Keulemans v Attorney-General, New South Wales

Supreme Court of NSW|2013-09-04|Before: White J, Powell J, Young J

Judgment 1HIS HONOUR: These proceedings concern the estate of Shirley Winifred Nepean who died on 20 September 2011 leaving an estate valued at approximately $2.66 million. On 12 February 2013 probate was granted of a will of the deceased dated 13 May 2005. The deceased appointed her solicitor Mr Keulemans as the executor and trustee of her will. After making a specific devise of part of her land to a niece and making specific gifts of personal property, the deceased gave 10 per cent of her residuary estate to charities and a further 15 per cent to each of three nieces. She gave the balance of her residuary estate as follows: "8. I GIVE DEVISE AND BEQUEATH the residue of my real and personal estate of whatsoever kind and wheresoever situate including the residue of Lot 671 in Deposited Plan 789672 as follows: ... (c) As to FORTY FIVE PER CENTUM (45%) to a foundation or Trust to be established during my lifetime for the furtherance of a community project of my choice, but if such Trust or foundation has not validly established during my lifetime then to a foundation or trust to be established by Reverend Dr Colin Ford and Hendrik Jan Keulemans as Trustee with a third trustee to be appointed during (d) my lifetime and failing such an appointment to be appointed unanimously by Reverend Dr Colin Ford and Hendrik Jan Keulemans in accordance with my wishes communicated by me to my Trustee during my lifetime." 2The deceased was survived by her sister, Mrs Nicholl, who has been joined as the second defendant. On 7 November 2012 the solicitors acting for Mrs Nicholl wrote to Mr Keulemans and asserted that she was entitled to 45 per cent of the residuary estate on the basis that there was an intestacy in respect of that share because the gift in those clauses was void for uncertainty. 3On 17 December 2012 Mr Keulemans commenced these proceedings joining the Attorney-General and Mrs Nicholls as defendants. By his summons he seeks a declaration that on the true construction of clause 8(c) and (d) of the will a valid trust for charitable purposes is created. Alternatively, he sought an order rectifying the will by removing the paragraph break and the expression "(d)" after the words "appointed during" in clause 8(c) of the will and adding the words "for furtherance of a community project" after the word "trust" in the fourth line of clause 8(c), that is, after the words "foundation or trust" and before the words "to be established by Reverend Dr Colin Ford and Hendrik Jan Keulemans as Trustee". 4Mr Keulemans drew the will for the deceased. No foundation or trust as contemplated by the first limb of clause 8(c) was established during the deceased's lifetime. After execution of the will on 13 May 2005 Mr Keulemans did not receive any further instructions from the deceased in relation to the foundation or trust to be established either during her lifetime or after she died. No third trustee has been appointed. 5Section 23 of the Charitable Trusts Act 1993 provides: "23 Inclusion of non-charitable purpose not to invalidate trust (cf former s 37D of Conveyancing Act 1919) (1) A trust is not invalid merely because some non-charitable and invalid purpose as well as some charitable purpose is or could be taken to be included in any of the purposes to or for which an application of the trust property or of any part of it is directed or allowed by the trust. (2) Any such trust is to be construed and given effect to in the same manner in all respects as if no application of the trust property or of any part of it to or for any such non-charitable and invalid purpose had been or could be taken to have been so directed or allowed. (3) This section does not apply to any trust declared before, or to the will of any testator dying before, 1 January 1939, being the date of commencement of the Conveyancing, Trustee and Probate (Amendment) Act 1938." 6There is authority that before a trust which is otherwise invalid can be saved by the operation of s 23 of the Charitable Trusts Act there must be a "significant indication" or a "distinct or sufficient indication" of a charitable intention (Attorney-General v Donnelly (1958) 98 CLR 538 at 559-560; Public Trustee v Attorney-General of NSW (1997) 42 NSWLR 600 at 613-614). Counsel for the plaintiff submitted that a sufficient indication of charitable intention appeared from the inclusion of the word "foundation" in the phrase "then to a foundation or trust to be established". Counsel submitted that a further indication of charitable intention could be derived in a number of other ways. First, that as a matter of construction of the will it should be seen that the testator intended that if no foundation or trust was established during her lifetime for the furtherance of a community project, the trust or foundation to be established by her trustees should be a trust for the furtherance of a community project. Alternatively, counsel submitted that the will should be rectified either by the inclusion of those words or by the inclusion of other words along the same lines which, so it was submitted, formed part of the instructions given by the deceased to her solicitor, Mr Keulemans. 