Bruce v Cobcroft

Supreme Court of NSW|2017-07-31|Before: Ward CJ

Re Estate of Boian (2014) 17 BPR 33,005; [2014] NSWSC 800 Riddle v Riddle (1952) 85 CLR 202; [1952] HCA 12 Stein v Sybmore Holdings Pty Ltd (2006) 64 ATR 325; [2006] NSWSC 1004 Tagliaferri v Tagliaferri [2013] WASC 321 Tompkins v Simmons (1931) 44 CLR 546 Trustees of the Kean Memorial Trust Fund v Attorney-General for South Australia (2003) 86 SASR 449; [2003] SASC 227 WE Pickering Nominees Pty Ltd v Pickering [2016] VSC 71 Wigley v Crozier (1909) 9 CLR 425 Yule v Irwin (No 2) [2016] SASC 178 Texts Cited: GE Dal Pont and KF Mackie, Law of Succession (2013, LexisNexis) JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2015, LexisNexis) L Tucker et al, Lewin on Trusts (19th ed, 2015, Sweet & Maxwell) JR Martyn and N Caddick, Williams, Mortimer & Sunnucks - Executors, Administrators and Probate (20th ed, 2013, Sweet & Maxwell) J McGhee (ed), Snell's Equity (33rd ed, Sweet & Maxwell) G Thomas and A Hudson, The Law of Trusts (2nd ed, 2010, Oxford University Press) Category: Principal judgment Parties: Robert Ritchie Bruce (Plaintiff) (as executor of the estate of the late Gavin John Boxten Cobcroft) Nicklas William Baxter Cobcroft (First Defendant) David Gavin Baxter Cobcroft (Second Defendant) Daisy Evelyn Cobcroft (Third Defendant) Jasper Nicklas William Cobcroft (Fourth Defendant) Hermione Fiona Cobcroft (Fifth Defendant) Benjamin William Baxter Cobcroft (Sixth Defendant) Amana Jane Cadwallader Cobcroft (Seventh Defendant) Teya Ellie Cobcroft (Eighth Defendant) James Duncan Rae (Ninth Defendant) Roger Audley Hann (Tenth Defendant) Robert Ritchie Bruce (Eleventh Defendant) (as co-executor of the estate of the late Brien William Cobcroft) Representation: Counsel: Dr C Birch SC with Ms J Taylor (Plaintiff) Mr T Bottrell (solicitor) (First, Second, Sixth and Seventh Defendants Mr G Salier (solicitor) as tutor for the Third, Fourth, Fifth and Eighth Defendants Mr C Windeyer (by leave, for Jennifer Menzies Cobcroft)

Solicitors: Bruce & Stewart Lawyers (Plaintiff) Paul Bard Lawyers (First, Second, Sixth and Seventh Defendants) Gordon A Salier (Third, Fourth, Fifth and Eighth Defendants) L R Rundle & Co (Solicitor for Ms Jennifer Cobcroft) File Number(s): 2017/00222315 Publication restriction: Nil

Judgment

HER HONOUR: This is an application for relief pursuant to s 81 of the Trustee Act 1925 (NSW) and for judicial advice pursuant to s 63 of that Act by the plaintiff, Mr Bruce, in his capacity as the sole surviving executor of the estate of the late Gavin John Baxter Cobcroft (the deceased). Mr Bruce is also an executor of the estate of the late Brien William Cobcroft, the only sibling of the deceased. The relief and advice presently sought goes to the basis on which the plaintiff seeks (with the consent of all adult beneficiaries and, through their parents, the three minor beneficiaries) to distribute the deceased's estate, as described in more detail in due course.
The first and second defendants (Nicklas William Baxter Cobcroft and David Gavin Baxter Cobcroft) are the two sons of the deceased's brother (Brien)'s first marriage (to Jillian, who survived both Brien and the deceased). I will refer to them, and other family members, without intending any disrespect, by their first names.
The third, fourth and fifth defendants are Nicklas' three minor children. The sixth, seventh and eighth defendants are David's three children, only one of whom is a minor. The minor children of both Nicklas and David were separately represented at the hearing by their tutor, a solicitor, Mr Salier.
The ninth and tenth defendants, who were not represented at the hearing, are the two other executors of Brien's estate (Mr Rae and Mr Hann).
At the outset of the hearing, I gave leave for another solicitor, Mr Windeyer, to appear for Brien's second wife, Jennifer Menzies Cobcroft, a person affected by the orders sought.

Summons

The orders sought in the summons, relevantly, are as follows: 1. An order pursuant to s 81 of the Trustee Act 1925 (NSW) that the plaintiff have such power to mortgage assets of the estate of the late Gavin John Baxter Cobcroft as are necessary for him to raise moneys on the estate assets and otherwise perform the transactions contained in the Deed of Family Arrangement dated on or about 30 June 2017 and which is in the form exhibited to the affidavit of Robert Ritchie Bruce sworn 20 July 2017 in these proceedings. 2. Advice or direction from the Court pursuant to s 63 of the Trustee Act 1925 (NSW) that the plaintiff is justified in entering into and unconditionally performing the obligations imposed upon him contained in the Deed of Family Arrangement dated on or about 30 June 2017 being the Deed, a copy of which is exhibited to the affidavit of Robert Ritchie Ritchie Bruce sworn on 20 July 2017 in these proceedings, and further in administering the estate of the deceased in accordance with the advice of Christopher Birch SC and Jane Taylor of counsel dated 20 July 2017. 3. A declaration that in the events and circumstances that have occurred as described in the affidavit of Robert Ritchie Bruce dated 20 July 2017 and in addition to the declaration made in Declaration 3 of the Declarations and Orders made by Acting Justice Young on 17 December 2015 in proceedings 2013/00373067, that pursuant to Clause 10(c)(iv) of the Will of the late Gavin John Baxter Cobcroft, the executor may distribute the net proceeds of sale referred to in the sub-clause or any part thereof, or otherwise make any distribution, by appropriation or other means in regard to the gifts in the said clause to any beneficiaries, after the date upon which any interest of Jennifer Menzies Cobcroft in the property dealt with pursuant to Clause 10 of the Will was extinguished.
An order for the plaintiff's costs of the application on an indemnity basis was not pressed.

Facts

The facts, on the basis of which the judicial advice is sought, are set out in a Statement of Facts filed by the plaintiff in the proceedings, and outlined in the memorandum of advice dated 20 July 2017 of Dr Birch SC and Ms Jane Taylor of Counsel, to which reference is made in the proposed orders. They may be summarised as follows.
The deceased died on 5 September 2005 aged 67 years. At the time of his death, his only sibling (Brien) was still alive. Their parents had predeceased them. The deceased was survived by his wife, Denise Adele Cobcroft. They had no children.
The deceased's last Will was executed on 27 July 2005. A Codicil thereto was executed on 24 August 2005. Probate of the Will and Codicil was granted on 23 November 2005 to Denise, Brien and the plaintiff. Denise died on 13 May 2010 before the final distribution of the deceased's estate. Brien died on 11 July 2010, again before the final distribution of the deceased's estate. Accordingly, as I have already noted, the plaintiff is the sole surviving executor of the estate of the deceased.
Brien executed his last Will on 15 June 2010. Probate was granted of that Will on 3 September 2010 to the plaintiff, Mr Rae and Mr Hann.
The primary assets in each of the brothers' estates comprise their interests (direct and/or indirect through private companies) in two large rural properties - "Parraweena" and "Parraweena Highlands", each located west of Willow Tree, NSW - and their shares in a company called Bodumba Pty Limited (Bodumba).

The properties - Parraweena and Parraweena Highlands

Parraweena and the main homestead (being approximately 4,326 ha, or 10,691 acres, in size) were originally acquired by the siblings' father, Gavin William O'Brien Cobcroft, in the 1930's. Parraweena extends across a number of parcels of land. The various lands which comprise Parraweena Highlands (approximately 4,855 ha, or 12,000 acres, in size) were purchased by the deceased and Brien between 1973 and 1983.
The two properties complement each other. Parraweena Highlands is a high rainfall breeding property. Parraweena is a livestock fattening and farming property. However, each property would be viable as a "stand-alone" separate holding and farming business.
At the time of the deceased's death, Parraweena comprised nine lots owned variously by the deceased, Brien and a company called Parraweena Pty Limited, as follows. The deceased held three lots within Parraweena (with a combined area of approximately 1,367 ha, or 3,377 acres); Brien held two lots (having a combined area of approximately 1,313 ha, or 3,245 acres); and Parraweena Pty Limited held four lots (having a combined area of approximately 1,646 ha, or 4,068 acres). Brien retained his two lots at the time of his death. Parraweena Pty Limited has held its four lots at all material times.
Parraweena Highlands has been wholly owned at all material times by a company called Parraweena Highlands Pty Limited. Since Brien's death, his executors have purchased certain closed roads which now also form part of Parraweena Highlands.
Essentially, David and Nicklas want to retain ownership of these two farming properties (consistent with what was envisaged in Brien's Will) despite a direction in the deceased's Will to sell the properties and distribute the proceeds.

The relevant companies

Reference has been made above to both Parraweena Pty Limited and Parraweena Highlands Pty Ltd. The two companies in partnership operate a grazing and cropping business on Parraweena and Parraweena Highlands called "Parraweena Pastoral Co", the estimated value of which rural partnership is approximately $5,031,530.
Parraweena Pty Limited was incorporated on 5 February 1953. Parraweena Highlands Pty Limited was incorporated some twenty years later, on 28 February 1973. The current directors of both companies are Mr Hann and the plaintiff.
The current shareholders of Parraweena Pty Limited are: the plaintiff (as to 12,000 ordinary partly paid shares); the plaintiff, Mr Rae and Mr Hann (as to 11,999 ordinary partly paid shares and 1 ordinary fully paid share) and a company called Langlo Pty Limited (as to 1,000 ordinary fully paid shares).
Langlo Pty Limited was incorporated on 31 December 1969. Its current directors are the plaintiff and Mr Hann. At the time of the deceased's death, he held shares in Langlo Pty Limited. Those were transmitted into the names of the executors of his estate and they are currently held in the name of the plaintiff only. At the time of Brien's death, Brien also held shares in Langlo Pty Limited. After Brien's death those shares were transmitted into the names of the plaintiff, Mr Rae and Mr Hann. The present shareholding of Langlo Pty Limited is as to 10 ordinary fully paid shares each held by the plaintiff (as executor of the deceased's estate) and the plaintiff, Mr Rae and Mr Hann (as executors of Brien's estate), and 38 fully paid cumulative preference shares held by Parraweena Pty Limited.
The current shareholders of Parraweena Highlands Pty Limited are two companies (GJB Cobcroft Pty Limited and BWB Cobcroft Pty Limited), each holding 1 ordinary fully paid share. Those, as the names suggest, were family companies referable to the two brothers.
GJB Cobcroft Pty Limited was incorporated on 28 February 1973. On the deceased's death (see art. 4(d)) the issued shares in the company were automatically divided into two classes (No.1 class shares, held by anyone other than the deceased, and No. 2 class shares, held by the deceased). The No. 1 class shares became, in effect, ordinary shares in the company and the No. 2 class shares became 5% preference shares with limited rights. The deceased's shares in the company were transmitted into the names of the executors of his estate and they are currently held in the name of the plaintiff only (i.e., what are now the 100 No 2 class fully paid shares). There are 100 No 1 class fully paid shares held by BWB Cobcroft Pty Limited and the same amount of No 1 class fully paid shares held by Brien's executors. The current directors of the company are Mr Hann and the plaintiff.
BWB Cobcroft Pty Limited was also incorporated on 28 February 1973. After Brien died, his 102 ordinary shares in the company were transmitted into the names of his executors (the plaintiff, Mr Rae and Mr Hann) who still hold those shares. The current directors of BWB Cobcroft Pty Limited are Mr Hann and the plaintiff.
Also conveniently to be referred to here is Bodumba. Each of GJB Cobcroft Pty Limited and BWB Cobcroft Pty Limited held, at the relevant time, 1 ordinary and 52 preference shares in Bodumba (an issue later arising as to how those shares passed under the respective wills of the deceased and Brien).

The deceased's will

After making provision for specific legacies to various of his relatives, including David and Nicklas, (cll 3-8) and making provision for his wife Denise (cl 9), cl 10 of the deceased's Will provides as follows: 10. I direct that 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" on the following terms and conditions: … (c) to permit my brother Brien, the opportunity to manage such properties and business during his lifetime and upon his death or at his earlier request and direction to sell my interests in such properties and business and after payment of all of the charges upon such properties and business to hold the net proceedings then remaining as follows: … (iv) upon the death of my wife [Denise], my brother [Brien] and his wife [Jennifer] to sell any substituted properties acquired by my trustees pursuant to sub-paragraphs (ii) and (iii) hereof and then to hold the whole of the net proceeds then remaining both in respect of those properties "Parraweena", "Parraweena Highlands" and the assets of "Parraweena Pastoral Co" as follows: A. my said nephew David William [sic] Baxter Cobcroft on condition that he applies out of such gift sufficient funds to provide for the maintenance, education and well being of his children: Twenty five percent (25%) of such net proceeds B. for my said nephew Nicklas William Baxter Cobcroft on condition that he applies out of such gift sufficient funds to provide for the maintenance, education and well being of his children: Twenty five percent (25%) of such net proceeds C. for each of the children of my said nephews David William [sic] Baxter Cobcroft and Nicklas William Baxter Cobcroft provided they attain the age of twenty five (25) years and establish to the satisfaction of my trustees that they have not been convicted in a competent Court of an indictable offence involving the use of, or trafficking in, a prohibited drug, and that they are not addicted to the use of such substance: An equal part to the remainder of such net proceeds as is available, to those entitled under this provision as at the date that their interest vests.

Administration of the respective estates

By March 2012, all specific legacies referred to in cll 3-7 of the deceased's Will had been distributed, as had all legacies referred to in sub-cll 9(i)-9(vii) of the deceased's Will (those having been distributed to Denise or to her estate); and all matters referred to in cl 11 of the deceased's Will (relating to the lease of certain thoroughbred horses) had been completed. Similarly, all specific legacies referred to in cll 7-14 and 15(a)-(e) of Brien's Will had by then been distributed.

