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High Court of Australia |
CHARLES MARSHALL PTY. LTD. v. GRIMSLEY [1956] HCA 28; (1956) 95 CLR 353
Evidence
High Court of Australia
Dixon C.J.(1), McTiernan(1), Williams(1), Fullagar(1) and Taylor(1) JJ.
CATCHWORDS
Evidence - Presumptions - Advancement - Resulting trust - Allotment at direction of father of shares in company to daughters - Subsequent handing by daughters of share certificates signed in blank to father - Intention of parties - Whether presumption of advancement rebutted - Subsequent acts and declarations of parties - Admissibility.
HEARING
Melbourne, 1956, May 28, 29; June 15. 15:6:1956DECISION
June 15.2. The appellant company was incorporated in February 1924. It was formed to purchase from its founder, Charles Marshall (hereinafter called the donor), the engineering business he was then carrying on for 35,000 pounds to be satisfied by the issue of 35,000 shares as fully paid. The donor decided to divide the whole of the 35,000 shares, except for 200 shares, into five parcels of 6,960 shares each and to direct the company to allot one of these parcels to himself and the other four parcels one each to his second wife, her daughter the defendant Isobel Mary Hawes, and the plaintiffs Mrs. Grimsley and Mrs. Graham, the two daughters of his first marriage, respectively. Of the parcel to be allotted to the donor 6,959 were called founder's shares and were to confer upon him whilst he was the holder but no longer the right at every meeting of the company to seven votes on each share held by him as against one vote on each of the ordinary shares in the company. (at p359)
3. At the first meeting of the directors of the company which was held on 28th March 1924 the five parcels of shares were allotted in this manner and the names of these five persons were entered in the register of members of the company accordingly. About 3rd April 1924 the donor told the plaintiffs of the allotments. He summoned Mrs. Grimsley to his home and told her that he was changing his business into a company of five, that there would be herself, her mother (really stepmother), her two sisters (really sister and halfsister) and himself and that there would be a dividend every year provided the business paid. He asked her to sign a number of documents which he said were for shares in the company and said that he would look after them for her. The documents were in fact eight share certificates totalling 6,960 shares and they each contained transfers on the back which she signed in blank. He obtained her signature on behalf of the company to a receipt dated 3rd April 1924 acknowledging the receipt of the scrip from the company. He told her he would look after the documents for her and retained the certificates in his own custody. On or about the same date a similar transaction took place between the donor and Mrs. Graham at his office. He told her that he was forming his business into a company, that the same persons would be the shareholders, and that he wanted her to sign some documents which were also in fact eight certificates for 6,960 shares with transfers in blank on the back which she signed. He also obtained her signature on behalf of the company to a receipt dated 3rd April 1924 acknowledging the receipt of the scrip from the company. In her case also he retained the certificates in his own custody. Thereafter, during the rest of the donor's life, the plaintiffs received cheques in respect of their parcels of shares for dividends from the company whenever dividends were declared. These cheques were handed to the plaintiffs by the donor. The business prospered and dividends were declared in every year except in some years during the depression and in these years the donor made good the loss to the plaintiffs out of his own pocket. He never attempted to make any use of the transfers in blank on the backs of the certificates of the shares allotted to the plaintiffs. (at p360)
4. The donor died on 3rd April 1953. By a second codicil to his will he appointed Mrs. Hawes, her husband and A. H. Pearcey, solicitor, his executors and trustees and bequeathed all his shares in the company to Mr. and Mrs. Hawes. A few days after his death Mrs. Hawes went to the bank where he kept his deed box and opened it and found in it two envelopes, one containing the certificates of the shares allotted to Mrs. Grimsley and the other the certificates of the shares allotted to Mrs. Graham. The envelope that contained Mrs. Grimsley's certificates bore on its face in the handwriting of the donor the words "The property of H. Grimsley, Charles Marshall" and also in typewriting the words "Charles Marshall Pty. Limited" and in an unknown hand written by a biro pen "6,960 shares". Within the envelope, there was also enclosed a sheet of paper dated 17th December 1935 signed by the donor on which were typewritten the words "These (shares) are not my property but belong to the within-named" followed by the name "Harriett Grimsley" in his handwriting. The other envelope contained a similar notation on its face in favour of Mrs. Graham, that is to say a statement signed by the donor that it was "The property of R. Graham", in typewriting the words "Charles Marshall Pty. Limited" and in an unknown hand written by a biro pen "6,960 shares". Within the envelope in addition to the certificates there was a corresponding note dated 17th December 1935 signed by the donor that "These (shares) are not my property but belong to the within-named" (typewritten) followed by the name "R. Graham" in his handwriting. (at p360)
