GEOFFREY ARCHIBALD FISHER as Executors and Trustees of the Will of DONALD ROBERT FISHER (DEC)

Trustees - Deceased estate - Claim for interest on bequest due to beneficiary - Payment of bequest withheld pending resolution of proceedings under Inheritance Act - Whether claim for interest should be allowed in these circumstances

Inheritance (Family and Dependants Provision) Act 1972 (WA), s 6(1), s 8, s 10, s 14, s 20

Supreme Court Act 1935 (WA), s 32

Trustees Act 1962 (WA), s 65, s 92

Easterbrook v Young [1977] HCA 16; (1977) 136 CLR 308

Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642

1 HASLUCK J: The plaintiff Kerry Anne Grove, is a beneficiary under the Will of her late father, Donald Robert Fisher who died on 23 August 1983. The plaintiff seeks to enforce a claim for interest against the executors of her late father's estate which is referable to a bequest due to her under the deceased's Will. I must begin by looking at the circumstances giving rise to the claim.

2 The deceased was survived by his wife, Shirley Frances Fisher, and by his three children Neil Donald Fisher, Brian Peter Fisher and the plaintiff in these proceedings, Kerry Anne Grove. He left a Will dated 28 June 1983 which appointed Shirley and his brother Geoffrey Archibald Fisher as the executors and trustees of his estate.

3 Probate of the Will was granted on 11 October 1984 to the executors named in the Will.

4 At all material times before his death the deceased was a farmer. The farming business was carried on by a partnership trading under the name of "DR Fisher & Co". The partners at the date of the deceased's death were the deceased, his wife Shirley, his son Neil and a family trust. The farming business was conducted on a number of properties, some of which were co-owned by the deceased and Shirley, some by the family trust and some by Neil.

5 The net assets and value of the estate shown in the probate application were $726,704.28 with the two largest items being the sum of $234,981 representing an interest in the partnership and the sum of $485,390 representing farming assets "Glen Muick" Hines Hill.

6 The deceased's Will did not make any provision for his son Brian Fisher. Clause 2 of the Will contained a bequest in favour of his daughter Kerry as follows:

"I GIVE AND BEQUEATH the sum of two hundred and fifty thousand dollars ($250,000.00) to my Trustee UPON TRUST to pay the same to my daughter KERRY ANNE FISHER over a period of seventeen (17) years from the date of my death by instalments in such amounts and at such times as my said wife SHIRLEY FRANCIS FISHER shall direct and determine or in the event of the death of my said wife prior to the expiration of the said period of seventeen (17) years then the said sum or the balance then remaining unpaid shall be paid to my said daughter by equal annual instalments free of interest over the balance of the said term."

7 In effect, this meant that $250,000 was due and payable to Kerry by not later than 23 August 2000. It is apparent from the terms of the Will that instalments referable to the bequest could have been paid prior to that date but it seems that Shirley was not minded to exercise her discretion in Kerry's favour.

8 I understand that Shirley and her son Neil Fisher continued to manage the farming properties for many years after the deceased's death. On 28 February 1997 Brian and Kerry brought an application to extend time for the commencement of proceedings under the Inheritance (Family and Dependants Provision) Act 1972 on the grounds that there was a sufficient explanation for the delay. On 26 September 1997 an extension of time was granted. In due course the application for relief under the Inheritance Act became the subject of a hearing before McLure J from 6 to 10 August 2001.

9 Her Honour handed down her reasons for decision on 14 December 2001. Formal orders varying the Will were made on 18 December 2001. It is not necessary for present purposes to look at the orders in their entirety but I note in passing that Kerry's claim for relief was dismissed and provision was made for her brother Brian to be paid certain amounts out of the deceased's interest in the farming land.

10 It is apparent from the judgment of McLure J that the application for relief made by Brian and Kerry under the Inheritance Act was based upon s 6(1) of the Act. The effect of that provision is that if, in the Court's opinion, the disposition of the deceased's estate effected by his Will is not such as to make adequate provision for the proper maintenance, support, education and advancement in life of persons entitled to claim, the Court may order that such provision as the Court thinks fit is made out of the estate of the deceased for that purpose.

