Clay v Clay & Ors P40/1999 [2000] HCATrans 325 (16 June 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P40 of 1999

B e t w e e n -

JEANETTE RAMONA CLAY

Applicant

and

MARK GREGORY CLAY, PAUL JAMES CLAY and MOIRA HELEN CLAY

First Respondents

MARK GREGORY CLAY, TERENCE CHARLES EDWARDS and DELTA CONSULTING AUSTRALIA PTY LTD

Second Respondents

Application for special leave to appeal

KIRBY J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 16 JUNE 2000, AT 2.49 PM

Copyright in the High Court of Australia

MR C.J.L. PULLIN, QC: May it please the Court, I appear for the applicant with my learned friend, MR M.H. ZILKO. (instructed by Durack & Zilko)

MR W.S. MARTIN, QC: If the Court pleases, I appear with my learned friend, MR M.T. de HAAS, for the second and third-named first respondents. (instructed by Martin De Haas)

MR M. CLAY appeared in person.

KIRBY J: I have a certificate from the Deputy Registrar informing the Court that the second respondents named in the matter, Mark Gregory Clay, Terence Charles Edwards and Delta Consulting Australia Pty Ltd, have not entered an appearance in the matter. Mark Gregory Clay in the capacity of the first-named respondent has entered an appearance. The Deputy Registrar has certified that the applicant's solicitors have filed an affidavit of service deposing to service of the application for special leave to appeal and accompanying documents on 25 August 1999 on the solicitors representing the second respondents in the court below in accordance with Order 69A rule 4(3)(b) of the Rules of this Court. Yes, Mr Pullin.

MR PULLIN: I know your Honours will have read the facts, but could I just emphasise six points before I get on to the special leave points. The first one is that when Mr Clay's plane had been found and the will was inspected, it was found that he had left all his property, including the house in question, to trustees to sell and convert into money all of the property, and the beneficiaries were Mrs Clay and the children.

The second point is that Mrs Clay was not a trustee under the will. Mr Speed was one of the trustees. He recommended that Mrs Clay buy the house for $40,000 or such sum as is determined by the Commissioner of State Tax. Next, there was a provision in the will for an advancement of $20,000 per annum to Mrs Clay. There was a power to advance that sum and to make a distribution in specie. So the trustee could have in fact over a period of two years and one day vested 20/45ths of the property in Mrs Clay, then another 20/45ths and then the final 5/45ths.

The Valuer-General valued the house at $45,000 and the Full Court held that this was a competent, professional valuation. Mrs Clay then purchased the house in 1973 at that price. The final point is that 22 years after the house purchase and 19 years after the last respondent reached 18 years old, these proceedings were brought.

I now get on to the first point, the limitation point, which I would like to address first. The points that were actually raised in relation to the house were all claims for a constructive trust to be imposed because of either fraud - that is buying at a deliberate under-value; that was dismissed - secondly, knowingly receiving the property when there had been a breach by Speed - that was dismissed - and then, as finally articulated by the Full Court but not by the trial judge, it was said that there was a conflict situation because Mrs Clay was the guardian of the children and therefore had a duty to see that Speed administered the estate correctly and that she had an interest in buying the house at the lowest possible price. That was how the claim was brought. But all of them were claims to a constructive trust as the remedy in those situations.

There was unquestionably a limitation defence available to all of those claims beyond question and it was upheld by the trial judge at application book 51. Can I just take a moment to explain why that defence was clearly available. If your Honours like to look at page 50, it is quite a simple statement of the defence succeeding. Under the heading "Are the plaintiffs' claims statute-barred?", over at page 51 his Honour held at line 30:

I hold that the protection afforded by s47(1) of the Limitation Act 1975 is available to the defendant in that the exception -

and I will explain what this is -

refers to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction.

Taylor v Davies is referred to. So the claims were statute barred.

Can I just take a moment to explain it because the section is a little complicated, but basically section 47 says this, that a trustee is entitled to the same limitation defences as if a person were not a trustee. That is step one. Other sections in the Act say that there is a 12-year limitation period, so this was way outside the limitation period. Section 47 then says that there are three circumstances where the trustee cannot claim the limitation defence, and they are where there is fraud, where the trustee still has the trust property - and that might sound as if that means that there is no limitation defence - or where the trust property is converted. But those three exceptions, because of Taylor v Davies, which has been applied in Australia and nobody said it was wrong, says that those three exceptions do not apply in the case of a constructive trust imposed by reason of the transaction impeached. So there is no question that we have a limitation defence and that the trial judge was correct.

What actually happened was that during the course of the appeal there was then a contention by the respondents that because Mrs Clay was a guardian - and section 10 of the Guardianship of Infants Act simply says that a surviving parent is a guardian; it says nothing about trusts at all - somehow the Full Court got it into its head that this somehow created an express trust, and furthermore asserted that counsel for Mrs Clay had conceded that there was somehow or other an express trust because of section 10. No such concession was made. I have invited Mr Martin to admit that no such concession was made but I am afraid no such admission will be made, so I will have to actually just go to the transcript to indicate that it simply was not made and we argued exactly what I have just explained the law is at the time.

If we can go to page 73 of the application book. There are 23 pages and it is with some trepidation that I deal with the matter like this because usually the Court is not going to have to deal with sorting out whether or not a concession was made, but it is so seriously wrong that it has resulted in my client losing her house of 37 years because of the denial of this unassailable limitation defence. If your Honours go to page 73 - and I will just have to quickly go through it and come back to it if necessary - - -

KIRBY J: We think we might be advantaged by hearing you on this in reply if need be, so you might save that up and if necessary we will give you a little more time to deal with that.

MR PULLIN: Yes, all right. If we assume for the moment that no concession was made, then the Full Court's conclusion was therefore not correct; they should not have overturned the decision. Even if counsel had made the concession and said, "We concede that in these circumstances the limitation defence does not succeed because it was an express trust", the Full Court should have said, "You silly counsel, because if a trust arises here, it will be because of a constructive trust that we impose", which they did. Therefore, everyone knows that a constructive trust is not an express trust. Therefore, an attempt to make a concession like that is like in a contract case, attempting to concede that consideration is not necessary. It is a point of law. The court cannot act on that sort of concession.

