Secretary Department of Social Security v Agnew

"Did you have a discussion, that is to say you and your brothers, with your father at or about the time he decided to go to Western Australia about the future of the farm?

Well, Dad had always said that the farm was going to be ours eventually anyway and Dad just said: well, it's yours now, you farm it as you see best, I'm going off to Perth to have a regular income and see what sort of job you do.

Did you understand that the land was yours then in 1980?

And what did you understand your father to mean by the words, 'It's yours now'?

I think it was the land but also the whole of the operation. I think Dad was just ready to release all the pressure of farming and as just said, 'The whole caboodle, it's yours' …."

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.

THE LEGISLATION 6 Section 1123(1) of the Social Security Act 1991 provides that for the purposes of the Act there is a disposal of an asset if the disponor receives no or inadequate consideration for the disposal. Section 1124 deals with what it calls "the amount of the disposition" on a disposal of an asset. If the disponor receives no consideration for the disposal, the amount is the value of the asset. If the disponor receives consideration, the amount is the value of the asset less the consideration received. Section 1125A(1) deals with the situation where a person has disposed of an asset during a pre‑pension year, the person is a member of a couple when the person or the person's partner claims a pension, and the "amount of the disposition" exceeds the disposal limit ($10,000). In such a case, for the purposes of determining whether a pension is payable to the person:

"(e) there is to be included in the value of the person's assets for the period of 5 years that starts on the day on which the disposition took place:

(i) 50% of the amount by which the … amount of the … disposition … exceeds the disposal limit

(f) there is to be included in the value of the assets of the person's partner for the period of 5 years that starts on the day on which the disposition took place:

(i) 50% of the amount by which the … amount of the … disposition … exceeds the disposal limit …."

TRIBUNAL'S REASONING 7 After setting out the evidence summarised in paragraphs 2 to 5 above, the Tribunal referred to the "exception" mentioned in par 2. It said:

"41. Accepting the above evidence, it might be said that prior to his departure, Mr Agnew expressed a clear intention that the whole of Rosedene was being given to his sons and that he would be merely holding legal title on trust for them. That is to say, it might be said that Mr Agnew's intention at that moment was to divest himself entirely of the beneficial ownership of the land, and to forfeit any right he might have had to assert legal title again at some later point in time, ie create an express trust in favour of his sons. The Tribunal is not however so satisfied. The Tribunal is not prepared to accept that this was the reality of the situation and is of the view that the evidence forthcoming from the witnesses to this effect must be seen in light of their relationship to each other.

The Tribunal finds there was no intention, at the time Mr Agnew departed for Western Australia, to transfer the whole of the beneficial title in Rosedene to his sons at this time to enable them to do as they saw fit with the subject property, ie there was no express trust created over Rosedene."

8 Before the Tribunal it was argued for Mr and Mrs Agnew that an express trust was created in 1980, though their primary argument was that as a consequence of the events in and after 1980 a constructive trust in favour of the sons had come into existence. Before the primary judge only a constructive trust was propounded. The Tribunal's observations set out above were directed to the claim to an express trust. However, in a later passage dealing with the constructive trust contention, it restated its finding with respect to Mr Agnew's intention prior to him leaving for Western Australia. The Tribunal went on to give another reason for denying a constructive trust. This was that

"despite Mr Agnew's representation to the sons that the farm was theirs and their reliance on this, the sons did not act to their detriment (and therefore no unconscionable act or fraud would arise if Mr Agnew was to deny his sons' claimed interest)?"

"The Tribunal also finds that following Mr Agnew's departure for Western Australia, the sons considered the land to be their own. Accordingly, they made improvements to the land and their farming operations from time to time and, in so doing, incurred a larger debt than would have otherwise been the case. However, accepting Peter Agnew's evidence, the Tribunal finds that all the improvements made were ultimately for the day to day running and year to year benefit of the sons' farming enterprise. An example he gave was that clearing stony fields had made driving tractors much easier and ultimately increased the cropping capacity and yield. Further advantages which could, in equity, be said to balance any detriment they might have suffered were, firstly, that they enjoyed fifteen years use of the land for no cost and, secondly, were able to use Rosedene as security for loans taken out to service both Rosedene and their other farming interests. In this way, the incurring of the $371,106 debt could not be said, as the applicants maintained, to have given their sons a right over the Rosedene property, as the debt was used to service the whole of their farming enterprise, three‑quarters of which had nothing to do with Rosedene."

PRIMARY JUDGE'S REASONING 9 The primary judge noted that although it was not necessary to show the existence of a common intention in order to establish a constructive trust, there was evidence that was accepted by the Tribunal that pointed to such an intention. His Honour referred to the evidence set out in pars 2 to 5 above. He did not regard the finding in par 41 of the Tribunal's reasons as a finding of fact, for the Tribunal accepted Mr Agnew and Peter as witnesses of truth, and was not therefore rejecting their evidence. Nor was it drawing inferences from their evidence. Rather it was drawing a legal conclusion from its earlier findings of fact. His Honour rejected the claim that because the sons had fifteen years use of the father's land rent free, they had shown no detriment. He said:

"… it overlooks the fact that, if a constructive trust came into existence in 1980, the sons were then and thereafter entitled, in their capacity as the beneficial owners of the land, to the use and enjoyment of the land, freed of any restriction or obligation to pay their father rent. If therefore, there was a trust, there was no benefit to the sons of the type described …. On the other hand, if there was such a trust and its existence were to be denied, the sons, although the beneficial owners, would be deprived of the benefits that flow from having the land registered in their names as the legal owners."

His Honour accepted that the sons derived benefits from the arrangement, but said that that did not mean that detriments were to be ignored. That, he said, was made clear by Giumelli v Giumelli (1999) 161 ALR 473. His Honour concluded that the Tribunal had erred in law in holding that no detriment had been made out. He said:

"Mr Agnew honoured his promise to the sons; but if he had attempted to renege on his commitment, his sons would have rightfully 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.

In my opinion, the findings of fact that were made by the Tribunal are such that they amount to a finding of the existence of a constructive trust."

CONTENTIONS ON THE APPEAL 10 The appellant's principal contention was that he was obliged to consider Mr and Mrs Agnew's entitlement to pensions in the light of the facts as they existed at the time their applications were being considered. At that time Mr Agnew had disposed of Rosedene and given the proceeds to his sons. His assets had thus been diminished by $450,000. Mr and Mrs Agnew had applied for pensions within five years of the disposal of the land, so that s 1125A(1) applied. It was neither here nor there that had the 19 September 1995 documents not been executed, Mr Agnew may have held the land on a constructive trust for the sons. This contention was put to the Tribunal, but on the view it took, namely that there was no actual or constructive trust, it did not need to deal with the contention directly. Having held there was no trust, the Tribunal simply said that ss 1123, 1124 and 1125A "are to run their course". Rosedene had been disposed of for no consideration. Its value was $450,000. This sum, less the disposal limit of $10,000, was to be included in the calculation of Mr and Mrs Agnew's assets when assessing their eligibility for age pensions pursuant to s 1125A. Presumably the appellant put to the primary judge the argument he put to the Tribunal and to the Court. There is, however, no reference to it in his Honour's reasons. His Honour took the view that if at the time of the sale and gift in September 1995 Mr Agnew held the land on a constructive trust for the sons, "there had been no disposal of an asset of material worth".

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:

Even if there had been the clearest oral agreement between Mr and Mrs Rosset that Mr Rosset was to hold the property in trust for them both as tenants in common, this would, of course, have been ineffective since a valid declaration of trust by way of gift of a beneficial interest in land is required by s 53(1) of the Law of Property Act 1925 to be in writing. But if Mrs Rosset had, as pleaded, altered her position in reliance on the agreement this would have given rise to an enforceable interest in her favour by way either of a constructive trust or of a proprietary estoppel."

See also Waters, Matrimonial Property - Resulting and Constructive Trusts - Restitution - Fielder v Fielder (1975) 53 Can Bar Rev 366 at 375‑376; Cope, Constructive Trusts (1992) at 836‑838; Ford and Lee, Principles of Equity 3rd ed (1996) par 22350.

14 Whatever the differences between the two doctrines (as to which see, for example, Pawlowski, The Doctrine of Proprietary Estoppel (1996) at 10‑16), they share the aim of frustrating unconscionable conduct: Yaxley v Gotts [1993] 3 WLR 1217 at 1227. Thus the notion of detriment common to both should have the same content. That is, one should not look for an act that can be seen to be to the claimant's detriment when done, but for an act done by the claimant in reliance on the conduct of the legal owner in circumstances where detriment would be suffered if the owner were permitted to depart from the assumption that induced the reliance. As Dixon J said in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674

"it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it."

Sir Owen Dixon's understanding of detriment in the estoppel context has been adopted in some constructive trust cases. In Higgins v Wingfield [1987] VR 689 at 695‑696 McGarvie J, with whom Murray J agreed, having set out the passage from Grundt quoted above, said:

"The required nature and quality of the acts capable of amounting to detriment and their relation to the common intention have not been settled. However, where acts constitute a sufficient detriment to raise a trust, there is no reason for regarding them as having a rationale different from that explained by Sir Owen Dixon in the passage quoted above as the rationale of acts of detriment which will found an estoppel.

… no case has been drawn to our attention where the marriage case principles have been regarded as giving rise to a trust without the claimant having done acts which would be acts detrimental to the claimant's interest if the claimed beneficial interest were denied."

See also per Marks J at 700. The same view was taken in Thwaites v Ryan [1984] 1 VR 63 at 616. And see Ong, Trusts Law in Australia (1999) at 467. Accordingly we think that in the passage we have set out in par 8, the Tribunal erred in law in literally applying the second criterion in Hohol with a view to discovering whether the acts done by the sons were detrimental to them when done.

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.

WHEN DID THE CONSTRUCTIVE TRUST COME INTO EXISTENCE? 18 In Muschinski v Dodds (1985) 160 CLR 583 at 614 Deane J said:

"Equity acts consistently and in accordance with principle. The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust: cf Scott, Law of Trusts (3rd ed, 1967), Vol V, par 462.4. Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter partes independently of any formal order declaring or enforcing it."

See also Re Jonton Pty Ltd [1992] 2 Qd R 105 and Zoborg v Commissioner of Taxation (1995) 64 FCR 86 at 91‑92. Those cases also indicate that the court has a discretion to modify the prima facie date on which the trust takes effect. We would adopt the view of A J Oakley that "in the absence of any judicial order to the contrary, a constructive trust will take effect from the moment at which the conduct which has given rise to its imposition occurs: Constructive Trusts 3rd ed (1997) at 5. See also Pawlowski, op cit, at 12, 130‑132. Cf Re Sabri; Ex parte Brien v Sabri (1996) 21 Fam LR 213, at 223‑229. In the present case there is no reason, such as third parties in need of protection, to defer the inception of the trust, and accordingly it came into existence when the conduct which gave rise to its imposition occurred.

19 What is the relevant conduct in the present case? Although there are suggestions to the contrary in the primary judge's reasons, Mr Agnew's statement in 1980 did not itself bring any trust into existence. The trust arose when, in reliance on his statement that the land was theirs, the sons acted in the manner we have described. Although it has been said that the trust arises "at the date of the wrongdoing": Wright, The Remedial Constructive Trust (1998) at 263 (presumably the legal owner's denial of the claimant's entitlement), the authorities support the view that it is the conduct of the claimant that gives rise to the equity. In Re Sharpe (a Bankrupt) [1980] 1 WLR 219 the interest of a beneficiary under a constructive trust was held binding on the owner's trustee in bankruptcy with priority over the claims of the general creditors. The legal owner of the land in question had never denied the claimant's entitlement. Browne‑Wilkinson J said (at 226):

"Accordingly, if I am right in holding that as between the debtor and Mrs Johnson she had an irrevocable licence to remain in the property, authority compels me to hold that that gave her an interest in the property before the bankruptcy and the trustee takes the property subject to that interest. In my judgment the mere intervention of the bankruptcy cannot alter Mrs Johnson's property interest."

Similarly, in DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 852 a company was in possession of land under an informal arrangement with the owner which was held to amount to an irrevocable licence. The owner did not deny the licence, but the licensee was held entitled to recover compensation when the land was compulsorily acquired on the ground that it was the beneficiary of a constructive trust.

20 In Kidner v Department of Social Security (1993) 18 AAR 545 at 559 Drummond J said:

"It also appears … that … a further ground the Tribunal accepted as justifying the denial of a constructive trust over the properties in favour of the sons was that the applicant had at all times dealt with the properties in accordance with the wishes of the sons and had thus never acted, at least to date, in a manner with respect to those properties which would make it unconscionable for him to deny any interest that the sons might have in the properties. Before a constructive trust can arise in a case in which one person has increased the value of another's property, it is essential that the circumstances of the case must show that it would be unconscionable on the part of the legal owner to assert his legal title free of any claim by the person who has improved the property. I do not, however, think that a constructive trust can only arise in such a case if the legal owner in fact asserts that his legal title is unfettered by any interest in favour of the improver. The critical thing must be that the claimant has acted in circumstances in which it would be unconscionable for the legal owner to deny that person's claim in respect of the property …."

Re Sharpe and the Food Distributors Case support his Honour's view. See also Kintominas v Department of Social Security (1991) 103 ALR 82 at 92 and Re Sabri at 229‑230. It is unnecessary to attempt to identify the point in time when equity would regard Mr Agnew as bare trustee of the land for his sons. It is sufficient to observe that, on the facts of this case, by a time well prior to 1995 the sons had become entitled to the entire beneficial interest in the land.

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.

CONCLUSION 23 For the reasons we have given, the appeal should be dismissed.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond, the Honourable Justice Sundberg and the Honourable Justice Marshall.

Associate: Dated: 4 February 2000 Counsel for the Appellant: J E Lunn

Solicitor for the Appellant: Australian Government Solicitor