Crampton-Smith v Crampton-Smith [2011] NZCA 308; [2012] 1 NZLR 5 (6 July 2011)

Last Updated: 25 January 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA575/2010 [2011] NZCA 308

BETWEEN CHRISTOPHER CRAMPTON-SMITH Appellant

AND NOELINE GAIL CRAMPTON-SMITH Respondent

Hearing: 16 June 2011

Court: Chambers, Arnold and Randerson JJ

Counsel: J D McBride and B J Ward for Appellant M S McKechnie for Respondent

Judgment: 6 July 2011 at 3 p.m.

JUDGMENT OF THE COURT

A The appeal is allowed.

B The judgment in the High Court is set aside.

100. Judgment is entered against the respondent in favour of the appellant for $511,000 plus interest under s 87 of the Judicature Act 1908 at the rate of 5 per cent per annum on the sum of $214,000 from 8 October 2003 to the date of this judgment, and on the sum of $297,000 from 18 May 2007 to the date of this judgment.

4. The costs ordered in the High Court are set aside and the High Court is to determine any issue as to costs in that Court.

5. The respondent must pay costs to the appellant as for a standard appeal on a band A basis together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents	Para No
Introduction	[1]
The facts in more detail	[8]
The evidence at trial	[20]
The judgment in the High Court	[25]
Legal principles	[35]
Did the Judge err in his conclusion that no trust was established?	[45]
What remedy should flow?	[60]
Conclusion	[76]
Result	[78]

Introduction

[1] This appeal arises from an unfortunate dispute between brother and sister over land in Rotorua which the brother claims is held in trust for him by his sister. There is no dispute that the land was paid for solely by the appellant (the brother) but the title to it was registered in the name of the respondent (the sister). The brother says it was intended that the land be his and that he would be the registered owner.
[2] Later, the land was subdivided into two sections. A townhouse was built on each and the properties were sold realising a total sale price of $511,000. The brother says he knew nothing of this until afterwards. He made no financial contribution to the subdivision or to the construction of the townhouses.
[3] In the High Court, the brother’s claim was based on a resulting trust. His case was that a resulting trust was presumed when the land was paid for by him but registered in his sister’s name. There was nothing, the brother said, which justified the presumption being rebutted. He sought judgment for the gross proceeds of sale of the two sections. The sister filed a statement of defence denying there was a trust and asserting that the funds provided by the brother to purchase the land were a loan to her.
[4] The brother gave evidence at the trial before Stevens J. Some members of the brother’s family gave supporting evidence. However, there was a highly unusual feature of the case. The sister neither gave nor called evidence to support her assertion that the funds provided by her brother to purchase the land were a loan. Nor did her counsel put that proposition to the brother or his witnesses. Neither the brother nor his supporting witnesses were challenged on the brother’s assertion that the land was intended for him as the beneficial owner. Instead, the cross-examination was aimed at peripheral matters such as amendments to the brother’s pleadings from time to time and what he had spent on the property after it was purchased.
[5] The Judge found that the brother was not a credible or reliable witness and that his description of the intended arrangement was inherently implausible.^[1] He was not persuaded that the evidence of the brother’s witnesses added any support to the brother’s claim. He concluded that any presumption of a trust in favour of the brother had been rebutted and the more likely position was that the funds provided by the brother were a loan.
[6] On appeal, the brother challenges the Judge’s findings submitting that the Judge erred in his factual conclusions and that, in the absence of contrary evidence, there was no sound basis for the Judge to reject the brother’s evidence or to conclude that the presumption of a resulting trust was rebutted. It is also submitted on the brother’s behalf that the Judge ought to have drawn an adverse inference against the sister arising from her failure to give evidence.
[7] Against that background, the issues for determination are:

• (a) Was the Judge in error in his conclusion that no trust was established?
• (b) If so, what remedy should flow?

