Upton v Downie [2007] NSWSC 1095 | Case summary

2695/07 JOHN NEVILLE UPTON v ROBERT JAMES DOWNIE JUDGMENT 1 By an amended summons, John Neville Upton, the plaintiff, seeks an order revoking the grant of probate of the will of Mavis Irene Downie, deceased, to Robert James Downie, the defendant. 2 The deceased was married four times. Jeanette Newman and Robert Howarth are the children of her first marriage. Mr Upton is the only child of the deceased's second marriage. The deceased's fourth marriage was to Mr Downie. 3 By her will, the deceased granted a life interest in her house and personal property at Glenorie in New South Wales to Mr Downie. The residue of her estate is to be divided equally between Mr Upton, Mr Downie and Mr Howarth. Mr Howarth does not oppose the orders sought by Mr Upton. 4 Mr Upton raised five issues in support of his application. First, the deceased mortgaged the Glenorie property for advances of $100,000, $150,000 and $200,000 but showed no signs of wealth and no explanation was forthcoming from Mr Downie. 5 Secondly, the will of the deceased, drawn by the solicitor friend of Mr Downie, Norman Rutherford Lenehan, was not produced following the death of the deceased. On the assumption that the deceased had died intestate, Mr Lenehan caused advertisements to be placed of Mr Downie's intention to apply for letters of administration. After those advertisements had been placed, the will was produced by Mr Downie. 6 Thirdly, Mr Downie claims that the estate owes him approximately $271,000. There is no document recording a loan to the deceased and, again, she showed no signs of wealth. Before his marriage to the deceased, Mr Downie mowed lawns for a living. 7 Fourthly, Mr Upton alleges that assets of the deceased were not included in the inventory of property. These comprised a Jaguar sports car, a Toyota motor vehicle, clothing and jewellery given by Mr Downie to Ms Newman and a number of Norman Lindsay paintings and sketches. 8 Fifthly, Mr Upton alleges that Mr Downie is subject to a conflict of interest. Mr Lenehan's firm acts for Mr Downie in these proceedings. He has made an application for provision out of the estate under the Family Provision Act 1982. Mr Lenehan acts for him in those proceedings the defendants in which are Mr Howarth and Mr Upton. Ms Newman has made an application for provision out of the estate in which Mr Downie is the defendant. Mr Lenehan acts for him in those proceedings. Mortgages 9 The deceased bought the Glenorie property from Mr Lenehan on 20 December 1998. Mr Downie says the price was $570,000. Mr Upton says that the deceased told him that she had bought the house for $680,000. 10 The deceased did not have all the funds available on settlement and Mr Lenehan was happy to complete the transaction because of his long friendship with Mr Downie. It was common ground that the deceased mortgaged the property to Mr Lenehan to secure the balance of purchase price of $70,000. The mortgage was not registered and no caveat was lodged. 11 On 27 February 2002 when the deceased was 78 (she was born on 26 February 1924) she mortgaged the Glenorie property to secure a loan of $100,000 repayable in two years' time. The mortgage was registered on 4 March 2002. 12 On 29 November 2002 the deceased executed a new mortgage to secure a loan of $150,000 repayable in a year. It was registered and the discharge of the $100,000 mortgage was registered on 3 December 2002. 13 On 12 December 2003 the deceased executed a new mortgage to Lawteal Pty Ltd to secure a loan of $200,000 repayable in a year. It was registered and the discharge of the $150,000 mortgage was registered on 15 December 2003. The discharge of the $200,000 mortgage was registered on 24 December 2004. 14 Thus, on 27 February 2002 the deceased raised $100,000 on the Glenorie property. Upon refinancing in November 2002 she raised a further $50,000 and, likewise, upon refinancing in December 2003 she raised a further $50,000. 15 Mr Upton said that these borrowings were entirely out of character for the deceased. She was not a sophisticated business person and Mr Upton observed no change in her lifestyle in this period. She did not go on any expensive holidays, she did not make any improvements to the Glenorie property, she did not acquire any large assets and she did not appear to have any more money at her disposal than what she had prior to February 2002. 16 Mr Downie said that the deceased made payments totalling $45,000 to Mr Howarth. But he could not account for how he and the deceased spent the balance of the $200,000 raised by the deceased on the Glenorie property. 17 I find it difficult to accept Mr Downie's evidence that he has no recollection of how $155,000 of the $200,000 raised on the Glenorie property was spent. 18 This may be a matter that needs to be investigated in the performance of executorial duties. It is difficult for Mr Downie to perform this task. Discovery of the will 19 Mr Downie said that Mr Lenehan did not have a copy of the deceased's will and he applied for the grant of letters of administration. It was after the advertisement of his intention to apply for administration that he found the will. An application was then made for probate of the will, which was granted to him as executor. 20 I do not think that this matter supports Mr Upton's application. Mr Downie received one third of the residue of the estate under the will. The estate was valued at just over $1 million in the inventory of the property. Had there been an intestacy, Mr Downie would have received more from the estate under the rules as to distribution of intestate estates in the Wills, Probate and Administration Act 1898. 21 Since Mr Downie's production of the will was against his interests, I fail to see how this incident should count against him in determining whether the grant of probate should be revoked thereby removing him as executor of the estate. $271,000 debt 22 Mr Downie said that before the deceased purchased the Glenorie property she had a conversation with him in the following terms: "Deceased: "I think we should buy the property." Downie: "I don't have any money now but I expect to have some soon, I think I will be able to provide ½ the price." Deceased: "When you do that I will transfer a half interest in the property to you." 23 Mr Downie said he received a distribution of $100,000 from a third party estate and, in accordance with this conversation with the deceased, he directed a payment of $70,000 to Mr Lenehan in February 1999 in discharge of his loan and Mr Lenehan returned the unregistered mortgage. 24 Mr Downie said that in 2004 a property he owned jointly with another person was sold and he received approximately $240,000 from which he discharged the $200,000 mortgage. He said that in accordance with his instructions, $201,201.75 was paid to Commonwealth Bank of Australia, $1,936.27 was paid to Lawteal, the mortgagee, and $11,034.45 was paid to himself. 25 Mr Upton pointed out that the payment to the Commonwealth Bank was unusual since Lawteal was the mortgagee. Mr Downie said the payment was made at the direction of the solicitors for Lawteal. 26 This is a matter that an executor of the estate might wish to investigate. Again, it is difficult for Mr Downie to do so. 27 Mr Downie maintained that he made the two payments in accordance with the deceased's undertaking to transfer a half interest in the Glenorie property to him when he had paid half the purchase price. He said he did not make the payments as gifts to the deceased. He claimed they were loans due to him by the estate. 28 There was no documentation with respect to the conversation with the deceased. Mr Downie accepted that in performing executorial duties the only evidence available to him was his own word. 29 There was no written loan agreement or any other document with respect to the $70,000 or with respect to the $201,000. There was no evidence of whether or not interest was payable. There was no evidence whether the loans were made for a term or to be paid on demand. Mr Downie accepted that in the performance of his executorial duties all he had to act upon in determining whether there was a loan or a gift was his own word. Mr Downie said that if he performed his executorial function of determining whether the amount was a gift or a debt owed to him, he would determine the claim as a valid one upon the estate. When it was put to Mr Downie that he had to decide whether the estate owed him $201,000 or whether it did not, Mr Downie said: "It certainly does." 30 Notwithstanding Mr Downie's insistence that the estate owes him $271,000, the arrangement he says he had with the deceased was not one of loan. The agreement he asserts was that the deceased would transfer a half interest in the Glenorie property to him upon his payment of half the purchase price. That may mean that Mr Downie might establish an equitable interest in the Glenorie property, but it does not justify his insistence that he will admit his claim for $271,000 as a valid debt due by the estate to him. Missing Assets 31 Mr Upton has not established that the Jaguar sports car belonged to the deceased. His evidence was of a statement made to him by Mr Downie when he and the deceased were driving the motor vehicle: "Look at what I have bought your mother. It's a collector's item. It will increase in value for sure". In cross-examination, Mr Upton agreed that he did not know where the money came from. He did not know in whose name the vehicle was registered. He had made no investigation as to the ownership of the vehicle. He did not know whether it was owned by his mother or not. He had never seen any documents that showed whether or not the car belonged to the deceased. 32 Mr Downie said the motor vehicle was purchased for $30,000 of which he paid $10,000 from the proceeds of sale of a tractor and took a finance lease of the vehicle for the balance. The lease was in evidence. Mr Downie said the vehicle had always been registered in his name and was still registered in his name. A certificate of registration was in evidence. 