11 By s 10 of the Inheritance Act provision made by a Court order shall operate and take effect as if the same had been made by a codicil to the Will of the deceased executed immediately before his death. By s 14 an order shall specify the part or parts of the estate out of which the provision is to be raised or paid. By s 20 no action shall lie against an executor by reason of his having distributed any part of the estate, if the distribution was properly made without notice of any application or intended application under the Inheritance Act in respect of the estate.

12 It is not necessarily fatal to a plaintiff's claim that a portion of the estate has already been distributed. Section 8 of the Inheritance Act provides that in any case where the estate of the deceased, or part thereof, has been distributed among the persons entitled under a Will, the Court may make an order pursuant to s 65 of the Trustees Act 1962.

13 By s 65(3) of the Trustees Act, such an order may provide that any person to whom any assets to which the section applies were distributed, shall pay to the person making the claim, or to the trustee, a sum not exceeding the value of those assets.

14 It was common ground at the hearing before me that the executors of the estate did not pay the sum of $250,000 to Kerry on 23 August 2000 in the manner allowed for by the Will of the deceased.

15 It is apparent from the sequence of events I have described that as at the relevant date the executors of the estate were involved in litigation with Kerry and Brian arising under the Inheritance Act.

16 The plaintiff in the present case asserts by her statement of claim that no part of the bequest which fell due on 23 August 2000 was paid to the plaintiff until 11 April 2002. On that date the executors of the estate paid to the plaintiff the sum of $250,000 together with $4,726.03 interest "being interest thereon at 6% per annum calculated from and including 18 December 2001 to 11 April 2002". I observed in earlier discussion that 18 December 2001 is the date on which the orders made by McLure J took effect.

17 Against this background, Kerry seeks interest for the period 23 August 2000 to 17 December 2001, being a period of 481 days, at the rate of $6.00 per centum per annum. The amount claimed by way of interest is the sum of $19,767.12. Further, the plaintiff seeks interest on this amount pursuant to s 32 of the Supreme Court Act calculated from 11 April 2002 at the rate of $6.00 per centum per annum.

18 The first-named defendant pleads in answer to the claim for interest that the sum of $250,000 which was due and payable to Kerry on 23 August 2000 was not paid by reason of the fact that Kerry and Brian had instituted proceedings in CIV 1211 of 1997 seeking relief under the Inheritance Act.

19 Shirley goes on to say that until the Inheritance Act litigation was resolved she was prevented from distributing any part of the estate lest it be the subject of an order pursuant to the Inheritance Act. I take this to be a reference to an order made by the Court pursuant to s 6(1) of the Inheritance Act varying the effect of the Will so as to make provision for a claimant out of the estate of the deceased.

20 The evidence before me included a letter dated 22 August 2000 from Pullinger Readhead Stewart as solicitors for Brian. Their understanding was that the estate did not intend to distribute the sum of $250,000 to Kerry Grove pending the resolution of the litigation between the parties. No evidence was adduced before me to rebut the plea I have just described and I must therefore proceed from the premise that the amount in question was not paid upon the basis that the Inheritance Act litigation had not been determined.

21 It emerges, then, that the matter in issue between the parties is whether the plaintiff is entitled to interest upon the bequest in respect of the period 23 August 2000 (when the bequest became due and payable) and 17 December 2001 (being the date on which the litigation under the Inheritance Act was resolved as a consequence of the orders made by McLure J).

22 There was a division of opinion between the co-executors as to whether the plaintiff's claim for interest should be defended. Shirley considers that the claim for interest is not justified and this is reflected in the pleading filed on her behalf as the first-named defendant. On the other hand, the deceased's brother Geoffrey considers that the claim should be conceded.

23 The usual rule is that where there is more than one trustee of an estate the decisions of the trustees must be unanimous: Ford & Lee: Principles of the Law of Trusts at par 955. Accordingly, Shirley applied to the Supreme Court prior to the trial of this action for directions in the manner allowed for by s 92 of the Trustees Act. A ruling was made that Kerry's claim for interest should be defended and that each executor be at liberty to be heard and to make submissions to the Court.

24 Counsel instructed on behalf of the deceased's brother Geoffrey did not appear at the hearing before me concerning Kerry's claim for interest. However, a written outline of submissions was filed on his behalf. It was said that at all material times after the deceased's death Shirley opposed the payment of the bequest to the plaintiff. For a period of 13 1/2 years from 23 August 1983 to 28 February 1997 Shirley failed to pay any part of the bequest to the plaintiff.

25 The submissions went on to say that there was no order of the Court preventing Shirley from paying the bequest to the plaintiff after 23 August 2000. On 26 February 2002 Kerry was obliged to commence this action seeking payment of the bequest plus interest to 23 August 2000. The plaintiff has been kept out of her entitlement to the bequest in the period subsequent to 23 August 2000 by reason of Shirley's refusal to pay the same and the plaintiff is entitled to interest on the bequest for that period.

26 Counsel for Kerry (who is the plaintiff in these proceedings) made submissions to similar effect. He contended that Kerry was entitled to the bequest as from 23 August 2000. The estate had the use of the money thereafter. The Inheritance Act proceedings could not be regarded as a sufficient basis for withholding payment of the amount due. It followed that Kerry had been denied the amount due to her and should be allowed interest by way of compensation.

27 These submissions were opposed. In accordance with the direction providing for the estate to defend the claim, and pursuant to Shirley's own view of the matter, counsel for Shirley Fisher submitted that the claim for interest should not be allowed. There was no entitlement to interest under the terms of cl 2 of the Will and the plaintiff had not pleaded any basis for the award of interest.

28 Counsel for Shirley submitted further that the commencement of proceedings under the Inheritance Act prevents an executor from distributing the estate until the resolution of the relevant proceedings. In effect, the commencement of proceedings acts as an interlocutory injunction: In the Estate of Gough (Dec); Gough v Fletcher (1973) 5 SASR 559 at 565; Re Jones; Noonan v Jones [1978] VicRp 28; [1978] VR 272.

29 Counsel relied also upon Treloar v Ivory (1991) 4 WAR 318 at 322 in which Ipp J cited with approval the statement of Lord Denning in Jefford v Gee [1970] EWCA Civ 8; [1970] 2 QB 130 at 146 to the effect that interest should not be awarded as compensation for the damage done. It should only be awarded to a plaintiff for being kept out of money which ought to have been paid to him.

30 I pause to note that in Treloar v Ivory (supra) Ipp J refused to award interest in circumstances where the disputed payment of $122,000 could not have been made earlier because of the interlocutory injunction which had been obtained. It could not be said that the respondents to the claim were culpably responsible for keeping the claimant out of the money which ought to have been paid to him.

31 In the circumstances of the present case, counsel for Shirley argued, the executors could not have paid the bequest out even if they wished to by reason of the plaintiff's action in CIV 1211 of 1997. It was always open to the plaintiff to seek an order from the Court to permit the executors to pay the sum of $250,000 out to her, but the plaintiff failed to seek such an order.

32 It was not made entirely clear to me upon what basis the claim for interest was being advanced in the circumstances of the present case. It will therefore be useful to look briefly at that aspect of the matter.

33 I have already noted that the Will in the present case does not make any provision for payment of interest. Further, and in any event, as appears from the plaintiff's statement of claim, the claim for interest on the unpaid bequest is not said to depend upon any such provision or any statutory provision. The claim simply asserts that the relevant bequest of $250,000 was due and payable to the plaintiff by 23 August 2000 and was not paid on the due date. It is then said that the plaintiff seeks interest for the period 23 August 2000 to 17 December 2001, being a period of 481 days.

