Bristow v Smith

[2013] NZHC 2866

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-000054 [2013] NZHC 2866

BETWEEN  TIMOTHY JAMES BRISTOW Applicant

ANDSTEPHEN JOSEPH SMITH, MICHAEL JOHN FRENCH, SUSAN PATRICIA SHORE, FLORENCE JILL ERRIDGE, LOUISE HAMILTON, BARNABAS ERNEST BRISTOW

Respondents

Hearing:                   16 September 2013

Appearances:           G M Brodie for Plaintiff

D M Lester for B Bristow
No Appearance for Other Respondents

Judgment:                30 October 2013

JUDGMENT OF D GENDALL J

Introduction

[1]      Shirley Elizabeth Bristow (the deceased) died on 25 November 2010 leaving a will dated 11 June 2009.  The respondents are executors and administrators of her estate.

[2]      The application before me involves determination of a preliminary question. This is whether this Court has jurisdiction to direct that any provision which may ultimately be made for the  applicant, Timothy James Bristow (Timothy)  in this proceeding  under  the  Law  Reform  (Testamentary  Promises)  Act  1949  can  be satisfied from funds that would otherwise be paid to his brother, Barnabas Bristow

(Barnabas) as a “creditor” of the estate of his late mother, the deceased, in a situation

BRISTOW v SMITH [2013] NZHC 2866 [30 October 2013]

where this debt owing to Barnabas would exhaust the value of the assets in the estate.

[3]      Before me Mr Brodie appeared as counsel for Timothy, the applicant, and Mr Lester appeared as counsel for Barnabas.   There was no appearance for the respondent executors, who have indicated they will simply abide the decision of the Court.

Background facts

[4]      This issue arises because the only remaining asset in the deceased’s estate is

1000 “B” shares in Sproxton Farm Limited (“the company”), being approximately a

50% shareholding.  As I understand it, the company owns a farm property at Ashley Gorge which has been farmed (and Timothy says substantially improved) by him and his wife for many years.   They, or their interests, own the remaining 50% shareholding in the company.  Any cash that had been originally in the deceased’s estate has been exhausted since her death to settle the payment of costs.

[5]      In separate proceedings issued by Barnabas in this Court on 21 October 2011 under No.  CIV-2011-409-2181  (the  2181  proceedings)  judgment  was  entered  in favour of Barnabas against the deceased’s estate for the sum of $350,402.24.  This judgment resulted from a successful breach of contract claim by Barnabas against the estate.   The claim related to a deed dated 5 April 1993 entered into between Barnabas and the deceased, which represented an arrangement to settle a claim Barnabas had against the estate of his late father who died on 3 February 1991, the deceased being a life tenant in her husband’s estate.  Under this deed, the deceased covenanted to leave to her son Barnabas her 1000 “B” shares in the company in return for a settlement of Barnabas’ testamentary promises claim against his late father’s estate.

[6]      The deceased then failed to make this provision in her 11 June 2009 will Instead, by her will, the deceased left the “B” shares to her other son, the applicant Timothy.

[7]      The claim by Barnabas in proceeding 2181, alleging breach of the contractual obligations contained in this deed, succeeded.   Finally, on 2 September 2013 after quantum was agreed with the respondent executors, judgment in this Court was entered in favour of Barnabas for the $350,402.24.  In addition an award of costs and disbursements  on  this  proceeding  2181  was  made  in  his  favour.    This  totalled

$10,915.70.

[8]      As I have noted, Barnabas’ claim in proceeding 2181 sought damages from the deceased’s estate specifically for breach of contract.   His claim did not in any way rely on a testamentary promises claim.

[9]      It is said therefore that it must follow that Barnabas is now a creditor of the estate by virtue of this judgment debt.  Unless this Court is able to direct under the Law  Reform  (Testamentary  Promises)  Act  1949  that  Timothy’s  testamentary promises claim is to be paid from the estate in priority to the interests of creditors, including Barnabas, it is submitted that the current proceeding will have no practical purpose.  This is because the remaining estate asset (the shares in the company) will be exhausted in meeting Barnabas’ creditors claim.

