Ensor & Ors v Frisby & Anor [2009] QSC 268

SUCCESSION - EXECUTORS AND ADMINISTRATORS - ADMINISTRATION - DISTRIBUTION - LEGACIES AND DEVISES - ADEMPTION - where the deceased appointed applicants as power of attorneys during her lifetime - where the deceased left certain property to the applicants in her will - where the applicants were unaware of the contents of the will - where the deceased developed dementia - where the applicants made the decision to sell the subject property using the power of attorney - whether the gift had been adeemed as a result of the sale of the property - whether proceeds of the sale should be distributed to the applicants or treated as part of the residuary estate

Powers of Attorney Act 1998 (Qld), s 107

Banks v National Westminster Bank PLC & Anor [2005] EWHC 3479 (Ch), cited

Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344, cited

Christensen v McKnight unreported, Supreme Court of New South Wales, 2 March 1995, BC9504314

Jenkins v Jones (1866) LR 2 Eq 323, discussed

Johnston v Maclarn [2002] NSWSC 97, cited

Jones v Green (1868) LR 5 Eq 555, cited

Mulhall v Kelly [2006] VSC 407, followed

Orr v Slender; Estate of Godfrey Raymond Orr [2005] NSWSC 1175; (2005) 64 NSWLR 671, cited

Re Hartigan; Ex Parte The Public Trustee unreported, 9 December 1997, BC97097385, followed

Re Slater [1907] 1 Ch 665, cited

Re Viertel [1996] QSC 66; [1997] 1 Qd R 110, followed

[1] Mrs Elizabeth Baldwin died on 4 May 2007. By her last will, made on 14 May 1999, she left a house at Redcliffe to the applicants who are her children from her first marriage. After making that will she developed dementia and one of the applicants, acting as her duly appointed attorney, sold this house in October 2006. The question is whether the gift has been adeemed by that sale.

[2] The applicants and the executors each argue that there has been no ademption and that the proceeds of that sale, to the extent that they are now identifiable, should be paid to the applicants. That is opposed by the respondent Ms O'Loughlin, who stands to benefit from the proceeds being treated as part of the residuary estate of Mrs Baldwin in this way: the residuary estate was left to Mrs Baldwin's husband, Harold Baldwin, who died on 12 August 2007 leaving his residuary estate to Ms O'Loughlin (his daughter) and to one of the applicants, Mr Trevor Ensor.

[3] In factual circumstances indistinguishable from the present, Thomas J (as he then was) held in Re Viertel[1] that there was no ademption. That judgment has been followed in the Supreme Court of Western Australia in Re Hartigan; Ex Parte The Public Trustee[2] and the Supreme Court of Victoria in Mulhall v Kelly.[3] In the Supreme Court of New South Wales, there is a contrary decision of Nicholas J in Orr v Slender; Estate of Godfrey Raymond Orr,[4] in which Re Viertel and Re Hartigan were cited in argument but not in the judgment. However, for the view of Thomas J in Re Viertel there is some support in the judgment of Young CJ in Eq in Johnston v Maclarn.[5]

[4] The applicants and the executors say that I should follow Re Viertel. The respondent Ms O'Loughlin argues that I should not, because the general law is said to be now affected by s 107 of the Powers of Attorney Act 1998 (Qld), which was enacted after the judgment in Re Viertel. Section 107 provides as follows:

"107 Power to apply to court for compensation for loss of benefit in estate

(1) This section applies if a person's benefit in a principal's estate under the principal's will, on intestacy, or by another disposition taking effect on the principal's death, is lost because of a sale or other dealing with the principal's property by an attorney of the principal.

(1A) This section applies even if the person whose benefit is lost is the attorney by whose dealing the benefit is lost.

(2) The person, or the person's personal representative, may apply to the Supreme Court for compensation out of the principal's estate.

(3) The court may order that the person, or the person's estate, be compensated out of the principal's estate as the court considers appropriate but the compensation must not exceed the value of the lost benefit.

(4) The Succession Act 1981, sections 41(2) to (8), (10) and (11) and 44 apply to an application and an order made on it as if the application was an application under part 4 of that Act by a person entitled to make an application.

(a) a general power of attorney made under this Act; or

(c) a power of attorney made otherwise than under this Act, whether before or after its commencement."

[5] By these proceedings, the applicants sought relief under s 107 upon the premise that the gift to them had been adeemed. The executors then brought the present application seeking a declaration that the gift was not adeemed and for orders as to the disposition of the sale proceeds. As mentioned, the applicants now support those arguments. Before going to them, it is necessary to say something more about the facts.

[6] Mrs Baldwin married Harold Baldwin on 4 February 1984. There were no children of that marriage. As mentioned, the applicants are the children of her first marriage. Mr Baldwin had six children from his first marriage, one of whom was Ms O'Loughlin.

[7] In her will made on 14 May 1999, Mrs Baldwin appointed Mr Frisby and Mr Canning as executors, left a life interest in her house at Margate to Mr Baldwin with remainder to the applicants, left the subject house at Redcliffe to the applicants and left her residuary estate to Mr Baldwin. The subject house was an investment property. The gift of it was in these terms:

"3(d) To give my land and house situated at 14 Reedy Street, Redcliffe in the State of Queensland to my children Trevor Ensor, Jeffrey Ensor and Lynette Kay Ensor in equal shares as tenants in common."

[8] On the same day that she made that will, Mrs Baldwin made an enduring power of attorney appointing the applicants as her attorneys for personal and financial matters. The will and the power of attorney were prepared by the same solicitor. The applicants say that they were unaware of the contents of the will until after their mother had died.

[9] Subsequently the deceased was diagnosed with dementia. In February 2005 she was assessed as suffering from such advanced dementia and dysphasia that her mental state was unable to be tested. In March 2005 she was admitted to a nursing home because Mr Baldwin could no longer look after her. The evidence of her decline need not be described here. It well proves that she lacked any capacity for financial matters by at least the end of 2005 and that she would have been unable to understand that the subject property was being sold had she been informed of that event.

[10] In mid-2006, a long-term tenant vacated this property. The applicants decided it would be too costly to keep it and they decided to sell it. They did so without knowing of the gift to them in the will. Mr Ensor sold the property on 26 October 2006 for a price which yielded net proceeds of $218,546.

[11] This was banked to an account in Mrs Baldwin's name on 22 November 2006. It is common ground that $210,000 of that can be identified as held in Mrs Baldwin's name and subsequently by the executors as part of bank deposits, that sum having been transferred to an account in her name with Suncorp Metway numbered 501325981 on 25 November 2006. The interest which was earned on those funds cannot be presently calculated. The bank records for the entire period in which the funds were in that account (25 November 2006 to 31 July 2008) are not in evidence. But no doubt they can be procured from the bank, and from those records the applicable interest rates could be derived and applied to that sum of $210,000. The same goes for the interest for the period from 5 August 2008 when the relevant funds were held with other funds in an interest bearing deposit in the names of the executors.

[12] The general principle of ademption was described in Jenkins v Jones[6] as follows:

"The principle stated in all the cases is, that if there be a specific legacy of a chattel or of anything else, and if at the time of the testator's death the specific thing cannot be found, the subject matter of the bequest having been extinguished, the gift cannot take effect. This is the general principle, and is perfectly intelligible."

In Brown v Heffer,[7] Barwick CJ, McTiernan, Kitto and Owen JJ said:

"Ademption of a specific gift by will occurs where the property the subject of the gift is at the testator's death no longer his to dispose of ... An obvious case of ademption is that in which the testator has completely divested himself of the property in his lifetime so that at his death there is in his estate nothing which even substantially ... answers the words of gift."

[13] The basis for this principle has been variously described. In Re Slater,[8]

"There was a time when the courts held that ademption was dependent on the testator's intention, on a presumed intention on his part; and it was therefore held in old days that when a change was effected by public authority, or without the will of the testator, ademption did not follow. But for many years that has ceased to be the law ..."

However in Orr v Slender, Nicholas J agreed with the view of Hodgson J in Christensen v McKnight[9] that ademption depends on the intention of the deceased as disclosed by the will, although not upon any subsequent intention. In the same case, Hodgson J also said:

"...[I]f the intention disclosed by the will is to give particular real estate and nothing else, then it does not matter how the deceased ceased to have the real estate to give."[10]

Absent any contrary authority, I would respectfully agree with Hodgson J, a view which has the authority of Cozens-Hardy MR in Re Slater,[11] in a passage set out by Thomas J in Re Viertel.[12]

[14] However, the authorities have recognised some exception to the operation of the principle of ademption. In Orr v Slender, Nicholas J held that there was an exception where it could be shown that the property ceased to be part of the testator's estate because of the unauthorised action of an agent or by a tortious act unknown to the testator.[13] For the former, Nicholas J cited Johnston v Maclarn and for the second, Jenkins v Jones. But the present case, of course, is outside those categories, because although the act was unknown to the testator, it was authorised by the enduring power of attorney.

[15] In Re Viertel, Thomas J described the question as being whether or not an ademption is effected when a sale is lawfully made by an attorney who is ignorant of the terms of the will when the testatrix is likewise ignorant of the action of the attorney, and when the intention of the testatrix to benefit the devisee never alters.[14]

[16] Thomas J regarded Jenkins v Jones as very close to the case for his decision. In that case, the testator bequeathed to his son all his farming stock "which shall be in my possession at my decease". Thereafter, he became mentally incapable of managing his affairs, and in consequence his wife left the farm and she and his son sold the farming stock and deposited the proceeds into a bank account where it remained until after the testator's death, when it was then paid to a separate account of the son. In a passage set out by Thomas J in Re Viertel, Stewart VC described the exception to ademption as follows:[15]

"...[A]nother consideration arises, where, after the testator has given a specific thing, and without his knowledge, perhaps against his wishes, or tortiously, another person has sold it or has done enough to wholly alter its character."

[17] At least in England, the exception according to Jenkins v Jones has been limited to cases where the specific property has been converted without the authority of the testator. For example, it is cited for an exception in those terms in Theobald on Wills,[16] and that an exception was so confirmed in the recent English case of Banks v National Westminster Bank PLC & Anor.[17] In that case, Re Viertel was discussed but it was concluded that Jenkins v Jones could stand only with the subsequent case of Jones v Green[18] if the exception is confined to a conversion of property which "is not only made without the testator's knowledge but also without either his or any other lawful authority".[19]

[18] Nevertheless, there is the authority of Re Viertel and the cases which have followed it in Western Australia and Victoria. The only Australian case which is inconsistent with Re Viertel is Orr v Slender, in which Re Viertel was not discussed. The difference between the exception according to that judgment and the wider exception according to Re Viertel is that in the latter case, as here, there would be no ademption notwithstanding that the testatrix has authorised others to dispose of the property during her lifetime. Absent any authority on the question, I would be inclined to the view that a gift of specific property in circumstances such as the present cannot be interpreted as a gift of the proceeds of sale of that property, in the event that the property was sold pursuant to a power which the testatrix had conferred. After all, the testatrix could have left the Redcliffe property or, in the event of a sale by her attorneys, its proceeds of sale, by a will in those terms had that been her intention.

[19] The main difficulty in all of this is in seeing any justification for ignoring the words used in the will. If they are incapable of meaning anything other than a gift of specific property and not also of its proceeds of sale, then as Young CJ in Eq has said, it is "a tad difficult" to reconcile any exception with the principle.[20] But once an exception is recognised for an unauthorised act of which the testatrix was unaware, it is a relatively smaller step to recognise, as Thomas J did, an exception where the act was done under the authority of an enduring power of attorney. Ultimately I am persuaded to follow Re Viertel, followed as it has been in two other Australian jurisdictions.

[20] Counsel for Ms O'Loughlin did not submit so much that Re Viertel was wrongly decided, but that it had been "supplanted" by the enactment of s 107 of the Powers of Attorney Act 1998 (Qld). It is argued that s 107(1) is consistent only with a gift of specific property being adeemed or "lost because of a sale or other dealing with the principal's property by an attorney of the principal". However, s 107 could still apply, consistently with Re Viertel, in at least two contexts. The first is where the principal has capacity at the time of the sale or other dealing and knows of it. Secondly, and perhaps more significantly, it would apply when the proceeds of sale have been expended or cannot be identified. So s 107 applies when there has been an ademption, rather than affecting the common law as to the circumstances in which an ademption occurs.

[21] Accordingly it will be declared that the gift contained in cl 3(d) of the will of Elizabeth Baldwin deceased, dated 14 May 1999 was not adeemed by the sale of the property situated at 14 Reedy Street, Redcliffe during the deceased's lifetime. It will be further declared that from the monies held by the first respondents in Bank of Queensland Money Market Deposit Account No. 37461, the applicants are entitled to be paid:

(b) interest on that sum from 22 November 2006 until 31 July 2008 at the rate from time to time paid on deposits in Suncorp Metway Account No. 501325981 and from 5 August 2008 until payment at the rates paid from time to time on monies in that account with Bank of Queensland;

(c) less the income tax payable on the interest referred to in para (b).

[22] The costs of all parties of and incidental to this application on an indemnity basis will be paid out of the monies otherwise to be paid to the applicants, before the balance is paid to them. There will be liberty to apply.

[1] [1996] QSC 66; [1997] 1 Qd R 110.

[2] Unreported, 9 December 1997, BC97097385.

[3] [2006] VSC 407.

[4] [2005] NSWSC 1175; (2005) 64 NSWLR 671.

[5] [2002] NSWSC 97.

[6] (1866) LR 2 Eq 323 at 327.

[7] [1967] HCA 40; (1967) 116 CLR 344 at 348.

[8] [1907] 1 Ch 665 at 671.

[9] Unreported, Supreme Court of New South Wales, 2 March 1995, BC9504314.

[11] [1907] 1 Ch 665 at 671.

[12] [1996] QSC 66; [1997] 1 Qd R 110 at 111.

[13] [2005] NSWSC 1175; (2005) 64 NSWLR 671 at 675.

[14] [1996] QSC 66; [1997] 1 Qd R 110 at 111.

[15] (1866) LR 2 Eq 323 at 327-8.

[16] Martyn J, Bridge S and Oldham M, Street & Maxwell (2001, 16th ed) at 278.

[17] [2005] EWHC 3479 (Ch).

[18] (1868) LR 5 Eq 555.

[20] Johnston v Maclarn [2002] NSWSC 97 at [19].