34 The common law does not generally allow the recovery of interest for the breach of a contractual provision to pay money. The most important exception is where the parties expressly agree to the payment of interest, as is so often done in modern contracts. In those cases, an award of damages in respect of a breach may include an allowance for interest. By statutory provisions, such as s 32 of the Supreme Court Act 1935 (WA) in this State, the Courts are given a discretion to add a sum by way of interest to money judgments in order to compensate plaintiffs for being kept out of their money: Kercher and Noone (1983) Remedies at 118 - 119.

35 The common law rule was reluctantly confirmed by the House of Lords in London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429. In that case interest awarded by an official referee upon a debt which he found to be due upon account was disallowed by the House of Lords. It thought that it was compelled by authority and the enactment of the Civil Procedure Act 1833 (UK), known as Lord Tenterden's Act, to reach that conclusion.

36 Lord Herschell said at 437 that if it were possible he would have been inclined to give the appellants interest from the date of the action, for when money is owing from one party to another and that other is driven to have recourse to legal proceedings in order to recover the amount due to him, the party who is wrongfully withholding the money from the other ought not in justice to benefit by having that money in his possession and enjoying the use of it, when the money ought to be in the possession of the other party who is entitled to its use.

37 Lord Herschell went on to say that if he could have seen a way to do so, he would certainly have been disposed to give the appellants, or anybody in a similar position, interest upon the amount withheld from the time of the action. However, upon a consideration of the authorities, he had to agree with the Court below that it was not possible to do so, although no doubt in early times the view existed that interest might be given under such circumstances by way of damages.

38 Various members of the High Court looked closely at the position concerning interest in Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 and took a contrary view. The High Court held that in certain circumstances, having regard to the principles in Hadley v Baxendale (1854) 2 CLR 517, it was appropriate for interest to be awarded.

39 Mason CJ and Wilson J said at 149 that although the common law has steadfastly declined, over a very long time, to award compensation for late payment of damages, they could see no reason for allowing the reluctance of the common law to extend to cases where the defendant's breach of contract or negligence has caused the plaintiff to pay away or the defendant to withhold money and, as a result, the plaintiff has been deprived of the use of the money so paid away or withheld. The amount recovered by way of interest could be characterised as a foreseeable loss, necessarily within the contemplation of the parties, which is directly related to the defendant's breach of contract or tort. On that footing, on the facts of the case before them, the Court below was correct in awarding damages for the added cost of funding the business with borrowed money as a result of the loss of the use of money overpaid in tax.

40 It is questionable whether reasoning of the kind just mentioned applies to the circumstances of the present case. The claim for interest has not been presented to me as a claim for damages arising from the fact that the plaintiff has suffered loss as a consequence of being deprived of the use of the bequest that was due and payable to her. There is no pleading or evidence before me to that effect. The decided cases including Hungerfords v Walker (supra) suggest that at common law it remains doubtful that a claim for interest can be made out simply upon the basis that an amount of money which is presently due and payable has been withheld.

41 However, in the circumstances of the present case, I consider that it is not necessary to resolve an issue of that kind. Mason CJ and Wilson J noted in Hungerfords v Walker (supra) at 148 that equity has adopted a broad approach to the award of interest. It has long been accepted that the equitable right to interest exists independently of statute: Wallersteiner v Moir (No 2) [1975] QB 373. Equity courts have regularly awarded interest, including not only simple interest but also compound interest, when justice so demanded, for example, where money was obtained and retained by fraud or when money was withheld or misapplied by a trustee or fiduciary: India, President of v La Pintada Compania Navigacion SA [1985] AC 104.

42 I am of the view that the plaintiff in the present case is entitled to rely upon the equitable rule and to recover interest if it can be established that the plaintiff was being kept out of moneys which ought to have been paid to her. This approach was tacitly approved by Ipp J in Treloar v Ivory (supra).

43 In Treloar v Ivory (supra) Ipp J held that in circumstances where a contract for the purchase of a motor car at an auction should properly be regarded as void ab initio, the auctioneer was to be regarded as a trustee for either both the vendor and the purchaser, or a trustee for the successful party in the event of a dispute. He noted that s 32(1) of the Supreme Court Act empowers the Court to order interest to be paid on a fund held by a trustee which fund the Court, by its judgment, requires the trustee to pay to a beneficiary.

