Knowing Receipt, Knowing Assistance; Barnes v Addy

Barnes v Addy (1874) outlined what may constitute third-party liability concerning breach of trust or fiduciary duties: ’Knowing receipt’ and ‘knowing assistance’.

Henry Barnes appointed William Crush, John Lugar and John Addy to be testators and executors of his Will with a sum of money to be invested as the basis of an annuity for his widow, three daughters and son.

John Addy, as the sole remaining trustee, appointed a sole trustee to half the trust (with an indemnity) against the advice of his solicitor, William Duffield. However, Duffield drew up the deeds of appointment and indemnity and introduced Addy to a stockbroker who transferred money to the trustee.

The trustee mismanaged the trust property and became bankrupt. Barnes children sued Addy and Duffield; the Court held that the third parties could be liable for a breach of trust in two circumstances, known as the two ‘limbs’ of Barnes v Addy: knowing receipt and knowing assistance

To prove ‘knowing receipt’, the principal must establish the recipient knew that the property they received was a transfer of trust property in breach of the trustee’s duties.

To prove ’knowing assistance’ there must be a breach of trust or fiduciary duty by a third party who knowingly assists in the breach.

In a recent decision, the High Court of Australia insisted on strictly applying Barnes v Addy and holding that the breach must be dishonest and fraudulent.

Where the two limbs in Barnes v Addy are established, a third party will be held to be a constructive trustee with the party bringing the claim against them having the same remedies as they would have against a constructive trustee.

The court accepted that Duffield, never knew nor suspected any dishonest purpose, or believed that any actual fraud would result from what was done; it was therefore unable to hold him responsible.

The Will, a Trustee and a Deed of Family Arrangement

Alice Critchley made a Will consisting of only four clauses, in October 1964, (‘the Will”) and died in December 1967 survived by her eleven children. Probate of the Will was granted in May 1968.

The Will

Clause 1 of the Will directs that her home in Kirrawee (”the Kirrawee property”) – or another property that may be acquired with the proceeds of sale of the Kirrawee property – is to be held in trust for two of her daughters Dulcie and Leonie to ”use and enjoy during their lifetimes”

Clause 2 directs “all the rest and residue of the estate” be held on trust “to pay the income to my daughters”, clause 3 of the Will provides that upon the remarriage of either Dulcie or Leonie

“the other daughter shall be entitled to the exclusive use of the property at Kirrawee or such other property as may be acquired and the income from the residue of my estate until her death or remarriage.”

However, the Will didn’t gift the residue of the estate in the event that any of Alice’s other children survive Dulcie and Leonie. 

The Will provided that if both Dulcie and Leonie request the trustee to sell the Kirrawee property,  the trustee shall acquire such other residential property from the proceeds and permit Dulcie and Leonie to use and enjoy the property on the same terms as the Kirrawee property.

The NSW Trustee and Guardian (“the plaintiff”) was appointed as trustee of the trusts created under the Will by deed in April 1992.

Leonie remarried before 2002 relinquishing the use of the Kirrawee property and the income from the residue of Alice’s estate. 

In 2002, the plaintiff sold the Kirrawee property, using the proceeds of the sale to purchase a property at Clear Island Waters in Queensland (“the Queensland property”); the excess funds from the sale were invested in a fund administered by the plaintiff. Dulcie resided at the Queensland property and received the income from this fund until her death in 2017.

Deed of Family arrangement

A deed of family arrangement is a variation of the terms of a trust agreed to by beneficiaries and enforceable by a court.

In August 2003, seven of Alice’s then surviving children and 12 of her grandchildren (children of three of the children who had survived Alice but had died before August 2003) entered into a Deed of Family Arrangement (“the Deed”)

“the residuary beneficiaries have agreed to a distribution of the estate assets, which in their considered opinion creates a fair and equitable distribution of the estate”

that the children of any deceased children of the testator would take instead of their deceased parent; and, the Deed would be binding upon and enforceable by the executors of the parties to it.

The plaintiff although acting as trustee of Alice’s estate, Dulcie and one other of Alice’s children were not parties to the Deed.

The current proceeding

The plaintiff sought the determination of questions arising under the Will and the Court held that upon the true construction of the Will the phrase, “residue of my estate” includes the Queensland property;

”amongst my surviving children equally” means those children of the deceased surviving as at 19 December 2017;

therefore as Leonie and Ann Dransfield are the only surviving children of the testator as at 19 December 2017 the plaintiff as executor and trustee of the Will is at liberty to distribute the residue of the estate to them equally.

The Will, Real Estate & Water Rights – How is a Will construed?

Ethel Greenham died in February 2017 aged 80 years of age with an estate valued at over $2M. Ethel’s Will dated 9 December 2003, named her daughter Jennifer executor leaving land at Pental Island on the Murray River (“the land”) to her son Alan, and the residue of her estate to Jennifer.

By clause 4(d) of the Will Ethel devised to Alan:

… my real estate at Pental Island being Allotment 7 in the Parish of Pental Island County of Tatchera and being the land comprised in Crown Grant Volume 9429 Folio 754.

Real Estate 

Alan and his wife, Mary live in a house situated on the land and operate a caravan park and holiday business (the caravan park) together with farming activities. The land was purchased in 1939 by Alan and Jennifer’s grandfather and used as a farm; the caravan park is now the main commercial enterprise conducted on it. 

The land does not have access to town water; with water for the farm and the caravan park provided by rainfall and the Murray River which abuts the land.

Water Shares

Until the Water Act 1989 was amended on July 1, 2007, water flowing in a watercourse in Victoria was not property capable of being owned and transferred separately to land. Common law rights to use water were derived from a person’s ownership or occupation of land abutting the watercourse.

From July 1, 2007, ownership of a water share could be transferred independently of a transfer of land and, on the death of the owner, forms part of their estate. Ethel owned three water shares issued in relation to the Murray River water system. 

Ethel made her Will in 2003 several years before the commencement of the above amendments to the Water Act 1989.

The Proceedings 

Probate of the Will was granted to Jennifer in April 2019. 

Jennifer commenced proceedings in the Supreme Court seeking a declaration as to the nature of the water shares; if those shares form part of the devise of ‘real estate’ under the will, they pass to Alan; if they are part of the residue of the estate, they pass to Jennifer.

According to the Inventory of Assets and Liabilities prepared as part of the application for probate the total value of the water shares was $754,850. However, in evidence before the Court their value was approximately $1,589,580. 

The question for determination is whether, properly construed, the reference to ‘my real estate at Pental Island’ includes the water shares.

When does a Will take effect?

A key issue in determining the proper construction of the Will was whether, concerning property disposed of by the Will, s34 of the Wills Act 1997, provides that unless a contrary intention appears (whether in the will or elsewhere) the Will takes effect as if it had been executed immediately before the death of the testator.

A Court uses the armchair principle to ascertain the testamentary intention of the Will maker. Such intention must be disclosed through the ordinary meaning of the words used; however, the intention is to be gathered from a study of the Will as a whole, and in the light of any relevant and admissible evidence of surrounding circumstances.

In Victoria, s 36 of the Wills Act 1997, supplements the armchair principle providing that where a Will is made on or after 20 July 1998, evidence of the testator’s intention is admissible in cases of uncertainty or ambiguity, to assist in the interpretation of the language of the will, both where the uncertainty or ambiguity arises on the face of the Will or in light of surrounding circumstances. 

The Court held that the Will manifests an intention that it should be construed as at the time that the will was made – therefore the reference to ‘my real estate at Pental Island’ in the Will includes the deceased’s water shares. 

BDBN & the Superannuation Trustee

The purpose of a superannuation death benefit is to provide for the deceased member’s dependants who had a reasonable expectation that they would continue to receive financial support from the deceased, had they not died.

In a recent case, the deceased had not made a superannuation binding death benefit nomination (”BDBN”) directing the trustee of the fund to pay the death benefit to a nominated beneficiary.

The deceased had made a will the day before he went missing. A coronial inquest found that the deceased committed suicide by drowning. He was survived by his estranged wife and two adult children.

When a member dies not having made a BDBN the death benefit distribution is governed by the superannuation trust deed and the law. In this case the trust deed specified that in the absence of a BDBN (or an approved non-lapsing death benefit form) the trustee must pay the benefit to one or more of the deceased member‟s dependants and/or his legal personal representative in whatever proportion it decides.

The trustee considered that the estranged wife was not financially dependent upon the deceased at his death. However, as the adult children were named beneficiaries under the member’s will the trustee determined that the death benefit should be paid to them in equal shares.

The estranged wife made a complaint to the Australian Financial Complaints Authority (AFCA) that as the separated spouse who was financially dependent upon the deceased she expected to receive a financial benefit from her husband; submitting she should receive the entire benefit.

AFCA set aside the trustees decision on the grounds it was not fair and reasonable in the circumstances. Although the deceased and his wife had been separated for 19 months – following 28 years of marriage – they had not entered into a financial settlement before his death.

As a corollary, the adult children were not financially dependent on the deceased at his death, and as the Will did not refer specifically to superannuation should not be treated more favourably than the wife.

AFCA set aside the trustee’s decision and substituted payment of 50 per cent for the wife with 25 per cent to each child.

Intestacy, Squatters Rights & Executors Duties

In New South Wales you can become the owner of land by ‘adverse possession’; colloquially known as ‘squatters’ rights’ allowing someone to legally take ownership of land they have occupied exclusively for at least 12 years.

Lieselotte Kathe (known as Liese or Lisa) Pauperis, was born in Germany in about 1926 or 1927, she married Walter Pauperis, who had been born in about 1921. After the Second World War, Liese and her husband Walter migrated to Australia where they had three sons: Kurt, Ralph and John.

Leise and Walter knew Luise Stegis who was also a German immigrant related by marriage to Walter. Luise died intestate in 1969 leaving a house in Edward Street Bankstown and block of vacant land at Sanctuary Point, near Nowra on the south coast of New South Wales.

Following Luise death, Liese and Walter assumed control of the properties for the benefit of whoever was entitled to Luise estate; paying the rates and renting the Edward Street property out and referring to the properties among the family as the “Steigis estate properties”.

No-one has ever claimed the properties as Luise heir.

Leise or Walter never made a claim to ownership by way of adverse possession under the Real Property Act 1900 (NSW) (“RPA”).

Walter died in 2005. In her will, Liese left the residue of her estate to her three sons equally; appointing Kurt and John, as her executors and trustees. Liese died in 2012, John died not long after. Probate was granted to Kurt.

Kurt and his wife Judith have lived at the Edward Street property since about 1988 and have looked after the Sanctuary Point property for many years. In 2016 they successfully applied in their own names for registration of possessory title over the Sanctuary Point property under the RPA.

On registration, Judith obtained indefesible title to a one half share of the property under the RPA. However Indefeasibility can be set aside if it was obtained by performing a deliberate or dishonest act.

In 2017, Kurt and Judith put the Sanctuary Point property up for sale. Kurts brother Ralph, found out and placed a caveat on the property; the RPA entitles that any person who claims to have ‘caveatable interest’ (a legal or equitable estate or interest in land) may lodge a caveat against the title with the Registrar-General.

One third of proceeds of the sale (Kurt’s share if the property forms part of Liese’s estate) were placed in a joint bank account pending the outcome of the dispute.

Kurt and Judith remain in occupation of the Edward Street property. They have not pursued an application for possessory title over that property but have reserved their entitlement to do so. The property has also been caveated by Ralph.

Ralph submits that at Liese’s death, she was in legal possession of the Steigis estate properties. Kurt and Judith lived at Edward Street and looked after the Sanctuary Point property by arrangement with Liese; therefore at the time of her death, Liese had accrued an entitlement to obtain possessory title to the properties under the RPA.

