2299/07 ROBERT PAUL SCHNEIDER & ANOR RE ESTATE OF THE LATE ESTHER BLASHILD DECEASED
JUDGMENT - on application for judicial advice
1 In this matter the plaintiffs, who are the executors of the estate of the late Esther (also known as Esta) Blashild ("the deceased"), have brought an application for judicial advice pursuant to s 63 of the Trustee Act 1925 as to whether they are justified in making an interim distribution of the deceased's estate by paying half, or some other portion, of the legacies referred to in clause 5 of the deceased's last will (with the exception of the legacies to Arie and Hadassa Apel and to Hadassah Ramin).
2 In submissions served after the hearing of the application, the executors have sought further guidance from the court as to what approach should be taken in relation to the acceptance of any undertakings by beneficiaries in the context of any interim distribution.
3 The executors, though not obliged to do so, gave notice of this application to Mr and Mrs Apel, who are resident in Israel, by their solicitors in Sydney. Though not joined as parties to the proceedings, they were represented by Counsel (Mr Loofs) on the application before me. Counsel for the executors (Mr Armfield) did not object to Mr Loofs appearing on this application but noted that this was not pursuant to any direction made by the court in accordance with s 63(4) of the Trustee Act 1925. The executors unsuccessfully attempted also to give notice of this application to Mrs Ramin, who is resident in New York. Evidence of those attempts was set out in an affidavit sworn 6 February 2009 in New York by a process server (Husam N Al-Atrash), a copy of which affidavit I admitted as Exhibit A. None of the beneficiaries is a party to the proceedings and a number (including Mr and Mrs Apel and Mrs Ramin) are foreign residents.
4 The executors rely upon a Statement dated 8 April 2009 filed in support of their application for judicial advice, together with a further Supplementary Statement filed in court on 3 June 2009. Unless otherwise stated, the facts set out in these reasons are drawn from those statements.
5 I gave leave for Mr Loofs to read an affidavit affirmed by Mr Apel on 23 April 2009 and an affidavit sworn 2 June 2009 from Mr Craig Birtles, a solicitor from Teece Hodgson & Ward, the solicitors who have been retained to act for Mr and Mrs Apel.
Background facts
6 The deceased died on 10 May 2007, aged 95. At the date of her death she was domiciled in New South Wales.
7 Probate was granted to the plaintiffs on 5 October 2007 of the deceased's last will made on 10 January 2007 ("the Australian will").
8 Under the Australian will the deceased gave a number of legacies (as specified in clauses 5(a) to (t) of the will) totalling $4,305,000. She left the residue of her estate to be held in trust as to 50% for the Jewish National Fund of Australia Inc (to which a specific legacy of $2.5 million had been given under clause 5(a)) and as to 50% to the Sydney Jewish Museum Inc (to which a lesser legacy had been given under clause 5 (e)).
9 Included in the legacies provided for under the Australian will, was a legacy to Hadassah Ramin (clause 5(b)) in the sum of $250,000 and a legacy jointly to Arieh [sic] and Hadassa Apel (by whom I understand it is accepted the will refers to Mr and Mrs Apel) in the sum of $1 million (clause 5(d)). Mrs Ramin is the niece of the deceased. Mr Apel is a fellow Holocaust survivor and close friend (described as a surrogate son) of the deceased.
10 The deceased had made a number of wills prior to the Australian will, including an earlier will made in Australia in 2005 and a will made in Israel on 9 February 1992 ("the Israeli will").
11 There were three beneficiaries named under the Israeli will: Mrs Ramin, Mrs Ramin's father Mr Weinberg (since deceased), and Mr (but not Mrs) Apel.
12 The Israeli will specifically stated that it concerned the deceased's assets and properties in Israel and in Switzerland. The Australian will had no such geographical limitation. Probate was granted on 6 January 2008 to Mrs Ramin of the Israeli will.
13 At least the following assets were owned by the deceased in Israel: an apartment in Tel Aviv (which is valued at somewhere in the order of AU$720,000 plus or minus 7% and is currently tenanted; and which, in accordance with what I am told is the applicable law in Israel, has been registered in the names of Mr Apel as to one-third and Mrs Ramin as to two-thirds - she taking both her own one-third interest and her late father's one-third interest under the Israeli will) and a sum of money held in an Israeli bank account. (According to Mr Apel's affidavit affirmed 23 April 2009, this bank account has two deposits with approximate values of US$15,732 and € 23,049.)
14 Mr Apel's affidavit deposes to his knowledge, information and belief as to the deceased's assets in Israel (those being limited to the Tel Aviv apartment and the Tel Aviv bank account referred to above) and in Switzerland (a Swiss bank account). He has affirmed that the Tel Aviv apartment has been rented since the date of the deceased's death for amounts varying between US$1,050 per month (from May 2007 to March 2008) to $1,500 per month (from March 2008 to September 2008 and later from March 2009 to September 2009) and NIS6,500 per month (for the interim period from September 2008 to March 2009). Mr Apel deposes to having received amounts of NIS12,800 and US$8,100 out of those rents. (Presumably Mrs Ramin has also received amounts of rent commensurate to her larger share in the Tel Aviv apartment over that period.) While Mr Apel deposes to his understanding that the deceased held a bank account in Switzerland with an approximate value of US$36,000, he is not aware of any other assets in Switzerland. Mr Apel is also not aware of any assets belonging to any relatives who predeceased the deceased to which she would have been entitled.
15 Mr Apel has given certain undertakings and/or is bound by temporary attachment orders made in Israel in relation to the Israeli property. He has also undertaken not to access the bank account in Switzerland. He has instructed his solicitors to advise the court that, to the extent necessary, he is willing to deposit any rent received by him from the Tel Aviv apartment into a trust account to be held pending the determination of the Israeli proceedings.
16 On 16 May 2008, the executors commenced proceedings in this Court in which they sought, inter alia, orders to rectify the Australian will so as to reflect what it was contended was the deceased's intention at the time of that will, namely the preservation of operation of the prior Israeli will in relation to her assets in Israel and Switzerland. The effect of that application, had it been successful, would have been to exclude (from the residuary estate available for distribution to the residuary beneficiaries under the Australian will) the Tel Aviv apartment, Israeli bank account and any other assets or property of the deceased in Israel and Switzerland.
17 The executors' application for rectification of the will was heard by Sackville AJ, who was not satisfied that at the time the deceased executed the Australian will she believed that her Israeli will was still an effective testamentary instrument and who concluded that the Israeli will had been revoked by an earlier (2005) will made in Australia or, if not so revoked, by the later (2007) Australian will. Accordingly, the executors' application for rectification and other orders was dismissed.
18 Proceedings have since been commenced by the executors in Israel against each of Mrs Ramin (in her own right and as representative and heir of the estate of her late father, Mr Israel Weinberg), Mr Apel and the State Administrator General's Office in Israel. In those proceedings, orders are sought for the revocation of the grant of probate made in Israel of the Israeli will.
19 What is referred to as a temporary attachment order, which I understand to be in the nature of an interlocutory injunction, has been made in relation to the primary known asset of the deceased's estate in Israel (the Tel Aviv apartment) which precludes Mrs Ramin and Mr Apel from dealing with that asset pending determination of the will proceedings in Israel. A guarantee was required to be proffered by the executors (in the sum of US$200,000) in connection with the grant of the temporary attachment order.
20 According to the Statement filed in support of the s 63 application, as at 1 April 2009 the estate of the deceased in Australia consisted of cash in a bank on deposit in the sum of $5,359,575.38, earning interest at a variable rate of 4.75% (in a letter of 28 May 2009 from Diamond Conway, solicitors for the executors, it was said that the rate of interest was then 4.5% and that this would drop to 3.5% from 1 August 2009 - affidavit of Craig Birtles, 3 June 2009, Annexure G).
21 As noted above, the total amount of the legacies referred to in clause 5 of the Australian will is $4,305,000. I was informed that as at the date of the judicial advice application if the full amount of all the legacies (including those of Mr and Mrs Apel and Mrs Ramin) were to be distributed, plus interest from the date which is 12 months after the date of the death of the deceased at the rate of 6% (pursuant to s 84A of the Probate and Administration Act 1989), then taking into account the interest up until 8 April 2009 this would leave the sum of $818,345.47 in the estate in Australia. If payment were to be made of half of each of the legacies (again including those of Mr and Mrs Apel and Mrs Ramin), together with interest on the full amount of the legacies up to 20 May 2009 (ie a payment of $2,418,583.92), this would leave a balance in the estate's funds of approximately $2,970,845.47.
