Supreme Court
New South Wales
Medium Neutral Citation: Grace v Grace [2012] NSWSC 976 Hearing dates: 25 October to 2 November 2010; 4 November to 2 December 2010; 23-24 June & 22 July 2011 Decision date: 23 August 2012 Jurisdiction: Equity Division Before: Brereton J Decision: Plaintiff is entitled to have (a) transfer of shares to defendants set aside for undue influence or unconscionable dealing; (b) consent orders made by Family Court set aside pursuant to Family Law Act s79A
Catchwords: PROPERTY - Transfers of property - undue influence - presumed undue influence - parent and child - evidence to rebut presumption - improvidence of transfer - divesting voting control of valuable company - whether explicable by ordinary motives - whether presumption rebutted
PROPERTY - Transfers of property - unconscionable dealing - whether transfer of shares procured by unconscionable dealing - relationship of special disadvantage - youth, inexperience, lack of knowledge, absence of advice, reliance on and trust and confidence in parent - whether defendant knew plaintiff was not in a position to look after his own interests
LACHES - whether plaintiff had relevant knowledge to justify commencement of proceedings
TRUSTS - breach of trust - transfer of shares held on trust
CORPORATIONS - oppressive conduct - whether defendants managed company so as to disproportionately benefit them and disadvantage plaintiff - failure to prove disproportionate benefits - whether defendants failed to provide information - no case of oppression made out
TRUSTS - dealing with trust property - whether wilful default on part of defendants - difference between account on basis of wilful default and common basis - wilful default requires evidence of failure to bring receipts to account - evidence of expenditure in breach of trust does not justify account on ground of wilful default - no evidence of wilful failure to get in an asset
CORPORATIONS - winding up - just and equitable ground - closely held family company - whether personal equitable obligations subsist between shareholders - whether objects can be carried out notwithstanding breakdown in relationships between directors - lack of clean hands on the part of the applicants for winding up - no basis for imposing equitable obligations in addition to legal rights of shareholders
FAMILY LAW - application to set aside consent orders under (Cth) Family Law Act 1975 - (Cth) Family Law Act 1975 s 79A - whether matrimonial cause - whether residuary beneficiary in unadministered estate affected by an order - whether orders made without jurisdiction - whether proceedings discontinued before orders made - denial of procedural fairness - whether plaintiff was entitled to notice as person affected - failure to give notice to plaintiff amounted to a miscarriage of justice - order to set aside consent orders
FAMILY LAW - application for another order under (Cth) Family Law Act 1975, s79A(1) - (Cth) Family Law Act 1975 s 79(8) - preconditions for making a property order after death of a party - where court would have made an order but for the death of a party - whether it is still appropriate to make an order - effect of distribution of deceased's assets on whether it is still appropriate to make an order
FAMILY PROVISION - (NSW) Family Provision Act - application for provision out of deceased estate - whether extension should be granted to bring claim out of time - factors relevant to exercise of discretion - whether an extension ought to be granted where substantive application would not succeed - no extension of time grantedLegislation Cited: (Cth) Commonwealth of Australia Constitution Act, s 51(xxxix)
(Cth) Family Law Act 1975, s 4, s 75(2), s 79A, s 79
(Cth) Family Law Rules 1984, O. 11A r.1, O. 11 r. 13, O. 14 r. 9
(NSW) Family Provision Act 1984, s 7, s 16(2)
(NSW) Protected Estates Act 1983
(Cth) Corporations Act 2001, s 462(2)(b), s 233(1), s 464(4)
(Cth) Judiciary Act 1903, s 78B
(NSW) Property (Relationships) Act 1984, s 20
UCPR, r 12.1Cases Cited: Allan & Allan (1987) FLC 91-824
Allcard v Skinner (1887) 36 Ch D 145
Allesch v Maunz [2000] HCA 40; (2000) 203 CLR 172
Bailey & Bailey (1990) FLC 92-117
Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42
Berry & Berry (1990) FLC 92-118
Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362
Bourke & Bourke [1998] FamCA 69
Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457
Catombal Investments Pty Ltd [2012] NSWSC 775
Chemaisse & Commissioner of Taxation (No 3) (1990) 13 Fam LR 724; (1990) FLC 92-133
Clifton and Stuart (1990) 14 Fam LR 511
Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447
Crawley v Short [2009] NSWCA 410
Deputy Commissioner of Taxation (WA) v Spanjich (1988) 12 Fam LR 541; (1988) FLC 91-974
Ebert v Ebert [2008] NSWSC 1206
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218
Ferraro & Ferraro (1993) FLC 92-335
Goldsworthy v Brickell [1987] Ch 378
Greta & Greta [2007] FamCA 1404
Hatton v Hatton (NSWSC, Powell J, 6 September 1977, unreported)
Hickey & Hickey [2003] FamCA 395; (2003) FLC 93-143
Juul v Northey [2010] NSWCA 211
Kardos v Sarbutt [2006] NSWCA 11; (2006) 34 Fam LR 550
Lewis v Lewis [2001] NSWSC 321
Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621
Mason v Hannaford; Mason-King (1993) FLC 92-398
Massie v Laundey (NSWSC, Young J, 7 February 1986, unreported)
McLay & McLay (1996) FLC 92-667
Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22; (2002) 54 NSWLR 146
Menzies & Evans (1988) FLC 91-969
Miklic v Miklic [2010] FamCA 741
Morgan v 45 Fleurs Ave Pty Ltd (1986) 10 ACLR 692
National Westminster Bank plc v Morgan [1985] AC 686
North & North (1987) FLC 91-831
Official Trustee in Bankruptcy v Schultz [1990] HCA 45; (1990) 170 CLR 306
Omacini & Omacini [2005] FamCA 195; (2005) FLC 93-218
OSF & OJK (2004) FLC 93-191
Parrott v Public Trustee of NSW (1994) FLC 92-473
Public Trustee v Gilbert (1991) 14 Fam LR 573
Quek v Beggs (1990) 5 BPR 11,761
Randle & Randle (1987) FLC 91-828
Re Atkinson (deceased) [1971] VR 612
Re Gilbert and Estate of Gilbert (1989) 13 Fam LR 632
Re Guskett [1947] VLR 212
Re O'Toole, Taylor & O'Toole 15 Fam LR 265; (1992) FLC 92-285
Robinson & Willis (1982) 8 Fam LR 131
Savage v Lunn [1998] NSWCA 203
Savage v Lunn (No 2) [1998] NSWCA 204
Semmens v The Commonwealth (1990) FLC 92-116; (1989) 13 Fam LR 715
Rowell & Rowell (1989) FLC 92-026
Tasmanian Trustees Limited v Gleeson (1990) FLC 92-156
Tillett v Varnell Holdings Pty Ltd [2009] NSWSC 1040
Warren v McKnight (1996) 40 NSWLR 390
Whereat v Duff [1972] 2 NSWLR 147
Young v Lalic [2006] NSWSC 18; (2006) 197 FLR 27Texts Cited: Cope, Duress Undue Influence and Unconscientious Bargains, Law Book Co 1985
Meagher Gummow & Lehane, Equity Doctrines & Remedies, LexisNexis Butterworths, 4th edition
The Hon. PLG Brereton, "Where Death and Divorce Meet: The Intersection of Family Provision and Family Law", National Family Law Conference, October 2006Category: Principal judgment Parties: David Alexander Grace (plaintiff)
Deborah Sharon Grace (first defendant)
Julienne Grace (second defendant)
Nevilda Holdings Pty Ltd (prov liq'r appted) (third defendant)
Nevilda Investments Pty Ltd (prov liq'r appted) (fourth defendant)
Dutchie Pty Ltd (sixth defendant)
Phoenix Rising Investments Pty Ltd (seventh defendant)Representation: Counsel:
D Williams SC w S Goodman (plaintiff)
A Moses SC w D Stewart (first, second & seventh defendants)
Solicitors:
James Tuite & Associates (plaintiff)
Clinch Long Letherbarrow Pty Ltd (first, second & seventh defendants)
File Number(s): 2006/259566
Judgment
The late Dr Colin Grace died on 1 September 1992, survived by his son the plaintiff Mr David Alexander Grace, his daughter the first defendant Ms Deborah Sharon Grace, and his divorced former wife (the mother of the plaintiff and the first defendant) the second defendant Dr Julienne Grace. For convenience, and without intending any disrespect, I refer to the various members of the Grace family by their first names.
At the time of his death, Colin held or was beneficially entitled to 2,003 cumulative preference (CUMP) shares, and 300 of 600 ordinary shares, in the third defendant Nevilda Holdings Pty Ltd; Grace Securities Pty Ltd, in which he and Julienne each held one of the two issued shares, held the other 300 ordinary shares. Colin also held 12 of 112 ordinary shares in the fourth defendant Nevilda Investments Pty Ltd, in which Nevilda Holdings held the other 100 ordinary shares.
By his will, made on 25 May 1988, Colin left his share in Grace Securities - and his 200 (of 1,400) shares in Sharander Pty Ltd - to Deborah, and the rest and residue of his estate (which included the 2,003 CUMP shares in Nevilda Holdings, and a property at 272 Birrell Street, Bondi) to David. However, on 16 January 1995, contemporaneously with the transmission to him of 2,001 CUMP shares in Nevilda Holdings, David transferred 667 of them to each of Deborah and Julienne. Then, on 18 May 1995 in the Family Court of Australia, in proceedings that had been initiated by Julienne against Colin before his death, orders were made by consent of Julienne and Deborah (as Colin's legal personal representative), for the transfer to Julienne by way of property settlement of 667 CUMP shares in Nevilda Holdings, and of 272 Birrell Street.
In these proceedings, David:
- Seeks to have set aside the transfer to Deborah and Julienne of 667 each of the cumulative preference shares in Nevilda Holdings, and the transfer to Julienne of 272 Birrell Street, upon grounds that the transfers of 16 January 1995 were procured by fraud, unconscionable dealing or undue influence, and that the Family Court consent orders of 18 May 1995 were a miscarriage of justice and liable to be set aside under (CTH) Family Law Act 1975, s 79A ("the administration case");
- Claims orders for repayment by Deborah and Julienne to Nevilda Investments of moneys received by them during the period between 1995 and 2006, and other relief, on the grounds that the affairs of the Nevilda companies have been conducted by Deborah and Julienne in a manner oppressive of him ("the oppression case"); and
- Claims an account in respect of the Nevilda Investment Superannuation fund (NISF) on the wilful default basis, in particular by reason of payments out of the fund in 2007 after the appointment of a provisional liquidator to Nevilda Holdings, the trustee of that fund ("the NISF case").
Against the possibility that those claims or any of them might succeed, Deborah and Julienne have brought cross-claims, for adjustive property orders under (CTH) Family Law Act 1975, s 79(8), and alternatively for provision out of Colin's estate under (NSW) Family Provision Act 1984. They also contend that the Nevilda companies should be wound up on the just and equitable ground, as it is no longer realistic to expect the parties to co-operate in their management.
David commenced the proceedings on 3 November 2006, as a result of investigations that he began in about April 2006. Following a contested interlocutory application heard on 21 and 22 December 2006, orders were made appointing a provisional liquidator to the Nevilda companies on 18 January 2007. Thereafter, the issues expanded, and the pleadings went through several iterations, with a Further Amended Statement of Claim ultimately filed on 10 September 2009, a Defence to it on 16 November 2009, and a Reply on 25 November 2009. The evidence was extensive: for example, Julienne's principal (but by no means only) affidavit comprised 1,348 paragraphs over 129 pages (without annexures); and Deborah's principal affidavit 760 paragraphs over 101 pages (without annexures). Almost four years after proceedings had been instituted, the trial commenced on 25 October 2010 and continued over 28 days until 2 December 2010. The parties then made written submissions, the plaintiff on 31 January 2011, the defendants on 11 April 2011, and the plaintiff in reply on 14 June 2011. The hearing resumed for oral submissions on 23 and 24 June 2011, when they were not completed. Following the exchange of supplementary written submissions, oral submissions resumed and were concluded on 22 July 2011, when judgment was reserved. In the course of preparation of the judgment since then, I have been particularly assisted by the comprehensive, detailed and well-referenced written submissions of Mr David Williams SC and Mr Goodman for the plaintiff, and Mr Moses SC and Mr Stewart for the defendants.
Background
Colin was the son of Neville and Hilda Grace, who also had a daughter, Carolyn.
Neville and Hilda incorporated N&H Grace (Holdings) Pty Ltd (now Dutchie Pty Ltd) on 14 March 1962, and were its original directors, each holding one of two issued shares. On 26 April 1962, it allotted additional shares, two to each of Neville and Hilda, and one to each of Colin and Carolyn.
Grace & Barnett Pty Ltd was incorporated in 1966, when Colin was issued 3 of the 16 shares in it.
Colin and Julienne commenced to cohabit in a de facto relationship in 1967. On 22 July 1969, a property at 241 Birrell Street Bondi was purchased in Colin's name, for $24,752.
Colin and Julienne were married on 17 August 1969. On 9 December 1969, they incorporated Grace Securities, each of them holding one of two issued shares and being the original directors.
On 8 June 1970, Neville and Colin incorporated Nevilda Investments, each becoming a director and holding one of two issued shares. On 16 June, Nevilda Investments allotted further shares: 24 to Neville, 24 to Colin, 25 to Hilda and 25 to Carolyn.
On 15 November 1971, Neville and Hilda incorporated Nevilda Holdings, each becoming a director and holding one of two issued CUMP (voting) shares. On 1 December 1971, Nevilda Holdings allotted 300 ordinary (non-voting equity) shares to Carolyn, and 300 ordinary shares to Grace Securities (in which it will be recalled that Colin and Julienne were each 50% shareholders). Simultaneously, on 1 December 1971, Nevilda Holdings purchased all eight issued shares in N&H Grace Holdings, for $60,000 ($7,500 per share); and all 100 issued shares in Nevilda Investments, which at that time had no assets, for $100. Thus, Nevilda Holdings became the holding company of Nevilda Investments and of N&H Grace Holdings.
In February 1972, Nevilda Investments acquired: from Neville, a property in Lamrock Avenue, Bondi Beach for $50,000; also from Neville, a property in Crown Street, Darlinghurst for $65,000; and from a third party, a property in Bondi Road, Bondi for $108,000. The Lamrock Ave and Bondi Rd properties remain assets of Nevilda Investments today.
Deborah was born on 6 February 1972.
In August 1973, Colin sold his three shares in Grace & Barnett to Grace Securities for $30,000; and Colin and Julienne, as joint tenants, acquired for $100,000, with a mortgage loan of $90,000, a property in Burrabirra Avenue, Vaucluse, which became their matrimonial home. In November 1973, Colin sold 241 Birrell Street to Grace Securities for $50,000.
Nevilda Investments acquired properties in Wellington Street, Bondi from a third party on 25 March 1975 for $140,000, with a mortgage loan of $40,000; they too remain assets of Nevilda Investments today.
David was born on 29 April 1975.
On 5 December 1975, Grace Securities purchased a residential apartment block in Sir Thomas Mitchell Road, Bondi, from a third party for $93,000, with a mortgage loan of $46,000.
On 10 May 1976, Colin was appointed a director of Nevilda Holdings; before then he had attended board meetings as a representative of Grace Securities.
On 11 March 1977, Grace & Barnett purchased a property in Old South Head Road, Bellevue Hill from a third party for $145,000.
On 8 June 1979, Grace Securities purchased property in Roscoe Street, Bondi Beach for $215,000, with a mortgage loan of $105,000.
Nevilda Investments sold Crown Street on 30 August 1979 for $166,000 and purchased a property in Anzac Parade, Kingsford on 15 February 1980 from a third party for $226,000, with a mortgage loan of $116,000.
Neville died on 23 July 1982.
On 2 July 1984, Carolyn sold 250 of her ordinary shares in Nevilda Holdings to Colin for $250,000. Carolyn sold her remaining 50 shares nominally to Julienne for $50,000; however Colin and not Julienne paid for them, and Julienne later (on 20 October 1986) transferred them to Colin.
Colin and Julienne separated in January 1985, and lived separately and apart, albeit under the one roof, at their former matrimonial home at Burrabirra Avenue until October 1987.
On 1 February 1985, Colin caused N&H Grace Holdings to allot to himself 1000 shares, and Nevilda Investments to allot to himself 10 ordinary shares. The effect was slightly to increase Colin's and dilute (from 25% to 22.7%) Julienne's ultimate beneficial interest in Nevilda Investments; and significantly to increase Colin's and dilute (from 25% to 0.27%) Julienne's ultimate beneficial interest in N&H Grace Holdings.
On 30 June 1986, Colin caused Nevilda Holdings to transfer all its eight shares in N&H Grace Holdings to Deborah and David, four each.
On 21 November 1986, Julienne purchased a property in Alma Street, Paddington, for $150,000, with a mortgage loan of $80,000. In October 1987, Julienne and Deborah vacated Burrabirra Avenue and moved to Alma Street; David remained with Colin.
On 10 November 1987 Colin executed a general power of attorney in favour of Hilda.
At about this time, Colin and Julienne reached a loose arrangement that he would be primarily responsible for David, while she would be primarily responsible for Deborah. On 5 February 1988, Julienne made a will leaving $500,000 to David and the rest of her estate to Deborah; clause 4 recorded that she had given a greater share of her estate to her daughter than her son, as Colin was providing and had provided much more for David than for Deborah, and had advised that he would not make any provision for Deborah in his will.
On 25 March 1988, Julienne commenced proceedings in the Family Court of Australia for access to David (as contact was then known), and dissolution of the marriage. On 29 March 1988, orders were made that she have access to David every fortnight. On 10 May 1988, the court on Julienne's application pronounced a decree nisi for dissolution of the marriage.
On 25 May 1988, Colin made his last will, to which reference has been made, appointing his solicitor Cedric Symonds as executor. Shortly thereafter, Colin was hospitalised, and David went to live with Julienne. On 3 June 1988, Colin underwent neurosurgery for the removal of a brain tumour. The operation left him severely mentally incapacitated. He was thereafter unable to manage his own affairs, and continued to believe that he was still married to Julienne. The decree nisi for dissolution of the marriage became absolute on 11 June 1988.
Despite this, and despite what appears to have been considerable tension amounting to hostility between them in the months leading up to his operation, Julienne thereafter visited Colin in hospital. There was a high level of friction between Hilda, who continued to hold Colin's power of attorney, and Julienne. Julienne removed Colin's gold bars from his safe deposit box, after his operation (and therefore after separation). She justified this by asserting that she believed that they were "communal property" and was concerned that Hilda might take them. This rather resonates with her later justification for the January 1995 share transfers - essentially, that it had the effect of putting past wrongs right.
In or about September 1988, Julienne and David left Alma Street and returned to Burrabirra Avenue. Deborah remained in the Alma Street property.
By 30 December 1988, Julienne was aware of the contents of Colin's will. Although Julienne denied knowledge of Colin's 1988 will prior to his death in 1992, there are powerful indications in correspondence emanating from her then solicitors Gillis Delaney Brown that she must have been aware of its contents by the end of 1988. Her explanation that she assumed that Mr Symonds was executor from an earlier will is falsified by the earlier will, which was in her possession. The specific references in Gillis Delaney Brown's correspondence to only those shareholdings that were listed in the will are compelling evidence that Julienne had access to the will.
Colin was eventually discharged from hospital in March 1989, and thereafter lived with Hilda until his return to Burrabirra Avenue, referred to below.
On 9 June 1989, Julienne filed an application in the Family Court for adjustive property orders, in which she sought the transfer to her of Colin's interest in Burrabirra Avenue and the shares held by Colin in Debid, Sharander and Grace Securities - the shares in Sharander and Grace Securities were left to Deborah under Colin's will. Hilda filed an application to be appointed Colin's next friend on 12 July 1989. On 29 August 1989, Julienne filed an affidavit opposing Hilda's application to be so appointed, and on 19 October 1989 a Registrar dismissed Hilda's application; she then applied to a judge for a review of that decision.
During this period, with the assistance of Colin's sister Carolyn, Hilda managed the affairs of Nevilda Holdings, Nevilda Investments and N&H Grace Holdings. On 9 October 1989, Hilda caused each of the Nevilda companies to allot one ordinary share to herself upon trust for Colin, and one ordinary share to Carolyn also upon trust for Colin. On 22 November 1989, she caused N&H Grace Holdings to issue one ordinary share to herself upon trust for Colin, one ordinary share to Carolyn also upon trust for Colin, one ordinary share to David, and one to Deborah. Thus, from late 1989, Hilda and Carolyn each held a share in each of Nevilda Holdings, Nevilda Investments and N&H Grace Holdings, upon trust for Colin ("the trust shares"). Meanwhile, Julienne managed the affairs of Grace Securities, Sharander and Debid Pty Ltd.
Deborah attained 18 years of age on 6 February 1990, whereupon she was appointed a director of Grace Securities, Sharander and Debid. On 30 July 1990, at Julienne's suggestion, she made application to be appointed Colin's next friend in the Family Court proceedings; Julienne's suggestion that this was some independent initiative of an 18 year old is not believable. On 3 August 1990, Ross-Jones J dismissed Hilda's application for a review of the Registrar's decision, gave leave to Deborah and Cedric Symonds to file applications to be appointed his next friend, and listed the proceedings for mention on 7 September 1990. Mr Symonds, as well as Deborah, made such an application, and on 7 September 1990, the applications were adjourned for hearing on 22 February 1991.
As at November 1990, Colin's condition included that he had severe short term memory loss and frequently could not remember what time it was or where he was; he did not accept that he was divorced from Julienne; he was unable to instruct Cedric Symonds (or any other lawyer) to act on his behalf; he was often unaware of his surroundings; he could not be allowed to go out alone because he had no short term memory and would get lost; and he thought that David was only 11 or 12 years of age. Nonetheless, on 4 November 1990 he signed a deed, witnessed by Julienne and prepared by Julienne's solicitors on Julienne's instructions, which purported to revoke the power of attorney that he had granted to Hilda on 10 November 1987.
On 25 November 1990, Julienne attended at Hilda's home and conveyed Colin back to Burrabirra Avenue where he thereafter lived until his death. The circumstances of this event - characterised by the plaintiff, in terms taken from Deborah's diary, as a 'kidnapping' - are the subject of controversy, but it is unnecessary to resolve that controversy. On or about 29 November 1990, solicitors acting for Julienne wrote to Mr Symonds asserting that Colin had returned to Burrabirra Avenue at his own wish, that the power of attorney had been revoked of his own volition, that he was able to give proper instructions in relation to his affairs, and that Julienne considered him "quite capable of managing his day-to-day affairs". These assertions are markedly inconsistent with evidence given elsewhere by Julienne and Deborah.
By December 1990, Julienne had commenced preparations for an application to be appointed as Colin's guardian. Evidence to support this application was prepared by her solicitors in January 1991, and included assertions that "pursuant to the provisions of the Protected Estates Act and the Disabilities and Services Guardianship Act, our client is now 'the responsible person' for the day-to-day care and control of Dr Colin Grace". At this time, she was concurrently maintaining that Colin was quite capable of managing his day-to-day affairs (in the context of the revocation of the power of attorney), and also that he was quite incapable (in the context of her guardianship application). On 18 February 1991, Julienne's solicitors informed Mr Symonds (who was acting for Hilda) that their client required them to proceed with an application to the Guardianship Board for the appointment of a "trustee" (sic), and on 21 February that "our client [Julienne] for her part does not wish to proceed with any proceedings in family law at this stage".
On 24 February 1991, the Family Court granted Julienne leave to withdraw her property settlement application, and removed it from the Active Pending Cases List; the legal effect of this is an important issue to which it will be necessary to return. On 27 February, Julienne's solicitors wrote to Mr Symonds:
Further to our conversation following withdrawal of the application for property settlement on 22 February 1991 ...
Julienne says that she was not certain in February 1991 whether she would pursue a family law property settlement, as there were "other alternatives", including an action as a disadvantaged minority shareholder - an oppression suit. She said that she was seeking to separate Colin's assets from her own. That sits ill with her ongoing attempts to be appointed Colin's guardian, and particularly with her claim, referred to below, to be Colin's de facto wife at this time.
On 15 April 1991, Julienne commenced a proceeding in the Protective List of this Court under the (NSW) Protected Estates Act, 1983, seeking the appointment of the Office of the Protective Commissioner (OPC) to manage Colin's financial affairs, and to have herself appointed as Colin's guardian. The application was supported by affidavits of Julienne and two doctors. Julienne deposed that "the memory of Dr Colin Samuel Grace is extremely poor. He is unable to sustain any logical thought. He is disoriented in time and space. He is not capable of completing all simple daily acts necessary to care for himself. He is not aware of the dissolution of the marriage". The affidavit did not suggest that any family law property proceedings were on foot. On 18 May 1991, Powell J appointed the OPC to manage Colin's affairs and adjourned the balance of the summons to a date to be fixed, expressing the view that a guardian could not be appointed as Colin was not "mentally ill" for the purposes of the Protected Estates Act, nor of "unsound mind" for the purposes of the inherent jurisdiction. Because of what she perceived as this unsatisfactory outcome, Julienne terminated the retainer of her solicitors, Gillis Delaney, on 24 May 1991.
On 15 July 1991, Hilda lodged an application with the Guardianship Board to be appointed as Colin's guardian. Julienne then made a like application - in which she described herself as Colin's "de facto wife" - on 9 October 1991. On 21 January 1992, the hearing before the Guardianship Board was adjourned by consent, and on 17 March was fixed for 7 May 1992, but again adjourned on Julienne's application on 23 April 1992.
Colin died on 1 September 1992. Deborah was then 20, and David 17. Colin's estate included, relevantly:
(a) 300 of 600 ordinary shares and 2,003 of 2,003 cumulative preference shares (two of which were held in trust for him by Hilda and Carolyn) in Nevilda Holdings;
(b) 12 of 112 ordinary shares (two of which were held in trust for him by Hilda and Carolyn) in Nevilda Investments;
(c) 1,002 of 1,010 ordinary shares (two of which were held in trust for him by Hilda and Carolyn) in N&H Grace Holdings;
(d) cash in an ANZ deposit account; and
(e) 272 Birrell Street, Bondi.
As has been recorded, by his will, Colin made specific bequests to Deborah of his shares in Grace Securities and in Sharander, and left the residue to David, to be held in trust for him until he attained 21 years of age (which would be 29 April 1996). He made no provision for Julienne, who (as will appear below) had considerable assets in her own right; but by survivorship, she succeeded to his joint interest in Burrabirra Avenue.
On 7 September 1992, Julienne sought advice from Kandy & Co as to the possibility of Mr Symonds being replaced as executor. Kandy & Co approached Mr Symonds and asked him to renounce, which he did on 11 September 1992.
Also on 11 September 1992, Hilda's accountants foreshadowed that she would make a claim of $50,000 on Colin's estate.
Deborah and Julienne then instituted steps for Deborah to obtain a grant of administration cta of Colin's estate. By 26 October 1992, Deborah and Julienne had reached a "settlement" in principle of Julienne's claim for property adjustment under the Family Law Act, but this was necessarily subject to Deborah obtaining a grant of administration.
David completed his Higher School Certificate in November 1992.
On 16 November 1992, Hilda's solicitors wrote to Julienne's solicitors, making an offer to settle various issues between them, and this was accepted on behalf of Julienne on 18 November. On 25 November, apparently to correct an error in the earlier documentation, Mr Symonds again renounced his entitlement to a grant of probate of Colin's will. On 27 November 1992, Deborah filed an application for administration of Colin's estate, supported by an affidavit of estate assets and liabilities which included a liability to Julienne described as "proceedings still on foot for property orders and child maintenance pursuant Family Law Act, 1975 -claim estimated at $746,000"; and an affidavit negativing the existence of any de facto relationship (notwithstanding Julienne's earlier claim to have become Colin's de facto wife following his return to Burrabirra Ave).
On 8 January 1993, Deborah, Julienne, Hilda and Carolyn entered into a Deed of Settlement that provided inter alia for Hilda and Carolyn to transfer the trust shares to Deborah as administratrix; for Deborah and Julienne to replace Hilda and Carolyn as directors of Nevilda Holdings, Nevilda Investments and N&H Grace Holdings; and for releases of claims by all parties against the estate. (Although there was, at some times, a faint suggestion to the contrary, these could not have released claims by Julienne under the Family Law Act, or by either Julienne or Deborah under the Family Provision Act, as to do so would have required the approval of the appropriate Court under the relevant legislation). Consequently, and on the same day, Julienne and Deborah were appointed directors of Nevilda Investments, Nevilda Holdings and N&H Grace Holdings.
Deborah, who attained 21 years of age on 6 February 1993, was granted Letters of Administration cta of the estate on 9 February 1993. David attained 18 years of age on 29 April 1993.
Credit
Each party mounted a sustained attack on the credit of the other.
David
David was, unsurprisingly, cross-examined at considerable length and in considerable detail. While some minor inconsistencies and discrepancies were established, they were not such as to seriously affect his reliability: such discrepancies as emerged were minor and tangential.
It was repeatedly suggested (1) that David's evidence and attitude was coloured by a belief that he was entitled to the whole of his father's estate, and (2) that - unlike his hardworking mother and sister - he had done little and was content to benefit from the endeavours of others. I did not find that his evidence was affected by any such sense of "entitlement" as mentioned in the first proposition, and even if the second were true it would be immaterial to the credibility of his evidence. Much was also sought to be made of his admitted use, over the period from about 1993 until about 2004, of cannabis. However, I do not accept that indulgence in cannabis use is inconsistent with being a truthful witness. It was not established that he was a heavy user, and his memory does not appear to have been adversely affected. In particular, it was not established that his ability to perceive or recall, generally or in respect of specific events, was affected by cannabis use.
David agreed that, prior to 2006, he did not specifically ask to be involved in day-to-day management of the companies, although he offered to do particular tasks from time-to-time. He also accepted that prior to 2006, nothing he wanted the Nevilda companies to do was denied or overruled by his mother; but it does not appear that there was anything in particular that he proposed that the Nevilda companies do.
David maintained that he did not become significantly involved in the day-to-day management of the companies. While it was established that he was involved in making various representations and submissions about unit 2, Lamrock Avenue, as he and his then fiancée Ms Katherine Harvey occupied it, it is hardly surprising that he would take an interest in its environment, and this does not tell against his evidence that, generally speaking, it was his mother who made decisions about the companies and properties, and that he acted on her instructions and at her request. Signatures on documents, which were also signed by his mother, where two signatures were required, do not establish that he was significantly involved in their administration.
He agreed that he became aware that N&H Grace Holdings was his company at about the age of 25, when he spoke to his mother about registering a company for his own purposes, and was told that he already had a company, N&H Grace Holdings, the name of which he changed to Dutchie in about 2000. This is not materially inconsistent with his evidence generally that he was not informed of the properties owned, shareholdings in or rights attached to or value of each of the family companies.
There is nothing surprising nor discreditable about his having signed corporate tax returns of Dutchie without question, they having been prepared by a professional accountant and reviewed and approved by his mother. He quite reasonably thought there would nothing wrong with them, because they had been professionally prepared and accepted by his mother.
Perhaps most significantly, the attack on his version of the important events of January 1995, effectively on the basis that his attribution to Julienne of a representation to the effect that the transfers of the cumulative preference shares he then signed was part of resolving a dispute with Hilda was recent invention, failed; that very representation was referred to in the draft statement of claim that accompanied his very first affidavit, its absence from which was said to support the conclusion that it was recently invented.
Katherine
David's wife, Ms Katherine Grace, was an impressive witness. She was, as it seemed to me, open, frank, and honest. She did not appear to overstate the position in favour of her spouse. No significant inconsistencies emerged in her evidence, and there was nothing about it that seemed implausible.
Julienne
Julienne is obviously a very capable, accomplished and intelligent and in many ways admirable woman, who has earned considerable professional esteem. She has been a diligent and capable steward of the family assets since 1995. In my assessment, she believes very firmly that she has done the right thing to the best of her considerable ability by both her children, and she is affronted by what she perceives as David's ingratitude, and desire now to criticise, and take the fruits of, her stewardship, when he has made little contribution himself. Such views are, at least to an extent, understandable. However, she is so convinced of the righteousness of her position that she is unwilling to admit any possibility of impropriety, overzealousness or error.
A number of matters adverse to her credibility have already been mentioned above, in particular:
(a) her denial, which I cannot accept in the face of contemporaneous documents, that she knew the contents of Colin's will by the end of 1988 or prior to his death;
(b) the extraordinary circumstances in which she procured Colin's revocation of his power of attorney to Hilda, and had her own solicitor prepare a revocation, which Colin signed and she witnessed and her solicitors then supported on the basis that he was competent, while she was contemporaneously seeking to be appointed his guardian, on the basis that he was incompetent. At one point Julienne only reluctantly acknowledged that Colin had problems of cognition in 1990, which she limited to his not accepting that they were divorced, yet in the context of her applications to be appointed his guardian her description of his disabilities was much more extensive: she wrote a detailed document setting out his incapacities; and
(c) her claim in her guardianship application of October 1991 to be Colin's de facto wife - especially in the context of Deborah's later affidavit negativing a de facto relationship.
Other instances will appear from matters referred to later in these reasons, in particular:
(a) her lack of frankness with the provisional liquidator in respect of the NISF, procuring the June 2006 Nevilda Holdings seal, backdating of the Deed of Variation, and subsequent denials of knowledge of those matters;
(b) her evidence that Westpac and ANZ insisted on her giving guarantees of the Nevilda companies' indebtedness, which is contradicted by the Bank manager's notes indicating that any such requirement was waived;
(c) her contention that David had day-to-day management of the companies while she was overseas between October 2004 and April 2006, which was largely disproved by the evidence of the very witnesses the defendants called to corroborate it.
In chief, Julienne corrected a number of matters, of considerable minor detail, in her affidavit evidence. At first sight this gave the impression of close attention to detail; however, some of these corrections savoured of being derived from a recently refreshed recollection, arising from perusal of documents in the course of preparation of the proceedings, and cast doubt on the reliability of her unassisted recollection.
She agreed that she was clear in her mind that David did not owe Nevilda Investments any money, and that she could not conceive how David could be indebted to Nevilda Investments; yet she had deposed to an understanding that he owed $110,000. She sought to explain this away as an understanding given her by Mr Ashton, but she conceded having no confidence in the original or revised form of the financial accounts of the companies.
It is extraordinary that the pages from her 1990 diary for the periods 9 July to 2 September, and from 1 October to 11 November - which periods cover the grant of leave to Deborah to file a next friend application on 3 August, Deborah's resumption of contact with Colin on 19 August, and the revocation of the power of attorney on 4 November - have been torn out, for which she had no acceptable explanation. These were significant parts of the period in which it appears that Julienne was taking steps calculated to gain control of Colin and his assets.
She was consistently evasive when confronted by inconsistencies - she would find some way of answering a question that failed to confront the inconsistency and sought to divert attention to another topic.
Ultimately, I formed the view that she was unwilling to concede any adverse possibility - for, example, that no funds had been rolled-over into the NISF on her account from other superannuation funds, or that she had paid for the new NISF seal from Swift Rubber Stamps. Julienne was unwilling to concede even the obvious, for example that she thought that Deborah would be easier to negotiate with as Colin's next friend than Hilda in the family law property proceedings; or that her meeting with Mr Orr was on 17 January 1995 and not (as she had reconstructed) in December 1994, when both her diary and the fee note suggested that it was on 17 January 1995. She sought more than once to downplay the reliability of her diary - for example, when a minute recorded a meeting of Nevilda Investments on 31 March 1997 in Sydney, she was not prepared to concede that it could not have taken place then, although her diary entry for the same date recorded in some detail her activities that day in Switzerland. Similarly, in an affidavit sworn in the Family Court proceedings on 9 June 1989, consistently with her diary entry for 2 June 1988, Julienne said that Colin dropped David off at her home (Alma St) on 2 June 1988. David's evidence was to like effect. But in her 28 May 2010 affidavit she maintained, and David was cross-examined to the effect, that Hilda had dropped him off. Julienne would not accept that her diary entry and affidavit made much closer to the events were more likely to be accurate.
Her evidence was also overly self-serving: for example, she suggested that David would have gained an understanding of the corporate structures and shareholdings from discussions at the age of 12 and 13; and she repeatedly resorted to assertions that David would have known of, and could have queried, the various transactions she undertook in respect of the NISF, through his access to the bank accounts - while apparently not recognising that even if he could view bank transactions, he would only see them after they had taken place. At one point, she was about to confirm that Mr Ashton had said to her "You are a trustee of the Superfund" until, in response to a somewhat incredulous question from the bench, she said that she did not recall it.
Julienne was prone to interpret communications and events in a manner least unfavourable to her; and is disposed to explain away inconsistencies by asserting that her solicitors and advisors had acted mistakenly or without her instructions, as she frequently did.
Deborah
Deborah has been closely aligned with her mother from the time of separation in 1984, and in the defence of these proceedings. She holds a similar attitude as Julienne to David and his claim, with similar results. As with Julienne, some matters adverse to her credit have already been mentioned, and some are referred to later, in particular she is implicated at least equally with Julienne in the obfuscation of the provisional liquidator in respect of NISF, the procuring of the new seal, the backdating of the Deed of Variation, and the subsequent denials; and also the assertion that David had day-to-day management of the companies between October 2004 and April 2006.
Deborah was prone to advance as evidence of facts matters that, on examination, appeared to be conclusions drawn by her retrospectively from limited evidence, and not firsthand knowledge.
Deborah denied that Julienne was involved in the preparation of the Affidavit of Estate Assets and Liabilities; this was, at best, misleading, since Deborah had consulted Julienne in the course of ascertaining what values would be attributed to various of the assets; her protestation that the denial was not on that account false was untenable. However, her explanation for how the values in the Affidavit of Assets and Liabilities came to be attributed to the shares in Sharander and Grace Securities was reasonable and credible.
Deborah insisted that she and Julienne attended meetings of the companies on 30 December 1994 at Vaucluse, despite evidence that she spent most of that day in Melbourne. This evidence is highly improbable; it reflects an unwillingness to concede anything potentially adverse, or even the possibility that she might be mistaken. Similarly, Deborah almost conceded, but with great reluctance, that she had written a letter to the SCG Trust, which she must have written. She was very reluctant to make any concession, even when it was obviously appropriate: another example is her evidence in respect of amendments to the company accounts, in the light of Mr Ashton's memorandum that he had completed or was reworking the accounts, and her provision to him of a schedule of loan accounts.
Contrary to her denials in cross-examination, Deborah was shown to have provided input into the drafting of Julienne's affidavit evidence.
Conclusion
The matters referred to above are not the whole of the matters relevant to an assessment of credit. This litigation had an enormous emotional overlay, which had the potential to compromise the objectivity of all the protagonists. In my assessment, David was better able to remain objective despite that overlay than Julienne and Deborah. While one is reluctant to resort to demeanour, this assessment is based in part on the cumulative effect of days of cross-examination producing consistently inconsistent, evasive or incredible responses from Deborah and Julienne. Ultimately, I found David's evidence generally reliable, and generally I accept it. The same cannot be said of the evidence of Deborah and Julienne, except where it is against interest.
The Administration Case
David's administration case concerns the following assets which were or ought to have been in Colin's residuary estate, to which David was entitled under his will:
(a) The 2,001 CUMP shares in Nevilda Holdings that Colin had held in his own name, which were transferred ultimately to David (as to 667 only), to Deborah (667) and to Julienne (667);
(b) The trust shares in Nevilda Holdings, Nevilda Investments and N&H Grace Holdings, which had been held by Hilda and Carolyn on trust for Colin, which were transferred to Julienne and Deborah as to one each in each of the three companies; and
(c) 272 Birrell Street, which was transferred to Julienne pursuant to the Family Court consent orders.
The Nevilda Holdings CUMP shares
On 9 January 1995, Deborah sent a facsimile to Dixon & Co accountants requesting the transfer from Colin's estate to David of the 2,001 CUMP shares, to be split 667 to Deborah, 667 Julienne, and 667 to David. On 12 January 1995, Dixon & Co sent to Deborah the share transmission forms, share transfer forms and minutes to give effect to that request, and also draft minutes approving the transfer of the trust shares in Nevilda Holdings and Nevilda Investments, from Hilda to Julienne, and from Carolyn to Deborah. On or about 16 January 1995, Deborah executed a form effecting the transmission of the 2,001 CUMP shares in Nevilda Holdings from her as administratrix to David. David thereupon executed transfers of 667 of those shares to each of Deborah and Julienne. The transfer forms record a price of $1 per share (notwithstanding that in her affidavit of estate assets and liabilities, Deborah had deposed that each of the shares was estimated to be worth $79.88), but no consideration was paid; the defendants suggested that it would have been adjusted on loan accounts but that was not established. As directors of Nevilda Holdings, Deborah and Julienne resolved, in accordance with the draft minutes that had been prepared, to approve the transmission of 2,001 CUMP shares to David, and the transfers of 667 of them from David to each of Deborah and Julienne. The practical effect of this was that David, for no consideration, transferred to each of Deborah and Julienne 667 CUMP shares which would otherwise have given him voting control of Nevilda Holdings, and through it Nevilda Investments.
David contends that the transfers of the CUMP shares to Deborah and Julienne should be set aside on the bases (1) that they were procured by a fraudulent misrepresentation to the effect that they were a necessary part of the resolution of the dispute with Hilda (when that dispute had already been resolved by the Deed of Settlement), (2) by undue influence, (3) by unconscionable conduct, and (4) by breaches of fiduciary duty on the part of Deborah in which Julienne was allegedly knowingly involved.
Undue influence
I prefer to found my decision on undue influence.
Equity avoids dispositions of property procured by the improper or unconscientious use of the influence of one person over another, that cannot be explained on the grounds of friendship, charity or other ordinary motives on which people ordinarily act [National Westminster Bank plc v Morgan [1985] AC 686, 708; Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42, 54]. Undue influence may be established by proof that the disponor's assent was in fact procured by undue influence ("actual undue influence"), or by an unrebutted presumption arising from the existence of a relationship of influence between the parties where the quantum or improvidence of the transaction is such that it cannot be explained on grounds of friendship, relationship, charity, or other ordinary motives ("presumed undue influence") [Whereat v Duff [1972] 2 NSWLR 147, 168; Quek v Beggs (1990) 5 BPR 11,761; Allcard v Skinner (1887) 36 Ch D 145, 185; Goldsworthy v Brickell [1987] Ch 378, 400-1]. Some relationships - such as parent and child, guardian and ward, solicitor and client, doctor and patient, (probably) spiritual adviser and follower, and (arguably) fiancé and fiancée - are presumed to be relationships of influence.
At the time of the transaction, David was in a presumed relationship of influence with his mother Julienne. The suggestion, advanced by the defendants, that he had become emancipated from such influence by the time of the share transfers in January 1995 is untenable: he was but 19 years of age; he was still living at home; his affairs were still being managed by Julienne, who selected and retained accountants and lawyers for him; and Julienne continued to manage his personal assets, at least to some extent, then and for some years thereafter. He was, unsurprisingly, not subservient in every way to his mother: he disobeyed her requests not to use cannabis, and he questioned her decision to terminate his father's life support in hospital. But that, perhaps like many teenagers, he engaged in occasional acts of defiance and rebellion does not mean that he was emancipated. His employment as a teller at Westpac was not at such a level as to demonstrate any commercial sophistication. The simple will he made on 31 August 1995 in favour of Deborah with a gift over to Julienne, he says at the request of Julienne, is in no way inconsistent with undue influence so as to tell in favour of rebuttal of the presumption. That he signed cheques, drawn by others, does not establish emancipation. Even now, he does not present as a very forceful or dominant personality.
The defendants submit that there was no undue influence, which I take to be a submission to the effect that it was not established that the quantum or improvidence of the transaction was such that it could not be explained on grounds of friendship, relationship, charity, or other ordinary motives. In favour of that proposition are the circumstances that there was evidence from Mr Lonergan that the economic value of the CUMP shares was only about 97 cents each; that through Grace Securities, Deborah and Julienne would have an equitable interest in Nevilda Holdings and a legitimate interest in its management; and that there was a familial relationship between the three. In those circumstances, it might be said that a wish to share voting control was a rational explanation.
On the other hand, while the CUMP shares may have had slight economic value, their significance was that they conferred voting control of the Nevilda companies, which held extensive and valuable real property assets. While David did not by any means divest the whole of his property, he gave away effective control of the properties and assets that underlie the Nevilda companies - which his father had always had, and intended that David should have. Critically, he had limited knowledge of the companies and of his father's estate, and he did not know that he was entitled to voting control of the companies under his father's will, nor that the effect of the transaction was that he was surrendering that control. In the context of the control that ownership of all the voting shares conferred, the stated consideration of $1 per share, even if paid, would not have dispelled the appearance that this transaction was seriously disadvantageous to David, and prima facie improvident. In my judgment, in its context, this transaction by David was of such apparent improvidence as not to be explicable by ordinary motives. The defendants also invoked events that took place subsequently - including contributions made by Julienne to the management of the Nevilda companies, and benefits derived as a result - in support of the proposition that the transaction was not an improvident one from David's perspective. But that judgment must be made at the time of the transaction, not by reference to later events. The circumstances of this case are such that the presumption rightly casts on Julienne the onus of rebutting it.
The defendants argued that the "history of the companies", and in particular what they characterised as the "illegal" allotments made by Colin on 1 February 1985 and by Hilda in October 1989, justified the transaction. I cannot accept this. Even on their versions, this "history" was not adverted to in the discussions they claim to have had concerning the CUMP shares. While there was, on their version, some reference to Hilda's allotments in connection with discussion as to how the trust shares would be dealt with, this did not extend to Colin's allotments which were by far more significant, and even on their own versions, it could not be said that they agreed to waive any objection to those allotments in consideration of the transfers. Short of that, even if they thought the 16 January transactions somehow redressed past wrongs, in which David was not implicated, that is not a legal justification for them.
David's lack of knowledge that his father's will gave him an entitlement to hold all the voting shares, and that he was surrendering that control, are also relevant to any suggestion that the presumption has been rebutted. The defendants contended that the transfers were made pursuant to an oral agreement whereby David agreed to transfer the CUMP shares, so as to enable them to share control between them, in circumstances where Julienne was unwilling to remain responsible for the management of the Nevilda companies with no voting rights. Deborah and Julienne say that this agreement was struck in a discussion between them and David in early January, in which they agreed that they should share equally between the three of them the voting shares in Nevilda Holdings. There is no contemporaneous evidence of any such agreement, beyond the share transfers themselves. The conversation could not have happened at the time the defendants allege, as David was in Byron Bay. For those reasons in addition to my general credit conclusions, I do not accept that any such agreement was made. But even if (which David, whose evidence I prefer, denies), there had been such an agreement, it would itself be vitiated by presumed undue influence. This is even more the case if Julienne said, or implied - as her evidence and that of Deborah suggests - that she was only prepared to continue to manage the companies and provide the personal guarantees that she claimed were required if she had some voting power; such a statement would accentuate rather than dissipate the pressure on David to accede to the transfers. With no consideration being actually provided for the transfers, and in the absence of any independent advice, I am entirely unpersuaded that the presumption of undue influence is rebutted. My conclusion would not differ had the nominal consideration of $1 per share been paid, because it does not reflect the practical value of these shares to David, at least if he held all of them.
I am, therefore, quite unsatisfied that the transfers were the independent and well-understood act of David exercising his own free judgment. Subject to the defence of laches, considered below, the share transfers are voidable for undue influence.
Unconscionable dealing
I would reach the same conclusion on the ground of unconscionable dealing. Equity intervenes to avoid a transaction which has been brought about by one party knowingly taking advantage of a special disadvantage to which the other party was subject which affected that party's ability to safeguard his or her own interests. In Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447, Mason J, as he then was, emphasised the distinction between the doctrines of unconscionable dealing and undue influence, and in particular that for the purpose of attracting the former - unlike the latter - it was not necessary that the plaintiff's will have been overborne (at 461):
Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. ... though not deprived of an independent and voluntary will, [he] is unable to make a worthwhile judgment as to what is in his best interest.
The doctrine was summarised by Kitto J in Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 (at 415) in the following terms (emphasis added):
It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.
In Amadio Deane J, with whom Mason and Wilson JJ agreed, described the elements that would attract relief (at 474), as follows (emphasis added):
The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: "the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract" (see per Lord Hatherley, O'Rorke v Bolingbroke [46]; Fry v Lane [47] , at p. 322; Blomley v Ryan [48] , at pp. 428-429).
Thus, where a party impugns a transaction on the ground that it is an unconscionable dealing: (1) the plaintiff must establish that there was a relevant relationship of "special disadvantage"; (2) the plaintiff must establish that the defendant understood that the plaintiff was at a special disadvantage. In this respect, actual knowledge of any specific diagnosis or condition is not required, and it suffices that the defendant knew, or ought reasonably have known, that the plaintiff was not in a position to look after his own interests; and (3) the defendant then bears the onus of establishing that the transaction was "fair, just and reasonable" [Amadio, 474 (Deane J)], which involves showing either that the plaintiff received full value or was independently advised [Cope, Duress Undue Influence and Unconscientious Bargains, Law Book Co, 1985, [260]].
In this context "special disadvantage" is usually associated with conditions that make people vulnerable to exploitation and less able to conserve their own interests. Mason J, in Amadio, explained the concept in the following terms (at 461-462):
It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. As Fullagar J said in Blomley v Ryan, at p. 405:
The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other.
Likewise Kitto J. spoke of it as "a well-known head of equity" which-
... applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands".
It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
At the heart of the doctrine is the prevention of unfair exploitation of a disadvantage or vulnerability. A relationship of emotional dependence that renders a party susceptible to improvidence in favour of the stronger party may attract the doctrine [Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621; Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457], although not every case of illness, impairment or emotional dependence is a case of special disadvantage. The cases to which reference has so far been made show that it is insufficient to attract the doctrine merely that there be an inequality of bargaining power, or that the plaintiff be affected by one or more of the relevant conditions; it is critical that the condition be such as to impact on the plaintiff's ability to conserve his or her own interests and render him or her vulnerable to exploitation [see Tillett v Varnell Holdings Pty Ltd [2009] NSWSC 1040, [49]-[54]].
In this case, David's ability to conserve his own interests, relative to Julienne and Deborah, was compromised: he was in a position of special disadvantage by reason of the combination of his youth, inexperience, lack of knowledge, absence of explanation, reliance on Julienne to manage the Nevilda companies, and trust and confidence in Julienne. David was hardly in a position to make a judgment in his own interests about the actual or potential importance of control of the companies in 1995. At the time of these events, David was 19 years and 8 months of age. He trusted his mother, and was not unaccustomed to being asked to sign documents that she had prepared: over the period 1994 to 1997, Julienne occasionally asked David to sign documents, which he did without question as he trusted her. He was aware in general terms that the family owned companies and properties, but not of the detail. He was not a director of either Nevilda Holdings or Nevilda Investments. He had not seen a copy of his father's will. He had not attended any meetings in which the terms of the will or matters relating to the estate were explained in any detail. He had not discussed the terms of the will or his father's estate with any lawyer or other professional advisor. He did not know the extent of the assets and liabilities of the estate, nor the structure of or inter-relationships between the companies in the group. He did not know what a cumulative preference share was, or what rights it carried. He did not read the share transfer forms before signing them. He did not understand and had received no explanation from Deborah or Julienne or any independent advisor that cumulative preference shares conferred control of Nevilda Holdings, and through it of Nevilda Investments and the various properties owned by Nevilda Investments, and that the effect of the transfers was to give effective control over those assets, that formed the bulk of the residuary estate left to him in the will, to Deborah and Julienne. He received no professional advice about the transactions, and was unaware that Julienne had a pending Family Court property claim against the estate.
Julienne and Deborah knew all this. The circumstance that the economic value of 97c per share does not reflect that the effect of the transaction was to cede control, and the absence of independent advice, means that the defendants do not discharge the onus of showing that the transaction was fair, just and reasonable. For reasons already advanced, I do not accept that the "history of the companies", and specifically the allegedly improper allotments by Colin and Hilda, provides some alternative basis for upholding the transfers.
Fraudulent misrepresentation
Had I not found for David on undue influence or unconscionable dealing, it would have been necessary to consider his case that he was entitled to the same outcome on the ground of fraudulent misrepresentation, namely the statement that I have accepted Julienne made: "This is more stuff that needs to be signed in relation to the estate. We are still sorting out the crap with Hilda", which was calculated to convey that the transfers were a necessary part of implementing the settlement with Hilda, when that settlement had already been completed, and concealed the true nature of the transaction, and materially induced David's assent.
According to David, in his affidavit evidence, Julienne, at the time he signed the forms of transfer, said to him words to the effect:
This is more stuff that needs to be signed in relation to the estate. We are still sorting out the crap with Hilda. It's just a family company, it doesn't own anything and so the shares are worth nothing. We can have a third each and use the company in the future.
This conversation was disputed. Deborah's affidavit version is very detailed, but it bears significant discrepancies with the response she provided to Teece Hodgson 8 December 2006. Acceptance of David's version is supported by the general credit reasons already mentioned, and the fact that the major attack on his version - to the effect that it was not included in his first affidavit - miscarried when it became apparent that it was included in the draft statement of claim annexed to his first affidavit, which was in any event prepared in relative haste and in summary form in support of an interlocutory application. The other main attack - that it was inconsistent with his evidence that he had been told nothing about the effect of the transaction - was without substance: his claim to have received no explanation of the effect of the transaction is not inconsistent with the statement he attributes to Julienne, which is not an explanation of the effect of the transaction at all. It is inaccurate to characterise David's evidence as being to the effect that nothing at all was said on the subject.
However, in cross-examination, David said that the third and fourth sentences attributed to Julienne - which had not appeared in his earlier affidavits - were spoken after he had signed the transfers. He also maintained that Deborah was not present at the time, which seems improbable. It was plausibly suggested, on behalf of the defendants, that he was confusing events relating to the 1993 settlement with Hilda, with the events of January 1995.
I am ultimately not comfortably satisfied, to the standard requisite to find a fraudulent misrepresentation, that Julienne said the words attributed to her on the occasion of 16 January 1995.
Laches
In respect of the January 1995 transactions, the defendants invoked the defence of laches. The essential elements of this defence are (1) knowledge of the facts and the rights to justify commencement of proceedings, (2) delay, and (3) unconscionable prejudice to the opponent as a result [Crawley v Short [2009] NSWCA 410, [163]; Savage v Lunn [1998] NSWCA 203].
I accept that David had some knowledge of the existence of the companies and their underlying properties, but he had little comprehension of the shareholdings in them or their governance at the time of the transactions in 1995. He did not discover the practical effect of the transactions, and their adverse impact on his interests, until 2006. He did not until then understand that he had ceded voting control of the Nevilda companies. David did not have sufficient knowledge of the facts and his rights to justify the commencement of proceedings until at the earliest April 2006, when he discovered that the cumulative preference shares that he had transferred conferred voting control of Nevilda Holdings, and through it of Nevilda Investments and the underlying real property assets. From April 2006, he investigated the position, and commenced these proceedings in November 2006.
The defendants submitted that means of knowledge were equivalent to knowledge, and that through his directorships David had means of knowledge long before 2006. However, references in the authorities to "means of knowledge" being as good as knowledge appear to be concerned with knowledge of one's rights, as distinct from knowledge of the facts from which those rights arise. In Savage v Lunn (No 2) [1998] NSWCA 204, the Court of Appeal maintained that "actual or inferred knowledge of the facts" is a necessary requirement of the defence.
David did not have actual or inferred knowledge of the facts - that he had ceded the control of the Nevilda companies to which he was entitled under his father's will - until at least April 2006. His limited role in the companies was not such that he should be regarded as being on notice of his rights before April 2006 [cf Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1279]. Accordingly, I reject the defence of laches.
Conclusion
David is therefore entitled to orders avoiding the January 1995 share transfers and for the retransfer to him of the 667 CUMP shares held by each of Deborah and Julienne.
The Trust Shares
Upon their transfer to Deborah (pursuant to the Deed of Settlement with Hilda), the two trust shares in each of Nevilda Holdings, Nevilda Investments and N&H Grace Holdings, ought to have been held by her as administratrix, as part of the residuary estate. But the annual returns of Nevilda Holdings, Nevilda Investments and N&H Grace Holdings, for 1993 and 1994, authorised by Deborah and Julienne as directors and signed by Julienne, recorded that Julienne was the holder of 1 of the shares in each company (albeit non-beneficially), and that Deborah was the beneficial owner of a share in N&H Grace Holdings. On 16 January 1995, Deborah and Julienne as directors of Nevilda Holdings and Nevilda Investments resolved to approve the transfer of the trust shares in each of those companies from Hilda to Julienne, and from Carolyn to Deborah. While there does not appear to have been a similar resolution in connection with N&H Grace Holdings, annual returns of that company show that from 1993 Deborah was recorded as the beneficial owner of one of the trust shares, and from 1995 Julienne was recorded as the beneficial owner of such a share.
The effect of this was that two shares in each of those companies, which had beneficially been property of Colin and ought to have been in his residuary estate and passed to David, were instead transferred to Julienne and Deborah, for no consideration. Each of those transfers amounted to a breach by Deborah of her obligations as administratrix, and Julienne received her shares knowing of that breach.
For the reasons already set out, I am unable to accept Deborah and Julienne's allegations that they held these shares pursuant to an oral agreement with David made in or about January 1995. The reasons proffered for having such an agreement - to avoid the need to procure fresh transfers of the trust shares from Hilda and Carolyn, and because the shares had little value - do not sustain scrutiny: there is little reason to doubt that Carolyn and Hilda would have cooperated in ensuring that the trust shares were transferred to David rather than to Deborah and Julienne, and subsequent dividend streams in respect of Nevilda Investments, and its underlying real property assets, render improbable the assertion that the shares in it had little value. The submission that by accepting the trust shares Julienne and Deborah waived their rights to challenge the earlier allotments sits ill with the circumstance that they were transferred to Julienne in January 1993 pursuant to the Deed of Settlement as part of the settlement with Hilda. Even if the transfer of the trust shares was a mistake made by their accountants - and in the light of my conclusions in respect of credit I am unpersuaded that it was - that would not provide a reason why the mistake should not now be rectified.
For reasons advanced in connection with the CUMP shares, the "history of the companies" and in particular the allegedly improper allotments by Colin in February 1985 and Hilda in October 1989 are not legal justification for the transaction.
The defence of laches fails, for the reasons already explained. David is beneficially entitled to the trust shares.
Conclusion
David is entitled to orders that each of the six trust shares be transferred to him, and to an account of the benefits derived from them by Deborah and Julienne in the meantime.
The Family Court Orders
Reference has already been made to Julienne's application in the Family Court, and the grant of leave on 24 February 1991 to withdraw it. In her application filed on 9 June 1989, as has been observed, Julienne had sought transfer to her of Colin's interest in Burrabirra Avenue, and his shareholdings in Debid, Sharander and Grace Securities; but she had sought no orders with respect to Birrell Street or the CUMP shares in Nevilda Holdings.
Julienne succeeded to Colin's interest as joint tenant in Burrabirra Avenue by survivorship. The estate also discharged Colin's share of the mortgage, so that she received his interest unencumbered. The Family Court consent orders, made by Registrar Hendry on 18 May 1995, provided for the transfer to Julienne from the estate of 272 Birrell Street, and the 667 CUMP shares that had already been transferred by David to Julienne on 16 January 1995.
A consequence of the differences between the orders sought in Julienne's original application, and those made in the consent orders, was that the shares in Grace Securities and Sharander (which had originally been sought by Julienne, but were left under the will to Deborah) were not affected; all the property to be transferred to Julienne would now come from the residue (which had been left to David); and the balance in how the burden would be borne between Deborah and residue was significantly shifted.
When the consent orders were made, the Family Court was not told of the 16 January 1995 transfer of the CUMP shares; nor of the way in which the consent orders departed from the original application filed by Julienne; nor that Julienne had received by survivorship Colin's interest as joint tenant in the matrimonial home. Most importantly, David was unaware and was not told of the Family Court orders or their effect, and remained ignorant of them until 2006.
David applies for an order pursuant to Family Law Act, s 79A, setting aside the orders made on 18 May 1995. It is not in issue that this Court can exercise the cross-vested jurisdiction of the Family Court in that respect [see Young v Lalic (2006) 197 FLR 27; [2006] NSWSC 18, [37]-[49]]. It should be noted that if any appeal from this judgment raises for determination a matter arising under the Family Law Act, then the appeal lies not to the New South Wales Court of Appeal, but to the Full Court of the Family Court of Australia [(CTH) Jurisdiction of Courts (Cross-vesting) Act 1987, s 7(5), and Schedule].
Standing - "person affected"
In their submissions, the defendants objected that David's application under s 79A was not with respect to marriage or a matrimonial cause and thus not within the jurisdiction of the Family Court. However, that submission does not accurately express the issue. The real question is not whether the application is with respect to marriage or a matrimonial cause, but first, whether s 79A is within the power of the Commonwealth Parliament, and secondly, if so, whether it authorises the present application.
Family Law Act, s 79A, relevantly provides as follows:
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; ...
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
If it be asserted that s 79A is beyond the power of the Commonwealth Parliament, then no Judiciary Act s 78B notice was given; the point was not raised in the defence nor mentioned in opening, and arose only in final submissions. It is not appropriate to permit that issue now to be raised.
In any event, s 79A is in my view plainly within the legislative power of the Commonwealth to make laws with respect to divorce and matrimonial causes, and "matters incidental to the execution of any power vested by this Constitution in the Parliament ... or in the Federal Judicature ..." [Commonwealth of Australia Constitution Act, s 51(xxxix)]. Proceedings under s 79A are within paragraph (f) of the definition of "matrimonial cause" in Family Law Act, s 4, namely "any other proceedings ... in relation to ... completed proceedings of a kind referred to in any of paragraphs (a) to (eb)", being proceedings in relation to completed proceedings of the kind referred to in (ca), namely proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them [Re Gilbert and Estate of Gilbert (1989) 13 Fam LR 632, 644].
The death of a spouse following the making of a s 79 order does not affect the right of the surviving spouse, or other appropriate person, to institute proceedings under s 79A, and that the s 79 order in question is one made after death of a spouse, in proceedings continued pursuant to s 79(8), makes no difference; the application of s 79A(1) is not limited to orders made during the joint lives of the parties [Re Gilbert, 645-6].
The present application is one for the Court to set aside the orders made on 18 May 1995 - which were orders made by a court under s 79 in property settlement proceedings - on one or more bases authorised by s 79A. So long as David can satisfy the requirement of standing, that he be "a person affected by an order", his application is authorised by s 79A.
Many cases in the Family Court have recognised that even an unsecured creditor of a spouse against whom a s 79 order is made can be a person affected by the order, if it has an adverse effect on the creditor's ability to recover the debt. Thus, orders made by consent that affect the ability of a third party to recover a claim against one of the spouses are liable to be set aside under s 79A on the application of the third party [Deputy Commissioner of Taxation (WA) v Spanjich (1988) 12 Fam LR 541, 545; (1988) FLC ¶91-974; Semmens v The Commonwealth (1990) FLC 92-116; (1989) 13 Fam LR 715, 723]. In Spanjich, the Full Family Court held that it was sufficient to be a person affected by an order that the effect of the order be to prevent a third party - there, the Deputy Federal Commissioner - from recovering tax due and owing, as the relevant "affect" may extend beyond strict legal rights to the practical effect of the order on the recovery of moneys due and owing (at 12 Fam LR 545):
Section 75(2) Factors
The s 75(2) factors, referred to in s 79(4)(e), are concerned essentially with the present and future means and needs of the parties, whereas the "contribution" factors in s 79(4)(a), (b) and (c) are concerned with their past contributions. The impact of the s 75(2) factors varies, depending upon the size of the pool of assets and the contribution-based entitlement. Where the pool of property is small, the means and needs factors will often predominate and overwhelm consideration of contribution-based entitlement. On the other hand, in cases where a party's entitlement having regard to the contributions alone is ample to provide for his or her future needs, the s 75(2) factors are of slight if any significance.
In this case, the relevant factors may be summarised as follows. Colin was incapacitated. He had no ongoing capacity to generate income from personal exertion, although he had an ongoing capacity to generate interest income from investments. Colin would have (foreseeably) significant ongoing costs of care. He had an ongoing financial responsibility to support David, who would attain 18 years of age in April 1993, whereas Deborah had already attained 18 years of age.
Julienne was 52 years of age, apparently in good health, and in employment as a medical specialist with a substantial earning capacity. She would have, to some extent, the ongoing responsibility for the care of David for another six months until he attained 18 years of age. She also had a prospective entitlement to a substantial superannuation benefit, which would mature in 1998 generating $500,000 approximately. (Although a much lesser value has been taken into account in the assets table that is presumably the withdrawal benefit as distinct from the maturity benefit.) Although the marriage had been a long one, it had not had an adverse impact on Julienne's earning capacity.
The combination of Julienne's prospective superannuation benefit, with Colin's incapacity and prospective needs, and the relatively slight significance of responsibility for care and support respectively of a seventeen and a half year old child, means that on balance the s 75(2) factors weighed in favour of Colin. However, given the size of the pool of assets, the proportionate impact would have been relatively slight. A further adjustment in his favour of 2.5% would have been appropriate, resulting in an overall apportionment 60:40 in favour of Colin as at the notional adjustment date.
Determination under s 79(8)(b)
As at the notional adjustment date the actual distribution of assets was 68:32 in favour of Colin, and as I have concluded that an appropriate apportionment was 60:40, it can be concluded, for the purposes of s 79(8)(b)(i), that had Colin not died the court would have made an order adjusting the interests of the parties in favour of Julienne, so as to produce a distribution was 60:40 in favour of Colin.
The next question is whether it is "still appropriate" to make an order, for the purposes of s 79(8)(b)(ii). This directs attention to the situation having regard to the deceased's death. Like s 79(8)(b)(i), it is concerned more with the conceptual than the temporal impact of the death [cf Bourke & Bourke [1998] FamCA 69, [4.9]]. It means "still" notwithstanding the death, rather than still today, and does not necessarily require that attention be given to the circumstances at the date of hearing, if the court concludes, as I have, that an earlier adjustment date is for other reasons appropriate.
The impact of death on the appropriateness of making an order may arise in several ways. First, the effect of the deceased's will may be to discharge the moral obligations that would otherwise have underpinned an adjustive property order. Secondly, a deceased spouse has no future needs, and thus no s 75(2) factors operating in her or his favour [Tasmanian Trustees Limited v Gleeson (1990) FLC ¶92-156]; thus the death of a party can have a profound effect on the balance of the s 75(2) factors [Parrott v Public Trustee of NSW (1994) FLC ¶92-473], although that will depend on the means and needs of the surviving spouse and the adequacy of his or her contribution-based entitlement to provide for them.
In this case, the following matters need to be taken into account, as at the notional date of adjustment. First, there were no longer any s 75(2) factors operating in favour of Colin. The occasion for an adjustment in his favour on that account was therefore removed. That is not to say, however, that there was any occasion for an adjustment in Julienne's favour. The defendants invoked cases in which significant s 75(2) adjustments had been made in favour of a surviving spouse, as indicating that there should be a 15% adjustment on that account in Julienne's favour, but this is misconceived. They were cases in which the surviving spouse had a strong needs-based claim. Here, Julienne retained her earning capacity, and her prospective superannuation entitlement, and her income and resources were such that her contribution-based entitlement was ample to satisfy her needs. As Watts J observed In Miklic v Miklic [2010] FamCA 741 (at [127]):
Past cases have considered how the death of a party should be taken into account when assessing the availability of an adjustment under s 79(4) in relation to future needs. Clearly, the husband has no future needs of the kind referred to in parts of s 75(2). On the other hand, some care should be taken not to nullify the deceased party's contributions due to the lack of future needs (see T & D & Anor (2006) FamCA 1248).
Accordingly, one impact of Colin's death would be to restore the appropriate distribution to the contribution-based 57.5:42.5, in favour of Colin.
The second impact of Colin's death is that, by survivorship, Julienne succeeded to Colin's share in Burrabirra Avenue, unencumbered. The practical effect of this was an adjustment in her favour of $750,000, increasing her net position to $3,696,958, or 40% of the pool of property. Only a further $228,000 approximately would have been required to produce the notional 57.5:42.5 distribution, based on the original pool.
Thirdly, however, under Colin's will, Deborah also obtained significant benefits. Through the shares in Grace Securities, Deborah received property to the value of $1,724,978, and through the shares in Sharander, a further $163,604. In all, this amounted to 20% of the divisible pool of property. This is of importance because, having regard to (1) the alignment of Deborah with Julienne and David with Colin following separation, (2) the arrangement between Colin and Julienne following their separation that he would provide for David while she would provide for Deborah, (3) the fact that Julienne made a will on February 1988 leaving the bulk of her estate to Deborah, and explaining in the body of her will that she did so because Colin was proposing by his will to leave his estate to David, and (4) the alignment of the parties in these proceedings, so that it may be considered improbable that David would inherit significantly if at all from Julienne, it is necessary to consider whether - at least to the relatively small extent of about $228,000, which corresponds to about 12% of Deborah's inheritance from Colin - it should be borne by Julienne's share of the matrimonial pool.
In my judgment it should, first because the provision made by Colin for Deborah significantly reduced Julienne's obligation to provide for her; secondly because the remaining 40% share was ample to provide for Julienne's needs; and thirdly because treating the distribution to Deborah in that way would result in Julienne receiving 40% of the matrimonial pool, David 40% (being Colin's residuary estate) and Deborah 20%, but with the likelihood that in due course Deborah and not David would inherit from Julienne.
Accordingly, once the s 75(2) adjustment in favour of Colin is disregarded by reason of his death, the appropriate apportionment returns to 57.5:42.5. As a result of the will, the distribution in favour of Julienne increased from 32% to 40%, by reason of her succession to Colin's interest in Burrabirra Ave. Although this implies that there ought to have been an adjustment in favour of Julienne to increase her interest to 42.5%, Deborah received 20% of the pool pursuant to Colin's will, and given the sufficiency of 40% amply to provide for Julienne's needs, and the alignments of the parties and the arrangements they agreed in respect of provision for the two children, it is just and equitable that the distribution to Deborah be treated, at least to the extent of 2.5% of the pool, as being for the benefit of Julienne.
