Smith Estate: Smith v Smith & Ors

LEGISLATION CITED : Testators' Family Maintenance and Guardianship of Infants Act 1916 (NSW) - s.3

• Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 65 ALR 683 - Birch v Birch [1902] P 130 - Diplock, In re; Diplock v Wintle ("Diplock's Case") [1948] Ch 465 CASES CITED : - General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 - Priestman v Thomas (1884) 9 Pd 70 - Wentworth v Rogers (No 5) (1986) 6 NSWLR 534

Glendon Brian Smith - Plaintiff Lindin Warrin Smith - First Defendant Alwyn Frederick Kelehear - Second Defendant PARTIES : Linden Russell Smith - Third Defendant Susan Louise Cowley - Fourth Defendant Frederick Neville Cowley - Fifth Defendant

S.A. Benson - Plaintiff COUNSEL : L.J. Ellison SC - Third Defendant (excused) F. Kunc - Fourth & Fifth Defendant

Plaintiff - Peter Evans & Assoc Unrepresented - First Defendant SOLICITORS : Unrepresented - Second Defendant Bateman Battersby - Third Defendant (excused) Hills Solicitors - Fourth & Fifth Defendants

1 In these proceedings the Plaintiff seeks to set aside a grant of probate in solemn form made in 1983 on the ground that it was procured by a fraud. He seeks grant of probate of a later will under which he is a beneficiary, and an order for the administration of the estate under that later will. Further, he seeks a declaration that properties conveyed by a beneficiary of the earlier will is held by certain parties on the trusts of the later will. 2 The Plaintiff and the Defendants are members of a family which has been locked in bitter litigation for more than twenty years. This is another battle in what, unfortunately, seems to be an endless war. The Fourth and Fifth Defendants seek to extricate themselves from the war by an order for summary judgment dismissing the Plaintiff's claim against them. For the sake of convenient reference and without intending disrespect, I will refer to members of the family by their first names.

3 The Plaintiff, Glendon Brian Smith ("Glen"), is a grandchild of Robert Smith who died on 30 October 1980. Robert made three wills: one in 1969, one in 1977 and one in 1978. 4 In November 1982, the executors of the 1978 will, Bruce Smith and Alwyn Kelehear, now the Second Defendant, commenced a suit for the grant of probate in solemn form of the 1978 will. The executor of the 1969 will, Lindin Warrin Smith, now the First Defendant, cross claimed for a grant of probate of the 1969 will. The issue in the probate suit was whether Robert lacked testimony capacity at the time he made the 1978 will. At the time the probate suit was commenced, the parties were unaware of the existence of the 1977 will. 5 In October 1983, the 1977 will was discovered. Under that will Robert appointed as his executors his grandsons Glen and Russell and his son-in-law, Alwyn. He gave a property called Horse Creek to his son, Bruce, for life with the remainder to Glen and Russell in equal shares. He divided the residue, the major asset of which was a property called Fairview , equally between his son, Lindin, his daughter, Heather, and Glen and Russell. 6 Glen and Russell were then joined as defendants in the probate suit. On 2 December 1983, a firm of solicitors filed a submitting appearance for both Russell and Glen. An Amended Statement of Issues for Trial filed in the probate suit shows clearly that one of the issues for determination was whether Robert had testamentary capacity at the time he executed the 1977 will. The trial of the suit commenced on 6 December 1983 before Justice Holland, a most experienced probate judge. The parties were represented by counsel of the highest ability. 7 On the fifth day of the trial a medical expert, Professor Broe, gave evidence as to Robert's testamentary capacity. It is clear that that evidence, coupled with the other evidence adduced, was very compelling. Holland J indicated that if the executors of the 1978 will continued to press their case, they personally would be at risk of a costs order. On 15 December 1983, the sixth day of the trial, the parties compromised the proceedings and a consent order was made granting probate in solemn form of the 1969 will to Lindin and Alwyn. The grant of probate was finally sealed on 29 March 1985. 8 In March 1986 and December 1987, three of Robert's children commenced proceedings under s.3 of the Testators' Family Maintenance and Guardianship of Infants Act 1916 (NSW) for provision out of his estate. In March 1988, the three proceedings were heard together by Waddell CJ in Eq. On 10 August 1988, Waddell J delivered a judgment in the course of which he found that Robert had become difficult and irrational from 1970, that he had started to deteriorate mentally in about 1973 and that, by the time he came to make his 1978 will, he had lost testamentary capacity. 9 In the result, his Honour ordered further provision from Robert's estate for one of the three plaintiffs, the principal reason for dismissing the claims of the other plaintiffs being that Lindin should be left in possession of the property, Fairview , which had been given to him as part of residue under Robert's 1969 will. In October 1990, the judgment of Waddell J was upheld on appeal. 10 On 28 October 2002, Lindin conveyed Fairview to the Fourth and Fifth Defendants, who are his daughter Susan and her husband Fred. The Deed of Conveyance states that the consideration for the conveyance is "the natural love and affection that the transferor has for the transferees ". 11 Glen says that it was not until about September 2002 that he first became aware of Robert's 1977 will. He says that he then began to make inquiries which revealed the fraud which he now alleges. He asserts that he was never made aware of the probate suit heard by Holland J in 1983, that he did not know of the existence of the 1977 will, and that he did not know that he was made a defendant in the probate suit. He says that he certainly did not instruct any lawyers to file a submitting appearance in those proceedings on his behalf. Glen says, in effect, that there was a conspiracy in his family to cheat him out of the benefits to which he would have been entitled under the 1977 will. He says that the principal conspirators were his father, Lindin, and his brother Russell.

