Supreme Court New South Wales Medium Neutral Citation: Hawkes v Wilkie [2012] NSWSC 1039 Hearing dates: 31 August 2012 Decision date: 06 September 2012 Jurisdiction: Equity Division Before: Ball J Decision: (1)Declare that on 24 January 2011, Florence Elsie Smith (the deceased) settled upon the first plaintiff the sum of $300,000 (the Trust Sum) to be held by her upon trust to distribute the Trust Sum as follows: (a)$50,000 to Suzanne Merritt; (b)$50,000 to John Fisher-Smith; (c)$50,000 to Warren Garwood; (d)$50,000 to Graham Garwood; (e)$50,000 to the first plaintiff; and (f)after payment of any funeral expenses incurred by the deceased's estate, the remainder of the Trust Sum to be distributed to the first and second defendants equally. (2)Declare that the estate of the deceased has been reduced by the Trust Sum. (3)Order that the costs of the first and second plaintiff be paid from the deceased's estate on an indemnity basis. Catchwords: EVIDENCE - onus of proof - mental capacity to create trust - consideration of presumption of sanity - where elderly person purported to settle money on trust a few days before her death. Cases Cited: Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 Owners of Strata Plan No 23007 v Cross [2006] FCA 900; (2006) 153 FCR 398 Szoda v Szoda [2010] NSWSC 804 Category: Principal judgment Parties: Jennifer Hawkes (First Plaintiff) Carole Franz (Second Plaintiff) Vilma Wilkie (First Defendant) Loralee Stotts (Second Defendant) Suzanne Merritt (Third Defendant) John Fisher-Smith (Fourth Defendant) Warren Garwood (Fifth Defendant) Graham Garwood (Sixth Defendant) Representation: P O'Loughlin (Plaintiffs) K Morrissey (First and Second Defendants) C Locke (Fourth Defendant) Warren McKeon Dickson (Plaintiffs) Stockman & Evans (First and Second Defendants) No Representation (Fourth Defendant) File Number(s): 2012/79793 Judgment Factual background 1Florence Elsie Smith (the deceased) died on 30 January 2011 at the age of 94. Her estate consists largely of cash which, including the amount in dispute in this case, totals approximately $950,000. 2By her will made on 4 February 2009, the deceased appointed Ms Jennifer Hawkes, the first plaintiff, and Ms Carol Franz, the second plaintiff, as her executors. The deceased gave each of her executors the sum of $2,000 in place of commission. The will made provision for the deceased's husband. However, he died on 26 August 2010. In those circumstances, under the terms of the will, the deceased left the sum of $2,000 to each of Ms Hawkes, Mr Warren Garwood (the fifth defendant) and Mr Graham Garwood (the sixth defendant) and the sum of $5,000 to each of Ms Suzanne Merritt (the third defendant) and Mr John Fisher-Smith (the fourth defendant). The remainder of the deceased's estate is to be divided equally between her nieces, Ms Vilma Wilkie (the first defendant) and Ms Loralee Stotts (the second defendant). Ms Merritt and Mr Fisher-Smith are the children of the deceased's husband. Ms Hawkes and Messrs Warren and Graham Garwood are siblings. They lived next door to the deceased and were close friends of hers over many years. 3At the same time as the deceased made her will, she appointed Ms Hawkes and Ms Franz her attorneys and, on 28 July 2009, her enduring guardians. 4The deceased became unwell in February 2010 and was admitted to hospital for approximately 17 weeks. She and her husband were then admitted to the Miranda Aged Care Facility. The deceased's home in Cronulla, in which the deceased had lived for much of her life, was sold for approximately $970,000 in order to pay the aged care facility's bond and fees. 5On 22 January 2011, Ms Hawkes visited the deceased at the Miranda nursing home. During the course of that visit, Ms Hawkes discussed with the deceased what the deceased wanted done with various items of personal property which were then stored at Ms Hawkes' home. Following that discussion, Ms Hawkes asked the deceased whether she was happy with her will. Ms Hawkes gives the following account of the conversation in cross-examination: I had gone into the nursing home that day and I have got numerous items of Elsie's at home which were from the sale of the house and I just wanted to make sure that [sic] I was going to do - asked her what she wanted me to do with those items because I have got quite a few items at home, and then I asked her was she happy with her will. She said "No". I said "Do you want to make a new will?" She said "No". I asked her what she wanted to do. She said "I want to give you $50,000 each". I asked her "Who"? She said she wanted to give it to Graham, Warren, Jennifer, John and Suzanne. And she said to me "Take it out of my bank account and keep it". I said "You don't have $300,000 or $250,000 in cash in your bank account, you have it in term deposit". And she said "Well, take it from that". I said "If I take it from that, then there is $50,000 left over". And she said "Use it is for my funeral, whatever, and the rest for Vilma and Loralee". 