Re Langford (dec'd); Equity Trustees Ltd v Langford (No 2)

[2005] VSC 206

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No.  7300 of 2004

IN THE MATTER of the Will and Estate of Clements Langford, deceased.
BETWEEN:

EQUITY TRUSTEES LTD  (as Trustee of the Estate of Clements Langford deceased)	Plaintiff
v
JACK ELGAR LANGFORD and OTHERS	Defendants

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JUDGE:	Byrne J
WHERE HELD:	Melbourne
DATES OF HEARING:	7, 8, 9 February, 6 May, 5 August 2005
DATE OF JUDGMENT:	12 August 2005
CASE MAY BE CITED AS:	Re Langford (deceased);  Equity Trustees Ltd v Langford (No.2)
MEDIUM NEUTRAL CITATION:	[2005] VSC 206

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Administration and probate – trusts - settled land – trustees’ power of sale pursuant to s. 63 order – proceeds of sale – income from proceeds of sale – whether to be accumulated or paid to life tenants.
Trustee Act 1958, s. 63

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R. A. Brett QC with Ms K. Anderson	Chessell Williams
For the 1-3rd, 5-14th and 16th Defendants	Mr S. McNab	Darrer Muir Fleiter
For the 15th and 18th Defendants	Mr N. O’Bryan SC with Mr J. P. Moore	Norton Gledhill
For the 19th – 29th Defendants	Mr A. G. Uren QC with Mr H. W. Fraser	F.R. Monotti & Co
For the 30th Defendant	Mr J. O’Bryan	Victorian Government Solicitor

HIS HONOUR:

1. Following the publication of my judgment in this matter on 24 March 2005[1] the parties returned on 6 May 2005 to make submissions as to the terms of the orders to be made.  In the course of argument a question of principle has arisen as to the terms of the power of sale to be conferred upon the trustee: a concern was expressed that the legitimate interests of the minority class members might be defeated unless some restraint were imposed on the power.  Accordingly, it was accepted by the class members and the trustee that the power of sale should be limited to the sale only of property sufficient to meet the outgoings expected to fall due and payable within the ensuing 18 months.  This led the minority class members to contend that, if the power be so limited, so too should be limited the right of the trustee to apply the proceeds of the sale.  The point was formulated by counsel for the trustee in the following further question which on 6 May 2005 it sought to have the Court determine:

“3.If part of Netley is sold by the plaintiff pursuant to the power conferred on it by paragraph 1 of the order proposed on that day (the ‘Court conferred power’), and if income is earned on the proceeds of the sale of that part, should the plaintiff apply the income in making payment of costs and expenses falling due –

(a)only in the 18 months following the sale, with any income then remaining unapplied and any income earned thereafter being distributed under s. 75(6) of the Settled Land Act 1958; or

(b)at any time?”

Argument was not concluded at this time as counsel wished to reflect on this new question and to obtain instructions upon it.  It was agreed that written submissions would be filed and exchanged and that, unless I desired to hear further oral argument, I should decide the question on the written submissions.  This was done and further oral argument was heard on 5 August.  This is my decision.

[1][2005] VSC 84

1. The first matter is whether I should determine this further question at all.  On behalf of the named charities it was contended that I should not:  it was not a matter argued and not the subject of the proceeding.  I am not persuaded that this is so.  As is pointed out by counsel for the minority class members, this is a question which underlay much of the argument upon the power of the trustee to sell and as to the disposition of the proceeds of sale.

1. I commence my consideration of the further question by repeating what appears in paragraphs 61 and 62 of my judgment:

“61.… If Netley was sold by the class members pursuant to s. 38 of the Settled Land Act the proceeds of the sale, as capital money arising under the Act[2] would fall to be dealt with under s. 75.  Upon its investment any income would be paid in accordance with sub-s. 75(6) just as the income of the land, if not disposed of, would have been payable under the will, that is, to the class members collectively. 

62.If, on the other hand, Netley were sold by the Trustee pursuant to the authority conferred by the Court under s. 63 of the Trustee Act 1958 the proceeds of sale would be deemed to be capital money arising under the Settled Land Act[3] and the income would be dealt with in the same way.”

Likewise, if part only of Netley is sold to meet the expenses which are expected to arise in the following 18 months, the proceeds of sale are capital money arising under the Settled Land Act.  

