Farrell v Stephenson

Supreme Court of NSW|2008-10-21|Before: Young CJ

CITATION : Farrell v Stephenson [2008] NSWSC 1350

DECISION : Plaintiff's case dismissed with costs. In the cross-claim, order that transfers of the Nos 186 and 188 properties be set aside. Cross-Claimant entitled to proceeds of sale of the cross-defendants' Bilgola property.

CATCHWORDS : EQUITY [49]- Cross-claim alleges second and third defendants procured transfers of widow's properties to themselves with little or no consideration- Second and third defendants mortgaged those properties and used the money for a series of unsuccessful property investments- Widow never received independent legal advice- No defence to cross-claim ever pleaded- Held properties were obtained by equitable fraud and undue influence. SUCCESSION [26]- Testator's will left properties to the widow, but contained precatory terms that the widow bequeath those properties to the plaintiff and the second defendant upon her death- Whether widow is bound to make such bequests- Held that there is no evidence of a contractual obligation to make a will in the plaintiff's favour- Widow's solicitor's letter insufficient to amount to a declaration of trust nor a representation.

Baird v Smee [2000] NSWCA 253 Bigg v Queensland Trustees Ltd [1990] 2 Qd R 11 CASES CITED : Birmingham v Renfrew (1937) 57 CLR 666 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 Re Dale [1994] Ch 31 Stivactas v Michaletos (No 2) (NSWCA, 31/08/1993, unreported)

Judith Farrell (Plaintiff) PARTIES : Kathleen Mary Stephenson by her Tutor the Protective Commissioner of New South Wales (First Defendant/Cross-Claimant) Peter Michael Stephenson (Second Defendant/First Cross-Defendant) Jetherwin Marie Stephenson (Third Defendant/Second Cross-Defendant)

M S Willmott SC and E Elbourne (Plaintiff) COUNSEL : A J McInerney and W A D Edwards (First Defendant/Cross Claimant) In person (Second Defendant/First Cross-Defendant) In person (Third Defendant/Second Cross-Defendant)

The Property Practice (Plaintiff) SOLICITORS : Lee & Lyons (First Defendant/Cross-Claimant) In person (Second Defendant/First Cross-Defendant) In person (Third Defendant/Second Cross-Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4555/06 - FARRELL v STEPHENSON JUDGMENT 1 HIS HONOUR: This is a dispute between members of the family of the late Michael Athol Norman Stephenson whom I will call "the testator". 2 The plaintiff is the daughter of the testator by his first marriage. After the plaintiff's mother had died, the testator married the first defendant who became his widow. The testator and his widow had a child together, the second defendant Peter. Peter is currently married to the third defendant known as "Jett". 3 When he died on 16 May 2004, the testator was the registered proprietor in fee simple of a property at Beacon Hill which I will call No 186. He was also a joint tenant with the widow of No 188 in the same street and was joint tenant with the widow and two other people of some land at Sussex Inlet. He also had about $450,000 worth of shares and other liquid assets. 4 Letters of administration cta were granted to the widow on 3 November 2005. The will was a holograph will. Its full text omitting formal parts is as follows: "All my property monies and investments to my wife Kathleen Mary Stephenson except one request. If I precede my wife by death I would request of my wife to immediately cash in one or more of my $10,000 plus bonuses 10 year bonds Col Mutual and equally divide it between the two women in my life who have inspired me one way or another, to looking forward to tomorrow, to the future, planning with patience. I of course refer to my wife Kathleen Stephenson and my very close friend Dorothy Bottger of Collaroy Plateau. I want you two women to remain close friends and to use this money as soon as possible to go on an extended holiday together no ifs or buts go now. If problems arise from cashing in a 10 year bond draw from some other account. Suggest Peter and family move into 188 for the holiday period or one of the Farrell families to look after home while you are away. Peg you know my thoughts on the properties, we have two immediate children (Peter and Judith). It would be nice if your 'will' requested [sic] Peter for 188 and Judith for 186 but hang on to 186 for income until you sort things out to suit yourself. If I have not sold the block at Sussex, continue with sale and use the money. Regarding the jointly owned holiday home at Sussex, Dot has a handwritten proposal which needs more thought and straightening out but it would be nice to be continued for the direct descendants of both families half ownership each side, split up to 10 shares (5 shares each family). Run as a club. Shares not to be sold. The 10 members (5 each family) will be committee members shares to be passed back to direct descendants only. This will has been put together quickly and in written form due to pending hospitalisation, the intention being to rewrite same at a later date, whenever it is, it (the will) will be very similar." 5 The widow is now 86 and under the care of the Public Guardian. She has been represented in the present case by counsel and solicitors instructed by the Protective Commissioner. 6 The plaintiff's claim is that No 186 is held on trust for her. She makes her claim on alternative bases. First she says there was an oral agreement between the testator and the widow that in consideration of the testator devising No 186 to the widow, the widow agreed not to dispose of it in her lifetime and then devise it to the plaintiff. Alternatively she says that a letter of 18 October 2004 from the widow's then solicitor, was a declaration of trust of the property or acted as the foundation for a High Trees estoppel. 7 The current facts as to Nos 186 and 188 are as follows. The widow resided in No 186 from the date of the testator's death until she was admitted to a nursing home on 8 October 2007. 8 No 186 was transferred by the widow by Transfer AB727453E dated 27 August 2005 to the second and third defendants as joint tenants for nil consideration. No 188 was transferred by the widow by Transfer AB665402Q to the second and third defendants as joint tenants for the consideration of one dollar on 22 July 2005. 9 No 186 was mortgaged to Perpetual Trustees Victoria Ltd by Mortgage AC153457T. The mortgagee would appear to be a trustee for Challenger Mortgage Management in respect of a loan of $420,000. The valuation of No 186 for stamp duty purposes was $720,000. 10 No 188 is mortgaged to RAMS Mortgage Corporation Ltd by Mortgage AD403348J. There also appears to be an unregistered mortgage to Suncorp Metway though it may be that the latter was subsumed in the former. The amount appears to be $637,500 though the valuation for stamp duty purpose was $520,000. 11 The Protective Commissioner certifies that the widow is a pensioner whose total remaining assets are about $3,800. 12 It would seem that the second and third defendants used the monies they obtained from the mortgages in an unsuccessful development of land in particular, land at Bilgola. The net proceeds of the sale of the Bilgola land were $106,228.15 and this sum is presently frozen in a solicitor's trust account. However, the mortgages on Nos 186 and 188 are still in place. 13 Apart from the plaintiff's claim against the widow, the widow, by the Protective Commissioner has filed a cross-claim against the second and third defendants to set aside the transfers of Nos 186 and 188 and for the appointment of trustees for their sale. 14 The second and third defendants never filed any defence to the cross-claim, though they had filed a defence to the plaintiff's claim. 15 The proceedings came on for hearing before me on 20 and 21 October 2008. Mr M S Willmott SC and Ms E Elbourne appeared for the plaintiff, Mr A J McInerney and Mr W A D Edwards appeared for the widow. The second and third defendants appeared in person. 16 There are really three cases here: (a) the claim by the plaintiff against the widow; (b) the claim by the widow by the Protective Commissioner against the second and third defendants; and (c) the claim made by the widow in allied proceedings 5220/08 commenced on 16 October 2008 by the widow against the second and third defendants. These proceedings were commenced whilst the present proceedings were in the course of being prepared for trial to avoid any argument about Anshun estoppel. Apart from referring to them in passing, I need do nothing more. 17 So far as the plaintiff's claim is concerned, I have to deal with:

(1) the claim that there was a contract between the testator and the widow which has given some interest to the plaintiff; and

(2) that the solicitor's letter of 18 October 2004 was a declaration of trust or acted as the foundation of a High Trees estoppel. 18 Then I have to:

(3) consider the claim by the widow to set aside the transfer of No 188;

(4) consider the claim by the widow to set aside the transfer of No 186;

(5) consider whether there is any equity to charge the property at Bilgola or its proceeds in favour of the widow.

(1) Whether there was a contract between the testator and the widow which has given some interest to the plaintiff 19 Mr Willmott put that the evidence shows that sometime prior to making his will, the testator must have agreed with the widow that in consideration of him agreeing to devise No 186 to her, she would not dispose of No 186 in her lifetime and in turn devise No 186 to the plaintiff. He says that the evidence can be found in the statements made by the testator in his will and other statements. He then refers to a letter in the deceased's handwriting in 2003 addressed to the widow: "Sunday 9th March 2003

Although Judith is holding my 'will' or future instructions I add the following:

You my dear take my place the home 188 is yours to be given eventually to Peter and 187 [sic] is your home too if you need the rent to be passed on to Judith. Do not be talked into, or sell anything. If the benefactors want to sell after you pass on, that's their business. I'm sorry to say one member of our family thinks money is for spending. Sell and get the dough, spend spend until it is all gone. Unknown to you I've given him thousands of dollars until he thought it could not end, well it did, it started off with 2 blocks of land ends up with one block and a house that belongs to the bank. Money ate, nine hundreds at a time gone. I wish I had a start like that. There is only one way to learn and that's the hard way.

Well my darling I've always loved you and will love you forever and ever. Yours forever Norm

I must transfer Bank a/c over to you, rent has been paid into a/c." 20 Mrs Nita McClure, who is the younger sister of the testator swore that about a week after the testator died she called on the widow and the widow said to her: "Neet, I want you to read this". She then gave Mrs McClure a letter which she had in her bag and that is the letter that I have just set out. Mrs McClure said that the widow then said: "Norm and I have discussed about the properties and what is to become of them when we pass away. If Norm passed away first, I am to keep both properties, 186 for the income for the rent and to stay on in this one. If I passed away first, Norm would do the same. We agreed to leave 186 to Judy and 188 to Peter. Norm said we would discuss Sussex later." Mrs McClure asked the widow whether she intended to carry out those wishes, to which the reply was "I am duty-bound". Mrs McClure said that she thought the letter was so important she had five or six copies made, kept one at the request of the widow and gave the widow the remainder. 21 There seems little doubt factually that the testator and the widow did have an arrangement whereby No 186 would eventually find its way to the plaintiff and No 188 to the second defendant, Peter. The main argument against there being a binding agreement which sets up a trust is that the authorities show that ordinarily if there is nothing more than a consensus between husband and wife as to how they would leave their property, there is no binding contract that either party will not depart from the consensus. 22 In Baird v Smee [2000] NSWCA 253, Mason P at [6] said: "Two legal propositions are, in my view, clearly established:

(1) an express or implied agreement may be constituted or evidenced on the face of mutual wills;

(2) the mere fact that two persons simultaneously make wills with mutually similar provisions does not itself establish an agreement not to revoke."

Handley JA at [24] said: "However mere consensus is not enough. There is a legal presumption of some strength that informal agreements between spouses are not intended to be legally binding."

His Honour noted authority for that proposition and continued at [25]-[26]: "[25] In cases of the present kind, as Viscount Haldane said in Gray v Perpetual Trustee Co Ltd [1928] AC 391 at 400 a definite agreement to constitute equitable interests must be shown to have been made 'and without such a definite agreement there can no more be a trust in equity than a right to damages at law'. [26] The need to prove a legally binding contract has always been insisted upon in these cases." 23 The third judge, Giles JA, for similar reasons also reached the same conclusion. 24 I was also cited the judgment of Dixon J in Birmingham v Renfrew (1937) 57 CLR 666 at 686 and the judgment of McPherson J in Bigg v Queensland Trustees Ltd [1990] 2 Qd R 11, 13 as further authorities for this proposition. 25 Mr Willmott also relied on cases such as Re Dale [1994] Ch 31 at 38 and some other cases, none of which take the matter any further than what I have already set out. 26 Accordingly, whilst there is acceptable evidence of a consensus between husband and wife, one must look to see whether, despite the general reluctance to find a contract and a legally binding commitment made between husband and wife, the parties really did intend to make a contract binding at law. 27 The basal documents themselves do not assist the plaintiff. The will is in odd but precatory terms. The phrases "Peg you know my thoughts on the properties" and "It would be nice if your will bequested Peter for 188 and Judith for 186" indicate that no legal obligation was being imposed on the widow. The letter also seems to envisage that the widow is to hold Nos 186 and 188 personally and is instructed eventually to give them to the two children. 28 Mr Willmott relies, inter alia, on a letter which was written by Mrs Carolyn Emmerson on 18 October 2004 as solicitor for the widow. 29 That letter was written in reply to a letter written by Tonkin Drysdale Partners of 28 September 2004 who were acting for the plaintiff. Tonkin Drysdale said, inter alia: "It seems to us there was an agreement between Mr Stephenson and his wife that Peter was to inherit No 188 and Judith to inherit No 186. We also note Mr Stephenson's wish that his wife 'hang on to 186 for income' until she 'works things out to suit herself.'" 30 The letter went on to say that the plaintiff had a great deal of fondness for the widow, but they would like to suggest that Mr Stephenson's wish in respect of No 186 be brought forward. The solicitor suggested that the widow is a self funded retiree and carrying out her husband's wishes early would not hugely impact on her income. 31 It was in response to that letter that Mrs Emmerson wrote her letter. The letter contained the following: "Our client confirms the agreement between her late husband and herself for your client to inherit the property at 186 Warringah Road, Beacon Hill on our client's death, and has instructed us to prepare a Will for her incorporating this bequest. Both Mrs Stephenson, and her son Peter Stephenson, are prepared to enter into a Deed whereby Mrs Stephenson covenants to this effect, and Peter covenants not to take any action which would prevent this occurring. However our client is not prepared at this time to consider your client's request to benefit your client immediately." 32 I do not consider that this letter really advances the plaintiff's case very far. It does use the word "agreement", but that is a word that has a variety of meanings from "binding contract" to "consensus". Furthermore, all that would seem to be acknowledged was an obligation (whether moral or legal is uncertain) to make a will in the plaintiff's favour leaving her No 186. It is probably a matter that the plaintiff now regrets that she did not accept the offer to have a deed of covenant. 33 I do not consider that there is sufficient material to allow me to find that there was a legally binding contract or a trust pursuant to which No 186 was the property in equity of the plaintiff.

(2) Whether the solicitor's letter of 18 October 2004 was a declaration of trust or acted as the foundation of a High Trees estoppel 34 Mr Willmott's alternative claim is that the solicitor's letter, on its true construction, operated as a declaration of trust which would operate upon the widow's death. The letter satisfies the requirements of s 23C of the Conveyancing Act 1919. 35 A declaration of trust does not have to use the word "declare" or the word "trust". However, I find it extremely difficult to construe the solicitor's letter as a declaration of trust made by an authorised agent. The evidence does not disclose that Mrs Emmerson was given any particular authority to dispose of the widow's property even after her death. All the letter does is to reject the suggestion made by the plaintiff's solicitors that the plaintiff should have a benefaction now, confirm the consensus between the widow and the testator, indicate that the widow is prepared to make a will to carry out the consensus and offer to enter into a deed. I cannot construe it as a declaration of trust. 36 This being so, it is unnecessary to go into other matters such as whether a declaration of trust to take effect only after a person's death has to comply with the formal requirements for a testamentary instrument. 37 Mr Willmott then says that there is a promissory estoppel, again arising out of Mrs Emmerson's letter. Mr Willmott puts his case this way: (1) the plaintiff relied upon the representations of the widow that she would devise the property to the plaintiff; (2) the plaintiff relied upon those representations that it was unnecessary for her to enter into a deed as proposed by Mrs Emmerson's letter; and (3) Mrs Emmerson's letter confirmed the agreement and by it the widow promised that she would abide by it. In the circumstances she is estopped from denying the agreement and her promise to abide by it. 38 Again, in my view, the plaintiff is reading too much into the letter. The letter was in reply to the plaintiff's own solicitor's letter. The letter indicated an intention on behalf of the widow and there was an offer to enter into a deed. The offer to enter into a deed negatives the implication that might be taken by other people that the confirmation of the agreement represented a promise that the widow would abide by it contractually. 39 The plaintiff says in her affidavit of 19 July 2007: "I did not pursue the offer to have a deed as offered in Mrs Carolyn Emmerson's letter, because the letter said that a will was being drafted leaving 186 to me, and I believed from my conversations with Peggy [that is the widow], that she would abide by her agreement with my father." 40 The plaintiff was cross-examined on this at T23. She said that she brought the subject up with the widow who was quite happy. She said the widow had made the will and didn't seem to want to go any further with going to solicitors and that she relied on the fact that the widow had made the will. She then said: "I know I should have followed that up, but I didn't" and she had no discussion with her solicitors and decided to let things be as they were. Her answer to the question as to her reasons was: "Yes. She made the will and in my mind I was happy about that and I didn't really see the significance of having it go further because I relied on what she had told me in previous conversations and also the will itself." The question then was: "And you wanted nothing further done in terms of correspondence between solicitors on the topic; is that correct?" The answer was: "Yes. At that time I had made that decision." 41 It appears from other evidence from the plaintiff that she acknowledged that there was nothing to prevent the widow selling the property if she needed to do so. I do not consider that I can glean from the evidence sufficient to enable me to find that there was any further promise or undertaking made by the widow other than that she would make her will and the conduct of the plaintiff shows that this was probably so. There is nothing to show that the promise was to go further to ensure that the widow was in a position to devise her property, not to encumber her property and not to alter or destroy the will. Indeed, the acknowledgement by the plaintiff that if need be the widow could sell the property to maintain herself tells against it. 42 Accordingly, in my view, the plaintiff's case should be dismissed with costs. Although it is unnecessary to deal with it, there was one major factual dispute between the parties, and that is, when the testator's will was first disclosed to the second defendant. The plaintiff says that the will was handed to her in a "fragile looking envelope closed with masking tape" in 2001 at about the time the testator was about to have surgery regarding a prostate problem. She says that about March or early April 2003, the third defendant called her and indicated that she knew that the plaintiff had the will and a few days later the second defendant rang to the same effect. The plaintiff says that on 5 April 2003, she visited the testator in hospital at Mona Vale, and on the same day she gave the widow a copy of the will and read it to the widow. On the same day at dinner at the Harbord Diggers Club she gave a copy of the will to the second defendant. The second defendant says that he was actually given the will at the Harbord Diggers Club on the widow's birthday on 29 June 2004, that is, after his father's death. The third defendant gives similar evidence that she did not receive a copy of the will until June or July 2004 and received the original later than that. 43 There is very little from which I can make a finding on this issue. It is made more difficult by the fact that the second defendant has had health problems which have affected his memory and the second and third defendants appeared unrepresented. It seems to me that there has been confusion in the recollection of some of the parties between two dinners that were held at the Harbord Diggers Club. The impression given to me by the second and third defendants in their evidence on the remaining aspects of this case make me have doubts about their recollections and their credibility. This makes me prefer the plaintiff's version of when the will was handed over. 44 However, if the will was handed over as the plaintiff says and she discussed it with the widow before the testator's death, it goes against the plaintiff because there is no evidence to show that the widow ever made any will while her husband was still alive to comply with the alleged obligation that she and her husband should make more or less mutual wills. 45 Accordingly, this reinforces my view that the plaintiff's claim should be dismissed with costs.

(3)(4) & (5) Cross-claim by the widow 46 I now pass to the cross-claim. I can deal with the three prayers in the cross-claim together because they raise the same matters of principle and have common facts. 47 The claim under heading (3) is to set aside the transfer of No 188; the claim under heading (4) is to set aside the transfer of No 186; and the claim under heading (5) is to claim an equity of exoneration to charge the Bilgola property or the proceeds from its sale. 48 The cross-claim claims that at all material times in 2005, the second and third defendants gave assistance and advice to the widow in relation to financial matters and she was dependent upon that assistance. In 2005 she was 82 to 83 years old, was suffering at least the early stages of Alzheimer's Dementia, was easily manipulated and suggestible and had reduced capacity to manage her own affairs and protect her own interests. Further, that in 2005 she reposed her trust and confidence in the second and third defendants and they were each in a position of trust owing fiduciary duties not to act detrimentally to the widow nor to profit from their relationship with her. As there was no defence ever filed to the cross-claim, these matters are deemed to be admitted. The facts as to the transfers are as follows. 49 As to No 188 which is the land comprised in Folio Identifier 38/13261, Transfer AB665402Q dated 22 July 2005 was registered on 1 August 2005. The transfer is on the standard form with the blanks being filled in by the third defendant's handwriting, the consideration is shown as one dollar, the signatures of the widow, the second and third defendants are on it and everything is witnessed by a Belinda Gorham. Stamp duty of $18,690 appears to have been paid on the document on 29 July 2005. There is a mortgage of 3 March 2006, AC153461D to Perpetual Trustees Victoria Ltd, it would seem for $500,000. This was discharged and replaced with Mortgage AD403348J on 11 September 2007 to RAMS Mortgage Corporation Ltd. 50 No 186 was the subject of a transfer which became registered AB727453E on 29 August 2005. The blanks are filled in by the third defendant's handwriting. The consideration is said to be nil. The document is dated 27 August 2005, duty was paid of $16,640 on 29 August 2005 and it is signed by the widow and the second and third defendants in the presence of Belinda Gorham. Again there is a mortgage to Perpetual Trustees Victoria Ltd, it would seem, for $420,000, registered AC153457T on 3 March 2006. 51 These matters were detailed in the statement of cross-claim and there was no defence filed. The cross-claim also alleged that the funds were either directly or indirectly applied by the second and third defendants for the purchase of a property at Bilgola. The property at Bilgola was sold pursuant to a contract completed on 6 August 2008, and of the sale proceeds $106,228.15 is held in a solicitor's trust account. The second and third defendants filed affidavits which eventually they read when they got into the witness box. They do not deny that they obtained the properties from the widow, but say that she fully intended that they should have them, that the widow did not want the plaintiff to interfere with her lifestyle by making demands about No 186, so there was a proposal that the properties be sold, the proceeds put into Bilgola where a large house should be built which would accommodate both the widow and the second and third defendants and they would be able to live there to mutual advantage. 52 The second defendant in evidence said that it should be remembered that the second and third defendants had also sold their own house which they owned outright and put that into Bilgola so that they had $1.6 million in funds. He said: "We wanted a larger house that had enough bedrooms so my mother could live there and we could look after her and the house we purchased also needed some major renovations to get it ready for my mother." The house at Bilgola he said cost $1.5 million and he could not remember how much the renovations cost because they did some themselves. However, no one ever lived there because it was never in a livable state. The second defendant said that as a matter of fact all the funds were slowly soaked up, that the repayments were slowly soaked up because of delays in this court and they had to continue to pay mortgages on Nos 188 and 186 until Bilgola was no longer viable and they had to sell it. They sold it for $1.4 million. 53 It is hard to accept that any delays in this court had anything to do with the disaster. Indeed, the fact that that excuse is proffered in itself tells against the second defendant's credibility. 54 There is material from the testator to the effect that he had lent the second defendant what he considered to be large sums of money, all of which the second defendant had lost. 55 The third defendant gave evidence that she did in fact fill in the blank transfers and that the witness was a friend of hers. The witness was asked to come and act as witness because the third defendant had telephoned the Registrar General who said that she needed a witness. She said that the transfer was the widow's idea not hers. She said that the widow told her that she wanted the property transferred now to the second and third defendants because "she doesn't want any dramas when she died whatsoever". Mr Willmott asked the third defendant in cross-examination (T76): "Q. There was no suggestion of ever involving a solicitor in the preparation of this transfer, was there? A. No. Q. Why? A. First because we are trying to avoid paying solicitors. Second, we don't really want to do the transfer. … Q. You said 'we wanted to avoid solicitors and the expense of solicitors'? A. It was me and my husband talking. Q. The two of you were the ones who suggested you could do this without going to see a solicitor? A. Yes, because … Q. You suggested that to Mrs Stephenson? A. I didn't suggest anything to Mrs Stephenson, to my mother-in-law." 56 She admitted that there was never any suggestion that the widow might get independent advice or any legal advice and that is because solicitors cost a lot of money. When asked whether she had benefited from the transaction, she said: "I'm not answering that." But when the question was put again she said: "This was all her decision not ours." 57 Mr Willmott also cross-examined the third defendant about other property dealings. He said (T80-81): "Q. Just so I understand, some time in early 2006 you and your husband bought the property at … did you not? A. Yes. Q. Do you remember how much you paid for that? A. $1.1, over $1.1, $1.2. I'm not sure Q. Did you use the monies raised on the mortgage of 186 and 188 to purchase that property? A. Yes." 58 It was then revealed that the property had been sold. Mr Willmott continued: "Q. In that same year, 2006 or possibly in 2007 you and your husband also purchased a property at 5 … Allambi Heights, did you not? A. Yes. … Q. Do you remember how much you paid for it? A. Maybe 5, 6. Six hundred, I'm not sure. Q. How was that money raised? A. From the mortgage. Q. That property has also subsequently been sold? A. Yes. … Q. Also in the same year you purchased the property at … Bilgola, did you not? A. Yes. Q. When did you purchase that property? A. March. Q. How much did you pay for it? A. $1.6. Q. Where did you get the monies for that? A. From the mortgage. … Q. Also in 2007 you and your husband purchased the property at May Gibbs Way Frenchs Forest, have you not? A. Yes. Q. When did you purchase that? A. November. Q. How much did you purchase that for? A. $1.4 maybe. Q. How did you pay for that? A. The mortgage. … Q. You have subsequently sold the property at May Gibbs Way Frenchs Forest, have you not? A. Yes. Q. When did you sell that? A. December 2007 I think. … Q. Last year you sold the property at Oxford Falls Road Beacon Hill, that was your home, was it not? … A. No that is wrong. … We sold the property at Oxford Falls in 2007." 59 The witness then said that she thought that something like $680,000 and $460,000 were still owing on the respective mortgages. 60 This evidence tends to negate the suggestion that the principal reason for the transfer of the properties was so that a bigger property could be purchased for the second and third defendants and the widow to live in. It would seem that the second and third defendants have been carrying on activity as unskilled property developers with the result that they have lost millions of dollars and have nothing to show for it. 61 The case is what is these days called a classic Elder Law case. The widow in 2005 was left by her husband with property worth $1.5 million on the basis that she could enjoy her life and live off the income with an understanding that she would leave the property to her child and stepchild. Without any independent legal advice and in a situation where the widow is admitted on default of pleadings to have been reliant on the defendants and easily manipulated and suggestible, she gave away her $1.5 million properties, she obtained no benefit and she is now living in a nursing home, subsidised. 62 Even on the second defendant's evidence, the widow was not the woman she had been in early 2005. We know that the Guardianship Tribunal appointed a guardian in mid-2008 and the reason why the matter was brought to its attention was because the manager of the nursing home in which she was residing was concerned she could not even pay her fees even though she once had a lot of property. 63 There is little need for me to mention any authorities because the case is such a classic case. However, Mr McInerney did refer me to a number of authorities, perhaps the closest to the present case is the unreported decision of the Court of Appeal in Stivactas v Michaletos (No 2) (31 August 1993, unreported). 64 As I have said, it is a classic case and there is no other conclusion to which the court can come other than that the second and third defendants have, by equitable fraud and by undue influence obtained property of the widow: the transaction is voidable, and in so far as it can be, must be set aside. 65 I now deal with the claim under heading (5), that is, the claim that there is an equity of exoneration against the funds in the solicitor's trust account from the sale of Bilgola. 66 The evidence of the second and third defendants shows that the mortgage monies from Nos 186 and 188 were applied without benefit for the cross-claimant, inter alia, in the purchase of Bilgola. 67 Furthermore, it should be noted that in the proceedings before the Guardianship Tribunal the then solicitor for the second and third defendants wrote that the Nos 186 and 188 properties were mortgaged to construct a property at Bilgola which was the intended house of the widow plus the second and third defendants and their children. Other admissions were made in this court to the same effect. 68 It would seem to me that whether one classes the matter as an equity of exoneration or a tracing exercise, the monies that are in the solicitor's trust account were monies which passed from the widow to the second and third defendants by way of a voidable transaction in equitable fraud, the money can be traced through to the proceeds which the solicitors are now holding and that money must be considered as in equity belonging to the widow. 69 I should, however, put on the caveat that it may be that there is some other equity in respect of the money with a greater claim to that of the widow. However, as between the parties to these proceedings, the monies belong in equity to the widow. 70 Finally I should note that the third defendant was in possession of what purports to be the last will and testament of the widow. This was produced to the court and was marked TX 206. I direct that the will be lodged with the Registrar in Probate and that notification of that lodgement be given to the Protective Commissioner. 71 Accordingly, I will publish these reasons and stand the matter over until 9.50am on 3 February 2009 for draft short minutes of order to be brought in. However, I make the direction now that TX 206 be lodged with the Registrar in Probate and note that the existing undertakings and any current injunctions are to continue in force until the draft short minutes are accepted.

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At a glance

Court

Decision date

Before

Source

Judgment (26 paragraphs)

Parties

Cases Cited (2)