12 In December 2004, Glen commenced these proceedings. The Defendants are his father, Lindin, his uncle, Alwyn, his brother, Russell, his sister, Susan, and her husband, Fred. By his Amended Statement of Claim, Glen alleges that there was a fraudulent agreement between Lindin and Russell whereby Russell would pretend to instruct solicitors on Glen's behalf to file a submitting appearance in the probate suit. He claims that the grant of probate of the 1969 will was procured by fraud and that it should be set aside or revoked. 13 Glen alleges that the 1969 will was revoked by the 1977 will, which was a valid will. He says that the 1978 will did not revoke the 1977 will because Robert lacked testamentary capacity when he made the 1978 will. Glen therefore seeks the grant of probate to himself alone of the 1977 will. Glen seeks also declarations that property which had formed part of Robert's estate is held on trust for him in his capacity as sole executor of Robert's estate under the 1977 will. 14 One of those properties is called Horse Creek . It was transferred to Russell by Lindin for nominal consideration. The other property is Fairview which, as I have said, was transferred to Susan and Fred. In the Amended Statement of Claim, Glen makes no allegation that Susan and Fred were knowing participants in the alleged fraudulent agreement between Russell and Lindin in 1983. He makes no allegation that Susan and Fred took a conveyance of Fairview from Lindin with knowledge, actual or constructive, of the interest which Glen says that he had in it under the 1977 will or with notice of the circumstances in which the probate suit was compromised in 1983 and probate granted of the 1969 will. 15 Glen's pleaded case against Susan and Fred is that they give no consideration for the conveyance of Fairview and, as volunteers, they acquired their interest subject to Glen's prior equitable interest. The equity against Susan and Fred upon which Glen relies is founded upon the line of cases discussed in In re Diplock; Diplock v Wintle ("Diplock's Case") [1948] Ch 465. 16 Russell has filed a Defence in which he denies that there was any fraudulent agreement as alleged. He relies also upon equitable defences founded upon delay and change of position. In short, the factual dispute raised by Russell's Defence is whether, in 1983, Glen knew of the 1977 will, and knew of and consented to his joinder as a defendant in the probate suit, and knew of and consented to the filing of a submitting appearance on his behalf. 17 Affidavit evidence has been filed by members of the family which contradicts Glen's assertion that he knew nothing of the 1977 will and of the 1983 probate suit. They assert particular discussions in which Glen participated and in which the 1977 will and the probate suit were discussed. It is said that Glen authorised Russell to organise a consenting appearance in the proceedings on his behalf. It is clear that the issue whether a fraud was perpetrated on Glen by his family in 1983 will depend critically upon issues of credit and there will be extensive cross examination of the competing witnesses. 18 Susan and Fred in their Defence deny the fraud alleged by Glen and assert the invalidity of the 1977 will on the ground that Robert lacked testamentary capacity to make it. However, their principal defence is that they are bona fide purchasers of Fairview for value without notice of Glen's interest. In brief, their case is that in October 2002 there was an agreement between themselves and Lindin that, if Lindin would convey Fairview to them, they would permit him and his wife, Valarie, to reside rent-free in a granny flat on the property for life, they would pay the rates and insurance on the property and they would discharge certain debts which Lindin and Valarie had accumulated. 19 In addition, Susan and Fred raise defences founded upon delay and change of position. Those defences are of the same character as the defences in that regard relied upon by Russell. Susan and Fred say further that since acquiring Fairview without knowledge of Glen's adverse claim, they have expended considerable amounts on improvements to the property.

