Howell v Hyde

4309/00 COLIN BRUCE WILLIAM HOWELL AND DEBORAH MAREE PAULL V PATRICIA HYDE AND ROGER JAMES CLISDELL JUDGMENT (Revised 11 August 2003) 1 HIS HONOUR: This is a case about a secret trust, said to have arisen out of arrangements between Evelyn Holland and her de facto partner, Thomas Holland. The gist of the arrangements, as alleged by the plaintiffs, is that Evelyn would leave her company shares to Thomas, provided that he left them to her only child Pamela (or Pamela's children, if she predeceased Thomas) when he died. Evelyn died leaving her shares to Thomas, and subsequently Thomas died leaving the residue of his estate, including the shares, conditionally to his brother Vincent. The plaintiffs, Colin Howell and Deborah Paull, two of Pamela's four children, now seek to assert a secret trust against Thomas' estate, by bringing the present proceeding against the executors. For convenience, and without intending to convey undue familiarity, I shall refer to the members of the relevant families by their Christian names. 2 The plaintiffs' case depends upon evidence of conversations of Evelyn, Thomas and Pamela over the period from 1981 until their respective deaths. The evidence was given by affidavit, and the deponents were not cross-examined. The deponents are Colin and Deborah, Deborah's husband, and some friends of Pamela, Mr and Mrs Goodman and Mr Hamilton. There is no evidence from a more independent person such as a doctor or nurse. In these circumstances the evidence must be examined with particular care, although the standard of proof is the normal civil standard of balance of probabilities. Facts 3 Evelyn's first husband was Cecil Dalgleish. He died on 3 August 1959, leaving Evelyn a substantial estate, accumulated from a successful florist business they conducted in Albury. In 1969 Evelyn formed a relationship with Thomas, and in 1973 they moved together to Batehaven, living there together until Evelyn died in 1989. 4 On 21 December 1982 Evelyn made a will giving Thomas (if he should survive her) a property in Albury, any motor vehicle she may own at the date of her death, and (in substance) a life estate in their residence at Batehaven, and leaving the residue of her estate to Pamela or (if Pamela should predecease her) Pamela's children. She appointed Pamela one of her executors. 5 Eileen Goodman, a good friend of Pamela, often travelled with her from Canberra to Batehaven during the 1970s to visit Evelyn and Thomas, and those visits continued after Evelyn died. She gave evidence that she witnessed a conversation between Evelyn and Pamela at Pamela's home in Canberra in about 1981, at a time when Pamela had financial worries. Evelyn said: "You know Pam, you'll be well cared for financially after I die. My investments go to you and your family but only after Tom dies. I can't do much about it now as Tom controls my business affairs. Here is $50 to help out now." 6 Deborah gave evidence that she witnessed a conversation about Evelyn's will at Batehaven in approximately 1982 between her mother, her grandmother and Thomas. The conversation was as follows: Evelyn said: "Pam, I have appointed you and Ms Williams as my trustees. I'm leaving everything to you Pam. Tom will keep the house and car and upon his death the house goes to you Pam and the car will go to Cindy-Lea. Tom, the house in Albury is yours." Tom nodded. 7 Ms Williams was a clerk at a law firm in Albury, which was later known as Tietyens, used by Evelyn as her solicitors for many years. Tietyens conducted an extensive mortgage practice, by which clients deposited money with them on the basis that the firm would lend the money at interest on mortgage security. The evidence indicates that, much later, Tietyens defaulted, leading to intervention by the Law Society of New South Wales and claims on the Law Society Fidelity Fund. 8 The evidence up to this point does not suggest any discrepancy between Evelyn's intentions and her will, except possibly that Evelyn may have believed her investments would not pass to Pamela under the will until Tom died. It appears that Evelyn had come to rely on Thomas to assist her with the paperwork associated with her shareholdings. Gradually Evelyn became concerned that Pamela, who was unwell, would find it onerous to manage the share investments when she took them over after Evelyn died. 9 On 28 March 1983 she made the first codicil to her will, making Thomas an executor in place of Pamela and confirming the will in all other respects. She thereby relieved Pamela of some administrative and financial responsibility, by allocating it to Thomas. 10 There is a consistent body of evidence from the plaintiffs' witnesses concerning Evelyn's reliance on Thomas for assistance with respect to her share investments. Thus, Colin gave evidence that he witnessed a conversation at Batehaven between Evelyn and Thomas in 1986. Thomas was busy doing paperwork, and Colin's grandmother was sitting at the table. Thomas said: "Here mate sign this so I can take care of it." Evelyn signed and said to Colin: "The shares and investments are too much for me, lucky I've got Tom - I don't know how your mother will cope with them when the time comes." 