Property Law Act 1969 (WA), s 125(1)

Gertsch v Atsas [1999] NSWSC 898

Goss v Chilcott [1996] 3 WLR 180

National Bank of New Zealand v Waitaki International [1999] 2 NZLR 211; (1999) 115 LQR 198

Palmer v Blue Circle Southern Cement Ltd [1999] NSWSC 697

RBC Dominion Securities Inc v Dawson (1994) 111 DLR (4th) 230

Rogers v Kabriel [1999] NSWSC 368

Scottish Equitable plc v Derby [2000] 3 All ER 793

South Tyneside Metropolitan Borough Council v Svenska International plc [1995] 1 All ER 545

Swiss Bank Corp v State Bank of New South Wales (1995) 39 NSWLR 350

Thomas v Houston Corbett & Co [1969] NZLR 151

1 MASTER BREDMEYER: This is an application by the second defendant for summary judgment against the plaintiffs on the plaintiffs' claims set out in par 6(a) and par 7(a) of the prayer for relief of the re-amended statement of claim dated 23 April 1999. The application is out of time so the second defendant also asks for an extension of time within which to bring the application. The substantive application is not opposed by Mr Mark Gregory Clay and I understand it is not opposed by the other two plaintiffs, who are unrepresented, but who have been served with this application. The application is not opposed by Jeannette Simone Devoto who has filed an affidavit to that effect, sworn 27 June 2000. Ms Devoto is not a named party in this action but she is one of the five beneficiaries of the Clay Trust, the others being the three plaintiffs and Jeanette Ramona Clay, the second defendant.

2 The application is supported by the affidavit of the second defendant (Mrs Clay), sworn on 23 September 1999. The application is opposed by the first defendants, but they have not filed any affidavit in opposition and do not contest the facts asserted in Mrs Clay's affidavit. Although the application is very late the delay has been explained satisfactorily. The application turns on legal points rather than factual matters and I consider this is an appropriate case where leave should be granted. If the application is successful and disposes of major parts of the relief claimed against Mrs Clay, it will have the effect of shortening the trial and reducing the legal costs incurred by Mrs Clay, and largely freeing her from the anxiety of this litigation which has been running since 1993. I am told that Mrs Clay is about 70 years old.

3 The Clay Trust was established by deed on 29 October 1969. There were five beneficiaries of the trust, as previously stated. The trustees had a discretion to apply the whole of the income for the maintenance, support or benefit of one or more of the beneficiaries as they thought fit. They also had a discretion to distribute income of up to $20,000 per annum to Mrs Clay. Subject to those trusts, the assets were to be held on trust in equal shares for those of the five beneficiaries living at the end of the trust period. The trust period was stated to be until the death of the last survivor of the heirs of King George V. On 11 January 1995 solicitors then acting for the plaintiffs advised the trustee's solicitors that they believed the trust had vested in 1974. In action CIV 1309 of 1995 Wallwork J decided on 15 November 1996 that the trust had vested on 10 June 1974 upon the death of the Duke of Gloucester. That decision was affirmed on appeal: Clay v Carlson (No 2) (1998) 19 WAR 287. Prior to the plaintiffs' solicitor's letter of 11 January 1995, neither the trustees nor the beneficiaries knew that the trust had vested. So, between 10 June 1974 and 1995 or 1996, the trustees kept the trust going and distributed the income as they sought fit. According to par 23 of the statement of claim and onwards from the year ended 30 June 1982, the trustees have distributed approximately $20,000 per year income to Mrs Clay. According to the statement of claim, they considered that she had a fixed entitlement to that sum in priority to the other beneficiaries. That distribution was made first, before any income was distributed to the other beneficiaries, so excess payments were made to Mrs Clay and this was done in breach of trust.

4 What should be done to rectify the fact that excess payments were made by the trustees to Mrs Clay from 10 June 1974 onwards to the detriment of the other beneficiaries? This question was one of several put to Anderson J in CIV 1501 of 1999 which received his decision in Clay & Ors v James & Ors [2001] WASC 18. The relevant question there is 1.3, which reads:

"Whether payments made from the vested assets of the Trust after 10 June 1974 to a member of the Specified Class must be taken into account as a payment from the member's share in the vested assets and a reduction of that member's residual entitlement in the remaining vested assets."

This question received his consideration in pars 13, 14, 15, 16 and 17 of his judgment. I quote from the latter part of par 14:

"Of course, this is not a case of overpayment or wrong payment as between the beneficiaries, as to which see Livesey v Livesey [1827] EngR 710; (1830) 38 ER 583; In re Ainsworth [1915] 2 Ch 96; In re Musgrave [1916] 2 Ch 417. Nor is it a hotchpot case. The trust deed does not contain a hotchpot clause. Neither is it possible to see that there was any intention that beneficiaries who received a distribution of income or capital during the subsistence of the trust must bring those distributions into account at the expiration of the trust period. But, in my opinion, the general principles applicable in the overpayment cases and the hotchpot cases are those which should be applied in this case. Assuming the trustees to have been honestly mistaken, the Court will intervene to rectify the mistake as fairly as possible as between all the beneficiaries. Leaving aside issues that might well arise on the facts of this case, such as whether a defence of change of position may be available to any beneficiary and whether and to what extent the trustees may be entitled to exoneration or to rely on the defence of acquiescence with respect to their conduct in continuing the administration of the trust, the method to be adopted in adjusting the entitlements as between the members of the special class is the one which was proposed by Mr Foster SC, senior counsel for the first and third defendants. The payments made to beneficiaries after 10 June 1974 should not be treated as payments made in discharge or partial discharge of the obligation to distribute the entire fund as on a winding-up. The fund as it now subsists should be identified as to its assets and valued at its present value. All distributions made since 10 June 1974 should be added back. The total should then be divided by five so as to arrive at what Mr Foster called a prima facie entitlement. From each prima facie entitlement should be deducted the total distributions actually paid to that beneficiary since 10 June 1974 so as to arrive at a present entitlement for each beneficiary: In re Mansel [1930] 1 Ch 352 at 356. No beneficiary should be required to pay interest: In re Hargreaves (1903) 88 LT 100 per Romer LJ at 101; Merriman v Perpetual Trustee Co Ltd (1896) 17 LR (NSW) Eq 325 at 350; In re Diplock [1948] Ch 465 at 505 - 507. That is the answer I would give to this question. Whether this answer is of any practical assistance to the parties I do not know. There obviously are many issues still to resolve which cannot be resolved in this summons. For example, should the assets be sold and converted into cash? To what extent are the trustees entitled to be reimbursed their expenses in arriving at a quantification of the fund? And so on." (Emphasis mine.)

5 In that passage Anderson J referred to a change of position defence which may be available to any beneficiary. The second defendant (Mrs Clay) has raised such a defence. It is par 4A of her amended defence of 28 May 1999, which reads:

"The Second Defendant denies each and every allegation in paragraphs 21A and 21B of the Statement of Claim. Further, or alternatively, if the Second Defendant did receive distributions of income and assets as alleged, which is denied, the Second Defendant received those distributions in good faith and has so altered her position in reliance on the validity of the distributions and it would be inequitable to require the second defendant to repay any amount to the Trust."

The same defence is repeated in par 9(ii) of that amended defence.

6 Mrs Clay has supported that defence in her affidavit in support of this application and I quote from parts of that affidavit:

"8. I have read the Further Amended Defence filed on my behalf in this action dated 28 May 1999. The matters contained in the Further Amended Defence, and in particular paragraph 9(ii) are from my own knowledge true, in that if (which I deny) I did receive payments in excess of the amounts to which I was entitled under the Trust, I received those payments in good faith in that I believed I was entitled to them. All amounts I received from the Trust were spent soon after receipt, in the belief that I was fully entitled to those payments. The money was used in part to pay for the upkeep, maintenance and outgoings of 24 Queenslea Drive, Claremont ('the Home') ... I also spent some of the money on renovations to the Home, such as replacing floor coverings, curtains and painting. The remainder of the money was used to pay for my day to day living expenses.

9. During the period that I received payments, I did not lead what I would call a lavish lifestyle. However, as a result of receiving the payments my lifestyle was less frugal than it would otherwise have been, had I not been receiving payments from the trust, or had it been suggested to me that I may not be entitled to those payments. If I had thought at any time that I was not entitled to the payments, I would have put the money aside in a savings account until my entitlement to the money was certain, and I would have made do on other sources of income. I would have spent less on furniture and non-essential household items, less on clothes and personal accessories and less on entertainment and travel.

10. As I have stated above, I no longer have the payments which I received and I am unable to repay the amounts which it is alleged in paragraph 30 of the Re-Amended Statement of Claim were received by me in excess of my entitlement. I have incurred very large legal expenses in defending a number of actions by the Plaintiffs over the past six or so years, and will continue to incur them. ... "

7 The change of position defence, available to a payee who has received a payment under a mistake, is provided by equity (David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 355) and also by statute. In this case it is only necessary that I refer to the statutory defences. I quote from s 125(1) of the Property Law Act 1969 WA:

"125(1) Relief, whether under section 124 or in equity or otherwise, in respect of any payment made under mistake, whether of law or fact, shall be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment in that in the opinion of the court, having regard to all possible implications in respect of the parties (other than the plaintiff or claimant) to the payment and of other persons acquiring rights or interests through them, it is inequitable to grant relief, or to grant relief in full."

8 I also quote from s 65(8) of the Trustees Act 1962-1978 WA:

"65(8) Where a trustee has made a distribution of any assets forming part of the estate of a deceased person or subject to a trust, relief (whether under this section or in equity or otherwise) against any person other than the trustee or in respect of any interest of any such person in any assets so distributed and any money or property into which they have been converted shall be denied, wholly or in part, if the person from whom relief is sought received the assets or interest in good faith and so altered his position in reliance on his having an indefeasible interest in the assets or interest, that, in the opinion of the court, having regard to all possible implications in respect of the trustee and other persons, it is inequitable to grant relief or to grant relief in full."

9 As previously stated, no affidavit has been filed by the plaintiffs or by the first defendants in opposition to Mrs Clay's statements.

10 Mrs Clay's application for summary judgment against the plaintiffs is in relation to prayers for relief 6(a) and 7(a) of the statement of claim which I quote:

"6 a) to the extent that Mrs Clay has received in the period since 10 June 1974 an amount or amounts from the funds of the Bare Trusts, further and alternatively, of the Trust (inclusive of the value of all benefits and services provided to her), in excess of her entitlement:

(i) she holds, alternatively

(ii) the First Defendants are liable to the Beneficiaries, including the Plaintiffs for,

these excess amounts ('the Excess Amounts') together with compound interest thereon as constructive trustee for the Beneficiaries, including the Plaintiffs, in proportion to the Beneficiaries respective entitlements to the assets of the Bare Trusts, further and alternatively, of the Trust as found by the court on the taking of accounts.

7 Orders that

a) Mrs Clay pay each of the Plaintiffs their respective entitlement to the Excess Amounts together with compound interest thereon at such rate as the court may think fit, or

... "

11 I consider that Mrs Clay is entitled to summary judgment in respect of prayer 6(a) because to be liable as a constructive trustee for the excess amounts which she received from the trustees she would need to be knowingly involved in their breaches of trust. There is no plea to that effect in the statement of claim and it is contrary to her affidavit evidence that she received the excess payments from the trustees in good faith and in the belief that she was entitled to them. Also, she spent the excess amounts. She no longer has the moneys paid to her so she cannot hold those moneys now on a constructive trust. I consider that she is entitled to summary judgment on this prayer for relief without reference to the change of position defence.

12 Prayer for relief 7(a) requires Mrs Clay to pay to each of the plaintiffs their respective entitlements to the excess amounts, together with compound interest at such rate as the court may think fit. I consider, on the appropriate standard of proof for a summary judgment, that Mrs Clay received those overpayments in good faith and has altered her position in reliance on the validity of those payments so that it would be inequitable for her to repay those sums, with or without compound interest, to the plaintiffs. However, I consider it not inequitable that all distributions received by her from the trustees since 10 June 1974 should be added back to the capital of the trust, the total should then be divided by five so as to arrive at a prima facie entitlement for each beneficiary. From Mrs Clay's prima facie entitlement should be deducted the total distributions actually paid to her since 10 June 1974 so as to arrive at a present entitlement for her. Here I am repeating the procedure thought correct by Anderson J in the part of par 14 of his judgment highlighted by me. I am told by counsel that going though this exercise will produce a positive sum of money for Mrs Clay. She will get a lesser final distribution than the other beneficiaries because of the excess amounts she received since 10 June 1974. The same exercise should be done in relation to the other beneficiaries. In coming to those opinions I have had regard to all possible implications of this in respect of the trustees, the five beneficiaries of the trust, and of any other persons acquiring rights through them. I note that this application is not opposed by the other four beneficiaries.

13 I am willing to give summary judgment for Mrs Clay on prayer 7(a), as it now stands. But I consider the prayers for relief against her should be amended to state the adding back and deduction procedure expressed by Anderson J.

14 I will hear the parties on the orders required and on the question of costs.