he overlooked that Alan had been removed as a beneficiary in 1998. I accept Mr DeGaris’ evidence. When he wrote the letters in 2008, it had been 10 years since the Amending Deeds removed Alan as a beneficiary. Ms Gould had had the primary conduct of the file when the Amending Deeds were executed. If Mr DeGaris did not overlook the existence of the Amending Deeds as he testified, the only alternative scenario is that he recalled their existence, formed the view that they had not been operative, and decided not to disclose this to Mr Evans. That scenario is not plausible. First, Mr DeGaris gave evidence that he never formed the view that the Amending Deeds were not operative. Secondly, no rational solicitor would have acted in that manner: if they formed the view that the deeds were not operative, they would have disclosed that rather than simply stating that Alan was a beneficiary.
Considering all of the circumstances holistically, I am affirmatively satisfied that the Amending Deeds were not conditional.
In any event, the onus does not lie on Michael to prove that the Amending Deeds were not conditional. The onus lies on the Schrievers to prove that they were conditional. Section 41AA(6)(a) of the Law of Property Act 1936 (SA) (the Law of Property Act) provides:
(6) In any legal proceedings—
(a) if the execution of an instrument is proved, the execution will be presumed, in the absence of proof to the contrary, to have been unconditional;
There is no evidence to the contrary in the present case. Alan did not give evidence. The two matters on which the Schrievers rely referred to above do not prove that the Amending Deeds were conditional.
In any event, even if the Amending Deeds were conditional on their being necessary to obtain an exemption from stamp duty, they were in fact necessary. Brimmage was advised by WS DeGaris & Co that the removal of Alan as a capital beneficiary and an appointor was necessary to obtain the stamp duty exemption. It was only after the submission of the Amending Deed to the Victorian Stamp Duties Office that the Office accepted that the transfer was exempt from stamp duty. This is put beyond doubt by the declaration signed by Alan in August 1998 referred to at [156] above. I am affirmatively satisfied that, if the Amending Deeds were conditional, the condition was satisfied.
In any event, the onus does not lie on Michael to prove that any condition was satisfied. The onus lies on the Schrievers to prove that any condition was not satisfied. Section 41AA(6)(b) of the Law of Property Act provides:
(6) In any legal proceedings—
…
(b) if it appears from an instrument or evidence external to an instrument that the instrument was executed conditionally, it will be presumed, in the absence of proof to the contrary, that the condition of execution has been fulfilled.
There is no evidence to the contrary in the present case.
The Amending Deeds were operative. Alan was not a capital beneficiary. He was ineligible to receive a distribution of the capital of the Schriever Trust. That distribution was therefore a breach of trust by Brimmage. Transferring trust property to a person who is not entitled to it is a fundamental breach of trust.[6]
[6] See for example Ashby v Blackwell (1765) 2 Eden 302 (27 ER 326); Re Hulkes (1886) 33 Ch D 552.
Existence of $420,000 loan
The Schrievers contend that, if the disposition of the Heathcote property was in breach of trust, the Schriever Trust assets would be subject to a loan of $420,000 owing by the Trust to Alan. I observe that, although this would diminish the net assets of the Trust, it would not eliminate them because the value of the Heathcote property by 2013 would have substantially exceeded $420,000. However, the Schrievers also contend that the existence of such a loan would be relevant to the Court’s discretion whether to grant relief.
The balance sheet for the Trust for the year ended 30 June 2007 continued to show the Swamp property as an asset of the Trust and continued to show the value of the Swamp property as at 1998 ($140,000) as a gifting reserve. This was clearly erroneous because the Swamp property was sold in 2006 and its proceeds of sale used to fund the purchase of the Heathcote property.
The balance sheet also showed the Heathcote property as an asset of the Trust and its cost of $420,000. It showed that cost as having been funded by a loan of $420,000 by Alan and Mae. Objectively this was also erroneous because the sale proceeds of the Swamp property were used to fund the purchase of the Heathcote property.
Mr Evans gave evidence that, when the financial statements for the Trust for the year ended 30 June 2007 were to be prepared, he reviewed settlement statements for the sale of the Swamp property and purchase of the Heathcote property; observed that, contrary to his previous understanding, the Swamp property had been registered in the name of Alan rather than Brimmage; and concluded that it was appropriate to treat Alan as having made a loan to the Trust of the sale proceeds of the Swamp property ($420,000) which funded the purchase of the Heathcote property. Mr Evans said that he made this decision himself. He did not discuss it with Alan.
Mr Evans’ treatment of the transaction is contrary to handwritten notes made by his firm on the settlement statement for the sale of the Swamp property. The first handwritten note reads:
Is this the family trust land?
