Ross v Gordon
[2022] ACTCA 21
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL
Case Title: | Ross v Gordon |
Citation: | [2022] ACTCA 21 |
Hearing Date: | 2 November 2021 |
DecisionDate: | 10 May 2022 |
Before: | Mossop J, Rangiah J and McWilliam AJ |
Decision: | See [76] |
Catchwords: | APPEAL – TRUSTS AND ESTATES – Cheques written by testator to a trust that exceeded anticipated value of estate – not presented prior to death – whether liability created through operation of the Cheques Act 1986 (Cth) – consideration is an underlying assumption of the Cheques Act 1986 (Cth) – no consideration as deceased provided cheques as a gift to trust – no liability created by the holding of cheques – appeal allowed – proceedings remitted to the Supreme Court for determination in accordance with these reasons – costs to form part of Supreme Court proceedings |
Legislation Cited: | Bills of Exchange Act 1882 (UK) Bills of Exchange Act 1909 (Cth) |
Cases Cited: | Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 Blackett v Darcy [2005] NSWSC 65; 62 NSWLR 392 Xu v Wang [2019] VSC 269; 58 VR 536 |
Texts Cited: | Brian Conrick, The Law of Negotiable Instruments in Australia (Butterworths, 2nd ed, 1989) Paul Finn, Fiduciary Obligations (The Federation Press, republication, 2016) Thomson Reuters, Laws of Australia, vol 36 |
Parties: | James Young Ross ( Appellant) Donna Maree Gordon (First Respondent) Donna Maree Gordon as trustee of the Olga Hart Trust (Second Respondent) Donna Maree Gordon as executor of the estate of Olga Hart (Third Respondent) |
Representation: | Counsel T Crispin ( Appellant) W Sharwood with K Weir (Respondents) |
| Solicitors Ray Swift Moutrage & Associates ( Appellant) Tim Sharman Solicitors (Respondents) | |
File Number: | ACTCA 19 of 2021 |
Decision under appeal: | Court/Tribunal: Supreme Court of the ACT Before: Justice Loukas-Karlsson Date of Decision: 24 March 2021 Case Title: Ross v Gordon Citation: [2021] ACTSC 41 |
THE COURT:
Introduction
Prior to her death, the deceased, Olga Hart, established the Olga Hart Trust. She wrote three cheques totalling $1,200,500 to the Olga Hart Trust. The amount of the cheques was greater than the likely value of the deceased’s estate. Those cheques were not presented prior to her death. The purpose of her adopting this course was to create a liability for her estate after her death in order to prevent the appellant, James Ross, from making a claim against her estate for more than the amount which she was prepared to leave to him. After her death, the cheques were presented and dishonoured by the bank. As the deceased had feared, the appellant made a claim for family provision under the Family Provision Act 1969 (ACT). He also made various challenges to the arrangement that the deceased put in place. Those challenges focused upon the obligations of the executor and the daughter of the deceased, Donna Gordon, who was also one of the beneficiaries of the Olga Hart Trust.
A judge of the Supreme Court (the primary judge) rejected each of the challenges to the arrangement made by the deceased: Ross v Gordon [2021] ACTSC 41 (Reasons). She therefore found that, because of the liability on the cheques, the estate had no net assets and hence the appellant’s claim for family provision was futile. Nevertheless, she undertook a contingent assessment of the claim for family provision and would have dismissed it.
The appellant has appealed from that decision. The appellant required leave to appeal out of time. There was no opposition to the grant of leave to appeal and the court granted that leave at the hearing of the appeal.
The parties to the appeal are as follows:
(a)appellant: James Young Ross, plaintiff below and claimant against the estate;
(b)first respondent: Donna Maree Gordon, daughter of the deceased;
(c)second respondent: Donna Maree Gordon in her capacity as trustee of the Olga Hart Trust; and
(d)third respondent: Donna Maree Gordon in her capacity as executor of the estate of the late Olga Hart.
In these reasons, Mr Ross will be referred to as the appellant and Ms Gordon as the respondent. The deceased’s estate will be referred to as the Estate. The Olga Hart Trust will be referred to as “the Trust”.
Facts
The following summary of the facts is derived from the findings made by the primary judge: Reasons at [3]-[21], [69]-[96], [136].