Further, Kurt’s failure to apply for possessory title for the benefit of her estate was a breach of his duty as Liese’s executor. Registration of a possessory title of the Sanctuary Point in his and Judith’s names was a further breach of that duty. Similarly Ralph seeks to overcome Judith’s indefeasible title by alleging that her knowing participation in Kurt’s breach of duty as executor.

The Court held that at the time of her death, Liese had a possessory interest in the Edward Street and Sanctuary Point properties, which entitled her to apply for possessory title over those properties, this interest passed to Kurt as executor of the estate; if Kurt continues as executor, he must apply for possessory title over the Edward Street property, and then sell the property and distribute the proceeds to the benficiaries of Liese’s estate.

The Court also raised whether Kurt should continue as the sole executor and trustee of the estate given the conflict between his duties as executor and his personal interest as occupier of the property. Offering a solution to appoint Kurt and Ralph as joint administrators; or alternatively the more expensive and time consuming appointment of an independent administrator of the estate.

The Court dismissed Ralph’s claim that Judith acted with knowing participation in respect to the registration of possessory title over the Sanctuary Point property: on registration she acquired an indefeasible half interest in that property.

Proprietary Estoppel & Harbour Views

Birchgrove is a Sydney Harbourside suburb; David Moore and Douwine Andreasen owned and were living in 100 Louisa Road Birchgrove (“No 100”). They met the deceased, Barbara Murphy, who owned 66 & 68 Louisa Road before moving into 70 Louisa Road (“No 70”) in 1999. David and Douwine had bought No. 70 “the worst house in the best street” for re-development and sale for profit in order to better plan and provide financially for their retirement. After David and Douwine moved to No 70 in 2001 they developed a close relationship with Barbara.

In the context of the Sydney real estate market, there is a perceived advantage of Sydney Harbour water views. Barbara’s two properties each comprised two units; she occupied the upstairs unit at No 68 and rented out the remaining three units. Numbers 66-70 Louisa Road extend down to the Harbour. Relevantly, Barbara’s unit at No 68 had views of Sydney Harbour, that she was keen to retain. 

David and Douwine’s proposed development of No 70 included a similar extension to that being undertaken by the owners of No 72 Louisa Road (“No 72”). Barbara was unhappy with the works carried out to No 72; lodging objections with the Leichhardt Council and attempting to enter the site to check its compliance with the approved plans. 

Barbara raised her concerns with David and Douwine that their development at No 70 would block her views. Claiming that Barbara promised to leave them her whole estate in return for them agreeing not to undertake renovations that would restrict the view from her property and looking after her for the rest of her life. David and Douwine agreed and took care of Barbara and didn’t renovate the property; however, Barbara did not leave her estate to them under her Will.

Proprietary Estoppel

David and Douwine sought a declaration from the Court that the executor holds the whole of Barbara’s estate on trust for them in equal shares as tenants in common, and an order that the estate be transferred to them.

Proprietary estoppel is an equitable doctrine that applies where a person (A) induces another (B) to adopt an assumption or expectation that they have or will obtain an interest in A’s property, and based on this assumption B alters their position or acts to their detriment.

The Court was satisfied David and Douwine met the elements of proprietary estoppel as they had suffered a detriment due to their reliance on Barbara’s promise.

However, the claim for the entire deceased’s estate, valued at over $12 million, was out all proportion with the detriment they claim to have suffered in “looking after” Barbara and not blocking her views; making a declaration that the executor holds the properties known as No 66 and No 68 Louisa Road, Birchgrove on trust for David and Douwine in equal shares as tenants in common.

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Chadwick Boseman’s Californian Intestacy

Chadwick Boseman was diagnosed with colon cancer in 2016; enduring surgeries and chemotherapy as he became one of Hollywood’s biggest stars, he died in August.

“in his home, with his wife (Taylor Simone Ledward), and family by his side.”

The couple had been together since 2015 reportedly marrying shortly before Chadwick died.

Chad, as he was known to his family and friends, was born and raised in Anderson South Carolina. The youngest member of a family of five with two older brothers Derrick and Kevin and their parents Carolyn and Leroy; at 12 he read Derrick’s copy of The Autobiography of Malcolm X. The family were active members of Welfare Baptist Church.

