[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[3]
Judgment
HIS HONOUR: The background to this application can be found in my judgment in Wardy v Salier [2014] NSWSC 473 and Slattery J's judgment in NSW Trustee and Guardian v Wardy [2020] NSWSC 18.
In short, the property at Cleveland Street, Redfern was the subject of a specific gift to Hassiba Wardy for her life with remainder to her three sons, Anthony, Roger and Robert. That property was sold with the approval of the Court by the then administrator pendente lite to pay debts. Being the subject of a specific gift, that property was not primarily liable to bear the burden of the debts and testamentary expenses that would otherwise be borne by the residuary estate. As a result, a substitute property must be provided and adjustments be made as to the beneficiaries' entitlements under the will in order, so far as possible, to put the life tenant and remaindermen in the same position as they would have been in had the Cleveland Street property not been sold (Wardy v Salier at [6]-[8], [18], [21], [22] and [34]-[37]).
On 29 January 2020 Slattery J declared that the NSW Trustee and Guardian, the executor of the deceased's will, was entitled and authorised to appropriate a property at George Street, Redfern by holding or conveying that property upon trust for the beneficiaries who would have been entitled to the Cleveland Street property had it not been sold in November 2012, by way of substitution for the Cleveland Street property.
The George Street property formed part of a residuary gift of real estate to the deceased's six children (Wardy v Salier at [6] and [38]). I am informed that Mr John Wardy has acquired the interests of William and Sam under cl 3(v) of the will.
In my reasons of 30 April 2014 I observed that the George Street, Redfern property had been valued at $4.5 million exclusive of GST, but I also observed that initially widely differing estimates of the value of that property were provided (at [38]).
The Cleveland Street property was sold at auction in November 2012 for $5.15 million (at [34]).
Another property forming part of the residuary gift of real estate was a property in Coogee Bay Road, Coogee. At the hearing before me in 2013 it was common ground that it should be treated as having a value of $1.6 million (at [39]).
Although my reasons for judgment contemplated that the executor might buy a substituted property using residuary estate for that purpose, it appears that before Slattery J the primary position of the parties was that either the George Street, Redfern property or the Coogee property should be applied for that purpose with possible financial adjustments. Slattery J said (NSW Trustee & Guardian v Wardy at [23] and [24]):
"23. Upon advice, the NSW Trustee is of the opinion that the George Street property should be substituted for the Cleveland Street property, so as to satisfy the provisions of clause 3(iv) of the will. The Hassiba Wardy interests do not contest this proposed substitution, indeed in recent correspondence dated 18 and 21 November 2018 (Exhibit C) they maintain their belief and agree that the George Street property is an appropriate replacement property for the Cleveland Street property. But John Wardy contends instead that the Coogee property, or some other property yet to be acquired, should be substituted for the Cleveland Street property.
24. John Wardy sought to argue, among other contentions, that the George Street property was far more valuable than the Cleveland Street property and for that, and other reasons, the former was an inappropriate substitute for the latter. In contrast, the NSW Trustee argued that the George Street property and the Cleveland Street property were sufficiently close in value that with some adjustments, the former qualified as a proper substitute for the latter. The NSW Trustee and John Wardy each obtained competing valuations of all three properties, which will be analysed below."
I was told today that although it was Mr John Wardy's primary position that the Coogee property should be appropriated as the substituted property for the Cleveland Street property, his alternative position, if that submission were not accepted, was that a different property should be purchased by the executor, presumably using residuary estate to buy the substitute property.
John Wardy has appealed from Slattery J's declaration referred to above and also other declarations and orders.
I am now dealing with John Wardy's notice of motion filed on 10 March 2020 in which he seeks the following relief:
"Upon the appellant giving to the Court the USUAL UNDERTAKING AS TO DAMAGES, the appellant seeks:
1 An order, pending the determination of the appeal in this proceeding, the respondent, by itself, its employees, servants or agents, be restrained from selling, encumbering or otherwise dealing with the Coogee property, located at 130-133 Coogee Bay Road Coogee.
