New South Wales Court of Appeal CITATION : Melbourn v Stephenson [2002] NSWCA 403 FILE NUMBER(S) : CA 40907/01 HEARING DATE(S) : 9 August 2002, 18 November 2002 JUDGMENT DATE : 17 December 2002 PARTIES : Clay Corrie Melbourn (Appellant) Lydia May Stephenson (Respondent) JUDGMENT OF : Handley JA at 1; Stein JA at 15; Brownie AJA at 63 LOWER COURT JURISDICTION : District Court LOWER COURT DC 8876/97 FILE NUMBER(S) : LOWER COURT Coleman DCJ JUDICIAL OFFICER : COUNSEL : P Hallen SC/ J Young (Appellant) A J Leslie QC (Respondent) SOLICITORS : Staunton & Thompson (Appellant) Steve Masselos & Co (Respondent) CATCHWORDS : NEGLIGENCE - CAUSATION - balance of probabilities test is not satisfied by evidence that does no more than establish a possibility - effect of death of alleged tortfeasor on plaintiff's ability to recover damages where tort is subsequent to the death of tortfeasor - survival of action in negligence against the estate of the deceased under the Law Reform (Miscellaneous Provisions) Act 1944, s 2(4) - interaction of Law Reform (Miscellaneous Provisions) Act, s 2(4) with the Wills, Probate and Administration Act 1898, ss 92, 95 where estate fully administered - viability of claim against executor and beneficiaries of the estate - effect of s 95 of the Wills, Probate and Administration Act - whether possibility of an equitable right of action against beneficiaries of the estate arises - ND Law (Miscellaneous Provisions) Act 1944, s 2(4) LEGISLATION CITED : Real Property Act 1900 Wills, Probate and Administration Act 1898, ss 92, 95 Deputy Federal Commissioner of Taxation v Brown (1958) 100 CLR 32 CASES CITED: Ministry of Health v Simpson [1951] AC 251 Seltsam v McGuiness [2000] 49 NSWLR 262 Taylor v Deputy Commissioner of Taxation (1969) 123 CLR 206 DECISION : 1) Appeal allowed with costs, the respondent to have a certificate under the Suitor's Fund Act if otherwise entitled; 2) Set aside his Honour's verdict and orders in favour of the respondent against the appellant and substitute therefor a verdict for the defendant with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40907/01 DC 8876/97 HANDLEY JA STEIN JA BROWNIE AJA Tuesday, 17 December 2002 Clay Corrie MELBOURN v Lydia May STEPHENSON Facts In 1996 the respondent Lydia May Stephenson was injured in a fall from an elevated deck attached to a house. At trial, Coleman DCJ found that the fall was the result of the negligent failure of Warren Reginald Melbourn, deceased at the time of the accident, to check the structural integrity of the deck, which would have exhibited signs of dry rot when he painted it. The respondent's cause of action against the deceased accrued after his death and the Law Reform (Miscellaneous Provisions) Act 1944 applies. The respondent was awarded damages against Clay Corrie Melbourn, executor and primary beneficiary of the estate. The appellant challenges the finding of negligence against the deceased, and, in the event that the finding of negligence is upheld, challenges whether the appellant is liable in either his capacity as executor or beneficiary of the estate for those damages, given that the estate had been completely administered prior to the accident. Held: per Stein JA (Handley JA and Brownie AJA agreeing) allowing the appeal: 1) On an examination of the evidence it was not reasonable to draw the inference that the deceased saw evidence of dry rot when he painted the balcony some time between 15 -18 months and 3 1/2 years prior to the accident. Negligence cannot be established on a possibility. There was no evidence to justify his Honour's finding of negligence by the deceased. 2) While the conclusions regarding negligence disposed of the appeal, Handley JA makes obiter remarks on potential problems arising from the interaction of s 2(4) of the Law Reform (Miscellaneous Provisions) Act 1944, and s 95 of the Wills, Probate and Administration Act 1898. Orders 1) Appeal allowed with costs, the respondent to have a certificate under the Suitor's Fund Act if otherwise entitled. 2) Set aside his Honour's verdict and orders in favour of the respondent against the appellant and substitute therefor a verdict for the defendant with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40907/01 DC 8876/97 HANDLEY JA STEIN JA BROWNIE AJA Tuesday, 17 December 2002 Clay Corrie MELBOURN v Lydia May STEPHENSON Judgment 1 HANDLEY JA: In this appeal I have had the benefit of reading the reasons for judgment of Stein JA in draft form. I agree with his Honour's conclusion that the trial Judge's finding that the late Mr Melbourn (the deceased) had been negligent cannot be supported. I agree therefore that the appeal by his executor should succeed and that judgment should be entered for the appellant in the action. These conclusions suffice to dispose of the appeal but a number of other questions were argued and some additional comments would be appropriate. 