Gritzman v McRae - [2022] NSWSC 745 - NSWSC 2021 case summary — Zoe

NSWNSWSC

Gritzman v McRae

[2022] NSWSC 745

Supreme Court of NSW|2021-12-16|Before: Ward CJ

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Source facts

Court

Supreme Court of NSW

Decision date

2021-12-16

Before

Ward CJ

Source

Original judgment source is linked above.

Judgment (44 paragraphs)

[1]

administrators - Application for removal SUCCESSION - Construction - Whether the plaintiff's interest is subject to provisions in the will entitling the defendant to the income from investment of the proceeds of sale of property in which the plaintiff had an interest prior to the deceased's death Legislation Cited: Civil Procedure Act 2005 (NSW), s 100 Conveyancing Act 1919 (NSW), ss 23C, 54A, 66G Probate and Administration Act 1898 (NSW), ss 44(1), 66, 85 and 86 Trustee Act 1925 (NSW), ss 38(1A), 46(3), 52, 59(4), 70, 85 Trustees Act 1962 (WA), s 50 Uniform Civil Procedure Rules 2005 (NSW), r 14.14(2)(a) Cases Cited: Allen v Snyder [1977] 2 NSWLR 685 Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495 Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 Carr v Carr (1987) 8 NSWLR 492 Carruthers v Manning [2001] NSWSC 1130 Clay v Clay (1999) 20 WAR 427 Coorey v George (Supreme Court (NSW), Powell J, 27 February 1986, unrep) County Securities Pty Limited v Challenger Group [2008] NSWCA 193 Cowan v Scargill (1984) 2 All ER 750 Crossman v Sheahan [2016] NSWCA 200 Donis v Donis (2007) 19 VR 577; [2007] VSCA 89 Draper v British Optical Association [1938] 1 All ER 115 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; [1988] FCA 202 Frost v Bovaird [2012] FCAFC 60 Gibson v Holland (1865) LR 1 CP 1 Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 Grant v Edwards [1986] Ch 638 Green v Green (1989) 17 NSWLR 343 Hancock v Reinhart (2015) 13 ASTLR 1; [2015] NSWSC 646 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 Ireland v Retallack (2011) 6 ASTLR 585; [2011] NSWSC 846 Juul v Northey [2010] NSWCA 211 King v Adams [2016] NSWSC 1798 Langford v Gascoyne (1805) 11 Ves 333; 32 ER 1116 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 Mavrideros v Mack (1998) 45 NSWLR 80 Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13 Nguyen v Cosmopolitan Homes (NSW) Pty Ltd [2008] NSWCA 246 Nicol v Chant (1909) 7 CLR 569; [1909] HCA 4 Northey v Juul [2014] NSWSC 464 O'Regan v Hellstrom [2020] NSWSC 16 Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149; [1947] HCA 42 Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514 Phillips v McCabe [2016] SASC 27 Priestley v Priestley [2017] NSWCA 155 Re Bowcock [1968] 2 NSWR 697 Re Cobcroft [2015] NSWSC 346 Re O'Callaghan [1972] VR 248 Salier v Watson [2014] NSWSC 237 Shepherd v Doolan [2005] NSWSC 42 Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 Spellson v George (1987) 11 NSWLR 300 Spencer v The Commonwealth (1907) 5 CLR 418 Toowoomba Foundry Pty Ltd v Commonwealth (1945) 71 CLR 545; [1945] HCA 15 Tsaknis as executor and trustee of the estate of Geoffrey Douglas Roland Lilburne (Dec) v Lilburne [2010] WASC 152 Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250 Wright v Stevens [2018] NSWSC 548 Wyman v Paterson [1900] AC 271 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 Texts Cited: G Jones, "Delegation by Trustees: A Reappraisal" (1959) 22 Modern Law Review 381 H Ford and W Lee, Laws of Trusts (4th ed, 2010, Thomson Reuters J Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing, 2002) JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis) Category: Principal judgment Parties: Rosie Gritzman (Plaintiff) Ranald Scott McRae (Defendant) Representation: Counsel: J Foley (Plaintiff) A Lakeman (Defendant) Solicitors: Phillip Silver & Associates Lawyers (Plaintiff) & Legal (Defendant) File Number(s): 2018/00051369 Publication restriction: Nil

[2]

Judgment

HER HONOUR: This is a dispute relating to matters arising out of the administration of the estate of the late Asher Mannie Osband (the deceased).
The plaintiff (Ms Gritzman) is the sister of the deceased who died on 20 June 2015. The defendant (Mr McRae), who was in a long-standing professional and personal relationship with the deceased prior to his death, was appointed the executor and trustee for the deceased's estate pursuant to the deceased's last Will dated 24 March 2014 (Will). Probate of the Will was granted to Mr McRae as executor on 4 July 2017.
Each of the parties is a resident of South Africa (as was the deceased) and there was reference during the hearing to disputes between them as to the deceased's assets in that country; not relevant to the present proceeding other than that it is clear that there was a level of animosity between the two. Ms Gritzman said that she had been told not to deal directly with Mr McRae (T 75.23-30) and Mr McRae said that his relationship with Ms Gritzman (at the relevant time) was "at rock bottom" (T 127.36-39); that "it's unbelievable, our relationship" (seemingly referring to the tension between the two) (T 128.37-38); and that there was no communication whatsoever between them (see T 12737-42). Indeed, Mr McRae candidly said that there were "[l]ots of things we [in context, there referring to himself and his advisers] didn't tell Ms Gritzman" (T 132.17-18). Therein lies much of the problem in the present case.
In essence, the dispute is as to Ms Gritzman's claim to ownership of a beneficial interest in a property at Double Bay (the Double Bay Property) of which the deceased was the sole registered proprietor at the time of his death (Ms Gritzman claiming to be the beneficial owner of either a 37.5% or alternatively a one-third interest in the Double Bay Property). Although Mr McRae's evidence on this issue was inconsistent and confused, ultimately it is not (and was not at any relevant time) disputed that Ms Gritzman had at least a 33.33% beneficial interest in the Double Bay Property - quite apart from any interest left to her under the Will (which makes Mr McRae's conduct - and his advisers' apparent lack of concern - in selling the property without consulting or informing Ms Gritzman, let alone seeking or obtaining her consent or distributing any part of the proceeds to her before this proceeding, quite extraordinary).
There is also a dispute as to the proper construction of the deceased's Will (in effect as to whether Ms Gritzman's interest is subject to provisions entitling Mr McRae to the income from investment of the proceeds of sale of the Double Bay Property during his lifetime) and as to whether Mr McRae has properly discharged his obligations as trustee and executor (and, if not, whether the grant of probate should be revoked).
The proceeding was commenced by Ms Gritzman by summons filed on 15 February 2018, seeking urgent relief in relation to the proceeds of sale of the Double Bay Property. Orders were made by Slattery J on 21 February 2018 for the payment into Court of $1,088,057.24 from the proceeds of sale and for the provision of an account to Ms Gritzman (including supporting documentation) as to the sale of the Double Bay Property (which I explain in more detail below). The matter then proceeded by way of pleadings.
Ms Gritzman filed a statement of claim on 31 August 2018, seeking the removal of Mr McRae as trustee of all property in which Ms Gritzman has an interest and otherwise relating to the deceased estate, as well as specific orders and declarations in relation to Ms Gritzman's beneficial interest in the Double Bay Property. Ms Gritzman also seeks orders requiring Mr McRae to restore funds depleted from the deceased estate by his alleged misconduct as executor and trustee (including the repayment of amounts withdrawn by or for his benefit) and for equitable compensation for the loss suffered as a consequence of the sale of the Double Bay Property at an alleged under value.
Mr McRae has filed a defence (filed 3 October 2018 and amended on 17 July 2019) denying liability (and raising defences including by way of reliance on ss 52 and 85 of the Trustee Act 1925 (NSW) (Trustee Act)); as well as a cross-claim, seeking declaratory relief as to the position for which he contends in relation to the Double Bay Property and the proper construction of the Will; and claiming reimbursement of amounts allegedly expended or incurred by him on behalf of the estate. Mr McRae has also foreshadowed a claim for commission as executor (see at T 23.29-42).
By the conclusion of the hearing, Mr McRae no longer resisted his removal as trustee and executor of the deceased estate (see T 313.1-12) though he still resists the appointment of Ms Gritzman in his place (see T 314.37-48).

[4]

Acquisition of the Double Bay Property

In 1987, at around the time the deceased married his wife, the deceased purchased the Double Bay Property. Contracts for sale were exchanged on 31 March 1987. As noted above, the title to the property was registered in the deceased's sole name. The circumstances in which the property was acquired were attested to in at least two documents signed by the deceased (to which I refer in more detail in due course), one in 1987 at around the time of the purchase and one some seventeen years later, in 2004, when the deceased expressly sought to "regularise" his financial affairs in South Africa.
Ms Gritzman contends (see, for example, at T 64.45-48, 65.27-30, 71.30-33, 72.38-45) that she provided 50% of the purchase price for the acquisition of the Double Bay Property (though there are, perhaps unsurprisingly given the passage of time, no bank or like records to confirm this contribution) and that she contributed equally to the maintenance of the property thereafter (again, there is no independent evidence of this). Ms Gritzman's evidence was that, when money was needed, Mr Jeffrey Bergman (the deceased's accountant), would let the deceased know that funds were needed; that the deceased would approve those funds; and that Ms Gritzman would then make arrangements to get the money to Mr Bergman (T 72.38-45). Ms Gritzman's evidence is that the source of her (and, for that matter, the deceased's) contribution was through family funds (T 65.27-30). Ms Gritzman said (at T 60.1-4) that she was consulted by the deceased on all matters in relation to the house (but did not recall exact dates).
There is some indirect corroboration of Ms Gritzman's evidence as to her involvement or participation in the Double Bay Property acquisition in Mr McRae's evidence that the deceased always insisted that Ms Gritzman be included in any deals he made - saying that there were a lot of deals (see T 107.29-35). Consistently with this, Ms Gritzman described her relationship with the deceased as one of trust and said that the deceased was the "financier" with her permission (see T 65.40-42).
Ms Gritzman deposed (in her affidavit sworn 13 February 2018 at [6]) that at the time of the purchase she made a loan to the deceased to enable him to buy the Double Bay Property. This is consistent with the 2004 declaration made by the deceased (to which I have referred above and as to which I provide more detail below). Mr McRae's contribution to the acquisition of the property, according to his evidence, is that he was responsible for obtaining the mortgage bond used to fund the balance of the purchase price (T 101.20-21, 112.26-28).
Pausing here, if Ms Gritzman had simply made a contribution to the purchase price that was not reflected in the way in which ownership was recorded on the title to the property, then there would be a presumption arising of a resulting trust (see Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 at 266-267 per Deane J; Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495 at [161]-[168]). However, that is not consistent with the characterisation of Ms Gritzman's contribution as a loan; and Ms Gritzman does not here invoke the principles of resulting trust (nor does she claim a 50% interest in the property or, now, of the proceeds of sale thereof). Rather, Ms Gritzman claims an interest as the beneficiary of a common intention constructive trust (in either a 37.5% or 33.33% proportion) together with an interest as beneficiary under the Will (a 37.5% share of the deceased's interest in the Double Bay Property).

[5]

Declaration of Trust

On 9 April 1987, the deceased executed a formal Declaration of Trust (referred to in the preface to the recitals as a Trust Deed). That document was prepared by a solicitor in Sydney, Mr Peter Cappe; and in the document the deceased's address was identified as "care of" Mr Jeffrey Bergman. Mr Bergman, who gave evidence in the proceeding, is a chartered accountant who for some years acted for the deceased in relation to the management of the Double Bay Property and whose services were retained by Mr McRae after the deceased's death in relation to the deceased's estate.
Mr McRae (at [14] of his affidavit) deposes to his attendance with the deceased at the office of Mr Cappe and a conversation that took place in relation to the preparation of the 9 April 1987 Declaration of Trust (which recited the contributions of the parties to the purchase of the Double Bay Property).
Recital 1 of the Declaration of Trust recorded that, by agreement for sale of land dated 31 March 1987, the deceased (defined in the declaration as the Trustee) as purchaser had purchased the Double Bay Property. Recital 2 recorded that the purchase price was $265,000. Recital 3 recorded that the purchase price was provided by Ms Gritzman, Mr McRae and the deceased in equal shares. Recital 4 recorded that the deceased intended to be registered as the registered proprietor. Recital 5 recorded that the deceased had entered into the agreement for sale and intended to enter into the transfer of the property beneficially for himself as to an undivided one third share and as trustee for Ms Gritzman and Mr McRae, each also for an undivided one third share.
As to the operative provisions of the Declaration of Trust, pursuant to cl 1 the deceased declared that he held the Double Bay Property in fee simple: beneficially for himself, Ms Gritzman and Mr McRae each as to an undivided one third share. By cl 2, the deceased agreed that he would, at the request of Ms Gritzman and Mr McRae (and at their cost), make application and execute and do all such instruments, acts and things that may be necessary for the purpose of procuring the transfer to them of their interest in the Double Bay Property. (For Ms Gritzman, it is noted that there was no power of sale contained in the Declaration of Trust instrument.)
At this point, therefore, by the Declaration of Trust (the validity of which is not disputed), the deceased had declared a trust over the Double Bay Property with the beneficial ownership of the Double Bay Property then being held as to one-third each by the deceased, Ms Gritzman and Mr McRae.
It seems that Mr Cappe retained possession of the Declaration of Trust and that a copy of the Declaration of Trust was only obtained from Mr Cappe (following enquiries made on behalf of Mr McRae after he became aware of the contents of the deceased's Will and because of his concern in relation thereto) on 24 August 2017 (after the application for probate had been made in which the interest of the deceased in the Double Bay Property was recorded, inconsistently with the proportions declared in the Declaration of Trust, as being a 37.5% interest).

