RJL v NSW Trustee and Guardian; The Estate of PBL [2011] NSWSC 200 | Case summary

The Statutory Framework relevant to the Questions Posed 61Section 83 of the NSW Trustee and Guardian Act relevantly provides: "83 Protection of interests in property of beneficiaries and other persons (1) Any managed person and any beneficiary of a managed person has the same interest in any surplus money or other property arising from any sale, mortgage or disposition of any property or other dealing with property under this Act as the managed person or beneficiary would have had in the property the subject of the sale, mortgage, disposition or dealing, if no sale, mortgage, disposition or dealing had been made. (2) The surplus money or other property arising as referred to in subsection (1) is taken to be of the same nature as the property sold, mortgaged, disposed of or dealt with. (3) Except as provided by subsection (4), money received on or for equality of partition and exchange, and all fines, premiums and sums of money received on the grant or renewal of a lease where the property the subject of the partition, exchange or lease was real estate of the managed person are to be considered as real estate. (4) Fines, premiums and sums of money received on the grant or renewal of leases of property of which the managed person was the tenant for life are to be considered as personal estate of the managed person. (5) The Court may make such orders as it thinks fit to give effect to this section. (6) In this section: "beneficiary" of a managed person means a beneficiary under a will of the person or an executor, administrator or assign of the managed person." 62The questions posed require a consideration of the nature and effect of this section. Consideration 63There is no dispute, in this case, that the NSW Trustee had the power to authorize the sale of the lock-up garage: see, for example, s 32(2)(a) of the former Act. 64The area of debate surrounds how the proceeds of sale are to be held and upon what basis. Ultimately, the questions posed can be distilled to whether the proceeds of sale should be retained as a separate fund, to be used for the benefit of the managed person only after other moneys in her estate had been expended or whether they should be retained with other funds without differentiation and, in that way, be available for use by the financial manager. 65So far as I am aware, and this is confirmed by the researches of counsel, the nature and effect of s 83 of the NSW Trustee and Guardian Act has not been the subject of any determination by the court. 66It is consistent with the approach taken to the interpretation of such legislation that a construction which will afford the " fullest relief which the fair meaning of its language will allow " should be adopted: Bull v Attorney-General (NSW) [1913] HCA 60; (1913) 17 CLR 370 at 384 per Isaacs J; Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51 at 98 per Dawson J; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at 528 per Gummow J; ICI Australia Operations Pty Ltd v WorkCover Authority of New South Wales [2004] NSWCA 55; Protective Commissioner v "D" & Ors [2004] NSWCA 216 per McColl JA at [167]. 67The NSW Trustee and Guardian Act , like the former Act, should be regarded as both remedial, or beneficial, and protective, legislation. The intent of such legislation is to provide a structure to protect a person who is incapable of managing his, or her, financial affairs. Such legislation provides various methods by which the property of the person whose capacity is diminished may be managed by others, including by means of a power of attorney, or by the appointment of a financial manager. Unlike a capable testator, the managed person does not have the ability to revise her will when it becomes apparent that property that she owns should be sold. 68Thus, s 83 must be construed so that it is consistent with the language and purpose of all the provisions of the NSW Trustee and Guardian Act , while seeking to give meaning to the words of the section. The Court should prefer a construction that will promote the purpose or object underlying the Act: s 33 Interpretation Act 1987 ; Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at 381 - 382 [69] - [70]. 69The process of construction must always begin by examining the context of the provision that is being construed: see, generally, Project Blue Sky Inc v Australian Broadcasting Authority at [69] - [71]; Protective Commissioner v "D" & Ors [2004] NSWCA 216 per McColl JA at [48]. 70In Commissioner for Railways (NSW) v Agalianos [1955] HCA 27; (1955) 92 CLR 390, at 397, Dixon CJ said: "The context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". 71Section 39 of the Act, so far as is relevant, provides: "39 General principles applicable to Chapter It is the duty of everyone exercising functions under this Chapter with respect to protected persons ... to observe the following principles: (a) the welfare and interests of such persons should be given paramount consideration, (b) the freedom of decision and freedom of action of such persons should be restricted as little as possible, (c) ... (d) the views of such persons in relation to the exercise of those functions should be taken into consideration, (e) ... (f) such persons should be encouraged, as far as possible, to be self-reliant in matters relating to their personal, domestic and financial affairs, (g) such persons should be protected from neglect, abuse and exploitation." 72Section 83 is in terms similar to s 48 of the former Act , which section has been the subject of some consideration by Hodgson J (as his Honour then was) in Christensen v McKnight and Ors (NSWSC, 2 March 1995, unreported) to which I shall return. 73It appears that s 48 was, originally, enacted to avoid what would occur, absent legislative enactment, in circumstances where a financial manager sold property of the managed person during his, or her, lifetime. At least in New South Wales, what would occur in that circumstance, was usefully set out in Johnston v Maclarn [2002] NSWSC 97, in which Young CJ in Eq. (as his Honour then was), said: "13 Roper on Legacies, 4th ed (William Benning & Co, London, 1847) at p329 and following, sets out the general rule with respect to the ademption of specific legacies. The learned author says: "The word 'ademption' when applied to specific legacies of stock or of money ... must be considered as synonymous with the word 'extinction'. For it should be observed, that if stock, securities, or money, so bequeathed, be sold or disposed of, there is a complete extinction of the subjects, and nothing remains to which the words of the will can apply (a): for if the proceeds from such sale or disposition were to be substituted and permitted to pass, the effect would be ... to convert a specific into a general legacy." [14] Roper gives a reference to Badrick v Stevens (1792) 3 Bro CC 431, 432; 29 ER 626, but this reference does not progress the matter. [15] As Roper notes at p 331, this view of ademption means that the testator's intention is irrelevant. The only thing to be ascertained is whether the testator possessed the property in the specific gift at the time of his death. If he did not, the legacy is adeemed by annihilation of the subject. [16] Roper's approach has been followed ever since; see eg In re Rudge [1949] NZLR 752, 761, where Callan J affirms that: "In questions of ademption ... the primary inquiry is not for the testator's intention. The test appears to be whether at his death the property of which the testator has made a specific gift in his ... will still belonged to him." [17] However, as I noted in my earlier judgment, there is authority that there is an exception where it can be shown that the property ceased to be part of the testator's estate because of the unauthorized action of an agent (see eg Basan v Brandon (1836) 3 Sim 171; 59 ER 68) or committee in lunacy; see eg Re Larking (1887) 37 Ch D 310). [18] In Jenkins v Jones (1866) LR 2 Eq 323, 328, Stuart VC considered that there was an exception to the ademption rule where the annihilation had taken place without the testator's knowledge, even if it had occurred with implied authority. He based himself on Shaftsbury v Shaftsbury (1716) 2 Vern 747; 23 ER 1089, to which I shall return. Other cases can be found to the footnotes of Jarman on Wills, 8th ed Vol 2 (Sweet & Maxwell Ltd, London, 1951) at p1068. [19] Although, it is a tad difficult to reconcile these cases with principle, see In re Slater [1907] 1 Ch 665, 671, they remain good law. This was the conclusion reached by Thomas J in Re Viertel [1997] 1 Qd R 110 after reviewing all the authorities including American and Canadian cases and texts." 74A similar view of the effect of such a sale was expressed by Nicholas J in Orr v Renee Slender Estate of the late Godfrey Raymond Orr & Ors [2005] NSWSC 1175; (2005) 64 NSWLR 671 at [34]. 75Section 83 is also in terms similar to s 22 of the Powers of Attorney Act 2003. For this reason, the NSW Trustee submitted, and I agree, that it is legitimate to consider what was said by the Honourable John Hatzistergos (Minister for Justice, and Minister Assisting the Premier on Citizenship) in the Second Reading Speech in respect of the Powers of Attorney Bill on 15 October 2003, in relation to that section: "Another important innovation in this bill is the provision to overcome hardship which currently may be caused in certain circumstances by a rule of common law called ademption. This concept is perhaps best explained by an example. Say a person, a testator, leaves a will in which he or she gives a particular item, such as a car or a piece of jewellery, to a beneficiary. If the testator sells that item before he or she dies, so that, at the time the will is put into effect, the item is not part of the estate, the law says that the beneficiary gets nothing, not even the monetary value of the item. The gift is said to be adeemed, or lost. The law assumes that the testator could have changed the will after selling the item, to give the beneficiary either money or another object, and if the testator does not change the will the beneficiary is to receive nothing. The ademption rule can operate particularly harshly where a testator, who has made a gift of a specific item in a will, loses mental capacity and his or her attorney sells the item under an enduring power of attorney. In this case the testator has no chance to alter the will after losing mental capacity. To overcome this situation and prevent injustice to the beneficiary, the bill introduces a provision which will entitle the beneficiary to any surplus left from the proceeds of the sale of the item sold by an attorney under an enduring power of attorney. The provision is modelled on section 48 of the Protected Estates Act , which protects beneficiaries from sales by a manager appointed under that Act to administer the estate of a protected person . The new provision will protect not only named beneficiaries but also classes of beneficiaries - for example, where an item is left to "my children". (My emphasis)" 76It is to be noted that s 22(7) of the Powers of Attorney Act provides that the section does not apply to any person to whom section 83 of the NSW Trustee and Guardian Act applies. 77I turn then to s 83. There is no reason to conclude that its purpose would be any different to the purpose for having inserted s 48 into the former Act. Thus, subject to s 83, the relevant consequence of the sale of the lock-up garage by the financial manager would be that the devise, to A, in the managed person's Will, of that lock-up garage, at the time of her death, would not take effect. 78There is no dispute that the purpose of s 48 of the former Act was, and s 83 is, to save a gift made by the managed person in her Will, which gift would, otherwise, be adeemed by activities carried out, not by her, but by her financial manager. In this way, the financial manager is able to take steps required to manage the managed person's property in a way that respects her needs, as well as her wishes made in a will, at a time when she is incapable of managing her affairs on her own. 79In Christensen v McKnight and Ors , Hodgson J said of s 48 of the former Act: "S 48(1) OF THE PROTECTED ESTATES ACT This is in the following terms: "48(1) Any protected person, and any other person being an heir, next of kin, devisee, legatee, executor, administrator or assign of a protected person shall have the same interest in any surplus money or other property arising from any sale, mortgage, charge or disposition of any property or other dealing with property under this Act as the person would have had in the property the subject of the sale, mortgage, charge, disposition or dealing, if no sale, mortgage, charge, disposition or dealing had been made." It follows from David and from the earlier discussion that the contract is effectual only by virtue of some exercise of the manager's powers derived from their appointment under the Act; and such exercise would have to fall within the words in s 48(1) "sale ... or disposition or other dealing with property under this Act". S 48(1) then gives devisees of the deceased "the same interest in any surplus money ... arising" therefrom, as they "would have had in the property... if no sale ... disposition or dealing had been made". Mr Kaye for the first defendant referred to s 48(5) of the Protected Estates Act , which is as follows: "(5) In order to give effect to this section the Court may make such orders and direct such conveyances, deeds and things to be executed and done as it thinks fit." He submitted that accordingly it was a matter of discretion for the Court as to what adjustments, if any, should be made pursuant to s 48(1). He compared the position in Queensland under the Mental Health Act 1974, Schedule 5, CL15, and the Public Trustee Act 1978, s 89(1); and in South Australia under the Aged and Infirmed Persons Property Act 1940 s 15(a). He also referred to Attorney-General v Marquis of Aylesbury (1887) 12 App. Cas. 672, at 688. The exercise of this discretion would require detailed evidence, which the Court did not have. Mr Legge, solicitor for the residuary beneficiaries, referred me to cases decided on s 123 of the UK Lunacy Act 1890, on which s 48 of the Protected Estates Act was apparently based, especially In Re Palmer (1911) WN (UK) 171, In Re Alston (1917) 2 Ch. 226, and In Re Stillwell (1936) 1 Ch. 637. He submitted that s 48(1) only applied if proceeds of sales to which it related were kept in identifiable form. He submitted further that, in respect of the deceased's property, an estate management plan had been drawn up pursuant to s 50 of the Protected Estates Act , and this plan contemplated that the proceeds of sale of 114 Rosedale Road should be used to pay the debts of the deceased, including a large debt due to the estate of her late husband. This plan should be given effect to. Some debts of the deceased had in fact been paid prior to her death out of the deposit. In my view, s 48(5) does not introduce a general discretion into the operation of s 48(1), but only gives some flexibility to the means of putting it into effect. I accept that s 48(1) only operates so long as "surplus money" arising from a sale to which it applies is identifiable as such. In my view, the word "surplus" indicates that the section only applies to the net proceeds of any such sale, and only to so much of these as remain identifiable at the date of death . Here, so much of the deposit as was used prior to the death of the deceased to pay debts would not be affected by s 48, nor would any other part of the deposit which was applied so as to lose its character as proceeds of sale. However, the balance of the purchase money received after the death of the deceased could not be considered as other than money arising from the sale, and in my view, could not be affected by the management plan devised before the deceased's death." (My emphasis) 80His Honour concluded: "Order In my view, therefore, at least the balance of the purchase money, less any expenses of the sale which were deducted from it and less any debts which were secured on the property, would be surplus proceeds of sale within s 48(1); and in my view, that section would be effective to produce the result that that money be treated as representing 114 Rosedale Road for the purposes of giving effect to the will. I am prepared to make declaration to that effect." 81To summarize, so far, the following may be noted about s 83: (a)The section refers to both the managed person and to any beneficiary of a managed person; (b)The beneficiary of a managed person includes a beneficiary under a will of that person; (c)Under the section, each has the same interest as he, or she, would have had in the property the subject of the sale, mortgage, disposition or dealing, if no sale, mortgage, disposition or dealing had been made; (d)The surplus money, or other property arising, is taken to be of the same nature as the property sold, mortgaged, disposed of or dealt with; (e)The interest that the managed person, or any beneficiary has, is in any surplus money, or other property, arising from the sale, mortgage, disposition, or other dealing, of the property under the Act; (f)"Surplus" in this context refers to the net proceeds of any such sale; (g)The surplus, or such part of it that remains, must exist, in an identifiable form, at the date of death. 82The difficulty is to determine how the section operates in practice, and how the surplus should be treated between the date of the sale, mortgage, disposition or dealing and the date of death of the managed person. 83There is one authority, to which neither counsel referred, and which, although not precisely on point, is of some interest. In Ex Parte & Ors v Sandra Ann Boykett (As Executrix of The Will of Maurice James Boykett, Deceased) [1997] WASC 11, the Public Trustee in Western Australia, sought, pursuant to s 58 of the Public Trustee Act, 1941 (WA), the direction of the court in circumstances where it was administering the affairs of the estate of a protected person. That protected person appeared to have made a will, clause 4 of which made express provision for the sale of that property, for the division of the net proceeds of that sale into three equal shares, and for the distribution of each of those shares to a number of beneficiaries. (There was a question whether the document was the last valid will of the protected person, but that was not decided.) 84In the circumstances of the estate and of the protected person, the decision had been taken that the appropriate course was to sell the property so that the estate was relieved of the burden of its maintenance and so that the Public Trustee had available, if and when they were needed in the future, funds to provide for the maintenance benefit and welfare of the protected person during the remainder of her lifetime. The Public Trustee was concerned, however, as to the possible consequences of the sale on the provisions and effect of the Will should it, in due course, be proved to be her valid last will. 85For that reason, the Public Trustee sought directions that the net proceeds of the sale of the property and any income accruing thereon should be invested separately from the other funds in the personal estate of the protected person and that those separate funds not be spent unless and until the other funds were exhausted. 86The Public Trustee also sought the opinion of the court on the question whether the sale of the property would adeem the devise of the property under clause 4 of the document (if the document was ruled to be the last valid will following her death) to the extent that the moneys in the separate fund so established were spent on the protected person's maintenance benefit and welfare. 87Finally, the Public Trustee sought the opinion of the court whether, if the property were sold, the separate fund comprising the proceeds of sale and earnings on those proceeds would constitute the devise of the property under clause 4 of the document (should the document be ruled to be the last valid will of the protected person following her death). 88Parker J, after referring to the questions, stated: "It will be seen that the Public Trustee is by these means seeking to avoid a situation where an executor or administrator after [the protected person's] death had need to trace moneys that may form part of the devise of the property under cl 4, or in which it could be argued that by not separating the net proceeds of the sale of the property from the other funds, the devise of the property is adeemed. The subject matter of a gift may cease to be part of the estate where the testator disposes of the thing altogether by selling it or giving it away during a testator's lifetime. In such cases the gift is said to adeem: Atherton & Vines, Australian Succession Law, para [13.3.13]. The principle is not, however, absolute. The issue raised in the present case is the extent to which it applies if the property is sold at a time when the testatrix is not capable of managing her own affairs, nor presently of validly executing a will, and the management of her estate has by law fallen to the Public Trustee who, in that capacity, is to dispose of the property having knowledge of the provisions of the document." 89His Honour then dealt with the cases on ademption and concluded: "For the reasons discussed above, should [the protected person's] property be sold now or at some future time when she lacks both the capacity to sell the property herself and to change her will, and the net proceeds of the sale and any income accruing on those proceeds are held in a separate fund from which moneys are only drawn for the maintenance, benefit and welfare of [the protected person], I would express the opinion of the court that the sale of the property would not adeem its devise under cl 4 of the document (if the document is ruled to be the last valid will of the protected person] following her death) except to the extent that the moneys from that separate fund are spent on [the protected person's] maintenance, benefit and welfare. Further, on the sale in those circumstances it is the opinion of the Court that the separate fund would constitute the devise of the property under cl 4 of the document (if the document is ruled to be the last valid will of [the protected person] following her death). There remains the question whether the net proceeds of the sale should be invested in a separate fund. The Public Trustee seeks a direction to this effect. The discussion in these reasons sufficiently indicates the desirability, if not the need, for that to be the position. I would direct accordingly. ... There remains the question whether there should be a direction for the moneys in that separate fund not to be spent on her maintenance, benefit and welfare until other funds in the personal estate of [the protected person] are exhausted. This is not an easy matter to determine. I notice that under the terms of the document, apart from the devise of the property and its provision for a three-way division of the proceeds of the sale of the property, it is provided that the remainder of the estate should go to a beneficiary or beneficiaries who are identical in their description and circumstances of taking to those who would take one of the third shares of the proceeds of the devise of the property under cl 4. I also note the circumstances of living of [the protected person] while she managed her own affairs in that she lived in the house on the property and apparently maintained herself and the property from her other means. In these circumstances I am persuaded that the direction sought by the Public Trustee is appropriate." 90Other than identifying what his Honour did in that case, Boykett does not provide any real guidance on the operation of s 83. 91I have considered the time, or times, at which the section is to speak. If it speaks at the time of the sale, mortgage, disposition or dealing, of the property, the interest of the managed person is both legal and beneficial. At that time, the beneficiary does not have any legal, or beneficial, interest in the property. It might be said, since the Will of the managed person is unlikely to be revoked, that the beneficiary has, at the highest, an "expectancy" at that time. 92If the section speaks at the date of death of the managed person, the legal and beneficial ownership of the surplus of the proceeds of sale, mortgage, disposition or dealing, would remain with the managed person's estate, but the interest of the named beneficiary crystallises into something more than a mere expectancy. At that point in time, until the estate is administered, the beneficiary has no proprietary interest in any particular asset of the estate but a chose in action entitling him, or her, to require the proper administration of the estate. Once the estate has been administered, it is an entitlement to the property the subject of the devise or bequest: Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694. 93It seems to me that the section is speaking of both times. At the time of sale, mortgage, disposition or dealing, the managed person retains the legal and beneficial interest in the surplus money, or other property, which, until death, may be used for his, or her, benefit, care and management, if required. However, the surplus, until used, is notionally treated as being of the same nature as the property sold, mortgaged, disposed of, or dealt with, and the interest of the beneficiary during this period, is treated as being the interest that he, she, or it, would have under the Will of the managed person following his, or her, death. 