Cetojevic v Cetojevic

Supreme Court of NSW|2006-04-26|Before: Campbell J, Needham J, Young J, Templeman J, McLelland J

CITATION : Cetojevic v Cetojevic [2006] NSWSC 431

DECISION : Property not held on resulting trust. Property held on constructive trust. If decision on constructive trust were wrong, order designating one-third of proceeds of sale of property as notional estate and awarding it to deceased's widow would have been made.

CATCHWORDS : SUCCESSION - FAMILY PROVISION AND MAINTENANCE - extension of time - designation of notional estate - failure by deceased to sever joint tenancy - whether valuable consideration given for failure to sever the joint tenancy - whether section 28(5)(c) satisfied when proceeds of sale of property which had been held as joint tenants is held by solicitors on trust to abide the result of proceedings - "other special circumstances" within section 28(5)(d) - TRUSTS - resulting trusts arising from contribution to purchase price - constructive trust arising from joint enterprise which terminates prematurely without fault on anyone's part - CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - caveats against dealings - caveat claiming an interest under the Family Provision Act

Adoption Act 2000 LEGISLATION CITED : Family Provision Act 1982 Wills Probate and Administration Act 1898

Application of O and P [2005] NSWSC 1297 Baumgartner v Baumgartner (1987) 164 CLR 137 Bethian Pty Ltd v Green (1977) 3 Fam LR 11,579 Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060; (2002) 12 BPR 22,421 Calverly v Green (1984) 155 CLR 242 Cameron v Hills, (29 October 1989, Needham J, unreported) Charles v Charles, (Young J, 25 March 1988, unreported) Dare v Furness (1997) 44 NSWLR 493 Girando v Girando (Templeman J, Supreme Court of WA, 27 August 1997, unreported) Irvine v Scaysbrook [2005] NSWSC 565 CASES CITED : Lewis v Lewis [2001] NSWSC 321 Porte v Couso (McLelland J Supreme Court of NSW, 16 March 1992, unreported) Quek v Beggs (1990) 5 BPR 11,761 Salvo v New Tel Limited [2005] NSWCA 281 Shepherd v Doolan [2005] NSWSC 42 Short v Crawley [2005] NSWSC 928 Stojcesvska & Tosevski v Tosevski [2001] NSWSC 274 Vella v Mineo [2005] NSWSC 1149 Wade v Harding (1987) 11 NSWLR 551 Warren v McKnight (1996) 40 NSWLR 390 West v Mead [2003] NSWSC 161

Bogdan Cetojevic - First Plaintiff/First Cross-Defendant PARTIES : Vukosava Cetojevic - Second Plaintiff/Second Cross-Defendant Biljana Cetojevic - Defendant/Cross Claimant

COUNSEL : G M McGrath - Plaintiffs/Cross Defendants J Loofs - Defendant/Cross Claimant

SOLICITORS : Stojanovic Solicitors - Plaintiffs/Cross Defendants Brenton Banfield - Defendant/Cross Claimant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

5444/03 BOGDAN CETOJEVIC & ANOR v BILJANA CETOJEVIC

1 HIS HONOUR: This case is one brought by a husband and wife against their daughter-in-law. The husband and wife were, respectively, the stepfather and the mother of Nenad Cetojevic, who was born on 4 May 1968. He was the only child of either of them. He met an untimely death, on 29 October 2000, when he was swept from the rocks while fishing.

2 The defendant is Nenad's widow. She and Nenad had two children, one of whom was born posthumously.

3 Prior to June of 1995 the plaintiffs were the registered proprietors of a house at 71 Westminster Street, Rooty Hill. They had purchased this property in about 1984. In 1995 it was still subject to a mortgage. In the earlier part of 1995 a plan was developed between the plaintiffs and Nenad - it does not matter who was the instigator of the plan - under which the Rooty Hill house would be sold, and another larger house would be purchased. Nenad at this time was unmarried, though he was contemplating that one day he probably would marry. Relations between the plaintiffs and Nenad had been close, and it was the mutual expectation of them that relations would continue to be close. The proposal which was developed in the first half of 1995 was that the three of them should buy a larger house, that Nenad would be able to live there with them, and that when Nenad eventually married he and his wife would both be able to live there. This plan resulted in the purchase, by the three of them, of a house at 22-24 Felton Street, Horsley Park.

4 Before the house was purchased Nenad and his stepfather went to see a solicitor, Mr George West. Mr Cetojevic senior does not have enough English to be able to carry on a conversation in English with a solicitor, but Mr West explained to Nenad the difference between buying as joint tenants and as tenants in common. Nenad transmitted that information to his stepfather in Serbian, and the essential fact, namely the fact of survivorship, was well understood by both of them. As well, around this time, Nenad explained the concept of survivorship in joint tenancy to his mother. And she also understood it.

5 In the course of the explanation of the notion of being joint tenants, the prospect of Nenad dying before his mother and stepfather was specifically adverted to. The account which Mr Cetojevic senior gives is that Nenad said, "We are buying in three names on the basis that if anything happens to Mum and Dad then the house goes to me and if anything happens to me then the house goes to Mum and Dad". At that time, there was specific discussion by Mr West, of which Mr Cetojevic senior was aware, where Mr West recommended that Nenad should obtain life insurance so that the older couple would have a fund from which to pay the mortgage if Nenad were to die.

6 At the time of this purchase Mr and Mrs Cetojevic senior were pensioners. Their pension had been enough, however, it seems, to enable them to keep up the payments on the small mortgage which they had had on the Rooty Hill property.

7 The purchase price of the Horsley Park property was $240,000. That was financed in part by a borrowing of $143,000 from the Commonwealth Bank. All three purchasers were borrowers of that loan. At the same time, the Commonwealth Bank lent an additional $6,000, which was applied in paying off a certain personal loan, and in reduction of another bank account. Mr Cetojevic senior says, and it is not contested, that that payment of $6,000 was one for the benefit of Nenad.

8 The mortgage repayments to the Commonwealth Bank were $1,600 a month.

9 Nenad was in employment by this stage. At first, the mortgage was reduced by the required payments of $1,600 per month. At a later date, Nenad adopted a practice of making regular payments from his salary into the loan account relating to the mortgage, and periodically redrawing some amounts which had been paid in this way. The terms of the facility from the Commonwealth Bank were such that if amounts more than the amount contractually required to be paid had been paid off the mortgage, those excess amounts could be redrawn. Periodically, Nenad would redraw some of the excess payments which he had made.

10 The property at 71 Westminster Street, Rooty Hill, had been sold in May 1995 for a price of $133,000. From that amount $3,000 in real estate agents commission was payable. Presumably, there would have been some solicitors fees as well. The evidence does not include any settlement statement for that sale, and there is no precise evidence of the amount of the mortgage which there was over the Rooty Hill property at the time of its sale.

11 However, from the fact that the Horsley Park property was purchased for $240,000, and $143,000 of this was financed by the Commonwealth Bank loan, I would infer that $97,000 came from the net proceeds of sale of the Rooty Hill property. As well, there would inevitably have been stamp duty and solicitors fees in connection with the purchase of the Horsley Park property. It is a reasonable estimate that the total contributions of the plaintiffs towards purchase of the Horsley Park property were fairly close to $100,000.

12 Neither party has attempted to give a complete account of the source of money used to pay off the mortgage over the Horsley Park property, or of what became of all of the various redrawings that there were of excess payments.

13 At some stage in 1997 Mr Cetojevic senior received a payment from an insurance company concerning a personal injury claim which he had. One can be confident that the gross amount of that payout was $47,500. That is a figure which Mr Cetojevic himself remembers, and as well his daughter-in-law worked for the insurance company which made the payment, and she remembers that same figure too. Mr Cetojevic says that he gave it all to Nenad, and I accept that evidence. However, the defendant says - and I also accept this evidence, not only because the defendant gives it, but also because it is in accordance with the usual course of things - that there were repayments to be made from that amount of various medical expenses and other out-of-pocket expenses connected with the personal injury claim. Mr Cetojevic calculates now that an amount of the order of $28,000 went towards payment of the mortgage. He arrives at this figure because he knows that he received $14,000 back from Nenad, in November 1997, at a time when he and his wife were about to take a lengthy trip to Yugoslavia. As well, he recalls that there were some repairs done to Nenad's car around this time, after it had been involved in a road accident. The figure of $28,000 is not one which was seriously challenged in cross-examination. It is not possible to be confident on the evidence whether anything more than $28,000 of the $47,500 was available for payment off the mortgage. The loan account itself relating to the mortgage does not show any lump sum payment as large as $28,000, or indeed larger, in 1997. Thus, it is not possible to conclude , even on the balance of probabilities, whether that $28,000 actually made its way towards repayment of the mortgage, or whether it was used up in some other fashion.

14 The evidence does show on 19 May 1997 about $12,000 was paid off the loan account, but a total of $12,000 was withdrawn from the loan account on 25 and 29 August 1997. It is probably of some significance, considering that withdrawal, that it was on 31 August 1997 that Nenad married the defendant. Mr Cetojevic says that Nenad was responsible for payment for the wedding reception.

15 At the time Nenad married the defendant, she owned a home unit which was located at 6/38-42 Nagle Street, Liverpool. That home unit was rented and the defendant lived at home with her mother. The unit was mortgaged to the St George Bank. After Nenad and the defendant were married, they started living in her home unit.

16 After the marriage, relations between Mr and Mrs Cetojevic Senior, and Nenad and his wife, continued to be close. The plaintiffs would see their son and daughter-in-law between five and seven times a week. Nenad was given, by his step-father, significant responsibility concerning the running of their financial affairs. While the statements for the loan account were sent to the Horsley Park address, addressed to all three of borrowers, Mr Cetojevic looked at them sometimes, and sometimes he handed them over to Nenad.

17 Mr Cetojevic Senior says: "From time to time we made payments to Nenad in respect of the mortgage. These payments were made in cash. I did not keep a record of the amounts I handed to Nenad. I used to give him cash and say words to the effect 'Here is some more money towards the mortgage'".

18 I accept that evidence. It is imprecise, but in the circumstances of relationships within this family it comes as no surprise that no documentary back-up of the evidence is offered. There was great trust, and simply no need for the keeping of records.

19 On more than one occasion Nenad brought to his parents some papers from the bank for them to sign. He said: "So I don't bother you all the time I brought these papers for you to sign. Here they are."

20 The plaintiff signed the papers, gave them to Nenad, and did not keep copies.

21 It seems likely that, either as a direct consequence of one of those papers, or as a consequence of an authority conferred by one of those papers, Nenad arranged a refinancing of the two bank loans which had become relevant to his life - the Commonwealth loan to himself and his parents, and the St George loan to his wife. In February of 1999 there was a refinancing of both loans, under which the mortgage to St George Bank was discharged. The mortgage to the Commonwealth was increased as a consequence.

