PARTIES: TASMANIAN PERPETUAL TRUSTEES LIMITED as Executors of the Estate of the Estate of the late Harold Joseph Cartledge

Equity - Settlements - Matters arising under settled estates and settled land legislation - By whom or with whose consent powers may be exercised or applications made.

Settled Land Act 1884 (Tas)

Judgment Number: [2009] TASSC 85

TASMANIAN PERPETUAL TRUSTEES LIMITED v SMITH & ORS

1 Harold Joseph Cartledge died on 16 March 2006. Probate of his Will was granted to the applicant as executor. A difficulty has arisen in the administration of the estate. In particular, there will be insufficient funds to meet the liabilities of the estate unless a residential property at Primrose Sands is sold. The Will gives a right of residence to the first respondent, Kerry Smith, which is to terminate "upon ... death ... or upon her vacating the said property which event shall first occur". However, the death of a testator does not result in a beneficiary having a legal or equitable interest in any of the estate property. All that a beneficiary has is a right to the due administration of the estate. Official Receiver in Bankruptcy v Schultz [1990] HCA 45; (1990) 170 CLR 306. Obviously, if the executor sells the house it will not be in a position to confer the right of residence provided by the Will and the bequest of the life interest to Mrs Smith will fail absolutely.

2 Mrs Smith's legal advisers have devised a way around the problem. The executor is content to proceed in accordance with the scheme devised. However, those who come within the class of persons who may be entitled to the remainder include infants. The persons within the class are legally represented and their representative has advised the executor that there is no opposition to the scheme. Nonetheless, as the interests of infants are involved the executor has rightly brought the matter before the Court for guidance.

3 The Supreme Court Rules 2000, r604, provides for relief without general administration. Subrule (3)(a)(i) is as follows:

"604 Relief without general administration

(3) An application may be made for -

(a) the determination of any question which may be determined in an administration proceeding, including any question -

(i) arising in the administration of an estate; ..."

4 A succinct statement of the purpose and nature of administration proceedings is contained in Williams, Mortimer & Sunnucks on Executors, Administrators & Probate (16th ed) at p737 where it is stated:

"Where problems or disputes arise in the course of administration as between creditors, beneficiaries or personal representatives, the court will normally be approached by writ or originating summons, for the purpose of resolving the difficulties and getting the estate properly administered. Such proceedings are known as administration proceedings and are to be distinguished from litigation adverse to the estate in which the personal representatives are involved as plaintiffs or defendants representing the deceased. The latter proceedings will invariably be contentious, whereas the former will often take the form of a non-contentious application for the guidance or decision of the court on matters which cannot be decided by agreement because, for instance, some of the persons concerned are under disability or are missing. A personal representative is always entitled to the guidance of the court in matters of difficulty and will normally be protected in costs both in obtaining such guidance and in its implementation. In such cases separate counsel may be instructed to represent the different interests in court but the family solicitor often acts and instructs all such counsel for all parties without the need for separate solicitors."

5 Mrs Smith's proposal is as follows. The executor is to mortgage the residence to raise sufficient funds to pay the administration expenses. Mrs Smith will execute such documents as may be necessary to ensure that she indemnifies the estate for all interest payments which fall due under the mortgage. The executor will then be in a position to retain the house and confer a right of residence on Mrs Smith. Mrs Smith will thereupon acquire the rights of a tenant for life under the Settled Land Act 1884 (the Act), so that notwithstanding the requirement that she continue to reside at the house she may exercise the power conferred by the Act to sell the house. The executor would then hold the balance proceeds after repayment of the mortgage to apply to the cost of the purchase of a substitute property or to hold on investment with Mrs Smith to receive the income.

6 I now turn to the questions for determination as set out in the executor's application.

7 The first question concerns whether the executor should mortgage the house rather than sell it. It is only by taking out the mortgage that effect can be given to the testator's wish that Mrs Smith should have a right of residence. The remainder will be left in the same position which would have resulted had there been sufficient funds in the estate to pay the administration expenses without selling the house. Mrs Smith has agreed to pay the interest and the executor can make it a condition of entering into the mortgage that Mrs Smith execute such documentation as is necessary to ensure that she pays the interest or sells the house. The executor clearly has the power to enter into a mortgage to pay the administration expenses. The Administration & Probate Act 1935, s39(1)(a), provides:

"39 Powers of management

(1) In dealing with the real and personal estate of the deceased, his personal representatives shall, for the purposes of administration, and until the period of distribution arrives, have -

(a) the same powers and discretions, including power to raise money by mortgage or charge, whether or not by deposit of documents, as a personal representative had before the commencement of this Act with respect to personal estate vested in him; ..."

8 The executor should mortgage the house rather than sell it.

9 The next question concerns whether or not Mrs Smith upon being given a right of residence can exercise the powers of a tenant for life under the Act so that she can sell the house with the executor to use the proceeds to purchase a substitute property or to earn income for Mrs Smith's benefit.

"53 Other limited owners who are to have powers of tenant for life

(1) Each person as follows shall, when the estate or interest of each of them is in possession, have the powers of a tenant for life under this Act, as if each of them were a tenant for life as defined in this Act, namely:

...

