Richard Austin Ell v Stephen Maxwell Ell and Michael Richard Ell - [2014] NSWSC 259

Supreme Court

New South Wales

Summary available

Medium Neutral Citation: Richard Austin Ell v Stephen Maxwell Ell & Michael Richard Ell [2014] NSWSC 259
Hearing dates: 1,12,13 and 20 December 2013
Decision date: 19 March 2014
Jurisdiction: Equity Division
Before: Robb J
Decision:
(1)Order that the defendants' application for leave to amend their defence be dismissed.
(2)Order that the proceedings be dismissed.
(3)Direct the parties to deliver to the associate to Robb J within 10 days of the delivery of these reasons for judgment any submissions that they wish to make as to the costs order that should be made in these proceedings, together with the reasons therefore.
(4)Order for the return of exhibits and subpoenaed material as set out in par 182.

Catchwords: SUCCESSION - wills, probate and administration - construction and effect of will - whether the court is entitled to rectify a will under s29A Wills, Probate and Administration Act 1898 (NSW) - CONTRACT- breach of agreement - whether an agreement was varied or terminated
Legislation Cited: Wills, Probate and Administration Act 1898 (NSW) s 29A
Succession Act 2006 (NSW) s 27
Cases Cited: Jones v Dunkel (1959) 101 CLR 298
Public Trustee v Herbert [2009] NSWSC 366
Re Estate of Max Fredrick Dippert [2001] NSWSC 169
Estate of Haygarth (Hodgson J, 7 October 1994, unrep)
Craig v Silverbrook [2013] NSWSC 1687
Chin v Miller (1981) 37 ALR 171
Yovich v Collyer [1972] WAR 143
Newbon v City Mutual Life Insurance Society Ltd (1935) 52 CLR 723
Grundt v Great Boulder Goldmines Pty Ltd [1937] 59 CLR 641
Osborn v McDermott [1998] 3 VR 1
Category: Principal judgment
Parties: Richard Austin Ell (plaintiff)
Representation: Counsel: M Sneddon/C Alexander (plaintiff)
M Meek SC (defendants)
Solicitors: Bull Son & Schmidt (plaintiff)
Hunt & Hunt (defendants)

File Number(s): 2012/340482

Judgment

The plaintiff, Mr Richard Austin Ell, is the son of the late Austin Maxwell Ell.

The plaintiff commenced proceedings by statement of claim filed on 1 November 2012 against the executors of his late father's will, and also his sister, Catherine Mary Brailey. The plaintiff amended his statement of claim on 2 July 2013.

The executors are the plaintiff's brothers, Stephen Maxwell Ell and Michael Richard Ell, and his sister's husband, Edmund Francis Brailey.

I will, with no disrespect intended, call the plaintiff Richard, the first defendant Stephen, the second defendant Michael, the third defendant Ted, and the plaintiff's sister Catherine. As the parties usually called the deceased Max, I will do so as well.

Catherine filed a submitting appearance, except as to costs.

Max died on 24 May 2007. Max's wife, Mary Josephine Ell, predeceased him.

At the date of Max's death Richard owed him $857,953.09. That was the figure determined by the executors and included in the inventory of Max's assets for the purpose of the grant of probate of his will. Probate was granted to the executors on 13 September 2007. Richard did not contest the accuracy of the executors' determination of the amount of his debt in these proceedings.

Max executed his last will on 25 June 2002. Subject to the proper construction of clause 5, the will relevantly gave the whole of Max's estate to his four children in equal shares and on the same terms. The will created separate testamentary trusts that were to hold each beneficiary's share of the assets of the estate.

Clause 5 of the will provided:

"IF MY WIFE Mary Josephine Ell shall predecease me then I release my son the said Richard Austen Ell from any and all monies owed to me by my said Son on the security of 64 Military Road Neutral Bay."

64 Military Road Neutral Bay is a property that has, at all material times, been owned by Richard, and used as his residence.

Although Richard was indebted to Max at the date of his death, Richard did not ever grant a mortgage, or any other form of security, to Max to secure the loan, so Max had no security over 64 Military Road Neutral Bay.

Accordingly, in a strict sense, at the date of Max's death Richard owed no money to Max on the security of 64 Military Road Neutral Bay.

According to the inventory of property, Max's estate had a total estimated gross value of $7,270,391.27. The actual value of the estate as shown in the accounts prepared as at 30 June 2007 was $7,281,609.47.

Of that amount, $857,953.09 was constituted by the debt owed by Richard. It is material to note, for later purposes, that Michael also owed a debt to the estate, in the amount of $69,759.20.

Each of the four beneficiaries was entitled to receive about $1,821,592.

Issues

The issues in the proceedings have been defined by Richard's amended statement of claim and the defendants' amended defence. Richard initially raised an additional issue in his reply, but that issue was abandoned before the commencement of the hearing in an outline written opening submitted to the court by Richard.

Richard pleaded cases in the alternative. First, on the implicit assumption that clause 5 of the will was not effective to release the unsecured debt that he owed to Max, Richard pleaded that he entered into an agreement with the other beneficiaries that had the effect that the amount of his debt would be reduced to $400,000, subject to certain conditions; and that that agreement was varied, following which the agreement was breached by the other beneficiaries. Secondly, Richard claimed that, contrary to the assumption upon which his first claim proceeded, clause 5 was effective to release his debt to Max in its entirety. Alternatively, if clause 5 did not have that effect, Richard sought an order rectifying Max's will in a way that would have the effect of releasing the debt. While it is permissible for a party to plead in the alternative claims whose bases are inconsistent, the court cannot grant relief that is inconsistent with other relief granted, and an attempt by a party to pursue inconsistent claims in the alternative may have a damaging forensic effect on both claims.

Returning to the first of his claims, Richard pleaded that he entered into a written agreement with the other beneficiaries on 22 October 2007. The defendants admitted the agreement. There may be a basis for doubting whether in the circumstances the parties had an intention that the document would create a binding contract between the parties, but the defendants did not plead that the agreement was not contractually binding, and it must be treated as having contractual effect.

The agreement was signed by Stephen, on behalf of himself and the other beneficiaries, and by Richard, on 22 October 2007. As the written agreement is admitted, it will be convenient to set out immediately the material part of the document:

"Richard,

With regard to Max's Estate and the amount owing by you to the Estate totalling in excess of $800,000, it is proposed by the beneficiaries, Michael, Catherine and myself, that we reduce this debt to $400,000 provided that: -

1 You agree to put $1,000,000 of your future share of the Estate into a Managed fund type investment, or other like product under the guardianship of Michael Ell. The purpose is to provide income for the future and preserve your capital.

2. You agree to repaying the agreed half debt by reducing your entitlements by 50% until the half debt ($400,000) is extinguished.

As discussed with you, Catherine Michael and myself are also intending to put a large proportion of our share of the Estate in income producing assets.

regards"

It is not in contention that on or about 15 January 2009 the other beneficiaries terminated this agreement. Richard claims that the termination was a breach of the agreement. The defendants in turn claim that the termination of the agreement was effective, and was not wrongful, because by reason of various actions on the part of Richard, by 15 January 2009 he had repudiated the agreement, and put it beyond his ability to invest $1,000,000 from his share in Max's estate in the manner required by the agreement.

After the other beneficiaries terminated the agreement, the executors administered the estate on the basis that Richard owed the estate $857,953.09. As Richard was entitled to one quarter of the assets of the estate, he was entitled to receive one quarter of the debt that he owed to the estate, which was $214,488.27. The executors therefore administered the estate of the basis that $643,464.82 should be withheld from Richard, and be treated as the payment in full of the debt that Richard owed to the estate. Effectively, a third of that sum was distributed to the other three beneficiaries.

The pleadings raised an issue of whether the effect of the 22 October 2007 agreement was to reduce Richard's debt to $400,000, or to half of the amount of the actual debt, being $428,976.55. That issue will only be relevant if Richard succeeds in his case that the agreement remains on foot. If it does not, his entitlement to a distribution from the estate must be calculated on the basis that he owed the full amount of $857,953.09.

Next, Richard pleaded that on 5 or 12 January 2009, or alternatively on 13 January 2009, the 22 October 2007 agreement was varied orally. If the variation occurred on 5 or 12 January 2009, Richard alleged that the agreement was made between himself, Stephen and Michael on one of those dates. If the variation occurred on 13 January 2009, the persons present were Richard and his solicitor, Mr Edwin Fritchley, and Stephen.

Richard alleged in par 15 of his amended statement of claim that the relevant variations to the written agreement were:

"a. Michael Ell would be appointed trustee in respect of various assets held on trust for the plaintiff;

b. The plaintiff would be permitted to use on a short-term basis the intended distribution of the Exeter Property (being approximately $400,000) to assist in the purchase by him of the property situated at Norah Head ("the Norah Head Property");

c. A caveat would be placed on the Norah Head Property in favour of the executors; and

d. Upon repayment of the intended distribution of the Exeter Property (being approximately $400,000) the caveat would be removed."

At the time the alleged variation occurred the executors were in the course of arranging the distribution to the beneficiaries of the proceeds of the sale of a property at Exeter in the Southern Highlands that was owned by the estate.

Richard also pleaded in par 16 that he had implemented the agreement as varied by executing a deed of retirement and change of trustee in favour of Michael, and by executing a caveat in favour of the executors over the Norah Head property.

The defendants denied that any variation of the 22 October 2007 agreement was made, either as alleged, or at all. Furthermore, they did not admit that Richard executed either the deed or the caveat in performance of the varied agreement, and they denied that Richard provided them with the executed documents.

Richard pleaded in par 17 that the defendants were precluded by a conventional estoppel from denying that the 22 October 2007 agreement constituted a binding contract. That allegation need not be pursued, as the defendants have admitted that the document signed on 22 October 2007 created a binding contract.

