Cumming v Sands

J M Atkin (P) COUNSEL : B A Coles QC and S Hughes (D1) No representation (D2, 2XD & 3XD) Walters (P) SOLICITORS : Heidtman & Co (D1) Submitting appearance (D2, 2XD & 3XD) CATCHWORDS : EQUITY [33] - General principles - Equitable charges and liens - Money expended or benefit conferred on property of another - Whether interest may be ordered on sum charged - EQUITY [171] - Trusts and trustees - Powers, duties, rights and liabilities of trustees - Indemnity, lien and reimbursement - General principles - Executors' expenses - PROCEDURE [565] - Costs - General rule - Costs out of a fund - When costs allowed out of fund - Benefit of estate - Defendant defending proceedings for own benefit rather than benefit of estate - PROCEDURE [573] - Costs - Departing from the general rule - Powers of court - Relevant principle - Whether claims distinct - SUCCESSION [254] - Executors and administrators - Title and estate of - Estate in land - Executors also devisees. LEGISLATION CITED : Supreme Court Rules 1970 Part 52A r 11 Wills Probate and Administration Act 1898 s 83 Cumming v Sands [2001] NSWSC 2 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) [2000] NSWSC 313 Drummond v Drummond [1999] NSWSC 921 Ell v Cisera [2000] NSWSC 961 Hughes v Western Australian Cricket Association (1986) ATPR 40-748 J A Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691 JDM Investments Pty Ltd v Todbern Pty Ltd [2000] NSWSC 432 Miller v Cameron (1936) 54 CLR 572 CASES CITED : Morris v Morris [1982] 1 NSWLR 61 Muschinski v Dodds (1985) 160 CLR 483 Nick Kritharis Holdings Pty Ltd (In Liq) v Gatsios Holdings Pty Ltd [2001] NSWSC 343 Nowell v Palmer (1993) NSWLR 574 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Ronnoc Finance Ltd v Spectrum Network Systems Ltd 19 November 1997 NSWSC Santow J unreported Waters v P C Henderson (Australia) Pty Ltd 6 July 1994 NSWCA unreported G L Certoma, The Law of Succession in NSW (3rd ed 1997) 281 - 282 B A Helmore, The Law of Real Property in NSW (2nd ed 1950) 480 Mason and Handler Wills Probate and Administration Service NSW [13,061] IIIA Scott on Trusts (4th ed 1988) ss 244 - 245 DECISION : (1) The first defendant's proper expenses as executor have the first priority in relation to the fund; (2) The executors' executorial duties had not been concluded in respect of the estate of their mother; (3) Interest should be paid on the sum in respect of which the plaintiff is entitled to a charge from the date of the first defendant's receipt of the fund; (4) The first defendant should pay the plaintiff's costs of the proceedings out of her own resources.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5003/98 DELYS LOUISE CUMMING v MARGARET LESLIE SANDS & ORS

1 I delivered my substantive judgment on 5 January 2001: Cumming v Sands [2001] NSWSC 2 ("my judgment"). The matter is before me for the making of orders and a determination as to how outstanding ancillary matters are to be dealt with. The proceedings concern two estates. The first is the estate of the mother of Dr Bill Brand (late of Lismore) and his sister, who is the first defendant. The mother died on 13 July 1973. The only asset remaining in the estate at material times (if it remained in the estate) was a house at 1 Elton Street, East Lismore ("the property"). Dr Brand and the first defendant were the executors of her will and were entitled to the estate and therefore to the property as tenants in common in equal shares. The second estate is the estate of Dr Brand who died on 20 June 1995. His executors are named as the second defendants in these proceedings, but have played no active part in them. By his will he left his interest in the property to the plaintiff, who was his long time receptionist and was the tenant of the property for more than 20 years. Evidence does not show what the other assets of Dr Brand's estate are. The property was sold by the first defendant on 12 October 1998 for $132,000 and the sale was completed on 12 November 1998. By my judgment I found that the plaintiff was entitled to a charge over the fund created by the receipt of the sale price ("the fund") in respect of improvements she had made to the property during her tenancy and maintenance which was carried out by her but which was under the terms of the tenancy the responsibility of the landlords. 2 The proceedings are before me today in respect of six matters:

1 The making of appropriate orders to give effect to my judgment.

2 Questions as to the entitlement of the first defendant to be recouped out of her mother's estate for expenses incurred by her as executor and trustee of that estate.

3 The determination of the precise amount in respect of which the plaintiff is entitled to a charge.

4 Whether or not the plaintiff is entitled to interest on that amount and from what date.

5 The determination of the rent or occupancy fee for which the plaintiff should be liable in respect of her occupancy of the property from the time she ceased to pay rent at the beginning of nAugust 1995 to her departure from the property. This is now agreed to have been on 20 August 1997 (see [7] of my judgment).

6 The costs of these proceedings. Question (1): The appropriate orders 3 As to the first matter, the parties have brought in competing sets of short minutes. In general terms, in my view, the set propounded by Mr Coles, of Queen's Counsel for the first defendant, provides a better framework for the making of orders to give effect to my judgment and to regulate the entitlements of the respective parties. Those minutes provide for the establishment of the right of the first defendant to recoupment out of the fund in respect of proper expenses incurred by her as executor or trustee, which should have primacy over other claims, including the plaintiff's claim under the charge which I shall declare in her favour. This, as Mr Coles rightly says, arises from the nature and incidents of a trustee's right of indemnity, which includes a right to a lien, in the sense that the trustee is entitled to recoup himself out of the funds of the trust before paying them over to anyone else: see IIIA Scott on Trusts (4th ed 1988) ss 244 - 245; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; J A Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691 at [50]; Nick Kritharis Holdings Pty Ltd (In Liq) v Gatsios Holdings Pty Ltd [2001] NSWSC 343 at [9] to [11]. Indeed, so much is conceded by Mr Atkin, of counsel for the plaintiff, insofar as any outstanding expenses may be regarded as expenses properly incurred by her in respect of the estate. Mr Coles' minutes then establish that the next claim in priority to the fund is the satisfaction of the charge which I found that I should declare over it in the plaintiff's favour. That amount will be directly payable to the plaintiff by the first defendant as the person who sold the property and received the fund. The minutes also reflect that, after those claims have been satisfied, the first defendant should pay one half of the balance to Dr Brand's estate and may retain the other half, she and he (or his estate) being the persons entitled as tenants in common to the property before its sale. Question (2): The first defendant's claim to expenses out of her mother's estate 4 As to the second matter, the parties are not agreed as to the quantum of any expenses to which the first defendant is entitled. There was a claim to expenses and some material concerning them was in evidence at the trial. However, I am far from satisfied that the whole of the evidence relating to those matters was before me and certainly their quantum was not fully investigated or contested at the trial. One would hope that at this stage the quantum of those expenses could be a matter of agreement between the parties but, if it cannot, the appropriate course is for their quantification to be referred to a Master. 5 In my judgment I did not find it necessary to determine whether or not the first defendant and Dr Brand had continued until his death to hold the property as executors of their mother's estate or whether the stage had been reached where the property vested in them so that their status in relation to it was simply that of co-owners. For most of the purposes of this judgment the determination of that not entirely easy matter is in my view equally unnecessary. It potentially has a relevance to the determination of the costs of these proceedings but, in view of the conclusion that I have come to about those costs, as set out below, it does not have any materiality in that regard. As it may conceivably have a materiality in regard to the propriety of the expenses claimed by the first defendant, I should, however, now state that the conclusion that I come to in that regard is that they continued to hold the property as executors until Dr Brand's death. In view of its peripheral significance I do not propose to go at great length into my reasons for this. The question really turns on whether the executorial duties have been concluded or not. The situation where the executor is also the devisee of the land held under old system title was stated as follows in B A Helmore, The Law of Real Property in NSW (2nd ed 1966) 480: "The writer has always contended that in this case, upon completion of executorial duties and since the personal representative holds on trust for himself, by virtue of s 47 of the Wills etc Act, no form of assurance is necessary in relation to lands under old system title, as the beneficial estate of the personal representative merges in his co-extensive legal estate, and consequently it is only necessary to have evidence to establish that the executorial duties have been performed and that the devisee has not disclaimed the devise. A sale by the devisee as beneficiary would, of itself, establish the latter qualification. This view was by no means universally accepted (see articles, W N Covers, Vol XV No 39; 4 ALJ 185, 285; 10 ALJ 13, 14 ALJ 420; 15 ALJ 15, 82, 113, 382), but is supported by the authority of a Victorian case, In re Thorne & Sherson's Contract [1920] VLR 50, and an English case, Re Hodge [1940] Ch 260; 109 LJ Ch 185 per Farwell J [1940] Ch at p 264, and of the learned author of 'Sale of Land in Victoria' (2nd ed 413), Mr Voumard QC."

