Nolan v Nolan & Ors

[2004] HCATrans 555

[2004] HCATrans 555

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M134 of 2004

B e t w e e n -

MOSCA GAI JINX MARGARET ELLERY NOLAN

Applicant

and

LADY MARY NOLAN, SOTHEBY’S AUSTRALIA PTY LTD, LAURAINE DIGGINS, LAURAINE‑DIGGINS FINE ARTS PTY LTD AND EVA BREUER

Respondents

Application for special leave to appeal

GUMMOW J
HAYNE J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 DECEMBER 2004, AT 9.31 AM

Copyright in the High Court of Australia

MR P.N. VICKERY, QC:   May it please the Court, I appear with MR M.J. CORRIGAN for the applicant.  (instructed by Simon Parsons & Co)

MR M.A. DREYFUS, QC:   May it please the Court, I appear with my learned friend, MR M.A. ROBINS, for the first and second respondents.  (instructed by Nathan Kuperholz)

MR VICKERY:   May it please the Court, we have delivered to Mr Yezerski a statement of our distilled principles ‑ ‑ ‑

GUMMOW J:   Just a minute.  The Court holds certificates from the Deputy Registrar that the third and fourth respondents will submit to any order of the Court save as to costs, and that the fifth respondent is in the same position.  Yes, Mr Vickery.

MR VICKERY:   If the Court pleases.

GUMMOW J:   Yes, we have your short guide.

MR VICKERY:   We have distilled from the material for the assistance of the Court the central point of principle at stake, which we say goes to the very heart of this application, and it is this, that in circumstances where (a), a person who is not a stranger to the estate of the deceased (b) comes into possession of trust property of the estate, (c) knowing that it is trust property, and (d) knowing that he has no entitlement to the trust property but others are entitled to the trust property ‑ ‑ ‑

GUMMOW J:   Well, (c) and (d) may involve factual questions here, may they not?

MR VICKERY: They do involve fact, but I will be taking the Court to those issues of fact. The question then becomes is that person a constructive trustee for the purposes of section 21(1)(b) of the Limitation of Actions Act (Vic) and similar legislation in other States in Australia. It is similar in Tasmania and Queensland – in fact, directly relevant. We say that if ‑ ‑ ‑

GUMMOW J:   And there is no United Kingdom statute that would be applicable?

MR VICKERY:   The United Kingdom statute ought to have been applicable – that is, the equivalent in the United Kingdom – but by virtue of the failure on the part of the respondents to prove the United Kingdom law, we say the presumption applies and the law is to be treated as the same as that in Victoria.  So for all intents and purposes this Court must deal with, as the Court of Appeal ought to have dealt with the matter, in accordance with Victorian law.

GUMMOW J:   Yes, thank you.

MR VICKERY:   We say that if the answer is no to the question that we have put, then trust property is – if there is an action for its recovery, would be statute barred and true beneficiaries would in those circumstances be denied their entitlement.  That would be in spite of the apparent unconscionable conduct of the party holding the property.  Secondly, in spite of the potential for the delay in commencing the action on the part of beneficiaries to have been caused innocently ‑ ‑ ‑

GUMMOW J:   There is a problem with inadequate constitution of a suit, is there not?

MR VICKERY:   Of a suit?

GUMMOW J:   Yes.

MR VICKERY:   Yes, by virtue of the ‑ ‑ ‑

GUMMOW J:   Where are the legal personal representatives of Mrs Cynthia Nolan?

MR VICKERY:   What we say about that is this, your Honour.  There is a procedural irregularity and that was found to exist ‑ ‑ ‑

GUMMOW J:   It is more than an irregularity.

MR VICKERY:   Yes.  Her Honour found at first instance that there was procedural irregularity.  Both executors of Cynthia Nolan’s estate are dead.  However, their personal representatives are in existence - that is, the last of the executors to die are in existence – and pursuant to section 7 of the Administration of Estates Act (UK) and the equivalent provision in Victoria, section 17 of the Administration & Probate Act (Vic), where the last of the executors of an estate dies, the executors of that estate may effectively be joined.

