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Badenach v Calvert – The High Court provides peace of mind for estate lawyers

This article by David Topp TEP was originally published by the Law Society of Tasmania’s Law Letter Winter 2016 edition, and is reproduced by kind permission of the Law Society.

The High Court’s 11 May 2016 decision in Badenach v Calvert[1] has restored much needed balance to the at times symbiotic will maker’s solicitor/will maker’s beneficiary relationship.

Facts

Badenach was solicitor for a terminally ill 77 year old, un-married/un-partnered client (“the client”), who desired a will be made[2]. For the not exactly princely sum of $440[3], the client duly received a will which bequeathed the entirety of his estate to Roger Calvert, the son of the client’s pre-deceased de-facto partner (“Calvert”). The client’s principal assets were two properties which he owned as a tenant in common in equal shares with Calvert[4].

The client had previously been married; there was a daughter of that marriage for whom no testamentary provision was made. Following the client’s death, the daughter brought family provision proceedings. She succeeded in obtaining not only provision but indemnity costs, thereby “substantially deplet[ing] what was not in any event a large estate[5].

Calvert sued Badenach, and his firm, alleging negligence in failing to advise the client of the possibility that the daughter might thereafter bring family provision proceedings and the options available to the client to reduce or extinguish the client’s estate so as to make such a claim practically impossible. In particular, Calvert alleged that Badenach failed to advise the client to convert his and the client’s combined interests in the two properties to joint tenancies, so that those properties would have passed to Calvert by operation of law outside the rubric of the client’s estate, or by making inter vivos gifts to Calvert[6].

As a matter of fact, there was no doubt that Badenach could readily have ascertained the client’s daughter’s existence as his firm had made two wills for the client in the past, the earlier of which contained a small legacy for the daughter[7].

Predecessor proceedings

Calvert’s claim was dismissed post-trial by Blow CJ. His Honour held that Badenach owed the client a duty to enquire as to the existence of any family members who could make a family provision claim but was not satisfied, on balance, that any such advice by Badenach would have triggered enquiry by the client about how to protect the position of Calvert as his intended beneficiary. In these circumstances, his Honour did not consider it necessary to decide whether Badenach owed Calvert, as intended beneficiary, any relevant duty of care[8].

Calvert’s appeal succeeded 3-0 to Tasmania’s Full Court. Badenach’s duty to the client extended further than simply asking the client whether he had any children and to foreshadow potential family provision claims but also to advising of possible steps to consider pre-emptively taking in order to avoid such an eventuality. This duty was said to be co-existent with that owed to Calvert[9].

Hill v Van Erp

This now 19 year old authority of the High Court gave effect to a duty of care owed by solicitors to intended beneficiaries in certain circumstances, the source being the solicitor’s obligations under an estate planning retainer. So when that solicitor caused a not-disinterested person to witness the will, thereby voiding the subject bequest to the will’s particular beneficiary who wholly missed out, the latter’s negligence claim succeeded[10].

Badenach’s will was not defective however

The obvious factual difference here was that nothing of and about the will Badenach drafted was defective or otherwise ineffectual to obtain the client’s desired result. Absent the daughter’s family provision claim, nothing would have prevented the relevant properties being transferred to Calvert solely.

Nor was a duty owed, on these facts, to Calvert

Therefore the duty Calvert propounded was much broader than Hill v Van Erp’s more limited duty to give effect to a testamentary intention; Calvert alleged a duty to give advice as to the client’s property interests and future estate. However the retainer was testamentary. Not only that, Calvert’s very “convert to joint tenancies” assertion is necessarily divorced from a duty owed an intended beneficiary under a will because if joint tenancies were actually created in lieu of the tenancies in common, it would have been unnecessary for the client to have even named Calvert in the will since the properties would have passed automatically by survivorship[11].

Even if a duty was owed, causation could not have been proved

It is therefore noteworthy that in Gordon J’s judgment Her Honour specifically emphasized the word “may”: “The duty of care owed by a solicitor to a testator in tort may extend to an intended beneficiary[12]. Any notion that Hill v Van Erp creates a plenary cause of action for any and all disappointed beneficiary claims is therefore very debatable.

In any event Her Honour’s judgment required Calvert to have adduced evidence of what would have been done by the client if Badenach specifically advised the client of the daughter’s omission from the will and the implications: “There was no evidence, let alone persuasive evidence, that was sufficient to establish what the testator would have done if [Badenach] had not breached the duty … In short, Mr Calvert did not establish that the …negligence caused his loss[13].

Policy considerations

The High Court’s decision thereby relieves solicitors of any obligation to somehow “engineer” testator client’s assets in order to render family provision claims unviable.

How would doing so be commercially possible in the context of a will-drafting retainer for no more than $440 anyway? Given the sheer cost of operating legal businesses today, $440 is almost too low to economically offer will making services, yet for some lay clients, especially cash-poor retirees and pensioners, that is an expensive outlay.

It is conceivable that many small, suburban law firms would have simply withdrawn will making services all together.

Of course all responsible will drafting solicitors routinely advise testators that no will is ever immune from challenge and that omitting spouses, children and financial dependents creates a risk of family provision claims post-death. Giving such advice is part and parcel of any such retainer. However Porter J went further, saying “as a necessary concomitant to” such advice, a solicitor should “advise as to what steps may be available to deal with assets before the testator’s death in a way which would better fulfil the testator’s intentions[14].

deal with assets”?

In this writer’s view such a notion, if upheld, runs a risk of unintended consequences. Elder abuse is a rapidly emerging, and sinister, phenomenon created by our ageing population. Economic abuse of the elderly “is the illegal or improper use of an older person’s money, property or other assets by someone other than the owner. Examples … include misappropriation of money, valuables or property, forced changes to a will … and denial of the right of access to, or control over, personal finances…From both Australian and overseas studies, it has generally been estimated that around 3 per cent of people aged 65 years and over have suffered some type of abuse…older people in poor health are three to four times more likely to be abused than those in good health…”[15].

An unintended consequence could therefore have been to have opened a door to unscrupulous persons to deliberately mislead and instill fear in often elderly and infirm testators[16] about family provision, or the lack of efficacy of wills generally, and recommend that they transfer valuable property inter vivos so as to denude estates: a form of “I’m going to get it anyway” principle. Whilst technically true that ability to bring family provision claims would thereby be extinguished, proud and successful testators can be rendered homeless and assetless overnight if the desired objects of their bounty exploit the situation they so contrive. Sadly, this is a not uncommon scenario.

Admittedly Badenach’s testator client and Calvert were already joint owners; conversion to a joint tenancy would not have altered their substantive rights. In fairness to the Full Court, this was the context with which their Honours were considering. Had Badenach’s testator client and Calvert not however been extant joint owners, and even assuming zero undue influence and/or bad faith, substantial capital gains tax and/or stamp duty consequences arise from inter vivos transfers of real property. Perhaps even for sums greater than what estates might bear by commercially settling actually brought family provision claims. Depletion by taxation of testator assets whilst alive is just as real a risk as depletion post-death by family provision claims.

Conclusion

Those who draft wills have more than enough to consider, especially the onerous requirements to ensure that will makers possess requisite testamentary capacity. To broaden the scope to consider absolutely any eventuality which might affect the ability of beneficiaries to actually take their gifts, is a bridge far too far which ultimately would have caused far more detriment to testators – by inability to access will making services if too many solicitors withdrew from the market – than the mischief particular to Badenach’s case.

David Topp TEP is a member of the Queensland Bar.

[1] [2016] HCA 18 (11 May 2016) (“Badenach”)

[2] Badenach, at [1]

[3] Badenach, at [52]

[4] Badenach, at [1] – [2]

[5] Badenach, at [3]

[6] Badenach, at [4]

[7] Badenach, at [6]

[8] Badenach, at [7] – [8]

[9] Badenach, at [9] – [10]

[10] Badenach, at [15] – [16]

[11] Badenach, at [45] – [46]

[12] Badenach, at [83] – original emphasis

[13] Badenach, at [97]

[14] Ibid, at [69]

[15] Marianne James ‘Abuse and Neglect of Older People’, reported in Family Matters No. 37 © 2016 Australian Institute of Family Studies

[16] Don’t forget that Badenach’s client was terminally ill as of the time of the subject will