Kraljevic v Kraljevic

Supreme Court of NSW|2017-03-07|Before: Pembroke J, Hallen J

Solicitors: Gramelis Attorneys - for the plaintiffs Matthews Folbigg Pty Ltd - for the defendant File Number(s): 2015/366647

Introduction

Each plaintiff in this case has received more than $3.2 million from the estate of their late mother. They are not satisfied with that amount and want more. The facts of this case call to mind the words of Professor Rosalind Croucher which were adopted by Hallen J in Penfold v Predny [2016] NSWSC 472 at [6] and repeated by me in Revell v Revell [2016] NSWSC 947 at [30]. Professor Croucher described with apparent disdain, 'a cohort of independent self-sufficient 50 and 60 year olds wanting to get more of the pie from their parents, notwithstanding that the parent had a made a conscious decision that they had already had enough'.
Dragica, the mother of the plaintiffs and the defendant, made her will on 29 July 1992. She died on 14 January 2006. Her will appears to be rational and its scheme is comprehensible. She left one‑fifth of her estate to each of the plaintiffs and three‑fifths to the defendant, her eldest son, and her executor. There were reasons why she chose to divide her estate in that way. Her choice is consistent with the unchallenged and undisputed evidence of a Mrs Novak, a family friend, to whom Dragica said words to the effect: Before my husband died he said that Mario should have his share of the property, as Mario was the only child who stayed at home to help his dad with the mushroom farm. He suggested to me that if Mario was the only child who stays with me, then he should be left with my share as well.

The Claims

From these bare facts, the plaintiffs have constructed two primary claims. The first is that Dragica did not know and approve the contents of her will. I formed the view that it has no reasonable or probable factual basis. The second is based on a supposed estoppel. It is not supported by adequate evidence. I do not accept that the key representations attributed to Dragica were made at all. And the evidence of the supposed assumption by the plaintiffs is utterly bereft of credibility. I have concluded that there was no statement, no conduct, no encouragement and no sound basis for a finding that the plaintiffs were reasonably entitled to believe that they would each receive a one‑third interest in their mother's estate. The key, of course, is reasonable entitlement to believe. I am not suggesting that the plaintiffs might not possibly have held that belief, but in the events which occurred, it was neither reasonable nor rational to do so.

The Facts

I should set out the essential facts. Dragica's husband was known as Spasoje. In the 1960s, he purchased a property at 44 Cudgegong Road with someone named Luka Bebek. In 1971, he purchased another property at 56 Cudgegong Road. In 1973, he established a company known as Day‑Dam Pty Ltd in which he and Dragica were the shareholders. The annual return in 1991 revealed that he held 60 ordinary shares and Dragica held 20 ordinary shares and 20 redeemable preference shares. Spasoje died intestate on 30 September 1991. On 29 July 1992, Dragica made a will and appointed the defendant as her executor.
On 19 January 1993, the plaintiffs and the defendant transferred their interests as beneficiaries in the intestate estate of their father to Dragica. They executed deeds of assignment. On 24 June 1993, a transmission application was recorded on the title in respect of Spasoje's interests in 44 and 56 Cudgegong Road. It was lodged by the defendant as Dragica's nominee and witnessed by a solicitor, Mr Velcic.
On 14 January 2006, Dragica died. On 16 November 2006, a transmission application was signed in respect of the 56 Cudgegong Road property. It was executed by the defendant as to a three‑fifths share and by the plaintiffs as to a one‑fifth share each. In December 2006, the plaintiffs and the defendant provided guarantees and indemnities in respect of a temporary loan facility of $140,000 for Day‑Dam Pty Ltd, as well as for a $100,000 loan in the defendant's name.
On 31 August 2007, a contract was entered into for the sale of 44 Cudgegong Road. On 4 September 2007, the transmission application in respect of 56 Cudgegong Road was registered. It recorded the interests of the plaintiffs as a one‑fifth share each and that of the defendant as a three‑fifths share. On 12 October 20007, the property at 44 Cudgegong Road was sold and the proceeds of sale were divided. The proceeds of sale attributable to the half interest of Spasoje were divided as between the defendant and the plaintiffs in proportions that reflected the shares given to each child by their mother's will.
It was apparent that Vesna became aware, in July 2013, if not earlier, that the defendant was entitled to a three‑fifths share of their mother's estate. In February 2014, the solicitors for the estate formally provided a copy of the will to Vesna. On 7 October 2014, contracts were exchanged for the property at 56 Cudgegong Road. The sale price was $14.1 million. The deposit of $1,410,000 was released, of which the defendant received $846,000 and the plaintiffs, $282,000 each, reflecting the proportionate entitlements on which their mother had decided.

Credibility

As the case unfolded, it became apparent that the underlying issues turned on questions of credit. Vesna gave her evidence first. She was, I am afraid to say, unimpressive, emotional and wholly unconvincing. The essential ingredients of her evidence were contradicted by the probabilities and by a number of objective contemporaneous documents that were brought into existence or signed by her prior to the commencement of these proceedings. I formed the view that her case, like that of her brother Vili, was motivated by little more than an underlying desire to obtain more money from her mother's estate. She asserted that her elder brother, Mario, the defendant, had duped her or had failed to look after her. But in my view, the defendant has behaved with propriety in all respects.
I did not feel comfortable with any aspect of Vesna's testimony, unless it was corroborated by the objective facts, the contemporaneous documents or the evidence of other more plausible witnesses. As Vesna's evidence proceeded, and she was progressively shown documents and reminded of facts that were inconsistent with her account, her composure deteriorated and her answers to questions became less plausible. She seemed increasingly to take refuge in emotional, sometimes non responsive, often improbable, answers to questions.
I thought that Vesna and Vili were particularly dissembling on the issue of certain debts of the defendant and Day‑Dam Pty Ltd. As I have mentioned, they guaranteed these debts. Both knew that they would never have any responsibility for them, and that they would be repaid by the defendant from his share of their mother's estate. Both attempted to suggest that, in some way, the defendant's larger share of the proceeds of sale of the property at 44 Cudgegong Road reflected the defendant's assumption of those debts. Their evidence did not even make arithmetical sense. It appeared to be driven simply by an attempt to advance the plaintiffs' own case, regardless of the truth.
I should add that Vili was also an unimpressive witness, whose evidence of his beliefs and assumptions, and the statements supposedly made to him, was equally implausible having regard to the objective facts and the probabilities. To some extent I am relieved of going further because, during addresses, senior counsel for the plaintiffs announced that he would make no submissions to support the credibility of either plaintiff. He did, however, say that the plaintiffs' evidence was not inherently fanciful and that it was supported by some circumstantial evidence. It was, however, a very thin reed in a weak case.

Knowledge & Approval

The first claim, based upon the allegation that Dragica did not know and approve the contents of her will, rests on well-established principles that are summarised in Tobin v Ezekiel (2012) 83 NSWLR 757 at [44]-[48] (Meagher JA; Basten and Campbell JJA agreeing). Whoever propounds a will bears the onus of satisfying the court that it is the last will of a free and capable testator. But if the will was duly executed and the testator had testamentary capacity, the court presumes that the testator knew and approved its contents. This presumption can be displaced by circumstances giving rise to a justifiable suspicion as to whether the will expresses the testator's wishes. In general, these circumstances must relate to the preparation, execution and intrinsic terms of the will. A mere assertion that the testator did not know and approve the contents does not suffice.
Senior counsel for the plaintiffs expressly disavowed any reliance on the fact that the defendant introduced Dragica to the solicitor, Mr Velcic. Instead, this aspect of the case seemed to get down to the proposition that there were grounds for a suspicion that the will might not have expressed Dragica's true intentions because Mr Velcic did not advise her of the potential disharmony and possible litigation if she chose to divide her estate in the way that she intended. It was said that the absence of such advice from Mr Velcic leads to the inference that Dragica did not have the ability, or was not in a position, to evaluate or discriminate between the respective strengths of the claims of the plaintiffs. It was submitted that unless potential claims are explained, a testator in Dragica's position cannot demonstrate an ability to evaluate the competing strength of the possible claims of children whom she has chosen to treat differently from one another.
I reiterate at this point that a testator is entitled to be unequal in the treatment of her children. Fairness and equality are not required by the law. Within the limits of the law, testators may dispose of their estates as they see fit. Adult children have no automatic right to share in the estate of a parent. Nor do they have an automatic right to equality between them. That may be the system in European countries, including possibly in the Balkans, but it is not the law in Australia. As I have observed on several occasions, subject to the family provision sections of the Succession Act, freedom of testamentary disposition remains an integral part of our law: Madden-Smith v Madden [2012] NSWSC 146 at [30]-[33]; Chandler v Coulson [2015] NSWSC 172 at [21]-[25]; see also Thompson v Sgro [2016] NSWSC 1869 at [61]-[67] (Hallen J).
Related to that point is a principle, which I explained in Revell v Revell [2016] NSWSC 947 at [8], that the courts naturally respect and give deference to the considered judgments of apparently rational and sensible testators. As I have mentioned, there was no challenge to the capacity of Dragica. Importantly, the courts acknowledge that a competent testator will usually be in a better position than a court can ever be to assess the virtues and failings of his or her children. The insight borne of the testator's cumulative knowledge, experience and judgment of her own children, derived from her unique relationship with them, often constitutes a better measure of entitlement than the assessment that a court can make from a few pages of affidavits.
Dragica had rational reasons for preferring the defendant to the plaintiffs. There is nothing about the circumstances of her choice, or the circumstances in which she came to make her will, that demonstrates the well-grounded suspicion that is necessary to even begin to prove a case that a testator did not know and approve the contents of her will. The linchpin of the case seemed to be an assumption about equality between adult children. But I do not think that this is a sound foundation on which to build a case that Dragica did not know or approve the contents of her will. It was speculative.
There was some emphasis in submissions on the fact that Dragica did not subsequently reveal her will to the plaintiffs. But her decision seems to me to reinforce the likelihood that she well understood the significance of her choice. It suggests, as sometimes happens, that she might have felt understandably awkward about the decision she had taken. A parent has no obligation to inform her children about the contents of her will prior to death. Not doing so in circumstances where the parent has decided to distribute her estate unequally, is completely understandable. The defendant, the executor, did not inform the plaintiffs either. But he would have been remiss in his duty to his mother if he did so. And he probably felt the same awkwardness.

Estoppel

That leads me to the estoppel claim. It depends on conversations asserted by the plaintiffs in January 1993. What was under consideration at that time was the assignment of the interests of the plaintiffs and the defendant in the intestate estate of Spasoje. They were giving up their entitlement on intestacy to a one‑third share of half of the residue of the estate and transferring it to Dragica. It was conceded that, if I do not believe the account by Vili and Vesna of the conversations that took place in connection with this assignment, the estoppel claim fails.
Vili asserted that when he was alone with his mother in the office of the solicitor, Mr Velcic, his mother said to him as follows: As far as I am concerned, although all the estate has been put in my name, there were five members of the family, and we all have equal shares. Out of those five shares, I regard Mario, Vesna and yourself as having a one‑fifth share of the family estate each. The remaining two‑fifths share, being my share and your father's share is to look after me until I die, and when I pass away, Mario will manage my two‑fifths share for all three of you until you guys decide to sell or divide everything between you equally.
He said that he queried why Mario should be put in charge, to which Dragica responded: You're overseas most of the time, and Vesna will probably get married soon. Mario's familiar with the business, don't worry, he'll do the right thing.
There was certainly truth in the statements attributed to Dragica about the comparative position of the three children. Mario lived with his mother at the farm and worked in the business. Dragica could not have continued the business without him. He was clearly a pillar of that business. Vili lived mostly in California, and appears not to have made a success of his life in any substantial way. And Vesna who had been overseas for a number of years, lived separately and would soon marry and carry on her own life. Vili also said that when Vesna and Mario returned to the room at the meeting at the solicitor's office in January 1993, he repeated to them what Dragica had said. Vesna's evidence of the conversation was to similar but not quite identical effect.
Apart from the fact that I have made clear that I cannot accept the evidence of Vili and Vesna unless corroborated by objective facts and contemporaneous documents, there are other reasons why I would be extremely cautious before accepting their accounts of the conversation in January 1993. It is a matter of ordinary human experience that, where a party relies upon the uncorroborated recollection of statements made many years ago, on an issue in which that party has a self-interest, the evidence must be treated with caution. In the absence of some reliable contemporaneous record, or other satisfactory corroboration, it is often difficult for such evidence to achieve the requisite level of reasonable satisfaction: Watson v Foxman (1995) 49 NSWLR 315 at 319 (McClelland CJ in Eq). That is this case.
As I noted in Wilcox v Wilcox [2012] NSWSC 1138 at [10], the need for caution is even greater in relation to uncorroborated statements attributed to a deceased person where the deceased is, or would have been, effectively the only person in the world capable of rebutting the accuracy of what is attributed to her. Here again, self-interest is an important factor reinforcing the need for caution, and sometimes, as in this case, scepticism. In contrast to the evidence of Vili and Vesna, the defendant was an impressive witness. He was calm, considered and sensible. His evidence was measured. He made concessions where appropriate. He was clearly trying to assist. But more importantly, his evidence was objectively consistent with the known facts and the contemporaneous documents and the probabilities. I have no real hesitation in preferring his evidence to that of the plaintiffs on each of the crucial issues.
I should conclude by adding that there were so many signposts along the way that reasonable persons in the position of the plaintiffs could not have failed to appreciate that their entitlement was limited to one‑fifth of their mother's estate. I have mentioned the transmission application which was signed in November 2006 and registered in 2007. It related to the property at 56 Cudgegong Road. It was stated on the front page of the transmission application in bold print that the applicants were 'Mario Kraljevic as to a three‑fifths share, Vili Kraljevic as to a one‑fifth share and Vesna Kraljevic as to a one‑fifth share as tenants in common'. The parties and their proportionate shares are repeated on the second page of the transmission application, also in large bold print. Vili signed the document and his signature was witnessed in California. Vesna has also signed the document and her signature was witnessed at Kellyville. The defendant has also, of course, signed the document.
Vili's copy of the transmission application was sent to him under cover of a letter from a solicitor called Terry Doust who gave precise instructions and urged Vili to 'Take great care when signing this document'. The inference from the signing of the transmission application as well as the division of the proceeds at 44 Cudgegong Road, among other things, is compelling. It satisfies me that the plaintiffs' evidence that they reasonably assumed that they were each entitled to a one-third interest in their mother's estate, is improbable.

The $20,000 Claim

That leaves the final claim based upon an agreement which Vesna said she had made with the defendant for payment of the sum of $20,000. It arose out of the sale of the property at 44 Cudgegong Road. It is said that Vesna was reluctant to agree to the sale and that, in order to induce her to do so, the defendant promised her a payment of $20,000 from his share of the proceeds of sale. The issue is a straight contest between the credibility of Vesna and Mario. On this issue, as with the other issues to which I have referred, I prefer the evidence of Mario. I do not accept that the conversation occurred or that the alleged agreement was made.
Finally, I should add that, for reasons which were never satisfactorily explained, the plaintiffs failed to bring this claim or to make any complaint or comment about the division of the estate and the terms of Dragica's will, until 15 October 2015. Their failure causes me to doubt, if any further doubt were required, the plausibility and possibly the genuineness of their claims.

Orders

I dismiss the amended statement of claim and order the plaintiffs to pay the defendant's costs.

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. Decision last updated: 21 March 2017

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