Can the Executor rescind a Sale Contract after death of Vendor: Carolyn Deigan as executrix for the estate of the late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299 and ss 44 and 61 Probate and Administration Act, 1898

In a decision delivered 10 December 2019 the NSW Court of Appeal considered whether the executrix of a deceased vendor, Mr Lockrey, could exercise his rights of rescission under a sale contract. Notices of rescission were served, firstly, after the death of the vendor but before Probate was granted; and, secondly, after Probate.

In the course of the proceedings the Court was required to determine whether ss 44 and 61 of the Probate and Administration Act rendered invalid the first rescission because the appellant, although named in the will as executrix, had not obtained probate at the time of her exercising the right to rescind, and if so, whether the subsequent grant of probate “related back” so as to retrospectively validate the rescission.

The Court allowed the appeal and found the contract validly rescinded by the Executrix.

The legislation

Powers of named executor before grant of probate: Sections 44 and 61 of the Probate and Administration Act 1898 (NSW) relevantly provide (emphasis added):

“44 Real and personal estate to vest in executor or administrator

1. Upon the grant of probate of the will or administration of the estate of any person dying after the passing of this Act, all real and personal estate which any such person dies seised or possessed of or entitled to in New South Wales, shall as from the death of such person pass to and become vested in the executor to whom probate has been granted or administrator for all the person’s estate and interest therein in the manner following, that is to say:
   1. on testacy in the executor or administrator with the will annexed.
   2. on intestacy in the administrator.
   3. on partial intestacy in the executor or administrator with the will annexed.”

“61 Property of deceased to vest in NSW Trustee

From and after the decease of any person dying testate or intestate, and until probate, or administration, or an order to collect is granted in respect of the deceased person’s estate, the real and personal estate of such deceased person shall be deemed to be vested in the NSW Trustee in the same manner and to the same extent as aforetime the personal estate and effects vested in the Ordinary in England.”

Facts of the Case

1. The contract included special condition 33.2:
   “… should either party prior to completion … die … then in the case of the vendor or the purchaser, either party may rescind this contract by notice in writing forwarded to the solicitor for the other party and this contract shall be at an end and the provisions of clause 19 shall apply.”;
2. Completion of the sale was due to take place on 10 May 2017. Neither Mr Lockrey, nor the purchaser (Mr Fussell), sought to make arrangements to enable completion to take place on that day;
3. Mr Lockrey died on 12 May 2017;
4. On 18 May 2017 Carolyn Deigan, his executrix, served a notice of rescission (the first rescission). Ms Deigan was also his solicitor, of the firm CLS Legal;
5. The validity of the notice was disputed by Etienne Lawyers for the purchaser, who contended that special condition 33.2 of the contract only allowed rescission by the surviving party and did not permit the “vendor’s successor” to rescind the contract in the event of the vendor’s death;
6. On 2 June 2017 CLS Legal informed Etienne Lawyers that Ms Deigan was the executrix of the will of the vendor. In reply Etienne Lawyers asked for a copy of the will and Probate;
7. On 21 September 2017 Probate of Mr Lockrey’s will was granted to Ms Deigan;
8. A copy of Probate was forwarded on 4 October 2017 to Etienne Lawyers;
9. Ms Deigan served a 2nd notice of rescission on 16 October 2017; and
10. In the course of the subsequent proceedings by Mr Fussell for specific performance and other orders, it was contended that on its proper construction, special condition 33.2 giving a right of rescission could only be availed of by the surviving party and not by the representative of the party who had died; Ms Deigan contended that as executrix named in the will who later obtained a grant of probate she had authority to exercise the right of rescission conferred by cl 33.2 and did so by the notice of rescission that she gave on 18 May 2017 as solicitor on behalf of the estate. The primary judge rejected this contention.

The Court of Appeal decision

As to the construction ground:

1. Clause 33.2 expressly provides that in the case of the vendor dying, “either party” (i.e. including the vendor) may rescind: [39]-[40];
2. There is no contextual basis for the argument that the right of rescission was only available to the surviving party to the contract. The right extended, on Mr Lockrey’s death, to his legal personal representative: [40];
3. Owing to the death of Mr Lockrey and on the assumption that Ms Deigan’s failure to obtain probate at the time precluded her from rescinding, there was no “party” (as defined in the contract) capable of giving a notice of rescission. It must follow that a notice, given by the solicitor who had been acting for the vendor prior to his death, could not be a notice of rescission given by or on behalf of a “party” under cl 33.2: [57]-[59]; and
4. In any event, the firm of solicitors which in fact gave the notice of rescission was not the same entity named as the solicitor on the contract: [53]-[54].
   The real question, insofar as the first rescission is concerned, is therefore whether Ms Deigan in her capacity as executrix had authority to rescind notwithstanding her not having obtained probate: [60].

As to the breach ground:

5. Neither party took steps to complete the contract on the date for completion. The primary judge was correct in deciding that in circumstances where the appellant made no attempt to proceed to completion, the vendor was not in breach by his reciprocal inaction: [190]-[192]; and
6. Although the respondent took steps to book a settlement and served a notice to complete, he did not take all steps required on his part that were necessary for completion either by Ms Deigan as executrix or by anyone who obtained a limited grant of administration. Ms Deigan did not take advantage of her own wrong in not obtaining an earlier limited grant of administration, as such a grant would have been made for the purpose of her rescinding the contract, not completing it: [207], [222], [225]-[227].

As to the Probate and Administration Act ground:

7. The title of the NSW Trustee is a bare legal title that carries with it no active duties or powers of management or administration. The executor is the beneficial owner of the assets of the estate and is entitled to possession of the trust assets. The executor has authority, derived from the will, to deal with the trust assets before the grant of probate: [79]-[95], [168], [174]-[176];
8. The above authority is restricted only by necessary implication of legal title being outstanding in the NSW Trustee by operation of s 61. Such vesting is only for the purpose of avoiding a hiatus in the legal estate. The first rescission was not restricted by the interim vesting of legal title in the NSW Trustee and was valid at the time notice was given: [109]-[171], [176], [179]-[180];
9. Even if it were not valid when notice was given, the first rescission would have been retrospectively validated on the grant of probate. The retrospective vesting under s 44 is not limited by the same limitations that applied at general law to the doctrine of relation back to an administration, nor is it limited by implication from s 61: [69]-[79], [164]-[168], [177], [187];
10. White JA considered the appeal should be allowed on the basis that the contract was rescinded on the date of the first rescission: [187]. However, the other two judges considered the appeal should be allowed but on the basis that the contract was rescinded no later than 16 October 2017, the date of the second rescission: [6].

This article was written by Michael Henley, Partner and Christine McPhillips, Special Counsel.