22 Again, no precise accounting records are tendered.

23 In November of 1998, at a time when the birth of their first child was imminent, the defendant stopped work. Their first child, Stevan, was born on 5 December 1998. The defendant's home unit was listed for sale soon after she stopped work.

24 On 16 November 1999, there was a credit to the loan account of some $105,692.41. This was, it appears, the net proceeds of sale of the home unit. The evidence does not disclose by what precise route this amount came to be paid into the loan account. It appears clear, however, that the defendant was not a signatory to that loan account. It also appears clear that an amount of the order of $44,000 came to be paid off the loan account in consequence of the sale of that property.

25 I had earlier said that it was on 29 October 2000 that Nenad died. At that time, the balance of the loan account was of the order of $73,500.

26 It was on 4 January 2001 that their second child, Dana, was born.

27 Following Nenad's death, Mr and Mrs Cetojevic Senior, after a brief period when they thought it might have been possible to keep up the mortgage payments, came to realise that they could not do so. The bank agreed to put the loan on to an interest-only basis, so as to give them time in which to sell the property. The property was in fact sold in late 2002, with completion taking place on 16 January 2003.

28 On 28 February 2002 the defendant had lodged a caveat against the title to the property. In it she claimed two separate interests. One of them was "an estate or interest as beneficial owner pursuant to a constructive trust." The other was "as claimant pursuant to the Family Provision Act 1982".

29 The facts by virtue of which those claims were made were: "1. The caveator is the widow of Nenad Cetojevic and proposes to bring proceedings under the Family Provision Act for provision out of the estate or notional estates of the deceased. 2. The caveator has paid money to the mortgagee in reduction of the registered mortgage."

30 Following the sale of the house, by agreement, $30,000 of the net proceeds was paid to each of the plaintiffs, and the defendant. The balance, after payment of the loan and the expenses of sale was deposited into a joint account in the names of the solicitors for the parties. At the time the balance was approximately $452,000. The amount remains invested still at present. It will mature on 10 May 2006, by which time it will have grown to an amount of $488,553.78.

31 When Nenad died, he and his wife were still living, with their child, at the property of the defendant's mother. There was no grant of representation, initially, because there was no actual estate left by Nenad which called for any such grant of representation. The only assets which came to pass in consequence of his death was an amount of $23,996 in the CSR Superannuation Fund, and his interest as joint tenant in the Horsley Park property.

32 While Nenad had had several employers during his life time, and had, inevitably, accumulated an entitlement to superannuation with all of them, shortly prior to his death he had rolled all his superannuation entitlements into the CSR Superannuation Fund. The details of that fund are not in evidence. One does know, however, that the administrators of that fund paid Nenad's entitlement direct to his widow. When they did so without there being any grant of probate or other conventional grant of representation, presumably it was done pursuant to a nomination under the superannuation trust deed.

33 On 24 November 2003 there was a grant of limited Letters of Administration to the defendant, for the purpose of bringing an application under the Family Provision Act 1982. That grant was made on the presumption of death only. That was because Nenad's body had never been recovered.

34 I have made earlier mention of the way in which the loan account was dealt with. The loan, which had been for $143,000 at the time the property was first purchased, had reduced to around $74,000 by the time it was sold. Thus, overall, there was a net capital reduction of $69,000. Even if that all came from Nenad, that would mean that, the total capital contributions to the purchase of the property were $169,000, made up of the initial $100,000 from the plaintiffs and $69,000 from Nenad. However, if $28,000 of the capital reduction came from the plaintiffs, their total contribution would be $128,000, and Nenad's would reduce to $41,000. On the first basis of calculation that I have just been considering, Nenad would have supplied 40.8% of the capital contributions to the property. On the second basis I have just been considering, Nenad would have contributed a little over 24%.

35 Mr Loofs, for the defendant, urged on me a different method of calculation, which added together all of the payments which had been made from the mortgage, treated them as all being made by Nenad, and as all being contributions for the purchase price. In my view that way of proceeding is not a satisfactory way of arriving at the contributions that have been made to the property. For starters, if the defendant is seeking to prove an interest in the nature of a resulting trust arising from Nenad's contributions, it is she who bears the onus of proving what those contributions were. It would be a mistake of principle to treat all payments off the mortgage as being contributions by Nenad unless proven otherwise. There might be some basis for such an approach, if the evidence had been that Nenad was the only one in employment or with access to funds, and therefore was likely to have been the only person who made contributions. But the evidence is to the contrary of that, because of the various unspecified cash contributions, which I am nonetheless satisfied were made. As well, there is complete uncertainty about what has happened with the $47,500 compensation payout, beyond the fact that it was handed over to Nenad. In these circumstances one could not reach any confident conclusions about what contributions had been made. As well, it would be impossible on the present evidence to make an appropriate adjustment for interest on amounts outstanding from time to time, or for the value of rental of the property from time to time. Any attempt at proving a resulting trust by means of contributions fails for lack of proof of the quantum of those contributions.

36 In coming to that conclusion, I bear in mind that in an exercise such as this precise accounting is often not to be expected, and that sometimes a broad brush estimate needs to be made to ensure that the onus of proof does not itself become an instrument of injustice. However, it is still necessary for the tribunal of fact to be in a position of being persuaded that, at the least, a certain amount of contributions were made by one particular party, and to be satisfied as to how those contributions relate to the contributions made by the other party. The evidence here is too imprecise to enable me to be persuaded of any such thing.

37 In Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060; (2002) 12 BPR 22,421 at [128] to [141] I set out relevant principles concerning the finding of a resulting trust. I will not repeat them here.

