Byrnes v Kendle

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Hayne JJ,Heydon,Crennan JJ
• Judgment Date: 03 August 2011
• Neutral Citation: 2011-0803 HCA A,[2011] HCA 26
• Court: High Court
• Docket Number: A23/2010
• Date: 03 August 2011

[2011] HCA 26

HIGH COURT OF AUSTRALIA

French CJ, Gummow, Hayne, Heydon and Crennan JJ

A23/2010

Martin Francis Byrnes & Anor

Appellants

and

Clifford Frank Kendle

Respondent

Representation

D M J Bennett QC with A L Tokley for the appellants (instructed by Haarsma Lawyers)

M A Frayne SC with N J Floreani for the respondent (instructed by Corsers Lawyers)

Law of Property Act 1936 (SA), ss 29(1)(b), 41.

Trustee Act 1936 (SA), ss 6, 7, 8, 25A, 25C.

Byrnes v Kendle

Equity — Trusts and trustees — Express trusts constituted inter vivos — Where respondent by deed declared one half of property held ‘upon trust’ for second appellant — Whether respondent a trustee — Whether evidence extrinsic to deed relevant to intention to create trust.

Equity — Trusts and trustees — Powers, duties, rights and liabilities of trustees — Liability for breach of trust — Where trustee leased trust property — Whether duty to collect rent — Whether breach of duty to fail to collect unpaid rent — Where beneficiary knew trustee failed to collect rent and was told trustee had duty to collect rent — Whether beneficiary consented to or acquiesced in breach — Whether trustee entitled to set-off outgoings and improvements to property in taking of accounts.

Words and phrases — ‘acquiescence’, ‘bare trust’, ‘consent’, ‘estoppel’, ‘express trust’, ‘intention’, ‘upon trust’.

ORDER

Appeal allowed with costs.

Orders 1 and 3 of the orders of the Full Court of the Supreme Court of South Australia sealed 20 January 2010 be set aside and in place thereof it be ordered that:

• (a) the appeal to the Full Court be allowed with costs; and

• (b) the orders of the District Court made on 31 March 2009 and order 1 of the orders made on 22 June 2009 be set aside and in place thereof:

  • (i) declare that the solicitors for the respondent, Clifford Frank Kendle, be at liberty to account for the moneys held by them in trust pursuant to order 4 of the orders of the District Court made on 11 September 2008 by paying thereout to the first appellant, Martin Francis Byrnes, or as he may direct in writing, the sum of $73,534.70 and by paying the balance to Mr Kendle, or as he may direct in writing;

  • (ii) order that:

    • (A) Mr Kendle pay the costs of the appellants on a party and party basis of the trial and all applications filed in the District Court action; and

      (B) the action otherwise be dismissed.

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...