Feary and Feary as Executors of the Estate of Edward William Feary v Feary and Feary as Executors of the Estate of Edward William Feary HC Christchurch CIV 2008-409-1967

[2010] NZHC 1472

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2008-409-001967

IN THE MATTER OF     Section 21 of the Administration Act 1969, section 51 of the Trustee Act 1956, the inherent jurisdiction of the Court over Trustees and Part IV of the High Court Rules

BETWEEN  DAVID HARLEY FEARY AND PETER WILLIAM FEARY, AS EXECUTORS OF THE ESTATE OF EDWARD WILLIAM FEARY, DECEASED

Plaintiffs

ANDMARK STAFFORD FEARY AND GARRY JOHN FEARY, AS EXECUTORS OF THE ESTATE OF EDWARD WILLIAM FEARY, DECEASED

Defendants

Hearing:         18 August 2010

Counsel:         D M Lester for Plaintiffs

E D Peers for Defendants

Judgment:      20 August 2010

JUDGMENT OF PANCKHURST J

(as to interpretation of the Tomlin Order)

Introduction

[1]      Differences have arisen as to the interpretation of certain terms of the Tomlin Order by which this proceeding was settled in December 2009.  Counsel have filed written submissions, coupled with a request that I provide directions as to the interpretation of the Order after due consideration of the respective arguments.   I

accede to this method of determining matters.

DAVID HARLEY FEARY AND PETER WILLIAM FEARY, AS EXECUTORS OF THE ESTATE OF EDWARD WILLIAM FEARY, DECEASED V MARK STAFFORD FEARY AND GARRY JOHN FEARY, AS EXECUTORS OF THE ESTATE OF EDWARD WILLIAM FEARY, DECEASED HC CHCH CIV-2008-

409-001967  20 August 2010

[2]      This judgment should be read alongside the costs judgment I delivered on

4 March 2010.   That decision contains an outline of the relevant history.   In this decision I shall refer to the background in only bare detail.

[3]      The three issues in relation to which differences have emerged are:

(a)     whether  the  Order  affects  the  entitlement  of  grandchildren  of  Mr

Edward Feary to each receive $10,000 under a codicil to his last will,

(b)whether the costs clause in the Order (“all costs to carry out this agreement are a cost to the Estate”) covers the costs incurred by Buddle Findlay in preparing the Order and an accompanying consent memorandum to the Court, and costs incurred by the firm in engaging Mr Brian Andrews to act as the Estate’s valuer/auctioneer, and

(c)     whether  the  terms  of  the  Order  affected  an  inflation  adjustment mechanism contained in clause 6(c) of Mr Feary’s will.

[4]      I note that the memoranda of counsel for the defendants refers to All Means All, formerly Mark John Feary, as one of the parties to the proceeding.  Counsel for the defendants confirmed that Mark Feary had recently changed his name by deed poll.  While I record this change of name, for convenience I shall continue to refer to Mark Feary by his former name – since this is the name by which he was known during the period relevant to this proceeding.   And, save for recent memoranda, Mark Feary is referred to in all relevant documentation by his birth name.

Does the Tomlin Order affect the grandchildren’s entitlement to a legacy of

$10,000?

[5]      A codicil made by Mr Feary on 23 October 2007 included $10,000 legacies to each of his seven grandchildren.  David and Peter Feary (the plaintiffs) consider that  the  terms  of  the Order  do  not  affect  the  entitlement  of  the  grandchildren, whereas Mark and Garry Feary (the defendants) contend that the Tomlin Order does so.

[6]      The background is that on 14 September 1990 Mr Feary, his wife, Patricia Feary, and their four sons entered into a deed of family arrangement.  The purpose of the deed was to achieve equality between the sons.  To that end, the deed contained quite intricate provisions aimed at achieving an equal distribution of the surviving parent’s estate, given that during the parent’s lifetime farmland and related assets had been transferred to family members, but not in equal shares.  Hence, the deed contemplated an equal sharing exercise, including an adjustment for inflation in favour of David, Peter and Garry who had received less benefits than Mark.

[7]      Mr Feary’s will dated 4 August 1998 reflected the terms of the deed.   On

23 October 2007, however, Mr Feary made a codicil by which he left all personal chattels to Garry and left the $10,000 legacies to grandchildren.  The deed provided that personal chattels would be shared equally between the four sons and therefore the  deed  and  the  codicil  were  in  conflict.    This  issue  led  to  the  filing  of  the proceeding which was eventually settled in terms of the Order.

