Pascoe v Boensch

5 There are two copies of this document in evidence. Both are dated 23 August 1999 and are signed by Mr and Mrs Boensch and in one those signatures have been countersigned by a Justice of the Peace. The signatures apart, the documents, which were not prepared by a solicitor, are in the following terms: Memorandum of Trust This is a memorandum of trust created for the benefit of Boensch family with the most important purpose to provide secure means of support to the children of the marriage, Dominic Boensch and Stefanie Boensch, after the divorce of their parents. The trust property is the land and buildings at 255 Victoria Rd, Rydalmere NSW. Sabine Boensch will cause her share of ownership of that land to be transferred to Franz Boensch for him to hold the whole of land in trust as described above. In due course Franz Boensch will arrange with a solicitor or accountant to prepare a detailed trust document, professionally drafted to give best protection to the children and to ensure favourable tax treatment of income earned by the trust.

6 The events subsequent to the signing of the memorandum were described sufficiently for present purposes in the following extracts of the reasons of the Federal Magistrate at [6]-[7] of his reasons: Between 1999 and December 2003, Mr Boensch made some attempts to refinance the loan for the purposes of carrying out development upon the land. He utilised a finance broker, a Mr Meers. If the property had been refinanced it would have been transferred into Mr Boensch's name but it was not refinanced. In 2003 Mr Boensch had a dispute with a Mr Michael Costin who on 27 July 2003 obtained a judgment against Mr Boensch in the sum of $31,113.31. On 4 September 2003 Mr Costin made an application to record a writ on the title of the property. On 21 November 2003 Mr Boensch sought advice from a solicitor, Mr Leong, in relation to the validity of the Memorandum of Trust. He received advice from Mr Leong which resulted on 18 March 2004 in the creation of a Deed of Trust in which Franz and Sabine Boensch were settlors and Franz Boensch was the trustee. The Deed of Trust purported to confirm the Memorandum of Trust of 23 August 1999. … [I]t is agreed by all parties that if the Memorandum of Trust of 23 August 1999 does not constitute a valid gift of the property by way of trust then the confirmatory documents have no efficacy. … There was produced in evidence a memorandum produced by Mr Peter Meers, the finance consultant, prepared on 18 December 2002 seeking a property investment loan in respect of the property. The proposed borrower is noted as "Mr Franz Boensch and others". Another document prepared by Mr Meers in September 2003 seeking a loan notes that: "The owner plans to retain the complex as a retirement asset." Mr Boensch was asked about this statement in cross-examination and said that it was perfectly consistent with the trust arrangement because he had hoped that his children would be keeping him in his retirement from, inter alia, the income from the developed land. In some accounts described as "trading profit and loss statement for the years 2001-2004" of Workshop 255, Mr Boensch's business, there appears as an expense "rates", which would indicate that Mr Boensch sought to set off against his own business income the council rates which were paid on the property. This would not form a taxable deduction if the property was actually owned by the trust.

7 We would add that there is some evidence to the effect that Mr Boensch communicated the fact of the trust, though not necessarily its terms, to Mr Meers and to his bank and that there is documentation associated both with actual and prospective leases of the property and a loan application (all dating from 2003) in which Mr Boensch purported to be acting as, or else described himself as, Trustee for the Boensch Trust. 8 Finally, there was no evidence that Mr Boensch was in any financial difficulty until his dispute with Mr Costin. No explanation for entering into the memorandum was advanced other than that given by Mr Boensch.

The Preliminary Question 9 The preliminary question was stated by his Honour in proceedings brought by Mr Pascoe in which a variety of orders were sought in relation to Mr Boensch's dealing with the Rydalmere property. Two are presently relevant. The first was for a declaration that the "Memorandum of Trust" executed on 23 August 1999 was of no force or effect in equity; the second, in the alternative, that pursuant to s 121 of the Bankruptcy Act 1966 (Cth), that memorandum was void against Mr Pascoe as trustee of Mr Boensch's property. Further, a similar but more extensive range of declarations was sought in relation to a later Deed of Trust of 18 March 2004 which stated in its recitals that it confirmed the 23 August 1999 memorandum. 10 In the course of a lengthy interim hearing relating to whether legal professional privilege was attracted to legal advice provided for the purpose of entry into the 2004 deed, the Federal Magistrate concluded that the validity, or otherwise, of the declaration of trust of 1999 was an essential integer of any decision in relation to the existence, or otherwise, of legal professional privilege. In consequence, he took what he described as "the somewhat, but not completely unusual step" of ordering a separate question. His Honour was satisfied that a finding on that question could lead to a complete termination of the proceeding or, at least, to a significant narrowing of the issues to be determined. Having heard the arguments on the appeal, we have reason to have a somewhat less sanguine view. 11 The question stated was whether the Memorandum of Trust to which we earlier referred did "constitute a valid declaration of trust or otherwise create or recognize the creation of a valid interest in the [Rydalmere] property?" This was answered in the affirmative.

The Conveyancing Act 12 While the requirements of s 23C cast an uncertain shadow over this appeal, it is unnecessary that we embark upon any detailed consideration of the interrelationship of its component parts. It is appropriate, though, that we make the following comment. Section 23C(1)(b) of that Act requires (inter alia) any declaration of trust respecting any interest in land to be manifest and proved by some writing signed by the declarant. This sub-paragraph - which imposes an evidentiary requirement - clearly applies to the memorandum, if it is to be an effective declaration of trust. What it requires is that the writing admits the trust and satisfies the "three certainties" of intention, subject matter and object (to which we refer below): see Hagan v Waterhouse (1991) 34 NSWLR 308 at 385-386. Additionally, though, because the memorandum, if effective, disposed of an existing equitable interest, it needed as well to satisfy the requirements of s 23C(1)(c) of the Conveyancing Act. The writing requirement of that sub-paragraph - which deals with the disposition of an equitable interest or a subsisting trust and which imposes a validity requirement - has the objects of preventing hidden oral transactions in equitable interests and of enabling trustees to ascertain who in truth are the beneficiaries: Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 311. But the subparagraph does not require the writing to set out the terms of the trust or the fact that a trust exists: cf Re Tyler; Graves v King [1967] 1 WLR 1269 at 1275. 13 When answering the separate question, his Honour referred in passing to the need for a declaration of trust in relation to land to be in writing to satisfy the provisions of s 23C(1)(b) of the Conveyancing Act. No reference was made to the need to comply with s 23C(1)(c). The appellant seems neither at first instance nor on the appeal to have put in issue any alleged non-compliance with either s 23C(1)(b) or, for that matter, s 23C(1)(c) of the Act although it is noted in his written submissions on the appeal that compliance with both provisions was necessary. This failure, to put it neutrally, has rather blurred what in the circumstances are the appropriate principles of interpretation to be applied in interpreting the memorandum if indeed the relevant inquiry as to Mr Boensch's intention is limited to construing that manifest in that document in its setting. 14 Because of the view we take of the memorandum, we are content to deal with it for the purposes of the preliminary question on the basis that it attracts the requirements both of s 23C(1)(b) - as is implicit in the Federal Magistrate's decision - and s 23C(1)(c), which the respondents contend has clearly been satisfied. We would note, though, that in the circumstances, if subpara (1)(b) is satisfied, so also will be subpara (1)(c).

The Decision Below 15 The Federal Magistrate did not accept that the memorandum was a sham. He accepted that at the time the memorandum was signed Mr and Ms Boensch were the legal owners of the property but that Ms Boensch held her interest on trust for Mr Boensch who had, in consequence, the entire beneficial interest in the property. In consequence, subject to satisfying the writing requirements of s 23C(1)(b) of the Conveyancing Act, Mr Boensch could declare himself to be trustee of that interest. The Federal Magistrate considered that by the Memorandum of Trust he constituted himself trustee of that interest for his children. 16 We would note his Honour accepted Mr Boensch's evidence when it was challenged in cross-examination.

The Appeal 17 While there are six grounds of appeal now relied upon, the appeal in substance concerns the question whether in the circumstances Mr Boensch satisfied the various requirements necessary to be complied with to constitute a voluntary trust of his beneficial interest by way of declaration in favour of his two children. 18 By way of preface we would observe that no challenge has been made to the Federal Magistrate's finding that the memorandum was not a sham. We would also note again that no explicit challenge is made to the sufficiency of the memorandum for Conveyancing Act purposes, if in fact a trust was constituted by the declaration. 19 For the purposes of this appeal, it is necessary to refer briefly to certain elementary principles of trust law relating to the voluntary constitution of a trust by way of declaration. We emphasise both "voluntary" and "declaration" for the reason that where valuable consideration is given for the creation of a trust somewhat different principles can apply if the trust is not fully constituted at the time of the declaration. 20 (i) Essential to the voluntary creation of any express trust, whether arising by declaration or transfer, is that the trust itself satisfies the three certainties outlined by Lord Langdale in Knight v Knight (1840) 3 Beav 148 at 173, ie there must be certainty of intention to create a trust; certainty as to the subject matter of the trust; and certainty as to the objects (or beneficiaries) of the trust: on the three certainties see generally Ford and Lee, Principles of the Law of Trusts, Chs 2, 4 and 5; Dal Pont and Chalmers, Equity and Trusts in Australia (4th ed, 2007) Ch 17. The first and third of these have been put in issue in the appeal. 21 (ii) Though there is no required formula to be used to create a trust: Richards v Delbridge (1874) LR 18 Eq 11 at 14; the declarant must manifest an intention presently to create a relationship in respect to property which the law characterises as a trust: Re Armstrong (decd) [1960] VR 202. The intention must be one actually had: Commissioner of Stamp Duties (Q) v Jolliffe (1920) 28 CLR 178; and it must be to create an immediately operative trust: Harpur v Levy (2007) 16 VR 587 at [62]-[63]. An intention that the trust be constituted at a later date will be ineffective to create a trust either at the time of the declaration or at that later date. The ultimate onus of proving the intention to create a trust rests on the parties seeking to propound it: Hyhonie Holdings Pty Ltd v Leroy [2004] NSWCA 72 at [45]. 22 (iii) The requirement that there be certainty as to the beneficiaries of a trust is tied to the supervision and control that courts exercise over trusts: a court might be called upon to administer a trust or to direct the distribution of it to some person or persons. For present purposes it is sufficient to note that, if a trust was declared in the memorandum, it was a fixed trust and, in consequence, the beneficiaries of it must be ascertained or else ascertainable when their interests are to vest: see Kinsela v Caldwell (1975) 132 CLR 458 at 461. 23 Turning now to the appeal itself, it is to be acknowledged that there were occasional infelicities in his Honour's choice of language which in turn have founded grounds of appeal, but which on any fair reading of the Federal Magistrate's reasons were of no operative significance in his ultimate decision. In [10] and [18] of his reasons the memorandum of trust was inexactly described in the language of "gift": cf ground of appeal 1. It was also described erroneously in [9] as a "Deed" which it clearly was not: cf ground of appeal 3. Equally the transfer signed by Ms Boensch was described incorrectly as a deed of transfer: [11]; and see ground of appeal 5. We need say no more about these grounds. They have no bearing on the proper disposition of the appeal and counsel for the appellant has accepted as much. 24 There are three more substantial issues raised by the appellant. 25 The first challenges the Federal Magistrate's conclusion that there was an intention presently to declare a trust. It runs down two courses. It is said, initially, that properly construed the document discloses an intention to constitute a trust in the future. Illustrative of this, it is said, is the condition precedent in the memorandum to the constitution of the trust that Ms Boensch transfer her share of ownership to Mr Boensch. Alternatively, it is said that there is such ambivalence, ambiguity and uncertainty in what is conveyed by the memorandum - characteristics not clarified by the evidence - that it cannot be said that Mr Boensch has discharged the onus of proving he had an actual intention to constitute a trust: cf Hyhonie Holdings Pty Ltd v Leroy. 26 The second and third issues coalesce. It is contended that Mr Boensch has not identified with certainty the interests to be taken by the beneficiaries of the trust and in any event there is no certainty as to who are the beneficiaries: "the Boensch family" or the named children. 27 The respondents contend that no proper challenges have been made to the Federal Magistrate's findings of primary fact. In any event, though, it is contended that in light of the evidence and his Honour's unchallenged acceptance of Mr Boensch's evidence about his immediate intention to create a trust, the appeal must be rejected.

Consideration 28 We begin with the trite observation that, while Mr Boensch's intention, if any, to constitute a trust and the terms of it, are to be divined from the language used in the memorandum, the court may in construing it have regard to the surrounding circumstances known to Mr Boensch and to the purpose and object of the transaction: see Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 at 121; Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 277; see also Dal Pont and Chalmers, at 459, on the convergence of principles of construction in relation to resort to "context" or "surrounding circumstances"; see Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 223 ALR 560 at [78]-[79]. As we will indicate below, context is of no little importance in this matter. Importantly, Mr Boensch's actual intention and the terms actually intended may properly be inferred from all the circumstances if they can properly be said to be nonetheless manifest on the proper construction of the memorandum itself: see Trident General Insurance Co above. We would note in passing that, in the setting of the Conveyancing Act, at least, intention cannot be presumed or imputed: for the difference between inferring and imputing intention see Hawkins v Clayton (1988) 164 CLR 539 at 570. 29 To appreciate what is conveyed by the Memorandum of Trust it is important to understand the context and the circumstances of its making. We would note the following: (i) Mr and Ms Boensch were at the time of the creation of the document only recently divorced. They had two infant children, aged 9 and 7. (ii) On separation Mr and Ms Boensch entered into an agreement for shared custody of the children, child support and the division of property. Prior to the making of the property settlement consent orders, Mr Boensch had a number of conversations with Ms Boensch in which he spoke of the need to make provision for the support of their children and to give them a start for life. (iii) The Federal Magistrate accepted Mr Boensch's evidence of his concern on learning that a new partner in a future relationship with him may be able to make a claim on the Rydalmere property. If such a claim was made he would not then be in a position to make his intended gift to his children to give them a start in life nor would he be able to finance his 50 per cent child support contribution. (iv) In talking to others at the time about his concern, he was made aware of the trust concept. This led to his being led to a person who, as his Honour found, was not a solicitor but who prepared the memorandum. Mr Boensch located a Justice of the Peace who witnessed their signing of a copy of the memorandum. 30 Considered in this context and bearing in mind that the memorandum was not a professionally prepared one, its burden in our view is tolerably clear. Putting to one side the third paragraph (which deals with Ms Boensch), the remaining three paragraphs considered together disclose an intention on Mr Boensch's part - and his is the only relevant intention - to create a fixed trust for his children of the Rydalmere property and we would infer, an actual intention that at some time in the future the property could be resettled by him as trustee on the children on terms more advantageous to them than those of the minimalist trust manifest in the memorandum. 31 Our reasons for arriving at this view can be stated shortly. The matrimonial environment leading to the signing of the memorandum and the age of the children at the time occasioned, on the evidence, an immediate concern in Mr Boensch for the future of the children. Further, he became aware that if he retained his interest in the property, it could, in the context of his entering into a new relationship, become vulnerable to a claim by a new partner. That vulnerability, we would comment, would remain for as long as he retained an interest in the property but would not if he divested himself of it in favour of his children. 32 Mr Boensch clearly attributed an immediate and solemn significance to the memorandum. Otherwise his having it witnessed by a Justice of the Peace seems inexplicable. The document speaks of something thereby being "created for the benefit of the Boensch family". Considered in context, this observation is properly to be interpreted as referring to a beneficial effect for all of the family, ie himself, Ms Boensch and the children from the creation of the trust for the children. The benefit to the parents was that flowing from provision being made for their infant children and, in Mr Boensch's case, the elimination of his "concern" as to a possible consequence that might ensue from any new relationship into which he might enter. In light of that concern we consider it unlikely in the circumstances that he intended to retain any interest in the property. The circumstances make it wholly improbable that he intended to confer some proprietary benefit on his wife. The benefit to the children was self evident. 33 It is said that this use of the description "the Boensch family" is itself illustrative of uncertainty in the memorandum for the reason that in cross-examination he said that as at August 1999 he did not know "what Boensch family comprises at this point". That answer was given in a confused and confusing passage of cross-examination. The context suggests that Mr Boensch may well have considered that he was being asked a technical, perhaps legal, question as to who comprised the Boensch family consequent upon the divorce. It was this he could not answer. 34 The trust property is certainly described. The intended beneficiaries are the two infants. Without there being any explicit provision as to the quantum of their respective interests in the entirety of the beneficial interest in the property, it is to be inferred that they were to take equally. 35 Such conduct of Mr Boensch after the declaration and before the July 2003 judgment against him, in relation to his dealing with the property or by way of communication of the fact of its existence, is slight but serves more to confirm than to falsify the conclusion we have reached. We would, though, acknowledge that some of the actions he took, such as claiming the "rates" of the property as a business deduction, were inappropriate. Nonetheless, there was evidence that he communicated to others from whom he sought professional or other services, or who leased the property, that he was, and was acting as, trustee of the Boensch Trust. We attribute no real significance to any of this subsequent conduct. While much of it may have been of relevance if the question of a sham, ie of no real intention, was in question, it is probably for the most part inadmissible in the present matter as being self serving to Mr Boensch's case: see generally Ford and Lee at 2-1066. The balance, such as it is, which was not self serving, has little probative value. In any event, we are satisfied that the memorandum considered in context speaks for itself. 36 The third paragraph of the memorandum is obviously surplusage for present purposes. Mr Boensch, as owner of the entire beneficial interest in the property, could at any time have called upon Ms Boensch to cause her legal title to be transferred to him. She had in fact already executed and given Mr Boensch a transfer of her title. The paragraph itself had no bearing at all on the constitution of the trust intended by Mr Boensch. It related only to the question who might for the future be the trustee of that trust. That is not a matter of any significance in the preliminary question.

Conclusion 37 There is no appellable error in the Federal Magistrate's conclusion on the preliminary question. 38 We will order that the appeal be dismissed and that the appellant pay the respondents' costs of the appeal. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Dowsett and Edmonds.

Associate: Dated: 18 August 2008 Counsel for the Appellant: Mr G T Bigmore QC with Mr J T Johnson

Solicitor for the Appellant: McLean & Associates

Counsel for the First and Second Appellants: Mr G K Burton SC with Mr M Heath

Solicitor for the First and Second Appellants: Wright Commercial Lawyers