The appellant and the deceased met in 1985 and had a long-term romantic relationship. They began to cohabit in 1987. In 2003, the relationship between the appellant and the deceased ended. Some contact between the parties resumed in around 2006.
After contact resumed, there was no continuing de facto relationship. The deceased continued to describe the appellant as her “ex de facto”. In 2010, the appellant carried out renovation work on the deceased’s residence including brickwork, replacing tiles, painting and landscaping. The deceased always paid the appellant for this work.
The deceased had made multiple wills and the appellant was a significant beneficiary in each of those wills but only an executor of one of them. At the time the deceased made her last will, she viewed the appellant in a different light. The deceased’s relationship with the appellant remained difficult.
10. On 24 December 2017, the deceased suffered a heart attack. The appellant called an ambulance and promptly informed the respondent of her mother’s condition. In February 2018, the deceased was diagnosed with stage 4 lung cancer. The appellant and the deceased lived together so that he could care for her but there was no cohabitation in the sense of a de facto relationship between the two.
11. The deceased was diagnosed with secondary brain cancer and suffered a stroke. The appellant and the respondent cared for her as her health declined. The respondent made numerous allegations of poor conduct against the appellant in the deceased’s final months. Some instances were discussed by the deceased in the recordings made by her solicitor that were admitted into evidence.
12. The deceased remained lucid at least up until the point at which she made her final will.
13. In August 2018, the respondent assisted the deceased to obtain the assistance of Mr Dwyer, a solicitor in private practice. The deceased met with Mr Dwyer on 28 August 2018. The deceased was “lucid, and consistent in relating her wishes”. Mr Dwyer advised the deceased that a “no contest” clause in her will would be unenforceable. He advised her that she would have to dispose of all of her property inter vivos if she wanted to ensure that there was no Family Provision Act challenge. He advised her that she could burden her estate with a liability so there was no net value upon her death. This would require the deceased to rely upon the respondent, in her capacity as trustee, to pay the $200,000 of which the deceased wanted to go to the appellant, provided he did not contest the will. The deceased was provided with advice in relation to the establishment of an express trust with the deceased as trustee for the respondent and her family and the writing of cheques to exhaust her estate.
14. On Mr Dwyer’s advice, the deceased took the following steps:
(a)she established the Trust on 29 August 2018 with the deceased as settlor, appointor and trustee;
(b)the same day she signed three cheques totalling $1,200,500 in favour of the Trust;
(c)she executed a new will on 5 September 2018; and
(d)she told the respondent that if the appellant challenged the will, then he should receive nothing.
15. At some stage, one of the cheques, which was for $500, was presented and used to establish a bank account in the name of the Trust.
16. The will contained a bequest of $200,000 to the appellant. The appellant was not made aware of the existence of the will until after the death of the deceased.
17. The deceased died on 30 September 2018. Upon her death, cl 10 of the deed establishing the Trust operated so that the respondent succeeded her mother as trustee.
18. After the appellant was told to vacate the deceased’s house, he filed a caveat in respect of the Estate. On 25 October 2018, the appellant received correspondence identifying that the Estate had insufficient assets to pay the cheques issued by the deceased to the Trust and as a consequence would not make the gifts and bequests in the will. There was an offer by the respondent that she would pay him the bequest from her own funds, if he agreed to abandon any rights against the Estate. However, the primary judge found that the lodging of the caveat was a direct challenge to the respondent’s right as an executor to apply for probate and as such was a challenge to the will.
19. The proceedings the subject of this appeal were commenced on 26 February 2019. On 25 March 2019, the respondent was granted probate of the will.
20. Acting in her capacity as trustee of the Trust, the respondent presented the two remaining cheques (totalling $1.2 million) to a financial institution in late April and they were dishonoured on 26 April 2019.
Conclusions reached by the primary judge
21. The primary judge identified the issues raised by the appellant’s claim as:
1.Whether the estate had sufficient assets to make the bequests provided for in the Will?
2.If the answer was no, has the respondent, by presenting the cheques:
(a)committed the tort of devastavit;
(b)committed a fraud on the power;
(c)breached her fiduciary duty?
3.If the answer to any of question 2 was “Yes” and an appropriate remedy was available, then did the will make adequate provision for the maintenance, education and advancement of the appellant?
22. The respondent’s contentions before the primary judge were focused upon the first issue. This raised whether the cheques were choses in action capable of being held on trust and whether their operation in accordance with the Cheques Act 1986 (Cth) created a liability of the deceased and then her estate.