We know that the court did impose a constructive trust, and I will just quickly go to the paragraphs and pages: at page 155 - and this touches on another point - I will not have to come back to this - the failure to consider Giumelli's instruction to courts to consider other remedies. At 155, paragraph 145, the court said:

As a consequence of these reasons -

that is, that there had been a conflict situation and Mrs Clay should not have purchased -

it becomes necessary to consider the precise form of the remedy. Its primary nature is clear. There should be a declaration -

about holding it on trust. If your Honours go to 157, paragraph 153, we know that it is a constructive trust because the court says:

Because equity requires that Mrs Clay should be declared to hold, and in effect to have held, since May 1973 a share.....there would normally arise -

et cetera. So we know that it is an equitable trust that is arising. Then at 158, paragraph 160:

the appeal should be allowed in part, the judgment.....set aside, and in lieu there should be a declaration that Mrs Clay holds.....on trust for each of the three appellants -

as to a certain share.

HAYNE J: Can I just understand something about the facts. The court held that it should be held for the three appellants, that is, should be held for one of the appellants who was adult at the time of the impugned transaction?

MR PULLIN: They turned 21 - - -

HAYNE J: Was 21 the relevant age at that time or was 18 the relevant age?

MR PULLIN: It was 18 in fact. The dates of birth are set out in - - -

HAYNE J: It seemed to me that Paul, born December 1954, became adult in 1972 and the transaction impugned is May 1973. I may be completely wrong about this, Mr Pullin, but it is not self-evident to me how there was any conflict of duty and duty in respect of one child in respect of whom Mrs Clay was not guardian, but I may be entirely wrong.

MR PULLIN: No, I am grateful to your Honour. That is quite correct. As soon as you articulate that, I have realised that that also was a complaint about what has happened in the case. It certainly is, because 18 is the relevant time for majority. The court also, when it reached its conclusion at 139, I think it is - - -

KIRBY J: Perhaps the Court should say, "You silly counsel for not having noticed that point".

MR PULLIN: Yes, I agree.

HAYNE J: It is a bit much, Mr Pullin, if we pull these things out of the facts at this stage of this litigation.

MR PULLIN: Yes.

KIRBY J: Anyway, press on.

MR PULLIN: At page 139 your Honours will see this reference to the concession at paragraph 87:

It is conceded for Mrs Clay that the trust constituted by s 10 -

that is simply a statement that says a surviving parent is a guardian of the children -

and which was breached -

I do not quite know what that means -

is an express trust as it is constituted by the statute -

the statute says nothing about trust. A guardian of children who holds no property for them is just a guardian. You only become a trustee for property if someone vests some property in you to hold it for children. Then the court says:

in this regard see Sands v Thompson (1883) 22 Ch D 614 at 617.

I have read the whole case. I have read page 617. There is no support whatever for the proposition which it is cited for, none whatsoever. Then at page 141 there is a repetition of the apparent acceptance:

by the parties to be a trust expressed by writing for these purposes and therefore is within the reach of s 25(2).

Can I just deal with section 25, which is another limitation provision in the Supreme Court Act which has nothing to do with this case because it simply says that express trustees have no limitation defences. It takes away the effect of section 47 in relation to express trustees but has nothing to do or to say anything at all about constructive trustees. So, your Honours, the reference to an acceptance or a concession - as I say, I do not have time at the moment and your Honours have let me not have to go through the process at the moment. When I addressed the court I said, "This is what the other side is saying. Here are all the reasons why it should not be accepted that there is any express trust". At the end of that exercise at one point I said, "So that deals with that contention", and my learned friend Mr Martin picks that up and says that is a concession by me that there was an express trust. We will hear the explanation.

KIRBY J: I think you should move on to the next point. I want to hear you on the Valuer-General's certificate.

MR PULLIN: All right, your Honour, I will deal with that fairly quickly. Section 50 is a provision that says if there is consultation with a valuer, then the valuation if adopted by the trustee is binding on the beneficiaries. "Consult" does not mean, we say, there has to be a direct reference to the person. "Consult" means to take advice of or to refer for information. In other States there are similar provisions slightly different, for example, in Carr v Carr in New South Wales, a provision which is I think is section - - -

KIRBY J: What is the point of difference in the New South Wales Act which was dealt with in Carr v Carr?

MR PULLIN: In Carr v Carr the provision in New South Wales says that if you employ a valuer, not consult - - -

KIRBY J: Your voice is dropping, I am afraid. What is the provision in New South Wales?

MR PULLIN: In New South Wales it says "If the trustee employs a valuer", whereas Western Australia says "if he consults a valuer", and in New South Wales it relates to a power of advancement and dispositions, whereas here it is just in relation to any transaction involving the trustee.

KIRBY J: But is not the Western Australian Act, in that sense, a little softer? All it needs is a "consult".

MR PULLIN: Absolutely. Furthermore, it actually says that it is not necessary to employ the valuer. It actually has the words that it is not necessary for the trustee to employ the valuer. We say the court was therefore wrong to say that when the reference is made to the Valuer-General, as everyone knows is a matter of course and evidence was given of that fact, that there is no reason that the trustee should not be able to accept that valuation and treat that as a consultation with the valuer. Certainly in Carr v Carr a valuation for the purposes of stamp duty was taken to be a compliance with the section. So we say there is a difference between the two decisions.

HAYNE J: But how do you get to this point? The theory at this point of the case is that there has been a dealing where duties and interests have conflicted. We are concerned not with the position of the trustee of the estate. The trustee of the estate may have committed no breach by obtaining a value, but the asserted breach of duty is the breach of duty by Mrs Clay engaging in a dealing in which her interests conflicted with her duty. Why does it suffice to show that that dealing occurred at sufficient value? Why is not she to be chargeable? Why is the transaction not to be infirm if there has been that dealing in conflict of duty and interest, regardless of value?

MR PULLIN: I can understand that point, your Honour. It really drifts into our next point which is in deciding whether there was any risk of a conflict arising in these circumstances, how could it be the case that where the law has laid down a process which will bind the beneficiaries and therefore prevent them from bringing an action against one party to the transaction, that there could then be any risk on the part of the other party to the transaction, Mrs Clay in this case? Certainly it is a relevant consideration to note whether or not it could arise in those circumstances. The court, in the recital of the eight points all in our favour, did not actually mention that at all as being one of the relevant considerations in deciding whether or not there had been a breach of duty. I understand the point that your Honour is making. Technically speaking the section does not afford Mrs Clay any defence but most certainly it is a quite important consideration when listing all of the relevant considerations on that question about whether or not there had been a breach of fiduciary duty.

The other fact that the court did not mention when it was adding all of these things up - and it is at AB137. Could I ask the Court to look at 137. In paragraph 77 the court lists eight points all in our favour, so qualitatively - - -

KIRBY J: May I just ask you if there have been any cases in this Court, at least recently, examining the duties of a guardian as a guardian?

MR PULLIN: Not that I am aware of, your Honour, but I must confess we did not - - -

KIRBY J: Have there been cases in other final appellate courts in the common law world that you are aware of or not?

MR PULLIN: Well, the court has actually said in 77 that, "No decided case appears to have applied", and we rather saw the guardianship point as not relevant anyway, because there is no trusteeship. So we did not search to see whether there are cases about what a guardian - - -

KIRBY J: You may have to do that. That is the very point that Justice Hayne has been making.

HAYNE J: And far from going against you, Mr Pullin, it may mean that this is a matter which this Court ought to consider. I will wait for what Mr Martin and the other respondent has to say, but underlying this there are, it seems to me, some general issues about conflict of duty and interest and consequences, as well also as some quite basic questions about the nature of guardianship and the duties that are entailed by it. Leave aside the fact that at the moment it is not self-evident to me how the Full Court got to the relief which it awarded.

MR PULLIN: Yes. Certainly, your Honour, the point that your Honour is making is apparently flagged by the Full Court in paragraph 77 where they noted that there is this difficulty about Mrs Clay's position because she was trying to provide a home for her wards at the time that the transaction was taking place. So what does she do in the circumstances where she is trying to do that, achieve the result by acquiring the house they had all lived in, where they could not live in the new house - - -

KIRBY J: At that time all the stepchildren were living with her, were they?

MR PULLIN: Yes, she cared for them - - -

KIRBY J: In the subject home?

MR PULLIN: Absolutely, yes. They were living there at the time the plane crashed. There was another house being built. The trustee said, "Look, the estate can't complete it, can't afford it. I suggest that you all stay in the house that you're living in", and so she said, "Well, what price do I have to pay?", and he said, "Well, we can send it off to the Valuer-General", which happened, and the transaction took place. She was rewarded with that with the litigation 22 years later by the stepchildren.

The final point - could I just have another two minutes, your Honours, just to mention the last point?

KIRBY J: One minute. You can identify the final point.

MR PULLIN: The final point is that when the court handed down its decision, they had taken a year, Giumelli's Case had been handed down and said, "You should consider other remedies before just imposing a constructive trust".

KIRBY J: Yes, we have read this point. A curious course was taken in this case. I do not know of that course myself ever being taken before.

MR PULLIN: No, and we tried to get back generally - we wrote a letter -in fact it is not in there - saying we want to deal with various matters. We were told there would be no prospect of reopening the case and that all that could be addressed would be the - - -

KIRBY J: Had the final orders been entered at that time?

MR PULLIN: No. The court then said, "We only want to hear you on the form of the orders", so we were denied the opportunity of - - -

KIRBY J: Answer the question, please. Had the court's orders been entered in the registry of the court at that time?

MR PULLIN: No, because we were trying to get - - -

KIRBY J: Had the orders been perfected?

MR PULLIN: No, they had not, because what happened was they published their - - -

KIRBY J: So it would have been open to the court to reopen the consideration of the issue?

MR PULLIN: Yes, but denied us - - -

KIRBY J: Yes, very well. Thank you very much.

MR PULLIN: They are my submissions, may it please the Court.

KIRBY J: I think we will call on Mr Martin first before we call on the first respondent. I think that will be more helpful to the Court. Yes, Mr Martin.

MR MARTIN: Thank you, your Honours. Can I just deal firstly with the limitation point raised by my learned friend. It is necessary, I think, to put it in its context. There were two bases of trusts fundamentally advanced, or at least two. One was a trust arising from the interest which the infants had in the property itself, the proposition that as beneficiaries under the estate they had an actual beneficial interest in the property and there was a trust interest that gave rise to a breach. That proposition was rejected both at first instance and in the Full Court. The alternative contention was that guardianship gave rise to an express trust which carried with it obligations of a fiduciary nature.

HAYNE J: Trusts of what, Mr Martin? What property was the subject of this trust?

MR MARTIN: Your Honour, all the property of the infants, including their entitlement - - -

HAYNE J: That the guardian holds all property of the interest on trust as trustee, is that the proposition?

MR MARTIN: No, your Honour, the proposition is that the guardian has fiduciary obligations arising from the express trust imposed upon the guardianship to protect the property of the infants, including - - -

HAYNE J: Trust has a subject matter. What is the subject matter of the trust, what property?

MR MARTIN: Your Honour, all the property of the infants in that the obligation is to protect the property of the infants. If I can read your Honours a passage from the judgment of Justice Nicholson at first instance in Bennett v Minister for Community Welfare, which of course went to this Court in due course. His Honour observed:

Guardianship is an office of trust and the relationship between guardian and ward is that of trustee and beneficiary.

His Honour relies upon Halsbury and Plowright v Lambert. That proposition was never contested at either first or second levels in this case.

The question, your Honours, was whether the express trust created by the obligation of guardianship was breached. Then the question of the remedy that flowed from the breach was a separate question. So my learned friend says the case was advanced on the basis of constructive trust. That is true in some respects but not in the vital respect concerning this issue. The constructive trust was remedial flowing from the breach of the express trust. That is the way the Full Court considered the matter. If I could take your Honours to page 139 of the application book where, at paragraph 87, their Honours note the concession - and I will come back to that.

The significance of that concession lies in the paragraph on the following page, paragraph 89 on page 140, where the question was whether there had been a breach of an express trust. If there was a breach of an express trust, including in particular, as the Full Court found, the trust obligation to ensure the protection of the beneficiary's interest in the due administration of the estate, then a subsidiary question was what appropriate remedy should flow from that. It is in that portion of their Honours' reasons that they came to the conclusion that a constructive trust was the appropriate remedy.

KIRBY J: Just looking at it practically, it seems hard to know what a stepmother/guardian/trustee can do with respect to underage children than to keep a roof over their heads.

MR MARTIN: Certainly, your Honour, that is - - -

HAYNE J: This notion that she had the house on trust for them as trustee is a notion I find at the least unusual, Mr Martin.

MR MARTIN: Your Honour, it is not a notion that we put and it is not a notion that was accepted by the Full Court. They rejected that proposition. The proposition was that as guardian she had an obligation to protect the interests of her wards, which obligation put her in a position when she acquired the house where her duty to them conflicted with her interest in the acquisition of the house. That was the basis upon which the Full Court ultimately granted relief, not on the basis of a proposition that she was a trustee of their interest in the house. The relief that they granted was - - -

HAYNE J: It follows, does it not, that the limitation question that has to be considered is the limitation question that applies to that set of circumstances and none other?

MR MARTIN: The limitation question arises to the claim for breach of trust, that is, the breach of the fiduciary obligation owed at the time the transaction relating to the house occurred. My learned friend took your Honours to the passage at page 51 of the application book where his Honour the trial judge posed the question of the limitation point arising under section 47 as being dependent upon whether the trust relationship was antecedent to the transaction that is said to have given rise to the claim.

KIRBY J: The trust relationship you are talking of is the trust owed by the guardian to the ward, is that correct?

MR MARTIN: Indeed.

KIRBY J: Has that question been the subject of any determination by this Court, the scope of the guardian's duty to a ward?

MR MARTIN: The closest one gets to a contemporary consideration - and I have to say I have not researched the historical considerations because, as I say, we did not apprehend that issue to be raised by the submissions filed, or indeed the grounds of appeal - but Bennett v Minister for Community Welfare 176 CLR dealt with those issues in a particular context, the context of the obligation to obtain legal advice to pursue legal claims, but that is the most contemporary case dealing with the subject of which I am presently aware.

Your Honours, if I could go back to the proposition about the limitation point, if the yardstick is, as my learned friend seemed to suggest, the question of whether or not the trust relationship was antecedent to the alleged breach, then plainly that criterion is met in this case, because the relevant trust relationship commenced immediately upon the death of Mr Clay and therefore preceded the transaction relating to the house. But the other answer to the limitation point is that provided by section 25 of the Supreme Court Act which, as their Honours in the Full Court held at page 140, overrides section 47, or indeed replaces the relevant law contained in section 47, and provides that where there is a breach of an express trust, then no limitation period applies. Their Honours had two bases for holding no limitation. Firstly, the view that the exception to section 47 applied and, secondly, the view that in any event this was a breach of trust, being an express trust, and therefore section 25 of the Supreme Court Act applied.

Could I just take your Honours briefly to the concession. One needs to go to page 86 of the application book at line 12 where my learned friend Mr Pullin said, whether it is a constructive trust:

becomes important in relation to the limitation question because if she is an express trustee, then the limitation defences won't be available.

So there is the concession that if there is express trust, no limitation. It is in that context that I would take your Honours to page 89 at line 14 where my learned friend says:

I would concede that it would apply if the guardianship - that section would therefore say that we couldn't rely upon a limitation defence if the guardianship claim had some legs.

Could I take your Honours also to the bottom of that page - - -

HAYNE J: Mr Martin, really. The three preceding lines have to be read as well.

MR MARTIN: Indeed, your Honour.

HAYNE J: Really this application is not going to be advanced nor is it going to be resisted by continuing fights between counsel about what is conceded and what is not conceded. I speak only for myself but I find it entirely unhelpful. There are some real live legal issues here.

MR MARTIN: Your Honour, I will not pursue that line of argument in the light of those observations.

HAYNE J: I speak only for myself.

KIRBY J: I think you should assume that his Honour speaks for me.

MR MARTIN: I had made that assumption, your Honour. The position is that the argument that was - - -

KIRBY J: But even in terms, that statement really calls attention to the question of whether the guardianship argument has legs. That seems to me to require consideration of the foundation question of what are the duties owed by a guardian to a ward in these circumstances and are they simply subsumed in general trust obligations or are they something different? For example, did they run at all in this case to Paul Clay?

MR MARTIN: Your Honour, if I can just deal with that. The Full Court did consider that matter at page 107 of the application book and did identify the separate position of Paul in paragraph 14 of its judgment, but then at the very bottom of that page concluded that it was not necessary to deal with it. That is about line 55 or thereabouts. Again, I do not want to get into a debate about the transcript, but no argument was ever advanced to the Full Court that Paul should be treated in any different position in relation to this issue. It was accepted a number of times by - - -

KIRBY J: Really it is a question of fact and law. It is not a question on which evidence would be relevant. We have the relevant evidence: the date of death, the commencement of the guardianship and the age of Paul Clay.

MR MARTIN: Indeed. The only point I would raise in relation to that of course is that that would raise an issue amongst the children inter se. It would not appear on the face of it to affect the obligations of the present applicant or, indeed, her entitlements.

KIRBY J: But Paul Clay is one of the respondents, is he not?

MR MARTIN: It may be - - -

KIRBY J: It is not a complete answer to the whole case, but if this Court is to lift it up, it might be as well that there be a ground of appeal on that point so that the issue can be presented. It is not one on which you would have any evidentiary basis for objecting.

MR MARTIN: No. His age is clear enough. Your Honours, the proposition that we put quite simply is that the relationship is one of trust, that it does give rise to obligations of a fiduciary nature. It is trite to observe that one of the obligations of the fiduciary is to avoid acting in a situation where there is a real and sensible possibility of conflict between interest and duty. Our submission is that that is a simple and fundamental proposition which does not depend upon a detailed enunciation or analysis of the particular incidents of the obligation of guardianship. If the Court accepts that the obligation of guardianship is fiduciary in nature - and we do not apprehend any challenge to that proposition either below or in any of the submissions that have been filed - then it seems to follow as night follows day that the obligation to not act in a situation where there is a conflict between interest and duty would be an incident of that obligation of guardianship.

So the nicer points, if one likes, of the broader considerations that might arise in other cases about the obligation of guardianship, in our submission, would not arrive in this case unless there is to be a challenge to the proposition that the obligation of guardian is fundamentally fiduciary in nature, and we do not apprehend that to have ever been - - -

KIRBY J: But if we are in the realm of the duty owed by the guardian to the ward, what is so wrong with the steps that are taken by the guardian to ensure a house is retained, a roof is kept over the head of the ward, and doing so at a price which the Valuer-General of the State is prepared to certify is a proper price?

MR MARTIN: Put simply, your Honour, the guardian could have acquired the house on behalf of herself and children, the beneficiaries, rather than taking her own interest in preference to those of the children. There would have been nothing to prevent that course from being pursued and she should at least - - -

KIRBY J: She had certain entitlements under the will, did she not?

MR MARTIN: She and the children had entitlements under the will, so there would have been capacity for the children to meet those obligations. The point we make is that by failing to give consideration to the protection of those interests, as the Full Court found, there is a classic illustration of the trustee acting in a position of conflict between interest and duty.

HAYNE J: Is the premise of this part of the argument that the guardian has some obligation in relation to property held on trust by another on terms that give an interest to the ward?

MR MARTIN: Yes, it is, your Honour.

HAYNE J: Is there authority in favour of that proposition?

MR MARTIN: No, your Honour, but we say it follows from the general notion that the guardian has the obligation to protect the interests of the ward, including all their interests which includes their interest in the estate, albeit that that interest was inchoate and not as yet in a particular item of property. But they certainly had an appreciable and real interest in the due administration of the estate of their late father.

KIRBY J: I would be surprised if there was not some authority, in answer to Justice Hayne's question, because, if you take Jane Austen's novels or Charles Dickens' novels when there was a lot more litigation between guardians and wards in the 19th century, I would be very surprised if there were not authority on this.

MR MARTIN: Perhaps I should qualify my answer, your Honours. All I can say is that I am not aware of any, nor did the researches prior to the decision of the Full Court lead to any where this precise question of conflict of guardian's obligation arose.

HAYNE J: But any authority which would show that the obligation of the guardian extended beyond decision-making in relation to matters such as where to live, where to be educated, religious upbringing? Those are the traditional matters.

MR MARTIN: Your Honour, it is the fundamental principle enunciated by Justice Nicholson in Bennett at first instance. That is, that the obligation is fiduciary in nature. Of course, the guardian has the power to deal with the ward's property as guardian, so it is the incident of trusteeship. As I say, I did not apprehend there to be any substantial challenge to that proposition in the submissions provided. The authority cited by Justice Nicholson is Halsbury, in turn referring to an old English case of Plowright v Lambert (1885) 52 LT.

KIRBY J: Your point is that there is a way that the guardian could have looked after the roof over their heads and the welfare of the wards, and that is by putting them on the title.

MR MARTIN: Yes, or obtaining the approval of the court to the transaction and bringing all necessary evidence before the court. That is another fairly obvious way in which the matter could have proceeded, but instead this trustee, this guardian, acted in a situation where, as the Full Court said, she was plainly in a position of conflict between interest and duty.

KIRBY J: In a sense the Valuer-General's action does not bite on that argument.

MR MARTIN: It does not at all, your Honour.

KIRBY J: The Valuer-General's valuation is simply collateral to that argument.

MR MARTIN: Section 50 is, with respect, a red herring for a number of reasons. The first is that it would protect the trustee - - -

KIRBY J: It may not be, depending on the content of a guardian's duty to the ward.

MR MARTIN: In our submission, your Honour, it is.

KIRBY J: If it is exactly as you propose, then it is a red herring, but that is the question I have in my mind as to whether we fully understand what that duty is. "Fiduciary in nature" does not tell me anything.

MR MARTIN: Can I somewhat hesitantly put the proposition that it is inevitably irrelevant for a number of reasons. The first is that section 50 bears upon the duty of the trustee of the deceased estate. The relevant trust interest with which we are concerned is that of the guardian. The second reason is that the Full Court has held the sale was not an under-value. So, again, the section only operates to provide a defence to trustees who sell in circumstances where there is later a dispute as to whether or not full value was achieved. That is just not a question that arises in this case, with respect, so it is our submission that section 50 is a red herring, as are the propositions, for example, relating to the distribution power. That distribution power was never in fact exercised, so that does not avail the appellant.

The position with respect to remedy, your Honours, is that the Full Court has through the pages of its decision quite clearly and fully and amply considered all considerations pertinent to the issue of remedy. The proposition now, it seems, being advanced against us is that consideration should have been given to the question of whether a money remedy would have been a sufficient answer to the claim. With respect, there was no submission to that effect below and no money remedy would appear apt to the circumstances of this case. There is no sum or figure that comes to mind as - - -

KIRBY J: That might be because Giumelli had not come down at the time the matter was argued. I am not being overly critical of everybody because they cannot keep up with everything as it happens instantly, but one would have thought that when it was brought to the notice of the Full Court, the orders not being perfected, instead of sending a message that it was considered through the associate, it would have been more prudent to have the matter listed and argued with the benefit of what the Court said in Giumelli.

MR MARTIN: That is certainly right, but even prior to the decision of this Court in Giumelli it was open to parties to seek a money remedy in lieu of remedial constructive trust, so that was an option that was always open. Can I just pose a question rhetorically: what would the money remedy be in this case? How would one arrive at a figure? The transaction occurred - - -

KIRBY J: You would take into account, doing equity, the fact that the wife, the widow, stepmother has lived in the house for so very long, that it took such a very long time for these proceedings to be initiated, that she provided the roof over the heads of the wards and did so during their minority and to some extent during their majority, and that in those circumstances their entitlement would be rather modest and measured in a sum, rather than putting a person, a widow at the age of 70, out of her home.

MR MARTIN: Can I just say, your Honours, those are precisely the matters that were considered at length by the Full Court in determining whether or not the remedy of constructive trust was an appropriate remedy in this case. Weighing it all up and after giving allowance for the improvements that she made and directing that she be paid interest on the purchase money and taking into account the fact that she had herself had the benefit of accommodation over a lengthy period, the court in the exercise of its discretion considered that that was the appropriate remedy. Our respectful submission is that that exercise of discretion is not attended with the sort of doubt, House v The King sort of doubt, that would justify the intervention of a further appellate court.

HAYNE J: Is the consequence of this decision of the Full Court that a natural mother could not properly buy the family home from the trustees of the estate of her deceased husband if the will was in the form of this will? It seems to me to follow inevitably and it seems to me to be a very odd result.

MR MARTIN: No, your Honour, that is not the consequence of this decision at all. The only consequence of this decision is that, in such a circumstance, such a mother would have to take all the steps that any trustee has to take when faced with a situation in which they have a conflict between their personal interest and their duty to the beneficiaries of the trust. That is to give consideration to the interests of the trust and, where appropriate, if there is no other means forward, seek the approval of the court under the Trustees Act. That is what should have been done in this case and that is what was not done, with the consequences that inevitably follow. May it please your Honours, those are the submissions of the respondents I represent.

KIRBY J: Thank you, Mr Martin. Mr Clay.

MR CLAY: Yes, your Honour. I will just firstly deal with a couple of the issues that you have raised. Firstly, in respect of when Paul Clay turned 18, that is not an issue of which there would be no evidence to call on because, although the transaction occurred at a time when he was 18, the evidence at trial showed that the genesis of that transaction dated back well prior to when he turned 18, and there was no disclosure to him of that imminent transaction. So, he had no notice of it whatsoever, and it was argued - - -

KIRBY J: You are Mr Mark Clay, are you not?

MR CLAY: That is correct, your Honour.

KIRBY J: And Mr Martin appears for Mr Paul Clay and he can say anything that he needs to say for Paul. I think you should just concentrate on any additional points that are specific to your own position that you want to add to what Mr Martin has said.

MR CLAY: Very well, your Honour.

HAYNE J: And which, for my part, I would add, are significantly different from the interests that are already advanced. It is not self evident to me, Mr Clay, how your interests differ in any respect from those represented by Mr Martin and if they do not differ, it is not self evident to me that you ought, ultimately, if leave were to be granted, to be heard separately. But those are matters that we can leave to one side, for the moment.

MR CLAY: Thank you, your Honour. The next issue is in respect of section 50 and it is worthwhile pointing out that the decision on section 50 was largely called for because it was the present applicant who appealed against the decision on section 50 and, therefore, the decision was called on that. If you go to pages 118 to 119 of the application book you will see at paragraph 40 through to 41 where this issue of section 50 is dealt with. And you will see that the court comes to the conclusion that section 50 is only a protection for the trustee and that there is no requirement for the trustee to take advantage of section 50. They held that no advantage was taken of section 50 but, in any event, they came to the conclusion that there was no loss that resulted and, therefore, they did not need to consider that further, that that went nowhere. And it was not a factor taken into consideration in the decision as to the guardianship.

The next issue that I wish to attend to was the suggestion in terms of one of the factual backgrounds. In the papers, I have provided the headnote from the case which provides a more accurate statement of the facts than has been provided by the applicant. And, in particular, it is not the case that the family continued to reside in his residence after the death of Mr Clay. We, in fact, moved to the new residence following the death of Mr Clay and in early 1973, moved back into the house and the sale occurred later in 1973. So, for a period of about 18 months to two years, we were absent from the house.

There was also evidence before the court that showed that there was sufficient assets there, in the estate, to acquire the assets, or the house, for the children, or the children and the applicant. There was also evidence before the court that there was assets that the children had sufficient to acquire an interest in the house. If I go to the book of materials that I provided, and even in the application, it is conceded that Mrs Clay was the guardian. If you go to the case of Youngman v Lawson at page 36 of the papers, this looks at the issues and the obligations of guardianship and whether a guardianship constitutes a trust. And you will see at page 439 in the headnote about three lines down - or in the third paragraph - it says:

Since s 61(1) constitutes the parents of a legitimate child its joint guardians -

if you turn over to page 38 of that book at page 442 of the judgment, you have part way down at D, that paragraph there:

"At common law the rights of a father to the guardianship and custody of his children were absolute."....This principle applied to all legitimate children and it resulted in the rights that went with guardianship prevailing in the father against the mother.

So, that was the common law position. The history of the early statutory inroads on this principle is touched upon in the case that is listed there. So, the statutes amended the position as to guardianship. If you go across then to the following page 39 - page 444 of the judgment - just below the C there, it reads:

The legislative position does not, however, end with s 6 of the Children (Equality of Status) Act. Section 61(1) of the Family Law Act provides:

"(1) Subject to any order of a court of the time being in force, each of the parties to a marriage is a guardian of any child of the marriage who has not attained the age of 18 years and those parties have the joint custody of the child."

Transposing the language of this new section to that of the High Court this section has the effect of making both parents of a nuptial child its guardians.

So, it affects an appointment of a guardian. In Mathew v Brise - - -

KIRBY J: I do not take it to be disputed that there is a guardian relationship. The question is, what in law does that impose on the applicant? What did it impose in relation to keeping a house over your head and the head of the other stepchildren, and making sure that you were brought up in an appropriate moral way. It is hard to do that without a house.

MR CLAY: Well, that could have been done very easily by making application to the court. There was also the factor that - - -

HAYNE J: This notion of making application to the court trips off the tongue. But it is not self evident to me that she was in a position where she could apply. Plainly the trustee of the estate could, no doubt of that. But she could apply if, but only if, as I understand it, she is to be equated as a trustee. But somehow we have come back on ourselves and the argument has become circular. So, I do not know that that is an answer that, at the moment, provides instant illumination.

MR CLAY: The answer to that comes in the case of Mathew v Brise at page 41 of the materials - - -

KIRBY J: This is back in 1851. This is getting much more like it, I think.

MR CLAY: Well, that is correct. And it starts off:

A testamentary guardian is a trustee, and therefore the Statute of Limitations is inapplicable to accounts as between him and his ward.

The defence on this matter was, in fact, the Statute of Limitations. That was one of the defences raised in this matter and it was from failing to give an account. You look at the decision of the Master of the Rolls, Sir John Romilly, at 319:

(without calling for a reply). The view I take of this case is, that the relation of guardian and ward if strictly that of trustee and cestui que trust. I look on it as a peculiar relation of trusteeship, and this appears from the case of The Duke of Beaufort v Berty. A guardian is not only a trustee of the property, as in an ordinary case of trustee, but he is also the guardian of the person of the infant with many duties to perform, such as to see to his education and maintenance. Lord Macclesfield said, "that guardians were but trustees, and that the jurisdiction of the Court was grounded upon the general power and jurisdiction which it had over all trusts, and a guardianship is most plainly a trust." This shows that the important and principal part of the relation is not confined to the property, but extends beyond it. I consider that it is not confined to that relation, and that of all the property which he gets into his possession in the character of guardian, he is a trustee for the benefit of the infant ward.

