Stewart v Moden
[2015] VSC 369
•31 July 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROBATE LIST
S CI 2013 04827
| JUDITH DOROTHY STEWART | Plaintiff |
| v | |
| GEOFFREY WILLIAM PETER MODEN | Defendant |
---
JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 May 2015, 17 July 2015 |
DATE OF JUDGMENT: | 31 July 2015 |
CASE MAY BE CITED AS: | Stewart v Moden |
MEDIUM NEUTRAL CITATION: | [2015] VSC 369 |
---
WILLS AND ESTATES – Where plaintiff seeks declarations that defendant’s entitlement from estate be offset from moneys misappropriated by defendant during deceased’s lifetime – Where defendant is unable to repay the estate – Rule in Cherry v Boultbee (1839) 41 ER 171.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Baker | Sharrock Pitman Legal Pty Ltd |
| For the Defendant | In person | - |
HER HONOUR:
Background
Lorna Ruth Moden (‘the deceased’) died on 26 April 2012. She was survived by the plaintiff and the defendant, who are her adult children.
By her will dated 4 June 2003, the deceased appointed the plaintiff and the defendant as the executors of her estate. Under her will, the plaintiff and defendant were each to receive:
(a) a third of the amount held in the deceased’s bank accounts; and
(b) a third of the residue of her estate.
The remaining beneficiaries are the plaintiff’s partner and the plaintiff’s two adult children. One ninth of the estate was also given to the deceased’s sister, who predeceased the deceased. Her share of the estate is to be divided equally between the remaining four beneficiaries, in accordance with s 46 of the Wills Act 1997.
On 19 February 2013, a grant of probate was made to the plaintiff and defendant as the executors of the deceased’s estate.
On 16 September 2013, the plaintiff sought removal of the defendant as an executor and trustee of the estate pursuant to s 34(1)(c) of the Administration and Probate Act 1958 and s 48(1) of the Trustee Act 1958.
On 11 October 2013, orders were made for substituted service of the application on the defendant.
On 7 February 2014, Justice Williams made orders that the defendant be removed as executor and trustee of the estate and that within seven days of being served with the order, the defendant deliver to the plaintiff all documents in his possession, custody or control being the property of the deceased or relating to the administration of her estate.
The plaintiff’s application
By summons filed 11 December 2014, the plaintiff sought declarations in relation to the defendant’s entitlements under the deceased’s will to the effect that the defendant’s entitlement from the estate of the deceased be offset from moneys misappropriated by the defendant during the deceased’s lifetime.
The plaintiff claims that before the deceased’s death, the defendant misappropriated significant amounts of money in excess of $500,000 from the deceased through the sale of her assets and by loans and mortgages taken out at the behest of the defendant for his sole use and benefit, with the loans and mortgages secured by the deceased’s real estate. The plaintiff claims these transactions occurred without the knowledge of the deceased, and so were misappropriated.
As a result of the defendant’s actions, the plaintiff claims the deceased’s estate has been severely depleted, thereby reducing substantially the entitlements of the residuary beneficiaries of the estate.
On 20 February 2015, orders for substituted service of the application were made as a result of difficulties encountered by the plaintiff in contacting and serving the documents on the defendant.
At the two directions hearings, the defendant represented himself and relied on lengthy handwritten affidavits supplied to the plaintiff and the Court without any regard to the time limits ordered for the filing of his affidavits. Notwithstanding this, leave has been granted to the defendant to rely on these affidavits. The proceeding was heard on 8 May 2015. After the hearing, the defendant issued a handwritten summons dated 2 June 2015 seeking to rely on a further affidavit filed on 2 June 2015. The further hearing was listed on 17 July 2015. On 16 July 2015, the defendant filed another affidavit sworn on 16 July 2015. The defendant appeared on the return date and confirmed that he wished to rely on the two further affidavits. The defendant stated that he did not wish to make any further submissions and relied on the further affidavits in opposing the plaintiff’s application. The plaintiff did not object to the defendant’s further affidavits.
