[2004] HCA 7
Baumgartner v Baumgartner (1987) 164 CLR 137
[1987] HCA 59
El Sayed v El Hawach (2015) 88 NSWLR 214
[2015] NSWCA 26
Lewis v Condon (2013) 85 NSWLR 99
Source
Original judgment source is linked above.
Catchwords
[2004] HCA 7
Baumgartner v Baumgartner (1987) 164 CLR 137[1987] HCA 59
El Sayed v El Hawach (2015) 88 NSWLR 214[2015] NSWCA 26
Lewis v Condon (2013) 85 NSWLR 99
Judgment (5 paragraphs)
[1]
Judgment
These proceedings were commenced by Summons in March 2017. Before the Court are two interlocutory applications, one by two subpoenaed parties to have the subpoena issued to them set aside, and the other by the plaintiff to file a Statement of Claim.
The proceedings concern the estate of the late Mark Patrick Butcher, who died in August 2016 aged 53. For convenience, and without disrespect, I will refer to the members of the deceased's family by their first names.
The plaintiff, Hayley Lorraine Butcher, is the daughter of the deceased. She is now 26 years old. She seeks a family provision order out of the deceased's estate pursuant to Succession Act 2006 (NSW), s 59.
The deceased was diagnosed with non-Hodgkin lymphoma in late 2010 and with multiple myeloma and cardiac amyloidosis in late 2014. His last will was made in March 2016. By the will, the deceased appointed the first defendant, Mr Balog, and the second defendant, Mr Phillip Butcher, as his Executors. Mr Balog is the deceased's family's solicitor. Mr Phillip Butcher is the deceased's brother.
Under the deceased's will, the plaintiff, who is the deceased's only biological child, was left a legacy of $100. The principal asset of the estate was a property at Nelson Street, Cessnock, which was valued for the purposes of probate at $216,000. The deceased left the property in one-third shares to Tracey Proctor, Jessie James Fraiser, and Jack Humphreys. Ms Proctor is the former de facto partner of the deceased and the mother of the plaintiff. The other two devisees of the property are the children of the plaintiff, and hence the grandchildren of the deceased. They are currently four and six years old and become entitled only on attaining 18 years of age. The residue of the deceased's estate was left to Ms Proctor.
The plaintiff has apparently had problems with drugs in her life. I was informed from the Bar Table that she does not have custody of her children. Rather, the children are looked after by the plaintiff's half-brother, Sean Proctor, who is Ms Proctor's son by a previous relationship (and who also received a $100 legacy in the will). The plaintiff lives on social security benefits and has no assets of any substance. The plaintiff's solicitors are conducting the litigation on a contingency basis.
The two applications before me arise out of contentions made on behalf of the plaintiff that the deceased's estate has, or may have, entitlements to interests in two properties owned by Melvyn Patrick Butcher and Meryl Lorraine Butcher, who are the deceased's parents.
The first property is a residential property at Brooklyn which was purchased by the deceased's parents in July 2006. The deceased was a tradesman and apparently undertook some of the work of constructing a house on the property between 2007 and late 2010, or perhaps later. According to the plaintiff, the deceased told her that the house was costing him a lot of work and expense, but it would be his home and she could expect to inherit it from him. The plaintiff's contention is that the deceased's estate has, or may have, an equitable proprietary interest in the property, or part of it, by way of proprietary estoppel, or under the "failed joint endeavour" equity recognised in Baumgartner v Baumgartner (1987) 164 CLR 137.
The second property is a property at Mount View Road, Cessnock, acquired by the deceased's parents in August 2015. The property was acquired for $245,000. Shortly beforehand, the deceased made a payment of $100,211.24 to his parents. The plaintiff contends that the payment was, or may have been, a payment made to acquire the property, giving rise to a resulting trust in favour of the deceased for a share of the property. The deceased's parents deny this and contend that the monies represented a repayment of monies previously owing to them from the deceased. The property was subsequently sold for $285,000, and the potential claim would, therefore, be to a share of the sale proceeds.
