St John v St John

Supreme Court of NSW|2021-03-17|Before: Parker J

Judgment

These proceedings concern the estate of the late Robert James Baldwin St John QC, who died in May 2003 at the age of 78. The plaintiff executors seek judicial advice and other orders concerning the administration of the estate. For convenience and without disrespect I will refer to the members of the deceased's family by their given names.
The deceased was survived by: 1. his first wife, Annie Mary St John ("Annie"); 2. his second wife, Jennifer Louise St John ("Jennifer"); and 3. his and Annie's four children: 1. Rosemary Annie St John - referred to in the will as Rosemary Anne Williams ("Rosemary"); 2. Richard Baldwin St John ("Richard"); 3. Robyn Pamela St John - now called Bhakti Manning ("Bhakti"); and 4. Jill St John ("Jill").
The deceased's will was made in June 1991. At that time he had been divorced from Annie and was married to Jennifer. In 1993, he and Jennifer divorced, with the result that the provision in her favour in the will was automatically revoked.
The will appointed Rosemary and Richard as the deceased's executors. In the events which have happened, the relevant dispositions made by the will were that the estate should be held on trust: 1. to pay (firstly from income) to Annie the maintenance payments to which she was entitled under a deed entered into at the time of her divorce from the deceased; 2. following her death or remarriage, to his four children in equal shares.
At the deceased's death the major asset in his estate was a semi-rural property at Mullaway on the mid-North Coast of New South Wales. The deceased also left a substantial share portfolio and livestock and other farming assets associated with the Mullaway property.
Mullaway is a small coastal township north of Coffs Harbour. The property is 6.33 hectares (25 acres) in area. Two buildings stand on it. One is a house containing three bedrooms. The other is a separate studio. The house was originally built in about 1900 and was relocated to the site in about 1960. The studio was built in 2002, shortly before the deceased's death.

Applications for determination

These proceedings were commenced in October last year by the executors as plaintiffs. Annie is the first defendant and Jill is the third defendant. Both were served but have taken no part in the proceedings. The contest has been between the executors and Bhakti as the second defendant.
At the hearing before me on 17 March the executors were represented by counsel. Bhakti was represented by her solicitor, Mr Carver.
Counsel for the executors presented the purpose of the proceedings as being to obtain the Court's rulings and advice on aspects of the administration which had become doubtful or contentious as a result of the position taken by Bhakti. The summons contained three substantive prayers for relief. First, the executors sought a declaration that Annie had disclaimed her interest in the estate. Second, the executors sought an order under the Trustee Act 1925 (NSW), s 81(1) ("TA") permitting them to establish a trust in favour of Bhakti, if she refused to accept a payment of the residue to which she was not entitled under the will. Third, the executors sought judicial advice under the TA, s 63 on certain further identified questions.
As will appear, there proved to be no real issue about the substantive aspects of the application. Unfortunately, but not untypically, costs were the biggest point of contention. I was told that the executors' costs of the proceedings alone were more than $60,000.

Surrender of Annie's interest

The document executed by Annie was dated 21 December 2017. It was signed by Annie and witnessed. It took the form of a letter addressed to the executors which stated: I Annie Mary St John of [address] relinquish any further financial claim to the Estate of my late ex-husband, Robert James Baldwin St John. As I now have the financial means to support myself I agree to termination of the regular payments from the Estate. I am satisfied that as far as my interests are concerned, the terms of the Will have been fully discharged by the executors and agree to the remaining assets of the Estate now being distributed to our four children as stated in his Will. I was asked to write this letter by the executors to formalise my decision. I do this of my own free will and under no duress.
In Bassett v Bassett (2003) 58 NSWLR 258, Windeyer J considered the disclaimer or surrender of trust interests in some detail. As his Honour noted at [7], Anglo-Australian law has for a long time accepted that disclaimer or surrender is possible. Most of the decided cases have concerned the effect of surrender on the vesting of successive interests.
One issue which can arise is what happens where (as here) the trust instrument provides for a limited gift to A which upon A's death (or, in this case, remarriage) then passes to B, and A's interest is surrendered before death (or remarriage). The settled rule, as laid down by the High Court, is that unless there is a clear indication to the contrary, such a provision is interpreted as doing no more than specifying the order in which the interests are to take effect. Thus, on surrender of A's interest, B's interest is accelerated despite the literal wording of the limitation: see Bassett at [7]-[8].
So far as I am aware, there are no formal requirements for the surrender or disclaimer of an interest under a will. For the purposes of the Conveyancing Act 1919 (NSW), a disclaimer is a type of disposition (see the definition in s 7(1)), and no doubt a surrender is also. This means that if the interest is properly characterised as an interest in land, writing will be required: s 23C(1)(a) and (c).
In the present case, the letter signed by Annie manifested an intention on her part to relinquish her interest in receiving maintenance payments from the estate, with immediate effect. If it constituted a disposition of an interest in the Mullaway property (which I do not need to decide) it complied with any requirement of writing. Applying the settled rule of construction to which I have referred, the effect of the surrender was to accelerate the remainder interests of the children so that their entitlement under the will vested in December 2017.
Both counsel for the executors and Mr Carver, solicitor, who appeared for Bhakti, agreed that the letter was a valid and effective surrender. In my view they are correct.
In the end, there is therefore no controversy about the issue before me. As will appear below, I am not satisfied that there ever was. Nevertheless, and purely because the matter has been brought before the Court and it will cause no harm to do so, I propose to make a declaration that Annie's interest was surrendered, thereby accelerating the children's remainder interests, on 21 December 2017.

