Curran & Ors v McGrath

[1] McMeekin J: The applicants seek further and better provision out of the estate of their late father Cecil Robert McGrath pursuant to Part 4 of the Succession Act 1981 (Qld) ("the Act"). The applications were not brought within nine months of the death of the deceased. Section 41(8) of the Act provides:

"Unless the court otherwise directs, no application shall be heard by the court at the instance of a party claiming the benefit of this part unless the proceedings for such application be instituted within 9 months after the death of the deceased..."

[2] The parties have sought a preliminary determination of the question of whether the applications should be heard at all given that they have been brought late.

[3] That question involves the exercise of a discretion. In Hills v Chalk [2008] QCA 159 Muir JA identified several matters as being relevant to the exercise of that discretion. Those matters were:

(a) Whether there is an adequate explanation for delay;

(b) Whether there would be any prejudice to the beneficiaries;

(c) Whether there has been any unconscionable conduct by the applicants;

(d) The strength of the applicant's case.[1]

[4] Before turning to those discretionary issues the respondents raise a preliminary point. They contend that the assets of the estate have been largely distributed and all that remains are assets that fall into the residuary estate which in any case is to be distributed to the applicants pursuant to clause 7 of the will or amounts too small to justify the applications.

[5] The assets that the respondents claim have been distributed consist of monies and certain farming and grazing properties. The respondents assert that acting as executors they have distributed those monies and properties to themselves as beneficiaries. They contend that as far as those assets are concerned their executorial duties are at an end and they no longer form part of the estate.

[6] There is no doubt that the respondents are correct in their assertion that if there is no estate of the testator upon which an order under s 41(1) of the Act could operate then the applications must be dismissed: Re McPherson [1987] 2 Qd R 394 at 396; Baker v Williams and Brunner [2007] QSC 226.

[7] The applicants' contentions, as I follow them, are:

(a) That whatever distribution has occurred, has occurred with notice of the applications;

(b) The relevant date for determining the assets that are within the estate is the date of filing of the applications and at that time no distribution had occurred;

(c) That in any case the distributions have not been effective in the sense that the realty remains held by the respondents in their capacity as executors.

[8] It is necessary to recount a little of the history of the matter. The deceased met a sudden and untimely death on the 28th of November 2006. In the months leading up to his death he, his wife and their sons (the respondents) had put in place certain provisions to restructure the family arrangements that had previously been in place. Those arrangements were, at least to some extent, affected by execution of certain documents as late as 29 September 2006.

[9] The family had conducted a grazing and farming business in partnership. The deceased and his two sons with their respective spouses were the members of the significant partnership known as CR, MA, JC, JR, RC & JM McGrath. Property was also held in another partnership CR & MA McGrath & Sons and by the deceased and his wife jointly.

[10] The restructure of the family arrangements had the affect that properties previously held by way of a joint tenancy between the deceased and his wife would thereafter be held by them as tenants in common in equal shares. At the time of death those transfers had been executed and lodged with the relevant department but registration had not been affected.

[11] By the terms of clauses 3, 4, 5 and 6 of his will, the deceased effectively left his interest in each of the partnerships and his interest in lands previously jointly owned by him and his wife to the respondents.

[12] On 24 April 2007, solicitors acting on behalf of the applicants and the deceased's widow, Mary Ann McGrath, by letter gave notice of an intention to make application pursuant to s 41 of the Act. The solicitors appointed by the executors replied a few days later requesting advice as to whether proceedings had been filed and if not as to when proceedings would be filed.

[13] On 15 June 2007, the widow brought an action against the solicitors appointed by the executors seeking disclosure of their file. Eventually that application was resolved against the widow but in the meantime the nine month limitation period prescribed by s 41(8) of the Act had expired on 28 August 2007.

[14] On 13 November 2007, the widow commenced an action in the Supreme Court against the executors effectively seeking orders to set aside the transfers that had severed the joint tenancies that had previously existed between herself and the deceased. The action was defended. Two mediations occurred, one on 10 June 2008 and the second on 5 September 2008.

[15] Following the mediations and on the date of the second mediation, the dispute between the widow and her sons in their capacity as executors was resolved to the satisfaction of the parties. There was no express resolution of the issue raised in the claim brought by the widow. Rather the widow agreed to execute certain transfer documents and to discontinue her claim in the Court. In consideration the respondents paid to her the sum of $7,500,000 on 21 November 2008. The widow was at all times represented by the same firm of solicitors as had originally given notice of intention to bring an application under the Act on behalf of the applicants and the widow and which firm continues to act for the applicants.

[16] On the same day that the monies were paid to the widow the applications now before the Court for further and better provision out of the estate were filed by the applicants. The applications were served on the respondents some months later on the 17th and 18th of March 2009. However, notice that the applications had been filed was given by letter from the applicants' solicitors to the respondents' solicitors on 26 November 2008.

[17] Following the agreement reached on 5 September 2008, and prior to any further notice of any intention to bring these applications, the executors set about their executorial duties. Transmission applications were signed and lodged to transfer the deceased's interest in the lands referred to in clauses 3 and 4 of the will to the respondents as devisees. These were registered by 21 November 2008.

[18] The respondents had resolved between them that they would not continue in partnership and that one brother would receive certain lands known as "Tennis Court Road Farm" and one lands known as "The Home Farm" with a cash adjustment to reflect the agreed different value of the two aggregations. To that end the transfers that were submitted to the widow on settlement of her proceedings provided for some lands to be transferred to one son and some to the other son. These transfers were lodged for registration on 18 February 2009 and subsequently registered. The respondents then co-owned the lands in certain shares. Subsequently the respondents have undertaken the necessary transfers to bring about their agreed arrangement and severing the co-ownership that had existed. James McGrath and his wife have paid the cash adjustment agreed to Robert McGrath - a sum of $1,040,000.

[19] One transfer that the widow agreed to sign as part of the settlement concerned lands held by the partnership CR & MA McGrath & Sons and which were dealt with in clause 5 of the will. This transfer was signed by the widow on 13 October 2008, delivered to the respondents' solicitors on 21 November 2008 and signed by them on 28 November 2008. That transfer was lodged for registration on 1 December 2008 and the transfer registered on 5 January 2009. The transferors nominated were the respondents as "personal representatives" and the widow and the respondents in their personal capacities. The transferees were nominated as the widow and the respondents in their personal capacities. The consideration identified was "by virtue of a distribution of the partnership assets" and "in further consideration of [the respondents] being entitled to the interest of the said deceased in the land pursuant to the terms of the will of the said deceased".

[20] On 28 November 2008, $480,000 of $528,000 held by the partnership CR & MA McGrath & Sons was distributed to the respondents. They were entitled to those monies as partners and, with respect to the deceased's interest, in accordance with the terms of the will.

[21] By the time of the second mediation the significant asset of the six way partnership, a property known as "Rugby Run", had been sold and the proceeds held on trust. Those monies were subsequently distributed to the widow (that was the source of the $7.5 million payment previously referred to) and to the executors on 21 November 2008. Again, the executors were entitled to the estate's interest in the proceeds of sale pursuant to the provisions of the will.

[22] I turn now to the contentions of the parties on this preliminary point.

[23] Since the decision of Gibbs J in Re Donkin (deceased); Riechelmann v Donkin [1966] Qd R 96 it has been consistently accepted[2] in Queensland that once an asset ceases to be an asset of the estate and the beneficiary to whom it is given has received it in his or her own right then there is no power to subject that asset to the incidence of an order under the Act, or to require the beneficiaries to restore the asset to the estate, or to make payment in satisfaction of any order.

[24] The question then is when does property cease to be part of a testator's estate? The principles that apply were most recently considered by the Court of Appeal in Holdaway v Arcuri Lawyers (a firm) [2008] QCA 218 by Keane JA (as he then was). The principles that Keane JA identified from the authorities can be summarised as follows:

(a) A transfer of real property of a deceased by an executor to himself as a beneficiary under the will, will usually be regarded as effecting a distribution of the asset to the beneficiary;

(b) The question of whether there has been an assent by the executor such as to effect the distribution of the beneficial title to an asset is a question of fact to be determined on all the circumstances of the case;

(c) Once executors who are also trustees have got in the estate and performed the duties of their office, they thereafter hold the property remaining vested in them as trustees for the beneficiaries under the will and at that point those assets cease to be part of the estate of the testator;

(d) The beneficial title to property transferred by an executor to a beneficiary may not rest solely with the beneficiary. It may remain available for the payment of the debts of the estate if there are such debts outstanding;

(e) In the absence of evidence to the contrary it will be assumed that an executor intends to do what is right. So despite any transfer of assets by an executor to himself as beneficiary the asset nonetheless will remain available to the executor to meet the debts of the estate, if any are outstanding;

(f) Where the beneficiary and personal representative are the one and the same person the estate has been effectively distributed upon lodgement of the transmission documents with the titles office. It is sufficient that a transmission application be lodged even though no memorandum of the transfer be lodged if the personal representative and the ultimate transferee are one and the same person.[3]

[25] Here the intention of the executors was that the transfers of the realty and personalty that occurred following the resolution of their dispute with their mother affected a transfer of the beneficial ownership in those assets to themselves in their own right. That is evident not only from their sworn affidavits, but also from the nature of the transfers that they had the widow execute and from the terms of the transfer of the partnership lands. Those transfers put into effect the agreed arrangement which entirely depended on them securing the legal and beneficial ownership of the lands.

[26] There is no evidence that there were any significant debts of the estate to be met that required any assumption that the realty be preserved within the estate. At paragraph 56 of his affidavit the respondent John Charles McGrath indicates that the existing liabilities of the estate totalled a little over $43,000.00, with cash deposits being substantially in excess of those sums. As no property has been specifically appropriated by the terms of the will to pay the debts of the estate those debts are to be met from the residuary estate: s 59(1) of the Act.

[27] Thus there is no evidence to justify any assumption that any asset is held by the respondents for the purposes of administering the estate or any evidence to justify a deemed intention to deal with the assets in any other way other than by way of transfer of the full beneficial interest. Upon lodgement of the transmission documents with the relevant department the estate, at least in so far as these assets are concerned, was effectively distributed: see Re Lago [1984] VicRp 62; [1984] VR 706; Holdaway (supra) at [77] per Keane JA.

[28] The arguments raised by the applicants do not meet this fundamental difficulty. It is irrelevant, in my view, that the applicant's solicitors wrote to the respondents solicitors intimating an intention to bring an application under the Act. Whatever effect that may have had, the subsequent expiration of the time limit provided for in the Act is the crucial thing. From that time forward the respondents were entitled to assume that no application was to be pursued.

[29] I do not think it relevant whether the transfers occurred before or after the filing of the applications or before or after the letter notifying that the applications had been filed, albeit before service. It is evident that some of the transfers took place prior to the filing of the applications and all took place prior to the serving of them.

[30] The respondents contend that they were told on numerous occasions that the applicants were not pursuing any claim under the Act. The applicants deny that and I am in no position to decide it. What is clear is that prior to the settlement with their mother no further notice was given that the respondents ought to assume and act on the assumption that the applications would eventually be filed and pursued. Even if there had been such notice then I cannot see how that could avail the applicants on this application. There is no power in the Court to require that the beneficiaries restore the asset to the estate: Re Donkin (supra) at p114 per Gibbs J; Re McPherson (supra) at p 397 per Connolly J.

[31] Nor do I think it right to assert that the relevant date at which I should consider what assets are within the estate is the date of filing of the applications. That would mean that an applicant could file an application, but not serve it, yet assets remain liable for an order to be made against them despite the executors distributing the estate when ignorant of the existence of the claim, as they are obliged to do in discharging their executorial duties. That is contrary to the reasoning of Connolly J in Re McPherson [1987] 2 Qd R 394 which in turn is consistent with that long line of authority in Queensland commencing with re Donkin (supra).

[32] In my view the assets of the estate have been largely dealt with and the beneficial ownership transferred. All that remains are assets that fall into the residuary estate against which no order can be made beneficial to the applicants or that are too insignificant to justify any application.

[33] Whilst that finding is sufficient to dispose of the preliminary point and of the applications, I will say a little more about the discretionary matters. I am prepared to assume that the applications have some merit, although three of the applicants depose to possessing significant net worth. Mrs Curran's net worth is quite modest and given her circumstances she would have the strongest claim. That view is dependant on an assumption that the estate would be worth somewhere in the order of $5 million to $10 million.

[34] In my view there is no adequate explanation for the delay. The applicants rely on the early letter giving notice of an intention to apply. It is well established that mere written notice of an intention to bring an application is not sufficient to stop time running, nor does an executor act improperly by proceeding with the distribution of the estate after such notice and after the time for bringing an application has passed: see Re McPherson [1987] 2 Qd R 394.

[35] The delay here is substantial. The applications were filed some 15 months after the expiration of the nine month time limit and not served for several months thereafter.

[36] It is evident from the material filed that each of the applicants was legally represented within the nine month time limit. No applicant has sworn that they were unaware of the existence of the time limit. The case then should be determined on the basis that each applicant whilst well aware of the existence of a statutory time limit stood by, let it pass, and permitted the executors to operate under the assumption that no applications were to be brought.

[37] No case was cited to me in which applicants were successful in having time extended where there was a deliberate decision to stand by with knowledge of the statutory time limit.

[38] The explanation that is advanced on behalf of the applicants is that they were each advised that until the proceedings brought by their mother was finalised then the family provision claims could not "proceed" because the size of the deceased's estate depended on the outcome of those proceedings. The significant answer to that claim is that the nine month limitation period expired prior to the widow bringing her action in the Supreme Court. By that stage the applicants were already over two months out of time.

[39] Mr Crow, who appeared for the respondents, argues that the parcels of land in question were partnership property and so passed according to the partnership arrangements and not according to the interest noted in the register of titles. On that basis he contends that the estate was substantial - valued in the millions on any view - and the suggested reason for the delay even less cogent.

[40] Even if it be accepted that the applicants assumed that the effect of their mother's action might be to reduce the estate to nil, as their counsel contended, that does not justify inaction on their part. It may have been a different matter if their certain belief was that the estate was worthless. But the highest that it can be put is that they were uncertain of its value. I am doubtful that mere uncertainty can justify delay.

[41] The difficulty is that the applicants' approach puts at nought the significance of the statutory time limit and the reason for it. As White J (as her Honour then was) observed in Bird v Bird [2002] QSC 202 at [22], "time limits in statutes are for good reason". The fundamental policy of the law and the reason for the statutory time limit is that there be prompt administration of the estate and the "preservation of the certainty and integrity of an executorial administration regularly completed": Baker v Williams & Brunner [2007] QSC 226 at [30] per de Jersey CJ; and see Hills v Chalk (supra) at [78]-[81] per Muir JA.

[42] And significantly the applicants were each well aware that the respondents were actively discharging their executorial duties throughout that long delay in that they were dealing with the litigation brought against the estate by their mother. As I explain below, that was of significance to the respondents personally. But any executor would wish to know of the existence of outstanding claims against the estate in those circumstances. As the respondents deposed the absence of such claims encouraged them in their view of the best way to resolve the widow's claims. That they would be so influenced should have been evident to any reasonable person.

[43] In the circumstances, in my view, there was no adequate explanation for the delay.

[44] Further it seems to me that the respondents are significantly prejudiced by the applicants' delay.

[45] The respondents depose that in settling the dispute with their mother they paid her an amount that significantly exceeded her entitlements, assuming that the arrangements made by her and the deceased in his lifetime stood. They have assessed that overpayment at about $2.7 million. Effectively they reduced their own entitlements under the will by that amount. They depose that they would not have done so had they been aware that their sisters intended to bring these applications, with the prospect of a further reduction in their inheritance. There is no reason to doubt that claim, nor is it an unreasonable attitude. What is more, the respondents have ordered their lives on the assumption that there were to be no claims for further provision - they have divided the parcels of land amongst themselves presumably to provide each with a viable farming operation, one has paid the other over $1 million, they have incurred substantial stamp duties, and they have worked and improved the properties since taking them over. Thus there has been reliance on there being no claims against the estate in the decisions made and the actions taken.

[46] There is another aspect which does not sit well. The assumption underlying these applications is that the assets within the estate are substantial - perhaps in the order of $10 million. For that to be so the applicants assume that the widow's proceedings were unsuccessful - their counsel submitted that the effect of the widow's claim, if successful, would have meant that there was no estate at all to distribute. All realty, he contended, was held by the deceased and the widow jointly so that if the widow was successful in having the severance of those joint tenancies set aside all of the deceased's assets would have passed to her by survivorship and there would have been no estate over which the applicants could claim provision. That was the claimed justification for not bringing these applications in time. There was no point to them if there was no estate.

[47] But the widow's proceedings were not unsuccessful. The respondents did not operate on the same assumption as the applicants. They paid their mother $2.7 million more than they considered her proper entitlement to be. The justification for that overpayment is that there was merit in her claim. Thus in disposing of the action brought against the estate the respondents have assumed a certain basis of facts but the applicants now seek to assume the contrary - that their mother's proceedings were unsuccessful and that there is a substantial estate against which they can claim. That situation of conflicting assumptions has come about because these applications were not on the table at the time of the settlement of the Supreme Court proceedings.

[48] It seems to me then that the relevant question is whether the applicants, whilst aware of the existence of the statutory time limit, should be permitted to bring these applications very late when they were aware that their mother's litigation was proceeding, aware of the strong probability that the executors' attitude to that litigation would be affected by notice of their claims, and in spite of the fact that the respondents have acted on the assumption that there would been no claims when settling those proceedings and in re-ordering their lives.

[49] In my view it would be substantially unjust to permit these applications to proceed.

(a) The application for an extension in time within which to bring the applications is refused;

(b) Each of the applications for further and better provision out of the estate is dismissed;

(c) The applicants to pay the respondents' costs of and incidental to the applications on the standard basis.

[2] For recent decisions see Baker v Williams & Brunner [2007] QSC 226 per de Jersey CJ; Holdaway v Arcuri Lawyers (a firm) [2008] QCA 218 at [74].