2 The trial Judge found that the deceased was negligent when he failed to notice, while repainting his balcony between 1993 and 1995, that some of the wooden railings had been damaged by dry rot and were likely, sooner or later, to give way if someone were to lean against them. 3 In the event nothing untoward occurred prior to the death of the deceased on 26 December 1995. On 1 July 1996 the plaintiff leant against a railing on the balcony which gave way and she fell to the ground and was severely injured. If the deceased had still been alive, and assuming negligence on his part, the plaintiff would have had a cause of action against him to recover damages for her injuries. In the events that happened, and on that assumption, there was no cause of action against him in his lifetime. At common law even if there had been a cause of action in his lifetime it would have lapsed on his death. 4 This situation was remedied by s 2(4) of the Law Reform (Miscellaneous Provisions) Act 1944 which provided: "Where damage has been suffered by reason of any act or omission in respect of which a cause of action would have subsisted against any person if that person had not died before or at the same time as the damage was suffered, there shall be deemed, for the purposes of this Part, to have been subsisting against the person before the person's death such cause of action in respect of that act or omission as would have subsisted if the person had died after the damage was suffered". (emphasis supplied) 5 This statutory fiction is expressed to be "for the purpose of this Part". This can only mean for the purposes of s 2(1) which provides, so far as relevant, that on the death of any person all causes of action subsisting against that person shall survive against that person's estate. None of the exceptions are relevant. 6 The effect of these provisions, assuming negligence on the part of the deceased, was not to deem, contrary to the fact, that a cause of action in favour of the plaintiff existed when he died on 26 December 1995. Their effect was to create a cause of action against the deceased's estate on 1 July 1996. 7 The appellant, the son of the deceased, was the executor of his will who obtained probate on 8 March 1996. The deceased's real estate, including the subject property, was transmitted to the executor as beneficiary and the transmission was registered under the Real Property Act on 7 May 1996. Thereafter the executor owned the property in his own right but the other beneficiary, Jane Craig, continued to occupy it under a lease for two years granted by the will. Thus on 1 July 1996 she was the occupier who had invited the plaintiff on to the premises. There was no evidence and no finding that the executor had been guilty of any personal negligence. 8 There was no evidence of insurance by the deceased or the executor. The deceased may have had a policy in force at the date of his death which would have responded to the claim had he survived until the accident. The policy may have been cancelled by the executor or allowed to lapse and been replaced by a policy in the name of the executor. This would cover him against liability for his own acts or omissions but may not cover the estate against liability arising after death based on the acts or omissions of the deceased. In other words there may have been a gap in the insurance cover although what would normally have been appropriate policies were in force at all material times. 9 In the present case if negligence had been proved the estate of the deceased would have become liable in damages to the plaintiff on 1 July 1996. 10 The executor published appropriate notices in accordance with s 92 of the Wills Probate and Administration Act so as to be entitled to the protection conferred by that section. He contended that the estate had been fully administered by 7 May 1996 following the transmission of the real estate to himself as beneficiary. If the estate had been fully administered before the accident the executor would not have been liable to the plaintiff as executor. See Taylor v Deputy Commissioner of Taxation (1969) 123 CLR 206. 11 In that event the plaintiff's only remedy would have been an action in equity against the beneficiaries, in all probability the executor who was the principal beneficiary. The relevant principles governing such an action were stated in Deputy Federal Commissioner of Taxation v Brown (1958) 100 CLR 32 at 53-4 by Kitto J: "If it happens for any of these or other reasons that the creditor cannot get his debt paid by the personal representative, equity will come to his assistance. The rule which it applies is that when, and only when, the creditor has exhausted his remedy against the personal representative 'so that there is no other way', he may obtain a sufficient refund by direct suit against the beneficiaries who have received the assets … unless, of course, he has so conducted himself that to exercise such a right would be inequitable". 12 Equity originally developed this remedy for the benefit of creditors of the deceased. See Ministry of Health v Simpson [1951] AC 251. The accident did not make the plaintiff a creditor because she only had a claim for unliquidated damages, and would not become a creditor until judgment. The cases do not consider whether a person with a claim for unliquidated damages is entitled to the benefit of this equitable remedy. The question could not arise until after the passing of the Law Reform (Miscellaneous Provisions) Act 1944, and its equivalent in other jurisdictions, because prior to that legislation a cause of action in tort against the deceased did not survive against his estate. 13 Counsel were not able to refer the Court to any case decided since that legislation which deals with this question. Section 95 of the Wills Probate and Administration Act preserves the direct right of action in equity against beneficiaries when the right against the legal personal representatives has become barred, pursuant to earlier sections, by distribution without notice following appropriate advertisements for claims. This section provides that nothing in those sections "prejudices the right of any beneficiary, creditor or other person who has a claim in respect of the assets of the estate of a testator or an intestate" to follow those assets into the hands of the persons to whom they have been distributed. The plaintiff may have had a right of action against the beneficiaries after judgment as a creditor or before judgment as an "other person who has a claim". 14 It is neither necessary nor appropriate for the Court to do more than draw attention to these questions which would have arisen for decision if negligence on the part of the deceased had been established. 15 STEIN JA: On 1 July 1996 the respondent, Ms Lydia May Stephenson, fell from an elevated deck attached to a house in Manly Vale. She was quite severely injured in the fall. She was leaning against a horizontal wooden rail when it completely came away from one of its supporting posts, causing her to overbalance and fall over backwards to the ground below. 16 The deck had been constructed in two parts. The first part was constructed in 1972 as an extension to the house. This work was approved by the Council. In about 1982 the deck was extended, but this work was not approved. No evidence was adduced of any building application being lodged. A rectangular extension was added to the existing deck. There is no evidence as to who carried out this unauthorised addition. 17 Warren Reginald Melbourn (the deceased) was the owner of the Manly Vale house. He died on 26 December 1995. During the latter years of his life the deceased had a companion, Jane Aird Craig. Under the terms of the will of the deceased, she was given a right of rent-free exclusive occupancy of the house for two years from the death of the deceased. He left the balance of his estate to his son, Clay Melbourn, the appellant in these proceedings. The appellant is also the executor of the will of his late father. 18 In 1991 the respondent became friendly with Ms Craig. She visited her and the deceased at the property until his death. After his death in December 1995 the respondent continued to visit Ms Craig at the house approximately twice every week. On almost every visit the respondent would go out onto the deck to smoke a cigarette. 19 On 1 July 1996 the respondent went to the house to see Ms Craig at the latter's request. Not long after arriving the respondent went out onto the deck to have a cigarette. Shortly afterwards she fell from the deck in the manner which she described in her evidence and which his Honour the trial judge extracted at Red Appeal Book 41 – 42. 20 The respondent's husband (Mr Gourlay) went to the premises in response to a telephone call from Ms Craig and found the respondent lying on the concrete below the deck. His evidence was that he noticed that the railing to the deck had 'popped out' and that 'the post was split … where the rail had come ajar'. Mr Gourlay said that the post was rotten in the centre through dry rot. It was his view that the post had not split under pressure, rather it had imploded through dry rot. He returned to the site within a day or so and took some photographs, which were tendered in evidence. 21 An expert witness, Mr Pilz, confirmed that there was dry rot in the post. It seems that the post was part of the unauthorised extensions carried out in 1982. 22 Mr Gourlay found a coach screw on the ground and another which had actually come away taking part of the post with it. The rail which came loose was coated with a thick mission brown paint which, according to the witness, appeared to be holding the timber together. Mr Gourlay said that the paint seemed to have been heavily applied. 23 Mr Gourlay said that he had noticed recent paintwork to the posts and railing about four or five months before the accident. This would be in early 1996, which is obviously a time after the death of the deceased. If the paint had been applied by the deceased, which seems to be common ground, Mr Gourlay's evidence must have been incorrect as to the time. On the probabilities the paint would have been applied more than six months before the accident. 24 Importantly to the case, Mr Gourlay said that you could still see the grain of the timber because the paint had seeped into the wood. The paint had seeped into the rot in the top of the timber. 25 His Honour accepted Mr Gourlay's evidence. The judge said: During the application of the paint it would have been apparent to the deceased that paint was running into the weathered open end grains which would have been an indication to an ordinary householder in the position of the deceased undertaking this maintenance that the posts were not sound and that the structural integrity of the horizontal rail was in question with the attendant risk of persons using the deck and not suspecting the defect might lean on the rail causing it to give way in its weakened state and then fall from the elevated deck to the ground. This was a real risk and not far-fetched or fanciful. 26 This is a critical finding which is challenged by the appellant. I will later return to it and similar findings by his Honour. 27 The timber on the deck which failed was Oregon, a softwood. It was unsuitable for external application. His Honour found that the Oregon was installed during the 1982 unauthorised alterations to the deck. Mr Gourlay's photographs indicated to his Honour that the railing which gave way, and caused the respondent to fall, came away completely from the Oregon post due to the coach screw coming out because of the presence of wood rot in the post. 28 The trial judge said that the deteriorated condition of the replaced Oregon post in the area of the end grains should have been obvious to the deceased at the time that he painted it. This finding is also challenged by the appellant. 29 Mr Pilz's report casts some light on the visibility of the dry rot. He said: 3.5 The exposed end grain on the top of the two posts supporting the rail that collapsed was severely rotted and would not have provided any substantial bight [sic] for the coach screw fixings. Some of the other posts on the balcony were also found to be rotten in the exposed end grain. Other than on the failed posts where a section of timber had been torn away, the rot was not generally visible to the naked eye (refer to Photograph P4 in Appendix A) due to the paint treatment that was applied to the balustrade system. It was detected by inserting a penknife into the end grain of the posts. [Emphasis added] 30 His Honour said that the deceased, as owner of the premises, owed a duty of care to the respondent to take reasonable care to avoid a foreseeable risk to her. His failure to respond to the signs of deterioration was negligent. 31 In more detail the trial judge said: The condition of the replaced Oregon centre post at the time that it was last painted before the accident must have been such that the paint as it was applied ran in the end grains. Even though that painting may have taken place up to 18 months before the incident took place it can be assumed that the wood rot was established within the post and that the way in which the paint ran into the end grains if not at the time of application but shortly thereafter should have alerted the deceased and acted as a warning that the structural stability might be compromised because of wood rot. The wood rot was present in the post at the time that the paint was applied and if there was no external indication of its presence there would be no sufficient warning. The presence of wood rot was not enough unless there was some external indication of its presence sufficient to alert or warn a reasonable observer. There was an indication of deterioration in a structural support for a safety rail which should have alerted the deceased to dangers of the kind the eventuate. [sic] [The emphasis is mine] 32 The Judge found that any reasonable person applying the paint without any specialised knowledge would have noticed the condition of the timber. Accordingly, the deceased should have been alerted to the possibility of dry rot in the post. 33 In the finding in para 47(i) of the judgment his Honour repeated that the dry rot was apparent in the end grains at the time the last coat of mission brown was applied by the deceased because any reasonable person applying the paint could not fail to notice the way the paint penetrated the end grains and would take this as a warning to check the structural integrity of the post. 34 Accordingly, his Honour concluded that the respondent suffered damage by reason of the omission of the deceased. The respondent's cause of action against the deceased accrued after his death and therefore the Law Reform (Miscellaneous Provisions) Act 1944 applied, s 2(4). This provision deems the cause of action to have been subsisting against the deceased at the time of his death and the action survived against the estate of the deceased. 35 After dealing with other issues, his Honour assessed damages. Ultimately he found a verdict for the respondent against the estate of the deceased in the sum of $440,386.88. 36 In challenging his Honour's conclusion that the deceased was negligent, the appellant commenced his submissions by pointing to the fact that there was no direct evidence as to who painted the subject posts and rail. 37 The respondent did not know who painted it. Further, neither the appellant nor Ms Craig gave evidence. I have already referred to Mr Gourlay's evidence about seeing recent paintwork about four or five months before the accident. 38 The matter was however made clear by the answers to interrogatories by the appellant. The appellant answered interrogatories on 16 August 2000. His answer to question 8 was that the deck 'was painted in 1993 or 1994'. In answer to question 9 he said that the painting was carried out by his father, the deceased. 39 The deceased died in December 1995 and the accident occurred on 1 July 1996. Assuming the answer by the appellant to the interrogatory to be accurate, it follows that the deceased painted the offending posts and rail between 3 ½ years (at the earliest) and 18 months before the accident. The answer to the interrogatory is certainly at odds with Mr Gourlay's evidence of the painting having occurred only four or five months before the accident. But as I have observed, Mr Gourlay's recollection as to time is likely to have been incorrect. 40 Counsel for the respondent, Mr Leslie QC, placed emphasis on the photographs taken by Mr Gourlay and upon his evidence. It was submitted that the photographs taken a day or so after the accident confirmed the evidence that the paint had seeped into the timber and that you could see the dry rot through the paint. 41 On behalf of the appellant, Mr Hallen SC submitted that it was erroneous to assume that the posts and rail were last painted by the deceased. He contrasted the appellant's answers to the interrogatories and Mr Gourlay's evidence. 42 Counsel also relied on the evidence of Mr Gourlay that following the accident he saw dry rot in the centre of the post, and that it was his belief that the post 'blew' or 'imploded'. 43 In addition, Mr Hallen relied on the report of Mr Pilz that, apart from the failed posts where the timber had been torn away, 'the rot was generally not visible to the naked eye due to the paint treatment'. The rot was detected by Mr Pilz when he inserted a penknife into the end grain of the posts. 44 The first factual question for the court to determine is who last applied paint to the posts and railing and when? A reading of Mr Gourlay's evidence reveals his faulty recollection of dates. Although he said the painting was done four or five months before the accident, Mr Gourlay accepted that he did not really have a clear recollection of when it was done. He disagreed that it was 18 months before the death of the deceased. 45 The appellant's answer to the interrogatory clearly identifies that the deceased painted the balcony in 1993 or 1994. There is no evidence that anyone other than the deceased painted the posts prior to the accident. 46 All that the evidence allows one to conclude is that the deceased painted the posts and rail with mission brown paint between 1993 and the end of 1994 or perhaps into the early months of 1995. That is, between 3 ½ years and, say 15 to 18 months prior to the accident. 47 Since there is no direct evidence of what the deceased saw when he carried out the painting, it is necessary to ask what can reasonably be inferred? Was the deceased likely to have seen evidence of dry rot? We can accept Mr Gourlay's evidence of observing a heavy or thick application of the mission brown paint. We may assume that it seeped into or penetrated the timber (which was softwood). 48 However, it is commonplace for paint to seep into softwood timber. Nothing, in particular about the presence or absence of dry rot, can be assumed from such an observation. 49 Mr Hallen submitted that one cannot assume that the deceased would have observed that the timber was rotten and his Honour should not have so inferred. The inference was simply not reasonably available to be drawn. 50 There are but a few straws of evidence which assist with regard to this issue. First, it seems that the dry rot was not readily observable because Mr Gourlay had not noticed it before the accident despite visiting on a number of occasions. Mr Gourlay's belief was, and his Honour seems to have accepted this, that the post 'blew' or imploded. Imploded means to burst inwards. As Mr Gourlay said 'it was rotten in the centre through dry rot', adding that 'the post actually exploded. It didn't split. It didn't give way under pressure. It actually blew. It imploded'. [I have supplied some necessary punctuation to his answer]. 51 The evidence of Mr Gourlay which is relevant to consider is that he said that he could see timber through the paint because the paint had seeped into the timber. Two things may be said about this evidence. First, it is plain from a reading of the transcript that this answer was heavily influenced by what Mr Gourlay saw in the photographs. It may not necessarily be what he actually observed. More importantly, and assuming that it was what Mr Gourlay actually observed, it says very little about what the deceased might have observed when he did the painting between 3 ½ years and 15 – 18 months beforehand. 52 The other relevant evidence is Mr Pilz's report referred to earlier. This appears to indicate that the dry rot was not visible to the naked eye because of the paint treatment. Where the timber had been torn away was, of course, a different matter. Mr Pilz's inspection was not made until May 1997, 11 months after the respondent's accident. 53 An analysis of the state of the evidence militates against any inference being drawn that the deceased saw evidence of dry rot. One can infer that as the deceased applied the mission brown paint to the post, it seeped into the timber and that he saw this happen. As I have said, this is not unusual and bespeaks nothing to support his Honour's finding that it would alert or warn the deceased to check the structural integrity of the posts. In my opinion, there was no evidentiary basis for such a conclusion to be reached. 54 I do not see how, on the evidence led at the trial, it may be assumed or inferred that the deceased, when he painted the posts and rail, saw evidence of dry rot. In my view, the highest that the inference can run is that, accepting that the paint was applied heavily and thickly to Oregon (Mr Gourlay) it would have seeped into the timber and the deceased would have observed this. While the photographs are of some assistance in understanding the mechanism of the failure of the balcony and the respondent's unfortunate fall, they do not enable one to know or infer what the deceased would have seen when he painted the deck. 55 In my respectful opinion, where his Honour erred was to conclude that any reasonable person in the position of the deceased, and without any specialised knowledge, could not fail to notice the way the paint penetrated the end grains and would take this as a warning to check the structural integrity. I am completely unable to draw such an inference. I do not see that a reasonable person, in the position of the deceased, would assume anything necessarily untoward from the fact that the paint seeped into the end grain of the post when it was applied. Certainly, I do not see that it could be reasonably seen to warn the person to check the structural integrity of the post. In my opinion, the inference his Honour sought to draw was just not open on the evidence before the court. 56 At one point in the judgment his Honour referred to it being apparent to a reasonable person that the paint was penetrating the end grains and that this should have alerted the deceased to the possibility of dry rot. Negligence cannot be established on a possibility, Seltsam Pty Ltd v McGuiness [2000] 49 NSWLR 262 at [98]. 57 I am unable to accept his Honour's conclusion that the seeping of the paint into the timber should have acted as a warning that the structural stability might be compromised by dry rot. As I have said, this inference was not reasonably open to his Honour to draw from the evidence. 58 The balcony was to the deceased's home where he lived with his companion and received family and friends. There is no reason on the evidence for thinking that he was aware of his fatal illness when he painted the balcony. Even if he had this knowledge at the time, there is no reason for thinking that he wished to expose his family and friends to the risk of injury after he was dead. The court can safely infer that the deceased in fact did not know that that the timber was affected by dry rot or was unsafe. If he did not know, why should the court infer that he ought to have known? 59 Indeed, his Honour acknowledged that there would need to be an external indication of the presence of the wood rot to be a sufficient warning. I have already quoted what the judge said about this. Where I part from his Honour is his conclusion that there was such an external indication of deterioration which should have alerted the deceased to the dangers which might eventuate. 60 On an examination of the evidence, including the photographs, there simply was no or no sufficient evidence to justify his Honour's finding. It is little more than speculation as to what the deceased would have seen whenever it was that he painted the balcony posts and rail. All that may be reasonably inferred is that he may have seen that the paint he applied seeped into the timber. It cannot be assumed or inferred that he saw any evidence of dry rot sufficient to alert him to a potential problem which may have compromised the structural integrity of the deck. 61 It follows that in my opinion the evidence did not establish that the deceased was negligent and his Honour's conclusion to the contrary was not open. His Honour's verdict should be set aside and a judgment entered in favour of the appellant. Accordingly, it is unnecessary to deal with the other issues raised on the appeal. 62 The following orders are proposed: 1) Appeal allowed with costs, the respondent to have a certificate under the Suitor's Fund Act if otherwise entitled. 2) Set aside his Honour's verdict and orders in favour of the respondent against the appellant and substitute therefor a verdict for the defendant with costs. 63 BROWNIE AJA: I agree with Handley JA and Stein JA. ********** 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.