Can a gift of land during the donor's lifetime defeat a claim against his or her estate after death?

In the case of Daunt v Daunt [2013] VSC 706, the plaintiff and the defendant were twin brothers and sons of the deceased.

While he was alive, the deceased and his wife (the twins' mother) gifted real property to one son as a joint tenant with the deceased, by executing a transfer in the appropriate form. The consideration for the transfer was described as “I desire to make a gift”. 

Upon the death of the father, the title vested solely in that son by survivorship.  This meant that the property did not form part of the deceased’s estate, and could not be subject to a Part IV claim.  The surviving proprietor lived at the Wandong property at the time of the proceeding. 

The plaintiff made a claim against the estate in the Supreme Court of Victoria alleging (amongst other things) that the defendant had unduly influenced their father.

Associate Justice Daly found that the brother lacked standing to make a claim.  This was due to the fact that the plaintiff was merely a disappointed beneficiary under his living mother’s estate.  Consequently, the only person who could make such a claim was their mother. 

The Court of Appeal (Redlich, Santamaria and Kyrou JJA) dismissed the disappointed brother's appeal (see Daunt v Daunt [2015] VSCA 58). 

Daly As J went on further, however, to make comments as to how she would have decided the case had the plaintiff in fact had standing. 

Her Honour concluded that there was no undue influence in this case as the transfer had been a voluntary gift where the transferor had fully understood the consequences of the transfer.

The case came about because the plaintiff lodged a caveat over the title to a property at Junction Road, Heathcote Junction (“Wandong property”). 

The defendant (as surviving registered proprietor) applied to remove the caveat on the basis that the plaintiff did not have the interest in the Wandong property that he claimed. The plaintiff issued the proceedings to justify the caveat.  

At paragraph 40, Her Honour noted that the question of the standing of an actual or potential claimant under Part IV of the Administration and Probate Act 1958 (Vic) has been the matter of some debate, and that debate had yet to be resolved. 

 In Mataska v Browne [2013] VSC 62, McMillan J approved of the view adopted by the Full Court of the Supreme Court of Queensland in Hogarth v Johnson (1987) 2 Qd R 383. While McMillan J stated [at paragraph 53] that: 

A contingent Part IV interest, without more, is insufficient to support standing. 

she found in an application by a child of the deceased to remove the executor of the deceased’s estate in circumstances where the executor was the sole beneficiary of the deceased’s estate, but also the recipient of a gift of the bulk of the assets of the deceased shortly prior to her death, a potential claimant under Part IV of the Act had sufficient standing to make the application for the removal of the executor, and the appointment of another executor for the purpose of investigating the circumstances in which the gift was made.

Daly As J also noted at paragraph 45 that:

... regardless of the standing of the plaintiff, now is the opportune time to determine, on the basis of the evidence before the Court, whether the Transfer of Land ought to be set aside on the basis that the Transfer of Land was procured by the defendant’s breach of fiduciary duty, exertion of undue influence, or unconscionable conduct. The plaintiff and the defendant have filed and served extensive written evidence ...

Continuing on with that analysis, she found at paragraph 47  that there was no factual basis for alleging that the defendant breached his fiduciary duty as power of attorney for his parents by procuring the Transfer of Land: the Transfer of Land predated the defendant’s appointment as an attorney for each of his parents. She also noted that there is no overarching doctrine at law that an adult child otherwise owes a fiduciary duty to his or her parents. 