Chad who graduated from high school in 1995 played on the basketball team wrote and staged his first play, Crossroads, following the shooting of a classmate.

Graduating with a degree in directing from Howard University, Chad moved to New York following a summer program at Oxford University. In New York Chad lived with his brother Kevin and studied acting to learn how to relate to actors. Working as the drama instructor at the Schomburg Centre for Research in Black Culture in Harlem and writing and directing several short plays including “Deep Azure.”

Chad came to prominence playing prominent African Americans including Jackie Robinson in 42, James Brown in Get on Up, and Thurgood Marshall in Marshall. However, he will be best remembered for Black Panther.

Black Panther

Black Panther, the first superhero movie to be nominated for the best picture Oscar had a predominantly Black cast. It has been reported that Marvel wanted T’ Challa, king of Wakanda – a fictional African high-tech utopia – to have an English or American accent, but Chad who had admired “Black Panther” comics since working at an African bookstore at Howard insisted on an African one.

Black Panther combined references to racial solidarity, slavery and colonialism with an afro-futurist aesthetic. Erik Killmonger, the antagonist and cousin to T’Challa asks to be buried

“in the ocean with my ancestors who jumped from ships because they knew death was better than bondage”.

A reference to the Igbo enslaved West Africans who in 1803 arrived in Savannah, Georgia, on a slave ship, rose in rebellion, took control of the ship, and committed mass suicide.

In 2018, Chad received an honorary doctorate and delivered the commencement speech at Howard University. He was proud to be awarded an honour that Jackie Robinson and Dr Martin Luther King Jr. received on the same day in 1957.

Chad hadn’t made a will; Taylor filed a petition for letters of administration at Los Angeles Superior Court also listing Chads parents in the filing.

California Intestacy Law

In California, when married people die intestate the deceased’s estate is distributed dependent upon whether the property was owned as separate or community property. Generally, the property acquired while married is community property; separate property is property acquired before the marriage. 

However, gifts and inheritances given to one spouse, even when acquired during the marriage, are considered separate property

Under California’s intestate succession laws, if the deceased did not leave any surviving issue, parent, brother, sister, or issue of a deceased brother or sister, the spouse will inherit 100% of the deceased’s separate property. 

If the deceased had surviving children, the surviving spouse will share the deceased’s separate property with the children. If the deceased has no surviving spouse, children, parents, siblings, grandparents, aunts, uncles, nieces, nephews, or cousins, the property will escheat – the State of California takes title and delivery of that property for its own use.

Caveats & the Family Provision Claim

John Dodd died in early March 2020. John’s sister Marilyn (the plaintiff) is the executor and sole beneficiary of John’s estate. 

John was the registered proprietor of land at 25 Rigney Street, Shoal Bay (the property). In late March John’s son, Peter (the defendant) moved onto the property. A scheduled auction in July 2020 had to be postponed and rescheduled due to Peter’s occupation of the land. 

Peter filed a document described as a defence in late July 2020 submitting that he has filed a summons claiming that provision be made for him from the estate of his father under s 59 of the Succession Act 2006 (NSW) (“the Act”).

A caveat can only be lodged to protect a proprietary interest in Torrens title land. According to s 74F(1) of the Real Property Act 1900 (NSW), this interest must be

“a legal or equitable estate or interest in land.” 

A caveat cannot be lodged to protect a contractual or personal right or a statutorily based right that does not confer any interest in land, similarly, the filing of a family provision claim does not amount to a defence to a claim for possession. 

As the action under the Act is the sole basis for Peter’s claim to be in the premises, the court struck out the defence. Therefore Marilyn is entitled to commence proceedings for possession of the property, notwithstanding that a later order may be made under the Act. 

Probate, Costs, Administrator Pendente Lite

Melville Gooley, died on 23 December 2017. Two of his daughters Aleta and Melinda were named as the executors of Melville’s Will dated 18 July 2014 (the 2014 Will). Following Melville’s death, Aleta and Melinda opened a bank account as Executors of the Estate of Melville Gooley (“the account”).

