Plaintiff v Defendant

2 The proceeding first came before me in the Probate List on 9 December 2011. The plaintiff's application was supported by three affidavits - one by the plaintiff affirmed on 30 November 2011, one by her sister, Sandra Lee Matthews, sworn on 1 December 2011 and one by Daniel Blair Cawood, a licensed real estate agent employed by the firm PRD Nationwide (Mildura) ("PRD"), sworn on 6 December 2011. The application was adjourned to 16 December 2011 to enable the defendant to file material in opposition. He swore an affidavit on 14 December 2011. As it was not possible to conduct a trial of the matter on 16 December 2011, it was adjourned to the new year. On each occasion the proceeding was before the Court, the plaintiff was represented by counsel and the defendant appeared for himself. At the trial on 30 January 2012 both the plaintiff and the defendant were cross-examined.

3 It is unnecessary to set out all of the history of this unfortunate dispute between the co-executors of the deceased's estate. Nevertheless, a summary of some of that history is necessary to understand why the plaintiff's application was granted.

4 The deceased died on 14 May 2009. By his last will dated 3 March 1975, the plaintiff and the defendant were appointed substitute co-executors of the deceased's estate. The deceased left his estate to his three children in equal shares. Probate of the deceased's last will was granted to the plaintiff and the defendant on 12 October 2009, they having engaged the firm of Maloney Anderson Legal to act on behalf of the estate. The inventory of assets and liabilities of the deceased's estate disclosed a property at 30 Commercial Street, Merbein in the State of Victoria valued at $120,000 and personal estate of about $46,000. The plaintiff said that she did not take any steps to apply for probate before August 2009 because she thought it appropriate to give the defendant, who was the sole occupant of the Commercial Street property, some time to make arrangements for alternative accommodation.

5 In 1999, the defendant, then aged about 47, started living with his parents in the house at Commercial Street. The deceased and his wife had lived in that house from about 1973. They remained there until September 2008 when they moved in with the plaintiff and her husband. The plaintiff became their full-time carer. However, both died in the following year, Mrs Wilson shortly before her husband.

6 In August 2009, the plaintiff spoke with the defendant suggesting that they engage a firm, Collie & Tierney Real Estate (Mildura) ("Collie & Tierney"), as the agents to sell the Commercial Street property. The defendant agreed. A few days later, the defendant called the plaintiff and said that he would prefer to engage a local real estate agent. Merbein is approximately 10 to 15 kilometres from Mildura. The plaintiff agreed. The defendant said he would make the necessary arrangements with a Merbein real estate agent. However, as the plaintiff did not hear anything from the defendant for about a month, she engaged Collie & Tierney to sell the property. She telephoned the defendant and told him what she had done. The plaintiff signed a sales authority form but, despite requests to do so, the defendant did not sign it until about 8 October 2009.

7 On 2 October 2009 the plaintiff and her husband and Mr and Mrs Matthews travelled to Merbein from their respective homes in South Australia and Kialla near Shepparton to clean up and clear out the house at Commercial Street and prepare it for sale, as previously discussed by the plaintiff with the defendant. No mini-skip had been hired by the defendant despite a request from the plaintiff to do so. The cleaning up of the house was short-circuited when the defendant shouted "not selling" and "family dispute". The sisters and their husbands accordingly left the property. The defendant agreed in cross-examination that he had said that he did not want to put the property on the market. He said that he and his sisters had "blazing arguments" about this.

8 On 16 October 2009 the defendant sent a text message to his sister Sandra threatening to change the locks on the property. Mrs Matthews forwarded this text to the plaintiff. Subsequent telephone conversations between the plaintiff and the defendant did nothing to resolve the disagreement between the plaintiff and the defendant about proceeding with the sale of the Commercial Street property.

9 On 3 December 2009 each of the beneficiaries received an interim distribution of $15,000 from the deceased's estate. A few months earlier they had each received a distribution of $25,000, in effect from their mother's estate but via the deceased's estate.