20 On 30 June 2005, Susan and Fred filed a Notice of Motion seeking an order for summary judgment on Glen's claims against them or, in the alternative, an order that the proceedings as against them be struck out or permanently stayed. On 23 August 2005, Russell filed a Notice of Motion seeking similar relief. Both Notices of Motion were listed for hearing before me yesterday. 21 When the motions were called on for hearing, Mr Ellison SC, who appeared for Russell, announced that by consent, the Notice of Motion filed by Russell would be dismissed. Accordingly the proceedings, at least as against Lindin, Alwyn and Russell, will go forward to trial on all issues. I am therefore now dealing only with the Notice of Motion filed by Susan and Fred.

22 Mr Kunc of Counsel, who appears for Susan and Fred, in a very able and forceful argument, made the following submissions. First, he says, when applications are made for summary judgment on a claim in which the plaintiff seeks to set aside a judgment for fraud, the test is not that enunciated in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, at 138, namely, that the plaintiff's claim is "manifestly groundless" and that to allow it to proceed "would involve useless expense" . 23 Rather, Mr Kunc says, in the interests of maintaining the finality of judgments the law requires in such an application that the plaintiff show that his claim to set aside the judgment for fraud has a reasonable probability of success. Mr Kunc relies on a number of authorities including Birch v Birch [1902] P 130, Priestman v Thomas (1884) 9 Pd 70, and Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 65 ALR 683. Mr Kunc says that when one looks at the evidence now available, it is easy to see that Glen has fallen far short of demonstrating that there is a reasonable probability either that he will be able to prove the fraud which he alleges or that he will be able to prove that Robert had testamentary capacity at the time he executed the 1977 will. 24 I am unable to accept the submission that the test for summary judgment on a claim to set aside a judgment for fraud is any different from the test enunciated in General Steel Industries . The so-called test in Birch v Birch was not accepted by Grey J in Mudginberri at 692. His Honour said: "What is required is that an applicant in proceedings such as these must show some real prospect of success, as distinct from some fanciful chance that the judgment may be set aside." 25 The existence of the so-called Birch test was raised directly in Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 and was rejected. Kirby P, in whose reasons Hope and Samuels JJA agreed, said at p.536: "The existence of a previous judgment and the need, in the public interest, to bring litigation of issues to a close, may make the task of the court, in an application to strike out a statement of claim, easier to perform. But the test remains the same. Is the case sought to be put "hopeless" or "manifestly groundless"? It is in determining this question that the rules devised to protect finality become relevant. The question itself, for the peremptory procedure invoked, is not altered by the nature of the claim."

I am bound by that decision. 26 It is worth noting further that as a preface to the above remarks, the learned President emphasised that the remedy of peremptory termination of a claim brought to the Courts by striking out on summary judgment is to be used with caution "and only in the clearest of cases" . In my opinion, the test as enunciated in General Steel Industries is the test which I must apply in the present application.

Whether Glen's prospects of establishing testamentary capacity "hopeless"

27 Second, Mr Kunc submits that on any test Glen's claim must fail as against Susan and Fred. Insofar as Glen is required to establish fraud, Mr Kunc concedes that the issue will be decided principally upon credit: the word of one witness against the word of another. He does not submit that at this stage of the proceedings I could find that Glen's assertion of fraud was manifestly groundless. 28 However, Mr Kunc submits that Glen must inevitably fail in a necessary step in his proceedings against Susan and Fred, namely, establishing that Robert had testamentary capacity when executing the 1977 will. Mr Kunc refers to the evidence of Dr Broe before Holland J, the evidence as to the remarks of the Judge which led to a settlement on the basis that the 1969 will would be admitted to probate, and the observations of Waddell J in the TFM proceedings. He refers also to other evidence, such as the entry which appears on Robert's death certificate stating that Robert had had "senile dementia several years" . 29 Mr Benson of Counsel, who appears for Glen, in an eloquent and persuasive argument points to other evidence upon which Glen may rely in demonstrating that Robert did have testamentary capacity at the time he executed the 1977 will. It is neither necessary nor desirable that I examine in detail for the purposes of this application the evidence which may be adduced as to Robert's testamentary capacity and to which Counsel have referred. It is sufficient to say that I am of the view that, although the task of demonstrating Robert's testamentary capacity at the time of the 1977 will be very difficult indeed, I cannot say that the task is clearly impossible or, in other words, that Glen's assertion of testamentary capacity is "manifestly groundless" .

