Because of this common experience, there are factors disposing trustees toward seeking to invest in shares or in investment trusts which hold shares. There are strong economic pressures to find ways to do so as a result of the phenomenon of inflation, which has continued throughout most of this century, often strongly, more so in the last 50 years and without any prospect of long continued abatement which it would be reasonable to rely on. This phenomenon has greatly changed the economic circumstances in which trusts exist and are continued, and has made obsolete and even hostile to the interests of beneficiaries much experience gained in earlier generations and in different economic circumstances which have completely passed away. Investment of trust moneys for a long terms in forms which fixed the value of the investment to the nominal amount of money invested, a usual characteristic of trust investments for which explicit statutory authorisation exists, is, on the basis of the experience of recent generations, strongly adverse to the interests of beneficiaries. This is particularly so when a trust is to be maintained during the lives of several life tenants, or even throughout the minority of a beneficiary.
12 Mrs Nisbet did not arrange the appointment of one or more other or additional trustees. As life tenant she was unsuitable to be a trustee of the Chapman Trust at any time, and it seems remarkable that she allowed herself to remain sole trustee, an extremely exposed position for a life tenant. Mrs Nisbet committed most of the breaches of trust which trustees can commit. She did not keep accounts of the Trust or adequate records. She gave various explanations which are unreliable, obviously so. Such information as is available has to be put together from letters and papers found when Mr Richardson, who was familiar with her affairs, searched her papers after her death.
13 There are very few records or accounting documents from the period before 1960. No annual or other periodic Accounts or other clear statements of trust affairs during Mrs Nisbet's sole trusteeship have ever been seen by Mr Antill: she produced none to him and none were found when Mr Richardson searched her papers after her death. There are copies of tax returns for the Chapman Trust for a few years, but these are not a complete series. Estate Tax Returns are completely inadequate as accounts by trustees: they deal with a different subject to accounting for trust administration, and they speak in a statutory context and for purposes which accounts of trust administration do not have. A trustee's accounts prepared on a proper basis would have shown the assets of the trust at the opening and closing of each accounting period, valuations of assets by the trustees, dates and details of investments and disposals with amounts expended and realised, receipts and expenditures, allocations of receipts and expenditures to income or capital account and payments to beneficiaries. Beneficiaries do not receive accounts as a reward for diligence: keeping and having accounts is a central part of a trustee's duty, not a response to enforcement. A trustee does not escape liability by not having accounts or by not saying or knowing what has happened: the less the trustee can explain, the broader the brush the Court must choose to establish entitlement.
14 Mrs Nisbet did not make or maintain investments which gave protection against inflation. From about 1970 if not earlier there were few if any investments in public company shares, there was no other investment which was not subject to the adverse effects of inflation, and almost all investments which can be seen were denominated in money. She did not maintain records or earmarks to effectively distinguish property which belonged to the Chapman Trust from property which she owned or was subject to some other trust. There were no means by which a person other than herself, such as a successor trustee or a person interested in remainder, could establish what the trust assets were, in any clear way.
15 Mrs Nisbet did not present accounts of her dealings with and of the assets of the trust to other persons interested, whether Mr Antill or anyone else. She was not obliged to do so, unless they were called for, but it would have been a prudent step to take. When Mr Antill did call for information she gave him no useful information. She may herself have had some understanding or personal view of the distinction between trust assets and her own assets, but this was not in accessible form. When Mrs Nisbet did give Mr Antill explanations of trust affairs they were obviously not complete, they were not well expressed, they were not always consistent with each other and they were generally unreliable. She gave him strong assurances about the protection of his interests which she later disavowed.
16 Mrs Nisbet engaged in self-dealing, and advanced moneys to herself or interests closely related to her, sometimes nominally at rates of interest although interest was not paid, and sometimes on bases in which no interest was payable. This placed her in conflicts of interests which meant that the protection which should have been available against imprudent investment decisions was not available. These advances inappropriately advantaged her and cast disadvantage from decline in the value of money on those interested in remainder. They cannot be thought of as investments, and they could not possibly have been exercises in good faith of the power of investment for the purpose for which it was conferred.
17 It is a truism that a wide power of investment, or absolute discretion to make investments does not authorise a trustee to lend trust money to himself, or in less elegant language, to take trust money, or to make any investment which is not the product of an impartial judgment as to the appropriateness of the investment. The plaintiff's counsel referred in this connection to Lewin's Practical Treatise on the Law of Trusts 4th edition 1939 at 380 and the authorities there referred to; this bears out the submission, which is so plainly correct as to be a statement of the obvious. Counsel also referred to Ford and Lee Principles of the Law of Trusts paras [9660] which is a strong statement to the same effect, and gives supporting authorities, including Wickstead v Brown (1992) 30 NSWLR 1 at 13 and Space Investments Limited v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Limited [1986] 1 WLR 1072 at 1073-4 (Lord Templeman).
18 For some years from about 1983 to 1997 Mrs Nisbet treated the Chapman Trust as having been in some way terminated or wound-up. There was no basis for doing this. Then in 1987 she established what she referred to as an account of the trust with money which she paid in from her own resources. There has never been any clear explanation of how the amount which she paid in was established. At later times she made withdrawals from this account, for which she left no explanations at all.
19 The power of investment, however broad it is, does nothing to authorise trustees to make investments in their own interests or to have dealings with themselves with trust funds. The direction in the will to the trustees to pay income to Mrs Nisbet for her life is expressly a direction "without power of anticipation" so that it was outside power to pay herself more money than was presently available from income in anticipation of some future entitlement. Loans of trust moneys by Mrs Nisbet to herself, if they could be called loans, were altogether outside her power as trustee for a cumulation of reasons; she had no power to deal with herself, she had no power to make an investment for the purpose of conferring a benefit of herself, she had no power to anticipate future entitlements or to take of future entitlements into consideration when deciding on an investment, and by making a loan, to herself or to anybody else, for a long term or an indefinite term she did not hold a proper balance between the interest of herself in income and the interests of those classes interested in capital, because of the effect of inflation. To advance money to herself without interest was to sacrifice the interests of the capital account for the advantage to herself of not receiving income and hence no paying income tax: exercise of the power of investment in good faith could not produce this results. Lending money to herself was unsatisfactory in other ways in that, although these loans are sometimes referred to as mortgages, no mortgages were registered, it is improbable that any existed, and in some cases the mortgages were not first mortgages but subsequent mortgages; these circumstances, while perhaps not taking such loans outside the power of investment, strongly support the conclusion that the power was not exercised in good faith and for a proper purpose.
20 All in all, her performance as a trustee could hardly have been worse. Overlying any interpretation of events are her profound unsuitability to be a trustee or sole trustee, a long continued state of conflict between herself and Mr Antill and her engagement in dealings in conflicts of interest. Courts have tended to be severe where the trustee has failed to maintain accounts - Yates v Halliday [2006] NSWSC 1346 at [62], where authorities are given. There is discussion in Yates v Halliday of the accounts which it is customary to require of trustees, with references to case law. Difficulty in ascertaining trust affairs where accounts had not been kept cannot work to the advantage of the trustee; if detailed accounting is not possible, the Court should in my opinion do its accounting using whatever information is available, with what may be broad resort to probabilities to ascertain matters which the defaulting trustee has failed to make ascertainable.
21 Mrs Nisbet purchased a house in Oswald Street Rushcutters Bay in or about 1953, and lived there until she sold it in 1964. She purchased a house in Queen Street Woollahra for £12,500 in 1964 and lived there until she sold it in May 1995 for $1,050,000. She purchased a house in Nelson Bay in March 1971 for $12,500 and sold it in 1986 for $60,000. This was an investment property from which she received rental income. Mrs Nisbet purchased a house in Adelaide Street Bondi Junction in May 1995 for $315,000 and lived there at most times for the rest of her life. It now forms part of her estate. Under her will it passes to Mr Richardson. She purchased a flat in Edgecliff Road Edgecliff in May 1995 for $210,000. She transferred this flat to Mr Richardson as a gift in October 2000. Mr Richardson sold it in December 2006 for $480,000.
22 Chapmans Pty Ltd, later Chapmans Ltd was a company formed by Mr G O Chapman in 1922 to carry on a business which he had formerly conducted in a partnership as manufacturers of canvas goods and mattresses and general softgoods wholesalers. The company came to own premises at 188-190 Sussex Street Sydney which late in the company's life were of considerable value. The company became a public company in 1948 and went through adverse circumstances in the early 1950s, followed by a slow re-consolidation. It was then taken over by Alexanders Ltd in November 1968. Mrs Nisbet sold or otherwise lost ownership of the shares in Chapmans Ltd; she disposed of most of those shares before the takeover, although the position does not clearly appear.
23 The principal assets in Mr Chapman's estate when he died were 4740 fully paid £1 shares in Chapmans Ltd valued for Death Duty at £6,270 15s or £1 6s 5d each. He also owned 400 £1 Preference Shares valued at £120. He made specific gifts of his motor car and a few items. His other assets which would form part of residue were given values which after deducting debts amounted to about £815. The Estate Income Account and Balance Sheet as at 30 June 1942 are in evidence (Tab C2). There had not been an appropriation of the residue between beneficiaries at that time. The Estate Capital was £10,627 7s 1d, almost entirely represented by shares in Chapmans Pty Ltd: 7140 Ordinary Shares valued at £9,430 15s and 1000 Preference Shares valued at £1,000. They were also 100 Ordinary Shares in William Adams & Co Ltd valued at £85. In 1946 the trustees with the consent of the beneficiaries purchased additional shares in Chapman Pty Ltd with estate funds and borrowed money. In 1948 Chapmans Ltd was listed on the Stock Exchange. At some stage the capital was reorganised and the number of shares increased.
24 Statement of Claim para [22] is admitted on the pleadings.
On or about 15 October 1953, the assets of the Chapman Trust, and the value of those assets, was as follows:
(a) 36,000 Ordinary Shares in Chapman's Ltd
(trading at 7/-) £12,600
(b) 500 Preference Shares of 1 each fully paid in
Chapman's Ltd £500
(c) 56 Ordinary Shares in Williams Adams & Co Ltd
(trading at 50/3) £140
Total Value £13,240
25 The next accounting document relating to the Chapman Trust is the 1965 income tax return which includes a list of investments and other estate assets and income; this deals only with the Chapman Trust.
26 In the Tax Return to 30 June 1967 it is stated that the trust owned 100 shares in Chapmans Ltd with a market value of $42 and it is stated that 20,800 Chapman shares were sold during the year at a capital loss and "funds received were lent on mortgage on home of Mrs Nisbet ". It is also stated that the sale price of the Chapman shares was $8,944 and that the mortgage loan to Mrs Nisbet on her home at Queen Street Woollahra was $9,000 and "no interest yet paid". There were only minor changes in other shareholdings but the value given for shares after this disposition was $4,778 at cost, which should be contrasted with the value given for shares in the return to 30 June 1965 of £8,525. The total estate capital in the tax return to 30 June 1967 was said to be $19,320, and by far the greater part of this totalling $14,500 consisted of self-interested advances of $5,500 to Bridges Associates (which refers to a company in which Mrs Nisbet was the principal shareholder), and the rest to Mrs Nisbet herself. Both these loan advances are referred to as mortgage loans although searches have established that there were no registered mortgages. It is stated for both loans that no interest was paid. Mrs Nisbet held the majority of shares in Bridges Associates Pty Ltd, and it was the vehicle through which she conducted business as an interior decorator.
27 The loan to Bridges Associates had evidently existed at least two years before as it appears at £2,750 (the same amount of money) among the investments at 30 June 1965. After 1967 share investments were relatively small parts of the assets appearing with tax returns; the same list at cost totalling $4,778 appears in the 1968 tax return. By the 1970 tax return shares had dwindled to $1,997 at cost; the same in the 1971 tax return; the cost of shares was shown at $4,070 in the 1972 tax return and thereafter there are no lists of investments showing shares. Mrs Nisbet stated elsewhere that she terminated the trust in 1973.
