Gritzman v McRae

[2022] NSWSC 745

Supreme Court

New South Wales

Medium Neutral Citation:

Gritzman v McRae [2022] NSWSC 745

Hearing dates:

13 – 16 December 2021

Date of orders:

8 June 2022

Decision date:

08 June 2022

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1.   The grant of probate made on 4 July 2017 be revoked.

2.   Letters of administration be granted to the plaintiff to administer the estate of the late Asher Mannie Osband and refer the file in this matter to the Probate Registrar to complete the grant of letters of administration.

3.   The amount of $469,718.04 be paid out of Court to the plaintiff, representing the balance of 37.5% of the net proceeds from the sale of the Double Bay Property remaining after the funds already disbursed to the plaintiff from the funds held in Court.

4. The defendant pay the plaintiff interest on the sum of $889,718.04 (being 37.5% of the net proceeds from the sale of the Double Bay Property) from 13 October 2017 to the date of distributions made in respect of the plaintiff’s share of those proceeds and for the balance up to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

5.   The defendant pay the plaintiff equitable compensation of $163,125, representing the loss suffered by the plaintiff as a consequence of the sale of the Double Bay Property at an undervalue.

6. The defendant pay the plaintiff interest on the sum of $163,125 from 13 October 2017 to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

7.   The defendant pay the plaintiff $484,552.89 in her capacity as administrator of the estate of the late Asher Mannie Osband in order to replenish funds improperly paid from the deceased’s estate by the defendant.

8. The defendant pay the plaintiff in her capacity as administrator of the estate of the late Asher Mannie Osband interest on the sum of $484,552.89 calculated from the date of each such payment to the defendant out of the estate funds of the amounts comprised in this sum to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

9.   The balance of the funds held by the Court are to be paid to the plaintiff, to be held by the plaintiff as trustee.

10.   The defendant pay the plaintiff’s costs of the proceeding on an indemnity basis.

11.   Declare that the defendant is not entitled to be indemnified from the funds from the sale of the Double Bay Property, including but not limited to the interest of the deceased estate in those funds, in respect of his legal costs, or any other costs and expenses relating to this proceeding.

Catchwords:

EQUITY — Trusts and trustees — Constructive trusts — Common intention — Where there was a common intention between the plaintiff and the deceased that the plaintiff hold a proprietary interest in the property the subject of the will — Where defendant held property as constructive trustee for the benefit of the plaintiff — Where defendant sold property without consulting plaintiff, and transferred the proceeds of the sale to his personal bank account — Where defendant breached duties as constructive trustee

SUCCESSION — Trusts and trustees — Breach of trustee’s duties — Where defendant failed to keep proper accounts, to facilitate inspection of those accounts, and distributed estate funds otherwise than in accordance with fiduciary duties — Whether liability of defendant excused by operation of s 52 and 85 of Trustee Act 1925 (NSW)

SUCCESSION — Executors and administrators — Proceedings against executors and administrators — Application for removal

SUCCESSION — Construction — Whether the plaintiff’s interest is subject to provisions in the will entitling the defendant to the income from investment of the proceeds of sale of property in which the plaintiff had an interest prior to the deceased’s death

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 100

Conveyancing Act 1919 (NSW), ss 23C, 54A, 66G

Probate and Administration Act 1898 (NSW), ss 44(1), 66, 85 and 86

Trustee Act 1925 (NSW), ss 38(1A), 46(3), 52, 59(4), 70, 85

Trustees Act 1962 (WA), s 50

Uniform Civil Procedure Rules 2005 (NSW), r 14.14(2)(a)

Cases Cited:

Allen v Snyder [1977] 2 NSWLR 685

Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27

Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778

Calverley v Green (1984) 155 CLR 242; [1984] HCA 81

Carr v Carr (1987) 8 NSWLR 492

Carruthers v Manning [2001] NSWSC 1130

Clay v Clay (1999) 20 WAR 427

Coorey v George (Supreme Court (NSW), Powell J, 27 February 1986, unrep)

County Securities Pty Limited v Challenger Group [2008] NSWCA 193

Cowan v Scargill (1984) 2 All ER 750

Crossman v Sheahan [2016] NSWCA 200

Donis v Donis (2007) 19 VR 577; [2007] VSCA 89

Draper v British Optical Association [1938] 1 All ER 115

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; [1988] FCA 202

Frost v Bovaird [2012] FCAFC 60

Gibson v Holland (1865) LR 1 CP 1

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10

Grant v Edwards [1986] Ch 638

Green v Green (1989) 17 NSWLR 343

Hancock v Reinhart (2015) 13 ASTLR 1; [2015] NSWSC 646

Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405

Ireland v Retallack (2011) 6 ASTLR 585; [2011] NSWSC 846

Juul v Northey [2010] NSWCA 211

King v Adams [2016] NSWSC 1798

Langford v Gascoyne (1805) 11 Ves 333; 32 ER 1116

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42

Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285

Mavrideros v Mack (1998) 45 NSWLR 80

Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13

Nguyen v Cosmopolitan Homes (NSW) Pty Ltd [2008] NSWCA 246

Nicol v Chant (1909) 7 CLR 569; [1909] HCA 4

Northey v Juul [2014] NSWSC 464

O’Regan v Hellstrom [2020] NSWSC 16

Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149; [1947] HCA 42

Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514

Phillips v McCabe [2016] SASC 27

Priestley v Priestley [2017] NSWCA 155

Re Bowcock [1968] 2 NSWR 697

Re Cobcroft [2015] NSWSC 346

Re O’Callaghan [1972] VR 248

Salier v Watson [2014] NSWSC 237

Shepherd v Doolan [2005] NSWSC 42

Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19

Spellson v George (1987) 11 NSWLR 300

Spencer v The Commonwealth (1907) 5 CLR 418

Toowoomba Foundry Pty Ltd v Commonwealth (1945) 71 CLR 545; [1945] HCA 15

Tsaknis as executor and trustee of the estate of Geoffrey Douglas Roland Lilburne (Dec) v Lilburne [2010] WASC 152

Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250

Wright v Stevens [2018] NSWSC 548

Wyman v Paterson [1900] AC 271

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15

Texts Cited:

G Jones, “Delegation by Trustees: A Reappraisal” (1959) 22 Modern Law Review 381

H Ford and W Lee, Laws of Trusts (4th ed, 2010, Thomson Reuters

J Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (Hart Publishing, 2002)

JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis)

Category:

Principal judgment

Parties:

Rosie Gritzman (Plaintiff)
Ranald Scott McRae (Defendant)

Representation:

Counsel:
J Foley (Plaintiff)
A Lakeman (Defendant)
Solicitors:
Phillip Silver & Associates Lawyers (Plaintiff)
& Legal (Defendant)

File Number(s):

2018/00051369

Publication restriction:

Nil

Judgment

1. HER HONOUR: This is a dispute relating to matters arising out of the administration of the estate of the late Asher Mannie Osband (the deceased).

2. The plaintiff (Ms Gritzman) is the sister of the deceased who died on 20 June 2015. The defendant (Mr McRae), who was in a long-standing professional and personal relationship with the deceased prior to his death, was appointed the executor and trustee for the deceased’s estate pursuant to the deceased’s last Will dated 24 March 2014 (Will). Probate of the Will was granted to Mr McRae as executor on 4 July 2017.

3. Each of the parties is a resident of South Africa (as was the deceased) and there was reference during the hearing to disputes between them as to the deceased’s assets in that country; not relevant to the present proceeding other than that it is clear that there was a level of animosity between the two. Ms Gritzman said that she had been told not to deal directly with Mr McRae (T 75.23-30) and Mr McRae said that his relationship with Ms Gritzman (at the relevant time) was “at rock bottom” (T 127.36-39); that “it’s unbelievable, our relationship” (seemingly referring to the tension between the two) (T 128.37-38); and that there was no communication whatsoever between them (see T 12737-42). Indeed, Mr McRae candidly said that there were “[l]ots of things we [in context, there referring to himself and his advisers] didn’t tell Ms Gritzman” (T 132.17-18). Therein lies much of the problem in the present case.

4. In essence, the dispute is as to Ms Gritzman’s claim to ownership of a beneficial interest in a property at Double Bay (the Double Bay Property) of which the deceased was the sole registered proprietor at the time of his death (Ms Gritzman claiming to be the beneficial owner of either a 37.5% or alternatively a one-third interest in the Double Bay Property). Although Mr McRae’s evidence on this issue was inconsistent and confused, ultimately it is not (and was not at any relevant time) disputed that Ms Gritzman had at least a 33.33% beneficial interest in the Double Bay Property – quite apart from any interest left to her under the Will (which makes Mr McRae’s conduct – and his advisers’ apparent lack of concern – in selling the property without consulting or informing Ms Gritzman, let alone seeking or obtaining her consent or distributing any part of the proceeds to her before this proceeding, quite extraordinary).

5. There is also a dispute as to the proper construction of the deceased’s Will (in effect as to whether Ms Gritzman’s interest is subject to provisions entitling Mr McRae to the income from investment of the proceeds of sale of the Double Bay Property during his lifetime) and as to whether Mr McRae has properly discharged his obligations as trustee and executor (and, if not, whether the grant of probate should be revoked).

6. The proceeding was commenced by Ms Gritzman by summons filed on 15 February 2018, seeking urgent relief in relation to the proceeds of sale of the Double Bay Property. Orders were made by Slattery J on 21 February 2018 for the payment into Court of $1,088,057.24 from the proceeds of sale and for the provision of an account to Ms Gritzman (including supporting documentation) as to the sale of the Double Bay Property (which I explain in more detail below). The matter then proceeded by way of pleadings.

7. Ms Gritzman filed a statement of claim on 31 August 2018, seeking the removal of Mr McRae as trustee of all property in which Ms Gritzman has an interest and otherwise relating to the deceased estate, as well as specific orders and declarations in relation to Ms Gritzman’s beneficial interest in the Double Bay Property. Ms Gritzman also seeks orders requiring Mr McRae to restore funds depleted from the deceased estate by his alleged misconduct as executor and trustee (including the repayment of amounts withdrawn by or for his benefit) and for equitable compensation for the loss suffered as a consequence of the sale of the Double Bay Property at an alleged under value.

8. Mr McRae has filed a defence (filed 3 October 2018 and amended on 17 July 2019) denying liability (and raising defences including by way of reliance on ss 52 and 85 of the Trustee Act 1925 (NSW) (Trustee Act)); as well as a cross-claim, seeking declaratory relief as to the position for which he contends in relation to the Double Bay Property and the proper construction of the Will; and claiming reimbursement of amounts allegedly expended or incurred by him on behalf of the estate. Mr McRae has also foreshadowed a claim for commission as executor (see at T 23.29-42).

9. By the conclusion of the hearing, Mr McRae no longer resisted his removal as trustee and executor of the deceased estate (see T 313.1-12) though he still resists the appointment of Ms Gritzman in his place (see T 314.37-48).

Chronology of events

The parties

10. As noted above, the deceased and Ms Gritzman were siblings.

11. Mr McRae, a retired licensed real estate agent or “property valuer” (as he described his occupation in his oral evidence at T 89.9-24), who had been a real estate agent for some 40 years (see [6] of his affidavit affirmed 12 April 2019), first met the deceased in South Africa in about January 1972. Mr McRae has deposed that he and the deceased entered into a same-sex relationship in 1973 and that they continued to live together until the time of the deceased’s death (see Mr McRae’s affidavit affirmed 12 April 2019 at [3]). The deceased was married (on 13 April 1987) in Australia to his wife, Wendy Allen (see T 66.29-30 and Mr McRae’s affidavit at [10]) (Ms Gritzman acknowledged that the deceased was married “briefly”). It seems likely that this was a marriage of convenience of some sort. In any event, Mrs Osband does not feature in the events the subject of this dispute and there is little doubt that the deceased’s long-term relationship was with Mr McRae.

12. Both Ms Gritzman and Mr McRae became visibly distressed during the course of their evidence (Ms Gritzman at the loss of the deceased; Mr McRae at the perceived unfairness of the situation). I accept that both were genuine in their feelings for the deceased.

Acquisition of the Double Bay Property

13. In 1987, at around the time the deceased married his wife, the deceased purchased the Double Bay Property. Contracts for sale were exchanged on 31 March 1987. As noted above, the title to the property was registered in the deceased’s sole name. The circumstances in which the property was acquired were attested to in at least two documents signed by the deceased (to which I refer in more detail in due course), one in 1987 at around the time of the purchase and one some seventeen years later, in 2004, when the deceased expressly sought to “regularise” his financial affairs in South Africa.

14. Ms Gritzman contends (see, for example, at T 64.45-48, 65.27-30, 71.30-33, 72.38-45) that she provided 50% of the purchase price for the acquisition of the Double Bay Property (though there are, perhaps unsurprisingly given the passage of time, no bank or like records to confirm this contribution) and that she contributed equally to the maintenance of the property thereafter (again, there is no independent evidence of this). Ms Gritzman’s evidence was that, when money was needed, Mr Jeffrey Bergman (the deceased’s accountant), would let the deceased know that funds were needed; that the deceased would approve those funds; and that Ms Gritzman would then make arrangements to get the money to Mr Bergman (T 72.38-45). Ms Gritzman’s evidence is that the source of her (and, for that matter, the deceased’s) contribution was through family funds (T 65.27-30). Ms Gritzman said (at T 60.1-4) that she was consulted by the deceased on all matters in relation to the house (but did not recall exact dates).

15. There is some indirect corroboration of Ms Gritzman’s evidence as to her involvement or participation in the Double Bay Property acquisition in Mr McRae’s evidence that the deceased always insisted that Ms Gritzman be included in any deals he made – saying that there were a lot of deals (see T 107.29-35). Consistently with this, Ms Gritzman described her relationship with the deceased as one of trust and said that the deceased was the “financier” with her permission (see T 65.40-42).

16. Ms Gritzman deposed (in her affidavit sworn 13 February 2018 at [6]) that at the time of the purchase she made a loan to the deceased to enable him to buy the Double Bay Property. This is consistent with the 2004 declaration made by the deceased (to which I have referred above and as to which I provide more detail below). Mr McRae’s contribution to the acquisition of the property, according to his evidence, is that he was responsible for obtaining the mortgage bond used to fund the balance of the purchase price (T 101.20-21, 112.26-28).

17. Pausing here, if Ms Gritzman had simply made a contribution to the purchase price that was not reflected in the way in which ownership was recorded on the title to the property, then there would be a presumption arising of a resulting trust (see Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 at 266-267 per Deane J; Amit Laundry Pty Ltd v Jain [2017] NSWSC 1495 at [161]-[168]). However, that is not consistent with the characterisation of Ms Gritzman’s contribution as a loan; and Ms Gritzman does not here invoke the principles of resulting trust (nor does she claim a 50% interest in the property or, now, of the proceeds of sale thereof). Rather, Ms Gritzman claims an interest as the beneficiary of a common intention constructive trust (in either a 37.5% or 33.33% proportion) together with an interest as beneficiary under the Will (a 37.5% share of the deceased’s interest in the Double Bay Property).

Declaration of Trust

18. On 9 April 1987, the deceased executed a formal Declaration of Trust (referred to in the preface to the recitals as a Trust Deed). That document was prepared by a solicitor in Sydney, Mr Peter Cappe; and in the document the deceased’s address was identified as “care of” Mr Jeffrey Bergman. Mr Bergman, who gave evidence in the proceeding, is a chartered accountant who for some years acted for the deceased in relation to the management of the Double Bay Property and whose services were retained by Mr McRae after the deceased’s death in relation to the deceased’s estate.

19. Mr McRae (at [14] of his affidavit) deposes to his attendance with the deceased at the office of Mr Cappe and a conversation that took place in relation to the preparation of the 9 April 1987 Declaration of Trust (which recited the contributions of the parties to the purchase of the Double Bay Property).

20. Recital 1 of the Declaration of Trust recorded that, by agreement for sale of land dated 31 March 1987, the deceased (defined in the declaration as the Trustee) as purchaser had purchased the Double Bay Property. Recital 2 recorded that the purchase price was $265,000. Recital 3 recorded that the purchase price was provided by Ms Gritzman, Mr McRae and the deceased in equal shares. Recital 4 recorded that the deceased intended to be registered as the registered proprietor. Recital 5 recorded that the deceased had entered into the agreement for sale and intended to enter into the transfer of the property beneficially for himself as to an undivided one third share and as trustee for Ms Gritzman and Mr McRae, each also for an undivided one third share.

21. As to the operative provisions of the Declaration of Trust, pursuant to cl 1 the deceased declared that he held the Double Bay Property in fee simple: beneficially for himself, Ms Gritzman and Mr McRae each as to an undivided one third share. By cl 2, the deceased agreed that he would, at the request of Ms Gritzman and Mr McRae (and at their cost), make application and execute and do all such instruments, acts and things that may be necessary for the purpose of procuring the transfer to them of their interest in the Double Bay Property. (For Ms Gritzman, it is noted that there was no power of sale contained in the Declaration of Trust instrument.)

22. At this point, therefore, by the Declaration of Trust (the validity of which is not disputed), the deceased had declared a trust over the Double Bay Property with the beneficial ownership of the Double Bay Property then being held as to one-third each by the deceased, Ms Gritzman and Mr McRae.

18. It seems that Mr Cappe retained possession of the Declaration of Trust and that a copy of the Declaration of Trust was only obtained from Mr Cappe (following enquiries made on behalf of Mr McRae after he became aware of the contents of the deceased’s Will and because of his concern in relation thereto) on 24 August 2017 (after the application for probate had been made in which the interest of the deceased in the Double Bay Property was recorded, inconsistently with the proportions declared in the Declaration of Trust, as being a 37.5% interest).

Subsequent variation of beneficial holdings

24. Ms Gritzman’s evidence is that at some time between 1987 and the 1990s, the deceased proposed to her that he hold a 37.5% beneficial interest in the Double Bay Property for her benefit in lieu of him repaying the money that she had contributed to the purchase; and that she agreed to that course. This is the basis of the claimed common intention constructive trust (the agreement being particularised in the pleading as the “Settlement Agreement”). Ms Gritzman maintains that she relied on this (including not insisting on transfer to her of a legal interest in respect of her share of the property). Hence, Ms Gritzman’s position is that, from this time, her beneficial interest in the Double Bay Property was 37.5%.

25. Pausing here, on this account of events what appears to have occurred was an informal variation of the trust that had been declared by the deceased in 1987, such that Ms Gritzman’s interest in the property became a 37.5% beneficial interest. However, it is relevant to note that (in the absence of consent from Mr McRae) this increased share for Ms Gritzman’s benefit could only have operated to reduce the deceased’s one-third beneficial interest since, under the Declaration of Trust, Mr McRae already had a beneficial one-third interest in the property. Therefore, on Ms Gritzman’s case, her beneficial interest would increase to 37.5% and the deceased’s beneficial interest would reduce (on my calculations) to 29.16%, with Mr McRae’s beneficial interest remaining at 33.33%. This is relevant when considering the interest in the Double Bay Property that the deceased was capable of disposing of under his Will. In other words, if the arrangement varying the initial trust is accepted to have occurred, then all that the deceased was able to dispose of under his Will was his 29.16% interest (of which, and subject to the issue of construction to which I refer in due course, 37.5% was to go to Ms Gritzman and 62.5% effectively to Mr McRae during his lifetime – i.e., Ms Gritzman’s interest, taking into account the gift under the Will, would then become 37.5% plus 37.5% of 29.16% and Mr McRae’s interest would be 33.33% plus 62.5% of 29.16%).

Foreign Exchange declaration

26. On 23 February 2004, the deceased signed what on its face appears to have been a formal declaration addressed to the “Foreign Exchange Manager” and “The Authorised Dealer” of the First National Bank (in South Africa), the deceased in that declaration requesting that it be forwarded to the South African Reserve Bank. The declaration was described as being in terms of a “D405 Regulation” dated 30 September 2004 and stated:

In accordance with the D405 regulation as published by the SA Reserve Bank dated 30 September 2003, I wish to regularise my affairs and make the required disclosure. This disclosure covers my ownership of a foreign asset acquired whilst I was not a resident of South Africa, the continuing existence of the asset whilst I am a resident and the foreign borrowings.

27. That declaration (the stated purpose of which, as noted in the above extract, being to “regularise” the deceased’s position in relation to foreign exchange or foreign asset regulations in South Africa) recorded, as “facts”, a number of matters, including that:

1.   I left South Africa to settle and marry in Australia during 1987.

2.   Shortly after my marriage in Australia I acquired a property in Australia using wedding gifts, together with a loan from my sister, Rosie Gritzman, with the balance being paid by a mortgage bond.

3.    …

4.    …

5.   Although I still remain married and my wife resides in Australia, I am a resident of South Africa. The property remained in my possession in Australia and the proceeds from rentals over the last 17 years has serviced the mortgage property debt.

6.   I used no South African funds to settle the property debts. All the funds for the acquisition of the property were acquired whilst I was not a resident of South Africa.

7.   Between 1987 and 1990, as the property became an investment property rather than my residence, I sold 37.5% of the property to my sister Rosie Gritzman in settlement of the loan from her. Although the title remains in my name, she is entitled to 37.5% of the property.

8.   …

28. Mr McRae (apart from characterising some of the contents of the declaration as misleading – pointing in this regard to [5]) says that the purpose of this declaration appears to be a disclosure covering the ownership of foreign assets and he notes that it was made seventeen years after the purchase of the Double Bay Property. Mr McRae says that it is unclear what documents, if any, the deceased would have had before him at the time that he made the declaration (or what the deceased’s motivation may have been in making that declaration). Nevertheless, it is clear from the text of the declaration that the deceased intended it to have some import for the purposes of the South African Reserve Bank and some regulation published by the South African Reserve Bank; and I would infer that (whatever documents may or may not have been before Mr McRae at the time) it was not then Mr McRae’s intention to provide misleading information to a regulatory authority in South Africa as to his ownership of foreign assets.

29. The significance of the document, to my mind, is that it corroborates Ms Gritzman’s account of events, namely, that Ms Gritzman had provided a loan in relation to the acquisition of the property; that the deceased had settled that loan by “selling” a 37.5% interest in the property to Ms Gritzman; and that Ms Gritzman was thereafter accepted by the deceased to be entitled to a 37.5% beneficial interest in the Double Bay Property.

Confirmation as to shareholding in the Double Bay Property

30. On 13 August 2010, the deceased signed a declaration (a true copy of which was later certified by another solicitor in Sydney, Mr John Denes who, is principal of & Legal) confirming that Ms Gritzman’s (now late) husband, Leon, was the custodian of the deceased’s shares in three named companies and going on to state that “I furthermore confirm that Ranald Scott McRae owns a 25% shareholding in the [Double Bay Property]”. Mr Denes’ (later) certification of the copy of the declaration is dated 9 October 2015. The purpose of this document is not clear; and it is inconsistent with both the 33.33% beneficial interest of Mr McRae as declared in the 1987 Declaration of Trust and the continuation of that 33.33% interest of Mr McRae following the variation of that trust as contended for by Ms Gritzman. If the legal title of the Double Bay Property was held at the time by the deceased in trust for Mr McRae as to 33.33%, then it was not open to the deceased unilaterally by declaration to change that proportionate holding to a 25% holding.

Deceased’s Will

31. On 24 March 2014, the deceased made his last Will in relation to his Australian assets.

32. Clause 3 appointed Mr McRae as the deceased’s executor and trustee of his Will with two identified alternate directors (the first with an address in Israel and the further alternate with an address in the United States of America; both by their surname apparently related in some way to Ms Gritzman) if Mr McRae was unable or unwilling to act as his trustee.

33. Clause 4 of the Will provided as follows:

IF RANALD SCOTT McRAE survives me by thirty (30) days the following provisions shall apply:

(a)   I DIRECT my trustee to pay all my debts and funeral and testamentary expenses in Australia out of my Australian assets.

(b)   I DIRECT my trustee to pay the net income from my Australian assets `   to RANALD SCOTT McRAE during his lifetime.

(c)   IF my trustee sells my property at [the Double Bay Property] I DIRECT my trustee to hold the net proceeds of sale of the Double Bay property (after payment of all expenses arising out of or incidental to the sale of the Double Bay property by my trustee, including but not limited to capital gains tax, agent’s commission and legal expenses) (“net proceeds of sale of the Double Bay property”) upon the following trusts:

(i)   37.5% of the net proceeds of sale of the Double Bay property to be held for ROSIE GRITZMAN, and

(ii)   The remaining 62.5% of the net proceeds of sale of the Double Bay property to be held on trust to be invested by my trustee in the following investments:

A.   In shares in publicly listed companies in Australia which appear in the ASX 200 List of Companies, and

B.   In residential real estate in Sydney.

AND I DIRECT that my trustee shall distribute to RANALD SCOTT McRAE the net income derived from those investments during his lifetime.

(d)   I DIRECT that RANALD SCOTT McRAE may occupy the Double Bay property as his residence during his lifetime, he being responsible for the payment of all rates and taxes and keeping the Double Bay property insured against loss and damage from fire, storm and tempest in an amount and in an insurance office approved by my trustee and keeping and maintaining it in a state and condition of repair similar to that in which it is at my death.

(e)    I DIRECT that upon the death of RANALD SCOTT McRAE my trustee shall hold all Australian assets on trust for the Sandown Hill Trust.

34. (Pausing here, the declaration sought by Mr McRae in prayer 8 in the cross-claim is to the effect that Ms Gritzman’s 37.5% entitlement as beneficiary under the Will is subject to cl 4.1(b) or 4.1(c) and thus that Ms Gritzman is not entitled to these funds absolutely.)

35. Clause 6(b) of the Will empowered Mr McRae to exercise the powers of a trustee for sale with respect to any assets comprising the deceased estate. (That could not, of course, empower Mr McRae to sell assets not wholly owned by the deceased, at least without consent of the co-owner(s).)

36. The Will was attested by Mr Denes, solicitor, and Mr Bergman (as noted above, the deceased’s accountant).

Sandown Hill Trust

37. The Sandown Hill Trust, to which reference is made in the Will, was established by Trust Deed dated 15 February 1990. By cl 1.7 of the Trust Deed the beneficiaries are defined to be Ian Roy Gritzman, Carol-Lynne Cohen (nee Gritzman), Jonathon Laurie Gritzman and Michael Steffan Gritzman in equal shares. The original trustees of the Sandown Hill Trust appointed by the Trust Deed were the deceased, Ellis Osband (the deceased’s and Ms Gritzman’s mother) and Ms Gritzman (of whom Ms Gritzman is now the sole surviving trustee).

38. The Trust Deed provides that the objects of the trust shall be to apply the whole or any part of the capital of the trust or its income for the benefit of the beneficiary in such manner and upon such terms to such conditions as a trustee shall deem fit, including investing in moveable and immoveable property of any description. Thus, it would appear to be akin to a limited discretionary trust.

Deceased’s death and retainer of solicitors and the deceased’s accountant

39. As noted above, the deceased died on 20 June 2015 (aged 72).

40. Mr McRae then retained the services of the firm of solicitors trading as “& Legal” (his solicitors in the present proceeding, of which firm Mr Denes is a principal) and the deceased’s accountant (Mr Bergman), who as noted above had witnessed the execution of the deceased’s Will and who was named in the 1987 Declaration of Trust as, in effect, the point of communication for the deceased. Mr Bergman’s services were retained in relation to both the sale of the Double Bay Property and the administration of the deceased estate.

Oral “agreement” or handshake deal for sale of the Double Bay Property

41. At all material times up until September 2017, the Double Bay Property had been tenanted. Mr Mc Rae’s evidence is that, in October 2015, he orally “struck a deal” to sell the Double Bay Property to the incumbent tenant of the property and “agreed a price” of $2.75 million. There is no suggestion that any independent valuation had been obtained of the Double Bay Property at that stage; nor was Ms Gritzman informed of the handshake “agreement” (by which Mr McRae made clear in his cross-examination he considered himself to be morally bound thereafter – see T 161). Mr McRae was adamant in cross-examination that this was a very good price for the property (saving the estate the cost of marketing or agents’ fees) and he accepted that his intention was at all times to honour the deal (T 161).

Communications with Ms Gritzman in relation to proposed sale

42. On 11 December 2016, Mr Howard Hilton (a “lay associate” of & Legal, being a former solicitor who had been struck off the roll of solicitors in the 1980’s in what he described as a “great scandal” – see T 167.12-14 and who was permitted to practise only as what he describes as a “qualified clerk”), acting for Mr McRae, sent an email to various persons (including Mr McRae and Mr Bergman), copied to Ms Gritzman, in relation to the deceased’s estate, advising that the Australian estate was comprised only of the real estate at the Double Bay Property. Relevantly, the email stated that:

The problem that we are dealing with is this: In his will the deceased dealt with this house as if he owned 100% of it. In fact at his death he owned beneficially only 37.5% of the property even though it was in his name. As a consequence some of the gifts he made, such as a life interest or right of residence to Scott [Mr McRae] and the income from rental of the house to Scott obviously can’t be carried out. The Will can only deal with that which the deceased owned when he died.

It is the fact that at the date of his death the house was beneficially owned as follows:

1.   The Late Asher Mannie Osband;    37.5%

2.   Scott McRae;           25%

3.   Rosie Gritzman         37.5%

Given that starting point we must now interpret the will as it affects Mannie’s 37.5%. A summary of the gifts is below:

…

5.   If the house is sold then 37.5% of the net proceeds go to Rosie.

…

We now have to apply these gifts to the circumstance that we are dealing with only a fraction of the house not the whole.

A.   Clearly the right of occupation cannot be enforced as Rosie owns 37.5% of the house.

B.   It is probable that she can if she wishes compel the sale of the property and we think that course should be agreed by all parties, essentially that means Scott.

C.   If the house is sold the proceeds are to be divided up as per the shareholdings in the property.

D.   From the estate’s 37.5% residue Rosie is entitled to 37.5% and the remaining 62.5% is to be invested as directed by the will and Scott derives the income from such an investment.

The three beneficiaries must agree on a common view and a common course of action. That is Rosie, Scott and the trustee of the Sandown Hill trust will have to all agree as to what will happen.

Once we have common agreement we can then decide if we need to have the Will rectified or if we can manage the estate as it is with the diminished asset. The key issue is the sale of the house.

I look forward to receiving your feedback. I also would like you [sic] consent (if that be the case) which can be by letter or by signed and dated agreement on the copy of this email.

43. Leaving aside the proportionate percentages of the beneficial interest in the Double Bay Property, the email (correctly) recognises that the estate held only a proportionate beneficial interest in the property (and hence the consent of the other beneficial owners would be necessary for any sale). Further, any recipient of the email (including Mr McRae, although in oral evidence he suggested that he did not generally bother to read things sent to him – even an affidavit the truth of which he had in fact verified) would surely have understood that what was being said was that the sale of the Double Bay Property could not proceed without agreement thereto by (among others) Ms Gritzman. It is also of interest to note that the email adopts a reading of the Will to the effect that Ms Gritzman’s 37.5% share of the proceeds of sale under the Will (if the property were to be sold) was a share of the estate’s 37.5% share of those proceeds (i.e., additional to the 37.5% share beneficially held by Ms Gritzman – in the view of the author of the email at that time – in her own right). That accords with my reading of the Will (see below).

44. On 23 January 2017, Mr Hilton sent an email to Ms Gritzman, stating that he did not think that she had responded to any emails sent to her regarding the estate (it is not clear to what emails other than the above Mr Hilton was referring) and that:

As you are a beneficiary, the trustee for a beneficiary [this seemingly being a reference to Ms Gritzman’s position as trustee of the Sandown Hill Trust] and a part owner of the house in your own right this is now causing troubles with the administration of matters here and for the various applications that need to be made.

Unless we have your consent in all of those capacities it makes it close to impossible to move matters forward.

…

[my emphasis]

45. Again, this would no doubt have conveyed to a reasonable reader in the position of Ms Gritzman that a sale of the Double Bay Property could not proceed without her consent (or at least that it would be “close to impossible” for that to occur).

46. On 2 February 2017, Mr Hilton (in terms responding to a note apparently sent by Ms Gritzman and her husband) sent an email in which Mr Hilton indicated that he was attempting to answer various questions and to “explain the situation” in relation to the Australian estate, including that:

… The only issue with the Australian estate is that its main asset, the house property, was left in Mannie’s will as if he were the sole beneficial owner of it and he is not.

We have discovered since Mannie’s death that he had only a 37.5% interest in the house. It is submitted that you own 37.5% and Scott owns 25%. Attached is a note recognizing Scott’s share which was signed by Mannie and certified as a copy of the original by John Denes of our office. [This is the 2010 note referred to above] Because of this alteration in beneficial ownership the Will cannot be fully effective in relation to some of the provisions Mannie made, in particular the life estate for Scott.

It appears to be that the only way in which the ‘three owners’ can obtain their proper shares is for the house to be sold as soon as possible and the ownership portions dealt with as they now really are. To repeat that is for 37.5% % [sic] of the net sale price to be paid to you; 25% to be paid to Scott and for the estate to control what happens to that remaining 37.5% which actually was Mannie’s and upon which he could validly direct in his last Will. (You will be paid a further 37.5% of Mannie’s 37.5% and Scott will have a lifetime usufruct over the remaining 62.5% of Mannie’s 37.5% until it ultimately reverts to The Sandown Hill Trust).

…

47. Responding to numbered questions that had apparently been raised by the Gritzmans, Mr Hilton went on to say, relevantly, that:

1.   We act for Scott [McRae] only in relation to him being the executor of Mannie’s Australian estate and in no other capacity. We cannot commit him to anything.

2.   …

3.   The issue with the Will is that Mannie left the house in his Will with instructions to do certain things with it. He did this seemingly on the basis that he had a 100% ownership and so could do as he chose. It now appears that he did not have a 100% ownership of the property.

4.   As to Mannie’s intentions we cannot say.

5.   Clearly the house has to be sold as the estate has only a beneficial 37.5% ownership of it. We will shortly obtain a current market value for the property and send it to you. Your agreement regarding the sale of the house will be needed as you are a part owner.

6.   It will suit all parties if the Australian end of the estate can be finalised as soon as possible. There are taxes and expenses accruing and the longer the matter lingers the higher these imposts will become.

7.   …

8.   We will seek the approval of our Supreme Court via a Deed of Family Arrangement to legally enact these amendments to the will should there be agreement from all parties. These changes to the beneficial ownership of the house will affect all beneficiaries including the beneficiaries of the Sandown Hill Trust who have a residual share in the estate. …

9.   The issues for agreement are:

a.   To recognize your and Scott’s claims to be part owners of the property;

b.   To agree to sell the property and you may have all the input as is reasonable into this, it will be a transparent process;

c.   We seek your feedback about these two points as a matter of urgency.

…

48. A number of comments may be made about this email. First, that it (as did the previous 11 December 2016 email) stated the position as being that Ms Gritzman had a beneficial 37.5% ownership of the Double Bay Property (and indicated that the 37.5% share of the net proceeds on sale of the property that was left to Ms Gritzman under the Will amounted to a share of the estate’s 37.5% share of the property, thus giving Ms Gritzman in total in effect more than a 37.5% share of the net proceeds of sale). (Even if wrong as to the percentage, this was a clear recognition that Ms Gritzman was a beneficial owner in her own right; not merely a beneficiary under the Will.) Second, consistent with the earlier correspondence, that Ms Gritzman’s consent to the sale was necessary (as she was a part owner of the property). Third, that Ms Gritzman was here being assured that she would be able to have “all the input as is reasonable” into the sale and that it would be “a transparent process”. (As events transpired, nothing could have been further from the truth.)

49. On 9 February 2017, Mr Hilton sent an email to Ms Gritzman and her husband, referring to the previous week’s letter and stating that “[w]e are being pressed to wind up the Australian estate but until we have your consent to what is proposed we cannot do anything”. (Again, the subsequent conduct of & Legal makes a mockery of the assertion that without Ms Gritzman’s consent nothing could be done.) It is not clear who was said to be pressing the solicitors to wind up the estate (or pressing Mr McRae as trustee or executor to do so, if the reference in the email to being pressured was as to him being the one who was being pressured). Logically, it would seem likely that it could only have been Mr McRae who was concerned to wind up the estate quickly (since it would not make sense for Mr Hilton to be chasing up someone who was herself doing the pressuring and the only relevant beneficiaries were Mr McRae and Ms Gritzman); and there was some acceptance by Mr McRae in cross-examination that he was under some financial pressure at least at some stage during the administration of the estate (see T 140.8-10 where Mr McRae said that he was pretty desperate for money, when asked about a payment of $56,060 from the proceeds of sale). However, Mr Hilton in cross-examination was not able to assist with any recollection of this (see generally T 171-172) (nor, indeed, did he profess to have much recollection of anything).

50. On 3 March 2017, Mr Hilton sent an email to Mr Leon Gritzman’s email address stating that “we will” shortly apply for probate of the Australian Will (“probably and I hope within a fortnight”) and that

[w]hen probate is granted I believe that the house property will be sold by the executor. The monies will be held in our trust account until the beneficiaries agree a division or failing that the court will decide on how the assets are to be distributed. All parties will have the opportunity to put their case to the court.

…

The email foreshadowed that a list of the assets would be sent within a short time. Relevantly, there was no further reference in this email to any consent being necessary to the sale (though Mr Hilton had previously, correctly, recognised that consent would be necessary from Ms Gritzman as a part beneficial owner of the Double Bay Property). It would seem that, by now, what was being contemplated was unilateral action by the executor (without consent from Ms Gritzman and without bothering to seek judicial advice as to the executor’s power to do so).

51. On 15 March 2017, Ms Gritzman sent an email seeking a copy of the probate application and asking that Mr Hilton let her have copies of the offers “that have been made or are being made for the house” saying that “[a]s a 37.5% owner I am obviously very concerned that any deal which is negotiated has my approval”. If nothing else, this should have put Mr Hilton squarely on notice that Ms Gritzman was not prepared to authorise a sale without her express consent thereto.

Probate

52. On 4 July 2017, probate was granted of the Will to Mr McRae as executor. The Inventory of Property disclosed (under the heading “Property owned by deceased as tenants in common in unequal shares”) the real estate in respect of the Double Bay Property, recording the deceased’s interest as a 37.5% interest; and the particulars of the other joint owners as being Mr McRae, as to 25%, and Ms Gritzman, as to 37.5%. The estimated value of the property was put at $975,000 (presumably that being the estimated value of a 37.5% interest in the property, which would make the overall value of the property as being in the order of $2.6 million). It should be noted that, by this time, Mr McRae already considered himself bound – by a handshake – to a sale of the property to the incumbent tenant for $2.75 million; though no one had given any indication of this to Ms Gritzman.

53. On 4 August 2017 (i.e., almost two years after the “handshake deal” by which Mr McRae considered himself morally bound and after Mr McRae had already ascribed a value to the property in the application for probate), Mr Bergman obtained two valuations of the Double Bay Property from a valuer in Sydney (Mr Adrian Staltari), who ultimately gave evidence in the proceeding: the first, valued the property retrospectively (as I understand it for capital gains tax purposes) as at 8 May 2012 at $1.75 million; the second, a contemporaneous valuation as at 4 August 2017 at $2.65 million (fortuitously or otherwise), being close to the amount attributed to the property in the earlier filed probate documents. While the valuation was coincidently close to (and less than) the amount for which the property had already been the subject of the “handshake” deal, I do not suggest any impropriety on the part of Mr Staltari (who impressed me as an objective and considered witness in the witness box).

54. On 24 August 2017 (following enquiry on behalf of Mr McRae), Mr Cappe produced the Declaration of Trust document. Mr McRae’s evidence is that he had been troubled about the deceased’s Will and could not understand it; and then he remembered the visit to Mr Cappe (see T 101.5-14, 102.24-29, 103.3-14). Mr McRae also seems to have formed the view, or at least put that view forward in cross-examination, that the discovery of the Declaration of Trust rendered the Will “irrelevant” or “null and void” or that the Will was “over-ceded” in some fashion by the Declaration of Trust (see T 105.17-42).

55. On 31 August 2017, Mr Hilton sent an email to, among others, Ms Gritzman, advising that:

… we have recently come into possession of a deed of trust executed by Mannie Osband on 9 April 1987 in front of his then solicitor Mr Cappe and a letter from him is attached also.

This document gives a beneficial interest of 33.33% to each of Rosie, Ranald [McRae] and himself. That document and letter are attached.

Subject to the executor’s instructions we will have to make an application to amend the probate to shoe [sic] the correct percentages to the beneficiaries.

…

Sale of Double Bay Property

56. What next occurred, relevantly, was that on 7 September 2017 (without reference to Ms Gritzman, let alone any consultation with her as to the sale process, and contrary to the assurances that Mr Hilton of & Legal (acting for Mr McRae and therefore one would assume on or with the benefit of Mr McRae’s instructions) had made in writing to her), Mr McRae exchanged contracts for sale in respect of the Double Bay Property to the incumbent tenant at the price of $2.75 million. The sale was conducted without a real estate agent (but in the witness box Mr McRae was adamant that the price was a very good price, emphasising his experience as a real estate agent in real property – see T 161.29-39; or a fair price at the time, noting that there were no marketing fees or real estate commissions – T 160.42-48).

57. The sale completed on 13 October 2017. The rationale put forward by consent for Mr McRae as to the sale was that the deceased had purported to deal with the property as its sole owner and the trustee or executor would have been entitled to bring an application under s 66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act) (see T 19.15-24). Even then, Ms Gritzman was not informed of the sale (this no doubt being one of the many things that Mr McRae blithely accepted in cross-examination ”we” did not tell Ms Gritzman).

58. Not only was Ms Gritzman not told of the sale, but also (and even more troubling) the proceeds of sale ($2,110,175.71 after payment of various expenses (such as withholding gains tax of 12.5% and an adjustment for land tax and rates; and after the payment of the sum of $267,732.77 to the Commonwealth Bank, which Ms Gritzman does not necessarily accept is properly accountable to the estate)) were ultimately paid not into the solicitors’ trust account or a controlled moneys account (as Mr Hilton eventually, incorrectly, told Mr Gritzman they were) but were placed into an account or accounts in the name of Mr McRae – see below. No part of the proceeds of sale was forwarded to Ms Gritzman at that stage, though it seems that there were deductions from time to time out of the proceeds in favour of Mr McRae (according to him, authorised by Mr Bergman but according to Mr Bergman on Mr McRae’s instructions or at his request).

Communications following the sale of the Double Bay Property

59. On 8 January 2018, Ms Gritzman discovered, through enquiries by her solicitor (not by any disclosure from or on behalf of Mr McRae) that the Double Bay Property had been sold (without her knowledge or consent). The following day (9 January 2018), Ms Gritzman’s solicitor (Mr Phillip Silver) contacted Mr Hilton by telephone. In a later email of that date to Mr Hilton, referring to that conversation, Mr Silver noted Mr Hilton’s confirmation that the Double Bay Property had been sold; that (as turned out to be incorrect) the sale proceeds were currently held in his trust account; and that the amount retained in trust would not be released to any party. Confirmation was sought from Mr Hilton that reasonable notice would be provided prior to the release of any proceeds, given Ms Gritzman’s interest in the property. The email further stated that “[t]hat the sale of the property (or even the intention to sale [sic] the property) was never disclosed to [Ms Gritzman]”. There was no immediate response to that email (and certainly no demur from the proposition that Ms Gritzman had no notice of the sale). On 11 January 2018, Mr Silver pressed for a response.

60. On 12 January 2018, Mr Hilton emailed Mr Silver to apologise that the sale funds were not held in the firm’s trust account (as he had previously advised); rather, that an “executor’s account” had been set up “and the funds were transferred there last year”. The letter stated that “I was unaware of this as I am not dealing with the estate assets as such” (a perhaps surprising statement since all the communications to that point from & Legal in relation to the estate, at least to Ms Gritzman, seem to have been through Mr Hilton); and that Mr Denes (who would be returning the following Monday) was in overall charge of the matter.

61. Mr Hilton’s evidence in cross-examination was (to say the least) unsatisfactory in that, despite having made a number of assurances in writing to Ms Gritzman as to any sale (including that she would have all reasonable input and that it would be a transparent process) and having advised, more than once, that Ms Gritzman’s consent to the sale was necessary, Mr Hilton’s evidence was that he was not concerned as to what had occurred, saying that “she wasn’t my client” (T 179.16-18) and that, in the office, he did “what [he] was told” (see T 180.6-12).

62. Not surprisingly, this turn of events led to a formal letter dated 17 January 2018 from Ms Gritzman’s solicitors, asserting that it appeared that Mr McRae had improperly sold the Double Bay Property without consulting Ms Gritzman or obtaining her agreement, and had improperly dealt with the sale proceeds. Information was urgently sought, together with an undertaking (which was not provided) to the effect that (by no later than 12.00pm on 19 January 2018) Mr McRae would: cause 33.3% of the net proceeds of sale (plus interest) to be paid to Ms Gritzman (presumably that percentage being adopted as the amount that Mr McRae’s solicitors had contended was Ms Gritzman’s entitlement in their correspondence of 31 August 2017); and cause a further 18.5625% of the net proceeds of sale plus any accrued interest from the date of sale to be placed in a controlled moneys account in the joint names of Ms Gritzman and Mr McRae to be disbursed only upon the written agreement of those parties or order of this Court. That further amount was said to constitute the additional 4.5% interest Ms Gritzman claimed in the Double Bay Property (i.e., the difference between a 37.5% interest and a 33% interest) as well as Ms Gritzman’s entitlement under the Will out of the deceased estate’s (separate) interest in the Double Bay Property.

63. The response from Mr Hilton, at 2.47pm on 19 January 2018, apart from not providing the undertaking that had been sought, was to assert (surprisingly in the circumstances) that “it must be stressed that both this firm and Mr McRae have at all times endeavoured to behave with honesty and scrupulosity [sic] toward the estate and the beneficiaries of the trust”. The suggestion that the sale of the Double Bay Property without the consent of, let alone consultation with, a beneficial owner of the property (or a Court order approving such a sale) was in any way appropriate or scrupulously honest conduct is untenable in my opinion. The only submission made in this regard for Mr McRae at the hearing, as adverted to above, was that it was said that the executor would have been entitled to bring an application under s 66G of the Conveyancing Act to enforce a sale (see T 19.15-24). That is not to the point. No authority was cited for the proposition that there was some right of “self-help” in this regard; i.e., that it could be assumed with impunity that relief under s 66G would be granted and that the executor could proceed without any such application at all.

64. For Mr McRae, it was said that the executor was given advice as to the reasons why the property should be sold (see T 19.1-4); and I note that Mr McRae himself suggested that there was power under the Will to do so (see T 105.47-50). As to the first proposition, that advice was not in evidence unless Mr McRae is here referring to advice of the kind later received from Mr Bergman as to the incidence of capital gains tax – to which I refer below; as to the second, I do not accept that the executor had power under the Will to dispose of an asset not wholly beneficially owned by the estate without the consent of those already holding a separate beneficial interest in their own right (i.e., apart from any entitlement under the Will); and any suggestion that Mr McRae could reasonably have thought otherwise is untenable having regard to the advice he had received from Mr Hilton.

65. The email from Mr Hilton went on to state that, as soon as an amount had been agreed to be held on account of capital gains tax, the firm would pay 33.33% of the net sale price (less 33.33% of the estimated capital gains tax as agreed) to Ms Gritzman’s solicitors or her account, but that until a new grant of probate had been made it would be inappropriate to distribute from the estate (Mr Hilton saying that they would be happy to hold an agreed amount on account of Ms Gritzman’s beneficial interest in the estate in trust until a distribution could be made pursuant to an amended grant). (No such qualms appear to have attended the making of distributions to Mr McRae in this period.)

66. On 23 January 2018, Mr Bergman sent an email to Mr Denes (copied to Mr Hilton and Mr McRae), which Mr Hilton then forwarded to Ms Gritzman’s solicitor, in which Mr Bergman stated that he represented the deceased “and now his estate” from the date of the acquisition of the Double Bay Property in April 1987. The email stated that the discovery on 24 August 2017 of the 1987 Declaration of Trust had “extended” Mr Bergman’s representation to the three beneficial owners for whom the deceased held the property in trust. (In oral submissions it was conceded that this last statement, to the extent that it suggested that Mr Bergman was by then representing all the beneficial owners of the property, “was probably an incorrect assertion” – see T 18.46-47.) Further, the suggestion that Mr Bergman had only just discovered the existence of the Declaration of Trust seems somewhat surprising since his address was nominated in the document as the address for the deceased (but I do not discount the possibility that Mr Bergman was not given a copy of the Declaration of Trust when it was signed or had simply forgotten about it).

67. Mr Bergman there estimated the amount payable for capital gains tax in relation to the property (and said that there would be a contingent liability for income tax on the part of the beneficial owners). Mr Bergman calculated the amount attributable to each of the three (on his calculations, one-third) beneficial owners as $659,066.56 (from the current interest-bearing deposit of an amount said to be $1,977,199,70) and that, after capital gains tax, the estimated amount before tax agent fees would be in the order of $536,983.23 each. Mr Bergman recommended releasing $511,983.23 (after undertakings and indemnities seemingly by Ms Gritzman, in favour, inter alios, of the executor and trustee (Mr McRae) and the retention of an amount of $25,000 for “contingency”). In respect of the capital gains, Mr Bergman advised that a 50% discount applicable to capital gains tax for foreign owners was abolished on 8 May 2012 and he estimated that the capital gains payable would be in the order of $710,000 (saying that less $343,750 holding tax hence would be $366,250 owing).

Commencement of proceeding

68. On 15 February 2018, Ms Gritzman commenced this proceeding by summons in this Court. Orders were made on 21 February 2018 by Slattery J as I understand it, (over the opposition of Mr McRae) for payment into Court of the sum of about $1.088 million as noted earlier. Further, his Honour ordered that the deceased’s estate provide an account with respect to the sale of the Double Bay Property by 6 March 2018, including supporting documentation.

69. Since then, there has been distribution by consent to Ms Gritzman out of the sums paid into Court of around $440,000 – see T 10.30-33. Of the balance, it is said that some $350,000 is held or has been paid on account of the legal costs of the executor in relation to this proceeding (T 17.1-14). It is noted by Ms Gritzman in this regard that the proceeding is a “hostile” one in which Mr McRae’s conduct as trustee is impugned, and that Mr McRae is therefore not entitled to have (or to assume he is entitled to have) his costs paid out of the estate (see T 187.1-4) – see Frost v Bovaird [2012] FCAFC 60 at [69]-[71] per the Court (Jacobson, Siopis and Nicholas JJ).

68. In that regard, I note that (as confirmed by his Counsel – T 17.16-22) no application for judicial advice was sought by Mr McRae as to whether, as executor and trustee, he would be justified in defending the present proceeding or as to the proper construction of the Will. The explanation for this in submissions seemed to be that the proceeding had been commenced by Ms Gritzman with expedition (see T 17.27-31). That, however, is no satisfactory explanation for the lack of any such application at the time the sale was effected; nor for the lack of any such application at some later stage in relation to the retention of funds for legal costs.

69. Mr Hilton prepared an affidavit affirmed 21 February 2018 setting out the trust ledger and annexing a “preliminary accountants and representative” report by Mr Bergman setting out the estate’s tax liabilities, and other matters relating to the finalisation of the estate. The letter of Mr Bergman outlines his perception of the deceased’s intentions on the basis that Mr Bergman was present as a witness when the deceased signed the Will. Mr Bergman opined that the deceased considered himself free to bequeathe the Double Bay Property and was seeking to protect the beneficial ownership of Ms Gritzman (see letter at annexure C).

70. Between 21 February 2018 and 20 June 2018, Ms Gritzman’s solicitor repeatedly requested that Mr McRae provide a proper accounting, not only with respect to the sale of the Double Bay Property (as ordered by Slattery J) but also with respect to the deceased’s estate.

71. On 23 February 2018, Ms Janet Ross (a paralegal at & Legal, Mr McRae’s solicitors) sent records regarding the sale to Ms Gritzman’s solicitors, being the Double Bay sale settlement sheet and supporting documents (a trust statement regarding the sale, and a trust statement relating to the estate).

72. On 7 March 2018, Ms Gritzman’s solicitors’ response to the information that had been provided in relation to the sale was that: the bank account statement (showing a deposit of $2 million) illustrated a substantial shortfall between the amount deposited and the net proceeds of sale of $2.11 million; that no records had been provided illustrating what had happened to the deposit of $275,000 in the intervening period; and Ms Gritzman’s solicitors questioned a withdrawal of $31,000. Complaint was made that there was no proper account as to what amounts had been paid as costs of the sale of the property (see T 11.20-26).

73. On 15 March 2018, Mr McRae’s solicitors provided further documents and bank statements. (Complaint is here made that there was still no attempt to provide any separate accounting in relation to the proceeds of sale of the property – see T 11.45-50.)

74. On 27 March 2018, Ms Gritzman’s solicitors complained as to the amount of purported expenses ($128,000) and said that it was unclear what costs were alleged to have been incurred in relation to the deceased’s estate. In response to this, on 18 April 2018, Mr McRae’s solicitors sent what might be termed a “holding” response.

75. On 20 April 2018, Ms Gritzman’s solicitors requested the provision of trust accounts and foreshadowed an intention to approach the Court. On 4 May 2018, Mr McRae’s solicitors provided further documents said to support the “account” previously provided. (Complaint is again here made that there has been no attempt to provide separate accounts for the deceased’s estate and for the sale of the Double Bay Property.)

76. On 14 May 2018, Ms Gritzman’s solicitors again complained that there had been a failure to provide any proper account. It is noted that at this stage Mr McRae held money for three beneficial owners (the estate, himself and Ms Gritzman) and that, even without a Court order, Mr McRae had an obligation to keep separate accounts and to provide accounts on request from the beneficiaries (see in this regard Hancock v Reinhart (2015) 13 ASTLR 1; [2015] NSWSC 646 per Brereton J, as his Honour then was, at [338]-[341] and the authorities his Honour there cited, to which I refer to in due course).

77. On 12 June 2018, Ms Gritzman’s solicitors approached the duty judge in the Equity Division and the proceeding was referred to Lindsay J on 20 June 2018.

78. On 20 June 2018, immediately prior to the hearing before Lindsay J (and therefore on no account could this be said to have been in compliance with the orders that were made on that day by his Honour – see below), Mr McRae’s solicitors served an affidavit of Mr Hilton, annexing what were described as “draft estate accounts”. The said draft estate accounts did not include any entries after April 2018 (that is the account provided does not on its face include entries right up to the purported date of the account itself).

79. On 20 June 2018, and having been provided with the affidavit of Mr Hilton with the annexed draft estate accounts, Lindsay J made orders and notations (expressly noting that these were on the application of Ms Gritzman and without objection by Mr McRae but that Mr McRae maintained that no supplementary orders for an accounting were required), those orders and notations including the following:

1.   ORDER that the defendant, no later than 18 July 2018, serve on the plaintiff a detailed account, verified by affidavit, of all the receipts and disbursements with respect to the sale of the [Double Bay Property] (by a contract for sale dated 7 September 2017 completed on or about 13 October 2017) with the opening balance being the total sale price of the Double Bay property (namely, $2.75 million), such account to be made up to the date of the account.

2.   ORDER that the defendant, no later than 18 July 2018, serve on the plaintiff a detailed account, verified by affidavit, of all receipts and disbursements with respect to the estate of the late Asher Mannie Osband (who died on 20 June 2015 leaving a will dated 24 March 2014 probate of which was granted by this Court to the defendant on 4 July 2017), with the opening balance being one third of the total sale price of the Double Bay property (ostensibly the beneficial entitlement of the plaintiff under a deed of trust dated 9 April 1987), such account to be made up to the date of the account.

3.   NOTE that the accounts respectively required by orders 1 and 2 of these orders are intended to be separate from one another.

4.   ORDER that the accounts for which orders 1 and 2 of these orders respectively provide are to be accompanied by all documents evidencing entries in the accounts (whether by way of annexure or exhibit to a verifying affidavit), including all relevant receipts, tax invoices and bank account statements (including trust statements).

5.   ORDER that the accounts required to be provided in accordance with orders 1 and 2 of these orders shall specify, in respect of each payment and receipt, the date and amount thereof; to whom or from whom the amount was paid or received; and the purpose or account for which the amount was paid or received.

6.   ORDER that each entry in the accounts required to be provided pursuant to orders 1 and 2 of these orders be numbered consecutively.

7.   NOTE, for the avoidance of doubt, that the documentation required by order 4 of these orders is to include all documentation evidencing payments purportedly made by the defendant, for which he has purportedly been reimbursed; including receipts, tax invoices and bank account statements (including trust statements).

8.   NOTE that it is agreed between the parties that the accounts to be provided pursuant to orders 1 and 2 of these orders may be prepared on separate Excel spreadsheets respectively referable to the sale of the Double Bay property and the estate of the deceased.

9.   NOTE that it is agreed between the parties that, subject to any orders made by the Court, the defendant’s accountant (Mr Jeff Bergman) may, on instructions of the defendant, verify the accounts required to be provided by orders 1 and 2 of these orders.

…

82. On 17 July 2018, an affidavit was served on behalf of Mr McRae sworn by Ms Ross (as noted, a paralegal at & Legal), providing a breakdown of the figures in the settlement sheet for the sale of the Double Bay Property (presumably seeking to comply with the order for provision of a detailed account of the sale of the property).

83. On 20 July 2018, Mr McRae’s solicitors served an affidavit affirmed by Mr Bergman, in which Mr Bergman referred to the “draft estate accounts” attached to Mr Hilton’s earlier 20 June 2018 affidavit. In that affidavit, Mr Bergman deposed (at [13]) that “no separate accounting” had been prepared by him for the trusts in respect of the estate (something Mr Bergman confirmed in the witness box was the case). Further, Mr Bergman in that affidavit acknowledged that there was a shortfall and said that whatever shortfall there was would be reconciled with the invoices as part of the preparation of the annual income tax returns. In an annexure marked “B” to Mr Bergman’s 20 July 2018 affidavit, being an addendum to the figures provided in the exhibit to Mr Hilton’s 20 June 2018 affidavit, a note provided that any shortfall in the value of vouchers and claims supplied to date by Mr McRae would be treated as a part distribution to Mr McRae as a one-third beneficial owner of the Double Bay Property.

84. For Ms Gritzman, it is said that the accounts provided are inadequate and in breach of both the obligations of Mr McRae as constructive trustee of the Double Bay Property and his obligations as trustee of the trusts under the Will. For example, complaint is made that Mr Bergman allowed in his reconciliations or account for reimbursement for Mr McRae’s travel expenses (calculated at a daily rate that would be applicable as an allowable “ATO” expense deduction) (a claim that it was acknowledged in submissions for Mr McRae was unprecedented (T 23.15-18, 23.29-30) and which was ultimately abandoned (see T 39.25-31)) and included expenses allegedly incurred for travel as an executor in 2014, prior to the death of the deceased; and for expenses that were not supported by invoices (see T 221.38-50).

85. The complaint made by Ms Gritzman is amply justified in my opinion. Moreover, even leaving aside the complaint as to failure to comply with the detailed requirements of these orders, it was apparent from the evidence of Mr McRae and Mr Bergman at the hearing that a relatively cavalier attitude was taken to compliance with these orders.

86. Mr McRae’s position in cross-examination in general was to the effect that he did not read things (so, for example, at T 142 Mr McRae said that he did not recall reading Mr Bergman’s affidavit affirmed 24 July 2018, nor did he recall seeing the orders of Lindsay J made on 20 June 2018 annexed to that affidavit; at T 137.44-47, Mr McRae said that he was not aware that Ms Gritzman was requesting an account; and at T 138.20-21, Mr McRae said that he did not read the statement of claim, even though his own affidavit contained a denial of its contents – which Mr McRae accepted meant that he “must have read it” – and Mr McRae said that he was not aware that an amended defence was filed, nor that he had signed an affidavit verifying the amended defence at T 144.30-38). Mr McRae made it clear that he relied (seemingly entirely) on others to meet his obligation as executor to keep accounts (T 136.22-50).

87. In particular, in relation to the orders made on 20 June 2018, Mr McRae said he left it to Mr Bergman to sort this out (T 140.31-50), pointing out in cross-examination that the orders allowed Mr Bergman to swear an affidavit annexing the accounts on his instructions. That is so. However, the orders cannot possibly have been thought to permit Mr McRae to abdicate all responsibility for giving instructions in relation thereto. At T 141.7-13, Mr McRae (who did not remember anything about this) said that “Jeff did a lot of things I trusted. He didn’t need any permission for such things” and, at T 144.14-16, Mr McRae agreed that he has no idea whether those accounts were correct. Thus, Mr McRae’s position seems to have been that he delegated everything to Mr Bergman in this regard.

88. Mr Bergman’s position was that he had Mr McRae’s “blanket instruction” to prepare the affidavit (T 216.43-50) and that he knew that it was “absolutely spot on” (T 217.1) (confidence that seems to me to be sadly misplaced having regard to the matters referred to above) but he also said that Mr McRae would have seen the transaction spreadsheet (T 217.10). In this context, I note that the affidavit prepared in purported compliance with his Honour’s orders included amounts that were unsupported by receipts or invoices (as Mr Bergman seems to have accepted at T 219.10-16); amounts claimed by reference to ATO allowances for deductible expenses for taxation purposes (T 220.41-43) (now acknowledged to be unprecedented and claims for which have been abandoned) and claims for expenses as an executor that were incurred in 2014, i.e., prior to the deceased’s death (a matter to which Mr Bergman said he “did not twig” – T 221.50). Mr Bergman accepted that he had not asked Mr McRae to produce statements or invoices (see T 220.5-8).

89. It is not disputed that separate accounts were not prepared for the estate and the sale of the Double Bay Property, respectively.

90. The intent of notation 9 of Lindsay J’s orders cannot on any view of things have warranted a collective washing of hands for any responsibility for the preparation and verification of the accounts that had been ordered and is, to my mind, emblematic of the unsatisfactory approach that Mr McRae and his advisers have taken to the administration of the estate.

91. It was accepted by Mr McRae (see the oral submissions at T 23.29-30) that financial expenses would need to be accounted for and it was said that these would be brought into account in the final accounts (and, indeed, some of the expense claims were abandoned in submissions – such as the undocumented travel expenses). However, Mr McRae submits that he endeavoured to comply with the Court orders as to the preparation of estate accounts (see T 23.30-33) and that it would be appropriate to file an application with the Probate Registrar for passing of the accounts and “perhaps for a claim for commission”. It is said that 31 May 2018 was adopted as the date the account ceased because that was the date that the money was paid into Court and so there was no responsibility for money once it was paid into Court.

Orders made for money paid out of Court

92. On 28 March 2019, Lindsay J made orders that the sum of $260,852.43 was to be paid to Ms Gritzman from funds held in Court. A second payment of $80,000 was made to her pursuant to consent orders entered by Parker J on 17 August 2020.

93. Apart from the claim to the moneys held in Court, complaints are made as to unauthorised disbursements or payments made out of the trust or estate proceeds (to which I refer in due course).

94. Of the proceeds of sale of the Double Bay Property, it appears that approximately $1.1 million was paid into Court; $460,000 has been distributed to Mr McRae (see T 16.47-50, 149.13-15); $350,000 is said to have been paid on account of the executor (Mr McRae)’s legal costs of the proceeding (see T 17.1-12); and amounts have been paid for accountants’ costs and for the fees of South African attorneys (presumably relating to the dispute as to South African assets but perhaps also for advice in relation to this proceeding, although the qualification of foreign lawyers to advise on matters of Australian law was not made clear) (of around $70,000 – see T 17.5-6). (Pausing here, the retention of moneys on account of the executor’s legal costs carries with it the difficulty adverted above of the fact that no application for judicial advice has been made and that Mr McRae is clearly defending his own personal interest in the outcome of the proceeding (see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [74] per Gummow A-CJ, Kirby, Hayne and Heydon JJ).)

Pleaded claims

95. As noted earlier, the proceeding was commenced by summons filed in February 2018. On 24 July 2018, an order was made that the matter proceed by way of pleadings.

Statement of Claim

96. The statement of claim was served on 31 August 2018.

97. Ms Gritzman alleges that she was the beneficial owner of a 37.5% interest in the Double Bay Property, or alternatively, that she was the beneficial owner of a 33% interest in the Double Bay Property. The particulars allege an oral “Settlement Agreement” made between 1987 and 1990 that post-dates the 1987 Declaration of Trust pursuant to which it is said that the deceased held 37.5% of the property for Ms Gritzman.

98. Ms Gritzman alleges that Mr McRae has committed multiple breaches of his duties and obligations as trustee of the constructive trust pursuant to which it is said that Mr McRae held the Double Bay Property and as trustee and executor under the Will. The alleged breaches of trust relate to alleged dishonest conduct in the sale of the Double Bay Property, the manner in which the sale proceeds have been administered, the failure to keep accounts, and the administration of the deceased’s estate. Ms Gritzman alleges breaches of duties including: a duty to keep proper accounts and misuse of funds totalling $55,060.13 ([40]-[41]); selling the property in breach of an agreement with her; and a sale at undervalue.

99. Ms Gritzman seeks a declaration that the deceased held 37.5 % or 33.33% of the Double Bay Property on trust for her; orders to restore the assets of the deceased which have been improperly depleted; and that the probate be revoked and the defendant be replaced as trustee.

100. Ms Gritzman seeks orders for equitable compensation; orders requiring Mr McRae to pay amounts to Ms Gritzman with respect to her entitlement under the Will and constructive trust; and an order requiring Mr McRae to restore the assets of the deceased estate to the extent that Mr McRae has improperly depleted those assets by his conduct.

Defence

101. A defence was filed on 3 October 2018. That defence contained a bare denial (at [2]) of the allegation at [30] of the statement of claim that Mr McRae had no power as trustee to sell the Double Bay Property (and a denial of the allegation at [29] that the sale of the Double Bay Property was contrary to representations alleged to have been made by Mr McRae). An amended defence was filed on 18 December 2019 which repeated these bare denials.

102. The defence (and amended defence) also invoked s 85 of the Trustee Act (seeking relief against any breaches of trust found to have occurred) and the amended defence relied on s 52 of the Trustee Act in respect of the valuation of the Double Bay Property sale.

Cross-claim

103. By cross-claim filed on 18 October 2018, Mr McRae seeks declaratory and other relief. In particular, Mr McRae seeks a declaration that: each of the deceased estate, Ms Gritzman and Mr McRae holds an equal (33.3%) beneficial interests in the Double Bay Property; that the deceased, prior to his death, owned the Double Bay Property as a tenant in common in equal shares with Ms Gritzman and Mr McRae; an order for the rectification of the Inventory of Property in the Probate granted to Mr McRae; declarations as to Mr McRae’s entitlement to pay amounts from the proceeds of the sale of the Double Bay Property, in respect of: travel, accommodation and sustenance expenses allegedly incurred by Mr McRae in relation to the sale of the Double Bay Property; alleged tax liabilities; and alleged (unquantified) legal and accounting expenses; and a declaration that, on the true construction of the Will, the moneys from the net proceeds of the sale of the Double Bay Property (which it is accepted are to be held on trust for Ms Gritzman) are first to be invested, with the income of those investments to be paid to Mr McRae during his lifetime.

194. The test as to market value is that expressed in Spencer v The Commonwealth (1907) 5 CLR 418 at 432 per Griffith CJ, being “[w]hat would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?”. Griffith CJ went on to say that:

… The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together. …

205. The primary methodology is that of comparable sales. Given that Mr Bailey’s valuation was based on evidence of comparable sales in the period (and given my concern as to the relatively small increase in property price as between 2012 and 2017 on Mr Staltari’s estimates) I consider that on the balance of probabilities the likely market value of the Double Bay Property as at 2017 was $3.25 million (the shortfall to the estate being $400,000 from which one would deduct ordinary sales expenses that the estate did not have to bear on the sale as it was without the intervention of the agent. On the basis of the figures provided, I would assess the loss to the estate of the sale being at an undervalue as being the market value of the Double Bay Property ($3.25 million) less agent’s expenses (which, applying an agent’s commission of 2%, as included in the figures provided, amounts to $65,000) which brings the total loss from the sale at an undervalue to $435,000, 37.5% of which is $163,125.

206. This leads to consideration of s 52(1) of the Trustee Act which provides that a trustee may, for the purposes of giving effect to the trust, from time to time, by duly qualified agents, ascertain and fix the value of any trust property in such manner as the trustee thinks proper. Section 52(2) provides that any valuation so made in good faith shall be binding on all persons interested under the trust.

207. Mr McRae says that the question here is whether the value of the property was so unreasonable that no trustee (in the position of Mr McRae as a resident of South Africa) would have relied upon it in good faith. (Pausing here, Mr McRae’s position as a resident of South Australia does not appear to me to be relevant to determining whether a valuation made pursuant to s 52 of the Trustee Act was relied upon in good faith. Indeed, the terms of s 52 of the Trustee Act are that a trustee may by an agent fix the value in such manner as the trustee thinks proper, and it is “any such valuation so made in good faith” that is binding upon all persons interested under the trust – that is, the referent of the requirement of good faith is the agent, and not the trustee.)

208. It is noted that a similar provision (being s 50 of the Trustees Act 1962 (WA)) in Western Australian has been considered Clay v Clay (1999) 20 WAR 427 (Clay). In Clay, the Court described (at [40]) s 50 as a permissive and facilitative provision which a trustee may call in aid in the performance of a trust, reliance upon (and observation of) which secures the advantage and protection of that provision for the trustee. Section 50 of the Western Australian legislation provided as follows:

(1)   A trustee may, for the purpose of giving effect to the trust, or any of the provisions of the instrument (if any) creating the trust or of this Act or any other Act, from time to time ascertain and fix the value of any trust property, or of any property that he is authorised to purchase or otherwise acquire, in such manner as he thinks proper; and where the trustee is not personally qualified to ascertain the value of any property he shall consult a duly qualified person (whether employed by him or not) as to that value; but the trustee shall not be bound to accept any valuation made by any person whom the trustee may consult.

(2)   Any valuation made by the trustee in good faith under this section is binding on all persons beneficially interested under the trust.

209. It is further noted that in Carr v Carr (1987) 8 NSWLR 492 at 496, Young J, as his Honour then was, considered a similar power in s 46(3) of the Trustee Act and said that the section provides that the trustee shall, for the purpose of making a fair appropriation, employ a duly qualified valuer. His Honour said that “[t]hat term is not defined by the Trustee Act and would seem to me to mean any person who would be considered to be able to give the trustee proper advice as to the valuation of the land”.

210. Accordingly, Mr McRae submits that the question is whether the valuation obtained from Mr Staltari is from a duly qualified valuer (and I accept it was) and therefore binding. This, however, appears to me to be the wrong question. Mr McRae gave evidence that in October 2015 he struck a deal with the incumbent tenant to sell the house for $2.75 million (see at T 159.35-41). Mr Staltari’s valuation occurred in August 2017. Mr McRae cannot rely on s 52 of the Trustee Act as fixing the value of the Double Bay Property, and as therefore being binding upon all persons interested under the trust, as he did not obtain that valuation for the purpose of giving effect to the provisions of the Will – Mr McRae had already entered into an agreement to sell the Double Bay Property for $2.75 million, and he further acknowledged that he felt morally bound to honour the sale of the property at that price as at October 2015 notwithstanding that exchange of contracts did not occur until 7 September 2017 (see at T 298.19-21). It seems to me to be contrary to the object of s 52 for a trustee to deal with property in breach of trust, to agree (albeit informally) to sell the property at a certain price, and then seek to rely on a valuation obtained, some two years later, as a valuation that would bind all persons interested under the trust.

Claim to amounts withdrawn or depleted from estate

211. Ms Gritzman maintains that Mr McRae has misused, misappropriated, or is otherwise unable to account for, funds once held in either or both of the constructive trust or the deceased estate trust. In particular, Ms Gritzman alleges that Mr McRae has specifically misused, misapplied or failed to account for, specific amounts totalling $55,720.24.

212. Ms Gritzman says that the misuse of trust funds gives rise to an immediate obligation by a trustee to remedy the breach (citing Youyang at [35]). It is said that, notwithstanding that Mr McRae has been aware of these specific complaints since at least 18 October 2018 (and was in fact aware prior to that time), he has taken no steps to remedy his breaches of trust and has maintained that he has not misused, misapplied or failed to account for any funds.

213. Mr McRae notes that Mr Bergman has been directly involved in the administration of the Double Bay Property since its purchase in 1987, the sale of the property, and the payment of capital gains tax and other expenses associated with the administration of the estate. It is said that Mr Bergman has provided the explanation of the distribution of the funds from the proceeds of sale and that Mr Bergman has addressed the calculation of the amounts claimed by Ms Gritzman. Mr McRae says that the figure paid into Court was in excess of the amount that should have been sought by Ms Gritzman.

214. It is said by Mr McRae that, as to the sale of the Double Bay Property and the disclosure of the proceeds of sale, the affidavits filed by Mr Howard Hilton, Ms Janet Ross and Mr Jeffrey Bergman account for the proceeds of sale and that most of the proceeds have been paid into Court with the balance held in Mr McRae’s solicitors’ trust account or controlled moneys account. It is submitted that “[s]o far as the actual accounting is concerned no meaningful challenge has been made to the actual accounting of the figures”. I beg here to differ. The exercise of reviewing Mr Bergman’s accounts revealed issues with the claimed travel expenses (now not claimed), expenses claimed by Mr McRae as executorial expenses at a time before the deceased’s death, and a series of expenses for which no documentation appears to exist.

215. I note that Mr McRae submits that he should be allowed the whole or part of the items for legal and accounting fees and necessary travel, and other items for which vouchers have been provided of $20,211.58 (for the items at rows 46 to 57 of Mr Bergman's spreadsheet) (see also T 218.31-42); and that Mr McRae does not press the ATO allowances claimed for expenses of $29,669.80. Mr McRae concedes the shortfall of $6,178.61.

216. Reliance is placed on the right of a trustee for indemnity out of trust property (see s 59(4) of the Trustee Act; Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250 per Lord Eldon LC; Northey v Juul [2014] NSWSC 464 at [96] per Slattery J). However, I have concern as to whether it can be said that the claimed costs and expenses have been reasonably and honestly incurred for the benefit of the trust (as opposed to incurred in Mr McRae’s own interests).

217. Accordingly, I consider that Mr McRae should be ordered to refund to the deceased estate the sums paid in reimbursement of the travel expenses that he now concedes (and the shortfall that he now concedes) and that the balance of any disputed items should be dealt with on the passing of the accounts.

218. As to [5](b) of Ms Gritzman’s Summary of Relief which seeks replenishment of the funds of the deceased estate, specifically $301,730.15 being amounts paid by Mr McRae from the funds of the deceased estate with respect to his legal costs, on the figures later provided by Ms Gritzman to Mr McRae, it is submitted by Mr McRae that there appears to be a duplicate amount for a cheque entry on 18 May 2020. Mr McRae submits that the correct figure should be $277,124.05. It was not, however, apparent to me how that double counting was said to have arisen.

219. Finally, I note that Mr McRae opposes the relief sought in [4], [5](a), [6], [7], [8], [9], [11] and [12] of the plaintiff’s summary of relief, although he agrees with the mathematical calculations therein. At [4], Ms Gritzman seeks equitable compensation of $163,125, being the loss suffered by Ms Gritzman as a consequence of the sale of the Double Bay Property at an undervalue. At [5](a), Ms Gritzman seeks replenishment of the funds of the deceased estate in the sum of $126,846, being the loss suffered by the estate as a consequence of the sale of the Double Bay Property at an undervalue. In [6] of the summary of relief, Ms Gritzman seeks interest on the sums in [3](a) (being $889,718.04, or 37.5% of the net proceeds from the sale of the Double Bay Property) and [4]. At [7], Ms Gritzman seeks interests on the sums set out in [5](a)-(c) ([5](c) being the $55,976.74 alleged to have been improperly paid from the funds of the deceased estate by Mr McRae). At [8] Ms Gritzman seeks a declaration that Mr McRae is not entitled to be indemnified from the funds from the sale of the Double Bay Property with respect to his legal costs, or any other costs and expenses relating to the proceedings. At [9] Ms Gritzman seeks an order appointing her as trustee of the proceeds from the sale of the Double Bay Property. At [11] Ms Gritzman seeks an order that Mr McRae pay her costs of the proceeding on an indemnity basis. Finally, at [12] Ms Gritzman seeks an order that no distributions from the proceeds of the sale of the Double Bay Property are to be paid to Mr McRae unless and until all of the amounts required to be paid as set out in the summary of relief have been paid by Mr McRae, or until further order of the Court. The basis on which the last order was sought was not made clear in submissions and in those circumstances I do not propose to make such an order.

220. I am of the opinion that Mr McRae is liable to replenish the funds of the deceased estate by paying the sum of $484,552.89 into Court, this figure comprising: $126,846, being the loss suffered by the deceased estate as a consequence of the sale of the Double Bay Property at an undervalue; $301,730.15, being amounts paid to Mr McRae from the deceased estate’s funds with respect to Mr McRae’s legal costs; $55,976.74, being amounts improperly paid from the deceased estate’s funds to Mr McRae. I am furthermore of the opinion that Mr McRae ought to pay interest on those sums, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

Claim for relief from personal liability – s 85 Trustee Act

221. Mr McRae seeks that he be wholly relieved of any personal liability arising from any breaches of trust pursuant to s 85 of the Trustee Act (which breaches Mr McRae denies). Ms Gritzman says that Mr McRae has not acted honestly or reasonably, and it would not be fair to excuse the breaches of trust committed by Mr McRae (noting that he omitted to obtain the direction of the Court in relation to the matter in which he committed the breach).

222. Insofar as Mr McRae has effectively abdicated responsibility to his advisers, the historical position (see Langford v Gascoyne (1805) 11 Ves 333; 32 ER 1116) was that a trustee could not delegate the trustee’s duties or powers, irrespective of the extent of any advice taken before making a decision (by reference to the principle delegatus non potest delegare) (see G Jones, “Delegation by Trustees: A Reappraisal” (1959) 22 Modern Law Review 381). The strictness of this prohibition has been substantially ameliorated since then. A trustee may delegate his or her duties (as I have discussed elsewhere – see Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd In the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 at [2368]ff; and see also the discussion there as to the general question of employment of agents and the discussion (at [17-23]) by the editors of Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis) (Jacobs’)). It is not necessary here further to repeat that discussion, save to note that the mere fact that Mr McRae retained the services of Mr Bergman (or Mr Hilton) in relation to the administration of the estate will not necessarily warrant him being excused for breaches of trust in relation to steps taken or omissions by them. (Moreover, I note that there is no evidence of appointment of Mr Bergman as agent as such (see T 37.1-10). Reliance is simply placed on his position as effectively acting as agent.)

223. The question whether Mr McRae should be relieved from liability under s 85 of the Trustee Act turns on whether Mr McRae acted honestly and reasonably in respect of the various breaches of trust for which I have found Mr McRae to be liable. This is a question of fact to be determined having regard to all the circumstances of the case: H Ford and W Lee, Laws of Trusts (4th ed, 2010, Thomson Reuters) at [18.430]. The requirement of “honesty” was considered by the Supreme Court of South Australia in Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at 295, where Olsson J held that the trustee must:

Act[] honourably, fairly, in good faith and in a commonsense manner as judged by the standards of others of a similar professional background.

224. In determining whether Mr McRae acted honestly, the terms of the Will ought to be taken into account in order to determine whether an ordinary person might reasonably entertain a particular view of the construction of the Will, and, if the action of Mr McRae would have been justified if that view had been the true one, Mr McRae cannot be said to have acted unreasonably merely because his construction of the Will was wrong (see Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149; [1947] HCA 42 at 165 per Starke, Dixon and Williams JJ).

225. In circumstances where it is clear that Mr McRae (on his own evidence) has in effect abdicated responsibility and has relied in blind faith on his solicitors and accountant, I do not accept that he has acted reasonably; and I cannot accept that he acted honestly in selling the Double Bay Property without Ms Gritzman’s consent in circumstances where he had been advised that her consent was required and he must have been aware from the correspondence to which he was copied that assurances had been given that she would have reasonable input into what was to be a transparent process. This is not a case where Mr McRae proceeded on a genuine (though misinformed) understanding of the effect of the Will. Mr McRae was cavalier in his approach to his duties as trustee and executor, and cannot be said to have acted either honestly or reasonably.

226. I do not consider that the facts warrant the application of s 85 of the Trustee Act in the present case and hence I do not excuse Mr McRae from personal liability for the breaches. Thus, I will order that Mr McRae pay Ms Gritzman the equitable compensation sought, being $163,125 representing the loss suffered by Ms Gritzman as a consequence of the sale of the Double Bay Property at an undervalue. I will also order Mr McRae pay Ms Gritzman interest on this sum.

Revocation of grant of probate

227. There is inherent power to revoke a grant of probate, as well as a specific statutory power pursuant to s 66 of the Probate and Administration Act. The power to do so is a matter of discretion (see Mavrideros v Mack (1998) 45 NSWLR 80 at 108 per Sheller JA, Priestley JA and Beazley JA (as Her Excellency then was) agreeing), the question being:

… whether the due and proper administration of an estate has been put in jeopardy or has been prevented by acts or omissions of the executor, or by matters personal to the executor, or by other matters establishing that the executor is not a fit and proper person to carry out the duties that the executor has sworn to perform. …

Similarly, there is inherent power to remove and replace a trustee, as well as a specific statutory power pursuant to s 70 of the Trustee Act.

228. The power under s 70 of the Trustee Act to remove a trustee is wherever it is expedient to appoint a new trustee or new trustees and it is inexpedient, difficult or impracticable to do so without the assistance of the Court. The inherent power to remove a trustee will be exercised where the Court is satisfied that the welfare of the beneficiaries is opposed to the continuation of the trustee in office, taking into account a number of considerations (including, by way of example, security of the trust property and faithful and sound exercise of the trust powers).

229. In Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13 at 580-581 Dixon J, as his Honour then was, with whom Evatt and McTiernan JJ agreed said:

The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In decision to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.

230. On the basis of the above, Ms Gritzman seeks the removal of Mr McRae from the offices of trustee of the constructive trust, and as trustee and executor of the deceased estate.

231. Mr McRae does not resist his removal as trustee. In the circumstances, I consider that the grant of probate should be revoked and letters of administration granted to Ms Gritzman to administer the deceased’s estate. The alternative executors are not only not in the jurisdiction but there is no evidence to the effect that they would be willing or able to complete the administration of the estate.

232. I will make orders accordingly.

Cross-claim

233. Insofar as Mr McRae seeks declaratory relief with respect to his rights and obligations as trustee of the constructive trust and as trustee and executor of the deceased estate, I accept the submission of Ms Gritzman that the declarations sought by Mr McRae are statements of principle which have no utility and do not resolve any dispute; and are so vague as to be of no utility; and accordingly ought not be made (see Draper v British Optical Association [1938] 1 All ER 115).

234. To the extent that Mr McRae seeks declarations with the intention of vindicating payments he has already made (to himself and others), I accept the submission of Ms Gritzman that declarations are not the appropriate remedy (Toowoomba Foundry Pty Ltd v Commonwealth (1945) 71 CLR 545; [1945] HCA 15) and that (other than as here determined) any claim by Mr McRae in respect of such payments or any claim for commission should be dealt with by orders for the passing of accounts pursuant to ss 85 and 86 of the Probate and Administration Act and any claim for commission.

235. The declarations sought by Mr McRae as to the proportionate beneficial interests held by the parties are inconsistent with the findings I have reached above, as is the declaration sought in relation to the interpretation and operation of cl 4.1 of the Will.

Determination

236. The cross-claim should be dismissed with costs. Ms Gritzman has sought an order that Mr McRae pay her costs of the proceeding on an indemnity basis. There were no submissions directed to this issue by Mr McRae. In circumstances where the conduct of Mr McRae as executor and trustee has been neither reasonable nor honest in relation to the sale of the Double Bay Property and distribution of the proceeds of sale, and where in his conduct of the proceeding Mr McRae sought (untenably) to justify that conduct I consider that indemnity costs are warranted, see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; [1988] FCA 202. I will so order.

Orders

237. Accordingly, I make the following orders:

1. The grant of probate made on 4 July 2017 be revoked.

2. Letters of administration be granted to the plaintiff to administer the estate of the late Asher Mannie Osband and refer the file in this matter to the Probate Registrar to complete the grant of letters of administration.

3. The amount of $469,718.04 be paid out of Court to the plaintiff, representing the balance of 37.5% of the net proceeds from the sale of the Double Bay Property remaining after the funds already disbursed to the plaintiff from the funds held in Court.

4. The defendant pay the plaintiff interest on the sum of $889,718.04 (being 37.5% of the net proceeds from the sale of the Double Bay Property) from 13 October 2017 to the date of distributions made in respect of the plaintiff’s share of those proceeds and for the balance up to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

5. The defendant pay the plaintiff equitable compensation of $163,125, representing the loss suffered by the plaintiff as a consequence of the sale of the Double Bay Property at an undervalue.

6. The defendant pay the plaintiff interest on the sum of $163,125 from 13 October 2017 to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

7. The defendant pay the plaintiff $484,552.89 in her capacity as administrator of the estate of the late Asher Mannie Osband in order to replenish funds improperly paid from the deceased’s estate by the defendant.

8. The defendant pay the plaintiff in her capacity as administrator of the estate of the late Asher Mannie Osband interest on the sum of $484,552.89 calculated from the date of each such payment to the defendant out of the estate funds of the amounts comprised in this sum to the date of judgment, calculated at the rate prescribed by s 100 of the Civil Procedure Act 2005 (NSW).

9. The balance of the funds held by the Court are to be paid to the plaintiff, to be held by the plaintiff as trustee.

10. The defendant pay the plaintiff’s costs of the proceeding on an indemnity basis.

11. Declare that the defendant is not entitled to be indemnified from the funds from the sale of the Double Bay Property, including but not limited to the interest of the deceased estate in those funds, in respect of his legal costs, or any other costs and expenses relating to this proceeding.

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Decision last updated: 08 June 2022