29/09/2011

In August the High Court handed down a decision which held a husband held a half interest in a property on trust for his wife because he signed an Acknowledgment of Trust and extrinsic material to the Acknowledgment was not admissible to show there was no intention to create a trust.

In Martin Francis Byrnes & Anor v Clifford Frank Kendle [2011] HCA 26 the High Court upheld an appeal from the Full Court of the Supreme Court of South Australia holding that Mr Kendle had breached his duty as a trustee in not collecting rent from an investment property and he had to compensate his former wife for her interest in the property in unpaid rent (less her share of outgoings).

A summary of the facts are:

• Mrs Byrnes (60 years) and Mr Kendle (57 years) married in 1980.
• In 1984 Mr Kendle purchased a property and became the sole registered proprietor.
• In 1989, Mr Kendle executed a Deed that stated he held one undivided half interest in the property as tenant in common upon trust for Mrs Byrnes absolutely.
• In 1994, the property was sold and a new property purchased with the proceeds.  Again Mr Kendle was the sole registered proprietor.
• In 1997, Mr Kendle executed another Deed along the same lines.
• In 2001, Mrs Byrnes and Mr Kendle moved out of the property and Mr Kendle rented it to his son from 2001 to 2007 but only collected 2 weeks rent over that whole period.
• In 2007, Mrs Byrnes and Mr Kendle separated and the property was subsequently sold.

Mr Kendle argued he was not a trustee because he lacked the intention to create a trust.  Alternatively, if he was a trustee he had no active duty to collect rent, or that the duty had been waived by Mrs Byrnes.

The Court determined there were 5 issues to be decided:

1. Was there a trust created by the 1997 Deed?
2. If so, what duties did Mr Kendle have with respect to renting out the property?
3. Was there a breach of those duties?
4. If so, did Mrs Byrnes consent or acquiesce in the breach?
5. If she did not, what is the form of relief for the breach?

The Court held Mr Kendle was a trustee and he owed a duty to the beneficiary to manage the property such that when his son did not pay rent he should have taken steps to collect the rent or found a replacement tenant.

Mr Kendle said there was other evidence to prove he did not intend to create a trust.  The Court held that extrinsic material surrounding the Deed was inadmissible.  The Court stated:
"The fundamental rule of interpretation of the 1997 Deed is that the expressed intention of the parties is to be found in the answer to the question, "What is the meaning of what the parties have said?", not to the question, "What did the parties mean to say?"

Further, the Court said:
"subjective intention is irrelevant both to the question of whether a trust exists and to the question of what its terms are."

The Court therefore allowed the appeal by Mrs Byrnes and her son and ordered Mr Kendle to account to Mrs Byrnes and her son for her share of the net income that should have been received had Mr Kendle collected rent from his son.

The lesson is that if a party signs a Deed it will be bound by the terms of the document irrespective of any subjective intentions not evidenced in the Deed.

If you have any questions in regard to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.