Turner v O'Bryan-Turner

[2021] NSWSC 5

Supreme Court

New South Wales

Medium Neutral Citation:

Turner v O’Bryan-Turner [2021] NSWSC 5

Hearing dates:

4-16 June 2020

Date of orders:

12 January 2021

Decision date:

12 January 2021

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

In the 2019 Proceeding, I make the following orders:

1.   Declare that the First and Second Promissory Notes (as defined in these reasons) were void and of no effect.

2.   Declare that, by reason of the First and Second Promissory Notes being void and of no effect, Owen John Turner owes no moneys to Allawah Pastoral Pty Ltd pursuant to the First or Second Loan Agreements (as defined in these reasons) or at all.

3.   Declare that the unregistered First and Second Mortgages (as defined in these reasons) are inoperative and do not secure any moneys loaned by Owen John Turner to Allawah Pastoral Pty Ltd.

4.   Order that the First and Second Mortgages (as defined in these reasons) be delivered up to the solicitors for the plaintiff in the 2019 Proceeding for cancellation.

5.   Further and in the alternative, declare that the entry by Owen John Turner into the transactions comprised of, and the execution by Owen John Turner of, the 2010 Transaction Documents (as defined in these reasons) and 2015 Transaction Documents (as defined in these reasons), were obtained by undue influence, to the knowledge of the first defendant to the 2019 Proceeding and, through him, the second defendant to the 2019 Proceeding; and that the retention of the benefit of, or insistence upon, the said documents and transactions by the defendants to the 2019 Proceeding would amount to unconscionable conduct.

6.   Order that the 2010 Transaction Documents and 2015 Transaction Documents be set aside.

7.   Direct the parties to file brief written submissions as to costs by 5 February 2021 with a view to dealing with the issue of costs on the papers, if possible.

In the 2017 Proceeding, I make the following orders:

1.   Direct that the parties to provide brief written submissions as to the extent of the charge to be imposed over the Woolharinga, Nellyvale and Sunrise properties (as defined in these reasons) in accordance with these reasons, along with any other submissions in relation to relief including as to costs, and proposed short minutes of order, by 5 February 2021, with a view to determining those issues on the papers, if possible.

2.   Otherwise, dismiss the proceeding.

Catchwords:

EQUITY — Fiduciary duties — Breach — Rule in Barnes v Addy — Knowledge requirements — Where mother acted in breach of fiduciary duty — Receipts and assistance by children

EQUITY — Vitiating factors — Undue influence — Unconscionable dealing — Where transactions undertaken by son — Mental incapacity of father

AGENCY — Power of attorney — Effectiveness of — As part of transaction — Where transactions unauthorised by power — Spouse acting as enduring attorney

Legislation Cited:

Bills of Exchange Act 1909 (Cth), ss 5, 89(1), 90, 95

Civil Procedure Act 2005 (NSW), ss 56, 57, 58

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law

Conveyancing Act 1919 (NSW), s 37A

Duties Act 1997 (NSW), s 274

NSW Trustee and Guardian Act 2009 (NSW), s 41, 64, 65, 66, 67, 68, 79 and 115

Powers of Attorney Act 2003 (NSW), ss 9, 10, 11, 12, 13, 19, 36

Real Property Act 1900 (NSW), s 12D

Succession Act 2006 (NSW)

Cases Cited:

A v N [2012] NSWSC 354

Aequitas Ltd v Sparad No 100 Ltd (formerly Australian European Finance Corp Ltd) [2001] NSWSC 14; (2001) 19 ACLC 1006

Allcard v Skinner (1887) 36 Ch D 145

Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43

Anderson v Anderson [2016] NSWSC 1204

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27

Baden Delvaux & Lecuit v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509

Balck v Pilcher (1909) 25 TLR 497

Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923; [1992] 4 All ER 955

Barkley v Brown [2009] NSWSC 76

Barnes v Addy (1874) LR 9 Ch App 244

Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408

Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239

Belmont Finance Ltd v Williams Furniture (No 1) [1979] Ch 250

Bird v Bird [2013] NSWCA 262

Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81

Boardman v Phipps [1967] 2 AC 46

Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66

Browne v Dunn (1893) 6 R 67

Cadwallader v Bajco Pty Ltd [2002] NSWCA 328

Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 40

Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd [2016] QCA 088

Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447; [1983] HCA 14

Crouch v The Credit Foncier of England, Ltd (1873) LR 8 QB 374

Day v Perisher Blue Pty Ltd (2005) 62 NSWLR 731; [2005] NSWCA 110

Dimitrovski v Australian Executor Trustees Limited [2014] NSWCA 68

Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission (2006) 32 WAR 204; [2006] WASCA 105

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

George v Webb [2011] NSWSC 1608

Gore v Octahim Wise Ltd [1995] 2 Qd R 242

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

Harstedt Pty Ltd v Tomanek (2018) 55 VR 158; [2018] VSCA 84

Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

Hedley-Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

Hospital Products Limited v United Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

Huguenin v Baseley (1807) 14 Ves Jun Supp 273

In the Matter of Vicad Pty Ltd; Pottie v Dunkley [2011] NSWSC 166; (2011) 82 ACSR 541

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

Johnson v Buttress (1936) 56 CLR 113; [1936] HCA 41

Johnson v Smith [2010] NSWCA 306

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25

Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557

Louth v Diprose (1992) 175 CLR 621; [1992] HCA 61

Macquarie Developments Pty Ltd v Forrester [2005] NSWSC 674

Moratic Pty Ltd v Gordon [2007] NSWSC 5; (2007) 13 BPR 24,713

Morrison v Coast Finance Ltd (1965) 55 DLR (2d) 710

Mulherin v Quinn Villages Pty Ltd [2007] QSC 231

National Australia Bank Limited v Rowe [2018] WASC 330

NCR Australia Pty Ltd v Credit Connection Pty Ltd (in liquidation) [2004] NSWSC 1

Nicholson v Morgan (No 3) [2013] WASC 110; (2013) 8 ASTLR 277

Nocton v Lord Ashburton [1914] AC 932

Perochinsky v Kirschner [2013] NSWSC 400

Poosathurai v Kannappa Chettiar (1919) LR 47

Re Dawson (1966) 84 WN (Pt 1) (NSW) 399

Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153; (2007) ANZ ConvR 615

Rosebanner Pty Ltd v Energy Australia [2009] NSWSC 43

Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378

Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65

Stivactas v Michaletos (No 2) [1994] ANZ ConvR 252

Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128; [1932] HCA 40

Szozda v Szozda [2010] NSWSC 804

Taheri v Vitek (2014) 87 NSWLR 403; [2014] NSWCA 209

Tobin v Broadbent (1947) 75 CLR 378; [1947] HCA 46

Tulloch (deceased) v Braybon (No 2) [2010] NSWSC 650

Turner v O’Bryan-Turner [2018] NSWSC 1140

Turner v O’Bryan-Turner [2019] NSWSC 1340

Turner v O’Bryan-Turner [2019] NSWSC 258

Turner v Windever [2003] NSWSC 1147

Urane v Whipper [2001] NSWSC 796

Varma v Varma [2010] NSWSC 786

V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16; (2013) 296 ALR 418

Vidler v Sallaway (1862) 1 SCR (NSW) 246

Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561; [1995] HCA 18

Watson v Foxman (1995) 49 NSWLR 315

Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157

Whereat v Duff [1972] 2 NSWLR 147

Williamson v Rider [1963] 1 QB 89; [1962] 2 All ER 268

Winefield v Clarke [2008] NSWSC 882

Wu v Ling [2016] NSWCA 322

Texts Cited:

Halsbury’s Laws of Australia (online)

Mason, Sir Anthony, “The Impact of Equitable Doctrine on the Law of Contract” (1998) 27 Anglo-American Law Review 1

Meagher, R P, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity: Doctrines & Remedies (4th ed, 2002, LexisNexis)

Ridge, P, “Participatory Liability for Breach of Trust or Fiduciary Duty” in J Glister and P Ridge (eds), Fault Lines in Equity (2012, Hart) 119

Robson, K, Riley's Annotated Bills of Exchange Act and Cheques and Payment Orders Act (4th ed, 1994, LawBook Co)

Category:

Principal judgment

Parties:

2017/00080121 Proceeding
Owen John turner by his tutor Nicholas John Turner (First Plaintiff)
Allawah Pastoral Pty Ltd (Second Plaintiff)
Nicholas John Turner (Third Plaintiff)
Angelena May O’Bryan in her capacity as the Executrix of the Estate of Wendy Joan O’Bryan-Turner (First Defendant)
David John Turner (Second Defendant)
Karl John Turner (Third Defendant)
Registrar-General, Land and Property Information (Fourth Defendant)

2019/00307439 Proceeding
Owen John Turner by his tutor Angelena May O’Bryan (Plaintiff)
Nicholas John Turner (First Defendant)
Allawah Pastoral Pty Ltd (Second Defendant)

Representation:

Counsel:
JT Svehla (Plaintiffs 2017/80121; Defendants 2019/307439)
G Curtin SC (Defendants 2017/80121; Plaintiffs 2019/307439)

Solicitors:
2017/00080121 Proceeding
Cleary Hoare Solicitors (Plaintiffs)
Palmers Solicitors (Defendants)

2019/00307439 Proceeding
Palmers Solicitors (Plaintiff)
Cleary Hoare Solicitors (Defendants)

File Number(s):

2017/00080121; 2019/00307439

Publication restriction:

Nil

Judgment

1. HER HONOUR: In this matter, I heard consecutively two sets of proceedings (with evidence in the one to be evidence in the other) for the reasons and in the circumstances considered in my earlier judgment (Turner v O’Bryan-Turner [2019] NSWSC 1340).

2. The background to the underlying disputes between the parties was set out in that earlier judgment but, by way of introduction, I here briefly reprise this below; and, again, without intending any disrespect, I will generally refer to the various family members by their first names.

3. Furthermore, to avoid confusion, I will refer to the respective proceedings as the 2017 Proceeding and the 2019 Proceeding and, where it is necessary to refer to the parties in the respective proceedings by reference to their position as parties to those proceedings, I will refer to them as the 2017 plaintiffs or 2017 defendants and the 2019 plaintiff or 2019 defendants, as the case may be. However, in general, I will refer to the parties associated with Nicholas Turner (the 2017 plaintiffs and the 2019 defendants) as the Nick interests; and the parties associated with the late Wendy O’Bryan-Turner and her sons, David Turner and Karl Turner (the first to third defendants in the 2017 Proceeding and the plaintiffs in the 2019 Proceeding), as the David/Karl interests.

4. Finally, I note that the fourth defendant in the 2017 Proceeding, the Registrar-General, has not taken any active part in the proceedings.

Introduction

5. The central figure in both sets of proceedings is Owen John Turner (commonly referred to as John). John suffers from advanced dementia and has lived in a nursing home since December 2016. It is not disputed that John has no capacity to represent himself or to instruct lawyers to act on his behalf in these (or any other) proceedings, although there is a dispute as to when he lost mental capacity. In each set of proceedings, there is a tutor appointed for John (his son, Nicholas, to whom I will refer as Nick, in the 2017 Proceeding; and his sister-in-law, Angelena, in the 2019 Proceeding).

6. Although, as I have said, there is a dispute as to when John lost mental capacity, it is not disputed that by late December 2016 (when John entered into permanent care in the nursing home) his dementia was at an advanced stage. The Nick interests contend that John had lost capacity by no later than September 2015, while the David/Karl interests place this as occurring by no later than June 2016.

7. John has been married twice. The children of his first marriage (to Wendy Patton) are Nick and Sara. His second wife, Wendy, the named first defendant and first cross-claimant in the 2017 Proceeding, died on 26 August 2018 after the commencement of the 2017 Proceeding. Evidence was taken from Wendy before a Registrar in Parkes (in anticipation of her then imminent death) and a video recording of that evidence was viewed in the course of the hearing before me. Wendy’s sister, Angelena, is the executrix of Wendy’s estate and has obtained a grant of probate in respect of the estate. There are two children of John and Wendy’s relationship (David and Karl), both now adults (although Karl was a minor at the time of the relevant events in the respective proceedings).

8. Allawah Pastoral Pty Ltd (Allawah Pastoral) is a company that was formed in or around 2010 by John and Nick (each, on its incorporation, being the equal shareholders of Allawah Pastoral and its only directors). Nick is now the sole director and shareholder of Allawah Pastoral following the transfer by John of his shares in the company and resignation as director in 2015. It is relevant here to note that this transaction is part of the impugned 2015 transaction (the 2015 Transaction) (as to which, see further below).

9. John was formerly the sole registered proprietor of six rural properties near Trundle in western New South Wales (the Trundle Properties), a number of which were transferred to him for nominal or no consideration by his father (by way of intergenerational transfer, as I explain in due course). John ceased active physical work on the Trundle Properties (which are operated together as one farm) in about late 2014. Since then, David (together with Karl from 2016) has managed the farming business carried out on the Trundle Properties. David and Karl continue to manage the business, albeit also now working part of the time off-farm to meet personal expenses. The income generated by the farming business has been used to pay for John’s care in the nursing home (about $1,000 per week). It is common ground that John’s principal assets (prior to the events the subject of the claims in the respective proceedings) were the Trundle Properties and the plant and equipment on those properties, as well as John’s interest in another farming property that had been jointly owned with Nick in Forbes (referred to as the Allawah Forbes Property).

10. The principal protagonists in the respective proceedings are now Nick, on the one hand, and, on the other, Angelena (in her capacity as Wendy’s executrix) together with David and Karl, albeit that the principal claims in each proceeding are brought in the name and on behalf of John.

11. The disputes between the respective family members relate to distinct transactions or events.

12. On the one hand, there is a dispute as to the transfer of the Trundle Properties, effected by Wendy (under an Enduring Power of Attorney granted to her by John in June 2015) in the period from the end of 2015 to early 2016, for a nominal sum, from John to Wendy, David and Karl as joint tenants (in respect of the three unencumbered properties) and to Wendy and David as tenants in common (in respect of the three encumbered properties). These transfers are challenged by Nick as tutor for John (that being the principal claim in the 2017 Proceeding), although each of Allawah Pastoral and Nick also brings claims in its or his own right.

13. On the other hand, there is a dispute as to certain loans and (unregistered) mortgage transactions entered into by John with Allawah Pastoral in 2010 and then in 2015 that it is said have the effect that Allawah Pastoral held or holds security over approximately 90% of the value of the Trundle Properties (those transactions being challenged by the David/Karl interests in the 2019 Proceeding and the subject of the cross-claim filed in the 2017 Proceeding).

14. The impugned transactions in 2010 involved the establishment by respective trust deeds of two so-called “bloodline” trusts, those being wholly discretionary trusts established under a structure put forward by a firm of solicitors (Cleary Hoare) as a form of asset protection planning (relevantly, in this case, for the purpose of protecting John’s farming properties and assets from claims by his wife, Wendy). The trustee of each of the trusts is Allawah Pastoral. Under the respective trust deeds, each of John, Nick and Sara was nominated as principal (with certain powers as to the distribution of capital and income).

15. John signed what are described as two promissory notes in favour of the trustee of those trusts (again, as noted, Allawah Pastoral), those notes together totalling around $2.5 million (that being said to be around about 90% of the value of the Trundle Properties at the time) (one being in the amount of approximately $2.3 million and the other approximately $200,000). John executed statutory declarations at that time to the effect that all payments by him by promissory notes to the trustee were by way of gift. As will be explained in due course, at the time that the notes were signed, there was no amount specified in them and there was no fixed date for repayment.

16. John and Allawah Pastoral then entered into loan agreements whereby Allawah Pastoral in effect lent to John the $2.5 million that John had just “gifted” to Allawah Pastoral under the promissory notes; and those two loans were secured by way of unregistered (and unstamped) mortgages over the Trundle Properties. John then purported to cancel those promissory notes.

17. The consequence of the 2010 Transaction (as defined below) was that, unless disturbed, Allawah Pastoral thus had the benefit of security over the Trundle Properties and would, at some point in time, be able to obtain what was then estimated to be approximately 90% of the value of the Trundle Properties. The purpose of the 2010 Transaction was unashamedly to protect John’s farming assets from a potential claim by his then de facto, Wendy, in the event that she should leave him. The concern apparently expressed at the time by John’s father, Ken, was that the “farm” should continue to be held in the Turner family.

18. Pausing here, as David and Karl are John’s sons, that concern – assuming it to have also been John’s concern at the time – is satisfied by the transfers that occurred in 2015. However, Nick is excluded therefrom and so hence the scope for conflict at the relevant time between John’s interests and those of Nick.

19. What then occurred in 2015 (at a time when Nick accepts that he held concerns as to John’s mental health) was that John resigned as a director of Allawah Pastoral, transferred his shares in Allawah Pastoral to Nick, and resigned as principal under the respective trust deeds. According to Nick, this was at John’s request, although there is nothing to corroborate this.

20. The consequence of the 2015 Transaction is that Nick is now the sole director and shareholder of Allawah Pastoral (the trustee) and, following Sara’s almost contemporaneous resignation as principal, the sole principal under the respective trust deeds. Thus, Nick now has the capacity to control the distribution of the income and assets of those fully discretionary trusts and would be able, were he so minded, to distribute that income and those assets solely to himself. It also means that (assuming their validity) Allawah Pastoral could, at Nick’s behest, call up the amount of the 2010 loans and apply that to discharge its mortgage (in priority to any use by John of the funds for, say, his ongoing nursing care).

21. John made a number of Wills over the years. Under the terms of his last Will, dated 9 October 2015, John’s estate is to be distributed as follows: $200,000 and a life estate in the Trundle Properties to Wendy (bequests that obviously are no longer of relevance as Wendy has predeceased John); $200,000 to Sara; and the residue to David and Karl, with no bequest in favour of Nick (see Nick’s affidavit sworn on 18 April 2019 (Nick’s 18 April 2019 Affidavit) at [10](d)). Nick has foreshadowed a potential challenge to John’s last Will (see Nick’s 18 April 2019 Affidavit at [10](c) and [10](e)) but that is not a matter now before me.

5. In summary then, the challenges made as to the two distinct sets of transactions are as follows.

6. First, Nick (as tutor for John) seeks to challenge the transfers of John’s real property to Wendy, David and Karl (the principal claim) and seeks, inter alia, that an account be taken of Wendy’s use of John’s funds and personal assets during the period in which she held his Enduring Power of Attorney.

7. Second, Angelena (as will be recalled, Wendy’s executrix), as tutor for John, and each of David and Karl (all together, the David/Karl interests) seek to challenge the 2010 loans and mortgages entered into by John with Allawah Pastoral and the circumstances in which, in 2015, Nick became the sole director and shareholder of that company (the cross-claim). Additionally, allegations of unconscionable conduct and undue influence are made in the cross-claim and relief is sought for the setting aside of the mortgages and the loans and/or various declarations about the promissory notes.

8. Nick says that if the principal claim in the 2017 Proceeding succeeds then the Trundle Properties will be transferred to John (or John will be entitled to compensation, damages or an account of profits) (see Nick’s 18 April 2019 Affidavit at [10](a)). In this connection, I note that, when the matter was previously before me, Nick maintained (and he no doubt continues to do so) that he has no (direct) personal interest in the principal claim (though it appears to be accepted that he may indirectly benefit from the restoration to John of those properties or moneys’ worth, and he has his own personal claim in those proceedings).

9. Meanwhile, the result of the cross-claim, if wholly successful, would be that the 2010 Transaction would be set aside, leaving the Trundle Properties unencumbered (i.e., this would displace Allawah Pastoral’s interest under the mortgages granted in respect of those properties in 2010).

10. It is desirable next to set out, in further detail, the chronology of events.

Chronology

28. Before setting out that relevant chronology of events, I will describe in some more detail the Turner family members.

Family members

29. I have referred above to the relationships within the Turner family, namely that John has two children from his first marriage (to Wendy Patton), Nick and Sara (each of whom is now in his or her 40’s), and two children from his subsequent relationship with Wendy O’Bryan-Turner (to whom I here refer simply as Wendy), namely, David and Karl.

30. John had been a farmer all his adult working life, having left school in Year 10 and then having attended Yanco Agricultural College (see T 84.26-29). The David/Karl interests say that John had no relevant experience as a company director nor any financial expertise with trusts or the like (though, as I note in due course, John was a director of Allawah Pastoral for some time). Meanwhile, the Nick interests point to the fact that John was a director (with his father, Ken) of a family company at an earlier time and Nick gives evidence that his father had for a time attended once or twice yearly meetings with the accountant (but there is no evidence as to the extent or nature of John’s participation in those meetings).

31. There are competing submissions as to John’s general level of intelligence, but it is not necessary here to do more than note that John had no tertiary education and was described by a family friend (Mr Gary Nipperess) as not “book-smart” (particularly when compared with his father, Ken, and Nick). It is also relevant here to note that, when Ken ceased to carry out the bookwork in respect of the farming properties, that task was assumed by Wendy, not John. That said, it appears that there was consensus that John was regarded in the community as a good farmer and that he was interested in, and kept up to date as to, farming matters generally. At least in the last ten years or more of Wendy’s life, all the bookwork and the financial aspects of management of the Trundle Properties were handled by Wendy (with the assistance of John’s accountant, Mr Mark Job).

32. I have referred already to John’s father, Ken. At the time of the relevant events in 2010, he was in his 90’s. By late 2009, Ken was living in a nursing home in Parkes and had a “hobby farm” on the outskirts of Parkes (see Nick’s affidavit sworn on 10 January 2020 in the 2019 Proceeding (Nick’s Second 2019 Proceeding Affidavit) at [5]).

33. Nick, after leaving school, obtained a degree in agricultural economics majoring in risk management, from Armidale University (see T 40.38-48) and worked two years with the Commonwealth Development Bank (at that point in time, the rural bank of the Commonwealth Bank of Australia) (see T 41.49-50) before being employed as a rural bank officer by Primary Industry Bank of Australia (PIBA), which later became Rabobank, in 1998 at the Dubbo branch (see T 41.37-40). In 2002, Nick became the inaugural bank manager of the Forbes branch of Rabobank (see T 45.31-46). Nick now works as an agricultural consultant and manages the Allawah Forbes Property (see below) that he formerly co-owned with John.

34. Sara, Nick’s sister, suffers from a disability (although it is not clear to me precisely what that disability is). Sara is married and lives in Melbourne.

35. John and Wendy were in a de facto relationship for some years (commencing from about 1995 or 1996, or perhaps as late as 1998, after John’s divorce from his first wife in 1992). They married in a ceremony at the Allawah property in November 2016 before John was admitted to permanent care in the nursing home in Forbes in December 2016. Neither of John and Wendy’s children (David and Karl) has any tertiary qualifications. Indeed, David left school in 2014 after completing Year 10 and Karl left school in early 2016 before completing Year 11. With no disrespect to either of them, it is clear from their cross-examination that neither David or Karl exhibits the financial or business acumen or intelligence of their tertiary educated half-brother, Nick. This is relevant insofar as their ability to understand the transactions into which they entered (at Wendy’s behest) in 2015 seems to me to be low (which I consider in further detail in due course).

36. David and Karl, by the time of the hearing before me, were in their early 20’s. As adverted to, as at the time of the transactions the subject of challenge in the 2017 Proceeding, Karl was a minor and David had only recently turned 18.

37. It seems clear that there was little familial affection between Nick on the one hand and David and Karl on the other, presumably due to the animosity between Wendy and Nick (as to which, I will say more in due course).

Trundle Properties

38. By 1999, John was the sole registered proprietor of the Trundle Properties (known as Garden Vale, Allawah, Sunnycroft, Woolharinga (sometimes referred to in the affidavit evidence as Wooleringa), Nellyvale and Sunrise), comprising a total landholding of 2,331.4 hectares or 5,715.47 acres. The earlier of those properties were acquired variously by John’s grandfather or father, Ken; and then transferred to John (as part of an intergenerational transfer, for no or nominal consideration). The last of the Trundle Properties (Sunrise) was acquired by John on 9 April 1999. The acquisition of Sunrise was financed at least in part by a loan obtained on or about 9 April 1999 by John from Rabobank of approximately $200,000, which loan was secured by a Rabobank mortgage (a registered first mortgage over Woolharinga, Nellyvale and Sunrise).

39. Up until the events in question, John carried on business as a farmer and grazier in his own name on the Trundle Properties.

Commencement of Allawah partnership in 2008

40. In or around March 2008, John and Nick commenced the Allawah partnership, purchasing a property at Forbes (the Allawah Forbes Property) in joint names. The purchase was fully debt financed (by Rabobank, with whom Nick then worked as a rural bank officer), by mortgage secured over the Allawah Forbes Property and three of the Trundle Properties which were owned solely by John (specifically, Woolharinga, Nellyvale and Sunrise). A local solicitor in Trundle (Mr William Burke) acted on behalf of John and Nick on the transactions in relation to the purchase of the Allawah Forbes Property.

Events in 2009

41. It appears that the purchase of the Allawah Forbes Property and/or the partnership between John and Nick in relation to that property may have been the catalyst for, or exacerbated existing, tensions between Nick and Wendy. David in cross-examination readily accepted that there had been disharmony between the two (see, for example, at T 50). The cause of that disharmony is unnecessary here to determine. Nick was adamant in cross-examination that Wendy had been abusive and aggressive towards him (which was corroborated by his wife, Olivia, and evidenced perhaps by his mobile telephone appellation for Wendy of “crazy lady”). Wendy, for her part, in the evidence given on commission, complained of Nick’s conduct towards her (which was corroborated by Angelena).

42. Suffice it to note, for present purposes, that it is alleged by Nick (and does not seem to be disputed by the David/Karl interests) that, from about 2009, Wendy blocked John’s telephone calls and that she obstructed Nick’s access to John (although, on Nick’s own evidence, as the David/Karl interests emphasise, Nick was able to see his father on a relatively regular basis – whether at Allawah Forbes Property or at the club in Trundle and occasionally at the Allawah property itself).

2010 Transaction

43. It is Nick’s evidence that, during a visit to Ken’s farm (it seems from his affidavit that he places this at some time in late 2009 or early 2010 – see, for example, Nick’s Second 2019 Proceeding Affidavit at [6]), Ken expressed to him concern that he had heard that there had been some problems between Wendy and John and Ken expressed a desire that something be done to protect the farm and, “keep the farm in our family for the future” (see Nick’s Second 2019 Proceeding Affidavit at [6]). Nick says that, about a month later, Ken expressed a similar concern to John in a conversation at which Nick was present (see Nick’s Second 2019 Proceeding Affidavit at [9]).

44. Pausing here, it is not insignificant in my opinion, particularly in the context of the undue influence and unconscionable conduct allegations, that the concern, on Nick’s evidence, emanated from Ken, not John himself. Further, I consider it not insignificant that what Ken was apparently concerned about, on Nick’s evidence, was keeping the farm in the Turner family – not dividing the farms as between the children of the respective relationships. I return to this in due course.

45. By this time, three of the Trundle Properties (namely, Garden Vale, Allawah and Sunnycroft) were unencumbered (which, I understand, remains the position) and the other three (namely, Woolharinga, Nellyvale and Sunrise) were encumbered, being subject to the Rabobank mortgage.

46. Nick has deposed that some time after conversations with Ken and John, in the first quarter of 2010, he was at a social gathering with Mr Nick Field (a peer of Nick’s), who was then an accountant at Pigot Miller Wilson in Forbes. Nick’s evidence is that he raised with Mr Field the issue as to what could be done to protect “the farm” (by which I understand him to be referring to the six Trundle Properties as a whole). Nick deposes that Mr Field told him about a firm of solicitors who had a “structure called the Bloodline™ Trust” that could be set up to keep assets in the bloodline (i.e., in those related by blood in the family) (see Nick’s Second 2019 Proceeding Affidavit at [10]) and that, some time after this, he (Nick) raised this with John at a meeting at the Allawah Forbes Property and offered to make an appointment with the lawyers (see Nick’s Second 2019 Proceeding Affidavit at [11]).

15 April 2010 meeting with Cleary Hoare

47. On 15 April 2010, there was a meeting at the offices of Pigot Miller Wilson in Forbes attended by Ken, John and Nick. Also present at that meeting were Mr John Ioannou (a principal of the firm) and Mr Adrian Bailey (then an employed solicitor at the firm), both of whom were (or still are) solicitors at Cleary Hoare Solicitors (Cleary Hoare) (and both of whom gave evidence in these proceedings).

48. Nick’s account of that meeting (see Nick’s Second 2019 Proceeding Affidavit at [14]ff) closely mirrors that of Mr Bailey (an issue raised by the David/Karl interests as being adverse to his credit – see at [205]ff below).

49. Nick says that, at that meeting, Mr Ioannou “led the discussion” after instructions (see Nick’s Second 2019 Proceeding Affidavit at [14]); that John said that he had a farm that was handed down to him from his father and that had been in their family for a long time; and that he was worried that Wendy was going to leave him and what might happen to the farm. Nick says that John said that, “I want to try to protect it for the future”; and that he wanted to be able to protect the farm for Nick and Sara and their children (but that he had some concerns about Sara’s husband as well and wanted to protect the asset from him too) (see Nick’s Second 2019 Proceeding Affidavit at [14]). Nick says (as also do Mr Bailey and Mr Ioannou) that Mr Ioannou confirmed that John was, “happy to talk about this in front of Nick and [Ken]”.

50. Mr Bailey’s evidence is that, at the start of the meeting, Ken spoke about himself and his background (including that Ken had topped the State in mathematics, was Shire president for 21 years and had received an OAM – none of which, I interpose to observe, has any apparent relevance to the discussion then at hand) and that Ken had inherited “the farm” from his father and had bought a few parcels over his lifetime and that he and his wife had sold the properties to John so that he could continue their family business. Mr Bailey deposes that Ken said John had told him that he had had problems recently with Wendy and that she had threatened to leave him; and that Ken was worried that, if she did, she would take some of the farm with her (see Mr Bailey’s affidavit sworn on 23 December 2019 (the Bailey Affidavit) at [17]). Mr Bailey’s recollection was that Ken said that the main farms should go to his first children and the more recently acquired farms to be split between all the children (see Bailey Affidavit at [17]).

51. I interpolate to note that this seems to be the first time that a division as between the children of the respective relationships was raised; and it is perhaps not insignificant that the reference to “recent farms” was in the plural, whereas the transactions documents appear to be predicated on only the last acquired farm being the subject of a trust that included David and Karl.

52. Mr Bailey also has deposed (see at [21]) in very similar terms to the conversation set out at [14] of Nick’s Second 2019 Proceeding Affidavit, except that he added that John had said that, “[t]he extra land that [he] bought around the time Wendy came along can be protected for my two children with her”.

53. Mr Bailey (whose evidence is that he was the note-taker at the meeting but that he can no longer find the note-pad on which those notes were taken) has deposed (see Bailey Affidavit at [19]) that, at some time in the 15 April 2020 meeting, Nick mentioned the value of the properties and liabilities, as follows:

Dad has around $3.2 million worth of property. He has around $2.4 million with a $250,000 liability to Rabobank and him and I jointly own a property worth around $800,000 with a liability of $900,000. Only one property has been acquired recently and it’s worth a bit over $200,000

54. Nick’s recollection of this part of the conversation (see Nick’s Second 2019 Proceeding Affidavit at [14]) is that he (Nick) said:

Dad’s total land holdings including some land owned with me in Forbes is worth about $3.2 million. The land in Trundle is worth about $2.4 million with about $250 thousand in debt with Rabobank. The jointly owned property in Forbes is worth about $800 thousand, although there’s $900 thousand owing on it, so it’s in negative equity.

55. Pausing here, the David/Karl interests maintain that John’s testamentary objective (for the farms to pass to his children) was not achieved by the 2010 Transaction Documents (to the knowledge of both Mr Bailey and Nick).

56. Mr Ioannou’s evidence (in his affidavit sworn on 7 January 2020 (the Ioannou Affidavit) at [11]) was that John said that he wanted to protect the Turner farms, to keep the farming business in the family for future generations and for the farms to pass to his children intact; and that he wanted to make sure that the farms, “go to my children and not my current partner”. It is relevant to note that Mr Ioannou did not there distinguish between farms for the children of the first marriage and farms for the children of the later relationship.

57. Each of Nick, Mr Bailey and Mr Ioannou recalls that it was Mr Ioannou who gave advice at the 15 April 2010 meeting as to asset protection. Specifically, Mr Ioannou’s evidence is that he advised John on his options using his “standard structure” (see, for example, at [19]) (Mr Bailey describes it as the “standard CHS presentation”). Both Mr Bailey and Mr Ioannou give evidence that Mr Ioannou referred to the option of there being a binding financial agreement. Mr Ioannou’s evidence is that he advised that this was the best option. By all accounts, John said words to the effect that Wendy would not sign anything of that kind. Both Mr Bailey and Mr Ioannou give evidence that John said that he could not tell Wendy about this meeting or any advice that Cleary Hoare gave and that they would need to direct anything in writing to Nick instead and that Nick would make sure it got to John (see Ioannou Affidavit at [22]; Bailey Affidavit at [29]). Relevantly, neither Mr Bailey nor Mr Ioannou deposes that they received instructions that Nick was authorised to make decisions for John or to give instructions on his behalf.

