Bayley v Sivewright; Sivewright v Sivewright

Stephen William Sivewright was a member of the NSW Police Force serving the community in Wagga Wagga. On 11 April 2018, at the age of 42 and without warning to his family, he committed suicide.

His death was an inexplicable tragedy for his partner of 13 years, Leon Thomas Bayley, his niece, Sarah Louise Sivewright, and his brother, Ian James Sivewright, among others. Unfortunately, those parties now find themselves involved in these proceedings. For convenience, and without disrespect, I will refer to them and others in these reasons by their given names.

Before his death, Stephen operated a farming partnership on the North Coast of NSW with Ian (the “Partnership”). Acting on insurance advice they received together, each held a life insurance policy in his own name over the other’s life. Stephen’s will made on 12 May 2014 (the “Will”) appointed Ian as executor of Stephen’s estate (the “Estate”).

Stephen left the Estate to Sarah. Leon, while not a beneficiary under the Will, received a substantial benefit as the nominated beneficiary of Stephen’s superannuation. Sarah and Leon have each commenced proceedings against Ian for relief including family provision orders under the Succession Act 2006 (NSW) and declarations as to the ownership of the proceeds of the life insurance policy held by Ian over Stephen’s life (the “Insurance Policy”). The Court ordered that the two matters be heard together, with the evidence in one to be evidence in the other.

In the course of the hearing before me, the parties came to the conclusion that their dispute about the Insurance Policy had to be determined before focused submissions on the family provision claims could be made. This is because the size of the Estate and the parties’ financial circumstances could be materially different depending on the Court’s decision in relation to the Insurance Policy.

For this reason, on 11 February 2021 the Court made this order under Part 28 r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) by consent:

In the circumstances of these proceedings, the effect of this order was to require the Court to determine:

To the parties’ credit, the issues were further narrowed:

The Court has concluded that the Insurance Policy and its proceeds (including any balance after paying out the debts of the Partnership and whether or not Ian purchases the Estate’s interest in the Partnership) are the property of Ian absolutely, for reasons which may be summarised as:

Mr A Hill of Counsel appeared for Leon. Mr D Liebhold of Counsel appeared for Sarah. Mr C Lawrence of Counsel appeared for Ian.

With the exception of the question of the source of funds for the payment of the Insurance Policy, the primary facts relevant to the issues as finally presented were neither in dispute nor particularly extensive. The Court’s findings are set out in what follows.

Stephen worked full-time as a police officer and operated the Partnership with his brother Ian over two properties in the Lismore area. Ian, who was employed at the local meatworks, left what might be called the day to day paperwork and administration of the Partnership to Stephen.

The two brothers had originally been in a farming partnership with another brother, Jack. In 2013, they wound up that partnership and bought out Jack’s share. They had to borrow money to do so. The two brothers continued to be in business together through the Partnership, which came into existence in 2013 and appears to have always been in significant debt. There was no partnership deed or other document evidencing the terms of the Partnership.

On 9 September 2013, Stephen and Ian met with Mr Brett Michael of Charter Financial Planning Ltd. On 29 October 2013, Mr Michael wrote one letter addressed to Stephen and Ian together. That letter included (emphases added):

Enclosed with the letter was a document entitled “Your insurance plan”, addressed to both Stephen and Ian and dated 29 October 2013 (the “Plan”). Because of its importance to the resolution of this case, the Plan is attached as Annexure A to these reasons. I have marked certain sections with an asterisk for emphasis.

AMP subsequently issued two life insurance policies, each with its own unique policy number. One was in the name of Ian insuring Stephen’s life, and the other was in the name of Stephen insuring Ian’s life. There is no doubt that the policies commenced on 11 November 2013. However, there are in evidence two schedules for the Insurance Policy: one issued on 11 November 2013 for $2,431,012.50, and one issued on 12 November 2013 for $2,000,000. Ian received the former amount. What is important for present purposes is not that two schedules were issued, but that both expressly stated that the owner was Ian and the person insured was Stephen, with no nominated beneficiaries.