Establishment of trust for Bhakti

As will be seen, in the course of the correspondence between the executors and Bhakti, she raised questions about the impact of the proposed deed of family arrangement on her welfare entitlements. But it was not suggested before me that she was refusing to accept the legacy in her favour under the will. The application under s 81(1) therefore fell away.

Judicial advice

The questions on which advice was sought fell into three categories. First, the executors asked whether they would be justified in treating Annie's interest as having been disclaimed in December 2017, and the interests of the children as thereby having been accelerated. Second, advice was sought on whether the executors would be justified in appropriating the Mullaway property to Rosemary, Richard and Jill and adjusting Bhakti's distribution by a "commensurate" (but unspecified) amount. Third, advice was sought that the executors would be justified in reserving a fund ("say $100,000") to meet potential claims by Bhakti against them concerning the administration of the estate.

Surrender of Annie's interest

I have already indicated that I propose to make a declaration concerning the surrender of Annie's interest. Accordingly, there is no need to give judicial advice on the subject. The declaration will bind all interested parties for the future.

Appropriation

By the time these proceedings were commenced, the executors' appropriation proposal was as follows. Based on the December 2019 valuation, the Mullaway property was thought to be worth $1 million. Each beneficiary's share was therefore worth $250,000. On appropriation of the property to Rosemary, Richard and Jill they would receive a one-third share worth $333,333. The plan was for them to pay $83,333 each, creating a fund of $250,000 for Bhakti.
TA, s 46 relevantly provides: Appropriation (1) A trustee may appropriate any part of the property subject to the trust or of the real or personal estate of a testator or intestate in the actual condition or state of investment thereof in or towards satisfaction of a legacy or of any share or interest in the property or estate, whether settled or not, as to the trustee may seem just and reasonable, according to the respective rights of the persons interested in the property or estate, provided that - … (b) the appropriation shall be made with the consent, if any, required by this section, … … (5) An appropriation of property … shall not, except as otherwise provided by this section, be made thereunder for the benefit of a person absolutely and beneficially entitled in possession, unless the person is of the age of eighteen years or upwards and of full capacity and the person consents in writing.
The effect of an appropriation at a nominated valuation is to sell the appropriated asset to the beneficiary at that valuation, which is set off against the beneficiary's entitlement under the will: In the estate of Mack (1956) 73 WN (NSW) 218 at 220-221 (Full Court). It must be remembered that the executor's overriding duty is to realise and distribute the estate for the benefit of all the beneficiaries. A power of appropriation must be exercised consistently with that overriding duty.
TA, s 46 permits an appropriation with the consent of the beneficiaries in whose favour the appropriation is to be made. But the will contains a further provision, preserved by TA s, 46(15), which permits appropriation without the consent of any beneficiary. On no view therefore is Bhakti's consent required. What the executors are required to do is to ensure that, if they choose to make an appropriation to her siblings, she is treated equally.
I identified four features of the executors' proposal which I considered required further consideration: 1. The substance of the proposal is to appropriate a one-third share of the Mullaway property to each of Rosemary, Richard and Jill on account of their entitlements to a one-quarter share each of the estate. The payment of the $83,333 adjustments seemed to me an unnecessary and potentially confusing complication. The straightforward approach is simply to make the appropriation of a one-third share to each of them and at the same time pay an amount in cash to Bhakti representing a one-third share of the property. This will ensure she is treated equally. 2. The appropriation will generate a taxable capital gain of the effective sale of the property to Rosemary, Richard and Jill. Equality of treatment means that the beneficiaries will ultimately bear one-quarter of that capital gain each. Advice will have to be obtained on whether the capital gain, although arising in the estate, can be "streamed" to the beneficiaries in one-quarter shares in the tax year in which the appropriation takes place. If it cannot, the executors will need to retain sufficient cash in the estate, after the payment to Bhakti, to meet the tax. If that is not possible, the propriety of the appropriation would become doubtful. 3. The appropriation is unnecessary from Bhakti's point of view. It is for the benefit of Rosemary, Richard and Jill. Accordingly, they should bear the costs of the valuation, and the further valuation which will be required. When I raised this with counsel, I was informed that the existing valuation had already been paid for out of the assets of the trust. This will need to be reimbursed, with interest. 4. The valuation is now fifteen months old. In the meantime, it is well known that the COVID-19 pandemic has increased the demand for rural properties in some areas where people can work from home. Although Bhakti agreed to the $1 million valuation, I think that fairness requires that a fresh valuation now be obtained in case the property has increased in value in the meantime.
Counsel for the executors obtained instructions on each of these points, and accepted them. There is no opposition from Bhakti to the proposal as modified. As already indicated, Bhakti's consent is not formally required in any event and the proposal can be effected by the executors without any further formalities, assuming that the tax liability does not present a problem and undertakings are obtained from Rosemary, Richard and Jill to meet the valuation costs (including the interest on repayment of the cost of the previous valuation). There is no need for any formal judicial advice.