The facts in more detail

[8] The evidence adduced at trial was within a relatively narrow compass but the relevant events extended over a lengthy time period from 1987 when the purchase of land was first discussed until 2004 when the brother says he first became aware the townhouses had been built on the sections and that one of them was on the market for sale. At material times, the sister lived in Rotorua with her husband, the late Michael Quirke, a well-known Rotorua solicitor. The brother lived in Australia but visited his sister and her husband in Rotorua from time to time.
[9] In 1987, the brother first spoke to his sister about the possibility of the brother buying property in the Rotorua area. At that time, the sister and her husband had recently purchased land at 13 Te Manga Place, Ngongotaha. The brother did not pursue that possibility at the time but, some five years later in April 1992, he visited Rotorua again. The brother gave evidence that on 25 April 1992 he viewed two sections at numbers 3 and 11 Te Manga Place with a view to investment. He said he agreed with his sister that he would provide the funds to purchase the properties and she would sign any agreement to purchase them on his behalf and would register the titles in his name. Two days later, on 27 April 1992, he opened a Postbank account in the name of himself and his then partner. A deposit of $100 was made and the sister was given full authority to operate the account.
[10] In October 1992 there was a telephone discussion between the parties about the purchase of No 3 for $10,000. The purchase price was provided by the brother’s partner, the funds being sent directly by money transfer to the sister in December 1992. The purchase of No 3 was completed at that time and the title registered in the sister’s name. The brother said that the purchase was meant to be made on his behalf as an investment and the title registered in his name as he said was earlier agreed with his sister. He said he did not become aware until some time later that the title was registered in his sister’s name. (We note there is documentary material suggesting that this property may have been purchased for $20,000 but this issue was not explored at trial.)
[11] No 3 was sold in March 1995. At that time, the sister paid the sum of $10,000 into the brother’s Postbank account. She also told him, according to the brother, that the purchase had been a bad investment and he was lucky to get his money back. Documentary evidence produced in the common bundle showed that No 3 was sold for $23,000 but the issue of who received the difference of $13,000 between the sale price and the amount repaid to the brother was not explored or explained at trial. The brother said he was not given any details of the sale price at that time nor given any relevant documentation of the sale.
[12] The Judge found^[2] that the beneficial title of No 3 remained with the brother and noted that, upon the return of the purchase price (which the Judge apparently understood was $10,000) any obligations between the parties came to an end. That conclusion is not challenged on appeal but, as we later observe, there is an apparent inconsistency between the Judge’s conclusion that the brother had beneficial ownership of No 3 and his opposite conclusion in relation to the subject land at No 11.
[13] From about December 1992, there were discussions between brother and sister about the purchase of No 11. On 11 October 1993, the brother deposited $12,467.01 into the Postbank account comprising the purchase price of $10,000 for the land plus an amount to cover legal costs. The following day, the sister withdrew $12,000 from the Postbank account and settled the purchase of No 11 utilising those funds. Again, the transfer of the land was registered in the sister’s name. The brother says he did not know this at the time.
[14] In 1994, Mr Michael Quirke was diagnosed with cancer and died some three years later in October 1997. It was during the period of his illness that No 3 was sold in March 1995 and $10,000 paid back into the brother’s Postbank account. The brother’s evidence was that it was at this time his sister told him for the first time that both No 3 and 11 had been registered in her name. The brother said that during several visits to New Zealand in 1996 and 1997, Mr Quirke had promised him that No 11 would be transferred to his name.
[15] The brother did not lodge caveats until some ten years later in 2005 but he explained in evidence that he had repeatedly asked his sister to arrange for the transfer of the land into his name and trusted that she and Mr Quirke would do so. He did not wish to press the issue more forcefully during the period of Mr Quirke’s illness.
[16] After Mr Quirke’s death in 1997, the brother supported his sister by making regular visits to see her and her family in New Zealand. Around October 2000, the sister and her son went to live in Australia until the end of 2002. During this period, the brother supported her by providing accommodation and financial contributions. We note there was no evidence or suggestion that the sister was in any kind of financial difficulty in 1992 or 1993 at the time when No 3 and No 11 were purchased.
[17] During 2003, No 11 was subdivided into two lots and a townhouse built on each. The Judge found that all of the subdivision and development costs incurred in the building of the townhouses fell to the sister. While the brother did not suggest that he had contributed in any way to these costs, there was no evidence that the sister had in fact paid for the subdivision and the construction of the townhouses. The sister asserted in her statement of defence that she had met these costs but that is not evidence. For all the court knew, a third party such as a builder or developer might have met these costs with some form of financial return to the sister. The failure of the sister to give any evidence, whether in oral or documentary form, meant there was an evidential vacuum on this point.
[18] It was not until September 2004 that the brother’s daughter Catherine visited Ngongotaha and noticed that the townhouses had been built. One of them was on the market for sale. Catherine informed her father of these developments. His evidence was that he remonstrated with his sister at this time. The relationship appears to have deteriorated thereafter.
[19] After some further unsatisfactory communications between the parties in 2005, the brother visited New Zealand in November of that year. One of the properties had been sold and the brother instructed a lawyer to lodge caveats. One was too late to avoid a sale and the other lapsed due to a failure to comply with time limits. The result was that both properties were sold. One had been sold for $214,000 in October 2003 and the other was sold for $297,000 in May 2007. The brother’s evidence was that he had not agreed to the sale of either of the properties.