38 Those principles have been accepted by Young CJ in Eq in Salvo v New Tel Limited [2005] NSWCA 281 at [92].

39 The relevant time for a finding of a resulting trust is the time of acquisition of the property: Calverly v Green (1984) 155 CLR 242. At that time there was an actual intention, expressed between the parties, about how the beneficial interest in the property would be held - that is, the law concerning the law of survivorship would apply. That provides another reason why there is no resulting trust in the present case.

40 The defendant also asserts that Nenad's estate is entitled to the benefits of a constructive trust. In West v Mead [2003] NSWSC 161 at [52]-[64] I set out my understanding of the principles relevant to the imposition of a constructive trust in accordance with the High Court in Baumgartner v Baumgartner (1987) 164 CLR 137. That explanation has been accepted by White J in Shepherd v Doolan [2005] NSWSC 42; Irvine v Scaysbrook [2005] NSWSC 565 at [82] and Short v Crawley [2005] NSWSC 928 at [23]; and also by Hall J in Vella v Mineo [2005] NSWSC 1149 at [95]. I will apply that analysis here without repeating it.

41 Here there was a joint relationship or endeavour between the plaintiffs and Nenad. It was that a home would be purchased, which would be a home for all of them, and for any future wife of Nenad, and that, in the ordinary course of things, it was expected that it would belong to Nenad when the parents eventually died. There was an asset acquired in the course, and for the purpose, of that joint relationship or endeavour - namely the house.

42 That was the way the joint relationship or endeavour stood at the time the house was purchased. However, there were some departures from that initial joint relationship or endeavour. The first was when, after his marriage, Nenad and his wife decided not to live at the home. There was a further departure from the assumption which underlaid the endeavour, about the extended family all living together, when Nenad's wife became pregnant and gave up working.

43 In accordance with the principles set out at paragraph [59] in West v Mead [2003] NSWSC 161 where there is a joint relationship or endeavour, and an asset is acquired for the purpose and in the course of, and the joint endeavour comes to an end without attributable fault on anyone's part (as clearly happened here), a starting point for ownership of the asset is that the beneficial interest ought be shared equally. That application of the maxim equity is equality places an onus of attributing any other conclusion on a person who asserts that the title should be held unequally.

44 One way in which that onus can be discharged is by showing that the parties had an express intention about what should happen to the beneficial ownership in the events which have actually come about. The plaintiffs submit, correctly, that the parties had an express intention about what was to happen in the event that Nenad died. That intention was one which they formulated at the time of initial acquisition. Even though they thought it unlikely that Nenad would be the first to die, they still considered that possibility, and made provision for it. In those circumstances, the plaintiffs submit, there is nothing which, in the eyes of equity, would be unconscionable in the beneficial interest in the property remaining the same as the legal interest.

45 However, in my view, the specific circumstance, which has now arisen, was not one concerning which the parties formed an intention. At no time did they decide what should happen to the house if Nenad were to predecease his parents, at a time when he was married, when he and his wife had moved away from the home, and when they had young dependent children. That combination of circumstances differs from the one which was initially envisaged in a way which seems to me to be fundamental one. Thus, the fact that the parties formed an intention about how the beneficial interest would lie is not, in the circumstances of this case, a reason for departure from the presumption of equality of ownership. I would hold that the house proceeds should be held on a constructive trust under which one third of the property is held for the estate of Nenad.

46 The widow makes a claim in the alternative under the Family Provision Act 1982. In circumstances where Nenad's estate involved no actual estate at all, and the only candidate for being notional estate is his interest in the house, it would only be if I were wrong in the conclusion that I have come to about the existence of a constructive trust, that the Family Provision Act 1982 would have any room to apply at all. However, against the possibility that I am wrong, I shall consider the argument which was put to me on that topic.

47 The application was commenced well out of time, some 20 months out of time. Even though the defendant had filed a caveat in February 2002, in the terms which I have indicated, at para [29] above, it was only on 23 December 2003 that she filed her cross-claim seeking provision under the Family Provision Act 1982. The time for bringing proceedings as of right under the Act had expired on 28 April 2002. Section 16(2) requires the application to be made within the period of 18 months after the death of Nenad, unless the Court allows a longer period. When Nenad had died on 29 October 2000, an application is made within 18 months of death only if it is made on or before 28 April 2002. One assumes that a factor in the cross-claim being brought when it was is that it was on 24 October 2003 that the plaintiffs filed their summons.

48 Thus the defendant can bring a Family Provision Act 1982 claim only if time is extended, under section 16 of the Act. The factors one looks to in deciding whether to extend the time for bringing an application under the Family Provision Act 1982 are: first, the sufficiency of explanation of delay in making the claim; second, whether there has been any prejudice to beneficiaries; third, whether there has been any unconscionable conduct by any relevant parties; and fourth, the strength of the applicant's case: Warren v McKnight (1996) 40 NSWLR 390 at 394; Dare v Furness (1997) 44 NSWLR 493 at 500.

49 The defendant's affidavit providing her account of the reasons for delay was filed and sworn only on the morning when the trial began. She explains that there was a Coronial Inquest into her husband's death, which began in September 2001, and resulted in the issue, on 31 January 2002, of a death certificate establishing that he had drowned while fishing.

50 She was left very depressed by her husband's death. It came at a time when she had undergone other serious misfortunes to close family members. She was pregnant with her second child at the time. She became pre-occupied with the Inquest. Following her husband's death it did not even occur to her that she should seek legal advice. That remained her state of mind until February 2002.

