John Steiner v Kenneth Ross Strang and Jason Tang

[2014] NSWSC 1250

Supreme Court

New South Wales

Medium Neutral Citation:	John Steiner v Kenneth Ross Strang and Jason Tang [2014] NSWSC 1250
Hearing dates:	5 September 2014
Decision date:	12 September 2014
Jurisdiction:	Equity Division - Expedition List
Before:	Sackar J
Decision:	See paragraph [59]
Catchwords:	EQUITY - whether money owed to estate was provided as a loan or gift - where written document entitled acknowledgment of loan signed by party and testator - whether document contractual in nature or an admission - whether issue of past consideration arises - where provision in acknowledgment of loan for loan to be offset against entitlement of party as residuary beneficiary - application of rule in Cherry v Boultbee - whether that rule inconsistent with provision in acknowledgment of loan - basis upon which interest should be calculated
Legislation Cited:	Civil Procedure Act 2005
Cases Cited:	Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 Cherry v Boultbee (1839) 41 ER 171 Gray v Gray [2004] NSWCA 408 James Miller & Partners v Whitworth Street Estates Ltd [1970] AC 583 Jeffs v Wood (1723) 24 ER 668 Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (In liq) (2004) 49 ACSR 531 at [33]; [2004] NSWSC 383 Parkes Property and Stock Co Ltd v Perpetual Trustee Co Ltd (1936) 36 SR (NSW) 457 Re Akerman [1891] 3 Ch 212 Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 Re Taylor [1894] 1 Ch 671
Texts Cited:	J D Heydon, Cross on Evidence (9th edition) Meagher Gummow and Lehane's Equity: Doctrines and Remedies (4th edition)
Category:	Principal judgment
Parties:	John Steiner - plaintiff/cross-defendant Kenneth Ross Strang - first defendant/first cross-claimant Jason Tang - second defendant/second cross-claimant
Representation:	Counsel: P Blackburn-Hart SC and R Jefferis - plaintiff/cross-defendant L Ellison SC - defendants/cross-claimants Solicitors: Gells Lawyers - plaintiff Glass Goodwin - defendants
File Number(s):	2012/185566

Judgment

Proceedings

1. By their cross-claim filed 30 November 2012, as amended and filed in court on 6 March 2014, Mr Kenneth Strang (Mr Strang or the first cross claimant) and Mr Jason Tang (Mr Tang or the second cross-claimant) seek certain orders and declarations as to whether Mr John Steiner (Mr Steiner or the cross defendant) was indebted to the estate of Dorothy Margaret Steiner in the sum of $881,000.00 as at her death on 12 October 2011.

1. The cross-claimants, who are the executors of the will of Mrs Steiner, seek an order that Mr Steiner pay to the estate the loan amount and interest or a declaration that they are entitled to offset the loan amount and interest against any entitlement of Mr Steiner including his entitlement as a residuary beneficiary and as a specific legatee under the will.

1. There are substantive proceedings brought by the cross-defendant under the Succession Act, but the cross claim has been brought forward to determine the status of the purported loan, which will obviously have an impact on both the size of the estate and the assets and liabilities of the cross defendant.

1. The cross-claim itself was the subject of an order for expedition on 5 July 2014 by Rein J. At that point, the Court noted the agreement of the parties that no objection was taken to the same judge hearing the proceedings numbered 2014/10747 if the judge decided to do so, and taking into account any findings of fact or credit.

1. No defence to the cross-claim was filed.

Background facts

1. Dorothy Margaret Steiner, the mother of the cross-defendant, died on 12 October 2011. Probate of her will dated 7 June 2011 was granted on 14 December 2011 to the cross-claimants as executors.

1. The will provided that Mr Steiner was to receive a pecuniary legacy of $2 million and shared the residuary estate equally with his sister, Robyn Webster. The relevant terms of the will were as follows:

3. I GIVE DEVISE AND BEQUEATH;

(a) To my daughter Robyn ($2,000,000) and to my son John ($2,000,000);

...

9. I GIVE DEVISE AND BEQUEATH the residue of my estate, after the payment of all my final expenses, debts and taxes, of whatever nature and kind including moneys in bank accounts (other than the Sottero Accounts and the Zions Accounts) to my son John and daughter Robyn in equal shares as tenants in common.