The assets of the estate
In her affidavit sworn 10 September 2013, the plaintiff described the wealth of the estate at the time of her father’s death in 1986. It consisted of a house in Lysander Street, East Brighton (‘the Lysander Street property’), a holiday house in Sorrento, and a number of investment properties in Queensland.
By the time the deceased’s will was made in 2003, the holiday house in Sorrento had been sold and the ownership of the investment properties in Queensland was unknown. However, at this time the deceased still owned the Lysander Street property and, in 2009, the deceased also inherited $209,587.80 from her sister’s estate.
On 25 January 2012, when the deceased was placed under the care of State Trustees, her assets had been severely depleted. The deceased’s bank accounts stood at $862.82. The only remaining asset in the estate was the Lysander Street property, which secured mortgages of $550,000. The Lysander Street property was eventually sold at a value of $900,000 and the mortgage debts repaid. The current value of the estate is $212,980.58.
The mortgages over the Lysander Street property comprised two major loans:
(a) $380,000 from the Commonwealth Bank on 28 April 2004, later increased to $450,000 in March 2007 (‘the Commonwealth Bank loan’); and
(b) a loan from Klown Credit Corporation on 26 August 2009, later transferred to Krass Kastle Pty Ltd of $110,000 on 17 November 2010 (‘the Krass Castle loan’).
The plaintiff’s case
The plaintiff claims that the loans taken out and secured by the two mortgages over the Lysander Street property evidence the defendant misappropriating funds of the deceased for his sole benefit.
The plaintiff also refers to a personal loan of $65,000 made by her mother to the defendant on 5 November 2010 and the proceeds from the sale of the deceased’s 1994 Mercedes Benz motor vehicle for $3,500 on 11 November 2011 as evidence of money taken from the deceased by the defendant for his sole benefit.
The plaintiff submits that:
(a) her mother was not aware that her money was being spent by the defendant or that the loans and mortgages were taken out; and
(b) even if her mother were aware of the loans and mortgages, she was not aware and had no knowledge of what the defendant spent her money on and it was not used for her benefit.
The plaintiff submits that the defendant’s evidence shows that her mother’s money was spent by the defendant on various business ventures that were for the purposes of furthering his own interests, rather than those of his mother.
The deceased’s mental capacity
In her affidavit filed 10 September 2013, the plaintiff described her mother’s mental state over the last years of her life. She stated that in early 2006, the deceased began to suffer from dementia, acting vaguely and repeating herself in conversations. Her symptoms became worse during 2008, when she began recounting conversations that had occurred with old friends or deceased relatives a long time ago as if they had taken place recently. The plaintiff alleges the defendant prevented her from seeing her mother after 2010 as her condition worsened.
The plaintiff’s affidavit contained a letter dated 22 January 2012 from Dr Boan, the deceased’s physician of 10 to 15 years. In August 2007, Dr Boan performed an MMSE and diagnosed the deceased with dementia:
In 2007 [the deceased] started to exhibit symptoms and signs of confusion and disorientation consistent with the start of a dementia. Blood tests were normal and a CT scan showed evidence of vascular ischaemia. She was advised that she should cease driving. A general health assessment was performed by myself in conjunction with our practice nurse. A MMSE performed in August 2007 was 24/30 consistent with a mild-moderate dementia.
Dr Boan also noted in his letter that he had had no further opportunities to assess the patient since this date, but expected that the dementia would have worsened over time:
In summary, [the deceased] has had an increasing dementia over about 5 years. The last objective assessment of her cognitive state 4 ½ years ago shows significant mental decline and this would have been progressive over time.
On 19 October 2011, the deceased suffered a stroke and was admitted to Cabrini Hospital in Malvern. The report written by Victoria Whitman, the Cabrini Health Manager for Social Work Services, dated 16 December 2011 described the deceased upon admission as ‘unclean and had indicators of neglect such as extremely long fingernails, malnutrition and dehydration’.
