[2004] HCA 7
Armitage v Nurse [1998] Ch 241[1997] EWCA Civ 1279
Austin v Austin (1906) 3 CLR 516[1965] AC 694
Crossman v Sheahan (2016) 115 ACSR 130[2016] NSWCA 200
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588[2011] HCA 21
Farrelly v Phillips (2017) 128 SASR 502[2017] SASCFC 111
Fell v Fell (1922) 31 CLR 268[2023] HCA 29
Leerac Pty Ltd v Fay [2008] NSWSC 1082
Ludwig v Jeffrey (No. 4) (2021) 394 ALR 360[2008] HCA 42
Maguire v Makaronis (1997) 188 CLR 449[1997] HCA 23
Marley v Rawlings [2015] AC 129[2014] UKSC 2
Meehan and Others v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146[2002] NSWCA 22
Menz v Wagga Wagga Show Society Inc (2020) 103 NSWLR 103
Judgment (16 paragraphs)
[1]
, Law of Succession (3rd ed, 2021, LexisNexis)
J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis)
P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters)
Category: Principal judgment
Parties: Regina Turnbull (First Plaintiff)
Hans Brooks (Second Plaintiff)
Erna Barbara Van Luin (Third Plaintiff)
Julieann Deline Groat (Fourth Plaintiff)
Elizabeth Mary Fleming as executor of the Estate of Thomas John Brooks, late of Woodlands (Defendant)
Representation: Counsel:
Mr N Allan (Plaintiffs)
Mr S Chapple SC with Mr D Yazdani (Defendant)
These proceedings concern the estate of the late Thomas John Brooks, who died on 26 December 2018 (the deceased).
The deceased is survived by:
1. his daughter Julieann Groat, who is a child of the deceased's first marriage with Marilyn Brooks;
2. his daughter Sonya Afflick, who is a child of his second marriage with Maria Brooks;
3. his daughter Tanya Brooks, who is also a child of the deceased's second marriage;
4. his stepson Hans Brooks;
5. his stepdaughter Barbara Van Luin; and
6. his stepdaughter Regina Turnbull.
The deceased executed a will dated 24 February 2017, under which he appointed his solicitor, Ms Elizabeth Fleming, as his executor and trustee. Ms Fleming is the principal of the firm Elizabeth Fleming & Associates (EFA).
According to the inventory of property attached to Ms Fleming's application for probate, the deceased owned the following assets at the time of his death:
1. real property at 35 Dunns Creek Road, Woodlands, New South Wales, with an estimated value of $995,000 (the Woodlands property);
2. real property at 32 Lagoon Street, Moruya, New South Wales, with an estimated value of $375,000 (the Moruya property);
3. real property at Dolphin Avenue, Batemans Bay, New South Wales on which a motel business was trading under the name the Hanging Rock Family Motel, with an estimated value of $2,200,000 (the motel property);
4. shares in TJ Brooks Pty Limited with an estimated value of $622,000, of which $600,000 was attributed to the value of the Hanging Rock Family Motel business that the company operated from the motel property (the motel business);
5. cash of $425,265.10 in various bank accounts;
6. eleven motor vehicles with a total estimated value of $109,500; and
7. shares in Tansony Investments Pty Ltd, which operated a painting business, with an estimated value of $3,000.
By clause 5 of his will, the deceased requested his trustee to take note that his daughter, Ms Van Luin, had built a house on the Woodlands property at her own expense, and that the house was "not to be included as part of my assets, but it is to be separately valued and treated as her asset".
By clause 6 of the will, the deceased directed his trustee to discharge any mortgage debt secured against certain property of his brother-in-law, Johannes Pieter Slinger.
By clause 7 of the will, the deceased authorised, empowered and directed his trustee to finalise the transfer of the property at 50 Dunns Creek Road, Woodlands, to his daughter, Ms Afflick, at no cost to her, if that transfer had not been finalised prior to his death. That transfer was in fact finalised in May 2017, prior to the death of the deceased.
By clause 8 of the will, the deceased gave the residue of his estate to his trustee to pay all debts, legacies, funeral and testamentary expenses and any death, estate or succession duties, and to hold the balance equally for such of his children and stepchildren who survive him by 30 days.
Clause 9 of the will provides:
"My Trustee may, on such terms and for such purposes as my Trustee thinks appropriate, without being liable for loss:
(a) sell;
(b) postpone the sale of;
(c) lease;
(d) borrow, give a guarantee and mortgage; and
(e) manage,
the whole or any part of my estate."
As I have mentioned, the deceased died on 26 December 2018. On 11 January 2019, this Court made orders granting to Ms Fleming special letters of administration ad collingenda with specific powers, including to continue to operate and manage the motel business and to undertake any works in relation to the motel business or the motel property as required by Eurobodalla Shire Council. Probate was granted to Ms Fleming on 5 June 2019.
The deceased's estate has largely been administered.
A clearing sale of the deceased's vehicles, farming equipment, painting business equipment and other chattels was conducted by Elders Limited (Elders) on instructions from Ms Fleming on 6 July 2019.
The motel property and motel business were sold as a going concern on 20 January 2020 for $2,550,000.
Ms Fleming arranged for the mortgage debt secured against Mr Slinger's property to be paid, and the mortgage to be discharged, on 12 July 2020.
On 14 September 2020, Ms Fleming paid the sum of $172,861 out of the deceased's estate to Ms Van Luin, being the estimated value of the house built by Ms Van Luin on the Woodlands property.
In about January or February 2021, the Woodlands property was sold to Ms Turnbull for $1,200,000.
On 16 March 2021, the Moruya property was sold for $375,000 to Hans Brooks.
Ms Fleming has paid interim distributions to the beneficiaries totalling $3,300,000 to date. Those distributions were paid on 19 November 2020, 24 February 2021, 15 April 2021 and 30 March 2022.
Ms Fleming tendered the accounts of her administration of the deceased's estate for the period from 26 December 2018 to 30 June 2022, together with primary records such as receipts, invoices, settlement statements for the sale of properties, bank statements, and a bank reconciliation statement. As at the date of the hearing, Ms Fleming continued to hold $454,764.73 to be distributed to the beneficiaries after completion of tax returns.
[4]
Overview of the claims and defences
These proceedings were commenced on 3 February 2022. The plaintiffs are the deceased's three stepchildren - Ms Turnbull, Mr Brooks, and Ms Van Luin - and the deceased's daughter from his first marriage, Ms Groat. Ms Fleming is the defendant.
In their amended statement of claim filed on 3 March 2023, the plaintiffs claim:
1. a declaration that clause 9 of the will is void or unenforceable;
2. an order for the taking of an account on a wilful default basis;
3. alternatively, an order that Ms Fleming pay equitable compensation for the alleged breaches of duty on which the plaintiffs rely as instances of wilful default; and
4. orders revoking the grant of probate to Ms Fleming on 5 June 2019 and granting letters of administration to Ms Lisa Stone, solicitor, or to a qualified solicitor approved by the plaintiffs, and vesting the deceased's estate in the administrator so appointed.
The alleged instances of wilful default on which the plaintiffs rely fall into three categories:
1. acting imprudently in the sale of the motel property and motel business in January 2020, including by selling the motel in a compressed time frame and without obtaining an up to date valuation report, resulting in a sale at a price that the plaintiffs allege was below the market value by approximately $400,000 (the motel claim);
2. acting imprudently in delegating to Elders the sale of grain stored in silos on the Woodlands property immediately prior to the clearing sale in July 2019, resulting in the grain being sold at a price that the plaintiffs allege was almost $10,000 less than its market value (the grain claim);and
3. failing to recover stockyards that had been in use at the Woodlands property, which were removed and relocated to the neighbouring property of Ms Afflick and her husband in early 2020 (the stockyards claim).
In relation to each of these alleged defaults, the plaintiffs contend that Ms Fleming acted so imprudently as to display a want of honesty and good faith.
The precise terms of the orders sought by the plaintiffs for the taking of an account, as articulated at the hearing, are:
1. an order for an account to be taken by a Registrar of the Court on a wilful default basis, limited to such of the alleged wilful defaults referred to above that may be found to be established following the hearing before me, with a direction that the account be charged with the specific amount of the loss that the Court has found flowed to the estate by reason of the default;
2. an order that an account be taken otherwise in common form but with liberty to the Registrar to certify any further instances of wilful default identified in the taking of the account; and
3. an order that Ms Fleming pay to the plaintiffs such amount as may be determined to be due on the taking of the account.
Alternatively, the plaintiffs invite the Court to order Ms Fleming to pay equitable compensation in lieu of an order for the taking of accounts if the Court considers that equitable compensation is a form of relief that can make good the losses to the estate from the alleged wilful defaults without the need to subject the parties to the cost and delay of the process of taking an account.
Ms Fleming denies each allegation of wilful default, and therefore denies that she is liable to account on a wilful default basis or to pay equitable compensation.
If and to the extent that any of the alleged instances of wilful default are established, it will become necessary to determine whether clause 9 of the will is valid and enforceable. If so, then further questions arise from the parties' submissions about the proper construction of clause 9 and its application in the circumstances of this case.
Presumed undue influence arising from the solicitor and client relationship between Ms Fleming and the deceased is the sole basis on which the plaintiffs contend that clause 9 of the will is void or unenforceable.
If clause 9 is not void or unenforceable by reason of presumed undue influence, then the plaintiffs contend that, properly construed, the words "without being liable for loss" in clause 9 of the will do not extend to liability for an equitable debt that arises from an obligation to account to the beneficiaries, or liability to pay equitable compensation as a remedy selected by the Court as a more efficient means of giving effect to such an obligation to account on a wilful default basis in circumstances where the defaults and the value of the assets of which the estate has thereby been deprived are known. The plaintiffs contend that clause 9 of the will therefore does not apply to any of the alleged instances of wilful default.
If the words "liable for loss" are construed as including a liability of the kind referred to immediately above, contrary to the plaintiffs' submissions, then the plaintiffs contend that clause 9 of the will is void for repugnancy to the concept of a trust, or on the basis that it is contrary to public policy, because it impermissibly seeks to exclude the core obligations of an executor and trustee. This contention was not pleaded, but no objection was taken on behalf of Ms Fleming.
Ms Fleming submits that presumed undue influence does not apply in the probate context.
Ms Fleming further submits that the irreducible core obligations of an executor and trustee are honesty and good faith. Clause 9 of the will, properly construed, does not exclude liability for breach of those core obligations, and is therefore neither repugnant nor contrary to public policy. Ms Fleming further submits that the "loss" to which clause 9 applies does not include liability for "substitutive" compensation that is payable in order to discharge an obligation to account for any unauthorised disbursement of trust funds or assets. The remedy of equitable compensation in those circumstances is not dependent on any loss being established beyond the fact of the unauthorised disbursement. Ms Fleming submits that the plaintiffs' claims in the present case are claims for "loss" in the "restorative" sense rather than the "substitutive" sense. That is to say, the plaintiffs seek to have restored to the trust the value that they contend would have been obtained but for Ms Fleming's alleged failure to act in accordance with the requisite diligence and care in selling the motel property and business, in selling the grain, and her failure to recover the stockyards. Ms Fleming therefore contends that, if and to the extent that the plaintiffs establish the alleged instances of wilful default (which Ms Fleming denies), clause 9 is a complete answer to the plaintiffs' claims.
In reply, the plaintiffs submit that the irreducible core obligations of an executor are not limited to honesty and good faith, and extend to the duty of diligence and prudence.
If and to the extent that the alleged instances of wilful default are established and liability for such default is not excluded by clause 9 of the will, Ms Fleming asks the Court to relieve her from personal liability pursuant to s 85 of the Trustee Act 1925 (NSW) on the basis that she acted honestly and reasonably and ought fairly to be excused. The plaintiffs deny that Ms Fleming acted honestly and reasonably in relation to the sale of the motel property and business, the sale of the grain, and the recovery of the stockyards.
The plaintiffs did not make any submissions in support of their claim for orders revoking the grant of probate to Ms Fleming and granting letters of administration to Ms Stone, or another, solicitor. Nor did the plaintiffs tender any consent of Ms Stone, or any other solicitor, to be appointed as administrator of the deceased's estate. Those claims for relief are therefore taken to have been abandoned.
[5]
The duties of executors and trustees and liability to account on a wilful default basis
It is convenient to begin with a summary of the legal principles relating to the scope and content of the duties owed by executors and trustees, and the circumstances in which an executor and trustee becomes liable to account on a wilful default basis.
An administrator is required to administer the deceased estate for the benefit of the beneficiaries in accordance with the will. [1]
It is uncontroversial that the principal duties of an executor are to identify and get in the assets of the deceased's estate, to pay the deceased's expenses and liabilities, to pay the legacies given by the will, and to distribute the residue of the estate in accordance with the will. The executor holds the assets of the estate for the purpose of carrying out the functions of administration, and not for the executor's own benefit. [2]
The law requires executors to adhere to the same standards as are required of trustees in carrying out their duties. Executors and trustees are required to act prudently and properly in the management of the estate as a whole. The standard of prudence required is that of an ordinary prudent person or, in the case of an executor or trustee acting in a professional capacity, the minimum standard required of persons acting in that profession. The executor's conduct is to be assessed against the standard objectively. As both the plaintiffs and the defendant emphasised in the present case, that is a factually sensitive inquiry which must be undertaken having regard to the circumstances in which the defendant carried out her duties. [3] The duty to act prudently and properly is also referred to as a duty of diligence and prudence, or a duty of diligence and care. The standard of prudence is sometimes referred to as a standard of care. However, the duty owed by executors and trustees, and the standard that they are required to meet, are not to be confused with the similarly named duty and standard of care that are relevant to common law actions for negligence. [4]
The discharge of the duty to identify and get in the assets of the estate may require the executor to enforce, by legal proceedings if necessary, any right, title or interest of the deceased in specific assets, provided that the estate has sufficient assets to fund such legal proceedings or the beneficiaries indemnify the executor for the costs of such proceedings. [5]
Contrary to the submissions made on behalf of the plaintiffs, the executor's duty to get in assets does not require the executor to commence proceedings to recover property if the estate has sufficient funds to cover the executor's costs of the proceedings, or the beneficiaries indemnify the executor in respect of those costs. In support of that submission, the plaintiffs relied on the following passage from the judgment of Doyle J in Tschirn v Australian Executor Trustees Limited: [6]
"While accepting that this duty will on occasion extend to commencing legal proceedings in order to recover assets or monies said to form part of the deceased estate, the authorities also recognise, at least where those proceedings are likely to be controversial or contested, that the executor is not bound to use their own funds to pursue those legal proceedings. If there are no trust assets from which to fund the proceedings, and no indemnity from a beneficiary or beneficiaries is forthcoming, then it would generally be appropriate for the executor to refrain from commencing the contemplated proceedings. …"
That passage does not support the plaintiffs' submission that, if the estate has sufficient funds to cover the costs of the proceedings, then the executor's duty to get in the assets necessarily requires the executor to commence the proceedings. The executor's duty to get in the assets is to be exercised prudently in accordance with the standards discussed above. [7] The question whether it is prudent to commence proceedings to recover property claimed by the estate will depend on all the circumstances. Relevant factors include the nature and value of the relevant property, the nature and strength of the competing claims to the relevant asset, the level of risk attending the proposed proceedings, and the likely cost to the estate if the proceedings are unsuccessful.
If in doubt about whether to commence proceedings to prosecute the estate's claim to specific property in all the circumstances, it is open to an executor to seek judicial advice about whether they would be justified in commencing proceedings. [8] Indeed, it may be prudent to do so. [9] However, the executor is not under any legal obligation to seek judicial advice. [10] If the executor does not commence the relevant proceedings, and a beneficiary contends that the executor is under a duty to do so, that beneficiary may sue the executor to compel them to protect the beneficiary's interest in the estate. Alternatively, if there are special circumstances, the beneficiary may commence proceedings in their own name against the defendant to prosecute the estate's claim to the particular asset, joining the executor and other beneficiaries as additional defendants. [11]
I accept the plaintiffs' submission that the standard of care required of an executor selling assets for the purpose of administration is the standard described by Barrett J (as his Honour then was) in Halfhide v Beaven: [12]
"44. … the standard of care to be exercised by an administrator in effecting a sale for purposes of administration may be regarded as the equivalent of that expected of a trustee exercising a power of sale, although considerations relevant to the competing interests of classes of beneficiaries will not intrude in the case of a legal personal representative. The standard of care includes the exercise of diligence in inviting competition and in pursuing a course of conduct of the kind that an ordinary prudent person would apply in managing his or her own affairs. Formulations based on a supposed duty to 'obtain the best price' or 'not to sell at an undervalue' must, I think, be approached with care. Such absolutes tend to be illusory. The emphasis is on responsible, methodical and prudent behaviour undertaken according to an informed appreciation of the subject matter and the market environment in which it is to be sold. …"
Importantly, as Barrett J stated in that case, the beneficiaries' right to have the deceased's estate properly and duly administered does not entail a right to determine how, for what price or to whom a sale is made. [13]
The office of executor is a personal one which cannot be delegated. However, an executor cannot do everything themselves in the administration of the estate. An executor may engage agents where it is in the ordinary course of business to use others to do the work that the agent is engaged to do, and provided that the executor runs no needless risk in doing so. The executor must exercise care to select an agent who is suitable and competent in the relevant field, and in supervising the work undertaken by the agent. [14]
Beneficiaries of a deceased estate are entitled to an account in common form. An account on the basis of wilful default may be ordered at the suit of a beneficiary who establishes at least one instance of wilful default. Not every breach of trust is a wilful default. In an accounting context, wilful default means "a passive breach of trust, an omission by a trustee to do something which, as a prudent trustee, he ought to have done - as distinct from an active breach of trust, that is to say something which the trustee ought not to have done". [15] The underlying concept is that "through breach of trust the trustee has failed to obtain for the trust that which would have been obtained if the trustee's duties had been discharged". [16] Examples include the failure by an executor or trustee to get in an asset of the estate or the trust, or the sale of an estate or trust asset at an undervalue (resulting in the estate or trust not receiving the full value of the asset). It is not necessary to demonstrate conscious wrongdoing on the part of the executor or trustee in order to establish wilful default. [17]
In the taking of an account on the basis of wilful default, the executor must account not only for the assets that have actually been received, but also for assets that would have been received if the executor had properly discharged their duties. [18]
A court will only order an account on the basis of wilful default where the default that constitutes the basis of the application is proved, and gives rise to a prima facie inference that other defaults have occurred albeit that they are not yet known. [19] As the plaintiffs submitted, where there are only a few likely instances of default, an account on the basis of wilful default may be limited to those instances. As I have already mentioned, the plaintiffs submitted that, where a limited number of wilful defaults, and the value of the assets not received by the estate as a result of those defaults, have been proved at trial, the Court may order equitable compensation as an alternative and more efficient means of the executor making good that lost value rather than making an order for the taking of an account on the wilful default basis.
