Schaverien v Jones - [2007] NSWSC 1429

No judgment structure available for this case.

CITATION: SCHAVERIEN & ANOR v JONES [2007] NSWSC 1429

HEARING DATE(S): 4, 5/10 & 27 & 30/11/2007

JUDGMENT DATE :
11 December 2007

JURISDICTION: PROBATE

JUDGMENT OF: Bryson AJ at 1

DECISION: 1. With effect on the date of this order, Revoke Probate of the will of the late John Lawrence Sheaffer granted on 9 November 2005 to Lynette Regina Schaverien, Caroline Frances Jones and Geraldine Siba Winnett; 2. Order that the Probate document be forthwith delivered to the Registrar and be cancelled by him; 3. Grant Probate of the last will and testament of the late John Lawrence Sheaffer late of Northbridge in the State of New South Wales Engineer deceased to Lynette Regina Schaverien of 31 Kendall Road Castle Cove New South Wales and Geraldine Siba Winnett of 17 Fred Williams Crescent North Lyneham in the Australian Capital Territory two of the executors appointed under the will; 4. Order that the defendant pay the plaintiffs’ costs of the proceedings.

CATCHWORDS: WILLS, PROBATE and ADMINISTRATION - probate - revocation of grant - conduct of executor - on extensive consideration of events in estate administration where there had not been effective co-operative action by three executors the grant was revoked and a further grant was made to two of them.

LEGISLATION CITED: Civil Procedure Act 2005 s 26
Supreme Court Act 1972 s 63

CASES CITED: Bates v Messner (1967) 67 SR (NSW) 187
Gibson v Buchanan [2004] NSWSC 957
In the Goods of Loveday [1900] P 154
McDonald v Ellis [2007] NSWSC 1068
Mavrideros v Mack (1998) 45 NSWLR 80

PARTIES: Lynette Regina Schaverien - 1st Plaintiff
Geraldine Siba Winnett - 2nd Plaintiff
Caroline Frances Jones - Defendant

FILE NUMBER(S): SC 108076 of 2007

COUNSEL: M. Willmott SC - Plaintiffs
R.D. Wilson - Defendant

SOLICITORS: Teece Hodgson & Ward - Plaintiff
Business Lawyers (Liverpool) P/L - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
PROBATE LIST

BRYSON AJ

Tuesday 11 December 2007

Estate of the Late John Lawrence Sheaffer

JUDGMENT

1 BRYSON AJ: John Lawrence Sheaffer of Northbridge, retired engineer (the testator) died on 8 August 2005 and on 9 November 2005 this Court granted probate of his will dated 18 June 1996 to the executrices he appointed: they are his three daughters, and two of them Dr Lynette R. Schaverien and Mrs Geraldine S. Winnett are the plaintiffs; the third Dr Caroline F. Jones is the defendant. The plaintiffs’ principal claim is for revocation of the grant of probate, and for a further grant of probate to themselves to the exclusion of the defendant. The central allegations in the Statement of Claim, which are denied, are in paras 6 and 7 to the effect that the defendant has failed and refused and continues to fail and refuse to permit the plaintiffs to join as co-executors to complete due and proper administration, that the proper administration of the estate has been put in jeopardy and prevented by acts and omissions of the defendant; and that she is not a fit and proper person to carry out the duties which she is obliged by law to perform. The plaintiffs invoke the inherent power of the Court to revoke probate recognized in Bates v Messner (1967) 67 SR (NSW) 187; this power can override the entitlement to probate of an executor appointed by will, and is exercisable in cases of misconduct or unjustifiable delay by an executor: see Mavrideros v Mack (1998) 45 NSWLR 80 and see also Gibson v Buchanan [2004] NSWSC 957.

2 In Bates v Messner Asprey JA said at 191:

“The real object which the Court must always keep in view is the due and proper administration of the estate in the interests of the parties beneficially entitled thereto on the part of the person to whom and by whose oath as to the faithful performance of his duties the Court has been induced to entrust the office of executor."

3 The power was stated quite broadly by Jeune P in In the Goods of Loveday (1900) P 154 at 156 in a passage which was set out and approved in Mavrideros v Mack by Sheller JA at pp 101-102.

“After all, the real object which the Court must always keep in view is the due and proper administration of the estate and the interest of the parties beneficially entitled thereto; and I can see no good reason why the Court should not take fresh action in regard to an estate where it is made clear that its previous grant has turned out abortive or inefficient. If the Court has in certain circumstances made a grant in the belief and hope that the person appointed will properly and fully administered the estate, and if it turns out that the persons who were appointed will not or cannot administer, I do not see why the Court should not revoke an inoperative grant and make a fresh grant."

4 While the conduct of the executor and ability for the duties of executorship receive close attention the jurisdiction is not punitive. The considerations are pragmatic and relate to the effective and efficient administration of the estate and the interest of the persons beneficially entitled. It is necessary that arrangements made by the existing grant of probate should for some sound reason be shown to be impracticable so that the Court should no longer give its authority to them. Cases of this kind will often involve impeachment of the conduct of an executor, but that is not the primary focus, and a clear demonstration of shortcomings in an executor is not necessarily part of the ground on which the Court acts. In this case, where personal conflicts brought estate administration to something near paralysis, there is a need for an expedient solution, even if that solution may be less than perfectly fair to someone who is affected by it.

5 The conduct of estate affairs during the period with which the evidence deals, which begins shortly after the grant of probate, has been attended with an astonishing array of difficulties the source of which is not always easy to see. In my finding the true source of conflict lies in personal relations among the executors, who as I have said are sisters, and appear to suffer from insurmountable difficulty in achieving co-operation and practical outcomes. Decision does not turn on the attribution of blame for the difficulties which have arisen; as is often the case in conflicts among family members, confident attribution of blame cannot be made because a recession of causes could after investigation be found to lie behind each difficulty. The affairs of this estate require care and close attention but do not appear to be unusually difficult. The tasks of administration are well within the range of the capacities of educated persons of no more than ordinary business competence, with professional assistance.

6 Collection, realisation, interim investment, apportionment and distribution, and incidental tasks such as preparing tax returns, are not essentially difficult, nor should they take a great deal of time; a year from the death of the testator, or if not then a year from the grant of probate was more than ample for completing them. Difficulties and significant delays occurred essentially because the relationship was conflictual. Decisions even on matters which to an outsider appear relatively simple were not made readily or quickly, and communications became enmeshed in controversy and in correspondence between solicitors. The correspondence is marked with acrimonious and intemperate expressions and insistence in peremptory terms, in some respects on the part of the plaintiffs but far more markedly on the part of the defendant.

7 The parties are not prepared to join in accepting the guidance of a solicitor with expertise in estate administration, although one is available and has instructions to act in the administration, and each executor has also consulted one or more other solicitors. On 19 January 2006 the parties instructed Mr David Beattie solicitor who practises in York Street Sydney to act as the estate solicitor in the administration of the estate. As Mr Beattie's evidence shows, and many documents confirm, it has been a continuing feature of the administration of the estate that there have been disputes between the parties as about steps in administration of the estate; and the parties have not reached agreement on even simple action or have taken very long times to do so. Mr Beattie, who has experience in business of this kind, says that the administration of the estate has been unduly delayed and that extensive legal costs have been unnecessarily incurred to his professional services.

8 It was altogether unsatisfactory, taking the broadest possible view, that although Mr Beattie was instructed in January 2006, a great deal remained to be done and only a relatively small part of the estate assets had been realised and distributed when the present litigation was commenced on 21 May 2007. If Mr Beattie’s judgment had been accepted and his advice followed, there could have been few problems, and I see no good reason why they were not. By contrast, progress was rapidly made within two weeks after the commencement of the litigation; and a large distribution of assets took place in June 2007. There appear to be relatively few executorial tasks still to carry out. When the hearing resumed on 29 November 2007 it remained to distribute furniture, jewellery and other personalty, and to distribute cash in a Westpac account in the order of $400,000. Outstanding estate business includes business relating to this litigation, payment of accountants’ and estate solicitors’ charges and other administration costs and completion of estate tax returns. The remaining business is significant. In view of the state of relations among the executors it is very unlikely that it will be attended to in an effective way. These are not matters which involve any great difficulty, or require high professional skill or ingenuity; a little cooperative application to their duties could have dealt with the remaining tasks.

9 A strong characteristic of estate affairs has been complex systems of communication. From an early stage solicitors on behalf of the plaintiff and of the defendant were communicating with each other. Direct communications also took place. At almost all times the parties have had lawyers to conduct their correspondence, while continuing Mr Beattie’s instructions to conduct estate affairs.

