Re Warren; Warren & Anor v Warren
[2022] VSC 461
•16 August 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2021 04444
IN THE MATTER of the Estate of SEVERYN WARREN, deceased
and
IN THE MATTER of an application under Order 54.02 of the Supreme Court (General Civil Procedure) Rules 2015
BETWEEN:
| HEDY LEANNE WARREN and ELIZABETH DIANE SWEET as Executors of the Estate of the late SEVERYN WARREN | Plaintiffs |
| v | |
| HENIA ELLEN WARREN | Defendant |
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JUDGE: | Matthews AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 June 2022 | |
DATE OF JUDGMENT: | 16 August 2022 | |
CASE MAY BE CITED AS: | Re Warren; Warren & Anor v Warren | |
MEDIUM NEUTRAL CITATION: | [2022] VSC 461 | First Revision: 17 August 2022 |
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EQUITY — Trusts — Judicial advice — Determination of questions arising in the execution of trusts — Supreme Court (General Civil Procedure) Rules2015 (Vic), r 54.02 — Supreme Court Act1986 (Vic), s 36 — Questions arising in the administration of deceased estate — Whether requirements of s 53(1)(b) of the Property Law Act 1958 (Vic) were complied with — Re McGowan & Valentini Trusts (2021) 63 VR 449 —Whether estate disentitled from relying on the declaration of trust —Nelson v Nelson (1995) 184 CLR 538 — Perpetual Executors & Trustee Association of Australia Ltd v Wright (1917) 23 CLR 185.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | M T Flynn QC with G J Redenbach | Russell Kennedy Lawyers |
| For the Defendant | No appearance | AG Tax Lawyers |
HER HONOUR:
Introduction
The Plaintiffs, who are the executors of the deceased estate of Severyn Warren (‘Severyn’), seek the advice of the Court pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’) as to whether or not Severyn’s wife, Henia Warren (‘the Defendant’), holds certain property on trust for the benefit of the estate.[1]
[1]By order made by McMillan J dated 26 April 2022, this proceeding was referred to me for hearing and determination pursuant to r 77.05 of the Rules.
Severyn and the Defendant married in 1953, and remained so until Severyn’s death on 8 October 2019. Severyn was a solicitor and practiced as a partner at F Miller Robinson & Co, which subsequent merged with Cornwall Stoddart in the 1980s. The Defendant was a bookkeeper. The pair had four children together: Leonard Adrian Warren (‘Leonard’), Hedy Leanne Warren (‘Hedy’), Elizabeth Diane Sweet (‘Lisa’) and Rosemary Ida Linden. Hedy and Lisa are the executors of Severyn’s estate and the Plaintiffs in this proceeding. All four children are beneficiaries under Severyn’s will.
Severyn and the Defendant each maintained joint and separate assets. The reason for maintaining some separate investments was said to be to protect themselves, each other and their family in case they ever divorced.
In 1967, Severyn purchased in his own right, and became the registered proprietor of, property at 74 Belmore Road, Balwyn (‘the Belmore Road Property’). The Belmore Road Property comprised four units/townhouses, was used as an investment, and was rented out.
In 1991, Severyn transferred to the Defendant title to the Belmore Road Property for natural love and affection. This transfer is central to the present application, and will be dealt with in greater detail later in these reasons. On 25 June 1991, the Defendant was registered as the proprietor of the Belmore Road Property.
Shortly after Severyn’s death in October 2019, the Plaintiffs discovered two lockboxes in a filing cabinet in Severyn’s study in the course of the administration of the estate. One lockbox contained documents broadly relating to the Defendant’s affairs, with the other lockbox containing documents primarily relating to Severyn’s affairs (‘Severyn Lockbox’). The Severyn Lockbox relevantly included the following contents:
(a) an undated declaration of trust signed by the Defendant in Severyn’s favour over the Belmore Road Property (‘Declaration of Trust’). In this instrument, the Defendant stated that she held the Belmore Road Property on trust for Severyn. I will return to the circumstances surrounding and the rationale underpinning the creation of the Declaration of Trust later in these reasons;
(b) an undated document titled ‘irrevocable authority to pay’, which directs an unspecified person to pay over the proceeds of sale for the Belmore Road Property to an unspecified recipient or recipients. The document bears the signature of the Defendant;
(c) two undated transfer of land forms in respect of the Belmore Road Property, each signed by the Defendant, which state that they transfer ‘all my estate in fee simple’ (typed onto the form) or ‘all his estate and interest in the fee simple’ (printed on the form), respectively, to an unspecified transferee for unspecified consideration;
(d) two transfer of land forms from the Defendant to an unspecified transferee for unspecified consideration in respect of multiple properties, including the Belmore Road Property, signed by the Defendant;
(e) an unsigned document titled ‘statement of affairs’ dated 17 May 2010;
(f) a declaration of trust signed by the Defendant in favour of Severyn in relation to an unpaid beneficiary entitlement of Severyn’s in respect of a family discretionary trust known as ‘WFT’ dated 30 June 1999; and
(g) an envelope containing two duplicate certificates of title, one of which was the duplicate certificate of title for the Belmore Road Property.
Some time after, the Defendant sold the Belmore Road Property for the sum of $2,350,000, and directed the transfer of the sale proceeds into the bank account of Severyn’s estate.[2]
[2]Affidavit of Hedy Leanne Warren affirmed 26 October 2021, [42].
