Turnbull v Fleming

[2024] NSWSC 918

Supreme Court

New South Wales

Medium Neutral Citation:

Turnbull v Fleming [2024] NSWSC 918

Hearing dates:

4-6 March 2024

Date of orders:

30 July 2024

Decision date:

30 July 2024

Jurisdiction:

Equity - Succession & Probate List - Probate

Before:

Williams J

Decision:

Proceedings dismissed.

Catchwords:

SUCCESSION — Executors and trustees — Duties – Liability to account – Wilful default – Held: Plaintiff beneficiaries’ claims for the taking of an account on wilful default basis, or equitable compensation in respect of alleged wilful defaults, dismissed.

SUCCESSION – Construction, validity and operation of clause in will excluding liability of executor for loss – Where defendant executor was the testator’s solicitor who drafted the will - Whether clause void or unenforceable by reason of presumed undue influence - Held: Presumption of undue influence does not apply in probate context – Whether liability for “loss” in the context of the exclusion clause includes liability to account on a wilful default basis – Held: yes – Whether exclusion clause is void on the basis that it is repugnant or contrary to public policy because it excludes liability for breach of executor’s irreducible core obligations – Held: No, the clause, properly construed, does not exclude liability for breach of irreducible core obligations of honesty and good faith.

Legislation Cited:

Trustee Act 1925 (NSW) s 85

Cases Cited:

Alexander v Perpetual Trustees WA Limited (2004) 216 CLR 109; [2004] HCA 7

Armitage v Nurse [1998] Ch 241; [1997] EWCA Civ 1279

Austin v Austin (1906) 3 CLR 516; [1906] HCA 5

Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] 1 Ch 515

Bird v Bird (No. 4) [2012] NSWSC 648

Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12; [1965] AC 694

Crossman v Sheahan (2016) 115 ACSR 130; [2016] NSWCA 200

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21

Farrelly v Phillips (2017) 128 SASR 502; [2017] SASCFC 111

Fell v Fell (1922) 31 CLR 268; [1922] HCA 55

Grace v Grace [2012] NSWSC 976

Halfhide v Beaven [2003] NSWSC 1207

Juul v Northey [2010] NSWCA 211

Lang v The Queen (2023) 413 ALR 389; [2023] HCA 29

Leerac Pty Ltd v Fay [2008] NSWSC 1082

Ludwig v Jeffrey (No. 4) (2021) 394 ALR 360; [2021] NSWCA 256

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42

Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23

Marley v Rawlings [2015] AC 129; [2014] UKSC 2

Meehan and Others v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146; [2002] NSWCA 22

Menz v Wagga Wagga Show Society Inc (2020) 103 NSWLR 103; [2020] NSWCA 65

Ramage v Waclaw (1998) 12 NSWLR 84

Re Atkinson, deceased [1971] VR 612

Re Charteris [1917] 2 Ch 379

Re Speight [1883] 22 Ch D 727

Schwanke v Alexakis [2024] NSWCA 118

Spillane v Hall [2013] NSWSC 229

Tschirn v Australian Executor Trustees Ltd [2016] SASC 149

Wright v Stevens [2018] NSWSC 548

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15

Texts Cited:

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

J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis)

P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

Category:

Principal judgment

Parties:

Regina Turnbull (First Plaintiff)
Hans Brooks (Second Plaintiff)
Erna Barbara Van Luin (Third Plaintiff)
Julieann Deline Groat (Fourth Plaintiff)
Elizabeth Mary Fleming as executor of the Estate of Thomas John Brooks, late of Woodlands (Defendant)

Representation:

Counsel:
Mr N Allan (Plaintiffs)
Mr S Chapple SC with Mr D Yazdani (Defendant)

Solicitors:
Boom Lawyers (Plaintiffs)
Wotton + Kearney (Defendant)

File Number(s):

2022/32155

Publication restriction:

N/A

Judgment

Introduction

1. These proceedings concern the estate of the late Thomas John Brooks, who died on 26 December 2018 (the deceased).

2. The deceased is survived by:

1. his daughter Julieann Groat, who is a child of the deceased’s first marriage with Marilyn Brooks;

2. his daughter Sonya Afflick, who is a child of his second marriage with Maria Brooks;

3. his daughter Tanya Brooks, who is also a child of the deceased’s second marriage;

4. his stepson Hans Brooks;

5. his stepdaughter Barbara Van Luin; and

6. his stepdaughter Regina Turnbull.

3. The deceased executed a will dated 24 February 2017, under which he appointed his solicitor, Ms Elizabeth Fleming, as his executor and trustee. Ms Fleming is the principal of the firm Elizabeth Fleming & Associates (EFA).

4. According to the inventory of property attached to Ms Fleming’s application for probate, the deceased owned the following assets at the time of his death:

1. real property at 35 Dunns Creek Road, Woodlands, New South Wales, with an estimated value of $995,000 (the Woodlands property);

2. real property at 32 Lagoon Street, Moruya, New South Wales, with an estimated value of $375,000 (the Moruya property);

3. real property at Dolphin Avenue, Batemans Bay, New South Wales on which a motel business was trading under the name the Hanging Rock Family Motel, with an estimated value of $2,200,000 (the motel property);

4. shares in TJ Brooks Pty Limited with an estimated value of $622,000, of which $600,000 was attributed to the value of the Hanging Rock Family Motel business that the company operated from the motel property (the motel business);

5. cash of $425,265.10 in various bank accounts;

6. eleven motor vehicles with a total estimated value of $109,500; and

7. shares in Tansony Investments Pty Ltd, which operated a painting business, with an estimated value of $3,000.

5. By clause 5 of his will, the deceased requested his trustee to take note that his daughter, Ms Van Luin, had built a house on the Woodlands property at her own expense, and that the house was “not to be included as part of my assets, but it is to be separately valued and treated as her asset”.

6. By clause 6 of the will, the deceased directed his trustee to discharge any mortgage debt secured against certain property of his brother-in-law, Johannes Pieter Slinger.

7. By clause 7 of the will, the deceased authorised, empowered and directed his trustee to finalise the transfer of the property at 50 Dunns Creek Road, Woodlands, to his daughter, Ms Afflick, at no cost to her, if that transfer had not been finalised prior to his death. That transfer was in fact finalised in May 2017, prior to the death of the deceased.

8. By clause 8 of the will, the deceased gave the residue of his estate to his trustee to pay all debts, legacies, funeral and testamentary expenses and any death, estate or succession duties, and to hold the balance equally for such of his children and stepchildren who survive him by 30 days.

9. Clause 9 of the will provides:

“My Trustee may, on such terms and for such purposes as my Trustee thinks appropriate, without being liable for loss:

(a)   sell;

(b)   postpone the sale of;

(c)   lease;

(d)   borrow, give a guarantee and mortgage; and

(e)   manage,

the whole or any part of my estate.”

10. As I have mentioned, the deceased died on 26 December 2018. On 11 January 2019, this Court made orders granting to Ms Fleming special letters of administration ad collingenda with specific powers, including to continue to operate and manage the motel business and to undertake any works in relation to the motel business or the motel property as required by Eurobodalla Shire Council. Probate was granted to Ms Fleming on 5 June 2019.

11. The deceased’s estate has largely been administered.

12. A clearing sale of the deceased’s vehicles, farming equipment, painting business equipment and other chattels was conducted by Elders Limited (Elders) on instructions from Ms Fleming on 6 July 2019.

13. The motel property and motel business were sold as a going concern on 20 January 2020 for $2,550,000.

14. Ms Fleming arranged for the mortgage debt secured against Mr Slinger’s property to be paid, and the mortgage to be discharged, on 12 July 2020.

15. On 14 September 2020, Ms Fleming paid the sum of $172,861 out of the deceased’s estate to Ms Van Luin, being the estimated value of the house built by Ms Van Luin on the Woodlands property.

16. In about January or February 2021, the Woodlands property was sold to Ms Turnbull for $1,200,000.

17. On 16 March 2021, the Moruya property was sold for $375,000 to Hans Brooks.

18. Ms Fleming has paid interim distributions to the beneficiaries totalling $3,300,000 to date. Those distributions were paid on 19 November 2020, 24 February 2021, 15 April 2021 and 30 March 2022.

19. Ms Fleming tendered the accounts of her administration of the deceased’s estate for the period from 26 December 2018 to 30 June 2022, together with primary records such as receipts, invoices, settlement statements for the sale of properties, bank statements, and a bank reconciliation statement. As at the date of the hearing, Ms Fleming continued to hold $454,764.73 to be distributed to the beneficiaries after completion of tax returns.

Overview of the claims and defences

20. These proceedings were commenced on 3 February 2022. The plaintiffs are the deceased’s three stepchildren – Ms Turnbull, Mr Brooks, and Ms Van Luin – and the deceased’s daughter from his first marriage, Ms Groat. Ms Fleming is the defendant.

21. In their amended statement of claim filed on 3 March 2023, the plaintiffs claim:

1. a declaration that clause 9 of the will is void or unenforceable;

2. an order for the taking of an account on a wilful default basis;

3. alternatively, an order that Ms Fleming pay equitable compensation for the alleged breaches of duty on which the plaintiffs rely as instances of wilful default; and

4. orders revoking the grant of probate to Ms Fleming on 5 June 2019 and granting letters of administration to Ms Lisa Stone, solicitor, or to a qualified solicitor approved by the plaintiffs, and vesting the deceased’s estate in the administrator so appointed.

22. The alleged instances of wilful default on which the plaintiffs rely fall into three categories:

1. acting imprudently in the sale of the motel property and motel business in January 2020, including by selling the motel in a compressed time frame and without obtaining an up to date valuation report, resulting in a sale at a price that the plaintiffs allege was below the market value by approximately $400,000 (the motel claim);

2. acting imprudently in delegating to Elders the sale of grain stored in silos on the Woodlands property immediately prior to the clearing sale in July 2019, resulting in the grain being sold at a price that the plaintiffs allege was almost $10,000 less than its market value (the grain claim);and

3. failing to recover stockyards that had been in use at the Woodlands property, which were removed and relocated to the neighbouring property of Ms Afflick and her husband in early 2020 (the stockyards claim).

23. In relation to each of these alleged defaults, the plaintiffs contend that Ms Fleming acted so imprudently as to display a want of honesty and good faith.

24. The precise terms of the orders sought by the plaintiffs for the taking of an account, as articulated at the hearing, are:

1. an order for an account to be taken by a Registrar of the Court on a wilful default basis, limited to such of the alleged wilful defaults referred to above that may be found to be established following the hearing before me, with a direction that the account be charged with the specific amount of the loss that the Court has found flowed to the estate by reason of the default;

2. an order that an account be taken otherwise in common form but with liberty to the Registrar to certify any further instances of wilful default identified in the taking of the account; and

3. an order that Ms Fleming pay to the plaintiffs such amount as may be determined to be due on the taking of the account.

25. Alternatively, the plaintiffs invite the Court to order Ms Fleming to pay equitable compensation in lieu of an order for the taking of accounts if the Court considers that equitable compensation is a form of relief that can make good the losses to the estate from the alleged wilful defaults without the need to subject the parties to the cost and delay of the process of taking an account.

26. Ms Fleming denies each allegation of wilful default, and therefore denies that she is liable to account on a wilful default basis or to pay equitable compensation.

27. If and to the extent that any of the alleged instances of wilful default are established, it will become necessary to determine whether clause 9 of the will is valid and enforceable. If so, then further questions arise from the parties’ submissions about the proper construction of clause 9 and its application in the circumstances of this case.

28. Presumed undue influence arising from the solicitor and client relationship between Ms Fleming and the deceased is the sole basis on which the plaintiffs contend that clause 9 of the will is void or unenforceable.

29. If clause 9 is not void or unenforceable by reason of presumed undue influence, then the plaintiffs contend that, properly construed, the words “without being liable for loss” in clause 9 of the will do not extend to liability for an equitable debt that arises from an obligation to account to the beneficiaries, or liability to pay equitable compensation as a remedy selected by the Court as a more efficient means of giving effect to such an obligation to account on a wilful default basis in circumstances where the defaults and the value of the assets of which the estate has thereby been deprived are known. The plaintiffs contend that clause 9 of the will therefore does not apply to any of the alleged instances of wilful default.