(f) A tenant for his own or any other life, or for years determinable on life, whose estate is liable to cease in any event during that life, whether by expiration of the estate, or by conditional limitation, or otherwise, or to be defeated by an executory limitation, gift, or disposition over, or is subject to a trust for accumulation of income for payment of debts or other purpose;

...

(2) In every such case, the provisions of this Act referring to a tenant for life, either as conferring powers on him or otherwise, and to a settlement, and to settled land, shall extend to each of the persons aforesaid, and to the instrument under which his estate or interest arises, and to the land therein comprised."

"46 Prohibition or limitation against exercise of powers void

(1) If in a settlement, will, assurance, or other instrument executed or made before or after, or partly before and partly after, the commencement of this Act, a provision is inserted purporting or attempting, by way of direction, declaration, or otherwise, to forbid a tenant for life to exercise any power under this Act, or attempting, or tending, or intended, by a limitation, gift, or disposition over of settled land, or by a limitation, gift, or disposition of other real or any personal property, or by the imposition of any condition, or by forfeiture, or in any other manner whatever, to prohibit or prevent him from exercising, or to induce him to abstain from exercising, or to put him into a position inconsistent with his exercising, any power under this Act, that provision, as far as it purports, or attempts, or tends, or is intended to have, or would or might have, the operation aforesaid shall be deemed to be void.

(2) For the purposes of this section an estate or interest limited to continue so long only as a person abstains from exercising any power shall be and take effect as an estate or interest to continue for the period for which it would continue if that person were to abstain from exercising the power, discharged from liability to determination or cessor by or on his exercising the same."

11 Sections 53 and 46 are in terms identical to provisions considered by Pearson J In re Paget's Settled Estates [1885] 30 Ch D 161. There a testator devised his house to the use of his son "so long as he shall reside in my present dwelling house ... for a period of not less than three calendar months in each year". The son issued a summons asking for the opinion of the judge as to whether he had the powers of a tenant for life so that he could sell the house. It was held at p164 - 165:

"The son now applies under the Settled Land Act for leave to sell the mansion-house, and the first question is whether he has the powers of a tenant for life under the Act. His estate is 'liable to cease by a conditional limitation,' and it appears to me that it comes within the words of sub-sect 1, cl vi, of sect 58, and that, consequently, the applicant has the powers of a tenant for life under the Act and can sell the settled estate. Then arises the question, what is the effect of that which has been called the 'residence clause', and this depends upon sect 51, which is expressed in the amplest and widest terms. It is impossible to say that this clause, which defeats the estate of the son, in case he fails to comply with the conditions as to residence, does not tend to induce him to abstain from exercising the power of sale which is conferred on him by the Act. The condition is therefore made void by sect 51, and, if the son exercises the power of sale, his interest in the proceeds of sale will by virtue of sub-sect 2 continue."

12 The correctness of the decision in Paget is now beyond question.

13 In re Boyer's Settled Estates [1916] 2 Ch D 404, Sargant J said at 411 - 412:

"... if I am right in my view that the two applicants are at the present time beneficially entitled to possession of this settled land, then I think that they are brought within s58, sub-s 1(vi), because they are persons 'whose estate is liable to cease' 'by conditional limitation', that is, by way of a limitation under which they take, not during the whole of their lives, but only during the period for which they continue to occupy in pursuance of their desire, ...

It seems to me that all the cases that have been cited tend in that direction - and particularly In re Paget's Settled Estates 30 Ch D 161, In re Eastman's Settled Estates [1898] W.N. 170, and In re Baroness Llanover's Will [1903] 2 Ch 16."

14 Boyer was referred to with approval by the Full Court in Hoppe v McDavitt [1961] VicRp 64; (1961) VR 381 at 403 - 404.

15 The Act confers upon a tenant for life a number of powers including a power to sell the settled land with the proceeds to be applied to the acquisition of a substitute property or invested with the income being the property of the tenant for life. As the estate or interest obtained by Mrs Smith upon the administration of the estate would be subject to the mortgage it follows that if she sells the house the mortgage loan must be repaid out of the capital.

16 The questions in the application should be answered so as to facilitate the scheme proposed by Mrs Smith. The questions and answers are as follows:

1 Should the executors [sic] borrow sufficient to pay the outstanding debts and administration expenses and if so:

(a) are the executors [sic] empowered to mortgage estate property to give security for such debt;

(b) is the interest on the loan payable by Kerry Smith while her estate or interest subsists;

(c) can the capital of the loan be repaid from capital monies arising pursuant to the Settled Land Act 1884?

2 If the answer to question 1 is yes, and the outstanding debts and administration expenses are paid on the terms imposed by the Court, does Kerry Helen Smith have the powers of a tenant for life under Section 53(1)(f) of the Settled Land Act 1884?

3 If the answer to question 1 is no, should the executor institute proceedings to obtain possession of the property at 30 Frogmouth Lane Primrose Sands and what, if any, notice should be given to the Respondent, Kerry Helen Smith, before those proceedings are concerned [sic]?