Thompson v MacDonald
[2015] VSC 93
•17 March 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2011 01153
IN THE MATTER of Part IV of the Administration and Probate Act 1958
- and -
IN THE MATTER of the estate of CHRISTINA MAGUIRE THOMPSON, deceased
| LORRAINE DAWN THOMPSON | First Plaintiff |
| KENNETH JAMES THOMPSON | Second Plaintiff |
| | |
| | |
| v | |
| MALCOLM BRUCE MACDONALD (who is sued as executor of the will of the deceased) | First Defendant |
| LINDA MACDONALD (who is sued as executrix of the will of the deceased) | Second Defendant |
| SUZANNE JOY PABST | Third Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 December 2014 |
DATE OF JUDGMENT: | 17 March 2015 |
CASE MAY BE CITED AS: | Thompson v MacDonald |
MEDIUM NEUTRAL CITATION: | [2015] VSC 93 |
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TESTATORS FAMILY MAINTENANCE — Further provision awarded to plaintiff — Where order for provision expressly provided where burden of plaintiff’s provision was to be borne — Where trustees sought to apportion estimated liabilities of the estate against plaintiff’s provision — Trustee’s claim to rateable apportionment against plaintiff’s further provision rejected
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APPEARANCES: | Counsel | Solicitors |
| For the First and Second Plaintiffs | Mr W Gillies | |
| For the Third and Fourth Plaintiffs | No appearance | |
| For the First and Second Defendants | Mr A Verspaandonk | |
| For the Third Defendant | Ms L Englefield | |
HER HONOUR:
Introduction
By summons filed 28 November 2014, the first plaintiff (‘the plaintiff’) seeks payment of the balance of the principal of $800,000 and interest owing to her pursuant to orders made by Pagone J on 11 April 2013 in this proceeding.[1]
[1]Thompson v MacDonald [2013] VSC 150.
The plaintiff calculates interest on $800,000 from 12 April 2013 to 11 September 2014 and interest on $475,000 from 12 September 2014 to 6 October 2014, a total of $177,137.99. In addition, she seeks interest on the outstanding balance of $83,285.36 from 6 October 2014 until the payment of that balance to her.[2] In all, she seeks a total of $178,360.74 up to 12 December 2014 and accrued interest until full payment of the outstanding amount.
[2] Plaintiff’s submissions dated 28 November 2014, [4]. The plaintiff claimed that the interest calculation by the trustees was incorrect but this is no longer an issue.
Although there was initially some dispute as to whether the applicable interest rate was 4 per cent per annum or 8 per cent per annum, this issue resolved with the first and second defendants (‘the trustees’), agreeing that interest would be calculated at 8 per cent per annum on the amount owing.
The plaintiff filed an affidavit sworn 28 October 2014 in support of her application and attached relevant correspondence between her solicitors and the solicitors for the trustees. In addition, the plaintiff, who is aged 72 years, set out a description of her current circumstances and those of the second defendant, who is her severely disabled adult son. The plaintiff deposed that her health has deteriorated over the past few years, that she continues to care for her son and he continues to require adult supervision at all times.
The orders made by Pagone J were made as a result of a claim by the plaintiff and her three adult children, one of whom is the second plaintiff, for family provision. In his reasons, Pagone J ordered an amount of $800,000 to the plaintiff ‘in recognition of her needs (including her needs with respect to the care of [the second plaintiff] and the contributions she made to the estate and to the deceased over very many years’. His Honour held that the provision took into account her immediate needs as well as providing her with sufficient funds for her to invest and receive an income. It was also to provide a secure foundation for her to make provision for the second plaintiff in the short and long term.
In his judgment, his Honour said:
The means by which provision of $800,000 for Lorraine [the plaintiff] can best be accommodated with the testatrix’s intentions of (a) broad equality between the sons, (b) preferring Suzanne [the plaintiff’s adult daughter] amongst her grandchildren and (c) preserving the properties as farms, may be achieved by varying the disposition in the will by:
(1)excluding McMillans Paddocks from the life interest given to Ian Thompson (and which was then to pass to such of his children as survived him) and to include McMillans Paddocks in the life interest that was given to William Thompson and which was then to pass to Suzanne Pabst, and
(2)declaring that the properties known as East Glen and McMillans Paddocks are held by the executors upon trust to provide therefrom an amount of $800,000 to Lorraine Thompson and the balance to Suzanne Pabst.
The other provisions in the will would not need to be affected or altered in any way.
I will hear the parties on the form of orders to give effect to my decision and upon any orders for the costs of the proceeding.[3]
[3]Thompson v MacDonald [2013] VSC 150, [60].
On 11 April 2013, Pagone J made final orders as follows:
1. Pursuant to s 91 of the Administration and Probate Act 1958 provision be made out of the estate of the deceased for the first plaintiff by payment to her of the sum of $800,000.
2. Pursuant to s 97(2) of the Administration and Probate Act 1958 the burden of payment of the sum of $800,000.00 referred to in paragraph 1 of this order is charged on the properties in the Deceased’s estate known as
(a)‘East Glen’ which is the land more particularly described in Certificate of Title Volume 6675 Folio 877; and
(b)‘McMillans Paddocks’ which is the land more particularly described in Certificates of Title Volume 6349 Folio 635 and Volume 3103 Folio 537.
3. Pursuant to s 97(2) of the Administration and Probate Act 1958 the burden of payment of the sum of $800,000.00 referred to in paragraph 1 of this order be borne in the first instance from the sale of ‘McMillans Paddocks’ being the land referred to in paragraph 2(b) of this order.
4. Each of the first, second, third and fourth plaintiffs’ costs including reserved costs, of the proceeding be taxed as between solicitor and client and paid out of the estate.
5. The costs and expenses of the first and second defendants, including reserved costs, of the proceeding be had and retained out of the estate.
6. The third defendant’s costs, including reserved costs, of the proceeding be taxed as between solicitor and client and paid out of the estate.
Although different explanations are advanced by the parties, it is uncontested that the plaintiff was not paid any part of the $800,000 until some 17 months after final orders were made.
The background to the application is set out in the exchange of relevant correspondence between June and October 2014 exhibited to the plaintiff’s affidavit. In summary, the plaintiff’s solicitors enquired of the trustees in mid June 2014 as to the payment to the plaintiff, noting that the third defendant was now living at East Glen and McMillans Paddock. The trustees indicated that the properties would be auctioned on 13 September but noted, however, the third defendant had put a proposal to them that she retain the two properties in return for providing sufficient moneys to make the payment of $800,000 to the plaintiff, together with her share of commission and estate costs. The trustees indicated they would allow the third defendant until 18 July to secure the finance for her proposal.
In August 2014, the third defendant signed an unconditional contract for the purchase of the two properties from the estate. The plaintiff was advised that the third defendant was acquiring the properties from the estate in exchange for sufficient funds in order to discharge the obligations to the plaintiff. The consideration for the sale of McMillans Paddock was $330,000 and, in respect of the property East Glen, the trustees advised the ‘property is merely charged with the payment of the sum due to the plaintiff and the third defendant is entitled to that property pursuant to a devise in the will’. Subsequently, the plaintiff received two cheques from the trustees, the first on 12 September 2014 for $325,000 and the second on 6 October 2014 for $391,714.64.
In their letter dated 6 October 2014, the trustees informed the plaintiff for the first time:
(a) the estimated total outstanding expenses for administering the estate were $709,875.83 (‘the estate expenses’);
(b) there was no residuary estate out of which these costs could be paid and, thus, the Administration and Probate Act 1958 required rateable apportionment of specific gifts between all beneficiaries of the estate of the deceased from which the debts and liabilities of the estate could be paid (with the calculation of the rateable apportionment set out in the letter);
(c) the plaintiff’s share of the estate expenses was calculated as $176,688.10 and by deducting this amount, as well as the $325,000 already paid, from the pecuniary legacy of $800,000 and adding interest of $93,402.74, the remaining amount owed to the plaintiff was $391,714.64 (for which a cheque for that amount was enclosed.
For the calculation of the rateable apportionment, it is apparent the trustees used asset values assessed at the different dates, for example, the valuations of the three farm properties are as at February 2013 yet the calculation of the amount to the plaintiff is at October 2014.
In respect of the estate expenses of $709,875.83, the first reference to the amount is, as stated above, in the trustees’ letter dated 6 October 2014 when the trustees simply informed the plaintiff of the amount. The Court was not given any details of the amount in admissible form with no responding affidavit being filed by the trustees on this application. Before me, counsel for the trustees gave details orally and subsequently handed up a page setting out what he had stated as follows:
Executorial commission $166,522.44
Plaintiff’s legal costs[4] 73,166.04
[4]Costs finalised at taxation $74,000 and paid.
Second plaintiff legal costs[5] 72,531.62
[5]Costs presently being taxed before Costs Court.
Third defendant’s legal costs 72,940.73
Trustees’ outstanding legal costs 10,756.00
Barrister costs on taxation 3,000.00
Estimated costs of court applications/taxation[6] 40,000.00
[6]Estimate following consultation with costs consultant.
Cow reimbursement[7] 145,959.00
[7]Amount to be reimbursed to Ian Thompson representing proceeds of cattle bequeathed to him and sold by the trustees.
Income tax allowance 30,000.00
Contingency allowed for estate finalisation[8] 80,000.00
Accountant’s fees for estate finalisation 15,000.00
[8]Final accounting to be concluded following conclusion of taxation of costs in Costs Court and resolution of all outstanding matters between beneficiaries.
Total709,875.83
As unsatisfactory as the presentation of these figures to the Court might be, the figures have an aura of contrivance about them, with sizable amounts claimed with no detail. For example, the claim for executorial commission appears to be calculated at five per cent, which is the highest percentage allowed under the Administration and Probate Act 1958.[9] In practice, it would be very unusual for an executor to be awarded the full five per cent. It might also be concluded from what has been provided that much of the administration of the estate has centred around the plaintiff’s Part IV claim. In any event, at this stage, these matters are unknown.
[9]Administration and Probate Act 1958, s 65.
Plaintiff’s submissions
The plaintiff points out that the issue of the rateable legacy and the estate expenses was not raised until the trustee’s letter dated 6 October 2014, emphasising that it was not suggested until then that any of these expenses would be taken out of her share of the estate.
The plaintiff contends the estate expenses of $709,875.83 seem excessive.
However, the plaintiff’s principal submission is that the award of $800,000 was made to her out of the ‘net estate’ of the deceased with his Honour being provided with relevant information in this regard by the trustees at trial. She submits that his Honour thus determined the further provision to be made to the plaintiff having regard to the size and nature of the deceased estate, as well as the charges, expenses and liabilities of the estate, and taking all of these factors into account ordered that $800,000 was an appropriate provision for her.
Furthermore, as no issue was made at trial about the rateable apportionment of future costs of administering the estate, the defendants cannot now argue that the full $800,000 provision does not need to be paid. In particular, the plaintiff relies on the form of the order as evincing an intention that the provision be paid immediately as a lump sum. In this respect, the plaintiff relies upon s 97(2) of the Administration and Probate Act 1958 (Vic) (‘the Act’), which states that:
Unless the Court otherwise orders the burden of any such provision as between the person beneficially entitled to the estate of the deceased, be borne by those persons in proportion to the values of their respective estates and interest in such estate.
In addition, the plaintiff relies on s 96 of the Act, which states that:
The Court may in making any order under this part impose such conditions, restrictions and limitations whether to prevent, restrict or defeat any alienation or charge of or upon the benefit of any provision made under such order or otherwise as it thinks fit.
Taking these two provisions into account, the plaintiff submits that the substance of the order in context required that the payment of the $800,000 provision be effected immediately and that the burden of making such payment should be borne, in the first instance, by McMillan’s Paddocks (by sale if necessary) and, in the second instance, by East Glen. Given that neither of these properties has been sold, the plaintiff argues that any shortfall in the payment of the estate expenses should be met by the sale of these properties.
In response to the submissions of the trustees, the plaintiff submits the authorities cited by the trustees relate to different statutory regimes and are not relevant to the present circumstances because of the nature of the orders made by Pagone J.
Trustees’ submissions
The trustees submit they have properly administered the will and estate of the deceased, and there are no moneys owing to the plaintiff under the orders of Pagone J. In this respect, they rely on s 97(4)(a) of the Act, which states that an order for family provision operates and takes effect as if the provision had been made by the deceased by executing a codicil to the will immediately before the deceased’s death.
The trustees’ submissions cite extensive authorities in support of their arguments that the orders have effectively placed the plaintiff in the position of a beneficiary under the will. [10]
[10]See, eg, Wiblen v Feros (1998) 44 NSWLR 158; Liprini v Liprini [2008] NSWSC 423; Gorman v Gorman [2003] NSWSC 647, [19] (Young CJ in Eq.); Jowett v Kelly [2008] NSWSC 1009, [17] (Brereton J).
They submit this means that any proceeding for payment to the plaintiff for the further provision should be a proceeding for proper administration of the will, as would be brought by any other beneficiary in a similar position, and that the legacy abates proportionately with the shares of other beneficiaries in the event that the estate is insufficient to discharge its liabilities. With the residue of the estate exhausted from the burden of the estate liabilities, and against the background of the effect of s 97(4) of the Act, the trustees submitted they were required and obliged to apply the provisions of Part II of Schedule 2 of the Act to determine how the burden of the liabilities were rateably apportioned between the beneficiaries. The result, as the trustees submit, is that the plaintiff has been paid her full entitlement from the deceased’s estate.
Third defendant’s submissions
The third defendant wholly adopts the submissions of the trustees, and adds only minor submissions in relation to the operation and effect of the orders of 12 April 2013 and the entitlement to interest on the provision of $800,000.
In relation to the operation and effect of the orders, the third defendant relies upon the High Court decision of Easterbrook v Young.[11] Effectively, she submits that the Court in that case relied upon an interpretation of the New South Wales equivalent to s 97(4)(a), providing that a family provision order has effect as a codicil in a testate estate. Importantly, in that case, the Court stated that their decision would ‘determine the meaning and effect of comparable provisions elsewhere.’[12]
[11](1977) 136 CLR 308.
[12]Ibid, [315].
Although agreement was reached as to the rate of interest to be applied on the outstanding amount, the third defendant made the submission that interest on legacies is payable out of the residuary estate, rather than from capital. Given that the residue in this case has been exhausted, the third defendant submits that the plaintiff’s entitlement to interest must abate with the legacy in order to discharge the liabilities of the estate.
Consideration
In Wiblen v Feros[13] Windeyer J reviewed the effect of orders for provision in the context of the equivalent of s 97(4)(a) of the Victorian Act in the then New South Wales legislation. He concluded the Act provides that an order for provision takes effect, where the deceased left a will, as a codicil to the will made immediately before his or her death. This is undoubtedly correct and is specifically provided in s 97(4)(a) of the Victorian Act and is supported by the relevant authorities.
[13](1998) 44 NSWLR 158.
His Honour then spoke of the orders that a court might make in family provision proceedings and stated:
In framing the order the court could determine where the burden would lie but it need not do so. If it did so then the directions as to the burden would be a term of the codicil and the will as varied would be construed accordingly …
If no direction were made as to where the burden would lie then it would be determined in accordance with the Third Schedule to the Wills, Probate and Administration Act 1898.[14]
[14]Ibid, 177G–178A (Windeyer J). The reference to the Third Schedule is the NSW equivalent to Schedule 2 of Part II of the Victorian Act.
This conclusion is also undoubtedly correct and is consistent with s 97(2) of the Victorian Act that, unless the court orders otherwise, the family provision legislation casts the burden of payments ordered for provision on the persons beneficially entitled to the estate (other than those in whose favour the order is made) in proportion to the values of their respective interests in the estate.[15]
[15]Gino E Dal Pont and Kenneth F Mackie, Law of Succession, (Lexis Nexis Butterworths Australia, 2013) [20.13].
In respect of the liabilities of an estate, s 37 of the Act provides that all of the real and personal estate of the deceased are assets that have the potential to be applied towards their payment. If the will is silent as to the payment of liabilities and legacies, then there would be no displacement of the statutory order with the payment of the liabilities to be dealt with in accordance with Part II of the Second Schedule to the Act. These provisions provide a default rule for how the burden of debts and testamentary expenses are to borne amongst the various types of beneficiaries.[16]
[16]By reason of s 39 of the Act. See, eg, Re Worthington [1933] Ch 771, 776; Re Wilson v Mackay [1967] 1 Ch 53; Roman Catholic Archbishop of Melbourne v Lawler (1934) 51 CLR 1, 28–9 (Starke J), 43 (Dixon J); Joyce v Cam (2004) [2004] NSWSC 621, [48] (Campbell J).
The statutory order may be displaced as s 39(2) of the Act is expressed to be ‘subject to Rules of Court and the provisions hereinafter contained as to charges on property of the deceased and to the provisions (if any) contained in his will’. In considering the displacement of the statutory order, in Re Mandell deceased: Permanent Trustee Co of NSW Ltd v Barton,[17] Sholl J summed up the relevant authorities and concluded:
However, the test of implied intention is stated, it appears at all events to be well settled that a gift of property ‘subject to and after payment of’ or ‘subject to the payment of’, specified burdens excludes paragraph 1 of the schedule I relation to those burdens.[18]
[17][1957] VR 429.
[18]Ibid, 437.
Applying these principles to the final orders made on 11 April 2013 by Pagone J, his Honour specifically provides that the burden of the payment of the provision to the plaintiff is charged on East Glen and McMillans Paddock, with McMillans Paddock bearing the burden in the first place. This means that the plaintiff is to receive $800,000 and, until she does so, the amount is charged on the two properties. It is only after payment to the plaintiff that the third defendant is to receive what is due to her. This is consistent with his Honour’s determination that the two properties were to be held on trust to provide the provision to the plaintiff and, thereafter, the balance be paid to the third defendant.[19] This is the means that his Honour adopted, as best he could, to accommodate the various factors as set out in his judgment and to ensure the plaintiff received the provision ordered by him. The effect of his Honour’s orders means that the provision for the plaintiff should not be taken into account by the trustees in determining the apportionment of the liabilities of the estate and the plaintiff’s claim should be paid in full.
[19]Thompson v MacDonald [2013] VSC 150, [60].
Accordingly, the balance of the amount owing to the plaintiff is to be paid by the trustees and, until it is paid, the amount is secured by the charge over the two properties.
I will hear the parties as to the appropriate orders and costs.
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