23. The primary judge found that, by reason of the relevant provisions of the Cheques Act, the deceased was liable to the Trust in the sum of $1.2 million when the cheques were drawn and the deceased took possession of the cheques as trustee: Reasons at [144]. She found that the liabilities of the estate exceeded the assets of the Estate and therefore no provision could be made in accordance with the will or pursuant to the Family Provision Act: Reasons at [170].
24. The primary judge rejected the claim of breach of fiduciary duty: Reasons at [158]. She appears also to have rejected the claim that the executor had engaged in fraud on the power or committed the tort of devastavit, although the findings were not as clear as they might have been: Reasons at [159]-[166].
25. Her Honour dealt, on a contingent basis, with the claim under the Family Provision Act and was not satisfied that adequate provision for the proper maintenance, education or advancement in life of the appellant was not available under the deceased’s will. Therefore, the Family Provision Act claim would have failed in any event.
Grounds of Appeal
26. The grounds of appeal are:
1. the learned trial judge fell into error by misapprehending the conflict of interest between the three defendants;
2. the learned trial judge fell into error by failing to prioritise the instructions left by the testator in the testator’s will over those given orally prior to the execution of that will; and
3. the learned trial judge fell into error by ruling that the estate’s liabilities exceeded its assets.
27. The orders sought on the appeal are that any chose in action in favour of the Trust from the Estate be subject to a constructive trust and that the matter be remitted to the Supreme Court for determination of quantum. In oral submissions, counsel for the appellant submitted that in light of the likely increase in the value of the real property forming part of the Estate since the hearing of the proceedings, the matter should be remitted to the primary judge in order that she reconsider her contingent conclusion on the family provision claim.
28. No Notice of Contention or cross-appeal was filed.
Ground 1
Submissions
29. The argument presented on behalf of the appellant was that the executor was subject to a fiduciary duty to the beneficiaries of the will which precluded her, in her capacity as the trustee of the Trust, presenting the cheques. This was said to be an application of the “no conflict” aspect of the fiduciary relationship between executor and beneficiaries.
30. The appellant submitted that the duties of the respondent, as trustee of the Trust and executor of the Estate and her position as a beneficiary of both the Trust and the Estate involved an unresolvable tension. The appellant submitted that the respondent could not fulfil her obligation to the Trust and advance her own interest as a beneficiary of the Trust without betraying her obligations to the beneficiaries of the Estate. This was said to be because any steps that the respondent took to enforce the liability as trustee of the Trust would be in conflict with her duty to the beneficiaries of the Estate. On the other hand, a decision by the trustee to forgo its liability would be favourable to the beneficiaries of the Estate but in conflict with her duty to the Trust.
31. The appellant referred to the operation of cl 9 of the will, which permitted the executor to exercise a power or discretion under the will even though she may be personally interested in the outcome of that exercise. He submitted that this clause only provided a limited exception to the “no profit” rule allowing for the executor to receive her bequest and did not excuse the executor “from placing themselves in a conflict of interest with other beneficiaries”. The appellant submitted that the respondent did not avoid a breach of her duty as executor by reason of the fact that when presenting the cheques, she was acting in her capacity as trustee.
32. The appellant therefore submitted that the appropriate finding was that the respondent breached the no conflict rule and she was liable for the loss flowing from the acts which constituted the breach, namely the $200,000 bequest referred to in the will.
Decision
33. This ground must be assessed on the basis that the cheques drawn by the deceased made payable to the Trust were effective to create an enforceable obligation on the part of the Estate to pay the amounts identified in the cheque or compensate the holder pursuant to s 71 of the Cheques Act.
34. The nature of the fiduciary obligation upon the executor and whether or not it precludes the payment of a liability to the Trust in circumstances where the executor is one of the beneficiaries of the Trust is very dependent upon the particular circumstances which give rise to the obligations upon the executor.
35. While the relationship of executor and beneficiary is an accepted category of fiduciary relationship, the scope of the fiduciary obligations undertaken by the respondent in her capacity as executor needs to be determined in the circumstances of the individual case. This is fundamental. Professor Finn wrote in Fiduciary Obligations (The Federation Press, republication, 2016) at [541] that:
The all-important matter is the undertaking actually given by the fiduciary. Until the scope and ambit of the duties assumed by the fiduciary have been ascertained – until the “subject matter over which the fiduciary obligations extend” has been defined – no question of conflict of duty and interest can arise. You must ascertain what the fiduciary has undertaken to do, before you can say he has permitted his interests to conflict with his undertaking.