Stephen and Ian operated a joint bank account (the “Joint Account”). With the exception of a transaction listing for the last two weeks of the operation of the Partnership (including the date of Stephen’s death), no bank records of the operation of the Joint Account were in evidence. Nor did any party tender formal accounts for the Partnership, although I infer that such accounts were prepared. I infer this first from the fact that one of the witnesses, Ms Jenny Haines, described herself as the accountant for the Partnership, and second from Ian’s evidence referred to in the next paragraph. Ms Haines was not required for cross-examination.

Ian described how the Joint Account was operated in his affidavit of 3 November 2019 at [4]–[6]:

Leon also gave evidence in cross-examination about how Stephen used the Joint Account (T31:10–30):

At [6] of her affidavit of 1 November 2019, Ms Haines said:

The premiums for each of the life insurance policies were paid out of the Joint Account.

At [11] of his affidavit of 5 July 2019, Ian said:

Ms Haines observed at [2]–[5] of her affidavit of 1 November 2019 that:

In [29] of his affidavit of 31 January 2021, Ian said:

I note the last sentence just quoted was not objected to and again that Ms Haines was not required for cross-examination. Furthermore, the parties were in agreement that, without disrespect to Ian, he did not have personal knowledge or understanding of the Partnership accounting.

Stephen made the Will on 12 May 2014, appointing Ian as executor and trustee and leaving his entire estate to Sarah.

On 10 April 2018, Stephen wrote to his solicitor, Mr Hunter. This is the Alleged Codicil that Leon sought to propound, but which was subsequently accepted as not being an issue (see [8(2)] above). The letter said (emphases added):

Stephen wrote letters dated 11 April 2018 to Leon, Sarah and Ian. As one might expect, the letter to Leon was deeply personal. However, it contains nothing relevant to these proceedings.

The letter to Sarah said (emphases added):

The letter to Ian said (emphases added):

Stephen took his own life that same day.

Ian received $2,431,156.80 from AMP pursuant to the Insurance Policy.

Probate of the Will was granted to Ian on 22 August 2018.

There was no dispute between the parties about the relevant legal principles.

The Partnership Act 1892 (NSW) (the “Act”) provides:

In determining whether an asset in one partner’s name is held as partnership property, the High Court in Carter Bros v Renouf (1962) 111 CLR 140 at 163 said that the relevant question is:

The need to examine the circumstances surrounding the asset’s purchase was also explained by Gleeson JA (Meagher and Barrett JJA agreeing) in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [131]–[134]:

In Hungerford (by his tutor Ahadizadeh) v Richardson and Ors [2017] NSWSC 297, Lindsay J said at [58]–[61]:

Lindley and Banks on Partnership (Sweet & Maxwell, 20th ed, 2017) states at [18-03]–[18-04] that:

The parties accepted that the Court would have to infer the intention of Stephen and Ian from the surrounding facts, including Mr Michael’s letter, the Plan, Ian’s affidavit and oral evidence, and the letters sent by Stephen before his death.

Counsel for Leon and Sarah both contended that the Insurance Policy was an asset of the Partnership under ss 20 and 21 of the Act, and drew attention to the following factors in support of that view.

In the first instance, they submitted that the Insurance Policy was bought with Partnership money. The plaintiffs relied on the evidence set out at [18], [19] and [22] above that Stephen and Ian used a joint bank account, into which they each deposited their wages and any Partnership income, and out of which the Insurance Policy premiums were paid. The plaintiffs drew particular attention to Ian’s statement that “the policy premiums were paid out of our partnership bank account as a business expense of the partnership” (see [22] above).

The plaintiffs acknowledged Ms Haines’ evidence at [23] that Stephen and Ian each paid for their policies personally. The plaintiffs contended that the test of tax deductibility which formed the basis of Ms Haines’ evidence did not bear on the beneficial ownership of the policy.

Further, the plaintiffs submitted that there was a common intention between Stephen and Ian that the Insurance Policy should be Partnership property, and that the Insurance Policy was bought for Partnership purposes and in the course of Partnership business. The plaintiffs relied on Mr Michael’s letter at [14] above and Ian’s testimony which was said to affirm this same purpose of the Insurance Policy. The plaintiffs highlighted Ian’s statement in cross-examination that the insurance was to “protect our business that we had in farming” (T66:47–48). The plaintiffs also relied on Stephen’s letters expressing his wishes as to the use of insurance proceeds as an indication that Stephen understood that he had an interest in those funds.

Mr Hill for Leon also contended that Ian’s acceptance in cross-examination that he would pay the Partnership’s debts with the Insurance Policy proceeds (extracted below at [76]) constituted an admission that the whole of the proceeds are Partnership property.

Mr Liebhold for Sarah advanced three further arguments.

First, he submitted that the Court could apply, by analogy, the decision of the House of Lords in Foskett v McKeown [2001] 1 AC 102 (“Foskett”) that trust funds misappropriated and used, through a mixed fund, to pay the premiums on a life policy could be traced into the death benefit paid on that policy.

Second, Mr Liebhold contended that Stephen and Ian contracted to vary the operation of s 39 of the Act (as permitted under s 19 of the Act) such that the proceeds of the Insurance Policy would be used first to discharge all Partnership liabilities and then either to purchase the Estate’s interest in the Partnership or to be divided evenly between the surviving partner and the Estate.

Mr Liebhold submitted that the insurance advice from Mr Michael on 29 October 2013 constituted the offer, the applications in response to the advice constituted acceptance and the premiums the consideration. Mr Liebhold submitted that Stephen and Ian’s intention to create legal relations was clear.

Third, it was submitted that the actions and intentions of Stephen and Ian in relation to the acquisition and retention of the life insurance policies gave rise to a constructive trust, under which each held an insurance policy over the life of the other on trust and under fiduciary duties to apply the proceeds of the policy in accordance with their common intention.

It was contended for Ian that the Insurance Policy was owned legally and beneficially by him alone. Mr Lawrence advanced four submissions in support of this contention.

First, this outcome is consistent with the natural reading of the Plan and the policy documents.

Second, for the Partnership to have a beneficial interest in the proceeds of the Insurance Policy would, as a matter of mathematics, work against the parties’ intention set out in Mr Michael’s letter at [14] above — namely, to allow the surviving partner to repay the Partnership’s debts and purchase the Estate’s half-interest in the partnership.

Third, Stephen acknowledged in the letters he wrote just before his death that the insurance proceeds would be paid to the policy owner, Ian, who was also beneficially entitled to it, and that any departure from that arrangement would require Ian’s agreement. Mr Lawrence emphasised the following points in Stephen’s letters (set out at [27], [29] and [30] above):

The parties accepted that ‘ever thought’ was a typographical error, intended to read ‘even though’.

Fourth, each policy was paid for by the relevant partner personally, and not with Partnership funds. The evidence in support of this finding was said to be Ms Haines’ evidence at [20] and [23] above and Leon’s testimony at [19] and [23] above.

For the reasons which follow, the Court accepts Ian’s submissions and finds that the Insurance Policy and its proceeds are his, legally and beneficially.

As I have already recorded, the relevant evidence — which the parties accepted the Court would have to consider as a whole — was not extensive. However, four critical factual matters are clear. In what follows I will refer only to the Insurance Policy because that is what is relevant. However, for the avoidance of doubt, the Court’s findings and conclusions apply mutatis mutandis to the corresponding insurance policy which was in Stephen’s name over the life of Ian.

First, insofar as both Stephen and Ian’s contemporaneous intention is concerned, the best objective evidence is the Plan. The Court finds that they intended to, and did, give effect to the arrangements recommended in the Plan. Those arrangements were that Ian would personally own an insurance policy over Stephen’s life, of an amount sufficient, upon dissolution of the Partnership by Stephen’s death, to pay out the Partnership’s debts and leave Ian in a position to buy the Estate’s share of the Partnership. For example, the Plan includes (my emphasis): “we recommend your AMP insurance be cross-owned by each partner personally” and “this ensures that any payments received from the policy will be paid to the surviving partner directly.” I have marked the relevant sections of the Plan in Annexure A.