[6]
Salient facts
The deceased died on 26 December 2018.
By 7 January 2019, Ms Fleming was gathering information concerning the deceased's estate, and was preparing an urgent application to the Court for a grant of special letters of administration, primarily for the purpose of enabling her to continue the operation of the motel business pending a grant of probate.
As I have already mentioned, the Court made an order on 11 January 2019 granting special letters of administration ad collingenda with specific powers, including to operate and manage the motel.
Ms Afflick had been managing the motel business since about 1997, reporting directly to the deceased who participated in all decisions relating to the business. Ms Afflick worked together with Ms Robyn Bell, who managed the motel business at nights and on weekends. Ms Afflick and Ms Bell continued to manage the motel after the death of the deceased, reporting to Ms Fleming. Ms Fleming attended the motel to monitor its management, and to inspect specific problems or issues that Ms Afflick and Ms Bell drew to her attention from time to time.
Those problems included a problem with the sewage disposal system at the motel property, which Ms Afflick drew to the attention of Ms Fleming.
Ms Afflick gave evidence that the motel was serviced by two septic systems. From about 2002, sewage failed to drain away from the motel consistently. Ms Afflick had to attempt to clear the pipes using a mop and a hose on a weekly basis. If that did not succeed, a local plumber - Mr Martin Green - was called to clear the blockage using an electric eel. Both septic systems were affected by these blockages. Ms Afflick understood that the problem was caused by the age of the pipes and the infiltration of tree roots into the pipes, based on advice from Mr Green, and based on her own observations when attempting to clear the pipes herself. However, Ms Afflick also agreed in cross-examination that the blockages that required her to clear the pipes manually with a mop and hose were principally caused by people flushing foreign objects down the toilets. Ms Afflick gave evidence that Mr Green's assistance was required on a regular basis, although she cannot now recall the precise frequency. Ms Afflick recalled occasions on which sewage flooded into some of the motel rooms. On one such occasion, the flooding was so extensive that all flooring and furniture in the affected rooms had to be replaced.
Ms Fleming gave evidence that she and Ms Afflick sought advice from Mr Green about what was required to rectify the problem. Mr Green advised that the motel would need to be closed in order to carry out the necessary work, because the toilets could not be flushed while the work was in progress.
Ms Fleming and Ms Afflick gave conflicting evidence about past subsidence of parts of the floors in some of the units in the motel.
Ms Afflick gave evidence that the flooring in part of two motel rooms had "collapsed" in about spring 2015, and had never been repaired because the deceased thought that the repairs would be too costly. It was Ms Afflick's understanding that the "collapse" had occurred because "the flooring piers had sunk in". There is no evidence of the basis of Ms Afflick's understanding.
In her affidavit sworn on 4 August 2022, Ms Fleming deposed that Ms Afflick advised her that there had been "subsidence issues with floors in the family units" in the past, that the affected floors had been rebuilt, including retiling and repainting the affected units.
There is no evidence of any recurrence of floor subsidence in any of the motel units at any time after the occasion referred to by Ms Afflick in 2015. Ms Fleming deposed that no subsidence issues have arisen during her administration of the deceased's estate to date. In cross-examination, however, Ms Fleming described floor subsidence as a "continuing process" at the motel property, meaning that it happened "regularly, as in every three or four years". Ms Fleming also asserted that it was "wet under that set of units".
Ms Fleming's evidence does not disclose any source of information about subsidence issues at the motel other than Ms Afflick. I reject Ms Fleming's evidence given in cross-examination that subsidence issues were a "continuing process" occurring every three or four years as inconsistent with Ms Afflick's evidence, and inconsistent with Ms Fleming's own affidavit. It was my impression at the time that Ms Fleming gave that evidence in cross-examination that she was overstating the subsidence "issue" in response to being challenged about her evidence that she considered subsidence to be an issue or potential issue affecting the value of the motel when she sold it for $2,550,000 in December 2019, being less than the value ascribed to the motel property and business by the valuation report that she had received in April 2019 to which I refer below, and less than the selling price estimated by the sales agent that she engaged in October 2019.
On 6 February 2019, Ms Fleming engaged a local valuer, Mr Wayne Riches of Riches Property Valuations, to value the Woodlands property and the Moruya property. At Mr Riches' suggestion, Ms Fleming engaged Opteon Property Group Pty Ltd (Opteon) as a specialist valuer to value the motel property and business. Ms Fleming had used Opteon's services previously and had been satisfied with their work.
In cross-examination, Ms Fleming initially said that she engaged Opteon to value the motel property and business solely for probate purposes, and not for the purposes of identifying the value of the motel property and business with a view to sale. I reject that evidence, which is inconsistent with the objective facts that, as recorded in the contemporaneous documents and as Ms Fleming accepted in cross-examination, she was interviewing real estate agents and brokers in February and March 2019 with the intention of appointing one of them to conduct the sale of the motel property and business, and her intention at that time was to sell the motel without trading it for any material length of time if possible.
On 14 February 2019, Ms Fleming obtained from the deceased's accountant, Ms Rhonda Elliott, financial statements for the motel business operated by TJ Brooks Pty Limited for the 2016 to 2018 financial years and for the period 1 July 2018 to 31 January 2019. The financial statements recorded net profits of $151,992 for the 2016 financial year, $60,630 for the 2017 financial year, $118,148 for the 2018 financial year, and $102,004 for the seven-month period to 31 January 2019. Ms Fleming caused the financial statements to be provided to Mr Gregory Mason, the valuer at Opteon who was undertaking the valuation of the motel property and business.
Mr Mason inspected the motel property on 22 February 2019, and prepared a valuation report that Opteon issued on 10 April 2019. Mr Mason valued the motel property and business at $2,825,000 as a going concern on a "walk in walk out" basis or, alternatively, $2,200,000 for the motel property and $600,000 for the motel business, as at 22 February 2019. Mr Mason opined that the existing use of the property as a motel was its highest and best use.
The report noted the strengths of the site as including its location within a growing coastal region, and its proximity to the Catalina Country Club. Noted weaknesses included the potential presence of asbestos in some buildings and the need for some repair works to be undertaken in the short to medium term. The report identified the necessary repairs as being new roofing and some external cladding repairs for the northern wing of the motel (comprising rooms 16 to 20), and repairs to soffit lining and new gutters and downpipes for the western wing of the motel (comprising rooms 7 to 15). The report stated that a preliminary allowance of $15,000 for those works had been incorporated in the valuation as representing the discount to market value that a prudent purchaser would allow for the cost of those works. However, the report emphasised that Mr Mason had not been provided with quotes or expert reports concerning the works.
The report recommended that audited financial statements, a building inspection report, and an asbestos report be provided to Mr Mason for review. There is no evidence that any such documents were provided to him, although an asbestos register was later prepared, as referred to below.
The report noted that the motel business had been managed by Ms Afflick since approximately 2002, and that it appeared to be well managed. The report stated that any decrease in the quality of management could quickly lead to a decline in trade.
Mr Mason opined that the tariff rates at the 27-room motel of between $70 and $120 per night during the off-peak season and between $120 and $160 per night during the peak season appeared to be at below market rates when compared with tariffs charged by other low to mid-range accommodation facilities in Batemans Bay and other nearby coastal towns on the South Coast. Mr Mason opined that "slightly higher tariff rates could be achievable", but also calculated that the motel business was achieving a slightly above average occupancy rate for the area and attributed this to the lower tariff level. The report stated that, in order to maintain and improve occupancy levels, the motel owner would need to monitor ongoing competition from approximately 27 other motels or accommodation options in the Batemans Bay area, and to implement an upgrade and refurbishment program for the motel property.
In valuing the motel property and business as a going concern, Mr Mason applied a capitalisation of net profit methodology, supported by a direct comparison methodology.
Mr Mason explained the capitalisation methodology in the following terms:
"The capitalisation method is based on the concept that for income producing assets the price a prospective purchaser will be prepared to pay will be based on (amongst other things) the level of income and the return required for the investment of capital.
The capitalisation method is commonly used as the primary valuation method to determine the Market Value of income producing assets such as leased properties and going concerns or specialised assets.
Under the capitalisation of net profit, the net profit after adjustments is divided by the percentage return (known as the capitalisation rate) required by prospective purchasers in the market to arrive at the Capitalised Value assuming the asset was being operated under good average management.
Capital adjustments may be made to the Capitalised Value, for example to reflect:
Capital expenditure required to sustain the income;
Lost earnings during a period of change to the operation of the business in order to achieve the adopted net profit;
The added value of other non-incoming [sic] producing assets (e.g. surplus land)."
Mr Mason then referred to the evidence of sales of nine motel properties during the period from February 2017 to March 2019 in Batemans Bay, Batehaven, Mollymook, Narooma, Bega, Queanbeyan and Braemar, which indicated a range of market yields between 5.27 per cent and 14.0 per cent for properties that he considered to be similar properties. The properties that Mr Mason considered most comparable to the subject motel property had yields between 7.8 per cent and 11.87 per cent. Mr Mason opined that, based on that market evidence, the appropriate capitalisation rate for the motel property was 9.5 per cent. He then applied that capitalisation rate to an "adopted sustainable net profit figure" for the motel business of $270,000 per annum - $151,852 more than the net profit of $118,148 recorded in the financial statements for the 2018 financial year. [20] That "adopted sustainable net profit figure" represented 48.6 per cent of trading revenue, whereas net profits actually achieved by the motel business since the 2016 financial year, according to the financial statements provided to Mr Mason, represented between 10.8 per cent and 29.0 per cent of revenue. He arrived at the "adopted sustainable net profit figure" by adjusting actual expenses downwards to achieve the "adopted sustainable net profit figure" which he considered to be in line with unspecified "industry benchmarks" for a motel business of comparable size. However, he emphasised that this was not presented as a projection of the trading performance of the motel business. The capitalised value of the motel property and business, based on the "adopted sustainable net profit figure" of $270,000 and a capitalisation rate of 9.5 per cent, was $2,842,105, from which Mr Mason deducted $15,000 for the repair works described at [66] above before rounding down by a further $2,105 to arrive at a value of $2,825,000.
Mr Darren Austin, a certified practising valuer called by the plaintiffs as an expert witness, explained that the process of reducing the actual expenses of a business in order to achieve a net profit figure to be applied in estimating the value of the business using the capitalisation methodology is known as "adding back" or "add-backs". Mr Austin gave evidence that the objective is to remove one-off or non-recurring expenses, depreciation expenses, and any private financing expenses from the calculations. Mr Austin gave evidence that, with small motel businesses, the usual practice was to remove or "add back" all wages paid to the owners, leaving only the expense of wages paid to additional employees, in order to remove the variability that would otherwise result from the wide range of practices amongst owners in the level of salaries paid to themselves.
The sale prices of the nine motel properties referred to in Mr Mason's report represented between $61,538 and $243,333 per room. For the purpose of the direct comparison methodology, Mr Mason adopted a rate per room of $105,000 for the subject motel property and business, being very similar to a rate per room of $105,263 achieved for the sale of a 19-room motel in Batemans Bay in February 2017. The $105,000 room rate for the motel property and business with 27 rooms translated to an estimated market value of $2,835,000, which Mr Mason rounded down to $2,825,000 in line with the estimated value derived from the capitalisation methodology.
[7]
Outline of the parties' submissions
It was submitted on behalf of the plaintiffs that Ms Fleming failed to discharge her duties as executor in respect of the sale of the motel property and business with the prudence and diligence that is required of a solicitor acting as executor in all the circumstances of this case, by:
1. failing to follow Mr Mason's recommendations to enhance the value of the motel by increasing the tariff rates;
2. requiring the selling agent, Mr Rogers, to market the motel for sale with a plan to have the sale settled by 20 December 2019, after inexplicably delaying the appointment of a selling agent and the commencement of the marketing campaign for four months after the grant of probate; and
3. selling the motel only 20 days after first advertising it for sale and at a price that was almost $300,000 less than its value estimated by Mr Mason and approximately $500,000 less than the price range estimated by Mr Rogers in circumstances where Ms Fleming had not obtained an updated valuation report, after inappropriately binding herself to that sale at that price by the terms of the Heads of Agreement before contracts had been exchanged, and without even contacting the beneficiaries to inquire whether they might be interested in purchasing the motel property and business for more than that price.
The plaintiffs submitted that this was compounded by Ms Fleming's failure to release Mr Rogers from her requirement that a sale be settled by 20 December 2019 after 4 November 2019 when Ms Afflick identified relief managers to step in and manage the motel pending completion of the sale. It was submitted that this would have allowed more time for Mr Rogers to endeavour to generate further interest in the motel from genuine buyers in the market, in circumstances where Mr Mason had previously advised that the selling period for the motel would likely be between three and sixth months, and Mr Rogers' firm had negotiated an exclusive agency for a period of three months. It was submitted that Ms Fleming ignored Mr Mason's advice about the selling period and ultimately accepted Mr MacLachlan's offer on 7 November 2019 simply because that was the only possible way of having a sale completed by 20 December 2019. It was submitted that, in accepting that offer and entering into the Heads of Agreement, Ms Fleming imprudently closed off the possibility of entertaining any better offer that might be received for a period of up to 30 days thereafter, during which period Mr MacLachlan was under no obligation to exchange contracts.
It was submitted that the Court should not accept Ms Fleming's evidence that she had concerns about the veracity of Mr Mason's valuation at the time that she made the decision to sell to Mr MacLachlan for $2,550,000, and that the concerns that she now claims to have had were merely an "after the fact rationalisation" of that decision. It was submitted that Ms Fleming did not, in fact, have any legitimate reason to be concerned about the veracity of Mr Mason's valuation when she entered into the Heads of Agreement and when she later exchanged contracts for the sale of the motel for $2,550,000. Alternatively, it was submitted that if Ms Fleming had held those concerns (which the plaintiffs deny), the prudent response to those concerns would have been to obtain an updated valuation report.
The plaintiffs placed particular emphasis on Ms Fleming's failure to inquire about whether the beneficiaries were interested in bidding for the motel, in circumstances where Ms Groat's solicitors had specifically asked Ms Fleming in their letter of 29 October 2019 whether beneficiaries would be given the opportunity to bid on the motel property and business. [39] It was submitted that Ms Fleming's failure to reply to that letter until 11 November 2019, and the misleading substance of that response, demonstrated that Ms Fleming had failed to act diligently in inviting competition for the motel property and business. [40] Counsel for the plaintiffs submitted that the potential for the selling price to be increased by reason of interest amongst the beneficiaries is demonstrated by the sale of the Woodlands property to Ms Turnbull for more than the valuation after Ms Fleming elicited competing bids for that property from Ms Afflick and Ms Turnbull.
The plaintiffs further submitted that Ms Fleming's conduct in relation to the motel, considered as a whole, displayed such a want of prudence as to constitute bad faith, and that her belated and misleading response on 11 November 2019 to Ms Groat's solicitors' inquiry made on 29 October 2019 demonstrates that bad faith. [41]
The plaintiffs submitted that Ms Fleming's failure to act with the requisite degree of prudence and diligence had resulted in a failure to obtain for the benefit of the estate the full value of the motel property and business. The plaintiffs relied on Mr Austin's report as evidencing that the value at the relevant time was $2,950,000, and that the value lost to the estate by reason of Ms Fleming's default was therefore $400,000.
It was submitted on behalf of Ms Fleming that she was personally engaged in ensuring that the motel was advertised publicly and that it was actively marketed to a wide audience, including by reviewing and approving Mr Rogers' information memorandum, by approving the placement of advertisements and by providing Mr Rogers with the contact details of persons known to her as potential purchasers of the motel. It was further submitted that Mr Rogers, as Ms Fleming's agent, did take appropriate steps to market the motel, including emailing 75 prospective buyers when the motel was first listed for sale. Senior counsel for Ms Fleming submitted that the plaintiffs' contention that Ms Fleming's efforts to sell the motel property and business were inappropriately focussed on a single prospective purchaser, being Mr MacLachlan, is incorrect.
Senior counsel for Ms Fleming emphasised that there was no point during the email correspondence between Mr Rogers and Ms Fleming during the marketing campaign in which Mr Rogers indicated that he needed more time to sell the motel, or that there was a prospect of achieving a better price if he had more time. It was submitted that any suggestion that the motel might have been sold at a price greater than the $2,550,000 paid by Mr MacLachlan is mere speculation. It was further submitted that not accepting Mr MacLachlan's offer on 7 November 2019 would have carried the risk of losing Mr MacLachlan as a potential purchaser and not receiving a better offer or, indeed, any other offer after a longer marketing campaign.
It was submitted on behalf of Ms Fleming that she acted prudently and diligently in selling the motel property and business, informed by Mr Mason's valuation but also taking into account the following matters in deciding to accept Mr MacLachlan's offer of $2,550,000:
1. the recommendation of Mr Rogers as a reputable, qualified and experienced selling agent;
2. that the motel had gone to market and no comparable offers had been made;
3. that the motel was being advertised for sale at the most optimum time to sell such a property and business;
4. the specialised nature of the asset;
5. structural and titling issues associated with the motel that Mr Mason's valuation had not taken into account;
6. the imminent departure of two managers of the motel; and
7. Ms Fleming's obligation to realise the assets of the estate in a timely manner, referring to the prima facie expectation that executors should get in the assets, pay the debts, administer the estate and distribute the funds to beneficiaries within one year of the testator's death, and to correspondence received from beneficiaries from about February 2019 onwards inquiring as to the progress of the administration of the estate.