[10]     So far as Timothy’s testamentary promises present claim is concerned, it is his case that in 1991 his mother, the deceased, gave him a firm commitment that she would transfer the remaining 1000 “B” shares she held in the company to him. Since that date as noted, Timothy maintains that he and his wife have farmed the company’s Ashley Gorge  property and  conducted  their  affairs  on  the  basis  and assumption that the 1000 “B” shares would eventually be transferred to them without further  consideration.    Timothy says  that  they have  acted in  reliance  upon  that promise or understanding to their detriment.   In particular, he says that for many years  he  and  his  wife  maintained  and  improved  for the company what  was  an uneconomic farm at Ashley Gorge, and the farm generally suffered either financial losses or earned only nominal profits throughout.   The extensive development Timothy  says  they  have  carried  out  on  the  property  has  involved  not  only expenditure of money but also time, effort and labour on their part.  This has meant that they have clearly foregone other opportunities elsewhere.  In addition, Timothy states in light of all this, he elected not to pursue a claim against his late father’s

estate under the Family Protection Act.  This differs from the approach taken by his brother Barnabas at the time.

[11]     What Timothy says now is that first, he did not know that in 1993 Barnabas had  procured  the  deed  whereby  his  mother  promised  to  make  the  same  1000 “B” shares  in  the  company  available  to  Barnabas  and  secondly,  that  the  deed contained a provision that its contents were to remain secret.  Timothy maintains that he conducted his affairs from 1991 up to the deceased’s death in 2010 unaware that effectively 50% of the substantial  work efforts  and contributions undertaken by himself and his wife on the farm were effectively for the benefit of his brother.

[12]     In all these circumstances Timothy considers that he has claims in terms outlined in his draft statement of claim as follows:

(a)      A claim in contract based on a binding agreement to make the shares in question available to him;

(b)      A claim in equity on the basis of proprietary estoppel;

(c)      A claim in equity on the basis that his contributions to the property have been carried out against the background of a legitimate expectation that he would receive the promised shareholding; and

(d)      A claim under the Law Reform (Testamentary Promises) Act 1949.

[13]   By way of background, it seems that Timothy originally commenced proceedings under the Testamentary Promises Act by filing a claim in the Family Court at Christchurch.  Barnabas then filed in this Court a statement of claim seeking summary judgment, relying on the 5 April 1993 deed.  Although that deed promised the deceased would make provision in a valid will for Barnabas to receive the shares in question or alternatively to make provision for the equivalent value of assets to be left to him, Barnabas did not seek specific performance of that deed.   Instead, he elected to cancel the deed and sued for damages.

[14]     That damages issue then came on for hearing.  Timothy, apparently protested on the basis that the application for damages could not be heard and determined in isolation from him, and without hearing and determining the strength of his claims, whether by way of a testamentary promise  or otherwise.  The earlier claim he had filed in the Family Court had been transferred in the meantime into the High Court in anticipation that the two claims could be heard together.

[15]     On 15 November 2012, Associate Judge Matthews in this Court declined Timothy’s request for a direction that Barnabas’ claim for damages should only be heard and determined at the same time as his claim was to be considered.

[16]     Subsequently, Barnabas’ damages claim in the 2181 proceedings was heard and determined and damages of $350,402.24 awarded.  These damages were said to represent the value of the 1000 “B” shares in the farming company.   Despite his opposition, Timothy was not a party to those proceedings.  They were determined in isolation to Timothy’s previous claim.

[17]     This $350,402.24 damages award was quantified solely by reference to the value of the Ashley Gorge farm land and buildings, less the farm debts owed by the company, and adjusted to reflect the minority nature of the shareholding.  I believe this award of damages was not in any way discounted or adjusted to reflect the risk that the deceased might  not have made the testamentary provision in favour of Barnabas provided for in the 5 April 1993 deed.

[18]     The issue here involves questions over whether Barnabas is a true creditor of the deceased’s estate by virtue of the award of damages in his favour ordered by this Court in the 2181 proceeding, and whether clearance of his debt would exhaust the only asset of the estate being the company shares.  If the administrators are required to do this, it will be impossible for them to give effect to the bequest of the shares in the deceased’s will in favour of Timothy, or alternatively, to meet any testamentary promises award in his favour.

[19]     This obviously involves the question as to whether converting a promise by the deceased to transfer shares into an award of damages for breach of the promise

(as Barnabas has done here) is sufficient to deprive the Court of the jurisdiction it would otherwise have to consider other claims including a testamentary promises claim against the estate.

[20]     I leave on one side the issue whether, given that the deceased in fact made testamentary provision in her will in favour of Timothy giving him the shares in the company, it may well be difficult to see how he is able to sustain a claim under s 3 of the Law Reform (Testamentary Promises) Act.   This empowers a Court to make orders in favour of a person to whom a promise has been made to the extent to which the  deceased  has  failed  to  make  any  testamentary  provision  in  honouring  that promise.   The strength of any testamentary promises claim by Timothy is not a matter before me.

Legal position under the Law Reform (Testamentary Promises) Act 1949

[21]     By way of general background, the Law Reform (Testamentary Promises) Act 1949 from its long title is an Act that aims to make better provision for the enforcement of promises to make testamentary provision in return for services rendered to a deceased.  If a Court is satisfied that the deceased promised to make testamentary  provision  as  a  reward  for  services  and  the  promise  has  not  been fulfilled, then s 3 of the Act enables the Court to order the executor or administrator of the estate to pay the claimant such amount as is reasonable having regard to a variety of circumstances.

[22]     Section 3(5) of the Act goes on to provide:

3Estate of deceased person liable to remunerate persons for work done under promise of testamentary provision

...

(5)      The incidence of any payment or payments so ordered shall, unless the Court otherwise determines, fall rateably upon the whole estate of the deceased, or, in cases where the authority of the Court does not extend or cannot directly or indirectly be made to extend to the whole estate, then to so much thereof as is situated in New Zealand.

...

[23]     And, on this, s 3(6) of the Act also gives the Court the power to:

Exonerate any part of the estate from the incidence of any such payment awards under the Act;

Determine priorities as between any benefit awarded to the claimant under the Act and the beneficial interests of any other person(s) in the deceased

estate; or

Make such provision as it thinks fit as to the incidence of the whole or any

part of the debts, and testamentary expenses, in respect of the estate.

[24]     Sections 3(5) and 3(6)  of the Act have been  considered in a number of decisions of this and other Courts where priorities between conflicting claims and interests have been at issue.

[25]     In the present case, Barnabas’ position is a simple one.  He claims that since the judgment of this Court in his favour in proceeding 2181 for $350,402.24, which was a judgment given in contract, he is a genuine creditor of the deceased’s estate and thus his claim must take priority over any claim Timothy may have.

[26]     As a starting point, reference needs to be made to Brookers Family Law

which in dealing with the Act states:1

(c)       Competing claims in contract and under the Act

In some cases there is a binding contract to leave property by will as well as a testamentary promise to reward services.   There is then an awkward interface  between  an  unfulfilled  binding  contract  and  a  fulfilled  or unfulfilled testamentary promise.  Where the deceased has not fulfilled the contract to leave property by will, a claim can be made in contract which is prima facie unaffected by any competing claim under the Act.   It takes priority over a testamentary promises claim, like any other contractual debt. But  if  the  deceased  carried  out  the  contract  by  leaving  the  promised provision in the will, the provision in the will is vulnerable to competing claims under this Act:  McCormack v Foley [1983] NZLR 57 (CA), where the Court held that it was implied by the Act and the nature of the jurisdiction that orders under the Act were to be made against the gross estate. Relying on a dictum in Schaefer v Schuhmann [1972] AC 572; [1972] 1 All ER 621 (PC), that a contract to leave property by will created a beneficial interest in the estate, the Court concluded that the power to determine priorities in s 3(5) and (7) indicated that the incidence of an award