10 Solutions which sometimes present themselves where the Court is confronted with family conflicts in estate administration are not available here. The Court’s usual recourse where trustees are in conflict is to appoint new trustees, if at all possible professional trustees such as a trustee company or solicitors, but I have been informed by counsel that no trustee company has been found ready and willing to undertake the responsibility. It is open to the Court of its own motion to order that the administration of the estate proceed under the direction of the Court. I considered doing this, as most of the practical steps which administration of the testator's assets seems to require have now been completed, largely since the commencement of the proceedings, leaving steps of no great apparent difficulty. I have decided not to take the estate under the general administration of the Court, because it seems probable that there would be very numerous attendances, having regard to the earlier history of difficulty in obtaining co-operation.

11 The testator’s will appointed his three daughters to be his executors and trustees and in indirect language gave them all his assets. As cl 2 appointed them trustees all the assets which pass to them are held on trust. Clause 3 of the will created a trust for (3(a)) payment of debts, funeral, testamentary expenses and charges and (3(b)) to hold eighteen-twenty-fourths of the residue then remaining on trust for the three daughters “in equal shares as tenants in common and to distribute such shares to my daughters as and when required by my said daughters." The property the subject of the trust in cl 3 was “such part amount or portion of my estate as constitutes the combined value of the trusts referred to in clauses 3(a) and 3(b) hereof.” Clauses 4, 5 and 6 created three other trusts, which I call the sub-trusts; one of the daughters was sole trustee of each sub-trust and the beneficiaries were her children or child: three-twenty-fourths to Mrs Winnett on trust for her three children, two-twenty-fourths to Dr Schaverien on trust for her two children and one-twenty-fourth to Dr Jones on trust for her son. The property the subject of the first sub-trust was “three-twenty-fourths of the residue of my estate then remaining” (with similar dispositions of two and one-twenty-fourths to the other two sub-trusts). Interests of each particular child become vested when the child attains 25 years, and some of them have done so. Provisions for persons who have not attained the age of 25 are contingent and not vested (cl.10(a)).

12 The will gave very full powers to the trustees including power to sell property and postpone sale, and power to appropriate part of assets or investments towards the share of any beneficiary. Although there is a power of sale there is no trust for sale and the trustees are not required by the terms of the trust to convert shares to money and to distribute money; while having discretion to do so. The will contains (cl 9) a provision exempting trustees from liability otherwise than for losses arising out of wilful neglect and default, and powers (cl 7(d)) to sell assets, (cl 7(c)) to postpone sale, (cl 7(h)) to appropriate assets towards shares of beneficiaries or trusts. There are also powers to charge a share with a sum of money by way of equality, cl (7(i) to determine the part of capital to be applied to beneficiaries and cl (7(u)) to appropriate and partition property to shares of beneficiaries. The same powers are conferred on each of the executors as trustee of a sub-trust.

13 The testator's assets disclosed in the probate inventory included 13 bank accounts and interest-bearing deposits with Westpac Banking Corporation, three MLC life insurance policies which yielded $153,368.65, an investment portfolio of shares and investments listed on the Australian Stock Exchange and several listed overseas, a 1999 Holden Vectra motorcar valued for probate at $15,000 and a residential property at Harden Avenue Northbridge; the executors attributed values to them totalling $5,279,072.65. If an interest rate of 6% is applied to the probate valuation of $5,279,072.65, the result suggests that the time value of estate assets, or the delay cost to beneficiaries generally if distribution is delayed, is about $868 per day. This gives scale to concerns and discussions about the significance of expenditure on costs of administration and small anomalies in distribution: an economy of a few hundred dollars is dearly bought if it involves a few days’ delay.

14 The money in Westpac accounts and the life policies were realised within a few months. Some holdings of shares, regarded as relatively minor holdings, were sold in or by November 2006 and the proceeds realised, precipitating liability for CGT.

15 The house was sold on 16 March 2007 for $950,000 and the sale was completed on 20 April 2007, yielding $927,319.91. Settlement took place few days earlier than the contractually required date.

16 By February 2007 there had been one distribution of $720,000 cash about 25 October 2006, the shareholdings treated as relatively major were still held, and the house property and the motor vehicles were unsold. There had been no agreed disposition or even agreed identification of all the items comprising furniture, jewellery and personal effects and the motor vehicle had not been disposed of and was unregistered. When the litigation was commenced on 21 May 2007 the position was much the same except that the proceeds of sale of the residential property had been collected and two more listed securities had been sold. There was cash on hand in four different accounts totalling, on 23 May 2007, $2,382,340.05.

17 The commencement of the litigation precipitated agreed arrangements and court orders which led to the distribution in June 2007 of the remaining shares, listed investments and part of the cash and to the sale of the motor car. The order relating to share distribution of 4 June 2007 was carried out soon after, not without difficulty.

18 Unfortunately some assets of relatively minor value, by no means unimportant, were not listed or valued in the probate inventory and have become the subject of poorly defined contention. I am not asked in the Statement of Claim to resolve this contention; what was claimed was an order under Civil Procedure Act 2005 s 26 referring to mediation such part of the proceedings as I think appropriate. At the conclusion of the second hearing day I made an order for mediation. The mediation produced limited results, arrangements for preparation of estate tax returns for the years to 30 June 2007 and 30 June 2008 “on the basis that all income and capital gains taxes should be allocated to beneficiaries” and related arrangements.

19 The late mother of the executors died on 17 December 1995 and probate of her will was granted to the testator, in the Australian Capital Territory. Some of the jewellery in dispute is said to be assets in her estate. Dr Schaverien removed jewellery, from the defendant’s home in February 2006 in circumstances which are disputed. This is said to be or to include their late mother’s jewellery.

20 The defendant brought proceedings against the plaintiffs in the Small Claims Division of the Local Court at the Downing Centre in which she claimed that a watch and some jewellery which had been held in a safe deposit box at Westpac Bank George Street Sydney and had been removed by the defendants, belonged to her. This litigation was resolved in some way, the details of which I am not concerned with.

21 I did what I could to promote resolution of disputes and possible disputes about the testator’s jewellery and personal effects, mindful of s 63 of the Supreme Court Act 1972, but without result.

22 Mr Beattie is in the difficult position that he cannot safely deliver any of the jewellery which he holds to anyone unless he has authority of all three executors to do so, or unless he is directed to do so by a court. I made several references during the hearing to jewellery, to the need to establish of ownership of respective pieces and to Mr Beattie’s difficulty, but they have not led to any in progress towards resolution; nor has the mediation which I ordered.

23 Many events in the voluminous documents in evidence have struck me as unsatisfactory. Nondisclosure of jewellery, furniture and personal effects in the probate application was a quite important failure to meet obligations. This was compounded when I learned that there were not, even at the hearing, any agreed lists of the jewellery of the testator's estate, or agreed values. It became obvious from observations of counsel that there will be disputes in identifying, valuing and distributing these items. I sought to give some definition to contentions relating to jewellery, furniture and effects of the testator. It seemed to me that if there were a clear statement establishing what the jewellery, furniture and effects were, and if their values were in some way established, it might become easy for the parties to come to some agreement on their distribution, or for the Court to partition the assets by some fair means such as offering choices of assets in rotation, or assembling parcels of equal value and drawing lots. However there is no clear statement and there are no agreed values.

24 There was little need to meet estate obligations in money. The motor car and the residential property do not lend themselves to being distributed in specie; the executors eventually sold them, not without dispute, yielding funds which could be distributed. Shares and other listed securities are in principle readily distributable in specie, with minor adjustments where the number of shares is not evenly divisible by 24. Although this is simple in principle it may not be simple in detail, especially for small parcels of shares. The difficulties were reduced when the executors decided to sell and sold some parcels. Except where the executors decided to sell a parcel, their task is to apportion the shares among the trust and the three sub-trusts and transfer shares in specie to the respective trustees. Unless some other result is produced by a sale or appropriation to which all trustees agree the property which the will gave to each trust and the executors should distribute is shares of the residue. Shares of money are easily calculated and paid over. If residue includes a parcel of shares, the gift in the will is to be carried out by transferring to the trustees of the major trust and to the trustee of each sub-trust so many of the shares in that parcel as equates to the appropriate number of twenty-fourths of that parcel. If there are fractions which cannot be fitted into twenty-fourths the trustees should not transfer the small number of shares affected by the fractions, and must find some other fair means of distributing the fractions. Commonsense and co-operation should solve the problem of fractions.

25 In the administration of estates and distribution of estate assets it is necessary for pragmatism to have some operation. Doubts and uncertainties and possible inequalities of outcome relating to a few dollars in the value of assets, or even a few hundred dollars, should not be allowed to prevent or significantly impede distribution of assets worth some millions of dollars, in which a number of people have large interests, for which time value or notional interest cost greatly outweighs the matter which is uncertain. As the executors are beneficially entitled to parts of the estate, they are in a position to make minor adjustments and smooth out minor difficulties by acting against their own interests where some adjustments between those interests and the other beneficiaries is required; rounding down to even dollars, or up to whole shares, against themselves. Minor accommodations like this smooth paths, do no harm, are very useful and commonly happen. The intractable nature of the defendant’s demands left no room for consideration of such matters.

26 A number of matters which appear to be relatively simple, such as putting the car in repair and selling it, and putting the house property on the market, putting it in good order to be offered for sale, selecting and appointing an agent and selling it, became enmeshed in difficulties of communication, and differences of view about the right course to take in circumstances which appear to give little ground for difference of opinion. The defendant insisted that the motor car stay where it was untouched in the carport of the testator's residence; when doing so she noted the odometer reading. She did not withdraw this prohibition in a clear way. She did not agree with the plaintiffs’ proposal for its sale through Pickles auctioneers, but did not make concrete proposals about any other manner of sale in a timely way. The registration expired. Correspondence descends to such details as where in the carport the motor car was parked (Ex A/146). The outcome of these differences was that the car remained unmoved and unused, undergoing deterioration to batteries and otherwise, for many months before it was disposed of in June or July 2007 under directions of the Court. The car has been the subject of attention and feeling disproportionate to its value.

27 The sale of the house property became enmeshed in controversy and communications about choosing an appropriate agent; I am not able to see why differences of view were not resolved by appointing the agents which each party wanted to act in conjunction; but that did not happen. Contracts were exchanged on 16 March 2007 and settled on 20 April 2007. The signatures of each executor on the transfer were necessary if Mr Beattie was to effect settlement. The plaintiffs signed but the defendant held the transfer until the day before settlement. She told Mr Beattie that she would not sign the transfer unless it was agreed that the balance of the proceeds of sale were paid into the Maxi-I account at Westpac. The plaintiffs agreed, and she delivered the signed transfer to Mr Beattie on the day before settlement. It was appropriate that the proceeds of sale should be kept in an interest bearing bank account in the names of the three executors; but only until it could be distributed, as the executors had no need to retain such a large amount. It was not appropriate to take or threaten any action which could jeopardise the ability of the executors to complete the sale.

28 There were also lengthy communications about the selection of shareholdings which it was appropriate to sell. Estrangement among the executors produced many inefficiencies in estate affairs. Process for signing cheques took place through correspondence, involving delays. Some relatively minor aspects of estate affairs, such as insurance on the contents of the testator’s house, gave rise to detailed correspondence and complaints. The taxation return to 30 June 2006 was delayed and lodged about 7 or 8 May 2007 when there was an extended lodgement deadline of 15 May 2007.

29 The principal difficulty which obstructed distribution was the defendant's insistence on resolution before shares were distributed in specie of a problem which she perceived relating to establishing cost bases to be used when in the future beneficiaries dispose of shares or deal with shares so as to incur capital gains tax (CGT). There is no doubt about the importance of establishing the cost bases for distributed shares with whatever information is within the reach of the executors, among the testator's papers or from other sources. This was not a simple matter as parcels of shares were acquired in many acquisitions through new issues and purchases over a number of years. Concealed within a parcel of shares might be many different cost bases attributable to different acquisitions, and when the parcel is distributed in twenty-fourths, apportionable among the twenty-fourths. Persons to whom shares are distributed have a real need for all available information about cost bases; and have an entitlement to be given whatever information trustees have on such a matter: see my decision in McDonald v Ellis [2007] NSWSC 1068. However distribution and the establishment of the cost bases are not interdependent; there was no sound ground for adamant refusal, which the defendant expressed in various ways and at various times, to participate in distribution or decisions relating to distribution unless the position about cost bases and CGT was established in accordance with her own view. The defendant put this position, or positions close to it, on a number of different occasions, and with great firmness, and her insistence on the adoption of her own view of the appropriate method was intractable.

30 An early and strong indication of the defendant's position on cost bases is in the document headed “Executive Summary” (Ex A, p 23), which she prepared shortly before going overseas in February 2006; she returned early in April. Among other things she said in this document "I will not agree to sign any transfer document, unless it is agreed to accept the correct cost bases and have them incorporated in the final distribution deed." Later in the document she expressed concerns about the impact of cost bases including considerations affecting the position of her son Mr Daniel Jones; she contended (Ex A, p 26) to the effect that he would be disadvantaged by receiving an entitlement in specie, because if he later incurred CGT on a disposition, he would pay tax at higher rates than other grandchildren as he was earning more than they were; naturally enough, as some of them were still students. She also said that for him there were brokerage costs to be considered.

31 There is a remarkably large volume of correspondence among the parties and among their solicitors in evidence. The correspondence demonstrates from start to finish the conflictual nature of the relationship and the difficulty of conducting business under it. At many points there are passages in which the defendant has expressed herself with great vehemence in terms which impede ready communication.

32 Mr Beattie advised in favour of administration by an external administrator appointed by the Supreme Court in June 2006; however this step was not taken. On 9 August 2006 the defendant’s solicitors expressed her view (Ex A/112) that the executors should retire in favour of the Public Trustee or an authorised trustee company. The plaintiffs did not agree.

33 On 26 October 2006 Bradley Allens Lawyers of Canberra who represented some minor beneficiaries called for distribution (Ex A/136). Further correspondence from Bradley Allen maintained this call.

34 On 15 December 2006 (Ex A/160), while dealing with many other matters, Mr Neal the plaintiffs’ solicitor referred to consideration by the plaintiffs of approaching the Court for an order removing the defendant as executor and trustee.

35 On 10 January 2007 Mr Neal on behalf of the plaintiffs in a letter to the defendant’s then solicitors said: (Ex A/164)

The estate administration should be finalised without delay, effecting a substantial cash distribution immediately, releasing the funds from the brokers account which have been inappropriately paid there, proceeding with the sale of the house and the sale of the motor vehicle and dividing up the share portfolio and the various chattels in accordance with the proportions to which the respective beneficiaries are entitled.

36 On 14 February 2007 (Ex A/175) Mr Neal wrote to the defendant’s solicitors proposing distribution of the share portfolio in specie. He enclosed a letter from RSM Bird Cameron of 12 February 2007 with a spreadsheet setting out a proposed pro rata distribution of the estate share portfolio.

37 Mr Neal said:

Your client appears to be following a course which is designed to increase the time frame for administration of the estate rather than promptly move to complete it. There is no warrant for this course of action.

Our clients have considered and taken advice on the share portfolio for the purposes of effecting an immediate distribution of it in specie. That consideration shows that this task is very straight forward. Copy letter from RSM Bird Cameron of 12 February 2007 with spreadsheet setting out the proposed pro rata distribution of the estate share portfolio in accordance with the entitlements under the Will is enclosed.

As well as effecting the distribution of the shares in specie, a further substantial cash distribution of $840,000 should also take place.

The above steps should be effected within the next seven days, in the case of the shares, by instructions being given to the estate solicitor, David Beattie, to prepare and distribute for signing the necessary share transfers.

38 The enclosed letter dated 12 February 2007 from RSM Bird Cameron and the enclosed spreadsheet proposed the distribution of numbers of shares representing the proportions for which the will provided; the shares were to be transferred to the major and minor beneficiaries. Some of the shareholdings were in numbers not equally divisible by 24 and the spreadsheet did not provide for transfer of a small number of shares, the value of which was said to total $1,964.59.

39 This proposed distribution did not distinguish among shares according to the cost bases and did not make any provision for the possible impact of CGT on transferees. The disposition did not accord with the provisions of the will, which RSM Bird Cameron had not seen. To accord with the provisions of the will shares attributable to minor beneficiaries should be transferred to the particular executor who is the trustee of the relevant sub-trust. The interests of minor beneficiaries were contingent on attaining the age of 25 years, which only one of them had done.

40 The defendant herself replied to Mr Neal on 21 February 2007, having withdrawn the instructions of her own then solicitor. Her letter contains many immoderate, offensive and vituperative expressions. On the same day she sent a far longer letter to Messrs Bradley Allen who represented four of the minor beneficiaries. The letters completely disregard the courtesy and moderation necessary to make communication effective. Taken together these two letters of themselves demonstrate that co-operation with the defendant in estate affairs is so difficult that no one should be required to attempt it. However the letter to Mr Neal contained some passages which convey the substance of her objections to the RSM Bird Cameron distribution: (at 182)

For almost each holding, there are very large numbers of separate purchase dates and prices (eg) 49 alone for Westpac), resulting in large numbers of separate purchase parcels, each with different capital gains tax liability.

(at 183)

divide each holding line-by-line

net of tax

41 In a letter dated 25 February 2007 directed to Mr Meagher of Bradley Allen Lawyers of Canberra the defendant dealt with estate affairs at length and stated in a very forceful way her dissatisfaction with the plaintiffs and their solicitor Mr Neal and some matters of dissatisfaction with the estate solicitor Mr Beattie. Her letter to Bradley Allen contains indications that the plaintiff was considering the possibility of proceeding to remove the plaintiffs as executors. On the same day the defendant wrote (Ex A/179) to Mr Neal. The defendant called on Mr Neal to resign his retainer for the plaintiffs and said “I am of the same opinion that while my sisters continue to instruct you there is no prospect of a settlement of this estate.” In nine pages she made very numerous complaints about steps taken in the estate and called for a reply within seven days.

42 After some weeks of further correspondence, marked by vehemence and hostility on the part of the defendant, the plaintiffs by a message of 1 April 2007 (Ex A/227) asked the defendant to consider an interim distribution leaving a total of $300,000 in the estate account. The plaintiffs also said “… We would accept dad’s costs bases of 22 July 2005 as and when we sell any holdings post-distribution.”

43 In a reply which seems to have followed soon after (Ex A/228), the defendant, in combative terms, contended that the plaintiffs did not have an understanding of the problems in the way of distribution. She said that she had delivered a distribution formula spreadsheet of which she said “It also requires your acceptance without qualification of the updated set of cost bases according to the schedule given below …” with further comments. At a later point the letter repeated the requirement that the plaintiffs accept “the principle used to prepare the spreadsheet” without qualification and said “this is your last chance to agree on a settlement.” After some further communications the defendant, in a message (of three pages) to the plaintiffs sent on 16 April 2007 (Ex A/253) said that she would agree to a distribution, and enclosed 24 pages of spreadsheets headed “Share distribution formula for J. S. Shareholdings”. I set out the first part of the message extensively: (Ex A/253-254)

I would agree to the distribution of $600,000.00 to the residuary beneficiaries, on the acceptance by you on the following conditions:

(1) The full net proceeds on the sale of the property plus the funds currently held in the testator’s cheque account are first transferred to the highest interest paying estate Westpac Maxi-I Direct Account prior to any cash distribution. That agreement must be in writing in the form of signed letters of consent from each of you.
(2) That you provide me immediately your estimate (with supporting evidence), to the closest $10,000.00, of the amount required to meet the estate 2005/06 and 2006/07 taxation liabilities and the estate solicitor’s accounts to ensure that the estate is fully provisioned. You are still withholding documentation from me, which I have repeatedly requested and you must provide it to me.
(3) That you both agree to allow the maximum flexibility on the form that any beneficiary may receive his or her entitlements including receiving them entirely as cash. Bullying on your part, whilst offering zero flexibility and nothing else except that which conforms to your narrow views, is counterproductive to the settlement of the estate.
(4) That signed letters are received by me from David and Andrew Schaverien and Celia and Cameron Winnett advising that they would like to receive their entitlements in specie. I understand from Mr Beattie that this in fact mandatory since cash is the normal medium for distribution.

I require you to agree to these very fair and reasonable requests which are all in the interests of the beneficiaries. Further, unless agreement can be reached, I will require that my entire entitlement be paid in cash from the cash held both currently and that to be prospectively received by the estate.

immediately

without qualification

share cost bases

without qualification

share distribution formula

44 The letter concludes: (Ex A/255)

seven

45 This letter is remarkable, even in the context of the communications in evidence, for the intractable character of its demands. The demand for acceptance without qualification of the Formula shows, in altogether clear way, the impossibility of contemplating that there may in the future be cooperative action based on discussion or shared process of decision. The Formula contains a mass of material, probably some thousands of calculations, and the terms of the defendant’s demand indicate a lack of interest in any participation by the plaintiffs in consideration and decision. The effect of the letter is that it stated that there would be litigation unless there was immediate and entire acceptance of what the defendant demanded, without any real room for consideration.

46 Although, as comments elsewhere in this judgment show, I see the Formula as based on purity of principle untempered by practicality, the defendant’s position did not adhere entirely to principle.

47 If the defendant understood that $600,000 was available for distribution, it was inappropriate to make conditions and to impede its distribution with the object of getting what she wanted about handling other aspects of the estate.

48 Condition 3 about maximum flexibility in the form which the beneficiary might receive entitlements including receiving them entirely as cash involved departure from the provisions of the will, which gave shares in residue whether or not the residue was in cash or some other form. It was obviously inappropriate to seek to impose this condition on the distribution of cash.

49 Condition 4 was also obviously inappropriate as a condition on the distribution of cash in the near future. The form in which distribution of shares was to be made to four minor beneficiaries had nothing to do with the immediate distribution of money. Further, their entitlement to receive distribution of residue did not depend on the form in which they would like to receive it, and if they had an entitlement to receive some asset in specie their written confirmation that they would like to receive it that way was superfluous. The distribution was not to be a distribution to them, but to the respective trustees of subtrusts. The interests of beneficiaries of subtrusts were contingent until they reached the age of 25.

50 The requirement “unless agreement can be reached, I will require that my entire entitlement be paid in cash from the cash held both currently and that to be prospectively received by the estate” was a claim which was obviously completely unjustified, adverse to the interests of other beneficiaries to receive cash in so far as there was cash, and entirely partisan in the defendant’s interest. Of course if the defendant’s interest had been paid out in cash she would have still have had standing to participate in all decisions and would have had the same opportunity to attempt to interpose conditions on distributions to others as she earlier had. There cannot ever have been any rational possibility that the plaintiffs would agree to that.

51 The demands made generally, and this part of the demand paid no attention to the provisions of the will, in accordance with which it was not for the executors to make any distribution to the minor beneficiaries; it was for the executors to distribute to those of the executors who respectively were trustees of each of the three sub-trusts; and they, in that character, were to deal with their beneficiaries. Involved in the defendant’s demands (although not expressed) was the elision of the provisions of the will relating to the sub-trusts.

52 The requirement for distribution in cash was repeated in cl 4 of the later call for agreement, where it related not only to the defendant but to all beneficiaries.

53 Further pages (Ex A/280-283) may have accompanied these documents; or otherwise have been delivered about the same time. One of these, in the form of a letter (Ex A/280) raises concerns about jewellery, and other assets, and threatens court proceedings after seven days.

54 The defendant’s demands were not acceded to. Quite otherwise, on 17 May 2007 Mr Neal of Teece Hodgson and Ward, acting for the plaintiffs, wrote to Dr Jones (Ex A/236) dealing with estate affairs (and in another letter of that day, with jewellery and chattel disputes). Mr Neal referred to the cash then held, of the order of $2,382,000, commented that the executors’ duty was to distribute it and said “A further interim distribution of $2,900,000 should be made forthwith.” He commented on the in specie distribution of listed securities which the defendant had proposed in her Formula in these terms:

Your methodology in relation to the in specie distribution of listed securities is unwarranted as it involves an assumed disposition for capital gains tax purposes for exercise of roundings and cash compensation when, as a matter of law, a distribution to beneficiaries is not such a disposition. The cost of carrying out this exercise is disproportionate and unnecessary as a beneficiary of parcels of shares with different cost bases for various sub-parcels can elect, at the time of disposition by such beneficiary in due course, as to what cost base applies to any sub-parcel being disposed of. Over time, if the whole parcel is disposed of, all relevant cost bases will be brought to account. Each security holding (but not divided into sub-parcels) should now be distributed forthwith.

55 Although it has not been clearly established, to my mind, that what Mr Neal there said about election of the applicable cost base would be accepted by ATO in all circumstances, his observations appear to me to be reasonable overall and it is for the beneficiary, equipped with the available information about cost bases, to deal with the ATO whenever there is a disposition.

56 Mr Neal sent this letter by e-mail on Thursday 17 May 2007 and called for confirmation of the defendant’s agreement by noon on Monday 21 May 2007. He said there would be court proceedings thereafter without further notice. The defendant in evidence complained that the time fixed for her to respond was unreasonably short. She did in fact reply within the time specified. Having regard to the terms of her earlier correspondence, and her indications that court proceedings would follow after short periods if her wishes were not agreed to, and having regard to the relatively simple nature of what Mr Neal called on the defendant to do, there is no substance in her complaint. The plaintiffs, not having accepted or as far as I can see replied to the defendant’s letter of 16 April in the enclosed schedules, were still under the defendant’s threat that she would commence litigation.

57 The defendant replied by a message of Sunday 20 May 2007 (Ex A/328). She referred to what she said was her offer to distribute $600,000 cash and to distribute the shares immediately subject to certain reasonable conditions. The letter contains a vituperative passage of unusual vehemence, even in this correspondence. It concludes by calling on the plaintiffs to accept the distribution proposal of 16 April 2007; I understand this to mean a distribution of $60,000 cash, and of shares in accordance with the Formula. Alternatively it called on the plaintiffs to agree to retire in favour of ANZ Trustee. It may perhaps be an unduly careful reading to observe that the defendant did not herself offer to retire with them; but the fact is that in the letter she did not. The letter concludes by calling for agreement by Thursday 24 May 2007 and threatening to commence proceedings in the Supreme Court to have the estate placed into administration.

58 Mr Neal filed the Statement of Claim the following day Monday 21 May 2007 and arranged for it to be served on the defendant; and was served on her at her home that evening. Also on that evening the defendant sent Mr Neal a message in which she agreed to distribute $2,000,000 on conditions.

59 The plaintiffs’ counsel commented, and attempted to establish by evidence, that the message of 21 May was composed by the defendant and sent after the Statement of Claim was served on her, and made a comment to the effect that there was a large change in her position immediately on her learning that litigation had actually begun. It was the defendant’s evidence that she had already prepared the letter and sent it by e-mail before the Statement of Claim was served on her. In my finding it has not been shown that her message of 21 May was prompted by service of the Statement of Claim. I do not think that this issue is important.

60 In her letter of 21 May she said: (Ex A/333)

Further to my letter of 20 May 2007, in response to your email of 21 May, and after taking into consideration the current cash held by the estate, subject to confirmation, I agree to distribute $2 million subject to your clients’ acceptance of the following conditions:

Your clients agree without condition or qualification to the distribution proposal that I prepared for them on the spreadsheets provided (appropriately updated for the prices at the time of distribution).
They agree to accept the share cost bases of the testator appropriately updated already provided to them as the single set of cost bases for the estate.
They agree that Daniel Jones be able to receive his full entitlement in cash.

As I indicated in my letter of 20 May 2007, the RSM Bird Cameron distribution privately commissioned by Lynette Schaverien is unacceptable to both my son and me for the reasons given previously. If your clients were to insist that the RSM Bird Cameron distribution, privately commissioned by Lynette Schaverien, be the distribution method, I would require as a beneficiary, that my full entitlement be paid entirely in cash. Further, my son Daniel has written to the estate solicitor requesting that his full entitlement be paid in cash.

61 Her agreement was to distribute $2 million, not $2,100,000 as Mr Neal had proposed. Mr Neal’s proposal would have left money in the order of $282,000 in hand to meet obligations. The defendant attempted to explain in evidence why she chose $2,000,000 but I am satisfied that, as appears on its face, it was an attempt by her to diminish the advantage of a distribution to the plaintiffs. The interposition of conditions for the distribution of available cash was plainly inappropriate.

62 The call for the plaintiffs to agree that Daniel Jones be able to receive his full entitlement in cash, as a condition for other beneficiaries to receive any distribution of cash was plainly inappropriate and a highly partisan requirement in the interests of the defendant’s son. The later passage of the letter referring to circumstances in which she would require that her own full entitlement be paid in cash is highly partisan in her own interests and manifestly without justification.

63 If the terms of the will were carried out, what the sub-trust of which Dr Jones’ son was beneficiary would get would be one twenty-fourth of each parcel of shares: and the number of shares would be no more nor less on account of any actual or potential tax liability to fall on him. It was in my opinion an irrelevant consideration for trustees who were administering a trust under which they were to distribute shares in specie to consider what beneficiaries would do with the shares to which they were entitled, and what brokerage or taxation liabilities would fall on them when and if they disposed of them. There is no way of predicting when a particular beneficiary will dispose of shares, what the beneficiary's income will be at the time, or what the tax law will then be. It was for the executors to appropriate six-twenty-fourths of the shares, parcel by parcel, to each of the testator’s three daughters and three-twenty-fourths, two-twenty-fourths and one-twenty-fourth to the sub-trusts for their respective children: what each did as trustee in one of the sub-trusts was not the responsibility or concern of the others.

64 The defendant maintained that distribution of shares by whole shareholdings, not by acquisitions, was inappropriate, and did so in oral evidence with some vehemence. The underlying difficulty is that, as she contended (and she appears to be correct in this) there is no statutory basis for adoption of averaging or any like approach; CGT is imposed in terms which relate to the cost base of the shares sold. She saw the problem as going further than the expected outcome in some dealings with the ATO about an acceptable basis for assessment, to the duty of the beneficiary as taxpayer to make an accurate disclosure.

65 The most prominent of the concerns which the defendant interposed in the path of distributing money and shares was her concern about whether and how the distribution in specie of shares would create obligations to pay CGT by the executors, or by beneficiaries, and the ability of the executors and beneficiary to calculate and self-assess CGT liabilities on the disposal of shares and to establish the correct basis of calculation in dealings with the Australian Taxation Office (ATO). To do this in a completely exact way it is necessary to have information in detail about each acquisition by the testator of shares (and all occurred after 20 September 1985 when CGT was imposed). The executors sold some of the testator’s shareholdings but the Formula refers to 13 April 2007 when there were shares or listed investments in 15 companies. (It seems that by 21 May 2007 two of these had been sold.)

66 To illustrate the difficulties I refer to the testator’s shareholding of 15,000 shares in AGL Energy Ltd (AGK). He acquired these shares in seven different acquisitions, each with its own cost base, number of shares and price, the first on 24 January 1997 and the last on 16 October 2001. To treat each one twenty-fourth share of residue under the will as including 625 AGK shares masks the difficulty of ascertaining the cost base and the acquisition to which the shares transferred should be attributed. The defendant made calculations which produced a value for shares in each of the seven acquisitions on the assumption that the shares was disposed of on 13 April 2007 at $15.88 which was the price at close of trading. According to her calculation, if an AGK share were attributed to the first parcel of 5000 shares bought on 24 January 1997 at a cost of $4.62 each its value after deducting the CGT attributable to its disposal would be $13.63. By contrast, if a share was attributed to the last parcel of 571 shares acquired on 16 October 2001 at a cost of $5.55 each, the amount which its sale on 13 April 2007 would produce after CGT would be $13.81. The lowest value net of tax in her calculation was $13.63, the highest was $13.90, a difference of 27 cents. 625 shares (a one-twenty-fourth parcel) attributed to the acquisition which produces the worst outcome would yield after CGT 27 cents per share less than shares attributed to the acquisition which produces the best outcome; less by $168.75 of $9,925 or 1.7%.

67 The resolution of difficulties relating to CGT proposed by the defendant was to make a separate distribution of the shares in each acquisition. There would be seven different distributions of shares in AGK. The distribution of shares from the testator’s first acquisition of AGK shares would relate to 5000 shares which he acquired on 24 January 1997. Those entitled to six twenty-fourth shares would each receive 1250 of these shares; those entitled to one twenty-fourth share would each receive 208 of these shares, and two shares could not be allocated by this method. (Indeed for most parcels this method produces unallocated shares representing fractional entitlements.) One acquisition of AGK shares, 3000 on 1 July 1997, is exactly divisible by 24 and produces no fractions. The other six produce fractions of various sizes. The last acquisition of 571 shares on 16 October 2001 produces 142 shares and a fractional entitlement to three-quarters of a share for each holder of six twenty-fourth shares and each holder of one twenty-fourth share has 23 shares and a fractional entitlement to nineteen twenty-fourths of a share. 30 AGK shares are not allocated in this method and remain in the executors’ hands as residual shares. In the defendant’s proposal, a major beneficiary would accept residual shares and pay for them and the proceeds would be distributed among those entitled to fractions.

68 It is an assumption of this method that the identification of shares transferred to beneficiaries with particular acquisitions by the testator would be maintained when shares were transferred. To maintain this identification it would be necessary (at the least) to make a separate transfer of each part of each acquisition to the beneficiaries, and to the sub-trusts; six transfers, seven acquisitions, and 42 transfers of AGK shares. (Disposing of the shares representing fractions would require one or more additional transfers.)

69 The exercise of distributing shares in specie in some way which allocates each distributed share to a particular acquisition rather than taking all the testator’s holding of shares in a particular company and not differentiating in their distribution, was worthy of consideration. The calculations which the defendant put forward, although complex, attempted to meet some real concerns. One was that the share price on the ASX on the day of distribution, which does not differentiate between shares according to the CGT position of the vendor, is not an exhaustive expression of all aspects of the value of the share to a beneficiary when transferred, because when the beneficiary disposes of the shares, the beneficiary incurs CGT calculated by reference to the cost base on which the testator acquired the particular shares which the beneficiary received. In concept a beneficiary whose shares were all traceable to an acquisition with a low cost base would be worse off than a beneficiary whose shares were all traceable to an acquisition with a high cost base. (There is also a time factor.) For some of the shareholdings the difference which could conceivably exist is so small that it is not significant: for some of the shareholdings a beneficiary would be recognizably disadvantaged if the shares distributed to that beneficiary were drawn from acquisitions with low cost bases. Whether the outcomes would be different in any material way depends on future circumstances which cannot be known; a beneficiary may sell the shares immediately, or may hold them for many years or for the whole of the beneficiary’s lifetime, and the shares may be disposed of in some circumstances of share price, inflation and taxation law which reduces the different cost bases to irrelevance. If trustees distribute shares without regard to cost bases they in effect make no assumptions about the CGT position or future dealing by the beneficiary with the shares; and in particular they do not assume that the beneficiary will sell the shares at market value and incur capital gains tax immediately.

70 Executors cannot involve themselves in a beneficiary’s taxation affairs and in my opinion they act reasonably if they distribute each holding of shares in specie among beneficiaries according to each beneficiary’s proportionate entitlement. At the same time executors should act even-handedly among beneficiaries and should not act to the disadvantage of one beneficiary relative to others by, for example, allocating shares to one beneficiary wholly to an acquisition by the testator with a relatively low cost base.

71 The defendant’s Formula contains elaborate calculations which can be used to show the impact, according to the principles which underlie the Formula, of CGT on the position of a beneficiary according as the shares are allocated to one acquisition by the testator or to another. The outcomes for a beneficiary who receives one twenty-fourth of the testator’s holding in a particular company can vary widely. For PPT shares the Formula shows that there were 1500 shares and the price on ASX at close of business on 13 April 2007 was $81.20: the 1500 shares were worth $121,800 and one-twenty-fourth or 62.5 shares were worth $5075: there were two acquisitions and two cost bases, and the calculations in the Formula show a difference of three cents between the values of shares in these acquisitions: so that a beneficiary all of whose shares were allocated to the acquisition with the lower cost base receives a parcel of shares which, on the assumptions on which the Formula is based, is worth $1.87 less than a parcel of shares allocated to the acquisition with the higher cost base. For shares in AGK the possible range of outcomes is $11.25 in a parcel worth $9,925, for BHP the possible range is $10 in a parcel worth $4,975 and for RIO the possible range is $35.83 in a parcel worth $6,850. For shares in WBK there is no range as the testator made only one acquisition.

72 However for some shareholdings the range is wide enough to claim attention, by which I mean wider than $100. For shares in AAN the range is $378.54, for shares in CBA it is $752.28. For shares in NSWLV it is $404.25, for shares in NAB it is $215, for shares in SSX it is $140.00, for shares in SOL it is $1,451.25 in a twenty-fourth worth $10,721.25, and in WBC it is $7,076.25 in a twenty-fourth worth $55,866.25. It would in concept be possible to impose significant disadvantage on a beneficiary by taking care to allocate the shares transferred to that beneficiary from the acquisitions with the lowest cost base.

73 The defendant’s Formula had the object of producing complete equality of treatment by distributing, not the shares in each company but the shares in each acquisition by the testator. In oral evidence she asserted that it was possible to differentiate the shares in each acquisition, and that identification had not been lost by agglomerating the total shareholding into a single certificate for each company, as happens with the CHESS system. She said that none were in the CHESS system and all were Issuer Sponsored Holdings: but more importantly, records kept by the testator distinguished the acquisitions. The distribution Formula has great purity to principle, but it also has great complexity. For AGK shares there will be seven different distributions in each of which there would be six share transfers, one to each of the major beneficiaries who each received six twenty-fourth of the shares in each acquisition, and one to each of the trustees of sub-trusts who received respectively three, two and one twenty-fourth shares. As there are 105 acquisitions in the Formula there would be 105 distributions and 630 transfers of shares, not 13 distributions of shares (and there were two other classes of securities which are not shares). (Two of the 15 parcels of securities had been sold by the time this litigation began: this made little change to the complexity.)

74 Another concern which the defendant sought to meet by the Formula was that each beneficiary should be in a position to disclose fully and exactly information about the cost base of the shares held by that beneficiary when the occasion came to assess CGT. This is an appropriate concern. According to the defendant’s contention it is imperative for the executors to ensure that beneficiaries are furnished with information to enable them to do this. This overstates what is required of the executors, who in my opinion are obliged to make all information they have bearing on the estate affairs, including cost bases, available to beneficiaries.

75 Another concern which the defendant expressed with great emphasis, and dealt with in the share distribution Formula, relates to fractions of shares. As not all share parcels are evenly divisible by twenty-four, and distribution of the parcels which are not cannot be done with complete exactitude; there will be some fractions, and it is not possible to transfer a fraction of a share. To deal with all beneficiaries with complete equality in this respect, executors should take the number of shares in each parcel, ascertain the next lower number evenly divisible by 24 and make the distribution of that number of shares, leaving the remainder, conceivably as many as 23 shares, in their hands. Then they should take the next lower number evenly divisible by 4 and make whatever distribution of whole shares can be made to the trust of eighteen-twenty-fourths, the subtrust for three-twenty-fourths and the subtrust for two-twenty-fourths. There will be remainder shares incapable of distribution in specie; the executors would continue to hold them on trust in appropriate proportions, with continuing obligations to manage the assets, collect and distribute dividends and other proceeds, and keep accounts. This is evidently inconvenient but would continue until the trustees agreed together to sell the remainder shares in exercise of their powers of sale and distribute the proceeds, or until all beneficiaries held vested interests and unanimously required them to do that. The executors have power but not a duty to sell the shares, so a resolution of their ownership of the remainder shares would require some further agreement among them.

76 The defendant’s Formula does not deal with fractions in an exactly correct way in the respect that it deals with all beneficiaries of sub-trusts in the same way; whereas the will provides for distribution of three twenty-fourths of residue to one sub-trust, two twenty-fourths to another and one twenty-fourth to another; and where a distribution of one twenty-fourth yields a fraction, a distribution of two or three twenty-fourths may not yield a fraction, or may yield a different fraction. By requiring distribution of each acquisition rather than each shareholding the Formula increases the number of distributions in which fractions are encountered. For example the holding of 15,000 AGK shares is evenly divisible by 24 and there are no undistributed fractions if the whole parcel is distributed as one. By contrast the Formula produces a residue of 30 shares which cannot be distributed in specie.

77 In the Formula, the residual shares would be transferred to one of the major beneficiaries, and the major beneficiary would pay (or, presumably be charged in a distribution) $9,887.48 which would be distributed among the beneficiaries. This would have the substance (but not the form) of a sale by the executors to one of their number. The will does not authorise or require this.

78 The defendant expressed what seems in the circumstances extreme concern about problems relating to fractions of shares and the view which in her understanding would be taken of entitlements to fractions of shares by the Australian Taxation Office (ATO) when dealing with CGT assessments, and perhaps in other contexts. She said to the effect that the ATO does not recognize fractions of shares, and that they are dead shares; her evidence did not explain in a clear way what underlay this concern, but it can relate only to a small number of shares and to small amounts

79 Another concern of the defendant was that in her concept it is an effect of a distribution of shares which took place under orders made by consent by Registrar Finlay on 4 June 2007, two weeks after the commencement of these proceedings, that she and her son are unable to sell or otherwise deal with shares because of difficulties in disclosing appropriate information and obtaining assessment of CGT on a proper basis arising from the shares distributed to them not being allocated to particular cost bases, and to the allocation of fractions.

80 She may have other concerns.

81 The share distribution Formula which the defendant insisted that the plaintiffs agree to would give effect to purity of principle, carried to an extreme, indeed to the uttermost, in seeking to establish and preserve the identity of each distributed share with a particular acquisition by the testator and cost base. In my opinion the Formula sacrifices significant pragmatic considerations in its search for purity. For some of the shareholdings in which there is a wide range of cost bases, the allocation of distributed shares to one acquisition or another could produce or mitigate disparities in the treatment of beneficiaries, but those disparities are unlikely to be produced unless some care were taken in choosing the acquisitions which were to be the source of shares allocated to a particular beneficiary, with the deliberate intention of producing disadvantage; it is not likely that significant disadvantage would be produced by random allocation, and it would not be produced by an undifferentiated allocation followed by adoption of average cost base when calculating CGT.

82 One object which distribution in accordance with the Formula would achieve would be equality of outcomes for all beneficiaries on the assumption that they all sold the distributed shares and incurred CGT on the day of distribution. This very unlikely to happen, and the exercise has a correspondingly limited value as a demonstration of the inequality of outcomes of any other distribution Formula. The Formula is also based on the assumption that all beneficiaries incur CGT at the same rate; and as their incomes may vary widely, this assumption may not be correct.

83 While the share distribution Formula can be seen as a pursuit, with great vigour, of exactitude in principle, it does not in my opinion adhere to principle perfectly, and there are respects in which it is open to reasonable observation or debate. It deals in different ways with the major beneficiaries and minor beneficiaries in problems relating to fractions, as it assumes that the shares referable to fractions would be disposed of to one major beneficiary, although no major beneficiary has an obligation to take them and the other trustees might reasonably have felt concerns about disposing of shares to one of their own number. On a more important level, the share distribution Formula was open to debate on the question whether it was appropriate to do anything but proceed on the basis that all shares in a parcel were worth the same amount, the valuation suggested by daily market experience. However the defendant insisted on the adoption of her share distribution Formula in terms which excluded room for debate or discussion and severely limited the time available for consideration. If what she proposed had been entirely and unarguably correct this would still not have been appropriate: but it was not.

84 Evidence in the proceedings dealt with the treatment of the distributed shares for the purpose of assessment of CGT. Mr Robert Andrew Sykes, a chartered accountant employed by the firm which conducted the testator’s taxation affairs and (at the time he spoke) also conducted estate taxation affairs, saw the matter as one to be handled by an averaging process, in which the shares transferred to a beneficiary were treated as having their source in an average of the acquisitions (and hence cost bases) relating to the shares in the hands of the testator. In my understanding Mr Sykes saw this as likely to be acceptable by the ATO in a context where exact demonstration of the relation between shares held by the beneficiary and a particular acquisition by the testator was difficult to establish or could not be shown, and in the context of self-assessment. In treating matters this way Mr Sykes acted on the basis of treatment by the ATO of another situation which he regarded as analogous, not specifically on practice relating to CGT on shares distributed from the estate of a testator who had acquired them in different acquisitions with different cost bases.

85 In her letter to Mr Neal of 21 February 2007 the defendant referred to advice which Mr David Beattie had given (and he spoke on the basis of the same view while giving evidence before me) to support her position that each parcel of shares with a common cost base should be distributed so that the cost base of each share should be ascertainable after distribution. It appears to me that Mr Beattie’s view of what is appropriate is strictly based on what the legislation requires, while Mr Sykes’ view is pragmatically based on how he expects business to be conducted with the ATO. This kind of difference between advice from lawyers and advice from chartered accountants is not unfamiliar.

86 Shares distributed in specie will be sold at some time and their then owner will incur CGT; it will then be necessary for the owner to establish the cost bases of the testator’s acquisitions of the shares; or in any event there will be a large advantage in establishing the cost bases. Where there were a number of different acquisitions that could be very complex and it could be very difficult to establish the details of acquisitions after many years. The problem does not precipitate itself until shares are sold and there is a capital gain. Mr Beattie knew that it was important to determine what were the cost bases on which the testator had purchased each parcel of shares, that this could not be ignored and the information picked up as a later time after distribution. He advised accordingly at an early stage. In view of the complexity of the estate assets he regarded it as obvious that the executors should not simply transfer all the shares in specie to beneficiaries equally as would be done in a simple straightforward estate; the executors would need to know the cost bases in order to pay the correct capital gains tax at the end of the day. In Mr Beattie’s understanding (and he did not claim to be a taxation expert) the beneficiary can make an election to which acquisition and cost base in a parcel the shares the beneficiary disposes of should be attributed.

87 In Mr Sykes’ view (t21) when a beneficiary disposes of shares and incurs CGT the cost bases should be determined on an average basis; this applied when there would be unreasonable administrative expense in determining the cost bases or where it was not possible to determine the cost bases of the shares transferred; this applied when shares had been transferred to the beneficiary from a legal personal representative. RSM Bird Cameron’s letter and spreadsheet of 12 February 2007 proceeded on the basis of aggregating all acquisitions of shares by the testator without making any differentiation when transferring shares to beneficiaries. If this approach was adopted (and, I add, accepted by the ATO) each share would have the same cost base. It was his evidence that ultimately it was up to the ATO to determine whether to accept the aggregation of distributed shares in this way (t24).

88 Mr Sykes referred to ATO rulings in relation to the holdings of shares by superannuation funds where there were unreasonable administrative expenses; he said that the ATO does not rule directly on estate matters, and it appears that he assumed that the ATO would make the same approach as with superannuation funds. In my understanding of his evidence (t28) shares transferred by a legal personal representatives to beneficiaries lose their character of being individual parcels of shares, by which I understand they lose their identification with particular acquisitions of shares by the testator. The shares are aggregated and the cost bases are also aggregated. He said that it is not open (t25) to state what the position would be if information were clearly available to beneficiaries identifying the cost bases of a particular share transferred to them. Other practitioners might take different views. He also said (t.40) that there may be circumstances special to a particular beneficiary which make the assumptions of the Formula about the effect of CGT inapplicable.

89 Overall, it appears to me that executors would comply with their duty if they distributed shares in a listed company on the basis that all such shares were of the same value, and if they passed on to beneficiaries all information available to the executors relating to the cost bases on which the shares had been acquired and the relation between shares acquired in a particular acquisition and the shares transferred to the beneficiary. Executors certainly should not take any steps with the intention of differentiating among beneficiaries and producing relatively better or worse CGT outcomes for particular beneficiaries, but unless they behave in that unlikely way the CGT outcomes for beneficiaries when and if they incur CGT on an eventual disposal, or an immediate disposal, is not the responsibility of the executors.

90 It is my opinion that the basis of distribution proposed by Mr Sykes in February 2007 was reasonably open to further consideration and discussion. There may have been some advantage for beneficiaries in some future event if transfers of shares took place in a way which specifically preserved the identification of the shares transferred with the underlying acquisitions and cost bases. If it were established that the ATO would accept election or averaging of cost bases, there would be no relative disadvantage for a particular beneficiary arising from aggregating shares transferred to them. The defendant maintains that there is no statutory basis for the ATO to act on this basis; and it appears that this is right; I was not told otherwise. When addressing the advantages of adopting a more elaborate method it has to be considered what advantage can follow from the additional cost, pains and trouble involved in carrying out the more elaborate method. For all but a few shareholdings the detailed attention suggested by the Formula would eliminate the risk of only very minor variations in the value of a one twenty-fourth share. There are a few shareholdings for which this observation cannot be made. The defendant did not call for Mr Sykes’ proposal to be discussed, examined and modified. She insisted on the entire acceptance of her own proposal without qualification, and imposed conditions for which it was not reasonable for her to ask.

91 Cross-examination both on behalf of the defendant and on behalf of the plaintiff confirmed the conflictual nature of dealings among executrices and the extreme unlikelihood of future concurrence in decision and action. Some matters which were the subject of cross-examination and for which the conduct of the plaintiffs was impugned were extremely slight. One subject which received undue attention was the circumstances in which the subscription to Post Office Box 241 Northbridge was terminated by Dr Schaverien on 4 April 2006. The testator had subscribed for that Post Office Box during his lifetime. Then all three executors subscribed for the box. In applying to cancel the box and redirect the mail Dr Schaverien told the Post Office to the effect that she acted on behalf of all three executors whereas in fact she did not have the defendant’s authority to do so; the defendant had not been consulted. The defendant was then overseas. Dr Schaverien was cross-examined with some severity on the subject and it was suggested that she had committed an offence against some law relating to the conduct of the Post Office.

92 The arrangements Dr Schaverien made were arrangements to redirect mail addressed to the testator and to the estate, so that the Post Office would deliver it to Mr David Beattie who was then acting for the executors as the estate solicitor (and still does). As is clearly shown by correspondence and otherwise, relations among the executors were already severely strained. Dr Schaverien foresaw a period when both she and the defendant, who both lived in suburbs near Northbridge, would be overseas and attending at the Post Office Box might be inconvenient. In my mind it was an unremarkable and efficient step to arrange that mail go to Mr Beattie rather than go to the Post Office Box and be collected, in circumstances open to complaint, by one or other of the executors. Mr Beattie agreed to accept delivery of the mail; and he did so at the request of Dr Schaverien only. Finally, Dr Schaverien did not have to be a customer of the Post Office for a Post Office Box if she did not want to be.

93 Dealings with the Post Office Box received significant further attention until June 2006 as the defendant attempted to reinstate the subscription, which she was unable to do as the box had been allocated to somebody else. The events relating to the Post Office Box are significant mainly for showing that minor matters have been the subject of prolonged complaint and difference.

94 The treatment of the mail when it reached Mr Beattie’s office gives me much more serious concerns. In view of the state of estrangement, for Mr Beattie to receive the mail and circulate copies of all significant documents to all executors seems a reasonable and prudent arrangement, a better arrangement than that whichever executor happened to clear the box should have responsibility for circulating documents and be exposed to complaints about performance of this responsibility. What happened however is that the plaintiffs told Mr Beattie that he was not to send copies of correspondence to the defendant but he could provide a summary of mail received every fortnight, and the documents were to be available for the defendant to inspect when she came into Mr Beattie’s office; and having been told that by the majority of the executors he felt constrained to comply. From April to December 2006 copies were not sent to the defendant, and from time to time she came into the office and took copies of documents she required. The plaintiffs explained this in terms of a wish to control expense. This is not a reasonable or believable explanation, in relation to an estate worth over $5 million or in relation to the defendant’s duties and responsibilities, and her need and interest to know what happened in estate affairs. To require her to go to Mr Beattie’s office for information was quite needless, and indicates in my finding that the plaintiffs were dealing with the defendant in a bad spirit and were prepared to create an unnecessary difficulty for her.

95 Another matter which received attention which I regard as undue and was put forward as a criticism of the conduct of the plaintiffs related to the Power of Attorney in estate affairs dated 26 October 2006 given by the defendant to two persons, her son Mr Daniel Jones, and to Gregory Richard Donovan, who was referred to in evidence as Dr Donovan and spoken of by the defendant as her partner, although evidence reveals very little of him. The document conferred Power of Attorney jointly and severally on those two men in matters relating to her duties in the estate in her absence, with a limit of two years. The Power of Attorney provided for consent of the plaintiffs as co-trustees to the appointment of attorneys; they were not willing to consent to the appointment of Dr Donovan, and they struck through his signature and wrote against it the word “deleted”, with their initials and dates. They signed the consent in an amended form so as to consent only to the appointment of Mr Daniel Jones. The document was registered and took effect in this limited way. Mr Daniel Jones signed an authority relating to putting the house property on the market, and it seems that otherwise the Power of Attorney was not exercised. Endeavours were made to criticise the conduct of the plaintiffs, but I see no ground for doing so; if they did not think it appropriate for Dr Donovan to have this part in estate affairs and the duties of an executor and trustee, it was their duty to withhold their consent.

96 The plaintiffs accessed the testator’s Safe Deposit Box at a bank in June 2006, apparently several times, during the defendant’s absence overseas and without her knowledge, emptied the box and delivered the contents to Mr Beattie for safekeeping. This led to controversy, as the defendant claims to be the owner of some of the contents of the box. Ownership has not been resolved, but is not before me for adjudication. The plaintiffs were entitled to have access to the Safe Deposit Box, but in the context of disputes it was markedly imprudent of them to remove property from the box without the concurrence and without the knowledge of the defendant.

97 There is also a body of evidence dealing with information or rulings which the defendant has obtained or sought to obtain from the ATO. Attempts by the plaintiffs to establish what the defendant has done and to see relevant documents have led to some business under the Freedom of Information Act and to pending proceedings in the Administrative Appeals Tribunal. When challenged in cross-examination over aspects of her conduct the defendant’s position was to the effect that she sought rulings in her private capacity and not as executor. I do not think that this subject had the importance which its treatment in evidence suggested. She explained her having given her own name but not the names of the plaintiffs to the ATO as executors when she applied for a Tax File Number by saying there was not enough room on the form. I do not regard this as credible, or as an excuse.

98 When the proceedings were commenced estate affairs were in deadlock, and distribution was prevented because the defendant was making, in intractable terms, demands which it was not possible to comply with, required attention to detail far beyond what was reasonably necessary, with inappropriate conditions which it was impossible to accept. In my finding the plaintiffs had no other course available to them than to ask the Court to remove the defendant.

99 Adverse appraisal of the plaintiffs’ not having achieved co-operative action with the defendant is tempered by the difficulties of acting co-operatively with her. Correspondence with her is likely to evoke and often has evoked replies of baffling length and detail extending far beyond the subject in hand, replete with accusations of wrong conduct and belittling or otherwise offensive observations. A letter about anything tends to become a letter about everything.

100 The defendant has a personal characteristic of intensity, evident in her letters, and also evident in her manner and delivery in the witness box, where intensity sometimes got the better of her as she sought to establish something she thought was important without real regard to the question put to her. Characteristically she takes a highly combative approach to all communications and business connected with the subjects of her father’s estate and of her sisters. In correspondence she often has adopted a style which was vituperative, intransigent, not open to debate or discussion and closed off the possibility of reconsidering her own position. This defeats communication.

101 So far as I can see the defendant’s position has at its centre a correct view of how complete equality of treatment of beneficiaries can be maintained, but she has greatly overstated the difficulties which flow from agglomerating all acquisitions, and the potential difficulties of dealing with the ATO. Mr Sykes’ method does not create significant differences in outcomes. For many of the shareholdings the differences in outcomes which could occur are very small. For some, care should be taken, if shares are distributed by acquisitions and not agglomerated, that no particular beneficiary or sub-trust receives an unfair proportion of shares with low cost bases. Most trustees who had to distribute shares to sub-trusts for their own children, nephews or nieces would overcome the problem by allocating the shares with the lower cost bases and the highest potential CGT liability to themselves. Any problems associated with fractions lend themselves to similar pragmatic solutions. The defendant constructed several mountains out of a small molehill, and behaved impossibly while doing so.

102 There may well have been room for consideration in detail of a basis for distribution of shares in specie in which regard is paid to possible operation of CGT on shares in the hands of beneficiaries. In the case of the shareholdings where there was, potentially, some significant difference in outcomes if one beneficiary received a disproportionate number of shares with low cost bases, there is room to take care that there are no significant anomalies. The beneficiaries’ CGT position is ordinarily outside the responsibility of trustees, but there is some room for consideration of what should be done to avoid the creation of any significant anomaly. There was a need to address the practicalities of maintaining the identification of shares distributed with the shares acquired by the testator in particular acquisitions. The terms in which the defendant required compliance with her Formula left no room for consideration or discussion and in practical terms no time. It is not my object to take under consideration and decide what was the best way to arrange these matters. They were arranged very soon once litigation began, in circumstances not conducive to mature consideration.

103 Overall the events I have set out demonstrate, in an unmistakably clear way, the complete impossibility that in the future estate affairs would be managed properly, or indeed managed at all, if all three executors appointed by the will continue to hold the court’s grant of probate. The alternative which courts usually consider if appointing a trustee company or professional trustees cannot be taken; no such person is available. There have been shortcomings in the conduct of the plaintiffs, although when I contrast them with the defendant’s behaviour, they are of minor significance, although unfortunate. I have to make a pragmatic disposition, with a view to seeing that the estate is in fact administered and the beneficiaries have the assets to which they are entitled.

104 The conflict, and the course of affairs as conflict progressed appear to me to be quite deplorably unfortunate. The need for the intervention of the Court is regretted, but I have no doubt that it is required. If it were open for me to do so I would not leave any of the executors appointed by the will to conduct estate affairs under the authority of probate granted by the Court; but there is no one else. The most expedient course available to see that estate affairs are conducted and are not deadlocked is to revoke the existing grant and grant probate to the plaintiffs only.

105 My Orders are:

1. With effect on the date of this order, Revoke Probate of the will of the late John Lawrence Sheaffer granted on 9 November 2005 to Lynette Regina Schaverien, Caroline Frances Jones and Geraldine Siba Winnett.

2. Order that the Probate document be forthwith delivered to the Registrar and be cancelled by him.

3. Grant Probate of the last will and testament of the late John Lawrence Sheaffer late of Northbridge in the State of New South Wales Engineer deceased to Lynette Regina Schaverien of 31 Kendall Road Castle Cove New South Wales and Geraldine Siba Winnett of 17 Fred Williams Crescent North Lyneham in the Australian Capital Territory two of the executors appointed under the will.

4. Order that the defendant pay the plaintiffs’ costs of the proceedings.

**********

Actions

Download as PDF Download as Word Document

Citations

Schaverien v Jones [2007] NSWSC 1429

Most Recent Citation

Schreuder v Murray [No 2] [2009] WASCA 145

Cases Citing This Decision

2

Schreuder v Murray [No 2] [2009] WASCA 145

Schreuder v Murray [2009] WASCA 75

Cases Cited

4

Statutory Material Cited

2

Gibson v Buchanan [2004] NSWSC 957

Caldar v Public Trustee [2003] NSWCA 187

Mavrideros v Mack [1998] NSWCA 286

CITATION:	SCHAVERIEN & ANOR v JONES [2007] NSWSC 1429
HEARING DATE(S):	4, 5/10 & 27 & 30/11/2007
JUDGMENT DATE :	11 December 2007
JURISDICTION:	PROBATE
JUDGMENT OF:	Bryson AJ at 1
DECISION:	1. With effect on the date of this order, Revoke Probate of the will of the late John Lawrence Sheaffer granted on 9 November 2005 to Lynette Regina Schaverien, Caroline Frances Jones and Geraldine Siba Winnett; 2. Order that the Probate document be forthwith delivered to the Registrar and be cancelled by him; 3. Grant Probate of the last will and testament of the late John Lawrence Sheaffer late of Northbridge in the State of New South Wales Engineer deceased to Lynette Regina Schaverien of 31 Kendall Road Castle Cove New South Wales and Geraldine Siba Winnett of 17 Fred Williams Crescent North Lyneham in the Australian Capital Territory two of the executors appointed under the will; 4. Order that the defendant pay the plaintiffs’ costs of the proceedings.
CATCHWORDS:	WILLS, PROBATE and ADMINISTRATION - probate - revocation of grant - conduct of executor - on extensive consideration of events in estate administration where there had not been effective co-operative action by three executors the grant was revoked and a further grant was made to two of them.
LEGISLATION CITED:	Civil Procedure Act 2005 s 26 Supreme Court Act 1972 s 63
CASES CITED:	Bates v Messner (1967) 67 SR (NSW) 187 Gibson v Buchanan [2004] NSWSC 957 In the Goods of Loveday [1900] P 154 McDonald v Ellis [2007] NSWSC 1068 Mavrideros v Mack (1998) 45 NSWLR 80
PARTIES:	Lynette Regina Schaverien - 1st Plaintiff Geraldine Siba Winnett - 2nd Plaintiff Caroline Frances Jones - Defendant
FILE NUMBER(S):	SC 108076 of 2007
COUNSEL:	M. Willmott SC - Plaintiffs R.D. Wilson - Defendant
SOLICITORS:	Teece Hodgson & Ward - Plaintiff Business Lawyers (Liverpool) P/L - Defendant