In July this year, I delivered a judgment in these proceedings resolving some of the disputes which had arisen between the parties as to the proper interpretation of the will of the late John Sherwood Brown who died in January 2019: Neal v Brown [2024] NSWSC 841 ("J1"). This judgment deals with the remaining questions which were raised for determination in the proceedings. It assumes familiarity with my July judgment and uses the same abbreviations as I used in that judgment.
Prior to the hearing, I received written submissions from counsel for the Administrator (see J1 [4]), counsel for the Children (see J1 [2]) and counsel for Sebastien and his mother, Ms Fryer (see J1 [3]). Counsel agreed a list of issues for determination. One of them was liability for the costs of the proceedings, which I have deferred. Three other issues are dealt with below.
[2]
Expenditure on Glebe property
The first issue arises out of cl 7 of the Deceased's will (set out in full at J1 [19]) which dealt with the Deceased's house at Wigram Road, Glebe. Clause 7 left the Glebe property to the three Children and Sebastien (in equal shares), but subject to Sebastien having a right of residence there until he attained the age of 25 (if he did not vacate the property or complete his formal education beforehand).
The critical provision for present purposes is cl 7(ii), which provides:
During any period of residence by [Sebastien] his mother [Ms Fryer] will also be entitled to reside with him[,] subject to exclusive occupation by them, provided he/they keep the property clean and tidy, in a good state of repair and maintenance and to [sic] be liable for all periodic costs and expenses thereof; but my Estate shall otherwise be liable for payment of council and water rates, insurance and any repair or replacement of capital items.
The will used the term "Trustee" to refer to the appointed executor under the will (later replaced by the Administrator) both as executor of the Deceased's estate and as trustee of the trusts established by the will: see J1 [16]. Clearly, it contemplated that title to the Glebe property would be vested in the Trustee, and would remain in the Trustee's ownership whilesoever Sebastien exercised his right of residence. The reference in clause 7(ii) to the Deceased's "Estate" was a reference to the Trustee as the legal owner of the property for that purpose.
Clause 7(ii) distinguished between two classes of costs resulting from ongoing occupation and ownership of the Glebe property in the event that Sebastien exercised his right of residence. One was the "periodic costs and expenses" for which Sebastien and Mr Fryer were to be liable as a condition of the exercise of the residence right. I will refer to such costs as the "Residents' Costs". The other class of expenses were "council and water rates, insurance and any repair or maintenance of capital items" which the "Estate" (that is, the Trustee) was to be liable to pay. I will refer to these as the "Trustee's Specified Costs".
Sebastien has exercised his residence right. He has been living at the Glebe property (with his mother, Ms Fryer) since the death of the Deceased and is now an undergraduate student at university. He will not attain the age of 25 until 2030.
Sebastien and Ms Fryer of course accept that, for as long as Sebastien exercises his right of residence at the property, they are responsible for the Residents' Costs. No question appears to have arisen, as of yet, as to the ambit of those Costs. But disputes have arisen about other costs resulting from the Trustee's ongoing ownership of the property.
Following the Deceased's death, such costs were paid by the nominated executor, Mr Mant, and after he disclaimed without having obtained probate, such costs were paid by the Administrator. Those payments were made out of monies which have become available elsewhere in the Deceased's estate. This resulted in questions as to how the costs already paid were to be ultimately allocated as between the beneficiaries, and how ongoing costs were to be paid and allocated in future.
The question presented for my decision in July concerned the status of the Trustee's Specified Costs so far incurred, and to be incurred in future. Counsel for Sebastien argued that the "Estate" in cl 7(ii) referred to the Trustee in his capacity as executor of the Deceased's estate. On that view, the administration of the estate was to continue until Sebastien ceased to reside at the property; the Trustee's Specified Costs incurred in the meantime would be treated as expenses of administration of the estate, thus falling on the residue (which was to be divided between the Children and Sebastien (see J1 [21]) until Sebastien's right of residence ceased.
Counsel for the Children argued that the reference to the "Estate" in clause 7(ii) was to the Trustee as trustee of a separate trust established by the will. On that view, the administration of the Deceased's estate had relevantly been (or at least should have been) completed when the property was vested in the Trustee; and the Trustee's Specified Costs, incurred and ongoing, would fall on that will trust.
In my July judgment, I adopted the latter view (J1 [23]-[43]). I considered that the Trustee's Specified Costs should be allocated to a separate will trust (to which I will refer as "the Glebe Property Trust") rather than the estate. I made orders in a form agreed by the parties, which included orders that the Administrator file his accounts for the administration of the Deceased's estate on that basis.
Those accounts have now been filed. Reflecting my decision, the Trustee's Specified Costs so far paid out of estate monies have been treated as amounts for which the estate is entitled to be reimbursed by the Glebe Property Trust.
The accounting process has brought another matter into focus. The Trustee's Specified Costs, as defined in the will, do not cover all of the costs associated with the Glebe property which have been incurred, or may be incurred in future. There are further costs, to which I will refer as "Trustee's Unspecified Costs", which have fallen, or may in future fall, on the Trustee, and these need to be dealt with.
The issue was brought into focus in the following way. At the time of the Deceased's death, a mortgage securing a loan to the Deceased from ING Bank was registered on the title of the Glebe property. The debt outstanding under the mortgage was $34,000. While Mr Mant was managing the Deceased's estate, he used estate receipts to pay off the debt. This has, consistently with my July judgment, been recorded in the Administrator's accounts as a debt owed by the Glebe Property Trust. It is common ground that this amount is not covered by the wording of clause 7(ii).
Counsel for the parties identified two issues which arose. One of them concerned the practical question of how liabilities for the Trustee's costs already incurred, and which will be incurred in future, are to be discharged. It is convenient to deal with this issue first.
Sebastien's entitlement is to live at the Glebe property rent-free. The property is the sole asset of the Glebe Property Trust. Thus, there is no income and there are no assets available to the Trust to meet the Trustee's Costs (Specified or Unspecified).
Sebastien has, as already mentioned, a one-quarter share of the reside of the estate. He was also left a one-quarter share of the proceeds of two superannuation policies, although in my July judgment I determined that one of those policies had already been cashed in by the Deceased before his death, so that that gift adeemed: J1 [67]-[76]. The will provides that both of these legacies are to be held on trust for Sebastien until he turns 25. It appears to be common ground that Sebastien's share of these two legacies can be advanced to the Glebe Property Trust and applied to the Trustee's costs. It seems, however, that it will not be enough to meet those costs in full, especially as the Trust has at least five more years to run.
If the Trustee runs out of funds to pay the costs, he will have no alternative but to sell the Glebe property. This would bring Sebastien's occupation to an end and result in the premature winding up of the Trust. The only solution would seem to be some sort of borrowing.
The Administrator has made it clear that he will not undertake any commercial borrowing for this purpose. The Children, perhaps unsurprisingly, have also declined to assist. But Ms Fryer may be prepared to make an interest-free advance to the Trustee to provide any necessary funds.
The relevant agreed issue for determination, as formulated, raised questions as to whether the Administrator would be justified in borrowing monies from Ms Fryer (or other beneficiaries) in this way. But, by the time the matter came on for hearing, no opposition was being raised to that course by any party. It seems to me that there is no need to answer the question as formulated, but if the Administrator considered that an agreed notation should be made, then I will do so.
The second issue arises because the Glebe Property Trust involves successive beneficial interests. Where trust property is held for the enjoyment of one beneficiary (the "tenant") for life, or some other defined period of time, and afterwards for another beneficiary (the "reversioner"), expenditure on the property must be appropriately allocated between the tenant's interest and the reversioner's.
In the present case, this involves determining the extent to which the Trustee's Specified and Unspecified Costs under the Glebe Property Trust should be allocated to Sebastien alone as tenant and to what extent they should been allocated to the four reversioners (the Children and Sebastien). The protagonists in the argument were therefore counsel for Sebastien and counsel for the Children. Counsel for the Administrator, appropriately, took a neutral position, while endeavouring to the assist the Court.
The form of question for determination as agreed by the parties is:
Where, amongst the beneficiaries of the Will trust, the ultimate burden will lie for the payment of expenses as contemplated in clause 7(ii) of the Will, and the mortgage. The categories of expenditure are:
a) Administrative costs of managing the Glebe property.
b) Legal costs that have been allocated to the Glebe property.
c) Reimbursement to the Estate for payments totalling $34,037 of the ING mortgage over the Glebe property.
d) Liability for repair or replacement of capital items in respect of the Glebe property.
e) Liability to pay Council and water rates of the Glebe property.
f) Liability to pay insurance over the Glebe property.
In the absence of an express provision in the trust instrument, the allocation takes place in accordance with the familiar distinction between recurrent expenditure, which benefits the tenant as occupier, on the one hand, and capital expenditure, which benefits the reversioner, on the other: D Heydon and M Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Australia) at [19-52]-[19-60]. That is common ground in the present case. It is also common ground that these general principles will apply to the apportionment of the Trustee's Unspecified Costs, which are not expressly dealt with in the will. But there is a question between the parties about whether the will makes some other provision for the Trustee's Specified Costs.
Counsel for Sebastien submitted that, properly interpreted, the clause does make such a provision. He argued that the Deceased used the term "Estate" in cl 7(ii) to refer to the reversioners. The purpose of the clause was to distinguish between costs allocated to Sebastien and Ms Fryer as residents, on the one hand, and costs specifically allocated to the reversioners on the other.
Counsel submitted that if the "Estate" were only a reference to the Trustee in the first instance, with the ultimate incidence between tenant and reversioners to be determined by the usual rules of allocation under trust law, the definition of Trustee's Specified Costs would really be unnecessary. In accordance with the usual rules of interpretation, the Court should, counsel argued, prefer an interpretation of cl 7(ii) which gives all of the words in it some work to do.
Counsel for the Children argued that cl 7(ii) had a different purpose. That purpose was, he submitted, to draw a line between costs which Sebastien and Ms Fryer had to pay out of their own pockets and costs which were to be payable in the first instance by the Trustee. Residents' Costs stand entirely outside the Trust. Trustee's Specified Costs fall within the Trust. But this says nothing about the ultimate allocation of such costs between Sebastien and the reversioners.
There is something to be said for this argument. Once it is accepted that cl 7(ii) does not cover all the Trustee's costs, and that at least some of those costs therefore fall to be allocated between tenant and reversioners in the ordinary way, to treat the Trustee's Specified Costs differently might be thought illogical or capricious. And, while the distinction on which counsel's argument is based is likely to have only modest practical significance, it is not so insubstantial that it gives the relevant words no work to do.
Counsel for Sebastien submitted that the use of the term "liable" in clause 7(ii) supported his interpretation. Counsel submitted that the term was directed towards the ultimate allocation of the cost rather than the person by whom it was to be paid in the first instance. But the term is notoriously protean (see Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14 at [12] per Spigelman CJ, [67] per Mason P and [87] per Santow JA). And, while Sebastien and Ms Fryer are "liable for" the Residents' Costs, the Trustee is "liable for payment of" the Trustee's Specified Costs. In my view, in the context of a will notably lacking in grammatical rigour, this terminology is of no help in resolving the argument.
In my view, the strongest point in Sebastien's favour is that, in accordance with the usual recurrent/capital expenditure approach, council rates and water rates would undoubtedly be recurrent expenditure to be paid by Sebastien as the tenant. Thus, if I were to accept the argument for the Children, such rates fall in the first instance on the Trustee but would then be immediately allocated back against Sebastien.
I think that the Deceased is highly unlikely to have intended such an outcome. He was not, so far as the evidence goes, familiar with trust accounting. There is no reason to think that he was contemplating that an allocation of expenses to Trustee's costs would only be temporary, liable to be displaced by an ultimate allocation of the costs between tenant and reversioners which might (and in the case of the rates, certainly would) allocate those costs back to Sebastien. If he had intended it, surely he would have provided for it directly by simply making the rates part of the Residents' Costs in cl 7(ii) (for reasons given below, this could probably have been done by omitting express reference to the rates entirely, leaving them to be picked up as "periodic" expenses under the definition of Residents' Costs, but the point I am making does not depend upon that particular construction being adopted). Indeed, he would probably have gone on to perceive the practical problem which has now arisen with payment of the Trustee's costs, and dealt with it in some way.
In my view, what the Deceased was trying to achieve in cl 7(ii) was to ensure that the Trustee's Specified Costs would be split four ways. To the extent that the Deceased did not deal with all of the Trustee's costs in cl 7(ii), then the usual recurrent/capital expenditure allocation must be made, as he would no doubt have expected, had he considered it.
For these reasons, I conclude that the Trustee's Specified Costs identified in clause 7(ii) are to be borne by the reversioners, irrespective of whether they would be so borne under the usual recurrent/capital expenditure classification.
This brings me to the expense categories set out in the question agreed by the parties. It is convenient to deal first with the liability to refund the mortgage payment to the estate (category c).
Counsel for Sebastien pointed out that, under Locke King's Act (Conveyancing Act 1919, s 145), the mortgage debt was charged on the Glebe property, rather than payable out of residue. He submitted that, as the discharge of a capital liability secured on the property, it was expenditure of a capital nature which enured to the benefit of the reversioners and should be apportioned to them (interest on the debt following the Deceased's death was another matter): Jacobs' Law of Trusts in Australia at [19-53].
