Application by Paul Andrew Brown as executor to estate of the late Joseph Kostyorz [2017] NSWSC 1774

Supreme Court of NSW|2017-12-11|Before: Ward CJ

Ex tempore Judgment

HER HONOUR: By summons filed on 24 November 2017, the executor of the estate of the late Joseph Kosytorz (Mr Paul Andrew Brown) seeks the opinion, advice and direction of the Court pursuant to s 63 of the Trustee Act 1925 (NSW) in respect of three questions set out in the statement of facts filed on 24 November 2017
The questions in respect of which Mr Brown seeks judicial advice are as to whether or not Mr Brown, in his capacity as executor, would be justified: 1. in entering into a proposed settlement of proceedings commenced by Ms Teresa Domaradzka (2016/109977) on the terms of an agreement that has been reached with Ms Domaradzka, including in making a family provision order in favour of Ms Domaradzka (including provision for interest on the settlement sum if not paid within 3 months); 2. in commencing proceedings or amending these proceedings for a construction suit to determine whether or not Erika and Andrew Cahill have validly exercised the option in cl 8 of the 2014 Will by way of an email dated 18 November 2015; and if so, 1. in commencing proceedings or amending these proceedings to bring a construction suit to determine the date upon which the valuations which he has commissioned and shall commission should assess the value of the said property (the Bondi Junction property the subject of cl 8) for the purposes of cl 8 of the 2014 Will.

The 2014 Will

The deceased, Joseph Kosytorz, died on 24 August 2015. He had no spouse and no children. On 12 August 2014, the deceased had made his Last Will and Testament (the 2014 Will).
Probate of the 2014 Will in common form was granted to Mr Brown on 10 November 2015. Other than fulfilling his duty as executor and charging professional fees Mr Brown, a solicitor, has no interest in the estate of the deceased.
Mr Brown had acted, in his capacity as a solicitor, on behalf of the deceased and, pursuant to his instructions, had drawn and engrossed a number of previous wills for the deceased which the deceased executed on 20 January 1984, 15 September 1995, 30 May 2000, 15 November 2004, 3 December 2009 (the 2009 will), and 23 January 2013 (the 2013 will). Mr Brown had also drawn and engrossed the 2014 Will.
By the 2014 Will, the deceased revoked previous testamentary instruments, appointed Mr Brown executor and left an 80% interest in his house at Bondi Junction (the Bondi Junction property) to Erika Cristina de Andrade (Erika) and her husband, Andrew Cahill (Andrew), and provided for them to purchase the remaining 20% in accordance with a method as is set out in the will. The residue of the estate is to be divided equally as between Teresa Domaradzki (by which name Ms Domaradska is apparently also known), her son Andrew Domaradzki and five other named beneficiaries (Irena Tichaek, Maria Fatima Costa, Elizabeth Hope, Konrad Slupnicki and Jaime Ramudo).
Clause 8 of the 2014 Will provided: It is my further express wish and desire that if Erika and Andrew elect to purchase from my estate the 20% of the property which forms part of my Residuary Estate then I direct my Executor and Trustee shall obtain two valuations of the property from registered valuers and the mean value of those valuations shall be agreed and accepted value of the property to enable the transfer and sale by my estate to Erika and Andrew of that remaining 20% of the property.

The earlier wills

By the 2013 Will the deceased revoked previous testamentary instruments, appointed Mr. Brown executor and provided that the estate be divided as to 30% to Erika, 20% to Ms Domaradzki, 10% to Andrew Domaradzki, 10% to each of Irena Tichacek, Maria Fatima Costa and Elizabeth Hope, and 5% to each of Konrad Slupnicki and Jaime Ramudo.
By the 2009 Will the deceased had appointed Mr Brown and Ms Domaradzka as executors and provided for a legacy of $5000 to Jaime Ramudo and the residue estate provided for the residue estate to be divided as to 50% to Mrs Domaradzka, 10% to Elizabeth Hope, 10% to Irena Tichacek, 10% to Konrad Slupnicki, 10% to Maria Fatima Costa, and 10% to Andrew Domaradzka.

