Court considers broad range of issues in mutual will agreement case

The recent Supreme Court decision of Campbell v Campbell [2015] NSWSC 784 considered the nature of mutual will agreements and the related issue of testamentary promises.  The facts described the unfortunate story of a family in dispute over the future control of a valuable Mosman property.

The defendant, Lady Campbell, was the widow of Sir Keith Campbell, the former Chief Executive Officer of Hooker Corporation Limited.  The plaintiff was Lady Campbell’s daughter, Julie Campbell.  Lady Campbell was 88 years old at the time of the hearing. 

The facts

Julie alleged that in 1982, Lady Campbell had made a mutual will agreement with Sir Keith (who subsequently died in 1983) in which it had been agreed that the survivor would leave his or her estate to their children in equal shares.  Julie also alleged there was an agreement made about a month after Sir Keith’s death whereby Julie and her three siblings had an option over the property but directed Hooker Corporation Limited to transfer it to Lady Campbell on the understanding that Lady Campbell would in her will leave the property to her children in equal shares (the 1983 agreement).  A written copy of the agreement could not be located and the Court held that it never existed.

Since 2003, Lady Campbell had subdivided and redeveloped the property, and transferred portions of the property to two other daughters and a son-in-law.  The redevelopment was funded by mortgaging the property to the two daughters and the son-in-law.  Julie did not make any formal objection to these activities until 2013.

Julie now sought orders from the Court:

• restraining Lady Campbell from resiling from the 1982 mutual will agreement made with Sir Keith; and
• enforcing the testamentary promise made in the 1983 agreement.

The findings

In finding that there was no mutual will agreement or testamentary promise, the Court restated a number of principles about such arrangements:

1. Mutual wills

It is common for spouses to make wills which mirror each other (ie. the same choice of executors and beneficiaries).  However, wills that mirror each other do not of themselves create a binding obligation on the surviving will maker to not make a new will on different terms:

“Equity does not protect the beneficiary under mutual wills merely because the wills have been made in identical or almost identical terms.  There must be evidence of an agreement to create interests under mutual wills which are intended to be irrevocable after the death of the first person to die.”

2. Testamentary promise

The Court stated its “natural scepticism” about treating a family agreement as a binding contract.  Quoting the judgement of Sharp v Anderson (1994), the Court said the following factors will make a stated testamentary intention an enforceable contractual obligation:

• “The number of people to whom the statement was made;
• Whether the statement was in writing;
• Whether there was substantial consideration offered for the promise;
• The number of times the statement was made;
• The context, formal or informal, in which the promise was made;
• The nature of the relationship between the parties; and
• The certainty of the terms.”

3. Contract

The Court said that for the 1983 agreement to be a contract, there must have been:

• an intention between the parties to create legal relations;
• an offer by Lady Campbell to leave the property equally to the four children; and
• a form of compensation for Lady Campbell doing so, being the children giving up any immediate interest in the property.

The Court held that in the circumstances the 1983 agreement was not a contract and relied on the same principles to find that the mutual will agreement was not a contract either.

4. Absence of writing

The Court held that even if the 1983 agreement was only a verbal agreement, it was not enforceable as it was not in writing, as required by ss23C and 54A of the Conveyancing Act 1919 (NSW).  Julie could have overcome this issue had Lady Campbell acted in part performance of the alleged agreement, but the Court found that Lady Campbell had not acted in part performance anyway.

5. Equitable principles

The Court also considered equitable principles to assess the general fairness of the situation:

• Laches – Julie’s failure to assert her rights (if any) over a number of years when Lady Campbell made substantial changes to the property.
• Acquiescence – Julie’s implied consent by which her right to any legal remedy was lost when she did not raise an objection to Lady Campbell making the changes to the property.
• Estoppel in pais – the prevention of unjustly allowing Julie to now depart from Lady Campbell’s assumption that Julie did not object to the changes to the property.  This was because to depart from the assumption now would be unfair to Lady Campbell (ie. Lady Campbell would have to undo the changes or make restoration having not formally known of Julie’s objection to the changes for nearly a decade).

The lessons

The case is interesting for the number of aspects it considered in a testamentary freedom case where the testator was still alive.  The case stands as a reminder to:

• confirm with a client what promises they have made regarding their estate;
• ascertain, if possible, what obligations other people might think the client has to them; and
• ensure that every legal obligation is recorded in writing.

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.

Author: Philip Davis, Senior Associate