GUMMOW J:   Yes.

MR VICKERY:   Now, we have affidavits from Ouvry and Farrer who are in that position.  They are in the application book 144, 145 for Ouvry and 147 to 148 in respect of Farrer, who were prepared to be joined as parties to the Court of Appeal proceeding.  We were ready to make that application; in fact, signalled the making of that application to the Court of Appeal.  The Court of Appeal, however, did not appear to regard the joinder of those parties as necessary to determine the appeal.  We say in the circumstances the joinder is not a necessary step for this Court to deal with the matter.  Ultimately, however, if a retrial is ordered consequent upon any appeal that is held, we would then be in a position to make application for the joinder of those parties at an appropriate time to cure the irregularity.  That would be our proposal, your Honour.

GUMMOW J:   Yes, thank you.  Now, do you rely on this English Court of Appeal decision in James v Williams?

MR VICKERY:   We do, yes.  What we say about James v Williams is that ‑ ‑ ‑

GUMMOW J:   Now, the Court of Appeal, in particular Justice Ormiston, gave it very detailed consideration.

MR VICKERY:   He did, and rejected it on the basis that it did not apply as far as considering English law.  Now, what his Honour did was confine himself to a study and a review of English law and in fact expressly excluded a reference to detailed consideration of Australian law.  We say that the applicable law, applying the presumption as it ought to have been applied, is Australian law.  In the course of approaching the matter in that way, his Honour erred.

We say that this application presents an opportunity for this Court to consider afresh the application of James v Williams in this particular case, and also consider James v Williams alongside its parallel Court of Appeal decision of Paragon, a decision of Justice Millett, which also was considered in detail by Justice Ormiston.  We say that the relevance of James v Williams is this, that possession of the property, coupled with specific knowledge of a requisite kind, can give rise to a constructive trust of the kind for which we contend, pursuant to section 21(1)(b) of the Limitation of Actions Act.  We say that the ratio of James v Williams is effectively this.  That an executor de son tort, not being a stranger to the estate ‑ ‑ ‑

GUMMOW J:   The question is whether James v Williams is right.

MR VICKERY:   That is correct, yes.

GUMMOW J:   And it has been received with great disfavour among the cognoscenti in England.

MR VICKERY:   It has.  It is certainly a matter of controversy, but we say that in the circumstances of this case, where relevant knowledge of the kind possessed by Mr Williams in the James v Williams Case, ought to give rise to a constructive trust of the kind for which we contend.  Mr Nolan, we say, had the relevant knowledge, and there is evidence of this which is accepted.  Firstly, when Cynthia Nolan, his wife, died in November 1976 he knew that – assuming that he had given the works of art to her – he knew that.  The relevant works were part of Cynthia’s estate and were trust property.  That is the first proposition of knowledge.

He then, as was found, knew that he was not entitled effectively to the relevant works in his possession, which comprised part of Cynthia Nolan’s estate, and there was a finding which leads to that conclusion made by the trial judge.  When probate was granted he knew that others were entitled to a share in the estate, and more than likely knew that his step-daughter, the applicant, was entitled.  That is his relevant knowledge.

We say in those circumstances, to have held back the property from the trustees, knowing it is trust property, is clearly unconscionable and clearly enlivens principles of the kind which are outlined in James v Williams.  We say that it is appropriate for that to be given consideration, particularly given the position with regard to chattels in an estate which are peculiarly vulnerable to unconscientious exploitation.  We say that a constructive trust of the kind envisaged by James v Williams ought to be given very serious consideration for these reasons.  Chattels are rarely the subject, if ever, of written accessible records – for example, a contrast script for shares, property and the like.