7Mr Keulemans had no filenote of the instructions he received from the deceased for her will. He had kept prior drafts of the will which contained some handwritten notes. In an affidavit sworn on 18 March 2013 Mr Keulemans deposed to having sent a draft will to the deceased on 4 May 2005. That draft did not contain a clause similar to clause 8(c) and (d). He deposed: "23 On 6 May 2005 the Deceased attended my office. I do not have a file note but I made notes on the draft will and dated it 6-5-05 a copy of which is annexed hereto and marked with the letter 'O'. The pencil notes in the left hand margin on that will were made on a later occasion. The deceased confirmed that the house and 2.5 Acres was to go to Hazel with her personal belongings. The Deceased and I also had a conversation with words to the following effect on that day: Deceased: 'I have been active in a number of community groups and my Church and made annual donations to a number of Charities. I would like to see the centre part of my property or its sale proceeds be used for a well-established charity or Uniting Church Agency for one of its local programs for the benefit of the wider community. The most suitable area would be on the Western side fronting the planned road.' Myself: 'Do you mean Jacana Avenue?' Deceased: 'Yes'. Myself: 'Do you have any particular purpose in mind?' Deceased: 'I have been thinking of an Aged Care facility with an understanding that they will be offering me care when I need it and allowing me to stay on site as long as possible' Myself: 'Have you made any enquiries about the likely costs and ways of funding and which aged care operator might be interested?' Deceased: 'I know that Uniting Aged Care has a large retirement village with all levels of care named "Nareen Gardens" in Bateau Bay. They might be able to help, but I need more time and advice for such a big undertaking. This Will can't wait for that.' Myself: 'Do you mean that the gift to your nieces should be reduced? And do you have any amounts or proportions in mind?' Deceased: 'I have seen the land value on the Land Tax Assessment and Council's Rate Notices. The land is quite valuable and could be subdivided to sell off separate Lots if funds are needed. Perhaps 10% to each of my three nieces and the remainder for a special public purpose. I would like to receive more information and to have more time for a further Will later.' Myself: 'You could later also establish a Foundation or testamentary trust, but that would need specific purposes and trustees.' Deceased: 'I'll be happy with that.' Myself: 'Do you know any well qualified or professional person through one of your charities or through your Church?' Deceased: 'Rev. Colin Ford is a member of our Narara Uniting Church Congregation. I would trust him and you and a suitable expert; to advise me on a worthy scheme to give it effect even if I am unable to make decisions due to ageing.' Myself: 'What would you like to happen if it proves impractical, for instance for financial reasons, to establish a Foundation or Trust or implement a scheme during your lifetime?' Deceased: 'To ensure it happens after my death and to make provision in my Will for that to happen.' ... 25 On 12 May 2005 the Deceased came to my office. During that conference she said to me: 'I would like to change the proportions so as to leave 45% in three equal shares of 15% to my three nieces and 45% to the special Trust. I'll be ready to sign my Will tomorrow if that is suitable.' I made some pencil notes on the draft of the will, which is annexure 'P' to this affidavit. The sub-paragraph 7(d) [sic] appears to be an oversight to correct the computer providing that sub-paragraph when turning to page 3." 8The handwritten notes on the draft wills do not elucidate in any relevant way the instructions given by the deceased to Mr Keulemans. 