As is stated in G L Certoma, The Law of Succession in NSW (3rd ed 1997) 281 - 282: "Whether the administration of an estate is complete depends upon all of the circumstances, for example, whether the residuary accounts have been settled, the length of time since the death of the testator, and whether the legal personal representative conceives that the administration is complete."

The factors in favour of the property having vested in the first defendant and Dr Brand as owners include the long passage of time; the termination, so far as the evidence goes, of all active functions as executors; and the fact that the property was held under old system title, so that registration was not a necessary part of the process of the vesting of the property in the executors or beneficiaries, and the absence of formal steps does not have the same significance as it may have in the case of Torrens title property. However, other factors, including the long lack of communication between the brother and the sister in relation to the property which I have referred to in my judgment [19]; the fact that it flows from this that there was no resolution between them of the status of the property; the fact that there was no acknowledgment under s 83 of the Wills Probate and Administration Act 1898 or other step which indicated their transition in relation to the property from executors to co-owners; and the fact that Dr Brand himself late in his life was still describing his relationship to the property as one of executor, lead me to conclude that the better view is that they remained executors, in relation to the property, in Dr Brand's case until his death, and in the first defendant's case until the sale. Question (3): The quantification of the charge 6 Like the quantification of the first defendant's entitlement to expenses, this is a matter which traditionally in the practice on the equity side of the Court could and would have been referred to a Master. However, the modern practice is that matters which would have been referred to a Master are now often determined by the Judge at or after the trial at the discretion of the Judge. It is clear, as is acknowledged in [24] of my judgment, that I entered into the question of the quantification of the charge and expressed a tentative view, subject to further submissions concerning it. The further evidence which has been brought forward (although not yet admitted) concerning this subject matter suggests that the items realistically in issue total no more than $5,500 out of about $51,000 expenditure. If this matter, trifling as it is, falls to be determined by the Court I shall determine it. Happily, the parties are in negotiation concerning it and it is to be hoped that the expensive process of making a determination concerning such a small sum will not be necessary. Question (4): Interest 7 Mr Coles has argued that the charge which I propose to declare is remedial in nature; that the plaintiff has no rights under it until it is declared; and that therefore no interest should be ordered to be paid in respect of the amount it secures in respect of any period before the date on which it is formally declared. This does not seem to me to be correct in principle. The charge is declared to vindicate an obligation which the Court perceives a person to be under and that obligation antedates the declaration of the charge and may found an order for interest for a period and at a rate which appears to the Court to be just in the circumstances. He relies on what was said by Deane J in Muschinski v Dodds (1985) 160 CLR 483 at 612 - 614, though I am far from convinced that what his Honour said supports Mr Coles' contention. And in Morris v Morris [1982] 1 NSWLR 61 at 64, in a case where the property had not been sold, McLelland J (as his Honour then was) ordered that interest be paid on the amount secured by the charge declared from the commencement of the proceedings. Here the property was sold and the fund was received by the first defendant on 12 November 1998. In all the circumstances of this case, it is my view that it is appropriate that the first defendant should pay the plaintiff interest on the amount secured by the charge from that date at the rate prescribed by the Supreme Court Rules. Question (5): The determination of the "rent" 8 As to the determination of the "rent", again, it is hoped that the quantification of this amount will shortly be the subject of agreement. Question (6): The costs of the proceedings 9 There remains the question of costs. Mr Coles argues that the proceedings were necessarily contested by the first defendant as the surviving executor of her mother's will. In those circumstances he says that those costs ought be ordered out of the mother's estate and should join other expenses properly incurred by the first defendant as executor in having the primacy of priority in respect of the fund. Mr Atkin says that the proceedings were in reality adversary proceedings between the plaintiff and the first defendant concerning whether or not the plaintiff had a valid claim over the fund. The only two persons potentially entitled to that fund being the plaintiff and the first defendant, he cites as stating the relevant principle to be applied the following passage in the judgment of Mahoney JA in Nowell v Palmer (1993) NSWLR 574 at 581 - 582: "Mr Anderson, in his submission, had in mind, I think, the attitude which the courts have traditionally taken to the costs of legal personal representatives in defending proceedings brought against an estate. If the legal personal representative acts in accordance with proper principles, she will be safeguarded as to costs; in an appropriate case, her costs and/or the costs which she is ordered to pay in an unsuccessful defence of the estate may be ordered to be paid out of the estate: see Re Estate of Paul Francis Hodges Deceased; Shorter v Hodges (1988) 14 NSWLR 698 at 709-710; see generally Halsbury's Laws of England, 4th ed, vol 17, pars 917-919, vol 37, par 721.

