Bovaird v Frost

Background

1. These proceedings are part of a long running dispute between two branches of a family.
2. The dispute has its genesis in an agreement reached between a sister and brother, now both deceased.
3. The sister is the late Monica Bovaird, who was originally the first plaintiff in these proceedings. The brother is the late Maxwell ("Max") Frost whose children, Alan Maxwell Frost and Diana Catherine Fallon, are the executors of his estate and are the defendants to the proceedings. Max died on 26 November 2002. Monica died on 29 November 2011. The only plaintiff is now Leon Bovaird, who is Monica Bovaird's son and the executor of her estate. Leon Bovaird is also a plaintiff in his own right.
4. For convenience, and without intending any disrespect, I will refer to the parties by their first names.
5. The agreement between Monica and Max is described by the parties as "the May 2001 Contract". In a judgment given on 30 April 2009 in proceedings brought by Monica and Leon against Alan and Diana, as executors of Max's estate, Brereton J found that the May 2001 Contract had been established. His Honour found that pursuant to the May 2001 Contract Max agreed to do two things: 1. fund Monica's retirement accommodation on a particular basis (which his Honour called "the accommodation care term"); and 2. provide Monica and Leon with an interest free unsecured loan of $880,000 for a term of 10 years for the purpose of Monica and Leon redeveloping a property at Cecil Street, Gordon, in which Monica and Leon were then living (which his Honour called "the redevelopment loan term") (Bovaird v Frost [2009] NSWSC 337 at [61]).
6. By a separate judgment published on 4 September 2009 (Bovaird v Frost [2009] NSWSC 917) Brereton J entered judgment in favour of Monica against Alan and Diana (as executors of Max's estate) in the sum of $1,239,110 comprised as follows: 1. $648,731 for breach of the "accommodation care term"; and 2. $590,379 for breach of the "redevelopment loan term".
7. So far as the latter is concerned, his Honour made the following findings in his 30 April 2009 judgment: 1. the Cecil Street property was capable of redevelopment in the manner contemplated (at [79]); 2. such redevelopment could have been completed by 1 April 2004 (at [79]); 3. had Max or his estate performed his or its obligation there was at least an 85 per cent probability that the Cecil Street redevelopment would have proceeded and been completed (at [79]); 4. nonetheless Monica, and to the extent relevant, Leon, had not forever lost the opportunity of conducting some such development of Cecil Street if they could raise funds by other means (at [87]); 5. Monica was able to obtain a replacement loan, albeit on terms less generous than those agreed to by Max (at [88] to [89]); and 6. Monica's damages for breach of the redevelopment loan were $590,379 comprising the interest Monica would have to pay and on an alternative commercial loan for the 10 year period of the loan promised by Max ($572,000) together with borrowing costs on an alternative commercial loan ($18,379) (at [90]).
8. On 15 September 2009, 11 days after Brereton J's orders, Alan and Diana commenced proceedings in the Federal Magistrates Court of Australia seeking to place Max's estate into bankruptcy.
9. In his affidavit filed in the Federal Magistrates Court on 15 September 2009 in support of that application (which was sworn three months earlier, on 12 June 2009) Alan swore that Max's estate, as at 26 May 2009, had a deficiency of liabilities over assets of $547,919.80.
10. On 23 October 2009, the Federal Magistrates Court made a sequestration order in respect of Max's estate.
11. On 4 December 2009, Monica and Leon filed an appeal to the Court of Appeal against Brereton J's judgment and orders (contending, amongst other things, that his Honour should have awarded them a higher sum).
12. On 16 February 2010, Monica and Leon commenced these proceedings alleging that Alan and Diana, as executors of Max's estate, had: 1. acted in breach of "a duty to [Monica] and [Leon] to properly preserve, protect and administer the assets of [Max's] estate" and "to make proper and adequate provision" for Max's estate's liabilities arising out of Brereton J's judgment; and 2. committed the tort of devastavit.
13. Those allegations related to payments that Alan and Diana had caused Max's estate to make to: 1. Max's estranged wife, Margaret Frost, to settle a foreshadowed family provision claim; 2. Messrs Addisons, solicitors, in respect of costs incurred in proceedings brought by, amongst others, Max and Terrificus Pty Ltd; 3. Diana in respect of legal costs she had incurred in proceedings before the Guardianship Tribunal; and 4. AFM Developments Pty Ltd, a company associated with Max.
14. Monica and Leon then brought proceedings in the Federal Court of Australia seeking leave pursuant to s 249(3)(b) of the Bankruptcy Act 1966 (Cth) to prosecute their appeal to the Court of Appeal and to bring these proceedings. Alan and Diana also commenced proceedings in the Federal Court seeking declarations as to the manner in which Max's estate's trustee in bankruptcy should deal with the bankrupt estate and seeking a stay of these proceedings. In turn, the trustee commenced proceedings seeking various directions.
15. Perram J heard each of those applications. Relevantly, his Honour granted Monica and Leon leave to proceed with the Court of Appeal proceedings other than so much of their appeal as would increase the quantum of damages, and granted Monica and Leon leave to bring these proceedings: Bovaird v The Trustee of the Bankrupt Estate of Frost [2010] FCA 1159; Bovaird v The Trustee of the Bankrupt Estate of Frost (No 2) [2011] FCA 465.
16. Each of Alan and Diana, and Monica and Leon, appealed against Perram J's orders. So far as is relevant to these proceedings, the appeals and cross-appeals were dismissed: Frost v Bovaird [2012] FCAFC 60 and Frost v Bovaird (No 2) [2012] FCAFC 69 per Jacobson, Siopis and Nicholas JJ.
17. Those matters were finally resolved when, on 12 September 2014, the High Court of Australia refused Alan and Diana special leave to appeal.
18. In the meantime, on 24 April 2013, the appeal to the Court of Appeal was dismissed: Bovaird v Frost [2013] NSWCA 91 per Basten JA.