I also refer you to section 6 of the Guardianship of Children Act which appears at page 8 of the materials for the second and third-named first respondents:

An application to the Court in respect of any matter affecting the welfare of a child may be made under this Act by or on behalf of any of the following persons-

(a) either parent (who may apply without a next friend);

(b) any guardian, whether appointed under the provisions of this Act or by will or otherwise;

(c) any person having custody or control of the child;

et cetera. We look at the next page, at section 7:

A guardian appointed under the provisions of this Act has all the powers over the estate and the person of a child as he would have had if he had been appointed by will or otherwise.

Now, that reference to "by will or otherwise" links this back to the decision in Mathew v Brise which was a testamentary trust.

You will also see that at the end of Mathew v Brise that the Master left it open for the parties to come back with any other cases that might be of assistance, and it came back for note and the Master of the Rolls observed:

I have thought of this case since, and I think I came to a right conclusion.

We then have the case of Larnach v Alleyne.

KIRBY J: Why did his Lordship add that, I wonder?

MR CLAY: Sorry?

KIRBY J: I wonder why he added that.

MR CLAY: Who added which?

KIRBY J: The Master of the Rolls, that he had thought about it and he was sure that he was right.

MR CLAY: Do I need to respond to that, your Honour?

KIRBY J: Perhaps I might add that to a few of my opinions. Anyway, press on.

MR CLAY: On the following page in Larnach v Alleyne, just reading from the headnote:

In the case of adult cestuis que trustent, there is no doubt equity will sanction dealings between themselves and their trustees in certain cases, but not so in the case of infants, where the interest of the guardian, next friend, or trustee is clearly in conflict with his duty. It will not be permitted that a person carrying a fiduciary relation of any nature whatsoever towards an infant shall place himself, or be placed, in a position in which his interest can possibly conflict with his duty.

At the bottom of the page under the last paragraph, looking at what was held, and in the second line:

that, even if full value was given and there was no actual fraud, the sale was constructively fraudulent and void, and decree made as prayed; with costs up to the hearing, and with a direction that the account should be taken with annual rests, but without prejudice to the question of whether compound interest would ultimately be allowed.

Just taking some points from this case, at page 46 of those materials on page 361 of the decision, at about line 7, half-way through that line it starts:

Now, the guardian of an infant Defendant is analogous to the next friend of an infant Plaintiff. In principle there is no difference in their duties, or relation to the infants whom they respectively represent. In name they differ, in substance they are similar. Their respective functions are purely and emphatically fiduciary, like those of other guardians, except that their trust may have an earlier termination.

At the bottom of that page, in the last paragraph:

In the case of adult cestuis que trustent, there is no doubt that Courts of Equity will sanction dealings between themselves and their trustees in certain cases, but not so in the case of infants where the interest of the guardian, next friend, or trustee is clearly in conflict with his duty.

The next paragraph, about five lines into the paragraph:

As next friend, it was his duty to obtain the highest price, pursuing his own interest as buyer, his aim would naturally be to get the property at as low a price as possible.

Further down that paragraph, about 10 lines up from the bottom of it:

I say, therefore, in the language of Sir Thomas Plumer, "the two characters cannot be united, they "are incompatible;" and the questions of adequacy or inadequacy of price, of accuracy or inaccuracy of delivery, are of comparatively little importance. Assuming for the present that full value was given, that all were delivered which could be delivered, that there was no actual fraud, that the defendant throughout forgot his interest in his duty, the sale, on the principle of the decision in Cary v Cary, was constructively fraudulent and void.

The law of England - the law of all civilized countries - is especially sensitive in the case of infants' interests. It will not be permitted that a person occupying a fiduciary relation of any nature whatsoever towards an infant, shall place himself, or be placed, in a position in which his interest can possibly conflict with his duty.

Then, over the page at 48, page 365 of the decision, the first new paragraph on that page:

It is no answer to say that in all things Mr. Alleyne acted with bona fides - that he postponed his interest to his duty - that the price was the highest the market would have afforded under any possible circumstances. It is the possible conflict of interest and duty which equity will not permit.

Turning then to the next case in the pile at page 53, which is the first instance decision of Bennett v Minister for Community Welfare. And at page 68,088 in the second column, you see that the words used in section 10 of the Child Welfare Act:

Section 10 of the Child Welfare Act provided:

"10(1) Subject to the regulations and the direction of the Minister, the Director shall -

(a) be the guardian and have the care, management and control of the persons and property of all wards.

Now, if you look at the wording in the Guardianship of Children Act, you will see the same terminology, that the surviving parent shall be the guardian. If you look on the following page 68,089, it is in the second column at the bottom there, it reads:

Guardianship is an office of trust and the relationship between guardian and ward is that of trustee and beneficiary: Halsbury 4th ed Vol. 24 para. 527: Playwright v Lambert (1885) 52 L.T. 646. A could will not sanction dealings between a cestui que trust who is an infant and a guardian where the interest of the latter is clearly in conflict with his duty. It will not permitted that a person occupying a fiduciary relationship of any nature whatsoever towards an infant shall place himself, or be placed, in a position in which his interest can possibly conflict with his duty.

KIRBY J: You read something very similar to that before, and we understand - - -

MR CLAY: That is from Larnach.

KIRBY J: That is the nub of your argument, and we understand that, and you have made that as effective as you can. So, you have about two minutes left. Anything to say in conclusion?

MR CLAY: The issue - I hear what your Honours have said in relation to the "no concession having been made", but I would take you to some of the papers that are in the materials early on, and we look at what was before the Full Court in terms of the - - -

KIRBY J: I do not think, at least at this stage, Mr Clay, this case is going to depend on whether - we will not decide the issue of the grant or refusal of special leave on the fine details of the concession. That is the sort of matter that, if it becomes relevant, would be looked at if special leave were granted and the appeal heard. So, I do not think you need really to develop that at length, and anyway, you do not have the time to do it.

Is there anything finally that you want to say, anything specific to your own case that is relevant for the Court to consider? We have read your written submissions and, therefore, you do not have to repeat those.

