where the younger son (the Plaintiff) sought to have the Defendant removed as executor and made to account for improper management of the Estate finances
Source
Original judgment source is linked above.
Catchwords
where the younger son (the Plaintiff) sought to have the Defendant removed as executor and made to account for improper management of the Estate finances
Judgment (2 paragraphs)
[1]
Judgment
These proceedings relate to the estate ("the Estate") of the late Stevan Stegnjaic who died on 23 October 2016. Probate was granted to his son Milorad Stegnjaic, the Defendant, who was named as the sole executor of the deceased under the Will of the deceased dated 8 April 2016 ("the Will").
The Plaintiff, Sinisa Stegnjaic, the brother of the Defendant, is the only other child of the deceased. Mr J. Brown of counsel appears for the Plaintiff and Dr O'Shea of counsel appears for the Defendant.
Under the Will the deceased appointed the Defendant as executor and trustee. The deceased directed his executor to pay all debts and gave the remainder to:
"[My] executor on trust to sell call in and convert into money with power to postpone the sale of any asset for as long as my executor may think fit in his absolute discretion… [provision for payment] … subject to those payments, to hold the remainder of my estate, the moneys into which it has been converted and any unconverted estate on trust for my children [the Defendant and the Plaintiff] as tenants in common in equal shares and to determine and pay out the capital therein as is determined by my executor in his absolute discretion."
By clause 5 of the Will, the executor was given the power to "sell call in" and convert into money, subject to such terms and conditions as the executor thinks fit, all or any part of the deceased's real or personal estate, but nevertheless he was empowered to retain all or part of the Estate.
The assets of the deceased consisted of:
1. Two parcels of real estate:
1. 99 Derria Street, Canley Heights (the "Derria Property");
2. 25 Chelsea Drive, Canley Heights (the "Chelsea Property");
1. $150,000 in cash;
2. A vehicle said to be worth $6,000.
Stegnjaic v Stegnjaic [2019] NSWSC 1208 | Case summary | Zoe
The Derria Property was, at the time of Probate, worth $890,000 and is, as of mid-October 2018, said to be worth $850,000. The Chelsea property was at the time of Probate worth $850,000 and is, as of mid-October 2018, said to be worth $800,000.
The Plaintiff has for a long time been seeking the due administration and distribution of the Estate so he can receive his 50% share. The Defendant has refused to distribute the Estate or to put in place the sale of the two properties to allow distribution to occur. The Plaintiff also claims that the Defendant has not been administering the Estate in accordance with his obligations, not only because the Defendant has failed to set about selling the real estate and distributing the Estate but also because he has removed monies from the Estate account, intermingled monies, and failed to keep a proper accounting record of the expenditure claimed as Estate expenditure. The Plaintiff seeks the removal of the Defendant as executor, relying on the principles enunciated in cases such as Bates v Messner (1967) 67 SR (NSW) 187, 191-192 and Mavrideros v Mack [1998] NSWCA 286; (1998) 45 NSWLR 80, 101-102 and asserting that there has not been a due and proper administration of the Estate.
The Defendant resists the call for distribution of the Estate on the ground that the deceased did not want him to sell any property. He denies that his conduct amounts to conduct which should see him removed as executor. There was at least agreement between the parties that if the Defendant is to be removed as executor then Mr Terence George Hartmann Solicitor should be appointed as administrator and conduct any enquiry into what is owing from or to the Defendant from his time as executor.
The Plaintiff has an alternative claim for a family provision order of 50% of the Estate (the "Family Provision Claim") pursuant to section 58 of the Succession Act 2006 (NSW) (the "Succession Act"). The pleading (and Mr Brown's opening) make it clear that this claim is brought as an alternative claim only against the possibility that the Defendant is correct in his contention that the Estate does not, by the terms of the Will, need to be distributed. Dr O'Shea submitted that the Family Provision Claim does not need to be considered because he accepted Mr Brown's submission that Saunders v Vautier (1841) Cr & Ph 240 applies: see T10.16-25, T152.13-18, T165.49 - T166.4.
I shall outline the key events following the death of the deceased:
1. On 24 July 2017 the Defendant applied for Probate of the Will and Probate was granted on 28 July 2017.
2. On 12 January 2018 the Plaintiff's solicitor Mr Attic of Remedy Legal wrote to the Defendant asking for copies of the Grant of Probate; a list of the Estate's assets and liabilities, including their value; details of all rental income received; details of the contents of the deceased's safety deposit box held with the bank and all bank statements for all accounts of the deceased from August 2016 to date. The Defendant did not respond to that letter. The Plaintiff claims that he had discussions with the Defendant concerning the Estate before those steps but the Defendant did not consult him thereafter.
3. On 22 January 2018 Mr Attic sent a follow up letter to which no response was made by the Defendant or his solicitor.
4. On 7 February 2018 the Plaintiff commenced proceedings by summons.
5. On 4 April 2018 the Defendant filed an affidavit which set out the assets and dealings of the Estate.
6. On 25 May 2018 the Plaintiff filed a Statement of Claim ("STOCL").
The Plaintiff's affidavits are dated 7 March 2018, 23 March 2018 and 17 May 2019. The Defendant's affidavits are dated 4 April 2018 and 14 May 2019. There are also affidavits of the parties' solicitors of 22 May 2019, 20 May 2019, and an affidavit of service of documents by the Defendant's former solicitor. A Scott Schedule dated 14 November 2018 has been filed, and is found at Exhibit 1, Tab 1.
I have referred to the application for Probate on 24 July 2017 - filed in support on 24 July 2017 was an affidavit of the Defendant dated 24 July 2017. The schedule attached to the affidavit lists the Defendant as the only beneficiary of the Estate. The Defendant's affidavit also contains the following:
"8. If I am granted probate of the will of the deceased:
a) I will administer the estate according to law; and
b) I will:
i) verify and file; or
ii) verify, file and pass,
my accounts relating to the estate of the deceased within 12 months from the date of grant if so required by the Court."
I have referred to the affidavit of the Defendant of 4 April 2018 (Exhibit A, pages 59-64). In that affidavit the Defendant lists the "testamentary and other expenses for liabilities paid out of the estate of the deceased" for each of the years 2016 to 2018.
The Plaintiff was cross examined and appeared to be a straight forward witness who made a number of concessions. Dr O'Shea did not suggest to the Plaintiff or the Court that the Plaintiff was untruthful.
The Defendant was cross examined extensively. There were a number of points in that cross examination that impact adversely upon his credit and upon his suitability to act as executor:
1. The Defendant asserted that he had inserted the entries in the table appearing at page 62 of his affidavit of 4 April 2018 because his former solicitor had told him to put those figures in the table without any of them being in fact incurred by the Estate: see T72 - T73.39. His claim that the solicitor had given him these figures appears to me to be implausible (see T71.34 - T73.39) and his claim that the false information came from his solicitor should be read with his evidence at T52.25 - T53.40 and T109 - T110. If those figures in fact came from the Defendant, as I think is likely, they undermine his claim that the Estate had incurred the expenditure referred to in (3) below. If the Defendant acted as he asserts then his credibility is severely impugned and he is not, by his own admission, fit to act as an executor.
2. The Defendant omitted the name of the Plaintiff as a beneficiary of the Estate in the affidavit of 24 July 2017 even though he well knew that his brother was a beneficiary in equal proportions to himself: see T49.9 and T109 - T110. He tried to blame a counter clerk for this at T109.14 - T110.14, but at T110.19-20 he said he did not have an explanation.
3. The Defendant claims that a tax invoice/statement at page 74 of Exhibit 1 reflects roofing work of $60,145 carried out on the Derria Property. He said that he thought the document was a receipt, which it clearly is not. He accepted that he knew the difference between an invoice and a receipt and yet he produced no receipt: T46.15, T47.35 - T48.20. When asked to produce evidence of his having paid the invoice he said he paid it in cash. Initially he said he paid the full invoice in cash which he removed from the account (T41.16 - T43), but later said he had removed it in two instalments of $30,000 and $30,145 (see T45 and T50.20-31). There is no evidence of him removing sums of those amounts from the Estate bank account. There is evidence of him having taken out $60,000 from the account but that was after the proceedings were commenced: see T50.29 - 33. There is no evidence of where that money went. The Defendant had made no reference to that amount in his affidavit of 4 April 2018, notwithstanding the amount involved. I think it is implausible that if that amount had been incurred for roofing work the Defendant forgot about that amount when he completed the list of Estate expenditure. I am not satisfied that the Defendant paid the amount in the invoice to the company named in the invoice. Having regard to this evidence and the failure to mention the amount in the list of expenditure annexed to his affidavit, I am not persuaded that the document at page 74 of Exhibit 1 is a genuine reflection of work done and paid for.
4. The Defendant claimed that the Toyota vehicle that was part of the Estate was never driven by anyone, except to move it from one spot outside the house to another, yet he claimed a significant amount for petrol (see T115.24 - T117.30). He also could not convincingly explain why he had spent a significant amount repairing the car when it was only said to be worth $6,000. The Plaintiff said that the Defendant had told him that he would pay him $3,000 for a half share (see paragraph 14 of the Plaintiff's affidavit of 23 March 2018, Exhibit 1, Tab 8) which evidence I accept. The consequence is that the car became the Defendant's and no expense relating to it should have been paid by the Estate.
