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1 of 10 DOCUMENTS: Unreported Judgments Vic 22 Paragraphs

ANTOINETTA CALDERONE v PERPETUAL TRUSTEES VICTORIA LTD - BC200808362Supreme Court of Victoria -- Common Law Division Beach J 5886 of 2007 18, 19, 25 September 2008 Calderone v Perpetual Trustees Victoria Limited [2008] VSC 373AGREEMENT -- No intention to create legal relations -- No estate of a life tenant in possession -Claimed interest as tenant in possession under s 42(2)(e) of the Transfer of Land Act 1958 -- Real property -- Section 42(2)(e) Transfer of Land Act 1958.

Beach J.Introduction [1] Sixty-three Euston Rd, Hughesdale ("the property") is the matrimonial home of Mr and Mrs Calderone. They have lived there since approximately September 1991. During this period, a company controlled by Mr Calderone, Seventh Asteroid Pty Ltd, owned the property until it transferred the property to an unrelated company, Australvic Property Management Pty Ltd ("Australvic"), on 21 July 2006. Australvic held the property as trustee for the benefit of Seventh Asteroid pursuant to a declaration of trust. [2] By a mortgage dated 21 July 2006, Australvic mortgaged the property to Perpetual Trustees Victoria Ltd (the defendant) as security for a loan of $960,000. Perpetual became registered as first mortgagee of the property on 18 August 2006. Australvic defaulted on the mortgage and the defendant obtained a judgment for possession of the property on 26 February 2007. [3] In this proceeding, Mrs Calderone seeks, inter alia, an order that Perpetual be permanently restrained from exercising any rights it may have as mortgagee to take possession of the property. Mrs Calderone puts her claim on the basis that she is a tenant in possession of the property and/or she has a life interest and is therefore protected by the operation of s 42(2)(e) of the Transfer of Land Act 1958.1 [4] Alternative claims for relief in the nature of declarations are also sought by Mrs Calderone. The basis upon which the alternative orders are sought is identical to the basis upon which the injunction is sought. For the reasons given below, Mrs Calderone's claim must fail. The facts [5] Mrs Calderone gave evidence as follows:

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1a)

1b) 1c)

1d)

1e)

1f)

Mrs Calderone met Mr Calderone in the early 1980s. They became friendly and, in early to mid 1985, began dating each other. By November 1985, they were talking about a long-term future together, including getting married and having children together. At a time that Mrs Calderone can no longer remember, Mr Calderone told her that he had put in an offer to buy the property and, shortly after, he told her that the owner had agreed to sell it to him. In or about early 1990, Mr Calderone said to Mrs Calderone that the property was going to be for the family they were going to have and they would be living in the property after it was renovated. She told him that was what she wanted. Mrs Calderone understood Mr Calderone to be a businessman and knew that he had a number of business interests. However, she never saw it as her role to ask him about his businesses or how things were going. Both of them agreed on what she described as a "relatively traditional Italian relationship where he looked after the finances and [she] would stay at home and look after the children". They became engaged in February 1990. At that time, Mrs Calderone wanted to be reassured that the property was going to be their home and that it would never be used in his businesses. Mrs Calderone recalls that Mr Calderone said to her that "it would be safe and that I need not worry about it, because the property will be used for living and raising our family". She told him that was fine and that was what she wanted, and they planned their wedding for 22 July 1990. Notwithstanding their agreement, Mrs Calderone "wanted to have something in writing about it" and asked Mr Calderone to put it in writing. She recalls that Mr Calderone wrote down something which she recalls reading at about the time of their wedding. However, Mrs Calderone cannot remember whether what she read was read by her very shortly after the wedding or in the period leading up to the wedding. She did not see Mr Calderone write the document she read. He showed it to her later. The document she read was the pencilled handwritten annotation on the back of the copy of Seventh Asteroid's Certificate of Incorporation. The annotation is headed "July 1990". Beneath the heading, the following appears:This confirms that you Antoinette being my wife and as this is our matrimonial home this house is yours to live in for the rest of your life.

The annotation is then signed "Your loving Rocky", beneath which Mr Calderone's signature appears. [6] Mr Calderone gave evidence that largely corroborated Mrs Calderone's evidence concerning the conversations they had about the property and the fact that he wrote the annotation on the back of a copy of Seventh Asteroid's Certificate of Incorporation. A central issue in this case is whether or not the handwritten annotation is genuine. Mr Calderone was cross-examined closely by senior counsel for Perpetual to the effect that the annotation was not made in 1990 but was made much later (April 2007) when the sheriff was threatening to take possession of the property. [7] A number of matters were put both in cross-examination and during the course of final submissions by Perpetual which were designed to show the improbability of the annotation having been made in 1990 as asserted by the Calderones. Those matters may be summarised as follows:

2a) 2b)

First, it was said that it is a strange thing for a couple about to be married (involving a relationship based on love and trust) to make such a note and that to ask someone to commit a position in writing is usually the product of distrust. Secondly, it was said that if Mrs Calderone was so concerned about her position, then why did she not keep the piece of paper instead of it being kept by Mr Calderone in one of his files.

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2c) 2d)

2e)

2f)

1g) 1h)

1i)

Thirdly, the fact that the note was written in pencil and "inconspicuously on the back of another piece of paper".2 Fourthly, if Mrs Calderone was so concerned about her position and Mr Calderone was seeking to allay her concerns, then why not put the property in Mrs Calderone's name or their names or make her a joint tenant with Seventh Asteroid or prepare a proper and effective (and registrable) document giving her a lease or life estate. Fifthly, an examination of the events leading up to 27 April 2007 is said to show a telling absence of any assertion of a tenancy. This point relates to the failure by Mr Calderone to have the note referred to in the caveat lodged on his instructions on behalf of Mrs Calderone on 29 January 2007 and the failure to refer to the note at any time thereafter until the sheriff was about to take possession on 27 April 2007. To put it in the words of counsel for Perpetual: "The note suddenly 'turns up' ... on the evening of 26 April, the day before the eviction". Sixthly, the facsimile line on a copy of the note that was exhibited to an affidavit of Mrs Calderone3 is said to be suspicious. This suspicion is said to be heightened by Mr Calderone's evidence that he faxed the note from his friend, Mr Neicho's facsimile machine because he did not have a fax at home -- whereas Mrs Calderone gave evidence that they did have a fax machine at home in April 2007.4 Seventhly, neither discovery nor a subpoena to Seventh Asteroid produced any evidence that Seventh Asteroid acknowledged or was aware of (let alone authorised) a grant of a tenancy or any other interest in the property to Mrs Calderone. Eighthly, it is said that the available documentary evidence is inconsistent with Mrs Calderone's claim. For example, in 1996 and 1997, both Mr and Mrs Calderone signed mortgages over the property on behalf of Seventh Asteroid to National Mutual which contained express representations and warranties that the property was free of encumbrances of the kind now claimed by Mrs Calderone. Ninthly, the reliability of Mr Calderone's evidence was put in issue by reference to various documents he had signed, including affidavits sworn for different purposes in different proceedings. For example, in a proceeding that concerned 58 Euston Rd,5 Mr Calderone swore6 that 58 Euston Rd was a house with "sentimental value to my family" which "[m]y wife wants to make ... our family home". This assertion is contrary to Mrs Calderone's intentions as disclosed in this proceeding. Further, in that affidavit, Mr Calderone swore that he was authorised to make the affidavit by Mrs Calderone -- a matter which Mrs Calderone denied in cross-examination.

[8] Mrs Calderone gave her evidence in a forthright and convincing manner. She was prepared in crossexamination to make concessions and when given an opportunity to embellish her case she did not do so. I formed a favourable impression of Mrs Calderone and accept her as an honest witness who was at all times doing her best to give an honest account of the circumstances as she knew them to be. I find that the discussions and circumstances that she says occurred in 1990 occurred, broadly speaking, as she has described them. I accept that Mr Calderone wrote words on a piece of paper the substance of which is contained in Ex "A" as the handwritten annotation. I am less certain that the handwritten annotation is the document Mrs Calderone saw for the first time 18 years ago in 1990. However, Mr Calderone's evidence was more positive in this regard. He positively identified the handwritten annotation as the document he wrote in 1990 and which remained in a file from that time until April 2007. [9] I have some reservations about the evidence of Mr Calderone. His affidavit in respect of 58 Euston Rd (referred to above) does him little credit. However, I do not think that the handwritten annotation is a document that only came into existence on or shortly prior to 26 April 2007. In the end, I see nothing improbable in the fact that the document was written in 1990 at a time when it was important to Mrs Calderone, but that during the ensuing 17 years of marriage, its existence faded from memory to a point where Mr Calderone did not recall its existence until April 2007, notwithstanding the need for a caveat to be lodged on 29 January 2007. Whilst the matters raised by Perpetual (to which I have referred in para 7

Page 5 above) are not without substance, they do not amount to a sufficient cause (either individually or collectively) to reject the evidence of Mr and Mrs Calderone that the document was written in 1990. I find that the document was written in 1990 and read by Mrs Calderone at or about the time of the marriage in July 1990. [10] Two further factual issues need to be resolved. First, at some points in her evidence, Mrs Calderone appeared to be asserting that the property was hers to live in to the exclusion of Mr Calderone. However, when the matter was raised with her, Mrs Calderone fairly conceded that, notwithstanding some of the language that might have been used in her affidavits,7 the agreement as she understood it was that the property would be the matrimonial home of both of them.8 [11] Secondly, whatever may have been the "agreement" between Mr and Mrs Calderone, an issue arises as to whether Seventh Asteroid (the former owner of the property) entered into any agreement with Mrs Calderone or confirmed subsequently any such agreement. The case as originally pleaded was that there was an agreement between Mr and Mrs Calderone in February 1990 which Mr Calderone, as a director of Seventh Asteroid, confirmed on behalf of Seventh Asteroid in July 1990. As subsequently pleaded, the February 1990 agreement was said to be made between Mrs Calderone and Mr Calderone as a director and shareholder and acting for and on behalf of Seventh Asteroid. That agreement was then said to be confirmed in July 1990 by the handwritten annotation being made on the back of the copy of Seventh Asteroid's Certificate of Incorporation by Mr Calderone as a director and shareholder and on behalf of Seventh Asteroid. Mrs Calderone gave no specific evidence on the point. This was perhaps understandably because, at all times, she thought that Mr Calderone owned the property. Indeed, Mrs Calderone had been told at about the time the property was purchased that the previous owner had agreed to sell it to Mr Calderone. [12] There is nothing in the books or records of Seventh Asteroid that confirms any agreement previously made between the Calderones or that discloses the existence of an agreement between Seventh Asteroid and Mrs Calderone or the existence of any interest Mrs Calderone had or has in the property. So far as Seventh Asteroid is concerned, the highest at which Mrs Calderone's case can be put is that the annotation was written on the back of a copy of Seventh Asteroid's Certificate of Incorporation and Mr Calderone appears to have treated Seventh Asteroid's assets as his own. Mr Calderone gave no evidence of ever acting on behalf of Seventh Asteroid so far as the agreement was concerned and gave no evidence of Seventh Asteroid confirming the agreement (either through his actions alone or otherwise) 9. [13] The question of whether Seventh Asteroid confirmed any relevant agreement between Mr and Mrs Calderone in 1990 was made more complex during final addresses. Whilst the language of the pleadings and the evidence was all in terms of an "agreement" between Mr and Mrs Calderone which was confirmed by Seventh Asteroid, in response to an argument that there was no intention to create legal relations between Mr and Mrs Calderone and thus there could be no agreement upon which Mrs Calderone's case could be built, counsel for Mrs Calderone contended that the interest given in the property to Mrs Calderone in 1990 was alternatively given by way of a gift. Whilst the purpose of this submission was obviously to deal with Perpetual's submission that there was no intention to create legal relations, the submission itself highlights the underlying difficulty in Mrs Calderone's case. It is clear from the evidence of Mr and Mrs Calderone that the assurances given by Mr Calderone in July 1990 were never meant to be taken as contractual promises or assurances upon which legal proceedings might be brought in respect of a breach thereof. As Mrs Calderone described it, "It wasn't a business deal".10 Further, it was not a legal agreement to sue Mr Calderone on if he broke his promise.11 Neither Mr nor Mrs Calderone regarded the discussions as giving rise to a tenancy in her favour.12 I find that in the course of the discussions between Mr and Mrs Calderone in 1990 concerning the property there was no intention to create legal relations or to do anything which would give rise to legal consequences. Mr and Mrs Calderone did no more than discuss and concur in a proposal that the property be the matrimonial home and not part of Mr Calderone's business.13 [14] As for the allegation that the handwritten annotation and underlying conversations constituted the gifting of an interest in the property to Mrs Calderone, all that needs to be said is that this does not accord with the evidence. Neither Mr Calderone nor Mrs Calderone gave any evidence that Mrs Calderone was

Page 6 being given any interest in the property in 1990. Properly understood, Mrs Calderone was seeking an assurance that the house that they were both very keen on would remain the matrimonial home and be outside Mr Calderone's business interests. Mr Calderone was prepared to give that assurance and to put that assurance in writing. To use his words14 "The family home was never meant to be touched". This also explains the lack of any record of any interest granted to Mrs Calderone in the property in the records of Seventh Asteroid. Such a record was unnecessary because it was the common intention of Mr and Mrs Calderone to live in the property as their matrimonial home throughout their marriage and that the home would not be used for business purposes. In those circumstances and with Mr Calderone having effective control of Seventh Asteroid, it was not necessary in Mr Calderone's mind to have Seventh Asteroid "confirm" any agreement or arrangement he had with Mrs Calderone. [15] In advancing his case in relation to the involvement of Seventh Asteroid and the binding of it in respect of the 1990 conversations and the handwritten annotation, counsel for Mrs Calderone attempted to place reliance upon the doctrine of unanimous assent.15 However, in my opinion the doctrine has no application in this case for the following reasons:

3a)

3b)

3c)

3d)

First, there is no evidence that Mrs Calderone, a shareholder who held one of the two shares at the relevant time, assented in any decision as shareholder of Seventh Asteroid. Indeed, it is clear from her evidence that during 1990 she was not even aware of the fact that she was a director and shareholder of Seventh Asteroid. Secondly, there is no evidence that any decision made granting Mrs Calderone an interest in the property was either within power or for a proper purpose. No evidence was led that the disposal of an interest in the property to Mrs Calderone was one which was in the interests of Seventh Asteroid. Thirdly, unlike the unanimous assent cases, the present case was not one where there was an actual unanimous assent of all of the shareholders in a transaction being entered into by the company. The argument put as to unanimous assent was no more than an attempt to treat Mr Calderone (a 50% shareholder and a director) as the equivalent to the company. That is, an attempt to lift the corporate veil. In giving the assurances he gave, Mr Calderone cannot be treated as the equivalent to the members of Seventh Asteroid in a meeting. Fourthly, the fact that Mrs Calderone might have assented to Seventh Asteroid making a decision in her favour had she known that she was a shareholder at the time does not take the matter further because the doctrine of unanimous assent requires actual assent and not merely "potential assent".

[16] The fact that Seventh Asteroid never confirmed the agreement entered into between Mr and Mrs Calderone in 1990 is made even clearer by the fact that it entered into the 1996 and 1997 mortgages with National Mutual which contained express representations and warranties that the land was free from any encumbrance of the kind now claimed by Mrs Calderone. Indeed, the fixed and floating debenture charge given by Seventh Asteroid to National Mutual dated 13 June 1997 also contains such an express representation and warranty.16 Further, Seventh Asteroid's dealing with and transfer to Australvic also demonstrates that, so far as Seventh Asteroid was concerned, no interest in the property had been granted by it to Mrs Calderone. Does s 42(2)(e) of the Transfer of Land Actprotect Mrs Calderone? [17] Section 42 of the Transfer of Land Act provides as follows:42. Estate of registered proprietor paramount

1)

Notwithstanding the existence in any other person of any estate or interest ... which but for this Act might be held to be paramount or to have priority, the registered proprietor of land shall, except in case of fraud, hold such land subject to such encumbrances as are recorded on the

Page 7relevant folio of the Register but absolutely free from all other encumbrances whatsoever, except --

1. 1. 1 1) 2

the estate or interest of a proprietor claiming the same land under a prior folio of the Register; as regards any portion of the land that by wrong description of parcels or boundaries is included in the folio of the Register or instrument evidencing the title of such proprietor not being a purchaser for valuable consideration or deriving from or through such a purchaser.

Notwithstanding anything in the foregoing the land which is included in any folio of the Register or registered instrument shall be subject to -- ...

1.

the interest (but excluding any option to purchase) of a tenant in possession of the land;

[18] Counsel for Mrs Calderone relied principally upon the decisions of Barba v Gas and Fuel Corporation,17 Burke v Dawes18 and the cases in that line of authority.19 In Barba, Gibbs ACJ said:20In Burke v Dawes ((1938) 59 CLR 1, at pp 17-18 ), Dixon J discussed as follows the effect of an earlier Victorian statutory provision which corresponded to s 42(2)(e) : In Victoria these words have received an interpretation and an application as a result of which any person in actual occupation of the land obtains as against any inconsistent registered dealing protection and priority for any equitable interest to which his occupation is incident, provided that at law his occupation is referrable to a tenancy of some sort, whether at will or for years. Thus, a purchaser under a contract of sale, who at law is in possession as tenant at will of the vendor, has been held protected in respect of his equitable ownership as purchaser (Robertson v Keith(; Sandhurst Mutual Permanent Investment Building Society v Gissing ( (1889) 15 VLR 329)), a lessee in respect of an option to purchase contained in his lease (McMahon v Swan( [1924] VLR 397)) and a wife in respect of an equitable life interest claimed under an unsigned separation agreement made with her husband ( Black v Poole((1895) 16 A.L.T. 155)). a'Beckett J decided the last named case in deference to previous decisions and against his own opinion, which he stated to be that 'those words were intended to refer to a tenancy as ordinarily understood arising out of an agreement under which the person in possession was allowed to occupy in consideration of some kind of rent or service of which the proprietor was to have the benefit.' The cases are collected and criticised by the late Dr Donald Kerr in his work on the Australian Lands Titles (Torrens) System (1927), at pp 75 et seq. But the interpretation has stood for nearly seventy years, and it would, I think, be most undesirable now to undertake the re-examination of its correctness. Similar views were expressed by Latham CJ and by Evatt J. McTiernan J agreed with the remarks of Dixon J. The fifth member of the Court, Starke J was perhaps not so definite in the expression of his opinion but he did not disagree with what the majority of the Court said on this point. This question should therefore be regarded as settled.

[19] Whilst it is correct, as counsel for Mrs Calderone submits, to say that s 42(2)(e) should be interpreted widely so that any person in actual occupation of the property obtains as against any inconsistent registered dealing protection and priority for any equitable interest to which her occupation is incident, in order for Mrs Calderone to succeed at law, her occupation must be referable to a tenancy of some sort. It is common ground that Mrs Calderone is not claiming that a lease exists (at least not as commonly understood). The interest she claims is that of a life tenant in possession as protected under s 42(2)(e). For the reasons given above, I have already concluded that no interest or estate in the property was granted to Mrs Calderone in 1990 either by Mr Calderone or by Seventh Asteroid. All that occurred in 1990 was that Mrs Calderone sought an assurance from her husband that the property would be the matrimonial home and that he would not use it in his business. There was no intention that the assurances (and the written annotation) would constitute an agreement which could be enforced at the suit of Mrs Calderone and there was no intention to give her any interest in the property over and above that which she would have enjoyed as Mr Calderone's wife and the mother of his children. Further, the then owner of the property, Seventh Asteroid, did not grant Mrs Calderone any interest or estate in the property. [20] I should deal with one further argument put by counsel for Mrs Calderone. He submitted that the

Page 8 question of whether the written annotation constituted a contractual promise or a gift did not need to be resolved and that the question of whether the interest or estate of a life tenant in possession was given to Mrs Calderone by the handwritten annotation fell to be determined by construing the annotation. He further submitted that the words "is yours to live in for the rest of your life" told in favour of a life estate, rather than a mere personal right to reside on the property for life. [21] The construction of the written annotation is a question which turns on the words of the document read in the context of the circumstances. It has been held that a right to "reside" or "live" on land confers a personal right only, since it must be exercised in person.21 On the other hand, it has been held that a right to "use and occupy" a property points to a life estate since "use" or "occupation" may not only be exercised by the person to whom it is conferred in person but also may be exercised through another.22 The use of the words "to live in" in the annotation of itself suggests a mere personal right to reside on the property. The context in which the assurances were given by Mr Calderone and the mutual intention of the Calderones to use the property as a matrimonial home further confirms this construction. Whilst counsel for Mrs Calderone attempted to place reliance upon Black v Poole23 as a case showing that the words "for life" can be held to grant a life estate, rather than a mere personal right to reside for life, the circumstances of that case were very different from the circumstances of the present case. In that case, what was given by the husband to his wife was given in consideration of her withdrawing certain legal proceedings which she had taken against him by reason of his desertion of her. Further, whilst the judgment records that the husband said that he would assign the relevant allotment to the wife for her life, the judgment does not record whether words like "to live in" or "to use" were used. Black v Poole does not add anything to the debate so far as the construction of the handwritten annotation in this case is concerned. If anything, Black v Poole does not assist Mrs Calderone because in the judgment it is recorded that the wife's possession "should be held to have been under the agreement which entitled her to hold for her life". An agreement which entitled the person seeking the protection of s 42(2)(e) to "hold" for life is little different from one that entitles a person to "use" for life. In the circumstances, I remain of the view that, properly construed, the handwritten annotation did not grant the interest or estate of a life tenant in possession. Conclusion [22] It follows from what I have said above that the plaintiff's claim must be dismissed. The injunction granted by Williams J on 18 May 200724 must be dissolved. I will hear counsel on the precise form of the order and on the question of costs. Order Orders accordingly Counsel for the plaintiff: Mr A Trichardt Counsel for the defendant: Mr N Muktar QC with Mr P Noonan Solicitors for the plaintiff: Altus Lawyers Solicitors for the defendant: Russell Kennedy

1 In her pleadings and during the course of evidence, Mrs Calderone put her claim on an alternative basis that Perpetual's interest in the property was subject to a constructive trust in her favour. However, in final addresses, counsel for Mrs Calderone abandoned this argument. 2 Paragraph 40 of "The Defendant's Case"

Page 93 Sworn 27 April 2007 4 T62.8 -- This evidence was given in re-examination 5 Supreme Court proceeding number 4876/00 6 In an affidavit sworn 7 September 2000 7 The bulk of Mrs Calderone's evidence-in-chief was given by affidavit 8 See T28.7, T28.18, T28.20 and T30.2 9 A historical company extract for Seventh Asteroid that was tendered as part of defendant's Ex "1" discloses that Seventh Asteroid had three directors in 1990, Mr and Mrs Calderone and one John Stanley McLean 10 T30.10 11 T42.22 12 See Mrs Calderone's evidence at T28.11 and Mr Calderone's evidence at T75.10 13 See generally Balfour v Balfour [1919] 2 KB 571; Cohen v Cohen (1929) 42 CLR 91; and Pettitt v Pettitt [1970] AC 777 14 T91.30 15 See generally Re Duomatic Ltd [1969] 2 Ch 365; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; Herrman v Simon (1990) 4 ASCR 81; Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747; and Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756 16 See cl 8.1(h) 17 (1976) 136 CLR 120 18 (1937) 59 CLR 1 19 Which include Skospels v Perpetual Trustees of Victoria Ltd [2004] VSC 336; ASIC v Money for Living (Australia) Pty Ltd (No 2) (2006) 155 FCR 349; and Black v Poole (1895) 16 ALT 155 20 At CLR 140 21 See Re Keenan (1913) 30 WN (NSW) 214 at 215 22 See Batey v Potts (2004) 61 NSWLR 274 at [25] 23 (1895) 16 ALT 155 24 Williams J granted an interlocutory injunction restraining the defendant from exercising any rights it may have to take possession of the property until further order.

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2 of 10 DOCUMENTS: Unreported Judgments WA 144 Paragraphs

VERSTEEG v VERSTEEG - BC200806543Supreme Court of Western Australia -- In Chambers Simmonds J CIV 1797 of 2007 13, 14 May, 16 July 2008 Versteeg v Versteeg [2008] WASC 142WILLS AND ESTATES -- Questions to be answered on construction of will and distribution of assets. WILLS AND ESTATES -- Question as to asset of estate subject to mortgage -- Real property forming part of residuary estate subject to mortgage to secure liability under guarantee and indemnity of liability of a company one of the family businesses -- Company in liquidation -- Specific legacy of family businesses -- Whether liability secured should be borne primarily by real property or by assets of remaining family business. WILLS AND ESTATES -- Question as to conditional gift -- First charge on residuary estate if chargee has first transferred interest in certain real property 'to me' pursuant to letter from testator to chargee -- Transfer after the testator's death -- Whether condition met. WILLS AND ESTATES -- Questions as to payment of costs and expenses of getting in assets and general costs of administration, availability to trustees of proceeds of sale of real property mortgaged to secure liability under guarantee and indemnity, cash as part of the residuary estate and payment of gifts of capital to the life tenant under the will. (WA) Administration Act 1903 s 45 (CTH) Administration Act 1969 (NZ), 34 (CTH) Property Law Act 1952 (NZ), 149(1), 149(2) (WA) Trustees Act 1962 s 92 (WA) Wills Act 1970 ss 26(1), 28(1), 28(2) Abbott v Middleton (1858) 7 HLC 68; Bathhurst v Errington (1877) 2 App Cas 698; Blight v Hartnoll (1883) 23 Ch D 218; Court v National Australia Bank (Unreported, WASC, Library No 8585, 11 November 1990); Haimes v Goode (1932) 33 SR (NSW) 1; In re Birmingham [1959] Ch 523; In re Nicholson [1923] WN 251; In re Rhagg (deceased) [1938] Ch 828; Morton v Mitchell Products [1996] FCA 828; Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq) [1989] VR 184; Official Assignee v Crooks [1986] 2 NZLR 322; Re Burton, Danby v Burton [1901] 1 WN 202; Re Fegan [1928] Ch 45;

Page 12 Re Freeman; Hope v Freeman [1910] 1 Ch 681; Re Horton (deceased) [1969] NZLR 598; Re Jackson; Jackson v Duncan (1964) 82 WN (NSW) 62; Re James's Will Trusts [1962] Ch 226 at 234; Re Morgan, Brown v Jones (1927) 71 Sol Jo 650; Re Smith (1890) 45 Ch D 632; Re White [1958] Ch 762; Versteeg v Court in his Capacity as Liquidator of Versteeg Contractors Pty Ltd (Unreported, WASC, Library No 920370, 17 July 1992), referred

Simmonds J.Introduction [1] These are proceedings on an originating summons dated 8 August 2007 seeking directions and orders with respect to certain questions that have arisen in relation to the proper construction of a will and the distribution of the assets of the estate. The application is under Administration Act 1903 (WA) s 45 and Trustees Act 1962 (WA) s 92 and Rules of the Supreme Court 1971 (WA) O 58 r 2. [2] The questions for the court have undergone some change since the originating summons. In order to understand them in their present form, it is necessary to set out the following background. That background first sets out a chronology of events for the most part as they appear from the schedule of agreed facts filed for the purposes of the hearing before me. There were certain clarifications of that schedule accepted by the parties at that hearing which are incorporated into that background. After setting out that chronology, I set out the principal terms of the will so far as they concern me. [3] After setting out the background including those terms, I will list the questions for the court. I will then refer to a preliminary issue, as to the appearance before me of senior counsel for one of the plaintiffs in that plaintiff's capacity as a beneficiary under the will. I then deal with each of the questions. Chronology of events [4] The late Joseph Versteeg (the testator) was married to Caroline Versteeg (Mrs Versteeg) and had five sons. They were the first named first plaintiff (Giuseppe), and the four defendants (respectively, Johanis, Enrico, Umberto and Edward). I should note that Johanis was also known within the family as Hans. [5] The testator operated or controlled two family businesses. One was J Versteeg & Sons, the other was Versteeg Contractors Pty Ltd J Versteeg & Sons was a plant hire business which the testator owned as a sole proprietor. Versteeg Contractors Pty Ltd was an earth moving contractor of which, as I understand it, the testator had a controlling shareholding interest and was a director. [6] Both businesses operated from property situate at 90 McDowell St in Welshpool (the McDowell St property). The McDowell St property had been acquired in 1977 in the names of the testator, Johanis and Mrs Versteeg, as joint tenants. By a declaration of trust dated 14 March 1978 Johanis declared he held his one-third interest in trust for the testator. On 3 June 1982 the testator, Johanis and Mrs Versteeg ceased to hold the McDowell Street property as joint tenants, and instead became owners of it as tenants in common. [7] In 1984 disputes arose between the testator and Johanis as to the latter's one-third interest in the McDowell St property as well as monies he was said to have taken from building society accounts of the testator. [8] By a letter dated 3 May 1984 (the 3 May 1984 letter) the testator demanded that Johanis transfer his one-third interest in the McDowell St property to the testator pursuant to the declaration of trust dated 15 March 1978. In view of its importance to one of the questions before me I set that letter out in full text:This letter has been prepared for me by my solicitors at my request, but I want you to understand that this is a personal demand from me to you. I do not propose to go into the matters which have occurred to date in detail however I am sure you know that both your mother and I are extremely disappointed to your conduct. It is my sincere hope that your severance from the family business can be achieved on a friendly basis and you

Page 13know that I wish you well in the future. It is my hope that time will heal the wounds and that the family can remain on friendly terms as a family should. My main reason for writing is in relation to the [McDowell Street property]. As you are aware this property was purchased by myself and registered in your name as to a one third share in common as trustee for me in the context of my Will in the event that I died. As you are aware you evidenced your declaration of trust by letter dated the 15th of March 1978 a copy of which is enclosed. I have instructed my solicitors to prepare a Transfer of Land to effect a transfer by you of your interest to me and I would request that you execute the Transfer where indicated and return it to me immediately. I shall of course meet all costs in the matter of the Transfer. I would stress however that this is now most urgent and if you do not honour your undertaking to transfer the land back to me then I will have no alternative other than to instruct my solicitors to take action. I sincerely hope this will not be necessary and look forward to your early response.

[9] There is some issue as to whether or not Johanis received the 3 May 1984 letter on or about its date. However, it is not in dispute that, by correspondence dated 5 June 1984 solicitors for the testator supplied Johanis with a copy of the 3 May 1984 letter. [10] On 31 May 1984 the testator executed his will (the will). I will return to the principal terms of the will for my purposes. For now it is sufficient to note that, subject to Mrs Versteeg taking a life interest in the estate of the testator, and to a pecuniary and specific legacies to certain of the five sons, the residuary estate was given to all five sons. The testator appointed Enrico and James Halbert Stuart Macdonald (Mr Macdonald) as the executors and trustees of the will. [11] It is not in dispute that at least Johanis was not aware of the terms of the will during the testator's lifetime. [12] In June 1984 further correspondence passed between the solicitors for the testator and the solicitors for Johanis in relation to the disputes that had arisen between Johanis and his father. This correspondence concerned, among other things, a claim that Johanis was indebted to the testator in the sum of $220,000 in addition to the claim that Johanis held his one-third interest in the McDowell St property in trust for the testator. [13] On 12 September 1984 the testator executed a codicil to his will (the codicil). The codicil removed Enrico as one of the executors and trustees of the will and replaced him with Giuseppe. The codicil made no amendments to the dispositive or other substantive provisions of the will. [14] On 21 December 1984 Versteeg Contractors Pty Ltd was placed in receivership, and on 6 March 1985 this court wound the company up. [15] In or about January 1985 Enrico by himself or through a company of his, Versteeg Plant Hire Pty Ltd, took possession of a number of the chattels of the business of J Versteeg & Sons and converted them to his own use. [16] On 20 July 1985 the testator died. By that date, J Versteeg & Sons had ceased operating various items of plant and equipment of that business, at least some of which had been taken by Enrico. [17] As at the date of the death of the testator, the position of his estate was as follows. [18] Virtually all of his personal assets were represented by his interest in the business J Versteeg & Sons, which then had assets comprising cash at hand of $429,128, debtors of $22,300, the debt owed under the October 1985 deed then estimated at $205,664, a debt of $518,740 owed by Versteeg Contractors, a debt of $87,196 owed by Mrs Versteeg and an amount held by Citicorp as a deposit pending settlement of a dispute in respect of a bulldozer, less current liabilities of $287,903. His shares in Versteeg Contractors had no value. His remaining personalty, being personal effects, was nominally valued at $1,000. [19] The testator's interests in real property included his interest in the McDowell St property. The McDowell St property was subject to a mortgage in favour of Citicorp to secure debts of Versteeg Contractors to it with a face value of $650,000, debts which were also secured by a charge on assets of the company. The McDowell St property was sold with settlement occurring on or about 28 March 1988:

Page 14 Citicorp took no portion of the proceeds. [20] The testator also had interests in or ownership of three other properties. [21] One was Lot 4, Douglas Rd in Martin (the Douglas Rd property), in which the testator had a half interest as tenant in common with Johanis. On 19 December 1988 the estate of the testator sold the Douglas Rd property. [22] Another was Lot 65, Brook Rd in Welshpool (the Brook Rd property), in which the testator had a quarter interest as tenant in common. On 16 June 1989 the estate of the testator sold the Brook Rd property. [23] The third property other than the McDowell St property in which the testator had an interest at his death was farming property at the corner of Feldt Rd and Douglas Rd, Martin (the Feldt Rd properties). The Feldt Rd properties were wholly owned by the testator and valued at $590,000. However, the Feldt Rd properties were mortgaged to secure certain liabilities of the testator (and others) to the National Australia Bank (NAB) as guarantors and indemnitors of obligations to NAB of Versteeg Contractors Pty Ltd The guarantee and indemnity was under a guarantee and indemnity dated 5 October 1984 and thus was dated after the date of the codicil, and showed as guarantors the testator, Enrico, Giuseppe and Umberto, although only the first three executed the document (Ex 1) (the NAB guarantee and indemnity). [24] I note that the NAB guarantee and indemnity and liability makes no reference at any point to J Versteeg & Son or any business associated with the testator (or the other guarantors and indemnitors) other than Versteeg Contractors. [25] The guarantee and indemnity extended at crystallisation in part to a liability to NAB of $39,802 on an 'in reduction account' (the 'in reduction account' NAB liability) as well as other liabilities to the bank. The liabilities crystallised at $1,004,620 in all (the final NAB liability). [26] At the date of death of the testator, on 20 July 1985, his liabilities comprised (apart from the liabilities of J Versteeg & Sons) a contingent liability under a bill of sale to Citicorp with a face value of $650,000 given as security on behalf of Versteeg Contractors the liability under which was estimated to be nil; a contingent liability under the NAB guarantee and indemnity; a contingent liability to the State Taxation Department for payroll tax of Versteeg Contractors with a face value of $33,000; and a contingent liability under a guarantee to the Commonwealth Trading Bank for debts of Versteeg Contractors with a face value of $20,000. The contingent liability to Citicorp never fell in, while the estate of the testator met the contingent liability under the NAB guarantee and indemnity and to the State Taxation Department. [27] Following the date of the death of the testator, and by an agreement by deed dated 1 October 1985 (the October 1985 deed), Enrico and his company, Versteeg Plant Hire acknowledged a debt of $314,000 to the estate. Of this amount, it was accepted that 7.9% was in respect of his taking of non-business monies, while the remaining 92.1% was in respect of plant and equipment of J Versteeg & Sons. The October 1985 deed provided for payment of that sum by instalments with interest. By 1988 after a series of payments the principal sum remaining due under the October 1985 deed was $206,000. Following Enrico's declaration of bankruptcy on 20 May 1991, by a deed dated 22 September 1992 his official trustee in bankruptcy and the trustees of the estate of the testator agreed that the estate's claim against Enrico under the October 1985 deed would be set-off against Enrico's entitlements under the will. [28] Over the period October 1985 to January 1986 the trustees of the estate of the testator continued the claim against Johanis for the monies allegedly appropriated from the building society accounts of the testator and for the transfer of the one-third interest in the McDowell St property. [29] On 8 January 1986 probate of the will was granted to Giuseppe and Mr Macdonald. [30] In January 1986 the trustees of the estate of the testator commenced proceedings in Supreme Court action CIV 1083 of 1986 against Johanis and a related company of his, Hanscon Holdings Pty Ltd, as well as against Enrico and his related companies. Johanis in turn claimed some share of the family business of the testator. [31] By agreement dated 12 February 1986 (the 1986 agreement) the parties to CIV 1083 of 1986 settled

Page 15 that litigation. The terms included that Hanscon would, subject to a condition that was subsequently met, purchase certain plant and equipment of J Versteeg & Sons for $750,000 payable in certain instalments and secured by a charge over the assets of Hanscon and the provision of a guarantee by Johanis and a related company of his, Malavoca Pty Ltd That company and Versteeg Plant Hire would pay $30,000 for the use of the equipment between the period 1 October 1985 and 31 November 1985. Johanis expressly acknowledged he held his one-third interest in the McDowell St property in trust for the testator, and he agreed to execute a transfer of that interest to the estate. Johanis agreed to account to the estate for monies had and received or converted by him, in the amount of $220,000, reducible in certain circumstances to $90,000, repayable on demand by the trustees of the estate of the testator following the death of Mrs Versteeg. Johanis as security for all of his obligations under the 1986 agreement charged his entire interest in the estate of the testator and the 'common assets' as defined in the 1986 agreement. [32] On 19 December 1989 the estate of the testator sold the Feldt St properties for a net sum of $779,456. Those proceeds were applied first in satisfaction of the 'in reduction account' liability to NAB, which then stood at $88,000. The balance of the proceeds were held in escrow to abide the outcome of an action between the liquidator of Versteeg Contractors and NAB (Court v National Australia Bank (Unreported, WASC, Library No 8585, 11 November 1990)). Following judgment in that action, the balance was also paid to NAB, under the NAB guarantee and indemnity, on or about 1 July 1991, in respect of the final NAB liability. At the same time the estate of the testator paid the balance of $214,521.67 of the final NAB liability to NAB. I note in passing that on the figures I have the total of the proceeds of the sale of the Feldt Rd properties and the payment of that last amount is somewhat less than the amount of the final NAB liability. However, it was common ground before me that the final NAB liability was satisfied without any other material payment from the estate of the testator. [33] In December 1989 the estate of the testator purchased for $304,803 land and buildings in Cannington, and a further $3,000 was expended on preliminary plans and feasibility studies for the development of residential units on the Cannington land. Over the period 13 May 1995 to December 1995 the Cannington land was developed at a cost of about $1 million, using funds principally but not exclusively realised from the business of J Versteeg & Sons. The development was ultimately sold between January 2007 and April 2007 for a total of $3,110,000. [34] On 23 August 2002 the second named plaintiff was appointed in place of Mr Macdonald as one of the trustees of the will. [35] On 8 July 2006 Mrs Versteeg died. [36] The net assets of the estate of the testator appear on the materials before me to be worth significantly over $2 million. [37] I turn now to the material provisions of the will. The material provisions of the will [38] The will provided (in cl 2) that the trustees were to call in and dispose of all of the testator's real and personal estate and were directed to pay his just debts and funeral and testamentary expenses. The provision went on in material part that the trustees:shall stand possessed of the residue of such moneys property or interests as the case may be, PROVIDED ALWAYS that the power hereinbefore vested in my Trustees to sell and convert any item of my real and personal estate shall be expressly subject to the Trusts hereinafter AND where the Trusts hereinafter provide that any specific item of my real or personal estate shall be transferred made over and delivered to any one or more beneficiary then in that event my Trustees shall have no discretion to sell or convert that item of my real or personal estate into money but shall hold the same in situ for delivery to my beneficiary in accordance with the Trusts hereinafter subject only to the capacity of my Trustees do so within the financial circumstances relating to my estate at the time of my death and in the event that financial circumstances shall necessitate the liquidation of any one or more items of my real and personal estate to permit the equitable discharge by my Trustees of the Trusts hereinafter then in that event my Trustees shall have a sole and exclusive discretion in that regard absolutely (hereinafter called 'my residuary estate').

Page 16

[39] The 'trusts' upon which the residuary estate was to be held were first (cl 2(a)) to apply the income of the residuary estate for the benefit of Mrs Versteeg with power in the trustees' 'sole discretion to apply from time to time part of the capital of my residuary estate for the maintenance of [Mrs Versteeg] should the need arise'. [40] Then the trusts upon which the residuary estate was to be held were set out, as follows (cl 2(b)(i) -(iv), excluding a proviso to (iv) which did not in the event obtain):

2i)

1ii)

1iii)

1iv)

To make over and deliver to my son [Johanis] the sum of SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS ($750,000) as a first charge upon my residuary estate to his sole and exclusive benefit absolutely the said bequest to be paid to [Johanis] on that day being two years next following the date of my death or the death of my dear wife [Mrs Versteeg] whichever is the latter PROVIDED my Trustees shall have the sole an exclusive discretion to apply part of the whole of the said bequest to my son [Johanis] prior the due date for delivery of the said bequest PROVIDED this bequest is subject to my said son [Johanis] having first transferred and delivered to me that one third interest in common held by my said son in trust in [the McDowell St Property] pursuant to my demand in that regard of the 3rd of May 1984. To transfer make over and deliver to such of sons [Giuseppe, Enrico] and UMBERO PETERS VERSTEEG as shall survive me and if more than one then as tenants in common in equal shares for their sole and exclusive benefit absolutely all that my interest at death in [the McDowell St Property] and being the property upon which the family business is conducted (or such further or other property in substitution therefor or in addition thereto as at the date of my death). To transfer make over and deliver to such of my sons [Giuseppe, Enrico] and UMBERO PETERS VERSTEEG as shall survive me and if more than one as tenants in common in equal shares all that my interest at death in the family business or businesses including without limitation that business conducted by me as 'J VERSTEEG & SONS' and that company 'VERSTEEG CONTRACTORS PTY LTD' (and or any other or further business or business interest and whether held personally or by shareholding or by beneficial entitlement pursuant to a unit holding in a unit trust or otherwise as the case may be in addition to or in substitution therefor as at the date of my death) for their sole and exclusive use and benefit absolutely AND I HEREBY FORGIVE AND DISCHARGE absolutely all debts standing in the books or records of financial account of the family business or businesses to my credit effective as of the date of my death to the intent and effect that the family business or businesses shall not be deprived of the working capital represented by any debts standing to my credit in the books of accounts of the family business or businesses as at the date of my death. To transfer make over and deliver the whole of the balance of my residuary estate of whatsoever kind and wheresoever situate to such of my sons [Giuseppe, Enrico], UMBERO PETERS VERSTEEG, [Edward and Johanis] as shall survive me and if more than one then as tenants in common in equal shares for their sole and exclusive benefit absolutely ...

[41] I call the trusts in each of cl 2(b)(i), (ii), (iii) and (iv) respectively 'the cl 2(b)(i) trust', 'the cl 2(b)(ii) trust', 'the cl 2(b)(iii) trust' and 'the cl 2(b)(iv) trust'. As I understand it, in the law of wills and estates, the cl 2(b)(i) trust provides for a general legacy in the nature of a pecuniary legacy, the cl 2(b)(ii) trust provides for a specific devise, the cl 2(b)(iii) trust provides for a specific legacy and the cl 2(b)(iv) trust provides for a residuary gift. See Hutley, Woodman & Wood, Cases and Materials on Succession (2nd ed, 1975) 523524; and Blight v Hartnoll (1883) 23 Ch D 218 at 222. [42] It is common ground that in cl 2(b)(ii), (iii) and (iv) 'Umbero Peters Versteeg' is Umberto, the third named defendant.

Page 17 [43] Further, I was told by senior counsel for the plaintiff that 'Caroline Versteeg' (Mrs Versteeg) appeared in some other documents as Carolina Versteeg, while senior counsel for Johanis indicated to me that his name may have been misspelt. [44] It will be noted that the three beneficiaries of the cl 2(b)(ii) trust (for the property on which as has been seen the family businesses of J Versteeg & Sons and Versteeg Contractors were conducted) are also the beneficiaries of the cl 2(b)(iii) trust (for the family business or businesses). It will also be noted that those beneficiaries, with the testator, are the three named guarantors and indemnitors under the NAB guarantee and indemnity. The questions before me [45] By orders for directions by Acting Master Chapman in chambers of 1 February 2008, the following questions are to be determined, with a refinement in the first question agreed by counsel appearing before me and incorporated into that question:

4a) 4b) 4c) 4d) 3e) 3f)

Whether [the final NAB liability] paid by the Estate should be treated as payable out of the proceeds of the sale of [the Feldts Rd Properties], or should it be treated as payable out of the [Testator's] interest in the business of J Versteeg & Sons? Are the costs of getting in the assets of the estate and the general costs and expenses of the estate to be paid first from the residuary estate, namely [the cl 2(b)(iv) Trust]? Were any of the proceeds from the sale of [the Feldt Rd Properties] ever available to the trustees of the estate? Save for 7.9% of the cash received from second named defendant [Enrico] or companies controlled by him, did any of the cash at bank at 30 June 1986 belong to the residuary estate? Are gifts of capital to the life tenant ([Mrs Versteeg]) to be first paid from the residuary estate? Has the gift to the first named defendant in cl 2(b)(i) of the will of the deceased failed?

[46] Before I reach those questions, I should refer to the following aspect of the learned Acting Master's orders, in another provision of them. Although that aspect was not a live issue before me, reference to it enables me to provide an account of the participation of the parties in the hearing before me. The instruction of senior counsel to represent the interests of Giuseppe and Umberto [47] The trustees of the will arranged for an opinion to be obtained from Mr Graeme Murphy SC in relation to a number of questions on the construction of the will and the distribution of the estate of the testator. His opinion, dated 18 June 2007, addressed a range of questions including but not limited to matters subsumed by the questions above (the Murphy opinion). The Murphy opinion may be seen to favour the interests of Giuseppe, Enrico and Umberto, the beneficiaries of the cl 2(b)(iii) trust, and to be against those of Johanis and Edward, who were not such beneficiaries. [48] Giuseppe and Umberto were represented at the hearing before me by Mr Murphy. The plaintiffs had, on the advice of their solicitors, instructed Mr Murphy to represent the interests of Giuseppe and Umberto pursuant to the leave given by the orders of Acting Master Chapman on 1 February 2008. [49] A memorandum of appearance for Enrico had been entered by solicitors acting for him. However, by a notice of cease acting for him, he has become self-represented in these proceedings. So far as the information I have indicates, he has never taken an active part in them, either through his former solicitors, or by himself. [50] The plaintiffs in their capacity as trustees were represented at the hearing before me through their solicitors. [51] Johanis was represented by senior counsel, Mr Matthew Zilko QC.

Page 18 [52] Edward has not entered an appearance in these proceedings. [53] The orders of Acting Master Chapman included the following:

1.

The plaintiffs have leave to instruct Graeme Murphy SC to represent the interests of the first named plaintiff Giuseppe Vincenzo Versteeg and the third named defendant Umberto Peters Versteeg as beneficiaries under [the Will]. ... Any party has liberty to apply to vary the order in paragraph 1 above should a conflict arise as a consequence thereof.

1.

[54] There is, of course, a principle commending the separate representation of trustees from that of beneficiaries to give the court the assistance of separate counsel: Re Burton, Danby v Burton [1901] 1 WN 202; Re Morgan, Brown v Jones (1927) 71 Sol Jo 650 at 651 (Clauson J); and Morton v Mitchell Products[ 1996] FCA 828. Here such separate representation was secured. [55] At the same time separate representation should not be at the expense of the creation of a situation of conflict or potential conflict: see Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq) [1989] VR 184 at 185. I understood this latter to be the principle underling O 3. [56] However, all of those appearing before me confirmed no application had been made pursuant to the liberty to apply in O 3. Therefore I need say no more about the present aspect of the learned Acting Master's orders. The questions: (a) [57] It was common ground that the starting point in the consideration of this question is Wills Act 1970 (WA) s 28(1) and (2), which read at all material times as follows:

1)

1)

Where by his will a testator disposes of any property that at the time of his death is charged with the payment of money whether by way of mortgage, charge, lien (including a lien for unpaid purchase money) or otherwise and the testator has not by the will or by a deed or other document signified a contrary or other intention the property so charged is, as between the different persons claiming through the testator, primarily liable for payment of the money secured by the charge, and every part of such property according to its value shall bear a proportionate part of the charge on the whole. Such contrary or other intention is not deemed to be signified -1. by a general direction for the payment of the debts, or of all the debts of the testator out of his personal estate, or out of his residuary real and personal estate, or out of his residuary real estate; or 1. by a charge of debts on any such estates, unless such intention is further signified by words expressly or by necessary implication referring to all or some part of the charge.

1[58] These provisions are the counterparts in this state of Locke-King's Act, which changed the common law that mortgage debts were paid out of the testator's personal estate unless the real estate was devised cum onere or the personalty was otherwise exonerated. See Official Assignee v Crooks [1986] 2 NZLR 322 at 324-325 (Henry J). The provisions have had counterparts in New Zealand also, as I will indicate. [59] As I understand the written submissions and oral argument before me, it is common ground that if a contrary or other intention has not been signified by the testator as s 28(1) provides, the answer to question (a) is that the final NAB liability must be borne first from the proceeds of the sale of the Feldt Rd properties

Page 19 and to the extent those proceeds are insufficient by the residuary estate. [60] On the assumption indicated the latter part of the answer follows in my view from the proviso to the prefatory words in cl 2 of the will, which removes the 'discretion' to sell or convert 'any item of my real or personal estate into money' (subject to the qualification for financial incapacity, which was not engaged in this case) where 'the Trusts hereinafter provide that [such item] shall be transferred made over and delivered to any one of more beneficiary'. Those last trusts were the specific devise (by the cl 2(b)(ii) trust) and the specific legacy (by the cl 2(b)(iii) trust). [61] Before me it was contended for Johanis that there was a 'contrary or other contention' signified by the will. This signification was to be found in the specific legacy by the cl 2(b)(iii) trust. When the terms of the cl 2(b)(iii) trust were considered with the nature of the obligation secured by the mortgage on the Feldt Rd properties, it was evident, it was put, that it was intended the assets of the 'family business or businesses' the subject of that specific legacy, and not the proceeds of the sale of the Feldt Rd properties, were to be primarily liable for the payment of the final NAB liability. That is because it was evident the liabilities of the businesses should be borne by their assets. [62] Was there a 'contrary or other intention' signified within Wills Acts s 28(1)? [63] There is a body of authority that to qualify as a 'contrary or other intention' in a provision like Wills Act s 28(1) the signification of that intention should disclose how the debt is to be borne as between the beneficiaries in the will; and the statutory incidence will not be lightly displaced. One such authority that was cited to me is Re Horton (deceased) [1969] NZLR 598. There, the testator had devised a share in certain land free of all duty and his residuary estate after the payment of debts and expenses was to be held on certain trusts. At the date of the death of the testator, the land was subject to a mortgage to secure a debt payable to an insurance company. Prior to the grant of the mortgage the insurance company had issued to the testator an endowment insurance policy payable at a certain date which had not by the date of decision in Horton arrived. Under the terms of the policy the sum assured, which was in the amount of the debt payable to the insurance company, or the surrender value of the policy if the policy had been surrendered, was to be applied in or towards payment of the mortgage moneys. [64] The court held that the policy did not disclose a contrary or other intention for the purposes of Property Law Act 1952 (NZ) s 149 (PL Act 1952), the then counterpart of Locke-King's Act, which as reproduced in the judgment (599) as to s 149(1) and (2) was as follows:

2)

2)

Where a person dies seised of or entitled to any land that is at the time of his death charged with the payment of any sum or sums of money by way of mortgage, and that person has not by his will or by deed or other document signified any contrary or other intention, the devisee or other person to or on whom the land is devised or devolves shall not be entitled to have the mortgage debt discharged or satisfied out of the personal estate or any other real estate of that person, but the land so charged shall, as between the different persons claiming through or under the deceased, be primarily liable to the payment of all mortgage debts with which the same is charged, every part thereof according to its value bearing a proportionate part of the mortgage debts charged on the whole thereof. A general direction in a will that the debts or that all the debts of the testator be paid out of his personal estate, or out of his residuary real and personal estate, or out of his residuary real estate, shall not be deemed to signify an intention contrary to or other than the rule hereby established, but such an intention must be further signified by words expressly or by necessary implication referring to all or some of the testator's debts charged by way of mortgage on any part of his land.

[65] It will be observed that those provisions are very similar to if not identical with Wills Act s 28(1) and (2). [66] The court also noted that there was nothing in the will to signify a contrary or other intention for the purpose of PL Act 1952 s 149(1).

Page 20 [67] The Court considered the English authorities of In re Nicholson [1923] WN 251; Re Wakefield [1943] 2 All ER 29; and In re Birmingham [1959] Ch 523, and said this (601-602, Richmond J):Mr Chilwell, on the other hand, adopted as part of his submissions, and as correctly stating the law, the following editorial note to the case of Re Wakefield(above):

A devisee takes property subject to the charges upon it unless the testator has expressed a contrary intention. In order that a contrary intention may be shown, it is not enough that the testator has clearly ear-marked certain money for that payment in his life. That shows no intention how he intended the charge to be borne after his death as between the specific devisee and his residuary estate. The facts which are relied upon as showing a contrary intention must specifically refer to the manner in which the charge has to be borne after his death and as between the parties entitled under his will.

In my opinion, the foregoing note does correctly state the law. The cases of In re Nicholson, Re Wakefield, and In re Birmingham (above) clearly support the proposition that the will or other documents must disclose an intention as to what is to happen after the death of the testator. The other requirement referred to in the note is that the intention thus disclosed must be one which specifically refers to the manner in which the charge has to be borne as between the parties entitled under the will. This second requirement finds support in a passage from the judgment of Russell J. in In re Nicholson (at p 251) wherein the learned Judge referred to a letter written by the testatrix in her lifetime as showing 'no intention of any sort or kind that, as between the specific legatee and the residuary legatee, the debt should be borne by the latter'. This passage was referred to by Lord Greene M R in Re Wakefield(above) at p 31. Quite apart from authority, however, it is apparent that s 149 of the Property Law Act is concerned with the incidence of a debt as between the different beneficiaries in the estate of the testator. It is not concerned with the responsibility for payment of such debt as between the estate and the secured creditor. It follows that the contrary intention signified by the testator must relate to the incidence of the debt as between the parties entitled under the will. In the present case, as I have already said, it seems to me that the testator, when he made the arrangements which he did with the life insurance company, must have contemplated that those arrangements could well carry on after his death. The documents show that the testator was providing a fund which, as between himself (or his personal representatives after his death) and the insurance company, was intended to be used in repayment of the mortgage. I can, however, find nothing in these documents to disclose any intention on the part of the testator, one way or the other, as to the manner in which the mortgage debt should be borne as between the devisee and the residuary estate. Mr Chilwell referred me to In re Campbell [1893] 2 Ch 206 at 215 where Kekewich J. spoke of finding 'a tolerably plain indication' by the testator of a contrary intention. He also referred me to Brown v Abbott (1881) 7 VLR 121 (Eq) where Williams J. said: 'The intention must, I think, be signified (which, it will be observed, is the word used in the statute) -- 'I do not say by express words, but by something amounting almost to necessary inference or necessary implication' (ibid, 132). To these authorities may be added the remarks made by Stanton J. in In re Bain [1949] NZLR 726 at 730 to the effect that 'a statutory incidence of duty or debt cannot be lightly displaced'. In the present case I am left in a position where I can only conjecture as to the intention if any, of the testator regarding the incidence of the mortgage debt as between the beneficiaries under his will.

[68] In respect of Horton I also note Official Assignee v Crooks where Horton was distinguished. In that case, on the successor provision, Administration Act 1969 (NZ) s 34, to the provision considered in Horton, a mortgage over real property jointly owned by a husband and wife also extended over an insurance policy on the life of the husband, and both forms of mortgage collateral were to secure a liability to the mortgagee insurer. The mortgage provided that (326-327)if during the continuance of this security any moneys become payable under any policy subject to this mortgage it shall be lawful for the mortgagee to receive and retain the same ... and to apply such moneys in or towards satisfaction of the moneys owing upon or secured hereby ...

[69] The court in Crooks (327) distinguished Horton on the basis that a contrary or other intention was signified by the permissive provision in the mortgage, which necessarily in respect of the life insurance

Page 21 policy operated on the death of the insured, and thus in respect of the estate of the insured signified that if the mortgagee so determined then another source than that represented by the land would bear the burden of the liability. [70] In this case it was not contended that the NAB guarantee and indemnity was a document that signified a contrary or other intention in that way or indeed otherwise, except as it might be read with the will. Nor could any such contention succeed, in my view. The guarantee was not expressed in terms of how, at the death of the testator, as between any property of the testator which was the subject of collateral security given for the obligation guaranteed and his other property, the obligation should be borne. At most as a result of the right of indemnity available to a guarantor or indemnitor there was an implied intention that as between the testator and Versteeg Contractors the latter would bear the burden of that obligation, to which the death of the testator was neither expressly nor impliedly made relevant. [71] There is authority that a contrary intention may be signified by the designation in the will of a special fund for payment of the testator's debts which is not a fund referred to in a provision like Wills Act s 28(2): Re Fegan [1928] Ch 45 at 49 (Tomlin J). There is also authority that a contrary intention may be signified where the will states that mortgaged property should be held for the specific devisees of it 'absolutely free and clear of any charge or deduction whatsoever', even if no special fund is created for the payment of debt secured: Haimes v Goode (1932) 33 SR (NSW) 1 at 2. [72] Here there was no express designation of a special fund for the payment of the contingent liability secured by the mortgage of the Feldt Rd properties, nor was there an express indication that they were to be taken free and clear of the mortgage. However, senior counsel for the defendant contended there was a sufficient signification by the will that the assets of the family business or businesses were primarily to bear all the business liabilities. As the liability secured by the mortgage was a business liability, that represented a signification that there was a special fund (the business assets) that had been recognised in the will to primarily bear that business liability. [73] The signification contended for was by the proviso in the will cl 2, to the power to call in the estate of the testator to pay his debts, more particularly in that proviso's reference to the cl 2(b)(iii) trust. That reference, it was put to me, should be read with the authority that a gift of an interest in an unincorporated business carries with it implicitly a gift of its assets less its liabilities: In re Rhagg (deceased) [1938] Ch 828 at 836; Re White [1958] Ch 762 at 772-774. [74] I was also referred to the words in the cl 2(b)(iii) trust, referring to the deceased's 'interest at death', as signifying a contrary intention. However, I do not consider this adds anything of significance to the preceding point from Rhagg and White. [75] True it was that the contingent liability secured by the mortgage of the Feldt Rd properties was not expressly (as I have indicated) a liability of either J Versteeg & Sons or Versteeg Contractors. However, the NAB guarantee and indemnity was one entered into at the request and for the benefit of Versteeg Contractors, as had been held in Versteeg v Court in his Capacity as Liquidator of Versteeg Contractors Pty Ltd (Unreported, WASC, Library No 920370, 17 July 1992) (White J) 13-14 where the court recognised the entitlement of the testator to an indemnity from the company in respect of the discharge by the estate of the contingent liability under the NAB guarantee and indemnity. Further, the testator had in the terms of the cl 2(b)(iii) trust forgiven and discharged all debts standing to his credit in the books of financial accounts of the family business or businesses as at the date of his death. [76] It appears to have been put to me I should take from this that the taking of the proceeds of the sale of the Feldt Rd properties by NAB for application towards satisfying the final NAB liability should be treated as if it was the taking of assets of the family business or businesses, which, given the insolvent liquidation of Versteeg Contractors, were the assets of the other components of that business or businesses represented by the business of J Versteeg & Sons. [77] It was further put to me that having the burden of discharge of an obligation incurred for the benefit of the components of the family business represented by Versteeg Contractors in respect of its liabilities borne by personal assets of the testator was a capricious outcome inconsistent with the testator's intentions. I will

Page 22 return, in the context of question (e) below, to the principle of construction of a will to avoid capricious outcomes. [78] Senior counsel for Giuseppe and Umberto put to me that a clearer signification of a contrary intention than that was required for the purposes of Wills Act s 28(1) on the terms of s 28(2) and the authorities of Horton, Fegan and Haimes. Only express words or something approaching a necessary implication of the sort referred to in Horton would do. [79] Further, there could be no reliance on the provision in the terms of the cl 2(b)(iii) trust for the forgiveness of debts owed to the testator, as that provision had no operation in the events that had happened by the date of death. Those events included that Versteeg Contractors had been wound up. The 'intent and effect' referred to in that provision, that the family business or businesses not be deprived of 'the working capital' represented by the debts could thus have no operation, and so the provision did not operate in respect of debts owed by Versteeg Contractors to the testator. [80] As to the first submission, it is not altogether clear to me on Crooks, on which I was not addressed by either counsel, that the standard the implication must reach is so high as not to admit that implication for which senior counsel for Johanis contended. [81] As to the second submission, while I am inclined to agree with it, I do not consider I have to determine the point. [82] That is because there is no indication to which I was taken from any document in this case that the contingent liability secured by the mortgage on the Feldt Rd properties was to be regarded as one primarily to be borne by other assets. That contingent liability was of the testator, whose capacity in undertaking it nowhere appears from the NAB guarantee and indemnity as I have indicated. [83] True it is the testator was the sole proprietor of the family business represented by J Versteeg & Sons, which carried on business from the same premises, the McDowell St property, as the other components of the family business or businesses, represented by Versteeg Contractors. True it is also that, on the evidence of the cl 2(b)(ii) trust and the cl 2(b)(iii) trust all those Versteeg family members involved in the family business or businesses were named as guarantors and indemnitors in the NAB guarantee and indemnity. [84] However, no reference was made in the NAB guarantee and indemnity to the capacity in which they were assuming their obligations under it. Further, the testator was also the owner of the Feldt Rd properties, which were not on the evidence before me assets of any family business or businesses, and which was the property mortgaged to secure the contingent liability under the NAB guarantee and indemnity. [85] As to the capricious outcome previously referred to, I do not consider any such is made out. I note the provision in cl 2(b)(iii) for forgiveness of debts standing to the testator's credit in the books of financial accounts of the family business or businesses. Whether or not that provision applied in the events that happened, it seems to me that the testator has thereby indicated a clear intention to support that business or businesses from his personal assets, in certain circumstances. The mortgage of the Feldt Rd properties is a similar indication. [86] Thus, it is not clear to me why it should be seen to be capricious for him do this in respect of the Feldt Rd properties. Further, any liability of the Feldt Rd properties would, of course, be subject to any right to an indemnity under the NAB guarantee and indemnity, as qualified, perhaps, by the provision in the cl 2(b) (iii) trust for forgiveness of debts. [87] There is in my view no clear or indeed other indication in the NAB guarantee and indemnity or the will that the contingent liability of the testator (or any of the other guarantors and indemnitors) was treated by the testator as a liability of the family business considered as a group of enterprises and thus one that should be treated as primarily to be borne by the assets of the family business or businesses. Absent an indication of such treatment, it does not appear to me there is a foundation on which to rest the submissions for Johanis. [88] Further, I note the provision in the will cl 2, opening words, to which senior counsel for Giuseppe and Umberto drew my attention, that qualify the absence of any discretion in the trustees to sell or convert any

Page 23 item of the testator's real or personal property. That qualification, which allows such sale or conversion, is where 'financial circumstances shall necessitate' such a dealing. [89] However, I do not consider this meets the argument for Johanis that the contingent liability under the NAB guarantee and indemnity was intended under the will to be treated as a business liability, not a personal liability, of the testator. [90] At the same time, I would reject that argument for Johanis for the reasons I have set out. It follows in my view that the answer to question (a) is as I first described it above. The questions: (b) [91] There were no written or other submissions directed to this question, concerning whether or not the costs of getting in the assets of the estate and the general costs and expenses of the estate were to be paid first from the residuary estate, namely the cl 2(b)(iv) trust, from any of the parties except for Giuseppe and Umberto. For them, their senior counsel directed me to the Murphy opinion. [92] The Murphy opinion is to the effect that the answer to the question is yes. I agree. [93] As the Murphy opinion indicates, the duties of an executor include getting the assets of an estate, and so the costs of administering the estate include those costs: Woodman, Administration of Assets (2nd ed, 1978) 10. [94] As the Murphy opinion also indicates, and as I have indicated, the proviso in cl 2 previously quoted makes the power to get in the assets of the estate for the payment among other things of 'testamentary expenses' subject to the trusts for specific items of property. The cl 2(b)(ii) trust and the cl 2(b)(iii) trust represent those trusts. They qualify the 'residuary estate', the subject of the trust for Mrs Versteeg as life tenant for whom the 'whole of the residuary estate' is to be held, and the cl 2(b)(iv) trust for the 'residuary estate', on which the cl 2(b)(i) trust is a first charge. The effect of the cl 2(b)(ii) trust and the cl 2(b)(iii) trust is that the costs of getting in the assets of the estate as well as the other testamentary expenses referred to in question (b) are to be first paid from the 'residuary estate'. The questions: (c) [95] Again, as with question (b), there were no written or other submissions directed to this question, from any of the parties except for Giuseppe and Umberto. Question (c), it will be recalled, was whether or not any of the proceeds from the sale of the Feldt Rd properties were ever available to the trustees of the estate. [96] Senior counsel for Giuseppe and Umberto put to me that on the facts of the payment of the proceeds to the NAB the answer to the question is no. I agree. Those proceeds were applied as determined by NAB and were wholly devoted to payment of the final NAB liability. The questions: (d) [97] Again, as with questions (b) and (c), there were no written or other submissions directed to this question from any of the parties, except for Giuseppe and Umberto. Question (d), it will be recalled, was whether or not, save for 7.9% of the cash received from second named defendant [Enrico] or companies controlled by him, any of the cash at bank at 30 June 1986 belongs to the residuary estate. [98] It was common ground that as at 30 June 1986 the assets of the residuary estate comprised the Douglas Rd property, the Brook Rd property and the Feldt Rd properties, that portion (7.9%) of the receivable from Enrico under the October 1985 deed representing the non-business portion of the total and the contingent receivable of $220,000 payable by Johanis under the 1986 agreement. It was further common ground that as at 30 June 1986 the only money received by the estate of the testator on account of receivables was Enrico's payment of $48,000 out of the total of $314,000 under the October 1985 deed. [99] It was put to me that it followed that that as at 30 June 1986 the only cash held by the estate of the testator belonging to the residuary estate was 7.9% of the amount of $48,000. I agree that this does follow

Page 24 and is the answer to question (d). The questions: (e) [100] Again, as with questions (b), (c) and (d), there were no written or other submissions directed to this question from any of the parties, except for Giuseppe and Umberto. Question (e), it will be recalled, was whether gifts of capital to the life tenant Mrs Versteeg were taken to be first paid from the residuary estate. For the answer to that question, senior counsel for Giuseppe and Umberto directed me to the Murphy opinion. However, the portion of the Murphy opinion to which I was directed did not in fact expressly address this question. Nor could I find any other part of the Murphy opinion that did so. [101] However, it seems to me the wording of the will is quite clear. It will be recalled that cl 2(a) empowers the trustees at their 'sole discretion to apply from time to time part of the capital of my residuary estate for the maintenance and benefit of [Mrs Versteeg] should the need arise'. This language in my view directly answers question (e). Thus the answer to question (e) is yes. The questions: (f) [102] This question, it will be recalled, is whether or not the gift to the first named defendant (Johanis) in cl 2(b)(i) of the will of the deceased had failed. [103] A suitable starting point is Wills Act s 26(1)(a) and (b), which are as follows:Unless the contrary intention appears by the will --

1a) 1b)

the will is to be construed, with reference to the property comprised in it, to speak and take effect as if it has been executed immediately before the death of the testator; property that is the subject of a disposition, other than the exercise of a power of appointment, that is void or fails to take effect is to be included in any residuary disposition contained in the will; ...

[104] It is not suggested that there was any 'contrary intention' for the purposes of s 26(1)(a). Further, it is accepted that, if the gift to Johanis in cl 2(b)(i) of the will has failed, the residuary estate is not burdened by the first charge referred to in the clause. [105] The answer to the question is then one of construction of the will, in accordance with the principles for construction from the general law, there being no further provisions of the Wills Act to which my attention was drawn, or which appear to me to be relevant. [106] The following principles appear not to be in contest. [107] In construing a will the object of the court is to ascertain the intention of the testator as expressed in the will, from the words used in the will. Prima facie the words used in the will are to be given their ordinary meaning. However, the will must be read as a whole, in the light of the surrounding circumstances, and in relation to those circumstances the 'arm chair principle' is relevant. That principle permits the court to receive evidence of the state of the testator's family, his property, his friends and acquaintances, in order that a court may read the will from the position of the testator, as if sitting in the testator's 'arm chair'. See Hardingham I J, Neave M A and Ford H A J, Wills and Intestacy in Australia and New Zealand (2nd ed, 1989) [1102], [1103]. [108] If a will is republished by a codicil, the effect of republication upon construction is to make a gift in the will operate in the same way in which it would have operated if the words of the will had been contained in the codicil, unless the contrary intention appears. A codicil republishes a will if there is to be found in the codicil matter from which the inference can be drawn that when making and executing it the testator 'considered the will as his will' (Re Smith (1890) 45 Ch D 632 at 639). See Hardingham et al [712][714]. It is not in contest here that the doctrine of republication applied to the codicil.

Page 25 [109] In relation to the general legacy by way of pecuniary legacy in cl 2(b)(i) it was not in contest that the provision is one for a conditional bequest. This was accepted to be the effect of the words in cl 2(b)(i) as follows:PROVIDED this bequest is subject to my said son [Johanis] having first transferred and delivered to me that one third interest in common held by my said son in trust in [the McDowell Street property] pursuant to my demand in that regard of the 3rd of May 1984.

[110] Further, it appears to be common ground this was a condition precedent. Thus, there is no scope for the application of the rule for conditions subsequent that, because they may work a forfeiture, they should be expressed in precise and direct terms: see on that principle Clark J B and Ross Martyn J G, Theobald on Wills (15th ed, 1993) 643. [111] It seems to me that the bequest should be construed as one requiring for its satisfaction that as a matter of urgency and in any event during the lifetime of the testator Johanis transfer the interest in the McDowell St to the testator. This it seems to me follows on two considerations. [112] One consideration is the ordinary meaning of the words used in cl 2(b)(i). It seems to me that the words 'to me' in their ordinary meaning require the transfer of the interest to the testator during his lifetime. [113] Further, the reference to that transfer occurring 'pursuant to' the 3 May 1984 letter in my view clearly permits recourse to that letter for the purpose of the 'arm chair principle'. That letter shows that the testator was requiring Johanis to transfer the interest on a transfer form which he was to execute and return to the testator 'immediately', and indicating to Johanis that the 'matter was now most urgent'. The letter was on its terms written in the context of Johanis' 'severance from the family business' and the testator had indicated in it that if the demand were not met he would have 'no alternative' but to instruct solicitors to take legal action. The letter in my view indicates the urgency of the matter so far as the testator was concerned. [114] However, senior counsel for Johanis put to me that the construction I have described was inapt for a number of reasons. [115] First, that construction could lead to arbitrary or capricious results. The example was given of the testator's death shortly after the will was executed or shortly after the codicil was executed. There is a principle for the construction of wills that is addressed to the avoidance of capricious results, as I will indicate. [116] Second, the construction did not allow for the fact that Johanis would not necessarily during the testator's lifetime have the opportunity to become aware of the will's terms. Indeed, he had not become aware of those terms until after the testator's death. Thus, he would not (and did not) know of the condition he was (on the construction I have referred to) to meet to qualify for the bequest. As I underst