The documents for the Insurance Policy (see [16] above) are consistent with the Plan in that they show Ian as the owner and Stephen as the life insured. That is prima facie evidence of the Insurance Policy ownership, which the plaintiffs bore the onus to displace.

One way the plaintiffs might have displaced this evidence would have been to demonstrate that the Insurance Policy was paid for with Partnership funds. Their failure to do so is the second reason for the Court finding in Ian’s favour. The Court approaches this critical factual matter in two ways.

First, Leon and Sarah have failed to prove that Partnership funds were used to pay for the Insurance Policy. This is both because they have been unable to adduce persuasive evidence to that effect and because of the weight of the evidence to the contrary.

The only positive evidence to which they pointed was Ian’s evidence of the premium being a business expense of the Partnership. However, Ian withdrew that evidence (see [24] above) and it was not contested that he was unlikely to have understood how the financial side of the Partnership operated. I accordingly disregard Ian’s initial evidence and accept his deference to Ms Haines’ knowledge.

Second, the contrary evidence enables the Court to find, as it does, that the premiums for the Insurance Policy were paid by Ian personally. While the accounts of the Partnership were not in evidence, the Court accepts Ms Haines’ unchallenged evidence (see [20] and [23] above) as evidence that the Insurance Policy was treated as Ian’s personally, with the premiums being allocated to his personal expenses and not to those of the Partnership. That finding is consistent with, and corroborated by, the Plan and the Court’s finding in [59] and [60] above.

Third, the Court finds that Stephen well understood that the Insurance Policy and its proceeds were Ian’s. This finding is based on two matters:

Fourth, the conclusions reached in the preceding paragraphs are fortified by the fact that the intentions set out in the Plan are satisfied if the Insurance Policy is Ian’s, but not satisfied if the Insurance Policy is the Partnership’s. This can be demonstrated from the figures in the Plan. The Plan was based on Ian having to pay out $1,120,000 in debts and $850,000 for the half share of the Partnership’s property (see p 4 of the Plan).

Assuming the Insurance Policy payout of $2,430,000 (rounding the actual payout of $2,431,156.80 for simplicity) is Ian’s absolutely, he would be able to meet both those payments from the insurance proceeds. However, if the insurance proceeds belong to the Partnership, a quite different result occurs. The Partnership’s debts would be paid from the insurance, leaving the Partnership with cash of $1,310,000 ($2,430,000 - $1,120,000). Half of that amount — $655,000 — would go to Ian from the Partnership. This would be less than the $850,000 he needed to buy out the Estate’s share of the Partnership’s non-cash assets.

It is next necessary to consider the application of the Act in light of the Court’s factual findings set out above. The relevant provisions are set out in [35] above.

Section 21 of the Act may be immediately dismissed from consideration, because the Court has found the Insurance Policy was not “bought with money belonging to the firm.” Even if this were wrong, I find in the alternative that the Court’s conclusions set out at [59] to [67] above (excluding those relating to the source of funds) demonstrate a “contrary intention” for the purposes of s 21, to the effect that the Insurance Policy had not been purchased on account of the Partnership.

Turning to s 20 of the Act, the Court’s factual conclusions mean that the Insurance Policy was not “originally brought into the partnership stock or acquired…on account of the firm.” The remaining possibility is that it was acquired “for the purposes and in the course of the partnership business” (my emphases).

Based on the Court’s factual findings set out at [59] to [67] above, I also conclude that neither of those limbs is satisfied. First, those findings demonstrate that the purchase of the Insurance Policy was directed to Ian’s situation as an individual after the Partnership had been dissolved in a particular circumstance — that circumstance being Stephen’s death while the Partnership was on foot (see s 33 of the Act at [35] above). Second, the “partnership business” was farming. The Insurance Policy was not bought for the purposes or in the course of the farming business. The Insurance Policy had no impact on the Partnership’s operation of the farming business. By way of contrast, the answer would be quite different if the policy taken out in Ian’s name insured, for example, cattle owned by the Partnership.

In reaching this conclusion, I have not overlooked the plaintiffs’ reliance on Ian’s evidence in cross-examination that the policies “would protect our business that we had in farming.” However, this must be seen in context (T66:44–48):

That answer was given in response to a question about what advice Ian had been given by his solicitor about the Insurance Policy since he had received the proceeds. Ian’s solicitor’s advice is, with respect, irrelevant to anything the Court must decide.

If the conclusion set out in [71] is wrong and the Insurance Policy was acquired “for the purposes and in the course of the partnership business”, the Court finds in the alternative that those same factual findings demonstrate a course of dealing for the purposes of s 19 of the Act, from which the Court infers the consent of Ian and Stephen that their respective insurance policies would be theirs and not the Partnership’s.

My findings are unaltered by Mr Hill’s submission that by accepting that he would pay the Partnership’s debts with the proceeds of the Insurance Policy, Ian had admitted that the proceeds were Partnership property. This does not follow and no such admission was made.

While Ian did accept in cross-examination that he would pay the Partnership’s debts with the proceeds of the Insurance Policy, neither he nor his counsel admitted any legally enforceable obligation to do so nor accepted that the proceeds were Partnership property. Ian said (T67:30–35, T68:30–35):

Finally, I will consider the three additional arguments raised by Mr Liebhold (see [47] to [50] above).

First, I am unable to see how Foskett is of any relevance. That was a case concerning breach of trust and tracing. In this case the applicable route would have been the statutory and common law position that the Insurance Policy would prima facie have been the Partnership’s if it had been bought with Partnership funds.

Second, for all its ingenuity, Mr Liebhold’s contractual argument is unsustainable on the evidence for at least three reasons.

First, I do not accept that on a plain reading the Plan (or anything else written by Mr Michael) can be read or understood as an offer from each partner to the other.

Second, there is no evidence that either partner ever discussed or gave thought to what might happen to the balance of the Insurance Policy proceeds, whether or not Ian bought out the Estate’s half of the Partnership. There is therefore no basis to find an express term dealing with any such balance. Nor do I accept that a term of the kind proposed in Mr Leibhold’s argument could be implied on the basis of being so obvious that it goes without saying.

Third, the sale price is a material term for an enforceable contract for the sale of an asset such as land: Corser v Commonwealth General Assurance Corporation Limited [1963] NSWR 225. In the absence of either a specified purchase price for the Estate’s share of the Partnership, or a specified mechanism for how that price might be determined, I am unable to see how the Court could find any contract that involved the possible purchase of the Estate’s share that would be sufficiently certain to be enforceable.

Finally, Mr Liebhold sought to invoke a constructive trust. It is true that, as partners, Stephen and Ian owed each other fiduciary duties. But given the Court’s conclusion on the facts, no breach of any such duties has been made out (Mr Liebhold also did not suggest what particular fiduciary duty might have been breached and how). Furthermore, while it may be accepted that Stephen and Ian had a “common intention”, the Court has found that common intention was to implement the Plan in accordance with its terms.

It follows, and the Court finds, that there was no intention by one to confer a beneficial interest on the other (or on the Partnership) in the former’s insurance policy. The Court has also found that Ian paid for the Insurance Policy with his own funds, and not with the Partnership’s or Stephen’s funds. Taken individually or together, none of the circumstances referred to in this and the preceding paragraph are of a kind where equity would find a constructive trust to exist over the Insurance Policy or any part of its proceeds in favour of either the Partnership or the Estate.

The parties will be given an opportunity to agree what the next steps should be, consistent with the just, quick and cheap resolution of the remaining family provision claims in light of the Court’s findings in these reasons.