5. The Defendant admitted that he was paying, out of the Estate account, an amount every fortnight for his son's Taekwondo lessons. He claimed that this was in accordance with the deceased's wishes: T55.18 - T55.48. He said initially that these payments had only been recent (T55.30), but at T57.3-5 he admitted that the payments had commenced in June 2017. The Will contains no provision for such payments and they should not have been paid out of the Estate account.
6. The Defendant admitted that he had deliberately omitted his brother's name from the gravestone erected over his father's grave. His explanation for that course is found at T126 - T129. The Defendant claimed that because his father gave him an instruction to the effect that if the Plaintiff "does give you grief… I don't want him to be part of my family," that he understood that to mean that it was appropriate to leave the Plaintiff's name off the gravestone. I am unable to accept the Defendant's evidence that his father gave him these instructions or that if he did that they authorised removal of the Plaintiff's name because he had called for distribution of the Estate.
7. The Defendant arranged for a plot for his father that included a companion plot for his mother who is still alive. His mother and father were divorced more than twenty years before his father's death. He claimed that this burial arrangement was in accordance with his father's wishes but there is no such indication in the Will. The Defendant appears to be close to his mother and she was in Court for much of the evidence.
8. The Defendant was asked whether he had formed the view that he had not received a sufficient proportion of his father's Estate from the Will. The Defendant said at first that he had never thought that (see T99.10); later he said he did (T130.9 - T130.22), but later still he resiled from that position (at T130.37 - T31.19).
9. The Defendant admitted that his statement at paragraph 3 of his affidavit of 4 April 2018 that the Estate account was used only for the Estate was false: T97.30.
10. The Defendant sought to blame the problems of his administration on the fact that the Estate did not have the funds to pay for expenses (see T89.30), but he accepted that the monies were transferred from the Testator's bank account to the Estate bank account by 23 June 2017: T58.20.
The Defendant has failed to administer the Estate. He admits this (see T111) but seeks to justify his failure to do so on the basis that his father expressly granted him the discretion to hold on to the real estate if he thought that was appropriate. The Plaintiff relies on the following matters:
1. The Plaintiff requested in January 2017 that the Defendant sell their father's residence (see paragraph 10 of the Plaintiff's affidavit of 23 March 2018, Exhibit A, Tab 8).
2. The Plaintiff commenced these proceedings in February 2018 and by the Statement of Claim of 25 May 2018 sought orders appointing trustees for sale.
3. The fact that the Plaintiff is more than 18 years old and claimed to be entitled under the rule in Saunders v Vautier to realisation of his beneficial interest; and also relies on section 18(2) of the Perpetuities Act 1984 (NSW).
Whilst it is correct (as the Plaintiff submits) that an executor is required to carry out the terms of the Will and to see that beneficiaries receive what is due to them (see Bates v Messner at 189, 191-192), the difficulty here is that the Will specifically empowers the executor/trustee not to have to sell or distribute assets of the Estate.
The 'rule' in Saunders v Vautier was described as follows in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; (2005) 224 CLR 98 at [47], quoting from Geraint W. Thomas, Thomas on Powers (Sweet & Maxwell, 1998) 176:
"Under the rule in Saunders v Vautier an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation."
Although, as I have noted, both counsel seemed to accept the applicability of Saunders v Vautier, I am unable to agree with their approach for two reasons. First and foremost, whilst there are two adult beneficiaries those beneficiaries are not in agreement as to the course to be taken in relation to the Estate. The Plaintiff wants the real estate sold and the proceeds distributed, while the Defendant, who is the other beneficiary, does not. Secondly, it appears to have been accepted in Beck v Henley [2014] NSWCA 201; (2014) 11 ASTLR 457 at [14] per Leeming JA (with whom Beazley P and Sackville AJA agreed) that the "rule" in Saunders v Vautier does not apply to real estate:
"14. The primary judge referred to the discussion of the "rule" in Saunders v Vautier (1841) Cr & Ph 240; 41 ER 482 in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; 224 CLR 98 at [43]-[48], and said that there were two limitations to its operation where a beneficiary called for his or her aliquot share: it did not apply to real property at all, and it did not apply to personal property where there were "special circumstances". Courts have also used the expressions "some good ground to the contrary": Re Sandeman's Will Trusts [1937] 1 All ER 368 at 371 and "very special circumstances": Stephenson v Barclays Bank Trust Co Ltd [1975] 1 All ER 625 at 637-638, but it was not suggested that anything turns upon the different expressions, and it is convenient to use the language employed by the parties and the primary judge of "special circumstances"."
