Calvert v Badenach - [2014] TASSC 61

[2014] TASSC 61

COURT: SUPREME COURT OF TASMANIA

CITATION: Calvert v Badenach [2014] TASSC 61

PARTIES:  CALVERT, Roger Wayne
  v
  BADENACH, Robert

MURDOCH CLARKE SOLICITORS (a firm)

FILE NO:  90/2014
DELIVERED ON:  24 November 2014
DELIVERED AT:  Hobart
HEARING DATES:  17, 18 September 2014
JUDGMENT OF:  Blow CJ

CATCHWORDS:

Professions and Trades – Lawyers – Duties and liabilities – Solicitors' duties to other persons – Beneficiaries – Risk of successful claim under Testator's Family Maintenance Act – Possibility of protecting beneficiary by creating joint tenancies.

Hill v Van Erp (1997) 188 CLR 159; Ross v Caunters [1980] Ch 297; Gartside v Sheffield, Young & Ellis [1983] NZLR 37; White v Jones [1995] 2 AC 207; Queensland Art Gallery Board of Trustees v Henderson Trout [2000] QCA 93; Carr-Glynn v Frearsons [1999] Ch 326; Miller v Cooney [2004] NSWCA 380; Vagg v McPhee (2013) 85 NSWLR 154, distinguished.
Aust Dig Professions and Trades [1181]

REPRESENTATION:

Counsel:
             Plaintiff:  U Stanisich
             Defendants:  S B McElwaine SC
Solicitors:
             Plaintiff:  Shine Lawyers
             Defendants:  Shaun McElwaine + Associates

Judgment Number: [2014] TASSC 61
Number of paragraphs: 34

Serial No 61/2014
File No 90/2014

ROGER WAYNE CALVERT v ROBERT BADENACH and
MURDOCH CLARKE SOLICITORS (a firm)

REASONS FOR JUDGMENT BLOW CJ

24 November 2014

This action raises questions as to the possible duties of a solicitor, when preparing a will for a client, to take instructions and give advice with a view to the client circumventing the provisions of the Testator's Family Maintenance Act 1912 ("the TFM Act").
Robert Badenach, the first defendant, is a legal practitioner. I will refer to him as "the solicitor". At all material times he was a partner in a legal firm named Murdoch Clarke Solicitors. That firm is the second defendant. In March 2009 he took instructions from a client of his firm named Jeffrey Doddridge for the preparation of a will. The will was subsequently prepared, and was executed by the testator on 26 March 2009. By that will the testator left the whole of his estate to the plaintiff, Roger Calvert, whom he treated like a son. The testator died later in 2009 without revoking that will. He had a daughter. He had made no provision for her in his will. She made an application under the TFM Act. Her application proceeded to trial. Evans J ordered that $200,000 be paid to her from the estate of her deceased father: Doddridge v Badenach [2011] TASSC 34. His Honour also ordered that the costs of all parties be paid out of the estate on a solicitor and client basis.
The testator could have arranged his affairs during his lifetime so that the assets of the estate available to satisfy a claim under the TFM Act were worth far less than $200,000. His principal assets were his interests in two properties on the Tasman Peninsula. He and the plaintiff owned each property as tenants in common in equal shares. If he had made arrangements for the plaintiff and himself to hold both properties as joint tenants then, when he predeceased the plaintiff, those properties would have ceased to form part of his estate. There are no "notional estate" provisions in the TFM Act. Similarly, he could have given or transferred other assets to the plaintiff before he died, placing them out of reach for the purposes of the TFM Act. He was terminally ill when he gave the solicitor instructions for his last will, and the solicitor knew that.
The plaintiff contends that the solicitor and his firm were negligent in that they (a) failed to advise the testator of the risk of the daughter making a claim under the TFM Act, and (b) failed to advise him of the options available for him to arrange his affairs so as to reduce or extinguish his estate, so as to avoid or partly avoid any claim which could disturb his testamentary wishes. The defendants contend that they owed no duties to provide such advice.
There is no evidence that the solicitor knew of the daughter's existence. The testator was 77 years old when he made his last will. The plaintiff was not a relative, but the son of a woman who had been the testator's partner for many years until her death. It was obviously foreseeable that, at some stage during his lifetime, the testator might have fathered one or more children; that a claim by a child of his could be made under the TFM Act; and that such a claim might succeed. The solicitor's firm had made two wills for the testator in the past – in May 1984 and October 1984. The May 1984 will contained information that the daughter existed, and a provision for a legacy of $10,000 for her, but she was neither mentioned nor provided for in the October 1984 will. The evidence suggests that both 1984 wills were still held by the solicitor's firm, and that he could have discovered the daughter's existence by looking at those earlier wills. More significantly, he could have discovered the daughter's existence if he had asked the testator whether he had any children.
The solicitor and his firm owed no contractual duties to anyone but their client, the testator. However it is clear from a number of decided cases that a solicitor who is engaged in relation to the preparation and execution of a will owes non-contractual duties of care to the intended beneficiaries under his or her client's will. Thus, for example, in Hill v Van Erp (1997) 188 CLR 159, the High Court held that a solicitor owed an intended beneficiary a duty to ensure that a testamentary gift to that beneficiary did not become void as a result of the solicitor getting the intended beneficiary's husband to witness the will. There is no doubt that a testator's solicitor owes a duty of care to an intended beneficiary. This case raises a question as to how far that duty extends.
The extent of a solicitor's duty to a client depends on the scope of the solicitor's retainer. In this case there is no evidence that the solicitor was engaged to advise in relation to estate planning or other collateral matters. The solicitor did not give evidence. His file notes relating to the 2009 will were tendered by consent. It is clear that he accepted instructions to prepare a will by which the testator left the whole of his estate to the plaintiff if he survived him, or to the plaintiff's children in equal shares if he predeceased him. He also gave instructions that he wanted to die at home, and instructions as to the leasing of the two properties.
The plaintiff contends that the solicitor owed a duty to him as an intended beneficiary which required him to make enquiries of the testator, ascertain that he had a daughter, advise as to the possibility of her making a claim under the TFM Act, and advise as to measures that could be taken to place assets out of her reach in the event that a TFM claim was made. None of the reported cases about a testator's duty to an intended beneficiary go that far. None of them deal with the situation that existed in this case.
It is clear that, when a solicitor is instructed to act on the making of a will, that solicitor will owe an intended beneficiary a duty to take reasonable care to give effect to the client's testamentary wishes. Hill v Van Erp (above) is an example of such a case. Another example is Ross v Caunters [1980] Ch 297. In that case a firm of solicitors prepared a will for a testator and sent it to him for execution without warning him that it should not be witnessed by the spouse of a beneficiary. The will was so witnessed. As a result, the gift to the beneficiary was void. The English Court of Appeal held that the solicitors owed the beneficiary a duty of care, and were liable for damages for its breach.
In Gartside v Sheffield, Young & Ellis [1983] NZLR 37 an appeal arising from a demurrer, it had been pleaded that a firm of solicitors was negligent in failing to prepare and present a will to its client within a reasonable time, that the client had died without executing the will, and that an intended beneficiary had suffered damage as a result. The New Zealand Court of Appeal held that the statement of claim sufficiently disclosed a duty of care and the other ingredients of a cause of action in negligence.
In White v Jones [1995] 2 AC 207, a testator died about eight weeks after giving instructions for a new will, without his solicitors having prepared one. The House of Lords held that the solicitors owed a duty of care to the intended beneficiaries, and that they were entitled to recover damages from the solicitors.
Queensland Art Gallery Board of Trustees v Henderson Trout [2000] QCA 93 was another case concerning a testator who died before making a new will. The Queensland Court of Appeal acknowledged that solicitors owe a duty of care to intended beneficiaries. However it was held that the solicitors in that case had not breached their duty because the client had terminated her instructions to them before making up her mind as to the provisions to be included in her new will.
There have been a number of cases in which real estate has been held by two people as joint tenants; one joint tenant has made a will devising the land, or bequeathing proceeds of sale, to someone other than the co-owner; the land has passed to the co-owner by survivorship upon the death of the testator; and the disappointed beneficiary has sued the testator's solicitors for negligence. One such case was Carr-Glynn v Frearsons [1999] Ch 326, in which the beneficiary succeeded. In that case the testator and her nephew owned the relevant property. The testator's solicitor did not know whether they were joint tenants or not. She instigated enquiries. The will was executed before she learned that there was a joint tenancy. The English Court of Appeal held that she was negligent in failing to advise the testator that the joint tenancy, if there was one, could be severed simply by writing an appropriate letter, and that the testator should write such a letter.
In Miller v Cooney [2004] NSWCA 380 the testator and her husband owned properties as joint tenants. The testator's solicitor did not know that. The testator made provision for gifts of the properties to family members, but those gifts failed because the properties passed to the husband by survivorship on her death. In that case the beneficiaries were unsuccessful. The New South Wales Court of Appeal distinguished Carr-Glynn, holding that the solicitor was not liable because he did not know that the client was not the absolute owner of the properties, and had no reason to suspect that he was not.
In Vagg v McPhee (2013) 85 NSWLR 154, the testator and her husband owned a property as joint tenants. Her solicitors prepared a will that included a request that the property be sold upon her death and the proceeds paid to her children. She executed that will. However the property passed to the husband by survivorship on her death. The beneficiaries sued her solicitors. Their claim failed on two bases. One reason for its failure was that the provision in the will was a request, not a gift. It was treated as a request to the surviving husband to sell the land and pay the proceeds to the children: Basten JA, whith whom Ward JA agreed, at [20]; Tobias AJA at [56]. The other reason that it failed was that the beneficiaries were seeking to achieve the same remedy that would have been available to the estate (or its executors) for a breach of a duty owed by the solicitor to it: Basten JA at [17]-[19]; Tobias AJA at [44]. Their Honours considered that a beneficiary could not recover damages if the estate (or its executors) had a right to recover damages for the same loss.
If a solicitor has a duty to advise about or procure the severance of a joint tenancy for the purpose of giving effect to a testator's testamentary wishes, and breaches that duty, with the result that the joint tenancy is not severed and the property passes to the surviving joint tenant, the disappointed beneficiaries will have the same claim as the executors. In that situation, no duty of care is owed by the solicitor to the beneficiaries who would have received the property in question under the testator's will because the executors can claim damages for the benefit of the estate: White v Jones (above) at 268. However this case concerns a very different situation. It is not alleged that the solicitor was negligent in failing to recommend the severance of a joint tenancy. It is alleged that he was negligent in failing to advise that joint tenancies could be created. If joint tenancies had been created, as the plaintiff suggests they should have been, then, upon the death of the testator, his estate would no longer have included the land. If the solicitor breached a duty to advise as to the creation of a joint tenancy, and if that breach of duty resulted in the testator taking a course of action that he would not otherwise have taken, the result must be that the estate is larger than it otherwise would have been, because it still includes half interests in the relevant properties. This is not a case in which it can be asserted that negligence has resulted in a loss to the estate.
This review of the cases about solicitors' duties to beneficiaries brings me back to the point I made earlier. As far as I am aware, a court has not previously had to decide whether a testator's solicitor's duty to a beneficiary extends so far as to require the giving of advice as to the depletion of the testator's estate.
Sometimes wills prepared by solicitors contain explanations of testators' reasons for making little or no provision for specified family members. The significance of such explanations was considered by the High Court in Hughes v National Trustees, Executors and Agency Company of Australasia Ltd (1979) 143 CLR 134. That case concerned an application by a man for provision out of his mother's estate under the Victorian equivalent of the TFM Act. The High Court held that statements made by the deceased in her will about the applicant's misconduct, though not admissible to prove that misconduct, were admissible to provide evidence of the reason why she had disposed of her estate in a particular way: Barwick CJ (dissenting) at 137; Gibbs J, with whom Mason and Aickin JJ agreed, at 152; Murphy J at 159. The significance of such explanatory statements has changed with the introduction of the uniform evidence legislation. Section 60(1) of the Evidence Act 2001 now provides, "The hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact." Since such explanations are admissible for the purpose of proving a testator's reasons for disposing of his or her estate in a particular way, the hearsay rule now does not apply. Any such explanatory statement by a testator is therefore now admissible as evidence of the truth of the facts asserted.
The authors of a number of texts have suggested that a testator's solicitor ought to take instructions as to the existence of disinherited children, and the reasons for disinheriting them, in order to minimise the likelihood of a successful family provision claim. The author of Hutley's Australian Wills Precedents (7^th ed, Butterworths LexisNexis 2009) says, at par 14.22:
"A client who seeks to make a will should be asked whether he or she has any relatives, spouse, former spouse, defacto spouse, partner, domestic partner, person with whom he or she shares a domestic relationship, past or present dependants or any other persons who might be eligible to claim family provision. If there is a possible eligible claimant, the client should be informed of the law and told that in most, perhaps all, Australian jurisdictions the court has the power to consider the testator's written reasons for excluding that person or giving that person a relatively small benefit."
In the Australian Encyclopaedia of Forms and Precedents, the authors state, at ¶[510-375]:
"It is good practice when taking instructions for a will to ascertain whether the testator has any children, spouse, former spouse, de facto spouse, past or present dependants or any other persons who might be eligible to claim family provision. Persons who are eligible to claim family provision vary from jurisdiction to jurisdiction. Whether or not there is a possible eligible claimant, it is a precautionary measure to provide to the client a general overview of the law concerning family provision."
An author named Shane Newton, in Protecting a Will (Federation Press, 1994), stated, at 86:
"Legal advisors who are consulted by a client to draw a will need to be aware of the possibilities afforded for minimising the likelihood of interference with the client's intentions by the family provision legislation."
In the same text, at 97, the author stated:
"The views and intentions of testators themselves are relevant matters which a court may take into account in determining whether or not provision or further provision ought to be made out of an estate. A person, and those who are advising at the time of the taking of instructions for making a will, who desires to ensure that the influence of the family provision legislation upon testamentary intentions, as evidenced by that will, is kept to a minimum should keep this in mind."
Expert evidence as to the practice of solicitors was given at the trial by only one witness, an experienced Victorian probate practitioner named Jeffrey Park, who was called by counsel for the plaintiff. He opined that in this case, if the solicitor did not know of the daughter, "then he would have to be asking questions about the will maker's family". In a written opinion, parts of which were tendered, he opined that a competent solicitor, knowing that the testator had an estranged daughter, that the properties were held as tenants in common, and that the testator wanted all his estate to go to the plaintiff, should have discussed with the testator the changing of the titles to joint tenancies and the consequence of the properties passing absolutely to the surviving joint tenant. He said that in the circumstances that would not be an uncommon discussion initiated by a competent solicitor.
In his oral evidence, he went on to express opinions to the following effect:
·     In the situation that existed in this case, there would be nothing wrong with the solicitor explaining to the testator that a court would consider that he had a moral obligation to provide for his daughter.
· It would be open to the solicitor to advise as to the daughter's moral claim in relation to provision under the TFM Act.
·     He did not agree that the solicitor should advise the testator to make provision for his daughter.
· The solicitor could tell the client that one option was to make the will he wanted, and to let a judge decide whether to make an order under the TFM Act.
· The solicitor, if he was aware of the daughter's existence and knew nothing of her circumstances, would have to presume that there was the risk of a claim under the TFM Act, and a possibility that that claim would be successful.
·     In such circumstances he would never advise a client to exhaust his assets.
·     He would advise as to the options available to the client, so that the client could make an informed choice. One option would be to make provision for the testator's child in the will because of her moral claim.
·     A solicitor could recommend one option, but should explain all the options.
·     He sometimes advised clients not to give their assets away in haste, because they might live on for a long time.
·     If advising as to the creation of joint tenancies, he would advise as to the risk of the younger co-owner unexpectedly predeceasing the other, perhaps as the result of an accident.
Mr Park, for all his experience, was not an impressive witness. However he was substantially unshaken as to these points, and I see no reason to doubt the correctness of his opinions, so far as they go. However, in analysing what he said, it is important to draw a distinction between advice that a solicitor has a duty to give, and advice that a solicitor could give, or might commonly give. And it is important to bear in mind the distinction between a solicitor's duty to his or her client, and the solicitor's duty to an intended beneficiary. It is also important to bear in mind that the required standard of care and skill is that of the ordinary skilled person exercising and professing to have the skill of a solicitor: Rogers v Whitaker (1992) 175 CLR 479 at 487; Doolan v Renkon Pty Ltd (2011) 21 Tas R 156 at [35]. Mr Park did not say that the solicitor had a duty to recommend changing the property titles to joint tenancies, as distinct from a duty to tell the testator that that could be done.

The solicitor had been retained by the testator to prepare his will. The solicitor knew that the testator was elderly, and that he wished to give the whole of his estate to a man who was not a relative. In those circumstances, I accept that he owed his client a duty to enquire as to the existence of any family members who could make a claim under the TFM Act, with a view to the testator's reasons for making no provision for them possibly being included in the will. There is no evidence that the client had engaged the solicitor to provide advice as to anything other than the making of the will. I infer that, if the solicitor had enquired about family members as he should have done, then the testator would have disclosed the existence of his daughter, and the solicitor would have advised as to the risk of successful proceedings under the TFM Act. The testator might or might not then have enquired whether there was anything that could be done to protect the plaintiff against that risk. Any such enquiry would have widened the scope of the solicitor's retainer. If such an enquiry had been made, it would have been the solicitor's duty to advise the testator that, if the plaintiff was agreeable, it could be arranged that he and the plaintiff could hold their two properties as joint tenants, with the consequence that, provided the testator died first, they would pass to the plaintiff and not be available to satisfy a claim under the TFM Act. But I am not satisfied on the balance of probabilities that a conversation about the daughter and a possible TFM claim by her would have triggered an enquiry by the testator about ways of protecting the plaintiff's position. And I am not satisfied that the solicitor owed the testator, let alone the plaintiff, a duty to provide advice about creating joint tenancies in the absence of such an enquiry.
Counsel for the defendants submitted that, for public policy reasons, a testator's solicitor could not have a duty to advise as to steps that could be taken to circumvent the provisions of the TFM Act. He argued that coherence between the law of tort and the TFM Act required that no such duty should be held to exist. I think that submission should be rejected in the light of the High Court's decision in Barns v Barns (2003) 214 CLR 169. That was a case concerning mutual wills. A husband and wife agreed by deed with their son and with each other that they would make, and not revoke, wills in a particular form. Following the death of the husband, the couple's daughter applied to the Supreme Court of South Australia for provision out of the estate under the equivalent of our TFM Act, and for a declaration that the deed was void, and of no effect as against her claim. When the case was before the Full Court of the Supreme Court of South Australia, that Court rejected an argument that the deed was void on public policy grounds: Barns v Barns (2001) 80 SASR 331. The High Court did not disturb that conclusion, but held that the deed did not operate so as to prevent provision being made for the daughter out of her father's estate. Two of the judges made comments suggesting that, since the statute in question applied only to the estate as at the time of death, there were no public policy consequences attaching to a disposition that depleted the estate. At [38], Gleeson CJ, who was one of the majority, said:
"If the deceased had divested himself of all his assets before he died, then there would have been no estate within the meaning of s 7. In a colloquial sense, that might be described as defeating the operation of the Act; but in a legal sense that would simply produce a state of affairs upon which the Act would operate according to its terms. Unlike some corresponding legislation, the Act does not provide for a notional estate. The legislative purpose does not extend beyond dealing with a deceased's estate. A transaction which produces the consequence that a deceased person has no estate means that there is nothing that falls within the legislative scheme."
At [159] Callinan J, dissenting, said:
"… legislation is essentially no more than the enactment of desirable social policy as it is perceived by the legislators of the day who have a right, subject only to constitutional inhibitions, to change it as society changes, or as any imperfections in it manifest themselves. Generally speaking, the Parliament, rather than the courts are [sic] better able to appreciate and to give effect to social policy."
In the Full Court decision, Lander J, with whom Prior and Wicks JJ agreed, said at [72]:
"There is no doubt that the Act provides a safeguard to those persons who might be overlooked by a deceased person in the disposition of his estate by his will. The Act, however, is not designed to require a person to accumulate assets or indeed to die with an estate. A person is quite entitled to dispose of his or her estate by waste, gift or any other way before that person's death. The Act, at least in this State, does not provide any protection to the person otherwise entitled if the deceased dies without an estate in those circumstances."
The Full Court held that it was not contrary to public policy for parties to enter into a deed that had the effect of disentitling a person from making a claim under a TFM statute. Nothing in the High Court judgments is inconsistent with that proposition, nor is that proposition plainly wrong. I think it must follow that there is no public policy reason why a testator's solicitor should not owe a testator, or even a beneficiary, a duty, when appropriate, to advise as to steps that may be taken to frustrate a TFM claim by depleting or extinguishing the testator's estate.
Counsel for the defendant submitted that the creation of joint tenancies would have undesirable tax consequences, both in relation to capital gains tax ("CGT") and goods and services tax ("GST"). I disagree. Both of the relevant properties were purchased by the plaintiff and the testator as tenants in common prior to 20 September 1985. They were therefore pre-CGT assets. For CGT purposes, joint tenancies are treated as tenancies in common in equal shares: Income Tax Assessment Act 1997 (Cth), s 108.7. A transfer by the owners of a tenancy in common to themselves as joint tenants would therefore not amount to a disposal of property for CGT purposes. On the death of one of two joint tenants, the survivor would be taken to have acquired a half interest in the property for CGT purposes: Income Tax Assessment Act 1997, s 128.50. It follows that, in this case, conversions from tenancies in common to joint tenancies would have had no significance for CGT purposes.
There is a short answer to the submission about GST. Under s 38.480 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth), the supply of a freehold interest in land is GST-free if a farming business has been carried on on the land for at least the preceding five years, and if the recipient of the supply intends that a farming business be carried on on the land. Both properties were farming properties. A farming business had been carried on on each of them for more than five years. I infer that the plaintiff would have intended that each property continued to be used for a farming business, even if sold.
If there had been a discussion between the solicitor and the testator as to the possible creation of joint tenancies, the taxation consequences should have been discussed. There is a possibility that the solicitor might not have been able to provide immediate tax advice. There is a possibility that the testator might not have wanted to spend money getting advice about possible tax consequences. In fact there are all sorts of possibilities. The testator might have wanted to defer making a will so that he could make enquiries about his daughter's financial circumstances. He might have known nothing about her financial position. A discussion might have prompted him to consider making financial provision for her in his will. Another possibility is that, having been advised of the risk of a successful claim under the TFM Act, he might have decided to leave his daughter nothing, to hope that she would not make a claim, and to leave it to the plaintiff to negotiate a sensible settlement, or to require her to proceed to trial, if she did. One can only speculate as to what might have been said, and what might have been decided.
For the reasons stated above, my conclusions are as follows:
· I accept that the solicitor owed the testator a duty to take instructions in relation to a possible claim under the TFM Act, and that he breached that duty.
· I am not satisfied on the balance of probabilities that, had the solicitor discharged his duty to the testator, the testator would have joined with the plaintiff in creating joint tenancies in place of the tenancies in common, or taken any other steps to deplete his estate and frustrate a possible claim under the TFM Act.
· I therefore need not decide whether the solicitor owed the plaintiff, as an intended beneficiary, any duty to advise as to the risk of a claim being made under the TFM Act or the steps that could be taken to reduce or extinguish his estate in order to avoid the consequences of such a claim.
It follows that the plaintiff's claim must fail, whether or not the solicitor owed the plaintiff, not just the testator, a duty to advise the testator as to the steps that could be taken to place assets beyond the reach of the TFM Act. There will be judgment for the defendants.