Dawson v Snedden
[2019] NZHC 736
•8 April 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-419
[2019] NZHC 736
BETWEEN MARIE-LAURE DAWSON
Plaintiff
AND
DAVID WARWICK SNEDDEN AND BENJAMIN NESBIT AS PURPORTED
TRUSTEES OF THE GALLAIS FAMILY TRUST
First Defendants
AND
DAVID WARWICK SNEDDEN AND BENJAMIN NESBIT SNEDDEN AS EXECUTORS OF THE ESTATE OF
PHILIPPE ALAIN ROBERT GAILLAIS
Second DefendantsAND
SUSAN LYNETTE REID
Third Defendant
AND
JASMINE HANAWY
Fourth Defendant
AND
CHRISTINE LAGARDE
Fifth Defendant
Hearing: 6 March 2019 Appearances:
J P Cundy for Plaintiff (excused due to non-opposition of application)
R C Knight & T A Chubb for First Defendants
K G Davenport QC & A M Cameron for Third DefendantJudgment:
8 April 2019
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 8 April 2019 at 3:00 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
DAWSON v SNEDDEN & ANOR [2019] NZHC 736 [8 April 2019]
Introduction
[1] Susan Reid (Ms Reid), the third defendant, applies for an order directing the Trustees of the Gallais Family Trust to make an interim distribution to her of $100,000 to enable her to meet what she describes as “real and pressing” financial needs.
[2] Ms Reid was the de-facto partner of the late Philippe Alain Robert Gallais (Mr Gallais) who died on 26 June 2014. In 2005 Mr Gallais settled the Gallais Family Trust (“the Trust”). Ms Reid is named as a primary and final beneficiary of the Trust. She is also a beneficiary of specific legacies in Mr Gallais’ Will, dated 20 March 2014 (the Will). By the terms of the Will, the entire residue of the estate is to be settled on the Trust. The final memorandum of guidance signed by Mr Gallais stipulates his wish that Ms Reid receive a specific payment of $300,000 from the trust, and after the payment of other specific amounts to other beneficiaries, she is also to receive the balance of the Trust’s fund.
[3] Mr David Snedden and Mr Benjamin Snedden are acting in dual capacities as both Trustees of the Trust and also as Executors of Mr Gallais’ Estate (the Estate), and are the first and second defendants respectively.
[4] The plaintiff, Marie-Laure Dawson (Ms Dawson) is the daughter of Mr Gallais’ wife, Ms You Tai Gallais (Mrs Gallais) from whom he had been estranged for some 20 years prior to his death.
[5] Ms Reid says that as a direct consequence of several legal proceedings brought by the plaintiff and her mother Mrs Gallais, and which were commenced shortly after Mr Gallais’ death, she has had no access to the assets and funds of the antique shop business she was running with Mr Gallais prior to his death, and no access to any funds from his Estate. Ms Reid says that she has incurred significant legal costs defending her entitlement under the Will in Family Court proceedings brought by Mrs Gallais and the plaintiff: to set aside an agreement entered into with Mr Gallais some 20 years prior to his death under s 21 of the Property (Relationships) Act 1976; a Family Protection Act 1955 claim; and a Law Reform (Testamentary Promises) Act 1949 claim, as well as in connection with this proceeding to date.
Background
[6] In this proceeding commenced by the plaintiff in March 2018 against the Trustees of the Trust and the Executors of the Will, Ms Dawson alleges that she is Mr Gallais’ adopted daughter. She challenges the validity of the Trust, and seeks declarations that there is an intestacy of the residuary Estate under the Will requiring the Executors to distribute the residuary Estate pursuant to s 77 of the Administration Act 1969, pursuant to which, as Mr Gallais’ daughter, she will be entitled to two-thirds of his residuary Estate. Alternatively, she seeks an order for the removal of the Trustees of the Trust.
[7] The Trust’s beneficiaries, including Ms Reid, are in each case women with whom Mr Gallais had a close relationship after his separation from the plaintiff’s mother. Following an application by the plaintiff, the Trust beneficiaries were joined as additional defendants and have been served with the proceedings, although their final status as parties to the proceeding is yet to be determined.1
[8] Ms Reid applies for an order directing that either the Trustees or the Executors make an interim distribution to her of $100,000, to enable her to meet the legal costs and expenses incurred by her in connection with the current proceeding, and to repay money she says she has been required to borrow since Mr Gallais’ death.