11 Similarly, Eileen Goodman gave evidence that she witnessed a further conversation at Batehaven between Evelyn and Thomas in 1986. Thomas said: "Here Ev, put your signature on this." Evelyn said: "What is it?" Thomas said: "Shares." Evelyn said to Mrs Goodman: "I trust Tom with my investments and Pam's financial future. I don't know anything about business - Tom handles it all for us." Thomas responded: "You need not worry yourself about it Ev - your shares are safe with me." 12 Eileen Goodman, and her husband Laurence, gave evidence in virtually identical terms that they witnessed a conversation at Batehaven between Evelyn and Thomas in 1987 or 1988. Thomas said to Evelyn: "Sign this mate." Evelyn said: "What is it Tom?" Thomas said: "Your shares." Evelyn said: "I trust you know what you're doing with my investments and Pam and her children's future finances. I don't understand the business side." Thomas said: "Don't worry. I have you and your family's future in hand." 13 On 6 April 1987 Evelyn made the second codicil to her will, giving Thomas (if he should survive her) the Albury property, any car she may own at the time of her death, all her company shares and investments in companies, and a life estate in the Batehaven property, and giving the residue to Pamela (or Pamela's children, if she should predecease Evelyn). She confirmed the will and first codicil in all other respects. The plaintiffs' case is that she made this codicil, giving her company shares and investments in companies to Thomas, whereas they had previously been given to Pamela or her children, pursuant to arrangements constituting a secret trust. The evidence specifically dealing with the arrangement is as follows. 14 Deborah gave evidence of a conversation witnessed by her between Evelyn, Thomas and Pamela at Batehaven in late 1987 or early 1988, approximately 12 months before Evelyn's death. For convenience I shall refer to this as "the first conversation". They had been discussing Pamela's deteriorating health, and Evelyn raised the subject of her will. Evelyn said: "Pam, with the way your health is, you don't need any extra worries, so I have made Tom my trustee. He will keep and manage my shares and investments, keeping the dividends but will leave it all to you when he passes on, naturally, if you should go first it will go down to the kids - right Tom?" Tom replied: "She'll be right mate." Pamela said: "Is Ms Williams still executor?" Evelyn said: "Yes." Pamela said: "Is the house and car still for Tom's use?" Evelyn said: "Yes." 15 Kenneth Hamilton, a close friend of Pamela, gave evidence that he witnessed a conversation at Batehaven between Evelyn, Thomas and Pamela in March or April 1988, which I shall call "the second conversation". The subject was Evelyn's will and provision for Pamela. Evelyn said: "You and Ken [referring to Mr Hamilton] may want to come down here to live with us." Pamela said: "No I would not do that Mum." Evelyn said: "Cause you know Pammy I've left everything to you when I pass on and that includes everything in the shed." Thomas said: "And the car." Evelyn said (looking at Mr Hamilton): "You won't be short of working tools will he Tom?" Thomas said: "No mate." Evelyn said: "All the shares including Tietyens [and two others, the names of which Mr Hamilton could not recall] will be passed on to you. You will be well catered for Pam." Thomas said: "Tietyens is the best one you can be in. Is that the end of our meeting? I can get changed for bowls." 16 Kenneth Paull, Deborah's husband, gave evidence that he witnessed a conversation (which I shall call "the third conversation") about shares and investments between Evelyn and Thomas at Batehaven in 1988, about six months before Evelyn died. Pamela was ill with emphysema. Pamela said: "I'm worried about my health and expenses. I'm finding it hard to pay for medication." Evelyn said: "Of course I can help you out there. No problems. In the future you won't have any financial problems as I've made provision for you. I've made a new will. I've arranged it with Tom for him to handle the shares as he's done for me until his death. All proceeds from shares'll remain Tom's but the shares and investments will revert to you and yours and so will the house. Isn't that right Tom?" Thomas said: "No problems mate". 17 Deborah recalled another conversation at Batehaven, between herself and her grandmother, about six months before Evelyn's death ("the fourth conversation"). Evelyn had a letter in her hand, which was a dividend advice. She held it up whilst talking. Evelyn said: "Your mother isn't getting any better, she doesn't need the stress and worry of keeping track of these investments. Tom will manage everything and I'm sure that when Tom and I are both gone, you and Ken will help your mother with them, keep adding to them, and you'll find there'll be a nice income from the dividends." Deborah replied: "Should we keep the investments or sell them?" Evelyn said: "Keep them - there'll be enough dividends for all of you. It's not right, I've worked and saved all my life, and now I can't get the pension because I've got too much money. I don't want your Mum to be in this position, she needs the health care plan for all her medication and treatment. By the time Tom and I are gone, she'll have enough security with her Dad's investments to last her without her pension the rest of her life." 18 Colin gave evidence that he witnessed a further conversation ("the fifth conversation") between Evelyn, Thomas and Pamela in 1988, when he visited his grandmother in hospital in Canberra, with his wife and son. Evelyn said to Pamela: "You don't have to worry about anything - I put it all in Tom's hands. I trust Tom, he'll do the right thing by you and manage the shares." 19 These five conversations are the direct evidence of the arrangements said to constitute a secret trust, as they are conversations in which Evelyn and (except for the fourth) Tom participated. 20 Evelyn died on 1 January 1989, leaving an estate the net value of which for probate purposes was given as $489,413.32. About half of the assets comprise shares in companies. The evidence includes an exemplification of probate dated 22 June 1990 which shows that a small quality of shares was disclosed as additional assets. Her last will was the will dated 21 December 1982, together with the two codicils to which I have referred. 21 The second defendant (one of the two executors of Thomas' will) administered Evelyn's estate and made distributions to the beneficiaries, principally during 1989. There is evidence of three conversations, to which I shall now turn, to the effect that in 1989 Pamela arranged with Thomas to see a solicitor to make a will, and that he consulted the second defendant. The plaintiffs say that this is evidence of performance by Thomas of his obligation under the secret trust. 22 First, Colin gave evidence that in early 1989, Pamela said to him: "I rang Tom today and suggested we see a solicitor to tie up all the loose ends with Granny's estate and he agreed." A few weeks after that conversation, Pamela said to Colin: "Well - we've been to the solicitor today and I am now happy. It's all in writing. Everything is left to me. When Tom passes on you being the only grandson will have first choice of the things in the garage before Ken and Sean." 23 Secondly, Deborah gave evidence that, within a year after her grandmother died, she had a conversation in Canberra with her mother. Pamela said: "Tom and I have been to the solicitors and Gran's wishes have been fulfilled. Tom is leaving it all to me and the car to Cindy-Lea. It's all tied up." Deborah replied: "Good." 24 Thirdly, Eileen Goodman gave evidence of a conversation she had with Pamela in 1989 or 1990, when Pamela said: "Tom and I went to the solicitor and we've signed documents which confirms Mum's house, shares and car go to me after Tom's death. If I die first all the investments automatically go to my four kids." 25 Additionally, Deborah said that on many occasions she asked her mother whether she was sure that her grandmother's shares were secure and "legally tied up", and Pamela always replied, "Yes, don't worry Tom has it all willed to me on his death, it will be automatic that it goes to me and when I go it goes to you kids. Just remember, Gran didn't want them sold." 26 The evidence of the conversations is supported by the second defendant's evidence that, late in 1989, Thomas made a will appointing the first defendant as his executor, giving any motor vehicle he may own at the time of his death to Cindy-Lea Lockton (one of Pamela's children), giving Pamela all his company shares and debentures, and giving the residue of his estate to his brother Gregory. 27 The final category of evidence is evidence of conversations involving Thomas and Pamela, tending to confirm the arrangements and Thomas' adherence to them. 28 Thus, Eileen and Laurence Goodman gave evidence, in virtually identical terms, that they witnessed a conversation at Batehaven in 1989, when Thomas and Pamela discussed the assets that belonged to Evelyn before her death. Pamela said to Thomas: "Your relations understand the legal business of Mum's will, don't they Tom?" Thomas said: "Yes mate." Pamela said: "That's good, as long as they understand, if I die before you, Mum's shares and the house go to my four children, and the car goes to Cindy." Thomas said: "Yes, she'll be right mate." 29 Kenneth Paull gave evidence that, over the years, he had many conversations with Thomas, when he visited the Batehaven house to mow the lawn and do odd jobs. He said that the subject of shares was mentioned several times, after Evelyn's death. He recalled a conversation as follows: Thomas said: "I have a problem with one of the shares. It looks like the kids won't get it as they're going into bankruptcy." Kenneth said: "Which one?" Thomas said: "Tietyens - I don't know what I can do about it, I have a letter here." Kenneth then assisted Tom in drawing up a letter sending details to the receivers, presumably appointed by the Law Society. 30 Deborah gave evidence that she witnessed a conversation between Tom and her mother at an unspecified time at her house. Tom said: "Well mate, it doesn't look like we'll get anything back from Tietyens, we've lost $122,000." Pamela said: "That's no good, but I guess we'll just have to wait and see. How are the other investments going?" Tom said: "They're okay mate." 31 On 25 May 1992 Thomas made another will revoking all former wills, appointing the defendants as his executors, giving any car owned by him at the time of his death to Cindy-Lea, giving his furniture to Pamela, giving $5,000 to the first defendant and $2,000 to his brother Vincent, and giving the residue of his estate to his brother Vincent, on the condition that Vincent had attended Alcoholics Anonymous and complied with their requirements concerning sobriety for a period of not less than two years. The proper construction of that condition is an issue in separate proceedings. 32 The second defendant said in his affidavit that he had no independent recollection of preparing Thomas' will dated 25 May 1992, but as he was a sole practitioner at that time, and one of the witnesses to the will was his secretary (the other being an employee of a solicitor who shared the second defendant's office premises in the early 1990s), he said he thought it likely that he prepared the will and took instructions from Mr Holland to do so. In cross-examination of the second defendant, counsel for the plaintiffs challenged the evidence that the second defendant prepared the will, but subsequently the original will was retrieved from the probate file, and it showed on its backsheet that the solicitor acting was the second defendant. I regard it as clear that the second defendant prepared the 1992 will. 33 The second defendant said he had no independent recollection of Thomas consciously or unconsciously making a decision effectively to disinherit Pamela in respect of the shares and other investments in companies. His evidence is that he acted in Pamela's estate and had been dealing with Colin and Deborah in that capacity, and when he retrieved the 1992 will from its safe custody packet held in his safe, he was surprised at its contents, since he had believed until then that Thomas had left all his shares to Pamela. The second defendant said he could not comment on whether the conversations deposed to by Colin and Deborah took place, and that at no time had any such discussions been mentioned to him by Evelyn, Thomas or Pamela. 34 Deborah gave evidence of a conversation, at her home, between her mother and Thomas about a month before her mother died. It was a conversation about Thomas buying a shopping scooter from Pamela, in which he said he did not have the money to pay her until "the Tietyens investment comes good". She said that Thomas contacted her and her husband after Pamela's death to discuss payment for the scooter, expressing concern that the Tietyens investment would not "come good", and they told him not to worry about it. 35 Pamela died on 23 August 1998. The inventory of her property annexed to the grant of probate in her estate shows an estate valued at $239,516.27. The assets include the Batehaven property, subject to a life estate in favour of Thomas, and a Law Society Fidelity Fund claim arising out of the defalcation by Tietyens, solicitors, in the sum of $60,755.06. 36 Thomas died on 23 March 1999. Probate of his will dated 25 May 1992 was granted to the defendants on 16 February 2000. The inventory attached to the instrument of probate valued the estate at $792,879.94. Company shares comprised over half of the value of the estate, most of the remainder being held in a single bank account. It is relevant to note that one of the assets, in the sum of $13,768.49, was listed as an investment in mortgages relating to Tietyens, as admitted against the Law Society Fidelity Fund. 37 After Thomas died, Colin and Deborah went to see the second defendant and were informed of the contents of Thomas' will. Some time after that meeting, the second defendant phoned Colin and told him that there had been an earlier will, namely the 1989 will that is in evidence. 38 The evidence includes an agreed schedule of shares, which lists 14 holdings of shares in Evelyn's estate at the time of her death, 15 holdings of shares in Thomas' estate at the time of his death (comprising shares devised to him under Evelyn's will and shares acquired in his own right), and 7 holdings of shares in Thomas' estate derived from Evelyn's estate. A comparison of the schedules gives rise to the inference that Thomas must have engaged in a significant quantity of share trading after Evelyn died. Secret trusts 39 The plaintiffs' case is that the bequest by Evelyn to Thomas of all her company shares and investments in companies, by her second codicil dated 6 April 1987, was subject to a fully secret trust for the benefit of Pamela or her children. The trust was a fully secret trust, as opposed to a semi-secret trust because no indication of the existence of such a trust appeared on the face of the codicil. In the case of a semi-secret trust, the will discloses an intention that the subject property be held upon trust but the secret beneficiaries are not identified. 40 There is no contest in this case about the ingredients of a secret trusts. In Blackwell v Blackwell [1929] AC 318, at 341, Lord Warrington said: "It has long been settled that if a gift be made to a person or persons in terms absolutely, but in fact upon a trust communicated to the legatee and accepted by him, the legatee would be bound to give effect to the trust, on the principle that the gift may be presumed to have been made on the faith of his acceptance of the trust, and a refusal after the death of the testator to give effect to it would be a fraud on the part of the legatee. Of course in these cases the trust is proved by parol evidence and such evidence is clearly admissible." 41 The nature of a secret trust was also considered in Voges v Monaghan (1954) 94 CLR 231. Fullagar and Kitto JJ cited with approval (at 240) the following passage from the judgment of Lord Davey in French v French [1902] 1 IR 172 (HL): "It is now well-established, and has been settled since the time of Lord Hardwicke, that if a testator communicates in his lifetime to a proposed devisee or legatee that he has left him his property and expresses a wish that the property should be disposed of in a particular manner, and the legatee or devisee, by acquiescence, or even by silence, accepts that communication, and the testator dies without any repudiation, a trust is fastened upon his conscience, as it is said, and he cannot afterwards either appropriate the property to his own use or dispose of it otherwise than in accordance with the wishes which were thus communicated to him and which he has accepted. My Lords, it is said that this jurisdiction is based upon fraud, and so it is, because if you once get to this, that is a trust which is imposed upon the conscience of the legatee, then if the legatee betrays the confidence, in reliance upon which the bequest was made to him, then it is what I should think everybody would consider a fraud, although I take the liberty to say that the moral turpitude of any particular case must vary infinitely according to the circumstances of the particular case. My Lords, the basis of it is, of course, that the testator has died, leaving the property by his will in a particular manner on the faith and in reliance upon an express or implied promise by the legatee to fulfil his wishes, and your Lordships will see at once see that it makes no difference whatever, whether the will be made before that communication to the legatee or afterwards, because, as was said, I think by Turner V-C in one of the cases which was cited, the presumption is that the testator would have revoked his will and made another disposition if he had not relied upon the promise, express or implied, made by the legatee to fulfil his wishes." 42 In Ottaway v Norman [1972] 1 Ch 698, at 711, Brightman J summarised the principle applicable in the case of fully secret trusts as follows: "The essential elements for the establishment of a fully secret trust are (1) the intention of the testator to subject the primary donee to an obligation in favour of the secondary donee; (2) communication of that intention to the primary donee; (3) the acceptance of that obligation by the prime donee either expressly or by acquiescence." 43 Counsel for the defendants urged me not to find that a secret trust had been established, because the evidence indicated that Thomas was an honest man who would not perpetrate a fraud on Pamela and her children. There is some confusion in the law of secret trusts as to the meaning and provenance of the word "fraud". In Ottaway v Norman, counsel at one stage sought to deploy an argument that a person could never succeed in establishing a secret trust unless he could show that the primary donee was guilty of deliberate and conscious wrongdoing. Brightman J remarked (at 712) that this proposition, if correct, "would lead to the surprising result that if the primary donee faithfully observed the obligation imposed on him there would not ever have been a trust at any time in existence." He noted that the argument was, rightly, discarded. 44 In the Re Snowden (dec'd) [1979] Ch 528 Megarry V-C considered the relevance of fraud in some detail. He noted that in McCormick v Grogan (1869) LR 4 HL 82, Lord Westbury had said (at 97) that the jurisdiction in cases on secret trusts was "founded altogether on personal fraud", and therefore "it is incumbent on the court to see that a fraud, a malus animus, is proved …". Megarry V-C observed that the law had not stood still since 1869, and that by 1979 it had become clear that secret trusts may be established in cases where there is no possibility of fraud. By "fraud", his Lordship clearly meant deliberate and conscious wrongdoing, malus animus. His observations should not be taken to deny that equitable fraud is fundamental to the law of fully secret trusts, because (as Lord Davey remarked in French v French, in the passage extracted above) when the primary donee accepts or acquiesces in the testator's intention and receives a benefit under the will accordingly, a trust is imposed upon the primary donee's conscience, preventing him or her from betraying the confidence in reliance upon which the bequest was made. 45 In the present case there is no evidentiary basis for concluding that the conduct of Thomas was fraudulent in the sense used by Megarry V-C. Nevertheless, if the evidence establishes that an obligation was communicated to Thomas by Evelyn during her lifetime, and accepted by him, but he later changed his will, it will be open to the Court to find that his conscience was bound by a secret trust, and that his disregard of his obligation of conscience constituted equitable fraud. 46 The reported cases on secret trusts have paid attention to the standard of proof needed to establish such a trust. In Voges v Monaghan, Dixon CJ said (at 233): "The evidence may be circumstantial or it may consist in admissions by the legatee upon whom it is sought to fix the trust, and the admissions may be express or by conduct or the proof may consist in both admissions and in circumstantial evidence. When the issue is contested it will seldom include direct evidence of what passed between the testator and the legatee. But, in particular, the evidence must prove satisfactorily that the trust was ascertained and what it was." His Honour's judgment was a dissenting judgment, but there was no disagreement with this statement of principle. 47 In Re Snowden, Megarry V-C reviewed earlier authorities as to the burden of proof, including Ottaway v Norman, and concluded (at 537) that in order to establish a secret trust when no question of fraud (in the sense in which he used the term) arises, the standard of proof is the ordinary civil standard of proof that is required to establish an ordinary trust. In Brown v Pourau [1995] 1 NZLR 352, 369ff, after carefully reviewing English, Canadian, New Zealand and Australian authorities, Hammond J followed Megarry V-C's approach. I respectfully agree. The present case 48 In the present case, the direct evidence to establish the three ingredients for a fully secret trust is the evidence of the five conversations, which I have set out. Each of those conversations took place after Evelyn made her second codicil, but the passage from Lord Davey's speech in French v French, extracted above, shows that it does not matter whether the trust is communicated and accepted before or after the making of the will (see also Ottaway v Norman at 711). 49 In my opinion the evidence establishes that, well before her death and probably, on balance, when she made her second codicil, Evelyn had formed the intention that Thomas should be under an obligation with respect to the company shares and investments in companies that she bequeathed to him. The words of the five conversations were not merely precatory, suggesting nothing more than a moral obligation. In this respect, the present case is distinguishable from Re Snowden, where Megarry V-C concluded that a conversation at the time of making of the will, when the testatrix said that her brother "would know what to do", and he said that he did and "was perfectly aware of how Mrs Snowden wished him to distribute the money that would fall to him under the residuary gift when she died", was too slender a foundation upon which to erect a trust, and was in the realm of moral obligations (at 538,539-40). Here, in the first conversation, Evelyn said that Thomas "will leave it all to you when he passes on", and in the second conversation she said that all the shares "will be passed on to you [meaning Pamela]". It is clear from the third and fifth conversations that it was of great importance to Evelyn to ensure that Pamela would not have any financial problems, and the fourth conversation indicates that she made the arrangement with the intention that Pamela could obtain the pension while Thomas was alive. (I should add that there was no evidence as to whether such an intention was effectuated).

50 Pamela's intention was communicated to Thomas on four of those five occasions, and Thomas (fond of using the Australian vernacular in a gender-neutral way) responded on each occasion assenting to the arrangement. Brightman J's second and third ingredients are therefore established by the evidence.

51 Although, as I have said, there is no "independent" evidence of the arrangements, the evidence is internally consistent and appears on its face to be plausible. The evidence which treats the Tietyens investment as an investment in company shares is an example of this consistency. In the second conversation, recounted by Mr Hamilton, Evelyn refers to the investment with Tietyens as "shares" and Thomas does not correct her. In truth, as the second defendant made clear in his oral evidence, any investment with the solicitors, Tietyens, would be a deposit on terms authorising the firm to invest in mortgages, and would not fall within the ordinary meaning of the expression "company shares", although it might plausibly (though strictly incorrectly) be regarded as an investment in companies if the firm was accustomed to lending out on mortgages to corporate mortgagors. In any case, the evidence of the second conversation is consistent with the evidence given by Kenneth Paull of a conversation after Evelyn died, in which Thomas referred to as the Tietyens investment as "shares". I have decided, therefore, to accept the evidence relied on by the plaintiffs.

52 Counsel for the defendants submitted that there are some features of the evidence that militate against the claim to a secret trust. First, counsel submitted that in the second codicil Evelyn expressly limited Thomas' interest in the Batehaven house to a life interest, while giving him her company shares absolutely. If, however, the elements of the secret trust are proven, they graft an equitable obligation onto the absolute terms of the trust. The mere fact that Evelyn gave Thomas the shares absolutely, while giving him a life interest in other property, does not work against the conclusion that there was a secret trust of the shares, if the evidence establishes the three ingredients. Secondly, counsel drew attention to the fact that Thomas did not make a will until after Evelyn died, and there appeared to have been no pressure on him to make a will before that time. According to this submission, one would have expected that making a will would be a way of demonstrating his acceptance of the obligation. But again, if acceptance of the obligation is proved by other admissible evidence, the absence of a will until a later time is of no particular significance. Thomas may not have believed that there was any need for him to rush to make the will that would give effect to his obligation, until Pamela persuaded him to act after her mother died.

53 The 1989 will was relied upon by the plaintiffs as evidence that Thomas accepted his obligation under the secret trust, and discharged it by making that will. But in some ways the 1989 will was different from Evelyn's intention as communicated in the five conversations. First, the gift of the investments in relation to companies being shares and debentures was to Pamela alone, with no substitutionary gift in the event that she predeceased Thomas. Secondly, it was a gift together with all accrued dividends, and yet Evelyn's intention was that he would have the benefit of dividends during his lifetime. Even so, I accept the plaintiffs' contention that the making of the will was some evidence that Thomas regarded himself as under obligation in respect of the company shares and investments in companies. The fact that the 1989 will imperfectly reflected the intention communicated to him does not disprove the obligation or even, given the other evidence, raise any real doubt about its content. The evidence of the conversations makes it clear that Evelyn intended Pamela's children to take if Pamela died before Thomas. Thomas' failure to encapsulate that part of the intention in the 1989 will seems more likely to reflect his imperfect recollection and understanding than any deficiency in the intention as communicated to him, given the consistency of the other evidence. Much the same can be said with respect to the dividends.

54 There is, however, a difficulty here that was not present in leading cases of Blackwell v Blackwell, French v French and Voges v Monaghan, nor the more modern authorities of Re Snowden and Brown v Pourau. It emerges from the evidence of the five conversations, and the later confirmatory evidence, that the obligation which Evelyn sought to impose on Thomas was an obligation that he leave certain property to Pamela or her children when he died. In fact, after Evelyn's death Thomas dealt with the company shares comprising her investment portfolio, to a degree, so that by the time of his death there were some different investments and investments in different quantities. He also had a substantial share portfolio of his own. The question is whether the secret trust should attach to the company shares and investments in companies retained by Thomas when he died, or to the very shares and investments received by him upon the distribution of her estate. If the latter is the correct analysis, Thomas was substantially in breach of trust in dealing with the shares, and there are likely to be some difficult issues of tracing.

55 As far as I am aware, the only case dealing with an analogous situation is Ottaway v Norman. In that case Brightman J accepted (at 711) that if the three ingredients for a secret trust are established, it is immaterial that the obligation on the primary donee is an obligation to make a will in favour of the secondary donee as distinct from some form of inter vivos transfer, observing that there is no materiality in the machinery by which the donor intends that the obligation shall be carried out.

56 His Lordship was prepared (at 713) to assume, without deciding, that "if property is given to the primary donee on the understanding that the primary donee will dispose by his will of such assets, if any, as he may have at his command at his death in favour of the secondary donee, a valid trust is created in favour of the secondary donee which is in suspense during the lifetime of the primary donee, but attaches to the estate of the primary donee at the moment of the latter's death."

57 However, it was unnecessary for his Lordship to go further, because he found that the secret trust established by the evidence was a trust in respect of a particular dwelling house of the donor which passed under the will to the primary donee, and such of the contents of the house as passed under the will to the primary donee, and the evidence did not establish any obligation with respect to any other part of the primary donee's estate.

58 The facts of the present case, emerging from the five conversations, exhibit an intention to impose an obligation with respect to the company shares and investments in companies given by Evelyn to Thomas by her second codicil. In the first conversation Evelyn said that Thomas would keep and manage her shares and investments, and in the second conversation Evelyn's reference to "all the shares including Tietyens" was clearly enough a reference to her shares. In the third and fifth conversations Evelyn said that Thomas would manage "the shares". Thomas assented on each occasion.

59 It follows, in my view, that the present case is on all fours with Ottaway v Norman. In both cases, the trust obligation was to be carried out by the terms of the primary donee's will, rather than by inter vivos gift. But the trust property was identified as the property passing to the primary donee by the donor's will. In both cases, there is no need to investigate more exotic possibilities.

60 I do not regard the terms of the arrangement as unclear. Although, in her conversations, Evelyn was not clinically precise in identifying the shares and company investments she had in mind, they were adequately designated in the second codicil, and Thomas must have understood that her reference to company shares and investments was a reference to the property so identified. Her reference to allowing Thomas to keep the dividends should be taken, in the circumstances, to be referable to the well-established distinction in the law of trusts between corpus and income. The corpus or capital gift of company shares and investments in companies to Thomas by the second codicil was to be left by his will to Pamela or her children, but Thomas was entitled to the income of the property. In principle, that distinction can be applied to such corporate events as bonus issues, rights issues, share buybacks and the like, happening after Evelyn's death and during the lifetime of Thomas.

61 To the extent that Thomas sold shares and investments bequeathed to him subject to this obligation, he acted in breach of the obligation. Though he was authorised to "manage" the investments by the terms of the five conversations, it was also made clear that he was to keep the investments. Thomas was not present during the fourth conversation, when Evelyn's intention in this respect was made especially clear, but the intention to retain the investments in specie was reasonably clear in the first, second and third conversations, occasions when Thomas was present and assented.

62 The Statement of Claim seeks a declaration that the defendants, as executors of the estate of Thomas, hold all the shares and investments in companies which passed to Thomas from the estate of Evelyn on trust for the plaintiffs, and an order that they do what is necessary to transfer title to the plaintiffs. Subject to the point that those entitled are the four children of Pamela and not simply the two plaintiffs, the claim to relief of those kinds has been made out. Consequently questions of damages or equitable compensation do not arise.

63 The Statement of Claim also seeks an order that the matter be referred to a Master to inquire into, and determine, the various investments and shares of Thomas at the date of his death. The purpose of the inquiry would be to identify property in the hands of Thomas at the date of his death representing, or representing the proceeds of, the property received by Thomas under Evelyn's will to which the obligation has attached. I shall make such an order. I realise that the tracing exercise may be factually complex, but it seems unavoidable.

64 I shall direct the plaintiffs to prepare draft short minutes of orders, and I shall hear the submissions of the parties with respect to costs.

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