Kelly v Kelly [2007] NSWSC 1076 | Case summary

3021/07 TERRENCE JAMES KELLY V MARIA ANNE KELLY JUDGMENT 1 HIS HONOUR: By paras 1-8 of a summons filed on 5 June 2007, the plaintiff seeks standard orders for the appointment of trustees for sale of three properties, under s 66G of the Conveyancing Act 1919 (NSW). The plaintiff's application for this relief was heard on a final basis in the Equity Duty List. The two individuals nominated by the plaintiff as trustees have consented to act and there are affidavits as to their fitness. 2 I shall refer to the three properties as the "Dalkeith", "Wyoming" and Barraba properties. They are in the Upper Hunter region. The Dalkeith and Wyoming properties are rural properties and the property Barraba is a residential cottage. The plaintiff's evidence, not challenged by the defendant, is that the alternative form of order under s 66G, that is for the appointment of trustees on a statutory trust for partition, would be inappropriate on the ground that the partitioning of Dalkeith would not be beneficial, since the property comprises arable land for grazing and/or pasture and crops, wooded areas, rocky areas and sandy areas, and therefore various parts of the property have different values. 3 The summons also seeks orders for the defendant to account for moneys received and disbursed by her in the estate of late Kathleen Mary Kelly. The parties have agreed that this claim should be adjourned for hearing on another occasion. 4 Kathleen Mary Kelly died on 30 January 2004. She was survived by her three children, namely her son Maxwell, and the plaintiff and the defendant. By her last will she left the Barraba property to the plaintiff and the Dalkeith and Wyoming properties to the defendant. She did not leave anything to her son Maxwell because, she said in her will, she believed he had already been well provided for. Probate of her will was granted to the defendant as executrix, and the estate was valued for probate purposes at $1.19 million less debts of about $62,000. 5 Subsequently Maxwell and the plaintiff took proceedings under the Family Provision Act 1982 (NSW), against the defendant as the executrix of her mother's will. Those proceedings were resolved at mediation on 7 February 2006 and orders were made. 6 The consent orders had effect as if Mrs Kelly's will was altered, under s 7 of the Family Provision Act, so as to provide that: · a pecuniary legacy of $180,000 be paid to Maxwell in two instalments, charged on the Dalkeith property; and · the Barraba, Dalkeith and Wyoming properties be devised to the plaintiff and the defendant in equal shares. 7 The defendant's evidence, by her affidavit made on 5 September 2007, is that in her capacity as executrix, she has collected various assets and paid creditors of the estate partly from those assets and partly by borrowing on the security of the state assets. She has paid Maxwell's legacy by borrowings on the security of the estate assets. She has consolidated the estate's borrowings in a loan of $300,000, which represents payment of the instalments of Maxwell's legacy and debts of the estate. The loan is repayable on 20 December 2008. In her affidavit she refers to this loan as the "Banksia loan". 8 It appears that the estate's debts have been paid in this fashion, except for some legal fees in the administration of the estate. Apart from dealing with the Banksia loan, the following tasks remain to be completed in the administration of the estate: some income tax returns are to be lodged, the gifts to the plaintiff and the defendant provided for in the consent orders are to be distributed, and estate accounts are to be filed. 9 The defendant's evidence is that she has been "endeavouring to find a purchaser for the real estate sufficient to repay the Banksia loan and to pay an amount to satisfy the plaintiff's entitlement under the consent orders". This implies that at least some of the real estate will need to be sold. Since the Banksia loan is to be repaid and the plaintiff is entitled to a half share in the three properties or the proceeds of their sale, it seems to me likely that most if not all of the real estate will have to be sold. 10 The will did not appoint the defendant as trustee or confer any express power of sale, but in her position as executor the defendant has statutory powers of sale under ss 46(2) of the Wills Probate and Administration Act 1898 (NSW) and s 153 of the Conveyancing Act 1919 (NSW) (and perhaps also s 38 of the Trustee Act 1925 (NSW)). I proceed on the basis that she has ample power to sell the three properties if and when she decides that it is appropriate to do so for the purpose of administration of the estate. 11 The plaintiff has given evidence, by affidavit made on 15 May 2007, that since the making of the orders resolving the Family Provision proceedings, the defendant has failed and refused to involve him in any way in the real estate owned by their late mother or anything else associated with their mother's estate. He says that his sister did not disclose any information concerning a proposed sale of the Barraba property or its withdrawal from sale and subsequent leasing, and that there has been no accounting by the defendant in respect of business activities conducted on the rural real estate. 12 The plaintiff has annexed to his affidavit a great deal of correspondence, which reinforces the general point that there is a lack of cooperation and communication between the plaintiff and defendant, though it is far from clear to me that this should be laid at the feet of the defendant alone. Some of the correspondence written on her behalf was quite conciliatory (for example, the letter by her solicitors dated 4 May 2006, which also annexes a substantial amount of information in response to the request by the plaintiff's solicitors made on 11 April 2006). As the correspondence continued, it became increasingly plain that the parties were adopting entrenched positions, although further information was supplied in response to requests. Offers of compromise were made and rejected. 