Otto v Redhead & Anor

[2] GLO also seeks an interim cash distribution of $500,000 to each beneficiary.

[3] Mrs Otto died on 20 September 2005. She was survived by her two sons, GLO and BAO. Probate of her will was granted on 5 December 2005 and the first respondents were appointed as executors and trustees.

[4] The will provided for pecuniary legacies of $130,000 to each of her sons, to be held upon trust for their respective children upon terms and the residue to each of her sons equally, as trustees of respective testamentary trusts in accordance with the principles set out in the will.

[5] The principal assets of Mrs Otto's estate upon her death were:

(a) Her total shareholding in Otto Developments Pty Ltd;

(b) Her total shareholding in Masterbuilt Homes Pty Ltd;

(e) Her bank accounts, shares in publicly listed companies and managed funds.

[6] In 2007 GLO commenced a proceeding by way of originating application in which, originally, determinations as to the true construction of the will were sought and that the respondent executors deliver financial statements to GLO. The matter was heard by Chesterman J in September 2007.

[7] In March 2008 a firm of accountants provided its report in accordance with the decision of Chesterman J to the parties. Since then there has been substantial correspondence backwards and forwards between the parties about complaints raised by GLO about that report and about the administration of the estate.

[8] The earlier application was determined by Chesterman J in October 2007.[1] His Honour made the following declarations:[2]

"(1) The assets to be appropriated between the residuary beneficiaries are, in accordance with clause 6(c) of the will to be valued as at 20 September 2005;

(2) Any net income from the assets appropriated to either of the residuary beneficiaries which is received by, given to or transferred to that residuary beneficiary or which is within the beneficiary's effective exclusive control should be taken into account in the process of determining the amounts to be paid to those beneficiaries in accordance with clause 13 of the will."

"The brothers regard each other with rancour and, according to the executors' counsel, 'the estate has been administered in a climate of suspicion and antipathy remarkable even for this jurisdiction'."

That climate, on the material read in this application, remains unchanged.

1. It is my intention that upon my death, my two sons GLENN LAWRENCE OTTO ("Glenn") and BRETT ADRIAN OTTO ("Brett") will benefit equally from my estate and other family entities whether by virtue of a gift under my will, by virtue of my death taking control of any family entity in which I have had a controlling interest during my lifetime, or by receiving outside of my will any part of my superannuation entitlements. I direct my executors to ensure such equality overall and not merely in respect of those assets which pass under my will.

(a) select and engage a suitably experienced and qualified valuers and such other experts (including suitably experienced and qualified accountants and actuaries) as my executors consider necessary to value the assets (other than money) of the family entities in accordance with the valuation principles.

(b) in particular, engage such an accountant in relation to the valuation of the goodwill of the business of Otto Developments, my shareholding in Otto Developments and Masterbuilt Homes, in determining the net worth of the family trust and the superannuation fund and in any other case where the valuation principles require tax effect to be taken into account.

(c) have such person or person undertake such valuation or valuations as at the date of my death;

(d) determine the liabilities as at the date of my death of the family entitles;

(e) having regard to the valuation principles and the valuations so obtained, determine the net worth of the family entities for the purpose of carrying into effect the terms of my will; and

(f) pay my personal debts, funeral and testamentary expenses.

7. If during my lifetime or on or after or in consequence of my

death any money or property (or the effective, exclusive control thereof) as set out below is received by or given to or transferred to Glenn or Brett being:

(a) any part of my superannuation entitlements or any part of the assets of the superannuation fund;

(b) any insurance proceeds payable in consequence of my death;

(c) any amount in the books of accounts of the family trust that are standing to the credit or debit of either Glenn or Brett or members of their respective families;

(d) any property or money belonging to a family entity (other than my estate);

(e) any other monies or property paid or transferred to Glenn or Brett consequent upon my death;

then that money or property (values as provided in the valuation principles) must be taken into account in determining the entitlement of the trusts set up under the provisions of clause 13 of my will and brought into account upon the division of my estate and, the distributions that would otherwise have been made in accordance with the provisions of clauses 13(a) and 13(b) are to be adjusted accordingly.

1. In accordance with the principles established in clauses 5, 6 and 7 of this will, I give the residue of my estate as follows:

(a) As to a one-half share ("the trust fund") to be held by Glenn as trustee ("the trustee") upon the terms set out in clause 15, with the "principal beneficiary" referred to in that clause being Glenn - to be known collectively as "Glenn Lawrence Otto's Testamentary Trust" but if his appointment fails then my executors shall be the trustee).

(b) As to the remaining one-half share ("the trust fund") to be held by Brett as trustee ("the trustee") upon the terms set out in clause 15, with the "principal beneficiary" referred to in that clause being Brett - to be known collectively as "Brett Adrian Otto's Testamentary Trust" but if his appointment fails then my executors shall be the trustee).

(a) appropriate or treat as having been appropriated to the trust fund set up under clause 13(a) of this will:

(A) my share holding in Masterbuilt Homes (which company acts as trustee for the family trust with the intent that Glenn will become the sole shareholder and director of that company and the company will, after my death, exercise its discretion to appoint both income and capital of the trust for the benefit of Glenn, his wife and children to the exclusion of any other beneficiaries).

(B) any monies which may be owing to me by the family trust at the date of my death; and

(C) my interest as beneficiary in the family trust; subject to the charge that the trustee of Glenn Lawrence Otto's Testamentary Trust will within two years of my death pay to my executors any amount required to be paid to my estate to achieve the equality of partition provided for in clauses 5, 6, 7 and 13 of this will.

(b) appropriate or treat as having been appropriated to the trust fund set up under clause 13(b) of this will, my share holding in Otto Developments (which is the registered proprietor of the land described as lot 192 on Plan CK2582 in the County of Cook Parish of Bundaberg upon which industrial sheds are erected and which company also conducts the business trading as Bundaberg Concrete Casters, the valuation of which shares is to be determined in accordance with the valuation principles with the intent that Brett will become the sole shareholder and director of that company) but subject always to the charge that the trustee of Brett Adrian Otto's Testamentary Trust will, within two years of my death, pay to my executors any amount required to be paid to my estate to achieve the equality of partition provided for in clauses 5, 6, 7 and 13 of this will.

1. I direct my executors and through them any valuer or other expert engaged by my executors to undertake a valuation for the purposes of my will ("the valuer") to have regard to and apply the following principles in determining the value of my assets and the net worth of the family entities for the purposes of my will:

(a) In relation to the valuation of my share holding in Otto Developments the valuer is to have regard to the following:

(i) the current market value of all company assets (including good will);

(ii) the amount of all liabilities of the company (including contingent liabilities);

(iii) any special rights, restrictions or conditions relating to the entitlement of my share holding to dividends or to a distribution of capital on winding up of the company;

(v) land and improvements are to be valued as if the tenants at my death were paying the then current market rentals for their premises; and

(b) in relation to the valuation of my share holding in Masterbuilt Homes, I direct my executors and the valuer to have regard to and apply the following:

(i) If all of the income and the capital of the family trust has been distributed prior to my death the value of my share holding is $1;

(ii) If all of the income and the capital of the family trust has not been distributed prior to my death then the value of my share holding is equal to the net worth of the trust taking account of:

(A) the market value of all the assets of the family trust,

(B) the amount of the liabilities of the trust (including contingent liabilities);

(C) any rights restrictions or conditions attaching to or affecting the assets of the family trust;

(c) in relation to the valuation of my superannuation entitlements, the valuer is to have regard to:

(i) the market value of the assets generating my superannuation entitlements;

(iii) any special rights, restrictions or conditions relating to the assets generating my superannuation entitlements or the ability to receive those entitlements;

(v) the circumstance that some or all of my superannuation entitlements may be paid directly to Glenn and/or Brett; and

(d) in relation to the valuation of the net worth of my estate, the valuer is to have regard to:

(ii) the liabilities of my estate (including contingent liabilities);

(iii) any special rights, restrictions or conditions affecting any such asset or liability;

1. Unless the context otherwise requires, in my will I declare that:

(i) the trust known as the Otto Family Trust constituted by a deed of trust dated 17th day of February 1976 between James Charles Aisthorpe as Settlor and Masterbuilt Homes as Trustee ("the Family Trust");

(ii) Masterbuilt Homes Pty Ltd ACN 009 874 604 ("Masterbuilt Homes");

(iii) Otto Developments Pty Ltd ACN 010 153 027 ("Otto Developments")

(iv) the superannuation fund known as the Otto Superannuation Fund constituted by a trust deed dated 20th June 1996 made between me as the contributor and me and Graham as the trustee ("the superannuation fund"); and

[11] Some further background is necessary to understand the complaints made by GLO against the first respondents.

[12] One of the major assets of the estate was the share held by the deceased in Otto Developments Pty Ltd. That company owns land in Bundaberg. Some of that land is leased to third party tenants and the balance is used by Bundaberg Concrete Casters which is a business owned by Otto Developments. The director of that business is BAO who holds the other share in Otto Developments.

[13] The deceased also held all the shares in Masterbuilt Homes Pty Ltd which is the trustee of the Otto Family Trust, it being a discretionary family trust.

