Elder's Trustee & Executor Co Ltd v Higgins

Elder's Trustee & Executor Co Ltd v Higgins - [1963] HCA 48 - HCA 1963 case summary — Zoe

[20]

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.

[21]

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.

[39]

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] .

[42]

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.

[51]

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:

[57]

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:

[76]

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.

[77]

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.

[87]

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".

[91]

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.

At a glance

Court

Decision date

Before

Source

Judgment (94 paragraphs)

Parties

Cases Cited (1)

Cited By (6)