Edgar v Ron Kingham Real Estate Pty. Ltd.
[1997] QCA 242
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- Unreported Judgment
- Edgar v Ron Kingham Real Estate Pty. Ltd.[1997] QCA 242
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Edgar v Ron Kingham Real Estate Pty. Ltd.[1997] QCA 242
Edgar v Ron Kingham Real Estate Pty. Ltd.[1997] QCA 242
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5003 of 1996
Brisbane
[Edgar & Anor. v. Kingham Real Estate P/L]
BETWEEN:
ENID MAY EDGAR and SYDNEY GRAHAM EDGAR
(Defendants) Appellants
AND:
RON KINGHAM REAL ESTATE PTY. LTD. (A.C.N. 010 031 357)
(Plaintiff) Respondent
Davies J.A.
McPherson J.A.
Fryberg J.
Judgment delivered 8 August 1997
Separate reasons for judgment of each member of the Court; each concurring as to the order made.
APPEAL DISMISSED WITH COSTS.
CATCHWORDS: CIVIL - REAL ESTATE AGENT COMMISSION - Judgment debt as liability in capacity as trustee -
Trusts Act ss. 72, 109 -
Magistrates Court Act 1921 s. 4(c) -
Marginson v. Ian Potter & Co. (1976) 136 C.L.R. 161 applied.
Counsel: Mr A.P.J. Collins, with him Ms. S.J. Armitage, for the appellants
Mr J.S. Douglas Q.C., with him Mr G.D. O'Sullivan, for the respondent
Solicitors: Fitz-Walter Walker for the appellants
McDonald and Company for the respondent
Hearing Date: 17 February 1997
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5003 of 1996
Brisbane
Before Davies J.A.
McPherson J.A.
Fryberg J.A.
[Edgar & Anor. v. Ron Kingham Real Estate P/L]
BETWEEN:
ENID MAY EDGAR and
SYDNEY GRAHAM EDGAR
(Defendants) Appellants
AND:
RON KINGHAM REAL ESTATE PTY. LTD.
ACN 010 031 357
(Plaintiff) Respondent
REASONS FOR JUDGMENT - DAVIES J.A.
Judgment delivered 8 August 1997
I have read the reasons for judgment of McPherson J.A. I agree that the appeal must be dismissed and, with one qualification, with his Honour's reasons for doing so. That qualification relates to s. 109 of the Trusts Act 1973.
Where a trustee of a trust estate has wrongfully distributed trust property, s. 109 confers on a creditor of the trust estate who has suffered loss by that distribution the same rights against a beneficiary to whom the trust property has been distributed as in the case where a personal representative has wrongfully distributed the estate of a deceased person. At least since Re Diplock[1] there has been no doubt as to the latter right, subject to first exhausting a remedy against the personal representative. Whether in equity there is such a right against beneficiaries of a trust estate irrespective of s. 109, and I agree with McPherson J.A. that there is, s. 109(1) is an additional source or is confirmatory of that right[2].
In the present case there can be no doubt that the trustee wrongfully distributed the whole of the trust estate to the appellants. They were, in effect, the trustee, being the only directors of the trustee and they caused the distribution of the whole of the trust estate to themselves after and, it may be inferred, because they became aware of the respondent's claim.
I agree with McPherson J.A. that, because the trustee, upon that distribution, was left with no assets at all the respondent can be said to have exhausted all remedies against it: sub-s.(2). But if that was not so this would plainly be a case in which a court would grant leave to enforce a remedy against the appellants without exhausting all remedies against the trustee. Not only was no attempt made to establish a defence under sub-s.(3) but it would have been impossible on the facts to have done so. The respondent was therefore entitled to succeed by reason of s. 109.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5003 of 1996
Brisbane
Before Davies J.A.
McPherson J.A.
Fryberg J.
[Edgar & Anor. v. Kingham Real Estate P/L]
BETWEEN:
ENID MAY EDGAR and
SYDNEY GRAHAM EDGAR
(Defendants) Appellants
AND:
RON KINGHAM REAL ESTATE PTY. LTD.
ACN 010 031 357
(Plaintiff) Respondent
REASONS FOR JUDGMENT - McPHERSON J.A.