10. I draw my Executors' attention to Acknowledgement of Loan between myself and my son John dated 18 December 2007 and request that the provisions of that Acknowledgement be implemented and observed.

1. It is however necessary to return to the events of November and December 2007 leading to the execution of the Acknowledgment of Loan referred to in clause 10 of the will.

1. On 16 November 2007, the deceased transferred $100,000 into Mr Steiner's bank account for the purposes of placing a deposit on a unit in Townsville.

1. Mr Steiner exchanged contracts on 17 November after he was the successful bidder at auction for $881,500.

1. Mr Leslie Ward, solicitor, gave evidence that his firm was retained to act for Mr Steiner on 20 November on his purchase of the Townsville unit. He attaches to his affidavit a memo particularising a conversation between Mr Steiner and "Meagan" of his office that is dated 22 November at 3.40pm. That file note relevantly provides:

This is a cash contract... please note that the funds are coming from Sydney (his mother) and she is elderly, this may be hard to organise, so please do in enough time :)

1. Mr Ward attached to his affidavit a handwritten document which was received from Mr Steiner on or about 6 December and dated that day. That document relevantly provides:

AGREEMENT 6/12/07

RE LOAN TO PURCHASE 1/120 THE STRAND

IT IS AGREED BETWEEN JOHN R STEINER AND DOROTHY M. STEINER THAT:

1. $881,500.00 IS GIVEN TO JOHN R STEINER BY WAY OF A LOAN TO PURCHASE 1/120 THE STRAND NTH WARD TOWNSVILLE.

2. THE FULL LOAN IS TO BE FORGIVEN UPON THE DEATH OF DOROTHY M. STEINER.

Although there is provision for the signatures of both Mr Steiner and the deceased, and witnesses, the document is unsigned and it never was signed. There is no evidence about what Mr Steiner did with the document apart from give it to his solicitor Mr Ward.

1. On 7 December, the deceased transferred $781,000 to Mr Steiner's bank account. Mr Steiner asserts he had a conversation on that day (which was his birthday) in which his mother said words to the effect of:

I will wire you the remaining balance of the purchase price to your bank account. Consider it as a birthday present.

For reasons which will emerge no weight can in my view be attached to such evidence.

1. Mr Steiner swore an affidavit dated 12 August 2014, and gives evidence of various conversations in which his mother purported to indicate that the Townsville property would be purchased for him as a gift. He asserts that he prepared the handwritten document referred to above and provided it to Mr Ward, but did not send it to anyone else.

1. The sale of the Townsville unit settled on 13 December.

1. Mr Ward however gave evidence that he prepared a document entitled "Acknowledgment of Loan", without being specific as to the date, which provides as follows:

I, JOHN RAYMOND STEINER, the person named below as the borrower ACKNOWLEDGE-

1. DOROTHY M. STEINER ("my mother") has loaned to me the sum of money particularised below ("the loan"),

2. I will repay the loan to my mother -

2.1 upon demand in writing by her or her lawful attorney, or

2.2 if my mother has not made demand for payment prior to her death, then to her estate upon her death.

I, DOROTHY M. STEINER, agree in the event I have not made demand for repayment of the loan prior to my death and the borrower is named in my last Will as a residual beneficiary of my estate, it shall be sufficient that providing the debts owed by me at my death (including testamentary expenses) are paid and discharged without the necessity of my personal representatives having to make demand for the repayment of the loan, the loan can be repaid by the borrower by offsetting the amount of the loan as part of the borrower's entitlement as a residual beneficiary of my estate.

'The borrower' - JOHN RAYMOND STEINER

address of the borrower - 64 Kings Road, Hyde Park, Townsville, Queensland

amount of the loan - $881,000.00

EXECUTED this 18th day of December, 2007.

The amount of the loan ("881,000.00") and the date in December ("18th") were both handwritten. Otherwise, the document is typed.

1. It is immediately apparent that the acknowledgment of loan differs from the handwritten document provided by Mr Steiner to Mr Ward. In particular, there is no mention of forgiveness of the loan. Although I will of course return to the proper construction of the document, there is no suggestion of error or a failure to follow instructions on the part of Mr Ward. Counsel for the cross-defendant conceded that I would have to infer that the document in its ultimate form was as a result of instructions from Mr Steiner to Mr Ward (T5/40).

