John Frederick Orr v Renee Slender Estate of the late Godfrey Raymond Orr & Ors [2005] NSWSC 1175 | Case summary

5681/04 John Frederick Orr v Renee Slender Estate of the late Godfrey Raymond Orr & Ors JUDGMENT 1 His Honour: These proceedings arise out of a dispute as to the entitlement of the parties to the assets of the estate of the late Godfrey Raymond Orr (the testator) who died on 14 August 2003, leaving a will dated 12 August 1993. Probate of the will was granted to John Frederick Orr (the plaintiff), on 22 September 2003, the sole executor and trustee. 2 The testator's wife, Alice, died in 1982. He had no children. He had four siblings, Aileen, Audrey, Clifford, and Renee (the first defendant), all of whom except the first defendant predeceased him. The second and third defendants are grandnieces of the testator. The fourth defendant is a grandnephew of the testator and the son of the plaintiff. The plaintiff and the defendants are the only surviving beneficiaries under the will. 3 The relevant history is as follows. 4 At the date he made his will on 12 August 1993, the testator was the owner of the home unit at No. 6/64 Belmore Road, Randwick in which he lived, and held the sum of about $15,000.00 in a bank account. The relevant provisions of the will are: "3. I GIVE DEVISE AND BEQUEATH unto my trustee my unit situate at 6/64 Belmore Road, Randwick UPON TRUST to sell, call in and convert into money and to stand possessed of the proceeds of such sale, calling in and conversion after payment of all legal fees and sales commissions UPON TRUST for: (a) RENEE SLENDER of 18 Lumea Bay, Bawley Point; (b) my grandniece DEBBIE HOLLAND of 35 Macquarie Place, Southport, Queensland; (c) my grandniece SUSAN HOLLAND of 35 Macquarie Place, Southport, Queensland; (d) my grandnephew MARK ORR of 3 Gladstone Avenue, Warrawee, New South Wales; and (e) my brother CLIFFORD ORR of 3 Gladstone Avenue, Warrawee, New South Wales and if more than one in equal shares 4. I GIVE the whole of the rest and residue of my estate to my Trustee UPON TRUST to pay all my debts, funeral and testamentary expenses and all death or other duties or taxes payable in consequence of my death or in respect of my estate and to hold the balance then remaining UPON TRUST for my nephew JOHN ORR of 3 Gladstone Avenue, Warrawee, New South Wales for his sole use and benefit absolutely". 5 On 16 April 1996 the testator executed a general power of attorney in the form of Schedule 7 Conveyancing Act 1919 (the Act) by which the plaintiff was appointed his attorney. It attracted the application of s 163B of the Act to which reference is later made. It was an enduring power of attorney in that cl 2 provided that it was given with the intention that it would continue to be effective notwithstanding that after its execution the testator suffered loss of capacity through unsoundness of mind. Clause 3 of the instrument was deleted. It was in the following terms: "3. In the exercise of the authority conferred on him by Section 163B of the Conveyancing Act 1919, my attorney is authorised to execute an assurance or other document, or do any other act, whereby a benefit is conferred on him". 6 The testator gradually developed dementia from about 1997. On an occasion in March 1998 the plaintiff visited the testator at the unit and found him to be in circumstances which demonstrated that he was no longer capable of looking after himself. 7 In June 1998 the plaintiff obtained accommodation for the testator at Princess Juliana Hostel, Turramurra. The testator was required to pay an accommodation bond of $71,000.00. As the testator had only a small amount of cash and a pension in order to obtain funds for the payment of the bond and for future expenses for the testator it was necessary to sell the unit. 8 In August 1998 the plaintiff in exercise of the power of attorney sold the unit by auction for the price of $235,000.00, completion of which took place on about 1 September 1998. The net proceeds of the sale of the unit in an amount of $230,534.00 were deposited by the plaintiff into an investment bank account with St. George Bank in his name. He paid out the sum of $60,000.00 to the hostel towards the bond. Thereafter all transactions into and out of that account related to the testator's income and expenditure until the date of his death. Payments from the account included the bond for the Princess Juliana Hostel, hostel and nursing home fees, medical, pharmaceutical, clothing, and sundry living and other expenses. 9 In August 2001 the testator suffered a fall which necessitated a hip replacement. Following discharge from hospital he was transferred to a nursing home at Wahroonga where he remained until he died on 14 August 2003. 10 On 1 September 2001 the sum of $61,509.73 received as a refund of the bond less certain deductions was paid into the account. 11 The assets of the estate at the date of death consisted of cash in two accounts with St George Bank in the total sum of $264,765.97. After payment of funeral expenses of $5,032.00, the net total value of the estate is $249,733.57. 12 In these proceedings there is a question whether, as a result of the sale of the unit by the plaintiff under the power of attorney in the lifetime of the testator, there has been an ademption of the legacies in cl 3 of the will. The questions for determination posed by the summons are whether, under the will, the defendants are entitled to receive the balance of the net proceeds of sale of the unit after payment of relevant costs and expenses, and costs of maintaining and caring for the testator, or whether the balance of those proceeds form part of the residue of the estate which passes to the plaintiff. 13 It is common ground that the purpose of the sale was to provide for the testator, and that at the time he lacked testamentary capacity. 14 The legacies in cl 3 of the will are specific legacies. A specific legacy is adeemed when its subject matter has been extinguished at the time of the testator's death. The principle is explained in Brown v Heffer (1967) 116 CLR 344, p 348: "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".

… 15. As Roper notes at p 331, this view of ademption means that the testator's intention is irrelevant. The only thing to be ascertained is whether the testator possessed the property in the specific gift at the time of his death. If he did not, the legacy is adeemed by annihilation of the subject". 16 In Christensen v McKnight (unreported, NSWSC, 2 March 1995) Hodgson, J held that ademption depends on the intention of the deceased as disclosed by the will, not any subsequent intention. 17 Conversion of the subject matter of a specific gift by lawful authority adeems the gift (Jones v Green (1868) LR 5 Eq 555, p 560). In Christensen Hodgson, J said that if the intention disclosed by the will is to give particular real estate and nothing else, it does not matter how the deceased ceased to have the real estate to give. He referred to Re Galway's Will Trusts [1950] 1 Ch 1 in which Harman, J (p 9) said: "The cases indeed show that even a contract to sell will work an ademption … Much more so, therefore, will a contract which has been brought to completion as this one was in the testator's lifetime". 18 There is an exception where it can be shown that the property ceased to be part of the testator's estate because of the unauthorised action of an agent. (Johnston para 17) or by a tortious act unknown to the testator (Jenkins v Jones (1866) LR 2 Eq 323). 19 When the testator executed the power of attorney on 16 April 1996 the provisions of Pt 16 of, and Schedule 7(2) to, the Act were in force. Part 16, which included s 163B, was repealed by the Powers of Attorney Act 2003, which commenced on 16 February 2004. However, by s 6(3) of this Act Pt 16 continues to apply to any power of attorney created by an instrument executed before its commencement date. 20 Section 163B provides: "(1) Subject to this section, an instrument (whether or not under seal) in or to the effect of the form in Schedule 7 confers on the attorney thereby appointed authority to do on behalf of the person executing the instrument anything the person executing the instrument may lawfully authorise an attorney to do. (2) The authority conferred by an instrument referred to in subsection (1) does not include: (a) authority to exercise or perform any power, authority, duty or function as a trustee conferred or imposed on the person executing the instrument, or (b) unless it is expressly conferred by the instrument - authority to execute an assurance or other document, or do any other act, as a result of which a benefit would be conferred on the attorney appointed by the instrument. (3) Where an instrument referred to in subsection (1) specifies any conditions or limitations to which the authority conferred by the instrument is to be subject, the authority is so conferred subject to compliance with those conditions or limitations." 21 The plaintiff submitted that under cl 3 of the will the defendants are not entitled to payment from the proceeds of sale. It was put that under the power of attorney the plaintiff was authorised to enter into the transaction whereby the unit was sold and the proceeds applied for the benefit of the testator, with the consequence that there was an ademption of the gifts under cl 3, and the remaining assets of the testator at the date of his death fell into residue under cl 4. 22 The plaintiff argued that upon the proper construction of s 163B(2)(b) of the Act, the benefit referred to is one which is the direct result or product of the exercise of power which, in this case, was the execution of documents and other acts for the sale of the unit. He submitted that the inclusion in the residue of the proceeds of sale which remained at the death of the testator was not a benefit conferred as a result of his participation in the transaction under the power of attorney within the meaning of the provision. In reliance upon Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12 it was submitted that the plaintiff was not entitled to any beneficial interest in the residue until completion of the administration of the estate. 23 For the defendants it was submitted that under s 163B(2)(b) the exercise of power was beyond the authorisation conferred by s 163B(1) in that it resulted in a benefit to the plaintiff. The consequence was said to be that the plaintiff now holds the proceeds of sale on trust for the defendants to be dealt with in accordance with cl 3 of the will because by acting beyond his authority he was in breach of his fiduciary duty to the testator, alternatively there is an exception to the doctrine of ademption. 24 It was submitted that by reason of the testator's testamentary incapacity at the time of the transaction the testator was unable to change his will with the result that the proceeds of sale would form part of the residue of his estate to be disposed of to the plaintiff under cl 4 of the will. It was argued that the difference between the testator's assets at the date of the will and at the date of his death was caused by the plaintiff's exercise of power with the result that a benefit would be conferred on him under the will. It was put that in the circumstances the reality was that the benefit was conferred and effectively received by the plaintiff at the time the sale took place. 25 On the question of construction, the defendants argued that s 163B(2)(b) should be interpreted to give effect to its purpose to prohibit an attorney from exercising the power for his benefit. It was put that the phrase "….as a result of which a benefit would be conferred on the attorney…." should be given a wide ambit and, consistent with the legislative purpose, a wide approach to the factual issue of causation should be taken. The plaintiff's expectancy under the will was a benefit which was a result of the exercise of power and, accordingly, his conduct in effecting the sale was outside his authority under the instrument. 26 The critical issue is whether the inclusion of the remaining proceeds of the sale of the unit in the residue of the estate is a benefit conferred on the plaintiff as a result of his conduct in effecting the sale. This is a question of causation in fact which turns upon the construction of s 163B(2)(b) of the Act, particularly the words "…authority to execute an assurance or other document, or do any other act, as a result of which a benefit would be conferred on the attorney….". 27 The approach to be taken is with regard to the purpose of the statute ordinarily to be found in the statutory text. (eg. Network Ten Pty Limited v TCN Channel Nine Pty Limited [2004] HCA 14 paras 11 & 12, 86-89). The words of s 163B specify the scope of the authority conferred by a general power of attorney in the form of Schedule 7. It is reasonable to infer that the purpose of the section is to provide guidance and certainty for principals, attorneys, and others concerned as to the extent of authority in the exercise of powers of attorney. Subsection (1) expresses in wide terms the authority conferred on the attorney by the principal; ss (2) specifies the matters which are not included in that authority; ss (3) provides that the authority is subject to compliance with any conditions or limitations specified in the instrument. 28 Section 163B(2)(b) provides: "(2)(b) unless it is expressly conferred by the instrument - authority to execute an assurance or other documents, or do any other act, as a result of which a benefit would be conferred on the attorney appointed by the instrument." 29 By this provision the criterion of lack of authority is whether a benefit would be conferred on an attorney as a result of the execution by him of an assurance or other document, or by any other act. Regard is to be had to the specified result to ascertain whether or not the exercise of power is within the authority conferred by the instrument. In my opinion, the words of the provision make clear that it is necessary that there be, or would be, a direct link between the exercise of power and the benefit conferred or, in other words, that the relevant act of the attorney is, or would be, the effective cause of the benefit being conferred on him. 30 In this context it is relevant that ss (2)(b) contemplates that authority to do an act as a result of which a benefit would be conferred on an attorney may be expressly conferred. This explains the inclusion of cl 2 in the form prescribed in Schedule 7 as an example of the appropriate words to confer such authority. Its terms are the same as those in the deleted cl 3 of the instrument in this case, set out in para 5 above. The authority is expressed in the language of ss (2)(b) except that the word "whereby" is used instead of the phrase "as a result of which". In my opinion it is plain that the draftsman used "whereby" as synonymous with "as a result of which" to denote that the relevant act must be the effective of cause of the benefit. 31 So construed, the enquiry as to extent of authority required under ss (2)(b) is limited to a consideration whether the attorney's act was, or would be, as a matter of practical reality and commonsense, a direct cause of a benefit to him; if the legislature had intended that the enquiry must include consideration whether a benefit would be conferred as an indirect result of the attorney's act, an exercise likely to be speculative and uncertain, it would have chosen unambiguous language to effect such intention. That it has not done so reinforces my conclusion as to the proper construction of the provision. 32 In my opinion the defendants' submission that the provision enables a looser approach to the factual issue of causation to be taken must be rejected, and I accept the plaintiff's submission as to its proper construction. 33 Applying the test of causation under s 163B(2)(b) of the Act as I find it to be, it cannot be said that a benefit was conferred on the plaintiff as a result of the sale of the unit. Nothing moved to him which had any existence in law or in which he had any right or interest, or over which he had any control as a result of the sale. Whatever he takes under cl 4 of the will is not as a result of his action as the testator's attorney. The evidence shows, and I find, that the only person to benefit from the sale was the testator, for whose maintenance and welfare its proceeds were applied.

John Frederick Orr v Renee Slender Estate of the late Godfrey Raymond Orr & Ors

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