[6]

Subsequent variation of beneficial holdings

Ms Gritzman's evidence is that at some time between 1987 and the 1990s, the deceased proposed to her that he hold a 37.5% beneficial interest in the Double Bay Property for her benefit in lieu of him repaying the money that she had contributed to the purchase; and that she agreed to that course. This is the basis of the claimed common intention constructive trust (the agreement being particularised in the pleading as the "Settlement Agreement"). Ms Gritzman maintains that she relied on this (including not insisting on transfer to her of a legal interest in respect of her share of the property). Hence, Ms Gritzman's position is that, from this time, her beneficial interest in the Double Bay Property was 37.5%.
Pausing here, on this account of events what appears to have occurred was an informal variation of the trust that had been declared by the deceased in 1987, such that Ms Gritzman's interest in the property became a 37.5% beneficial interest. However, it is relevant to note that (in the absence of consent from Mr McRae) this increased share for Ms Gritzman's benefit could only have operated to reduce the deceased's one-third beneficial interest since, under the Declaration of Trust, Mr McRae already had a beneficial one-third interest in the property. Therefore, on Ms Gritzman's case, her beneficial interest would increase to 37.5% and the deceased's beneficial interest would reduce (on my calculations) to 29.16%, with Mr McRae's beneficial interest remaining at 33.33%. This is relevant when considering the interest in the Double Bay Property that the deceased was capable of disposing of under his Will. In other words, if the arrangement varying the initial trust is accepted to have occurred, then all that the deceased was able to dispose of under his Will was his 29.16% interest (of which, and subject to the issue of construction to which I refer in due course, 37.5% was to go to Ms Gritzman and 62.5% effectively to Mr McRae during his lifetime - i.e., Ms Gritzman's interest, taking into account the gift under the Will, would then become 37.5% plus 37.5% of 29.16% and Mr McRae's interest would be 33.33% plus 62.5% of 29.16%).

[7]

Foreign Exchange declaration

On 23 February 2004, the deceased signed what on its face appears to have been a formal declaration addressed to the "Foreign Exchange Manager" and "The Authorised Dealer" of the First National Bank (in South Africa), the deceased in that declaration requesting that it be forwarded to the South African Reserve Bank. The declaration was described as being in terms of a "D405 Regulation" dated 30 September 2004 and stated: In accordance with the D405 regulation as published by the SA Reserve Bank dated 30 September 2003, I wish to regularise my affairs and make the required disclosure. This disclosure covers my ownership of a foreign asset acquired whilst I was not a resident of South Africa, the continuing existence of the asset whilst I am a resident and the foreign borrowings.
That declaration (the stated purpose of which, as noted in the above extract, being to "regularise" the deceased's position in relation to foreign exchange or foreign asset regulations in South Africa) recorded, as "facts", a number of matters, including that: 1. I left South Africa to settle and marry in Australia during 1987. 2. Shortly after my marriage in Australia I acquired a property in Australia using wedding gifts, together with a loan from my sister, Rosie Gritzman, with the balance being paid by a mortgage bond. 3. … 4. … 5. Although I still remain married and my wife resides in Australia, I am a resident of South Africa. The property remained in my possession in Australia and the proceeds from rentals over the last 17 years has serviced the mortgage property debt. 6. I used no South African funds to settle the property debts. All the funds for the acquisition of the property were acquired whilst I was not a resident of South Africa. 7. Between 1987 and 1990, as the property became an investment property rather than my residence, I sold 37.5% of the property to my sister Rosie Gritzman in settlement of the loan from her. Although the title remains in my name, she is entitled to 37.5% of the property. 8. …
Mr McRae (apart from characterising some of the contents of the declaration as misleading - pointing in this regard to [5]) says that the purpose of this declaration appears to be a disclosure covering the ownership of foreign assets and he notes that it was made seventeen years after the purchase of the Double Bay Property. Mr McRae says that it is unclear what documents, if any, the deceased would have had before him at the time that he made the declaration (or what the deceased's motivation may have been in making that declaration). Nevertheless, it is clear from the text of the declaration that the deceased intended it to have some import for the purposes of the South African Reserve Bank and some regulation published by the South African Reserve Bank; and I would infer that (whatever documents may or may not have been before Mr McRae at the time) it was not then Mr McRae's intention to provide misleading information to a regulatory authority in South Africa as to his ownership of foreign assets.
The significance of the document, to my mind, is that it corroborates Ms Gritzman's account of events, namely, that Ms Gritzman had provided a loan in relation to the acquisition of the property; that the deceased had settled that loan by "selling" a 37.5% interest in the property to Ms Gritzman; and that Ms Gritzman was thereafter accepted by the deceased to be entitled to a 37.5% beneficial interest in the Double Bay Property.

[9]

Deceased's Will

On 24 March 2014, the deceased made his last Will in relation to his Australian assets.
Clause 3 appointed Mr McRae as the deceased's executor and trustee of his Will with two identified alternate directors (the first with an address in Israel and the further alternate with an address in the United States of America; both by their surname apparently related in some way to Ms Gritzman) if Mr McRae was unable or unwilling to act as his trustee.
Clause 4 of the Will provided as follows: IF RANALD SCOTT McRAE survives me by thirty (30) days the following provisions shall apply: (a) I DIRECT my trustee to pay all my debts and funeral and testamentary expenses in Australia out of my Australian assets. (b) I DIRECT my trustee to pay the net income from my Australian assets ` to RANALD SCOTT McRAE during his lifetime. (c) IF my trustee sells my property at [the Double Bay Property] I DIRECT my trustee to hold the net proceeds of sale of the Double Bay property (after payment of all expenses arising out of or incidental to the sale of the Double Bay property by my trustee, including but not limited to capital gains tax, agent's commission and legal expenses) ("net proceeds of sale of the Double Bay property") upon the following trusts: (i) 37.5% of the net proceeds of sale of the Double Bay property to be held for ROSIE GRITZMAN, and (ii) The remaining 62.5% of the net proceeds of sale of the Double Bay property to be held on trust to be invested by my trustee in the following investments: A. In shares in publicly listed companies in Australia which appear in the ASX 200 List of Companies, and B. In residential real estate in Sydney. AND I DIRECT that my trustee shall distribute to RANALD SCOTT McRAE the net income derived from those investments during his lifetime. (d) I DIRECT that RANALD SCOTT McRAE may occupy the Double Bay property as his residence during his lifetime, he being responsible for the payment of all rates and taxes and keeping the Double Bay property insured against loss and damage from fire, storm and tempest in an amount and in an insurance office approved by my trustee and keeping and maintaining it in a state and condition of repair similar to that in which it is at my death. (e) I DIRECT that upon the death of RANALD SCOTT McRAE my trustee shall hold all Australian assets on trust for the Sandown Hill Trust.
(Pausing here, the declaration sought by Mr McRae in prayer 8 in the cross-claim is to the effect that Ms Gritzman's 37.5% entitlement as beneficiary under the Will is subject to cl 4.1(b) or 4.1(c) and thus that Ms Gritzman is not entitled to these funds absolutely.)
Clause 6(b) of the Will empowered Mr McRae to exercise the powers of a trustee for sale with respect to any assets comprising the deceased estate. (That could not, of course, empower Mr McRae to sell assets not wholly owned by the deceased, at least without consent of the co-owner(s).)
The Will was attested by Mr Denes, solicitor, and Mr Bergman (as noted above, the deceased's accountant).

[13]

Communications with Ms Gritzman in relation to proposed sale

On 11 December 2016, Mr Howard Hilton (a "lay associate" of & Legal, being a former solicitor who had been struck off the roll of solicitors in the 1980's in what he described as a "great scandal" - see T 167.12-14 and who was permitted to practise only as what he describes as a "qualified clerk"), acting for Mr McRae, sent an email to various persons (including Mr McRae and Mr Bergman), copied to Ms Gritzman, in relation to the deceased's estate, advising that the Australian estate was comprised only of the real estate at the Double Bay Property. Relevantly, the email stated that: The problem that we are dealing with is this: In his will the deceased dealt with this house as if he owned 100% of it. In fact at his death he owned beneficially only 37.5% of the property even though it was in his name. As a consequence some of the gifts he made, such as a life interest or right of residence to Scott [Mr McRae] and the income from rental of the house to Scott obviously can't be carried out. The Will can only deal with that which the deceased owned when he died. It is the fact that at the date of his death the house was beneficially owned as follows: 1. The Late Asher Mannie Osband; 37.5% 2. Scott McRae; 25% 3. Rosie Gritzman 37.5% Given that starting point we must now interpret the will as it affects Mannie's 37.5%. A summary of the gifts is below: … 5. If the house is sold then 37.5% of the net proceeds go to Rosie. … We now have to apply these gifts to the circumstance that we are dealing with only a fraction of the house not the whole. A. Clearly the right of occupation cannot be enforced as Rosie owns 37.5% of the house. B. It is probable that she can if she wishes compel the sale of the property and we think that course should be agreed by all parties, essentially that means Scott. C. If the house is sold the proceeds are to be divided up as per the shareholdings in the property. D. From the estate's 37.5% residue Rosie is entitled to 37.5% and the remaining 62.5% is to be invested as directed by the will and Scott derives the income from such an investment. The three beneficiaries must agree on a common view and a common course of action. That is Rosie, Scott and the trustee of the Sandown Hill trust will have to all agree as to what will happen. Once we have common agreement we can then decide if we need to have the Will rectified or if we can manage the estate as it is with the diminished asset. The key issue is the sale of the house. I look forward to receiving your feedback. I also would like you [sic] consent (if that be the case) which can be by letter or by signed and dated agreement on the copy of this email.
Leaving aside the proportionate percentages of the beneficial interest in the Double Bay Property, the email (correctly) recognises that the estate held only a proportionate beneficial interest in the property (and hence the consent of the other beneficial owners would be necessary for any sale). Further, any recipient of the email (including Mr McRae, although in oral evidence he suggested that he did not generally bother to read things sent to him - even an affidavit the truth of which he had in fact verified) would surely have understood that what was being said was that the sale of the Double Bay Property could not proceed without agreement thereto by (among others) Ms Gritzman. It is also of interest to note that the email adopts a reading of the Will to the effect that Ms Gritzman's 37.5% share of the proceeds of sale under the Will (if the property were to be sold) was a share of the estate's 37.5% share of those proceeds (i.e., additional to the 37.5% share beneficially held by Ms Gritzman - in the view of the author of the email at that time - in her own right). That accords with my reading of the Will (see below).
On 23 January 2017, Mr Hilton sent an email to Ms Gritzman, stating that he did not think that she had responded to any emails sent to her regarding the estate (it is not clear to what emails other than the above Mr Hilton was referring) and that: As you are a beneficiary, the trustee for a beneficiary [this seemingly being a reference to Ms Gritzman's position as trustee of the Sandown Hill Trust] and a part owner of the house in your own right this is now causing troubles with the administration of matters here and for the various applications that need to be made. Unless we have your consent in all of those capacities it makes it close to impossible to move matters forward. … [my emphasis]
Again, this would no doubt have conveyed to a reasonable reader in the position of Ms Gritzman that a sale of the Double Bay Property could not proceed without her consent (or at least that it would be "close to impossible" for that to occur).
On 2 February 2017, Mr Hilton (in terms responding to a note apparently sent by Ms Gritzman and her husband) sent an email in which Mr Hilton indicated that he was attempting to answer various questions and to "explain the situation" in relation to the Australian estate, including that: … The only issue with the Australian estate is that its main asset, the house property, was left in Mannie's will as if he were the sole beneficial owner of it and he is not. We have discovered since Mannie's death that he had only a 37.5% interest in the house. It is submitted that you own 37.5% and Scott owns 25%. Attached is a note recognizing Scott's share which was signed by Mannie and certified as a copy of the original by John Denes of our office. [This is the 2010 note referred to above] Because of this alteration in beneficial ownership the Will cannot be fully effective in relation to some of the provisions Mannie made, in particular the life estate for Scott. It appears to be that the only way in which the 'three owners' can obtain their proper shares is for the house to be sold as soon as possible and the ownership portions dealt with as they now really are. To repeat that is for 37.5% % [sic] of the net sale price to be paid to you; 25% to be paid to Scott and for the estate to control what happens to that remaining 37.5% which actually was Mannie's and upon which he could validly direct in his last Will. (You will be paid a further 37.5% of Mannie's 37.5% and Scott will have a lifetime usufruct over the remaining 62.5% of Mannie's 37.5% until it ultimately reverts to The Sandown Hill Trust). …
Responding to numbered questions that had apparently been raised by the Gritzmans, Mr Hilton went on to say, relevantly, that: 1. We act for Scott [McRae] only in relation to him being the executor of Mannie's Australian estate and in no other capacity. We cannot commit him to anything. 2. … 3. The issue with the Will is that Mannie left the house in his Will with instructions to do certain things with it. He did this seemingly on the basis that he had a 100% ownership and so could do as he chose. It now appears that he did not have a 100% ownership of the property. 4. As to Mannie's intentions we cannot say. 5. Clearly the house has to be sold as the estate has only a beneficial 37.5% ownership of it. We will shortly obtain a current market value for the property and send it to you. Your agreement regarding the sale of the house will be needed as you are a part owner. 6. It will suit all parties if the Australian end of the estate can be finalised as soon as possible. There are taxes and expenses accruing and the longer the matter lingers the higher these imposts will become. 7. … 8. We will seek the approval of our Supreme Court via a Deed of Family Arrangement to legally enact these amendments to the will should there be agreement from all parties. These changes to the beneficial ownership of the house will affect all beneficiaries including the beneficiaries of the Sandown Hill Trust who have a residual share in the estate. … 9. The issues for agreement are: a. To recognize your and Scott's claims to be part owners of the property; b. To agree to sell the property and you may have all the input as is reasonable into this, it will be a transparent process; c. We seek your feedback about these two points as a matter of urgency. …
A number of comments may be made about this email. First, that it (as did the previous 11 December 2016 email) stated the position as being that Ms Gritzman had a beneficial 37.5% ownership of the Double Bay Property (and indicated that the 37.5% share of the net proceeds on sale of the property that was left to Ms Gritzman under the Will amounted to a share of the estate's 37.5% share of the property, thus giving Ms Gritzman in total in effect more than a 37.5% share of the net proceeds of sale). (Even if wrong as to the percentage, this was a clear recognition that Ms Gritzman was a beneficial owner in her own right; not merely a beneficiary under the Will.) Second, consistent with the earlier correspondence, that Ms Gritzman's consent to the sale was necessary (as she was a part owner of the property). Third, that Ms Gritzman was here being assured that she would be able to have "all the input as is reasonable" into the sale and that it would be "a transparent process". (As events transpired, nothing could have been further from the truth.)
On 9 February 2017, Mr Hilton sent an email to Ms Gritzman and her husband, referring to the previous week's letter and stating that "[w]e are being pressed to wind up the Australian estate but until we have your consent to what is proposed we cannot do anything". (Again, the subsequent conduct of & Legal makes a mockery of the assertion that without Ms Gritzman's consent nothing could be done.) It is not clear who was said to be pressing the solicitors to wind up the estate (or pressing Mr McRae as trustee or executor to do so, if the reference in the email to being pressured was as to him being the one who was being pressured). Logically, it would seem likely that it could only have been Mr McRae who was concerned to wind up the estate quickly (since it would not make sense for Mr Hilton to be chasing up someone who was herself doing the pressuring and the only relevant beneficiaries were Mr McRae and Ms Gritzman); and there was some acceptance by Mr McRae in cross-examination that he was under some financial pressure at least at some stage during the administration of the estate (see T 140.8-10 where Mr McRae said that he was pretty desperate for money, when asked about a payment of $56,060 from the proceeds of sale). However, Mr Hilton in cross-examination was not able to assist with any recollection of this (see generally T 171-172) (nor, indeed, did he profess to have much recollection of anything).
On 3 March 2017, Mr Hilton sent an email to Mr Leon Gritzman's email address stating that "we will" shortly apply for probate of the Australian Will ("probably and I hope within a fortnight") and that [w]hen probate is granted I believe that the house property will be sold by the executor. The monies will be held in our trust account until the beneficiaries agree a division or failing that the court will decide on how the assets are to be distributed. All parties will have the opportunity to put their case to the court. … The email foreshadowed that a list of the assets would be sent within a short time. Relevantly, there was no further reference in this email to any consent being necessary to the sale (though Mr Hilton had previously, correctly, recognised that consent would be necessary from Ms Gritzman as a part beneficial owner of the Double Bay Property). It would seem that, by now, what was being contemplated was unilateral action by the executor (without consent from Ms Gritzman and without bothering to seek judicial advice as to the executor's power to do so).
On 15 March 2017, Ms Gritzman sent an email seeking a copy of the probate application and asking that Mr Hilton let her have copies of the offers "that have been made or are being made for the house" saying that "[a]s a 37.5% owner I am obviously very concerned that any deal which is negotiated has my approval". If nothing else, this should have put Mr Hilton squarely on notice that Ms Gritzman was not prepared to authorise a sale without her express consent thereto.

