Cottrell v Miglic
[2025] VSCA 145
•27 June 2025
| SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2024 0032 S EAPCI 2024 0043 |
| STEPHEN COTTRELL & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Applicants/Cross-respondents |
| v | |
| LISA MIGLIC & ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Respondents/Cross-applicants |
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| JUDGES: | McLEISH, LYONS and KENNY JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 29 April 2025 |
| DATE OF JUDGMENT: | 27 June 2025 |
| MEDIUM NEUTRAL CITATION: | [2025] VSCA 145 |
| JUDGMENT APPEALED FROM: | Re Miglic [2024] VSC 20; Re Miglic [Nos 2 and 3] (Supreme Court of Victoria, Gorton J, 8 February 2024) |
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WILLS AND ESTATES – Mutual wills agreement – Husband and wife made wills in substantially mirror form leaving estate to survivor or if no survivor to respondents being children of husband – Husband’s will less favourable to respondents than prior will – Wife made five subsequent wills leaving increasingly generous dispositions to applicants – Husband not consenting to subsequent wills – Husband predeceasing wife – Whether judge erred in finding husband and wife intended to be bound by mutual wills agreement – Respondents testified to meeting with husband and wife who described testamentary arrangements and mutual wills agreement – Wider context supporting testimony – Not in issue that husband considered agreement binding – Judge’s finding correct.
TRUSTS – Tracing – Aunt inherited share of residuary estate with life interest in income and capital sum passing to applicants upon her death – Expert evidence showing capital sum growing to $900,000 if invested in mixed investment portfolio – No evidence how capital sum treated – Applicants argued aunt mixed trust property with own property – Judge could not exclude possibility capital sum held in term deposit – Judge found no basis for tracing to specific assets – Whether basis for tracing to mixed assets in aunt’s estate upon principle that where fiduciary mixes trust property with their own whole is treated as trust property – Mixed assets in aunt’s estate $1,136,099 – Subject property capable of pro rata division – No basis for remedy in excess of capital sum – No error in judge rejecting tracing claim.
APPEAL – New point on appeal – Claim for equitable compensation or constructive trust arising from various breaches not advanced at trial – Resolution of claim requiring consideration of factual issues and expert evidence – Not expedient in interests of justice to permit claim to be raised on appeal.
COSTS – Order for costs to be paid out of estate – Whether error in judge’s order – Probate rule justifying costs out of estate where testator cause of litigation – Testator’s conduct may be relevant to costs discretion in non-probate cases – Open for judge to treat controversy as other than ordinary adversarial litigation between beneficiaries – Relevant to consider whether defendants acted reasonably in conducting litigation – Relevant to consider size of estate – No error in judge’s approach.
APPEALS – Costs – Leave to appeal – Exceptional to grant leave to appeal costs orders – Matters of general principle – Specific kind of costs order – Leave appropriate unless no real prospect of success – Leave to appeal granted.
Birmingham v Renfrew (1937) 57 CLR 666; Fox v Percy (2003) 214 CLR 118; Robinson Helicopter Company Inc v McDermott (2016) 90 ALJR 679; Lee v Lee (2019) 266 CLR 129; Mantovani v Vanta Pty Ltd [No 3] [2022] VSC 357, referred to; Re Goodchild, deceased [1997] 1 WLR 1216; Shovelar v Lane [2012] 1 WLR 637, explained; Foskett v McKeown [2001] 1 AC 102; Toksoz v Westpac Banking Corporation (2012) 289 ALR 577, distinguished; Re Buckton [1907] 2 Ch 406, considered; Sambucco v Sambucco (2023) 72 VR 121, applied.
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| Counsel | |||
| Applicants/Cross-respondents | Mr JP Moore KC with Mr P Reynolds | ||
| Respondents/Cross-applicants: | Mr P Collinson KC with Mr A Verspaandonk | ||
Solicitors | |||
| Applicants/Cross-respondents: | WJ Gilbert & Co Lawyers | ||
| Respondents/Cross-applicants: | Rigby Cooke Lawyers | ||
COTTRELL V MIGLIC
TABLE OF CONTENTS
Background and issues in the proceedings
Grounds of appeal
Mutual wills — principles
Judge’s reasons on the mutual wills case
Appellants’ submissions on ground 1
Respondents’ submissions on ground 1
Consideration — ground 1
Grounds 2–4 — the trust under Gertrude’s will
Judge’s reasons — grounds 2-4
Appellants’ submissions — grounds 2-4
Respondents’ submissions — grounds 2-4
Consideration — grounds 2-4
Tracing
Equitable compensation
Conclusion on grounds 2–4
Orders for costs — cross-appeal
Judge’s reasons
Respondents’ submissions — cross-appeal
Appellants’ submissions — cross-appeal
Consideration of the cross-appeal
Conclusion
SCHEDULE OF PARTIES
MCLEISH JA
LYONS JA
KENNY JA:
Marilyn Cottrell died on 13 June 2020. Letters of administration with her will dated 14 November 2018 annexed were granted to Ines Kallweit on 25 March 2022.
Two significant issues arose in relation to Marilyn’s estate.[1] The first was whether Marilyn and her late husband Kurt Miglic had entered into a binding ‘mutual wills’ agreement, with the result that Marilyn’s estate was held on trust to be administered in accordance with that agreement, rather than the terms of her will. The second issue was the effect of Marilyn’s treatment of a bequest made by Marilyn’s mother in favour of her grandchildren, who were Marilyn’s nephew and two nieces.
[1]Without disrespect, we will refer to the principals in this case by their first names.
After a trial, a judge in the Trial Division held that Marilyn and Kurt had entered into a mutual wills agreement in 1993, with the result that Kurt’s children (the plaintiffs at trial and now the first and second respondents) were entitled to share in Marilyn’s estate in accordance with that agreement, to the exclusion of Marilyn’s latest will and its bequests to Marilyn’s nephew and nieces (who were the defendants at trial, along with Ms Kallweit, and are the applicants for leave to appeal).[2] This finding is the subject of the first proposed ground of appeal.
[2]We will refer to Kurt’s children as ‘the respondents’, notwithstanding Ms Kallweit’s status as the third respondent. Ms Kallweit took no active role in the proceedings.
The judge also held that Marilyn held the sum of $60,000 from her mother’s estate on trust for her nephew and nieces. By counterclaim, they had contended that the relevant sum was $100,000 and that they were entitled to trace that sum to an amount of up to $4.25 million. This is the subject of the remaining three proposed grounds of appeal.
The judge ordered the defendants’ costs of the trial to be paid out of Marilyn’s estate. In so far as it concerns the costs of Marilyn’s nephew and nieces, that order is the subject of an application for leave to cross-appeal on the part of the respondents.
As will become apparent, the application for leave to appeal raises substantial issues and leave to appeal should be granted. We therefore refer to the applicants as ‘the appellants’. For the reasons that follow, however, the appeal should be dismissed.
Leave should likewise be granted to cross-appeal, but that appeal should also be dismissed.
Background and issues in the proceedings
The respondents Lisa Miglic and Andrea Esnouf are the adult daughters of Kurt and Kate Miglic. In about 1966, Kurt and Kate separated. Kurt subsequently commenced a relationship with Marilyn, and they married in 1971. Relations between Kate, Kurt and Marilyn were civil. Kate continued to attend family functions, and she received regular dental treatment from Kurt, who was a dental surgeon.
Marilyn’s mother was Gertrude Cottrell. Gertrude had one other child, Gavin Cottrell. Gavin was the father of the appellants, Stephen Cottrell, Louise Austin and Victoria Hardy. Marilyn had no children of her own.
In 1976, Kurt and Marilyn became the joint registered proprietors of a property at 24A Albany Road, Toorak.
Gertrude died in 1977. Her will appointed Gavin and Marilyn as her executors and trustees of her estate. Gertrude bequeathed various chattels and otherwise required, initially, that the residue of the estate be held on trust to provide income to Gavin and Marilyn in equal shares for their lives, and then for the capital sum to be paid to the appellants. Marilyn and Gavin duly obtained probate of Gertrude’s will in 1978 and each received a half share in the residuary estate. The judge found that Gertrude died with assets worth approximately $203,500. The terms of the will required Marilyn to pay the capital to the appellants upon her death, Gavin having predeceased her in 2018.
On 15 October 1981, Kurt made a will which generally provided for some assets to pass to the respondents immediately, and others to Marilyn for the duration of her life and then to the respondents. On 29 June 1988 Kurt made a further will which, among other things, bequeathed $150,000 to the respondents as tenants in common in equal shares, and gave the remainder of his estate to Marilyn for life and then to the respondents.
Marilyn made a will on 30 June 1988. It provided for the distribution of sums of money and various chattels to the appellants, either immediately or upon Kurt’s death. Among these bequests was $60,000 for the appellants ‘as repayment of the debt owing to the estate of … Gertrude’. She gave her jewellery and clothing to the respondents, and the residue of her estate to Kurt, or the respondents if Kurt predeceased her.
On 5 March 1993, Kurt and Marilyn made the wills that are the subject of the first issue in this appeal. The wills largely mirrored each other. Kurt left his estate to Marilyn absolutely or, if she predeceased him or failed to survive him by 30 days, to the respondents. Marilyn left her estate to Kurt absolutely or, if he predeceased her or failed to survive her by 30 days, she gave a sum of $20,000 to the appellants as tenants in common in equal shares, and the balance of her estate to the respondents.
On 20 December 2001, Marilyn executed a new will. Consistently with her 1993 will, she bequeathed her estate absolutely to Kurt, but, if he predeceased her or failed to survive her by 30 days, she gave a sum of $20,000 to each of the appellants, an increase from the $20,000 to be shared among them under the 1993 will. The remainder was then to go to the respondents, as before.
On 14 September 2005, Marilyn executed a further will. It provided for substantial legacies to the appellants: $350,000 to Stephen and Louise and $500,000 to Victoria. The residue of the estate was left to Kurt, or the respondents if Kurt predeceased her. On 30 September 2005, Marilyn severed the joint tenancy to the Albany Road property so that it was then held by her and Kurt as tenants in common.
Kurt died in 2007, having left his 1993 will unrevoked. All of Kurt’s estate passed to Marilyn accordingly.
In 2011, 2014 and 2018 Marilyn made further wills that progressively increased the share of her estate that was to be left to the appellants. Her 2011 will gave them each legacies of $700,000. Her 2014 will increased those legacies to $1,000,000, while also introducing a legacy of $1,000,000 to Andrea, in recognition of ‘her life time of giving me her loving care and attention’. The 2011 and 2014 wills each left the residue of Marilyn’s estate to the respondents.
Marilyn’s 2018 will adopted a quite different approach. It provided for the distribution of proceeds of sale of the Albany Road property in equal instalments to Stephen, Louise, Victoria, Lisa and Andrea. The property was ultimately sold for $11.5 million, and, as the judge found, was ‘by far Marilyn’s major asset’.[3] The will also provided for Andrea to receive Marilyn’s ‘gold articles’ and assets held in a superannuation fund. The residuary estate was left to Andrea, Louise and Victoria.
[3]Re Miglic [2014] VSC 20 [5] (Gorton J) (‘Reasons’).
On 20 April 2022, the respondents filed a statement of claim alleging that Kurt and Marilyn had made a mutual wills agreement to the effect that each of them would not change their 1993 wills without the other’s consent. The appellants denied the existence of such an agreement.
On 19 October 2023, after the completion of oral evidence at the trial, the appellants were given leave, without opposition, to file a further amended defence and counterclaim. By their counterclaim, the appellants alleged that Marilyn had applied the capital of the testamentary trust established by Gertrude’s will for her own use and benefit. They sought a declaration that $4,250,000 or such other sum as the Court found just and equitable was held on trust for them as beneficiaries of Gertrude’s estate, and an order requiring the administrator to pay them that amount.
Grounds of appeal
The appellants appeal on the following grounds:
(1)The trial judge erred in finding that [Kurt and Marilyn] intended to be legally bound not to change their 1993 wills without the other’s consent.
(2)The trial judge erred in finding that Marilyn … did not breach the trust established by clauses 5 and 6 of Gertrude’s will.
(3)The trial judge erred in failing to find that the administrator of the estate of Marilyn ... was required to pay the [appellants] equitable compensation.
(4)The trial judge erred in failing to find that the $60,000 that Marilyn … received from the estate of Gertrude … could be traced into assets held by her at the date of her death.
The cross-appeal advances a single ground in the following terms:
In exercising the discretion as to costs, the primary judge acted upon a wrong principle and allowed extraneous or irrelevant matters to guide or affect the decision, in that:
(a)This was ordinary hostile litigation between beneficiaries;
(b)The so-called rule in probate cases did not apply;
(c)Whether the cross-respondents acted reasonably in defending the proceeding was an irrelevant consideration;
(d)The size of the estate was an irrelevant consideration.
Mutual wills — principles
The first ground of appeal turns in part on the principles concerning mutual wills. As the following discussion shows, these principles have a long history and are well established.
Dixon J explained the doctrine of ‘mutual wills’ in Birmingham v Renfrew:[4]
It has long been established that a contract between persons to make corresponding wills gives rise to equitable obligations when one acts on the faith of such an agreement and dies leaving his will unrevoked so that the other takes property under its dispositions. It operates to impose upon the survivor an obligation regarded as specifically enforceable. It is true that he cannot be compelled to make and leave unrevoked a testamentary document and if he dies leaving a last will containing provisions inconsistent with his agreement it is nevertheless valid as a testamentary act. But the doctrines of equity attach the obligation to the property. The effect is, I think, that the survivor becomes a constructive trustee and the terms of the trust are those of the will which he undertook would be his last will.[5]
[4](1937) 57 CLR 666.
[5]Ibid 683. See also Baird v Smee [2000] NSWCA 253 [65] (Giles JA, Mason P agreeing at [1]) (‘Baird’).
The relief given in equity is by way of specific performance, ‘converting the party promising and all volunteers deriving under him into mere trustees of the property in question’.[6] The rationale for equity to intervene is the equitable fraud consisting of the betrayal of the basis upon which the parties reached an agreement, on the faith of which the first testator acted.[7]
[6]Birmingham v Renfrew (1937) 57 CLR 666, 685 (Dixon J) citing Francis Hargrave, Juridical Arguments and Collections (GG & J Robinson, 1797–99) vol 2, 295.
[7]Osborne v Osborne [2001] VSCA 228 [24] (Buchanan JA, Winneke P agreeing at [19], Vincent JA agreeing at [30]) (‘Osborne’).
Such an agreement can only be established by ‘clear and satisfactory evidence’.[8] Latham CJ elaborated:
Those who undertake to establish such an agreement assume a heavy burden of proof. It is easy to allege such an agreement after the parties to it have both died, and any court should be very careful in accepting the evidence of interested parties upon such a question. Perhaps most husbands and wives make wills ‘by agreement’, but they do not bind themselves not to revoke their wills. They do not intend to undertake or impose any kind of binding obligation. The mere fact that two persons make what may be called corresponding wills in the sense that the existence of each will is naturally explained by the existence of the other will is not sufficient to establish a binding agreement not to revoke wills so made.[9]
[8]Birmingham v Renfrew (1937) 57 CLR 666, 681 (Dixon J).
[9]Ibid 674–5 (Latham CJ) (citations omitted).
The promises in question may be verbal rather than in writing.[10] These principles apply irrespective of whether the dispositions in the two wills are identical, and are not confined to cases where, in the words of Dixon J, one party to the agreement takes property under the will of the other.[11]
[10]Ibid 685–6 (Dixon J).
[11]Ibid 683; see also 674–5 (Latham CJ), 692 (Evatt J); Osborne [2001] VSCA 228 [24]–[25] (Buchanan JA, Winneke P agreeing at [19], Vincent JA agreeing at [30]), citing Re Dale [1994] Ch 31, 48–9 (Morritt J).
The cases draw a clear distinction in this context between agreements binding in law and those binding only ‘in honour’.[12] Many spouses make corresponding wills by agreement, without binding themselves not to revoke them. It has been said that such wills are ‘infinitely more likely to be the product of mutual trust and moral responsibility than a binding obligation not to revoke’.[13]
[12]Legg v Burton [2017] 4 WLR 186 [20] (Matthews J), citing Lord Walpole v Lord Orford (1797) 3 Ves Jun 402; 30 ER 1076, 1084–5 (Lord Loughborough LC); Re Cleaver, deceased [1981] 1 WLR 939, 947 (Nourse J).
[13]Osborne [2001] VSCA 228 [15] (Winneke P); see also [29] (Buchanan JA), [30] (Vincent JA).
The appellants placed weight on observations in some of the cases to the effect that the parties must have intended the wills in question to operate ‘in all circumstances and in all cases’.[14] For example, in Re Goodchild, Leggatt LJ said:
A key feature of the concept of mutual wills is the irrevocability of the mutual intentions. Not only must they be binding when made, but the testators must have undertaken, and so must be bound, not to change their intentions after the death of the first testator. The test must always be, suppose that during the lifetime of the surviving testator the intended beneficiary did something which the survivor regarded as unpardonable, would he or she be free not to leave the combined estate to him? The answer must be that the survivor is so entitled unless the testators agreed otherwise when they executed their wills. Hence the need for a clear agreement.[15]
[14]Baird [2001] NSWCA 253 [12] (Mason P), citing Re Oldham [1925] Ch 75, 88 (Astbury J).
[15]Re Goodchild, deceased [1997] 1 WLR 1216, 1225 (Leggatt LJ, Morritt LJ agreeing at 1229, Phillips LJ agreeing at 1231).
In our view, the appellant’s reliance on this passage was misplaced. Contrary to the appellants’ submission, this passage shows that it is not essential that the wills are to operate ‘in all circumstances and all cases’, because the parties might agree otherwise. As a matter of principle, a written mutual wills agreement may provide for exceptions to the operation of the wills in question. The same is true of an oral agreement. Caution must therefore be attached to the ‘test’ propounded by Leggatt LJ by reference to ‘unpardonable’ conduct propounded in this passage.
Further, it is not immediately clear why the contract required for the operation of the mutual wills doctrine can only provide for exceptions to the operation of the wills in question by means of express terms, to the exclusion of terms implied according to the principles in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[16] The answer to the question, what was to happen in the event of ‘unpardonable’ conduct by an intended beneficiary, might be answered by reference to an implied term, rather than by concluding that no binding agreement can have been intended at all. The posited ‘test’ is no substitute for the application of ordinary contractual principles, bearing in mind the particular context in which the agreement is said to have been made.
[16](1977) 180 CLR 266.
In any event, no term entitling the parties to amend their wills without consent in particular circumstances, whether express or implied, has been suggested in the present case. Nor is it suggested that there has been ‘unpardonable’ conduct on the part of either of the respondents.
Judge’s reasons on the mutual wills case
The judge observed that the respondents sought to establish an oral agreement made about 30 years ago that could only be proved by hearsay evidence of prior representations made by Kurt and Marilyn, who had since died.[17] It was impossible for the appellants to cross-examine them, and the passage of time meant that the testimony of other witnesses could be unreliable.[18] It was therefore necessary to carefully scrutinise the evidence, recognising the gravity of finding a mutual wills agreement.[19]
[17]Such evidence is admissible under s 63(2) of the Evidence Act 2008.
[18]Reasons [10], citing Watson v Foxman (1995) 49 NSWLR 315, 319 (McLelland CJ in Eq); Roberts-Smith v Fairfax Media Pty Ltd [No 41] (2023) 417 ALR 320–1 [162]–[166] (Besanko J); [2023] FCA 555.
[19]Reasons [11], citing Osborne [2001] VSCA 228 [29] (Buchanan JA, Vincent JA agreeing at [30]).
The judge concluded that the respondents gave honest evidence, and that the evidence as a whole established, on the balance of probabilities, that Kurt and Marilyn had entered into a mutual wills agreement in 1993. The judge referred to a combination of surrounding circumstances and oral evidence in support of his conclusion. He found that Marilyn’s entry into such an agreement would not be discordant with ordinary human behaviour. Andrea, Lisa and Marilyn were part of each other’s families. Marilyn had no children of her own and was unlikely to ever have any. Kurt never provided Kate with substantial assets that would found a significant inheritance for the respondents, whereas the appellants might have been expected to inherit from their own father, Gavin. Importantly, when Marilyn made her 1993 will, Kurt altered his testamentary arrangements so that his children’s inheritance became entirely dependent on Marilyn.[20]
[20]Ibid [16]–[19], [116]–[117](a).
The judge found that the 1993 wills represented a significant departure from the previous wills of both Marilyn and Kurt. If he died first, Kurt had previously left a life interest to Marilyn, with his children, the respondents, to receive the estate after her death. Irrespective of who died first, Kurt had in his previous will left $150,000 to be shared between the respondents. Now, if he were to die first, his whole estate would pass to Marilyn.[21]
[21]Ibid [23]–[25].
Marilyn’s 1993 will reduced the provision she had previously made for the appellants. If Kurt were to die first, the appellants would share in a bequest of $20,000. If she were to die first, her residuary estate would be left to Kurt.[22]
[22]Ibid [24].
The judge found that there was a meeting in August 1993 between Kurt, Marilyn, Lisa and Andrea for the purpose of explaining that Kurt’s will would bequeath his whole estate to Marilyn, and that Marilyn had agreed to then leave her estate to Lisa and Andrea. The judge found that, at the meeting, Kurt had said he had wanted to leave his estate on trust to Marilyn for life, but that Marilyn had not been prepared to accept that, and that the agreement described to Lisa and Andrea reflected a compromise.[23]
[23]Ibid [27], [117](b).
The judge accepted the evidence of Stuart Esnouf, Andrea’s former husband, that Kurt had visited them in 1998 to discuss concerns he had that Marilyn was drinking and lending money to Gavin. Kurt was concerned about the implications of Marilyn’s behaviour for his children’s inheritance. Stuart suggested that an arrangement involving a trust could protect Kurt’s estate. Kurt said that would not be possible because Marilyn would not agree to it, and stated that he could not change his will without her permission. The judge considered that Stuart’s evidence was powerful and may have been sufficient, standing on its own, to make good the respondents’ case.[24]
[24]Ibid [35]–[37], [117](c).
Kate also gave evidence. The judge described her as an impressive witness. He accepted her evidence that she had obtained assurances from Kurt not long after August 1993, in July 1994, and several years after that, to the effect that his estate would end up with her children, the respondents.[25]
[25]Ibid [117](d).
First, at Kurt’s dental surgery in 1993, Kate said that Kurt told her that the ‘girls’ would be looked after, that he and Marilyn had willed their assets to each other, and that their wills could not be changed without the other’s permission.[26]
[26]Ibid [30].
Secondly, at the Red Emperor restaurant in July 1994, at Kurt’s request, Kate signed the benefit of a life insurance policy over to Kurt. Kate said that she did so only after having obtained Kurt’s assurance that the money from the policy would go to the respondents. She said that both Kurt and Marilyn told her not to worry because ‘it would all eventually go to Lisa and Andrea after they passed away’.[27]
[27]Ibid [32].
Thirdly, Kate asked Kurt again at Christmas a few years later whether the situation with the wills was still the same, and he said that it was. The judge found that, since Kurt was wealthy and had a younger wife likely to survive him, and because Kate herself did not have substantial assets, it accorded with normal human behaviour that she would have a keen interest in ascertaining what arrangements were in place for her children’s inheritance.[28]
[28]Ibid [34], [117](d).
The judge accepted Lisa and Andrea’s evidence that Kurt and Marilyn conveyed to them, ‘as a matter of substance’, that they had entered into a mutual wills agreement, which he said was consistent with his other findings.[29] Their belief that such an agreement had been established was consistent with their having not commenced any proceeding to seek a share of Kurt’s estate when he died. The judge also referred to file notes of Lisa and Andrea’s lawyer Christian Teese, which recorded that they had, since Marilyn’s death, consistently taken the view that her 2018 will was contrary to the mutual wills agreement they asserted.[30]
[29]Ibid [117](e). As set out below, the parties are in dispute as to whether this conclusion was an inference drawn from the evidence as a whole, of a finding of primary fact.
[30]Ibid [79]–[114], [117](e).