[9] Mr Cundy, counsel for Ms Dawson, appeared at the hearing to advise that the plaintiff does not oppose the application for the making of an interim distribution by the Trustees to Ms Reid. Accordingly Mr Cundy sought and was granted leave to withdraw from further participation in the hearing of this application.
[10] Mr Knight appears for the Trustees named as first defendants, but he does not appear for them as regards their role as Executors of Mr Gallais’ Estate as second defendants. Mr Knight says that the Trustees are sympathetic to Ms Reid and do not oppose her application. However, while not opposing the application, Mr Knight
1 On 26 June 2018, Andrew AJ made an order joining the beneficiaries named in the Trust as defendants to the proceeding (Telephone Conference Minute of Associate Judge PJ Andrew). On 13 July 2018, after Ms Reid’s counsel had raised concerns as to whether Ms Reid should simply have been joined as a party to be served, rather than as a defendant, Andrew AJ directed that the issue of Ms Reid’s status as a party in the proceeding would be deferred.
submits that the court does not have jurisdiction to make an order directing the Trustees to make an interim distribution. Mr Knight says that by reason of the pending Family Court proceedings, the Executors of Mr Gallais’ Estate are yet to make a distribution to the Trust, and as a consequence the Trustees presently hold no assets or funds from which to make an interim distribution to Ms Reid.
[11] No explanation was provided as to why the Executors, as second defendants, were unrepresented, when Ms Reid’s application in the alternative also sought orders directed towards them in their capacity as executors.
Submissions
Submissions for Ms Reid
[12] Ms Davenport QC, for Ms Reid, submits that an urgent interim distribution from the Trust is necessary to address the personal and financial circumstances Ms Reid is now in, almost five years after Mr Gallais’ death. Ms Davenport says that during this time Ms Reid has been forced to defend her entitlement under Mr Gallais’ Will starting with the proceedings commenced in 2015 by Mrs Gallais in the Family Court seeking to set aside an agreement made between herself and her late husband under the Property (Relationships) Act 1976, but which were discontinued less than four weeks prior to a scheduled four-day fixture in May 2018. Ms Davenport further notes that claims brought by the plaintiff and her mother under the Family Protection Act 1955 and the Law Reform (Testamentary Promises) Act 1949 remain to be determined by the Family Court.
[13] Ms Davenport says that by reason of Ms Reid defending the proceedings brought in the Family Court, she has to date incurred over $90,000 in legal costs which she has met with $60,000 borrowed from family members leaving some $30,000 remaining outstanding. Prior to and at the time Mr Gallais’ death, Ms Reid’s main source of income was derived from her involvement in the antiques business she operated with Mr Gallais. Since his death and the closure of the business she has only been able to work part-time.
[14] Ms Davenport notes that Ms Reid’s physical and mental health has been adversely and significantly affected as a result of her involvement in the legal proceedings in the Family Court and the present proceeding in this court by which the validity of the Trust is challenged. Ms Davenport refers to Ms Reid’s affidavit in which she describes the emotional and physical effect of the legal proceedings upon her health as enormous. Ms Reid’s affidavit evidence is supported by a medical certificate attached as an exhibit, which confirms that she has suffered serious adverse effects as a direct consequence of the prolonged legal disputes and her loss of home, business and income following Mr Gallais’ death.
[15] Ms Davenport refers to correspondence dated 15 October 2018 from Ms Reid’s counsel engaged in connection with the Family Court proceedings and the Trustees in which request was made for an interim distribution of $50,000 to alleviate her serious financial hardship and pay outstanding accounts including rent and legal fees. The Trustees responded to Ms Reid’s request advising that they considered it inappropriate to make a distribution in circumstances where there was an extant proceeding challenging the validity of the Trust and therefore Ms Reid’s status as a beneficiary of Mr Gallais’ Estate.
[16] Ms Davenport submits that the court has jurisdiction pursuant to s 64 of the Trustee Act 1956 to make an order directing the Trustees to make an interim distribution. Ms Davenport notes that Ms Reid is a person beneficially interested under the Trust and is the principal beneficiary. She says that the prerequisites for the exercise of the power conferred by s 64 of the Trustee Act are present. Firstly, a disposition at this stage of the legal proceedings would be in Ms Reid’s best interests as it would enable her to meet her past and ongoing legal costs associated with the present and Family Court proceedings, which will ultimately determine her share of Mr Gallais’ Estate, which she otherwise has no other means of funding. Secondly, having regard to the position taken by the Trustees and the extant legal proceedings by which Ms Reid’s status as a beneficiary of Mr Gallais’ Estate is being challenged, which has caused the Trustees to defer any consideration of an interim distribution, it is inexpedient, difficult or impracticable to make an interim distribution to Ms Reid without the intervention of the court.
[17] Ms Davenport submits that the Court has a broad discretion to make directions and the circumstances here clearly favour the Court exercising the discretion to direct the Trustees to make an interim distribution to Ms Reid. She says the financial and personal circumstances of Ms Reid and the lack of any prejudice to the Trust caused by an interim distribution to Ms Reid are compelling factors that support the making of an order. Ms Davenport submits that regardless of the outcome of the litigation in the Family Court, Ms Reid will be entitled to some proportion of Mr Gallais’ Estate.
[18]The current value of the Estate at the time of Ms Reid’s application was around
$3 million. Ms Davenport submits that even if the plaintiff is successful in establishing her claim to be Mr Gallais’ legally adopted daughter, and thereby becomes entitled to two-thirds of the Estate, Ms Reid and Mrs Gallais would each be entitled to a one- sixth share of the Estate which would amount to around $500,000.2 Alternatively, if the plaintiff’s challenge to the validity of the Trust fails, Ms Reid will receive a considerably greater sum.
[19] Against Ms Reid’s prospective entitlement, regardless of the outcome of the litigation, the costs of the trustees and the executors in this litigation needs to be considered. As David Snedden, in his affidavit of 15 June 2018 in support of the Beddoe application explained, those costs are anticipated to be as much as $150,000 plus GST and disbursements. In accordance with the Beddoe order, granted by Jagose J on 23 November 2018, the trustees are entitled to be indemnified out of the Trust fund, for their reasonable legal costs in defending the proceeding.3 This is despite the fact the Trust presently has insufficient assets to meet those expenses. The Trustees have expressed an intention that they intend to borrow from the Estate to cover those amounts.4
[20] Ms Davenport says that s 47(2) of the Administration Act 1969 protects the Executors of the Estate against claims being made against them in respect of any distribution from the Estate where the purpose of the distribution is to provide for the
2 Administration Act 1969, s 77.
3 Snedden v Reid [2018] NZHC 3044 at [15].
4 The liability of the Executors of the Estate for advancing and lending funds to the Trustees in order to meet the legal costs incurred in defending the claims brought against the Trust, should their defence fail, does not appear to have been raised before Jagose J.
maintenance, support or education of any person wholly or partially dependent on the deceased immediately before his or her death. Ms Davenport submits that the evidence establishes that Ms Reid was solely dependent upon Mr Gallais for her ability to draw an income from the antiques business.
[21] Ms Davenport submits that the Court has the power to exercise its supervisory jurisdiction over the administration of the Estate, and to authorise the making of a distribution from the Estate to Ms Reid via the Trust. She submits that by analogy, if required, the Executors could have used s 66 of the Trustee Act to seek directions of the Court, although Ms Reid’s present application has avoided the need for them to do so.
[22] Ms Davenport notes that interim distributions are routinely made in relationship property disputes where the dissolution of a relationship places an effective freeze over jointly held assets pending determination of the respective rights of the parties, and where s 25(3) of the Property (Relationships) Act 1976 contains the power for the court to make orders relating to the status, ownership, vesting or possession of any specific property at any time if it considers it just to do so.
Trustee’s submissions
[23] Mr Knight for the Trustees advises that his clients neither consent to nor oppose Ms Reid’s application for an interim distribution. Mr Knight explains that his submissions are made for the purpose of assisting the Court by highlighting matters not mentioned or referred to in the submissions made for Ms Reid, but which may be relevant to the Court’s decision. He explains that in principle the Trustees are not opposed to the making of an interim distribution to Ms Reid, although in order to do so they would need to borrow the money from the Estate as the Trust has no assets or funds.
