Hankins v Lundy [2002] NSWSC 955

New South Wales Supreme Court

CITATION : Hankins v Lundy [2002] NSWSC 955 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5162/00 HEARING DATE(S) : 16, 17 July 2002 JUDGMENT DATE : 15 October 2002

PARTIES : Leanne Hankins (Plaintiff) Roger Bruce Lundy (Defendant) JUDGMENT OF : Master McLaughlin

COUNSEL : S. Austin (Plaintiff) R. Taperell (Defendant) SOLICITORS : Harris Wheeler Lawyers (Plaintiff) Robert Foggo Lawyers (Defendant) CATCHWORDS : Trusts and trustees - Breach of trust - Whether fraudulent - Infant beneficiary - Failure by trustee to pay benficiary - Whether assets of estate exceeded liabilities - Payments alleged to have been made by trustee - Whether those payments, if made, were in discharge of liabilities of estate - Information in Stamp affidavit stated by trustee to be false to his knowledge at time he swore that affidavit - Sale of principal asset to trustee's wife, at an undervalue - Limitation defence - Defences of laches and delay - Appropriate relief - Compensation - Beneficiary entitled to interest LEGISLATION CITED : Limitation Act 1969 Alamite Lubrequip Pty Limited v Adams (1996) 41 NSWLR 45 CASES CITED : Hagen v Waterhouse (1991) 34 NSWLR 308 Hourigan v Trustees Executors and Agency Company (1934) 51 CLR 619 DECISION : See paragraph 65.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER McLAUGHLIN

Tuesday, 15 October 2002

5162/00 LEANNE HANKINS -V- ROGER BRUCE LUNDY JUDGMENT 1 MASTER: On 15 July 2002 Justice Campbell, as Duty Judge in the Equity Division, made an order committing to a Master the hearing of the entirety of these proceedings. 2 By statement of claim filed on 22 December 2000 the Plaintiff Leanne Hankins (formerly known as Leanne Lundy) claims against the Defendant Roger Bruce Lundy relief in respect to the estate of the late Roger Robert Lundy (to whom I shall refer as "the Deceased"). 3 The Plaintiff is the granddaughter of the Deceased, who died on 28 June 1974. The Deceased left a will dated 6 October 1972, probate whereof was on 2 December 1974 granted to Roger Bruce Lundy, the executor named therein (who is the Defendant to the present proceedings). 4 By that will the Deceased gave the entirety of his estate to the Defendant upon trust for my three children the said ROGER BRUCE LUNDY, SUSAN GAI WOODBURY and ROBERT GEORGE LUNDY in three equal shares but should any predecease me leaving issue who survive me then such issue shall take their parent's share. 5 The Plaintiff is the daughter of Robert George Lundy, the youngest of the three children of the Deceased. The Plaintiff was born on 12 September 1972. On 3 February 1974 the Plaintiff's father died as a result of injuries sustained in a horse riding accident, when he was aged only twenty-two. He left two children, being the Plaintiff and her brother Jason Lundy. 6 In consequence, upon the death of the Deceased some four months later, the Plaintiff and her brother became entitled to the one third share of their late father in the estate of the Deceased. That is, the Plaintiff became entitled to one sixth of the estate of the Deceased. 7 The affidavit 'D' (the Stamp affidavit) discloses the net estate to have a total value of $14,175.24. The only significant assets in the estate were a residential property at 516 Wollombi Road, Bellbird, New South Wales (having a stated value of $8,000), long service leave entitlement ($3,534.19) and taxation credits ($1,769.40). That affidavit discloses a surplus of assets ($14,584.88) over liabilities ($510.64). 8 Annexure D to the stamp affidavit sets forth the identity of each of the persons entitled to the estate of the Deceased, and the value of their respective entitlements. That affidavit, signed by the Defendant on 22 November 1974, discloses the entitlement of the Plaintiff to be one sixth of the net estate, and that entitlement to have a monetary value of $2,362.37. 9 The Defendant has made no distribution to the Plaintiff of that amount, or any part thereof. The Plaintiff has received no benefit from the estate of the Deceased. 10 The Plaintiff's mother, Kathryn Gay Lundy, married again in 1975, when the Plaintiff was aged three. (The Plaintiff after commencing school adopted, and has continued to use, the surname Hankins, that being the surname of her stepfather. By Instrument of Change of Name, dated 13 January 1988, the Plaintiff's use of the surname Hankins was formalised.) 11 After the Plaintiff had attained the age of eighteen in September 1990 attempts were made by her personally and by solicitors acting on her behalf to locate, and thereafter to communicate with, the Defendant. They encountered very considerable difficulty in doing so. Even when the Defendant had ultimately been located, he refused to speak to the Plaintiff by telephone, and ignored correspondence sent to him by solicitors acting on her behalf. 