The application to amend

1. As I have mentioned, the proposed Amended Statement of Claim recasts Leon's case.
2. The proposed Amended Statement of Claim also identifies what Mr Condon SC, who appeared with Mr Doyle Gray for Leon, described as a "3-stage procedure to resolve the dispute" as follows: "(1) first, a hearing as to whether the defendants should account to the plaintiffs, and if so, on the basis of wilful default or in common form, and to what extent [for] all, or only some, of the dealings and transactions with the deceased estate (this is [to be] the subject of the 5 day hearing commencing 1 June 2015) (2) second, another hearing, being the account and inquiry itself, that by reference-out will include the question of the assessment of costs incurred in various New South Wales proceedings, and the taxation of costs in various federal proceedings, and (3) third, a hearing for 'further consideration' by the Court about the final relief that should flow, in line with normal Equity procedure in the taking of accounts on a wilful default basis: Meehan and Ors v Glazier Holdings Pty Ltd [2002] NSWCA 22; (2002) 54 NSWLR 146".
3. There has not yet been an order to the effect that these proceedings should be resolved by the "3-stage procedure" that Mr Condon proposes. At the moment the whole of the proceedings are listed for hearing on 1 June 2015. It will be a matter for Lindsay J as to whether the matter proceeds as Mr Condon proposes.
4. The basis upon which Mr Cotman SC, who appeared with Mr Carruthers for Alan and Diana, resisted the granting of leave to amend the Statement of Claim was that the relevant aspects of the pleadings were "hopeless" (Mr Cotman's word) and that a grant of leave would be futile.
5. In written submissions, delivered prior to the hearing before me, Mr Cotman challenged a large number, although not all, of the amendments that Leon now proposes to make to the Statement of Claim.
6. Ultimately only some of those were developed in oral submissions.

The formulation of duty

1. As I have mentioned, in the Statement of Claim Monica and Leon alleged the breach of duty that I set out at [15] above and that Alan and Diana had committed the tort of devastavit.
2. The proposed Amended Statement of Claim elaborates on the allegations of breach of duty and alleges that Alan and Diana owed creditors of Max's estate duties both in equity and at common law to, amongst other things, make provision for debts of the estate and to pay liabilities of the estate with due diligence.
3. Mr Cotman contended that the manner in which the duties had been enunciated was "hopelessly bad" and not justified by authority.
4. On the other hand, Mr Condon submitted that the allegations of breach of duty in the proposed Amended Statement of Claim were justified by such authorities as In Re Tankard; Tankard v Midland Bank Executor and Trustee Company Limited [1942] 1 Ch 69; Skaftouros v Dimos [2002] VSC 198 and Bupa Care Services NZ Ltd v Gillibrand [2013] NZHC 2086 and by the authors of Williams, Mortimer and Sunnucks, Executors, Administrators and Probate, (20th ed 2013, Sweet and Maxwell).
5. These matters were not pursued by either counsel in oral submissions. In those circumstances, and as the Statement of Claim alleges breach of duty in the manner I have described as well as the tort of devastavit, and as the proposed formulation of duty is, based on these authorities, at least arguable, I propose to allow these aspects of the proposed amendments.

