WILL CONSTRUCTION - Which beneficiary takes shares in private company - Turns on own facts
Source
Original judgment source is linked above.
Catchwords
WILL CONSTRUCTION - Which beneficiary takes shares in private company - Turns on own facts
Judgment (5 paragraphs)
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Solicitors:
Bruce & Stewart
(Plaintiff in 2013/373067/2013/373085)
Foulsham & Geddes PL (first and second Defendants in 2013/373067/ 2013/373085)
Bartier Perry (third to sixth Defendants in 2013/373067/2013/373085)
L. Rundle & Co (seventh Defendant and Plaintiff in 2015/44285)
Gordon A Salier (tenth to fifteenth Defendants)
File Number(s): 2013/373067; 2013/373085; 2015/44258
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Judgment
HIS HONOUR: I have already given three judgments in connection with the Wills of the late Gavin (John) Cobcroft and Brien Cobcroft. Namely, Cobcroft v Bruce [2013] NSWSC 774 (also reported as (2013) 9 ASTLR 397) ("Judgment No 1"); Re Cobcroft [2015] NSWSC 346 (to which I will refer as "Judgment No 2"); and Bruce v Cobcroft No 3 [2015] NSWSC 1414 ("Judgment No 3").
For present purposes I need not concern myself with revisiting Judgments No 1 and 3. Judgment No 1 concerned clause 9(v) of John Cobcroft's Will, and Judgment No 3 concerned the costs and expenses of a tutor appointed for some infant Defendants. However, it is necessary to look again at Judgment No 2.
I will not set out in full detail the facts which I have set out in Judgments No 1 and 2 but need only note those facts which are necessary to understand these reasons.
John Cobcroft executed his last Will on 27 July 2005. He added a Codicil on 24 August 2005, and died on 5 September 2005. His widow was Denise, and Brien was his brother. Denise died on 13 May 2010. Brien made his last Will on 15 June 2010 and died on 11 July 2010. Brien was survived by his wife Jennifer (who is the seventh Defendant in 2013/373067 and 2013/373085; Plaintiff in 2015/44285), and his two children, Nicklas and David, who are the first and second Defendants in these proceedings.
In simple terms, perhaps an over-simplification, John left his shares and residue to his widow, Denise, and made provision for his land holdings in properties known as Parraweena and Parraweena Highlands to be managed by his brother Brien, together with Brien's interests in the same properties and, at a time to be determined by Brien, John's interests in those properties were to be sold, and the resulting fund after the death of Denise, Brien and Jennifer, to pass 25% to David, 25% to Nicklas, and the balance to be distributed amongst the children of David and Nicklas, provided they attain 25 years and comply with other conditions. This was Clause 10(c) of John's Will.
Under Clause 15(c) of Brien's Will, Jennifer took all of his shares in Bodumba Pty Ltd. Under Clause 16 Nicklas took Brien's interest in Parraweena, and under Clause 17 David took Brien's interest in Parraweena Highlands.
There were other assets owned by the brothers, but for present purposes they need to be disregarded.
Judgment No 2 was concerned with what was meant by the chapeau to Clause 10 of John's Will, which read "I direct my Trustees maintain and preserve the interest that I own directly or indirectly with my brother Brien, in the rural properties known as 'Parraweena' and 'Parraweena Highlands', together with my interest in the business known as 'Parraweena Pastoral Co'…". In fact, both Parraweena and Parraweena Highlands were held in a rather complicated structure; various parcels of land made up Parraweena and other parcels of land made up Parraweena Highlands. The title of some of those parcels were held in John's name, others in Brien's name, and others by Parraweena Pty Ltd and Parraweena Highlands Pty Ltd. To add to the complication, Parraweena Pty Ltd itself was controlled by Langlo Pty Limited, which in turn seemed to be controlled by Bodumba Pty Ltd ("Bodumba"), and Parraweena Highlands Pty Ltd was controlled by BWB Cobcroft Pty Ltd ("BWB") and GJB Cobcroft Pty Ltd ("GJB").
Judgment No 2 applied the principles that were illustrated by the High Court in its decision in Hendry v Perpetual Executors & Trustees Association of Australia Ltd [1961] HCA 44; 106 CLR 256. That is "property owned directly or indirectly" ordinarily includes property which is owned by companies which the testator wholly owns or controls. No one challenges that conclusion.
In Paragraph 30 of Judgment No 2, in answer to the question "what interests of John in the properties known as Parraweena and Parraweena Highlands were covered by Clause 10(c)", I said "land holdings of the Trustee in Parraweena Pty Ltd and Parraweena Highlands Pty Ltd and his shares in Parraweena Pty Ltd and Parraweena Highlands Pty Ltd and Langlo Pty Ltd and the one share that GJB Cobcroft Pty Ltd held in Parraweena Highlands Pty Ltd."
Mr Willmott SC, who appears for Nicklas and David, suggests that I did not deal with the problem that arises because not only does BWB and GJB hold one ordinary share in Parraweena Highlands Pty Ltd, each of those companies also own one ordinary share and 52 preference shares in Bodumba. It is now not disputed that Jennifer owns, or is entitled to own, the 100 A Class shares, the 100 B Class shares, and 6 preference shares in Bodumba. However what may not have been appreciated earlier is the way in which the various classes of shares affect ownership rights.
It is clear that the A and B Class shares in Bodumba have the right to return a paid up capital but no voting rights. The preference shares have a right to return a paid up capital and a right to a fixed non-cumulative preferential dividend and one vote per share but no other rights to participate in profits or assets. The ordinary fully paid shares have no voting rights but a right to return of profits and surplus of capital and dividends. The only ordinary shares are the shares owned by BWB and GJB.
As I said in Judgment No 2, Paragraph 27, Bodumba Holds public company shares said to be worth about $3.2 million. It also has cash holdings, as well as a loan to the Parraweena Group. It holds 30,800 cumulative preference shares in Langlo Pty Limited, which in turn owns 1000 fully paid shares in Parraweena Pty Ltd. Although it is an over-simplification, the value of the shares which Jennifer holds in Bodumba would have a capital value of about $206 but each of the shares in Bodumba held by BWB and GJB would have a value of probably $1.5 million or more.
It is probably the realisation of this that caused Nicklas and David to seek to amend their first Cross-Claim by adding Paragraph 3A and 3B. In fact there are two amended documents, one in both 2013/373067 and 2013/373085 because there are two estates. The Paragraphs read as follows:-
"3A A DECLARATION that on the true construction of clause 10(c) of the said Will [ie John's Will], the deceased's shares in GJB Cobcroft Pty Limited were part of his right, title and interest in the lands known as Parraweena and Parraweena Highlands and, accordingly, such shares passed under the gift in the said Clause 10(c).
3B A DECLARATION that on the true construction of the articles of the company, the issued shares in Bodumba Pty Limited have the following rights and entitlements…"
There was a corresponding amendment in Brien's estate.
The trustees of the estate say that Nicklas and David have no locus standi to seek order 3B. That is probably correct. It matters very little because it is fairly clear what the rights of the shares in Bodumba are.
So far as Paragraph 3A is concerned, the share of GJB in Parraweena is part of the testator's land holdings though very vaguely described in the text of the Will. However, the facts say nothing about the ownership of the testator's shares in GJB and correspondingly the other testator's shares in BWB. A corresponding comment can be made with respect to Parraweena Highlands.
Both Wills display a clear dichotomy between the testators' benefaction with respect to his respective land holdings and with respect to their shares. It is only the land holdings that are to pass to Nicklas and David, and their children. The shares are to pass to Denise and Jennifer and after Denise's death they end up with Jennifer. It seems to be clear from the whole structure of the Will that even though the share held by GJB in Parraweena Highlands and the share held by BWB in Parraweena Highlands pass under Clause 10(c) of John's Will, the shares held by those companies in Bodumba, which appears to be their only other asset, pass to Jennifer. Accordingly, I decline to make orders in Paragraphs 3A and 3B of the amended first Cross-Claim.
I now pass to the question of costs. Two basic problems arise:
(A) Should the question of costs be decided on the basis that all the problems have been caused by the drafting of the Will or should at least part of the costs be dealt with as adversarial litigation?
(B) If costs are to come out of the estate, should they come out of the residue (ie the shares in Bodumba) or should they be borne by those who take interest in the Parraweena properties?
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Question (A)
The Wills were complicated and the use of such expressions such as "owning land directly or indirectly" were troublesome. I should point out that this was not necessarily the fault of the draftsperson. It would appear that the two brothers were not ad idem as to how the family property should be distributed after their death and their conflicting proposals presented considerable problems to the draftsperson. However, putting aside questions of fault, it was the terms of the Will which, to my mind, have caused the problems with which I have had to deal over the last two or three years.
No order has yet been made in the proceedings. I will deal with the final orders, other than the order for costs, shortly. There have been four tranches roughly corresponding with the four judgments I have given.
The problem in Judgment No 1 was solely a problem of construction and there is no reason why the costs should not come out of the estate.
The real debate is over Judgment No 2. This bore a lot of hallmarks of adversary litigation between those who took the land and those who took the shares. However, the real cause of the litigation was, again, the way in which the Wills had been constructed. For the reasons I set out in (B), it seems to me that the appropriate order for costs is that costs should come out of the estate, but that the costs of the estate should not be wholly borne by the residue.