Secondly, persons in the position of relatives of the deceased are likely to have precise knowledge, or may well have precise knowledge of the nature of the chattels and the whereabouts of them.  On the other hand, contrast that with the position of executors and trustees who may well be independent persons who have no idea at all about chattels of the estate and their whereabouts and we say that in those circumstances the position with regard to chattels and relatives can be the subject of unique vulnerability to unconscientious exploitation.  It is a matter of importance to resolve that, we say, in the context of the Limitation of Actions Act.

GUMMOW J:   What is the value of the assets in question?

MR VICKERY:   In the order of $1 million all told, being three paintings.  We say that this case does present an opportunity to this Court to consider the application of James v Williams and Paragon Finance ‑ ‑ ‑

HAYNE J:   What answer do you make to the specific criticisms made in the Court of Appeal of what was said in that case?

MR VICKERY:   What we say is this, your Honour, is two things.  As a matter of law, we say that James v Williams does present a situation where a constructive trust ought to be applied; that is, it presents a situation where possession of property is held in the situation where it is unconscionable to deny the existence of a constructive trust or any trust.  Secondly, we say that the Court of Appeal erred in determining, or making a finding, that Sidney Nolan was a stranger to the estate.  We say that finding of fact and/or law that he was a stranger to the estate is not correct, and we say that on three bases.

Firstly, that of course he was the husband of the deceased.  Secondly, he was the creator of the works, and assuming he had gifted the works to his deceased wife, he was uniquely connected with the subject matter of the property.  Thirdly, until probate was granted, applying the usual rule, he stood to stand in an intestacy to take the chattels absolutely pursuant to intestacy law.  So he was uniquely connected with the estate itself, at least up until the time when probate was granted, pursuant to section 7 of the – I will find that. It is in the material before the Court.  It is behind tab B3 in the materials – of section 50 of the Administration & Probate Act (Vic), and behind B4 is section 46 of the Administration of Estates Act (UK), which provides in similar terms that, where a deceased leaves a spouse and issue, as the case here, the spouse takes the chattels absolutely in an intestacy.

So we say that Sidney Nolan was directly connected with the estate and was, therefore, not a stranger to the estate by virtue of the potential that he had, at least up until the grant of probate, to take the chattels in an intestacy.  So we say that the court was in error in determining that Sidney Nolan was a stranger to the estate.  Therefore, James v Williams ought to be distinguished on that basis.  Clearly, he was not a stranger in the relevant sense, in our submission.

We say that the facts of this case do enliven the principles more directly than James v Williams in fact.  In James v Williams it seems, found by Lord Justice Aldous, that from the outset Mr Williams held the property, as it were, adversely to those interested in it.  In this case the findings were that in fact when Sidney Nolan first assumed custodial role over the paintings immediately following the death of his wife, he did so in a custodial fashion.  There is no evidence that he acted adversely to the estate ‑ ‑ ‑

GUMMOW J:   Well, they were in the house.  They were in the house in which they had been living, and he was the widower.

MR VICKERY:   Yes, of course.  Of course, yes.  There is a distinction.  So there was a finding that there was no evidence of any conversion or acting adversely to the estate at the earliest until some time after the grant of probate, but in relation to one painting, “Italian Crucifix”, not until 1978 when it was first exhibited under Sidney Nolan’s name.  So it seems that initially we have a period of innocent custodianship where Sidney Nolan simply holds the works on behalf of the estate or himself, at least up until the grant of probate potentially, if there was an intestacy, but thereafter holding the property – and there is no evidence of his acting any way other than innocently, and certainly no evidence of him acting adversely to the estate in that initial period; quite different to the situation in James v Williams.

So we say we have in fact a stronger case than James v Williams, where Lord Justice Aldous found that there was a constructive trust in spite of the fact that it appears virtually from the outset Mr Williams junior held the property adversely to the estate.  So we say that this particular case is a stronger case than James v Williams.  This Court is in a position to deal with it on that basis.

We say that the case provides an opportunity to the Court to itself consider the application of James v Williams and consider the rationale and position of Paragon Finance v Thakerar, the decision of Justice Millett in the Court of Appeal, as he then was.  The Court of Appeal did not examine the law in Australia as to that matter, and we say that ‑ ‑ ‑

GUMMOW J:   Is there a particular passage in Paragon Finance?