10 On 10 December 2009 the plaintiff sent a letter to the defendant offering to help him find a place of his own to live, now that he had received his "share of Dad's money". She pointed out that the property at Commercial Street would have to be sold and the proceeds divided between the three siblings and that whilst he continued to live in the house on his own he was responsible for its care and maintenance and as he was not paying rent he was "profiting from the estate" more than his sisters. The letter continued:

We would suggest the house to be completely vacant, so we can give it a thorough clean and present it for sale. By doing it this way we would be able to get a bit better price, better than at present with someone living there. Sometimes this is not very appealing to a prospective buyer!

...

We have asked Trevor Rogers from Collie and Tierney [sic] to temporarily suspend the sale of the house until we can better present it in a manner which I have just described.

11 On about 18 January 2010 the plaintiff received a text message from the defendant's telephone. It read:

I am taking steps to be sole executor house will be sold later John.

The plaintiff did not respond. At about the same time the defendant contacted Maloney Anderson Legal requesting that the balance of the estate funds and the Certificate of Title for Commercial Street be forwarded to him. The solicitors responded that they could not do as he had requested.

12 By a detailed letter dated 16 April 2010, Maloney Anderson Legal again wrote to the defendant. After reciting the sequence of events concerning the unsuccessful attempts to sell the Commercial Street property, they stated as follows:

As a result of the above we do not believe that you as an executor are successfully exercising your fiduciary obligations to avoid a conflict between your own interests and the interests of the estate in general and the interest of beneficiaries. As you continue to remain in possession of the property, using same and hindering its sale you are clearly acting in breach of your obligations to call in and administer the assets of the estate for the benefit of the beneficiaries. We believe that your current conduct gives rise to your co executor initiating an application to remove you as an executor of the estate.

There was no response from the defendant to this letter, including the solicitors' request that he contact them within the next seven days "to advise us of your availability for the Real Estate Agent to attend the said property" to advise further what needed to be done to prepare the property for sale. Instead, the defendant continued to send to the estate's solicitors utility bills and rates notices for the property.

13 In about late June 2010 the plaintiff sent another letter to the defendant pointing out that as he was the only person occupying the property he should be liable for such costs as water, power, telephone, insurance and council rates. She said that:

As you seem intent on staying in the property, we are giving you the option of buying Sandra and myself out at the agreed Real Estate price of $130,000 (total sales price).

14 Given the impasse between the co-executors the plaintiff consulted her own solicitors, Holcroft Avery. By a letter dated 14 July 2010 they wrote to the defendant as follows:

You currently reside within the property at 30 Commercial Street and have failed to respond to our client's efforts to sell the property. You are being obstructive in failing to communicate with our client and also by not allowing real estate agents or other persons connected to the sale of the property onto the premises.

Furthermore you are failing in your duty to protect the asset in that you are failing to maintain general care and condition of the property as well as failing to pay for Mildura Rural City Council Rates, utility bills and insurance for the property.

Our client in [sic] endeavouring to carry out her obligation as the Executor along with you and is being prevented from carrying out such duties by you.

We now ask that you contact Mr Avery within seven days of the date of this letter to consent to the selling of the property and a proposal as to when you will be vacating the same.

If you do not respond to this letter within seven days we have instructions to issue proceedings at the Courts to have you removed as an executor ...

15 On 26 July 2010 the plaintiff received an undated letter from the defendant in which he complained about Sandra attempting to sell the property at Commercial Street in September 2009 without consulting him, about the plaintiff putting the property on the market in September 2009 and taking it off the market in December 2009 without discussing these steps with him as co-executor, and about Trevor Rogers, the agent from Collie & Tierney not bringing "one buyer to look at the property". The defendant suggested that:

It may be advisable therefore to put the house with a different agent to get it sold.

The letter also contained the following statements by the defendant:

(I did not reply to your offer in May/June to buy the house because obviously I do not have enough finance and the price was wrong.)

I will write to you shortly with a suggestion for rent and some rental forms and other matters.

16 In cross-examination, the defendant disputed that he thought the price of $130,000 was too high. He said that he thought that "it was probably too low". However, I consider that the defendant's statement was quite clear - the price was "wrong" because it was too high. It should not be forgotten that in the inventory prepared by the co-executors when applying for the grant of probate that the property was valued at $120,000. In addition, it seems from what the defendant also said in cross-examination that he may not have understood that he would have had to pay only two-thirds of the amount of $130,000 to purchase his sisters' interests.

17 In his affidavit the defendant reiterated his complaint about Sandra's attempt to sell the Commercial Street property. Both Sandra and the plaintiff denied, in their respective affidavits, that such conduct took place. It is unnecessary to decide whether or not Mrs Matthews took any such action. The plaintiff also stated in her affidavit that Mr Rogers had told her that he found it extremely difficult to contact the defendant to arrange for prospective buyers to inspect the property.

18 Holcroft Avery again wrote to the defendant on 13 August 2010 stating that the plaintiff required that he vacate the property within 14 days so that it could be "prepared for sale". Legal proceedings were again threatened. The defendant consulted solicitors and subsequently wrote to Holcroft Avery by a letter dated 14 October 2010. He again complained about his sisters' conduct but agreed that the property should be sold. Importantly, however, the defendant said:

I am unemployed right now so it has suited me to remain here.

He also said that in December 2009 he did not comply with the plaintiff's:

demand for back rent and for me to leave the house! Why should I ...

19 On 19 October 2010 the plaintiff and the defendant entered into a Deed of Agreement in relation to the sale of the Commercial Street property. Recital F stated that:

The parties have now agreed on terms to bring about the sale of the property in a prompt and equitable manner to all parties as set out below.

The Deed of Agreement went on to provide that the parties agreed to enter into an exclusive Agency Agreement for a real estate agency for a period of 120 days at a reserve price of $145,000 for the first two months and $140,000 for the third month. It was also agreed that the agent would be given keys to access the property and that potential purchasers could inspect it in the company of the agent.

20 The Deed of Agreement also contained provisions about the payment of current and future costs and about rental. It was agreed that the power and water utilities were to be paid by the defendant "as the current occupant of the premises". The insurance and council rates due in February 2011 were to be paid equally by the three beneficiaries if the property had not been sold by then. It was also agreed that "if a contract has not been entered into and the property settled by 1st January 2011", the defendant would pay $33 per week rental to each of his sisters if he continued to reside in the property.

21 Finally, the Deed of Agreement provided under the heading "Breach of Agreement":

1. Should either party breach the Agreement then the enforcing party may apply on seven (7) days notice in writing given to the breaching party's solicitors to the a [sic] Court of competent jurisdiction for judgment against the breaching party by consent for an Order that the breaching party be removed as an executor of the Estate plus the enforcing party's reasonable solicitor client costs in the said Application and the hearing of such Application.
2. Upon the hearing of any Application made pursuant to the above clause the enforcing party may produce it's [sic] part of this Deed of Agreement as evidence of the consent of the breaching party to the said judgment.

22 Also on 19 October 2010, the plaintiff and the defendant signed an exclusive sale authority with PRD to sell the Commercial Street property. The vendor's price stated in the authority was $149,000. The agent's estimate of selling price was $140,000.

23 Despite the terms of the Deed of Agreement, the defendant did not pay any rental to his sisters from 1 January 2011, although he remained in occupation of the property. Nor did he pay his one third share of the insurance and council rates. They were paid by the plaintiff in addition to her own share.

24 On 17 February 2011 the exclusive authority expired. The plaintiff and the defendant amended the vendor's price down to $129,900 and it was extended for a further exclusive period of 90 days.

25 In mid March an offer to buy the Commercial Street property for $112,000 was received by Daniel Cawood of PRD. A contract of sale was executed by the proposed purchaser and signed by the plaintiff. She said that following discussions with Mr Cawood she:

formed the view that the price offered, while low, was acceptable, particularly having regard to how long the property had remained unsold and the costs that were being incurred in paying the rates and insurance.

26 On 24 March 2011 the plaintiff telephoned the defendant to discuss the sale of the property. She told him that she was willing to forgo part of her one third share of the proceeds of sale so that he could receive $43,300, being one third of the then stated sale price of $129,900. She asked him to make an appointment with her solicitor, Mr Avery, so that the three of them could discuss the proposal. The next day the defendant telephoned the plaintiff and said that the offer of $112,000 was too low. After further argument, he agreed to a meeting with the plaintiff and Mr Avery at the offices of Holcroft Avery on 5 April 2011. At that meeting the defendant said that he wanted to consider the offer and get a valuation. On the next day he sent a handwritten note to Mr Avery confirming that he was seeking price appraisals from two real estate agents and said that he would present them to Mr Avery "ASAP". On 15 April 2011 the defendant told the plaintiff that he would not be signing the contract of sale. The purchaser then withdrew his offer on 19 April 2011.

27 Mr Cawood said in his affidavit that at the start of April 2011 he contacted the defendant to discuss the offer of $112,000. He said that he told the defendant that he thought the offer was "market value" and that he explained to the defendant that:

this was based upon, the lack of enquiry, the extended time on market, no inspections, and the general Merbein market at the time.

The defendant agreed in cross-examination that Mr Cawood had given him this advice but pointed out that "he also valued it six months before at $140,000". Later in his evidence, he said that he had no recollection of Mr Cawood telling him that the offer of $112,000 was "a fair price". I accept the evidence that something to this effect was said.

28 On 27 April 2011 the plaintiff received a letter from the defendant, part of which quoted verbatim was as follows:

I did not think it appropriate to sell the house for $112,000 because it was not a good price at all: and I cannot take your share of the inheritance that you offered to me. I will get some advice and I still believe the house will sell very well ... once a serious sale problem is corrected. It is a very good house ... and of course you will likely get your share which I really think will be around $40,000 ... which is too good to give away.

29 In a letter from Holcroft Avery to the plaintiff and the defendant dated 3 May 2011, the solicitors said:

We advise that on Friday the 15th April 2011 John attended at our office and advised that he had received a verbal valuation from Herron Todd White on the property for $112,000.00. John advised that he was still unsure if he wished to sell the property at that value. He was going to consider the offer further and would not commit as to when he would provide further instructions.

...

The current position is that there is now no offer to purchase the property and that John has received a verbal valuation from Herron Todd White that a fair value on the property at the current market is $112,000.00.

Instructions from Denise

As of Monday 18th April 2011 we have received instructions from Denise that she is at a loss as to trying to move the sale of the house forward taking into account John's refusal to sign any Contract for Sale.

She has withdrawn the offer to John to reduce her share as a beneficiary ...

...

Dispute between the Executors

Denise and John are in the position they originally were prior to the matter being referred to us from Maloney Anderson Legal in June of 2010.

That position being that:

1. The property is currently not listed with a Real Estate Agent, no reserve price has been agreed upon and there is no potential purchaser for the property.
2. The remaining beneficiary, Sandra is anxious to wind up the estate.
3. John continues to reside at the residence without paying any rent or covering any of the expenses.

Both Executors and Sandra have the ability to apply to the Supreme Court for Orders to remove one or both Executors upon certain grounds.

30 The defendant said that Herron Todd White had not given him a sworn valuation of the property of $112,000. He agreed that he had been given this figure verbally but said that when he pointed out to the valuer that neighbouring properties had sold for more, the valuer "withdrew his valuation" and said that he would not "try and charge" the defendant for it.

31 In about August 2011 the defendant put up a sign for the private sale of the Commercial Street property. In September 2011 the defendant listed the property with Elders. It was advertised in the price range of between $105,000 and $130,000. According to the defendant some interest was shown by buyers including offers from two investors of $105,000 and $110,000. A third offer of $115,000 was made but was quickly withdrawn. The defendant said in his affidavit that "this offer seemed reasonable to me" and that "the other offers were too low being at the bottom of the 'price range' and apparent valuation". The defendant further said that the price range given to him suggested a valuation of $125,000.

32 However, at the request of the plaintiff's solicitors, on 1 December 2011 Mr Cawood prepared a sales appraisal of the current market value of the Commercial Street property. In his professional opinion, "the value of the house and land together with improvements" was in the range of $110,000 to $115,000. He said that comparative sales showed a decline in values in recent years. There had also been a dramatic reduction in the number of recorded sales in Merbein. Mr Cawood believed that this could "be attributed to the current economic climate and the lack of demand for people looking to live, work and invest in Merbein".