28 In these Estate Tax Returns after 1967 loans to Mrs Nisbet or interests associated with her continue to appear. In the 1968 return they totalled $14,076 and income $1010 was attributed to one of them, but for the loan on the house at Queen Street Woollahra it was stated "no interest paid yet". In the return to 30 June 1970 there were listed loans to Bridges Associated Pty Ltd (which refers to her company) and to Mrs Nisbet totalling $16,765, income of $840 was returned for the loan to Bridges Associated Pty Ltd, but for the loan to Mrs Nisbet herself it was stated "no interest paid as all estate income reverts to Mrs Nisbet". In the Return to 30 June 1971 the entry suggests that the loan to Bridges Associates had been repaid by that date and the interest received from it that year was $840. The mortgage loan to Mrs Nisbet was shown at $6,991, again with the statement that no interest was paid as all estate income reverted to her. It was stated that investments included CAGA $10,500; the amount is that formerly on loan to Bridges Associates Pty Ltd and I infer that the CAGA investment represented repayment of the loan. In the return to 30 June 1972 there is a reference to 188 Queen St Woollahra suggesting that there was a mortgage over the property, but there was no registered mortgage, and the loan was said to be $15,418. There is a note "no interest paid as all estate income reverts to Mrs Nisbet." The total value of trust assets is shown as $19,488. I infer that in some way the money deposited in CAGA or most of it went to Mrs Nisbet and explains the stated increase in the loan to her.
29 A note on the copy of the 1971 Return found among Mrs Nisbet's effects after her death shows against the CAGA investment "Loan 3 mths - unsecured notes. Since withdrawn and used $6,500 for Nelson Bay property and $4000 invested in shares." The probability is that this note, which was made on Mrs Nisbet's copy of the Return kept by her recording business affairs of the estate, was made by her or under her authority, and it is evidence of an admission by her or made on her behalf. There are traces of confirmation in the increase in the share investments in the tax return to 30 June 1972; although the increase does not correspond with the statement "$4000 invested in shares".
30 In Mrs Nisbet's own tax return to 30 June 1972 there is a reference to rent received from 35 Thurlow Ave Nelson Bay and a note "house bought during advances from the estate of GOD Chapman." The plaintiff's counsel sought to establish that $6,500, referred to in her earlier tax return and associated with Nelson Bay in the note on the tax return, was used for or towards the purchase of Nelson Bay. This is not altogether inconsistent with her having treated a generally corresponding increase in the loan to herself as part of the mortgage on Queen Street. However any interest of the trust in Nelson Bay cannot now be identified after sale of the property in 1986, and nothing is to be gained from pursuing whether there was tracing of an interest in the Nelson Bay property to a conclusion. To my mind the more probable situation is that whether or not Mrs Nisbet thought it had something to do with the Nelson Bay property, the $6,500 referred to or some part of the CAGA investment wholly or partly explains the increase in the mortgage loan to $15,418 referred to in the Return to 30 June 1972.
31 The meaning of these entries includes that by 1965 Mrs Nisbet had made a loan to Bridges Associates, that is, in effect to herself of £2750 which was more than a quarter of estate assets, and that by 30 June 1967 she had made self-interested loans totalling $14,500 which was about three quarters of the value of the estate assets. There are some intermediate movements which cannot be clearly followed but in the Return to 30 June 1972 it is shown that $15,418 was a mortgage loan to Mrs Nisbet herself and that that no interest was paid; this was well over three quarters of the Trust assets. Thereafter this form of information ceases to be available.
32 In my opinion the investment in what was called the mortgage loan to Bridges Associated which amounted to £2750 on 30 June 1965 (equated with $5500) and the mortgage loan of $9,000 to Mrs Nisbet which had occurred by 30 June 1967, and whatever transaction it was that brought the total to $15,418 were dispositions in breach of trust, and were not exercises in good faith of the power of investment for the purpose for which it was conferred. Indeed they were not investments at all as to the parts which did not produce interest. In a proper accounting, later dealings with these loans, apparent movements of amount and movements between them should not be treated as involving the Chapman Trust; but Mrs Nisbet should be charged with these two sums on the footing that she misappropriated them. She should be charged as if she had invested them in some reasonably prudent investment which had fair regard to the interests of life tenant and remaindermen; the capital which such an investment would have produced at the time of her death should be charged against her estate, while the interest should be disregarded. Calculation of her liability cannot be precise but could be made by studying share market indices of the escalation of reasonably prudent share market investments over the periods involved. I refer to share market investments because they were an established aspect of estate administration when Mrs Nisbet became sole trustee and because they are reasonable means of holding the balance of interests.