5. Mrs. Hawes opened these envelopes without consulting the plaintiffs and handed them and their contents to her co-executor A. H. Pearcey. He proceeded to obtain the opinion of senior counsel, presumably upon the question whether the shares allotted to the plaintiffs belonged to them or to the estate of the donor. But, as neither the case submitted for the opinion of counsel nor the opinion itself was tendered in evidence, we are left in the dark as to the specific questions or material submitted to him or as to his specific answers. What does appear, however, is that on receipt of the opinion the executors disclosed these shares as part of the donor's estate for the purpose of death duties. On 17th December 1953 they filled in the blank transfers to themselves as transferees as entitled thereto in equity. On 23rd April 1954 they caused the shares to be transferred into their own names in the share register of the company. This was a simple manoeuvre to effect because Mr. and Mrs. Hawes were then the sole directors of the company. On 26th April 1954 and on 9th November 1954 dividends were declared by the company but the plaintiffs were not invited to participate. As will appear, the plaintiffs were not even told by Mrs. Hawes or by Mr. Pearcey that the envelopes had been found in the deed box or that the shares had been transferred from their names into those of the executors. The plaintiffs first learned about the envelopes and their contents when they were disclosed on discovery on 4th October 1955. (at p361)
6. There is a quantity of other evidence in the case including evidence of the circumstances attending the allotment and registration in the books of the company of the two parcels of shares allotted to the second Mrs. Marshall and her daughter. This evidence consists of documents and the oral evidence of Mrs. Hawes. From this evidence it appears that the donor also got them to sign transfers in blank on the back of their certificates and give the company receipts for the scrip. It would appear that he had in his deed box envelopes bearing their names dated 17th December 1935 corresponding to those in the names of the plaintiffs containing their certificates although the envelope in favour of his second wife was apparently destroyed after her death. The second wife died on 30th January 1938. By her will she made her daughter her sole executrix and bequeathed to her all her property. The shares in the company allotted to her mother were disclosed for death duties by Mrs. Hawes and subsequently transferred to her in the share register of the company as the beneficiary under her mother's will. Mrs. Hawes gave evidence that when she signed the transfers in blank and other documents the donor told her that the shares would really not be hers because she was signing them all back to him and that the plaintiffs' shares were in the same position. She also gave evidence that when the plaintiffs attended the donor to receive their dividends he told them, when questioned by them on more than one occasion, that the shares were not theirs because they were signed on the back. The plaintiffs, on the other hand, said that all that the donor ever said to them when they were receiving the cheques was to be careful of the money and that he never said they were not the real owners of the shares. (at p361)
7. It is clear, for reasons which will hereinafter appear, that very little of this evidence is admissible. But the evidence of Mrs. Hawes, even if admissible, cannot be acted upon for the simple reason that his Honour considered her a completely unreliable witness. Her evidence to the effect that the respective parcels of shares were, to the knowledge of all the allottees, really held on trust by them for the donor is impossible to reconcile with the return by her of the shares allotted to her mother as part of her mother's estate for the purposes of death duties and the transfer of these shares into her own name. At one stage of the cross-examination Mrs. Hawes said that she understood her father was giving her the shares but he could take them back at any time and this statement, as will be seen, is not irreconcilable with one view of the facts, that is to say that the gifts of the shares were subject to a power of revocation by the donor if he chose to fill in the blank transfers and transfer the shares to himself or some other person. But, as will also be seen, this view does not assist the appellants. (at p362)
8. Mrs. Hawes' conduct towards the plaintiffs after her father's death was not such as to be likely to commend itself to any judge and it certainly did not commend itself to his Honour. Her attempts to justify her failure to disclose to the plaintiffs the presence in the deed box of the envelopes stated to be their property and to justify the subsequent secretive transfers of the shares from their names into the names of the executors in the share register of the company did not impress him. She must have been an optimist if she hoped that they would. His Honour believed Mrs. Grimsley when she said that shortly before his death the donor had told her that there was a letter in the deed box for her and that she asked Mrs. Hawes if she had not found one there. Mrs. Hawes admitted that she had denied that there was such a letter and attempted to excuse herself by saying that she did not regard the envelope as a letter and that she had never denied there was an envelope because she had not been asked if there was one. She said she had told them that their shares were in the deed box all bundled up together with their names on the bundles. She could not remember whether she said they were in envelopes. The only fair inference is that she did not tell them of the envelopes. She admits that she never told them about the very important pieces of paper in the envelopes. Her conduct, and that of Mr. Pearcey, in failing to inform the plaintiffs of the envelopes and their contents, was certainly open to comment. His Honour was certainly justified in refusing to accept Mrs. Hawes as a witness of truth. Counsel for the appellants did not, and indeed could not, suggest that the appeal should be conducted on any other basis. On the other hand his Honour was justified in accepting the plaintiffs as truthful witnesses. Of them he said: "Having seen and having heard the evidence of the plaintiffs I am satisfied that neither of them could at any time have been regarded as a competent business woman, and I am satisfied that the deceased did not explain to either of them that the shares were not really to be their shares or that by signing as he directed them they were signing them back to him, so that he could take them back whenever he wanted to. The truth was, I think, that they trusted their father and were appreciative of receiving an interest in his business, and were prepared to sign wherever he told them to and whatever he told them to, and that he got them to sign the transfer in blank for some reason, which he did not disclose to them." One matter said to reflect on their credit perhaps requires comment. It relates to Mrs. Grimsley only. She was separated from her husband in 1932. He dies early in 1952 and later in the year she applied for maintenance out of his estate. In her affidavit sworn on 23rd September 1952 she described herself as the nominal owner of 7,000 shares in Charles Marshall Pty. Ltd. which returned her an average of approximately five pounds per week. This statement was seized upon as an admission that she knew she was not the real beneficial owner of the shares. She said, however, that she did not know the significance of the word "nominal", she was not certain what interest she had in the shares, but she thought she would at least get the income from them during the donor's lifetime. His Honour, after seeing Mrs. Grimsley and her daughter, who also used the same word in her affidavit, and observing them as they were cross-examined, was inclined to think that neither of them was responsible for the use of the word or really understood the various meanings that it could have. The word "nominal", even if Mrs. Grimsley understood its meaning, is by no means inconsistent with the possible view of the facts already foreshadowed in referring to Mrs. Hawes' evidence, namely that her beneficial interest was nominal in the sense that it could be revoked at any time by the donor filling in the blank transfers and transferring the shares to himself or to some other person. When the affidavit was sworn the donor was, of course, still alive. (at p363)
9. But, in any event, evidence of this sort, even if admissible, is of negligible value. We are in the presence of the familiar problem that arises whenever a person purchases and pays for property, real or personal, whatever its description may be, the legal title to which is transferred by his direction into the name of another person. If that person is a stranger, the presumption of a resulting trust arises and he holds the property on trust for the purchaser. But if the purchaser is the father of or a person in loco parentis to the legal owner, the presumption arises from the relationship of the parties that the father intended to purchase the property to advance his child and to make the child not only the legal but also the beneficial owner of the property. These presumptions were described as landmarks in the law by Eyre C.B. as far back as 1788 in the leading case of Dyer v. Dyer (1788) 2 Cox 92 (30 ER 42) . In Sidmouth v. Sidmouth [1840] EngR 538; (1840) 2 Beav 447 (48 ER 1254) , decided in 1840, Lord Langdale M.R. said: "The law applicable to cases of this nature is subject to so little doubt that it has not been questioned in the argument of this case. Where property is purchased by a parent in the name of his child, the purchase is prima facie to be deemed an advancement; the resulting or implied trust which arises in favour of the person who pays the purchase-money, and takes a conveyance or transfer in the name of a stranger, does not arise in the case of a purchase by a parent in the name of a child; but still the relation of parent and child is only evidence of the intention of the parent to advance the child, and that evidence may be rebutted by other evidence, manifesting an intention that the child shall take as a trustee; and in this case, as in most others of the like kind, the only question is, whether there is such other evidence. That cotemporaneous acts and even cotemporaneous declarations of the parent may amount to such evidence, has often been decided. Subsequent acts and declarations of the parent are not evidence to support the trust, although subsequent acts and declarations of the child may be so; but, generally speaking, we are to look at what was said and done at the time" (1840) 2 Beav, at p 454 (48 ER, at p 1257) . (at p364)
10. The law applicable to cases of this nature can, as Lord Langdale said, no longer be the subject of argument. It is not surprising, therefore, to find it stated in almost identical language in the most recent illustration, that is, in the decision of the House of Lords in Shephard v. Cartwright (1955) AC431 . That is a case where a father had caused shares for which he subscribed in cash to be allotted in the names of himself, his wife, two sons and a daughter. At the risk of repetition, because of their high authority, some passages from the speech of Viscount Simonds should be cited. His Lordship said: "My Lords, I do not distinguish between the purchase of shares and the acquisition of shares upon allotment, and I think that the law is clear that on the one hand where a man purchases shares and they are registered in the name of a stranger there is a resulting trust in favour of the purchaser ; on the other hand, if they are registered in the name of a child or one to whom the purchaser then stood in loco parentis, there is no such resulting trust but a presumption of advancement. Equally it is clear that the presumption may be rebutted but should not, as Lord Eldon said, give way to slight circumstances : Finch v. Finch [1808] EngR 125; (1808) 15 Ves Jun 43 (33 ER 671) " (1955) AC, at p 445 . On the same page his Lordship referred to the evidence by which the presumptions can be rebutted. He cited a passage from Snell's Equity, 24th ed. (1954), p. 153 : "The acts and declarations of the parties before or at the time of the purchase, or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the party who did the act or made the declaration . . . But subsequent declarations are admissible as evidence only against the party who made them, and not in his favour." His Lordship, after criticising some earlier judgments, said : "the burden of authority in favour of the broad proposition as stated in the passage I have cited is overwhelming and should not be disturbed" (1955) AC, at p 446 . (at p365)
11. In the present case the first thing that happened was that the donor directed the company to allot the shares to the plaintiffs and to register them as shareholders. As Viscount Simonds said, there is no distinction between the purchase of shares and the acquisition of shares upon allotment. Exactly the same presumption arises. The plaintiffs are the daughters of the donor and the initial presumption is that he intended to give the shares to them or, in other words, to make them the absolute beneficial as well as the legal owners of the shares. The plaintiffs start with this advantage. The presumption can be rebutted or qualified by evidence which manifests an intention to the contrary. Apart from admissions the only evidence that is relevant and admissible comprises the acts and declarations of the parties before or at the time of the purchase (in this case before or at the time of the acquisition of the shares by allotment) or so immediately thereafter as to constitute a part of the transaction. If that evidence is insufficient to rebut the presumption the beneficial gift, absolute or subject only to qualifications imposed upon it at the time, is complete and no subsequent changes of mind or dealings with the property inconsistent with the trust by the donor can as between himself and the donees alter the beneficial interest. In Murless v. Franklin [1818] EngR 128; (1818) 1 Swans 13 (36 ER 278) , in a passage cited by Viscount Simonds in Shephard v. Cartwright (1955) AC, at p 446 , Lord Eldon said that : "the evidence of the intention of the father must apply to the time of the purchase : subsequent acts will not enable him to convert an advancement for his sons into a beneficial purchase for himself" (1818) 1 Swans, at p 19 (36 ER, at p 280) . The same thing had been said by the Chancellor in Ebrand v. Dancer (1680) 2 Ch Ca 26 [1680] EngR 262; (22 ER 829) 138 years before in a case where a grandfather purchased bonds in the names of his grandchildren, the father being dead : "It shall not be judged trusts, but provision for the grand-child, unless it be otherwise declared at the same time" (1680) 2 Ch Ca, at p 26 (22 ER, at p 829) . (at p366)
12. The execution of the transfers in blank on the back of the certificates by the plaintiffs and the retention of the certificates by their father constituted a part of the transaction. So did the statements of the donor that there were to be five shareholders in the company and his statement to Mrs. Grimsley that he was keeping her certificates not because the shares were really his but so that he could look after them for her. These statements, so far as they go, favour the plaintiffs. But they do not go far. In any event they cannot favour the appellants. A father does not usually promise his daughter to look after his own property. The execution of the transfers in blank is more important. But the significance of even this part of the transaction is equivocal. The donor may well have thought that he could look after property he gave his daughters better than they could and have wished to prevent them disposing of the shares otherwise than with his consent. He may have wished to be in a position to dispose of the undertaking of the company by selling all the shares if he thought fit and for that purpose to be in a position to sell the plaintiffs' shares on their behalf. The onus was on the defendants to rebut the initial presumption of advancement. As Lord Langdale said, as between parent and child the presumption of a resulting trust does not arise ; it has to be proved. Subsequent statements or acts by the donor could only be evidence not for but against him so far as they were admissions that the plaintiffs were the beneficial owners of the shares. Subsequent statements or acts by the plaintiffs could only be evidence not for but against them so far as they were admissions that the shares were allotted to them as trustees for their father. But the evidence of subsequent events, far from rebutting the presumption, supports it. The payment of the dividends to the daughters, the cheques being handed to them by the donor himself, are a clear admission by him that he intended the plaintiffs to be the beneficial owners of the shares. The envelopes, their inscription, and the notes they contained are an even clearer admission. It might be possible to infer from the execution of the transfers in blank that the donor intended the gifts to be subject to a power of revocation. Such intention was inferred by Kindersley V.C. in Beecher v. Major (1865) 2 Dr & Sm 431 (62 ER 684) . The facts in that case, except that the gift was by an aunt to a niece and it was held that the aunt was not in loco parentis so that the niece had in the first instance to rebut the resulting trust, bear a close resemblance to the present facts. The aunt purchased stock in the name of her niece and wrote her a letter stating that she had done so and that she intended it for the niece's benefit. In the letter she enclosed a bank power which she stated was to enable her to receive dividends for her life, which power she requested the niece to execute and return to her, and also to destroy the letter ; both of which the niece accordingly did. It afterwards turned out that the bank power authorised the aunt to sell out the stock as well as receive the dividends. Kindersley V.C. said : "And, in the next place, Mrs. Beecher's procuring the power of attorney shewed no intention to retain beneficial ownership ; it was only reserving to herself a power to defeat Mary Major's interest, and it stands on the same footing as if Mrs. Beecher had executed a formal declaration of trust in Mary Major's favour, with a power of revocation. The reservation of the power of revocation would not have destroyed the trust if the power was not exercised" (1865) 2 Dr & Sm, at p 437 (62 ER, at p 687) . That case was one of the cases relied upon as an authority for the passage that occurs in Kauter v. Hilton [1953] HCA 95; (1953) 90 CLR 86 , where it is said : "The fact that the depositor (in this case the donor) reserved a right to revoke the trust would not prevent an immediate trust arising and if the trust was not revoked by the depositor (donor) in his lifetime the beneficiary would be just as much entitled to the money (in this case shares) as a beneficiary under an irrevocable trust" (1953) 90 CLR, at p 100 . So that, even if the donor did reserve a power of revocation, since he did not exercise it, the appellants do not establish their case. The appellants sought to derive some advantage from the fact that the donor made payments out of his own pocket to the plaintiffs in lieu of dividends in the years when the company did not make sufficient profits to declare a dividend. But these payments were not contemporaneous with the allotment of the shares and could not be evidence to rebut the presumption, even if they could have any probative value. They could only be evidence of admissions by the donor to support it. But they have no real probative value at all. They simply exemplify what any affectionate father might do in the circumstances. If they exemplify anything more, they indicate a desire on his part to prevent the plaintiffs being disappointed in not receiving the annual benefits from the shares that he intended them to receive and to that extent they are an admission that he meant the shares to be theirs. (at p368)
13. The appeal should be dismissed with costs. (at p368)
ORDER
Appeal dismissed with costs.
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