The payments concerning Margaret Frost, Terrificus, AFM Developments and Diana

1. Mr Cotman submitted that there were deficiencies in the manner in which the proposed Amended Statement of Claim sought to articulate Leon's claims concerning these payments.
2. However, complaint is made in respect of each of the payments in the Statement of Claim. The amendments to the pleadings in respect of these claims do little more than add further particularity to the claims. I do not see any of them as being so "hopeless" as to be summarily dealt with at this stage and propose to allow the amendments sought.

The "wasting assets on unnecessary bankruptcy" claim

1. In par 60 of the proposed Amended Statement of Claim it is alleged that: "On 15 September 2009, [Alan] and [Diana], in their capacities as executors of the estate of [Max], wasted estate assets and incurred unnecessary future liabilities, by causing the estate of [Max] to be placed into bankruptcy [on the grounds that the estate was insolvent]".
2. This claim is not made in the Statement of Claim.
3. When the matter was before me on 12 March 2015, Mr Cotman submitted that this amendment should not be allowed because, assuming the correctness of all the factual allegations then proposed to be made, Max's estate was nonetheless "manifestly insolvent".
4. Arising out of that submission, Mr Condon sought to revise the manner in which this aspect of the claim was put. Thus, a revised proposed Amended Statement of Claim, dated 13 March 2015, was circulated on 16 March 2015.
5. That revised document alleged that: "62. The evidence tendered to the Federal Magistrates Court said to prove insolvency of the estate in fact materially misrepresented the true financial position by at least about $725,428.50, when in fact the true financial position was that the estate was solvent with a surplus of about $177,508.79…. 63. As at 15 September 2009: (1) the true financial position of the estate was that it was solvent; (2) there was no need to place the estate into administration for bankruptcy; and (3) the costs incurred by the estate that were occasioned by the estate being placed into administration for bankruptcy were unnecessary."
6. It is alleged that in those circumstances Alan and Diana acted in breach of an alleged "equitable duty to creditors of the estate", and an alleged "duty at common law to creditors" and committed the tort of devastavit.
7. The basis upon which it is alleged that Max's estate was in surplus, rather than deficiency, is that although Alan, in his affidavit referred to at [12], overstated the value of one asset (cash at bank) and understated one liability (the amount of Brereton J's judgment), he: 1. understated the value of shares and dividends; 2. failed to bring to account alleged assets of Max's estate represented by its entitlement to recover the payments referred to at [16] together with interest at court rates on those payments (other than the payment to AFM Developments which is expressly excluded from this aspect of the claim: see footnote b to the text at [62] of the proposed Amended Statement of Claim).
8. On the figures now alleged in the proposed Amended Statement of Claim (assuming their correctness, their recoverability and an entitlement to interest at court rates), Max's estate was in surplus in the amount referred to in proposed par 62, set out at [39] above; namely $177,508.79.
9. This revision to the proposed Amended Statement of Claim thus answers, at least arguably, Mr Cotman's submission outlined at [37] above.
10. A number of factual and other issues will arise in relation to this claim. Does Max's estate have an entitlement to recover the payments referred to at [16]? What "unnecessary" costs has Max's estate incurred by reason of the sequestration order? To what extent are such costs caught up in costs orders made in the Federal Court proceedings referred to at [17] to [19] above? Should Leon and Monica have sought to dissolve the sequestration order? Is this a matter that should properly have been litigated in the Federal Magistrates Court?
11. However, I do not consider it appropriate for me to endeavour to assess at this stage the likelihood of Leon establishing these matters. On an application such as this I should, I think, proceed on the basis that Leon can make out his factual allegations. On that basis, the case is sufficiently arguable to warrant the grant of the leave.