9In an affidavit sworn on 7 August 2013 Mr Keulemans deposed: "16. Since the swearing of my first Affidavit in these proceedings on 18 March 2013 ('my Earlier Affidavit') I have on reflection recalled further parts of the conversations I had with the Deceased on 6 May 2005. My conversation with the Deceased did jump from topic to topic so I do not recall the exact sequence of the conversation but to the best of my recollection I do remember that at some point when I was talking to the Deceased about the Nareen Gardens as referred to in paragraph 23 of my Earlier Affidavit, the Deceased and I spoke words to the following effect:- Myself: 'If a retirement village appears not practical or too costly, what other facility would you prefer?' Deceased: 'A respite facility similar to Matuta Lodge in Narara. A retreat on my property would be good too.' Myself: 'I believe that Nareen Gardens manages Matuta Lodge. We could enquire whether they foresee increased respite needs. If not, you could perhaps consider an Aged Day Care Centre.' Deceased: 'Yes, working in with and through Nareen Gardens would suit me too.' Myself: 'Would you be agreeable to widen the choice of suitable purposes outside the aged care sector?' Deceased: 'Yes, I have supported health and education programs and other charities and various community and social welfare causes. I have supported such programs mainly through the Uniting Church synod in Sydney and would consider any such programs through my church or other charities.' 17. At the end of the conversation I set out at paragraph 23 of my Earlier Affidavit after the Deceased said words to the following effect 'To ensure it happens after my death and to make provision in my Will for that to happen', the Deceased and I spoke further words to the following effect: Myself: 'Three trustees would be better than two and I suggest the expert be made a third trustee in addition to Colin Ford and myself.' Deceased: 'When I have more information I will let you know my preference for the foundation or trust and a third trustee but if I get too old or die I want Colin Ford and you to establish a foundation or trust for a purpose along the lines of the projects I have supported and to appoint as a third trustee an expert who will assist with the project.'" 10The will was signed on 13 May 2005. On that day there was no substantive discussion of the contents of the will. Mr Keulemans said that he "went through the will" with the deceased, although he did not do so verbatim. He said that he went through the will in the order of the different clauses and provided "the substance of the clauses" and the deceased confirmed that the will was in the form that she accepted. He said, "I went through clause by clause to make sure that the gist of those clauses was understood and agreed by the deceased". He was satisfied as the draftsman of the will that the will fairly reflected his instructions and the deceased's wishes. He agreed that at the time he was satisfied that the will reflected his client's instructions and to his mind there was nothing omitted or incorrectly worded. 11The explanation for the paragraph break is that this was automatically inserted by Mr Keuleman's computer word program when the text continued onto the next page of the will. Clause 8(c) finished with the word "during" on page 2 of the will. There was then a gap to the end of the line and then the subparagraph (d) continued on page 3. Nothing turns on the paragraph break, except that there is no explanation as to why it was not noticed and corrected if Mr Keulemans "went through" the clause with the deceased. 12The plaintiff filed an amended summons that included additional alternative claims for rectification. The further alternatives were that the will be rectified by adding the words "for a local program for the benefit of the wider community of a well-established charity or Uniting Church agency" after the word "trust" in the fourth line of clause 8(c), or, alternatively, by adding the words, "for a retirement village, or a respite facility, or a retreat centre, or health or education programs, or community or social welfare causes, run by the Uniting Church in Sydney or another charity" after the word "trust" in the fourth line of clause 8(c). Counsel submitted that either of those additions to the will was required to make the will conform with the deceased's instructions. 13Section 27 of the Succession Act 2006 provides: "27 Court may rectify a will (cf WPA 29A) (1) The Court may make an order to rectify a will to carry out the intentions of the testator, if the Court is satisfied the will does not carry out the testator's intentions because: (a) a clerical error was made, or (b) the will does not give effect to the testator's instructions. (2) A person who wishes to make an application for an order under this section must apply to the Court within 12 months after the date of the death of the testator. (3) However, the Court may, at any time, extend the period of time for making an application specified in subsection (2) if: (a) the Court considers it necessary, and (b) the final distribution of the estate has not been made." 14Because the power to rectify a will only arises if the court is satisfied that the will does not give effect to the testator's instructions, the first task is to construe the will as it stands (ANZ Trustees Limited v Hamlet [2010] VSC 207 at [3]; Lockrey v Ferris [2011] NSWSC 179 at [37]-[38]). It is common ground that the instructions of the deceased to Mr Keulemans are not admissible to assist with the construction of the will.

Construction of will 15The Court's task is to "put on the words used the meaning which, having regard to the terms of the will, the testator intended" (Perrin v Morgan [1943] AC 399 at 406), that is, to ascertain what the testator meant by the words used in the will (Hatzantonis v Lawrence [2003] NSWSC 914 at [6]; Public Trustee v Herbert [2009] NSWSC 366 at [27]; Theobald on Wills, Sweet and Maxwell, 17th ed 2010 at [15-003]). 16"The instrument ... must receive a construction according to the plain meaning of the words and sentences therein contained. But ... you must look to the whole instrument, and, in as much as there may be inaccuracy and inconsistency, you must, if you can, ascertain what is the meaning of the instrument taken as a whole in order to give it effect, if it be possible to do so, to the intention of the framer of it." (Lord Halsbury LC in Leader v Duffey (1888) 13 App Cas 294 at 301; Ward v Brown [1916] 2 AC 121; Buckley J in Kirby-Smith v Parnell [1903] 1 Ch 483 at 489, quoted from Fell v Fell (1922) 31 CLR 268 at 273-274). 17"One's task 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." (Coorey v George (Powell J, 27 February 1986, unreported; BC8601222 at 14); Perpetual Trustee Co Limited v Wright (1987) 9 NSWLR 18 at 33; Fairbairn v Varvaressos (2010) 78 NSWLR 577 at [19], 581-582). 18Counsel for the plaintiff submitted that it is apparent from the will that the deceased intended to establish a foundation or trust either during her lifetime or after her death. So much may be accepted. The plaintiff submitted that it was evident from the structure and language of the clause that there was to be a symmetry between the foundation or trust whether it were established before or after her death. If the foundation or trust were established before her death the foundation or trust was to be "for the furtherance of a community project of my choice". It was submitted that if the foundation or trust were established after death, then it was to be "in accordance with my wishes communicated by me to my trustees during my lifetime". Counsel submitted that in each case the deceased indicated the importance of her choice and from the express stipulation that the foundation or trust that might be established before her death had to satisfy the condition of being one for the furtherance of a community project which she chose, the necessary implication was that a foundation or trust that might be established after her death was to be for the furtherance of a community project in accordance with her wishes. 19Counsel for the Attorney-General put a similar submission. The Attorney-General submitted that the alternative gift to a foundation or trust to be established by the trustees was that the foundation or trust to be established was to be "in accordance with my wishes communicated by me to my trustee during my lifetime". The Attorney-General submitted that this was not necessarily a foundation or trust for the furtherance of a community project, but was a half-secret trust, the terms of which could be established by the oral evidence of what the deceased said to Mr Keulemans as to her wishes. The Attorney-General submitted that the foundation or trust was to be "for a purpose along the lines of the projects I have supported". 20Both submissions require reading the concluding words "in accordance with my wishes communicated by me to my Trustee during my lifetime" as referring to the foundation or trust to be established by the trustees, as distinct from the appointment of a third trustee. However, the structure of the sentence suggests that it is the appointment of the third trustee that is to be made in accordance with the wishes communicated by the deceased to her Trustee during her lifetime, rather than its being the establishment of a foundation or trust that was to be in accordance with her wishes. The fact that Dr Ford and Mr Keulemans were to appoint a third trustee unanimously is consistent with the appointment also having to be in accordance with the wishes communicated by the deceased during her lifetime. The deceased might have indicated that any one of a number of people would be an appropriate third trustee leaving an area of choice for Dr Ford and Mr Keulemans. 21It is only if the words "in accordance with my wishes communicated by me to my trustee during my lifetime" qualify the words "to a foundation or trust to be established by [the Trustee]" that there could be said to be a half-secret trust. Similarly, unless the concluding words qualify the establishment of a foundation or trust there would not be a symmetry between the foundation or trust to be established during the deceased's lifetime according to her choice and a foundation or trust to be established after her death. 22I am not persuaded that as a matter of construction clause 8(c) and (d) can be construed so as to qualify the kind of foundation or trust that could be established by the trustees of the will which would be entitled to 45 per cent of the residuary estate. I do not accept the plaintiff's submissions that clause 8 evidences a scheme by which if the deceased had chosen a particular community project and a trust or foundation had been established to implement it during her lifetime, the legacy in clause 8(c) was to benefit such a trust or foundation, but if she had not made a choice, then the trustees were to establish a trust or foundation in furtherance of a community project taking into account any wishes communicated during the deceased's lifetime. I think the relevant words are directed to the appointment of a third trustee. I think they are not merely precatory. It is unnecessary to decide whether the words would create a trust or would be merely precatory if they were directed to the establishment of a foundation or trust.