Melville’s son Brett lodged a caveat in January 2018 preventing a grant of probate being made without prior notice. On 9 July 2018, Aleta and Melinda commenced probate proceedings in relation to the 2014 Will.

Brett is concerned that Melville lacked testamentary capacity to make the 2014 Will as he had suffered from dementia for many years before he died, therefore Brett submits that Melville’s last valid will was executed in February 2010 (the 2010 Will) or, alternatively, June 2012 (the 2012 Will).

Brett was named the sole executor under both the 2010 Will and the 2012 Will and sought probate of the 2010 Will or, alternatively, the 2012 Will.

Aleta and Melinda believe the 2014 Will is valid although if the Court finds that Melville lacked testamentary capacity at the time, they contend that he had testamentary capacity when making Wills in March 2014, May 2013, March 2013, November 2012 or September 2012; therefore if the 2014 Will is held to be invalid probate should be granted in respect of one of those Wills.

Aleta and Melinda transferred over $1.4 million from the estate into the account and their legal costs were paid from this account. Brett sought the appointment of an administrator pendente lite the object of which

‘is to ensure that the deceased estate is managed and preserved for the benefit of those persons who may ultimately be found… to be entitled to it’(at [126]).

In Gooley v Gooley [2020] NSWSC 798 the court concluded that the assets of the estate were at a level of jeopardy sufficient for the appointment of an administrator pendente lite; however should Aleta and Melinda provided an affidavit outlining past transactions these concerns would be alleviated.

If the court grants probate on a Will that names Aleta and Melinda executors s 44 of the Probate and Administration Act 1898 provides retrospective authorisation of their spending of Estate funds before the grant of probate; importantly this will only apply to expenditure that could properly have been incurred by the executors of the Estate.

Ultimately whether or not Aleta and Melinda’s legal costs in this proceeding will be paid out of the Estate depends solely on the Court’s discretion under to s 98 of the Civil Procedure Act 2005 (NSW).

When it comes to making a will formalities are important

In the Estate of Jansen [2020] ACTSC 130 Ronald Jansen’s wife Cheryl and sister Sonja sought a declaration that an undated document signed by Ronald constitutes his Will although it does not meet the formal requirements of the Wills Act.

Additionally, that probate in relation to the Will be granted to Cheryl and Sonja.

In early September 2018, Ronald was diagnosed with cancer. Soon after the diagnosis, he told Sonja he wished to make his will. Ronald dictated his wishes to Sonja telling her that he would call his solicitor after he left the hospital. The solicitor prepared and sent the draft will to Sonja by post.

On 23 October 2018 Sonja visited Ronald at his home as Cheryl had arranged a birthday party for her. Ronald asked her if she had the will because he needed to sign it. Ronald read it, said that it looked okay and then signed the will in her presence. No one else was present.

Sonja left the room with the signed document and had a guest at the party sign it; before changing their mind as they did not want to take sides between Sonja and Cheryl. However, another guest at the party signed each page.

On 28 October 2018 when Sonja visited Ronald in Hospital, a fellow visitor signed the will but not in the presence of Ronald.

Ronald died on 5 November 2018.

The Decision

The document is in the conventional form of a will but neither witness was present when it was actually signed. It is for that reason that an order under s 11A was sought.

Where a document expressing testamentary intention has been formally executed by the testator and attested to by the witnesses as a will, all in the presence of each there is a presumption that it is the last will and testament of the testator.

Conversely where a document has not been formally executed and attested the presumption that it is the last will and testament of the testator does not arise.

In this case, Cheryl and Sonja must provide evidence of search to ensure that there is not a will which embodies the testator’s intentions as recorded in the informal or unexecuted document.

The court held the statutory requirements for the making of an order under s11A of the Wills Act are satisfied; the document clearly purports to state Ronalds testamentary intentions and was clearly intended that it constitute his will.

Further, a search has been made and there is no later will or document purporting to contain his testamentary intentions.