Stevens v McGrath[2004] QSC 138

SUPREME COURT OF QUEENSLAND

1. These proceedings raise two issues.

2. The first is whether certain real property situated at Kenilworth Street, Mackay on which are constructed some flats and which was held by the deceased, Francis Gerald McGrath and the first defendant as joint tenants is the property of a partnership which subsisted between them.

3. The second is whether the interest conferred on the first defendant by the deceased’s will of 25^th June 1999 in a dwelling situated at Donaldson Street, Mackay grants her a life interest therein or merely a personal right of residence in the dwelling.

4. The action has been brought by an executrix of the deceased’s will (a daughter of the deceased by an earlier marriage) against the widow and the other executor ( a son of the first defendant by a previous marriage).

5. The deceased and the first defendant were married in about 1977. The deceased died on 11^th July 1999.

6. Each had been married before and had children of such earlier marriage.

7. The first defendant is, I was told, incapable of giving evidence because of her health.

8. Most of the evidence given at the trial was documentary and there was very little dispute about relevant facts. Rather the issue was the appropriate conclusions to be drawn from the material. Some reconstruction of financial dealings has been attempted by the defendants in the form of Exhibit 5. Not all of the relevant documentary material, at least so far as bank statements are concerned, is available but some of the primary documentation is.

9. For some years prior to 1986 the parties had lived in a house in Brisbane owned by them as joint tenants. In 1986 they purchased a motel at Buderim as tenants in common. It is common ground that they conducted a business in relation to the motel in partnership until about 1992 and that the motel was a partnership asset. From 1986 to 1989 the motel was conducted by the parties themselves and from 1989 until 1992 the motel was rented to a company controlled by a son of the first defendant. For some five or six months prior to the sale of the motel the parties again personally conducted the motel business.

10. There was no formal partnership agreement.

11. The motel was sold pursuant to a contract of 20^th November 1992 and the sale was completed on 18^th December 1992.

12. It appears a deposit of some $13,700 was paid. There is a letter from solicitors acting for the parties dated 23^rd December 1992 which relates that a deposit (less agent’s commission) of $13,700 was paid into their account with the Bank of Queensland.  Nobody can, it seems, trace where this payment was made to, at least from the bank statements which are available.

13. The balance of the purchase price, some $138,000 was paid into an account held jointly by the parties. It is common ground that this bank account was at the time the moneys were paid, a partnership account.

14. It is desirable if I say something about the various accounts which the parties held jointly over the period which is relevant to this action.

15. During the period that the parties personally conducted the motel business, they operated an account 10-095197. All of the accounts with the Bank of Queensland bore the number 095197 and are distinguished by the preceding two figures. I will refer to each of the accounts by those first two figures.

16. During the period the motel was leased they operated account number 91. There was in fact some degree of overlapping between 11 and 91 and the periods just mentioned but each broadly covers the period to which I have referred.

17. 91 is the account from which the moneys said to be partnership moneys used to purchase the flats were withdrawn. Further moneys were borrowed from the bank.

18. 11 was an account opened by the parties when the flats were purchased and 80 was a loan account opened in 1995 when there was some refinancing of the parties borrowings for the flats.

19. Whilst it is accepted that at the time the motel was sold account number 91 was a partnership account, there is some dispute as to its character thereafter and particularly at the time of the purchase of the flats at Kenilworth Street, Mackay.

20. In October 1993 the parties purchased the flats as joint tenants. This property was purchased pursuant to a contract dated 11^th October 1993 for the sum of $225,000.

21. The sale was completed on 4^th November 1993.

22. At the time of purchasing the flats, another account, as has already been mentioned, was opened in the joint names of the parties.

23. Of the moneys that were used for the purchase of the flats the sum of $100,000 was withdrawn from 91 on 1 November 1993 and deposited to account 11. On 4^th October 1993 some $15,000 was withdrawn from 91 and paid by way of deposit and on 1 November 1993 $6,500 was paid to solicitors.  This sum represented an amount payable in respect of stamp duty and outlays with a balance of $2,355 being paid from account 91 to those solicitors on 23^rd November 1993.

24. The balance of the moneys was obtained from the Queensland Bank in the form of a 90 day commercial bill and this sum was credited to account 11on 5^th November 1993.

25. A series of 90 day commercial bills were debited and credited to that account between that time and November 1995 when application was made by the parties to the bank for a loan to refinance the bill. The occupations of the parties were described in that application as “retired/property investors”.