MR VICKERY:   Yes.  I will take you to the materials.  It is the third case in our materials, A3, where it was an application for an amendment to a pleading, but in the course of that the question of limitation period arose.  At the foot of page 408 of the All England Reports, Justice Millett says this:

Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations.  The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff.  The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law –

this is the first case –

whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another.  In the first class of case, however, the constructive trustee really is a trustee.  He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff . . . In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property.  He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different.  It arises when the defendant is implicated in a fraud.  Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity.  In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’.

The Court of Appeal, in Justice Ormiston’s decision, found effectively that what was sought here was the imposition of a remedial trust of the second class in Paragon and, therefore, outside the scope of section 21(1)(b). However, we contend that the position of Sidney Nolan was that he in fact fell within the first class, that is, a class which is true trust, a true constructive trust of an institutional kind, which arose on his taking custodial possession of the property following the death of his wife, coupled with the requisite knowledge that he had. We do not seek to impugn the transaction or seek remedy in respect of that transaction. What we do is seek to claim that there was an institutional constructive trust of the type in the first class, discussed by Justice Millett in Paragon.

The alternative position we take is that if we are incorrect about that and if it is taken that the first group of constructive trusts described by Lord Justice Millett in Paragon is as he has described them, we say that it is too limited and ought to be disbanded to cover the position of effectively a person in the position of Mr Williams in James v Williams or, alternatively, the position of Sidney Nolan in respect of this particular estate.  So we say that those are the issues that emerge from Paragon which await consideration and have not yet been authoritatively determined.  It is true that James v Williams has been the subject of criticism and some academic debate has raged about it.  We say, however, that ‑ ‑ ‑

GUMMOW J:   Well, it is criticised in the current edition of Lewin, which usually represents the view of Lincoln’s Inn, I think.

MR VICKERY:   Yes, it may well.

GUMMOW J:   Not just a bunch of academics.

MR VICKERY:   Yes.  We say that it has not authoritatively been determined by a court in Australia most certainly, and on our researches in England either, although there has been some reference to Paragon in a House of Lords decision which has been cited by Justice Ormiston in his decision.

GUMMOW J:   Well, it is by Lord Millett.

MR VICKERY:   Yes it is, and it is by way of obiter as well.  We say that it has not been authoritatively determined, it has been the subject of criticism, but it certainly has not been the subject of authority in Australia, nor was it considered properly by Justice Ormiston, with respect to him, where he ‑ ‑ ‑

GUMMOW J:   Well, the red light is on, Mr Vickery.

MR VICKERY:   Is it?

GUMMOW J:   Yes.

MR VICKERY:   Thank you.  I will just finish with this, where Justice Ormiston said that the matter of the law on this issue in Australia was apparently confused and confusing in terms of the authorities, especially after the last 20 years or so.  So we say that this is an opportunity to resolve that confusion in this area.  If your Honour pleases.

GUMMOW J:   Yes, Mr Dreyfus.  What do you say of this submission that Sir Sidney Nolan had a relevant interest in the sense that if the will was not proved he would have taken on an intestacy, that he had some contingent interest for that reason.

MR DREYFUS:   This arises, your Honours, because of the consideration of the term “stranger”.

GUMMOW J:   Yes.

MR DREYFUS:   And we say in respect of that that because there was a will, and, indeed, because there was not a – there were in fact two wills – because there was relevantly a will in England and executors were appointed and very speedily took up their offers, it is not the situation that for the purposes of estate law Sidney Nolan could ever be considered a stranger.  Justice Ormiston so held correctly, we say, in the judgment of the Court of Appeal.

GUMMOW J:   Now, if special leave were granted, would there be a cross‑appeal from your side as to sustaining the findings at first instance?  There are factual disputes as well, are there not?

