Conlon v Public Trustee and anor

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1014/01 Geoffrey Kershaw CONLON v PUBLIC TRUSTEE & ANOR 1 His Honour: This is an application under the Family Provision Act 1982 (NSW) ("Act"), s 7 by an adult brother of the late John Leonard Conlon who died on 6 July 1999. The plaintiff had also sought relief against his sister Christine Joan Conlon in the form of a declaration that she held one half of a property at Darlinghurst in trust for the estate of the deceased. By consent the proceedings against Ms Conlon were dismissed with costs. 2 Probate of the will of the deceased was granted to the defendant on 1 October 1999. At the time of the hearing, the estate comprised a property at Rhodes valued at approximately $390,000.00, a motor vehicle and furniture of limited value and cash of $86,137.08. Outstanding liabilities stood at $17,892.59. The Defendant's costs of the proceedings are estimated at $23,087.37 leaving net cash of approximately $45,157.12 before regard is had to whether or not an order that the plaintiff's costs be paid out of the estate will be made. There is a potential liability for capital gains tax on the disposal of the Rhodes property because the main residence exemption is limited to a two year period after a deceased's death (Income Tax Assessment Act 1997 (Cth), s 118-195). 3 By his will the deceased made pecuniary bequests totalling $100,000.00 and bequeathed the residue of his estate to the plaintiff and Ms Conlon. In order to satisfy the pecuniary bequests it will be necessary to sell the Rhodes property. 4 Supreme Court Rules (NSW), Pt 77, r 63 required the defendant to serve notice on persons entitled to share in the distributable estate of the deceased. This was not done. The plaintiff gave evidence that he did not seek an order under the Act which would upset the pecuniary legacies. In those circumstances I dispensed with the requirement that the defendant serve notice upon the pecuniary legatees. 5 The plaintiff's father was a country doctor who died in 1968. The deceased was the eldest of four siblings. Having sold a private hospital and other property in Mosman and Cremorne following the death of her husband, the plaintiff's mother and the deceased invested in a farming property known as "Omaru Bay" on Waiheke Island off Auckland, New Zealand in 1974. The farm was operated in partnership between the plaintiff's mother and the deceased until, for health and retirement reasons, the property was sold. 6 Omaru Bay comprised three lots: the Woolshed paddock, the Farm paddocks and the House block. The Woolshed paddock was sold in 1993 for NZ$250,000. This money was used to acquire the Rhodes property in the name of the deceased. In 1996, the Farm paddocks were sold for over NZ$600,000. The plaintiff said it was NZ$660,000. A note which the plaintiff identified as in the deceased's handwriting had the figure at NZ$616,000. According to the plaintiff, when the note was written the deceased said that he regarded this sum as a return to him on his investment and for the work he had done on the farm. When this sum was received, the deceased advanced NZ$100,000 each to the plaintiff and Ms Conlon against the future proceeds of sale of the House block. 7 The House block was sold in 1998 for NZ$1,100,000. The plaintiff and Ms Conlon received a further NZ$100,000 each and NZ$400,000 was given to the other sister, Elizabeth Mary Rolfe. The balance was used to purchase a retirement village unit at Forster registered in the names of the deceased and his mother as joint tenants. 8 The early history of the family is not greatly significant and neither party highlighted any aspects of it. The plaintiff and Ms Conlon enjoyed a caring brotherly and sisterly relationship with the deceased. 9 The plaintiff said the deceased had asked him to find a property from which he could conduct his businesses through his company and which could be used by the family. The plaintiff found the Rhodes property. The acquisition was settled in July 1993 whereupon the plaintiff moved in and has lived there ever since. Ms Conlon stayed there with the plaintiff for two to three months when she returned to Australia from overseas. From 1998 when the deceased returned to Australia from New Zealand, he alternated between living at the Rhodes property and living with his mother at the Forster property. His mother is still alive and is aged 81. The plaintiff and the deceased spent the last couple of days of the deceased's life together. At that time there was a boarder living at the Rhodes property contributing some $80 a week. 10 The plaintiff undertook the running of the Rhodes property including the cooking and cleaning. He says he forewent some of his personal activities to enable him to carry out these functions. The plaintiff said that he assisted the deceased in financial matters and kept a file for him in his office in the Rhodes property. The plaintiff carried out some work with respect to the Rhodes property of a repair and maintenance type. He said he paid small amounts of rental and most of the outgoings on the Rhodes Property. In cross-examination, however, he agreed that his company paid these amounts and claimed an income tax deduction for the entirety. 