Finally, the judge found that the fact that Marilyn was free to dispose of her assets during her lifetime was no reason not to conclude that the mutual wills agreement had been made. Nor was the fact that Marilyn made subsequent wills. She may have mistakenly believed the changes were permissible, or she might have deliberately acted contrary to the agreement.[31]
[31]Ibid [117](f)–(g).
Appellants’ submissions on ground 1
The appellants submitted that it is essential that the parties to a mutual wills agreement intended to be legally bound,[32] rather than only giving moral or honourable undertakings. While acknowledging that the standard of proof was the usual civil standard, they submitted that close scrutiny was required given the inherent unlikelihood of a mutual wills agreement being made and the gravity of the consequences.[33] There was a heavy burden of proof, not least because such an agreement is easy to allege after the parties have died.[34] The appellants contended that, to establish a mutual wills agreement, the court must be satisfied that, even if the intended beneficiaries under the agreement were to do something Marilyn regarded as unpardonable, she would not be free to depart from the 1993 will.[35]
[32]Gray v The Perpetual Trustee Company Co Ltd (1928) 40 CLR 558, 565 (Viscount Haldane for the Privy Council); Baird [2000] NSWCA 253, [25]–[26] (Handley JA).
[33]Briginshaw v Briginshaw (1938) 60 CLR 336, 362 (Dixon J); Osborne [2001] VSCA 228 [27] (Buchanan JA, Vincent JA agreeing at [30]).
[34]Birmingham v Renfrew (1937) 57 CLR 666, 674 (Latham CJ).
[35]Re Goodchild [1997] 1 WLR 1216, 1225 (Leggatt LJ, Morritt LJ agreeing at 1229, Phillips LJ agreeing at 1231). The relevant passage in Leggat LJ’s reasons is set out and discussed at [29] and following above.
The appellants did not challenge the trial judge’s primary findings of fact. They submitted that this Court was in as good a position as the judge to infer from those findings whether the agreement had been made. It was submitted that this Court should conclude that Marilyn did not intend to be bound not to change her will without Kurt’s consent. The appellants did not, however, impugn the judge’s findings as to Kurt’s intention, and accepted that the case should be decided on the basis that Kurt did intend there to be a legally binding agreement.
The appellants submitted that Marilyn faced significant uncertainty about what her future might hold after Kurt died. It was possible she could form a new relationship or come into significant assets of her own. Moreover, Marilyn had consistently adopted a benevolent attitude towards the appellants, as the pattern of will-making preceding and following the making of the 1993 wills showed. In those circumstances, it was inherently unlikely that she intended irrevocably to bind herself to a will that almost entirely favoured Kurt’s children, whatever the future may hold. And it was striking that Kurt and Marilyn never mentioned any intention to be legally bound to their solicitor, John Chamberlin, who drafted their wills in 1993, as well as Marilyn’s five further wills. It was submitted overall that the evidence was equivocal, pointing at most to an informal arrangement between husband and wife.
The appellants impugned the judge’s treatment of the evidence of the four main events upon which the judge relied.
First, as to the meeting in August 1993, the appellants submitted that the judge’s finding that ‘it seems … likely that such a meeting was held to explain to [the appellants] that … Marilyn had agreed to leave her estate to them on her death’[36] was ‘entirely equivocal on the critical issue’. The judge’s reasons disclosed no finding of primary fact that during the meeting Kurt and Marilyn explained that they had, in effect, entered into a mutual wills agreement. Rather, his conclusion that such a representation was made was an inference drawn from his other findings.
[36]Reasons [117](b).
Next, as to the discussion between Kurt and Kate at Kurt’s surgery later in 1993, the appellants submitted that Kurt’s statements that the ‘girls’ would be looked after, that he and Marilyn had willed their assets to each other, and that their wills could not be changed without the other’s permission, were consistent with an informal intention to be bound only in honour. Further, the statements were not made in Marilyn’s presence.
Thirdly, the appellants referred to the discussion between Kurt, Marilyn and Kate at the Red Emperor restaurant in 1994, during which Kate signed over the insurance policy to Kurt having obtained assurances from him that his estate would end up with the respondents. The appellants submitted that Kurt’s assurance did not convey the existence of a legally binding agreement.
Fourthly, in relation to the discussion between Kurt, Stuart and Andrea in 1998, the appellants submitted that Stuart’s evidence was equivocal. Kurt’s statements that it wasn’t possible to change his will because Marilyn would not agree to it, that she would not agree to a trust, and that he could not change his will without her permission related only to the position that Kurt took. The statements reflected a position adopted in point of honour only. The appellants submitted that the fact that Marilyn told Andrea later in the day that she would ‘never betray your father’ by changing her will strongly suggested an informal arrangement. The language of ‘betrayal’ suggested that Marilyn considered that she had legal power to change her will but felt honour bound not to do so.
The appellants submitted that it was wrong to approach the 1993 wills on the basis that they substantially improved Marilyn’s financial prospects, making it more likely that she agreed in return that she would make no further changes to her will without Kurt’s consent.[37] First, the appellants pointed out that Marilyn was always going to obtain the Albany Road property by survivorship if Kurt predeceased her. The improvement in her financial prospects effected by the 1993 wills was therefore relatively modest. Secondly, there was said to be evidence that Marilyn made her own financial contributions, sourced from her parents, to the relationship. Marilyn’s father was a successful businessman who had made a substantial contribution to Gavin’s first home and contributed towards the purchase of facilities for Kurt’s dental practice. There was therefore ‘every prospect’ that Marilyn had wealth independent of Gertrude’s estate that could have contributed to the purchase of the Albany Road property, or other investments. Thirdly, Marilyn’s pattern of will-making before and after 1993 demonstrated that she clearly wanted to retain the ability to accommodate the appellants in her wills, and Gavin’s declining financial position in the 1990s meant that the means for them to acquire a substantial inheritance increasingly shifted to Marilyn. This was said to rebut any suggestion that Marilyn would not have seen herself as a likely source of inheritance to the respondents,[38] and to weigh against any inference that she would have regarded the arrangements under the 1993 wills as so personally advantageous that she was likely to have agreed to a mutual wills agreement in return.
[37]As argued by the respondents below at [57].
[38]See below at [56].
Finally, the appellants submitted that it was highly unlikely that Marilyn made five further wills following her 1993 will mistakenly thinking that she was free to do so, or that she knew she had made a mutual wills agreement but decided to breach it five times, including during Kurt’s lifetime. If Marilyn thought she was able to change her will, that would be inconsistent with the proposition that she ever intended to be legally bound not to do so.
Respondents’ submissions on ground 1
The respondents emphasised the ‘unusual relationship’ between Marilyn and Kurt’s daughters at the time the 1993 wills were made. Lisa gave evidence that she and Andrea ‘had three parents’ from as early as they could remember. Marilyn had no children of her own. She would not have seen herself as a likely source of inheritance to the appellants, given that their father was a successful surgeon living in an affluent suburb. The age gap between Kurt and Marilyn meant it was likely that Marilyn would outlive Kurt, but it was ‘unimaginable’ that she would one day have her own children with a new partner. Kurt was the ‘princip[al] breadwinner’ in the relationship and ran a successful practice as a dentist that contributed very substantially to Kurt and Marilyn’s accumulation of assets.
The respondents observed that the 1993 wills conferred an ‘obvious advantage’ on Marilyn, in that she would obtain full ownership of Kurt’s assets upon his death. They submitted that, in those circumstances, it is natural to suppose that Kurt would have sought an assurance from Marilyn that her will would not change, so that his daughters would still receive their full inheritance. It was highly likely that Marilyn would have been happy to bind herself in return not to change her will without Kurt’s consent. In that respect, Marilyn arguably lost no freedom of testation at all, because she might never have obtained control of the property in the first place, were it not for the mutual wills agreement.[39] The fact that Marilyn left the appellants a smaller bequest in her 1993 will than under her 1988 will was a further sign that the 1993 wills were the result of a compromise involving an improved financial position for Marilyn personally. It was also relevant that the 1993 wills were made contemporaneously and were in nearly identical terms.[40]
[39]Legg v Burton [2017] 4 WLR 186 [61]–[63] (Matthews J).
[40]Baird [2000] NSWCA 253 [71] (Giles JA, Mason P agreeing at [1]).
In these circumstances, it was not inherently unlikely that Marilyn would intend to bind herself whatever the future may hold. Moreover, it was entirely natural that she would wish to leave her estate to Lisa and Andrea.
The respondents referred to Marilyn and Kurt’s failure to inform Mr Chamberlin of the mutual wills agreement, and submitted that this was not unusual.[41] They submitted that by telling family members about the agreement, Kurt took steps to ‘protect the viability’ of the agreement. In this respect, the case was similar to Birmingham v Renfrew, where a party to a mutual wills agreement had described a promise made by another party to the intended beneficiaries, in order to better ensure its fulfilment.[42]
[41]Renfrew v Birmingham [1937] VLR 180; Low v Perpetual Trustees WA Ltd (1995) 14 WAR 35 (‘Low’).
[42]Birmingham v Renfrew (1937) 57 CLR 666, 682 (Dixon J). See also Low (1995) 14 WAR 35, 42 (Master Adams)
The respondents submitted that it was also ‘common enough’ for subsequent wills to be made, notwithstanding a mutual wills agreement.[43] They contextualised Marilyn’s making of subsequent wills by reference to: ‘delusions’ she had developed about the contribution of Gertrude’s inheritance to her wealth; pressure from Gavin to leave a significant share of her estate to his children; the amount of time that passed between making the 1993 wills and the 2005 will (the first of Marilyn’s subsequent wills that substantially increased the appellants’ share in the estate); and Marilyn’s alleged alcoholism.[44]
[43]The respondents supported this claim with reference to Renfrew v Birmingham [1937] VLR 180.
[44]The judge did not make any findings on this point, but it appeared to be common ground amongst the parties that Marilyn consumed a lot of alcohol. At trial, senior counsel for the appellants accepted that she was ‘a drinker’, but sought to downplay the extent and impact of her drinking.
The respondents addressed the four conversations the appellants focused on in their submissions. They submitted that the August 1993 meeting was a business meeting and that the language used by Kurt and Marilyn connoted legal obligations, for example ‘this is a good compromise’, ‘this is a promise I’m making to your father’ and ‘Andrea and [Lisa] should be happy with this compromise’. The respondents argued that the judge’s reasons, properly construed, disclosed a finding of primary fact that Kurt and Marilyn had conveyed to Lisa and Andrea that they had bound themselves not to change their wills without each other’s consent.[45] The judge identified three representations that Kurt and Marilyn conveyed to the respondents: that they had agreed that Kurt would not create a trust; that a small amount would be left to the appellants; and, critically, that Kurt and Marilyn had agreed their wills could not be changed without each other’s consent. The respondents submitted that, on the evidence, those three elements were conveyed at the August 1993 meeting, and that this was the only occasion where those elements were conveyed ‘by and in the presence of’ Kurt and Marilyn.
[45]See Reasons [117](e) and cf [50] above.
The language Kurt used in the discussion with Kate at his surgery in 1993 was also said to connote legal obligations — Kate’s evidence was that Kurt told her the wills ‘can’t be changed’. As for the Red Emperor meeting in 1994, the respondents referred to the judge’s finding that Kurt told Kate that Marilyn had ‘agreed’ to ‘leave everything to the girls’,[46] which they said pointed to a legally binding agreement.
[46]Reasons [32].
In respect of the discussion between Kurt, Stuart and Andrea in 1998, the respondents submitted that the context showed that Kurt considered himself to be bound. His statement that he could not change his will without Marilyn’s consent was in response to a question whether he would consider setting up a trust to effect his testamentary intentions. Marilyn called Andrea later that day, apparently having learned of these discussions, to explain that ‘the wills are not changing’ and that she would ‘never betray your father’. That language was confirmatory of an agreement.
Consideration — ground 1
Having regard to our task on appeal and the appellant’s acceptance of the judge’s findings of primary fact, the issue for determination under the first ground of appeal is relatively confined.