MR DREYFUS:   There are, and your Honours will be aware – perhaps it has not been necessary for the purposes of this special leave application to consider more than Justice Ormiston’s judgment, but the other two members of the Court of Appeal wrote a judgment dealing with quite separate matters, that being the evidentiary considerations that had been applied at trial.

GUMMOW J:   Yes.

MR DREYFUS:   Their Honours Justice Eames and Chernov held that there ought be a retrial.  Clearly we contended in a four‑day appeal in the Court of Appeal that her Honour the learned trial judge was entirely correct in her treatment of the evidence.  It is possible – I would have to take instructions of course, your Honours – that we would seek to so contend again were leave to be given on the trust points that the applicant for leave seeks to raise.

GUMMOW J:   Yes, thank you.

MR DREYFUS:   Now, your Honours, the first matter I would seek to take the Court to is at page 172 of the application book, where a single page of a document entitled – and the title of the document is at page 171 of the application book – a document entitled “Appellant’s Further Reply To Respondents’ Submissions” appears.  The single page that has been extracted is a document placed before the Court of Appeal at the conclusion of all of the oral argument and, indeed, at the conclusion of the proceeding, after the proceeding had finished.

What the applicant for leave told the Court of Appeal at numbered paragraph 3.10 was this:

Further, to the extent that the appellant –

that is the applicant here –

relies upon Sidney Nolan becoming a trustee de son tort or an executor de son tort pursuant to s.28(1) Administration of Estates Act 1925, these matters are substantive and the law of the United Kingdom –

by which I think the applicant meant the law of England and Wales –

at all material times applied.

The next statement made to the Court of Appeal is this:

Even though the law of the United Kingdom technically applies, the statutory law of the United Kingdom is the same in all relevant respects as the law of Victoria.

Now, that is the position taken by the applicant for leave before the Court of Appeal.  There is a direct concession or statement that there is no difference relevantly between Victorian law and English law, and that was in effect the position taken at trial, because at trial the applicant took no point at all about proper law.  The trial judge was asked to proceed on the basis that there was no material difference between Victorian law and English law.

That being the case, your Honours, it is not surprising that the applicant for leave before the Court of Appeal relied on the authority of James v Williams, it being one of the two authorities touching on the point in English law, and made submissions to the Court of Appeal to the effect that James v Williams should produce a result favourable to the applicant. 

His Honour Justice Ormiston, in a careful and considered judgment, explains why even making all assumptions put at their most favourable, on a factual level, to the applicant, James v Williams still did not produce a favourable result for the applicant.  His Honour, we say, entirely correctly distinguished James v Williams, notwithstanding of course that his Honour also expressed some criticisms which his Honour shares with others about the way in which James v Williams is reasoned.

Perhaps importantly, your Honours, the applicant, neither in the written material that has been placed before this Court nor in address here today, has identified any ‑ ‑ ‑

GUMMOW J:   This is page 226, line 15, is it:

In the broadest of terms even James v. Williams is consistent with the need to establish a holding of the relevant property with an intent to do so on behalf of others and in particular beneficiaries or next‑of‑kin.

MR DREYFUS:   Yes.  His Honour Justice Ormiston in effect has said, “There’s nothing in the conduct alleged against Sidney Nolan, or the conduct identified by the applicant ‑ ‑ ‑

GUMMOW J:   Well, your opponent uses the expression “custodial possession”, I think.

MR DREYFUS:   To say that is to give some attribution or connotation to the conduct.

GUMMOW J:   Yes.

MR DREYFUS:   And we point to the findings of fact on which this judgment depends, which your Honours will see at numbered paragraph 12 of the judgment of his Honour Justice Ormiston which is at page ‑ ‑ ‑

HAYNE J:   Page 180.