In her analysis of whether the defendant procured the Transfer of Land by exerting undue influence, Daly As J adopted the principles articulated in Christodoulou v Christodoulou [2009] VSC 583 at [70], where Kaye J stated as follows:

The basic principles relating to the concept of undue influence are uncontroversial. In equity, a transaction, whereby a donor transfers property to a donee (or recipient), is voidable, if it is shown to be the result of undue influence exercised by the recipient over the mind of the donor. There are two categories of cases of undue influence. The first category of cases arises where it has been positively proven that the transaction in question was produced by actual influence exercised by the recipient over the donor. ... The second category of case is where there has been shown to be an antecedent relationship between the donor and the donee, which is such as to raise a presumption that the donee has relevant influence over the donor. In such a case, the court will set aside a voluntary gift, unless it is proven by the donee that the gift was a spontaneous act of the donor in exercise of an independent and informed will. In this category of case, the law has recognised particular relationships which automatically raise a presumption of influence, including the relationship of doctor and patient, solicitor and client, guardian and ward, and parent and child (where the gift is by the child to the parent). However, the classes of relationships, in which the presumption arises, are not fixed and inflexible. In essence, where there is found to be an antecedent relationship between the parties, which gives the recipient of the gift “authority or influence over the donor from the absence of which it is proper that he [or she] should be protected”, the law will presume that any gift by the donor to the donee was the result of undue influence exercised by the latter.

In this case, the plaintiff alleged that the Transfer of Land was procured by the reason of actual undue influence on the part of the defendant. However, Her Honour concluded that the case fell squarely in the second category of cases: that is, by reason of the facts and circumstances of the relationship between the defendant and his parents, there was an antecedent relationship between the defendant and his parents such as to raise a presumption of undue influence which must be rebutted by the defendant in order to avoid the gift to him effected by the Transfer of Land being set aside.

The antecedent relationship did not arise merely by the defendant being the adult child of Mrs Daunt and Mr Daunt senior. However, it was apparent to Her Honour that, at least in the period after the Black Saturday fires and his parents’ movement into institutional care, his parents had become increasingly dependent upon the defendant’s day to day assistance.

At the time that the Transfer of Land was executed, the parents were becoming increasingly anxious about the potential impact of their ongoing ownership of the Wandong property upon their financial security. It had become clear to them that neither the plaintiff nor the parties' sister were either willing or able to provide them with material and/or practical assistance, despite the defendant’s entreaties in his letters to them, and indeed, their lack of assistance was a major source of disgruntlement to Mrs Daunt in particular. 

Her Honour then noted (at paragraph 55) that the finding that there was sufficient evidence to raise the presumption of undue inference was not intended as a criticism of the defendant or his conduct and motivations in assisting his parents. It was simply a recognition of their potential vulnerability to manipulation of them by him, such that it was necessary for him to demonstrate that the Transfer of Land was executed by his parents freely and willingly. 

Daly As J concluded that the onus rested with the defendant to establish that the execution of the Transfer of Land was “a spontaneous act in exercise of an independent and informed will” on the part of Mrs Daunt. 

At paragraph 57 Her Honour concluded that the defendant had discharged that onus. It was apparent from the evidence of Mrs Daunt that she voluntarily gifted her share of the Wandong property to the defendant, with a full understanding of the consequences of the transaction, and a rational basis for embarking upon the transaction. There was, accordingly, no basis for setting aside the transaction on the basis of any undue influence exercised by the defendant. 

Similarly, Her Honour was unable to find any basis for setting aside the Transfer of Land on the grounds of unconscionable conduct on the part of the defendant. 

Her Honour then noted that in order to establish unconscionable conduct on the part of the defendant, the onus was on the plaintiff who had to establish that:

(a) his parents, and in particular, Mrs Daunt, were under a relevant special disability or disadvantage, which seriously affected their (her) ability to make a judgment as to their (her) own best interests; and

(b) the defendant knew, or ought to have known of that special disability and/or disadvantage, and that special disability or disadvantage affected his parents’, and in particular, his mother’s ability to make an appropriate judgment as to whether the transaction was in their (her) best interests.

At paragraph 61, Daly As J found that the plaintiff’s claim with respect to unconscionable conduct fell at the first hurdle: that is, Mrs Daunt was under no special disadvantage when she made the gift of her share of the Wandong property to the defendant. 

Her Honour went on to conclude that the question of whether Mr Daunt senior was under a special disadvantage or disability was peripheral to the real issue in the proceeding, as Mr Daunt senior suffered no material financial disadvantage by reason of the execution of the Transfer of Land. 

In determining the question as to whether the transaction was fair and reasonable in all of the circumstances, Daly As J concluded, having regard to all of the circumstances, the transfer by Mrs Daunt of her interest in the Wandong property to the defendant was fair and reasonable. 

It was apparent from the evidence that Mr Daunt senior and Mrs Daunt were keen to find some mechanism for maintaining Mrs Daunt’s access to the Wandong property while maximising their ability to receive financial assistance from the Commonwealth Government, and it appeared that objective had been achieved by reason of the Transfer of Land. 

Conclusion

These findings support the use of lifetime (inter vivos) gifts as an effective estate planning tool in some circumstances. 

It will most likely be necessary, for it to be effective, to have a medical report confirming that the gift maker is of sound mind, as well as to document the reasons for the gift. 

It would also be useful to have the gift receiver not involved in the transaction. Instead, the gift should be documented by an independent lawyer, who is acquainted with the gift giver, or who at least meets with the giver and satisfies themselves about the circumstances of the gift, and the fact that the gift giver is not being unduly influenced by the donee. 

WG Stark 

Hayden Starke Chambers

What factors does the Family Court take into account when making property orders where one party to the marriage is under a disability?

The factors that the Family Court (and the Federal Circuit Court) will take into account in determining what orders to make on the hearing of an application for final property orders are set out in (among others) Sections 75(2) and 79 of the Family Law Act 1975. 

The High Court in Stanford v Stanford (2012) 247 CLR 108 set out what it considered to be the appropriate way to determine a case, especially in cases where one party to the marriage suffered a disability. 

In Teague v Teague [2017] FCCA 2251, the Federal Circuit Court dealt with a scenario where one party to the marriage suffered a disability. 

Judge Young stated the background as follows (at paragraphs 5 to 8):

5.    The wife was very seriously injured in a single vehicle motor accident in (omitted) 2001. She suffered a severe traumatic brain injury which left her permanently and severely disabled. She has severe cognitive impairment and severe memory loss. She has severe right-sided weakness, permanent sight impairment and impaired mobility. She can walk with a walking stick. She requires assistance with showering, oral care, grooming, dressing and using the toilet. She has diabetes which is well managed. She is otherwise in good health. Her treating GP gave evidence that he was unable to predict her life expectancy but she was, according to him, not likely to die "any time soon". There is no evidence that her life expectancy is reduced and, according to actuarial evidence, normal life expectancy for a woman of her age is a further 19 years.
6.    The wife has been assessed as lacking testamentary and legal capacity.
7.    …
8.    The husband and the wife’s sister cared for the wife at home from 2001 until (omitted) 2009. She then entered a nursing home, initially for respite care, where she has remained since. The sister obtained a Guardianship Board order appointing her guardian and administrator of the wife’s estate in (omitted) 2009. The husband continued to visit the wife in the nursing home until about June 2010 when he was told he was no longer allowed to visit her. The reasons for that prohibition were not addressed in the evidence. The husband, it was clear from his evidence, did not seek separation but acquiesced in the arrangements. In cross-examination it was put to him that “separation” had effectively taken place from that time. He agreed. It seems to have been understood by everyone that the wife’s residence in the nursing home was permanent.