The second handwritten note, the author of whom was identified by Mr Evans as Nathan Jacobs, who is now a partner of RJC Evans & Co, reads:
YES. TRANSFER DOCS NOT CORRECTLY LODGED THERE SHOULD BE A DECLARATION BY DEGARIS & CO THAT THE LAND WAS HELD ON BEHALF OF TRUST
I infer that Mr Jacobs, or someone else in the firm of RJC Evans & Co, had a conversation with WS DeGaris & Co and was informed by them that the Swamp property was beneficially owned by the Schriever Trust and that Mr DeGaris had created a declaration by Alan that the land had been held on trust. This accords with the declaration that Mr DeGaris prepared and Alan signed in 2006 and is the only plausible explanation for the notes.
Mr Evans gave evidence that he saw this note before making the decision about how to account for the transaction. However, if Mr Evans had seen the note, his accounting for the transaction was manifestly incorrect and inconsistent with the note.
Mr Evans gave evidence that he treated the proceeds of sale of the Swamp property as capital introduced into the partnership of AJ & LM Schriever and then a loan by the partnership to the Trust. The balance sheet of the partnership for the year ended 30 June 2007 showed capital introduced by Alan of $433,949. This is also inconsistent with the handwritten note contained on the settlement statement for the Swamp property.
Mr Evans said that the financial statements for the Schriever Trust for the year ended 30 June 2007 were erroneous in showing the Swamp property as an asset of the Trust. He was unable to explain how such an obvious error was made.
Mr Evans accepted in cross-examination that he would have read the letter from Mr DeGaris dated 5 May 2008 in which Mr DeGaris said that a document had been executed whereby Alan declared that the Swamp property “had been held upon trust for Brimmage Pty Ltd as Trustee of the Schriever Family Trust”. Mr Evans said that this did not cause him to reconsider the “loan” of $420,000 by Alan to the Trust. He gave as a reason that it was not consistent with the settlement statement showing a sale by Alan. This reason is unintelligible, even without but particularly in light of the handwritten note on that settlement statement. He gave as another reason that he did not have the declaration to which Mr DeGaris referred. This reason is implausible, first, because Mr Evans had no reason to doubt the accuracy of what Mr DeGaris was telling him; secondly because Mr Evans could easily have obtained a copy of the document from Mr DeGaris; and thirdly because the reason given by Mr Evans in his evidence for recognising a loan in the first place is unpersuasive.
There is an alternative explanation for the accounting treatment of the loan by RJ Evans & Co that is inherently much more likely than the explanation advanced by Mr Evans. That explanation is that the person who prepared the Trust’s balance sheet for the year ended 30 June 2007 was not aware of the sale of the Swamp property. This would explain why the Swamp property continued to be shown as an asset of the Trust, together with the gifting reserve of $140,000. If the Swamp property had not been sold, it would have been logical for RJC Evans & Co to attribute the funding of the purchase price to a loan from Alan and Mae because there was no other source of funding. I consider that this is probably the true reason for erroneous accounting treatment in the balance sheet and that Mr Evans has reconstructed the alternative explanation of which he gave evidence.
However, even assuming in favour of the Schrievers that the explanation for the recording of the loan was the one given by Mr Evans, plainly there was no such loan objectively in existence. Such a loan would have been directly inconsistent with the declaration made by Alan in 2006 not only that the Schriever Trust was the equitable owner of the Swamp property but also that Brimmage was entitled to the sole proceeds of sale of the Swamp property to be held upon the trusts set out in the Schriever Trust Deed. It would also have been inconsistent with instructions given in 2008 by Alan to Mr DeGaris, of which Mr DeGaris made handwritten notes, that he intended Michael to take control of the Schriever Trust which had a value of $420,000.
Alan did not give any evidence in support of the existence of a loan or otherwise. Dean did not give any evidence in support of the existence of a loan.
I affirmatively find that objectively there never was a loan of $420,000 by Alan and/or Mae to the Schriever Trust.
Beneficial ownership of Swamp property
The Schrievers contend that, when the Swamp property was sold in 2006, it was both legally and beneficially owned by Alan and not beneficially owned by the Schriever Trust.
It is not necessary to deal with this contention because I have already concluded that there was no $420,000 loan by Alan and/or Mae to the Schriever Trust. However, I do so for the sake of completeness.
This issue involves two sub-issues:
1Did the beneficial ownership of the Swamp property pass from Alan to Brimmage as trustee of the Schriever Trust by reason of the events in 1998?
2Did Alan declare in 2006 that he held the legal ownership of the Swamp property, or its proceeds of sale, on trust for Brimmage as trustee of the Schriever Trust?
I address the second sub-issue first.
Declaration of trust in 2006
There are two methods of creating a trust: by transfer of property to a person to hold on trust or by declaration of trust.[7]
[7] Comptroller of Stamps (Victoria) v Howard-Smith (1936) 54 CLR 614 at 621-622 per Dixon J (with whom McTiernan J agreed); Commissioner of State Revenue v Lam & Kym Pty Ltd [2004] VSCA 204, (2004) 10 VR 420 at [41] per Nettle JA (with whom Vincent JA and Hansen AJA agreed).