MR DREYFUS:   Page 180.  Thank you, your Honour.  There his Honour Justice Ormiston sets out what was the case put at its highest for the applicant below, saying that – starting at line 7:

apart from saying that in general terms they –

being the paintings –

were under Sidney Nolan’s control, there was no evidence of any act by him which asserted his property in them in the weeks which had followed thereafter.  At most it could be said that the paintings were moved for safekeeping and thereby remained in Sidney Nolan’s custody or control.  To the extent that there was any apparent assertion of any ownership rights by Sidney Nolan, that came first when the paintings “Royal Hotel” and “Hare in Trap” were placed on the walls of the premises which the first respondent –

that is, Mary Nolan –

and Sidney Nolan then occupied, but it is by no means clear when that happened and it is indeed highly unlikely that it occurred before probate was taken out by the executors of Cynthia Nolan’s English will barely six weeks after her death.  Any more obvious assertion of ownership rights by Sidney Nolan’s attributing ownership to himself in the several exhibitions which followed, which included the exhibiting also of “Italian Crucifix”, did not occur until 1978 or 1979 at the earliest.

Now, those are the findings of fact put at its highest.  As his Honour Justice Ormiston’s judgment makes clear, his Honour makes all assumptions favourable to the applicant in order to consider the way in

which the applicant’s attempt to bring herself outside the provisions of the Limitation of Actions Act could be of benefit to her.  His Honour, making all of those assumptions, finds no act that could be said to constitute Sidney Nolan as an institutional constructive trustee, no act that looked like the adoption of duties of trustee, let alone duties of executor.

We would ask your Honours to bear in mind that Sidney Nolan was only held to be an executor de son tort by reason of construction of the relevant English statute, not because at common law he would have been regarded as an executor de son tort.  So we have got Sidney Nolan by force of statute being treated, according to his Honour Justice Ormiston, as executor de son tort, but that is where it stops.  His Honour’s conclusions, looking at the facts – and I say again, most favourably to the applicant – produced the correct result, which is that Sidney Nolan could not be treated as a trustee.  There the attempt to escape the provisions of the Limitations Act, for what is on any view a hopelessly stale action, stops.

Your Honours, the Court of Appeal, as I have already mentioned in answer to your Honour Justice Gummow’s first question, found Sidney Nolan to be a stranger for estate purposes.  Unlike James v Williams where there was an intestacy upon an intestacy, here we have got not one but two wills and executors who have started their job very promptly.  It is clearly correct, we say, to distinguish this case from James v Williams, and, indeed, to explain, as Justice Ormiston did at length, that no basis for treating Sidney Nolan as trustee was made out.

GUMMOW J:   We do not need to hear you any further, Mr Dreyfus.

MR DREYFUS:   If your Honours please.

GUMMOW J:   Anything in reply, Mr Vickery?

MR VICKERY:   Simply just to refer to document 172, which was referred to by my learned friend.  It was also the subject matter at 172 which was in our reply delivered on 28 October.  It was also the subject of a document delivered in the course of the hearing before the Court of Appeal, which is found at 165, which was delivered during the course of our learned friend’s address to the Court, and it sets out more fully what the position was with a minor amendment to 3.5, which is not relevant.

What we say at 3.9 in its full text, and said at the Court of Appeal, was, in any event, there is a presumption that the law of a foreign state is the same as the law of the forum, unless proven otherwise.  The onus of proof rests upon the party alleging that the foreign law differs from the law of the forum.  The parties did not and do not seek to adduce evidence on the issue.  Accordingly the presumption applies and the law of the

United Kingdom is presumed to be the same as the law of Victoria, as in fact does happen to be the case in all relevant respects.

That was – 3.9 was in fact replicated in our formal written reply which was delivered on the 28^th, document 172.  The page in 172 which is in the application book did not photocopy correctly.  One can take it that 3.9 was in fact in its full form before the court from 21 October and also on the 28^th.  If the Court pleases.

GUMMOW J:   There is no reason to doubt the conclusions reached by the Victorian Court of Appeal.  Further, the questions of principle which the applicant would seek to agitate in this Court would not necessarily fall for decision.  Accordingly, special leave is refused with costs.

AT 10.05 AM THE MATTER WAS CONCLUDED