33 Mr Upton said that Mr Downie had given estate property, being clothing and jewellery of the deceased, to Ms Newman. Ms Newman said that Mr Downie had asked her to pack up her mother's chattels for safety. She said she packed her mother's clothes in plastic bags and placed them in the spare room. She has retained possession of her mother's jewellery for safety reasons until they could be later distributed. She produced a list. She said most of it was costume jewellery of no real value. There were only a few items of value. 34 I am not satisfied that Mr Downie has disposed of the clothing and jewellery. 35 There was no further evidence in relation to the Toyota motor vehicle. 36 There was a deal of evidence in relation to the Norman Lindsay paintings and drawings. Mr Downie said there never were any original Norman Lindsay paintings at Glenorie. There were some copy prints of Norman Lindsay etchings that he said he and the deceased agreed Mr Lenehan could leave at the property. Mr Downie said that as far as he was aware the deceased never purchased a Norman Lindsay work. He said that when he and the deceased moved into the Glenorie premises, some Norman Lindsay artworks were on walls that belonged to Mr Lenehan. He said that he spoke to Mr Lenehan shortly after the deceased's death and asked him to come and get the Norman Lindsay paintings as people were showing a lot of interest in them. He said some time after this conversation Mr Lenehan removed all the Norman Lindsay works. 37 Ms Newman said there were five Norman Lindsay sketches signed by the artist not long after Mr Downie and the deceased moved into the house. Ms Newman said she asked her mother who owned the Norman Lindsay sketches to which her mother responded: "Yes, they are mine". Ms Newman said that towards the end of her mother's illness she had a discussion with Mr Downie at Glenorie when she said they were quite valuable and that at a recent auction sketches went for $20,000. She said that Mr Downie told her that they belonged to Mr Lenehan. There were four sketches. Mr Downie informed her that Mr Lenehan had already taken the fifth. 38 Mr Lenehan gave evidence that the deceased and Mr Downie moved into the Glenorie property on the day contracts were exchanged. Mr Lenehan remained but usually stayed at an apartment he had in Darlinghurst during the week, returning to the Glenorie property at weekends. He moved out in August 1999. He said the deceased told him he could leave things at the Glenorie property as long as he liked. He left facsimile etchings. He said he had bought them after the artist's death for $200 and had them framed. In addition he had purchased a cartoon by Norman Lindsay entitled Magna Carta in Reverse. He also left a print of a Norman Lindsay pen drawing of a boar hunt. The Norman Lindsay paintings were removed to Mr Lenehan's son's place after the purchase settled. 39 Mr Lenehan's son, Norman Rutherford Lenehan, gave evidence of his earliest memories of Norman Lindsay pictures on the walls of his parents' home. He said that when he moved into his father's home at Glenorie there were three or four paintings, one or two original etchings and some other artworks by Norman Lindsay, together with about seven facsimile etchings that were framed. He said he took with his father's approval some framed Norman Lindsay pencil drawings to a house he had purchased. He said that he assisted his father to remove the original Norman Lindsay artworks to his house. 40 In cross-examination, Mr Upton accepted that the Norman Lindsay paintings had not been in any of the homes that the deceased had lived in prior to moving to the house at Glenorie. He never asked his mother whether she bought the paintings and she never told him that she had. 41 The preponderance of evidence favours the finding, that I make, that the Norman Lindsay works were not the property of the deceased but were the property of Mr Lenehan. Conflict of interest 42 In his claim under the Family Provision Act 1982 against the estate of which he is executor, Mr Downie has a conflict of interest that is not solved by confining the suit to individuals who might oppose any provision out of the estate. But that matter can be addressed in those proceedings. It would be wrong to assume that the conflict may not be resolved. 43 In relation to the present proceedings, however, there is a clear conflict of interest between Mr Downie acting for the estate and Mr Downie pressing his claim for payment of $271,000. There is also a potential conflict in any executorial investigation of whether there is any claim by the estate with respect to the $200,000 raised by way of mortgage on the Glenorie property. Legal principles 44 The inherent jurisdiction of a court of equity to revoke a grant of probate was considered by the Court of Appeal in Mavrideros v Mack (1998) 45 NSWLR 80. It was not a case of conflict of interest. It was a case of inexcusable delay in administering the estate. Reference was made to what Asprey JA had said in Bates v Messner (1966) 67 SR (NSW) 187 of the judgment of Jeune P in In the Goods of Loveday [1900] P 154 at 156. Asprey JA said at 191-192: "I am of the opinion that the essential basis of the