Thus, Jacobs’ Law of Trusts in Australia states:
Express trusts are created in two principal ways: by transfer or by declaration. The owner of property may transfer (either by assignment inter vivos, or by will) the property to a third party to be held on the terms of the trust. Alternatively, the owner of property may declare himself or herself a trustee of property for the benefit of a third party.[8]
[8] Heyden and Leeming, Jacobs’ Law of Trusts in Australia 8th ed (2016) [6-01].
In 2006 Brimmage and Alan executed a formal deed. The deed contained the following statements:
1. BRIMMAGE PTY LTD is the Trustee of the Schriever Family Trust pursuant to a Deed of Trust dated the 30th day of June, 1997 which Deed of Trust is duly stamped.
2. By a Memorandum of Transfer dated 1997, ALAN JEFFREY SCHRIEVER transferred by gift the whole of the land described in Certificates of Title Register Book Volume 8876 Folio 845 and Volume 9617 Folio 807 in which transfer the Trustee accepted the transfer of the land as Trustee of the Schriever Family Trust.
3. To the date of this Deed, the Memorandum of Transfer of Land (which is duly stamped) has not been registered on the Title and ALAN JEFFREY SCHRIEVER remains the registered proprietor thereof.
4. The Trustee has always accounted for the land as an asset of the Schriever Family Trust as and from the 1st day of July, 1997 when documents were executed and signed to transfer the whole of the estate and interest in the land to the Trustee.
5. Now the Trustee (as equitable owner of the land) hereby directs ALAN JEFFREY SCHRIEVER to either:
5.1 Register the Memorandum of Transfer to BRIMMAGE PTY LTD; or
5.2 Execute a Memorandum of Transfer at the direction of the Trustee to MICHAEL JOHN PALM and KIRSTEN ELISABETH OWEN PALM;
5.3 Execute a Contract of Sale in the sum of FOUR HUNDRED AND TWENTY THOUSAND DOLLARS ($420,000.00) to MICHAEL JOHN PALM and KIRSTEN ELISABETH OWEN PALM.
and Alan made the following declaration:
6. ALAN JEFFREY SCHRIEVER hereby agrees and undertakes to execute the within documents to settle on the land to direct all net proceeds from the sale of the land to the Trustee as the Trustee is the equitable owner of the land and is entitled to the sole proceeds to be held upon the trusts set out in the Schriever Family Trust Deed.
By clause 6, Alan declared that he held the Swamp property as trustee, and also that he would hold the sale proceeds of the Swamp property as trustee, for the Schriever Family Trust.
Section 29(1)(b) of the Law of Property Act provides that “a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will”. The declaration of trust by Alan complies with this section because it was signed by Alan and contained within a deed.
I assume for present purposes that equity would not regard the beneficial ownership of the Swamp property as having passed from Alan to the Schriever Trust in 1998 (this being the subject of the first sub-issue). On that assumption, by clause 6 of the 2006 deed, Alan clearly declared that henceforth he held the Swamp property, and upon its sale its sale proceeds, on trust for the Schriever Trust. This was effective as a declaration of trust.
The Schrievers contend that this deed was “simply something that [Mr DeGaris] created and really asked Alan to sign based on having discovered that [the legal] title hadn’t been transferred”. It may be accepted that this was the reason why Mr DeGaris created the document but, the document having been created and executed by Alan (and Brimmage), it clearly operated as a declaration of trust.
The Schrievers contend that the deed was inconsistent with there being a loan. This is to put the cart before the horse. In addition, I have already concluded that there was no loan.
Earlier transfer of property
Given my conclusion on the second sub-issue, it is not necessary to reach a conclusion on the first sub-issue. However, I address it for completeness.
In Milroy v Lord[9] Turner LJ said:
I take the law of this court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property, and render the settlement binding upon himself.[10]
[9] [1861-1873] All ER 783.
[10] At 789.
In Anning v Anning[11] Griffiths CJ said:
I think that the words "necessary to be done," as used by Turner L.J. in Milroy v. Lord, mean necessary to be done by the donor. Thus, in the case of shares in a company which are only transferable by an instrument of transfer lodged with the company, I think that the donor has done all that is necessary on his part as soon as he has executed the transfer. So, in the case of a gift of land held under the Acts regulating the transfer of land by registration, I think that a gift would be complete on execution of the instrument of transfer and delivery of it to the donee. If, however, anything remains to be done by the donor, in the absence of which the donee cannot establish his title to the property as against a third person, the gift is imperfect, and in the absence of consideration the Court will not aid the donee as against the donor. But, if all that remains to be done can be done by the donee himself, so that he does not need the assistance of the Court, the gift is, I think, complete.[12]
Isaacs J expressed the test in more demanding terms and Higgins J adopted an intermediate position.
[11] (1907) 4 CLR 1049. (Footnotes omitted).
[12] At 1057.
In Corin v Patton[13] the High Court considered what was the appropriate approach and whether one of the tests expressed by Griffiths CJ, Higgins J or Isaacs J was the appropriate test. A majority adopted the test articulated by Griffiths CJ.
[13] (1990) 169 CLR 540.
Mrs Patton held a joint interest with Mr Patton in land. Being terminally ill, she arranged for a solicitor, Mr Smallwood, to prepare a deed of trust by her brother Mr Corin declaring that he held an interest in the land as (bare) trustee for Mrs Patton and a registrable transfer of her interest in the land to Mr Corin. This was done to sever the joint tenancy. These documents were executed and Mr Smallwood retained possession of the executed transfer. The State Bank of New South Wales held an unregistered mortgage over the land and held the duplicate certificate of title as security. Mrs Patton did not authorise the Bank to produce the duplicate certificate to enable registration of the transfer, nor did Mr Patton (who was apparently unaware of the transactions). No steps had been taken to seek production of the duplicate certificate or to register the transfer when Mrs Patton died a few days later.
Mason CJ and McHugh J held that the test expressed by Griffiths CJ was the appropriate test. Their Honours, after considering several High Court decisions over the intervening period, concluded:
But there is a distinction between the enforcement of a voluntary covenant to create a trust and the enforcement of a transfer by way of intended gift when the donor has done all that was within his power to vest title to the property in trustees for the donee or in the donee. In the first case, equity will not compel specific performance of the voluntary covenants, there being no completely constituted trust; in the second case, as the transaction is complete as far as the donor is concerned, no question of withholding specific performance can arise and equity will hold the donor to the completed transaction on the footing that title has been divested …
…
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 recognize 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 C.J.'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…
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 recognize 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.
Although Griffith C.J. did not explicitly say so, his proposition implicitly recognizes that the donee acquires an equitable estate or interest in the subject matter of the gift once the transaction is complete so far as the donor is concerned.[14]
[14] At 557-558, 558, 559. (Citations omitted).
Immediately before Dean gave that evidence about this conversation, he gave evidence that:
·during 2012 he took on quite a role and interest in what was going on with the farms;
·he saw that there were very many things that were in a bad state of repair;
·he saw that Alan did not have the cattle numbers to provide revenue to cover expenses;
·Alan had very, very few cattle whereas Michael had lots of cattle;
·Michael was running his own cattle on the Heathcote property at capacity but also was running cattle at both the Spot-On property and Ross’s property and was increasing the size of his herd;
·Alan was doing work at the Heathcote property as well as the other two properties and so was Michael;
·Michael then sold his cattle when he was about to leave;
·Alan was left with very few cows, very little money and a dire need to re-stock;
·Heathcote was in a bad state of repair;
·nearly two kilometres of boundary fencing at Heathcote needed replacement;
·Dean took action in 2012 to fix these problems;
·the first thing that Dean did was to buy cattle to restock the farms;
·Alan and Dean formed a business partnership and went about re-stocking the farms;
·Dean and Vicki had the money to be able to re-stock the farms and they also got some debt from the local stock agent as well so it was not all just cash funded;
·Dean employed a stockman, Jeff Mabon, during this time and paid him for 12 months out of his own pocket;
·they spent a lot of money on eradicating weeds and fertilising at Heathcote;
·the Heathcote house was in a very bad state of repair to the extent that it was untenantable;
·Dean arranged for extensive repairs to be undertaken to the Heathcote house, initially spending $18,000 out of his own and Vicki’s money and then spending another $12,000 over the next 12 months;
·the house was then tenantable and it was rented out.
During the initial cross-examination of Dean in the second round, Dean gave the following evidence concerning the consideration shown in the transfer of the Heathcote property from Alan to himself:
Q. Really, you're signing a very formal document for you to receive a property from your father and there's a formal document to effect that transfer and you sign the document; is it not so that you checked to make sure the document was correct.
A. Yes, I checked the document was correct.
Q. Thank you. And it follows from that, you checked that the consideration for the transfer was correctly described as 'Natural love and affection'.
A. Yes.
…
Q. You've agreed with me that the endorsement of 'Natural love and affection' accurately recorded the basis of the transfer of the Heathcote property from your father to you.
A. Yes.
Q. You also wouldn't disagree with this description and that is your father gifted you that land.
A. Yes.
Q. You would not disagree with that.
A. I would not - I would not disagree.
Q. You would agree that your father was gifting you the land.
A. Yes, I would not disagree on that, yes.
Calls were made for production of travel records and emails relating to trips made from Queensland to the farms between January 2011 and January 2013; invoices for expenses met by Dean or Vicki on the Heathcote property over the same period; and partnership financial statements and tax returns to the year ended 30 June 2013.