[14]

Probate

On 4 July 2017, probate was granted of the Will to Mr McRae as executor. The Inventory of Property disclosed (under the heading "Property owned by deceased as tenants in common in unequal shares") the real estate in respect of the Double Bay Property, recording the deceased's interest as a 37.5% interest; and the particulars of the other joint owners as being Mr McRae, as to 25%, and Ms Gritzman, as to 37.5%. The estimated value of the property was put at $975,000 (presumably that being the estimated value of a 37.5% interest in the property, which would make the overall value of the property as being in the order of $2.6 million). It should be noted that, by this time, Mr McRae already considered himself bound - by a handshake - to a sale of the property to the incumbent tenant for $2.75 million; though no one had given any indication of this to Ms Gritzman.
On 4 August 2017 (i.e., almost two years after the "handshake deal" by which Mr McRae considered himself morally bound and after Mr McRae had already ascribed a value to the property in the application for probate), Mr Bergman obtained two valuations of the Double Bay Property from a valuer in Sydney (Mr Adrian Staltari), who ultimately gave evidence in the proceeding: the first, valued the property retrospectively (as I understand it for capital gains tax purposes) as at 8 May 2012 at $1.75 million; the second, a contemporaneous valuation as at 4 August 2017 at $2.65 million (fortuitously or otherwise), being close to the amount attributed to the property in the earlier filed probate documents. While the valuation was coincidently close to (and less than) the amount for which the property had already been the subject of the "handshake" deal, I do not suggest any impropriety on the part of Mr Staltari (who impressed me as an objective and considered witness in the witness box).
On 24 August 2017 (following enquiry on behalf of Mr McRae), Mr Cappe produced the Declaration of Trust document. Mr McRae's evidence is that he had been troubled about the deceased's Will and could not understand it; and then he remembered the visit to Mr Cappe (see T 101.5-14, 102.24-29, 103.3-14). Mr McRae also seems to have formed the view, or at least put that view forward in cross-examination, that the discovery of the Declaration of Trust rendered the Will "irrelevant" or "null and void" or that the Will was "over-ceded" in some fashion by the Declaration of Trust (see T 105.17-42).
On 31 August 2017, Mr Hilton sent an email to, among others, Ms Gritzman, advising that: … we have recently come into possession of a deed of trust executed by Mannie Osband on 9 April 1987 in front of his then solicitor Mr Cappe and a letter from him is attached also. This document gives a beneficial interest of 33.33% to each of Rosie, Ranald [McRae] and himself. That document and letter are attached. Subject to the executor's instructions we will have to make an application to amend the probate to shoe [sic] the correct percentages to the beneficiaries. …

[15]

Sale of Double Bay Property

What next occurred, relevantly, was that on 7 September 2017 (without reference to Ms Gritzman, let alone any consultation with her as to the sale process, and contrary to the assurances that Mr Hilton of & Legal (acting for Mr McRae and therefore one would assume on or with the benefit of Mr McRae's instructions) had made in writing to her), Mr McRae exchanged contracts for sale in respect of the Double Bay Property to the incumbent tenant at the price of $2.75 million. The sale was conducted without a real estate agent (but in the witness box Mr McRae was adamant that the price was a very good price, emphasising his experience as a real estate agent in real property - see T 161.29-39; or a fair price at the time, noting that there were no marketing fees or real estate commissions - T 160.42-48).
The sale completed on 13 October 2017. The rationale put forward by consent for Mr McRae as to the sale was that the deceased had purported to deal with the property as its sole owner and the trustee or executor would have been entitled to bring an application under s 66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act) (see T 19.15-24). Even then, Ms Gritzman was not informed of the sale (this no doubt being one of the many things that Mr McRae blithely accepted in cross-examination "we" did not tell Ms Gritzman).
Not only was Ms Gritzman not told of the sale, but also (and even more troubling) the proceeds of sale ($2,110,175.71 after payment of various expenses (such as withholding gains tax of 12.5% and an adjustment for land tax and rates; and after the payment of the sum of $267,732.77 to the Commonwealth Bank, which Ms Gritzman does not necessarily accept is properly accountable to the estate)) were ultimately paid not into the solicitors' trust account or a controlled moneys account (as Mr Hilton eventually, incorrectly, told Mr Gritzman they were) but were placed into an account or accounts in the name of Mr McRae - see below. No part of the proceeds of sale was forwarded to Ms Gritzman at that stage, though it seems that there were deductions from time to time out of the proceeds in favour of Mr McRae (according to him, authorised by Mr Bergman but according to Mr Bergman on Mr McRae's instructions or at his request).

[16]

Communications following the sale of the Double Bay Property

On 8 January 2018, Ms Gritzman discovered, through enquiries by her solicitor (not by any disclosure from or on behalf of Mr McRae) that the Double Bay Property had been sold (without her knowledge or consent). The following day (9 January 2018), Ms Gritzman's solicitor (Mr Phillip Silver) contacted Mr Hilton by telephone. In a later email of that date to Mr Hilton, referring to that conversation, Mr Silver noted Mr Hilton's confirmation that the Double Bay Property had been sold; that (as turned out to be incorrect) the sale proceeds were currently held in his trust account; and that the amount retained in trust would not be released to any party. Confirmation was sought from Mr Hilton that reasonable notice would be provided prior to the release of any proceeds, given Ms Gritzman's interest in the property. The email further stated that "[t]hat the sale of the property (or even the intention to sale [sic] the property) was never disclosed to [Ms Gritzman]". There was no immediate response to that email (and certainly no demur from the proposition that Ms Gritzman had no notice of the sale). On 11 January 2018, Mr Silver pressed for a response.
On 12 January 2018, Mr Hilton emailed Mr Silver to apologise that the sale funds were not held in the firm's trust account (as he had previously advised); rather, that an "executor's account" had been set up "and the funds were transferred there last year". The letter stated that "I was unaware of this as I am not dealing with the estate assets as such" (a perhaps surprising statement since all the communications to that point from & Legal in relation to the estate, at least to Ms Gritzman, seem to have been through Mr Hilton); and that Mr Denes (who would be returning the following Monday) was in overall charge of the matter.
Mr Hilton's evidence in cross-examination was (to say the least) unsatisfactory in that, despite having made a number of assurances in writing to Ms Gritzman as to any sale (including that she would have all reasonable input and that it would be a transparent process) and having advised, more than once, that Ms Gritzman's consent to the sale was necessary, Mr Hilton's evidence was that he was not concerned as to what had occurred, saying that "she wasn't my client" (T 179.16-18) and that, in the office, he did "what [he] was told" (see T 180.6-12).
Not surprisingly, this turn of events led to a formal letter dated 17 January 2018 from Ms Gritzman's solicitors, asserting that it appeared that Mr McRae had improperly sold the Double Bay Property without consulting Ms Gritzman or obtaining her agreement, and had improperly dealt with the sale proceeds. Information was urgently sought, together with an undertaking (which was not provided) to the effect that (by no later than 12.00pm on 19 January 2018) Mr McRae would: cause 33.3% of the net proceeds of sale (plus interest) to be paid to Ms Gritzman (presumably that percentage being adopted as the amount that Mr McRae's solicitors had contended was Ms Gritzman's entitlement in their correspondence of 31 August 2017); and cause a further 18.5625% of the net proceeds of sale plus any accrued interest from the date of sale to be placed in a controlled moneys account in the joint names of Ms Gritzman and Mr McRae to be disbursed only upon the written agreement of those parties or order of this Court. That further amount was said to constitute the additional 4.5% interest Ms Gritzman claimed in the Double Bay Property (i.e., the difference between a 37.5% interest and a 33% interest) as well as Ms Gritzman's entitlement under the Will out of the deceased estate's (separate) interest in the Double Bay Property.
The response from Mr Hilton, at 2.47pm on 19 January 2018, apart from not providing the undertaking that had been sought, was to assert (surprisingly in the circumstances) that "it must be stressed that both this firm and Mr McRae have at all times endeavoured to behave with honesty and scrupulosity [sic] toward the estate and the beneficiaries of the trust". The suggestion that the sale of the Double Bay Property without the consent of, let alone consultation with, a beneficial owner of the property (or a Court order approving such a sale) was in any way appropriate or scrupulously honest conduct is untenable in my opinion. The only submission made in this regard for Mr McRae at the hearing, as adverted to above, was that it was said that the executor would have been entitled to bring an application under s 66G of the Conveyancing Act to enforce a sale (see T 19.15-24). That is not to the point. No authority was cited for the proposition that there was some right of "self-help" in this regard; i.e., that it could be assumed with impunity that relief under s 66G would be granted and that the executor could proceed without any such application at all.
For Mr McRae, it was said that the executor was given advice as to the reasons why the property should be sold (see T 19.1-4); and I note that Mr McRae himself suggested that there was power under the Will to do so (see T 105.47-50). As to the first proposition, that advice was not in evidence unless Mr McRae is here referring to advice of the kind later received from Mr Bergman as to the incidence of capital gains tax - to which I refer below; as to the second, I do not accept that the executor had power under the Will to dispose of an asset not wholly beneficially owned by the estate without the consent of those already holding a separate beneficial interest in their own right (i.e., apart from any entitlement under the Will); and any suggestion that Mr McRae could reasonably have thought otherwise is untenable having regard to the advice he had received from Mr Hilton.
The email from Mr Hilton went on to state that, as soon as an amount had been agreed to be held on account of capital gains tax, the firm would pay 33.33% of the net sale price (less 33.33% of the estimated capital gains tax as agreed) to Ms Gritzman's solicitors or her account, but that until a new grant of probate had been made it would be inappropriate to distribute from the estate (Mr Hilton saying that they would be happy to hold an agreed amount on account of Ms Gritzman's beneficial interest in the estate in trust until a distribution could be made pursuant to an amended grant). (No such qualms appear to have attended the making of distributions to Mr McRae in this period.)
On 23 January 2018, Mr Bergman sent an email to Mr Denes (copied to Mr Hilton and Mr McRae), which Mr Hilton then forwarded to Ms Gritzman's solicitor, in which Mr Bergman stated that he represented the deceased "and now his estate" from the date of the acquisition of the Double Bay Property in April 1987. The email stated that the discovery on 24 August 2017 of the 1987 Declaration of Trust had "extended" Mr Bergman's representation to the three beneficial owners for whom the deceased held the property in trust. (In oral submissions it was conceded that this last statement, to the extent that it suggested that Mr Bergman was by then representing all the beneficial owners of the property, "was probably an incorrect assertion" - see T 18.46-47.) Further, the suggestion that Mr Bergman had only just discovered the existence of the Declaration of Trust seems somewhat surprising since his address was nominated in the document as the address for the deceased (but I do not discount the possibility that Mr Bergman was not given a copy of the Declaration of Trust when it was signed or had simply forgotten about it).
Mr Bergman there estimated the amount payable for capital gains tax in relation to the property (and said that there would be a contingent liability for income tax on the part of the beneficial owners). Mr Bergman calculated the amount attributable to each of the three (on his calculations, one-third) beneficial owners as $659,066.56 (from the current interest-bearing deposit of an amount said to be $1,977,199,70) and that, after capital gains tax, the estimated amount before tax agent fees would be in the order of $536,983.23 each. Mr Bergman recommended releasing $511,983.23 (after undertakings and indemnities seemingly by Ms Gritzman, in favour, inter alios, of the executor and trustee (Mr McRae) and the retention of an amount of $25,000 for "contingency"). In respect of the capital gains, Mr Bergman advised that a 50% discount applicable to capital gains tax for foreign owners was abolished on 8 May 2012 and he estimated that the capital gains payable would be in the order of $710,000 (saying that less $343,750 holding tax hence would be $366,250 owing).

[17]

Commencement of proceeding

On 15 February 2018, Ms Gritzman commenced this proceeding by summons in this Court. Orders were made on 21 February 2018 by Slattery J as I understand it, (over the opposition of Mr McRae) for payment into Court of the sum of about $1.088 million as noted earlier. Further, his Honour ordered that the deceased's estate provide an account with respect to the sale of the Double Bay Property by 6 March 2018, including supporting documentation.
Since then, there has been distribution by consent to Ms Gritzman out of the sums paid into Court of around $440,000 - see T 10.30-33. Of the balance, it is said that some $350,000 is held or has been paid on account of the legal costs of the executor in relation to this proceeding (T 17.1-14). It is noted by Ms Gritzman in this regard that the proceeding is a "hostile" one in which Mr McRae's conduct as trustee is impugned, and that Mr McRae is therefore not entitled to have (or to assume he is entitled to have) his costs paid out of the estate (see T 187.1-4) - see Frost v Bovaird [2012] FCAFC 60 at [69]-[71] per the Court (Jacobson, Siopis and Nicholas JJ).
In that regard, I note that (as confirmed by his Counsel - T 17.16-22) no application for judicial advice was sought by Mr McRae as to whether, as executor and trustee, he would be justified in defending the present proceeding or as to the proper construction of the Will. The explanation for this in submissions seemed to be that the proceeding had been commenced by Ms Gritzman with expedition (see T 17.27-31). That, however, is no satisfactory explanation for the lack of any such application at the time the sale was effected; nor for the lack of any such application at some later stage in relation to the retention of funds for legal costs.
Mr Hilton prepared an affidavit affirmed 21 February 2018 setting out the trust ledger and annexing a "preliminary accountants and representative" report by Mr Bergman setting out the estate's tax liabilities, and other matters relating to the finalisation of the estate. The letter of Mr Bergman outlines his perception of the deceased's intentions on the basis that Mr Bergman was present as a witness when the deceased signed the Will. Mr Bergman opined that the deceased considered himself free to bequeathe the Double Bay Property and was seeking to protect the beneficial ownership of Ms Gritzman (see letter at annexure C).
Between 21 February 2018 and 20 June 2018, Ms Gritzman's solicitor repeatedly requested that Mr McRae provide a proper accounting, not only with respect to the sale of the Double Bay Property (as ordered by Slattery J) but also with respect to the deceased's estate.
On 23 February 2018, Ms Janet Ross (a paralegal at & Legal, Mr McRae's solicitors) sent records regarding the sale to Ms Gritzman's solicitors, being the Double Bay sale settlement sheet and supporting documents (a trust statement regarding the sale, and a trust statement relating to the estate).
On 7 March 2018, Ms Gritzman's solicitors' response to the information that had been provided in relation to the sale was that: the bank account statement (showing a deposit of $2 million) illustrated a substantial shortfall between the amount deposited and the net proceeds of sale of $2.11 million; that no records had been provided illustrating what had happened to the deposit of $275,000 in the intervening period; and Ms Gritzman's solicitors questioned a withdrawal of $31,000. Complaint was made that there was no proper account as to what amounts had been paid as costs of the sale of the property (see T 11.20-26).
On 15 March 2018, Mr McRae's solicitors provided further documents and bank statements. (Complaint is here made that there was still no attempt to provide any separate accounting in relation to the proceeds of sale of the property - see T 11.45-50.)
On 27 March 2018, Ms Gritzman's solicitors complained as to the amount of purported expenses ($128,000) and said that it was unclear what costs were alleged to have been incurred in relation to the deceased's estate. In response to this, on 18 April 2018, Mr McRae's solicitors sent what might be termed a "holding" response.
On 20 April 2018, Ms Gritzman's solicitors requested the provision of trust accounts and foreshadowed an intention to approach the Court. On 4 May 2018, Mr McRae's solicitors provided further documents said to support the "account" previously provided. (Complaint is again here made that there has been no attempt to provide separate accounts for the deceased's estate and for the sale of the Double Bay Property.)
On 14 May 2018, Ms Gritzman's solicitors again complained that there had been a failure to provide any proper account. It is noted that at this stage Mr McRae held money for three beneficial owners (the estate, himself and Ms Gritzman) and that, even without a Court order, Mr McRae had an obligation to keep separate accounts and to provide accounts on request from the beneficiaries (see in this regard Hancock v Reinhart (2015) 13 ASTLR 1; [2015] NSWSC 646 per Brereton J, as his Honour then was, at [338]-[341] and the authorities his Honour there cited, to which I refer to in due course).
On 12 June 2018, Ms Gritzman's solicitors approached the duty judge in the Equity Division and the proceeding was referred to Lindsay J on 20 June 2018.
On 20 June 2018, immediately prior to the hearing before Lindsay J (and therefore on no account could this be said to have been in compliance with the orders that were made on that day by his Honour - see below), Mr McRae's solicitors served an affidavit of Mr Hilton, annexing what were described as "draft estate accounts". The said draft estate accounts did not include any entries after April 2018 (that is the account provided does not on its face include entries right up to the purported date of the account itself).
On 20 June 2018, and having been provided with the affidavit of Mr Hilton with the annexed draft estate accounts, Lindsay J made orders and notations (expressly noting that these were on the application of Ms Gritzman and without objection by Mr McRae but that Mr McRae maintained that no supplementary orders for an accounting were required), those orders and notations including the following: 1. ORDER that the defendant, no later than 18 July 2018, serve on the plaintiff a detailed account, verified by affidavit, of all the receipts and disbursements with respect to the sale of the [Double Bay Property] (by a contract for sale dated 7 September 2017 completed on or about 13 October 2017) with the opening balance being the total sale price of the Double Bay property (namely, $2.75 million), such account to be made up to the date of the account. 2. ORDER that the defendant, no later than 18 July 2018, serve on the plaintiff a detailed account, verified by affidavit, of all receipts and disbursements with respect to the estate of the late Asher Mannie Osband (who died on 20 June 2015 leaving a will dated 24 March 2014 probate of which was granted by this Court to the defendant on 4 July 2017), with the opening balance being one third of the total sale price of the Double Bay property (ostensibly the beneficial entitlement of the plaintiff under a deed of trust dated 9 April 1987), such account to be made up to the date of the account. 3. NOTE that the accounts respectively required by orders 1 and 2 of these orders are intended to be separate from one another. 4. ORDER that the accounts for which orders 1 and 2 of these orders respectively provide are to be accompanied by all documents evidencing entries in the accounts (whether by way of annexure or exhibit to a verifying affidavit), including all relevant receipts, tax invoices and bank account statements (including trust statements). 5. ORDER that the accounts required to be provided in accordance with orders 1 and 2 of these orders shall specify, in respect of each payment and receipt, the date and amount thereof; to whom or from whom the amount was paid or received; and the purpose or account for which the amount was paid or received. 6. ORDER that each entry in the accounts required to be provided pursuant to orders 1 and 2 of these orders be numbered consecutively. 7. NOTE, for the avoidance of doubt, that the documentation required by order 4 of these orders is to include all documentation evidencing payments purportedly made by the defendant, for which he has purportedly been reimbursed; including receipts, tax invoices and bank account statements (including trust statements). 8. NOTE that it is agreed between the parties that the accounts to be provided pursuant to orders 1 and 2 of these orders may be prepared on separate Excel spreadsheets respectively referable to the sale of the Double Bay property and the estate of the deceased. 9. NOTE that it is agreed between the parties that, subject to any orders made by the Court, the defendant's accountant (Mr Jeff Bergman) may, on instructions of the defendant, verify the accounts required to be provided by orders 1 and 2 of these orders. …
On 17 July 2018, an affidavit was served on behalf of Mr McRae sworn by Ms Ross (as noted, a paralegal at & Legal), providing a breakdown of the figures in the settlement sheet for the sale of the Double Bay Property (presumably seeking to comply with the order for provision of a detailed account of the sale of the property).
On 20 July 2018, Mr McRae's solicitors served an affidavit affirmed by Mr Bergman, in which Mr Bergman referred to the "draft estate accounts" attached to Mr Hilton's earlier 20 June 2018 affidavit. In that affidavit, Mr Bergman deposed (at [13]) that "no separate accounting" had been prepared by him for the trusts in respect of the estate (something Mr Bergman confirmed in the witness box was the case). Further, Mr Bergman in that affidavit acknowledged that there was a shortfall and said that whatever shortfall there was would be reconciled with the invoices as part of the preparation of the annual income tax returns. In an annexure marked "B" to Mr Bergman's 20 July 2018 affidavit, being an addendum to the figures provided in the exhibit to Mr Hilton's 20 June 2018 affidavit, a note provided that any shortfall in the value of vouchers and claims supplied to date by Mr McRae would be treated as a part distribution to Mr McRae as a one-third beneficial owner of the Double Bay Property.
For Ms Gritzman, it is said that the accounts provided are inadequate and in breach of both the obligations of Mr McRae as constructive trustee of the Double Bay Property and his obligations as trustee of the trusts under the Will. For example, complaint is made that Mr Bergman allowed in his reconciliations or account for reimbursement for Mr McRae's travel expenses (calculated at a daily rate that would be applicable as an allowable "ATO" expense deduction) (a claim that it was acknowledged in submissions for Mr McRae was unprecedented (T 23.15-18, 23.29-30) and which was ultimately abandoned (see T 39.25-31)) and included expenses allegedly incurred for travel as an executor in 2014, prior to the death of the deceased; and for expenses that were not supported by invoices (see T 221.38-50).
The complaint made by Ms Gritzman is amply justified in my opinion. Moreover, even leaving aside the complaint as to failure to comply with the detailed requirements of these orders, it was apparent from the evidence of Mr McRae and Mr Bergman at the hearing that a relatively cavalier attitude was taken to compliance with these orders.
Mr McRae's position in cross-examination in general was to the effect that he did not read things (so, for example, at T 142 Mr McRae said that he did not recall reading Mr Bergman's affidavit affirmed 24 July 2018, nor did he recall seeing the orders of Lindsay J made on 20 June 2018 annexed to that affidavit; at T 137.44-47, Mr McRae said that he was not aware that Ms Gritzman was requesting an account; and at T 138.20-21, Mr McRae said that he did not read the statement of claim, even though his own affidavit contained a denial of its contents - which Mr McRae accepted meant that he "must have read it" - and Mr McRae said that he was not aware that an amended defence was filed, nor that he had signed an affidavit verifying the amended defence at T 144.30-38). Mr McRae made it clear that he relied (seemingly entirely) on others to meet his obligation as executor to keep accounts (T 136.22-50).
In particular, in relation to the orders made on 20 June 2018, Mr McRae said he left it to Mr Bergman to sort this out (T 140.31-50), pointing out in cross-examination that the orders allowed Mr Bergman to swear an affidavit annexing the accounts on his instructions. That is so. However, the orders cannot possibly have been thought to permit Mr McRae to abdicate all responsibility for giving instructions in relation thereto. At T 141.7-13, Mr McRae (who did not remember anything about this) said that "Jeff did a lot of things I trusted. He didn't need any permission for such things" and, at T 144.14-16, Mr McRae agreed that he has no idea whether those accounts were correct. Thus, Mr McRae's position seems to have been that he delegated everything to Mr Bergman in this regard.
Mr Bergman's position was that he had Mr McRae's "blanket instruction" to prepare the affidavit (T 216.43-50) and that he knew that it was "absolutely spot on" (T 217.1) (confidence that seems to me to be sadly misplaced having regard to the matters referred to above) but he also said that Mr McRae would have seen the transaction spreadsheet (T 217.10). In this context, I note that the affidavit prepared in purported compliance with his Honour's orders included amounts that were unsupported by receipts or invoices (as Mr Bergman seems to have accepted at T 219.10-16); amounts claimed by reference to ATO allowances for deductible expenses for taxation purposes (T 220.41-43) (now acknowledged to be unprecedented and claims for which have been abandoned) and claims for expenses as an executor that were incurred in 2014, i.e., prior to the deceased's death (a matter to which Mr Bergman said he "did not twig" - T 221.50). Mr Bergman accepted that he had not asked Mr McRae to produce statements or invoices (see T 220.5-8).
It is not disputed that separate accounts were not prepared for the estate and the sale of the Double Bay Property, respectively.
The intent of notation 9 of Lindsay J's orders cannot on any view of things have warranted a collective washing of hands for any responsibility for the preparation and verification of the accounts that had been ordered and is, to my mind, emblematic of the unsatisfactory approach that Mr McRae and his advisers have taken to the administration of the estate.
It was accepted by Mr McRae (see the oral submissions at T 23.29-30) that financial expenses would need to be accounted for and it was said that these would be brought into account in the final accounts (and, indeed, some of the expense claims were abandoned in submissions - such as the undocumented travel expenses). However, Mr McRae submits that he endeavoured to comply with the Court orders as to the preparation of estate accounts (see T 23.30-33) and that it would be appropriate to file an application with the Probate Registrar for passing of the accounts and "perhaps for a claim for commission". It is said that 31 May 2018 was adopted as the date the account ceased because that was the date that the money was paid into Court and so there was no responsibility for money once it was paid into Court.

[23]

Application for leave further to amend the defence

On the first day of the hearing, in opening submissions, Mr McRae's Counsel sought leave (if that be necessary, which was not conceded) to file a second further amended defence in order to rely on s 38(1A) of the Trustee Act in relation to the trustee's power of sale where money is required to be expended on taxes and other levies (see at T 54.11-50). Complaint was made for Ms Gritzman that this was not pleaded or particularised in the defences that had been filed and that she would be prejudiced by such an amendment (see at T 53.46-50, 54.1-4).
For Ms Gritzman, it was argued that the pleaded defence raised various protections of the Trustee Act, but failed to raise (even obliquely) that the defendant intended to rely on s 38(1A) of the Trustee Act, nor did Mr McRae do so in circumstances where it may have been expected of him (by reference to Mr McRae's failure to deal squarely with the allegation at [29] of the statement of claim to the effect that the sale of the Double Bay Property was contrary to each of the representations alleged to have been made and the allegation at [30] that Mr McRae had no power as trustee to sell - see the debate at T 52-53); both those allegations being the subject of bare denials in the defence and amended defence that had been filed.
Ms Gritzman submitted that she would be prejudiced by such an allegation now being raised, as it would have been possible (had the defence been raised at an earlier time) to issue subpoenas to ascertain whether levies and taxes were in fact owing at the time (so as to permit reliance on s 38(1A) of the Trustee Act in respect of the sale of the trust property).
Mr McRae's Counsel submitted that it was not necessary to plead s 38(1A) in the defence but made a belated application to amend. In circumstances where there was no affidavit in support of that oral application for amendment, I made directions for such an affidavit to be filed that day. In fact, two affidavits were in due course filed (an affidavit filed on 13 December 2021, as directed, and an affidavit filed on 14 December 2021 correcting the first). Both were sworn by Ms Miriam Lecchi, a solicitor involved in the matter but not the solicitor on the record in the proceeding. The affidavits did not attempt to give any explanation for the delay in the raising of the s 38(1A) defence (notwithstanding that I had drawn attention in the course of submissions in relation to the application to the need for the affidavit to comply with the requirements articulated in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon) especially at [114] per Gummow, Hayne, Crennan, Kiefel and Bell JJ).
In Aon, the plurality said the following about leave to amend (at [111]): 111 An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. … 112 A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed on their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate. … 114 Rule 21 of the Court Procedures Rules recognizes the purposes of case management by the courts. It recognizes that delay and costs are undesirable and that delay has deleterious effects, not only upon the party to the proceedings in question, but to other litigants. The Rule's objectives, as to the timely disposal of cases and the limitation of cost, were to be applied in considering ANU's application for amendment. It was significant that the effect of its delay in applying would be that a trial was lost and litigation subsequently recommenced. It would impact upon other litigants seeking a resolution of their cases. What was a "just resolution" of ANU's claim required serious consideration of these matters, and not merely whether it had an arguable claim to put forward. A just resolution of its claim necessarily had to have regard to the position of Aon in defending it. An assumption that costs will always be a sufficient compensation for the prejudice caused by amendment is not reflected in r 21. Critically, the matters relevant to a just resolution of ANU's claim required ANU to provide some explanation for its delay in seeking the amendment if the discretion under r 502(1) was to be exercised in its favour to the disadvantage of Aon. None was provided
After hearing argument on the second day of the hearing I refused leave to amend, briefly indicating my reasons. By way of amplification, my reasons for refusing leave were that: this was a belated amendment; even if (which I did not accept) it would otherwise have been sufficient for this to be pleaded by way of general denial; that could not be the case where the unpleaded defence would come as a surprise to the plaintiff (see r 14.14(2)(a) of the Uniform Civil Procedure Rules 2005 (NSW), which provides that in a defence, a party must plead specifically any matter that, if not pleaded specifically, may take the opposite party by surprise); no explanation (let alone a satisfactory explanation) had been proffered for the delay (other than the belated explanation from the Bar table after the deficiency in the supporting affidavits had been noted, to the effect that it was an oversight or had not occurred to Counsel at an earlier time); and I was concerned that the amendment would cause prejudice to Ms Gritzman in that she would not be able to test the factual underpinning for such a defence (without an amendment to the hearing, which would of itself have been unsatisfactory given that it was the second day of a hearing that had been listed for five days and an earlier hearing had already been vacated for reasons of ill-health on the part of Mr McRae).
Accordingly, I refused leave to amend to raise the proposed defence.

