New South Wales Supreme Court CITATION : Romano v Romano; Estate of Giacomo Romano [2004] NSWSC 775 HEARING DATE(S) : 13/08/04 JUDGMENT DATE : 26 August 2004 JURISDICTION: Equity Division JUDGMENT OF : Barrett J DECISION : Order for separate determination of question. Order for interim distribution. CATCHWORDS : SUCCESSION - executors and administrators - administration - application for interim distribution - estate not fully administered - assets nevertheless clearly sufficient to allow payment of pecuniary legacy LEGISLATION CITED : Supreme Court Rules, Part 31, Part 68 rule 2(3)(d) or (4)(b) Wills Probate and Administration Act 1898, ss.29, 84 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Barns v Barns (2003) 214 CLR 169 Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 Gonzales v Claridades (2003) 58 NSWLR 211 CASES CITED : In the will of Clinton (1910) 10 SR (NSW) 465 Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 Re Anderson (1953) 53 SR(NSW) 520 Romano v Romano [2003] NSWSC 436 Romano v Romano [2004] NSWCA 37 Stokes v Churchill; Estate of Fryer (unreported, NSWSC, Santow J, 16 December 1993) PARTIES : Louise Romano - Plaintiff Edward Romano - Defendant FILE NUMBER(S) : SC 3450/04 COUNSEL : Mr L J Ellison - Plaintiff Mr J R Wilson SC - Defendant SOLICITORS : John Fisicaro & Co - Plaintiff Michie, Shehadie & Co - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J THURSDAY, 26 AUGUST 2004 3450/04 – LOUISE ROMANO v EDWARD ROMANO JUDGMENT 1 Giacomo Giuseppe Romano ("the deceased") died on 2 June 2001 aged 87 years. After a hearing before Bryson J, probate of the deceased's will and a codicil to it was, on 30 May 2003, granted to his son, Edward Romano ("Edward"), the present defendant. The court pronounced against an additional document propounded by Edward: Romano v Romano [2003] NSWSC 436. The latter aspect of Bryson J's decision became the subject of an appeal which was dismissed by the Court of Appeal on 27 February 2004: Romano v Romano [2004] NSWCA 37. 2 At the time of making his will on 6 December 1988, the deceased had two children, Edward and another son, John Romano ("John"). John died in 1995 leaving a widow and two daughters. One of the daughters, the present plaintiff, was named as executrix in John's will which was admitted to probate on 27 August 1996. By that will, the whole of John's estate was given to his widow, Jeanette Romano ("Jeanette"). 3 John is named as a beneficiary in the will of the deceased. A relevant part of the will is as follows: " I GIVE DEVISE AND BEQUEATH to my son JOHN my Strata Title units number 9, 19, 20, 21, 25, 27 and 28 at "Surfrider", Avalon Parade, Avalon, my home at 341 Blaxland Road, Ryde and the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) in cash for his own use absolutely." After specific devises and bequests to Edward follows a gift of residue to John and Edward in equal shares. There are in the codicil provisions into which I need not go in detail the objective of which appears to be to counter the effects of any inequality, as between the two sons, in "amounts set aside to" them as beneficiaries of a family trust. 4 Because John died before the deceased and left issue living at the deceased's death, the gifts to John under the deceased's will did not lapse but took effect as if John's death had occurred immediately after the deceased's death. This is the effect of s.29 of the Wills Probate and Administration Act 1898. As a result, the testamentary dispositions made by the deceased in favour of John are now to be regarded as gifts to the plaintiff as John's executrix; and under John's will, the whole benefit of those gifts accrues to Jeanette. 5 It is because of the position thus occupied by her as executrix of John's will that the plaintiff maintains the present proceedings. Those proceedings were initiated by a statement of claim filed on 15 June 2004. Each of the first four orders sought by the statement of claim is an order that Edward, as executor of the deceased's will, make a certain interim distribution in the estate of the deceased. The fifth order is an order that the defendant do all things and execute all documents necessary for the due and proper administration, distribution and finalisation of the estate of the deceased, while the sixth order is an order that the defendant provide to the plaintiff full accounts for the estate. The seventh and subsequent orders (sought in the alternative to the first to sixth orders) are orders revoking the grant of probate to the defendant and making other arrangements for the administration of the estate. There are also claims for orders for costs. 6 By a notice of motion filed on 16 July 2004 and heard by me on 13 August 2004, the plaintiff sought an order essentially in the same terms as the first to third orders claimed in the statement of claim, namely, an order that Edward, as the deceased's executor, take all necessary steps to transfer a home unit known as Unit 9, 1-3 Avalon Parade, Avalon to Jeanette, to give Jeanette a legacy of $200,000 and to account to Jeanette for all rents collected on that home unit since the date of the deceased's death. 7 It is not disputed that, in the events that have happened, Jeanette is to be regarded as standing in the place of John for the purposes of the provisions of the deceased's will set out at paragraph 3 above. But the defendant denies that he can, at this point, be compelled to make the transfer and payments sought by the notice of motion. 8 The plaintiff points to two letters sent to her solicitors by Edward's solicitors while the appeal to which I have referred was undecided. In the first (a letter dated 23 July 2003 and headed so as to refer to the proceedings then recently determined by Bryson J), the solicitor for Edward referred to having received certain funds for the estate. The letter continued: "The funds referred to in this letter are held in our trust account and our client has indicated that they shall remain there until finalisation of the matter." 9 The second letter was dated 3 October 2003 and referred to the proceeds of sale of certain real property by Edward as executor. The letter says: "We also confirm that our client has instructed us to advise you that he undertakes that the balance of the sale proceeds … will be held in our trust account until the final determination of the proceedings in the Supreme Court in respect of the estate." 10 The plaintiff makes the point that each of these letters referred to the proceedings that culminated in the Court of Appeal's decision of 27 February 2004 (the present proceedings having been begun only on 15 June 2004) and conveyed a message that something would be paid to Jeanette after the Court of Appeal had given its decision. The plaintiff also says that, when the circumstances of the estate as a whole are considered, it is clear that transfer and payment in satisfaction of the specific gifts the benefit of which is now enjoyed by Jeanette will, by no stretch of the imagination, leave the estate short of such funds as are needed to attend to remaining matters of administration. This last submission recognises the reason why, in Edward's submission, the court should not compel him to do the things contemplated by the orders sought by the notice of motion: in short, the estate is an unadministered estate. 11 Mr Wilson SC, who appeared for Edward, referred to the fundamental principle recognised by the Privy Council in Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 that, while an estate is in the course of administration, residuary beneficiaries are not properly to be regarded as having any beneficial interest in the assets in the executor's hands. Such beneficiaries have no more than "a chose in action, capable of being invoked for any purpose connected with the proper administration of his estate". A person to whom a specific devise or bequest is made stands in the same position. This is made clear in the joint judgment of Mason CJ, Brennan J, Deane J, Dawson J and Gaudron J in Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 312: "Not only does the legal ownership in the property not vest in the named beneficiary at the time of death of the testator, nor does the equitable ownership. That emerges from the Privy Council's decision in Commissioner of Stamp Duties (Q) v Livingston . The reason for this is that, prior to administration of the deceased estate, there is no specific property capable of constituting the subject property of any trust in favour of the beneficiary. It could not be said at that stage what part or parts of the testator's property would need to be realized for the purposes of administration. So it was held that the beneficiary does not have a proprietary interest in each of the assets which are the subject of the devise or bequest such that he or she can say "this is mine" or "this belongs to me". Although Livingston was concerned with a residuary estate, the observations it contains apply with equal force in the case of a specific bequest or devise. The parties here are agreed on that point." See also Gonzales v Claridades (2003) 58 NSWLR 211 at paragraph [19] and Barns v Barns (2003) 214 CLR 169 at paragraph [50]. 12 The point at which an executor begins to hold estate assets upon trust for beneficiaries may be difficult to pinpoint. The process of identification was discussed by Santow J in Stokes v Churchill; Estate of Fryer (unreported, NSWSC, Santow J, 16 December 1993). It is instructive to quote at some length from his Honour's judgment: "The basic principles applicable in answering this question can be stated in summary form. (i) Obtaining probate, collecting all the assets of the estate and paying the debts and expenses of the estate, are necessary conditions for completion of the administration. But completing those tasks may not suffice to complete administration. Thus if there were some further impediment to transferring an asset to the executor or those presently entitled thereto under the will, being sui juris, then at least so far as that asset were concerned, the duties of administration would not be completed. (ii) It is when administration is complete, that the executor becomes functus officio as executor and thereafter holds as trustee for the beneficiaries of the estate. However, if there were no impediment to transferring title to an asset, such as land, to those who are sui juris and presently entitled under the will, while that task might be characterised as one of the duties of administration, albeit conditional on completion of the others, the better view is that completion of this task is not necessary before the executor becomes a trustee. See for example McCaughey v Commissioner of Stamp Duties (1945) 46 SR (NSW) 192 AT 209:- 'If having been appointed executor only, he continues to hold it after his executorial duties have been completed, he is regarded as then holding it as constructive trustee. If having been appointed trustee as well as executor, he continues to hold it when those duties are completed, he is regarded as holding it as express trustee.' Latham CJ said in Pagels v MacDonald (1936) 54 CLR 519 at 526:- 'When the executor has performed all his executorial functions ... he may become a trustee merely by continuing to hold property after his functions as executor have been performed (in re Timmis: Nixon v Smith(1902) 1 Ch.176)'. (iii) The case of In the will of Allen 1912 VR 28) (along with re King's Will Trusts [1964] Ch 542) decided that failure to transfer real property to the executor meant that executorial duties were not completed. Those cases appear difficult to reconcile with the notion that the executor, with only that duty still outstanding and no impediment to transfer to beneficiaries sui juris and presently entitled, holds as trustee, unless it be on the basis that direct transfer from the estate to the devisees is now possible without the executor being the transferor. Thus under S93 of the Real Property Act such a direct transfer to the devisees can now be effected with the executor's consent, assuming administration were otherwise complete; see Baalman and Wells, 'Land Titles Office Practice' 4th edition by Kevin Nettle and 'New South Wales Conveyancing Law and Practice' by Andrew G Lang CCH at 20-540. (iv) G L Certoma 'The Law of Succession in New South Wales' 1992, contends that there are other matters apart from payment of debts going to the question of when administration is complete so that the executor thereafter holds as trustee without statutory power of sale. 'Whether the administration of an estate is complete depends upon all of the circumstances, for example, whether the residuary accounts have been settled, the length of time since the death of the testator, and whether the legal personnel representative conceives that the administration is complete. It would seem that if it can be said that the estate has been fully administered then the executor or administrator clearly holds the assets as trustee for those entitled on intestacy or in accordance with the terms of the will, especially if the whole or part of the estate is to be held upon trust for sale and division or in succession, with the possible exception of land which must be transferred in the prescribed form to the trustee as such. However, if there are no expenses or continuing trusts under the will, the administration of the estate can probably not be said to be complete until there is an asset in relation to personalty or a transfer in the prescribed form in the case of realty. Again, that statement, insofar as it requires that land be transferred to the trustee before administration of the estate can be said to be complete, needs to be qualified as set out in (ii) and (iii) above. (v) Therefore it follows that if all other executorial duties have been completed, except that the lands have not been transferred, there being no impediment to their transfer to beneficiaries presently entitled and sui juris, the executor becomes a trustee with no longer any statutory power of sale. Before then, the executor's statutory power of sale must be for the 'purpose of administration'; see S46(2) of the Wills, Probate and Administration Act 1898, as confirmed by s153 and s154 of the Conveyancing Act 1919. S152 of that Act defines 'the purposes of administration' as including 'payment in due course of administration of the debts, funeral and testamentary expenses', and other related costs. Therefore, a purchaser who had notice that these duties had been completed would not obtain a good title: (assuming no independent power of sale under the will): Wheate v Hall (1809) 17 Ves 80. But if those payments had already been made, any sale thereafter could be effected only in the capacity of a trustee with the consent of all the cestuis qui trustent. Although the office of executor always remains, the powers over property associated with the office do not: Attenborough v Solomon [1913] AC 78; Wise v Whitburn [1924] 1 Ch 460; Burke v Dawes (1938) 59 CLR 1 (but note observations by way of dicta by Dixon J at 22). (vi) However, if the executorial duties are complete the power of sale is limited to, but still includes, such power, if any, as is conferred by the trust instrument, namely the will. See Attenborough v Solomon op cit. (vii) The interest of a beneficiary in an unadministered estate confers no beneficial interest in any particular item of property but rather a right, by way of a chose in action, capable of being invoked for the proper administration of the estate; see Commissioner of Stamp Duties (Queensland) v Livingston [1965] A.C. 694" 13 The position occupied by a devisee or legatee before the position of full administration outlined by Santow J has been reached is described as follows (omitting footnotes) at paragraph 78-04 of Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (being the 18th edition of Williams on Executors and the 6th edition of Mortimer on Probate): "Until assent or conveyance, a person interested under the will or intestacy has an inchoate right transmissible to his own representatives. It is a chose in action capable of itself being settled or transmitted. A person so interested cannot, however, without the authority of the representatives, take possession of the property, even though the testator expressly directs that he shall do so; otherwise a testator might appoint all his effects to be taken in fraud of creditors. Should he go into possession the representatives may sue him in ejectment, trespass or trover, according to the circumstances. Thus, although he is actually in possession of property specifically bequeathed, and the assets are fully adequate to the payment of debts, he has no right to retain property in opposition to the representatives, by whom, in such a case, an action will lie to recover it . The inchoate right is however equivalent to a beneficial interest under a trust for limitation purposes." [emphasis added] The sentence emphasised in the foregoing extract is of particular relevance to the present case. 14 As Mr Wilson SC pointed out, the estate to which the present application relates cannot be said to be fully administered. He pointed to three particular factors leading to that conclusion: first, certain shares have not yet been transmitted to the executor; second, the deceased owned land in Italy which has not been brought under the control of the executor (a process which will involve expense); and, third, there is an unassessed liability to income tax in respect of income of the estate since the death of the deceased. The conclusion that the deceased's estate is, at this point, an unadministered estate governed by the principles in Livingston's case and Official Receiver v Schultz is, to my mind, inescapable. 15 Mr Ellison of counsel, who appeared for the plaintiff, did not, as I understood his submissions, take issue with the assertion that the estate is an unadministered estate. But he referred to evidence that an aggregate of some $1.5 million, representing a cash asset of the estate, is held in Edward's solicitors trust account. In addition, he referred to evidence suggesting that it is extremely unlikely that anything approaching that sum will be required to complete administration. I accept that this is so, although there remains a question as to the effect of the codicil which may be the source of some additional pecuniary legacy to one son or the other. In that event and depending on the amount involved, there may be an effect on what would otherwise occur in the application of assets. 16 Mr Ellison submitted that, in the circumstances at hand, s.84 of the Wills Probate and Administration Act 1898 or Part 68 rule 2(3)(d) or (4)(b) of the Supreme Court Rules represents a foundation on which the orders sought in the notice of motion may be made. In an abstract sense, this is no doubt so, in that each provision is capable of grounding the orders sought. In particular, the jurisdiction created by s.84 may only be exercised in respect of an executor and is therefore not available after the estate has been fully administered and the erstwhile executor is holding the estate as a trustee: In the will of Clinton (1910) 10 SR (NSW) 465. Part 68 is available whether or not the transition from executor to trustee has occurred: see Part 68 rule 2(1) and the definition of "administration proceedings" in Part 68 rule 1. The real question is not whether the court has jurisdiction to make the orders now sought by the plaintiff but whether, as the estate currently stands, it should do so as a matter of discretion. 17 I have come to the conclusion that circumstances are such as to warrant a partial distribution and that the court should assist the plaintiff in that regard. It is true that three uncertainties lie over the estate at this point. First, there is the matter of getting in the Italian land and the expense that that will inevitably entail. Second, there is the need for debts for income tax to be quantified and satisfied. Third, there is the question of the impact of the codicil provision as to equalisation between the sons with respect to benefits from the family trust. At this point, there can be no satisfactory measure of certainty as to the amounts that will be needed to deal with the first and second matters. In relation to the third matter, there will be a need to obtain information from the trustee of the family trust as to matters of history going back to the trust's inception and, in the light of that, then to determine adjustments to the gifts to the two sons according to the proper construction of the codicil – a matter that may of itself entail questions of interpretation on which minds might differ and which may call for some formal resolution. 18 But even allowing for these uncertainties, the moneys in hand may be accepted as more than sufficient to accommodate, at the least, the payment of the pecuniary legacy of $200,000. Acting with the greatest degree of conservation and prudence called for by the circumstances of the case, the executor could safely part with that sum, particularly since, at a pecuniary level, the rents and the share of residue (which will be substantially in cash form) will represent a sufficient buffer or safety valve. According to the tests laid down by Myers AJ in Re Anderson (1953) 53 SR(NSW) 520, this interim distribution is appropriate because there is a clear entitlement to the legacy and funds available to allow for the safe payment of it. 19 There is, however, a procedural difficulty in that an order for payment of the pecuniary legacy will represent part of the final relief sought. In that sense, the application pursued by means of the defendant's notice of motion is not truly interlocutory in nature (see Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199). That aspect can, however, be dealt with by an order under Part 31 rule 2 of the Supreme Court Rules that the question whether the claim in paragraph 9(i) of the statement of claim should be granted be decided separately from and before the determination of the balance of the statement of claim. 20 Although I do not consider it appropriate to grant the balance of the relief sought in the notice of motion, I am bound to say that Edward does not appear to have acted with clearly demonstrable promptitude and efficiency in his administration of the estate – a situation not helped by the fact that he seems to spend most of his time in California. The executor's year has passed and, while some delay has been occasioned by need to await the decision of the Court of Appeal, there is no apparent reason why Edward should not now proceed to administer the estate with all necessary dispatch. Because of the matters to which I have just referred, my inclination is to think that there should be no order as to the costs of the notice of motion (as in Re Anderson (above)), but I will hear the parties on costs if either wishes to pursue the matter. Orders 21 The orders of the court are as follows: 1. Order pursuant to Part 31 rule 2 of the Supreme Court Rules that the question whether the claim in paragraph 9(i) of the statement of claim should be granted be decided separately from and in advance of the balance of the statement of claim. 2. Make the order claimed in paragraph 9(i) of the statement of claim. ********** Last Modified: 08/27/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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