At paragraph 14 of Judge Young's reasons, His Honour notes: 

14. After observing that the requirements of subsections 79(2) and 79(4) of the Act should not be conflated the majority in Stanford said that in every case in which a property settlement order under section 79 is sought it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order. They said the expression "just and equitable" does not admit of exhaustive definition and while the power given under section 79 is not "to be exercised in accordance with fixed rules" three fundamental propositions must not be obscured. First, it is necessary to consider whether, having regard to existing interests, it is just and equitable to make a property settlement order. Secondly, "the power is not to be exercised in an unprincipled fashion" and it is not to be assumed that the rights to or interests in marital property  are or should be different from those that then exist. Thirdly, whether it is "just and equitable" to make a property settlement order is not to be answered by assuming that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property fixed by reference to the matters set out in subsection 79(4), including financial and other contributions.15. The majority said that in many cases the just and equitable requirement will be readily satisfied because:

The husband and wife are no longer living in a marital relationship … [and] there is not and will not thereafter be the common use of property by the husband and wife …the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship.

 16. The wife submitted in this case that it was just and equitable to make orders because the common use of property by the husband and wife had ended and the assumptions that underpinned the existing property arrangements have been brought to an end by the separation of the parties. In my view, that submission does not adequately address the circumstances of this case. In Stanford the majority said, after the passage quoted above, that “By contrast, the bare fact of separation, when involuntary, does not show that it is just and equitable to make a property settlement order”. In my view the evidence in this case does not permit the conclusion that the separation of the parties was voluntarily and there are indications that it was involuntary. These include that there is no evidence that the wife evinced any intention to end the marriage before her accident, that the wife was initially admitted to the nursing home for respite care and was, it appears, then too unwell or in capable to return home and that she lacked decision making capacity after her accident. Although I draw no inference from the fact, I note that there was no evidence of any inquiry about the wife's capacity at the time of her application for divorce. 
17. However, an important factor in this case, and a crucial point of distinction from the facts in Stanford, is that the husband did not provide any financial assistance to the wife after she became a permanent resident of the nursing home.18. The majority judgment in Stanford at paragraphs [44] and [45] is apposite to the facts of this case:

When, as in this case, the separation of the parties is not voluntary, the bare fact of separation does not demonstrate that the husband and wife have any reason to alter the property interests that lie behind whatever common use they may have made of assets when they were able to and did live together.  Common use of some assets may very well continue, as it did here when the husband made provision for the wife's care and accommodation.  Past arrangements that the parties have made about their property interests on the assumption, expressed or implicit, that those arrangements were sufficient and appropriate during the continuance of their marriage are not necessarily falsified.  If both parties are competent, it can still be assumed that any necessary or desirable adjustment can be made to their property interests consensually.  And if one of the parties has become incompetent it is not to be assumed that the other party lacks the will and ability to make those necessary or desirable adjustments.  Contrary to the submissions of the husband in this Court, there may be circumstances other than a voluntary separation of the parties marking the breakdown of their marital relationship in which a court may be satisfied that it is just and equitable to make a property settlement order.  For example, demonstration of one party's unmet needs that cannot be answered by a maintenance order may well warrant the conclusion that it is just and equitable to make a property settlement order.  It may be that there are circumstances other than need. 

19. The majority went on to say at paragraph [46] that in the circumstances of that case the needs of the wife might have been met by the provision of full time care, a further provision of money against future contingencies and the possibility, if needed, of making a maintenance order.

In this case, the judge concluded that he was satisfied that the wife's financial needs were not entirely met under the present arrangements. Even though he was not satisfied that the separation of the parties was voluntary,  he was satisfied that some alteration of property interests was just and equitable in order to meet the unmeet needs of the wife. 

This case is a very good example of the factors that the Family Court and the Federal Circuit Court will take into account in determining what orders to make on the hearing of an application for final property orders in cases where one party to the marriage suffered a disability. 

WG Stark

Hayden Starke Chambers

Are there any recent cases on 'Severance of joint tenancies' in August 2012?

On 3 October 2011 and 15 February 2012 I posted blogs about 2 cases where one party sought to sever a joint tenancy and the other party resisted the application. 

On 27 July 2012, Croft J handed down a further decision about the severance of joint tenancies in Mischel v Mischel Holdings Pty Ltd [2012] VSC 292. 

Facts 
The circumstances in that case were that the joint tenants agreed to sever the joint tenancy, and exchanged contracts to that effect; however, before the agreement could be brought into effect, one of the joint tenants died. 

Croft J was called on to determine whether the death of the joint tenant resulted in the agreement being of no effect, due to section 42 of the Transfer of Land Act, 1958 (indefeasibility of title). 

The decision
His Honour noted (at paragraph 38): 
It is well established that the conveyance of property to parties  jointly does not of itself rebut the equitable presumption of a tenancy in common as a conveyance in this form does not identify the beneficial ownership of the conveyees— and the same applies to a transfer of land under the Transfer of Land Act 1958 (Vic).

and at paragraph 39:  
The [joint tenants] enjoyed indefeasible title as joint registered proprietors in fee simple under the provisions of the Transfer of Land Act 1958 (Vic). This position in terms of legal title does not, however, prevent parties agreeing a contrary position ... An agreement of this kind, if recognised in equity as relevant to the state of the title, would eliminate one of the “four unities” — possession.

His Honour then referred (in paragraph 40) to the:

"many authorities of long standing which reaffirm the dislike of joint tenancies in equity because of the arbitrary manner in which the right of survivorship operated. The position in this respect was discussed and reaffirmed by Gibbs CJ in Delehunt v Carmody in the context of a purchase of property where both purchasers contributed equally in the payment of the deposit and the instalments of purchase price:

... Equity had a dislike for joint tenancies, because their effect was to make the ultimate ownership of the property depend on the chance of survivorship, and, in the words of Snell’s Principles of Equity 28th ed (1982), at 37: “There is here no equality except, perhaps, an equality of chance.”

His Honour concluded that an agreement between the deceased before her death and the joint title holder:

"made in circumstances where [the deceased] provided full consideration for the purchase of her half interest in the premises would, in my view, provide a sufficient circumstance to indicate that it was intended that there should not be a joint tenancy because the result of such an agreement would be to eliminate one of the “four unities”, namely, possession.

In dealing with the death of the joint tenant before the contract was completed, His Honour noted (at paragraph 62):

Finally, mention should be made of the fact that [M] died prior to the settlement of the sale of the premises. Whilst the defendant sought to attach some significance to this fact, it does not, in my opinion affect the position argued for by the plaintiff. When an enforceable contract for the sale of land is entered into, the consequence, in equity, is that the purchaser acquires at that time the fee simple estate in equity, the vendor’s interest at the same time being converted into a lien over the land sold for the balance of the purchase price. Consequently, from the perspective of equity, [M]’s death occurred after the beneficial sale of the premises and, consequently, at a time when the agreement to apportion the sale proceeds had come into effect. This position is not affected by the passing of the legal estate in the premises by survivorship on her death because the holder of that estate, the defendant, does so subject to her beneficial interest in the proceeds of sale — now, of course, part of her deceased estate.


Severance of a joint tenancy On the question of severance of a joint tenancy, His Honour noted as follows (at paragraphs 63 and following): 

It is clear that a joint tenancy may be severed by agreement or by conduct. Although severance by conduct has been characterised merely as evidence of an agreement to sever, the “weight of authority supports [the latter] as having an independent existence”.

[64] I turn now, particularly, to severance by agreement. It is clear from the authorities that a joint tenancy may be severed in equity by agreement between all the joint tenants henceforth to hold as tenants in common. This includes a situation where the joint tenants agree that:

• (a) 
  they each hold an equal, one-half share in the property (a moiety); and
• (b) 
  the property is to be sold and the proceeds of sale divided accordingly.

It is the agreement between the parties to “split” their property that is determinative of an intention to sever, as emphasised by the Queensland Court of Appeal in Sprott v Harper.

