MATTER : Section 45 of the Administration Act 1903

BETWEEN : THE PUBLIC TRUSTEE AS ADMINISTRATOR OF THE ESTATE OF IRMA MAY HOUDEN (DEC)

Trustee - Directions from Court - Whether to commence proceedings - No new principle - Turns on own facts

Administration Act (WA) 1903 s 45

Bridgewater v Leahy [1998] HCA 66; (1998) 158 ALR 66

Re Moritz [1960] Ch 251

1 McKECHNIE J**:** This is an application under the Administration Act 1903 s 45 which provides as follows:

"(1) The Court may make such order with reference to any question arising in respect of any will or administration, or with reference to the distribution or application of any real and personal estate which an executor or administrator or Public Trustee may have in hand, or as to the residue of the estate, as the circumstances of the case may require.

(2) Such order shall bind all persons whether sui juris or not."

The order sought in the originating summons is this:

"1. That it may be determined whether an action should be brought by the Plaintiff against the First and Second Defendants seeking declarations that the transfer of interest in land to them from the deceased dated 11 August 1997 was obtained by undue influence and unconscionable conduct; and seeking consequential orders ..."

2 This is the sort of order commonly applied for by trustees - that is, as to whether or not to commence litigation or whether or not to sue or defend. Seen this way the order is essentially a private advice from the Court to a trustee, who in a real sense is an officer of the Court.

3 In this case the third defendant has been represented and has appeared through counsel and made some helpful submissions.

4 The general principles to be applied have been set out by me recently in Re the Estate of Vitalina Ferrari ex parte the Public Trustee, [1999] WASC 50 at 7 and 8:

"This Court is not trying an action to set aside the gift. It does not have the immeasurable advantage of seeing the parties and estimating their characters and capacities, for not only does that advantage affect credibility but it also affords the best evidence of what are the essential factors in the case, viz the intelligence and other faculties of the respective parties to the transaction - per Rich J in Wilton v Farnworth [1948] HCA 20; (1948) 76 CLR 646 at 654.

However a trial Judge in any action taken by the Public Trustee is unlikely to have that advantage. I infer from the fact of the guardianship order, and from common knowledge of Alzheimer's disease, that it is most unlikely that Mrs Ferrari could now present a coherent account of her side of the transaction.

In my judgment the Court in giving its opinion must adopt a commonsense approach to the prospect of litigation and the possible effect of an action on the corpus of the estate. Apart from some $9000 and some household effect of little value, the estate is in fact the life interest in the land unless the deed is set aside.

It will be hardly sensible to commit the resources of this estate to the vagaries of litigation without substantial prospects of success. I propose therefore to examine the evidence surrounding the deed."

5 I note that in this case the deceased made a transfer of what seems to have been the bulk of the estate consisting of the land on the same day as she executed her will, that is 11 August 1993. She executed both documents in the presence of a solicitor in Bunbury.

6 Subsequently, there were proceedings by the present third defendant to have the first defendant, Desmond, removed as executor and trustee of the will. Those proceedings were determined on 14 May 1997 in this Court on the pleadings. The reason Ipp J in considering the matter did not in the event make orders was because there was a submission by the defendant to what seemed to be an inevitable result. What his Honour did say at p 11 of the transcript is this, dealing with this whole question of the litigation:

"The decision to litigate is a serious one for the estate because the costs will come out of the estate. Whoever wins or whoever loses, the usual order is that the costs are paid by the estate. In that sense - I mean, just take that as an example of the appropriateness of having some independent person as executor to make that decision where there is a prospect of a conflict."

"Of course every case depends on its own facts and, as I keep on saying, in this case, Mr Desmond Houden may very well prove everything that he says and the court may be entirely satisfied that he is entitled to this property and it can't be set aside, but that is, as I have made clear, not the issue before me. I am simply here to decide whether he is an appropriate person in the light of all the circumstances to be the trustee and to conduct the litigation that will have to be conducted."

7 Following the appointment of the Public Trustee as the trustee in place of Mr Houden, in light of his Honour's foreshadowed rulings, the Public Trustee has further investigated the question of whether or not litigation should be brought. In an affidavit filed on behalf of the Public Trustee he attaches two opinions of counsel. Those counsel are the counsel who appeared before me this morning.

8 The first opinion was obtained on behalf of the younger son, Trevor, and is the opinion of Mr Curthoys. His conclusion is that "... it seems to me strongly arguable that the conduct of Desmond and Patricia Houden was unconscionable and that equity should intervene to set the transaction aside."

9 The second opinion is from Mr Bruns. This was obtained by the Public Trustee. His conclusion is that he does not believe that "an ordinary prudent man of business would embark on litigation which has merely a chance, not a high probability, of success".

10 I have carefully read their opinions together with the rest of the annexures to Mr Borg's affidavit. I note that the transaction for the sale of land has some unusual features about it. The sale price of $50,000 was arguably significantly under the value of the land at the time, which was estimated at $109,000. Furthermore, the deferment of the mortgage for a period of years followed by a payment only on demand was unusual.

11 I note in the papers that there are no witness statements. However, I have proceeded on the basis that there are indications of what witnesses might say if called to give evidence at the trial. One of those indications would appear that Ms King, nominal fourth defendant here, confirms the correctness of the version put forward by Desmond.

12 The circumstances leading to the making of the will and the transfer on 11 August 1993 are unusual partly because the transfer in effect gutted the estate of most of its value. I note that the property is currently valued at approximately $160,000. Applying the test that I have previously applied, that is substantial prospects of success, I consider that the evidence, while raising a clearly arguable case of unconscionable conduct, does not point unhesitatingly, or even substantially, to that conclusion.

13 I note also that the estate is not large, although it would be significantly enhanced by a favourable outcome. I have considered all the material and the circumstances. I have reached the view that the litigation is not attended with sufficient prospects of success to justify the Public Trustee taking proceedings.