[2]See definition of “Capital money arising under this Act” in the Settled Land Act 1958 s. 3(1)

[3]Settled Land Act s. 81

1. Where, however, this money is invested and generates income, this income should be applied to meet the ordinary outgoings of a recurring nature, in accordance with normal principle.  It may be supposed that, in these circumstances, there will be no income surplus to these requirements because, in the present case, these outgoings are of such magnitude that the sale of capital land is required to meet them.  If, however, the practicalities of sale are such that the sale of one lot provides more money than will be immediately consumed in meeting the expected outgoings, or where the sale produces an unexpectedly large sum, or where the trustee’s expectation as to outgoings over the following 18 month period is not fulfilled, there will be an unused capital sum in the hands of the trustee which will be retained by it unless and until it is required to meet future expenses and, to the extent that it is not so required, it will ultimately be paid to the remaindermen, in this case, the charities. 

1. The question, then, is as to the disposition of income generated by this capital sum.  If and to the extent that it is not consumed in meeting outgoings incurred within the period of 18 months after the sale, should it be distributed between the class members, as the majority and minority class members assert, or accumulated to meet future outgoings as is asserted by the trustee and the charities? 

1. As has been pointed out, this question has been determined in principle in paragraphs 61 and 62 of my March judgment which I have set out above.  Income which is not required to meet recurrent outgoings must be paid to the class members.  In the ordinary case of a life tenancy, such a payment would, as a matter of administration, be made on an annual basis.  The difficulty here is one which is said to arise from the insertion in the power of sale of a provision that the amount of land which may be sold is to be determined by the trustee’s opinion as to what is likely to be required to meet outgoings expected to be due and payable within the next 18 months.  It is said that this carries with it a limitation as to the application of income earned from the proceeds of sale. 

1. Let it be supposed that the proceeds of the sale of a part of Netley were very much greater than the trustee expected. Within the normal 12 month accounting period these proceeds will be invested and will earn income. Let it now be supposed that the outgoings accruing during this accounting period do not consume all of this income. In such a case it may not be distributed to the life tenants; it must be accumulated in case it be required for outgoings which may fall due and payable within a further period, that expiring 18 months after the sale. Let it now be assumed that, at the end of this further period there still remains some unused income. The submission put on behalf of the class members is that this surplus income cannot be applied towards future outgoings; it should be distributed to them as life tenants pursuant to s. 76 of the Settled Land Act 1958. Since the critical date is that when the outgoings are due and payable, these outgoings may be known and quantified at the date when the distribution of income occurs but the income is not available to pay them. It may also follow that income from these proceeds received in the future, that is, after the expiry of the 18 month period, should be dealt with in the same way so long as the class remains. It was not clear whether the class members would also take the position that the capital proceeds themselves should be quarantined, so that they were likewise not available to meet these future outgoings should there be an insufficiency of income from later sales. If so, it would be necessary for the trustee to make a further sale in order to meet the outgoings expected to fall due and payable beyond the original 18 month period notwithstanding that it held funds by way of income and capital which were otherwise sufficient for the purpose.

1. The fallacy in the argument that would produce such a result is to equate the limit on the power of sale with a limit upon the application of the proceeds of sale. The fundamental question which was brought before the Court in 2004 was whether the trustee was or should be empowered to sell all or part of Netley to meet recurrent outgoings. This has been determined in the affirmative in the March judgment by the conferral of a power of sale under s. 63 of the Trustee Act 1958. The 18 month limitation was later proposed, and accepted, to protect the class members from an abuse of that power. I can see no reason in principle or practicality which should prevent the trustee from applying the income from the proceeds of sale or the proceeds themselves to meet these outgoings whenever they may be due and payable. If there be any doubt about this, it might be resolved by making it clear in the order that the trustee might do this.

1. In the course of the process of making written submissions counsel for the trustee proposed an amendment to the proposed new question in these terms:

“3.If the trustee sells part of Netley pursuant to the power conferred upon it by paragraph 1 of this Order, should the plaintiff apply first the income and if exhausted then the capital derived from the proceeds of sale in meeting the costs and expenses of maintaining Netley or so much thereof as for the time being remains unsold, including paying land tax and other imposts?”

The question will require a little reworking to enable it to fit comfortably in the order as otherwise proposed. Passing over this, counsel for the trustee said that the affirmative answer for which they were contending would mean that their client might apply income and capital to meet any outgoings, that is, any outgoings whenever they might be due and payable; it was, therefore, not necessary to spell this out in terms. I am content to proceed on that basis, since I will make it clear in the s. 63 order that the power conferred upon the trustee to apply the proceeds of a sale, including income, is not limited in point of time. As I mentioned in the March judgment my abiding concern is to enable the trustee to meet the outgoings which are necessary to maintain Netley and at the same time to do so with the least intrusion upon the rights of the life tenants to enjoy that property .

1. I would therefore answer the proposed further question of principle generally in the affirmative.

1. In the light of these conclusions, I provide a further proposed order for the consideration of the parties and, if necessary, for further argument.

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