Re Flavel; Application by Lipshut [2018] VSC 228 (8 May 2018)

For non-parties, Peter Flavel, Wendy Flavel and Gail Panoutsos

1 Albert George Flavel died on 21 May 2016 ('the deceased'). He was survived by his four adult children, Heather Liston, Peter Flavel, Wendy Flavel and Gail Panoutsos ('Heather', 'Peter', 'Wendy' and 'Gail', respectively).

2 The deceased's will appointed the plaintiff and Heather as his executors and trustees. The plaintiff had been the deceased's solicitor for several years at the time his will was made. On 14 October 2016, probate of the deceased's will was granted to the executors.

3 Pursuant to his will, the deceased left all of his farming land, plant, equipment and livestock to Heather, the sum of $10,000 to Gail, one half of the residue of the estate to Wendy absolutely and the remaining half on a discretionary trust for the maintenance and benefit of Peter, with any balance being held for Wendy's absolute use and benefit upon Peter's death. It is estimated that Heather receives at least 83 per cent of the deceased's estate.

4 The plaintiff deposed that, as at November 2017, the estate was valued at $4,035,966.61. This includes the farming land valued at $2,850,000 and plant and equipment valued at $373,727. The remaining assets of the estate comprise a term deposit, a unit located in Nhill, shares, motor vehicles, sundry furniture and effects, and trust funds held by the plaintiff's solicitors.

5 In separate proceedings, Peter and Wendy, by their respective litigation guardians, and Gail seek further provision from the deceased's estate, pursuant to Part IV of the Administration and Probate Act 1958 ('the Part IV proceedings').[1]

6 The plaintiff seeks to be discharged as an executor of the will and trustee of the estate of the deceased, pursuant to s 34(1)(b) of the Administration and Probate Act 1958 and s 48(1) of the Trustee Act 1958 respectively, and incidental orders including orders vesting the estate in Heather as the continuing executor and trustee of the estate, pursuant to s 51 of the Trustee Act 1958.

7 The plaintiff's application was first before the Court on 23 February 2018, where the plaintiff, Peter, Wendy and Gail were represented by their respective counsel. Heather was present at the hearing, but was not represented. On that occasion, the plaintiff's grounds for his discharge as an executor and trustee were ventilated, as well as Heather's inherent conflict in remaining as the sole executor and trustee of the estate in light of her entitlements as the principal beneficiary of the deceased's estate. At the suggestion of the Court, the application was adjourned for the parties to consider whether the appointment of an independent administrator in place of both executors would be appropriate and whether Heather should to be added as a defendant in her personal capacity in the Part IV proceedings.

8 The parties were unable to reach agreement and, on 23 March 2018, the plaintiff's application was listed for further hearing. By this time, Heather had obtained legal representation.

9 In his affidavit sworn 8 February 2018, the plaintiff sets out his reasons for seeking to be discharged as an executor and trustee of the estate. He deposes that, prior to and since the deceased's death, 'there has been very considerable acrimony amongst the family' as Heather does not get on with her siblings and there have been disagreements between Heather and the plaintiff as to various estate administration matters. As a solicitor in a small community and in circumstances where the plaintiff has known the other parties for many years, he has found the further acrimony between the siblings since the commencement of the Part IV proceedings increasingly stressful. The administration of the estate and the Part IV proceedings increasingly occupy his time, to the detriment of his other work in his legal practice. He also disagrees with Heather as to the conduct and position of the estate in respect of the Part IV proceedings. Heather objects to this statement by the plaintiff, asserting that the plaintiff seeks to disclose a matter of joint privilege. She submits that when two people have a common interest in a document or communication the subject of legal professional privilege, each of them as a party to litigation can avail themselves of the privilege enjoyed by the other.[2]

10 The plaintiff deposes that no third party will be prejudiced if he is discharged and he will not seek an executor's commission. He does seek payment of his legal costs to date from the estate of the deceased.

11 The plaintiff submits that the Court has a broad discretion to discharge all or some executors or trustees, and the paramount concern of the Court is the protection of the interests of the beneficiaries. The consent of all interested persons to the discharge of an executor does not automatically lead to their discharge, but where the discharge by consent is beneficial to the due and proper administration of the estate, the Court should not stand in the way of discharging an executor.[3]

12 The plaintiff refers to historical and recent differences of opinion with Heather. He deposes that he does not wish to breach his obligations under the Civil Procedure Act 2010, or his obligations as an executor and officer of the Court, by reason of being unable to agree with Heather regarding existing or future issues in the administration of the estate. The plaintiff deposes that the issues in the administration of the estate and the Part IV proceedings distract him from his legal work and 'makes things difficult' for him in his small rural community.

13 The plaintiff submits that Heather can remain as the executor and trustee and defend the Part IV proceedings. Her conflict of interest may not be as great as it appears to be because the Part IV proceedings are essentially in respect of the farming land and equipment left to her and she does not wish to upend the will nor encroach upon the entitlements of the residuary beneficiaries. The plaintiff submits the potential conflict of interest may be at a costs level, that is, which part of the estate, if any, should bear the costs of the Part IV proceedings.

14 The plaintiff submits that current conflicts will not be resolved by adding Heather as a party to the Part IV proceedings in her personal capacity and leaving him as the executor defendant, given that Heather would also continue as an executor and trustee of the estate. If, however, the Court considers that an independent administrator should be appointed, the plaintiff would agree to such an appointment.

15 In reference to Heather's objection referred to at paragraph [9] above, the plaintiff submits that no breach of legal professional privilege has occurred as he has not made any disclosure regarding the positions of either executor nor any issues discussed by them. Further, it is apparent from the plaintiff's application that disagreements have occurred between himself and Heather.

16 Peter, Wendy and Gail resist the plaintiff's application. Alternatively, they submit the Court should appoint an alternative and independent administrator on its own motion. Separately, they also seek orders that Heather be joined as a defendant to the Part IV proceedings in her personal capacity, and the plaintiff or any independent administrator be directed to solely give instructions on behalf of the estate in the Part IV proceedings.

17 Peter, Wendy and Gail seek to rely on Gail's affidavit sworn 20 March 2018 and the plaintiff's affidavit sworn 8 February 2018. Heather objects to Gail's affidavit being relied upon on the basis that it includes irrelevant facts and impermissible hearsay. At the hearing on 23 March 2018, the Court informed counsel that it would disregard the affidavit of Gail Panoutsos for the purposes of the plaintiff's application.

18 Peter, Wendy and Gail submit that the plaintiff's application and affidavit demonstrate disagreement between the plaintiff and Heather as to the management of the deceased's estate. They also rely on the fact that Heather's entitlements under the deceased's will comprise at least 83 per cent of the estate and that the costs of the Part IV proceedings will be borne, in the first instance, by the residuary estate that is shared between Peter and Wendy, both of whom have disabilities and are represented in the Part IV proceedings by their litigation guardians.

19 Peter, Wendy and Gail invite the Court to draw the inference that allowing Heather to manage the Part IV proceedings as the sole executor of the estate is not in the interests of all the beneficiaries of the estate and is unlikely to engender compliance with the obligations owed under the Civil Procedure Act 2010. They submit that it is not an answer for Heather to assert, as she does, that she has complied with her obligations under the Civil Procedure Act 2010 by making an offer of settlement, as consideration needs to be given to the reasonableness of the offer. As stated at the hearing on 23 March 2018, the Court is not concerned with any offers made for the purposes of the plaintiff's application for discharge.

20 In respect of the plaintiff's application, Peter, Wendy and Gail submit that a degree of acrimony and lack of co-operation with Heather are not grounds to justify an order for his discharge in circumstances where he was the deceased's choice of executor and that choice should not be lightly set aside. Had the plaintiff renounced his executorship, it is submitted that Gail would have challenged Heather's sole appointment. They submit a trustee is not to be removed unless circumstances exist creating a ground upon which the jurisdiction may be exercised and it would be rare for a trustee to be removed without improper conduct.[4] They otherwise implore the Court to be slow to grant the plaintiff's application unless 'the welfare of the beneficiaries is opposed to his continued occupation of the office'.