Rectification of will 23The plaintiff needs an extension of time to make the application for rectification. There was no issue about that extension and I will extend the period for making the application pursuant to s 27(3). 24The plaintiff submitted that the clause should be rectified to carry out the deceased's intentions. Initially, the plaintiff sought an order for the clause to be rectified by inserting the words "for furtherance of a community project" after the word "trust" after the words "then to a foundation or trust". By a second amended summons the plaintiff sought an order rectifying the will by adding the words "for a local program for the benefit of the wider community of a well established charity or Uniting Church agency" after those words. As a further alternative, the plaintiff sought an order rectifying the will by adding the words "for a retirement village, or a respite facility, or a retreat centre, or health or education programs, or community or social welfare causes, run by the Uniting Church in Sydney or another charity" after those words. 25These alternative formulations illustrate the difficulty of ascertaining precisely what were the deceased's instructions to which it is said the will did not give effect. The deceased's intentions were variously expressed. On 6 May 2005 she told Mr Keulemans that she would like to see part of her estate being used for a well-established charity or for a Uniting Church agency for one of its local programs. Such a bequest would be to an existing charity and would not require the establishment of a foundation or new trust. But after discussion with Mr Keulemans the deceased gave instructions for the establishment of a foundation or trust for specific purposes. According to paragraph 17 of Mr Keulemans' second affidavit the deceased's instructions were that the trustees were to establish a foundation or trust "for a purpose along the lines of the projects I have supported". According to the instructions given by the deceased to Mr Keulemans she had supported health and education programs, other charities and various community and social welfare causes. If the will were rectified to provide that the foundation or trust to be established should be for a purpose along the lines of the projects the deceased had supported, the purposes for which the foundation or trust could be established would be determined having regard to what as a matter of fact were the purposes for which the deceased had provided support during her lifetime, which purposes might be wider or narrower than those she identified in her instructions to Mr Keulemans. 26In Rawack v Spicer [2002] NSWSC 849 Campbell J (as his Honour then was) said (at [31]) that a claim to rectify a will is closely analogous to a case involving a claim against a deceased estate where the Court must take great care in evaluating the evidence. Clear and convincing proof is required to establish the deceased's intentions and instructions. The Court must be satisfied both that the will fails to carry out the testator's intentions and also must be satisfied what it was that the testator intended (at [26]). 27I am not satisfied that the will as it is literally expressed does not reflect the deceased's intentions. The will provides for the share of residue to be provided to a foundation or trust to be established by the trustees of the will, without any expressed qualification. As the deceased clearly had confidence in the Reverend Dr Ford and in Mr Keulemans, I am not persuaded that she intended to impose any limitation or qualification on the kind of foundation or trust that should be established, or the purpose that any foundation or trust should serve. I do not find Mr Keulemans' evidence about his instructions particularly convincing. He had no file note and was dependent on his memory to recall instructions given about eight years previously. The fact that he did not recall the further conversations with the deceased to which he deposed in his second affidavit when he swore his first affidavit indicates in my view that the conversation to which he deposed in his second affidavit involved subconscious reconstruction of what might have been said. 28The different formulations of how the will might be rectified illustrate the difficulty of identifying with clarity what were the deceased's intentions and instructions. 