Plaintiffs v Defendant

3 Under the will the residue of the estate, after a bequest of jewellery valued at $10,000, was to be divided equally between eight beneficiaries, of whom only six have survived the deceased and are entitled to share. The executor is one of these six residuary beneficiaries.

4 The administration account provided by the executor dated 28 February 2005 shows the following:

• The estate, other than five items, was realised by 18 September 2002. The proceeds were a little over $1.2M.
• Three of the five outstanding items have since been realised:

23 June 2004, Creditanstalt AG account - $403,148.19;

• The executor has paid to each of the beneficiaries (including himself) $270,000 as follows:

• The only outstanding assets are the realisation of 600 Telstra shares and the Bruce Street units. It is proposed to distribute some of the units in specie and to sell the remainder.

5 The plaintiffs, Milan Kantor and Walter Alois Grossman, the executors of the will of one of the beneficiaries, Emily Marie Vosahlo, since deceased, have applied by originating motion filed on 19 January 2005 for the removal of the executor as the executor and trustee of the estate. They do so on three grounds:

(a) His inordinate delay in providing accounts of the estate.

(b) He has made to himself unauthorised payments from the estate totalling about $177,000 which payments were, for the most part, not disclosed in the accounts.

The facts were not in dispute. The question is whether it is in the interests of the estate and the beneficiaries that the executor be removed and replaced.[5] I should add that none of the four other residuary beneficiaries has been informed of this application so that their attitude is not known. These other beneficiaries and their location as appears from the will are:

• Kennedy Clifford Wilding of 18 Rambler Crescent, Beach Haven, Auckland, New Zealand.
• Clifford W. Wilding of 15 White Street, Kensington, Victoria.
• Johanna Bahrer of Wilhelm Buschgasse, 11 2232 Deutsch Wagram, Austria.
• Hermine Bahrer, widow of Peter Bahrer late of Wattmann gasse, 26/9 Vienna, Austria.

6 The executor provided draft statements of accounts as follows:

Reconciled statement in the form of a 15 month account to 28 February 2005

7 The last of these accounts was produced after the commencement of the proceeding and following numerous requests for accounts made since 27 February 2002 by Mr Kantor on behalf of the plaintiffs. Mr Kantor's affidavit of 18 January 2005 shows that between February 2002 and July 2004 he wrote no less than 23 letters seeking information regarding the progress of the estate. The responses which he received recite an unedifying litany of excuses and unfulfilled promises made on behalf of the executor and disclose inordinate delay in the administration of the estate. In his last letter dated 20 October 2004 Mr Kantor threatened court action. The response on behalf of the executor was that the solicitors would seek to obtain the documents in order to update the accounts and to keep Mr Kantor informed. No further communication, however, was received until after the proceeding was commenced on 19 January 2005. In his affidavit the executor accepts that there has been "some delay in the production of a full set of accounts to the plaintiffs."[7] The executor offers by way of explanation that he has been overseas and, further, that his matrimonial difficulties have interfered with his handling of estate matters and distracted him from issues involving the estate.[8]

8 The executor provided what he called a 15 month account on 3 March 2005. These accounts have been examined by Mr Grossman, who is an accountant, and queries were directed to and responded by the solicitors on behalf of the executor. These investigations have disclosed that the executor made 47 withdrawals from the estate account of sums totalling $164,372.01 between 18 July 2001 and 5 July 2004[9] and three deposits into the account as follows:

9 The balance therefore owing to the estate was $51,092.23

10 In fact the ANZ bank statements show that he has deposited two further amounts of $1,500 on 28 February 2005 and 1 March 2005 respectively, but no party made anything of this. None of these transactions was shown in any of the accounts provided. In the account provided after the commencement of this proceeding, the executor simply and without explanation disclosed as an asset of the estate an amount in his name of $51,092.23. Significantly, an entry, even of this kind, was not included in the earlier accounts. When this asset was queried and the response disclosed the unauthorised transactions which underlay it, the executor in his solicitor's letter of 1 June 2005 proposed that the asset be treated as an advance against entitlement. I comment that the consequence of this would be that the trustee might have had the benefit of the trust money interest free. Nevertheless, they added, if any beneficiary objected to this course, then the executor would 'deal with the advance as an interest bearing loan by the estate to him and pay interest at a rate in respect of the advance'. I again comment that this seems to turn the matter on its head. A trustee is not entitled to take a benefit unless the beneficiaries object; he or she may not benefit from the trust unless the beneficiaries agree.

11 The executor also made payments from the estate to himself which were recorded in the accounts.

It was accepted on behalf of the executor that each of these three transactions in fact occurred and that they were irregular, in the sense that the executor had no right to make the payments to himself, at least without the authority of the beneficiaries. It was accepted, too, that the transactions ought to have been shown in the accounts. The three payments were made by way of remuneration for work done by the executor for the benefit of the estate. Nevertheless, they were not payable to him, as such; they might be reflected in the executor's commission which he might seek. It was accepted, too, that the payments had been refunded to the estate.

12 On behalf of the executor it was put that , as a non-lawyer, he did not see anything improper in making these payments. They might be treated as advances against his entitlement as beneficiary, an entitlement which he says is likely to be about $1.1M plus executor's commission, if allowed, of about $158,600. It appears that the deposit of $100,000 made December 2002 was the amount which had been paid to him as an interim distribution a few days earlier. He has repaid all of the money so advanced now that it has been brought to his attention that his withdrawals were irregular. Accordingly, he has no moral culpability and the estate has suffered no loss. It is implicit from his affidavit that he says he will not offend again.

13 So much may be accepted by the plaintiffs. What they say, however, is that his conduct has been such that they can have no confidence in his future performance as executor and trustee. Further, since his misconduct was not, for the most part, shown in the accounts and would not have come to light but for their investigations and for this proceeding, the plaintiffs are concerned that a more detailed examination of the affairs of the estate conducted by a fresh and independent trustee might throw up some more irregularities.

14 I have been particularly troubled by the transactions which were not mentioned in the accounts. A number of aspects of them are puzzling. The first is that they were matched by two substantial deposits, the consequence of which was that, for two periods of about one week, the account of the executor was in credit, if one ignores all the other activity in the estate bank accounts. The second is that, for the most part, the withdrawals represented 38 withdrawals of $1,500 each and one of $1,000 which were transferred by internet on-line banking to another account. These electronic withdrawals commenced in July 2002 and continued on average, on an almost weekly basis till March 2003. There were also seven withdrawals by cheque for purposes which have not been disclosed. It is as if the executor was in this way using the trust bank account as if it were his own bank. No explanation was given as to why the practice began when it did and, perhaps more importantly, why it ceased. It cannot be because of Mr Kantor's request for information because these commenced as early as February 2002. It cannot be because of the commencement of this proceeding, because the regular internet withdrawals ceased on 27 March 2003, nearly two years before the proceeding was brought.[10] If it was not, then why did the executor cease a practice which he said he considered to be perfectly proper?

15 I have already mentioned the central dates of the administration. Probate was granted in September 2001, some 14 months after the death of the deceased. Accordingly, the estate has already taken five years to administer and it is even so not yet complete. The executor speaks of difficulties he encountered in locating the overseas beneficiaries, in obtaining the release of the Austrian funds and in obtaining strata titles to the Bruce Street property. His account of the events has not been challenged before me. Even so, the existence of considerable delay cannot be denied.

16 The substantial asset remaining is, of course, the Bruce Street property. The executor says that he expects the City of Stonnington soon to issue the relevant certificate of compliance. I accept this to be the case.

17 As I have mentioned, my abiding concern is the interest of the estate and that of the beneficiaries. A feature of this application is that there remains little to be done. The units are to be transferred to the beneficiaries or sold, and the Telstra shares are to be sold. What then remains before final distribution is the completion of the estate tax returns, the determination of the executor's claim for commission and the payment of tax and outstanding administration debts.

18 I am mindful that the cost of the introduction of a new administrator at this late stage will be a burden on the estate. The risk of further delays or improper use of estate funds is small having regard to the fact the estate accounts will be administered and operated by the estate solicitors. It may be supposed, too, that the executor will be well aware that his future conduct will be subject to intense scrutiny.

19 There remains the prospect that the executor has so lost the confidence of the beneficiaries that it is undesirable that they should have to put up with him in the future. The difficulty about this is that I do not know what might be the attitude of four of the six beneficiaries.

20 And finally, there is the concern of the plaintiffs that there may be more past irregularities which have not come to light. This may be a small prospect given the extensive investigations which have been carried out by them, one a solicitor and the other an accountant. Counsel for the executor sought to meet by offering to submit to an independent audit. To my mind this will suffice. The auditor should be appointed by the plaintiffs and the cost of the audit borne by the executor.

21 In the circumstances, notwithstanding the derelictions of the executor I will not remove him. The application will be dismissed. Given my findings, he must bear the costs of the plaintiffs of the proceeding on a solicitor and client basis and he will not be entitled to indemnity from the estate for these costs or for his own costs.

1. [1] It may have been in truth about $6M because overseas bank accounts were not included in the inventory.
2. [2] In fact paid 3 January 2003.
3. [3] Not 2005 as appears in paragraph 21 of the affidavit of the executor sworn 5 July 2005. These payments were made out of the income account.
4. [4] Four payments made out of corpus account and one out of income account.
5. [5] Miller v Cameron [1931] HCA 43; (1936) 46 CLR 572 at 575, per Latham CJ and at 580-1, per Dixon J
6. [6] Query 5 March 2005.
7. [7] Affidavit of Royston Wilding, 5 July 2005, paragraph 29.
8. [8] Affidavit 5 July 2005, paragraph 32.
9. [9] This last withdrawal may have been 4 July 2004 or even not at all. See para. [14] below.
10. [10] Bank Statement No. 44 shows that one internet transfer incurred on 4 July 2004, not 5 July 2004 as appears in the accounts. But this withdrawal may have been reversed.