The evidence at trial

[20] The brother gave evidence supporting the facts already outlined. Documentary evidence was also produced of the financial transactions effected through the Postbank account. The brother’s evidence about expenditure on the property subsequent to purchase was not particularly detailed nor supported by documentary evidence. For example, the brother said he had paid for some fencing and landscaping and had an arrangement with someone to take care of the general upkeep on the property. Those who carried out this work were paid in beer or cash. The brother accepted that his sister paid the rates but said he reimbursed her until about 2001.
[21] The supporting witnesses for the brother were, first, his wife who met the brother in March 2001. She said she recalled at least one occasion in April 2001 when there was a conversation with the sister present in which the brother was talking about “his property” at No 11. Secondly, Catherine Quirke, a sister of the parties, said she spoke to them several times in relation to the purchase of No 11. Her understanding was that the sister had arranged the purchase of the property for her brother because he was living in Australia at the time. She also recalled visiting the sister at No 13 on several occasions before the sister moved to Australia. During one of these visits, her sister showed her the undeveloped land at No 11 which she described as belonging to Chris (the brother).
[22] The third witness was the brother’s daughter, Catherine Crampton-Smith. She gave evidence of her understanding about the ownership of the land including discussions she had had with the sister (her aunt). She said, amongst other things, that she was present on numerous occasions when her aunt visited Australia and her own family visited New Zealand. The properties were often discussed. She heard her father ask her to transfer the title of No 11 into his name on a number of occasions. She recalled that her aunt told him she would do so. She confirmed her father’s evidence about noticing the townhouses had been built on the land in September 2004 and her father’s angry reaction about this.
[23] As already noted, the brother was not directly cross-examined about the key elements in his evidence. In particular, there was no direct challenge to his evidence about the agreement reached with his sister in April 1992, nor was it put to him that the funds he provided were a loan to his sister as she asserted in her statement of defence. The cross-examination focused on some changes to the brother’s pleadings; why the brother was abandoning a claim to $15,000 which he asserted he had separately loaned to his sister in the period 2000-2001; why he arranged for his sister to sign the agreements for sale and purchase for the land when they could have been sent by facsimile to Australia for him to sign over there; why he had delayed so long before taking any action over the land; whether he had any documents to support his claim that he had reimbursed his sister for rates she had paid on the land; whether he had ever put in writing his concerns to the sister or her husband; what the sister’s response was to his request to transfer the title; a discussion with the sister in which the brother said she asked him whether he wished to accept a proposal from a builder she knew to exchange No 11 for another property owned by the builder; the financial support he had given to his sister after she moved to Australia; and why no steps had ever been taken to put into writing the arrangements over the land.
[24] None of the supporting witnesses were cross-examined on the substance of their evidence. The cross-examination was brief and focused mainly on points of clarification. We note that Catherine Quirke, whose evidence as a sister of the parties might have been thought to carry the most weight, was not cross-examined at all about her evidence. Such cross-examination as there was focused on matters the relevance of which is difficult to discern.

The judgment in the High Court

[25] After canvassing the factual background and applicable legal principles relating to express, constructive and resulting trusts, the Judge examined the evidence in detail and summarised his factual conclusions.

[67] By way of conclusion on the facts, I am satisfied that the plaintiff has not established:

(a) the existence of any agreement with the defendant dating from April 1992.

(b) By other evidence that there was a common intention between the parties that he would hold the beneficial interest in 11 Te Manga Place.

(c) That he contributed any outgoings by way of rates or other expenses towards the maintenance and upkeep of the property.

(d) That he played any part in, or contributed to any cost of, the subdivision and development of the property.

(e) Any factual basis that would warrant the Court imposing a constructive trust in respect of the whole of the proceeds from the sale of the two townhouses. In particular, the plaintiff has not established any factual basis upon which the Court should hold that it would be unconscionable for the defendant to retain the proceeds from the sale of the two townhouses.

[26] In reaching the conclusion that the brother was not a credible or reliable witness, and rejecting his evidence of an oral agreement with his sister in April 1992, the Judge noted the brother’s acknowledgement that the agreement for sale and purchase of the land could have been sent to him in Australia for signature. He did not accept the brother’s evidence that at the time of the acquisition of No 11 he had put his trust in his sister and her husband and thought everything would be done as he requested. The Judge said he would have expected the brother to follow up with Mr Quirke to confirm that his wishes had been complied with. The Judge found the brother’s evidence to be “rather vague, lacking in clarity and at times inconsistent”. While claiming to have been involved in similar transactions on other occasions, the Judge noted the brother had provided no detail of any such arrangement.
[27] The Judge placed some reliance on the fact that the brother had abandoned the separate claim for $15,000 against his sister which had been included in the original and first statement of claim and in its first amendment. This was not included in the second amended statement of claim which was the relevant one for trial. The Judge found the brother’s explanation as to why he had abandoned this claim to be “unconvincing, unhelpful and inconsistent”. He noted the brother had conceded that the $15,000 which he claimed he had loaned to his sister actually belonged to his wife.
[28] The Judge found that any rates and other necessary expenses on the land were paid by the sister. He found the brother’s evidence about the expenditure of money on the property to be unconvincing and noted the lack of documentary evidence.
[29] The Judge agreed with a submission made by counsel for the sister that the arrangement alleged by the brother was inherently implausible. He found that for more than ten years the brother took no steps to have the alleged arrangement documented or formalised, took no professional advice and had not written to either his sister or Mr Quirke. The Judge considered it important that the brother had not raised the matter with Mr Quirke although he went on to say the brother claimed that he was promised by Mr Quirke that the land would be registered in his name. Even after the relationship between the brother and sister broke down around 2000-2001, no steps were taken to regularise the position.
[30] The Judge also agreed with a submission made on behalf of the sister that it was unlikely she would have undertaken the subdivision and development of the townhouses had she believed her brother had a beneficial interest in the property. The brother had taken no steps even after finding out about the construction of the townhouses.
[31] Finally, the Judge considered the evidence of the supporting witnesses did not add any weight to the brother’s claim. He regarded much of it as of a hearsay nature and found that it was unreliable because of the relationship of those witnesses to the brother. He regarded most of the evidence given by those witnesses as involving a repetition of self-serving statements by the brother on various occasions over the years.
[32] It followed, in the view of the Judge, that if the initial transaction were analysed as an express trust, the facts did not support such a claim. If approached on the basis of a resulting trust, then the Judge’s finding was that the presumption of a trust in favour of the brother had been rebutted. The Judge had considered all of the circumstances surrounding the transaction. He took into account that the property at No 11 was directly adjacent to the sister’s property. He inferred that it would have been in her interests and that of her late husband to control it because of the likely impact on the value of their own property. He repeated that all the outgoings and expenses were paid by the sister and that the brother had not contributed in any way other than the payment of the initial purchase price of the land. The subdivision and development costs had been met by the sister, the Judge found, without any contribution from the brother.
[33] As to the possibility of a loan, the Judge said:^[3]

Accordingly, I am satisfied on balance that the more likely position is that the sum of $12,000 withdrawn by the defendant in October 1993 from the joint account of the plaintiff and his then partner was in the nature of a loan. I am fortified in this conclusion because the evidence established that, at various stages until the relationship between the parties broke down, the plaintiff supported his sister and on occasions advanced monies to her or caused others to lend monies to her. Any remedy which the plaintiff may now have must sound in recovery of that loan.

[34] The Judge went on to consider the remedy which might have been available if the brother had succeeded. He noted that the first two statements of claim had sought only the increased value of the land from the date of purchase whereas the second amended statement of claim had sought the total proceeds of the sale of the two properties. The Judge noted there was no separate valuation of the land or of the improvements. No estimate had been given of the cost of maintaining or developing the property. The Judge then concluded:^[4]

One of the key elements in the grant of equitable relief is whether the defendant has profited from the transaction at the expense of the plaintiff. There is no evidence before the Court that the defendant has done so. To accede to the plaintiff’s claim would mean that in essence an investment of $10,000 was converted into a return of $511,000 in circumstances where there has been no other contribution by the plaintiff to the cost of maintaining, subdividing or developing the property. That would not be just.

Legal principles

[35] The central plank of the brother’s case was that a resulting trust arose in his favour by operation of law. Both parties accepted the well-known statement by Lord Browne-Wilkinson in the Westdeutsche case of the two types of resulting trust:^[5]

... (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A’s intention to make an outright transfer ... (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest...

[36] While the majority of the House of Lords in Stack v Dowden^[6] has since rejected the application of the presumption in the context of the contributions of an unmarried couple to the purchase of a property while they were living together, we do not view the case as extending beyond that context.^[7]
[37] Where the presumption applies, it is generally regarded as having dispositive effect unless the presumption is rebutted. This is clearly explained by Farwell LJ in The Venture:^[8]

On its being proved that Percy Stone had advanced a certain part of the purchase money, the presumption of law arose that he was beneficially entitled to a corresponding share in the yacht. It was for the plaintiff to displace that presumption by bringing evidence to the contrary; but she has entirely failed to bring any such evidence. The court must therefore give effect to the presumption, and must hold that, as the defendant paid a part of the purchase money, he acquired an interest in the yacht...

[38] In Fowkes v Pascoe Mellish LJ also outlined how the application of the presumption operates as a first step independent of any evidential or factual inquiry:^[9]

In such a case, although the rule of law, if there was no evidence at all, would compel the Court to say that the presumption of trust must prevail, even if the Court might not believe that the fact was in accordance with the presumption, yet, if there is evidence to rebut the presumption, then, in my opinion, the Court must go into the actual facts.

[39] Likewise in New Zealand this Court in Bateman TV Ltd v Bateman has adopted the discussion in The Venture and considered the presumption to have dispositive effect in the absence of rebuttal evidence:^[10]

In such a case, where no satisfactory evidence is produced to rebut it, a presumption will arise to a resulting trust in favour of him who finds the consideration.

[40] As noted by Lord Browne-Wilkinson in Westdeutsche, the presumption may be rebutted either by the counter-presumption of advancement or by direct evidence of an intention to make an outright transfer. It was not suggested that the presumption of advancement would apply in the present context. An outright transfer might occur by way of gift or by the transferee providing consideration. In either case, the presumption of a resulting trust would be rebutted.
[41] Both the weight of the presumption and the nature of the evidence required to displace it differ according to the circumstances of the case. In this respect, Stevens J referred to the following passage from the judgment of Mellish LJ in Fowkes v Pascoe:^[11]

Now, the presumption must, beyond all question, be of very different weight in different cases. In some cases it would be very strong indeed. If, for instance, a man invested a sum of stock in the name of himself and his solicitor, the inference would be very strong indeed that it was intended solely for the purpose of a trust, and the Court would require very strong evidence on the part of the solicitor to prove that it was intended as a gift; and certainly his own evidence would not be sufficient. On the other hand, a man may make an investment of stock in the name of himself and some person, although not a child or wife, yet in such a position to him as to make it extremely probable that the investment was intended as a gift. In such a case, although the rule of law, if there was no evidence at all, would compel the Court to say that the presumption of trust must prevail, even if the Court might not believe that the fact was in accordance with the presumption, yet, if there is evidence to rebut the presumption, then, in my opinion, the Court must go into the actual facts.

