The Estate of Drummond; Drummond v Drummond

Margaret Kinloch Drummond died on 12 April 2016 at the age of 90. She made a will dated 26 April 2012 (the "2012 Will"). Without any disrespect, I shall refer to her and other family members by their given names.

The plaintiffs, Alexander and Raymond, are Margaret's two sons. They are her sole and equal beneficiaries under the 2012 Will. At the date of Margaret's death, her estate had an estimated gross value of approximately $7,500,000.

By statement of claim filed on 13 February 2017, Alexander and Raymond seek a grant of probate in common form of the 2012 Will. They were represented by Mr N Kirby of Counsel.

The defendant/cross-claimants, Michelle and Michael, are Raymond's children. They were represented by Mr C Wilson of Counsel. By cross-claim filed on 8 March 2017 they seek this declaration:

In these reasons, I shall refer to the document dated 22 March 2016 as the "2016 Document."

On 22 March 2016 (three weeks before her death) Margaret had a conversation with her friend and former accountant, Mr Barry Ahern. As a result of that conversation Mr Ahern wrote the 2016 Document, which was signed by him and Margaret.

The only question for determination is whether "the Court is satisfied that [Margaret] intended [the 2016 Document] to form an alteration to...her will" within the meaning of section 8(2)(b) of the Succession Act 2006 (NSW) ("the Act"). The Court answers that question "no". Probate of the 2012 Will will be granted to Alexander and Raymond and the cross-claim will be dismissed.

The facts may be shortly stated.

Both the 2012 Will and an earlier will were prepared for Margaret by her longstanding solicitor, Mr Richard Yeo. The 2012 Will divided Margaret's estate equally between Alexander and Raymond.

There was no dispute between the parties that Margaret was an intelligent woman who was meticulous about her legal affairs. Although in March 2016 she was ill and weak, having been told by her doctors that she was "going backwards", there is no suggestion that her intelligence and meticulous nature had deserted her.

The evidence in relation to the creation of the 2016 Document was given by Mr Ahern. It was not challenged in any significant way and I accept him as a truthful and careful witness.

Mr Ahern had first met Margaret in about 1984 or 1985. He was then working as an accountant in an accounting firm and undertook professional work for the watchmaking business that Margaret and her husband ran from a shop in Miller Street, North Sydney.

Over the years, Mr Ahern became close friends with Margaret. After he retired from practice in about 2002, he continued to assist Margaret with her accounts as she had ceased to retain the firm for which Mr Ahern had worked.

After Margaret had retired and closed the shop, Mr Ahern regularly visited Margaret at her home. While he continued to do some work for her, generally they would just sit and chat. Mr Ahern estimated that he visited Margaret about once a month.

In about October 2015 Margaret was admitted to the Castlecrag Private Hospital. Mr Ahern understood that she had heart problems and had suffered a stroke. She returned home shortly before Christmas 2015.

Mr Ahern continued to visit Margaret. On Tuesday, 22 March 2016 he visited Margaret at her home. Margaret telephoned Raymond and, soon after, Raymond and his wife Patricia arrived. After pleasantries, Mr Ahern's evidence of what occurred is:

The 2016 Document (entirely handwritten) states:

Section 8 of the Act provides:

These proceedings are governed by s 8 of the Act, rather than by its predecessor, s 18A of the Wills, Probate and Administration Act 1898 (NSW). Because there is no material difference between s 8 and its predecessor, the Court has continued to apply those cases which considered s 18A.

In Hatsatouris v Hatsatouris [2001] NSWCA 408, Powell JA (with whom Priestley and Stein JJA agreed) (emphasis in original) said:

I also respectfully adopt and apply the summary of the law in relation to s 8 which appears in the judgment of Hallen J in Estate of Laura Angius; Angius v Angius [2013] NSWSC 1895 (“Angius”):

Without suggesting that it was the sole foundation of his clients’ case, Mr Wilson accepted that their case substantially depended upon the words spoken by Margaret to Mr Ahern in relation to the 2016 Document, "Yes, that will see us over until we can both see Richard Yeo" (emphasis added). Mr Wilson called in aid the fact that Margaret was, at the time, intelligent and meticulous but knew that she was "going backwards". He submitted that it was clear that Margaret wanted Mr Ahern to be with her when she went to see Mr Yeo and that she understood that Mr Ahern was going away for a fortnight or so.