The Cabrini report also diagnosed the deceased with severe dementia at this point:
[the deceased] gradually improved in her health status. However she was consistently incontinent, preferring to toilet on the floor of her room and required supervision throughout the day for all daily living activities. The treating geriatrician assessed [the deceased] as inappropriate for inpatient rehabilitation as she most likely had dementia too severe to learn new information… Residential care was recommended as the most appropriate option for [the deceased] to sustain her health and wellbeing. ACAS assessed her at High Level of care on 3/11/11.
On 10 November 2011, the defendant obtained the deceased’s signature on an enduring power of attorney. This was before further funds were removed from the deceased’s assets, including the sale of the deceased’s motor vehicle on 11 November 2011 and an attempt by the defendant to sell the Lysander Street property on 8 December 2011.
The plaintiff submits that these facts cast doubt on the capacity of the deceased to understand, know and approve of the defendant’s spending of her money. In summary, the plaintiff stated:
My mother does not appear to have received any benefit from [the estate’s mortgages] and there is no record of the funds in her estate or of them having been paid at her discretion. Of further concern is the fact that her capacity to understand and approve these transactions is suspect by reason of her advanced dementia.
The defendant’s case
The defendant conceded at trial and in his affidavits that he had sole use of the moneys borrowed from the Commonwealth Bank and Krass Kastle Pty Ltd and that all of the borrowed moneys had been spent by him in certain investments. He submits, however, that his mother had full knowledge of the reasons for the borrowing of the moneys and that she approved of those reasons. He summarised his position as follows:
But the big point is really that all of the big loans were back you know back a lot earlier, you know many, many years earlier so why would my mother's helping of me suddenly change overnight to say oh Geoff suddenly no, I'm not going to - you know I'm not going to sign for any more of these loans? She's been backing me all the way.
The defendant described in detail where he spent the majority of the moneys and, in particular, he highlighted two of his failed investments. In his affidavits, the defendant described his efforts to start a business as a boxing promoter, lending $60,000 in instalments to Athos Mandylaris that was never repaid, and spending another $33,000 in promoting fights that also failed to produce any profit. In total, he summarised his investment in this venture as costing him approximately $180,000:
…$50,000 in total was spent on the first two shows… it went badly, but Peter and I decided to go further on because we thought the, you know, the foundations might have been laid by Athos and we could do some more simple and less ambitious shows but unfortunately, as you can see from my affidavits, you know, during April there were many, many shows, and I considered pulling out and so forth but kept getting talked into keeping on going and, you know, roughly $180,000 was spent on these subsequent shows hoping that we could get TV rights and so forth, and there was also, there was always a new prospect, you know.
His second main investment was in greyhound racing, which also resulted in numerous expenses needing to be paid, such as greyhound formula (costing $60 a bottle), housing and training for the dogs:
we got to the point where we had a lot of dogs and so forth and I refused to have any of them put down and of course these were all costing about $50 a week to keep on, on farms and everything…
He also detailed a series of other expenses for which he used the deceased’s money, including $62,000 for his dental work and $10,000 a year for petrol used to drive between Sydney and Melbourne for another investment by him in a potential car business. Otherwise, the defendant asserted that the remainder of the money was used by him ‘to live’, including purchasing cleaning products for his obsessive compulsive disorder.
In relation to his spending on his boxing promotion business, the defendant provided:
(a) A loan agreement dated 28 July 1999 between Athos Mandylaris and the defendant for $20,000;
(b) An extension of the loan agreement dated 7 October 1999 between Athos Mandylaris for $20,000 and the defendant;
(c) Evidence of boxing tournaments arranged in 2000, 2001, 2002, 2003 and 2004;
(d) A statutory declaration from James Filgate confirming that he printed boxing tickets for the defendant in early 2004;
(e) A letter from the Professional Boxing and Combat Sports Board of Victoria advising him of a promotion on 2 December 2004;
(f) A report from Scientific Document Services Pty Ltd assessing the handwriting of Peter Maniatis dated 7 December 2004; and
(g) A statutory declaration from Keith Ellis, Yarraville confirming he borrowed $5,000 from the defendant for a boxing show on 10 March 2006.
