New South Wales Supreme Court CITATION : Johnston v Maclarn [2002] NSWSC 97 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4083/00 HEARING DATE(S) : 13/11/01 [Then written submissions] JUDGMENT DATE : 27 February 2002 PARTIES : Peter Stanley Johnston (P) Susan Maclarn (D) JUDGMENT OF : Young CJ in Eq COUNSEL : M J Slattery QC (P) M Condon (D) SOLICITORS : Foulsham & Geddes (P) Simon Beverly & Associates (D) CATCHWORDS : SUCCESSION [274]- Wills- Specific legacy- Ademption- Exceptions to rule that ademption occurs if testator does not possess property at date of death. LEGISLATION CITED : Contracts Review Act 1980 Badrick v Stevens (1792) 3 Bro CC 431; 29 ER 626 Bason v Brandon (1836) 3 Sim 171; 59 ER 68 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Easyfind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98 General Credits Ltd v Ebsworth [1986] 2 Qd R 162 Hawkins v Clayton (1988) 164 CLR 539 CASES CITED : In re Rudge [1949] NZLR 752 In re Slater [1907] 1 Ch 665 Jenkins v Jones (1866) LR 2 Eq 323 Re Larking (1887) 3 Ch D 310 Re Viertel [1997] 1 Qd R 110 Shaftsbury v Shaftsbury (1716) 2 Vern 747; 23 ER 1089 Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185 DECISION : Pleading on ademption to stand; other parts of statement of claim struck out. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Wednesday 27 February 2002 4083/00 JOHNSTON v MACLARN JUDGMENT 1 HIS HONOUR: Following the reasons for judgment I delivered on 26 September 2001, the plaintiff submitted a draft of a further amended statement of claim. Indeed, he went further and actually purported to file the document of 7 November 2001. The defendant submitted that this amendment should not be allowed as the claim made was still demurrable. 2 Although there is no need to repeat all the facts referred to in the earlier judgment, it is necessary to set out some of them in order that these present reasons may be understood. 3 The plaintiff says that he and the deceased, Catherine Maclarn, were friends. He says that, during her lifetime she gave him $219,275. [In the pleadings, the plaintiff calls this "the Payments"]. She also made a bequest to him of all her Mirvac shares and her units in the Mercury Asset Management Trust. 4 Before she died, Catherine Maclarn appointed her son, Graeme as her attorney. Graeme sold the Mirvac Shares and Mercury units so that they were not property of the deceased at the date of her death. The gift was, according to the defendant, the deceased's daughter in law (Graeme's wife) and her executrix, adeemed. 5 The executrix commenced District Court proceedings to recover the $219,275. The defendant (the plaintiff in these proceedings) agreed to settle those proceedings by agreeing to pay the full amount plus costs. [This is referred to in the pleadings as "the Settlement"]. 6 The plaintiff seeks to set aside the Settlement on the ground of equitable fraud. I should note that he has also filed a motion in the District Court which seeks to set aside the judgment which is currently lying dormant, awaiting the outcome in these proceedings. 7 I heard submissions from Mr Slattery QC for the plaintiff and Mr Condon of counsel for the defendant on 13 November 2001. I agreed to take further submissions in writing; these were furnished and I have thoroughly considered them. 8 I have now been furnished with a still further amended statement of claim bearing date 15 December 2001, but this merely polishes the drafting and does not differ in substance from the document considered on 13 November 2001. 9 The further document makes the following further or amended claims: (a) It alleges in paragraphs 12A-12D that one Graeme Maclarn, who is not a party to the proceedings acted as attorney under power for the deceased and sold the relevant shares without the deceased's knowledge or consent and that the defendant executrix was privy to and knowingly concerned in the intentional conduct of Graeme Maclarn. (b) It alleges in paragraph 16A that on the true construction of the will, the bequest of the shares and units to the plaintiff was not adeemed because of the acts specified in paragraphs 12-12D. (c) It alleges in paragraph 19 that the defendant unconscionably took advantage of the plaintiff's position of special disadvantage by inducing the plaintiff to enter into the settlement of the District Court proceedings. (d) It alleges in paragraphs 23 and following that the defendant owed the plaintiff fiduciary duties in relation to the gift of the shares, that, by reason of what is alleged in paragraphs 12-12D, the defendant breached her duty and as a result, the plaintiff entered into the settlement. 10 It must be remembered that the plaintiff, in addition to breach of fiduciary duties relies on the Contracts Review Act 1980. 11 The relief sought by the plaintiff is for orders setting aside the Settlement, a declaration that the property passing to him from the deceased was by way of gifts not loan, a declaration that his gift of shares was not adeemed (alternatively that the defendant account to him for equivalent value for her breach of fiduciary duty). 12 I will first consider the question of ademption as pleaded in paragraph 16A. 13 Roper on Legacies, 4th ed (William Benning & Co, London, 1847) at pp 329 and following, sets out the general rule with respect to the ademption of specific legacies. The learned author says: "The word 'ademption' when applied to specific legacies of stock or of money … must be considered as synonymous with the word 'extinction'. For it should be observed, that if stock, securities, or money, so bequeathed, be sold or disposed of, there is a complete extinction of the subjects, and nothing remains to which the words of the will can apply (a): for if the proceeds from such sale or disposition were to be substituted and permitted to pass, the effect would be … to convert a specific into a general legacy." 14 Roper gives a reference to Badrick v Stevens (1792) 3 Bro CC 431, 432; 29 ER 626, but this reference does not progress the matter. 15 As Roper notes at p 331, this view of ademption means that the testator's intention is irrelevant. The only thing to be ascertained is whether the testator possessed the property in the specific gift at the time of his death. If he did not, the legacy is adeemed by annihilation of the subject. 16 Roper's approach has been followed ever since; see eg In re Rudge [1949] NZLR 752, 761, where Callan J affirms that: "In questions of ademption … the primary inquiry is not for the testator's intention. The test appears to be whether at his death the property of which the testator has made a specific gift in his … will still belonged to him." 17 However, as I noted in my earlier judgment, there is authority that there is an exception where it can be shown that the property ceased to be part of the testator's estate because of the unauthorized action of an agent (see eg Basan v Brandon (1836) 3 Sim 171; 59 ER 68) or committee in lunacy; see eg Re Larking (1887) 37 Ch D 310). 18 In Jenkins v Jones (1866) LR 2 Eq 323, 328, Stuart VC considered that there was an exception to the ademption rule where the annihilation had taken place without the testator's knowledge, even if it had occurred with implied authority. He based himself on Shaftsbury v Shaftsbury (1716) 2 Vern 747; 23 ER 1089, to which I shall return. Other cases can be found to the footnotes of Jarman on Wills, 8th ed Vol 2 (Sweet & Maxwell Ltd, London, 1951) at p1068. 19 Although, it is a tad difficult to reconcile these cases with principle, see In re Slater [1907] 1 Ch 665, 671, they remain good law. This was the conclusion reached by Thomas J in Re Viertel [1997] 1 Qd R 110 after reviewing all the authorities including American and Canadian cases and texts. 20 Thus, although it is probably erroneous to speak in terms of construction of the will, the basal proposition that, in all the circumstances of this case there was no ademption of the specific legacies of the Mirvac shares and the Mercury units, is sufficiently arguable to go to trial. 21 The statement of claim also alleges that the facts in 12-12D show that the defendant was privy to a trick or device practised to defeat the specific legacy. 22 This part of the case is based on a statement in Roper at p 332 which, in turn derives from Shaftsbury's case. The Earl of Shaftsbury made a will giving the contents of his leased house to the Countess. He then went to Naples for his health and died without returning to England. Whilst he was away, a steward negotiated the surrender of the lease and removed the contents to another site. The steward wrote to the Earl who approved the arrangement. The court held that the Countess took nothing, but said that, had the goods been removed by fraud to disappoint the legacy or by a tortious act, the result would have been otherwise. 23 In Jenkins v Jones (1866) LR 2 Eq 323, 328, Stuart VC said that this was the basis for the exception discussed above. Indeed this is how both Roper and Jarman treat it. However, Mr Slattery QC says that the principle in the case is wider and that he can in equity have compensation for the lost legacy if he pleads and can prove such conduct. 24 Although there is little other authority to support that submission, it seems to be that, as a matter of first principle, it may well be correct. Certainly it is not a matter which should be summarily decided in the present type of application. 25 However, it may be that the defendant may be entitled to summary judgment on another basis. 26 Affidavits were filed by the plaintiff, the defendant and the defendant's solicitor Mr Tocchini in the suit, though they were not read on the current motion. 27 The defendant swears that her mother repented of making loans to the plaintiff and sought to recover the monies during her life. The plaintiff was contacted and sent a deposit slip showing that he had paid $161 interest on the loans and never asserting that the monies were a gift. Furthermore, she says, her mother-in-law queried her as to why the dividends from the Mirvac shares and Mercury units were so small. The defendant contacted the broker who advised that they be sold. The defendant says she said to the deceased, "I have spoken to Mr Klein (the broker) and he advises sale of those shares as they are not performing". She says the deceased said to her, "Oh good, because with all the money I've lent Peter, I need to produce more income." If this evidence is accepted, the whole ademption point falls to the ground. 28 The plaintiff has not put on any evidence to contradict this evidence. It may be that after he has had an opportunity for discovery and interrogatories, the court should entertain a motion for summary dismissal under Part 13.5 of the Supreme Court Rules. This, of course, may depend on whether there are disputed questions of fact. 29 Subject to such a motion, the issues going to ademption or no of the Mirvac shares and Mercury units needs to go to trial. 30 I now pass to the matter of the Settlement which raises completely different issues. 31 As I have noted in my previous reasons, if one is in settlement discussions in respect of litigation in the court, there is no obligation on any litigant to inform his or her opponent of facts which that litigant should know that had the opponent known, the opponent's attitude to settlement would alter. I dealt with this sort of problem in Easyfind (NSW) Pty Limited v Paterson (1987) 11 NSWLR 98, 109. 32 The plaintiff seeks to circumvent this rule by casting a fiduciary duty in equity upon the defendant. 33 The duty alleged in category (d) of the amendments noted above is said to fix upon the defendant because the plaintiff was a beneficiary in respect of the Mirvac shares and Mercury units. If this is not established, as I noted in my earlier judgment, the plaintiff's allegation merely crumbles and falls. 