30. If the words “liable for loss” are construed as including a liability of the kind referred to immediately above, contrary to the plaintiffs’ submissions, then the plaintiffs contend that clause 9 of the will is void for repugnancy to the concept of a trust, or on the basis that it is contrary to public policy, because it impermissibly seeks to exclude the core obligations of an executor and trustee. This contention was not pleaded, but no objection was taken on behalf of Ms Fleming.

31. Ms Fleming submits that presumed undue influence does not apply in the probate context.

32. Ms Fleming further submits that the irreducible core obligations of an executor and trustee are honesty and good faith. Clause 9 of the will, properly construed, does not exclude liability for breach of those core obligations, and is therefore neither repugnant nor contrary to public policy. Ms Fleming further submits that the “loss” to which clause 9 applies does not include liability for “substitutive” compensation that is payable in order to discharge an obligation to account for any unauthorised disbursement of trust funds or assets. The remedy of equitable compensation in those circumstances is not dependent on any loss being established beyond the fact of the unauthorised disbursement. Ms Fleming submits that the plaintiffs’ claims in the present case are claims for “loss” in the “restorative” sense rather than the “substitutive” sense. That is to say, the plaintiffs seek to have restored to the trust the value that they contend would have been obtained but for Ms Fleming’s alleged failure to act in accordance with the requisite diligence and care in selling the motel property and business, in selling the grain, and her failure to recover the stockyards. Ms Fleming therefore contends that, if and to the extent that the plaintiffs establish the alleged instances of wilful default (which Ms Fleming denies), clause 9 is a complete answer to the plaintiffs’ claims.

33. In reply, the plaintiffs submit that the irreducible core obligations of an executor are not limited to honesty and good faith, and extend to the duty of diligence and prudence.

34. If and to the extent that the alleged instances of wilful default are established and liability for such default is not excluded by clause 9 of the will, Ms Fleming asks the Court to relieve her from personal liability pursuant to s 85 of the Trustee Act 1925 (NSW) on the basis that she acted honestly and reasonably and ought fairly to be excused. The plaintiffs deny that Ms Fleming acted honestly and reasonably in relation to the sale of the motel property and business, the sale of the grain, and the recovery of the stockyards.

35. The plaintiffs did not make any submissions in support of their claim for orders revoking the grant of probate to Ms Fleming and granting letters of administration to Ms Stone, or another, solicitor. Nor did the plaintiffs tender any consent of Ms Stone, or any other solicitor, to be appointed as administrator of the deceased’s estate. Those claims for relief are therefore taken to have been abandoned.

The duties of executors and trustees and liability to account on a wilful default basis

36. It is convenient to begin with a summary of the legal principles relating to the scope and content of the duties owed by executors and trustees, and the circumstances in which an executor and trustee becomes liable to account on a wilful default basis.

37. An administrator is required to administer the deceased estate for the benefit of the beneficiaries in accordance with the will. [1]

    1. Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12; [1965] AC 694 at 707 (Viscount Radcliffe, Lords Reid, Evershed, Pearce and Upjohn) (Livingston); Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 (Youyang) at [32] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ); G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.22].

38. It is uncontroversial that the principal duties of an executor are to identify and get in the assets of the deceased’s estate, to pay the deceased’s expenses and liabilities, to pay the legacies given by the will, and to distribute the residue of the estate in accordance with the will. The executor holds the assets of the estate for the purpose of carrying out the functions of administration, and not for the executor’s own benefit. [2]

    2. Livingston at 707 (Viscount Radcliffe, Lords Reid, Evershed, Pearce and Upjohn); Juul v Northey [2010] NSWCA 211 (Juul) at [196] (McColl JA, Basten and Campbell JJA agreeing).

39. The law requires executors to adhere to the same standards as are required of trustees in carrying out their duties. Executors and trustees are required to act prudently and properly in the management of the estate as a whole. The standard of prudence required is that of an ordinary prudent person or, in the case of an executor or trustee acting in a professional capacity, the minimum standard required of persons acting in that profession. The executor’s conduct is to be assessed against the standard objectively. As both the plaintiffs and the defendant emphasised in the present case, that is a factually sensitive inquiry which must be undertaken having regard to the circumstances in which the defendant carried out her duties. [3] The duty to act prudently and properly is also referred to as a duty of diligence and prudence, or a duty of diligence and care. The standard of prudence is sometimes referred to as a standard of care. However, the duty owed by executors and trustees, and the standard that they are required to meet, are not to be confused with the similarly named duty and standard of care that are relevant to common law actions for negligence. [4]

    3. Re Charteris [1917] 2 Ch 379 at 388-389 (Swinfen Eady LJ); Re Speight [1883] 22 Ch D 727 at 739-740 and 762 (Jessel MR and Lindley LJ); Austin v Austin (1906) 3 CLR 516 at 525; [1906] HCA 5 (Griffith CJ, Barton and O’Connor JJ).

    4. Youyang at [38]-[40] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ).

40. The discharge of the duty to identify and get in the assets of the estate may require the executor to enforce, by legal proceedings if necessary, any right, title or interest of the deceased in specific assets, provided that the estate has sufficient assets to fund such legal proceedings or the beneficiaries indemnify the executor for the costs of such proceedings. [5]

    5. Re Atkinson, deceased [1971] VR 612 at 615 (Gillard J); Tschirn v Australian Executor Trustees Limited [2016] SASC 149 at [58]-[59] (Doyle J).

36. Contrary to the submissions made on behalf of the plaintiffs, the executor’s duty to get in assets does not require the executor to commence proceedings to recover property if the estate has sufficient funds to cover the executor’s costs of the proceedings, or the beneficiaries indemnify the executor in respect of those costs. In support of that submission, the plaintiffs relied on the following passage from the judgment of Doyle J in Tschirn v Australian Executor Trustees Limited: [6]

“While accepting that this duty will on occasion extend to commencing legal proceedings in order to recover assets or monies said to form part of the deceased estate, the authorities also recognise, at least where those proceedings are likely to be controversial or contested, that the executor is not bound to use their own funds to pursue those legal proceedings. If there are no trust assets from which to fund the proceedings, and no indemnity from a beneficiary or beneficiaries is forthcoming, then it would generally be appropriate for the executor to refrain from commencing the contemplated proceedings. …”

6. [2016] SASC 149 at [59].

42. That passage does not support the plaintiffs’ submission that, if the estate has sufficient funds to cover the costs of the proceedings, then the executor’s duty to get in the assets necessarily requires the executor to commence the proceedings. The executor’s duty to get in the assets is to be exercised prudently in accordance with the standards discussed above. [7] The question whether it is prudent to commence proceedings to recover property claimed by the estate will depend on all the circumstances. Relevant factors include the nature and value of the relevant property, the nature and strength of the competing claims to the relevant asset, the level of risk attending the proposed proceedings, and the likely cost to the estate if the proceedings are unsuccessful.

    7. Juul at [196] (McColl JA, Basten and Campbell JJA agreeing).

43. If in doubt about whether to commence proceedings to prosecute the estate’s claim to specific property in all the circumstances, it is open to an executor to seek judicial advice about whether they would be justified in commencing proceedings. [8] Indeed, it may be prudent to do so. [9] However, the executor is not under any legal obligation to seek judicial advice. [10] If the executor does not commence the relevant proceedings, and a beneficiary contends that the executor is under a duty to do so, that beneficiary may sue the executor to compel them to protect the beneficiary’s interest in the estate. Alternatively, if there are special circumstances, the beneficiary may commence proceedings in their own name against the defendant to prosecute the estate’s claim to the particular asset, joining the executor and other beneficiaries as additional defendants. [11]

    8. Re Atkinson, deceased [1971] VR 612 at 615 (Gillard J); Tschirn v Australian Executor Trustees Ltd [2016] SASC 149 at [58]-[59] (Doyle J).

    9. Juul at [197]-[199] (McColl JA, Basten and Campbell JJA agreeing).

    10. Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [54]-[76] (Gummow ACJ, Kirby, Hayne and Heydon JJ); Ludwig v Jeffrey (No. 4) (2021) 394 ALR 360; [2021] NSWCA 256 at [82]-[84] (Emmett AJA, Meagher and Brereton JJA agreeing).

    11. Alexander v Perpetual Trustees WA Limited (2004) 216 CLR 109; [2004] HCA 7 at [55] (Gleeson CJ, Gummow and Hayne JJ), approving Ramage v Waclaw (1998) 12 NSWLR 84 at 91-93 (Powell J, as his Honour then was) and the authorities there referred to; J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis) at [23-03]; G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.14]; see also Re Atkinson, deceased [1971] VR 612 at 616-617 (Gillard J); Bird v Bird (No. 4) [2012] NSWSC 648 at [15] and [124] (Rein J); Grace v Grace [2012] NSWSC 976 at [129] (Brereton J, as his Honour then was); Spillane v Hall [2013] NSWSC 229 at [23] (Sackar J).

44. I accept the plaintiffs’ submission that the standard of care required of an executor selling assets for the purpose of administration is the standard described by Barrett J (as his Honour then was) in Halfhide v Beaven: [12]

“44.   … the standard of care to be exercised by an administrator in effecting a sale for purposes of administration may be regarded as the equivalent of that expected of a trustee exercising a power of sale, although considerations relevant to the competing interests of classes of beneficiaries will not intrude in the case of a legal personal representative. The standard of care includes the exercise of diligence in inviting competition and in pursuing a course of conduct of the kind that an ordinary prudent person would apply in managing his or her own affairs. Formulations based on a supposed duty to ‘obtain the best price’ or ‘not to sell at an undervalue’ must, I think, be approached with care. Such absolutes tend to be illusory. The emphasis is on responsible, methodical and prudent behaviour undertaken according to an informed appreciation of the subject matter and the market environment in which it is to be sold. …” 

12. [2003] NSWSC 1207 at [44].

45. Importantly, as Barrett J stated in that case, the beneficiaries’ right to have the deceased’s estate properly and duly administered does not entail a right to determine how, for what price or to whom a sale is made. [13]

    13. Ibid at [45].

46. The office of executor is a personal one which cannot be delegated. However, an executor cannot do everything themselves in the administration of the estate. An executor may engage agents where it is in the ordinary course of business to use others to do the work that the agent is engaged to do, and provided that the executor runs no needless risk in doing so. The executor must exercise care to select an agent who is suitable and competent in the relevant field, and in supervising the work undertaken by the agent. [14]

    14. Re Speight (1883) 22 Ch D 727 at 762-764 (Lindley and Bowen LJ); G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.28]-[12.31].

47. Beneficiaries of a deceased estate are entitled to an account in common form. An account on the basis of wilful default may be ordered at the suit of a beneficiary who establishes at least one instance of wilful default. Not every breach of trust is a wilful default. In an accounting context, wilful default means “a passive breach of trust, an omission by a trustee to do something which, as a prudent trustee, he ought to have done – as distinct from an active breach of trust, that is to say something which the trustee ought not to have done”. [15] The underlying concept is that “through breach of trust the trustee has failed to obtain for the trust that which would have been obtained if the trustee’s duties had been discharged”. [16] Examples include the failure by an executor or trustee to get in an asset of the estate or the trust, or the sale of an estate or trust asset at an undervalue (resulting in the estate or trust not receiving the full value of the asset). It is not necessary to demonstrate conscious wrongdoing on the part of the executor or trustee in order to establish wilful default. [17]

    15. Juul at [180] (McColl JA, Basten and Campbell JJA agreeing), referring to Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] 1 Ch 515 at 546 (Brightman LJ).

    16. Juul at [181] (McColl JA, Basten and Campbell JJA agreeing), referring to Meehan and Others v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146; [2002] NSWCA 22 (Meehan v Glazier) at [65] (Giles JA, Sheller and Beazley JJA, as Her Excellency then was, agreeing).

    17. Meehan v Glazier at [65]-[66] (Giles JA, Sheller and Beazley JJA agreeing); Juul at [180]-[195] (McColl JA, Basten and Campbell JJA agreeing).

48. In the taking of an account on the basis of wilful default, the executor must account not only for the assets that have actually been received, but also for assets that would have been received if the executor had properly discharged their duties. [18]

    18. Meehan v Glazier at [13]-[15] (Giles JA, with the concurrence of Sheller JA and Beazley JA, as Her Excellency then was).