On 4 November 2021, after the sale of the Belmore Road Property but prior to settlement of the sale, the Plaintiffs wrote to the Australian Tax Office (‘ATO’) seeking confirmation that, among other things, it would accept their view that Severyn held, and that his estate retains, the beneficial interest in the Belmore Road Property, and whether the Defendant’s apparent erroneous taxation payments in respect of income received from the Belmore Road Property affected Severyn’s and the Defendant’s prior returns.[3] By letter dated 18 November 2021, the ATO suggested to the Plaintiffs that it would be necessary for them to obtain a private ruling. The ATO also refused to be joined as a party to any contemplated proceeding brought by the Plaintiffs.[4] Consequently, the Plaintiffs instead elected to seek advice from the Court by way of the present application.
[3]Second Leonard Affidavit, [3].
[4]Second Leonard Affidavit, [4].
The Defendant has obtained independent legal advice and consents to the orders sought by the Plaintiffs.[5]
[5]Affidavit of Henia Ellen Warren affirmed 3 October 2021, [3]-[5]; Affidavit of George Constantine Kolliou affirmed 17 March 2022, [7]-[11]. On this basis, the Defendant was excused from attending the hearing on 24 June 2022.
For the reasons that follow, I am satisfied that the Court should give the advice and the accompanying declaratory relief sought by the Plaintiffs, and make the orders sought.
Questions for determination
By their Originating Motion filed 24 November 2021, the Plaintiffs seek the determination of the following questions:
(a) As a result of the events that have happened, did the Defendant hold the Belmore Road Property on trust for Severyn from the date he transferred the Belmore Road Property to the Defendant until his date of death?
(b) If the answer to (a) is ‘yes’, did Severyn have a vested, indefeasible and absolute entitlement in the Belmore Road Property as against the Defendant from the date that he transferred the Belmore Road Property to the Defendant until his death?
(c) If the answers to questions (a) and (b) are ‘yes’, did the Plaintiffs have at all times since probate was granted a vested, indefeasible and absolute entitlement in the Belmore Road Property as against the Defendant, and subsequently in the proceeds from the sale of the Belmore Road Property, as against the Defendant?
The Plaintiffs say that the matters for which they have approached the Court give rise to four main issues. The first issue is whether r 54.02 of the Rules grants the Court power to determine the beneficial ownership of the Belmore Road Property. The second issue concerns whether the Declaration of Trust executed by the Defendant in favour of Severyn was effective for him to retain beneficial ownership of the Belmore Road Property. The third issue relates to whether the estate should be disentitled from relying upon the Declaration of Trust to establish its beneficial ownership of the Belmore Road Property. The final issue involves the question of whether the Court should exercise its discretion in favour of granting the declarations sought.
I agree that these are the keys issues with which I am required to deal. After setting out the evidence upon which the parties seek to rely and summarising the applicable principles, I will proceed to deal with these issues in the order set out in the preceding paragraph.
Material relied upon
In the course of the proceeding, the Plaintiff filed the following material:
(a) the affidavits of Leonard Adrian Warren affirmed 26 October 2021 (and the exhibits thereto) (‘First Leonard Affidavit’), 23 November 2021 (and the exhibits thereto) (‘Second Leonard Affidavit’) and 7 February 2022;
(b) the affidavits of Hedy Leanne Warren affirmed 26 October 2021 (and the exhibits thereto) (‘First Hedy Affidavit’), 14 June 2022 (‘Second Hedy Affidavit’) and 22 June 2022 (and the exhibits thereto) (‘Third Hedy Affidavit’);
(c) the affidavit of Elizabeth Diane Sweet affirmed 29 October 2021;
(d) the affidavit of Mark Charles Sweet affirmed 29 October 2021 (and the exhibits thereto);
(e) the affidavit of Deborah Victoria Kaplan affirmed 29 October 2021 (and the exhibits thereto); and
(f) a written outline of submissions dated 14 June 2022, and amended on 24 June 2022. The Plaintiffs’ written outline was supported by oral submissions made by the Plaintiffs at the hearing before me.
The Defendant has filed the affidavit of Henia Ellen Warren affirmed 3 October 2021 (and the exhibits thereto) (‘Henia Affidavit’), as well as the affidavit of George Constantine Kolliou affirmed 17 March 2022 (‘Kolliou Affidavit’).
Applicable Rules and legislative provisions
In accordance with r 54.02(1) of the Rules, a trustee may bring a proceeding for any relief which could be granted in an administration proceeding. A proceeding may be brought for, among other things, the determination of any question which could be determined in an administration proceeding, including any question arising in the administration of an estate or in the execution of a trust.[6]
[6]The Rules, r 54.02(2).
The principles applicable to r 54.02 were recently summarised by Derham AsJ in the case of Re The Macedonian Orthodox Church Community ‘Saint Dimitrij Solunski’ Springvale Inc,[7] where his Honour observed that the authorities establish the following propositions:[8]
[7][2020] VSC 274 (‘Re The Macedonian Orthodox Church’). See also Derham AsJ’s decision in Avery v Manno (2020) 62 VR 281 (‘Avery’), [12]-[29].
[8]Re The Macedonian Orthodox Church, [33] (citations omitted).
(a) rule 54.02 is the only statutory basis in Victoria for a personal representative of a deceased estate or trustee of a trust to seek the advice and directions of the court. The Trustee Acts in other States and Territories generally make express provision for such applications to be made;
(b) the procedure is a summary procedure, intended to enable questions arising in the administration of an estate or a trust to be resolved cheaply and simply and operate as an exception to the court’s ordinary function of deciding disputes between competing litigants;
(c) the summary nature of the procedure is important to an understanding of the evidence the Court is entitled to rely upon in giving its advice. That evidence is ordinarily untested. The extent of the information available to the Court and its apparent reliability are factors going to the exercise of the discretion to give the advice. That is,
…while the time and cost involved in giving judicial advice at an early stage of litigation, when the issues involved in disputes about rights may not be fully sharpened and it may not be possible for the factual position to be as efficiently exposed as in a trial, may be factors relevant to a decision not to grant judicial advice but to let the matter be examined in conventional litigation, they are not factors which either automatically bar judicial advice or are so weighty as generally to compel the court not to grant the advice.
(d) the purpose of the procedure is to enable a trustee or executor to obtain the direction or opinion of the Court on a matter of administration or management, or as to the construction of the will or trust instrument, without the need to commence an administration suit with all its attendant delay and cost;
(e) it affords a facility of giving ‘private advice’ because its function is to give personal protection to the trustee. The obtaining of judicial advice resolves doubts about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. Resolving these doubts means that the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs; and
(f) there is but one jurisdictional bar to relief: the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument.
Section 53 of the Property Law Act 1958 (Vic) (‘PLA’) sets out the requirements with respect to the creation of interests in land. That provision provides:
53 Instruments required to be in writing
(1) Subject to the provisions hereinafter contained with respect to the creation of interest in land by parol—
(a)no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law;
(b) 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;
(c) a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will.
(2) This section shall not affect the creation or operation of resulting, implied or constructive trusts.
The principles concerning s 53(1)(b) were recently summarised by Macaulay J in Re McGowan & Valentini Trusts.[9] In that case, his Honour observed:[10]
[9](2021) 63 VR 449 (‘Re McGowan’).
[10]Re McGowan, 470-71 [66]-[69] (citations omitted).
There has been some debate as to whether a declaration of trust over land attracts the operation of both sub-ss (a) and (b) of s 53(1) with the result that such a declaration must satisfy the requirements of both sub-sections. Whereas sub-s (a) is concerned with the creation or disposal of an interest in land, it has been held that sub-s (b) is concerned with the enforceability of a declaration of trust over land however made (acknowledging, however, that a declaration of trust of land both creates and disposes of an interest in it).
The prevailing view in the authorities is that, in order to avoid sub-s (b) being seen as otiose or imposing requirements additional to sub-s (a), sub-s (a) is construed as not extending to declarations of trust of land. Unlike the creation of a trust in land, which must be in writing, a declaration of trust respecting land, however made, need only be ‘manifested and proved by some writing signed by some person who is able to declare such trust’. In addition, it has been held that these requirements may—
be satisfied by a combination of documents capable of being read together. Any informal writing may stand as evidence of the existence of a trust including correspondence from third parties, a telegram, an affidavit or an answer to interrogatories.
The date of creation of the writing is not material. It may come into existence at any time after the declaration of the trust.
Nevertheless, careful attention needs to be paid to whether the documents or combination of documents signed by the person able to declare the trust actually manifest and prove the trust of land claimed to have been declared, including the salient terms of the trust. Whereas oral evidence may be capable of persuading a tribunal of fact that a declaration of trust was made, that oral evidence cannot also be used to fill gaps in the written record for the purpose of manifesting and proving the declaration and the terms of the trust that is sought to be enforced.
It follows that one should bear steadily in mind two distinct concepts — first, the declaration of a trust of land made by the owner of the legal interest in favour of the beneficiary and, secondly, the manifestation and proof of that declaration of trust in writing signed by a person who was able to make it. The declaration of trust may be proved by oral statements or inferred from circumstances. However, for the equitable interest thereby created to be enforceable and have effect, the formalities of s 53(1)(b) of the Property Law Act must be complied with.
Analysis
Whether Order 54 of the Rules authorises the Court to make the orders sought
The first issue raised by the Plaintiffs concerns whether ownership of the Belmore Road Property is a question that has arisen in the course of administrating Severyn’s estate. As indicated earlier, the authorities state that the only jurisdictional bar to relief under r 54.02 is the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument.[11]
[11]Re The Macedonian Orthodox Church, [33(f)]; Avery, [12]; Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand & Anor (2008) 237 CLR 66, 89-90, [58].
I note at the outset that I accept the Plaintiffs’ submission that the jurisdictional threshold has been satisfied in this instance. In support of their contention that the question of the ownership of the Belmore Road Property has arisen in the course of administrating the estate, the Plaintiffs relied on the case of Re McGowan, where the trustee of two discretionary trusts applied under r 54.02 for advice on various questions. Among the issues for determination in that case was the beneficial ownership of certain real property. The parents, who had established a separate discretionary trust in 1977 for each of their two children, had acquired the certain property but always treated it as belonging to the two discretionary trusts. There was no express declaration of trust in favour of the children. After the father died, the property was acquired by the mother by right of survivorship. When the mother died, the property was subsequently acquired by her executors, being the pair’s two children. The children then pointed to a ‘solid body of evidence’ in support of their position that their parents had an intention to hold the property on trust, as expressed in the relevant trust deeds.[12] That evidence consisted of, among other things, a typed and unsigned ‘declaration of trust’ by which the parents were to declare that they held the property on trust for I N & G Nominees Pty Ltd (being the trustee company that was held to have acted in the capacity of trustee of the discretionary trusts) on the basis that the money used to purchase the land was the company’s money.[13]
[12]Re McGowan, [71(d)].
[13]Ibid, [59].
Macauley J ultimately found that there was sufficient evidence that the parents intended that the property be held by them on trust, and that they were to be taken as having declared such a trust.[14] His Honour also found that the applicable requirements had been complied with.[15]
[14]Ibid, [73].
[15]Ibid, [73].
I consider that Re McGowan is broadly analogous with the present application, such that there is no doubt that the matters raised by the Plaintiffs in this application fall within the ambit of r 54.02 of the Rules. Most significantly, I am of the view that the ownership of the Belmore Road Property is a question that has arisen in the course of administrating Severyn’s estate.
Whether Severyn retained beneficial ownership of the Belmore Road Property
In order to create an express trust, the so-called ‘three certainties’ must be present: that is, certainty of intention, subject matter of the trust and beneficiaries of the trust.[16]
[16]Kauter v Hilton (1953) 90 CLR 86, 97; Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62, [7].
The three certainties have in this case been established by the evidence. Certainty of intention has been made out by the Declaration of Trust and supported by the evidence filed in this proceeding, to which I will return shortly. The subject matter of the apparent express trust is certain, in that it concerns the Belmore Road Property. The beneficiary of the trust is identified as Severyn.
In addition to these requirements, if the subject matter of the trust is land, s 53(1)(b) of the PLA requires evidence in writing of a declaration of trust respecting any land or interest in land, signed by a person who is able to declare such trust.
As discussed by Macaulay J in Re McGowan, one must be careful to distinguish between two distinct notions: first, the declaration of a trust of land made by the owner of the legal interest in favour of the beneficiary and, secondly, the manifestation and proof of that declaration of trust in writing signed by a person who was able to make it.[17] I will first deal with the evidence as to whether any declaration of trust was made in respect of the Belmore Road Property, before turning to the evidence of compliance with s 53(1)(b) of the PLA. As will become clear, there is much overlap in the evidence adduced by the Plaintiffs in regards to these two limbs.
[17]Re McGowan, [69].
The Plaintiffs rely on the evidentiary material to support the conclusion that a declaration of trust was made in respect of the Belmore Road Property.
The evidence indicates that, in or around 1990, the Cornwall Stoddart partnership, the firm of which Severyn was a partner, made an investment in film production, with the partnership entering into personal guarantees in connection with the investment.[18] Severyn was among the partners required to provide a guarantee in respect of this investment. The evidence indicates that the risk associated with the guarantee provided by Severyn was a topic of discussion between Severyn and members of the family.[19] For example, Leonard deposes to conversations between himself and his father in which Severyn is said to have expressed the view the firm ought not to have made the investment, which Severyn considered to be risky and about which Severyn held concerns.[20]
[18]First Leonard Affidavit, [13].
[19]For example, Henia Affidavit, [19]-[21]; First Hedy Affidavit, [41].
[20]First Leonard Affidavit, [13]-[14].
In his affidavit, Leonard describes that, after the investment was made and the guarantee entered into, Severyn informed him that he wanted to take steps to transfer his assets out of his name by transferring them to the Defendant as trustee with Severyn retaining the beneficial interest.[21] In particular, Leonard recalls that sometime in 1990 Severyn summoned him to his study, where Severyn stated that he had decided to transfer his assets to the Defendant on the basis that she would hold them on trust on his behalf, and showed to Leonard a ‘short, simple declaration of trust by [the Defendant] in favour of [Severyn]’.[22] While Leonard was a law student at the time, he believed it to be unusual that his father, an experienced legal practitioner, was seeking his opinion on a legal document and believes that he was shown the draft declaration of trust by Severyn so that he was apprised of the arrangement.[23] While Leonard is unable to recall the content of the draft declaration of trust, he believes it to be consistent with the Declaration of Trust prepared in respect of the Belmore Road Property.[24] However, he was not present when the Declaration of Trust was executed by the Defendant, nor had he seen the executed copy of the Declaration of Trust until after Severyn’s death.[25] Leonard further deposes to another conversation with Severyn around this time, during the course of which Leonard was shown draft transfer of land forms, as well as a conversation where Severyn said that he intended for the Defendant to ‘pre-execute’ transfers back to himself, which he intended to keep as ‘insurance’ in the event that the pair got divorced.[26]
[21]Ibid, [15].
[22]Ibid, [16].
[23]Ibid, [17].
[24]Ibid, [18].
[25]Ibid, [19].
[26]Ibid, [21]-[22].
The Plaintiffs also point to the existence of a ‘letter of instructions’ provided to Hedy, one of the two executors, in 2004. The letter of instructions was enclosed in an envelope marked ‘private & confidential & important’, on which an instruction to open ‘immediately upon [Severyn’s] death’ was inscribed.[27] Hedy complied with the instruction and opened the envelope after Severyn’s death.[28] The letter provides in part:[29]
I have arranged with Mum that in the likely event of there being insufficient cash funds to pay the legacies [mainly to the four of you], she will sell the four Units at 74 Belmore Rd., Balwyn. {I [sic] explained to you how it came about that Mum is registered as the proprietor of, inter alia, this property – it would be best, I think, not to transfer it back to me [estate] because Mum I am sure will do as I arranged with her in my discussion.
[27]First Hedy Affidavit, [20].
[28]Ibid, [21].
[29]Ibid, [22].
Also exhibited to the First Hedy Affidavit is a statement of affairs referred to at paragraph 6(e) above, which was located in the Severyn Lockbox. That document relevantly provides that the Defendant holds:[30]
[t]he title to Belmore Rd units and the loan account in WF.T. [sic] were transferred to her for asset protection [and [sic] are subject to certain declarations which are filed with other documents to be utilised only if that will not jeopardise the assets which would otherwise be held by me. Must be treated with caution.
[30]Exhibit HLW-08 to the First Hedy Affidavit, 63.
The Plaintiffs also point to the affidavits of Mark Sweet and Deborah Kaplan (formerly Ms Deborah Rado), who each confirm the veracity of their signatures as witnesses on the transfers of land referred to at paragraphs 6(c) and 6(d) above. Ms Kaplan is Severyn’s niece, and Mr Sweet is Lisa’s husband (and Severyn’s son-in-law). However, neither individual recalls witnessing any of the documents or the surrounding circumstances.[31] Leonard recalls being present when Severyn asked Mr Sweet and Mrs Kaplan to witness the execution of the transfers.[32]
[31]Affidavit of Mark Charles Sweet affirmed 29 October 2021, [3]; Affidavit of Deborah Victoria Kaplan affirmed 29 October 2021, [5]-[6].
[32]First Leonard Affidavit, [23].
Further, it is Hedy’s evidence that, in early November 2019, after the Plaintiffs had reviewed the material in the lockboxes discovered in Severyn’s filing cabinet, they met with the Defendant to advise her of their discovery of the documents in the Severyn Lockbox.[33] Hedy recalls that after suggesting to the Defendant that the documents found in the Severyn Lockbox appear to show that notwithstanding the Belmore Road Property was in the Defendant’s name, it in fact remained Severyn’s, to which the Defendant replied, ‘yes, that is true’.[34] Hedy also deposes that the Defendant then stated that the Belmore Road Property had been transferred to her to protect it in the event that Severyn was sued in relation to the film investment.[35]
[33]First Hedy Affidavit, [40].
[34]Ibid, [41(c)].
[35]Ibid, [41(d)].
Hedy’s account of this conversation with her mother is consistent with the Defendant’s evidence. In her affidavit, the Defendant recounts that she had many conversations with Severyn regarding the film investment, the guarantee that Severyn provided in conjunction with the partnership and the risk he faced as a result of the investment. The Defendant further recalls that she and Severyn talked about protecting his assets by moving all of the assets owned by Severyn out of his name and registering them in the Defendant’s name, with the Defendant holding those assets on trust for Severyn. For this purpose, the Defendant deposes that Severyn prepared a series of documents for the pair to sign. The Defendant’s understanding of these documents was (and remains) that ‘[Severyn] registered all his properties in my name to hold on trust for him’.[36]
[36]Henia Affidavit, [21].
Having regard to the foregoing evidence and all of the surrounding circumstances, I am satisfied that Severyn expressed an intention to transfer the Belmore Road Property to the Defendant on the basis that she held it on trust for him. The evidence makes clear that Severyn was concerned about the risk to his assets arising from the guarantee offered in respect of the investment in the film production, and took measures to protect his own assets. Among the assets that he sought to protect was the Belmore Road Property, which he transferred to the Defendant in 1991 for natural love and affection. Furthermore, I consider that Leonard’s recollection of his conversations with Severyn is consistent with the Declaration of Trust signed by the Defendant, the statements in the statement of affairs and the letter of instructions, and the transfer documents signed by the Defendant. This evidence also accords with the affidavits of both Hedy and the Defendant.
Turning now to the second step in the inquiry, it is necessary to ascertain whether there is evidence of compliance with the formalities of s 53(1)(b) of the PLA.
The critical piece of evidence in this respect is the Declaration of Trust itself, which is set out as follows:[37]
[37]Exhibit HEW-02 to the Henia Affidavit, 9.
As this excerpt makes clear, the Declaration of Trust has been signed by the Defendant but is undated. The Defendant’s evidence is that she signed the declaration of trust.[38]
[38]Henia Affidavit, [22(b)(i)].
Given the Declaration of Trust remains undated, however, a question arises as to when the Declaration of Trust was executed by the Defendant. The evidence is that the duplicate certificate of title for the Belmore Road Property was found in the Severyn Lockbox after his death. The Defendant does not believe that she was ever given the document.[39] On this basis, the Plaintiffs say that the Defendant could not have acquired anything before she became registered as owner. The Plaintiffs further submit that given the transfer was registered on 25 June 1991, the Court should find that the Declaration of Trust was executed prior to 25 June 1991.
[39]Ibid, [23].
I accept this Plaintiffs’ submissions in this regard, which I consider to be supported by the evidence in five key respects.
Firstly, the evidence makes plain that Severyn and the Defendant each intended that the Belmore Road Property be held on trust by the Defendant for Severyn. As discussed earlier, Severyn’s investment in film production and the risks associated with that investment were the subject of discussion among the Warren household. The Defendant’s evidence is that she and Severyn had ‘many conversations’ about the investment, the guarantee provided and the potential exposure of Severyn’s assets as a consequence. Both the Defendant and Severyn discussed protecting his assets by transferring legal title to the Defendant from Severyn, on whose behalf the assets were to be held on trust.[40] This evidence sits squarely with Leonard’s recollection, who says that he had several discussions with Severyn regarding the investment and the concomitant risks associate with it in or about 1990.[41] Leonard also deposes that he was present during conversations between Severyn and the Defendant, where it became clear to him that his father wished to take steps to transfer the assets out of his name, but did not wish to lose formal control of his assets.[42]
[40]Ibid, [21].
[41]First Leonard Affidavit, [13].
[42]First Leonard Affidavit, [14].
Secondly, the Defendant’s understanding that she held the Belmore Road Property on trust for Severyn. The evidence of both the Defendant and Hedy described at paragraphs 34 and 35 above support the view that the Defendant understood that she held the Belmore Road Property on trust for Severyn.[43]
[43]Henia affidavit, [5], [21]; Hedy affidavit, [41(c)].
Thirdly, the evidence clearly supports the conclusion that Severyn understood that the Defendant held the Belmore Road Property on trust for him. In this regard, the Plaintiffs rely on notes of a discussion between Severyn and Hedy, recorded by Hedy sometime in 2003. The notes state, among other things, that ‘Mum holds your assets. Belmore Rd units’.[44] The Plaintiffs say that the evidence also suggests that Severyn acted consistently with his understanding that the Defendant held the Belmore Road Property on trust for him, given Severyn stored the duplicate certificate of title for the Belmore Road Property in the Severyn Lockbox and not in the Defendant’s lockbox.[45]
[44]First Hedy Affidavit, [26].
[45]Ibid, [16]-[19].
Fourthly, the Plaintiffs point to the sequence of the execution of the various documents which, they say, may be inferred from both Leonard’s and the Defendant’s evidence:
(a) Leonard’s evidence is that, in 1990, Severyn showed him a draft declaration of trust which Severyn was proposing to ask the Defendant to execute in order to give effect to his previously expressed intention to transfer his assets to her on the basis that she hold them on trust for him;[46]
(b) Leonard’s evidence is also that he vaguely recalls Severyn showing him an unexecuted transfer or transfers from Severyn to the Defendant in respect of his properties;[47] and
(c) Inferences may be drawn that the transfers were executed subsequent to the Defendant’s execution of the Declaration of Trust by reference to the evidence of Leonard. Leonard has given evidence that the transfers referred to in paragraph 6(c) above were signed in 1990, in the case of the transfer referred to at paragraph 6(d) above, after late 1990.[48]
[46]First Leonard Affidavit, [16].
[47]Ibid, [21].
[48]Ibid, [4], [5], [23].
The sequence of events advanced by the Plaintiffs is supported by the Defendant’s recollection that she signed a number of documents prepared by Severyn over a series of months.[49] In her affidavit, the Defendant deposes that among those documents was the Declaration of Trust and a transfer of the Belmore Road Property obtained from the Land Titles Office.[50]
[49]Henia Affidavit, [22].
[50]Ibid, [22(a)], [22(b)(i)].
Finally, the evidence demonstrates the care that Severyn took to protect his ongoing beneficial interest in the Belmore Road Property. The Plaintiffs submit, and I accept, that the evidence shows that Severyn went to some lengths to ensure that he retained beneficial control of the Belmore Road Property. In addition to the Declaration of Trust, which the Plaintiffs say is sufficient in and of itself to establish Severyn’s beneficial ownership of the Belmore Road Property, the Plaintiffs rely on the evidence as to Severyn’s efforts in procuring blank transfers of land containing the Defendant’s signature. Further, and as mentioned earlier, Severyn retained the duplicate certificate of title. This meant that he could, at his discretion, use the transfer of land in order to procure the transfer of the Belmore Road Property back to his ownership. Furthermore, Severyn also had at his disposal an executed payment direction from the Defendant so as to enable him to control the destination of the proceeds of the Belmore Road Property in the event it was sold to a third party.[51]
[51]See paragraph 6(b) above.
In view of these precautions undertaken by Severyn, the evidence and the surrounding circumstances, I find on the balance of probabilities that he would have lodged the transfer of land and duplicate certificate of title with the Land Titles Office after obtaining the Defendant’s signature on the Declaration of Trust.
There is one final matter that I wish to address for the sake of completeness. The Plaintiffs’ evidence shows that over the years, the Warren family and their accountants have accounted for any rental income from the Belmore Road Property in an inconsistent manner. The inconsistencies largely concern the involvement of a related trust, being the Warren Investment Trust (‘WIT’), which received and accounted for rent in respect of the Belmore Road Property (rather than Severyn or the Defendant).[52] Fees were then paid from WIT to, at various times, Henia and Severyn, which, the evidence suggests, reflects some kind of agency arrangement between the Belmore Road Property and WIT.[53] Whatever the case, in around 2018 these rental payments were redirected to Henia after a title search was conducted in respect of the Belmore Road Property.[54] Irrespective of this historical inconsistent accounting treatment of the rental income, however, I do not find this to derogate from my findings that the Defendant held the Belmore Road Property on trust for Severyn.
[52]First Hedy Affidavit, [35]-[36].
[53]Ibid, [35].
[54]Ibid, [33]. At paragraph [39] of the First Hedy Affidavit, it is deposed that the executors and residuary beneficiaries of Severyn’s estate have agreed that Henia can keep all rental income already paid to her in connection with the Belmore Road Property notwithstanding the outcome of this proceeding.
There is also evidence about inconsistencies in information contained in certificates of insurance issued in respect of the Belmore Road Property. For the reasons stated in the preceding paragraph, these incongruences do not detract from my conclusions regarding the beneficial interest in the Belmore Road Property.
It follows that the formalities required by s 53(1)(b) of the PLA have been met. The Declaration of Trust, being a written signed document, manifests and proves Severyn’s and the Defendant’s intention that the Belmore Road Property be transferred to the Defendant on the condition that she held it for him on trust. This is not the type of case in which there is an absence of evidence about the circumstances surrounding the creation and execution of a document.[55] Rather, any residual doubts concerning the date at which the Declaration of Trust was signed by Defendant are assuaged by the body of evidence and surrounding circumstances.
[55]Eg, see Application by Barry McMahon Nominees Pty Ltd [2021] VSC 351, [56] (McMillan J).
Whether Severyn’s estate is disentitled from relying upon the Declaration of Trust
The third issue raised by the Plaintiffs concerns whether Severyn’s estate is disentitled from relying upon the Declaration of Trust to establish its beneficial ownership over the Belmore Road Property by reason that Severyn sought to camouflage his subsisting beneficial interest from future creditors.
It is well established that the courts will not enforce a trust where that trust has been entered into for an unlawful purpose.[56] In Nelson v Nelson,[57] McHugh J set out a number of exceptions to this equitable policy, namely:[58]
First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal. Secondly, the courts will not refuse relief where the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member. Thirdly, the courts will not refuse relief where an illegal agreement was induced by the defendant’s fraud, oppression or undue influence. Fourthly, the courts will not refuse relief where the illegal purpose has not been carried into effect.
[56]See, eg, Miller v Miller (2011) 242 CLR 446, 457-458, [24]-[26] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ). See also Symes v Hughes (1870) LR 9 Eq 475.
[57](1995) 184 CLR 538 (‘Nelson’).
[58]Nelson, 604-605 (citations omitted).
The Plaintiffs submit that notwithstanding the evidence permits the inference that Severyn transferred title to the Belmore Road Property to disguise his subsisting beneficial interest in that property, this alone does not constitute an illegal purpose. The Plaintiffs also urge that the Court should not (and need not) draw a wider inference that Severyn also had the purpose of intending to defeat potential creditors in the event of an actual claim.
Further, the Plaintiffs say that the equitable policy that a court will not enforce a trust where entered into for an unlawful purpose does not apply in the circumstances of this case, because Severyn’s purpose of defeating creditors, if one can be said to exist, was not carried into effect. In doing so, the Plaintiffs seek to rely on the fourth exception described by McHugh J in Nelson.
In support of this argument, the Plaintiffs referred me to the case of Perpetual Executors & Trustee Association of Australia Ltd v Wright.[59] In that case, a husband sought a declaration that he was beneficially entitled to a property. The husband, having transferred a property to his wife prior to her death, claimed that the property was not an inter vivos gift, but that title was transferred to his wife for the purpose of securing a home for himself and his family out of reach of potential creditors in the event his business failed. In short, the husband argued that the property was held by his wife on trust for him. Importantly, there was no evidence that the husband had any creditors, either at the time in which the arrangement was entered into with his wife or thereafter.
[59](1917) 23 CLR 185 (‘Wright’).
The husband relied on a signed document bearing a date shortly before her death, which contained words to the effect that she held the property on trust for the husband. While the husband’s evidence and the authenticity of the document were matters of conjecture at trial, the trial judge ultimately accepted the evidence of the husband. After setting out the facts and the relevant authorities, the High Court held:[60]
In this case no creditors have been defrauded, the illegal purpose has never been in any respect carried into effect, and therefore the respondent was entitled to succeed, and is now entitled to a dismissal of this appeal.
[60]Wright, 198 (Isaacs, Gavan Duffy and Rich JJ).
I consider, as contended by the Plaintiffs, that the considerations in Wright are applicable to the present case. Although it is certainly arguable that Severyn transferred his assets, including the Belmore Road Property, to the Defendant in order to escape the reach of creditors in the event he was sued on the basis of the guarantee, this strategy clearly did not materialise, nor was it required to. There is no evidence that the guarantee given by Severyn was ever called upon, or that he ever denied to creditors that he continued to retain a beneficial interest in the Belmore Road Property. Furthermore, there is no evidence that, despite his concerns regarding the investment, Severyn ever faced any financial difficulty.[61] It is tolerably clear that the transfer of legal title to the Defendant was merely precautionary, and that Severyn’s fears of the exposure of his assets were never realised.
[61]Second Hedy Affidavit, [5].
As such, the Plaintiffs are not precluded from relying on the Declaration of Trust to establish that Severyn retained beneficial ownership of the Belmore Road Property.
Whether the Court should exercise its discretion in favour of granting the declarations sought
Section 36 of the Supreme Court Act1986 (Vic) empowers the Court to make binding declarations of right without granting consequential relief.
Prior to exercising the discretion conferred on the Court by operation of s 36, the authorities recognise that certain criteria should first be satisfied: that is, the question(s) before the Court must be real and not theoretical, the person raising it must have a real interest to raise it, and the person must be able to secure a proper contradictor, being someone with a true interest to oppose the declaration sought.[62]
[62]Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, 437-8 (Gibbs J); Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438, 448.
I am satisfied that these preconditions have been met in this case. The question concerning where the beneficial interest in the Belmore Road Property lies is a real question, not a theoretical one. Similarly, it is uncontroversial that the Plaintiff executors have a real interest in raising the question, given their assertion that they were the true beneficial owners of the Belmore Road Property and now of the sale proceeds. The advice and declarations sought by the Plaintiffs will enlighten them as to whether the executors or the Defendant are entitled to the sale proceeds from the Belmore Road Property, and who is obliged to account for rental income received from the property (which has been a source of some confusion and the subject of inconsistent treatment over the years).[63] The outcome of this application will also enable the executors to finalise the administration of Severyn’s estate and appropriately distribute the funds in accordance with Severyn’s will. In terms of the practical importance of obtaining the Court’s advice on the questions posed by the Plaintiffs, the outcome of the application will have certain taxation implications. For example, the Plaintiffs say that a consequence of any orders made by the Court will be to determine, for income tax purposes, whether or not the beneficial interest in the Belmore Road Property residing with Severyn until his death constitutes a ‘taxable fact’.[64]
[63]First Hedy Affidavit, [30]-[39].
[64]In this respect, the Plaintiffs referred to the case of Commissioner of Taxation v Thomas (2018) 264 CLR 382 (‘Thomas’). In Thomas, Gageler J states that when tax lawyers speak of ‘taxable facts’, ‘[t]hey mean by it to refer to the combination of events that have occurred and legal consequences of events that have occurred on which a taxing statute fixes to impose a taxation liability or to confer a taxation benefit. Most often, taxable facts are independent of and antecedent to their taxation consequences’ ([84]‑[85]).
The Defendant is also a proper contradictor in this case. While the Defendant has played a passive role in the context of this application and has provided an affidavit in support of it, a person need only have a true interest in opposition to the interest of the applicant seeking the declaration, whether or not that person elects to oppose the applicant’s interest.[65] For reasons that have been discussed, the Defendant has an interest in the Belmore Road Property which stands in opposition to that of the Plaintiffs. As mentioned at paragraph 9 above, the Defendant received independent legal advice as to the application.[66]
[65]Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378, [14]‑[16] (Greenwood, Logan and Yates JJ).
[66]Henia Affidavit, [3]-[5]; Kolliou Affidavit, [7]-[11].
I note that in arriving at this conclusion I have had regard to the invitation extended by the Plaintiffs to the Commissioner of Taxation, who declined to appear in this proceeding.[67] Separately, the Plaintiffs formed the view that it that it was unnecessary to invite the Commissioner of the State Revenue Office to appear on the basis that the Commissioner accepted the executors’ submission that the Belmore Road Property was held on trust by the Defendant for Severyn.[68] Given the absence of any dispute between the Plaintiffs and the State Revenue Office, I am content with the course adopted by the Plaintiffs.
[67]Second Leonard Affidavit, [3]-[4]; Exhibits LAW-03 and LAW-04 to the Second Leonard Affidavit, 8‑13.
[68]Third Hedy Affidavit, [4].
For completeness, I also accept the Plaintiffs’ submission that there is no reason, related to taxation, why the Court should not offer advice to the executors under r 54.02 of the Rules and make the declarations sought.
Therefore, I will exercise my discretion in favour of granting the declarations sought by the Plaintiffs.
Conclusion
Having regard to the conclusions at which I have arrived, I answer each of the questions as follows:
(a) As a result of the events that have happened, did the Defendant hold the Belmore Road Property on trust for Severyn from the date he transferred the Belmore Road Property to the Defendant until his date of death?
Answer: Yes
(b) If the answer to (a) is ‘yes’, did Severyn have a vested, indefeasible and absolute entitlement in the Belmore Road Property as against the Defendant from the date he transferred the Belmore Road Property to the Defendant until his death?
Answer: Yes
(c) If the answers to questions (a) and (b) are ‘yes’, did the Plaintiffs have at all times since probate was granted a vested, indefeasible and absolute entitlement in the Belmore Road Property as against the Defendant, and subsequently in the proceeds from the sale of the Belmore Road Property, as against the Defendant?
Answer: Yes
I will also make each of the following declarations sought by the Plaintiffs:
(a) That Severyn owned the beneficial interest in the Belmore Road Property from 21 February 1967 until the date he died.
(b) That the Defendant held the Belmore Road Property on trust for Severyn from the date he transferred the Belmore Road Property to the Defendant until his date of death.
(c) That the Defendant held the Belmore Road Property on trust for the Plaintiffs from the date of Severyn’s death to the date she transferred it to the purchasers under the sale contract.
(d) That Severyn had a vested, indefeasible and absolute entitlement in the Belmore Road Property as against the Defendant from the date he transferred the Belmore Road Property to the Defendant until his death.
(e) That the entire beneficial interest in the Belmore Road Property formed part of the estate of Severyn upon his death.
(f) That the Plaintiffs have at all times since probate was granted held a vested, indefeasible and absolute entitlement to the Belmore Road Property as against the Defendant, and subsequently in the proceeds from the sale of the Belmore Road Property, as against the Defendant.
As the parties have acceded to the ordinary position that the parties’ costs be paid by the Plaintiffs in their capacity as executors of the estate, I will make orders this day in respect of the advice and declarations set out above.
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