Turner v O'Bryan-Turner

Claims against David and Karl

1. As noted above, the appellants do not claim that David and Karl obtained their interests by fraud. They do not rely on the fraud exception to indefeasibility in s 42 of the Real Property Act. Rather, they rely upon the in personam exception. They challenge the interpretation of the High Court's reasoning in Farah Constructions Pty Ltd v Say-Dee Pty Ltd as holding that the in personam exception is confined to principal wrongdoers and does not extend to accessories (Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [225]).

First limb of Barnes v Addy: proprietary remedy

1. Liability under either limb of Barnes v Addy is a personal liability although proprietary remedies may be available. A party liable under the first limb, for having received and been chargeable with property transferred in breach of fiduciary duty with requisite knowledge of the breach, may be liable to pay compensation even if he or she no longer holds the property, just as an accessory liable under the second limb of Barnes v Addy may be liable to pay compensation. A third party's personal liability under the first limb of Barnes v Addy should not depend upon the mechanism by which the property was transferred, but rather upon whether the third party received property that was trust property, or was transferred in breach of fiduciary duty, or was traceable to property so transferred, and, if so, whether the third party had the requisite knowledge (not merely constructive notice) of the breach of trust or breach of fiduciary duty so as to warrant the imposition of personal liability arising from the receipt.
2. In El Ajou v Dollar Land Holdings plc (1994) 2 All ER 685, Hoffman LJ said, in relation to the requirements of liability for knowing receipt, "for this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty. Secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty" (at 700).
3. In Re Montagu's Settlement Trust [1987] Ch 264 at 278 Megarry VC said (at 272-273): "It should also be remembered that the doctrines of purchaser without notice and constructive trusts are concerned with matters which differ in important respects. The former is concerned with the question whether a person takes property subject to or free from some equity. The latter is concerned with whether or not a person is to have imposed upon him the personal burdens and obligations of trusteeship. I do not see why one of the touchstones for determining the burdens on property should be the same as that for deciding whether to impose a personal obligation on a man. The cold calculus of constructive and imputed notice does not seem to me to be an appropriate instrument for deciding whether a man's conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee."
4. Where the third party has the requisite knowledge of the breach of trust or fiduciary duty that makes it appropriate to bind him to the obligations of a constructive trustee, including the personal obligation to account for the value of the property received by him or her, even if he or she no longer holds the property, it is not obvious that the obligation should be affected by the nature of the property transferred.
5. David and Karl received the Trundle Properties through Wendy's signing of the memoranda of transfer and her arranging for the transfers to be registered, which steps were taken in breach of her fiduciary duty to John. This is so even though Wendy had no authority to sign the transfers as John's attorney and signed them in her own name. David and Karl acquired title by registration, not by force of her execution of the transfers which were void. Nonetheless had Wendy not taken those steps, John would have remained the registered proprietor of the Trundle Properties. Because she did take those steps, David and Karl have become registered as proprietors of three of the properties and David is registered as tenant in common with Wendy in respect of three other properties. The respondents did not dispute this. But in his oral submissions Mr Evans QC rightly referred to the judgment of Tadgell JA in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 156-157, cited with approval by the High Court in Farah Constructions at [193]-[194], [196].
6. In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd, Sixty-Fourth Throne Pty Ltd held land registered under the Transfer of Land Act 1958 (Vic) on trust. A solicitor and former director, Mr Kandy, forged a mortgage purportedly executed in the name of Sixty-Fourth Throne in favour of Macquarie Bank as security for borrowings he made from Macquarie Bank. Sixty-Fourth Throne contended, and the primary judge held, that Macquarie Bank had constructive notice of the forgery and had acted unconscionably towards Sixty-Fourth Throne thereby giving rise to an in personam right to Sixty-Fourth Throne to set aside the mortgage. The only relief sought against Macquarie Bank was proprietary relief to set aside the mortgage ([1998] 3 VR 133 at 137). The part of Tadgell JA's reasoning that was approved by the High Court in Farah was directed to establishing that to allow an in personam proprietary claim based on the first limb of Barnes v Addy where the void mortgage was registered without fraud would be inconsistent with the indefeasibility provisions of the Victorian Transfer of Land Act.
