[2004] NSWSC 606
Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226
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Original judgment source is linked above.
Catchwords
[2004] NSWSC 606
Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226
Judgment (5 paragraphs)
[1]
Introduction
These proceedings concern the estate of the late Karen Winn, who died on 20 April 2012 at the age of 51. The plaintiff is her mother, Maureen Winn. She is the executor and a beneficiary of the estate. The plaintiff obtained a grant of probate on 14 September 2012 in respect of a will of the deceased made on 19 January 2012.
The defendant is Lorna Harding. She was a friend and former partner of the deceased. She is also a beneficiary of the estate.
The assets of the estate include a property in Bathurst, and a property in Fairfield West. Valuations of the properties as at the date of death indicate that the Bathurst property was then worth $310,000 and the Fairfield West property was then worth $450,000. Both parties accept the accuracy of the valuations.
As at the date of death both properties were subject to a registered mortgage in favour of Bank of Western Australia Ltd ("Bankwest"). That mortgage (AF417855), which is now held by Commonwealth Bank of Australia, remains on the title to each property. The mortgage secures all money owed to Bankwest or its successors and assigns. It is common ground that at the time of her death, the deceased owed $114,759.66 to Bankwest. That amount was owed pursuant to two loan accounts (account number 160015-6 and account number 160804-9).
By cl 4 of the will the Bathurst property was given to the plaintiff. By cl 12 of the will the Fairfield West property was given to the plaintiff and the defendant as tenants in common in equal shares. By cl 8 of the will certain rights of occupation were conferred upon the defendant in respect of the Fairfield West property. The defendant has exercised those rights since the testator's death.
The principal issue in the proceedings concerns the extent to which the Bathurst and Fairfield West properties are, for estate administration purposes, respectively liable for payment of the monies secured by the mortgage over them. The determination of that issue essentially depends upon the operation of s 145 of the Conveyancing Act 1919 (NSW).
There is also an issue as to the rights of the plaintiff to reimbursement or recovery arising from payments she has made to the loan accounts since the deceased's death. By late 2016 such payments had reduced the overall level of debt to about $59,000.
Certain claims made by the plaintiff for recovery in respect of debts said to have been incurred by the deceased in her lifetime were not pressed at the hearing.
[2]
The will
The will relevantly provides:
THIS IS THE LAST WILL of me, KAREN GAIL WINN of 16 Baudin Crescent, Fairfield West in New South Wales, Logistics Officer:
…
3. I appoint MAUREEN MARGARET WINN of 169 William Street, Bathurst as executrix and trustee (my Trustee). The expression my Trustee means the original trustee, the surviving trustee or a new or additional trustee.
4. I give MAUREEN MARGARET WINN of 169 William Street, Bathurst my house that she resides in and family photographs.
…
8. I GIVE the following directions to my executors concerning the property that constitutes my home at 16 Baudin Crescent, Fairfield West at my death which I refer to as "the house":
(a) My friend Lorna Madeline Harding may live in the house as long as she wishes provided she continues to pay rent to my executor in the sum of $300.00 per fortnight which is to cover the costs of rates, taxes and insurances and repairs to the property. Should there be insufficient funds to cover these costs I DIRECT Lorna to meet one half of the shortfall to cover these costs. Lorna Madeline Harding shall meet all costs of all utilities connected to the property;
(b) Until Lorna Madeline Harding has in the opinion of my executors, either cease to live in the house permanently or to comply with the conditions of her right of occupation, it shall not be sold without her consent;
(c) I will consent during her period of occupation only to her grandson Declan Jack Murphy residing with her however I will not consent to any other person living in the house without the consent of my executors and the decision of my executors is final and Lorna Madeline Harding occupation of the house is conditional upon her complying with the terms of occupation; and
(d) I DIRECT that the house shall not at any time be sold and that if Lorna Madeline Harding chooses to vacate the property she may do so at any time however she does not have the right under the terms of the life tenancy to ask for the house to be sold and another house purchased in substitution.
…
12. I GIVE my house at 16 Baudin Crescent, Fairfield West equally to Maureen Winn and Lorna Madeline Harding as tenants in common in equal shares.
13. I GIVE the rest and residue of my estate including all my superannuation with Aon, Club Plus, Colonial State and MLC to my Trustee:
(a) to pay all debts, legacies, funeral and testamentary expenses and any death, estate or succession duties; and
(b) in discharge of the mortgage over 16 Baudin Crescent, Fairfield West;
(c) in discharge of the mortgage over 169 William Street, Bathurst;
(d) any surplus funds to be invested and applied to the maintenance and upkeep of the property at 16 Baudin Crescent, Fairfield West;
(e) the remainder to Maureen Winn.
