Solicitors:
Plaintiff: Phillip Thompson & Associates
First Defendant: John De Mattia & Co.
Second Defendant: Joseph Grassi & Associates
File Number(s): 2018/00320264
[2]
INTRODUCTION
By a summons filed on 19 October 2018 and amended on 20 November 2018, the plaintiff (as trustee for the estate of the late Robert William Webster) applies to the Court for directions in management of the estate.
Reasons for judgment published by me as Broom v Webster [2015] NSWSC 1128 on 12 August 2015 explain the circumstances in which the plaintiff came to the office of trustee, and the nature of tensions between the children of the deceased (Mrs Patricia Broom, the first defendant; and Mr Alwyn Webster, the second defendant) in their capacity as beneficiaries of the estate.
The first round of proceedings - essentially, between the deceased's children - culminated in orders published in my reasons for judgment.
Those orders included (with editorial adaptation, to speak in terms of the current proceedings):
1. as the third order, A DECLARATION that the first defendant has "the right to reside" at a property at Penrith "for the term of her life or for so long as she may wish to reside there".
2. as orders 11-12 and 14, ORDERS for that property, and adjoining properties, to be sold by the plaintiff in the course of his administration of the deceased's estate.
The properties adjoining the property where the first defendant resides ("the subject property") have been sold in the course of administration of the deceased's estate.
This second round of proceedings follows the first because, contrary to expectations, the plaintiff has been unable to effect a sale of the subject property:
1. because the real estate advice given to him is to the effect that there is unlikely to be any prospective purchaser (other than the first and second defendants) of the freehold of the property subject to the first defendant's right of residence; and
2. because the first and second defendants have been unable to resolve their differences as to whether the first defendant is liable for outgoings on the property during the currency of her residence.
The plaintiff's application to the Court initially took the form of an application for judicial advice. Joinder of the defendants in the proceedings permitted questions of construction, as well as questions of estate management, to be canvassed.
The course of the proceedings was altered by the first defendant's filing on 12 February 2019 of a notice of motion, via which she seeks orders to the effect that orders 3, 11 and 12 of the orders made on 12 August 2015 be "varied".
To speak of those orders being "varied" is not entirely accurate. More correctly: (a) a supplementary declaration is sought to define with greater precision the terms of the first defendant's right of residence as regards outgoings; and (b) supplementary orders are sought to accommodate a solution to the problem of how the deceased's estate can be managed in the current setting, given the impracticality of any sale of the subject property to a third party in the absence of a resolution of disputation between the first and second defendants.
The plaintiff obtained a valuation of the subject property as at 2 October 2018 which estimated the value of the property on three alternative bases:
1. the market value of the unencumbered freehold of the property, with vacant possession, was estimated to be $780,000.
2. the market value of the property, subject to the first defendant's right of residence (on the basis that she is liable for outgoings) was estimated at $400,000
3. the market value of the property, subject to the first defendant's right of residence (on the basis that the estate is liable for outgoings) was estimated at $350,000.
The first defendant has offered to buy the property from the plaintiff for $400,000. The second defendant objects to such a transaction; but he refrains from making any offer for the property himself, contending that the property be offered for sale by public auction.
[3]
THE FIRST QUESTION : LIABILITY FOR OUTGOINGS
The first question for consideration concerns liability for the payment of outgoings. Three categories of outgoings have been the subject of debate; namely:
1. council and water rates.
2. premiums for building insurance.
3. expenses for repairs and maintenance.
In debate on this question, I have been referred to authorities which deal with arguably comparable interests in land: life estates and rights of residence of varying descriptions. Two particular points require notice.
First, as a general proposition, the authorities point towards a principle (upon which I act) that there should be a matching of costs and benefits, on the current and capital accounts respectively, in dealing with property the subject of limited interests. A person who enjoys the day-to-day benefit of residency (to use a generic expression) is generally required to bear the burden of that enjoyment in the form of an obligation to pay current liabilities during the period of residency; this is an obligation that does not extend to a liability to pay for "improvements" or other expenditure of a capital nature.
I do not understand there to be any substantial dispute about this principle as distinct from a debate about how the principle should be applied to the facts of the current case.
Secondly, the question for determination is not to be simply determined in the abstract, but by reference to the documents which govern the first defendant's "right of residence".
As set out in the reasons for judgment published at [2015] NSWSC 1128, those documents comprise the deceased's will dated 27 May 1982 (admitted to probate on 18 September 1986) and three deeds, respectively dated 19 October 1993, 22 November 1993 and 21 August 2008. A succession of deeds was deemed necessary to accommodate the interests of the deceased's widow (the mother of the defendants), who died in March 2013.
The deceased's will directed his trustees to permit his widow and the first defendant "to reside" on a particular property, "during their lifetimes or for so long as they wish to reside in such property", leaving a remainder interest to the first and second defendants as residuary beneficiaries.
By a deed dated 19 October 1993 the widow, the first defendant and the second defendant agreed that they would purchase a substitute property which was acceptable to the widow and the first defendant for both of them "to reside in during their lifetimes, or for so long as they wish to reside in such property".
By a deed dated 22 November 1993, the widow, the first defendant and the second defendant (as the executors and trustees of the estate of the deceased), together with a private company, agreed, inter alia, that the subject property would be held as an asset of the deceased's estate in circumstances in which the residuary beneficiaries of the estate were the first and second defendants "subject to a life interest to receive income from the Estate Trust granted in favour of [the widow] and life interests to reside [in the property] in favour of" the widow and the first defendant.
By a deed dated 21 August 2008 between the private company (then registered as proprietor of the freehold of the subject property) and the widow, it was agreed "to formalise" the widow's "life estate in the property" on terms which included the following:
1. Clause 3 provided that the widow "will not be responsible for payment of any rates, charges or expenses in relation to the said property all of which will be paid by [the company] out of the estate funds of the late Robert William Webster".
2. By clause 4, the parties acknowledged that "during the term of the life estate hereby granted the said property may also be occupied by [the first defendant] who is referred to in in the Will of the deceased as having a right of residence together with [the widow]".
The defendants were not named as parties in this third deed; but all agreed that the private company held the subject property on the trusts for which the deceased's will provides (modified in operation by the earlier deeds) and, as residuary beneficiaries, the defendants acquiesced in the administration of the trust estate on the terms for which the deed provided.
Although the third of the deeds expressly provided that the widow would not be responsible "for payment of any rates, charges or expenses" and that such outgoings would be charged against the estate of the deceased, none of the other documentation addressed the same topic. Nor was any provision of a comparable nature made in favour of the first defendant, notwithstanding express acknowledgement of her right of residence.
Upon the basis of this documentation, and in the light of evidence of surrounding circumstances, on 12 August 2015 I made a declaration (in the form of order 3) to the effect that the first defendant has a right to reside at the subject property "for the term of her life or for so long as she may wish to reside there".
In the absence of any express allocation of liability for outgoings payable consequent upon the first defendant's exercise of her right of residence, in my opinion (from the time the orders of 12 August 2015 were made):
1. the first defendant was, and remains, liable for current account expenses attaching to her residency; that is, liable for council and water rates, and liable for day-to-day maintenance of the property; but
2. she was not, and is not, liable (otherwise than as a residuary beneficiary in common with the second defendant) for any "repairs" going beyond what might be incidental to everyday use or maintenance of the property; and
3. she has no liability (otherwise than as a residuary beneficiary in common with the second defendant) for improvement of the property or other capital expenditure.
This allocation of the burden for outgoings reflects the principle that costs and benefits should be matched on current and capital accounts. Arrangements made within the family of the deceased expressly relieved his widow from liability for outgoings without extending such relief to the first defendant; this is not determinative of questions about the liability of the first defendant for outgoings, but it is a factor to be taken into account, expressio unius est exclusio alterius.
Liability for insurance premiums, in the abstract, is not clear-cut, depending as it does on the nature of insurances effected and following each party's insurable interest. Preservation of the building on the subject property enures for the benefit of the first and second defendants as the deceased's residuary beneficiaries. Accordingly, in my opinion, the burden of the cost of premiums for insurance of "the building" on the property falls upon the deceased's estate.
During the course of argument, the parties agreed that council and water rates on the subject property since 12 August 2015 have been of the order of approximately $2,000 per year. That liability should be borne by the first defendant.
These proceedings have been conducted on the basis that a ruling about the first defendant's liability for outgoings is primarily required to crystallise the rights and obligations of the first defendant and any remaindermen, looking forward. The only adjustment to estate accounts required, looking back, relates to council and water rates. The Court's determination about liability for outgoings is sought, and made, in aid of arrangements for an orderly sale of the subject property in order to facilitate finalisation of administration of the deceased's estate.
Whether or not my determination of the first defendant's liability for outgoings has any commercial significance may depend upon what orders are made (and how effective are such orders) for a sale of the property.