33 After the estate Tax return among Mrs Nisbet's papers for the year to 30 June 1972 there is an interval of many years, until her papers included an income tax return for the year to 30 June 1999. She did not have an estate tax file number until late in this interval and it is very improbable that there were any tax returns for the estate during the interval.
34 Mr Chapman's sister Ethel Chapman died on 24 March 1970 and left significant benefactions to Mr Antill her great nephew and to Mrs Nisbet her niece. Mrs Nisbet was entitled to the income for life of one-third of Ethel Chapman's estate. Mr Antill used his benefaction to acquire an investment property at Corlette near Port Stephens and also found and recommended to Mrs Nisbet the investment property in Thurlow Avenue Nelson Bay which she bought in March 1971 for $12,750. Mrs Nisbet indicated to him that she was interested in raising money rather than having a continuing share of her aunt's estate. Mr Antill discussed this with Mr John Helmrich, the solicitor who then advised Mrs Nisbet. Mr Antill had business with him, as he sold an apartment at Darling Point to Mr Helmrich in September 1971. While negotiating for that sale he told Mr Helmrich that he was interested in buying out Mrs Nisbet's interest in the Chapman Trust, but Mr Helmrich said "I don't think that is advisable because the estate is invested in real estate so that Barbara has the opportunity in living in it during her life and you will eventually gain the capital gain when she dies"; or words to that effect. Mr Antill's evidence of this matter and the quality of his recollection were challenged in cross-examination but I accept that this evidence is correct in substance. It does not constitute evidence of a statement or admission on behalf of Mrs Nisbet that the Chapman Trust was invested in real estate, but it does have a part in explaining Mr Antill's later conduct and evaluating the defence of laches. Eventually Mr Antill did buy Mrs Nisbet's life interest in the Ethel Chapman estate, by a deed of 21 December 1972; and became the sole owner of that residuary estate.
35 In the year to 30 June 1973 Mrs Nisbet lent made two loans totalling $20,000 to Cawarrie Pty Ltd, a development company controlled by Mr Antill, and he created a loan account in the books of Cawarrie crediting her with $20,000 accordingly. His evidence, which I accept, shows that when these two loans were made they were made, so far as anything Mrs Nisbet told him, as loans by herself; she did not tell him that they were loans by the Chapman Trust. Then after some time she told him that the loan was to be treated as a loan by the Chapman estate; she said to this effect: "Would you please change the loan that I made to you to make it a loan from the estate of the late GOD Chapman". She did not explain why this was to happen, and Mr Antill did not question her about it but acted accordingly. He made entries in the accounts of Cawarrie transferring her $20,000 loan account to a loan account of the Chapman Estate as of 1 January 1975. This loan account continued to exist until he repaid it to Mrs Nisbet out of the funds of Cawarrie Pty Ltd early in 1983. For some years Cawarrie Pty Ltd paid interest on this loan account to her on behalf of the trust. At first the interest rate was 10% p.a., and in the last years of the loan he paid higher rates of interest. Events relating to the loans to Cawarrie did nothing to dispel the influence of Mr Helmrich's statement that the estate was invested in real estate; Mr Antill had not been told what in whole the assets of the trust were. In correspondence many years later Mrs Nisbet said to the effect that the money lent to Cawarrie was not sourced from the Trust.
36 These transactions were put to Mr Antill in cross-examination in support, as I understood it, of suggestions that he knew and approved of the use of trust assets to make a loan to Cawarrie. I am satisfied that he did not know of that, and that he made entries creating a loan account in favour of the Chapman Estate only after the loans had existed for a considerable time and only at the unexplained request of Mrs Nisbet. At the time of these events Mr Antill did not know and was not in a position to know Trust affairs generally, or to know whether the Trust had $20,000 to lend or what part of trust assets that would represent.