exercise of the court's inherent jurisdiction to revoke a grant of probate is that emphasised by Jeune P, namely, that the real object which the court must always keep in view is the due and proper administration of the estate in the interests of the parties beneficially entitled thereto on the part of the person to whom and by whose oath as to the faithful performance of his duties the court has been induced to entrust the office of executor. The terms used in some of the previously decided cases with relation to the circumstances which have given rise to the exercise of the jurisdiction of revocation, such as "aborted", "inefficient", "useless" or "ineffectual", are simply descriptive of a situation in which the court has been persuaded to the view that its grant, which was predicated on the oath of the executor named in the will that "he will pay all the just debts and legacies of the said deceased so far as the estate of the said deceased will extend and the law shall bind him, and that he will otherwise well and faithfully administer the said estate according to law; and that he will render a just and true account of his administration" has been circumvented by a breach of that oath which is in effect an undertaking to the court making the grant. I shall make no attempt to define all circumstances which may attract the exercise of the court's jurisdiction, but where circumstances clearly appear to have arisen after a grant of probate which impel the court to the firm conclusion that the due and proper administration of an estate has either been put in jeopardy or has been prevented either by reasons of acts or omissions on the part of the executor or by virtue of matters personal to him, for example, mental infirmity, ill health, or by virtue of the proof of other matters which establish that the executor is not a fit and proper person to carry out the duties which he has sworn to the court that he will perform, the court may exercise its inherent jurisdiction to revoke the grant." 45 In Mavrideros, the judge at first instance had adopted the approach that the inherent jurisdiction should not be exercised unless one was getting close to the position of the grant being useless. The Court of Appeal stated this to be too narrow an approach. At 108, Sheller JA, with whom the other members of the Court of Appeal agreed, said: "For present purposes this interpretation of Bates v Messner was too narrow. The question was, to adapt the language of Asprey JA (at 192), whether the due and proper administration of an estate had either been put in jeopardy or had been prevented either by reasons of acts or omissions on the part of the executor or by virtue of matters personal to him, for example, mental infirmity, ill health, or by virtue of the proof of other matters which established that the executor was not a fit and proper person to carry out the duties he had sworn to perform. His Honour applied a far too rigid test by saying that one had to get close to the position of the grant being useless." 46 This passage was cited with approval recently by the Queensland Court of Appeal in Baldwin v Greenland (2007) 1 Qd R 117 at 129-130. That court has statutory power to revoke a grant of probate under the Succession Act 1981 (Qld), s 6(1). At 130 [44], Jerrard JA, with whom the other members of the court agreed, went on to say: "The jurisdiction, both statutory and inherent, is a supervisory and a protective one. It is always appropriate and necessary for a court asked to exercise it to have regard to the testator's wishes as to the identity of an executor or trustee. The testator's choice may be based on loyalty, or on respect, or on necessity, or on the profession of the chosen person, or on other matters the testator knew about the chosen person; the reason for the choice might never be clear to a court. The overriding assumption must be that the testator thought the person chosen was worthy of trust, even when well aware when making a choice of existing hostility (from family members) toward the chosen executor or trustee, or of other grounds for doubt about the wisdom of the choice." 47 His Honour went on to say that where circumstances arise before a grant of probate that impel a court to a firm conclusion that the due and proper administration of an estate would be put in jeopardy if a particular person were executor or trustee, it can properly exercise the jurisdiction to remove that person as either. 