13 The defendant denies the plaintiff's allegations against her. She refers to various letters written by her solicitors in which information was supplied in response to the plaintiff's requests. She gives evidence of specific conversations and meetings with the plaintiff and with his wife, saying she asked the plaintiff to come to the farm or to Armidale to work out the best way forward with respect to the properties and he declined to do so. She claims to have sought the plaintiff's assistance for the payment of the second instalment of the legacy to Maxwell and she gives evidence of statements by him indicating refusal to co-operate. Her evidence about these conversations is generally denied by the plaintiff and his wife, in their affidavits respectively made on 5 September 2007. 14 It would be difficult for the court to resolve, in favour of the plaintiff or the defendant, the conflicting evidence about conversations and events, in the absence of oral evidence and cross-examination. It seems to me unnecessary to do so, for the purposes of dealing with the present application. What is clear is that there is deep conflict between the parties, and their relationship has broken down to a degree that would make it impossible or highly unlikely that they would cooperate with respect to their mother's estate or the management of the properties, or even the sale of the properties. 15 Section 66G(1) of the Conveyancing Act 1919 (NSW) provides as follows: "Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to encumbrances affecting the entirety, free from any encumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition." 16 The court's jurisdiction to appoint trustees depends upon the property being held in "co-ownership" and an application being made by one or more of the co-owners. "Co-ownership" is defined in s 66F(1) to mean "ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common", and "co-owner" has a corresponding meaning and includes an incumbrancer of the interest of a joint tenant or tenant in common. Section 66F also defines the "statutory trust for sale" and the "statutory trust for partition", in terms that need not be explored here. 17 The plaintiff seeks orders for the appointment of trustees for sale of the three properties under s 66G(1), but that application is opposed by the defendant. Her opposition is principally on the ground that the court has no jurisdiction to make an order under s 66G(1) in the present case. Counsel for the defendant submits that: (i) if the defendant had completed her executorial duties then, in the absence of a provision in the will appointing her trustee of the estate, she would hold the three properties on constructive trust (citing McCaughey v Commissioner of Stamp Duties (1945) 46 SR (NSW) 192 at 209); (ii) however, there are executorial duties yet to be performed, and in those circumstances the interest that the beneficiaries have in the incompletely administered estate confers no beneficial interest in any particular item of property but rather, a right by way of chose in action capable of being invoked to enforce the proper administration of the estate ( Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694); (iii) the court cannot make an order under s 66G(1) except in respect of property held in "co-ownership" as defined and on the application of a "co-owner" as defined; (iv) the definition of those terms (in s 66F(1)) refers to "ownership whether at law or in equity in possession" and implies that there must be a proprietary interest in specific property; (v) Livingston's case establishes that there is no such proprietary interest, and therefore no property held in co-ownership in respect of which the court may make an order, and no application by a co-owner. 18 Although (in the context of a hearing before the Duty Judge) the defendant's submissions were not foreshadowed in sufficient time to allow for research and preparation, counsel for the plaintiff ably identified a series of bankruptcy cases which, he said, provided an answer to the submission based on Livingston's case. Those decisions are Re Pevsner; ex parte Trustee in Bankruptcy (1983) 68 FLR 254 (Sheppard J), Silvia v Thomson (1989) 87 ALR 695 (Lockhart J) and Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 (High Court of Australia, Mason CJ, Brennan, Deane, Dawson and Gaudron JJ). 19 In Pevsner's case the bankrupt's mother died during his bankruptcy, leaving the whole of her property to be divided between her two children, and letters of administration were granted. Subsequently the bankrupt was discharged from bankruptcy, at a time when his mother's estate had not been fully administered. The question was whether the bankrupt's half share in his mother's incompletely administered estate was after-acquired property of the bankrupt for the purposes of ss 58(1)(b) and 116 of the Bankruptcy Act 1966 (Cth). 20 Sheppard J referred to Livingston's case and Lord Sudeley v Attorney-General [1897] AC 11 and said (at 256): "The authorities plainly establish that at the date of the bankrupt's discharge from bankruptcy he had no interest in the property left by his mother. The administration of her estate was not complete. He did, however, have a chose in action against the administrator for the due administration of her estate."

