Back to the future: retrogression and the High Court's decision in Byrnes v. Kendle.

• Author: Robinson, Ludmilla
• Position: Australia

1. INTRODUCTION

   Byrnes v Kendle (1) ('Byrnes') is an interesting and arguably contentious decision regarding the law of trusts in Australia. On the one hand, the case clarifies the duties of a trustee when no duties have been provided in the trust instrument. This in itself is useful bur unremarkable. On the other hand, the noteworthy aspect is the Court's approach to the interpretation of a trust instrument, the issue of intention to create a trust and the unanimous overruling of Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 ('Jolliffe'). Certainty of intention to create a trust is one of the three 'certainties' necessary for the establishment of a valid trust. For just over ninety years, Jolliffe has provided authority for the proposition that the subjective as well as the objective (2) intention of a settlor at the time a trust was created should be considered by the court, and, if necessary, should outweigh the objective intention expressed in the trust instrument. Thus, prior to Byrnes, if a settlor created a trust for a purpose other than holding legal title to property for the benefit of a beneficiary, (3) the court could take this ulterior motive, together with other relevant facts and circumstances, into consideration when determining whether a valid trust had been created. Now, it would appear, such a broad and traditionally equitable approach to the construction of a trust instrument has been overruled, to be replaced by the requirement of a narrow and purely textual, rather than contextual, interpretation.

   In addition to the consideration of the interpretation and validity of trust instruments, all three judgments in Byrnes present comprehensive, helpful discussions of the defences of acquiescence, consent and waiver.

   There were three judgments handed down in the case. An individual judgment by French CJ, and two joint judgments by Gummow and Hayne JJ and Hayden and Crennan JJ. Although the reasoning and approaches taken in each of the decisions differ, they are all in agreement as to the conclusions drawn in relation to the major issues. As may be gathered from the following discussion, another common feature exhibited by all three is an implicit, and in some instances explicit, conservatism, manifested by a preference for restatement and explication.

2. BACKGROUND

   Joan Byrnes and Clifford Kendle were married in 1980. They separated in 2007, but at the time of the High Court proceedings, had not divorced. Both parties had adult children at the time of their marriage. In 1984 Mr Kendle purchased a unit in Brighton, South Australia, which was financed with a loan under the Defence Service Homes Act 1918 (Cth). The unit was registered in Mr Kendle's name.

   In 1989, Martin Byrnes, Mrs Byrnes' son and a solicitor, advised the parties to execute a document in regard to the property which was described as an 'Acknowledgement of Trust.' The instrument provided (inter alia):

   1. Subject to clause 2 [Mr Kendle] stands possessed of and holds one undivided half interest in the Property as tenant in common upon trust for [Mrs Byrnes] absolutely ('the Byrnes Interest').

   It went on to provide that, should one of the parties predecease the other, the survivor would hold a life interest in the share of the deceased party.

   The instrument constituted a deed pursuant to s 41 of the Law of Property Act 1936 (SA), because it was executed by both parties, their signatures duly witnessed and the document was expressed as being sealed.

   In 1994, the Brighton property was sold and with the proceeds, the parties purchased a house in Rachel Street, Murray Bridge, South Australia. The Defence Services loan was transferred to the new property and a mortgage was also taken out with Westpac. As with the first property, Mr Kendle was the sole registered proprietor. In 1997 the parties executed a deed in relation to the Rachel Street property, which created Mr Kendle trustee of a half share in the Rachel Street properties on similar terms as the 1989 instrument.

   In 2001, the parties moved into a property which had been purchased by Martin Byrne. In early 2002, Mr Kendle rented the property to his son for a weekly rental of $125.00. The son, however, paid only the first two weeks rent. In January 2007, Mr Kendle, on the advice of his daughter, terminated the son's tenancy in the Rachel Street house and it was subsequently let to his grandson. The parties separated in March 2007.

   At about this time, Mrs Byrnes assigned her interest in the Rachel Street property to her son, Martin, including her rights under the 1997 deed, for $40,000.00. The Rachel Street property was sold in 2008.

3. THE SLIPPERY PATH OF LITIGATION

   In September 2008, Martin Byrnes commenced proceedings in the District Court of South Australia against Mr Kendle alleging, inter alia, that he had committed breaches of trust in failing to collect the rent for the Rachel Street house from his son and in breaching the duty to account. The plaintiff claimed one half of the proceeds of sale of the property, an order that Mr Kendle provide a full accounting of the income from and costs of the property and that any moneys found to be due as a result of the account be deducted from Mr Kendle's share of the proceeds of sale. In his defence, Mr Kendle alleged that Mrs Byrnes had consented or acquiesced to his conduct regarding the collection of the rent, thereby waiving her rights. Mr Kendle also raised estoppel as a defence.

   The primary judge, Boylan DCJ, found that Mr Kendle held half of the net proceeds of the sale of the property on trust for Mr Martin Byrnes, but dismissed the allegations of breaches of trust on the basis that Mrs Byrnes had "co-operated" in the breaches by failing to take action to require Mr Kendle to collect the rent. A costs order was made against Mr Byrnes and his mother.

   Mr Byrnes appealed the decision and on 18 December 2009, the Full Court of the Supreme Court of South Australia (Doyle CJ, Nyland and Vanstone JJ) dismissed the appeal and ordered costs against the Byrnes.

4. ISSUES

   There were three significant issues considered by the High Court in this case. These are as follows:

   1. whether a valid trust had been created by the Acknowledgement of Trust of 1997.

   2. if so, whether Mr Kendle had breached his duties as trustee by failing to collect the rental owed on the property.

   3. if there had been breaches of trust, whether Mrs Byrnes had acquiesced or in some way consented to these breaches, thereby waiving any rights she might have had to seek redress against the trustee.

5. CREATION OF A VALID TRUST

   The starting point for the deliberations of the Court was the issue of the validity of the trust created by the Acknowledgement of Trust of 1997. In their judgments, French CJ and Gummow and Hayne JJ found that the Acknowledgement of trust conformed to the requirement of s 29 (1)(b) of the Law of Property Act 1936 (SA), which provides that all declarations of trust in regard to an interest in land be evidenced in some form of writing. Thus, the validity of the trust instrument pursuant to statute was not in question. What was at issue was, the intention of the respondent when the trust was created, since he alleged (inter alia) that at the time of executing the deed, he had no intention to create a trust. (4) Naturally, if there was no valid trust, the respondent owed no fiduciary duties to the appellant and, therefore, no breaches of trust could have occurred.

   Consideration of the questions of validity and intention centred upon two interrelated but nevertheless separate and arguable conflicting issues raised by the facts and circumstances of the case. These are:

   1. validity as determined solely by the words of the trust instrument and whether extrinsic factors could or should be used to determine meaning;

   2. the effect upon validity of the subjective intention of the settlor, Mr Kendle, at the time the trust instrument was executed, and the use of extrinsic circumstances to determine this ulterior, subjective purpose.

   As noted above, these issues are related but, arguably, also at variance. If the sole criterion upon which the validity of a trust is to be determined is to be the face of the document itself, then one of the three certainties necessary for the creation of a valid trust, intention, could be rendered otiose if some form of writing has been used to create the trust.

   1. Validity as determined on the face of the instrument

      French CJ does not engage in any lengthy discussion of this particular issue, preferring to concentrate instead upon the examination of the concept of the subjective intention of the settlor as a means of determining validity. He quotes with approval, however, a passage from Thomas and Hudson, The Law of Trusts in regard to the importance of inferring trust from the instrument alone:

      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. (5) His Honour goes on to add:

      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 'real' intention of the settlor. (6) Similarly, Gummow and Hayne JJ are brief and to the...