Richard pleaded a breach of fiduciary duty claim in pars 23 to 29 of his amended statement of claim against the defendant executors, Stephen, Martin and Ted, on the basis that they owed a duty to Richard not to profit from their position as executors, and not to be in a conflict of interest. Essentially, Richard claimed that it was a breach of fiduciary duty by the executors to terminate the 22 October 2007 agreement in January 2009. The basis of the claim was that by terminating the agreement, and obliging Richard to repay out of his share of the estate three quarters of the original debt, each of Stephen, Michael and Ted's wife, Catherine, would receive an additional $107,244.14, being one quarter of one half of the original debt.

Richard sought damages or equitable compensation for the various breaches that he alleges that the defendants committed. Principally, he claimed that he should be paid an amount of money equal to the shortfall in the distributions that he has received because the executors did not determine his entitlement on the basis that the 22 October 2007 agreement remained on foot. He also claimed certain other amounts, particularly in relation to the alleged variation, which may be considered below, if they arise.

Richard then pleaded alternative claims that do not assume that he was indebted to the estate for any amount at all.

First, Richard pleaded that, on the proper construction of clause 5 of the will, it had the effect of releasing the debt owed by Richard, notwithstanding that Richard did not at the date of Max's death owe Max any money on the security of the Neutral Bay property.

Specifically, Richard alleged that, on the true construction of the will, clause 5 had the effect of releasing all monies owed to Max by Richard that Max and Richard had agreed were intended to be placed on the security of 64 Military Road, Neutral Bay, notwithstanding that the loan agreement and mortgage document were never executed. The emphasised words reflect Richard's contention that clause 5 of the will was not intended to be read literally, but should be construed as if those words had expressly been included in the provision.

If clause 5 does not have the effect of releasing the debt, Richard claimed, alternatively, an order rectifying the will under s 29A of the now repealed Wills Probate and Administration Act 1898 (NSW) (the "Act"), to read as if the words that are emphasised in the following amended wording of clause 5 were included in the provision:

"IF MY WIFE Mary Josephine Ell shall predecease me then I release my son the said Richard Austin Ell from any and all monies owed to me by my said Son which we have agreed are intended to be placed on the security of 64 Military Road Neutral Bay."

Section 29A(1) of the Act provides:

"If the court is satisfied that a will is so expressed that it fails to carry out the testator's intentions, it may order that the will be rectified so as to carry out the testator's intention."

Section 29A(2) of the Act requires that an application for an order under the section shall not be made after the expiration of the period of 18 months after the death of the testator, except as provided by subsection (3). The 18-month period expired on 24 November 2008. Richard did not make his application for the rectification of the will within time.

Under section 29A(3) of the Act, the court is empowered to grant leave to make an application for an order under the section after the expiration of the 18-month period, if the court is satisfied that sufficient cause is shown for the failure to make the application within that period.

Richard sought leave under s 29A(3) in par 5(a) of his amended statement of claim.

In par 6 of his amended statement of claim Richard claimed relief that assumes that, either the court declares that the will on its proper construction has the meaning for which Richard contends in par 4, or the court makes an order as sought in par 5 to rectify the will so that it has that meaning. The executors have distributed the assets in Max's estate upon the assumption that Richard owed $857,953.09 to the estate. The share of the assets that has been distributed to Richard was therefore reduced by three quarters of the amount of the original debt. If Richard succeeds on his construction or rectification cases, then he will have been short paid by the executors. In that event he seeks a declaration that he is owed $857,953.09 by the estate, as well as an order that the three other beneficiaries be brought to account to make good the amount of $857,953.09 that is owing to Richard. That order is sought because the other beneficiaries will have been overpaid in the calculation of the share of the estate to which they were entitled. The order against Stephen and Michael is sought in their capacities as beneficiaries, and not as executors. It may be that the amount of $857,953.09 should be reduced by 25% to allow for Richard's own share of the original debt, which has already been credited to him in the calculation by the executors of his beneficial share in the estate.

Section 29A(5) of the Act has the effect that Richard may recover assets of the estate that have already been distributed to beneficiaries, if he becomes entitled to those assets by reason of a rectification order made under the section.

On the last day of the hearing, the defendants made an application for leave to file a draft further amended defence to introduce a new par 20. If leave is given the defendants will be permitted to argue that the 22 October 2007 agreement constituted a compromise and accord and satisfaction of the dispute as to whether Richard was indebted to the estate in the sum of $857,953.09. I heard argument on the application, and reserved my decision on whether the leave sought should be granted until I delivered reasons for judgment in the proceedings.

Credit of witnesses

Richard, Stephen, Michael and Ted all provided affidavit evidence to the court. They were each cross-examined. The solicitor who acted for Max for the purpose of drawing his will and preparing documents to effect a mortgage in favour of Max over the Neutral Bay property also gave evidence by affidavit for Richard. He was not cross-examined. Richard's present solicitor, Mr Richard Arthur Schmidt, gave affidavit evidence of the circumstances in which he attempted to secure the agreement of Richard's former solicitor, Mr Fritchley, to give evidence in Richard's case. He also was not cross-examined.

There are serious issues in contention as to the veracity of the evidence given by Richard on the one hand, and Stephen, Michael and Ted on the other. On some factual issues that are crucial to the determination of the dispute, the evidence given on behalf of each side is entirely inconsistent with the evidence given on behalf of the other. As the resolution of the factual issues that are in dispute is so dependent on the relative credibility of the evidence given by the principal witnesses, it will be convenient to deal with the issue of credibility at this stage in these reasons for judgment. As a result, a number of the factual contentions in issue will consequentially be determined.

The court is not required in this case to place a great deal of emphasis on the making of a judgment as to the relative, inherent credibility of the witnesses having regard to their demeanour and the way in which they gave their evidence in cross-examination. There are a considerable number of objective factors that assist the court in making a judgment about the credibility of each witness in the present case.

However, to my observation the manner in which Richard gave evidence was substantially less satisfactory and persuasive, than that in which each of Stephen, Martin and Ted gave evidence. The latter three witnesses appeared to respond to the questions asked of them in a careful, focused and immediate way. Each appeared to understand the proper approach that was expected of them when giving evidence on oath. Their approach was sober and straightforward, as well is being persuasive. Having the benefit of listening to and seeing the evidence that each of them gave being tested in cross-examination, I formed the comfortable view that each witness was reliable, and entitled to be treated as a witness of credit.

The manner in which Richard gave evidence was not so satisfactory. I did not form the view that he was evasive; rather, he did not appear to react to questions in a direct and focused way. That may simply reflect his general personality and character. The fact remains, however, that I did not find his evidence to be inherently persuasive, and I formed a concern about its overall reliability.

The court is assisted in this case by a considerable body of evidence that goes principally to the credibility of Richard, and the appropriate course is to examine that evidence before advancing a global view as to the relative credibility of the different witnesses who were parties to the proceedings.

It is appropriate to start with a consideration of the circumstances in which the debt of $857,953.09, which is at the heart of these proceedings, accumulated. It is clear on the evidence that, at least for the most part, the debt was not made up of straightforward, conventional loans made by Max to Richard. Rather, from time to time Richard committed himself to financial obligations that his circumstances did not permit him to fulfil, or if his circumstances did, he simply did not fulfil his obligations. The evidence was not precise on this issue, and did not explain how the entirety of the debt accumulated.

The evidence does show that Richard purchased the Neutral Bay property using a loan that was secured by a mortgage over the property, and that Richard was not able to, or in any event did not, meet all of the loan repayments. Max made a substantial proportion of the repayments. At the time, which is considered below, when Max and Richard were discussing the desirability of Richard granting a security over the Neutral Bay property in favour of Max, it is clear that Max contemplated that it would be necessary for him to pay at least a substantial proportion of the subsequent loan repayments. He also made loan repayments before those discussions.

Indeed, the reason why Max asked Richard to enter into a loan agreement and give Max a second mortgage over the Neutral Bay property was not so much to secure repayment to Max of the existing, and any future, debt, but was to protect Richard's only substantial asset, being his equity in the Neutral Bay property, from Richard's existing and future creditors. The evidence shows that it was Max's sad realisation that Richard was prone to entering into improvident transactions, that he could not help himself, and that he needed to be funded and protected. Max responded to the need out of paternal affection, but it was a substantial burden to him that he needed to do so.

For example, Richard agreed in cross-examination that in late 2006 possession agents took possession of the Ferrari motor vehicle that Richard had purchased second-hand some time before (T 40.20 -41.1). Richard was "bailed out" by Max. Max was forced to pay $30,000.

Richard accepted that he was made bankrupt in April 1998 (T 28.20 -29.49). The bankruptcy was annulled on 31 May 1999 (T 33.1). During the course of the bankruptcy, in January 1999, Richard entered into a lease of commercial premises without advising the landlord that he was an undischarged bankrupt. Richard initially denied any understanding that there was any commercial impropriety in his entering into the lease without advising the landlord of his status (T 30.49 - 31.19), although he ultimately appeared to concede that his conduct was not appropriate. Richard agreed (T 35.11), ultimately, that 14 rent cheques were dishonoured between May and June 1999 (T 31.38 - 32.25). Initially, Richard denied that he could recall that he had any difficulty paying the rent. There were proceedings in the Supreme Court before Hamilton J that led to the publication of a number of judgments. Richard initially insisted that the only dispute between himself and the landlord involved rectification of a concrete floor upon which oil had been spilled (T 31.29). Richard had no recollection of his involvement in giving evidence in the proceedings (T 32.25 - 33.21).

Richard admitted that in August 2005 Citibank sued him to judgment for about $6900 (T 38. 31). He ultimately agreed that he had made an unspecified "list" of financial defaults (T 53.20).

Richard did not pay council rates due in September 2008 in the amount of $16,698.20 (T 39.7). He said that council rates were not paid for many years (T 39.40). He did not make payments even though in the period between June 2007 and July 2008 he had received $218,000 either from his parents' estates, or from Max's company, Investment Ell Pty Ltd.