[42] In a recent article, ^[12] William Swadling discusses the operation of the legal presumption at issue on the footing that proof of a primary fact (for example, the advancement of funds for the purchase of property) may give a party the benefit of a secondary fact (in this case the existence of a beneficial interest in the land) without the need to adduce any further evidence. The burden then lies on the opposite party to adduce evidence to rebut the presumption. If they do not do so, the Court must find the secondary fact proved.
[43] Mr McBride submitted for the brother that the Judge had wrongly commenced his analysis by focusing first on the common intention of the parties. He submitted that the correct approach was to apply the presumption in favour of a resulting trust and then to consider whether there was any evidence rebutting that presumption. We are satisfied that the Judge correctly identified the key issue as being what was intended at the time of the transaction. The Judge had clearly noted that the presumption was the starting point but that it could be rebutted by evidence. In most cases, the presumption alone will not determine the case and evidence of intention will be highly relevant. We do not view the Judge’s reference to the common intention of the parties as anything other than signalling that, ordinarily, the evidence of both parties and all the surrounding circumstances is to be considered when determining whether a trust was intended.
[44] In a case such as this, the intention of the brother in contributing the funds for the purchase of the land may be established by evidence of his actual intention or by his presumed intention arising by operation of law. Where there is evidence of an actual intention to create a trust, then there is generally no need to rely on any presumed intention and vice versa. But in a case where the presumed intention coincides with the actual intention of the party contributing the funds, then, in our view, each may be considered as supporting the other. The position is otherwise, of course, where the actual intention conflicts with the presumed intention. In such a case, the presumption will be liable to be rebutted by evidence of a contrary intention.

Did the Judge err in his conclusion that no trust was established?

[45] The obvious starting point in the present case is the undisputed fact that the brother contributed the full purchase price of the land, the title to which was then registered in the sister’s name. In our view, the presumption of a resulting trust immediately arose in the brother’s favour and remained in his favour unless rebutted by contrary evidence.
[46] In considering whether there was evidence sufficient to rebut the presumption, the brother’s evidence as to what he discussed with his sister at the time is important. On his evidence, he was to provide the purchase price; she was to sign any agreement for sale and purchase on his behalf; and then she was to register the transfer of the title in his name.
[47] In the very unusual circumstances of this case, we do not consider there was any sound basis for the Judge to reject the brother’s evidence about what he agreed with his sister in April 1992. His evidence on the point was consistent with the agreement he asserted in his second amended statement of claim. It was not inconsistent with his previous statements of claim prepared by a different solicitor. The second amended statement of claim merely added additional factual material. He was not questioned about his knowledge of the content of the earlier pleadings. Cross-examination eliciting knowledge of the detail of those pleadings would have been necessary if his credibility were to be challenged for inconsistencies in that respect. Most importantly, the brother was never cross-examined about his evidence on this crucial issue and there was no evidence to contradict his testimony.
[48] Moreover, his evidence about what was intended was corroborated by the undisputed documentary evidence of the opening of the Postbank account just two days after the agreement. This account was opened in the names of the brother and his then partner. It was not disputed that the authority to operate the account was given to the sister. That evidence, coupled with the channelling of funds through the account to purchase No 11 and to refund the $10,000 for No 3 when it was sold, provided the most cogent support for the brother’s testimony that his sister was to purchase the property on his behalf using the funds he deposited in the account.
[49] The brother’s evidence was also supported by the other family members. While some of it may have been self-serving, the parts which we have cited above could not be so categorised. Again, these witnesses were not materially challenged in cross-examination. The evidence of the supporting witnesses as to what the brother had said were not hearsay (as defined by s 4 of the Evidence Act 2006) since the brother was a witness too. There was no basis for the Judge to conclude that no weight should be given to their evidence.
[50] If the brother’s assertion that he was intended to be the beneficial owner were rejected, the only other characterisations of the transactions logically available were that the funds provided by the brother were intended as a loan or gift to his sister. Given the absence of any evidence of a gift or loan (or indeed any suggestion to the brother in cross-examination to that effect), there was no evidential basis for the finding of a loan or, for that matter, that a gift was intended.
[51] Not only was there no evidence supporting the finding of a loan or gift, there were several important factors militating against a finding of a loan or gift. First, if a loan or gift were intended, there was no reason why the funds would not have been paid directly to the sister or to the legal firm in which her husband was a partner. There would have been no need for the Postbank account. Nor would the purchase funds have been channelled through that account. Secondly, the Judge’s finding that No 3 was beneficially owned by the brother is inconsistent with the finding that the funds for No 11 were a loan. There is no logical basis to distinguish the two. Thirdly, there is no evidence or finding by the Judge about what the terms of such a loan (if such were intended) might have been. Finally, there was no evidence that the sister had any need of financial support by loan or gift at the time the payments were made. The Judge referred to other financial support the brother provided to his sister but the evidence was that this came much later after Mr Quirke’s death.
[52] We agree with the Judge that there were some unsatisfactory aspects of the brother’s evidence about the expenditure of money on the property post-settlement, but we do not view those matters as entitling the Judge to conclude that the brother’s evidence as to the purchase was not credible.
[53] The Judge considered that the failure to document the arrangements or to pursue his remedies promptly should tell against him. But we do not find either of these matters to be unusual in family arrangements. We regard as understandable the brother’s explanation that he trusted his sister and Mr Quirke and accepted their promises to carry out the arrangement.
[54] Finally, we do not see the brother’s evidence as to what was intended as inherently implausible. The initial purchase was consistent with the arrangement the brother asserted was agreed with his sister, as was his evidence of ongoing requests of his sister and Mr Quirke to transfer the title to him. The fact that he did not pay rates on the land might be thought to tell against him but the sums involved were not great – the documentary evidence suggests they were in the order of $600 per annum in relation to the unimproved value of the land. And, if the brother’s undisputed evidence is accepted (as we think it must) that he did not know of the subdivision and construction of the townhouses until after the event, his lack of contribution to the associated costs of development is explained. The burden of the development costs may well be relevant to remedy but not to whether a breach of trust occurred.
[55] Although it is not essential to our factual conclusions, we consider this was plainly a case which called for evidence from the sister to dispute the brother’s evidence that the property was to be purchased for his benefit. Although referring to the decision of this Court in Ithaca (Custodians) Ltd v Perry Corporation,^[13] the Judge did not apply that decision. We consider he would have been amply justified in doing so. The sister’s failure to give evidence and to challenge the essential features of the brother’s case gave rise to an inference that her evidence would have been unhelpful to her case.
[56] In summary, we conclude the evidence established that both the brother and the sister intended that the properties at No 3 and No 11 were to be purchased as investments for the brother’s benefit. Contrary to the arrangement, the sister registered them in her own name and then neglected or refused to transfer them to her brother despite being requested to do so.
[57] The brother might well have been able to rely on an express trust in these circumstances but did not pursue the case on that basis. Mr McBride explained that difficulties might have arisen by reason of s 49A(2) of the Property Law Act 1952 which was then in force and required writing in the case of land. However, that might have been overcome by the principle that equity will not allow a statute to be used as an instrument of fraud.^[14] The brother’s evidence could have been viewed as establishing that he was entrusting his sister with his funds for the specific purpose of acquiring the property in his name. Her failure to do so therefore breached that trust.
[58] Or, as recognised by the Judge,^[15] an alternative cause of action was potentially available to the brother on the basis of agency. On the evidence, the sister could be viewed as simply acting as agent for her brother and acquiring the land on his behalf on the basis it would immediately be registered in his name. In that event, an institutional constructive trust would arise in the brother’s favour in consequence of a breach by the sister of her fiduciary obligations as agent.
[59] However, there being no dispute that the land was purchased using funds provided solely by the brother, we are satisfied that the presumption of a resulting trust arose such that the sister is presumed to hold the land for her brother as beneficiary. There was no basis in the evidence for a finding that the usual presumption was rebutted. In terms of s 49A(4), the absence of writing does not affect the creation of a resulting trust (or, indeed, an implied or constructive trust).

What remedy should flow?

[60] As already noted, the Judge found there was no evidence before the Court that the sister had profited from the transaction at the expense of the brother. He expressed concern about the apparent injustice of the brother being entitled to judgment for the full amount realised on the sale of the townhouses when he had contributed only $10,000 to the purchase of the land at the outset and had made no other contribution to the cost of maintaining, subdividing or developing the property.
[61] Counsel for the brother suggested in his written submissions in this Court that, if a trust were established, then we should direct a hearing before the High Court to establish the quantum of the claim. However, in oral argument, he submitted that it was appropriate that judgment be entered for the gross proceeds of sale of the sections amounting to $511,000. A hearing on quantum should only be directed if the Court was not willing to give judgment in that amount.
[62] We can understand the misgivings the Judge had about the proposition that judgment for the full sale proceeds should be given. But the issue of the appropriate remedy must be reached in accordance with principle and, in the unique circumstances of this case, having regard to the onus of proof.
[63] There are three primary remedies available where a breach of fiduciary duty has occurred. These are proprietary remedies, equitable compensation and an account of profits.^[16] The first is not available here since it is not possible to trace the proceeds of sale. The second is usually available where the beneficiary has suffered an identifiable loss which is not applicable here. The third remedy of an account of profits is the appropriate course here.
[64] It has been suggested in a recent note in relation to the decision of the High Court under appeal that if a trust had been established, a proprietary right would have been created. That is undoubtedly so. It was further suggested that the sister would have been making unauthorised use of the brother’s equitable property and that it would have been perfectly just for the brother to have recovered his property or its substitute, whatever its value. It was accepted that it might have been possible for some allowance to be made to recognise the fiduciary’s contributions to improving the value of the trust assets.^[17]
[65] It had previously been forcefully argued by one of the contributors to the recent note that the foundation for awarding allowances in equity to fiduciaries who have breached their duty is unsatisfactory. The previous article has a useful discussion of the authorities and the policy considerations at play.^[18] However, the position in New Zealand as expressed by Tipping J in Chirnside v Fay^[19] is that an allowance may be made to recompense a fiduciary for effort, skill and enterprise, as well as expenses incurred, even though he or she has made the profit in breach of fiduciary duty:

[122] The principle which has developed from Boardman v Phipps and subsequent cases is that there is a presumptive requirement that the errant fiduciary disgorge all profits made by dint of the breach. There is room, however, for the Court to exercise its discretion to allow the errant fiduciary some measure of allowance or recompense for effort, skill and enterprise in making these profits, if it would be unjust not to do so. All the relevant circumstances must be taken into account. The more reprehensible the fiduciary’s conduct the less inclined the Court may be to make any allowance or be liberal in the amount awarded. The essence of the exercise is to define fairly the profit for which the fiduciary is required to account.