[14] GLO's concerns about the administration of the estate started as early as October 2005 when he commenced a correspondence with the executors dealing with his worries about the collection of his equipment from premises owned by Otto Developments. Since then, there has been a continual flow of complaints from GLO about the conduct of the executors. It should not be thought that BAO was silent during this period. He, also, made his own claims about aspects of the administration of the estate. The conduct of both brothers was, at various times, obviously a symptom of the enmity which exists between them.

[15] By the time this application was heard, the allegations made against the executors by GLO were summarised in his counsel's written submissions as follows:

"(a) failed to accede to a request of one of two beneficiaries to investigate the issues concerning the valuations of the assets of Otto Developments Pty Ltd and the refusal or failure to undertake a proper stocktake;

(b) failed to recognise the clear conflict of interest by virtue of the position that Mr Thompson holds as accountant to the company and his duties as an executor where he not only has to, but has to be seen to, act impartially as far as the two beneficiaries are concerned;

(c) allowed the beneficiary entitled to the assets of the company to have total control over its administration prior to having any equitable proprietary interest vested in him without exercising control over that administration or been even seen to control that administration;

(d) allowed Brett to pay his legal expenses from the company's funds at the expense of Glen's interest in the income to be attached to the equalisation process between the date of death and the date of distribution;

(e) allowed Brett, as a director the company and its manager, to treat the company funds as his own in a manner that directly affects the outcome of the distributable income of the company, for example, the purchasing of a new motor vehicle, the increases in wages and superannuation and a complete lack of explanation of a reduction of the cash held by the company as is clear on the face of the accounts. Indeed, the first accounting received from the executors some 13 months following the death of the deceased contained no reference to the value of the shares in the company and failed to disclose the cash accounts of the company until after correspondence had occurred between the respective solicitors;

(f) one or both have contradicted advices concerning important aspects of the administration."

[16] These are serious assertions. The conclusion reached by GLO as a result of his perceptions of the conduct of the executors is that he has "no confidence in the executors providing me with a detailed accounting of the estate administration and a division of the residuary estate". The affidavits filed on behalf of GLO exhibit most of the correspondence among the parties. That correspondence, at least from GLO's side, demonstrates a determination to find fault in almost every step taken by the executors and a reluctance to accept what might objectively be regarded as the ordinary course of administration of the estate. There is little, apart from the assertions and expressions of concern in GLO's material, to support the allegations he makes in these proceedings. Indeed, some of the assertions amount to accusations of fraud by BAO in the conduct of the Concrete Casters business. An allegation of that nature should, if it is to be accepted, be supported by cogent evidence. It is not.

[17] There has also been delay in pursuing some of these matters. In particular, those parts of the complaints which relate to valuations were all live issues before Chesterman J but no additional compelling evidence has been put forward and no explanation has been given for the delay.

[18] No express power is provided by statute for the removal of an executor for unfitness.[4] There is, though, a very wide discretion afforded the court by s 6 of the Succession Act 1981. It provides:

"(1) Subject to this Act, the court has jurisdiction in every respect as may be convenient to grant and revoke probate of the will or letters of administration of the estate of any deceased person, to hear and determine all testamentary matters and to hear and determine all matters relating to the estate and the administration of the estate of any deceased person; and has jurisdiction to make all such declarations and to make and enforce all such orders as may be necessary or convenient in every such respect.

(4) Without restricting the generality of subsections (1) to (3) the court has jurisdiction to make, for the more convenient administration of any property comprised in the estate of a deceased person, any order which it has jurisdiction to make in relation to the administration of trust property under the provisions of the Trusts Act 1973."

[19] The capacity to "determine all matters relating to the ... administration of the estate" and "to make ... all such orders as may be necessary or convenient" is sufficient to allow the court to order the removal of an executor. But, such a discretion must be exercised judicially.

[20] The court also has an inherent jurisdiction to remove an executor through the revocation of the grant of probate.[5] In Bates v Messner[6] Asprey J said:

"The exercise of this Court's jurisdiction to revoke a grant of probate, unlike the Court's power to revoke a grant of letters of administration, depends upon the inherent jurisdiction of the Court. Whilst in an appropriate case an injunction may be obtained to restrain an executor from acting and an appointment may be made of trustees to carry out the executor's duties and whilst in some cases of neglect or refusal an order may be made against an executor ... I am of the opinion that the essential basis of the exercise of the Court's inherent jurisdiction to revoke a grant of probate is that exercised by Jeune P, namely, that the real object which the Court must always keep in view is the due and proper administration of the estate in the interests of the parties beneficially entitled thereto on the part of the person to whom and by whose oath as to the faithful performance of his duties the Court has been induced to entrust the office of executor. The terms used in some of the previously decided cases with relation to the circumstances which have given rise to the exercise of the jurisdiction of revocation, such as 'abortive', 'inefficient', 'useless' or 'ineffectual', are simply descriptive of a situation in which the Court has been persuaded to the view that its grant, which was predicated on the oath of the executor named in the will that 'he will pay all the just debts and legacies of the said deceased so far as the estate of the said deceased will extend and the law shall bind him, and that he will otherwise well and faithfully administer the said estate according to law; and that he will render a just and true account of his administration' has been circumvented by a breach of that oath which is in effect an undertaking to the Court making the grant. I shall make no attempt to define all circumstances which may attract the exercise of the Court's jurisdiction, but where circumstances clearly appear to have arisen after a grant of probate which impel the Court to the firm conclusion that the due and proper administration of an estate has either been put in jeopardy or has been prevented either by reason of acts or omissions on the part of the executor or by virtue of matters personal to him, for example, mental infirmity, ill-health, or by virtue of the proof of other matters which establish that the executor is not a fit and proper person to carry out the duties which he has sworn to the Court that he will perform, the Court may exercise its inherent jurisdiction to revoke the grant." (emphasis added).

[21] Whether an order removing an executor is sought under the Succession Act or in the inherent jurisdiction of the court, the question which must be asked is: whether it is necessary to ensure the due and proper administration of the estate that the executor or executors be removed and replaced?

[22] That principle has been confirmed in Baldwin v Greenland.[7] Jerrard JA (with whom Helman J agreed) said:

"[44] The jurisdiction, both statutory and inherent, is a supervisory and a protective one. It is always appropriate and necessary for a court asked to exercise it to have regard to the testator's wishes as to the identity of an executor or trustee. The testator's choice may be based on loyalty, or on respect, or on necessity, or on the profession of the chosen person, or on other matters the testator knew about the chosen person; the reason for the choice might never be clear to a court. The overriding assumption must be that the testator thought the person chosen was worthy of trust, even when well aware when making a choice of existing hostility (from family members) toward the chosen executor or trustee, or of other grounds for doubt about the wisdom of the choice. The decision in Gowans v Watkins to which Mr Stephens referred, is an example of a court respecting a testator's wishes, where no great mischief in administering the estate had been done by the person chosen by the testator, and where there were serious family hostilities. But the overriding object of the power remains the due and proper administration of estates.

[45] Where circumstances have clearly arisen before a grant of probate, which impel a court exercising this jurisdiction to a firm conclusion that the due and proper administration of an estate would be put in jeopardy if a particular person were executor or trustee, it can properly exercise the jurisdiction to remove that person as either. That is particularly so where, as here, the testator's declining mental capacities prevented knowledge of those circumstances being within the testator's grasp before the testator could act to remove that person. There were sufficient grounds for the described firm conclusion in this matter, and therefore proper reasons for making the order appealed, and I would dismiss the appeal. It is unnecessary to say specifically whether Mr Greenland is not a fit and proper person to carry out the duties of executor, because the Court was not asked to make that finding."

[23] Having read all the correspondence and considered it in the light of the submissions made on behalf of GLO I do not draw "the firm conclusion that the due and proper administration of an estate has either been put in jeopardy" or that the executors are not fit and proper persons to carry out the duties required of them.

[24] The material supports the conclusion that a final distribution can be made in the very near future. The construction of the will has been settled; valuations have been obtained, exchanged and critiqued.

[25] If I was otherwise disposed to accede to the application, it would inevitably result in further delay to the finalisation of the estate. I think it is also open to me to infer that, in the light of the almost poisonous relationship between the brothers and the criticism by GLO of the valuation which GLO arranged, that any executor would be the subject of criticism.

[26] A consequence of not removing the executors and the inconvenience of the final distribution is that there is no ground for ordering an interim distribution.

[27] The applicant also sought an order that the executors or, if they were removed, the administrator confer with the valuers retained by the applicant and the respondents for the "purpose of revising if necessary the valuation of the assets of the estate."

[28] Counsel for both GLO and BAO each submitted further written submissions on this part of the application and referred to the power available under s 6 of the Succession Act. I do not need to decide whether such a power is available as I am convinced that, even if it was available, it would not be appropriate to make such an order. Competing valuations have been obtained. The executors have considered them and the valuer retained by them has reviewed the other valuation and provided a considered response. A conference would only further delay the matter and increase, for no good purpose, the already substantial amount of costs which must have been expended in the contest over the administration of this estate.

[29] The application is dismissed. I will hear the parties on costs.

[1] [2007] QSC 278.

[4] An executor might be removed if he or she neglects to perform the necessary duties. Succession Act 1981, s 52(3).

[5] Bates v Messner (1967) 67 SR (NSW) 187.

[7] [2006] QCA 293; [2007] 1 Qd R 117 at [44].