Ronald Allen Smith and Anor v Joyce Smith and Others

His Honour 1Yesterday morning at the commencement of this trial I raised with counsel for the first time the question of whether, instead of proceeding with the hearing which was then fixed for three days, the better course would be to order an account pursuant to UCPR rule 46.3 so that one could test objectively and precisely what was left out of the estate at the end of the day. Counsel for the plaintiffs embraced that approach and as far as I understood it, supported such an approach. Counsel for the defendants opposed the approach on the day, but it is true had no prior warning from me or anyone else that I was thinking about such a matter, or indeed would have proposed such a course. 2Entirely appropriately, this morning counsel for the defendant has sought to persuade me that the orders or order for an account which I propose in a moment to make should be vacated, and that I should recommence the hearing of the merits of the matter. 3Prior to yesterday morning I carefully read the materials provided in the Court Book, and I also read the submissions provided by both sides. The submissions are detailed and leave open a number of, in my view, difficult and complex legal questions in relation to each of the defendants who have been joined in these proceedings. 4So far as the second defendant is concerned, Mr Bingham, he was the long term accountant and he was the executor at the date of probate. He was appointed as such pursuant to a will executed by the deceased as his last will and testament in or about January 2008. It is only on an affidavit basis, as I have already said in the course of argument, that I can see some deficiencies in relation to the liability on his part in due course, but of course I have no firmly concluded view. 5So far as the third and fourth defendants are concerned, they are respectively the daughter and son-in-law of the first defendant. There is no doubt that they received certain benefits from the first defendant which can at the moment, as far as I am aware, be traced back to proceeds liquidated from the Macquarie Bank account in respect of which there was a large shareholding as at 2008 for approximately $1 million worth of shares. They received seemingly potentially at least two benefits, first a loan, which appears to be interest free and repayable probably on demand, of some $200,000. The evidence at the moment suggests that those monies were repaid a couple of years after they were given, and those monies came back to the first defendant and were utilised by her in some form or other, and do not appear to have made their way back to either a share portfolio or the Macquarie Bank account which was in the name of the deceased. 6Nextly, the first defendant provided approximately $124,000 for the construction of a granny flat so-called in the backyard of the home currently owned by the third and fourth defendants. There is some form of agreement between those persons, but there is no life estate that has been created, and certainly none on the title. There is no written agreement, as far as I am aware, between the first, third and fourth defendants in relation to whatever equitable interest the first defendant may, or may not have, in relation to that real estate. 7I do note that the land, according to the current evidence, has not been subdivided, and so there may be some difficulties about what interests the first defendant has, but I leave that to one side. 8The principal case against the first defendant is said to be that of fiduciary obligations. It is said that they arise in various ways outlined in greater detail in the written submissions filed on behalf of the plaintiffs. 9The defendant, on the other hand, has many powerful arguments to suggest that, merely by reason of the existence of a relationship of husband and wife, a fiduciary obligation could not arise and, in any event, the explicit terms of the Powers of Attorney and/or other powers which the first defendant was entitled to exercise, will militate against a fiduciary obligation or, as I understand it, permission in any event to lawfully do what the deceased could have done in an entirely unqualified and unencumbered way. Therefore she was perfectly entitled to liquidate the entire share portfolio and spend the money as she wished. 10I hasten to say that proper care was provided to the deceased during his lifetime. I am not entirely aware of precisely how much was spent by the first defendant, but there is no suggestion that he was not cared for, and I infer properly cared for, and that the first defendant made sure that the monthly invoices were paid in a timely fashion. 11One of the reasons yesterday morning, however, why I was so concerned to try and bring this to a commonsensical result, if I could say that, is because I saw first the legal arguments, especially those which may be put against the first defendant, as giving rise to powerful arguments as to why in the special circumstances of this case a fiduciary obligation may be "on the cards". I say that, and what I mean by special circumstances of course involve, but not entirely, the knowledge of the will made in 2007 and her deliberate conduct in 2008 to rectify that position to one which was more favourable to her. I don't make any criticism about that, but it is simply to state the fact that she was well aware of the existence of a residuary estate and was clearly well aware of the existence of the share portfolio. 12If in due course a fiduciary obligation can be seen to arise, and it is clear on the authorities that the categories are by no means closed (Hospital Products v United States Surgical Corporation (1984) 156 CLR 41 at 68 per Gibbs CJ and at 96 per Mason J), then it may well be that she would be liable for damages given, on one view of the evidence, some of the things she did in terms of liquidating and spending, other than for the care of the deceased, the monies which were previously in the share portfolio account. 13So far as I am concerned, on the evidence as presented both in affidavit form and spoken to me this morning by Mr Mitchell, counsel for the defendants, he told me that on instructions the first defendant's current assets, although frankly and candidly he acknowledges that the evidence does not reach this point at the moment, consist of $10,000 cash, a Mercedes-Benz 2009 vintage car (it is not certain whether the Mercedes-Benz was purchased new or second hand and there is no evidence of its current value), and a life interest, so to speak, in a property owned by the daughter and son-in-law by reason of the monies provided for the granny flat. 14The evidence filed in the affidavit material is not quite so explicit and, in my view, when I read the affidavits carefully, I was by no means certain that she had attempted, or was able, to give a proper accounting of precisely where monies went from time to time in terms of the liquidation of the share account. 15If in fact it be the case that what counsel tells me this morning is correct, and that effectively the first defendant has virtually no assets of any substance, then it raises the question of what, if I were to have come to the view ultimately that there is some fiduciary obligation which may well exist at the time, would be the practical utility of any remedy that might be sought in relation to the first defendant. 16Without going over it again, it seems to me, at least on the case that I currently understand, she is the likely defendant against whom a remedy may exist. To that end I was concerned yesterday, and true it was, without notice to counsel, to try and bring a pragmatic result in this case, and I am concerned if a proper accounting is done then parties will well and truly know what they are fighting over. If in fact it turns out, through profligacy or otherwise, Mrs Smith has "frittered away" most of the proceeds of the share account, that is one thing. That does not lead to a practical remedy, even if I came to the view that there was a fiduciary obligation. 17I trust that the parties will come to a commonsensical view that to proceed with the matter with hatred or contempt may turn out to be a costly exercise, and the plaintiffs would then have to take on board the possibility that, even if they were successful in proving a fiduciary obligation, and a breach of it, they may ultimately not get their costs even on that basis, given the fact that they would be working towards a remedy without substance in law or fact. 18They are the reasons why I took the view that an accounting should be undertaken. 19The next thing is, I don't think that the accounting exercise is an overly complex exercise for this reason. It covers only the period to 2008 to the present time. It covers one account, on one view the Macquarie account, although there are other bank accounts which may need to be looked at by an accountant. It covers obvious amounts taken out and which I think should not be entirely difficult to trace, whether a bank statement or credit card or withdrawal of a substantial amount of cash. 20I made it clear that I do not contemplate a Royal Commission in the sense of some elaborate features which were suggested earlier in the short minutes. I am concerned that the parties face the reality that if there is nothing further in the "pot", even if there be a theoretical fiduciary obligation ultimately found, that the parties are well aware what is at stake from a cost point of view at the end, even if the plaintiffs remain indignant or concerned about the activities of Mrs Smith having "frittered away" the monies she withdrew from the Macquarie accounts. 21True it is, I gave counsel for the defendants no notice, nor did I give counsel for the plaintiffs notice. It occurred to me that this was an appropriate way to case manage the parties' case, because I can foresee the difficult points of law raised by both sides, and that there could be success or failure on some points and not on others. It would be a pity if this matter went to a three, or even a four day hearing, and if the matter went to the Court of Appeal on what may turn out to be a theoretical basis, given what is found in the "pot" at the end of the day. I think that would be a pity, and I think the parties would be substantially out-of-pocket, whatever the costs order may be made. 22I leave to one side the possibility of an indemnity costs order. That is not to say it may not be sought, and may not be granted. 23They are my reasons and I therefore reject your application, Mr Mitchell, to vacate the order that I propose to make, or rather reconsider. I will make orders in accordance with the short minutes of order and I make it clear, they are proposed by the plaintiffs and opposed in principle, and otherwise as the transcript discloses, by the defendants. So I make those orders which I sign and date today.