48 A similar view as to the limited circumstances in which a mere conflict of interest will impel a court to exercise its inherent jurisdiction is made in Geddes, Roland and Studdert, Wills, Probate and Administration Law in New South Wales, LBC Information Services, Sydney, 1996 at 330 [40D.15]: "A mere conflict of interest and duty will not result in restraint or removal of a personal representative. It must be shown that the personal representative prefers interest to duty, and intends to neglect duty." 49 That passage was cited with approval by Young CJ in Eq in Morgan v MacRae [2001] NSWSC 1017 at [25], his Honour pointing out at [26] that one reason for this in the case of an executor is that the testator by choosing the executor and knowing the relationship must appreciate that there will be a conflict between interest and duty. 50 Monty Financial Services Ltd v Delmo [1996] 1 VR 65 concerned a statutory power to remove an executor or administrator if the personal representative refused or was unfit to act in that office. In dealing with the concept of unfitness to act, Ashley J concluded, at 82-83, that it might include the case of conflict of duty and interest but it was not every conflict of duty and interest that would result in removal of an executor. The intention of the testator that the executor be a particular person should not be lightly set aside. The will itself might show that the testator was aware that the executor would face a potential conflict of duty and interest as, for example, where the executor was also a beneficiary. It would not be correct, without more, to remove the executor. 51 In Titterton v Oates (1998) 143 FLR 467 at 475-476, Crispin J declined to follow one aspect of the decision in Delmo. That aspect does not concern Ashley J's conclusion that unfitness to act might be constituted by conflict of duty and interest. Resolution 52 In Delmo, Ashley J had to consider a situation not dissimilar to the instant circumstances. The executor was the son of the deceased. He maintained that he had expended money on his mother's house and claimed a debt from the estate. There was no documentation. He probably did expend the moneys forming part of the asserted debt and his assertion of a debt was known to others before his mother's death. Ashley J approached the question of unfitness by reference only to the question of conflict of interest and duty (at 70). His Honour concluded (at 83) that the critical question whether the money spent was a gift or a loan would be determined if the executor remained in office by reference to his own veracity and that conflict required the removal of the executor. His Honour said (at 83): "In my opinion an order for the removal of Mr Delmo is required. It is not required because he is at once executor and a beneficiary. It is required because in the particular circumstances of this case there is a conflict of duty and interest, the conflict necessarily requiring a decision by the executor whether to accept or reject his own truthfulness. A critical question to be resolved is not simply whether Mr Delmo spent money on the Kew property. It is whether the money spent was a gift or a loan. About that, there is no documentation. Mrs Delmo is silent. The only direct witnesses to any conversation who are alive, it seems, are Mr Delmo and his sister. In circumstances where any benefit Mrs Dwyer receives will go to her creditors, some challenge to her veracity (if she was to speak in support of her brother's account) could be expected. Then there is the question of interest on the assumed loan. Similar considerations apply. This is not to say that Mr Delmo and his sister (and Mr Delmo's former wife, if she is able to provide relevant information) ought not be accepted. But it seems to me wrong, in the particular circumstances, that Mr Delmo resolve this conflict of duty and interest. It could only sensibly be inferred, I should add, that the testator expressed any intention that Mr Delmo hold office despite the conflict of duty and interest concerning the asserted loan." 53 Not only does Mr Downie rely solely on his own assertion that he is owed a loan and did not make a gift of the moneys in question but also there is his unsatisfactory evidence that he cannot recall how the bulk of the $200,000 raised on the Glenorie property was expended. That raises an issue whether the estate should pursue any cause of action against him. 54 Furthermore, there is no reason to suppose that the deceased was aware of the potential conflict. The conversation attributed to her had nothing to do with a loan. It had to do with the transfer of a half interest in the property to Mr Downie when he had paid half the purchase price. He had not done so at the time of her death. 55 In my view it is inappropriate that these questions be determined by Mr Downie. Because of the conflict of interest and duty he has in their determination, Mr Downie is not a fit and proper person to continue as executor of the estate. The grant of probate should be revoked. 56 I am not satisfied, however, that it is appropriate to appoint Mr Upton as the personal representative of the deceased. There are elements of a family dispute about this matter that might be exacerbated by his determinations if granted executorial or administrative powers. It seems to me appropriate that an independent person be appointed. 57 But I will hear the parties on the appropriate terms of orders. For the present, I merely indicate that I will make an order revoking the grant of probate. I direct the parties, consequent upon further submission, to bring in short minutes of order reflecting my reasons.

Upton v Downie

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)

Cited By (8)