7. Tadgell JA said (at 156-157): "The search for a satisfying criterion of liability of a non-trustee to account for receipt of an item of trust estate ought no doubt to heed the circumstances of the receipt, if receipt there has been; and here it is not possible to escape the circumstance that, if there was a "knowing receipt" by the appellant, it was a receipt by virtue of registration under the Transfer of Land Act. The argument for the respondent appears to assume that the acquisition by a mortgagee, in that capacity, of a proprietary interest following registration of a forged instrument of mortgage in respect of property that is subject to a trust amounts to a receipt by the mortgagee of trust property. If it were so, it might be possible to treat the holder of the registered proprietary interest as a constructive trustee arising from "knowing receipt" of trust property. As it seems to me, however, there is neither room nor the need, in the Torrens system of title, to do so. If registration of the mortgagee's interest is achieved dishonestly then the registration, and with it the interest, are liable to be set aside not because, on registration, the registered holder became a constructive trustee but because s. 42(1) recognises that fraud renders the interest defeasible. If, on the other hand, the registration is not achieved by fraud the Act provides, subject to its terms, for an indefeasible interest. Those terms allow, it is true, a claim in personam founded in equity against the holder of a registered interest to be invoked to defeat the interest; and a claim in personam founded in equity may no doubt include a claim to enforce what is called a constructive trust. There may be room for debate whether, even under the general law system of title, a mortgagee in the appellant's circumstances would be accountable as a constructive trustee: Westdeutsche Landesbank Girozentrale v Islington L.B.C. [1996] AC 669 at 707B-E, per Lord Browne-Wilkinson; and cf. Professor Peter Birks, "Equity in the Modern Law: An Exercise in Taxonomy" (1996) 26 U.W.A.L.R. 1, especially at pp. 19-20, pp. 40-1. However that may be, to recognise a claim in personam against the holder of a mortgage registered under the Transfer of Land Act, dubbing the holder a constructive trustee by application of a doctrine akin to "knowing receipt" when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes. It is to be distinctly understood that, until a forged instrument of mortgage is registered, the mortgagee receives nothing: before registration the instrument is a nullity. As Street J pointed out in Mayer v Coe at 754, the proprietary rights of a registered mortgagee of Torrens title land derive "from the fact of registration and not from an event antecedent thereto". In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property."
8. In LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517; [2002] WASCA 291 the Western Australian Court of Appeal held by majority, following Tadgell JA in Sixty-Fourth Throne, that the first limb of Barnes v Addy was not within the in personam exceptions to indefeasibility where the trust property transferred was Torrens title land (at [185], Murray J; [210], Anderson and Steytler JJ; and [272]-[273], Pullin J).
9. In Farah (at [194]-[195]) the High Court also approved this part of the reasoning in LHK Nominees.
10. Whatever might be one's views about that reasoning (eg Super 1000 Pty Ltd & Ors v Pacific General Securities Ltd & Ors [2008] NSWSC 1222; (2008) 221 FLR 427 at [213]-[217]; Harding, "Barnes v Addy Claims and the Indefeasibility of Torrens Title" (2007) 31 Melbourne University Law Review 343 at 357ff; R Chambers, "Knowing Receipt: Frozen in Australia" (2007) 2 Journal of Equity 40 at 51-52), the High Court's decision in Farah establishes for courts below the High Court that the in personam exceptions to indefeasibility do not extend to proprietary claims arising under the first limb of Barnes v Addy.
11. I do not think that the reasoning of Tadgell JA in Sixty-Fourth Throne, and its endorsement in Farah, goes further. That the transfers signed by Wendy in her own name were not authorised by the power of attorney and were void, does not affect the fact that David and Karl received, by virtue of registration of the transfers, land that had been John's property as a result of Wendy's breach of fiduciary duty. In Farah, the High Court (at [193]) expressly characterised Tadgell JA's reasoning as holding that a claim under the first limb of Barnes v Addy was not a personal equity which defeated the Victorian equivalent of s 42(1) of the Real Property Act 1900 (NSW), thereby impliedly accepting that, but for the operation of s 42(1), a Barnes v Addy claim for knowing receipt could otherwise be made good if the requisite knowledge were established (Atkin, 'Knowing Receipt' Following Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 29(4) Sydney Law Review 713 at 721).
12. The reasoning in Farah does not preclude a personal remedy for knowing receipt.

Second limb of Barnes v Addy: proprietary remedy

1. In LHK Nominees Murray J (at [185]), Anderson and Steytler JJ (at [214]) and Pullin J (at [272]) also held that the second limb of Barnes v Addy was not within the in personam exceptions to indefeasibility because liability under the second limb would come within the statutory exception of fraud.
2. When LHK Nominees was decided this was an understandable view. Pullin J said: "272 Accepting, as I do, that the decision in Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] UKPC 4; [1995] 2 AC 378 correctly states the law, then a "knowing assistance" claim requires proof that the knowledge of the breach of trust involves dishonesty, which, in my view, is the same as "fraud" within the meaning of s 68 and s 134 of the Transfer of Land Act."
3. In Farah the High Court held that Australian courts should continue to apply the formulation of the second limb of Barnes v Addy as explained in Consul Development rather than Royal Brunei Airlines until the High Court ruled otherwise (at [163]). In Farah the High Court applied Consul Development in holding that a participant in a fraudulent and dishonest design on the part of a trustee could be liable as a constructive trustee under the second limb if the participant had had any of the first four categories of knowledge identified in Baden, including: "(iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man." (at [174]-[178]).
4. Accessorial liability under the second limb of Barnes v Addy would not necessarily fall within the statutory fraud exception to indefeasibility, which requires dishonesty or actual moral turpitude (Super 1000 at [231]). LHK Nominees is no longer authority that the second limb of Barnes v Addy is not an in personam exception to indefeasibility.
5. In Sze Tu v Lowe, Gleeson JA, with whom Meagher and Barrett JJA agreed, said (at [225]): "The High Court made clear in Farah that only certain legal or equitable causes of action against a registered proprietor operate as an in personam exception outside the indefeasibility provision in s 42(1). Farah concerned whether the in personam exception extended to claims arising under the "knowing receipt" and the "knowing assistance" limbs of Barnes v Addy (1874) LR 9 Ch App 244. Farah held that they did not at ( [193]-[195]); citing Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 156-157; LHK Nominees Pty Ltd v Kenworthy (as administratrix of the Estate of Lionel Kenworthy) [2002] WASCA 291; 26 WAR 517 and the dissenting judgment of Davies JA in Tara Shire Council v Garner [2002] QCA 232; [2003] 1 Qd R 556 at 578 [34]."
6. I agree that in Farah the High Court held that a proprietary claim under the first limb of Barnes v Addy did not fall within the in personam exception to indefeasibility. But the whole of the reasoning in paras [193]-[195] of Farah is addressed to the reasoning in Sixty-Fourth Throne and LHK Nominees concerning only that limb.
7. In Farah (at [195]) the High Court rejected the reliance of Ashley AJA in his dissenting reasons in Sixty-Fourth Throne on earlier High Court decisions, noting that in each of those decisions the defendant was a primary wrongdoer. I do not understand the High Court to have said that the in personam exception to indefeasibility is only available against a primary wrongdoer.
8. In Farah the High Court addressed the issues under the headings set out at [1] (103-105). The liability of Mrs Elias and her daughters under the first limb was addressed at [110]-[129]. They were held not to be liable because they did not receive "trust property" and had no relevant "notice". The property they were alleged to have received was an item of information ([116]-[120]). They also did not have sufficient notice of a breach of fiduciary duty ([123]-[129]). The claim in restitution was rejected ([130]-[158]).
9. A claim against Mrs Elias, her daughters and Lesmint based on the second limb of Barnes v Addy was not made in the Court of Appeal but was raised in the High Court by notice of contention ([159], [169]). It was rejected ([170ff]).
10. After considering and rejecting an argument based on tracing, the High Court addressed the topic of indefeasibility. The High Court addressed and rejected the statement of the Court of Appeal quoted (at [190] as follows: "[190] … The Court of Appeal then said "A further fallacy in Farah's argument is that if it applies to Mrs Elias and the two daughters, then it must also apply to Mr Elias and Lesmint, each of whom became registered for an estate in fee simple in a unit in No 15 and the whole of No 13 respectively. It is not suggested by Farah that indefeasibility of title prevents a declaration that Mr Elias and Lesmint hold their interests in No 13 and 15 on constructive trust. If this be so, then the same principle applies to Mrs Elias and the two daughters where they have benefited from and are in receipt of an interest in the property the acquisition of which constituted a breach by their husband and/or father of his fiduciary duties. Accordingly, in my opinion, Mrs Elias and her daughters as well as Mr Elias and Lesmint hold their respective interests in Nos 13 and 15 on a constructive trust.""
11. As noted above, no argument based on the second limb of Barnes v Addy had been addressed in the Court of Appeal. The High Court's reasons under the heading "Indefeasibility" and its endorsement of Tadgell JA's reasons in Sixty-Fourth Throne and of LHK Nominees are directed only to the first limb.
12. Their Honours had already rejected Say-Dee's case based on the second limb of Barnes v Addy. They said (at [195]): "There is no analogy between the constructive trusts involved in those cases and that which can arise from application of the first limb of Barnes v Addy."
13. The High Court concluded its discussion under the heading of Sixty-Fourth Throne and LHK Nominees with the statement that "hence the registered proprietors prevailed over Say-Dee even if they were volunteers" (at [198]), further indicating that their Honours were not addressing the issue of whether the second limb of Barnes v Addy could provide an in personam exception to indefeasibility.
14. Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 was a case under the second limb of Barnes v Addy. In this court (DPC Estates Pty Ltd v Grey and Consul Development Pty Ltd [1974] 1 NSWLR 443) it was held by majority that because the articled clerk, Clowes, had sufficient knowledge of and participated in Grey's breach of his fiduciary duty to DPC Estates, and caused Consul Development to acquire the property that DPC Estates might otherwise have acquired, DPC Estates was not only entitled to an account of profits, but also to a declaration that the properties acquired were held on trust for DPC Estates (at 473). The decision was overruled in the High Court on the question of fact. Neither McTiernan J, who dissented and would have dismissed the appeal, nor the majority who allowed the appeal, suggested that the Court of Appeal was in error in providing proprietary relief given its findings of fact.
15. In Farah the High Court observed in a footnote (fn (272) at 167) that indefeasibility was evidently not relied on in Consul Development because nothing was said about it, although it is likely that the land involved was Torrens land.
16. That observation does not detract from the fact that this Court has held that where Torrens title land has been acquired by an accessory liable under the second limb of Barnes v Addy, a proprietary remedy is available although fraud under s 42 of the Real Property Act was not alleged. That conclusion has not been disturbed by the High Court.
17. The conclusion is in accordance with the statement in Frazer v Walker, that indefeasibility does not bar in personam claims recognised at law or in equity.
18. It follows that John would be entitled to claim that David and Karl hold their interest in the Trundle Properties on trust for him if they are liable under the second limb of Barnes v Addy as having knowingly assisted in a dishonest and fraudulent breach by Wendy of her fiduciary duty to John.

Fraudulent and dishonest design?

1. The appellants submitted that it would be enough if Wendy's breach of fiduciary duty were characterised as being not honest and reasonable, citing Drummond AJA in Westpac Banking Corporation v The Bell Group Ltd (in liq) No 3 (2012) 44 WAR 1; [2012] WASCA 157 at [2104]-[2126]. They submitted that the higher standard of "transgression of standards of honest behaviour" favoured by Leeming JA in Hasler v Singtel Optus Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [124] should not be applied.
2. In Farah the High Court said (at [170]) that the issue for the Court of Appeal, had the issue been considered, was whether Mrs Elias and her daughters were knowing participants in a dishonest and fraudulent design.
3. In Bell Drummond AJA held that Farah did not require the conduct of the defaulting trustee or fiduciary to be morally reprehensible before it will be characterised as "dishonest and fraudulent" (at [2119]-[2123]) and that it would be enough if the conduct were more serious than trivial, or excusable under statutory provisions for relief of trustees or fiduciaries for breach of fiduciary duty (at [2123]).
4. In Hasler Gleeson JA and Leeming JA disagreed with that conclusion (at [7]-[10]; [64]-[125]). Like Gleeson JA I find Leeming JA's reasons to be compelling. Leeming JA concluded: "[122] There was good reason for Lord Selborne to insist that when the third party fell short of procuring the breach of trust, but did participate in it, the third party was liable only if the breach were "dishonest" as well as "fraudulent". Famously, there was great confusion as to the meaning of "fraud" at common law and in equity, which became acute following its apparent reconciliation in Derry v Peek (1889) 14 App Cas 337, at least until the position in equity was clarified by Nocton v Lord Ashburton [1914] AC 932. Professor Hanbury said that common law and equity practitioners "quarrelled over the possession of the word 'fraud' like two dogs over a bone, off which neither side was sufficiently strong to tear all the meat": HG Hanbury, Modern Equity: The Principles of Equity (8th ed, 1962, Stevens & Sons) at 643. The dispute and resultant confusion was very much alive when Barnes v Addy was determined. It may readily be seen, by reference to Slim v Croucher (1860) 1 De G F & J 518; 45 ER 462 and Ramshire v Bolton (1869) LR 8 Eq 294, in the illuminating account of Nocton v Lord Ashburton by Justice Edelman in C Mitchell and P Mitchell (eds), Landmark Cases in Equity (2012, Hart Publishing), 473 at 477-481. [123] The short point is that Lord Selborne's formulation avoids the potential for dispute as to the meaning of "fraud" in equity, by requiring that there must also be dishonesty on the part of the fiduciary. [124] Dishonesty amounts to a transgression of ordinary standards of honest behaviour. It is not necessary to say anything else by way of elaboration, save to confirm that it is not necessary to demonstrate that the person thought about what those standards were. (I have paraphrased Lord Hoffmann's account in Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 at [16].)"
5. The question is whether, by the ordinary standards of honest behaviour, Wendy's arranging for the Trundle Properties to be transferred to herself and her sons for no consideration, to defeat claims of John's children by his first marriage against his estate, was dishonest.
6. The primary judge accepted Wendy as an honest witness who gave her evidence as best she could in the circumstances (J [229]).
7. Wendy accepted that in exercising her power of attorney she knew she was required to act in John's best interests. Wendy's evidence was that she believed she was acting in John's best interests in effecting the transfers. But her subjective belief does not resolve the issue.
8. Wendy deposed that John had stopped working on the farm from about the end of 2014. He told her that he would hand the farm over to her to manage until the boys were old enough. He told her, and made a will to the effect, that he wanted the farm to pass to David and Karl. She believed she was giving effect to John's wishes in transferring the farm to them.
9. Of course the farm was not transferred only to David and Karl. But Wendy was dying. She sought to ensure that David and Karl would succeed to her interests by survivorship in respect of the properties held as joint tenants, or through her will in respect of her interest as tenant in common. The refinancing of the Rabobank debt through National Australia Bank explains her acquiring a greater interest in the properties than provided in John's will. Wendy deposed: "155. I was not trying to defraud John when I transferred the Trundle Properties. I had been looking after him and the farm, with the help of David and Karl, since he stopped working and it was my intention to continue to do so, and, after I passed away, David and Karl would do so with income generated from the Trundle Properties. Given his diagnosis I believed that John was never going to work the properties again and he had no other source of income to pay for his nursing home fees etc. Nick had never been involved in looking after John before then and I did not think he would do so in the future. I was aware that my illness was terminal, and I thought then that I had only six months to live. … 157. My thinking was to transfer the Trundle Properties to David and Karl equally and to refinance John's Rabobank debt with the NAB to get that debt away from Nick's employer (Rabobank). But as the NAB wouldn't lend to Karl at that time, and as I didn't have a long life expectancy, the way it was done was that three properties were transferred into my and David's names as tenants in common in equal shares (Wooleringa, Nellyvale and Sunrise) and they were mortgaged to secure the NAB finance. In my Will dated 9 March 2017 I left my share in those properties to Karl - [151] of Exhibit WT-1. 158. The other three properties were put into my, David and Karl's names as joint tenants. When I passed away David and Karl would be joint tenants of those properties. In their Wills, David and Karl left their estate to each other, to me if their brother predeceased me, and then to their half sister Sara, my sister and others thereafter - [105] and [121] of Exhibit WT-1." 159. The other reason for the transfers was that I understood that if John did not own any property for a number of years we wouldn't have to pay as much for John's nursing home fees. Later I had Mr Job write a letter to the nursing home about that. A copy of that letter is at [137] of Exhibit WT-1. I am told a copy of that letter is contained in the documents subpoenaed from the nursing home. 160. When I consulted with Ms Hughes, she did not tell me that John's Power of Attorney did not give me authority to transfer the Trundle Properties, or enter into the NAB mortgage. She did not tell me I was doing anything that I was not legally entitled to do. Ms Hughes arranged for the transfer documents to be lodged with NSW Land and Property Information Service. The National Australia Bank then took a mortgage of the lands transferred to David and me. I assumed that I was legally entitled to do those things and neither Ms Hughes, nor the National Australia Bank told me otherwise."
10. The appellants submitted: "27. Wendy knew that John never intended to, and John did not take steps whilst John had mental capacity to, effect an inter-generational transfer of his assets to Wendy, David and/or Karl whilst alive. Wendy told Ms Hughes that she believed John was a male chauvinist and would not want Wendy to get anything; at best, on John's death, John wanted Wendy only to have a life interest in the house on part of the Trundle farming properties (as this was the effect of the 2015 Will.) 28. Despite this belief as to John's intentions, and in spite of Wendy's actual knowledge of her duties as John's attorney, Wendy engaged in a conscious and deliberate course of conduct which was intended to and which did denude John of all his money, other personal property and real property and leave John assetless and penniless, without John's knowledge or consent, in circumstances where John was vulnerable and would require full time care until he died, and when there was no medical evidence or report obtained or known by Wendy which suggested that John had any diminished life expectancy (John only being in his late 60s at the time)."
11. However, Wendy's acquisition of interests in the Trundle Properties beyond that provided for in John's will arose from her desire to refinance the Rabobank debt. Whilst it is true that Wendy stripped John of all his property, she did so in the belief and expectation that John's needs would be provided for by his sons and that in arranging for the transfers of the Trundle Properties she was giving effect to John's wishes.
12. The primary judge acquitted Wendy of dishonesty. I do not consider her Honour erred in doing so.
13. The matter that gives me pause is Wendy's avowed intention of transferring the Trundle Properties to herself and her sons in order to defeat claims that Nick or Sara might bring against John's estate. On balance I consider that that is not contrary to ordinary standards of honest behaviour given that Wendy believed that in doing so she was carrying out John's intentions and, having consulted a solicitor and barrister, they did not suggest that there was anything wrong in her doing so.
14. It follows that the knowing assistance claim against David and Karl fails at the first hurdle. For the reasons below concerning David and Karl's personal liability under the knowing receipt claim, I would not in any event hold that they had the requisite knowledge to be liable under the second limb of Barnes v Addy even if it were held that Wendy had engaged in a fraudulent and dishonest breach of her fiduciary duty owed to John.

Personal remedies

1. The next question is whether David and Karl are liable to pay compensation for having received John's property with knowledge it was transferred in breach of Wendy's fiduciary duty.
2. There has been academic debate as to whether s 42 of the Real Property Act by implication excludes not only proprietary relief against a registered proprietor who is registered without fraud but also excludes personal remedies against such a person who is otherwise liable as an accessory (Conaglen and Goymour, "Knowing Receipt and Registered Land" in Constructive and Resulting Trusts ed Mitchell, Hart Publishing, 2010, p 159). However, in this Court it has been held that personal remedies are available (McFee v Reilly [2018] NSWCA 322 at [1], [108], [190]). The respondents did not submit that McFee v Reilly could be distinguished or should not be followed.
3. Given my conclusion at [96], [101]-[103], the question then is whether David and Karl had the requisite knowledge that the transfer of the Trundle Properties and associated farming assets were transferred to them by their mother in breach of fiduciary duty.
4. Although the High Court did not specifically deal with the issue in Farah, this Court, in Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 at [199], and the Full Court of the Federal Court, in Grimaldi (at [268]-[270]), held that knowledge falling within category (4) of Baden was sufficient to impose liability for knowing receipt. This was common ground. Accordingly, David and Karl would be personally liable under the first limb of Barnes v Addy if they had "knowledge of circumstances which would indicate the facts to an honest and reasonable man". This is the same degree of knowledge sufficient for accessorial liability under the second limb.
5. The facts to be indicated to an honest and reasonable person would be that Wendy was acting in breach of her fiduciary duty to John (Consul Development at 399 (per Gibbs J) and 407-408 (per Stephen J)).
6. It is not suggested that David and Karl had actual knowledge of any such breach or that they acted dishonestly. In asking whether an honest and reasonable man would have had knowledge of such breach of duty, the appropriate enquiry is whether an honest and reasonable person in their position would have had such knowledge.
7. In Consul Development Stephen J (with whose reasons Barwick CJ agreed) referred with approval to the observations of Edmund Davies LJ in Carl Zeiss Stiftung v Herbert Smith (No 2) [1969] 2 Ch 276 at 300-301 that the feature recurring through all the cases was the need to establish a "want of probity". An accessory cannot plead his or her own moral obtuseness, hence the need to consider the facts known to an honest and reasonable person. But the honest and reasonable person whose viewpoint is to be considered is someone with the objective characteristics of the accessory alleged to be a constructive trustee.
8. In Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437, Nourse LJ (at 455), with whom Ward and Sedley LJJ agreed, applying the observations of Sir Robert Megarry VC in Re Montagu's Settlement Trust and Buckley LJ in Belmont Finance Corporation Ltd v Williams Furniture Limited (No 2) [1980] 1 All ER 393 at 405, said that what was necessary was that "…the recipient's stated knowledge should be such as to make it unconscionable for him to retain the benefit of receipt". This language echoes the requirement that the recipient's knowledge be such as to show a want of probity in his receiving and retaining the property transferred in breach of fiduciary duty.
9. In this case the alleged constructive trustees had not completed their schooling in order to work on the farm. They were 18 and 17.
10. The appellants submit that the primary judge erred in taking into account the limited knowledge, intelligence and expertise of David and Karl (J [553]-[555] quoted at [38]-[39] above). For the reasons above, I do not agree.
11. It was accepted at trial that David and Karl had not read or seen their mother's power of attorney. They were aware that she had consulted a solicitor to arrange for the transfer of the Trundle Properties, having taken her to her appointments. All financial matters concerning the property were dealt with by Wendy. Their role was essentially that of farm labourers.
12. David and Karl knew that the properties were valuable, being worth millions of dollars, and were being transferred to them for no consideration. They knew that John had ceased working on the farm and would need full time care until he died, and that the transfers meant that he would have no assets in his own name to meet his future needs. They knew that Wendy had not required them to enter into any legal obligation binding them to ensure that their father's future needs were met. They knew that Ms Hughes was acting for all parties in the transaction. Wendy told David that she wanted to make sure that Nick could not get the properties.
13. It does not follow that an honest and reasonable person in their position would deduce that Wendy was acting in breach of her duty as John's attorney. The fact that they knew Wendy was acting with legal advice would indicate the contrary. An honest and reasonable person in their position would properly consider that Wendy entrusted to them the moral responsibility to provide whatever assistance was required for John's future needs after her death. David and Karl's position was that the farm would be used to support John's needs and it did not matter who held the title to the farm. They were told by Wendy that the transfers were in accordance with John's provision for them in his will. They did not know that the power of attorney did not authorise the transfers.
14. The primary judge's finding that David and Karl did not have requisite knowledge of Wendy's breach of fiduciary duty is quoted at [38] above. Her Honour did not err in that finding.
15. Accordingly both the claims for both proprietary and personal relief against David and Karl should be dismissed.

Conclusion and proposed orders

1. The orders so far as they relate to Wendy's estate should be set aside. It should be declared that the interests of Angelena as executrix of Wendy's estate in the three properties, known as Woolharinga, Nellyvale and Sunrise, are held on trust for John. Angelena should be ordered to transfer her interests in those properties to John. Prima facie the existing interlocutory orders made on 11 April 2017 as varied on 8 April 2021 should be discharged. If any application is required for the appointment of trustees for sale of those properties, or for further interlocutory relief in respect of dealings with the properties, such application should be made in the Equity Division. The proceeding should be reserved for further consideration and there should be liberty to apply to the Equity Division accordingly.
2. It should be declared that in the administration of Wendy's estate John is entitled to prove as a creditor in the sum of $3,440,000. This will mean that Wendy's estate is insolvent and is to be administered in accordance with the provisions of s 46C and Pt 1 of Sch 3 to the Probate and Administration Act 1898 (NSW). Administration expenses will have priority.
3. David and Karl's undertaking to the Court of 8 April 2021 should be discharged and the order granting a charge over Wendy's interest in the above three properties should be discharged. The appeal concerning Wendy's estate should be otherwise dismissed (to reflect the refusal to order the taking of accounts).
4. Angelena, in her capacity as Wendy's executrix, should be ordered to pay John's costs of the proceedings below, so far as such costs relate to the proceedings against Wendy and her. Angelena, in her capacity as executrix, should pay John's costs of the appeal, so far as they concern the appeal from the orders concerning Wendy's estate.
5. The appeal from the orders dismissing John's claim against David and Karl should be dismissed. The costs orders in favour of David and Karl below should not be disturbed and John should be ordered to pay David and Karl's costs of the appeal, so far as it concerned John's claims against them.
6. Counsel for the appellants should be directed to bring in short minutes of order in accordance with these reasons. The precise form of orders may depend upon the current state of the titles. Thus the title searches in the appeal books dated 12 June 2020 show Wendy as a registered proprietor as tenant in common with David of the three properties. If that remains the position different orders may be required to achieve John's registration than if Angelena has since become registered as executrix.
7. For these reasons the orders I propose are: 1. Within seven days the parties file, and provide copies to the associate of the presiding judge, either agreed short minutes of order in accordance with these reasons, or, failing agreement, their respective proposed short minutes with a short submission addressing such differences as there may be between the orders proposed by the parties.
8. McCALLUM JA: I agree with White JA.

Endnote

1. As to the distinction between remedial and institutional constructive trusts, see Muschinski v Dodds (1985) 160 CLR 583 at 614; Giumelli v Giumelli (1999) 196 CLR 101 at [10]; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 290 [48]; Grimaldi v Chameleon Mining NL (No 2) (2012) 287 ALR 22; [2012] FCAFC 6 at [504]; Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [141]-[158]; Heydon and Leeming, Jacobs' Law of Trusts in Australia 8 Ed, LexisNexis, para 13-11.

Amendments 24 February 2022 - Correction of the name McCauley to Macauley on coversheet. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 February 2022