Bruce Clyde Bailey v Arnold Neil Bailey

[2002] NSWSC 1168

CITATION:	Bruce Clyde BAILEY & Anor v Arnold Neil Bailey & Ors [2002] NSWSC 1168
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 2313/2002
HEARING DATE(S):	28/11/2002
JUDGMENT DATE:	9 December 2002
PARTIES :	Bruce Clyde BAILEY - First Plaintiff Janet Beatrice Shafik BAILEY - Second Plaintiff Arnold Nail BAILEY - First Defendant Glennice Margaret BAILEY - Second Defendant ANNETTE MAVIS BAILEY - Third Defendant TERENCE JESSOP - Fourth Defendant Robert Wsalter LOCKE & Ors constituting partnership Locke O'Reilly McHugh - Fifth Defendant
JUDGMENT OF:	Acting Master Berecry at 1

COUNSEL :	Mr C. Bevan - Plaintiffs Mr L J Aitken - Defendants
SOLICITORS:	Turner Freeman - Plaintiffs Bryan Gorman & Co - First Defendant
CATCHWORDS:	STRIKE OUT - Failure to disclose a reasonable cause of action - right to immediate distribution prior to estate being administered - mediation agreement - breach thereof - damages - extent - special damages - tests - need to plead duress not merely breach of contract.
LEGISLATION CITED:	Family Provision Act Water Act
CASES CITED:	Barnardos Homes v Special Income Tax Commissioners (1921) 2 AC 1 The Commissioner of Stamp Duties (Q'ld) v Livingston (1964) 112 CLR 12 H. Parsons (Livestock) Limited v Uttley Ingham & Co Limited (1978) QB 791
DECISION:	1. Paragraph 19 struck out with leave to replead 2. Paragraphs 20 to 29 struck out with leave to replead 3. Leave granted to plaintiffs to amend Statement of Claim 4. No order in relation to paragraph 37 5. Grant leave to plaintiffs to file and serve cross-claim in the second partnership proceedings 6. Each party pay their own costs of the application.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ACTING MASTER BERECRY

MONDAY, 9 DECEMBER, 2002

2313/02 BRUCE CLYDE BAILEY & ANOR v ARNOLD NEIL BAILEY & ORS.

JUDGMENT

1 MASTER: By Notice of Motion filed on 22 November 2002 the first defendant seeks to strike out certain paragraphs of the plaintiffs’ Statement of Claim.

2 The plaintiffs and the first three defendants are siblings. Their father owned a property called ‘Hazeldene’ in north-west New South Wales. On that property he ran a farming business. The farming business was a partnership which consisted of the father (“the deceased”) and the plaintiffs together with the first three defendants.

3 The deceased died on 5 February 1994. By the terms of his will the following provisions were made:-

“4. I GIVE DEVISE AND BEQUEATH the whole of my estate to my executors to hold in trust as follows:-
(a) As regards such of my estate as shall consist of beneficial ownership of the property known as “Hazeldene” Boomi, together with irrigation licences held in connection therewith, and my share of the farming partnership conducted thereon, I DIRECT that my trustees assume legal title to the same and stand possessed thereof to hold the same upon trust as follows:-
(i) to my son BRUCE CLYDE I give one half (1/2) share;
(ii) to my daughter JANET BEATICE I give one eighth (1/8) share;
(iii) to my daughter ANNETTE MAVIS I give one eighth (1/8) share;
(iv) to my daughter GLENNICE MARGARET I give one eighth (1/8) share;
(v) to my son ARNOLD NEIL I give one eighth (1/8) share.

(b) As regards the rest and residue of my estate I GIVE the same to be divided amongst my aforesaid children in equal shares.”

4 There have been disputes between members of the family since the later 1980’s; initially over the partnership then subsequently, after the death of the deceased in relation to the deceased’s estate. In 1995 the parties mediated their dispute. On 3 July 1995 an agreement was reached between the parties in respect of the estate of the deceased and the partnership. The mediation was intended to resolve all differences between the parties in relation to the partnership, under the Family Provision Act and any entitlements under the Water Act.

5 The mediation agreement summarised in paragraph 18 of the Statement of Claim is as follows:-

“The mediation agreement provided for the following transactions to occur relevantly to the causes of action here pleaded, namely:
(a) Hazeldene was to be offered for sale by public auction (clause 1);
(b) Five of the water licences were to be sold with Hazeldene (clause 3) and another two water licences (the eighth and ninth licences) were to be sold by public auction to third parties (clause 7);
(c) Any of the Bailey children were given liberty to bid at the public auction of Hazeldene (which included the five water licences attached to it) (clause 4);
(d) Bruce was given an option to purchase two of the water licences (the sixth and seventh water licences) at an option price being the higher of $400,000.00 or the highest bid made for the two additional water licences which were to be sold at public auction and which were not attached to Hazeldene (clause 5);
(e) All of the non-breeding livestock and plant and machinery owned by the Bailey family partnership located on Hazeldene was also to be sold by public auction (clauses 9 and 10);
(f) The proceeds of each sale were to be applied as follows (clause 11):
(i) The proceeds of sale of Hazeldene and the nine water licences (all of which were assets of the estate of the decease) were to be distributed in accordance with the will of the deceased, which provided for one-half to be gifted to Bruce and one-eighth to be gifted to each of the other four Bailey children ( subject to one minor exception not here relevant but subject to the distribution referred to in sub-paragraph 18(f)(ii) below being first made);
(ii) $2,315,468.00 of those proceeds of sale were to be distributed as to 40.5% to Bruce and as to 14.875% to each of the remaining Bailey children;
(iii) The proceedings of sale of all other assets sold pursuant to the mediation agreement were to be distributed in accordance with each of the Bailey children’s interests in the Bailey family partnership, which pursuant to clause 12 of the mediation agreement, and applying the terms of the will to the partnership interests of the deceased, resulted in an interest in the partnership to which each of the surviving partners being the Bailey children were entitled as follows:
Bruce had an entitlement of 32% and each of the remaining Bailey children had an entitlement of 17%;
(g) The parties agreed that the agricultural business conducted on Hazeldene at all times, was a business conducted by the Bailey family partnership (clause 18);
(h) Bruce promised to repay a loan made by the Bailey family partnership to him of $1.42 million when he purchased the property “Rosewood West” together with interest accrued on that loan at 10% per annum calculated on daily arrests up to the date 9of repayment of that loan, being a loan the proceeds of the repayment of which were to be disbursed in accordance with the parties’ interests in the Bailey family partnership as agreed in clause 12 of the mediation agreement (clause 13);
(i) Each party agreed to pay his and her own costs of the first partnership suit (clause 21);
(j) Bruce and Janet, in their capacity as executors of the will promised to retain Holman Webb to act for them as vendors of the sale of Hazeldene (together with the water licences to be sold pursuant to the mediation agreement) (clause 25); and
(k) Each party to the mediation agreement agreed to release each other party to it from all claims etc in respect o9fr all existing causes of action relating to, inter alia, the estate of the deceased, the Bailey family partnership, all Family Provision Act rights against the estate and all rights to be paid or obligations to pay money from or secured by any assets of Hazeldene or assets of the Bailey family partnership (clause 27). (Hereafter referred to as “the mediation agreement promises and releases”).

6 In paragraph 19 of the Statement of Claim the plaintiffs assert that on the true construction of the mediation agreement the parties intended that each member have full benefit of the entitlements under the agreement with the effect of an immediate distribution of their respective beneficial interests in the proceeds of the estate and of the partnership.

7 The first defendant submits that paragraph 19 of the Statement of Claim is bad in law as it discloses no reasonable cause of action against him. It is submitted on behalf of the first defendant that as the estate was unadministered at the time of the mediation agreement none of the beneficiaries therefore had a right to an immediate distribution of any share of the asset in species. It was submitted that, based on the authority of The Commissioner of Stamp Duties (Q’ld) v Livingston (1964) 112 CLR 12, the agreement could not operate as pleaded to confer any proprietary right on the plaintiffs as asserted. At page 18 their Lordship said:

“Assets as a whole were in the hands of the executor, his property; and until administration was complete no one was in a position to say what items of property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist of or what its value would be.”

8 In Barnardos Homes v Special Income Tax Commissioners (1921) 2 AC 1 Viscount Finlay said:-

“The legatee of a share in the residue has no interest in any of the property of the testator until the residue has been ascertained. His right is to have the estate properly administered and applied for his benefit when the administration is complete.”

9 At page 8 Viscount Cave said:-

“When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, a residuary legatee is entitled to have the residue as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration.”

10 The mediation agreement makes no specific reference to immediate distribution of any party’s beneficial interest on the sale of Hazeldene. Therefore, it would seem to me that paragraph 19 cannot stand in its present form. The second part of paragraph 19 beginning at about .5 of that paragraph does not plead material facts but is a conclusion. Therefore, must also be struck out.

11 Therefore, in my view it follows that the whole of paragraph 19 of the Statement of Claim should be struck out and repleaded. It follows that in paragraphs 20 to 29 that as the pleading stands at the moment any reference to assets of the estate should also be struck out. It is pleaded in those paragraphs that the first and third defendants have breached the mediation agreement. Paragraph 22 also suffers the same fate as paragraph 19. Clause 8 of the mediation agreement provides that:-

“Each of the parties shall do all things necessary to give effect to the sales and transfers herein referred to.”

12 There was no evidence before me, nor has it been pleaded that the administration of the estate has been complete. I have considered this application on the basis of the submissions made on behalf of the first defendant that the estate is still unadministered. This was not denied by counsel for the plaintiff. In my view, the construction of the mediation agreement must be made in the context that the administrators will not be hindered in the performance of their executorial duties in putting into effect the sale of Hazeldene. In the absence of evidence that the executorial duties have been completed the allegation in the pleadings cannot stand that there was an immediate distribution entitlement based solely on the sale of Hazeldene. Therefore, to that extent paragraphs 20 to 29 require amendment and should be repleaded.

13 Paragraphs 35 to 37 plead damages suffered by the plaintiffs as a result of the first and third defendants breaching the mediation agreement. It was submitted on behalf of the first defendant that the damages sought by the plaintiffs in the particulars to paragraph 35 are not available to the plaintiffs.

14 In H. Parsons (Livestock) Limited v Uttley Ingham & Co Limited (1978) QB 791 the Court gives tests for remoteness. Lord Denning MR said at page 801:-

“In a case of a breach of contract, the court has to consider whether the consequences were of such a kind that a reasonable man, at the time of making the contract, would contemplate them as being of a very substantial degree of probability.”

15 Scarman L. J. said at page 807:-

“The court’s task, therefore, is to decide what loss to the plaintiffs it is reasonable to suppose would have been in the contemplation of the parties as a serious possibility had they had in mind the breach when they made their contract.”

16 What is pleaded at this part of the Statement of Claim is that the plaintiffs lost their ability to purchase the seventh water licence. Under the agreement five water licences were to be sold with Hazeldene (clause 3). Two water licences were to be sold separate to the sale of Hazeldene and the first plaintiff was entitled to acquire those two licences pursuant to a formula.

17 It is pleaded that the first and third defendants prevented the first plaintiff from acquiring the seventh licence because of their condition that a contingency fund had to be created and the first defendant was to pay into that fund his entitlement to that year’s cotton crop and his share of the partnership assets. It was submitted from the bar table that this amounted to a form of economic duress. However, one of the difficulties the plaintiff is faced with is that the pleading is silent on any duress or coercion placed on him by the first and third defendants. It would seem to me that there would need to be specifically pleaded if it were to be relied upon. Therefore, to the extent that the plaintiff needs to reply on duress, leave should be granted to the plaintiff to amend the Statement of Claim to plead the material facts relied on to establish a cause of action based on duress.

18 Paragraph 35 however, merely pleads a breach of contract by the first defendant, namely that he, along with the second and third defendants required the creation of the contingency fund before they would fulfil their obligations under the mediation agreement. It would seem to me that there is prima facie a breach of contract by the first defendant. It is submitted on behalf of the first defendant, however, that the damages set out in particulars to paragraph 35 are not recoverable or if any damages are recoverable such damages would be analogous to damages that a plaintiff may recover where a lender has failed to lend and has forced the plaintiff to go to another lender and has been required to pay interest on the loan at a higher rate. However, in my view, it is at least arguable that the plaintiff may be entitled to damages based on a breach of contract. Those damages may well include a component which would be regarded as special damages. Therefore, I decline to strike out paragraphs 35 and 36. As counsel for the first defendant did not press paragraph 37 I make no order in relation to that paragraph. It therefore stands.

19 Paragraphs 46 to 48 plead damages as a result of the first defendant commencing a second claim based on the partnership dispute against them. It is pleaded that the second claim raises identical or similar issues to those raised in the initial proceedings No. 5614 of 1991 which were the subject of the agreement reached at the mediation. It is submitted on behalf of the first defendant that any damages the plaintiff may be entitled to in respect of these paragraphs at most could only amount to the recovery of their taxed costs in proceedings No. 5315 of 1997 (the second partnership suit), if the plaintiffs in these proceedings were successful in having those proceedings dismissed.

20 Clause 27 of the mediation agreement provided that each of the parties to the mediation agreement would release the others against any existing causes of action. It is submitted on behalf of the plaintiff that the second partnership dispute is in relation to an existing cause of action as at the date of the mediation agreement, namely 3 July 1995. Therefore, the first defendant is in breach of the mediation agreement. It would seem to me that the plaintiff has an arguable case against the first defendant. The plaintiffs allege that damages have been suffered as a result of that breach. In all probability the matters pleaded in paragraphs 42 to 48 could be raised by way of cross-claim in proceedings No. 5315 of 1997. If that were the case it may well be that if the plaintiff in these proceedings was successful on any cross-claim he would receive an order for costs in respect of not only the cross-claim but also the defence of those proceedings. Therefore, it may be open to strike out those clauses of the Statement of Claim but grant leave to the plaintiffs to file and serve a cross-claim in the second partnership proceedings.

21 Having regard to Pt 31 r 7 and to the fact that proceedings No. 5315 of 1997 involve the parties in these proceedings with the exception of the fourth, fifth and sixth defendants and that questions of law and issues of fact arise which are common to both sets of proceedings, in my view the appropriate order to make is that the proceedings be consolidated. As the application before me is only between the first defendant and the plaintiff, the other defendants have not had an opportunity to be heard on the question of consolidation. Therefore, I will not make an order for consolidation at this stage. I will deal only with the application before me, namely to strike out paragraphs 46 to 48 of the Statement of Claim. In my view, for the reasons that I have already given, I do not think that it is appropriate to strike out those paragraphs of the Statement of Claim and I therefore decline to do so.

22 The orders that I make are as follows:-

1. Paragraph 19 struck out with leave to replead.
2. Paragraphs 20 to 29 struck out with leave to replead.
3. Leave granted to plaintiffs to amend the Statement of Claim.
4. No order in relation to paragraph 37.
5. Grant leave to plaintiffs to file and serve a cross-claim in the second partnership proceedings.
6. Each party pay their own costs of the application.

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Last Modified: 12/13/2002