Collett and Anor v Knox and Anor

SUCCESSION - FAMILY PROVISION AND MAINTENANCE - PRINCIPLES UPON WHICH RELIEF GRANTED - APPLICATION OF SURVIVING PARTNER - APPLICATION OF WIDOWER OR MALE PARTNER - where the widower or male partner is of considerable age - whether the first applicant should receive a life interest or a licence to reside

SUCCESSION - EXECUTORS AND ADMINISTRATORS - RIGHTS, POWERS AND DUTIES - OTHER CASES - where the respondents were in receipt of offers to settle from both applicants - whether the respondents should be indemnified for the costs of administering the estate - whether the estate should be reduced by the costs that each party has incurred before the application of the percentage distributions - whether the respondents ought to be ordered to discharge the mortgage on the Mt Ossa property and reimburse the estate for monies expended by them on litigation costs

Land Title Act 1994 (Qld), s 81

Banks v Hourigan (NSWSC, Waddell CJ in Eq, 2 March 1989, unreported)

Cameron v Hills (NSWSC, Needham J, 26 October 1989, unreported)

Court v Hunt (NSWSC, Young J, 14 September 1987, unreported)

Drummond v Drummond [1999] NSWSC 923

Golosky v Golosky [1993] NSWCA 111

Luciano v Rosenblum (1985) 2 NSWLR 65

SB Wright & Wright and Condie for the first applicant

[2] The applicants each brought applications seeking further and better provision out of the estate of Gladys Ellen Knox (deceased). On 23 April 2010 I delivered my reasons in the matter finding that both applicants were entitled to further provision ("the reasons"). I invited further affidavits and submissions from the parties as to the appropriate form of orders. Those affidavits and submissions have now been received.

[3] The effect of my decision set out in the reasons was that a life interest in the deceased's property at Mount Ossa ought to be granted to the first applicant and that an appropriate division of the deceased's estate would be 10% to the estate of the son of the deceased, Paul Knox, 55% to the respondents and 35% to the second applicant.

[4] The complicating feature of the case was that the respondents contended that the entire amount of the cash monies in the estate had been expended principally on the costs of litigation. The respondents had taken out a mortgage over the deceased's property at Mount Ossa to secure the payment of further legal fees in respect to the litigation. The respondents contended that the courts hands were tied and that no life interest could be granted to the first applicant as the property at Mount Ossa needed to be sold in order to meet the respondents' legal costs. I have set out in the reasons why I reject that view.

[5] Subject to one matter the first applicant, Mr Collett, adopts the submissions of the second applicant, Mrs Pountney. Her submissions were:

(a) That Mr Collett be given a licence to reside in the property for as long as he so wishes, with costs and outgoings associated with the maintenance of the property to be borne by Mr Collett during the period of his licence;

(b) The Mt Ossa property be transferred to the following parties to be held as tenants-in-common in the respective proportions set out, subject to Mr Collett's licence:

(c) At such time as Mr Collett ceases to reside at the property, the parties be at liberty to dispose of the property;

(d) The respondents be ordered to release the mortgage placed on the property, pursuant to s 81 of the Land Title Act 1994 (Qld), and to discharge personally any liability associated with the mortgage;

(e) The respondents be indemnified in relation to the costs of the administration of the estate to the extent of $8,014.31;

(f) The respondents be ordered to reimburse the estate the difference between the sums sworn at paragraph 52(b)-(f) of the affidavit of John Knox filed on 11 August 2008 and the amount of $8,014.31 and the balance should be distributed in the following proportions:

(g) The respondents and the second applicant should bear their own costs of and incidental to this proceeding.

[6] The one qualification that the first applicant places on that approach is that it is submitted that given the first applicant's great age he may need to enter a nursing home and that any order made needs to reflect the fact that he may need to vacate the property prior to his death.

[7] The respondents' contentions may be summarised as follows:

(a) That Mr Collett be granted a life interest subject to him paying "any rates and taxes together with the premiums of any insurance policy covering the property against loss or damage";

(b) The rest and residue of the estate, after payment of all proper debts including costs, be distributed 35% to Mrs Pountney, 55% to the respondents and 10% to the estate of Paul Knox;

(c) Mr Collett be paid his costs from the estate fixed in the sum of $30,000 with such payment to be deferred until expiry of the life interest;

(d) Mrs Pountney be paid her costs from the estate fixed in the sum of $30,000 such payment to be deferred until expiry of the life interest;

(e) The respondents should receive an indemnity from the estate for their costs;

(i) The respondents should receive an indemnity from the estate for their costs incurred up to the conclusion of the mediation in the sum of $22,029.77 (the amount sworn to by the respondents' solicitor as the costs incurred to that time);

(ii) A further indemnity of an additional $22,000.00 should be allowed with respect to the costs incurred thereafter on the basis that it was not unreasonable for the respondents to resist the second applicant's application, the $22,000.00 being the respondent solicitor's estimate of the costs properly attributable to contesting only the second applicant's application.

(a) whether Mr Collett should receive a licence to reside or a life interest and, whatever the interest, what further conditions ought to be imposed, if any;

(b) what outgoings on the Mt Ossa property Mr Collett should meet during the currency of his licence or life interest;

(c) whether the respondents ought to be ordered to discharge the mortgage on the Mt Ossa property and reimburse the estate for monies expended by them on litigation costs;

(d) whether the respondents should be indemnified for the costs of administering the estate in a fixed sum with the balance of any monies immediately distributed; and

(e) whether the estate should be reduced by the costs that each party has incurred before the application of the percentage distributions that I have earlier indicated I thought appropriate, or rather whether the estate should be distributed in accordance with those percentages and the parties meet their costs from those percentages. Effectively the respondents contend for the former position and the applicants contend for the latter position.

[9] There is a considerable difference between a life interest in the property and a licence to reside at the property. The former interest entitles Mr Collett to possession of the land for his lifetime and, perhaps importantly, entitles him to rents from the property during his lifetime. Indeed he can dispose of his estate if so minded. The purchaser, of course, will only take the estate for the length of Mr Collett's life: see Halsbury's Laws of Australia paras [355-110] - [355-120]. That may be of assistance to Mr Collett if he does need to quit the home, which, at the time of the trial, was not envisaged. A licence to reside has no such benefit but would cease to be of value to Mr Collett upon him ceasing to reside at the Mt Ossa property.

[10] As well, the granting of a life interest will mean that Mr Collett's rights and obligations are defined to a degree by existing legislative provisions (for example ss 24 and 25 of the Property Law Act 1974 (Qld)). His interests can also then be protected by caveat. A licence to reside does not have these advantages.

[11] No submission is made as to why a life interest ought not to be granted, as envisaged in the reasons, or why a licence to reside is more appropriate to provide adequate provision for the maintenance and support of Mr Collett. Further, the question of the possible advantages and disadvantages to the parties of a licence to reside was not raised in evidence and, so far as the material shows, not raised at all, until the supplementary submissions.

[12] The qualification I have earlier mentioned introduced by Mr Collett's submissions- that some provision ought to be made, apparently at some future time, to cater for the prospect of a need to enter a nursing home - has not earlier been the subject of submission. The only order that the first applicant has ever sought is that he be given a life interest in the Mount Ossa property.

[13] However, I accept that a life interest may not be an ideal solution where an aged widower is concerned.

[14] Long ago this was recognised. For example, see Luciano v Rosenblum[1] where a fund to meet unforeseen contingencies was also provided. In Golosky v Golosky,[2] a case concerning an application by a widow, Kirby P commented: "A mere right of residence will usually be an unsatisfactory method of providing for a spouse's accommodation to fulfil the foregoing normal presupposition. This is because a spouse may be compelled by sickness, age, urgent supervening necessity or otherwise, with good reason, to leave the residence. The spouse provided and will then be left without the kind of protection which is normally expected will be provided by a testator who is both wise and just."

[15] Earlier in Court v Hunt,[3] Young J pointed out that in many cases, for an aged widow, "a life estate will not be sufficient because it does not cover the situation of the plaintiff moving from her own home to retirement village to nursing home to hospital". But his Honour pointed out that the court would need evidence of the commercial arrangements available in order to make appropriate orders.

[16] The court has a great deal of flexibility in the orders that it can make. For example, in Cameron v Hills,[4] Needham J ordered that certain property (a residential unit) vest in the deceased's second wife for life, with the remainder to the deceased's daughter but qualified that order by adding: "Should the [deceased's second wife] wish to sell the unit and purchase other accommodation (of not less value), that other property should be held on the same trusts. If the [deceased's second wife], at some subsequent time, decides to enter into a convalescent home or some equivalent institution, then the property, or its substitute, should be sold and the proceeds divided ."