The trial was then adjourned for a week. Financial statements for the partnership between Alan and Mae for the years ended 30 June 2011 to 30 June 2013 were produced in response to the calls. Financial statements for the partnership between Alan and Dean for the years ended 30 June 2013 to 30 June 2018 were produced. No invoices up to January 2013 were produced.
During cross-examination after the week’s adjournment, Dean said that he had located documents that showed that he travelled to Victoria for three weeks in January 2012 and for two weeks in September 2012. He said that he might have visited on up to two other occasions in 2012 but he had not located any documents to support this.
Dean said that in September 2012 he observed about 80 cows plus calves belonging to Michael on the Spot-On and Ross’s properties. He observed that there were about 60 cows plus calves belonging to Alan on the Spot-On property. He said that he did not know whether the number of Alan’s cows had changed since January 2012.
The financial statements referred to at [236] above showed cattle numbers at the end of each year as follows:
Year ended
Alan & Mae partnership
Alan & Dean partnership
2009
174
2010
208
2011
186
2012
194
2013
185
2014
245
2015
323
2016
237
2017
181
2018
190
The financial statements for the Alan and Mae partnership show no revenue during the year ended 30 June 2013 and 194 cattle transferred to the Alan and Dean partnership. However, they show that the old partnership incurred expenses during the year. This is consistent with the old partnership continuing until late 2012 and the new partnership only commencing in late 2012.
The financial statements as a whole do not show any significant reduction in cattle numbers between 2009 and 2012 when the new partnership was formed. They show no increase in cattle numbers up to 30 June 2013. Thereafter, cattle numbers increased but then returned to pre-2014 levels of approximately 180 to 190 cattle. The documents are inconsistent with Dean’s evidence that he saw very few cattle belonging to Alan in September 2012 or that Michael had run down Alan’s cattle herd before he left at the end of 2012.
In cross-examination, Dean said that the number of 194 cattle shown in the financial statements did not match his recollection. He was unable to explain the discrepancy.
In cross-examination, Dean was asked when he became aware of the various matters that he observed about which he gave evidence in chief as summarised at [233] above. In his evidence in chief, he had indicated that these matters pre-dated, and formed the background to, the meeting at which Alan said that he was disillusioned with Michael and wanted to give the Heathcote property to Dean. Dean said that:
·cattle escaped outside the Heathcote property in 2009 and 2011;
·he only observed that things “were in a bad state of repair” some time in 2013 or 2014 when he spent more time at the farm and did not see it in 2012;
·he only observed that Alan “did not have the cattle numbers” and “had very, very few cattle” in 2014 and did not realise that when he was there in 2012;
·he only became aware on reflection in 2014 that Michael had increased the size of his own herd at the expense of Alan and was not aware of this in 2012;
·contrary to his evidence in chief that in 2012 he did work to fix the problems that he described, this was in 2014;
·he was unable to say that any money of his and Vicki was used to pay to restock the farms and it may all have been money borrowed by the partnership from the local stock agent;
·it was in 2014 that the initial cattle were purchased to which he referred in his evidence in chief;
·it was in 2014 that the boundary fencing work was done on the Heathcote property;
·it was in 2014 that work was undertaken to the house on the Heathcote property;
·Carey Kellett commenced working on all three properties in place of Michael in January 2013, such that it could not be said that Alan had been abandoned by Michael;
·Carey remained working on the farms until about Easter 2014 when Dean sent him a registered letter requiring him to vacate;
·it was in 2014 that Mr Mabon was employed; and
·the wages paid to Mr Mabon were recorded in the financial statements as an expense of the partnership.
The financial statements of the partnership between Alan and Dean do not show a loan by Dean or Vicki to the partnership as would be expected if they had contributed funds to purchase cattle to restock the farms or paid Mr Mabon’s wages or for repairs to the Heathcote house. They show purchases of cattle by the partnership and expenses incurred by the partnership of wages and repairs.
In cross-examination, it was put to Dean that in 2011 and again in 2012 there were 100 breeding cows on the Spot-On property and 70 to 80 weaners on Ross’s property belonging to the partnership. Dean said that he could not disagree and did not know what the numbers were. It was put to Dean that in 2011 and again in 2012 Michael had 70 cows plus calves on the Heathcote property. Dean said that he could not disagree and did not know what the numbers were. This was contrary to his evidence in chief.
Michael gave evidence in rebuttal. He gave evidence that between 2007 and 2013 he worked on the three properties. Alan worked on the Spot-On property and Ross’s property but not on the Heathcote property.