Judgment delivered 8 August 1997
On 13 September 1995, the plaintiff, which is the respondent to the appeal in this Court, obtained judgment by default in the magistrates court for $21,311.75, which included the principal claim with interest and costs. The judgment was obtained against Petrogas Consultants Pty. Ltd. in an action instituted on 10 September 1993 by plaint no. 4921 of 1993 in the magistrates court at Southport claiming the sum of $14,200 as commission payable to the plaintiff for services performed as real estate agent. The material in the record discloses that the claim arose out of the sale of a home unit owned by Petrogas after the plaintiff had been engaged as selling agent.
Petrogas was the corporate trustee of the Sydney Graham Edgar Family Trust, of which the appellants Enid May Edgar and Sydney Graham Edgar are described in the material as beneficiaries. It is not possible to be more specific about the terms of the trust or about the number or extent of the interests of beneficiaries under it because the trust instrument was not placed in evidence in the proceedings below. Having failed to obtain satisfaction of the judgment debt, the plaintiff instituted a further action by plaint no. 2004 of 1995 in the magistrates court naming the appellants as defendants.
The statement of particulars of claim filed with the plaint alleged that Petrogas was the trustee of the Trust in question; that the defendants were directors of Petrogas and the principal beneficiaries of the Trust; and that the plaintiff had obtained judgment against it for $21,311.75. It also alleged that the judgment debt was a liability incurred by Petrogas in its capacity as trustee of the Trust; that it was entitled to be indemnified from the Trust; but that in June 1993 the entire trust fund had been paid to the defendants as beneficiaries of the Trust. The particulars in para. 8 went on to say.
“8. In the premises:-
- the Defendants have an equitable obligation to indemnify the said Trustee.
- the Plaintiff is entitled to the indemnity owed to the Trustee, Petrogas (Consultants) Pty. Ltd. by the Defendants.”
The pleading concluded in para. 10 with a claim against the defendants for $21,311.75 with interest under the Common Law Practice Act.
Few of these allegations were contested. It was admitted in the defence that the defendants were the principal beneficiaries of the Trust, and that all the remaining assets of the Trust had been transferred into their names. When the action came to trial in the magistrates court the principal questions for determination were whether, on the matters pleaded, the plaintiff was entitled to judgment against the defendants for the amount claimed, and if so whether the magistrates court had jurisdiction to grant the relief claimed. After an interlocutory application by the defendants to strike out the action, it proceeded to a trial at which only documentary evidence was adduced by either party.
The magistrate gave judgment in favour of the plaintiff for the sum claimed with interest and costs in an amount totalling $27,964.45. From that decision an appeal was taken to the District Court, which dismissed it. An appeal from that decision is now brought to this Court.
A trustee who properly incurs liability in acting as trustee is entitled to be indemnified out of the trust assets. In Queensland the right of indemnity is recognised in s. 72 of the Trusts Act 1973, which authorises a trustee to pay out of the trust property all expenses “reasonably incurred” in or about the execution of the trust, and which, by force of s. 65 of the Act, is an invariable provision of every trust instrument. See Kemtron Industries Pty. Ltd. v. Commissioner of Stamp Duties [1984] 1 Qd.R. 576, 585. In the present case, according to the admission in the defence, the entire trust assets have been paid away to the defendants as beneficiaries. Whether it is correct to say that, in consequence, there is no longer anything on which s. 72 is capable of operating would no doubt depend on whether the assets paid away are capable of being identified or traced in equity and so retain their character as “trust property” for the purpose of that section.
Except perhaps in a limited respect, however, it is not necessary to consider those questions here. The plaintiff does not found its claim on the right of a trustee to be indemnified out of the trust assets. Instead, it relies in this action on the alternative right which a trustee has to be indemnified by the beneficiaries personally for liabilities properly incurred in the trust. That right to personal indemnity from a beneficiary has been recognised in various authorities including, most prominently, the decision of the Privy Council in Hardoon v. Belilios [1901] A.C. 118, 125, where it was said the obligation of a beneficiary to indemnify the trustee rests on “the plainest principles of justice”, which require “that the cestui que trust who gets all benefit of the property should bear its burden”. See also Trautwein v. Richardson [1946] A.L.R. 129, 134-135; and Marginson v. Ian Potter & Co. (1976) 136 C.L.R. 161, 175-176, where Jacobs J. quoted with approval a passage from Halsbury’s Laws of England, 3rd ed., vol. 38, at 943-944, describing the trustee as having the right to an indemnity “from a person sui juris who is beneficially entitled” to the trust property. The right of a trustee to indemnity from the beneficiary is capable of being expressly excluded; but the terms of the trust instrument are not in evidence, and there is nothing at all to suggest that the indemnity was excluded in the case of this Trust.