Commencement of proceedings

Teresa Domaradzka commenced proceedings in this Court in 2016 (2016/00109977) naming Mr Brown as first defendant and Erika as second defendant, claiming, inter alia, an order that the Probate of the 2014 Will be revoked, for the 2009 Will to be admitted to probate and for a family provision order under the Succession Act 2006 (NSW). In respect of the family provision order Ms Domaradzka alleges that, at the time of the death of the deceased she was in a de facto relationship with him.
Mr Brown has cross claimed in the proceedings, inter alia, for probate of the 2014 Will in solemn form.
The grounds upon which Ms Domaradzka relies to revoke the grant of Probate in respect of the 2014 Will are that the deceased did not have testamentary capacity at the times he made the 2013 and the 2014 Wills. Ms Domaradzka also alleges that the 2013 and 2014 Wills were made at a time when Erika was in a position to, and did, unduly influence the making of the Wills.
Ms Domaradzka has served her affidavit evidence in chief including a medical report of Dr Lukaszewicz, a general practitioner, who has opined that the deceased may have suffered from the condition of second language regression. Mr Brown has retained Associate Professor T Rosenfeld, a consultant geriatrician and physician who has opined that the deceased had testamentary capacity at the times he made the 2013 Will and 2014 Will, that the views of Dr Lukaszewicz concerning second language regression are of little or no bearing on the deceased's testamentary capacity (first, because Mr Brown has indicated (in his affidavit made in the proceedings) that he was able to converse with the deceased in English over many years and, second, because there was no indication in the clinical notes that the deceased had significant issues or problems regarding second language regression or understanding.
Mr Brown has given an affidavit deposing that he took instructions from the deceased to draw the 2013 and 2014 Wills and that on each occasion when taking instructions Mr Brown was alone with the deceased in his firm's conference room. Associate Professor Rosenfeld has opined that the deceased had testamentary capacity when he undertook the instruction and signing of the 2013 and 2014 Wills.
The Statement of Facts raises an issue as to the insufficiency of evidence to show that a de facto relationship existed at the time of death. Mrs Domaradzka has not asserted in her pleadings that she formed part of the same household as the deceased and was at that time or another time dependent upon him. The executor notes, however, that there is evidence that suggests that may have been the case at some time prior to the death of the deceased.
In the proceedings Ms Domaradzka claims against Erika that she account to the estate for certain moneys and property. Mr Brown, as executor, retains an interest on behalf of the estate in the result of Ms Domaradzka's claim against Erika, purportedly on behalf of the estate, but is of the view that there is insufficient evidence that Erika received any money or property for which she must account to the estate. In the absence of evidence that she has received the property of the deceased, Mr Brown does not wish to claim against Erika on behalf of the estate that she account to the estate for any monies.

The estate of the deceased

The estate of the deceased comprises the Bondi Junction property, some financial assets and household effects. Mr Brown has obtained valuations of the Bondi Junction property by Allan Drain of Egan National Valuers, to the effect that the estimated value of the property, as at the date of death of the deceased (24 August 2015) was $1,600,000; as at the date of the receipt of the email from Andrew Cahill on 18 November 2015 was $1,650,000; and as at 2 November 2017 was $1,950,000. The estate includes financial assets of $124,332.42 as at 16 November 2017 ($130,446 as at the date of death).
Mr Brown will commission a further valuation of the property in accordance with cl 8 of the 2014 Will in the event that judicial advice is obtained supporting his decision to enter into the settlement and/or any directions given by the Court.

The proposed agreement

An agreement has been reached between Mr Brown, as the executor of the 2014 Will of the deceased, and Ms Domaradzka to settle Ms Domaradzka's claim on the following terms, subject to judicial advice: 1. Probate of the will of the deceased made on 12 August 2014 be granted to the cross claimant, Paul Andrew Brown, in solemn form. 2. That the proceedings be referred to the Registry to complete the grant. 3. That a family provision order be made out of the estate of the deceased for the plaintiff in the amount of $200,000 together with 3% of the estate after deduction of the liabilities, costs and expenses, including the first defendant's costs of the proceedings, the value of the specific gift of 80% of the property at 39 Bondi Road, Bondi Junction, the pecuniary legacy of $5,000 to Maria Helen Angelo and the lump sum provision for the plaintiff of $200,000 as aforesaid in lieu of the provision made for the plaintiff in the will of the deceased. 4. The Statement of Claim be otherwise dismissed. 5. That there is to be no order for the costs of the plaintiff with a view to her bearing her own costs. 6. That there is to be no order for the costs of the second defendant with a view to her bearing her own costs. 7. The costs of the first defendant/cross claimant be paid out of the estate of the deceased on the indemnity basis. 8. The burden of the provision made herein is to be borne: (a) Firstly by the second defendant and Andrew Cahill in the sum of $180,000 and the burden of the provision shall not otherwise reduce their entitlement to the gift of specific property in the will of the deceased, to wit, an 80% interest in the property at 39 Bondi Road, Bondi Junction, nor vary their entitlement to exercise the option contained in the will of the deceased for them to purchase the remaining 20% in the said property; and (b) Secondly, equally by the remaining residual beneficiaries. 9. That the provision be paid within 14 days of the completion of the sale of the 20% interest in the property at 39 Bondi Road, Bondi Junction remaining after the specific gift of the same to the second defendant and Andrew Cahill. 10. Interest to run on the said lump sum provision of $200,000 from the day 14 days after the completion of the sale of the said 20% interest in the said property at the rates provided for in the Probate and Administration Act,1898 as payable on unpaid legacies and on the balance of the provision from a date 14 days after final distribution of the estate.
Mr Brown considers that the settlement is in the interests of the estate because the principal beneficiaries of the estate (Erika and Andrew) have agreed to bear the burden of the settlement to the extent of $180,000, which is a disproportionately larger share of the burden of the provision proposed to be made for Ms Domaradzka in the settlement as compared to the burden which would be borne by the other residual beneficiaries. Erika and Andrew Cahill have the benefit of independent legal advice and consent to the settlement.

Alleged election by email of 18 November 2017

On 18 November 2015, an email was sent by Andrew Cahill in the following terms: Hi Paul/Taryn. After my conversation with Taryn today. I am writing to confirm that Erika and myself will be purchasing the remaining 20% of the estate, and will take all appropriate steps to do so. Also would it be possible to arrange a meeting with you both discuss all issues in regards to the will and any claims against it. For peace of mind. Thank you. Andrew and Erika
Mr Brown is of the view that, although the email refers to "20% of the estate", it is clear that the intention was to be a reference to the Bondi Junction property and hence that this amounts to the exercise of the election referred to in cl 8 of the 2014 Will (see [8], above). This is one of the issues on which judicial advice is sought.

Further matters

The next issue that arises if the election under cl 8 of the 2014 Will has been validly exercised is as to the date upon which the valuation is required to be undertaken. The earlier the date of the valuation the more advantageous the settlement is to Erika and Andrew and the less advantageous to the residual beneficiaries. Erika and Andrew have informed Mr Brown, through their solicitor, Mr Gooden, that they will accept that the appropriate date for the valuations is that upon which Andrew sent the email.
One of the residual beneficiaries, Jaime Ramudo, has died since the death of the deceased. He made an affidavit in the proceedings in which he deposed to having been born on 31 March 1931 and having immigrated to Australia in 1968. Mr Brown is not aware of him having made a will or having any assets of substance (he deposed that he had lived as a boarder with the deceased from 1979 until the death of the deceased) nor of Mr Ramudo ever having married, having been at any time in a de facto relationship or of having had children.
Mr Brown has written to each of the remaining residual beneficiaries and the closest relatives of Mr Ramudo, being his siblings who live in Spain, to ascertain whether each consents to the proposed orders to settle the matter, whether or not they accept that Andrew and Erika have validly exercised the option in cl 8 of the Will and in relation to the date upon which the valuation of the property for the purposes of cl 8 in the will is to be taken.
Andrew Domaradzki (the son of Mrs Domaradzka) has not consented to the proposed settlement (though he has indicated that he would consent subject to a condition that is not acceptable to Mr Brown). Maria Fatima Costa does not consent to the proposed settlement and asserts that the sale of the 20% interest to Erika and Andrew should be at the current value of the property. The relatives of Mr Ramudo have not responded to the executor's request.
Each of the other residual beneficiaries has agreed to the proposed Orders and consents to the valuation of the property for the purposes of cl 8 of the 2014 Will being as at 18 November 2015.

Counsel's opinion of November 2017

Exhibit A on this application is an opinion dated 29 November 2017 given by Mr R W Tregenza of Counsel as to the issues before the Court.
Mr Tregenza's opinion, for the reasons there stated, is that Ms Domaradzka will fail in her challenge to the validity of the will made by the deceased on 12 August 2014 and will fail in her claim for family provision (the latter opinion being on the basis that there is an issue as to whether Mrs Domaradzka will be able to establish that she is an eligible person on the basis she has claimed, namely, that she and the deceased were in a de-facto relationship at the time of the deceased's death, but in any event on the basis that the deceased appears to have made adequate provision for Mrs Domaradzka in his 2014 Will).
However, Mr Tregenza has advised that in his opinion settlement of the claim on the terms that have been agreed in principle with Mrs Domaradzka is in the interest of the beneficiaries of the estate because of the likely costs of a contested hearing of the proceedings that have been commenced by Mrs Domaradzka. Those costs are estimated at approximately $150,000.

Determination - the first question

I am of the view, for the reasons outlined in Counsel's opinion dated 29 November 2017, that Mr Brown would be justified, as executor and trustee of the estate of the deceased, in entering into the proposed settlement, including making the family provision order.
I have been informed that, since the statement of facts was filed Ms Domaradzka has sought that there be an order for interest payable on the amount of the provision the subject of the settlement, namely that interest be payable on the amount of provision if not paid to her within three months. I understand that Andrew and Erika Cahill have been informed of the request for interest and have not yet indicated their position in relation to that. An order for interest of that kind is an order that is commonly made in the deposition of proceedings where family provision is sought out of a deceased's estate.
I am of the view that an order for interest in the ordinary course payable if the settlement sum is not made within three months of the orders would be an appropriate term of the settlement (and that such an order would still have the effect that the settlement would be preferable to incurring the costs of a contested hearing). I therefore will order that judicial advice be given to Mr Brown that he would be justified in entering into the proposed settlement including the making of family provision order with an interest component as indicated.