Michael gave evidence that:
·in 2007 the fences on the Heathcote property were very old;
·in January 2012 a fire destroyed 400 yards of perimeter fencing;
·all 400 yards of the destroyed fencing had been replaced by the end of February 2012;
·over the period between 2007 and 2013 Michael did repairs to the perimeter fencing and installed an electric fence around the entire perimeter;
·in 2011 and 2012 there were 100 breeding cows on the Spot-On property and 70 weaners on Ross’s property belonging to his parents’ partnership;
·in 2011 and 2012 Michael had 70 cows plus calves on the Heathcote property;
·Michael’s stock, apart from two bulls, never grazed on any property other than the Heathcote property;
·contrary to Dean’s evidence, there was no rundown of cattle numbers belonging to his parents’ partnership;
·there was termite damage to the house on the Heathcote property in about 2011;
·he and Jo had a six week holiday at Gympie in Queensland between mid August and late September 2012;
·they did not take any other holidays during 2012 and a proposal by Jo referred to in an email in March 2012 about going to Childers in Queensland in May 2012 did not eventuate; and
·cattle did not ever escape outside the Heathcote property.
There are clear conflicts between the evidence given by Dean and the evidence given by Michael. Wherever there is a conflict, I prefer the evidence given by Michael.
First, Michael gave his evidence in a straightforward manner and I was impressed by his frank answers to questions. By contrast, Dean tended not to answer questions directly and to provide non-responsive answers.
Secondly, Dean’s evidence in chief was to the effect that he observed numerous problems caused by Michael in 2012; whereas in cross-examination he accepted that he did not and it was only in 2014 that he formed those views. There were many other inconsistencies between Dean’s evidence in chief and his evidence in cross-examination, particularly after calls were made to produce documents and those documents did not support his evidence in chief.
Thirdly, Dean’s evidence about cattle numbers was not only inconsistent with the evidence given by Michael but was also inconsistent with the financial statements of the old and new partnerships.
Fourthly, Dean had a tendency to make generalisations that advanced his case but when questioned on specifics it transpired that he was exaggerating the position or did not have the requisite knowledge and could not support the generalisations that he had made.
As a result, I make a general adverse finding concerning Dean’s credibility. I cannot rely on his evidence concerning the conversation or conversations that he had with Alan about the transfer of the Heathcote property to him.
I find that there was no agreement between Alan and Dean that, in consideration for Alan transferring the Heathcote property to Dean, Dean would undertake work on the properties or do anything else. I find that the transfer was a simple gift by Alan to Dean without strings attached.
I observe by way of prelude that Dean’s evidence, so far as it went, about discussions with Alan was not corroborated by evidence from Alan or any other person or any document.
First, the consideration shown on the transfer of the Heathcote property from Alan to Dean is expressed to be for love and affection. The transfer was prepared by Mr Westley’s firm in circumstances in which Mr Westley had been present at the family meetings to which Dean referred in his evidence. If Alan was transferring the property in consideration for promises made by Dean, the consideration may have been differently expressed. I accept that this factor has little weight in itself.
Secondly and more importantly, Dean accepted in cross-examination, extracted at [234] above, that Alan was gifting the land to him.
Thirdly, even if Dean’s evidence of the conversation with Alan were taken at face value, it was extremely vague as to what, if anything, Dean was agreeing to do in return for the transfer of the Heathcote property. If Alan were truly disillusioned with Michael, it may be expected that he would have identified what it was that Dean was required to undertake to do in return for the transfer.
Fourthly, the putative agreement with Dean is premised upon Alan having become disillusioned with Michael. However, Dean acknowledged that it had been arranged in advance that Carey would take Michael’s place and he in fact remained in that position until April 2014. In addition, I accept Michael’s evidence that Alan was happy with that arrangement. While it is self-evident that Alan changed his mind about the Heathcote property ultimately being transferred to Michael, I reject the premise that Alan needed to enter into an agreement with Dean to work on the farms because he was disillusioned with Michael.
Fifthly, a premise of the putative agreement between Alan and Dean is that it had become apparent by September 2012 that Michael was advancing his own interests at the expense of Alan and was causing his own herd to be increased at the expense of Alan’s interests. I reject Dean’s evidence to that effect.
Sixthly, by reason of my general credibility finding, I cannot accept Dean’s evidence about the content of the conversations with Alan.
The equitable requirement for consideration in the particular circumstances of this case connotes a legally binding agreement by Dean to undertake work on the farms for the benefit of Alan. Even if past consideration could amount to consideration for the purpose of the legal doctrine, my finding is that Dean had not in fact provided any consideration as at September 2012 or January 2013. I find that Dean did not make any promise to Alan about future work on the farms, nor did the parties intend to enter into a legally binding agreement under which Alan would transfer the Heathcote property to Dean and Dean would undertake future work on the farms. Leaving aside the requirement for a legally binding agreement, I find that there was not even a non-binding arrangement made between Alan and Dean to this effect.
Dean did not provide valuable consideration to Alan for the transfer of the Heathcote property.
Without notice of equity
Given my conclusion in relation to valuable consideration, it is not necessary to decide whether Dean did not have notice that Brimmage had no power to distribute the Heathcote property to Alan. However, I address that question for completeness.
