Elder's Trustee & Executor Co Ltd v Higgins

Will you kindly write us intimating your approval of the foregoing.

On 12th January Mrs. Borrow replied in a letter addressed to the manager:

I have to acknowledge receipt of your letter of the 10th instant intimating your intention to purchase my share of the "Burnt Oak" property at the fixed purchase price of £2,139 5s. 7d.

I am in complete agreement with the details as set out in your letter and await your further advices when consent has been obtained for the sale and purchase of the property.

On 13th January the manager wrote to Mrs. Cave, the letter having been composed by Upton:

We refer to recent correspondence and our Mr. Upton's conversation with you per telephone and now write to advise that we are prepared, as Trustees of the above Estate, to rent your interest in the "Burnt Oak" property for a further period of five years as from the 1st January last at the like rental and upon similar terms and conditions as applying under the Tenancy Agreement dated the 3rd April, 1940 including a right of purchase by the Trustees or their nominee in manner and price appropriate in the circumstances to the right of purchase contained in the Agreement above referred to.

We shall have prepared for your signature in due course the necessary Agreement covering the period of extension of the Agreement and shall advise you when same is in readiness for signature.

For your information we mention that the Trustees have advised Mrs. Borrow of their intention to purchase the latter's interest in "Burnt Oak" in the name of their nominee, Mrs. M. Y. Higgins, and in that connection the necessary steps are now being taken to obtain the required consents to the sale and purchase.

The reference to "recent correspondence" in the above letter is to the letter of 29th December 1944, quoted above, from Mrs. Cave, and an acknowledgment of it on 30th December.

On 16th January Mrs. Higgins wrote a formal letter, obviously prepared for her, to Mrs. Borrow offering to purchase "all that your one third share and interest in the "Burnt Oak" property for the sum of £2,139 5s. 7d. cash payable at Adelaide within 14 days of the receipt of the last of the Consents of the Commissioner of Crown Lands and of the Delegate of the Federal Treasurer". By an endorsement on this letter, dated 19th January, Mrs. Borrow said: "I hereby agree to accept the offer of the above-named Mabel Yseult Higgins to so purchase my said share and interest ". From this it appears that Mrs. Higgins was now regarded as purchasing direct from Mrs. Borrow rather than that she was to be the nominee of the trustee. And this is the construction that the appellant placed on the matter in par. 9 of its statement of defence, where it said: "The defendant suggested to the plaintiff's mother that she should purchase the lands or interests which were the subject of the options and the plaintiff's mother purchased the one-third interest in "Burnt Oak" owned by Blanche Isobel Mary Borrow". It may be that the original plan was that Mrs. Higgins should purchase not merely Mrs. Borrow's interest but Mrs. Cave's also. But by the middle of January Mrs. Cave had said she did not wish to sell her interest then, but that she was willing to give a lease with a renewed option to purchase. However, after having consulted her solicitor, Mr. Hargrave, she changed her mind, probably on his advice, and said that she would give a lease, but not an option of purchase, that that should be left open. It may be said here, because of the criticism of Hargrave's conduct by Upton and later by members of the Higgins family, that his advice throughout seems to have been entirely sound from the point of view of his client. On 23rd January, Upton wrote a personal letter to Mrs. Higgins:

Since last seeing you, Mrs. Borrow called on me and I had all papers necessary to the completion of the sale by her finalized. Mrs. Cave was to call the following day to complete the Lease (with Right of Purchase) of her portion, to the Estate.

Instead however, our "friend" Hargraves "phoned"me to ask for the Lease to be sent to him for completion by Mrs. Cave, and the next development was an advice from him to the effect that "Mrs. Cave in writing us intimating that she was prepared to extend the Lease for a further term with a Right of Purchase, she did not fully understand what she was doing". Any other excuse or lie from the gentleman (?) in question would have had just as little effect on me, as I went to no end of trouble to explain the proposal very fully to Mrs. Cave.

The gentleman went on to say that he felt it his duty to point out to his client that the future may hold many implications affecting Currency - (and a few other "mays" and "mights" and "ifs", which to me, all spelt " Costs ") and that Mrs. Cave would not consider a sale of her interest based on 1935 Values but should she be approached at any time in the future, she would of course be in a position to consider a sale or a value comparable with the values ruling at the time of any such approach. He thought also that a term of five years was somewhat long and considered a three years' lease ample etc. etc.

To me, it appeared in all the circumstances, that any comment on our part would not be judicious and beyond remarking that I had no doubt in my own mind that Mrs. Cave fully understood what was intended to be done, and had in fact intimated to Mr. Alan Higgins prior to our approach to her, that she did not wish to sell at this juncture but preferred to lease her interest on lease to the Estate with a Right of Purchase similarly as applied to the last term.

However, I do not think any harm has been done nor that the Estate is likely to be prejudicially affected by Hargrave's intervention. I do know, on the other hand - assuming we get Federal Treasurer's Consent to the sale by Mrs. Borrow - that Mrs. Cave's position in the future will be correspondingly as weak as ours is strong - we will be on the Box Seat and therefore in a position to control Mrs. Cave's interest at will.

You will, I think, agree with me that your and the family's attitude locally, will require to be carefully watched, to ensure that "no spanners are thrown into the Works" - in fact and better still - "know nothing".

What the last paragraph meant is not apparent but the rest of the letter is revealing. Upton seems to have thought that because the estate and Mrs. Higgins would together have two third shares they would be "on the Box Seat and in a position to control Mrs. Cave's interest at will". Minson, in his evidence, said he could think of no other explanation of the passage: and he agreed that, as expressed, it shows a misconception of the position of co-owners. That Upton misunderstood the legal position then, and that he continued to do so, seems to be borne out by what occurred some years later when, as a result of a letter he wrote after Mrs. Cave's death, Hargrave wrote to him: "it appears that you have not appreciated the rights of tenants in common desiring to put an end to community ownership. Under the Law of Property Act, 1936 the trustee of Mrs. Cave's Estate is entitled to an order for the partition of the land or alternatively to an order for its sale as a whole". This perhaps over simplifies the effect of ss. 70 and 71 of the Act: Pitt v. Jones [1] ; Perman v. Maloney [2] ; and Upton may not have been as mistaken as was suggested. But that is immaterial. Whatever was the reason, he was too sanguine. Had he better understood what had happened he and the manager, who signed the correspondence, must have realized that the consequences that could ensue for the estate could be serious if nothing were done to retrieve the position. And until the end of January, still a few days off, it was retrievable. The trustee, when it learnt that Mrs. Cave had changed her mind and would not agree to a renewal of the option, could have exercised it forthwith and thus obtained Mrs. Cave's interest for £2,139 5s. 7d. There might have been some technical difficulty in complying, in manner and form, with the requirements for its exercise in respect of Mrs. Cave's interest alone, Mrs. Higgins having already bought or agreed to buy Mrs. Borrow's interest. But any such difficulty could then have been overcome with Mrs. Higgins' co-operation. Indeed it was not disputed that the trustee could have exercised the option up to 30th January 1945. On that day the manager wrote to Mrs. Cave's solicitors acknowledging a letter from them that expressed her attitude and saying, "We note that Mrs. Cave is prepared to agree to the leasing of her interest in the Burnt Oak property for a further term of five years, but desires the question of selling such interest to be left open at the end of the term": and the letter went on to agree to a suggestion by Mrs. Cave's solicitors that the trustee and Mrs. Higgins should be joined as lessees of Mrs. Cave's interest. The trustee had bowed to Mrs. Cave's attitude. It had allowed the future of "Burnt Oak", and thus of the estate as a whole, to slip from its control. That was now in the hands of Mrs. Higgins and Mrs. Cave and their successors in title. Of course Mrs. Higgins might be relied upon to exercise her rights as co-owner in co-operation with the trustee and in the interests of her children. All that she asked was that the estate pay the rates and taxes on "Burnt Oak". Yet her interests and those of her children might not necessarily coincide in the years to come. And, as the trustee disclaims any idea that she held her purchase on behalf of the estate, she could dispose of it as she chose. So far as Mrs. Cave was concerned, there could be no expectation that she or her successors in title would wish to advance the interests of the Higgins estate at the expense of her or their own interests. The trustee's failure to exercise the right to buy the outstanding interests in "Burnt Oak" had thus created a position that was fraught with the possibilities of serious loss and damage to the trust estate in the future. And so it turned out. 1. (1880) 5 App. Cas. 651. 2. [1939] V.L.R. 376.