Mr Wilson submitted that, in those circumstances, the Court should be satisfied that what Margaret meant by the expression "that will see us over" was that the 2016 Document was intended to take immediate effect as an alteration to the 2012 Will. While she may have wanted to have matters formalised by Mr Yeo when Mr Ahern came back, the gravamen of Mr Wilson's submission was that it was the very fact that Mr Ahern was going away that motivated Margaret to intend the 2016 Document to have immediate testamentary effect. In other words, it was to have effect until replaced by a more formal document prepared by Mr Yeo once Mr Ahern had returned.

For the following seven reasons, the Court is unable to accept Mr Wilson's submission and, accordingly, is unable to be satisfied to the requisite standard (see paragraph [250] of Angius set out in paragraph [21] above) that Margaret intended the 2016 Document to be immediately effective as an alteration to the 2012 Will. Those reasons are:

Probate of the 2012 Will will be granted to Alexander and Raymond. The cross-claim will be dismissed.

I have now heard the parties as to costs.

There was no dispute between the parties that, in the result, Alexander and Raymond are entitled to an order for their costs of the entirety of the proceedings on the indemnity basis from Margaret’s estate. There was, however, debate about the appropriate costs order to be made in relation to Michelle and Michael’s costs of the proceedings, in particular the cross-claim.

The debate centred around the effect of an offer of compromise under the Rules which was served on or about 10 March 2017 (the “Offer”) whereby Alexander and Raymond offered to settle the cross-claim “on the following basis: a. The Cross-Claim be dismissed; b. No order as to costs”.

There is no doubt that the Offer was an offer of compromise under the Rules (see Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) Part 20 r 20.26(3)(a)).

The issue was that if effect was given to the Offer, then it had the potential to work a result that would be significantly different to that which might usually apply in a probate suit of this kind. The result as to costs in a probate suit is often determined by the application of the judgment of Powell J (as his Honour then was) in Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 (“Re Hodges”) at 709:

As it had to be in a case of this kind, the Offer was an offer of compromise as to costs. Mr Wilson submitted that if the Court were to give effect to the statutory offer of compromise regime in a case of this kind, then it would run a serious risk of discouraging investigations in the context of probate suits which courts have accepted were reasonable to be made. In those cases courts have generally, but not always, applied the approach set out in the judgment in Re Hodges in what might be termed “reasonable investigation” cases.

In my view, there is much force in Mr Wilson's submission, force that was accepted (properly) by Mr Kirby. If the Court accepted that Michelle and Michael had acted reasonably in raising the 2016 Document for investigation, then there should no order as to costs so that they paid their own costs. If they had acted unreasonably, then the Offer should operate so that, in accordance with UCPR Part 42 r 42.15, they will be required to pay Alexander and Raymond’s costs of the proceedings on the ordinary basis up to the date of the Offer and thereafter on the indemnity basis.

In those circumstances, the parties accepted that the costs of the cross-claim would be determined by whether or not the Court came to the view that the present case was one that fell within the "reasonable investigation" category. In referring to it as a category, I am not to be taken as suggesting that the approach in Re Hodges has statutory force. Fundamentally, costs remain in the discretion of the Court to be exercised in a principled way, starting with the proposition that costs follow the event. The approach taken in Re Hodges has simply come to be accepted as a guide to the appropriate and principled exercise of that discretion in certain types of cases.

Mr Wilson submitted that this was a "reasonable investigation" case. He submitted that his clients had acted correctly and reasonably to have raised for the Court's consideration the status of the 2016 Document. Although they had failed, the basis on which they had put forward their case was reasonable. In particular, the significance for which they had contended of Margaret's words, "Yes, that will see us over till we can both see Richard Yeo", was reasonably open in their context.

Mr Kirby submitted to the contrary. He said that when the context was properly understood, including the various other statements made by Margaret in the course of her discussion with Mr Ahern (and on which the Court has relied in forming its ultimate conclusion), this was not a case where it was reasonable to have suggested that Margaret intended the 2016 Document, there and then and without more, to have testamentary effect so as to alter the 2012 Will.

On balance, it seems to me that this is a case which falls within the "reasonable investigation" category. There is a danger in undertaking the present exercise of placing too much emphasis on the fact that Michelle and Michael have lost so as to lead automatically to the conclusion that their case was unreasonable. The question of reasonableness must be viewed on the basis of the totality of the evidence and, in my opinion, the totality of the evidence in this case means that it falls on the side of a case where it was reasonable for Michelle and Michael to have required the status or the significance of the 2016 Document to be investigated by the Court.

For these reasons, accepting that the Offer is a valid offer of compromise under the Rules, the Court will "order otherwise" for the purposes of r 42.15(2) to effect the result that no order as to costs will be made in respect of Michelle and Michael’s costs of the proceedings.

The orders of the Court will be as follows: