Winn v Harding

These proceedings concern the estate of the late Karen Winn, who died on 20 April 2012 at the age of 51. The plaintiff is her mother, Maureen Winn. She is the executor and a beneficiary of the estate. The plaintiff obtained a grant of probate on 14 September 2012 in respect of a will of the deceased made on 19 January 2012.

The defendant is Lorna Harding. She was a friend and former partner of the deceased. She is also a beneficiary of the estate.

The assets of the estate include a property in Bathurst, and a property in Fairfield West. Valuations of the properties as at the date of death indicate that the Bathurst property was then worth $310,000 and the Fairfield West property was then worth $450,000. Both parties accept the accuracy of the valuations.

As at the date of death both properties were subject to a registered mortgage in favour of Bank of Western Australia Ltd (“Bankwest”). That mortgage (AF417855), which is now held by Commonwealth Bank of Australia, remains on the title to each property. The mortgage secures all money owed to Bankwest or its successors and assigns. It is common ground that at the time of her death, the deceased owed $114,759.66 to Bankwest. That amount was owed pursuant to two loan accounts (account number 160015-6 and account number 160804-9).

By cl 4 of the will the Bathurst property was given to the plaintiff. By cl 12 of the will the Fairfield West property was given to the plaintiff and the defendant as tenants in common in equal shares. By cl 8 of the will certain rights of occupation were conferred upon the defendant in respect of the Fairfield West property. The defendant has exercised those rights since the testator’s death.

The principal issue in the proceedings concerns the extent to which the Bathurst and Fairfield West properties are, for estate administration purposes, respectively liable for payment of the monies secured by the mortgage over them. The determination of that issue essentially depends upon the operation of s 145 of the Conveyancing Act 1919 (NSW).

There is also an issue as to the rights of the plaintiff to reimbursement or recovery arising from payments she has made to the loan accounts since the deceased’s death. By late 2016 such payments had reduced the overall level of debt to about $59,000.

Certain claims made by the plaintiff for recovery in respect of debts said to have been incurred by the deceased in her lifetime were not pressed at the hearing.

The will relevantly provides:

Section 145 of the Conveyancing Act is derived from the English Locke Kings Acts of 1854, 1867 and 1877 (see R A Woodman, Administration of Assets Second Edition, 1978 at pages 89-90). The section provides:

In this case, the will of the deceased disposes of the Bathurst and Fairfield West properties which were, at the time of her death, charged with the payment of money to Bankwest. Accordingly, those properties constitute property that falls within s 145(1)(a) of the Conveyancing Act. It follows that unless the deceased has by will, deed, or other document signified a contrary or other intention, that “property so charged” shall be primarily liable for the payment of the charge and every part of such property shall, according to its value, bear a proportionate part of the charge on the whole of it.

In McPhie v Mackay [1975] 2 NSWLR 369 Holland J considered the operation of s 145 of the Conveyancing Act. His Honour stated (at 372-3):

Following that approach, the first question is to ascertain whether the will, properly construed, contains any provision for the payment of debts. The deceased’s will clearly includes a provision for the payment of debts in cl 13. Clause 13 expressly provides, in paragraph (a), that the residue of the estate is to be held by the trustee to pay “all debts…funeral and testamentary expenses and any death, estate or succession duties”.

The next question to arise, adopting the approach taken in McPhie v Mackay (supra), is whether that provision for the payment of debts falls within either s 145(2)(a) or s 145(2)(b). In my view, cl 13 falls within s 145(2)(a) in that it contains a general direction for the payment of all of the debts of the testator out of the testator’s residuary real and personal estate. Following the approach taken in McPhie v Mackay (supra) it then becomes necessary, in order that the operation of s 145(1) can be displaced by a contrary or other intention, to find words that either expressly or by necessary implication refer to all or some part of the charge over the relevant property.

In this case, both the charge over the Bathurst property and the charge over the Fairfield West property are expressly referred to in cl 13 (see paragraphs (c) and (b) respectively). It seems to me that a question thus arises as to whether a contrary or other intention is “further signified” by those express references.