22 From that amount will need to be paid the costs ordered against the executors in the rectification proceedings before Sackville AJ, together with the executors' costs in respect of each of: the proceedings in Israel for revocation of the grant of probate of the Israeli will; the proceedings for obtaining a grant of probate of the last Australian will in Israel (if the executors are successful in relation to the revocation proceedings); any appeal or defence of any appeal made in relation to the Israeli proceedings; as well as the costs of any necessary proceedings to enforce orders made in the court in Israel, or in the United States of America. Presumably, there is at least a possibility that (if unsuccessful in any of these proceedings) the executors may have to bear the costs of the successful party.
23 Costs may also be incurred by the executors in realising assets or establishing an interest in assets in Israel and possibly elsewhere (Switzerland and Poland, where the deceased may have a compensation claim as a Holocaust survivor).
24 It also appears that there is an additional taxation liability of somewhere in the order of $60,000 for the last financial year and possibly a taxation liability for interest and penalties arising for earlier years (on the basis that the deceased did not disclose to the Australian Taxation Office income derived by her in relation to the Tel Aviv apartment or any other assets owned outside Australia). By a Supplementary Statement filed in court on 3 June 2009, the executors noted that advice had been received from an accountant as to the range of penalties that the Australian Taxation Office could potentially impose (an average of between 25% and 75% of the amount owing) in addition to the liability for unpaid taxes. Interest at penalty rates of about 15% can also be imposed.
25 The executors have sought advice from a Mr Jonathan Edelstein of Edelstein & Co, Advocates in Tel Aviv, who acts for the executors in relation to the proceedings in Israel. Mr Edelstein has estimated that the costs which may be incurred, on a "worst-case scenario" basis, to fund the current proceedings in Israel (including any appeal and to allow for the possibility that certain guarantees provided to the Israeli courts by the executors (in the sum of US$200,000), which were necessary in order to enable a caveat or temporary attachment order to be filed on the title of the Tel Aviv apartment, may be called upon) are in the order of US$335,000 (or AU$476,754.39) as itemised in paragraph 6 of the Supplementary Statement. (Insofar as it is relevant, Mr Apel deposes to legal advice provided by his counsel in Israel to suggest that Mr Edelstein's estimate of the potential legal costs is excessive.)
26 Mr Edelstein's estimate of costs does not include any costs of the executors travelling to Israeli to attend the hearing of the proceedings (which the executors believe would normally be required), or the costs of any other witnesses who might be called upon to travel to Israel to give evidence in the proceedings; the costs of the Australian solicitors assisting in the Israeli proceedings; or any of the costs of enforcement of orders made or realisation of assets. These (and the unknown taxation liabilities) are referred to as the "unknown" expenses.
27 With the executors' final submissions was served a document containing a calculation of the estate funds remaining after the proposed interim distribution, from which it appears that if all legatees were to receive 50% of their respective legacies, plus interest in full on the amount of their legacies, then after payment of what have been referred to as the "known" expenses there would be a balance of $2,373,840.50 in the estate's funds.
28 (I say after "payment" of the "known" expenses, but it is not clear to me that payment out of all of the "known" expenses is contemplated at this time, at least insofar as the "known" expenses include an amount potentially to be called upon under the US Dollar guarantee provided by the executors to the court in Israel and other amounts by way of costs which are "known" in the sense of being the subject of a present estimate, though not necessarily yet incurred.)
29 The executors (rightly) consider that they are bound to consider the question of interim distribution.
Submissions
30 It is submitted by Mr Armfield that failure to make an interim distribution may prejudice the residuary beneficiaries, since interest under s 84A of the Probate and Administration Act is calculated at a rate of 6% and the moneys currently on deposit are earning less than the statutory rate of interest (4.75%). Accordingly, delay in distribution will operate to diminish the residuary estate by reference to the shortfall in interest. (Although the executors are said to be considering an application to the court to reduce the differential in the interest rate payable at the present time, no such application has been made.)