[4]
THE SECOND QUESTION : SALE OF THE SUBJECT PROPERTY
The second question for determination in the proceedings is whether the plaintiff should be authorised (and, if so, in what terms) to effect a sale of the property otherwise than by public auction.
An expectation that the first and second defendants (as prospective purchasers of the subject property) would come to some arrangement for disposition of the property on fair terms has been disappointed more than once. There is no agreement for distribution of the property in specie. The practical reality is that the property must be sold if administration of the deceased's estate is to be finalised. There is no agreement on price. The first defendant is prepared to pay the valuer's estimated valuation of $400,000. The second defendant does not consent to a sale of the property to his sister at that price. Nor has he offered a higher price.
In my opinion, a practical, but fair way forward in administration of the deceased's estate is to make orders designed to confirm the authority of the plaintiff: (a) to sell the property by private treaty, subject to the first defendant's right of residence; and (b) in the absence of a higher offer from the second defendant or any other person within a reasonable time, to sell the property to the first defendant at a price of $400,000; but (c) to allow the parties a reasonable opportunity to submit to him an offer, or offers, for purchase of the property at a higher price.
[5]
COSTS
The costs of the current proceedings have been the subject of debate. Everybody accepts that the plaintiff should have his costs out of the estate of the deceased, assessed on the indemnity basis. The first defendant submits that all costs should be paid out of the estate, with each defendant having her or his costs assessed on the ordinary basis. The second defendant submits that the first defendant should bear a costs burden.
In my opinion, the costs of all parties should be paid out of the estate of the deceased; the costs of the plaintiff, on the indemnity basis; the costs of each defendant, on the ordinary basis. This is because the costs incurred in these proceedings are an incident of administration of the deceased's estate; in particular: (a) the limited right of residence given to the first defendant by the deceased and modification of that right by the deceased's family; and (b) the plaintiff's need to finalise administration of the deceased's estate in circumstances in which there was a need to clarify the terms upon which the trust estate is held.
If the property were to be transferred to the defendants in specie, the likelihood is that it would in due course be sold by trustees for sale appointed for that purpose under section 66G of the Conveyancing Act 1919 NSW. The costs of section 66G proceedings would ordinarily be borne by co-owners as an incident of their co-ownership of the property to be sold. By analogy, the costs of these proceedings should be borne by the defendants as the estate's residuary beneficiaries (in equity, co-owners by another name).
[6]
ORDERS
Accordingly, I make the following orders:
1. DECLARE that the right of residence the subject of the declaration numbered 3 in the orders made on 12 August 2015 in the proceedings numbered 2014/00201182 carries with it an obligation on the part of the first defendant, as resident pursuant to that right, to pay or bear periodical expenses for outgoings comprising council rates, water rates and the costs of every day maintenance and repairs, but excluding land tax (if any) and the cost of improvements, other capital repairs and building insurance relating to the property.
2. ORDER that the plaintiff be at liberty to deduct the amount payable by the first defendant for outgoings on the property from the first defendant's entitlements to further distributions from the estate of the late Robert William Webster.
3. ORDER that the plaintiff be at liberty to sell the property described in certificate of title 5/502474 (subject to the first defendant's right of residency):
1. by private treaty.
2. to the defendants, jointly or severally.
3. in the absence of any higher offer for purchase of the property, at the price of $400,000 offered by the first defendant.
1. ORDER, subject to further order, that the plaintiff allow the second defendant a reasonable period of not less than two weeks from the making of these orders within which to make an offer to purchase the property at a price higher than that offered by the first defendant.
2. RESERVE to the parties liberty to apply for consequential relief relating to sale of the property, or administration of the estate of the deceased, generally.
3. ORDER that the proceedings (including the plaintiff's amended summons filed 20 November 2018 and the first defendant's notice of motion filed on 12 February 2019) otherwise be dismissed.
4. ORDER that the plaintiff's costs of the proceedings, assessed on the indemnity basis, be paid out of the estate of the deceased.
5. ORDER that the costs of each defendant, assessed on the ordinary basis, be paid out of the estate of the deceased.
In his amended summons the plaintiff sought injunctive and other coercive relief against the first defendant in aid of an orderly sale of the subject property. It is not necessary for any such order to be made in circumstances in which each defendant has manifested a desire for the property to be sold. It is against the possibility of unforeseen difficulties that I here reserve to the parties liberty to apply for consequential relief.
If the second defendant intends to make an offer to purchase the subject property for a price exceeding the $400,000 offered by the first defendant he must do so without delay.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 30 May 2019