12 The nature of the relief sought by the Plaintiff in the statement of claim is by way of damages for breach of trust. 13 The Defendant by his amended defence filed on 6 November 2001, and by his further amended defence filed at the outset of the hearing on 16 July 2002 (although dated 23 October 2001, but verified by affidavit of the Defendant sworn 16 July 2002), denies any such breach of trust (paragraph 2). Further, he asserts that the debts of the Deceased exceeded the assets of the estate and that after payment of the debts of the Deceased no amount was available for distribution to any of the beneficiaries (paragraph 3); further, that the Plaintiff has been guilty of "prolonged, inordinate and inexcusable delay" and has been guilty of laches (paragraph 4). 14 The Defendant also raises as a defence expiry of the relevant limitation period under the Limitation Act (it being submitted on behalf of the Defendant that that relevant limitation period is six years) (paragraph 6). 15 It has already been recorded that a significant asset in the estate was a house property at Bellbird (in the Hunter Valley in New South Wales). 16 A transmission application in respect to that property (to which I shall refer as "the Bellbird property") was made by the Defendant on 17 March 1975, shortly after probate of the will was granted. On 12 June 1975 the Defendant transferred the Bellbird property to his then wife Dian Lundy, the consideration for that transfer being stated to be $8,000. Those two instruments were each registered on the same day, 2 October 1975. 17 Less than four years later, on 12 April 1979, Dian Lundy sold the Bellbird property for $14,900. 18 It was the assertion of the Defendant, and the substantive ground upon which he defended the present proceedings, that after the death of his father, the Deceased, the Defendant became aware of liabilities which had been incurred by the Deceased, and the discharge of which exhausted not only the entirety of the assets of the estate but also funds of the Defendant personally. 19 According to the Defendant, that situation came about as follows. The Deceased had been a coal miner by occupation, working at the Pelton Colliery. He was the secretary of a benevolent organisation of which a number of miners at that colliery were members known as the Pelton Colliery Miners Lodge. 20 The Defendant said that after the death of the Deceased he was approached by the president of the Pelton Colliery Miners Lodge, who inquired after moneys said to have been received by the Deceased by way of contributions from other miners who were the members of the Lodge. The Defendant had no knowledge of any such moneys, and could not find any such moneys in the residence of the Deceased. It was then that, according to the Defendant, he paid all the assets in the estate of the Deceased to members of the Pelton Colliery Miners Lodge (in reimbursement, so he said, of contributions which those members had made to the Lodge) and he also paid what he stated to be gambling debts of the Deceased, including an amount of about $4,500 said to be owing as a gambling debt by the Deceased to the Deceased's brother, Harry Lundy. 21 It was asserted by the Defendant that the transfer by him of the significant asset in the estate, being the Bellbird property, to the Defendant's then wife, was in some way justified in the context that the Defendant was paying out of his own pocket moneys in excess of the net value of the estate. It is difficult to understand the basis for such an assertion. In any event, that assertion does not take into consideration the fact that the Bellbird property was sold by his wife, less than four years later, for almost double the asserted purchase price. 22 As to the assertion of the Defendant concerning the payment of debts of the Plaintiff, a number of observations should here be made. 23 There was no evidence whatsoever, apart from the unsupported assertion of the Defendant in that regard, concerning any debts owing by the Deceased, for gambling or otherwise, or concerning any alleged misappropriation by the Deceased of moneys belonging to the Pelton Colliery Miners Lodge. 24 Not only the president of that organisation but also the various members to whom the Defendant says that he distributed moneys of the estate (to reflect reimbursement of contributions made by those members which had been allegedly misappropriated by the Deceased) are now, according to the Defendant, dead. The Defendant was not able to state with any specificity the amounts which he paid to those persons. 