[24] Mr Knight notes that the Trustees responded on 19 October 2018 to Ms Reid’s initial request for an interim distribution of $50,000 by advising that they considered that an interim distribution would be inappropriate, having regard to the extant proceeding wherein the validity of the Trust is challenged, and consequently also Ms Reid’s status as a beneficiary of Mr Gallais’ Estate. Subsequently, after the Trustees
had made the Beddoe application, by memorandum to the Court dated 22 November 2018 they advised that pending determination of their application, they were not in a position to respond to Ms Reid’s application insofar as it relates to this proceeding. The Trustee’s Beddoe application was granted on 23 November 2018. The terms of the Beddoe order granted the Trustees leave to participate as defendants in the proceedings, and as noted above, provided that they are to be indemnified for their reasonable legal costs incurred in the proceeding.5
[25] Mr Knight says that since January 2019, the Trustees have discovered information which supports their earlier concerns that the plaintiff has committed a fraud in claiming that she is Mr Gallais’ adopted daughter. Mr Knight says that the Trustees have instructed their counsel to make an urgent application for an order striking out the plaintiff’s substantive proceedings upon the grounds that her claim to be Mr Gallais’ legally adopted daughter is false. Counsel says that the Trustees are unwilling to commit to making an interim distribution to Ms Reid ahead of the determination of their intended strike out application. The Trustees wish to adopt a cautious approach and accordingly seek to have the hearing of Ms Reid’s application adjourned until after the strike out application has been heard and decided. The present timetable directions regarding the strike out application required it to be filed by 8 March 2019.
[26] Mr Knight notes that when the Property (Relationships) Act proceedings were discontinued in May 2018, the Family Court made an order awarding Ms Reid costs which although yet to be determined are estimated to be in the region of $11,600.
[27] While not unsympathetic to Ms Reid’s position, Mr Knight says that the Trustees are concerned that should they make an interim distribution to her, there could be serious implications for them in their capacities as Trustees and Executors.
[28] Turning to the issue of the Court’s jurisdiction to make the order sought, Mr Knight says that s 64 of the Trustee Act only applies to property vested in the Trustees. As the Trust has no assets or funds vested in the Trustees at present, the Trust and Trustees have no ability to make an interim distribution to Ms Reid. The only means
5 Snedden v Reid [2018] NZHC 3044 at [15].
by which the Trust could make an interim distribution to Ms Reid would be for it to borrow funds from the Estate.
[29] Mr Knight submits that the s 47 of the Administration Act provides protection for administrators who distribute any part of an Estate for the purpose of providing for the maintenance, support or education of persons who were wholly or partially dependent upon the deceased immediately prior to their death, if it is properly made in accordance with s 48(2) of that Act. Mr Knight says that for a distribution to be properly made, it must be made in accordance with any trust, power, or authority which is subsisting when the distribution is made and which would justify the distribution being made. Mr Knight submits that an interim distribution to Ms Reid would not be in accordance with any trust, power, or authority given to the Executors in Mr Gallais’ Will. Although Ms Reid is a beneficiary named in the Will, she is to receive specific legacies of shares and chattels. Mr Knight says that she is not a beneficiary of the residual Estate, as the Trust is the sole beneficiary of the residue of the Estate.
[30] Mr Knight also addressed the issue of Ms Reid’s application for an order that her costs be met by the Trust should her application be successful. Mr Knight notes that Ms Reid’s present application appears to fall within the category described by the Court of Appeal in Pratley v Courteney as a “beneficiaries dispute”, generally to be regarded as ordinary hostile litigation with costs following the event, and accordingly not paid out of the Trust Estate.6
[31] Although the costs of the Trustees’ defence of the plaintiff’s action challenging the validity of the Trust are necessarily incurred in order to defend the validity of the Trust and the interests of the beneficiaries of the Trust, Ms Reid’s involvement in the present proceeding is largely unnecessary and redundant as her interests are being represented and defended by the Trustees. Mr Knight submits that the significant costs incurred by Ms Reid to date relate to her involvement in the Family Court proceedings, in respect of which she will have an entitlement to costs. He submits that it is also highly likely that the Estate will be required to meet all costs reasonably incurred in
6 Pratley v Courteney [2018] NZCA 436, [2018] NZAR 1787 at [19].
relation to the Family Court proceedings, and consequently he says that it is wrong to base the need for an interim distribution to Ms Reid on costs she has incurred in connection with those proceedings.
[32] Finally, Mr Knight submits that as the Trustees now have the Court’s approval to defend the plaintiff’s challenge to the validity of the Trust by means of the Beddoe order, there is no need for Ms Reid to incur any further legal expenses by continuing to participate in this proceeding. Consequently there is no need for an order for an interim distribution in order to enable her to meet her future and ongoing legal costs in this proceeding. In this regard, I note that Ms Davenport advises that following the granting of the Trustees’ application for a Beddoe order, Ms Reid no longer intends to continue any further involvement in this proceeding.