[26]

Ms Gritzman

Ms Gritzman was direct and forthright in her manner. Ms Gritzman did not embellish or overstate her recollection of events (readily conceding that she did not have documentation in relation to the contributions that had been made to Double Bay Property many years ago) but maintaining that her relationship with the deceased was one of trust (T 68.3-10) and that the deceased had use of her personal funds and was the "financier" with her permission (see at T 67.5-10). Ms Gritzman was blunt in her reaction to what she evidently regarded as intrusions on her privacy or that of the deceased (see for example T 63 as to the personal information of the decease). On occasion, Ms Gritzman appeared argumentative (see at T 72.38-45) and later Ms Gritzman took umbrage with the suggestion that she was a liar (at T 80.14-22).
Ms Gritzman clearly had a dim (understandably in my opinion) view of Mr McRae's conduct in relation to the sale of the Double Bay Property, saying (at T 77.20-23) that it was not the behaviour of an honourable man; and, when questioned as to her knowledge of the two trips made to Australia by Mr McRae after the deceased's death (in 2015 and 2017) Ms Gritzman said, dismissively, that she knew Mr McRae had had a "good holiday" (see T 75.38-39) (perhaps there referring to the expenses incurred during that trip for which claims were made).
Ms Gritzman presented as a genuine witness - her account that she had been told not to deal directly with Mr McRae rang true (particularly having regard to his evidence as to their relationship); and I accept without reservation her evidence that she did not agree to anything in relation to the sale and was horrified about it (T 76.19-33). Ms Gritzman's account of events was both plausible and consistent with the Foreign Exchange Declaration that the deceased had signed in 2004.
Ms Gritzman was visibly distressed when giving evidence as to the death of the deceased (T 70-71). I accept her as a truthful witness.

[27]

Mr McRae

Mr McRae was suffering from ill health and more than once referred to his memory not being good (see for example at T 94.8-10, 97.8, 145.24-29). Indeed, by the end of his cross-examination he was frequently unable to recall matters. Mr McRae was candid in his evidence that it had been a "nightmare" taking on responsibility for the estate (saying that he wanted to be able to retire in his 80's) (becoming quite upset at this point - T 112.26-33). Mr McRae made clear the difficulty he perceived in his relationship with Ms Gritzman (T 96.46-47, that there is no contact with Ms Gritzman, T 122.46-49, that he never said anything to Ms Gritzman regarding the agreement to sell the Double Bay Property; at T 127.36-39 that their relationship was at "rock bottom" and there was no communication whatsoever between them; at T 128.31-38 that their relationship kept changing (and it was "ongoing today" and that "It's unbelievable our relationship").
Mr McRae made clear that he felt no need to tell Ms Gritzman anything about the sale (T 131.21-40); that he relied on his lawyers and that as already noted, there were "[l]ots of things we didn't tell Ms Gritzman" (T 132.18) and he said that "[o]f course I didn't instruct them [the solicitors] [to tell Ms Gritzman]. They should know what to do. I paid them a lot of money" (T 132.31-33).
The last answer reflects Mr McRae's constant refrain - that he employed (and paid a lot of money) to his advisers; that they were meant to advise him; that he relied (seemingly uncritically and unquestioningly) on what they did (see for example T 106.18-23, 107.42-48); and his assertion that he did not read things (including what he referred to as the "small print" - see at T 111.41, referring to the December 2016 email "I am not a solicitor. I'm a [sic] estate agent" and later asking "[w]hy should I read this small print letter?"); that there were too many lawyers (T 116.18) and that he could not remember reading things or did not read them (T 116.1-2; T 119.18-20).
Mr McRae's evidence on matters such as the instructions given in relation to the estate distributions or transfers of moneys was inconsistent with that of Mr Bergman. Mr McRae said that he never authorised Mr Bergman to make payments from the proceeds of sale to Mr Bergman (T 97.43-45), but rather assumed that Mr Bergman was receiving money from the attorneys; that he never authorised Mr Bergman to pay himself or anyone any money (T 148.10-24); that he, never checked whether Mr Bergman was keeping proper accounts and that Mr Bergman was in charge of everything (T 147.40-42, 148.26-28); that the transfers must have been Mr Bergman's decision (T 150.32-33); and that Mr Bergman had control (so the cross-examiner would need to ask Mr Bergman as to why money had been transferred from trust funds to a controlled moneys account of & Legal on 15 January 2019 (and amount of some $500,000) (T 153.14-50). Mr Bergman, to the contrary, said that before he made transfers or payments he had Mr McRae's direction (T 209.27-35) and that it was standard practice that transfers were made at the direction of Mr McRae (T 228.33-38).
There was also no little confusion (and inconsistency) in Mr McRae's account of his understanding at relevant times as to Ms Gritzman's beneficial interest in the Double Bay Property.
At T 98.24-32, Mr McRae's evidence was that his understanding, prior to the discovery of the Declaration of Trust on 24 August 2017, was that the Double Bay Property was owned 37.5% (deceased), 37.5% (Ms Gritzman) and 25% (Mr McRae) but that, following the discovery of the Declaration of Trust he believed the property was owned in 1/3 shares. If so, then this would suggest that at all times, Mr McRae understood that Ms Gritztman had a beneficial ownership in the property of at least 33%, quite apart from any bequest under the Will.
However, Mr McRae then became distracted by his confusion in relation to the Will. At T 98, Mr McRae said that he knew he had paid (in relation to the original acquisition of the property) and that he could not understand the provision made in the Will for Ms Gritzman (saying that "I don't know where Mannie got the money from. … I went to trade money from overseas to pay for the house. Then I was the one who got the bond on the house").
At T 99.22-25, Mr McRae said that when the Declaration of Trust was found on 24 August 2017, "obviously" he knew that it was correct. Mr McRae said that Ms Gritzman did not ever own 37.5%; and that Ms Gritzman owned a one-third interest "when the trust deed was found" (there seeming to focus on what could be established now; rather than what he had understood at the time) (however, only moments later Mr McRae acknowledged that, prior to the discovery of the Declaration of Trust, he believed that Ms Gritzman owned a 37.5% interest in the property - at T 99.47-49). At T 100.31-33, Mr McRae said that the only time he could prove Ms Gritzman owned a third was when the trust deed came to fruition; saying that "I knew she owned a third but there was no way of proving it - and that's why I proceeded on the basis of Mannie's will". At T 101.45-46, Mr McRae asserted that Ms Gritzman had nothing to do with property but he appeared to accept at T 102.44-46 that Ms Gritzman owned a third.
Asked whether at any time he had believed that Ms Gritzman owned less than a third, Mr McRae responded "yes when I read Mannie's will" (T 102.21-22). Mr McRae says that this was when he recalled that the deceased had visited a solicitor in 1987. If I understand his evidence correctly thus far, it appears that Mr McRae's understanding (prior to the reading of the Will) was that the property was held in one-third shares beneficially, but that when the Will was read he understood that the position was different. (Although, I interpose here to note that this is by no means clear from Mr McRae's evidence.) At T 103, Mr McRae did not deny that he understood from the Will that, of the deceased's one-third he was required to hold a 37.5% interest for Ms Gritzman, but then he added "and a 33 and a third percent". By this stage, therefore, it was somewhat confused as to what Mr McRae understood to be Ms Gritzman's interest in the property but it still appears that at all relevant times he thought Ms Gritzman had a one-third share (albeit that until he obtained the Declaration of Trust he thought that there was no way of proving it - and he said that is why he said he proceeded on the basis of the Will - see at T 100.31-33). This appears to be so notwithstanding that Mr McRae repeatedly denied as much (the denials perhaps due to confusion as to how the question was framed).
At T 105, Mr McRae then said that the Will was "null and void" because the deceased had "lied" therein regarding his ownership of the house, stating that it "wasn't his house" (see T 105.17-20) and that the Will became irrelevant after he discovered the Declaration of Trust, saying that the Will was "over-ceded" (as per the transcript but perhaps meaning superseded) by the fact that "we found a trust deed where he only owned a third of the house" (T 105.30-42).
Mr McRae then said that "[i]f [he] had known that Rosie had a third, [he] would not have gone ahead with the sale without speaking to her" (T 105.38-42) (however, this evidence is inconsistent with his earlier stated view that Ms Gritzman did own a third, but could not prove it; and inconsistent with the fact that Mr McRae did proceed to sell the Double Bay Property both after his own solicitors had explained to him that Ms Gritzman had a 37.5% interest in the property - as per the December 2016 "small print" email - and after the discovery on 24 August 2017 of the Declaration of Trust). At T 106.3-6, Mr McRae corrected this and said that his evidence (that he would never have sold the house) was false.
At T 105.47-50, Mr McRae emphasised that there was a big difference between owning "a third, and a third, and a third" and maintained that "[t]he Will said I had full authority to sell house"; and at T 106.15-16 he reverted to the proposition that the Will was nonsense. Mr McRae then said that "[i]f I remembered that she put in a third of the money, I would have probably have said you own a third of this house - but there's no need for that, because the Will - the Will was nonsense" (T 106.12-16). The logic of this was not apparent; and Mr McRae then took refuge in blaming his lawyers, saying at T 106.20-21 "[w]hy do I employ lawyers and people? They are meant to advise me". (The difficulty here is that the lawyers did indeed advise Mr McRae - in late 2016 - and what they advised was that he needed Ms Gritzman's consent to sell the Double Bay Property. Nowhere is it explained how that advice could have changed (or did change) by reference to anything that occurred after the advice was given.)
At T 106.25-27, when asked about the application for probate (and inventory of property), Mr McRae was dismissive, saying "[w]hatever I applied for I applied for". At T 107.4-6, Mr McRae agreed that nothing had happened between 1987 and the deceased's death to change his understanding that the ownership of the property was as to one third each and Mr McRae went on to say that the deceased "always insisted Rosie be part of any deal we had and we did lot of deals" (T 107.32-35).
Ultimately, Mr McRae relied upon the Will as giving him power to sell the property without informing Ms Gritzman (see T 109.10-12) and emphasised that at no time (before the Declaration of Trust was discovered) did he have proof of Ms Gritzman's interest in the property (T 109.14-25). Mr McRae's position seemed to be that he would only accept (or was only obliged as executor to accept) what interest he thought that Ms Gritzman could prove in the property (see his evidence at T 100.5-8, as noted above).
Further, as adverted to above, Mr McRae seemed to find the role of executor too stressful and tiring (saying that he wanted to enjoy his retirement in his 80's); and he was adamant that he had left it to his lawyer and accountant to deal with the estate; and blamed them for anything that had been incorrectly done.
I considered Mr McRae to be an unreliable witness in terms of the inconsistencies in his evidence and memory; and I considered that he was attempting to distance himself from personal involvement in the matters of which complaint is now made. The difficulty is that, if Mr McRae's evidence is accepted at face value, then he seems wholly to have delegated responsibility as trustee and as executor of the deceased's estate (which is relevant to his s 85 Trustee Act defence) and has failed to inform himself, or to have any overview, of their advice or actions. In essence, on his own evidence, Mr McRae has abdicated any responsibility for the administration of the deceased's estate. On the other hand, if Mr McRae's evidence that he never read anything and left it all to his advisers is not correct (as Mr Bergman's evidence would suggest, at least as to the directions for transfer of moneys) then he must have been aware at the time of the execution of the contract for sale of the Double Bay Property (and its completion) that he was not able to sell the property without Ms Gritzman's consent (and that his lawyers had represented to Ms Gritzman that this would not, and could, not be done - and that she would have reasonable input into what Mr McRae's solicitors has promised would be a transparent process).