Retention of monies

If Bhakti makes a claim against the executors concerning the administration of the estate they will be entitled to their defence costs if successful, and may even receive some or all of their costs out of the estate if unsuccessful: National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268, especially at 277 per Williams J. The executors therefore have a legitimate interest in retaining monies in the estate to cover such costs (although not, it seems to me, the value of any claims themselves, because the executors are likely to have to meet any successful claim out of their own pockets).
As will appear, Bhakti did, in correspondence, make generalised complaints about the way in which the administration was being conducted. But I was not taken to any specific and concrete claim. On Bhakti's behalf, Mr Carver indicated that she has no current intention of making any claim, although she does not rule out the possibility of making one in future. This is hardly surprising when Bhakti has no means of knowing everything which has so far happened in the administration, or what might happen in future.
Although the issue was presented as one of power to retain a sum of money to meet claims, I think it is better analysed by looking at it from the other direction, namely the making of an interim distribution out of the residue of the estate. Obviously such a distribution should only be made if the monies remaining will be sufficient to complete the administration. A wise precaution may be to require the beneficiaries to undertake to repay any such distribution, or a share thereof, in the event that the remaining monies nevertheless prove insufficient. But the executors have power to make an interim distribution of such amount, and on such repayment terms (if any), as they see fit, and it may well be desirable to make such a distribution of surplus monies rather than holding them unnecessarily in the estate.
The making of an interim distribution is not something which generally requires judicial advice. Usually it is simply a matter for the exercise by the executors of their judgment as to how much to retain. This case is no different. I am in no position to give the executors any legal guidance on whether the $100,000 figure is the right one.
Where a beneficiary of an estate foreshadows a claim of maladministration against the executor, but does not take any action to bring that claim forward for determination, it is reasonable for the executor to want some sort of certainty. But if all else fails it is open to the executor to obtain an order for the filing and passing of accounts for the estate. The resulting proceedings are then the proper venue for any claim of maladministration to be determined. Once the accounts have been passed in final form, the executor is effectively discharged: see Hons v Hons [2010] NSWSC 247 at [111]-[112].
Orders for the filing and passing of accounts are the exception rather than the rule, because of the cost to the estate. I am not saying that the executors would necessarily be justified at present in seeking such orders. The point I am making is that, by seeking such orders, they can ensure that they are not faced with distributing all of the estate assets while a claim is still hanging over them.
In these circumstances, I think I must leave it to the executors to decide how much they consider they can safely pay out. The only other observation I make is that the appropriation which the executors propose to make itself involves an interim distribution. Although desirable if it can be achieved, it is not a necessary thing. If the executors consider that the appropriation may leave them with insufficient funds to complete the administration, including contingencies, then the proper course is not to proceed with it, to sell the Mullaway property instead, and to pay out a lesser interim distribution in cash to all the beneficiaries.

