Byrnes v Kendle

[2011] HCA 26

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(Decision by: French CJ)

Byrnes
vKendle

Court:

Judges:
French CJGummow J
Hayne J
Heydon J
Crennan J

Subject References:
Acquiescence
bare trust
consent
estoppel
express trust
in-tention
upon trust

Legislative References:
Law of Property Act 1936 (SA) - s 29(1)(b); s 41
Trustee Act 1936 (SA) - s 6; s 7; s 8; s 25A; s 25C

Hearing date:
Judgment date: 3 August 2011

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Decision by:
French CJ

Introduction

[1] In proceedings commenced in the District Court of South Australia in September 2008, Martin Byrnes and his mother, Joan Byrnes, alleged that, between 2002 and 2007, Mrs Byrnes' estranged husband, Clifford Kendle, had committed breaches of trust in relation to a house and land at 10 Rachel Street, Murray Bridge ("Rachel Street"). The legal title to the property was held by Mr Kendle. However, he had signed an Acknowledgment of Trust in 1997 declaring that he held one undivided half interest in the property as tenant in common upon trust for Mrs Byrnes.

[2] The principal breach of trust alleged against Mr Kendle was that he let the house to his son in 2002 for a weekly rental of $125, collected only $250 rent from him and took no steps to collect any further rent over the ensuing years of his son's occupancy, which was terminated in 2007. Martin Byrnes' involvement in the proceedings stems from his mother's assignment to him of her interest in Rachel Street and her rights arising out of the Acknowledgement of Trust. That assignment was effected by deed in March 2007.

[3] The property was sold three days after the commencement of the proceedings. On 31 March 2009, Boylan DCJ, following a trial of the action, made a declaration that Mr Kendle held one half of the net proceeds of sale of Rachel Street on trust for Mr Byrnes. ^[1] The claims based on breaches of trust, including the alleged failure to collect rent, were dismissed. In a separate judgment given on 22 June 2009, the primary judge ordered that Mr Byrnes and his mother pay Mr Kendle's costs of the trial and all applications filed in the action. His Honour refused an application by Mr Kendle for indemnity costs.

[4] On 18 December 2009, the Full Court of the Supreme Court of South Australia (Doyle CJ, Nyland and Vanstone JJ) ^[2] dismissed the appeal and a cross-appeal on the costs decision and ordered that Mr Byrnes and his mother pay Mr Kendle's costs of the appeal. An application to the Full Court to reopen the hearing of the appeal to permit further submissions, in relation to a loan made by Mr Kendle to his son on the security of the property, was refused. On 3 September 2010, Mr Byrnes and his mother were granted special leave to appeal (French CJ, Crennan and Bell JJ) against the first decision of the Full Court. The second decision of the Full Court, refusing the application to reopen the hearing of the appeal, was not the subject of a grant of special leave.

[5] This case concerns a husband and wife in their 80s, now separated, who have been engaged in litigation with each other for more than two and a half years over relatively small sums of money. That they should be involved in such litigation at this time of their lives is a great misfortune for them and their families. For the reasons that follow, the appeal must be allowed. The facts of the case ^[3] and relevant aspects of the reasoning of the primary judge and the Full Court are set out in joint judgment of Gummow and Hayne JJ.

The appeal to this Court

[6] Mr Byrnes and his mother appeal to this court on the grounds that the Full Court erred in law in finding that Mr Kendle did not have a duty with respect to the recovery of rent in relation to the property of which he was trustee. They also challenge the finding of the Full Court that Mr Kendle was not subject to the duties that would normally be imposed on a trustee who rents out trust property. They contend that the Full Court erred in law and in fact in finding that Mrs Byrnes had consented to or acquiesced in Mr Kendle's actions as trustee.

[7] By notice of contention Mr Kendle challenges the finding of the Full Court that the Acknowledgment of Trust created an express trust of which Mrs Byrnes was a beneficiary. He asserts that, even if he were a trustee, he did not have a duty to collect rent and that, if he did have such a duty, it had been waived. He also asserts that, in any event, the set off for outgoings and improvement to the premises paid solely by him, results in there being no balance due to Mrs Byrnes.