(Footnotes omitted.)
36. The scope of the undertaking of the fiduciary is determined by the agreement or instrument which gives rise to the relationship, as well as by the course of dealings between the parties: Chan v Zacharia (1984) 154 CLR 178 at 196, 204; Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 408; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97, 102.
37. In the present case, the terms of the will by which the respondent was appointed executor are fundamental. Clause 9 provides:
9. In addition to any power conferred by law my executors may also exercise any power conferred upon a trustee by my will and with the benefit of the same protection against responsibility for loss. My executors may exercise a discretion or power notwithstanding that one or more of them may be personally interested in the outcome of the exercise of that discretion or power and, in particular without limiting the generality of the foregoing, my executrix may continue to act as executrix notwithstanding that she may be a creditor of my estate whether in her own right or in her capacity as a trustee of a trust.
(Emphasis added.)
38. The terms of the italicised portion of cl 9 make explicit that the executor was permitted to act as executor notwithstanding that she, in her own capacity or in her capacity as trustee of the Trust, may be a creditor of the Estate. That express statement in the will necessarily qualifies the scope of the executor’s fiduciary obligations to the beneficiaries. It indicates that the conflict rule is modified in the circumstances of this case so as to permit the respondent to act as executor, notwithstanding that in her capacity as trustee of the Trust she was, or was intended to be, a creditor of the Estate.
Had there been any ambiguity or uncertainty as to the scope of cl 9, which there is not, then it would have been open to take into account the evidence of Mr Dwyer that cl 9 was included specifically so that the respondent could settle any claim by herself as trustee of the Trust against the Estate: Wills Act 1968 (ACT) s 12B.
40. Because of the express terms of the will, the scope of the respondent’s fiduciary obligations as executor are necessarily qualified and it is not necessary to consider whether, in the absence of that clause, the scheme put in place by the deceased involving the establishment of the Trust, the writing of the cheques and the making of the will, were sufficient to modify the fiduciary obligations of the executor so as to permit her to meet any liabilities to the Trust.
41. This ground of appeal is not made out.
Ground 2
Submissions
42. The appellant pointed to the terms of the will and the fact that it contained a bequest of $200,000 to the appellant. He submitted that the terms of the will provided the most recent evidence of the deceased’s intentions. He submitted that the natural inference was that the deceased had changed her mind since the establishment of the Trust and the writing of the cheques. He submitted that the intention expressed in the deceased’s will was that which the respondent was required to carry out and she failed to do so.
Decision
43. This ground is without substance. There was no evidence of any change of intention. On the contrary, the evidence of the solicitor who drew up the will included annotations that he made upon a draft will on the date when the Trust was established. Those annotations formed the basis of his instructions to prepare the will that was executed on 5 September 2018. His evidence was that he had explained that the effect of the scheme that he proposed would be that nobody would get anything under the will. At the hearing before the primary judge, the solicitor was not cross-examined. It is plain that the making and terms of the will were a part of the overall scheme involving the establishment of the Trust and the writing of the cheques. Contrary to the appellant’s submissions, even though the terms of the will did not reflect the intended outcome of the overall scheme, they did not involve a change of mind on the part of the deceased.
44. This ground of appeal is not made out.
Ground 3
Submissions
45. The point underlying ground 3 is the appellant’s contention that because there was no consideration given for the cheques and no antecedent liability, while they could operate as an effective means of transmitting funds, if those funds were available, they did not create any liability on the part of the Estate.
46. The appellant referred to ss 35, 36, 50 and 74 of the Cheques Act. Relying on these provisions, the appellant submitted that if a cheque is not given for consideration or to satisfy a debt or existing liability, then whether it in fact gives rise to a new liability is open to challenge. He submitted that the respondent was not a “holder in due course” for the purposes of the Cheques Act and could not take advantage of the statutory estoppel provided for by s 74 of the Cheques Act. He submitted that in circumstances where there was no debt to the Trust, while the cheques could form an effective means of transmitting funds from one entity to another, if they were dishonoured then they created no liability. The recipient would need to prove a right to be paid independently of the cheques themselves. He therefore submitted that the Estate had no liability to the Trust and hence the assets of the Trust were, after payment of ordinary testamentary expenses, available for distribution.
