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[2017] VSC 378
General information, not legal advice.
Supreme Court of Victoria
2017-06-22
McMillan J
Original judgment source is linked above.
ESTATES - Where deceased died in 1985 - Where administrator of estate died in 2008 without finalising estate - Where defendant has de facto control of the remaining asset of the estate - Where defendant refused to distribute estate property to next of kin on basis of alleged family arrangement during lifetime of deceased's children - Where no written document recording alleged family arrangement exists - Where plaintiff next of kin by inheritance seeks distribution of estate property.
1 By originating motion filed 23 January 2017, the plaintiffs sought orders, inter alia, that they be appointed trustees of the estate of Edna Elsie Henry, deceased ('the deceased'), that the title to the property situated at 132 Cobden Street, South Melbourne ('the property') be vested in them in their capacity as the new trustees of the estate of the deceased and costs against the defendant personally.
2 After a number of directions hearings, the proceeding was listed for trial on 22 June 2017. At trial, the defendant resisted the substantive orders sought by the plaintiffs, as well as the costs orders sought by the plaintiffs.
3 The Court made the orders set out at [29] on that day, with written reasons to be provided by the Court, which are now provided.
4 The deceased died intestate on 19 March 1985. The next of kin entitled to her estate were her five surviving children and the children of her daughter, Elsie Carron, who predeceased her.
5 Her estate consisted of the property and $1,206 in the bank. For probate purposes, the property was valued at $32,000. At trial, the only remaining assets in her estate was the property, currently valued between $1,050,000 to $1,150,000.
6 On 28 October 1985, the deceased's eldest surviving son, John Joseph Henry ('John Henry'), obtained a grant of letters of administration of the estate. On 14 November 1985, John Henry was registered on the title of the property as legal personal representative of the deceased.
7 John Henry died on 16 January 2008 without having distributed the property. The property remains registered in his name. Pursuant to his will dated 2 December 1992, John Henry left his entire estate to his son, who is the first plaintiff. The first plaintiff is entitled by inheritance to his father's one sixth interest in the property. Probate of the will of John Henry was granted to the second plaintiff and the defendant on 28 January 2014.
8 The second plaintiff deposed that she assists the first plaintiff is his financial matters, that he is in financial need and the realisation of his share of the deceased's estate is the only source of funds currently available to him.
9 The second plaintiff has established that the deceased's son, Philip Henry, lived in the property with his mother before she died. After her death, he continued to live there allegedly with the consent of some of the deceased's children. The second plaintiff is not aware of any formal consent being given by John Henry to this arrangement when he was the administrator of the deceased's estate. Since the death of John Henry in 2008, there has been no person with any legal authority to act on behalf of the deceased's estate, with the defendant exercising de facto control of the property. The rest of the family, other than the plaintiffs, appear content to allow him to act informally as the trustee of the deceased's estate.
10 Philip Henry continues to live in the property on an informal basis without paying rent. The second plaintiff deposed that the defendant told her that he wants Philip to continue living in the property for the rest of his life and that he does not intend to do anything that will advance the further administration of the estate of the deceased. The defendant's position was on the basis that there is a family arrangement in respect of the property, whereby the property would be used as a place for anyone from the family needing a home and that it was the deceased's wish that Philip Henry would live there as long as needed by him ('the family arrangement'). He said John Henry was aware of this, as were the other beneficiaries of the deceased's estate and the 'other beneficiaries all knew and all agreed that the home would be sold only when the family no longer needed it, in particular, Philip.' The defendant also said 'That is not to say that if I needed to live there for whatever reason I could no[t do so]'.
11 The defendant's belief was that the family arrangement was committed to writing. He did not state any basis for his belief. There is no document evidencing the family arrangement and, in particular, there is no document signed by either John Henry or the first plaintiff. The defendant also deposed that after the death of John Henry, in circumstances where the plaintiffs knew about the family arrangement and the wishes of both the deceased and John Henry, that 'a document could have been created and each beneficiary could have had their name entered on title in their respective share'. The defendant did not provide any explanation as to the reasons for this not being done or why he did not co-operate in it being done.
12 The defendant exhibited a number of letters to his affidavit sworn 15 June 2017. Two letters in 2007 were written by the solicitors for John Henry. The first letter dated 25 October 2007 was to John Henry and the second letter was to the first plaintiff, as attorney for John Henry. The first letter asks whether John Henry has any objection to William and Philip (the then residents of the property) continuing to live in the property and whether he believed they should be permitted to live there for their lifetimes. The second letter dated 30 October 2007 was to the first plaintiff and advised that if all beneficiaries agree that William and Philip continue to reside in the property for the whole of their lives then:
It is preferable that some form of 'Deed of Acknowledgement and Understanding' is signed by all the beneficiaries so that it is quite clear what is to occur when the property becomes vacant. For example, what if one or both uncles require nursing home care - will the property then be sold so that the uncle[s] can acquire their 1/6th share to cover alternative accommodation expenses?
13 On 20 May 2008, the second plaintiff wrote to the defendant in the following terms:
I know that prior to John's death he was keen to finalise the letters of administration that he was awarded by the Court back in 1986 in relation to [the property], but unfortunately he didn't have enough time left to do this.
In those letters of administration six people are listed as the beneficiaries of [the property]. The property should really be in the name of all 6 beneficiaries. It does create a problem for everyone if things are just left as they are.
14 Nothing further occurred in relation to these outstanding issues concerning the administration of the deceased's estate until 2013 and onwards when further correspondence and communications occurred, however, no resolution was reached and this proceeding was issued by the plaintiffs.
15 At the first directions hearing on 3 March 2017, the defendant represented himself. He informed the Court that there was a family arrangement to the effect that one of the deceased's sons, Philip Henry, should be allowed to live in the property for as long as he wished, and for the rest of his life. Orders were made that on that day that the proceeding be adjourned to afford the defendant the opportunity to obtain legal representation. The Court also referred the defendant to the Court's self-represented litigant co-ordinator. The defendant also purported to represent all other next of kin, save for the first plaintiff. As the Court was informed that not all of the other next of kin of the deceased had capacity, no order was made that the defendant represent them.
16 At the second directions hearing on 31 March 2017, the defendant was represented by pro bono counsel. The proceeding was adjourned again to enable the parties to exchange current market valuations of the property and to enable the defendant and other family members to investigate settlement of the proceeding.
17 Further consent adjournments were granted on the third and fourth directions hearings scheduled on 12 and 26 May 2017, with the proceeding being listed again on 16 June 2017 when the proceeding was set down for trial on 22 June 2017.
18 At trial, the defendant was represented by counsel and solicitors. As stated above, counsel for the defendant resisted the substantive orders. The Court determined that the alleged family arrangement was insufficient to create an interest in the property that would prevent the entitlement of the first plaintiff to his father's interest in the property being vested in him. The first plaintiff has never consented to the realisation of his entitlement being postponed indefinitely until the death of Philip Henry or the defendant. There is no document in writing signed by the relevant persons with an interest in the property, as required by either s 126 of the Instruments Act 1958 or by s 53 of the Property Law Act 1958. The defendant acknowledged there was no such document in existence concerning the family arrangement. The evidence also established that the family arrangement was not supported by valuable consideration by the family members who resided in the property, such as the payment of rent.
19 The first plaintiff and all of the other next of kin have a legal entitlement to a share in the property and they remain at liberty to terminate any informal family arrangement. Any rights conferred on Philip Henry or other family members during their lives are no more than tenancies at will. As the first plaintiff, being one of the persons absolutely entitled to a share in the property, wishes for his share in the property to be realised, the trustees are required to terminate that remaining tenancy at will and execute the trust.
20 Having regard to the defendant's intransience over the years concerning the finalisation of the estate of the deceased, the Court was not satisfied that he would realise the estate in a timely manner. Accordingly, the Court made orders that the plaintiffs should be appointed as trustees of the estate of the deceased.
21 The plaintiffs sought orders that the costs of the proceeding be paid by the defendant personally, without recourse to any right of indemnity from the estate of the deceased.
22 Costs are at the discretion of the Court, unless as otherwise provided by an Act or the Rules. The power of the Court to order costs under s 24 of the Supreme Court Act 1986 is exercised subject to and in accordance with Order 63 the Rules.[1] As well, r 63.26 of the Rules provides as follows:
Unless the Court otherwise orders, a party who sues or is sued as trustee or mortgagee shall be entitled to the costs of the proceeding out of the fund held by the trustee or out of the mortgaged property in so far as the costs are not paid by any other person.
23 Section 36(2) of the Trustee Act 1958 provides that:
A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts or powers.
24 Trustees are ordinarily entitled to costs out of the estate in litigation relating to the administration of the trust estate, unless they have been guilty of misconduct.[2] In respect of their costs, trustees are entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence.[3] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercising power 'with an absence of care and diligence that a person of ordinary prudence should exercise' are not caught by the right of indemnity and shall be borne by the trustee personally.[4] In Nolan v Collie, Ormiston JA approved the approach of Bowen LJ in Re Beddoe to a limited extent, where his Honour expanded upon the meaning of 'properly'.[5] Bowen LJ stated that the term 'properly' means that a trustee should not be personally liable for 'mere errors in judgment' and that 'mere bona fides is not the test'.[6] Ormiston JA added that 'what is "proper" and "improper" must be answered by reference to the circumstances and in particular by reference to the duty with which a trustee was obliged to comply or the power which a trustee is intending to exercise'.[7]
25 The onus to prove that a trustee should not be indemnified rests with the party seeking to deny the right of indemnity to demonstrate that costs have been improperly incurred.[8]
26 The second plaintiff and the defendant, as executors of the estate of John Henry, had it within their power together to transmit title to the property from his name to themselves, and then to complete the distribution of the estate of the deceased, either by transferring the property to the relevant next of kin, and their representatives, or by selling the property and distributing the proceeds of sale. The defendant has always declined to join with the second plaintiff in completing these actions as part of his duties as one of the executors of the estate of John Henry.
27 Before the proceeding was issued, the defendant received advice there was no legal basis for him to refuse to co-operate in enabling the first plaintiff to realise his interest in the property. Despite this, the defendant has persisted in rejecting requests by the plaintiffs to transfer the property to trustees who will realise the property and distribute the net proceeds of sale to those entitled to have the asset distributed to them.
28 Despite having the benefit of receiving advice, representation by pro bono counsel, and numerous adjournments that provided the defendant with the opportunity to resolve the proceeding, it was listed for trial. In the circumstances, it should not have been necessary for the proceeding to be issued at all. By his conduct, the defendant has demonstrated a want of prudence, care and diligence and for those reasons, he should not be entitled to an indemnity for his costs of this proceeding, either in respect of the plaintiffs' costs or his own costs.
29 Accordingly, at trial, the following orders were made:
(a) Pursuant to s 48(1) of the Trustee Act 1958 the plaintiffs, Mark Henry and Rayner Marsh, be appointed as trustees of the estate of the deceased, Edna Elsie Henry, who died intestate on 19 March 1985.
(b) Pursuant to s 51(2)(a) of the Trustee Act 1958 title to the property situate at and known as 132 Cobden Street, South Melbourne in the State of Victoria, being the land more particularly described in Certificate of Title Volume 02794 Folio 695, be vested in the plaintiffs in their capacity as the new trustees of the estate of Edna Elsie Henry, deceased.
(c) Liberty to apply in relation to the sale of the property is reserved to the parties.
(d) The costs of the plaintiffs of and incidental to this proceeding, including reserved costs, be paid by the defendant personally on a standard basis without recourse to any right of indemnity from the estate of the deceased, to be taxed in default of agreement.
(e) The costs of the defendant of and incidental to this proceeding are to be borne by the defendant personally, without recourse to any right of indemnity from the estate of the deceased.
[5] Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 304-5 [46].
[6] Re Beddoe [1893] 1 Ch 547, 562.
[7] Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 306 [51].
Henry & Anor
Henry [2017] VSC 378
(2003) 7 VR 287
(2004) 9 VR 584
(1941) 64 CLR 268