58. Mr Ioannou’s evidence is that he formed the belief that John wanted to do something to protect his assets from his current partner for the benefit of his children because, “he was not confident that the farms would naturally pass to his children under any Will he might have” (see Ioannou Affidavit at [13]). Pausing here, the David/Karl interests say that the 2010 Transaction provided no legally enforceable protections or safeguards in relation to John’s testamentary objectives or for the provision of financial support for any care he may need should he become physically or mentally infirm.

59. As to the explanation given by Mr Ioannou as to the “Bloodline™ Trust” (a structure apparently trademarked by Cleary Hoare) (see Ioannou Affidavit at [28]ff), this included that:

The final option involves you making a gift to a discretionary trust, the trust lending the money back to you, a loan agreement and mortgage between you and the trust and, if you want, a mortgage being registered over your property to secure the loan.

[…]

… A discretionary trust means the trustee can choose who will receive something and just because you receive something one year doesn’t mean you’ll receive something the next year.

[…]

Our “[B]loodline[™] trust” is a discretionary trust which was created by us and we have a registered trademark over it. It has been specially designed to allow assets to pass to your nominated bloodline only, but it allows any income generated by those assets to be distributed to any beneficiary including your spouse. You get to choose who will be your bloodline.

[…]

Trusts are slightly odd structures in law because they are not legal entities like you or a company, but the trustee effectively holds legal title over the money on the table. It is the trustee’s name on any bank account and on title for any property and it is the trustee who calls the shots – the trustee chooses which beneficiary should receive anything.

[…]

However, the real power resides in the principal or appointor. The principal can be a beneficiary and also a trustee. The role of a principal is separate to the other roles and whoever holds this role has the power to hire or fire the trustee. So if you were the principal, you don’t need to be the trustee because you can fire the trustee at any time and appoint yourself as the new trustee. You can exert ultimate power and control by firing the trustee and appointing a new one whenever you want.

The major benefit of using a trust is that you can deposit wealth into the trust and that wealth won’t form part of your estate. You can also craft the trustee to allow succession of control of the truest to whomever and whenever you want. You can even nominate successor principals.

The trick to protecting your estate is to get your value from left to right with minimal tax and duty consequences.

[…]

The best solution is to pick up your assets and move them from left to right but tax and duty costs make it undesirable.

The alternative is secured debt. This relies on a valuation of your personal wealth. Because you own property, you will need to get a valuation of the property. A real east agent valuation is fine rather than a formal valuation as we just need some way to determine the value. We then subtract your bank liabilities to arrive at your net equity. If we go ahead with this option you’ll need to provide me with the valuation and your net equity before we finalise this process.

The first step in the process is for you to gift the net equity to the trust.

[…]

The next step is a corresponding transaction where the trust lends the amount of the gift back to you to close the loop.

[…]

Like any financier, most will lend if they can take security over the property. In effect, the trust is like a bank but you must remember that it is subject to the notional estate clawback [to which Mr Ioannou had earlier referred in the context of the option of leaving the property by Will] within 3 years of your death.

[…]

Going back to the gift, you won’t need cash to make the gift. From my experiences, journal entries in financial statements are not enough so you will need a cash-equivalent. We use a bearer promissory note, which is a cash-equivalent negotiable instrument.

Under the Bills of Exchange Act, a negotiable instrument is, in plain English, a two-party cheque.

You know what a cheque is: it is my promise to you that I will pay you a sum of money and it gives you the right to go to my bank, present it and be paid the sum I promised you.

[…]

A bearer promissory note is the same document but without a bank. Just like a cheque, if I give you a cheque for $1 million and you don’t cash it, it goes stale. So you need to close out the bearer promissory note because it can’t be left outstanding.

[…]

So the transaction works this way. If you’re worth $5 million, you draw a bearer promissory note for $% million which is supported by equity in your property. To evidence the gift, you deliver an “IOU” to the trust. The trust acknowledges its receipt of the gift and it goes into the trust as a gift.

[..]

But just like holding onto a cheque in the real world does not make sense, the bearer promissory noted needs to be cashed in or cancelled. So the same bearer promissory note is passed back to you but we don’t want it to be a gift. We try to move value away so the trust lends it back to you.

[…]

In lending it back to you, a simple loan agreement is prepared between you and the trustee. Interest is not required to be paid and the loan is repayable on demand.

[…]

Redelivery of the bearer promissory note by the trust to you cancels it but the note has been effective to evidence movement of $5 million from you to the trust and back to you.

[…]

The trust will ideally take security over your personal assets for $5 million by a mortgage, just like a bank.

[…]

The mortgage should be registered so that the security is enforceable, though there is a duty payable of around 0.6% of the value of the mortgage.

[…]

Despite the cost of mortgage duty, it is always preferable to stamp and register the mortgage to ensure that the trust is a secured creditor. Without the mortgage, the trust is an unsecured creditor meaning that it would line up with any other person making a claim. Security gives the trust priority.

60. Mr Ioannou’s evidence is that he did not recall any issue arising in the course of the meeting to suggest that John did not understand what he was saying (see, for example, at [50]). However, I interpose to note that there does not appear to be any account of anything said by John which might have indicated that he did indeed have an understanding of the not uncomplicated trust concepts and transactions there being proposed – rather, Mr Ioannou, as does Mr Bailey, seems to rely on John not looking perplexed, or asking any questions, and on John responding when questioned to the effect that he understood, which seems to me to be an inadequate basis on which to test whether John had any real understanding of the complex structure there being put forward.

61. Meanwhile, Mr Bailey gives a similar account of the explanation given by Mr Ioannou of the “Bloodline™ Trust” option (see Bailey Affidavit at [31]ff]). As I have said, he, too, did not recall John exhibiting or saying anything to suggest that he did not understand the concepts involved (see at [35]). As to this evidence, again, I make the same observation as that above.

62. Mr Bailey has deposed that Mr Ioannou said that they would send a letter summarising the discussion and confirming the quote; and that their client agreement would also be sent; and that John said to make sure it went to Nick (see at [38]-[39]). Mr Ioannou gives a similar account of this (see at [54]). Relevantly, Mr Ioannou deposes that, after the meeting, he had no contact with either John or Nick (see at [59]). He thus appears to have taken the role of “marketing man” for the “Bloodline™ Trust” structure. Indeed, all communications thereafter appear to have been with Mr Bailey.

Letter dated 22 April 2010

63. By letter dated 22 April 2010, Mr Bailey wrote to Nick, referring to the meeting on 15 April 2010. Mr Bailey’s recollection is that he prepared this by reference to notes taken at the meeting, which he no longer has. The letter summarised Mr Bailey’s understanding of “your current position” (which included reference both to John’s assets and to Nick and the family’s concern that, should John separate from his “new” partner, the pre-relationship assets would be at risk in any family law dispute); and the letter identified “your objectives” broadly as:

5.   In a legitimate way, to protect your assets, or the value of them, from unexpected attach from creditors, whoever those creditors may be.

6.   To do so in a way in which you can retain access to, and the benefit of, those assets or value.

64. It is apparent from the letter that there was no consideration given to the potential conflict between John’s position and that of Nick (as an interested person in the transactions there contemplated).

65. The letter made a number of recommendations, the final recommendation being:

17.   Therefore, we recommend that:

17.1   Two new discretionary trusts are set up which is fully discretionary, i.e., with no default beneficiaries. Preferably the trusts would be what we call “Bloodline™” Trusts, which restrict the flow of capital to only the descendants of a particular person;

17.2   John “gifts” an amount equivalent to his net worth in the pre-relationship assets to one trust, and an amount equivalent to his net worth in the post-relationship assets to the other trust;

17.3   That gift is evidenced by appropriate documentation certifying that the payment is by way of gift but in a way not to attract any stamp duty obligations;

17.4   The amount of the gift is then lent back by the trust to John under a loan agreement and the loan agreement provides for security to be taken, eg, a mortgage;

17.5   The mortgage is stamped (at 0.4% of the net value being dealt with) and, at an appropriate time, is registered. The appropriate time will depend upon further discussions with John and discussions without bank.

66. Relevantly also, the letter stated:

18.   If you proceed, the documentation will be accompanied by a comprehensive letter of advice confirming the processes and the consequences and benefits.

67. Significantly, there was no such comprehensive letter of advice in evidence (nor is there any suggestion that any such letter of advice was ever sent). This is a point which the David/Karl interests emphasise, namely the lack of any (let alone any independent) legal advice (nor any accounting advice) given to John as to the implications of the transactions (as to which, see further below) – simply a broad outline of the concept (in essence as a marketing presentation) before the formal retainer of Cleary Hoare as solicitors for both John and Nick.

68. Nick has deposed that he read through the 22 April 2010 letter and then called John (from Nick’s wife, Olivia’s, telephone) to arrange a meeting. That meeting took place, according to Nick, several days later at Ken’s house; on which occasion he says he gave an explanation of the proposed transaction (see Nick’s Second 2019 Proceeding Affidavit at [21]) and told his father that he needed to be sure that he wanted to go ahead this because he (Nick) did not want to, “get these guys fired up and the clock ticking on costs”; and that, “[i]f I [Nick] go ahead and authorise these guys, you’ve [John] got to be prepared to sign up” (see Nick’s Second 2019 Proceeding Affidavit at [22]). Nick has deposed that his father said (see Nick’s Second 2019 Proceeding Affidavit at [22]):

Well, I’m happy to do it. It’s what I want. It’s what I need to do. We can all live on the farm and do what we’ve always done; but there’ll be some protection there for the future in case Wendy doesn’t just threaten [sic] leave next time. You can tell them we’ll go ahead.

69. Nick rejected (see at T 97.9ff) the suggestion in cross-examination that he was here pressuring his father to sign the documents – his desire apparently being to avoid unnecessarily incurring legal fees.

70. Nick deposes that he also called his sister, Sara, in Melbourne and told her about the “Bloodline™ Trusts” (see Nick’s Second 2019 Proceeding Affidavit at [23]). There is nothing to suggest that Sara had any real understanding of what was then being proposed.

5 May 2010 email

71. By email on 5 May 2010, Mr Bailey wrote to Nick, advising that he would have the client agreement to him the next week but providing a breakdown of costs and stating:

If you choose to take security over the loan by way of mortgage, mortgage duty on the mortgage would be $8,180.00 on a figure of $2,060,000 in equity. If you do not wish to pay mortgage duty now, we can partially execute the mortgage and hold it in escrow until you give us instructions to finalise it – i.e. either when there is a threat on the horizon and you need to register it to secure the loan, or if mortgage duty is abolished and is no longer payable, which will be on 1 July 2012.

72. Thus, it appears to have then been contemplated that the documentation was to be executed but held in some fashion in abeyance only to be relied upon if and when necessary (i.e., presumably if and when the feared event, namely Wendy leaving John, occurred). This, however, bespeaks a misunderstanding as to the concept of execution in escrow – which is that the party executing the relevant document becomes immediately bound, albeit that the transaction is subject to satisfaction of the escrow condition. This seems also to be the explanation for the incorrect belief that the mortgage was not liable for stamp duty on execution.

Instructions in relation to 2010 documents

73. Nick has deposed to a conversation with John after he received the 5 May 2010 email (he says on an occasion when John came to the Allawah Forbes Property) in the course of which he says his father expressed the desire not to have the mortgage registered – and duty paid – until later and only if necessary (see Nick’s Second 2019 Proceeding Affidavit at [27]), after which Nick’s evidence is that he sent an email to Mr Bailey. That appears to be the email of 7 May 2010, in which Nick responded to Mr Bailey’s 5 May 2010 email, providing instructions as to various details required to prepare the documents, and saying, “[a]m thinking at this stage to just have [two] people involved, ie Dad and myself, unless you suggest otherwise??”.

74. Nick’s evidence is that a few days later he received a telephone call from Mr Bailey, in which Nick advised Mr Bailey that John did not want to register the mortgage just yet unless it was necessary (as Nick says he discussed in the conversation with John referred to above) and Mr Bailey agreed to put it in safe custody until they told him to register it.

Costs Agreement

75. By letter dated 10 May 2010, Mr Bailey wrote to Nick referring to “your instructions to proceed with our asset protection recommendations” and enclosing an “Important Notice to Client”, addressed to both John and Nick (and signed by both as recipients of the notice and being dated 3 June 2010), together with a Costs Agreement (which identified only Nick as the “Client” – see Schedule 1 Item 1). The Costs Agreement was nevertheless signed by both John and Nick, and was also dated 3 June 2010.

Incorporation of Allawah Pastoral

76. On or about 11 May 2020, Allawah Pastoral was incorporated, with John and Nick as its two directors and equal shareholders (each holding 12 ordinary shares). That remained the shareholding and directorship of the company until 1 June 2015 (see at [19] above).

2010 Transaction Documents

77. By letter dated 13 May 2010, Mr Bailey forwarded to Nick the 2010 transaction documents (the 2010 Transaction Documents), namely: two Turner Family Bloodline™ Trust Deeds; two resolutions of Allawah Pastoral accepting trusteeship of the respective trusts; a statutory declaration of John regarding each of the “Bloodline™ Trusts”; Bearer Promissory Note and Receipt relating to each of the “Bloodline™ Trusts”; a resolution of trustee for the respective trusts regarding the Bearer Promissory Note in respect to each “Bloodline™ Trust”; a Loan Agreement between the trustee of each of the “Bloodline™ Trusts” and John; and a mortgage by Allawah Pastoral over properties registered in the name of John in relation to each of the “Bloodline™ Trusts”.

78. The 13 May 2010 letter enclosed a schedule of steps to put in place the asset protection recommendations and noted, inter alia, that the mortgage documents should not be dated “as per your instructions for us to hold them in escrow” and that the amount of the gift should be left blank and would be completed once values were confirmed.

Estimated values of Trundle Properties

79. Mr Bailey subsequently forwarded to Nick a schedule setting out details of the acquisition and stated current values of the Trundle Properties as follows: Garden Vale (acquired in 1921, to which a value of $560,000 was attributed); Allawah (acquired in 1941, to which a value of $590,000 was attributed); Sunnycroft (acquired in 1962, to which a value of $250,000 was attributed); Woolharinga (acquired in 1963, to which a value of $255,000 was attributed); Nellyvale (acquired in 1979, to which a value of $540,000 was attributed); and Sunrise (acquired in 1999 for $85,000 and to which a value of $215,000 was attributed) (all of which properties were in John’s name). The schedule noted that the Allawah Forbes Property was acquired in 2007 in Nick and John’s names jointly, and a value of $800,000 was attributed to it. The document noted that Woolharinga, Nellyvale and Sunrise were mortgaged to Rabobank for a loan in the name of John for $250,000 and the Allawah Forbes Property was mortgaged to Rabobank for a loan in John’s and Nick’s names for $900,000.

80. Nick advised by email dated 9 June 2010 in response to the above that the valuations were probably all 10% under market values; and that John’s facility of $250,000 was currently drawn to $160,000 and that the Allawah Forbes facility was almost fully drawn at $900,000.

81. On Mr Bailey’s subsequent calculations (see file memo of 22 June 2010), Mr Bailey calculated the net equity of the “pre-assets” (i.e., assets prior to John’s relationship with Wendy) at $2,254,500 and the “post-assets” at $216,500.

Execution of 2020 Transaction Documents

82. As I have noted, the 2010 Transaction Documents were dated 3 June 2010. It appears that some additional documents were provided to Mr Bailey by Nick in Forbes in late August 2010. The two “Bloodline™ Trust” documents were submitted to the Office of State Revenue for stamping on or around 27 August 2010. The stamping of those documents was confirmed to Nick by letter dated 29 September 2010 from Mr Bailey.

83. Pausing here, the David/Karl interests say that the “loans” represented 100% of John’s then estimated equity in real property, noting that the loans were repayable on demand (as to Nick’s knowledge of this, referring to Nick’s Second 2019 Proceeding Affidavit at [21] and see T 72.30ff); that each contained a trigger clause for interest (cl 4); and each provided for the capitalisation of interest (cl 4.4). It is also noted by the David/Karl interests that the grant of the unregistered mortgages as security for the two loans (unregistered mortgages over Nellyvale, Woolharinga and Sunnycroft for $2,254,500 and an unregistered mortgage over Sunrise for $216,500) amounted to breaches of, and Events of Default under, John’s 1999 and 2008 Rabobank mortgages.

84. Allawah Pastoral held the loans and mortgages as trustee pursuant to the two fully discretionary “Bloodline™ Trusts” (see Cleary Hoare’s letter dated 22 April 2010 to Nick at [17.1]); and Nick accepted that he knew the trusts were fully discretionary (see, for example, at T 78.17).

Death of Ken and David commences work full-time on Trundle Properties

85. Relevantly, the next matters to note in the chronology of events are that, in March 2014, Ken died; and, by late 2014 or early 2015, John had ceased active farm work. At the end of 2014, David left school and around then began work full time on the Trundle Properties.

86. On or about 1 January 2015, David became registered as an individual sole trader for the purposes of the GST, the name of the business entity so established being under his name. In cross-examination, it was apparent that this was something put in place by Wendy and/or the accountant, Mr Job, and that David had little knowledge of the structure by which he was working on the farm.

87. From some point in 2015 to 2016, Wendy, David and Karl began to observe that John was displaying short term memory loss (although they deny that John had lost capacity before June 2016). Pausing here, as noted above, the Nick interests place the loss of capacity as by September 2015.

Steps taken by Nick in relation to “Bloodline™ Trusts” in 2015

88. Nick has deposed that, in early 2015, John came to the Allawah Forbes Property to inspect the crops and they had a conversation in which John said that his health was not as good as it used to be and that he thought that, “it’s time to get me removed from the trust so I don’t have any role just in case I get worse” and asked Nick to arrange for this to occur (see Nick’s Second 2019 Proceeding Affidavit at [58]). Nick’s evidence is that he asked his father whether he should get a Will and an attorney and his father said he was “not 100% sure” what his current Will looked like but that he did need one and asked Nick to arrange that with Mr Bill Burke.

89. Pausing here, there is nothing to corroborate that the request was made by John and I have some difficulty in accepting this as a plausible account of events. This is not least because there is nothing to suggest that John had focussed on his role in Allawah Pastoral or in relation to the “Bloodline™ Trusts” at all in the period from 2010 to 2015, nor why John would at this stage have thought of being ‘“removed’ from the trusts.

88. On 19 January 2015, Nick sent an email to Mr Bailey, referring to the 2010 “asset protection structure” that had been put in place and advising that:

… the next concern is that Dads [sic] health is deteriorating with tests being carried out to see if he has some type of dementure [sic] illness. If he does I am worried that he may mistakenly give his defacto enduring power of enterny [sic] which would then provide additional complications.

91. I interpose to observe that the concern that John might give an Enduring Power of Attorney to Wendy was prescient since that is precisely what occurred in June 2015, though the suggestion that this would be mistaken appears to be Nick’s personal gloss on things.

92. In this email, Nick also queried whether the structure that had been put in place allowed for protection under “this type of scenario” and, if so, what were the “steps required to be completed to finalise everything”. By this, it seems that Nick contemplated that the 2010 structure had not yet been active or completed.

93. Mr Bailey responded on 22 January 2015 by email, having reviewed the relevant Bloodline™ Trust Deeds, and noted that there were provisions in the Bloodline™ Trust Deeds to the effect that a principal would cease being principal if he or she lost capacity; and, if that were to happen to John, that Nick and Sara would continue on as principals. This email went on to state that:

There are still the trustee company shares to deal with, and if your father were to give his partner power of attorney she would be able to act in that role, but you as the Principals could “sack” the company as trustee and replace it if that were to occur.

One step you may want to consider is either having your dad give you and your sister a power of attorney now, or removing him from the trustee company now.

94. Nick has deposed that he did not quite understand the response and that he asked Mr Bailey for a meeting (see Nick’s Second 2019 Proceeding Affidavit at [60]).

95. Nick has deposed to a meeting with Mr Bailey in a coffee shop in Orange on 2 February 2015 (see Nick’s Second 2019 Proceeding Affidavit at [61]) in which he says that he told Mr Bailey he was “worried about [John] losing it and Wendy running off with everything or getting him to sign everything over to her”. I note that this was seemingly a constant refrain with Nick but not far removed from what ultimately happened, albeit that Wendy did not ever “run off” or leave John (indeed, she married him in November 2016). Nick has also deposed that Mr Bailey, inter alia, recommended that “you have John resign as director and principal and transfer his shares while he has capacity” and that an independent person would need to witness his signature on the resignation as principal (see Nick’s Second 2019 Proceeding Affidavit at [61]).

96. By reference to a file note dated 2 February 2015 by Mr Bailey, Mr Bailey records this meeting with Nick (described by Mr Bailey as an “Estate Planning Update”). Relevantly, the file note recorded that:

1.1   Meeting with Nick Turner in Orange on 2 February 2015 to discuss the work that we carried out for his father in 2010, which was secured debt to two separate Bloodline® Trusts in relation to estate challenge. Since then, Nick’s father had been gradually losing capacity and there is the chance that he would lose full capacity in the short to near future. Suggested to Nick that although not crucial, he should have his father resign as a director and transfer shares in the corporate trustee as well as confirming his resignation as a principal of the deed (Nick and his sister are currently co-principals).

1.2   Also advised implementing a Power of Attorney before he loses capacity. Due to the chance of a challenge, went through how Nick could provide evidence of his father’s capacity when signing the documents, ie independent person present, etc. Nick gave instructions to prepare the documents and we are to open a new file and send them out.

2015 Transaction Documents

97. By letter dated 20 February 2015, Mr Bailey forwarded to Nick documents making provision for John’s resignation as principal for the respective trusts, along with the resignation of John as director of Allawah Pastoral and transfer of shares in Allawah Pastoral. Although the letter referred to an Enduring Power of Attorney form appointing Nick as attorney, Nick’s evidence is that this was not with the parcel of documents and that it was subsequently sent by email on 4 March 2015 by Ms Alice Chen, a secretary at Cleary Hoare (see Nick’s Second 2019 Proceeding Affidavit at [66]).

98. I note that that Enduring Power of Attorney form in its terms contemplated the provision by Mr Bailey of a certificate under s 19 of the Powers of Attorney Act 2003 (NSW) (Powers of Attorney Act) as to his explanation of the effect of the power of attorney to the principal before it was signed and that the principal appeared to understand the effect of the power of attorney (and certifying that he witnessed the signature of the power of attorney by the principal). However, it is apparent from what happened that Mr Bailey did not witness the execution of this or any other of the documents, and no Enduring Power of Attorney was executed by John in favour of Nick.

99. Nick has also deposed that he read through the documents, contacted Mr Burke (the local solicitor) about them and took them over to show his father the documents (see Nick’s Second 2019 Proceeding Affidavit at [67]ff).

100. There were then some communications between Cleary Hoare (specifically, Ms Alice Chen) and Nick in early April and May 2015 as to the execution of the documents.

101. Nick’s evidence (see Nick’s Second 2019 Proceeding Affidavit at [75]ff) is that the following documents (the 2015 Transaction Documents) were signed by his father in the presence of, and witnessed by, a long-time friend of the family, Mr Gary Nipperess, on 8 May 2015: a resignation of director document in relation to Allawah Pastoral; a Deed of Resignation of Principal for each of the “Bloodline™ Trusts”; a share transfer form in relation to the shares in Allawah Pastoral; and the property transfer form for the Allawah Forbes Property.

102. Nick’s evidence is that he then contacted his sister, Sara, and told her that their father seemed to be struggling and that he had met with the lawyers about the trusts and what to do now before their father “goes downhill”; and that, “[w]e’re going to take Dad out of the trusts”. He also has deposed that Sara said she did not want to be involved and that he asked her to send a letter saying that she wished to resign (see Nick’s Second 2019 Proceeding Affidavit at [90]ff).

103. Nick has deposed that, in late May 2015, after he had received the signed documents from Sara, he sent “all” the documents, except the Allawah Forbes Property transfer, to Cleary Hoare by post. He also forwarded letters dated 20 May 2015 from Sara resigning as principal of the Turner Family Bloodline™ Trust effective as from 20 May 2015.

104. It is not disputed that the David/Karl interests had no knowledge of the 2010 Transaction or of the 2015 Transaction until after the present dispute arose.

John’s deteriorating health

105. According to the medical notes in evidence, on 26 May 2015, John was referred by his general practitioner, Dr Allison, for an ACAT assessment.

106. Dr Allison also referred John for a CT brain scan, the referral noting “severe memory loss”. That brain scan was carried out in Forbes on 10 June 2015 (and it would appear that nothing adverse was revealed on the brain scan).

Meeting with Mr Helby on 10 June 2015

107. Meanwhile, on the same day as the brain scan was undertaken in Forbes (i.e., 10 June 2015), Wendy and John attended the offices of a solicitor in Forbes (Mr Christopher Helby). There were two meetings with Mr Helby on 10 June 2015, one before the brain scan was taken and one about three hours after that first meeting.

108. Pausing here, I understand that Mr Helby had no familiarity with the Turner family (John’s previous solicitor on the Trundle property conveyances was a Mr William Burke). It seems likely that Wendy instructed Mr Helby, rather than Mr Burke, because she did not wish Nick to become aware of the steps then being taken. Specifically, instructions were given in relation to the preparation of an Enduring Power of Attorney appointing Wendy as John’s attorney. It seems likely, though this is not clear on the evidence, that this was the occasion on which instructions were also taken for John’s last Will.

109. Mr Helby was unable to give evidence in the proceedings (having advanced brain cancer) and had not been prepared to provide evidence except under compulsion of a subpoena, so all that was available from him were his file notes (and no adverse inference of the kind described in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 (Jones v Dunkel) can be drawn from his absence). With this said, although his file note of instructions in relation to the later correspondence was in evidence, there was no file note of his instructions in relation to the Enduring Power of Attorney, Enduring Guardianship or John’s Will (see, for example, T 10).

110. By the Enduring Power of Attorney executed by John and Wendy on 10 June 2015, John, as principal, appointed Wendy his attorney and Wendy accepted that office. The Nick interests emphasise that John’s Enduring Power of Attorney did not authorise Wendy, as John’s attorney, to give a gift of all or any real property of John (namely, in the events that later happened, the Trundle Properties) or any personal property of John, save that Wendy (as John’s attorney) could give “reasonable gifts” (as provided for by s 11(2) of the Powers of Attorney Act) out of John’s personal property.

111. The Enduring Power of Attorney contained the following express acknowledgements by Wendy:

6.   Acceptance by attorney

(a)   I accept that I must always act in the principal’s best interests.

(b)   I accept that as attorney I must keep my own money and property separate from the principal’s money and property.

(c)   I accept that I should keep reasonable accounts and records of the principal’s money and property.

(d)   I accept that, unless expressly authorised, I cannot gain a benefit from being an attorney.

(e)   I accept that I must act honestly in all matters concerning the principal’s legal and financial affairs.

Failure to do any of the above may incur civil and/or criminal penalties.

Diagnosis of dementia and ACAT assessment

112. In June 2015, John’s general practitioner (as will be recalled, Dr Allison) received a report as to John’s memory loss and a score of 16/30 (which I understand to be low) for a mini mental examination conducted by a registered nurse (Ms Bellach).

113. On that same day, the Enduring Power of Attorney granted by John in favour of Wendy was registered.

114. On 18 June 2015, Dr Allison referred John to a geriatrician (Dr Saber) at Westmead for assessment.

115. On 23 June 2015, there was a teleconference (attended by John and Wendy) with Dr Saber.

116. I understand that there was another consultation with Dr Saber. Ultimately, Dr Saber saw a significant decline in cognitive function.

117. John was ultimately diagnosed as having alcohol induced dementia. John was referred for an ACAT assessment on 13 July 2015 and the assessment resulted in a determination on 17 July 2015 that John was assessed as requiring permanent high care. Ms Bellach reported to Dr Allison that John was declining quickly. Ms Kerry Williams began to attend at the Allawah home on a regular basis to assist with John’s care from around this time.

118. Pausing here, it is alleged by the Nick interests (see at [31] of the amended statement of claim) that, by no later than the end of September 2015, John lacked capacity because of mental incapacity (the initial pleading placed this date as being June 2016). Meanwhile, and as I have adverted to, the David/Karl interests, in their amended defence, admit that John lacked capacity from no later than June 2016 but not before.

119. It is perhaps of some relevance to note that, to the extent that the Nick interests are correct and John lacked capacity by no later than the end of September 2015, this is only some three months after the June 2015 documents were signed and witnessed by Mr Helby (as to which, see above) and some four months after the 2015 Transaction Documents were executed in May 2015 (as to which, see at [101] above). Moreover, if any challenge were to be made as to John’s Will on the basis of incapacity (and, as noted above, Nick has foreshadowed a potential challenge), it would be relevant to note that, in the period around June 2015, Mr Helby at least appears not to have been concerned as to John’s capacity to understand and give instructions in relation to the Enduring Power of Attorney.

120. It is said by the David/Karl interests that judicial note may be taken both that dementia is a mental illness and that it is an illness where a person may be capable one day and incapable the next (noting that Mr Bailey said the same at T 251.44). It is said that it cannot be assumed that, because John was formally diagnosed with dementia at any particular point in time, he was necessarily incapable on any given day thereafter.

121. In this regard, I note that, in other cases, I have heard expert medical evidence as to the nature of particular forms of dementia (see, for example, Varma v Varma [2010] NSWSC 786), but there was no such evidence in the present case and there are limits to the judicial notice that can be taken of such matters. Suffice it to note that the evidence here would not permit a finding that there was a loss of mental capacity such as would have deprived John of the capacity to enter into the relevant transactions at the respective times, notwithstanding that there were clearly concerns as to his declining cognitive ability from 2015 onwards (noting also that the test of capacity is issue-specific – see, for example, Barrett J, as his Honour then was, in Szozda v Szozda [2010] NSWSC 804, as considered in, for example, A v N [2012] NSWSC 354) and that what would be necessary to consider would be John’s ability to understand the particular transaction and give instructions if he were given a careful explanation of the transaction (even simply and slowly, if necessary). That cannot here be assessed on the evidence before me and that is so irrespective of my taking judicial notice of the above matters.

122. That said, emphasis is placed by the David/Karl interests on the evidence that John saw Mr Helby (with Wendy silent at the back of the room) when he gave instructions for an Enduring Power of Attorney to be drafted; that John saw Mr Helby alone when John executed that document; that John saw Mr Helby alone when John gave instructions for his 2015 Will; and that John again saw Mr Helby alone when he executed the Will. It is noted that the National Australia Bank (NAB) spoke to Mr Helby subsequently, and NAB’s contemporaneous note records:

… we have gained comfort after speaking with the solicitor who has ensured [sic] us that Owen was in a healthy and stable frame of mind when his most recent and last Will was completed.

123. It is submitted that this is the reasonable inference to be drawn from the fact that John saw Mr Helby on the various occasions referred to above in the absence of Wendy.

124. At this juncture, it is relevant to note that, although Mr Helby was not capable of giving evidence at this hearing, he attested to the understanding of John as to the giving of the Enduring Power of Attorney and he took instructions for, and prepared, John’s Will. He also communicated in his September 2015 correspondence with Nick’s solicitors that he had had instructions directly from John. It is not lightly to be assumed that Mr Helby did so without being conscious of his responsibilities and duties both to his client and as an officer of the Court. Rather, the available inference here to be drawn is that Mr Helby did not consider John’s mental functions at that stage to be so impaired as to have deprived him of the necessary capacity to understand what he was there doing. Indeed, as late as November 2016, a marriage celebrant who, one would also consider was cognisant of the responsibilities of that office, seems to have determined that John was then capable of understanding and making the marriage vows then made (which also suggests that John’s mental capacity was at the very least fluctuating over the period through to when he permanently lost capacity).

Nick’s letter dated 17 September 2015

125. By letter dated 17 September 2015, Nick wrote to Wendy referring to the “deterioration of [John’s] health and his inability to manage the properties in the way that he once used to” and sought the opportunity to contribute towards the management of the Trundle Properties. It seems clear from the letter that Nick understood (or at least suspected) by then that Wendy held a power of attorney for John (since he asked to see a copy of that document). Inter alia, the letter requested that Wendy “remove the current bar on both my mobile and house phones” so as to allow Nick to speak with John at his home.

126. The response to this letter came from Wendy’s solicitors (by letter dated 30 September 2015 per Mr Helby) to the effect that Wendy was then in hospital following surgery and not able to respond to Nick directly at that time.

John’s 9 October 2015 Will

127. Meanwhile, Wendy and John had gone to see Mr Helby in Parkes in relation to a draft Will for John. Mr Helby emailed that draft Will to John’s email address (the evidence is that John did not operate his email account so it is likely that this was received and reviewed by Wendy).

128. As executed on 9 October 2015 (and witnessed by Mr Helby and a legal secretary in Parkes), John’s Will appointed Wendy his executrix and trustee and provided, in summary, for Wendy to receive a life estate in the Allawah property (or, in the alternate, accommodation should she wish) and a legacy of $200,000; for Sara to receive the sum of $200,000; and left the residue of his estate to David and Karl. There was no provision made for Nick. Specifically, cl 7 of the Will stated:

7.   I have made no provision for my son NICHOLAS JOHN TURNER as I have provided land for him at Forbes during his lifetime and I further understand that both my children SARAH JANE GORMAN and NICHOLAS JOHN TURNER will benefit from the Estate of their mother whose assets come primarily from properties at settlement which she and I had after our separation.

129. Pausing here, Nick says that the proposition that John had provided land for him at Forbes is incorrect, since the property was the subject of debt finance and Nick ultimately took over all of the debt (and that this is relevant when considering John’s state of mind at this time). It is, however, relevant to note that John had provided assistance in relation to the acquisition of this property in the sense that he had provided security over the three Trundle Properties in connection with the debt financing (including the 2008 Rabobank mortgage – see at [40] above); and, at least in that sense, he had made some form of provision for Nick albeit not commensurate with the gifts made under the Will for David and Karl.

Further correspondence

130. By letter dated 19 November 2015, Cleary Hoare (acting for Nick) wrote to Mr Helby pressing for a response to Nick’s letter of 17 September 2015. Mr Helby responded the same day that he had sought instructions.

131. Mr Helby’s typed file note (clearly made after the above November 2015 correspondence) was as follows:

With regards to Nick Turner’s letter dated 17th September 2015 & Cleary Hoare’s letter dated 19^th November 2015 I have received the following response & instructions from Owen John Turner & Wendy O’Bryan-Turner for who both attended my office with the following response to Nick’s letter.

John is fully aware of Nick’s inability to accept Wendy & his relationship which extends over 20 years. Nick has also had the inability to accept their 2 sones they have together David & Karl.

520. I do not suggest that an order for equitable compensation against Wendy’s estate for the value of the Trundle Properties transferred by her out of John’s name in breach of her fiduciary duty to him would operate unjustly to enrich John. However, I cannot see that he will practically benefit from such an order beyond the benefit that he would receive if there were to be relief fashioned so that the Trundle Properties were to be charged with the provision for his ongoing needs during his lifetime (and for the legacy to Sara under his Will).

521. Following, I therefore consider that the appropriate relief is to make good John’s estate by way of orders that ensure that his financial needs are met and his testamentary intentions are honoured. That is, more specifically, that the appropriate relief is that put forward by the David/Karl interests – namely, that there be a charge on the three Trundle Properties in which Wendy’s estate retains an interest (Woolharinga, Nellyvale and Sunrise) to secure the necessary funds and for the Court to accept the undertaking by David and Karl that they will provide for their father’s needs during his lifetime and will honour his bequest to Sara. I will invite submissions as to how that charge should be expressed, noting that it would have to be subordinate to NAB’s interest as registered mortgagee (not least since NAB was not joined as a party to the 2017 Proceeding).

Claim against David and Karl

526. As to the claim against David and Karl, this relevantly turns on the issue of their knowledge of Wendy’s breach of fiduciary duty, noting that there is no doubt that they received their respective interests in the Trundle Properties for no consideration as a result of Wendy’s breach of fiduciary duty and they participated in that breach of fiduciary duty by signing the relevant documents. Pausing here, I record that I leave aside the question whether, for the purposes of the second limb of the rule in Barnes v Addy, this was a dishonest and fraudulent design by Wendy and say only that, on that issue, I am not persuaded that it was fraudulent given Wendy’s reliance on the advice received from Ms Hughes as to her power to enter into the transactions nor do I consider that it has been established to be dishonest in circumstances where I accept that Wendy’s instructions to Ms Hughes were to the effect, misconceived as it was, that she wished to give effect to John’s testamentary intentions in advance of his death.

527. As to the pleading issue, I am prepared for present purposes to treat the pleading of “knew or ought to have known” as a sufficient pleading of Baden Delvaux category 4 knowledge (as to which, see again at [495]ff above), but I do not accept that there has been a sufficient pleading to permit the Nick interests to rely on attribution of knowledge from Ms Hughes to David and Karl.

528. Turning then to the knowledge requirements in Barnes v Addy claims, it has been observed that, “[c]onfusion surrounds the equitable liability of a third party to a trust or fiduciary relationship who participates in a breach of the trust or fiduciary duty” and that this confusion is compounded by an “absence of consensus in courts that share a common Chancery law heritage” (see P Ridge, “Participatory Liability for Breach of Trust or Fiduciary Duty” in J Glister and P Ridge (eds), Fault Lines in Equity (2012, Hart) 119 at 119).

529. At the outset, it is desirable to distinguish more clearly between liability for knowing receipt (that is, the “first limb in Barnes v Addy”) and liability for knowing assistance (that is, the “second limb in Barnes v Addy”).

530. It is convenient to deal first with knowledge requirements in knowing assistance claims.

Knowledge requirements for knowing assistance

531. As observed by Ridge, until recently, jurisdictional differences in approach to knowing assistance were excused on the basis that appellate Australian courts had not had a proper opportunity to consider the Privy Council’s rationalisation of principle in 1995 in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (Royal Brunei).

532. In this connection, it is to be noted that, in 2007, the High Court in Farah did not endorse Lord Nicholls’ reformulation of principle, instead adhering more closely to nineteenth century authorities and also the earlier decision of the High Court in Consul, though did leave open following Royal Brunei in the future.

533. Furthermore, there exists a body of authority, much of which precedes Farah, endorsing the change of approach in Royal Brunei (see, for example, Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408 at [405]; [413]-[414] per Spigelman CJ, Sheller and Stein JJA (Beach Petroleum); Aequitas Ltd v Sparad No 100 Ltd (formerly Australian European Finance Corp Ltd) [2001] NSWSC 14; (2001) 19 ACLC 1006 at [392] per Austin J but cf Cadwallader v Bajco Pty Ltd [2002] NSWCA 328 at [199] per Heydon JA, as his Honour then was).

534. At this juncture, it is instructive to consider the relatively recent decision of an unanimous bench (Santamaria, McLeish and Niall JJA) of the Victorian Court of Appeal in Harstedt Pty Ltd v Tomanek (2018) 55 VR 158; [2018] VSCA 84 (Harstedt).

535. The facts of the appeal may be briefly stated. Harstedt Pty Ltd (Harstedt), as part of a failed investment scheme, invested funds into a bank account in the name of Apollo Development Enterprises Pty Ltd (Apollo). In dishonest and fraudulent breach of trust, those funds were misappropriated by Apollo and transferred to an overseas bank account in the name of a third party. The funds then vanished. Mr Tomanek, the respondent, was the company secretary of Apollo. At trial, Harstedt unsuccessfully alleged that Mr Tomanek was liable to it for the lost moneys as a knowing assistant. Relevantly, the trial judge held that Mr Tomanek had no knowledge of the dishonesty of Apollo’s breach of trust. Harstedt then appealed on four grounds. Relevantly, the second ground of appeal related to whether, in circumstances where Mr Tomanek knew of the transfer of moneys to the overseas account and that Harstedt had not consented to that transfer, Mr Tomanek knew of Apollo’s dishonest and fraudulent breach of trust; and, following, the third ground concerned whether Mr Tomanek, armed with such knowledge, “assisted” that breach of trust.

536. The Court noted (at [70]) that the necessary elements of liability for knowing assistance may be conventionally adumbrated as follows: first, that there exists a fiduciary duty owed by the fiduciary (as trustee or otherwise); second, that there exists or there was a “dishonest and fraudulent design” on the part of the fiduciary; third, that there is or was assistance by the third party in that design; and, fourth, that there is or was knowledge on the part of the third party of the circumstances constituting that design (see also Farah at [160] and Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [259] per Finn, Stone and Perram JJ (Grimaldi)).

537. Pausing here, as to the second of those elements, I note that this requires that there be a “dishonest and fraudulent design” on the part of the fiduciary, such that the breach of fiduciary duty itself must be a dishonest and fraudulent one (see Farah at [179]). However, there is some dissonance in the body of decided cases as to the precise meaning of “dishonest and fraudulent” in this context (see, for example, Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2121]-[2126] per Drummond AJA, with whom Carr AJA relevantly agreed cf Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [11] per Gleeson JA and [84]-[120] per Leeming JA, with whom Gleeson JA agreed (Hasler)). However, in Harstedt, the parties did not on the appeal impeach the trial judge’s conclusion that Apollo’s breach of trust was a dishonest and fraudulent one.

538. As to the knowledge requirement, as adverted to, the Court stated (see at [84]ff) that the third party, to be liable, must have known, or had reason to know, of the fiduciary’s dishonest and fraudulent design (citing Grimaldi at [259]; and see also Nicholson v Morgan (No 3) [2013] WASC 110; (2013) 8 ASTLR 277 at [61]-[68] per Edelman J, as his Honour then was); and, crucially, that it is not necessary that the third party itself have acted dishonestly (citing Farah at [163]), noting that liability for knowing assistance is distinct from the liability of a third party who procures or induces a breach of fiduciary duty (citing Farah at [68]).

539. As the Court also noted, and indeed as I have made reference to throughout, there has at least in the past been a custom to analyse the knowledge requirement by reference to a scale of five categories, as set out by Peter Gibson J (as his Lord Justiceship then was) in Baden Delvaux. Specifically, those categories being (see at 235; 242-243):

(1)   actual knowledge;

(2)   wilfully shutting one’s eyes to the obvious;

(3)   wilfully and recklessly failing to undertake such inquiries as an honest and reasonable person would undertake;

(4)   knowledge of circumstances which would indicate the facts to an honest and reasonable person; and

(5)   knowledge of circumstances which would put an honest and reasonable person on inquiry.

540. As to the third to fifth categories, the Court in Harstedt noted that: the third category “involves such a calculated abstention from inquiry as would disentitle the third party to rely upon lack of actual knowledge of the trustee’s or fiduciary’s wrongdoing” (quoting Grimaldi at [261]; and see also Belmont Finance Ltd v Williams Furniture (No 1) [1979] Ch 250 at 267 per Buckley LJ); the fourth category is “designed to prevent a third party setting up his or her own ‘moral obtuseness’ as the reason for not recognising an impropriety that would have been apparent to an ordinary person” (quoting Grimaldi at [261], citing Consul at 398 per Gibbs J, as his Honour then was); while the fifth derives from the equitable doctrine of a bona fide purchaser for value without notice (citing Grimaldi at [261]).

541. I note, as did the Court in Halstedt (see at [87]), that the High Court in Farah endorsed Peter Gibson J’s distillation of principles in Baden Delvaux and indicated that knowledge falling within any of the first four of these categories (but not within the fifth category) represents the law in Australia (see at [177]-[178]).

542. It remains only to observe, as to Royal Brunei, that the High Court in Farah noted that Lord Nicholls’ formulation of principle represents a general principle of equitable accessorial liability (see at [162]); and, again, the High Court chose not to adopt his Lordship’s more generalised formulation and, in so doing, there maintained the distinction between third party liability for procuring or inducing the breach of fiduciary duty and liability for assisting or participating in that breach (see at [163]). The significance of this for present purposes is that the High Court made clear that, in relation to claims for knowing assistance, the dishonest and fraudulent design must be on the part of the fiduciary, not the assistant (see at [160]; [179]), it is not necessary to demonstrate that the third party itself acted dishonestly (see at [163]) and that “knowledge”, in the sense of the first to fourth categories identified above, is necessary.

543. As the Court in Halstedt commented (at [96]), the approach adopted in Royal Brunei impermissibly, “shifts focus from the third party’s knowledge of the dishonest and fraudulent design on the part of the fiduciary to the dishonesty of the third party itself” (emphasis omitted) and that this, “signifies a departure from the conventional understanding of liability under the second limb of Barnes v Addy by imposing liability with respect to any breach of fiduciary duty so long as the third party itself was objectively dishonest” and it dispenses with the “knowledge” requirement explained above, which, at least since the decision in Farah, is the law in Australia (cf Beach Petroleum at [405]; and see also, for example, Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd [2016] QCA 088 at [54] per Margaret McMurdo P, Atkinson and Mullins JJ).

544. In Hasler, Leeming JA considered with approval (at [131]) the reasons of the primary judge (see at [290]-[298] per McDougall J) to the effect that, whether or not, subjectively, the accessory appreciated that what was going on was dishonest or fraudulent was immaterial: the relevant issue being that the facts which were there known to the accessory, regarded objectively, demonstrated a breach of fiduciary duty by the fiduciary (and the activities of the accessory assisted in, or facilitated or furthered that breach).

545. I now turn to knowledge requirements in claims for knowing receipt (that is, the “first limb in Barnes v Addy”).

Knowledge requirements for knowing receipt

546. The requisite degree of knowledge, on the part of the third party recipient, in claims of this class was considered by the Full Court of the Federal Court in Grimaldi. Relevantly, the Court (Finn, Stone and Perram JJ), in a unanimous judgment, said (at [268]):

268.    The High Court in Farah Constructions did not settle the knowledge/notice requirement in relation to recipient liability. Nonetheless, from at least the 1990s and in the wake of the Baden classification, judges had begun in recipient liability cases to generalise from what had been said both by Gibbs J (at 398) and by Stephen J (at 412) with whom Barwick CJ agreed, about the insufficiency of traditional, or category (v), constructive notice — though not of category (iv) notice — as a basis for personal liability. To allow that, as Stephen J commented, would be “to disregard equity’s concern for the state of conscience of the defendant”: at 412; see eg Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 103G; Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd at 105; Hancock Family Memorial Foundation at 209; Tara Shire Council v Garner [2003] 1 Qd R 556 at [66]-[72]; Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 54 ATR 241 at [54]-[60]; see also United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 252-254. In Kalls Enterprise Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 — a decision which post-dates Farah Constructions — the New South Wales Court of Appeal applied Baden’s categories (i)-(iv), but not category (v) to a knowing receipt claim. Kalls Enterprise in turn has been applied subsequently: see eg Horsman v MG Kailis Pty Ltd [2009] WASC 166; Fodare Pty Ltd v Shearn (2011) 29 ACLC 11-036.

547. Accordingly, for the purposes of knowing receipt, knowledge in any of the four categories identified above (see at [539]) is sufficient.

548. As the Full Court went on to say (at [269]-[270]):

269.   There is, in other words, an established line of judicial decision and opinion both at first instance and in intermediate courts of appeal spanning at least 20 years adhering to the view taken in the above cited cases. We do not consider that that view is plainly wrong and should be rejected. On the contrary! Finally, for the sake of completeness, we should note we do not consider that what was said by Bryson J in Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404 at [469]-[478] is inconsistent with that view. Commendably, his Honour emphasised the fault based character of recipient liability: “[u]nconscionability cannot be fictionalised, and the grounds on which constructive trust liability is imposed should be real and substantial”: at [471].

270.   Accordingly, we do not consider the primary judge erred in law in finding that knowledge falling within category (iv) of Baden was sufficient for the imposition of liability for knowing receipt…

549. I do not consider that the view expressed by the Full Court, or in those other decisions cited by the Full Court, is plainly wrong and I am here bound as a matter of precedent to follow Grimaldi.

550. In any event, even if I thought otherwise, I note that in Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557, the Court of Appeal (Giles JA, with whom Ipp JA and Basten JA agreed) held that it is sufficient, in a claim for knowing receipt, that the third party recipient had constructive knowledge of the kind captured in the fourth category (but not the fifth) in the classification deployed in Baden (see at [199]).

Application to the facts in this case

551. Relevantly, therefore, for both limbs of liability what here must be determined is whether David and Karl had knowledge of circumstances which would indicate the facts to an honest and reasonable person.

552. On the knowing assistance claim, again, it is accepted and cannot be doubted that Wendy owed John a fiduciary duty in the exercise of powers under the Enduring Power of Attorney granted to her. I do not accept that the evidence establishes a “dishonest and fraudulent design” on the part of Wendy (in the sense used in the authorities referred to above), notwithstanding that she acted with the deliberate intention of transferring John’s real property into her and their sons’ names; but, in any event, even if there was, while I accept that David and Karl received their interests in the Trundle Properties and assisted in that exercise by executing the relevant documents, I do not accept that they did so with the requisite knowledge (i.e., I do not accept that the evidence establishes that there is or was the requisite degree of knowledge on the part of David or Karl of the circumstances constituting, on this hypothesis, a fraudulent or dishonest design).

553. I accept that the fourth category is “designed to prevent a third party setting up his or her own ‘moral obtuseness’ as the reason for not recognising an impropriety that would have been apparent to an ordinary person” and that one does not take into account subjective opinions. However, what is required is to assess whether there is knowledge of circumstances that would indicate the facts to an honest and reasonable person in the position of David and Karl. In NCR Australia Pty Ltd v Credit Connection Pty Ltd (in liquidation) [2004] NSWSC 1 (cited by Owen J in Bell First Instance at [4694]), Austin J referred the reasonable person with similar knowledge. It is, in this context, that the David/Karl interests point to the limited knowledge, intelligence and expertise on the part of David and Karl and, indeed, that those matters take on particular significance.

554. Even leaving aside the age and inexperience and level of education of David and Karl, it seems to me that an honest and reasonable person in their position, being taken by their mother to a lawyer for the purpose of a proposed transaction and no doubt relying on the lawyer’s advice that the transaction was one that could be lawfully effected, knowing that the Trundle Properties were being transferred out of John’s name for no consideration for the purpose of effecting his testamentary intentions in advance and so as to prevent interference by Nick in the Trundle Properties, would not thereby be aware of facts and circumstances that would indicate to that person that the transaction was a breach of fiduciary duty owed to John (or a misuse of the Enduring Power of Attorney under which the transaction was being effected), let alone one that was a dishonest and fraudulent transaction (see Farah at [179]).

555. As to the knowing receipt claim, the same finding as to knowledge applies. I cannot see that an honest and reasonable person in the position of David and Karl would have knowledge of circumstances that indicated the fact that Wendy had misapplied the Enduring Power of Attorney or John’s property. That is only reinforced by the fact that neither Ms Hughes nor Mr Wallis (both of whom it may readily be inferred had a greater degree of knowledge and expertise, as qualified lawyers, than David and Karl who did not finish secondary school let alone any tertiary education) also clearly did not turn their minds to this issue. Otherwise, I repeat my preceding observations.

551. Accordingly, I find that the knowing assistance and knowing receipt claims against David and Karl are not made good.

General observations as to balance of relief sought

557. Finally, as to the relief sought in relation to the winding up of the respective partnerships of which John was a partner, it seems to me that this is a matter that could be dealt with by the remaining partner or partners and that it is not necessary for orders to be made.

558. However, I will hear any submissions to the contrary. My tentative view is that I would be prepared to make the declaration sought at prayer 17 of the amended statement of claim as to John now being incapable of managing his affairs, if that be considered efficacious, but I am not prepared to re-appoint the NSW Trustee and Guardian to manage John’s estate without consultation with the NSW Trustee and Guardian as to whether such an appointment would be with consent in all the circumstances.

559. I will therefore invite submissions as to whether, in the circumstances, the NSW Trustee and Guardian should be approached to see whether it would consent to appointment as financial manager of John’s estate in light of the relief here granted; or whether some other person should be appointed as manager of John’s estate. Further, I see no reason for an order that the registration of John’s Enduring Power of Attorney in favour of Wendy be cancelled (since she is no longer alive to make use of it) but, if it is perceived that there is a need for this, this can be addressed in written submissions.

Orders

560. In the 2019 Proceeding, I make the following orders:

1. Declare that the First and Second Promissory Notes (as defined in these reasons) were void and of no effect.

2. Declare that, by reason of the First and Second Promissory Notes being void and of no effect, Owen John Turner owes no moneys to Allawah Pastoral Pty Ltd pursuant to the First or Second Loan Agreements (as defined in these reasons) or at all.

3. Declare that the unregistered First and Second Mortgages (as defined in these reasons) are inoperative and do not secure any moneys loaned by Owen John Turner to Allawah Pastoral Pty Ltd.

4. Order that the First and Second Mortgages (as defined in these reasons) be delivered up to the solicitors for the plaintiff in the 2019 Proceeding for cancellation.

5. Further and in the alternative, declare that the entry by Owen John Turner into the transactions comprised of, and the execution by Owen John Turner of, the 2010 Transaction Documents (as defined in these reasons) and 2015 Transaction Documents (as defined in these reasons), were obtained by undue influence, to the knowledge of the first defendant to the 2019 Proceeding and, through him, the second defendant to the 2019 Proceeding; and that the retention of the benefit of, or insistence upon, the said documents and transactions by the defendants to the 2019 Proceeding would amount to unconscionable conduct.

6. Order that the 2010 Transaction Documents and 2015 Transaction Documents be set aside.

7. Direct the parties to file brief written submissions as to costs by 5 February 2021 with a view to dealing with the issue of costs on the papers, if possible.

561. In the 2017 Proceeding, I make the following orders:

1. Direct that the parties to provide brief written submissions as to the extent of the charge to be imposed over the Woolharinga, Nellyvale and Sunrise properties (as defined in these reasons) in accordance with these reasons, along with any other submissions in relation to relief including as to costs, and proposed short minutes of order, by 5 February 2021, with a view to determining those issues on the papers, if possible.

2. Otherwise, dismiss the proceeding.

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Decision last updated: 12 January 2021