Pressed to admit that he rarely complied with his obligations, Richard conceded that occasionally he did not do what he was asked to do (T 41.5).

There are a number of important issues that arise out of the way Richard has pleaded his case, and the evidence he has given in support of it, which not only have a significant bearing on the merits of his case and its determination, but also reflect upon his credit.

First, the 22 October 2007 agreement in plain terms required Richard to put $1,000,000 of his future share in the estate into a managed fund type investment, or other like product under the guardianship of Michael. Richard's principal affidavit, which was sworn on 26 October 2012, contains evidence that shows that Richard clearly appreciated that he had not put the full amount into the required type of investment by the time the other beneficiaries acted to terminate the agreement in January 2009. Richard sought by his evidence to establish that, as of the date of the termination, he had put sufficient money into required investments so that it remained achievable for him to reach the $1,000,000 target, by adding funds from the further distributions from the estate that he expected to receive in the future: see pars 27, 29, 33, 34 and 36.

Richard set out a table of the company shares that he had received up to January 2009 in par 26, although he described these as "distributions from my parent's Estates". He did not set out the values of those shares at that date. He listed "managed funds" that he had received from his "parents'" estate in par 28. He listed "cash distributions from the estates of my parents" in part 30, that he said were held by the company that was the trustee of his testamentary trust, Neutraliser Pty Ltd. One argument that Richard put was that the holding of shares fell within the description of "other like product" to "managed fund type investment" as set out in the 22 October 2007 agreement. That argument may involve a stretch of the natural meaning of the words of the agreement, but that is an issue to which I will return when I consider how the dispute between the parties should be resolved. Secondly, however, Richard put the case that the value of all of the assets that he referred to in his affidavits could be added towards the achievement of the $1,000,000 target.

However, in cross-examination Richard admitted that of the six companies in which he held shares listed in par 26, four, being Alinta, BHP, Bluescope Steel and the Commonwealth Bank came from his mother's, rather than his father's estate (T 55.20 - 57.25). He also conceded that the first two distributions listed in par 30, which totalled $128,000, came from Investment Ell Pty Ltd, rather than Max's estate (T 58.26).

In fairness to Richard, the truth of these propositions was reasonably clearly disclosed in the affidavit. The evidence is more consistent with fuzzy thinking on Richard's part, rather than false evidence.

Ultimately, Richard accepted in cross-examination that the alleged variation of the agreement took place at a meeting on 5 January 2009 that he attended with Stephen and Michael, and not at a later meeting on 13 January 2009 (T 64.25). Richard gave evidence in his 26 October 2012 affidavit at par 53 that at the relevant meeting, after Richard asked for a variation of the agreement, Stephen said: "We will discuss with the others, but it looks like we don't have an option do we? But until it's back to normal, we will also want (sic) caveat on Neutral Bay." Both Stephen and Michael in their affidavits, each of which was sworn on 5 May 2013, gave evidence that was inconsistent with a variation agreement being reached on 5 January 2009.

Richard pleaded that not only was the 22 October 2007 agreement varied on either 5 or 12 January, or 13 January 2009, but he performed his side of the varied agreement by signing a deed under which Michael replaced the existing trustee of Richard's testamentary trust, as well as a caveat to secure repayment by him to the executors of any money that they advanced to him for the short term funding of the Norah Head property.

Richard claimed that he delivered the deed to Stephen at the meeting at Mr Fritchley's office on 13 January 2009 (T 65.7). Stephen denied that claim outright. A signed, but undated, deed is found in the evidence at Exhibit A p 99, but there was no other evidence about the circumstances in which the deed was prepared and executed, or its provenance.

The caveat that Richard said that he signed was not in evidence. Richard agreed that Mr Fritchley's file had been produced to the court, and there was no evidence in the file of any original or draft caveat (T 65.49).

Mr Fritchley was not called to give evidence to corroborate Richard's version of events. I will return below to a consideration of the significance of the absence of Mr Fritchley as a witness.

This is the first occasion, as considered in these reasons for judgment, when Richard gave evidence that is totally inconsistent with the evidence given by one or more of the defendants. I prefer the evidence of Stephen, not only because he was the more apparently credible and satisfactory witness, but also for the additional reasons that I will consider below concerning the probabilities that the variation was made as alleged by Richard.

One of those reasons, which should be considered in the context of an assessment of the credibility of the witnesses, is that on 9 March 2009 Richard sent an email to Mr Fritchley (Exhibit 4), in which Richard plainly suggested the terms of a letter that the solicitor should write in support of Richard's claim against the executors, and his version of the relevant events. The terms of the letter that Richard suggested showed that it related "to the executors of the Estate of A. M. Ell cancelling the agreement..." Richard ghostwrote for Mr Fritchley Richard's contentions concerning the validity of the termination of the agreement. The email included:

"Our client further contents (sic) that his request to use the distribution from the sale of the Exeter property for a short period while Norah Head was financed is not relevant to this matter."

The use of the word "request" in the email is more consistent with the defendants' position than that asserted by Richard. In any event Richard did not assert in the email that the agreement was varied in any way.

A further important issue concerns the time when Richard told the executors that he had already purchased the Norah Head property, using interim financial arrangements. Not only is there a substantial difference between the evidence that the relevant witnesses gave, but the issue is also important to the question of whether the other beneficiaries were justified in terminating the 22 October 2007 agreement, as they purported to do in January 2009.

In par 29 of his 26 October 2012 affidavit Richard said that, in early January 2009, he advised Michael that he had a short-term loan on his Nora Head property. Richard further said at par 51 that at the meeting with Stephen and Michael on 12 January 2009 (which Richard ultimately accepted occurred on 5 January 2009 (T 64.25)) Richard said that his best option for purchasing the property was a short-term bridging loan. Richard confirmed this evidence in cross-examination (T 53.38, 61.20 and 62.22).

Stephen's version, as stated in his 15 May 2013 affidavit at par 21, was that Richard only said on 5 January 2009 that he was in the process of buying a property at Norah Head. That evidence was effectively confirmed by Michael in his 15 May 2013 affidavit at pars 22 and 23. Michael said that he did not find out about Richard's short-term loan until after the later meeting at Mr Fritchley's office on 13 January 2009.

Stephen's evidence was that at the 13 January 2009 meeting Richard's solicitor said: "Richard has already purchased the property and he has signed up with a non-bank lender before Christmas at 2% per month for three months and a default rate of about 5% per month if he doesn't pay the debt back in February." Stephen said that Richard replied to his solicitor: "Don't tell him all that."

Two other telling evidentiary episodes concerned meetings attended by Richard and Michael. Michael gave evidence in his 5 May 2013 affidavit at par 3 of a meeting that occurred between himself, Richard and Max between February and May 2007. Richard flatly denied in cross-examination that this meeting occurred (T 42.26).

Of further significance, Michael gave evidence at par 7 of a later meeting that he had with Richard on 27 June 2007, after Max's death. Richard also categorically denied that this meeting occurred (T 43.40).

Michael's version of what was said at the meeting was:

"Richard said:

'I am thinking about a challenge to paying back my will (sic) monies. Would you join me in this?'

I said:

'No Richard I could not join you in this. There is no documentary evidence to back up my claim and it would be wrong on your part as we both know that dad wanted you to pay back the amounts.'

Richard said:

'I know that dad intended me to pay back the money however I think we would have a good chance.'

I said:

'No it would be wrong and it would cause a lot of fighting in the family which will cause losses to everyone.'

Richard said:

'I think you will side with them and do the arse with me.'"

If Richard did say to Michael in June 2007 that he understood that Max intended him to repay the debt, that would suggest that Richard is conscious that his alternative case for rectification of Max's will is inconsistent with Richard's understanding of what Max's intention was.

Michael also gave evidence that, after the written agreement was made on 22 October 2007, Michael made many telephone calls to Richard to try to arrange for the agreement to be implemented. Michael said that on many occasions Richard did not return his calls, and that when Michael did speak to Richard, Richard generally said that he was too busy to deal with the matter. Richard entirely denied the truth of this evidence (T 49. 30).

The evidence of the circumstances in which Richard ran up the debt of $857,953.09 to Max, and the history of his dealings with the landlord during the period of his bankruptcy, and with other creditors, is sufficient to demonstrate that Richard has at best a casual attitude to the need to honour his obligations to other persons. The manner in which Richard gave his evidence in cross-examination concerning his involvement in the litigation with his landlord shows that Richard was not prepared to concede candidly the lack of commercial integrity in his conduct. In the way that I have discussed above, Richard has put his case in this court in a manner that suggests he must be aware that some of his claims, as well as his evidence, have been 'gilded' to strengthen his prospects of success. I am persuaded that Richard consciously decided on 22 October 2007 to accept the compromise outcome that is inherent in the 22 October 2007 agreement, and to forego the opportunity to argue that clause 5 of Max's will released Richard's debt in its entirety. Richard understood, in any event, that Max intended that Richard should repay the whole of the debt. There is some failure of commercial integrity in Richard's conduct in this respect, which diminishes his credit. Richard made positive claims that he delivered an executed deed to Stephen on 13 January 2009, and that he executed a caveat prepared by Mr Fritchley. Richard made no real attempt to explain the circumstances in which the documents were prepared, and the court can have no confidence as to the veracity of Richard's evidence.

I have recorded a number of significant issues in respect of which Richard entirely denied the truth of the evidence given by Stephen and Michael, or one of them. These include the conversation between Michael, Richard and Max shortly before the latter's death, the conversation between Michael and Richard as to whether they should challenge the enforceability of their debts to the estate, when Richard told Stephen and Michael that he had actually bought the Norah Head property using interim finance, whether there was an actual concluded agreement to vary the 22 October 2007 agreement at the meeting on 5 January 2009, and whether Richard handed the executed deed to Stephen on 13 January 2009. It is necessary to make a choice as to whether the evidence of Richard, or that given by his brothers, is reliable. In all of the circumstances, including having regard to the manner in which each of the witnesses gave their evidence, I conclude that the evidence of Stephen and Michael is in each case to be preferred to that given by Richard.

