Ford v Princehorn; Estate of Ford

Judgment 1HIS HONOUR: These proceedings concern the estate of the late Sarah Emmaline Ford who died on 29 April 2011, having made a will dated 13 June 2009. 2The plaintiffs are beneficiaries under that will. The defendant is the executor. By their summons, the plaintiffs sought orders to require an interim distribution of the estate and an order that the defendant file accounts. They also sought a declaration that the defendant is not entitled to a sum of $10,000 by way of commission. 3On 15 August 2012 the defendant distributed the bulk of the estate between the 19 beneficiaries entitled thereto, reserving a sum of about $53,000 plus some accrued interest in respect of outstanding matters. The defendant accepts that he should file his accounts and a summons for the passing of the accounts. 4The live question has been one of costs. 5Prior to obtaining a grant, the defendant attended a meeting with various members of the extended family who fall into different groups relevant to the administration of the estate. He proposed that he would carry out the work required to obtain probate and to administer the estate, without the need to engage solicitors or accountants, on being paid an amount of $10,000 and sought the agreement of members of the family. 6All of the beneficiaries are of full age and, so far as appears, sui juris. The defendant appreciated that he needed the consent of all beneficiaries to payment of remuneration of $10,000 in lieu of commission as proposed. 7On 24 May he circulated to the 18 other beneficiaries documents which, if executed, would contain their consent to the proposal, and their several agreements to pay several amounts which, when added together, totalled approximately $10,000. 8The majority of the beneficiaries have agreed to that proposal. Six of the eight plaintiffs have not. Two of the eight plaintiffs in due course signed such documents in about March 2012. But by joining in these proceedings, I take it that their consent has been withdrawn. 9Probate of the estate was obtained on 27 May 2011. The estate is a small one. It consisted of a house and investments that were readily converted to cash. The house was sold to one of the beneficiaries and the sale was completed on 29 July 2011. 10On 8 July 2011 F.C. Bryant Thomas & Co, who act for the defendant, wrote to the beneficiaries advising that the defendant had proposed payment of commission in the sum of $10,000. They advanced arguments as to why it would be in the interests of the estate for the beneficiaries to agree to that proposal, and stated that if all beneficiaries confirmed their agreement for the commission claimed, the matter could be finalised without delay. They said that if any beneficiaries refused to give their consent, the defendant would have to seek a formal court order, that this would require the preparation of what the solicitors described as a fully audited set of accounts and that this would add to the delay and expense in finalising the administration and distribution of the estate. 11Whilst a majority of beneficiaries consented to the defendant's proposal, the plaintiffs, at that stage, did not. 12On 27 October 2011 O'Sullivan Saddington Solicitors, who acted for one of the plaintiffs, wrote to F.C. Bryant Thomas & Co asking to be advised when there would be a distribution of the estate and asking for a copy of the probate listing of assets and liabilities together with estate accounts and reconciliation statements. 13On 9 November 2011 F.C. Bryant Thomas & Co replied. They did not respond to the matters raised by O'Sullivan Saddington. Rather, they said that they understood that that firm's client had not consented to the executor's claim for commission. They said that the executor believed that that issue needed to be resolved before a final distribution could be made and sought that firm's client's instructions. There was no response to that letter. 14The term deposits which formed part of the estate assets matured in December 2011. The defendant, in cross-examination, admitted that by mid-January 2012 there was nothing to prevent an interim distribution. 15In March 2012 a number of the beneficiaries of the estate asked the defendant to provide an up-to-date copy of the accounts detailing income and expenditure and requested a meeting in order to peruse the accounts of the estate. 16On 15 March 2012 F.C. Bryant Thomas & Co wrote to the beneficiaries stating that the executor was not obliged to provide an accounting to beneficiaries before distribution was made, unless pursuant to a court order. That firm advised that the defendant was prepared to submit the estate records of income and expenditure to an independent accountant for preparation of a set of accounts, provided that the costs of doing so were paid for by those beneficiaries who requested it. 17Subsequently, two of the present plaintiffs provided their consent to the defendant's proposal that he be paid $10,000 as commission, albeit in the case of one of the plaintiffs that she did so reluctantly and, arguably, on conditions. 18On 2 May 2012 the present solicitor for the plaintiffs, Ms Moy, wrote to the defendant advising of her client's instructions to commence proceedings and enclosing a draft of the summons. 19On 10 May 2012 F.C. Bryant Thomas & Co wrote to Ms Moy. They stated that the assets of the estate could be distributed once the issue of the executor's commission had been resolved and final clearance obtained from the Australian Taxation Office ("ATO") in relation to any taxation liabilities of the estate. 20In relation to that last matter, it appears from some accounts subsequently provided by the defendant that there may be a liability to the ATO estimated to be some $6,450. It was not submitted for the defendant, nor suggested by him in cross-examination, that that potential liability was a reason for withholding an interim distribution. 21In their letter of 10 May 2012, F.C. Bryant & Co noted that the defendant had previously offered an accounting at the expense of any of the beneficiaries who requested it, but this would incur considerable further expense and delay in the finalisation of the estate. They said that the defendant could produce receipts and verify what had been realised by way of sale of estate assets and any expenses incurred. 22On 1 June 2012 F.C. Bryant Thomas & Co said that the defendant then felt that he had no alternative but to prepare an audited set of accounts and to file a claim for commission. They said that the defendant would arrange for a full set of accounts in about a week's time and that they would then confirm his instructions to file the appropriate process. The summons was filed on 20 June 2012. 23After the filing of the summons, the defendant prepared and distributed to the beneficiaries a statement of account summarising the funds received from the realisation of investments and the sale of the house, the interest earned, the expenses paid and other matters of account. 24Prima facie, as the plaintiff has obtained substantially the relief sought in the summons, they are entitled to their costs (Uniform Civil Procedure Rules 2005, r 42.1). 25Prima facie, the defendant would be entitled, as executor, to be indemnified out of the estate against any liability for costs that he had to the plaintiffs and would be entitled to be indemnified out of the estate for his own costs. However, that will not be the position if his liability to the plaintiffs, or to the solicitors and counsel retained, has arisen as a result of a breach of his fiduciary duties as executor. 26The majority of the beneficiaries have acceded to the defendant's proposal. It may well be that that proposal is in the interests of all of the beneficiaries. It may well be that the costs of filing accounts and attending on the passing of the accounts, plus the amount of commission which might be allowed, would exceed, and perhaps substantially exceed, the amount of $10,000 which the defendant proposed be paid. But I cannot proceed on the assumption that that will be the case. 27In any event, I do not accept that the executor was justified in withholding a partial distribution of the estate whilst his claim for commission was either further negotiated or advanced by the filing of accounts and making the claim for commission. 28The duty of an executor is to act with reasonable diligence in both realising the estate's assets and discharging debts, and also in distributing the estate to those entitled (Mavrideros v Mack [1998] NSWCA 286; (1998) 45 NSWLR 80 at [104]; Garthshore v Chalie (1804) 10 Ves. Jun. 1; 32 ER 743; and Re Tankard [1942] Ch 69). 29The defendant denied that he was withholding distribution of the estate on an interim basis as a tactic to force those beneficiaries who had not given their consent to his proposal to do so. He said that he considered it would be cheaper and more efficient to make a single final distribution. That may be, but in the circumstances in which the defendant found himself from late July 2011, that was not possible. 30Nor can I let pass without comment the statements made by the defendant's solicitors of 15 March 2012 that the executor was not obliged to provide an accounting before distribution, except pursuant to a court order, and that if an account were to be provided, it would be necessary for an independent accountant to prepare, at the beneficiaries' cost, the set of accounts. 