Statutory framework

[8] This appeal is concerned with the application of established equitable principles. There is, however, a statutory context in which it arises.

[9] The trust said to have been established by Mr Kendle related to an undivided half share in Rachel Street. It attracted the application of s 29(1)(b) of the Law of Property Act 1936 (SA) ("the Law of Property Act"). That provision requires that a declaration of trust with respect to an interest in land be manifested or proved by some writing signed by some person able to declare such trust. The definition of "land" under the Law of Property Act, includes "an undivided share in land". ^[4] Section 29(1)(b) does not require that the trust be created by the writing which manifests or proves it, albeit the distinction is not material in this case. ^[5] In his defence, filed in the District Court, Mr Kendle contended that the Acknowledgment of Trust did not comply with the Law of Property Act, although his pleading did not specify how it was non-compliant. Non-compliance with the Law of Property Act was not asserted in this appeal. Nevertheless, the Byrnes submitted, and it may be accepted, that the Acknowledgment of Trust complied with the requirements of s 41 of the Law of Property Act and that it was a deed. ^[6] That formality serves to emphasise the status of the Acknowledgement of Trust as an exhaustive manifestation of Mr Kendle's intention to create a trust. The question whether it was appropriate for the primary judge to go behind that Acknowledgement of Trust to inquire into Mr Kendle's "real intention" is discussed later in these reasons.

[10] The legal title to Rachel Street was held by Mr Kendle as registered proprietor of the land pursuant to the provisions of the Real Property Act 1886 (SA). As senior counsel for the Byrnes accepted in oral argument, in so far as the asserted trust was in force on the face of the register, it was a personal obligation within the exceptions to the indefeasibility of registered title. ^[7] A caveat on the title, lodged by Mr Byrnes, protected his interest as assignee of his mother's beneficial interest under the Acknowledgment of Trust.

[11] The Trustee Act 1936 (SA) ("the Trustee Act") is also relevant. As was pointed out in the submissions for the Byrnes, s 6 of the Trustee Act confers power on a trustee to invest trust funds in any form of investment. When the trustee, who exercises that power, is not a person engaged in the profession, business or employment of being a trustee or investing on behalf of others, he or she has a duty, imposed by s 7 of the Trustee Act, to "exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of other persons". ^[8] It was submitted for the Byrnes, that while the statutory duty relates to investment, its existence as a presumptive duty under the statute requires a conclusion that analogous principles at general law continue to apply. That submission gained support from the express preservation under s 8 of the Trustee Act of rules and principles of law or equity that impose a duty on a trustee exercising a power of investment except so far as those rules are inconsistent with any statute or the trust instrument. ^[9] None of ss 6, 7 or 8 however, is directed to the power of a trustee to lease a house held on trust nor to the duties of the trustee in relation to such leasing. Under the general law, a trustee with power to manage trust property has power to lease it for a short term. ^[10] Section 25C of the Trustee Act supplements the general law by conferring a power on a trustee of land in possession to make a lease of the land for five to ten years depending upon whether the trustee does or does not have power to manage the land. The section does not apply to a bare trustee where the beneficiary is entitled in possession and free of any incapacity. ^[11] Section 25C was not referred to in argument. The Byrnes relied upon the general law. It is at least arguable, however, that Mr Kendle also had a statutory power as trustee to lease the property.

[12] In the context of the defence of set off, s 25A of the Trustee Act authorises a trustee in his or her discretion to pay and satisfy all rates, taxes, charges, assessments or impositions assessed or imposed on or in respect of the trust property or any part thereof and to debit the moneys so paid to capital or income or adjust the same between capital and income in such manner as to the trustee shall seem equitable. ^[12] The section was not referred to in argument.