I observe at the outset that, assuming for present purposes that Dean had provided valuable consideration, he was not in the ordinary position of a third party purchaser of property. He was one of the two directors of the trustee which distributed the Heathcote property to Alan when Alan was not a beneficiary. There is a question whether, given his involvement in the breach of trust, he is entitled to rely on the defence. However, the question was not raised by Michael and I assume that Dean is entitled to rely on the defence if he provided valuable consideration and if he did not have notice that Brimmage had no power to distribute the Heathcote property to Alan.
There are three types of notice for the purpose of the defence: actual, imputed and constructive.[28] Constructive notice is notice that would have resulted from investigations that are usually undertaken in such a transaction or a reasonable person would have undertaken if aware of any relevant fact known to the party in question.[29] Imputed notice is notice that an agent has received or would have received if the agent had made proper enquiries.[30]
[28] Heydon, Leeming and Turner, Meagher, Gummow and Lehane Equity Doctrines and Remedies 5th ed (2015) para [8-255].
[29] Heydon, Leeming and Turner, Meagher, Gummow and Lehane Equity Doctrines and Remedies 5th ed (2015) para [8-270].
[30] Heydon, Leeming and Turner, Meagher, Gummow and Lehane Equity Doctrines and Remedies 5th ed (2015) para [8-265].
In the present case, I accept that Dean did not have actual notice that Alan was not a beneficiary of the Schriever Trust.
Dean had attended meetings with Mr DeGaris and his parents in 1997/1998 at which the main thing discussed was the ability of his parents to get the government pension and they believed that their assets would not allow them to access the aged pension. He understood that both trusts were established as part of his parents’ succession planning.
Dean did not give evidence that he read the Heathcote Trust Deed or that he made any enquiry of Mr Evans, Mr Westley or Mr DeGaris whether it had been amended after it was first made. Dean was aware that he himself was not a beneficiary of the Schriever Trust and that Brimmage lacked power to distribute the Heathcote property directly to him. It appears that Dean relied to a large extent on advice from Mr Westley and Mr Evans that it was appropriate for Brimmage to distribute the property to Alan for the purpose of Alan transferring it to Dean.
In the circumstances, it was incumbent on Dean to make enquiries to establish, first, what were the terms of the Schriever Trust Deed and, secondly, that those terms empowered Brimmage to distribute the property to Alan. The first enquiry required Dean to ascertain not only the terms of the Trust Deed as originally made but also whether any amendments had been made to it. Dean made no such inquiries. If he had made such inquiries, Mr Evans ought to have disclosed that he had seen an amending deed removing Alan as a beneficiary of the Trust and Mr Westley ought to have made enquiries of Mr DeGaris concerning that amending deed. The existence of the amending deeds removing Alan as a beneficiary would have come to Dean’s notice.
I conclude that Dean had constructive notice that Brimmage lacked power to distribute the Heathcote property to Alan. He also had imputed notice because Mr Evans acted as his agent and adviser in relation to the transaction and he ought to have known that the Schriever Trust Deed had been amended to remove Alan as a beneficiary.
Conclusion
Dean’s defence that he was a bona fide purchaser of the legal estate in the Heathcote property for valuable consideration without notice fails.
Non-existence of trustee
The Schrievers contend that no relief should be granted restoring the Heathcote property to the Trust because the trustee, Brimmage, has been deregistered, Michael did not adduce evidence at the trial in support of appointment of a new trustee and he ought not to be given an opportunity to do so subsequently.
Michael in his statement of claim seeks various declarations, including that Alan and Dean were not beneficiaries of the Schriever Trust and Dean holds the Heathcote property as a constructive trustee for the Schriever Trust. He seeks an order that the purported vesting of the Trust be set aside. He seeks orders for the appointment of an independent trustee of the Trust and that Dean transfer the Heathcote property to the new trustee of the Trust.
The Schrievers do not contend that the Court lacks power to appoint a new trustee of the Schriever Trust or to vest the Heathcote property in the new trustee. Such powers are clearly conferred on the Court by sections 36 and 37 respectively of the Trustee Act. However, the Schrievers contend that Michael ought to have adduced evidence in support of his application for such orders at the trial, it is now too late for him to do so, and absent such evidence such orders would not be made.
If it were to be concluded (taking into account discretionary considerations yet to be addressed) that the vesting of the Trust should be set aside and the Heathcote property restored by Dean to the Trust, equity would not allow the mere fact that the trustee, Brimmage, has been deregistered to prevent the grant of substantive relief. This is especially so in circumstances in which it was the defendants who caused Brimmage to be deregistered soon after registration of the transfer of the Heathcote property to Dean. Equity would make orders to ensure that there is a trustee of the Trust to whom the Heathcote property could be conveyed.