Whether Glen's prospects of establishing voluntary conveyance are "hopeless"

30 Third, Mr Kunc very forcefully urges that the assertion that Susan and Fred have provided valuable consideration for the transfer of Fairview is unarguably correct. He points to affidavit evidence by Susan and Fred to the effect that Lindin was in financial difficulty by 2002 with some accumulated debt, that he and Valarie were anxious to obtain the pension but had trouble in satisfying the means test because of Lindin's ownership of Fairview . He says that there is evidence which demonstrates an agreement by Lindin to transfer Fairview to Susan sand Fred in consideration of their promise to allow him and Valarie to live in the granny flat rent-free, to pay rates and insurance on the property and to pay accumulated debts. 31 Mr Kunc relies upon a series of documents which he says corroborates this evidence, the most significant of which is an undated document addressed to Lindin and Valarie and the Department of Social Security signed by Susan and Fred in the following terms: "We, Frederick Neville Cowley and Susan Louise Cowley, agree that from the date of the Conveyance of the property "Fairview" to us, we will allow you, Lindin Warrin Smith and Valarie Merle Smith, to live in the second house at "Fairview" for as long as you wish, at no cost to you. We will pay the rates and keep the property insured as the owners of it" 32 On the other hand, Mr Benson points out that the terms of the conveyance of Fairview to Susan and Fred are inconsistent with the giving of any valuable consideration by them for that transfer. The language used in the conveyance is that of outright gift. 33 A review of the affidavit and documentary evidence relied upon by Susan and Fred in support of their defence of valuable consideration leaves room, in my opinion, for argument that the primary if not the sole intention of Lindin in making the transfer was to divest himself of Fairview by way of gift to his daughter and son-in-law in circumstances in which he could ensure that he and Valarie received a pension. The reference to Susan and Fred paying rates and insurance on the property may, on one view, only be an emphatic statement or reminder of their liabilities as new owners of the property in any event. Payment of Lindin's accumulated debts by Susan and Fred on one possible reading of the evidence may simply be a means of assisting Lindin and Valarie in financial difficulties, but it was not a necessary condition of, or the consideration for, the transfer of the property. 34 As Mr Kunc concedes, there is no evidence of a clear and express agreement between Lindin and Susan and Fred along the lines that, in consideration of the transfer of the property by Lindin to them, Susan and Fred would permit free residence in the granny flat, would pay the debts accumulated and would pay insurance and rates. It is, of course, correct that it is no longer necessary to demonstrate that parties have performed the ritualistic recitation of formulas for consideration in a contract in order to prove the existence of a contract. However, the absence of an express agreement, the absence of reference to consideration in the conveyance, and the terms of the conversations relied upon in the affidavit evidence leave open, in my view, an argument that the transfer of Fairview to Fred and Susan was essentially a gift. Certainly, in the absence of cross examination of Susan, Fred and Valarie at this stage of the proceedings, I cannot say that this is a clear case in which Glen's claim that the transfer of Fairview was without valuable consideration is manifestly groundless.

35 Fourth, Mr Kunc submits that the Court should, in its discretion, enter summary judgment for Susan and Fred because Glen's delay in bringing these proceedings would cause them gross prejudice. He says that, some twenty-two years after the probate suit, memories have faded and documents critical to the case have been lost. In particular, he points to the fact that the file of the solicitors who appeared on the record as Glen's solicitors in the probate suit is no longer available and that the lawyers who appeared for the relevant parties in that suit cannot now remember anything helpful. 36 I accept that a great deal of documentary evidence which may have been of assistance to Susan and Fred has now been lost due to the passage of time. However, it is also clear from the volumes of material which have been adduced in evidence in this application that a great deal of relevant documentary material has not been lost. In particular, I take into account that the principal witnesses on the issue of fraud, namely Glen, Russell, Valarie and Lindin, are still alive. All except Lindin have given affidavit evidence about the matter. Lindin is said to be ill but I have no evidence that he is incapable of giving any evidence in the proceedings. 37 Further, notwithstanding the loss of one solicitor's file, there is other documentary material available which gives a useful contemporaneous picture of events. Of particular note is a solicitor's bill of costs which contains considerable detail of events as they occurred. It has been referred to by both parties extensively. 38 Further, I take into account that even if I were to enter judgment against Glen on his claims against Susan and Fred, his claims against Russell, Lindin and Alwyn founded upon the fraud will go to trial in any event. These Defendants seem to be willing to take their chances on the evidence now available.

39 Finally, Mr Kunc submits that Glen's claim must fail on the ground that Susan and Fred have changed their position in making improvements to Fairview without notice of Glen's alleged interest. 40 In my view, this is not the kind of defence which can be assessed on a final basis in an application of this character. Much will depend on a full investigation of the facts and circumstances, bearing in mind that the transfer of Fairview occurred in October 2002, and that these proceedings were commenced in December 2004. The extent to which Susan and Fred have altered their position and whether or not restitution could be ordered upon terms and with just allowances are matters which can only be determined after a full hearing.

41 For these reasons, I have come to the conclusion that it would not be right to enter summary judgment for Susan and Fred on Glen's claim or to stay those claims permanently. 42 However, as a fall-back position, Susan and Fred seek a stay of Glen's claims against them until his claims against Lindin, Alwyn and Russell are determined. The determination of those claims will establish whether a fraud was committed, whether the grant of probate of the 1969 will should be set aside, and whether Robert had testamentary capacity when he executed the 1977 will. Only if Glen succeeds on all of those issues can he proceed with his claim against Susan and Fred and only then does their principal defence of transfer for valuable consideration arise. 43 In my view, such a stay should be granted. The power to grant such a temporary stay is within the inherent jurisdiction of the Court to supervise proceedings in such a way as to avoid injustice and needless expense. 44 Mr Kunc has advised the Court that if the temporary stay is granted, he is instructed that Susan and Fred will not intervene in the proceedings between Glen, Lindin, Alwyn and Russell. They will therefore be relieved of the burden of participating in proceedings which may result in the claim against them by Glen failing at the threshold. 45 For these reasons, I order that these proceedings as against the Fourth and Fifth Defendants be stayed until determination of the claims by the Plaintiff against the First, Second and Third Defendants or until other order of the Court. I will hear the parties as to costs.

46 The Fourth and Fifth Defendants seek the costs of this application as against the Plaintiff and the Plaintiff seeks the costs of this application against the Fourth and Fifth Defendants. 47 Mr Kunc says that, although the Fourth and Fifth Defendants have not achieved the full measure of success which they sought in their notice of motion, they have nevertheless achieved a stay of the proceedings against them and it was within the scope of the order for relief sought in their Notice of Motion that they should have such a stay. 48 On the other hand, Mr Benson says that the stay which the Fourth and Fifth Defendants have succeeded in obtaining was not at all within the case as urged by them and came about as a result of a suggestion which I proffered during the course of submissions - a suggestion which was adopted with considerable reluctance in the end by the Fourth and Fifth Defendants. 49 Mr Benson submits that the proper order should be that the Fourth and Fifth Defendants pay the Plaintiff's costs of the proceedings, not only on a party/party basis but on an indemnity basis in view of the terms of a letter which his solicitors sent to Mr Kunc's solicitors on 7 December 2005. 50 I should say at once that I do not regard the terms of that letter as proffering a compromise which was equal to or better than the result which the Fourth and Fifth Defendants have achieved in the result of this application. All that is offered is simply that the proceedings, as against the Fourth and Fifth Defendants, be expedited. As Mr Kunc pointed out, the result which the Fourth and Fifth Defendants have achieved by the stay relieves them of participation in the proceedings until a result in the Plaintiff's claims against the remaining Defendants is known. Indeed, the stay may well have the effect of relieving the Fourth and Fifth Defendants from the necessity of participating at all in further proceedings instituted by the Plaintiff. For that reason I certainly would not entertain any application that costs be paid by the Fourth and Fifth Defendants on an indemnity basis. 51 As to costs generally, it seems to me that while the Fourth and Fifth Defendants have not achieved the primary relief which they sought, they have achieved a substantial measure of success, although, as Mr Benson points out, it was virtually thrust upon them at the heel of the hunt. In those circumstances, I do not think it right to give the Fourth and Fifth Defendants the full costs of these proceedings as if the relief which they had principally advocated was the relief which they actually achieved. 52 It seems to me that the costs of this application very much depend upon the outcome of the trial. The Plaintiff's claim against the Fourth and Fifth Defendants must pass through a number of critical tests, as it were, they being the issues for determination on fraud and testamentary capacity. One possible result is, as I have said, that the claim against the Fourth and Fifth Defendants proceeds no further. 53 It seems to me that in those circumstances the proper order is to make the costs of this application costs in the cause. I so order. Exhibits may be returned. - oOo -

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