33 Given the continued failure to sell the property the plaintiff commenced this proceeding because she was "at a loss in trying to move forward the sale of Commercial Street". She stated in her affidavit that she believed that it would not be possible to reach agreement with the defendant even if a purchaser offered a figure which the defendant had previously indicated he believed it to be worth.

34 The defendant opposed the application to remove him as co-executor. He said in his affidavit that he believed that he had performed his duties as co-executor to the best of his ability and "reasonably well in very difficult circumstances". He maintained that he was the only one who had been trying to sell the property and that the plaintiff had been in the wrong in taking the property off the market in 2009 without consulting him. On the other hand, he blamed the lack of offers on Collie & Tierney because they had "accidentally advertised" the property for sale between at least January to November 2010. Whilst the defendant said at the hearing on 16 December 2011 that he was prepared to have the property listed for sale on 30 January 2012 the parties were unable to reach agreement on the arrangements for such a sale. The defendant said in his affidavit that:

I believe a relisting on approx 30 January 2012 at a reserve price of $110,000 or $115,000 should achieve a quick sale and a good sale with the possibility of $125,000 achievable, with a substantial benefit to beneficiaries.

35 One important question was whether the defendant's professed intentions would be carried into effect if he remained a co-executor. Given that the defendant had previously entered into the Deed of Agreement but consistently breached it by failing to pay rent and his share of other expenses and that he had refused to accept the written offer of $112,000 in April 2011, the plaintiff was sceptical about the defendant's bona fides in making this statement.

36 Pursuant to s 34(1)(c) of the Administration and Probate Act 1958, the Court has power to remove an executor where the executor "is unfit to act in such office". There is a similar power to appoint a new trustee in substitution for an existing trustee under s 48(1) of the Trustee Act 1958 and an inherent power to remove either an executor or a trustee.

37 The selection of the deceased's choice of executor should not lightly be set aside.[1] However, the paramount considerations in the exercise of the Court's discretion are "the welfare of the beneficiaries and the protection of their interests in the estate".[2]

38 Unfitness to act can be constituted not only by "matters such as unwarranted delay in administration of the estate, failure to communicate with beneficiaries, failure to account, and unreasonable delay in paying beneficiaries their entitlement" but also by "a situation in which an executor has a conflict of duty and interest in carrying out his executorial duties".[3] Not every conflict of duty and interest should result in removal of an executor.[4] An executor's conflict of duty and interest of a kind likely "to affect the efficient and satisfactory administration of the estate is a proper basis for removing an executor ... "[5]

39 In my opinion, the defendant as a co-executor and the sole occupant of the property at Commercial Street for over two years without paying any rent was in a position of conflict of duty and interest. This conflict was all the more obvious as the defendant had agreed to pay rent under the terms of the Deed of Agreement. Obviously, the longer Commercial Street remained unsold, the longer the defendant was able to live there rent free. The plaintiff, his co-executor, could not sell the property or require him to vacate without his agreement. This continued state of affairs was to the detriment of his fellow beneficiaries because they were receiving no benefit from their one third entitlement to the one remaining, and largest, asset of the estate.

40 The defendant's conflict between duty and interest became particularly critical when he and his co-executor had to consider whether or not to accept the offer of $112,000 for the property at Commercial Street. Whilst the plaintiff could objectively weigh up the benefits of selling at that lower than expected price against the possible benefits of holding out for a greater price later in time without any personal interest affecting her consideration, the defendant's consideration was always going to be impacted by his personal interest in delaying the sale so that he could continue living rent free at the property.

41 The difficulties this has caused the defendant can be seen in the inconsistencies in his approach to the question of a sale. He consistently referred during argument to the property being valued at $140,000 or more, yet when his sisters offered to let him buy them out at a valuation of $130,000 he said that "the price was wrong". In September 2011 he regarded an offer of $115,000 as "reasonable", yet he had refused to accept $112,000 in April 2011, even though this was the verbal valuation he had obtained at that time. He maintained at the hearing that the property was worth $140,000 yet he had agreed that the exclusive authority to PRD could be amended in February 2011 to $129,900 and said in his affidavit that the price range given to him in about September 2011 suggested a valuation of $125,000.