Before turning to that question some observations should be made concerning the notion of “contrary or other intention”.

The relevant intention for the purposes of s 145(1) is that the charged property (referred to as “the property so charged”) shall, as between the persons claiming through the deceased, be primarily liable for payment of the charge, and every part of the property, according to its value, shall bear a proportionate part of the charge over the whole of the property.

In Re Horton (deceased) [1969] NZLR 598 at 601, a case concerning s 149 of the Property Law Act 1952 (NZ), Richmond J referred to the editorial note to Re Wakefield [1943] 2 All ER 29 and adopted it as a correct statement of the law. The note reads:

Richmond J continued in Re Horton (deceased) (supra) at 601:

In my opinion, the express references in cl 13 of the will to the mortgage over the Fairfield West property and the mortgage over the Bathurst property do signify a contrary or other intention for the purposes of s 145(1) of the Conveyancing Act. The references follow the general direction in cl 13(a) for the payment of all of the debts of the testator out of the residuary estate. The expression “all debts…” found in paragraph (a) is apt to include the mortgage debt in respect of the two properties (see Re Forsyth; Wyatt v Forsyth (1929) 29 SR (NSW) 411 at 416). The references in paragraphs (b) and (c) to the discharge of the mortgage over each property reveal an intention that the mortgage debt, along with all other debts, would be paid out of the residuary estate, and that upon the payment of the mortgage debt the mortgage over both properties should be discharged. However, I do not think that cl 13 can be read as providing for an order for the payment of debts whereby the debt secured over the Fairfield West property is to be met out of the residuary estate before the debt secured over the Bathurst property. The clause does not include language apt to establish an order for payment (e.g. “and then…”), and the inclusion of “legacies” in paragraph (a) tends against it. In any case, the same debt is secured over each property, and there is but one mortgage over both properties.

In my opinion, the references to the mortgage signify an intention that, as between the persons claiming through the deceased, the residuary estate (which, if sufficient, ultimately devolves upon the plaintiff) shall be primarily liable for the payment of the charge. To that extent only, a contrary or other intention for the purposes of s 145(1) is shown.

I note that the defendant did not submit that a contrary or other intention was shown in that way. It was the defendant’s contention that a contrary or other intention could be found in the terms of cl 8 of the will, which contains directions concerning the Fairfield West property. It was submitted that those provisions (in particular paragraphs (a), (b) and (d)) reveal an intention that the property not be sold for so long as the defendant exercised her rights to live in the property, provided only that the defendant met the various conditions placed upon such right. The defendant submitted that there was an intention that the Bathurst property be resorted to first for the payment of the mortgage debt.

I do not agree that cl 8 contains a contrary or other intention that displaces the operation of s 145(1) in relation to the Bathurst and Fairfield West properties. Clause 8 is concerned with the right given to the defendant to reside in the Fairfield West property (see Batey v Potts (2004) 61 NSWLR 274; [2004] NSWSC 606 at [25]). It does not in terms deal with the payment of debts or with liability for debts as between the beneficiaries. It is evident from the terms of the will, in particular cl 13, that the deceased hoped that the residue of the estate might be sufficient to pay all debts so as to enable a discharge of the mortgage over the Fairfield West and Bathurst properties, and indeed leave a surplus that could be applied towards the maintenance and upkeep of the Fairfield West property until it was sold. Clause 8, when read in that context, cannot in my view be read as providing, in effect, that the mortgage debt be borne primarily by the Bathurst property. Neither does it exhibit an intention that the mortgage debt be borne primarily by the Bathurst property in the event that the residue proves inadequate for the payment of all debts.

I have therefore concluded that the will signifies a contrary or other intention for the purposes of s 145(1) of the Conveyancing Act, namely, that the residuary estate is to be primarily liable for the payment of the mortgage.

However, as matters turned out, the residuary estate was inadequate to meet all of the testator’s debts, including the mortgage debt. The residuary estate appears to have had a value of only about $21,000. The Locke Kings legislation has been interpreted so that charged property is exonerated from primary liability for the charge only to the extent of the contrary or other intention shown. Accordingly, if a fund that is earmarked for payment of the charge proves insufficient, the charged property is primarily liable for the remaining debt (see In re Birch [1909] 1 Ch 787 at 789-790; In re Fegan [1928] 1 Ch 45 at 51-53).

That being the case, upon the exhaustion of the residuary estate the Bathurst and Fairfield West properties remain, as between the persons claiming through the deceased, primarily liable for the payment of the mortgage. In addition, the respective properties must bear a proportionate part of the mortgage debt secured over both properties, according to their respective values (see Haimes v Goode (1932) 33 SR (NSW) 1 at 6; Sotiropoulos v Sotiropoulos (supra) at [31] and [88]). At the date of the death of the testator, the Bathurst property was worth $310,000 and the Fairfield West property was worth $450,000. On that basis, the respective portions to be borne are 31/76 for Bathurst and 45/76 for Fairfield West.

The parties submitted a schedule of calculations to the effect that the amount of the mortgage debt as at the date of death, plus interest, is $134,339.72. If that is correct, the amount to be borne by the Bathurst property would be $54,796.46 and the amount to be borne by the Fairfield West property would be $79,543.26. Expressing the matter in terms of the burden to be borne by the beneficiaries of the gifts of the properties, the plaintiff would have to bear $94,568.09 and the defendant would have to bear $39,771.63.

The respective burdens to be borne by the beneficiaries may be affected by payments the plaintiff has made on account of the mortgage since the date of the testator’s death. The evidence is unclear as to the amount of the payments so made by the plaintiff, but the reduction of the mortgage debt to about $59,000 suggests that the amount is considerable.

The plaintiff, in her capacity as executor, is prima facie entitled to be indemnified out of the assets of the estate for the total amount of such payments (see Hardoon v Belilios [1901] AC 118 at 123-125). The plaintiff may enforce that right by way of an equitable lien or charge over the trust assets (see Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367). That interest prevails over the interests of beneficiaries, so that the beneficiaries cannot call for a distribution of assets until the charge is satisfied (see Vacuum Oil Company Pty Ltd v Wiltshire (supra) at 335; Octavo Investments Pty Ltd v Knight (supra) at 367; Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [47]-[49]). The lien or charge is enforceable by a court order for the sale of trust property. The trustee satisfies the indemnity by way of reimbursement out of the proceeds of sale.

To the extent that the plaintiff does not exercise her rights of indemnity, her interest would nonetheless need to be taken into account in assessing the rights of the beneficiaries of the estate inter se (see Balkin v Peck (1998) 43 NSWLR 706 at 712).

The plaintiff has indicated that unless the defendant finds some way to meet her share of the burden of the mortgage that is to be borne by the Fairfield West property, the plaintiff will seek an order for the sale of that property. The plaintiff has agreed to allow a reasonable period to enable the defendant to seek to come up with the funds necessary for that purpose. I think that is an appropriate and sensible course to take in the circumstances. A period of about two months seems to me to be sufficient. If a satisfactory resolution of the matter cannot be achieved in that time, the Court will entertain an application by the plaintiff for an order for sale.

At this stage, the Court will give declaratory relief to the effect: (1) that the will signifies a contrary or other intention within the meaning of s 145(1) of the Conveyancing Act that the residuary estate shall be primarily liable for payment of mortgage AF417855; and (2) that in circumstances where the residuary estate is insufficient for the payment of all debts the mortgaged properties remain, as between the persons claiming through the deceased, primarily liable for payment of the mortgage, with the Bathurst property to bear 31/76 of the burden and the Fairfield West property to bear 45/76 of the burden.

The Court directs that the parties bring in, within 14 days, Short Minutes of Order which give effect to these reasons.