Clay v Clay

Clay v Clay - [2001] HCA 9 - HCA 2001 case summary — Zoe

[11]

James Edward Carter Clay, whom we shall identify as Mr James Clay, was twice married. The children of the first marriage were Paul James Clay, born in 1954; Moira Helen Clay, born in 1956; and Mark Gregory Clay, born in 1957. They are the first respondents to the present appeal and Mr Mark Clay appears for himself and his siblings. After the death of his first wife, Mr James Clay married again. His second wife, Jeanette Ramona Clay (whom we shall identify as Mrs Clay), is the appellant. There was one child of the second marriage, Jeanette Simone Clay, born in 1964; she is not a party to the present litigation.
Mr James Clay died on or after 20 November 1970. The date of his death may now be given with some certainty, but this was not apparent at the time. Mr James Clay disappeared while flying a light aeroplane and the wreckage was not discovered for several years thereafter. On 4 September 1972, the Supreme Court of Western Australia in its probate jurisdiction and upon the application of Mr David Merritt Speed of the firm of Muir Williams Nicholson & Co, Solicitors of Perth, granted leave to swear that the death of Mr James Clay occurred on or after 20 November 1970 near Coolangatta in Queensland. On 10 October 1972, the Supreme Court granted to Mr Speed probate of the will of Mr James Clay made on 17 October 1969. Mr Speed was one of the executors named therein; the other was Norfolk Estates Limited ("Norfolk Estates") which did not have power under the laws of Western Australia to act as executor.
By cl 3 of the will, Mr James Clay devised and bequeathed his estate upon trust for sale with power to postpone. The estate was to be held upon trust for such of Mr James Clay's children who survived him and attained the age of 25 years. They were to take in equal shares as tenants in common (cl 4). Paragraph (a) of cl 5 conferred a power to make advancements to Mrs Clay of up to $20,000 in each year from Mr James Clay's death, with a power under par (b) to appropriate out of corpus the sum of such advancements in exoneration of the residue of the estate. Clause 5 also conferred powers to apply corpus for the education, maintenance or other benefit or advancement of the children (par (d)), to divide in specie the assets of the estate (par (e)), and to maintain existing investments and to vary, transpose or enlarge them (par (g)). The power conferred by cl 5(d) was to apply for the children income and amounts up to one half of the corpus to which any child was entitled in expectancy.
Immediately before his death, Mr James Clay's four children were living with him and Mrs Clay as members of the one family at a residential property in Claremont known as 24 Queenslea Drive ("Queenslea Drive"). This had been Mr James Clay's family home during at least the latter years of his first marriage and was the family home during the second marriage until his death. At the time of Mr James Clay's disappearance a house was under construction at Jutland Parade, Dalkeith, and Mrs Clay and the four children later moved there; it appears that, for financial reasons, Jutland Parade could not be retained and it was sold by the estate. The family moved back to Queenslea Drive. It is still the home of Mrs Clay.
On 7 March 1973, Mr Speed, as executor and trustee of the estate of Mr James Clay, executed a transfer of Queenslea Drive to Mrs Clay for a consideration of $45,000. The instrument of transfer was dated 7 March 1973 and registered on 21 May 1973. It is this transfer and the retention of Queenslea Drive by Mrs Clay that give rise to the issues now before this Court. It should be noted immediately that the Full Court held that, on the evidence, the trial judge was entitled to be satisfied that the $45,000 consideration paid to Mr James Clay's estate by Mrs Clay was the market value of Queenslea Drive; it followed that the estate had not suffered any loss by reason of the sale[2]. Nevertheless, the Full Court went on to conclude that Mrs Clay had acquired Queenslea Drive in 1973 in breach of her fiduciary duty as guardian of her three stepchildren and that, despite the lapse of time before the institution of the litigation, the action against her was not statute barred[3].
At the time of her acquisition of Queenslea Drive, there was no doubt, in respect of at least three of the four children, that Mrs Clay was their guardian. Section 10(1) of the Guardianship of Children Act 1972 (WA) ("the Guardianship Act") stated:

[15]

On the petition of Mr Speed, and upon satisfaction that the estate of Mr James Clay was insolvent, on 8 August 1974 Burt J of the Supreme Court of Western Australia, in the exercise of federal jurisdiction invested by the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), ordered under s 247 of that statute that the estate of Mr James Clay be administered in bankruptcy. By force of s 249 of the Bankruptcy Act[5], "the divisible property" of the estate vested in the Official Receiver in Bankruptcy and was divisible amongst the creditors of Mr James Clay and the estate in accordance with the Bankruptcy Act. The expression "the divisible property" included the capacity to take proceedings for exercising all such powers in, over, or in respect of, Queenslea Drive as, on 8 August 1974, might have been exercised by Mr Speed as executor for the benefit of the estate. Section 248(1) applied to the administration in bankruptcy various other provisions of the Bankruptcy Act, including s 127. The litigation has been conducted on the footing that, on 8 August 1994 (20 years after the date of order of Burt J), the effect of s 127 and s 248(3) was that "the divisible property" of the estate was deemed to be vested in the trustees of the estate and that no claim to it thereafter might be made under the bankruptcy laws. However, to the extent that "the divisible property" that was so vested in the trustees of the estate comprised the taking of proceedings by them to rescind the transfer of Queenslea Drive, the trustees would have to meet any statute of limitations under the law of Western Australia which might properly be pleaded against them by Mrs Clay.
In 1984, Mr Speed had been convicted of trust account defalcations and in 1985 he had been struck off the roll of legal practitioners. He died in 1992. By his last will, Mr Speed appointed Mr Noel Speed the executor of his estate. By deed dated 14 May 1993, Mr Noel Speed appointed Mr Mark Clay and Mr Andrew Roberts trustees of the estate of Mr James Clay. Thereafter, on 19 August 1993, probate of Mr Speed's estate was granted to Mr Noel Speed. The primary judge later found that, at any material time, Mr Speed had been the only trustee of the estate of Mr James Clay, and the Full Court did not disturb that finding. However, by deed dated 1 December 1993, Norfolk Estates purported to appoint Mr Mark Clay and Mr Roberts as trustees of the estate of Mr James Clay and to retire. By a further deed of the same date, Mr Mark Clay and Mr Roberts appointed the second respondents (Mr Mark Clay, Mr T C Edwards and Delta Consulting Australia Pty Ltd) the new trustees of the estate of Mr James Clay; the deed also provided for the retirement of Mr Roberts. Thus it was in the second respondents that on 8 August 1994 the divisible property was deemed by s 127 of the Bankruptcy Act to be vested.

[30]

The relief sought by the trustees of the estate of Mr James Clay (the first plaintiffs at trial) included an order that Mrs Clay convey Queenslea Drive to them. The relief sought by the stepchildren, the second plaintiffs and present first respondents, in the alternative to that sought by the trustees, included an order that Mrs Clay, as express trustee, convey to each of the three of them one undivided fourth share in Queenslea Drive. To all this relief, the 12 year period specified in s 4 applied either directly or indirectly by reason of the operation of s 24.
Section 16 of the Limitation Act provides that a person who is an infant at the time at which a right of action to recover any land shall have first accrued may, notwithstanding that the limitation period of 12 years has expired, bring an action to recover such land "at any time within six years next after" attaining majority. Paul Clay turned 18 on 7 December 1972, Moira Clay on 20 January 1974 and Mark Clay on 5 June 1975. Counsel for Mrs Clay correctly submitted that, even on the construction of the section which was most favourable to the stepchildren, the extended limitation period effected by the extension under s 16 expired for the youngest of the three in 1993[9]. The litigation by the three siblings against Mrs Clay was instituted in 1994, on any view outside the period permitted by the limitation provisions.
In respect of the litigation instituted by the stepchildren, did any different result obtain by reason of the circumstance that relief was sought against Mrs Clay as express trustee of Queenslea Drive for the undivided interests claimed by them?
Two statutes of Western Australia particularly are material. The first is the Supreme Court Act 1935 (WA) ("the Supreme Court Act"). This reproduced, but in some respects in an expanded form, various provisions of the Supreme Court Act 1880 (WA)[10]. Sections 7 and 8 of the 1880 statute had copied respectively ss 24 and 25 of the Supreme Court of Judicature Act 1873 (UK) ("the Judicature Act"). Section 25 of the Judicature Act dealt with the jurisdiction of the new High Court of Justice, consequent upon the union of the pre‑existing courts of common law, equity, admiralty, divorce and probate. Section 25(2) stated:

[71]

The passage in the judgment of Dixon J in Countess of Bective[61], set out earlier in these reasons, illustrates the application to the relationship of guardian and ward of the points made by Mason J in Hospital Products Ltd v United States Surgical Corporation and Deane J in Chan v Zacharia. In the present case, the Full Court correctly explained[62] that, at the relevant time, the children, as residuary beneficiaries of the unadministered estate, neither beneficially owned nor had beneficial interests in Queenslea Drive[63]. This was not a case of a guardian buying either the property of the ward or the beneficial interest of the ward in property[64].
The result is that neither of the special rules, identified as the "self‑dealing rule" and the "fair‑dealing rule", applied in the circumstances of this litigation. In other respects, there has been some debate concerning the scope of these "rules" and the relationship between them[65]. Brief mention of the subject should be made.
The "self‑dealing rule" is expressed in terms more stringent than the "fair‑dealing rule"[66]. The "fair‑dealing rule" provides that a transaction whereby the beneficial interest of a beneficiary is purchased by the trustee is not voidable ex debito justitiae, but may be set aside, unless the trustee can show that no advantage has been taken of the position of trustee, that full disclosure has been made to the beneficiary, and that the transaction is fair and honest. Where the trustee meets these burdens, the result is that the interest acquired by the trustee is placed beyond any claim by the beneficiary or those claiming under the beneficiary. In any event, in the present case, none of the children had any beneficial interest in Queenslea Drive to be acquired by Mrs Clay.
Shortly stated, the "self‑dealing rule" is that the sale by the trustee of the trust property to himself is voidable by any beneficiary ex debito justitiae, however honest and fair the transaction and "even if [the sale] is at a price higher than that which could be obtained on the open market"[67]. This "rule" may represent the conflation of several principles. First, at common law in such circumstances the contract lacked "intrinsic validity"[68]; there was no contract which could be sued upon, the principle being "that no man can be at the same time plaintiff and defendant"[69]. Secondly, at common law, a person could not convey a freehold estate to himself, nor assign a leasehold term or other personal property, and, in general, choses in action were not assignable; attempted dispositions would be nullities at common law; however, under the Statute of Uses a conveyance might vest a freehold estate in the conveyor[70]. Further, a distinction is to be drawn between conveyances of legal title and the overreaching of beneficial interests in the subject-matter of the conveyance. Thus, in equity, these attempted dispositions also would be breaches of trust by the trustee and would not displace or override the interests of the beneficiaries[71]. Equity would intervene to support the beneficiaries, for example, by orders for delivery up of the purported conveyance[72] and for an accounting[73].
In many jurisdictions, including Western Australia, statute has altered the common law rules described above. For example, s 44 of the Property Law Act 1969 (WA), which resembles s 24 of the Conveyancing Act 1919 (NSW) and s 49 of the Property Law Act 1952 (NZ)[74], states:

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