37 It was unremarkable that Mrs Nisbet should have $20,000 of her own to lend to Cawarrie in the first part of 1973. She had received $12,147 for her interest in the Ethel Chapman estate a few months before she made the first loan of $13,000 in March 1973. Mr Antill's evidence shows that these loans when made were not associated with the Chapman Trust by anything that Mrs Nisbet told him; and I accept this evidence. To him the transaction was a loan by Mrs Nisbet to Cawarrie at interest, which he paid.
38 Mr Antill sent Mrs Nisbet a cheque for $20,700, interest due and repayment of the loan, on 15 January 1983. Soon afterwards Mrs Nisbet asked him to change the cheque so that it was payable to her personally. She also said that the interest should have been paid direct to her and not to the Chapman Trust, and in the course of an argument about this she said "The bank manager has advised me to close the Chapman Estate trust account". Mr Antill said to the effect that she could not close the account and could not just open trust accounts at will. Mr Antill wrote to Mrs Nisbet on 20 February 1983, and among the matters dealt with he told her that he felt she was being badly advised by a bank manager, and gave reasons. Not long afterwards Mr Antill sent Mrs Nisbet another cheque which paid out an entitlement she had in the Cawarrie Superannuation Fund, and made some comments which illustrate that the personal relationship between them was then very poor.
39 In December 1974 Mrs Nisbet gave Mr Antill a copy of a letter from chartered accountants to her (Ex AC 29) with some advice about recommended transactions connected with estate duty. The letter proposed some dealings which are difficult to understand, but they included raising $20,000 by selling Mrs Nisbet's property at Nelson Bay to her company Bridges Associates Pty Ltd, giving the money to Mr Antill and then treating it as lent by him to Bridges Associates. Mr Antill (not surprisingly) did not understand the proposed arrangements and did not do anything to participate in them. Mrs Nisbet's request to change the loan to Cawarrie from a loan to her to a loan from the Chapman Trust followed soon afterwards. He was not told and did not ask why she made this change; he made entries in Cawarrie's books to comply. In these events he was not told anything from which he could understand the state of affairs of the Chapman Trust.
40 There were unfortunate aspects of the relationship between Mrs Nisbet and Mr Antill and these were long-continued. By 1982 and 1983 the personal relationship had deteriorated, he says, "to the stage where it was intolerable". Mr Antill had been a director of Bridges Associates Pty Ltd for many years, but was altogether inactive as a director. Mrs Nisbet asked him to sign an Annual Return as a director, and she told him that Mr Helmrich the other director was overseas. Mr Antill signed the Annual Return, although he was reluctant to be involved because of possible conflict with his employment in the Australian Bureau of Statistics, and he resigned as a director in January 1983. This led to arrangements in which Mr Antill was paid $2000, nominally as repayment of loan of £1000 he had made to Mrs Nisbet in 1958, and transferred shares in Bridges Associates Pty Ltd which he did not know or not longer remembered had been issued to him.
41 Mrs Nisbet sent Mr Antill a letter dated 9 May 1983. The letter is typewritten and unsigned, but there is no room for doubt that it was authentically her letter; she referred to it in a later letter which she signed, and she kept a carbon copy among the papers which were found after her death. Its authenticity is accepted by the defendant. This letter received a great deal of attention in the evidence and Counsel's submissions. With the letter Mrs Nisbet returned a cheque from the Cawarrie Superannuation Fund, which Mr Antill had sent to her to satisfy what he regarded as her entitlement in the Superannuation Fund. Mrs Nisbet made some intemperate observations about the circumstances in which the cheque was sent to her, and she made some comments on their personal relationship. In his letter in reply soon after (tab 37) Mr Antill dealt at length with the circumstances in which the cheque had been sent; it seems that he again forwarded it to Mrs Nisbet. He commented on some other matters and his reply was expressed forcefully. The terms of these letters show the very poor state of the relationship at that time; mutual hostility. Communications ended until 1997.
42 Mrs Nisbet's letter of 9 May 1983 includes:
What has made me angry and disgusted was your outburst when I said I propose closing the bank account held in the name of the Estate of the late GOD Chapman.