He held that the chose in action for due administration was itself property for the purposes of ss 58 and 116 (on the basis that "property" is defined in s 5 of the Bankruptcy Act to mean real and personal property), and that this chose in action was after-acquired property of the bankrupt that became vested in the trustee in bankruptcy upon the grant of letters of administration in the mother's estate. That being so, the trustee in bankruptcy became entitled to the money payable when the estate was distributed. 21 That reasoning was applied in Silvia v Thomson, even though in that case the grant of probate in the estate was made only after the bankrupt's discharge from bankruptcy. It is significant for present purposes that Lockhart J applied Livingston's case in circumstances where the testatrix had left her whole estate (evidently a solvent estate) to the bankrupt, and so the bankrupt was not merely entitled to residue that could be identified only upon the administration of the estate. His Honour described the nature of the bankrupt's rights with respect to the estate as follows (at 696): "It is a right to have the estate of the testatrix properly or duly administrated. It is not, of course, a proprietary right in any specific asset of the estate of the testatrix." 22 Pevsner's case and Silvia v Thomson were applied by the High Court in Schultz's case (at 314). No doubt counsel for the plaintiff referred to these cases because they adopt the proposition that the right of a beneficiary with respect to an incompletely administered estate is a form of property. But they are consistent with the proposition, derived from Livingston's case, upon which counsel for the defendant relied, namely that the beneficiary's rights do not include any proprietary right with respect to the estate or any particular item of property forming part of the estate. 23 Schultz's case holds that this is so even in the case of a beneficiary of a particular parcel of land in a solvent estate. Their Honours observed (at 311-2): "… the fact that the administration of the deceased estate was incomplete when Mrs Schultz was discharged from her bankruptcy means that the Official Receiver must point to some interest in property which vested in Mrs Schultz prior to her discharge from bankruptcy. That is because the property which is the subject matter of a bequest or devise does not vest in the named beneficiary upon the death of the testator. Section 45 of the Succession Act [approximately equivalent to s 44 of the Wills, Probate and Administration Act 1898 (NSW)] provides: '(1) The property to which a deceased person was entitled for an interest not ceasing on his death … shall on his death and notwithstanding any testamentary disposition devolve to the vest in his executor …' Not only does the legal ownership in the property not vest in the named beneficiary at the time of death of the testator, nor does the equitable ownership. That emerges from the Privy Council's decision in [ Livingston ]. The reason for this is that, prior to administration of the deceased estate, there is no specific property capable of constituting the subject property of any trust in favour of the beneficiary. It could not be said at that stage what part or parts of the testator's property would need to be realised for the purposes of the administration … So it was held that the beneficiary does not have a proprietary interest in each of the assets which are the subject of the devise or bequest such that he or she can say 'this is mine' or 'this belongs to me'. Although Livingston was concerned with the residuary estate, the observations it contains apply with equal force in the case of a specific bequest or devise." 24 I interpose here the comment that, although in the present case much of the administration of the estate of Mrs Kelly has been attended to, her estate remains an incompletely administered estate to which these observations apply. In particular, it emerges from the defendant's evidence that in the course of administration of the estate she has yet to attend to the sale of one or more properties so as to pay out the Banksia loan. Therefore the plaintiff is in the position of not knowing which particular property or properties will be made available to him (as to a half share) when the administration of the estate has been completed. 25 But that is not the end of the matter. Australian authorities, including Schultz, indicate that a beneficiary in an incompletely administered estate, though not having an equitable interest in any particular assets of the estate, has an equitable right (perhaps proprietary) in relation to the assets of the estate as a whole. That was explained by the following observations of the High Court in Schultz's case (at 312-314): "In holding that an executor holds the whole property of the deceased 'for the purpose of carrying out the functions and duties of administration, not for his own benefit' [[1965] AC, at p 707], Viscount Radcliffe, speaking for the Judicial Committee, stated [[1965] AC, at p 707]: 'What equity did not do was to recognize or create for the residuary legatees a beneficial interest in