MR CLAY: I realise that, your Honour. Just in - - -

KIRBY J: And as it happens, contrary to my expectations, I must say, you have actually been quite helpful in drawing attention to a number of earlier authorities. But I think I should tell you that if special leave were granted, and the matter brought up, it would, at least, be possible that the Court would make only one order for costs. And as you are a litigant in person, that would have certain disadvantages if the order for costs were made in your favour, being the first respondent. It would greatly, or potentially, or may greatly potentially disadvantage the other respondents who are legally represented. So, that is a thing that you should consider for yourself and discuss with the other respondents in the event that special leave is granted. No doubt Mr Martin can explain that to you.

MR CLAY: The only other issue I would raise is in respect of Giumelli v Giumelli. The opportunity was open for the applicants to have raised that long before they did, and before the judgment was even handed down.

KIRBY J: Yes, Mr Martin has said that, so we understand that point.

MR CLAY: The other point in that is that Giumelli v Giumelli involved issues of promissory estoppel. The cases that were referred to by the High Court in that case were cases of promissory estoppel, and the key issue there was - - -

KIRBY J: I think we are familiar with Giumelli v Giumelli. I do not think you have to tell us about that, and your time is up, I am afraid.

MR CLAY: Thank you, your Honour.

KIRBY J: Mr Pullin, the matter that is concerning me is whether or not, if we granted special leave, the kinds of considerations that have been referred to by Mr Martin and Mr Clay are such that, in the end, your client would lose, and that would be doing her a serious injustice, in a sense, in having her come up here and argue the matter. I think Mr Martin's best point, which you really have to answer, is that she was a guardian. It is not to the point to go into all the detail of what the guardian's duties are. The cases Mr Clay mentioned indicate that they are obligations not to get into a position of conflict of interest and duty. She could have relieved herself from that either by coming to a court and getting the court's leave to proceed, as she did, or making herself trustee for the children in the ownership of the property. Now, that is a result which is, basically, what the Full Court decided and which could be, at the end of the day, correct. Now, what do you say about it?

MR PULLIN: Yes. Well, there is two points that I can deal with, your Honour. One is, the two other parties are still running an argument which is fallacious and which beguiled the Full Court, and it is exemplified by the reference to Mathew v Brise and Larnach v Alleyne. In both of those cases the property was left on trust for the children, and so the person who was guardian, of course, was trustee, and an express trustee. In this case, and I have said it in the transcript, I said it in the Full Court, the position is this property was left to trustees to convert and call in. The respondents had no interest in the property at all, and nor did Mrs Clay. And so when she went to deal with them - the property - if any trust arises, it is not an express trust. It is only a constructive trust imposed by court because she dealt when she was in a conflict situation. And we have a cast iron limitation defence, which we must win on in the appeal. We will win on that point, if we are granted special leave, in my submissions.

So, the questions about whether or not, on the facts, something should or should not have been done - we say there is an extremely strong case on the facts that would persuade the Court, on appeal, that if you add up all of the relevant factors, in those circumstances, given particularly the existence of section 50, and the fact that the trustee could have given the property to Mrs Clay - if there had been any suggestion of conflict and say "I will not do it that way, I will just give it to you because I can do it to you in two years and one day. You have 20/45ths now, 20/45ths the next year, and 5/45ths the next year - and I am giving it to you. You do not have to buy it or try and deal with me." So, in my submission, your Honour, they continue to misunderstand.

And your Honour, Justice Hayne, put the point "What is the trust?" The trust was not trust of property as it was in the two cases, or in Bennett's Case where the Community Welfare Department held the action on trust for the beneficiary. All of those were express trust cases. My client was not an express trustee. If any trust arises, it is the constructive trust imposed by the court, which it said it imposed, therefore it was a constructive trust, therefore Taylor v Davies is a complete and utter answer, by way of a limitation point. We must win on that point, your Honours, although the other side continue to argue and not answer the point that your Honour Justice Hayne put, "What trust?". The only trust that was actually - and this is Mrs Clay - any property she held on trust was an obligation to see that the trust was properly administered. That is, the express trust that Speed had in relation to the property. So, for those reasons, your Honour, we say, if we do get on appeal, we will win the case. May it please the Court.

KIRBY J: You recall that earlier in the argument when you were in-chief, Justice Hayne raised with you the question of the age of Paul Clay and whether he was still in the position of award, vis-à-vis, your client. In the event that you intend to run with that point, it would appear to require some application for leave to amend and you ought, in that event, give proper notice to the respondents.

MR PULLIN: I could formulate it now. It is a very short point. We can deal with it and it will not take any further time later, your Honour.

KIRBY J: Well, I think you should formulate it; show it to the respondents; and have it filed in the normal way, as an application to enlarge the grounds of appeal. I do not know, there may be a notice of contention hovering in the background here, having regard to concessions which are said to have been made.

MR PULLIN: Yes, may it please the Court.

KIRBY J: There will be a grant of special leave in this matter. Mr Martin, would you and Mr Clay have a discussion about the matter that I raised concerning the costs of the appeal? I do not raise that, in any way, in a minatory fashion because it is for the Full Court to dispose of costs in the event of disposing of the appeal. But you would know the principles in Cachia v Hanes and, therefore, it is a matter, at least, that should be given some thought as between yourself and Mr Clay.

MR MARTIN: The only point I would make, of course, is that if there is to be an amendment to raise the separate issue of Mr Paul Clay, then that may raise questions about whether he will require separate representation.

HAYNE J: He may have a separate interest, yes.

MR MARTIN: Yes.

KIRBY J: Yes, indeed.

MR MARTIN: So, we will have to address that in the light of the amended grounds.

KIRBY J: Yes. Well, that can, no doubt, be done between now and the hearing of the matter.

MR MARTIN: Yes, if it pleases your Honour.

KIRBY J: How long would you say the appeal would take? What is your estimate, Mr Pullin?

MR PULLIN: I would say, your Honour, three to four hours - three hours.

KIRBY J: Yes. Do you agree with that estimate, Mr Martin?

MR MARTIN: I would have thought prudence would suggest a day may be a more appropriate estimate.

KIRBY J: Yes, I would have thought a day, too. Very well, I will report to the Chief Justice that it will take a day.

Call the last application.

AT 4.01 PM THE MATTER WAS CONCLUDED