25 It should here be observed that at no stage did the Defendant seek to file a supplementary Stamp affidavit in respect to the administration of the estate, disclosing any of these alleged liabilities and correcting the information given by him to the Court in his affidavit of 22 November 1974. It should further be observed that when this matter of payment of alleged debts was first raised by the Defendant (in a letter dated 14 June 1995), the solicitors for the Plaintiff sought appropriate particulars as to the alleged debts and the alleged payment thereof. No such particulars have ever been furnished in the ensuing seven years. That was despite the fact that, according to the Defendant, he "knew very soon after [the Deceased's] death", indeed, within a few weeks of his father's death, and well before swearing the Stamp affidavit, that there would not be sufficient funds in the estate to pay those alleged debts. 26 Even if one be prepared to accept the evidence of the Defendant concerning those payments (and, in due course, I shall return to the question of whether his evidence should be accepted), the fact of those payments does not necessarily exculpate the Defendant from the charge of breach of trust. 27 If the Deceased had been misappropriating funds of the Pelton Colliery Miners Lodge, and if it was the desire of the Defendant (as he asserted it was), in order to preserve the good name of his late father, to make good those defalcations, then any reimbursement which the Defendant might have made should have been a reimbursement, not to individual contributors, but to the entity itself, the Pelton Colliery Miners Lodge. It was the organisation which allegedly had suffered as a result of these alleged defalcations on the part of the Deceased. Further, there was no suggestion, from the Defendant or from anyone else, that any claims made by any members of the Lodge had gone unpaid as a result of these alleged defalcations on the part of the Deceased. Moreover, to the knowledge of the Defendant there had never been a single defalcation by the Deceased during the years whilst he was secretary of the Lodge to the time of his death. 28 In my conclusion, even if the Defendant made the payments which he said he made, those payments in no way constituted payments of liabilities of the Deceased, or liabilities of the estate which the Defendant as executor was under any legal obligation to pay. If the Defendant chose to make payments out of his own pocket to persons who were not creditors of the Deceased, that was a matter for the Defendant himself. The conduct of the Defendant in using funds of the estate for that purpose cannot be justified. The estate was by that conduct deprived of its assets, which should otherwise have been distributed among the beneficiaries. 29 If the Defendant acted in the manner in which upon his own evidence he asserts he did (disposing of the assets of the estate in the manner in which he says he did, but without any legal justification or authority) then in my conclusion that conduct constitutes a fraudulent breach of trust. 30 At the hearing it was acknowledged by both parties that the practicalities of the situation so long afterwards were such that there would be little practical purpose served by ordering (as would be the usual relief in such a case) the taking of an account. 31 After the conclusion of the hearing and the reservation of my decision, Counsel for the Defendant on 16 August 2002 delivered written Supplementary Submissions (although no leave in that regard had been granted). Those Supplementary Submissions will, nevertheless, be retained in the Court file. Despite the foregoing acknowledgement on behalf of the Defendant at the hearing concerning the practical effect of the ordering of an account, the Defendant by those Supplementary Submissions adopted the attitude that the taking of an account would become necessary "to determine the extent of the loss of the estate and the obligation [of the Defendant] to compensate it". 32 I have already expressed certain conclusions which would follow if the evidence of the Defendant be accepted concerning payment by him of alleged liabilities of the estate. 33 It is appropriate however that I should also express my conclusions as to whether or not there were, in fact, any such liabilities, and whether or not there were, in fact, payments made by the Defendant in the manner alleged by him. 34 The evidence concerning those matters consists essentially of oral assertions of the Defendant himself, unsupported by any documentary evidence or any independent evidence of any other witness. (In this latter regard, I do not overlook the evidence of Dian Lundy, the former wife of the Defendant. Her evidence, however, relevantly was limited to an inquiry by the president of the Pelton Miners Lodge and searches thereafter conducted by the Defendant and herself). 35 Accordingly, it is appropriate that I should express my views concerning the reliance to be placed upon the evidence of the Defendant. 36 The Defendant admitted that the relevant information concerning liabilities set forth in the Stamp affidavit (affidavit D), sworn by him on 22 November 1974 was incorrect to his knowledge at the time when he swore that affidavit, and that he had not informed his then solicitor (who prepared the Stamp affidavit) of those alleged liabilities. In explanation, the Defendant offered his alleged embarrassment at financial misappropriation by his father and at debts accumulated by his father through gambling. Yet in correspondence between solicitors the Defendant's present solicitors, in a letter of 14 July 1997 (Exhibit F) refer only to the Defendant being "embarrassed by the debts which the Deceased had accumulated through gambling", and make no reference to any embarrassment on account of alleged financial defalcations on the part of the Deceased. 37 A further letter written by the Defendant's present solicitors (upon the Defendant's instructions) on 23 April 1996 (Exhibit F) asserts that those additional alleged debts of the Deceased "were not declared in the probate documents, despite the fact that [the Defendant] had mentioned this to the solicitors handling the estate". 38 The first occasion when there was any allegation made by the Defendant concerning the alleged defalcations by the Deceased respecting the Pelton Colliery Miners Lodge was in the Defendant's affidavit of 8 March 2002 – that is, more than a quarter of a century after the Defendant now alleges that he first became aware of such defalcations. Throughout that period of almost twenty-eight years the Defendant did not choose to inform the Plaintiff, or her brother, that their beneficial entitlements under the will of the Deceased could not be met, in consequence of what were, essentially, criminal defalcations on the part of the Deceased. 39 The foregoing objective facts (present admissions by the Defendant concerning his knowledge that the Stamp affidavit was incorrect at the time when he swore that affidavit, and statements contained in letters from the present solicitors for the Defendant written upon his express instructions) require that the Court should exercise caution in accepting the otherwise unsupported evidence of the Defendant concerning the liabilities of the estate. 40 Moreover, it will be appreciated that the Defendant's own evidence concerning his alleged payment of the liabilities of the Deceased is far from satisfactory. All the fourteen named members of the Lodge who he said had given money to the Deceased are now themselves stated to be dead. Strictly, there was no evidence to support that assertion by the Defendant (although it was not objected to by the Plaintiff). There was no evidence as to when any of those persons had died. The Defendant could not recall the amounts which he paid to those persons or to Bill Stevenson (the president of the Lodge), who is also stated now to be deceased. No documentary material (for example, receipts) was available in respect to those alleged payments. No evidence was offered by the Defendant concerning any attempts which he might have made to obtain statements, whilst they were still alive, from either Mr Stevenson or any of the other fourteen named persons to whom he asserted he had made payments concerning the serious allegations which the Defendant now makes relating to his father's financial integrity. (I would here interpolate that it was far from clear why, even if the Defendant felt obligated to make payments to the fourteen named contributors, he should also have made a payment to the president of the Lodge as well.) 41 As to the reliance to be placed upon the Defendant's evidence, it is appropriate that I should record that I was not favourably impressed by the manner or demeanour manifested by the Defendant during his oral evidence. He was at times deliberately evasive under cross-examination. 42 It reflected poorly upon the credit of the Defendant that under cross-examination he stated that, although aware that there would be no surplus in the estate for distribution to the Plaintiff or the other beneficiaries, he wanted to keep that information to himself and that he did not, during the Plaintiff's infancy, want to tell her mother that the Plaintiff would be getting nothing. 