[66] Referring to the High Court of Australia’s decision in Warman International Ltd v Dwyer,^[20] Tipping J said:

[130] The following points were made in Warman International. The exercise of allowing some recompense or reward to the errant fiduciary when defining the profits which must be the subject of disgorgement is not usually capable of mathematical precision. A reasonable approximation is often all that can be achieved. Equitable remedies must be fashioned to fit the nature of the case and its particular facts. This is the same point as that made by Lord Upjohn in Boardman v Phipps. In Warman International their Honours adopted the comments of Upjohn J in Jarvis about there being a difference between appropriating a business or a business opportunity on the one hand and a specific asset on the other. They observed that in the former situation a significant proportion of the profits may have been generated by the skill and efforts of the fiduciary.

[131] Their Honours emphasised that the rule requiring accounting for profits could be taken to the extreme of becoming a vehicle for the unjust enrichment of the plaintiff. They made the important point that the onus is on the errant fiduciary to satisfy the Court that an allowance should be made. As a general rule a fiduciary must not be allowed to benefit from a breach of fiduciary duty unless there has been some antecedent agreement for profit sharing. But, whether or not there is such an agreement, the Court may make an allowance for skill and expertise and expenses incurred in generating those profits.

(Footnotes omitted)

[67] Tipping J was delivering a joint judgment on behalf of himself and Blanchard J. Gault and Keith JJ were in agreement.^[21] The Chief Justice dissented in relation to the ultimate outcome but agreed that it was open for the court to make an allowance for the errant fiduciary.^[22]
[68] All members of the Court were of the view that the appropriate remedy for breach of fiduciary duty was an account of profits in the circumstances of the case. The measure was not what the plaintiff had lost but what the defendant had gained.^[23] As Tipping J explained, the purpose of the remedy is not to apply a sanction or punishment for the breach of duty; rather, the focus is on disgorgement of profits, properly analysed. Although the refusal of an allowance or its lack of liberality could be seen as having a punitive effect, the reason for that outcome is simply that the errant fiduciary will have failed to satisfy the court of the justice of making a more liberal allowance.^[24]
[69] Here, the value of the improvements to the land effected by the construction of the townhouses accrues to the benefit of the brother as the beneficial owner of the land. The starting point is that the sister is not entitled to benefit from her unauthorised use of her brother’s property. Prima facie, therefore, the measure of damages should be the gross sale proceeds of the property. If any allowance is to be made for the cost and effort involved in the construction of the townhouses, it is clear that the onus to provide evidence upon which some allowance could be assessed falls upon the sister (the fiduciary) and not upon the brother (the beneficiary). That proposition was stated clearly by Tipping J in Chirnside^[25] citing the decision of the High Court of Australia in Warman.^[26] The English Court of Appeal in Murad v Al-Saraj^[27] has adopted the same reasoning.
[70] The difficulty in the present case is that the sister made no attempt to place before the court any evidence to support the making of an allowance for the cost and effort involved in the construction of the townhouses. There is no room to permit the sister to have any further opportunity to present evidence on that subject. The hearing in the High Court was not split as between the issues of liability and quantum. If the sister had wished to advance the case for an allowance to be made, then the trial in the High Court was the time to do so. No explanation was offered for her failure to give evidence. Moreover, her counsel informed us explicitly that, even if a further opportunity were afforded to the sister to present evidence on this subject, she would not be in a position to place any such evidence before the court. He said these were counsel’s instructions.
[71] In these circumstances, it is not for the court to speculate as to how some form of just allowance might be made. In some cases, the court may be in a position to make some form of “rational approximation” of the profit which has been made. However, as Lord Mustill said in Ryde Holdings Ltd v Rainbow Corporation Ltd:^[28]

If the profit can be ascertained the trustee is made to yield it up. If, through the trustee’s own act, it is completely incapable of ascertainment, even to the extent of a rational approximation, so that the choice lies between holding a trustee liable for nothing and holding him liable for all, the latter course must be chosen.

[72] We have considered the possibility or ordering an assessment of the extent to which the unimproved value of the land is reflected in the sale prices for the two sections arising from the subdivision. However, splitting the proceeds of sale along those lines would allow the sister, as fiduciary, to profit from her breach of trust by enabling her to retain a large proportion of the sale proceeds in circumstances where this Court has no information as to what she (either on her own account or with others unknown) has spent on the properties.
[73] We accept it might be considered that, if judgment were entered for the brother for the full amount of the sale proceeds, he has made a windfall gain. However, we agree with the observation of Lord Browne-Wilkinson in Foskett v McKeown:^[29]

I do not myself quibble at the description of it being 'a windfall' on the facts of this case. But this windfall is enjoyed because of the rights which the purchasers enjoy under the law of property. A man under whose land oil is discovered enjoys a very valuable windfall but no one suggests that he, as owner of the property, is not entitled to the windfall which goes with his property right. We are not dealing with a claim in unjust enrichment.

[74] In fairness to the brother, we should add that he has not sought to take advantage of a windfall. Despite the sister not providing any briefs of evidence prior to the High Court trial, the brother’s counsel, at the start of the trial, invited the sister, through her counsel, to put in an affidavit setting out what costs she had incurred with respect to the townhouses. The sister declined to take up that offer. She has adhered to those instructions in this court. Indeed, before us the brother was prepared, as his fallback position, to have the matter remitted to the High Court for a quantum hearing. If the brother has now obtained a windfall, it is entirely a result of the unusual instructions the sister has given her counsel. She cannot be heard to complain if those instructions have led to a large judgment against her.
[75] We also record that the sister has not at any stage raised delay as a specific defence. She did not plead the Limitation Act 1950 by way of analogy, laches or acquiescence.^[30] The brother’s delay in making his claim was mentioned in cross-examination but only as a means of attacking his credibility. Delay was not mentioned as an issue in the parties’ respective lists of issues filed under r 42A of the Court of Appeal (Civil) Rules 2005. Accordingly, we say no more about it.

Conclusion

[76] We have concluded that, in the exceptional circumstances of this case, we are left with no option other than to enter judgment in favour of the appellant against the respondent for the full amount of the proceeds of the two sections, namely $511,000. We are driven to that conclusion in the absence of any evidence from the respondent which would enable us to make an assessment of an appropriate allowance for the cost and effort of effecting the improvements to the property.
[77] We are satisfied that an award of interest should be made as sought by the appellant. Interest was claimed under s 87 of the Judicature Act 1908 at the rate of 7.5 per cent per annum. We consider that an appropriate rate is 5 per cent per annum. On that basis the judgment is to carry interest at the rate of 5 per cent per annum on the sum of $214,000 from 8 October 2003 to the date of this judgment and on the sum of $297,000 from 18 May 2007 to the date of this judgment. Those amounts and dates reflect the amount of the sale proceeds and the dates of sale of the two sections.

Result

[78] The appeal is allowed. The judgment in the High Court is set aside. Judgment is entered with interest as indicated.
[79] The costs ordered in the High Court are set aside. The High Court is to determine the issue as to costs in that Court. The respondent must pay costs to the appellant as for a standard appeal on a band A basis together with usual disbursements.

Solicitors:
Bell Gully, Auckland for Appellant
McKechnie Quirke & Lewis, Rotorua for Respondent

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^[1] Crampton-Smith v Crampton-Smith HC Rotorua CIV-2006-463-840, 12 August 2010.
^[2] At [53].
^[3] At [72].
^[4] At [75].

^[5] Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 at 708 (HL). As noted in Andrew Butler Equity & Trusts in New Zealand (2^nd ed, Brookers, Wellington, 2009) at [12.2.1], the instances of resulting trusts identified by Lord Browne-Wilkinson are not controversial.
^[6] Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432.

^[7] We note that Baroness Hale expressed her views in the most forthright terms of any of their Lordships at [60] while Lord Hope rejected the presumption in relation to cohabiting couples at [3] – [4], and Lord Walker considered the presumption might still have a role to play where there is both a personal and commercial relationship at [32].
^[8] The Venture [1908] P 218 (CA) at 230.
^[9] Fowkes v Pascoe (1875) LR 10 Ch App 343 (CA) at 353.

^[10] Bateman TV Ltd v Bateman [1971] NZLR 453 (CA) at 463 per Turner J. North P at 459 and Richmond J at 467 agreed with Turner J’s reasoning.
^[11] At [38] citing Fowkes v Pascoe at 353.
^[12] William Swadling “Explaining Resulting Trusts” (2008) 124 LQR 72 at 74.
^[13] Ithaca (Custodians) Ltd v Perry Corporation [2004] 1 NZLR 731 (CA).

^[14] Rochefoucauld v Boustead (No 1) [1897] 1 Ch 196 (CA) at 206; Bannister v Bannister [1948] 2 All ER 133 (CA); and Avondale Printers Ltd v Haggie [1979] 2 NZLR 124 (SC) at 161.
^[15] At [48] – [49].

^[16] Jessica Palmer “The Availability of Allowances in Equity: Rewarding the Bad Guy” (2004) 21 NZULR 146; Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 556; Nocton v Lord Ashburton [1914] AC 932 (HL).
^[17] Charles Rickett and Jessica Palmer “Trusts jurisprudence in the High Court” [2010] NZLJ 353.

^[18] Jessica Palmer “The Availability of Allowances in Equity: Rewarding the Bad Guy”.

^[19] Chirnside v Fay [2006] NZSC 68; [2007] 1 NZLR 433 (SC). For further discussion on the courts’ ability to make allowances for fiduciaries, see Lord Goff and Gareth Jones The Law of Restitution (7th ed, Sweet & Maxwell, London, 2007) at [33–03]; John McGhee (ed) Snell’s Equity (32nd ed, Sweet & Maxwell, London, 2010) at [7–055]; P D Finn Fiduciary Obligations (The Law Book Company, Sydney, 1977) at [269] and [559]; R P Meagher et al Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (4th ed, Butterworths LexisNexis, Chatswood, 2002) at [5–255].
^[20] Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 562.
^[21] At [51] and [55].
^[22] At [38].

^[23] Relying on Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; Coleman v Myers [1976] NZHC 5; [1977] 2 NZLR 225 (CA); Warman International.
^[24] At [142].
^[25] At [131].
^[26] At 562.
^[27] Murad v Al-Saraj [2005] EWCA Civ 959.
^[28] Ryde Holdings Ltd v Rainbow Corporation Ltd PC 50/92, 15 November 1993 at page 16.
^[29] Foskett v McKeown [2000] UKHL 29; [2000] 3 All ER 97 (HL) at 103.

^[30] For a discussion of these three equitable defences see Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at [38.1.3]–[38.1.5].