(2015) 106 ACSR 207
In re Tempest (1866) LR 1 Ch App 485
Johnstone v Johnstone (1902) 2 SR(NSW) Eq 90
8th and 9th Defendants)
Source
Original judgment source is linked above.
Catchwords
(2015) 106 ACSR 207
In re Tempest (1866) LR 1 Ch App 485
Johnstone v Johnstone (1902) 2 SR(NSW) Eq 908th and 9th Defendants)
Judgment (3 paragraphs)
[1]
Solicitors:
Patrick Hargraves & Co (Plaintiffs)
Bilbie Dan (Defendants)
File Number(s): 2016/282743
[2]
Judgment
HIS HONOUR: The principal question on these applications is who should be appointed as the trustee or trustees of the trust or trusts arising under a will and codicil of the Late Nicola Arena who died on 10 July 1963.
Probate of Nicola Arena's will and codicil was granted to his daughter, Connie Arena, on 14 January 1964.
By his will dated 10 November 1953, Nicola Arena appointed his daughter Connie as the executrix and trustee of the will and gave her his residence in Storey Street, Maroubra ("the Maroubra property"), together with the furniture and contents, on trust to permit his daughters Connie, Angelina and Josephine to reside there and to have the use and benefit of the residence for their joint lives, or the life of the last survivor and, on the death of the last of those three daughters, for their children.
Connie died in October 1971, Angelina died in May 2008 and neither had any children.
Josephine is now 88 and was admitted to a nursing home in December 2015. She suffers from advanced dementia as well as physical ailments. She has no children. It is likely that the initial gift of the will will fail on Josephine's death.
The will and codicil provided, in substance, that the residue of the estate was given to the trustee of the will to pay debts, funeral and testamentary expenses and death duties and was to be held on trust to divide any income thereof between the testator's nine children, and on the death of the last surviving child, to be held for their children in equal shares. Josephine is the last surviving child.
Pursuant to s 22 of the Wills, Probate and Administration Act 1898 (NSW) the testator's grandchildren will become beneficially entitled to the Maroubra property on Josephine's death, except in the very unlikely event that she were to have a child.
There are 12 grandchildren who are contingent beneficiaries and who may become entitled to a share of the Maroubra property.
After Connie's death in 1971 probate of her will was given to her husband, Rocco, who was the sole executor of that will.
On 18 April 1972 he made a deed whereby he appointed, or purportedly appointed, Angelina and Josephine to be trustees of the will, that is to say, trustees of Nicola Arena's will, in place of Connie.
It appears that after Angelina's death Josephine acted as the sole surviving trustee of the will.
No issue directly arises today as to the validity of the 1972 appointment and neither party argued that it was invalid.
It is clear from the medical evidence that Josephine does not have the capacity to act as trustee and it would seem that she has not had that capacity for some time.
On 26 March 2013 Josephine executed an enduring power of attorney in favour of Nicholas Arena, John Sarich and Rosemary Zizzo. They are cousins and three of the grandchildren.
I am told that Josephine lived in the Maroubra property until she moved to a nursing home in December 2015.
The property is currently in disrepair and is not tenanted. Estimates of the costs of putting it into a lettable condition range from between $10,000 to $20,000 to upwards of $150,000. Its estimated market value is approximately $1.8-$2 million.
By their summons filed on 21 September 2016, the three attorneys appointed by Josephine under her enduring power of attorney seek an order that they be appointed as trustees of the testamentary trust or trusts in substitution for Josephine.
In the alternative, they seek the appointment of Mr Christopher Francis Windeyer, a solicitor with L Rundle & Co, as trustee, and they seek a vesting order.
The defendants are Josephine, as first defendant, and the other grandchildren.
Seven of the grandchildren oppose the plaintiffs' application and seek the appointment of the NSW Trustee and Guardian as both administrator of the estate of the late Nicola Arena and as trustee of the testamentary trust established under Nicola's will and codicil.
The defendants served evidence that indicated a high degree of friction between the cousins and between Nicholas Arena and his brothers.
It appears that a substantial cause of that friction relates to steps taken by Nicholas (he says acting in accordance with Josephine's wishes and instructions) to demolish a family vault at Botany Cemetery and replace it with a family memorial. Those steps involved the cremation of bodies in the vault and it appears that the steps were taken without the knowledge of a number of his cousins.