51 In February 2002 she appreciated, for the first time, that there might be difficulty concerning the estate. At that time the Commonwealth Bank informed her that a credit card account she had held had been cancelled. She spoke to the solicitor for the plaintiffs, who told her that he had been instructed by the plaintiffs to transfer the house into their names. Her immediate reaction was "You can't do that. I am his wife". The conversation did not go much further than that, but the defendant was advised that she should get her own legal advice. She retained solicitors in February 2002 to act for her, and in February 2002 filed the caveat referred to at para [28] above.

52 Over the period from February to September 2002 attempts were made to resolve the dispute with the plaintiffs. Counsel was briefed for the defendant in early January 2003, and advice was received on 8 April 2003 stating that a claim under the Family Provision Act 1982 should be lodged forthwith. From what I can only infer is lack of attention to his duty, the defendant's solicitor did not do so until December 2003.

53 An extension of time can be granted, under section 16 if, inter alia, "sufficient cause is shown for the application not having been made" within the prescribed period.

54 There are some statements in the case law that mere negligence on the part of a solicitor in lodging a claim is not enough. In Charles v Charles, (Young J, 25 March 1988, unreported) his Honour said: "I have said on more than one occasion that if an application under this Act comes to a solicitor before the limitation period expires and the solicitor does not lodge an application in time then that in itself does not provide sufficient cause for the court extending the time. It does not matter that the solicitor has been diverted from her task by counsel sitting on a brief for too long or a court losing a file or her children all coming down with chicken-pox at the same time, there must be something more than mere incompetence or inattention by a solicitor before time can be extended under this Act."

55 However, that is a rule of thumb, and cannot confine the statutory discretion. And in the present case there is more than mere negligence on the part of the solicitor. Importantly, a clear indication was given that a claim would be made, by the lodging of a caveat. The interest claimed in the caveat is, in fact, not a caveatable interest, in so far as it relates to being a claim under the Family Provision Act 1982 (Quek v Beggs (1990) 5 BPR 11,761 (McLelland J); Porte v Couso (McLelland J Supreme Court of NSW, 16 March 1992, unreported), Girando v Girando (Templeman J, Supreme Court of WA, 27 August 1997, unreported) and by analogy Bethian Pty Ltd v Green (1977) 3 Fam LR 11,579) However, for present purposes, that does not matter. What does matter is that it gave a very formal notification of intention to make the claim. What is more, there was no attempt to remove that caveat. Now it is, pursuant to a sensible arrangement between the solicitors, that the caveat has been removed, the house sold, and the money invested.

56 In my view, there is sufficient explanation for delay in making the claim.

57 In circumstances where the only basis on which this Family Provision Act 1982 claim comes to be considered is that I am wrong in the constructive trust conclusion that I have come to, there is, strictly, no prejudice to the beneficiaries of Nenad's estate, because there are no beneficiaries of his estate. However, the principle for extension should not be considered in that literal fashion. In the context where a Family Provision Act 1982 claim involves a claim to receive notional estate, prejudice to a person who stands to be deprived of an asset if the claim were to succeed is a relevant factor. The plaintiffs are such people.

58 Mr McGrath, Counsel for the plaintiffs, submitted that there had been prejudice to the plaintiffs, in that they had given up their secure Rooty Hill home, with a manageable mortgage, to go into the Horsley Park venture, and now risk being without a home in their declining years. However, the prejudice which section 16(3) looks to is the prejudice which has been occasioned by the delay in lodging the claim. I am not persuaded that the plaintiffs have sustained any significant prejudice in consequence of the 20-month delay in lodging the claim. When they could not afford to keep up the mortgage the house would inevitably have been needed to be sold. They have not made out any claim for being worse off, when the claim was begun in December 2003, than they would have been if the claim had been begun on the last day possible for it to be brought within time in April 2002. As well I am not satisfied they are at risk of being left homeless. Even if the maximum award that could be made to the defendant were to be made, namely one-third of the fund that is invested, the plaintiffs would still have two-thirds of that fund - that is around $325,000. As well, they have approximately $40,000 in a bank account, furniture, and a motor vehicle. They are presently living in leased accommodation, for which they pay $205 a week rent.

59 Here, there has been no unconscionable conduct by the defendant, and nor, on the hypothesis on which the Family Provision Act 1982 case would come to be considered at all, would there have been any unconscionable conduct on the part of the plaintiffs.

60 Finally, as will emerge later, in my view, the defendant has a powerful case for relief under the Family Provision Act 1982. Thus, I allow the time for bringing the application to be extended.

61 The designation of notional estate requires there to be, first, a prescribed transaction. Section 22 provides, so far as relevant: "(1) A person shall be deemed to enter into a prescribed transaction if: (a) on or after the appointed day the person does, directly or indirectly, or omits to do, any act, as a result of which: (i) property becomes held by another person (whether or not as trustee), or (ii) property becomes subject to a trust, whether or not the property becomes in either case so held immediately, and (b) full valuable consideration in money or money's worth for the firstmentioned person's doing, or omitting to do, that act is not given. (2) Except as provided in subsections (5) and (6), a prescribed transaction referred to in subsection (1) shall, for the purposes of this Act, be deemed to take effect at the time property becomes held by a person or subject to a trust as referred to in subsection (1)(a). … (4) In particular and without limiting the generality of subsection (1), a person shall, for the purposes of subsection (1) (a), be deemed to do, or omit to do, an act, as a result of which property becomes held by another person or subject to a trust if: (a) … (b) holding an interest in property which would, on the person's death, become, by survivorship, held by another person (whether or not as trustee) or subject to a trust, the person is entitled, on or after the appointed day, to exercise a power to prevent the person's interest in the property becoming, on the person's death, so held or subject to that trust but the power is not exercised before the person ceases (by reason of death or the occurrence of any other event) to be so entitled, … (5) Except as provided in subsection (6), a prescribed transaction involving the doing of, or omitting to do, an act as referred to in subsection (4) (paragraph (f) excepted) shall be deemed to be entered into immediately before, and to take effect on, the death or the occurrence of the other event referred to in that subsection in relation to that act or omission. (6) Where: (a) a prescribed transaction involves any kind of contract, and (b) valuable consideration, although not full valuable consideration, in money or money's worth is given for the disponer's becoming a party to the contract, the transaction shall, for the purposes of this Act, be deemed to be entered into and to take effect at the time the contract is entered into. ..."

62 Here, the relevant prescribed transaction is said to be that Nenad died without having terminated the joint tenancy, and converted it into a tenancy in common. It is clear that a failure to terminate a joint tenancy is the type of conduct which can be a prescribed transaction: Wade v Harding (1987) 11 NSWLR 551 at 556-9.

63 Relevant parts of the Second Reading Speech which led to the introduction of the Act, are set out in Wade v Harding. It shows that preventing a person who is contemplating death from deliberately frustrating a potential claim under the Act by inter vivos transactions was part of the reason for the introduction of notional estate provisions. However, those reasons do not purport to be an exhaustive statement. The words of the statue should be given effect to.

64 In the present case, one would readily accept that this joint tenancy was not entered into for the purpose of deliberately frustrating claims under the Act. However, if a joint tenancy is not initially entered into for a reason connected with evading the operation of the Act, a failure to sever a joint tenancy can still have the effect that the operation of a right of survivorship deprives a worthy claimant of access to an asset which would otherwise be available to meet his or her claim. Not having that happen seems to me within the policy of the legislation.

65 If a prescribed transaction has occurred, section 26 imposes some extra requirements before property can be designated as notional estate. It says, so far as presently relevant: "On an application in relation to a deceased person, the Court shall not, by reason of a prescribed transaction having been entered into, make an order under section 23 or 25 designating property as notional estate unless the prescribed transaction or the holding of property as a result of the prescribed transaction: (a) directly or indirectly disadvantaged the estate of the disponer, an eligible person or, where the disponer was not the deceased person, the deceased person (whether before, on or after death), (b) …, or (c) involved an omission to exercise a right, a discretion or a power of appointment, disposition, nomination or direction which could, at the time the prescribed transaction was entered into or at a later time, have been exercised by the disponer or any other person (whether alone or jointly or severally with any other person) so as to result in a benefit to the estate of the disponer, an eligible person or, where the disponer was not the deceased person, the deceased person (whether before, on or after death)."

66 Section 27 also requires the Court to consider various matters: "(1) On an application in relation to a deceased person, the Court shall not make an order designating property as notional estate of the deceased person unless it has considered: (a) the importance of not interfering with reasonable expectations in relation to property, (b) the substantial justice and merits involved in making or refusing to make the order, and (c) any other matter which it considers relevant in the circumstances. (2) In determining what property should be designated as notional estate of a deceased person, the Court shall have regard to: (a) the value and nature of property the subject of any relevant prescribed transaction or distribution from the estate of the deceased person, (b) where, in relation to any such prescribed transaction, consideration was given, the value and nature of the consideration, (c) any changes over the time which has elapsed since any such prescribed transaction was entered into, any such distribution was made or any such consideration was given in the value of property of the same nature as the property the subject of the prescribed transaction, the distribution or the consideration, as the case may be, (d) whether property of the same nature as the property the subject of any such prescribed transaction, any such distribution or any such consideration could, during the time which has elapsed since the prescribed transaction was entered into, the distribution was made or the consideration was given, as the case may be, have been applied so as to produce income, and (e) any other matter which it considers relevant in the circumstances."

67 I have taken into account the various matters that section 27 refers to.

68 Section 28 also requires the Court to consider other matters: "(1) On an application in relation to a deceased person for an order for provision in favour of an eligible person, the Court shall not make an order designating property as notional estate of the deceased person unless the deceased person left no estate or unless it is satisfied: (a) that the estate of the deceased person is insufficient to allow the making of provision that, in its opinion, should be made, or (b) that, by reason of the existence of other eligible persons or the existence of special circumstances, provision should not be made wholly out of the estate. (2) On an application in relation to a deceased person, the Court shall not make an order designating as notional estate of a deceased person property in excess of that necessary to allow the making of provision that, in its opinion, should be made."

69 Section 28(5) imposes an extra hurdle which needs to be overcome by an applicant who can bring his or her application only because an extension of time is granted. It says: (5) On an application in relation to a deceased person, being an application: (a) made pursuant to an order under section 16 allowing the application to be made, or (b) for an order under section 8 for additional provision, the Court shall not make an order designating property as notional estate of the deceased person by reason of a prescribed transaction or a distribution unless it is satisfied: (c) that: (i) the property was the subject of the prescribed transaction or distribution, (ii) the person by whom it is held holds the property as a result of the prescribed transaction or distribution as trustee only, and (iii) the property is not vested in interest in any beneficiary under the trust, or (d) that there are other special circumstances (including, in the case of an application made as referred to in paragraph (a), the incapacity, during any relevant period, of the person by or on whose behalf the application is made) which justify the making of an order so designating the property."

70 Particular attention was given in submissions to the question of whether valuable consideration had been given for the failure to sever the joint tenancy. In Cameron v Hills, (29 October 1989, Needham J, unreported) came to a different conclusion on this topic to that which Young J had come in Wade v Harding.

71 In my view, the proper approach to take is that, even though the effect of section 22(5) of the statute is to deem a prescribed transaction consisting of failure to sever a joint tenancy to have occurred in the instant before death, there is no need for the question which section 27(2)(b) requires to be considered, of whether there has been valuable consideration, to be confined to that instant. Rather, times up to that instant can all be taken into account. Approaching the matter in that way, I am not satisfied that there has been valuable consideration in the present case for the failure to sever the joint tenancy.

72 Mr Loofs, for the defendant, submits that the present case falls within section 28(5)(c). That is because property which is presently the subject of dispute is the money held by the solicitors in the joint account. That fund of money is, he submits, the subject of a prescribed transaction or distribution, it is held by the solicitor as a result of the prescribed transaction, the solicitor holds it as trustee only, and, whoever the beneficiaries of it might be, the solicitor who holds it is not a beneficiary. The trust in question is a trust, I would infer, whereby the money will be paid to whoever it is that the Court decides ought be entitled to it.

73 In circumstances where the claim to the money takes the form of both an existing claim of right (the plaintiffs' claim by survivorship, and the defendant's claim through a constructive trust) and also a claim by operation of the exercises of the statutory discretion under the Family Provision Act 1982, it could not be said that the property is presently vested in interest in any beneficiary of the precise trust on which it is held.

74 I accept that Mr Loofs is right in saying that the money held in the account falls within the words of section 28(5)(c), as properly construed. The money in the joint account is not precisely the property concerning which the prescribed transaction occurred - that was the house, concerning which Nenad failed to exercise his right to sever the joint tenancy - but it is property into which the house can be traced. That is, it seems to me, enough for section 28(5)(c)(i). If section 28(5)(c)(i) were construed as requiring the property to which it related to be absolutely the same item of property as that concerning which the prescribed transaction occurred, evasion of the notional estate provisions would be too easy - one could, for instance, sell an asset and settle the proceeds on a discretionary trust in which no potential beneficiary had a present proprietary right, and that trust fund could not then be reached by section 28(5)(c). That result does not seem to accord with the legislative intention.

75 However, more than falling within the words is needed before the Court actually makes an order designating property as notional estate. In my view, it is highly desirable that, when there is a claim to property, such as the present, a sensible arrangement be arrived at so that the property can be preserved pending the Court's decision. Such a course is often followed. If satisfaction of section 28(5)(c) was treated as not only satisfying what would otherwise be a bar to the Court's power to make an order, but also as being a positive reason in favour of the making of the order, that would discourage solicitors in the future from recommending that their clients follow the sensible course which the solicitors in the present case have followed. Because of the desirability of preserving, in the general interests of administration of justice, the utility of that course of conduct, I decline to regard the fact that the parties have here adopted that sensible practice as being a reason for the designation of any part of the fund as notional property.