The rest of the history may be recounted fairly briefly. The business continued to be profitably carried on with Alan Higgins as manager. He and his brother Kevin (the third named respondent) worked on the property. Mrs. Higgins continued to take a close interest in the management and affairs of the property. In 1946 she paid £2,000 off the estate's debt to the Savings Bank, and obtained a release from mortgage of part of "The Brook"; and £2,000 to Elder, Smith & Co. Ltd. which, with the credit then in the estate account, sufficed to discharge the whole of the estate's liability to that company. The trustee thereupon executed a mortgage to her for £4,000. All seemed to be going smoothly. Then in 1948 Mrs. Cave died. Hargrave, her solicitor, was the executor and trustee of her will. He soon made it known that the Higgins estate would not be allowed to remain in possession of the whole of "Burnt Oak" after the lease expired in 1950. "The trustee of Mrs. Cave's estate is not prepared to renew the existing lease, but is desirous of putting an end to the existing co-ownership", he wrote in September 1949. From then on, protracted, and not very happy, negotiations went on between the appellant, as trustee of the Higgins estate, and Hargrave, as the trustee of Mrs. Cave's estate, he insisting on a partition. Various proposals for subdivision were considered and rejected. Ultimately "Burnt Oak" was put up for auction and sold in four lots in August 1951. Mrs. Higgins bought Lot 1. It consisted of 1,606 acres and was the most valuable part of "Burnt Oak", and the part that was essential for the efficient working of "The Brook". Mrs. Higgins allowed the estate to have the use of it upon paying the rates and taxes. The future of the business had therefore been saved by Mrs. Higgins, although the loss of the remainder of "Burnt Oak" reduced the number of sheep that could be carried by, it was said, about three hundred. The prices received at the sale brought strikingly home to the beneficiaries in the Higgins estate what they had lost and might have had if the estate had exercised its option and spent £4,278 in 1944, for the total price obtained for "Burnt Oak" at the sale was £45,050. The price paid for Lot 1 was £27,626. Contrast two-thirds of that with the total price, under £3,350, for which the estate could have obtained the outstanding interests in the particular parcels that comprised Lot 1.

Even before the sale, Alan Higgins had become reproachful. On 30th January 1951 he wrote to the manager of the trustee company:

I am utterly disgusted with the manner in which your Company has handled the whole business.

As a result of the failure by your company to exercise that right or to offer to any member of our family the right to exercise it before the expiry of the lease, we now find ourselves facing the highest of values.

In the course of its reply, dated 3rd February 1951, the trustee wrote, the letter being signed by the assistant manager,

whilst it is admitted that certain difficulties have arisen out of the action of Mrs. Cave's Trustees in suing for a partitionment of the "Burnt Oak" property - it cannot be denied that these difficulties have been unavoidable and we accept full responsibility for same.

Notwithstanding that you have been already full informed in connection with the Trustees decision not to exercise the right of purchase contained in the several Leases of that property, you appear to be still under a complete misapprehension as to the reasons leading to such decision which, after all, was entirely a matter for the Trustees determination.

Alan Higgins then asked to be told in writing what were the trustee's reasons for not exercising the option. In reply the manager wrote, on 28th March 1951:

Following your talk with me on the 19th February I have, as promised, investigated the position regarding the Trustees' decision made some years ago not to exercise the option to purchase Mrs. Cave's and Mrs. Borrow's one-third interests in the Burnt Oak property.

The result of my investigation has been that this was an official decision of the Trustees made by the then Manager of the Company (Mr. Oswal Tipping) in his official capacity after he had thoroughly examined and considered the Estate's financial position and other material factors affecting the exercise of such option.

The reasons for such decision were firstly that the estate had no capital funds to enable such a purchase to be made and further that the estate's assets were then heavily encumbered with mortgage and other liabilities, which had been owing at the time of your father's death and which for lack of capital monies the Trustees were not able to discharge and that the Trustees were not prepared to incur further mortgage debts whilst original estate debts were still unpaid.

You raised the point on the question of lack of finance that between £1,000 and £1,500 cash was lying in the Bank in December 1944 and that a wool cheque was due between the following January and March and that there were also proceeds to come in from sale of surplus stock. This is substantially true, but these monies were all income which in law could not be used by the Trustees to purchase capital assets.

In substance, the company adhered to what it there said as the justification for its action, or inaction. Before examining it, it is necessary to complete the story of the events.

On 22nd December 1953 the testator's youngest child, Raymond, the fifth named respondent, became twenty-one. The estate thereupon became divisible among all the children according to the terms of the testator's will. The sons were to have an option to purchase the land and the livestock, plant, chattels and effects used in connexion with the business at a valuation to be made. The widow was to have an annuity. How the matter of the distribution of the estate was ultimately adjusted among the beneficiaries need not concern us. Their attitude towards the trustee is, however, of some importance in view of the defence of acquiescence and delay.

On 17th December 1953, that is a few days before his brother became twenty-one, Alan Higgins said in a letter to the trustee: "It is our intention to take proceedings to recover damages from your company". After some delay due to prosecution of enquiries by the solicitors and so forth, this action was commenced by a writ of summons dated 15th February 1957. The statement of claim alleges breaches of trust in various forms. They all centre, however, upon the failure by the trustee to exercise the options to purchase with, added to that, certain incidental complaints. The relief claimed was: "(a) a declaration that the defendant has been guilty of the said breaches of trust and negligence in the performance of its duties and in the exercise of its discretion; (b) an enquiry as to the loss or damage suffered by the plaintiffs; (c) an order for payment to the plaintiffs of the amount of such loss or damage; (d) all such other or further accounts enquiries directions and relief as may be proper in the circumstances."

These claims seem to be somewhat misconceived. If a breach of trust were established, the ordinary order would be that any resulting loss be made good to the estate, not to the beneficiaries. Secondly, when the action was commenced Mrs. Higgins was alive. Yet she was not made a party, either as plaintiff or defendant, as according to the principles governing proceedings in equity would have been proper. She was interested in the relief sought, for she was entitled to an annuity which was charged upon corpus. Moreover she had participated in one of the acts alleged to be a breach of trust. However, no objection was taken to the form of the proceedings in relation to either the parties joined or the relief asked. The defendant by its defence denied any breach of trust and alleged laches and acquiescence on the part of the plaintiffs and claimed that, if it had been guilty of any breach of trust it had acted honestly and reasonably and ought fairly to be excused according to the statute.

The case came on for hearing on 20th February 1962 and lasted several days. Later, in a reserved judgment, his Honour set out the facts, made various observations upon them, surveyed at some length a number of principles of law and then found in favour of the plaintiffs. His Honour's reasons show that, in his view, the trustee could have exercised, and ought to have exercised, the option to purchase the interests of Mrs. Borrow and Mrs. Cave. He rejected the defences of acquiescence and delay. In the upshot his Honour made a declaration that "the defendant has been guilty of breaches of trust and negligence in the performance of its duties and in the exercise of its discretions as the sole trustee of the estate of Hugh William Desmond Higgins deceased particulars of which said breaches of trust and negligence are set forth in the statement of claim". The formal judgment then went on to order "that an enquiry be made by the Master as to the loss suffered by the plaintiffs by reason of such breach of trust as aforesaid"; and that "the plaintiffs be at liberty to sign final judgment for the amount of the loss ascertained by the said enquiry to have been sustained by the plaintiffs and that the plaintiffs be allowed to add to the judgment the costs of such enquiry to be taxed". Finally it was ordered that the defendant pay the plaintiffs' costs of the action.

The plaintiffs could not complain of this order. It was what they had asked for in their statement of claim. But, whatever view be taken of the merits of the case, an order in this form cannot stand. It leaves it uncertain what are the breaches of trust and negligences found to have been committed and in respect of which damages are to be assessed by the Master; and it directs that the amount found by the Master be paid to the plaintiffs not made good to the testator's estate. These are remediable defects. It is not of them that the appellant complains, but of the finding that it was guilty of a breach of trust. As the matter comes before us as a re-hearing, it is more convenient to examine that issue directly than to pursue the various criticisms that have been made of passages in the judgment of the learned trial judge.