Mr Fritchley was not called to give evidence. Mr Schmidt in his affidavit explained that he made attempts to secure Mr Fritchley's cooperation in the preparation of an affidavit, and provided him with copies of the pleadings. In the end Mr Fritchley advised to Mr Schmidt: "After careful consideration I have decided not to agree to your client's request to give evidence in the proceedings".

Mr Frichley was obviously in a position to give evidence that could be crucial to resolving diametrically opposed evidence that is highly significant to the resolution of these proceedings. He could have corroborated Richard's version of what happened at the meeting in his office on 13 January 2009, both as to what was said, and whether Richard handed to Stephen the executed deed of replacement of trustee, and whether Richard signed a caveat.

Richard could have required Mr Fritchley to give evidence on subpoena. There is no reason to believe that Mr Fritchley would not have given candid and reliable evidence. Richard ought to have done so.

In response to a question from the bench in submissions, counsel for the defendants, Mr Meek SC, declined to make a submission that the court should act upon the principle in Jones v Dunkel (1959) 101 CLR 298, and said that the defendants would rather rely upon the positive evidence that had been led in the proceedings. I will not apply the principle.

The absence of Mr Fritchley as a witness is not, however, irrelevant. For the reasons given, I prefer the evidence of Stephen as to what was said and what happened at the 13 January 2009 meeting that he had with Richard in Mr Fritchley's office. The absence of any evidence from Mr Fritchley confirming Richard's evidence cannot realistically be ignored, and simply leaves me with a more comfortable persuasion that it is proper to prefer the evidence of Stephen.

I should add that an additional reason for the court to take that course is that Stephen gave evidence, and Richard accepted, that the 13 January 2009 meeting became acrimonious after Mr Fritchley disclosed to Stephen that Richard had already bought the Norah Head property, and that the meeting ended badly when Stephen stormed out. That evidence is quite inconsistent with Richard's claim that on 13 January 2009 he performed his part of a variation that Stephen had agreed to on 5 January 2009. Richard's version is only consistent with the parties remaining reasonably amicable over this period.

The 22 October 2007 agreement

As I have noted above, the parties agree that on 22 October 2007 they entered into a written agreement in the terms of the document signed by Stephen and Richard on that date. Stephen acted as the agent for the other beneficiaries.

A number of issues arise as to the proper construction of the agreement. The first issue that arises, in the order in which the issues appear from the document itself, is the effect of the words "your future share of the Estate" in clause 1. It is clear from the use of the expression "With regard to Max's Estate" in the first paragraph that the agreement was concerned with Richard's share in Max's estate, and not that of Richard's mother. In Richard's 26 October 2012 affidavit he attempted, in the manner considered above, to maximise the value of his assets as at 15 January 2008, by including the value of assets that had been distributed to him from his mother's estate, and distributions that he had received from Investment Ell Pty Limited. The agreement did not entitle Richard to include these assets within the $1,000,000.

For reasons that are considered below in examining whether, as at 15 January 2009, Richard was still capable of achieving the $1,000,000 requirement, the proper resolution of this first issue probably does not matter. The evidence that Richard tendered did not prove the entirety of the distributions received by Richard from the estates of Max, and his mother, and from Investment Ell Pty Ltd. The evidence does not allow any tracing between distributions received from any of these sources, expenditures by Richard, and the assets that he retained as at 15 January 2009. It is not possible to determine in any conclusive way the extent to which the assets that Richard held at that date came from Max's estate. It may be that if the agreement is given a sensible commercial construction, it would not matter if Richard invested money that he had received from his mother's estate into the required managed funds or like products, instead of money received from Max's estate, provided that he achieved the $1,000,000 that was required. Richard did not in fact achieve that minimum. All that can be said is that, on a strict construction of the agreement, Richard had to apply assets distributed from Max's estate for the purpose.

The second construction issue concerns what is meant by the words "Managed fund type investment, or other like product". Specifically, did shares held on behalf of Richard by the trustee of his testamentary trust, or assets within Richard's superannuation fund, qualify within this description?

Various definitions of "managed fund" are set out in pars 37 to 40 of the defendants' written outline opening. It will be sufficient for me to note one of those definitions. The Macquarie Dictionary Online defines "managed fund" as:

"Any of a number of forms of collective investment in shares or another type of asset or a mix of asset types, such as a unit trust, property trust, cash management trust, etc; characterised by the investors owning units in the fund in accordance with the amount of investment, rather than directly owning shares, property, etc., the fund being operated by a professional investment manager."

The expression "managed fund" has a common and well understood meaning in commerce, which conforms with the definition given by the Macquarie Dictionary Online, and the other definitions cited by the defendants.

The use by the parties of the words "or other like product" was evidently intended to permit some amount of flexibility in the nature of the investment that would satisfy the agreement. However, the use of the expression "product" suggests that what the parties intended was to require that Richard invest in an asset that at least satisfied the description that it was a commercial product offered by professional asset managers.

The ownership by Richard of his superannuation fund, and shares in listed companies, whether in his own name or through his beneficial ownership of the assets held by the trustee of his testamentary trust, would not fall within the meaning of "managed fund type investment, or other like product."

If it were thought that there was some ambiguity in the meaning of the expression, so that it is permissible to have regard to the surrounding circumstances at the time the agreement was entered into, the conclusion that must be reached remains that which is set out in the preceding paragraph. The evidence of the circumstances in which the parties entered into the agreement are set out in Richard's 26 October 2012 affidavit at par 21, and in par 14 of Stephen's 15 May 2013 affidavit. Putting aside the terms of the actual negotiations, it is clear that the purpose of the defendants, which Richard appears to have understood and accepted, was that the beneficiaries other than Richard were prepared to forego their shares in half of the debt that Richard owed to the estate, provided that he put at least $1,000,000 of the amount to be distributed to him from the estate into an investment that would preserve his capital, and ensure the availability of income to protect Richard into old age. The source of the other beneficiaries' concern that led them to make the offer was Richard's long history of entering into inappropriate, if not improvident, transactions. The underlying essence of the agreement was, objectively, that the relevant assets would be managed by a professional asset manager, and not by Richard himself, whether directly or through his control of the trustee of his testamentary trust.

The third construction issue concerns the meaning of the expression "under the guardianship of Michael Ell". The use of the word "guardianship" in this context is not common, and does not appear to have a generally accepted meaning, although it should be noted, as the defendants submitted, that the Macquarie Dictionary Online gives the concept of guardianship the general meaning of "someone who guards, protects, or preserves".

The intended meaning may be derived satisfactorily from two aspects of the context in which the agreement was entered into. First, as the defendants point out in their written outline opening, the term "guardian" is used in Max's will in describing how the testamentary trusts that were established for each of the four beneficiaries was intended to operate. It is sufficient to note that the beneficiaries of each testamentary trust were the relevant child of Max, the child's spouse, and his or her children and grandchildren. The trustees of the testamentary trust were entitled to take various steps in relation to the application of the income and capital of the testamentary trust, but in some cases only with the consent of the "guardian", who in each case was defined as being the relevant child. Put shortly, for a number of purposes, the trustees of the testamentary trusts could only act with the consent of the guardian. That gave the guardian a measure of control over the operation of the testamentary trust.

Furthermore, Richard's evidence of his conversation with Stephen that led to the 22 October 2007 agreement being executed included, at par 21, that Richard said in response to a statement by Stephen: "There needs to be one of us to oversee your administration of the million dollars" and "I prefer Michael to take up that duty and I will speak to him about it." Richard then said at par 21 that he then spoke to Michael and asked Michael "to oversee my administration of the million dollars." This evidence supports the conclusion that, when the parties used the word "guardianship", they intended to invoke the concept of oversight of the investment by Michael.

"Guardianship" did not mean that Michael would become the legal owner or trustee of Richard's investment, or that he would take responsibility for the day-to-day management of the investment.

The 22 October 2007 agreement therefore required Richard to place at least $1,000,000 of the distributions that he received from Max's estate into a mix of commercially offered managed funds or like investments, in the sense discussed above, on a basis which gave Michael ultimate control over the mix of investments.

Alleged variation of 22 October 2007 agreement

It follows from the findings that I have set out above that Richard has failed to establish that the 22 October 2007 agreement was varied by a further agreement made between Richard, Stephen and Michael on 5 January 2007. I find that the meeting on that date occurred in the manner given in the evidence of Stephen and Michael.

However, I would also find that there was no variation, even if the conversation took place as deposed to by Richard in par 53 of his 26 October 2012 affidavit. Richard's evidence was that the discussion concluded by Stephen saying:

"We will discuss this with the others, but it looks like we don't have an option do we? But until it's back to normal, we will also want caveat on Neutral Bay."

That statement cannot be treated as an unequivocal acceptance of any offer or request made by Richard. Stephen stated that he needed to discuss the matter with "the others". It clearly followed that there could be no agreement without Stephen providing confirmation to Richard.

Performance or breach of the 22 October 2007 agreement

It is then necessary to determine whether, over the period between 22 October 2007 and 15 January 2009, Richard performed the agreement, or whether by the later date he was in breach of it, and, if he was in breach, did that breach entitle the other beneficiaries to terminate the agreement, or was termination permissible because by that date it had become impossible for Richard to perform the agreement?

By 15 January 2009, some 15 months had elapsed since the parties entered into the agreement. That was plainly ample time for Richard to comply with the agreement, if he was minded to do so.

In a letter that Richard's solicitors, Bull, Son & Schmidt, wrote to Hunt & Hunt, the solicitors for Max's estate, on 10 October 2011, they advised that the value of Richard's investments as at 15 January 2009 was $293,766 in shares, $85,478 in managed funds, and $167,556 in superannuation. The total value was $546,800. On the basis of the proper construction of the agreement that I have set out above, only the $85,478 satisfied the expression "managed fund type investment, or other like product". None of the assets were under the "guardianship" of Michael, whatever meaning may be given to that term.

It follows that on 15 January 2009 Richard was in breach of the 22 October 2007 agreement.

I have already found that, contrary to Richard's evidence, Michael repeatedly tried after 22 October 2007 to cause Richard to take the steps that were necessary to perform his obligations under the agreement, but Richard often did not return Michael's calls, or said that he was too busy, when he did speak to Michael.

On 23 September 2008 a conference took place between Michael, Richard and Mr Ian Miller, of Hunt & Hunt, to discuss the arrangements that would be appropriate to implement the agreement. A letter written by Mr Miller to Michael and his wife on 24 September 2008 records that Richard had expressed a wish that the trustee of the relevant testamentary trust would be the existing trustee, Neutraliser Pty Ltd, of which Richard was the sole director and shareholder. It was proposed at the meeting to Richard that a new company would be established as trustee for the testamentary trust, with Michael and Stephen as the directors. The new trustee company would manage the investment of the funds. It was left to Richard to obtain his own advice as to the suitability of this arrangement. It appears that the parties contemplated satisfying the requirements of the agreement in a practical way by making a new company, controlled by Michael and Stephen, a replacement as trustee of the existing testamentary trust, of which the trustee was a company controlled by Richard. That would avoid the risk of Richard incurring capital gains tax obligations, which, it apparently was feared, might be incurred if the existing trustee transferred the $1,000,000 to a different trustee of a new trust.

Richard replied by email to Michael on 20 November 2008. In effect he suggested that Neutraliser Pty Ltd would remain the trustee of the testamentary trust, but that the stockbroker, Shaw Stocking, which controlled shares in Richard's testamentary trust, would be given an instruction that they should not enter into any transaction concerning the shares owned by the trust at the request of Richard, without first obtaining the authorisation of Michael. That arrangement clearly did not satisfy the requirements of the 22 October 2007 letter.

As noted above, there is in evidence an undated deed whereby Neutraliser Pty Ltd purported to resign as director of Richard's testamentary trust, and appoint Michael as trustee of that trust. Richard as the sole director of Neutraliser Pty Limited has apparently executed the deed. Michael is expressed to be a party to the deed. Michael has not executed the deed, and accordingly Michael has not accepted the obligations of trustee. Richard gave evidence that he handed the executed deed to Stephen at the meeting that occurred at Mr Fritchley's office on 13 January 2009. I have accepted Stephen's evidence that he was not given the executed deed on that occasion.

Richard did not satisfy before 15 January 2009 the requirement in the 22 October 2007 agreement that he establish an investment under the guardianship of Michael. Even if he had done so, the investment did not amount to $1,000,000, and was not in managed funds or other like products.

It is then necessary to determine whether, even though it is clear that Richard was in almost complete breach of the agreement as at 15 January 2009, he could have remedied the breach, if he had been given notice of the other beneficiaries' intention to terminate the agreement.

As I have noted above, as at 15 January 2009, Richard only had $85,478 invested in managed funds. He had $167,556 invested in his superannuation fund. There was no evidence that Richard could lawfully withdraw any part of his superannuation fund to make an investment that conformed to the requirements of the agreement. I will assume that he was not entitled to do so. That meant that, of his existing assets, he could only realise the $293,766 in shares that he held, to reinvest in managed funds. He could, in principle, also invest the balance of the distributions that he expected to receive from Max's estate in investments that would satisfy the agreement.

The financial statements for Max's estate for the year ended 30 June 2008 (Exhibit A p 61) and the distribution sheet for the final distribution of the assets of the estate (Exhibit A p 155) establish that, as at 30 June 2008, of the total distribution of $1,821,592.33 that Richard could expect to receive, $1,337,460 had already been distributed to Richard, which left an expectation of a further $454,131.89.

When the value of Richard's holding in shares of $293,766, and his further expectation of receiving $454,131.89, is added to his existing holding of $85,478 in managed funds, the total is $833,375.89. On the evidence, that is the greatest sum that Richard could hope to invest in conformity with the agreement, as at 15 January 2009, although he could only achieve that amount when he received his final distribution from the estate.

The defendants, who were beneficiaries under Max's will, were entitled on 15 January 2009 to terminate the 22 October 2007 agreement, because at that date Richard was fundamentally in breach of the agreement, and his actions had the effect that by that date it was impossible for him to perform his obligations, unless providence and the market caused the value of his existing investments to increase by an amount that would allow him to reach the $1,000,000 target. The defendants were entitled to act upon the basis of the values of Richard's assets and entitlements as at 15 January 2009.

As a separate ground, the defendants were justified in terminating the agreement, because, over the 15-month period, by his persistent failure to implement the agreement, and his suggestion that the defendants accept an outcome that was inconsistent with the agreement, Richard exhibited an intention not to perform his obligations under the agreement.

That conclusion is reinforced by the circumstances in which Richard sought to persuade the other beneficiaries to vary the agreement, in the meetings held on 5 and 13 January 2009. I find, in conformity with the evidence given by Stephen and Michael, that on 5 January 2009 Richard intimated to them that he was "in the process of buying a property at Norah Head" and that he wanted to be distributed $400,000 to assist in the purchase of the property, on the basis that the property would be treated as satisfying part of the $1,000,000 investment required by the agreement. When Stephen rebuffed him, he then said that he would borrow the $400,000, and then repay the loan when he received the further distribution from the estate. That is evidence that Richard intended to apply the $400,000 that he expected to receive, as his share of the value of the property at Exeter owned by the estate, in the purchase of the Norah Head property. He therefore stated to Stephen and Michael that he did not intend to invest the bulk of his future distributions from the estate into managed funds. That is a statement that constituted a repudiation of the agreement. It is irrelevant that in the events that have happened Richard managed to refinance his short-term borrowing from some other source.

Furthermore, Stephen only learnt on 13 January 2009 that Richard had in fact purchased the Norah Head property when Mr Fritchley disclosed that fact. Richard's lack of elementary candour with the other beneficiaries reinforced the view, that they had legitimately formed, that Richard could not be trusted to perform his obligations under the agreement.

Richard has failed to make out his claim against the defendants in which he has alleged that they breached the 22 October 2007 agreement, either as originally made, or as varied in the manner alleged by Richard. The defendant's validly terminated the 22 October 2007 agreement, and on the basis upon which the dispute was conducted by the parties, the executors were entitled to administer Max's estate on the basis that Richard owed a debt of $857,953.09 to the estate.

Amount of reduction of debt effected by 22 October 2007 agreement

There is an issue in the proceedings as to whether the effect of the 22 October 2007 agreement was to reduce Richard's debt to $400,000, or half the amount of $857,953.09, which is $428,826.55. In fact the executors initially proceeded on the basis that the reduction should only be to the latter amount, and not $400,000. That became irrelevant after the beneficiaries terminated the 22 October 2007 agreement. Thereafter the executors treated the amount of the debt owing as being the full $857,953.90.

As I have found that the 22 October 2007 agreement was validly terminated, it is not necessary to resolve this issue in these proceedings.

The issue is not without complication. The agreement refers to the debt as being "in excess of $800,000", which suggests that the precise amount of the debt was not then clearly known. However, it is said twice in the document that the debt would be reduced to $400,000. Notwithstanding, that the document refers to Richard as agreeing to repay the "agreed half debt", which suggests an intention that what the parties actually had in mind was that the amount to be repaid was half of the amount of the actual debt.

If regard is had to the discussion between Richard and Stephen, Richard said in par 21 of his 26 October 2013 that Stephen used the term "$400,000". Stephen agreed in par 14 of his 15 May 2013 that he did say "$400,000".

If it should in some event matter, I find that the effect of the 22 October 2007 agreement was to reduce Richard's debt to $400,000, provided he complied with the agreement.

Breach of fiduciary duty by executors

Richard pleaded that the defendants owed to him fiduciary duties not to profit from their position as executors/trustees, and not to be in a conflict of interest as against the beneficiaries. He alleged that the defendants breached their fiduciary duties by terminating the 22 October 2007 agreement.

Richard and Stephen signed the 22 October 2007 agreement. It is clear from the terms of the agreement that Stephen spoke for himself, Michael and Catherine. Ted was not mentioned. The 22 October 2007 agreement was between the four beneficiaries, and not between Richard and the three executors.

The other beneficiaries did not owe any fiduciary duties to Richard, which prevented them from acting to terminate the 22 October 2007 agreement if they were otherwise lawfully entitled to do so.

The defendants did not breach any fiduciary duties that were owed to Richard.

Alternative claim based on proper construction of clause 5 of the will

It is then necessary to consider Richard's alternative claims that were based upon the alleged effect of clause 5 of Max's will, and in the alternative on a claim that that clause should be rectified.

Logically, the first issue is whether Richard should be prevented from pursuing this alternative claim because it involves a departure by him from the common assumption that is raised in the defendants' conventional estoppel defence that he was in fact indebted to Max at the time of Max's death. However, in the present case, as the construction and rectification issues are relatively straightforward, it will be convenient to consider them first.

I respectfully adopt the statement of the principles that should be applied by the court, in construing the wording of a will, that were set out by Macready AsJ in Public Trustee v Herbert [2009] NSWSC 366 at [27] to [38]. Most importantly, the court is to give the words used in the will their meaning as used in the ordinary sense, and to construe the will as a whole.

Clause 5 purports to release Richard "from any and all monies owed to me...on the security of 64 Military Road Neutral Bay". At the date of Max's death there were no monies that satisfied that description. There is no proper basis for reading these words as establishing an intention that any debt owed by Richard to Max at the date of his death would be released, whether or not the debt was secured by a security over the property. A secured debt is significantly different in nature to an unsecured debt. The wording of clause 5 plainly establishes that Max had an expectation that any debt that Richard owed to him would have the benefit of a security. In the absence of any such security, the wording of clause 5 cannot properly be extended to the release of an unsecured debt. There is no warrant within the wording of the will as a whole for the court simply to ignore the testamentary indication that Max would have the benefit of a security over the debt.

There are no surrounding circumstances to which the court may legitimately have regard that would lead the court to any different conclusion. The only evidence of relevant discussions between Richard and Max is that which is given by Richard in par 9 of his 26 October 2012 affidavit. That evidence, even if it is accepted as a whole without any regard to principle as to whether any of it should be excluded as not falling within the available surrounding circumstances, demonstrates only that Max expected that he would have the benefit of a security for the debt owed to him by Richard. Nothing in that evidence suggests that Max had an intention to release the whole of the debt whether or not he received the benefit of the security that was contemplated.

Richard said at par 11 of his affidavit that the draft mortgage "was never formally executed". He gave no explanation. There is no evidence to support Richard's contention in par 32 of his amended statement of claim that the mortgage document was never executed "due to oversight".

Furthermore, the evidence does not establish the allegation in par 31 of the amended statement of claim that Richard and Max "agreed that the Loan Moneys would be secured against the plaintiff's property". Both the particulars of the alleged agreement given to par 31, and the evidence in par 9 of Richard's 26 October 2012 affidavit, do not go far enough to establish any agreement between Richard and Max, in the sense of a formal and binding contract between them. Max asked Richard to execute a mortgage and Richard responded with words to the effect: "that's fine". In the context of this discussion between father and son, the evidence is insufficient to establish an intention to create a binding legal agreement between them.

On the issue of the proper construction of clause 5 of Max's will, I have not ignored the evidence given by Mr Williams, who was Max's solicitor at the time the will was executed. Even if all of that evidence is taken at face value, without regard to the question of what is strictly admissible, it does not advance Richard's case, as it is equivocal. In particular, Mr Williams' file note of his meeting with Max on 19 June 2002 contains the note: "forgive the whole amount of the mortgage". That note effectively reflects the terms of clause 5.

Application for rectification of Max's will

If Richard is still entitled to argue that it was Max's intention to release the whole of the debt that Richard owed by the terms of his will, and if the will properly construed did not have that effect, the question arises as to whether the court should make the rectification order sought by Richard in his amended statement of claim.

This issue is governed by s 29A of the Act, as Max died before the commencement of s 27 of the Succession Act 2006 (NSW) on 1 March 2008.

Richard is out of time for making his application for rectification by operation of s 29A(2) of the Act, and requires the leave of the court to make the application under s 29A(3).

I would reject Richard's application for leave to seek rectification of the will in the exercise of my discretion whether or not to grant the application.

Section 29A(3) requires that I be "satisfied that sufficient cause is shown for the failure to make the application within [the 18-month period after the death of the testator]" before I may grant leave to make an application out of time. In the present case Richard has not shown any cause for his failure to make the application in time, let alone a sufficient cause.

The evidence that is before the court has persuaded me positively that I should not grant the application. As I have found above, Richard consciously entered into the 22 October 2007 agreement, under which all parties proceeded upon the implicit assumption that clause 5 of the will did not release Richard's debt, while being fully aware that there was an argument that his debt had been released. From that date Richard proceeded upon the basis, and he knew that the other beneficiaries were proceeding upon the basis, that, but for the effect of the agreement, Richard would be obliged to repay the whole of the debt. The 18-month period for the making of a rectification application expired on 24 November 2008. After that time Richard continued to act upon the basis that the agreement was effective, albeit that he tried in January 2009 to negotiate a variation of the agreement. It was only when he failed to perform the agreement, which led to the other beneficiaries terminating it, that he eventually in 2012 applied for leave to seek rectification of the will. As Richard knowingly acted in a manner that caused the other beneficiaries to proceed for a number of years on the basis that the will did not release Richard's debt, he should not now be given leave to make an application for rectification.

In any event, the rectification order that Richard now seeks leave to be able to make would insert the words "which we have agreed are intended to be placed" into clause 5 of the will, in the manner set out in par 5 c of the statement of relief claimed in the amended statement of claim. If the will were rectified in this way, its effect would be changed from releasing any debt secured on the Neutral Bay property, to releasing any debt that was intended by Max and Richard to be secured on that property, irrespective of the reasons why Richard did not grant the security.

I accept the defendants' submission that, even though in the present case the principles that would govern the rectification of the will are effectively the same as those that are to be applied in respect of the rectification of contracts, the court cannot look at unforeseen circumstances and speculate what the testator might have done in those circumstances, and then supply words to meet those circumstances: Re Estate of Max Fredrick Dippert [2001] NSWSC 169.

The only evidence of the discussions between Max and Richard concerning the proposal for Max to release the debt in Max's will is found in pars 9 and 17 to 19 of Richard's 26 October 2013 affidavit. The discussion concerning the proposed security is found in par 9. There is nothing in the statements attributed to Max that suggest in any persuasive way that Max intended to release Richard's debt whether or not Richard granted the security that was being discussed. In fact, there is nothing in the discussion about the loan being released at all.

Accordingly, it would be a matter entirely for speculation as to what Max would have intended if he had addressed his mind to the possibility that Richard would not give him the security that was discussed.

Furthermore, the change in the wording of clause 5 that Richard wants the court to make would have the effect that his debt to the estate would be released simply because it was identified as a debt that was intended to be secured. In pars 17 to 19 of his affidavit Richard gives evidence of a discussion that he had with Max after late 2006 (see pars 14 and 17). In that conversation Max said: "I am prepared to forego the loan but in return to make it up to your brothers and sister I expect you to have a will that gives the family assets received back to your brothers and sister." As I have noted above, there is in evidence a draft will that would have that effect, if Richard had executed it. It has not been executed. (The draft will provides for Richard's property at Neutral Bay to be left to Richard's partner, and for two motor vehicles to be left to another named person. As those assets were not "family assets received" by Richard, these provisions were not inconsistent with Max's expectation).

If this conversation occurred in late 2006, or early 2007, in the terms given by Richard, it must follow that Max by this time appreciated that Richard had not granted to him the security that had been discussed in 2002 before Max's will was executed on 25 June 2002. By the time of the later discussion, it appears that Max's consideration that he might release the debt was contingent on Richard executing a will with particular terms, rather than upon Richard granting a security to Max.

The court is not entitled to rectify a will unless there is clear and convincing proof as to what the testator intended to achieve: see Estate of Haygarth (Hodgson J, 7 October 1994, unrep). On the evidence there is simply not the necessary clear and convincing proof that Max intended his will to take effect in the terms that would apply if the will is rectified in the manner sought by Richard.

Conventional estoppel defence

As I have found that, on its proper construction, Richard's debt to Max was not released by clause 5 of the will, it does not matter whether Richard was estopped by a conventional estoppel from claiming that the will released him from his debt.

However, if I am wrong in the construction that I have given to the will, it will be important to determine whether Richard was estopped from challenging the existence of his debt. The discussion must proceed upon the assumption that, as a matter of law, the will released the debt.

I have accepted, as discussed above, the evidence given by Michael that on 27 June 2007 he had a meeting with Richard in which they discussed whether they should join in challenging the enforceability of the debts that they each owed to Max's estate. That evidence establishes that Richard at that time understood that Max intended him to repay the debt. Furthermore, it establishes that, in the period leading up to 22 October 2007, Richard was well aware that it was open to him to argue that his debt to Max had been released by the terms of Max's will.

Richard gave evidence in par 20 of his 26 October 2012 affidavit that, although he considered that Max had forgiven his debt by the terms of his will, provided that Richard entered into a will that left the assets that he received under Max's will to the other beneficiaries upon his own death, the most important consideration was that he and the other beneficiaries maintain a close-knit and supportive family. He did not want to cause further disharmony. He said: "an opportunity presented itself to strike what I considered to be a fair balance, when I started to discuss the topic of the Loan Moneys with my siblings."

The evidence establishes that Richard entered into the 22 October 2007 agreement with his eyes open. He had a choice between two alternatives. First, he could assert that his debt to Max had been released by the will, but if the other beneficiaries did not accept that outcome, Richard would have to face the consequences of litigation and family disharmony. His alternative was to agree to the offer that was made to him by the other beneficiaries through Stephen, and accept a reduction of the debt by about one half. That would give Richard immediate certainty. He chose that alternative.

It is plain that the 22 October 2007 agreement was entered into upon the assumption, made and accepted by all parties to it, that Richard owed a debt to the estate at that time that was greater in amount than $800,000. All parties to the agreement proceeded upon the basis that the original debt was owed to the estate, but had been reduced by about one half, and acted accordingly, until Richard instituted the present proceedings.

I respectfully adopt the statement of the legal principles that govern the application of the doctrine of estoppel by convention that was given by Sackar J in Craig v Silverbrook [2013] NSWSC 1687, where his Honour said:

[113] Isaacs J said that the "governing principle" is that "when parties have agreed to act upon an assumed state of facts, their rights between themselves are justly made to depend on the conventional state of facts, and not on the truth" (Dabbs v Seaman [1925] HCA 26 ; (1925) 36 CLR 538 at 549). Mason and Deane JJ said it is "the common law estoppel which precludes a person from denying an assumption which formed the conventional basis of a relationship between himself and another or which he has adopted against another by the assertion of a right based on it" (Legione v Hateley at 430). Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said it "is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying" (Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) [1986] HCA 14 ; (1986) 160 CLR 226 at 244).

[114] The "classic statement of [the underlying] principle" (Legione v Hateley at 430) is said to be that of Dixon J in Thompson v Palmer [1933] HCA 61 ; (1933) 49 CLR 507 (at 547, citations omitted):

'The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct ... ; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.'

[115] His Honour shortly thereafter provided the following further exposition in Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58 ; (1937) 59 CLR 641 (at 675-676):

'The justice of an estoppel is not established by the fact in itself that a state of affairs has been assumed as the basis of action or inaction and that a departure from the assumption would turn the action or inaction into a detrimental change of position. It depends also on the manner in which the assumption has been occasioned or induced. Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. But the law does not leave such a question of fairness or justice at large. It defines with more or less completeness the kinds of participation in the making or acceptance of the assumption that will suffice to preclude the party if the other requirements for an estoppel are satisfied. A brief statement of the recognized grounds of preclusion is contained in the reasons I gave in Thompson v Palmer, and it is convenient to repeat it [his Honour then quoted part of the quote extracted above].

It is important to notice that belief in the correctness of the facts or state of affairs assumed is not always necessary. Parties may adopt as the conventional basis of a transaction between them an assumption which they know to be contrary to the actual state of affairs.'

[116] The requirement that the assumption be as to a state of facts (as distinct from law) has been discarded (see the authorities cited in Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300 at [79] per Brereton J).

[117] The doctrine of conventional estoppel applies to post-contractual, not just pre-contractual, assumptions (Legione v Hateley at 432). Therefore, as with equitable or promissory estoppel, in conventional estoppel, "after a formal contract is made, parties may so conduct themselves as to treat provisions of the contract as no longer relevant or varied in some way or suspended in operation" (Waterman v Gerling Australia Insurance Co Pty Ltd at [82])...

[119] The elements a plaintiff needs to establish for common law conventional estoppel are "(1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff" (Moratic Pty Ltd v Gordon [2007] NSWSC 5 ; (2007) 13 BPR 24,713 at [32], cited approvingly in Ryledar Pty Ltd v Euphoric Pty Ltd at [200])."

It is plain from the reasoning set out above that in the present case the first four elements given by Sackar J at [119] are satisfied. The issue raised by Richard in his submissions is whether element (5) is satisfied. Will the departure by Richard from the common assumption cause detriment to the defendants?

If the will released Richard's debt, then as a matter of law the other three beneficiaries were not even entitled to the lesser amount of $300,000 between them, which they agreed by the 22 October 2007 agreement to accept, as part of the reduction of Richard's debt to $400,000.

This led Richard to argue that the defendants will not suffer any detriment at all if he is permitted to establish that his debt to Max was entirely released by the will, because the true effect of the 22 October 2007 agreement was that the other three beneficiaries agreed to accept only $300,000 between them, when as a matter of law they were not entitled to anything, so that they will not suffer detriment if they are obliged to repay money that they were not entitled to in the first place.

In the decision of the Full Federal Court in Chin v Miller (1981) 37 ALR 171 Fisher J, with whom Keely and Gallop JJ agreed, considered the requirements that must be established before the necessary detriment can be proved, as follows at p 181

"The rationale of detriment as an essential consideration of estoppel is explained by Dixon J (as he then was) in Grundt v Great Boulder Gold Mines Pty Ltd (1937) 59 CLR 641 at 674: "That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment in the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that lead to it.... His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment."

From this it would appear to follow that the alteration of position must produce "real detriment or harm", which real detriment or harm must flow as a consequence of the assertion of a different state of affairs... The appellants must accept the onus of satisfying the court that there was a real detriment or harm: Fung Kai Sun v Chang Fui Hing [1951] AC 489."

Further, at p 182

"But a real harm or positive detriment entailing a loss in money or moneys worth is the condition precedent which the authorities require. It is so stated in Spencer, Bower and Turner: Estoppel by Representation 3rd ed, p 92, as an essential element of estoppel, namely:-

(e) Damage. Finally it must be shown that loss of money or moneys worth was (i) the actual, and (ii) the natural and probable result of the representee having acted as he did on the fact of the representation.

At p 104 appears the following passage: "Similarly the damage, loss or prejudice which the representee must show to have resulted, in a natural chain of causation, from the alteration of position means, and means only, actual and temporal damage, - some loss of money or moneys worth, which admits of quantification or assessment."

There are many authorities which establish that the representee who relies upon estoppel must prove that he has been materially affected and I cite dicta from only those which appear to have the greatest relevance."

Finally, at p 183

"The trial judge in his judgment referred to Yovich v Collyer [1972] WAR 143, where Wickham J gave reasons in which the other members of the Full Court concurred. In that case the plaintiffs accepted a contract of sale in reliance upon the representation of their agent that the purchaser had paid the deposit. Wickham J referred to a number of Australian cases where the requisite element of material disadvantage was noted. One of these was Thompson v Palmer (1933) 49 CLR 507 and he cited, inter alia, the following sentence from the judgment of Dixon J (as he then was): "But, in each case he is not bound to adhere to the assumption unless as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption is permitted" ([1972] WAR at 145).

Wickham J continued his reasons (at p 145) when he said: "However, to make good the estoppel the representee must show a material disadvantage if departure from the assumption induced be permitted and in this respect the court said in Newborn v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 at 734: 'But what makes it unjust to permit the departure from an assumption so induced is that, were it permitted, the party so induced would through making the assumption find himself in a position occasioning material detriment to himself. Without this element there is no estoppel. It must appear that upon the faith of his belief by act or omission he has placed himself in a position which, if his belief proved incorrect, would be productive of loss.'"

In Yovich v Collyer [1972] WAR 143, to which Fisher J referred, Jackson CJ and Virtue SPJ agreed with the reasoning of Wickham J at 145 concerning the statement made by the High Court in Newbon v City Mutual Life Insurance Society Ltd (1935) 52 CLR 723 at 734: "But what makes it unjust to permit the departure from an assumption so induced is that, were it permitted, the party so induced would through making the assumption find himself in a position occasioning material detriment to himself. Without this element there is no estoppel. It must appear that upon the faith of his belief by act or omission he has placed himself in a position which, if his belief proved incorrect, would be productive of loss". His Honour said:

"In this respect it is important to observe as does Spencer Bower and Turner on Estoppel by Representation, 2nd ed p105, that in measuring the detriment, or demonstrating its existence, one does not compare the position of the representee, before and after acting upon the representation, upon the assumption that the representation is to be regarded as true. It is only when the representor wishes to disavow the assumption contained in his representation that an estoppel arises, and the question of detriment is considered, accordingly, in the light of the position which the representee would be in if the representor were allowed to disavow the truth of the representation.

Further, Wickham J relied at 146 on the following extract from the judgment of Dixon J in Grundt v Great Boulder Goldmines Pty Ltd [1937] 59 CLR 641 at 674:

"In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose for the doctrine. That purpose is to avoid or prevent a detriment to a party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who will alter his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice."

His Honour added at 147 that it is "not... necessary to show pecuniary loss but the prejudice must be real".

In the present case the heart of the common assumption upon which the parties acted was that Richard's debt to Max remained valid and was owed to his estate. I am considering the conventional estoppel defence upon the assumption that the will released the debt. It is necessary to consider the effect of Richard being permitted to depart from the common assumption. If he is permitted to do so, will it then appear that his departure will cause the defendants to suffer a material detriment by reason of their having acted upon the common assumption? Viewed from this perspective what the defendant beneficiaries did was to assume that the debt was valid, and then agree to accept payment of their shares in half of the debt. That is, they agreed to proceed upon the basis that they would receive half of something to which they were not entitled, on the assumption being made. Because of the misunderstanding as to the effect of the 22 October 2007 agreement, the executors paid to the defendant beneficiaries an additional amount each of slightly more than $100,000. On the assumption being made those beneficiaries were not entitled to receive that amount. If Richard is permitted to change his position and establish that he did not owe the debt to the estate in the first place, the defendant beneficiaries will be obliged to pay the amount that they received back to the executors. They will be required to pay an amount to which they were not entitled.

The defendant beneficiaries will therefore not suffer a material detriment in the necessary sense solely by reason of a requirement that they repay distributions that they have received from the estate, if they were not entitled to receive those distributions in the first place.

It would be necessary for the defendant beneficiaries to be able to point to actions that they had taken on the basis of the common assumption that did not involve the receipt of distributions based upon the, assumed, non-existent debt. For instance, if they had proved that they had disposed of the additional distributions in such a way that they could not repay the amounts without suffering prejudice over and above the requirement for repayment, they may have established a relevant material detriment. The evidence did not prove any such detriment was suffered.

In reliance on the 22 October 2007 agreement the defendants acted between that date and 15 January 2009 on the basis that the agreement was valid and enforceable, and the executors were only entitled to enforce half the debt that Richard owed to Max at the date of his death (which the executors wrongly treated as $428,956.55 rather than $400,000). The defendants took various actions, such as attempting to assist Richard to perform his agreement concerning the investment of $1 million portion of his share of the estate, attended meetings, and also retained Mr Ian Miller of Hunt & Hunt to provide advice as to how the investment should be implemented. Most of the steps that the defendants took involved effort and inconvenience rather than expense. It is possible that their efforts involved the loss of an opportunity cost, but no such loss was proved. Mr Miller will have charged a fee, but the amount of the fee was not proved. It is probable that the defendants have suffered some material detriment, in the sense that their efforts and costs will be wasted if Richard is now permitted to establish that the debt that he owed to Max was released by the will. Certainly the notional value of the detriment will be far less than the amount of the debt.

As the evidence does not permit any assessment of the limited detriment that the defendant beneficiaries suffered measured in money's worth, and as it is probable that the detriment was relatively minor in comparison to the total value of Richard's debt, the evidence does not satisfy me that the defendants would suffer a sufficient detriment to support their defence of conventional estoppel.

The better view is that Richard is not estopped from claiming that his debt to Max had been released by the will. That finding, if correct, does not avail Richard, as I have found that the will did not have the effect of releasing the debt that Richard owed.

Defendants' application for leave to amend their defence

It is necessary to deal with the defendants' application to further amend their amended defence to allege an accord and satisfaction. I have come to the conclusion that the application should be rejected.

First, the application was made too late in the proceedings, and I cannot exclude the possibility that it may have been available to Richard to lead additional evidence on the factual issue of whether what happened on 22 October 2007 constituted an accord and satisfaction, and if so, what the effect of that agreement was. Stephen gave evidence that he entered into the agreement on the basis that there was no issue about the enforceability of, the debt, and so it is doubtful that the defendants could establish an accord and satisfaction on the evidence.

In Osborn v McDermott [1998] 3 VR 1 Phillips JA, with whom Winneke P and Charles JA agreed, considered the principles that govern the different ways that an accord and satisfaction can operate in the following terms, at pp 7 to 11:

"The fundamental distinction between the effect of a compromise by way of mere accord executory and the effect of a compromise by way of accord and satisfaction is that the former does not operate to discharge existing rights and duties unless and until the accord is performed, whereas the latter operates as a discharge immediately the accord (or agreement) is achieved. The reason for the difference in effect flows from their different nature. The first, the mere accord executory, is the compromise of an existing cause of action if and when something is done (usually to the direct advantage of the plaintiff) whereas the second, the accord and satisfaction, is the compromise of an existing cause of action in return for the promise that something be done. To put it more shortly, in return for abandoning his cause of action the plaintiff accepts, in the case of the former, an act, and in the case of the latter, a promise.

The classic statement of the relevant distinction is in the judgment of Dixon J. in McDermott v Black (1940) 63 C.L.R. 161, especially at 183-5. Suffice it to note that at 184-5 his Honour said:

The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. An executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.

This has been applied many times: see, for example, Howes v Miller [1970] V.R. 522 at 525 and Fraser v Elgen Tavern Pty. Ltd. [1982] V.R. 398...

But that having been said, it was the plaintiffs' contention that the terms of Annexure "A" demonstrated mere accord executory (so that there could be no enforcement, wanting performance), whereas it was the contention of the defendant that those terms demonstrated accord and satisfaction. But while the parties were thus disposed at first to consider only these two alternatives, there is a third possibility, as demonstrated by the judgment of Fullagar J. in Scott v English [1947] V.L.R. 445.

In Scott, after rehearsing a great number of the earlier cases preceding McDermott v Black, Fullagar J. at 451-2, first drew the distinction between accord and satisfaction and mere accord executory in classic terms, drawing for the purpose on the words of Parke B. in Evans v Powis (1847) 1 Exch. 601 at 607-8; 154 E.R. 255 at 258, to the effect that where there was accord and satisfaction:

... the plaintiff agreed to accept the agreement itself, not the performance of it, as a satisfaction for his debt, so that if it was not performed, his only remedy would be by action for the breach of it, and not a right to recur to the original debt.

A little further on, Fullagar J. at 452, added this, quoting from the judgment of Dixon J. in McDermott at 185:

If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.

Commonly that will be the contrast, so that the "satisfaction" will be immediate if the compromise is in return for a promise of something to be done.

But that need not always be so, as Fullagar J. went on to point out; for there is no reason why, if they wish, parties may not make an immediately binding agreement for compromise but defer the satisfaction (or discharge) of existing obligations until performance, thereby rendering discharge conditional. As Fullagar J. put it in Scott at 453:

The essence of the matter may be said to be that a mere "accord" is not a contract at all. But, if we find in any particular case that there is a contract - a promise accepted in "satisfaction" against a promise - our problem is not necessarily at an end. We have still, I think, in some cases to construe the contract to see whether its effect is to discharge the original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can only sue on the new contract, or whether it effects only a conditional discharge, merely suspending the original cause of action, so that, if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action.

Thus, his Honour contemplated a case in which the accord amounted to an immediately enforceable agreement (which suggests that there was accord and satisfaction), but that the "satisfaction" (the discharge of existing obligations) was itself only conditional, suspending the original cause of action, but not extinguishing it, unless and until performance by the defendant according to the tenor of the agreement...

Thus, there are three possibilities, not two. First, there is the mere accord executory which, on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff's existing cause of action is discharged. Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation. Somewhere between the two, there is the accord and conditional satisfaction, which exists where the compromise amounts to an existing and enforceable agreement between the parties for performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance.

Where there is a mere accord executory, no suit can be maintained upon the compromise unless and until there has been performance, and then suit is ordinarily unnecessary. Upon default in performance, the plaintiff's existing cause of action continues unaffected. With accord and satisfaction, either party may sue upon the compromise, but only on the compromise and for nothing else: the original cause of action has gone. Where there is accord and conditional satisfaction, the plaintiff is bound to await performance and accept it if tendered, but if there be no performance, then the plaintiff may proceed according to general principles called into play when any agreement is repudiated: the plaintiff may either treat the agreement (the accord) as at an end and proceed on his original cause of action; or he may, at his option, sue on the compromise agreement, in place of the original cause of action. Thus, the consequence should there be default in performance varies according to the case and, as indicated by Murphy J. in Fraser at 401-2, it would be surely in the best interests of the parties if their legal advisers saw to it, when settling litigation, that the intended consequence upon default was clearly expressed and not left to implication."

As the defendants' application for leave to amend their defence was made at the end of the case, the parties did not address submissions to the issue of how the 22 October 2007 agreement operated in the light of the three possibilities considered by Phillips JA. The defendants seem to assume that, if they are given leave to plead a defence of accord and satisfaction, then whatever rights and obligations Richard had in relation to the debt were replaced by an obligation to pay $400,000 to the estate, and that is the end of the matter. However, it may not be a straightforward matter to fit the sparse terms of the 22 October 2007 agreement into one of the three possibilities that are available. The letter itself seems to suggest that the debt of "in excess of $800,000" was intended to be replaced by an obligation to pay $400,000 in the form of a reduction of Richard's entitlement to participate in distributions of the estate, but upon the agreement by Richard to put $1 million of his future share in the estate into a managed fund type investments.

Richard repudiated his agreement and the defendants terminated the 22 October 2007 agreement. The defendants themselves have successfully contended in these proceedings that a consequence of their termination of the agreement is that it has no continuing effect at all, so that the executors were entitled to treat Richard as owing the full $857,953.09 to the estate. That is arguably consistent with the defendants treating the 22 October 2007 agreement as having either the first or the third effect considered by Phillips JA. Whichever may have applied, the defendants claim that the executors became entitled to enforce the original debt. At least arguably, the effect of the supposed accord and satisfaction may have ceased to operate. Again, arguably, Richard may have become free to contend that the debt had legally been released.

Whatever may be the validity of these considerations, they have not properly been explored in the proceedings, and it would not be just for the court to permit the issue to be raised by an amendment made at the end of the case.

Appropriate orders

The claims that Richard has made must be dismissed.

The defendants are at least entitled to an order that Richard pay their cost of the proceedings on the ordinary basis. However, the three defendants who have contested the proceedings are the executors of the estate, as well as Stephen and Michael being beneficiaries. As executors, the defendants may be entitled to an order that their costs be paid out of the assets of the estate, as well as to some costs order against Richard personally.

In these circumstances I make the following orders:

(1) Order that the defendants' application for leave to amend their defence be dismissed.

(2) Order that the proceedings be dismissed.

(3) Direct the parties to deliver to the associate to Robb J within 10 days of the delivery of these reasons for judgment any submissions that they wish to make as to the costs orders that should be made in these proceedings, together with the reasons therefore.

I also make the following additional order in relation to the return of the exhibits:

Order pursuant to UCPR r 31.16A and r 33.10, and Practice Note No S C Gen 18 par 26:

(a) that the exhibits be returned forthwith to the parties who tendered the exhibits to be held by them in compliance with Practice Note No S C Gen 18 par 28;

(b) that the parties return any exhibits that were produced to the court by any person in answer to a subpoena or notice to produce to the person who produced the document forthwith upon the expiry of any time for which the party to whom the exhibit is returned is required to retain the exhibit;

(c) that all material produced directly to the court by any party in answer to any notice to produce that has not become an exhibit be returned forthwith to the party who produced the material; and

(d) that the Registry should forthwith return, or otherwise deal with in accordance with Practice Note No S C Gen 18 par 27, all material produced to the Registry in answer to any subpoena or notice to produce.

**********

Decision last updated: 19 March 2014

Medium Neutral Citation:	Richard Austin Ell v Stephen Maxwell Ell & Michael Richard Ell [2014] NSWSC 259
Hearing dates:	1,12,13 and 20 December 2013
Decision date:	19 March 2014
Jurisdiction:	Equity Division
Before:	Robb J
Decision:	(1)Order that the defendants' application for leave to amend their defence be dismissed. (2)Order that the proceedings be dismissed. (3)Direct the parties to deliver to the associate to Robb J within 10 days of the delivery of these reasons for judgment any submissions that they wish to make as to the costs order that should be made in these proceedings, together with the reasons therefore. (4)Order for the return of exhibits and subpoenaed material as set out in par 182.
Catchwords:	SUCCESSION - wills, probate and administration - construction and effect of will - whether the court is entitled to rectify a will under s29A Wills, Probate and Administration Act 1898 (NSW) - CONTRACT- breach of agreement - whether an agreement was varied or terminated
Legislation Cited:	Wills, Probate and Administration Act 1898 (NSW) s 29A Succession Act 2006 (NSW) s 27
Cases Cited:	Jones v Dunkel (1959) 101 CLR 298 Public Trustee v Herbert [2009] NSWSC 366 Re Estate of Max Fredrick Dippert [2001] NSWSC 169 Estate of Haygarth (Hodgson J, 7 October 1994, unrep) Craig v Silverbrook [2013] NSWSC 1687 Chin v Miller (1981) 37 ALR 171 Yovich v Collyer [1972] WAR 143 Newbon v City Mutual Life Insurance Society Ltd (1935) 52 CLR 723 Grundt v Great Boulder Goldmines Pty Ltd [1937] 59 CLR 641 Osborn v McDermott [1998] 3 VR 1
Category:	Principal judgment
Parties:	Richard Austin Ell (plaintiff)
Representation:	Counsel: M Sneddon/C Alexander (plaintiff) M Meek SC (defendants) Solicitors: Bull Son & Schmidt (plaintiff) Hunt & Hunt (defendants)
File Number(s):	2012/340482