47. These submissions repeated submissions made to the primary judge: Reasons at [97]‑[101]. They were rejected by the primary judge who found “on the basis of the relevant provisions of the Cheques Act the deceased was liable to the Trust in the sum of $1,200,000.00 when the Cheques were drawn and the deceased took possession of the Cheques as trustee”: Reasons at [144].
48. The respondents submitted that there is no challenge to the primary judge’s conclusion that the deceased became liable to the trust when the cheques were drawn and she took possession of the cheques as trustee. Alternatively, if the primary judge’s conclusion was wrong, they submitted that s 71 of the Cheques Act had the effect that the Estate became liable to the Trust when the cheques were presented and dishonoured.
In further written submissions, the respondents submitted that consideration was unnecessary because of the operation of s 71, even in the case of gifts. They also submitted that, in the present case, consideration was not necessary because s 6 of the Cheques Act, which permits the alteration by agreement of “rights, duties and liabilities” under the Act, operated to give effect to the understanding of the deceased as drawer of the cheques and as trustee that they were to create a liability for the Estate whether or not there was consideration.
50. They also submitted that the Estate had no defence against the trustee of the Trust because “[t]he settlor’s duties as a trustee deny the settlor (or her successors) any right to dispute the right of the trustee to payment of the cheque”. They submitted that it was not open to a stranger such as the appellant to seek to rebut the presumption in s 36 of the Act because he was not a party to the promise and not directly affected by the arrangement.
51. Finally, in support of the contention that there was in fact consideration, the respondents submitted that, upon the cheques being drawn, the Trustee took on a legal obligation to deal with the money in accordance with the terms of the trust deed and to present the cheques or otherwise obtain the value of them for the benefit of the Trust. This was said to constitute sufficient consideration. Reliance was placed upon the decision in Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84; 76 NSWLR 195 (Perpetual Trustees) at [93].
Decision
Statutory provisions
52. The most relevant provisions of Cheques Act are as follows:
6 Certain rights, duties and liabilities under Act may be altered by agreement
(1)Subject to subsection (2), nothing in this Act shall be taken to prevent 2 or more persons negating, inverting or otherwise altering, by agreement, their rights, duties and liabilities in relation to one another under this Act.
(2)Section 5, this section and sections 7 to 16 (inclusive), 19 to 24 (inclusive), 30 to 32 (inclusive), 39 to 41 (inclusive), 43 to 45 (inclusive), 53 to 57 (inclusive), 61, 61A, 62, 62A, 64 to 67 (inclusive), 79, 88, 90 to 95 (inclusive), 97, 98, 100, 115 and 116 have effect notwithstanding any agreement to the contrary.
…
10 Cheque defined
(1) A cheque is an unconditional order in writing that:
(a) is addressed by a person to another person, being a financial institution; and
(b) is signed by the person giving it; and
(c) requires the financial institution to pay on demand a sum certain in money.
(2) An instrument that does not comply with subsection (1), or that orders any act to be done in addition to the payment of money, is not a cheque.
…
25Delivery essential for drawing or indorsement
A contract arising out of the drawing or an indorsement of a cheque is incomplete and revocable until delivery of the cheque.
…
30 Capacity to incur liability on cheque
(1) Capacity to incur liability on a cheque is co-extensive with capacity to contract.
…
35Valuable consideration defined
(1) Valuable consideration for a cheque may be constituted by:
(a) any consideration sufficient to support a simple contract; or
(b) an antecedent debt or liability.
(2) An antecedent debt or liability may constitute valuable consideration for a cheque whether or not the cheque is post‑dated.
36Presumption of value
The drawer and each indorser of a cheque shall, unless the contrary is proved, be presumed to have received value for the cheque.
…
58Drawer and indorsers of cheque not liable unless cheque presented
Subject to section 59, a person who is the drawer or an indorser of a cheque is not liable on the cheque unless the cheque is duly presented for payment.