Costs from estate

A significant part of counsel's submissions was devoted to the proposition that the executors should receive an order that their costs of the proceedings, on a solicitor-client basis, be paid out of the estate. This was disputed by Bhakti.
It is common for the court to be asked to make such an order in administration proceedings, but one must bear in mind that there is no imperative for the court to do so. The principles which apply to the recovery of the executors' costs (including any costs awarded against them inter partes) are no different from those which apply to the recovery of any other expenses, legal or non-legal, incurred by the executors in administering the estate: Re Beddoe [1893] 1 Ch 547 at 554-555. It is always open to the court to leave the question of indemnity for the executors' costs to be dealt with in the same way as other administration expenses.
In my view the court should be particularly cautious about acceding to such an application if the question of indemnity may be contentious and those who are interested in the estate and will ultimately have to bear the costs have not had an opportunity to be heard on whether the incurring of the costs was proper and necessary from the trust's point of view.
In the present case, all of the affected parties were before the Court, and Bhakti made submissions in opposition to the application. But there was a complication.
Bhakti's submissions, if accepted, would not just have led to the conclusion that the costs of these proceedings were not a proper and reasonable charge to the estate. The arguments canvassed the conduct of the executors going right back to 2018. In effect, there is a continuum of costs which were initially non-curial and later became curial.
In these circumstances it seemed to me that it would be most unfortunate not to deal with recovery of all of the executors' costs, curial and non-curial, at once. An illustration of how this could have been done is afforded by Olsen v James [2020] NSWSC 1015, where the recoverability of an executor's costs was disputed and I was able to deal with all of the costs, curial and non-curial (including costs awarded inter partes against the executor) in one hearing.
When I raised the idea with counsel for the executors, they obtained instructions. But the instructions they received were instead not to press the application for an order for costs of the proceedings out of the estate. The executors preferred to leave the question of indemnity for all of their costs, curial and non-curial, for another day.
I think this was a regrettable decision. There remains a dispute about costs inter partes which will involve canvassing, at least to some extent, the way in which the executors' solicitors have conducted the administration. I have no alternative but to deal with that dispute. The result will be a duplication of effort which might have been avoided.
However in order to deal with all cost recovery issues it would be necessary for the executors to make an application of the type made in Olsen v James. I do not think I can (or if I can, I should) force them to do so. But I record, in case it proves relevant to the costs of any future proceedings, that Mr Carver on behalf of Bhakti was prepared to proceed in this way and so was the Court.