However, in the present case, the appellant, in defending the proceeding, was not acting as, or merely as, the executrix of the estate. She was, in a real sense, defending her own interests. She was the sole beneficiary of the estate. In addition, she had purported to distribute the estate to herself and, to an extent, the proceeding brought against her was a proceeding by way of tracing the assets in the estate to which the respondent was entitled and to secure an accounting in respect of them: see, eg, Re Diplock; Diplock v Wintle [1948] Ch 465; affirmed sub nom Minister of Health v Simpson [1951] AC 251. I do not think that in these circumstances the principle to which I have referred should apply. The proceeding was essentially a defence by the appellant of her own interests."

And see Miller v Cameron (1936) 54 CLR 572 at 578 - 579 per Latham CJ; Drummond v Drummond [1999] NSWSC 921 (noted Mason and Handler Wills Probate and Administration Service NSW [13,061]). 10 Whilst I have said in [5] above that it is the better view that the first defendant continued as the executor of her mother's estate at material times, one must view that position in the context that there was nothing left in the estate but the property and that she left the management of that absolutely to her brother for more than 20 years. The question as to whether or not they remained executors is a nice one. The fund is the only remaining asset of the estate. All other executorial duties were long since done. The plaintiff and the first defendant are in reality the only claimants to the fund. Whilst it is clear that the charge to which the plaintiff is entitled is imprinted directly on the fund, Mr Coles says, in an attempt to controvert the position that there are no other claimants, that the balance of the fund must be paid to Dr Brand's executors and, although there was in his will a gift of his interest in the property to the plaintiff, so that she is prima facie entitled to the exclusion of other claims to his share of the fund, there is no evidence as to the state of Dr Brand's estate, so that it may be that his executors will have to have recourse to that gift in the course of the administration of assets and apply it otherwise than by payment to the plaintiff. This, he says, demonstrates that the first defendant was obliged to act and was acting in defending these proceedings so as to discharge her duties as executor of her mother's estate to the executors of Dr Brand's estate, rather than to protect her own interests. 11 I do not think the absence of evidence has the effect that Mr Coles suggests. I do not see anything in the evidence from which a conclusion may be drawn that it was in reality for any such purpose that the first defendant was defending the proceedings. Moreover, if there were a likelihood that the funds would not simply pass through Dr Brand's estate to the plaintiff, but were in reality required for some other purpose of his estate, there was no barrier to those matters, even if not in evidence before my judgment, being placed in evidence before me on the costs argument, which has taken place (at the request of the parties) some considerable time later. If this matter has any relevance, and if there were any reality to these suggestions, which draw a somewhat long bow, the evidence could easily have been laid before me. 12 Looking at the whole of the evidence in the case and all its circumstances, some of which I have mentioned above, the case appears to me to be one that has been conducted in reality by the first defendant to keep the fund or as much as possible of it from the plaintiff and to defend it in the first defendant's personal interest. In those circumstances, it is my view that this case falls within the exception enunciated by Mahoney JA in the passage set out above, that it should be treated simply as adversary litigation, and, subject to what follows, the result should be that the first defendant herself out of her personal funds should be ordered to pay the plaintiff's costs of the proceedings. 