In considering whether the trustee duly performed its duty we must take our stand at the end of 1944 or in January 1945, and look at the position as it would then have appeared to a prudent man acting as trustee of the testator's estate. We are not to judge what the trustee then did or failed to do by the light of later events that could not then have been surely foreseen. They are relevant in determining what loss resulted from the breach of trust if there were one. They do not help to determine whether or not there was one. The appellant's argument was simple. Summarized, it was: The trustee was well aware of the option to purchase: in its discretion, it decided not to exercise it: a trustee who exercises honestly a discretion with which he was entrusted does not commit a breach of trust because it turns out that he exercised it in an unwise way. The last proposition was illustrated by a wealth of cases, commencing with Gisborne v. Gisborne [1] . It is unnecessary to go through them. There is no question that a trustee to whom a discretion is specifically given is protected if he exercises it in good faith, whether the result turn out to be good or bad. And, as the court will presume that he acted bona fide, the onus is thus on those impeaching his acts to prove the contrary. But we are not in this case concerned with a particular discretion specifically given by the trust instrument, but with the general duty of a trustee holding property for persons in succession and carrying on a business, the principal asset of the trust estate. The testator empowered the trustee to postpone conversion of his estate and "to make out of the income or capital of my real or personal estates any outlay which my Trustee may consider proper for the benefit or in respect of my real or personal estate". He had expressly directed that his pastoral business or businesses be continued and provided that "my Trustee shall have the fullest powers and discretions as to the mode of conducting my said business or businesses or any of them and otherwise in relation thereto as if my Trustee were the absolute owner thereof". The duty of the trustee was to exercise due diligence, care and prudence in the conduct of the business, bearing in mind the need to preserve the capital of the testator's estate for those entitled in remainder: Speight v. Gaunt [1] ; Learoyd v. Whiteley [2] . If it did not do this it was guilty of a breach of trust. The argument that the trustee having, it was said, exercised a discretion, its conduct is now unchallengeable is sufficiently answered by a passage from the judgment of Fry L.J. in Re Brogden; Billing v. Brogden [3] : "A trustee undoubtedly has a discretion as to the mode and manner, and very often as to the time in which and at which he shall carry his duty into effect. But his discretion is never an absolute one; it is always limited by the duty - the dominant duty, the guiding duty - of recovering, securing, and duly applying the trust fund. And no trustee can claim any right of discretion which does not agree with that paramount obligation" [4] .

1. (1877) 2 App. Cas. 300. 2. (1883) 22 Ch.D. 727. 3. (1886) 33 Ch.D. 347; (1887) 12 App. Cas. 727. 4. (1888) 38 Ch.D. 546. 5. (1888) 38 Ch.D., at p. 571.

The testator's estate included the right of himself, his executors, administrators and assigns to buy his sisters' interests in "Burnt Oak" for £4,278 11s. 0d. That was one of the assets of the business which the trustee was carrying on. Whether or not one calls letting it go in the way it was let go an exercise of discretion, the question remains, was it the act of a prudent trustee. The trustee's explanation of the failure to buy it is that there was no ready money in the estate and that it was not considered prudent to add to the liabilities of the estate. This, however, is to look at the question as if it were whether or not it would be expedient for the estate to buy a new asset: whereas the true question is whether the estate could afford not to buy something which it must have if the value of its main asset were to be preserved. The intrinsic value of the interests of Mrs. Cave and Mrs. Borrow is thus in a sense a secondary consideration. But it is worth noticing that the option was in fact in itself a valuable right. On the basis of the Estate Duty assessment the interests of Mrs. Cave and Mrs. Borrow were worth £5,048 at the testator's death. A valuer, who gave evidence, estimated that the market value of "Burnt Oak" as at 31st December 1944 was £4 10s. 0d. per acre. On that basis the value of the outstanding two third interests was then £8,052. The true value in 1944 may be debatable, as under the wartime regulations the selling price of land had been pegged at 1942 values. But whatever it was, the outstanding interests of Mrs. Cave and Mrs. Borrow would then have been well worth the option price, £4,278, indeed would have been cheap, regardless altogether of the special value of the "Burnt Oak" lands for the business.

There is no question that the money needed could have been raised. The mortgage debts were frozen. The business was profitable. The trustee had power to borrow money and to give a mortgage for the purpose of carrying on the business. Even if the powers given by the will had not sufficed, they were supplemented by the Trustee Act, 1936-1941 S.A., s. 28b (1), introduced by the amending Act of 1941. The alternative suggestion to borrowing that was canvassed before the learned trial judge, and approved by him, was that a reserve fund sufficient for the exercise of the options should have been created by keeping back income during the period the trustees had Mrs. Borrow's and Mrs. Cave's interests on lease. No doubt this could have been done with Mrs. Higgins' approval. And if she had been asked she might perhaps have approved, as the maintenance of the capital of the business was as much to her interest as to that of the remaindermen. Nevertheless the cost of purchasing the interests of Mrs. Cave and Mrs. Borrow was an expense that properly would fall upon corpus. And, with respect to his Honour, it seems doubtful whether the diversion of income to a reserve fund for this purpose could properly have been done without Mrs. Higgins' authority or an order of the Court. The power given to the trustee to determine what moneys were capital and what income, on which his Honour relied, would not authorize a wholly erroneous decision. On the other hand the express power to make out of income or capital any outlay the trustee might consider proper for the benefit or in respect of the real and personal estate need not be narrowly construed. If the trustee had approached the Court with a proposal for the creation of a reserve by withholding income to meet the expenditure when the need arose, the proposal might perhaps have been approved. However that may be, the matter was apparently never considered by the trustee. And it need not be further considered here, because the obvious and direct way to have found the money would have been by borrowing. The trustee could have raised the money without itself incurring any liability beyond the assets of the estate. It could, it seems, have availed itself of the overdraft that it appears Elder, Smith & Co. Ltd. would have allowed the estate account against the security that it held. If it had been necessary to give further security, the "Burnt Oak" lands were unencumbered; and there is no reason to suppose that permission to mortgage them, which under wartime regulations was required, could not have been obtained. Indeed it was conceded in the course of the argument, as in the light of the evidence it had to be, that the moneys needed could have been obtained by the trustee. Because of this concession, it is unnecessary to examine in detail the estate's financial position in 1944. Had the money required been raised, Mrs. Higgins, being entitled to income, would have had to keep down the interest; but as against that, income would no longer have had to meet the outgoing for rent to Mrs. Borrow and Mrs. Cave, and income would not be reduced by the truncation of capital assets. It is worthwhile looking at one further aspect, for it is illuminating. Let it be assumed that the trustee for some reason thought it ought not to borrow as much as £4,200 to acquire the whole of the "Burnt Oak" lands, it would have been possible, by exercising the right to purchase particular parts for much less a sum, to have obtained those parts possession of which was essential for the effective conduct of the business and the enhancement of the value of "The Brook". For example, the two small parts of "Burnt Oak", a hundred and twenty acres in all, which cut parts of "The Brook" off from the rest, could have been had for £213 6s. 8d. and £93 6s. 8d. respectively. And section 2162 could have been had for £173 6s. 8d.; and section 2163, adjoining it, for £673 6s. 8d. On the latter were the sheep drafting yards and cattle yards, sheds, the dip and its yards and the "Burnt Oak" homestead where Alan Higgins lived after his marriage. To have acquired this area would have increased the frontage of "The Brook" to Currency Creek. Thus, for an expenditure of only £1,153 the more serious consequences of losing "Burnt Oak" could have been avoided. And by a further expenditure of £1,139 the parcel listed as sections 2087-2089 and 2153-2155 could have been had. Its acquisition would have added very considerably to the value of "The Brook", making it a more balanced and workable property well watered by Currency Creek. Had the trustee, appreciating in this way what various portions of "Burnt Oak" meant to the estate as a whole, purchased some of them and let go the right to purchase the rest, it is probable that its decision would not have been questioned by a court. But it did not do this: there is no record of it ever having considered doing it: and the course it in fact took suggests that it did not. Nevertheless the appellant has asked us to infer that, since mala fides or neglect is not to be imputed to a trustee from his silence alone, the various possibilities must have all been considered and a decision made to reject them. If that were so, the decision would seem to have been one that a prudent man, duly considering the relevant facts, could not reasonably reach. The proposition is in the circumstances unconvincing; but in any event we are not now called upon to say that some particular alternative to the purchase of the whole might have been adopted, unless we should think the exercise of the option as a whole was impracticable, or would have been improvident or inexpedient. It was urged for the appellant that this was so. It was said that quite apart from having no ready money in hand, the trustee must have considered that the uncertain prospects of the future made any purchase imprudent. The end of the war was not in sight; it was no time, it was said, to be increasing the liabilities of the estate or embarking money in pastoral enterprises. But, we repeat, this was not a case of entering upon some new enterprise. The trustee was, pursuant to a direction in the trust instrument, carrying on a pastoral business, a going concern. If the lands on which it was being carried on were separated, that business would be damaged, and the value of what remained, "The Brook", would be greatly diminished, whether in the future land values rose or fell. The uncertainties of the future could not justify the trustee in neglecting to safeguard the trust estate.

