Orr v Ford

(1989) 167 CLR 316
84 ALR 146

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(Judgment by: Wilson, Toohey and Gaudron JJ.)

ORR v FORD F.C.

Court:

Judges: Mason C.J. and Dawson

Wilson, Toohey and Gaudron JJ.Deane

Other References:
Income Tax (Cth) - Precedent

Judgment date: 8 February 1989

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Judgment by:
Wilson, Toohey and Gaudron JJ.

John Stuart Orr, the appellant, brought action in the Supreme Court of Queensland for a declaration that he was beneficially entitled to a one-half interest in a leasehold selection held under the Land Act 1962 (Q.) ("the Act") by Brian Hubird Ford and Philip Strugnell, the respondents, as executors of the will of the late Dr Francis William Stone.

The leasehold selection, described as Homestead Lease No. 1761 Taroom District and known as "Cockatoo", was purchased in the name of Dr Stone for the sum of $156,000, the purchase being completed on 2 January 1968 . Its transfer to Dr Stone was approved under the Act. At first instance Ryan J. found that the appellant and Dr Stone had agreed that on payment of $30,000 by the appellant towards the purchase price of "Cockatoo" the appellant would become entitled to a half interest therein. It is not in dispute that the sum of $30,000 was in fact paid by the appellant. His Honour held that an express trust was thereby created, that the appellant's claim to a declaration of that trust was not defeated by laches and acquiescence, but that the trust was illegal and unenforceable. An appeal to the Full Court of the Supreme Court was dismissed. An appeal is now brought to this Court. The respondents seek to uphold the order of the Full Court on the ground that the trust was illegal and unenforceable, alternatively on the ground that the appellant is precluded by his laches from obtaining the relief sought. The respondents submit in the further alternative that the evidence does not disclose an agreement as found by Ryan J. at first instance. Although conceding that the evidence does support a resulting trust of a 30/156 interest in the property, the respondents argue that such a trust cannot stand against the provisions of the Act.

The illegality of the trust is said to arise by reason of ss.91 and 296 of the Act. Section 91 relevantly provides:

"(1) Subject to this Act-

...

(b)

any -

(i)

...

(ii)

person who in respect of the land applied for or held, or any part thereof or interest therein, is a trustee, agent or servant of or for any other person, shall not be competent to apply for or hold any selection.

...".

Section 296 at all relevant times provided in sub-ss.(1) and (2):

"(1) The right or title of any person to any holding or interest in any holding acquired or held by him in evasion of or by fraud upon this Act shall be liable to be forfeited.

(2) Any person who, save as prescribed, acquires or holds as a trustee, agent or servant of or for any other person -

(a)

any preferential pastoral holding or selection; or

(b)

any perpetual town lease, perpetual suburban lease, or perpetual country lease, or any interest in any such holding shall be deemed to have acquired or to hold the holding or his interest therein by fraud upon this Act, and shall be liable in respect of such holding or interest to the forfeitures prescribed."

At the time relevant to the present appeal s.296(2A) excepted from the application of s.296(2) a holding as servant or agent of certain partnerships or corporations. Those exceptions are not relevant to the present appeal. By s.296(3) it is provided:

"Every person who has

(a)

acquired; or

(b)

agreed to acquire (whether the agreement is in writing or oral, and whether it is express or implied), any holding or any interest in any holding, shall, unless within three months from the date of such acquisition or agreement,

(i)

a transfer or agreement to transfer to him the holding or interest in question has been produced to the Minister for his consideration; or

(ii)

he has given to the Minister notice in writing that he has acquired or agreed to acquire the holding or interest in question, be deemed to have acquired the holding or the interest in a holding the subject of the acquisition or agreement by fraud upon this Act. The provisions of this subsection, or the giving of any notice prescribed by this subsection, shall not affect any liability to forfeiture incurred or imposed, or liable to be incurred or imposed under, or by any other provision of this Act, in respect of any transaction referred to in this subsection."

The procedures for forfeiture are found in s.297 which provides in sub-s.(2):

"If upon the final decision of the matter any such liability to forfeiture is established the Minister may in his discretion -

(a)

recommend to the Governor in Council that the lease be forfeited; or

(b)

waive the liability to forfeiture subject to such terms and conditions as he thinks fit to impose upon the lessee.

...".

By s.298 forfeiture takes effect from the date of notification in the Gazette.

It is necessary to mention also s.235 of the Act which provides, by sub-ss.(1) and (2), that the disqualifications and restrictions imposed by the Act do not apply to a holding by any person as:

"(a) the trustee, executor or administrator of the estate of a deceased lessee, including the Public Curator;

(b) the trustee of a bankrupt lessee;

(c) the committee of the estate of a mentally sick lessee;

(d) the Public Curator when authorised to act under the provisions of Part IIIA or Part IV of "The Public Curator Acts 1915 to 1957.'"

It is further relevantly provided by sub-s.(4) that:

"Notwithstanding the provisions of ... subsection (1) of section 91 of this Act, a person, with the permission in writing of the Minister first had and obtained, may acquire by transfer and hold ... a selection or any interest therein as trustee for children, grand-children, or like descendants of his if, at the date of the creation of the trust, the beneficiary thereunder or, where there are more than one beneficiary, all of them are under the age of eighteen years.

It shall be in the absolute discretion of the Minister whether he will grant or refuse to grant such permission.

A trust permitted under this subsection shall be created by way of transfer of the holding or interest in question to the trustee upon the permitted trusts and a purported creation of such a trust in any other way shall be of no effect in law."

It is convenient to note at once that the declaration of ineffectiveness contained in s.235(4) applies only to trusts permitted under that subsection, viz. trusts for children, grand-children or like descendants under the age of 18 years.

It cannot be doubted that the policy evinced by ss.91 and 296 of the Act is directed against the holding of selections on trust, other than such trusts as are expressly permitted by s.235. The question which is raised by this appeal is whether such a trust is rendered illegal and consequentially unenforceable at the suit of a beneficiary, or whether it attracts only those consequences expressly provided by the Act, viz. incompetence as specified in s.91 and liability to forfeiture as provided in s.296.

The respondents contend that s.91, either standing alone or in combination with s.296, evinces an intention that a trust to which that section applies is illegal. It should be noted that s.91 speaks of incompetence to apply for or hold a selection and not of incompetence of the trust or of incompetence to perform the trust.

The expression "incompetent" normally suggests want of legal capacity and consequential invalidity. If the declaration of incompetence in s.91 were to entail the consequence that no right or title passes to a person who is a trustee or that such right or title is divested upon a holder becoming a trustee, then performance of a trust of a holding would be impossible and incompetence would extend not only to the holding of a selection but to a trust of that holding. However, the declaration of incompetence in s.91 does not have that effect. It is clear from s.296 that the "incompetence" declared by s.91 precludes neither the acquisition nor the holding of a selection, for that section presupposes the validity of the holding and renders the holding liable to forfeiture. Within that context "incompetence" in s.91 must be understood as meaning unsuitability rather than want of capacity, albeit that the unsuitability is of a nature such as to warrant refusal of an application and to render a holding liable to forfeiture on that account. So understood s.91, standing alone, carries no implication of incompetence or of inability to perform the trust.

Section 296(2) deems any acquisition or holding by a trustee, other than a permitted trustee, a fraud upon the Act and renders the holding or any interest therein liable to forfeiture. However, s.297(2) makes it plain that forfeiture is neither automatic nor inevitable for the Minister has a discretion to recommend forfeiture and to waive liability to forfeiture subject to such terms and conditions as he sees fit. Moreover, even if forfeiture occurs, it takes effect only from the time of notification in the Gazette: s.298(1). Within this context two matters may be noted. First, performance of a trust obligation remains possible unless and until forfeiture occurs. Secondly, forfeiture - or more accurately, liability to forfeiture - is the sanction by which the policy of the Act is effectuated rather than a penalty imposed by reason of a prohibited transaction, as suggested of the Act as it stood in 1915 by Griffith C.J. in The King v. Hopkins (1915) 20 CLR 464 , at p 470. These considerations militate against any implication of illegality of a trust of a holding.