Costs inter partes

The origins of the litigation can be traced back to 2018. In May of that year Rosemary and Richard wrote to Bhakti advising her of the relinquishment by Annie of her rights against the estate (a reference to the letter signed by Annie in December 2017 referred to at [18] above). They said that this meant that the process of distributing the estate assets was to begin.
The first step in the distribution was to consist of cash, then the proceeds of the shares (which were subject to CGT) and then the proceeds of sale of the Mullaway property. At this time, Bhakti received a distribution of $25,000 from the surplus cash held by the estate. The letter was followed by discussions with the estate's accountants, in which Bhakti participated.
Ms Cherri Lewis of Walsh & Associates at Coffs Harbour had been retained by Rosemary and Richard to act for the estate. In November 2018, Ms Lewis wrote to all four beneficiaries. She advised that while Annie had relinquished her interest in the estate, the beneficiaries would only be entitled to receive their shares of the remainder upon her death or remarriage. This meant that the estate could not "automatically" be wound up.
Ms Lewis proposed as a potential solution for the parties to enter into a deed of family arrangement. The idea was that Annie, the executors and the other beneficiaries could consent to the winding up and distribution of the estate at an earlier point than was provided for (in Ms Lewis' opinion) by the will. Ms Lewis noted that the deed could also provide for the appropriation of the Mullaway property to Richard, Rosemary and Jill, with Bhakti to receive her share in cash.
An email from March the following year from Ms Lewis to Bhakti recorded that a draft deed had been prepared and sent to the executors for consideration. But in any event Ms Lewis never completed the preparation of the deed. In July the executors decided to take the file elsewhere, apparently as a result of delays on Ms Lewis' part in conducting the matter.
The executors' new solicitor was Mr David Evans of Armstrong Legal in Sydney. The executors also obtained advice from counsel (who had initially been retained while the matter was still with Walsh & Associates).
Bhakti had been dissatisfied with Ms Lewis' performance as the solicitor for the estate for some time before the executors decided to take the estate file to Mr Evans. In evidence is correspondence between Bhakti and Rosemary from 2019 in which Bhakti complained about difficulties in having Ms Lewis return her calls, and questioned her competence.
Mr Evans later prepared a deed of his own. In answer to questions from Bhakti, Rosemary advised her that the executors had spent $5,800 on Ms Lewis' draft deed but they did not propose to make any complaint about her professional conduct or (it seems) seek repayment. After repeated requests from Bhakti, Mr Evans eventually advised her that Ms Lewis had not prepared a draft as such but only a "very rough template" which was "not fit for purpose".
Bhakti received Mr Evans' draft deed in about mid-January 2020. It was styled "Deed of Settlement and Release". For present purposes, there are three aspects of the Deed which are relevant.
First, the Deed contained provisions dealing with the surrender of Annie's interest. The Deed recited that by her letter of December 2017 Annie had "given notice to the executors of her intention to renounce her interests as a beneficiary in the estate". Clauses 3 and 4 then relevantly provided: 3. GIFT OF LIFE INTEREST 3.1 Subject to the terms of this Deed, Annie conveys, assigns and releases to each of Rosemary, Richard, Bhatki and Jill absolutely as tenants in common in equal shares Annie's title and interest in, and all her equitable life interest in, the property described in Schedule 1 to this Deed. 3.2 Subject to the terms of this Deed, each of Rosemary, Richard, Bhatki and Jill declare that Annie's interest in the property conveyed by this Deed will merge and be extinguished in fee simple in remainder to the intent that, by reason of such merger, the property will be vested in each of Rosemary, Richard, Bhatki and Jill in fee simple in equal shares as tenants in common. 4. DISTRIBUTION OF ESTATE GENERALLY 4.1 The Executors are to attend to distribution of the Estate of the Deceased as if clause 4(b) of the Will ceased operation as at 21 December 2017 and clause 4(c) of the Will commenced operation as at 22 December 2017.
Secondly, the Deed contained provisions which essentially reflected the appropriation proposal as it was later put to the Court in these proceedings. The executors were to transfer the Mullaway property to Rosemary, Richard and Jill in equal shares (clause 5.1). The parties were to agree and acknowledge that the current market value of the property was $1 million (this was based on the December 2019 valuation report which was annexed). Rosemary, Richard and Jill were each to pay a sum of $83,333 and Bhakti was to receive the sum of $250,000 "in full and final satisfaction" of any right, title or interest in the property (clause 5.4). Rosemary, Richard and Jill were to pay the stamp duty but all other costs were to be borne by the estate (clauses 5.5 and 5.6).
Thirdly, the Deed dealt with costs and provided for a release for the executors. The relevant provisions were: 6. COSTS 6.1 The Parties agree and acknowledge that the costs of preparing this Deed are a testamentary expense and that the reasonable legal costs of the Executors are to be paid from the Estate on the indemnity basis. 6.2 Except as set out above, each Party is to bear its own legal costs of and incidental to the matters recited above. … 8. RELEASE 8.1 Subject to compliance with the terms of this Deed, each Party to this Deed releases and discharges each of the other Parties from all proceedings, suits, claims, demands, causes of action, costs and expenses, legal, equitable, under statute and otherwise, and all other liabilities of any nature (whether or not the Parties were or could have been aware of them) by which any Party: i. now has; ii. at any time had; iii. may have; or iv. but for this Deed, could or might have had; against any other Party in any way related to or arising out of the Estate of the Deceased and/or the matters referred to in recitals to this Deed. 8.2 In granting each release in clause 8.1 above, each Party acknowledges that it has obtained independent legal advice in relation to the matters set out in this Deed. 9. INDEPENDENT LEGAL ADVICE 9.1. Each Party acknowledges and warrants that it has obtained independent legal advice in relation to the matters set out in this Deed and will produce, on the request of the Executors, a certificate of independent legal advice in the form set out in Schedule 2 of this Deed. 9.2. Further to clause 9.1, Bhatki expressly acknowledges that she is solely responsible for making enquiries with Centrelink as to the effect of any distribution of the Estate pursuant to the terms of this Deed on any Centrelink benefit she may receive. … 11. BAR TO PROCEEDINGS 11.1. This Deed may be pleaded and tendered in evidence in relation to any claim or legal proceedings which are commenced or maintained by any of the Parties after the date of this Deed which are inconsistent with or contrary to this Deed and may be relied upon as a bar to such proceeding or proceedings. 