1. It is reasonable to draw an inference that Mr Steiner proposed or hoped for an arrangement which would provide for forgiveness of the amount upon his mother's death. However, either as a result of his own change of mind or the discovery that his mother would not agree, he instructed his solicitors to prepare the document he ultimately signed which maintained the transaction as a loan not to be forgiven upon her death. It is not clear whether those instructions were given prior to or after settlement.

1. The document was signed by each of Mr Steiner and the deceased, Dorothy Steiner. There is no suggestion that the document itself or the signatures are not authentic. It is witnessed by Leslie Alan Ward, solicitor and Kenneth Strang, solicitor. Both solicitors gave unchallenged evidence as to the circumstances in which the documents came into existence and was executed.

1. Mr Ward gave evidence that the acknowledgement was signed in his presence, and that he did not speak to Mr Strang or the deceased about the document. I accept that evidence.

1. On or about 19 December however, Mr Steiner asserts he posted the acknowledgment of loan to his mother in Sydney. He was not challenged on this assertion.

1. Mr Strang on the other hand gave evidence that he had acted for the deceased and prepared a number of wills for her. In or about December 2007, she asked him to witness her signature on the loan agreement. He attended upon her for that purpose but did not explain the document to her or give her any advice in relation it. I accept that evidence.

1. Mr Strang was unable to recall any detail about whether the date or the amount of $881,000 was written upon the document when the deceased signed it, but believed he would have discussed the absence of an amount with the deceased. He believed that the document had been signed by Mr Steiner when the deceased signed it. There was no challenge to that evidence and it should be accepted.

1. The cross-claimant sought to tender various wills made by the deceased, dated 23 July 2009 with a codicil dated 21 September 2009, 5 May 2010, 25 August 2010, 9 November 2010 and 28 April 2011. The authenticity of those wills was not in issue. Each of these wills contain a clause that is in precisely the same terms as clause 10 of the will dated 7 June 2011 (which was granted probate). Although counsel for the cross-defendant opposed the tender of those wills, I accepted them subject to relevance. However, in my view, they provide little if any assistance to the determination of the dispute before me in terms of whether a debt was owed to the estate and the nature of the acknowledgment of loan itself.

1. Ms Robyn Webster, sister of the cross-defendant and daughter of the deceased, swore an affidavit dated 14 September 2012. The bulk of her evidence appears to be directed towards the family provision claim (in support of which the affidavit was filed). However, the cross-claimant does not object to the receipt of the evidence subject to relevance. In my view, this affidavit provides little if any assistance to the resolution of the dispute before me.

Discussion

1. There are a number of issues to be determined, namely the construction of the acknowledgment of loan, whether a debt is owed to the estate and whether the cross-defendant is obliged to pay interest.

1. At the outset, it should be noted that it is not disputed that the amount of $881,000 has not been repaid. Furthermore, the two conditions set out in the loan acknowledgment, namely that the deceased did not make demand for the repayment of the loan and that Mr Steiner was named as a residual beneficiary, have both been met.

1. Mr Steiner was the only witness required for cross-examination. He accepted that other payments had been made to him by his mother (14 payments totalling approximately $1.2 million) but those other payments were not accompanied by any documentation suggestive of a loan arrangement.

1. There was no evidence as to any terms or conditions to be attached to the provision of moneys prior to the execution of the acknowledgment (other than, of course, its characterisation as a loan or a gift), although nor was Mr Steiner asked to accept that the conditions in the acknowledgment of loan were in fact agreed to prior to the execution of that document.

1. However, in my mind, Mr Steiner was clearly satisfied that the terms in the acknowledgment of loan were terms upon which he agreed to be bound, not only because he executed it but more importantly because he was the party that took the initiative and instructed his solicitor to prepare it.

1. Counsel for the cross-defendant puts forward a submission that the consideration for signing the Acknowledgement of Loan was past consideration, relying on the fact that the document was brought into existence after the whole of the moneys were advanced.

1. To my mind, this fundamentally misconceives the nature of the acknowledgment of loan. It is objectively not intended to be the contract between the parties, but an acknowledgment of a loan already entered into. In that sense, it is properly to be regarded as an admission or as admissible post-contractual conduct.

1. In Cross on Evidence (9th edition), the learned author J D Heydon observes at [39290] that:

The post-contract conduct of the parties may, of course, be relevant to matters other than the construction of the document... And where there is a dispute as to the existence of a contract, or the contract is oral (Carmichael v National Power plc [1999] 4 All ER 897) or there is a question as to how the contract is to be characterised (Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369)... the parties' subsequent conduct may be relied upon to establish the existence of that contract, and what the terms of that contract were...

1. In Lym International Pty Ltd v Marcolongo [2011] NSWCA 303, Campbell JA additionally observed:

[139] Third, where a contract is oral, post-contractual conduct may be used to ascertain the subject matter of the contract. Such use of subsequent conduct is justified when it is "relevant, on an objective basis, to the identification of the subject matter of the contract or the determination of the necessary terms, as distinct from deciding the meaning of words". Such subsequent conduct is relevant in that way when "what was done later [is] a basis for inferring what was agreed when the contract was made, or as establishing later additions or variations", citing Browne LJ in Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213 at 1229.

[140] I respectfully agree with Spigelman CJ's analysis. Other authority that where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact is collected in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at [90].

[141] There is a vast difference between the task that is involved in interpreting a wholly written contract, and the task involved in finding what has been agreed in a contract that is not wholly in writing. The difference between those tasks in itself makes a vast difference between the circumstances in which post-contractual conduct can be relevant for the respective tasks.

[142] Where there is a contract that is wholly in writing, there is no doubt what the contract is - it is the writing. The task of interpretation is ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using the words in that writing. The admissibility of evidence for interpreting a wholly written contract is decided by reference to whether it is able to assist in ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using those words. Save in the case of post-contractual events providing retrospectant evidence of a surrounding circumstance that was known to the parties at the time of contracting, the view favoured in this court is that post-contractual conduct cannot assist in that task, and thus is not admissible, or if admitted cannot legitimately be used in that task: the cases cited by McColl JA in County at [161] ([118] above).

[143] By contrast, the task in ascertaining what are the terms of a contract that is not wholly in writing is quite different - the task is finding as a fact what the parties have agreed. A range of post-contractual conduct could be relevant to ascertaining what the parties have agreed. For example, their conduct in carrying out the contract could itself be objective evidence of what they had agreed, an admission of one of the parties could assist in ascertaining what they have agreed, and business records created to record or report on the contract rather than carry it out could also assist in that task.

1. The statement in James Miller & Partners v Whitworth Street Estates Ltd [1970] AC 583 at 603 per Lord Reid that "it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made" was reaffirmed in Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 at [35] per Gummow, Hayne and Kiefel JJ.

1. More recently, in Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 the Court of Appeal considered the issue of post-contractual conduct. Basten JA observed (Gleeson JA agreeing) at [120]-[121]:

[120] There are difficulties attending the use of post-contractual statements to construe the terms of a contract. It is an accepted principle that anything which the parties said or did after a contract was made cannot be used "as an aid in the construction of" the contract: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ), referring to the statement of Lord Reid in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603. That principle derives from the "objective" theory of contract, which provides that the legal obligations of the parties to the contract do not depend upon their subjective beliefs but upon the view of the reasonable bystander informed as to the surrounding context and circumstances, which in practice means the view of the court based on the evidence before it: Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 775 (Lord Hoffmann); Wilson v Anderson [2002] HCA 29; 213 CLR 401 at [8] (Gleeson CJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at [16] (Lord Hoffmann, PC); and see Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co, 2012) at [2.04]-[2.05].

[121] On the other hand, where it provides evidence of facts, the assertion of which is against the interests of one party, it may be admissible as an admission by that party. However, to the extent that the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless. (The relevant authorities were collected by Campbell JA in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 and in Lym International Pty Ltd v Marcolongo [2011] NSWCA 303.) Alternatively, the evidence may establish contextual facts in existence at the time the contract was executed.

1. Therefore, the acknowledgment of the loan should properly be regarded as post-contractual conduct which should be treated as an admission by Mr Steiner. The question of consideration being past at the point when the acknowledgment was executed simply does not arise.

1. Alternatively, in my view the parties may well have come to an agreement before the provision of the remaining sum which was to be the subject of formal documentation. That formal documentation, being the acknowledgment of loan, was to reflect the terms of their agreement that it was to be a loan, not a gift. The parties, or at the very least Mr Steiner, it seems to me had anticipated that the agreement would be reflected in writing. Hence he prepared a draft and provided it to his solicitor.

