Byrnes v Kendle

What happened?

Mr Kendle held the legal title to a house at Murray Bridge. By a deed executed in 1997 he acknowledged that he "stands possessed of and holds one undivided half interest in the New Property as tenant in common upon trust for" his wife, Mrs Byrnes. In 2002 he let the house to his son at $125 a week, collected $250 in all, and took no step to recover the rest before the tenancy ended in 2007. Mrs Byrnes assigned her interest and her rights under the deed to her son, who sued.

The trial judge held there was no trust, on extrinsic evidence of what Mr Kendle meant: "When Mr Kendle signed that document he intended only to acknowledge that, upon eventual sale of the property, half of the net proceeds would belong to his wife." So the argument was never that Mr Kendle changed his mind. It was that his subjective intention at the moment of signing was something narrower than the words he signed.

What did the Court decide?

The appeal was allowed. The deed created a trust and Mr Kendle's account of his own intention could not be used against it. Gummow and Hayne JJ held the evidence inadmissible, noting what the case was not: no illegal purpose, no plea of sham, no non est factum, no claim to rescission ([52]). The rule of interpretation 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?'" ([53]). Their Honours confined Commissioner of Stamp Duties (Q) v Jolliffe, on which the trial judge's approach rested, to its own statutory and factual setting. Heydon and Crennan JJ put the submission that the appellants had to prove a subjective intention as resting "on a fundamental but very common misconception" ([94]), and held subjective intention "irrelevant both to the question of whether a trust exists and to the question of what its terms are" ([115]).

The boundary was drawn narrowly. Subjective intention is relevant only where the transaction is open to challenge or modification — mistake, misrepresentation, undue influence, unconscionable dealing or other equitable fraud, non est factum, duress, estoppel, illegality, sham, an unsatisfied condition, or rectification ([115]) — and no challenge of that kind was made to the 1997 Deed. (Consent, acquiescence and estoppel were run in this case, but as defences to liability for the breach, not as attacks on the declaration.) Nor does an informal trust open the door: where the writing is informal or the trust is said to arise from words and conduct, "all the relevant circumstances" come in ([54]), but Gummow and Hayne JJ said the object of that "evidentiary odyssey" does not change and the nature of the intention looked for "does not differ" ([55]).

The breach claim then succeeded on its merits. A trustee who lets trust property must take steps to protect and preserve it, including against a defaulting tenant, and failing to recover the unpaid rent was a breach ([73]). Mrs Byrnes's knowledge of the arrangement did not amount to consent, acquiescence or an estoppel sufficient to bar relief ([74]–[80]). On the accounting, $44,550 was brought in as rent for the son's tenancy and the grandson's later occupancy, $22,162.60 was allowed to Mr Kendle for outgoings, and half the $22,387.40 balance — $11,193.70 — was added to the appellants' half share of the net sale proceeds ([84]–[86]).

Why does this case matter?

Note what the ruling below cost. Holding that the 1997 deed created no trust left Mrs Byrnes without the instrument she had signed: the trial judge declared only that Mr Kendle held half the net sale proceeds for her assignee, dismissed the breach claims including the failure to collect rent, and ordered her and her son to pay Mr Kendle's costs. Whether a trustee's years of inaction were answerable at all, and who paid for finding out, turned on a ruling about what evidence could be heard.

And notice where the costs fell. A trustee denying he was ever a trustee is not a desperate argument: it won at trial. The Full Court rejected it ([51], [92]) and Mr Kendle revived it here by notice of contention. When it failed again the costs followed the denial rather than the rent: "the salient feature of the litigation has been the refusal of the respondent to acknowledge his position as trustee under the 1997 Deed", and he was ordered to pay the costs of the whole of it ([88]).

Exam and application relevance

Ask first whether there is a written declaration and whether it is under attack for a recognised vitiating reason. If there is one and it is not, construe it and stop: the settlor's testimony about what he meant is not evidence you need to weigh, and citing Jolliffe for the contrary is the trap. If the declaration is informal or the trust is said to arise from conduct, you are in the same inquiry with more material in it: "all the relevant circumstances" are admissible ([54]) and the question they answer is unchanged ([55]). Keep formation and breach separate — Mr Kendle lost on both, but on different material, and the second question does not reopen the first.

Check your understanding

The trial judge believed Mr Kendle's evidence about what he meant when he signed. Why did that finding of fact not decide the case?