Ross v Sebek

Case •

[2022] NSWSC 1300

•

29 September 2022

No judgment structure available for this case.

Supreme Court


New South Wales

  • Amendment notes
Medium Neutral Citation: Ross v Sebek [2022] NSWSC 1300
Hearing dates: 6-7 September 2022
Date of orders: 29 September 2022
Decision date: 29 September 2022
Jurisdiction:Equity
Before: Hallen J
Decision:

The Court:

(1) Orders that the amended Statement of Claim filed on 11 October 2021 be dismissed.

(2) Stands the matter over to a date to be fixed to determine costs.

Catchwords:

SUCCESSION – The deceased died leaving duly executed Will probate of which was granted to the Defendant, one of two adult children of the deceased – Plaintiff received 25 per cent share, whilst Defendant received 75 per cent share, of the deceased’s estate – Clause giving power of appropriation to the executor in Will – Construction and effect of the appropriation Clause – Whether Defendant entitled to acquire the Plaintiff’s interest in the estate – Whether dispute as to valuation of the property forming part of the estate – No competing valuation evidence given by the Plaintiff – Alleged difference in value of the property would have resulted in Plaintiff, on her case, being entitled to receive an additional amount less than $50,000 than the amount paid to, but not retained by, Plaintiff.

Legislation Cited:

Duties Act 1997 (NSW) ss 8(1), 11(1)(a), 12(1), 13, 19, 21(1), 32 and 63(1)(a)(iii)

Succession Act 2006 (NSW) s 32

Trustee Act 1925 (NSW) s 46

Cases Cited:

Allgood v Blake (1873) LR 8 Ex 160

ANZ Executors & Trustee Co Ltd v McNab [1999] 3 VR 666

Bluemine Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Earth Civil Australia Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Diamondwish Pty Ltd (in liq) v Ivana Cassaniti; Rackforce Pty Ltd (in liq) v Ivana Cassaniti; RCG CBD Pty Limited (in liq) v Borg Family Pty Ltd [2022] NSWCA 160

Byrne v Macquarie Group Services Australia Pty Ltd [2011] HCASL 167

Byrne v Macquarie Group Services Australia Pty Ltd [2011] NSWCA 68

Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26

Carol Boian; Re Estate of Dan Antonio Boian (2014) 17 BPR 33,005; [2014] NSWSC 800

Carr v Carr (1987) 8 NSWLR 492

Chant v Curcuruto; Chant v Curcuruto [2021] NSWSC 751

Clay v Clay (2001) 202 CLR 410; [2001] HCA 9

Commissioner of State Revenue v Hazel Holdings Pty Ltd [2014] WASCA 203

Coorey v Coorey (Supreme Court (NSW), Powell J, 22 February 1986, unrep)

Estate of Aspasia Kandros [2019] NSWSC 757

Fairbairn v Varvaressos (2010) 78 NSWLR 577; [2010] NSWCA 234

Fulton v Fulton [2014] NSWSC 619

In the Estate of Gamble (1915) 32 WN (NSW) 121

Liang Pui Saw Kian v Leung Yuk Chun [2016] HKCFI 1014

Long v Comptroller of Stamps [1964] VR 796

Lystra Allison Tagliaferri as Administrator of the Estate of David Eugenio Tagliaferri v Lystra Allison Tagliaferri and Lisa Dianna Sawyer as Trustees for Hayley Beatrice Tagliaferri and Caitlyn Thelma Tagliaferri [2013] WASC 321

Manfred v Maddrell (1951) 51 SR (NSW) 95

Muir v Winn [2009] NSWSC 857

Re Estate Late Austin Mack (1956) 73 WN (NSW) 218

Re Kippling [1914] 1 Ch 62

Robinson v Collins [1975] 1 WLR 309

Spencer v The Commonwealth of Australia (1907) 5 CLR 418; [1907] HCA 82

SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395

St John v St John [2021] NSWSC 399

Tay v Chief Commissioner of State Revenue (2017) 105 ATR 583; [2017] NSWSC 338

Wigley v Crozier (1909) 9 CLR 425; [1909] HCA 86

Yule v Irwin (No 2) [2016] SASC 178

Texts Cited:

Encyclopaedic Australian Legal Dictionary, online ed

GE Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis)

Williams on Wills (11th ed, 2021, LexisNexis)

Category:Principal judgment
Parties: Jana Ross (Plaintiff)
Martina Michelle Sebek (Defendant)
Representation:

Counsel:
J E F Brown (Plaintiff)
D C Price (Defendant)

Solicitors:
Turner Freeman Lawyers (Plaintiff)
McPhee Kelshaw Solicitors & Conveyancers (Defendant)
File Number(s): 2021/179274
Publication restriction: Nil

Judgment

Introduction

  1. These proceedings concern the estate of Ian Ivan Sebek (the deceased), who died on 23 February 2020, leaving property in New South Wales, and a duly executed Will dated 10 July 2019.

  2. The deceased was survived by his two, now adult, children, being the Plaintiff, Jana Ross, and the Defendant, Martina Michelle Sebek, to whom Probate of the deceased’s Will was granted on 25 May 2020. Shortly, I shall return to all of the relief sought in the amended Statement of Claim.

  3. The proceedings provide yet another sad example of an unfortunate legal dispute, waged between the living over the property of the dead, and the costly, unrelenting battle between siblings over the estate of one parent. As will be read, it provides an even more depressing example of sibling emotions overtaking commercial good sense. The Court made every effort to encourage the resolution of the proceedings, bearing in mind the amounts involved, without success.

  4. The hearing was listed for two days, and it was concluded within that time. Mr J E F Brown of counsel, instructed, at the hearing, by Ms I Buckendorf, solicitor, appeared for the Plaintiff, and Mr D C Price, of counsel, instructed, at the hearing, by Mr A Dewell, solicitor, appeared for the Defendant.

The Pleadings

  1. At the hearing, the pleadings relied upon were an amended Statement of Claim filed on 11 October 2021 and a Defence to the amended Statement of Claim filed on 15 October 2021. There was no Cross-Claim filed by the Defendant.

  2. In the amended Statement of Claim, the Plaintiff sought the following relief:

“1.   An order that the Grant of Probate made to the defendant on 25 May 2020 of the will dated 10 July 2019 of Ian Ivan Sebek, deceased (“the deceased”) be revoked.

2.   An order that a Grant of Letters of Administration with the Will annexed be made to Daniel Joseph McKinnon or such other independent solicitor as the court deems fit.

3.   An order that the defendant account for all dealings in the estate of the deceased.

4.   An order that the transfer to the defendant of the property known as … (“the Property”) on 12 May 2021 be set aside.

5.   A Declaration that the deceased’s estate is the sole legal and beneficial owner of the Property.

6.   An order that the defendant pay damages for the loss to the deceased’s estate caused by and consequential upon the defendant’s breach of executorial duties.

7.   An order that the defendant pay by way of restitution to the deceased’s estate the extent of the unjust enrichment conferred upon the defendant caused by and consequential upon the defendant’s breach of fiduciary and executorial duties.

8.   An order that the defendant account to the deceased’s estate for any dealings on the Property since the deceased’s death.

8A.   Order the defendant file and serve verified accounts of her dealings with the estate.

9.   An order that the Property be sold.

10.   An order the defendant pays the plaintiff’s costs.

11.   An order that the costs of the plaintiff be paid out of the estate on the indemnity basis.

12.   An order the defendant not be entitled to payment of her costs out of the deceased’s estate.

13.    Such further or other orders as the Court deems fit.”

  1. In the Plaintiff’s written Opening Submissions, counsel only referred to the issue concerning the relief relating to the transfer of real estate owned by the deceased, to which I shall return, stating “[t]he balance of the relief will be addressed in closing”.

  2. Bearing in mind the nature of the relief being sought and the fact that the matter was listed for hearing, submissions should have been made in respect of all of the relief that the Plaintiff intended to seek at the hearing. To the extent that she did not wish to proceed with any part of the claims for relief, that should have been disclosed. The Court, and the parties, have an obligation to facilitate the just, quick, and cheap, resolution of the real issues in the proceedings.

  3. Counsel for the Defendant’s submissions were also limited, referring to facts relating to the administration of the estate and 5 paragraphs relating to the conduct of the Defendant.

  4. During submissions, counsel for the Plaintiff confirmed that the only claims for relief that were being pressed were those referred to in Paragraphs 4, 5 and 9: Tcpt, 7 September 2022, p 79(17-39). (Paragraphs 10, 11 and 12 relate to costs and it has been assumed that the relief sought in those Paragraphs are also being pressed.)

The deceased’s Will

  1. There was no challenge to the validity of the deceased’s Will. It was obviously professionally drawn but there was no evidence about the circumstances in which it was drafted or executed. On 25 May 2020, the Court granted probate thereof, to the Defendant.

  2. Relevantly, the deceased appointed the Defendant as the sole executor and trustee (Clause 2). The Will, then provided:

  1. A gift of any motor vehicle owned by the deceased at the date of death to the Defendant absolutely (Clause 3).

  2. A gift of the whole estate, as to a 75 per cent share, to the Defendant, and as to a 25 per cent share to the Plaintiff (Clause 4).

  1. In Clause 5 of the Will, the deceased gave certain powers to the executor, which powers the executor was entitled to exercise in her discretion. These powers, relevantly, included any powers given to her by law (Clause 5.1); the powers of a trustee for sale in respect of any assets in the estate, including a power to postpone sale (Clause 5.2); and also a power to use income, capital or both, to pay capital gains tax assessed on the disposal of any asset (Clause 5.5).

  2. Because it is relevant to what appears to now be the most important issue in dispute between the parties, it is necessary to set out, verbatim, Clause 5.6 of the deceased’s Will:

“I DIRECT my executor may in my executor’s discretion:

…

without the consent of the beneficiary, appropriate in full or partial satisfaction of any beneficiary’s share in my estate, any asset not specifically given in this will; the value of the asset appropriated must either be agreed among the beneficiaries affected or, failing agreement, be determined by an independent valuer appointed by my executor; in appropriating any asset my executor need not take into consideration any differences in the capital gains tax cost bases of the assets appropriated.”

  1. Importantly, the deceased did not include in the Will any express instruction to the executor, to sell the property in the estate and distribute the proceeds to the two beneficiaries named in Clause 4 of the Will.

The deceased’s estate

  1. In the Inventory of Property, which was attached to, and placed inside, the Probate parchment, the estate of the deceased was said to comprise real estate situated at Sodwalls Road, Tarana (“the Tarana property”). Tarana is a small town in the Central West of New South Wales, about 28 kilometres west of Lithgow and about 160 kilometres west of the Sydney CBD.

  2. In the Inventory of Property attached to the Probate, the estimated, or known, value of the Tarana property was disclosed to be $370,000. There was also money held in a bank account ($10,003).

  3. As will be read, the Plaintiff asserted, in correspondence sent to the Defendant’s solicitors prior to the commencement of the proceedings, that there were other assets which ought to have been included as property in the estate of the deceased. At the hearing, however, there was no evidence to support any assertion that there was property, of substantial value, not referred to in the Inventory of Property, that formed part of the estate of the deceased.

  4. In addition, in paragraph 7 of her affidavit affirmed on 16 September 2021, the Plaintiff appeared to accept that the deceased’s estate comprised the assets referred to in the Inventory of Property. (I interpolate that in Paragraph 5 of her Defence to the amended Statement of Claim, the Defendant asserted that the deceased’s personal effects had no value.)

  5. In Paragraph 9 of her affidavit, the Plaintiff appeared to accept, also, that the liabilities of the estate included funeral and wake expenses ($7,920 and $384), Probate filing fees ($1,033), council rates ($1,055) and costs and disbursements of obtaining Probate ($5,383). (I have omitted, and will continue to omit, a reference to cents.)

  6. Unsurprisingly, in Paragraph 10 of her affidavit, the Plaintiff also accepted that the liabilities of the deceased’s estate ($15,775) exceeded the cash in the bank account. It follows that the only property in the deceased’s estate, after the payment of the liabilities, was the Tarana property.

  7. (In light of the Plaintiff’s evidence set out above, it is difficult to understand why the Plaintiff sought so much of the relief in the amended Statement of Claim.)

  8. The evidence reveals that the Tarana property comprises 3.325 hectares. It is an irregularly shaped allotment that is predominantly cleared. The land is generally undulating. Upon the land is a vinyl clad detached house, with a tile roof, comprising three bedrooms, a semi-modern kitchen/dining, lounge, original bathroom, separate w/c, internal laundry and two small, covered, verandahs. There is no specific car accommodation, although there is a large shed capable of accommodating vehicles. There are some ancillary improvements, including two concrete water tanks, two small dams, the large shed, and two small sheds.

  9. At no time, it would seem, was there agreement between the parties on the value of the Tarana property, as at the date of death, or subsequently, as at about April 2021, the relevance of which date will shortly be apparent, or at the date of the hearing.

  10. Much of the time was spent at the hearing dealing with evidence of the value of the Tarana property, asserted by each of the parties, to which reference will be made. Argument raged about whether what was relied upon by each party was a valuation, and in the case of the Defendant, was one as required by Clause 5.6. The weight to be attached to the evidence was also a topic of dispute at the hearing.

Background Facts

  1. I take the following facts from the evidence, which I am satisfied were not the subject of real dispute between the parties, or which have been established, on the balance of probabilities.

  2. The deceased was the sole registered proprietor of the Tarana property at the date of his death.

  3. On 14 April 2020, the Defendant obtained two written valuations of the Tarana property, at the date of the deceased’s death (23 February 2020) from Peter Matthew Craig of Cityside Valuers Pty Ltd, a Certified Practising Valuer and member of the Australian Property Institute. One valuation was stated to be for “Probate Purposes”, and the other was stated to be for “Stamp Duty Purposes”. Each valuation stated that the market value of the property was $370,000. (I refer to each being a “valuation” in this paragraph without prejudgment.)

  4. In the valuations, Mr Craig, the valuer stated:

“Market Value: Three hundred and seventy thousand dollars ($370,000).

Date of Valuation: 23rd February 2020

Report Addressed to: I. I. Sebek

We hereby certify that we have inspected the above property externally on … 14th April 2020… We assess the Market Value of the property as at the date of valuation above.”

  1. Mr Craig also wrote that:

“[T]he most appropriate method of valuing a residential property is via the direct comparison method whereby sales of similar properties are directly compared to the subject in determining a current market value”.

  1. He went on to write that:

“Our research revealed very limited recent directly comparable sales evidence. We have therefore considered dated sales and sales of properties in surrounding areas. We have made the necessary adjustments for differing features such as location, size of improvements, size of land, age of improvements and accommodation.”

  1. On 19 May 2020, the Defendant’s solicitor, Mr Paul McPhee, sent an email to the Plaintiff stating that the approximate net value of the estate was $360,199, and that accordingly the value of the 25 per cent to which the Plaintiff was entitled, was $90,049.75. The Defendant’s solicitor set out the way in which the Plaintiff’s entitlement had been calculated. It was disclosed that there had been a notional deduction from the total value of the property of the deceased (said to be $380,003), funeral, and wake, expenses ($7,920 and $384), an amount paid on account of the Probate filing fee and valuation ($2,500) and what were described as “estimated costs and expenses” ($9,000). This yielded a net figure of $360,199, 25 per cent of which was $90,049.75.

  2. The email went on to state that:

“Your sister, Martina, has expressed a desire to purchase your 25% interest in the property … for the $90,049.75.

Would you kindly advise whether you are prepared to sell your one-quarter share of your late father’s estate to her for that amount. She will be responsible for stamp duty and other expenses normally payable by the purchaser. The estate would be responsible, for paying, from the amount set aside for costs and expense as set out above, the costs and expenses normally payable by the vendor.”

  1. A copy of the valuation from Mr Craig was attached, as was a copy of a Funeral Agreement dated 24 February 2020 and a bank record disclosing the amount held in bank.

  2. In an email of 10 July 2020, from the Defendant’s solicitor to the Plaintiff, a further request was made for “an urgent response to my emails of 19 May 2020 and 2 June 2020.” (The email of 2 June 2020 was not in evidence).

  3. The Plaintiff responded to Mr McPhee’s email on 6 November 2020, stating:

“Based on property valuations and advice I have received I would agree to transfer my interest in the property for $150,000.00.

As noted in the offer, Martina Sebek would be responsible for stamp duty normally payable by the purchaser. The estate would be responsible, for paying, from the amount set aside for costs and expenses, the costs normally payable by the vendor.

I would also note any residue from the funds set aside for this purpose (Estimated costs and expenses $9,000.00) would be returned to the beneficiaries as per shares of the estate.”

  1. The Plaintiff did not provide any explanation for not responding to the email correspondence from the Defendant’s solicitor. Nor did she explain, in any other way, how the calculation of her entitlement had been reached.

  2. The Plaintiff, in her affidavit, did not suggest that “the property valuations and advice” referred to were provided to the Defendant at the time she made the proposal. However, it would seem that the estimated value of the Tarana property would have had to have been in the order of $600,000, for the Plaintiff’s share thereof, to be calculated at $150,000. (In using that amount, the debts, funeral and testamentary expenses, to the extent that they were not paid out of the cash in the estate, were not deducted.)

  3. Mr McPhee sent an email, dated 27 November 2020, to the Plaintiff, querying the Plaintiff’s calculation and requesting a copy of “all valuations, upon which you have relied in calculating the $150,000”.

  4. The Plaintiff responded by email on 9 December 2020, enclosing what were said to be two “real estate market opinions” which she appears to have obtained in June 2020. The first was one by Jaharn Torok of Ray White, a firm of real estate agents, who opined that the price of the property was between $500,000 - $600,000. It was not suggested that she was a valuer.

  5. The second was one from LJ Hooker Lithgow, another firm of real estate agents, in which it was written that the property “would have a current sales potential of $550,000 - $580,000” and that the “Recommended asking price $ Public Auction”. Again, it was not suggested that the “sales potential” was expressed by a valuer.

  6. In addition, in her email, the Plaintiff stated that she had “taken into consideration the disclosure of assets … which only lists the Real estate and … bank account. I note no inventory or valuation was provided of the farm equipment or personal items…”.

  7. On 17 December 2020, Mr McPhee responded to the Plaintiff’s email dated 9 December 2020, and stated:

“1.   The two market appraisals are simply opinions, expressed by two Agents. They are not formal Valuations. They therefore cannot be relied upon in any Court proceedings. Further, neither of the appraisals have been dated or signed, and, disturbingly, it would appear that the particular Agents have not in fact even inspected the property. That further reduces their probative value. Their appraisals of between $500,000-$600,000.00, and $550,000.00-$580,000.00, respectively, are therefore rejected.

…

3.   The value of the “farm equipment” and “personal items” was nominal. There were two old brush-cutters on the property and two old chainsaws. The ride-on lawnmower is owned by Martina. Your late father did not own any personal items of significant value. If there are any “sentimental items” which you would like to retain, please identify them and Martina will discuss making them available to you.

4.   There are no assets, belonging to your father, which “were not disclosed to [us] or to the court”.

  1. On 17 February 2021, 22 March 2021 and 12 April 2021, Mr McPhee sent emails to the Plaintiff noting that no response had been received from the Plaintiff to his email dated 17 December 2020. In his emails dated 22 March 2021 and 12 April 2021, respectively, he stated that the Defendant had instructed him to transfer the Tarana property to her, in her personal capacity, for $90,049.75. He also suggested that if the Plaintiff objected to the Defendant doing so, she should:

“obtain independent legal advice and have your Solicitor set out, in detail, the basis for those objections. If we do not receive any communication from you, or on your behalf, within the next seven (7) days, Martina, as Executrix, will proceed to administer the estate on the above basis.”

  1. On 14 April 2021, the Plaintiff sent an email to Mr McPhee attaching an updated “Market appraisal”. In fact, this document was a copy of an email dated 5 June 2020 from Mr Blake Edgell, who was identified as “a licensed real estate and stock and station agent” at LJ Hooker Rural. That email contained what was said to be a market opinion and other matters regarding sale.

  2. Relevantly, the copy document provided that “It is my opinion that the property would have a current sales potential of $600,000 - $660,000”, that the “Recommended asking price - $Auction” and a sale price of $600,000. Later in the document, the estimate was referred to as “The Appraisal Amount”.

  3. The document also included a statement that the “selling fee would be $19,800 inc GST”, but this may not have included a “Marketing and Advertising Budget” referred to separately of $3,120 (including GST).

  4. There was a further email, dated 12 April 2021, from Mr Edgell to the Plaintiff, a copy of which was sent by the Plaintiff to the Defendant’s solicitor, which was responding to an email dated 11 April 2021 to him in which she had referred to a “market opinion” that Mr Edgell had provided in June 2020. She asked whether “the market value of the property has changed or do you think it is the same”.

  5. In his email, Mr Edgell stated that “the market has moved since we spoke last…In my opinion there is a premium to be achieved in the current market due to high buyer demand and a shortage of quality rural listings”.

  6. In her email to the Defendant’s solicitor, the Plaintiff then repeated her offer of $150,000 for her share of the deceased’s estate.

  7. It is worth repeating that neither of the real estate agents who provided the appraisals, a copy of which were sent to the Defendant’s solicitors, was disclosed as being “an independent valuer”. Neither gave evidence in the proceedings, and none of the documents identified is in the form of a valuation.

  8. Mr Craig provided another valuation of the Tarana property determined at 22 April 2021. He wrote, in this written valuation, that:

“Interest Valued: Freehold – Vacant Possession

Prepared for I. I. Sebek

Purpose of Report: To determine the Market Value for Stamp Duty Purposes

Date of External Inspection: 22nd April 2021

Date of Valuation: 22nd April 2021

Valuation: Four Hundred and Twenty Thousand Dollars ($420,000)

We hereby certify that we have inspected the above property externally on 22nd April 2021. We assess the Market Value of the property as at the date of valuation above.”

  1. (As will be read, Mr Craig, acknowledged, in cross-examination, that he had not inspected the Tarana property externally on 22 April 2021 and that this was an error contained in the later valuation.)

  2. The valuation repeated, in a summary form, much of what was included in his first valuation and repeated what he had written as to the “Valuation Rationale” concluding that:

“The most appropriate method of valuing a residential property is via the direct comparison method whereby sales of similar properties are directly compared to the subject in determining a current market value.

We have researched from public records, extracted from the lands titles office, and in turn obtained from records such as RP data, the sale of similar properties that have recently sold in the immediate area leading up to the date of valuation. Only those properties comparable to the subject property have been considered in determining the market value of the subject property.

In considering an appropriate value for the subject property, with vacant possession the following factors have been considered in relation to the sales evidence. These factors include (but are not limited to) factors such as accommodation, size of improvements, elevation, aspect/views, age/condition of improvements, location, car parking and type of construction.

Limited sales: our research revealed limited directly comparable sales evidence in Tarana itself. We have therefore also considered sales from neighbouring towns such as Oberon and Portland. We have adjusted for differences such as location, accommodation, age/condition of improvements, views and car accommodation.”

  1. At or about this time, the Defendant, by her solicitors, sought, and obtained, another valuation. There was a successful objection to its contents so nothing more will be said about it.

  2. On a date not disclosed in her affidavit, the Plaintiff engaged her current solicitors, and on 27 April 2021, they sent a letter to the Defendant’s solicitors that was marked “without prejudice”. On 13 May 2021, the Plaintiff’s solicitors sought a response to the letter sent on 27 April 2021, to the Defendant’s solicitors. Naturally, a copy of each letter is not in evidence.

  3. On 22 May 2021, the Plaintiff’s solicitors sent an email to the Defendant’s solicitors requiring a “substantive response to our letter of 27 April by 4:00 pm on Monday 31 May 2021, we hold instructions to commence proceedings against your client seeking a revocation of the grant of probate made to her, orders for the sale of estate realty and an order that your client pay the costs of our client personally”.

  4. On 26 May 2021, the Defendant’s solicitors sent by express registered mail a Trust cheque to the Plaintiff for $102,500, being “distribution of your one-quarter share as a beneficiary of the above estate”. (The cheque sent was not banked by the Plaintiff.)

  5. In an email sent on 27 May 2021, to the Plaintiff’s current solicitors, by the Defendant’s solicitors, the way in which the amount of the Plaintiff’s 25 per cent share of the deceased’s estate had been calculated was explained. In broad terms, it was written that the value of the deceased’s estate based upon the value of the Tarana property and cash, less liabilities (said to be $28,866) was $406,543, which resulted in the value of the Plaintiff’s 25 per cent share to be $101,635. It was asserted that the sum paid was “$864 in excess of your client’s 25% entitlement”.

  6. Regrettably, some of the liabilities of the estate included reimbursement of the costs of “painting materials for the property” ($300), “labour contributed by Martina Sebek and her family in respect of painting” ($400), labour contributed by Martina Sebek and her family towards maintenance…” ($4,050), costs and expenses of the Defendant’s solicitors ($5,383 and $1,683). There were other expenses also deducted.

  7. Subsequently, on 19 August 2021, the Defendant’s solicitors sent a cheque for $1,187, being a one quarter share of the labour expenses referred to ($4,750).

  8. On 12 May 2021, the Defendant transferred the Tarana property to herself. She agreed that she had done so, upon the basis that she had complied with the terms of the deceased’s Will in ascertaining the entitlements of the beneficiaries: see Paragraph 7 of the Defence to the amended Statement of Claim. A copy of the Transfer was not in evidence, although it was not in dispute that title to the Tarana property is now registered in the name of the Defendant.

  9. Pausing here, it is important to note that even assuming the correctness of the Plaintiff’s assertions as to the value of the Tarana property, the difference between the parties, as to the Plaintiff’s share, was, initially, slightly less than $60,000; was subsequently, $47,500; and then, after the payment of the last cheque, in August 2021 was $46,313.

  10. The bases of the calculations on each side, and the amount in issue, will be relevant to the issue of costs and supports the view expressed earlier that both parties appear to have allowed emotion to overtake commercial good sense.

  11. At no time, did the Plaintiff assert, in the pleadings, or otherwise, that she wished to acquire the Defendant’s interest in the Tarana property for 75 per cent of the value as determined by an independent valuer.

Evidence not called by the Plaintiff

  1. I am satisfied, and there was really no dispute, that the documents, which had been sent by the Plaintiff to the Defendant’s solicitor, for the reasons set out earlier, do not constitute a determination of value by a valuer: Tcpt, 7 September 2022, p 102(49)-103(30). The Plaintiff did not provide any evidence, by a valuer, of the value of the Tarana property.

  2. Importantly, in a directions hearing, held on 11 October 2021, a notation was made that “the Plaintiff is to file and serve evidence of the value of the property said to have been appropriated to the Defendant by 4:00 p.m. on 1 November 2021”.

  3. In addition, at this directions hearing, in order to enable the formal valuation to be carried out, the Defendant was directed “to consent to any reasonable request made on behalf of the Plaintiff in regard to enabling the formal valuation to be carried out.” The notation and direction were made in the context of previous directions for the filing and service of evidence in chief, or in reply, with which the Plaintiff had not complied.

  4. The Plaintiff provided no explanation for the failure to serve evidence, in accordance with the direction, or otherwise. Prior to the commencement of the proceedings, she had received a copy of the valuations upon which the Plaintiff intended to rely, and after the commencement of the proceedings, was given more than one opportunity to obtain a valuation.

  5. Neither party gave evidence that the Plaintiff had, or had not, retained a valuer in accordance with the direction that had been made.

  6. Counsel for the Defendant submitted that the Court should draw an inference that any evidence that the Plaintiff had obtained and not served would not assist her case.

  7. Although he did not refer to authority, I note that in Chant v Curcuruto; Chant v Curcuruto [2021] NSWSC 751, I wrote at [80]-[81]:

“Also, as has recently been written by Rees J in the matter of Pacific Springs Pty Limited [2020] NSWSC 1240, at [139], the failure to produce documents where the plaintiffs might be expected to be in possession of documents to corroborate their account:

“may lead to an inference that such documents may not have assisted the plaintiffs’ case: Jones v Dunkel [1959] HCA; (1959) 101 CLR 298 8 at 320 per Windeyer J, citing with approval Wigmore on Evidence (3rd ed., 1940), vol. 2, page 162: ‘The failure to bring before the tribunal some circumstance, document or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party…’; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [134] (Callinan J) Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [44] (Eames JA, with whom Buchanan JA agreed); Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184 at [131]–[132] (Croft J); Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98 at [112].”

In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168, Hodgson JA (Beazley JA agreeing) wrote, at [15]:

“…it is important to have regard to the abilities of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so...”

  1. In Bluemine Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Earth Civil Australia Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Diamondwish Pty Ltd (in liq) v Ivana Cassaniti; Rackforce Pty Ltd (in liq) v Ivana Cassaniti; RCG CBD Pty Limited (in liq) v Borg Family Pty Ltd [2022] NSWCA 160 at [202], and at [204], the following passages appear:

“A Jones v Dunkel inference from the failure to give evidence does not permit the drawing of an inference that, if called, a witness would have exposed facts unfavourable to the party who failed to call the witness: Manly Council v Byrne [2004] NSWCA 123 at [50] (Campbell J).

…

As Campbell J said in Manly Council v Byrne at [51]:

‘Thus, if a witness is not called two different types of result might follow. The first is that the tribunal of fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness. The second is that the tribunal of fact might draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn.’”

  1. In the present case, if there is a difficulty with drawing an inference, it arises from the fact that the Plaintiff was not cross-examined, and, therefore, was not asked whether the direction to which reference has been made was complied with, or whether any valuation, written or oral, had been obtained by her.

  2. The only inference I am prepared to draw relates to the fact that the opportunity was given to the Plaintiff to obtain evidence of the value of the Tarana property and that she either did not take up that opportunity, or, if she did, she did not produce any valuation she had obtained.

The evidence that was called

  1. Each of the Plaintiff and the Defendant made an affidavit that was read in the proceedings. In addition, the Defendant relied upon an affidavit from Mr Craig, the valuer. Only the Defendant and Mr Craig were cross-examined.

  2. It is necessary to note that because of the failure by the Plaintiff to comply with a direction made regarding the service of evidence, the Defendant’s affidavit was filed and served before the Plaintiff’s affidavit.

  3. Mr Craig affirmed the contents of an affidavit made by him on 21 September 2021. He confirmed that he remained a Certified Practising Valuer and a member of the Australian Property Institute. He annexed a copy of the valuations to which reference has previously been made.

  4. He stated that:

“Each of the valuations provides my opinion as to the “market value” of the Property as at the date identified in each valuation, being the “estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.” [Emphasis in original]

  1. In cross-examination, Mr Craig confirmed that the first valuation report provided to the Defendant was for probate purposes, “and then they changed the instruction to stamp duty from memory and certainly, the most recent one which I think is the one of most relevance, was for stamp duty”: Tcpt, 6 September 2022, p 11(6-9).

  2. In cross-examination, Mr Craig was asked whether it was his understanding that in preparing a report for stamp duty purposes, the client for whom the report was to be prepared was looking for a valuation at the lower end of the property valuation. Mr Craig responded (Tcpt, 6 September 2022, p 12(15-20)) that he had

“situations where people want a higher valuation because they will then go and use the report incorrectly for say capital gains tax, where it’s beneficial to pay a little bit more duty. So I prefer not to read into what the client might be wanting and just value the property, that’s the goal”.

  1. Mr Craig explained, in cross-examination, the process by which the Tarana property was valued, including by comparing the property to sales of similar properties in the area. He maintained that the properties upon which he relied were relevant and explained how the characteristics of each property informed his analysis of the value of the Tarana property.

  2. Although Mr Craig agreed that there was a substantial difference in the preparing of a report for stamp duty purposes and one for which there may be a contest as to its true value, he disagreed with the assertion that it was more probable than not that the value attributed to the Tarana property may have been different had he been aware of his obligation under Clause 5.6 of the Will.

  3. He stated that “[t]he result may have been the same, but I certainly would have produced a more detailed report that was, you know, that explained things better, had more, more evidence included so that it was – if it ended up in this place, that it looked a bit better”: Tcpt, 6 September 2022, p 22(40-43).

  4. Mr Craig agreed that it was plausible that the value he attributed to the property may have been different but disagreed that such an outcome was more probable than not: Tcpt, 6 September 2022, p 23(4-10).

  5. Mr Craig was asked, given what he now knew about Clause 5.6 of the deceased’s Will, namely that the purpose of the report was one to have the value of the Tarana property determined by an independent valuer appointed by the Defendant, whether the report did, or did not, comply. He stated that he was “an independent valuer and it’s a valuation report, so I think yes”: Tcpt, 6 September 2022, p 37(9-28).

  6. Mr Craig denied that it was probable that, had he been asked to determine valuation under Clause 5.6, his opinion of the valuation may have been more than $500,000, stating that he had “seen no evidence to suggest that it might come in higher than 500,000”: Tcpt, 6 September 2022, p 39(22-26). He did, however, agree that it was possible that he could have come to the view that the property was worth only $200,000, or that the property could be worth more than $500,000.

  7. In response to questions from the Bench, Mr Craig explained the meaning of giving a valuation for “stamp duty purposes”. He stated (Tcpt, 6 September 2022, p 42(22-30), that:

“When the sale of a property occurs off market, Revenue New South Wales requires an independent valuation to confirm the true value of the property and stamp duties [sic] calculated on that amount. If it goes to market and is sold with a marketing campaign through a licensed real estate agent, the valuation report isn’t required; they’ll just adopt the sale price.”

  1. Mr Craig is, and was at the relevant time he made each report, a member of the Australian Property Institute as well as being a certified practising valuer. In addition, he was not a valuer with whom the Defendant had any connection. Indeed, the instructions to him were provided by the solicitor for the Defendant. It could not reasonably be asserted that he was not an independent valuer.

  1. In answer to questions from the Bench, he explained that the Australian Property Institute is the pre-eminent governing body for property valuers in Australia and it had replaced the registration that the government previously had. He stated that it is the leading compliance regulatory body for property valuers in Australia. (The Australian Property Institute defines a Certified Practising Valuer as “a person who, by education, training and experience is qualified to perform a valuation of real property.”)

  2. I found Mr Craig to be a forthright, truthful and credible witness. I am satisfied that when, in his second report, in which he concluded that the value of the Tarana property was $420,000, he was an independent valuer who had carried out a valuation to determine the value of the Tarana property.

  3. The Defendant, when cross-examined, denied requesting a valuation for stamp duty purposes because she was hoping for a low value of the property. She agreed that it had been her intention to acquire the Tarana property since the deceased’s death: Tcpt, 6 September 2022, p 45(36-42).

  4. She also gave evidence that she had not appointed Mr Craig but that she had instructed her solicitors to obtain a valuation from an independent valuer. She had not spoken to the valuers so retained.

  5. I also found her to be a truthful and credible witness.

The offer made during the hearing

  1. At the conclusion of the evidence, counsel for the Plaintiff made an open offer that the property transaction should be set aside, that the Tarana property be listed by auction, with the Defendant to have the ability to bid at the auction, with each party to pay her own costs of the proceedings. The offer was not accepted.

Submissions

  1. Counsel for the Plaintiff submitted that the transfer of the Tarana property to the Defendant should be set aside as a self-dealing transaction by an executor. The Plaintiff wished to test the market properly by putting the property on the open market for sale.

  2. It was submitted that the Defendant sought to appropriate the property to herself in satisfaction of her 75 per cent interest in the estate, when it was worth more than the Defendant’s interest in the estate. Therefore, the Defendant must also have purchased the balance of the property from herself as trustee.

  3. It was submitted that the Defendant did not have the power to carry out either of those transactions and that the Will did not permit the executor to purchase the Plaintiff’s interest in the estate, which it was submitted was what actually occurred.

  4. Counsel for the Plaintiff submitted that there was no manner in which a trustee has power to appropriate an asset to a beneficiary which is worth more than the beneficiary’s entitlement in the Will. It was submitted that it was therefore necessary to infer that the Defendant has purchased (and sold to herself) the 25 per cent balance of the Tarana property.

  5. At common law, the power of appropriation exists independently of a will, but cannot be exercised where it would be inconsistent with the clear provisions of the Will: Wigley v Crozier (1909) 9 CLR 425 at 440-441, 444; [1909] HCA 86. Where the power was included in the Will, it must be exercised in accordance with the terms of the Will and the extent of the power will be a matter of construction of the Will.

  6. Counsel for the Plaintiff submitted that, in the circumstances where Clause 5.6 of the Will provided a specific mechanism for the operation of an appropriation, it was not open to the Defendant to effect an appropriation at common law.

  7. It was submitted that if the Defendant sought to exercise the power of appropriation at common law, she would have required the Plaintiff’s consent because of the prohibition at common law against self-dealing.

  8. Counsel for the Plaintiff relied on the description of the self-dealing rule by Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ in Clay v Clay (2001) 202 CLR 410; [2001] HCA 9 at [50]-[51]:

The ‘self-dealing rule’ is expressed in terms more stringent than the ‘fair-dealing rule’. The ‘fair-dealing rule’ provides that a transaction whereby the beneficial interest of a beneficiary is purchased by the trustee is not voidable ex debito justitiae, but may be set aside, unless the trustee can show that no advantage has been taken of the position of trustee, that full disclosure has been made to the beneficiary, and that the transaction is fair and honest. Where the trustee meets these burdens, the result is that the interest acquired by the trustee is placed beyond any claim by the beneficiary or those claiming under the beneficiary. …

Shortly stated, the ‘self-dealing rule’ is that the sale by the trustee of the trust property to himself is voidable by any beneficiary ex debito justitiae, however honest and fair the transaction and ‘even if [the sale] is at a price higher than that which could be obtained on the open market’.

  1. It was submitted that the Defendant’s purchase of the 25 per cent share of the Tarana property was caught by the fair dealing rule, and that the purported power of appropriation is also caught by the rule.

  2. It was also submitted that, although s 46 of the Trustee Act provides a power of appropriation, that power is subject to the terms of the Will. In circumstances where the Will has laid out the steps that need to be taken for a party to appropriate assets; those steps must be undertaken in order for a valid appropriation to take place. It was submitted that the Trustee Act does not provide the Defendant with any power to purchase trust assets, or which would otherwise enable her to purchase 25 per cent of the land in breach of the self-dealing rule.

  3. Counsel for the Plaintiff relied on Clause 5.6 of the deceased’s Will, stating that the Defendant did not obtain the consent of the Plaintiff, as a beneficiary, to appropriate her interest in the Tarana property, nor did the Defendant have an agreement with the Plaintiff as to the value of the property.

  4. It was submitted that in order to obtain a valid appropriation of the Tarana property, the Will required the Defendant to obtain the value of the land from an “independent valuer”. Instead, she obtained valuations from valuers who were not instructed to be independent, and each valuation contained a disclaimer to the effect that the valuation is for the use only of the party to which it is addressed and for the purpose stated within the valuation (being either Probate or Stamp Duty purposes).

  5. Counsel for the Plaintiff submitted that the valuations were for the Defendant’s use only and were not in the form of independent valuations which had been anticipated by Clause 5.6 of the Will, rather, they were in the form of valuations which Young J warned would be improper in Carol Boian; Re Estate of Dan Antonio Boian (2014) 17 BPR 33,005; [2014] NSWSC 800.

  6. It was submitted that the Will did not provide any power for the Defendant to purchase assets from the estate, and that even if the Defendant had validly exercised a power of appropriation, there is no power under the Will for the Defendant to have purchased the remaining 25 per cent interest in the property, noting that such actions would already offend the self-dealing rule.

  7. Counsel for the Plaintiff submitted that the transfer of the Tarana property to the Defendant should be set aside, the Defendant should account for her dealings with the estate and an independent administrator should be appointed to sell the property and administer the estate. The dealings referred to were not identified.

  8. Counsel for the Defendant submitted that the Plaintiff’s claim was misconceived, and that the Plaintiff’s case was one based on semantics and was without substance. He submitted that each element of Clause 5.6 had been satisfied, and that there was an appropriation of the Tarana property in satisfaction of the Defendant’s share of the estate.

  9. He submitted that there had been attempts to agree upon the value without success, following which an independent valuer had been appointed by the Defendant, he had valued the Tarana property and that then an appropriation, without the consent of the Plaintiff, had occurred, the Plaintiff having been paid her 25 per cent share of the estate.

  10. It was submitted that the Defendant had acted entirely consistently with the express words of the Will. She had not received more than she was entitled to receive, and the Plaintiff had not received less than she was entitled to receive.

  11. Counsel also submitted that, by the Defendant acquiring the Tarana property, both parties were better off because the estate did not incur the costs and expenses of having the property sold with the involvement of a real estate agent.

  12. Neither party relied upon any evidence going to whether, had the Tarana property been transferred to the Defendant pursuant to a power of appropriation, then the capital gains tax liability would either be reduced or that no capital gains tax liability would arise.

The Issues

  1. Although the case was not one pleaded as a will construction suit, it seems to me that it is first necessary to consider the construction of the deceased’s Will and in particular, the construction of Clause 5.6. This was accepted by counsel at the commencement of the oral submissions.

  2. It will then be necessary to consider whether what was done complied with Clause 5.6 of the Will.

The Law

  1. The classic statement of the principles of construction of a will is found in Allgood v Blake (1873) LR 8 Ex 160 at 162 (Blackburn J):

“The general rule is that, in construing a will, the Court is entitled to put itself in the position of the testator, and to consider all material facts and circumstances known to the testator with reference to which he is to be taken to have used the words in the will, and then to declare what is the intention evidenced by the words used with reference to those facts and circumstances which were (or ought to have been) in the mind of the testator when he used those words… [T]he meaning of words varies according to the circumstances of and concerning which they are used.”

  1. Because the Will is in writing, a necessary consequence is that its meaning must be discovered from the writing itself, aided only by such extrinsic evidence as is necessary in order to enable an understanding of the words which the will maker used. The language chosen is important.

  2. The Will must receive a construction according to the plain meaning of the words and sentences therein contained. But the Court looks at the whole Will in order to give effect, if it be possible to do so, to the intention of the will-maker.

  3. In Fairbairn v Varvaressos (2010) 78 NSWLR 577; [2010] NSWCA 234 at [19], Campbell JA (with whom Macfarlan and Young JJA agreed) cited a passage written in Coorey v Coorey (Supreme Court (NSW), Powell J, 22 February 1986, unrep):

" … [O]ne’s task is, first, if it be possible, to ascertain, what was the basic scheme which the deceased had conceived for dealing with his estate, and, then, so to construe the will as, if it be possible, to give effect to the scheme so revealed."

  1. In Muir v Winn [2009] NSWSC 857, Bryson AJ wrote at [24]:

"It is necessary to seek to understand the scheme of a testator's dispositions. Where the terms of the will are perfectly clear search for the scheme may be of little use, but where the language is obscure or the effects of the literal reading and the reasoning impliedly underlying it are startlingly unlikely, as in this case, the scheme of dispositions is very important."

  1. The expressed intention of the deceased in relation to the scheme is to be found in the answer to the question, “what is the meaning of what the will maker has written”, and not to the question, “what did the will maker mean to write?”: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [53] (Gummow and Hayne JJ) (also, see Heydon and Crennan JJ at [102]–[107]).

  2. In Byrne v Macquarie Group Services Australia Pty Ltd [2011] NSWCA 68 at [2], Campbell JA wrote, in another context, that construction is a process of coming to understand the meaning of a text, which meaning is disputed. It involves a consideration of the disputed text in itself, both as a whole, and in its constituent parts.

  3. (An application for leave to appeal to the High Court was dismissed in Byrne v Macquarie Group Services Australia Pty Ltd [2011] HCASL 167 by Hayne and Crennan JJ as no disputed point of general principle would fall for consideration if special leave to appeal were granted and as the appeal would enjoy insufficient prospects of success to warrant a grant of special leave.)

  4. In Fulton v Fulton [2014] NSWSC 619, which I referred to more recently in Estate of Aspasia Kandros [2019] NSWSC 757 at [44], I wrote, at [201]:

“The object of a will construction suit is to ascertain the intention of the deceased as expressed in his, or her, will, or codicil, when it is read as a whole. The intention of the maker of the testamentary instrument has been referred to as the ‘pole star’ in the construction of wills: Thomson v Thomson [2008] VSC 375.

  1. It is necessary, in relation to the estate of a person who dies after 1 March 2008, to refer, on the question of construction, to the Succession Act 2006 (NSW) which so far as is relevant, in s 32 provides:

“Use of extrinsic evidence to construe wills

(1) In proceedings to construe a will, evidence (including evidence of the testator's intention) is admissible to assist in the interpretation of the language used in the will if the language makes the will or any part of the will:

(a) meaningless, or

(b) ambiguous on the face of the will, or

(c) ambiguous in the light of the surrounding circumstances.

(2) Despite subsection (1), evidence of the testator's intention is not admissible to establish any of the circumstances mentioned in subsection (1) (c).

(3) Despite subsection (2), nothing in this section prevents evidence that is otherwise admissible at law from being admissible in proceedings to construe a will.”

  1. In this case, it is accepted by the parties that there was no extrinsic evidence that could be used to construe the deceased’s Will.

  2. In ANZ Executors & Trustee Co Ltd v McNab [1999] 3 VR 666, Fullager J wrote, at 667:

“The search for testamentary intention must be a search for intention disclosed by the words used, and in this search words must prima facie be given their ordinary meanings and, if the law has consistently given a particular meaning to some word or phrase, that is the meaning which the word or phrase must prima facie be given. Nevertheless, the intention is to be gathered from a study of the will as a whole, and in the light of any relevant and admissible evidence of surrounding circumstances.”

  1. In this case, it is next necessary to refer to the meaning of the express power given to the executor to “appropriate in full or partial satisfaction of any beneficiary’s share” in Clause 5.6 of the deceased’s Will.

  2. A power of appropriation can be employed in lieu of a distribution to a beneficiary of an equivalent sum of money, to which she, or he, might otherwise be entitled in accordance with the terms of the Will whether by way of a specific legacy or by way of a share in residue.

  3. The purpose of such a power has been described in GE Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [13.15] as:

“Were there no means whereby the personal representative and legatee could agree to apply the property itself in full or partial satisfaction of the legatee’s entitlement, it would dictate that the only way the legatee could secure the property would be subsequent to its sale by the personal representative, which would in turn give the legatee the necessary funds to purchase the property. The common law sought to circumvent a process so convoluted, redolent with transaction costs, by vesting in personal representatives a power to apply (the formal legal term adopted is ‘appropriate’) the item of property in specie in full or partial satisfaction of the legatee’s share in the estate.” [footnotes omitted]

  1. A commonly accepted theoretical basis upon which appropriation operates has been described by Griffiths CJ in Wigley v Crozier at 438:

The principle on which an appropriation of specific assets may be made in satisfaction of a legacy (whether specific or of residue) is stated by Buckley J in In re Beverly; Watson v Watson ... . It is correctly stated in the head-note as follows:

“The principle upon which executors and trustees under a will which contains a trust for sale and conversion have power to appropriate any specific part of the residuary estate towards satisfaction of a legacy or share or residue, is that they have power to sell the particular asset to the legatee, and to set off the purchase money against the legacy.”

  1. At 431, O’Connor J adopted counsel’s proposition that “a valid appropriation is a substitute for a valid sale”.

  2. In Re Estate Late Austin Mack (1956) 73 WN (NSW) 218 at 220-221, Sugerman J (with whom Herron and Kinsella JJ agreed), wrote:

“An appropriation of an asset, at a valuation, to a share of residue is equivalent to a sale of the asset to the beneficiary at a price equal to the valuation, made upon the terms that the purchase money is to be set off, pro tanto, against the amount of the share.”

  1. A power of appropriation was described in Long v Comptroller of Stamps [1964] VR 796 at 801, by Adam J, as a power:

“… of an administrative nature which permits of specific assets being transferred or appropriated to a beneficiary in or towards satisfaction of his share in a trust estate without the necessity for conversion. The nature of the power is most clearly seen in … cases … where a trustee, because authorized to convert the trust estate, may with the consent of a beneficiary transfer assets in specie to such beneficiary at a valuation setting off the price against the beneficiary's share in the estate.”

  1. In Lystra Allison Tagliaferri as Administrator of the Estate of David Eugenio Tagliaferri v Lystra Allison Tagliaferri and Lisa Dianna Sawyer as Trustees for Hayley Beatrice Tagliaferri and Caitlyn Thelma Tagliaferri [2013] WASC 321 at [11] (‘Tagliaferri’), EM Heenan J, wrote:

“…The power of such appropriation is further discussed in Ford & Lee, Principles Of The Law Of Trusts at [16,200] where the learned authors explain that the principle upon which trustees have power to appropriate any specific part of a residuary estate towards satisfying a legacy or share of residue is that they have power to sell the particular asset to the legatee, or beneficiary, and to set off the purchase money against the legacy or entitlement: see In re Beverley; Watson v Watson [1901] 1 Ch 681 and Wigley v Crozier (438).”

  1. In Yule v Irwin (No 2) [2016] SASC 178 at [168], Nicholson J wrote:

“There are some basic rules concerning the exercise of a power of appropriation. At common law an executor cannot force a beneficiary to accept a particular asset in partial satisfaction of the share of the residuary estate. Essential to an appropriation is the beneficiary’s consent to the receipt of a particular asset in lieu of a monetary sum to which the beneficiary is entitled. However, an appropriation in favour of one beneficiary, even if that beneficiary is themself one of the personal representatives, can be effected without requiring the consent of and notwithstanding the objection by any other beneficiary. There is no requirement for an appropriation to be evidenced in a particular way such as by deed or in writing.” (Footnotes omitted)

  1. In St John v St John [2021] NSWSC 399, Parker J observed, at [30], that “the effect of an appropriation at a nominated valuation is to sell the appropriated asset to the beneficiary at that valuation, which is set off against the beneficiary’s entitlement under the will”. His Honour added that the power must be exercised in a way that is not to the detriment of the estate or to the beneficiary whose interests is affected, whether generally or particularly.

  1. Where a legal personal representative has a beneficial interest in the estate, she, or he, is entitled to self-appropriate in respect of that interest: In the Estate of Gamble (1915) 32 WN (NSW) 121. This is an exception to the prohibition of a trustee from engaging in self-dealing: Tagliaferri at [7] (EM Heenan J).

  2. In Tagliaferri, at [45]-[46], E M Heenan also wrote:

“Any such appropriation made, as in the present case, would be the equivalent of a sale by the personal representative to herself of an asset of the estate. This raises the question of whether or not the trustee is subject to the purchase rule which prohibits a trustee from purchasing trust property for her own interest. As for an appropriation by a personal representative in favour of himself or herself, and the purchase rule, there is no equivalent in s 30(1)(k) of the Trustees Act of cl 7(1) of the Fourth Schedule of the Administration Act expressly authorising such a 'purchase'.

Generally speaking, the purchase of trust property by a trustee is not permitted except with the consent of the court or pursuant to an express power – Williams v Scott [1900] AC 499 and Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 [50] - [53] but this does not apply to an executor or administrator appropriating specific assets in satisfaction of a share in residue – Re Richardson [1986] 1 Ch 512; In the Estate of Gamble (1915) 32 WN (NSW) 121; In the Will of Hinsch (1896) 17 LR (NSW) BOP 21; and Re Pearce [1936] SASR 137 – see Ford & Lee, Principles of the Law of Trusts [60 200] and Jacob's Law of Trusts in Australia [1743].”

  1. It was submitted that there was no evidence that agreement was not able to be reached before the appointment of Mr Craig. I do not accept this submission as it flies in the face of all of the evidence. The email correspondence to which reference has been made requires me to reject the submission.

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

  3. There is no reason to consider that the reference to an independent valuer would not have the same meaning.

  4. There was a complaint made that each of the two valuations obtained by the Defendant from him were not ones to which the Will referred. It is not really necessary to deal with the first valuation said to have been obtained “for Probate purposes” as this is not the valuation upon which the Defendant ultimately relied in reaching the amount to be attributed to the Plaintiff’s 25 per cent share of the Tarana property.

  5. (In Re Estate of Boian, the administrators (who were also beneficiaries) of an intestate estate sought judicial advice in relation to the exercise of the statutory power of appropriation. Young AJA observed at [28] that “one must never appropriate on the basis of valuations obtained for probate purposes” and, more specifically, that “[t]here must always be proper independent valuations made close to the time of the proposed appropriation”.)

  6. In the deceased’s Will, the date of the valuation of the property to be appropriated was not identified. In Williams on Wills (11th ed, 2021, LexisNexis) at [29.11] under the heading: “Value for Appropriation”, the following passage appears:

“An appropriation must be fairly made at a valuation taken at the date of the appropriation, and an executor or trustee who makes an appropriation which is not fair according to such valuation of the appropriated property is guilty of a breach of trust. A beneficiary who takes the appropriated property with knowledge of such breach of trust is also liable to make good the breach of trust. Not only must the appropriated property be valued, but where the person to whom the property is appropriated is not entitled to a specific sum of money, the other property of the estate must be valued at the same time to ensure he is receiving a proper share and receiving no more than he is entitled to.” (Footnotes omitted)

  1. In Robinson v Collins [1975] 1 WLR 309 at 314-315, although a case involving a statutory right of appropriation, Pennycuick V.C. stated:

“Mr Parker for the widow contended that, notwithstanding that in the ordinary case under s 41 of the 1925 Act, the value of the appropriated assets must be taken as the date of the appropriation, in this particular case an appropriation under Schedule 2 to the 1952 Act the value must be taken as the date of death. He relied, principally, on the point that under Schedule 2 the widow has a right to insist on an appropriation, and then he equated this position with that in which a beneficiary had an option to purchase an asset at the date of the death of the testator. He relied on Talbot v Talbot [1967] 2 All ER 920, (1968) Ch. 1, in the Court of Appeal which was the case of an option given by a testator to two of his sons to purchase the farms in which they lived together with some land which went with them ‘at a reasonable valuation’. And it was held that the relevant date for the valuation was the date of death because it was then that the rights of the option beneficiaries accrued …

It seems to me, however, that the short answer to that contention is that the 1952 Act did not confer on the surviving spouse an option to purchase. What the 1952 Act does, read in conjunction with the 1925 Act, is to confer a right on the surviving spouse to have the matrimonial home appropriated in or towards satisfaction of a fixed sum charged on the estate, that fixed sum being in the nature of an absolute interest. That being the position, I can see no valid reason for departing from the general rule applicable to appropriation under s 41 of the 1925 Act. If parliament had intended that the appropriation should take effect retrospectively as at the date of death, one would have expected this result to be achieved by plain words. The words actually used are quite inept to achieve such a result. No injustice is involved in this conclusion. There is no reason that I can see why the widow rather than the other next of kin should benefit from rising house prices or indeed, in the contrary case, less familiar in the circumstances of today, suffer from a fall in house prices.

I conclude that I must answer the question in paragraph 3 of the summons in accordance with alternative (c), i.e. the value thereof at the date when the personal representatives appropriate the same.”

  1. In Yule v Irwin at [174], Nicholson J wrote:

“Any appropriation of an asset towards the entitlement of a beneficiary is made at the value of the appropriated asset as at the date of appropriation rather than as at the date of the deceased’s death.”

  1. The meaning of “valuation” is described in the Encyclopaedic Australian Legal Dictionary, online ed, as “the act or process of ascertaining the worth of a thing” and “the assigning of a value to land, property, or assets, usually to establish the likely market price”.

  2. The valuation of real property is described as “[b]oth the activity of assessing land value and the reduction of that assessment to written form, and includes the amount of the valuation … . The value will be the price at which a sale, after proper negotiation between willing parties, would probably be concluded. Formal valuations are often undertaken for a variety of commercial reasons. It is not a science, but an imprecise, opinionative activity involving the consideration of many variables, sometimes with different but equally legitimate outcomes”.

  3. This meaning accords, broadly, with what was written in Spencer v The Commonwealth of Australia (1907) 5 CLR 418 at 441; [1907] HCA 82 (Isaacs J), that value means the price which a buyer would give, and a seller take, for the land in all the relevant circumstances at the acquisition date, assuming the hypothetical buyer and seller are parties “…willing to trade, but neither of them so anxious to do so that [they] would overlook any ordinary business consideration”, and both being “perfectly acquainted with the land, and cognizant of all circumstances which might affect its value”.

  4. The value of property, “for stamp duty purposes”, refers to the “market value” of the property, as at the date of the conveyance. The ordinary principles of valuation set out in Spencer v The Commonwealth of Australia apply to the determination of dutiable value of land and the price is to be assessed with regard to the highest and best use of the land: SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395 at [168]; Commissioner of State Revenue v Hazel Holdings Pty Ltd [2014] WASCA 203.

  5. Whilst not specifically stated in Clause 5.6 of the deceased’s Will, the appropriation of the relevant property will be in its actual condition at the time of the appropriation. The property appropriated is taken “for better or worse, and any increase or decrease in the value of the appropriated property or the investments representing the same belongs to or falls on the beneficiary. Further, the beneficiary is not affected by any subsequent decrease in the value of the remainder of the testator’s estate or any part of it”: Liang Pui Saw Kian v Leung Yuk Chun [2016] HKCFI 1014 at [29] (Deputy High Court Judge Saunders).

  6. An appropriation does not require any writing to carry it into effect. However, insofar as an appropriation requires, for its complete effect, a transfer of property, the necessary transfer must be made in the appropriate way, either by delivery or writing under hand or by deed as the nature of the property requires. The effect of the appropriation is that the executor ceases to hold the property as executor, and if she, or he, does not transfer it, the property is held as a trustee for the beneficiary, and not as part of the assets of the deceased’s estate.

  7. Where other persons are interested in the property, the right of the executor to appropriate their share of the property is “governed by practical considerations and, in particular, by considerations of convenience of division and of the risk of prejudice to other beneficiaries": Manfred v Maddrell (1951) 51 SR (NSW) 95; Re Kippling [1914] 1 Ch 62.

Determination

  1. The deceased would have been likely to have been aware of the property that he owned at the time he made the Will. At the date of death, his estate consisted of the Tarana property and cash. Each of the parties, upon administration, was entitled to the percentage share of the deceased’s estate, after the payment of debts, funeral and testamentary expenses.

  2. I am also satisfied that the following matters are established by the evidence:

  1. The Tarana property was a part of the deceased’s estate

  2. The Tarana property was not an asset specifically given in the deceased’s Will to either the Plaintiff or the Defendant.

  3. As the value of the Tarana property was not agreed by the Plaintiff and the Defendant, as the only beneficiaries affected, its value was to be determined by an independent valuer. In this way, the value of the 25 per cent share would be determined.

  4. The purpose of the power that was conferred in Clause 5.6, was administrative and managerial. The effect on the beneficial interests was incidental. The division of the estate into percentages connoted two unequal parts into which the estate was divisible.

  5. The deceased gave the Defendant power to sell the Tarana property to a third party, and, thereafter, distribute the net proceeds of sale amongst the two beneficiaries in the stated percentages. She could also transfer the Tarana property, in specie, to the Plaintiff, as to 25 per cent, and as to 75 per cent, to the Defendant as tenants in common (provided all the debts funeral and testamentary expenses were satisfied). The disadvantage to following either of these courses was that other costs and expenses of sale would be incurred.

  6. There was also a power given to the Defendant, as the executor, to acquire, in full satisfaction, the Plaintiff's (“any beneficiaries”) share in the deceased's estate. That power provided the Defendant, at her discretion, to take a step without the consent of the Plaintiff. The Defendant could, if she wished to do so, acquire the Plaintiff’s lesser share in the estate, which effectively meant in the Tarana property, by triggering a process that required her to obtain an independent valuation of the share to be acquired and to pay to the Plaintiff the value of that share. This method provided an effective mechanism whereby the Defendant, if she wished to retain the Tarana property, effectively, to do so by paying a lump sum, based upon an independent valuation, reflecting the value of the Plaintiff’s 25 per cent share of the estate.

  7. There was no impediment, in the Will, preventing the Defendant from exercising the discretionary power given to her, in her own interest, as beneficiary, as there were only two beneficiaries named in Clause 4 of the Will (in the events that happened).

  8. The independent valuer was to be appointed by the Defendant, as executor.

  9. As a duly qualified valuer, Mr Craig falls within the meaning of “independent valuer” as stated in the Will.

  10. The meaning of value in Clause 5.6 imported the ordinary meaning of value, that is, the whole of the property to be acquired was valued, as at or about the date of acquisition, at what a person desiring to buy the property would have had to pay to a vendor willing to sell it for a fair price but not desirous to sell.

  11. The date for the independent valuation of the property to be appropriated was not stated in the Will. The operative, and practical, date for valuation would be at, or about, the date on which the Defendant made the acquisition.

  12. In April 2021, Mr Craig, an independent valuer determined the value of the Tarana property to be $420,000. Even though the valuation is now about 16 months old, the date of the acquisition was about May 2021, that is one month or so after the date of each valuation. Thus, the valuation was made sufficiently close to the time of the proposed acquisition.

  13. Once made, the acquisition made by the Defendant bound the Plaintiff and the Defendant, as each was interested in the estate, and the rights to a share, or interest, of the Plaintiff, if any, in the Tarana property itself, was able to be dealt with, or disposed of, freed from any such rights, subject to the payment to her of 25 per cent of the value of her interest in the estate based upon the value of the Tarana property so determined.

  14. Once the value of the 25 per cent share was properly calculated, and paid, the Defendant was entitled to make any conveyance which was necessary for giving effect to the acquisition. In this way, there was no variation to the value of the beneficial interests of each of the parties in the deceased’s estate.

  15. In circumstances where the Plaintiff did not wish to acquire the Defendant’s share in the estate, in terms of expediency, and commercial sense, the course adopted by the Defendant was available to her and was permissible and, in the circumstances, proper.

  16. There was no evidence of any differences in the capital gains tax cost bases of the Tarana property to be appropriated.

  1. Having considered all of the facts, it seems to me that the deceased, in using the words “appropriate … any beneficiary’s share” in Clause 5.6, wished to enable the acquisition of “any beneficiary’s share” by the other beneficiary of an asset not specifically given in the Will.

  2. Reading the Clause in this way enables sense to be made of the whole Clause:

“I DIRECT my executor may in my executor’s discretion:

…

without the consent of the beneficiary, acquire in full or partial satisfaction of any beneficiary’s share in my estate, any asset not specifically given in this will; the value of the asset acquired must either be agreed among the beneficiaries affected or, failing agreement, be determined by an independent valuer appointed by my executor; in acquiring any asset my executor need not take into consideration any differences in the capital gains tax cost bases of the assets acquired.”

  1. In my view, the method adopted by the Defendant was as a substitute for a sale of the Tarana property or the transfer to the Plaintiff and the Defendant as tenants in common in different shares, and then a subsequent sale by trustees for sale. The method used effected the intention of the deceased without circuity and to avoid the associated costs and expenses of a sale in the manner submitted by the Plaintiff.

  2. In view of the terms of the deceased’s Will, permitting the acquisition of “any beneficiary’s share” (the Plaintiff’s share) in the estate did not constitute a breach of trust.

  3. In all the circumstances of the case, the Plaintiff’s amended Statement of Claim should be dismissed.

  4. Counsel agreed that there may be a document that is relevant to determine how the costs of the proceedings should be borne. I shall allow the parties an opportunity to agree upon how costs should be borne and, if possible, the quantum of costs.

  5. The Court:

  1. Orders that the amended Statement of Claim filed on 11 October 2021 be dismissed.

  2. Stands the matter over to a date to be fixed to determine costs.

**********

Amendments

30 September 2022 - [11] "professional" changed to "professionally".

[142] "of" in the last line of the paragraph deleted.

Decision last updated: 30 September 2022

Cases Citing This Decision

0