[30]

Expert evidence

As to the expert evidence, the issue was as to the market value of the Double Bay Property at the time of the sale to the incumbent tenant in 2017 (relevant to the issue of whether the sale was at an undervalue). As already noted, Mr McRae, who emphasised his experience as a real estate agent, considered the $2.75 million purchase price to be a "very fair price" (T 161.37-39) but also accepted that he had shaken hands and made a decision in 2015 and that no valuation in 2017 was going to change the fact that he would honour the deal (T 161.11-39).
Mr McRae, through Mr Bergman, obtained a retrospective and current valuation of the Double Bay Property (by Mr Adrian Staltari of Meadow Real Estate Pty Ltd) (marked Ex 7 in the proceeding).
Ms Gritzman's solicitors obtained a retrospective valuation of the Double Bay Property (by Mr Chris Bailey of CB Property Valuation & Consultancy Pty Ltd) (marked Ex C in the proceeding), as at 13 October 2017 at $3,250,000. Mr Bailey reached this conclusion on the basis that the range of what he deemed to be the most comparable sales was, at the relevant time, between $3.1 and $4.025 million.
In a "critique report" dated 17 June 2019 (and marked Ex 5 in the proceeding), Mr Staltari critiqued the conclusions of Mr Bailey in his report of 4 February 2019. Mr Staltari agreed with many of Mr Bailey's conclusions, but differed with respect to the consequences of a large tree situated on the Double Bay Property vis-à-vis the effect of the tree on the market value of the property; the availability of on-site parking; and furthermore differed with respect to the suitability of several of the comparator properties considered by Mr Bailey.
At the outset, I noted that Mr Staltari's valuations (Ex 7) did not comply with the expert witness code (not surprisingly, since the proceeding was not on foot at the time that the two valuations he provided were prepared) but I admitted them provisionally on the basis that this was evidence of what was communicated to Mr McRae at around the time of the sale (see T 51.30-32). Mr Staltari acknowledged his awareness of the obligations under the expert witness code of conduct in his critique report, and in the joint report prepared with Mr Bailey, and remained of his opinion as set out in the valuations. On that basis I remove the provisional qualification on the admission of the valuations but in any event his valuations are relevant as they are evidence of the information that was available to the executor at around the time of the sale.
Mr Staltari provided two valuations. The first valuation, which formed part of Ex JB-3 to the affidavit of Mr Bergman affirmed 8 July 2019 and marked Ex 4 in the proceeding, was a retrospective valuation of the property as at 8 May 2012. There seemed to be some confusion in the hearing as to the valuation reached in this report (no doubt due to the fact that counsel representing Ms Gritzman had not been provided with a copy of this first report prior to the hearing, and the copy provided to the Court was missing various pages). Mr Staltari concluded in the first report that the value of the property as at 8 May 2012 was $1.75 million. Mr Staltari's second valuation concluded that the property had a market value of $2.65 million as at 4 August 2017.
In a "critique report", Mr Bailey provided a critique of Mr Staltari's Valuation Report dated 4 August 2017 (marked Ex D). In this second report, Mr Bailey opined that he did not consider the market value arrived at by Mr Staltari in his 4 August 2017 report to be accurate, insofar as Mr Bailey did not consider that Mr Staltari selected appropriate properties for comparison.
Mr Staltari and Mr Bailey gave evidence concurrently (albeit that Mr Bailey was giving evidence via audiovisual link from Thailand whereas Mr Staltari was in Court). There was also some difficulty in that Mr Bailey did not have with him the actual valuation report that he had prepared (but, it seems, an earlier draft of that report dated 28 June 2018 - see at T 233.33-34), though ultimately nothing turned on this.
Mr Staltari's valuation method is a primary direct comparison, using the standard definition of a willing buyer and a willing seller in an arms' length transaction after proper marketing. Mr Staltari has also completed an internal inspection of the property. Mr Bailey's valuation is also based on direct comparison. Both have used similar comparable properties.
Ultimately the issues on which the valuers differed were explicated in a joint report, dated 20 January 2020 and marked as Ex 6 in the proceeding, and included: the fact that there was no off-street parking (Mr Bailey considered this not significant; Mr Staltari considering this to be significant and suggesting that there be a discount of some $250,000 or more to reflect this); the presence of a large tree in the backyard of the house (Mr Staltari considered this significant; Mr Bailey did not); the value to be attributed to various features of superior comparable properties; the advantage of a contemporaneous valuation (as was that of Mr Staltari) as opposed to a retrospective valuation with hindsight (as was Mr Bailey's valuation); and whether it was better to nominate a single value for the property or a range. Also, Mr Staltari has expressed the opinion (under the heading Market Commentary) that high levels of debts and interest rate uncertainty of "may cause to reduce demand for real estate in the following twelve months ...".
As to the question whether there should be a discount for the lack of off-street parking, at T 273.21-28 Mr Staltari explained that if there was a 10% discount per car space then adding a notional $750,000 (on the assumption that there were three car spaces) would bring his figure to $3.25 million and, conversely, adopting a $3.125 million figure and deducting $750,000 for lack of car parking would adjust for market changes (i.e., 10% or 15%). Mr Bailey disagreed with this analysis.
As to the import of movement in property values over the relevant period, Mr Staltari said (at T 278.45-49) that property values increased during the last part of 2015 and 2016 but probably levelled during 2017 and that they stayed level. However, Mr Staltari said that in August 2017 there was a short supply of properties for sale (and that sales were achieving higher than expected selling prices with shorter selling periods - at 278.14-21). Mr Staltari did not agree that the earlier offer (i.e., the handshake deal in 2015) was relevant to the value of the property in 2017 (saying that he would only consider settled sales) (see T 280.1-16). As to reaching a sale without the intervention of an agent, Mr Staltari said that he would not consider this as a legitimate sale (T 280.46-50) and he would not use, in making a valuation, an agreement between a vendor and a purchaser without intervention of agent to establish market value (T 282.21-31).

[31]

Beneficial ownership of the Double Bay Property

On the pleadings (though Mr McRae gave somewhat contradictory evidence as to this issue) it appears to be common ground that, at the latest by 4 July 2017 (when probate of the deceased estate was granted to Mr McRae), Mr McRae (standing in the shoes of the deceased) held the Double Bay Property on trust for the benefit of each of the deceased estate, Ms Gritzman and Mr McRae in equal (one-third) shares (see statement of claim at [16]; cross-claim at [1]). However, it seems that Mr McRae's acceptance of that proposition relates to his position as executor under the Will because Mr McRae denies the allegation that he held the Double Bay Property in part on constructive trust for Ms Gritzman (see Mr McRae's amended defence at [7]).
Before turning to the position under the Will, it is necessary to determine the beneficial ownership of the Double Bay Property at the time of the deceased's death.
In broad terms, as noted in the chronology of events, Ms Gritzman's evidence is that she lent the deceased a sum of money to assist him in the purchase of the Double Bay Property; that Ms Gritzman and the deceased then agreed that, in lieu of the deceased repaying the moneys owing to Ms Gritzman, the deceased would hold a 37.5% beneficial interest in the Double Bay Property on behalf of Ms Gritzman (this being pleaded in the statement of claim as the "Settlement Agreement"); and that, by common intention comprised in the Settlement Agreement, Ms Gritzman and the deceased intended that the deceased would hold a 37.5% interest in the Double Bay Property for the benefit of Ms Gritzman. Ms Gritzman says that, in reliance upon the Settlement Agreement, she took no steps either to recover the money owed to her or to have any part of the Double Bay Property transferred to her.
Ms Gritzman thus maintains that the deceased held (and Mr McRae now holds) the whole of the Double Bay Property as constructive trustee, in circumstances where it is not disputed that the Double Bay Property was held on trust by the deceased prior to his death, and the Double Bay Property retained its character as trust property following the deceased's death. Ms Gritzman contends that there was a clear common intention, held by all of the parties, that the Double Bay Property was to be held on trust for the benefit of each of the deceased, Ms Gritzman and Mr McRae.
Pausing here, Ms Gritzman says that that there was, at no time, any express trust instrument appointing Mr McRae as trustee of the whole of the Double Bay Property. However, there was the formal Declaration of Trust, whereby Mr McRae bound himself so to do (albeit as to one-third shares).
In the circumstances, Ms Gritzman says that Mr McRae was obliged not to retain for himself the beneficial interest in the whole of the Double Bay Property and was obliged to hold the Double Bay Property for the benefit of the deceased estate, Ms Gritzman and himself pursuant to the constructive trust. Further, it is said that Mr McRae had (and has) personal liability to account in a suit for breach of trust for the discharge of the trustee's duties (reference being made to Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [2] and [4] per Gleeson CJ, McHugh, Gummow and Callinan JJ).
Ms Gritzman thus seeks declarations that she held a 37.5% beneficial interest in the Double Bay Property prior to its sale and is entitled to have distributed to her 37.5% of the net proceeds of sale.
Mr McRae submits that there is no reason not to accept the 1987 Declaration of Trust (in which the beneficial ownership is recorded as being in one-third equal shares) as being an accurate contemporaneous recital of the contributions to the purchase price of the Double Bay Property and the beneficial ownership of the property standing in the legal name of the deceased. (Mr McRae explains the contrary statement in the Inventory of Property filed with the probate documents on the basis that the solicitor acting for the deceased's estate did not have a copy of the 1987 Declaration of Trust at the time that the Inventory of Property was prepared and that it was only later on 24 August 2017 that Mr Cappe made the 1987 Declaration of Trust available.)
Mr McRae also raises a defence (at [15] of his amended defence) to Ms Gritzman's claim to a 37.5% interest in the Double Bay Property on the basis that the alleged settlement agreement was not in writing (invoking s 23C of the Conveyancing Act. In response, Ms Gritzman maintains that the agreement to hold 37.5% of the Double Bay Property on trust for Ms Gritzman is in fact recorded in writing, referring to the Foreign Exchange declaration signed by the deceased in 2004 and addressed to a third party, which Ms Gritzman says is a "note or memorandum" within the meaning of s 54A of the Conveyancing Act. In any event, it is submitted that common intention trusts arise in circumstances where an express trust fails for want of writing, but which equity will enforce (reference here being made to Allen v Snyder [1977] 2 NSWLR 685, especially at 692 per Glass JA with whom Samuels JA agreed).

[32]

Determination

A common intention trust arises where there is a common intention between the parties that both should have a beneficial interest and where the claimant has acted to his or her detriment on the basis of that common intention (see Grant v Edwards [1986] Ch 638 (Grant v Edwards) at 651 per Mustill LJ; Carruthers v Manning [2001] NSWSC 1130 at [121] per Einstein J). White J, as his Honour then was, described this cause of action in Shepherd v Doolan [2005] NSWSC 42 (Shepherd v Doolan) (at [31]) as follows: One class of case where equity will intervene to prevent the unconscientious denial by the legal owner of another party's rights, is where the parties agreed, or it was their common intention, that the claimant should have an interest in the property owned by the other, and the claimant acted to his or her detriment on the basis of that agreement or common intention. … [citations omitted]
It is not necessary for a common intention constructive trust that the common intention be that the parties have a specific share of the property; it being sufficient that they intend that the claimant should have a beneficial interest or "some form of proprietary interest".
On the question of detriment, White J noted in Shepherd v Doolan (at [40]) that in Green v Green (1989) 17 NSWLR 343 at 357 Gleeson CJ, with whom Priestley JA agreed, approved a less stringent test (taken from the judgment of Sir Nicolas Browne-Wilkinson VC in Grant v Edwards) that: ... [O]nce it has been shown that there was a common intention that the claimant should have an interest in the house, any act done by her to her detriment relating to the joint lives of the parties is, in my judgment, sufficient detriment to qualify. The acts do not have to be inherently referable to the house ... The holding out to the claimant that she had a beneficial interest in the house is an act of such a nature as to be part of the inducement to her to do the acts relied on. Accordingly, in the absence of evidence to the contrary, the right inference is that the claimant acted in reliance on such holding out and the burden lies on the legal owner to show that she did not do so ... [citations omitted]
Although the relevant common intention is often the intention at the time the property the subject of the trust was acquired, a common intention constructive trust may arise after the acquisition of the property if the evidence establishes that the relevant common intention was formed at some later time. Further, the nature of the common intention may also change from time to time but that change will not be established merely from proof of proportionate changes in the contributions made by the parties.
In the present case, the 1987 Declaration of Trust of itself would not necessarily establish a common intention as between Ms Gritzman and the deceased as to the holding by the deceased of the property on trust (as to a one-third share) for Ms Gritzman (but it would not be necessary to rely on a common intention constructive trust where there was an express trust declared by the deceased in respect of that interest) and in any event Mr McRae (though vacillating on this issue in his oral evidence) does not here dispute that Ms Gritzman had a one-third beneficial interest in the Double Bay Property as evidenced by the Declaration of Trust. The real issue here is as to whether a subsequent change to that declared trust (as contended for by Ms Gritzman) has been established.
What Ms Gritzman here relies upon in support of her contention as to the existence of a common intention constructive trust is an oral agreement allegedly reached with the deceased at some time between 1987 and the 1990s (and in any event, prior to 2004).
In King v Adams [2016] NSWSC 1798 (at [65]-[69]), Sackar J summarised the principles relating to the formation of oral contracts (including that the existence and terms of an oral contract are to be ascertained as a question of fact and that consideration of surrounding circumstances and post-contractual conduct is permissible when the existence or terms of an oral contract are in issue). His Honour there referred to what was said by Spigelman CJ in County Securities Pty Limited v Challenger Group Holdings Pty Limited [2008] NSWCA 193 at [7]; and to what was said by Heydon JA, as his Honour then was, in Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [39].
In the present case, however, Ms Gritzman's claim does not depend on establishing a binding and enforceable oral contract in the terms of the alleged Settlement Agreement. It is sufficient for Ms Gritzman to establish consensus or a common intention between the deceased and Ms Gritzman that Ms Gritzman have a proprietary interest in the property and reliance by Ms Gritzman to her detriment on that common intention.
Hence, the s 23C Conveyancing Act defence does not here need to be determined. However, for completeness, I accept that there is not a written agreement as such (although the signed 2004 Foreign Exchange declaration is a sufficient note or memorandum of the agreement, as letters to third parties have long been considered to be a sufficient note or memorandum of the agreement, signed by the party charged for the purpose of the Statute of Frauds: see Gibson v Holland (1865) LR 1 CP 1 at 5 per Earle CJ) but in any event equity would not permit reliance on the legislation in order to permit an equitable fraud. Hence this defence does not assist Mr McRae in resisting the claim of constructive trust of the kind for which Ms Gritzman here contends.
I also note that it is not necessary that Mr McRae be privy to such a consensus or common intention because it is not contended that his beneficial interest in the Double Bay Property was burdened by the varied beneficial share to be held (on Ms Gritzman's case) for her benefit.
The existence of a common intention to the effect pleaded is to my mind established on the balance of probabilities by reference to the deceased's subsequent Foreign Exchange declaration in 2004. This was on its face a formal statement as to the circumstances of the deceased's acquisition of the Double Bay Property and corroborates Ms Gritzman's account of the agreement reached with the deceased; and I would infer that the deceased did not intend to mislead the South African regulatory authorities (particularly in a statement said to be intended to "regularise" his affairs). I thus take the Foreign Exchange declaration to be a true representation of the deceased's intentions and beliefs concerning the ownership of the Double Bay Property.
It is also consistent with the proportion adopted by the deceased for Ms Gritzman's share in the deceased's last Will (although, as I explain below, that percentage related to the share to be inherited of the deceased's interest in the property; not the overall property).
As to detrimental reliance, I note that reliance is a fact to be found (see, albeit in the context of estoppel by encouragement, Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 (Sidhu v Van Dyke) at [58] per French CJ, Kiefel, Bell and Keane JJ); and that what is required is satisfaction from the whole of the evidence of the fact of reliance on the balance of probabilities (see Nguyen v Cosmopolitan Homes (NSW) Pty Ltd [2008] NSWCA 246, where McDougall J (with whom McColl JA and Bell JA, as her Honour then was, agreed) summarised at [55] the civil standard of proof). The relevant assumption (or representation) need not be the "sole inducement operating on the mind of the party setting up the estoppel" (Sidhu v Van Dyke at [71]); rather, the threshold is lower (it need only be a "contributing cause" (see at [71]-[73] per French CJ, Kiefel, Bell and Keane JJ, and [90] per Gageler J). The plaintiff need not prove "precisely" or "categorically" how the plaintiff would have acted differently (see Priestley v Priestley [2017] NSWCA 155 at [147] per Emmett AJA, with whom McColl and Macfarlan JJA agreed).
In the present case, I accept Ms Gritzman's evidence that she relied on the consensus reached with the deceased as to her interest in the Double Bay Property in not taking any steps to recover her contribution to the acquisition of the Property or to have a transfer to her of her agreed proportionate interest. As to the element of detriment, I note that (again, in a different context), in Sidhu v Van Dyke the High Court made clear that detrimental reliance (though required to be established and not a matter for presumption) may be inferred as a matter of common sense and as a "a matter of the probabilities of human behaviour" (see Sidhu v Van Dyke at [69]; see further Donis v Donis (2007) 19 VR 577; [2007] VSCA 89 at [20] per Nettle JA, as his Honour then was, Maxwell ACJ and Ashley JA agreeing).
Here, the Declaration of Trust (albeit, as I have concluded, subsequently agreed to be varied) made clear the deceased's agreement that, at the request and cost of the holders of the beneficial interest, the deceased would take steps to transfer to them the interest held in the Double Bay Property for them. That Ms Gritzman did not do so, over the years since acquisition of the Double Bay Property, is consistent with her reliance on the relationship of trust she had with the deceased and it is clearly detrimental reliance in circumstances where Mr McRae, as executor, now disputes her entitlement to a 37.5% beneficial interest in the Double Bay Property.
Thus, I find that as at the deceased's death the deceased held a 37.5% interest in the Double Bay Property for Ms Gritzman (and a 33.33% interest in the property for Mr McRae), the deceased estate's interest being as to the remaining 29.16%. Mr McRae as executor thus holds the Double Bay Property as to a 37.5% interest on constructive trust for Ms Gritzman (and as I explain below an additional share of the property being part of the deceased's interest in the property, as trustee and executor of the deceased's Will).
I have thus concluded that the deceased held the legal interest in the Double Bay Property pursuant to the express 1987 Declaration of Trust as to one-third for Mr McRae and, pursuant to the subsequent consensus or agreement with Ms Gritzman, as to 37.5% for Ms Gritzman (on a common intention constructive trust) and the balance (i.e., 29.16%) for himself.