2 An order, pending the determination of the appeal in this proceeding, the respondent, by itself, its employees, servants or agents, be restrained from expending estate monies on the George Street property, located at 17-21 George Street Redfern, in respect of any capital or repair works.
3 An order, pending the determination of the appeal in this proceeding, the declarations and orders in paragraph 289-(5) of the judgment in NSW Trustee and Guardian v Wardy [2020] NSWSC 18 be stayed."
This application has been precipitated by a proposal by the executor to sell the Coogee property to pay debts and testamentary expenses.
Mr Patrick Kiernan of the NSW Trustee and Guardian deposes that as at 3 June 2020 the estate funds consist of liquid assets of approximately $1.192 million, the George Street property with an estimated value of $7.3 million, and the Coogee property with an estimated value of $5 million. There are other properties in the estate, including a property in Milroy Avenue, Kensington, but that is subject to a specific gift to Hassiba Wardy, the deceased's widow.
Another asset forming part of the residuary estate is a debt owed by Linevale Pty Limited of approximately $1.324 million. The executor and Linevale and, it appears, Mr John Wardy, agreed that that debt would be paid out of John Wardy's residuary entitlement in the estate so far as that entitlement allows. In other words, the debt is not yet collectable.
Mr Kiernan deposes that about $600,000 of expenses will be payable in the near future. These include legal expenses and the NSW Trustee and Guardian's commission. Those expenses also include $26,894 for the carrying out of work described as follows:
"Work required at George Street property pursuant to City of Sydney Council work order".
They also include an estimated sum of $15,560 for the costs of clearing the George Street property.
Cash or other liquid assets in the estate would be sufficient to meet all these expenses which will be incurred in the near future.
But the estate is also indebted to John Wardy for a judgment debt of a principal amount of $500,000 plus interest that has accrued from 31 May 2009 pursuant to s 100 of the Civil Procedure Act 2005 (NSW). As at 6 September 2019 the judgment debt was $895,880.67. Interest continues to accrue. I assume interest accrues at post-judgment rates.
Costs orders have also been made in favour of John Wardy. He assumed the role of contradictor of family provision claims that were the subject of my 2014 judgment.
As at 17 February 2020 Mr Wardy's solicitors have claimed that the estate is liable to pay costs, including but not limited to the costs I have just mentioned, in an amount which together with interest approximates $425,000. Unless those sums have been paid, then interest continues to accrue.
Essentially the executor proposes to sell the Coogee property now in order to have funds in order to pay those debts.
By his notice of appeal, John Wardy seeks declarations that:
"The decision of the primary judge be set aside and in lieu thereof, the Court declare that:
(a) the George Street property is not an appropriate substitute for the Cleveland Street property;
(b) the Coogee property is an appropriate substitute for the Cleveland Street property, in addition to a cash component, if any;
(c) alternatively, a third property be acquired as the substitute property for the Cleveland Street property; or alternatively cash, subject to the Court being satisfied that Hassiba Wardy is ready, willing and able to pay 13.5% (as the residuary personalty beneficiary), along with 13.5% of estate administration expenses."
No substantive submissions have been advanced on this application as to the merits of Mr John Wardy's appeal. It is clear from Slattery J's reasons for judgment that much more evidence was adduced before his Honour as to the value of the George Street, Redfern and the Coogee properties than was before me, where the relevance of those values was to inform my attempt to ascertain the value of the likely benefits that the plaintiffs seeking family provision orders would obtain from the estate.
On the face of it, it might be thought surprising that John Wardy should complain of a decision that substituted the George Street, Redfern property whose value at the time of the hearing before me was accepted to be $4.5 million, for the Cleveland Street property that was sold in November 2012 for $5.15 million. But I proceed on the basis that having regard to the further evidence adduced before Slattery J, John Wardy has arguable, but not more than arguable, prospects of success on appeal in establishing that Slattery J should have declared that the Coogee property, rather than the George Street property, be substituted for the gift of the Cleveland Street property with, I assume, appropriate financial adjustment. As mentioned above, I have also been informed that it was an issue before his Honour as to whether, if the Coogee property were not so substituted, then a substitute property should be acquired, rather than that the George Street property be substituted.
The question before me is where the balance of convenience lies, pending the determination of the appeal.
Provided that the appeal can be brought on for hearing within a reasonable time, the balance of convenience lies in restraining the sale of the Coogee property, provided that the estate is not disadvantaged by incurring additional interest on the debts owed to John Wardy by the delay occasioned in selling the Coogee property if the appeal fails, and provided that John Wardy undertakes not to seek to levy execution on the estate assets, including by way of obtaining or seeking to enforce garnishee orders pending the determination of the appeal.
I foreshadowed in the course of oral submissions that if the injunction sought in para 1 of the notice of motion were granted, then in addition to the usual undertaking as to damages, the injunctive relief should be conditional upon John Wardy's providing undertakings to the Court not to seek to levy execution on the judgment debts he has obtained pending the determination of the appeal or any further order, and undertaking not to seek interest on the debts owed to him by the estate for the period of delay between today and the determination of the appeal or any earlier further order, if his appeal fails.
The reason for that is that the injunction he seeks would restrain the executor from pursuing a course which, if pursued, would enable the estate to discharge its obligations to him.
Mr Sneddon, who appears for Mr John Wardy, informed me that those undertakings were given.
The reason for restraining the sale of the Coogee property is, as Mr Sneddon submits, that the sale of the Coogee property would remove the substratum of the appeal, at least in relation to the first declaration that was made.
The notice of appeal was filed on 26 February 2020. In the notice of appeal John Wardy challenges, amongst other things, declaration 3 made by Slattery J that was in the following terms:
"Declare that the Plaintiff as administrator of the estate of the testator is entitled and authorised to offer and pay compensation ('the Net Rental Compensation Amount') to Mrs Hassiba Wardy for net rents and profits that she has not received because the Cleveland St Property was sold, calculated on the basis that Cleveland St Property was able to earn net rental income of $350,000 per annum for the period between the sale of the Cleveland St Property and the appropriation of the George St Property in substitution as contemplated in declaration 1."
I do not understand John Wardy to challenge the principle that Hassiba Wardy would be entitled to a replacement sum for the net rents and profits she would have received from the Cleveland Street property had it not been sold. But I apprehend from the submissions made that John Wardy contends that Hassiba Wardy has received substantial payments by way of interim distribution in respect of her entitlement, either to net rental compensation or in anticipation of her entitlement to the proceeds, yet to be received, of the Linevale debt.
It is not an issue before me on this application as to whether Hassiba Wardy's entitlement to compensation for the loss of net rentals after the sale of the Cleveland Street property should be restricted to the net annual profits earned from the Cleveland Street property between the deceased's death and its sale.
It appears that little progress has been made in the preparation of the appeal after the notice of appeal was filed on 26 February 2020. I am told that the reason for this is that Slattery J is currently reserved on an issue as to whether it is open to his Honour to determine the quantum of net rental compensation payable to Hassiba Wardy and, if so, to determine that amount. At least John Wardy apprehends that his Honour's decision might affect Hassiba Wardy's ability to account for a contribution of 13.5 per cent of the value of the George Street property and administration costs. I gather that it would be submitted that if she did not have that ability, then it would be submitted that that would militate against a decision that the George Street property should be substituted for the Cleveland Street property.
Ultimately, there was little dispute that upon the undertakings to which I have referred being given, there should be an interim injunction restraining the sale of the Coogee property until the determination of the appeal or earlier further order.
The second ground of relief sought in the notice of motion was that the NSW Trustee and Guardian be restrained on an interlocutory basis from expending estate moneys on the George Street property in respect of any capital or repair works. I have referred earlier in these reasons to the imminent expenditure that Mr Kiernan proposes be undertaken.
Mr Sneddon refers to a quotation that the NSW Trustee and Guardian has obtained in relation to a proposed scope of works for securing, clearing and improving the George Street property. The quotation for those works dated 22 August 2019 is substantial and although I have not added the figures for the particular items, I am told that it amounts to millions of dollars. John Wardy complains that it would be inappropriate, having regard to the evidence as to the value of the George Street property upon which the primary judge acted, for the estate to bear all of these expenses, yet for the property to be substituted for the Cleveland Street property for the benefit of Hassiba Wardy and her sons.
The short answer to that submission is that there is no evidence that the NSW Trustee and Guardian intends to embark upon the program of work described in the quotation. Indeed, solicitors for the NSW Trustee and Guardian advised on 28 January 2020 that the cost of carrying out all of the work in relation to the upgrading of the property, including matters such as fire regulations and very significant general repairs to ensure that the property complied with the BCA code, and to carry out repairs to the northern wall of the building, would be very high. The solicitors advised that it was the NSW Trustee and Guardian's view that once urgent work had been completed, such as the fire monitoring equipment and northern wall repairs, either Mrs Wardy and her three sons would need to carry out the work, or if the property were to be sold, then the purchaser would need to carry out that work.
Mr Sneddon does not take issue with the NSW Trustee and Guardian's carrying out what was described in that correspondence as the urgent work.
In short there is no present threat to carry out works in relation to the George Street property that would be an improper expenditure of estate funds. No issue is taken with the submission made by Mr Meek SC, who appears for the NSW Trustee and Guardian, that where an executor holds property for the benefit of the beneficiaries for a period of time and there may be a risk of suffering, loss or damage, then, providing funds are available to the executor, the executor has a duty to act prudently and failure to do so would make the executor liable for any loss suffered (citing Pateman v Heyen (1993) 33 NSWLR 188).
Also, as Mr Sneddon accepted, if there were any improper expenditure then that would be a matter that could be taken into account on the final accounting in this very complex estate.
Further, I am informed that Mr Meek expects, and I have no reason to doubt, that this expectation would be met, that the NSW Trustee and Guardian would provide John Wardy or his legal representatives with reasonable notice of the intention to make any further substantial expenditure on work to the George Street property than is envisaged in Mr Kiernan's affidavit.
As to the third claim for relief in the notice of motion, Mr Sneddon accepts that each of the paragraphs that are the subject of the application for a stay contain declarations and not orders. He explained that what John Wardy is concerned about is any proposal by the executor to transfer the George Street property to Hassiba Wardy and her sons, or to execute a declaration of trust in their favour. The NSW Trustee and Guardian has given an undertaking to the Court to give John Wardy's legal representatives at least 21 days' prior notice of any such intended conduct. That is sufficient to deal with the claim in para 3.
Accordingly, and subject to any submissions counsel may have as to the precise form of orders, I propose the following orders:
1. On Mr John Wardy by his counsel giving the usual undertaking as to damages and further undertaking to the court that:
1. he will not seek to levy execution on assets of the estate including by way of obtaining or enforcement of garnishee orders, and will withdraw any extant garnishee order or other order for the levy of property; and
2. if on the appeal he fails to obtain an order or declaration in terms or to the effect of the declarations sought in the notice of appeal, he will not claim interest on the debts owed to him by the estate from the date of these orders to the date of the determination of the appeal,
1. order that until the determination of the appeal, or earlier further order, the first respondent by itself, its employees or agents be restrained from selling, encumbering or otherwise dealing with the property located at 130-133 Coogee Bay Road, Coogee.
2. Note the undertaking of the respondent to the Court to provide to the legal representatives of the applicant not less than 21 days' notice in writing of any intention by the respondent to transfer the property at 17-21 George Street, Redfern to the beneficiaries under clause 3(iv) of the Will of the late Edmond Wadih Wardy, or to execute any declaration of trust in respect of the said property in favour of those beneficiaries.
3. Order that the applicant's notice of motion filed 10 March 2020 be otherwise dismissed.
4. Order that the costs of the notice of motion filed on 10 March 2020 be the parties' costs in the appeal.
[Parties address.]
For these reasons I note those undertakings and make those orders.
(6) Stand over proceedings to 10 August 2020 before the Registrar for directions.
I thank counsel and their instructing solicitors for their assistance.
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Decision last updated: 04 August 2020