Plaintiff v Defendants

2 The defendants oppose the application for their removal, maintaining that they have not refused to act as executors, nor are they unfit to act as executors, nor are they incapable of acting as executors within the meaning of s 34(1)(c) of the Administration and Probate Act 1958. They also contend that the plaintiff is unfit to act as administrator or is incapable of so acting and it is not in her interests or welfare that she or an independent person be appointed as administrator of the estate.

3 Peter Gerard Power died on 5 January 2016 ('the deceased'). The deceased was survived by the plaintiff, who was his wife, and his two adult sons from his first marriage.

4 The deceased left a will dated 19 September 2014. Probate of his will and estate was granted to the defendants, who are the brother and sister of the deceased, on 14 April 2016. The deceased's will left his estate to the plaintiff, provided she survived him and in the event that the plaintiff did not survive him, to his two adult sons and the plaintiff's three adult children as tenants in common in equal shares.

5 The inventory of assets and liabilities filed with the application for a grant of probate disclosed an estate of $40,837.87 being long service leave of $40,533.27 and annual leave remuneration of $304.60 with an income tax liability of $4,353.65. There was also the inclusion of life insurance, superannuation funds, personal property and claims against third parties that the defendants say they were unable to quantify. Since probate was granted, a further $81,430.60 in assets has been discovered. The plaintiff deposed in her affidavit filed in support of the application that the net estate is $79,214.87, being $122,268.47 received less incurred costs of $43,053.60.

6 In June 2016, the deceased's sons informed the defendants they intended to seek provision from the estate pursuant to Part IV of the Administration and Probate Act 1958. Those proceedings have now been issued and, surprisingly, the solicitor for the sons announced an appearance on this application, although she was informed that she was unable to appear as her clients are not parties to this proceeding.

7 The plaintiff relies on a number of grounds for the removal of the defendants as the executors of the estate of the deceased.

8 The first is that prior to his death, the deceased had executed a binding death nomination in respect of his superannuation that nominated the plaintiff to receive the whole of his entitlement in the fund. The plaintiff said that this was because the deceased intended the funds to be used to pay out the mortgage over their jointly owned family home after his death. Unbeknown to the plaintiff, the defendants contested the validity of the nomination alleging to the trustees of the fund that the deceased's mental and physical capacities were very much diminished and he was unable to sign documents. The defendants sought that the funds be paid to the estate instead of the plaintiff. By written notice, the trustees of the superannuation fund requested the defendants to support their allegations within 28 days. The time period elapsed and thereafter the plaintiff received notice that the nomination was valid and the death benefit was subsequently paid to her. However, as a result of the defendants' objection, the estate incurred costs investigating whether the binding nomination was valid and the plaintiff was unable to use the funds to extinguish the substantial mortgage on her home.

9 The plaintiff's second ground relates to the defendants' questioning of the plaintiff's entitlement by survivorship to her jointly owned family home, asserting that there might have been some arrangement or agreement between the deceased and her as to the future disposition of her assets.

10 The third ground concerns the defendants' accusation that the solicitors acting for the plaintiff have a conflict of interest. This accusation is based on the fact that the plaintiff's first husband, who was a solicitor who died in March 2016, was employed by the firm of solicitors now acting for the plaintiff in this proceeding. The defendants suggest that the plaintiff's first husband was involved in the preparation of the wills of the deceased and the plaintiff. They allege a conflict in the context of the refusal of the plaintiff's solicitors to provide certain files and records and to answer certain questions relating to the administration of the deceased's estate.

11 The fourth ground is that the defendants have seemingly supported and promoted the interests of the deceased's sons over the plaintiff's interests. The plaintiff says the defendants' objection to the validity of the deceased's binding death nomination and seeking to have the superannuation benefit paid into the estate was for the purpose of increasing the assets of the estate to assist the deceased's sons, the defendants' nephews, in a claim for provision from the estate pursuant to Part IV of the Administration and Probate Act 1958. The plaintiff points to a letter from the defendants' solicitors to her solicitors dated 6 July 2016 in which it is asserted that the defendants have obligations to the sons, as well as to the plaintiff.

12 The plaintiff's fifth ground relies on the costs of around $43,000 incurred by the defendants apparently in relation to their administration and legal fees when the estate assets are not complicated and amount to around $122,268. The plaintiff submits that, in the circumstances, those costs are excessive.

13 The plaintiff submits that by challenging the deceased's binding death nomination, questioning her ownership of the family home by reason of survivorship and asserting that an arrangement or agreement concerning the future disposition of the assets of the plaintiff and the deceased existed, the defendants are undermining the plaintiff's interests as the sole beneficiary of the estate and attempting to increase the value of the estate in order to assist, support and promote the interests of the deceased's sons in their claims for provision from the estate. As a result of these actions, the defendants have breached their duty of undivided loyalty to the plaintiff as the sole beneficiary of the estate, are in clear conflict with the plaintiff, have had scant or little regard to her best interests as the sole beneficiary and have diminished the meagre assets of the estate.

14 The defendants say that when they filed the inventory of assets with the application for a grant of probate they were unable to quantify the deceased's life insurance and superannuation benefits payable on his death. The deceased's sons made an application to have the deceased's life insurance and superannuation benefits paid to them despite the binding death nomination in favour of the plaintiff. In that context, the defendants objected to payment of the funds to the plaintiff, seeking that the funds ultimately be paid to the estate and, in the interim, into Court. The basis of the defendants' objections was the deceased's documented medical history of a brain tumour and the variations in his signature as it appeared on the documents. They sought medical information concerning the capacity of the deceased that ultimately concluded that '[the deceased] had right sided weakness, which would explain the variations in the signatures'. The defendants acknowledge that the funds were paid to the plaintiff. They deny they were in breach of any alleged fiduciary duty of loyalty in challenging the validity of the binding death nomination and submit that the primary duty of an executor is to get in the estate of a deceased, even when part of it is held by a beneficiary or there is a contest between a beneficiary and an executor concerning whether an asset is an estate asset.

15 The defendants submit that whether the jointly owned family home passed by way of survivorship or not on the deceased's death is a question that has arisen in the administration of the estate. On the basis of documents provided by the plaintiff's solicitors, the defendants allege there was an agreement between the deceased and the plaintiff concerning the disposition of their estates, the content of which was that the jointly owned family home would not pass by way of survivorship to the plaintiff on the death of the deceased and the deceased's assets would be left to the plaintiff on the basis that she would leave all of their assets, including the family home and all insurance policy proceeds, but excluding any assets that the plaintiff inherited from her parents, to the deceased's two sons and the plaintiff's three children equally. They allege that it is implicit in the agreement that the plaintiff would co-operate with the defendants and would not alter her will or do anything to effectively disinherit the deceased's sons during her lifetime.

16 The defendants say the alleged agreement raises a further and proper question of whether there is a mutual wills agreement or the creation of a secret trust or other agreement or arrangement that binds the estate of the deceased. They say they cannot investigate this question fully in light of the refusal of the plaintiff and her solicitors to provide the files and records to them. They do not accept the plaintiff's response denying there was some sort of agreement as to the manner of leaving their estates and submit this also justifies their objection to the plaintiff being appointed administrator as she has a personal interest and has formed a firm view on the issue.

17 The defendants also reject the plaintiff's contention that they are supporting and actively promoting the interests of the deceased's sons or that they are trying to increase the value of the estate to assist the sons in making their claims against the estate. They rely on the primary duty of an executor to get in the estate of a deceased person, even when this puts them, as the executors, in conflict with the plaintiff, as a beneficiary. They submit there is no breach of any alleged fiduciary duty of loyalty in objecting to the deceased's superannuation benefits being paid to the plaintiff and seeking to have the benefits paid into the estate.

18 The defendants submit the questions and issues raised by them do not create a conflict of the type that makes them unfit to act as the executors of the estate, there being no conflict between interest and duty, and it is only as a result of their proper persistence that relevant documents have been found that bear upon these questions and issues.

19 The defendants submit they are not unfit to act or incapable of acting within the meaning of s 34(1)(c) of the Administration and Probate Act 1958 and they are otherwise well suited to administer the estate. They rely on the fact that they are independent (in that they are not beneficiaries of the estate), have suitable tertiary qualifications,[1] have combined knowledge of the deceased's affairs and his life, have retained solicitors and accountants to advise them, will not claim executor's commission and accept that costs assessed on the relevant scale should be the remuneration for their solicitors and paid out of the estate.

20 The defendants submit that the plaintiff is unsuitable to act as the administrator as she has failed to provide documents and estate information to the defendants as and when requested, has not accounted adequately to the estate and, because she has already expressed her sense of entitlement to the whole of the estate, she is unfit to defend the sons' Part IV proceeding against the estate.

21 In Monty Financial Services Ltd v Delmo, Ashley J (as he then was) referred to the power to remove an executor on the grounds of unfitness to act. Section 34(1)(c) of the Administration and Probate Act 1958 gives the Court power to order the removal of an executor who is 'unfit to act in such office'. As to trustees, courts of equity have asserted and applied, over many years, an inherent jurisdiction to remove a trustee. Where an executor is unfit to perform the duties of trustee (if he or she is also appointed to that position), the Court can exercise its inherent jurisdiction to address this issue.[2]

22 The relevant principles as to whether a court will remove a trustee or executor and substitute another are generally consistent and demonstrate that a trustee will not necessarily be removed because of a position of conflict between duty and interest, although in some cases it may be sufficient. Proof of actual misconduct is not required for the removal of a trustee. Each case depends on the facts with such a judgment being largely discretionary. In exercising the jurisdiction to remove a trustee or executor, the guiding principle is the welfare of the beneficiaries.

23 The applicable principles are summarised in Letterstedt v Broers, where Lord Blackburn said:

Story says, s. 1289, 'But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees; which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity'.

...

In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle ... that their main guide must be the welfare of the beneficiaries.

...

It is quite true that friction or hostility between trustees and the immediate possessor of the trust estate is not of itself a reason for the removal of the trustees. But where the hostility is grounded on the mode in which the trust has been administered, where it has been caused wholly or partially by substantial overcharges against the trust estate, it is certainly not to be disregarded.

Looking therefore at the whole circumstances of this very peculiar case, the complete change of position, the unfortunate hostility that has arisen, and the difficult and delicate duties that may yet have to be performed, their Lordships can come to no other conclusion than that it is necessary, for the welfare of the beneficiaries, that the Board should no longer be trustees.[3]

24 This statement of principle was adopted by Latham CJ in Miller v Cameron[4] and expanded upon by Dixon J, who said:

The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorise the Court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary Judge is entitled to especial weight.[5]

25 In Delmo, Ashley J considered what 'unfitness' means within the context of s 34(1)(c) of the Act, concluding that unfitness could be demonstrated by misconduct or neglect of duty in the administration of the estate constituted 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. ... I find it impossible to accept that serious dereliction of duty as an executor does not make that person unfit to hold the office. It cannot matter whether the dereliction is born of intent, of carelessness, or of incompetence. In each case the actual or potential deleterious effect upon the estate and the beneficiaries is the same.[6]

26 Ashley J referred to Miller v Cameron with approval, emphasised that 'the only guide is the welfare of the beneficiaries'[7] and concluded that whilst proof of actual misconduct is not necessarily required for the removal of a trustee, unfitness to act may comprehend circumstances where executors have a conflict of duty and interest.[8] His Honour's analysis of the authorities has since been repeatedly approved, including by the Court of Appeal in Dimos v Skaftouros.[9]

27 In Manocchio v Wilson, Habersberger J dealt with an application to remove a co-executor on the ground of unfitness to act, owing to there being a conflict of interest and duty. His Honour said:

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'. Not every conflict of duty and interest should result in removal of an executor. 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 ... '.[10]

28 Examples of cases where a trustee has been removed when in a position of conflict between duty and interest are Hunter v Hunter,[11] Hill v Fry[12] and Czapp v Cassar.[13]

29 In Hunter v Hunter, the Court of Appeal of New Zealand upheld the decision of the trial judge for the removal of trustees of an estate in circumstances where it was found that the trustees had allowed or permitted their interests to conflict with their duty. The life tenant and the trustees were in a state of hostility from which there was no immediate prospect of relief. The hostility between the trustees and the immediate possessor of the trust estate was 'grounded on the mode in which the trust has been administered'.[14] This was considered pertinent to the decision to remove the trustees, as there was a close relationship between the conflict of interest and the hostility in the circumstances of the case.

30 In Hill v Fry, Mandie J ordered the removal of the trustees of an estate and said it was 'most desirable that independent trustees be appointed who can be defendants to any proceeding brought by the defendants to the present proceeding and who can act impartially in accordance with the terms of the deceased's will as it presently stands'.[15] His Honour's reasons for the removal were that the defendants were:

... in a situation of acute conflict of interest in that there was a conflict between their duties as trustees and their personal financial interests. ... The plaintiff on the one hand, and the first defendant on the other, presently have a significant dispute about their entitlements under the will of the deceased. The first defendant (and, naturally, his son, the third defendant) clearly intend to establish their claimed entitlement to the sole ownership of the business interests operated by the various companies in which the estate is said to have a shareholding. To that end, they intend to seek revocation of probate and/or rectification of the will. I say nothing about the validity of those claims one way or the other but they are clearly in conflict both with their obligation as trustees to uphold the existing will and also in conflict with the apparent entitlement of the plaintiff as the will stands.[16]

31 In Czapp v Cassar, Hargrave J removed executors on the basis that they had neglected their duties in administering the estate and were adversarial in their attitude throughout the proceeding, concluding that the welfare of the sole beneficiary of the estate would not be served by them continuing to administer the estate.[17]

32 An example of a case where an executor and trustee was not removed when in a position of conflict between duty and interest is Porteous v Rinehart, where the plaintiff sought to remove the defendant as an executrix and trustee of a deceased estate. White J was satisfied that there was a clear conflict of interest and duty, yet he refused the application for removal, although he did not preclude the possibility of a similar application if circumstances warranted it in the future.[18] The conflict in Porteous v Rinehart concerned whether an asset was an asset of the estate in circumstances where one of the executors and trustees maintained that the asset belonged to her personally. This issue was the subject of a separate action. White J considered that the conflict was one that the deceased would not have foreseen. His Honour said:

If the defendants are successful in the Action, no doubt the present application will turn out to have been unnecessary from a practical point of view. If the plaintiff is successful in the Action, on the other hand, the result will be that the Estate will be held to own very substantial assets which will have to be administered in accordance with the Will. The defendants have undertaken to abide by the decision of the court in the Action.[19]

33 White J found that the application for removal had not been diligently pursued, with the result that the conflict of interest had given rise to completed acts on the parts of the defendants and nothing further was to be done pending the determination of the action. He further found that new executors and trustees would not be able to do anything to advance the interests of the estate pending the determination.[20]

34 The authorities establish that not all conflicts between interest and duty result in the removal of executors or trustees, with the result depending on the facts and circumstances of the particular case. The facts and circumstances of this case, however, do justify the removal of the defendants as executors and trustees of the estate of the deceased.

35 The defendants' conflict between duty and interest arises as a result of the five grounds elaborated by the plaintiff in her submissions. Each of these grounds has the defendants acting against the interests of the plaintiff as the only beneficiary of the estate and actively supporting the deceased's sons. This conflicts with their duty to the plaintiff and has created a state of hostility and division that is unlikely to be healed. This has caused substantial disruption to the administration of a small estate that should have been administered quickly. Based on the defendants' detailed and repetitive justification of their actions and their reasons for conducting themselves in the manner set out, it is unlikely that the defendants can understand they are acting in conflict with their duty to the plaintiff. They justify their conduct as fulfilling their primary obligation of getting in the assets of the estate. The defendants' challenge to the deceased's binding death nomination and seeking that the funds be paid into the estate appears to have all the indicators of actively supporting and promoting the interests of the deceased's sons, particularly in light of their foreshadowed and now actual claim against the estate for provision. It is difficult to reconcile the defendants' conduct in objecting to the binding death nomination as fulfilling their primary duty as executors to get in the estate of the deceased when the plaintiff is both the sole beneficiary of the estate and the only person nominated by the deceased to receive the superannuation benefits.

36 The estate assets that are the subject of the defendants' questions are, in part, assets that have passed to the plaintiff, either by nomination of the deceased as confirmed by the trustees of the superannuation fund or by right of survivorship. Their allegations as to an agreement as to the future disposition of the estates of the deceased and the plaintiff - a mutual wills agreement or a secret trust - is a direct challenge to the terms and effect of the deceased's will. These allegations, and their seemingly relentless pursuit against the plaintiff on these issues, places them in direct conflict with the interests of the plaintiff.

37 The facts and circumstances of this case are such that the defendants' conduct and attitude towards the plaintiff places them in a position of conflict between their interest and duty. This has created a high degree of hostility between them. If they were to continue to administer the estate, the plaintiff's welfare as the sole beneficiary of the estate would not be served by them. In these circumstances, I am satisfied that it is not desirable or practical for them to continue to administer the estate and they should be removed as the executors and trustees of the estate of the deceased.

38 Upon their removal, an administrator must be appointed to replace the defendants. The defendants' reasons for the plaintiff being unsuitable to be appointed as the administrator are unsound and relate to matters that demonstrate their conflict with her. It is not appropriate to appoint an independent administrator as it would cause unnecessary further costs in the context of this estate.

39 In my view, the just and cost efficient course is to appoint the plaintiff as the administrator of the estate with the will annexed. She is the sole beneficiary of the estate and will be able to resolve any remaining issues with the benefit of legal advice, having regard to her own interests and welfare, without the conflicts caused by the defendants in not considering her welfare as the beneficiary of the estate. It is in her interests that she deals with the Part IV proceedings or any other claim brought by the deceased's sons.

40 There remains the issue of the costs of $43,000 incurred by the defendants for their administration of the estate. This amount is large for an estate of approximately $122,000. The defendants are to provide the details of these costs to the plaintiff and, in the event that no agreement as to their quantum can be reached, the issue will be determined by the Court.

41 The parties are to submit minutes of orders reflecting these reasons.

[1] The first defendant is a professor in the Department of Management and Marketing at the University of Melbourne. The second defendant is a former barrister, then was a solicitor in Queensland for many years and has since retired.

[2] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65, 73-6 ('Delmo').

[3] Letterstedt v Broers (1884) 9 App Cas 371, 385-9 (Lord Blackburn).

[4] Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 575.

[6] Delmo [1996] VicRp 7; [1996] 1 VR 65, 73.

[7] Ibid 78, quoting Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 579 (Starke J).

[9] Dimos v Skaftouros [2004] VSCA 141; (2004) 9 VR 584, 592-3 (Winneke P), 606 (Dodds-Streeton AJA).

[10] Manocchio v Wilson [2012] VSC 76 (30 January 2012) [38] (citations omitted).

[11] Hunter v Hunter [1938] NZLR 520.

[12] Hill v Fry [2008] VSC 13 (7 February 2008).

[13] Czapp v Cassar [2015] VSC 111 (27 March 2015).

[14] Hunter v Hunter [1938] NZLR 520, 531 (Myers CJ), quoting Letterstedt v Broers (1884) 9 App Cas 371, 389 (Lord Blackburn).

[15] Hill v Fry [2008] VSC 13 (7 February 2008) [15].

[17] Czapp v Cassar [2015] VSC 111 (27 March 2015) [54]-[62], [68].

[18] Porteous v Rinehart (1998) 19 WAR 495, 518-9.