12. ACKNOWLEDGMENT 12.1. The Parties each acknowledge that they enter into this Deed fully and voluntarily on their own information and investigation. The Parties each acknowledge that they are aware that they or their advisers, agents or lawyers may discover facts different from or in addition to the facts that they now know or believe to be true with respect to the subject matter of this Deed and that it is nevertheless their intention to, and they do, fully, finally, absolutely and forever settle according to the provisions of this Deed any and all proceedings, suits, liabilities, claims, disputes and differences which now exist, or may exist or have ever existed between each and all of them.
On 29 January Bhakti wrote to Mr Evans with her comments on the Deed. She stated that she would in due course be taking legal advice on "several minor points" once she had satisfied herself that she was happy to sign the Deed, but she was not yet at that point.
The first concern Bhakti raised was with the impact of her inheritance on her social security payments (she appears not to have been working and to have been receiving income support, which was means tested). She stated: As per my reading, it would appear that this document, if agreed upon, would set the vesting date of the trust to be in December 2017. I will not be signing any document that backdates the vesting date of the trust by years as Centrelink will take that date as the date at which I owned whatever assets I will become entitled to.
Bhakti was also dissatisfied with the provisions in the Deed concerning the distribution of the deceased's chattels. The main concern appears to have been that no list (or at least agreed list) of chattels had been compiled and the procedure specified in the Deed for her to identify and request the chattels which she wanted would not be workable.
On 7 February Mr Evans replied. He stated: We note that the Deed has been settled by Senior Counsel and has received the consent and approval of all of the parties. At the present time, we are instructed that the executors are willing to amend the dates in clause 4.1 of the deed and allow the dates to be determined by you. You have three (3) months from the date of this correspondence to settle the dates. Notice of at least three (3) weeks must be provided to the executors prior to the date determined by you. The executors do not consent to any further amendments to the Deed. In the event that you elect not to sign the Deed, your entitlements in the estate will be held in trust by a trustee company until either: (i) you elect to sign the deed; or (ii) the passing of Ms Annie Mary St John, whichever occurs first.
After making some further specific points about the drafting, Mr Evans concluded: All other parties have consented to the terms of the deed. In the event that you elect not to respond accordingly, we are instructed to proceed with the distribution to the other beneficiaries in accordance with the terms of the Deed without further notice to you. As set out above, your entitlements in the estate will be held in trust by a trustee company pending the events listed at (i) or (ii) above, whichever occurs first in time.
Bhakti replied on 27 February. Among other things, her letter stated: The objections I had in the past to the distribution were due to not being informed of Annie's letter, not being consulted (and given time to find out the implications for my own financial situation) prior to the start of distribution. Once I found how I could manage my finances if distribution occurred, I agreed to enter into a Deed of Family Agreement. I arranged the visit to view Bob's possessions in order to expedite that process by putting myself in a position where I could know what was there and nominate items I would be interested as having as part of my entitlement. I have received preliminary legal advice and that advice is that if I were to sign the deed the date that we are deemed to have become entitled, should not be back dated, but should be the date the deed is signed. My preliminary advice also stated that there is no requirement for Annie to be back paid to the date of her letter (December 2017) provided she wishes any entitlement she may have had from them is left to form part of the estate. I am not objecting to the distribution. I agreed to the distribution, and to be paid out of my share of the property in 2018. … I am sure you already have a copy of the email from Walsh & Co in this regard, but I have copied it hereunder for ease of access It is my siblings who have created delay by going to Senior Counsel, changing lawyers and claiming this was done to expedite the process.
Concerning the threat to vest her inheritance in a trustee company, Bhakti stated: My preliminary legal advice also states that: In our opinion, the trustees cannot replace themselves as trustees other than by order of the Court. I would think that it would be unlikely that a Court will approve such an order, when I wish to receive my entitlement, have been trying to have the process expedited, and am sui juris.
Further emails went back and forth. On 9 March Bhakti sent Mr Evans a list of questions. These included: 13. I would also like an explanation as to how including a "release" clause benefits anyone other than the trustees. 14. I would also like an explanation as to why after having one deed drafted at a cost of over $5800 with lawyers of the executors choosing, the beneficiaries should be expected to accept having a further one, (which now includes a "release" clause), deemed to be a testamentary expense and paid for by the estate, raising the cost to the estate to an current estimated $14,000.
Mr Evans emailed Bhakti on 18 March. He observed that all parties were "now very close to an agreement". The three points of contention were the arrangements for identifying and requesting the chattels; the date of which the surrender of Annie's interest would come into effect; and the release.
Concerning the date of effect, Mr Evans stated that the vesting date would be the date the Deed was signed. He added that the Deed was not being backdated and the date in clause 4 (which Bhakti was to choose) would simply "reflect the date on which Annie disclaimed her interest in the trust".
