Johnston v Maclarn [2001] NSWSC 932 | Case summary

Judgment 1 His Honour: This is an application to strike out a statement of claim. The matter comes into today's list by a convoluted route which it is not necessary to detail. Suffice it to say, I am considering whether the amended statement of claim filed on 21 September 2001 should be struck out. 2 The facts, as pleaded in the statement of claim, with perhaps a little bit of flavour from the affidavits, are that Catherine Maclarn died on 2 November 1998. On 19 June 1998 she made a will, by which will she gave to the present plaintiff: "… in appreciation of his friendship and help over the years all of the shares or units which I hold in the Mirvac Property Trust and all of the shares and units which I hold in Mercury Asset Management Trust." 3 There would seem to be some ill-feeling in the testatrix's family and the children did not quite see eye to eye. There was also, it would seem, some ill-feeling between the present plaintiff and at least one of those children. 4 The testatrix became quite ill and she had on 8 June 1998 given a general power of attorney to her son. On 16 September 1998 the son, as her attorney, sold the securities that were bequeathed to the plaintiff. 5 Before she died the testatrix, presumably by a member of her family, instructed a solicitor to demand repayment of payments of $219,000 which she had made to the present plaintiff over a period. When these demands were not met, the present defendant, the testatrix's daughter and executrix, sued the present plaintiff in the District Court for debt. For some reason that is presently unexplained, and is probably inexplicable, the District Court action was by ordinary statement of claim in proceedings 3284/99. The claim was in debt. 6 The present plaintiff never defended the proceedings, but he and the estate solicitors entered into correspondence. The District Court proceedings further continued in a singular way with the plaintiff in those proceedings obtaining what is called an order for judgment on 29 March 2000, whereby the District Court considered that the present plaintiff was deemed to admit liability: "… and the action has been set down for the assessment of the damages to be recovered by the plaintiff." 7 How damages could be assessed in a matter for debt is an odd question, but probably it is not necessary to consider it further. 8 The present plaintiff, who represented himself, and the solicitor, signed a document entitled "Consent Orders" whereby the damages were assessed with interest at $252,573.20 and judgment was given for that figure plus costs. 9 By the present proceedings, the plaintiff claims an injunction to restrain the enforcement of the District Court orders, a mandatory injunction that the present defendant consent to set aside the District Court orders, orders under the Contracts Review Act 1980 that the underlying contract behind the District Court orders be declared void, a declaration that the payments made to the plaintiff were gifts, not loans, and a declaration that: "… on the true construction of the Last Will and in the circumstances that have occurred the Gift to the Plaintiff ... did not fail by ademption by reason of the sale of the Securities." 10 The key allegation in the amended statement of claim is that the executrix, because she was executrix and because she knew that the plaintiff had no means of finding out about the gift that was purportedly adeemed, owed a duty to him to tell him of the provision for the plaintiff in the will of the testatrix. 11 Although it is not said explicitly, it would appear inferentially from the amended statement of claim, that the plaintiff is saying that had he had that piece of information when assessing whether he would have compromised the District Court litigation he would have come to a different view and not compromised it, and accordingly, either by a representation by silence, or because of a breach of fiduciary duty, or perhaps because of a breach of a common law duty, the contract failed under the general law. Alternatively, it should be set aside under the Contracts Review Act. 12 A preliminary point is whether, in view of the fact that the settlement was in the District Court, the matter should be dealt with in this Court at all. Mr Slattery QC, who appeared for the plaintiff, put that authorities such as Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691, 697, make it clear that not only when one is trying to set aside a judgment on grounds of fraud, but also when one is setting aside a judgment on the basis that the underlying contract is liable to be set aside in equity for illegality, misrepresentation, material non-disclosure, a new suit must be instituted and one cannot deal with the matter by motion in the original proceedings. See also Huddersfield Banking Co Limited v Henry Lister & Son Ltd [1895] 2 Ch 273-280; Harvey v Phillips (1956) 95 CLR 235, 243-4. 13 There is, I am informed, a motion in the District Court to set aside the judgment which is currently lying dormant because the plaintiff considers this Court as the appropriate court. Were the District Court a superior court, then authorities such as Logwon Pty Limited v Warringah SC (1993) 33 NSWLR 13, 30, would tend to suggest that the proper court in which this sort of application should be made is the trial court. 14 There is also the point that where there is some incident, which means that the order was obtained, to put it colloquially, not in accordance with the rules of cricket, the court in which the order was obtained has some general supervisory jurisdiction to make sure that its processes are not misused; see Morgan v 45 Flers Ave Pty Limited (1987) 11 NSWLR 573, 578; Rogers v Wentworth (NSW Court of Appeal, 18 April 1988, unreported). 15 However, it seems to me that this sort of problem can be cured simply. If the only matter left in these proceedings is the Contracts Review Act claim, as I suspect might be the case, then this Court may well transfer this present suit to the District Court. On the other hand, if the case, after I have dealt with the pleading problems, involves some fiduciary principle, then the District Court proceedings can be removed into this Court so that any procedural problem can be averted. 16 After full discussion this morning, Mr Slattery QC indicated that he wished to amend his pleadings by adding new paragraphs 12A and 12B, 28A and 28B in accordance with a document which I will mark for identification "MI 01". I do not at present think that that would improve his position. Mr Slattery QC asked for further time to consider amendments, and I think the appropriate thing is to grant that application, after I have delivered these reasons as to why I do not consider the pleadings at present are adequate. 17 There is, as I understand it, no duty at common law to inform a person of the fact that that person may be a beneficiary in an estate, or that he or she is named as a beneficiary under a will, whether or not that gift has been adeemed. Not only does that not fall within any of the accepted common law causes of action, but the view has been taken that as wills are documents of public record, anyone can look in the probate office and see the will, and so become alerted, so that if a person does not find out that he or she is mentioned in a will of a close friend, that is their own fault; see Hawkesley v May [1956] 1 QB 304, 322. 18 Furthermore, at common law, if one is in settlement discussions in respect of litigation in the court, there is no obligation on any litigant to inform his or her opponent of facts which that litigant should know that had the opponent known, the opponent's attitude to settlement would alter. I dealt with this sort of problem in Easyfind (NSW) Pty Limited v Paterson (1987) 11 NSWLR 98, 106; see R v Marong MC; Ex parte Filcock (1903) 29 VLR 355, 364. 19 The law has been considered for many years to be that there is also no duty in equity to so inform, the key authority being In re Lewis [1904] 2 Ch 656. Mr Slattery QC has pointed out in the judgment of Brennan J in Hawkins v Clayton (1988) 164 CLR 539, 553-4, his Honour at least considers the possibility that: "There is a broad principle, founded on general standards of honesty and fair dealing, that some duty of disclosure is imposed on one who holds the property of another or an instrument of title to the property of another as a bare custodian or trustee when the other does not know of his entitlement to the property and the holder has reason to believe that the other does not know of his entitlement." 20 Such a principle, if it exists, would be a principle of equity and it seems to me that it could only come into play in the present litigation if it can be said that there was a fiduciary relationship between the present defendant and the present plaintiff. There is no doubt that as executrix the defendant owed fiduciary duties, but there is considerable doubt as to whether she owed any fiduciary duty to the plaintiff. 21 If the plaintiff were a beneficiary in the estate, then it may well be arguable that such duty existed. Accordingly, it is a key point in the case as to whether the gift was adeemed. 22 The law on ademption of legacies is well set out in Roper on Legacies, 4th ed Vol 1 (William Benning & Co, Law Booksellers, London, 1847) at pp 329 and following. The general rule is that a specific legacy is adeemed if the subject property does not exist at the date of the testator's death: Stanley v Potter (1789) 2 Cox 180; 30 ER 83; Brown v Heffer (1967) 116 CLR 344, 348. The present legacy using the words "which I hold" would seem to be specific. Thus, one looks to see whether the property existed as at the date of the death of the testatrix and if it did not then the legacy is necessarily adeemed by the annihilation of the subject matter (Roper 331). Thus, in the seminal case of Durrant v Friend (1852) 5 DeG & SM 342; 64 ER 1145, where chattels were given to a beneficiary and the testator was on a ship with the chattels and the ship sank, killing both the testator and losing the chattels, the gift was adeemed because the chattels just did not exist. The fact the testator had no intention of adeeming the gift was quite immaterial. 23 Roper says (pp 333-4) that there are four exceptions to the general rule. The second of those exceptions is the case where a breach of trust has been committed or any trick or device practised with a view to defeating the legacy. The authority for that proposition is, of course, Shaftesbury's case (1716) 2 Vern 747, 748; 23 ER 1089. 24 It will also be an exception where, without the testator's knowledge, the subject matter of the gift has been disposed of without the testator's authority. The classic case is Basan v Brandon (1836) 8 Sim 171; 59 ER 68, where an agent disposed of the property outside the terms of the agent's authority and without the knowledge of the testator, in which case there was no ademption. 25 In the instant case, the only defences are: (1) that there is, on the true construction of the will, no ademption (something which does not appear possible); and (2) that there was a corrupt agreement between the defendant and the donee of the power of attorney, without the knowledge of the deceased, for the purpose of causing the gift to fail (but the donee of the power of attorney is not a party to the proceedings). Neither defence appears to come within the principles laid down by Roper. 26 Accordingly, as presently pleaded, I cannot see how there was any fiduciary duty owed to the plaintiff, and if there was not, then the possible principle, if I can call it that, contained in Brennan J's judgment cannot be invoked. It seems to me, accordingly, that it is appropriate now to stand the matter over so that the parties, being hopefully assisted by what I have put in this judgment, can see if there is any triable issue in equity so the matter should remain here. 27 The other point involved is whether the Contracts Review Act is excluded in a case where the contract involves settlement of litigation. The other two points that Mr Condon, who appeared for the defendant, raised in connection with the Contracts Review Act are: (a) there was no contract within the meaning of the Contracts Review Act because there was a mere consent to judgment; and (b) that there was no duty to disclose the matters that I have already mentioned, and accordingly the matters pleaded in respect of the Contracts Review Act count could not support it. 28 I will give further consideration to the first two points, but it would seem to me that the third point is one which is caught up in the matter that I have already dealt with. The most appropriate course to take is to stand the matter over for further consideration after the parties have considered any proposed amendments. Accordingly, I will stand the matter over to Tuesday, 13 November 2001 at 9.50 am. I direct that any draft further amended statement of claim together with an intimation that the plaintiff is prepared to swear to it is to be served on the defendant's solicitors no later than 4.30 pm on 10 October 2001. Costs of today are reserved.

Johnston v Maclarn

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