Discussion and decision
[33] By his Will, Mr Gallais bequeathed to Ms Reid: the property owned by Gallais Investments Ltd situated at Henderson; all his household chattels, personal effects, motor vehicles and antiques owned by him personally or by Gallais Investments Ltd; and all assets owned by him in his own name and situated in France.
[34] Mr Gallais’ Will directed that the residue of his Estate be transferred to the Trust. By reason of the challenge to the Will in the proceedings brought by Mrs Gallais and the plaintiff, the Estate presently remains in an administration phase as the Executors are yet to determine the residue. Accordingly, the Executors have not given effect to the provision in the Will directing them to transfer the residue to the Trust.
[35]During Mr Gallais’ lifetime the Trust acquired the following assets:
(a)$50 being the sum originally settled to establish the Trust.
(b)$15,000 which was settled by Mr Gallais on the Trust on 12 May 2014, and which has since been distributed.
(c)$100,000, being a sum settled by Mr Gallais on the Trust and which was then loaned to Ms Sylvia Dianne Bernsee, who was originally
named as a beneficiary of the Trust but was subsequently removed by a deed of variation dated 10 May 2014. The outstanding balance of the loan to Ms Bernsee is $57,000 together with interest of $19,981. That loan is the Trust’s only asset. The Trust has a liability to the Estate of
$66,000, so that the net position of the Trust is valued at approximately
$37,000 without any cash.
[36] The value of the Estate, currently held by the Executors, is approximately $3 million.
[37] Ms Reid’s application seeks an order by way of directions under the Trustee Act that she receive an interim distribution from the Estate or the Trust “to fund the ongoing costs of her participation in these proceedings”, and that her costs of participation in this proceeding be paid out of the Trust fund.7
[38] It is clear from the terms of the Will that Ms Reid has no beneficial interest in the residue of the Estate. Her interest in the funds represented in the residue of the Estate will only arise following a transfer of the residue to the Trust, whereupon her beneficial interest as a primary and final beneficiary will arise.
[39] Ms Reid’s application is made in reliance on ss 64(1) of the Trustee Act 1956. Section 64(1) of the Trustee Act provides:
64 Power of court to authorise dealings with trust property
(1)Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the same without the assistance of the court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by
7 Interlocutory Application on Notice by First Defendant for prospective costs orders and/or Directions (7 November 2018). Ms Reid’s application for an order that her costs of participating in the Trustees’ Beddoe application was not pursued as the issue of costs relating to the Beddoe application were reserved by Jagose J in his judgment of 23 November 2018 granting the Trustees leave to participate as defendants in this proceeding and for determination with the costs of this proceeding. See Snedden v Reid [2018] NZHC 3044 at [15].
law, the court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income:
provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and may give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order.
(2)[Repealed]
(3)The court may from time to time rescind or vary any order made under this section, or may make any new or further order:
provided that no such rescission or variation of any order shall affect any act or thing done in reliance on the order before the person doing the act or thing became aware of the application to the court to rescind or vary the order.
(4)An application to the court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.
[40] However I do not consider that s 64(1) has any role to play in relation to the present application. As stated in Equity and Trusts in New Zealand:8
… s 64 permits variations that facilitate transactions or asset management that are in the interests of the better management of the trust or in the interests of the beneficiaries…
[41] As I see it, s 64(1) allows the Court to vary the terms of a trust deed, provided that such a variation is not contrary to the intention of the trust deed, to grant the trustees thereof a power, which is expedient in the administration of the trust or is in the best interests of everyone beneficially interested under the trust.
[42] Here, the Trustees are not in need of any new or additional power to make a distribution to Ms Reid, as clauses E(3)(i) and (5) of the Trust deed authorise the
8 Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, (2009) at 238.
Trustees to pay both income and capital to Ms Reid, for her maintenance, support and benefit.
[43] Nor could it be said that conferring a power upon the Trustees to make a distribution to Ms Reid, in circumstances where the Trust funds are currently minimal, and where the Trustees’ indemnity, should the proceedings against them succeed, will exceed the balance of those funds, is in the best interests of the beneficiaries as a whole. No similar power is being sought to make a distribution to the other beneficiaries, including the other principal beneficiaries, Jasmine Hanaway and Christine Lagarde, nor is the power sought expressed as intended to benefit them in the same manner as Ms Reid.
[44] I find support for this approach in the Court of Appeal judgment of Chambers J in Banicevich v Gunson, where his Honour said in relation to s 64(1):9
It is fundamental, however, that the power can be exercised only if the proposed transaction for which Court sanction is sought is expedient for the trust as a whole. As Farwell J said in Re Craven’s Estate [1937] Ch 431 at p 436, the Court should not sanction the transaction, however expedient it may be for one beneficiary, if it is inexpedient from the point of view of the others.
[45] That conclusion however, does not dispose of the matter. As Heath J held in Burgess v Monk (No 2), there are circumstances in which the Court will compel not only trustees, but also executors, to make a distribution to a beneficiary of either an estate or trust.10 The jurisdiction to order an executor to make a distribution, includes a power to order an interim distribution from the residue of the estate, despite the fact that administration is yet to be completed, and as a consequence, before the residue has been finally ascertained.
[46] Heath J determined that this jurisdiction existed, despite the fact that unlike a beneficiary of a trust, a beneficiary of a will does not possess a beneficial interest in the property of the estate until administration is complete, and the executor moves into the role of trustee.11 Until that point is reached, the executor holds the property without distinction between legal and equitable interests.
9 Banicevich v Gunson [2006] 2 NZLR 11 (CA) at [42].
10 Burgess v Monk (No 2) [2017] NZHC 2424.
11 At [67].
[47] Heath J considered that the jurisdiction to compel a distribution must be narrowly circumscribed, and the Court would only compel an executor to do so where “…the beneficiary can demonstrate that no reasonable trustee could have refused to make the distribution on the particular facts of the case.”12
[48] On the facts of that case, Heath J refused to order the distribution sought, because to do so would threaten the interest of Mr Burgess’ brother who also stood to benefit from the residue of the estate. As the trustees and executors of the estate were entitled to an indemnity for their reasonable legal costs in defending the proceeding, the risk was that any further depletion of the estate through an interim distribution, would prejudice the entitlement of Mr Burgess’ brother’s estate to share in the residue.
[49] There is also a line of Australian authorities, that have considered the matter of the court directing an interim distribution during the course of estate administration, and at least a single English authority, which authorises executors to make interim distributions to beneficiaries of the will, in the face of litigation threatening those entitlements, in certain circumstances.
[50] In Re Ralphs, Cross J, sitting in the Chancery Division of the High Court, considered the decision of executors to refrain from making an interim distribution to the beneficiaries of the deceased’s estate, in the face of litigation which could have diminished the legacies payable under the terms of the deceased’s will.13
[51] Referring to the view expressed by Vaisey J, in Re Simon, that it was the duty of executors faced with litigation to make no distribution to beneficiaries between the period of death and the hearing, Cross J said that “…adherence to such a rigid rule may well produce unnecessary hardship…”14 Instead, he considered that the most prudent approach for executors, in such circumstances, was that:15
They should form their own view, with the assistance, of course, of ,their legal advisers, as to the payments which can properly be made, and if they are not prepared to make such payments on their own responsibility, they should ask the parties who might conceivably be affected - whether applicant or residuary
12 At [80].
13 R v Ralphs [1968] 1 WLR 1522.
14 At 1525.
15 At 1525.
legatee - for their consent. If such consent is not forthcoming the executors can apply to the court for leave to make the payment in question, and the court, if it thinks that any withholding of consent was unreasonable could throw the costs of the application on the party to blame. It is, of course, impossible to lay down precise rules covering every case, but I hope that these remarks may afford some guidance and prevent the sort of hardship, which arose in this case, from occurring again.
[52] The remarks of Cross J were referred to with approval in the New South Wales Supreme Court decision of Gonzales v Claridades, where Campbell J considered the circumstances in which an executor has a duty to make an interim distribution of funds to a residuary beneficiary of a deceased estate.16 In that case, the claimant, Mr Gonzales, was the sole beneficiary of his father’s estate, both his parents and his sister having been murdered in their home on 10 July 2001. Almost one year later, on 13 June 2002, Mr Gonzales was charged with their murder. Mr Gonzales sought a distribution of funds to him, out of the estate, for the purposes of meeting the costs of defending the charges against him. The executors refused.
[53] Campbell J found that the administration of the estate was incomplete, and Mr Gonzales did not have a beneficial interest in the residue of the estate, such that he could force a distribution. This was because the executors had not yet been able to determine whether he had forfeited his interest to his father’s estate, as a finding of guilty or not guilty on the charges of murder was still outstanding.
[54] Campbell J then turned his attention to the circumstances in which an executor has an obligation to make an interim distribution to a beneficiary under a will. He said:17
If the legal personal representative is in a situation of knowing that there are some distributions of the estate which could be made in accordance with the will or the rules of intestacy which govern the distributions of that estate, that there was no realistic prospect that that distribution could be cut down or affected by those aspects of administration of the estate which remained unperformed, and that the remaining tasks of administration were not likely to be completed soon, then it may be the duty of the legal personal representatives to make an interim distribution to that extent.
16 Gonzales v Claridades [2003] NSWSC 508; (2003) 58 NSWLR 188.
17 At [47].
[55] Campbell J held that in the circumstances, the executors were not obliged to make an interim distribution to Mr Gonzales. As the act of administration concerned with determining Mr Gonzales’ entitlement to his father’s estate could lead to the conclusion he was to receive nothing, an application of the principles outlined above, did not lead to the conclusion that the executors were obliged to make any interim distribution.18
[56] In Re Schneider, another decision of the New South Wales Supreme Court, Ward J reviewed the authorities concerning interim distributions, and considered the possible liability of an executor having made such a distribution.19 The case concerned a will executed in Australia, and a prior will executed in Israel. While the New South Wales Supreme Court held that the will made in Israel had been revoked by the execution of the Australia will, probate had already been granted in Israel. As a result, the executors of the Australian will had commenced litigation in Israel seeking the revocation of the grant of probate. Nevertheless, they also applied for directions to the court in Australia concerning the payment of specific legacies, either in full or in part, pending the completion of administration.
[57] Ward J said that it was for the executors to form their own view, properly advised, as to the amounts likely to be required for future costs in the administration of the estate.20 Having taken a conservative approach to the determination of that figure, Ward J granted an order that the executors would be justified in making a part distribution of the specific legacies, contingent upon the provision of an undertaking to the Court by those beneficiaries.21
[58] The approach of requiring that an undertaking be given by the beneficiaries is supported by the English case of Re Yorke, a decision of Lindsay J in the Chancery Division of the High Court.22 While the case did not involve an application for an interim distribution, it did involve an application for the Court’s directions as to whether the executors could make a final distribution when the estate faced future
18 At [51].
19 Re Schneider [2009] NSWSC 566.
20 At [64].
21 At [77].
22 Re Yorke [1997] 4 All ER 907 (Ch D).
contingent liabilities, arising out of an insurance underwriting agreement, entered into by the deceased. In reaching the conclusion that the executors were entitled, though not obliged, to distribute the residue of the estate, Lindsay J balanced the injustice to the beneficiaries of being denied the benefit due to them from the estate, with the unknown and contingent liabilities arising from the underwriting agreement. As there was only a small likelihood that the estate would face a claim beyond the cover provided by the insurance, the executors were given the Court’s approval to make a final distribution, with complete protection against any creditor claims arising from the underwriting agreement, and without being required to retain any assets from the estate, or obtaining security from the beneficiaries.23
[59] Lindsay J also considered an alternative scenario, where there was a real risk of a contingent debt maturing during the course of administration. As to such circumstances, he said:24
…if, during an administration some real possibility of some contingent debt maturing came to the executor’s notice, the executor could, either of his own volition or under the guidance of the court, retain a sum out of the estate against that risk or seek security direct from the prospective recipient beneficiary.
[60] Here, the Executors have not been asked directly and they have not declined a request by Ms Reid for a distribution to be made to her from the Estate. This present case does not involve the situation of a request made by a beneficiary for an interim distribution from an estate being unreasonably refused by the Executors. Here the Trustees have quite understandably proceeded cautiously in circumstances where the validity of the Trust has been challenged, and where the administration of the Estate has not been completed, and cannot be completed until the proceedings brought by the plaintiff and Mrs Gallais have been finally resolved. However the situation that has arisen has led to substantial delay in the finalisation of the estate administration, and consequently has caused significant hardship to Ms Reid. The stress and financial hardship caused to her is quite inconsistent with the clear objective of the late Mr Gallais who had arranged his affairs so as to provide financial support for Ms Reid.
23 At 922 – 923.
24 At 921.
[61] It is now almost five years since Mr Gallais’ death during which time Ms Reid has had to cope financially without recourse to the funds held by the Estate, while engaged in legal proceedings defending the claims brought by the plaintiff and her mother. It is nevertheless clear that the hardship caused to Ms Reid by the delay can be alleviated, at least to a certain extent, by means of an interim distribution to her, without prejudicing or affecting the plaintiff’s claims against the Estate and Trust should they succeed.
[62] Accordingly, applying the principles that appear from the cases I have reviewed and referred to above, I find that the circumstances here are such that the Executors are justified and lawfully able to make an interim distribution to the Trust, to be applied for the benefit of Ms Reid, and for the purpose of the Trust making an interim distribution to her. Having regard to the amount of the likely distribution from the Estate Ms Reid would receive even on an intestacy, and the sum she can expect to receive from the Trust, together with the financial and personal hardship to Ms Reid caused by the substantial delay resulting from the legal proceedings brought by the plaintiff and Mrs Gallais, it is clear that such a decision would be entirely justified and reasonable.
[63] Although administration is yet to be completed, as matters stand there is presently almost $3 million held in the Estate. Of that amount, should Ms Dawson’s claim fail, Ms Reid although a discretionary beneficiary, should benefit considerably. If however even were Ms Dawson to succeed, Ms Reid will still be entitled to a distribution under the law applicable to an intestacy, of one sixth of the value of the estate, or approximately $500,000. While these amounts do not take account of the indemnities of both the executors and the trustees of their legal costs in defending the proceedings, it is highly unlikely that Ms Reid’s entitlement would be so diminished by reason of the payment of the legal costs, that the Estate would not be in a position to distribute the $100,000 she currently seeks.
[64] The Trustees have also advised the Court that they are making an application to strike out Ms Dawson’s claim, which if successful would obviously expedite finalising the Estate administration. Clearly the outcome of that application cannot be confidently predicted, and in the absence of an interim distribution there remains a real
possibility of the current litigation continuing for a considerable period, leaving Ms Reid without recourse to any of the funds that she will undoubtedly and eventually receive following the final distribution of the estate.
[65] I also note that Mr Cundy has advised the Court that the plaintiff, Ms Dawson, does not oppose the making of an interim distribution to Ms Reid of the sum she is seeking. The absence of any opposition by the plaintiff is yet another factor which provides support and justification for the executors and trustees to make an interim distribution to Ms Reid.
[66] Accordingly, I have concluded that subject to Ms Reid giving an appropriate undertaking, the Court should direct the Executors to make an interim distribution of
$100,000 to the Trust, from which sum, the Trustees will then be able to pay and distribute $100,000 to Ms Reid. In my view any further delay in the making of an interim distribution to Ms Reid will cause her further and unnecessary hardship. The foundation and source of the Court’s power to make the order is the inherent jurisdiction of the Court.
[67] The Court will however require Ms Reid, to provide a written undertaking to both the Court and the Executors, to indemnify the Executors in the event, albeit unlikely, that the assets of Mr Gallais’ estate are insufficient to meet any liabilities.
Orders
[68]Accordingly:
(a)I make an order directing the Executors to make an interim distribution from the Estate to the Trust in the sum of $100,000 for the benefit of Ms Reid, subject to Ms Reid providing a written undertaking in the following terms:
I, Susan Lynette Reid, hereby undertake to the Registrar of the High Court of New Zealand at Auckland, and to David Warwick Snedden and Benjamin Nesbit Snedden (jointly and severably), to fully reimburse the executors of the Philippe Alain Robert Gallais estate, forthwith upon demand, an amount not exceeding the amount received by me by way of interim distribution, in the event the assets of the estate are insufficient to meet all its liabilities.
(b)I make a further order directing the Trustees to make a distribution to Ms Reid of the same sum of $100,000 forthwith upon the Executors making the interim distribution to the Trust in accordance with order
(a) above.
(c)As to costs, I direct counsel for Ms Reid to file and serve a costs memorandum within 10 working days from the date of delivery of this judgment, and thereafter for counsel for the Trustees to file and serve a costs memorandum in response within a further 10 working days. The costs memoranda are not to exceed three pages in length, excepting any schedule or annexure relating to disbursements and expenses.
Paul Davison J
Solicitors:
Lee Salmon Long, Auckland TGT Legal, Auckland
Wilson McKay, Auckland
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