It was submitted that prudence did not require Ms Fleming to obtain an updated valuation because a valuation is not "bankable" and the decision facing Ms Fleming was driven by the reality that Mr MacLachlan was the only prospective purchaser to have made any offer by 7 November 2019, and that his best offer was $2,550,000. Irrespective of the value that might be ascribed to the motel in any updated valuation report, obtaining an updated report would not have changed that reality, and would not have changed the nature of the decision to be made by Ms Fleming in deciding whether to accept the $2,550,000 offer or hold out for a better offer with the risks that this entailed. However, senior counsel for Ms Fleming accepted that it would have been prudent for Ms Fleming to obtain an updated valuation report in order to make a fully informed decision about whether to market the motel for a period of up to six months as Mr Mason had suggested in an attempt to elicit a better offer, or whether to accept the best offer of $2,550,000 following a marketing campaign of only 20 days.
In relation to the duration of the marketing campaign, it was submitted on behalf of Ms Fleming that she had genuine concerns about the availability of managers for the motel, without which the motel would have to be closed and could not be sold as a going concern, which Mr Austin had identified as the highest and best value of the land. It was submitted that the replacement managers that Ms Afflick identified on 4 November 2019 were relief managers only, who were able to step in on an interim basis until the sale of the motel was completed. [42] Thus, it was submitted that the appointment of those relief managers did not allay Ms Fleming's concerns that the motel might be without managers if the sale process was extended for any material period of time beyond Christmas 2019.
It was submitted that both Mr Mason's valuation and Mr Austin's valuation were flawed because they did not take into account the sewerage problems at the motel, in addition to the other issues and potential issues identified by Ms Fleming in her evidence. [43] It was submitted that the evidence before the Court simply does not establish how those matters might have impacted on the value of the motel property and business. In addition, it was submitted that Mr Austin's valuation evidence was flawed because there was no basis for the wages "add-back" calculated by Mr Austin in arriving at the adjusted net profit figure on which his valuation opinion was based. For those reasons, it was submitted that the plaintiffs have failed to establish that Ms Fleming committed any wilful default in respect of the sale of the motel which resulted in loss of value to the estate.
[8]
Consideration and determination
I reject the plaintiffs' submission that Ms Fleming failed to act with the requisite prudence and diligence by failing to increase the tariff rates charged by the motel. The submission misstates Mr Mason's advice, which was that slightly higher tariff rates could be achievable, but that this may affect the motel's occupancy rate which was slightly above average for the area on account of the lower tariff rates that were actually being charged. Mr Mason emphasised that maintaining and improving occupancy levels at increased tariff rates would require an upgrade and refurbishment program. [44] There is no evidence of the likely cost of such a program, compared to the potential increase in revenue that might have flowed from increasing tariff rates. The evidence therefore does not establish that a prudent executor in all the circumstances would have increased the tariff rates.
In my opinion, however, Ms Fleming did fall short of the standard of prudence and diligence in selling the motel property and business.
I accept the submission made on behalf of Ms Fleming that the evidence does not disclose any deficiency in the steps taken by Mr Rogers to advertise and market the motel property and business during the period from 18 October to 7 November 2019, or in Ms Fleming's supervision of and involvement in those steps. However, Ms Fleming acted imprudently by stipulating a very short time frame for that marketing campaign, contrary to Mr Mason's advice, and by maintaining that stipulation even after Ms Afflick had sourced relief managers to manage the motel pending completion of the sale, without Ms Fleming making any inquiries about whether those relief managers were willing and able and had the necessary experience to competently manage the motel for the duration of a longer marketing campaign. That was imprudent because the only offers received during the very short marketing campaign were from one potential purchaser, and the amounts of those offers were materially below the amount of Mr Mason's valuation - being the only valuation that Ms Fleming had to rely on - and even further below Mr Rogers' estimated selling price. Mr Rogers' reports to Ms Fleming at the time indicated that there were other potential buyers for the motel, but that they were not in a position to move quickly and that the sale process would likely extend into 2020 if they were to pursue offers from those potential buyers. Ms Fleming did not even ascertain whether any beneficiary was interested in purchasing the motel, notwithstanding that one beneficiary had specifically asked whether they could bid. Ms Fleming chose instead to enter into the Heads of Agreement locking in the benefit of a $2,550,000 price for Mr MacLachlan for a period of 30 days, during which Ms Fleming did not have the benefit of a binding contract for sale to Mr MacLachlan yet was precluded from accepting any better offer that might be received for the motel. Ms Fleming's evidence did not explain her reasons for agreeing to that provision in the Heads of Agreement, which was plainly for the benefit of Mr MacLachlan and to the detriment of the estate.
For the reasons explained at [160] to [177] above, I do not accept Ms Fleming's evidence that she had concerns about the veracity of Mr Mason's valuation at the time that she made the decision to sell to Mr MacLachlan for $2,550,000, including by reason of the "issues" and "potential issues" referred to in paragraph 75.11 of Ms Fleming's affidavit sworn on 4 August 2022, which I have found were non-issues with the exception of the sewage issue. Ms Fleming had no basis for forming any view about the impact of the sewage issue on the value of the motel, even if she had turned her mind to that issue before accepting Mr MacLachlan's offer, which I have found that she did not.
I reject the submission made on behalf of Ms Fleming that Mr Rogers recommended that she sell the motel for the $2,550,000 sum offered by Mr MacLachlan. As I have said at [163] above, any recommendation made by Mr Rogers to Ms Fleming in relation to that offer did not rise above advice that this was the best offer he had been able to extract from the only bidder at the time, who would commit to settlement by 20 December 2019, and who Mr Rogers believed would not "muck around". Contrary to the submissions made on behalf of Ms Fleming, it is not to the point that there is no evidence of Mr Rogers having communicated to her that he needed more time to sell the motel, or that there was a prospect of achieving a better price if he had more time. Ms Fleming had made clear to Mr Rogers that she required the sale to be completed by 20 December 2019, and there is no evidence that Mr Rogers had any reason to believe that this was open for negotiation.
I accept the submission made on behalf of Ms Fleming that there was a risk that any extension of the marketing campaign period might have resulted in the loss of Mr MacLachlan's offer, without any better, alternative offer being received from any other prospective purchaser. In my opinion, however, the existence of that risk did not warrant Ms Fleming simply accepting Mr MacLachlan's offer. As senior counsel for Ms Fleming ultimately accepted, the prudent course in all the circumstances would have been to obtain an updated valuation report for the motel property and business, and to rely on that report to make an informed decision whether to accept Mr MacLachlan's offer or whether to extend the marketing campaign.
In my opinion, Ms Fleming's failure to inquire of the beneficiaries whether they were interested in purchasing the motel was but one aspect of her course of conduct which, as a whole, failed to meet the standards of prudence and diligence required of an executor in all the circumstances. I do not consider that it has the significance which the plaintiffs' submissions attributed to it. I reject the plaintiffs' submission that the sale of the Woodlands property to one of the beneficiaries for a price in excess of the valuation of that property demonstrates that there was potential to achieve a better price for the motel by issuing a special invitation to beneficiaries to bid for the motel. The evidence does not establish that any of the beneficiaries were potential bidders for the motel, as I have explained at [124] to [129] above.
Contrary to the submission made on behalf of Ms Fleming, the amount of Mr MacLachlan's offer made during the compressed marketing campaign for the motel does not constitute evidence of the fair market value of the motel. I reject the submission that the compressed marketing period was required in order for Ms Fleming to realise the assets of the estate in a timely manner. To the extent that Ms Fleming was desirous of completing the sale of the motel by the end of the first executor's year, it was her failure to even begin marketing the motel for sale until mid-October 2019 that required a compressed marketing campaign.
Contrary to the plaintiffs' submission, I do not consider that Ms Fleming's conduct, considered as a whole, amounts to bad faith. As I have found at [107] above, Ms Fleming held a genuine concern that the sale should be completed before the resignations of Ms Afflick and Ms Bell took effect. For the reasons I have explained above, Ms Fleming did not act with the requisite prudence and diligence in failing to reconsider the marketing campaign period after the relief managers were identified on 4 November 2019 having regard to all of the circumstances to which I have referred above.
As explained earlier in these reasons, the plaintiffs' claims require them to demonstrate that, through her breach of duty in relation to the sale of the motel, Ms Fleming has failed to obtain for the estate the value that would have been obtained if she had discharged her duties. [45] The plaintiffs have failed to establish this. The plaintiffs relied on Mr Austin's report as evidencing that the market value of the motel property and business as at 7 November 2019 and 6 December 2019 was $2,950,000, and that the value lost to the estate by reason of Ms Fleming's breach of duty in relation to the motel was therefore $400,000. For the reasons explained at [143] to [149] above, Mr Austin's opinion concerning the market value of the motel at those times carries no weight. Nor does Mr Mason's opinion about the value of the motel in February 2019 provide a sufficient basis for making any finding on the balance of probabilities about the market value of the motel, with the sewage problems that Mr Mason did not take into account, some ten or eleven months later in November and December 2019.
For those reasons, the plaintiffs have failed to establish the alleged wilful default in respect of the sale of the motel property and business.
[9]
Outline of the parties' submissions
The plaintiffs submitted that Ms Fleming committed a wilful default in relation to the sale of the grain stored on the Woodlands property by delegating to Elders the decision to sell the grain prior to the clearing sale in order to have the silos empty and available for sale and removal by the purchaser on the day of the clearing sale, and by delegating to Elders the decision about the price at which the grain was to be sold. Counsel for the plaintiffs submitted that Ms Fleming "had no idea about the circumstances in which the grain was sold", that she failed to exercise any oversight over the sale of the grain, and that it was "simply unacceptable" to determine that the grain should be sold before the auction because the silos needed to be empty on the day of the clearing sale, which involved the "sacrifice [of] one asset for another".
Relying on the admitted fact that the grain was sold for $150 per tonne and Mr Turnbull's evidence that he would have had no difficulty finding a buyer for triticale grain for at least $400 per tonne, [46] the plaintiffs submitted that the grain was sold at an undervalue of $250 per tonne. The plaintiffs submitted that the volume of grain sold could be determined by dividing the total sale price recorded by Elders in respect of the two lots of grain by the sale price of $150 per tonne. [47] The resulting volume could then be multiplied by the shortfall of $250 per tonne in order to arrive at the value lost to the estate by reason of the sale of the grain at $150 per tonne.
Senior counsel for Ms Fleming did not disagree with this approach to calculation, but did not accept the premise of the calculation that there has been a wilful default in respect of the sale of the grain. It was submitted that Ms Fleming had acted prudently and appropriately in engaging Elders to conduct the clearing sale, and in accepting their advice that the grain should be sold before the clearing sale in order to facilitate the sale and removal of the empty silos on the day of the clearing sale, particularly in circumstances where the silos were sold for a total sum of $14,600, [48] which is greater than the shortfall calculated by the plaintiffs in respect of the grain. It was submitted that Ms Fleming had not been challenged about her appointment of Elders to conduct the clearing sale, that Elders had been charged with selling hundreds of items and that, as a matter of reality, an executor needing to clear a rural property of chattels in order to realise those assets and to prepare the property itself for sale, is acting under certain constraints in order to achieve the objective of clearing the property in a timely way. Senior counsel for Ms Fleming also referred to the contrast between the evidence of Mr Turnbull and Ms Fleming about the extent to which the grain had been damaged by weevils. [49]
[10]
Consideration and determination
It is convenient to note at the outset that the plaintiffs' calculation of the shortfall between the total price for which Elders sold the grain at $150 per tonne, and the total price that would have been realised if it had been sold at a price of $400 per tonne, is wrong. The amount of the shortfall is approximately $5,500, [50] not $9,706 as the plaintiffs submitted.
The plaintiffs have failed to establish that Ms Fleming committed a wilful default by engaging Elders to sell the chattels on the Woodlands property, including the grain, in order to clear the property, by accepting Elders' advice to sell the grain prior to the day of the clearing sale in order to facilitate the sale and removal of the silos on the day of the clearing sale, and by relying on Elders to determine the price at which the grain would be sold under those circumstances.
As Ms Fleming submitted, the plaintiffs did not seek to impugn Elders' reputation, qualifications, experience or competence to act as Ms Fleming's agent for the clearing sale. [51]
I accept Ms Fleming's evidence that it is customary with clearing sales of this kind for the vendor's agent to have authority to fix the price at which each of the many items is to be sold. [52] The plaintiffs did not adduce any evidence to the contrary.
In my opinion, Ms Fleming's conduct in engaging Elders to conduct the clearing sale, and her reliance on Elders to determine the prices for which items were to be sold based on their experience and having regard to Ms Fleming's dual objectives of realising the value of the items and clearing the Woodlands property for sale, [53] was in accordance with the ordinary course of business for rural clearing sales. There is no evidence to suggest that Elders' appointment involved any needless or unacceptable risk. The evidence establishes that Ms Fleming supervised Elders' work. Specifically, Elders sought Ms Fleming's instructions in relation to their recommendation to sell the grain prior to the day of the clearing sale, and explained to her the reasons for that recommendation. Ms Fleming gave those instructions after forming her own view that Elders' reasons were sound. Ms Fleming had engaged Elders on terms which incentivised them to achieve the best price that they could in the circumstances for the grain and, indeed, the other items to be sold at the clearing sale. [54] Ultimately, the silos sold for a total price that was materially greater than the total price for which the plaintiffs contend that the grain could have been sold. This was an agency, not a delegation of Ms Flemings' duties to Elders. Ms Fleming gave Elders a scope of authority that was consistent with the ordinary course of business for rural clearing sales, and approved a strategy proposed by Elders of selling one of the sale items (the grain) in advance in order to maximise the prospects of selling the more valuable silos on satisfactory terms on the day of the clearing sale. I reject the submission made by counsel for the plaintiffs that this was "simply unacceptable".
I also reject counsel's submission that Ms Fleming "had no idea about the circumstances in which the grain was sold", and that she failed to exercise any oversight over the sale of the grain. That submission is contrary to the evidence to which I have referred above, and should not have been made in those terms.
Mr Turnbull's evidence does not provide a sufficient basis to find on the balance of probabilities that this particular grain, which had been affected by weevils to some extent, could have been sold for a price of $400 per tonne. As I have said earlier in these reasons, it is not clear whether Mr Turnbull's opinions about the ease with which he could have found a buyer for triticale grain, and the price for which he could have sold such grain, applied to triticale grain that had been damaged by weevils. [55]
For those reasons, the plaintiffs have failed to establish the alleged wilful default in respect of the sale of the grain.
[11]
Outline of the parties' submissions
The plaintiffs submitted that Ms Fleming breached her duties as executor by failing to commence proceedings for the recovery of the stockyards, in circumstances where there were competing claims to the stockyards and there were sufficient assets in the estate to cover the costs of such proceedings. The plaintiffs contend that Ms Fleming simply accepted Ms Afflick's word about the stockyards and took the matter no further, and that "it was not for the executor to place herself into the position of judge as to the merits one way or another of the competing claims with respect to that property, unless it was absolutely plain to see that the claims being made that the stockyards belonged to [the deceased] were without foundation, and they weren't."
The plaintiffs submitted that the Court need not decide the ownership of the stockyards in these proceedings, and need not be troubled with questions concerning the value of the stockyards about which the plaintiffs adduced no evidence. It was submitted that these questions could be determined during the accounting process that the Court will order if it is satisfied of the alleged wilful defaults in relation to the motel sale and the grain sale.
It was submitted on behalf of Ms Fleming that she had made inquiries about the ownership of the stockyards, following which she had been satisfied that they had not been owned by the deceased or formed part of the Woodlands property. It was submitted that Ms Fleming would have been justifiably criticised if she had spent estate funds in commencing legal proceedings to determine the ownership of the stockyards, which counsel for the plaintiffs accepted would have a nominal value, rather than forming her own view about the matter after making those appropriate inquiries.
[12]
Consideration and determination
The stockyards claim is, in truth, a dispute between vendor and purchaser. Ms Turnbull, who purchased the Woodlands property, contended that the stockyards were part of that property. The vendor, Ms Fleming, disputed that contention. That dispute arose before contracts for the sale of the Woodlands property were exchanged. Ms Turnbull entered into the contract knowing that the stockyards were no longer affixed to the property, assuming (without deciding) that they were once fixtures forming part of that property. There is no evidence that the price for which the Woodlands property was sold to Ms Turnbull was reduced by reason of the stockyards having been removed. [56] As I have already mentioned, there is no evidence of the value of the stockyards, or even that they had any material value. Thus, there is no evidence that Ms Fleming's failure to commence proceedings to pursue a claim to the stockyards on behalf of the estate resulted in a loss to the estate. On the contrary, as the defendant submitted, it is likely that the costs of any such proceedings would have quickly overtaken any value that the stockyards may have. It would not have been prudent for Ms Fleming to commence such proceedings, and I reject the plaintiffs' submission that she was obliged to do so in the circumstances of this case. That submission was founded on an erroneous understanding of the applicable principles. [57] I also reject the plaintiffs' submission that Ms Fleming simply relied on the word of Ms Afflick without investigating the ownership of the stockyards further. The evidence is to the contrary. [58]
For those reasons, the plaintiffs have failed to establish that Ms Fleming committed any breach of duty in failing to commence proceedings to recover the stockyards. Even if the plaintiffs had established the alleged breach of duty, their proposal that the stockyards claim be considered as part of a wilful default accounting process would not have been available in circumstances where the plaintiffs have failed to establish the other alleged wilful defaults.
[13]
Construction and validity of clause 9 of the will
I now turn to the issues raised by the parties in relation to the construction, validity and operation of clause 9 of the deceased's will, which I address for completeness although it is not strictly necessary to do so in light of my conclusions above that the plaintiffs have failed to establish any of the alleged wilful defaults.
I reject the plaintiffs' submission that clause 9 of the will is void or unenforceable by reason of a presumption of undue influence arising from the solicitor and client relationship between Ms Fleming, who stands to benefit from the exclusion of liability under clause 9, and the deceased. The principles of undue influence differ in their application in probate from their application in equity. A person seeking to impugn a will, or a particular bequest or clause in a will, on the grounds of undue influence bears the onus of proving undue influence, in the sense of coercion, without the benefit of any presumption. [59]
That brings me to the proper construction of clause 9 and, in particular, the words "without being liable for loss".
The object of construing clause 9, in the context of the will as a whole, is to ascertain and give effect to the intention of the testator. That intention is to be ascertained objectively on the basis of the language of the will and the meaning that it would have conveyed to a reasonable person with knowledge of the objective circumstances surrounding the testator at the time the will was made. [60]
The objective circumstances surrounding the testator at the time the will was made on 24 February 2017 were:
1. the testator's assets included the motel property and the motel business, the Woodlands property and the Moruya property;
2. to the extent that those assets formed part of the testator's estate at the time of his death, the administration of his estate in accordance with his will would require his executor and trustee to sell each of those assets, which were not the subject of specific bequests, in order to distribute the residue of his estate between his children and stepchildren in accordance with clause 8 of the will, after taking the necessary steps to give effect to his wishes and directions in clauses 5, 6 and 7 of the will;
3. the executor would need to decide whether it was prudent to continue to operate the motel business pending sale to facilitate the sale of the motel property together with the business as a going concern;
4. the executor would also need to decide whether it was prudent to lease any of the properties pending sale;
5. the terms on which the properties and motel business could be sold, and the timing of their sale, would be a product of many factors, including market conditions, the course of negotiations with prospective purchasers, and decisions made by the executor during those negotiations, many of which would require evaluative judgments, all of which gave rise to an inherent risk that the negotiations in respect of any specific asset might produce an outcome less favourable to the estate than that which would have been achieved if the executor had taken a different approach to the negotiations or had made different judgments; and
6. any decision by the executor to operate and manage the motel business for a period of time to facilitate the sale of that business as a going concern would carry an inherent risk of trading losses.
In my opinion, at the time the will was made, clause 9 would have conveyed to a reasonable person with knowledge of those circumstances that the executor was authorised to do any of the things in sub paragraphs (a) to (e) of clause 9 on such terms and for such purposes as the executor honestly thinks appropriate for the administration of the deceased's estate for the benefit of the beneficiaries in accordance with the will. That reasonable person would not have understood the words "on such terms and for such purposes as my Trustee thinks appropriate" in clause 9 as effectively overriding the other terms of the will by authorising the executor to take actions of the kind described in subparagraphs (a) to (e) that were contrary to the terms of clauses 5 to 8 of the will. That reasonable person would have understood the word "appropriate" in the context of clause 9, and in the context of the will as a whole, as meaning "appropriate to administer the estate for the beneficiaries in accordance with the terms of the will".
In my opinion, at the time the will was made, the words "without being liable for loss" in the context of clause 9 would have conveyed to that reasonable person that the executor was exonerated from any liability that she might otherwise have for any adverse financial impact on the estate - "loss" - flowing from her decisions made and actions taken in respect of the sale of any asset comprising part of the estate, or any other action falling within subparagraphs (a) to (e), within the scope of the authority that I have described above. That reasonable person would not have understood clause 9 to exclude the liability of the executor for such "loss" only if the beneficiaries sued to recover the "loss" in an action for damages for devastavit or equitable compensation for breach of duty, and not if the beneficiaries sued to have the executor restore to the estate that which had been lost by reason of that waste or breach by accounting on a wilful default basis, or by paying equitable compensation in respect of specific wilful defaults in lieu of the taking of an account on the wilful default basis.
For those reasons, I reject the plaintiffs' submissions referred to at [29] above that the exclusion of liability for "loss" in clause 9 does not extend to a liability to account on a wilful default basis, or a liability to pay equitable compensation in order to restore to the estate an asset or the full value of an asset for which the executor would otherwise be charged if accounts were to be taken on a wilful default basis. The plaintiffs' submissions were founded on the erroneous premise that the meaning of the word "loss" in clause 9 of the will was governed not by the principles of construction to which I have referred at [241] above, but by distinctions between the precise character of the different equitable remedies which are available for a breach of trust that constitutes a wilful default - being an omission to obtain something for the trust, as opposed to an unauthorised disbursement of trust funds or assets. [61]
For completeness, I note that the construction of clause 9 that I have explained at [243]-[244] above does not exclude liability for "substitutive" compensation payable in order to discharge a liability to account for an unauthorised disbursement or disposal of trust funds or assets. [62] The remedy of compensation in those circumstances would not be dependent on the estate suffering any "loss" beyond the fact of the unauthorised transaction. [63] Moreover, it is difficult to see how a disbursement of funds or assets of the estate that was not authorised by the terms of the will could be characterised as a transaction that the executor honestly thinks appropriate to administer the estate for the beneficiaries in accordance with the terms of the will. For the reasons I have explained above, clause 9 applies only to transactions of that character. The breaches of trust alleged in the present case are wilful defaults, and not unauthorised dealings with estate property.
It remains to consider whether clause 9, properly construed in the manner explained above, is void on the basis that it is repugnant or contrary to public policy.
The plaintiffs submitted that clause 9 was repugnant to the concept of a trust, and contrary to public policy, because it had been inserted in the will to "alleviate [the executor] from the core fiduciary obligation to duly administer the trust". Referring to the judgments of the High Court in Maguire v Makaronis (Maguire) [64] and Youyang Pty Ltd v Minter Ellison Morris Fletcher (Youyang), [65] counsel for the plaintiffs submitted that, under Australian law, the irreducible core of obligations owed by executors and trustees that is fundamental to the concept of a trust includes the obligation to act prudently and properly (that is, to use due diligence and care) in the administration of the trust. It was submitted that clause 9 is repugnant and contrary to public policy because it is in "totally unqualified expansive terms" which purport to exclude liability for breach of the duty of diligence and prudence and, indeed, to exclude any liability whatsoever on the part of the executor, even for dishonesty and bad faith.
I reject the plaintiffs' submissions for two reasons.
First, on the proper construction of clause 9 explained at [243]-[244] above, the scope of the exclusion is not "totally unqualified" and the clause does not purport to exclude liability of the executor for dishonesty and bad faith.
Second, I do not accept that the irreducible core of obligations of executors and trustees includes the obligations of diligence and prudence. The phrase "the irreducible core of obligation" stems from the judgment of Millett LJ in Armitage v Nurse. [66] His Lordship construed an exclusion clause in a settlement as excluding the trustee's liability for constructive fraud or equitable fraud (as opposed to actual fraud or dishonesty) and as excluding liability for breach of trust in the absence of dishonesty. Millett LJ, with whom Hutchison and Hirst LJJ agreed, rejected a submission that the exclusion clause, so construed, was void or voidable on the grounds of repugnancy to the trust or public policy. His Lordship said: [67]
"I accept the submission made on behalf of [the beneficiary] that there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient."
His Lordship's description of the irreducible core of obligations from which an executor or trustee cannot be exempted has been cited with approval and applied in Australia, including by Brereton J (as his Honour then was) in Leerac Pty Ltd v Fay (Leerac) [68] and by the New South Wales Court of Appeal in Crossman v Sheahan. [69]
Leerac concerned "non-contest clauses" contained in trust deeds, which provided that a beneficiary would be deemed not to be and never to have been a beneficiary under the trust, and would be incapable of taking any benefit under the trust and liable to repay any such benefit received, if they should at any time commence any action against the trustee in respect of any matter arising under or in relation to the trust "other than for wilful default" (which Brereton J construed in the context of the non-contest clauses as meaning dishonesty). The question was whether the non-contest clauses, properly construed, applied to proceedings in which a beneficiary sought to compel the due administration of the trust, and, if so, whether the non-contest clauses were valid. Brereton J recorded that much of the argument focussed on the relationship between the non-contest clause and an exoneration clause in each trust deed. Each exoneration clause provided that the trustee "shall not be liable or answerable or accountable hereunder for any loss not attributable to its own dishonesty, or the wilful commission by it of an act known to be a breach of trust …".
Brereton J construed the non-contest clauses as applying only to actions asserting liability against the trustee for breach of trust, and not to actions to secure the due administration of the trust. [70] In case of any determination to the contrary in any appeal, his Honour proceeded to consider the question of validity of the non-contest clauses on the assumption that they applied to actions asserting liability against the trustee. In doing so, his Honour summarised the applicable principles in the following terms: [71]
"23. The position on the authorities can, I think, be summarised as follows: First, there is no general rule against the validity of conditions discouraging beneficiaries from taking proceedings to contest a Will, although there are some limits on this [Evanturel v Evanturel (1874) LR 6 PC 1; Cooke v Turner (1846) 15 M & W 727; (1846) 153 ER 1044; AN v Barclays Private Bank & Trust (Cayman) Ltd, [54]]. Secondly, however, where there can be seen in a statute conveying a beneficial right to make applications for provisions out of an estate an intention that such jurisdiction cannot be excluded by private arrangement - as, for example, under the testators family maintenance legislation - conditions which are calculated to deter the invocation of that jurisdiction are contrary to public policy and void [Leiberman v Morris (1944) 69 CLR 69; Barns v Barns [2003] HCA 9 ; (2003) 214 CLR 169; In the will of Gaynor [1960] VR 640 at 642-644 (O'Bryan J)]. This rule is based on discerning an (unexpressed) statutory policy against it being possible to contract out of the rights given by the relevant legislation [Leiberman v Morris; Smith v Smith (1986) 161 CLR 217 at 235 (Gibbs CJ, Wilson and Dawson JJ)]. Thirdly, a condition against the taking of any proceedings whatsoever having the effect of preventing any question of administration of a trust or Will, or securing the due administration of the trust or Will by the trustees, is too wide and will be void for ousting the jurisdiction of the Court, although one which merely discourages disputing the validity of the Will or trust will not offend that rule [Permanent Trustee Co v Dougall, 86-87]. Fourthly, a clause in a trust deed may validly exempt the trustee from obligations and liabilities other than those contained in that irreducible core of a trustee's obligation - namely, to act honestly and in good faith. It is not contrary to public policy to exclude a trustee's liability even for gross negligence, but it is to exclude liability for dishonesty or bad faith [Armitage v Nurse [1998] Ch 241 (CA)]
24. There is nothing irreconcilable about the observations of Harvey CJ in Eq in Permanent Trustee Co v Dougall and those of Millet LJ in Armitage v Nurse. The observations of Harvey CJ in Eq were to the effect that a condition against taking any proceedings whatever was too wide, as it would have the effect of preventing beneficiaries from securing due administration without limitation. Armitage v Nurse does not suggest that trustees may be exonerated from all obligations whatsoever, recognising that there is a reducible core of obligation to act honestly and in good faith from which they cannot be exempted."
In Crossman, the Court of Appeal considered the alleged repugnancy of three exoneration clauses. The primary judge had accepted that exemption clauses cannot operate to avoid the core obligations of a trustee, and described those core obligations as including the obligation to pay and transfer trust property to the persons entitled thereto and not to deal with it for personal benefit, the obligation to exercise reasonable care and skill, the obligation to act honestly and in good faith, and the obligation to exercise diligence and prudence in the performance of the trustee's duties and the exercise of the trustee's discretions. [72] Ward JA, as the President of the Court of Appeal then was, observed that not all of those obligations identified by the primary judge fell within:
"307. … what have been described as the 'irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust' (see Armitage v Nurse at 253 per Millett LJ; language adopted in Jacobs' at [1620]). In particular, in Armitage v Nurse, Millett LJ (at 253) expressly rejected the submission that the trustee's core obligations included the duties of skill and care, prudence and diligence (this being one of the obligations that the primary judge appears to have accepted as being a 'core' obligation).
308. In Armitage v Nurse, the minimum necessary to give substance to the trusts was said to be the duty of the trustee to perform the trusts honestly and in good faith (at 253-254). That, and the duty to adhere to the terms of the trust (see Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [32]), can readily be accepted as falling within the 'irreducible core of obligations' of the trustee…"
I accept the submission made on behalf of Ms Fleming that those passages from her Honour's judgment reject the notion that the duty of diligence and prudence forms part of the irreducible core of obligations owed by executors and trustees. Basten and Payne JJA agreed with her Honour.
Contrary to the plaintiffs' submissions, I am unable to discern from the judgments of the High Court in Maguire and Youyang any suggestion that the duty of diligence and prudence might be characterised as part of the irreducible core of obligations from which executors and trustees cannot be exempted. In Maguire, solicitors had breached fiduciary duties owed to their clients by entering into a mortgage between the clients (as mortgagors) and the solicitors (as mortgagee) in the absence of the clients' informed consent to the solicitors' interest in the transaction. In Youyang, trust moneys had been paid otherwise than in accordance with the terms of the trust. Neither of those cases concerned an alleged breach of the duty of diligence and prudence. No exclusion or exoneration clause was in issue. In obiter dicta in Youyang, the High Court referred disapprovingly to a suggestion by the English Court of Appeal and by the New Zealand Court of Appeal that equitable compensation for breach of a trustee's duty of skill and care resembled common law damages, and that there is no reason in principle why common law rules governing causation, remoteness and measure of damages should not be applied by analogy. [73] I do not understand the High Court's disapproval of that notion to speak to the question of the scope of the liabilities from which an executor or trustee may be exonerated by an express clause in the will or deed of settlement.
I am a bound to follow and apply the judgment of the Court of Appeal in Crossman referred to at [255]-[256] above.
For all of those reasons, clause 9 of the will, properly construed, is neither repugnant nor contrary to public policy. The clause is valid and enforceable. If the plaintiffs had established the alleged wilful defaults, it would have been necessary to consider whether clause 9 exempted Ms Fleming from liability to account to the estate for the value lost by reason of such defaults. I would have rejected the plaintiffs' submission that clause 9 does not apply because Ms Fleming did not honestly believe that the steps that she took in selling the motel property and business and in selling the grain, and the terms on which she sold those assets, were appropriate. For all of the reasons explained at [211] to [221] and [225]-[231] above, the evidence does not establish a want of honesty in relation to the sale of the motel, and does not even establish a want of prudence in relation to the sale of the grain.
[14]
Relief from liability under s 85 of the Trustee Act
Ms Fleming's claim for relief under s 85 of the Trustee Act does not arise for consideration.
[15]
Conclusion and orders
For all of the foregoing reasons, the orders of the Court are:
1. Proceedings dismissed.
I am not aware of any reason why the plaintiffs should not be ordered to pay Ms Fleming's costs of the proceedings, but I will hear the parties in relation to costs.
[16]
Endnotes
Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12; [1965] AC 694 at 707 (Viscount Radcliffe, Lords Reid, Evershed, Pearce and Upjohn) (Livingston); Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 (Youyang) at [32] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ); G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.22].
Livingston at 707 (Viscount Radcliffe, Lords Reid, Evershed, Pearce and Upjohn); Juul v Northey [2010] NSWCA 211 (Juul) at [196] (McColl JA, Basten and Campbell JJA agreeing).
Re Charteris [1917] 2 Ch 379 at 388-389 (Swinfen Eady LJ); Re Speight [1883] 22 Ch D 727 at 739-740 and 762 (Jessel MR and Lindley LJ); Austin v Austin (1906) 3 CLR 516 at 525; [1906] HCA 5 (Griffith CJ, Barton and O'Connor JJ).
Youyang at [38]-[40] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ).
Re Atkinson, deceased [1971] VR 612 at 615 (Gillard J); Tschirn v Australian Executor Trustees Limited [2016] SASC 149 at [58]-[59] (Doyle J).
[2016] SASC 149 at [59].
Juul at [196] (McColl JA, Basten and Campbell JJA agreeing).
Re Atkinson, deceased [1971] VR 612 at 615 (Gillard J); Tschirn v Australian Executor Trustees Ltd [2016] SASC 149 at [58]-[59] (Doyle J).
Juul at [197]-[199] (McColl JA, Basten and Campbell JJA agreeing).
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [54]-[76] (Gummow ACJ, Kirby, Hayne and Heydon JJ); Ludwig v Jeffrey (No. 4) (2021) 394 ALR 360; [2021] NSWCA 256 at [82]-[84] (Emmett AJA, Meagher and Brereton JJA agreeing).
Alexander v Perpetual Trustees WA Limited (2004) 216 CLR 109; [2004] HCA 7 at [55] (Gleeson CJ, Gummow and Hayne JJ), approving Ramage v Waclaw (1998) 12 NSWLR 84 at 91-93 (Powell J, as his Honour then was) and the authorities there referred to; J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis) at [23-03]; G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.14]; see also Re Atkinson, deceased [1971] VR 612 at 616-617 (Gillard J); Bird v Bird (No. 4) [2012] NSWSC 648 at [15] and [124] (Rein J); Grace v Grace [2012] NSWSC 976 at [129] (Brereton J, as his Honour then was); Spillane v Hall [2013] NSWSC 229 at [23] (Sackar J).
[2003] NSWSC 1207 at [44].
Ibid at [45].
Re Speight (1883) 22 Ch D 727 at 762-764 (Lindley and Bowen LJ); G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.28]-[12.31].
Juul at [180] (McColl JA, Basten and Campbell JJA agreeing), referring to Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] 1 Ch 515 at 546 (Brightman LJ).
Juul at [181] (McColl JA, Basten and Campbell JJA agreeing), referring to Meehan and Others v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146; [2002] NSWCA 22 (Meehan v Glazier) at [65] (Giles JA, Sheller and Beazley JJA, as Her Excellency then was, agreeing).
Meehan v Glazier at [65]-[66] (Giles JA, Sheller and Beazley JJA agreeing); Juul at [180]-[195] (McColl JA, Basten and Campbell JJA agreeing).
Meehan v Glazier at [13]-[15] (Giles JA, with the concurrence of Sheller JA and Beazley JA, as Her Excellency then was).
Meehan v Glazier at [46] (Giles JA, Sheller and Beazley JJA agreeing); G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.49].
See [64] above.
See [96] below.
See [7] above.
See [63] and [80] above.
See [77] above.
See [5]-[8] above.
See [183] below.
See [64], [72] and [101] above.
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21, especially at [41]-[43] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); Menz v Wagga Wagga Show Society Inc (2020) 103 NSWLR 103; [2020] NSWCA 65 at [108] (Leeming JA, Payne and White JJA agreeing); Lang v The Queen (2023) 413 ALR 389; [2023] HCA 29 at [1]-[19] (Kiefel CJ and Gageler J, as the Chief Justice then was) and [428]-[437] (Jagot J).
See [54]-[56] above.
T143.3-144.20.
See [105]-[141] above.
See [99] above.
See [153] above.
See [149] above.
See [75] above.
See [92]-[93] above.
See [150]-[151] above.
See [20]-[49] above.
See [124] above.
See [150]-[151] above.
See [124] and [150]-[151] above.
See [134] above.
See [160] above.
See [69] above.
See [47] and [196] above.
See [90] above.
See [88] above.
See [92] above.
See [86] and [90] above.
See [88] above. Total actual sale price of $3,314 (excluding GST) at a price of $150 per tonne indicates a volume of approximately 22 tonnes. The shortfall of $250 per tonne therefore amounts to a total shortfall of approximately $5,500.
See [83] above.
See [85] above.
See [83]-[88] above.
See [87]-[88] above.
See [90] above.
See [93]-[94], [186]-[189] and [194] above.
See [40]-[43] above.
See [190]-[191] and [193] above.
Schwanke v Alexakis [2024] NSWCA 118 at [1] (Ward P) and [183]-[224] (Adamson JA).
Fell v Fell (1922) 31 CLR 268 at 273-276; [1922] HCA 55 (Issacs J); Marley v Rawlings [2015] AC 129; [2014] UKSC 2 at [17]-[26] (Lord Neuberger P, Lords Clarke, Sumption and Carnwath agreeing); Farrelly v Phillips (2017) 128 SASR 502; [2017] SASCFC 111 at [23]-[24] (Stanley J, Kourakis CJ agreeing and Nicholson J also agreeing as to the principles of construction at [60]); Wright v Stevens [2018] NSWSC 548 at [177]-[185] (Hallen J) and the authorities there referred to; P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [31.20]-[31.40].
See [47] above.
See the defendant's submissions at [32] above.
Crossman v Sheahan (2016) 115 ACSR 130; [2016] NSWCA 200 at [313] (Ward JA, as her Honour then was, Basten and Payne JJA agreeing).
(1997) 188 CLR 449; [1997] HCA 23 (Maguire).
(2003) 212 CLR 484; [2003] HCA 15 (Youyang).
[1998] Ch 241; [1997] EWCA Civ 1279.
Ibid at 253-254.
[2008] NSWSC 1082 (Leerac).
(2016) 115 ACSR 130; [2016] NSWCA 200 (Crossman).
Leerac at [13]-[21].
Ibid at [23]-[24] (my emphasis).
Crossman at [304]-[305] (my emphasis) (Ward JA, as the President of the NSW Court of Appeal then was).
Youyang at [36]-[40] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ).
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 July 2024
Mr Mason's report described the marketability of the motel as at 22 February 2019 as "good", and described the market as "more buoyant in recent times" and the market direction as "steady to slightly increasing in both sale prices and volumes". Mr Mason estimated the selling period for the motel as between three and six months, assuming proper marketing and a realistic asking price.
Section 18 of Mr Mason's report provided the following more detailed commentary on the state of the market:
"The motel industry remains in a relatively buyout [sic] position in NSW as stable economic growth and general commercial/leisure optimism have led to a steady improvement in the tourist trading conditions, particularly along the South Coast. The positive business outlook has improved market optimism for motels and with low bank interest rates assisting to underpin demand, the favourable economic conditions should continue to influence the market. The demand for well-located coastal motels should remain a popular form of investment to a range of investors, especially those motels and tourist type facilities that offer longer term re-development or expansion opportunities.
This position has been boosted by increasing levels of overseas tourist visitations to regional areas including the South Coast which is reported to be one of the most popular holiday regions in NSW. The domestic tourist industry has stabilised over the last two years with steady growth in visitation and revenue to most motels. The increase of inbound tourists is expected to continue strengthening the non-metro motel industry as regional promotions gain traction from overseas guests.
Relative to the general real estate market in the local area, the most recent 18-24 month period appears to have improved across all property sectors. Agents have been reporting a higher level of leasing demand for both retail and commercial property within the Batemans Bay CBD, with a number of leases having been signed with national retailers, in addition to a number of strong commercial sales taking place within the area. This has been supported by the strong residential market and the overall confidence is reflected in a number of developments that are either underway in the area, such as 'Wharf on Clyde' mixed use strata unit complex and 'Gold Golf Links Drive' apartments. Despite the improving market conditions since the mid-2000s, it would now appear that residential market is showing signs of softening, with fewer enquiries as reported by local agents. This is a result of the weakened Sydney, Canberra and Wollongong markets, reflective of an uncertain lending climate. Whilst agents have reported softened conditions within the residential sector, evidence of this has not yet reached the commercial or development market, however may be expected"
The report stated that Mr Mason's valuation was current for a period of "90 days from the date of valuation, or such earlier date if you become aware of any factors that have any effect on the valuation." The 90-day period expired on about 22 May 2019.
Mr Mason's report made no mention of the sewage drainage problems at the motel property referred to at [54]-[56] above.
Ms Fleming left it to Ms Afflick to show Mr Mason around the motel property for the purpose of his inspection and valuation, and Ms Afflick did not tell him about the problems with the septic system. According to Ms Afflick, Mr Mason did not ask about such issues, and she did not volunteer any information.
After receiving Mr Mason's valuation report on or about 10 April 2019, Ms Fleming conducted two further interviews in May 2019 with real estate agents for potential appointment to act on behalf of the estate in selling the motel property and business. No agent was appointed until October 2019. [21]
As I have already mentioned, this Court granted probate of the will of the deceased on 5 June 2019.
On 12 March 2019, Mr Riches issued his valuation report in respect of the Woodlands property. Mr Riches' estimate of the market value of the property was $995,000, excluding the stockyards and ramp in use on the property, and three steel silos, on the basis that they were chattels. It will be recalled that Ms Afflick and her husband own and farm the adjacent property at 50 Dunns Creek Road. [22]
Ms Fleming had engaged Elders in early June 2019 to conduct the clearing sale of the deceased's chattels, including furniture, farming tools and equipment, painting equipment and sporting goods, at the Woodlands property. The chattels offered for sale included the three silos, which Mr Riches' valuation of the Woodlands property had excluded on the basis that they were chattels, and triticale grain contained in those silos. In her affidavit sworn on 4 August 2022, Ms Fleming deposed that she decided to engage Elders because of their expertise in the agricultural and rural sales market and sector. Ms Fleming considered that Elders were reputable, qualified, experienced and competent sales agents. The plaintiffs did not adduce any evidence impugning Elders' reputation, qualifications, experience or competence for this engagement.
On or about 17 June 2019, Ms Fleming informed the beneficiaries about the clearing sale, which was scheduled for 6 July 2019, and of their right to bid on any items on the basis that they would be able to deduct the purchase price from their share of the final distribution of the estate, rather than paying for the items.
The clearing sale was advertised online and in several local newspapers. Ms Fleming gave evidence that she relied on Elders to undertake the sale diligently, and to "obtain the best price on the day, as is the custom with clearing sales".
In her affidavit sworn on 4 August 2022, Ms Fleming deposed that, from the time of the deceased's death, two of the three silos on the Woodlands property had been empty, and one silo had been partly filled with grain. Ms Fleming had observed during her inspection of the Woodlands property that "grain was only being released from one silo", and that this grain had been affected by weevils. In cross-examination, Ms Fleming explained that this was based on her observation that there was grain on the ground under only one of the three silos. Ms Fleming deposed that the grain remained in that silo until it was sold, and that it was therefore not possible for her to inspect the amount of the grain in that silo that "remained viable for sale" notwithstanding the weevil infestation. In cross-examination, Ms Fleming said that whether the weevil infestation would reduce the price for which the grain could be sold would depend on prospective purchasers' proposed uses for the grain.
Ms Fleming gave evidence that Mr Dhugald McDowell of Elders told her on or about 17 June 2019, during the process of preparing for the clearing sale, that the silo would need to be emptied prior to sale so that the purchaser would be able to collect it on the day of the sale. Mr McDowell said to Ms Fleming that Elders would therefore sell the grain prior to the clearing sale. On 17 June 2019, Ms Afflick sent an email to Ms Fleming informing her of a similar conversation that Ms Afflick had with Mr McDowell:
"I was talking to Dhugald this morning about the grain that is in the silos and he knows a man that might be interested in it weavels and all Pre sale, So it is more appealing as a buyer of the silos. Are you happy with this?"
Shortly before the clearing sale, Elders sold the deceased's triticale grain in two lots. Lot 1 was sold to Mr Wayne Williams for $2,068 including GST and Lot 2 was sold to Lakeview Pty Ltd for $1,577.40 including GST. It is common ground that the grain was sold at a price of $150 per tonne. In cross-examination, Ms Fleming gave evidence that she relied on Elders to "deal with" the clearing sale and get all items removed from the Woodlands property. When asked whether she relied on Elders to decide the price for which items were to be sold, and the purchasers to whom they were to be sold, Ms Fleming answered affirmatively, saying that she assumed that Elders would do their best to get the highest price because they were working on commission. In the case of the grain sale, Ms Fleming said that it was equally important to empty the silo in advance of the clearing sale so that the silo could be sold and removed by the purchaser on the day of the sale. Ms Fleming gave evidence that this was important because people come "from far and wide" to a clearing sale, and they want to be able to organise transport for the items they purchase on the same day that they purchase them. All three silos were in fact removed from the Woodlands property on the day of the clearing sale.
On 20 June 2019, Ms Turnbull wrote to Ms Fleming in the following terms:
"It is my understanding that my late father had a considerable amount of grain stored at his property at Dunns Creek Rd. I was wondering what happened to this grain & I have since found out that this grain was sold for $150.00 per tonne.
I am a partner in the largest rural supply business in the area, this business regularly buys & sells bulk gain. My sister July [sic] & her husband own one of the biggest cropping property's at Rankin Springs. We both find it astounding that you did not think to consult us before selling this grain.
My husband Robert & Julys [sic] husband Peter, both with over thirty years' experience in selling & assessing grain both inspected a large sample of this grain & both found it to be in excellent condition apart from some slight weevil damage.
I have customers who have been paying well over $500 per tonne for grain for the last six months who would have jumped at the chance to buy this grain for a minimum of $400 per tonne. I had the contacts, the means & equipment to dispose of this grain for the maximum benefit of the estate. Yet you chose to ignore our expertise & sell this grain for $150 per tonne.
July [sic] & Peter are currently heavily affected buy [sic] the current drought & are desperate for feed for livestock. They also would have jumped at the chance to purchase this grain.
I do not know who is advising you, but your arrogance & failure to consult with all the beneficiaries of my late fathers' estate has cost us considerable money.
As executor & trustee of my late father's estate you have complete control over the dispersal of that estate. You also have a legal obligation to gain the maximum benefit possible from this estate for all the beneficiaries of this estate. You will be held accountable for any failure to meet this legal obligation.
My advice to you is, start talking to us."
Ms Turnbull and her husband, Mr Robert Turnbull, operate a business known as Turnbull's Fuel & Produce. According to Mr Turnbull's evidence, Turnbull's Fuel & Produce was one of the largest grain suppliers in the Eurobodalla Shire in mid-2019. Triticale grain was unavailable in that area in mid-2019 due to drought conditions experienced since about 2017. Turnbull's Fuel & Produce was purchasing barley as a substitute for triticale grain, which it was on-selling to customers at a price of about $400 per tonne (excluding GST and haulage costs). Triticale grain was preferred to barley as a livestock food because it is more dense in carbohydrates and protein. Mr Turnbull gave evidence, which was not challenged in cross-examination, that he would have had no difficulty finding a buyer for triticale grain in mid-2019 for at least $400 per tonne (excluding GST). Mr Turnbull did not inspect the grain in the silos on the Woodlands property, but gave evidence that he did inspect some grain from those silos that had been delivered to one of his customers, and some grain left in a few buckets on the Woodlands property on the day of the clearing sale. Mr Turnbull described the grain that he inspected as having been treated for slight weevil damage. Ms Turnbull gave evidence that the grain had been chemically treated for weevils a few years prior to the clearing sale. It is not clear whether Mr Turnbull's opinions about the ease with which he could have found a buyer for triticale grain, and the price for which he could have sold such grain, in mid-2019, applies to triticale grain that been treated for weevil damage. Mr Turnbull's opinions were admitted into evidence without objection.
I assume that, where Ms Turnbull refers to "July" in her 20 June 2019 letter to Ms Fleming, she means to refer to Ms Julieann Groat. There is no evidence that Ms Groat "jumped" at that chance to purchase the grain at any time after Ms Turnbull says that Ms Groat's husband inspected a sample of the grain, or after becoming aware of the clearance sale through EFA's letter to her solicitors dated 17 June 2019. Ms Groat did not give evidence of any inspection of the grain conducted by her husband, who was not called to give evidence at all.
Ultimately, 204 lots of chattels were sold at the clearance sale at the Woodlands property on 6 July 2019, raising a total sum of $196,149 (excluding GST). Lots 1 and 2 comprised the triticale grain, which had been sold prior to the clearance sale as explained above. Lots 196 and 197 comprised the three silos, which were sold for a total sum of $14,600. Lots 198, 199 and 200 comprised the deceased's ewes, lambs, and alpaca, which were sold to Ms Afflick.
From at least 1 August 2019, Ms Fleming was making arrangements to sell the Moruya and Woodlands properties, including liaising with the beneficiaries throughout August and September 2019 in relation to Mr Brooks' offer to purchase the Moruya property for the valuation price and competing offers from Ms Afflick and Ms Turnbull to purchase the Woodlands property. Ms Turnbull ultimately made the highest bid for the Woodlands property at $1,370,000 on 1 October 2019 - considerably more than the $995,000 valuation. Ms Fleming accepted Ms Turnbull's bid after Ms Afflick indicated that she would not make a higher offer.
Throughout the bidding process for the Woodlands property, Ms Afflick continued to manage the motel business with the assistance of Ms Bell, reporting to Ms Fleming. The sewage problems persisted, and were the subject of various telephone conferences between Ms Fleming and Ms Afflick, including on 9 September 2019.
In about early October 2019, Ms Afflick and Ms Bell told Ms Fleming that they intended to resign from their management positions in the motel business. They told Ms Fleming that they wished to spend Christmas with their respective families, rather than working at the motel, for the first time in many years. Ms Fleming attempted to arrange replacement managers, but was unable to find anyone who was available during the forthcoming Christmas period. Ms Fleming was anxious to persuade Ms Afflick and Ms Bell to stay because she considered that, without replacement managers, she would need to close the motel during the busy Christmas and summer peak period, which would result in loss of revenue. Ms Fleming ultimately persuaded Ms Afflick and Ms Bell to stay on until the sale of the motel was completed, on the basis of her assurances to Ms Afflick and Ms Bell that a sale was imminent.
On 8 October 2019, Ms Fleming conducted further interviews with real estate agents and brokers as candidates to act for the estate in selling the motel property and business. Ms Fleming chose to engage Mr Russell Rogers of Resort Brokers Australia Pty Ltd (Resort Brokers) because she considered him to be reputable, qualified, experienced and competent to broker the sale of the motel property and business, he had 10 years experience in the motel and caravan sector and specialist knowledge of the local area where he had several other properties listed for sale, and he was available to show prospective purchasers through the motel property. The plaintiffs did not adduce any evidence challenging or impugning Mr Rogers' reputation, qualifications, experience or competence to act as the selling agent for the motel property and business.
Ms Fleming signed the agency agreement with Resort Brokers on 14 October 2019, appointing them as her agents for the sale of the motel property and business on an expressions of interest basis. The agreement stated:
"Agent's opinion as to current estimated selling price (or price range) (including GST, if any) $3,000,000 - $3,300,000 (this opinion is not to be construed as a valuation)"
The agent's appointment was exclusive for a period of three months from 10 October 2019 to 10 January 2020, and the agent's fee was 4.4 per cent of the sale price (including GST).
There is no evidence explaining the delay of approximately four months between the grant of probate on 5 June 2019, and Ms Fleming's appointment of the selling agent for the motel property and business in October 2019. As I have mentioned earlier in these reasons, Ms Fleming had commenced interviewing prospective agents as early as February 2019. [23] In cross-examination, Ms Fleming said that she thought that Mr Rogers was "clutching at straws" when he expressed the opinion recorded in the agency agreement that the estimated selling price range for the motel was between $3,000,000 and $3,300,000. Ms Fleming denied that she was sceptical of Mr Rogers' advice, and denied that she dismissed his advice, but said that she regarded it simply as "somebody else's interpretation of what the motel is worth". I do not accept Ms Fleming's denial that she was dismissive or sceptical of Mr Rogers' opinion about the estimated selling price of the motel. It is both dismissive and sceptical to describe that opinion as "clutching at straws". Ms Fleming did not have any other "interpretation" available to guide her about the value or selling price of the motel property and business. By October 2019, Mr Mason's valuation was no longer current. [24] According to her evidence in cross-examination, Ms Fleming did not turn her mind to that, and did not consider requesting Mr Mason to update his valuation.
On the same day as signing the agency agreement, Ms Fleming provided Mr Rogers with contact details for the Secretary of the Club Catalina, which Ms Fleming knew was interested in considering purchasing the motel. Ms Fleming also authorised Mr Rogers to contact Ms Elliott to obtain the financial statements for the motel business and to contact Ms Afflick to arrange marketing photography and any other information that he required in relation to the motel.
The financial statements provided to Mr Rogers included the financial statements for the motel business for the 2019 financial year, which had not been completed at the time of Mr Mason's valuation. Those financial statements recorded revenue of $592,822 and net profit of $122,141. The "Financials" page of the information memorandum that Mr Rogers prepared for the motel property and business recorded the net profit of the business for the 2019 financial year as $310,590 - an increase of $188,449 from the net profit recorded in the financial statements for the 2019 financial year. The "add-backs" that Mr Rogers applied in order to more than double the net profit from $122,141 to $310,590 were recorded in a separate page entitled "Add-backs - Calculations Sheets".
The information memorandum described the motel having been "constantly maintained to a very high standard" and as being in good condition, affording an incoming purchaser a choice of leaving the motel in its current state or refurbishing to "take it to the next level". The motel was marketed as a business that would benefit from a "hands-on operator", and as offering prospective purchasers and operators "a great lifestyle with upside potential". The evidence does not disclose whether prospective purchasers were informed about, or otherwise became aware of, the sewerage problems in the course of the marketing campaign. Indeed, it is not clear whether Mr Rogers was aware of those problems, and he was not called to give evidence in these proceedings.
Ms Fleming reviewed and approved the information memorandum before it was published on Resort Brokers' website on 18 October 2019.
Ms Afflick sent an email to Ms Fleming that same day formally resigning as manager of the motel. According to her contemporaneous time records, Ms Fleming then went back to the drawing board in order to try to find new people to run the motel.
Ms Fleming sent an email to Mr Rogers at 5:04pm that afternoon requesting him to:
"…please forward me your plan for the matter from now to anticipated settlement (say Friday 20 December)."
Mr Rogers responded at 5:12pm:
"I will get back to you with how I plan to get the property under contract with settlement for 20th Dec, Look forward to discussing on Monday & tweak if need be"
It was put to Ms Fleming in cross-examination that she had requested a plan to achieve sale and settlement by 20 December 2019 because that was the last day before EFA's office closed for the Christmas break. Ms Fleming denied that this was the reason, and said that the time frame for the sale process was driven by the fact that the managers had resigned. I accept this aspect of Ms Fleming's evidence. It is consistent with the objective facts that Ms Fleming signed an agency agreement on 14 October 2019 granting Mr Rogers an exclusive agency for a period of three months, and her requirement for a sale to be completed by 20 December 2019 was first communicated to Mr Rogers after Ms Afflick had confirmed her resignation, having earlier explained to Ms Fleming that she wished to spend Christmas with her family.
On the morning of 21 October 2019, Mr Rogers sent an email to Ms Fleming, stating:
"With the listing for Hanging Rock, we now have it up on our website and all the associated websites that head office use. We have emailed 75 prospective buyers with the property information and have also had 20 enquiries over the weekend. We will now email all agents in our company that we have this amazing new listing. As we do a massive amount of conjunctions within our company, We will also be emailing Eshots out to our data base. We also target the people who have enquired within our company on similar properties, Also our developers on our data base that we think would have in interest especially our Canberra Guys. The other thing we are organising is an add in the Town & country section & the local classifieds in the Bay."
I infer that Mr Rogers' 21 October 2019 email constituted his plan to get the motel property and business under contract with settlement occurring on 20 December 2019, as there is no evidence of any other such plan.
Mr Rogers sent a further email to Ms Fleming on the afternoon of 21 October 2019 advising that they would require an asbestos register and a current fire safety statement.
On 22 October 2019, Mr Rogers sought Ms Fleming's feedback on a draft of the advertisement to be placed in the Town & Country section of the Batemans Bay Post that had been foreshadowed in his 21 October 2019 email. Ms Fleming gave evidence that the motel property and business were advertised for sale on domain.com, in local newspapers, and in the Town & Country section of all south east coast newspapers and in Canberra.
On 23 October 2019 at 11:56 am, Mr Rogers sent an email to Ms Fleming advising that:
"…I have a verbal offer of $2.2 m from David MacLachlan from Batemans Bay. He is the fellow I think I told you about who did up both Lincoln Downs and the Quays motel and on sold them. Nice to have something on the table!"
Ms Fleming responded at 12:03 pm:
"Thank you. It's a start."
Mr Rogers replied at 6:21 am on 24 October 2019:
"Yes certainly is a good start from a genuine buyer. I am taking him through at 11.30 today"
On 24 October 2019 at 5:00 pm, Mr Rogers sent an email to Ms Fleming inquiring about the property boundaries of the motel.
"Please find attached six maps aerial photo.
We are just a little concerned about where the boundary might go.
Have you any documentation confirming there is no encroachments.
As you can see by the aerial it appears the BBQ area may be encroaching.
It also appears the sign at the front may be off title also."
Mr Rogers sent a further email to Ms Fleming at 12:41 pm on 25 October 2019, referring to a discussion between them earlier that day and stating:
"Great to understand more about the encroachment.
I have had a long chat to David MacLachlan this morning.
He has asked we come back to him with a counter offer on his $2.2 million.
I feel strongly that he is the best buyer so far.
He has bought 1 property from me already & and I have sold him out of 2 properties.
As we have some issues with encroachment, asbestos & general work needing to be done.
He is the sort of person that will likely not muck us around.
Even if we get another buyer or the Club I feel we will have surveyors, valuers, building inspectors all likely to slow down the sale & drag it on to the new year.
If we can get him to a price every body is happy with I feel he is likely our buyer"
The evidence does not shed any light on what, if any, information Ms Fleming was able to provide to Mr Rogers in order for him to "understand more about the encroachment". In cross-examination, Ms Fleming acknowledged that she did not have, and did not obtain, a survey plan for the motel property. Ms Fleming nevertheless asserted that she knew that there were encroachments because "I'd done my own investigations" and "I know the property", and "I could see from SIX Maps and Google Maps exactly where the problem was". Ms Fleming is not a surveyor.
On 25 October 2019, Ms Fleming approved an advertisement prepared by Resort Brokers to be placed in a publication known as "Informer".
On 25 October 2019, Mr Rogers reported to Ms Fleming on his discussions with Club Catalina concerning their potential interest in the motel:
"Spoke to Guy Chapman from the club.
They are thinking no more than 2 mill for the Motel
Made it clear it will be over 2 mill !
I expect to know more next week,
Clearly cannot move quickly, as the next step for them if they were interested, would be to employ a consultant to do a study & report from them.
Unlikely they will be our buyers."
On 28 October 2019, Ms Fleming discussed various issues concerning the motel, including possible relief managers, with Ms Afflick.
On 28 October 2019, Mr Rogers chased Ms Fleming for her instructions concerning the preparation of an asbestos register for the motel property, and for her instructions concerning the response to Mr MacLachlan's offer of $2,200,000.
"…Would you like me to get a proper quote from him with his licence details? Have you thought about an answer for David Maclachlan with his $2.2 million offer?..."
Ms Fleming replied to Mr Rogers by email on 29 October 2019, instructing him to proceed to engage his suggested contractor to prepare the asbestos register. In relation to Mr MacLachlan's offer, Ms Fleming stated:
"In relation to David I suggest that we should attempt to get a bit more out of him. The beneficiaries would not be happy with that offer. He may say that is all there is…if that is the case we could go back to him. Sonya tells me that Bernie Basevie (not sure on spelling) is still very interested. That may be worth a phone call."
Mr Rogers responded later that morning confirming that he would proceed with the asbestos register, and stating:
"I have been talking constantly to Bernie Basevi since we went live with the property.
He is working hard with the bank & finance brokers to see what he can do.
He is very interested, used to own the Braidwood Colonial motel.
David I will go back to & see if he will give us a better offer."
On 29 October 2019, Cappello Rowe Lawyers, who were acting for Ms Groat, wrote to EFA noting that Ms Groat was "of the opinion that the communication between the executrix and beneficiaries is unacceptably inadequate". The letter asked what steps had been taken to market the motel, and whether the beneficiaries would be consulted "as regards any prospective interest in the motel and be given the opportunity to also bid on this property/business". In her affidavit affirmed on 15 September 2022, Ms Groat deposed that she instructed her solicitors to send that letter after she saw an advertisement for the sale of the motel in October 2019, which she did not consider depicted the best features of the motel. In that affidavit, Ms Groat deposed that "I was prepared to buy it, rather than see it sold below market". Ms Groat also deposed that, if she had known of the proposed sale price of $2,550,000, "my husband and I would have been prepared to pay at least as much as the contract price" and "I would have instructed my solicitor to take whatever steps were legally possible to prevent this sale".
There is a tension between Ms Groat's evidence that she and her husband would have purchased the motel, on the one hand, and her evidence that she would have taken legal advice about preventing the sale to Mr MacLachlan, on the other hand. To the extent that Ms Groat's affidavit suggests that she was ready, willing and able to purchase the motel in October 2019, that is inconsistent with her evidence in the same affidavit that, although she contacted Mr Rogers at the time and asked how much the motel was selling for, she did not then communicate to Mr Rogers any interest in purchasing the motel, and she did not ever make any offer to purchase the motel.
These inconsistences are compounded by Ms Groat's evidence in cross-examination, when Ms Groat emphasised that she was not interested in buying the motel at that time, but that, if she had been told that the motel was to be sold for a price less than its probate value, "we would have stopped the sale and had a think about it or else we would have gone in and discussed managing it". Ms Groat did not shed any light on what might have come from having "a think about it".
It is not clear how Ms Groat would have been able to satisfactorily manage the motel. Ms Groat asserted that she and her husband were prepared to relocate to Batemans Bay to manage the motel until a permanent manager could be engaged and trained, leaving their son and daughter-in-law to manage alone the farm that the four of them had been working together. However, according to Ms Groat's own evidence, she had not worked at the motel since 1986 - 32 years prior to the death of the deceased. Ms Groat had helped with the running of the motel after she first left school at age 15 from about 1977 to about 1980, and she had managed the motel for a period of about three years from about 1983 until 1986.
Ms Turnbull also gave evidence that she would have offered to assist in managing the motel if she had known that Ms Afflick and Ms Bell had resigned. Ms Turnbull deposed that she would have been "quite happy" to manage the motel for a year or more, leaving Mr Turnbull to manage Turnbull's Fuel & Produce alone. Ms Turnbull deposed that Mr Turnbull would have been content with this arrangement. However, there is no evidence about whether Ms Turnbull had the requisite experience and skills to manage the motel from late 2019. Ms Turnbull deposed that she had managed the motel "earlier in my life", but she did not identify when or for how long she had done so. As I have said earlier in these reasons, Ms Afflick had been managing the motel since 1997. I therefore infer that Ms Turnbull had no experience in managing the motel business for at least 20 years prior to the death of the deceased.
All of the beneficiaries knew that the deceased's assets included the motel property and business. I infer that the beneficiaries understood from the terms of the will that the motel property and business would need to be sold in order for the deceased's estate to be distributed to them in accordance with the will. [25] The sale of the motel was advertised. Ms Groat saw the advertisement in October 2019, and gave evidence in cross-examination that she probably told her siblings that the motel was being advertised for sale at that time. Ms Groat was not interested in purchasing the motel, as I have explained above. Ms Turnbull confirmed in cross-examination that she had not made any offer to purchase the motel. There is no evidence that any other beneficiary expressed any interest in purchasing the motel property and business.
On 31 October 2019, Mr Rogers reported to Ms Fleming:
"I have spoken to David & he will not increase his offer from $2.2 mill at this stage.
Really wants a number from us to get the ball rolling.
Bernie Basevi had the broker say no.
I have referred him to our specialist Motel finance broker as ordinary brokers do not understand our industry & do not deal direct with the bankers who specialise in funding motels.
Have you organised the fire safety statement?
Do you need any help with that?
I am working hard with all our other buyers to see if we can get another player!"
Mr Rogers sent a further update to Ms Fleming on 1 November 2019:
"I spoke to Guy Chapman yesterday from the Golf Club.
They had a directors meeting yesterday & seem to be still interested in Hanging Rock.
Guy asked to see a copy of the valuation that has been done.
I think that would be fine at this stage as it demonstrates where the market price is."
Ms Fleming's office emailed a copy of Mr Mason's valuation report to Mr Rogers later that day.
On 3 November 2019, Mr Rogers sent an email to Ms Fleming stating:
"I have another inspection pencilled in for the 9th Nov with another Indian. All the people we are sending out info to appear to be slow moving might buy types. I would like if possible to now use the valuation to sell off. Supply the valuation to the genuine qualified buyers. I always like to use a valuation when the time is right as it demonstrates true market value. Not just a figure our vendor is hoping for! May be an idea to also put a price or price range."
On 4 November 2019, Ms Afflick informed Ms Fleming that she had found people to step in as relief managers of the motel until a sale could be completed.
The deceased's daughter, Ms Tanya Brooks, sent an email to Ms Fleming on 4 November 2019 asking "when [do] you anticipate the finalisation of dads estate".
Ms Fleming replied:
"I intend to write to all beneficiaries of the estate this week to advise them exactly the estate is up to & when a distribution is likely."
There is no evidence that any such update letter was sent to the beneficiaries during that week or, indeed, at any time prior to 31 January 2020. [26]
On 4 November 2019, Ms Fleming and Mr Rogers discussed the strategy for the sale of the motel, Mr MacLachlan's offer of $2,200,000, and the valuation of $2,825,000. They agreed that Mr Rogers would provide a copy of Mr Mason's valuation report to Mr MacLachlan and ask him to make his best offer. Mr Rogers advised Ms Fleming that Mr MacLachlan was able to move quickly and that there "would be no mucking around WIWO".
On 6 November 2019, Mr Rogers advised Ms Fleming by email that:
"I have been talking to David MacLachlan this afternoon and I have been able to get a verbal offer for $2.5M with a settlement on or before the 20th of Dec.
On 7 November 2019, Mr Rogers advised Ms Fleming by email at 11:42 am that Mr MacLachlan had increased his offer to $2,550,000. Mr Rogers attached to his email a Heads of Agreement for the sale of the motel to Mr MacLachlan. Ms Fleming replied at 1:15pm that day:
"Thank you Russell. Very good work.
I have attached the Agreement signed by me & look forward to confirmation that you receive an identical Agreement signed by David."
Mr MacLachlan signed the Heads of Agreement on 8 November 2019 and paid a deposit of $5,000. The Heads of Agreement recorded the purchase price of $2,550,000 and settlement date of 20 December 2019. The "Special Conditions" section of the Heads of Agreement provided:
"This offer is conditional upon;
1) Vendor will provide full details of any service agreement in place (e.g. referral groups, sign rental, utility agreements)
2) An exchange of contracts in the form acceptable to both parties as soon as possible
3) In the event that the contact [sic] is not exchanged all monies paid by the Purchaser shall be refunded
4) No formal legal relations are created between the parties upon the signing of this Heads of Agreement and the parties acknowledge and agree that legal relations will on [sic] be created upon signing and exchange of contracts for sale
5) The vendor agrees to allow the purchaser an exclusive period of 30 days from the date of this agreement to get contracts exchanged unconditionally"
Special conditions 2, 3, 4 and 5 were consistent with Resort Brokers' standard form of Heads of Agreement which Ms Fleming had reviewed shortly after engaging Resort Brokers.
The plaintiffs tendered a valuation report of Mr Darren Austin, who estimated the market value of the motel property and business as a going concern as at 7 November 2019 as $2,950,000. Mr Austin's report states that he arrived at this valuation using the capitalised net profit methodology, checked against a value said to be derived from a direct comparison of the room rate reflected in sales of other motel and resort properties.
Mr Austin had available to him the financial statements for the motel business for the 2019 financial year which, as I have mentioned above, recorded revenue of $592,822 and net profit of $122,141. After "add-backs", Mr Austin reduced the expenses of the motel business from $472,853 to $303,980.29, resulting in an adjusted net operating profit of $286,019 - an increase of $163,878 from the net profit of $122,141 recorded in the financial statements for the 2019 financial year.
Most of Mr Austin's "add-backs" related to wages, which Mr Austin reduced by more than half from $176,824 to $82,782, with corresponding reductions to superannuation. The report does not disclose any basis for characterising the wages that Mr Austin "added back" as wages payable to an owner. Mr Austin's report expressly stated that he had not had the benefit of discussions with the operator, or the operator's accountant, and that he had "had to accept to some degree adjustments made by the previous valuer and the selling broker in adjusting the figures to find the true trading position". However, it is not clear how Mr Austin was able to accept, or form any view about, any specific "add-backs" made by Mr Mason. Mr Mason's report did not itemise the "add-backs" totalling $114,129. Mr Austin's report does not discuss which of the broker's "add-backs" he accepted. A comparison between Mr Austin's report and Mr Rogers' "Add-backs Calculations Sheets" document discloses that the categories of costs added back by Mr Rogers and Mr Austin do not wholly align and, to the extent that they do align, the amounts added back by Mr Rogers differ from the amounts added back by Mr Austin, with the exception of three categories - hire purchase charges, legal fees and travelling expenses - which collectively account for approximately 5 per cent of the total sum added back by Mr Austin. In cross-examination, Mr Austin gave evidence that brokers and valuers did not necessarily agree on "add-backs", and that brokers were probably more aggressive than valuers in "adding back" costs because they wanted to achieve a higher sale price. Mr Rogers' "add-backs" were indeed more aggressive than Mr Mason's "add-backs". Mr Austin's add-backs, whilst not quite as aggressive as those made by Mr Rogers, were also more aggressive than those made by Mr Mason. [27] As I have said, Mr Austin's report does not disclose the reasons underpinning each of his "add-backs".
For the purpose of the capitalised net profit methodology, Mr Austin applied a capitalisation rate of 9.75 per cent to his adjusted net operating profit of $286,019. For the purpose of the direct comparison methodology, Mr Austin applied a room rate of $110,000. Mr Austin described both the 9.75 per cent capitalisation rate and the $110,000 room rate as having been "gleaned from analysis of the known sales evidence at the time".That "known sales evidence" comprised ten sales during the period from September 2017 to October 2019 in diverse locations throughout New South Wales, ranging from the north coast (Lismore, Coffs Harbour, and Newcastle), to inland locations (Bathurst, Mittagong, and Cooma), to the south coast (Wollongong, Jamberoo, Mollymook, and Batemans Bay). In cross-examination, Mr Austin acknowledged that the market for motels in Wollongong, Newcastle, Cooma and Bathurst is very different to the market in Batemans Bay where the motel property and business are located. These market differences were not acknowledged or addressed in Mr Austin's report.
As Mr Austin acknowledged in cross-examination, his report does not explain how he arrived at a capitalisation rate of 9.75 per cent or a room rate of $110,000 based on those ten sales, which indicated yields of between 6.5 per cent and 16.7 per cent, and room rates of between $76,750 and $346,000. The two sales that indicated yields closest to the 9.75 per cent adopted by Mr Austin for the subject motel were: (1) a 43 room resort in Jamberoo with annual revenue of $825,000 and net operating profit of $405,825 that sold for $4,400,000 in September 2017, indicating a yield of 9.22 per cent and a room rate of $102,000; and (2) a 26 room motel in Batemans Bay with an annual revenue of $1,073,000 and net operating profit of $496,000 which sold for $4,814,000, indicating a yield of 10.3 per cent and a room rate of $185,000. The two sales that indicated room rates closest to the $110,000 adopted by Mr Austin for the subject motel were: (1) the 43 room resort in Jamberoo to which I have already referred, the sale price for which indicated a room rate of $102,000; and (2) a 34 room motel in Newcastle with an annual revenue of $735,000 and net operating profit of $402,000, which sold in December 2018 for $3,700,000, indicating a room rate of $109,000 and a yield of 10.9 per cent. Mr Austin described each of these three motels as superior to the subject motel. The report contains no information about how Mr Austin "gleaned" his yield of 9.75 per cent and his room rate of $110,000 for the subject motel from those three sales, or any of the other sales referred to in his report.
Mr Austin estimated the market value of the motel property and business at $2,950,000 based on his adjusted net profit figure of $286,019 and the capitalisation rate that he adopted of 9.75 per cent. That estimate carries no weight in the absence of any explanation of the reasons underpinning Mr Austin's adjusted net profit figure of $286,019 and in the absence of any explanation of his reasons for adopting a yield rate of 9.75 per cent. Mr Austin's evidence therefore does not provide a sufficient basis for the Court to make any finding on the balance of probabilities about the value of the motel property and business as a going concern as at 7 November 2019 (being the date of the Heads of Agreement), and as at 6 December 2019 (being the date on which contracts were exchanged). If objection had been taken to the admissibility of Mr Austin's report, I would have rejected it on the basis that his opinions expressed therein were not supported by reasoning sufficient to demonstrate that the opinions are the product of the application of his specialised knowledge as a valuer to the observed and assumed facts and data referred to in his report. [28]
Even if Mr Austin's opinions had been supported by reasons demonstrating a connection between the opinions and his specialised knowledge, there would have been a further reason why his report did not provide a sufficient basis for the Court to determine the value of the motel property and business as a going concern at the relevant times in November and December 2019. Mr Austin was not provided with any information about the sewerage and drainage problems at the motel which caused motel rooms to be flooded with sewage from time to time. [29] In cross-examination, Mr Austin said that prospective purchasers would certainly take that matter into account in deciding whether to make an offer for the motel and, if so, at what price. Mr Austin said that it was beyond his expertise to quantify the effect of that matter on the market value of the motel, without information about the cost of the work necessary to rectify the problem.
On 11 November 2019, Ms Fleming signed a letter from EFA replying to Cappello Rowe's letter of 29 October 2019. In relation to the motel, the letter stated:
"1. The motel is currently being advertised on an 'expressions of interest basis', the period for potential purchasers to express interest is still open. The broker responsible for marketing the property is Russell Rogers of Resort Brokers (resortbrokers.com.au).
2. There has been considerable interest in the motel."
In cross-examination, Ms Fleming agreed that she had endorsed the contents of the letter before signing it on behalf of EFA.
The letter endorsed and signed by Ms Fleming was misleading, in that it failed to mention that Ms Fleming had signed the Heads of Agreement for the sale of the motel to Mr MacLachlan for the price of $2,550,000. In cross-examination, Ms Fleming denied that she had intentionally concealed this information from the beneficiaries. She denied that she was concerned at this time about how she had handled the sale of the motel, and that she withheld information about the Heads of Agreement and the price because she wanted the sale to be completed before revealing it to the beneficiaries as a fait accompli. However, Ms Fleming did not offer any explanation for her failure to inform Cappello Rowe of the Heads of Agreement and sale price, both of which must have been fresh in her mind when she signed the 11 November 2019 letter, other than to point to the possibility that the letter might have been drafted prior to 7 November 2019. This possibility does not explain Ms Fleming's failure to update the letter when she reviewed it, endorsed its contents, and signed it on 11 November 2019. I find that Ms Fleming did intentionally withhold information about the Heads of Agreement from Cappello Rowe because, as the cross-examiner put to her, she preferred not to disclose to the beneficiaries that she had entered into the Heads of Agreement which effectively precluded her from entertaining any other offer for a period of 30 days, during which Mr MacLachlan was at liberty to decide whether or not he would proceed to exchange contracts at a price of $2,550,000, which was less than the value of the motel property and business according to the inventory submitted by Ms Fleming with her application for probate.
On 13 November 2019, Mr Rogers forwarded to Ms Fleming the asbestos register that had been prepared for the motel, together with supporting photographs. The report identified certain asbestos items at the motel, all of which were coated and in good condition and were located were in inaccessible areas. Ms Fleming replied to Mr Rogers, stating: "I think it is a pretty good report really".
On 26 November 2019, Boom Lawyers, the solicitors for Ms Turnbull, wrote to EFA requesting an update in relation to the motel:
"Our client enquires as to the progress and possible sale of the motel. Has any price been agreed upon? Has there been any exchange of Contracts?"
There is no evidence that EFA responded to that inquiry.
On 2 December 2019, Mr Rogers sent an email to Ms Fleming informing her that Mr MacLachlan was delaying the exchange of contracts for the sale of the motel:
"Just a quick email to confirm your instructions as David MacLachlan is now not doing what he inferred he would re fast exchange etc.
Also insisting on some sort of approval for the sign outside the property boundary!
I will now go back to my buyers to say this property looks like it may not proceed with our current buyer.
Ask them would they like to inspect and or look at a contract?
Look forward to your confirmation on the above."
Ms Fleming replied:
"I suggest that you contact the other prospective purchasers & simply ask them if they are still interested in an inspection on the basis that exchange has not occurred yet.
I do not consider that we can provide them with a contract until next Monday (to allow the exclusion period to elapse)"
Mr Rogers responded:
"I will take your good advice.
Hopefully common sense will prevail & David will realise WIWO is with the sign as is, as we all agreed on the day of inspection."
On 4 December 2019, Mr Rogers informed Ms Fleming that Mr MacLachlan had confirmed that he was definitely proceeding with the purchase of the motel property and business. Contracts were exchanged on 6 December 2019.
In her affidavit sworn on 4 August 2022, Ms Fleming deposed that the price of $2,550,000 paid by Mr MacLachlan appeared to her to be the best price available for the motel property and business in November and December 2019, and that the other parties who had expressed interest were discussing land value only with a view to demolishing the motel and redeveloping the land. Ms Fleming understood that the prices contemplated by those other parties were considerably lower than Mr MacLachlan's offer of $2,550,000. Ms Fleming deposed that she considered that she was acting in the best interests of all beneficiaries by accepting Mr MacLachlan's offer and exchanging contracts for the sale of the motel property and business for a total price of $2,550,000. In paragraph 75 of her affidavit sworn on 4 August 2022, Ms Fleming deposed that the factors that she considered in deciding to exchange contracts at that price on 6 December 2019 included the following:
"75.1 The property had gone to market and the market had indicated what the value of the property was at the time of the sale;
75.2 Mr Rogers was a reputable, qualified, experienced and competent agent to sell the Motel Property and Motel Business;
75.3 Mr Rogers had undertaken appropriate efforts to market and sell the Motel Property and Motel Business;
75.4 Mr Rogers recommended that I accept the sale price for the Motel Property and Motel Business of $2,500,000 in total. I relied on Mr Rogers' skill and experience as an agent to sell the Motel Property and Motel Business and advise on the market price;
75.5 Mr Rogers was appointed to act on commission. I believed Mr Rogers acted to maximise the sale price achieved of the Motel Property and Motel Business at the time;
75.6 a motel is a reasonably specialised property and business to purchase, meaning that there are not many willing and able purchasers available. There were several other similar businesses for sale in the Bateman's Bay area at the time;
75.7 the regional area of Bateman's Bay where the Motel Property and Motel Business are located means there are not many willing and able purchasers available;
75.8 the Motel Property and Motel Business were advertised in spring, as the tourist business in Bateman's Bay was leading up to its peak season of summer. I considered that this was a favourable time to sell, when a beachside Motel would be most attractive to a potential purchaser;
75.9 the Opteon valuation;
…
75.11 the issues with the Motel Property and Motel Business … which were not taken into account in the Opteon valuation;
75.12 my role to secure the assets of the Estate, sell the assets as appropriate and ultimately distribute the proceeds of sale to the beneficiaries pursuant to the Will;
75.13 I considered the best interests of the beneficiaries;
75.14 I was mindful to arrange the prompt sale of the Motel Property and Motel Business however I was not an anxious seller;
75.15 the manager and weekend manager of the Motel Business had informed me of their intentions to resign, effective in mid-December 2019. I considered that if the Motel Business was not sold shortly, new managers were required and it would not likely perform as well financially with newly employed managers during the peak season;"
Paragraph 75 of Ms Fleming's affidavit is not based on any contemporaneous note made by Ms Fleming of the matters that she took into account in deciding to exchange contracts to sell the motel property and business for $2,550,000. Ms Fleming did not make any such note at the time.
In relation to paragraphs 75.1 to 75.5 of Ms Fleming's affidavit, the plaintiffs did not adduce any evidence impugning Mr Rogers' reputation, qualifications, experience and competence to act as the selling agent for the motel property and business, as I have stated earlier in these reasons. Nor did the plaintiffs adduce any evidence that calls into question Mr Rogers' approach to the marketing of the motel property and business for sale in the period up to the date of execution of the Heads of Agreement on 7 November 2019. It is true, as Ms Fleming emphasised in cross-examination, that the offer of $2,550,000 from Mr MacLachlan was the only offer on the table at the time that Ms Fleming decided to enter into the Heads of Agreement on 7 November 2019. I infer from special condition 5 of the Heads of Agreement that the motel property and business ceased being advertised for sale, and ceased being marketed to other prospective purchasers, after that date. As the plaintiffs' submissions emphasised, the active marketing campaign lasted only 20 days, from the publication of the information memorandum on 18 October 2019 to the execution of the Heads of Agreement on 7 November 2019.
I reject Ms Fleming's evidence in paragraph 75.4 of her affidavit. There is no contemporaneous evidence of any express recommendation from Mr Rogers to accept Mr MacLachlan's offer of $2,550,000. In cross-examination, it emerged that Ms Fleming merely assumed that Mr Rogers had made such a recommendation. Ms Fleming said that "it must be true" that Mr Rogers had recommended that she accept $2,550,000 "because I accepted the price". [30] The contemporaneous documentary evidence shows that Ms Fleming required Mr Rogers to market the motel property and business for sale with a view to a sale being completed by 20 December 2019. Mr Rogers' strategy included targeting prospective purchasers on Resort Brokers' database, and Mr MacLachlan was one such prospective purchaser with whom Mr Rogers had previous dealings. Mr Rogers formed the view from about 25 October 2019 that Mr MacLachlan was a genuine buyer who would not "muck around", and no other "players" were emerging from the "slow moving might buy types" who were expressing some interest in the motel but who Mr Rogers assessed as being "likely to slow down the sale & drag it on to the new year". There is no evidence that Ms Fleming considered relaxing her requirement that a sale be completed by 20 December 2019, even after 4 November 2019 when Ms Afflick identified relief managers to manage the motel pending completion of the sale. It was in the context of that time constraint that Mr Rogers deployed the Opteon valuation to drive up Mr MacLachlan's offer from $2,200,000 to $2,550,000 between 3 and 7 November 2019, notwithstanding the absence of any offer from any other prospective purchaser at that time. [31] On the basis of that contemporaneous evidence, I find that any recommendation made by Mr Rogers to Ms Fleming in relation to Mr MacLachlan's $2,550,000 offer did not rise above advice that this was the best offer he had been able to extract from the only bidder at the time, who would commit to settlement by 20 December 2019, and who Mr Rogers believed would not "muck around". For completeness, I note that I would not have been inclined to accept Ms Fleming's evidence that she relied on Mr Rogers to advise in relation to market price, in any event. As I have recorded earlier in these reasons, Ms Fleming gave evidence in cross-examination dismissing Mr Rogers' opinion about the estimated selling price of the motel set out in the agency agreement. [32]
I am not satisfied on the balance of probabilities that Ms Fleming held the views set out in paragraphs 75.6 and 75.7 of her affidavit when she executed the Heads of Agreement on 7 November 2019, or when she exchanged contracts on 6 December 2019. Ms Fleming gave inconsistent evidence in cross-examination about her state of mind at those times. Before being directed specifically to paragraphs 75.6 and 75.7 of her affidavit in cross-examination, Ms Fleming said that she "had no idea whether there were many willing and able purchasers" for the motel. Upon being shown paragraphs 75.6 and 75.7, Ms Fleming changed her evidence, saying that she thought there were not many willing and able purchasers because there had been several businesses similar to the motel advertised for sale for long periods of time in the Batemans Bay area at the time. Ms Fleming maintained that she had personal knowledge of such businesses, although she did not know the terms and conditions on which they were being advertised for sale. Paragraphs 75.6 and 75.7 of Ms Fleming's affidavit are contrary to Mr Mason's valuation report, on which she also claims to have relied in paragraph 75.9 of her affidavit. Mr Mason's report stated that the market was buoyant with increasing demand. Ms Fleming did not ask Mr Mason for clarification about this, despite the contrary opinion that she claims to have held.
The first part of paragraph 75.8 of Ms Fleming's affidavit misstates the true position. As I have explained above, the true position is that the motel had been advertised for only 20 days, commencing from the middle of spring.
Ms Fleming claims in paragraph 75.9 of her affidavit to have had regard to Mr Mason's valuation when deciding to exchange contracts for the sale of the motel property and business for $2,550,000 - almost $300,000 less than the market value according to Mr Mason as at 22 February 2019. It became clear in cross-examination that Ms Fleming contended that she had concerns that Mr Mason's report overstated the value of the motel property and business because it did not take into account issues and potential issues referred to in paragraph 75.11 of Ms Fleming's affidavit. Ms Fleming claimed in cross-examination that she knew that those issues or potential issues would adversely affect the value of the motel property and business. Ms Fleming sought no advice from Mr Mason about whether or to what extent his opinion about the value would be affected by those issues or potential issues, prior to executing the Heads of Agreement and exchanging contracts. Nor did Ms Fleming request an updated valuation report from Opteon. The valuation report dated 10 April 2019 was no longer current by November 2019.
Ms Fleming gave inconsistent evidence in cross-examination about when she says her concerns about Mr Mason's valuation developed. When defending her conduct in authorising Mr Rogers to show the Opteon report to Mr MacLachlan in early November 2019, Ms Fleming gave evidence that she did not have any "misgivings" about the report at that time. When it was later put to Ms Fleming that, until that time, she had regarded Mr Mason's valuation as indicating the value of the motel property and business for the purpose of sale, Ms Fleming gave evidence that she had held her claimed concerns from 10 April 2019 when the valuation report was issued right up until the motel was marketed for sale commencing in October 2019.
The "issues" referred to in paragraph 75.11 of Ms Fleming's affidavit are the following "repairs, potential works and/or potential issues" for the motel property and business that Ms Fleming described in paragraph 38 of that same affidavit, namely:
1. remedial repairs to stairs and door thresholds required by Eurobodalla Shire Council;
2. the sewage problems described at [54]-[56] above;
3. the asbestos register prepared by Mr Phil Summerfield on the instructions of Mr Rogers in about November 2019;
4. a potential need to demolish the motel's barbeque area, associated gardens, a sign, and a fence, which Ms Fleming deposed had been erected on land owned by the Eurobodalla Shire Council as "can be seen on survey maps";
5. subsidence;
6. the need to replace "commercial laundry equipment" at the motel which had ceased to operate in about November 2019, and which Ms Fleming chose not to replace pending sale because she considered that it was more economical to outsource the motel's laundry on a short-term basis; and
7. painting works that Ms Fleming approved to prepare the motel for sale.
With the exception of the sewage problems, the issues or potential issues referred to in paragraph 75.11 of Ms Fleming's affidavit were either non-existent by November 2019, or did not affect or potentially affect the value of the motel, for the following reasons.
Contemporaneous documentary evidence records that the Eurobodalla Shire Council had inspected the motel property on or about 27 February 2019 and found that the remedial works had been satisfactorily completed. As Ms Fleming acknowledged in cross-examination, she was aware in February 2019 that the work had been completed. There is no evidence of any outstanding or pending remedial works to meet Council requirements as at 6 December 2019.
The asbestos register prepared by Mr Summerfield did not identify anything that required attention, as Ms Fleming acknowledged in cross-examination. Ms Fleming described asbestos as a potential issue only in the sense that it might, hypothetically, become an issue requiring attention in the future. [33]
As referred to at [117] above, Ms Fleming did not obtain or have available to her any survey plans for the motel. The evidence does not establish that there was any encroachment issue, or even a potential issue.
The evidence referred to at [57]-[61] above does not establish that there was any ongoing issue with subsidence at the motel property.
Ms Fleming's cross-examination revealed that the alleged "issue" relating to replacement commercial laundry equipment involved nothing more than the replacement of one dryer. Ms Fleming accepted in cross-examination that the need to replace the dryer did not affect the value of the motel, or her consideration of the price for which the motel should be sold.
Ms Fleming conceded in cross-examination that the painting, which had been carried out prior to the sale of the motel in order to prepare it for sale, did not affect the value of the motel.
With the exception of the sewage issues, I therefore reject Ms Fleming's evidence that she considered the alleged issues or potential issues referred to in paragraph 75.11 of her affidavit in deciding to exchange contracts for the sale of the motel property and business for the price of $2,550,000 on 6 December 2019.
Having regard to the inconsistencies in Ms Fleming's evidence referred to at [167] above, I am not satisfied on the balance of probabilities that, before executing the Heads of Agreement and exchanging contracts, Ms Fleming turned her mind to the question of whether and to what extent the sewage problems affected the value of the motel property and business. If she had turned her mind to that question, the prudent course would have been to ask Opteon to update Mr Mason's valuation report, making such allowance as he considered appropriate for the sewage problems and for any change in the relevant market conditions since the 22 February 2019 valuation date. According to Mr Austin's evidence, that would have required Ms Fleming to obtain a quotation for the works required to rectify the sewage problems and furnish that quotation to Mr Mason for consideration. [34] Ms Fleming did not take that course.
I reject Ms Fleming's evidence in paragraph 75.14 of her affidavit that she was not an anxious seller. On the basis of the evidence referred to at [95]-[107] above, I find that Ms Fleming was anxious to complete the sale of the motel property and business before Christmas due to the resignations of Ms Afflick and Ms Bell. That allowed approximately two months after the motel was first advertised for sale on 18 October 2019 to identify a purchaser, exchange contracts for sale, and complete the contract. That is a very short period of time compared to the three to six month selling period advised by Mr Mason, which I understand to refer to the period that he considered was a realistic time frame for the exchange of contracts. [35] It is plain from Ms Fleming's evidence in cross-examination that, when Ms Afflick informed her on 4 November 2019 that she had identified replacement managers for the motel business, Ms Fleming did not pause to consider whether that alleviated the need to sell the motel in time for completion to occur prior to 20 December 2019. Ms Fleming gave the following evidence:
"Q. The only idea in your mind was to get it sold before the end of the year.
A. The only idea in my mind was to get it sold before the managers who knew the property well, and knew how to run it, disappeared in a puff of smoke.
Q. Before you had entered into the Heads of Agreement, rather than you knowing there had been a puff of smoke, you knew that there were people in position to carry on in the management of the motel. Yes?
A. I knew that there were people who were not as experienced in running a motel, who could step in so that the property could be sold as a going concern.
Q. Did you interview them?
A. No, I didn't interview them. I was pleased that Sonia had found somebody else because I had been trying to find other people.
Q. How do you know if they were less experienced than Sonia?
A. Because they had worked at the motel previously.
Q. Sonia elected to appoint people that she knew from prior experience, knew how to run the motel.
A. People who would step in under her guidance, initially, and then under the guidance of the purchaser.
Q. Well let's just be straight about it, ma'am. You had no real reservations about the new managers coming in.
A. I didn't care, so long as there were managers there on the ground when the settlement took place, so that the property could be sold as a going concern.
Q. The issue of management did not pose, in this case, any time pressure when it came to selling the motel, did they? Or did it?
A. The managers leaving did create a time pressure.
Q. It was solved before you sold it.
A. I beg your pardon?
Q. The issue had been solved before you entered into the heads of agreement.
A. It had been solved so that it could be sold as a going concern, yes.
Q. You didn't have to enter into the heads of agreement on 7 November, did you, because of management issues?
A. I can't remember the time frame when the - when the replacement managers were appointed."
Ms Fleming's own contemporaneous file note identifies that Ms Afflick advised her on 4 November 2019 that she had found relief managers. On the basis of that file note, and Ms Fleming's evidence in cross-examination set out above, I reject Ms Fleming's evidence in paragraph 75.15 of her affidavit. At the time when Ms Fleming executed the Heads of Agreement on 7 November 2019, and when she exchanged contracts for the sale of the motel property and business on 6 December 2019, Ms Afflick - the experienced manager - had sourced relief managers for the motel, and Ms Fleming had made no inquiries about those relief managers that would have enabled her to form the opinion that their appointment was likely to adversely affect the financial performance of the motel during the forthcoming peak season.
EFA's office was closed between 20 December 2019 and 6 January 2020. During that period, the south coast of New South Wales was affected by bushfires, which destroyed fences and sheds on the Woodlands property, and killed and injured livestock. On 3 January 2020, Ms Turnbull wrote to Ms Fleming in the following terms:
"Its been over twelve month's and due to your want of total control over my fathers estate without any communication with and lack of compassion for his family, we did not have the opportunity to go and try and save our family home in the bushfire but also it's contents including family heirlooms, photo albums, my grandfather's paintings ect [sic] when are you going to grow a heart and let us all go in and sort through OUR FAMILY possessions"
The livestock that were destroyed and injured in the bushfires had been purchased by Ms Afflick at the clearing sale on 6 July 2019. Ms Afflick had not moved the livestock to her neighbouring property at 50 Dunns Creek Road prior to the bushfires. At the time Ms Fleming had accepted Ms Turnbull's offer to purchase the Woodlands property in early October 2019, Ms Afflick had indicated to Ms Fleming that she would remove the livestock and the stockyards from the Woodlands property prior to settlement of the sale of that property to Ms Turnbull. [36]
After the bushfires, Mr and Ms Afflick destroyed the livestock that had been badly injured, and Ms Fleming arranged for the livestock to be buried on the Woodlands property. According to Ms Fleming's evidence, Ms Afflick transferred the stockyards from the Woodlands property to her neighbouring property at 50 Dunns Creek Road in early January 2020 because there was no further use for them at the Woodlands property, and Ms Afflick had a use for them on her own property.
On 31 January 2020, EFA wrote to beneficiaries advising that the sale of the motel had been completed on 21 January 2020, and referring also to the sale of the Moruya and Woodlands properties. This was the first time that any beneficiary had been advised that the motel had been sold. It will be recalled that, despite receiving requests for updates throughout November 2019, Ms Fleming had not informed the beneficiaries that she had entered into a Heads of Agreement to sell the motel for $2,550,000, or that she had exchanged contracts for sale at that price. Ms Fleming's only communication with the beneficiaries in relation to the sale of the motel since early November 2019 had been the misleading letter to Ms Groat's solicitors on 11 November 2019. [37] EFA's letter of 31 January 2020 advised beneficiaries about the fact of the sale, which had settled on 20 January 2020, without mentioning the sale price. Ms Fleming denied that the sale price was omitted from the 31 January 2020 letter because she was conscious that the beneficiaries might be disappointed about the sale price. I reject that denial. Ms Fleming offered no other explanation for omitting the sale price from her 31 January 2020 letter, the stated purpose of which was to update the beneficiaries in relation to the administration of the deceased's estate. It is highly probable that Ms Fleming thought that the beneficiaries would be disappointed by the sale price being less than the valuation in her inventory of property, and thought that they might complain about that discrepancy. I find that Ms Fleming omitted the motel sale price from her 31 January 2020 letter for those reasons.
Ms Fleming's consciousness of the beneficiaries' likely reaction to the sale price is revealed by the somewhat defensive terms in which she later disclosed the sale price to them on 11 March 2020. In a letter sent to each of Ms Turnbull, Ms Groat and Mr Books on that date, EFA wrote:
"The Hanging Rock Family Motel was sold on 21 January 2020 for the total sum of $2,550,000.00, we note that the valuation for Probate was $2,825,000.00 but it became evident that there were ongoing problems with the infrastructure of the motel which meant that the sale price was considered appropriate. The settlement funds are currently being held in a controlled money account associated with our Trust Account. At this stage we are unable to effect an interim distribution of these funds as there is an outstanding personal injury claim which the insurance company is failing to acknowledge liability at this time. Once we have reached a resolution in this regard, we will attend on you further in relation to the possibility of an interim distribution."
Ms Turnbull's solicitors, Boom Lawyers, replied on 19 March 2020. They sent a letter to EFA expressing concern that any "ongoing problems with the infrastructure" of the motel referred to in EFA's 11 March 2020 letter which had impacted adversely on the sale price were due to a failure by Ms Fleming to maintain the motel capital improvements since the death of the deceased.
In the same letter, Boom Lawyers raised a complaint by Ms Turnbull that the stockyards had been removed from the Woodlands property at some time after her inspection of the property on 1 October 2019. According to Ms Fleming's evidence, Ms Turnbull had asked her at a meeting on 27 February 2020 why the stockyards had been moved to Ms Afflick's property. Ms Fleming told Ms Turnbull that she understood that the stockyards belonged to Ms Afflick and her husband, but that she would look into the matter further. Ms Turnbull disputes that Ms Fleming told her on 27 February 2020 that she understood that Mr and Ms Afflick owned the stockyards. According to Ms Turnbull, Ms Fleming simply said that she would look into the matter. Nothing turns on this dispute about the precise terms of the conversation between Ms Fleming and Ms Turnbull on 27 February 2020. Boom Lawyers' letter to EFA dated 19 March 2020 stated:
"Our client submits that and did raise with the executrix orally that the steel cattle yards should be returned. The submissions in relation to the steel cattle yard are as follows:
i) The steel cattle yards were purchased by the late Thomas John Brooks from his own funds. Indeed, a number of adults in conversation with the late Thomas John Brooks were informed by the late Thomas John Brooks as to his spruiking and boasting regarding the purchase of those steel cattle years and in particular a low price for which he was able to purchase the same. Indeed, the late Thomas John Brooks did inform Robert Turnbull that he did purchase those steel cattle yeards and was able to purchase the same at a lesser price than what Robert Turnbull had previously indicated to the late Thomas John Brooks he could purchase cattle yards.
ii) The steel cattle yards were a fixture to the property at 35 Dunns Creek Road when the agreement to purchase the property had been made back in October 2019.
Thus, in accordance with all other fixtures to the land (including the main house) the steel cattle yards should be treated as a fixture and thus included in the conveyancing transaction as a fixture and forming part of the overall conveyancing transaction.
It is again requested the steel cattle yards be returned as soon as possible.
Indeed, our client inspected the property on 1st October 2019 and the steel cattle yards were a fixture to the property as at that date and when negotiations were concluded in relation to the purchase price."
Contracts for the sale of the Woodlands property to Ms Turnbull had not been exchanged at this stage. Ms Fleming contemplated that a Deed of Family Arrangement would be entered into in order to allow Ms Turnbull to deduct the purchase price or part thereof from the proceeds of her distribution from the deceased's estate in due course.
EFA responded to Ms Turnbull's solicitors by letter dated 27 March 2020. In relation to the motel, EFA's letter stated:
"We note that your comments in relation to your client's notification of the sale of the motel. We advised your office of the relative settlement by way of letter dated 31 January 2020 (enclosed for your reference) we note that this letter was successfully delivered by email (please find enclosed email delivery receipt). Further the infrastructure issues affecting the property was both the presence of asbestos in several rooms and the location of the internal drainage under some rooms to a septic tank which requires regular maintenance. Neither of these issues are attributable to the maintenance of the property, but rather decisions made during the initial construction process. Further we advise that the Resident Manager and On-site manager had resigned prior to the sale. Given the experience of these individuals and crucial nature of their positions, the probability existed that the Estate may have faced further liabilities resulting out of untrained staff operating the motel during the most busy period of the year."
In relation to the stockyards, EFA's letter stated:
"With respect to the steel cattle yards we note that they have incorrectly been identified as fixtures. Transportable steel cattle yards are erected on their own relative weight, as such they are more appropriately classified as chattels. We are instructed that the transportable steel yards are not the property of the Estate, as such chattels not the property of the vendor could not possibly form part of a purported agreement to sell the property."
According to Ms Fleming's affidavit sworn on 4 August 2022, the deceased's accountant advised her in about May 2020 that she had no record and no recollection of the deceased having purchased stockyards for the Woodlands property. At about the same time, Ms Afflick, told Ms Fleming that she had purchased the stockyards approximately ten years earlier, and that she was willing to provide a statutory declaration to that effect.
A statutory declaration was made by Ms Afflick's husband, Mr Dean Afflick, on 3 July 2020. Mr Afflick declared that:
"… the steel cattle yards and ramp located on Thomas John Brooks' property at 35 Dunns Creek Road, Woodlands at the time of his passing on December 26th 2018 were payed [sic] for and owned by myself."
Mr Afflick gave a more expansive account of his acquisition of the stockyards in his affidavit sworn on 23 September 2022, and in cross-examination. Mr Afflick gave evidence that Ms Afflick had purchased the stockyards from a store in Braidwood on behalf of the deceased in about 2005. Mr Afflick had assisted the deceased to collect the stockyards from the store in Braidwood where he had purchased them, and to assemble them on the Woodlands property where they were used for both the deceased's livestock and Mr and Ms Afflick's livestock. Some time later - Mr Afflick can no longer recall whether it was months or a couple of years after the stockyards were purchased - Mr Afflick told the deceased that he needed some mobile stockyards to contain the livestock on his own property and to use in his business which involved doing work on other small farms. The deceased and Mr Afflick agreed that Mr Afflick would purchase the stockyards from the deceased, and Mr Afflick paid the agreed price to the deceased in cash. Mr Afflick can no longer recall the amount of the agreed price. Mr Afflick then moved half of the stockyards to the property that he owns with Ms Afflick, and left the other half on the Woodlands property because some of Mr Afflick's sheep were grazing on the Woodlands property. Mr Afflick deposed that he had told Ms Fleming prior to the clearing sale that he owned the stockyards. In cross-examination, Mr Afflick maintained that he had paid the deceased for all of the stockyards, including the ones that he had left on the Woodlands property.
Ms Fleming gave evidence that, in July 2020, she was satisfied that the stockyards were owned by Mr and Ms Afflick, having considered the questions raised by Ms Turnbull through her solicitors, the information provided by Ms Afflick, the statutory declaration made by Mr Afflick, and Ms Fleming's view that the stockyards were not fixtures.
As I understand Ms Fleming's evidence, contracts for the sale of the Woodlands property to Ms Turnbull were exchanged in January or February 2021. The purchase price was reduced to $1,200,000. The stockyards were not included as a fixture in the contract for sale. Mr Turnbull gave evidence attributing the reduction in the sale price to $1,200,000 to the bushfire damage to the property. Neither party suggested that there was any connection between the exclusion of the stockyards and the reduction in the price.
Ms Groat gave evidence that, after the motel property and business were purchased by Mr MacLachlan in January 2020, the motel was refurbished and rebranded and offered for sale in April 2021 at a price of $4,700,000. It was ultimately sold as a going concern in about March 2022 for a price of $4,550,000. Neither party submitted that this price achieved for the refurbished and rebranded motel in March 2022 was indicative of the market value of the motel in November or December 2019 in the condition that the motel was then in.
It is plain from the substance and tone of the affidavits sworn or affirmed by the plaintiffs in these proceedings, and from the tone of the correspondence that Ms Turnbull and Ms Groat have sent to Ms Fleming, either directly or through their respective solicitors, that the plaintiffs feel aggrieved by certain alleged conduct of Ms Afflick, and by their perception that Ms Fleming has conducted herself as administrator and executor in a manner that has favoured Ms Afflick over the other beneficiaries. In particular, several of the plaintiffs gave evidence that they observed, or were informed by their siblings, that Ms Afflick was able to access the deceased's residence on the Woodlands property, and to come and go from that property as she pleased, whereas the plaintiffs were denied access to the residence other than for the purpose of inspecting the deceased's personal items under supervision of Ms Fleming or one of her employed solicitors in order to nominate any personal items that they wished to retain. Ms Groat gave evidence that Ms Fleming did not interact with her or the other plaintiffs, and appeared disinterested when introduced to Ms Groat, on the day of the clearing sale on the Woodlands property. By contrast, Ms Groat observed Ms Fleming to be acting in a friendly manner towards Ms Afflick and members of Ms Afflick's immediate family. Ms Groat deposed that she and her siblings felt very disheartened by this. Several plaintiffs gave evidence to the effect that Ms Afflick had taken sole possession of the deceased's ashes, had buried them in a location selected by Ms Afflick without the consent of the plaintiffs, and without even notifying the plaintiffs. It is not necessary for me to make findings about these allegations, which were not put to Ms Afflick or Ms Fleming in cross-examination. As I have explained earlier in these reasons, the plaintiffs' claims in these proceedings require them to prove one of the three alleged instances of wilful default, including that Ms Fleming has failed to realise or obtain for the estate value that would have been obtained but for the wilful default. [38]
It will be recalled that the three alleged instances of wilful default are:
1. the motel claim, concerning the allegations that Ms Fleming acted imprudently in the sale of the motel property and business in January 2020, including by selling in a compressed time frame and without obtaining an up to date valuation report, resulting in a sale at a price that the plaintiffs allege was below the market value by approximately $400,000;
2. the grain claim, concerning the allegations that Ms Fleming acted imprudently in delegating to Elders the sale of the grain stored in the silos on the Woodlands property immediately prior to the clearing sale in July 2019, resulting in the grain being sold at a price that the plaintiffs allege was almost $10,000 less than its market value; and
3. the stockyards claim, concerning the allegations that Ms Fleming failed to recover the stockyards that had been at the Woodlands property, and which were removed and relocated to Mr and Ms Afflick's property.
For the reasons explained immediately below, the plaintiffs have failed to establish any of those alleged wilful defaults. It follows that the proceedings must be dismissed.