Concerning the release, Mr Evans stated: The release clause is for the benefit of all parties and for the benefit of the estate generally. It is intended to prevent any party from making any further claim against any other party. It is not for the sole protection of the executors. It is a standard form release only. It is not an Indemnity. We note that the release clause only operates 'subject to the terms of the Deed'. In the event that there is any failure by any party to comply with the Deed, remedies at law or in equity are still applicable.
But the parties had not reached agreement. On 30 March Bhakti wrote to Mr Evans about residual concerns, which included the so-called "backdating of the agreement". According to her affidavit, she received no response. On 16 June she sent a letter to Mr Evans. The letter stated: I am aware that my mother has now signed the proposed Deed of Settlement and Release (Deed) renouncing her life interest in the estate in favour of the remainder beneficiaries. I believe that accordingly, as the executors no longer have any active duties to perform as trustees, the remainder beneficiaries are absolutely entitled to a distribution of their respective share of the estate. I now call upon the executors to distribute my share of the estate to me. In doing so, it is not my intention to sign the Deed. In my opinion, there is no lawful entitlement for the executors to require me to do so as a condition of distribution of my share of the estate. I would be pleased to receive your response within fourteen (14) days of the date of this letter.
There appears to be no written reply from Mr Evans in evidence. Emails from Bhakti sent in July and August indicate that Mr Evans proposed the preparation of a further draft deed, or that the executors should bring proceedings, apparently for judicial advice. Bhakti's position was that she did not want any more money spent on the preparation of deeds of family arrangement and if there was no other option apart from seeking an order from the Court that would have to happen.
The summons in these proceedings was then filed on 6 October and served on Bhakti on 15 October. At this point Bhakti retained Mr Carver's firm, McIntosh McPhillamy & Co (at Bathurst).
On 17 December Mr Carver wrote to Mr Evans. He asked Mr Evans a series of questions about the current status of the administration. Turning to the Court proceedings, Mr Carver indicated that the appointment of a new trustee to hold Bhakti's inheritance would be opposed. He stated: Our client opposes that order. She has expressed concerns and had issues over the administration of the estate by the Executors, but has not, and does not intend refusing payment to her of her share of the residue of the estate. The First Defendant has disclaimed her interest under the Trust in the Will. We do not see why the Court needs to make a declaration before the Executors can act on the First Defendant's release. The Executors' obligation is to complete the administration of the estate and distribute the residue according to the Will. There appears to be no objection to the appropriation of the Mullaway property as proposed and again in those circumstances, we don't see any need for the Executors to seek the Court's opinion or advice on administration of the estate in the manner proposed.
Concerning the Deed Mr Carver wrote: A beneficiary cannot be obliged to sign a Deed as a condition of accepting his or her entitlement in the estate. In our view, the plaintiffs will not be entitled to the protection of judicial advice in the form of a Court's declaration or opinion in circumstances where they have insisted on our client as a beneficiary signing the Deed containing a release against the Executors as a condition of her receiving her entitlement under the Will. She has no obligation to give a release. The Executors have no entitlement to require it.
Mr Evans responded on 4 January. He stated that the executors had always preferred to distribute inheritance directly to Bhakti rather than through the appointment of the trustee. But he asserted that in previous email correspondence she had stated that she intended to refuse her distribution on the basis that it might interfere with her pension entitlements. He said it was entirely up to Bhakti whether she wished to receive her distribution directly or through a trust arrangement.
Concerning the appropriation of the Mullaway property, Mr Evans referred to TA, s 46. He stated that this required the written consent "of those beneficially entitled" and that such consent "should be provided in the form of a deed". He intimated that without Bhakti's consent (in the form of signature of the deed) the executors have little recourse but to make an application for judicial advice.
He continued that: At no material time has the distribution ever been contingent on Ms Manning signing a release. We note in the letter from your office referenced above that your client "has expressed concerns and had issues over the administration of the estate by the Executors". We would be pleased if you could confirm whether your client intends to commence proceedings against the Executors and indicate any potential cause of action contained therein. The Executors wish for the estate to be finalised entirely. To the extent that there is a lingering threat of further legal action, or any allegations of any unsatisfactory conduct, it would be in the interests of all to resolve the matters in these proceedings and to settle any disputes by way of a settlement containing a mutual release affecting all parties.
On 9 March, eight days before the hearing, Mr Evans sent Mr Carver a revised version of the Deed. It modified, but did not remove, the release. I do not find it necessary to discuss the revisions in any detail. By the time the Deed was revised, the parties' positions were fixed. In any event, counsel did not at the hearing suggest that it was unreasonable for Bhakti not to enter into the revised Deed.
The executors have failed to obtain any relief, apart from a declaration concerning the surrender of Annie's interest which was probably unnecessary. Nevertheless counsel contended that Bhakti should bear her own costs. Counsel submitted that the executors acted reasonably given what they described as a "history of difficulties in dealing with Bhakti" and in particular her refusal "to sign a deed which would give the executors some comfort in finally distributing the estate".
These submissions only faintly acknowledge the role of the Deed of settlement and release in the lead up to these proceedings. From the outset the executors, through their solicitors, were seeking to have all of the beneficiaries execute a deed providing for the administration of the estate and for a release in favour of the executors.
The release as framed in clause 8.1 of the Deed was in extraordinarily broad terms. It covered all claims "in any way related to or arising out of the estate". This applied to claims whether or not the beneficiaries were or could have been aware of them. The absoluteness of the release which was sought was further underlined by the acknowledgement in clause 12.