[17] Similarly in Banks v Hourigan,[5] Waddell CJ In Eq made provision for an aged widow by providing inter alia that: "(a) the [widow] to have a right to occupy the house and the surrounding grounds; (b) the defendant to pay for the rates and taxes and upkeep of the house; (c) in the event of the [widow] moving to other accommodation, such accommodation should be provided by the defendant who should pay such capital sum as is necessary up to the value of the house".

[18] I am satisfied that to do minimum justice to the applicant orders of the type made by Needham J in Cameron and Waddell CJ in Banks would be appropriate. I cannot see that there would be any disadvantage to the other parties. Their present interest is in having the Mt Ossa property sold, not in preserving the property for their use or enjoyment.

[19] Mr Collett accepts the reasonableness of him being required to meet the outgoings on the property save that the respondents contend for him meeting the costs of any insurance policy.

[20] Given his agreement, it is not necessary for me to consider the reasonableness of him meeting the costs and outgoings associated with the maintenance of the property. There have been cases where a beneficiary has put in funds to maintain the estate which, in the end, will be for the benefit of the other beneficiaries. However, given that he accepts the obligation to meet the outgoings it does not seem to me to be appropriate that the first applicant be burdened with the costs of the premiums of any insurance policy. Other beneficiaries have at least as great an interest as the first applicant in preserving the property.

Discharge of the Mortgage on the Mt Ossa Property and Reimbursement of the Estate

[21] The respondents resist any order that would require them to reimburse the estate for monies expended by them on litigation costs. They propose delaying payment of any costs until the expiration of the life interest.

[22] The practical effect of the respondents' approach is to deny Mr Collett his costs until after he has died, as there are no monies in the estate. That he might in the interim be bankrupted, or be at risk of bankruptcy, by those to whom he owes money is not dealt with in submissions. It may be that his solicitors are sanguine about their position.

[23] As explained in the reasons, the respondents placed a mortgage over the Mt Ossa property to better secure the payment of costs they incurred in conducting the litigation, and have expended virtually the whole of the monies in the estate on litigation costs. They were entitled to do so, so long as the expenditure incurred was necessary and reasonable. A significant purpose in giving the parties leave to file further material was to permit the respondents to demonstrate the reasonableness of their conduct.

[24] In my view the respondents' submissions ought not to be accepted. The essential reason for that is that in my opinion the respondents have effectively been defending their own interests in the manner in which they have conducted this litigation. I have set out my views more fully at [163]-[180] of the reasons.

[25] The further material filed relevantly discloses that a number of offers of settlement have been made by the applicants. Mr Collett has consistently offered to resolve the matter by the granting to him of a life interest in the Mount Ossa property and, after proceedings were commenced, with the additional requirement that his costs be paid. Offers to that effect were made on 21 February 2008, 12 March 2008, 17 October 2008 and 17 August 2009. That last offer, I am told, was a formal offer made under the Uniform Civil Procedure Rules ("the Rules").

[26] Given Mr Collett's age the imposition of a life interest on the interests of the other beneficiaries was only ever going to be a modest one.

[27] The second applicant has at all times made clear that she supported the granting of a life interest to Mr Collett.

[28] Against that background the respondents need to demonstrate why it was reasonable for them to incur costs amounting to nearly $70,000 - approaching a third of the value of the estate - to litigate the issues in dispute, and why the other beneficiaries' interests should be correspondingly diminished and their receipt of payment delayed.

[29] In my view no good reason is advanced to explain the respondents' conduct.

[30] It is relevant to note that, whilst there was some limited cross-examination of the second applicant as to her financial position, the principal issue, and virtually the only issue, argued at trial centred on the relationship between the first applicant and the deceased. On this issue Mr Collett had a comprehensive victory.

[31] The major contention advanced by the respondents is that the litigation here has been caused by the conduct of the testator citing Drummond v Drummond [1999] NSWSC 923 at [49]. The point that the respondents make is that the deceased, plainly enough, deliberately or implicitly represented to various people that she and the first applicant were not in a de facto relationship and indeed that the marriage to her husband, Jim Knox, continued.

[32] The difficulty with the submission is that whilst the deceased's behaviour might well have influenced the respondents' initial view of the true nature of the relationship between the first applicant and the deceased, it is difficult to understand why upon enquiry those doubts were not resolved, or at least allayed sufficiently to permit a settlement of the issue.

[33] Quite apart from the evidence of Mr Collett and Mrs Pountney - the latter swearing amongst other matters to witnessing conduct consistent with a sexual relationship existing between the deceased and the Mr Collett - the respondents knew that the deceased had kept a daily diary. As can be seen from the reasons, a principal source of independent material lay in those diaries. The diaries that were in the possession of the first applicant were produced annexed to an affidavit on the 15th of October 2008. There is no evidence before me as to whether any prior request was made for diaries to be produced. I assume that if there had been such a request, and that if such a request had been refused, I would have been informed of that fact.

[34] The executors had a duty to make an enquiry in order to establish what attitude they should take to the first applicant's claim that he was the de facto partner of the deceased. So far as the evidence shows they made no attempt to obtain from the applicant the diaries that he had in his possession. It is evident that even when given the diaries their attitudes did not change. In my view the cause of the litigation was not to be found in the deceased's conduct but in the view that the respondents took, regardless of the evidence in front of them, and their determination to protect their own interests in the estate.

[35] I am quite satisfied that at least by the time of the mediation on 17 October 2008 it should have been evident to the respondents that it would be inappropriate for them, acting impartially as executors of the estate, to force this issue to trial.

[36] The respondents' position is not greatly improved when one considers the offers Mrs Pountney made. On 14 November 2008, she offered to resolve the matter by the payment to her by the estate of the sum of $60,000 inclusive of her costs. There were subsequent offers but the relevant point is that at that time, shortly after the mediation, the second applicant was offering to resolve the dispute on payment to her of an amount of less than 30% of the net estate, even allowing for the costs claimed to that time by the respondents (about $22,000) - a significantly more favourable result than eventuated.

[37] I appreciate there remained the issue of the timing of any payment, but that was not the chief stumbling block - the respondents did not accept the amount proposed subject to any timing issue.

[38] It does not necessarily follow that all costs that the respondents incurred up to that point in time were reasonably incurred. To reach any certain view would require a detailed analysis of the respondent's files and the various actions taken. That analysis has not been undertaken by the parties and I am in no position to perform it. I intend to take a more broad brush approach than that.

[39] Thus it does not follow that the hypothetical exercise carried out by the respondent's solicitor in his affidavit should be accepted as reflecting the costs reasonably incurred in pursuing the various applications.

[40] By mid-November 2008, the respondents were in receipt of offers to settle from both applicants that were reasonable in the light of their then knowledge, the executors were dealing with a small estate, they had a fiduciary duty to discharge, and they must have been conscious that by continuing the dispute they would substantially erode that small estate and put other parties, who, if their contentions were proved right, were beneficiaries of that estate, to significant expense. Where executors effectively seek to protect their own interests by litigation in these circumstances it seems to me entirely appropriate that the costs they incur come from their share of the estate and that other beneficiaries not be penalised.

[41] Nonetheless, given the deceased's conduct, and given the need to explore matters to an extent in order to reach a view, it is reasonable that there be some allowance for costs incurred. While the material does not permit a decision to be reached as to what is reasonable with any certainty, I propose allowing the respondents an amount of $10,000 as reflecting the costs reasonably incurred in reaching a stage where they ought to have been satisfied of the need to compromise.

[42] To enable Mr Collett's costs to be paid the respondents will be required to reimburse the estate for sums paid out by them in respect of the costs of litigation and discharge the mortgage over the Mt Ossa property. Section 81(a) of the Land Title Act 1994 provides that "[o]n lodgement of an instrument releasing a mortgage, the registrar may register the release to the extent shown in the instrument of release" and that the mortgage will, on registration of the instrument, then be discharged. I propose to order that such an instrument be lodged.

[43] It is not in issue that the respondents be indemnified with respect to the costs that they have incurred and will incur concerning the administration of the estate. The material indicates that to date those costs are in the sum of $8,014.31.

[44] The dispute is as to whether there ought to be a provision in these orders fixing the administration costs in that amount and distributing any balance to the parties.

[45] In my view that would not be appropriate. The costs of administering the estate are not finalised. There is the certainty of further costs, if only in marketing the property, but potentially other expenses, being incurred. I propose framing orders that would enable the executors to continue to discharge their functions until the administration can be completed.

[46] As I have mentioned the further material filed relevantly discloses that a number of offers of settlement have been made by the applicants. No offers, at least outside anything said at the mediation that was conducted, were made by the respondents.