6Ms Hawkes was not comfortable with drawing such a large sum from the deceased's term deposits. Consequently, she spoke to Ms Franz about the conversation she had had with the deceased. 7Ms Franz was in New Zealand at the time. She gives evidence (in cross-examination) that following the conversation she had with Ms Hawkes, she rang the deceased on or about 26 January 2011 and had a conversation with her to the following effect: Obviously I first asked how she was and then I said to her "Jenny has spoken to me about what you want to do. You tell me Elsie what you want to do with this money?" And then she said "Well I want" - she agreed it was the $300,000 to be taken out, then she said "That is to be divided amongst Suzanne and John and Jenny and your [sic] two brothers, and there is another $50,000, use whatever you need for the funeral and expenses and if there is anything else that comes up and the rest is to go to Loralee and Vilma". It is unclear whether the reference to "your" rather than "her" is a transcription error or an error made by Ms Franz or by the deceased. However, Ms Franz was not questioned about the reference to "your two brothers". In those circumstances, in my opinion, it is likely to have been a transcription error. I do not think it is evidence that the deceased was confused about the relationship between the intended beneficiaries of the proposed trust or to whom she was speaking. 8Following her conversation with the deceased, Ms Franz reported back to Ms Hawkes in which she said that the deceased had confirmed to her the instructions she had given to Ms Hawkes. 9Ms Hawkes then withdrew the amount of $300,000 from the deceased's bank and deposited it into her own bank account. The deceased died before the amount held by Ms Hawkes could be distributed. 10Following the deceased's death, Ms Hawkes used approximately $7,000 to pay the deceased's funeral expenses and has retained an amount of $3,000 to pay for the deceased's headstone. The balance of the $300,000 has been paid into the trust account for the deceased's estate. The issue 11In these proceedings, the plaintiffs seek a declaration that they hold the $300,000 on trust to be distributed in accordance with the deceased's wishes. The first and second defendants oppose that relief. The third, fifth and sixth defendants have filed submitting appearances. There was an appearance on behalf of the fourth defendant. However, the fourth defendant led no evidence and, apart from supporting the submissions made by the plaintiffs, made no separate submissions. 12The only issue in the case is whether the deceased had the requisite mental capacity to create the trust that she purported to create. The onus of proof 13There is a question of who bears the onus of proof on that issue. Mr Morrissey, who appeared for the first and second defendants, submitted that the onus lay with the plaintiffs because they were the ones propounding the settlement. I do not accept that submission. 14The principles applicable to the determination of the onus of proof where the plaintiff seeks declaratory relief were set out by McLelland CJ in Eq in Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 at 660 in these terms: (1) a party who seeks relief has the burden of satisfying the Court of facts which (in the absence of proof of other facts) would justify the grant of that relief; (2) what those facts are depends principally upon: (a) the nature of the relief sought; and (b) the operation of any relevant presumptions; (3) in the case of relief by way of declaratory order, the precise terms of the declaration assume particular significance in that (subject to any relevant presumption) the party seeking the declaration has the burden of proof of any matter which is a necessary element of the declaration sought (even if in proceedings by that party for relief of another kind, or in proceedings by the other party, that matter would not arise unless raised (and the burden of proof consequently assumed) by the other party). 