59When presentment dispensed with
Presentment of a cheque for payment is dispensed with:
(a) where the cheque cannot, with the exercise of reasonable diligence, be duly presented; or
(aa) if the drawee institution has become a failed financial institution within the meaning of subsection 70A(2); or
(b) as regards the drawer, in the following cases, namely:
(i)where:
(A) the drawee institution is not, as between the drawer and itself, under an obligation to pay the cheque; and
(B) the drawer had no reason to believe, at the time of the issue of the cheque, that the cheque would be paid if duly presented;
(ii)where the drawer has, expressly or by implication, waived the right to presentment; or
(c) as regards an indorser, where the indorser has, expressly or by implication, waived the right to presentment.
…
71Liability of drawer
Subject to subsection 17(1), section 59 and subsection 60(1), the drawer of a cheque, by drawing the cheque, undertakes:
(a) that, on due presentment for payment, the cheque will be paid according to its tenor as drawn; and
(b) that:
(i)if the cheque is dishonoured when duly presented for payment; or
(ii)if presentment of the cheque for payment is dispensed with by virtue of paragraph 59(a) or (aa) and the cheque is unpaid after its date has arrived;
the drawer will compensate the holder or an indorser who is compelled to pay the cheque.
…
90 Countermand of payment and notice of death or mental incapacity
(1) Subject to subsection (2), the duty and authority of the drawee institution to pay a cheque are terminated by:
(a) …
(b) …
(c) notice of the drawer's death.
(2) Paragraph (1)(c) does not apply in relation to a cheque if:
(a) not more than 10 days have elapsed since the day on which the drawee institution received notice of the customer's death; …
(b) …
53. Section 76 identifies the measure of damages payable upon dishonour of a cheque by a person who is liable on the cheque.
54. Although s 74 of the Cheques Act was referred to in submissions, it had no application to the circumstances of the case as the Trust was not a “holder in due course” as defined by s 50. In the present case, the Trust was merely a “holder” because it was the payee of a cheque payable to order: see the definition of “holder” in s 3(1).
The liability to pay the cheques or a sum equivalent
55. As seen from s 10 of the Cheques Act, a cheque by definition is an unconditional order to a financial institution to pay a sum of money “on demand”. A cheque operates as “a “mandate” addressed by the drawer to the banker directing the banker to effect a pro tanto satisfaction of the indebtedness of the banker to the drawer by honouring the cheque drawn on the banker”: Parsons v The Queen [1999] HCA 1; 195 CLR 619 (Parsons) at [27]. Further, arising out of the drawing of a cheque there may be, if consideration is present, “by force of the Cheques Act (ss 25, 71), a contract, incomplete and revocable until delivery, whereby the drawer… [undertakes] to compensate the holder or an indorser of the cheque who was compelled to pay it if it were dishonoured when duly presented for payment”: Parsons at [29].
56. Insofar as the cheque constituted a mandate to the bank, it does not constitute an assignment of funds: s 88 of the Cheques Act. Further, the duty and authority of the bank to pay the cheque is terminated by notice of the drawer’s death: s 90(1)(c), although a cheque can be paid within 10 days of notice of the death: s 90(2)(a).
57. Sections 25, 30(1), 35 and 36 of the Cheques Act draw attention to the fundamental fact that, apart from its status as a mandate to a banker, a cheque is a simple contract between the parties. It involves a promise to pay money. In order to enforce the payment of money pursuant to a cheque, there must be consideration in exchange for the payment. The position was explained by Lush J in Walsh & Ors v Hoag & Bosch Pty. Ltd. [1977] VR 178 (Walsh) at 186:
A bill of exchange represents a new promise to pay independent of any contractual undertakings which may have preceded it. The action on the bill is brought on this new promise and it must be for this new promise that consideration is given. Consideration must, in the general law of contract, move from the promisee to the promisor in respect of the promise.
See also Xu v Wang [2019] VSC 269; 58 VR 536 at [110].
58. The fact that a cheque, being a species of bill of exchange, requires consideration is an underlying assumption of the Cheques Act, just as it underlay the Bills of Exchange Act 1909 (Cth) and the Bills of Exchange Act 1882 (UK). The provisions of the Cheques Act operate so as to affect what can be considered to be valuable consideration for a cheque. Section 35(1)(b) of the Cheques Act makes it clear that consideration includes an antecedent debt or liability even though that would not ordinarily be sufficient consideration for a contract.
59. As a consequence, a drawer of a cheque is not liable to the drawee or holder if no consideration has been given by the drawee or if consideration given totally fails and if value has not been given for it by any holder: Sidney Raper Pty. Ltd. v Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227 at 232.
60. Consideration is presumed to have been given: s 36 of the Cheques Act. That presumption is rebuttable and, generally speaking, the burden rests upon the party who asserts that a cheque was given without consideration to prove that assertion: Walsh at 179.
Was consideration given?
61. The respondents relied upon the decision in Perpetual Trustees for the proposition that the receipt by the Trust of the cheques and the obligation to deal with the cheques in accordance with the trust deed amounted to valuable consideration. In Perpetual Trustees, one of the issues was whether Perpetual Trustees had given valuable consideration which would make the rescission of the transaction under which it took certain cheques unjust. It had received the cheques as a trustee of a common fund to invest it in that fund as part of its business as a fund manager for investors, unitising the funds as manager of a managed investment scheme. Once it accepted the funds, it had agreed to deal with them pursuant to the terms of the prospectus, manage the investments and credit a return on the unit allocated. Examined in light of s 35 of the Cheques Act, this was found by the New South Wales Court of Appeal (at [93]) to constitute the giving of value.
62. In the present case, there was no commercial aspect to the transaction. The cheques were intended as a gift to the Trust. It is true that, having accepted the gift, the trustee of the Trust was obliged to deal with the gift in accordance with the terms of the Trust. However, that was something which merely arose by reason of the terms of the trust deed. It did not involve consideration passing from the Trust to the deceased. It was, of itself, insufficient to constitute consideration.
The respondents’ argument that consideration was waived
63. The respondents assert that there was an agreement pursuant to s 6 of the Cheques Act to waive the requirement for consideration. The provisions relating to consideration for a cheque, ss 35 and 36, are not caught by s 6(2). Therefore, the rights, duties and liabilities that they create or affect may be negated, inverted or otherwise altered “by agreement”.
64. The assertion by the respondents that the rights under the Cheques Act were modified by agreement is a matter which was not pleaded below. The appellant specifically pleaded that the cheques had not been given for value and that the Trust knew that they had not been given for value: Amended Statement of Claim at [2.09]. In the Amended Defence filed on behalf of all respondents, this was simply denied, putting in issue whether or not consideration had been given: Amended Defence at [21]. There was no pleading that valuable consideration was not necessary and there was no pleading that, under s 6 of the Cheques Act, the rights duties and liabilities under the Act had been altered by agreement. It is not a matter that was addressed by the primary judge. It is not a matter that is raised by any Notice of Contention in this court. In those circumstances, it is not open to raise the contention on appeal.
Standing
65. The penultimate contention on the part of the respondent was that the appellant was a stranger who was not entitled to seek to rebut the presumption in s 36 of the Act “as he is not a party to the promise and is not directly affected by the arrangement”. If the point being made is a general one about the entitlement of the appellant to raise this issue, then there are two answers to it. First, it raises a question of standing which was not pleaded or agitated before the primary judge. Second, the duty of the Executor was to pay the debts of the deceased and to not pay an unenforceable claim for which there is no obligation to pay: Thomson Reuters, Laws of Australia, vol 36 at [36.3.1310]; Stephen Janes, David Liebhold and Paul Studdert, Wills, Probate and Administration in New South Wales (Lawbook Co, 2nd ed, 2020) at 746. The pleadings below sought declaratory, equitable and common law relief accommodating the possibility that either the cheques were unenforceable or that they had created a liability. As a beneficiary under the will and a claimant under the Family Provision Act, the appellant had standing to seek a determination of the contents and value of the Estate and to make the claim that the Executor would breach her obligations if she paid an unenforceable claim.
The effect of section 71
66. In the absence of consideration, the respondents contended that the cheques gave rise to an enforceable liability by operation of s 71 of the Cheques Act as a result of the presentation of the cheques. This treats s 71 as a statutory source of liability, independent of the existence of an enforceable contract arising by reason of the cheques being drawn, delivered and presented.
67. For reasons that follow, s 71 did not apply, but even if it did, it does not have the consequence for which the respondents contend.
In order to understand the operation of s 71, it is necessary to note the operation of ss 58 and 59 in the circumstances of this case. The requirement in s 58 of the Cheques Act for presentment of the cheque in order to create a liability in the drawer of the cheque did not apply in the present case because it was dispensed with under s 59. That was because both of the conditions in s 59(b)(i) were satisfied, namely:
A. the drawee institution is not as between the drawer and itself, under an obligation to pay the cheque; and
B. the drawer had no reason to believe, at the time of the issue of the cheque, that the cheque would be paid if duly presented;
The liability to compensate under s 71 only arises in the cases to which the section applies. The section is expressly subject to ss 17(1), 59 and 60(1). While it might be interpreted as applying in any case where there is, in fact, presentment, the better interpretation is that it only applies where presentment is required or s 59(a) or (aa) applies. Discussing the situations where ss 17(1), 59(b)(i) and 59(b)(ii) mean that presentment is not required, B Conrick, The Law of Negotiable Instruments in Australia (Butterworths, 2nd ed, 1989) at [13.74] says:
It must be observed, however, that the terms in which the drawer’s liability is expressed in CPOA s 71 are not wide enough to encompass the drawer in this group of cases within the proviso to that section [ie s 59]. This is because liability in CPOA s 71 is contingent upon presentment or upon the case falling within CPOA s 59(a). Further, the CPOA does not elsewhere explicitly state that the drawer in these remaining cases under CPOA ss 17 and 59(b) is liable to the holder or to an indorser compelled to pay. One must therefore conclude that in this group of cases where presentment is waived or excused the drawer’s liability is founded only upon the contract contained in the instrument and not upon an express provision of the statute.
This is consistent with s 71 being made, in the chapeau, subject to s 59 and the reference to “due presentment” which is defined in s 61 and which has no application where the earlier provision in Pt IV, s 59, dispenses with it. Accordingly, s 71 does not apply to the circumstances here.
71. However, even if s 71 did apply, the section does not render enforceable a cheque which is unenforceable. It is not a free-standing statutory right but a right dependent upon the enforceability of the cheque. If it were otherwise the section would defeat the requirement for consideration altogether by erecting a statutory entitlement to payment not dependent upon consideration.
72. The unenforceability of gift by cheque after the death of the drawer is the reason that the assistance of equity is sometimes sought to make those gifts effective although the starting point is that equity will not assist the donee to recover payment: Hewitt v Kaye (1868) LR 6 Eq 198 at 200; Re Swinburne [1926] 1 Ch 38 at 41; Blackett v Darcy [2005] NSWSC 65; 62 NSWLR 392 at [24]. Nevertheless, “[a]lthough equity will not aid a volunteer, it will not strive officiously to defeat a gift”: T Choithram International SA v Pagarani [2001] 1 WLR 1, per Lord Browne-Wilkinson at 11 giving the judgment of the Privy Council. Further consideration of any equitable claim that may be made by the Trust (subject of course to any subsequent claim for family provision) does not arise on this appeal.
Conclusion
73. Because of the absence of consideration, there was no enforceable liability arising from the holding of the cheques and no liability arising under s 71 of the Cheques Act from the dishonour of the cheques. The Estate was therefore to be administered on the basis that there was no liability to the Trust.
74. As pointed out at [27] above, if the appeal was allowed, amongst the orders sought was an order remitting the matter to the trial judge for further consideration of the family provision claim because of the potential for the principal asset of the Estate, the deceased’s former residence, to have increased in value. The respondents contended that there was no evidence of such an increase in value and as a consequence no remittal should be made. Given the passage of time since the matter was heard by the primary judge, whether or not further evidence of value is permitted and what consequences flow from the admission of any further evidence are matters best resolved by the primary judge before whom all of the evidence was led and who saw and heard the witnesses.
75. Although the appeal has been successful, given that it was brought in the face of a conclusion by the primary judge that the appellant had not established that adequate provision for his proper maintenance, education or advancement was not made in the deceased’s will, it is appropriate that the costs of the appeal form part of the costs of the proceedings in the Supreme Court.
Orders
76. The orders of the Court are:
1. Appeal allowed.
2. The orders of the Supreme Court on 24 March 2021 are set aside and the proceedings remitted to the Supreme Court for determination in accordance with the reasons of the Court of Appeal.
3. The costs of the appeal are to form part of the costs of the proceedings in the Supreme Court.
| I certify that the preceding seventy-six [76] numbered paragraphs are a true copy of the Reasons for Judgment of their Honours Justice Mossop, Justice Rangiah and Acting Justice McWilliam. Associate: Date: 10 May 2022 |