Accordingly, I conclude that it is not, in light of the changes wrought by Colin's death, still appropriate to make an order under s 79 adjusting the interests of his estate and Julienne in their property.
Family Provision Act
Both Deborah and Julienne have submitted that, if David otherwise succeeds, orders should be made making provision for them out of Colin's estate under (NSW) Family Provision Act, s 7. As no such application was filed within 18 months of Colin's death, an extension of time in which to bring the proceedings is required.
The factors that inform the exercise of discretion under Family Provision Act, s 16(2), to extend the time for bringing an application are, first, the sufficiency of the explanation of delay in making the claim; secondly, whether any prejudice would be occasioned to beneficiaries; thirdly, whether there has been any unconscionable conduct by the applicant; and fourthly, the strength of the applicant's case for final relief [Warren v McKnight (1996) 40 NSWLR 390, 394 (Hodgson J); Hatton v Hatton (NSWSC, Powell J, 6 September 1977, unreported); Massie v Laundey (NSWSC, Young J, 7 February 1986, unreported); Re Guskett [1947] VLR 212; Lewis v Lewis [2001] NSWSC 231 [82]; Ebert v Ebert [2008] NSWSC 1206, [39]-[43]].
Deborah's application
The highest and in truth sole basis upon which Deborah explains her failure to make a claim within time is that it was thought that there were on foot valid proceedings by Julienne under the Family Law Act, which culminated in the settlement of 18 May 1995. Even if that could explain why Julienne did not bring a timely claim, it does not explain why Deborah, who was not a beneficiary, did not do so. She received a significant benefit, of more than $1.8 million, under the will, which if anything was threatened by Julienne's family law claim, at least until it was settled. Her entitlement to that benefit is not disturbed by this judgment. No basis for an extension of time in Deborah's case is established.
In any event, Deborah received very substantial provision under Colin's will. Moreover, according to her 23 October 2010 affidavit, her net asset position is almost $5 million - but this is affected by an undervaluation of her interest in Grace Securities, which when corrected means that her current position is in the order of $8 million to $9 million. For an adult child in remunerative employment, it could not be said that she has been left with inadequate provision for here proper maintenance and advancement in life having regard to the circumstances today.
I would therefore not extend time to permit Deborah to make an application under the Family Provision Act, because there is no sufficient explanation of her failure to make a timely claim, and because a claim if allowed could not succeed.
Julienne's application
Julienne is in a somewhat different position. To my mind, belief that a valid application under s 79(8) of the Family Law Act remained on foot, and thereafter that orders had been made on it, amply explains why Julienne would not have made a Family Provision Act application, at least until those orders were impugned. Were I of the view that such an application by her under the Family Provision Act had prospects of success, I would extend time for it to be brought.
In support of her substantive application Julienne has invoked some extra-judicial observations in a paper [The Hon. PLG Brereton, "Where Death and Divorce Meet: The Intersection of Family Provision and Family Law", National Family Law Conference, October 2006, p23], to the effect that the proper measure nowadays of the community's expectation as the basic minimum which testators should provide for their spouses, even in an unhappy marriage, is such provision as the surviving spouse would have received under Family Law Act, Part VIII, had the parties separated and instituted such proceedings. As a general proposition, the plaintiff does not take issue with that position. For the reasons set out above, proper provision for Julienne under Part VIII would not have differed markedly from what she received from Colin's estate under his will.
Moreover, the general proposition must yield to accommodate the requirement of Family Provision Act, s 7, that the Court exercise its power under that section "having regard to the circumstances at the time the order is made". This directs the court to have regard to the situation today, and in particular as to whether it can be said today that Julienne has been left with inadequate provision for her proper maintenance and advancement in life. In her affidavit of 22 October 2010, in which Julienne gives evidence of her current financial circumstances, she discloses a nett asset position of $11 million. Moreover, this undervalues her interest in Grace Securities, and when allowance is made for that her net asset position appears to be in the order of $14 million to $15 million.
Accordingly, as her application would not succeed, I would not extend time to allow Julienne to bring an application under the Family Provision Act.
Conclusion
My conclusions may be summarised as follows.
David is entitled to orders avoiding the January 1995 share transfers for presumed undue influence and alternatively for unconscionable dealing, and for the retransfer to him of the 667 CUMP shares held by each of Deborah and Julienne, and to an account in respect of any benefits derived from them by Deborah and Julienne whilst in their hands.
David is also beneficially entitled to each of the six trust shares and to orders that Deborah and Julienne transfer them to him, and account to him for any benefits derived from them in the meantime.
Julienne's property settlement proceedings had not been completed when Colin died. They remained on foot, and could be continued after Colin's death against his estate under s 79(8). There was no absence of jurisdiction to make the consent orders that were made on 18 May 1995. However, the consent orders of 18 May 1995 involved a miscarriage of justice, by reason of the denial of procedural fairness to David, and the impossible conflict of interest, loyalty and duty that affected Deborah, who ought to have been defending the estate (and thus his interest). Regardless of the quantum of the order in favour of Julienne, there was an argument to be had as to how it should be borne by the estate, and it could not be said that the only possible outcome was that it be borne exclusively by David's residuary share. In any event, on a rehearing it was not inevitable that Julienne would obtain no less favourable an outcome. The orders should be set aside pursuant to (CTH) Family Law Act, s 79A.
Tab33 is not a sufficiently reliable analysis of expenditure of Nevilda Investments to be accepted as proof of the relative benefits each party derived from it. Even if it were, it is not established that such expenditure was not appropriately allocated in the accounts. It has therefore not been proved that during the period 1995 to 2006, Deborah and Julienne benefited disproportionately from Nevilda Investments, so as to disadvantage David. The instances of failure to provide information in respect of Nevilda Investments about which complaint is made were not such as to amount to, or warrant relief for, oppression. As the defendants submit, there is no evidence of oppressive conduct of the affairs of Nevilda Holdings. The plaintiff has not established a case for relief for oppression.
It is not in dispute that the plaintiff is entitled to have the defendants account in respect of the NISF for the period from 18 January 2007. However, a case for an account on a wilful default basis has not been established.
Given that they ought not be contributories, as the 16 January 1995 transactions under which they acquired a shareholding are to be set aside, Deborah and Julienne should not be regarded as having standing to apply for a winding up of the Nevilda companies on the just and equitable ground. Although Deborah may have standing in respect of Nevilda Investments as a creditor, winding up would not be an appropriate remedy. If they were guarantors, they would have standing in respect of Nevilda Investments as contingent creditors, but it is not established that they have given such guarantees. It cannot be assumed that David will conduct the affairs of the Nevilda companies in a manner oppressive of Deborah and Julienne in the future, and I am not satisfied that it is just and equitable that they be wound up.
As there was an extant proceeding under s 79 on foot at the date of Colin's death, which could be continued after his death pursuant to s 79(8), it is open to the Court, on setting aside the Family Court consent orders, to make "another order under s 79 in substitution for the order so set aside" pursuant to s 79A(1).
The net divisible property of Colin and Julienne as at September 1992 was in the order of $9,132,630, of which Julienne was then entitled to $2,946,958, or 32%. Overall, the contributions of Colin up to that notional date of adjustment exceeded those of Julienne, in my assessment by 57.5% to 42.5%. On balance, the s 75(2) factors weighed in favour of Colin, albeit that given the size of the pool of assets, their relative impact would have been slight, justifying a further adjustment in his favour of 2.5%, resulting in an overall apportionment 60:40 in favour of Colin as at the notional adjustment date. As, at the notional adjustment date, the actual distribution of assets was 68:32 in favour of Colin, and an appropriate apportionment was 60:40, had Colin not died the court would have made an order adjusting the interests of the parties in favour of Julienne, so as to produce a distribution was 60:40 in favour of Colin.
Once the s 75(2) adjustment in favour of Colin is disregarded by reason of his death, the appropriate apportionment returns to 57.5:42.5. As a result of the will, the distribution in favour of Julienne increased from 32% to 40%, by reason of her succession to Colin's interest in Burrabirra Ave. Although this implies that there ought to be an adjustment in favour of Julienne to increase her interest to 42.5%, Deborah received 20% of the pool pursuant to Colin's will, and given the sufficiency of 40% amply to provide for Julienne's needs, and the alignments of the parties and the arrangements they agreed in respect of provision for their two children, it is just and equitable that the distribution to Deborah be treated, at least to the extent of 2.5% of the pool, as being for the benefit of Julienne. It is therefore not still appropriate to make an adjustive property order. Accordingly, I would not make an order under s 79 in substitution for the order set aside.
I would not extend time to permit Deborah to make an application under the Family Provision Act, because there is no sufficient explanation for her failure to make a timely claim, and because a claim if allowed would not succeed.
Although Julienne has an acceptable explanation for not making a timely application, I would not extend time to allow Julienne to bring an application under the Family Provision Act, because it could not be said that she has been left with inadequate provision for her proper maintenance and advancement in life, having regard to the circumstances at the time when any such order would be made.
I direct that the plaintiff bring in short minutes to give effect to this judgment.
**********
- AGLC
- Grace v Grace [2012] NSWSC 976
- Case
- [2012] NSWSC 976
- Decision Date
CaseChat Overview and Summary
The court considered the presumption of undue influence in the context of a parent-child relationship and examined whether the evidence presented successfully rebutted this presumption. The court also evaluated whether the transfer was procured by unconscionable dealing and assessed if the defendants managed the company in a way that was oppressive to the plaintiff. Furthermore, the court analysed whether there was a breach of trust in the handling of trust property and if the defendants had acted in a way that constituted a wilful default.
In its reasoning, the court determined that the presumption of undue influence was not rebutted by the evidence provided, and thus the transfer of shares was valid. The court found no unconscionable conduct or oppressive management and concluded that there was no breach of trust or wilful default. The application to set aside consent orders was dismissed due to a failure to provide the plaintiff with notice as required by procedural fairness. The application for provision out of the deceased's estate was also dismissed, with the court finding that an extension of time to bring the claim was not warranted.
The final orders of the court were to dismiss all applications brought by the plaintiff and to affirm the validity of the share transfers and the actions of the defendants in managing the company.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.