14. I DIRECT that upon the sale of the property at 16 Baudin Crescent, Fairfield West, that the funds invested for the maintenance and upkeep of the property at 16 Baudin Crescent, Fairfield West are given to Maureen Winn.
15. 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;
(c) lease;
(d) mortgage; and
(e) manage,
the whole or any part of my estate.
…
[3]
Section 145 of the Conveyancing Act
Section 145 of the Conveyancing Act is derived from the English Locke Kings Acts of 1854, 1867 and 1877 (see R A Woodman, Administration of Assets Second Edition, 1978 at pages 89-90). The section provides:
(1) Where a person dies after the commencement of the Conveyancing (Amendment) Act 1930 possessed of or entitled to, or, under a general power of appointment by his or her will disposes of:
(a) property, which at the time of his or her death is charged with the payment of money, whether by way of legal mortgage, equitable charge, or otherwise (including a lien for unpaid purchase money), or
(b) land in respect of which there is owing at the time of his or her death any money under a contract of purchase whether from the Crown or not,
and the deceased has not by will, deed, or other document signified a contrary or other intention, the property so charged shall, as between the different persons claiming through the deceased, be primarily liable for the payment of the charge; and every part of the property, according to its value, shall bear a proportionate part of the charge on the whole thereof.
(2) Such contrary or other intention shall not be deemed to be signified:
(a) by a general direction for the payment of debts or of all the debts of
the testator out of the testator's personal estate or the testator's residuary real and personal estate, or the testator's residuary real estate, or
(b) by a charge of debts upon any such estate,
unless such intention is further signified by words expressly or by necessary implication referring to all or some part of the charge.
(3) Nothing in this section affects the right of a person entitled to the charge to obtain payment or satisfaction thereof either out of the other assets of the deceased or otherwise.
[4]
Determination
In this case, the will of the deceased disposes of the Bathurst and Fairfield West properties which were, at the time of her death, charged with the payment of money to Bankwest. Accordingly, those properties constitute property that falls within s 145(1)(a) of the Conveyancing Act. It follows that unless the deceased has by will, deed, or other document signified a contrary or other intention, that "property so charged" shall be primarily liable for the payment of the charge and every part of such property shall, according to its value, bear a proportionate part of the charge on the whole of it.
In McPhie v Mackay [1975] 2 NSWLR 369 Holland J considered the operation of s 145 of the Conveyancing Act. His Honour stated (at 372-3):
I have come to the conclusion that the proper approach to the application of s 145 is, first, to construe the will in order to find what provision, if any, is made for the payment of debts, and then to apply the restriction on construction contained in s 145(2) only if the provision for payment of debts found in the will falls within the words of s 145(2)(a) or (b). If it does, it is necessary to find in the will a reference to the charge on the property by express words or necessary implication before the operation of s 145(1) can be displaced. If it does not, the provision found in the will for payment of debts takes effect. This approach has, I think, the merit of giving the restriction upon construction contained in s 145(2) no more effect than that which the statute expressly says it is to have, that is to say, in those cases where, as to the payment of debts, the direction in the will is a general direction for payment out of, or a charge of debts upon, the testator's personal estate, or residuary real and personal estate, or residuary real estate. In other words, cases where the direction or charge is for payment of debts out of one or more of those funds alone.
Following that approach, the first question is to ascertain whether the will, properly construed, contains any provision for the payment of debts. The deceased's will clearly includes a provision for the payment of debts in cl 13. Clause 13 expressly provides, in paragraph (a), that the residue of the estate is to be held by the trustee to pay "all debts…funeral and testamentary expenses and any death, estate or succession duties".
The next question to arise, adopting the approach taken in McPhie v Mackay (supra), is whether that provision for the payment of debts falls within either s 145(2)(a) or s 145(2)(b). In my view, cl 13 falls within s 145(2)(a) in that it contains a general direction for the payment of all of the debts of the testator out of the testator's residuary real and personal estate. Following the approach taken in McPhie v Mackay (supra) it then becomes necessary, in order that the operation of s 145(1) can be displaced by a contrary or other intention, to find words that either expressly or by necessary implication refer to all or some part of the charge over the relevant property.
In this case, both the charge over the Bathurst property and the charge over the Fairfield West property are expressly referred to in cl 13 (see paragraphs (c) and (b) respectively). It seems to me that a question thus arises as to whether a contrary or other intention is "further signified" by those express references.
Before turning to that question some observations should be made concerning the notion of "contrary or other intention".
The relevant intention for the purposes of s 145(1) is that the charged property (referred to as "the property so charged") shall, as between the persons claiming through the deceased, be primarily liable for payment of the charge, and every part of the property, according to its value, shall bear a proportionate part of the charge over the whole of the property.
In Re Horton (deceased) [1969] NZLR 598 at 601, a case concerning s 149 of the Property Law Act 1952 (NZ), Richmond J referred to the editorial note to Re Wakefield [1943] 2 All ER 29 and adopted it as a correct statement of the law. The note reads:
A devisee takes property subject to the charges upon it unless the testator has expressed a contrary intention. In order that a contrary intention may be shown, it is not enough that the testator has clearly ear-marked certain money for that payment in his life. That shows no intention how he intended the charge to be borne after his death as between the specific devisee and his residuary estate. The facts which are relied upon as showing a contrary intention must specifically refer to the manner in which the charge has to be borne after his death and as between the parties entitled under his will.
This statement of principle was cited with apparent approval by Robb J in Sotiropoulos v Sotiropoulos [2015] NSWSC 855 at [97].
Richmond J continued in Re Horton (deceased) (supra) at 601:
The cases of In re Nicholson, Re Wakefield, and In re Birmingham (supra) clearly support the proposition that the will or other documents must disclose an intention as to what is to happen after the death of the testator. The other requirement referred to in the note is that the intention thus disclosed must be one which specifically refers to the manner in which the charge has to be borne as between the parties entitled under the will. This second requirement finds support in a passage from the judgment of Russell J. in In re Nicholson (at p. 251) wherein the learned Judge referred to a letter written by the testatrix in her lifetime as showing "no intention of any sort or kind that, as between the specific legatee and the residuary legatee, the debt should be borne by the latter". This passage was referred to by Lord Greene M.R. in Re Wakefield (supra) at p. 31. Quite apart from authority, however, it is apparent that s. 149 of the Property Law Act is concerned with the incidence of a debt as between the different beneficiaries in the estate of the testator. It is not concerned with the responsibility for payment of such debt as between the estate and the secured creditor. It follows that the contrary intention signified by the testator must relate to the incidence of the debt as between the parties entitled under the will.
In my opinion, the express references in cl 13 of the will to the mortgage over the Fairfield West property and the mortgage over the Bathurst property do signify a contrary or other intention for the purposes of s 145(1) of the Conveyancing Act. The references follow the general direction in cl 13(a) for the payment of all of the debts of the testator out of the residuary estate. The expression "all debts…" found in paragraph (a) is apt to include the mortgage debt in respect of the two properties (see Re Forsyth; Wyatt v Forsyth (1929) 29 SR (NSW) 411 at 416). The references in paragraphs (b) and (c) to the discharge of the mortgage over each property reveal an intention that the mortgage debt, along with all other debts, would be paid out of the residuary estate, and that upon the payment of the mortgage debt the mortgage over both properties should be discharged. However, I do not think that cl 13 can be read as providing for an order for the payment of debts whereby the debt secured over the Fairfield West property is to be met out of the residuary estate before the debt secured over the Bathurst property. The clause does not include language apt to establish an order for payment (e.g. "and then…"), and the inclusion of "legacies" in paragraph (a) tends against it. In any case, the same debt is secured over each property, and there is but one mortgage over both properties.
In my opinion, the references to the mortgage signify an intention that, as between the persons claiming through the deceased, the residuary estate (which, if sufficient, ultimately devolves upon the plaintiff) shall be primarily liable for the payment of the charge. To that extent only, a contrary or other intention for the purposes of s 145(1) is shown.
I note that the defendant did not submit that a contrary or other intention was shown in that way. It was the defendant's contention that a contrary or other intention could be found in the terms of cl 8 of the will, which contains directions concerning the Fairfield West property. It was submitted that those provisions (in particular paragraphs (a), (b) and (d)) reveal an intention that the property not be sold for so long as the defendant exercised her rights to live in the property, provided only that the defendant met the various conditions placed upon such right. The defendant submitted that there was an intention that the Bathurst property be resorted to first for the payment of the mortgage debt.
I do not agree that cl 8 contains a contrary or other intention that displaces the operation of s 145(1) in relation to the Bathurst and Fairfield West properties. Clause 8 is concerned with the right given to the defendant to reside in the Fairfield West property (see Batey v Potts (2004) 61 NSWLR 274; [2004] NSWSC 606 at [25]). It does not in terms deal with the payment of debts or with liability for debts as between the beneficiaries. It is evident from the terms of the will, in particular cl 13, that the deceased hoped that the residue of the estate might be sufficient to pay all debts so as to enable a discharge of the mortgage over the Fairfield West and Bathurst properties, and indeed leave a surplus that could be applied towards the maintenance and upkeep of the Fairfield West property until it was sold. Clause 8, when read in that context, cannot in my view be read as providing, in effect, that the mortgage debt be borne primarily by the Bathurst property. Neither does it exhibit an intention that the mortgage debt be borne primarily by the Bathurst property in the event that the residue proves inadequate for the payment of all debts.
I have therefore concluded that the will signifies a contrary or other intention for the purposes of s 145(1) of the Conveyancing Act, namely, that the residuary estate is to be primarily liable for the payment of the mortgage.
However, as matters turned out, the residuary estate was inadequate to meet all of the testator's debts, including the mortgage debt. The residuary estate appears to have had a value of only about $21,000. The Locke Kings legislation has been interpreted so that charged property is exonerated from primary liability for the charge only to the extent of the contrary or other intention shown. Accordingly, if a fund that is earmarked for payment of the charge proves insufficient, the charged property is primarily liable for the remaining debt (see In re Birch [1909] 1 Ch 787 at 789-790; In re Fegan [1928] 1 Ch 45 at 51-53).
That being the case, upon the exhaustion of the residuary estate the Bathurst and Fairfield West properties remain, as between the persons claiming through the deceased, primarily liable for the payment of the mortgage. In addition, the respective properties must bear a proportionate part of the mortgage debt secured over both properties, according to their respective values (see Haimes v Goode (1932) 33 SR (NSW) 1 at 6; Sotiropoulos v Sotiropoulos (supra) at [31] and [88]). At the date of the death of the testator, the Bathurst property was worth $310,000 and the Fairfield West property was worth $450,000. On that basis, the respective portions to be borne are 31/76 for Bathurst and 45/76 for Fairfield West.
The parties submitted a schedule of calculations to the effect that the amount of the mortgage debt as at the date of death, plus interest, is $134,339.72. If that is correct, the amount to be borne by the Bathurst property would be $54,796.46 and the amount to be borne by the Fairfield West property would be $79,543.26. Expressing the matter in terms of the burden to be borne by the beneficiaries of the gifts of the properties, the plaintiff would have to bear $94,568.09 and the defendant would have to bear $39,771.63.
The respective burdens to be borne by the beneficiaries may be affected by payments the plaintiff has made on account of the mortgage since the date of the testator's death. The evidence is unclear as to the amount of the payments so made by the plaintiff, but the reduction of the mortgage debt to about $59,000 suggests that the amount is considerable.
The plaintiff, in her capacity as executor, is prima facie entitled to be indemnified out of the assets of the estate for the total amount of such payments (see Hardoon v Belilios [1901] AC 118 at 123-125). The plaintiff may enforce that right by way of an equitable lien or charge over the trust assets (see Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367). That interest prevails over the interests of beneficiaries, so that the beneficiaries cannot call for a distribution of assets until the charge is satisfied (see Vacuum Oil Company Pty Ltd v Wiltshire (supra) at 335; Octavo Investments Pty Ltd v Knight (supra) at 367; Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [47]-[49]). The lien or charge is enforceable by a court order for the sale of trust property. The trustee satisfies the indemnity by way of reimbursement out of the proceeds of sale.
To the extent that the plaintiff does not exercise her rights of indemnity, her interest would nonetheless need to be taken into account in assessing the rights of the beneficiaries of the estate inter se (see Balkin v Peck (1998) 43 NSWLR 706 at 712).
The plaintiff has indicated that unless the defendant finds some way to meet her share of the burden of the mortgage that is to be borne by the Fairfield West property, the plaintiff will seek an order for the sale of that property. The plaintiff has agreed to allow a reasonable period to enable the defendant to seek to come up with the funds necessary for that purpose. I think that is an appropriate and sensible course to take in the circumstances. A period of about two months seems to me to be sufficient. If a satisfactory resolution of the matter cannot be achieved in that time, the Court will entertain an application by the plaintiff for an order for sale.
At this stage, the Court will give declaratory relief to the effect: (1) that the will signifies a contrary or other intention within the meaning of s 145(1) of the Conveyancing Act that the residuary estate shall be primarily liable for payment of mortgage AF417855; and (2) that in circumstances where the residuary estate is insufficient for the payment of all debts the mortgaged properties remain, as between the persons claiming through the deceased, primarily liable for payment of the mortgage, with the Bathurst property to bear 31/76 of the burden and the Fairfield West property to bear 45/76 of the burden.
The Court directs that the parties bring in, within 14 days, Short Minutes of Order which give effect to these reasons.
[5]
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Decision last updated: 15 March 2017