Mr Evans never does appear to have answered Bhakti's question about how the release was in the interests of the beneficiaries of the estate. It is true, as he pointed out in his email of 18 March 2020, that the release was conditional on the executors performing their obligations under the Deed, but this was beside the point.
It is a mystery to me how Mr Evans could say in his letter of 4 January this year that the executors had never made the payment of Bhakti's distribution conditional on signing the Deed. That was exactly what he had done on behalf of the executors. His email of 7 February gave Bhakti a choice of signing the Deed or having her inheritance held by a trustee company (no doubt at considerable expense in fees) until her mother's death or remarriage, while her siblings would receive their shares immediately.
It was reasonable for the executors to try and ensure that if Bhakti made maladministration claims against them, those claims would be made before the monies in the estate had been finally distributed, so that funds would be available to defend them if they were unjustified. On the face of it however there was substance to Bhakti's query about the payment of fees for Ms Lewis' "very rough template" which proved unnecessary. The amount involved may have been small in the scheme of things, but Bhakti never seems to have received any answer to her query about why the estate had paid for something which had proved to be unnecessary. There are now obvious further questions about whether, and to what extent, Mr Evans' curial and non-curial costs should be charged to the estate.
In any event, even if the points raised by Bhakti had no substance, that in no way justified the attempt to shut her out from bringing any claims at all concerning the administration of the estate, irrespective of whether such claims were justified or Bhakti was even aware of the relevant facts. Any independent solicitor would have been duty bound to advise Bhakti not to sign the Deed in that form. Given that the Deed contemplated that independent advice would be obtained by the beneficiaries before it was signed, it probably never would have come into effect anyway. But that is no excuse. In my opinion the release should never have been sought in the first place.
Counsel for the executors did not attempt to defend the inclusion of the release in the Deed. In fact counsel did not press for execution of the Deed at all. But this does not alter the fact that at all times up to the institution of the proceedings the presence of the release in the Deed was itself a sufficient justification of Bhakti's refusal to sign.
It is true that Bhakti did say that the executors should bring proceedings, but that statement was conditional on there being no other alternative. I therefore turn to the relief specifically sought by the executors in the proceedings to consider whether Bhakti was properly joined as a defendant to their application.
The executors have obtained a declaration concerning the surrender of Annie's interest, but that was not opposed by Mr Carver on Bhakti's behalf and it was probably unnecessary. Nor do I think that Bhakti's prior conduct justified bringing her to court on this issue.
It may be understandable that Bhakti wished to organise her inheritance so that she could receive it while continuing to retain her social security payments. But she was not entitled to require the executors to subordinate the administration of the estate to that consideration. As I have already pointed out, the effect of the instrument executed by Annie in December 2017 was to effect an immediate surrender of her interest, and vesting of the beneficiaries' remainder interests. Once that instrument was executed, Bhakti's choice was either to accept the gift of residue and deal with the effect on her social security entitlements (as best she could) or to disclaim it.
For these reasons the objections by Bhakti in her correspondence to the "backdating" of the vesting of her interest were misconceived. But the misconception was understandable. From the outset Ms Lewis' advice had been that the surrender did not result in the remainder interests vesting and that a deed was required in order to achieve this. Mr Evans' approach was the same (see [71] above). That view was incorrect. The executors' solicitors never explained to Bhakti that her interest had vested and she had no choice in the matter.
The executors' solicitors were also wrong in proceeding on the basis that a deed of agreement was necessary for the purposes of the appropriation of the Mullaway property to Rosemary, Richard and Jill. In fact there was no requirement for consent from Bhakti. Also the Deed drafted by Mr Evans omitted to require that the beneficiaries pay for costs associated with the appropriation (which was for their benefit) apart from stamp duty. Under the terms of the Deed the cost of the December 2019 valuation, for instance, would have wrongly been left to be borne by the estate as a whole.
Finally there was the application for judicial advice. It is not usual for a beneficiary to be joined to such an application, although the beneficiary may be served so that any question which the Court is asked to determine will be determined in a binding way: see TA, s 63(11). The application for judicial advice was an insufficient reason for Bhakti's joinder. In any event I have declined to give any of the advice sought.
For these reasons I conclude that to the extent there has been a contest between the executors and Bhakti, the executors have lost. Costs should follow the event.
It is hardly necessary to note that the executors will have an immediate personal liability to pay Bhakti's costs whether or not they are ultimately entitled to indemnity from the estate against that liability. In the circumstances of this case it would obviously be foolhardy for the executors to reimburse themselves until the question of their entitlement to indemnity is determined.
The result is an unfortunate one for the executors when they are only seeking to administer their father's estate for the benefit of the family as a whole. But they are responsible for the conduct of the lawyers acting on their behalf. They have brought Bhakti to court unsuccessfully and must cover her costs as a result.

Orders

The orders of the Court are: 1. Declare that by executing the instrument dated 21 December 2017 which is referred to in [18] of the Court's reasons for judgment, the first defendant effected an immediate surrender of her interest in the estate and a vesting of the remainder interests in the beneficiaries entitled thereto. 2. Order that the proceedings be otherwise dismissed. 3. Order that the plaintiffs pay the second defendant's costs of the proceedings.

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At a glance

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Judgment (12 paragraphs)

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