Re M’s Codicil

These reasons for judgment are published in support of orders made yesterday (19 June 2018) for the determination of an application, under Division 2 of Part 2.2 (sections 18-26) of the Succession Act 2006 NSW, that a “statutory will” (more accurately, a court-authorised codicil) be made on behalf of a 93-year-old widow who presently lacks testamentary capacity.

The application was made in proceedings in which, on 6 October 2016, Hallen J made orders, under section 41 of the NSW Trustee and Guardian Act 2009 NSW, declaring the widow to be a person incapable of managing her affairs, and committing management of her estate to the NSW Trustee. The widow’s estate continues to be under protected estate management. She is a “protected person” within the meaning of section 38 of the Trustee and Guardian Act 2009.

The application was made by a notice of motion filed on 16 April 2018, amended on 8 June 2018.

The parties to the motion were the three children of the protected person (all adults) and, represented by the NSW Trustee as her tutor, the protected person herself.

The applicant was the only daughter of the protected person. The first and second respondents were her brothers, the sons of the protected person. The protected person was designated the third respondent.

The application arose in circumstances in which there had been (and, absent a court-authorised codicil, there might have continued to be) uncertainty as to the validity and construction of a codicil (for convenience, described in this judgment as “the second codicil”) executed by the third respondent.

The third respondent’s estate is large. Although there was no agreement as to its precise value, the evidence suggested that it is of the order of $26 million.

Each of the third respondent’s children has a close and affectionate relationship with her; but the children’s relationships, as between themselves, have been strained by uncertainty attending their mother’s testamentary arrangements.

The objective evidence, on both sides of the record, was that the third respondent has consistently, over a long period of time, expressed a desire, and intention, that her three children be treated “equally” by her.

On 26 April 2012 the third respondent executed a will which made provision, inter alia, for each of her children.

The gifts to her sons (the first and second respondents) took the form of gifts of property to testamentary trusts, established by the will, for their respective families. By clause 3(a) of the will, a gift to the applicant was charged with an obligation to pay a sum of money to those trusts. By clause 8, a gift of shares in a family company (the owner of land at Randwick) was given to the first respondent’s testamentary trust. By clause 9, a gift of shares in another family company was given to the second respondent’s testamentary trust. By clause 10, the same testamentary trust was given land at Spit Road, Mosman on condition of acceptance of responsibility for amounts due by the third respondent to the first mentioned company. By clause 11, after a direction for payment of the third respondent’s debts and testamentary expenses, and a direction for transfer of specific gifts identified in clauses 3 - 10 inclusive, the first and second respondents’ testamentary trusts were nominated as beneficiaries of the third respondent’s residuary estate.

A primary focus for attention in the will was clause 3(a). It dealt with the third respondent’s half share in a property at Stanley Avenue, Mosman. The property was owned by the third respondent (as to 50%), the applicant (as to 25%) and the applicant’s husband (as to 25%) as tenants in common.

The third respondent proposed, by clause 3(a), to give her half share of the property to the applicant, charged with an obligation to pay $2 million if and when the applicant should sell the property, with the intent that, at that time, $1 million of that charged sum would go to each of the testamentary trusts of the first and second respondents.

By the scheme of the will, the third respondent evidently intended that each of her children would acquire, or obtain the benefit of, a particular piece of real estate, not merely that there be equality of financial benefits under the will. The “equal treatment” she had in mind did not translate into a plan for her entire estate to be realised, with an equal division of the net realised estate. There was a qualitative, as well as a quantitative, character to the provision made for each child, taking into account each child’s connection with a particular piece of real estate and, possibly, inter vivos gifts generally.

On 24 July 2013 the third respondent executed a codicil to her will, the effect of which was that, if the Stanley Street property were to be sold for less than $20 million, the charge on the gift to the applicant under clause 3(a) of the will would be reduced to nil.

As it happened, the Stanley Street property was sold for $16 million in 2015, rendering the codicil of little practical significance. Such significance as it may have had appears to have been limited to: (a) confirmation of the 2012 will; and (b) possibly, confirmation of an intention on the part of the third respondent that her daughter could expect to receive provision under clause 3(a) of the will of the order of about $10 million.

On 4 July 2014 the third respondent executed another codicil (the second codicil) to her will. Omitting the formal parts, it was in terms to the following effect:

By a contract dated 1 September 2015, the Stanley Street property was sold for a gross price of $16 million.

The third respondent’s half share of the net proceeds of sale ($7,841,171.04) was paid to her.

The effect of the sale was prospectively to adeem the gift for which clause 3(a) of the third respondent’s will provided, and to render the third respondent’s first codicil practically otiose.

In presentation of their case – resisting any orders for a court-authorised codicil – the first and second respondents suggested that, if she encountered any difficulty with the testamentary instruments executed by the third respondent, the applicant is the author of her own misfortune because she arranged for the Stanley Street property to be sold when she did, before their mother’s death and at a price less than earlier anticipated.

During the course of proceedings on the applicant’s motion, each of the third respondent’s children shifted their positions from time to time, with different interpretations of what their mother meant, or may have meant, by “equal treatment” of them. Those shifts, and the competing cases presented, appear to have been driven by adversarial conflict between the siblings rather than simply a concern for accommodation of the third respondent’s intentions. The applicant abandoned her initial proposal for an equal division of the net realised value of the estate. Her brothers cautiously edged back from their reservation of a right to challenge the second codicil in other proceedings. Both sides maintained that there was an essential consistency in their respective cases. Both sides invited the Court to view the proceedings through their prism of the third respondent’s testamentary intentions.

As expressed by her, two primary concerns of the applicant remained:

During the course of the hearing, the first and second respondents came but slowly to confront these concerns directly, maintaining that they did not arise for consideration on the applicant’s motion – implicitly reserving a right to contest each point after the death of the third respondent and denying the applicant certainty in the meantime.

In closing submissions, as it seemed to me, the differences between the applicant on the one hand and, on the other, the first and second respondents were marginal. The brothers disclaimed any intention to challenge the validity of the second codicil. They agreed with the applicant that the amount of the provision intended to be made for her in the second codicil was an amount equal to the net proceeds of sale of the Stanley Street property received by the third respondent ($7,841,171.04), not half that amount. They took no substantive objection to clarification of the intention of the third respondent that, in the event of her residuary estate being insufficient to meet the gift to the applicant, then the gifts to her three children should bear unpaid liabilities rateably according to value, thereby circumventing any possibility of disputation arising (in the operation of section 46C of the Probate and Administration Act 1898 NSW and Part II of the Third Schedule to that Act) in administration of the third respondent’s deceased estate.

Having advanced alternative forms of instrument in support of her motion, the applicant ultimately invited the Court to authorise the making of a codicil in terms substantially to the same effect as the second codicil, nevertheless addressing her underlying concerns about the second codicil. She submitted that the making of a court-authorised codicil would – as, I trust, it will - remove any possibility of post-death litigation about the validity of the second codicil. The same was said about resolving questions of construction about the amount of provision to be made for her, and about the order of application of assets in administration of the third respondent’s deceased estate.

Although, in the end, there was substantive agreement between the siblings about the third respondent’s intentions, the first and second respondents maintained that it was not open to the Court to authorise the making of a codicil because, it was contended, the statutory criteria for such a codicil had not been met.

I do not accept this submission. I will, in due course, address the criteria specifically.

At one point during submissions, the primary concern of the first and second respondents appeared to be a concern about the costs of the motion. That concern threatened to divert attention away from substantive questions for determination. Accordingly, I determined that, the most efficacious way of proceeding upon an exercise of jurisdiction intended to be protective of the third respondent, was to reserve the question of costs for consideration after attending to the substantive application for a court-authorised codicil.

Division 2 of Part 2.2 (sections 18-26) of the Succession Act is in the following terms (with emphasis added):

There is no dispute, in these proceedings, about the current status of the third respondent as “a person who lacks testamentary capacity” within the meaning of the Succession Act, section 18(1).

In terms of the categorisation of cases found in Re Fenwick Application of JR Fenwick; Re “Charles” (2009) 76 NSWLR 22 at [154], this is a “lost capacity case”. That is, a case in which the incapacitated person (the third respondent) is an adult, has formed family and other personal relationships, has made a valid will before testamentary incapacity occurred, and is now said to have expressed some testamentary intention in relation to the circumstances sufficient to warrant an application for a statutory codicil or new will.

The jurisdiction conferred on the Court by the Succession Act is essentially, in nature, protective of the incapacitated person.

Accordingly, upon an exercise of the jurisdiction, the Court must remain mindful that whatever is done, or not done, for or on behalf of the person in need of protection must be for the benefit, and in the interests, of that person: GAU v GAV [2016] 1 Qd R 1 at [48] and [52]; Re K’s Statutory Will [2017] NSWSC 1711 at [19]-[21].

The applicant’s application under section 19 of the Succession Act was supported by evidence directed to the topics identified in that section.

On the hearing of an application for leave under section 19, the Court may grant leave only if it is satisfied of the five matters specified in section 22 of the Succession Act. In determining to grant leave to make an application for a court-authorised codicil (and proceeding, under section 20, to engage section 18), I was satisfied on each of those topics.

First, there was reason to believe that the third respondent was incapable of making a will: Succession Act, section 22(a). That much was common ground. The third respondent has no knowledge, memory or understanding of the nature or extent of her assets. She has no understanding of the nature or effect of a will. She has no ability to remember, reflect upon or reason about competing claims on her bounty. She lives in a nursing home with a high level of care.

Secondly, the proposed codicil, so far as it mirrored the second codicil, had the imprimatur of the third respondent’s signature, attested by two witnesses. Insofar as it addressed doubts about the proper construction of the second codicil, there was ultimately no substantive dispute between the parties about the third respondent’s intentions: Succession Act, section 22(b).

Thirdly, in my opinion, it was “appropriate” for an order to be made for leave to apply for a court-authorised codicil: Succession Act, section 22(c). It was in the interests, and for the benefit, of the third respondent that clarity and certainty be brought to her testamentary arrangements in an endeavour to minimise friction within the family, upon whose continued support the third respondent continues to rely.

Fourthly, the applicant was “an appropriate person” to make an application for leave because she was the person directly, adversely affected by any lack of clarity in the third respondent’s testamentary arrangements: Succession Act, section 22(d).

Fifthly, adequate steps had been taken to allow representation of all persons with a legitimate interest in the application (Succession Act, section 22(e)), in circumstances in which the third respondent’s principal beneficiaries (her nearest relatives) were party to the proceedings; the third respondent’s protected estate manager represented her on the hearing of the motion; and the few legatees who were not represented at the hearing had but a small, prospective interest in the third respondent’s estate, which interest was able to be preserved in the making of the Court’s orders.

In granting leave under section 19 of the Succession Act for the applicant to make an application to the Court for an order under section 18, the Court must be satisfied that it has been placed in a position to make the necessary, broad evaluative judgements about the personal, and family, circumstances of the incapacitated person: GAU v GAV [2016] 1 Qd R 1 at [50].

In my opinion, a proper exercise of discretion under section 19, favoured a grant of leave to the applicant.

The fact that the form of instrument ultimately promoted for the Court’s approval was, in substance, confirmatory of the third respondent’s own document was no impediment to a grant of leave under section 19 (or, indeed, to a grant of authority under section 18) in circumstances in which there was utility in the relief granted by the Court.

It is not necessary, as a matter of jurisdiction, for an authorised will or codicil to differ in terms from a testamentary instrument made without the intervention of the Court. Use of the expressions “made” and “altered” in section 18 of the Succession Act do not implicitly impose such a requirement. If it were beneficial to an incapacitated person to make a will or codicil which simply republished an existing will or codicil then the jurisdiction conferred by the Succession Act would extend to an order for that to be done. However, that is not precisely this case. The approved codicil substantially confirms the terms of the second codicil, but it does not simply republish that document. It is, in terms, different. Its execution pursuant to orders of the Court overcomes any controversy attaching to the validity (or proper construction) of the second codicil, and reduces any prospect of an application for family provision relief under Chapter 3 of the Succession Act.

In approving the specific terms of a court-authorised codicil for the third respondent, upon an exercise of the jurisdiction for which section 18 of the Succession Act provides, I was mindful of the third respondent’s stated intention that her children be “treated equally”; the detailed scheme of the will in which she gave expression to that intention; the desirability of bringing certainty to her testamentary arrangements so as to minimise friction between her children at a time when, and in circumstances in which, she needs support from all of them; and the desirability of not interfering with the provision made by the third respondent for persons not represented in the proceedings.

The court-authorised codicil is calculated to give effect to the third respondent’s testamentary intentions as expressed in her will, the first codicil and the second codicil, allowing for the fact of sale of the Stanley Street property and a need to bring clarity and certainty to her testamentary arrangements, minimising any prospect of future litigation involving her estate.

It was in these circumstances that, having heard evidence and submissions for and against the applicant’s motion, I made orders and notations to the following effect:

The fact that the codicil favoured by the Court differed, at least in form, from any of the drafts advanced by the applicant was no reason for withholding the Court’s approval. Section 20(2) of the Succession Act authorises the Court to revise the terms of any draft instrument advanced by a party. The Court is obliged to give such judgment or make such order as the nature of the case requires: Civil Procedure Act 2005 NSW, section 90; Uniform Civil Procedure Rules 2005 NSW, rule 36.1. The parties were actively engaged in the process of formulating the terms of the codicil approved, with an opportunity to make submissions at each stage of the process. Ultimately, no objection was taken to the form of the document.

Following entry of the orders made authorising the making of the approved form of codicil, a Registrar of the Court signed and sealed the authorised codicil, a copy of which was then supplied to the parties.

As agreed at the time the Court’s orders were made, the parties are invited to consider questions of costs in light of these reasons for judgment and, if adjudication of any costs questions is required, to arrange for the proceedings to be re-listed at a time convenient to all concerned.

There is no reason to suppose that the NSW Trustee cannot, in the ordinary course, have recourse to the estate of the third respondent for payment of its costs. The larger question is what, if any, orders for costs are to be made directly affecting the applicant and her siblings.

In accordance with the practice of the Court upon an exercise of protective jurisdiction, orders for costs do not routinely “follow the event” but are made, or not, in response to the question, “What is the proper order for costs to be made?”. See Uniform Civil Procedure Rules 2005, rule 42.1; CCR v PS (No. 2) (1986) 6 NSWLR 622 at 640.