Mayne v Public Trustee [1945] HCA 38; (1945) 70 CLR 395 (13 December 1945)

HIGH COURT OF AUSTRALIA

Mayne Applicant, Appellant; and The Public Trustee Respondent, Respondent.

H C of A

13 December 1945

Latham C.J., Dixon and Williams JJ.

Badham K.C. (with him Loxton), for the appellant.

Moverley, for the respondent.

Badham K.C., in reply.

The following written judgments were delivered:—

Dec. 13

Latham C.J.

I agree with the reasons for judgment of my brother Williams.

Dixon J.

I have had an opportunity of reading the reasons prepared by Williams J. and agree in them.

Williams J.

This is an appeal by Robert David Mayne, the official assignee of the estate of Herbert Bruxton Ludlow now deceased, against an order of the Federal Court of Bankruptcy ordering the Public Trustee, who is the administrator of the estate of the deceased, to pay to the appellant the sum of £150 9s. 7d., instead of the sum of £942 13s. 3d. claimed in the notice of motion.

The material facts may be shortly stated as follows. On 12th June 1922, Herbert Bruxton Ludlow voluntarily sequestrated his estate under the provisions of the Bankruptcy Act 1898 N.S.W., C.W.F. Lloyd being appointed the official assignee. On 11th October 1928, he obtained his certificate of discharge. On 8th October 1934, the appellant was appointed the official assignee of his estate in lieu of C.W.F. Lloyd. At the date of the sequestration order, the bankrupt was entitled under the will of his mother to an estate for life in certain personalty consisting of government stocks producing an income of approximately £53 per annum. The will directed the trustees to hold this property on trust for the bankrupt during his life and to collect and get in the income thereof and to pay the same into the hands of the bankrupt, and directed that he should not be entitled to anticipate charge or alienate the same in any way whatever so that he should be provided with an income. By his statement of affairs, the bankrupt estimated his assets to be of the value of £3,227 and his liabilities to be £10,659. He disclosed the life estate as an asset in the following terms: "life interest under the will of Mrs. Jane Ludlow (per annum £53 4s. 4d.)." The trustees of the will do not appear to have known that the sequestration order had been made, and neither of the official assignees appears to have taken any steps to collect the income or sell the asset. The result was that the original trustees of the will continued to pay the income to the bankrupt until they retired on 4th November 1932, and that the respondent, who was then appointed the trustee in their place, also continued to pay the income to the bankrupt until the latter died on 26th June 1942. Between the date of the sequestration order and the date of his death, the bankrupt received the sum of £942 13s. 3d. and did not account for any part of it to either official assignee.

The purpose of the notice of motion was to recover this sum of £942 13s. 3d. from the respondent as administrator of the estate of the bankrupt. The learned Judge in Bankruptcy held that the proceedings were in the nature of an action for money had and received so that the respondent was entitled to rely on the Statute of Limitations, and that the appellant could therefore only recover payments of income made to the bankrupt within six years of the filing of the notice of motion. These payments totalled the above sum of £150 9s. 7d. The only ground which has been argued on the appeal is that his Honour was wrong in so holding and that he should have ordered the respondent to pay the whole of the sum of £942 13s. 3d. to the appellant. The case made for the appellant was that, since the effect of the sequestration order was to vest the life estate in the official assignee, the bankrupt ceased to be a cestui que trust under the trusts of the will, his place being taken by the official assignee, so that when the bankrupt received payments from time to time from the trustees of the will he received moneys which were to his knowledge impressed with an express trust in favour of the official assignee. We were referred to Soar v. Ashwell[1]; In re Dixon; Heynes v. Dixon[2]; In re Eyre-Williams; Williams v. Williams[3]; In re Blake; Re Minahan's Petition of Right[4]; and it was contended that the receipt of the moneys by the bankrupt constituted him a constructive trustee of the property for the official assignee, and that the circumstances were such that, when called upon to account for the moneys, he, and therefore his personal representative, could not avail himself of the lapse of time as a defence. As Dixon J. pointed out in Cohen v. Cohen[5], the Statute of Limitations, by its terms, does not operate directly on equitable remedies, but such remedies are barred in courts of equity by analogy to the statute. He said:—"The analogy is found in the case of constructive trusts, where the equity is fastened upon the trustee not because he intended to become the fiduciary of property but because of the character of his dealings and in spite of his intention to take the property for himself. But courts of equity have refused to see any analogy when a person, intending to act in a capacity which is fiduciary, has received, as and for the beneficial property of another, something which he is to hold, apply or account for specifically for his benefit. Such a person is either an express trustee, or, if that name does not in strictness belong to him, he stands in the same position as a direct or express trustee (see Soar v. Ashwell1(1893) 2 Q.B. 390.)"[7].