31That is not the law. As is said in R Geddes, C Rowland & P Studdert, Wills, Probate and Administration Law in New South Wales (1996) LBC Information Services (1996), at [85.02], quoting Ford and Lee, Principles of the Law of Trust, 3rd ed, at [93.10]: "The general duties of all trustees, including personal representatives, include the keeping and rendering to the beneficiaries of the full and candid record of their stewardship, including all appropriate financial accounts. The keeping of proper accounts and records is an integral part of the performance of the trustee's duties. The accounts must show all receipts as well as all payments, and payments must be supported by vouchers, although oral evidence of disbursements may be allowed in the absence of vouchers ... it is the further duty of the trustee to render accounts for the beneficiaries, to have her or his accounts ready and to be candid in any disclosures to beneficiaries." 32Whilst a beneficiary who requires copies of the accounts or trust documents must pay for them, I know of no basis upon which the executors could properly say that the beneficiaries were not entitled to inspect accounts without a court order, or that the beneficiaries would have to pay the costs of an independent accountant to prepare accounts for their inspection. 33The plaintiffs may be acting unreasonably in insisting that the estate be put to the expense of the defendant's application for commission. If that is so, it may well be a matter which should be reflected in any order for costs that might be made on that application, including any order that might be made as to which beneficiaries should bear the burden of a costs order if it is ordered that the defendant's application on the passing of accounts and for commission should be borne by the estate. But I do not think that that possibility is a reason for not making an order for costs at this stage of these proceedings which raise discrete issues. 34As counsel for the plaintiff submitted, an executor is entitled to apply for commission out of the estate, but it is within the discretion of the court whether commission is allowed and, if so, in what amount. 35In the absence of misconduct, it would be unusual for an executor to be refused commission in circumstances such as this, but it is within the discretion of the court to determine how much should be allowed. 36For the reasons I have given, whether or not the plaintiffs were acting reasonably in asserting that entitlement, the executor was not justified in withholding a partial distribution of the estate. That distribution was only made after proceedings were commenced and I infer that it was made as a result of the commencement of these proceedings. For these reasons, costs should follow the event and I will order that the defendant pay the plaintiffs' costs. 37The question then is whether I should order, pursuant to r 42.25(2), that the defendant not be entitled to payment of his costs or the costs he is liable to pay to the plaintiffs out of the estate. 38Rule 42.25 applies to costs of a person who is a party to proceedings in the capacity of trustee or mortgagee. 39I do not stay to consider the question whether in the rule the reference to "trustee" includes an executor, because it appears that in any event the defendant has now assumed the office of trustee. In any event, similar principles will apply. Rule 42.25 provides: "42.25 Costs of trustee or mortgagee (cf SCR Part 52A, rule 42) (1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be. (2) The court may order that the person's costs not be so paid if: (a) the trustee or mortgagee has acted unreasonably, or (b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund." 40Nor do I need consider whether sub-rule (2) exhausts the circumstances in which the Court may order that a trustee or mortgagee's costs not be paid out of the trust property or mortgage property. 41In the present case I have found that the defendant acted in breach of his duties as executor, or executor and trustee, in withholding the distribution of the estate for as long as he has done. I do not think that an executor or trustee, properly advised, should have taken that course. 42Moreover, whilst it might well be found in due course that the executor is entitled to commission of more than the $10,000 sought, nonetheless I think in continuing to press for agreement to that claim and not making an interim distribution until that claim was resolved, the defendant has in substance acted for his own benefit rather than for the benefit of the estate. 43In my view, the defendant is not entitled to an indemnity out of the estate in respect of his costs or the costs payable to the plaintiffs. I understand the defendant consents to the only other outstanding claim for relief in the summons, namely, that he file accounts in respect of the estate. I will hear from counsel in relation to the time by which the defendant is to file accounts and a summons for the accounts to be passed, and to make a claim for commission. [Counsel addressed.] 44I make the following orders and declaration: