Simpson v Cunning
[2011] VSC 466
•22 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2011 01837
IN THE MATTER of the Will and Estate of MURIEL RHAE CRESWELL (deceased)
and
IN THE MATTER of an application by
| ANDREW JOHN SIMPSON (in his capacity as executor of the deceased's Will) | Plaintiff |
| v | |
| SARAH LOUISE CUNNING (by her litigation guardian WENDY CUNNING) | Defendant |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 August 2011 | |
DATE OF JUDGMENT: | 22 September 2011 | |
CASE MAY BE CITED AS: | Simpson v Cunning | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 466 | |
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WILLS – Ademption – Subject matter of gift in will sold by attorney – Testatrix incapacitated and ignorant of sale – Whether gift adeemed by sale – Held: gift not adeemed – Re Viertel [1997] 1 Qd R 110 followed and extended – Recommendation for law reform.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A J Verspaandonk | Moores Legal |
| For the Defendant | Mr P A Cassidy | Lawson Hughes Peter Walsh Lawyers |
TABLE OF CONTENTS
Parties and introduction.................................................................................................................... 2
Has the gift of the house been adeemed?...................................................................................... 6
HIS HONOUR:
Parties and introduction
Muriel Rhae Creswell (‘the deceased’) died on 20 October 2009, aged 78 years. She left a will made on 24 March 1998. The deceased was survived by her three children and six grandchildren.
By her will, the deceased gave her house to her son, Mark Cunning, or, if he predeceased her or died within 30 days of her death, to his children in equal shares. She made other specific bequests to her children. She gave her residuary estate to her grandchildren in equal shares.
In July 2003, the deceased engaged the plaintiff, Andrew Simpson, a solicitor specialising in probate and related legal issues, and by codicil prepared by him appointed him as executor under her will. No other changes were made to the will.
From 2004, the deceased’s general practitioner noticed problems with the deceased’s mental state and a history of falling. Commencing in late 2005 or early 2006, the GP made a concerted effort to convince the deceased that it was no longer safe for her to continue living at home on her own. However, the deceased was reluctant to move.
During 2006 the deceased became confused about taking her medications.
In September 2006, the deceased’s carer contacted the GP regarding difficulties which the deceased was having in managing her financial affairs.
By 1 November 2006, the deceased’s physical and cognitive health was failing. In these circumstances, Mr Simpson attended at her house to discuss her making a new power of attorney. During this meeting, Mr Simpson learned that the deceased’s neighbour was attending to payment of her bills and she was happy for that to continue. Further, Mr Simpson received instructions to prepare a power of attorney in favour of himself and two of his partners in legal practice on a joint and several basis. Only the plaintiff has acted pursuant to that power of attorney. Finally, at the meeting, the deceased was shown her will and codicil and she confirmed that she wished them to remain in force.
On 22 December 2006, the carer attended with the deceased at the GP’s practice for a consultation. It was decided to place her in respite care. At this time, the GP formed the opinion that the deceased no longer understood what was required to care for herself at home. He described the deceased’s refusal to move out of her home as ‘a very bad decision’.
The GP arranged for the deceased to be reviewed by a geriatrician in January 2007. The geriatrician reported that the deceased needed prompting or help with dressing, washing, showering and toileting; and that she had short-term memory problems associated with difficulty in planning, concentration and new learning. She concluded that:
As far as her cognition is concerned, assuming that her shunt is working satisfactorily and is being monitored regularly, the recent deterioration in her cognition, including short-term memory difficulty, is compatible with Alzheimer’s disease …
I do not think the patient has insight to making a decision regarding safety issues. She is certainly unsafe to live on her own …
The geriatrician’s report confirmed the GP’s opinion that the deceased had by this time experienced a severe cognitive decline. The geriatrician recommended she commence taking medications for the treatment of Alzheimer’s disease.
The GP noted his conclusion as to the deceased’s mental state at this time in the following words: ‘Unfit to live at home by herself’ and ‘Did not have sufficient cognitive function to appreciate this or to make any other important decisions concerning her health.’ Further, in his affidavit evidence, the GP said that from this time the deceased ‘did not have the capacity to understand the nature of her financial position or to make decisions in relation to her financial affairs.’ In his opinion, she did not have testamentary capacity from this time.
By February 2007, it was the view of the deceased’s carer, her GP and the geriatrician that she required to be placed in permanent, as opposed to respite, care. It was recognised from this time that such a course would or may involve the payment of a substantial bond to secure permanent nursing home accommodation. In his capacity as the deceased’s attorney, the plaintiff was put on notice of this. At this time, the deceased’s assets, excluding the house, were insufficient to pay the likely bond amount.
In March 2007, the Office of the Public Advocate was appointed guardian of the deceased’s affairs relating to accommodation. The Public Advocate advised the plaintiff that the house may need to be sold to fund an accommodation bond, and arranged for the deceased to be placed in permanent accommodation in advance of the accommodation bond being provided. This was done without the deceased’s consent, as it was thought she was unable to give informed consent because of cognitive issues.
In May 2007, Mr Simpson visited the deceased and noticed that her cognitive condition had deteriorated severely since he had seen her in November 2006. He endeavoured to converse with the deceased about her accommodation wishes, in particular as to whether she consented to the house being sold to fund an accommodation bond. He deposed that the deceased was very difficult to converse with, did not speak in full sentences and there were long silences. He prepared a handwritten and a typed note of his endeavours to obtain instructions as to the deceased’s wishes. Based on this visit, he believed that the deceased did not want the house to be sold. However, he formed the clear opinion that the deceased was not capable of making decisions or providing instructions with regard to any of her affairs generally. Accordingly, he made the decision that he should act as he saw fit in the administration of the deceased’s financial affairs and should not take her wishes into account. Taking the evidence as a whole, and in reliance upon the plaintiff’s considerable experience in dealing with elderly people as part of his probate practice, I accept that this was a decision made responsibly and in good faith. I accept the plaintiff’s evidence that the deceased was unable to make an informed decision as to what was in her best interests at this time and that, had the issue arisen, she lacked testamentary capacity.
In these circumstances, the plaintiff exercised his power as the deceased’s attorney and sold the house. The net proceeds of sale amounted to $522,928.88. After payment of the accommodation bond, these settlement proceeds were quarantined in a separate account. Following the deceased’s death, there was a partial refund of the accommodation bond. That refund was paid into the quarantined account. The amount standing to the credit of the quarantined account, together with accrued interest, is approximately $450,000.
As appears above, the house was sold during the deceased’s lifetime. In these circumstances, an issue arises as to whether the gift of the house in the will, to the deceased’s son Mark, has been adeemed; with the result that the remaining proceeds of the sale in the quarantined account form part of the deceased’s residuary estate and must be divided amongst the six grandchildren.
In his capacity as executor of the deceased’s estate, Mr Simpson has applied to the Court for directions as to what course he should take in distributing the estate. He contends that, in the circumstances of this case, the gift of the house to the deceased’s son has not been adeemed, and that he is entitled to distribute the remaining sale proceeds to the son under the terms of the will.
One of the deceased’s grandchildren is the defendant. She was represented at the hearing. It was submitted on her behalf that the gift of the house to the deceased’s son has been adeemed; and that she and the other grandchildren are accordingly entitled to share in the remaining proceeds of sale of the house, as they form part of the deceased’s residuary estate.
It was submitted on behalf of the defendant that, insofar as it is relevant to the determination of the principal issue for determination, the Court should not find that the deceased lacked testamentary capacity at the time the plaintiff sold the house. For the reasons given above, taking the evidence as a whole, which is unchallenged, I reject that contention. I am well satisfied that safe reliance can be placed upon the plaintiff’s opinion as to the deceased’s mental state at the relevant time.
Accordingly, the only issue for determination is whether the gift of the house to the deceased’s son has been adeemed, as contended for by the defendant.
Has the gift of the house been adeemed?
Subject to exceptions, a gift in a will is adeemed, and therefore fails, if the subject matter of the gift is disposed of by the testator prior to death. In Brown v Heffer,[1] the High Court expressed the general principle:
Ademption of a specific gift by will occurs where the property the subject of the gift is at the testator’s death no longer his to dispose of. An obvious case of ademption is that in which the testator has completely divested himself of the property in his lifetime so that at his death there is in his estate nothing which even substantially answers the words of gift. But ademption occurs also where the property has been so dealt with that by the rules of equity it must be considered at the death as having been converted into other property, such as money, which the words of gift are not apt to comprehend. Thus, in the case of a simple devise of land, if it is found at the testator’s death that after making the will he became bound by a contract to convey or transfer the land to another, and the contract is still subsisting, so that when he died he was … a trustee of the land for the purchaser and entitled only to money in its place, there is no property in respect of which the words of devise are capable of taking effect.[2]
[1](1967) 116 CLR 344.
[2]Ibid, 348-9 (citations omitted).
As stated, the general principle of ademption is the subject of some exceptions. The exceptions were recently catalogued by Gzell J in Power v Power.[3] The exceptions include circumstances where the testator ceases to own the property which is the subject of the gift at death because of fraud or tortious act unknown to the testator,[4] because of the unauthorised act of an agent,[5] or because of a disposition of the property without the testator’s knowledge and against his apparent wishes, even where it may be thought the disposition was with the testator’s implied authority.[6]
[3][2011] NSWSC 288, [23]-[27].
[4]Earl of Shaftesbury v Countess of Shaftesbury [1716] 2 Vern 747; 23 ER 1089.
[5]Basan v Brandon (1836) 3 Sim 171; 59 ER 68.
[6]Jenkins v Jones (1866) LR 2 Eq 323; Johnston v Maclarn [2002] NSWC 97, [18].
These exceptions appear to be based upon the fact that the relevant property has ceased to be owned by the testator against his or her wishes or intention. In these circumstances, where tracing is possible, the donee is entitled to receive the money or other assets held by the testator at death in place of the relevant property.
These exceptions appear to contradict the often quoted statement of the law of ademption by Cozens-Hardy MR in Slater v Slater,[7] that:
There was a time when the courts held that ademption was dependent on the testator’s intention, on a presumed intention on his part; and it was therefore held in the old days that when a change was effected by public authority, or without the will of the testator, ademption did not follow. But for many years that has ceased to be the law, and I think it is now the law that where a change has occurred in the nature of the property, even though effected by virtue of an Act of Parliament, ademption will follow unless that case can be brought within what I may call the principle in Oakes v Oakes …[8]
[7][1907] 1 Ch 665.
[8]Ibid, 671.
Later, Cozens-Hardy MR stated the applicable law in this way:
I feel bound myself to adopt the view taken not in one case only, but in many, that you have to ask yourself, Where is the thing which is given? If you cannot find it at the testator’s death, it is no use trying to trace it unless you can trace it in this sense, that you find something which has been changed in name and form only, but which is substantially the same thing.[9]
[9]Ibid, 672; citing Oakes v Oakes (1852) 9 Hare 666; 68 ER 680.
A further exception based on lack of the testator’s intention to divest the relevant property was identified by Thomas J in Re Viertel.[10] The result in this case depends upon whether this Court should endorse and apply that further exception.
[10][1997] 1 Qd R 110.
The facts in Re Viertel bear some similarity to this case. The testatrix left her residential house property to two beneficiaries. She was later admitted to a nursing home. The beneficiaries were then appointed her attorneys. Both before and after admission to the nursing home, the testatrix stated she did not want her house to be sold. However, after she suffered a stroke and became incapable of managing her affairs or making a will, the beneficiaries determined to exercise their power of attorney to sell the house and preserve the proceeds, as the house was no longer required. At the time they did so, they were unaware that the testatrix had devised the house to them in her will. The testatrix was unaware of the sale and would probably have disapproved of it had she had the capacity to give instructions.
In these circumstances, Thomas J considered whether the sale gave rise to an ademption of the identifiable proceeds of sale. He noted that a strict application of the decision of Cozens-Hardy MR in Slater v Slater would lead to that result. He then reviewed the authorities, and concluded that there had been no ademption in that case. Accordingly, the beneficiaries were entitled to the debenture stock representing the balance of the sale proceeds of the house.
Thomas J based his decision on the exception to the ademption rule identified in Jenkins v Jones.[11] His Honour described that case in the following terms:
[11](1866) LR 2 Eq 323.
One case which seems very close to the present one is Jenkins v Jones. The testator was a farmer on yearly tenancy who bequeathed to his son all his farming stock ‘which shall be in my possession at my decease’. He appointed his son and his wife as executors. Two years before his death he suffered a fit of ‘apoplexy’ and was thereafter of unsound mind and unable to manage his affairs. In consequence of the testator’s disability his wife gave up possession of the farm and she and the son sold the farming stock and deposited the proceeds in a bank account where it remained until after the death of the testator when it was paid to the separate account of the son. Some of the next of kin brought an administration summons seeking to charge the son with the amount received by him. Stuart VC stated the general principle of ademption, followed by an exception:
‘[I]f there be a specific legacy of a chattel or of anything else, and if at the time of the testator’s death the specific thing cannot be found, the subject matter of the bequest having been extinguished, the gift cannot take effect … But quite another consideration arises, where, after the testator has given a specific thing, and without his knowledge, perhaps against his wishes, or tortiously, another person has sold it or has done enough to wholly alter its character.’
With respect to that case the Vice Chancellor stated:
‘What is this case? The farming stock ceased to exist, but the money was placed in a bank and there remained, and it clearly represented the value of the subject matter of the bequest. The person who changed the character of the chattels was the legatee, to whom and for whose benefit they had been specifically bequeathed … I think that as it was by no act of the testator that the chattels were converted, for he never intended any conversation, but intended that the specific legatee should have his farming stock, I ought to refuse the motion.’
His Lordship therefore accepted the validity of the legatee’s claim to the proceeds.[12]
[12]Re Viertel [1997] 1 Qd R 110, 112 (citations omitted).
Thomas J then considered other English cases which had reached conclusions to similar effect, considered authorities from the United States and Canada and noted the scope for the strict ademption rule to operate harshly and cause injustice in a variety of circumstances. He noted also that there has been some softening of the harsh results of inadvertent ademption by legislation in Australia and the United Kingdom. In all the circumstances, Thomas J concluded, albeit with some hesitation, that the exception recognised in Jenkins v Jones remained good law and that it applied on the facts of that case.[13] His Honour concluded:
In these circumstances I consider that Mr and Mrs McCallum’s entitlement under the will was not lost. The result should be no different than if a stranger had converted or misapplied an asset in circumstances where the proceeds of the asset can be traced. In that event apart from any claim that could be made against the convertor, the devisee would have a proprietary equitable claim against the recipient of the proceeds. … In the present case the proceeds are still within the control of the administrator of the estate, and the McCallums were themselves the innocent convertors of the asset.[14]
[13]Ibid, 115-6.
[14]Ibid, 116 (citations omitted).
The decision in Re Viertel has since been applied or referred to with apparent approval in New South Wales,[15] Western Australia,[16] Victoria,[17] and Queensland.[18]
[15]Johnston v Maclarn [2002] NSWC 97, [19]; Power v Power [2011] NSWSC 288, [29]-[36]; cf Orr v Slender (2005) 64 NSWLR 671, where Re Viertel was referred to in argument but not in the Court’s reasons. The case apparently turned on other issues.
[16]In Re Hartigan (Supreme Court of Western Australia, Parker J, 9 December 1997, Library Number 970736).
[17]Mulhall v Kelly [2006] VSC 407.
[18]Ensor v Frisby [2010] 1 Qd R 146; Moylan v Rickard & Ors [2010] QSC 327.
In Re Viertel, Thomas J expressed his conclusion with some hesitation, because he was dealing with an unopposed application. Some of the judges who have applied Re Viertel have been in the same position, or were not required to express a concluded view on the facts of the case at hand. There is also an English case which considered Re Viertel (and declined to follow it) on the basis of argument from one side only.[19]
[19]Banks v National Westminster Bank PLC & Anor [2005] EWHC 3479 (Ch).
The only case where the reasoning in Re Viertel has been subjected to contrary submissions, analysis by the Court and a decision applying it to the facts of the case, is the decision of McMurdo J in Ensor v Frisby.[20] McMurdo J reviewed the authorities before and after Re Viertel and was persuaded to follow it. In doing so, he was influenced by the fact that it had been followed in other Australian jurisdictions.[21] Even that case, however, would appear not to have been the subject of vigorous argument in opposition. McMurdo J noted that counsel for the residuary beneficiary, who stood to gain from a finding of ademption, relied principally upon the submission that the law of ademption had been supplanted by legislation.[22]
[20][2009] QSC 268.
[21]Ibid, [19].
[22]Ibid, [20].
The authorities were recently reviewed by Gzell J in Power v Power.[23] Although it was unnecessary for his Honour to decide whether Re Viertel was good law, as it was clear that the relevant disposition had been by the unauthorised act of an agent, his Honour nevertheless observed that ‘the trend seems to be to recognise the further exception articulated by Thomas J in Viertel.’[24]
[23][2011] NSWSC 288.
[24]Ibid, [36].
Counsel for the defendant in this case acknowledged the trend of authority in Australia. He submitted, however, that the trend: (1) was hesitantly expressed; (2) was not in accordance with the general principles of ademption as stated by Cozens-Hardy MR in Slater v Slater; (3) has the result that a testator’s testamentary intent to leave specific property was supplanted by the attorney’s discretion, or that of the Court; and (4) was against public policy.
I accept the first two submissions – that the further exception in Re Viertel was expressed with hesitation, and some other judges have stated similar doubts; and that the further exception is apparently inconsistent with the general statements of Cozens-Hardy MR in Slater v Slater. I do not, however, accept that these factors militate against acceptance of the further exception. My reasons follow.
In support of the third submission, that the further exception was inconsistent with the testator’s testamentary intent, counsel contended that the exception would require the Court to compare the testator’s asset position at the date of the will, the date of the disposition and the date of death; and to consider the testator’s likely wishes if competent to decide what course to follow at these times. I do not accept those submissions. The further exception requires the Court to give effect to the testator’s presumed wishes in circumstances where he or she no longer has the capacity to decide what should be done. That does not involve supplanting the testator’s wishes with those of the attorney or the Court. Rather, it involves the Court in an assessment of the testator’s likely wishes if given the choice, when mentally competent, to alter his or her will in circumstances where the relevant property must be sold to further his or her interests.
The third submission is also relevant to the fourth submission based on public policy, to which I now turn.
It was contended for the defendant that an exception which depends on the Court’s assessment of a testator’s mental capacity and likely intent would involve the Court and the parties in wide-ranging factual enquiries on incomplete evidence. It was submitted that an identity based approach based on a strict application of the ademption principle was preferable, as it would lead to a certain result which would reduce costs to the estate and avoid the use of Court resources. I do not accept these submissions. As stated above, the exceptions for fraudulent, tortious or unauthorised dispositions of the relevant property already require the Court to consider the likely wishes of the testator at relevant times. Further, the Court is routinely called upon to examine testamentary capacity in determining disputes about wills.
Moreover, as rightly acknowledged by counsel for the defendant, there are many circumstances where the strict application of the ademption principle will lead to an unjust result which is obviously against the testator’s wishes. For example, a husband and wife have three children, a daughter and two sons. They jointly own three properties of approximately equal value – the family home and two investment properties. They make mutual wills providing that the surviving spouse leaves the family home to the daughter and one investment property to each son; with the residuary estate being left to a favourite niece. In circumstances such as the present, an attorney sells the family home to pay an accommodation bond. The daughter survives the parents. If the ademption principle is strictly applied, the niece receives the balance of the sale proceeds as part of the residuary estate; leaving the daughter to make a claim for further provision out of the estate under testator’s family maintenance provisions of applicable legislation if there are grounds to do so. Such a result is clearly unjust, and not in accordance with the parents’ obvious intent.