1. Therefore, on either characterisation of the acknowledgment of loan, I am not persuaded that the issue of whether sufficient consideration has passed between the parties properly arises. In my view, the acknowledgement of loan is a clear indication that a debt is owed to the estate. Mr Steiner agrees that (in circumstances where there was no demand before death) he will "repay the loan to my mother... to her estate upon her death". I am not satisfied, in the circumstances and on the evidence before me, that the amount of $881,000 was intended to be a gift. It can only be sensibly viewed as a loan from the deceased to Mr Steiner, and it is therefore a debt owed to her estate.

The rule in Cherry v Boultbee

1. The cross-claimants rely on the rule in Cherry v Boultbee (1839) 41 ER 171 in support of the proposition that the executors can set off a debt owed by a beneficiary against that beneficiary's entitlement to the estate (whether that entitlement be as a residuary or to a legacy or both).

1. In Cherry v Boultbee, Lord Cottenham LC held at 173:

It must be observed that the term "set-off" is very inaccurately used in cases of this kind. In its proper use, it is applicable only to mutual demands, debts and credits. The right of an executor of a creditor to retain a sufficient part of a legacy given by the creditor to the debtor, to pay a debt due from him to the creditor's estate, is rather a right to pay out of the fund in hand, than a right of set-off. Such right of payment, therefore, can only arise where there is a right to receive the debt so to be paid; and the legacy or fund, so to be applied in payment of the debt, must be payable by the person entitled to receive the debt.

...

In all the cases referred to, except that of Ex parte Man (Mont. & Mac. 210), the liability to pay the debt and the right to receive the money had been at some time vested in the same person; and all that the Court did in those cases was to consider that the party liable to pay the legacy had actually done what the law considers him entitled to do, namely, to apply a sufficient part of the legacy to payment of the debt.

1. Lord Cottenham had "no hesitation" in preferring the principles expressed in cases other than Ex parte Man: at 174.

1. The rule was stated compendiously by Sargant J in Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 at 150:

Where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute.

1. However, as noted in Meagher Gummow and Lehane's Equity: Doctrines and Remedies at [37-125], the rule known as the rule in Cherry v Boultbee was enunciated but not applied in that case, and in any event had arisen in an earlier case called Jeffs v Wood (1723) 24 ER 668. As Palmer J noted in Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (In liq) (2004) 49 ACSR 531 at [33]; [2004] NSWSC 383:

...this proposition ought more accurately to be called, if anything, the "rule in Jeffs v Wood" and Cherry v Boultbee should be regarded as a qualification or exception to that rule, as Sargant J himself recognised in Re Peruvian Railway.

1. In Gray v Gray [2004] NSWCA 408 the Court of Appeal considered the application of the rule in Cherry v Boultbee. The rule itself, summarised at [13] as being to the effect that as a claimant a party was a beneficiary he needed to set off what was due by him to the estate (without regard to limitations), was not under serious challenge before the Court.

1. Young CJ in Eq (Sheller and Bryson JJA agreeing) noted at [14] that "the case raises the very awkward situation in which a judge has to adjudicate as to whether a transaction was one of gift or is one of loan where the principal actor is dead or unavailable, there is inadequate recording of the transaction (or at least the court is not presented with an accurate recording of the transaction), and virtually all that is before the court is the fact of payment". I should note that in the present case it is the construction of the loan acknowledgement, rather than inadequate recording of the transaction, that gives rise to the dispute.

1. His Honour reiterated that the onus of proving that the transaction was a loan rather than a gift was on those claiming the set-off of those debts: at [17]. Young CJ in Eq also held that there was "no doubt that under the rule in Cherry v Boultbee, not only the debt but also interest due on the debt is able to be set against the legacy due to the debtor": at [94].

1. The learned authors of Equity: Doctrines and Remedies also state at [37-170] "the right [to deduct the debt from the amount owing to the debtor] can be asserted against a residuary legatee or a pecuniary legatee; it cannot be asserted against a specific devisee or legatee". The cases of Re Taylor [1894] 1 Ch 671 per Chitty J and Re Akerman [1891] 3 Ch 212 per Kekewich J are cited in support of this proposition.

