David 2
29 Apr 1991
23 May 1996
03 Feb 2005
B.Com. (Hons), LLM.
Legalbrief sm
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Disgruntled siblings lose appeal over family farm sold to brother

Linke v Linke

The Victorian Court of Appeal has dismissed an application for leave to appeal arising from a deceased estate where the will was made in 1941 and the  testator died in 1962! 

In  Linke v Linke Johannes Linke was the testator. His will required his farming business to be carried on by his executors until the last of his five children turned 21. Thereafter the executors were to pay an annuity of 150 pounds to his widow and hold the farm for the children as tenants in common. But in 1972 the executors sold the farm to one of Johannes' sons, Victor, and his wife, they having worked the farm over the proceeding decade. Upon sale of the farm various monies were paid by the executors to the other children out of the sale proceeds. In 2003 Victor and his wife transferred part of the farm to their son Colin and his wife Maria, as a gift. 

In 2015 Victor paid further sums to his 3 of his siblings as an estate distribution but the siblings demanded more. By this time their mother was dead. Victor then agreed to pay an additional $50,000 to each of his siblings and a deed of release was executed by all parties. There, you weren’t expecting that last bit were you? It’s hard to believe the matter still proceeded to litigation and an appeal in those circumstances but the dissatisfied siblings relied on Bullhead Pty Ltd v Brickmakers Place Pty Ltd (in liq)  to say they weren’t bound by the release because Victor had not made full disclosure. More about that later.

The disgruntled siblings of Victor sued Victor and his wife and Colin and his wife. The substance of their complaint was that the will contained no power of sale and that Victor and his wife had knowingly purchased the farm at an undervalue. Colin and his wife were presumably said to have received trust property with knowledge of the breach of trust. The first ground failed at first instance and on appeal. The Court of Appeal held that there was an implied power of sale because the discharge of the estate’s liabilities, including the widow’s annuity, could well require it. (Lesson: don’t rely on an implied power, make sure your wills either include an express power of sale or explicitly prohibit sale). 

In relation to the purchase of the farm at an undervalue, the Applicants relied upon Black v S Freedman & Co  which holds that a person who holds trust property which has been stolen holds their possessory title on trust for the true owner. But the Court of Appeal held that this case had no application: not only had the applicants never pleaded theft, nor opened their case on the basis of it, the principle had no application because the respondents had purchased the farm, i.e. they were not volunteers. But even on the correct (Barnes v Addy) pathway of knowingly receiving property transferred in breach of trust, the applicants still failed because there was insufficient evidence that the executors, all now dead, had sought to effect a fraud on the beneficiaries. The Court of Appeal remarked that the applicants needed to explicitly plead and prove their case in fraud and this they failed to do.

Not wanting to leave anything undone, the Court of Appeal hammered one last nail into the applicant’s coffin: they explained that the principle in Bullhead is that a trustee seeking release for breach of trust by a beneficiary has to ensure that the beneficiary is fully informed. This principle was of no use to the applicants because the issue of whether the respondents were constructive trustees was the very matter in dispute, i.e. this part of the applicant’s case was circular.

There are many lessons to learn from this case. One of them is that clients with family businesses are well advised to preserve all their records, and well beyond what the ATO requires. And now that so many records are digital, uploading records to the cloud is advisable too because it guards against corruption and loss of digital media. Another lesson, as I mentioned, is to include powers of sales in wills you draft. But I think the most important lesson is that before you commence litigation, you need to map out exactly the  principles you rely upon and set out how they are engaged by the available evidence.