We agree with the learned trial judge that the trustee must be held liable for a breach of trust. We agree too that the defences of acquiescence and laches fail on the facts. The defence based upon s. 56 of the Trustee Act, 1936-1953 S.A. fails too, for it cannot be said that the trustee acted reasonably. Moreover, although a professional trustee is not beyond the protection of the section, "such a trustee would have to establish a strong case before the court would apply the section in its favour": Partridge v. Equity Trustees Executors and Agency Co. Ltd. [1] and see National Trustees Executors and Agency Co. of Australasia v. Dwyer [2] .

1. (1947) 75 C.L.R. 149, at p. 165. 2. (1940) 63 C.L.R., at p. 23.

It was submitted for the respondents that the trustee had been at fault because the question of exercising the options never came before the board of the company. That is a circumstance to be considered: but it is not of itself a decisive consideration. The directors of a trustee company are not concerned merely with the interests of shareholders in a business. They are concerned with the interests of the beneficiaries on whose behalf the company is administering trusts. The legislature empowered the company to be a trustee. It holds itself out to the public as ready and able to perform properly the duties of a trustee. But that does not mean that the directors must themselves supervise all aspects of the administration of all its trusts. A trustee company, like any other company, acts by its officers. It discharges its duty if its officers are competent to perform, and to properly perform, the trusts it undertakes. If they fail to do so, it is responsible.

The next question is what is the relief to which the plaintiffs were entitled? The liability of a trustee committing a breach of trust is measured by the loss or depreciation which his act or omission has caused to the trust estate. He must make good any depreciation and damage which the estate has suffered. In this case the loss arose because the trustee failed to acquire Mrs. Borrow's and Mrs. Cave's interests in "Burnt Oak". The extent of that loss, which is a loss of corpus, is to be determined at the date when the corpus vested in the remaindermen in possession, namely on 22nd December 1953. At that date the trustee would, had it acted prudently in 1944, have held "The Brook" and "Burnt Oak", subject to encumbrances, upon trust for them. As it was, the only land it held upon trust for them was "The Brook". The estate had, however, received its one third share of the proceeds of the sale of "Burnt Oak" in 1951. And as a result of the transactions that Mrs. Higgins entered into, including her purchase at the sale, the use of the whole of "Burnt Oak" had in fact been preserved for the estate until 1951 and a large part of it thereafter. By her will Mrs. Higgins left her "Burnt Oak" land, that is Lot 1 that she had bought at the auction, to two of her sons with a contingent charge in favour of her other children. But that the bounty of their mother, upon her death in 1961, then brought part of "Burnt Oak" to some of the beneficiaries in the testator's estate is a fortuitous circumstance. It does not in any way alter the fact that they did not all succeed to all of it in 1953, as they would have done if the trustee had prudently and properly performed its trusts.

The judgment of the Supreme Court should be discharged with a view to substituting an order in a different form. Otherwise the appeal should be dismissed with costs. The parties should have an opportunity of speaking to the form of the order which, subject to hearing them, will declare that, in failing to exercise the right to purchase the interests of Mrs. Cave and Mrs. Borrow in "Burnt Oak" for the benefit of the testator's estate, the appellant committed a breach of trust: and that the matter be remitted to the Supreme Court to ascertain the loss to the estate thereby caused. Whether the enquiry be by the Court or the Master, the loss should be ascertained as follows: determine what on 22nd December 1953 would have been the value of two one-third shares of a tenancy in common notionally existing in "Burnt Oak" at that date: from the amount so ascertained the sum of £4,278 should be deducted; and a sum equivalent to the amount of the difference paid by the appellant to the estate of the testator, together with interest on such sum at five per cent from 22nd December 1953 until the date of payment.

This is an appeal by the defendant company against an order made in proceedings heard by Mayo J. in the Supreme Court of South Australia in which his Honour found that the company had committed "breaches of trust and negligence in the performance of its duties and in the exercise of its discretions as the sole trustee of the estate of Hugh William Desmond Higgins deceased" to whom I shall refer as the testator. The plaintiffs, the respondents to the appeal, are the children of the testator and the youngest of them attained the age of twenty-one in 1953. The order against which the appeal is brought stated that the breaches of trust and negligence committed by the company were those contained in the particulars in the statement of claim. It went on to order that an enquiry be made by the Master as to the loss suffered by the plaintiffs by reason of such "breach" and that the plaintiffs be at liberty to sign final judgment for the amount of the loss ascertained by the enquiry. It is clear that whatever be our decision on the merits of the case, the order cannot stand in its present form. The particulars in the statement of claim contain numerous allegations of breaches of trust, some of which are inconsistent with others and are put as alternatives. They cover a period of many years, and it would be impossible for an enquiry to be conducted to ascertain the amount of loss without knowing what were the breaches found to have occurred and when they occurred. Finally, even if the precise breaches could be ascertained from the order or from the reasons given by Mayo J., which are in general terms, and the loss ascertained, the plaintiffs cannot be at liberty to sign judgment for the amount of that loss. It would have to be made good to the estate and not directly to the plaintiffs.

I turn now to the happenings with which the case is concerned. They took place from 1937 onwards and when the hearing came on in February 1962 a number of those who would have been able to throw light on the matters in issue were dead. The testator's widow had died in 1961, and one of his sisters, a Mrs. Cave, was also dead. I have not been able to discover from the evidence whether another sister, Mrs. Borrow, was alive at the date of the hearing but if she was, she was not called as a witness. The two officers of the company who dealt with the estate affairs during the relevant period were its then manager, Mr. Tipping, and a Mr. Upton, one of its trust officers. The former died in 1947 and the latter in 1957. Statements, oral or written, made by these officers in the course of their duties afford evidence of the facts so stated and some material of this kind is available. There are few other records from which any assistance can be had. For these reasons alone, the investigation for which the case calls is a difficult one.

The question which finally emerges is whether it is shown that during the month of January 1945 the company, as the executor and trustee of the estate, failed to perform the duty which it owed to the beneficiaries under the testator's will, and this, in turn, resolves itself into a consideration of the question whether it improperly exercised a discretion in relation to certain options to purchase the interests of the testator's sisters, Mrs. Borrow and Mrs. Cave, in a pastoral property known as "Burnt Oak". It is essential to bear in mind that it is to the state of affairs as known at that time that regard must be had and some of the background should be stated. The war in Europe was still in progress. In the middle of December 1944 the German counterstroke in the Ardennes, aimed at seizing Antwerp and cutting the supply lines of the Allied Armies in the north, had begun. As Sir Winston Churchill would later write (The Second World War, vol. VI p. 238), "a crisis burst upon us" and until well into January the result of that battle was in doubt. It was impossible to forecast when the defeat of Germany would be complete nor could it reasonably have been foreseen that the war in the Pacific would end as soon as it did. The Australian wool clips were still being acquired under the wool purchase arrangement between the United Kingdom and the Commonwealth and it was well known that there was a huge accumulation of wool in Australia and elsewhere which would ultimately have to be sold to a war shattered world in competition with oncoming clips. The Joint Organisation plan for dealing with that accumulation in the post war years had not been evolved nor had the Marshall Plan and no one could have foreseen the great increase in wool prices and land values which occurred in the post war years. The case is not to be decided in the light of what is now known to have happened since 1945. The question is one of foresight in 1945 and not hind-sight in 1962.