1      Brookers Family Law Family Property (online ed) at [TA 3.07(8)(c)]

under the Testamentary Promises Act could be charged against property left in the will pursuant to a binding contract.   See also Hamilton v Hamilton [2003] NZFLR 883, where a testamentary promises award eroded the testamentary gift of a farm promised to one of the deceased’s grandsons in recognition  of  work and  services.    In  that  case  the  Court  held  that the fulfilled contract did not necessarily take priority over the unfulfilled testamentary promise.  (Emphasis added)

[27]     One issue before the Court here is whether Barnabas, who is a creditor of the deceased’s estate for $350,402.24 by virtue of his damages claim, is a “genuine creditor” who is to be treated in precisely the same way as a third party or trade creditor of the estate.  Thus, is his debt required to be settled by the executors as far as the assets of the estate might extend, prior to any distribution under the will or settlement of a beneficiary’s claim under the Law Reform (Testamentary Promises) Act or the Family Protection Act?

[28]     In this case, it appears that there are no assets in the deceased’s estate other than the shares in question.  The award of damages in favour of Barnabas cannot be satisfied other than by the administrator selling or borrowing against those shares.  If they are required to do this as a priority, then of course it is quite impossible for the administrators first, to give effect to the bequest in the deceased’s will in favour of Timothy or secondly, to meet any award under the testamentary promises or family protection legislation.

[29]     At this point, it is also useful to note, by way of an aside, that three of the sisters  of  Barnabas  and  Timothy  have  also  brought  proceedings  against  the deceased’s estate in the Family Court under the Family Protection Act 1955.  Those claims however are not before me and I leave them entirely to one side.

[30]     So far as the award of damages in proceeding 2181 is concerned, Mr Brodie, counsel for Timothy, complains:

(a)      The award is founded on the 5 April 1993 deed and is really no more than the enforcement of Barnabas’ rights under that deed.  He submits that in principle there is no reason why an award of damages intended to compensate for breach of a promise to convey property should be

immune from the kind of curial intervention that the property itself is subject to;

(b)The award of damages in the 2181 proceeding is not based in reality on the breach by the deceased of the promise contained in the deed. Any assessment of damages on that basis would need to take into account the risk to the promise that the assets did not exist at the date of death, or significantly, that they might be the subject of intervention under the family protection and/or testamentary promises legislation.

Mr Brodie argues that the judgment in this Court of Associate Judge Matthews makes it clear that these damages have not been calculated on that basis at all.  He awarded  damages  by  reference  simply  to  the  value  of  the  shares  in  question. Mr Brodie contends that that is not an award of damages for breach of the promise to convey property.

[31]     In response, Mr Lester contends that Barnabas must be considered to be a creditor of the estate now by virtue of his judgment debt – see Re Estate Gubbins2 – he has priority, and that is an end to the matter.

[32]     I turn now to consider the normal rules applying with respect to genuine debts of an estate.  In doing so, the following matters become apparent:

(a)      Nevill’s  Law  of  Trusts  Will  and  Administration,  11th   Edition  at paragraph  20.4.2(b),  under  the  heading  “Right  to  Pay  Debts  or Claims” says”

By s 26 of the Administration Act 1969, the whole of the deceased’s estate is available to the administrator for payment of the deceased’s debts in the ordinary course of administration, and may be sold, leased or mortgaged for that purpose.