the assets in the executor's hands during the course of administration.' His Lordship went on to consider earlier authority which had expressed seemingly inconsistent ideas as to the position of the beneficiary of an unadministered estate, remarking upon the range of 'meanings which can be conveyed by the words 'interest' and 'property'' [[1965] AC, at p 712]. But it is significant that his Lordship approved [[1965 AC, at p 717] the view of the law expressed by Fullagar, Kitto and Menzies JJ in this Court: Livingston v Commissioner of Stamp Duties (Queensland) [(1960) 107 CLR 411]. "Fullagar J considered that the residuary beneficiary had an equitable interest in the entire mass of the testator's estate and that it may be that she had an equitable interest in every part of that mass, an interest which could be described as a proprietary interest or 'property', though there was a problem in justifying the accuracy of these descriptions as precise descriptions of the nature of the interest [(1960) 107 CLR, at p 438]. Kitto J acknowledged that the residuary beneficiary in an unadministered estate was not the legal or beneficial owner of the assets in that estate. However, his Honour described the interest of the residuary beneficiary in assets of such an estate as consisting of rights 'with respect to, or 'in', or ad each specific asset for the time being in the estate' [(1960) 107 CLR, at p 451]. Menzies J, agreeing with Fullagar J, in speaking of the residuary beneficiaries' chose in action, concluded [(1960) 107 CLR, at pp 458-459] that they had 'no separate or separable property in the specific items or assets of which the estate is made up', in the words of this Court in Smith v Layn [(1953) 90 CLR 102, at p 108]. And Dixon CJ, who was in the minority, spoke [(1960) 107 CLR, at p 426] of the residuary beneficiary being entitled at her husband's death to 'an equitable interest in the Queensland property forming part of his estate', that interest being incapable of definition in terms appropriate to legal estates or chattels real. "The right which any beneficiary has in an unadministered estate springs from the duty of the executor to administer the estate, to preserve the assets and to deal with them in the proper manner. Each beneficiary has an interest in seeing that the whole of the assets are treated in accordance with the executor's duties. In that sense, the beneficiaries as a class may be said to have an interest in the entire estate. But it does not follow that each piece of property which goes to make up the estate is held on a particular trust for the beneficiary named as its intended recipient upon completion of administration: Horton v Jones [(1935) 53 CLR 475, at p 486]. Whether or not the estate is held on a trust for the beneficiaries as a class in the usual sense in which the word 'trust' is used, so as to confer a specific proprietary interest, as distinct from a general, non-specific interest, upon all beneficiaries, is not something which arises for consideration in this case. "Nevertheless, Mrs Schultz acquired upon the death of [the testatrix] a right to have the deceased estate administered in accordance with the duties of the executors. Though not a legal or equitable owner of the assets which were the subject of the devise and bequest in her favour, she had, by virtue of the chose in action created by that devise and bequest, an expectation that the assets would pass to her upon completion of the administration, subject to their being realised to meet any outstanding liabilities and to defray the costs of administration, and an interest in respect of those assets. That interest was derived from and depended upon the chose in action. The interest is of such a kind that, when a beneficiary transmits a chose in action (or part thereof), or that chose in action passes by operation of law, such as under the Bankruptcy Act, that transmission naturally encompasses not only the chose in action but also the expected fruits of that chose in action: Horton v Jones ; In re Leigh's Will Trusts [[1970] Ch 277, at p 282]." 26 Horton v Jones, approved by the High Court in Schultz, warrants further consideration. The question was whether an oral contract made between Mrs Horton and the late Mr Jones, that he would leave her his "fortune" if she looked after him for the rest of his life, was enforceable notwithstanding s 54A(1) of the Conveyancing Act 1919 (NSW). Section 54A(1) says (relevantly) that no proceedings may be brought upon any contract for the disposition of any interest in land unless the contract is evidenced in writing. The "fortune" of Mr Jones consisted principally of his interest in the estate of his father under his father's will, and his interest by virtue of his being sole next of kin of his deceased children who were beneficiaries under that will. The father's estate had not been fully administered, but apparently the debts and liabilities of the estate had been discharged (see 53 CLR at 486). The most valuable assets were mortgages secured over land. 27 Rich and Dixon JJ described the interest of Mr Jones at the time of the contract as follows (at 486): "It was