44 He held further that interest should only be awarded to a successful party for being kept out of moneys which ought to have been paid to him. As the second defendant held the deposit moneys in trust pending the outcome of the Court's decision, it did not know who was entitled to the deposit. Further, the second defendant was precluded by an interlocutory injunction from dispersing the money. As the second defendant was not culpably responsible for keeping the first defendant out of the money which ought to have been paid to him, an order in regard to interest should not be made against the second defendant.

45 It will be apparent from this summary of the facts and matters in issue that Treloar v Ivory (supra) is not directly applicable to the circumstances of the present case in that the claim for interest was being advanced pursuant to s 32 of the Supreme Court Act. However, as I have already noted, the case concerned funds held in trust and his Honour appears to endorse the equitable approach I mentioned earlier whereby a plaintiff can recover interest for being kept out of moneys which ought to have been paid to him.

46 I must take account also of McLauchlan v Prince [2001] WASC 43 in which Master Sanderson recognised that, unlike the common law courts, the Chancery courts were accustomed to award interest as ancillary relief in respect of equitable remedies such as specific performance, rescission and the taking of an account. This was never done on the basis of imposing a penalty on the defaulting party or as compensation for the parties suffering loss. Rather, interest was used as a way of assessing the benefit passing to the trustee by the use of the misappropriated trust funds. This line of reasoning suggests that the trustee must be found to have acted improperly in the handling of funds under his control with the result that it would not be equitable for any benefit to be retained.

47 The decided cases suggest that the equitable rules concerning interest apply where there has been a culpable or unjustified withholding of funds by the trustee in question. In other words, it can only be said that a trustee 'ought' to have paid out the funds in question in circumstances where the trustee did not have any legitimate or proper basis for withholding payment of the funds in question.

48 Against this background, I am of the view that in the circumstances of the present case the plaintiff will be entitled to recover interest upon the basis contended for if she can establish that the bequest of $250,000 that was due and payable to her by 23 August 2000 was culpably or improperly withheld from her for the period in question which was said to commence on 23 August and to expire on 17 December 2001.

49 Thus, the central issue in the present case is whether the trustees of the estate were justified in withholding payment of the bequest after 23 August 2000 on the grounds that no payment should be made until the proceedings under the Inheritance Act had been disposed of.

50 It will be useful in seeking to resolve the central issue to return to a previously decided case relied upon by counsel for the first-named defendant.

51 In the Estate of Gough (supra) the executor proposed to sell a portion of real property held by the estate in question to enable payment out of the proceeds of sale of estate duty and other charges. The widow applied for an injunction restraining the executor from selling the real property pending the hearing of her application for further provision. Zelling J held that the injunction should be granted.

52 In the course of his judgment Zelling J approved a view expressed in In re Simson (Dec), Simson v National Provincial Bank Ltd [1950] Ch 38 at 42 that an executor should exercise great care before allowing any part at all of an estate to be paid out to any beneficiary while an application under legislation corresponding to the Inheritance Act is either pending or impending. No distribution to beneficiaries should be made while there was any possibility or expectation that an application under such legislation would be made. Zelling J went on to hold that this view applied where an application for testate as family maintenance had already been made. Accordingly, it was appropriate than an injunction should be issued in the circumstances of the case before him.

53 Counsel for the first-named defendant relied upon this case in suggesting that the commencement of proceedings under the Inheritance Act, in effect, acts as an interlocutory injunction. Viewed in that light, the executors in the present case could be regarded as having been restrained by court order from making the payment in question until the issues raised by the proceedings under the Inheritance Act had been resolved.

