Sproule v Sproule [2009] NSWSC 152 | Case summary

(v) the affidavit referred to above of Daniel Paul Mifsud. Facts 8 The deceased died on 21 November 1985. Probate was granted to the Executor, as named in the will, on 9 April 1986 of a will dated 10 May 1982. 9 Pursuant to clause 3 of the will, the principal residence owned by the deceased at the date of death (which the defendant admits in his defence was a residence at 46 Lakeview Road, Terrigal), was given to the Executor upon trust to permit the defendant: to have the use, occupation and enjoyment thereof during his life he paying all rates taxes or other outgoings thereon and keeping the same in a good and habitable state of repair fair wear and tear and damage by fire lightning flood and tempest excepted and he keeping the same insured against fire ... 10 The Executor was empowered at the request of the defendant to sell the said residence ("Terrigal property") and to employ the proceeds of such sale in the purchase or erection of another residence to be held upon the same trusts as were declared in respect of the original residence. The will provided that on the death of the defendant the said residence or the proceeds of sale thereof shall fall into and form part of the deceased's residuary estate. 11 Under the will, the residuary estate was given in equal shares to the deceased's children (the Executor and his three sisters). 12 At the defendant's request, the Terrigal property was sold on or about 22 September 1987. The proceeds of sale were used to purchase a property known as 51/53 Auburn Street, Sutherland ("the Sutherland property") in the name of S J Sproule as executor of the estate of the late Patricia Joan Sproule. 13 The defendant, in paragraph 6 of his defence, says that he added "an additional $14,000 approximately of his own funds" to assist in the purchase of the Sutherland property. The Executor does not dispute that an amount of approximately $14,000 may have been contributed out of the defendant's own funds towards the purchase price for the acquisition of the Sutherland property. 14 In or about July 1989, again at the request of the defendant, the Executor sold the Sutherland property. The proceeds of sale in respect of the Sutherland property were used to purchase a property at Lewis Street, Airlie Beach ("the Lewis Street property"). However, when the sale was completed (and the Executor says without his consent or authority) the Lewis Street property was registered in the defendant's own name. 15 It appears that the proceeds of sale of the Sutherland property (after deduction of costs, amounting to $121,351.57) were deposited into the account of the deceased's estate. Annexed and marked "M" to the affidavit of the Executor is a copy of the cover page of the contract for sale for the Lewis Street property in which the purchaser's name (initially typed as being that of the defendant) was amended in handwriting to read "Estate of the late Patricia Joan Sproule". The contract appears to have been signed by the Executor. The purchase price was $142,500. 16 Paragraph 29 of the Executor's affidavit contains his reconciliation of the estate trust account, according to which it is said that the total estate funds available after receipt of the net sale proceeds for the Sutherland property, together with rent and interest, at the relevant time totalled $142,500. 17 The defendant asserts in paragraph 8 of his defence that he contributed the sum of $11,313.43 of his own moneys to the cost of the purchase of the Lewis Street property. The evidence of the Executor is that the Executor forwarded a $14,000 deposit for the Lewis Street property from the deceased's estate on or about 27 July 1989 and that he subsequently transferred the amount of $123,542.93 from the deceased's estate to the trust account of the solicitors acting on the purchase of the Lewis Street property, leaving a shortfall of the amount of $3,473.40 for the purchase (which the Executor does not dispute may have been paid by the defendant). 18 It appears that at some stage prior to completion of the sale of the Lewis Street property, a substitute contract was entered into pursuant to which the sale was completed and the transfer was registered in the name of defendant and not in the name of the Executor on behalf of the estate. The Executor's affidavit refers to a letter from solicitors acting on the purchase on or about 22 August 1989 in which they apparently confirmed that a new contract would be entered into "for stamp duty purposes". The Executor has sworn in his affidavit that it was not until 2007 that he became aware that the Lewis Street property had been registered in the defendant's name and not the estate's name. The Executor gave evidence (paragraph 35 of his affidavit) that he had permitted the defendant to handle the purchase of the Lewis Street property, as the defendant was in Queensland and he was in Sydney and on the basis that he trusted the defendant. 19 A Deed of Acknowledgement was executed by each of the Executor and the defendant on 8 September 1989 in which the parties acknowledged that the Executor had used the proceeds of sale of the Sutherland property to purchase the Lewis Street property. There is no suggestion in this Deed that the Lewis Street property was being purchased other than as a substitute residence for the residence then the subject of the defendant's right of use, occupation and enjoyment under the will. 20 In 1994, the Executor, as part of the refinancing of a business in which he was involved, put forward the Lewis Street property as security. This apparently occurred with the consent of the defendant. I do not know whether the other residuary beneficiaries consented. The Executor deposed in his affidavit to the fact that the bank had drafted the loan documents and had requested that the defendant sign them, but that he (the Executor) had not questioned why this was the case. The mortgage documentation identified the mortgagor as defendant. As I apprehend it, the Executor's evidence is that he did not appreciate from the mortgage documentation that the defendant was the registered proprietor of the Lewis Street property rather than himself as executor of the estate. 21 Annexure "U" to the affidavit of the Executor is a copy of a letter dated 6 September 1994 addressed to the defendant in relation to the mortgage assistance given to the Executor, in which Mawsons, solicitors, noted that: Pursuant to the terms of the Trusts of your late wife's Will, any moneys received by you from the sale of the premises 51/53 Auburn Street, Sutherland, which are applied towards the purchase of another premises, in this case, 3 Lewis Street, Airlie Beach, remain the subject of the Trusts. The amount of $131,186.57 was applied for this purpose and upon your demise, will be dealt with in accordance with the terms of the Trusts of your late wife's Will. [It is not clear how this figure was calculated but it is consistent with the defendant's account of the moneys contributed by him to the purchase.] 22 The effect of this seems to be that the defendant was on notice that any interest held by him in the Lewis Street property (at least to the extent of the moneys contributed out of the estate) was held on the trusts of the will. 23 The mortgage over the Lewis Street property was discharged in August 1997. On or about 17 November 1997 the defendant sold the Lewis Street property and acquired the Begley property. On 5 December 1997 a transfer was registered of the Begley property in the name of the defendant for the consideration of the sum of $145,000. The defendant, in paragraph 11 of his defence, admits that he purchased the Begley property from the proceeds of sale of the Lewis Street property, but he denies that he made that purchase (or the earlier Lewis Street purchase in his name) without the Executor's consent or authority. 24 The Executor's evidence is that it was not until about December 2006 that he became aware that the Lewis Street property had been sold. At that time the Executor received a letter from the defendant in which the defendant stated that he had sold the Lewis Street property for $145,000 and kept the money "as security against medical expenses" and that this amount "less my $25,000 [this being the amount the defendant asserted he had put towards, first, the Sutherland property ($20,000) and, then, the Lewis Street property $5,500] leaving $120,000 to be shared by you and your siblings along with any other bequests that I make to you". 25 There was no mention of the acquisition of the Begley property and the amount asserted by way of contribution by the defendant to the respective properties seems to be inconsistent with what was asserted by the defendant in his defence. 26 The parties, together with the remaining residuary beneficiaries, participated in a telephone mediation of the dispute at some time after the commencement of these proceedings. I was informed by Ms Williams that at the mediation an agreement "in principle" was reached but that this was subject to formal documentation. I was taken to evidence of communications between the Executor's solicitors and the defendant seeking to reach agreement to a Deed of Family Arrangement which I am told was intended to reflect the agreement in principle reached at the mediation (and pursuant to which the Begley property was to be sold and the residuary beneficiaries and defendant were to take a share of the proceeds). The defendant has apparently refused to sign this deed (even after amendments were made to it at his request). 27 In the absence of evidence that a binding agreement was reached at the mediation (ie an agreement whether oral or in writing which the parties intended should operate in advance of any subsequent document formally recording the terms of an agreement between them) I cannot form the view that there is currently any binding agreement which is enforceable by the Executor or the defendant in relation to the resolution of this dispute. 28 Tendered at the hearing before me (Ex A) were what seemed to be business records of Airlie Body Corporate Services disclosing arrears as at March 2009 in respect of body corporate fees of some $3,000 (excluding a fee of about $555 payable for the current period which is not due until 25 March 2009). Tendered also as part of Exhibit A was a letter dated 12 March 2009 from the Executor's solicitors (which clearly is not a business record) advising the Executor that the last payment for council rates had been made in August 2007 and there are rates in arrears of $2,703.37. The evidence of the real estate agent filed in the proceedings was that the Begley property has remained vacant for 12 months and that the property requires some repair to be carried out (at least for the purpose of sale). The evidence establishes that the defendant is not currently using the Begley property as his personal residence and he has failed to pay at least the body corporate sinking and other fees in respect of the property, contrary to the conditions under which he was given a right of use, occupation and enjoyment under the will. 29 Tendered and marked as Exhibit B in the proceedings is a statement of account by the Executor's solicitors advising that the total fees and expenses to date (I infer these to be for the conduct of the litigation) total $36,721.71. Findings 30 In his defence, the defendant admits that he owed the Executor a duty to act in good faith and that he owed a duty to act in the best interests of the residuary beneficiaries, though denying any breach of those duties. The defendant asserts that by (unidentified) conduct and/or oral representations by the Executor and/or the residuary beneficiaries he was led to believe that the terms of the will would not be strictly enforced and that he could purchase the Lewis Street property in his own name and use the proceeds of sale thereof to purchase the Begley property in his own name. There is, however, no evidence before me to support those assertions or the estoppels pleaded against the Executor. The defendant has filed no affidavits in the proceedings. 31 As the beneficiary under his late wife's will of a right of use, occupation and enjoyment during his life of the Terrigal property and any substitute property later acquired out of the proceeds of sale of the Terrigal property or otherwise pursuant to clause 3 of the will, the defendant accepts he owed duties to the residuary beneficiaries. Although the defendant denies that the purchases in his name of the Lewis Street property and the Begley Street property were without the consent or authority of the Executor, the only evidence before me is that placed before the court by the Executor on the basis of which, and having regard to the Deed of Acknowledgement entered into by the defendant in September 1989, I find that neither the registration in the defendant's name of the Lewis Street property nor the registration in his name subsequently of the Begley Street property was authorised by the Executor and that the defendant was on notice that any property acquired out of the proceeds of sale of the Sutherland property was to be held on the trusts of the will. 32 The defendant, in his defence to the statement of claim, was prepared to consent to a declaration that he held all moneys paid to him in respect of the Lewis Street property on trust for the Executor and residuary beneficiaries (except for the sum of approximately $25,000 which he said was the application of his own moneys to purchase the residence together with interest on that sum) and was prepared to consent to a declaration that he held his interest as sole proprietor to the Begley property on trust for the Executor (excluding only the amount of $25,000 which the defendant alleged he had contributed with interest to be paid to the defendant). 33 There is no evidence put forward by the defendant to establish that the actual contribution made by him to the Begley property was $25,000. At most the Executor concedes that approximately $14,000 of the defendant's money may have been applied to the acquisition of the Sutherland property with a subsequent $3,743 towards the subsequent acquisition of the Lewis Street property. 34 In the circumstances, it was submitted that even if a full account were to be allowed in respect of the contribution by the defendant of his own funds towards the acquisition of the Sutherland property, and subsequently the Lewis Street property (ie $25,000), this would be more than offset by the costs incurred to date by the Executor in relation to these proceedings. 35 There being no evidence that the Executor consented to the registration in the defendant's name of the transfer in respect of the Lewis Street property (and the only evidence being that the Executor had signed a contract to purchase that property in the name of the estate), I am left to conclude that the defendant has wrongfully dealt with trust property. Insofar as the Executor had reposed trust and confidence in the defendant in relation to the arrangements for the acquisition of the Lewis Street property, the conduct of the defendant in registering it in his own name would be a breach of those duties. I was referred to Paul A Davies (Australia) Pty Limited v Davies [1983] 1 NSWLR 440 and Australian Postal Corporation v Lutak (1991) 21 NSWLR 584. 36 In Lutak, Bryson J (in the context of the application of stolen money, together with borrowed money, towards the acquisition of a house) considered that the plaintiff had an election whether to trace into the property so acquired for the amount stolen or to elect to treat the purchase of the house as a purchase on its behalf to be the equitable owner of the property. Until such an election was made, the plaintiff had a right to have a charge on the property for the money which it could trace into it. 37 As I understand it, although a variety of relief has been sought in the statement of claim, what was made clear to the defendant last week was that the Executor would be seeking an order that the property be transferred into his name as executor of the estate. To the extent that this suggests the Executor proposes to make such an election it seems to me that it is appropriate for me to give effect to that election. 38 In Davies, Moffatt P noted that where there was a breach of fiduciary duty, if property had been acquired with trust money then it would normally be appropriate to declare a trust over the asset acquired. To the extent (the amount of which is unclear in this case) that the defendant's personal moneys have been mixed with trust moneys to acquire the property then ordinarily it would be appropriate to take that into account when declaring a trust over the property. Here, where the defendant was only ever to obtain a right of use, occupation and enjoyment in any property acquired pursuant to clause 3 of the will, and the contributions to the purchase price of the property are relatively minor (and exceeded by the cost to which the Executive has been put in restoring the trust property for the benefit of the estate), I consider it appropriate to take account of the defendant's contribution by way of an offset against the order for costs I would otherwise make against him. 39 In the circumstances I consider the appropriate orders are for me to declare that the defendant holds his interest as sole proprietor of the property known as 1/6 Begley Street Airlie Beach Queensland 4802 comprising Lot 1 on BUP 70993 in the County of Herbert in the Parish of Conway on trust for the Executor as executor of the estate of the late Patricia Joan Sproule and I make such a declaration. I order the defendant to do all such things necessary in order to effect the transfer of his interest in the said property to the Executor as executor for the estate of the late Patricia Joan Sproule. 40 I will hear submissions as to the costs of the Executor to the extent that they exceed the amount offset against the defendant's contributions to the purchase price of the property. I understand that this is likely to be a minimal amount. 41 An order was also sought that the Executor, as trustee and/or executor of the estate of the late Patricia Joan Sproule, be wholly relieved from personal liability for any loss caused to the estate by the use of the trust property by the defendant. Each of the other residuary beneficiaries consents to such an order. 42 Pursuant to s 85 of the Trustee Act 1925 (NSW) the court has power to relieve the trustee either wholly or partly from personal liability for breach of trust. That relief may not be given unless it appears to the court that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust. 43 There is no suggestion on the evidence that the Executor has not acted honestly. Whether a prudent trustee would have allowed the defendant to handle the arrangements for completion of the Lewis Street property may be open to debate. However, in the circumstances, where the contract as signed clearly specified the purchaser as being the estate, and the Executor could I think fairly have assumed that any solicitors acting on the purchase would have so dealt with the transaction, I am satisfied that the Executor acted reasonably. In Jacobs Law of Trusts, it is noted that mere negligence is not of itself necessarily disentitling. 44 In circumstances where the residuary beneficiaries consent to such an order, I am satisfied that the Executor ought fairly to be excused. 45 I therefore make such an order relieving the Executor of personal liability for any breach of trust arising out of the circumstances in which the Lewis Street property came to be registered in the defendant's name. 46 I will make such an order. **********

Sproule v Sproule

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Judgment (15 paragraphs)

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