suggested that because the deceased had no more than a right to have the estates of his deceased children administered in due course and to receive the net surplus, and that these estates in turn comprised no more than an analogous right in the residue of his father's estate, no right in any specific asset in the estate of the deceased's father subsisted in the deceased. This may at once be conceded [citing Lord Sudeley v Attorney-General [1897] AC 11 and other cases]. But it is not the consequence that no right of property subsisted in the deceased, nor that no right of property subsisted involving an interest in land. The deceased possessed equitable rights enforceable with respect to the assets considered as a whole. It is true that he had no immediate right to possession or enjoyment and that his precise rights involved, at any rate prima facie, administration, and possibly necessitated conversion and calling in of investments. But, none the less, he had more than a mere equity. He had an equitable interest and it related to assets which included interests in land …". 28 The plaintiff's right to insist on the due administration of his mother's incompletely administered estate by his sister, the executrix, did not make him a "co-owner" under s 66G of any of the three properties of which he was a co-beneficiary, and did not make any of those properties a "property … held in co-ownership" for the purposes of that section. Livingston's case, confirmed by Pevsner, Sylvia and Schultz, establishes that the right to require due administration does not give rise to any proprietary right to any particular asset in the unadministered estate, and it follows that none of those properties was held under "ownership whether at law or in equity in possession by two or more persons … as tenants in common" for the purposes of the definition of "co-ownership" in s 66F. The ownership of the three properties vested in the defendant as executrix upon the grant of probate, under s 44(1) of the Wills, Probate and Administration Act 1898 (NSW). 29 Is s 66G(1) attracted by virtue of the plaintiff's right, recognized in Schultz's case and Horton v Jones, with respect to the property in the estate as a whole? In my opinion this question must be answered in the negative, for two reasons. 30 First, s 66G(1) relates to specific parcels of property in co-ownership, both in terms of its wording and its purpose. The opening words of the subsection identify some particular property held in co-ownership, and the section authorises the court to appoint trustees to that property for the purposes of sale or partition. The purpose of s 66G(1) is to allow the court to authorise the sale of particular property, by making orders which, typically, include orders relating to the process of sale and the destination of the purchase money. Orders of these kinds do not appear appropriate where the applicant for orders has only a right in respect of a potentially fluctuating group of assets, stemming from his or her entitlement to compel the due administration of those assets. 31 Secondly, s 66F(1) defines co-ownership as ownership, whether at law or in equity, in possession. In the passage cited from Horton v Jones, 53 CLR at 486, Rich and Dixon JJ make it expressly clear that a beneficiary in an incompletely administered estate has no immediate right to possession or enjoyment of any particular assets of the estate. 32 The plaintiff has an interest in relation to the assets of the estate as a whole, and an expectation that, upon due administration, he will receive the half-interest in one or two or all three properties to which he is entitled under the will and the court's orders. An interest of that kind was held, in Horton v Jones, to be an "interest in land" for the purposes of s 54A. But there is a distinction between a provision such as s 54A, which is "directed to agreements concerning, covering or extending to lands or interests therein" (53 CLR at 489 per Starke J), and a provision such as s 66G(1), which confers authority on the court authorise the sale of identifiable and specific property. In my opinion the general and inchoate interest described in Schultz's case and Horton v Jones, even if it is a proprietary interest in all of the assets of the unadministered estate, is not sufficient to attract the jurisdiction under s 66G. 33 My conclusion is that the application for the appointment of trustees for sale under s 66G(1) must fail, because the section is inapplicable to the circumstances of this case. The plaintiff is not left without remedies. He may seek to enforce his chose in action to insist upon the due administration of the estate. That may lead to the replacement of the defendant as administrator of the estate if due cause is shown. I am not in a position to express any opinion on those matters. The application for orders under paras 1-8 of the summons will be dismissed and the remainder of the summons will be stood over to the Registrar's list for directions. **********

Kelly v Kelly

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Judgment (11 paragraphs)

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