In that eventuality, there would only be two alternatives: either the Court appoints a new trustee or the Court makes orders for Brimmage to be re-registered and resume as trustee. There is no evidence that Michael failed to adduce at trial that is an essential prerequisite to the Court making one or other of these orders. In this respect, I note that the Schrievers did not themselves adduce any specific evidence in relation to such orders.
Neither party made submissions during closing address concerning the merits of alternative orders for the reconstitution of a trustee of the Schriever Trust. If it were to be concluded that the vesting of the Trust should be set aside and the Heathcote property returned by Dean to the Trust, submissions can be made by the parties on the merits of such alternative orders and the other beneficiaries of the Trust can be given the opportunity to make submissions on the same question.
I reject the Schrievers’ contention that no relief should be granted restoring the Heathcote property to the Trust because the trustee, Brimmage, has been deregistered or because there is some fatal lacuna in the evidence relevant to orders for the reconstitution of the Schriever Trust.
Exercise of discretion
Michael is seeking equitable remedies. Equitable remedies, unlike many legal remedies, are not granted as a matter of right but only on the exercise of the Court’s discretion.
The Schrievers contend that the Court should not exercise its discretion to grant any equitable relief in favour of Michael.
First, the Schrievers contend that the discretion to grant relief should not be exercised because they, as the directors of Brimmage, did not act in deliberate or knowing breach of trust and believed that Brimmage had power to distribute the Heathcote property to Alan.
I have observed above that Alan did not give evidence and did not establish his state of mind in relation to the power of Brimmage to distribute the Heathcote property to him. However, assuming that both Schrievers believed that Brimmage had power to distribute the Heathcote property to Alan, this is not a reason to grant no relief in favour of Michael. The position remains that the Heathcote property was transferred to Alan contrary to the express terms of the Heathcote Trust Deed and the Trust has been wrongly deprived of its sole asset, being an asset worth many hundreds of thousands of dollars. If that asset is not returned to the Trust, Alan and Dean will have received a wrongful benefit as a result of their conduct as directors of Brimmage in causing it to distribute the Heathcote property to a person who was not entitled to it. In addition, Alan and Dean acted contrary, at the least, to the spirit of the Trust by attempting to avoid the prohibition on a distribution of the Heathcote property to Dean.
Secondly, the Schrievers contend that, had they known in 2012 or 2013 that Alan was not a beneficiary of the Schriever Trust, they could have distributed the property instead to Helen, who could have transferred it immediately to Dean. They point to the evidence given by Helen that she would have been prepared to so act.
However, I accept Michael’s submission that a distribution to Helen for the purpose of her transferring it to Dean would be a breach of trust because the trustee would have been acting for an improper purpose of attempting to avoid the prohibition on a distribution of property to Dean. In any event, the Schrievers did not so act: they caused Brimmage to distribute the Heathcote property to Alan instead and that was done without power.
Thirdly, the Schrievers contend that, had they known in 2012 or 2013 that Alan was not a beneficiary of the Schriever Trust, they could have caused Brimmage to vary the Schriever Trust Deed under clause 17 to expand the class of beneficiaries.
The Schrievers do not identify how they would hypothetically have expanded the class of beneficiaries. Subclause 2(f) by its proviso expressly prohibits any amendment under clause 17 to include any further capital beneficiaries. I reject the Schrievers’ contention that, on its proper construction, the proviso is confined in its operation to an amendment of subclause 2(f): it applies to clause 2 as a whole. In any event, the Schrievers did not so act: they caused Brimmage to distribute the Heathcote property to Alan instead and that was done without power.
Fourthly, the Schrievers contend that there would be no utility in granting relief in favour of Michael because, if Brimmage were re-registered and resumed as trustee of the Trust, Alan and Dean as its directors could resolve to distribute the property to Helen and Helen could transfer it to Dean.
However, for the reasons given above, such an exercise of discretion by the trustee would be for an improper purpose. Secondly, it is yet to be determined whether, if relief is granted in favour of Michael, a new trustee should be appointed rather than returning control of the trust to a company controlled by Alan and Dean. Thirdly, if control of the Trust were returned to a company controlled by Alan and Dean, they would be obliged to exercise the discretion afresh having regard to the claims and interests of the beneficiaries as prospective recipients.
Considering all matters relevant to the discretion holistically, this is a case in which the Court should exercise its discretion to grant relief setting aside the purported vesting and either re-vesting the Heathcote property in the Trust or ordering that Dean re-convey the property to the Trust.
Conclusion
Michael has established an entitlement to the grant of relief in the action.
I will hear the parties on the orders to be made to finalise the action, including:
1what declarations if any should be granted;
2the form of the order setting aside the purported vesting of the assets of the Trust, including the Heathcote property, in favour of Alan;
3the form of the order for the re-vesting in, or reconveyance to the Trust of, the Heathcote property;
4what orders should be made in relation to the appointment or reconstitution of a trustee of the Trust; and
5costs.
5
1