54 To my mind, Gough's case (supra) does not support such a suggestion. In that case an injunction restraining a distribution of the kind proposed was actually granted. Furthermore, as I have already indicated, the effect of various provisions of the Inheritance Act is that a distribution made by the executors of an estate will not be treated as invalid or irregular, notwithstanding that claims against the estate under the Inheritance Act are subsequently received. Section 8 provides that in any case where the estate has been distributed the Court may make an order pursuant to s 65 of the Trustees Act for recovery by a successful claimant from a person to whom assets have been distributed.

55 Nonetheless, it is clear from various provisions of the Inheritance Act that the estate should not be distributed in circumstances where claims are pending. These provisions are consistent with the reasoning unfolded by Zelling J in Gough's case (supra). By s 20 of the Inheritance Act, no action will lie against an executor by reason of his having distributed any part of the estate, if the distribution was properly made without notice of any application or intended application under the Act in respect of the estate. This suggests that in certain circumstances an executor can be held accountable for loss if an estate is distributed while claims are pending.

56 Further, one has to take account of s 10 whereby provision made by a court order under the Inheritance Act shall take effect as if the same had been made by a codicil to the Will of the deceased. By s 14 an order shall specify the part or parts of the estate out of which the provision is to be raised or paid. These provisions underpin the conclusion that executors should not make a distribution where claims against the estate have not yet been resolved.

57 I find support for this view of the matter in Dickey, Family Provision After Death where the learned author expresses the following view at 178:

"Unless statute provides otherwise, an executor or administrator must ordinarily refrain from distributing any part of a deceased's estate to beneficiaries during the period in which an application for family provision can be made either without leave of the court or, semble, pursuant to leave granted by the court. Although there is scant Australian authority on point, it would appear that this rule is subject to reasonable exceptions."

58 The learned author then mentions various exceptional circumstances in which it is arguably justifiable for an executor to distribute a legacy. For example, if it is for a trifling amount, or if a beneficiary has a strong moral claim to provision as a matter of urgency, or if others who are eligible to apply for provision have disclaimed their right to do so, or if it is clear that there is no person eligible to apply for provision. The author then adds:

"Be that as it may, however, it seems accurate to say that if a personal representative does distribute estate assets during the period in which an application for family provision can be made either without leave of the court or pursuant to leave granted by the court, he or she may be personally liable to a successful applicant who suffers a loss as a result. In appropriate circumstances, an injunction will lie to prevent a personal representative from acting in contravention of the general prohibition on the premature distribution of estate assets."

59 In the present case, claims against the estate under the Inheritance Act were pending as at 23 August 2000, being the date upon which the subject bequest was due and payable to the plaintiff. It must have been apparent to the executors that if the payment was made out of the assets of the estate then this would give rise to difficulties if the claims against the estate under the Inheritance Act eventually succeeded. In that event, the manner in which the assets of the estate were ultimately distributed would be determined not by the provisions of the Will but by the relevant Court orders. It was open to them to conclude also, having regard to examples of the kind mentioned by Dickey, that Kerry could not be said to have a strong moral claim for urgent provision, for she was one of the claimants under the Inheritance Act who was seeking to vary the terms of the Will. Further, if she had a need for urgent provision or immediate payment then a claim for relief by way of interim orders could have been made.

60 In the present case, and especially having regard to the effect of s 20 of the Inheritance Act, I consider that the executors were justified in withholding payment of the bequest for a further period until the outcome of the legal proceedings was known. To my mind, it cannot be said that the executors acted culpably or improperly in the circumstances I have described in deciding to withhold payment of the amount in question. It follows from earlier discussion that as the plaintiff was not culpably or improperly kept out of funds which ought to have been paid to her, her claim for interest upon the amount in question should not be allowed.

61 This finding has a bearing upon the second matter in issue. The consequence of finding that the amount claimed is not due to the plaintiff as alleged is that the plaintiff is not entitled to interest upon the said amount pursuant to s 32 of the Supreme Court Act as from 11 April 2002 because the amount in question cannot be regarded as a further amount due to the plaintiff from the estate.

62 In summary, then, the plaintiff's claim will be dismissed. I will hear from the parties as to the appropriate order concerning costs.