Jukka Pekka Kemi v Peter Hedley Wood
[2013] NSWSC 180
•07 March 2013
Supreme Court
New South Wales
Medium Neutral Citation: Jukka Pekka Kemi v Peter Hedley Wood [2013] NSWSC 180 Hearing dates: 7 March 2013 Decision date: 07 March 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraphs [41]-[46]
Catchwords: SUCCESSION - construction of will - use of extrinsic evidence Legislation Cited: Probate and Administration Act 1898
Succession Act 2006Cases Cited: Lockrey v Ferris [2011] NSWSC 179 Texts Cited: David Haines QC, Construction of Wills in Australia (2007) Category: Principal judgment Parties: Jukka Pekka Kemi (Plaintiff / Cross-defendant)
Peter Hedley Wood (Defendant / Cross-claimant)Representation: Counsel:
R J Colquhoun (Plaintiff)
R D Wilson (Defendant)
File Number(s): 2012/68401
ex tempore Judgment (revised 8 march 2013)
Proceedings
By summons filed on 1 March 2012, the plaintiff, Jukka Pekka Kemi (the Plaintiff) seeks orders under s 59 of the Succession Act 2006 for his advancement and maintenance out of the estate or notional estate of his mother, the late Taimi Saara Annikki Kemi Isoniemi, who died on 10 Mach 2011 (the Deceased).
There is also a cross-summons filed on 11 September 2012 by Peter Hedley Wood, the executor and trustee of the Deceased's will (the Defendant), seeking a determination of the proper construction of certain clauses in the will. The Defendant is seeking a declaration as to whether certain money advanced by the Deceased to the Plaintiff is by way of an advance against the inheritance or by way of a loan, and as to the consequences which flow from that.
Only the cross-summons is dealt with in the present proceeding. The summons will be dealt with at a future date, if and when necessary to do so.
Background
The Plaintiff is about 54 years old and has been living with his wife Lynette Kemi since 1990. Around 1994, the Plaintiff suffered a back injury which required a surgical procedure, and as a result of which he has been receiving and disability pension since 1995. The Plaintiff and his wife have two children, aged 17 and 16.
The Plaintiff and his wife had been living in rental accommodation in Peats Ridge, west of Gosford, from around 1990. In early 2002 the Plaintiff was advised of a rental increase, and he mentioned to the Deceased his concern about his ability to afford to continue to stay at Peats Ridge. Soon after, the Deceased contacted the Plaintiff and indicated that she would be prepared to advance $200,000 to help the Plaintiff purchase a house.
The Plaintiff and his family purchased a house at 6 Alexandra Street, Bulahdelah, and moved in around November or December of 2002. The purchase price, legal expenses and other transaction costs amounted to about the same figure as the sum advanced to the Plaintiff by the Deceased, namely $200,000.
However, the Deceased made a number of other advances to the Plaintiff. While the Plaintiff was still living at Peats Ridge, the Deceased advanced to the Plaintiff $20,000 to help him to buy a new car. In about 1997, the Deceased advanced $3,000 to the Plaintiff to buy a boat. Finally, at some time after the Plaintiff had moved into the Bulahdelah home, the Deceased advanced to the Plaintiff's wife $2,000 to purchase new carpet for three bedrooms in the house.
Therefore in total the Deceased provided to the Plaintiff around $225,000.
The Deceased died on 10 March 2011, and probate of the Deceased's last will was granted on 25 October 2011. An inventory of property owned by the Deceased prepared pursuant to s 81A of the Probate and Administration Act 1898 disclosed the following material assets:
(1) ($400,000): Real property at 3/101 Pacific Parade, Dee Why (Identifier 3/SP3783);
(2) ($69,986.08): Accounts with the Commonwealth Bank of Australia (namely a Pensioner Security Account and a Term Deposit Account);
(3) ($1.09): Account with Bendigo Bank; and
(4) ($225,000): "Debt" owing to the Deceased by the Plaintiff.
The total value of the Deceased's assets disclosed in the inventory of property is therefore around $694,987.20. The Deceased is survived by her four adult children, namely Rita Fisher, Pertti Kalervo Kemi, Mikko Ilkka Kemi and the Plaintiff.
Provisions of the will
The Deceased's last will is dated 27 June 2008, and I summarise its provisions briefly. The Deceased gives her son Mikko Ilkka Kemi a life tenancy in her Dee Why residence. She gives the income from her (approximately) $70,000 term deposit with the Commonwealth Bank of Australia to her daughter Rita Fisher during her lifetime.
The will then provides:
5. I HAVE advanced to my son JUKKA PEKKA KEMI the sum of Two Hundred Thousand Dollars ($200,000.00) to assist in the purchase of a home for him and his wife and Twenty Five Thousand dollars ($25,000.00) to assist in the purchase of a car.
6. I HAVE given my son PERTTI KALERVO KEMI the sum of One Hundred and Thirty Three Thousand Five Hundred Dollars ($133,500.00) to assist in the purchase of a home.
7. I GIVE the rest of my estate:
7.1 as to one-quarter share to my son MIKKO ILKKA KEMI;
7.2 as to a further one-quarter share to RITA FISHER;
7.3 as to a further one-quarter share to PERTTI KALERVO KEMI;
7.4 as to the remaining one-quarter share to JUKKA PEKKA KEMI PROVIDED THAT the sum of Two Hundred and Twenty Five Thousand Dollars ($225,000.00) advanced by me to JUKKA PEKKA KEMI shall to the extent that it has not been repaid by him be treated for the purposes of calculating his entitlement as having been paid as part of the gift to him under this Clause.
The issue raised in the cross-summons is the precise legal basis on which the payment of $225,000 to the Plaintiff was made, namely, whether it was a gift by way of an advance against inheritance, or by way of a loan. This is effectively a question of construction of the will.
The sum of $225,000 was in fact not paid to the Plaintiff in one instalment; rather, it is the total of four separate payments made to the Plaintiff at different times, and in different amounts. Based on the Plaintiff's affidavit, the advances appears to be $20,000, $3,000, $2,000 and $200,000.
In his affidavit, the Plaintiff appears to concede that the sum of $20,000 provided to him for the purchase of a new car was by way of a loan. He alleges he made a number of $100 monthly instalments, though he cannot recall the total amount repaid. In his evidence before the Court however, he indicated that the repayments may have been more in the range of $20-$50 each time he made a payment. After a short adjournment, the parties agreed on the sum of $2,000.
The Plaintiff also appears to concede that the sum of $3,000 provided for to him for the purchase of a boat was provided as a loan, and he alleges he has repaid this amount in full.
In relation to the $2,000 provided to the Plaintiff's wife for the purchase of new carpet, the Plaintiff does not give evidence that he ever repaid this amount, and instead indicates that this advance was a gift, saying:
Mum gave Lyn a cheque for $2,000 to purchase a new carpet.
In relation to the sum of $200,000 the Plaintiff alleges it was a gift, because at the time it was provided, the Deceased allegedly said to him:
This money will be an advance on what you'll get under my Will. When I die the $200,000 will come off your share of my Will.
Submissions
In his brief written submissions, the Plaintiff identifies that the issue raised in the cross-summons is one of construction, and he contends that it is clear, by the terms of the will, that the sum of $225,000 was a gift by the Deceased to the Plaintiff, in advance or in anticipation of the distributive share to which the Plaintiff would be entitled upon the death of the Deceased. This amount, the Plaintiff argued, is to be set off against the Plaintiff's future quarter share of his inheritance from the Deceased's estate. The Plaintiff also argues he would not be liable for any amount by which the advance of $225,000 exceeds his one quarter interest in the remainder.
The Defendant submits that terms of the deceased's will are ambiguous and therefore extrinsic evidence is admissible to assist in its construction. The Defendant fixes on the words "to the extent that it [i.e. the $225,000] has not been repaid by him [i.e. the Plaintiff]" in clause 7.4 and argues that the advance of the sum of $225,000 could only have been by way of loan. The Defendant accepts that the Deceased cannot, by changing the description of the $225,000 advance in 2002 (e.g. by describing it in language consistent with a loan), alter the status of the advance if it was in fact a gift at the time it was provided to the Plaintiff. The Defendant also raises these further issues in his written submissions:
(1) If the advance of $225,000 to the Plaintiff exceeds his one quarter interest in the remainder, is he liable for the difference?
(2) Given that under clause 3 of the will the Deceased gave to Mikko Ilkka Kemi a life tenancy in the Deceased's Dee Why residence, should the residuary estate be partially distributed to the beneficiaries (until such time as the life tenancy under clause 3 comes to an end)?
Construction of the Deceased's will
There are certain general rules and presumptions relating to the construction of wills. The general principles of construction of wills have been considered in numerous cases and have been summarised by Hallen AsJ (as his Honour then was) in Lockrey v Ferris [2011] NSWSC 179 at [42]-[46]. It is unnecessary to set these principles out in any detail.
Division 1 of Part 2.3 of the Succession Act 2006 contains provisions dealing with the use which can be made of extrinsic evidence in construing wills. These provisions will only apply if the will was made on or after 1 March 2008 (see Schedule 1, Clause 3 of the Succession Act). The Deceased's last will is dated 27 June 2008. The provision presently relevant is s 32:
32 Use of extrinsic evidence to construe wills
(1) In proceedings to construe a will, evidence (including evidence of the testator's intention) is admissible to assist in the interpretation of the language used in the will if the language makes the will or any part of the will:
(a) meaningless, or
(b) ambiguous on the face of the will, or
(c) ambiguous in the light of the surrounding circumstances.
(2) Despite subsection (1), evidence of the testator's intention is not admissible to establish any of the circumstances mentioned in subsection (1) (c).
(3) Despite subsection (2), nothing in this section prevents evidence that is otherwise admissible at law from being admissible in proceedings to construe a will.
The argument that the advance to the Plaintiff was by way of loan appears to be based on the language used in clause 7.4 of the will, which contemplates some repayment of the $225,000 advance. However, the wording of this clause in no way requires the repayment by the Plaintiff to the Deceased of any of the amount of $225,000, but it merely contemplates it. Neither do any of the other terms of the will impose on the Plaintiff a positive obligation to repay any of the $225,000. It is not clear why the Deceased selected to employ the word "repaid" in clause 7.4.
Perhaps the Deceased understood that the Plaintiff might, though under no legal obligation to do so, gratuitously reimburse the Deceased some of the financial assistance she provided to him for the purchase of his home and other items. To the extent he had not provided such reimbursement, the Deceased may have wished for the benefit retained by the Plaintiff to be taken into account under her will. On the other hand, the selection of the word "repaid" by the Deceased may indicate that the $225,000 was provided by way of a loan.
Given the ambiguity on the face of the will, it is appropriate, as permitted under s 32 of the Succession Act, to look to extrinsic evidence for the purpose of arriving at its proper construction. In this case, the most obvious extrinsic material which may assist in arriving at a proper construction of the will includes previous revoked wills of the Deceased, and notes taken by the solicitor who prepared the will. The judicial debate as to whether a court has the power to look at a previously revoked will or solicitors' instructions in order to resolve an ambiguity in a subsequent will (see discussion in Construction of Wills in Australia by David Haines QC (2007) at [5.11]) appears to now be resolved by s 32 of the Succession Act.
The first will of the Deceased was dated 22 January 2003 and relevantly provided:
6. I MAKE this Will in contemplation of the fact that I have recently given to my son JUKKA PEKKA KEMI the sum of Two Hundred Thousand Dollars ($200,000.00) to assist in the purchase of a home for him and his wife.
...
7. I GIVE all the rest of my Estate to such of my children RITA MARJATTA FISHER, JUKKA PEKKA KEMI and PERTTI KALERVO KEMI as shall survive me if more than one (1) in equal shares as tenants in common absolutely provided however that the sum of Two Hundred Thousand Dollars ($200,000.00) given by me to my son JUKKA PEKKA KEMI shall for the purposes of calculating his entitlement be treated as having been paid as part of the gift to him under this Clause.
The second will of the Deceased was dated 20 July 2004 and relevantly provided:
5. I make this Will in contemplation of the fact that I have given to my son JUKKA PEKKA KEMI the sum of Two Hundred Thousand Dollars ($200,000.00) to assist in the purchase of a home for him and his wife.
...
6.2 as to one of the equal undivided one quarter shares to JUKKA PEKKA KEMI absolutely PROVIDED HOWEVER that the sum of Two Hundred Thousand Dollars ($200,000) given by me to my son JUKKA PEKKA KEMI shall to the extent that it has not been repaid by him for the purposes of calculating his entitlement be treated as having been paid as part of the gift to him under this clause.
The third will of the Deceased was dated 25 September 2006 and relevantly provided:
5. I HAVE advanced to my son JUKKA PEKKA KEMI the sum of Two Hundred Thousand Dollars ($200,000) to assist in the purchase of a home for him and his wife and Twenty Five Thousand dollars ($25,000.00) to assist in the purchase of a car.
...
8.4 As to the remaining one-quarter share to JUKKA PEKKA KEMI PROVIDED THAT the sum of Two Hundred and Twenty Five Thousand Dollars ($225,000.00) advanced by me to JUKKA PEKKA KEMI shall to the extent that it has not been repaid by him be treated for the purposes of calculating his entitlement as having been paid as part of the gift to him under this Clause.
The language used in the wills dated 22 January 2003 and 20 July 2004 indicates that the advance of $200,000 was "given" to the Plaintiff. In her will dated 20 July 2004, the Deceased, having said in clause 5 that she had "given" to the Plaintiff the sum of $200,000, nonetheless contemplated, in clause 6.2, being "repaid" by the Plaintiff, and said that any amount not repaid would be taken into account for the purposes of determining the Plaintiff's entitlement under the will. This at least indicates that the use of the word "repaid" does not necessarily indicate that the advance was by way of a loan. It also indicates that as at 22 January 2003 and 20 July 2004 the Deceased understood that the payment she had made to the Plaintiff was a gift.
The Defendant, who acted as the Deceased's solicitor and drafted each of her four wills, includes in his affidavit a transcription of the notes which he wrote at the time he took instructions for the drafting of each will. In a handwritten note date 17 December 2002, the Defendant recorded:
Has already spent $200,000 on a house for Jukka.
When Mikko does, Unit goes to Rita, Perrti, Jukka - less the share which Jukka has had $200,000.
She has given $200,000 to Jukka - not a loan - a gift.
In a handwritten note dated 17 June 2004, the Defendant recorded:
Actually has lent more to Jukka but leave it at $200,000
Counsel for the Defendant submitted that the Deceased cannot, by changing the description of the advance several years after it was provided, alter the legal basis on which it was provided. In particular, the Deceased could not, by subsequently describing the advance in language consistent with a loan, alter the status of the advance if it was in fact a gift. In my view, this is correct, subject to two comments. First, in relation only to advances provided as loans, it would be open for the Deceased to re-characterise such advances and treat them as gifts, by no longer requiring repayment of those amounts. Secondly, the Deceased is obviously entitled to choose from time to time, by drafting and executing further wills, the effect that any advances will have on the Plaintiff's entitlement under her will.
In my opinion, it emerges from both the Defendant's notes taken very soon after the advance was made in late 2002, and from the language of the will dated 22 January 2003, that the advance of $200,000 was not a loan. However, looking to clause 7.4 of the Deceased's latest will (i.e. dated 27 June 2008), it is clear that the Deceased intended that the Plaintiff's entitlement would be affected by the total amount advanced to the Plaintiff. The precise effect of the advance, as recorded in clause 7.4, is that the sum of $225,000 would operate as an advance against inheritance. It was a gift which would reduce the Plaintiff's quarter share inheritance from the Deceased's estate. But the extent of such reduction in the Plaintiff's entitlement is to be reversed (or mitigated) by the value of any "repayment" made by the Plaintiff (though to be clear, the Plaintiff was not obliged to make such repayment).
