Citation: Howell v Hyde [2003] NSWSC 732
Court: Supreme Court of New South Wales, Equity Division
Date: 11 August 2003
Judge(s): Austin J
Background
Evelyn Holland died in 1989, having made a will and two codicils. The second codicil gave her company shares and investments to her de facto partner, Thomas Holland, along with a life estate in their home. The residue of her estate was directed to her daughter, Pamela.
The plaintiffs were two of Pamela's four children. They alleged that before Evelyn made the second codicil, she had secured Thomas's agreement that he would hold the shares and investments on trust for Pamela, or for Pamela's children if she predeceased him. Pamela had since died. Thomas later died leaving the residue of his estate, which included those shares, conditionally to his brother.
The plaintiffs brought proceedings against the executors of Thomas's estate, seeking to establish a fully secret trust over the shares and investments that had passed to Thomas from Evelyn's estate.
Legal Issues
- Whether a fully secret trust arose over the company shares and investments bequeathed to Thomas under the second codicil
- What standard of proof applies to secret trust claims, and whether the evidence was sufficient to meet it
- Whether the trust property was identified with sufficient certainty
- Whether the obligation attached to Thomas required him to retain the investments in their original form, rather than sell them
- Whether Thomas's breach of the obligation, by selling shares during his lifetime, affected the nature of the relief available
Decision
Austin J applied the civil standard of proof (balance of probabilities) to the secret trust claim, noting that while the evidence required careful scrutiny given its nature, no higher standard was warranted. The evidence consisted of affidavits from Pamela's children and several family friends recounting conversations between Evelyn, Thomas and Pamela over the period from 1981 to shortly before Evelyn's death. None of the deponents were cross-examined.
The court found five key conversations established the necessary elements of a fully secret trust. Across those conversations, Evelyn communicated to Thomas, with sufficient clarity, that he was to hold the shares and investments for the benefit of Pamela (or her children) and leave them by his will accordingly. Thomas assented to that obligation on multiple occasions. The court was satisfied that these communications and assents occurred before or at the time the second codicil was made, which is the critical timing requirement for a fully secret trust.
On the question of certainty of subject matter, Austin J found that Evelyn's references in conversation to "my shares and investments" and similar expressions were sufficiently referable to the property identified in the second codicil. The codicil itself described that property as "all my company shares and investments in companies," and the conversational references were consistent with that description.
The court also found that Thomas was obliged to retain the investments in their original form. Although Thomas was authorised to manage the investments and was entitled to retain the income (dividends), the conversations made clear he was to keep the capital and leave it by will. To the extent he sold shares during his lifetime, he acted in breach of that obligation, and a tracing exercise would be required to identify remaining trust property in his estate.
Orders Made
- A declaration that the defendants, as executors of Thomas's estate, hold the shares and investments that passed to Thomas from Evelyn's estate on trust for the four children of Pamela (not only the two plaintiffs)
- An order requiring the defendants to take the steps necessary to transfer title to those beneficiaries
- A referral to a Master to inquire into and determine the investments and shares held by Thomas at the date of his death, and to identify any property representing or constituting the proceeds of the original trust property
- The plaintiffs were directed to prepare draft short minutes of orders, with costs submissions to follow
Key Takeaways
- A fully secret trust requires communication of the obligation to the legatee, and that legatee's acceptance, before or at the time the will or codicil conferring the gift is made. The Supreme Court confirmed that assent by conduct, such as nodding or saying "she'll be right," can satisfy that requirement.
- The civil standard of proof (balance of probabilities) applies to secret trust claims, even though the nature of such evidence demands careful scrutiny. No elevated standard of proof operates merely because the claim rests on oral evidence of deceased parties' conversations.
- Sufficient certainty of trust property may be established where conversational references to assets are reasonably referable to property identified in the testamentary instrument, even if the informal language used in those conversations differs from the formal language of the will or codicil.
- A secret trust obligation to "keep" investments and leave them by will does not authorise the legatee-trustee to sell those assets, even where the legatee is permitted to manage them and retain income. Sales in breach of that obligation may require a tracing exercise to identify surviving trust property.
- Where a secret trust is established for a class of beneficiaries (here, all four of Pamela's children), the trust attaches in favour of the full class, not merely the parties who brought the proceedings.
Legislation and Cases Referenced
Cases cited:
- Blackwell v Blackwell [1929] AC 318
- Brown v Pourau [1995] 1 NZLR 352
- French v French [1902] 1 IR 172 (HL)
- McCormick v Grogan (1869) LR 4 HL 82
- Ottaway v Norman [1972] 1 Ch 698
- Re Snowden (dec'd) [1979] Ch 528
- Voges v Monaghan (1954) 94 CLR 231
No legislation was cited in this decision.