Moreover, it seems to us that an implication of illegality of a trust constituted, as in the present case, by an agreement to acquire an interest in a holding would be contrary to the terms of s.296(3). That subsection expressly contemplates that an interest may be acquired in a holding pursuant to an agreement and deems the acquisition of an interest in such circumstances a fraud upon the Act only if notice is not given to the Minister within three months from the date of acquisition or agreement, although the giving of notice does not affect any liability to forfeiture otherwise imposed by the Act. Section 296(1) also assumes that an agreement to acquire an interest will take effect. The terms of s.296(1) may be contrasted with those of s.296(2). By that latter subsection the holding of a trustee or the interest of a trustee in a holding is made liable to forfeiture, whereas by sub-s.(1) the right or title to a holding or interest in a holding acquired by fraud upon the Act is made liable to forfeiture. Because s.296(1) and (3) postulate that an agreement to acquire an interest may take effect, it seems to us impossible to infer that such an agreement is illegal and equally impossible to infer that a trust constituted by such agreement is illegal if the agreement itself is not.

It was also submitted on behalf of the respondents that the Court should decline to declare a trust in favour of the appellant for the reason that such declaration would render the respondents incompetent and the holding liable to forfeiture. That argument would doubtless have force in relation to a trust based on imputed or presumed intention, for "there can not be a resulting trust contrary to the provisions of an Act of Parliament": Garrett v. L'Estrange (1911) 13 CLR 430 , at p 435. However, what is here in issue is an express trust created by agreement between the appellant and the late Dr Stone. Incompetence and liability to forfeiture derive from the trust then brought into existence and not from any declaration of the existence of that trust.

We turn now to the submission that the appellant's claim is barred by laches. For this purpose it is necessary to give an account of the relevant facts.

Dr Stone was the uncle of the appellant's wife. For many years prior to the acquisition of "Cockatoo" and until December 1977 there was a close family relationship between Dr Stone and the immediate members of the appellant's family. The appellant's mother-in-law and father-in-law had participated in certain discussions in 1967 leading to the agreement by which the appellant acquired a half interest in "Cockatoo". Both parents-in-law died before December 1977.

It had been envisaged that the appellant would live at "Cockatoo" and work the property in partnership with Dr Stone but this did not eventuate. Nevertheless the appellant and his family visited Dr Stone at frequent intervals. On one such visit in 1976 the appellant observed that Dr Stone was exhibiting signs of memory loss. Dr Stone was then aged 87. He was running three grazing properties, including "Cockatoo". He was assisted by a manager, Mr Nimmo, and by a housekeeper, Mrs Nickerson, who had been his friend and confidante for many years.

In December 1977 Dr Stone wrote to the appellant's wife stating that the appellant and his family were no longer welcome and that "(t)hese properties are owned by me and what I do is my own business and I don't have to consult anyone." The appellant wrote back in conciliatory terms appropriate to the family relationship seeking an opportunity to discuss the matter. His approach was rejected.

By a will made in July 1978, Dr Stone devised his "grazing properties known as 'Stanley Park', 'Cockatoo' and 'Dorset'" to his manager, Mr Nimmo, and his housekeeper, Mrs Nickerson. The appellant had no knowledge of this will.