It is necessary to state in some detail the events which led up to these proceedings. The testator died in 1937 leaving a will, dated 28th August 1928, by which he appointed the company his sole executor and trustee. During his lifetime he had carried on business as a pastoralist on three properties known as "The Brook", "Burnt Oak" and "Finnis Point". "The Brook" was a freehold property of 3,000 acres of which he was the owner, as he was of "Finnis Point" which comprised about 1,500 acres and was 10 miles away from "The Brook". "Burnt Oak", which adjoined "The Brook", consisted of 2,684 acres of which 272 acres were held under perpetual Crown lease, the balance being freehold. It was held by the testator and his two sisters, Mrs. Borrow and Mrs. Cave, as tenants in common in equal shares. The testator's grandfather was the original owner of "The Brook". He left it to the testator's father who in turn left it to the testator. "Finnis Point" was purchased by the testator during his lifetime. "Burnt Oak" was earlier owned by his mother and on her death it passed to him and his two sisters as tenants in common. Up to the time of his death and for many years before it, "The Brook" and "Burnt Oak" had been worked as one property. For example, the wool-shed, the main workshop and a homestead were on "The Brook", and the sheep and cattle yards, sheep dip and another homestead on "Burnt Oak". Stock depasturing on "The Brook" were, to a considerable extent, dependent on part of "Burnt Oak" for water. The fencing on the properties had been erected for convenience in working and not by reference to the boundaries, and it is plain, as the learned judge found, that the two properties "obviously dovetailed" and that, if for any reason some sections of "Burnt Oak" ceased to be available to "The Brook", considerable expenditure would be necessary to enable the latter to be run as a separate unit. At the time of the testator's death a tenancy agreement, dated 3rd October 1935, existed by which his two sisters had leased him their interests in "Burnt Oak" for a term of five years from 1st January 1935 at a rental of £200 per annum. The agreement gave him an option to purchase those interests for £4,278 11s. 0d. exercisable during the currency of the agreement but this was not exercised by him during his lifetime or by the company after his death. By his will he left the income from his estate to his widow until she should re-marry or die or until his youngest surviving child should attain the age of 21 years. Upon any of these events occurring the estate was to go to the children as tenants in common, the share of each son to be double that of each daughter, but subject to the payment to the widow during her life of an annuity of £400. The will empowered the company to continue to carry on the pastoral business until the youngest child attained the age of twenty-one years or for such shorter period as it thought fit and gave it "the fullest powers and discretions as to the mode of conducting the business as if the trustee was the absolute owner thereof". It directed that so long as "The Brook" remained unsold the widow should have the free use and enjoyment of the homestead on it during her widowhood and, in fact, she continued to live there until long after her husband's death. Following his death it was decided by the company to carry on the pastoral business and the eldest son, Alan Higgins, who was then about twenty-two years of age, was appointed to manage it. On 3rd April 1940 another tenancy agreement relating to "Burnt Oak" was entered into between the company on the one hand and Mrs. Borrow and Mrs. Cave on the other. By it the two sisters agreed to lease their interests to the company for a term of five years commencing on 1st January 1940 at a rental of £200 per annum. It also gave the company an option to purchase during its term "the shares and proportions of" the two sisters "of and in any parts or part of the said lands" (that is, "Burnt Oak") "set out in the first column of the schedule hereto for the sum or sums set opposite such part or parts in the second column of the said schedule or in the whole of the said land for the total of the sums set out in the second column". The schedule set out the various land sections of which "Burnt Oak" consisted and against each was set the price of that section, the total purchase price being £4,278 11s. 2d. In 1938 "Finnis Point" was offered for sale by auction, the reason for this being explained to the widow in a letter dated 2nd May 1938 signed by Mr. Tipping in which he said:

Finnis Point. We have given further consideration to the matter of the advisability or otherwise of retaining this property and have discussed the matter at length with the General Manager of Elder, Smith & Co., Limited. It is felt that the weight of mortgages bears unduly on the resources of the Estate and that the position would be greatly eased if the Finnis Point property were disposed of and the proceeds applied in satisfaction of the mortgages thereon to the Savings Bank and Pitt's Estate.

We estimate that there should be a surplus from the proceeds of the sale of this property and the Stock and Plant thereon after satisfaction of the mortgages lastly mentioned, which might be used to advantage towards development of portions of the Homestead property as circumstances permitted, and would suggest that until such surplus was so used it be credited to the Estate's overdrawn account with Elder, Smith & Co., Limited in order to effect a saving in interest.

Recalling earlier discussions with your son, Mr. Alan Higgins, in connection with this suggestion, we are taking the opportunity of bringing the matter before your notice at the earliest possible date so that sufficient time will be at your disposal for considering the question of the disposition of your sheep, numbers, also the matter of the area to be sown for feed on the Homestead and Burnt Oak Country.

The question of determining the most appropriate time for a sale and the reserve price to be placed on the property may be held in abeyance until you and your son have given full consideration to our suggestion.

The evidence does not disclose any written reply to this letter, but the proposal was adopted and the property was put up for sale by auction during 1938 but did not reach the reserve price and was passed in. In August 1940, however, the company's board of directors approved of its sale by private treaty for £9,000 presumably after considering a memorandum from Mr. Upton in which he stated that: after discharge of the mortgages on "The Point", viz. £5,200, and allowing for commission on sale, there would remain a surplus of £3,525 to which would be added the proceeds of stock, plant, etc., leaving approximately £5,000 to be applied towards liquidation of the estate's overdraft to Elder Smith & Co. Ltd. now standing at £6,890 (approximately). The memorandum referred to the current lease of "Burnt Oak" and the options to purchase as: permitting the purchase and development of such part or parts of "Burnt Oak" as and when desired and as finances permit which was the trustee's object when originally deciding to place "The Point" property on the market. The proceeds of sale were used to pay off the mortgages and reduce the estate overdraft. For the respondents considerable reliance was placed upon this memorandum as indicating that the company had in mind that the sale and the resultant reduction of the estate's indebtedness might make it financially possible at some future time to exercise the option to purchase the outstanding two-thirds interests in "Burnt Oak". No doubt this is true, but this fact is of little or no assistance in considering the real question for decision.

To go back to the history of events, the option to purchase contained in the agreement of 3rd April 1940, which would expire on 31st December 1944, was not exercised but it is apparent that during December 1944 discussions took place between Mr. Upton and Mrs. Borrow and Mrs. Cave which resulted in two letters, in similar terms, being received by the company. They were dated 29th December 1944 and one was signed by Mrs. Borrow and the other by Mrs. Cave. In each of them the writer confirmed "my intimation to your Mr. Upton on Friday 29th instant to the effect that I am agreeable to extend the tenancy agreement of the "Burnt Oak" property for a further period of one calendar month including therein the right of purchase as provided by the said agreement". To each of these letters a reply, dated 30th December 1944 and signed by Mr. Tipping, was sent acknowledging receipt of the letter of 29th December 1944 and agreeing to accept an extension of the tenancy for a further period of one calendar month "upon the like terms and conditions as by the said agreement provided including the right of purchase therein referred to". At the hearing and on appeal it was contended for the respondents that no consideration had been given by the company to the question whether the option expiring at the end of December 1944 should be exercised and that, for this reason alone, the company had committed a serious breach of trust. The value of "Burnt Oak" at the end of 1944 was, so it was said, at least £4 10s. 0d. per acre, although it should be remembered that values were then pegged at 1942 figures, so that the interests of Mrs. Borrow and Mrs. Cave would be worth something over £8,000 as against the figure of £4,278 for which the option provided. This contention cannot, in my opinion, be upheld. There is nothing in the evidence to justify an affirmative conclusion that no consideration had been given to the matter before December 1944. On that point there is no evidence one way or the other. But it is clear that during December 1944 the question was considered and the decision reached not to exercise the option. This follows from the fact that the arrangements were made by the company with Mrs. Borrow and Mrs. Cave to extend it for a further month. It is for these reasons that the month of January 1945 must be regarded as the period to be considered in determining whether or not the respondents have established their case. Before dealing with the events of that month, reference should be made to the financial position of the estate as it was at the end of 1944. "The Brook" was mortgaged to secure the repayment of a loan of £6,000. The mortgage had been in existence for many years and the lender was not pressing for repayment. The net estate overdraft to Elder Smith & Co. Ltd. stood at £4,095 and it does not appear that pressure was being exercised to reduce it. Since the date of the testator's death, the values of "The Brook" and "Burnt Oak" had substantially increased but there is no evidence that money could have been raised on loan to enable the option of purchase to have been exercised to the extent of buying the interests of Mrs. Borrow and Mrs. Cave in the whole or in some parts of "Burnt Oak". Assuming, however, that the necessary funds and consents could have been obtained, there still remains the question whether the evidence relating to the events of January 1945 establishes that during that month the company acted in breach of trust. That evidence is to the following effect. In a letter of 10th January 1945 to Mrs. Borrow the company informed her of its intention to exercise the option to purchase her interest in the whole of "Burnt Oak" for £2,139 5s. 7d., that being one half of the total purchase price stated in the option which had been extended until the end of January 1945. The letter stated that "for the reasons already explained to you today by our Mr. Upton per telephone the purchase will require to be made in the name of Mrs. M. Y. Higgins as nominee of the Trustees". The Mrs. M. Y. Higgins to whom this refers was the testator's widow. The letter mentioned the necessity of obtaining the consent of the Delegate of the Federal Treasurer under the National Security (Economic) Regulations and asked Mrs. Borrow to intimate her approval. On 12th January 1945 Mrs. Borrow replied acknowledging receipt of the letter of 11th January and expressing her agreement. The transaction was carried through and Mrs. Borrow's interest in the whole of "Burnt Oak" was later conveyed to the widow. The form of the company's letter of 10th January suggests that she was to make the purchase as a trustee for the company, and therefore for the estate, but the facts show that this was not the case. The purchase money which was paid to Mrs. Borrow came from income to which the widow was entitled under the testator's will. She was at all times thereafter treated as having become the beneficial owner of Mrs. Borrow's interest and no suggestion to the contrary was made by either side in the course of the proceedings. On 13th January, Mr. Tipping wrote Mrs. Cave a letter which referred to "recent correspondence and our Mr. Upton's conversation with you as per telephone". It went on to say that the company, as trustee of the estate, was prepared:

to rent your interest in the "Burnt Oak" property for a further period of five years as from the 1st January last at the like rental and upon similar terms and conditions as applying under the Tenancy Agreement dated the 3rd April, 1940 including a right of purchase by the Trustees or their nominee in manner and price appropriate in the circumstances to the right of purchase contained in the Agreement above referred to.

We shall have prepared for your signature in due course the necessary Agreement covering the period of extension of the Agreement and shall advise you when same is in readiness for signature.

It added that the company had advised Mrs. Borrow of its intention to purchase her interest in the name of the widow.

It is reasonable to infer from the terms of the letter that Mrs. Cave had told the company that she was prepared to give a further five years' tenancy of her interest in "Burnt Oak" with an option to purchase and, that this was the fact is made clear from a letter of 23rd January from Mr. Upton to the widow in these terms:

Since last seeing you, Mrs. Borrow called on me and I had all papers necessary to the completion of the sale by her finalised. Mrs. Cave was to call the following day to complete the Lease (with Right of Purchase) of her portion, to the Estate.

Instead however, our "friend" Hargrave "phoned"me to ask for the Lease to be sent to him for completion by Mrs. Cave, and the next development was an advice from him to the effect that "Mrs. Cave in writing us intimating that she was prepared to extend the Lease for a further term with a Right of Purchase, she did not fully understand what she was doing". Any other excuse or lie from the gentleman (?) in question would have had just as little effect on me, as I went to no end of trouble to explain the proposal very fully to Mrs. Cave.

The gentleman went on to say that he felt it his duty to point out to his client that the future may hold many implications affecting Currency - (and a few other "mays" and "mights" and "ifs", which to me, all spelt " Costs ") and that Mrs. Cave would not consider a sale of her interest based on 1935 Values but should she be approached at any time in the future, she would of course be in a position to consider a sale or a value comparable with the values ruling at the time of any such approach. He thought also that a term of five years was somewhat long and considered a three years' lease ample etc. etc.

To me, it appeared in all the circumstances, that any comment on our part would not be judicious and beyond remarking that I had no doubt in my own mind that Mrs. Cave fully understood what was intended to be done, and had in fact intimated to Mr. Alan Higgins prior to our approach to her, that she did not wish to sell at this juncture but preferred to lease her interest on lease to the Estate with a Right of Purchase similarly as applied to the last term.

However, I do not think any harm has been done nor that the Estate is likely to be prejudicially affected by Hargrave's intervention. I do know, on the other hand - assuming we get Federal Treasurer's Consent to the sale by Mrs. Borrow - that Mrs. Cave's position in the future will be correspondingly as weak as ours is strong - we will be on the Box Seat and therefore in a position to control Mrs. Cave's interest at will.

You will, I think, agree with me that your and the family's attitude locally, will require to be carefully watched, to ensure that "no spanners are thrown into the works" - in fact and better still - "know nothing".

The Mr. Hargrave to whom reference is made was Mrs. Cave's solicitor. The letter from Mrs. Cave to the company, to which Mr. Hargrave's "advice" referred and in which she had stated that she was "prepared to extend the lease for a further term with a right of purchase", is not in evidence, but it is plain that on some date before 23rd January, she had written a letter to the company to that effect and had apparently made a similar statement to her nephew, Alan Higgins. She had, however, later changed her mind and Mr. Hargrave's statement to Mr. Upton was the first information the company had of that fact. I do not understand what Mr. Upton had in mind when he wrote the penultimate paragraph. It is possible, as was suggested in argument, that he did not realize that a tenant in common might obtain an order for partition or for a sale in lieu of partition although it seems unlikely that this would not be known to a senior officer of a trustee company. It is equally possible that he felt that, since Mrs. Cave was one of the family, she would give way to the wishes of the majority if any differences or difficulties should arise in the future relating to the family properties. These are, however, matters of speculation. What does appear from the letter and from a further letter of 30th January from the company to Mr. Hargrave, to which I shall refer, is that the company had decided not to exercise the then existing option to buy Mrs. Cave's interest. On 26th January, Mr. Hargrave wrote a letter to the company in these terms: We refer to your letter of 13th instant to Mrs. Cave, our conversations with Mr. Upton and the form of proposed Agreement which he sent us and which we have perused and discussed with Mrs. Cave.

Since our last conversation with Mr. Upton, we have further considered the position and discussed it with our client and in the circumstances in regard to the term, she is prepared on further consideration to agree to five years which is the period desired by you.

Mrs. Cave, however, is not prepared to give an option to purchase her interest and wishes the question of her selling to be left open at the end of the term.

We pointed out to Mr. Upton that the proposed Agreement between Mrs. Cave and your Company as Trustee of the Estate of H. W. Higgins deceased affected only two-thirds of the interests in common in the property as it was not proposed to include either as Lessor or Lessee Mrs. M. Y. Higgins to endorse the Agreement with a memorandum approving it and we informed him that we would consider this.

However, having regard to the provisions of the Agreement, if they are intended to mean anything at all, we think it would be necessary for Mrs. Higgins to be either a lessor or lessee.

It occurs to us that in any case, your Company as Trustee would be working the property under some sort of arrangement with Mrs. Higgins and, therefore, that it would be satisfactory if your Company and Mrs. Higgins were lessees of the interest of our client.

The "proposed agreement" mentioned in this letter was clearly the "necessary agreement" referred to in the company's letter to Mrs. Cave of 13th January and it is apparent from the terms of the letter quoted above that further discussions had taken place between Mr. Upton and Mr. Hargrave relating to the grant by Mrs. Cave of a further lease containing an option to purchase. It is, I think, right to infer also that, as a result of those discussions, the question whether Mrs. Cave would grant such an option was to be considered further by her and her solicitor. The company replied to Mr. Hargrave's letter on 30th January. Its letter noted that Mrs. Cave was prepared to lease her interest for a further five years "but desires the question of selling such interest to be left open at the end of the term". It went on to say that the company had no objection to the proposal that the company and the widow should join as lessees and asked Mr. Hargrave to forward the necessary agreement for signature in due course. This was done under cover of a letter from Mr. Hargrave of 6th February 1945 and the agreement was signed.

The evidentiary material which I have set out seems to me to establish the following facts. The company had decided not to exercise the option to purchase Mrs. Borrow's interest as trustee of the estate but instead had arranged that it should be exercised on behalf of the widow, the purchase price to be found by her from her own moneys. It had decided further that it would not exercise the current option to purchase Mrs. Cave's interest but would take a lease of her interest for a further five years and believed with justification, until late in January, that she was prepared to grant a further option to purchase her interest exercisable during the term of that lease. Although Mr. Hargrave had told the company a few days earlier that she might not be willing to do so, it was not until his letter of 26th January was received that it knew definitely that she would not grant a further option. When that letter was received does not appear but 26th January was a Friday and the following Monday, 29th January, was Anniversary Day and a public holiday.

It is necessary now to refer to evidence given by Mr. Alan Higgins. He said that early in January 1945 he saw Mr. Upton and told him that he "was not happy with my mother being given our right to buy" and that he "objected to that right of ours being transferred to her". This obviously referred to the arrangement whereby the option was exercised in favour of the widow on 10th January. Mr. Higgins may have been mistaken about the date when he spoke to Mr. Upton or it may be that the proposal that the option should be exercised on her behalf had been the subject of discussion in the family before it was actually exercised. There were, he said, many family conferences, in which his mother took part, on estate matters and the management of the properties. He insisted in his evidence, however, that he first knew that his mother was taking over Mrs. Borrow's interest after the option had been exercised, which was on 10th January, although I find it difficult to think that this could have been so in what seems to have been a closely knit family. He said also that Mr. Upton had told him that "the estate had no funds available to take up the option" and that he had said this on many occasions. Mr. Upton had also told him that in these circumstances he thought that the best thing was for the widow "to take up one third". The witness said that in these discussions he had made no "specific suggestion" that the option should be exercised. He agreed that after his mother had purchased Mrs. Borrow's interest, she had made it available for the purposes of running the properties as they had been run before and that she had told him that "her interest in "Burnt Oak" could be dealt with just as if it were part of the estate", as in fact it was. He said that during his interview with Mr. Upton the latter had said that "he had missed the bus, that he had been caught over the holidays, that the original lease ending in December 1944 had been allowed to expire", and the witness added "their letter was only dated 29th December". This is, I would think, a reference to the two letters of that date granting the month's extension of the lease and of the option, which were signed by Mrs. Cave and Mrs. Borrow and which had no doubt been drafted for their signature by the company. What exactly Mr. Upton meant by having "missed the bus", if Mr. Higgins' recollection of the words used is correct, I do not know. It would have been more accurate to say that he had nearly missed it. Mr. Higgins' evidence makes it plain that Mr. Upton considered that the financial position of the estate did not justify the exercise of the option to buy Mrs. Cave's interest or Mrs. Borrow's interest, and that, in these circumstances, it was in the best interests of all concerned that the widow, who had funds available, should purchase Mrs. Borrow's interest. I do not feel able to say that this was a decision which could not properly have been made by the officers of the company who were looking after the estate affairs. Much reliance was placed by counsel for the respondents upon the fact that the minutes of the company's board meetings contain no record suggesting that the matter of exercising the option had been considered by the board. From the absence of any such record it is, I think, reasonable to infer that the matter did not come before the board. But I am unable to see how that can be treated, in the circumstances of the case, as a breach of duty owed to the beneficiaries and there is nothing in the evidence that I can find which would justify a finding that if the board had considered the question it would have made a decision different to that made by the company's responsible officers.

Thereafter the properties were run for some years as one unit as in the past. The widow continued to live at "The Brook" and from time to time she wrote to the company expressing her thanks and those of her family for the help it had given and the interest it had taken in the estate affairs. Indeed in a letter of 17th December 1950 she expressed the view that "we are more than fortunate in our trustees". Unhappily Mrs. Cave died. I have not been able to find from the evidence exactly when that was, but on 15th May 1948 Mr. Hargrave, as her executor, wrote to the company stating that he was "considering the future of her one-third interest in "Burnt Oak" " and asked for certain particulars of the land. There is a memorandum, dated 24th June 1948, in Mr. Upton's writing referring to this letter, in which it is stated that Mr. Hargrave had told him that he was considering "the matter of a partition of Mrs. Cave's interest". The next relevant document is a letter of 26th September 1949 from Mr. Hargrave to the company stating that, as trustee of Mrs. Cave's estate, he was not prepared to renew the existing lease which was due to expire at the end of that year, and wished to put an end to the common ownership of "Burnt Oak". He proposed that the property be partitioned. The company replied that it was not agreeable to this but was willing to purchase Mrs. Cave's interest at one-third of the value of the whole property, that value to be determined by a valuer to be agreed upon. By this time, of course, wool prices and land values had increased greatly and there was a wide margin between the value of the capital assets of the estate and its liabilities. Further correspondence followed in which the company asked whether Mr. Hargrave was prepared to state a figure for which he was prepared to sell Mrs. Cave's interest. In the alternative it suggested a conference with a view to arranging a sale of the property by auction, reserving to the interested parties a right to bid. In reply the company was told that Mr. Hargrave was not prepared to sell it "his interest in the whole property" but was ready to discuss a proposal to sell by auction. Lengthy correspondence followed between the company and Mr. Hargrave and finally agreement was reached and in September 1951 the property was put up for sale by auction in four lots. The widow bought Lot 1. Lot 2 was sold to a Mrs. Scott, a distant relative of the family, and Lots 3 and 4, which were described as the "scrub blocks", were bought by strangers to the family. The total price obtained was £45,050 and, of the net price, one-third of course went to the estate. Lot 1, comprising 1,606 acres, was the part of "Burnt Oak" immediately adjacent to "The Brook" and contained that part of "Burnt Oak" which was necessary to the efficient management of "The Brook". It should be added that, according to a statement made by Mr. Higgins to the company noted in a document in the company's possession and dated 20th September 1951, the sale of Lot 2 reduced the carrying capacity of "The Brook" and Lot 1 of "Burnt Oak" by about 300 sheep and the sale of Lots 3 and 4 had no effect on carrying capacity. A letter of 14th February 1952 from the company to the widow and her reply of 22nd February show that after her purchase of Lot 1 she made it available for use with "The Brook" as it had been before the sale rent free but subject to the estate paying rates, taxes and other outgoings.

On 30th January 1951 and while these discussions about the sale of "Burnt Oak" were in progress, Mr. Alan Higgins wrote to the company complaining that it had not exercised the option to buy Mrs. Cave's interest "about 1946 or '45" or obtained from her a renewal of the lease of her interest with a "right of purchase". Further correspondence followed and, on 19th February 1951, Mr. Higgins apparently had an interview with Mr. Wade, who had become the manager of the company. There followed a letter from the company dated 28th March 1951 which was signed by Mr. Wade. The evidence was that the information set out in it was given to Mr. Wade by Mr. Upton. The letter stated:

Following your talk with me on the 19th February I have, as promised, investigated the position regarding the Trustees' decision made some years ago not to exercise the option to purchase Mrs. Cave's and Mrs. Borrow's one-third interests in the Burnt Oak property.

The result of my investigation has been that this was an official decision of the Trustees made by the then Manager of the Company (Mr. Oswal Tipping) in his official capacity after he had thoroughly examined and considered the Estate's financial position and other material factors affecting the exercise of such option.

The reasons for such decision were firstly that the estate had no capital funds to enable such a purchase to be made and further that the estate's assets were then heavily encumbered with mortgage and other liabilities, which had been owing at the time of your father's death and which for lack of capital monies the Trustees were not able to discharge and that the Trustees were not prepared to incur further mortgage debts whilst original estate debts were still unpaid.

You raised the point on the question of lack of finance that between £1,000 and £1,500 cash was lying in the Bank in December 1944 and that a wool cheque was due between the following January and March and that there were also proceeds to come in from sale of surplus stock. This is substantially true, but these monies were all income which in law could not be used by the Trustees to purchase capital assets.

As promised I have set out the above answers to your questions formally in writing because you stated that previously you had only received the information verbally, but I would very much like to have a personal talk with you if you will come in and see me when next in town, as there are several matters I should like to have the opportunity of discussing with you, particularly as to some finality in regard to Burnt Oak.

Mr. Upton's statements to Mr. Wade, upon which this letter is based, accord with those which he had made to Mr. Alan Higgins in January 1945 explaining why the arrangement had been made for the widow to buy Mrs. Borrow's interest and why the option to buy Mrs. Cave's interest had not been exercised. I can see no good reason why those statements should not be accepted as correctly stating the facts and - to repeat what I have said earlier - I am not prepared to hold that the decisions made in 1945 could not have been made by a prudent executor and trustee in the light of the then existing circumstances.

It was somewhat faintly suggested that if the company's view was - as I believe it was - that in January 1945 the estate should not incur further liabilities by exercising the option it should have taken steps to assign it for value. All that need be said about this suggestion is that it would, in my opinion, have been a most imprudent step to have put in the hands of a stranger to the family the right to buy a two-thirds interest in "Burnt Oak". If the company in the exercise of the discretion entrusted to it by the will considered that it would not be wise to incur the liabilities which the exercise by it of the option would necessarily entail, it surely was the wise course to enable the widow to buy out Mrs. Borrow's interest and obtain a further lease of Mrs. Cave's interest notwithstanding the fact that, at the last moment, she changed her mind about granting a further option.