49. A court will only order an account on the basis of wilful default where the default that constitutes the basis of the application is proved, and gives rise to a prima facie inference that other defaults have occurred albeit that they are not yet known. [19] As the plaintiffs submitted, where there are only a few likely instances of default, an account on the basis of wilful default may be limited to those instances. As I have already mentioned, the plaintiffs submitted that, where a limited number of wilful defaults, and the value of the assets not received by the estate as a result of those defaults, have been proved at trial, the Court may order equitable compensation as an alternative and more efficient means of the executor making good that lost value rather than making an order for the taking of an account on the wilful default basis.

    19. Meehan v Glazier at [46] (Giles JA, Sheller and Beazley JJA agreeing); G E Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.49].

Salient facts

50. The deceased died on 26 December 2018.

51. By 7 January 2019, Ms Fleming was gathering information concerning the deceased’s estate, and was preparing an urgent application to the Court for a grant of special letters of administration, primarily for the purpose of enabling her to continue the operation of the motel business pending a grant of probate.

52. As I have already mentioned, the Court made an order on 11 January 2019 granting special letters of administration ad collingenda with specific powers, including to operate and manage the motel.

53. Ms Afflick had been managing the motel business since about 1997, reporting directly to the deceased who participated in all decisions relating to the business. Ms Afflick worked together with Ms Robyn Bell, who managed the motel business at nights and on weekends. Ms Afflick and Ms Bell continued to manage the motel after the death of the deceased, reporting to Ms Fleming. Ms Fleming attended the motel to monitor its management, and to inspect specific problems or issues that Ms Afflick and Ms Bell drew to her attention from time to time.

54. Those problems included a problem with the sewage disposal system at the motel property, which Ms Afflick drew to the attention of Ms Fleming.

55. Ms Afflick gave evidence that the motel was serviced by two septic systems. From about 2002, sewage failed to drain away from the motel consistently. Ms Afflick had to attempt to clear the pipes using a mop and a hose on a weekly basis. If that did not succeed, a local plumber – Mr Martin Green – was called to clear the blockage using an electric eel. Both septic systems were affected by these blockages. Ms Afflick understood that the problem was caused by the age of the pipes and the infiltration of tree roots into the pipes, based on advice from Mr Green, and based on her own observations when attempting to clear the pipes herself. However, Ms Afflick also agreed in cross-examination that the blockages that required her to clear the pipes manually with a mop and hose were principally caused by people flushing foreign objects down the toilets. Ms Afflick gave evidence that Mr Green’s assistance was required on a regular basis, although she cannot now recall the precise frequency. Ms Afflick recalled occasions on which sewage flooded into some of the motel rooms. On one such occasion, the flooding was so extensive that all flooring and furniture in the affected rooms had to be replaced.

56. Ms Fleming gave evidence that she and Ms Afflick sought advice from Mr Green about what was required to rectify the problem. Mr Green advised that the motel would need to be closed in order to carry out the necessary work, because the toilets could not be flushed while the work was in progress.

57. Ms Fleming and Ms Afflick gave conflicting evidence about past subsidence of parts of the floors in some of the units in the motel.

58. Ms Afflick gave evidence that the flooring in part of two motel rooms had “collapsed” in about spring 2015, and had never been repaired because the deceased thought that the repairs would be too costly. It was Ms Afflick’s understanding that the “collapse” had occurred because “the flooring piers had sunk in”. There is no evidence of the basis of Ms Afflick’s understanding.

59. In her affidavit sworn on 4 August 2022, Ms Fleming deposed that Ms Afflick advised her that there had been “subsidence issues with floors in the family units” in the past, that the affected floors had been rebuilt, including retiling and repainting the affected units.

60. There is no evidence of any recurrence of floor subsidence in any of the motel units at any time after the occasion referred to by Ms Afflick in 2015. Ms Fleming deposed that no subsidence issues have arisen during her administration of the deceased’s estate to date. In cross-examination, however, Ms Fleming described floor subsidence as a “continuing process” at the motel property, meaning that it happened “regularly, as in every three or four years”. Ms Fleming also asserted that it was “wet under that set of units”.

61. Ms Fleming’s evidence does not disclose any source of information about subsidence issues at the motel other than Ms Afflick. I reject Ms Fleming’s evidence given in cross-examination that subsidence issues were a “continuing process” occurring every three or four years as inconsistent with Ms Afflick’s evidence, and inconsistent with Ms Fleming’s own affidavit. It was my impression at the time that Ms Fleming gave that evidence in cross-examination that she was overstating the subsidence “issue” in response to being challenged about her evidence that she considered subsidence to be an issue or potential issue affecting the value of the motel when she sold it for $2,550,000 in December 2019, being less than the value ascribed to the motel property and business by the valuation report that she had received in April 2019 to which I refer below, and less than the selling price estimated by the sales agent that she engaged in October 2019.

62. On 6 February 2019, Ms Fleming engaged a local valuer, Mr Wayne Riches of Riches Property Valuations, to value the Woodlands property and the Moruya property. At Mr Riches’ suggestion, Ms Fleming engaged Opteon Property Group Pty Ltd (Opteon) as a specialist valuer to value the motel property and business. Ms Fleming had used Opteon’s services previously and had been satisfied with their work.

63. In cross-examination, Ms Fleming initially said that she engaged Opteon to value the motel property and business solely for probate purposes, and not for the purposes of identifying the value of the motel property and business with a view to sale. I reject that evidence, which is inconsistent with the objective facts that, as recorded in the contemporaneous documents and as Ms Fleming accepted in cross-examination, she was interviewing real estate agents and brokers in February and March 2019 with the intention of appointing one of them to conduct the sale of the motel property and business, and her intention at that time was to sell the motel without trading it for any material length of time if possible.

64. On 14 February 2019, Ms Fleming obtained from the deceased’s accountant, Ms Rhonda Elliott, financial statements for the motel business operated by TJ Brooks Pty Limited for the 2016 to 2018 financial years and for the period 1 July 2018 to 31 January 2019. The financial statements recorded net profits of $151,992 for the 2016 financial year, $60,630 for the 2017 financial year, $118,148 for the 2018 financial year, and $102,004 for the seven-month period to 31 January 2019. Ms Fleming caused the financial statements to be provided to Mr Gregory Mason, the valuer at Opteon who was undertaking the valuation of the motel property and business.

65. Mr Mason inspected the motel property on 22 February 2019, and prepared a valuation report that Opteon issued on 10 April 2019. Mr Mason valued the motel property and business at $2,825,000 as a going concern on a “walk in walk out” basis or, alternatively, $2,200,000 for the motel property and $600,000 for the motel business, as at 22 February 2019. Mr Mason opined that the existing use of the property as a motel was its highest and best use.

66. The report noted the strengths of the site as including its location within a growing coastal region, and its proximity to the Catalina Country Club. Noted weaknesses included the potential presence of asbestos in some buildings and the need for some repair works to be undertaken in the short to medium term. The report identified the necessary repairs as being new roofing and some external cladding repairs for the northern wing of the motel (comprising rooms 16 to 20), and repairs to soffit lining and new gutters and downpipes for the western wing of the motel (comprising rooms 7 to 15). The report stated that a preliminary allowance of $15,000 for those works had been incorporated in the valuation as representing the discount to market value that a prudent purchaser would allow for the cost of those works. However, the report emphasised that Mr Mason had not been provided with quotes or expert reports concerning the works.

67. The report recommended that audited financial statements, a building inspection report, and an asbestos report be provided to Mr Mason for review. There is no evidence that any such documents were provided to him, although an asbestos register was later prepared, as referred to below.

68. The report noted that the motel business had been managed by Ms Afflick since approximately 2002, and that it appeared to be well managed. The report stated that any decrease in the quality of management could quickly lead to a decline in trade.

69. Mr Mason opined that the tariff rates at the 27-room motel of between $70 and $120 per night during the off-peak season and between $120 and $160 per night during the peak season appeared to be at below market rates when compared with tariffs charged by other low to mid-range accommodation facilities in Batemans Bay and other nearby coastal towns on the South Coast. Mr Mason opined that “slightly higher tariff rates could be achievable", but also calculated that the motel business was achieving a slightly above average occupancy rate for the area and attributed this to the lower tariff level. The report stated that, in order to maintain and improve occupancy levels, the motel owner would need to monitor ongoing competition from approximately 27 other motels or accommodation options in the Batemans Bay area, and to implement an upgrade and refurbishment program for the motel property.

70. In valuing the motel property and business as a going concern, Mr Mason applied a capitalisation of net profit methodology, supported by a direct comparison methodology.

71. Mr Mason explained the capitalisation methodology in the following terms:

“The capitalisation method is based on the concept that for income producing assets the price a prospective purchaser will be prepared to pay will be based on (amongst other things) the level of income and the return required for the investment of capital.

The capitalisation method is commonly used as the primary valuation method to determine the Market Value of income producing assets such as leased properties and going concerns or specialised assets.

Under the capitalisation of net profit, the net profit after adjustments is divided by the percentage return (known as the capitalisation rate) required by prospective purchasers in the market to arrive at the Capitalised Value assuming the asset was being operated under good average management.

Capital adjustments may be made to the Capitalised Value, for example to reflect:

• Capital expenditure required to sustain the income;

• Lost earnings during a period of change to the operation of the business in order to achieve the adopted net profit;

• The added value of other non-incoming [sic] producing assets (e.g. surplus land).”

72. Mr Mason then referred to the evidence of sales of nine motel properties during the period from February 2017 to March 2019 in Batemans Bay, Batehaven, Mollymook, Narooma, Bega, Queanbeyan and Braemar, which indicated a range of market yields between 5.27 per cent and 14.0 per cent for properties that he considered to be similar properties. The properties that Mr Mason considered most comparable to the subject motel property had yields between 7.8 per cent and 11.87 per cent. Mr Mason opined that, based on that market evidence, the appropriate capitalisation rate for the motel property was 9.5 per cent. He then applied that capitalisation rate to an “adopted sustainable net profit figure” for the motel business of $270,000 per annum – $151,852 more than the net profit of $118,148 recorded in the financial statements for the 2018 financial year. [20] That “adopted sustainable net profit figure” represented 48.6 per cent of trading revenue, whereas net profits actually achieved by the motel business since the 2016 financial year, according to the financial statements provided to Mr Mason, represented between 10.8 per cent and 29.0 per cent of revenue. He arrived at the “adopted sustainable net profit figure” by adjusting actual expenses downwards to achieve the “adopted sustainable net profit figure” which he considered to be in line with unspecified “industry benchmarks” for a motel business of comparable size. However, he emphasised that this was not presented as a projection of the trading performance of the motel business. The capitalised value of the motel property and business, based on the “adopted sustainable net profit figure” of $270,000 and a capitalisation rate of 9.5 per cent, was $2,842,105, from which Mr Mason deducted $15,000 for the repair works described at [66] above before rounding down by a further $2,105 to arrive at a value of $2,825,000.

    20. See [64] above.

73. Mr Darren Austin, a certified practising valuer called by the plaintiffs as an expert witness, explained that the process of reducing the actual expenses of a business in order to achieve a net profit figure to be applied in estimating the value of the business using the capitalisation methodology is known as “adding back” or “add-backs”. Mr Austin gave evidence that the objective is to remove one-off or non-recurring expenses, depreciation expenses, and any private financing expenses from the calculations. Mr Austin gave evidence that, with small motel businesses, the usual practice was to remove or “add back” all wages paid to the owners, leaving only the expense of wages paid to additional employees, in order to remove the variability that would otherwise result from the wide range of practices amongst owners in the level of salaries paid to themselves.

74. The sale prices of the nine motel properties referred to in Mr Mason’s report represented between $61,538 and $243,333 per room. For the purpose of the direct comparison methodology, Mr Mason adopted a rate per room of $105,000 for the subject motel property and business, being very similar to a rate per room of $105,263 achieved for the sale of a 19-room motel in Batemans Bay in February 2017. The $105,000 room rate for the motel property and business with 27 rooms translated to an estimated market value of $2,835,000, which Mr Mason rounded down to $2,825,000 in line with the estimated value derived from the capitalisation methodology.

75. Mr Mason’s report described the marketability of the motel as at 22 February 2019 as “good”, and described the market as “more buoyant in recent times” and the market direction as “steady to slightly increasing in both sale prices and volumes”. Mr Mason estimated the selling period for the motel as between three and six months, assuming proper marketing and a realistic asking price.

76. Section 18 of Mr Mason’s report provided the following more detailed commentary on the state of the market:

“The motel industry remains in a relatively buyout [sic] position in NSW as stable economic growth and general commercial/leisure optimism have led to a steady improvement in the tourist trading conditions, particularly along the South Coast. The positive business outlook has improved market optimism for motels and with low bank interest rates assisting to underpin demand, the favourable economic conditions should continue to influence the market. The demand for well-located coastal motels should remain a popular form of investment to a range of investors, especially those motels and tourist type facilities that offer longer term re-development or expansion opportunities.

This position has been boosted by increasing levels of overseas tourist visitations to regional areas including the South Coast which is reported to be one of the most popular holiday regions in NSW. The domestic tourist industry has stabilised over the last two years with steady growth in visitation and revenue to most motels. The increase of inbound tourists is expected to continue strengthening the non-metro motel industry as regional promotions gain traction from overseas guests.

Relative to the general real estate market in the local area, the most recent 18-24 month period appears to have improved across all property sectors. Agents have been reporting a higher level of leasing demand for both retail and commercial property within the Batemans Bay CBD, with a number of leases having been signed with national retailers, in addition to a number of strong commercial sales taking place within the area. This has been supported by the strong residential market and the overall confidence is reflected in a number of developments that are either underway in the area, such as ‘Wharf on Clyde’ mixed use strata unit complex and ‘Gold Golf Links Drive’ apartments. Despite the improving market conditions since the mid-2000s, it would now appear that residential market is showing signs of softening, with fewer enquiries as reported by local agents. This is a result of the weakened Sydney, Canberra and Wollongong markets, reflective of an uncertain lending climate. Whilst agents have reported softened conditions within the residential sector, evidence of this has not yet reached the commercial or development market, however may be expected”

77. The report stated that Mr Mason’s valuation was current for a period of “90 days from the date of valuation, or such earlier date if you become aware of any factors that have any effect on the valuation.” The 90-day period expired on about 22 May 2019.

78. Mr Mason’s report made no mention of the sewage drainage problems at the motel property referred to at [54]-[56] above.

79. Ms Fleming left it to Ms Afflick to show Mr Mason around the motel property for the purpose of his inspection and valuation, and Ms Afflick did not tell him about the problems with the septic system. According to Ms Afflick, Mr Mason did not ask about such issues, and she did not volunteer any information.

80. After receiving Mr Mason’s valuation report on or about 10 April 2019, Ms Fleming conducted two further interviews in May 2019 with real estate agents for potential appointment to act on behalf of the estate in selling the motel property and business. No agent was appointed until October 2019. [21]

    21. See [96] below.

81. As I have already mentioned, this Court granted probate of the will of the deceased on 5 June 2019.

82. On 12 March 2019, Mr Riches issued his valuation report in respect of the Woodlands property. Mr Riches’ estimate of the market value of the property was $995,000, excluding the stockyards and ramp in use on the property, and three steel silos, on the basis that they were chattels. It will be recalled that Ms Afflick and her husband own and farm the adjacent property at 50 Dunns Creek Road. [22]

    22. See [7] above.

83. Ms Fleming had engaged Elders in early June 2019 to conduct the clearing sale of the deceased’s chattels, including furniture, farming tools and equipment, painting equipment and sporting goods, at the Woodlands property. The chattels offered for sale included the three silos, which Mr Riches’ valuation of the Woodlands property had excluded on the basis that they were chattels, and triticale grain contained in those silos. In her affidavit sworn on 4 August 2022, Ms Fleming deposed that she decided to engage Elders because of their expertise in the agricultural and rural sales market and sector. Ms Fleming considered that Elders were reputable, qualified, experienced and competent sales agents. The plaintiffs did not adduce any evidence impugning Elders’ reputation, qualifications, experience or competence for this engagement.

84. On or about 17 June 2019, Ms Fleming informed the beneficiaries about the clearing sale, which was scheduled for 6 July 2019, and of their right to bid on any items on the basis that they would be able to deduct the purchase price from their share of the final distribution of the estate, rather than paying for the items.

85. The clearing sale was advertised online and in several local newspapers. Ms Fleming gave evidence that she relied on Elders to undertake the sale diligently, and to “obtain the best price on the day, as is the custom with clearing sales”.

86. In her affidavit sworn on 4 August 2022, Ms Fleming deposed that, from the time of the deceased’s death, two of the three silos on the Woodlands property had been empty, and one silo had been partly filled with grain. Ms Fleming had observed during her inspection of the Woodlands property that “grain was only being released from one silo”, and that this grain had been affected by weevils. In cross-examination, Ms Fleming explained that this was based on her observation that there was grain on the ground under only one of the three silos. Ms Fleming deposed that the grain remained in that silo until it was sold, and that it was therefore not possible for her to inspect the amount of the grain in that silo that “remained viable for sale” notwithstanding the weevil infestation. In cross-examination, Ms Fleming said that whether the weevil infestation would reduce the price for which the grain could be sold would depend on prospective purchasers’ proposed uses for the grain.

87. Ms Fleming gave evidence that Mr Dhugald McDowell of Elders told her on or about 17 June 2019, during the process of preparing for the clearing sale, that the silo would need to be emptied prior to sale so that the purchaser would be able to collect it on the day of the sale. Mr McDowell said to Ms Fleming that Elders would therefore sell the grain prior to the clearing sale. On 17 June 2019, Ms Afflick sent an email to Ms Fleming informing her of a similar conversation that Ms Afflick had with Mr McDowell:

“I was talking to Dhugald this morning about the grain that is in the silos and he knows a man that might be interested in it weavels and all Pre sale, So it is more appealing as a buyer of the silos. Are you happy with this?”

88. Shortly before the clearing sale, Elders sold the deceased’s triticale grain in two lots. Lot 1 was sold to Mr Wayne Williams for $2,068 including GST and Lot 2 was sold to Lakeview Pty Ltd for $1,577.40 including GST. It is common ground that the grain was sold at a price of $150 per tonne. In cross-examination, Ms Fleming gave evidence that she relied on Elders to “deal with” the clearing sale and get all items removed from the Woodlands property. When asked whether she relied on Elders to decide the price for which items were to be sold, and the purchasers to whom they were to be sold, Ms Fleming answered affirmatively, saying that she assumed that Elders would do their best to get the highest price because they were working on commission. In the case of the grain sale, Ms Fleming said that it was equally important to empty the silo in advance of the clearing sale so that the silo could be sold and removed by the purchaser on the day of the sale. Ms Fleming gave evidence that this was important because people come “from far and wide” to a clearing sale, and they want to be able to organise transport for the items they purchase on the same day that they purchase them. All three silos were in fact removed from the Woodlands property on the day of the clearing sale.

89. On 20 June 2019, Ms Turnbull wrote to Ms Fleming in the following terms:

“It is my understanding that my late father had a considerable amount of grain stored at his property at Dunns Creek Rd. I was wondering what happened to this grain & I have since found out that this grain was sold for $150.00 per tonne.

I am a partner in the largest rural supply business in the area, this business regularly buys & sells bulk gain. My sister July [sic] & her husband own one of the biggest cropping property’s at Rankin Springs. We both find it astounding that you did not think to consult us before selling this grain.

My husband Robert & Julys [sic] husband Peter, both with over thirty years’ experience in selling & assessing grain both inspected a large sample of this grain & both found it to be in excellent condition apart from some slight weevil damage.

I have customers who have been paying well over $500 per tonne for grain for the last six months who would have jumped at the chance to buy this grain for a minimum of $400 per tonne. I had the contacts, the means & equipment to dispose of this grain for the maximum benefit of the estate. Yet you chose to ignore our expertise & sell this grain for $150 per tonne.

July [sic] & Peter are currently heavily affected buy [sic] the current drought & are desperate for feed for livestock. They also would have jumped at the chance to purchase this grain.

I do not know who is advising you, but your arrogance & failure to consult with all the beneficiaries of my late fathers’ estate has cost us considerable money.

As executor & trustee of my late father’s estate you have complete control over the dispersal of that estate. You also have a legal obligation to gain the maximum benefit possible from this estate for all the beneficiaries of this estate.    You will be held accountable for any failure to meet this legal obligation.

My advice to you is, start talking to us.”

90. Ms Turnbull and her husband, Mr Robert Turnbull, operate a business known as Turnbull’s Fuel & Produce. According to Mr Turnbull’s evidence, Turnbull’s Fuel & Produce was one of the largest grain suppliers in the Eurobodalla Shire in mid-2019. Triticale grain was unavailable in that area in mid-2019 due to drought conditions experienced since about 2017. Turnbull’s Fuel & Produce was purchasing barley as a substitute for triticale grain, which it was on-selling to customers at a price of about $400 per tonne (excluding GST and haulage costs). Triticale grain was preferred to barley as a livestock food because it is more dense in carbohydrates and protein. Mr Turnbull gave evidence, which was not challenged in cross-examination, that he would have had no difficulty finding a buyer for triticale grain in mid-2019 for at least $400 per tonne (excluding GST). Mr Turnbull did not inspect the grain in the silos on the Woodlands property, but gave evidence that he did inspect some grain from those silos that had been delivered to one of his customers, and some grain left in a few buckets on the Woodlands property on the day of the clearing sale. Mr Turnbull described the grain that he inspected as having been treated for slight weevil damage. Ms Turnbull gave evidence that the grain had been chemically treated for weevils a few years prior to the clearing sale. It is not clear whether Mr Turnbull’s opinions about the ease with which he could have found a buyer for triticale grain, and the price for which he could have sold such grain, in mid-2019, applies to triticale grain that been treated for weevil damage. Mr Turnbull’s opinions were admitted into evidence without objection.

91. I assume that, where Ms Turnbull refers to “July” in her 20 June 2019 letter to Ms Fleming, she means to refer to Ms Julieann Groat. There is no evidence that Ms Groat “jumped” at that chance to purchase the grain at any time after Ms Turnbull says that Ms Groat’s husband inspected a sample of the grain, or after becoming aware of the clearance sale through EFA’s letter to her solicitors dated 17 June 2019. Ms Groat did not give evidence of any inspection of the grain conducted by her husband, who was not called to give evidence at all.

92. Ultimately, 204 lots of chattels were sold at the clearance sale at the Woodlands property on 6 July 2019, raising a total sum of $196,149 (excluding GST). Lots 1 and 2 comprised the triticale grain, which had been sold prior to the clearance sale as explained above. Lots 196 and 197 comprised the three silos, which were sold for a total sum of $14,600. Lots 198, 199 and 200 comprised the deceased’s ewes, lambs, and alpaca, which were sold to Ms Afflick.

93. From at least 1 August 2019, Ms Fleming was making arrangements to sell the Moruya and Woodlands properties, including liaising with the beneficiaries throughout August and September 2019 in relation to Mr Brooks’ offer to purchase the Moruya property for the valuation price and competing offers from Ms Afflick and Ms Turnbull to purchase the Woodlands property. Ms Turnbull ultimately made the highest bid for the Woodlands property at $1,370,000 on 1 October 2019 – considerably more than the $995,000 valuation. Ms Fleming accepted Ms Turnbull’s bid after Ms Afflick indicated that she would not make a higher offer.

94. Throughout the bidding process for the Woodlands property, Ms Afflick continued to manage the motel business with the assistance of Ms Bell, reporting to Ms Fleming. The sewage problems persisted, and were the subject of various telephone conferences between Ms Fleming and Ms Afflick, including on 9 September 2019.

95. In about early October 2019, Ms Afflick and Ms Bell told Ms Fleming that they intended to resign from their management positions in the motel business. They told Ms Fleming that they wished to spend Christmas with their respective families, rather than working at the motel, for the first time in many years. Ms Fleming attempted to arrange replacement managers, but was unable to find anyone who was available during the forthcoming Christmas period. Ms Fleming was anxious to persuade Ms Afflick and Ms Bell to stay because she considered that, without replacement managers, she would need to close the motel during the busy Christmas and summer peak period, which would result in loss of revenue. Ms Fleming ultimately persuaded Ms Afflick and Ms Bell to stay on until the sale of the motel was completed, on the basis of her assurances to Ms Afflick and Ms Bell that a sale was imminent.

96. On 8 October 2019, Ms Fleming conducted further interviews with real estate agents and brokers as candidates to act for the estate in selling the motel property and business. Ms Fleming chose to engage Mr Russell Rogers of Resort Brokers Australia Pty Ltd (Resort Brokers) because she considered him to be reputable, qualified, experienced and competent to broker the sale of the motel property and business, he had 10 years experience in the motel and caravan sector and specialist knowledge of the local area where he had several other properties listed for sale, and he was available to show prospective purchasers through the motel property. The plaintiffs did not adduce any evidence challenging or impugning Mr Rogers’ reputation, qualifications, experience or competence to act as the selling agent for the motel property and business.

97. Ms Fleming signed the agency agreement with Resort Brokers on 14 October 2019, appointing them as her agents for the sale of the motel property and business on an expressions of interest basis. The agreement stated:

“Agent’s opinion as to current estimated selling price (or price range) (including GST, if any) $3,000,000 - $3,300,000 (this opinion is not to be construed as a valuation)”

98. The agent’s appointment was exclusive for a period of three months from 10 October 2019 to 10 January 2020, and the agent’s fee was 4.4 per cent of the sale price (including GST).

99. There is no evidence explaining the delay of approximately four months between the grant of probate on 5 June 2019, and Ms Fleming’s appointment of the selling agent for the motel property and business in October 2019. As I have mentioned earlier in these reasons, Ms Fleming had commenced interviewing prospective agents as early as February 2019. [23] In cross-examination, Ms Fleming said that she thought that Mr Rogers was “clutching at straws” when he expressed the opinion recorded in the agency agreement that the estimated selling price range for the motel was between $3,000,000 and $3,300,000. Ms Fleming denied that she was sceptical of Mr Rogers’ advice, and denied that she dismissed his advice, but said that she regarded it simply as “somebody else’s interpretation of what the motel is worth”. I do not accept Ms Fleming’s denial that she was dismissive or sceptical of Mr Rogers’ opinion about the estimated selling price of the motel. It is both dismissive and sceptical to describe that opinion as “clutching at straws”. Ms Fleming did not have any other “interpretation” available to guide her about the value or selling price of the motel property and business. By October 2019, Mr Mason’s valuation was no longer current. [24] According to her evidence in cross-examination, Ms Fleming did not turn her mind to that, and did not consider requesting Mr Mason to update his valuation.

    23. See [63] and [80] above.

    24. See [77] above.

100. On the same day as signing the agency agreement, Ms Fleming provided Mr Rogers with contact details for the Secretary of the Club Catalina, which Ms Fleming knew was interested in considering purchasing the motel. Ms Fleming also authorised Mr Rogers to contact Ms Elliott to obtain the financial statements for the motel business and to contact Ms Afflick to arrange marketing photography and any other information that he required in relation to the motel.

101. The financial statements provided to Mr Rogers included the financial statements for the motel business for the 2019 financial year, which had not been completed at the time of Mr Mason’s valuation. Those financial statements recorded revenue of $592,822 and net profit of $122,141. The “Financials” page of the information memorandum that Mr Rogers prepared for the motel property and business recorded the net profit of the business for the 2019 financial year as $310,590 – an increase of $188,449 from the net profit recorded in the financial statements for the 2019 financial year. The “add-backs” that Mr Rogers applied in order to more than double the net profit from $122,141 to $310,590 were recorded in a separate page entitled “Add-backs – Calculations Sheets”.

102. The information memorandum described the motel having been “constantly maintained to a very high standard” and as being in good condition, affording an incoming purchaser a choice of leaving the motel in its current state or refurbishing to “take it to the next level”. The motel was marketed as a business that would benefit from a “hands-on operator”, and as offering prospective purchasers and operators “a great lifestyle with upside potential”. The evidence does not disclose whether prospective purchasers were informed about, or otherwise became aware of, the sewerage problems in the course of the marketing campaign. Indeed, it is not clear whether Mr Rogers was aware of those problems, and he was not called to give evidence in these proceedings.

103. Ms Fleming reviewed and approved the information memorandum before it was published on Resort Brokers’ website on 18 October 2019.

104. Ms Afflick sent an email to Ms Fleming that same day formally resigning as manager of the motel. According to her contemporaneous time records, Ms Fleming then went back to the drawing board in order to try to find new people to run the motel.

105. Ms Fleming sent an email to Mr Rogers at 5:04pm that afternoon requesting him to:

“…please forward me your plan for the matter from now to anticipated settlement (say Friday 20 December).”

106. Mr Rogers responded at 5:12pm:

“I will get back to you with how I plan to get the property under contract with settlement for 20^th Dec, Look forward to discussing on Monday & tweak if need be”

107. It was put to Ms Fleming in cross-examination that she had requested a plan to achieve sale and settlement by 20 December 2019 because that was the last day before EFA’s office closed for the Christmas break. Ms Fleming denied that this was the reason, and said that the time frame for the sale process was driven by the fact that the managers had resigned. I accept this aspect of Ms Fleming’s evidence. It is consistent with the objective facts that Ms Fleming signed an agency agreement on 14 October 2019 granting Mr Rogers an exclusive agency for a period of three months, and her requirement for a sale to be completed by 20 December 2019 was first communicated to Mr Rogers after Ms Afflick had confirmed her resignation, having earlier explained to Ms Fleming that she wished to spend Christmas with her family.

108. On the morning of 21 October 2019, Mr Rogers sent an email to Ms Fleming, stating:

“With the listing for Hanging Rock, we now have it up on our website and all the associated websites that head office use. We have emailed 75 prospective buyers with the property information and have also had 20 enquiries over the weekend. We will now email all agents in our company that we have this amazing new listing. As we do a massive amount of conjunctions within our company, We will also be emailing Eshots out to our data base. We also target the people who have enquired within our company on similar properties, Also our developers on our data base that we think would have in interest especially our Canberra Guys. The other thing we are organising is an add in the Town & country section & the local classifieds in the Bay.”

109. I infer that Mr Rogers’ 21 October 2019 email constituted his plan to get the motel property and business under contract with settlement occurring on 20 December 2019, as there is no evidence of any other such plan.

110. Mr Rogers sent a further email to Ms Fleming on the afternoon of 21 October 2019 advising that they would require an asbestos register and a current fire safety statement.

111. On 22 October 2019, Mr Rogers sought Ms Fleming’s feedback on a draft of the advertisement to be placed in the Town & Country section of the Batemans Bay Post that had been foreshadowed in his 21 October 2019 email. Ms Fleming gave evidence that the motel property and business were advertised for sale on domain.com, in local newspapers, and in the Town & Country section of all south east coast newspapers and in Canberra.

112. On 23 October 2019 at 11:56 am, Mr Rogers sent an email to Ms Fleming advising that:

“…I have a verbal offer of $2.2 m from David MacLachlan from Batemans Bay. He is the fellow I think I told you about who did up both Lincoln Downs and the Quays motel and on sold them. Nice to have something on the table!”

113. Ms Fleming responded at 12:03 pm:

“Thank you. It’s a start.”

114. Mr Rogers replied at 6:21 am on 24 October 2019:

“Yes certainly is a good start from a genuine buyer. I am taking him through at 11.30 today”

115. On 24 October 2019 at 5:00 pm, Mr Rogers sent an email to Ms Fleming inquiring about the property boundaries of the motel.

“Please find attached six maps aerial photo.

We are just a little concerned about where the boundary might go.

Have you any documentation confirming there is no encroachments.

As you can see by the aerial it appears the BBQ area may be encroaching.

It also appears the sign at the front may be off title also.”

116. Mr Rogers sent a further email to Ms Fleming at 12:41 pm on 25 October 2019, referring to a discussion between them earlier that day and stating:

“Great to understand more about the encroachment.

I have had a long chat to David MacLachlan this morning.

He has asked we come back to him with a counter offer on his $2.2 million.

I feel strongly that he is the best buyer so far.

He has bought 1 property from me already & and I have sold him out of 2 properties.

As we have some issues with encroachment, asbestos & general work needing to be done.

He is the sort of person that will likely not muck us around.

Even if we get another buyer or the Club I feel we will have surveyors, valuers, building inspectors all likely to slow down the sale & drag it on to the new year.

If we can get him to a price every body is happy with I feel he is likely our buyer”

117. The evidence does not shed any light on what, if any, information Ms Fleming was able to provide to Mr Rogers in order for him to “understand more about the encroachment”. In cross-examination, Ms Fleming acknowledged that she did not have, and did not obtain, a survey plan for the motel property. Ms Fleming nevertheless asserted that she knew that there were encroachments because “I’d done my own investigations” and “I know the property”, and “I could see from SIX Maps and Google Maps exactly where the problem was”. Ms Fleming is not a surveyor.

118. On 25 October 2019, Ms Fleming approved an advertisement prepared by Resort Brokers to be placed in a publication known as “Informer”.

119. On 25 October 2019, Mr Rogers reported to Ms Fleming on his discussions with Club Catalina concerning their potential interest in the motel:

“Spoke to Guy Chapman from the club.

They are thinking no more than 2 mill for the Motel

Made it clear it will be over 2 mill !

I expect to know more next week,

Clearly cannot move quickly, as the next step for them if they were interested, would be to employ a consultant to do a study & report from them.

Unlikely they will be our buyers.”

120. On 28 October 2019, Ms Fleming discussed various issues concerning the motel, including possible relief managers, with Ms Afflick.

121. On 28 October 2019, Mr Rogers chased Ms Fleming for her instructions concerning the preparation of an asbestos register for the motel property, and for her instructions concerning the response to Mr MacLachlan’s offer of $2,200,000.

“…Would you like me to get a proper quote from him with his licence details? Have you thought about an answer for David Maclachlan with his $2.2 million offer?...”

122. Ms Fleming replied to Mr Rogers by email on 29 October 2019, instructing him to proceed to engage his suggested contractor to prepare the asbestos register. In relation to Mr MacLachlan’s offer, Ms Fleming stated:

“In relation to David I suggest that we should attempt to get a bit more out of him. The beneficiaries would not be happy with that offer. He may say that is all there is…if that is the case we could go back to him. Sonya tells me that Bernie Basevie (not sure on spelling) is still very interested. That may be worth a phone call.”

123. Mr Rogers responded later that morning confirming that he would proceed with the asbestos register, and stating:

“I have been talking constantly to Bernie Basevi since we went live with the property.

He is working hard with the bank & finance brokers to see what he can do.

He is very interested, used to own the Braidwood Colonial motel.

David I will go back to & see if he will give us a better offer.”

124. On 29 October 2019, Cappello Rowe Lawyers, who were acting for Ms Groat, wrote to EFA noting that Ms Groat was “of the opinion that the communication between the executrix and beneficiaries is unacceptably inadequate”. The letter asked what steps had been taken to market the motel, and whether the beneficiaries would be consulted “as regards any prospective interest in the motel and be given the opportunity to also bid on this property/business”. In her affidavit affirmed on 15 September 2022, Ms Groat deposed that she instructed her solicitors to send that letter after she saw an advertisement for the sale of the motel in October 2019, which she did not consider depicted the best features of the motel. In that affidavit, Ms Groat deposed that “I was prepared to buy it, rather than see it sold below market”. Ms Groat also deposed that, if she had known of the proposed sale price of $2,550,000, “my husband and I would have been prepared to pay at least as much as the contract price” and “I would have instructed my solicitor to take whatever steps were legally possible to prevent this sale”.

125. There is a tension between Ms Groat’s evidence that she and her husband would have purchased the motel, on the one hand, and her evidence that she would have taken legal advice about preventing the sale to Mr MacLachlan, on the other hand. To the extent that Ms Groat’s affidavit suggests that she was ready, willing and able to purchase the motel in October 2019, that is inconsistent with her evidence in the same affidavit that, although she contacted Mr Rogers at the time and asked how much the motel was selling for, she did not then communicate to Mr Rogers any interest in purchasing the motel, and she did not ever make any offer to purchase the motel.

126. These inconsistences are compounded by Ms Groat’s evidence in cross-examination, when Ms Groat emphasised that she was not interested in buying the motel at that time, but that, if she had been told that the motel was to be sold for a price less than its probate value, “we would have stopped the sale and had a think about it or else we would have gone in and discussed managing it”. Ms Groat did not shed any light on what might have come from having “a think about it”.

127. It is not clear how Ms Groat would have been able to satisfactorily manage the motel. Ms Groat asserted that she and her husband were prepared to relocate to Batemans Bay to manage the motel until a permanent manager could be engaged and trained, leaving their son and daughter-in-law to manage alone the farm that the four of them had been working together. However, according to Ms Groat’s own evidence, she had not worked at the motel since 1986 – 32 years prior to the death of the deceased. Ms Groat had helped with the running of the motel after she first left school at age 15 from about 1977 to about 1980, and she had managed the motel for a period of about three years from about 1983 until 1986.

128. Ms Turnbull also gave evidence that she would have offered to assist in managing the motel if she had known that Ms Afflick and Ms Bell had resigned. Ms Turnbull deposed that she would have been “quite happy” to manage the motel for a year or more, leaving Mr Turnbull to manage Turnbull’s Fuel & Produce alone. Ms Turnbull deposed that Mr Turnbull would have been content with this arrangement. However, there is no evidence about whether Ms Turnbull had the requisite experience and skills to manage the motel from late 2019. Ms Turnbull deposed that she had managed the motel “earlier in my life”, but she did not identify when or for how long she had done so. As I have said earlier in these reasons, Ms Afflick had been managing the motel since 1997. I therefore infer that Ms Turnbull had no experience in managing the motel business for at least 20 years prior to the death of the deceased.

129. All of the beneficiaries knew that the deceased’s assets included the motel property and business. I infer that the beneficiaries understood from the terms of the will that the motel property and business would need to be sold in order for the deceased’s estate to be distributed to them in accordance with the will. [25] The sale of the motel was advertised. Ms Groat saw the advertisement in October 2019, and gave evidence in cross-examination that she probably told her siblings that the motel was being advertised for sale at that time. Ms Groat was not interested in purchasing the motel, as I have explained above. Ms Turnbull confirmed in cross-examination that she had not made any offer to purchase the motel. There is no evidence that any other beneficiary expressed any interest in purchasing the motel property and business.

     25. See [5]-[8] above.

130. On 31 October 2019, Mr Rogers reported to Ms Fleming:

“I have spoken to David & he will not increase his offer from $2.2 mill at this stage.

Really wants a number from us to get the ball rolling.

Bernie Basevi had the broker say no.

I have referred him to our specialist Motel finance broker as ordinary brokers do not understand our industry & do not deal direct with the bankers who specialise in funding motels.

Have you organised the fire safety statement?

Do you need any help with that?

I am working hard with all our other buyers to see if we can get another player!”

131. Mr Rogers sent a further update to Ms Fleming on 1 November 2019:

“I spoke to Guy Chapman yesterday from the Golf Club.

They had a directors meeting yesterday & seem to be still interested in Hanging Rock.

Guy asked to see a copy of the valuation that has been done.

I think that would be fine at this stage as it demonstrates where the market price is.”

132. Ms Fleming’s office emailed a copy of Mr Mason’s valuation report to Mr Rogers later that day.

133. On 3 November 2019, Mr Rogers sent an email to Ms Fleming stating:

“I have another inspection pencilled in for the 9^th Nov with another Indian. All the people we are sending out info to appear to be slow moving might buy types. I would like if possible to now use the valuation to sell off. Supply the valuation to the genuine qualified buyers. I always like to use a valuation when the time is right as it demonstrates true market value. Not just a figure our vendor is hoping for! May be an idea to also put a price or price range.”

134. On 4 November 2019, Ms Afflick informed Ms Fleming that she had found people to step in as relief managers of the motel until a sale could be completed.

135. The deceased’s daughter, Ms Tanya Brooks, sent an email to Ms Fleming on 4 November 2019 asking “when [do] you anticipate the finalisation of dads estate”.

136. Ms Fleming replied:

“I intend to write to all beneficiaries of the estate this week to advise them exactly the estate is up to & when a distribution is likely.”

137. There is no evidence that any such update letter was sent to the beneficiaries during that week or, indeed, at any time prior to 31 January 2020. [26]

     26. See [183] below.

138. On 4 November 2019, Ms Fleming and Mr Rogers discussed the strategy for the sale of the motel, Mr MacLachlan’s offer of $2,200,000, and the valuation of $2,825,000. They agreed that Mr Rogers would provide a copy of Mr Mason’s valuation report to Mr MacLachlan and ask him to make his best offer. Mr Rogers advised Ms Fleming that Mr MacLachlan was able to move quickly and that there “would be no mucking around WIWO”.

139. On 6 November 2019, Mr Rogers advised Ms Fleming by email that:

“I have been talking to David MacLachlan this afternoon and I have been able to get a verbal offer for $2.5M with a settlement on or before the 20^th of Dec.

140. On 7 November 2019, Mr Rogers advised Ms Fleming by email at 11:42 am that Mr MacLachlan had increased his offer to $2,550,000. Mr Rogers attached to his email a Heads of Agreement for the sale of the motel to Mr MacLachlan. Ms Fleming replied at 1:15pm that day:

“Thank you Russell. Very good work.

I have attached the Agreement signed by me & look forward to confirmation that you receive an identical Agreement signed by David.”

141. Mr MacLachlan signed the Heads of Agreement on 8 November 2019 and paid a deposit of $5,000. The Heads of Agreement recorded the purchase price of $2,550,000 and settlement date of 20 December 2019. The “Special Conditions” section of the Heads of Agreement provided:

“This offer is conditional upon;

1)   Vendor will provide full details of any service agreement in place (e.g. referral groups, sign rental, utility agreements)

2)   An exchange of contracts in the form acceptable to both parties as soon as possible

211. For the reasons explained at [160] to [177] above, I do not accept Ms Fleming’s evidence that she had concerns about the veracity of Mr Mason’s valuation at the time that she made the decision to sell to Mr MacLachlan for $2,550,000, including by reason of the “issues” and “potential issues” referred to in paragraph 75.11 of Ms Fleming’s affidavit sworn on 4 August 2022, which I have found were non-issues with the exception of the sewage issue. Ms Fleming had no basis for forming any view about the impact of the sewage issue on the value of the motel, even if she had turned her mind to that issue before accepting Mr MacLachlan’s offer, which I have found that she did not.

212. I reject the submission made on behalf of Ms Fleming that Mr Rogers recommended that she sell the motel for the $2,550,000 sum offered by Mr MacLachlan. As I have said at [163] above, any recommendation made by Mr Rogers to Ms Fleming in relation to that offer did not rise above advice that this was the best offer he had been able to extract from the only bidder at the time, who would commit to settlement by 20 December 2019, and who Mr Rogers believed would not “muck around”. Contrary to the submissions made on behalf of Ms Fleming, it is not to the point that there is no evidence of Mr Rogers having communicated to her that he needed more time to sell the motel, or that there was a prospect of achieving a better price if he had more time. Ms Fleming had made clear to Mr Rogers that she required the sale to be completed by 20 December 2019, and there is no evidence that Mr Rogers had any reason to believe that this was open for negotiation.

213. I accept the submission made on behalf of Ms Fleming that there was a risk that any extension of the marketing campaign period might have resulted in the loss of Mr MacLachlan’s offer, without any better, alternative offer being received from any other prospective purchaser. In my opinion, however, the existence of that risk did not warrant Ms Fleming simply accepting Mr MacLachlan’s offer. As senior counsel for Ms Fleming ultimately accepted, the prudent course in all the circumstances would have been to obtain an updated valuation report for the motel property and business, and to rely on that report to make an informed decision whether to accept Mr MacLachlan’s offer or whether to extend the marketing campaign.

214. In my opinion, Ms Fleming’s failure to inquire of the beneficiaries whether they were interested in purchasing the motel was but one aspect of her course of conduct which, as a whole, failed to meet the standards of prudence and diligence required of an executor in all the circumstances. I do not consider that it has the significance which the plaintiffs’ submissions attributed to it. I reject the plaintiffs’ submission that the sale of the Woodlands property to one of the beneficiaries for a price in excess of the valuation of that property demonstrates that there was potential to achieve a better price for the motel by issuing a special invitation to beneficiaries to bid for the motel. The evidence does not establish that any of the beneficiaries were potential bidders for the motel, as I have explained at [124] to [129] above.

215. Contrary to the submission made on behalf of Ms Fleming, the amount of Mr MacLachlan’s offer made during the compressed marketing campaign for the motel does not constitute evidence of the fair market value of the motel. I reject the submission that the compressed marketing period was required in order for Ms Fleming to realise the assets of the estate in a timely manner. To the extent that Ms Fleming was desirous of completing the sale of the motel by the end of the first executor’s year, it was her failure to even begin marketing the motel for sale until mid-October 2019 that required a compressed marketing campaign.

216. Contrary to the plaintiffs’ submission, I do not consider that Ms Fleming’s conduct, considered as a whole, amounts to bad faith. As I have found at [107] above, Ms Fleming held a genuine concern that the sale should be completed before the resignations of Ms Afflick and Ms Bell took effect. For the reasons I have explained above, Ms Fleming did not act with the requisite prudence and diligence in failing to reconsider the marketing campaign period after the relief managers were identified on 4 November 2019 having regard to all of the circumstances to which I have referred above.

217. As explained earlier in these reasons, the plaintiffs’ claims require them to demonstrate that, through her breach of duty in relation to the sale of the motel, Ms Fleming has failed to obtain for the estate the value that would have been obtained if she had discharged her duties. [45] The plaintiffs have failed to establish this. The plaintiffs relied on Mr Austin’s report as evidencing that the market value of the motel property and business as at 7 November 2019 and 6 December 2019 was $2,950,000, and that the value lost to the estate by reason of Ms Fleming’s breach of duty in relation to the motel was therefore $400,000. For the reasons explained at [143] to [149] above, Mr Austin’s opinion concerning the market value of the motel at those times carries no weight. Nor does Mr Mason’s opinion about the value of the motel in February 2019 provide a sufficient basis for making any finding on the balance of probabilities about the market value of the motel, with the sewage problems that Mr Mason did not take into account, some ten or eleven months later in November and December 2019.

     45. See [47] and [196] above.

218. For those reasons, the plaintiffs have failed to establish the alleged wilful default in respect of the sale of the motel property and business.

The grain claim

Outline of the parties’ submissions

222. The plaintiffs submitted that Ms Fleming committed a wilful default in relation to the sale of the grain stored on the Woodlands property by delegating to Elders the decision to sell the grain prior to the clearing sale in order to have the silos empty and available for sale and removal by the purchaser on the day of the clearing sale, and by delegating to Elders the decision about the price at which the grain was to be sold. Counsel for the plaintiffs submitted that Ms Fleming “had no idea about the circumstances in which the grain was sold”, that she failed to exercise any oversight over the sale of the grain, and that it was “simply unacceptable” to determine that the grain should be sold before the auction because the silos needed to be empty on the day of the clearing sale, which involved the “sacrifice [of] one asset for another”.

223. Relying on the admitted fact that the grain was sold for $150 per tonne and Mr Turnbull’s evidence that he would have had no difficulty finding a buyer for triticale grain for at least $400 per tonne, [46] the plaintiffs submitted that the grain was sold at an undervalue of $250 per tonne. The plaintiffs submitted that the volume of grain sold could be determined by dividing the total sale price recorded by Elders in respect of the two lots of grain by the sale price of $150 per tonne. [47] The resulting volume could then be multiplied by the shortfall of $250 per tonne in order to arrive at the value lost to the estate by reason of the sale of the grain at $150 per tonne.

     46. See [90] above.

     47. See [88] above.

224. Senior counsel for Ms Fleming did not disagree with this approach to calculation, but did not accept the premise of the calculation that there has been a wilful default in respect of the sale of the grain. It was submitted that Ms Fleming had acted prudently and appropriately in engaging Elders to conduct the clearing sale, and in accepting their advice that the grain should be sold before the clearing sale in order to facilitate the sale and removal of the empty silos on the day of the clearing sale, particularly in circumstances where the silos were sold for a total sum of $14,600, [48] which is greater than the shortfall calculated by the plaintiffs in respect of the grain. It was submitted that Ms Fleming had not been challenged about her appointment of Elders to conduct the clearing sale, that Elders had been charged with selling hundreds of items and that, as a matter of reality, an executor needing to clear a rural property of chattels in order to realise those assets and to prepare the property itself for sale, is acting under certain constraints in order to achieve the objective of clearing the property in a timely way. Senior counsel for Ms Fleming also referred to the contrast between the evidence of Mr Turnbull and Ms Fleming about the extent to which the grain had been damaged by weevils. [49]

     48. See [92] above.

     49. See [86] and [90] above.

Consideration and determination

225. It is convenient to note at the outset that the plaintiffs’ calculation of the shortfall between the total price for which Elders sold the grain at $150 per tonne, and the total price that would have been realised if it had been sold at a price of $400 per tonne, is wrong. The amount of the shortfall is approximately $5,500, [50] not $9,706 as the plaintiffs submitted.

     50. See [88] above. Total actual sale price of $3,314 (excluding GST) at a price of $150 per tonne indicates a volume of approximately 22 tonnes. The shortfall of $250 per tonne therefore amounts to a total shortfall of approximately $5,500.

226. The plaintiffs have failed to establish that Ms Fleming committed a wilful default by engaging Elders to sell the chattels on the Woodlands property, including the grain, in order to clear the property, by accepting Elders’ advice to sell the grain prior to the day of the clearing sale in order to facilitate the sale and removal of the silos on the day of the clearing sale, and by relying on Elders to determine the price at which the grain would be sold under those circumstances.

227. As Ms Fleming submitted, the plaintiffs did not seek to impugn Elders’ reputation, qualifications, experience or competence to act as Ms Fleming’s agent for the clearing sale. [51]

     51. See [83] above.

228. I accept Ms Fleming’s evidence that it is customary with clearing sales of this kind for the vendor’s agent to have authority to fix the price at which each of the many items is to be sold. [52] The plaintiffs did not adduce any evidence to the contrary.

     52. See [85] above.

229. In my opinion, Ms Fleming’s conduct in engaging Elders to conduct the clearing sale, and her reliance on Elders to determine the prices for which items were to be sold based on their experience and having regard to Ms Fleming’s dual objectives of realising the value of the items and clearing the Woodlands property for sale, [53] was in accordance with the ordinary course of business for rural clearing sales. There is no evidence to suggest that Elders’ appointment involved any needless or unacceptable risk. The evidence establishes that Ms Fleming supervised Elders’ work. Specifically, Elders sought Ms Fleming’s instructions in relation to their recommendation to sell the grain prior to the day of the clearing sale, and explained to her the reasons for that recommendation. Ms Fleming gave those instructions after forming her own view that Elders’ reasons were sound. Ms Fleming had engaged Elders on terms which incentivised them to achieve the best price that they could in the circumstances for the grain and, indeed, the other items to be sold at the clearing sale. [54] Ultimately, the silos sold for a total price that was materially greater than the total price for which the plaintiffs contend that the grain could have been sold. This was an agency, not a delegation of Ms Flemings’ duties to Elders. Ms Fleming gave Elders a scope of authority that was consistent with the ordinary course of business for rural clearing sales, and approved a strategy proposed by Elders of selling one of the sale items (the grain) in advance in order to maximise the prospects of selling the more valuable silos on satisfactory terms on the day of the clearing sale. I reject the submission made by counsel for the plaintiffs that this was “simply unacceptable”.

     53. See [83]-[88] above.

     54. See [87]-[88] above.

230. I also reject counsel’s submission that Ms Fleming “had no idea about the circumstances in which the grain was sold”, and that she failed to exercise any oversight over the sale of the grain. That submission is contrary to the evidence to which I have referred above, and should not have been made in those terms.

231. Mr Turnbull’s evidence does not provide a sufficient basis to find on the balance of probabilities that this particular grain, which had been affected by weevils to some extent, could have been sold for a price of $400 per tonne. As I have said earlier in these reasons, it is not clear whether Mr Turnbull’s opinions about the ease with which he could have found a buyer for triticale grain, and the price for which he could have sold such grain, applied to triticale grain that had been damaged by weevils. [55]

     55. See [90] above.

232. For those reasons, the plaintiffs have failed to establish the alleged wilful default in respect of the sale of the grain.

The stockyards claim

Outline of the parties’ submissions

233. The plaintiffs submitted that Ms Fleming breached her duties as executor by failing to commence proceedings for the recovery of the stockyards, in circumstances where there were competing claims to the stockyards and there were sufficient assets in the estate to cover the costs of such proceedings. The plaintiffs contend that Ms Fleming simply accepted Ms Afflick’s word about the stockyards and took the matter no further, and that “it was not for the executor to place herself into the position of judge as to the merits one way or another of the competing claims with respect to that property, unless it was absolutely plain to see that the claims being made that the stockyards belonged to [the deceased] were without foundation, and they weren’t.”

234. The plaintiffs submitted that the Court need not decide the ownership of the stockyards in these proceedings, and need not be troubled with questions concerning the value of the stockyards about which the plaintiffs adduced no evidence. It was submitted that these questions could be determined during the accounting process that the Court will order if it is satisfied of the alleged wilful defaults in relation to the motel sale and the grain sale.

235. It was submitted on behalf of Ms Fleming that she had made inquiries about the ownership of the stockyards, following which she had been satisfied that they had not been owned by the deceased or formed part of the Woodlands property. It was submitted that Ms Fleming would have been justifiably criticised if she had spent estate funds in commencing legal proceedings to determine the ownership of the stockyards, which counsel for the plaintiffs accepted would have a nominal value, rather than forming her own view about the matter after making those appropriate inquiries.

Consideration and determination

236. The stockyards claim is, in truth, a dispute between vendor and purchaser. Ms Turnbull, who purchased the Woodlands property, contended that the stockyards were part of that property. The vendor, Ms Fleming, disputed that contention. That dispute arose before contracts for the sale of the Woodlands property were exchanged. Ms Turnbull entered into the contract knowing that the stockyards were no longer affixed to the property, assuming (without deciding) that they were once fixtures forming part of that property. There is no evidence that the price for which the Woodlands property was sold to Ms Turnbull was reduced by reason of the stockyards having been removed. [56] As I have already mentioned, there is no evidence of the value of the stockyards, or even that they had any material value. Thus, there is no evidence that Ms Fleming’s failure to commence proceedings to pursue a claim to the stockyards on behalf of the estate resulted in a loss to the estate. On the contrary, as the defendant submitted, it is likely that the costs of any such proceedings would have quickly overtaken any value that the stockyards may have. It would not have been prudent for Ms Fleming to commence such proceedings, and I reject the plaintiffs’ submission that she was obliged to do so in the circumstances of this case. That submission was founded on an erroneous understanding of the applicable principles. [57] I also reject the plaintiffs’ submission that Ms Fleming simply relied on the word of Ms Afflick without investigating the ownership of the stockyards further. The evidence is to the contrary. [58]

     56. See [93]-[94], [186]-[189] and [194] above.

     57. See [40]-[43] above.

     58. See [190]-[191] and [193] above.

237. For those reasons, the plaintiffs have failed to establish that Ms Fleming committed any breach of duty in failing to commence proceedings to recover the stockyards. Even if the plaintiffs had established the alleged breach of duty, their proposal that the stockyards claim be considered as part of a wilful default accounting process would not have been available in circumstances where the plaintiffs have failed to establish the other alleged wilful defaults.

Construction and validity of clause 9 of the will

238. I now turn to the issues raised by the parties in relation to the construction, validity and operation of clause 9 of the deceased’s will, which I address for completeness although it is not strictly necessary to do so in light of my conclusions above that the plaintiffs have failed to establish any of the alleged wilful defaults.

239. I reject the plaintiffs’ submission that clause 9 of the will is void or unenforceable by reason of a presumption of undue influence arising from the solicitor and client relationship between Ms Fleming, who stands to benefit from the exclusion of liability under clause 9, and the deceased. The principles of undue influence differ in their application in probate from their application in equity. A person seeking to impugn a will, or a particular bequest or clause in a will, on the grounds of undue influence bears the onus of proving undue influence, in the sense of coercion, without the benefit of any presumption. [59]

     59. Schwanke v Alexakis [2024] NSWCA 118 at [1] (Ward P) and [183]-[224] (Adamson JA).

240. That brings me to the proper construction of clause 9 and, in particular, the words “without being liable for loss”.

241. The object of construing clause 9, in the context of the will as a whole, is to ascertain and give effect to the intention of the testator. That intention is to be ascertained objectively on the basis of the language of the will and the meaning that it would have conveyed to a reasonable person with knowledge of the objective circumstances surrounding the testator at the time the will was made. [60]

     60. Fell v Fell (1922) 31 CLR 268 at 273-276; [1922] HCA 55 (Issacs J); Marley v Rawlings [2015] AC 129; [2014] UKSC 2 at [17]-[26] (Lord Neuberger P, Lords Clarke, Sumption and Carnwath agreeing); Farrelly v Phillips (2017) 128 SASR 502; [2017] SASCFC 111 at [23]-[24] (Stanley J, Kourakis CJ agreeing and Nicholson J also agreeing as to the principles of construction at [60]); Wright v Stevens [2018] NSWSC 548 at [177]-[185] (Hallen J) and the authorities there referred to; P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [31.20]-[31.40].

242. The objective circumstances surrounding the testator at the time the will was made on 24 February 2017 were:

1. the testator’s assets included the motel property and the motel business, the Woodlands property and the Moruya property;

2. to the extent that those assets formed part of the testator’s estate at the time of his death, the administration of his estate in accordance with his will would require his executor and trustee to sell each of those assets, which were not the subject of specific bequests, in order to distribute the residue of his estate between his children and stepchildren in accordance with clause 8 of the will, after taking the necessary steps to give effect to his wishes and directions in clauses 5, 6 and 7 of the will;

1. the executor would need to decide whether it was prudent to continue to operate the motel business pending sale to facilitate the sale of the motel property together with the business as a going concern;

2. the executor would also need to decide whether it was prudent to lease any of the properties pending sale;

3. the terms on which the properties and motel business could be sold, and the timing of their sale, would be a product of many factors, including market conditions, the course of negotiations with prospective purchasers, and decisions made by the executor during those negotiations, many of which would require evaluative judgments, all of which gave rise to an inherent risk that the negotiations in respect of any specific asset might produce an outcome less favourable to the estate than that which would have been achieved if the executor had taken a different approach to the negotiations or had made different judgments; and

4. any decision by the executor to operate and manage the motel business for a period of time to facilitate the sale of that business as a going concern would carry an inherent risk of trading losses.

243. In my opinion, at the time the will was made, clause 9 would have conveyed to a reasonable person with knowledge of those circumstances that the executor was authorised to do any of the things in sub paragraphs (a) to (e) of clause 9 on such terms and for such purposes as the executor honestly thinks appropriate for the administration of the deceased’s estate for the benefit of the beneficiaries in accordance with the will. That reasonable person would not have understood the words “on such terms and for such purposes as my Trustee thinks appropriate” in clause 9 as effectively overriding the other terms of the will by authorising the executor to take actions of the kind described in subparagraphs (a) to (e) that were contrary to the terms of clauses 5 to 8 of the will. That reasonable person would have understood the word “appropriate” in the context of clause 9, and in the context of the will as a whole, as meaning “appropriate to administer the estate for the beneficiaries in accordance with the terms of the will”.

244. In my opinion, at the time the will was made, the words “without being liable for loss” in the context of clause 9 would have conveyed to that reasonable person that the executor was exonerated from any liability that she might otherwise have for any adverse financial impact on the estate – “loss” – flowing from her decisions made and actions taken in respect of the sale of any asset comprising part of the estate, or any other action falling within subparagraphs (a) to (e), within the scope of the authority that I have described above. That reasonable person would not have understood clause 9 to exclude the liability of the executor for such “loss” only if the beneficiaries sued to recover the “loss” in an action for damages for devastavit or equitable compensation for breach of duty, and not if the beneficiaries sued to have the executor restore to the estate that which had been lost by reason of that waste or breach by accounting on a wilful default basis, or by paying equitable compensation in respect of specific wilful defaults in lieu of the taking of an account on the wilful default basis.

245. For those reasons, I reject the plaintiffs’ submissions referred to at [29] above that the exclusion of liability for “loss” in clause 9 does not extend to a liability to account on a wilful default basis, or a liability to pay equitable compensation in order to restore to the estate an asset or the full value of an asset for which the executor would otherwise be charged if accounts were to be taken on a wilful default basis. The plaintiffs’ submissions were founded on the erroneous premise that the meaning of the word “loss” in clause 9 of the will was governed not by the principles of construction to which I have referred at [241] above, but by distinctions between the precise character of the different equitable remedies which are available for a breach of trust that constitutes a wilful default – being an omission to obtain something for the trust, as opposed to an unauthorised disbursement of trust funds or assets. [61]

     61. See [47] above.

246. For completeness, I note that the construction of clause 9 that I have explained at [243]-[244] above does not exclude liability for “substitutive” compensation payable in order to discharge a liability to account for an unauthorised disbursement or disposal of trust funds or assets. [62] The remedy of compensation in those circumstances would not be dependent on the estate suffering any “loss” beyond the fact of the unauthorised transaction. [63] Moreover, it is difficult to see how a disbursement of funds or assets of the estate that was not authorised by the terms of the will could be characterised as a transaction that the executor honestly thinks appropriate to administer the estate for the beneficiaries in accordance with the terms of the will. For the reasons I have explained above, clause 9 applies only to transactions of that character. The breaches of trust alleged in the present case are wilful defaults, and not unauthorised dealings with estate property.

     62. See the defendant’s submissions at [32] above.

     63. Crossman v Sheahan (2016) 115 ACSR 130; [2016] NSWCA 200 at [313] (Ward JA, as her Honour then was, Basten and Payne JJA agreeing).

247. It remains to consider whether clause 9, properly construed in the manner explained above, is void on the basis that it is repugnant or contrary to public policy.

248. The plaintiffs submitted that clause 9 was repugnant to the concept of a trust, and contrary to public policy, because it had been inserted in the will to “alleviate [the executor] from the core fiduciary obligation to duly administer the trust”. Referring to the judgments of the High Court in Maguire v Makaronis (Maguire) [64] and Youyang Pty Ltd v Minter Ellison Morris Fletcher (Youyang), [65] counsel for the plaintiffs submitted that, under Australian law, the irreducible core of obligations owed by executors and trustees that is fundamental to the concept of a trust includes the obligation to act prudently and properly (that is, to use due diligence and care) in the administration of the trust. It was submitted that clause 9 is repugnant and contrary to public policy because it is in “totally unqualified expansive terms” which purport to exclude liability for breach of the duty of diligence and prudence and, indeed, to exclude any liability whatsoever on the part of the executor, even for dishonesty and bad faith.

     64. (1997) 188 CLR 449; [1997] HCA 23 (Maguire).

     65. (2003) 212 CLR 484; [2003] HCA 15 (Youyang).

249. I reject the plaintiffs’ submissions for two reasons.

250. First, on the proper construction of clause 9 explained at [243]-[244] above, the scope of the exclusion is not “totally unqualified” and the clause does not purport to exclude liability of the executor for dishonesty and bad faith.

251. Second, I do not accept that the irreducible core of obligations of executors and trustees includes the obligations of diligence and prudence. The phrase “the irreducible core of obligation” stems from the judgment of Millett LJ in Armitage v Nurse. [66] His Lordship construed an exclusion clause in a settlement as excluding the trustee’s liability for constructive fraud or equitable fraud (as opposed to actual fraud or dishonesty) and as excluding liability for breach of trust in the absence of dishonesty. Millett LJ, with whom Hutchison and Hirst LJJ agreed, rejected a submission that the exclusion clause, so construed, was void or voidable on the grounds of repugnancy to the trust or public policy. His Lordship said: [67]

“I accept the submission made on behalf of [the beneficiary] that there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient.”

66. [1998] Ch 241; [1997] EWCA Civ 1279.

67. Ibid at 253-254.

252. His Lordship’s description of the irreducible core of obligations from which an executor or trustee cannot be exempted has been cited with approval and applied in Australia, including by Brereton J (as his Honour then was) in Leerac Pty Ltd v Fay (Leerac) [68] and by the New South Wales Court of Appeal in Crossman v Sheahan. [69]

     68. [2008] NSWSC 1082 (Leerac).

     69. (2016) 115 ACSR 130; [2016] NSWCA 200 (Crossman).

253. Leerac concerned “non-contest clauses” contained in trust deeds, which provided that a beneficiary would be deemed not to be and never to have been a beneficiary under the trust, and would be incapable of taking any benefit under the trust and liable to repay any such benefit received, if they should at any time commence any action against the trustee in respect of any matter arising under or in relation to the trust “other than for wilful default” (which Brereton J construed in the context of the non-contest clauses as meaning dishonesty). The question was whether the non-contest clauses, properly construed, applied to proceedings in which a beneficiary sought to compel the due administration of the trust, and, if so, whether the non-contest clauses were valid. Brereton J recorded that much of the argument focussed on the relationship between the non-contest clause and an exoneration clause in each trust deed. Each exoneration clause provided that the trustee “shall not be liable or answerable or accountable hereunder for any loss not attributable to its own dishonesty, or the wilful commission by it of an act known to be a breach of trust …”.

254. Brereton J construed the non-contest clauses as applying only to actions asserting liability against the trustee for breach of trust, and not to actions to secure the due administration of the trust. [70] In case of any determination to the contrary in any appeal, his Honour proceeded to consider the question of validity of the non-contest clauses on the assumption that they applied to actions asserting liability against the trustee. In doing so, his Honour summarised the applicable principles in the following terms: [71]

“23.   The position on the authorities can, I think, be summarised as follows: First, there is no general rule against the validity of conditions discouraging beneficiaries from taking proceedings to contest a Will, although there are some limits on this [Evanturel v Evanturel(1874) LR 6 PC 1; Cooke v Turner(1846) 15 M & W 727; (1846) 153 ER 1044; AN v Barclays Private Bank & Trust (Cayman) Ltd, [54]]. Secondly, however, where there can be seen in a statute conveying a beneficial right to make applications for provisions out of an estate an intention that such jurisdiction cannot be excluded by private arrangement — as, for example, under the testators family maintenance legislation — conditions which are calculated to deter the invocation of that jurisdiction are contrary to public policy and void [Leiberman v Morris (1944) 69 CLR 69; Barns v Barns[2003] HCA 9 ; (2003) 214 CLR 169; In the will of Gaynor [1960] VR 640 at 642–644 (O’Bryan J)]. This rule is based on discerning an (unexpressed) statutory policy against it being possible to contract out of the rights given by the relevant legislation [Leiberman v Morris; Smith v Smith (1986) 161 CLR 217 at 235 (Gibbs CJ, Wilson and Dawson JJ)]. Thirdly, a condition against the taking of any proceedings whatsoever having the effect of preventing any question of administration of a trust or Will, or securing the due administration of the trust or Will by the trustees, is too wide and will be void for ousting the jurisdiction of the Court, although one which merely discourages disputing the validity of the Will or trust will not offend that rule [Permanent Trustee Co v Dougall, 86–87]. Fourthly, a clause in a trust deed may validly exempt the trustee from obligations and liabilities other than those contained in that irreducible core of a trustee’s obligation — namely, to act honestly and in good faith. It is not contrary to public policy to exclude a trustee’s liability even for gross negligence, but it is to exclude liability for dishonesty or bad faith [Armitage v Nurse[1998] Ch 241 (CA)]

24.   There is nothing irreconcilable about the observations of Harvey CJ in Eq in Permanent Trustee Co v Dougall and those of Millet LJ in Armitage v Nurse. The observations of Harvey CJ in Eq were to the effect that a condition against taking any proceedings whatever was too wide, as it would have the effect of preventing beneficiaries from securing due administration without limitation. Armitage v Nurse does not suggest that trustees may be exonerated from all obligations whatsoever, recognising that there is a reducible core of obligation to act honestly and in good faith from which they cannot be exempted.”

70. Leerac at [13]-[21].

71. Ibid at [23]-[24] (my emphasis).

255. In Crossman, the Court of Appeal considered the alleged repugnancy of three exoneration clauses. The primary judge had accepted that exemption clauses cannot operate to avoid the core obligations of a trustee, and described those core obligations as including the obligation to pay and transfer trust property to the persons entitled thereto and not to deal with it for personal benefit, the obligation to exercise reasonable care and skill, the obligation to act honestly and in good faith, and the obligation to exercise diligence and prudence in the performance of the trustee’s duties and the exercise of the trustee’s discretions. [72] Ward JA, as the President of the Court of Appeal then was, observed that not all of those obligations identified by the primary judge fell within:

“307.   … what have been described as the ‘irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust’ (see Armitage v Nurse at 253 per Millett LJ; language adopted in Jacobs’ at [1620]). In particular, in Armitage v Nurse, Millett LJ (at 253) expressly rejected the submission that the trustee’s core obligations included the duties of skill and care, prudence and diligence (this being one of the obligations that the primary judge appears to have accepted as being a ‘core’ obligation).

308.   In Armitage v Nurse, the minimum necessary to give substance to the trusts was said to be the duty of the trustee to perform the trusts honestly and in good faith (at 253–254). That, and the duty to adhere to the terms of the trust (see Youyang Pty Ltd v Minter Ellison Morris Fletcher[2003] HCA 15; (2003) 212 CLR 484 at [32]), can readily be accepted as falling within the ‘irreducible core of obligations’ of the trustee…” 

72. Crossman at [304]-[305] (my emphasis) (Ward JA, as the President of the NSW Court of Appeal then was).

256. I accept the submission made on behalf of Ms Fleming that those passages from her Honour’s judgment reject the notion that the duty of diligence and prudence forms part of the irreducible core of obligations owed by executors and trustees. Basten and Payne JJA agreed with her Honour.

257. Contrary to the plaintiffs’ submissions, I am unable to discern from the judgments of the High Court in Maguire and Youyang any suggestion that the duty of diligence and prudence might be characterised as part of the irreducible core of obligations from which executors and trustees cannot be exempted. In Maguire, solicitors had breached fiduciary duties owed to their clients by entering into a mortgage between the clients (as mortgagors) and the solicitors (as mortgagee) in the absence of the clients’ informed consent to the solicitors’ interest in the transaction. In Youyang, trust moneys had been paid otherwise than in accordance with the terms of the trust. Neither of those cases concerned an alleged breach of the duty of diligence and prudence. No exclusion or exoneration clause was in issue. In obiter dicta in Youyang, the High Court referred disapprovingly to a suggestion by the English Court of Appeal and by the New Zealand Court of Appeal that equitable compensation for breach of a trustee’s duty of skill and care resembled common law damages, and that there is no reason in principle why common law rules governing causation, remoteness and measure of damages should not be applied by analogy. [73] I do not understand the High Court’s disapproval of that notion to speak to the question of the scope of the liabilities from which an executor or trustee may be exonerated by an express clause in the will or deed of settlement.

     73. Youyang at [36]-[40] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ).

258. I am a bound to follow and apply the judgment of the Court of Appeal in Crossman referred to at [255]-[256] above.

259. For all of those reasons, clause 9 of the will, properly construed, is neither repugnant nor contrary to public policy. The clause is valid and enforceable. If the plaintiffs had established the alleged wilful defaults, it would have been necessary to consider whether clause 9 exempted Ms Fleming from liability to account to the estate for the value lost by reason of such defaults. I would have rejected the plaintiffs’ submission that clause 9 does not apply because Ms Fleming did not honestly believe that the steps that she took in selling the motel property and business and in selling the grain, and the terms on which she sold those assets, were appropriate. For all of the reasons explained at [211] to [221] and [225]-[231] above, the evidence does not establish a want of honesty in relation to the sale of the motel, and does not even establish a want of prudence in relation to the sale of the grain.

Relief from liability under s 85 of the Trustee Act

260. Ms Fleming’s claim for relief under s 85 of the Trustee Act does not arise for consideration.

Conclusion and orders

261. For all of the foregoing reasons, the orders of the Court are:

1. Proceedings dismissed.

262. I am not aware of any reason why the plaintiffs should not be ordered to pay Ms Fleming’s costs of the proceedings, but I will hear the parties in relation to costs.

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Endnotes

Decision last updated: 30 July 2024