34 The plaintiff says that, because he was a beneficiary in the estate, the fiduciary duty outlined as a possibility in Hawkins v Clayton (1988) 164 CLR 539 by Brennan J at pp 553-4, arises. This is that only where a person holds the property of another or an instrument of title to the property of another when the other does not know of his entitlement to the property and the holder has reason to believe that the other does not know of his entitlement, the first person has a duty to inform. 35 However, assuming that there is such a duty, it only applies qua the property which is the subject of the gift and does not open up a fiduciary duty with respect to all matters connected with the deceased's estate. 36 Furthermore, because of the rule that a person who owes money to the estate is not entitled to be paid his legacy until he has paid his debt to the estate, the plaintiff would still fail. The evidence and pleadings show that the value of the shares and units was $103,191.35 as against the debt of $219,000. 37 However, this point was not argued, nor was it argued that the Anshun principle means that the plaintiff should have raised the legacy as a cross claim in the District Court. 38 As to the plaintiff being at a position of "special disadvantage", the term became part of the popular equity pleader's jargon after the famous passage from the judgment of Deane J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 474. 39 However, ordinarily the term refers to a person who through age, ill health or because they are under the sway of another (eg solicitor, teacher) are particularly susceptible to disregarding their own interest. Where one has the case of a person running his own business, who is of full age and not suffering any apparent physical or mental health problems, something more than what is alleged in the present pleadings should be alleged. 40 Accordingly, I would not allow the pleading to be amended as presently contemplated in respect of the allegation that the District Court judgment was obtained by fraud. 41 In any event, even if I were wrong on this, I would not let the matter go for trial until after the opportunity has been afforded the plaintiff for discovery and interrogatories and then an opportunity is given to the defendant to apply for summary judgment. 42 I say this because the affidavits filed suggest that the plaintiff was a person running his own business in which it seems he for a time employed the defendant. He was thus a person who, at least prima facie, was skilled in the ways of money and commerce. He never denied the loans when the deceased's solicitors sought to recover them in her lifetime; indeed his correspondence on its face acknowledges them. He said he was a man of honour and would enter into a deed to repay the money by instalments. He defaulted on that. He was then sued by the defendant, he suffered default judgment on liability, he then sought discussions, he did not wholeheartedly participate in the discussions however, he signed a consent order. Final judgment was given by Judge MacLachlan in his absence, though he turned up to court late and thanked the defendant's solicitor for getting the orders made. Only three months later did the present assertions of gift materialise. 43 Of course, it may be that the plaintiff can defeat the summary judgment application, despite what appear to be the formidable barriers noted in the preceding paragraph. 44 Procedurally this may pose a problem. The plaintiff may seek leave to appeal against me striking out the fraud claim. The Court of Appeal would probably not give leave until the summary judgment application was determined. Such application could only be considered on the assumption that the pleading was valid. I would think that the way to avoid procedural problems is to stand over the present motion and, if a motion for summary judgment is made, to consider everything at the one time. 45 Finally, I turn to the Contracts Review Act claim. 46 The question of whether the plaintiff has an action under the Contracts Review Act 1980 hinges upon the finding that the plaintiff and the defendant entered into a contract for the purposes of the Act. 47 The material before me indicates that after negotiations with the defendant, the plaintiff consented to an order for judgment against him in the District Court. The plaintiff then signed a document entitled "Consent orders" whereby judgment was given for the amount of $252, 573.20 plus costs. 48 Mr Condon submits that the only inference from the facts is that there was no contract to which the Contracts Review Act could apply. The District Court had signed judgment on liability. A consent order as to quantum was tendered to the plaintiff who signed and returned it. In such circumstances all that occurred was that the plaintiff merely conceded the defendant's claim. It is to be noted that there was no consideration for the document, there was no abandonment of any part of the defendant's claim: the plaintiff consented to pay the full amount of the claim and costs. He relied on Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185, 189 and General Credits Ltd v Ebsworth [1986] 2 Qd R 162, 163. 49 "Contract" is not defined by the Act. It would seem that the usual concept applies, that is, a bargain between two people for consideration. 50 I consider Mr Condon's submission is correct. The Contracts Review Act case must thus fail. 51 It seems to me that it is prudent merely to publish these reasons and stand the matter over for mention to when I am next the Duty Judge. 52 However these reasons indicate that the proper order is to strike out all except the claim that the gift of Mirvac shares and Mercury units was not adeemed. 53 I thus stand the motion over for mention before me on Wednesday 13 March 2002 at 9:50 am. If counsel would prefer it to be listed on some other day in that week or the following week, they should so notify my Associate on or before 4:30 pm on Friday 8 March 2002. *************************** Last Modified: 02/28/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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