[33]

Proper construction of the Will

The primary duty in construing a Will (as explained by Griffith CJ in Nicol v Chant (1909) 7 CLR 569; [1909] HCA 4 at 577) is to discover the meaning of the language of the testator as applied to the circumstances existing at the date of the Will and to give effect to the intention so discovered unless some authoritative rule of law or construction requires a different conclusion (see the summary of principles in Phillips v McCabe [2016] SASC 27 at [14]-[18] per Gray J). In Coorey v George (Supreme Court (NSW), Powell J, 27 February 1986, unrep), Powell J said that the task of construction is "first, if it be possible, to ascertain, what was the basic scheme which the deceased had conceived for dealing with his estate, and, then, so to construe the will as, if it be possible, to give effect to the scheme so revealed".
The executor has a fiduciary obligation to carry out the wishes of the testator to the extent possible (see Re O'Callaghan [1972] VR 248; Re Bowcock [1968] 2 NSWR 697; Re Cobcroft [2015] NSWSC 346; Ireland v Retallack (2011) 6 ASTLR 585; [2011] NSWSC 846; Salier v Watson [2014] NSWSC 237).
Turning to the construction of the Will in the present case, the issue raised on the pleadings is as to whether the gift to Ms Gritzman of a 37.5% share of the net proceeds of sale (if the trustee were to choose to sell the Double Bay Property) is subject to the direction in the closing words of cl 4.1(c), namely, that the deceased's trustee was to distribute the net income derived from "those investments" to Mr McRae during his lifetime.
The reference to "those investments" must be to the investments referred to in cl 4(c)(ii), i.e., investments to be made in respect of the 62.5% of the net proceeds of sale that were to be held on trust by the trustee. There is no such direction under cl 4(c)(i) in respect of the 37.5% of the net proceeds of sale to be held for Ms Gritzman.
The logic of the scheme provided for under the Will thus makes sense. Mr McRae was to have an entitlement to the net income from the deceased's Australian assets (and the right to occupy the Double Bay Property as his residence) during Mr McRae's lifetime; but, if the trustee chose to sell the Double Bay Property, then there was a distinction between the treatment of the 37.5% share of the net proceeds (to be held on trust for Ms Gritzman) and the 62.5% (to be invested for the benefit of Mr McRae during his lifetime). (In passing, I note that this was the very construction for which Mr McRae's lawyers contended in their initial correspondence with Ms Gritzman and others.)
The only other potential issue of construction is as to what the deceased intended by the proportionate 37.5% − 62.5% split in the disposition of the deceased's interest in the Double Bay Property. As noted above, Mr McRae was adamant that the Will was irrelevant; null and void; and a nonsense (seemingly because the deceased was there purporting to deal with the whole of the property and not only the beneficial interest held by the deceased). I do not accept that this conclusion follows (and I note that, as executor, Mr McRae has a duty to uphold the Will and has not sought to challenge the validity of the Will).
Rather, I consider that the Will should be read according to its terms and with reference to what the deceased's assets were as at the date of death. On the conclusion reached as to the first of the issues, the deceased held beneficially at the date of his death only a 29.16% interest in the Double Bay Property. Thus, under cl 4 of his Will, the deceased was disposing of that interest.
Thus, the gift to Ms Gritzman under the Will is of a 37.5% interest in the deceased's 29.16% interest in the Double Bay Property (i.e., a 10.935% interest in the property), bringing her total beneficial interest in the Double Bay Property to 48.435% (although that is held under two different trusts).

[35]

Duties of Executor and Trustee under the Will

As noted above, the duties of an executor and trustee under the deceased's Will would include duties of the kind referred to above. In addition, as executor, in essence Mr McRae's duty was to get in the assets of the estate, to pay expenses and liabilities of the testator, and then to distribute the residue of the estate in accordance with the Will and produce accounts (Juul v Northey [2010] NSWCA 211 at [196] per McColl JA with whom Basten and Campbell JJA agreed). Consistent with an executor's functions is the existence of a fiduciary duty owed by the executor to the beneficiaries under the Will, requiring the executor to abide by the "no conflict" and "no profit" rules owed by fiduciaries. Unless an executor effectively renounces the role, a person named as an executor is ostensibly obliged to prove the Will (by making an application for probate). It follows that an executor "who has already proved a will cannot be permitted to dispute its validity or contend for any entitlement at variance with the terms of the will properly construed" (Tsaknis as executor and trustee of the estate of Geoffrey Douglas Roland Lilburne (Dec) v Lilburne [2010] WASC 152 at [48] per EM Heenan J).
An executor who breaches his or her fiduciary duties owed to the beneficiaries of the deceased's estate upon the grant of probate is liable in damages (see Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 519, where damages were awarded for "the wrongful use and occupation" connected with breach of trust). (See also the observations of Edelman J, writing ex-judicially, in Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing, 2002) at 208.)
Upon the grant of probate to Mr McRae, as executor of the deceased's estate, the Double Bay Property vested in him as administrator pursuant to s 44(1) of the Probate and Administration Act 1898 (NSW) (Probate and Administration Act) (see O'Regan v Hellstrom [2020] NSWSC 16 at [24] per Lonergan J).
Mr McRae says that, as part of his duties as an executor and trustee, Mr McRae was entitled to take reasonable steps to secure the Double Bay Property and to effect its sale (though it is accepted that this means that he also has an obligation to account for the moneys that came under his control). It is said that a "general approach" has been taken to the attributing of the moneys for which each of the three beneficiaries should be liable (Ms Gritzman as to one third, the estate as to one third and the final one third for Mr McRae).
I accept that, as executor, Mr McRae had a duty to secure the deceased's interest in the Double Bay Property. What I do not accept is that Mr McRae's position as executor authorised him to sell an asset in which the deceased had only a partial interest. Rather, in compliance with his duty as executor to get in and preserve the assets of the estate, Mr McRae's duty (if he could not obtain the consent of the other beneficial owners to a sale of the Double Bay Property) would have been to make the appropriate application to the Court (either for an order under s 66G of the Conveyancing Act for the sale of the property or for judicial advice as to issues arising from the administration of the estate in the circumstances where the Double Bay Property was not held solely in the deceased's name beneficially). Mr McRae took neither course and instead (as trustee de son tort) sold the Double Bay Property without the consent (let alone consultation with) the other beneficial owner (Ms Gritzman).

[37]

Sale of Double Bay Property and reliance on s 52 Trustee Act

As already noted, complaint is made that, following the deceased's death in 2015, Mr McRae (through his legal representatives) repeatedly represented to Ms Gritzman that he could not (and would not) sell the Double Bay Property without Ms Gritzman's involvement and agreement; but that, instead, Mr McRae entered into a verbal agreement and then written contract for sale in respect of the Double Bay Property without Ms Gritzman's knowledge, involvement or agreement.
It is not disputed that Mr McRae did not inform Ms Gritzman that he had executed the Contract for Sale with the incumbent tenant; nor as to the sale; and that, after the settlement of the sale of the Double Bay Property, Mr McRae did not inform Ms Gritzman that the Double Bay Property had been sold (even though on Mr McRae's own account Ms Gritzman had a beneficial interest at least to some extent in the Double Bay Property); Mr McRae did not take any steps to inform Ms Gritzman of the funds held on trust for Ms Gritzman; and Mr McRae did not take any steps to remit any funds to Ms Gritzman. Complaint is further made that the sale was without any power (statutory or otherwise) to do so; and that the sale was effected without marketing the Double Bay Property for sale; and for less than the true market value of the Double Bay Property.
Complaint is also made that Mr McRae failed to keep (and continues to fail to keep) proper accounts with respect to the constructive trust or the deceased estate; failed to provide Ms Gritzman with adequate accounts, including by failing to provide adequate information with respect to the management of the constructive trust and the deceased estate.
Leaving aside the complaint as to sale of an undervalue, all of those complaints (for the reasons set out above) are made good. That leaves the complaint as to the sale of the Double Bay Property at an undervalue, to which I now turn.
It was not conceded by Mr McRae that there was no power to sell the Double Bay Property. Rather, the position for Mr McRae (T 27.45-47) was that his appointment as executor gave him the power to do so. The difficulty with that proposition is that it does not take into account the interests of the other beneficial owner (Ms Grtizman) in the property. What vested in Mr McRae as executor was the legal title to the Double Bay Property impressed with a constructive trust in favour of Ms Gritzman in respect of a 37.5% interest in the property.
I have referred above to the valuation evidence. Ms Gritzman relies on the two experts' reports from Mr Bailey (CB Property Valuation & Consultancy Pty Ltd). Mr McRae relies on the valuation evidence of Mr Adrian Staltari of Meadowbank Real Estate Pty Ltd. A joint expert dated 20 January 2020 with comments on the valuations of both valuers has been obtained.
As noted above, Mr Staltari valued the property at $1.75 million as at 8 May 2012, and at $2.650 million as at 4 August 2017. Mr Bailey valued the property at $3.250 million as at 13 October 2017 (based on comparable sales history and an external inspection on 3 February 2019).
Mr McRae submits that the contemporaneous valuation was the only one available to the trustee at the time.
As noted above, much focus was placed on the presence of the large tree (a "towering tree") in the backyard of the property and as to the discount to be attributed to the fact of there being no off-street parking. Both experts gave logical explanations for their respective opinions. As to the tree, I accept that it may have provided a disincentive to some buyers, but I do not accept that it should be regarded as a serious limitation on the value of the property for the reasons given by Mr Staltari. As to the discount for lack of off-street parking, I accept that it is likely that this would be a factor in assessing the market value for the property but that even assuming a discount were applied for this, the valuations relied upon by Mr McRae do not adequately take into account improvement in property prices in the period from 2012.
I do not accept that the fact that Mr Bailey's valuation was done in hindsight means that Mr Staltari's valuation was necessarily more reliable (indeed, Mr Staltari's first valuation was similarly a retrospective valuation). I consider that the passage of two months permitted Mr Bailey to make a more extensive assessment, on the basis of greater information. I accept that reliance cannot be placed on the fact that an agreement was struck in 2015 and the property was then sold at same price two years later when determining market value in 2017 (as that assumes that the first sale price that was agreed was itself at market price) Mr Staltari says, with some force, that such a conclusion could not be reached without the intervention of an agent - see Mr Staltari's evidence at T 280.46-50.
The test as to market value is that expressed in Spencer v The Commonwealth (1907) 5 CLR 418 at 432 per Griffith CJ, being "[w]hat would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?". Griffith CJ went on to say that: … The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together. …
The primary methodology is that of comparable sales. Given that Mr Bailey's valuation was based on evidence of comparable sales in the period (and given my concern as to the relatively small increase in property price as between 2012 and 2017 on Mr Staltari's estimates) I consider that on the balance of probabilities the likely market value of the Double Bay Property as at 2017 was $3.25 million (the shortfall to the estate being $400,000 from which one would deduct ordinary sales expenses that the estate did not have to bear on the sale as it was without the intervention of the agent. On the basis of the figures provided, I would assess the loss to the estate of the sale being at an undervalue as being the market value of the Double Bay Property ($3.25 million) less agent's expenses (which, applying an agent's commission of 2%, as included in the figures provided, amounts to $65,000) which brings the total loss from the sale at an undervalue to $435,000, 37.5% of which is $163,125.
This leads to consideration of s 52(1) of the Trustee Act which provides that a trustee may, for the purposes of giving effect to the trust, from time to time, by duly qualified agents, ascertain and fix the value of any trust property in such manner as the trustee thinks proper. Section 52(2) provides that any valuation so made in good faith shall be binding on all persons interested under the trust.
Mr McRae says that the question here is whether the value of the property was so unreasonable that no trustee (in the position of Mr McRae as a resident of South Africa) would have relied upon it in good faith. (Pausing here, Mr McRae's position as a resident of South Australia does not appear to me to be relevant to determining whether a valuation made pursuant to s 52 of the Trustee Act was relied upon in good faith. Indeed, the terms of s 52 of the Trustee Act are that a trustee may by an agent fix the value in such manner as the trustee thinks proper, and it is "any such valuation so made in good faith" that is binding upon all persons interested under the trust - that is, the referent of the requirement of good faith is the agent, and not the trustee.)
It is noted that a similar provision (being s 50 of the Trustees Act 1962 (WA)) in Western Australian has been considered Clay v Clay (1999) 20 WAR 427 (Clay). In Clay, the Court described (at [40]) s 50 as a permissive and facilitative provision which a trustee may call in aid in the performance of a trust, reliance upon (and observation of) which secures the advantage and protection of that provision for the trustee. Section 50 of the Western Australian legislation provided as follows: (1) A trustee may, for the purpose of giving effect to the trust, or any of the provisions of the instrument (if any) creating the trust or of this Act or any other Act, from time to time ascertain and fix the value of any trust property, or of any property that he is authorised to purchase or otherwise acquire, in such manner as he thinks proper; and where the trustee is not personally qualified to ascertain the value of any property he shall consult a duly qualified person (whether employed by him or not) as to that value; but the trustee shall not be bound to accept any valuation made by any person whom the trustee may consult. (2) Any valuation made by the trustee in good faith under this section is binding on all persons beneficially interested under the trust.
It is further noted that in Carr v Carr (1987) 8 NSWLR 492 at 496, Young J, as his Honour then was, considered a similar power in s 46(3) of the Trustee Act and said that the section provides that the trustee shall, for the purpose of making a fair appropriation, employ a duly qualified valuer. His Honour said that "[t]hat term is not defined by the Trustee Act and would seem to me to mean any person who would be considered to be able to give the trustee proper advice as to the valuation of the land".
Accordingly, Mr McRae submits that the question is whether the valuation obtained from Mr Staltari is from a duly qualified valuer (and I accept it was) and therefore binding. This, however, appears to me to be the wrong question. Mr McRae gave evidence that in October 2015 he struck a deal with the incumbent tenant to sell the house for $2.75 million (see at T 159.35-41). Mr Staltari's valuation occurred in August 2017. Mr McRae cannot rely on s 52 of the Trustee Act as fixing the value of the Double Bay Property, and as therefore being binding upon all persons interested under the trust, as he did not obtain that valuation for the purpose of giving effect to the provisions of the Will - Mr McRae had already entered into an agreement to sell the Double Bay Property for $2.75 million, and he further acknowledged that he felt morally bound to honour the sale of the property at that price as at October 2015 notwithstanding that exchange of contracts did not occur until 7 September 2017 (see at T 298.19-21). It seems to me to be contrary to the object of s 52 for a trustee to deal with property in breach of trust, to agree (albeit informally) to sell the property at a certain price, and then seek to rely on a valuation obtained, some two years later, as a valuation that would bind all persons interested under the trust.

[38]

Claim to amounts withdrawn or depleted from estate

Ms Gritzman maintains that Mr McRae has misused, misappropriated, or is otherwise unable to account for, funds once held in either or both of the constructive trust or the deceased estate trust. In particular, Ms Gritzman alleges that Mr McRae has specifically misused, misapplied or failed to account for, specific amounts totalling $55,720.24.
Ms Gritzman says that the misuse of trust funds gives rise to an immediate obligation by a trustee to remedy the breach (citing Youyang at [35]). It is said that, notwithstanding that Mr McRae has been aware of these specific complaints since at least 18 October 2018 (and was in fact aware prior to that time), he has taken no steps to remedy his breaches of trust and has maintained that he has not misused, misapplied or failed to account for any funds.
Mr McRae notes that Mr Bergman has been directly involved in the administration of the Double Bay Property since its purchase in 1987, the sale of the property, and the payment of capital gains tax and other expenses associated with the administration of the estate. It is said that Mr Bergman has provided the explanation of the distribution of the funds from the proceeds of sale and that Mr Bergman has addressed the calculation of the amounts claimed by Ms Gritzman. Mr McRae says that the figure paid into Court was in excess of the amount that should have been sought by Ms Gritzman.
It is said by Mr McRae that, as to the sale of the Double Bay Property and the disclosure of the proceeds of sale, the affidavits filed by Mr Howard Hilton, Ms Janet Ross and Mr Jeffrey Bergman account for the proceeds of sale and that most of the proceeds have been paid into Court with the balance held in Mr McRae's solicitors' trust account or controlled moneys account. It is submitted that "[s]o far as the actual accounting is concerned no meaningful challenge has been made to the actual accounting of the figures". I beg here to differ. The exercise of reviewing Mr Bergman's accounts revealed issues with the claimed travel expenses (now not claimed), expenses claimed by Mr McRae as executorial expenses at a time before the deceased's death, and a series of expenses for which no documentation appears to exist.
I note that Mr McRae submits that he should be allowed the whole or part of the items for legal and accounting fees and necessary travel, and other items for which vouchers have been provided of $20,211.58 (for the items at rows 46 to 57 of Mr Bergman's spreadsheet) (see also T 218.31-42); and that Mr McRae does not press the ATO allowances claimed for expenses of $29,669.80. Mr McRae concedes the shortfall of $6,178.61.
Reliance is placed on the right of a trustee for indemnity out of trust property (see s 59(4) of the Trustee Act; Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250 per Lord Eldon LC; Northey v Juul [2014] NSWSC 464 at [96] per Slattery J). However, I have concern as to whether it can be said that the claimed costs and expenses have been reasonably and honestly incurred for the benefit of the trust (as opposed to incurred in Mr McRae's own interests).
Accordingly, I consider that Mr McRae should be ordered to refund to the deceased estate the sums paid in reimbursement of the travel expenses that he now concedes (and the shortfall that he now concedes) and that the balance of any disputed items should be dealt with on the passing of the accounts.
As to 5 of Ms Gritzman's Summary of Relief which seeks replenishment of the funds of the deceased estate, specifically $301,730.15 being amounts paid by Mr McRae from the funds of the deceased estate with respect to his legal costs, on the figures later provided by Ms Gritzman to Mr McRae, it is submitted by Mr McRae that there appears to be a duplicate amount for a cheque entry on 18 May 2020. Mr McRae submits that the correct figure should be $277,124.05. It was not, however, apparent to me how that double counting was said to have arisen.
Finally, I note that Mr McRae opposes the relief sought in [4], 5, [6], [7], [8], [9], [11] and [12] of the plaintiff's summary of relief, although he agrees with the mathematical calculations therein. At [4], Ms Gritzman seeks equitable compensation of $163,125, being the loss suffered by Ms Gritzman as a consequence of the sale of the Double Bay Property at an undervalue. At 5, Ms Gritzman seeks replenishment of the funds of the deceased estate in the sum of $126,846, being the loss suffered by the estate as a consequence of the sale of the Double Bay Property at an undervalue. In [6] of the summary of relief, Ms Gritzman seeks interest on the sums in 3 (being $889,718.04, or 37.5% of the net proceeds from the sale of the Double Bay Property) and [4]. At [7], Ms Gritzman seeks interests on the sums set out in 5-(c) (5 being the $55,976.74 alleged to have been improperly paid from the funds of the deceased estate by Mr McRae). At [8] Ms Gritzman seeks a declaration that Mr McRae is not entitled to be indemnified from the funds from the sale of the Double Bay Property with respect to his legal costs, or any other costs and expenses relating to the proceedings. At [9] Ms Gritzman seeks an order appointing her as trustee of the proceeds from the sale of the Double Bay Property. At [11] Ms Gritzman seeks an order that Mr McRae pay her costs of the proceeding on an indemnity basis. Finally, at [12] Ms Gritzman seeks an order that no distributions from the proceeds of the sale of the Double Bay Property are to be paid to Mr McRae unless and until all of the amounts required to be paid as set out in the summary of relief have been paid by Mr McRae, or until further order of the Court. The basis on which the last order was sought was not made clear in submissions and in those circumstances I do not propose to make such an order.
I am of the opinion that Mr McRae is liable to replenish the funds of the deceased estate by paying the sum of $484,552.89 into Court, this figure comprising: $126,846, being the loss suffered by the deceased estate as a consequence of the sale of the Double Bay Property at an undervalue; $301,730.15, being amounts paid to Mr McRae from the deceased estate's funds with respect to Mr McRae's legal costs; $55,976.74, being amounts improperly paid from the deceased estate's funds to Mr McRae. I am furthermore of the opinion that Mr McRae ought to pay interest on those sums, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

[39]

Claim for relief from personal liability - s 85 Trustee Act

Mr McRae seeks that he be wholly relieved of any personal liability arising from any breaches of trust pursuant to s 85 of the Trustee Act (which breaches Mr McRae denies). Ms Gritzman says that Mr McRae has not acted honestly or reasonably, and it would not be fair to excuse the breaches of trust committed by Mr McRae (noting that he omitted to obtain the direction of the Court in relation to the matter in which he committed the breach).
Insofar as Mr McRae has effectively abdicated responsibility to his advisers, the historical position (see Langford v Gascoyne (1805) 11 Ves 333; 32 ER 1116) was that a trustee could not delegate the trustee's duties or powers, irrespective of the extent of any advice taken before making a decision (by reference to the principle delegatus non potest delegare) (see G Jones, "Delegation by Trustees: A Reappraisal" (1959) 22 Modern Law Review 381). The strictness of this prohibition has been substantially ameliorated since then. A trustee may delegate his or her duties (as I have discussed elsewhere - see Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 at [2368]ff; and see also the discussion there as to the general question of employment of agents and the discussion (at [17-23]) by the editors of Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis) (Jacobs')). It is not necessary here further to repeat that discussion, save to note that the mere fact that Mr McRae retained the services of Mr Bergman (or Mr Hilton) in relation to the administration of the estate will not necessarily warrant him being excused for breaches of trust in relation to steps taken or omissions by them. (Moreover, I note that there is no evidence of appointment of Mr Bergman as agent as such (see T 37.1-10). Reliance is simply placed on his position as effectively acting as agent.)
The question whether Mr McRae should be relieved from liability under s 85 of the Trustee Act turns on whether Mr McRae acted honestly and reasonably in respect of the various breaches of trust for which I have found Mr McRae to be liable. This is a question of fact to be determined having regard to all the circumstances of the case: H Ford and W Lee, Laws of Trusts (4th ed, 2010, Thomson Reuters) at [18.430]. The requirement of "honesty" was considered by the Supreme Court of South Australia in Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at 295, where Olsson J held that the trustee must: Act[] honourably, fairly, in good faith and in a commonsense manner as judged by the standards of others of a similar professional background.
In determining whether Mr McRae acted honestly, the terms of the Will ought to be taken into account in order to determine whether an ordinary person might reasonably entertain a particular view of the construction of the Will, and, if the action of Mr McRae would have been justified if that view had been the true one, Mr McRae cannot be said to have acted unreasonably merely because his construction of the Will was wrong (see Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149; [1947] HCA 42 at 165 per Starke, Dixon and Williams JJ).
In circumstances where it is clear that Mr McRae (on his own evidence) has in effect abdicated responsibility and has relied in blind faith on his solicitors and accountant, I do not accept that he has acted reasonably; and I cannot accept that he acted honestly in selling the Double Bay Property without Ms Gritzman's consent in circumstances where he had been advised that her consent was required and he must have been aware from the correspondence to which he was copied that assurances had been given that she would have reasonable input into what was to be a transparent process. This is not a case where Mr McRae proceeded on a genuine (though misinformed) understanding of the effect of the Will. Mr McRae was cavalier in his approach to his duties as trustee and executor, and cannot be said to have acted either honestly or reasonably.
I do not consider that the facts warrant the application of s 85 of the Trustee Act in the present case and hence I do not excuse Mr McRae from personal liability for the breaches. Thus, I will order that Mr McRae pay Ms Gritzman the equitable compensation sought, being $163,125 representing the loss suffered by Ms Gritzman as a consequence of the sale of the Double Bay Property at an undervalue. I will also order Mr McRae pay Ms Gritzman interest on this sum.

[40]

Revocation of grant of probate

There is inherent power to revoke a grant of probate, as well as a specific statutory power pursuant to s 66 of the Probate and Administration Act. The power to do so is a matter of discretion (see Mavrideros v Mack (1998) 45 NSWLR 80 at 108 per Sheller JA, Priestley JA and Beazley JA (as Her Excellency then was) agreeing), the question being: … whether the due and proper administration of an estate has been put in jeopardy or has been prevented by acts or omissions of the executor, or by matters personal to the executor, or by other matters establishing that the executor is not a fit and proper person to carry out the duties that the executor has sworn to perform. … Similarly, there is inherent power to remove and replace a trustee, as well as a specific statutory power pursuant to s 70 of the Trustee Act.
The power under s 70 of the Trustee Act to remove a trustee is wherever it is expedient to appoint a new trustee or new trustees and it is inexpedient, difficult or impracticable to do so without the assistance of the Court. The inherent power to remove a trustee will be exercised where the Court is satisfied that the welfare of the beneficiaries is opposed to the continuation of the trustee in office, taking into account a number of considerations (including, by way of example, security of the trust property and faithful and sound exercise of the trust powers).
In Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13 at 580-581 Dixon J, as his Honour then was, with whom Evatt and McTiernan JJ agreed said: The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In decision to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.
On the basis of the above, Ms Gritzman seeks the removal of Mr McRae from the offices of trustee of the constructive trust, and as trustee and executor of the deceased estate.
Mr McRae does not resist his removal as trustee. In the circumstances, I consider that the grant of probate should be revoked and letters of administration granted to Ms Gritzman to administer the deceased's estate. The alternative executors are not only not in the jurisdiction but there is no evidence to the effect that they would be willing or able to complete the administration of the estate.
I will make orders accordingly.

[43]

Orders

Accordingly, I make the following orders: 1. The grant of probate made on 4 July 2017 be revoked. 2. Letters of administration be granted to the plaintiff to administer the estate of the late Asher Mannie Osband and refer the file in this matter to the Probate Registrar to complete the grant of letters of administration. 3. The amount of $469,718.04 be paid out of Court to the plaintiff, representing the balance of 37.5% of the net proceeds from the sale of the Double Bay Property remaining after the funds already disbursed to the plaintiff from the funds held in Court. 4. The defendant pay the plaintiff interest on the sum of $889,718.04 (being 37.5% of the net proceeds from the sale of the Double Bay Property) from 13 October 2017 to the date of distributions made in respect of the plaintiff's share of those proceeds and for the balance up to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW). 5. The defendant pay the plaintiff equitable compensation of $163,125, representing the loss suffered by the plaintiff as a consequence of the sale of the Double Bay Property at an undervalue. 6. The defendant pay the plaintiff interest on the sum of $163,125 from 13 October 2017 to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW). 7. The defendant pay the plaintiff $484,552.89 in her capacity as administrator of the estate of the late Asher Mannie Osband in order to replenish funds improperly paid from the deceased's estate by the defendant. 8. The defendant pay the plaintiff in her capacity as administrator of the estate of the late Asher Mannie Osband interest on the sum of $484,552.89 calculated from the date of each such payment to the defendant out of the estate funds of the amounts comprised in this sum to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW). 9. The balance of the funds held by the Court are to be paid to the plaintiff, to be held by the plaintiff as trustee. 10. The defendant pay the plaintiff's costs of the proceeding on an indemnity basis. 11. Declare that the defendant is not entitled to be indemnified from the funds from the sale of the Double Bay Property, including but not limited to the interest of the deceased estate in those funds, in respect of his legal costs, or any other costs and expenses relating to this proceeding.

Gritzman v McRae

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Judgment (44 paragraphs)

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Legislation Cited (6)

Cases Cited (54)

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