21 Peter, Wendy and Gail further submit that it would not be in the interest of all beneficiaries if the plaintiff is discharged without a replacement. As the remaining executor, Heather would have unfettered access to estate funds to conduct the litigation as she has done to date. Further, as the sole executor, Heather would not properly administer the estate or defend the Part IV proceedings. They refer to Heather's failure to make discovery for five months in one of the Part IV proceedings and submit that an executor's misconduct or neglect can be constituted by matters such as unwarranted delay in the administration of the estate and failure to communicate with beneficiaries, and that unfitness of an executor can relate to all matters that affect their capacity to perform an executor's task.[5]

22 Heather consents to the plaintiff being discharged as an executor and trustee of the estate of the deceased. She opposes an administrator being appointed to replace the plaintiff or to replace both herself and the plaintiff.

23 Heather submits that if the plaintiff is discharged, the Court should not replace the plaintiff with an administrator.[6] She submits that a conflict does not arise simply because she is both an executor and a beneficiary,[7] that any alleged conflict is created by the terms of the will and not by reason of any act or omission by her.[8] She submits that the existence of a conflict should not be a basis for the appointment of an administrator and there is nothing to suggest that the deceased did not intend that she could act alone as the executor of the estate, despite her alleged conflict.

24 Heather submits that the conflict in this case is perceived, rather than real, as she makes no claim against the estate, she will not be required to determine her own truthfulness in the Part IV proceedings and the terms of the deceased's will are clear and the entitlements of the beneficiaries are straightforward. She submits that the real issues in the Part IV proceedings relate to the farming land, plant, equipment and livestock and that she is able to engage with those issues without any conflict and without the appointment of an administrator as the matter will be determined by the Court or by agreement, not by her. Her removal for no reason other than the ordinary conflict of being both an executor and beneficiary, as is common in Part IV proceedings, would create a precedent for removal of all such persons, greatly increase costs and prejudice her by forcing her to become a defendant in her personal capacity.

25 Heather submits there has been no application to discharge her on the basis that she is unfit to act as executor, or on any other basis, and the estate ought not be forced to incur additional costs through the appointment of an administrator in circumstances where no proper objection is taken to her conduct as an executor.

26 Pursuant to s 34(1)(b) of the Administration and Probate Act 1958, the Court is empowered to discharge a personal representative who wishes to be discharged from the office and, if the Court thinks fit, appoint a new administrator in his or her place. There is no requirement that the Court appoint a new administrator.

27 Ultimately, the decision to discharge a personal representative depends on the facts and circumstances of the particular case and is a determination to be made at the discretion of the Court after consideration of the interests of the beneficiaries, the security of the estate property, the efficient and satisfactory exercise of the trusts and a faithful and sound exercise of the powers by an executor or trustee.

28 An example of relevant circumstances can be seen in the case of Re Coverdale, relied on by the plaintiff and Heather.[9] That case concerned an application made pursuant to the then applicable legislation, s 5 of the Administration and Probate Act 1907, to discharge an executor in circumstances where no conflict existed between the two executors or the beneficiaries of the estate. That section provided that a Judge of the Supreme Court may, where an executor desires to be discharged, order his discharge and the appointment of some person or trustee company in his place upon such terms as the Judge thinks fit. The two appointed executors sought an order discharging one of the executors in circumstances where, after the grant of probate was made, one of the executors had accepted a position as a manager of the Colonial Bank of Australasia Limited in London. He had done very little in the administration of the estate, the other executor was willing to act as sole executor and the beneficiaries under the will were all of age and consented to the application. The Court determined that, in the case of co-executors and under the relevant section, the Court had discretion to order the discharge of one of two or more co-executors without appointing any person as administrator in his place.

29 The other decision relied upon by both the plaintiff and Heather was Mann v Grantham.[10] That case concerned an application for the removal of executors, not an application for discharge as is currently before the Court. In that case, difficulties existed between the two executors of the estate, one executor being the son of the deceased and the other being the deceased's solicitor. The estate of the deceased was left equally to the deceased's son and daughter. The deceased's daughter was also named as an executor but did not prove the will before her death and her husband subsequently looked after her interests in the estate. The executors were incapable of reaching agreement on ordinary and uncontroversial matters in the administration of the estate, which caused a deadlock. A more substantial disagreement was the settlement of a Part IV proceeding between the son and the executor of the daughter's estate in circumstances where the solicitor executor was not included as a party to the settlement. The solicitor executor sought either that both executors be removed or both retire and an independent person acceptable to the beneficiaries be appointed to complete the administration of the estate. The son sought the removal of the solicitor executor as an executor of the estate. At the outset of the trial, counsel for the solicitor executor announced that his client was content to withdraw, provided any entitlement to which he might be found to have from the estate was protected. Counsel for the son agreed in principle with this proposal. The son persisted in his submission that the Court should exercise its power under s 34 of the Administration and Probate Act 1958 to remove the solicitor executor for the stated reason of unfitness. Byrne J refused to do this on the basis that it would serve no good purpose other than to gratify the son's desire for revenge and specifically made no finding that would warrant such a step. Byrne J found that irreconcilable differences existed between the executors, which led to the deadlock to the detriment of the estate.[11] His Honour noted the solicitor executor's desire to retire from office and discharged him from the office of executor. In respect of the solicitor's office as trustee, his Honour considered the Court had the power to permit a trustee to retire or, where appropriate, remove a trustee.[12]

Should the plaintiff be discharged as an executor and trustee of the estate?

30 The plaintiff's application is not made lightly. He has committed to being an executor for some time. However, his relationship with Heather as his co-executor is not functional and now causes difficulties for him, both professionally and personally. Their relationship cannot be described as simply displaying a degree of acrimony and lack of co-operation. It is such that the plaintiff no longer wishes to remain in this difficult situation. The plaintiff's position is untenable for the purposes of the administration of the estate. He is unable to work with his co-executor as he cannot reach agreement with her, both in the past and present and, on balance, he considers he will be unable to agree on future issues arising in the administration of the estate. The estate administration and litigation is also distracting him from his own work commitments and making it difficult for him to live in his small rural community. He is mindful of these matters as well as his obligations under the Civil Procedure Act 2010 as an executor and as an officer of the Court. For all of these reasons, the plaintiff seeks to be discharged as an executor of the estate.

31 In such circumstances, it is appropriate that the plaintiff be discharged as an executor and trustee of the estate and be paid his outstanding legal costs to date, such amount to paid out of the estate in the first instance. This order may be revisited in the Part IV proceedings as there is likely to be an issue as to where the burden of those costs falls in the administration of the estate of the deceased.

32 In respect of Heather's objection to the plaintiff's evidence, the plaintiff has not revealed any specific matter in making his application, has not made any disclosures as to the positions of either executor or any others issues in the course of the plaintiff's application.

Should Heather be removed as the remaining executor and trustee and an independent administrator appointed in her place?

33 There is no formal application filed for the removal of Heather as an executor and trustee of the estate. The appointment of an independent administrator in place of both executors was raised by the Court in the context of Heather's conflict between interest and duty.

34 Heather wishes to remain as the sole executor of the estate. The authorities demonstrate that an executor or trustee will not necessarily be removed where there is a conflict between duty and interest, but 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 relevant facts and a determination of what is best for the welfare of the trust or estate as a whole.[13]

35 Heather maintains that she is able to engage with the issues in the Part IV proceedings without any conflict and, if the parties are unable to agree on a settlement of the Part IV proceedings, the Part IV proceedings will be determined by the Court or by agreement, and not by her. Heather is the principal beneficiary of the estate. If the Court determines that further provision ought be made for the plaintiffs or if a settlement is reached, her entitlements under the deceased's will are likely to be affected. In either circumstance, Heather is involved in the litigation in separate capacities: as the executor of the estate and as the principal beneficiary of the estate. As the executor of the estate, it is incumbent on her to assess the evidence in an impartial and objective manner, act properly and reasonably in conducting the litigation and, if appropriate, compromise the proceeding.[14] This is consistent with her fiduciary duty as an executor in conducting litigation affecting an estate. As a beneficiary of the estate, she does not have such a duty.[15] The family provision legislation imposes a duty on testators to make adequate and proper provision for eligible persons and, as an executor, Heather must not ignore this. She should also be mindful that, as the principal beneficiary of the estate, the Part IV proceedings are effectively inter partes litigation which ultimately may affect where the burden of the costs falls in the litigation.

36 Conflict will arise if Heather seeks to advance her own interests as a beneficiary of the estate under the guise of upholding the deceased's will and uses estate funds to do so. Where self-interest and duty potentially conflict, there must be careful consideration of the options available and the wisdom of pursuing litigation regardless of the impact on the estate, and if litigation is to be pursued, how it is to be pursued.

37 In the absence of an application or supporting evidence to remove Heather as an executor and trustee of the estate of the deceased, or Heather's consent to her removal from these capacities, the Court will not exercise its discretion in this regard.

The Part IV proceedings

38 Peter, Wendy and Gail have also filed applications in the Part IV proceedings seeking directions, pursuant to Order 54 of the Supreme Court (General Civil Procedure) Rules 2015, that Heather be joined as a defendant to the Part IV proceedings in her personal capacity and the plaintiff or any independent administrator be directed to solely give instructions on behalf of the estate in the Part IV proceedings. As stated, this issue arose out of discussions and in the context of the plaintiff's application for his discharge at the first directions hearing.

39 Heather resists those applications on the basis that she is already a defendant in her capacity as an executor and that it is unnecessary, as she does not seek any additional provision from the deceased's estate.

40 While Heather remains the executor of the estate, an independent administrator cannot be appointed, nor should the Court direct an independent administrator in the manner as submitted by Peter, Wendy and Gail. Such an appointment would result in a type of composite grant with one representative acting as an executor pursuant to a grant of probate and the other acting as an administrator with the will annexed.

41 Given that Heather is to remain as executor and trustee of the estate of the deceased, it is unnecessary to make any orders or directions as sought by Peter, Wendy and Gail in the Part IV proceedings.

(a) Pursuant to s 36.01(1) of the Supreme Court (General Civil Procedure) Rules 2015, leave be granted to the plaintiff to amend the originating motion filed 15 February 2018 nunc pro tunc by:

(i) inserting the words '(as executor of the will and estate of ALBERT GEORGE FLAVEL, deceased)' after the plaintiff's name in the title of the proceeding and the title of the proceeding be amended accordingly; and

(ii) replacing the words 's 48 of the Trustee Act 1958' with the words 'ss 48 and 51 of the Trustee Act 1958' in the heading of the proceeding and the heading of the proceeding be amended accordingly;

(b) Pursuant to s 34(1)(b) of the Administration and Probate Act 1958, the plaintiff be discharged as an executor of the will and estate of the deceased;

(c) Pursuant to s 48(1) of the Trustee Act 1958, the plaintiff be removed as a trustee of the estate of the deceased;

(d) Pursuant to s 51 of the Trustee Act 1958, the property and assets of the estate of the deceased vest in Heather Lorraine Liston as the remaining executor and trustee of the estate of the deceased;

(e) The costs of the plaintiff of and incidental to this proceeding be paid on an indemnity basis from the estate of the deceased to be taxed in default of agreement;

(f) The costs of the non-parties be reserved; and

(g) Otherwise the proceeding be dismissed.

[1] Proceedings numbered S CI 2017 01049, S CI 2017 01051 and S CI 2017 01052, respectively.

[2] Buttes Gas & Oil Co v Hammer (No 3) [1981] QB 223; LexisNexis Butterworths, Civil Procedure Victoria, Vol 1 (Service 293) [29.01.545], [29.01.550].

[3] Bates v Messner (1967) 67 SR (NSW) 187; Re Stuart [2009] SASC 399; (2009) 106 SASR 39.

[4] Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 581−2; See v Hardman [2002] NSWSC 287 (12 April 2002).

[5] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65.

[6] Referring to Re Coverdale [1909] ArgusLawRp 42; [1909] VLR 248; Mann v Grantham [2004] VSC 156 (4 May 2004).

[7] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65.

[9] [1909] ArgusLawRp 42; [1909] VLR 248.

[10] [2004] VSC 156 (4 May 2004).

[13] See, eg, Manocchio v Wilson [2012] VSC 76 (8 March 2012) [38].

[14] Collett v Knox [2010] QSC 132 (23 April 2010) [167].

[15] Underwood v Sheppard [2010] QCA 76 (30 March 2010) [16].