It is clear that when the income of the life estate was paid to the bankrupt from time to time by the trustees of the will, he received the moneys as his own and not on account of any other person and applied them to his own use. The notice of motion was not filed until after his death, so that he has not had the opportunity of explaining why he retained the moneys instead of paying them to the official assignee. It is possible that, in view of the terms of the will, he thought that income accruing due after the date of sequestration became his property either absolutely or subject to intervention by the official assignee. It is even more possible that he thought that income accruing due after his discharge did so. It would be wrong, as his Honour said, to impute dishonesty to him, and it is really immaterial whether he believed that he could lawfully retain the payments for his own benefit or not. The important point is that there is no evidence that he ever accepted payments as affected by a trust, or that his possession of the moneys was ever otherwise than adverse to the claim of the official assignee. The facts, therefore, bring the transaction within the first, but not within the second, of the two propositions in Cohen v. Cohen[8], so that, if the law is correctly summarized in these propositions, the appeal must fail.

The occasions on which a constructive trustee is placed, for the purposes of the Statute of Limitations, in the same position as an express trustee were discussed in Soar v. Ashwell[9]. Bowen L.J.[10] divided them into four classes. The important class for the present purpose is the third class, that is to say where a person has received trust property and dealt with it in a manner inconsistent with trusts of which he was cognizant. But it would seem from the nature of the case cited (Lee v. Sankey[11]), and from his remarks in the following paragraph, that, although the words are capable of a wider construction, his Lordship was referring to the receipt of trust property by the recipient as trust property to be dealt with in a fiduciary capacity. In the following paragraph his Lordship said that "a person occupying a fiduciary relation, who has property deposited with him on the strength of such relation, is to be dealt with as an express, and not merely a constructive, trustee of such property. His possession of such property is never in virtue of any right of his own, but is coloured from the first by the trust and confidence in virtue of which he received it. He never can discharge himself except by restoring the property, which he never has held otherwise than upon this confidence ... and this confidence or trust imposes on him the liability of an express or direct trustee"[12]. In Hovenden v. Lord Annesley[13], Lord Redesdale said, with respect to the operation of the Statute of Limitations upon cases of trust in equity, that the distinction is, if the trust be constituted by an act of the parties, the possession of the trustee is the possession of the cestui que trust, and no length of such possession will be a bar; but if a party is to be constituted a trustee by the decree of a court of equity founded on fraud, or the like, his possession is adverse, and the Statute of Limitations will run from the time that the circumstances of the fraud were discovered: Cf. Macintosh v. Macintosh[14]; Lawrence v. Birmingham[15]. This distinction between the cases where property is received by a person under such circumstances that his possession is considered in equity to be the possession of the cestuis que trust, and where property is received by a person under circumstances which create a constructive trust, was clearly stated by Maugham J. in In re Blake[16], when he said that "constructive trusts are of various kinds, and without attempting a classification I may point out that there is a wide difference from the point of view of the effect of lapse of time between cases where the constructive trustee must be taken to have knowingly assumed the obligations of a trustee and those where the relationship is due merely to equitable principles"[17]. Soar v. Ashwell[18], therefore, would appear to be an authority that a person who for some purposes may be described as a constructive trustee is only placed in the same category as an express trustee in relation to lapse of time as a defence when he accepts property in the circumstances mentioned in the second proposition in Cohen v. Cohen[19], and then proceeds to dispose of it in a manner inconsistent with express trusts of the property of which he has knowledge.

But the appellant contends that a person who takes possession, though adverse, of property which is subject to an express trust with full notice of the trust thereby becomes, though only a constructive trustee of the property, liable to account in equity for the property or its value at any length of time. Support for this contention might appear at first sight to be found in In re Dixon[20] and in In re Eyre-Williams[21]. But in each of these cases the moneys were in fact paid to the accounting parties in such circumstances that they were received in a fiduciary capacity. In In re Dixon[22], the moneys were lent to the husband and accepted by him as moneys impressed with a trust and subject to a fiduciary obligation to repay the debt to the trustees of the settlement. In In re Eyre-Williams[23], it was the testator himself who had created the trust of the mortgage debt which was subsequently paid to him, so that he received the mortgage moneys subject to a fiduciary obligation to pay the moneys to the trustee of the marriage settlement. There was in each case a direct trust created between the recipients of the moneys and the trustees of the settlements. They were in the same position as the husband with respect to the first sum of £1,000 in Stone v. Stone[24], and the father in Burrowes v. Gore[25]. It is in the light of these circumstances that remarks in the judgments of their Lordships should be read. These authorities do not seem to support the wider propositions contended for. The law was, in my opinion, correctly stated by Dixon J. in Cohen v. Cohen[26] in the passages cited, and, as I have said, the present case falls within the first proposition.

I would therefore dismiss the appeal.

Appeal dismissed. Appellant to pay the respondent's costs with liberty to recoup himself out of the bankrupt's estate.

Solicitor for the appellant, Herman Fawl.

Solicitors for the respondent, Priddle, Gosling, Dalrymple & Sillar.