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[2012] NSWSC 919
Supreme Court of NSW
2012-07-16
White J
Original judgment source is linked above.
Judgment 1HIS HONOUR: The plaintiffs are the residuary beneficiaries under a will of Dorothy Margaret Steiner dated 7 June 2011. Dorothy Steiner died on 12 October 2011. Probate of the will was granted to the defendants on 14 December 2011. The defendants are a chartered accountant and a solicitor. They do not inherit any part of the estate.
Proceedings 2012/215729 2By her will the deceased pecuniary legacies totalling $7,800,000. This included pecuniary legacies of $2,000,000 to each of the two plaintiffs. The plaintiffs are two of the children of the deceased. The deceased also had a third child, a daughter, Lesley Webster. The deceased had been the owner of shares (or "units") in a company called Maggie Sottero Designs LLC incorporated in the State of Utah in the United States of America. On 25 July 2008 the deceased entered into agreements for the sale of what were described as voting and non-voting units in that company to the trustees of a trust called the LM Webster Irrevocable Trust and the trustees of a trust called the KL Midgley Irrevocable Trust. Karen Midgley is Lesley Webster's daughter. The substance of the agreement was to provide for the purchase of the deceased's interest in Maggie Sottero Designs LLC by the trustees of each trust. The plaintiffs (being the other children of the deceased) contend that their mother sold her interest in this company for a gross undervalue. 3The agreement with the trustees of the KL Midgley Irrevocable Trust provided that the purchase price for 100 voting units and 900 non-voting units (being half of the deceased's "Membership Interest") was to be US$4,175,000, but that this purchase price was to be adjusted according to an assessment of fair market value of those units on the date of Closing. The agreement provided that the purchase price would be payable by instalments which would carry interest. The instalments would be payable over a term of seven years and six months, but with a condition that the deceased (Seller) be alive on the scheduled payment dates. The agreement provided that if the deceased died before any scheduled payment fell due, the purchaser would not be required to make any further payment. 4The same terms applied to the sale of the deceased's remaining 100 voting units and 900 non-voting units to the trustees of the LM Webster Irrevocable Trust. 5The deceased's will included the following clause: "7. I GIVE DEVISE AND BEQUEATH all of my interest and/or shares, if any, in the business company Maggie Sottero Designs LLC and any moneys deposited as at the date of my death in the following Bank Accounts in my name with Westpac Bank Corporation - BSB [xxxxxx] Account [xxxxxx] and BSB [xxxxxx] Account [xxxxxx] (the 'Sottero Accounts') as follows: (a) as to one half to an irrevocable trust for the benefit of my daughter LESLEY known as Lesley M. Webster and Harlan P. Schmitt as trustees of the L M WEBSTER IRREVOCABLE TRUST dated 25 July 2008 United States Identification Number [xx-xxxxxxx]; and (b) as to the remaining one half to an irrevocable trust for the benefit of my granddaughter KELLY known as Kelly L. Midgley and Harlan P. Schmitt as trustees of the K L MIDGLEY IRREVOCABLE TRUST dated 25 July 2008 United States Identification Number [xx-xxxxxxx]." 6On 11 July 2012 the plaintiffs filed a summons seeking urgent relief. The principal relief sought in the summons was as follows: "1 An Order appointing John Steiner and Robyn Gai Webster as Administrators to the part of the Estate of Dorothy Margaret Steiner specified below Property of deceased subject of appointment The inchoate right of action of action at law of the Estate of the Late Dorothy Margaret Steiner in respect of or arising out of two contracts entered into in Utah, USA on or about 24 July 2008 with Kelly Midgley and others each entitled 'Maggie Sottero Designs Limited LLC Membership Interest Purchase Agreement' ('the Sale Agreement'). 2 An Order that the Administrators are authorised to commence and maintain legal proceedings in the Supreme Court of the State of Utah, USA, or the United States Federal District Court in relation to the Sale Agreements for the benefit of the Estate at their own cost. 3 An Order that the Administrators will report to this Honourable Court, and the Respondents every six months on the Utah legal proceedings referred to in Order 2 hereof." 7The proceedings referred to in order 2 were said to be urgent because the plaintiffs had advice that the limitation period applicable to a claim against the accountant and attorney who had acted for the deceased on the sale, and the limitation period applicable to a claim for breach of fiduciary duty, might arguably expire in the near future. 8On 17 July 2012 I ordered that the summons be dismissed and that the plaintiffs pay the defendants' costs. These are my reasons. 9The plaintiffs' application is that they be appointed as administrators of part of the deceased's estate, namely, the alleged cause of action against the purchasers under the two share purchase agreements entered into in 2008, or against third parties, including the accountant and the attorney who acted for the deceased in relation to those transactions. The application was said to be made in reliance on s 74 of the Probate and Administration Act 1898, or in the inherent jurisdiction of the Court in probate. 10This was misconceived. Section 74 is inapplicable. It confers power to appoint an administrator where a person dies intestate, or leaves a will but does not appoint an executor, or leaves a will appointing an executor but the executor is not willing and competent to take probate or is resident outside New South Wales. None of those conditions applies. Probate of the will has been given to the defendants. The plaintiff's counsel referred to no case in which a grant of administration has been made to particular assets where there is already a grant of probate or of administration. 11The asset, or alleged asset, in respect of which the grant is sought is a chose in action said to be enforceable against persons in Utah. Assuming that there is a good cause of action, such property would be located in Utah. A grant of administration is local. It gives power to the executor or administrator to deal with assets within the jurisdiction. It does not of its own force confer power on the executor or administrator to deal with foreign assets (Blackwood v R (1882-83) 8 App Cas 82 at 92). 12I accept that if an executor or administrator refused to take steps to get in an asset of the estate, that there would be power, without revoking the grant, (and revocation of the grant was not sought), to appoint a receiver of that asset if it were in the interests of the estate to do so, at least if the estate was in jeopardy owing to the executors' not acting in accordance with their duty (Halsbury's Laws of Australia, Vol 23 [360-295]; Cole v Muddle (1852) 10 Hare 186; 68 ER 892; Attorney-General v Schonfeld [1980] 1 WLR 1182; 3 All ER 1; Yunghanns v Candoora No. 19 Pty Ltd (No. 2) [2000] VSC 300; (2000) 35 ACSR 34). There is jurisdiction to appoint a receiver to foreign assets (Ballabil Holdings Pty Ltd v Hospital Products Limited (1985) 1 NSWLR 155 at 159; Re Maudslay, Sons & Field [1900] 1 Ch 602 at 611). Such jurisdiction could be appropriately exercised (if the case were otherwise a proper one for the appointment of a receiver) where there is evidence that the foreign state would recognise the appointment or lend its aid to the appointment, so that the court was satisfied as to the utility of the remedy. 13The plaintiffs did not seek the appointment of a receiver, but their application would not be dismissed because they sought the wrong remedy, if it were otherwise an appropriate case for a receiver. 14I did not consider that it was in the interests of the estate to appoint the plaintiffs as receivers of the alleged cause of action. 15The plaintiffs tendered advice from a firm of attorneys in Salt Lake City, Utah. The effect of the advice was that the same attorney acted for the deceased and for the purchasers. The deceased's accountant and financial adviser also acted as financial adviser to the other parties to the transaction. The advice asserted or assumed that the transaction was severely disadvantageous to the deceased. As a result, it was said, causes of action were available for professional malpractice, breach of contract and breach of fiduciary duty against the attorney and the accountant, and that claims were available against Lesley Webster and her daughter, or the trustees of their trusts for unjust enrichment, fraud, conspiracy and conspiracy to commit fraud, and possibly breach of contract. It was also said that the estate might have a claim for undue influence. The attorneys advised that there might be a claim for breach of contract if the payments owing under the agreements had not been made. 16The advice did not address the question whether to obtain relief, it would be necessary for the plaintiff to seek to set aside the purchase agreements. If the complaint is that Lesley Webster and her daughter took unconscientious advantage of the deceased to obtain her shares in the company at an undervalue, one would think that a claim against them on behalf of the estate, or against the advisers who acted on the transaction, would require avoidance of the transaction (e.g. Tracy v Mandalay Pty Ltd [1953] HCA 9; (1953) 88 CLR 215 at 241; Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 at 386-388). In Tracy v Mandalay Pty Ltd the High Court said (at 241): "It is clear ... that in the absence of approval by an independent board after full disclosure sales by a promoter of his property to the new company are in the same position as any other sales by a trustee of his property to a person towards whom he stands in a fiduciary relation. That is to say they are voidable at the mere option of the purchaser. But if the purchaser decides to affirm the transaction he must affirm it according to its terms. He cannot ask the Court 'to fix a proper price between vendor and purchaser, and estimate the damage with reference to such price. This the Court cannot do' per Lord Parker of Waddington in Marler's Case [1913] 114 L.T. 640 at 641]. " 17The advice did not address these issues. Prima facie there is a serious risk that relief could only be obtained by avoiding the contracts. Avoidance of the contracts would require repayment of so much of the purchase price as was paid to the deceased in return for the shares becoming revested in the executors. But that would be to the disadvantage of the other beneficiaries. The purchasers would receive the same property under the will. Repayment of so much of the purchase price as has been paid would diminish the funds available to pay pecuniary legacies. There was no evidence that the Utah attorneys had addressed the question as to whether any relief could be obtained without avoidance of the share purchase. 18Nor did the advice address the fact it can be inferred from the terms of the will as well as from the terms of the share purchase agreements, that the deceased intended to benefit her daughter and granddaughter. The substance of the share purchase agreements was that the shares were made over to the trusts for the deceased's daughter and granddaughter on terms whereby for a further seven years they would make regular payments to the deceased, but those payments would cease on her death. The advice did not address the causes of action available if the assumption were made that the deceased intended to give away her property (in the loose sense of transferring it at an undervalue) to her close relatives. The advice did not address the question whether to set aside such a transaction it would be necessary to show that the deceased was not capable of comprehending, or did not comprehend, what she was doing. Nor did it refer to any material which might have suggested such an incapacity, or lack of comprehension, beyond the bare fact that it was said that the deceased was not independently advised and the transaction was at an undervalue. 19Having regard to the speculative nature of the claim and the risk that if the claim were successful, it would be to the disadvantage of the residuary beneficiaries and the pecuniary legatees, I was not satisfied that it would be in the interests of the estate to appoint a receiver. 20Nor was there evidence as to whether the title of the receiver would be recognised in Utah. 21On their own admission the plaintiffs were insolvent, although entitled to substantial benefits under the will. They have brought claims under the Succession Act 2006 for family provision orders that appear to be substantially based on the proposition that they have incurred liabilities and that further provision out of the deceased's estate should be made for them so that they could discharge such liabilities. Court appointed receivers are officers of the Court. The Court needs to be satisfied that the persons so appointed are fit and proper for the task. There was no such evidence. Nor was security proffered. 22If there is money owing under the two share purchase agreements, there is no reason to think that the executors will not take appropriate steps to recover such moneys or to require an appropriate set-off against legacies. 23Counsel for the plaintiffs indicated that if the relief sought in the summons were refused, the plaintiffs may be able to bring proceedings in their own right in the United States. That would be a matter for the courts of that jurisdiction.
Proceedings 2012/129833 and 2012/185566 24The plaintiffs have each instituted separate proceedings under the Succession Act for family provision orders. In proceedings 2012/185566 John Steiner sought an order that interim provision be made in his favour pursuant to s 62 of the Succession Act in an amount of $530,000, or alternatively, an order pursuant to s 92A of the Succession Act for a distribution out of the estate for his proper maintenance and support in that amount. He also sought an order that the executors pay to the plaintiff's solicitor a further sum of $17,500 being moneys owed for the payment of legal fees and disbursements to the attorneys in Utah. Robyn Webster sought an order pursuant to s 84 of the Probate and Administration Act that the executors make an interim distribution out of the estate in the amount of $500,000 or such other amount as the Court thought fit. Alternatively, she sought an order for interim provision pursuant to s 62 of the Succession Act. Both plaintiffs have received partial distributions of $100,000. 25Both plaintiffs are entitled to a legacy of $2 million if there are sufficient funds in the estate with which to pay all pecuniary legacies. In Romano v Romano [2004] NSWSC 775 Barrett J (as his Honour then was) held that s 84 of the Probate and Administration Act or Pt 68 r 2(3)(d) or (4)(b) of the Supreme Court Rules (now r 54.3(3)(d) or r 54.3(4)(b) of the Uniform Civil Procedure Rules) provided a foundation for orders requiring the payment of interim distributions in the payment of pecuniary legacies if, acting with the greatest degree of conservation and prudence, the executors could safely part with the sums to be distributed (at [16], [18]). 26In Indyk v Wiernik [2006] NSWSC 868 Young CJ in Eq (as his Honour then was) said that he had never made an order for interim distribution because he had never had a clear case where, on looking at all the predictions that could be made, it could be seen that in the ultimate, even after paying the costs of litigation, there would still be the sort of surplus that would justify an interim distribution, bearing in mind that the executor is entitled to retain sufficient funds as a buffer against unexpected expenses (at [23]). 27In the present case I was satisfied that the executors could safely part with the sums of $500,000 and $300,000 by way of interim distribution to Robyn Webster and John Steiner respectively in accordance with these principles. Nor did counsel for the executors submit that the distributions could not safely be made. 28John Steiner is in a different position from Robyn Webster in that whilst he is entitled to a legacy of $2 million, prima facie he is liable to repay to the estate an amount of $881,000. 29I did not consider that any order for interim provision should be made under s 62 of the Succession Act. Having regard to the benefits provided to the plaintiffs under the deceased's will and benefits provided to them during the deceased's lifetime, it is far from clear that they will be entitled to any further provision out of the estate. Nor did I consider that an order could be made requiring the executors to make a payment to Mr Steiner pursuant to s 92A of the Probate and Administration Act. Such a payment can be made for the proper maintenance and support of a person who survives the deceased and was wholly or substantially dependent on the deceased and will be entitled to part or all of the deceased's estate. I could not be satisfied that the payment sought was for the maintenance or support of Mr Steiner, as distinct from providing funds to maintain speculative litigation in the United States. Nor was it clear whether he was substantially dependent on the deceased at her death, although he admitted receiving substantial sums from her to meet his debts. In any event, although Mr Steiner's legal representatives had not sought an order pursuant to s 84 of the Probate and Administration Act, or under r 54.3 of the Uniform Civil Procedure Rules, there could be no objection to my proceeding under those provisions. 30I did not consider it appropriate to make a separate order for the payment of $17,500 to the trust account of the plaintiff's solicitor to fund the payment of fees and disbursements for attorneys in Utah. Mr Steiner was not entitled to incur such an expense for the estate. The expenses he incurs in that litigation will be for his own account. 31For these reasons I ordered that the summons in proceedings 2012/215729 be dismissed and made orders in proceedings 2012/129833 and 2012/185566 for the payment of an interim distribution of $500,000 to Robyn Webster and of $300,000 to John Steiner. They will have to give credit for those payments when the time comes for the distribution of the balance of their legacies. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 September 2012
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