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[2013] NSWSC 229
Supreme Court of NSW
2013-03-22
Sackar J, Young J
Original judgment source is linked above.
Ex tempore Judgment 1Pursuant to an amended summons filed by Carmel Mary Spillane (the Plaintiff) on 24 April 2012, the Plaintiff seeks an order under s 59 of the Succession Act 2006 for provision out of the estate or notional estate of John Hilary Spillane (the Deceased) who had died on 2 July 2009. The Plaintiff also seeks an order that the time for the making of the application for family provision be extended to the date of the filing of the summons. The executors of the Deceased's estate, Denis John Hall (the Deceased's solicitor) and Bruce Burge (the Deceased's accountant), are the defendants (the Defendants). 2The Defendants filed a notice of motion on 18 February 2013, seeking: (1)a declaration that the Defendants are entitled to be indemnified by the Plaintiff in respect of their costs in the further administration of the estate; and (2)a stay of the proceedings until such time as the Plaintiff pays to the Defendants' solicitors' trust account an interim payment in the sum of $20,000 towards the costs of the further administration of the estate. 3The Plaintiff also seeks such further or other orders as the circumstances of the case may require. In the present proceedings, I am only concerned with the notice of motion filed by the Defendants.
Background 4In summary, the Deceased's will, which is dated 8 February 2001, appoints the Defendants as executors and trustees of his will, gives to each of his children Joan Therese Johnson, Anne Catherine Graham, Carmel Mary Pengelly (i.e. the Plaintiff) the sum of $100,000, gives to his son Michael Anthony Spillane his shares in Tyre World Australia Pty Limited, and finally provides: 8. I FORGIVE release and discharge the mortgage between myself as mortgagee and my son the said MICHAEL ANTHONY SPILLANE as mortgagor which is secured over the property...known as 62 Railway Parade Fairfield. 9. I GIVE the rest residue and remainder of my estate to my son the said MICHAEL ANTHONY SPILLANE... 5Probate of the Deceased's will was granted to the Defendants on 22 June 2011. Annexed to the probate of the Deceased's will is an inventory of the Deceased's assets, which discloses assets to a total value of $5,167.27. This consists primarily of money deposited with financial institutions totalling $4,609.60, but it does include a number of interests in shares and trusts or relatively negligible value. This appears to be confirmed by copies of the financial statements of the relevant trusts prepared by the Deceased's accountant (i.e. the second defendant, who is a chartered accountant). 6However, one of the items of property is listed in the inventory as follows: 5. LOANS (a) Loan to Michael Anthony Spillane, secured by mortgage (registered 5924021) over 62 Railway Parade, Fairfield - Loan advance of $665,000.00. Mortgage provides that mortgage is discharged and released upon the death of the deceased 7The inventory of assets also specifies that the "Estimated or Known Value" of this asset is "$0.00". This may be an expression of the Deceased's wishes as expressed in clause 8 of his will, quoted above. During the course of the hearing, the Plaintiff tendered a copy of the relevant mortgage documentation. The mortgage document is dated June 1999 (the precise day is indecipherable), provides for nil interest, and includes a clause which provides: The Mortgagor has agreed to repay the principal sum to the Mortgagee on written demand by the Mortgagee provided however this mortgage is discharged and released upon the death of the last survivor or the mortgagees. 8The Plaintiff's position is that this loan remains an asset of the estate. The filed evidence includes various correspondence dated from about January 2012 to January 2013 exchanged between the solicitors acting for the Plaintiff (Baker Deane & Nutt, Plaintiff's solicitors), the solicitors acting for the Defendants (HWL Ebsworth, Defendant's solicitors) and the solicitors acting for Michael Anthony Spillane (Maclarens Lawyers). It is not necessary to set out in full the content of these communications. I will only summarise them briefly. 9From about January 2012 to August 2012, the correspondence was only between the Plaintiff's solicitors and the Defendants' solicitors. Essentially, on 27 January 2012 the Defendants' solicitors wrote to the Plaintiff's solicitors indicating that the value of the estate assets were insufficient to enable the Defendants to continue to administer the estate, and they asked to the Plaintiff's solicitors to identify the property or persons holding the property against which the Plaintiff makes her claim for provision. 10The Plaintiff's solicitors replied by letter dated 10 April 2012 saying they would "make all the investigations necessary to present evidence before the court to enable the court to designate property as notional estate". The Defendants' solicitors responded on 6 August 2012 saying that the Plaintiff's failure to identify the relevant property was unsatisfactory, and advised that the Plaintiff should discontinue the proceedings as the Plaintiff had no prospects of success. The Plaintiff's solicitors wrote back on 15 August 2012 saying their client did not agree to discontinue the proceedings, and that the Defendants' solicitors fail to recognise the alleged debt owing to the Deceased. 11On 31 October 2012 Maclarens Lawyers wrote to the Defendants' solicitors complaining about the costs the Defendants' solicitors had incurred, and denying acceptance of any further legal costs. On 28 November 2012 the Plaintiff's solicitors wrote to the Defendants' solicitors reaffirming their view that loan of $665,000 to Michael Anthony Spillane forms part of the Deceased's estate, and that the Defendants should seek to obtain payment of that debt in accordance with their duties as executors. On 10 December 2012 the Defendants' solicitors wrote back complaining about the lack of funds, and they also wrote to Maclarens Lawyers on the same day asking whether the $665,000 formed part of the estate. Maclarens Lawyers responded on 11 January 2013 saying "[w]e offer no comment on the question". 12On 22 February 2013 the Defendants' solicitors sent a further letter to Maclarens Lawyers seeking to re-agitate this issue, asking: Please let us have your client's instructions by 27 February 2013 as to whether he accepts or disputes the Plaintiff's solicitors' view that the alleged mortgage debt of $665,000.00 forms part of the estate. 13On 26 February 2013, Maclarens Lawyers responded: We note that one of the executors is a qualified lawyer, and that the Executors retain your firm for the purposes of obtaining legal advice. The Executors are in a position to form their own view as to the matters contained in the letter of Baker Deane & Nutt dated 28 November 2012. We therefore offer no further comment. 14Given the uncooperative manner in which Mr Michael Anthony Spillane has instructed his lawyers to respond, the question of whether or not there is in existence a mortgage is likely to be a matter of dispute. 15The financial position of the estate is set out in the affidavit of Denis John Hall sworn 27 August 2012. The assets of the estate of $5,167.24 have been exhausted, and, as at 27 August 2012, there were debts associated with the administration of the estate totalling $22,626.22. In his affidavit dated 27 August 2012, Mr Hall also estimated further costs of $15,000 and $3,900 in relation to the preparation of affidavits of the administrators and counsel fees respectively. In his affidavit dated 18 February 2013, the first defendant confirms that the estate is insolvent and that no funds have been offered. Apart from some documents tendered during the hearing, the Plaintiff has not filed any evidence in relation to this motion. 16The estate is now insolvent, but the first and second defendants still have further duties as executors in the administration of the estate. The issues which arise are whether the executors are entitled to be indemnified by the beneficiaries against the costs of the further administration of the estate, and whether I should exercise my discretion under s 67 of the Civil Procedure Act 2005 to stay the proceedings pending payment by the Plaintiff or any other interested beneficiary of $20,000 to meet costs of administration of the estate.
Legal principles 17In their submissions, the Defendants brought to my attention the case of Balkin v Peck (1998) 43 NSWLR 706 in which Mason P (with whom Priestley JA and Sheppard AJA agreed) accepted (at 712) the principle expressed by Lord Lindley in the Privy Council decision of Hardoon v Belilios [1901] AC 118 that a beneficiary who is sui juris is personally bound to indemnify a trustee for liabilities properly incurred. The President also said that where there are multiple beneficiaries, all sui juris and absolutely entitled, they will also be personally liable. I also note that Davies AJ in the subsequent decision of Countryside (No 3) Pty Ltd v Best [2001] NSWSC 1152 adopted Mason P's analysis of this principle (at [39]). 18However, in Balkin v Peck, the President left open the position where either a beneficiary was not sui juris or was only entitled to a limited interest in the trust property, such as a life estate (at 713). 19These principles in Balkin v Peck are of course relevant to executors acting as trustees. However, in the present case, the Plaintiff is only named as one of a number of potential beneficiaries under the Deceased's will, and it is of course uncertain whether she will actually succeed in her application for further provision out of the estate, and even if she is successful, the amount of such provision is not presently known. Therefore, at least on one view, the Plaintiff is only entitled to a limited interest in the trust property, if at all. 20In correspondence between the solicitors for the Plaintiff, the solicitors for the Defendants and Maclarens Lawyers, reference was made to the case of Commissioner of Stamp Duties (NSW) v Bone (1976) 135 CLR 233. The Plaintiff alleges that this case supports her contention that the amount of $665,000 properly belongs to the estate. In that case, the Privy Council overturned the High Court of Australia, and said (at 229): Their Lordships turn now to the basic question in this appeal, upon which the High Court and the Supreme Court have differed: whether in view of [the relevant clauses in the will in that case] it can be rightly said that the forgiveness and release by those clauses operated to confer upon the three children an entitlement to property of the deceased. ... There was not truly a release of the debt. A debt can only be truly released and extinguished by agreement for valuable consideration or under seal. By "giving" or "forgiving" or "releasing" by will a debt to the debtor a testator, in their Lordships' opinion, is but leaving a legacy of the amount of the debt: for it is clear that by such purported release the testator cannot remove this asset from the claims of creditors of the estate and the requirements of funeral and administration expenses: the testator can give to his benefaction no other status than that of a specific legacy of the value of the debt. The debt remains outstanding as an asset of the estate... 21In her submissions, the Plaintiff emphasises that the executors have duties which they are required to discharge, and that in this case, such duties include "a duty to get in the mortgage loan from the deceased to his son, Michael". As I have mentioned, the Plaintiff relies on the Privy Council decision in Commissioner of Stamp Duties (NSW) v Bone (1976) 135 CLR 233 to allegedly support her contention that the amount of $665,000 forms part of the estate. She says that for as long as the executors have not vacated their office or transferred their executorship to the NSW Trustee and Guardian, their duties are ongoing, and the beneficiaries are under no obligation to meet the costs of administration. 22I do not need to determine whether the sum of $665,000 falls within the Deceased's estate. The precise principles applicable in the present case have been set out by Young J (as his Honour then was) in Re Burbidge (No 2) (NSWSC, Young J, 25 June 1993, unreported), where his Honour said: The plaintiff's problem is that he is the executor of an estate which on one scenario could be worth a large amount of money, but on another scenario is worth nothing... ... The executor's problem is that no beneficiary or potential beneficiary is prepared to indemnify him against any of his costs in any of the proceedings... [T]he executor may very well end up with a bill for legal costs which he will have to defray out of his own pocket... On the other hand, the executor has duties cast on him. He has the duty to uphold the will, he has the duty to hold the scales equally between the beneficiaries and he owes duties under the Family Provision Act to file affidavits and to assist the Court in carrying out its task. ... [One of the questions which Young J considered was] whether the executor is justified in making no further appearance in the Family Provision Act proceedings or the Probate proceedings, and whether he is justified, in the absence of the provision of funds by the Foundation or an indemnity from the beneficiaries of the estate or other persons making claim on it, in not taking part in any suit for administration... ... In April I answered this question in the affirmative. This is the position taken up by the authorities though there are surprisingly few of them. The main authority is the decision of Gillard J in Re Atkinson deceased [1971] VR 612, 616 where his Honour said: "Where there are competing claims ... then, in my opinion, the trustee company was and is not bound to use its own funds to vindicate the testator's rights if any ... If it had obtained an indemnity from the beneficiaries, other considerations might well have applied. But in the absence of any such indemnity and no trust estate to fall back upon, then, in my view, the trustee company would not be bound to commence proceedings at its own expense." Gillard J quotes as authority for that proposition the judgment of Kekewich J in Tudball v Medlicott (1888) 59 LT 370, 374 and Gillard J was correct in referring to that as an authority. The same matter was also decided in this Court in Erskine v Pettit (1901) 1 SR (NSW) (Eq) 204, 207 to 208. The law is that any duty of an executor is subject to the executor either having funds or being properly indemnified for his conduct of court proceedings in which he may be involved. Whilst the executor can put on a special plea if sued that he has not sufficient assets to meet the debt, this procedure is not open to him as a defence for an order for costs and he is justified in declining to do anything until he is put in funds. Although the instant case may not be one of an insolvent estate, there are no obvious assets and the law usually treats an estate where there is doubt as to whether it is insolvent or not as if it were insolvent... 23It was submitted by the Plaintiff that the executors had the option of vacating their office and that they presently are able to appoint the NSW Trustee and Guardian to be executor by deed (Probate and Administration Act 1898, s 75A) or by court order (NSW Trustee and Guardian Act 2009, s 24), but that for as long as the executors remain in office their duties are ongoing. In my view, this is a somewhat simplistic assertion, especially on the facts of this case. It could equally be said that in the absence of action by the personal representative to recover assets wrongfully withheld from the estate by third parties, a beneficiary has sufficient interest to seek recovery of the assets (see Re Atkinson [1971] VR 613). The beneficiary, it is said in that authority, proceeds on behalf of the estate in that he asserts his right of remedy but the estate's right of property. Comments to this effect were also made by Brereton J in Grace v Grace [2012] NSWSC 976 at [129] and Rein J in Bird v Bird (No 4) [2012] NSWSC 648 at [15] and [124]. 24As to whether I should exercise my discretion to stay the proceedings, s 67 of the Civil Procedure Act 2005 says: 67 Stay of proceedings Subject to rules of court, the court may at any time and from time to time, by order, stay any proceedings before it, either permanently or until a specified day. 25The principle applicable in this case is that unless put in funds or provided with an effective indemnity from interested beneficiaries, an executor is not obliged to commence or actively defend proceedings at his or her own expense. Given this principle, I am therefore inclined to exercise my discretion and stay the proceedings.
Conclusion 26For the reasons given above, I propose to give relief in similar terms to that sought in the Defendant's notice of motion. As to the quantum sought by the Defendants by way of indemnity, the first defendant (Mr Denis John Hall, solicitor) asserts in his affidavit dated 27 August 2012 at paragraph [4] that the expenses in the estate amount to $22,626.22. He further estimates, at paragraph [16], the costs of preparing the affidavits of the administrators to be $15,000 and counsel's costs to be $3,900. Outstanding costs as at 27 August 2012 were estimated (at paragraph [17]) to be $18,120. I also note that a notice to produce has been issued by the Plaintiff to Mr Hall requiring the production of a number of documents. Mr Hall's estimate of the cost of compliance with the notice to produce is $5,500-$8,500 plus GST. 27For the reasons I have given, I: (1)declare that, unless provided with an effective indemnity from one or more of the interested beneficiaries or potential beneficiaries, the Defendants are not required to commence or defend proceedings or incur any costs of their own in the further administration of the estate; and (2)order that proceedings 2011/370165 be stayed until such time as the sum of $20,000 is paid to the Defendants' solicitors' trust account to meet the costs of the further administration of the estate. 28I will hear the parties on the question of costs in due course.
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: 25 March 2013
Carmel Mary Spillane
Denis John Hall