BURGESS v LEECH [2007] NSWSC 700

New South Wales Supreme Court

CITATION : BURGESS v LEECH [2007] NSWSC 700

HEARING DATE(S) : 14-18/05; 21/05/2007

JUDGMENT DATE : 19 July 2007

JURISDICTION : EQUITY. Probate List

JUDGMENT OF : Bryson AJ at 1

DECISION : see para [109]

CATCHWORDS : WILLS PROBATE and ADMINISTRATION - testamentary capacity - testator aged 83 - inofficious dispositions and indications of irrational hostility towards son, Managing Director of testator's family company - medical evidence did not clearly establish definable mental illness but suggested possible early dementia - extended consideration of evidence of testator's conduct, beliefs and attitudes - finding against testamentary capacity - probate to be granted of earlier will - decision on facts.

Banks v Goodfellow (1870) LR 5 QB 549 Bull v Fulton (1942) 66 CLR 295 Derrett v Hall (Unreported. High Court, 4th February 1942) CASES CITED : Romano v Romano & Anor [2003] NSWSC 436 Romano v Romano [2004] NSWCA 37 Shaw & Anor v Crichton (CA Unreported 23 August 1995) Timbury v Coffee (1941) 66 CLR 277

PARTIES : Damian Burgess - Plaintiff Robert Clive Leech - Defendant

FILE NUMBER(S) : SC 120756/2004

COUNSEL : Ms J. Needham SC and T. Saunders - Plaintiff A. Hill and P. Jeffriess - Defendant

SOLICITORS : Burgess Lawyers - Plaintiff Palmers Solicitors - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PROBATE DIVISION

BRYSON AJ

THURSDAY 19 JULY 2007

120756/04 DAMIAN BURGESS v ROBERT CLIVE LEECH The Estate of EDGAR ROBERT LEECH JUDGMENT 1 The parties dispute which will of the testator should be admitted to probate. The late Edgar Robert Leech died on 21 September 2004 at Maclean District Hospital: the causes of death recorded were "(a) Myocardial Infarction (b) Ischaemic heart disease." He was domiciled in this State and all his known assets are situated here. He was born on 15 January 1921 and was 83 years of age on 15 March 2004 and when he died. He was survived by his widow Mrs Emily Josephine Leech, who is still alive but did not give evidence in the proceedings; and by his son the defendant Mr Robert Leech and his daughter Mrs Joan Leader. The plaintiff Mr Burgess, who is a solicitor practising in Newcastle, propounds a document dated 15 March 2004 for probate as the last will; this document was executed and attested in Mr Burgess' office in a way which met every formal requirement. The events of that day were described in the evidence of Mr Burgess and also of his secretary Ms Elisabeth Coates, who was one of the attesting witnesses, and on that occasion the testator's behaviour was unremarkable and did not indicate lack of capacity to make a will, or any misunderstanding at all, so far as appeared to Mr Burgess and Ms Coates or was shown by what he said and did. 2 The pleadings and agreed statement of issues establish that the sole issue for decision is whether the testator had testamentary capacity when he executed this document. Mr Robert Leech cross claims that a will executed by the testator on 26 June 2000 should be admitted to probate. The parties have agreed that if the document of 15 March 2004 is found to be invalid, the will of 26 June 2000 should be admitted to probate; and on the evidence this is clearly correct. The earlier document also appointed Mr Burgess as the executor, and was prepared by him on the testator's instructions. The testator made earlier wills; all earlier wills were revoked by one or other of these. Mr Burgess' application for probate has been duly advertised. 3 It could not be disputed on the basis of the medical evidence, and it was not disputed that as at 15 March 2004 the testator was able to understand the nature of the act of making a will and did not suffer from insane delusions. 4 The estate assets were of considerable value; I am not concerned to make findings now which establish what the assets were or their value, but Mr Burgess' inventory included:- § Real estate – a house property at 32 Acacia Circle, Yamba and another house property at Nabilla Court, Yamba, each said to be worth $500,000; § sums on deposit at banks said to total $1,679,212.26; § 101 Management shares and 4693 ordinary shares in Edgar Leech Holdings Pty Ltd (the company) said to be worth $2,825,000; § 4,100 shares in Telstra said to be $19,229; § shares in Edgar Leech Pty Ltd said to be worth $60; § furniture said to be worth $10,000. 5 The inventory also shows that the testator owned 9586 ordinary shares in Edgar Leech Holdings Pty Ltd as co-owner with his wife Mrs Emily Leech; said to be worth $2,824,419. There were several assertions by or on behalf of the testator during his lifetime that these shares were assets of a family trust; however Mrs Emily Leech is not shown by evidence ever to have acknowledged this. 6 The significant dispositions in the document of 15 March 2004 are to these effects. Mrs Emily Leech was given a right of sole use during her life of the principal place of residence (which is the house at Acacia Circle, Yamba), with rights to substitute another residence. The remainder interest in that house after her life was given in equal shares to Mr Robert Leech and Mrs Joan Leader. Of the testator's 101 management shares in the company the document gave 50 management shares to Robert Leech and 51 to Joan Leader. Of the testator's ordinary shares in that company the document gave one half to Robert Leech and one half to Joan Leader. The document gave the residue of the estate to Mrs Emily Leech. The residue includes the house property at Nabilla Court, Yamba, the money in banks and other less valuable assets. The document also according to its terms appointed Mrs Emily Leech to be Governing Director of the company. 7 The dispositions in the document of 15 March 2004 were different in significant ways from those in the will of 26 June 2000. Under the earlier will Mrs Emily Leech had sole use of the principal place of residence during her life, but the later document somewhat enhanced this right. The remainder interest in the principal place of residence after Mrs Emily Leech's lifetime was given as to 75 per cent to Mr Robert Leech and as to 25 per cent to Mrs Joan Leader. 51 of the management shares were given to Mr Robert Leech and 50 to Mrs Joan Leader. (The later document gave him 50 and her 51). All the testator's ordinary shares in the company were given to Mr Robert Leech. The residue of the estate was not given to Mrs Emily Leech; 60 percent was given to Mr Robert Leech and 40 percent to Mrs Joan Leader. 8 The testator was the Governing Director from formation of the company in 1960 for the rest of his life. As Governing Director the testator was very fully empowered by the Articles of Association. The holders of management shares have, for practical purposes, complete control; there are many more ordinary shares, but the rights attached to them have slight effect. As Governing Director with 101 management shares the testator was during his lifetime in a position of complete control of the affairs of the company. He could override other directors; and after 1995 Mr Robert Leech was the only other director. 