[8]      With reference to the gifts to the grandchildren the concern is that David has three children, Peter and Mark each have two, while Garry has no children.   It follows that on one view of matters the codicil provision calls in question the “equality of treatment” rationale which underpinned the deed of family arrangement. This concern is held by Mark and Garry who also maintain that the Order affects the entitlement of the grandchildren.

[9]      The  terms  of  the  Order  can  be  conveniently  divided  into  several  parts. Clauses 1-9 contain detailed provisions for the division of chattels between the four brothers.  One such term contemplates that in consequence of the brothers’ acquiring individual chattels a monetary adjustment will be made in relation to the respective entitlements from the total Estate monies.   In consequence, clause 10 provides for the final four-way division as calculated by a firm of chartered accountants.

[10]     Next is clause 11 which concerns the preparation and provision of a bound bundle of documents pertaining to the parents’ estates.  The fourth part, clauses 12-

15 deals with costs.  Finally, clause 16 defines the status of the terms of settlement

(that they are open and neither confidential nor without prejudice).

[11]     How  then  is  it  suggested  that  the  Order  in  some  way  affects  the grandchildren’s entitlement under the codicil?  Clearly, there is not an express clause in the Order which even refers to the legacies to the grandchildren.  As I understand Mr Peer’s submissions on behalf of the defendants, it is clause 10 which is said to affect the grandchildren’s rights.  The clause provides:

Upon  completion  of  the  above  process  [acquisition  by  the  brothers  of chattels via a bid process, with resultant adjustments to be made by Koller & Hassall), David, Peter and Garry are to each receive $113,946.00 from their parents’ estates, with the remaining Estate monies being divided equally between them as calculated by Koller & Hassall.

It seems that Mr Peers maintains that this clause effects a removal of the grandchildren’s entitlement.  As I appreciate the argument, it is to the effect that the clause, by direct reference to a division of the Estate upon completion of the chattel bidding process, contemplates that there will be no intervening charge on the Estate (to meet legacies) before the final division between the brothers.

[12]     That  said,  counsel  also  accepted  that  “the  grandchildren’s  right  to  claim against the Estate cannot be altered or affected under a settlement agreement to which they were not party”.  Then followed reference to the circumstance that “no claim has been made by the grandchildren”.  In these circumstances counsel further submitted that I should not confirm that the grandchildren’s entitlement stands (as sought by the plaintiffs), but instead declare that payment of the legacies would be in breach of clause 10 of the Order.

[13]     I do not accept these contentions.   The acceptance that the rights of the grandchildren could not be affected by an agreement to which they were not party, was properly made.  In short, the agreement between the brothers, as consummated by the Order, governs only those matters expressly covered by its terms.  The Order cannot, by implication, remove the rights of the grandchildren, the more so when Mr Feary’s last will and codicil have already been admitted to probate.

[14]     The contention which supposedly underpinned the defendants’ arguments in relation to this issue was that they would never have entered into the settlement agreement had they “anticipat[ed] that the plaintiffs would still seek to uphold that

aspect  of  the  Codicil  relating  to  the  gifts”.    This  contention  is  untenable.    As

Mr Lester pointed out, Mark Feary made an affidavit in the proceeding dated 10

February 2009 on behalf of himself and Garry (who authorised him to make the affidavit on his behalf), which included this:

12.  The second clause represents Dad wanting to leave a sum to each of his grandchildren.  Interestingly, this clause is to the detriment of Garry, as he does not have any children, while David has three and Peter and I each have two.  Garry has confirmed that he does not wish to challenge this aspect of the Codicil.  Further, no mention has been made in this proceeding of what is to happen to the gifts to the grandchildren.  David and Peter do not seem to challenge this aspect of the Codicil.

How a dispute has arisen concerning the legacies, given para 12 of the affidavit, I do not know.

What is the reach of the costs clause?

[15]     The costs clause provides:

12.  As a consequence of the terms of settlement recorded in this Order being binding upon David, Peter, Mark and Garry:

(a)   all costs to carry out this agreement are a cost to the Estate; ...

[16]     It  seems  there  is  a  misunderstanding  as  to  the  extent  of  the  dispute. Mr Lester’s memorandum on behalf of the plaintiffs anticipated that the defendants sought to have solicitor/client costs of the parties in relation to these disputes paid from the Estate.   However, Mr Peers’ memorandum does not seek this.   For the avoidance of doubt, I confirm that costs in relation to the present dispute are not covered by clause 12(a).

[17]     Rather, Mr Peers sought recovery of costs incurred in preparing the Order and  an  accompanying  consent  memorandum  to  the  Court,  together  with  costs incurred in engaging Mr Brian Andrews to act as the Estate’s valuer/auctioneer in relation to the division of family chattels between the brothers.  Accordingly, I need only decide whether these two aspects are covered by clause 12(a).

[18]     To my mind the important words in the costs clause are “all costs to carry out this agreement ...”.  In particular, what is meant by the phrase “this agreement”?  The

genesis of the agreement which was carried into the Order was a letter written by Mark Feary.  It contained settlement proposals which ultimately proved acceptable to the parties.   Mr Peers’ memorandum indicates that Mr Lester, as counsel for the plaintiffs, then suggested that Buddle Findlay undertake the task of recording the terms of settlement in the Order.

[19]     When then did the agreement come into existence?  It is from this point that costs in carrying out the agreement became chargeable to the Estate.  I infer that the agreement was reached upon an exchange of letters between counsel acting for the parties.   Given that it was a settlement in the context of a court proceeding, the parties opted to finalise their agreement via a Tomlin Order.   So viewed, I am satisfied that the reasonable costs of preparing the Order and the consent memorandum are costs of the Estate.  I note that Mr Peers’ memorandum contains an estimate of the relevant amount (para 12 of his 23 July 2010 memorandum).  This sum is reasonable and should be met.

[20]     I do not apprehend that there is dispute concerning the costs incurred in relation to the engagement of Mr Andrews.   Clearly, this was work necessary to carry out the terms of the agreement.  Again, there is reference to an estimated cost in the memoranda – and also reference to the possibility that the plaintiffs’ solicitors may have incurred costs of a similar nature.  No doubt the claim(s) can be submitted and met by the Estate’s solicitors.

Is the inflation adjustment mechanism affected by the Order?

[21]     In  [6]  I  refer  to  the  background  to  this  aspect.    The  deed  of  family arrangement included a schedule which contained figures prepared by Koller & Hassall.   These showed that following disposition of the farming assets to family members, and various other adjustments, David, Peter and Garry were in an equal position.   Mark Feary, however had received more than his siblings.   In order to address the imbalance clause 15 of the deed provided that Mark was not to receive any further provision from the Estate of the surviving parent, save:

(a)     for a quarter share in personal chattels, and

(b)    that if the residue (referred to as “the aggregate of off farm assets” in the deed) of the last estate exceeded $238,332, then the excess over that figure was to be divided four ways.

[22]     The amount of $238,332 (which I will refer to as the “makeup amount”) represented the total required to equate the shares of David, Peter and Garry with the share already received by Mark.  However, because Mark had already received his greater share as at the date of the deed and his siblings would only receive the makeup amount (assuming it was available) on the death of the surviving parent, an inflation adjustment mechanism was included in clause 15.   It provided that the makeup amount would be adjusted in accordance with the annual rate of inflation for the period from the date of the deed to the date of death of the surviving parent.

[23]     In the event Mr Feary died on 1 January 2008.   After calculation of the inflation adjustment the makeup amount was $341,838.  This sum was to be divided into three parts, being $113,946 each.  The residue of the Estate was $759,442, so there remained sufficient to both pay the makeup amount and to effect a division of the remaining balance into four parts.   The accountant’s figures as at the date of death showed that in the final analysis David, Peter and Garry would each receive

$218,347 and Mark $104,401.

[24]     The agreements contained in clause 15 of the deed were carried into clause

6(c)  of  Mr  Feary’s  will.     This  of  course  included  the  inflation  adjustment mechanism.

[25] Clause 10 of the Order is set out in [11]. It is to be noted that the figure of

$113,946 is the makeup amount to which David, Peter and Garry are entitled after an inflation adjustment (see the figures in [23]).   Their share before an inflation adjustment was $79,444.

[26]     As I apprehend Mr Lester’s submissions (and a letter from Mr Toomey, the

Estate’s solicitor, dated 6 July 2010) they have misunderstood the significance of the

$113,946 figure in clause 10 of the deed.  Once it is appreciated that this figure is an

inflation adjusted one, it follows that clause 10 of the Order is intended to obviate the need for any further inflation adjustment.

[27]     Hence, on this basis it only remains for Koller & Hassall to calculate any adjustment required on account of the “auction” of family chattels.  This will impact in relation to the four-way division of the residue, leaving the makeup amount of

$238,332 already set aside for payment to David, Peter and Garry.

Costs

[28]     The memoranda make no mention of costs.  I assume that the parties are to bear their own costs in relation to the resolution of these three aspects.

Solicitors:

Young Hunter, Christchurch for Plaintiffs

Buddle Findlay, Christchurch for Defendants