For evidence of his spending on his greyhound business, the defendant provided:
(a) A tax invoice dated 27 November 2001 for the purchase of two greyhounds for $13,000; and
(b) An application to register the name of a greyhound where inspection occurred on 16 October 2002.
In his most recent affidavit sworn 16 July 2015, the defendant stated that he was paying the ‘complete purchase price’ of the greyhounds as evidenced by the tax invoice, and that none of the price was paid by his business partner, Mr Maniatis.
For evidence of his spending on dental work for himself, the defendant provided:
(a) A tax statement from Dr Haig for dental work totalling $3,460 between 15 July 2003 and 29 September 2006;
(b) A Treatment Plan Estimate from Dr Peter Sutherland dated 12 November 2007 for dental work totalling $11,300;
(c) A tax invoice from Dr Andrew Flood for dental work totalling $3,870 between 21 December 2012 and 27 June 2013;
(d) A letter from Dr Paul McMahon confirming the defendant spent $62,000 on dental work from 2003 to 2011; and
(e) A letter from Christopher Buttner, accountant, stating that between 16 July 2003 and 23 August 2013 the defendant spent $15,910 on dental services provided by Dr Haig.
The defendant said at all times his mother was supportive of his investments, and was aware of that he was spending her money in the ventures. At trial, he spoke of conversations between himself, his mother, and his aunt:
But basically just coming back to what I was saying before, Your Honour, these loans were taken out, you know, with the full, with the full consultation with my aunty who was like a second mother to me, and her husband had died while he was still in his 30s and so between the three of us it seemed it was, it was the three of us against the world…
The defendant described the circumstances surrounding the signing of the Commonwealth Bank loan and the Krass Kastle loan. He described the initial signing of the Commonwealth Bank mortgage in April 2004 as follows:
And so these loans that were taken out by the Commonwealth Bank, you know, it was the three of us, as I say. My aunty, as you can see on the documents, was a witness to them and everything had been fully discussed and, you know, especially the first $380,000 that we obtained.
He also alleged that the initial signing of the Klown Credit Corporation loan in August 2009 took place at the office of a solicitor:
Yes, and my mother and I attended the solicitor's office and, you know, he took her into his room separately and quizzed her on, you know, that she fully understood what she was signing.
In describing his mother’s cognitive capacity, the defendant asserted that the mini-mental test described by Dr Boan demonstrated that his mother was ‘on the cusp of being normal mental function’. He said that her mental capacity had been approved by the solicitors when she signed the original loan from Klown Credit Corporation and the later transfer of the loan to Krass Castle:
Two separate - two completely and utterly separate solicitors later on approved her in - at the end of 2009 and 2010 that she was capable of signing these loans.
The defendant maintained the deceased had full mental capacity until she suffered a stroke in October 2011. In his affidavit of 13 April 2015, the defendant deposed:
I never had to help her at all with washing clothes – she would wash mine too – and never had to help with any toilet matters or showering and this applies right up to October 2011 when she had a stroke.
Consideration
Questions as to the deceased’s mental capacity arose as early as 2007, as is evidenced by the plaintiff’s references to the onset of dementia and the medical diagnosis of Dr Boan of mild to moderate dementia in August 2007. Dr Boan did not assess the deceased after 2007 but expected that her dementia would have worsened over time. His prognosis was confirmed by her medical report from Cabrini Hospital in December 2011, concluding that the deceased suffered from severe dementia. These medical reports cast grave concerns on the mental capacity of the deceased between 2007 until her death in 2012.