It must be remembered that until an estate is administered a beneficiary does not have a specific interest in any asset (see Horton v Jones [1935] HCA 7; (1935) 53 CLR 475; Official Receiver in Bankruptcy v Schultz [1990] HCA 45; (1990) 170 CLR 306 at 312), and given that the two properties would have to be sold the Plaintiff could not call for either of them to be transferred to him. Nor has he done so. What he seeks is the administration of the Estate, which involves sale of the property and payment of all expenses relating to the sale (and any outstanding debts of the Estate).
Relevant too is the fact that whilst the Will of which the Defendant was granted Probate granted him a discretion not to sell the real estate, he appears to have treated the grant of discretion as an instruction not to sell the real estate (see T133.11-15), which it is not. He has offered no explanation for his failure that is based on some rational view that it would be better for the Estate if he did not sell the real estate when he was first able to do so, although the submissions made on his behalf (see Exhibit H) contain the assertion that the property prices have fallen 20% in the last 12-24 months: see paragraph 8 and page 1, and also see 5(a), in the comparison to the affidavit in support of Probate. When the failure by the Defendant to mention his brother's interest as beneficiary in the affidavit in support of Probate is considered together with the exclusion of his brother's name from the gravestone, and his admission (although later withdrawn) that he thought he should have received more than the Plaintiff from the Will, I gained the distinct impression that he does not want his brother to receive any part of the Estate for as long as he, the Defendant, can delay that.
The Defendant has in his affidavit in support of Probate falsely omitted the Plaintiff as a beneficiary and on the Defendant's evidence he has provided false evidence to the Court in his affidavit of 4 April 2018. He has intermingled monies from the Estate with his own and has received money from the Estate without justification, and he has not kept adequate records of claimed expenditure on behalf of the Estate. He has arranged for a plot and stone that includes a portion and section for his mother when the deceased had not requested such by his Will and he has left his brother's name off the gravestone.
For the reasons set out in paragraphs 15 and 22 above, I am satisfied that the Defendant should be removed as executor.
In considering the Family Provision Claim, I need to decide whether leave should be granted because the claim was first brought on 8 February 2018 and section 58 of the Succession Act requires proceedings to be brought within 12 months of the date of death of the testator (i.e. in this case by October 2017). The Defendant contended that leave should not be given because the Plaintiff did not have a strong claim to a percentage higher than 50% and the Will provided that percentage. Section 58(2) does permit the Court to allow an extension of time "on sufficient cause being shown". In my view, sufficient cause is shown here in that the Plaintiff was unaware that the Defendant had no intention of distributing to the Plaintiff his 50% interest in the Estate, and so had no reason to commence proceedings for a family provision order. Once the Defendant's position became clear, the Plaintiff brought these proceedings. I therefore extend the time for commencement of proceedings until and including 8 February 2018, the date on which the Summons was filed.
The Plaintiff seeks a family provision order of 50% of the Estate. That is precisely the percentage specified in the Will and the Defendant does not contend that there should be any lower percentage awarded than 50%. The reason the Plaintiff needs a family provision order is that by granting to the executor a discretion not to sell and distribute the Estate's assets, the Will has the effect of postponing indefinitely the receipt by the Plaintiff of any significant sum (or, on one view, any sum) for a very long period of time. It has been held that a will may produce a result that requires an alternative outcome to that which the testator has provided because of its form: see Lemon v Mead [2017] WASCA 215; (2017) 53 WAR 76 at [188] per Buss P (with whom Mitchell and Beech JJA agreed in separate reasons [262] - [263]) and Taylor v Farrugia [2009] NSWSC 801 at [62] per Brereton J (as his Honour then was). The Plaintiff has very little in the way of assets and if the Defendant is entitled to proceed as he has done (or if the administrator, exercising his discretion, were to continue in that fashion) the Plaintiff would not see any real benefit from the bequest for a very long time. The percentage is not under challenge, but rather it is the inability to access the benefit that creates the problem and that is why the order for provision should be accompanied by an order for sale of the properties pursuant to section 66 of the Succession Act, which sale should be organised by the administrator as agreed by the parties at the hearing.
The Plaintiff, who is 42 years of age, is an eligible person (see section 57(1)). He was the son of the Testator. The only other person who the Testator had to consider was the Defendant and the Defendant is to receive 50%. The former wife of the Testator has not made a claim on the Estate and she and the Testator had divorced many years before his death. There was no dispute that 50% was an appropriate percentage of the Estate to go to both the Plaintiff and the Defendant: see T157.20 and Mr Brown's Outline of Submissions at paragraph 23(iv), to which Dr O'Shea refers. No disentitling conduct of the Plaintiff was established (section 60(2)(m)).
I have noted the agreement of the parties that if the Defendant is to be removed as executor then Mr Hartmann is to be appointed as administrator. The next question is how the amounts owing to the Estate should be determined. There was agreement that Mr Hartmann should undertake that task but Mr Brown submitted that the Court should limit the inquiry to the material submitted by the Defendant to the Plaintiff to date. I raised with Dr O'Shea the question of whether the Defendant should be limited to the material that he has put forward in these proceedings and Dr O'Shea did not contend that this would be inappropriate: see T152 - T153. I am conscious that the Defendant did seek to rely on an affidavit of 11 June 2019 in support of his case which was objected to by the Plaintiff and in respect of which the Plaintiff's solicitor filed an affidavit explaining the prejudice occasioned by the late service of that affidavit. I rejected that affidavit, and apparently much of it went to the question of the Defendant's financial position as a counter to the Plaintiff's alternative Family Provision Claim. No attempt was made to limit the affidavit to the matters relevant to Exhibit 1 which was admitted without objection by the Plaintiff. I do not think that I should proceed to rule on what is or is not due to the Defendant, particularly since the Plaintiff's case at the hearing was that an inquiry should be undertaken in the future, and there was agreement that there may be amounts payable in the last year.
I think that the appropriate course is to permit the Defendant to rely on Exhibit 1 and any part of his affidavit of 11 June 2019 which addresses the debts of the Estate and payments claimed to be made by him. The Plaintiff should be permitted to respond to that affidavit, and the administrator should then proceed to determine what amounts contained in the Scott Schedule and claimed by the Defendant as expenses should be allowed and what amounts claimed by the Plaintiff as having been paid by the Defendant for purposes unconnected with the Estate should be repaid by the Defendant. The administrator should have regard to these reasons, the transcript of these proceedings and exhibits tendered, but otherwise should proceed to determine the amounts due or recoverable in such manner as he sees fit. The administrator should also decide what, if anything, should be done about the double plot and the gravestone.
The administrator should deduct from any amount due to the Defendant as his share of the Estate:
1. Any amounts determined by the administrator as paid out during the Defendant's time as executor which the administrator is not satisfied were justified.
2. Any amount paid out of the Estate for the Grant of Probate.
3. Any amount paid out of the Estate already expended by the Defendant on defending these proceedings, except to the extent allowed upon determination of the costs issue.
4. The costs of the administration save for the costs of arranging sale of the two properties which should be paid out of the proceeds of sale of the properties because those costs would have been incurred in any event.
The parties made submissions in relation to costs but those submissions were made on the assumption that the Court would, on the basis of Saunders v Vautier, find that the Defendant had breached his duties as executor and trustee by not distributing the Estate. I will therefore provide the parties with an opportunity to make further submissions on the costs consequences of the proposed orders and the reasons in this judgment. I will, however, make the following observations of potential relevance to the question of costs:
1. In the light of my conclusion on the Family Provision Claim, the case is one in which the litigation has, at least in part, been necessary because of the form of the Will: see Re Estate of Hodges (1988) 14 NSWLR 698; Shorten v Shorten [No 2] [2003] NSWCA 60; and Re Estate of Colleen McCullough [2018] NSWSC 1126.
2. I have concluded that the Defendant should be removed as executor for reasons discrete from his refusal to distribute the Estate.
3. It needs to be borne in mind that since the Plaintiff and Defendant are to share the net Estate, any order for costs of the Plaintiff against the Estate or for the costs of the Defendant to be paid out of the Estate on an indemnity basis would mean that the Plaintiff is paying those costs equally with the Defendant.
4. The Plaintiff has succeeded in having the Defendant removed as executor and obtaining a family provision order and an order for sale of the assets of the Estate and then a distribution after payment of all relevant costs.
5. The Defendant has in the result succeeded in resisting the Saunders v Vautier point.
6. The Plaintiff and Defendant have compromised on the identity of the administrator.
7. It may be of practical utility to frame any orders for costs to be made:
1. In favour of the Plaintiff against the Defendant personally; and
2. By determining what percentage of the Plaintiff's costs should be payable by the Defendant to the Plaintiff and by determining what percentage of the Defendant's costs should be recoverable from the Estate.
I will give the parties an opportunity to consider these reasons and seek to reach agreement on the appropriate costs outcome, and if they are not able to do so I will provide them with an opportunity to be heard on the costs orders for which they contend.
[2]
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Decision last updated: 11 September 2019