43 Moreover, in the course of his cross-examination the Defendant asserted that about twelve to fourteen months after the death of the Deceased, he told the Plaintiff's mother Kathryn Gay Lundy (now Mrs Hankins) that the Plaintiff would not be getting anything out of the estate. That was the first time such a conversation was alleged by the Defendant. He said that he could not recall where the conversation took place, and that only himself and the Plaintiff's mother were present. The assertion of such a conversation was quite inconsistent with what the Defendant expressly stated in paragraph 27 of his affidavit of 8 March 2002, that after the Deceased's death he "never spoke or had any contact with Kathryn Hankins. There was no need"), and was also inconsistent with the statements in paragraph 29 of the same affidavit ("At no time did I ever make any statement or talk to Kathryn Hankins regarding anything about my father's estate"), paragraph 31 ("I never ever contacted Kathryn Hankins regarding any other interest in my father's estate. I never considered speaking to Kathryn Hankins at the time because of her age and because the debts that my father left exceeded any assets of his estate"), and paragraph 32 ("I never ever spoke to Kathryn Hankins regarding any matters about my father's death or any problems my father had"). 44 I regard the Defendant's evidence concerning this alleged conversation with the Plaintiff's mother as a deliberate fabrication. 45 It is also relevant to the credibility of the Defendant that in his letter of 14 June 1995 to the solicitors for the Plaintiff the Defendant said "I do not know or have ever met [illegible] seen Leanne Hankins (formerly Lundy)". That statement was deliberately false. The Defendant knew full well that his deceased brother had a daughter Leanne, and that Leanne was a beneficiary under the will of which the Defendant was the executor. However, that letter, both in content and in form, is entirely consistent with the attitude of belligerence and rudeness which characterised the Defendant's reactions to the polite and fully justified attempts by the Plaintiff to contact him and to ascertain the situation concerning her entitlement under her grandfather's will, and, indeed, with his entire approach to the claim of the Plaintiff. 46 I do not accept the evidence of the Defendant concerning the alleged liabilities of the estate or his alleged payment of those liabilities. 47 It will be apparent from my foregoing conclusions that I am not satisfied that the debts of the Deceased exceeded the assets of the estate, or that after payment of the debts of the Deceased no amount was available for distribution to any of the beneficiaries. 48 Moreover, the sale of the Bellbird property by the Defendant to his then (and now former) wife arouses considerable suspicion. That sale was certainly not an arm's length transaction by a trustee. It emerged during the hearing that the sale price was in fact $7,000 (not $8,000, as stated in the affidavit of the Defendant (paragraph 12)), that being less than the Valuer General's valuation of $8,000. Indeed, the sale price of $7,000 was less than half the price for which the Defendant's wife sold the property three and a half years later. Moreover, there was no evidence that the alleged proceeds of that sale by the Defendant to his then wife (be it for $8,000 or for $7,000) ever reached the estate of the Deceased. 49 I turn now to the defences raised by the Defendant. 50 The first is the limitation defence, grounded upon sections 47 and 48 of the Limitation Act. The limitation period provided by section 47 in the case of a fraudulent breach of trust is twelve years. The limitation period under section 48, in respect of an innocent breach of trust is six years. It was not disputed by the Defendant that, in the instant case, the running of the limitation period was postponed until 12 September 1990, that being the date upon which the Plaintiff attained the age of eighteen years. In consequence, therefore, the twelve years limitation period for a fraudulent breach of trust has not yet expired. 51 I have already expressed my conclusion that the breach of trust of which the Defendant, upon his own evidence, has been guilty is a fraudulent breach of trust. If that evidence be rejected (which it is), then even more so does the conduct of the Defendant (failing to distribute the surplus, improperly disposing of the chief asset to his wife, at an undervalue) constitute a fraudulent breach of trust. Accordingly, the claim of the Plaintiff has not been defeated by the expiry of the relevant limitation period. 