[47] There is some debate about the effect of the offers made by the second applicant. Given that the second applicant does not seek that her costs be met out of the estate I see no reason to enter into those debates.

[48] The respondents contend that the first applicant's costs should be fixed at $30,000. The $30,000 figure was a pre-trial estimate given of the likely expenses that would be incurred - not a detailed analysis of the costs actually incurred after the three day trial and the provision of two sets of further submissions.

[49] Given the offers that Mr Collett consistently made and given his success on the only significant issue litigated, I see no reason why he should not be fully protected as to costs. In my view his costs should be assessed on the indemnity basis and be paid out of the estate. Because of the ongoing obligation on the respondents to administer the estate, and the limited funds available, even after reimbursement, it will be necessary to limit that indemnity.

[50] Finally, I should correct an error that has been brought to my attention in the reasons where I criticised the second applicant for failing to comply with the Practice Direction in that she, as I then thought, had not indicated her probable costs. My attention has been drawn to paragraph 66 of her affidavit filed 9 July 2008 where she swears that her solicitors have advised her that her costs "through to and inclusive of a final hearing in this matter will be approximately $40,000.00".

[51] I agree with the submission made that the second applicant complied with the Practice Direction.

[52] The intended effect of the following orders is:

(a) To protect Mr Collett's intended life interest and his cost position;

(b) To provide to the respondents an indemnity in respect of costs associated with the litigation but limited to an amount sufficient to enable them to have properly investigated the contentious issues and to have resolved them;

(c) To effect the distribution of the estate in accordance with my earlier determination;

(d) To ensure that the estate has sufficient funds to enable the executors to discharge their responsibilities in properly administering the estate.

1. The will of Gladys Ellen Knox (deceased) of 1 October 2007 be construed in accordance with the following orders:-

(b) The executors hold the real property and improvements situated at 32 Mount Ossa-Seaforth Road and more particularly described as lots 1 and 2 on CPMTO8482 in the county of Carlisle, parish of Ossa and being contained within title reference 21411125 and title reference 21411126 ("the property"), subject to a life interest in the property to the applicant, Frederick James Collett, on condition that he meet any rates, taxes and the necessary costs of maintenance of the property in a reasonable condition;

(c) Should the applicant, Frederick James Collett, wish to sell the property and purchase other accommodation the property be sold and the net proceeds applied to the acquisition of that other property (to a value no greater than those net proceeds) to be held by the executors on the same trusts and with any balance to be distributed as rest and residue of the estate.

2. That the respondents cause to be released the mortgage over the property by lodgement of the necessary instrument required by s 81 of the Land Title Act 1994 and to discharge personally any liability associated with that mortgage;

3. That the costs of the applicant Frederick James Collett be paid from the estate such costs to be assessed on the indemnity basis;

4. That to the extent that the costs of Frederick James Collett exceed the sum of $30,000 the payment of those costs be deferred until the expiry of the aforesaid life interest;

5. That the respondents reimburse the estate the monies expended by them on litigation costs to the extent necessary to enable the estate to meet the indemnity set out in the previous order and any costs of administration of the estate;

6. The respondents be indemnified from the estate for their costs incurred in these proceedings but limited to the sum of $10,000, payment of such indemnity being deferred until expiry of the life interest of Frederick James Collett.

7. That, subject to the life interest granted to Frederick James Collett, the rest and residue of the estate, after payment of all proper debts, be distributed as follows:-

(ii) To the respondents, John George Knox and Margaret Evelyn Knox - 55%;

8. The second applicant, Karen Elizabeth Pountney, bear her own costs of and incidental to this proceeding.

9. Save as aforesaid the respondents bear their own costs of and incidental to this proceeding.

[54] As the parties have not made submissions precisely relating to these orders, nor have they had any opportunity to express any views as to any practical difficulties associated with the proposed relief, I will grant them liberty to apply concerning the precise form of orders within seven days.

[1] (1985) 2 NSWLR 65 (SC) 69.

[2] [1993] NSWCA 111 (5 October 1993, unreported).

[3] Unreported, 14 September 1987, NSWSC 1996/1987, BC 8701155.

[4] Unreported, 26 October 1989, NSWSC 3442/1986, BC8901539.

[5] Unreported, 2 March 1989, NSWSC 4892/1987, BC8902470.