This appeal stood in the list for judgment on 30th August last. On that day a majority of the Court held that, for the reasons then given, the appeal should be in substance dismissed: but that nevertheless the judgment of the Supreme Court should be set aside with a view to substituting an order in a different form. As this course raised questions that had not been considered at the hearing, the matter was stood over to the next sittings of the Court in Adelaide, that the parties might have an opportunity of speaking to the form of the order proposed. They availed themselves of this opportunity, and Mr. Astley, for the appellant, contended that an order in the form suggested ought not to be made. The Court took time to consider his submissions, which dealt with three matters that may be separately considered. The first concerned the way in which the nature of the breach of trust that the Court found had occurred should be stated in the formal order: the second concerned the way in which the loss resulting from that breach of trust should be calculated: the third was as to the costs.

The majority of the Court held that the trustee had failed in its duty, because it had negligently failed to preserve, for the benefit of the trust estate, the property committed to its care. The estate consisted substantially of a grazing business and the capital assets with which it was carried on. The evidence, read in the light of an ordinary knowledge of pastoral undertakings, established that for the effective conduct of that business the lands known as "Burnt Oak" and "The Brook" must be worked together. Together they had a very much greater value than the total of their values if separated. None of this was really in controversy. The retention of the total holding could be secured if the option to purchase Mrs. Cave's and Mrs. Borrow's interests in "Burnt Oak" were exercised in the interest of the estate. If not, the "Burnt Oak" lands might be lost. And, as events turned out, the failure of the trustee to exercise that option resulted in the occurrence of the very loss against which the trustee, if it had acted prudently, would have provided. In the circumstances, therefore, the breach of trust may be said to have been the failure to exercise the option to purchase the outstanding two-third interests in "Burnt Oak". But it is urged for the trustee that it should not be chargeable with the consequences of its failure to exercise this option to the full, because it could have obtained the parts of "Burnt Oak" which were most vital for the continued conduct of the business and for securing the value of "The Brook" by exercising its options in respect of those parts only. Mr. Astley points to a passage in the majority judgment where this is discussed; and in particular to the sentence "Had the trustee, appreciating in this way what various portions of "Burnt Oak" meant to the estate as a whole, purchased some of them and let go the right to purchase the rest, it is probable that its decision would not have been questioned by a court" [1] . That sentence must be read in its context - with what precedes it and what follows it. All that it means is that if the trustee, after considering the matter as a prudent trustee should, had bought only the more essential parts of "Burnt Oak", and had either let the peripheral lands go unbought or bought them and sold them off later, then probably its decision to do this would not have been impeached. The matter was referred to only to show, along with the rest of the evidence, how unconvincing was the trustee's argument that it had properly appreciated its duty, given it due consideration and performed it. Its case was not that it ought in the proper performance of its duty to have bought some part of the land and not the whole. Its case was that it was justified in not buying any part. It was not disputed that the whole could have been bought - the money to do so was obtainable. And no sound reason for not exercising the option was shown. All that is what the majority judgment decided. The conclusion is that the trustee is chargeable with the consequences of its failure to exercise the option to acquire the whole of the outstanding interests in "Burnt Oak".

Mr. Astley, mistaking the effect of the majority judgment, argued that the case should be treated as if it were one in which a trustee who had a duty to invest trust moneys, at his option, in either of two kinds of security, failed to invest in either. In such a case the beneficiary cannot choose one of the securities and insist on having the amount that would have been available if the trustee had invested the trust funds in it. The trustee had a discretion. Had be carried out his trust, he might not have invested in the particular security thus chosen by the beneficiary; and the beneficiary would not be entitled to have more than the principal sum that should have been invested and interest: Robinson v. Robinson [1] . That principle, however, does not apply here. This is not a case of the failure of a trustee to invest a trust fund, but of a failure to get in an asset that it was essential to have to preserve the value of the estate as a whole. The case is not at all like one in which the trust instrument expressly gives the trustee an election, and directs him to choose between several stipulated methods of performing his trust. The duty the trust instrument imposed was the overmastering duty of careful and prudent management of the trust estate. What the trustee must do is to make good the whole loss which its negligent act or omission has caused to the trust estate.

The question next raised was as to the date at which the loss should be determined. In the order the Court proposed, the date suggested was 22nd December 1953. That is the date at which the testator's youngest child became twenty-one, when the corpus vested in possession. The trust for conversion in the will would, subject to any other arrangement, have then taken effect: the corpus would become distributable among the remaindermen, the respondents (subject only to the due securing of the widow's annuity of £400 and to her right of residence until conversion should actually take place). At that date the interests that Mrs. Cave and Mrs. Borrow had had in "Burnt Oak" were, of course, no longer purchasable by the trustee. But the best way of assessing the loss appears to be to ascertain what the notional market value of two undivided one-third interests in "Burnt Oak" would have been at that date. Admittedly that sum would not necessarily recoup the beneficiaries for the full amount of the loss, for the notional market value of the two shares would not reflect their special value to the estate. Nevertheless, it seems that the trustee ought not to be chargeable, so far as the remaindermen are concerned, with a greater sum than that for which the outstanding interests in "Burnt Oak" could notionally have been acquired at the date when the remaindermen became absolutely entitled thereto.

Mr. Astley criticized the proposal to assess the loss at the date when the interests in remainder vested in possession. One of his grounds of criticism may be disposed of at once. He said that it was uncertain, because the youngest child might have died earlier and the time of distribution have been thus accelerated. But it is fallacious to base a conclusion on something that might have happened, but which in fact did not. Facts, when available, are to-day preferred to prophecies (see cases collected by Dixon J. in Willis v. The Commonwealth [1] ) and to speculations about what might have been.

Mr. Astley next urged that the proper date at which to calculate the loss was 1st February 1945. He put his argument as follows: "The option expired on 31st January. On 1st February the breach of trust was complete. The loss, whatever it was, that was incurred by that breach was incurred then, once and for all. No further loss was incurred; no loss was incurred from that time on". But that is not so. The loss, to the pastoral business as a going concern, arose only when the estate lost the use of the "Burnt Oak" lands. That was not until 31st December 1950. And the loss to the remaindermen occurred when the time of distribution of corpus arrived and the trustee should hand over the estate to them. The trustee could not then hand over "Burnt Oak" along with "The Brook" because it had failed to exercise the option to purchase the interests of Mrs. Cave and Mrs. Borrow. It was this failure that was the imprudent act of the trustee, and thus a breach of trust. It occurred in 1945. But the loss to be made good was the later consequence of it: cf. Bennett v. Colley [1] . If at any time before 1953 the trustee had repaired its omission by acquiring the outstanding interests in the "Burnt Oak" lands for the estate, the loss, if any, would have had to be measured by what it then cost the estate to acquire them, as against what it might have got them for earlier. But this is not what happened. And, even if it were correct to estimate the loss as at January 1945, it is hardly necessary to say that it would not be measured by the sum for which at that date the trustee could have bought the outstanding two-third interests. A loss to be made good is not measured by the sum by which, had it been expended, the loss would have been avoided. As an illustration: if a trustee in breach of trust fails to insure a building against fire he will be liable for the loss of it if it be burnt down. The amount that he must make good depends upon the value of the property destroyed. It is not measured by the amount of the insurance premium by the expenditure of which the loss could have been avoided.

1. (1832) 5 Sim. 181, at pp. 191, 192 [58 E.R. 305, at p. 309]; affirmed (1833) 2 My. & K. 225 [39 E.R. 930].

The assessment of a loss by reference to the value of property at a past date necessarily has its difficulties: see McCathie v. Federal Commissioner of Taxation [2] . But, once the material date be determined, the assessment can be undertaken. And in our view the material date is 22nd December 1953. In making the assessment it is relevant to remember that had the trustee bought the outstanding interests in "Burnt Oak" when, in 1945, they were available to be bought for £4,278, the estate would have become subject to a continuing interest burden. From the point of view of the life tenant that burden would have been, up to a point, offset because the liability of the estate for rent would have ceased. But in assessing the loss that the trustee must make good to the estate, we think that in all the circumstances the amount that it must pay should be abated by a sum representing interest at five per cent. per annum on £4,278 from 1st February 1945 to 22nd December 1953.

The remaining question is as to the costs of the appeal. The appellant vigorously denied that there had been any breach of trust. In this contention it failed. But the argument on the appeal made it apparent that the order made at the trial would have to be varied. In the circumstances the appellant ought not to be required to pay the whole of the respondents' costs of the appeal. We consider that the order of the Court should be as follows: