L H K Nominees Pty Ltd v Maureen Ada Kenworthy

L H K Nominees Pty Ltd v Maureen Ada Kenworthy - [2002] WASCA 291 - WASCA 2002 case summary — Zoe

[317]

222 From time to time, the three appointed directors of the appellant were Mr Kenworthy's sons, Lindsay, Trevor and Dennis. Latterly, the appointed directors were Lindsay and Dennis. The evidence of each of them on this issue was to similar effect. Each of Lindsay and Dennis said that he became a director of the appellant because he was asked to do so by his father. Lindsay said that, until his father's death, his father had day-to-day control of the plaintiff. He said that he (Lindsay) did not have any day-to-day involvement in the company and that his sole role as a director of the appellant was to sign documents when asked to do so. He said also that his father was able to sign cheques on the appellant's bank account and had sole control of its finances. While he did say that he looked at documents presented to him by his father for signature, and sometimes asked about them, he also said that he never rejected a proposal or transaction "brought" to him by his father and that he did not investigate any of the investments made by the appellant on its merits. He said that he "trusted" his father "to be correct". So, for example, he had no input in relation to his father's decision to subdivide land owned by the appellant in Muchea or as to the prices for which the subdivided lots were to be sold. Dennis, too, said that, as a director of the appellant, he would do as his father told him. He, too, said that he had no day-to-day involvement in the appellant other than to sign documents which his father asked him to sign and that he always acted in accordance with his father's instructions. He said that no directors' meetings were held to consider or approve the appellant's conduct and that he did not question his father's decisions or directions. He, too, did not reject any of the proposals "brought" to him by his father. Trevor (who was not a director of the appellant in 1990) said that his time as a director was spent doing as instructed by his father and not questioning him. He said that he simply did as he was told. None of this evidence was challenged. It seems to us, with due respect to the trial Judge, inevitably to lead to the conclusion that Mr Kenworthy was in effective control of the appellant at all material times.

[342]

242 The history of the trust's business activities is very unclear. Mr Kenworthy had been a builder and there is some rather vague evidence (AB 332) that his building business, or some parts of it, may have been carried on through the trust after it was established in 1975. There is evidence that, in 1984, Mr Kenworthy stopped working as a builder and commenced to receive the age pension. There is no clear evidence as to what were the trust's activities at that time, or subsequently. There is some evidence in the cross-examination of Lindsay that it carried on the business of growing hay and making chaff, and of cleaning out manure from poultry sheds and selling the poultry manure, and that there was a marine dealer's licence which may have been operated for the benefit of the trust (AB 69, 75, 76, 77). The earliest financial accounts of the trust which are in evidence are those for the year ended 30 June 1989 and show "sales" of $27,126.24, "interest received" of $16,687 and "rents received" of $5200. The accounts prepared for subsequent years show that income was received from sales in every year down to the date of Mr Kenworthy's death in 1997. In some years, sales income was insignificant. For example, in 1995, it was only $239. However, for the year ended 30 June 1997, it was $10,277.62, more than 25 per cent of the trust's total income. There is evidence that the appellant held rural land at Muchea on which livestock was depastured from time to time. The tax depreciation schedule for the year ended 30 June 1989 lists substantial plant and equipment on which accumulated depreciation was $47,842. The list of plant and equipment in that year includes substantial items, such as a tractor, a plough, several trucks, a front-end loader and bucket, electric motors and generators, welders and sundry farm equipment. In comparing that list with the list of plant and equipment in the accounts for the period ended 30 June 1997, it is apparent that some items had been disposed of, but the list remained quite substantial. Exactly what the state of the Muchea land was during the period covered by the claim of misappropriation is not known, although there is a reference in the evidence of Lindsay to the subdivision of the land into six lots and there was evidence that three of the lots have been sold, but that three remain in the ownership of the appellant.

[356]

253 As to whether the highlighting, taken together with the evidence of Lindsay and Dennis, could stand as evidence that each item highlighted was, in fact, a misappropriation, his Honour decided that he could not safely accept their evidence that all of the items of expenditure which they had identified as unrelated to the purposes of the trust were, in fact, unrelated to the purposes of the trust. We are not persuaded that this conclusion was against the evidence. Both Lindsay and Dennis frankly admitted that they had no involvement in the day-to-day affairs of the trust or of the appellant. It is apparent that they had little or no knowledge of its business activities. They said that it had no business activities, apart from the administration of the investment of funds and the receipt of interest from those investments. This was not the case, on the face of the accounts. As limited as the trust's activities may have been, the books show that the trust was engaged in revenue-earning activities apart from investment, and this appears to have been recognised by the accountants in their preparation of the cash books and other financial records. We have already mentioned the depreciation schedules which show that the trust owned, and presumably had to maintain, substantial plant and equipment, for which it presumably had a use. We have referred to the item "sales" in the profit and loss accounts which, in some years, was not an insignificant source of revenue. We have referred to the evidence of Lindsay himself, who, under cross-examination, appeared to concede that there were activities such as a poultry manure business, a marine dealer's licence, hay growing and chaff-making. The Muchea land was rural land and there are entries in the books which indicate that the trust was engaged in buying and selling cattle. The highlighting undertaken by Lindsay and Dennis, and Lindsay's de facto, appears therefore to have been based upon an unsafe assumption, namely, that the trust engaged in no commercial activity except for passive investments.

[392]

"To accept such a position is, in my respectful opinion, effectively to deny the operation of a remedy which squarely falls within the in personam exception to indefeasibility, an exception which undoubtedly exists as a basis for indirect attack upon registration separate from the direct attack available by reliance upon statutory fraud. The approach accepts that, speaking generally, improper receipt of trust property can give rise to a constructive trust. But it says that, in the case of a dealing with trust property which is Torrens system land, recourse to imposition of such a trust is in part unnecessary; for dishonest receipt will constitute statutory fraud. Otherwise the possible scope of the remedy is denied application. The consequence of that approach is that the full range of operation of the particular remedy is emasculated. The proposition that an equity may be recognised and enforced so long as it involves no conflict with the indefeasibility provisions has not prevented the High Court from imposing constructive trusts so as to recognise equities in cases where the transfer of real property was effected at different stages in the course of events giving rise to the equities: thus Bahr, Muschinski and Baumgartner. In my opinion this court is not obliged to, nor should, deny the applicability of the constructive trust remedy in a case such as this. It is one thing to say (in the context of transfer) that, absent fraud, a potential transferee is not to be affected by notice, actual or constructive, of any trust. It is a quite separate matter to say that such a person is to be unaffected by notice, actual or constructive, of a breach of trust. Likewise, I consider, by analogy in the case of a mortgage of land. Moreover, it has been said that the purpose of indefeasibility is to protect a transferee from defects in the title of the transferor; not to free the transferee from interests with which he has burdened his own title. To deny the applicability of the in personam remedy now under discussion would not, I think, achieve that outcome."

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (488 paragraphs)

L H K Nominees Pty Ltd v Maureen Ada Kenworthy (as Administratrix of the Estate of Lionel Kenworthy) & Anor [2002] WASCA 291 (23 October 2002)

Is it too Late to Entertain the Case Contended for on Appeal?

Is There Any Challenge to His Honour's Findings Supporting his Conclusion that There was no Dishonesty by Mr Kenworthy?

Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198

Parties

Legislation Cited (5)

Cases Cited (54)