Turner v O’Bryan-Turner

MEAGHER JA: I have had the benefit of reading White JA’s judgment in draft and agree with his Honour’s conclusions and the order he proposes to give effect to them. I agree that the reasoning in Farah Constructions Pty Ltd v Say-Dee (2007) 230 CLR 89; [2007] HCA 22 at [193]-[195] is to be understood as concerned only with a proprietary claim under the first limb of Barnes v Addy (1874) LR 9 Ch App 244 (cf Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [225]).

WHITE JA: This is an appeal from orders of the Equity Division (Ward CJ in Eq) made on 12 January, 18 February and 8 April 2021 in proceedings 2017/00080121 in the Equity Division (Turner v O’Bryan-Turner [2021] NSWSC 5; Turner v O’Bryan-Turner (No 2) [2021] NSWSC 101; and Turner v O’Bryan-Turner (No 3) [2021] NSWSC 338).

The primary judge dealt with two proceedings consecutively with the evidence in one being the evidence in the other. There is no appeal from her Honour’s orders in the second proceeding.

In the first proceeding (the 2017 proceeding), the relevant appellant, Owen John Turner (“John”) sued by his tutor Nicholas John Turner (“Nick”). (Like the primary judge, in my reasons I shall refer to the parties after their introduction by their Christian names for ease of reading and intending no disrespect.)

John was married to Wendy O’Bryan-Turner (“Wendy”). She and her two sons, David and Karl Turner, were the defendants to the 2017 proceedings. Wendy died on 26 August 2018, after the commencement of the proceedings. The first respondent is Wendy’s sister, Angelena O’Bryan. She is the executrix of Wendy’s estate.

John married twice. There were two children of his first marriage, Nick and Sara. David and Karl are the sons of his de facto relationship (later marriage) with Wendy.

John has lived in a nursing home since December 2016. As the primary judge recorded, it is common ground that he had advanced dementia and had lost capacity by no later than June 2016.

Prior to 11 November 2016 John was the proprietor of six parcels of farming land in the Trundle area, together known as the Trundle Properties. The properties were known as Gardenvale, Allawah, Woolharinga, Nellyvale, Sunrise and Sunnycroft. They were roughly contiguous and were operated as a single grazing property.

Relations between Wendy and Nick were poor. In 2010 Nick obtained from John a mortgage in favour of a company which Nick came to acquire, Allawah Pastoral Pty Ltd. The mortgage was over John’s property and expressed to secure a substantial debt. The mortgage was unregistered. Those transactions were the subject of the 2019 proceedings.

The primary judge declared that John owed no money to Allawah Pastoral Pty Ltd and declared that the mortgages were inoperative and secured no money lent. Her Honour also declared that the transaction was obtained by undue influence and ordered that the transaction documents be set aside (Turner v O’Bryan-Turner [2021] NSWSC 5, orders 1-6). As noted above, there is no appeal from those declarations and orders and I mention them for completeness.

The 2017 proceedings that give rise to this appeal arose from the purported exercise by Wendy of an enduring power of attorney executed by John on 10 June 2015. The power of attorney was a prescribed power of attorney for the purposes of the Powers of Attorney Act 2003.

The primary judge recorded (J [115]-[117]) that by 23 June 2015 a geriatrician, Dr Saber, saw a significant decline in John’s cognitive function. He was diagnosed as having alcohol-induced dementia. On 17 July 2015 he was assessed as requiring permanent high care.

On 9 October 2015, John executed a new will. That will provided that Wendy should receive a life estate in the Allawah property and a legacy of $200,000, and that Sara should receive a legacy of $200,000. The residue of the estate was left to David and Karl and no provision was made for Nick. Nick has foreshadowed a challenge to that will.

In August 2016 Wendy was diagnosed as having stage 4 lung cancer and was given a prognosis of six months to live (J [140]). On 8 August 2016 she gave instructions to a solicitor, Ms Stephanie Hughes, that Ms Hughes recorded as being that “Wendy would like to effect John’s Will now” (J [143]).