The present appeal is in the nature of a rehearing.[47] In Fox v Percy,[48] Gleeson CJ, Gummow and Kirby JJ said:
The ‘rehearing’ does not involve a completely fresh hearing by the appellate court of all the evidence. That court proceeds on the basis of the record and any fresh evidence that, exceptionally, it admits. …
The foregoing procedure shapes the requirements, and limitations, of such an appeal. On the one hand, the appellate court is obliged to ‘give the judgment which in its opinion ought to have been given in the first instance’. On the other, it must, of necessity, observe the ‘natural limitations’ that exist in the case of any appellate court proceeding wholly or substantially on the record. These limitations include the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses’ credibility and of the ‘feeling’ of a case which an appellate court, reading the transcript, cannot always fully share. Furthermore, the appellate court does not typically get taken to, or read, all of the evidence taken at the trial. Commonly, the trial judge therefore has advantages that derive from the obligation at trial to receive and consider the entirety of the evidence and the opportunity, normally over a longer interval, to reflect upon that evidence and to draw conclusions from it, viewed as a whole.[49]
[47]Perronnet v Goedemans [2025] VSCA 28 [139]–[143] (Niall CJ, McLeish and Kennedy JJA).
[48](2003) 214 CLR 118.
[49]Ibid 125–6 [22]–[23] (citations omitted).
The task of the Court was subsequently described by the High Court in Robinson Helicopter Company Inc v McDermott in the following terms:
A court of appeal conducting an appeal by way of rehearing is bound to conduct a ‘real review’ of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the judge has erred in fact or law. If the court of appeal concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings. But a court of appeal should not interfere with a judge’s findings of fact unless they are demonstrated to be wrong by ‘incontrovertible facts or uncontested testimony’, or they are ‘glaringly improbable’ or ‘contrary to compelling inferences’.[50]
[50](2016) 90 ALJR 679, 686–7 [43] (French CJ, Bell, Keane, Nettle and Gordon JJ) (citations omitted).
Importantly for present purposes, in Lee v Lee, Bell, Gageler, Nettle and Edelman JJ explained:
Appellate restraint with respect to interference with a trial judge’s findings unless they are ‘glaringly improbable’ or ‘contrary to compelling inferences’ is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. Thereafter, ‘in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge’.[51]
[51](2019) 266 CLR 129, 148–9 [55] (Kiefel CJ agreeing at 134 [1]) (citations omitted).
The appellants submitted that the issue in the present appeal depended on the proper inference to be drawn from the judge’s findings of fact, as to which this Court is in as good a position as the judge to decide. Senior counsel for the appellants submitted that the issue could be addressed solely by reference to the judge’s findings, without resort to the evidence.
It was critical to this argument that the judge had not made any finding as to whether or not Kurt and Marilyn had said to Lisa and Andrea, at the meeting in August 1993, that they were unable to change their wills without the other’s consent, as distinct from only having reached a consensus that they would not do so. The judge did not decide this question when considering the evidence of the meeting, but indicated that he would ‘return later to the central question as to whether Kurt and Marilyn also conveyed in this discussion that they had bound themselves not to change their wills without the other’s consent’.[52]
[52]Reasons [29].
The respondents contended that the judge should be taken to have returned to the question in the following passage:
As noted above, I consider that Lisa and Andrea were honest witnesses who did their best to give accurate evidence on the central issues in the case. ... I accept their evidence, consistent as it is with the objective circumstances and Kate’s and Stuart Esnouf’s evidence, that Kurt and Marilyn conveyed to them, as a matter of substance, that they had agreed with each other that Kurt would not create a trust or leave anything to either of them but would instead leave everything to Marilyn absolutely, that Marilyn would leave everything to Lisa and Andrea save for a relatively small amount that would go to the Cottrells, that they had made wills that reflected this agreement, and that they had agreed that they could not change their wills in the future without the other’s consent.[53]
[53]Reasons [117(e)] (emphases added).
The judge’s conclusion is expressed in terms of an agreement, by which Marilyn and Kurt ‘could not change their wills’. This amounts to an agreement that they were legally bound not to change their wills without the other’s consent which, as the cases show, is an essential prerequisite to the efficacy of a ‘mutual wills’ agreement. However, the judge expressed his conclusion, not as a finding of fact as to what was said, but what was ‘conveyed’, as a ‘matter of substance’ based on the whole of the evidence. In other words, he reached the ultimate conclusion as to the existence of a binding agreement without making an intermediate finding that Marilyn and Kurt told Lisa and Andrea that this was what they had agreed upon.
It follows that the appellants are correct in their submission that this Court is in as good a position as the judge to reach its own conclusion on the ultimate question. The appellants went further, however, and submitted that the Court was not able to have regard to the evidence, as distinct from the judge’s findings of fact, in undertaking that exercise. No authority was cited for this proposition. In our view it cannot be correct. The Court’s function of rehearing is not so confined. To the contrary, it requires the Court to review the whole of the case.[54] As part of that review, this Court must decide whether it is in a position to make any finding as to whether Marilyn and Kurt told Lisa and Andrea that they had made a binding agreement.
[54]Roberts-Smith v Fairfax Media Publications Pty Ltd [2025] FCAFC 67 (Perram, Katzmann and Kennett JJ)): ‘In deciding whether a trial judge erred, a court is not entitled to disregard parts of the evidence’.
In these circumstances, the evidence of Lisa and Andrea at the meeting in August 1993 was critical. Andrea gave evidence that Kurt told them, in Marilyn’s presence, that ‘the thing’ about the wills was that they ‘couldn’t be changed’ unless he and Marilyn both agreed. Kurt also told them that Marilyn wanted to leave a small amount of money to the respondents, which he said Lisa and Andrea should be happy with. Marilyn told them that this arrangement was a good compromise with which they should be happy.
It is true that, in cross-examination, Andrea accepted that she had not said in her original statements that anything had been said about the wills not being able to be changed. But the judge accepted that Andrea was an honest witness. We would not infer that her evidence was unreliable on account of this aspect not having been mentioned in her previous statement. Andrea expressly said in her evidence that she was not inferring that the wills could not be changed — it had been said by both Kurt and Marilyn on this occasion.
Later in cross-examination, however, Andrea accepted that she could not recall whether Marilyn had said that neither she nor Kurt ‘would’, as distinct from ‘could’ change their wills without the other’s permission. This is significant because it acknowledges the possibility that the understanding said to have been reached between Kurt and Marilyn was one that was binding in honour only and not in law. This is of course the essential question we are addressing, by reference to the whole of the evidence. In the end, Andrea’s evidence does not point clearly in either direction.
Lisa was more emphatic in her evidence. She said:
Dad said that they had reached an agreement that these wills could not change unless they both agreed, and Marilyn said that’s right, that we — these wills — that unless they both agreed, these wills couldn’t change. And Marilyn said that’s how they had agreed to leave things, and that Andrea and I should be happy with this compromise because it was fair to her in that she got control of her finances during her lifetime in the event that she outlived Dad, and it was fair to us because we got everything at the end of the day.
Lisa did not retract this evidence in cross-examination. She said she had ‘specific memory of certain words that were spoken’. However, albeit without having her attention drawn to the distinction between the words ‘could’ and ‘would’, Lisa agreed when it was put to her that Kurt had said that he and Marilyn had agreed that their wills ‘would never be changed without the other’s permission’. Again, the issue cannot be resolved simply by accepting Lisa’s evidence.
Like the judge, therefore, we must decide whether Marilyn and Kurt made a binding agreement, not simply by accepting the evidence of Lisa and Andrea about the August 1993 meeting, but by a wider consideration of the context in which the wills were made.
It is important to recall that the appellants accept the judge’s conclusion that Kurt considered that the parties were bound not to change their wills without each other’s consent. Their challenge is to the judge’s conclusion regarding Marilyn’s state of mind. The appellants contended that the only evidence directly supporting that conclusion is Lisa and Andrea’s evidence of what Marilyn said at the August 1993 meeting, and that this evidence should not be accepted as reliable. They submitted that it would be a matter of speculation whether Kurt had indicated to Marilyn that he regarded themselves as bound in this way, there being no evidence that they had discussed the matter.
The appellants emphasised several objective factors that they contended pointed against the conclusion the judge reached as to Marilyn’s intention. Marilyn was eight years younger than Kurt and so might reasonably have been expected, in 1993, to outlive him. She had a history of benevolent intentions towards the appellants, as demonstrated by her prior will. She maintained an investment portfolio separate from Kurt and kept her own records of those investments. Neither Marilyn nor Kurt informed Mr Chamberlin, when giving instructions for their wills in 1993 or executing those wills, that they intended to be legally bound not to change the wills without each other’s consent.
The appellants took issue with the judge’s finding that the 1993 wills represented a significant departure from the earlier wills. This was important because it was said that Kurt’s decision to leave his whole estate to Marilyn was only explicable on the basis that she had promised to deal with her estate in a particular way. But the appellants contended that the parties’ joint wealth was overwhelmingly represented by the Albany Road property, which would pass by survivorship to Marilyn if Kurt were to predecease her, irrespective of what was said in their wills. They accepted that the 1993 wills saw the removal of a bequest of $150,000 in favour of Lisa and Andrea that Kurt had included in his 1988 will.
In our opinion, the appellants were right not to challenge the judge’s conclusion that Kurt considered that he and Marilyn had reached a legally binding agreement. He was leaving everything to Marilyn, if he were to die first, omitting the bequest of $150,000 in the respondents’ favour, and their remainder interest in the residuary estate, that had appeared in his previous will. It would be surprising in the circumstances if he had regarded Marilyn as free to depart from the provisions in her will in favour of his children, the respondents. The evidence of his various statements to the effect that he and Marilyn were bound not to change their wills without consent can be readily accepted.
As the appellants pointed out, the fact that the Albany Road property was, at the time, held by Kurt and Marilyn as joint tenants places it in a different position. If Kurt were to die first, the Albany Road property would pass to Marilyn irrespective of the terms of Kurt’s will. By making the 1993 will, Kurt therefore did not affect the treatment of the Albany Road property after his death. But before the 1993 wills were made, if Kurt predeceased Marilyn, the property would have formed part of Marilyn’s residuary estate left to Lisa and Andrea. That position was preserved in Marilyn’s 1993 will, subject to a bequest of $20,000 to be shared between the appellants. If Marilyn could depart from that provision, Kurt would have deprived his children of the $150,000 bequest under his 1988 will for nothing in return, and left them exposed to the risk that they would not receive the proceeds of Albany Road.
These conclusions are unaffected by the question what contribution Marilyn made to the combined assets of herself and Kurt. The making of such contributions would not gainsay the fact that Kurt was removing a $150,000 bequest in favour of his children and agreeing with Marilyn that their wills would each provide in their favour in a different way. Moreover, the fact that Marilyn included a bequest of $20,000 to the appellants in her 1993 will might be referable to the fact of Marilyn’s contributions to the relationship (which remain unquantified). Ultimately, the attempt to draw anything useful from the suggested contributions made by Marilyn founders on the rocks of speculation.
The evidence that Kurt considered that he and Marilyn had made a binding agreement, and not one ‘in honour’ only, went beyond the August 1993 meeting. As the appellants accepted, we conclude that Kurt held that view.
In our opinion, it follows in the circumstances of this case that Marilyn had the same understanding. There is no reason why, at the meeting in August 1993, Kurt would not have explained the testamentary arrangements in the terms he understood them to be, which understanding the appellants did not challenge.[55] Marilyn was present at that meeting and would have heard this explanation. Whether or not she expressed her own understanding, it is clear that she did not demur from what Kurt said. The purpose of the meeting being to inform Lisa and Andrea of the testamentary arrangements Kurt and Marilyn had made in their favour and how they affected Lisa and Andrea, it can safely be inferred that Marilyn agreed with Kurt’s explanation.
[55]See [79] above.
Although at first blush it is surprising that Mr Chamberlin was not told that Kurt and Marilyn intended to be bound to the terms of their wills, neither of them were lawyers. It is also not entirely surprising that Mr Chamberlin did not raise the issue himself (and it was not submitted that he ought to have done so). As the cases confirm, most couples who make wills in the same terms do not intend that they be legally bound not to change them without the other’s consent. But as the respondents submitted, the case resembles Birmingham v Renfrew itself, in which a mutual wills agreement was found, based on evidence of what the testators had said to the intended beneficiaries and not to their solicitor.
In light of these matters, the question of Marilyn’s contribution to the combined assets, and any concern she may have had as to Gavin’s financial position, are both peripheral and speculative, and take the issue no further.
Accordingly, the judge was correct to conclude that the evidence established that Marilyn and Kurt had made a mutual wills agreement as the respondents contended. Ground 1 must be rejected.
Grounds 2–4 — the trust under Gertrude’s will
It will be recalled that grounds 2, 3 and 4 concern the trust under Gertrude’s will. A threshold issue arising under these grounds is whether the relief sought by the appellants raises new allegations that were outside the scope of their case at trial. The relevant aspect of their case was advanced by way of further amended defence and counterclaim which introduced, among other things, the following pleadings:
7DGavin and Mairlyn were appointed as the executors and trustees of Gertrude Cottrell’s estate and as to the half share bequeathed to Marilyn for life, notwithstanding the terms of the testamentary trust in Gertrude’s Will, Marilyn applied the capital thereof for her own use and benefit during her lifetime and thereby created a resulting trust in favour of the estate of Gertrude which she acknowledged and set off and treated as a loan evidenced in her [1988 will] and in subsequent Wills whereby she bequeathed amounts to Gertrude’s grandchildren …
7EIn the premises, any trust in favour of the [respondents] over Marilyn’s estate is subject to an excision of an amount representing the resulting trust in favour of Gertrude Cottrell’s estate which pre-dated any trust created by an alleged mutual Wills agreement in 1993, the value of which is to be determined …
…
24[The appellants] are entitled to an order that the Court declare that an amount of $4.25 million (or such other amount as the Court deems just and equitable) represents the present quantum of the value of one half of Gertrude Cottrell’s estate, is now held within the amounts held by the … administrator of the estate of Marilyn Cottrell, upon a resulting trust in favour of the [appellants] pursuant to the terms of Gertrude Cottrell’s Will.
The appellants sought the following relief:
AA declaration that an amount of $4.25 million or such other sum as the Court finds just and equitable is not part of Marilyn Miglic’s estate but rather is held on a resulting trust for the second to fourth defendants as the residuary beneficiaries of Gertrude Cottrell’s estate, who are entitled same.
BAn order that the first defendant pay to the second to fourth defendants, from the monies held by her as administrator of the estate of Marilyn Miglic, the said sum of $4.25 million or such other sum as the Court finds just and equitable.
Judge’s reasons — grounds 2-4
The judge determined that, as at 1988, Marilyn held $60,000 on trust for the appellants on the terms of Gertrude’s will. Although the appellants had claimed that the amount in question was $100,000, that is not pressed on the appeal.[56]
[56]Reasons [119]–[125].
The judge held that, if Marilyn had invested the $60,000 in a manner that caused it to increase in value, rather than simply to generate income for her, she would hold the increased capital sum on trust. There was, however, no direct evidence as to whether or how the $60,000 sum was invested and, if so, whether it increased or reduced in value. There was evidence that Marilyn had a share portfolio, held money in bank accounts including in fixed-term deposits, bought artworks and, with Kurt, invested in real estate, including works at the Albany Road property. But there was no evidence that proceeds of Gertrude’s estate were used to acquire these assets or, if so, which ones.[57]
[57]Ibid [126], [129]–[130].
Kurt and Marilyn’s accountant, Ian Carswell, gave evidence that Marilyn had her own money and that she ‘kept probably two or three term deposits rolling over about … $100,000’. That evidence was consistent with an inventory of assets prepared on Marilyn’s death and was accepted by the judge.[58]
[58]Ibid [131].
The judge held that, in order to establish an entitlement to more than $60,000, the appellants needed to prove that the money received by Marilyn from Gertrude’s estate in 1978 was invested in a way that led to some ascertainable capital growth. The appellants had submitted that the $60,000 could be assumed to have been invested in broadly the same way Marilyn invested generally — through a combination of cash, property and shares — and that an increase in the value of the sum could be determined having regard to market movements established by expert evidence. The judge rejected that submission on the basis that it was possible Marilyn placed the $60,000 in a term deposit, which would have provided her with income without growing the underlying deposit. Given that ‘very real prospect’, the judge was not persuaded that he should infer that the money was instead mixed with Marilyn’s own funds and spread across her investments.[59]
[59]Ibid [132]–[134].
The judge said that the appellants, in substance, invited the judge to trace the initial sum into other assets without any evidence as to how the initial sum was treated. That would involve ‘impermissible speculation’.[60] It followed that the appellants had failed to establish that at the time of her death Marilyn held any more than $60,000 on trust for the appellants. Having found that that amount was not distributed before Marilyn’s death, the judge made a declaration that $60,000 of Marilyn’s estate was held on trust for the appellants.[61]
Appellants’ submissions — grounds 2-4
[60]Ibid [134].
[61]Ibid [134]–[136].
Ground 2 contends that the judge erred in finding that Marilyn did not breach the trust established by Gertrude’s will. Ground 3 alleges that the judge erred by failing to order that Marilyn’s estate pay the appellants $900,000 in equitable compensation by reason of that breach. Ground 4 contends that the judge should have applied tracing principles to find that $1,136,099.81 was held on trust for the appellants as a result of Marilyn’s failure to keep the initial sum separate from her own assets.
In respect of the question of breach, the appellants referred to a number of trustees’ duties: to adhere to and carry out the terms of the trust, to get in trust property, to keep trust property separate from their own property, to keep proper accounts, to invest trust funds properly, to act fairly and impartially between different classes of beneficiaries and not to profit from their fiduciary position. The appellants submitted, in particular, that where there are life tenants and remaindermen, a trustee must maintain an ‘equitable balance’ between income and capital,[62] and that, in the usual course, that would involve investing trust funds in a way that produces income while increasing the capital. Investing the trust property solely to earn interest would have benefitted Marilyn alone, leaving the nominal capital sum depreciating in real terms.
[62]Re Pauling’s Settlement Trusts [No 2] [1963] 1 Ch 576, 585–6 (Wilberforce J).
The appellants submitted that Marilyn failed to perform each of those duties, but the ‘primary breach of trust’ was in converting the money for her own use and mixing it with her own. The judge found, by reference to language in her 1988 will, that Marilyn misunderstood the $60,000 to be a debt. It was said to follow that Marilyn mixed the trust property with her own property, thereby converting it for her own use, and failed to invest it having proper regard to the interests of the appellants as capital beneficiaries. That inference was supported by evidence of Mr Carswell that Marilyn told him that the money she inherited from Gertrude substantially contributed to the accumulation of her wealth.
The appellants submitted that they were entitled to equitable compensation to place them in the position they would have been in had the breach not occurred.[63] They submitted that, in that context, a court is entitled not to speculate against the interest of a plaintiff beneficiary, and is entitled to make assumptions against a defaulting trustee.[64] In particular, they submitted that it was to be assumed that Marilyn would have invested the $60,000 in the most advantageous way possible, being in shares or real property, or a mixture of both. They relied on the expert evidence of Corey Plover, an actuary, to submit that the $60,000 would have grown to $900,000 by October 2023, had it been invested in a mixture of shares, term deposits and real property.
[63]Nocton v Lord Ashburton [1914] AC 932, 952 (Viscount Haldane LC); O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262, 272 (Spigelman CJ, Priestley JA agreeing at 280, Meagher JA agreeing at 281).
[64]GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 [71] (Warren CJ, Chernov JA agreeing at [87], Dodds-Streeton AJA agreeing at [95]).
The appellants also sought a remedy based on principles of tracing. In that regard, their written case focused on the tracing process undertaken by the judge, submitting that he erred, first, by failing to apply the special tracing rules that apply against a defaulting trustee, and, secondly, by requiring that the appellants show a ‘precise causal chain’ linking the money received in 1978 to the assets held in Marilyn’s estate.[65]
[65]AWC [28].
The appellants submitted that, where a trustee takes money from a mixed account and those funds are lost, the trustee is taken to have dissipated the trustee’s own money first.[66] Further, where a trustee has taken money from a mixed account and acquired assets with it, the trustee is taken to have acquired the assets for the benefit of the trust.[67] They then relied on the principle that, when a trustee mixes trust funds with their own, the whole of the funds will be treated as trust property unless the trustee is able to distinguish what is theirs.[68] They argued that money can be traced even where it is not possible to connect each link in a chain of accounts, and that, especially where there has been no explanation how assets have been treated, common sense and reasonable inference play their part in the inquiry.[69]
[66]Re Hallett’s Estate (1879) 13 Ch D 696 (Jessel MR).
[67]Re Oatway [1903] 2 Ch 356.
[68]Foskett v McKeown [2001] 1 AC 102, 133 (Lord Millett, Lord Browne-Wilkinson agreeing at 111, Lord Hoffmann agreeing at 115) (‘Foskett’).
[69]Toksoz v Westpac Banking Corporation (2012) 289 ALR 577, 579 [8]–[10] (Allsop ACJ, Hoeben JA agreeing at 584 [32], Sackville AJA agreeing at 584 [33]); [2012] NSWCA 199 (‘Toksoz’).
Kurt’s shares, a motor vehicle and the Albany Road property aside,[70] Marilyn’s personal estate was worth $1,136,099.81 (which included jewellery held on another specific trust under Gertrude’s will). That amount was broadly consistent with Mr Plover’s evidence that the $60,000 would have been worth $900,000 by October 2023. Accordingly, the trial judge should have held that the administrator of Marilyn’s estate held $1,136,099.81 on constructive trust for the appellants (albeit that strictly, the jewellery was held on the separate trust).
[70]The appellants accepted that these assets could not be traced to the inheritance under Gertrude’s will.
The appellants submitted that both personal and proprietary remedies were sought at trial. Their amended counterclaim alleged a breach of trust and paragraph B of their prayer for relief sought payment of up to $4.25 million or ‘such other sum as the Court finds just and equitable’ from Marilyn’s estate.[71] That could only be understood as seeking equitable compensation, and it was described to the trial judge in analogous terms (‘equitable damages’). It was a freestanding basis for relief, separate from the relief sought by way of declaration in paragraph A that was the foundation for their proprietary claim (styled in this Court as a constructive trust claim).
[71]See [90]–[91] above.
Respondents’ submissions — grounds 2-4
The respondents argued that grounds 2 and 3 raised new allegations well outside the scope of the appellants’ case at trial. They referred to the judge’s holding that, to make good their counterclaim, the appellants were required to demonstrate that the $60,000 was invested in a way that led to some ascertainable capital growth.[72] They said that this reflected the parties’ and the judge’s shared understanding that the appellants were seeking a tracing remedy in respect of the ‘resulting trust’ referred to in the appellants’ pleadings and prayer for relief.
[72]Reasons [132].
The respondents submitted that paragraph B of the prayer for relief had to be read with paragraph A. Paragraph A sought a declaration, and without an associated order for payment of the relevant sum, would have afforded no practical relief to the appellants. It was therefore not open to construe paragraph B as seeking equitable compensation. During discussion at trial the judge stated that what was sought was ‘effectively a tracing remedy’, and that ‘no one’s suing … for breach of trust’. The judge went on to give reasons that grappled with the difficulty of tracing the initial asset into other assets in circumstances where there was no evidence as to how the initial asset was treated.[73] In doing so, he was responding to the only case that was advanced. That case was reflected in the instructions given to Mr Plover directed to establishing the present value of the capital bequest, rather than what that value would have been if Marilyn had invested the sum in growth assets.
[73]Ibid [134].
While the respondents accepted that the case at trial was ‘probably one of breach’ by a failure of Marilyn to keep trust assets separate from her own,[74] they argued that there was never any ‘wide ranging’ case encompassing breach of the various duties referred to by the appellants. The case was much simpler, specifically, that Marilyn applied the capital for her own use and consequently created a resulting trust in favour of Gertrude’s estate.[75] It was never argued that it would have been a breach of trust for Marilyn to have invested the funds solely to earn interest. If that had been in issue, the judge would not have formulated his conclusions in terms reflecting the resolution of a tracing claim.[76] Nor would the respondents have run the case in the way they did. They would have put on their own expert evidence and made submissions addressing the proper approach to investment in the circumstances of the case.[77]
[74]The respondents did not, however, concede that there was intermingling of assets. On this point, they said there was no way to know, and noted the possibility that the amount was preserved in one of Marilyn’s term deposits.
[75]See [90] above.
[76]Ibid [133]–[134].
[77]The respondents said that Nestle v National Westminster Bank plc [1994] 1 All ER 118 (‘Nestle’) is illustrative of the type of evidence that would have been led had an equitable compensation claim been advanced. They focused, in particular, on competing expert evidence and attention to the personal circumstances of life tenants and remaindermen, as reflected at 136–7.
In respect of ground 4, the respondents submitted that tracing is a process involving the determination whether an asset is the traceable product of another asset. They submitted that a tracing claim can only succeed where the transactions constituting the links to the traceable product are capable of ascertainment.[78] The appellants were required to lead evidence of relevant transactions, but at trial they ‘effectively conceded’ that no such evidence was available. Nor was there any transaction upon which to apply the principle that a trustee is taken to have dissipated their own money first, in circumstances where they have taken money from a mixed account and such funds are then lost.[79] If anything, the fact that the inheritance from Gertrude was still described as a ‘debt’ of $60,000 in the 1988 will suggested there had been no capital growth in the 10 years since the sum was bequeathed. That underscored the fact that there was no basis for the judge to have worked out how, if at all, the money was invested.
[78]Taylor v Plumer (1815) 3 M & S 562; 105 ER 721, 726 (Lord Ellenborough CJ); Re Diplock [1948] 1 Ch 465, 536–7 (Lord Greene MR, Wrottesley and Evershed LJJ).
[79]Re Hallett’s Estate (1879) 13 Ch D 696 (Jessel MR).
Consideration — grounds 2-4
The judge found that, when Gertrude died in 1977, she held assets worth approximately $203,500.[80] That finding is not challenged. It is also accepted by the respondents that, as at 1988 when she made her will, Marilyn held $60,000 on trust for the appellants, subject to her right to the income on that sum during her lifetime.[81] The trust was created by cl 5 of Gertrude’s will, which relevantly provided that her trustees were to hold the net moneys arising from the sale and conversion of her residuary estate and ‘any ready money’ forming part of that estate on trust ‘to pay the income arising therefrom to [Gavin and Marilyn] and … on the death of the survivor to hold both capital and income for [the appellants]’.
[80]Reasons [119].
[81]Ibid [124].
The appellants relied on evidence of Mr Plover that an investment of $100,000 in ‘some combination of growth assets’ from October 1978 would have accumulated to the present day to a capital sum of about $1.5 million net of taxation. Mr Plover estimated that investment in roughly equal portions of shares, property and term deposits or cash would have had a capital-only accumulated value of between $625,000 and $1 million, depending on whether the portfolio was continuously rebalanced.[82]
[82]Ibid [126].
At trial, the appellants sought by way of counterclaim a declaration that $1.5 million of Marilyn’s estate was held on trust for them. The counterclaim was based on the contention, no longer maintained, that the amount held by Marilyn under Gertrude’s will was $100,000. Adjusting that figure to $60,000, as found by the judge, the amount claimed was $900,000.
Tracing
The counterclaim pleaded that Marilyn applied the capital of the half share of Gertrude’s estate held by her ‘for her own use and benefit during her lifetime’, giving rise to a resulting trust in favour of the appellants. If, therefore, there was a trust in favour of the respondents by virtue of the mutual wills agreement for which they contended, it was subject to ‘excision of an amount representing’ that resulting trust. The prayer for relief sought a declaration that $4.25 million ‘or such other sum as the Court finds just and equitable’ was not part of Marilyn’s estate but was held on a resulting trust for the appellants, and an order that such amount be paid to the appellants.[83]
[83]The amount of $4.25 million was based on a calculation by Mr Plover which assumed that income would be reinvested.
At trial, the appellants submitted that Marilyn’s estate was indebted to them to the extent of Marilyn’s inheritance from Gertrude ‘that she has applied for her own use and benefit contrary to the trust’ established by Gertrude’s will. They submitted that the Court ‘must do the best it can to preserve the amount that was held on trust’ for the appellants pursuant to the terms of Gertrude’s will.
In their written closing submissions, the respondents submitted that Mr Plover’s calculations presupposed that the appellants sought ‘a tracing remedy … whereby the money is traced to growth assets held by Marilyn’. The respondents submitted that a tracing remedy is only available if the misapplied moneys can be traced to a particular asset. In a mixed fund, it is presumed that any expenditure from the fund is personal expenditure of the fiduciary’s funds, such that, if there is money from which to recoup trust moneys, that may be done.
The respondents also submitted that, contrary to the assumption in Mr Plover’s calculations, the capital had not been invested in any growth asset. There was no evidence connecting any of Gertrude’s funds with any particular asset, let alone a ‘growth asset’. In any event, the appellants had no entitlement to income before Marilyn’s death on 13 June 2020. In oral submissions, junior counsel for the respondents contended that Marilyn was under no obligation to invest the sum in any growth asset.
The respondents accepted at trial that, if it could be inferred that the appellants had not received the capital sum, then Marilyn’s estate would be subject to a trust in their favour, which it was submitted should be in the amount of $60,000.
In oral reply submissions at trial, senior counsel for the appellants submitted that Marilyn had invested in art, jewellery, shares and property and the Court should trace to whatever was left in the estate. The best evidence of the value of that property was said to be Mr Plover’s calculation of capital growth based on investment in a ‘mixed array of property, shares, and term deposits’.
At trial, the essential dispute was whether the capital sum held by Marilyn’s estate under the terms of Gertrude’s will could be traced to any particular asset and, if so, what sum out of Marilyn’s estate should be impressed with a trust in favour of the appellants. On the latter question, the appellants argued at trial for the calculation undertaken by Mr Plover by reference to mixed assets, in which Marilyn could be assumed to have invested.[84] The amount claimed was $1,500,000, based on a capital sum of $100,000. As mentioned, that translated to $900,000 in light of the conclusion that the correct starting figure was $60,000.
[84]In the appeal, but it seems not at trial, reference was made in this context to Toksoz.
The basis for claiming more than $60,000 was that the trust sum was now represented by other assets, which had increased in value, to which the appellants had a proportionate entitlement for which Mr Plover’s estimate of present day value stood, strictly, as a proxy (being based, not on proportionate contributions to the traced property, but on the amount that would have been expected to be generated by investing the trust sum separately). That argument failed at trial because the appellants could not establish the premise that the trust sum was now represented by other assets.
In the appeal, the appellants did not challenge the judge’s finding that they had not identified specific property to which the trust sum could be traced. Instead, they sought to trace by reference to the principle articulated by Lord Millett in Foskett v McKeown to the effect that, where a fiduciary mixes trust property with their own, the whole of the property will be treated as the trust property, except so far as the trustee can distinguish what is theirs.[85] As already indicated, that principle was not relied on at trial, although the appellants argued that it was very closely related to authorities that were before the trial judge. On the appeal, it was submitted that the principle applied because it was not in doubt that Marilyn had mixed the trust property with her own, in breach of trust. As a result, it was submitted, the assets held by Marilyn at her death (other than the Albany Road property, certain shares left to Marilyn by Kurt and a motor vehicle) were all held on trust for the appellants. The total amount was $1,136,099.81.
[85][2001] 1 AC 102, 133 (Lord Millett, Lord Browne-Wilkinson agreeing at 111, Lord Hoffmann agreeing at 115).
If permitted to be advanced on appeal, this argument would have the difficulty that there is no evidence of the specific mixing of assets, upon which the claim for any amount exceeding $60,000 depends. Although the pleading referred to the amount the court thought just and equitable, as ultimately argued at trial, reliance was placed on Mr Plover’s calculation of the present day value, which was a proxy, in effect, for quantifying the pro rata contribution of the trust sum to the value of the estate as a whole.
As the respondents submitted at trial, Mr Plover’s calculations did not found a basis for a remedy in any particular sum unless the assumptions underlying those calculations were supported by evidence of how Marilyn actually invested the capital sum. The fact that there was no evidence on that issue meant that there was no basis for a remedy in excess of the sum itself (in an appropriate case, together with simple interest since the date of Marilyn’s death, which was not pressed).
A further issue is whether an exception explained by Lord Millett in Foskett would have application — if the property in question consists of money (as Gertrude’s residuary estate would have done at some point after the sale of assets for which the will provided), the beneficiary is not entitled to the whole of the mixed property but only to a pro rata division.[86] That would entitle the appellants only to that part of the net estate that was attributable to their $60,000 contribution. Again, Mr Plover’s evidence of present day value might offer a rough proxy for that figure, but in truth the evidence is entirely silent as to Marilyn’s treatment of the trust sum..
[86]Ibid 133.
On a generous reading of the pleading, a case of mixing trust and personal property was advanced at trial. But it was a different case. It was not sought to quantify the amount held on ‘resulting trust’, or the amount that it was ‘just and equitable’ to order be paid, by reference to the above arguments. This is another obstacle to the appellants’ attempt to invoke the argument by way of appeal.
Tracing has been described as ‘the process of identifying a new asset as the substitute for the old’,[87] or ‘a process whereby assets are identified’.[88] Where one asset has been exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner.[89] In Foskett, Lord Millett explained:
The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund ...
Both remedies are proprietary and depend on successfully tracing the trust property into its proceeds. A beneficiary’s claim against a trustee for breach of trust is a personal claim. It does not entitle him to priority over the trustee’s general creditors unless he can trace the trust property into its product and establish a proprietary interest in the proceeds. If the beneficiary is unable to trace the trust property into its proceeds, he still has a personal claim against the trustee, but his claim will be unsecured.[90]
[87]Foskett [2001] 1 AC 102, 127 (Lord Millett, Lord Browne-Wilkinson agreeing at 111, Lord Hoffmann agreeing at 115).
[88]Ibid 109 (Lord Browne-Wilkinson).
[89]Ibid 127 (Lord Millett, Lord Browne-Wilkinson agreeing at 111, Lord Hoffmann agreeing at 115).
[90]Ibid 130 (emphasis in original).
A similar principle applies where trust money has been used to provide part of the cost of acquiring an asset. The beneficiary in that situation has the option of claiming a proportionate share of the asset or to enforce a lien upon the asset to secure their claim for the amount misapplied.[91]
[91]Ibid 130, citing James Barr Ames, ‘Following Misappropriated Property into its Product’ (1906) 19(7) Harvard Law Review 511.
Tracing involves the application of property law. It is neither a claim nor a remedy.[92] It does not depend on any question of unjust enrichment. If the claimant succeeds, it is by virtue of principles of property law which are not discretionary and ‘do not depend upon ideas of what is “fair, just and reasonable”’.[93] Rather, they depend on the establishment of an ‘equitable proprietary interest in identified property’.[94] Lord Millett put it this way in Foskett:
[Tracing] is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.[95]
[92]Foskett [2001] 1 AC 102, 128 (Lord Millett, Lord Browne-Wilkinson agreeing at 111, Lord Hoffmann agreeing at 115).
[93]Ibid 127.
[94]Ibid 108 (Lord Browne-Wilkinson).
[95]Ibid 128 (Lord Browne-Wilkinson agreeing at 111, Lord Hoffmann agreeing at 115).
Whether put as a case of acquiring assets using the trust sum of $60,000 or acquiring part of those assets, the claim at trial failed at the threshold, because it could not be shown that the sum had been put towards any particular asset, as distinct, say, from placing it in a term deposit account. Identification of specific assets being essential to the tracing process, the claim failed.
As has been seen, the problem is now sought to be circumvented by submitting that the appellants could, in effect, trace to the whole of Marilyn’s estate. But this again presupposes that the trust sum was not placed in a term deposit account, in circumstances where it could not be shown that the trust sum had been applied to acquire any art, jewellery, property or shares, or any capital growth asset at all.
The appellants submitted, in reliance on Toksoz, that common sense should lead the Court to draw the inference that the trust sum formed part of the combined assets of Marilyn’s estate. But, for this to be accepted, the appellants needed to establish that Marilyn did not keep the trust sum separate. Common sense does not point one way or the other on that issue. In Toksoz itself, an inference was more readily drawn because the party in question had received funds for which she could have offered an explanation but did not; the circumstances were said to ‘cry out for honesty to be explained, if it can be’.[96] That is very far from the present case, not least because Marilyn can no longer offer an explanation; and nothing can be inferred from her not having done so. More fundamentally, in Toksoz, an inference was drawn from established facts. Here, there is no foundation from which to infer that Marilyn mixed the trust sum with other assets and did not put it in a term deposit.
[96](2012) 289 ALR 577, 579 [8] (Allsop ACJ, Hoeben JA agreeing at 584 [32], Sackville AJA agreeing at 584 [33]); [2012] NSWCA 199.
In large part, the deficiencies in the evidence which arose on the tracing claim pursued at trial are the same as those which confront the argument based on Foskett. Because the factual matrix was so similar, however, we would not prevent the appellants from pursuing the new argument in the appeal. But for the reasons we have canvassed and summarise below, the argument fails.
The appellants would, if tracing were to succeed, have established an equitable proprietary interest in Marilyn’s estate. In summary, they invoke the observations of Lord Millett to the effect that, if a trustee mixes trust property with their own funds, the whole will be treated as the trust property, except to the extent that the trustee can identify their own property. It is said, on that basis, that the appellants have an equitable proprietary interest in the whole of Marilyn’s estate, apart from certain shares, the Albany Road property, the motor vehicle and the jewellery.
Tracing does not afford a basis for giving the appellants equitable compensation. At best, it enables identification of the appellants’ proprietary interest in the combined property in Marilyn’s estate. The evidence did not enable the judge to identify particular assets that had been mixed with the trust sum. It is to that mixture that the principle applies. Again, tracing is not possible unless the assets in question are identified.
Accordingly, the appellants have not shown that the judge erred in concluding that they had failed to establish their tracing claim, for want of being able to show what Marilyn did with the trust sum or even that she did not place it in a term deposit. Although tracing may not be concerned with issues of equity and fairness, there is nothing unfair in the result, if the appellants were in truth entitled to receive only the trust sum when Marilyn’s life tenancy came to an end.
Equitable compensation
The appellants sought in the appeal to recast their submissions in respect of the counterclaim. The submission of junior counsel for the respondents at trial that Marilyn was under no obligation to invest in growth assets was said to have led the trial judge into error. Reliance was placed on the duty of trustees to invest trust property, their duty not to mix trust property with their own and their duty to balance the interests of capital and income beneficiaries. The appellants advanced the figure of $900,000 as the appropriate measure of equitable compensation for Marilyn’s failure to comply with her duties as trustee.
Reliance on equitable compensation, importing notions of what is just and equitable, takes the matter outside the ambit of tracing, into areas which the appellants did not identify or explore at trial. In seeking an order that they be paid $4.25 million, or such amount as the court thought just and equitable, the appellants did not seek equitable compensation for breach of trust. They were merely electing to assert their beneficial ownership of the amount said to be theirs by virtue of tracing. In the appeal, the appellants argued for a constructive trust, or equitable compensation, arising by virtue of a collection of breaches of trust that were not advanced at trial. Especially to the extent that the appellants now seek to rely on alleged breaches of a trustee’s duties regarding investment, that attempt must be rejected.
The argument seeks to recover more than the $60,000 trust sum, not by tracing to specific property, but by way of equitable compensation for specific breaches of trust. That amounts to a new case that was neither pleaded nor run at trial. Even overlooking the absence of any pleading, or any specific identification of the relevant breach of trust, the argument involves factual issues and related expert evidence.[97] It would not be expedient in the interests of justice to permit such issues to be raised at this late stage.[98] The counterclaim itself was formally raised for the first time after oral evidence had been completed. The interests of finality in litigation point firmly against allowing the appellants the further indulgence of reframing their claim on appeal.
[97]See, eg, Nestle [1994] 1 All ER 118.
[98]See, eg, Sambucco v Sambucco (2023) 72 VR 121, 127–8 [29]-[30] (McLeish and Walker JJA and Gorton AJA), citing Coulton v Holcombe (1986) 162 CLR 1, 7-8 (Gibbs CJ, Wilson, Brennan and Dawson JJ); Water Board v Moustakas (1988) 180 CLR 491, 497 (Mason CJ, Wilson, Brennan and Dawson JJ).
The arguments relying on the trustee’s duties regarding investment were not fully developed. But they would face formidable difficulties in any event. In particular, the contention that Marilyn was under a duty to invest in growth assets is far from self-evident. The will required the income from the proceeds of the residuary estate to be paid to the life tenants, and made no provision requiring the capital sum to be invested in any growth asset. Although the trustees would have had the power to do so, and trustees are in general required to have regard to the need to maintain the real value of the capital and income of the trust,[99] the terms of Gertrude’s will may be read as providing only for a fixed capital sum to be paid on the death of the surviving life tenant; and, on that basis, the judge was not led astray by the submission of junior counsel that Marilyn was under no obligation to invest in growth assets.
[99]See, eg, Trustee Act 1958 s 8(1)(d).
The same difficulty faces the argument based on the trustee’s related obligation to balance the interests of capital and income beneficiaries. That obligation also depends on the terms of the will which, on the view advanced by the respondents, made its own provision for the required balance.
We do not, however, need to pursue these matters, because the appellants should not be permitted to advance these claims at this late stage.
Conclusion on grounds 2–4
For the reasons set out above, grounds 2–4 must fail.
Orders for costs — cross-appeal
Judge’s reasons[100]
[100]The judge gave his reasons for his costs orders in two separate rulings, both delivered on the same day. For present purposes, there is no need to distinguish between them.
Given their success, the judge observed that it was self-evidently reasonable for the respondents to have brought their claim. It was also reasonable for the appellants to have sought to sustain their entitlements under the terms of the 2018 will. They were entitled to doubt the case advanced by the respondents, having had no personal knowledge of the mutual wills agreement, which would, if proven, cause them to lose bequests made to them that, on their face, were valid and valuable.
The judge found that, by executing a series of wills without Kurt’s consent, Marilyn effectively caused the litigation. The judge said that where a testator has by their own conduct, in effect, caused litigation, it can be appropriate to order that the costs of the parties be paid out of the estate.[101] He noted cases expressing doubt as to the application of that principle where a dispute is better characterised as a fight over money than an enquiry by a court into the validity of a will, which is a form of public document.[102] He referred to Shovelar, where it was held that the principle applied in probate cases, but not to cases where a mutual wills agreement was alleged, which were determined according to the law of trusts.[103] In the judge’s view, however, there was little conceptual distinction between an argument in the probate division as to whether the 1993 or the 2018 will should be given effect, and an argument based on common law and equitable principles as to whether there was a mutual wills agreement to which the dispositions in the relevant will were subject. In the circumstances of this case, the practical result was akin to a finding that the 1993 will was the valid instrument.
[101]Davies v Gregory (1873) LR 3 P&D 28; Re Tsaousis [2019] VSC 511 [32]–[33] (McMillan J).
[102]Shovelar v Lane [2012] 1 WLR 637, 652 [44] (Ward LJ, Arden LJ agreeing 656 [62], Moore-Bick LJ agreeing at 656 [63]) (‘Shovelar’); Fielder v Burgess [2014] SASC 98; De Bruyne v Welstead [2022] NSWSC 886.
[103]Shovelar [2012] 1 WLR 637, 652 [44] (Ward LJ, Arden LJ agreeing 656 [62], Moore-Bick LJ agreeing at 656 [63]).
The judge said that it was not a case where the estate was modest, such that making an order for costs to be paid out of the estate would be to the detriment of the successful respondents.
Accordingly, in the ‘unusual’ circumstances of the case, the judge found that it was appropriate for each of Lisa, Andrea, Stephen, Louise and Victoria to have their costs paid out of the estate, to be assessed on the standard basis.
Respondents’ submissions — cross-appeal
The respondents (in their capacity as cross-appellants) impugned the exercise of the judge’s costs discretion on four bases, under cover of a broader submission that the judge acted upon a wrong principle and allowed extraneous or irrelevant matters to guide or affect his decision.[104]
[104]House v The King (1936) 55 CLR 499.
First, it was submitted that the judge failed to recognise that this was ordinary hostile litigation between beneficiaries. The respondents submitted that, in disputes of that nature, costs do not come out of the estate.[105] Had the administrator of Marilyn’s estate sought leave to defend the proceeding, that leave would have been refused because, as the judge recognised, the beneficiaries had the means to defend the proceeding themselves. In such circumstances, there was no doubt that costs would follow the event. So much followed from the principles governing the question whether an indemnity may be provided to a trustee in litigation, where there are beneficiaries with the means to conduct the litigation themselves.[106] The order that costs be paid out of the estate had the effect that the successful respondents had to pay their own costs as well as those of the appellants, which was plainly unfair.[107]
[105]Alsop Wilkinson v Neary [1996] 1 WLR 1220, 1224 (Lightman J), citing McDonald v Horn [1995] ICR 685, 696 (Hoffmann LJ).
[106]Re Frosthollow Pty Ltd [2015] VSC 512 [11] (McDonald J).
[107]Re Evans [1986] 1 WLR 101, 107 (Nourse LJ, Robert Goff LJ agreeing at 108, O’Connor LJ agreeing at 108).
Secondly, the respondents argued that the ‘rule’ awarding costs out of the estate on the basis of fault on the part of the testator was confined to probate cases. It was wrong for the judge to have applied the ‘rule’ where the parties were in an ordinary adversarial relationship, as they were here. The extension of the ‘rule’ to an adversarial case would also undermine the overarching purpose of the Civil Procedure Act 2010 by insulating parties against the ordinary consequences of failure in litigation.[108]
[108]Civil Procedure Act, ss 7–9.
Thirdly, the respondents submitted that it was irrelevant for the judge to have considered whether the appellants acted reasonably in putting the respondents to proof and defending the litigation. They submitted that reasonableness is expected of litigants as a matter of course. It was not a basis for ordering costs to be paid out of the estate.
Finally, the respondents submitted that the size of the estate was also an irrelevant consideration. While this was not a case like Shovelar, where an order that costs be paid out of the estate would have exhausted it, there was injustice in the judge’s order irrespective of the size of the estate. The respondents submitted that costs are awarded as compensation for the successful party in recognition of the fact that the litigation should not have been visited upon them.[109] The effect of the judge’s order was to require the respondents to compensate the appellants — as if a costs order was made against them.
[109]Northern Territory v Sangare (2019) 265 CLR 164, 173 [25] (Kiefel CJ, Bell, Gageler, Keane, Nettle JJ).
If the costs discretion were to be reopened, the respondents submitted that the appropriate orders would be for the appellants to pay the respondents’ costs on the standard basis and that there be no order for payment of the appellants’ costs. As for the counterclaim, there should be no order as to costs, given that the counterclaim was pursued late in the trial, and the appellants were largely unsuccessful, recovering only $60,000 when they had sought $4,250,000.
Appellants’ submissions — cross-appeal
The appellants (as cross-respondents) submitted that appeals from orders as to costs are exceptional and require the Court to exercise particular restraint. They submitted that the Court is required to consider whether there was a ground on which the judge could reasonably have made the order in question.[110] They argued that this was not a case where it could be shown that the judge could not have reasonably made the order, nor could any House v The King error be established.
[110]Cargill Australia Ltd v Viterra Malt Pty Ltd [2023] VSCA 301 [63] (Sifris, Walker and Whelan JJA) (‘Cargill’).
The appellants argued, first, that the judge did have regard to the fact that this case involved hostile litigation between beneficiaries. There was a significant issue that needed to be resolved so that Marilyn’s estate could be administered, and the appellants assisted the court by putting the respondents to their proof. The appellants submitted that, had the administrator applied for leave to defend the case, it is likely that leave would have been granted and an indemnity given, owing to the need to clarify the position in order that the estate could be administered.
Secondly, the appellants argued that the judge did not apply the ‘rule’ in probate cases regarding fault of the testator. Accepting that this was not a probate case but a claim brought in equity, the judge merely took into account the fact that Marilyn was the cause of the litigation,[111] in circumstances where the essential question before the court was whether the estate should be managed in accordance with the 1993 or 2018 will. These were relevant considerations.[112]
[111]In the appellants’ submission, this distinguished the instant case from Reed v Smith [No 2] [2022] QSC 229, where the unsuccessful party failed to establish that the testator had breached a mutual wills agreement. It was, therefore, not a case where it could be said that the testator had caused the litigation.
[112]See, eg, Gray v Perpetual Trustee Co Ltd (1928) 40 CLR 558, 566 (Viscount Haldane for the Privy Council).
The appellants next submitted that their reasonableness in defending the litigation was a relevant consideration. A court may award indemnity costs where a party conducts litigation unreasonably. Where there are circumstances, in a probate context, that reasonably call for an investigation, costs may be awarded out of the estate, but not where a party (including a trustee or administrator) has acted unreasonably.[113] It would have been pertinent to the discretion on costs if the claim had been defended unreasonably,[114] and it was equally relevant that the appellants defended the claim reasonably.[115]
[113]Re Tsaousis [2019] VSC 511 [32]–[33] (McMillan J); Forsyth v Sinclair [No 2] (2010) 28 VR 635, 641–2 [21]–[25] (Neave and Redlich JJA and Habersberger AJA).
[114]See, eg, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 401 (Woodward J); [1988] FCA 364.
[115]See, similarly, In re Buckton [1907] 2 Ch 406, 416–7 (Kekewich J). Cf Re Cunningham (1914) 31 WN (NSW) 44.
Finally, the appellants submitted that it was not irrelevant to consider the size of the estate. In the only authority relied on by the respondents, Shovelar, the court took that matter into account.[116] It was relevant that the size of the estate was not such that a costs order would substantially deprive the respondents of the benefit of their success.
Consideration of the cross-appeal
[116]Shovelar [2012] 1 WLR 637, 652 [44] (Ward LJ, Arden LJ agreeing 656 [62], Moore-Bick LJ agreeing at 656 [63]).
As the appellants submitted, appeals from orders as to costs are exceptional and require this Court to exercise particular restraint. The trial judge is generally best placed to assess how the discretion as to costs should be exercised.[117]
[117]See, eg, Cargill [2023] VSCA 301 [63] (Sifris, Walker and Whelan JJA); United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 [124] (Whelan, McLeish and Niall JJA); Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115 [10]–[11] (Redlich JA, Dodds-Streeton JA agreeing at [47]).
The question whether leave to appeal should be granted may be approached by considering first whether there are discretionary considerations justifying the refusal of leave, irrespective of the proposed appeal’s prospect of success.[118] Applications for leave to appeal from a costs order may therefore be refused, without entering into the merits of the proposed appeal, on the basis that such appeals are exceptional and there are no discretionary reasons for departing from that approach in the particular case.[119] Conversely, unless there is no real prospect of success, leave may be granted on the basis that matters of general principle arise, especially if those matters concern a specific kind of costs order.[120]
[118]Supreme Court Act 1986, s 14C.
[119]Kyne v Gerard Brandrick & Associates Pty Ltd [2025] VSCA 17 [66] (Niall CJ, McLeish and Kennedy JJA) (‘Kyne’); Cargill [2023] VSCA 301 [64] (Sifris, Walker and Whelan JJA); PCCEF Pty Ltd v Geelong Football Club Ltd [No 2] [2019] VSCA 148 [40]–[41] (Whelan, McLeish and Emerton JJA); Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2018] VSCA 32 [18] (Ferguson CJ, Whelan and McLeish JJA); 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VSCA 216 [53] (Hansen, Ferguson and McLeish JJA).
[120]Northern Territory v Sangare (2019) 265 CLR 164, 172–3 [24] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ); Kyne [2025] VSCA 17 [66] (Niall CJ, McLeish and Kennedy JJA).
In Re Buckton,[121] Kekewich J decided a question of construction of a will. He then stated that it would not be right to neglect the opportunity to enunciate rules as to the costs of such an application for the guidance of the profession. Similarly, we consider that leave to appeal should be granted because the case concerns the making of a specific kind of costs order, namely an order for costs to be paid out of a trust fund or estate, which involves important matters of principle.
[121][1907] 2 Ch 406.
Kekewich J in Re Buckton distinguished three kinds of case in which issues arise for determination in the administration of a trust. They were explained by McMillan J in Mantovani v Vanta Pty Ltd [No 3]:
In Re Buckton, Kekewich J set out a tripartite classification of disputes involving trustees and explained the costs consequences that typically flow from cases in each category. The first is an action brought by trustees relating to the construction of a trust instrument or some other question arising in the course of the administration of a trust, in which case the costs of all parties are treated as necessarily incurred for the benefit of the estate and are ordered to be paid out of the fund on an indemnity basis. The second is where a dispute involves an application which is made by a party other than the trustee, but raises the same issues as the first category and would have justified an application by the trustee. In this instance, the same rule applies in relation to a trustee’s costs, because the application is considered to be for the benefit of the trust estate. The final category of trustee dispute involves the bringing of a hostile claim against a trustee (or another beneficiary) by a beneficiary. Costs in this type of case are treated in the same way as in ordinary litigation, that is, they follow the event. As was observed by his Honour:
It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs.
However, in such cases, a trustee that properly, albeit not necessarily successfully, defends a claim for the benefit of the estate will be entitled to their costs out of the estate, to the extent that they are not recovered from another party.[122]
[122][2022] VSC 357 [10] (citations omitted).
These principles draw a distinction between ‘ordinary’ adversarial litigation and litigation for the resolution of issues for the benefit of the trust estate. That distinction, not always easily drawn, is significant. In the probate context, it reflects the public interest in ensuring that wills are not wrongly admitted to probate by reason of the cost of litigating an issue arising under a will, together with the need not to encourage parties to engage in litigation irrespective of its merits, on the basis that their costs will be paid by others.[123] Outside the probate jurisdiction, analogous considerations apply.
[123]See, eg, Re Tsaousis [2019] VSC 511 [33] (McMillan J); Re Papavasilou; Theofanous v Aizen [No 2] [2023] VSC 118 [15] (McMillan J) (‘Re Papavasilou’).
In probate cases, one factor that may assist in characterising the litigation is whether the conduct of the testator has given rise to the issue requiring resolution.[124] That circumstance allows the court more readily to characterise the dispute as one needing to be resolved for the benefit of the estate. But ultimately it is no more than a factor bearing on the exercise of the costs discretion, just as the conduct of any party to the litigation may influence the court’s ultimate conclusion as to costs.
[124]Re Tsaousis [2019] VSC 511 [32] (McMillan J); Re Papavasilou [2023] VSC 118 [14] (McMillan J).
It will be recalled that the judge in the present case did not treat it as a probate case, but took account of Marilyn’s conduct in breaching the mutual wills agreement as a factor that was relevant by analogy with the approach that would be taken in a probate case where the issue in question arose as a result of the conduct of the testator. The respondents contend that this reasoning, even if appropriate in a probate case, has no application in a mutual wills case, whether by analogy or otherwise. They rely on the English Court of Appeal decision in Shovelar.
In Shovelar, Ward LJ referred to a ‘rule’ that, ‘if the cause of litigation takes its origin in the fault of the testator or those interested in the residue, costs may properly be paid out of the estate’.[125] The ‘rule’ has been criticised more recently as being insufficiently responsive to the danger of encouraging litigation.[126] In Shovelar itself, plaintiffs who had successfully advanced a mutual wills argument won an order for costs against the beneficiaries under the will that had been made contrary to the agreement found by the court. The unsuccessful beneficiaries appealed, seeking that the costs be paid out of the estate. After reviewing the authorities, Ward LJ concluded:
I conclude that the so-called rule in probate cases does not apply in the case before us. The probate rule is rooted in the inquisitorial exercise that was conducted by the ecclesiastical courts and the Probate Division where the court had to be satisfied of the validity of the will before it could pronounce for the will and admit it to probate. The effect of mutual wills upon the distribution of the estate under a later will which is admitted to probate is a matter for the Chancery Division applying the law of trusts; it is not a matter of probate law and practice. The nature of that litigation is not inquisitorial: it is adversarial and, not infrequently, very adversarial as the two families disunited by death battle for their perceived true inheritance. That is exactly what has happened here. It may be unfortunate that the two sides of the family have locked horns in battle with no quarter given. In my judgment the judge was entitled to find, indeed right to find, that ‘the contention between the parties was not unlike any other hostile litigation and not such that would enable the court to move away from the general rule’. The reasons she gave in para 39 of her judgment … [are] beyond challenge: there would be a plain injustice if the claimants were deprived of any benefit of their success. The challenge by the defendants as to what had been said and done and the legal consequences of that behaviour do not provide a reason for departing from the general rule that costs follow the event.[127]
[125][2012] 1 WLR 637, 647 [32] (Arden LJ agreeing 656 [62], Moore-Bick LJ agreeing at 656 [63]), citing Mitchell v Gard (1863) 3 Sw & Tr 275; 164 ER 1280, 1281 (Sir James Wilde).
[126]Shovelar [2012] 1 WLR 637, 649 [34] (Ward LJ, Arden LJ agreeing 656 [62], Moore-Bick LJ agreeing at 656 [63]); Fielder v Burgess [2014] SASC 98 [61]–[65] (Kourakis CJ).
[127]Shovelar [2012] 1 WLR 637, 652 [44] (Arden LJ agreeing 656 [62], Moore-Bick LJ agreeing at 656 [63]) (citations omitted).
The respondents seek to draw too much from these observations. Shovelar does not stand for the proposition that it is irrelevant to the determination of costs in a mutual wills case that the dispute arose because of the conduct of the testator. It provides only that there is no ‘rule’ that costs should be paid by the estate where litigation is caused by a testator, outside the context of probate cases (as to which the application of the ‘rule’ did not need to be decided). There was accordingly no reason why the judge could not take account of the fact that the issue in the litigation was traceable to Marilyn’s breach of the mutual wills agreement.[128]
[128]Ibid 651 [41], citing Gray v The Perpetual Trustee Company Co Ltd (1928) 40 CLR 558, 565 (Viscount Haldane for the Privy Council).
Conversely, no House v The King error was involved in the judge not having characterised the litigation as ordinary adversarial litigation between beneficiaries (in the third category identified in Re Buckton). It was open to the judge to treat the situation as more nuanced than that. The submission that the judge’s failure to identify the litigation in this way vitiated his exercise of the costs discretion cannot be sustained.
The remaining elements of the cross-appeal are the respondents’ assertion that the judge took account of two irrelevant considerations, namely whether the appellants acted reasonably in defending the proceeding and the size of the estate.
The question whether the appellants acted reasonably was advanced by the respondents as an aspect of the judge’s alleged application of the ‘rule’ in probate cases. For the reasons already given, that challenge to the judge’s exercise of discretion must fail. In any event, the reasonableness of the unsuccessful party’s conduct of litigation is a relevant consideration in determining costs, in the probate context and elsewhere.
Finally, the size of the estate was also a relevant consideration. The judge was entitled to take account of the fact that the estate was not so modest in size that an order for costs to be paid from the estate would unfairly or disproportionately diminish it to the detriment of the ultimate beneficiaries (the respondents).
For these reasons, the cross-appeal should be dismissed.
Conclusion
Leave to appeal and to cross-appeal should be granted. Both the appeal and the cross-appeal should be dismissed.
We will give the parties the opportunity to make written submissions as to the costs of the appeal and the cross-appeal. Our present inclination is that those costs should follow the event in each case. If either party seeks an order that these costs be paid out of the estate, it will be necessary to give the first respondent (Ms Kallweit) an opportunity to make submissions on behalf of the estate.
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SCHEDULE OF PARTIES
STEPHEN COTTRELL First applicant/First cross-respondent LOUISE AUSTIN Second applicant/Second cross-respondent VICTORIA HARDY Third applicant/Third cross-respondent and LISA MIGLIC First respondent/First cross-applicant ANDREA ESNOUF Second respondent/Second cross-applicant INES KALLWEIT (in her capacity as the administrator of the estate
of MARILYN MARJORIE MIGLIC, deceased)
Third respondent/Fourth cross-respondent
2
45
0