31 The executors have considered whether the withholding of payment of interim distribution to Mrs Ramin and to Mr and Mrs Apel might be appropriate, on the basis that there has been, in effect, an interim distribution to Mrs Ramin and Mr Apel (though not to Mrs Apel) by reason of the fact that both have become registered as proprietors of the Tel Aviv apartment and have (or are presumed to have) had the benefit of the rental income for the apartment at least since then.
32 It was suggested that withholding of payment of these legacies might be appropriate to provide security for the transfer of assets or repayment of moneys owed by the deceased or received from the deceased's estate; for any costs order that may be made by the court in Israel during the proceedings in Israel for the enforcement thereof; and any costs order that may be made by another court, such as a court in the United States of America, where Mrs Ramin resides, if proceedings are required to enforce any orders made by the Israeli court. Insofar as the affidavit sworn 2 June 2009 by Mr and Mrs Apel's solicitor, Mr Birtles, attaches correspondence of 1 June 2009 asserting their clients' view that the executors have no interest in the Israeli assets (particularly the Tel Aviv apartment) until relevant orders are made by an Israeli court, I apprehend this is put against the suggestion by the executors that security may be necessary for the transfer of Israeli assets or repayment of moneys owed by the deceased (not as a submission that it is inappropriate for the executors to consider the likely costs which may need to be incurred in realising any overseas assets of the deceased if the grant of probate of the Israeli will is revoked).
33 My attention was drawn by Mr Armfield to the following matters:
34 First, it is not known whether the Tel Aviv apartment and the Israeli bank account are the entirety of the assets in Israel of which the Israeli will potentially speaks (although I note that Mr Apel is not aware of any other assets in Israel). Nor is it known whether there is any asset in Switzerland other than the bank account identified by Mr Apel.
35 Secondly, the cost of the Israeli proceedings, as estimated by Mr Edelstein, does not include a number of the potential ancillary or additional costs as adverted to above.
36 Thirdly, while it might be said that a distribution has been made to Mr Apel as beneficiary under the Israeli will of an interest in the Tel Aviv apartment, the legacy provided for under clause 5(d) is a joint legacy to Mr and Mrs Apel and it is not suggested that Mrs Apel has had any distribution to date out of the estate of the deceased (whether in Australia or in Israel).
37 A submission was briefly raised by Mr Loofs to the effect that there was no basis for the executors, in effect, to seek security from the beneficiaries for the costs of proceedings in Israel. If (which I did not understand it to be) it was suggested that it would not be appropriate for the executors to retain sufficient assets out of the estate to meet any costs which they may incur or for which they may be liable in the Israeli proceedings, then I do not consider that such a submission would be maintainable in circumstances where the executors are in the position that, in light of Sackville AJ's decision in relation to the Australian will, and their duty to uphold that will then, insofar as the estate includes assets outside Australia, they will have a duty to ascertain and realise those assets.
Consideration of relevant issues
38 As noted above, the principal advice which has been sought is as to whether an interim distribution of the estate ought to be made in the circumstances and, in particular, as to whether the executors would be justified in making an interim distribution of half (or such other proportion) of the legacies referred to in clause 5 of the will with the exception of the legacies referred to in clauses 5(b) and 5(d)) to Mrs Ramin and to Mr and Mrs Apel respectively.
· Jurisdiction
39 The first issue is as to whether the application is one falling within the jurisdiction in s 63 of the Trustee Act.
40 Mr Armfield referred to the decision of the High Court in the Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 249 ALR 250 where Gummow ACJ, Kirby, Hayne and Heydon JJ noted (at [58]) that there is only one jurisdictional bar to s 63 relief, namely that "the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument".
41 It was submitted by Mr Armfield, and I accept his submission, that the question whether an interim distribution ought to be made is one which falls within the management and administration of a trust for the purposes of s 63(1) of the Trustee Act. Mr Loofs did not contend otherwise.
42 I note that s 63(11) of the Trustee Act provides, relevantly, that subject to sub-section 10, and subject to any appeal, any person upon whom notice of any application under s 63 is served, or to whom notice is given in accordance with sub-section 8, is bound by any opinion, advice, direction or order given or made under the section as if the opinion, advice, direction or order had been given or made in proceedings to which the person was a party.
· Distribution of interim dividends
43 As to the discretion to approve an interim distribution, Mr Armfield referred to the decision of Young CJ in Eq, as his Honour then was, in Blackman v Permanent Trustee Co Limited [2003] NSWSC 305, in which his Honour approved the decision of the trustee to provide an unsecured loan to a beneficiary in advance of distribution of the estate pending litigation. His Honour there referred to the very wide discretion that it has been said there is (in England) on a next of kin inquiry in relation to the making of orders of partial distribution (referring to the English White Book 85/2/8 and 85/2/10; Frey v Demarset 16 New Jersey Equity 236 and Pomeroy's Equity Jurisprudence vol 1, par 350 at 351).
44 In Blackman, the application was for the court to make an order under s 63 that the trustee would be justified in making the loan in question. His Honour noted that said "It is the duty of the trustees to direct their minds to the proper administration of the estate", referring to a decision of Cross J in Re Ralphs [1968] 1 WLR 1522 at 1525 to the effect that trustees should form their own view (with the assistance of legal advisers) as to the payments which could properly be made and then, if necessary, seek judicial advice.
45 The executors have, quite properly, considered whether it is appropriate at this stage to make an interim distribution.
46 It is not suggested that any of the legatees has a present right to payment from the estate. The estate has not been fully administered and no appropriation of any of the estate assets to particular bequests has been made by the executors.
47 In Gonzales v Claridades [2003] NSWSC 508, Campbell J considered the circumstances in which an obligation may arise to make an interim distribution from an estate which has not yet been fully administered. There, his Honour said (at [47]):
Sometimes it can be the duty of a legal personal representative to make an appropriation of estate assets so that he or she can pay a pecuniary legacy or distribute a specific legacy or devise, or make an interim distribution of pecuniary legacies or interests in residue, even though the duties of administration are not complete. If the legal personal representative is in a situation of knowing that there are some distributions of the estate which could be made in accordance with the will or the rules of intestacy which govern the distributions of that estate, that there was no realistic prospect that that distribution could be cut down or affected by those aspects of administration of the estate which remained unperformed, and that the remaining tasks of administration were not likely to be completed soon, then it may be the duty of the legal personal representatives to make an interim distribution to that extent.
48 His Honour also referred to Re Ralphs, where Cross J had said it was wrong to say that it was the duty of the legal personal representative to make no distribution of any sort to beneficiaries prior to the hearing of a claim made against the estate. There, Cross J envisaged the executors making an application to the court for leave to make the payment in question if parties who might conceivably be affected did not consent. Here, of course, Mr and Mrs Apel (far from withholding consent to payment out) have demanded payment be made of their legacy.
49 Campbell J noted (at [50]):
A further example [of a circumstance where it might be the duty of a legal personal representative to make an interim distribution] can arise if there were expenses of administration which would need to be paid in the future from the estate. If those expenses were of uncertain amount (as could be the case if the legal personal representative were engaged in litigation on behalf of the estate) the legal personal representative would be entitled to adopt a very cautious (though not unrealistically cautious) view about what the possible extent of those expenses might be, in deciding whether, or to what extent, a gift might be cut down. If, however, after taking such a cautious view of what the expenses of the estate might be, it was clear that the assets of the estate were more than enough to meet them, and if there were no other problems of administration outstanding, it could be the obligation of a legal personal representative to make an interim distribution of those assets in the estate which are not at risk of being used up in the future administration of the estate, at least in circumstances when it was clear who the correct recipient of those assets was.
50 In a somewhat different context, Lindsay J in Re Yorke (deceased): Stone v Chataway [1997] 4 All ER 907 considered an application by executors for advice as to whether they were under a duty to distribute the residue of the deceased's estate without any retention (in respect of any future liability the deceased's estate might have as a Lloyd's "name") and free of any risk of personal liability or whether they should retain something against the emergence of one or more policyholders with a claim against the estate. In considering that application for directions Lindsay J noted (at 918-919) that:
The cases show that as the risk to executors was so serious the court would not order a distribution which left an executor at any personal risk: Simmons v Bolland. However, the severity of the risk to executors was tempered by the ability in the executor to obtain and to act upon the directions of the court. There are some observations that support a view that the executor could not obtain absolute protection by way of an application to court: Simmons v Bolland. However, that may have depended on the particular form of procedure there used and it may simply have referred to the fact that absent, at all events, some other material restriction upon the creditor, there was nothing to stop the creditor from suing the executor, even if that executor, upon being sued, would have no personal liability. The better view is that if the executor has laid all information before the court and acts under its order he will achieve complete protection: Dean v Allen (1855) 20 Beav 1, 52 ER 502.