15In the present case, the plaintiffs do not seek a declaration concerning the deceased's mental capacity. They simply seek a declaration that the deceased settled on the first plaintiff a sum of $300,000 to be held on trust on certain terms. In seeking that declaration, the plaintiffs are entitled to rely on the presumption of sanity, which was explained in these terms by Edmonds J in Owners of Strata Plan No 23007 v Cross [2006] FCA 900; (2006) 153 FCR 398 at [67], quoting "A Practical Treatise of the Law Concerning Lunatics, Idiots, and Persons of Unsound Mind", second edition (1847) by Leonard Shelford (at 56): The presumption of law is in favour of sanity: and, therefore, if a person has never been subject to a commission of lunacy, nor has had an unsound state of mind imputed to him by his friends or relations, or even by common fame ... the burthen of proof is cast upon those who impeach his understanding. And where a particular transaction is sought to be avoided on the ground of insanity, the evidence of it ought to apply to that particular period; and the question in such a case is, not whether the party had ever been insane before, but whether he was of sufficient sound mind on the day of the contract in question. See also Szoda v Szoda [2010] NSWSC 804 at [20]-[26] per Barrett J. Did the deceased lack the necessary mental capacity? 16It is not seriously disputed that the deceased said the words attributed to her by the plaintiffs. Nor, in my opinion, could it be. Both plaintiffs gave evidence and both struck me as truthful witnesses who were striving to give their best recollections of what happened. Ms Hawkes obviously has an interest in the outcome of the proceedings. Nonetheless, she made concessions where it was appropriate to do so and she struck me as someone who was doing her best to carry out what she understood were the deceased's wishes. Ms Franz has no interest in the outcome of the case. Like Ms Hawkes, she gave frank and direct answers, making concessions where it was appropriate to do so. I accept the evidence given by both of them. 17The real issue is whether the deceased understood the effect of what she said to the plaintiffs. Mr Morrissey pointed to a number of matters which he submitted demonstrates that she did not. 18First, on a number of occasions as late as 18 weeks before her death, the deceased said to Ms Franz, in particular, that she wanted her nieces to have the proceeds of the sale of her house. The effect of the deceased's gift was to deprive her nieces of part of those proceeds. 19Second, Ms Wilkie, who lives in California, gave evidence, which is not disputed, that towards the end of December 2010 it became more difficult to speak to the deceased by telephone. She says that the deceased sometimes used her sister's name or some other name when speaking to her. In late December 2010, she says that when she called the deceased there was often no response or if the telephone was picked up it was dropped. On 17 January 2011, she says she had a conversation with the deceased in the following terms: Me: Hi Elsie this is Vilma. We love you. I wish I was there to be with you. Elsie: Who's that? What do you want? Ms Wilkie's daughter, Allison, who was also on the call gave evidence to the same effect. 20Third, Allison, came from California to Australia for 3 months at the end of 2010 to visit the deceased. On 26 December 2010, the day before she returned home, Allison recorded a short video of the deceased. The deceased was in bed and obviously very frail. Allison talked to her about the time they had spent together over the previous 3 months. For the most part, the deceased was unresponsive. 21Fourth, Mr Morrissey referred to notes kept by the nursing staff. In particular, he referred to the following entries: 26.12.2010 (2pm) Niece going through her jewellery at house (comment: house sold on 4.9.2010, deceased attended auction) 22.1.2011 Transderm patch not found at 8pm. Elsie can't remember moving. This is a frequent occurrence. 23.1.2011 Resident will not use call bell for continence assistance. Assisted with meals. 25.1.2011 Phone call from daughter in Qld. & a friend in Sydney because Elsie is not picking up the phone. Condition remains frail. 26.1.2011 Increased frailty. Fully assisted with total care needs. Unable to hold beaker to take drink. Difficult with taking of medications. Review to discuss criteria for ELCP 27.1.2011 (11.30) Resident unresponsive, open eyes only ... not taking food or fluid 27.1.2011 End of Life Care Pathway in progress 22Finally, Mr Morrissey referred to evidence given by Dr Dwyer, the deceased's treating general practitioner. Dr Dwyer gave evidence that "from December 2010 [the deceased] declined rapidly, she had bouts of confusion and her capacity to communicate sensibly deteriorated significantly". Dr Dwyer saw the deceased on 11, 19 and 27 January. The note of the consultation on 11 January records, among other things, "[s]eems a little less breathless" and the one on 19 January "Going ok". However, the note of the consultation on 27 January, the day after the deceased spoke to Ms Franz, records that the deceased had "[g]one downhill". 23In my opinion, this evidence does not establish that the deceased did not have the capacity to understand the effect of what she said when she spoke to Ms Hawkes and Ms Franz. 