Counsel for the plaintiffs accepted that there are substantial difficulties in the way of the plaintiffs being appointed as trustees of the trusts of the will.
The first is that they are attorneys for Josephine who is a life tenant. As attorneys under the enduring power of attorney their obligation is to act for Josephine's benefit in a way which best promotes her interests.
As trustees of the trust or trusts under the will, they would be required to weigh the interests both of Josephine as life tenant and the interests of the remaindermen. Issues are likely to arise which would bring that conflict of duty and duty to a head.
An issue for a new trustee will include whether money can and should be raised on security of the Maroubra property to put it into a lettable state. At present it does not earn income for Josephine as a life tenant. Questions will arise as to how much money should be raised for that purpose and what repairs should be conducted.
Another issue which a new trustee could be expected to face is whether an application should be made, perhaps under s 81 of the Trustee Act 1925 (NSW), to vary the trusts of the will to confer power on the trustee to sell the Maroubra property. If so, issues will arise as to how the proceeds of sale should be invested in the interests of both Josephine as life tenant to income and the remaindermen as to capital.
In Hancock v Rinehart [2014] NSWSC 658 Brereton J said (at [27]) that whilst the court prefers not to appoint a beneficiary or a relative as trustee with a view to avoiding a conflict of interest, this yields to necessity in exceptional circumstances. Here there are no exceptional circumstances.
It is said in Jacobs' Law of Trusts in Australia (8th ed 2016, Butterworths) at [15-64] that, although the court may appoint as trustee a solicitor who is solicitor for a beneficiary or a tenant for life, as a rule it will not do so.
The same considerations will apply, if anything a fortiori (that is to say, all the more strongly), to the appointment of attorneys under power of a tenant for life.
Secondly, there is the position of the plaintiffs as themselves contingent beneficiaries.
In Johnstone v Johnstone (1902) 2 SR(NSW) Eq 90; [1902] NSW St Rp 83 Walker J said (at 92) that "[t]he Court is very loath to appoint as trustee anyone who has a beneficial interest in the estate", and that the practice of the court is to appoint an independent person unless there are strong reasons for appointing a beneficiary.
His Honour also accepted that the bare fact that ill feeling is proved to exist between the beneficiaries, one or some of whom are opposed to the appointment of a trustee, is in itself a reason to be taken into account against such person's appointment (at 92).
In re Tempest (1866) LR 1 Ch App 485 was referred to in this connection in Johnstone v Johnstone. It is perhaps somewhat more nuanced than that might suggest. There Turner LJ said (at 487) that the court will not appoint a person to be trustee with a view to the interest of some of the persons interested under the trust, in opposition either to the wishes of the testator or to the interest of others of the cestuis que trusts.
This principle addresses the position of a conflict that a trustee would face between his or her duty to the interests of the beneficiaries as a whole and the interests of a particular person or persons whom he or she might wish to, or might be required to, advance.
The third consideration pointing against the appointment of the plaintiffs as trustees is the friction and apparent ill will which exists between at least Nicholas Arena and at least some of the defendants. The existence of that friction or ill will is itself, as Walker J said in Johnstone v Johnstone, a reason for not appointing the plaintiffs as trustees (see also Hancock v Rinehart at [28] and Hancock v Rinehart [2015] NSWSC 646 at [124]; (2015) 106 ACSR 207).
It is not necessary on this application to decide on the merits of the defendants' complaint about the dealings with the family vault in the Botany Cemetery. The fact that there are disputes in relation to that indicates a further potential conflict of interest that at least Nicholas Arena could face if he were appointed as trustee. I apprehend that the defendants would say that the family vault is an asset of the estate and would complain that Nicholas Arena dealt with that asset without authority. That would place him in a position of conflict.
The next reason for not appointing the plaintiffs as trustees is that they are related to each other. They are cousins. In Jacobs' Law of Trusts in Australia, the learned authors say (at [15-61]:
"Where there is more than one trustee the trustees should be independent persons. Relatives will not, in general, be appointed trustees together."
The plaintiffs advance as a reason for their appointment that they have no intention of seeking any commission or payment in relation to their activities as trustees. That is something that could operate for the benefit of the estate as a whole. The appointment of either the NSW Trustee and Guardian or, I would expect, the appointment of Mr Windeyer, would result in incurring of liabilities to pay commission or remuneration or the like to either of them. But I do not think that that is a consideration that can outweigh the other considerations which strongly point against the plaintiffs' appointment.