94The key to the interpretation of the section, and the one that provides the answer to the questions posed, is sub-section (2), which explicitly requires the "surplus" to be taken to be as "of the same nature as" the property sold, mortgaged, disposed of, or dealt with. In other words, there is upon the sale, mortgage, disposition, or dealing with, the property, a deemed preservation of the character of the property converted. That concept requires the notion of comparability, despite the fact that the property sold, mortgaged, disposed of, or dealt with, becomes different, qualitatively and quantatively. 95In this case, the nature of the property sold is real estate, and it is notionally "as real estate" that the surplus must be taken to be likened, or equated, to. 96Thus, as in the present case, if there is money available in the managed person's estate that would have formed part of the residue of her estate, which money can be used for the benefit, care and management of the managed person, it should, first, be used for those purposes. It is when there are no other moneys available for those purposes, that the surplus proceeds of sale mortgage, disposition, or dealing with, property that has been specifically devised may be used. Until that time, the surplus proceeds of sale of that specifically devised property, is treated as if it were real estate and is not able to be used. 97Whether the income on the proceeds of the sale of the lock-up garage should be accumulated in that separate fund is another question that requires consideration. In this regard, there is no evidence that the managed person was deriving any income from the lock-up garage. 98Because one is required to treat the surplus funds as of the "same nature" as the property sold, it appears to me that the income, from time to time, earned on the surplus, should not, in this case, form part of the surplus, but may be added to the other moneys which are used for the benefit, care and management of the managed person. 99It follows that there should be a direction for the proceeds of sale of the lock up garage to be held in a separate fund, not to be spent on the managed person's maintenance, benefit and welfare, until other funds in her estate are exhausted. The income earned on the surplus is to not to be retained in the separate fund, but should be available for use in the maintenance, benefit or welfare, of the managed person. 100Turning then to the specific questions posed, I answer each: "1 Whether the plaintiff, as manager of the Estate of her Aunt, ... under the Financial Management Order of the Guardianship Tribunal made 31 January 2006 would be justified in treating the whole of the net proceeds of sale of the Protected Person's former residence at Forbes Street Darlinghurst as funds available without differentiation to be applied for the purposes authorised by s 59 and/or s 65(1) and (3) of the NSW Trustee and Guardian Act 2009 ("the Act") The Plaintiff would not be so justified. "Whether the plaintiff as manager of the Estate of her Aunt, ... under the Financial Management Order of the Guardianship Tribunal made 31 January 2006 would be justified in treating the purported direction or requirement of the office of the NSW Trustee and Guardian to treat $75,000 of those funds as having been already appropriated by s 83 of the Act for the purpose of satisfying a prospective claim by a beneficiary under the presumptive most recent will of the Protected Person, as being void and not authorised by the Act." The Plaintiff would not be so justified. 101Subject to any views of the parties, I would otherwise propose the following orders and declarations for the assistance of the parties: (a)The net proceeds of the lock up garage formerly owned by PBL are to be invested in a fund ("the Sale Fund") separate to the other funds in the personal estate of PBL ("the Other Funds"). (b)The income from the Sale Fund is to be paid, annually, to the Other Funds. (c)The sale of the lock-up garage only adeems the devise of the lock up garage to A under the Will executed by PBL on 30 July 1999 (if that Will is found to be the last valid will of PBL upon her death and if he survives PBL) to the extent that the moneys from the Sale Fund are spent on PBL's benefit, care and management; and (d)The Sale Fund, or that part of it that is left at the date of PBL's death, constitutes the devise of the lock up garage to A under the clause of the Will made on 30 July 1999, (if that Will is found to be the last valid will of PBL upon her death and if he survives PBL). (e)The Sale Fund is not to be spent unless, or until, the Other Funds are exhausted. 102Subject to any argument, I would propose that each party's costs, calculated on the indemnity basis, be paid out of the Other Funds of PBL.

RJL v NSW Trustee and Guardian; The Estate of PBL

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