The existence of a trust

[13] Mr Kendle sought, by notice of contention, to resurrect the trial judge's finding that he was not a trustee because he lacked intention to create a trust. He relied upon Commissioner of Stamp Duties (Q) v Jolliffe . ^[13] The Full Court found, adversely to that contention, that the terms of the Acknowledgment of Trust were clear. They constituted Mr Kendle a trustee, for Mrs Byrnes, of an interest as tenant in common with a life interest in his interest if he predeceased her. ^[14] The Full Court was correct in that conclusion.

[14] Jolliffe turned upon findings of fact by a trial judge made in a particular statutory context. In that case, the Queensland Government Savings Bank Act 1916 (Q) ("the Queensland statute") provided that no person should have more than one account in the Queensland Savings Bank, but that the section would not prevent any person from having additional accounts in his own name in trust for other persons. ^[15] Mr Jolliffe deposited funds into a savings account in his wife's name and his own name with the designation "Trustee". He also signed a statutory declaration in a form required by regulations made under the Queensland statute, that he was "desirous of becoming a depositor in the Queensland Government Savings Bank as the bona fide trustee of Mrs Hanna Jolliffe". ^[16] Lukin J found, despite the documentary material, that Mr Jolliffe did not intend to make a gift to his wife. On the basis of that finding he allowed an appeal against an assessment of the Commissioner of Stamp Duties against Mr Jolliffe as administrator of his wife's estate for duty including in the assessment the money which had been deposited by Mr Jolliffe in the account. A grant of special leave to appeal to this court, against that decision, was made subject to the condition that the appeal be limited to the question whether the effect of the Queensland statute and the documents in evidence prevented Mr Jolliffe from averring that he was not the trustee of the funds deposited. As acknowledged in each of the judgments in that case, the court was bound to assume, for the purposes of the appeal, that it was not Mr Jolliffe's real intention to make a gift to his wife and that the money was placed in the account solely to procure interest which would not be available to him if the money had been placed there in his own name. ^[17] The findings of fact by the primary judge as to Mr Jolliffe's real intention, the correctness of which could not be challenged, were held by Knox CJ and Gavan Duffy J to be an "insuperable obstacle" to the proposition that he had created a trust. Their Honours ^[18] relied upon a passage from the 11th edition of Lewin on Trusts :

It is obviously essential to the creation of a trust, that there should be the intention of creating a trust, and therefore if upon a consideration of all the circumstances the Court is of opinion that the settlor did not mean to create a trust, the Court will not impute a trust when none in fact was contemplated. (emphasis in original)

Jolliffe was a case which concerned what the authors of the 18th edition of Lewin on Trusts describe as a "shamming intent". ^[19] Neither the passage quoted from the 11th edition of Lewin nor the judgment of the majority in Jolliffe was directed to the effect of an unambiguous and explicit written declaration of a trust, in proceedings in which there is no concession or assumption about the settlor's "real intention".

[15] The passage from Lewin quoted in Jolliffe included a reference in the text, which was not quoted, to the decision of Field v Lonsdale . ^[20] That decision concerned a depositor who, without telling his sister, placed money in a bank account as trustee for her in order to evade the rules of the bank. ^[21] Given its statutory and factual setting, Jolliffe should not be taken as authority for the general proposition that where there has been an explicit written declaration of trust, unaffected by vitiating factors, ^[22] evidence is admissible to contradict the intention to create a trust manifested by the declaration. Isaacs J, who dissented in the result in Jolliffe , observed: ^[23]

An open declaration of trust is ... an expression of intention that is final and beyond recall.

He added: ^[24]

I cannot believe that, for instance, a solemn deed of trust or a will can be open to the reception of parol evidence, not of mistake as to its nature, or as to any condition of execution, or as to undue influence or other well understood causes of ineffectiveness, but merely of personal secret intention not to do what the document purports to effect.

[16] What Isaacs J said in Jolliffe was entirely consistent with the principle that a trust cannot be created unless the person creating it intends to do so. ^[25] That principle was reiterated in Kauter v Hilton , ^[26] which was concerned with provisions of the Commonwealth Bank Act 1945 (Cth) relating to the creation of trust accounts in the Savings Bank. The Court said of Jolliffe that its effect was: ^[27]

that the mere opening of an account under the section by one person in trust for another is not necessarily sufficient to make that person a trustee for the other person. All the relevant circumstances must be examined in order to determine whether the depositor really intended to create a trust.

In Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq ) ^[28] the plurality, after referring to the treatment of Jolliffe in Kauter v Hilton , appeared to place Jolliffe in the category of cases in which the language employed by the parties for the transaction is inexplicit leaving the court to infer the relevant intention from other language used by them, from the nature of the transaction and from the circumstances attending their relationship. ^[29]

[17] The passage quoted in Jolliffe from the 11th edition of Lewin on Trusts was reproduced in the 12th to 16th editions of that work, but not in the 17th or 18th editions. In the 18th edition of Lewin on Trusts , published in 2008, Jolliffe is treated as a case about a sham trust in which the settlor was allowed to assert his own shamming intent to defeat the effect of his declaration of trust as against the revenue authority. The authors refer to the "powerful dissent" of Isaacs J and observe that: ^[30]

A settlor who has executed a declaration of trust is subject to the usual rule that prevents a party to a legal document from relying on mere mental reservations to resist its enforcement.

A short statement of the position in a case such as the present, written in the context of the trust of the family home, appears in The Law of Trusts by Thomas and Hudson: ^[31]

In circumstances in which there has been an express trust declared over land, the terms of that trust will be decisive of the parties' equitable interests in land, in the absence of any fraud, undue influence, or duress. (footnote omitted)

The relevant intention in such a case is that manifested by the declaration of trust. Such a case does not require any further inquiry into the subjective or "real" intention of the settlor. I also respectfully agree with and adopt the reasons of Gummow and Hayne JJ on this question. ^[32]

[18] The primary judge in the present proceedings appears to have taken the view that Mr Kendle's intention could be determined by reference to evidence contradicting the Acknowledgement of Trust. He said: ^[33]

In determining whether or not an express trust has been created the court may look at evidence outside the Trust Deed to determine the intention of the alleged settlor.

His Honour relied upon the decision of Perry J in B & M Property Enterprises Pty Ltd (in liq) v Pettingill , ^[34] which in turn relied upon the decision of Napier J in Starr v Starr ^[35] applying Jolliffe as though it were authority for the proposition that "notwithstanding the terms of the written instrument said to constitute a trust, evidence was admissible to show that the document was never intended to operate as a binding declaration of trust." ^[36] That proposition, to the extent that it encompassed the case of an unambiguous written declaration of trust, was expressed too broadly. In the Full Court, Doyle CJ said: ^[37]

The terms of the Acknowledgement are clear. So are the terms of the earlier Acknowledgement. Mr Kendle might not have fully understood what he was doing, but that is neither here nor there.

His Honour was correct in so holding. Mr Kendle's challenge to the finding that he had created a trust cannot succeed.

Mr Kendle's duties as trustee

[19] In the Full Court, the Chief Justice proceeded upon the factual premise that Mr Kendle and the Byrnes had agreed that he would let Rachel Street to his son. His Honour held that there was "no affirmative duty on Mr Kendle to let out the property". ^[38]

[20] In also holding that Mr Kendle had no duty to collect the rent on Rachel Street from his son, the Chief Justice took as his guide "the legal relationship as between co-owners and tenants in common". ^[39] In so doing, with respect, he erred. His Honour said that if Mr Kendle had let the property to a tenant on an ordinary commercial basis he would have had no liability to make up unpaid rent. That may be so, as far as it goes, but that says nothing about whether he had a duty in such a case to endeavour to enforce payment or evict the non-complying tenant.

[21] Mr Kendle submitted that, as trustee under the Acknowledgement of Trust, he had "no active duties to perform". He characterised himself as a "bare trustee", described in Jacobs' Law of Trusts , which he cited, as: ^[40]

a trustee who has no interest in the trust assets other than that existing by reason of the office of trustee and the holding of the legal title, and who never has had active duties to perform or who has ceased to have those duties with the result that in either case the property awaits transfer to the beneficiaries or at their direction.