26. The application was approved and a new account (80) was opened.

27. The evidence shows that rental from the flats was paid into account number 11 and transferred from that account to account 80 from which the payments pursuant to the loan were made.

28. At all times, the parties held separate bank accounts in their individual names.

29. As I have said it was common ground that there had been a partnership agreement between the parties in relation to the motel at Buderim. Initially the parties had conducted the motel business personally and had then derived income from letting the motel by letting it to a company controlled by the first defendant’s son before the parties again conducted the business personally prior to its sale.

30. The motel was, it is common ground, a partnership asset.

31. The plaintiff’s case is that the flats in Donaldson Street, Mackay were purchased from partnership funds (together with other moneys borrowed from the bank) and that the purchase of the flats represented a continuation of the partnership which had subsisted since 1986.

32. There was an admission by the defendants that the parties had acquired the flats with the intention of carrying on the business of renting them.

33. The plaintiffs particularly relied upon section 24 of the Partnership Act 1891 which provides:

“Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.”

34. For the defendants it was said that section 24 had no application because the parties had informally brought the partnership which had subsisted between them to an end and that moneys which were used to purchase the flats and which came from account 91 were bought by them as co-owners and paid for partly from funds held in that account jointly by them and partly from borrowed funds.

35. In support of this argument the plaintiffs relied upon a number of matters.

36. It was said that given the relationship between the parties the failure to disentangle their affairs and effect a complete distribution of the proceeds of the motel sale should not be regarded as significant. Their retention of a joint account and the proceeds (or a substantial part of the proceeds) of the sale of the motel in such an account is unsurprising.

37. The parties were, it is said, at the time of the sale, of advanced age (the deceased was 82 and the first defendant was 70) and the evidence suggests that the deceased was suffering ill health. It was contended that it is unlikely that the parties would have been undertaking further partnership activities.

38. Between the sale of the motel and the acquisition of the flats account 91 was used to meet some personal debts. Moneys were also being paid out to the parties during this time. It had only been used as a partnership account for a relatively short time. It should not be regarded as being a partnership account at the time that the flats were bought. It was said that the fact that a new account was opened towards the end of the period that the parties owned the motel and at a time when the deceased’s health was deteriorating and the first defendant was finding it difficult to cope, and the fact that the account was used frequently to discharge personal debts and that the parties withdrew funds from this account for themselves all suggest that the partnership had been brought to an end informally by the parties.

39. Reliance was also placed by the defendant upon the fact that the partnership had been established to acquire the motel and derive income from it. It should be regarded, so the argument went, as having been dissolved upon the termination of that undertaking, namely the sale of the motel. See section 35(1)(b) of the Partnership Act which provides as follows:

“35.(1) Subject to any agreement between the partners, a partnership is dissolved –

…

(b) if entered into for a single adventure or undertaking – by the termination of that adventure or undertaking; ---”

40. Alternatively even if the partnership were not to be regarded as dissolved by the sale it is an important matter that the purpose for which the partnership appears to have been formed on the defendant’s argument had run its course with such sale.

41. In addition it was said there was a delay of about a year between the sale of the motel and the purchase of the flats during which there was no activity which could be characterised as the carrying on of a partnership business.

42. There were some unequal contributions made by the parties to account 91. The evidence shows that a little over $10,000 was paid by the deceased and $5,000 by the first defendant shortly before the acquisition of the flats which, it is said, is inconsistent with an equal partnership of the kind alleged.

43. The source of the funds did not all come from the sale of the motel but as has been said, a substantial amount was borrowed. (Ultimately the defendants did not pursue an argument that if the amounts paid from 91 were partnership funds the borrowing of further moneys precluded the operation of section 24 or had the result that the flats did not become wholly partnership property).

44. It was said to be significant that the flats were purchased as joint tenants and that the parties were described as “retired-property investors” in the application for finance.

45. The absence of any evidence of any reference by the deceased to the fact that he and the first defendant were in partnership was pointed to. This was the case at least prior to certain assertions made in a will in 1997 by the deceased and in a document described as a notification on 3^rd June 1998 to which I will refer shortly.

46. Finally it was said that the flats were a somewhat improbable partnership asset and their acquisition is more consistent with the property being jointly owned.

47. The plaintiff on the other hand relied upon the absence of any evidence of notification of dissolution of the partnership and particularly the absence of any evidence of any steps being taken to distribute the moneys to the partners individually notwithstanding that each held their own personal accounts. Such payments as were made to them including the discharge of personal debts from 91 were consistent with drawings by partners.

