Fisher and Ors v Gordon
[2012] NSWSC 1397
•08 November 2012
Supreme Court
New South Wales
Medium Neutral Citation: Fisher & Ors v Gordon; Estate of Jarvis [2012] NSWSC 1397 Hearing dates: 8 November 2012 Decision date: 08 November 2012 Before: White J Decision: Claim for interlocutory relief in summons dismissed with costs.
Catchwords: WILLS & ESTATES - plaintiffs' application to restrain executors of a will from realising assets of the estate - where executors propose to sell real property of the estate - where plaintiffs allege that sale of real property will have adverse tax implications for some beneficiaries - evidence adduced as to possible tax implications for foreign resident beneficiary - whether seriously arguable case that executors are in breach of their duties to act in the best interests of beneficiaries or impartially as between them Legislation Cited: Civil Procedure Act 2005 (NSW) Cases Cited: Commissioner of Stamp Duties (Qld) v Livingstone [1965] AC 694
Attorney-General (Cth) v Breckler (1999) 197 CLR 83
Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Limited (1998) 79 FCR 469Texts Cited: PD Finn, Fiduciary Obligations, Law Book Co, 1977
J D Heydon & M J Leeming, Jacobs Law of Trusts, LexisNexis Butterworths, 7th ed, 2006Category: Interlocutory applications Parties: Helen Fisher (1st Plaintiff)
Benjamin Leslie Fisher (2nd Plaintiff)
Simon Fisher (3rd Plaintiff)
George Max Gordon (1st Defendant)
Dennis Ronald Levy (2nd Defendant)
Gerwill Pty Ltd (3rd Defendant)Representation: Counsel:
M Dempsey SC with D Hughes (Plaintiffs)
J S Drummond (Defendant)
Solicitors:
Arnold Bloch Liebler (Plaintiffs)
E H Tebbutt & Sons (Defendants)
File Number(s): 2012/347378
Judgment
HIS HONOUR: The issue in this case is whether the Court can and should interfere with the proposed exercise by the defendants of powers they have as executors under a will, and as the directors of a private company, to sell an estate asset and a company asset.
The plaintiffs are residuary beneficiaries under the will of the late Herta Jarvis who died on 28 April 2012. Probate of her will was granted to the defendants on 23 August 2012. The estate has been estimated for probate purposes to have a value in excess of $18 million.
By her will of 15 February 2010, Mrs Jarvis left 35 pecuniary legacies totalling approximately $2.5 million. The will contained directions for the executors to dispose of household contents and objets d'art. The residue of the estate was left as to a 40 percent share to the plaintiffs and as to a 60 percent share to a grandnephew, Mr Yehuda Dayag, and his three children.
Clause 7 of the will conferred power on the executors to sell the whole or any part of the deceased's estate at such time and in such manner as they should deem expedient, or to postpone the sale calling in a conversion of the whole or any part of her estate for such period or periods as in their discretion they should think fit.
The assets of the estate include shares in the company called Gerwill Pty Limited. The defendants are directors of that company, and were directors prior to Mrs Jarvis' death. They are the sole shareholders of the company, but they hold the shares in their capacity as executors of the estate.
One of assets disclosed in the inventory of property on the obtaining of probate was a debt owed by Gerwill Pty Limited to the deceased in the sum of approximately $8.87 million.
I am told that all but one of the pecuniary legacies has been paid. There is a legacy of $100,000 payable to one of the pecuniary legatees that is yet to be paid.
The plaintiffs' complaint is that the defendants are proposing to sell a unit at Darling Point which was an asset of the deceased, and a block of apartments in Randwick which is owned by Gerwill Pty Limited. The properties have been advertised for sale by auction scheduled to take place at 6.30pm today. One of the plaintiffs first learned about the properties having been listed for sale on 28 October 2012. These proceedings were commenced yesterday when I gave leave for short service.
The plaintiffs seek orders that the defendants be required to withdraw the properties from auction and be restrained from selling them. The plaintiffs and the Israeli beneficiaries are apparently advised by an accountant, Mr Michael Schoenfeld. According to his file note of 24 July 2012, it was agreed at a meeting between the executors and him and some of the residuary beneficiaries that the executors would be encouraged to co-operate to achieve an outcome that any potential Israeli tax and estate duty implications were to be taken into consideration in relation to the distribution of the estate to the 60 per cent residuary beneficiaries, and that no assets would be sold or distributed to the residuary beneficiaries until approval was given by the solicitors acting for the 60 per cent residuary beneficiaries to that course.
The first defendant, Mr Gordon, is a solicitor by profession. The second defendant, Mr Levy, is an accountant by profession.
On 23 August 2012, Mr Schoenfeld wrote to them as the executors of Mrs Jarvis' estate, saying that he was representing all of the residuary beneficiaries. He stated that the residuary beneficiaries opposed the "liquidation" of the estate as that would increase costs unnecessarily and would crystallise taxation liabilities.
Mr Schoenfeld purportedly directed the executors not to take any further steps to liquidate any of the assets of the estate. Mr Schoenfeld stated that his clients directed the executors not to take any further steps to liquidate any assets of the estate. He said that his clients required the executors, if they formed the opinion that a sale of assets was necessary, to advise them in writing of that opinion and the detailed basis for it, so that it could be properly considered. The executors had no obligation to abide by such purported directions, nor to provide such information or reasons for a decision.
On 14 September 2012, Mr Schoenfeld sought from the executors an undertaking in writing that they would not take any further action whatsoever in regard to the administration of the estate, except on not less than seven days' notice. Mr Schoenfeld purportedly required a substantive response to the matters raised in his correspondence of 23 August 2012.
On 8 September 2012, Mr Gordon, writing for both executors, refused to provide the undertakings that have been sought. He rejected the contention that the residuary beneficiaries were entitled to dictate to the executors how the estate should be administered.
On 1 November 2012, Dr Fisher, the first plaintiff, wrote to Mr Gordon to complain about the scheduling of the auction sales for the properties. She said that the residuary beneficiaries were of the firm view that the sales would not maximise the value of the residuary estate, and would unnecessarily incur expenses and would crystallise taxation liabilities.
Mr Gordon replied on 5 November 2012. In the course of his reply he said:
"There certainly seems to be no benefit to you, Helen and your two sons in postponing payment to each of you of your inheritance of some $2 million each.
It seems to us that the true reason for wanting to delay the sale of assets and distributing the estate is so that Yehuda can avoid paying inheritance tax in Israel, for which he would apparently be liable.
We do not wish to be party to any such tax avoidance."
Mr Gordon said that he and his co-executor took a different view as to whether the sale of the properties was necessary to maximise the value of the estate.
Whilst Dr Fisher repeated her concern that a sale of the properties might have adverse tax consequences to the Australian beneficiaries, nothing has been put on this application to demonstrate how that might be so. So far as the Randwick property is concerned, it was acquired before capital gains tax legislation came into effect. There will be no capital gains tax liability as a result of the sale. All that would be involved is the conversion of the company's assets from land to cash.
So far as the estate asset is concerned, there is nothing that has been put to me, or more relevantly, to the executors, as to why the sale of that asset would have any adverse Australian tax implications. However, there was read on the hearing this morning a letter from a firm in Israel of Advocate, Notaries and Patent Attorneys, S Horowitz and Co, in relation to possible tax implications of the sale of assets for the Israeli beneficiaries.
Mr Nouman of that firm stated that in regard to the sale of the real estate the subject of the will, this could lead to the Israeli beneficiaries being required to pay significant tax in Israel up to 40 per cent. He said that Israeli tax laws "could operate to deem those sales as sales by the Israeli beneficiaries by virtue of their respective interest in the residuary estate."
However, he went on to say he was not in a position to consider or provide advice as to whether that deeming would apply, or if it did, what alternatives should be examined, without further information about the operation of the clauses of the will under Australian law and the nature of the assets of the estate. He said he needed further information in relation to the clauses of the will and the powers of executors and trustees under Australian law, as well as the assets that are subject to the will and the company and the real estate assets of the company.
Whilst there is no information before the Court as to what Israeli law might deem the position to be, it is quite clear under Australian law that it is the executors who will be exercising the power of sale. Indeed, the estate is currently not fully administered, so that the trusts of the will have not yet come into existence, and whilst the executors owe fiduciary obligations to the residuary beneficiaries, their relationship is not yet that of trustee and beneficiary (see Commissioner of Stamp Duties (Qld) v Livingstone [1965] AC 694).
Mr Nouman went on to provide other opinions about the possible operation of Israeli tax laws in relation to the sale of the Australian assets. He said that Israeli controlled foreign corporations laws could operate so that the proceeds of the sales of real estate by the company could be deemed dividends of the Israeli beneficiaries. He went on to say he was not in a position to provide advice as to whether that deeming would apply.
There remains no clear advice about the Israeli tax position, notwithstanding that the Israeli beneficiaries have raised concerns about their taxation exposure for months. The plaintiffs submitted that there was at least a serious question to be tried that the defendants were acting in breach of their duties as executors to act reasonably and prudently in the interest of beneficiaries, to exercise their powers in the best interests of the beneficiaries, and to act impartially between the beneficiaries, in particular, the Israeli beneficiaries, because proceeding with the sales might have serious adverse taxation consequences for them. They referred to PD Finn, Fiduciary Obligations, Law Book Co, 1977 (at 36) where the learned author said:
"If one class of beneficiaries can show that a sale in the prevailing market conditions would gravely prejudice their interest in the trust and that no compelling reason exists for the sale, then a court would most likely restrain the sale - and thus compel postponement - for if trustees are 'acting unjustly towards those whose interests [they are] bound to consider and to protect, and if ... the Court can see it ... it is... the duty of the Court to interfere'." (Hampden v Earl of Buckinghamshire [1893] 2 Ch 531 at 544.)
In oral argument those submissions were amplified. Counsel for the plaintiffs submitted that the defendants were required themselves to consider and to obtain advice on the taxation implications for the Israeli beneficiaries of the sale of the properties, and were in breach of their duties in failing themselves to obtain such advice.
It is to be borne in mind that executors are obliged to act with reasonable diligence in collecting estate assets and distributing them to those entitled. However, they could be excused from that obligation if they had the informed consent of each of the beneficiaries, all being sui juris. In this case, one of the beneficiaries is not sui juris.
Whilst it is the case that executors are obliged to act reasonably and prudently in the interests of beneficiaries, and to exercise their powers in those parties' interests, and to act impartially between them, a Court will not intervene to restrain the exercise of the executors' powers merely if it is alleged, or even shown, that the power is not being exercised reasonably.
The will confers the discretion on the executors as to when the assets are to be realised. They can sell at such time as they deem expedient. In J D Heydon & M J Leeming, Jacobs Law of Trusts, LexisNexis Butterworths, 7th ed, 2006 at [1606] the learned authors say
"In the case of powers [trustees] are bound to exercise their judgment actively and honestly as to whether they should do or refrain from doing something and then act accordingly. The powers of trustees must be exercised fairly and honestly for the purposes which they are given and not so as to accomplish any ulterior purposes whether for the benefit for the trustees or otherwise. The Court will not control trustees in the exercise of their purely discretionary powers unless they are acting mala fides or have misconceived the nature of their discretion and acted on that misconception".
In Attorney-General (Cth) v Breckler (1999) 197 CLR 83, the plurality quoted, without disapproval, the following passage, taken from the judgment of Northrop J in Wilkinson v Clerical Administrative and Related Employees Superannuation Pty Limited (1998) 79 FCR 469 (at 480):
""Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settlor, or without giving a real or genuine consideration to the exercise of the discretion. The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable or unwise. Where a discretion is expressed to be absolute it may be that bad faith needs to be shown. The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness."
The plurality noted that the accuracy of that summary was not disputed.
It is not suggested that the defendants are acting in bad faith. I do not accept that they have misconceived the nature of the discretionary power which they have decided to exercise. Nor could their decision be characterised as arbitrary, capricious, wanton, irresponsible, mischievous or irrelevant to a sensible expectation of the testatrix. Even if executorial duties have been completed, and the assets are now held by the defendants on trust for the residuary beneficiaries, it would remain the position that the trustees could not be compelled to exercise their discretion in accordance with the beneficiaries' wishes.
In that event, the beneficiaries could put an end to the trust, but until that step were taken it remains for the trustees, or presently, executors, to decide what is in the best interests of the beneficiaries. There is nothing to impugn their decision that it would be in the beneficiaries' best interests to realise the assets now, rather than to wait and run the risk of adverse changes to the market.
I do not accept that the executors were obliged themselves to obtain taxation advice in relation to matters of Israeli law. They could and would be expected properly to give consideration to advices provided to them by accountants or lawyers retained for that purpose by the beneficiaries, but there is no evidence that they have not done so. Indeed, there is no evidence that any properly considered advice has been forthcoming. The advice that was provided today is clearly incomplete, and is given without the benefit of the information which the Israeli tax advisor needs about Australian law and the details of the will.
No ground has been made out to interfere with the exercise by the defendants of their discretionary powers under the will.
Nor is there any basis for challenging their decision as directors of the third defendant that the apartments of that company should be sold.
There are issues concerning the state of repair of that property, and it is a matter for the directors of the company to form their own assessment as to how, in the interests of the company, they should deal with that asset. I cannot see that, as directors of the company, they need give consideration to the taxation position of the beneficiaries. But even if their position in this respect is the same as it is in their capacity as executors, for the reasons I have given, the evidence does not establish any breach of duty.
For these reasons, I am not satisfied that there is a serious question to be tried which would warrant the granting of interlocutory relief. It is unnecessary to consider other issues of balance of convenience and delay.
The plaintiffs also sought an order pursuant to s 26 of the Civil Procedure Act 2005 (NSW) that the parties be referred to mediation. I do not think that any particular issues have been identified whose resolution would be advanced by referral of the parties to mediation at this stage.
As part of their claim for final relief, the plaintiffs seek an order for revocation of the grant of probate so that the defendants would be removed as executors. I should add that in so far as the claim for interlocutory relief might be founded on that claim for final relief, there is no serious question to be tried, on the evidence before me, that there would be a ground for revoking the grant. I do not think that a referral of the parties to mediation at this stage would be of utility.
For these reasons, I order that the claims for interlocutory relief in the summons be dismissed.
I order the plaintiffs pay the defendant's costs of the application.
Decision last updated: 20 November 2012
0