…
As for the forms of protection to be given to executors, they seem principally or exclusively to have consisted on the one hand of a retention by the executors out of the estate or, alternatively, the provision of an indemnity from the beneficiaries by whom (usually) a distribution without retention was sought. Whether the indemnity from a beneficiary would, in order to have any value, need support from security beyond the personal security of the beneficiary would depend on all surrounding circumstances. The means of the recipient could thus be relevant: Dean v Allen . If there was sufficient security from the legatee then no retention by the executor would be necessary as the price of obtaining the sanction of the court to the particular proposal put before it. Although any such reasoning in the case is invisible in the brief report, it may have been that it was because the personal covenant of the King Edward Hospital Fund (as residuary legatee) was regarded as a sound personal covenant that no retention was required in Re Johnson [19401 WN 195: see Re Arnold.
51 I note that in Bullas v Public Trustee [1981] 1 NSWLR 641, where an application was made seeking a declaration and order that trustees of an estate would be justified in distributing the estate to the life tenant and her children in circumstances where the question as to whether any future children might subsequently obtain an interest in the estate, Kearney J noted that in proper cases it might be a term of the grant of the requisite authority to the trustees that an undertaking to account be given to the court by the persons who are to receive the benefit of the distribution so sought.
· Position of beneficiaries under Israeli will
52 In relation to the position of Mr Apel and Mrs Ramin, each of whom is a beneficiary under the Israeli will (and a legatee) the executors raised by way of analogy the situation referred to in Jacobs Law of Trusts [2111] where trustees have a right to retain trust property (whether capital or income) coming to a beneficiary if the beneficiary owes money to the trustees as such, noting the general principle in Re Akerman [1891] 3 Ch 212 at 219 per Kekewich J to the effect that a person who owes an estate money cannot claim an aliquot share given to him out of the general mass of the estate without first making the contribution which completes it. As noted in Jacobs the beneficiary is treated in those circumstances as already having received a portion of the assets and therefore is satisfied pro tanto.
53 The position of Mr and Mrs Apel is that there is no basis for excluding them from any interim distribution which is made. Given that Mr Apel (and, for that matter, subject to the terms and operation of the temporary attachment order, Mrs Ramin as well) is not and will not until the determination of the Israeli proceedings, be in a position (in light not only of the temporary attachment order but also of the undertakings proffered by him) to deal with the interest in real estate which has been transferred to him under Israeli law, it would seem to me to be difficult to treat him (or Mrs Ramin) as a beneficiary who has already received the benefit of an interim distribution, other than in respect of the relatively minor amount of rent apparently already received by him (and her). And, in the case of Mr Apel at least, he is prepared to give undertakings as to future rental receipts. Therefore, I do not think it is appropriate, in considering an interim distribution, for the executors to deal differently as between Mr Apel and Mrs Ramin on the one hand and the other legatees on the other (other than in one respect, namely to secure the position of assets already held by them in the event that those ultimately fall to be dealt with under the Australian will or to meet a costs shortfall). The duty of the executors is to act impartially and fairly by all the beneficiaries.
54 The qualification I note is that, insofar as any of the legatees resides overseas, the executors have raised a concern that there may be a practical issue as to the enforceability of any undertakings given by foreign residents in the context of the making of interim distributions, assuming it would otherwise be appropriate for the court to accept them. In this regard I note that Mr Loofs has, in submissions in reply for Mr and Mrs Apel, adverted to the procedures available for mutual enforcement of monetary judgments between Australia and Israel (the latter being listed in the Schedule to the Foreign Judgments Regulations 1991 (Cth)). All of the foreign legatees, other than Mrs Ramin, are domiciled in Israel. (It is conceded by Mr Loofs, who does not represent Mrs Ramin, that enforcement of a monetary judgment against Mrs Ramin in New York could be more difficult as a matter of logistics.)