Wendy lived longer than was estimated in the initial diagnosis. She made an affidavit in the proceedings on 10 June 2017 and gave evidence on commission. In her affidavit she deposed that:

She was also concerned that Nick had sought to participate in the conduct of the farming business on the Trundle Properties after John’s decline.

Wendy and John married on 25 November 2016. They had formerly lived in a de facto relationship.

On or about 11 November 2016 Wendy signed memoranda of transfer of the six properties purportedly in exercise of her power as John’s attorney. She did not state on the form that she was signing as attorney under power but there can be no dispute that that is what she purported to do. The primary judge found and it is not disputed on appeal, nor ultimately at trial, that the power of attorney did not authorise the transfers which were made for nil consideration. The transfers of three of the properties (Woolharinga, Nellyvale and Sunrise) were made to Wendy and David as tenants in common in equal shares. Those transfers were registered on 12 December 2016.

John had an overdraft with Rabobank secured over a number of the properties. Nick was a manager of Rabobank in that bank’s Parkes office. He was also a farmer. Wendy deposed that she wanted to transfer the Trundle Properties to David and Karl equally and to refinance John’s Rabobank debt with the National Australia Bank to get that debt away from Nick’s employer. The National Australia Bank would not lend to Karl, who was a minor. The three properties transferred into Wendy and David’s names as tenants in common were mortgaged to the National Australia Bank to secure finance provided by that bank to discharge the Rabobank debt.

Wendy made a will dated 9 March 2017 leaving her share in those properties to Karl.

The transfers of the other three properties (Gardenvale, Allawah and Sunnycroft) were made to Wendy, David and Karl as joint tenants. David and Karl succeeded to Wendy’s interest in those properties on her death in 2018.

At the time of the Trundle Properties transfers, David was 18 years old, having left school in Year 10 when he was 17, and Karl was 17 years old and in Year 11 at high school (J [426]).

The power of attorney did not authorise Wendy to make gifts of John’s property other than reasonable gifts as provided by s 11(2) of the Powers of Attorney Act 2003. Section 11 of that Act provides:

The gifts authorised by Sch 3 are as follows:

From June 2016, or perhaps before, the farming business that John had carried on commenced to be carried on by partnerships of David and Wendy, and David and Karl. The livestock, plant and equipment on the properties owned by John were taken over by Wendy, David and Karl.

John (through Nick) also complains that his financial assets, being proceeds of a life policy and moneys in his bank accounts, were taken by Wendy.

The primary judge noted that it was accepted that the enduring power of attorney conferred no power on Wendy to transfer the Trundle Properties to herself. Her Honour said that she accepted that Wendy “…may have acted in the honest belief that what she was doing was in the interests of John and their family as a whole and that he would be adequately provided for by David and Karl.” (J [513]-[515]). Nonetheless her Honour was satisfied that Wendy’s conduct was in breach of the proscriptive fiduciary duty she owed to John.

Notwithstanding this finding, the primary judge did not declare that Wendy held her interests in the properties transferred to her on constructive trust for John and did not order equitable compensation for the value of the balance of the real property transferred to David and Karl. Nor did her Honour award equitable compensation for the value of the Trundle Properties. The primary judge’s reasons for not taking what her Honour accepted would be the ordinary measure of relief were as follows:

On 8 April 2021 the primary judge ordered that the three properties known as Woolharinga, Nellyvale and Sunrise be charged to the extent of the 50% interest held by the executrix of Wendy’s estate, to secure:

The charge was to be discharged on the death of John and the payment to John’s daughter Sara of the legacy referred to above.

In the primary judge’s reasons of 8 April 2021 (Turner v O’Bryan-Turner (No 3) [2021] NSWSC 338) her Honour said:

The noting of this undertaking is not recorded in the orders entered on 8 April 2021. There is no reason to doubt that the undertaking is binding. The undertaking was in the following terms:

It appears that the reason that the undertaking to pay nursing home fees was given only until 5 January 2022 was that from that date John became entitled to Centrelink benefits that would provide income to pay those fees (J [13]). In any event, Wendy’s estate’s interest as tenant in common in the three properties was charged in order to secure payment of the necessary funds to ensure that John’s financial needs are met during his lifetime.

The primary judge granted no other relief against Wendy’s estate. John had sought an order for the taking of an account in respect of Wendy’s dealings with John’s property. The taking of an account was opposed on the ground that to do so would be procedurally unfair because matters relevant to the taking of an account were not put to Wendy (J [473]). The primary judge considered that it would be difficult for the “David/Karl interests” to meet a case dependent to a large extent on Wendy’s knowledge of transactions when she was no longer available to give evidence and when there was an opportunity for that to have occurred while she was alive (J [485]). Her Honour concluded that a further enquiry was likely to be futile given Wendy’s death and hence the inability to obtain evidence from her as to particular transactions, including withdrawals made through automated teller machine transactions at a club. (J [486]). Her Honour concluded:

John contended that David and Karl held their interests in the Trundle Properties on constructive trust for him on the basis of both the first and second limbs of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252. That is, John contended that David and Karl were liable on the basis that they had received and become chargeable with some part of the property transferred by Wendy in breach of her fiduciary duty (the first limb); and that they had assisted with knowledge in a dishonest and fraudulent design on Wendy’s part (the second limb).

The primary judge accepted (at J [527]) that John had sufficiently pleaded a claim that David and Karl had knowledge of circumstances which would indicate the facts to an honest and reasonable man (the fourth category of knowledge in Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France [1993] 1 WLR 509 at 575-576, 582). The respondents have not filed a notice of contention disputing this conclusion. The primary judge held that this category of knowledge was sufficient for both limbs of Barnes v Addy (at J [541]-[544], [546]-[547], [550]-[551]). This was common ground on appeal.

On the knowing assistance claim, the primary judge did not accept that Wendy had a dishonest and fraudulent design (J [552]). Critical to this finding was that Wendy had obtained legal advice and assistance from a solicitor and barrister, neither of whom advised that Wendy’s power of attorney did not authorise the transfer of John’s assets to Wendy, David and Karl. Nor did they advise that Wendy would breach her fiduciary duty to John by effecting such transfers.

The primary judge said:

In respect of the knowing receipt claim, the primary judge said:

David and Karl relied upon s 42 of the Real Property Act 1900 (NSW) as providing them with an indefeasible title to their interests in the Trundle Properties transferred to them. John pleaded the fraud exception to indefeasibility but that claim was only faintly pressed (J [437]) and was rejected. It was not pressed on appeal.

Rather, John relied upon the in personam exception to indefeasibility (Frazer v Walker [1967] 1 AC 569 at 585: “…this principle [of indefeasibility] in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam founded in law or in equity, for such relief as a court acting in personam may grant”). John contended that he had an in personam claim against David and Karl under both limbs of Barnes v Addy. Because the primary judge rejected that claim, it was unnecessary for her Honour to determine to what extent, if at all, such a claim could be relied upon as an exception to indefeasibility in the light of the High Court’s decision in Farah Constructions Pty Ltd v Say-Dee (2007) 230 CLR 89; [2007] HCA 22. John also contended that s 42 of the Real Property Act would not be a bar to a claim for equitable compensation against David and Karl for the loss of his assets, including the Trundle Properties, if they were liable as accessories under either the first or second limbs of Barnes v Addy. Because the primary judge found that they were not so liable, it was unnecessary for her Honour to consider whether s 42 would also be an answer to a claim for personal remedies against David and Karl in respect of the transfer to them of the Trundle Properties.

John challenges the primary judge’s finding that Wendy did not have a “dishonest and fraudulent design” in stripping John of all his assets which had the effect that he would have no money or property in his name to pay for his financial needs, where her intention in transferring the Trundle Properties was purportedly to give effect to John’s will of October 2015 to diminish John’s estate for any family provision claims which might be made on it and to prevent Nick from getting his hands on the Trundle Properties, or from making such a claim (ground 1).

John challenges the primary judge’s findings that David and Karl did not have the requisite degree of knowledge to attract liability under either limb of Barnes v Addy (grounds 2, 3 and 4). By grounds 7, 8 and 9, John contends that the primary judge erred in failing to apply the in personam exception to the principle of indefeasibility in s 42(1) by not requiring David and Karl to retransfer the Trundle Properties to John.

Grounds 6 and 10-14 contain various challenges to the relief ordered and not ordered by the primary judge in respect of Wendy’s breach of fiduciary duty. John contends that the executrix of Wendy’s estate should have been required to transfer Wendy’s interest in the Trundle Properties back to John and to compensate John for the value of the properties which he lost. By ground 15 he challenges the primary judge’s refusal to make orders for an account against Wendy’s estate. (For completeness, ground 5 was abandoned prior to the hearing.)

Wendy and John attended a solicitor in Forbes (Mr Christopher Helby) to execute the enduring power of attorney (10 June 2015) and John’s will (9 October 2015). Mr Helby was unable to give evidence. (J [107]-[109], [127]-[128]).

On 8 August 2016 Wendy consulted a solicitor who had taken over Mr Helby’s practice, a Ms Stephanie Hughes (J [143]). Ms Hughes’ file note of the conference included the following:

In a further file note dated 31 August 2016 Ms Hughes referred to a partnership as follows:

Ms Hughes sought advice from counsel as to what she described as “succession planning”.

The primary judge recorded those instructions as follows:

As the primary judge noted:

On 21 September 2016 Mr Wallis conveyed some preliminary thoughts to Ms Hughes. He noted that there were very limited ways to prevent family provision claims and that the most effective way of avoiding a claim would be if there were a transfer of assets and John survived for a sufficient period to avoid the property transferred being designated as notional estate. He observed that:

Mr Wallis observed that Ms Hughes needed to be clear for whom she was acting.

Ms Hughes replied on 22 September 2016 observing that Mr Wallis was correct in thinking that she was aware of each of the matters that he had brought to her attention.

On 23 September 2016 Mr Wallis provided his advice to Ms Hughes. He said:

Ms Hughes conveyed the substance of that advice to Wendy on 26 September 2016.

As the primary judge observed, the advice focused on the anticipated potential claim by Nick on John’s estate, not on the legality of the means by which the transaction was to be effected (J [155]). Neither the solicitor nor counsel retained to advise on the proposed transaction advised Wendy that her power of attorney did not authorise the proposed transfers, or that Wendy would be acting in breach of her fiduciary duty to John in effecting the transfers.

Ms Hughes’ file note of 21 October 2016 of a telephone conference with Wendy records Wendy advising her:

Neither Ms Hughes nor Mr Wallis gave evidence. There is no record of either of them advising Wendy that the power of attorney did not authorise the transfer of the properties or of any other of John’s assets by way of gift, except to the extent that the gift was a donation of the nature of which he had made when he had capacity, or might reasonably be expected to make, and was of no greater value than was reasonable having regard to John’s financial circumstances and the size of his estate. Mr Evans QC, who appeared with Mr Svehla for John, accepted that there was no evidence that Wendy understood she lacked power and if anything the evidence favoured the idea that she was told she did have power to act as she did. He submitted that, nonetheless, she was given no advice as to whether in so acting she would be in breach of her duty as John’s attorney.

Wendy gave evidence, which the primary judge accepted, that she had been looking after John and the farm with the help of David and Karl since John stopped working on the farm (which she placed at about December 2014). She said that it was her intention to continue to do so and that after she died it was her intention that David and Karl would continue to look after their father with the income generated from the properties. She 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 except from the income that would be generated from the farm. She deposed:

Wendy deposed that she assumed she was legally entitled to transfer the properties as she was not told that John’s power of attorney did not give her authority to do so (J [199.K]).

The primary judge accepted this evidence. Her Honour found that Ms Hughes advised Wendy that the power of attorney empowered Wendy to transfer title to the Trundle Properties as occurred and that Wendy was acting with the benefit of, and in accordance with, the legal advice she received as to her ability to enter into the respective transactions (J [180], [182]).

It is plain that Wendy made clear to Ms Hughes, and Ms Hughes made clear to Mr Wallis, that one of Wendy’s motivations was to do all things possible to prevent Nick from making a family provision claim on John’s estate. Mr Wallis provided advice upon the effect of the notional estate provisions of the Succession Act 2006 (NSW). Neither he nor Ms Hughes advised Wendy as to whether it would be a breach of Wendy’s fiduciary duties to John to exercise her power of attorney (they assuming that the power of attorney extended so far) to effect the transactions proposed in order to defeat claims of Nick on John’s estate. The question was not specifically raised. They did not address it. But it underlay the proposed transfers.

The primary judge found (J [526]) that she was

“[Giving] effect to John’s testamentary intentions in advance of his death” is a euphemism for defeating claims on John’s estate by Nick or Sara by transferring the assets out of John’s estate before his death. The primary judge’s finding was to the effect that on the basis of the legal advice she received, Wendy was not acting dishonestly in doing so.

John’s other assets included farm plant and machinery, cattle and livestock, other assets associated with his farming operations, a life insurance policy and cash at bank. All of these assets were taken over by Wendy, David or Karl. To an unknown extent, some payments made from John’s bank accounts may have been authorised payments by Wendy under her power as John’s attorney.

Unauthorised dealings with John’s chattels, including his plant and machinery, cattle and livestock, would have been acts of conversion sounding in damages. The statement of claim pleaded a claim of damages against Wendy’s estate (para 46(c)(iii) and (e)) and against David (para 47(e)) and Karl (para 48(e)). But no claim for damages at common law against Wendy’s estate, David or Karl was advanced at trial, or on appeal. John contended that such a claim for damages would be subsumed so far as the claim against Wendy’s estate was concerned, in the claim for an account against Wendy.

It is not disputed that without power, and in breach of her fiduciary duty, Wendy transferred the Trundle Properties for no consideration to her sons and to herself. Although not conceded in its entirety, it is clear that Wendy also caused to be transferred the cattle and other livestock and the plant and machinery on the farms to David, Karl or herself. She also arranged for the transfer of the benefits of John’s life insurance policy to herself and other moneys standing to his credit in his bank accounts. Whether those transfers were in breach of her fiduciary duty was not determined by the primary judge because they were the subject of a claim for an account which the primary judge refused.

The primary judge considered (at [523] quoted at [28] above) that the relief to which John would ordinarily be entitled would be an order that the property transferred to and still held by Wendy be held on trust by her estate for John’s benefit and equitable compensation for the balance of the real property transfer to David and Karl, or alternatively equitable compensation for the value of the Trundle Properties at the relevant time.

I do not agree. In my view, the appropriate order would be to declare (not to order) that the property transferred to Wendy and still held by her was held on trust by her estate for the benefit of John and to order equitable compensation for the value of the balance of the interests in the Trundle Properties at the time equitable compensation was to be assessed.

As a defaulting fiduciary who herself received a share of the Trundle Properties, Wendy became bound by a constructive trust arising by operation of law from the time she received title by registration (Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 at 350; Furs Ltd v Tomkies (1936) 54 CLR 583 at 592; Attorney-General for Hong Kong v Reid [1994] 1 AC 324 at 331; Black v Freedman (1910) 12 CLR 105 at 110). The trust binding her interest does not arise merely as a remedy on the making of the order, as might be the case of an accessory to her breach. [1]

It is true that all equitable relief is discretionary. In Muschinski v Dodds, Deane J (at 614) suggested that there was no true dichotomy between the notion of an institutional and a remedial constructive trust and in Grimaldi the Full Court of the Federal Court (at [511]) approved a view of Professor Austin in “Constructive Trusts” PD Finn (ed), Essays in Equity (1985) at 240, that a proprietary remedy should never be regarded as mandatory and it should be possible for a court to exercise a discretion against declaring proprietary relief if the circumstances suggest it would be unwise to do so.

It is not necessary for me to express a concluded view on this question. It is sufficient to say that in this case Wendy, by acting without authority and in breach of her duty to John, held her interest in the Trundle Properties after they were transferred to her on trust for John. The fact that she thought that John would nonetheless be sufficiently provided for through their sons could not justify the transfer. This was accepted. Nor was there any justification for withholding the appropriate “remedy”, that is, the recognition by declaration that Wendy immediately held her interest in the properties on trust for John.

That trust was imposed on Wendy’s legal title. On Wendy’s death her legal interest in the properties of which she was a joint tenant ceased and the interests of David and Karl were freed from her rights. Her interest was not “transferred” to and did not “pass” to her sons on her death, but ceased to exist by reason of her death. (Edgeworth, Butt’s Land Law 7 ed, Thomson Reuters para 6.90). The beneficial interest John held ceased to exist in the properties of which Wendy was a joint tenant on her death. But on the grant of probate Wendy’s interest in the properties of which she was a tenant in common passed to and became vested in Angelena as from the date of death subject to the trust in favour of John (Probate and Administration Act 1898 (NSW) ss 44 and 46).

There is no warrant for denying John equitable compensation for the value of the property that Wendy transferred to her and to her sons in breach of her fiduciary duty to him.

The primary judge’s reasons for not ordering such compensation are quoted at [28] above. As to those reasons I would note the following.

The reference in J [521] to the reasons of Mason J in Hospital Products Ltd v United Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 was to a claim against a defaulting fiduciary for an account of profits. An account of profits was not sought in the present case. What was sought was equitable compensation and the observations of Mason J cited by her Honour were irrelevant to that claim. The same is true of her Honour’s discussion (at J [522]) of the reasons of Gageler J in Ancient Order of Foresters in Victoria Friendly Society Ltd v LifePlan Australia for Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43.

The primary judge recognised (at J [524]) that an order for equitable compensation would not operate unjustly to enrich John. Her Honour reasoned that because John would not personally suffer by the depletion of his estate because, due to his poor physical health he could not enjoy that estate but was confined to a nursing home, he should not be fully compensated. The primary judge also thought that it would be in the interest of John’s estate not to receive compensation if that caused him to lose the benefit of concessional rates or government assistance in relation to his nursing home accommodation. I do not accept that Wendy’s estate should be relieved against its liability to pay compensation to John for Wendy’s breach of fiduciary duty by casting the burden of that liability on taxpayers.

Nor is it an answer to a claim by a principal against the defaulting fiduciary that the principal has no need of the property of which he has been deprived.

I agree with the appellants’ submission that the primary judge was heavily influenced by her view that the relief her Honour fashioned would give effect to John’s testamentary intentions as recorded in his will of 9 October 2015. This is clear from the first sentence of J [525].

Contrary to the respondents’ submissions, the validity of John’s 2015 will was not in issue and could not have been in issue at trial, as John is still alive.

The appellants pleaded that by no later than the end of September 2015 John had lacked capacity. What that meant was not elucidated. Capacity does not exist in a vacuum. One may lack capacity to manage one’s financial affairs but retain testamentary capacity. A person’s capacity has to be assessed by reference to the particular transaction whose efficacy is in question. The appellants did not plead that John lacked testamentary capacity, and did not plead that the will of 30 October 2015 was invalid.

The respondents submitted that the primary judge was not satisfied that John lacked “capacity”.

If the validity of John’s October 2015 will had been in issue, because there is doubt about John’s testamentary capacity, the onus of establishing that he had testamentary capacity would have been on those propounding the will (Worth v Clasohm (1952) 86 CLR 439 at 453). The primary judge said:

Mr Evans QC submitted that in order for the primary judge to have used the 2015 will as a foundation for finding what John’s testamentary intentions were, it would be necessary that her Honour be satisfied on the balance of probabilities that the 2015 Will would be admitted to probate in due course. He submitted that the primary judge did not make such a finding and, to the extent that her Honour acted upon such an implicit finding, her Honour erred. I accept that submission.

The uncontested evidence was that as at the date of trial the value of the six properties assessed in one line was $4,755,000. The value of the individual properties was as follows:

The total value of the three properties in which Wendy’s estate has an interest, after deduction of the mortgage debt, is $1,290,000 and the value of her interest is conceded by the respondents to be $645,000, as shown in the table provided by the respondents set out below.

For the reasons below, I do not accept that David and Karl hold their interests in the Trundle Properties on constructive trust for John. It follows that in addition to a declaration that Angelena in her capacity as executrix of Wendy’s estate holds her interests as tenants in common in the properties known as Woolharinga, Nellyvale and Sunrise on trust for John, it should be declared that Wendy’s liabilities include a liability to pay equitable compensation to John in the sum of $3,440,000.

Wendy’s estate was sworn for probate purposes to have a value of $180,019.27. There would be no utility in ordering the taking of an account of Wendy’s dealings with John’s other assets. There is unlikely to be any money in the estate available to pay equitable compensation after costs for which the estate will be liable and Angelena’s costs are recovered from the available assets, let alone after payment of equitable compensation. Mr Evans QC submitted that notwithstanding this, an order for the taking of accounts should be made, albeit that the order might be stayed until it was determined whether there was any utility in proceeding with an account. Mr Evans suggested that Wendy’s estate might be entitled to a claim against David and Karl or a third party, but was not able to suggest what such a claim might be.

I would not refuse an order for the taking of accounts on the grounds relied upon by the primary judge. Wendy’s transfer of at least some of John’s financial assets to herself for no consideration was unauthorised and not for John’s benefit. Wendy was not cross-examined on particular items, but such cross-examination would have been premature before an order for taking accounts had been made.

Nonetheless, I see no utility in making (and then staying) an order for the taking of accounts. To do so would leave the litigation pending and increase costs.

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]).

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.

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).

In Re Montagu’s Settlement Trust [1987] Ch 264 at 278 Megarry VC said (at 272-273):

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.

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].

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.

Tadgell JA said (at 156-157):

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).

In Farah (at [194]-[195]) the High Court also approved this part of the reasoning in LHK Nominees.

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.

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).

The reasoning in Farah does not preclude a personal remedy for knowing receipt.

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.

When LHK Nominees was decided this was an understandable view. Pullin J said:

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:

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.

In Sze Tu v Lowe, Gleeson JA, with whom Meagher and Barrett JJA agreed, said (at [225]):

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.

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.

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]).

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]).

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:

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.

Their Honours had already rejected Say-Dee’s case based on the second limb of Barnes v Addy. They said (at [195]):

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.

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.

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.

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.

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.

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.

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.

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.

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]).

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:

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.

The primary judge accepted Wendy as an honest witness who gave her evidence as best she could in the circumstances (J [229]).

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.

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.

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:

The appellants submitted:

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.

The primary judge acquitted Wendy of dishonesty. I do not consider her Honour erred in doing so.

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.

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.

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.

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.

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.

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.

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)).

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.

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.

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.

In this case the alleged constructive trustees had not completed their schooling in order to work on the farm. They were 18 and 17.

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.

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.

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.

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.

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.

Accordingly both the claims for both proprietary and personal relief against David and Karl should be dismissed.

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.

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.

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).

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.

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.

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.

For these reasons the orders I propose are:

McCALLUM JA: I agree with White JA.