76 Thus, I turn to the question of whether there are "other special circumstances", within section 28(5)(d).

77 The case law shows that no exhaustive account of what counts as "special circumstances" has been attempted to be given. Previous decisions have held them to include incapacity as a result of infancy (Dare v Furness (1997) 44 NSWLR 493; Stojcesvska & Tosevski v Tosevski [2001] NSWSC 274 at [45]), and the strength of an applicant's claim (including her financial and other contributions to the assets of the Deceased), together with the fact that it was through no fault of hers that her application was not made within the prescribed period (Stojcesvska & Tosevski v Tosevski [2001] NSWSC 274 at [46]). They are not limited to the types of circumstance which are expressly mentioned in section 28 or circumstances closely analogous to them: Lewis v Lewis [2001] NSWSC 321 at [85]. I also venture to repeat the remarks I made in Application of O and P [2005] NSWSC 1297 at [57]-[60] concerning the phrase "special reasons" in section 101(5) Adoption Act 2000: "57 It is fairly common for legislation to confer a power on a court to adopt some course of action if there are " special reasons". In Jess v Scott (1986) 12 FCR 187 the Full Federal Court (Lockhart, Sheppard and Burchett JJ) considered a provision which allowed a court "for special reasons" to permit an appeal out of time. They said, at 195, that what that rule required was: "… that there be shown a special reason why are the appeal should be permitted to proceed, though filed after the expiry of twenty-one days. In that context, the expression "special reasons" is intended to distinguish the case from the usual course according to which the time is twenty-one days. But it may be so distinguished (not necessarily will, for the rule gives a discretion) wherever the Court sees a ground which does justify a departure from the general rule in the particular case. Such a ground is a special reason because it takes the case out of the ordinary. We do not think the use of the expression "for special reasons" implies something narrower than this. … It should not be overlooked that r 15(2) enables leave to be given "at any time"; the "special reasons" relevant to such a power cannot but describe an elastic test, suitable for application across a range of situations, from an oversight of a day to a neglect persisted in during a prolonged period. It would require something very persuasive indeed to justify a grant of leave after, for example, a year; equally, it may be said, something much less significant might justify leave where a party is a few days late. "Special reasons" must be understood in a sense capable of accommodating both types of situation. It is an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure, in the particular circumstances, from the ordinary rule prescribing a period within which an appeal must be filed and served. " See also, to similar effect, Minister for Community Services & Health v Chee Keong Thoo (1988) 78 ALR 307 at 324 per Burchett J; Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576; (1991) 103 ALR 684 at 686-7 of ALR per Burchett J. 58 This meaning of "special reasons" now been decided by the Court of Appeal in Director-General, Department of Community Services v The Adoptive Parents [2005] NSWCA 385 to be applicable in section 101(5). At [44]-[46] Giles JA said: "44 In Baker v The Queen [2004] HCA 45 [(2004) 210 ALR 1; (2004) 78 ALJR 1483] Gleeson CJ said (at [13]) - "There is nothing unusual about legislation that requires courts to find "special reasons" or "special circumstances" as a condition of the exercise of a power. This is a verbal formula that is commonly used where it is intended that judicial discretion should not be confined by precise definition, or where the circumstances of potential relevance are so various as to defy precise definition. That which makes reasons or circumstances special in a particular case might flow from their weight as well as their quality, and from a combination of factors." 45 In the same case Callinan J said (at [173]-[174]) that "special reasons" shared the characteristics of which Lord Bingham spoke in relation to "exceptional circumstances" in R v Kelly (2000) QB 198 at 208, that - "We must construe 'exceptional' as an ordinary, familiar English adjective, and not as a term of art. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual, or special, or uncommon. To be exceptional a circumstance need not be unique, or unprecedented, or very rare; but it cannot be one that is regularly, or routinely, or normally encountered." 46 Barrett J took up these observations in Application of R M and E S M, re Y at [12], saying that the court could only act "if it positively finds some factor or circumstances related to the best interests of the child that is out of the ordinary course, unusual, special or uncommon and that is not regularly, routinely or normally encountered". I respectfully agree; but it would be a mistake to attempt to define or categorise what might be special reasons related to the best interests of a child." 59 In exercising a power which is able to be exercised where there are "special reasons" , "doubtless the discretion of the Court is very large, and necessarily so; but it must have as its basis some circumstance which it can reasonably regard as "special reasons" for lifting the particular" circumstance out of the usual: Gourlay v Casey (1927) 38 CLR 586 at 591 per Isaacs, Gavan Duffy and Powers JJ. 60 When the Court comes to exercise the discretion under section 101(5) from time to time, " … a discretion to relax the requirement of general rules should not itself become entangled in a web of rules spun out of the Court's discretionary decisions. The tendency in some of the decisions we have discussed to regard a particular factor considered previously, in the light of other circumstances, as requiring the same effect to be given to it in the different situation before a court on a later occasion is a temptation which a court should resist. Decisions are not authorities upon the facts but upon principles; the facts must be regarded as unique to the particular case." (per Lockhart, Sheppard and Burchett JJ, Jess v Scott (1986) 12 FCR 187 at 196).

78 In my view, a similar approach should be taken to the phrase "special circumstances" in section 28(5)(d) Family Provision Act 1982.

79 I will assume without deciding, that the structure of the Act requires there to be more demonstrated to prove "special circumstances" than to justify an extension of time under the Act. Even on that assumption, here there is, in my view, considerably more. The defendant is a widow with two very young children. She has no real estate whatsoever. The only investment of her husband was his superannuation, which is quite small in amount, and his interest in this property. The equity from her own home unit has gone towards it. As well, the unusually close family relationships which there were during Nenad's life are a most important factor. This family was not only emotionally close, but their financial affairs were very closely intertwined as well. There was a pooling of assets, in a way which would make it, in my view, unjust for the estate to lie where the legal interest in it has fallen through the chance operation of the law of survivorship. The fact that the estate is all notional also adds to the special circumstances.

80 I am satisfied that there are special circumstances which justify the designation as notional estate of a one-third interest in the investment account.

81 The plaintiffs submitted that, if the defendant's claim otherwise succeeds, the claim is advanced only in respect of herself, and no claim is put forward on behalf of her children. They submitted that the marriage was a short one, and that the defendant can work and support herself. It is submitted that, in those circumstances, the claim is necessarily limited and should be assessed at no more than $20,000 to $25,000. I reject those submissions entirely.

82 It is true that the marriage was, unfortunately, a short one. However, it has produced two children, and the very existence of those children mean that, not for their sake, but as well for her own, the widow has a high claim to support. I have no hesitation in deciding that, under the Family Provision Act 1982, she should receive the entirety of the one-third interest which it is possible to award her.

83 As I have earlier said, all of this is hypothetical, as in my view she is in any event entitled to that one-third interest under the law of constructive trusts.

84 Mr McGrath, for the plaintiffs, submits that the plaintiffs, in a measure, were successful. It is true, in my view, that they were, in a measure, successful. The defendant put forward a claim that there was a higher percentage than one-third of the interest in the fund which could be shown to be the subject of a resulting trust, and that claim has been rejected.

85 However, the defendant has, in very large measure, succeeded. She has succeeded not only in the constructive trust claim, but also in the fall-back position. In my view the appropriate order is that the plaintiffs pay the defendant's costs.

Orders 1. Declare that one-third of the fund, which will on maturity on 10 May 2006 consist of $488,553.78, is held on trust for the Estate of the Late Nenad Cetojevic. 2. Declare that, in the circumstances that have happened, that one-third share has by reason of the intestacy of the said deceased devolved to the Cross-Claimant pursuant to section 61B(3) Wills Probate and Administration Act 1898 . 3. Order that the plaintiffs take all steps necessary, promptly after 10 May 2006, to cause the said one-third share to be transferred to the Cross-Claimant.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

At a glance

Court

Decision date

Before

Source

Judgment (97 paragraphs)

Parties

Cases Cited (25)