11 The plaintiff conducted his businesses from the Rhodes property with very little success. The gifts totalling NZ$200,000 were lent to the company which then conducted a water filter business. It subsequently failed. By the time of the hearing the businesses were confined to an agency for sale of German skincare products in Australia for which a written agency agreement will not eventuate until purchases of products of $120,000 have been made and a commercial agency business involving service of process, investigations and the like with only 20 to 30 active files. The plaintiff draws $100 per week from the company in reduction of his loan account. 12 In an affidavit of 13 March 2001 the plaintiff disclosed his assets and income. No mention was made of any rent received from students boarding at the Rhodes property. This was revealed for the first time in an affidavit sworn on 15 February 2002, four days before the hearing. Since the death of the deceased the plaintiff says he had received $37,330 and expended approximately $18,700 in food, toiletries, food and cleaning products. He does not hold any documentary records from which these figures can be derived. He was cross-examined about his failure to disclose this material earlier and said that he had communicated with an officer of the defendant and was told that it was not a matter of interest to the defendant. The plaintiff said that he regarded the balance of $18,630 as an amount due by him to the estate. However, the funds are gone and it is doubtful that he has the capacity to pay prior to receiving his interest from the estate. 13 The plaintiff paid water rates on the Rhodes property for fear that otherwise the water might be cut off. On the other hand he failed to pay a couple of thousand dollars of Council rates. I formed the view that the plaintiff was an opportunist and I have doubts about some of his evidence. Where it conflicts with that of Ms Conlon, I prefer her evidence. 14 Shortly before his death, the deceased bought a property at Roselands. The purchase was to be settled in two months. His death intervened. It was planned that the Rhodes property would be sold and the plaintiff would move into the Roselands property. 15 The Plaintiff is 54 years old. He has a son who is 30. Ms Conlon is 51 and Mrs Rolfe is 52. The plaintiff has few assets. He has furniture and personal effects estimated at $15,000, a minor amount in a superannuation fund and shares totalling less than $2,000. He owns just under 80% of the shares in his company, the remainder being owned by his son. The company owes him $63,000 but its ability to discharge that debt is dependant upon the continuation of the skincare product agency which is currently based upon an oral agreement with a non-resident. Gross proceeds from the businesses were $85,000 - $95,000 in the year ended 30 June 2000 and about $70,000 in the year ended 30 June 2001. He has debts of approximately $19,500. 16 Ms Conlon was interested in acquiring a property with assistance from the deceased in Elizabeth Bay. She was not successful at the auction. She then looked at a property in Darlinghurst and Bruce Carroll, a consultant with Blake Dawson Waldron was retained. Mr Carroll sworn an affidavit. He said he met with Ms Conlon but the deceased was not present. In cross-examination Ms Conlon said that the question whether the Darlinghurst property should be taken as joint tenants or as tenants in common was discussed by her with the deceased when they went to see Mr Carroll. Ms Conlon said she had a clear recollection of meeting in an internal room. When it was put to her that Mr Carroll did not support her version and could she be mistaken, she answered either she or Mr Carroll could be mistaken. I found Ms Conlon to be an impressive witness and I accept that she has a recollection of a meeting. In the end it does not matter because Mr Carroll deposed to a telephone conversation he had with the deceased during which he explained to the deceased that if the property was held as joint tenants, on the death of one their interest passed automatically to the survivor and if the property was held as tenants in common, the interest passed in accordance with a will. The Darlinghurst property was bought for $400,000 by Ms Conlon and the deceased as joint tenants. Ms Conlon paid cash of $40,000 and borrowed $160,000. The purchase was settled in September 1998. 17 The plaintiff gave evidence of a conversation with the deceased in which he is alleged to have complained that the title to the Darlinghurst property was held in a joint tenancy when he wanted a tenancy in common. The deceased is alleged to have said he should find out about changing it to a tenancy in common. The plaintiff did not impress me in the witness box. I have doubts as to whether this conversation took place. In any event the deceased did nothing about changing the way in which the Darlinghurst property was held. 18 Counsel for the plaintiff submitted that I should entertain the proposition that Ms Conlon orchestrated the holding of the Darlinghurst property as a joint tenancy against the wishes of the deceased. I reject that submission. Whether the deceased met with Mr Carroll or had a telephone conversation with him, Mr Carroll advised him of the difference between a joint tenancy and a tenancy in common. 19 Ms Conlon is employed as a lecturer at UTS in the journalism department. At the time of the hearing she owned the Darlinghurst property which was estimated to be worth $500,000. She has a half interest in a property at Potts Point valued at approximately $146,000. She has a share portfolio valued at $20,806 and a small amount of cash. She has an interest in a superannuation fund with a present value of $17,233. While her fixed monthly outgoings exhaust her UTS salary, she conducts a consultancy business which earned her in the year ended 30 June 2001 $18,424. However, the Potts Point property is negatively geared and Ms Conlon suffered a loss of $7,275 in that year with respect to that investment. In comparison with the plaintiff, Ms Conlon is well provided for. 20 The plaintiff gave evidence that a modest two bedroom home unit with lock up garage within a reasonable distance of the central business district would cost about $300,000. This evidence was supported by the affidavit of a real estate agent who sold two bedroom units in suburbs adjoining Rhodes for just over $300,000. The plaintiff agreed in cross-examination that there are other areas in Sydney in which the plaintiff could live and conduct his businesses and that there are areas in Sydney where accommodation is not as expensive as it is around Rhodes. 21 The plaintiff's solicitor estimates the plaintiff's costs at $35,000. This figure includes costs associated with the proceedings against Ms Conlon which were abandoned. 22 The Act, s 7 provides that, subject to s 9, if the court is satisfied that the person applying for provision is an eligible person, it may order that such provision be made out of the estate of the deceased as in the opinion of the court ought, having regard to the circumstances at the time the order is made, to be made for the maintenance, education or advancement in life of the eligible person. 23 Relevantly for the present purposes the definition of an "eligible person" in the Act, s 6(1) includes a person who was wholly or partly dependent upon a deceased who is a grandchild or was a member of a household of which the deceased person was a member. Counsel for the defendant submitted that this provision was intended to cover de facto partners, grandchildren, stepchildren and the like and not mendicant siblings. In my view the provision covers any member of a household which included a deceased person and is capable of extending to siblings. 24 I find that the plaintiff was partially financially dependent upon the deceased. His failing businesses were insufficient to cover all his needs and he was dependent upon the deceased for the provision of the Rhodes property. 25 Gobbo J examined a series of authorities dealing with the meaning of the term "household" in varying statutory contexts in Kingsland v McIndoe [1989] VR 273. He concluded at 278 that they were of little assistance. The Oxford Dictionary's definition is:

"The 'holding' or maintaining of a house or family; housekeeping; domestic economy….. The inmates of a house collectively; an organised family, including servants or attendants, dwelling in a house; a domestic establishment." 26 There is clearly a family bond between the deceased and the plaintiff which distinguishes that relationship from that of the boarder. The problem is that the deceased alternated between the Rhodes property and the Forster property. Counsel for the defendant submitted there was scant evidence of the indicia of the household at Rhodes. There was no evidence that the deceased kept clothing at the Rhodes property. There was no evidence that the plaintiff and the deceased ate three meals a day together. There was no evidence of the length of the visits. Counsel submitted that the onus of proof was on the plaintiff and it had not been discharged. Sparse though the evidence is, it was not challenged in cross-examination of the plaintiff or in the affidavit material read on behalf of the defendant. In my view a person may maintain more than one household. The limited evidence available to me suggests that is what the deceased did. I find that the plaintiff was a member of a household of which the deceased was a member. 27 The Act, s 9(1) provides that the court should first determine whether in its opinion having regard to all of the circumstances of the case both past and present there are factors that warrant the making of the application. Spouses, de facto spouses and children of a deceased are not required to satisfy this provision. It applies to former spouses and dependent grandchildren and members of a household which included a deceased. As McLelland J observed in Re Fulop Deceased (1987) 8 NSWLR 679 at 681 this suggests that the "factors" referred to in the provision are those which when added to facts which render the applicant an eligible person give that person the status of one who would generally be regarded as the natural object of testamentary recognition by the deceased. In Churton v Christian (1988) 13 NSWLR 241 at 252 Priestley JA added that in some cases members of the later classes may when the circumstances of their relationship with the deceased are set out, immediately be seen to be persons who would be regarded by most observers as natural objects of testamentary recognition. 28 In my view that is the case in the instant circumstances. The conduct of the deceased towards the plaintiff and Ms Conlon and his relationship with both suggest that an objective observer would regard the plaintiff as a natural object of the deceased's testamentary recognition. Following the death of his father, the deceased became the head of the family supporting his mother and supporting his three siblings. That context establishes "factors" which an objective observer would regard as placing the plaintiff in an analogous position to that of a child to a parent. 29 The Act, s 9(2) provides that the court shall not make an order under s 7 unless it is, relevantly for the present purposes, satisfied that the provision made in favour of the eligible person by the deceased inter vivos or out of the estate is, at the time the court is determining whether or not to make such an order, inadequate for the proper maintenance, education and advancement in life of the eligible person. 30 The statutory provisions establish a two-stage process. The first requires a determination of whether the applicant has been left without adequate provision. The second, which only arises if the first determination is in favour of the applicant, requires the court to decide what provision ought to be made for the applicant (Singer v Berghouse (1994) 181 CLR 201 at 208). 31 It has been said that the first stage calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the proper level of maintenance etc appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased and the relationship between the deceased and other persons who have legitimate claims upon the bounty of the deceased. It has been said that this process is not aided by references to moral duty or moral obligation which may amount to gloss on the statutory language (Singer at 209-210. See also Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24). 32 Counsel for the defendant drew my attention to In re Gilbert (1946) 46 SR (NSW) 318 in which it was held that an applicant, even though a perjurer, did not forfeit his or her statutory right. It was submitted, however, that the plaintiff's lack of candour in providing information to the court might cause me not to accept his evidence unless corroborated. I decline to go so far. I have indicated that I give little weight to some of his evidence. 33 I have already indicated that net cash in the estate after the payment of the defendant's costs is likely to be approximately $45,000. Capital gains tax will be payable on the sale of the Rhodes property. If it sells for a net $390,000 and the legacies are paid out, cash will be approximately $335,000 less the tax liability. The plaintiff's half share is thus something less than $167,500. This amount is significantly less than the $300,000 estimated to be needed to acquire a two-bedroom house in the vicinity of Rhodes. In contrast, Ms Conlon succeeds to a half interest in the Darlinghurst property worth $250,000 together with her share of the residue of something less than $167,500. The deceased appears to have attempted to deal even-handedly with the plaintiff and Ms Conlon. He provided the plaintiff with occupation of the Rhodes property and provided Ms Conlon with a $200,000 investment to enable her to acquire the Darlinghurst property. He left the residue of his estate to them equally. The ultimate discrepancy between his largesse to Ms Conlon as against his largesse to the plaintiff leads me to conclude that the provision made for the plaintiff was inadequate. 34 Since the plaintiff is successful, I see no reason to deprive him of an order for costs out of the estate. This will have the effect of reducing the residue shares by something less than $35,000 (because that figure includes costs associated with the abandoned proceedings against Ms Conlon) to an amount of the order of $150,000 each. 35 I intend to make an order that in lieu of the plaintiff's interest under the will of the deceased he receive a legacy equal to half of the sum of the residuary estate and $250,000, the value of the succession to Ms Conlon, on condition that he account to the estate by way of set-off against his legacy for the sum of $18,630. There is to be no interest on the legacy until one year after the completion of the sale of the Rhodes property. In accordance with what I have said above, I intend to order that the costs of the plaintiff be paid out of the estate. Because the framing of the order will call for some consideration in light of the fact that the Rhodes property is yet to be sold, the amount of the capital gains tax is unknown and there may be variations from the estimates of costs on both sides, I stand the matter over for further consideration and direct parties to bring in short minutes of orders reflecting my intentions.

Last Modified: 03/14/2002 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.