In Re Viertel Thomas J noted the possibility for injustice if the ademption principle was applied in circumstances similar to that case.[25]
[25][1997] 1 Qd R 110, 114-5.
In some jurisdictions this unfairness has, at least to some extent, been remedied by legislation. In Victoria, a sale by an administrator provides an exception to the ademption principle.[26] However, there is no similar legislative provision where, as here, the sale has been effected under an enduring power of attorney. In my opinion, there is no sound reason why a sale by an administrator, appointed to fill a gap where there is no enduring power of attorney, should lead to a different result than a sale by an attorney in like circumstances. In either case, there has been an authorised sale of the relevant asset without the knowledge of a deceased who lacked testamentary capacity.
[26]Guardianship and Administration Act 1986 (Vic), s 53.
In Re Viertel, Thomas J was prepared to take ‘a less than literal approach to the test in Jenkins v Jones’.[27] On this basis, he extended the exception in that case to include an authorised sale by an attorney who is ignorant of the terms of the will. In doing so, Thomas J gave the exception expressed in Jenkins v Jones a wide interpretation, extending it to any disposition of the relevant asset by a third party without the testator’s knowledge and inconsistently with his intention; at least where the third party did not know the terms of the will.[28] A different view has been taken in England. In Banks v National Westminister Bank PLC & Anor, the exception in Jenkins v Jones was confined to dispositions made without the testator’s knowledge and without lawful authority.[29]
[27][1997] 1 Qd R 110, 113.
[28]Ibid, 112.
[29][2005] EWHC 3479 (Ch), [28].
In Ensor v Frisby McMurdo J considered Banks, but nevertheless held that Re Viertel should be followed in Australia because:
once an exception is recognised for an unauthorised act of which the testatrix was unaware, it is a relatively smaller step to recognise, as Thomas J did, an exception where the act was done under the authority of an enduring power of attorney. Ultimately I am persuaded to follow Re Viertel, followed as it has been in two other Australian jurisdictions.[30]
[30]{2010] 1 Qd R 146, [19].
In my opinion, the statements in Jenkins v Jones were not intended to create a new exception to the ademption principle. Rather, as held in Banks v National Westminister Bank,[31] Jenkins v Jones was an application of the existing exception for unauthorised dispositions of the relevant asset without the knowledge or consent of the testator. However, I am nevertheless of the view that a further exception to the ademption principle, to the effect expressed in Re Viertel, constitutes a justified extension of the common law to reflect current circumstances. People are living longer than in the past and their physical health is outlasting their mental capacity. It is commonplace for properties owned by incapacitated persons to be sold under the authority of enduring powers of attorney, to fund accommodation bonds and other necessities and comforts for an aging population. Further, as noted, there is no good reason why the position should be different if, in the absence of an applicable enduring power of attorney, it is necessary to appoint an administrator under the Guardianship and Administration Act to sell property of an incapacitated person for such purposes.
[31][2005] EWHC 3479 (Ch), [28].
The issue requires urgent legislative intervention to resolve any doubt. In the meantime, I would follow Re Viertel and recognise a further exception to the ademption principle whenever there is an authorised sale by an attorney in circumstances where:
(1) the deceased lacked testamentary capacity;
(2) the Court is satisfied that the deceased, if possessed of testamentary capacity, would have intended the donee of the asset in the will to have the remaining proceeds of sale; and
(3) the remaining proceeds of sale can be identified with sufficient certainty.
Further, in my opinion this exception should apply whether or not the attorney knew of the terms of the will. There is no good reason to limit it to circumstances where the attorney has no knowledge of the terms of the will, and thus of the possible effect of the ademption principle following a sale.
Subject to anything counsel may say, I would propose the following declaration:
Declare that the gift in clause 5(c) of the Will of the deceased is not adeemed and that the moneys held by the plaintiff representing the balance of the proceeds of sale of the deceased’s real property and accrued interest (‘the fund’) be paid to the beneficiary named in clause 5(c) of the Will, namely Mark Robert Cunning.
I will hear the parties as to the precise form of the Court’s declaration, orders and costs.
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