42 It was a matter of concern that, despite this conflict being pointed out to him in correspondence from solicitors prior to the proceeding being commenced and at the hearing on 16 December 2011 and during the submission of counsel for the plaintiff at the trial, the defendant commenced his submission by stating that he did not consider that he was in any position of conflict. This indicated to me a failure on the part of the defendant to understand his duties as a co-executor. Another indication of such a failure was his complaint that he alone had had to pay the cost of the services such as electricity, water usage and telephone at the Commercial Street property rather than them being paid by the estate. In cross-examination, the defendant attempted to justify his continued occupation of the property on the grounds that it helped the value of the property because it was maintained by him. However, he acknowledged that staying in the property rent free "made it easier" for him. When asked why he had not paid any rent to his sisters after 1 January 2011 as provided in the Deed of Agreement, the defendant proffered the lame and unbelievable excuse that he had forgotten about the rent - it was "just a simple ... oversight".

43 In my opinion, the only way in which the Court could have any confidence that the interests of all of the beneficiaries would be equally protected was by removing the defendant as a co-executor so that the plaintiff would be able to obtain vacant possession of the Commercial Street property, prepare it for sale, put it on the market and decide whether or not to accept any offer to purchase the property without being delayed and frustrated by the defendant acting in his own interest. Whilst this might seem to be a harsh conclusion given the defendant's professed intention to co-operate in a sale "at a reserve price of $110,000 or $115,000", the defendant's undoubted conflict of duty and interest plus his failure to comply with his obligations under the Deed of Agreement to pay rent and his share of other expenses for the property until it was sold meant that I had no confidence that he would act as stated if left as a co-executor.

44 Counsel for the plaintiff submitted that the facts in this case were in essence similar to the facts in Fysh v Coote. Like Ormiston JA in that case,[6] I considered that the welfare of the beneficiaries was opposed to the defendant's continued occupation of that office.

45 For the above reasons I considered that the defendant was "unfit to act" and accordingly made the order removing him as an executor and trustee of the will and estate of the deceased. Because of the firm view I had reached, I made the order without giving reasons at that time in order to avoid further delay.

46 With respect to costs, I agreed with the plaintiff's proposed order, namely that:

The defendant pay the plaintiff's costs of and incidental to the proceeding, including reserved costs, to be taxed on a solicitor-client basis, and such costs to be paid from the defendant's share of the proceeds of the sale of Commercial Street, if they have not been paid before the date of distribution of those proceeds.

47 I made that order for the following reasons. First, the plaintiff has been successful and costs should follow the event. That is, the costs should be paid from the defendant's share of the proceeds of the sale and not from the estate as a whole as that would unfairly penalise the beneficiaries apart from the defendant. Secondly, as the plaintiff, a co-executor, has been forced by the conduct of the defendant, a co-executor, to bring this proceeding, she should be entitled to her costs on a solicitor and client basis so that, as far as possible, she should not have to meet any of her costs out of her own pocket.

[1] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65, 75 and 83 (Ashley J); Dimos v Skaftouros [2004] VSCA 141; (2004) 9 VR 584, [13] (Winneke P).

[2] Dimos v Skaftouros [2004] VSCA 141; (2004) 9 VR 584, [13] (Winneke P).

[3] Delmo [1996] VicRp 7; [1996] 1 VR 65, 73 and 82 (Ashley J). These quotations from the judgment of Ashley J were expressly approved by Ormiston JA in Fysh v Coote [2000] VSCA 150, [20] (Batt and Chernov JJA agreed with Ormiston JA). See also Skaftouros [2004] VSCA 141; (2004) 9 VR 584, [13] (Winneke P) and [114] (Dodds-Streeton AJA) (Batt JA agreed with Winneke P and Dodds-Streeton AJA).

[4] Delmo [1996] VicRp 7; [1996] 1 VR 65, 83 (Ashley J).

[5] Coote [2000] VSCA 150, [20] (Ormiston JA).

[6] [2000] VSCA 150, [25].