A trustee’s right of indemnity is hedged about by various conditions or requirements which sometimes make it difficult to enforce, particularly when it is the personal and not the proprietary right that is being relied on. However, by one of those happy strokes of fortune said to favour the brave (or, in this instance, the well-advised), all the relevant conditions are fulfilled in the present case. Both defendants were company directors, and that and other circumstances show they were at all relevant times persons of full age. Some material in the record suggests that the trust was “discretionary”; but, whatever that description may be taken to mean, it is plain that the defendants were in control of both the affairs of the corporate trustee and the trust, as well as being the principal beneficiaries under the trust. As the only directors of Petrogas, it was they who made the decision to pay the trust funds to themselves as beneficiaries.
Something was sought to be made of the fact that there was no evidence that the liability leading to the judgment against Petrogas was one that was properly incurred by that company as trustee. In this context, the expression “properly incurred” (or, as s. 72 expresses it, “reasonably” incurred) means “not improperly incurred”: see Re Beddoe [1893] 1 Ch. 547, 558. Under the Trusts Act, a trustee has power to sell all or part of the trust property: see s. 34; and, instead of acting personally, to employ and pay an agent, with a corresponding right to be allowed and paid all expenses so incurred: s. 54(1). Under the statutory powers referred to, it therefore had authority to engage the plaintiff as its agent and incur liability to pay commission according to standard rates charged in the industry. It is, of course, true that the mere fact that there is power to do an act does not mean that the power was properly exercised in particular circumstances; but it also has been said to be “a violent exercise” of the court’s discretion to deprive a trustee of his charges and expenses: Re Chennell (1878) 8 Ch.D. 492, 302, per Jessel M.R. At the trial the defendants here produced nothing at all to suggest that the action of Petrogas in selling the trust property and incurring liability for the plaintiff’s commission was in any way improper. Indeed, having as directors themselves authorised the sale to which the engagement of the plaintiff was incidental, the defendants as beneficiaries are not now in a position to complain of it as a breach of trust: see Jacobs’ Law of Trusts, 5th ed. §§2121‑2133. If it matters they also ratified the sale. There is a letter ex. 12 dated 20 September 1995 from their solicitors to the effect that the trust assets transferred into their names amounted to $222,000, being the balance of sale proceeds after paying loans said to be due to them from the corporate trustee.
From what has so far been said, it follows that the plaintiff was in a position to and did establish that as trustee Petrogas was entitled to be indemnified by the defendants personally in respect of the liability that was the subject of the judgment obtained against it in the magistrates court on 13 September 1995. The next step is to determine whether, as the plaintiff claims, it is entitled to be subrogated to the trustee’s right of indemnity in favour of Petrogas. The question is to some extent linked with the second principal ground of appeal, which is whether magistrates courts have jurisdiction to entertain claims of this kind; but it is convenient to deal with the more general question first.
There is no doubt of the right of a creditor in ordinary circumstances to be subrogated to the trustee’s indemnity in order to enforce payment of a claim by the creditor to which the indemnity relates. See, for example, Vacuum Oil Pty. Ltd. v. Wiltshire (1945) 72 C.L.R. 319, 325. It must, however, be acknowledged that in the reported cases where the right of subrogation has been discussed, the precise question at issue seems always to have been whether the creditor was entitled to be subrogated to the trustee’s claim to indemnity out of the trust assets. We were not referred on the appeal to any specific decision of a court holding that there is a right on the part of the creditor to subrogation to the trustee’s claim to indemnity against a beneficiary in person. The passage from Halsbury set out in the reasons for judgment of Jacobs J. in Marginson v. Ian Potter & Co. (1976) 136 C.L.R. 161, 176, concludes with the sentence:
“Persons to whom a trustee has incurred liability in respect of which he has a right of indemnity may be entitled to be subrogated to the trustee’s right.”
The proposition is repeated in the current (4th edition) of Halsbury, vol.48, §785, at p. 414. However, the authorities cited in support of it at nn. 7 and 8 of that paragraph, are, when examined, once again cases in which a right of subrogation was sought in order to enforce the indemnity against the trust assets and not against beneficiaries personally.
In the end, however, I cannot see that it makes any difference in principle whether the creditor claims to be subrogated to the trustee’s right of indemnity against the trust property or against the beneficiary in person. In Marginson v. Ian Potter & Co., Jacobs J. evidently did not consider that a distinction was involved. In disposing of that appeal, his Honour said (136 C.L.R., 161, 176):
“the appellant ... was always liable to make good personally and out of the purchased shares the indebtedness of the company to the respondents. It does not matter whether the company is described as trustee or as agent in this context. The same right to indemnity and consequent right in the creditor to be subrogated thereto existed.”
The other members of the High Court, who were Gibbs and Mason JJ., did not find it necessary to consider the right of indemnity or subrogation; but in this field of law the authority of Jacobs J. is such that it would be bold, without good reason, to question the accuracy of his Honour’s statement on the subject.
The trustee’s right to indemnity is, in any event, a chose in action: see Re Richardson [1911] 2 K.B. 705, 715. It is an incident of trusteeship that enables a trustee to act in the best interests of the trust in an impartial and disinterested manner with some assurance that his personal financial position will not be prejudiced. Under the pre-Judicature system, a creditor who found the trustee unwilling to enforce the indemnity could appeal to a court of equity to compel the trustee to lend his name to proceedings against the beneficiary. The procedure is explained in Archard v. Coultsing (1843) 6 Man. & G. 75, 79; 134 E.R. 815, 816; and Sharpe v. San Paulo Ry. Co. (1873) 8 Ch.App. 597, 609-610. Nowadays the presence of the trustee as a party might still be required to ensure he was bound by the determination; but it is difficult to see why in the circumstances of this case the plaintiff here should not be entitled to sue the beneficiaries directly. The defendants had notice of the plaintiff’s claim at the time they arranged for the trust assets to be paid to themselves, and they enriched themselves at the expense of satisfying the plaintiff’s claim against the trustee. It would plainly be against conscience for them to retain the proceeds of their conduct so as to defeat that claim. In equity they would be considered as constructive trustees of the assets received at least to the extent necessary to satisfy the trustee’s liability.
The magistrates court is not a court of equity; but it is a court which, for limited purposes, is invested with equitable jurisdiction. By s. 4(c) of the Magistrates Court Act 1921, in such a court an action may be commenced:
“in which a person has an equitable claim or demand against another person in respect of which the only relief sought is the recovery of a sum of money or of damages, whether liquidated or unliquidated, and the amount claimed is not more than $40,000.”
In conformity with what is now s. 11 of the Act, para. 9 of the plaintiff’s statement of particulars in this case disclosed that the claim was based on equitable grounds.
A provision in the terms of s. 4(c) of the Act formerly appeared in s. 68 of the District Court Act 1967. It is now embodied in s. 68(1)(a)(i) of that Act. Its history and origins are traced in Barbagallo v. J. & F. Catelan Pty. Ltd. [1986] 1 Qd.R. 245. In that instance the jurisdiction was exercised to sustain a claim for equitable damages in lieu of injunction for apprehended future injury to land. In the much earlier decision of Noagues v. Hope (1874) 4 Q.S.C.R. 57, it was used to enable the plaintiff to obtain damages for breach of an informal agreement to grant a lease without first having obtained specific performance of the agreement. The purpose of the statutory provision, which originally stood as s. 1 of the Equity Procedure Act of 1873, was, in the words of its author Sir Samuel Griffith, “to abolish the distinction in money cases between law and equity”. See Barbagallo v. Catelan [1986] 1 Qd.R. 245, 256.
There can be little doubt of the availability in the present case of the jurisdiction under s. 4(c). In Re Law Courts Chambers Co. (1890) 61 L.T. 668, 671, Stirling J. said that the expression “creditor in equity” referred to the relationship existing between a person who said he was a creditor and the alleged debtor “under which the debtor could be compelled in equity to pay to the alleged creditor the equitable debt”. The plaintiff here satisfies that description. It was submitted that in some way the allegation in para. 8 of the particulars of claim involved the magistrates court in making a declaration that the defendants had an obligation to indemnify Petrogas as trustee, and that there was no power in the court to do so. It is true that the magistrates court has no power to make a declaration; but it has power to give forms of relief that are authorised by the Act, and for that purpose to make a determination that is within its jurisdiction. No declaration to the effect of para. 8 was sought or made in this action, and none was needed. The magistrate correctly applied the law to the facts, and, having done so, gave relief in a form that, under s. 4(c) of the Act, it was within the jurisdiction of the court to grant.