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Question (B)
For all practical purposes, there are only two assets in the estate. The real estate of Parraweena and Parraweena Highlands, and the shares in Bodumba, which is a substantial property owning company. It would seem that the gift of the shares in Brien's estate was a specific gift whereas the gift of the shares in John's estate was part of the residue. The gift of the interest in realty is probably a specific gift though the way in which 10(c) is phrased makes this a little doubtful.
Under s 46C and Part 2 of the third schedule of the Probate and Administration Act 1898 (NSW), the order of application of assets means that the expenses of the estate, including costs of the present proceedings, would come out of the residue before assets specifically disposed of by will. To permit this to happen would, in my view, not reflect the real interests involved in the litigation. As I have noted earlier, this was a contest between those entitled to the testator's real property and those entitled to the shares. This is particularly so of the second and fourth tranches of the litigation. In that litigation the devisees of the real estate did achieve some goals in that it was confirmed that the proprietary interests in real estate held by some of the companies passed to Nicklas and David and their children, but otherwise in every major dispute they were unsuccessful. It seems to me then that the costs of the second and fourth tranches should be paid out of the estate but should be borne by the testator's land holdings as defined in Judgment No 2. So far as the first tranche is concerned (and the third), there is no element of adversarial proceedings between the two factions and those costs should come out of the residue.
This then leaves the questions of what should be the final orders. There is some substantial agreement on this. In John's estate a draft set of orders appears on pages 1788 to 1790 of volume 5 of the Court Book. These are put forward by the Plaintiff. Jennifer agrees with declarations 1 to 4 and orders 1 to 3. She does not consent to orders 4 and 5 but I think what I have already said will enable new Short Minutes to be brought in with respect to the matters covered in those suggested orders.
Order 6 in the Short Minutes is that "the costs of the First to Fifteenth Defendants inclusive relating to the proceedings, other than their costs referred to in orders 3 and 4 above, be paid from the Estate of the late Gavin John Baxter Cobcroft." Mr Wilson SC for Jennifer opposes that order and says that those Defendants should pay her costs on the ordinary basis, otherwise there ought to be no order as to the costs to the intent that the Defendants bear their own costs.
I was tempted to say that the costs of the first and second, and tenth to fifteenth Defendants should be borne by them personally, in other words, there should be no order for their costs. However, I think that this would be unfair to the tutor and to the infant grandchildren. It is better to have the costs of the second and fourth tranches be paid by those entitled to the real estate and this, for most practical purposes, would give Jennifer a great part of what she seeks.
In Brien's estate, the draft Short Minutes are behind pages 1794 to 1796. Jennifer agrees with declarations 1 to 7 and orders 1 to 3, as proposed. She does not agree with orders 4 to 6 without adjustments, and the same adjustments should be made as I have noted, with respect, to John's estate.
It is agreed that 2015/42258 can now be dismissed with no order as to costs. It has been brought to my attention that there is some authority for the proposition that such an order prevents access to the indemnity of an executor to the estate funds. I doubt the correctness of this (see Adam v Mullen (Supreme Court (NSW), Holland J, 15 December 1976, unrep)) but to avoid complications, I say that if that be the rule, it is not to apply in this case.
I believe that I have now covered all outstanding matters. However, I have not adjusted the Short Minutes of Order because it is best to allow the parties to give final thought to them. I will merely pronounce these reasons and then stand the matter over to a convenient date. Hopefully a mutually convenient date can be found in which the final Short Minutes can be signed off and the proceedings, at long last, terminated. However, I cannot leave the case without thanking all the Counsel involved for their helpful submissions made over the last 3 years.
When short minutes were brought in a question was raised as to whether my reasons have sufficiently disclosed what is to happen to the shares held by the executors of John and Brien in the companies BWB Cobcroft Pty Ltd and GJB Cobcroft Pty Ltd. I thought the judgment was clear, but seeing that a member of the Bar has submitted that it is not, it is best to state that, in my view, on the proper construction of the respective wills and in the events which have happened, the executor holds the relevant deceased's share in BWB Cobcroft Pty Ltd and GWB Cobcroft Pty Ltd, so that the interest held by each of those companies, directly or indirectly, in Parraweena Holdings Pty Ltd, Parraweena Pty Ltd and Parraweena Highlands Pty Ltd, passes to the first and second defendants, as the case may be, and the interests of each of those companies in Bodumba Pty Ltd passes to the seventh defendant.
I make orders in accordance with the short minutes which have been handed up adding, in each case, liberty to apply.
The exhibits may be returned after 28 days, that means 28 days from 18 January 2016.
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Decision last updated: 18 December 2015