(b)      Paragraph  15.6.2 under the heading “The Incidence of Uncharged

Debts Generally – Abatement” says:

2      Re Estate Gubbins HC Wellington 31 July 1997 Gendall J at page 7.

Since debts must be paid before gifts by will are distributed to beneficiaries, if there is insufficient in the fund set aside for payment of debts then the gifts given by will must be resorted to in order to satisfy those debts.

(c)      Similar   statements   are   made   in   the   Laws   of   New   Zealand, Administration of Estates Volume 2 at para 303 under the heading “Assets Properly Applicable for Payment of Debt” which says:

The whole of the estate of every deceased person is an asset in the hands of the deceased’s administrator for payment, in the ordinary course of the administration of the deceased’s debts.

(d)And,  at  paragraph  442  the  learned  authors  discuss  the  order  of application of assets on distribution and state:

The  question  of  what  parts  of  the  estate  are  charged  with  the payment of pecuniary legacies and in what order, is a problem of distribution  and  is  altogether  distinct  from  the  administrative question of the order in which assets are to be applied in payment of debts and liabilities.

The rules for determining which part of the estate should be subject to a debt independently of the Testamentary Promises Act are not in issue in this case.

(e)      Section  4(2)(b)  of  the  Law  Reform  (Testamentary  Promises) Act, which was introduced in 1961, clearly provides that for all purposes any award under the Act is deemed to be a bequest or devise by the deceased to the claimant.  Thus, if Timothy was to be successful with his testamentary promises claim (as opposed to any other claim he may have), that does not make him a creditor of the estate.

(f)      Accordingly,   unless   there   is   power   within   the   Law   Reform (Testamentary Promises) Act for the Court to direct that the incidence of an award under the Act shall fall on funds that would otherwise be paid to creditors, the normal rules requiring payment of the debts of genuine creditors prior to payment of any gifts or bequests under the will are likely to apply.  Here, payment of debts from the deceased’s

estate may mean that Barnabas’ judgment debt will exhaust the estate fund and assets, if indeed he is a genuine creditor.

[33]     An initial issue arises as to whether the judgment Barnabas holds from the

2181 proceeding means that he is a “genuine creditor” of the deceased’s estate and thus can properly claim priority here.  On this aspect, although there may be some arguments to suggest that Barnabas’ judgment debt in effect relates to a form of claim he had in the nature of a testamentary promises claim, that is not a matter which requires determination in answering the preliminary question which is before the Court.  I proceed on the basis that the $350,402.24 judgment debt in favour of Barnabas entitles him to the status of a genuine third party creditor here.

McCormack v Foley

[34]     Before me both counsel for Barnabas and counsel for Timothy referred to the

Court of Appeal decision in McCormack v Foley.3

[35]     The issue in that case was whether property that had been left to a beneficiary by will pursuant to a contract formed part of the deceased’s estate against which an order under the Law Reform (Testamentary Promises) Act could be made.   In the case  before  me,  however,  it  is  clear  that  the  claim  made  by  Barnabas  under proceeding  2181  was  a  claim  seeking  damages  in  contract,  and  was  not  one advanced under the testamentary promises legislation.  And, it is true, according to Timothy, that the provision in the deceased’s will to leave the shares in the company to him was pursuant to a promise (query contractually) to do so.

[36]     There are a number of obiter observations in McCormack v Foley that as I see it are relevant here. First, at page 64 Cooke J as he then was, in dealing with the quantum of an award under the testamentary promises legislation stated:

So under subs (1), in determining the quantum of an award the Court is to have regard inter alia to other claims in respect of the estate; and these include, I think, claims under contractual rights.   It would seem to follow that a simple unsecured contractual claim such as a tradesman’s debt, would fall  to  be  considered.    The  tradesman  is  a  creditor.    But  normally  in exercising the discretion to fix a reasonable amount under the [Testamentary

3      McCormack v Foley [1983] NZLR 57 (CA).

Promises] Act the Court would allow for the payment in full of trade and other inter vivos debts.   Whether the rights of such creditors could ever properly be affected by an award under the Act is a question which can be left open unless and until it arises.

And McMullin J at page 76 stated:

The claims of creditors can be considered relevant to the amount of an award under s 3(1) Law Reform (Testamentary Promises) Act only if the gross estate is to be taken into account.  Section 3(1) gives no indication as to how these claims are to be taken into account.   The direct step of ordering a

r educt ion   i n   t he   amount   of   t he   cr edi t or ’s   debt   does   not    seem   t o   be   contemplated by the section.   But an executor’s ability to  meet creditors’ claims in full may nonetheless be affected by any order made in favour of a claimant under s 3(1).  To make such an order which would adversely affect the claims of creditors would be a serious step.    Section 3(1) should be construed as doing no more than directing the  Court to have regard to the claims of creditors and the claims of other  named persons in fixing the amount to be awarded to the claimant.  (Emphasis added)

Also, Richardson J at page 71 in dealing with s 3(6) Law Reform (Testamentary

Promises) Act states:

That latter expression [in s 3(6)] is not in its terms confined to beneficial interests which owe their existence entirely to the bounty of the deceased expressed in the form of a testamentary provision.   On its face it is wide enough to include a testamentary benefit conferred in discharge of a contractual obligation.  But there is no express power to determine priorities as between the holders of the testamentary promises benefit and ordinary creditors of the deceased.  And the power to provide for the incidence of debts is a facilitative provision.  Notwithstanding the apparent breadth of the discretion under subs (5) I have reservations as to the power of the Court to direct in the case of a solvent estate that debts should be recoverable only from a designated part of the estate if that part is insufficient to discharge the debts and in that way to affect the value of those debts.

[37]     In  commenting on McCormack v Foley  Bill Patterson in  Law of Family

Protection and Testamentary Promises4 notes:

In McCormack v Foley, where the claim was brought under the Law Reform (Testamentary Promises) Act 1949, the Court of Appeal held that the Court could make an award that affected the provisions made under the will.  The Court noted that there were provisions in that Act not present in the Family Protection Act 1955 that lead to a conclusion that testamentary benefits, given in fulfilment of a contractual promise, were not immune from the Court’s jurisdiction.  Principal points noted were:

4      Law of Family Protection and Testamentary Promises 4th Ed, Lexis Nexis, 2013 at para 13.5.

(a)       As s 3(1) of the Act provides that a claim is to be enforceable against the personal representative of the deceased in the same manner and to  the  same  extent  as  if  the  promise  were  for  payment  by  the deceased in his or her lifetime, this indicates that the claim is against the gross estate.

(b)       The Court is directed, in determining whether to grant relief and to what  extent,  to  take  into  account  a  number  of  circumstances including claims of creditors.   In the Court’s view, this included those whose claims had been satisfied by the testamentary provision.

(c)       The provisions of s 3(5) of the Act as to the incidence of an order also contain words suggesting that the subsection applies to assets making up the gross estate, a view which s 3(6) also appears to confirm.

(d)       The Court discussed the decision of the Privy Council in Schaefer v Schumann, a decision on the New South Wales equivalent of the Family Protection Act.  There it was held that even where a contract was performed by a testator, the rights of the party to the contract were not to be regarded as arising only under the will but as having arisen earlier, the contract creating a form of beneficial interest in the estate.   The question there  was  whether the “estate”  against which an order could be made was the gross estate or the net estate after satisfaction of valid contractual claims.   The Privy Council there held, and the Court of Appeal in McCormack v Foley agreed, that for family protection claims it is the net estate that is relevant. However, under the Law Reform (Testamentary Promises) Act it is the gross estate.  (Footnotes omitted).

[38]     In addition, at para 13.7 of the Law of Family Protection and Testamentary Promises the learned author states, albeit in a section dealing with the position where competing claims are brought under the family protection legislation and the testamentary promises legislation:

...it has been held, in Hamilton v Hamilton, [2003] NZFLR 883 (HC) that where there is competition between claims under a will by a beneficiary and claims under both the Family Protection and the Law Reform (Testamentary Promises) Act, no claim has any automatic preference over the other.  This seems, with respect, to accord generally with modern judicial practice to do substantial justice  without being hampered  by a priori  assumption as to which type of claim should be dealt with first...It should be noted that as the law presently stands it does not apply to a situation where there was also a claim founded in contract since that claim takes priority over the family protection claim (being one made against the net estate) though not against the testamentary promises claim (which is made against the gross estate).  If such a case arose a Court would be likely to give priority to the contractual claim to provide a sensible resolution of the priority issue.   However a Court might also reconsider in an appropriate case whether there is in fact priority to be afforded to contractual claims.  (Footnotes omitted)

[39]     On all of this, as I see the position, there does not seem to be any express power in the Law Reform (Testamentary Promises) Act to direct that any award made under that Act shall be borne by creditors.

[40]     It is useful however at this point to reflect again on the provisions of s 3(6) Law Reform (Testamentary Promises) Act which, in dealing with the Court’s power to make a testamentary promises award in favour of a claimant, states in part:

(6)       The court shall have power, after hearing such of the parties as may be affected as it thinks necessary, to exonerate any part of the estate of  the  deceased  from  the  incidence  of  any  such  payment  or payments, to determine priorities as between any benefit awarded by the court to the claimant under this Act and the beneficial interests of any other person or persons in the estate of the deceased person, and to make such provision as it thinks fit as to the incidence of the whole or any part of the debts, testamentary expenses, and duty in respect of the estate of the deceased...  (Emphasis added)

[41] Section 3(5) noted at [22] above, like s 3(6) in my view is a broad provision which would appear to allow a Court to determine that the incidence of a payment ordered in favour of a claimant under the testamentary promises legislation would not necessarily fall rateably upon the whole of the deceased’s estate.

[42]     As I see it, ss 3(5) and 3(6) create in appropriate circumstances the ability to confer priority to a testamentary promises claim over some creditors.   This is especially so where the creditor like Barnabas here is a non-trade creditor.

[43]     With these points in mind, and notwithstanding the obiter views emphasised in McCormack v Foley noted above, I am of the view that in the particular circumstances of this case, the general power to prioritise testamentary promises awards in the Law Reform (Testamentary Promises Act), particularly s 3(5) and s 3(6), creates a possible power to confer on the recipient of an order under that Act, priority over a creditor such as Barnabas.  All this is notwithstanding the specific provision in s 4(2) of the Act specifying that any testamentary promises order has effect as a simple bequest or devise to the claimant and thus would initially stand with all other bequests under a deceased’s will in line as against creditors’ claims.

[44]     And in his earlier decision in proceeding 2181 refusing Timothy’s application to consolidate his present proceeding with Barnabas’ proceeding 2181, Associate Judge Matthews said at [10]:

...None of the claimants for statutory relief is a party to the contract, so prima facie none is entitled to present evidence or argument on the quantum of damages to be awarded for the established breach of contract.  I do not accept the argument for the statutory claimants that awards in their favour would lessen the amount of damages which would be awarded to Barnabas Bristow on his claim.  With respect, that is to confuse the question of where the incidence of any award under either statute might lie, with the establishment of the sum (if any) owed by the estate for breach of contract. Nothing in McCormack v Foley decides that the damages assessed for breach of contract may be lessened by an amount awarded to a statutory claimant. It is authority for the principle that an award to a statutory claimant may reduce a sum otherwise payable to a beneficiary, even where that beneficiary had established that the gift in his favour was made pursuant to a contractual obligation to do so.   The decision of the Court of Appeal was as to the incidence of the award made in favour of a statutory claimant.   An opportunity will arise in due course on the statutory proceeding for the present statutory claimants to argue that the incidence of any awards in their favour should be against any sum which has been found to be owing to Barnabas. (Emphasis added)

And at [12]:

The question of incidence of any award that the statutory claimants may receive is not an issue of law in the present proceeding by Barnabas Bristow. The statutory claimants’ argument that McCormack v Foley should apply and diminish the sum to actually be paid to Barnabas Bristow is an issue in their proceedings.  Plainly Barnabas Bristow should be heard on that issue, but it is still an issue in those proceedings only not an issue common to those proceedings and this proceeding.

This too in my view must support the position in the particular circumstances of the present  case  I  have  reached  at  [43]  above.    And  the  underlined  comments  of Associate Judge Matthews in [44] above re-affirm this.

[45]     To conclude, and in answer to the preliminary question raised at [2], for the reasons outlined above, my conclusion is that this Court does have jurisdiction to direct that any provision made for Timothy under the testamentary promises legislation here could be satisfied from funds that would otherwise be paid by the executors of the estate to Barnabas as a creditor.

[46]     Although this conclusion provides some answer to that preliminary question, as I see the position, that is also not an end of the matter here.

[47]     Irrespective  of  matters  relating  to  the  preliminary  question,  before  me Mr Brodie contended that, in addition to his testamentary promise claim, Timothy has several alternative legal bases for his claim against the deceased’s estate.  As to this, appended to Mr Brodie’s submissions was a draft amended statement of claim in which he outlines a number of other causes of action for Timothy which he contends are clearly tenable here.  These include a claim in breach of contract (being an express agreement between the deceased and Timothy that her shares in the company would pass to Timothy by inter vivos gift or by will without consideration), equitable estoppel (whereby the deceased and her personal representatives are estopped from denying Timothy’s entitlement to her interest in the company shares as a result of her conduct over many years) and in constructive trust (the deceased’s shares in the company are impressed with a constructive trust in favour of Timothy in light of the services performed and expenditure incurred on behalf of and for the benefit of the deceased by way of reasonable expectation).

[48]     Mr Brodie submitted that it would be quite wrong here to deal with the present application before the Court in such a way that forestalled the possibility of what  he contended  were those  other tenable causes of action  against  the estate succeeding.  I agree.  On this, I particularly bear in mind as well that, if for example Timothy’s constructive trust claim was to succeed, then the company shares would have been effectively held by the deceased as a bare trustee.  In this situation, as they presumably fell outside her estate, they would be beyond the reach of creditors. Next, any judgment which followed in favour of Timothy might also be expressed in damages  and  thus  allow  him  as  a  creditor  to  stand  alongside  Barnabas  when decisions to clear estate debts on a pro rata basis were made.  These matters are in addition  to  the  conclusion  I  have  reached  at  para  [45]  above  regarding  the preliminary question.

Conclusion

[49]     That said, I now make the following directions:

(a)      The preliminary question which is before the Court is answered as outlined at para [45] above.

(b)If indeed, it may be required, leave is now granted to Timothy to file and serve an amended statement of claim along the lines in the appended  draft  statement  of  claim  provided  to  the  Court  with Mr Brodie’s submissions.

(c)      A direction is made that within five working days of the date of this judgment, the amended statement of claim is to be filed and served upon the respondents and upon Barnabas Bristow.

(d)A further direction is made that, within 15 working days of service of the    amended    pleading    both    on    the    respondents    and    on Barnabas Bristow, they are to file and serve any statement of defence or response to that pleading they may wish.

(e)      The Registrar is directed to arrange a case management conference with all parties at the first available opportunity thereafter in order to

address ongoing directions which are required in this proceeding.

Costs

[50]     As to costs, they are reserved.  If counsel are unable to agree on the question of costs they may file memoranda (sequentially) which are to be referred to me, and in the absence of either party indicating they wish to be heard on the issue, I will decide costs based on the material then before the Court.

...................................................

D Gendall J

Solicitors:

Geoff Brodie, Christchurch

Dale Lester, Christchurch