In May 2017, the solicitors for the plaintiff wrote to the deceased's parents enclosing a proposed Statement of Claim which propounded claims against them in relation to the Brooklyn and Mount View Road properties and named them as additional defendants. As is explained below, the proper plaintiffs in making such claims on behalf of the estate were the Executors. The Executors considered whether to pursue the claims made but decided not to do so. The Executors' position was made clear by the first defendant's affidavit of 31 July 2017.
On 18 August 2017, the plaintiff had a subpoena issued to the deceased's parents seeking financial records relevant to the potential claims. This resulted in a notice of motion by the deceased's parents to have the subpoena set aside, which is one of the applications before me.
On 13 September 2017, the plaintiff filed a notice of motion seeking orders for the filing of a Statement of Claim as foreshadowed earlier (but in different terms), which is the other application before me. The form of the proposed Statement of Claim has subsequently been amended again and the argument before me has proceeded on the basis of the revised document.
The Executors were represented by counsel at the hearing before me. They oppose the relief sought, to the extent that it would enable the plaintiff to pursue claims on behalf of the estate, but ultimately accept that it is a question for the Court.
The deceased's parents were represented by counsel in their application to set aside the subpoenas. I also granted leave to them, as interested parties, to be heard in opposition to the plaintiff's application to file the Statement of Claim.
[2]
Application to file Statement of Claim
If successful, the claim concerning the Mount View Road property would result in the deceased's estate having a proprietary interest in the property by reference to the amount of the payment made by the deceased. But, in the alternative, the plaintiff wishes to seek an order designating the monies paid as notional estate for the purposes of her family provision application. The payment was made more than a year before the deceased died and, accordingly, the Court could only designate the monies as notional estate if satisfied that the payment was made for the purposes of "denying or limiting" potential claims against the deceased's estate: Succession Act 2006 (NSW), s 80(2)(a). Although the deceased by that stage had been diagnosed with cancer, there is no direct evidence to support the idea that he was seeking to put assets beyond the plaintiff's reach. However, it is ultimately a question of fact and the plaintiff is entitled to pursue the allegation if she is so advised. Accordingly, leave should be granted to the plaintiff to amend, at least so as to seek a notional estate order in relation to the monies, and for that purpose to join the deceased's parents as additional defendants. Counsel for the deceased's parents did not submit to the contrary.
The substantial dispute is whether the plaintiff should also be permitted to pursue, in these proceedings, her contentions concerning the alleged liabilities of the deceased's parents to the deceased's estate.
The quantum of the estate is relevant to the ultimate question which arises in the plaintiff's family provision claim, namely, whether the provision made in the will was "proper". But the liabilities alleged are liabilities to the deceased's estate, not to the plaintiff. If the claims were sustained, the deceased's parents would be required to account to the estate. Accordingly, the Executors, on behalf of the deceased's estate, are the appropriate parties to bring the claim and they have declined to do so. However, there is a recognised exception in the area of trusts which, in my opinion, is equally applicable to deceased estates. Where a trustee declines to pursue a claim against a third party, the Court may permit a beneficiary of the trust, if there are "special circumstances", to bring a suit for the benefit of the trust in the beneficiary's own name, joining the trustee as an additional defendant: Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109 at 129 [55]-[56].
The relevant relief sought in the proposed Statement of Claim is purely declaratory. The Statement of Claim does not seek any coercive or monetary relief against the deceased's parents in favour of the estate. The Court, of course, has power to grant purely declaratory relief pursuant to Supreme Court Act 1970 (NSW), s 75. However, in El Sayed v El Hawach (2015) 88 NSWLR 214 at 225 [58], the Court of Appeal said that "[r]estrictions on standing are not sidestepped by reference to the broad jurisdiction to grant declaratory relief". In the present case, merely to declare the existence of liabilities from the deceased's parents to the deceased's estate would not fully dispose of the dispute. Such declarations would be of no value to the plaintiff unless accompanied by orders requiring the deceased's parents to account. Accordingly, I proceed on the basis that the plaintiff needs to establish that this is a suitable case for her to be authorised to bring a derivative suit on behalf of the estate.