There still remains, however, a question as to the legal basis on which the Deceased advanced the remaining $25,000 to the Plaintiff. On one hand, the absence of any distinction in the Deceased's will between the sum of $200,000 and the sum of $25,000 suggests that the sum of $25,000 was advanced on the same basis, namely a gift against inheritance, or at least the Deceased treated it as such. The only source of evidence of the circumstances surrounding the $25,000 payment is the Plaintiff's affidavit, which indicates that:
(1) $23,000 was advanced as a loan (in instalments of $20,000 and $3,000), and that the Plaintiff has repaid $3,000, plus a number of other ad hoc payments; and
(2) $2,000 was advanced as a gift, which is treated under the Deceased's will as a gift against inheritance.
By specifying the sum of $225,000 in clause 7.4 of her will, the Deceased clearly intended that each of the four advances constituting this amount would be treated in the same way as the gift of $200,000, namely, as a gift against inheritance. Even if the Deceased had initially provided the amount of $23,000 as a loan, it appears clear to me that in writing her will, she directed this amount to be provided as a gift against inheritance to the Plaintiff.
The Plaintiff's evidence as to the repayment of $3,000 is specific and uncontradicted, and I am therefore inclined to take this into account in determining the amount by which the Plaintiff's inheritance under the will should be reduced. As for the ad hoc instalments allegedly repaid by the Plaintiff, I propose to take into account the amount agreed between the parties, namely $2,000.
In these circumstances, I would find that the advance by the Deceased to the Plaintiff is a gift by way of an advance against inheritance in the net sum of $225,000 less $3,000 and $2,000 (i.e. $220,000).
In the event that the advance of $220,000 exceeds Plaintiff's one quarter interest in the remainder, the Plaintiff should not be liable for the difference. This, it seems to me, would follow from my finding that the advance of $225,000 was not a loan, but rather a gift against inheritance. To hold otherwise would be tantamount to imposing on the Plaintiff an obligation make a repayment of the amount advanced to him by the Deceased, and would be inconsistent with my finding that the amount advanced was not a loan.
Though it is unnecessary to decide the issue, it seems the better and more practical view is that the value of the remainder should be determined at the expiration of the life tenancy when the value of the Dee Why unit can properly be assessed.
In light of my findings above, it is unnecessary to answer the questions which would otherwise arise in an application for family provision under s 59 of the Succession Act 2006. In any event, the parties have not in any substantive way prepared written material so that the matter could be addressed in the alternative. If the matter should ever arise, it can be dealt with appropriately.
Summary of findings and conclusion
In summary, I find that the sums of $200,000 and $2,000 are gifts against inheritance, and that the sums of $20,000 and $3,000 were initially provided to the Plaintiff as loans, but later directed by the Deceased in her will to be treated as gifts against inheritance.
I find that, consistent with his evidence, the Plaintiff has repaid in full the amount of $3,000 provided to him by the Deceased. Based on the parties' consent, I propose to treat the Plaintiff as having also repaid $2,000 of the $20,000 sum provided to him by the Deceased. This means that the Plaintiff has made a total repayment of $5,000, and his reduction against inheritance should be $220,000.
I also find that in the event that the Plaintiff's advance against inheritance exceeds his one quarter interest in the remainder, the Plaintiff is not liable for the difference.
I therefore propose to make the following orders:
(1) The Court declares that in the events which have happened, upon a proper construction of the last will and testament of the late Taimi Saara Annikki Kemi Isoniemi ("the deceased") dated 27 June 2008 the advance by the deceased to her son Jukka Pekka Kemi of $225,000 in clause 5 of the will is a gift by way of an advance against inheritance;
(2) The Court declares that in the events which have happened, upon a proper construction of the last will and testament of the deceased dated 27 June 2008, in the event that the advance of $225,000 to Jukka Pekka Kemi exceeds his one quarter interest in the remainder, he is not liable to repay to the estate the difference between the advance and that one quarter interest in remainder;
(3) Order that the summons be dismissed;
(4) Order that the defendant, cross claimant's costs of these proceedings be paid out of the estate of the deceased on the indemnity basis;
(5) Order that the costs of the plaintiff, cross defendant of these proceedings be paid out of the estate of the deceased as agreed or as assessed on the ordinary basis.
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Decision last updated: 08 March 2013
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