By 1982 Dr Stone's condition had deteriorated to the extent that a protection order had been made in favour of the Public Trustee of Queensland. The appellant visited him in hospital at this time but Dr Stone failed to recognize him. At that stage the appellant learned that "Cockatoo" had been leased to Mr Nimmo. Soon thereafter, he spoke to the respondent, Dr Ford, and in the course of that conversation claimed a beneficial interest in "Cockatoo". He also caused a letter to be written by his solicitors to the Public Trustee, in which letter a claim was made by way of resulting trust on the basis of his contribution to the purchase price of "Cockatoo". No further action was taken at that stage. After the grant of probate of Dr Stone's will the present proceedings were commenced. By that time Mrs Nickerson had also died.

The above facts disclose two considerations touching upon the defence of laches. First, Dr Stone made a specific devise of "Cockatoo". Secondly, by the time the matter came on for hearing all persons, other than those called in the appellant's case, who may have been in a position to give evidence concerning the appellant's entitlement were dead. Similar but not precisely identical considerations were taken into account by Dixon J. in Hourigan v. Trustees Executors and Agency Co. Ltd. (1934) 51 CLR 619 , which stands as authority for the proposition that laches may be raised in answer to a claim by a beneficiary of an express trust, at least if "there has been acquiescence or gross laches on the part of the cestui que trust ": per Dixon J., at p 650 citing In re Cross; Harston v. Tenison (1882) 20 Ch D 109, per Baggallay L.J. at p 121. However, it should be noted that in the view of Dixon J. (at pp 650-651) the case was not one concerning an ascertained equitable interest in specific property.

It seems to us that if there was evidence that the appellant's inactivity had induced in Dr Stone a belief that he alone was beneficially entitled to "Cockatoo" and that, but for that belief, some different testamentary provision would have been made for Mr Nimmo and Mrs Nickerson, the consideration that the property had been devised would equate with the consideration taken into account by Dixon J. in Hourigan. One would then be concerned with estoppel and not laches, and we see no reason why an estoppel of that nature should not be available in answer to a claim by a beneficiary to an ascertained interest in specific property. See Waltons Stores (Interstate) Ltd. v. Maher (1988) 164 CLR 387 . However, that is not a matter that need now be explored for no suggestion was made that such a belief had been induced by the appellant's inactivity. Dr Stone's expressed belief as to his absolute entitlement to "Cockatoo" - arrived at in spite of the appellant's contribution to its purchase price - was asserted as early as 1977. It is the appellant's inactivity in the face of the expression of that belief, not inactivity giving rise to that belief, that is said to constitute laches. Moreover, there is no suggestion that the appellant's inactivity after 1977 so contributed to that belief that "it would be unfair or unjust if he were left free to ignore it": Grundt v. Great Boulder Pty. Gold Mines Ltd. (1937) 59 CLR 641 , at p 675. Nor was it suggested that, in the context of a devise of all three grazing properties to Mr Nimmo and Mrs Nickerson, it might reasonably be inferred that Dr Stone would have made different testamentary provision had he been fully cognizant of the appellant's entitlement.

The substance of the respondents' case in relation to laches was that of prejudice in defending the appellant's claim by reason that evidence which might earlier have been available was lost to them. Prejudice is a consideration properly to be taken into account in relation to laches, although the respondents were not able to point to any authority where such a consideration had defeated the claim of a beneficiary to specific property the subject of an express trust. However, where entitlement depends on factual matters which are fairly open to dispute we see no reason why prejudice occasioned by the loss of evidence as a result of delay on the part of the claimant might not be raised in answer to such a claim.

The question of prejudice resulting from unavailability of evidence necessarily involves some degree of speculation, but it is not a question of pure speculation. The issue is not whether evidence may have been lost but whether evidence which may have cast a different complexion on the matter has been lost. Thus in Crago v. McIntyre (1976) 1 NSWLR 729 a defence of laches was successful because a different conclusion may have been reached "if all of the witnesses, including the doctors, who could have given first-hand accounts of the plaintiff's behaviour, and of other relevant circumstances, had been available to be called as witnesses" (at p 748).

In the present case the witnesses whose evidence was said to have been lost were the appellant's parents-in-law, Dr Stone and Mrs Nickerson. The loss of the evidence of the appellant's parents-in-law occurred prior to December 1977, the time at which the respondents assert that the appellant knew that his interest was impugned and whose delay thereafter is said to constitute laches. The loss of this evidence is therefore not a matter to be taken into account.

The evidence of Dr Stone falls for consideration by reference to other factors. Assuming that after 1977 Dr Stone was in a position to give evidence, testimony contrary to the creation of a trust pursuant to agreement would be contrary to two letters written by him in January 1968 corroborating the existence of the trust as claimed by the appellant. At this distance the probative value of any such hypothetical evidence must be adjudged so slight that its loss does not amount to prejudice.

Dr Stone might also have been able to give evidence of subsequent matters amounting to an answer to the appellant's claim, as for example, release, abandonment or discharge of the trust or conduct inducing an assumption by Dr Stone as to such matters and amounting to an estoppel. It was said that Mrs Nickerson might also have been able to give such evidence. If the evidence were such as to make an inference as to any of these matters at all likely then the evidence of Dr Stone and Mrs Nickerson might well have cast a different complexion on the appellant's claimed entitlement to a half interest in "Cockatoo". But the evidence gives rise to no such likelihood. On the view least favourable to the appellant the most that can be said was that he was content to stand by and let matters take their course in the expectation that they could be resolved within the family after the death of Dr Stone. This falls far short of release, abandonment, discharge or of conduct in inducing an assumption as to such matters by Dr Stone. The question of the loss of evidence as to such matters is entirely suppositional and is thus not a matter which can properly be said to amount to prejudice of the character which might defeat the appellant's claim.

There remains to be considered the respondents' claim that the evidence did not support a finding of an express trust as claimed by the appellant, whilst conceding that, subject to the argument based on the Act, it did support a finding of a resulting trust. In so far as a resulting trust is imposed in consequence of presumed intention, the provisions of the Act rendering a holding by a trustee liable to forfeiture may well preclude the making of that presumption. See Ex parte Houghton (1810) 17 Ves Jun 251 ( 34 ER 97 ); Garrett v. L'Estrange, at p 435; Preston v. Preston (1960) NZLR 385 , at pp 402, 404 and 405.

The direct evidence of the existence of a trust as claimed by the appellant came from the appellant, whom the trial judge found to be a truthful witness. His evidence was not always precise as to all aspects of the business venture which was expected to eventuate. He was, however, consistent in his claim of an agreement that upon payment of $30,000 he would acquire a half interest in "Cockatoo". It was not disputed that he paid the $30,000 and his evidence of the agreement was corroborated by letters written by Dr Stone in January 1968 to his solicitor and to the appellant, acknowledging the latter's half share in the property until some other arrangement was made involving a third party. The other arrangement then in contemplation never eventuated. There is further corroboration in the evidence of the appellant's daughter which Ryan J. accepted as "truthful". The evidence is, in our view, clearly sufficient to support the findings of the trial judge.

For the above reasons the appeal should be allowed. It is necessary to mention a further matter. During his lifetime Dr Stone effected improvements to "Cockatoo" which the trial judge found to have a value of $250,000. Adjustment must be made in favour of the respondents on account of those improvements. That adjustment is conveniently made by subjecting the appellant's half interest in "Cockatoo" to a charge in the sum of $125,000.

The order of the Full Court of the Supreme Court of Queensland should be set aside and in lieu thereof it should be ordered that the appeal to that Court be allowed, that the order of Ryan J. be set aside and in lieu thereof it should be declared that the respondents, as the executors of the will of the late Francis William Stone, hold an undivided moiety of the leasehold of Grazing Farm Homestead Lease No.1761 Taroom District on trust for the appellant, subject to a charge thereon in favour of the respondents in the sum of $125,000. The respondents should pay the appellant's costs of this appeal, the proceedings before the Full Court and the proceedings before Ryan J.