[65] Equity regards the parties as tenants in common as soon as the agreement to sever is made, even though the legal title remains in them as joint tenants, and even though the agreement contemplates the occurrence of future events. For example, an agreement to sell and divide the proceeds of sale of the property between the joint tenants normally severs the joint tenancy in the absence of the actual sale or division of the proceeds. Thus, Professor Butt observes:

It seems not to matter that the contemplated events might never in fact occur; for example, an agreement between husband and wife joint tenants that each henceforth is entitled to “a one-half” interest in the property severs the joint tenancy immediately, even though the agreement provides for sale of the property only on the remarriage of either of them or on one giving the notice at some future time that a sale is required.

If a co-owner dies before the legal title is altered to reflect the changed status, the beneficial ownership, equity will compel the survivor to hold the deceased’s undivided interest on trust for the persons entitled under the deceased’s will. Where that interest has been sold, the proceeds of sale of that interest will be held on trust for the person beneficially entitled.

 ... 

At paragraph 67 His Honour concludes: 

The weight of authority now indicates, in my view, that an oral agreement to sever a joint tenancy will suffice.

The final decision of the court was that as at the date of her death, [M] was entitled to a half-share of the proceeds of sale of the premises either because she was, at the time she acquired an interest in the premises, a tenant in common in equity as to one-half share, or because any joint tenancy was severed by agreement or conduct prior to her death, with the result that she thereupon became beneficially entitled to the half-share of the proceeds of sale of the premises. 

W G Stark

Hayden Starke Chambers

Recent developments in Property Law 2012

I have just presented a paper entitled "Case law updates and developments" to Leo Cussen's annual Property Law intensive.

The paper covered 5 areas:
1. A mortgagee's duty on the sale of land in its possession under section 77 of the Transfer of Land Act, 1958, following MBF v Nolan [2011] VSCA 114;
2. Severance of joint tenancies, in view of the recent Supreme Court decisions of Sacks v Klein [2011] VSC 451 and Stassinopoulos v Stassinopoulos [2011] VSC 647;
3. Whether  a substantial variation to a lease effected a surrender and re-grant of the lease, to bring it under the Retail Leases Act, 2003 and whether a tenant (the Richmond Football Club) could recover outgoings and land tax paid under a mistake of fact; following Richmond Football Club Ltd v Verraty Pty Ltd [2011] VCAT 2104;
4.  Whether a tenant who had recently been granted an order for relief against forfeiture of its lease should be granted a second order when it was in default under the lease almost immediately after the first grant (see Lontav Pty Ltd v Pineross Custodial Services Pty Ltd [2011] VSC 485); and
5. The detailed analysis of notices of default served on tenants by Judd J in Primary RE Ltd v Great Southern Holdings Pty Ltd [2011] VSC 242.

A copy of all of the seminar papers from the intensive (including mine) are available from Leo Cussen Institute (web site: http://www.leocussen.vic.edu.au/ )

W G Stark
Hayden Starke Chambers

Are there any recent cases dealing with the Severance of joint tenancies in February 2012?

I recently presented an update of my paper to the Northern Suburbs Solicitors group.

After I presented my paper on 6 October 2011, Vickery J decided Stassinopoulos v Stassinopoulos [2011] VSC 647 (on 12 December 2011), relying in part on Hargrave J's decision in Sacks v Klein [2011] VSC 451, which my paper analysed.

Vickery J confrimed that a joint tenancy can be severed even after the right of survivorship has taken effect (by the death of the joint owner of the land).

The facts in Stassinopoulos were eerily similar to Sacks v Klein; in each case 2 brothers owned the land as joint tenants, and the surviving brother had taken the estate at the expense of the deceased brother's surviving spouse.

In each case, the judge found in favour of the widow and severed the joint tenancy.

W G Stark
Hayden Starke Chambers

Severance of joint tenancies paper 2011

I presented a paper at a Greens List breakfast briefing on Thursday 6 October 2011 on "Severance of joint tenancies". The paper is now available on Greens List's new web site. See: www.greenslist.com.au , then the library tab for a copy of the paper.

W G Stark
Hayden Starke Chambers