Determination - the second and third questions

The second and third questions give rise to a more difficult issue. Where an executor and trustee, in the position of Mr Brown, is in doubt as to the rights and interests of any person claiming under the will, the executor and trustee may commence proceedings in the equitable jurisdiction of the Court for the determination of that question. An originating summons would ordinarily be served on all the persons whose rights or interests are sought to be affected and at the hearing of the matter, after the matter is determined, all such persons having been heard or having had the right to be heard, the question would become res judicata and all persons interested would be estopped from litigating the question again (JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (7th ed, 2006) at [2132]-[2132A]).
Where there is doubt as to the construction of a will the executor and trustee can seek judicial advice from the Court as to the question. However, as the authors of Jacobs' Law of Trusts note in considering the scope of s 63 of the Trustee Act 1925, the Court will not as a general rule give a trustee opinion or advice under that legislation on a question involving the construction of the trust instrument where the question concerns the respective rights or beneficiaries or their identity; or as to issues of controversy between parties to the trust ([2134]). In such a case the proper procedure is by way of originating summons where all parties are served and have the opportunity to be heard. (See the authorities cited by the authors at fn 194.)
The authors do, however, note (at [2134]) that: … where the question of construction does not involve the respective rights of beneficiaries but only the nature or extent of the trustee's powers or duties of management or administration under the trust instrument, a summons under this legislation is an appropriate procedure.
The issue as to joinder of necessary parties was considered by the Court of Appeal in Hughes v NM Superannuation Pty Limited (1993) 29 NSWLR 653. There, Meagher JA noted that it was an elementary proposition that "when one or more but not all of the cestuis que trust of a trust sue the trustees with a view to augmenting their share of the trust, they must join as defendants not only all the trustees but also all the other cestuis que trust", explaining why it was that this be the case.
In Ashton v Pratt [2013] NSWCA 400 at [20]ff Brereton J noted that while "prima facie where proceedings have been commenced by a trustee it is not necessary to join as a party any of the persons having a beneficial interest under the trust" and that "application of the prima facie rule relevantly requires an examination of whether the trustee sufficiently represents the beneficiaries' or potential beneficiaries' interest for the purposes of the proceedings", there referring to Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109 at 52-53; [2004] HCA 7.
In the present case, the concern of the executor in relation to the second and third questions is as to whether on the proper construction of the November 2015 email from Andrew Cahill there has been a valid election for the purposes of cl 8 of the 2014 Will and, if there has been, the date at which the property interest in the estate is to be valued.
The executor has an understandable concern that he not be exposed to liability if he acts on a construction of the 2014 Will that is incorrect but is also properly concerned to minimise the cost to the estate of the determination of the question. On the information before me, if there has been a valid exercise by Erika and Andrew of the election to purchase the remaining 20 per cent interest in the Bondi Junction property, then the difference to residuary beneficiaries as between the valuation date being the date of death (when the property was valued around $1.6 million), the date of the email that the executor considers amounted to an election (around $1.65 million), and November this year (around $1.95 million) is only in the order of around $10,000 each.
Of the seven residuary beneficiaries, four have consented to the proposed distribution arrangement, one is deceased (there has been no probate or notice of administration granted in respect of his estate and his surviving relatives as I understand it are overseas and have not responded to queries as to their position), and the two remaining residuary beneficiaries (Maria Costa, a former housekeeper of the deceased, and Andrew Domaradzka, the son of Mrs Domaradzka) are the only ones who have not given their consent.
Those parties have been notified of the hearing of the judicial advice application today and have been served with the relevant documents, but have not sought to appear or to make any submissions in the proceedings. Nevertheless, I am concerned that the giving of orders in relation to judicial advice in respect of the construction issues will have an impact, albeit relatively minor, on the amount that those beneficiaries will receive out of the estate. Balanced against that is the understandable concern of the executor not to be exposed to a claim for personal liability if the executor distributes the estate in accordance with the opinion that has been received from the executor's counsel in these proceedings but without the benefit of judicial advice and the obvious concern to minimise the costs of the present proceedings in light of the small amount at issue (as between the opposing contentions or potentially opposing contentions as to whether there has been a valid election and the date at which the property is to be valued).
I am of the view that it is necessary that the proceedings should be reconstituted as proceedings for a construction suit and that Mrs Costa and Mr Domaradzka should be joined as parties to the proceedings. In the circumstances, the course that best complies with the mandate for the just, quick and cheap resolution of real issues in dispute under the Civil Procedure Act 2005 (NSW) is be for me to express a preliminary view based on material that is before me as to questions 2 and 3, subject to consideration of any submissions that the two residuary beneficiaries indicated above (Ms Costa and Mr Domaradzka), may wish to serve, with a view to determining the issue on those construction issues after consideration of any such submissions. The beneficiaries affected by the orders (insofar as they can be located) will then have had an opportunity to be heard. I will therefore express my preliminary views on the second and third questions and will make a direction for any submissions to be served by the defendants to the proceedings (once they have been constituted as a construction suit) within a reasonable period of time. Those submissions should indicate whether Ms Costa and/or Mr Domaradzka wish to be heard on the application or are content for the application to be determined on the papers.

My preliminary view

The first question is to construe an email that was sent on 8 November 2015 by Andrew Cahill on behalf of himself and his wife Erika as to whether that amounts to an election under cl 8 of the 2014 Will. Clause 8 of the will has been set out above as has the text of the relevant email, which refers to the purchase of the remaining 20% of the estate not to the Bondi Junction property.
Counsel for the executor submits that the reference to a 20% in the estate should be read as a reference to the 20% interest in the Bondi Junction property for the following reasons. First, that the email was sent to the executor (which I interpose to note indicates that it was intended to have some formal effect). Second, because the reference to 20% correlates to the proportion of the Bondi Junction property that Erika and Andrew were to be entitled to acquire from the estate under the terms of the 2014 Will. Third, because, other than moneys deposited with financial institutions, there were no other assets forming part of the estate for them to purchase (and I interpose to note that it would not make sense for them to be given an election to purchase financial assets based on the valuation procedure set out in the will) and, fourth, that Erika and Andres had not been granted the option to purchase anything other than the Bondi Junction property.
I am of the preliminary view that that submission should be accepted in circumstances where the only other asset in the estate was cash in a bank account and there was no right of election given in relation to anything other than the Bondi Junction property, so the email cannot be read meaningfully as directed to anything other than the right of election provided for under cl 8.
Therefore, subject to any submissions to the contrary that I receive from the two non-consenting residuary beneficiaries which may cause me to change that view, I am of the view that the appropriate construction to be given to the email is that it amounted to an election for the purposes of cl 8 of the 2014 Will by Erika and Andrew to purchase the remaining 20% interest in the Bondi Junction property.
As to the remaining issue, the date at which the Bondi Junction property is to be valued having regard to that election, Counsel for the executor notes that s 45 of the Succession Act 2006 provides to the effect that such a valuation is to be undertaken as at the date of death unless there is a contrary intention. Counsel for the executor considers that the 2014 Will does express a contrary intention in this regard, insofar as it requires the executor and trustee, if there is an election by Andrew and Erika to purchase 20% of the Bondi Junction property which forms part of his residuary estate (the other 80% being left to them), for the executor and trustee to obtain two valuations of property from registered valuers and cl 8 of the 2014 Will provides: ...and the mean valuation of those valuations shall be the agreed and accepted value of the property to enable the transfer and sale of my estate to Erika and Andrew of that remaining 20% of the property.
As a preliminary view, subject to consideration of any submissions from the two non-consenting beneficiaries, I consider that this is an indication that the valuation of the property was to take place after such time as any election has been made and I therefore would be inclined to the view that the property is to be valued at the earliest as at the date of the exercise of the election, which was on 8 November 2015.
It is possible that one could form the view that the valuations of the property were to be at a reasonable time after the exercise of the election (because the executor and trustee would not necessarily be in a position to obtain valuations immediately). However, at the earliest the relevant date would be the date of exercise of the right of election.
As I understand it, Erika and Andrew (although it would be to their benefit if the valuation of the property were to occur at the date of death, albeit only in a small amount) are prepared to accept that the valuation of property should take place at about the time of the exercise of the election. However, residual beneficiaries may be disadvantaged if the 20% interest of the property is acquired not at its current market value but as at the date of the exercise of the election.
Therefore, I consider it necessary for the residual beneficiaries who do not consent (Ms Costa and Mr Domaradzka) to be joined as parties to the proceedings and that the matter be dealt with (preferably on the submissions) as a construction suit.

Orders

Accordingly I will make the follow orders and directions. 1. Pursuant to section 63 of the Trustee Act 1925 (NSW), I give the plaintiff, as executor and trustee of the estate of the late Joseph Kosytorz, judicial advice to the following effect: 1. that he would be justified in entering into the proposed settlement of the proceedings commenced in this Court by Mrs Domaradzka, including making the family provision order contemplated by that proposed settlement and including an interest component at the rate specified in s 84A of the Probate and Administration Act 1893 (NSW) if the settlement amount is not paid within three months; 2. that the executor would be justified in amending the summons in these proceedings to join as defendants each of Maria Costa and Andrew Domaradzka in order to have the Court determine as a matter of construction whether or not Erika and Andrew Cahill have validly exercised the right of election contained in clause 8 of the 2014 Will by way of their email dated 18 November 2015, and, if so, to determine the date upon which the valuations of the said property should be made for the purposes of clause 8 of the 2014 Will. 1. I give leave for the plaintiff to file and serve an amended summons in accordance with the above judicial advice joining the said residuary beneficiaries as defendants by 25 January 2018 (the defendants). 2. I direct that the defendants file and serve any written submissions on the two issues of construction by 22 February 2018 and that if the defendants seek to be heard on those submissions they notify the plaintiff accordingly. Otherwise, the issues of construction will be dealt with on the papers. 3. I list the matter for directions on 1 March 2018 on the basis that that directions hearing will be vacated if the defendants do not seek to be heard orally on any submissions they choose to file. 4. I order that costs of the proceedings seeking judicial advice be paid out of the estate of Joseph Kosytorz deceased on the indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 December 2017

Probate and Administration Act 1893(NSW)

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