9 When the company was formed in 1960 there were 103 management shares. Now there are 104. The testator acquired one under the Memorandum of Association and 100 by allotment soon after. Mrs Emily Leech and Mr David Mansfield (an accountant) each acquired one under the Memorandum of Association. Mr Mansfield's one management share was transferred to Mrs Joan Leader in December 1967 and she still holds it. One more management share was issued on 3 July 1986 and allotted to Mr Robert Leech. Mr Robert Leech and Mrs Joan Leader appear in the share register only as the holders of one management share each. If the will of 15 March 2004 takes effect Mr Robert Leech will have 51 management shares, Mrs Joan Leader will have 52 and Mrs Emily Leech will have one. There could easily be deadlocks. 10 The pattern of shareholdings, established many years ago, is a little difficult to follow. The testator owned 4693 ordinary shares and 101 management shares. Mrs Emily Leech owned 4793 ordinary shares and one management share. If it is right to think of the 9586 co-owned shares as held on trust for Mr Robert Leech and Mrs Joan Leader in equal shares, each of them is the equitable owner of 4793 ordinary shares, and each has one management share. Adding ordinary shares and management shares together, each family member has 4794 shares, but there is less symmetry about this than might be supposed, because management shares have voting dominance and rights which are not attached to ordinary shares. 11 The testator had a long early business career carrying out construction and engineering projects. From 1960 onwards the company was the vehicle for his business ventures. The Nandewar Motor Inn on the Newell Highway at Narrabri was constructed about 1968 on land owned by the company: there have been several construction projects since in which the Motor Inn was extended and renovated and a Dining Room and a Bar were constructed. The company constructed a Service Station and Truck Stop on other land on the Newell Highway Narrabri, and acquired Westpac Bank premises in Moree in 1994 for $337,500, and the Westpac building in Narrabri in March 1996 for about $415,000. These were purchased as investments and the properties have been leased out. Mr Robert Leech left school in 1962, and since 1963 has spent his whole working life in the testator's enterprises: working at the Motor Inn from 1975 onwards, always involved in the company's other ventures, and as Managing Director since 1986 when the testator retired. The Motor Inn is central to the company's business and the family's affairs. The company has other assets, including the dwelling occupied by Mr Robert Leech and his family. 12 After 1986 the testator and Mrs Emily Leech lived in retirement well away from Narrabri, at Soldier's Point and elsewhere near Port Stephens for some years: then for the last years of the testator's life they lived at Yamba. The testator continued to be fully interested and active in the affairs of the company, and in major decisions such as the purchase of investments: less so in the last few years. Decisions were shared with Mr Robert Leech, notwithstanding the overwhelming power of the testator's position as Governing Director. The testator and Mrs Emily Leech came to the Motor Inn several times each year. Their last extended stay at the Motor Inn began early in October 2003 and ended with their precipitate departure on 15 January 2004. They were at the Motor Inn again for a short period in April 2004. The conduct and events which give rise to doubt about the testator's testamentary capacity began during their stay in late 2003 and early 2004. Conduct and events at earlier times were brought under consideration by evidence, and for reasons which will appear I do not regard them as of high importance. 13 Although Mrs Emily Leech held a management share and one quarter of the ordinary shares on issue from the company's earliest days and at times did some work in the motel business, she did not ever function in any way as a manager or take part in the management of the motel business; and she had no part at all in the company's other enterprises. She has never been a director of the company. 14 The testator appointed Mr Robert Leech as director on 3 July 1986, the day his management share was allotted to him, and appointed him Managing Director on 4 July 1986. Mrs Joan Leader was a Director for many years until the testator removed her from office on 27 November 1995. She also held other offices which were terminated on that day: but she was never actively involved in directing the company. So from 1995 on the testator and Mr Robert Leech were the only directors. Since the testator died Mr Robert Leech has been the only director: the testator did not appoint anyone else, and (as Mr Burgess told him before he executed the will) the appointment of Mrs Emily Leech as Governing Director was not effective. 15 Clause 4(a) of the document of 15 March 2004 purported to appoint Mrs Emily Leech Governing Director of the company. However this provision did not take effect, because Article 83(4) of the Articles of Association was not complied with. Article 83(4) authorised the testator to appoint a Governing Director after his death, but the person appointed was required to hold or be entitled to at least 101 management shares, and the testator did not give Mrs Emily Leech his 101 management shares. The only management share Mrs Emily Leech has ever owned is the one she acquired on formation in March 1960, and this did not qualify her for appointment as Governing Director. 16 On 11 May 1995 the testator resolved to appoint Mr Robert Leech as his successor as Governing Director. His power in Article 83(4) to appoint a successor could be exercised only by will or codicil, not by resolution, but the resolution says that an appointment had been made by a will also on 11 May 1995: "which also bequeaths to him my one hundred and one (101) management shares .…". These arrangements did not take effect. Under the 2000 will Mr Robert Leech was appointed Governing Director; however this appointment would not have been effective because he would not have held 101 management shares. 17 The testator's decision not to appoint Mr Robert Leech as Governing Director can be seen as supporting the view that he had hostile feelings towards Mr Robert Leech, but cannot be seen as irrational. Most companies function without a Governing Director. In 1995 the testator had made arrangements for appointing Mr Robert Leech to be Governing Director, and in 2000 he had departed from those arrangements. The other side of the decision, the appointment of Mrs Emily Leech as Governing Director in circumstances where he knew that the appointment was ineffective, was an irrational thing to do; no less so because he had done something similar a few years earlier when he ineffectively appointed Mr Robert Leech. 18 The issue of competency to make a will has traditionally been expressed as whether the testator was of sound mind, memory and understanding when he made the will. Another formulation which is sometimes encountered is "of sound and disposing mind and memory". This is a question of fact. 19 The following passage in the judgment of Cockburn CJ for the Court of Queens Bench in Banks v Goodfellow (1870) LR 5 QB 549 at 567 has often been cited: - "… that to the due exercise of a power thus involving moral responsibility, the possession of the intellectual and moral faculties common to our nature should be insisted on as an indispensable condition. It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring abut a disposal of it which, if the mind had been sound, would not have been made. Here, then, we have the measure of the degree of mental power which should be insisted on. If the human instincts and affection; if reason and judgment are lost, and the mind becomes a prey to insane delusions calculated to interfere with and disturb its functions, and to lead to a testamentary disposition, due only to their baneful influence – in such a case it is obvious that the condition of the testamentary power fails, and that a will made under such circumstances ought not to stand. But what if the mind, though possessing sufficient power, undisturbed by frenzy or delusion, to take into account all the considerations necessary to the proper making of a will, should be subject to some delusion, but such delusion neither exercises nor is calculated to exercise any influence on the particular disposition, and a rational proper will is the result; ought we, in such case, to deny to the testator the capacity to dispose of his property by will?" 20 In this passage Cockburn CJ referred to the effects of mental disease or insanity. His Lordship went on (565-566) with observations to the effect that mental disease may exist yet not affect testamentary capacity. Cockburn CJ went on (566) to speak in terms which show that he contemplated that testamentary capacity might be lost through an influence which he did not include in his references to insanity, as follows: "It may be here not unimportant to advert to the law relating to unsoundness of mind arising from another cause – namely, from want of intelligence occasioned by defective organisation, or by supervening physical infirmity or the decay of advancing age, as distinguished from mental derangement, such a defect of intelligence being equally a cause of incapacity. In these cases it is admitted on all hands that though the mental power may be reduced below the ordinary standards, yet if there be sufficient intelligence to understand and appreciate the testamentary act in its different bearings, the power to make a will remains. It is enough if, to use the words of Sir Edward Williams, in his work on Executors, "the mental faculties retain sufficient strength fully to comprehend the testamentary act about to be done". (1) Williams on Executors, 6th ed. Vol. 1 p.37, n.x." 21 Although they do not refer to Cockburn CJ's judgment in terms, the arrangement in their reports of the matters the medical witnesses considered show that they addressed, in order, the subjects which Cockburn CJ stated, in the first paragraph I have cited, as essential to the due exercise of testamentary power. That paragraph places "disorder of the mind" and "insane delusion" in apposition with ability "… to comprehend and appreciate the claims to which [the testator] ought to give effect", and the medical witnesses addressed whether there was "disorder of the mind" and "insane delusion". The passage from Banks v Goodfellow at 566 which I have last cited shows Cockburn CJ's view that the possible causes of want of capacity included conditions which do not seem to fit well into what his Lordship referred to as "disorder of the mind" and "insane delusion", and extended to "…want of intelligence occasioned by defective organisation, or by supervening physical infirmity or the decay of advancing age, as distinct from mental derangement…". It would be an error to confine attention to conditions which could be classified, in the language of 1870, as disorders of the mind and insane delusions. 22 Judgments in the High Court in Timbury v Coffee (1941) 66 CLR 277 (which relates to alcoholism), shows that the judges did not regard the question of testamentary capacity as tied to a finding of some identifiable condition of mental disorder or insanity. Rich ACJ at 280 gave the following summary of the issues: "Was then the evidence such as to justify the jury in finding, as in effect they did, that the delusions overmastered his judgment at the time of executing the will to such an extent as to render him incapable of making a reasonable and proper disposition of his property or of taking a rational view of the matters to be considered in making a will…"