Although the plaintiff is a beneficiary under the will, she is to receive only a legacy of $100. If the will stands, she has no economic interest in the pursuit of the potential claims against the deceased's parents; those claims, if successful, would enure for the benefit of her mother as the residuary beneficiary under the will. It is only if the plaintiff were successful in challenging the will that she might benefit from the potential claims.
In Alexander, the High Court spoke of a derivative suit by a beneficiary. As matters stand, the plaintiff is not a beneficiary in the relevant sense. But in Lewis v Condon (2013) 85 NSWLR 99, the Court of Appeal decided that it was appropriate to authorise one of a class of potential beneficiaries under a discretionary trust to bring a derivative suit for the benefit of the trust. Subsequently, in El Sayed v El Hawach, the first instance Judge raised some questions about this. On appeal, the Court of Appeal stated that the decision in Lewis was binding. Although it did not ultimately prove necessary to deal with the appellant's argument that Lewis should be reconsidered, the Court of Appeal pointed out that there was ample authority to support the proposition that a discretionary object, as opposed to a beneficiary stricto sensu, might be permitted in special circumstances to bring a derivative suit: at 223 [47].
The present case is not one of a discretionary object under a trust. The plaintiff's interest in the pursuit of the claims is contingent. If the plaintiff's family provision claim fails, she will receive no financial benefit even if the claims against the deceased's parents succeed. But, in my opinion, the analogy is close. A discretionary object equally has no vested right to receive income or assets out of the trust and may not ultimately benefit from the success of the proceedings. In my opinion, it is open to the Court in a proper case to authorise a person who is seeking to establish an entitlement to a share of a deceased estate to bring a derivative claim on behalf of the estate where the executors refuse to do so.
This, of course, is subject to demonstrating that there are "special circumstances" which justify authorising a derivative claim. I will return to that issue when I have considered the points taken by counsel for the deceased's parents concerning the pleading.
The potential claim against the deceased's parents arising out of the payment prior to the purchase of the Mount View Road property is, as I have mentioned, based on the contention that the payment by the deceased gave rise to a resulting trust. Ultimately, the claim depends on the nature of the arrangements made between the deceased and his parents. Even if the payment was not the repayment of a loan, it does not necessarily follow that the deceased intended the payment to be for his own benefit. That is merely a rebuttable presumption which would arise if the plaintiff could first establish that the payment was made as a contribution to the purchase of the property. There is no evidence from the plaintiff which suggests that the deceased had any belief that he was entitled to the benefit of the payment and no evidence, even of a hearsay nature, as to the understanding between the deceased and his parents when the payment was made. Nevertheless, the question is one of fact and the claim as pleaded in the Statement of Claim would be sustainable provided that there is evidence sufficient to support the facts alleged.
As mentioned, the potential claim with respect to the Brooklyn property is put on the basis of proprietary estoppel. Such a claim would depend upon a promise having been made by the deceased's parents to the deceased that the deceased had, or would be granted, some sort of interest in the Brooklyn property. On the plaintiff's evidence, the deceased believed when the house was being built that he would have some form of interest. However, there is no direct evidence of the dealings between the deceased and his parents in this regard. Taken on their own, the circumstances do not necessarily suggest that any such promise was made. The deceased's conduct would be explicable on the basis of some sort of arrangement falling short of his receiving a proprietary interest, or even on the basis of natural love and affection. Nevertheless, if the plaintiff's evidence is accepted, there is some basis for thinking that at the time the deceased either had, or would receive, some sort of interest, and that may provide some basis for an inference that such a promise was made to him. To the extent that the potential claim is put on the basis of a "failed joint endeavour" equity, it likewise ultimately depends upon the nature of the understanding (if any) between the deceased and his parents when the building work was done.
There is no evidence from the plaintiff of the terms of any such promise or understanding. The Statement of Claim pleads the promise as follows:
a) Mark [the deceased] would receive a beneficial interest in the Brooklyn Property as tenant in common;
b) following the deaths of Melvyn and Meryl [the deceased's parents], Mark would receive the legal title to the Brooklyn Property; and
c) to that end, the survivor of Melvyn and Meryl would gift to Mark the fee simple of the Brooklyn Property in his or her will.
This formulation is internally inconsistent. It is one thing to say that the deceased would be given an immediate interest as a tenant in common (such an assertion, though, invites the question why no action was apparently taken by the parties to convey the interest in the years between the undertaking of the work and the deceased's death). It is another thing to say that the survivor of the deceased's parents would leave the property to the deceased. A promise in that form also runs into the difficulty that the time for performing the promise has not arrived, and, because the deceased pre-deceased his parents, it will not now be capable of being performed when the time does arrive.
In my view, as currently formulated, the alleged promise is embarrassing. I would not permit the plaintiff to proceed in this way. On any view, I think that the Statement of Claim would need to be reformulated so as to specify the promise (or alternative promises), and resulting relief, in a logical way.
Furthermore, a proprietary estoppel claim could not succeed unless detriment is established. The Statement of Claim pleads that, pursuant to the alleged promise by the deceased's parents, the deceased would, and did:
a) provide his unpaid labour;
b) pay for building materials;
c) pay for tradespersons;
d) manage the building works; and
e) supervise building tradespersons
in relation to the improvement and completion of building works on the Brooklyn Property.
In principle, these are actions by the deceased which would give rise to potential detriment, if established. But the Statement of Claim contains no particulars of precisely what the deceased allegedly did on the house, or when, or of the amounts allegedly expended on building materials and tradespersons.
The deceased's parents are entitled to such particulars in order to defend the case, not only because the plaintiff must establish that the detriment was in fact incurred, but also because it may be necessary for the Court to consider the extent to which any improvements undertaken have depreciated in value: Milling v Hardie [2014] NSWCA 163 at [55(3)], [69]. A "failed joint endeavour" equity claim would give rise to similar considerations. In my opinion, it would only be proper to let a derivative claim go forward if a proper set of particulars were provided.
For these reasons, I would not permit the Statement of Claim, so far as it concerns the potential claim to the Brooklyn property, to be filed in its current form. However, I would be prepared to allow the plaintiff's legal representatives a final opportunity to formulate such a claim in proper form, subject to the remaining question of whether the plaintiff should be authorised to bring such a claim derivatively. Strictly speaking, any relevant records the deceased would have had are now property of the estate, but I would expect the Executors to give the plaintiff access to such records if asked.
It remains to be considered whether there are "special circumstances" which would justify bringing a derivative suit against the deceased's parents in relation to the Mount View Road property (and, if a potential claim in relation to the Brooklyn property can be adequately pleaded, that property also). The authorities on this question were analysed by Powell J in Ramage v Waclaw (1988) 12 NSWLR 84 at 90-93. Over time, the requirement of "special circumstances" has been relaxed and, on one view, it is enough that a potentially valid claim which would benefit the estate will not be pursued: see at 92E, 94A.
In my opinion, this question is best addressed in the present case by considering what prejudice there may be to the Executors or the deceased's parents, and whether such prejudice can be sufficiently alleviated by the imposition of terms. A derivative suit is an instance of equity making available its flexible procedures to avoid injustice in cases where procedures at law are non-existent or inadequate. As with other such instances, equitable relief is ultimately discretionary. If the procedure can be made available or withheld in the exercise of discretion, then I think equity has power to condition its availability on the acceptance of appropriate terms.
If the plaintiff were permitted to advance the alleged claims against the deceased's parents, that would not of itself create any difficulty for the Executors. Counsel for the Executors emphasised that the estate is a small one and the desirability of minimising costs and bringing the administration to an end as quickly as possible. I agree, but the fact is that the plaintiff is entitled to pursue a family provision claim against the estate. There will be expense and there will be prejudice to the beneficiaries if the claim fails and costs cannot be recovered from the plaintiff, but that is something the Court cannot (or at least has not been asked to) do anything about.
If the plaintiff is permitted to bring a derivative claim against the deceased's parents in the interests of the estate, the Executors will not need to participate actively in the claim. It will be open to the Executors to leave that to the plaintiff on the one hand and the deceased's parents on the other; if the claim succeeds, the deceased's parents will be required to account to the Executors and they would distribute the property accordingly. There is thus no direct prejudice in permitting the plaintiff to bring the claim. However, there is an indirect prejudice because the bringing of the claim is likely to lengthen the proceedings, thus increasing the costs of the Executors' representation. Counsel for the plaintiff submitted that the matter could be dealt with by separate questions and the Executors might not need to participate in that part of the hearing at all. In theory that is so, but I doubt whether in practice it will prove feasible. There is likely to be a significant evidentiary overlap between the plaintiff's claim and the proposed claims against the estate which would make it undesirable for those matters to be dealt with separately.
Nor, in my view, is potential prejudice confined to the interests of the Executors. One reason for the basic rule that the trustee is the proper plaintiff in a suit on behalf of the trust is to protect a potential defendant from a multitude of potential claims by the beneficiaries. There is no suggestion that there will be multiple claims in this case, but if the claim were pursued by the Executors, then the deceased's parents would have the confidence that, if successful, they would be entitled to recover their costs out of the estate. If the plaintiff were permitted to bring a derivative action in her own name, the deceased's parents would have no recourse for their costs against the estate and it is clear from the evidence that the plaintiff herself would be unable to meet an adverse costs order.
In my opinion, there is significant potential prejudice which must be overcome if the Court is to authorise a derivative suit. I think it requires the plaintiff to provide security for the additional costs which would be incurred both by the Executors and the deceased's parents if the derivative claims were brought.
I am also concerned as to whether proper consideration has been given to the proposed claims' prospects of success. As I have mentioned, neither proposed claim is supported by direct evidence. Each potential claim is ultimately based on inference and, while the inference is open in each case, I do not see it as being particularly compelling in either case. If the deceased's parents give a contrary account of their dealings with the deceased, it is hard to see how the plaintiff could ever discharge the onus of proof. If filed, the Statement of Claim would not be required under the Court's rules to contain a solicitor's certification to the effect that there are reasonable grounds for believing that the claims against the deceased's parents have reasonable prospects of success: Legal Profession Uniform Law Application Act 2014 (NSW), Sch 2 cl 4(2), which applies only to claims for damages. When I asked counsel for the plaintiff whether the plaintiff would accept the imposition of a term that the Statement of Claim contains such a certification, I was told that it was a matter for instructions. That only reinforces my concerns.
The requirement for such a certificate at least would provide a minimal level of assurance that specific consideration has been given to the prospects of the claims succeeding, and offers some possibility of recourse against the lawyers involved if the claims prove to have been baseless. In my opinion, the Court should not permit a derivative suit to proceed unless such an assurance is available.
[3]
Application to set aside subpoena
Although the plaintiff had previously foreshadowed potential derivative claims on behalf of the estate against the deceased's parents, at the time the subpoena was issued the plaintiff's case as formally constituted in her Summons was only a claim for provision out of the deceased's actual estate. No leave had been obtained (or sought) to plead claims against the deceased's parents in relation to the Brooklyn and Mount View Road properties. Although such an application was subsequently made, I think I must determine the propriety of the subpoena according to the state of the Court's record at the time it was issued. Counsel for the plaintiff did not disagree.
The subpoena seeks an extensive range of documents relating to the potential claims concerning the Brooklyn and Mount View Road properties. The question is whether the subpoena was sustainable by reference to the plaintiff's claim for provision from the deceased's estate.
In general, in a family provision application the size of the deceased's estate is a material factor in determining whether adequate provision has been made for the "proper" maintenance, education or advancement of the plaintiff. Generally speaking, therefore, it is legitimate for a plaintiff to issue subpoenas for evidence which is likely to bear on the quantum of the estate. But in the present case, it is clear that the deceased's parents deny any liability to the estate. The estate could only benefit from the potential claims in relation to the Brooklyn and Mount View Road properties if those claims are pursued against the deceased's parents by means of court process. At the time the subpoena was issued, the Executors, who were the proper plaintiffs, had decided not to pursue any such claims. In those circumstances, I consider that there was no legitimate forensic purpose in the plaintiff issuing the subpoena.
Now that the plaintiff will be making a claim for the monies paid before the purchase of the Mount View Road property as notional estate, and the deceased's parents will be joined as defendants, it will be open to the plaintiff to pursue production of documents relevant to the notional estate claim. Should the plaintiff ultimately be authorised to bring a derivative suit against the deceased's parents with respect to the Mount View Road property or the Brooklyn property, it will likewise be open to the plaintiff to seek documents relevant to such claims. Nothing in this judgment will prevent the plaintiff from taking either step. However, the subpoena originally issued must be set aside.
[4]
Conclusions and orders
For these reasons, I have concluded that:
(1) the plaintiff should be permitted to amend in order to advance the notional estate claim, and to join the deceased's parents as additional defendants for this purpose;
(2) the plaintiff should not be permitted to advance the potential claim with respect to the Brooklyn property in the form currently pleaded;
(3) I would allow the plaintiff to bring a derivative suit against the deceased's parents with respect to the potential claim in relation to the Mount View Road property (and, if it can be properly formulated, the potential claim in relation to the Brooklyn property), but only on terms that:
(a) the Statement of Claim contains a solicitor's certification that for each claim there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim has reasonable prospects of success;
(b) the plaintiff first provides security for the additional costs (that is, above the costs which will be occasioned in any event as a result of the plaintiff's family provision claim, including the claim in relation to notional estate) occasioned by such claims; and
(4) the subpoena issued to the deceased's parents should be set aside.
I can make orders now for the joinder of the deceased's parents as additional defendants, and permitting the plaintiff to amend her claim for relief so as to claim that the monies paid by the deceased shortly before the purchase of the Mount View Road property formed part of his notional estate. It will be necessary for the plaintiff to consider whether to pursue an application to make a claim by way of derivative suit in relation to the Mount View Road property or the Brooklyn property, and, in the case of the Brooklyn property, to make further amendments to the proposed Statement of Claim if the claim is to be pursued. If the plaintiff decides not to do so, a Statement of Claim will probably not be necessary at all and the proceedings can continue by way of Amended Summons. If she does decide to pursue one or other of the claims, it will be necessary to determine the amount of the security to be provided. I will adjourn the proceedings for a period of time to allow the plaintiff to decide what to do.
The costs of the deceased's parents' application to set aside the subpoena should follow the event. Ordinarily, a non-party who successfully has a subpoena addressed to it set aside should be entitled to obtain payment of costs without waiting for the completion of the proceedings, and I see no reason why the subsequent joinder of the deceased's parents to the proceedings should make any difference. Accordingly, I propose to order that the costs of the deceased's parents' motion be payable and assessable forthwith. I will consider the costs of the plaintiff's motion once it is finally disposed of.
The orders of the Court on the deceased's parents' notice of motion are:
Order that the subpoena to produce addressed to Melvyn Patrick Butcher and Meryl Lorraine Butcher and dated 18 August 2017 be set aside.
Order that the plaintiff pay the costs of the motion, such costs to be payable and assessable forthwith.
The order of the Court on the plaintiff's notice of motion are:
Order that Melvyn Patrick Butcher and Meryl Lorraine Butcher be joined as additional defendants.
Grant leave to the plaintiff to amend her claim so as to seek an order designating the sum of $100,211.24 paid by the deceased to Melvyn Patrick Butcher and Meryl Lorraine Butcher on 31 July 2015 as notional estate.
Adjourn the motion to 31 October 2017 or such other date as may be arranged by consent of all parties with my Associate.
[5]
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Decision last updated: 19 October 2017