The defendant made lengthy submissions about the deceased’s mental faculties, but the only relevant point was that a score of 24/30 by the deceased on the MMSE test indicated ‘mild to moderate dementia’. This was consistent with the conclusion of Dr Boan in August 2007. Thereafter, taking into account Dr Boan’s prognosis of the deceased’s mental capacity going forward and the subsequent report from Cabrini Hospital in December 2011, leads to the probable conclusion that the deceased did not have sufficient mental capacity during this period to make the investment decisions concerning hundreds of thousands of dollars, from 2007 onwards, including the signing of loan and mortgage documents and a power of attorney in November 2011. This conclusion is strengthened by the unchallenged evidence of Dr Boan in January 2012 where he concluded that:
From information conveyed to me, it is likely she has not had capacity to execute any documents for at least 2 years.
Even if the most generous reading of the deceased’s mental capacity is given, it is not clear that the defendant knew how her assets were being disposed of or spent by the defendant because he is unclear on these points or did not put forward any evidence on these points.
Although the defendant said that the Commonwealth Bank loan and Krass Kastle loans were taken out to fund his business ventures, in particular, the greyhound business and the boxing business, and that his mother knew that these business ventures were the purpose for these loans, the documents provided by the defendant show that the most of the money spent by him on these ventures took place between 1999 and 2004, before either of the loans had been taken out.
In the period between 2004 and 2011, the defendant could only account for $5,000 in spending on promoting a boxing match on 10 March 2006, and statutory declarations claiming he spent $62,000 on his teeth between 2003 and 2011. This is a small amount of the more than $500,000 that was spent during this time. It also provides no justification for taking out the two loans during this time. There was no evidence that the deceased knew of the changing nature of the spending of her assets, apart from evidence from the defendant that ‘[s]he's been backing me all the way’.
In addition, the defendant sold the deceased’s car the day after the deceased signed a power of attorney dated 10 November 2011 to the defendant and attempted to sell the Lysander Street property some three weeks later.
The defendant claimed in his affidavit of 2 June 2015 that his mother was aware of the two transactions, stating:
My mother and I had agreed to downsize to a smaller home and be mortgage-free.
Evidence from the report of Victoria Whitman in December 2011 was that the deceased’s dementia was assessed by Cabrini Malvern as ‘dementia too severe to learn new information’. This is strong evidence that the deceased did not know that these two transactions were taking place.
Further, the tax invoice from Dr Andrew Flood for dental work totalling $3,870 in 2012 and 2013 was an expense incurred after the death of the deceased.
Even if the deceased knew how her assets were being spent by the defendant, it is unlikely that his spending was for the deceased’s own benefit. There was no evidence that the deceased had any particular interest in investments in boxing, dog racing or cars, and much to suggest they were, in reality, the main interests of the defendant and his friends. There was no evidence that the deceased would have received any income if the investments had been successful and, as the evidence disclosed, they were spectacularly unsuccessful ventures. In addition, purchases such as the defendant’s dental work, cleaning products and his petrol for travelling between Melbourne and Sydney, were spent entirely for the defendant’s own purposes.
Finally, the plaintiff contends that the rule in Cherry v Boultbee[1] would not apply to the defendant. This rule established that where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, that person cannot be allowed to participate in the fund unless and until that person’s duty to contribute has been fulfilled.[2]
[1](1839) 41 ER 171.
[2]Peruvian Railway Construction Co Ltd [1915] 2 Ch 144; Steiner v Strang [2015] NSWCA 203, [62].
No evidence was given by the defendant of his current financial state and even his address has been difficult to ascertain by the plaintiff. It does not appear that the defendant has any significant assets. He is unlikely to be able to meet any judgment debt that he may be ordered to pay if the plaintiff pursued that course of action against the defendant. He is not employed and is unlikely that he will obtain employment in the future given his age, his previous employment history and his health.
In these circumstances, the defendant would never be in a position to repay the money taken by him from the deceased during her lifetime and, therefore, he cannot be allowed to participate in the estate of the deceased.
Conclusion
Accordingly, the plaintiff is entitled to the declaration sought that the defendant’s share of the estate of the deceased be retained by the plaintiff, as the executor of the estate of the deceased, for the benefit of the residuary beneficiaries, other than the defendant.
---