As to the position of Mr Windeyer, the first observation is that only he is nominated to be appointed as trustee of the trusts of the will. It is contrary to the practice of the Court to appoint a sole trustee where the appointment of an individual or individuals is sought.
Again, in Jacobs' Law of Trusts in Australia the learned authors say (at [15-69]) that:
"[T]he court usually requires two trustees at least - it will not allow the property to be in the hands of a sole trustee, unless in very special case ... ."
That position applies even where it is a solicitor who is nominated for appointment as a sole trustee (Moore v McKelvey (1906) 23 WN (NSW) 100).
Next, there was no evidence as to Mr Windeyer's experience in administering estates and, in particular, as to his experience in weighing the interests of life tenant and remaindermen. Nor indeed was there any affidavit as to his fitness. That is not to say that I would doubt Mr Windeyer's fitness or experience. But I do not think it possible to take judicial notice of those matters and the fact is that there is no evidence as to either of them.
In my view the NSW Trustee and Guardian should be appointed. I can assume that there is long experience in its office in dealing with situations such as the present where the interests of life tenant and remaindermen have to be considered and balanced.
It will be a task for it to consider whether it is in the interests of the life tenant and remaindermen that money be raised on security of the property to put it into a lettable state, or for the trusts to be sought to be varied to enable the sale of the Maroubra property, if that is necessary and appropriate, and for the investment of proceeds.
Of course, the appointment of the NSW Trustee and Guardian will come at a cost to the estate. But so would the appointment of a solicitor, Mr Windeyer. It is not possible to say what the greater cost would be likely to be.
The defendants also sought the appointment of the NSW Trustee and Guardian as administrator of the estate. The NSW Trustee has consented to acting as trustee of the trust created under the will and codicil and to being appointed as administrator of the estate.
The defendants' argument is that the first trust established by the will, being the trust of the Maroubra house property for the three daughters of the testator, and thereafter for their children, is likely to fail. The defendants submit that at that point, at least, the administration of the estate will need to be completed.
They also say that the second trust arising under the gift of residue, has not yet come into existence because it appears that at the moment there is no trust property in residue and such a trust will only arise when, by virtue of s 22 of the Wills, Probate and Administration Act 1898 (NSW) the Maroubra property comes to be held on trust for the grandchildren.
I think it unnecessary to examine the correctness of these submissions. There may well, in any event, be other aspects of the estate administration which will arise, for example, in relation to the costs orders in respect of this application.
I think that at least for abundant caution it is appropriate that the NSW Trustee and Guardian be appointed as administrator of the Late Nicola Arena's estate as well as being appointed as trustee of the trusts, and I use the plural advisedly, of the will.
That raises a question as to the position of Josephine as trustee. I am told that she has not been served. I have alluded to the medical evidence. It indicates that she has serious issues relating to impaired memory and what is said to be moderate to severe Alzheimer's dementia, as well as a significant hearing impairment and other physical infirmities to which it is not necessary to refer in these reasons.
Because it does not appear to be contested that she assumed the office of trustee it is, I think, necessary for an order to be made for her removal. It is not suggested that her office as trustee lapsed automatically by reason of her incapacity. She is on the opposite side of the record to the plaintiffs. But this application is brought by them, I think, largely in her interests. It is certainly in her interests to be removed as trustee and it was common ground that the plaintiffs as her attorneys would be proper persons to be appointed as her tutor. I will in due course make such an order and dispense with any further requirement for service on Josephine as first defendant and I will hear from the parties as to whether it would be appropriate for her to be removed as first defendant and joined as a co-plaintiff. That should not have any costs consequences so far as she is concerned, because the plaintiffs as her tutor would, in any event, be responsible for any adverse costs orders. Moreover, for the reasons to which I am about to come, I would not be minded to make any order for costs against her in any event, whether she is joined as co-plaintiff or remains a defendant.
The only remaining issue concerns costs. The plaintiffs submit that their costs should be paid out of the estate on the ordinary basis notwithstanding that I will not make the orders for the appointment of a trustee as sought by them. The defendants submitted that the plaintiffs should bear their own costs, so that their costs should not be paid out of the estate, nor paid by the defendants. The defendants also submitted that the plaintiffs should be ordered to pay their costs.
In support of that submission, counsel for the defendants said that it was clear from 21 June 2016 that the defendants, or at least some of them, would strongly oppose the appointment of the plaintiffs as trustees of the estate. By a letter dated 21 June 2016 from the defendant's solicitors to the plaintiffs' solicitors that was made clear. The defendants' solicitors in the same correspondence said that the plaintiffs had already attempted to perform duties that should have only been performed by new trustees of the estate. The solicitors asked whether the plaintiffs had any proposal for the appointment of a new trustee other than themselves.
It seems that the response to that correspondence was the filing of the summons on 21 September 2016, in which, as an alternative, the appointment of Mr Windeyer was sought. It also appears that it was not until the defendants filed their cross-summons on 6 December 2016 that the defendants proposed the appointment of the NSW Trustee and Guardian. That cross-summons was filed together with quite voluminous evidence that raised issues concerning the suitability of the plaintiffs to be appointed as trustees and which ventilated at some considerable length the objections that the defendants, or some of them, have had to various steps taken by the plaintiffs, and in particular Nicholas Arena, including in relation to the replacement of the family vault.
Some application for the appointment of a new trustee was necessary.
It was said that the plaintiffs should have appreciated that the application for their own appointment was doomed to fail and hence that the costs orders sought by the defendants should now be made. I think that puts the matter too highly. An essential question is whether the proposed appointment would promote or impede the execution of the trusts. I think that with the service of the defendant's evidence demonstrating the degree of friction between the cousins, or in some cases brothers, the plaintiffs should have foreseen that their application was unlikely to succeed. But I would not go so far as to say that prior to then they should have assumed that their application would be doomed to fail, particularly as it does not appear that any alternative order had at that stage been proposed by the defendants, whereas it is clearly essential that some new trustee or trustees be appointed.
That having been said, the plaintiffs have failed on this application and the defendants have succeeded. But the application relates to how an estate in which all parties are interested is to be administered. It is not simply an application whereby one party seeks to obtain an order for his or her benefit to the disadvantage of the opposite party. All parties have directed their submissions ultimately as to what is in the best interests of the estate considered as a whole.
In my view the appropriate orders are as follows. First, that the defendants' costs should be paid out of the estate on the ordinary basis. This means that some part of their costs will be borne ultimately by the defendants themselves by a reduced share from the estate. But I do not think that that is inappropriate having regard to the need for there to be some litigation in order to enable the trust estate or the estate to be administered. Secondly, I think it is appropriate to order that the plaintiffs' costs also be paid out of the estate up to the filing of the defendant's cross-claim, that is up to 6 December 2016. Thereafter, however, for the reasons which I have given, I think the plaintiffs ought to bear their own costs; in other words, that there be otherwise no order as to the plaintiffs' costs, to the intent that they bear their own costs after 6 December 2016.
In summary, orders should be made as follows.
First, an order appointing the plaintiffs as the tutors of the first defendant.
Secondly, I will hear from the parties as to whether Josephine should be removed as the first defendant and joined as a co-plaintiff, although I do not think anything turns on that.
[Parties addressed.]
Counsel for the plaintiffs suggests that that is appropriate and the defendant has no submission about it, so I will also make an order for the removal of Josephine as first defendant and her being joined as an additional plaintiff.
Next, for an order appointing the NSW Trustee and Guardian as trustee of the testamentary trusts created by Nicola Arena pursuant to his last will dated 10 November 1953 and codicil dated 1 October 1958 in substitution for Josephine Faulks.
Next, vesting order as provided for in paragraph 2 of the cross-summons.
Next, an order pursuant to s 22 of the NSW Trustee and Guardian Act 2009 (NSW) that the administration of the estate be granted to the NSW Trustee and Guardian with the will annexed, that is to say, an order in accordance with paragraph 3 of the cross-summons.
Next, an order that the defendants' and cross-claimants' costs of the proceeding be borne out of the estate.
Next, that the plaintiff's costs incurred up to 6 December 2016 also be borne out of the estate and that there be otherwise no order as to the plaintiffs' costs, to the intent that they bear their own costs incurred after that date.
Otherwise order that the claims for relief in the summons be dismissed.
I direct counsel to bring short minutes accordingly at a convenient time.
[3]
Amendments
22 February 2017 - Para 37: "family fault" in penultimate sentence amended to "family vault".
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Decision last updated: 22 February 2017