Prior proceedings and judgments/settlements

There have already been a number of court proceedings in relation to the brothers' respective Wills.
First, David and Nicklas brought proceedings in April 2012 (2012/126592) against the plaintiff and the executors of the estate of Denise as to the proper construction of cl 9(v) of the deceased's Will (Cobcroft v Bruce [2013] NSWSC 774; (2013) 9 ASTLR 397). They were successful in those proceedings, with orders being made on 8 August 2013. Young AJ held that David and Nicklas were entitled to certain shares inherited by Denise but not dealt with during her life, those being subject to an equitable obligation that they be conveyed to them ([64], [73])
Then, in 2013, the plaintiff, as executor of the deceased's estate, and the plaintiff with the other executors of Brien's estate, commenced separate sets of proceedings (2013/373067 and 2013/373085) for the construction of various clauses in the deceased's Will and Brien's Will, respectively. Those proceedings were primarily concerned with the nature of the direct and indirect interests of each testator in Parraweena and Parraweena Highlands.
Then, in 2015, Jennifer brought proceedings under s 59 of the Succession Act 2006 (NSW), seeking an order for provision out of Brien's estate (2015/00044258).
The three sets of proceedings referred to at [30]-[31] above were heard together by Young AJA, as his Honour then was. That led to the delivery of the following three judgments: Re Cobcroft [2015] NSWSC 346 (to which I will refer as Cobcroft (No 2)); Bruce v Cobcroft (No 3) [2015] NSWSC 1414 and Bruce v Cobcroft (No 4) [2015] NSWSC 1897.
In Cobcroft (No 2), his Honour held that the deceased's shares in various companies, including Parraweena Pty Limited and Parraweena Highlands Pty Limited, passed under the gift in cl 10 of the deceased's Will ([25]) but considered that the link between Bodumba and Parraweena Pty Limited was too remote to characterise the deceased's interest in Bodumba as an indirect interest in Parraweena Pty Limited (Bodumba's only interest being to a fixed cumulative preference dividend and a right of return of $30,800 capital) (see Cobcroft (No 2) at [28]-[29]).
Relevantly, for the purposes of the present application, his Honour answered the question as to what, on the true construction of cl 10(c)(iv) of the deceased's will is the earliest time at which the plaintiff could distribute the net proceeds referred to in cl 10(c) of the deceased's Will, or any part thereof, to any of the beneficiaries mentioned in cll 10(c)(iv) A, B and C as follows "It is now agreed that the answer to this question is "on the death of Jennifer" (at [31]). There was no reasoning set out as to the basis on which that agreement was seemingly accepted by his Honour. In due course, when orders were made on 17 December 2015, Young AJA made a declaration in the following terms: Pursuant to clause 10(c)(iv) of the will of the late Gavin John Baxter Cobcroft, the earliest time at which the Executor may distribute the net proceeds of sale referred [to] in the sub-clause, or any part thereof, to any of the beneficiaries, is upon the death of Jennifer Menzies Cobcroft.
Some other questions as to the construction of the deceased's Will were answered by his Honour (see [35]); further questions concerning the construction of cl 10(c)(iv) C were left unresolved (see [36]) on the basis that the questions as posed did not cover all the possibilities, although in that context his Honour did express the following views: that the fund the subject of cl 10(c)(iv) C must be 50% of the net proceeds of sale of the deceased's interest in Parraweena and Parraweena Highlands because the other 50% of the proceeds are dealt with in cl 10(c)(iv) A and B (see [37]); that the class closed upon Denise's death, so that only the six existing children could take (see [39]); and that the gift is a gift per capita, and not per stirpes (at [39]).
Cobcroft (No 3) [2015] NSWSC 1414 dealt with an application in relation to the costs of a solicitor who had been appointed as tutor for the minor grandchildren for the purposes of the proceedings commenced by the executors. Cobcroft (No 4) [2015] NSWSC 1897 dealt with certain matters arising from the decision in Cobcroft (No 2) and the question of costs. At that time, his Honour dismissed Jennifer's family provision application, as being unnecessary, with no order as to costs.
David and Nicklas then filed appeals in relation to an aspect of each of the above proceedings (in particular with respect to the construction of cl 10 of the deceased's Will). Jennifer in turn filed a notice of cross appeal in the proceeding concerned with the construction of Brien's Will, in which she sought to enliven a claim for family provision in the event that Nicklas and David were successful in their appeal.
On 1 December 2014, each of Jennifer, David, Nicklas, the plaintiff and Brien's other executors (to whom I will refer collectively as the mediation participants) participated in a formal mediation before a retired Federal Court judge as mediator. That mediation, although not successful in finally resolving all outstanding issues, resulted in the formulation of a structure for the ultimate resolution of all controversial aspects remaining in and between each estate. Those issues included what has been described as a fundamental dichotomy concerning the remaining assets in each estate as between the respective Wills, namely, that under the deceased's Will the properties (Parraweena and Parraweena Highlands) and the farming partnership were (under cl 10) ultimately to be sold and the proceeds divided amongst the named beneficiaries (David, Nicklas and their respective children), whereas under Brien's Will those assets were to be transferred in specie to David and Nicklas.
Following a further mediation on 16 February 2017 between the mediation participants, this time with the assistance of an independent solicitor, the method and structure by which all remaining issues in each estate could be resolved, and to bring the administration work of the executors to a conclusion, were agreed.
On or about 23 May 2017, a deed (the Bodumba Sale Deed) was entered into by the mediation participants and a company called Karang Pty Ltd (which is controlled by Jillian) the effect of which was to resolve all issues concerning Jennifer in connection with each estate and to provide for the severance of Bodumba from the rest of the direct and indirect land holdings yet to be administered under the deceased's Will and Brien's Will. Jennifer (who, under Brien's Will, had a right to reside in the homestead on Parraweena and a weekly monetary gift) thus no longer has any interest in, or claim to, Parraweena or Parraweena Highlands.
Then, on or about 30 June 2017, a Deed of Family Arrangement (the Deed) was entered into by the mediation participants, David's adult children and Jillian to resolve all outstanding issues in each estate.

The Deed

With one exception (that being the acknowledgments and releases given by David and Nicklas in relation to the respective executors in cl 8), the parties to the Deed acknowledge that their obligations, rights and liabilities arising under the Deed are contingent upon the plaintiff obtaining judicial advice and/or approval or orders pursuant to ss 46, 63 and/or 81 of the Trustee Act to the effect that he is justified and/or authorised to enter into the transactions set out in the Deed (cl 2.1)
The Deed provides for the transfer in specie of the direct and indirect interests of the deceased in Parraweena and Parraweena Highlands to Nicklas and David by way of an appropriation of shares in various entities to the benefit of David and Nicklas (cll 3.1, 4.1, 5.1, 6.1(c), 6.1(d)) and the appropriation of land (see cll 6.1(a), (b)). Under the Deed the plaintiff is released from any obligation to sell any indirect or direct interest in the properties or to sell the partnership business (cl 6.4). As adverted to above, this is in conformity with Brien's Will (cll 16 and 17) but not in conformity with the deceased's Will (cl 10).
The Deed sets out a mechanism whereby a trust fund in the amount of $7,800,000 is to be created for the children of David and Nicklas on the terms set out in clause 10(c)(iv) C of the deceased's Will. That mechanism involves the provision by a company called Evelyn Pty Ltd (Evelyn) (which is controlled by Jillian) to the plaintiff of an interest free loan facility (the Evelyn Loan Facility) in the amount of $7,800,000 (cl 15.1) on the terms set out in cl 15 of the Deed, for the purpose of enabling the plaintiff to have a fund from which to establish the trusts for the children of David and Nicklas as set out in cl 10(c)(iv) C of the deceased's Will (and to make the appropriations set out in the Deed) (cl 15.2). The total amount of the said loan facility has already been paid to the Bruce & Stewart Lawyers Trust Account held in the name of the plaintiff and the plaintiff has agreed to grant to Evelyn a mortgage over one of the parcels of land forming part of Parraweena (that being Lot 23 which is one of the lots formerly owned by the deceased in his right and which is to be appropriated for the benefit of Nicklas (cl 15.3)).
Conditional upon the receipt of appropriate judicial advice or other approval by this Court, Evelyn agrees not to require the deceased's estate to repay the said loan facility. With his consent, liability under the loan facility and related mortgage are to be taken over by Nicklas as part of the transmission of legacy interests to him (cl 15.4). If the plaintiff does not obtain Court approval or judicial advice permitting the establishment of the trust fund for the children of David and Nicklas in accordance with cl 6 of the Deed, then the plaintiff is required to repay the loan facility amount to Evelyn.
The Deed also provides for a second interest free loan facility (BWBC Loan Facility) from Jillian to enable Brien's and the deceased's executors to make the appropriations set out in the Deed and to have a fund from which to meet estate debts and liabilities from other assets in Brien's estate and to allow the plaintiff, as the executor of the deceased, to have a fund from which to meet all estate debts and liabilities in the deceased's estate (cl 17).
In the Deed, David and Nicklas have provided broad releases, indemnities and covenants not to sue for the benefit of the plaintiff, Mr Rae and Mr Hann, and any relevant corporation in relation to the management and control of any relevant corporation (cll 7.1, 8).
Pursuant to cl 10.1 of the Deed, Jillian agrees not to cause Bodumba to call in, or take any steps or action to call in, the "Bodumba Loan Account" or to require the repayment of the Bodumba Loan Account (or any part of it) pending the finalisation of all executorial duties without the prior written approval of the plaintiff and all of Brien's executors. The Bodumba Loan Account is defined (in cl 1.1) as any loan account balance of Bodumba held or maintained by any of the partnership known as "Parraweena Pastoral Co" or with any relevant corporation (as defined).
The plaintiff and Brien's executors are required to determine the amount of all estate debts, including arising from the performance of the Deed, and must retain sufficient funds in order to meet all such debts and liabilities (cll 12.1, 12.3). They are at liberty to satisfy all such debts and liabilities out of the property under the respective Wills, or otherwise to call upon an indemnity to meet estate debts (cll 12.2, 12.4). David and Nicklas agree to indemnify the executors for any shortfall in the funds of the relevant estate to meet all estate debts and other liabilities (cl 13).

Valuations

As part of the administration of the deceased's estate the plaintiff has obtained valuations at various times of both Parraweena and Parraweena Highlands.
In 2006, Mr Christopher Meares, a registered valuer (who specialises in rural property valuations) provided his first valuation, to the effect that at that time Parraweena had a value of $21,682,000 and Parraweena Highlands had a value of $11,973,500.
On 12 August 2010, Mr Meares provided an updated valuation of both properties, as at the date of Brien's death, to the effect that at that time Parraweena had a value of $22,154,331 and Parraweena Highlands had a value of $13,023,500.
In 2011, Mr Meares provided a further updated valuation of both properties (and also attributed the values to each of the individual lots in each property), to the effect that at that time Parraweena had a value of $23,246,877 and Parraweena Highlands had a value of $11,679,805 (giving a total value for both properties of $34,926,682).
On 8 May 2017, the executors in each estate received further updated valuations from Mr Christopher Meares to the effect that at that time Parraweena had a value of $32,589,649.24 and Parraweena Highlands had a value of $14,647,500 (a combined value of $47,237,149.24).
The value of the deceased's indirect farming interests (as disclosed in the latest accounts maintained by the plaintiff) as at the date of the hearing was estimated as follows.
First, the deceased's 48% interest in Parraweena Pty Limited is valued at $8,160,000 (comprising a value of $15,058,500 for the land and buildings on Parraweena plus an amount of $2,500,000 (being the company's share of its 50% interest in the value of the Parraweena Pastoral Co partnership), minus approximately $1,236,000 for liabilities to associated companies (Langlo Pty Limited and Bodumba), leaving a net value of approximately $8,367,000 from which a further sum of $200,000 has been deducted to reflect contribution to estate expenses since the last set of accounts.
Second, the deceased's 50% shareholding in Langlo Pty Limited is valued at $481,997. (The company has no liabilities. Its assets comprise a loan owed to it by Parraweena Pty Limited of $283,994 and 1,000 shares in Parraweena Pty Limited valued at $680,000.)
Third, the deceased's interest in Parraweena Highlands Pty Limited is valued as being nominal.
Fourth, the deceased's interest in the Parraweena Pastoral Co partnership (held via his indirect share ownership in Parraweena Pty Limited) is included in the valuation of his interest in Parraweena Pty Limited (see [56] above).
The deceased's direct farming interests were valued in May 2017 at $8,156,200.
Estate expenses since the date of the deceased's death (as advised at the date of hearing) total $1,286,710.
The 50% share under cl 10 of the deceased's Will that is proposed to be settled upon a trust fund for the children of David and Nicklas in accordance with the Deed is calculated as $7,755,743.50 (Schedule A to the Deed). This calculation of value does not take into account any diminution which would occur upon an actual sale of those direct and indirect farming interests arising from: (a) selling costs, such as advertising and commissions; (b) loss of value, through selling shares in land owning corporations; (c) taxes arising upon an actual sale, principally being capital gains taxes for increases in value arising more than 2 years after Brien's death; or (d) the repayment of the deceased's share of the Bodumba loan. The Deed "rounds up" the share for the children to $7,800,000. David and Nicklas have agreed to this calculation and the rounding up.

Counsels' advice

As adverted to earlier, I have had the benefit on this application of considered advice provided by Dr Christopher Birch SC and Ms Jane Taylor of Counsel.
In their memorandum of advice, Counsel have identified the following issues: 1. Is it appropriate to distribute the gifts in cl 10(c) of the deceased's Will prior to the death of Jennifer? 2. Can the power of appropriation under s 46 of the Trustee Act be utilised to create a fund for the children of David and Nicklas? 3. Can the power of appropriation under s 46 of the Trustee Act be utilised to appropriate to David and Nicklas the interest in specie in the relevant properties? 4. Can the Court make orders under s 81 of the Trustee Act to create a fund for the children of David and Nicklas? 5. Is the valuation evidence appropriate to determine the value of that fund, taking into account the complex nature of the property interests the subject of the trust for conversion?
For the reasons set out in that advice, Counsel have concluded as follows.

First issue

As to the first issue, Counsel consider that it is appropriate to construe the Wills in accordance with the doctrine of acceleration as having the effect that, upon the release by Jennifer of her interests in the properties dealt with by cl 10 of the deceased's Will, the plaintiff is justified in proceeding to deal with those properties as if Jennifer had died; and, consequently, the plaintiff is entitled to deal with the interests the deceased held in Parraweena and Parraweena Highlands as if the trusts of those interests are now held for David and Nicklas Cobcroft, and their respective children in the remainder provisions contained in that clause.
However, they point to the third of the declarations made by Young AJA on 17 December 2015. Counsel consider it at least arguable that the terms of that declaration would apply not merely to a distribution of the net proceeds of sale but also to an appropriation in lieu of the distribution of the net proceeds of sale. They further consider that there would be significant doubt that the doctrine of acceleration could be applied so as to alter the effect of the declaration made by Young AJA.
In circumstances where there was no contemplation, in the proceedings before Young AJA, that the interest of Jennifer would be extinguished prior to her death, Counsels' opinion is that there is no reason to infer that the determinations and orders and declarations made by Young AJA were intended to prevent the application of the doctrine of acceleration to the proper construction of the Will of the deceased; rather, they say, this was simply not a matter that was within the contemplation of any of the parties or his Honour.
Although the declaration is a final order, Counsel consider that there would be no prejudice to any party if the Court were now to declare, in effect, that the doctrine of acceleration may be applied in regard to the gifts under cl 10 of the deceased's Will. They consider that the Court would thereby be doing "little more than spelling out an exception to the general language of the earlier declaration, that would almost certainly have been acceded to at the time by all the parties". Alternatively, reliance is placed on Permewan Wright Consolidated Pty Ltd v Attorney-General (NSW) (1978) 35 NSWLR 365 (at 374), for the proposition that the Court may set aside a final injunction in circumstances where a change of circumstance has rendered the order inappropriate.
Counsel are of the opinion that, in circumstances where the interest of Jennifer has now been wholly extinguished, it is inappropriate that the operation of the deceased's Will continues to be governed by a declaration premised on the assumption that she has a continuing interest in the estate to the date of her death.

Second issue

As to the second issue, Counsel are of the opinion that the present situation is the type of situation in which s 46 is intended to operate (that is where, despite a direction to sell, family members desire to keep certain property within the family, and also seek to avoid reducing its value by selling it off in parts which would not achieve the best possible price).
They note that the trustee must have regard to the interest of all beneficiaries, (though the trustee does not need the consent of the other beneficiaries) and hence that the plaintiff must have regard to whether there will be an adequate trust fund for the children, and that the trustee must ascertain and fix the value of the trust (see s 46(3)).
On this issue Counsel have advised as follows.
First, that there is clear power conferred by s 46(2)(c) to appropriate a fund of money towards the satisfaction of the interest given to the children in the 50% share of the proceeds of the Parraweena lands and that it is not necessary that the Parraweena lands be sold, rather, it is sufficient to set aside by appropriation a fund in satisfaction of that share or interest.
Second, that the plaintiff, in setting aside such a fund, must be satisfied that the value of that fund reflects the value of the gift to the children of David and Nicklas under the terms of the Will. In this regard, Counsel consider that the plaintiff has obtained appropriate recent up to date valuation evidence in regard to this issue.
Third, (noting that nothing in the terms of s 46(2)(c) suggests that the power of appropriation is limited by requiring that the money set aside for such a fund must have come as cash to the hands of the executor, rather than being obtained by the executor raising it by mortgaging other assets), Counsel consider that, provided the conditions specified in s 46(1) have been satisfied, there is no obvious reason why the provisions of s 46(2)(c) should be read in such a limited fashion as to permit appropriation only by the setting aside of a sum where that sum was already available in cash to the estate.
Fourth, Counsel consider that there is a doubt as to whether the executor has power under the terms of the Will to mortgage assets of the estate. They note that a broad power to raise moneys by mortgage is conferred under the Will under cl 12(h), but that there may be a question as to whether the power extends to a power to raise moneys by mortgage for the purpose of exercising powers conferred under s 46 of the Trustee Act, as opposed to the terms of the Will. They nevertheless conclude that any doubts as to the power of the executor to raise the moneys by mortgage are capable of being resolved by the grant of power under s 81 of the Trustee Act (dealt with in issue 4 below).
Fifth, Counsel note that the plaintiff will raise the moneys by mortgaging a portion of Parraweena and that he proposes then to appropriate those lands to Nicklas subject to that mortgage. They advise that the effect of that mortgage is merely to encumber those lands to reflect the value of the gift David and Nicklas received under the Will (subject to necessary adjustments between David and Nicklas pursuant to the Bodumba Sale Deed and as required pursuant to cl 16 of Brien's Will). Hence, they say that David and Nicklas would not be prejudiced by the appropriation of a fund for their children (noting that David and Nicklas are sui juris, independently represented, and have no objection to the course of action contemplated in the Deed). Accordingly, in Counsel's opinion the plaintiff has power to create a fund for the children by setting aside a sum of money as contemplated by the Deed.
Finally, while some provisions of s 46 require dealings to effect an appropriation by an executor to be done with the consent of the beneficiary, Counsel consider that either no consent is required (by reference to s 46(1)) or, if the consent of the children is required pursuant to the express provisions of s 46(5) or 46(6), then it can be given on their behalf by their parents. They note that it is understood that by a separate instrument the parents will give their consent to the appropriation proposed by the plaintiff by setting aside a fund for the children in lieu of the gift provided for them under the Will.

Third issue

Counsel have noted their instructions are that the sale of the deceased's directly owned portion of the land holdings at Parraweena would not have the practical effect of causing the remaining pastoral operations to cease, but would nevertheless make those operations substantially less profitable and less commercially viable whether as a going concern or as something attractive to a purchaser.
They point out that, whilst cl 10(c) of the deceased's Will purported to direct a sale of the relevant properties, only certain portions of the properties were vested in the deceased personally. They note that the deceased could not direct his executor to effect a sale of parts of Parraweena and Parraweena Highlands held by companies in which he owned shares.
Counsel consider it is clear that s 46 confers upon the plaintiff on power to appropriate in specie interests in the Parraweena properties to David and Nicklas. As to the entitlement of the executor to create a fund for the children of David and Nicklas, they note that the fund to be created for the children will properly reflect the value of the gift in their favour under the Will; and that the notional value of the property appropriated to David and Nicklas will also be reflective of the value of the gift made to them under the terms of the Will (noting the provisions of cl 9.5 of the Bodumba Sale Deed, which, inter alia, confirm that David and Nicklas have adjusted (or will adjust) between themselves the monetary imbalance created by Nicklas becoming the owner of Parraweena and David becoming the owner of Parraweena Highlands (see cl 9.5(iv)).

Fourth issue

As to the fourth issue, in Counsels' opinion it would be appropriate for the Court to make an order pursuant to s 81 of the Trustee Act conferring power upon the executor to enter into the arrangements contained within the Deed, in order to ensure that there can be no doubt as to the executor's power to raise the fund by mortgaging parcels of land within the estate in order to create the fund that is to be set aside for the children of David and Nicklas. In Counsels' opinion such an order would satisfy the requirement that the power conferred should be a specific power and not a wide discretionary power to alter the terms of the trust as the trustee thinks fit (Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 at [98]).

Fifth issue

Finally, as to the fifth issue, Counsel note that the term "duly qualified valuer" in s 46(3) includes a valuation obtained from the Valuer-General in circumstances in which such figure might be less than private valuations (Carr v Carr (1987) 8 NSWLR 492 at 495) and that the term means "any person who would be considered to be able to give the trustee proper advice as to the valuation of the land" (Carr v Carr at 496). Counsel note that Mr Meares is a qualified valuer who has undertaken numerous valuations of the same properties in the past. They have no reason to doubt his valuations.
Counsel have drawn to the Court's attention that no independent valuation of the companies was obtained; rather, the present accountant for the relevant corporations provided the valuation; and that Counsel have not reviewed the accountant's method of valuation in any depth.
Counsel understand that the manner in which the value of the companies has been derived (for the purposes of calculating the sum that should be set aside for the children), is to impute to the companies the value of the land and, insofar as a shareholder holds a percentage of the issued shares in the company, to impute to such shareholder (here, the deceased) an interest in the company equal to that percentage of value of the land. They note that it could be argued that land held indirectly through companies is of less value than land held directly. (In which case, the consequence would be that the sum set aside for the children ought be reduced, and the amount appropriated to David and Nicklas is increased). In circumstances where David and Nicklas are prepared to consent to the arrangement on the basis that the children are given a more generous estimate of the value of the interests left to them, Counsel are of the opinion that it is unlikely that there has been any prejudice to the interests of the children, and have adduced that there is no prejudice to David and Nicklas in light of their informed consent to the arrangement.
Counsel note that, in addition to the interests held directly, and indirectly, in the pastoral land, the gift in cl 10 also included the interests of the deceased in the pastoral business conducted upon the land, referred to in the Will as "Parraweena Pastoral Co", the value of that partnership consists largely in the cattle held on the property, the crops on the property, and plant and equipment. Counsel note that these have been estimated by the plaintiff by taking the balance sheet of the partnership as at 13 June 2017, and substituting into that balance sheet for the book values for certain of the assets and liabilities, what he understands those actual assets and liabilities to be worth, based upon the information provided to him by his co-executors in the conduct of Brien's estate. Counsel have advised that the plaintiff understands that the protection provided to him by the advice of the Court depends upon the correctness of the assumptions upon which the Court provides that advice and that the plaintiff has instructed that he is confident that the net value is a generous value for the whole of the assets of the Parraweena Pastoral Co.

Other matters

Counsel have drawn to the Court's attention that they have not seen the terms of the proposed trust to be established for the benefit of the children pursuant to cl 16.1 of the Deed. They note that the fund is to be established in accordance with cl 16.1, and the plaintiff is to be responsible for its establishment (including obtaining appropriate banking arrangements and any necessary trust records) before being at liberty to resign as trustee. In the circumstances, Counsel consider that this provides an appropriate mechanism to ensure that the trust for the children is settled upon appropriate terms. They further note that if the plaintiff does not settle the trust upon appropriate terms, he would not be able to call any opinion given by this Court in defence of any suit against him with respect to the establishment of that trust.

Jurisdiction to provide advice sought under s 63

Under s 63(1) of the Trustee Act, a trustee, including the executor of an estate (see s 5), is able to apply to the Court "for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument". Provided the trustee acts in accordance with the advice or direction given, and provided the trustee has not been guilty of fraud, wilful concealment or misrepresentation, the trustee will be protected against any future claim asserting that he or she has failed, to discharge his or her duties as trustee (s 63(2)).
In this respect, s 63 has been described as providing a facility for the Court to give "private advice", in that it "gives personal protection to the trustee" against litigation arising from the trustee's management or administration of trust property (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) 237 CLR 66; [2008] HCA 42 at [64] (Gummow ACJ, Kirby, Hayne and Heydon JJ)).
The advice sought is as to changes sought to be made that would alter the management and administration of the trust property (see Arakella v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13 at [88]).
I am satisfied that there is jurisdiction to provide the advice on the subject requested by the plaintiff (see Stein v Sybmore Holdings Pty Ltd (2006) 64 ATR 325; [2006] NSWSC 1004) and that the jurisdiction has been appropriately invoked.

Issue 1: Is it appropriate to distribute the gifts in cl 10(c) of the deceased's Will prior to the death of Jennifer?

As EM Heenan J observed in Hamersley v Brian Rossiter Newton (as Executor of the estate of Robert Malcolm Hamersley (Dec)) [2005] WASC 221 at [48]: Where under an instrument a gift is made which limits the nature or duration of the interest of the recipient and provides for subsequent interests to pass to another or other recipients it may become necessary to determine the nature of both the initial or any subsequent interests, that is to say to determine whether either is vested or contingent. The resolution of that inquiry will usually also determine whether or not a subsequent interest may be accelerated.
The acceleration of interests was considered by Windeyer J in Bassett v Bassett (2003) 58 NSWLR 258; [2003] NSWSC 691. In that case, a testatrix by her will gave property to trustees to hold for her grandson during his lifetime and, on his death, for the grandson's children in equal shares. The grandson wished to surrender his life interest in the property, provided that if he did so his two children would become immediately entitled to the interests they would have otherwise taken on his death. The trustees sought advice as to whether, in the event of surrender, they would be at liberty and bound to pay to the two children those parts of the estate in which they were entitled to interests in remainder (at [1]-[3]).
Windeyer J observed (at [7]) that both English and Australian courts "have accepted for many years the concept that interests, whether for life or in remainder, may be accelerated by removal, destruction, disclaimer, surrender or failure of a prior interest or even power." His Honour continued (at [7]): … In theory there is a question of whether the words giving entitlement to successive interests indicate an intention as to the time of taking the interest or lay out the order of successive limitations one to take immediately upon cessation of the prior interest whether by death, disclaimer, surrender, revocation or otherwise but the prima facie rule, stated in Lainson, is that such expressions which might indicate either time of entry into the interest or order of succession or order of successive estates prima facie mark out the latter unless there is a clear provision otherwise and that "from and after the death" is not a clear provision if the intermediate interest comes to an end.
Windeyer J then noted (at [8]) that any doubt on the point was put to an end by Tompkins v Simmons (1931) 44 CLR 546. In Tompkins, Dixon J (as his Honour then was), with the agreement of Gavan Duffy CJ and McTiernan J, said the following (at 558-559): … In a limitation to a donee for life and after his death upon trust for his children, or some other donee, the reference to his death whether expressed by the words 'upon,' or 'after his death,' or 'from and after his decease,' or otherwise, may have one of two imports. It may mean that the second donee shall take nothing until the death of the first, or it may merely show the order of the limitations through which the estate or interest is to pass. It is well established that, prima facie, these words are to be understood as denoting the order of succession of limitations. (See per Turner LJ, Lainson v Lainson) In this case the limitation of the corpus of the trust fund is introduced by the words 'and immediately after the decease of any one or more of my sons or daughters'. There is nothing to rebut the prima facie rule that these words simply mark out the order of succession, and create an interest expectant upon the determination of the prior interest by whatever means that determination may be brought about. In such a case if the prior interest fail from the incapacity of the donee to take, as, for instance, if he attests the will, or if it be revoked, or for some other reason be abolished or abridged, the succeeding interest in the same property is accelerated and takes immediate effect in possession.
In the present case, the relevant words are "upon the death of my wife, my brother and his wife". Jennifer is the sole survivor out of the three persons there nominated. In the absence of a manifestation of intention to the contrary, I consider that the prima facie rule applies and that this Court can treat the reference to Jennifer's death as meaning that the further successive interests would accrue if Jennifer's interest were terminated, as has occurred in the present case, by release on her part.
That then gives rise to the further question whether it is appropriate for this Court to apply the doctrine of acceleration in the face of the declaration made by Young AJA. That declaration was made in proceedings in which Jennifer was not an active party and there was no suggestion that she was then proposing to release her interests in relation to the property. (Under Brien's will, his executors were directed to make arrangements for the benefit of Jennifer to cause Bodumba and/or Parraweena Pastoral Co to pay to her a weekly sum of $1,000 (indexed as there provided) from the date of his death and to ensure her right to live in and reside in their home at Parraweena for as long as she wished to do so - cl 15.)
The deceased's intention, evident from the terms of cl 10 of his Will, was to make provision for, among other things, his wife, brother and Jennifer to continue to reside at Parraweena (or a substitute property) during their lifetimes. The deceased's Will is structured such that it is on the death of the last of those three persons that the deceased's interest in the farming properties and the pastoral business be sold and that the net proceeds of the sale of Parraweena and Parraweena Highlands (or any substitute property/properties) and his interest in the Parraweena Pastoral Co business be distributed to his nephews and their children. There is nothing to support a finding that the deceased intended to hold up that distribution during Jennifer's lifetime if she were to extinguish her interest (as she has in the Bodumba Sale Deed at cl 9.2).
Jennifer is a party to the Deed and was represented at the present hearing and raised no argument against the application of the doctrine of acceleration. All the affected parties consent to the variation of the declaration made by Young AJA and each of the other executors of Brien's estate has also consented to the making of the orders sought for the variation of the declaration made by Young AJA.
I am satisfied that, in circumstances where the issue of any potential application of the doctrine of acceleration was not before his Honour and where there has been a fundamental change in relation to Jennifer's position (she having relinquished any interest in BWB Cobcroft Pty Limited or GJB Cobcroft Pty Limited pursuant to the Bodumba Sale Deed), and where his Honour's declaration seems to have been based on that issue having by then been agreed between the parties, it is appropriate now to vary his Honour's declaration as sought in the application.

Issue 2: Can the power of appropriation under s 46 of the Trustee Act be utilised to create a fund for the children of David and Nicklas?

Issue 3: Can the power of appropriation under s 46 of the Trustee Act be utilised to appropriate to David and Nicklas the interest in specie in the relevant properties?

I will consider these issues together.
A power has been described as "an authority to take a step which affects rights and obligations" (JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2015, LexisNexis) at [2-46]) and "the ability to do lawfully something which, absent the power, would be unlawful" (J McGhee (ed), Snell's Equity (33rd ed, Sweet & Maxwell) at [10-001]). The power in issue in the present case is a power of appropriation. Such a power may arise by will (or by the relevant trust instrument), by statute or under the general law (see generally, JR Martyn and N Caddick, Williams, Mortimer & Sunnucks - Executors, Administrators and Probate (20th ed, 2013, Sweet & Maxwell) at [55-54]-[55-55]; [55-57]; L Tucker et al, Lewin on Trusts (19th ed, 2015, Sweet & Maxwell) at [36-075]; [36-080]-[36-090]; GE Dal Pont and KF Mackie, Law of Succession (2013, LexisNexis) at [13.15]-[13.20]); Jacobs' Law of Trusts at [20-70]-[20-74]).
A power of appropriation was described (at 801) in Long v Comptroller of Stamps [1964] VR 796 as a power: … of an administrative nature which permits of specific assets being transferred or appropriated to a beneficiary in or towards satisfaction of his share in a trust estate without the necessity for conversion. The nature of the power is most clearly seen in … cases … where a trustee, because authorized to convert the trust estate, may with the consent of a beneficiary transfer assets in specie to such beneficiary at a valuation setting off the price against the beneficiary's share in the estate.
An illustration is provided by In the Estate of Mack (1956) 73 WN (NSW) 218. A testator had devised and bequeathed his real estate and his residuary personal estate to trustees upon trust to convert and stand possessed of the net proceeds in trust for the testator's ten children in equal shares. The trustees desired to sell certain of the lands forming part of the estate to various of the beneficiaries (at 218). The lands were valued and deeds were entered into by which each of the beneficiaries concerned with the trustees. It was agreed that upon transfer of the said lands to the beneficiary, the beneficiary should be deemed to have received an account of and towards satisfaction of his one-tenth share in the residuary estate of the testator (at 219). The arrangement went ahead: the lands were valued and transferred to the respective beneficiaries, and in each case the account of the beneficiary in the estate accounts was debited with the value of the land transferred to him (at 219). A question arose as to the proper characterisation of the arrangement. The Court of Appeal (Sugerman J, with whom Herron and Kinsella JJ agreed) noted that it was an appropriation and characterised such an arrangement as follows (at 220-221): An appropriation of an asset, at a valuation, to a share of residue is equivalent to a sale of the asset to the beneficiary at a price equal to the valuation, made upon the terms that the purchase money is to be set off, pro tanto, against the amount of the shares.
The basis of such an arrangement has been conceptualised in contractual terms: "instead of receiving payment in cash, the legatee agrees to take some specific asset in full or partial satisfaction of the legacy" (Hughes v Bourne [2012] EWHC 2232 (Ch) at [40]-[41] (Henderson J)). In Wigley v Crozier (1909) 9 CLR 425 at 438, Griffith CJ cited In Re Beverly; Watson v Watson [1901] 1 Ch 681 for the proposition that the basis for the principle is that an executor or trustee under a will has a power to sell the particular asset to the legatee and to set off the purchase money against the legacy. To similar effect, O'Connor J adopted Counsel's proposition that "a valid appropriation is the substitute for a valid sale" (at 443; see also 444). For this reason, among others, the High Court in Wigley held that a purported appropriation was void. The persons in whose favour the appropriation was to take effect (namely, one Mrs Richardson and her two children) were not at the time of the appropriation in a position to demand that the proceeds of a sale of the relevant property be handed over to them; the "utmost right even after conversion was that [the proceeds] should be held by the trustees separate and intact for the purposes of [Mrs Richardson's] annuity and for the benefit of her children after her death" (see 444-445 (O'Connor J); see also 434-435; 440-441 (Griffith CJ, with whom Barton J agreed)).
The High Court in Wigley also confirmed that a power of appropriation cannot be applied in circumstances where a sale would amount to a breach of trust (Wigley at 439-440; 444; see also Tagliaferri v Tagliaferri [2013] WASC 321 at [23]).
The logic behind the exercise of a power of appropriation is readily apparent (Law of Succession at [13.15]): Were there no means whereby the personal representative and legatee could agree to apply the property itself in full or partial satisfaction of the legatee's entitlement, it would dictate that the only way the legatee could secure the property would be subsequent to its sale by the personal representative, which would in turn give the legatee the necessary funds to purchase the property. The common law sought to circumvent a process so convoluted, and redolent with transaction costs, by vesting in personal representatives a power to apply (the formal legal term adopted is 'appropriate') the item of property in specie in full or partial satisfaction of the legatee's share in the estate. [footnotes omitted]
In short, the original basis of the power was "the avoidance of circuitous acts" (G Thomas and A Hudson, The Law of Trusts (2nd ed, 2010, Oxford University Press); see also, Wigley at 443-44). It was nonetheless necessary for a trustee to act with the consent of the beneficiary (see Yule v Irwin (No 2) [2016] SASC 178 at [168]) and to consider the interests of the other beneficiaries (Jacobs' Law on Trusts at [20-70] and authorities cited therein).
A clear line of authority establishes that a trust for sale and conversion of property is not inconsistent with the existence of a power of appropriation (Carr v Carr at 496). Thus, in Carr v Carr itself, Young J (as his Honour then was) held that there was power to appropriate property notwithstanding that the testator had given his whole estate to his trustees upon trust "to sell call-in and convert into money" and had directed the trustees to hold the proceeds upon trust for his five children as tenants in common.
Section 46 of the Trustee Act contains a statutory power of appropriation, as follows: 46 Appropriation (1) A trustee may appropriate any part of the property subject to the trust or of the real or personal estate of a testator or intestate in the actual condition or state of investment thereof in or towards satisfaction of a legacy or of any share or interest in the property or estate, whether settled or not, as to the trustee may seem just and reasonable, according to the respective rights of the persons interested in the property or estate, provided that: (a) the appropriation shall not be made so as to affect prejudicially any specific gift devise or bequest, (b) the appropriation shall be made with the consent, if any, required by this section, (c) in making the appropriation the trustee shall have regard to the rights of any person who may thereafter come into existence or who cannot be found or ascertained at the time of the appropriation or as to whom it is uncertain at that time whether he or she is living or dead, and of any other person whose consent is not required by this section. (2) The power of appropriation conferred by this section shall extend and apply to: (a) property over which a testator exercises a general power of appointment, (b) setting apart a fund to answer an annuity by means of the income of the fund or otherwise, provided that at the time of appropriation the fund would be sufficient, if it were invested in Government securities of the Commonwealth of Australia at par, to provide an income exceeding the annuity by at least fifteen per centum thereof, (c) setting apart a sum of money in or towards the satisfaction of a legacy share or interest. (3) For the purpose of an appropriation under this section the trustee may ascertain and fix the value of the respective parts of the property or estate and the liabilities to which the property or estate is subject as the trustee may think fit, and shall for that purpose employ a duly qualified valuer in any case where such employment may be necessary. (4) An appropriation made pursuant to this section shall bind all persons interested in the property or estate, including the persons whose consent is not required, and to the extent to which the appropriation is made in or towards satisfaction of the legacy share or interest, the rights to which any person is entitled in virtue of the legacy share or interest shall be restricted to the part of the property or estate so appropriated and shall not extend to any other part thereof which may be dealt with or disposed of freed from any such rights. (5) An appropriation of property whether it is or is not an investment authorised by law or by the instrument, if any, creating the trust for the investment of money subject thereto, shall not, except as otherwise provided by this section, be made thereunder for the benefit of a person absolutely and beneficially entitled in possession, unless the person is of the age of eighteen years or upwards and of full capacity and the person consents in writing. (6) An appropriation shall not, except as otherwise provided in this section, be made thereunder in respect of any settled legacy share or interest, unless either the trustee thereof, if any, not being also the trustee making the appropriation, or the person who may for the time being be entitled to the income, consents in writing. …
The existence of the statutory power "has not affected the underlying principle" behind the older case on appropriation (Mack at 221). As Young J observed (at 495) in Carr v Carr, the aim "was not so much to change the previous law, but rather to set it out in a plain fashion". His Honour considered that s 46 "does not differ in any material degree from the power of appropriation which existed before the Trustee Act". Section 5 of the Trustee Act defines "Trust" as including "the duties incident to the office of legal representative of a deceased person" so there is no doubt that the power under s 46 may be exercised by an executor.
The theoretical basis underpinning the power of appropriation has been described (in Yule v Irwin at [166]) in the following way: The principle on which an appropriation of specific assets may be made in satisfaction of a legacy (whether specific or of residue) is stated by Buckley J in In re Beverly; Watson v Watson [where i]t is correctly stated in the headnote as follows: - "The principle upon which executors and trustees under a will which contains a trust for sale and conversion have power to appropriate any specific part of the residuary estate towards satisfaction of a legacy or share or residue, is that they have power to sell the particular asset to the legatee, and to set off the purchase money against the legacy.
In relation to consent, where, as in this case, one or more minors have an interest in the property, and their parent or guardian has a conflicting interest in the administration of the estate, independent advice as to whether the proposed distribution is fair and just so far as the minor is/are concerned is required (see for example Re Estate of Boian (2014) 17 BPR 33,005; [2014] NSWSC 800 at [20]-[22]). In Re Estate of Boian the administrators (who were also beneficiaries) of an intestate estate sought judicial advice in relation to the exercise of the statutory power of appropriation. Young AJA made a number of observations about the power of appropriation, including: that as a general rule, "trustees have a duty to hold the scales equally between the beneficiaries and trustees are not normally allowed to purchase the trust property" (see [24]); that "one must never appropriate on the basis of valuations obtained for probate purposes" and, more specifically, that "there must always be proper independent valuations made close to the time of the proposed appropriation" (see [28]); that "equity will not permit a fraud on the power [of appropriation]" (see [31]); that in determining whether to approve or give affirmative advice in respect to a proposed appropriation, the Court should look "to all factors that a wise and just trustee would do, putting aside any consideration of personal advantage" (see [33]).
In the present case, while the plaintiff's chief concern (T 21.45) is whether the nature of the transaction (by way of a mortgage over an interest in property held by the estate to raise funds to provide a fund for the children as proposed in the Deed) is an appropriate way of exercising the power of appropriation (see issue 4 below), he also seeks advice that the creation of a fund is within the scope of the power. In my opinion it is.
If the suggestion is that s 46, of itself, encompasses a power to borrow funds secured by a mortgage over existing estate assets, there are some difficulties. As already observed, the old appropriation cases appear to have been characterised as involving an arrangement which is the equivalent to a sale of the trust property to a beneficiary; i.e., the subject matter of the appropriation - the subject of the sale and set off - is an existing fund/asset. That said, the proposition is consistent with the rationale behind the common law power of appropriation (and the statutory power, which - as noted above - is said not to have materially changed the principle underlying the power); namely, the avoidance of circuitous transactions. Moreover, as Counsel noted, there is nothing within the terms of s 46 suggesting that the power requires the fund set aside for the purposes of appropriation to have come as cash to the hands of the executor (rather than being obtained by the executor raising it by mortgaging existing trust assets) and it is often observed that the full scope of the common law power was and remains as yet not fully defined (see, for example, Lewin on Trusts at [36-080] and the approach taken in Bourne v Hughes at [41] in relation to analogous English legislation).
For present purposes, it is not necessary to resolve the question. If (as I consider to be the case) the Court may make orders under s 81 of the Trustee Act to enable the creation of a fund for the children (issue 4, below), then it would be within the scope of s 46 to use such funds for the purposes of the proposed appropriation. The following matters confirm that the power of appropriation in s 46 is enlivened.
First, I note that s 46 will only apply if (and insofar as) a contrary intention is not expressed in the relevant trust instrument (s 46(16)). There is no contrary intention to be discerned in the deceased's Will (and, in fact, cl 12 enumerates certain trustee powers "in addition to the powers which they may have under the general law or by Statute" (my emphasis)).
Second, having regard to the matters raised in Counsels' memorandum of advice, neither the mortgaging of an asset of the estate as security for the purpose of establishing a trust fund in favour of the children in satisfaction of their contingent interest in the estate under cl 10 in the manner proposed, nor the transfer of the specific properties in specie to David and Nicklas, will prejudicially affect any specific gift devise or bequest under the Will.
Third, both David and Nicklas have consented to the proposed exercise by the plaintiff of the power of appropriation in accordance with the Deed, as have the adult children. David and Nicklas, and their wives, have given their consent on behalf of the minor children (and the minor children are in any event separately represented in this proceeding by a tutor, mindful of the possible conflict between the parents and the children). Jennifer has relinquished her entitlements under the deceased's Will and has raised no objection to the proposed distribution of the estate.
Setting aside the fund to hold those moneys on a trust for the children until they are of age in accordance with the terms of the Will, is in my opinion an appropriate way of the plaintiff exercising the power of appropriation under s 46 of the Act, and it is reasonable to make the orders sought in this regard.

Issue 4: Can the Court make orders under s 81 of the Trustee Act to create a fund for the children of David and Nicklas?

Section 81 provides: (1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court: (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and (b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income. (2) The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees: to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument, to postpone the sale of trust property, to carry on any business forming part of the trust property during any period for which a sale may be postponed, to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on. (3) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order. (4) The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act. (5) This section applies to trusts created either before or after the commencement of this Act.
As Counsel have noted in their memorandum of advice, s 81 grants power to the Court to confer on trustees certain powers for the expedient management of trust property, but not powers to alter beneficial interests under a trust instrument (WE Pickering Nominees Pty Ltd v Pickering [2016] VSC 71 at [89]) and not so as to alter the substantive nature of the trust (see Trustees of the Kean Memorial Trust Fund v Attorney-General for South Australia (2003) 86 SASR 449; [2003] SASC 227). Section 81 is available to executors (Moran v Moran (1974) 9 SASR 447 at 450).
The scope of the power was considered in Re Dion (Barrett JA; Beazley P and Gleeson JA agreeing). It was there recognised that the power is both wide and flexible power. However, the mere alteration of terms of the trust is not a "transaction" that falls within s 81 and the section "does not authorise the court to confer every conceivable power on a trustee"; rather, powers must only be conferred to the extent that the words of the section allow (Re Dion at [87]).
In Re Dion it was said that there are two classes of dealings in respect of which the power under s 81 may be exercised - first, "any sale, lease, mortgage, surrender, release, or disposition", each of which describes "a dispositive act of an owner of property by which the property or some interest in it passes or accrues to another person" (Re Dion at [89]), and, second "any purchase, investment, acquisition, expenditure, or transaction" (Re Dion at [90]). Barrett JA noted that, with the exception of "transaction", these words "concentrate principally on ways of deploying money" (Re Dion at [90]). Further, although "transaction" is a very wide expression, it must be "expedient", "advantageous", "desirable" or "suitable in the circumstances of the case" (Re Dion, referring to Riddle v Riddle (1952) 85 CLR 202; [1952] HCA 12 at 214 (Dixon J); 222 (Williams J)).
The terms of the deceased's Will contain a power to mortgage in cl 12(h). It provides that the trustees have power to mortgage and re-mortgage the whole or any part of the estate "for the purpose of paying or securing the payment of any debt or for the purpose of paying any legacy or share of my residuary estate or for any purchases incidental to the exercise of the trusts or powers of" the deceased's Will. However, the plaintiff has a concern as to whether that power extends so fact as to permit the plaintiff to raise moneys to create a fund in order to exercise the power of appropriation pursuant to s 46 of the Act.
While I accept that the power to mortgage the whole or part of the estate for the purpose of paying a share of the residuary estate would conceivably extend thus far, I am persuaded that it is appropriate to remove any doubt by exercising power under s 81 of the Act to expand the power to borrow. The proposed transaction will not create any special risk to the estate. The moneys so raised have been held in a trust account pending the outcome of this application and, if the proposed transaction does proceed then the borrowing is secured over land that will be transferred to Nicklas who assumes liability for the borrowings. I accept that the executor is not raising the money to engage in a risky or speculative venture that adds a risk to the administration of the estate. Accordingly, I consider that the grant to the plaintiff of the power to raise money in that fashion, for the purposes of the Deed, is a reasonable and legitimate extension of his powers under s 81.

Issue 5: Is the valuation evidence appropriate to determine the value of that fund, taking into account the complex nature of the property interests the subject of the trust for conversion?

As to the final issue, as noted earlier, in Re Estate of Boian Young AJ observed (at [28]) that it is a "basic rule" that "one must never appropriate on the basis of valuations obtained for probate purposes"; rather, there must always be "proper independent valuations made close to the time of the proposed appropriation".
In the present case, there have been successive valuations by an appropriately qualified valuer as to the value of the properties (the most recent valuations carried out not being for probate purposes as such) and there is no reason not to accept them. The most recent valuation has been made sufficiently close to the time of the proposed appropriations. As to the value of the partnership business, I was informed that the value will fluctuate almost daily on the value of the cattle and has been based on the accounts prepared by the accountant for the relevant corporations (the balance sheets being in evidence).
I am satisfied that the valuations are appropriate for the determination of the fund to be established for the children and for the purpose of the exercise by the plaintiff of the power of appropriation.
To the extent that the valuation of the partnership business is one that will necessarily fluctuate, I am satisfied that a valuation prepared on the basis of accounts prepared and/or reviewed by the corporations' accountant, who it may be assumed is an independent accountant owing professional obligations in relation to the preparation of the accounts, is a sufficient basis for present purposes.

Orders

Accordingly, I order as follows: 1. Pursuant to s 81 of the Trustee Act 1925 (NSW) that the plaintiff have such power to mortgage assets of the estate of the late Gavin John Baxter Cobcroft as are necessary for him to raise moneys on the estate assets and otherwise perform the transactions contained in the Deed of Family Arrangement dated on or about 30 June 2017 which is in the form exhibited to the affidavit of Robert Ritchie Bruce sworn 20 July 2017 in these proceedings (the Deed of Family Agreement). 2. Pursuant to s 63 of the Trustee Act 1925 (NSW) that the plaintiff be advised that the plaintiff is justified in entering into and unconditionally performing the obligations imposed upon him contained in the Deed of Family Arrangement and further in administering the estate of the deceased in accordance with the advice dated 20 July 2017 of Dr Christopher Birch SC and Ms Jane Taylor of counsel. 3. Declare that in the events and circumstances that have occurred, as described in the affidavit of Robert Ritchie Bruce dated 20 July 2017, that declaration 3 of the Declarations and Orders made by Young AJA on 17 December 2015 in proceedings 2013/00373067, be varied to include that, pursuant to Clause 10(c)(iv) of the Will of the late Gavin John Baxter Cobcroft, the executor may distribute the net proceeds of sale referred to in the sub-clause or any part thereof, or otherwise make any distribution, by appropriation or other means in regard to the gifts in the said clause to any beneficiaries, after the date upon which any interest of Jennifer Menzies Cobcroft in the property dealt with pursuant to Clause 10 of the Will was extinguished.

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: 27 October 2017

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (27 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (27)