Two further matters remain to be considered. One which, although not raised by the defendants, was mentioned by the Court on the appeal, concerns the operation of s. 109 of the Trusts Act. Section 109(2) restricts the right of a person who has suffered loss by reason of a wrongful distribution of trust property to enforce a remedy against one to whom trust property has been wrongfully distributed, without first exhausting all available remedies against the trustee. In effect, it imposes a requirement that the plaintiff first proceed against the trustee either in rem or in personam before resorting to remedies in personam against a recipient of trust property that has been wrongly appropriated. The provision was designed to curtail the hardship considered to follow from the decision in Re Diplock [1948] Ch. 465 in holding that recipients of trust funds mistakenly distributed to them should not be made to bear the primary liability to repay in priority to the errant trustee. See the explanation given in the Report of the Law Reform Commission (Q.L.R.C. 8 (1971), at p. 68).
The matter before us is not one in which any hardship of that kind is discernible or suggested. No attempt was made to establish a defence based on s. 109(3) of the Act. The recipients of the trust assets are the very persons who caused those assets to be wrongfully distributed. The equitable remedies in personam and in rem for wrongful distribution are thus available against one and the same individuals. Quite apart from that, it appears that the plaintiff has, in any event, exhausted all remedies available against the trustee. Petrogas was, as the defendants themselves acknowledged, left with no assets at all once the proceeds of sale of the home unit were paid to them. Contrary to the defendants’ submissions, it would serve no useful purpose now to insist on administration of the trust or on a winding up of Petrogas in order to enable it to institute proceedings to enforce its indemnity as trustee or to recover from the defendants trust assets sufficient to satisfy the judgment debt in action no. 4921 of 1993. The case is one of those rare instances in which it can with confidence be predicated that there are, apart from the plaintiff, no other creditors with claims against the company. The statutory order of priorities and distribution in insolvency will not be disrupted by the judgment that has been given against the defendants in this instance. They are in no danger of being called on in the future to pay the amount of the judgment over again.
The only other matter meriting attention is the reception in evidence of a letter that was admitted at the trial as ex. 11. It accompanied a copy of a document or documents lodged by Petrogas with the Australian Securities Commission. It is conceded that copies of the documents themselves were admissible in evidence pursuant to s. 1274 of the Corporations Law, but at the trial an objection was taken that the letter ex. 11 was not a document of the kind described in that section. It was a handwritten letter dated 23 August 1993 to the Australian Securities Commission confirming that Petrogas had not traded for a period in excess of five years; that the principal beneficiaries of the Trust were the writer of the letter and his wife; that all remaining assets of the Trust had been transferred into their joint names; and that there had been no change in the beneficial ownership of those assets. The letter went on to confirm that at that date the Trustee company had no liabilities and to explain that the purpose was to obtain an exemption from advertising in anticipation of deregistering the company.
The letter is authenticated by the handwritten initials S.E. Comparison with the signature on the printed form of application for deregistration, also dated 23 August 1993, with which the letter was associated, leaves it in no doubt that the initials and handwriting are those of the defendant Sydney Edgar, who signed the application form as director and public officer of Petrogas. Such a comparison of handwriting is permitted by s. 59 of the Evidence Act 1977, which in s. 59(2) specifically authorises a court to make the comparison “and act upon its own conclusion in relation thereto”. The result is that the letter ex. 11 was properly admitted in evidence. Once in evidence it served as an ordinary admission against interest.
Nothing has been advanced to show that the judgment given against the defendants was wrong. The appeal should be dismissed with costs.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 5003 of 1996
Brisbane
Before Davies J. A.
McPherson J. A.
Fryberg J.
[Edgar & Anor. v. Kingham Real Estate P/L]
BETWEEN:
ENID MAY EDGAR and
SYDNEY GRAHAM EDGAR
(Defendants) Appellants
AND:
RON KINGHAM REAL ESTATE PTY. LTD.
ACN 010 031 357
(Plaintiff) Respondent
REASONS FOR JUDGMENT - FRYBERG J.
Judgment delivered 8 August 1997
For the reasons set out in the judgment of McPherson JA, this appeal should be dismissed with costs.