24The deceased was obviously very frail and close to death at the time that she spoke to Ms Hawkes and Ms Franz. However, the words she spoke were responsive to the questions that she was asked and the words themselves made sense. The instructions she gave to Ms Hawkes and Ms Franz were consistent. Moreover, they do not strike me as inherently unreasonable instructions to give. The deceased was obviously close to each of the principal beneficiaries of the trust that she was seeking to create. Each of them was already named as a beneficiary under her will, although for substantially smaller amounts. It is true that the effect of what the deceased did was to deprive her nieces of part of the proceeds of the sale of her house. But her nieces still stood to inherit the larger proportion of her estate; and the instructions the deceased gave are equally consistent with the deceased having reached the conclusion that she should do something more for others to whom she was close. 25Little weight can be attached to the difficulties that Ms Wilkie and her daughter had in speaking to the deceased on the telephone or to the short video made on 26 December 2010. The evidence is that the deceased had difficulty in answering the telephone unless it was on the bed in front of her. The deceased's hearing was not good and on occasions she may not have heard what was said to her. The deceased may have been particularly upset on 26 December 2010 because she realised her great niece was about to return to California or she may have felt uncomfortable being filmed. In any event, it is not disputed that the deceased was confused on occasions and that she had bad days. The notes of the nursing staff relied on by Mr Morrissey in particular record specific instances where the deceased was confused and those notes are consistent with the fact that one of the deceased's bad days was 26 December 2010. However, Ms Hawkes and Ms Franz saw the deceased frequently. Ms Hawkes, for example, visited the deceased every weekend and on 22, 23, 24 and 27 January 2011. Ms Franz saw her more or less every day until she went to New Zealand on about 6 or 10 January 2011. Their evidence was that the deceased was lucid much of the time; although Ms Franz said that the deceased could be "a bit muddled" or "a bit confused". For the reasons I have given, I accept the evidence they gave. Both Ms Hawkes and Ms Franz gave evidence that the deceased improved somewhat in January for a time and the observations of Dr Dwyer on 11 and 19 January are consistent with that evidence. The notes of the nursing staff on 26 January 2011 state that the deceased was too frail to hold a beaker. That was the day on which Ms Franz spoke to her by telephone. However, it is unclear when on that day the deceased was unable to hold the beaker; and, as I have said, I accept Ms Franz evidence that she spoke to the deceased and I accept her account of the conversation. The notes of the nursing staff say nothing about the deceased's mental state. 26The real question is whether the deceased was confused at the time that she gave the instructions that she did. It was not put to either Ms Hawkes or Ms Franz that she was; and, as I have said, the deceased's responses to the questions asked of her suggest that she was not. In those circumstances, I am satisfied that the deceased understood the effect of the instructions that she gave to Ms Hawkes and Ms Franz. 27It follows that the plaintiffs are entitled to the declaration they seek. They should also be entitled to their costs from the estate on an indemnity basis. 28In my opinion, there was no reason for the fourth defendant to be represented at the hearing. The fourth defendant did not lead any evidence and made no submission of his own. In those circumstances, he should bear his own costs. Orders 29The orders of the court are: (1)Declare that on 24 January 2011, Florence Elsie Smith (the deceased) settled upon the first plaintiff the sum of $300,000 (the Trust Sum) to be held by her upon trust to distribute the Trust Sum as follows: (a)$50,000 to Suzanne Merritt; (b)$50,000 to John Fisher-Smith; (c)$50,000 to Warren Garwood; (d)$50,000 to Graham Garwood; (e)$50,000 to the first plaintiff; and (f)after payment of any funeral expenses incurred by the deceased's estate, the remainder of the Trust Sum to be distributed to the first and second defendants equally. (2)Declare that the estate of the deceased has been reduced by the Trust Sum. (3)Order that the costs of the first and second plaintiff be paid from the deceased's estate on an indemnity basis. ********** 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. Decision last updated: 06 September 2012