Mr Kendle's characterisation begged the question whether he had a duty to collect rent from his son. The designation "bare trustee" has attracted slightly varying definitions and sometimes, as pointed out in Jacobs' Law of Trusts , takes its meaning from a statutory setting. ^[41] In the 18th edition of Lewin on Trusts the learned authors observe: ^[42]

A bare trustee, holding property for a single beneficiary who is absolutely and indefeasibly entitled, has traditionally been said to be a mere passive repository, owing a duty only to transfer the property to the beneficiary or at his direction. But it is clear that certain trustees holding property in that way owe active duties to manage the trust property, with corresponding powers, notably a trustee of land, a trustee for a minor solely entitled and a trustee with an unsatisfied right of indemnity; and other such trustees also may have powers of management with an associated duty of care. (footnotes omitted)

It is also said in Lewin that when the property in question is land, "[a] trustee holding land on trust for an absolute beneficiary is not a mere cypher and has the powers of a beneficial owner in relation to the land". ^[43]

[22] In any event, the nature of the trust in this case does not lend itself easily to characterisation as a bare trust. The co-existence of beneficial interests, one held by the trustee in his own right and the other by Mrs Byrnes as beneficiary under the trust, are consistent with the necessity for, and existence of, a power on Mr Kendle's part to manage the property and to let it when he and Mrs Byrnes vacated it. That power was associated with a duty, existing at general law, to manage the property in spite of the absence of any specific direction to that effect in the Acknowledgement of Trust. ^[44] Absent such a duty, Mrs Byrnes would have derived no benefit from the interest conferred upon her under the trust. Only Mr Kendle, with legal title to the house and land, had the power to grant a lease of the property to another and thus derive income for Mrs Byrnes' benefit as beneficial owner of an undivided half share, as well as for his own benefit as beneficial owner of the other undivided half share. Unlike the lands the subject of the trust considered in Earl of Egmont v Smith , ^[45] Rachel Street was not a farm "situate, perhaps in one of the finest counties in England, and readily lettable". ^[46] Nevertheless, there was nothing to suggest that it was not lettable. Mr Kendle exercised his power and, for present purposes, may be assumed to have discharged his duty to let the property, by letting it to his son. He had, however, as trustee a continuing duty to ensure, so far as he reasonably could, that the rent was paid and if it were not paid that a new tenant was found to replace his son.

[23] Mr Kendle's duty was not to be assessed by reference to notions of a putative co-ownership. It was a fiduciary duty which he assumed when he declared the trust and retained the legal title to the land. The Full Court erred in holding that his failure to ensure that the rent was paid by his son did not give rise to a breach of duty making him liable to compensate Mrs Byrnes in respect of her interest in the unpaid rent. ^[47]

Consent and acquiescence

[24] For the sake of matrimonial harmony, Mrs Byrnes did not press Mr Kendle to insist upon payment of the rent owed by his son. In his defence in the District Court proceedings, Mr Kendle raised pleas of waiver, consent and acquiescence. He also asserted an estoppel. The primary judge found that, "although unwillingly", Mrs Byrnes "consented to her husband's decisions not to press for rent". ^[48] The Chief Justice characterised the primary judge's finding as one of co-operation by Mrs Byrnes in the breach of duty ^[49] or concurrence or acquiescence by her in letting the matter of the rent drift. The Chief Justice held that the words "acquiescence" and "concurred" better described Mrs Byrnes' conduct than "cooperate". His Honour held that "on the judge's finding, although there was some reluctance on her part she was well aware of the issue and acquiesced in the decision not to press for rent". ^[50] His Honour agreed with the primary judge's conclusion.

[25] As counsel for the Byrnes submitted, it was not clear that the Chief Justice drew any distinction between concurrence and acquiescence. The two concepts are not congruent. Consent, of course, may be expressed in a number of ways some of which may overlap with conduct constituting acquiescence. As Handley JA said in Spellson v George : ^[51]

Consent may take various forms. These include active encouragement or inducement, participation with or without direct financial benefit, and express consent. Consent may also be inferred from silence and lack of activity with knowledge. However consent means something more than a state of mind. The trustee must know of the consent prior to the breach.

Handley JA quoted a number of authorities for the proposition that consent to a breach of trust operates as an estoppel and observed: ^[52]

If this defence does operate by way of estoppel it would require proof of inducement and reliance thereon by the trustee.

Young AJA, in the same case, distinguished between concurrence in a breach and acquiescence after breach. His Honour also referred to the distinctions to be drawn between consent and other concepts, including the distinction between consent and "a situation where a person knows of the facts, hopes that the proposed course will take place but does nothing to assist it". ^[53] Hope AJA, who agreed with Young AJA, said it was necessary, in determining whether a defence of consent to a breach of trust was made out, to consider all the circumstances with a view to determining whether it was fair and equitable to allow the plaintiff to sue the defendants for the breaches of trust. ^[54]

[26] In this case, neither the findings of fact by the primary judge nor the evidence supported a defence of consent. Mrs Byrnes' unwillingness to insist upon collection of the rent did not amount to a consent to Mr Kendle's inaction. Nor was there any finding that Mr Kendle, in failing to enforce collection of the rent, was induced by, or relied upon, Mrs Byrnes' position. That leaves for consideration the matter of acquiescence.

[27] Acquiescence as a defence to a claim for equitable relief is used in at least two different senses: ^[55]

•

A person who is aware that an act is about to be done to his or her prejudice takes no step to object to it.

•

A person being aware of a violation his or her rights which has occurred fails to take timely proceedings to obtain equitable relief. This is acquiescence after the event which founds the defence of laches.

There was no plea of laches in this case. The species of acquiescence relied upon to defeat Mrs Byrnes' claim, while extended over time, was analogous to the first category.

[28] Counsel for the Byrnes pointed to a number of aspects of the evidence of Mr Kendle and Mrs Byrnes which were inconsistent with these defences:

•

Mr Kendle's evidence in examination-in-chief and in cross-examination that he and Mrs Byrnes discussed the non-payment of rent from time to time and that both hoped that his son would pay the rent.

•

The absence in Mr Kendle's evidence of any suggestion that his inaction was attributable to or induced by anything Mrs Byrnes did or failed to do

•

Mr Kendle's evidence that he decided matters concerning his family and that Mrs Byrnes decided matters concerning her family.

•

Mrs Byrnes' evidence that, for the sake of matrimonial harmony, she did not take action to insist upon Mr Kendle pursuing his son for rent.

[29] The primary judge found: ^[56]

Mrs Byrnes and Mr Kendle were both upset at Kym's failure to pay rent. So was Martin Byrnes. On occasions the three of them discussed the problem but Mr Kendle took no action. To use his own words, he "just let the problem drift". Nor did Mrs Byrnes take action. She chose not to do so for the sake of matrimonial harmony.

Neither that finding nor the evidence is consistent with the concept of acquiescence on Mrs Byrnes' part in Mr Kendle's failure to discharge his duty as trustee of her interest in the house and land. She could not take action herself to recover the rent. ^[57]

[30] Mrs Byrnes' inaction, if it can be called that, is to be understood by reference to the matrimonial relationship and the fact that a member of Mr Kendle's family was at the centre of his ongoing failure to insist on the rental payment. There was no acquiescence in the relevant sense, there was no evidence of reliance by Mr Kendle upon Mrs Byrnes' inaction. In any event, given the circumstances, it could not be said that it was not fair and equitable for Mrs Byrnes to be permitted to complain of a breach of trust by Mr Kendle.

Conclusion

[31] The appeal should be allowed. I agree with the reasons of Gummow and Hayne JJ in relation to the allowable set offs which Mr Kendle can claim and with the orders that their Honours propose.