The "SEPP 53" claim

1. As I have set out above, in his judgment of 30 April 2009, Brereton J found that Max's estate was liable to pay damages to Monica for breach of the redevelopment loan term of the May 2001 Contract.
2. One of his Honour's findings was that, notwithstanding Max's refusal to perform the May 2001 Contract, neither Monica nor Leon had "forever lost" the opportunity to redevelop Cecil Street (see 10 above).
3. In the proposed Amended Statement of Claim, Leon seeks to make out a case that, in addition to suffering damage concerning the opportunity to redevelop Cecil Street found by Brereton J to have resulted from Max's breach of the redevelopment loan term of the May 2001 Contract, Monica's estate suffered further damage by reason of the fact that Alan and Diana, as executors of Max's estate, did not promptly pay to Monica's estate the amount of $1,239,110 which was the subject of Brereton J's judgment of 4 September 2009.
4. That further damage is said to flow from the fact that, since his Honour's judgment, State Environment Planning Policy No. 53 has been repealed, with the result that the proposed redevelopment is now impossible, and that the relevant redevelopment opportunity is now lost.
5. Thus pars 74 to 80 of the proposed Amended Statement of Claim are in the following terms: "74. [The proceedings before Brereton J] included a claim for the respective plaintiff's lost opportunity to redevelop land known as 'the Cecil Street property' in accordance with State Environmental Planning Policy No. 53 (SEPP 53). 75. At the time of judgment, the Supreme Court assessed damages of the opportunity for Monica Bovaird, and Leon Bovaird, to redevelop the Cecil Street property in accordance with SEPP 53, on the basis that the lost opportunity could still be pursued and was not 'forever lost'. 76. If Alan Frost and Diana Fallon were to have paid an amount to Monica Bovaird and Leon Bovaird that was sufficient to discharge the judgment debts arising out of the [judgment of Brereton J of 4 September 2009], then Monica Bovaird and Leon Bovaird would have been able to redevelop the Cecil Street property in accordance with SEPP 53, and would have done so. 77. Without Alan Frost and Diana Fallon making such a payment, Monica Bovaird and Leon Bovaird did not have the financial resources to redevelop the Cecil Street property in accordance with SEPP 53, and they did not redevelop the property. 78. On 3 June 2011, SEPP 53 was repealed. 79. Since the repeal of SEPP 53, planning law and regulation is such that a re-development of the Cecil Street property as envisaged in [the proceedings before Brereton J] is prohibited. 80. In the premises, the opportunity for the estate of the late Monica Bovaird, and Leon Bovaird, to redevelop the Cecil Street property in accordance with SEPP 53, has been forever lost. 81. By reason of (1) the breaches of duty pleaded above, and (2) the matters pleaded above at paragraphs 74 - 80, Alan Frost and Diana Fallon, in their capacities as executors of the estate of the late Maxwell Frost, caused Monica Bovaird and Leon Bovaird to suffer loss and damage for the difference between: (1) the value of the lost opportunity to redevelop land known as 'the Cecil Street property' in accordance with SEPP 53, that was not 'forever lost' on 4 September 2009…; and (2) the value of the lost opportunity to redevelop land known as 'the Cecil Street property' in accordance with SEPP 53, that was forever lost on 3 June 2011."
6. This claim is also not made in the Statement of Claim.
7. Mr Cotman submitted that such a damages claim "has already been determined by Brereton J", that the relevant rights of Monica's estate and Leon had merged in his Honour's judgment, that there was an issue of estoppel and that, for those reasons, this claim should not be allowed to go forward.
8. However, as I understood Mr Condon's submission, the complaint Leon now seeks to make is not an attempt to re-litigate Monica's claim against Max's estate for breach of the redevelopment loan term of the 2001 May Contract (which has been determined by Brereton J and cannot be re-litigated in these proceedings). It is, rather, a fresh claim against Alan and Diana, as executors of Max's estate, arising out of a fresh cause of action; their failure to satisfy, promptly, the 4 September 2009 judgment of Brereton J.
9. If that is so, I see a number of problems with the pleading as currently formulated.
10. First, it is not clear to me what "duty" is referred to in proposed par 81 and how that relates to the allegations made in proposed par 76 as to what the position would have been if Alan and Diana "were to have paid" an amount sufficient to discharge the 4 September 2009 judgment.
11. It may be that what is alleged is a further aspect of the "Wasted Assets on Unnecessary Bankruptcy" claim. But that is not at all clear from the proposed pleading.
12. Second, a number of matters appear to be rolled up in proposed par 76.
13. The first of those is that it seems implicit in the matters alleged in proposed par 76 that Max's estate would have been able to meet the judgment debt in sufficient time for Monica and Leon to redevelop the Cecil Street property before SEPP 53 was repealed on 3 June 2011. As something in the order of 60 per cent of the alleged value of Max's estate as at the date of its bankruptcy comprised the alleged causes of action arising from the payments set out at [16], that proposition does seem a little problematic, and should be clearly asserted if it is in truth an element of the case now to be put.
14. The second is the proposition that the whole of the amount payable as a result of satisfaction of Brereton J's judgment would have been available to fund the Cecil Street redevelopment; whereas approximately half of the judgment debt was referrable to, and compensatory of, Max's breach of the accommodation care term, rather than the redevelopment loan term.
15. The third is that Alan and Diana, as executors, would have dealt with the issue of payment of the judgment debt differently than did the estate's trustee, had there been no bankruptcy.
16. It seems clear that the claim to the effect of what is set out at pars 74 to 81 of the proposed Amended Statement of Claim will give rise to a wide ranging factual inquiry: for example as to whether, at the relevant time, Monica and Leon "did not have the financial resources to redevelop the Cecil Street property" as alleged in proposed par 77; whether that was the reason the redevelopment did not take place; and, as I have said, whether the 4 September 2009 judgment could have been satisfied in time to have permitted the Cecil Street redevelopment to proceed prior to the repeal of SEPP 53 on 3 June 2011.
17. In those circumstances, I do not think I should grant Leon leave to amend the Statement of Claim in this respect.
18. If Leon wishes to reformulate this aspect of the proposed claim, a further amended pleading will have to be circulated and a further, separate, application made to amend.

The "Barina motor car" claim

1. In this part of the proposed Amended Statement of Claim Leon alleges that an asset in Max's estate was a Holden Barina motor car which Alan and Diana sold for $9,760 without accounting for the proceeds of sale as an asset of Max's estate.
2. Mr Cotman submitted that this cause of action should not be permitted to proceed as the "claim is statute barred".
3. It is not clear to me that such cause of action as Monica's estate has in respect of the Barina is statute barred and, in any event, it is not appropriate that I make any finding about such a matter at this interlocutory stage: Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 533.
4. Accordingly, notwithstanding the relatively trifling amount involved in this aspect of the claim, I propose to permit the amendment sought.

The remaining allegations in the proposed Amended Statement of Claim

1. There was no strenuous opposition to the balance of the proposed Amended Statement of Claim. I allow the balance of the amendments proposed.

Further and better discovery

1. Paragraph 3 of the proposed Amended Statement of Claim is in the following terms: "3. By no later than about April 2003, Alan Frost and Diana Fallon (the defendants) were aware of the May 2001 contract. Particulars (a) On 11 December 2002, Leon Bovaird attended a meeting at the offices of MBP Legal/McCrohon Bergseng Partners at which Peter McCrohon solicitor and Diana Fallon discussed various claims against the estate, including claims arising out of the May 2001 contract. (b) On 27 January 2003, Leon Bovaird had a conversation with Alan Frost who discussed the value of the estate and the value of various claims against the estate, including claims arising out of the May 2001 contract. (c) On 21 March 2003, MBP Legal/McCrohon Bergseng Partners acting on behalf of Alan Frost and Diana Fallon sent a letter to Monica Bovaird and Leon Bovaird in relation to their claims against the deceased estate of the late Maxwell Frost. (d) On 3 April 2003, Kemp Strang acting on behalf of Monica Bovaird and Leon Bovaird sent 2 letters of demand to MBP Legal/McCrohon Bergseng Partners (acting on behalf of Alan Frost and Diana Fallon) in relation to the May 2001 contract. (e) Further particulars will be provided after the defendants give better discovery."
2. In the light of those allegations, Leon seeks the following orders: "(1) The defendants to give further and better discovery of all documents evidencing when they [were] aware of the May 2001 contract, its terms, and any claims pursuant to it. (2) The defendants to give further and better discovery of all documents evidencing the May 2001 contract itself."
3. Mr Cotman's only response to this application was to point to the fact that this category of documents was not included in that originally sought by the plaintiff in a notice of motion filed on 12 March 2012.
4. I do not see that as a sufficient reason to refuse to make the order now sought and I propose to do so.

Orders

1. I grant leave to the plaintiff to amend the Statement of Claim in accordance with pars 1 to 73 of the document called "Amended Statement of Claim 13 March 2015".
2. I otherwise dismiss the plaintiff's application to amend the Statement of Claim.
3. I order the plaintiff to pay the defendants' costs thrown away by the amendment, including the costs of the argument before me.
4. I make the orders set out at [70] above.

The future conduct of the matter

1. I was informed that the parties have served the evidence upon which they rely in relation to the Statement of Claim as currently formulated. The proposed amendments will very likely give rise to the need for further evidence. If Leon successfully seeks to further amend the pleading to introduce the "SEPP 53" claim, yet further evidence will be called for.
2. In those circumstances, and in light of Mr Condon's proposal for a "3-stage" resolution of the issues in these proceedings, it appears to me to be essential that the matter be listed for directions before Lindsay J as soon as possible so that his Honour can make an assessment of whether the hearing date can be retained.

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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 March 2015