Counsel for the Children accepted that, if Mr Mant had not repaid the debt to ING and it remained secured on the property, this would be so. Counsel also accepted that if the Trustee had borrowed the necessary funds to discharge the debt, the same result would follow. But counsel did not accept that the same would be true if Ms Fryer were now to lend the monies required to discharge the Glebe Property Trust's liability to the estate.
Counsel characterised the lending proposal as involving the indirect imposition of an obligation on the Children which they had rejected when it was proposed to them directly. Counsel submitted that if Ms Fryer, on behalf of Sebastien, now wished to repay the debt, then the liability would fall on Sebastien alone.
I cannot accept this submission and I do not understand the logic which lies behind it. It is plain that an executor in Mr Mant's position was entitled to discharge debts of the Deceased from the first assets to hand, but is then obliged to make adjustments afterwards: see Joyce v Cam [2004] NSWSC 621 at [48]-[49] per JC Campbell J. That is an essential aspect of the orderly and efficient administration of the estate.
Mr Mant's lack of authority makes no difference. I see no reason why, in the present case, the reversioners' subsequent refusal to undertake the debt themselves, should give them an undeserved windfall. In my opinion, the debt (currently represented as a book debt between the Trust and the Estate) is repayable from the reversioners' interest in the estate and that will remain so if funds are advanced by Ms Fryer.
This brings me to the other categories of expense in the question agreed by the parties.
As already noted, there appears to have been no dispute, thus far, about the scope of the definition of Residents' Costs in cl 7(ii). But it should be noted that there is at least one ambiguity in the definition.
The word "thereof", as it applied to "periodic costs and expenses" for which Sebastien and Mr Fryer are "liable", may refer to "keeping the property clean and tidy" etc. But it may instead refer more broadly to "periodic costs and expenses" of the "occupation by Sebastien and [Ms Fryer]" of the Glebe property.
The argument before me did not go into this ambiguity and it does not need to be resolved at this point. My first impression is that the use of the word "periodic" is more consistent with the wider definition. Repairs and maintenance are not naturally described as "periodic" expenses. If the wider view is correct, then, while council and water rates are expressly allocated to Trustee's Specified Costs, other periodic expenses associated with occupying the property may fall within the definition of Residents' Costs and therefore outside the Glebe Property Trust.
Returning to the categories in the agreed statement of issues, my conclusion on the interpretation of cl 7(ii) means that council and water rates (category e) are to be allocated to the reversioners. But the allocation of the other categories identified by the parties is not so straightforward, at least on the information available to me.
Category f refers to "insurance over the Glebe property". Clause 7(ii) itself refers only to "insurance". There seems to me to be no doubt that, in the context, the term "insurance" at least covers the cost of insuring the land and building themselves. But there may be a question about whether it extends to the cost of insuring against other risks such as occupier's liability or protection of contents.
Similarly, there may be difficulties with identifying the precise scope of "repair or replacement of capital items" (category d), especially when that has to be distinguished from the costs of keeping the property in "good … repair and maintenance" and may extend to further "periodic" costs associated with occupation. The allocation of administrative and legal costs (categories a and b) is even less clear.
The evidence before me did not descend into the sort of detail which would be required to answer these questions, and they were not the subject of argument. Again, whether they fall within the Trustee's Specified Costs identified in cl 7(ii), or whether they are Residents' Costs, or Trustee's Unspecified Costs will depend on the circumstances of the individual expenses and may require argument (and if so, an issue may arise as to whether they are recurrent or capital in nature).
Again, the formulation of the agreed question did not go into these potential difficulties, and I heard no argument about them. In the absence of agreement between the parties, they will need to be considered on an item-by-item basis.
In the result, I conclude that:
1. the Trustee's Specified Costs, as defined by cl 7(ii), are, for the purpose of allocating expenditure by the Trustee between Sebastien as tenant and the reversioners, to be allocated to the reversioners;
2. consequently, council and water rates levied on the property (but not water usage charges) are to be allocated to the reversioners; and
3. so too is the Glebe Property Trust's liability to the Deceased's estate to reimburse the Deceased's estate for the discharge of the ING debt secured on the Glebe property, and any capital sum borrowed to discharge that liability.
I assume that the way to give effect to these conclusions is by appropriately worded declarations. If the parties can agree, in the light of the comments which I have made, on the proper allocation of other categories of Trustee's costs, then it may be possible to make further orders giving effect to that agreement.
[3]
Superannuation entitlements
The other question concerned the superannuation policy which I concluded had not adeemed and therefore took effect as a gift to the Children and Sebastien (see [18] above). The agreed issues for determination included:
Whether, on the true construction of the Will, the gift of the "net monies from my … PortfolioOne Pension Service…" account in clause 8 of the deceased's Will amounts to a pecuniary legacy or a specific gift.
Counsel for the Children submitted that the gift was a specific gift rather than a pecuniary legacy. Counsel for the Administrator supported this view. In written submissions, counsel for Sebastien submitted that it was a pecuniary legacy (thus meaning it would be paid out of general residue, if any). But at the hearing, counsel did not press this contention and agreed that it was a specific gift. A notation in appropriate form will be made in the judgment to reflect the parties' agreement on this point.
[4]
Orders
The above was circulated to the parties in draft form, and they have agreed orders giving effect to the conclusions I have reached, as well as other matters which are agreed.
The orders of the Court are:
1. DECLARE that, on the true construction of clause 7 of the Will dated 18 January 2019 of the late John Sherwood Brown ('the deceased') and in the events that have happened, the costs of, and associated payments in respect of, council and water rates (other than water usage charges), insurance and any repair or replacement of capital items (identified in sub clause (ii) of the said clause 7) charged or levied against, or incurred in relation to, the property situate at, and known as, 32 Wigram Road, Glebe and being the whole of the land in Certificate of Title Folio Identifier B/108423 ('the Glebe property') and incurred and paid by the Plaintiff as Administrator of the estate of the deceased from the date of the death of the deceased until completion of the sale of the Glebe property are to be allocated to and charged equally against the several interests of the First Defendant, the Second Defendant, the Third Defendant and the Fifth Defendant in the equity of the Glebe property.
2. DECLARE that, on the true construction of the said clause 7 and in the events that have happened, all monies paid out of the estate of the deceased in respect of and related to the discharge of the Mortgage given to the ING Bank by the deceased as security for Loan Account No 25911313 ("the loan"), excluding the interest accrued on the loan from the date of the deceased's death to the date the loan was repaid to ING Bank, in the name of the deceased (and the costs incurred in respect of the borrowing of monies referred to in the Notation below) are to be allocated to and charged equally against the several interests of the First Defendant, the Second Defendant, the Third Defendant and the Fifth Defendant in the equity of the Glebe property. The interest accrued on the loan from the date of death to the date the loan was repaid to ING Bank is to be allocated to and charged against the Fifth Defendant in the equity of the Glebe property.
3. NOTE that it is agreed by the Defendants and each of them that the Plaintiff as Administrator of the estate of the deceased is justified in borrowing monies from the Fourth Defendant for the purposes of and in connection with the payment of council and water rates (other than water usage charges), insurance and any repair of capital items identified in Order 1 hereof on such terms and in such amounts and at such times as in his absolute discretion he considers necessary and appropriate. It is further noted that any loan is intended to be provided on an interest-free basis.
4. NOTE that it agreed by the Defendants and each of them that for the purposes of administering the estate of the deceased and in compliance with the provisions of Part 2 of the Third Schedule of the Probate & Administration Act 1898, the gift in clause 8 of the said Will of the monies totalling $1,227,817.50 in the PortfolioOne Pension Service (P/N 802296506) and paid into the Westpac Account in the deceased's name on 1 February 2019 will be treated by the Plaintiff as Administrator of the estate as a specific gift and not as a pecuniary legacy.
5. NOTE the agreement of all of the parties as to the following issues that are not in dispute:
1. The fourth and fifth defendants agree that the first, second and third defendants may retain the wall hangings in the Glebe Property (other than the oil paintings that are solely owned by the fourth defendant) upon sale of the Glebe Property;
2. The fourth defendant does not seek reimbursement of the sum of $16.21 paid by her in reduction of the ING loan;
3. The balance of the cross claim is to be discontinued with no order as to costs of the defendants; and
4. At the expiry of the right of residence, the Plaintiff will arrange the sale of the Glebe property (without arranging the capital repairs if they had not already occurred) and distribute the net proceeds of sale in accordance with the Will and the orders of the Court.
1. GRANTS liberty to apply to Parker J, on 7 days' notice with respect to any matter arising from the Declaration in Paragraph 1 above.
2. RESERVE the question of the costs of the proceedings for further consideration.
[5]
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Decision last updated: 19 December 2024