RL v NSW Trustee and Guardian
[2012] NSWCA 39
•19 March 2012
Court of Appeal
New South Wales
Case Title: RL v NSW Trustee and Guardian Medium Neutral Citation: [2012] NSWCA 39 Hearing Date(s): 13 December 2011 Decision Date: 19 March 2012 Jurisdiction: Before: Campbell JA at [1]
Young JA at [189]
Sackville AJA at [197]Decision: (1) Appeal allowed.
(2) In lieu of the answer given in the court below to question 2 in the amended summons, substitute the answer: "The Court declines to answer this question."
(3) Revoke the declaration numbered 5 in the court below.
(4) Replace Order 7 in the court below with:
7. The income from the Sale Fund is to be retained in the Sale Fund, and the question of entitlement to the income is to await further determination by the NSW Trustee or the Court.
(5) Add to the orders made in the court below:
9. Without prejudice to how the moneys spent pursuant to this order are ultimately borne between the net proceeds of sale of the shares in Ansell Limited, interest that accrues on those net proceeds and other money that makes up the Other Funds, until further order of the court or further direction of the NSW Trustee moneys that are spent for PBL's benefit or on PBL's care or for the management of PBL's estate are to be paid from the Other Funds other than so much of the Other Funds as represents net proceeds of sale of shares in Ansell Limited and interest that accrues on those net proceeds.
10. Orders 6, 7 and 9 are in substitution for previous directions of the NSW Trustee concerning the setting aside of a separate fund from the proceeds of sale of the Darlinghurst garage of PBL and the manner in which that fund should be used.
(6) RL's costs of the appeal on the indemnity basis to be paid from the estate of PBL other than the Sale Fund and so much of the Other Funds as represents the net proceeds of sale of shares in Ansell Limited.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: MENTAL HEALTH - management and administration of property - garage on separate certificate of title bequeathed to neighbour in will - testatrix subsequently subject to a management order - garage sold with home unit by manager - where NSW Trustee and Guardian has made an order under s 83 NSW Trustee and Guardianship Act 2009 for the investing of the proceeds from the sale of a specific bequest in a separate fund - merely accounting device to hold in separate fund, as moneys are available for protected person on exhaustion of general pool of funds available for the maintenance of the person - it is generally appropriate to also segregate income and interest from the separate fund from the general pool of funds
MENTAL HEALTH - management and administration of property - garage on separate certificate of title bequeathed to neighbour in will - testatrix subsequently subject to a management order - garage sold with home unit by manager - whether disposal of subject matter of bequest by manager of protected person's estate adeems the bequest - found that disposal does adeem the bequest provided the disposal is effected with proper authority - manager disposed of property with authority of NSW Trustee and Guardian and in the best interests of the protected person - disposal adeemed the specific bequest - not necessary that the disposal be known to the protected person for ademption to occur
MENTAL HEALTH - management and administration of property - garage on separate certificate of title bequeathed to neighbour in will - testatrix subsequently subject to a management order - garage sold with home unit by manager - whether the NSW Trustee had power under NSW Trustee and Guardianship Act 2009 to order separate investment of proceeds from devised asset - NSW Trustee did have such power - separate investment was an appropriate action in accordance with legislative intent and proper principles of managing protected estates - history and manner of operation of s 83 NSW Trustee and Guardianship Act 2009 - amendments made to orders of court below
MENTAL HEALTH - management and administration of property - management of protected estate that includes real or personal property subject to specific bequests - primary regard to be had to maintenance of protected person - secondary regard to be had to preservation of bequests - to the extent that the protected person is properly maintained, specific bequests (or their proceeds of sale) should be preserved
SUCCESSION - WILLS, PROBATE AND ADMINISTRATION - construction and effect of testamentary dispositions - ademption of specific bequest - circumstances in which sale, in testatrix's lifetime, of specifically bequeathed property does not adeem bequest - history of ademption generally
PRACTICE - commencement of proceedings - parties - failure to joinder parties who would be affected by a judicial opinion on the correct disposal of a specific bequest for a testatrix not yet deceased - these parties included specific devisee and residual beneficiaries - not appropriate in circumstances to joinder parties after conclusion of hearing - decision of court is not to bind parties not joined
WORDS AND PHRASES - "ademption"
Legislation Cited: Administrative Decisions Tribunal Act 1997
An Act for consolidating and amending the Law relating to Property belonging to Infants, Femes Coverts, Idiots, Lunatics and Persons of unsound Mind" (Imp) (11 Geo IV & 1 Wm IV c 65)
Guardianship Act 1987
Imperial Acts Adoption Act 1834 (5 Wm IV No 8)
Lunacy Act 1879 (42 Vic No 7) (NSW)
Lunacy Act 1890 (Imp) (53 Vic c 5)
Lunacy Act 1898 (NSW)
Lunacy Regulation Act 1853 (Imp) (16 & 17 Vic c 70)
Mental Health Act 1983 (UK)
Mental Health Act 2007
NSW Trustee and Guardian Act 2009
NSW Trustee and Guardian Regulation 2008
Powers of Attorney Act 2003
Probate and Administration Act 1898
Protected Estates Act 1983
Statute de Prerogativa Regis (17 Edw II stat 1)
Succession Act 2006
Trustee Act 1925
Wills Act 1837 (Imp).Cases Cited: Attorney General v Marquis of Ailesbury (1887) 12 App Cas 672
Banks v National Westminster Bank plc [2005] EWHC 3479 (Ch); [2006] WTLR 1693; [2005] All ER (D) 159
Brown v Heffer (1967) 116 CLR 344
Christensen v McKnight (NSWSC, Hodgson J, 2 March 1995, unreported)
Commonwealth v Bank of New South Wales (1949) 79 CLR 497
Durrant v Friend (1852) 5 De G & Sm 343; 64 ER 1145
Ensor v Frisby [2009] QSC 268; [2010] 1 Qd R 146; 4 ASTLR 169
Ex parte Annandale (1749) Amb 80; 27 ER 50
Ex parte Baker (1801) 6 Ves Jun 8; 31 ER 911
Ex parte Bromfield (1792) 1 Ves Jun 453; 30 ER 434
Ex parte Chumley (1791) 1 Ves Jun 296; 30 ER 352
Ex parte Grimstone (1772) Amb 706; 27 ER 458
Ex parte Haycock (1828) 5 Russ 154; 38 ER 985
Ex parte Phillips (1812) 19 Ves Jun 118; 34 ER 463
Fairweather v Fairweather (1944) 69 CLR 121
Harrison v Jackson (1877) 7 Ch D 339
Holmes v Goodworth (1829) 7 LJ (Ch) 128
In re Alston [1917] 2 Ch 226
In re Bridle (1879) 4 CPD 336
In re Dorman deceased [1994] 1 WLR 282
In Re Freer; Freer v Freer (1882) 22 Ch D 622
In re Harding [1934] Ch 271
In Re Hodgson's Trusts [1919] 2 Ch 189
In re Larking (1887) 37 Ch D 310
In re Palmer [1945] Ch 8
In Re Palmer; National Provincial Bank v Barwell [1944] Ch 374
In re Ryder (1882) 20 Ch D 514
In Re Silva [1929] 2 Ch 198
In Re Slater [1907] 1 Ch 665
In re Walker [1921] 2 Ch 63
Jenkins v Jones (1866) LR 2 Eq 323
Johnston v Maclarn [2002] NSWSC 97
Jones v Green (1868) LR 5 Eq 555
Leaway v Newcastle City Council (No 2) [2005] NSWSC 826; (2005) 220 ALR 757
Lord Leitrim v Enery (1844) 6 Ir Eq 357
Moylan v Rickard [2010] QSC 327
Mr Justice Dormer's Case (1724) 2 PWms 262; 24 ER 723
Mulhall v Kelly [2006] VSC 407
Orr v Slender [2005] NSWSC 1175; (2005) 64 NSWLR 671
Oxenden v Lord Compton (1793) 2 Ves Jun 69; 30 ER 527
Perpetual Trustee Co (Ltd) v Robbins (1967) 85 WN (Pt 1) (NSW) 403
Pohlner v Pfeiffer (1964) 112 CLR 52
Power v Power [2011] NSWSC 288
Public Trustee v Lee [2011] QSC 409
Quinn v Leathem [1901] AC 495
R v Beserick (1993) 30 NSWLR 510
Re Alderson (1808) Collinson on Lunacy (Reed, London, 1812) Vol 2
Re Barker (1881) 17 Ch D 241
Re Blake [2009] VSC 184; (2009) 25 VR 27
Re Estate of Pearl Swoyer, Deceased 439 NW 2d 823 (SD 1989)
Re Gell [2005] NSWSC 566; (2005) 63 NSWLR 547
Re Hartigan; ex parte the Public Trustee (WASC, Parker J, 9 December 1997, unreported)
Re Pilkington's Trusts (1865) 6 New Reports 246
Re Viertel [1996] QSC 66; [1997] 1 Qd R 110
RJL v NSW Trustee and Guardian; The Estate of PBL [2011] NSWSC 200
Shaftsbury v Shaftsbury (1716) 2 Vern 747; 23 ER 1089
Simpson v Cunning [2011] VSC 466
Taylor v Taylor (1853) 10 Hare 475; 68 ER 1014Texts Cited: Jarman on Wills, 8th ed (1951) Sweet & Maxwell
Shelford, Practical Treatise of the Law Concerning Lunatics, Idiots, and Persons of Unsound Mind (London 1847)
Theodore Plunkett, A Concise History of the Common Law, 5th ed (1956) Butterworths
William Holdsworth, A History of English Law, Methuen/Sweet & Maxwell, 7th ed (1956)Category: Principal judgment Parties: PBL by her Manager RNL (Appellant)
NSW Trustee and Guardian (Respondent)Representation - Counsel: Counsel
JE Thomson; D Barlin (Appellant)
L Ellison SC (Respondent)- Solicitors: Solicitors
Michael C Smith (Appellant)
IV Knight, Crown Solicitor (Respondent)File number(s): 2011/148140 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: Hallen AsJ - Date of Decision: 23 March 2011 - Citation: RJL v NSW Trustee and Guardian; The Estate of PBL [2011] NSWSC 200 - Court File Number(s) P37/2010 Publication Restriction:
JUDGMENT
Nature of the Case
CAMPBELL JA : This judgment concerns the manner in which the manager of the estate of an incapable protected person is obliged to invest the net proceeds of sale of an asset that was the subject of a specific legacy in the last will that the protected person made before becoming incapable. It also concerns the extent, if any, to which the manager is free to use the proceeds of sale of that asset for the benefit of the protected person. In particular, it addresses whether the manager is obliged to segregate the proceeds of sale of the asset that had been the subject of the specific legacy, and to resort to those proceeds of sale to pay expenses of the protected person only if no other assets are available for the payment of those expenses.
The primary judge decided that the net proceeds of the specifically devised asset should be invested separately from the other assets of the estate, and resorted to only after the other assets were exhausted: RJL v NSW Trustee and Guardian; The Estate of PBL [2011] NSWSC 200. I have come to the conclusion that the result at which the primary judge arrived was in broad terms correct, though I have reached that conclusion through different reasoning. I have also come to the conclusion that some aspects of the judicial advice given and declarations and orders made in the court below should be amended.
Though this appeal requires leave, leave has already been granted.
Facts Giving Rise to the Case
Ms PBL is a lady of advanced years, who is presently living in a nursing home. She never married, and had no children. Her only sibling was a brother, who predeceased her. That brother had three children, who are still alive. The eldest of those children is Ms RL.
On 10 January 2006 PBL was admitted to the nursing home in which she currently resides. She is now at least 95 years old, and suffering from advanced Alzheimer's disease.
On 31 January 2006 the Guardianship Tribunal ordered that the estate of PBL be subject to management, and that RL be appointed manager. The terms of the order were:
"1. The estate of [PBL] be subject to management under the provisions of the Protected Estates Act 1983 and
2. The manager of [PBL's] estate be [RL] of [address] subject to such conditions, including the giving of security, as the Protective Commissioner considers appropriate."
The Property Being Managed
At the time that RL was appointed manager, the property of PBL consisted of:
o A strata title home unit in Darlinghurst in which PBL had lived until being admitted to the nursing home, worth about $740,000.00 o C.B.A. Pensioner Account $35,079.32 o WBC Cash Management Account $12,802.44 o Broadway Credit Union Account $3,000.00 o St George Bank Account $588.68 o WBC Guaranteed Income Plan worth about $50,000.00 o 200 shares in Ansell Limited worth about $1,860.00
There were three separate certificates of title for the Darlinghurst home unit - one for each of the living space, a car space, and a lock-up garage.
Initial Directions to the Manager
On 7 March 2006 the Protective Commissioner issued to RL an 8 page document containing directions and authorities, said to be issued pursuant to s 30 of the Protected Estates Act 1983 . One of the directions was to submit a proposal within three months for the investment of PBL's estate, and to hold PBL's existing investments in their present form pending receipt of that proposal. Another direction was:
"Having regard to the financial resources available to [PBL] to pay on her behalf the following expenses -
(a) All reasonable amounts properly incurred for the cost of living and including -
(i) Accommodation;
(ii) Care;
(iii) Medical expenses;
(b) All petty expenses necessarily and properly incurred incidental to the management of the estate ..."
Certain other types of expenditure were also authorised. Power was conferred to lease the Darlinghurst property from time to time (subject to RL submitting to the Protective Commissioner the front page of each lease entered). The document continued:
"Should circumstances change which require the sale of the above property then the manager shall submit a written proposal and recommendation for the approval of the Protective Commissioner in accordance with the annexed Guidelines for Sale of Real Estate by Private Managers (Annexures "A" and "B")."
It also provided:
"Subject to the provisions of these Directions and Authorities and to any further or other order or Directions and Authorities hereafter given, the assets and liabilities of [PBL] shall not be dealt with in any manner without the prior approval of the Protective Commissioner."
The annexed Guideline for Sale of Real Estate included:
"Unless otherwise directed, the protected person's share of the net sale proceeds of real estate must be lodged with the Protective Commissioner pending receipt of a proposal from the manager for the investment of the funds having regard to the provisions of Section 14C of the Trustee Act , 1925 ."
PBL's Will
On 30 July 1999 PBL had made what presently appears to be the last will that she made before becoming incapable. It left three legacies. It also left a specific devise to a neighbour, "Mr A", of "my lock up garage for his sole use and benefit absolutely" . It left the residue to RL and her two brothers.
Of the three legacies, two were pecuniary legacies each of $6,000. The third was a specific legacy to a grandnephew of "any shares held by me in Pacific Dunlop Limited" . As mentioned earlier, at the time she became incapable PBL owned 200 shares in Ansell Limited. As I understand it, that is the same company as Pacific Dunlop Limited. If that is right, then, unless the legatee of the shares has consented to some other course being taken, consistency in administration would suggest that the shares that were the subject of the specific legacy should be dealt with in the same way as the garage that was the subject of the specific devise. However, that is not a matter that I need decide.
Sale of the Home Unit
When PBL first entered the nursing home, most of her personal effects were sold, and the home unit was rented. However, the net rents did not meet her expenses, and her other assets were being gradually depleted to pay those expenses.
The Protective Commissioner gave a written direction that the real estate not be sold without Mr A being first asked for his opinion concerning the sale. When asked whether he consented to the sale, Mr A replied "[t]he answer is no, as I wish to retain the garage ..." .
On 1 July 2009, as mentioned more fully at [40] below, the Protective Commissioner ceased to have any function in relation to the estate of PBL, and the NSW Trustee and Guardian, sometimes referred to as the NSW Trustee, took over what had formerly been the functions of the Protective Commissioner. The operations of the NSW Trustee are regulated by the NSW Trustee and Guardian Act 2009 (" the 2009 Act ").
Notwithstanding Mr A's opposition, the NSW Trustee gave permission on 21 August 2009 for the real estate to be sold. Before the sale, an officer of the NSW Trustee wrote to RL on 24 August 2009 saying:
"In due course the sale proceeds of the garage will need to be set aside, however, this does not preclude the use of the funds for [PBL's] ongoing care if required."
The NSW Trustee permitted all three items of real estate to be sold as a single line, rather than separately, seemingly because it was the most effective way of maximising the return from the real estate. The contract for the sale of the real estate did not allocate the sale price between the garage and the other two items of real estate. However, all relevant parties to the present dispute have agreed, after obtaining valuations, that the garage was worth $75,000.
Settlement of the sale of the home unit occurred on 20 November 2009. From the proceeds an accommodation bond of $210,000 was paid to the nursing home. Payment of that bond had the effect of reducing the periodical charges of the nursing home for PBL's care.
Following the sale, on a "without prejudice" basis, RL and an officer of the NSW Trustee agreed that $75,000 from the net proceeds should be paid into a separate account, with the balance of the net proceeds available for PBL's welfare. That had the effect that, at least at that stage, the $75,000 bore no part of the expenses associated with selling the home unit. More will be said on this at [101] below.
The Dispute Emerges
RL sought advice from counsel about whether the NSW Trustee had power to require that the $75,000 be "earmarked" . That advice was to the effect that there was no such power. When informed of that advice, an officer of the NSW Trustee replied on 10 June 2010, saying:
"We do not accept that the NSW Trustee cannot direct you to ensure the amount of $75,000 is set aside. Therefore, as manager, you are again directed to set aside these funds as per the previous conditions stated. I have enclosed a set of Appeal Guidelines should you not agree with this direction.
Should there be no response from you within 14 days, consideration will be given to referral to the Guardianship Tribunal for a review of the management order."
Pursuant to s 70 of the 2009 Act , and clause 43 of the NSW Trustee and Guardian Regulation 2008 , the Administrative Decisions Tribunal (" ADT ") has power to review all decisions made by the NSW Trustee in connection with the exercise of the NSW Trustee's functions under Division 1 of Part 4.5 of the 2009 Act . The enclosed Appeal Guidelines informed of the requirement, under the Administrative Decisions Tribunal Act 1997 , for a person who disagreed with a decision made by the Office to seek an internal review of that decision, and that such an internal review was a necessary prerequisite to appealing to the ADT concerning the decision.
On 15 July 2010, RL requested that an internal review occur.
By the time the internal review was sought, the disagreement that had emerged between RL (based on counsel's advice that she had received) and the NSW Trustee, was whether s 83 of the 2009 Act required the separate preservation of the sum of $75,000. The internal review conducted by the NSW Trustee observed, correctly, that the rationale for the original decision of the NSW Trustee:
"... appears to be solely based on the mandatory need to give effect to the requirements of section 83 of the NSW Trustee and Guardianship Act 2009 . There is no suggestion, implied or otherwise that [RL] is not effectively and efficiently fulfilling the responsibilities of being the financial manager of [PBL's] affairs."
Section 83 of the 2009 Act is reproduced at [48] below.
RL was advised of the outcome of the internal review on 2 August 2010. The internal reviewer disagreed with the counsel's advice that RL had obtained. The conclusion reached by the internal review was that:
"a correct interpretation of section 83 of the NSW Trustee and Guardianship Act 2009 is that the section has immediate effect and that pursuant to subsection (5) of same the Court has reserved powers to make any orders that it sees fit to make following an application to it concerning the effect of its application on the applicant."
The review concluded:
"I have determined to affirm this decision. In so doing however, I wish to make very clear to [RL] that Mr [A], in accordance with the Act is not entitled to any interest earned on the sum of $75,000 and that [PBL] if required can draw down on this sum to meet her accommodation and support needs into the future and up to the time of her death and that it is only the residue (if any) remaining that may be claimable by Mr [A] under [PBL's] Will.
I would however add a word of caution here. The $75,000 impacted on by section 83 of the NSW Trustee and Guardianship Act 2009 cannot be used by [RL] as Private Manager as the first accounting 'port-of-call' to fund such costs of [PBL]. The balance of [PBL's] funds must be used first to do this."
The direction given on 10 June 2010 had required the $75,000 to be set aside, but said nothing about whether it should be used to fund PBL's expenses only after other available assets had been applied to that purpose. Section 53(5) ADT Act provides that on an internal review the reviewer has power to affirm, vary or set aside the decision. Section 53(8) ADT Act provides that the decision on an internal review is taken to have been made by the administrator. The "word of caution" in the internal review, requiring other assets to be resorted to before the $75,000, was apparently intended to operate as a variation of the direction given on 10 June 2010.
Litigation Begins
Rather than exercise the right of appeal to the ADT, RL commenced proceedings, initially ex parte, seeking judicial advice pursuant to s 63 Trustee Act 1925 or in the alternative under s 83(5) of the 2009 Act . The court directed that the NSW Trustee be joined as a defendant to those proceedings. The NSW Trustee took an active role in them. In what I gather was an informal fashion, Mr A was given the opportunity to participate in the proceedings, but he did not do so. He is not a party to the present appeal.
The Legislative Background
Guardianship Act 1987
The Guardianship Tribunal is a body established by s 49 of the Guardianship Act 1987 . In the form it had on 31 January 2006, the date the Tribunal appointed RL as manager of PBL's estate, s 25E Guardianship Act empowered the Tribunal to order that the estate of a person be subject to management under the Protected Estates Act 1983 . Such an order was called a "financial management order" : s 25D.
Section 25M Guardianship Act relevantly provided:
"(1) If the Tribunal makes a financial management order in respect of the estate (or part of the estate) of a person, the Tribunal may, by order:
(a) appoint a suitable person as manager of that estate, or
(b) commit the management of that estate to the Protective Commissioner.
(2) Despite section 68(1), an order under subsection (1)(a) does not authorise the person appointed as manager to interfere in any way with the estate concerned unless:
(a) such directions of the Supreme Court as are relevant to the management of the estate have been obtained, or
(b) the Protective Commissioner has, under section 30(3) of the Protected Estates Act 1983 , authorised the person to exercise functions in respect of the estate."
Protected Estates Act 1983
The Protected Estates Act has been repealed effective from 1 July 2009. However, it remains relevant to the present litigation concerning events that occurred before that repeal.
Section 5 Protected Estates Act created the office of Protective Commissioner. The Protective Commissioner was, pursuant to s 5B of that Act, a corporation sole.
As at 31 January 2006, section 30(3) Protected Estates Act provided:
"If a person is appointed by the Guardianship Tribunal under section 25M(1)(a) of the Guardianship Act 1987 as manager of the estate of a protected person, the Protective Commissioner may, by order:
(a) authorise the person appointed as manager to have:
(i) all, or any specified, functions necessary and incidental to the management and care of the estate, and
(ii) such other functions as the Protective Commissioner may direct or authorise the manager to have or exercise, and
(b) make such orders, and give such authorities and directions, of the kind referred to in section 32 or 33 as appear to the Protective Commissioner to be necessary or expedient or that the Protective Commissioner thinks fit (as if a reference in those sections to the Court were a reference to the Protective Commissioner), and
(c) give the person appointed as manager such directions in respect of the orders, authorities and directions authorised by this subsection as the Protective Commissioner thinks fit."
The relevant powers given to the Supreme Court by ss 32 and 33 as at 31 January 2006, that were also conferred on the Protective Commissioner pursuant to s 30(3)(b), were:
"32(1) The Court may make such orders as appear to it necessary for rendering the property and income of a protected person available for the payment of the debts of, and the maintenance and otherwise for the benefit of, the protected person and the family of the protected person and otherwise as it thinks necessary or desirable for the care and management of the estate of a protected person.
...
(2) Without limiting the generality of subsection (1) ..., the Court may:
(a) order that any property of a protected person ... be sold, charged, mortgaged, dealt with or disposed of as the Court thinks most expedient for the purpose of raising or securing or repaying with or without interest money which is to be or which has been applied to any one or more of the following purposes:
[list of purposes]
(b) authorise and direct the application of money comprising the whole or any part of the estate of the protected person ... to any one or more of the following purposes:
...
(iii) the investment of money, being money not required for the time being for any of the foregoing purposes, in such manner as the Court thinks fit.
...
33(1) The Court may make such orders as it thinks fit in relation to the administration and management of the estates of protected persons ....
(2) The Court may also make such orders as it thinks fit in connection with authorising, directing, supervising and enforcing the exercise of the functions of managers under this Act."
Section 48 of the Protected Estates Act provided, as at 31 January 2006:
"(1) Any protected person ..., and any other person being an heir, next of kin, devisee, legatee, executor, administrator or assign of a protected person ... shall have the same interest in any surplus money or other property arising from any sale, mortgage, charge or disposition of any property or other dealing with property under this Act as the person would have had in the property the subject of the sale, mortgage, charge, disposition or dealing, if no sale, mortgage, charge, disposition or dealing had been made.
(2) The surplus money or other property arising as referred to in subsection (1) shall be of the same nature as the property sold, mortgaged, charged, disposed of or dealt with.
(3) Except as provided by subsection (4), money received for equality of partition and exchange, and all fines, premiums and sums of money received upon the grant or renewal of a lease where the property the subject of the partition, exchange, or lease was real estate of a protected person ... shall, subject to the application thereof for any purposes authorised by this Act, be considered as real estate.
(4) Fines, premiums and sums of money received upon the grant or renewal of leases of property of which a protected person ... was tenant for life shall be personal estate of the protected person ...
(5) In order to give effect to this section the Court may make such orders and direct such conveyances, deeds and things to be executed and done as it thinks fit."
Section 70A provided:
"A person must not fail to comply with any direction that is given to the person by the Protective Commissioner in accordance with the Protective Commissioner's functions under this Act."
None of the provisions of the Protected Estates Act that I have quoted changed before that Act was repealed.
NSW Trustee and Guardian Act 2009
The 2009 Act came into effect on 1 July 2009. Section 4 repealed the Protected Estates Act . Section 5 constituted a corporation called the NSW Trustee and Guardian. Pursuant to a definition in s 3(1) that entity was also referred to in the 2009 Act as the "NSW Trustee" . Under s 6 it has the status of a "NSW Government agency" .
Transitional provisions in Schedule 1 of the 2009 Act have the effect, in broad terms, of putting the NSW Trustee into the place of the Protective Commissioner for all purposes. As the transitional provisions are not the subject of dispute in this litigation, it is unnecessary to spell out the detail of how this happens, or whether there might be any exceptions to the general position I have set out.
Chapter 4 of the 2009 Act runs from s 38 to s 100. It deals with the management of the property and affairs of persons who are incapable of managing their affairs. Such a person could be a protected person over whom a management order under the Guardianship Act is in force, a patient (within the meaning of the Mental Health Act 2007 ) whose estate is subject to management under the 2009 Act , or a managed missing person (cf Re Gell [2005] NSWSC 566; (2005) 63 NSWLR 547).
Section 39 relates to the whole of Chapter 4 of the 2009 Act :
"It is the duty of everyone exercising functions under this Chapter with respect to protected persons or patients to observe the following principles:
(a) the welfare and interests of such persons should be given paramount consideration,
(b) the freedom of decision and freedom of action of such persons should be restricted as little as possible,
(c) such persons should be encouraged, as far as possible, to live a normal life in the community,
(d) the views of such persons in relation to the exercise of those functions should be taken into consideration,
(e) the importance of preserving the family relationships and the cultural and linguistic environments of such persons should be recognised,
(f) such persons should be encouraged, as far as possible, to be self-reliant in matters relating to their personal, domestic and financial affairs,
(g) such persons should be protected from neglect, abuse and exploitation."
The Protected Estates Act had not contained any analogous explicit statement of objectives.
Division 2 of Part 4.5 of the 2009 Act runs from s 63 to s 70. Section 63 provides:
"This Division applies in respect of the estate of a managed person for whom a manager (other than the NSW Trustee) has been appointed, whether under this Act or under section 25M of the Guardianship Act 1987 ."
Section 64 provides:
"(1) The Supreme Court or the NSW Trustee may make such orders as it thinks fit in relation to the administration and management of the estates of managed persons.
(2) The Supreme Court or the NSW Trustee may also make such orders as it thinks fit in connection with authorising, directing and enforcing the exercise of the functions of managers under this Act.
(3) The Supreme Court may also make such orders as it thinks fit in connection with supervising the exercise of the functions of managers under this Act.
(4) An order by the NSW Trustee is subject to the regulations or to any direction by the Supreme Court or to any order of the Guardianship Tribunal (in the case of a person under guardianship)."
Section 65 of the 2009 Act provides, relevantly:
"(1) General power
The Supreme Court or the NSW Trustee may make such orders as appear to it necessary for rendering the property and income of a managed person available for the following purposes:
(a) the payment of the debts and engagements of, and otherwise for the benefit of, the person,
(b) the maintenance and benefit of the family of the person,
(c) otherwise as it thinks necessary or desirable for the care and management of the estate of the person.
(2) Orders as to disposal of estate
Without limiting the generality of subsection (1), the Supreme Court or the NSW Trustee may order that any property of the person be sold, mortgaged, dealt with or disposed of as the Court or the NSW Trustee thinks most expedient for the purpose of raising or securing or repaying with or without interest money which is to be or which has been applied to any one or more of the following purposes:
(a) payment of the person's debts or engagements,
...
(c) payment of any debt or expenditure incurred for the maintenance (including future maintenance), or otherwise for the benefit, of the person,
...
(3) Orders as to application of money
Without limiting subsection (1), the Supreme Court or the NSW Trustee may authorise and direct the application of money comprising the whole or any part of the estate of the person to any one or more of the following purposes:
...
(c) the investment of money, being money not required for the time being for any of the other purposes specified in this subsection, in such manner as the Court or the NSW Trustee thinks fit.
(4) An order by the NSW Trustee is subject to the regulations or to any order of the Supreme Court or to any order of the Guardianship Tribunal (in the case of a person under guardianship)."
Section 118 of the 2009 Act makes it a criminal offence for a person, without reasonable excuse, to fail to comply with an order or direction given to the person by the NSW Trustee in accordance with that Act. There are no particular formal requirements for the making of such an "order or direction" .
Division 3 of Part 4.5 of the 2009 Act runs from s 71 to s 84. It relates to the management of estates generally. Thus, it is capable of applying to the full range of persons whose estates might come to be subject to management.
It includes the following provisions, s 83 of which being roughly analogous with s 48 of the Protected Estates Act :
"82 Protection of interests of managed person on partition
If property is exchanged under this Act on behalf of a managed person, it is subject to the same uses, trusts, charges, dispositions, devices [sic] and conditions that the property given in exchange would have been subject to if it had not been exchanged.
83 Protection of interests in property of beneficiaries and other persons
(1) Any managed person and any beneficiary of a managed person has the same interest in any surplus money or other property arising from any sale, mortgage or disposition of any property or other dealing with property under this Act as the managed person or beneficiary would have had in the property the subject of the sale, mortgage, disposition or dealing, if no sale, mortgage, disposition or dealing had been made.
(2) The surplus money or other property arising as referred to in subsection (1) is taken to be of the same nature as the property sold, mortgaged, disposed of or dealt with.
(3) Except as provided by subsection (4), money received on or for equality of partition and exchange, and all fines, premiums and sums of money received on the grant or renewal of a lease where the property the subject of the partition, exchange or lease was real estate of the managed person are to be considered as real estate.
(4) Fines, premiums and sums of money received on the grant or renewal of leases of property of which the managed person was the tenant for life are to be considered as personal estate of the managed person.
(5) The Court may make such orders as it thinks fit to give effect to this section.
(6) In this section:
beneficiary of a managed person means a beneficiary under a will of the person or an executor, administrator or assign of the managed person."
Some of the terminology in ss 82 and 83 is explained by the fact that s 16 of the 2009 Act confers many functions on the NSW Trustee when acting in a trust capacity or protective capacity. As well as powers to sell, mortgage and lease, there is specific power under s 16(1)(k) to "exchange or join in a partition of property and give or receive money for equality of exchange or partition."
The word "devices" in s 82 is fairly clearly a typographical error for "devises". "Devices" does not make sense, and it was the word "devises" that appeared in the corresponding sections in s 121 Lunacy Act 1890 (Imp) (53 Vic c 5) and s 151 Lunacy Act 1898 (NSW), referred to at [70] and [73] below.
The Relief Claimed Below
The relief that RL claimed in an Amended Summons was, firstly, the court's opinion advice and direction under s 63 Trustee Act , and/or s 83(5) of the 2009 Act , or in the court's inherent jurisdiction on the following questions:
"Whether the plaintiff as manager of the Estate of her Aunt, [PBL], under the Financial Management Order of the Guardianship Tribunal made 31 January 2006 would be justified in treating the whole of the net proceeds of sale of the Protected Person's former residence at [address] Darlinghurst as funds available without differentiation to be applied for the purposes authorised by s 59 and/or s 65(1) and (3) of the NSW Trustee and Guardian Act 2009 ("the Act").
Whether the plaintiff as manager of the Estate of her Aunt, [PBL], under the Financial Management Order of the Guardianship Tribunal made 31 January 2006 would be justified in treating the purported direction or requirement of the office of the NSW Trustee and Guardian to treat $75,000 of those funds as having been already appropriated by s 83 of the Act for the purpose of satisfying a prospective claim by a beneficiary under the presumptive most recent will of the protected person, as being void and not authorised by the Act."
Alternatively, RL sought:
"... an order under section 83(5) that section 83 of the Act does not operate to render any of proceeds of sale of the Protected Person's former residence at [address] Darlinghurst, being any portion thereof attributable to the garage unit, liable to be set aside for the benefit of any person other than the Protected person, or exempted from being immediately available to meet expenditure authorised by section 59 of the Act administered in accordance with section 39."
The Amended Summons also sought such directions as the court thought necessary under s 61(1) of the 2009 Act , and an order that the costs of the application be paid out of the estate of PBL.
The application for directions under s 61(1) of the 2009 Act was inappropriate. Section 61(1) enables the Supreme Court to give to the NSW Trustee such directions as the Court thinks necessary with respect to the exercise by the NSW Trustee of its functions in its protective capacity. However, s 61 appears in Division 1 of Part 4.5 of the 2009 Act . Section 55 of the 2009 Act says that that Division applies in respect of the estate of a managed person that is committed to the management of the NSW Trustee. Thus, s 61 was not applicable concerning PBL's estate because the NSW Trustee was not appointed as manager. However, s 64 of the 2009 Act conferred on the Supreme Court, in relation to estates managed by someone other than the NSW Trustee, a power that was broadly comparable to s 61 (though exercised by order, rather than by direction).
The hearing in the court below revealed a change of stance on the part of the NSW Trustee to the justification for its decision. Its counsel submitted that its authority to issue the direction to "earmark" the $75,000 derived explicitly from the powers granted by ss 65 and 66 of the 2009 Act . On the appeal Mr Ellison SC, for the NSW Trustee, has also relied on s 64 of the 2009 Act as empowering the making of both the direction of the NSW Trustee and the orders that the Court below has made.
The Decision Appealed Against
Concerning each of the questions for which judicial advice was sought ([51] above) the primary judge answered "No" . The Court made the following declarations:
"3. The sale of the lock up garage only adeems the devise of the lock up garage to [A] under the Will executed by PBL on 30 July 1999 (if that Will is found to be the last valid will of PBL upon her death and if he survives PBL) to the extent that the moneys from the Sale Fund are spent on PBL's benefit, care and management.
4. The Sale Fund, or that part of it that is left at the date of PBL's death, constitutes the devise of the lock up garage to A under the clause of the Will made on 30 July 1999, (if that Will is found to be the last valid will of PBL upon her death and if he survives PBL).
5. The Sale Fund is not to be spent unless, or until, the Other Funds are exhausted."
The Court also made the following orders:
6. The net proceeds of the sale of the lock up garage formerly owned by PBL (being the whole of the property comprised in Certificate of Title [reference] are to be invested in a fund ("the Sale Fund") separate to the other funds in the personal estate of PBL ("the Other Funds").
7. The income from the Sale Fund is to be paid, annually, to the Other Funds.
8. The Court orders the plaintiff's costs be paid out of the Other Fund on an indemnity basis."
As agreed by the parties, no order was made for payment of the costs of the NSW Trustee.
The parties accepted in the court below that the Supreme Court had jurisdiction to resolve the substantial questions that have been brought before it, regardless of the precise source of that jurisdiction. That consensus of the parties explains, but does not completely justify, what would be the otherwise impermissible step of a summons seeking judicial advice resulting in the making of substantive orders and declarations. There is a procedural problem concerning the orders, in that declarations 3, 4 and 5 in their terms seem to detrimentally affect the interests of RL's brothers as residuary beneficiaries under PBL's will, yet they have never been parties to the proceedings. That is a problem that should have been dealt with at the time of the proceedings making their informal conversion from a summons for judicial advice to adversary litigation. However, when the amount of money involved in this case is so small, and it was the question of principle concerning the manner of operation of s 83 2009 Act that led the court to grant leave to appeal, I am reluctant to order that further procedural steps be taken now to remedy the situation. The preferable way of coping with an undesirable procedural situation is to state clearly, now, that the declarations made in the court below are binding only between the parties to the proceedings.
The primary judge recorded that there was no dispute that the purpose of s 83 of the 2009 Act was:
"... to save a gift made by the managed person in her Will, which gift would, otherwise, be adeemed by activities carried out, not by her, but by her financial manager. In this way, the financial manager is able to take steps required to manage the managed person's property in a way that respects her needs, as well as her wishes made in a will, at a time when she is incapable of managing her affairs on her own."
The learned primary judge expressed the following views about s 83 of the 2009 Act , at [81]:
"(a) The section refers to both the managed person and to any beneficiary of a managed person;
(b) The beneficiary of a managed person includes a beneficiary under a will of that person;
(c) Under the section, each has the same interest as he, or she, would have had in the property the subject of the sale, mortgage, disposition or dealing, if no sale, mortgage, disposition or dealing had been made;
(d) The surplus money, or other property arising, is taken to be of the same nature as the property sold, mortgaged, disposed of or dealt with;
(e) The interest that the managed person, or any beneficiary has, is in any surplus money, or other property, arising from the sale, mortgage, disposition, or other dealing, of the property under the Act;
(f) "Surplus" in this context refers to the net proceeds of any such sale;
(g) The surplus, or such part of it that remains, must exist, in an identifiable form, at the date of death."
The primary judge expressed the view, at [93], that s 83 was speaking at both the time at which the sale, mortgage, disposition or dealing with the property took place, and at the date of death of the managed person.
A central portion of the judgment is at [94]-[96]:
"The key to the interpretation of the section, and the one that provides the answer to the questions posed, is sub-section (2), which explicitly requires the 'surplus' to be taken to be as 'of the same nature as' the property sold, mortgaged, disposed of, or dealt with. In other words, there is upon the sale, mortgage, disposition, or dealing with, the property, a deemed preservation of the character of the property converted. That concept requires the notion of comparability, despite the fact that the property sold, mortgaged, disposed of, or dealt with, becomes different, qualitatively and quantatively.
In this case, the nature of the property sold is real estate, and it is notionally 'as real estate' that the surplus must be taken to be likened, or equated, to.
Thus, as in the present case, if there is money available in the managed person's estate that would have formed part of the residue of her estate, which money can be used for the benefit, care and management of the managed person, it should, first, be used for those purposes. It is when there are no other moneys available for those purposes, that the surplus proceeds of sale mortgage, disposition, or dealing with, property that has been specifically devised may be used. Until that time, the surplus proceeds of sale of that specifically devised property, is treated as if it were real estate and is not able to be used."
Concerning whether income of the separate fund should be accumulated, the primary judge said, at [98]:
"Because one is required to treat the surplus funds as of the 'same nature' as the property sold, it appears to me that the income, from time to time, earned on the surplus, should not, in this case, form part of the surplus, but may be added to the other moneys which are used for the benefit, care and management of the managed person."
There is no appeal in relation to the primary judge's decision that the income of the separate fund is available to pay RL's expenses.
Statutory Predecessors of Section 83 2009 Act
Section 83 of the 2009 Act has a lengthy legislative history. In order to understand its scope and intent, I will examine first the historical development of equivalent provisions in England, and second, the adoption or adaptation of those laws in New South Wales.
English Predecessors
The history of the provision starts with an English Act of 1830 entitled "An Act for consolidating and amending the Law relating to Property belonging to Infants, Femes Coverts, Idiots, Lunatics and Persons of unsound Mind" (Imp) (11 Geo IV & 1 Wm IV c 65) (" the 1830 English Act" ). Section 28 of that Act empowered the Lord Chancellor to sell, charge or encumber the "land" of any lunatic:
"... for the Purpose of raising Money for Payment of the Debts or Engagements of such Lunatic, the Discharge of any Incumbrances on his Estates, the Costs of applying for and obtaining the Commission of Lunacy and in opposition thereto, and all Proceedings under the said Commission, and the Costs of such Sales, Mortgages, Charges, and Incumbrances, and other Dispositions, or for any of such Purposes as aforesaid ..."
The section empowered the monies arising from such a transaction to be applied for those purposes in such manner as the Lord Chancellor directed. Section 29 went on to state:
"Provided always, and be it further enacted, That on any Sale, Mortgage, Charge, Incumbrance, or other Disposition which shall be made in pursuance of this Act, the Person whose Estate shall be sold, mortgaged, charged, incumbered, or otherwise disposed of, and his or her Heirs, next of Kin, Devisees, Legatees, Executors, Administrators, and Assigns, shall have such and the like Interest in the Surplus which shall remain, after answering the Purposes aforesaid, of the Money raised by such Sale, Mortgage, Charge, Incumbrance, or other Disposition, as he, she, or they would have had in the Estate by the Sale, Mortgage, Charge, Incumbrance, or other Disposition of which such Monies shall be raised, if no such Sale, Mortgage, Charge, Incumbrance, or other Disposition had been made; and such Monies shall be of the same Nature and Character as the Estate so sold, mortgaged, charged, incumbered, or disposed of; and it shall be lawful for the said Lord Chancellor, intrusted as aforesaid, to make such Orders, and to direct such Acts and Deeds to be done and executed, as shall be necessary for carrying the aforesaid objects into effect, and for the due Application of such Surplus Monies."
Section 2 of that Act contained a definition whereby "land" extended to certain types of property that would not be land in the ordinary sense of that word.
The Lunacy Regulation Act 1853 (Imp) (16 & 17 Vic c 70) contained in ss 118 and 119 provisions substantially identical to ss 28 and 29 of the 1830 Act. It likewise contained, in s 2, an extended definition of "land" .
The provisions to which I have referred in the 1853 Act had a close analogy in the Lunacy Act 1890 (Imp) (53 Vic c 5). The provisions in the 1890 Act were somewhat wider, in that s 120 of that Act authorised the judge to direct the committee of the estate of a lunatic to sell "any property" belonging to the lunatic, and enter into various other types of transaction - ie, the power was not restricted to "land" , even in an extended sense. Section 123(1) of the 1890 Act provided:
"The lunatic, his heirs, executors, administrators, next of kin, devisees, legatees, and assigns, shall have the same interest in any moneys arising from any sale, mortgage, or other disposition, under the powers of this Act which may not have been applied under such powers, as he or they would have had in the property the subject of the sale, mortgage, or disposition, if no sale, mortgage, or disposition, had been made, and the surplus moneys shall be of the same nature as the property sold, mortgaged, or disposed of."
New South Wales Predecessors
The 1830 English Act was adopted in New South Wales by the Imperial Acts Adoption Act 1834 (5 Wm IV No 8). Later legislation in New South Wales largely followed subsequent developments in England.
The Lunacy Act 1879 (42 Vic No 7) of NSW conferred a power on the court to sell or otherwise deal with any real or personal property of an insane person. Section 155 of that Act was in terms only stylistically different from s 29 of the 1830 English Act. However, as the Lunacy Act 1879 did not contain any extended definition of "land" , s 155 does not appear to have applied to the proceeds of sale of personal property.
The 1879 Act was replaced, in due course, by the Lunacy Act 1898 , the immediate predecessor of the Protected Estates Act . It contained, in ss 150 and 153, provisions that, so far as presently relevant, were identical with those of ss 120 and 123 of the Lunacy Act 1890 (Imp).
The next relevant New South Wales legislation was s 48 of the Protected Estates Act, quoted at [36] above.
There is one respect in which s 48(1) and (2) Protected Estates Act and s 83(1) and (2) of the 2009 Act may be wider than their English models and New South Wales predecessors. The English provisions to which I have referred, and the New South Wales predecessors of the Protected Estates Act related only to surplus money. The provisions in the Protected Estates Act and the 2009 Act relate to "surplus money or other property arising" . The additional words assist in making clear that it is not only the "surplus money" that might arise from a dealing with the property of an incapable person, but also any traceable proceeds of that money on which s 83(3) operates.
Principles of English Courts in Administering Estates of Incapable People
This line of statutes needs to be understood against a background of practices of English courts concerning the administration of the estates of incapable people. Before enactment of the 1830 English Act it was well established that if an asset of a lunatic was sold or converted into a different type of property under proper legal authority, then upon the death of the lunatic the assets devolved in accordance with the form that they had at the date of death: Ex parte Annandale (1749) Amb 80; 27 ER 50; Ex parte Grimstone (1772) Amb 706; 27 ER 458; Oxenden v Lord Compton (1793) 2 Ves Jun 69; 30 ER 527 per Lord Loughborough LC; Ex parte Phillips (1812) 19 Ves Jun 118; 34 ER 463 per Lord Eldon; Holmes v Goodworth (1829) 7 LJ (Ch) 128. A particular application of that principle was that if the court authorised the sale of an item of property that had been the subject of a specific legacy or specific devise in the lunatic's last will before losing capacity, the gift was adeemed. Rather than interrupt the main flow of the judgment, I trace in Appendix A to these reasons ([114]-[124] below) how the principle developed. The act of the court in authorising the sale or conversion of the property was treated as though it was the act of the testator himself: Holmes v Goodworth at 129; Jones v Green (1868) LR 5 Eq 555 at 560. ( Jones v Green is authority for this proposition because, even though it was decided in 1868, it concerned a sale of property that was not "land" within the meaning of the 1853 English Act). The gift in the will was adeemed even if the whole of the proceeds of sale was not expended for the purposes that had led the court to authorise the sale.
A specific legacy or devise was not adeemed if the property that was its subject matter was sold or otherwise disposed of without authority: Taylor v Taylor (1853) 10 Hare 475; 68 ER 1014; Jenkins v Jones (1866) LR 2 Eq 323; In re Larking (1887) 37 Ch D 310. However, the sale in present case was clearly with legal authority.
The purpose of s 29 of the 1830 English Act, and the sections in both England and New South Wales that had been based on it was to provide a limit to the circumstances in which such ademption could occur: In Re Walker [1921] 2 Ch 63 at 66. Section 28 of the 1830 English Act empowered the raising of money for certain specified purposes. Section 29 applied to "the surplus which shall remain, after answering the purposes aforesaid" . In other words, it contemplated that the surplus could be ascertained once the purpose for which the money had been raised had been carried out.
The section conferred rights in that "surplus" on a variety of people - the lunatic "and his or her Heirs, next of Kin, Devisees, Legatees, Executors, Administrators and Assigns" . However, a specific legatee had no legal interest in any of the property of the lunatic while the lunatic remained alive. Such an interest could arise only following the death of the lunatic when the last valid will of the lunatic operated to give effect to the legacy.
There was a clear principle that in administering the property of an incapable person the court would seek to provide, including by sale of assets, that the incapable person "should have every comfort that his circumstances will reasonably enable him to enjoy, without any thought of keeping property for the benefit of next of kin or other expectants" : Mr Justice Dormer's Case (1724) 2 PWms 262; 24 ER 723 per Lord Macclesfield; Oxenden v Lord Compton (1793) 2 Ves Jun 69; 30 ER 527 at 72, 528 per Lord Loughborough; Ex parte Chumley (1791) 1 Ves Jun 296; 30 ER 352 per Lord Thurlow LC; Ex parte Baker (1801) 6 Ves Jun 8; 31 ER 911. In accordance with that principle, the "surplus" that remained after satisfying the purposes that caused the court to approve the sale or other dealing with the specifically bequeathed property might be eroded, or disappear, during the life of the incapable person.
At least from the passing of the Statute de Prerogativa Regis (17 Edw II stat 1) in 1324, English law recognised a distinction between idiots and lunatics. Section 9 of that statute presupposed that idiots would never recover from their condition, while s 10 recognised that lunatics could have lucid intervals, and that they might recover ( "come to right Mind" ). In particular, there was a possibility that during a lucid interval, or after recovery, the lunatic might make a different will.
Even if an incapable person's condition is such that there is no realistic prospect that he or she will recover testamentary capacity and then make a will in different terms to the last one made before becoming incapable, it is now at least in theory possible that the court could make a "statutory will" that is different to that last will. The court's power to do so arises under ss 18-26 Succession Act 2006 . The possibility that such a will might be made means that one can never be sure that the last will that a living person made before losing capacity will, at the time of their death, be his or her final will.
Notwithstanding the possibility that the last will made before becoming incapable might not be the last will made before death, another principle that the Court adopted in administering the estate of an incapable person was that the Court would not vary or change the property of an incapable person, or alter rights of succession to it, beyond what was necessary for his or her maintenance: Ex parte Haycock (1828) 5 Russ 154; 38 ER 985 at 155, 986 per Lord Lyndhurst LC; Lord Leitrim v Enery (1844) 6 Ir Eq 357; Attorney General v Marquis of Ailesbury (1887) 12 App Cas 672 at 688-9 per Lord Macnaghten; In re Ryder (1882) 20 Ch D 514 at 515 per Jessell MR (Lindley LJ concurring); In Re Alston [1917] 2 Ch 226 at 231; In Re Silva [1929] 2 Ch 198 at 205 per Romer J; In Re Palmer [1945] 1 Ch 8 at 12 Lord Greene MR . In Ex parte Haycock Lord Lyndhurst LC refused to order the sale of certain furniture that a lunatic had made the subject of a specific bequest, on the ground that " he would not defeat the intention that the lunatic had manifested, when sane " . Sir Edward Sugden, when holding office as Lord High Chancellor of Ireland, explained in Lord Leitrim v Enery at 363 one reason why the court alters rights concerning the estate of lunatic as little as possible:
"The person entrusted by the Crown with the custody of the persons and properties of lunatics, ought not wantonly change the nature of the property; for if the lunatic recovers, he may reasonably expect to find his property in the same state as when he became of unsound mind: and although the persons who at his death would be his heir and next of kin have no interest in the property, yet the Holder of the Great Seal, representing the Crown in this respect, should not without cause do any act which would have the effect of altering their respective rights."
Sometimes the reluctance of the Chancellor to permit an alteration that would affect the ultimate rights of succession to property of the lunatic arose from the jurisdiction of the Chancellor concerning the property of lunatics being one that the Monarch vested in him personally. In that respect it was unlike the jurisdiction of the Chancellor over the property of infants, which the Lord Chancellor exercised as the Court of Chancery: Ex parte Philips at 122, 464. Partly because of the obligation of the King to keep the land of the lunatic " without waste and destruction " ([88] below), and partly because there were difficulties in obtaining a review of a decision that the Chancellor made in this personal jurisdiction, the Chancellors took the minimum action necessary for the welfare of the lunatic, or else to urged the parties to take out a bill to institute a suit in equity: Ex parte Phillips at 124-125, 464-465; Ex parte Bromfield (1792) 1 Ves Jun 453; 30 ER 434 at 463, 439. However even when a bill was taken out the same caution applied - Oxenden v Lord Compton was an equity suit instituted by bill, at the urging of Lord Thurlow LC in Ex parte Bromfield .
In Ailesbury at 688, Lord Macnaghten said:
"The principles on which the Court acts in dealing with the property of lunatics under its care are not open to question. The leading principle, the paramount consideration, is the interest of the lunatic. Consistently with that principle it is settled that in the ordinary course of managing a lunatic's estate, the Court pays no regard to the interests or expectations of those who may come after, but it is equally well settled that in matters outside the ordinary course of management, it is the duty of the Court so far as may be possible not to alter the character of the lunatic's property, or to interfere with any rights of succession."
At 689 his Lordship said:
"If the rule which guards against alteration in the character of a lunatic's property should seem to require authority over and above that derived from the statute of Edward II, and the long continued practice of the Court, such authority may, I think, be found in the views of the Legislature as declared in the Lunacy Regulation Act 1853 and the earlier enactments embodied in that statute."
He went on to state the terms of ss 118 and 119 of the Lunacy Regulation Act 1853 .
Lord Macnaghten claimed the justification of these statutes for one of the principles that his Lordship dealt with, namely not altering the character of the lunatic's property. However, he did not claim justification in the statutes concerning the other principle with which he dealt: not interfering with any rights of succession. That is the relevant principle concerning the present case. That may have been because the issue in Ailesbury was whether land that had been purchased with the approval of the court using spare money of a lunatic was liable for probate duty that was levied on the personal estate of the deceased - ie it related to the effect of a change in character of the lunatic's property, not any change of rights or succession - but the fact remains that the claim was not made.
De Prerogativa Regis showed some recognition of preservation of rights of succession concerning property on incapable person, but not in the situation with which Ailesbury was concerned, nor in the situation with which the present case is concerned. That statute aimed to limit the rights of the King concerning income of the land of incapable people, and to preserve the rights of inheritance of land that existed by law. The relevant sections said:
"9. The King shall have the custody of the lands of natural fools, taking the profits of them without waste or destruction, and shall find them their necessaries, of whose fee soever the land be holden. And after the death of such idiots he shall render it to the right heirs, so that such idiots shall not alien, nor their heirs be disinherited.
10. Also the King shall provide, when any (that beforetime hath had his wit and memory) happen to fail of his wit, as there are many per lucida intervalla , that their lands and tenements shall be safely kept without waste and destruction, and that they and their household shall live and be maintained competently with the profits of the same, and the residue besides their sustentation shall be kept to their use, to be delivered unto them when they come to right mind; so that such lands and tenements shall in no wise be aliened [Ruffhead notes 'within the time aforesaid']; and the King shall take nothing to his own use. And if the party die in such estate, then the residue shall be distributed for his soul by the advice of the Ordinary." (my modernisation of the spelling of the translation from the Latin contained in Owen Ruffhead, The Statutes at Large, from Magna Charta to the End of the Last Parliament, 1761 (1769), vol 1 at 181).
At that time it was, in general, not possible to leave land by will, and disposition of personalty by will was constrained by the testator being obliged to provide one-third for his widow and one-third for his children, with only the remaining one-third "soul's part" able to be left by will: Theodore Plunkett, A Concise History of the Common Law , 5th ed (1956) Butterworths at 734-739. The role of the Ordinary involved granting probate of wills, and distributing the estates of intestates. At the time of De Prerogativa Regis the court of the Ordinary itself distributed the estates of intestates, but "its conduct was so negligent and even fraudulent that the legislature interfered" (William Holdsworth, A History of English Law , Methuen/Sweet & Maxwell, 7th ed (1956) vol 1 at 627), and in 1357 a statute was passed requiring the Ordinary to appoint an administrator of the goods of the intestate (31 Edw III c 1 cap XI). It is hard to see in the words "and if the party shall die in such estate, then the residue shall be distributed for his soul by the advice of the Ordinary" in De Prerogativa Regis anything about administration of the estate of an incapable person being conducted in a way that respected his or her testamentary dispositions.
While it is clear that s 119 of the 1853 English Act required the surplus money arising from sale of a lunatic's land to "be of the same nature and character as the estate sold" , it provided only analogical support for the principle of not altering the character of the lunatic's property in the reverse situation that was involved in Ailesbury , where personalty had been converted to land. That statutory provisions like s 119 of the 1853 English Act are not the source of the principle whereby the court does not interfere with right of succession to property is most clearly shown by the fact that that principle is recognised in cases that predate the earliest of the statutes in the line, that of 1830. Examples are given in Ailesbury at 682.
Decision
We were referred to a line of first instance cases stemming from Re Viertel [1996] QSC 66; [1997] 1 Qd R 110. They held that if the property of an incapable person was disposed of pursuant to an enduring power of attorney, the disposition would not effect an ademption of a specific gift of that property in the will of the incapable person. The cases contemplate the such a result could arise even if there is no ground for challenging the disposition arising from it being carried out dishonestly or in excess of authority or in some other fashion wrongfully. I have come to the view that, notwithstanding those cases, if PBL had retained capacity and sold the garage, the bequest to Mr A would have been adeemed. I have come to the conclusion that when RL sold the garage with proper legal authority from the NSW Trustee to do so, that sale would likewise have effected an ademption of the bequest, were it not for the existence of a statutory provisions such as s 83 of the 2009 Act . The reasons for reaching that conclusion are lengthy, and involve consideration of numerous cases. Rather than interfere with the main flow of the reasoning in this judgment, I have set them out in Appendix B to these reasons ([125]-[187] below).
In the present case the directions that the Protective Commissioner gave to RL in 2006 required the approval of the Protective Commissioner to any dealing with an asset of PBL's estate, except for the making of the authorised types of expenditure. Since the NSW Trustee has taken over the functions of the Protective Commissioner, the direction has the effect of requiring that the approval of the NSW Trustee be obtained to such transactions. Pursuant to the direction, the approval of the NSW Trustee was needed both to the sale of the Darlinghurst real estate, and to the investment of the proceeds. Approval of the investment of the proceeds would include whether the proceeds should be invested as a single lump sum or as segregated sums.
Section 64 of the 2009 Act confers on the NSW Trustee power to make such orders as it thinks fit in relation to the administration and management of the estates of managed persons, and such orders as it thinks fit in connection with directing the exercise of the functions of managers. As the direction to set aside the $75,000 related to the management of PBL's estate, and was a directing of the exercise of the functions of RL as manager, it is within the literal words of s 64. Section 65(1) of the 2009 Act is clumsily drafted, in that the chapeau and para (c) do not fit together very well, but the preferable construction is that one of the powers conferred on the NSW Trustee is to make such orders as it thinks necessary or desirable for the care and management of the estate of the protected person. The order to segregate the $75,000 falls within the words of s 65(1)(c). As well it falls within the words of s 65(3)(c), as a direction for the investment of money not required for the other identified purposes in a manner that the NSW Trustee thinks fit.
A statutory power that is in terms confined only by being "in relation to" or "in connection with" some particular topic will be construed as being required to be exercised consistently with the purposes of the legislation that confers the power. It cannot be said, in my view, that a direction to segregate the net proceeds of sale of the garage would be inconsistent with the purposes of the legislation. That is so even though until the death of PBL it would not be known whether there was a "surplus" that would pass to Mr A under the specific devise as operated upon by s 83, or the quantum of any such "surplus" . It is so even though Mr A will have no legal right to any asset of PBL until she has died and it is known whether the will that is now thought to be likely to be her last one is indeed her last one. The segregation is justified because s 83 can operate concerning the proceeds of sale of specifically devised property only if one is in a position to identify any "surplus" and its quantum when PBL has died and the time for distribution of her estate arrives. In my view, s 83 by implication gives rise to an obligation on RL and the NSW Trustee to take steps to administer the estate in such a way that, on PBL's death, it will be possible to identify what is the "surplus" , if any, that s 83 then operates upon. That in itself would require them to identify whether any payment of expenses that was made from the estate was being paid, in whole or part (and if so, what part), from the $75,000. A convenient way of achieving that objective is to keep the net proceeds in a separate fund. Putting them into a different fund does not mean that the legal rights that relate to them are any different to those relating to any other part of the assets of PBL's estate. It is purely a convenient accounting device for keeping track of whether or not any part of the net proceeds of sale of the garage are being spent. It was within the discretion of the NSW Trustee to require that the net proceeds be kept in a separate fund.
It is a separate question whether s 83 dictates that the fund that is kept separate in that way should be resorted to last for payment of PBL's expenses. In my view, s 83 imposes no such requirement. Even the " surplus money " that arises from the sale of a specifically devised asset is available for payment of proper expenses of the incapable person. If the fund arising from the " surplus money" were to be used to pay such expenses it would be whatever remained in the fund after payment of those expenses that would become the " surplus money " to which the specific devisee became entitled pursuant to s 83 at the death of PBL. However, neither is s 83 inconsistent with the separate fund being resorted to last for payment of expenses. The order in which assets of PBL are resorted to for payment of her expenses depends on other considerations.
While s 39 of the 2009 Act ([42] above) sets out certain objectives that should be advanced by decisions relating to administration of the estate of an incapable person, it is not an exhaustive statement of such objectives. One legitimate consideration for the NSW Trustee to take into account is the longstanding practice of the courts concerning the way in which they administer the estates of incapable persons. The first consideration in deciding which of several available assets is to be resorted to for payment of expenses is always the welfare of the incapable person. If there was an expense to be met and the only readily saleable asset from which it could be met was the subject of a specific gift in what was likely to be the last will of an incapable person, the court would not hesitate to authorise the sale of that asset. However, no such consideration arises in the present case, where all the available assets (apart from the accommodation bond) are now in the form of cash. Where there is a choice about which of the assets of an incapable person should be used for payment of expenses, the practice of the court has been to use assets that are not the subject of a specific legacy or devise before assets that are the subject of a specific legacy or devise. It was within the scope of the NSW Trustee's power to issue directions that require that practice to be followed concerning PBL's estate.
One justification for this practice is that it is consistent with the order of application of assets in a deceased estate. If an expense had been incurred for the maintenance of an incapable person but that expense had not been paid at the time of his or her death, the order of application of assets under s 46C and the Third Schedule of the Probate and Administration Act 1898 would require the expense to be paid out of the residuary estate before it was paid from any asset that was the subject of a specific gift. It is consistent that the burden should fall in the same way if the expense is paid during the lifetime of the incapable person. Indeed, it would be anomalous if where the burden of an expense fell depended on the chance of whether the manager of the incapable person's estate was fast or slow in paying bills for expenses.
These views are consistent with the decision of Hodgson J (as his Honour was then) in Christensen v McKnight (NSWSC, Hodgson J, 2 March 1995, unreported). I mention it because it appears to be the only NSW case that considers s 83 of the 2009 Act or any of its predecessors. There, a lady made a specific devise of certain real estate in her last will before becoming incapable. After she became incapable, a management plan was drawn up authorising the sale of that real estate to pay certain of her debts. Contracts were exchanged before she died, but were not completed by the time of her death. Some of the debts were paid prior to her death out of the deposit. There was a contest between the specific devisees and the residuary beneficiaries of the lady's estate concerning the manner in which s 48 Protected Estates Act would affect the sale proceeds, when ultimately received. Hodgson J said, at 10-11:
"In my view, s 48(5) does not introduce a general discretion into the operation of s 48(1), but only gives some flexibility to the means of putting it into effect. I accept that s 48(1) only operates so long as 'surplus money' arising from a sale to which it applies is identifiable as such. In my view, the word 'surplus' indicates that the section only applies to the net proceeds of any such sale, and only to so much of these as remain identifiable at the date of death. Here, so much of the deposit as was used prior to the death of the deceased to pay debts would not be affected by s 48, nor would any other part of the deposit which was applied so as to lose its character as proceeds of sale. However, the balance of the purchase money received after the death of the deceased could not be considered as other than money arising from the sale, and in my view, could not be affected by the management plan devised before the deceased's death.
In my view, therefore, at least the balance of the purchase money, less any expenses of the sale which were deducted from it and less any debts which were secured on the property, would be surplus proceeds of sale within s 48(1); and in my view, that section would be effective to produce the result that that money be treated as representing 114 Rosedale Road for the purposes of giving effect to the will."
One argument put for RL was that s 83(5) of the 2009 Act conferred on the Court, but not on the NSW Trustee, the power to make orders to give effect to s 83. While that is clearly so, I see no reason why s 83(5) should limit the scope of the powers of the NSW Trustee under ss 64 and 65.
The directions of the NSW Trustee had a statutory force of their own. As well, the advice given and orders and declarations made in the court below provide an independent source of rights and obligations so far as the administration of PBL's estate is concerned. The appeal to this court is against the advice given and orders and declarations made in the court below, not against any decisions of the NSW Trustee.
There is one respect in which the orders and declarations of the Court differ in substance from the direction of the NSW Trustee. The direction of the NSW Trustee related to the setting aside of $75,000, while the orders and declarations of the court were cast in terms dependent upon the defined term "Sale Fund" , which was defined as the "net proceeds" of sale of the garage. As I understand it, Mr Ellison accepts that the "net proceeds" of sale of the garage should be $75,000 minus the appropriate proportion of the costs of selling the real estate that are attributable to the sale of the garage. He is right to accept that position.
The reasoning by which the primary judge arrived at his conclusions was, with respect, not compelling. That s 83 requires that the surplus money arising from sale of the garage be regarded as " of the same nature " as the garage means that it is still to be categorised as real estate. Whether an asset was real estate or personal estate was important in some factual situations in which real estate not specifically disposed of by will descended to an heir at law while personalty descended to the next of kin or executor (eg, In re Alston [1917] 2 Ch 226 at 230-231; In re Harding [1934] Ch 271) . It was important in Ailesbury, where land that had been purchased with the approval of the court using spare money of a lunatic was held to be liable for probate duty that was levied on the personal estate of a deceased. It would also be important if separate gifts were made by will of real estate (generally) and personal estate (generally). However, it is not important in this case. PBL's will does not make any gift by reference to whether it is real estate or personal estate. In any event, treating the proceeds as realty would not lead to any conclusion about whether they should, or could, be resorted to for payment of PBL's expenses. There is no inhibition about the court selling real estate, if the proceeds are needed for the benefit of the incapable person.
However, it follows from my reasoning so far that it is only in certain very limited respects that there is occasion to alter the advice, orders and declarations made below.
Insofar as the direction of the NSW Trustee that was substituted by the internal review presupposed that s 83 imposed a legal obligation not to resort to the net proceeds of sale until other assets were exhausted, its basis was mistaken. That does not mean that the substance of the direction was beyond power or (apart from relating to the full $75,000) in some other way erroneous. In accordance with usual and proper administration, an expense would properly be paid from the net proceeds only if, for some reason evident when the expense fell due for payment, it was not practicable for the expense to be paid from the assets that were likely to fall on PBL's death into residue of her estate. When PBL's assets are nearly all cash and she is quite old, I cannot at present see how that situation will arise. In that situation it was, in my view, open to the NSW Trustee to direct that the net proceeds should be resorted to last (or, perhaps, last but pari passu with the net proceeds, if any, of the shares in Ansell Limited). Any such direction is inherently revocable, and if circumstances not presently foreseeable meant that there was a reason to change it, it would have been open to RL to seek to have the direction altered, or for the NSW Trustee to alter or vary it on its own initiative.
In Re Viertel at 112 Thomas J quoted the passages I have emphasised from Jenkins v Jones . He clearly regarded those passages as the decisive ones, as immediately quoting them he said that Stuart V-C " therefore accepted the legatee's claim to the proceeds ". However, to understand the general words that Stuart V-C used it is necessary that they be read in their context: Quinn v Leathem [1901] AC 495 at 506; Commonwealth v Bank of New South Wales (1949) 79 CLR 497 at 637-638; R v Beserick (1993) 30 NSWLR 510 at 517; Leaway v Newcastle City Council (No 2) [2005] NSWSC 826; (2005) 220 ALR 757 at [75]-[84]. The context may be discovered by examining in more detail the cases cited in the key passages of Jenkins v Jones quoted at [155] above.
Re Pilkington's Trusts (1865) 6 New Reports 246 involved a testator who had made a specific legacy of some bonds in an American company. Under New York legislation a scheme of arrangement was entered that involved the formation of a new company and an exchange of the bonds for securities of the new company. The testator accepted the benefit of the arrangement, and paid money to enable the exchange of securities to occur. He made a codicil that confirmed his will after this exchange of securities had occurred. Stuart V-C held that the new securities passed to the specific legatee. He said, at 247:
"Now there might be cases ... where it would appear that the specific chattel fixed upon by the legatee as answering the description of what was given to him would not be allowed to pass to him by the description; for if by the mere voluntary act of the testator, with no motive whatever but that of changing the chattels for his own purposes, he sold the specific chattel and invested the exact sum of money in another specific chattel, the result was that by his own voluntary act he annihilated the subject matter of the gift, and it could not be held that what he had thus altered in specie was covered by the description of the specific chattel given by the will.
In the present case what was done, although in a sense a voluntary act of the testator, was done with reference to a particular quality of the subject matter of the bequest, which made the operation, if not essential, yet an act of importance with a view to the value of the particular chattel which was given"
He held that the bequest was not adeemed because, at 247:
"How could it be said that there was here nothing remaining upon which the terms of the bequest could operate, when, owing to the peculiar quality of the chattel that was described, it might undergo a change, which it did undergo, and had undergone at the time the testator made his codicil? He thought, looking at the quality of these bonds, and the way in which they had been dealt with by the testator before his codicils, that the chattels now averred to answer the description of the bequest were the chattels properly intended by the words of the will; and that upon the true construction of the will it passed, and the Court was bound to give effect to the specific bequest."
Fairly clearly, the testator's knowledge that the conversion had taken place at the time he made his codicil is a piece of surrounding circumstances that could properly enter into a construction of the gift.
Durrant v Friend (1852) 5 De G & Sm 343; 64 ER 1145 involved a specific legacy of some items that had been insured. The goods perished at sea, and the testator drowned. Parker V-C held that the insurance money fell into the residue of the estate of the testator. His reasoning, at 346, 1147 was:
"... if the testator had died before the destruction of the chattels, then an interest in them would have vested in the legatees, and the executors would have been trustees of the policy of insurance for them; but if the chattels had perished, and the testator had subsequently died, the benefit of the policy would not have passed to the legatees, but it would have been a right of action in the testator in his lifetime, and the loss would have fallen on the legatees, but the benefit of the policy would have constituted part of the testator's estate. In this case the testator and the chattels had perished together, and it was difficult to say how such a case should be dealt with; it was essential to the right of the legatees that they should have some interest in the chattels; but as they were destroyed at the same time that the testator lost his life, the legatees never had, as he thought, any interest in them; and, therefore, their claim to the money in which the chattels were insured must fail."
If the testator had died before the chattels were destroyed the will would have operated to pass the chattels to the legatee. The effect of the subsequent destruction of the chattels would be decided in accordance with principles that govern what is to happen if a specifically given item of property is destroyed after the testator's death and before it is transferred to the legatee. That is quite a different situation to that of a living person whose property is converted without his authority, or other proper legal authority.
Taylor v Taylor concerned a shopkeeper who became insane. His wife, the people named as executors of his will and the residuary legatees named in that will joined in an agreement for the sale of the leasehold premises and stock in trade. That was done without any proceedings in lunacy having been taken. The testator died before the contract of sale was completed. Sir W Page Wood V-C held, in an action brought concerning the administration of a deceased estate of the testator, that it was appropriate for the agreement to be carried into effect. However, he also said, at 479-480, 1016 that:
"... the stock in trade consists of property which in its nature required to be dealt with. No one can entertain a doubt that it was right that this property should be disposed of, the lady being incapable herself of carrying on the business. In strictness, however, the proper course would have been to have taken out a commission of lunacy, but that was not done; and, not being done, there was no person in a position to do any act which could confer a lawful title to any portion of the property, except the title which would be given by the sale of articles to customers, which passed by delivery in the ordinary course of trade. Sales effected in that manner not analogous to the preceding which was taken, and, perhaps, very properly in this case ... it was not an agreement which at the time of the testator's death was binding on his property, and therefore, there being no equity between legatees, the legatees must take it, according to the trust declared by the will, in its converted state. I found my decision on this -- that at the time of the testator's death this portion of his estate consisted in fact, not of money, but of the leasehold premises and stock in trade, which passed by that description to his specific legatees."
That case clearly recognised the lack of authority of the widow, executor and residuary legatees to effect a sale that had the effect of adeeming the legacy.
Against this background, it seems to me that Jenkins v Jones was based upon the conversion of the farming stock, in the particular circumstances, not effecting a change in substance in the subject matter of the bequest. That is a decision (perhaps a dubious decision, but it is unnecessary to decide) very specifically tied to the facts of the case. It is not in my view a decision that when a testator who has become incapable does not know of the sale of an asset, or does not intend to sell the asset, precludes ademption occurring. Even though he referred to Taylor v Taylor , Stuart V-C took it to be an example of a sale in circumstances of necessity, that did not alter the substance of a bequest. In my view, that overlooks a significant part of the ratio in Taylor v Taylor , arising from the lack of authority of those who effected the conversion of the assets.
Jenkins v Jones has not been treated in subsequent English authority as establishing the principle requiring knowledge or intention on the part of a testator before a specific gift can be adeemed. It was referred to in argument in Jones v Green two years later (at 588), yet Sir George Giffard V-C regarded it as quite clear that a sale of a lunatic's property effected with authority could adeem a specific gift ([137] above). It was referred to in the argument in In Re Freer ([138] above), but cut no ice with Chitty J.
The decision in Re Viertel was also based on Re Larking , a case in which a dealing by the committee of a lunatic without authority from the court to carry out that dealing was held not to affect the way in which the lunatic's will would otherwise have operated. However, the essential fact for the outcome in Re Larking was that the action of the committee was carried out without legal authority.
Re Viertel also relied on the decision in In re Dorman deceased [1994] 1 WLR 282. Dorman held that there was no ademption of a gift of "the balance of my Barclays higher deposit account number 10327719" when an attorney with an enduring power of attorney closed that account and paid the proceeds into a different account of the same branch of Barclays Bank. That conclusion was arrived at because:
- as a matter of construction of the will, the legacy "was effectively reference to a fund of money" (287), and the fund of money still existed, in the new account; and
- there was great similarity in the terms on which the two accounts were held, so the second account was substantially the same thing as the first account (287).
At 288 Neuberger QC makes some additional observations concerning "the conclusion I have come to" - that is to say, those observations are not the reason for the conclusion. It is at that stage that he says that:
"... the conclusion I have come to appears to me to accord almost certainly with what the deceased would have intended had she known of the removal of the monies from the first account to the second account. I think it unlikely that she knew of the transfer from the first account to the second account. It was the third defendant who effected the transfer on her behalf, and he was unaware of its potential effect on the terms of the will.
Of course, in accordance with the observations I have cited from In re Slater [1907] 1 Ch 665, 675, the act of a general agent, as the third defendant was, must bind an estate with regard to ademption with all the same consequences as if it had been the act of the testator. However, in the same passage Sir Gorell Barnes P does appear to indicate that the testator's knowledge of the facts that give rise to the alleged ademption is important, presumably because in the absence of such knowledge the testator would not have had an opportunity of altering his will." (emphasis added)
The decision in Re Viertel at 112 drew upon the portions I have emphasised from this section of the decision in Dorman . Those portions are not part of the ratio. They refer to facts that might provide a judge with comfort that the decision arrived at for other reasons is in accordance with the merits of the case, but they do not provide legitimate reasons for concluding that no ademption had taken place. It is the passage that I have not emphasised that in my view should have been of critical importance in Re Viertel .
Though Re Viertel also considered various American and Canadian authorities, it did not consider the English line of authorities that I have discussed at [137]-[147] above, relating to when a specific gift of a person who had become incapable was adeemed.
Overall, the American and Canadian authorities discussed in Re Viertel revealed a division of opinion, but Thomas J made special mention of Re Estate of Pearl Swoyer, Deceased 439 NW 2d 823 (SD 1989), a decision of the Supreme Court of South Dakota. I do not agree with a view of Judge Rich QC in Banks v National Westminster Bank plc [2005] EWHC 3479 (Ch); [2006] WTLR 1693; [2005] All ER (D) 159 at [22] that the decision in Swoyer proceeds on the construction of the statutes which regulate ademption in South Dakota. Rather, in Swoyer , Sabers J had recognised at [1]-[3] that South Dakota authority established that ademption statutes were exclusive and the court did not need to address common law rules. However, he then said that the relevant South Dakota statutes " do not address a situation where testatrix is mentally incompetent from before the time her property was sold until her death" . Thus, Sabers J went on to consider the general law, and it was the general law that determined the outcome. At [4] he described the division in American opinion on the topic as follows:
"A minority apply the 'identity test' which considers only whether the property is part of the testator's estate at the time of death ... If the property is not among the decedent's assets, there has been an ademption.... The majority of jurisdictions considered the testator's intention as material and a testamentary gift is adeemed only where it appears that such was the testator's intent ... The courts focusing on the testator's intent holds that there is no ademption where the testator becomes incompetent and the subject matter of a specific bequests or devise is sold by a guardian."
He preferred what he described as the " majority rule" .
In my view there is an insuperable obstacle to applying this reasoning in Australia. It is that English authority from times when English authority was regarded as stating relevant Australian law, and current Australian authority, both hold that ademption operates in accordance with the principle that is the minority view in the United States.
The conclusion in Re Viertel at 116, was: " The result should be no different than if a stranger had converted or misapplied an asset in circumstances where the proceeds of the asset can be traced." I do not agree. Rather, the only circumstance in which it is legitimate for the proceeds of sale of a specifically given item of property to pass to the intended donee of that property, other than where the sale has been effected without authority or in some other fashion wrongfully, is where the specifically given asset has not been changed in substance. That is the law as stated in the passage from In Re Slater at 672 that I have quoted at [132] above, as stated in the High Court in Harrison v Jackson , Fairweather v Fairweather and Pohlner v Pfeiffer ([130] and [135] above) and as accepted in this Court in Perpetual Trustees Co v Robbins ([134] above).
Re Hartigan; ex parte the Public Trustee (WASC, Parker J, 9 December 1997, unreported) is a decision on an ex parte application for advice to the administrator of an incapable person's estate. The likely last will made a specific devise of the incapable person's house. The house was her only asset of significance. Parker J noted that the case before him differed from Re Viertel in that in Hartigan the administrator who was proposing to sell the house knew of the terms of the will. However he held that "heart of" the reasoning in Re Viertel "turns on the sale of property by a person other than the testator at a time when the testator is incapable of selling the property or of altering and existing will to give effect to the testator's intentions in the changed circumstances" . He held it was not a material distinction whether or not the person effecting the sale knew of the terms of the will. I agree with that aspect of the decision. Parker J advised the administrator that if the proceeds of sale of the house were paid into a separate fund the sale would not adeem the devise. No mention was made of there being any legislation in Western Australia analogous to s 83 of the 2009 Act . In my view this decision is mistaken, for the same reasons that Re Viertel is mistaken. It is because the sale of the house by a person with authority to do so would have the effect of adeeming the specific devise that legislation like s 83 was enacted.
Johnston v Maclarn [2002] NSWSC 97 is a decision of Young CJ in Eq (as His Honour then was) on a pleading point. In the course of it his Honour said:
13 Roper on Legacies , 4th ed (William Benning & Co, London, 1847) at pp 329 and following, sets out the general rule with respect to the ademption of specific legacies. The learned author says:
"The word 'ademption' when applied to specific legacies of stock or of money ... must be considered as synonymous with the word 'extinction'. For it should be observed, that if stock, securities, or money, so bequeathed, be sold or disposed of, there is a complete extinction of the subjects, and nothing remains to which the words of the will can apply (a): for if the proceeds from such sale or disposition were to be substituted and permitted to pass, the effect would be ... to convert a specific into a general legacy."
...
15 As Roper notes at p 331, this view of ademption means that the testator's intention is irrelevant. The only thing to be ascertained is whether the testator possessed the property in the specific gift at the time of his death. If he did not, the legacy is adeemed by annihilation of the subject.
16 Roper's approach has been followed ever since; see eg In re Rudge [1949] NZLR 752, 761, where Callan J affirms that:
"In questions of ademption ... the primary inquiry is not for the testator's intention. The test appears to be whether at his death the property of which the testator has made a specific gift in his ... will still belonged to him."
I gratefully adopt those statements as correctly reflecting Australian law.
In Christensen v McKnight , Hodgson J said that ademption depends on the intention of the deceased as disclosed by the will, although not upon any subsequent intention. He also said that if "the intention disclosed by the will is to give particular real estate and nothing else, then it does not matter how the deceased ceased to have the real estate to give." However, those statements do not differ in substance from those of Young CJ in Eq. It is by a process of construction that one identifies the intention of the deceased as disclosed in the will. As with any "intention" derived by a process of construction of a document, this is an objective intention, namely what the well-informed bystander would take from the words of the will to be the intention of the maker of the will. It can be ascertained with the aid of evidence of surrounding circumstances, that enable the court to carry out the thought experiment of placing itself in the testator's armchair for the purpose of construing the will. If the objective intention so ascertained is that a particular donee will receive a particular item of property, and as a matter of fact the donor does not own such an item of property at the time of his or her death, the gift is adeemed. Christensen v McKnight provides no justification for treating any subjective intention of a testator, or lack of it, as affecting how ademption operates.
In Johnston v Maclarn Young CJ in Eq continued at [17]-[19]:
".... there is authority that there is an exception [to a gift being adeemed if its subject matter does not belong to the testator at the time of his death] where it can be shown that the property ceased to be part of the testator's estate because of the unauthorized action of an agent (see eg Basan v Brandon (1836) 3 Sim 171; 59 ER 68) or committee in lunacy; see eg Re Larking (1887) 37 Ch D 310).
In Jenkins v Jones (1866) LR 2 Eq 323, 328, Stuart VC considered that there was an exception to the ademption rule where the annihilation had taken place without the testator's knowledge, even if it had occurred with implied authority. He based himself on Shaftsbury v Shaftsbury (1716) 2 Vern 747; 23 ER 1089, to which I shall return. Other cases can be found to the footnotes of Jarman on Wills , 8th ed Vol 2 (Sweet & Maxwell Ltd, London, 1951) at p1068.
Although, it is a tad difficult to reconcile these cases with principle, see In re Slater [1907] 1 Ch 665, 671, they remain good law. This was the conclusion reached by Thomas J in Re Viertel [1997] 1 Qd R 110 after reviewing all the authorities including American and Canadian cases and texts.
He explained Shaftsbury's Case at [22]:
"... The Earl of Shaftsbury made a will giving the contents of his leased house to the Countess. He then went to Naples for his health and died without returning to England. Whilst he was away, a steward negotiated the surrender of the lease and removed the contents to another site. The steward wrote to the Earl who approved the arrangement. The court held that the Countess took nothing, but said that, had the goods been removed by fraud to disappoint the legacy or by a tortious act, the result would have been otherwise."
For the reasons given earlier I respectfully disagree that Jenkins v Jones established an exception to the ademption rule "where the annihilation had taken place without the testator's knowledge, even if it had occurred with implied authority." In Jenkins v Jones , the wife and son had no authority at all to sell the farming stock.
Banks v National Westminster Bank plc [2005] EWHC 3479 (Ch); [2006] WTLR 1693; [2005] All ER (D) 159 was an ex parte decision. It arose from facts that differed from those of Re Viertel only in that in Banks the attorneys who effected the sale knew of the provisions of the will. Judge Rich QC at [14] said that that difference is "does not appear to me to be a sensible ground for distinguishing the present case" .
Judge Rich at [22]-[23] is under a misapprehension that it was only by s 101(1) Mental Health Act 1983 (Eng) that a provision analogous to s 83 2009 Act was introduced into the law of England, but that error does not in my view affect his ultimate conclusion. He noted at [26] that Jones v Green was decided two years after Jenkins v Jones , and that Jenkins v Jones was cited in it but not commented on. After setting out the ratio of Jones v Green including the passage I have quoted at [137] above he continued, at [28]-[29]:
"It seems to me that that conclusion stands with the decision in Jenkins v Jones only if Jenkins v Jones is confined to cases where the disposal which would otherwise result in an ademption is not only made without the testator's knowledge but also without either his or any other lawful authority. In Jenkins v Jones the decision does not depend upon the ignorance of the testator; it is the absence of his intention to convert the property, because of course his family were acting without either his consent or other lawful authority, which, in my judgment, justifies the court's decision.
I accept Thomas J's view that Jenkins v Jones had not been overruled. It is not, however, in my judgment, authority for the proposition for which Mr Dew contends. It is authority only for what was adumbrated in Shaftsbury's case , namely that if the subject-matter is extinguished by fraud or by tortious acts unknown to the testator then an ademption would not follow."
In my view this conclusion misstates the basis on which Stuart V-C decided Jenkins v Jones . Further, it is the presence of legal authority to convert the property that should have been critical in Re Vietel . Absent matters such as dishonest dealings, a principal is bound by the acts of his attorney within the scope of the authority conferred, even if the principal has no intention to carry out the specific act that the attorney has carried out. This is no different to the way in which an incapable person is bound by acts, performed with proper legal authority, of whoever is administering his or her affairs, whether that administration is occurring under a court or Guardianship Tribunal management order or an enduring power of attorney.
Orr v Slender [2005] NSWSC 1175; (2005) 64 NSWLR 671 arose concerning an elderly man whose only substantial assets were a home unit and a sum of money. His will made a specific devise of the home unit, and gave the residue to the plaintiff. He also appointed the plaintiff as his attorney, under an enduring power of attorney. A consequence of the legislation establishing the institution of enduring powers of attorney was that the attorney did not have authority to do any act "as a result of which a benefit would be conferred on the attorney" . After the man became incapable, the attorney sold the home unit, and used a large part of the proceeds to pay for an accommodation bond at a hostel. Nicholas J held that the specific gift was thereby adeemed. He adopted the explanation of ademption given by Young CJ in Eq at [13] and [15] of Johnston v Maclarn , and noted its consistency with the decisions in Christensen v McKnight and Jones v Green . He held, at [30]-[31], that the limitation on the attorney's authority did not apply to the sale of the home unit, because that limitation applied only where the act of the attorney was a direct cause of a benefit to him. Hence he held it did not prevent an indirect benefit to the attorney, such as arose when the sale of a home unit had the indirect consequence that the attorney became entitled to any surplus proceeds of the sale by virtue of being the residuary beneficiary under the will. I note that the sale occurred before, in particular, s 22 Powers of Attorney Act 2003 became applicable, and that s 22 would now have the effect that it was the specific devisees who would receive the surplus proceeds. Even so, his Honour was in my view correct in holding that the specific devise was adeemed by the sale. The cases of Re Viertel and Shaftsbury v Shaftsbury were cited in argument, but not discussed in the judgment.
Re Viertel has been followed in several other first instance decisions: Mulhall v Kelly [2006] VSC 407; Ensor v Frisby [2009] QSC 268; [2010] 1 Qd R 146; Moylan v Rickard [2010] QSC 327; Simpson v Cunning [2011] VSC 466; Public Trustee v Lee [2011] QSC 409. Other first instance decisions have noted the conflict in the authorities concerning the correctness of Re Viertel but did not need to decide whether Re Viertel was correct: Re Blake [2009] VSC 184; (2009) 25 VR 27 at [55]; Power v Power [2011] NSWSC 288 at [36].
When one is considering whether the disposition of an asset of an incapable person has adeemed a specific gift made by that person's will, there is no legitimate basis of principle on which a disposition effected pursuant to an enduring power of attorney should operate in any different way to a disposition effected pursuant to the authority of the court, or of the NSW Trustee. Re Viertel did not consider the whole of the well-established line of English cases that show that the disposition of an asset of an incapable person in accordance with the court order results in an ademption of a specific gift of that asset. Insofar as it considered Jenkins v Jones and In Re Larking from that line of cases, it did not appreciate the basis upon which they had been decided.
Victoria has an analogue to s 83 to the 2009 Act , but does not have an analogue to s 22 Powers of Attorney Act . Hargrave J noted this in Simpson v Cunning , and at [42] said that "there is no sound reason why a sale by an administrator, appointed to fill the gap where there is no enduring power of attorney, should lead to a different result that a sale by an attorney in like circumstances." As a matter of social policy, I agree. However, if one is considering what the law actually is, it seems to me that it is of critical importance that the only reason why a sale by an administrator does not adeem the subject matter of the specific gift totally is because there is a statute that permits any surplus proceeds arising from a sale by an administrator to be notionally treated as being themselves the subject matter of the specific gift. The reason why the statutory provision was enacted was precisely because, absent the statutory provision, ademption occurs as a result of such a sale. When there is no analogous Victorian statutory provision concerning sales effected under power of attorney, proper application of principle must require that the ademption occur.
YOUNG JA : I am indebted to Campbell JA for his deep scholarship, particularly that exhibited in Appendix B.
Going back to examine the law of lunacy and the law of inheritance in the early 19 th Century is no easy task. Not only does one find inconsistent decisions, succession to land and succession to personal property were dealt with by different court systems and lunacy cases were often dealt with on the basis of what the judge thought the incapable person would have done in a particular case. Thus, in Re Alderson (1808) Collinson on Lunacy (Reed, London, 1812) Vol 1 p 297, Vol 2 p 574, Lord Eldon LC allowed a gift to a son of the lunatic for the premium to allow him to be articled to a solicitor.
When I first considered this matter, it seemed to me that the line of cases in Queensland which have had some following elsewhere, commencing with Re Viertel [1997] 1 Qd R 110 and particularly Ensor v Frisby [2009] QSC 268; [2010] 1 Qd R 146; 4 ASTLR 169 were well reasoned decisions which might provide assistance in the instant appeal.
However, when one reads extensively and carefully the 19 th century cases, one reaches the reluctant view that the Queensland judges were misled in those cases by misapplication of the 19 th century law in some of the authorities on which their decisions were based.
As Campbell JA points out, those decisions read what Stuart VC said in Jenkins v Jones (1866) LR 2 Eq 323, 328 literally, though expansively. When one considers the cases to which Stuart VC referred, particularly Shaftsbury v Shaftsbury (1716) 2 Vern 747; 23 ER 1089 and Durrant v Friend (1852) 5 De G & Sm 343; 64 ER 1145, one can see that the rule is that ademption applies even if the loss of the property occurs without the testator's knowledge or consent and innocently, such as the loss by shipwreck in Durrant v Friend.
It would be appropriate for those law publishers who issue indices for noting up purposes to consider that Jenkins v Jones , Re Viertel and Ensor v Frisby were not followed in this appeal insofar as they state the principle of ademption too widely.
The only other comment I would make is that care must be taken in the future as to how the money set aside is to be treated. It is clear that resort may be had to it to maintain the protected person. Management consideration needs to be given as to whether any part of the interest on the money set apart should augment the fund in recognition that, had the realty not been sold, it would have most likely appreciated in value.
Further, cases such as Re Barker (1881) 17 Ch D 241, 245 and Re Freer (1882) 22 Ch D 622, 627 note that merely setting proceeds of sale apart in a separate account may not be sufficient to alter the rights of parties. Particularly as Mr A is not a party to the present proceedings, it must be made clear that the proper beneficiary of the moneys set apart when the protected person dies is not being decided in this appeal.
Accordingly, I agree with the orders that Campbell JA proposes for the reasons he gives.
SACKVILLE AJA : I am grateful to Campbell JA for setting out the facts and the legislation relevant to this appeal. I agree with the orders proposed by his Honour and generally with his Honour's reasons, but I wish to make some observations of my own.
The present case has some curious procedural features. The appellant (" RL ") applied under s 63 of the Trustee Act 1925 (" Trustee Act ") or, alternatively, under s 83(5) of the NSW Trustee and Guardian Act 2009 (" Guardian Act "), for judicial advice in relation to two questions. The questions are set out by Campbell JA (at [51]). In addition, RL sought an order, pursuant to s 83(5) of the Guardian Act, that s 83 of the Act did not operate to require any of the proceeds of sale attributable to the garage to be set aside for the benefit of any person, other than the protected person (" PBL ").
RL commenced the proceedings because she was dissatisfied with the direction given by the NSW Trustee and Guardian (" NSW Trustee ") on 10 June 2010. The NSW Trustee directed RL to set aside the sum of $75,000, being the agreed value of the garage. As Campbell JA has explained, the garage was specifically devised to Mr A under the terms of PBL's will, made before PBL became a protected person.
The direction made by the NSW Trustee contemplated that the sum of $75,000 could be used, if required, for PBL's continuing maintenance and welfare. The direction was affirmed on an internal review. However, the review decision added a " note of caution " that the earmarked sum of $75,000 could not be used for PBL's maintenance or welfare until the balance of her funds had been exhausted. As Campbell JA has observed (at [28]), the note of caution was apparently intended as a variation of the direction given on 10 June 2010.
RL could have sought review of the NSW Trustee's decision in the Administrative Decisions Tribunal (" ADT "), pursuant to s 70(1) and (3) of the Guardian Act, since the decision was a " reviewable decision " as defined in s 8 of the Administrative Decisions Tribunal Act 1997 (" ADT Act "). The ADT, upon an application for a review of a reviewable decision, is to decide what the correct and preferable decision is having regard to the material before it, including any relevant factual material and any applicable law: s 63(1) ADT Act. The ADT has power to join a person as a party to the proceedings if the ADT considers that the person ought to have been joined as a party or is a person whose joinder is necessary to the determination of all matters in dispute in the proceedings: s 67(4) ADT Act. Had an application for review been made to the ADT, it could have made an order joining Mr A as a party, since he clearly had an interest in the preservation of the fund representing the proceeds of sale of the garage.
Instead of instituting proceedings in the ADT for review of the NSW Trustee's decision, RL elected to seek judicial advice in the Supreme Court. The advice was initially sought ex parte , but the Court directed that the NSW Trustee (a statutory corporation) be joined and it acted, in effect, as a contradictor. It appears that Mr A was given notice of the proceedings but, despite his obvious interest in the outcome, was never joined as a party. No point was taken by either as to the consequences, if any, of Mr A's non-joinder.
RL's summons sought only judicial advice on the questions identified by the primary Judge and did not seek additional relief, except the order under s 83(5) of the Guardian Act and the customary prayer for such " further or other orders as the Court thinks appropriate ". The summons was subsequently amended to seek directions pursuant to s 61(1) of the Guardian Act but, as Campbell JA has pointed out (at [54]), the amendment was misconceived.
RL's decision to seek judicial advice rather than review by the ADT perhaps may have been influenced by a belief that the application was more likely to result in an order that RL's costs be paid out of PBL's estate. In certain circumstances, the ADT has power to award costs in relation to proceedings before it: ADT Act, s 88(1A), (2). However, it is not entirely clear whether the statutory criteria the ADT is required to take into account would permit it to order that the costs of parties on the review of a decision of the NSW Trustee be paid out of the estate of the managed person.
The primary Judge construed s 83(5) of the Guardian Act as supporting declarations and orders that the " Sale Fund " was not to be spent until the " Other Funds " were exhausted and that the Sale Fund was to be invested separately from the Other Funds. His Honour took the view that because s 83(2) of the Guardian Act requires the " surplus money " arising from any sale to be of the same nature as the property sold, the surplus money had to be preserved until other funds in the managed person's estate were exhausted (at [94], [99]).
His Honour did not merely answer the questions that had been submitted to the Court for judicial advice. In addition, he made what were described in this Court as " freestanding " declarations and orders. These declarations and orders had not been sought by RL and the NSW Trustee had not filed a cross-claim. Nonetheless, Mr Ellinson SC, who appeared for the NSW Trustee both before the primary Judge and on appeal, assured this Court that RL's representatives had not objected to the declarations and orders being made.
In my view, the reasoning of the primary Judge reads too much into s 83 of the Guardian Act. Section 83(2) states that the " surplus money " arising from the sale of real property is taken to be of the same nature as the property sold. However, this statutory direction does not necessarily lead to the conclusion reached by the primary Judge. It is one thing for proceeds of the sale of a garage to retain their " nature " as real property. It is another to read the legislation as requiring the proceeds of sale of an asset to be set aside in order to preserve a specific devise or bequest of the asset (where the gift is in a will made by the managed person before she became incapable). In other words, the statutory direction that the proceeds of sale of the garage retain their nature as real property does not establish that the proceeds of sale should be segregated from other assets of PBL and preserved intact until the other assets are exhausted. In substance, I agree with the reasoning of Campbell JA on this issue (at [96], [103]).
On the appeal, as Campbell JA points out, Mr Ellinson relied on ss 64 and 65 of the Guardian Act to support the declarations and orders made by the primary Judge. No notice of contention was filed (as it should have been) on behalf of the NSW Trustee. Nonetheless, Mr Thomson, who appeared with Mr Barlin for RL, did not object to Mr Ellinson relying on ss 64 and 65.
For the reasons given by Campbell JA, I think that ss 64 and 65 of the Guardian Act support the declarations and orders made by the primary Judge, subject to the exceptions and modifications proposed by his Honour. I agree that, having regard to the small sum at stake in the litigation, the orders deal appropriately with the procedural difficulties I have identified. I therefore agree with the orders proposed by Campbell JA.
RL has in substance failed in her appeal against the answers, declarations and orders made by the primary Judge. It follows that no order for costs of the appeal should be made in her favour against the NSW Trustee.
I do not doubt that the Supreme Court had jurisdiction to entertain RL's application for judicial advice. This is so notwithstanding that RL could have challenged the NSW Trustee's decision by seeking review of the decision in the ADT, perhaps at less cost. But the existence of the jurisdiction to entertain RL's application does not necessarily mean that this Court should order that RL's costs should be paid out of PBL's estate, whether on an indemnity basis or otherwise. An applicant's choice of forum should not dictate a favourable costs order regardless of the outcome of the application.
RL is one of the three residuary beneficiaries under PBL's will (see the primary judgment, at [6]). She therefore has had a personal interest in pursuing the appeal, although she shares that interest with the other two residuary beneficiaries (her siblings). Bearing in mind that RL's appeal has been unsuccessful, if there was any risk that an order for the payment of RL's costs out of PBL's estate would leave PBL without adequate resources for her ongoing maintenance and welfare, I would not make such an order. However, in the particular circumstances of this case, there appears to be no risk that PBL will be left without adequate resources. Accordingly, I also agree with the costs orders proposed by Campbell JA.
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