52 The defence of laches is not available, where, as here, there is a statutory limitation defence. (See Hourigan v Trustees Executors and Agency Company Limited (1934) 51 CLR 619 at 630 per Rich J, 637 per Starke J.) 53 But even if (contrary to the view which I have just expressed) the defence of laches were available, neither that defence nor a defence of delay can be established in the instant case. From the time when the Plaintiff attained her majority on 12 September 1990 until about August 1993 she made attempts to locate the Defendant to discuss her entitlement to an interest in the estate. The details of those attempts are set forth in paragraphs 14 to 24 of the Plaintiff's affidavit of 8 November 2001. Eventually, in May 1995 the Plaintiff sought advice from her present solicitors, and the correspondence between solicitors, to which I have already referred, commenced at that time. There can be no suggestion that the Plaintiff, having become aware of her rights, or of the possibility that she had rights, chose to do nothing. To the contrary, the Plaintiff did everything that might have been expected of her, and at every point was frustrated by the attitude and conduct of the Defendant. 54 It follows, therefore, that none of the defences raised in the further amended defence can be sustained. The Plaintiff is therefore entitled to be compensated for the fraudulent breach of trust perpetrated by the Defendant. Further, the Plaintiff is entitled to interest upon the amount of such compensation. (See Hagen v Waterhouse (1991) 34 NSWLR 308 at 319-393; Alamite Lubrequip Pty Limited v Adams (1996) 41 NSWLR 45 at 47.) 55 I have already referred to the submission set forth in the Supplementary Submissions from Counsel for the Defendant that (contrary to the attitude adopted on behalf of the Defendant at the hearing) the amount of compensation payable by the Plaintiff consequent upon his breach of trust is compensation due to the estate, the amount of which can be determined only by the taking of an account or by some similar exercise. 56 I would, at the outset, observe that the present claim of the Plaintiff is not for reimbursement to the estate of moneys improperly paid therefrom. The present claim is a claim by a beneficiary against a trustee to be recompensed for her loss consequent upon the fraudulent breach of trust committed against her by the trustee. 57 In order to calculate the amount of compensation to which the Plaintiff is entitled it is not necessary to proceed to the taking of an account, especially where, as here, the taking of an account, some twenty-eight years after the perpetration of the fraudulent conduct of the Defendant, would be almost impossible, not least as a result of the absence of any documentary material relating to that conduct. 58 I have already expressed my conclusion that I am not satisfied that the liabilities of the estate exceeded the assets. I accept as accurate the figures and calculations set forth in the Stamp affidavit. It follows that the Plaintiff was from at least the date of the Stamp affidavit, 22 November 1974, entitled to $2,362.37. She was not paid that amount. The Plaintiff is entitled to compensation to place her in the position in which she would now find herself if the Defendant had reasonably soon after 22 November 1974 paid that amount to the Plaintiff. 59 Evidence was placed before the Court by a financial planner, Mark Robert Alexander, concerning the quantification of the compensation to which the Plaintiff is entitled. The Defendant did not challenge the expert evidence of Mr Alexander, or the methodology of his quantification, or his calculations. 60 It seems to me, in the circumstances of the instant case, appropriate that I should adopt the calculation set forth by Mr Alexander at page 3 of his Valuation Report by accepting the Conservative basis for investment as at 20 February 1996, being an amount of $30,836. (The significance of the date 20 February 1996 is that that was the date upon which the Plaintiff formally instituted proceedings against the Defendant, by way of the (albeit misconceived) proceedings in the Local Court at Newcastle, proceedings 208 of 1996, which proceedings were subsequently abandoned by her.) 61 Upon that amount of $30,836 the Plaintiff is entitled to interest. I have made a calculation of interest at Supreme Court rates, as set forth in Schedule J to the Supreme Court Rules. That calculation is annexed as a schedule to these reasons for judgment. 62 Interest upon the amount of $30,836 from 20 February 1996 to the date hereof, upon my calculation totals $20,601.40. (Any arithmetical error in that calculation may be corrected within seven days of the date hereof.) 63 In consequence, therefore, the Defendant, by depriving the Plaintiff of her entitlement to $2,362.37 from the latter part of December 1974 to the present time has occasioned to her a loss which amounts to $51,437.40. 64 I am satisfied that the Plaintiff has established an entitlement to compensation in an amount of $30,836, together with interest thereon, in an amount of $20,601.40, making a total of $51,437.40.