13 The additional matter that was put by Mr Coles is to the effect that there were certain issues in the proceedings on which the first defendant was successful and that that should result in some order other than simply an order that the first defendant pay the plaintiff's costs. He draws attention to the fact that there was a cross claim for rent. Whilst it was conceded at the trial that an allowance should be made in favour of the fund (perhaps by way of diminution of the amount for which the charge should be declared) for the plaintiff's occupation of the property after she ceased to be a tenant, this concession had not been made before the trial and at an early stage of the trial was made only in a qualified fashion. He also points out that a further subject matter of cross claim was the question of whether or not the first defendant continued at the relevant times to stand in the relation of executor to the property rather than simply co-owner, and on this issue the first defendant has ultimately been successful. 14 The general principle as to costs is that a successful party should have the whole of the costs of the proceedings. One ground on which an exception should be made is that there is a discrete issue that has occupied some identifiable or assessable amount of time at the trial which would not otherwise have been occupied: see generally Supreme Court Rules 1970 Part 52A r 11; Hughes v Western Australian Cricket Association (1986) ATPR 40-748; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Waters v P C Henderson (Australia) Pty Ltd 6 July 1994 NSWCA unreported; Ronnoc Finance Ltd v Spectrum Network Systems Ltd 19 November 1997 NSWSC Santow J unreported; and my own decisions in Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) [2000] NSWSC 313; JDM Investments Pty Ltd v Todbern Pty Ltd [2000] NSWSC 432 and Ell v Cisera [2000] NSWSC 961. In my view neither of the elements of cross claim mentioned by Mr Coles fulfils the requirements of this exception. The status of the first defendant and Dr Brand in relation to the property was debated to some degree at the trial, but as part of the overall fabric of the trial and of the general issues between the plaintiff and the first defendant. In other words, the necessity to traverse that subject matter arose out of the substance of the plaintiff's claim and not as an entirely separate issue raised only by the cross claim. Equally, the consideration of the allowance for occupancy was something that arose not just upon the cross claim, but inherently in the plaintiff's case, since the first defendant relied not so much upon a contractual claim for rent, which may have been difficult or impossible to establish in the circumstances, but on the plaintiff's duty as one who sought equity to do equity by making a proper allowance for occupying the property at a time when she had no entitlement by lease to do so and paid nothing in respect of her occupation of an otherwise lettable cottage property. Furthermore, the occupancy question was resolved without contest and the amount of time taken at the trial in relation to it was inconsiderable. It is my view that none of the matters put forward on the first defendant's behalf fulfil the requirements of the exception which is contended for, and the general rule should apply, so that the first defendant should be ordered to pay the plaintiff's costs of the proceedings. 15 I have forwarded to the parties draft minutes in a form which I deem appropriate in light of the minutes brought in and the considerations to which I refer above. They include the reservation of liberty to apply to work out the various outstanding matters which I have referred to. Before making them I shall be prepared to hear final submissions upon this form of orders if the parties desire to make any.

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