29If Mr Keulemans' recollection that he went through the will clause by clause with the deceased before she signed it is accurate, then it would follow that neither he nor the deceased considered at the time the will was signed that anything was missing in the will as drafted to reflect the deceased's instructions. In his oral evidence Mr Keulemans said that on a number of readings of the document before it was executed he was satisfied that the document fairly reflected the instructions of the deceased and what she wanted. He attempted to explain that the clause could now be said to be "too much of a shorthand in an attempt to be economical with its wording". That was not his view at the time and if the clause did not reflect the entirety of his instructions, it is likely that that would have been apparent at the time the will was signed, at least if Mr Keulemans "... went through the will, not verbatim, but in order of the clauses, providing the substances of the clauses, and getting confirmation from the deceased that that will reflected her - was in a form that she accepted, before the witnesses were being called", and if he "went through clause by clause to make sure the gist of those clauses was understood and agreed by the deceased." (T13) 30If Mr Keulemans did go through the will clause by clause with the deceased, I do not see how he could have failed to notice the inappropriate paragraph break in 8(c) and to have it corrected. On the other hand, if he did not, that diminishes the credibility of his evidence and points to the lack of clear and convincing proof of the deceased's intentions and instructions. 31I am not satisfied that the will does not reflect the deceased's intentions. The order for rectification will be refused.

Validity of the gift 32The consequence of the above reasoning is that the gift of 45 per cent of the residue of the estate is to a foundation or trust to be established by the trustees of the will, without any other qualification or specification of purpose. In correspondence the solicitors for the second respondent, Ms Nicholl, asserted that the relevant provision was void for uncertainty and therefore 45 per cent of the residuary estate passed to Ms Nicholl on intestacy. However, at the hearing, counsel for Ms Nicholl advised that she would not be contending that the gift failed, even if nothing could be added to the clause by way of rectification or construction. I apprehend that the reason for that position is that the view was taken that s 23 of the Charitable Trusts Act applies to save the gift by requiring the gift to be construed as if it required the application of the share of the residuary estate to a foundation or trust to be established by the trustees to be applied for charitable purposes. 33As noted at para [6] above counsel for the plaintiff had submitted that a sufficient indication of charitable intention appeared from the inclusion of the word "foundation" in the gift. There was no contrary submission. I am prepared to assume that that is so. 34I propose the following orders:

Grant leave to the plaintiff pursuant to s 27(3) of the Succession Act 2006 extending the time for making an application for rectification of the will dated 13 May 2005 of the late Shirley Winifred Nepean ("the will").
Order that the claim for rectification in paragraph 3 of the second amended summons be dismissed.
Declare that subclauses 8(c) and (d) of the will on their proper construction and pursuant to s 23(2) of the Charitable Trust Act 1993 and in the events which have happened require the plaintiff to pay 45 per cent of the residue of the deceased's estate to the Reverend Dr Colin Ford and himself and to a third trustee to be appointed by them to be held on trust to establish a foundation or trust and to be applied for charitable purposes.
Order that the claims for relief in paragraphs 1, 4, 4AA and 4AB of the second amended summons be dismissed.
Stand over the balance of the second amended summons generally with liberty to the parties to apply on 14 days' notice for any further orders in relation to the implementation of the trusts of the will or the implementation of a scheme or any application to alter the trusts of the will pursuant to s 81 of the Trustee Act.

Costs 35The plaintiff submitted that the Court should order that the costs of all parties, including the costs of the plaintiff on the indemnity basis, are a testamentary expense and should be paid out of the deceased's cash moneys and savings and investments as specified in clause 5 of the will. 36The Attorney-General seeks his costs only on the ordinary basis. 37Clause 5 of the will provides: "I GIVE my cash monies and savings and investments held with banks or other financial institutions, including any shares debentures and bonds and securities of a similar nature to my Trustee in payment of my funeral and testamentary expenses (to include the amounts payable to the RSPCA NSW and Cat Care under the following provisions) and personal debts outstanding at the time of my death, if any, not paid yet by me during my lifetime." 38Clause 6 provided for a legacy of $10,000 to be provided to the RSPCA if any of five named cats survived the deceased on proviso that it provide a home for the cats. 39Clause 7 included a direction to the trustee to pay appropriate expenses payable to "Cat Care" out of testamentary expenses in respect of two other cats. 40Clause 8 commenced "I GIVE DEVISE AND BEQUEATH the residue of my real and personal estate of whatsoever kind and wheresoever situate" and then made gifts of ten per cent of such residue to named charities, 15 per cent to each of three nieces and 45 per cent for the establishment of a foundation or trust. 41It is arguable that the "residue" of the deceased's estate the subject of clause 8 does not include the assets referred to in clause 5. There is thus arguably an intestacy in respect of any amount comprising "cash monies and savings and investments held with banks or other financial institutions including any shares debentures and bonds and securities of a similar nature" after payment of funeral and testamentary expenses. According to the inventory of property that formed part of the probate, there would have been assets to the value of approximately $150,000 falling within clause 5. 42The costs of these proceedings are a testamentary expense (In Re Stone; Read v Dubua (1936) 36 SR (NSW) 508 at 524-525). Clause 5 of the will provides for the expense to be borne by the assets referred to in that clause. If the assets referred to in clause 5 are insufficient to meet all funeral and testamentary expenses, then pursuant to s 46C and Pt 2 of the Third Schedule of the Probate and Administration Act 1898 the burden of those expenses would be borne by the whole residuary estate, so that the beneficiaries of the residuary estate would bear the burden proportionately. This result can be modified by an order of the court. 43Section 98 of the Civil Procedure Act 2005 provides that subject to the rules of Court and to the Civil Procedure Act or any other Act, costs are in the discretion of the Court. Section 93(3) of the Trustee Act 1925 (NSW) provides: "93 Costs ... (3) In any proceedings with respect to the management or administration of any property subject to a trust or forming part of the estate of a testator or intestate, or with respect to the interpretation of the trust instrument, the Court may, if it thinks fit, order any costs to be paid out of such part of the property as in the opinion of the Court is the real subject matter of the proceedings." 44Thus, whilst, prima facie, the costs of the proceedings should be dealt with as testamentary expenses and be borne by the assets referred to in clause 5, the Court can order that the costs be paid out of other parts of the estate if there is sufficient justification to do so (Pohlner v Pfeiffer (1964) 112 CLR 52 at 71). 45In Re Buckton; Buckton v Buckton [1907] 2 Ch 406, Kekewich J described three classes of case that can arise in actions for the administration of an estate or trust. The third class of case is one which is in substance adversarial litigation between beneficiaries. That is not this case. This case is the first class of case in respect of which Kekewich J said (at 414): "In a large proportion of the summonses adjourned into Court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned." 46In Murdocca v Murdocca (No. 2) [2002] NSWSC 505 Campbell J (as his Honour then was) reviewed the authorities concerning how the costs of administration actions should be borne between different parts of the estate and concluded (at [76]): "[76] If litigation which seeks to construe a will falls within the first or second of the categories identified by Kekewich J in In Re Buckton, the court is, in substance, carrying out the same task as it would have carried out had it been administering the estate itself. The appropriate question for the court to ask, in those circumstances, is where does the proper administration of the assets of the estate require the costs of the litigation to fall. The starting point of that inquiry will be whether the costs of the litigation are testamentary