48. In addition the relatively short time, as the plaintiff saw it, between the sale of the motel and the acquisition of the flats was emphasised as was the payment by the parties into 91 of moneys to acquire the flats. These moneys could, it was argued, if there was no partnership subsisting been paid directly by the parties into the new account opened by them. Their payment into account 91 for the purposes of the acquisition of the flats is said to be important.

49. The plaintiff argues that section 25(b) had no application as there was no evidence that the parties had formed a partnership for a single adventure or undertaking and had, in any case, during the currency of the partnership both conducted the motel business personally and let the motel and derive income from its letting.

50. Nor could it be said to be important that personal debts were met between the time of the sale of the motel and the purchase of the flats from account 91. An examination of drawings, it was said, from that account prior to that time show that it had been the practice from time to time to meet non-business debts from it.

51. The acquisition of the flats as joint tenants also cannot be regarded as having any real significance, according to the plaintiff, there being good reason why this might have been done. Reference was made to Higgins and Fletcher “The Law of Partnership in Australia and New Zealand” 5^th Edition at page 138 where the authors suggest why partnership land might be held in such a tenure.

52. This is a case in which the issue has to be resolved by reference to such material as is available and in the absence of any evidence from the parties themselves.

53. There are statements made by the deceased in wills and also in a notification to which I have referred. The circumstances in which this document came to be prepared were not before the court. (It is accepted however that there is no evidence to suggest it was brought to the notice of the first defendant.) It might be accepted that this material shows that the deceased claimed that a partnership subsisted between he and the first defendant in relation to the flats but this cannot be determinative of the matter. As Barwick CJ said in Whiteley Muir v Zwanenberg Ltd v Kerr (1966) 39 ALJR 505 at 506:

“ --- a partnership is a relationship in point of fact between the partners in which they conduct a business in common with a view to profit and that the question of partnership is not to be decided merely by what the parties call each other or by the way in which they referred to the relationship vis a vis one another.”

54. There were some financial records prepared which on their face might be regarded as showing the trading position of a partnership. However Mr Kane who was called as a witness by the defendants and who is a qualified accountant and also a solicitor pointed out that there were features of these that were not consistent with partnership accounts. One reason for this is that they did not purport to show the position of the partners’ accounts.

55. Again there is no evidence as to the circumstances in which these were prepared.

56. Nonetheless I think that a consideration of the evidence as a whole favours the plaintiff’s contention.

57. There is, in my view, an absence of any external sign that the partnership had been brought to an end. The fact that the bulk of the proceeds of the sale of the motel remained in what had been on any view a partnership account is significant. I think it is also significant that the parties made payments into that account of amounts for the purposes of acquiring the flats. I also think that the relatively short time between the sale of the motel and the purchase of the flats tends to support the plaintiff in the absence of any steps taken to make a distribution to the parties of amounts obtained upon the sale of the motel.

58. I do not think that there is anything about the nature of the expenditures from 91 during the period between the sale of the motel and the purchase of the flats which supports the conclusion that there had been some distribution of the proceeds of sale in the form of an informal winding up of the partnership. Nor do I think that it is a case in which the evidence supports the conclusion that the partnership was entered into for a single adventure or undertaking. I have already referred to the fact that the parties had both conducted the motel themselves and had derived income by letting it.

59. Taken as a whole I think the evidence supports the proposition that the moneys in account 91 which were applied to the purchase of the flats were partnership funds and that section 24 applies.

60. The acquisition of the flats as joint tenants is not something which stands in the way of the conclusion that the flats were acquired as a partnership asset. Where property is purchased with money belonging to a partnership it is deemed to be partnership property and this presumption is not displaced by the fact that the assets are acquired in the name of the partners as joint tenants. See Davies v Gains 12 Ch.D. 813 and Butler v Madden 1941 SR (NSW) 245.

61. The plaintiff is in my view entitled to the declaration sought.

62. The second issue relates to the interest which the first defendant took under the will of the deceased.

63. Following the death of the deceased on 11^th July 1999 the first defendant lived in the dwelling of which the deceased was the sole proprietor.  He had acquired it in October 1996.

64. Clause 3 of this will of 25^th June 1999 provides as follows:

“I GIVE DEVISE AND BEQUEATH my land and dwelling house situated at 125 Donaldson Street, Mackay aforesaid to my Trustees UPON TRUST to permit my dear wife DULCIE MAVIS McGRATH to reside therein free of rent during her lifetime or for so long as she remains my widow, whichever event shall first occur, subject to her paying the rates and insurance on the said property whilst she resides therein; and after the death or remarriage of my said wife such land and dwelling house shall fall into and form part of the rest and residue of my estate.”

65. The first defendant ceased to reside in the house in June 2001 because her health had deteriorated. She went to live in a nursing home. All of her household furniture and effects were removed. The house remained vacant and unoccupied until the plaintiff as executrix took possession on 1^st October 2001. 

66. A claim is made for trespass to the land upon the basis that the first defendant was entitled to a life interest in it and the claim is quantified by reference to the rental value of the land during this time.

67. This case gives rise to an issue which has arisen surprisingly often. I have been referred to a number of cases.

68. In Re: Exeter (OS1090 - 1987 9 March 1988 unreported) MacPherson J dealt with a case in which the testator had provided for his residence to be held on trust for his widow “to reside therein from and after the date of my death subject at all times to the payment by her of all rates, taxes, insurances and other outgoings.”  On her death it was to be sold or disposed of and the proceeds divided between his children.

69. MacPherson J said in the course of his judgment:

“Because the result depends very much on the words used in the context of the will or other instrument it is not really possible to arrive at binding rules of construction based on decided cases. Nevertheless it is a useful starting point to treat a disposition to ‘use and enjoy’ or ‘use and occupy’ as suggesting an intention to confer a life interest.”

70. On the other hand His Honour said a direction to a trustee ‘to permit my wife to reside’ prima facie meant that the wife had a personal right to reside in the house and not a proprietary interest in the land. That was a case in which because of other provisions in the will the Court concluded that a life interest had been conferred.

71. See also Re: The will of Mayer (1995) 2 Qd.R. 150 where MacKenzie J adopted what MacPherson J said in Exeter.

72. Confining one’s attention to the first part of clause 3 it would seem plainly to be a case which fell into the category of a personal right to reside. Of particular importance in this regard is not only the language conferring a right to reside during the first defendant’s lifetime or as long as she remained a widow, but the fact that this was made subject to her paying the rates and insurance on the property but only while she resided therein.

73. Of some interest is the remainder of the clause which provides that after the death or remarriage of the widow, such land and dwelling house should fall into the will and form part of the rest and residue of the estate. In Re: Exeter the relevant clause provided that upon the death of the widow, the land was to be sold or disposed of and the proceeds divided. 

74. This was the basis of an argument that such a provision was inconsistent with a mere personal right to reside as the granting of such a right does not confer any interest in the property and would not lead to the postponement of the beneficial interest until after the widow’s death. Similar remarks might be made in relation to this clause.

75. In the end His Honour in that case did not dispose of this argument because of another clause in the will which had the effect that the widow was entitled in any case to take a life interest.

76. The reference in clause 3 to the land and dwelling falling into the rest and residue of the estate after the death or remarriage of the first defendant might be said to be inconsistent with a purely personal right to reside.

77. The question is how, if this is so, this inconsistency is to be resolved.

78. I think that the clear words of the first part of clause 3 should prevail and that the latter part of the clause should be disregarded as perhaps reflecting a mistaken understanding of the effect of the trust created. That is, I think that the testator has plainly manifested an intention that the first defendant should have a personal right to reside because of the language used in describing that right and because the right was made conditional upon her meeting the outgoings referred to during the time she was resident there. It is difficult to imagine that a life interest would be made subject to such a condition.

79. I make the following orders;

80. 1(a) A declaration that the land described as Lot 63 and 65 on RP 704691 in the County of Carlisle, Parish of Howard, Title Reference 20684211 has, at all material times, been the property of a partnership subsisting between the late Francis Gerald McGrath and the first defendant.

81. (b) A declaration that the said partnership was dissolved upon the death of the deceased and an order that the affairs of the said partnership be wound up and that all necessary inquiries be made and all necessary accounts be taken for such purpose.

82. (c) Liberty to apply

83. 2. A declaration that clause 3 of the will of the deceased, Francis Gerald McGrath dated 25^th June 1999 confers upon the first defendant a personal right to reside in the former matrimonial home situated at 125 Donaldson Street, Mackay in the State of Queensland and does not confer any interest in the said land upon the first defendant.

84. I order that the defendants pay the plaintiff’s costs of the action to be assessed.