1. It clearly must be correct that, as Chitty J put it, a specific gift cannot be measured against a debt. For example, if a testator bequeaths a valuable piece of artwork to a beneficiary who is liable to the estate for a certain monetary amount, it cannot be the law that the executors are entitled to retain the artwork until such time as the liability of the beneficiary is satisfied. Nevertheless, the question does not arise in the present case as Mr Steiner is the recipient of a pecuniary legacy (in addition to his interest as a residuary beneficiary).

1. In order for the equity to operate, the debt owing must of course be a valid debt: see, for example, Parkes Property and Stock Co Ltd v Perpetual Trustee Co Ltd (1936) 36 SR (NSW) 457. The acknowledgement of loan, and in particular the agreement that "the loan can be repaid by the borrower by offsetting the amount of the loan as part of the borrower's entitlement as a residual beneficiary" (the offset term), is express.

1. The cross-claimants submit that the whole of the loan amount is a debt due by Mr Steiner to the estate of the deceased, and the offset term merely provides a practical means by which the loan can be repaid. They submit that the offset term does not constitute an agreement whereby Mr Steiner's share of the residuary estate will, if paid back to the estate, constitute a discharge of the whole debt. Put simply, in circumstances where his share of the residuary estate is not sufficient to cover the loan amount, the remaining amount will continue to be money due to the estate. As the cross-claimant submits, it may well have been that the deceased thought that the loan amount would not have exceeded Mr Steiner's entitlement as a residuary beneficiary, but that is ultimately irrelevant.

1. Counsel for the cross-defendant submits that the acknowledgement of loan envisages that no demand for repayment need be made if the residue is "sufficient" after payment of debts and testamentary expenses. In the alternative, if the residue is insufficient, the construction of the acknowledgement of loan is said to be that only so much of the debts and testamentary expenses as exceed the residue would be offset against the loan, and it would not be necessary to repay the whole of the loan.

1. In my view, the cross-claimant is clearly correct in their submission. The acknowledgment of loan, despite the earlier handwritten document provided by Mr Steiner, contains no mechanism or suggestion of forgiveness of the loan amount. It certainly does not suggest that the loan amount would be discharged in any circumstances, but merely and ultimately offset.

1. I also reject the submission of the cross-defendant that the rule in Cherry v Boultbee cannot apply to the $2 million legacy as to do so would be inconsistent with the terms of the acknowledgement of loan. It may well be that the latter half of the acknowledgment of loan is otiose, but I see no inconsistency between the application of the rule and the insertion of a mechanism by which it was clear that Mr Steiner's entitlement as residuary beneficiary would be offset by the amount of the loan. That provision, in my view, in no way precludes the application of the rule in Cherry v Boultbee not only to his residuary entitlement but also to the pecuniary legacy he otherwise receives.

Interest

1. The final issue is that of interest. The cross claimant seeks a declaration that Mr Steiner is obliged to pay interest. No interest is payable in accordance with the terms of the loan and for any period prior to the death of the deceased on 12 October 2011.

1. The cross-claimant submits that interest should run from 12 October 2011 and that the Court should exercise its discretion pursuant to section 100 of the Civil Procedure Act 2005 by ordering "interest up to judgment", being interest that would run from the date on which the debt was due and payable (but otherwise not paid). The cross-claim seeks a fixed rate of 7.5%, but the cross-claimant submits that the appropriate rate would be those available from time to time under the Civil Procedure Act.

1. The cross-defendant submits that if Mr Steiner is called upon to pay interest, it is only on the difference between the amount of the loan and the residue, when ascertained.

1. In my view, interest should only be calculated on the amount remaining after the offset has been calculated. In other words, the cross-defendant will be ordered to pay interest only on the loan amount less any amount he is entitled to as a residuary beneficiary.

Conclusion

1. For the reasons I have expressed above, the cross-claimants are entitled to succeed on their cross-claim. Mr Steiner is indebted to the estate of the late Dorothy Steiner in the sum of $881,000 and the executors are entitled to offset that amount and interest at the prevailing rate against his entitlement both as a residuary beneficiary and as a specific legatee under clause 3(a) of the deceased's will.

1. I note that a submission was made by the cross-defendants that testamentary expenses do not include legal costs of various court proceedings, especially absent judicial advice. In my view, that submission is only relevant to the question of costs and it is not appropriate for me to express a view on it at this point.

1. I invite the parties to prepare short minutes to give effect to my reasons, and to relist the matter if necessary so that the question of costs may be determined.

Decision last updated: 12 September 2014