expenses, and if so where s46C of the Wills, Probate and Administration Act, and the terms of the will itself, cause the burden of testamentary expenses to fall. However, even in the first two categories identified by Kekewich J, the court also has a discretion conferred on it, under s93(3) Trustee Act, to order any costs to be paid out of such part of the property as in the opinion of the court is the real subject matter of the proceedings, and under s76 Supreme Court Act 1970 to order the costs of the proceedings to be borne in such way as the Court thinks just. If such a discretion is exercised, it displaces the provision which s46C makes concerning how testamentary expenses are to be borne. S46C needs to be construed as being subject to the statutory provisions which enable the court to make a costs order which displaces the order of application of assets under s46C. Before exercising any such discretions, the court would need to be persuaded that there was a sufficient reason to depart from what would otherwise be the appropriate order of application of assets. In exercising any such discretion, the court ought be wary of placing reliance on cases which have decided how costs should be borne, which were decided at a time when the legal framework within which administration of estates occurs was different to that which now applies in New South Wales." 47Prima facie, the costs of these proceedings should be borne by the assets referred to in clause 5 of the will, but s 93(3) of the Trustee Act 1925 and s 98 of the Civil Procedure Act empower the making of a contrary order if justice so requires. An example of such a contrary order is Moran v House (1924) 35 CLR 60. Whilst I agree with Campbell J in Murdocca v Murdocca (No. 2) at [57] that the decision of the majority of the High Court in Moran v House was a "simple application of a judicial discretion concerning the manner in which the costs of litigation should be borne", in Ledgerwood v Perpetual Trustee Company Limited (No. 2) (Young J, Supreme Court of New South Wales, 25 August 1997, unreported; BC9704806) Young J (as his Honour then was) appears to suggest that the decision in Moran v House was peculiar to its facts and should not be applied outside the particular facts with which it was concerned, and that the ordinary guidelines for the exercise of the costs discretion were those stated by Maughan AJ in Perpetual Trustee Co Limited v Paling (1924) 25 SR (NSW) 56 at 60 that the costs should come out of residue, that is to say, out of that portion of the estate which pursuant to the terms of the will or the application of s 46C of the Probate and Administration Act will bear the burden of the testamentary expense. On the other hand, in Kostka v Ukrainian Council of NSW Inc [2013] NSWSC 222, Young AJ said (at [72]) that: "... ordinarily, if the testator has caused the problem, his or her estate should bear the costs. If the problem only concerns a particular gift, then, ordinarily, the discretion should be exercised by ordering the costs to be paid out of the fund held to discharge that gift." With respect, I prefer the broader statement of principle of Campbell J in Murdocca v Murdocca (No. 2) quoted above to either Ledgerwood v Perpetual Trustee Company Limited (No. 2) or Kostka v Ukrainian Council of NSW Inc. 48The costs of the proceedings were incurred because of what Mr Keulemans accepted to be the inadequate drafting of the clause, which I am prepared to accept arose from inadequate instructions from the deceased. I agree with the submission of counsel for the second defendant that there being no doubt as to the validity of the other clauses of the will, it would not be just if the other beneficiaries of the estate should be required indirectly to contribute to the costs of the litigation that has only arisen because of the difficulties associated with the wording of the gift of 45 per cent of the residue under clause 8(c) and (d). 49I conclude that the plaintiff should pay the costs of the first defendant (the Attorney-General) on the ordinary basis and should pay the costs of the second defendant (Ms Nicholl) on the indemnity basis and should be indemnified out of the estate for his own costs and the costs payable to the first and second defendants. Although the plaintiff may have regard to any part of the estate to satisfy his right of indemnity, the burden of that indemnity is to be borne out of the assets that will comprise 45 per cent of the residue the subject of the gift in clause 8(c) and (d). 50In case there are any other orders that the parties consider should be made I will stand the proceedings over to a convenient time. I direct counsel for the plaintiff to bring in short minutes of order consistent with these reasons. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2013

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (5 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (14)

Cited By (1)