Secretary Department of Social Security v Agnew

Secretary Department of Social Security v Agnew - [2000] FCA 59 - FCA 2000 case summary — Zoe

[8]

3 After he moved to Western Australia Mr Agnew had nothing to do with the running of the farm. Management decisions were made without his approval. The sons purchased nearby land at Foul Bay, upgraded their plant and equipment and made many improvements to the Rosedene land and fixtures without consulting their father. When the sons' improvements and expansions necessitated the taking out of a mortgage over Rosedene, Mr Agnew merely signed the necessary papers. Between 1980 and 1995 the farm continued to operate as a partnership between the parents and sons. When Mr Agnew left Rosedene in 1980 about 500 acres were being cropped. By 1995 this had increased to 1,100 acres or thereabouts as a result of the clearing of stony, non‑arable land. The sons made other improvements to Rosedene, including fencing, the erection of sheep yards and renovations to the dwelling on the property. They also purchased additional land and expanded their sharefarming activities. Mr Agnew did not draw any profits from the farm or partnership while he was in the west. 4 When the partnership was formed the business had an overdraft of about $5,000. This had increased to about $6,500 in 1980 when Mr and Mrs Agnew went to the west. At this time Rosedene was unencumbered. It was mortgaged after Mr and Mrs Agnew left. The mortgage money was used to improve Rosedene and to purchase additional land and new equipment. The additional land was purchased in the names of or for the benefit of the sons. 5 In 1995 Mr and Mrs Agnew returned from Western Australia. As at 30 June 1995 the partnership was indebted to Austrust Ltd in the sum of $371,105.60. The repayment of that debt was secured in part by a registered mortgage over Rosedene and in part by personal guarantees from Mr and Mrs Agnew. The partnership was dissolved by mutual consent on 1 July 1995. Mr and Mrs Agnew retired, and a partnership consisting of the sons came into existence. The continuing partners assumed liability for all debts of the partnership and indemnified their parents in respect of all partnership debts. The parents' shares in the partnership assets were vested in the sons. On 19 September 1995 Mr Agnew sold Rosedene to Rosedene Nominees Pty Ltd for $450,000. The purchaser was the trustee of the Rosedene Family Trust that had been created on the same date. The specific beneficiaries were the sons, their spouses, children and remoter issue. On the same day Mr Agnew signed a Deed of Release which recited the sale, and that the purchaser had taken over all liability for the existing mortgage (approximately $345,000), and by which Mr Agnew "by way of gift … frees releases and discharges" the trustee from payment of the balance of the purchase price.

[26]

WAS THERE A CONSTRUCTIVE TRUST? 11 Had Mr Agnew on his return from Western Australia asserted that Rosedene was his beneficially, his claim would have been rejected and the sons' claim to beneficial ownership upheld on the ground that the land was held by their father on a constructive trust for them. In reliance on the father's statement that the land was theirs, they improved it, doubled its capacity, turned stony land into arable land, extended the house on Rosedene and otherwise acted in reliance on the father's statement that the land was theirs. Directing ourselves in accordance with Bathurst City Council v PWC Properties Pty Ltd (1998) 157 ALR 414 at 425‑426 and Giumelli at 476 we consider that a remedy that falls short of the imposition of a trust would be inappropriate in the circumstances of the case. Factors such as those that led to more confined relief in Giumelli ‑ a still pending partnership action, improvements to the land by family members other than the claimant, and the fact that another son who was not party to the proceeding lived on the land with his family ‑ are not present in the instant case. 12 One of the reasons the Tribunal gave for rejecting the claim to a constructive trust was that the sons had established no detriment. It took from Hohol v Hohol [1981] VR 221 what it called the three necessary elements for a constructive trust ‑ a common intention as to the ownership of the beneficial interest, acts to the detriment of the party claiming the beneficial interest, and that it would be a fraud on the claimant for the legal owner to deny that interest. As the primary judge said, it is no longer necessary to show a common intention. See Muschinski v Dodds (1985) 160 CLR 583 at 613‑614. However, for ease of identifying the type of constructive trust involved in the present case, we will use the description "common intention constructive trust". There are many cases and commentaries in which, as in Hohol, it is said that the claimant must have acted to his detriment. 13 The Privy Council has said that the common intention constructive trust is but a particular application of proprietary estoppel principles: Austin v Keele (1987) 61 ALJR 605 at 609. Browne‑Wilkinson VC has said that the two doctrines rest on the same foundation and have reached the same conclusions: Grant v Edwards [1986] Ch 638 at 656. In Lloyds Bank Plc v Rosset [1991] 1 AC 107 at 129 Lord Bridge, with whom the other Law Lords agreed, said:

[35]

15 The primary judge was correct in his treatment of detriment, which is consistent with what we have said in par 14. His Honour said that if Mr Agnew had attempted to renege on his contract, his sons would have rightly complained that a refusal to transfer legal title to them "would have been a detriment because it would mean that they would not gain their rightful proprietary interest in the land." 16 The other reason the Tribunal gave for refusing to impose a trust was that at the time Mr Agnew departed for Western Australia he did not intend to transfer the whole of the beneficial title in Rosedene to his sons "at this time". In par 32 of its reasons the Tribunal said that it regarded Mr Agnew and Peter as honest witnesses, and accepted the "factual content" of their evidence as true, with one exception. That would lead one to expect that the exception would be an aspect of their evidence that the Tribunal rejected. But that is not the case. Rather, the Tribunal accepts the evidence in par 40, namely that Mr Agnew, speaking of the land, told the sons "it's yours now", which led Peter to understand that the land was theirs "then in 1980". We agree with the primary judge that it was not open to the Tribunal, having accepted that evidence, to hold that this was not "the reality of the situation". 17 In any event, the Tribunal immediately went on to make a further error of law, and in so doing indicated that it did not understand the nature of a trust. Thus it said in par 42 that when Mr Agnew told his sons the land was theirs, it was not his intention to divest himself of "all rights as legal and beneficial owner, ie to create a trust in favour of his sons". If Mr Agnew had divested himself of his legal and beneficial interest (ie by transferring the land), there would of course have been no trust in the sons' favour. The Tribunal repeated the error when it went on to say that there were specific purposes behind the "preservation of legal title in Mr Agnew's name". The retention of legal title was not in question, and to search for reasons why Mr Agnew retained it shows that the Tribunal regarded a positive decision to retain legal title (ie not to transfer the land outright) as fatal to the existence of a trust. It is true that in par 42 the Tribunal was dealing with an express trust. However, in par 47, when dealing with a constructive trust, it repeated the "findings" it had made in par 42. The erroneous understanding of trust law disclosed by the express trust discussion permeates the constructive trust discussion, because the earlier express trust "finding" was used by the Tribunal to show that the first Hohol element was not present. That is to say, there was no common intention that the sons should be the beneficial owners of the land. Thus, in addition to the error of law identified by the primary judge, the Tribunal erred in law in its understanding of the duality of ownership inherent in a trust.

[45]

THE 1995 EVENTS 21 The appellant contended that the documents executed in September 1999 "altered any previous legal entitlements"; that is to say, they expunged the constructive trust. But the question posed by s 1125A(1) is the value to be placed on the asset Mr Agnew disposed of. At the date of disposal all he had was the bare legal title to the land. By s 1125A(1) there is to be included in the assets of each of Mr and Mrs Agnew 50 per cent of the amount by which the "amount of the disposition" exceeds $10,000. The effect of the documents executed on 19 September 1995 was that Mr Agnew received nothing for the disposal. Thus, under s 1124, the "amount of the disposition" is the value of the asset. The asset disposed of had no or no significant value, and certainly did not exceed $10,000 in value. Thus no amount is to be included in the parents' assets under s 1125A(1)(e) and (f). 22 We do not know what was said when the Agnews consulted their solicitor about transferring Rosedene to the trustee of the family trust. They probably told her that although the land was in Mr Agnew's name, it had been given to the sons in 1980 and was owned by them. In any event, three matters had to be attended to. The first was that Mr and Mrs Agnew had to be relieved of liability under the mortgage. Although the mortgage debt was secured over Rosedene, it was a liability of the sons and the moneys secured had been used for their purposes. The parents were relieved of liability by the sale agreement. The second thing that had to be done was to transfer the land (ie the legal and equitable interests) to the trustee. That was done by the transfer, which was also executed on 19 September 1995. Nothing turns on the fact that it was a transfer to the trustee and not to the sons, because a trustee is required to deal with the subject matter of the trust in accordance with the directions of the beneficial owner. It can readily be inferred that the sons requested the father to transfer the land to the trustee. Mr Agnew's evidence was that Rosedene was too small to be split three ways, and so it was determined that it be transferred to the trust of which the sons and their families were beneficiaries. The third thing was that the arrangement had to reflect the fact that Mr Agnew had no beneficial interest in the land. That was done by reducing the consideration for the sale by the amount of the mortgage debt and forgiving the balance. Thus, although we do not know upon what factual and legal assumptions the solicitor proceeded when drawing the documents, the result in money terms accorded with the true legal position as between Mr Agnew and the sons.

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