Forster v Forster

Some very interesting issues arose in this recent matter. The applicant, the respondent’s stepson, sought an order requiring her to account to him for her assets after she inherited most of his father’s estate in accordance with his (mutual) will. The primary issues for her Honour’s consideration were (a) whether a constructive trust arose upon the death of the deceased, and if so, (b) whether the respondent, as constructive trustee, ought to be required to account to the applicant. In an important judgment in which she extensively considered the cases relevant to mutual wills her Honour held that, without fraud on the respondent’s part, the obligation to which she was subject was not the equivalent of a willing trustee’s obligation to the beneficiaries of an express trust and did not include an obligation to account to the applicant for the property during her lifetime.

Ryan J

8 March 2022

The parties were not on cordial terms. The respondent was the deceased’s second wife. The deceased had three children (including the applicant) from his first marriage and the respondent had two. [1]. Following his father’s death the applicant had unsuccessfully sought to compel the applicant to make disclosure to him of her financial position. [4]. Despite lacking any evidence to support his position, the applicant did not trust the respondent and suspected that she had, or would, breach the mutual wills agreement. [5].

Relevantly the matter was brought on the basis that whilst there was no evidence of fraud by the respondent, the applicant wished to “keep an eye” on her in case she tried to avoid her obligations. [197].

The prerequisites for an order

The outcome of the application hinged upon three matters:

1. Whether the respondent held the property on constructive trust for the applicant during her lifetime;
2. Whether the pre-conditions for an order under s 8 Trusts Act 1973 had been met;
3. Whether it was appropriate for the court to make the order. [7].

The parties’ positions

The applicant argued that consistent with the doctrine of mutual wills, upon the death of his father, a constructive trust was imposed upon the property the subject of the mutual wills agreement, and accordingly the respondent held it as trustee for him. [33]. The respondent submitted that in circumstances where the mutual wills agreement imposed obligations upon both her and the deceased it did not operate to “create” a trust and as such that argument was flawed and it was in fact the case that in the absence of fraud, no trust existed. [41].

Did the respondent hold the property the subject of the mutual wills agreement on constructive trust for the applicant during her lifetime?

The weight of authority did not support the applicant’s primary contention that a trust arose in the absence of a breach of the mutual wills agreement. In particular:

1. The decision of Dufour v Pereira (1769) 1 Dick 419; 21 ER 332, the first reported case on the doctrine, supported the proposition that by virtue of the principles of equity, a survivor will become a trustee if he or she commits a fraud by refusing to perform his or her part of the agreement; [57];
2. In Birmingham v Renfrew (1937) 57 CLR 666, the leading Australian case on mutual wills, Justice Dixon held that the obligation created by a mutual wills agreement is suspended during the survivor’s lifetime, and then “crystallises” into a trust upon the death of the survivor. Further, the transaction permits the survivor to enjoy the full ownership of the property and to deal with it as absolute owner during their lifetime, albeit not in a way intended to defeat the terms of the original agreement; [76];
3. The decisions of Gordon Archibald Bigg v Queensland Trustees Limited (Unreported, No 825 of 1989), Bauer v Hussey [2010] QSC 269 and Re Goodchild (deceased); Goodchild and another v Goodchild [1996] 1 All ER 670 suggest that equity will only intervene to impose a trust on the estate where there is a breach of the agreement. In the event the survivor adheres to the agreement then equitable intervention will not arise since the terms of the contract will have been met; [118];
4. In Flocas v Carlson and others (as executors of the will and estate of Marjorie Lillian Swift) [2015] VSC 221 Justice McMillan J stated that it is “plain” that the property the subject of a mutual wills agreement is not held in trust during the survivor’s lifetime.

Was relief appropriate?

Her Honour held that having regard to the authorities, the respondent was not a constructive trustee of the property; and the applicant was unable to succeed in the application, stating “Her absolute ownership of the property is inconsistent with trusteeship.” [202]. She added that even if that conclusion were incorrect and a constructive trust was imposed upon the property the subject of the mutual wills agreement, its terms would define the nature of her trusteeship, in this instance permitting the respondent to fully enjoy the Combined Estate during her lifetime subject to limitations. Accordingly, it was the case that:

“Even if James were able to persuade me that section 8 of the Trusts Act 1973 applied, Annabel’s right of enjoyment under the MWA, even as trustee, is inconsistent with my imposing upon her a requirement to account to James for the Combined Estate during her lifetime.” [204].

Disposition

In the result, the application was refused. [207].

A Jarro