Turch v Tripolone - [2025] NSWSC 86 - NSWSC 2024 case summary — Zoe

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Turch v Tripolone

[2025] NSWSC 86

Supreme Court of NSW|2024-12-03|Before: Richmond J, Cohen J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2024-12-03

Before

Richmond J, Cohen J

Catchwords

41 ER 940 Frost v Bovaird (2014) 223 FCR 275
[2014] FCAFC 20 Galea v Camilleri [2019] NSWSC 167 Galea v Camilleri
(1998) 45 NSWLR 80 Mills v Mills [2015] EWHC 1522 (Ch) Newgate Stud Co v Penfold [2004] EWHC 2993 (Ch) Re Chapman
Cocks v Chapman [1896] 2 Ch 763 Re Douglas (1928) 29 SR (NSW) 48 Re Estate Luce

Source

Original judgment source is linked above.

Catchwords

41 ER 940 Frost v Bovaird (2014) 223 FCR 275[2014] FCAFC 20 Galea v Camilleri [2019] NSWSC 167 Galea v Camilleri(1998) 45 NSWLR 80 Mills v Mills [2015] EWHC 1522 (Ch) Newgate Stud Co v Penfold [2004] EWHC 2993 (Ch) Re ChapmanCocks v Chapman [1896] 2 Ch 763 Re Douglas (1928) 29 SR (NSW) 48 Re Estate LuceTurch v Tripolone [2020] NSWSC 117 Re StevensCooke v Stevens [1898] 1 Ch 162 Re Thompson's Settlement [1986] Ch 99 Re Walder

Judgment (25 paragraphs)

[1]

Background

The deceased and her late husband, Graziano Turch (Graziano) were divorced in December 1988 and Graziano died in September 1995. They had three children: the plaintiff, the defendant and Franco. It was an unhappy marriage and the disharmony in the family continued for a number of years after the divorce due to ongoing disputes about the division of the property of the marriage. The disputes between family members are described in the judgment of Lindsay J regarding the plaintiff's unsuccessful family provision claim against the estate: Re Estate Luce; Turch v Tripolone [2020] NSWSC 117 at [28]-[40]. Relevantly for present purposes, the plaintiff (who was close to his father) and the defendant (who was close to her mother) developed a strong dislike for each other and were estranged from around 1997 until mid-2017, a little over one year after the deceased's death. It is clear both from the communications between them from 2017 until the hearing, and their conduct at the hearing, that they have a high level of animosity towards one another.

[2]

Steps taken in the administration of the estate

In the period between the death of the deceased on 23 March 2016 and the grant of letters of administration to the defendant on 14 May 2018 the defendant took the following steps in relation to the estate: 1. She arranged the funeral of the deceased (a cost of $11,258.10) and the purchase of a crypt (a cost of $27,900). These expenses were paid by bank cheques debited to the Deceased's NAB account. There is no dispute that they were reasonable expenses. I reject the submission of the defendant that the amount of $2,640 forming part of the payment of $27,900 for the crypt is unexplained. It is explained by the agreement entered into by the deceased with the supplier, InvoCare Australia Pty Ltd, as the 'opening and close' fee which had not been prepaid at the time of her death (CB 1058). 2. She paid from her own funds the telephone, electricity, water and Council rates for the Blacktown property, some of which related to the period before the deceased's death. There is a dispute about the reasonableness of the claim for indemnity for some of the payments for telephone, electricity and water expenses. 3. She paid fees charged by the deceased's solicitor and accountant for work done before the deceased's death (two items), which are not disputed. 4. She arranged for repair and maintenance work to be done to the main residence and the granny flat of the Blacktown property, for which she paid from her own funds the amount of $7,432.28 on 28 August 2016. The work done is recorded in an invoice headed 'Taskforce Australia'. The plaintiff disputes this expense because the work was done before the grant of letters of administration. 5. She arranged for other repair and maintenance work to be done on the Blacktown property by various tradesmen, including the cost of kitchen items, bathroom items, plumbing services, lights, doors, floorboards, tiles and air-conditioning. The payments were made from her own funds. The plaintiff disputes these expenses on the basis that they were incurred before the grant of letters of administration and in some cases because it is not clear that the relevant expense item related to the Blacktown property. 6. Following the work done to the granny flat, she rented out the granny flat from September 2016 for around $220 per week (see below). 7. She paid from her own funds various amounts to Bunnings which the defendant says were items acquired for the maintenance and repair of the Blacktown property. There are 12 items in this category. The plaintiff contends that the evidence does not establish that each amount relates to the Blacktown property. 8. She paid amounts to NRMA for home and contents insurance for the Blacktown property (three items) and car insurance. The defendant disputes the former because the insured amount for home contents is $133,000 whereas the inventory of assets on death states that the home contents of the Blacktown property were valued at only $1,000. 9. She paid from her own funds for the lawn of the Blacktown property to be mowed regularly, the cost of which is not disputed. 10. She made payments from her own funds to solicitors for work which she says related to the estate, some of which are disputed by the plaintiff on the basis that she has not established that they relate to the estate.
In relation to the granny flat, the defendant deposed that in September 2016, following an approach from a neighbour, she commenced renting out the granny flat on the property to an unrelated person, Mr V Kumar, under an informal license arrangement. The rent was $220 per week from 27 September 2017 to 17 July 2017, and $260 per week from 24 July 2017 until 11 September 2017. The rent was deposited to a personal bank account in the name of the defendant with NAB, account number ending 8845 (Defendant's NAB account). The granny flat was rented out again in April and May 2019 at $265 per week. This rent was deposited to the Estate NAB account. The defendant deposed that the tenants stopped paying rent in mid-2019 and refused to move out and she had to apply to NCAT to have them evicted. They eventually left the property in September 2019. The defendant paid the costs of the application to NCAT and for the sheriff from her own funds which were in the order of $500. The defendant deposed that she did not rent out the granny flat after this time because she was reluctant to expose the estate to further loss or damage from tenants occupying the property. It can be inferred that another reason was the dispute with the Council regarding the status of the granny flat.
The main residence located at the Blacktown property was never rented out. This is an area of dispute between the parties, as discussed below.
In the period after she was granted letters of administration up to 10 February 2022, the defendant made the following payments identified in Schedule B, some of which are disputed by the plaintiff: 1. She paid for telephone, electricity, water and Council rates for the Blacktown property (again, there is a dispute about the reasonableness of some of the payments for telephone, electricity and water). 2. She paid NRMA for home and contents insurance for the Blacktown property (again, there is a dispute about the reasonableness of the premium for contents insurance). 3. She paid the cost of lawn mowing at the Blacktown property (which is not disputed). 4. She paid solicitors and an accountant for work which she says related to the estate, some of which are disputed by the plaintiff on the basis that there is no documentary evidence to support that the work related to the estate. 5. She paid from her own funds for repairs to the Blacktown property which the plaintiff disputes on the basis that there is no evidence that the invoices relied on relate to the Blacktown property. 6. She made payments from her own funds for valuations of the Blacktown property, some of which are disputed by the plaintiff. 7. She made payments to SJ H Planning and Design for work relating to the Council's demolition control order and the development approval lodged with Council in response to it, which are disputed by the plaintiff on the basis that they were not reasonably incurred.
It is not in dispute that the defendant has changed the firms of solicitors acting for the estate on a number of occasions. As at 10 May 2023, she had retained some nine firms of solicitors, and by the time of the hearing the total number of changes of firms was fourteen.

[3]

Pleaded claims

By his further amended statement of claim (FASOC) filed on 17 August 2023 the plaintiff seeks the following orders: 1. the grant of letters of administration dated 14 May 2018 made to the defendant be revoked and the appointment of Mr Daniel McKinnon as administrator of the estate in her place; 2. an order that the sale and transfer by the defendant of the Blacktown property be set aside; 3. an order that the defendant pay damages for the loss to the estate caused by and consequential upon the defendant's breach of her duties as administrator of the estate; 4. an order that the defendant pay by way of restitution to the estate the extent of the unjust enrichment of her by reason of the breach of her duties as administrator of the estate; 5. an order that the defendant account to the estate for any dealings 'on the Blacktown property since the deceased's death'.
The FASOC pleads the grounds on which it is claimed that the defendant has breached her duties and hence should be removed as administrator as follows: 1. The defendant failed to adequately disclose all of the deceased's assets in the inventory of property attached to the grant; 2. The defendant has intermingled estate assets with her own assets by the transfer on 19 November 2018 of the balance of the Deceased's NAB Account into a bank account in her own name and the deposit of the proceeds of sale of the Elantra into the same account on 10 December 2018. That account was subsequently renamed 'Diana Sandra Tripolone ATF Antonietta Luce'. She caused a number of deposits and withdrawals to be made in relation to that account and has failed to explain the source of the deposits or the destination of the withdrawals. 3. The defendant failed to maintain accurate records that would enable the value of the estate to be determined, because amounts identified by her as income of the estate cannot be verified and many of the amounts claimed by her as estate expenses are not proper and reasonable expenses of the estate or otherwise cannot be verified. An example of this is that on 10 June 2020, the defendant paid herself out of the estate monies the sum of $68,599.70 on account of alleged expenses incurred by her as administrator, a significant proportion of which relates to improvements to the Blacktown property incurred prior to the grant of letters of administration to her. 4. The contract for sale of the Blacktown property by the defendant in favour of her husband for $1,581,000 was made for her benefit in breach of the self-dealing rule and should be set aside. 5. The defendant's failure to rent the Blacktown property in the period after the grant of letters of administration has resulted in the estate suffering loss through the non-receipt of significant rent.
In her defence the defendant denies each of these allegations, although in cross-examination she accepted that she had intermingled estate funds with her personal funds and that this was a mistake, giving as the explanation that she had 'never been an administrator before' (T73).
In relation to the sale of the Blacktown property, the defendant pleaded that the auction was conducted in a procedurally regular manner, the terms of sale were standard, the sale price was well above the valuation and subsequent market appraisals obtained by the defendant and in so far as the plaintiff's objection is to the identity of the purchaser who was ultimately successful in the auction, that is not a reasonable objection in the circumstances.
The contention referred to at [53(a)] concerning the inadequacy of the inventory of property was not pressed by Mr Cleary in his opening and closing submissions as a reason for removing the defendant as administrator. The only material asset which, on the evidence, was not disclosed in the inventory of property was the funds received by the defendant in respect of the rent of $11,850 paid for use of the granny flat prior to grant, which had been deposited to the Defendant's NAB account. Rather, it was treated as symptomatic of the broader problem of the intermingling of estate assets with the defendant's personal assets.
In opening, Mr Cleary stated that while the statement of claim seeks damages and/or restitution, this relates to the alleged failure to collect rent by leasing the Blacktown property and the use of estate funds to pay expenses which the defendant has not established were properly incurred by her as administrator. Mr Cleary also said in opening that while the plaintiff was seeking determination of these matters, if an independent administrator is appointed it may be more appropriate for the independent administrator to look at the expenses and address them in the course of finalising the administration of the estate.

[5]

Duties and powers of the administrator of an intestate estate

A person who is granted administration of the estate of a person who died intestate has the same rights and liabilities, and is accountable in the same way, as if the person were the executor of the deceased person, subject to any limitations contained in the grant: s 74A of the Probate and Administration Act 1898 (NSW) (Probate and Administration Act). There were no limitations in the grant to the defendant.
The core duties of an executor or administrator of an intestate estate are to get in the assets of the estate, to pay the expenses and liabilities of the deceased, and then to distribute the residue of the estate in accordance with the will (or the rules relating to an intestacy) and produce accounts: Gritzman v McRae [2022] NSWSC 745 at [185]; GE Dal Pont, Law of Succession (3rd ed, 2021, LexisNexis) at [12.1].
Although an executor or administrator is not a trustee during the period of administration, they owe duties to preserve the assets of the estate, to deal properly with them, and to apply them in the due course of administration for the benefit of those interested in the estate: Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 at 707.
In addition, an executor or administrator owes fiduciary duties to the beneficiaries including the duty to act honestly and in good faith; an obligation to act within power, and not to act in a manner which exceeded her powers as administrator; the duty to preserve the trust property for the benefit of the beneficiaries; the duty to act in the best interests of the beneficiaries impartially; the duty to keep proper accounts (to keep vouchers and receipts for each payment and receipt); to permit the inspection of accounts by beneficiaries; to provide information to the beneficiaries about the management of the deceased's estate; and to abide by the 'no conflict' and 'no profit' rules owed by fiduciaries: Gritzman at [184]-[185]; Law of Succession at [12.22]-[12.38].
The defendant as administrator of an intestate estate is vested with certain powers by statute to enable her to discharge her functions. Relevantly for present purposes, s 153(1) of the Conveyancing Act 1919 (NSW) confers on administrators (and executors) the power to sell, mortgage or lease real estate in the following terms: Subject as hereinafter mentioned executors and administrators may without the consent of any person or the order of a court - (a) sell or mortgage the real estate of the deceased person for purposes of administration, (b) sell the real estate of the deceased person as to which the deceased person died intestate for purposes of distribution or division amongst the persons entitled, (c) lease the real estate of the deceased person in possession for any term not exceeding three years.
Under s 153(2), conditions may be imposed on the exercise of any such power of sale, mortgage or lease by an administrator, by the court in the grant of administration or other order, but no relevant conditions were imposed in the present case. In relation to s 153(1)(a), the expression 'purposes of administration' is defined in s 152 to include 'the payment in the due course of administration of the debts, funeral and testamentary expenses, duties and commission and the costs, charges, and expenses of the executor or administrator, and any costs which may be ordered to be paid out of the estate'.
There is also a power of sale or mortgage over real estate conferred on executors and administrators by s 46(2) of the Probate and Administration Act but this is to be understood as confirming existence of the same power as in s 153: Colyton Investments Pty Ltd v McSorley (1962) 107 CLR 177 at 183.
In addition, an administrator (and an executor) has a power to postpone a sale: Trustee Act 1925 (NSW), s 27B.

[7]

Relevant principles

The plaintiff's submissions on this issue were put in terms of a 'wastage' of assets of the estate arising from the defendant's failure to rent the residence of the Blacktown property during the period prior to sale.
Devastavit or waste refers to 'a mismanagement of a deceased estate by the legal personal representatives of the estate squandering or misapplying the assets in the estate': Frost v Bovaird (2014) 223 FCR 275; [2014] FCAFC 20 at [3]; Williams, Mortimer and Sunnucks, Executors, Administrators and Probate (22nd edition, 2023, Thomson Reuters) at [48-02]. An executor or administrator is liable in an action for devastavit or waste 'not only for loss arising by a direct abuse of the assets by spending or consuming them, but also for waste by such acts of negligence and wrong administration as will disappoint the claimants on the assets': Re Stevens; Cooke v Stevens [1898] 1 Ch 162 at 176. The modern position is that an executor or administrator can only be liable in devastavit where 'wilful default' is shown: Bovaird v Trustee of the Bankrupt Estate of Frost [2010] FCA 1159 at [19]-[20]. The term 'wilful default' in this context means that the executor or administrator has shown a want of ordinary prudence by falling below the standard expected of a reasonably competent executor or administrator: Re Chapman; Cocks v Chapman [1896] 2 Ch 763 at 776; Armitage v Nurse [1998] Ch 241 at 252; Juul v Northey [2010] NSWCA 211 at [180]; Executors, Administrators and Probate at [48-14].
In assessing this question in the context of the administration of an intestate estate, it is necessary to bear in mind that the administrator's primary duties are to get in the assets of the estate, to pay the expenses and liabilities of the deceased, to distribute the residue of the estate to each of the beneficiaries and produce accounts in a timely manner. While the administrator has a power to lease the real property included in the estate, the administrator does not have a duty to lease that property because that would potentially be inconsistent with the primary duty to distribute the residue to the beneficiaries after paying the expenses and liabilities of the deceased. Where an administrator has a discretion, the court would not interfere with the exercise of that discretion provided the administrator acted in good faith and without an ulterior purpose: Karger v Paul [1984] VR 161 at 165.
The issue of a failure of an executor to make the assets of an estate productive during administration has arisen in a number of cases. In Howling v Kristofferson (Supreme Court (NSW), Cohen J, 14 October 1992, unrep), the plaintiff brought a claim against the executor that he compensate the estate for failure to rent a property at Coogee which was an asset of the estate in circumstances where there was a delay in its sale, based on the duty of an executor to ensure that there is no waste of estate assets. Cohen J concluded that in circumstances where there was an unexplained delay in the sale of the property for eight months from the grant of probate, it would have been reasonable and proper for the defendant, the executor, to have entered into a lease for six months rather than allowing his son to live in the property rent-free. The defendant was ordered to pay compensation to the estate of $1801, being the loss to the estate arising from the failure to rent the property for six months after the grant of probate.
In Mangravitti v Donato [2009] NSWSC 1258, the plaintiff brought a claim against the executors of her late father's estate for, amongst other things, failing to rent out a house in Enfield, which was the only real estate left by the testator. Probate was granted in June 2005. The house was then marketed for sale between August and October 2005 and the property was ultimately sold in January 2006. Rein J noted that 'there were no unreasonable delays in putting the property to market' at [37]. After the testator's death and until the house was sold in January 2006, one of the executors lived in the house. Rein J said at [38] that he was not persuaded that the executors, having decided to place the property on the market, had an obligation to enter into a lease for a fixed period until sale, and added at [39]: There are advantages in not having a tenant with a fixed lease in place, both in terms of ease of access to the property, and in terms of the assurances that the premises will be vacant on sale.
His Honour went on to say at [42]-[43]: I am not satisfied in the circumstances of this case that the executors failed in their duty to the estate by not seeking to enter into a lease or engaging an agent to do so at the same time as they put the property on the market… I accept that Anthony has gained a benefit by being able to reside in the premises during the period in question but for most of that period this was because probate had not been granted. That in turn was because the plaintiff had taken the steps that she had taken. The plaintiff herself did not, in her summons or affidavit of 5 June 2007 or in her solicitor's correspondence, raise any concern about the occupation of the property by Anthony.
Mangravitti can thus be distinguished from Howling in that there was no delay in the sale of the estate property, and although the executor was able to reside in the property before its sale, it was largely for a period where probate had not been granted. Further, there was benefit in having a vacant property for sale and there had been no complaints by the plaintiff about the executor residing in the property.
Galea v Camilleri; Estate of Patricia Camilleri [2023] NSWSC 206 involved a claim by some of the beneficiaries of the deceased's estate against the executor, John, alleging that he had a duty to obtain a market rent for a property in Arndell Park (which was one of several properties in the estate) between 11 September 2015 and 30 May 2018. During this period a longstanding tenant lived in the property for nominal rent. The plaintiffs' case regarding an alleged failure to obtain market rent for the Arndell Park property was put as a form of waste of assets or devastavit and as a breach or neglect of an executor's duty. Meek J recognised that an executor 'had the power to lease any part of the deceased's estate for such periods upon and subject to the covenants and conditions which he as executor thought fit' at [548] (see also [526]-[552]), but that this power involved the exercise of a discretion.
The plaintiff relied on Howling: [553] Mr Crossland submitted that an action for waste of assets or devastavit arises where an executor has failed to rent out property and that an executor should get a reasonable return by way of rent for assets when their sale is to be delayed citing Howling v Kristofferson (Supreme Court (NSW), Cohen J, 14 October 1992, unrep) (Howling v Kristofferson ): POS [48]. [554] In Howling v Kristofferson, the sale of the relevant property took place eight months after the grant of probate. Cohen J found that failing to lease the property for a period of six months after the grant of probate was a breach of the defendant's duty as executor of the estate. [555] Mr Crossland submitted that it is open to the Court to examine whether there is a failure by a trustee to exercise a discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion is conferred citing Karger v Paul [1984] VR 161 at 164 per McGarvie J. Further, Mr Crossland submitted that a discretion may miscarry by reason of mala fides which includes a refusal to make an informed decision or a refusal to take relevant considerations into account citing Jacobs' Law of Trusts at 327.
Meek J examined the timeline of the executor's dealing with the Arndell Park property and concluded that there was no breach of duty regarding the failure to rent the property: [588]-[593]. There were a number of matters leading to that conclusion. First, family provision proceedings were commenced in October 2015 and not resolved until 15 August 2016, and John or any executor would have been justified in being a degree more cautious as to steps being taken in relation to the property of the estate as the family provision claim, at least in its infancy, would not have been clearly defined: see [566] referring to Galea v Camilleri [2019] NSWSC 167 at [28]-[29] per Robb J. Second, a potential offer for purchase of properties in the estate, including the Arndell Park property had been received in October 2015 and that potential offer remained operative into 2016. Third, once the decision had been made in December 2016 to sell the Arndell Park property and steps were taken to implement it, it was not unreasonable for the executor to progress sale of the property rather than attempt to lease it: see [581]. There were also land tax issues which informed the executor's decision-making.
In relation to the three-month period from August to December 2016, there was a difficulty making a finding that there was a delay sounding in damages for devastavit for two reasons. First, the evidence as to rental value of the property proceeded on the basis that property will be used for storage purposes, but this would likely have required a development application, and the evidence did not establish that a development application could have effectively been made in the time it would have taken. Second, the expert evidence proceeded on the basis that the appropriate length of any lease would have been 12 months and it would not have been unreasonable for the executor to have decided in August 2016, in the exercise of his discretion as to leasing, that he should not rent the property for 12 months in light of the position regarding a development application and the impending sale of property: [590]-[593].
In Stanojevic v Damnjanovic & Anor [2024] VSC 350, the plaintiffs brought a claim against the defendant, either as executor or trustee under a resulting trust, that he had an obligation to collect rent from the person, Kristina, who he permitted to occupy a property which was either included in the deceased estate of which he was executor or was held under a resulting trust by him. Tsalamandris J rejected the claim, noting at [155] that the court was not taken to any authority where, in the absence of an express term, an executor of an estate was held to have a duty to lease property in a deceased estate and collect rent. Ultimately, her Honour concluded that regardless of whether the defendant had a positive duty to lease the property, or it was merely within his discretion to do so, she was not satisfied that the defendant was in breach of any such duty. In particular, when assessed objectively, it was open to the defendant to permit Kristina to continue to occupy the property without paying rent, until the issue as to who had what interest in the property was determined: [158]-[161].

[8]

Parties' submissions

The plaintiff submits that there was a wastage of assets of the estate by the defendant's failure to rent the Blacktown property during the period prior to its sale (except for the relatively short periods in which the granny flat was rented out) causing loss to the estate in the form of the rent forgone. Between the passing of the deceased on 16 March 2016 and the settlement of the sale of the Blacktown property on 29 January 2022, amounting to around 305 weeks, there were substantial periods of time in which the Blacktown property could have been rented out. Mr Maran, the plaintiff's expert, has given a report on the amount of rent that the property might have been rented for, and, at the lowest end of the scale, the property was capable of generating rent of $650 per week from March 2016 to the end of 2021, and $750 per week from January 2022. This amount would be considerably higher if the granny flat was capable of being legally occupied.
The plaintiff accepts that there would likely be periods in which the property was not able to be tenanted, for example immediately after the passing of the deceased, between tenants and perhaps the lead up to settlement of the sale to give vacant possession. There would also be fees associated with the renting of the property. Allowing conservatively for these matters, there were around 200 weeks in which the Blacktown property could have been rented out but was not. Using the lowest rental figure provided by Mr Maran, without any increase in rent over that period, then the estate should have generated at the very least $130,000 in rent, and probably substantially more (for example, at 75% occupancy with an average rent of $700 per week, the sum increases to $157,500).
The defendant in her evidence gave three reasons for not having rented out the main residence of the Blacktown property, or the granny flat after 2019. First, the tenants of the granny flat had caused damage to the property, stopped paying rent and refused to vacate the property. She had to apply to NCAT to have them evicted and they were eventually evicted in September 2019. She paid the costs of the NCAT proceedings from her own funds. After this experience she was very reluctant to expose the estate to further loss or damage from tenants occupying the property. Second, in the period before the plaintiff's family provision claim, she was preparing the property for sale which was uninhabitable during the period in which she was having repairs performed and thereafter she thought it best to be able to provide vacant possession to prospective purchasers. Third, she said in cross examination that she had received advice from her accountant that if she rented out the Blacktown property, this would 'trigger a situation that would attract capital gains tax'. This appears to be a reference to the letter addressed to the defendant from Ms Linda Holton, accountant, dated 6 October 2021 referred to earlier which provides advice to this effect. The defendant also said in cross examination that her husband's accountant, Mr John Cucinotta, had given her advice, probably during the plaintiff's family provision claim, that 'capital gains would be an issue' if she rented out the main residence of the Blacktown property, but her evidence was vague as to when this advice was given and its nature.
In final submissions the defendant also submitted that: (a) it was not feasible to rent the Blacktown property in the period up to late 2017 due to the improvements being made to the property; (b) from May 2018 until February 2020 she was dealing with the plaintiff's family provision claim although she did seek to sell the property by auction in 2019 and at no time during that period did the plaintiff ask for the property be rented or complain of a wastage from failure to rent the property; (c) in the period from March 2020 to late 2021 she faced the difficulty of the Covid restrictions which affected both her ability to rent the property and to sell it, and at the same time was endeavouring to resolve the issue with the Council regarding the granny flat; and (d) after the Covid restrictions were lifted, the Blacktown property was placed on the market and sold at auction in December 2021.

[9]

Consideration

I will approach this question on the basis that the defendant will only be liable for loss to the estate for failure to lease the Blacktown property if she is guilty of some act of negligence or wrongful administration, involving wilful default in the sense referred to above. I also bear in mind that the defendant had a discretion rather than a duty to lease the Blacktown property and the exercise of this discretion should be approached in the manner referred to at [69] above.
In assessing this question, it is necessary to consider the relevant chronology from the deceased's death on 23 March 2016 until the sale of the Blacktown property at the second auction on 18 December 2021.
In the period from death to the grant of letters of administration on 14 May 2018, the Blacktown property was vacant except for an informal short-term lease arrangement relating to the granny flat. It was not practical or even possible for the defendant to enter into a lease of the Blacktown property in this period prior to grant.
From the grant of letters of administration on 14 May 2018, she was able to grant a lease of the Blacktown property. However, the plaintiff filed his family provision claim on 23 May 2018 which was an ambit claim which the plaintiff did not abandon until the first day of the hearing before Lindsay J on 19 February 2020: see Re Estate Luce at [10]. In my view, the decision of the defendant not to lease the Blacktown property during the period from May 2018 to finalisation of the family provision claim on 28 February 2020 was not unreasonable for a number of reasons. First, she was justified in taking caution in how she dealt with the Blacktown property in the period after the family provision claim was brought until May 2019 given that it was an ambit claim and would potentially result in the plaintiff becoming entitled to the Blacktown property, particularly given the problems she had experienced with tenants in the granny flat: cf Galea v Camilleri at [566].
Second, for the period from May 2019 to November 2019 the Blacktown property was vacant whilst being marketed for sale. Once she decided in May 2019 to market the Blacktown property for sale, it was reasonable for her to decide that it should be marketed with vacant possession: Mangravitti at [39].
Third, from the time the Blacktown property was passed in at the auction in November 2019 to late February 2020 when the family provision claim was heard and determined, it was reasonable for the defendant to focus her attention on the hearing of the family provision claim rather than seeking to rent the Blacktown property, again taking into account the previous problems with tenants in the granny flat.
In the period from 28 February 2020 to the second auction of the Blacktown property in December 2021, there were a number of factors at play. First, extensive Covid restrictions were introduced in March 2020 which restricted the defendant's ability to market the Blacktown property for rent, particularly as she lived on the Central Coast.
Second, in June 2021 she did appoint an agent to market the Blacktown property for rental, which ultimately proved unsuccessful. There is no suggestion in the evidence that the marketing of the property for rental was not genuine.
Third, in October 2021, the defendant received advice from her accountant that renting of the property would have adverse capital gains tax implications for the estate. Then on 20 November 2021, she appointed an agent to market the Blacktown property for sale and the auction was held on 18 December 2021. It was reasonable for her to market the property with vacant possession.
Fourth, there is no evidence that the plaintiff at any time before the auction in December 2021 complained to the defendant that she had failed to rent property to generate rental income.
Taking all these matters into account, I am not satisfied that the defendant's failure to rent the Blacktown property involved a want of ordinary prudence on her part in the administration of the estate. Nor, if the matter is approached on the basis of the principle stated in Karger at 165, can it be said that in declining to exercise her discretion to lease the Blacktown property she acted in bad faith or with an ulterior motive.

[12]

Relevant principles

A trustee is prohibited from purchasing trust property under what is known as the self-dealing rule. Under this rule, 'the sale by the trustee of the trust property to himself is voidable by any beneficiary ex debito justitiae, however honest and fair the transaction and "even if [the sale] is at a price higher than that which could be obtained on the open market"': Clay v Clay (2001) 202 CLR 410; [2001] HCA 9 at [51]; Ingram v Inland Revenue Commissioners [1997] 4 All ER 395 at 425; Tito v Waddell (No 2) [1977] Ch 106 at 240-241. It is to be distinguished from the less strict fair dealing rule which is that a transaction whereby the beneficial interest of a beneficiary is purchased by the trustee may be set aside unless the trustee can show that no advantage has been taken of the position of trustee, that full disclosure has been made to the beneficiary, and that the transaction is fair and honest: Clay at [50].
The self-dealing rule cannot be avoided by the trustee using an agent or nominee as the purchaser: Ingram at 426; Lewis v Hillman (1852) 3 HL Cas 607 at 630; JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis) at [17-43]; L Tucker, N Le Poidevin, J Brightwell, Lewin on Trusts (20th ed, 2020, ThomsonReuters) at [46-007].
The self-dealing rule is an application of the wider principle that a fiduciary must not put himself or herself in a position where there is an actual or potential conflict between the fiduciary's personal interest and the duty owed to his or her principal: Ingram at 425; Wright v Morgan [1926] AC 788 at 797; Re Thompson's Settlement [1986] Ch 99 at 115. The rule exists to protect beneficiaries of a trust from the fallibility of human nature which gives rise to the danger that 'a fiduciary may be swayed by interest rather than duty and thus prejudicing those whom he was bound to protect': Bray v Ford [1896] AC 44 and 51.
The self-dealing rule applies not only to trustees, but also to other fiduciaries, including executors and administrators of deceased estates: Carrington v Wallace [2022] NSWSC 1078 at [192].
The self-dealing rule does not apply if the purchase is authorised by the trust instrument or by statute, or is made with the fully informed consent of all the beneficiaries all being of full age and capacity, or is made with the sanction of the court: Jacobs' Law of Trusts in Australia at [17-43]; Lewin on Trusts at [46-010]. In relation to obtaining the approval of the court, Gibbs J in Union Trustee Co of Australia Ltd v Gorrie [1962] Qd R 605 at [21] observed that courts have shown a reluctance to approve of a sale to a trustee in the face of objections from beneficiaries, and said I understand the true rule to be that if a cestui que trust who is sui juris opposes a sale to a trustee, the court has power to permit the trustee to purchase, but will only approve of such a sale in exceptional circumstances where the interests of the trust estate demand it - that is, only as a last resort.
A sale by the trustee to his or her spouse or a close relative who is not the agent or nominee of the trustee is not automatically invalid under the self-dealing rule, but rather is treated as merely suspect: see Jacobs' Law of Trusts in Australia at [17-44]; Lewin on Trusts at [46-021]. This is supported by a number of authorities.
The first is the Scottish case of Burrell v Burrell's Trustees [1915] SC 333, where the plaintiff brought an action against the testamentary trustees of his deceased mother's estate seeking to set aside the sale by the trustees of certain shares in shipping companies that form part of the trust estate to the wives of the trustees. The evidence established that each wife had decided to make the purchase on her own initiative, independently of their husbands; they funded the purchase with their own funds; and the price was 'an adequate, and even a full one' having been fixed not by the trustees but by an outside bidder (at 337). The Court of Session held that there was no absolute principle or rule of law that the purchase of trust property by the wife of one of the trustees was illegal. Lord McKenzie said (at 338) that the case fell within category: … referred to by Lord Justice Cottenham in Ferraby v Hobson [2 Phillips 255, at p 261] in terms to which every Court must subscribe: "Trustees expose themselves to great peril in allowing their own relatives to intervene in any matter connected with the execution of the trust; for the suspicion which that circumstance is calculated to excite, where there is any other fact to confirm it, is one which it would require a very strong case to remove." Therefore I venture to remark that in all cases of this class the Court will seek to be certain, by vigilant scrutiny, of the true nature of such a transaction; because one can readily see that the close relationship between husband and wife may, unless the nature of the transaction is explained, give rise to the not unnatural inference that the husband was truly the party intervening in the case, and that not without benefit to himself. Subjecting everything that was done in this case to that scrutiny, I am unable to imagine any case which could well be stronger for sustaining the transaction which the pursuer seeks to challenge.
In Ferraby v Hobson (1847) 2 Ph 255; 41 ER 940, the then Lord Chancellor, Lord Cottenham, upheld a lease by a trustee to his sister in circumstances where the evidence established that the rent at the time of the grant was the market rent and 'the facts which appear in evidence completely remove all suspicion' (at 261).
In Heywood v Pryor (1905) 23 WN (NSW) 44a, a case decided before Burrell, AH Simpson CJ in Eq approved a sale of a farming property by trustees of sale of a deceased estate to the wife of one of the trustees, who purchased the property at an auction for a price which exceeded the value which had been ascribed to the property by independent valuers prior to the auction. The report notes that the purchase was made by the wife 'of her own motion and on her own behalf with money belonging to her separate estate'. Reference is made in the report to the decision in Ferraby.
Earlier, in Re Walder; Townsend v Walder (1903) 3 SR (NSW) 375, the same judge said that he had no difficulty in sanctioning a proposed sale of the testator's real estate to the widow of the testator, who was one of the trustees, 'for it is clear on the figures that the purchaser is giving more than the actual value of the property and the sale is, therefore, an advantageous one for the cestuis que trustent'.
In Re Douglas (1928) 29 SR (NSW) 48, Harvey CJ in Eq applied Burrell in a case brought by the Registrar-General seeking the advice and direction of the Court as to whether he should refuse to register a transfer purporting to be executed by the executors of a deceased estate for valuable consideration to the wife of one of them. His Honour said: In my opinion a contract between a trustee for sale and the wife of the trustee is not in law a void contract and is not forbidden by the law, but the Court of Equity would presume that the contract was for the benefit of the trustee, and evidence would be required to displace this presumption. The difficulty of producing satisfactory evidence for purposes of making title subsequently renders such transactions very undesirable without the sanction of the Court, but I am of opinion that the transaction now in question is not necessarily invalid, and that the decision in Burrell v Burrell (ubi. sup) should be followed. For these reasons I answer the questions asked as follows: The Registrar-General should satisfy himself before registering the transfer that the sale was made in good faith and for an adequate consideration. The documents on their face raising a presumption against the validity of the transaction the Registrar-General should require evidence to displace that presumption.
It follows from this passage that generally what is required to displace the presumption that the contract was for the benefit of the trustee arising from the relationship between the trustee and the purchaser (his wife) is evidence that 'the sale was made in good faith and for an adequate consideration'. It can be inferred that Harvey CJ in Eq reached this conclusion because in those circumstances the court could be satisfied that the trustee did not benefit from the sale.
The issue arose again in Queensland in essentially the same way in In the Trusts of the Will of James Frampton [1943] QWN 29. The trustees under a testamentary trust agreed to sell a farming property to the wife of one of the trustees for £2000. The price was supported by a valuation from an independent valuer, which valuation had been accepted by the Commissioner of Stamp Duties when stamping the transfer. The Registrar General was unwilling to register the transfer without an order of the court or the consent of the beneficiaries (the latter not being possible as some were minors). The trustees sought judicial advice from the Court. Webb CJ (as his Honour then was) said: 'I advise that the mere fact that the sale is proposed to be made to the wife of the surviving male trustee does not prevent it from being made. Shortly, I hold that the trustee can validly sell to his wife'.
In Tanti v Carlson [1948] VLR 401, Burrell was followed by Herring CJ in the context of the sale by the trustees to the wife of one of them of real estate comprising a house in which the deceased lived at her death and two other dwellings which were let to tenants. The sale price was the highest price for which the property could be sold under the then existing government price restrictions, but less than the value (absent those price restrictions) at the time. His Honour decided that trustees had virtually made a gift to the wife of the difference between the price and the value of the properties, which constituted a breach of trust. What they should have done was to consider the question of postponing the sale, which they had failed to do.
After expressing his agreement with the criticism made of Burrell by Salmond J in Robertson v Robertson [1924] NZLR 552, Herring CJ said that he felt bound to follow Burrell despite his own personal view of the matter, so that there is no absolute prohibition on the sale by a trustee to his wife. Rather, the relationship between the trustee and his wife gives rise to a presumption that the sale is for the benefit of the trustee, as 'the matrimonial relationship then becomes merely a ground of suspicion, and it becomes necessary to consider whether that suspicion has been dispelled…' (at 407). His Honour concluded (at 407) that the suspicion had not been dispelled in that case because the husband trustee required a residence to live in just as much as his wife, and also benefited from the income from rent paid by the tenants; consequently, the presumption that the sale was for the benefit of the trustee was not only not displaced by the evidence but was supported by it.
In Newgate Stud Co v Penfold [2004] EWHC 2993 (Ch) Richards J considered the application of the self-dealing rule to a sale by a fiduciary to his or her spouse in the context of transactions involving sales of thoroughbred horses. His Honour said at [237]: In my judgment the decision of the Court of Session in Burrell v Burrell's Trustees represents the law in England as well as Scotland. Not only would it be undesirable if the law on a subject of common application differed in the two jurisdictions, and not only has it been applied in Australia, but it is in my view right in principle. A wife who sells or gives an asset to her husband, or vice versa, is not dealing with herself. Spouses and domestic partners are not nominees for each other, and social changes since 1915 would suggest that if that was true then, it is certainly true now. Further, there could be no basis for restricting the self-dealing rule to husband and wives. On principle it would have to apply also to same-sex couples and probably also to others who live together in a close relationship on a long-term basis, such as for example adult children and their parents or other family members.
After setting out extracts from Burrell, Tanti and Re Douglas, Richards J said at [242]: In my view, the resolution of this issue lies in putting on the fiduciary the burden of showing, in a case where the fiduciary does not have a personal interest in the transaction but where on the facts there exists a real risk of conflict between duty and personal loyalties, that the transaction was demonstrably in the best interests of the company or others to whom he owes his duties. This assumes that the beneficiaries have not given their informed consent. It is an application of the fair dealing rule, rather than the self-dealing rule.
This statement by Richards J in Newgate of the relevant principle in the case of a sale by a trustee or other fiduciary to a spouse or other close relative is accepted as correct in Lewin on Trusts at [46-021].

[13]

Parties' submissions

The plaintiff submitted, relying on Clay at [51], that under the self-dealing rule the sale by the trustee of the trust property to himself is voidable by any beneficiary ex debito justitiae, however honest and fair the transaction and even if the price is higher than could be obtained on the open market, unless the transaction occurred with the fully informed consent of all the beneficiaries. There was no fully informed consent of the beneficiaries in the present case because the plaintiff had not provided his consent and the defendant did not seek court approval. Alternatively, if the principle stated in Re Douglas applied, then evidence was required to displace the presumption that the contract was for the defendant's benefit. No such evidence had been proffered by the defendant. Further, the defendant accepted during cross-examination that while her husband was the legal owner, the property was bought for her benefit. In the absence of evidence rebutting the presumption, the Court should find that the sale of the Blacktown property breached the self-dealing rule, and the plaintiff has an absolute right to have the transaction voided which is what he seeks.
The plaintiff did not suggest that the property had been sold at an undervalue, and while Mr Cleary initially submitted that it was inherently problematic that the person who had renovated the property subsequently buys it for themselves, and also claims the expenses associated with the renovations, he ultimately accepted that there was no mischief involved in the defendant claiming an indemnity for expenses associated with the renovations and her husband being the purchaser. She was entitled to be reimbursed for monies she had properly expended in renovating the property, and the estate would effectively recoup that expenditure through the sale proceeds of the property.
In opening, Ms Reid accepted that the auctioneer had advised everyone present at the start of the auction that 'there's going to be an agent of the defendant who will bid at the auction'. She also said in opening: 'Certainly, the bid that her agent, which was her spouse at the time - no longer her spouse, your Honour - got the successful bid'. By 'her agent' she meant Mr Tripolone, the defendant's husband. However, Ms Reid submitted that it is apparent from the evidence regarding the auction of the Blacktown property that there was nothing unusual about the auction and the successful bid was around $400,000 over the reserve. The defendant's husband paid a 'top price' for the property, given the prior valuations including a valuation report prepared by Valuations NSW in May 2021 which placed the value of the property at $1,175,000. The plaintiff had 18 days' notice of the auction and took no step to prevent it from taking place. In all the circumstances, the sale of the Blacktown property was for the benefit of the beneficiaries of the estate.

[14]

Consideration

If the defendant had conducted the hearing on the basis, consistently with her pleading, that the sale of the Blacktown property to her husband was not for her benefit, the issue for determination would have been whether, on all the evidence, the court could be satisfied that the presumption that the sale was for her benefit arising from their relationship was rebutted. Relevant to that issue would have been the source of the funds used to make the purchase and whether it was made in good faith and for market value consideration: see the line of authority following Burrell referred to above.
However, I am required to approach the sale of the Blacktown property to Mr Tripolone in light of the acceptance by Ms Reid, in opening the defendant's case, that Mr Tripolone purchased the Blacktown property as agent for the defendant. Reflecting the way Ms Reid put the defendant's case in opening, the following exchange took place in the cross examination of the defendant (T86): Q. Ms Tripolone, I don't need to know what was discussed between yourself and your legal representatives, but it's the case now, isn't it, that you agree that your husband bought the property at Blacktown for your benefit. Is that right? A. Yes.
Subject to two matters, the consequence of the defendant's acceptance of the agency relationship is that the self-dealing rule has been breached and the plaintiff is entitled to require the sale of the Blacktown property to be set aside (absent any equitable defences, such as acquiescence or delay, none of which were asserted). The two matters which need to be addressed are: first, the potential relevance of the decision in Holder v Holder [1968] Ch 353, and second, the significance of the fact that Mr Tripolone is not a party to the proceedings. Neither of these matters was addressed by the parties in their submissions.
In Holder, the English Court of Appeal decided that the self-dealing rule did not apply to the purchase by an executor of two farms forming part of the estate. However, the facts of that case were unusual. The defendant, Victor, was one of three executors under the will of his father. After taking some steps as executor, he purported to renounce his executorship in order to buy two farms included in the estate. It was accepted at trial that the renunciation was ineffective. He made known to all parties that the reason for the renunciation was that he wanted to buy the farms. Probate was granted to the other two executors who offered the farms for sale at a public auction. Victor was the successful bidder at the auction, and it was not in dispute that he paid a fair price. The plaintiff, who was one of the beneficiaries of the estate, sought to set aside the sale for breach of the self-dealing rule. He was successful at trial but not on appeal.
Important to the conclusion that the self-dealing rule did not apply was that Victor was not at the time of the sale acting as an executor. After setting out observations of Lord Eldon regarding the fiduciary principle which forms the basis for the self-dealing rule, Harman LJ said at 392: These are no doubt strong words, but it is to be observed that Lord Eldon was dealing with cases where the purchaser was at the time of sale acting for the vendors. In this case Victor was not so acting: his interference with the administration of the estate was of a minimal character and the last cheque he signed was in August before he executed the deed of renunciation. He took no part in the instructions for probate, nor in the valuations or fixing of the reserves. Everyone concerned knew of the renunciation and of the reason for it, namely, that he wished to be a purchaser. Equally, everyone, including the three firms of solicitors engaged, assumed that the renunciation was effective and entitled Victor to bid. I feel great doubt whether the admission made at the bar was correct, as did the judge, but assuming it was right, the acts were only technically acts of intermeddling and I find no case where the circumstances are parallel. Of course, I feel the force of the judge's reasoning that if Victor remained an executor he is within the rule, but in a case where the reasons behind the rule do not exist I do not feel bound to apply it. My reasons are that the beneficiaries never looked to Victor to protect their interests. They all knew he was in the market as purchaser; that the price paid was a good one and probably higher than anyone not a sitting tenant would give. Further, the first two defendants alone acted as executors and sellers: they alone could convey: they were not influenced by Victor in connection with the sales.
As noted by Vinelott J in Re Thompson's Settlement at 116, it is apparent from this passage that the critical factor in Holder was that Victor had not acted as executor in a way which could be taken to amount to an acceptance of a duty to act in the interests of the beneficiaries under the will. In contrast, in the present case the defendant was the sole administrator of the estate who was responsible for all the steps taken throughout the sale process. Hence, the reason for applying the self-dealing rule (that the administrator should not be in a position where her duty and interest potentially conflict) is present.
There were also observations by both Danckwerts LJ and Sachs LJ in Holder, at 398 and 402 respectively, suggesting that the rule that a trustee should not bid is a rule of practice and that the court has a discretion to sanction a sale in breach of the rule after the event. However, as pointed out by White J (as his Honour then was) in Calvo v Sweeney [2009] NSWSC 719 at [230]-[242], this does not amount to a power to sanction sale in breach of the self-dealing rule on the basis that the transaction is 'fair'. I agree, with respect, with White J's observations in those paragraphs: see also the criticism of Holder in Jacob's Law of Trusts in Australia at [17-44].
It has been accepted in a subsequent English case that, as a matter of principle, if the court has the power to approve in advance a transaction which would infringe the self-dealing rule (as it does), then it should also have the power to sanction such a transaction retrospectively, subject to addressing the same considerations which would have been relevant to a prospective sanction: Mills v Mills [2015] EWHC 1522 (Ch) at [43]-[51]. However, in that case Cooke J concluded that the court did not have the information needed to address the relevant considerations for a retrospective sanction of the transaction as it took place 22 years before the hearing.
If, which is not clear, the court does have power to sanction a transaction which is otherwise in breach of the self-dealing rule retrospectively, the court would need to be satisfied that the transaction did not place the trustee in a position of potential conflict of duty and interest, being the principle on which the self-dealing rule is based. I am not satisfied that this is so in the present case. The defendant did put herself in the position where her duty and her interest conflicted. She chose the agent, the marketing arrangements, the time and place of the auction and the reserve price. She decided the extent to which the dealings with the Council regarding the demolition control order would be disclosed to potential purchasers. While the contract included a special condition (clause 51) drawing to the attention of potential purchasers that the granny flat had been erected without the approval of the Council and there was a risk of a demolition order in respect of the granny flat, there is no evidence that the defendant disclosed to potential purchasers that a development application had been lodged seeking approval for use of the granny flat for dual occupancy. That was a matter within her special knowledge and was relevant to the value of the property (as indicated by the Urbane appraisal referred to above).
The defendant was aware that court approval could be obtained in advance of any auction (as indicated by the letter from her solicitors, Farrar Legal, referred to at [32] above) and there is no explanation for why that approval was not sought. It is likely that, if the application had been made in advance, the court would have granted approval but subject to conditions to ensure that the defendant had no control over the manner in which the property was marketed, the reserve price was set or the place and time of the auction. This reflects the court's reluctance to sanction a breach of the self-dealing rule referred to by Gibbs J in Union Trustee Co at [21].
The second matter is that Mr Tripolone is not a party to the proceedings. However, as his rights as registered proprietor of the Blacktown property are directly affected by an order to set aside the sale, it is necessary to stay the order to allow him the opportunity to be heard: John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [161]. Similarly, notice should also be given to the other beneficiary, Franco, to give him the opportunity to be heard on the proposed order, as his interest as a beneficiary of the estate is potentially affected, although the orders will be drafted to protect his interest by making the order setting aside the sale to Mr Tripolone conditional on the purchase price being greater than $1,581,000.

[17]

Relevant principles

Under s 66(a) of the Probate and Administration Act, the Court has power to revoke the grant of letters of administration at any time upon the application of a person interested in the estate. The principles to be applied are the same as those applicable in the case of an application to revoke a grant of probate, which were stated by the Court of Appeal in Bates v Messner (1967) 67 SR (NSW) 187 and Mavrideros v Mack (1998) 45 NSWLR 80; [1998] NSWCA 286 at 101 per Sheller JA (Priestley and Beazley JJA agreeing). In Bates, Sugerman JA said (at 189) that the correct approach was that stated by Jeune P in In the Goods of Loveday [1900] P 154 at 156: … the real object which the court must always keep in view is the due and proper administration of the estate and the interests of the parties beneficially entitled thereto; and I can see no good reason why the court should not take fresh action in regard to an estate where it is made clear that its previous grant has turned out abortive or inefficient. If the court has in certain circumstances made a grant in the belief and hope that the person appointed will properly and fully administer the estate, and if it turns out that the person so appointed will not or cannot administer, I do not see why the court should not revoke an inoperative grant and make a fresh grant.
Asprey JA said (at 191-192): … that the essential basis of the exercise of the court's inherent jurisdiction to revoke a grant of probate is that emphasised by Jeune P, namely, that the real object which the court must always keep in view is the due and proper administration of the estate in the interests of the parties beneficially entitled thereto on the part of the person to whom and by whose oath as to the faithful performance of his duties the court has been induced to entrust the office of executor… I shall make no attempt to define all circumstances which may attract the exercise of the court's jurisdiction, but where circumstances clearly appear to have arisen after a grant of probate which impel the court to the firm conclusion that the due and proper administration of an estate has either been put in jeopardy or has been prevented either by reason of acts or omissions on the part of the executor or by virtue of matters personal to him, for example, mental infirmity, ill health, or by virtue of the proof of other matters which establish that the executor is not a fit and proper person to carry out the duties which he has sworn to the court that he will perform, the court may exercise its inherent jurisdiction to revoke the grant.
In Mavrideros at 106, Sheller JA said that it is 'wrong to suggest that the court will not intervene to revoke the probate unless the executor's conduct amounts to something like paralysing the administration of the estate by misconduct' and then (at 108) his Honour said the correct approach (adapting the language of Asprey JA in Bates at 192), is to ask: whether the due and proper administration of an estate had either been put in jeopardy or had been prevented either by reasons of acts or omissions on the part of the executor or by virtue of matters personal to him, for example, mental infirmity, ill health, or by virtue of the proof of other matters which established that the executor was not a fit and proper person to carry out the duties he had sworn to perform.
I note that while Bates and Mavrideros concerned the revocation of grants of probate, they each adopted the principles stated by Jeune P in Loveday which concerned the revocation of a grant of administration of an intestate estate.
In light of the decisions in Bates and Mavrideros the question which arises in the present case is whether the due and proper administration of the estate has either been put in jeopardy or has been prevented by reason of acts or omissions on the part of the defendant.
In view of the manner in which the plaintiff has put his case, this question should be determined by reference to the four matters raised by the plaintiff being: (a) the intermingling of estate assets with personal assets of the defendant; (b) the failure to maintain accurate records, including failure to maintain records which would verify payments for proper and reasonable expenses of the estate; (c) the sale of the Blacktown property to the defendant's husband in breach of the self-dealing rule; and (d) the failure to lease the Blacktown property during the majority of the period it was held by the estate. I will address each in turn.

[18]

Intermingling of assets

A trustee (including an administrator of a deceased estate) has a duty not to mix trust funds with their own or other funds: Jacobs' Law of Trusts in Australia at [17-20].
As already noted, the defendant accepts that she intermingled estate funds with her own personal funds and that this was an error.
The first example of intermingling was that the defendant deposited to the Defendant's NAB account the amounts she received from leasing the granny flat in the period prior to the grant which occurred on 14 May 2018, totalling $11,850. Some six months later, on 16 November 2018, she opened the account with NAB referred to earlier as the Estate NAB account and transferred the closing balance of the Deceased's NAB Account ($43,260.37) to that account. A short time later, on 10 December 2018, she deposited the proceeds of sale of the Elantra motor vehicle to that account ($13,000). While this account was originally opened in her name and not renamed to state the capacity in which she held it until March 2019, I do not regard this as material. It is clear that it is the account which the defendant intended from the time of opening would be the bank account for the estate. The requirement for a trustee to avoid mixing trust money with other money is met if the trustee opens a bank account in his or her name and uses it only for holding trust money, regardless of whether the name of the account states the account holder's capacity. The more important question is whether the account was in fact only used to hold funds of the estate.
The bank statements for the Estate NAB account which are in evidence show the two credits referred to in the previous paragraph. They also disclose further cash deposits of $11,000 (on 22 January 2019) and $850 (on 26 April 2019). It is not in dispute that these deposits were made by the defendant to reflect the receipt of the rent of the granny flat prior to the grant, which had been deposited to the Defendant's NAB account (totalling $11,850). However, this clearly involved an intermingling of estate funds with the defendant's own personal funds.
The bank statements for the Estate NAB account also show the following transactions which are unexplained by the evidence: (a) a withdrawal of $40,000.05 September 2019; (b) two deposits in the amounts of $693,860.35 and a net amount of $1,281.18 on 24 March 2020 which were the repayment of principal and interest respectively of a term deposit in the joint names of the defendant and her husband, giving rise to a total credit of $696,141.53; (c) withdrawals of $10,008 and $50,000 on 25 March 2020; (d) a transfer of $25,000 to the Defendant's NAB account and another withdrawal of $200,030, both on 21 April 2020; (e) a withdrawal of $73,401.48 on 27 May 2020; (f) a withdrawal of $68,599.70 on 10 June 2020, described as 'maintenance repair'; (g) a withdrawal of $240,920 on 26 October 2021. The bank statements include beside these items a handwritten annotation prefixed by the letter 'C' followed by a number, but neither the evidence nor the parties' submissions explain what these annotations refer to.
In relation to the credit of $696,141.53 referred to in the previous paragraph, the defendant stated in her third affidavit that this amount was the proceeds from the sale of a property in Terrigal, NSW which she and her husband owned, so that there would be money available for the administration of the estate including the legal fees to defend the plaintiff's family provision claim, as the estate funds had been expended and the Blacktown property had not been sold. The plaintiff submits that this explanation cannot be accurate because she sold the property at Terrigal in 2011 for a purchase price of $542,000. I accept that submission. It is clear from the letter from NAB to the defendant and her husband dated 24 March 2020 (CB 1100) that the credit of $696,141.53 was the amount payable on the repayment of a six-month term deposit in their joint names. It is possible that the term deposit was sourced in part by the proceeds of sale of the property at Terrigal, although this explanation was not given. Even if that is the correct explanation, it is clear that there was an intermingling of the defendant's personal funds (and those of her husband) with estate funds through the deposit.
In relation to the withdrawal of $68,599.70 on 10 June 2020, the defendant states in her third affidavit that this payment was made as a reimbursement of expenses she had personally paid for up until that point in respect of the administration of the estate, including defending these proceedings on behalf of the estate. However, the evidence does not include any documentary evidence of the expenses forming part of that amount in order for this contention to be verified.
As noted above, it is not in dispute that the defendant did breach her duty not to intermingle estate assets with her own funds (or those of her husband). It is not possible on the evidence before the court to determine the extent to which this has occurred or determine the extent to which funds of the estate have been improperly dispersed. That is a matter which normally would be resolved by the taking of accounts of the administration of the estate.

[19]

Failure to maintain proper accounts and records

As noted earlier, an administrator of a deceased estate has a duty to keep proper accounts and records of the income and expenses of the estate: Law of Succession at [12.32]; Williams v Stephens (1986) 17 BPR 33,839 at 33,840.
In Williams, Young J explained that the duty of an executor or administrator in relation to accounts is as follows: As Kekewich J held in Re Watson (1904) 49 Sol Jo 54, the duty of an executor is threefold. First, he has a duty to keep accounts, secondly a duty to deliver accounts and thirdly a duty to vouch accounts but the considerations which apply to each of these three is not the same. The duty of a trustee to keep accounts is an essential duty, he must keep such accounts so as to be able to deliver a proper account within a reasonable time showing what he has received and paid. As to the duty of delivering accounts, different considerations apply. In the case of a very long account, the trustee may incur considerable expense, and he cannot be called upon to deliver accounts until his expenses have been guaranteed. As to the duty of vouching accounts, that cannot arise until after the accounts have been delivered.
There is a dispute between the parties as to whether the defendant kept accounts of what was received and paid in relation to the estate and whether she delivered them to the plaintiff when he asked for them. There is evidence that accounts, in the sense of bank statements and invoices and other records of expenditure, were provided on at least two occasions to the plaintiff. As I understood the plaintiff's submissions, his position was essentially that the records which were provided were inadequate and he maintains this position in relation to the entries in Schedule A and Schedule B where disputes in relation to the relevant items are raised.
Disputes of this kind in the administration of estates can be resolved by requiring the vouching of the accounts. Under s 85 of the Probate and Administration Act, the Court has power to require an executor or administrator to verify and file accounts, or to verify, file and pass accounts, in such manner as it may order. The 'passing' of accounts refers to the process of having the accounts approved by the Court, which is described by Hallen J in The Estate of Frances Kedesch Michell [2020] NSWSC 1300 at [99]-[137]. In relation to this power, Hallen J said in Everts v Liepens [2022] NSWSC 1021 at [63]: The Court's power to require an executor to file and pass accounts is an important part of the Court's armoury of powers in the administration of estates. The Court's ultimate purpose in doing so is to ensure that there is due and proper administration of the deceased's estate and that the interests of the parties beneficially entitled to it are ensured. In this regard, an executor has an obligation to provide a full and candid record of his or her stewardship, including all appropriate financial accounts.
The Court also has wide powers under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 54.3(2) to direct acts to be done in the administration of the estate and to determine questions arising in the administration of the estate: Stamoulos v Constantinidis [2017] NSWSC 1808 at [50]-[51].
In the present case there is a dispute between the administrator and a beneficiary regarding some of the expenses for which the administrator claims an entitlement to an indemnity from the estate. The dispute relates partly to whether the defendant has established that the relevant expenses relate to the estate and partly to whether the expenses are properly or reasonably incurred in the course of the administration of the estate.
An administrator (like an executor) is entitled at general law to an indemnity for expenses properly or reasonably incurred: Jacob's Law of Trusts in Australia at [21-07]. This includes expenditure incurred to improve the property of the estate: see Re Walder.
One approach to resolving this dispute would be to require the defendant to file and verify accounts. I am reluctant at this stage to take that approach because of the potential cost and expense involved and the potential for it to generate further opportunity for disputation between the parties. If a new administrator is appointed in place of the defendant, he or she can undertake the process of finalising the administration, including investigating whether the expenses claimed by the defendant are properly the subject of a claim for indemnity from the estate.
An interim measure is for the Court to address the outstanding areas of dispute between the parties over the claimed expenses and where the Court does not have sufficient evidence to be satisfied that the claimed expenses relate to the estate (and, if they do, whether they are proper or reasonable expenses of the estate) to require an affidavit from the defendant as to the facts necessary to establish those matters. I propose to adopt this course as it is consistent with the need for the cheap, just and quick resolution of the dispute on this issue. To assist in that regard, I will make the following observations on the different categories of disputed items in Schedule B.
First, there are expenses claimed in Schedule B which are objected to by the plaintiff on the basis that there is insufficient evidence that the relevant expense was for the benefit of the estate. In most, if not all, of these items, this objection is taken because the relevant invoice or other document relied on by the defendant does not clearly identify that the expense relates to the estate. This is a matter which would, if an order was made to file and verify accounts, be dealt with by an affidavit of the administrator. I propose to give the defendant the opportunity to provide that affidavit by the orders to be made.
Second, there are telephone, water and electricity accounts for the Blacktown property which are disputed by the plaintiff because it is said that if the Blacktown property was vacant prior to sale, the relevant expenses for these utilities would not have been incurred. The relevant amounts for each item are relatively small. In my view, it is not surprising that expenses of this kind in relatively small amounts were incurred prior to sale. There were periods in 2016 and 2017 when building work was being conducted at the Blacktown property which can be expected to have required utilities of this kind. There were periods when the granny flat was occupied by tenants which would have involved use of water and electricity by the property. There were periods in 2019 and 2021 when the property was marketed for sale or rent and during these periods some use of these utilities would have been necessary. Also, throughout the period prior to sale there were times when the defendant needed to be at the Blacktown property to check on it, and this potentially involved use of each of these utilities. In my view, each of these expense items was reasonably and properly incurred.
Third, there are items of expenditure incurred before the grant of administration in May 2018. The plaintiff says that these items were payments for unapproved capital works to the property prior to the grant of administration and for that reason were not reasonably or properly incurred. In my view, the payments made by the defendant for building work prior to the grant of administration which relate to the main residence of the Blacktown property were properly incurred as improvements to the property. As the defendant explained in the evidence, she undertook this expenditure following the advice she received from Mr Lucas of LJ Hooker Blacktown that it could be expected to improve the sale price of the property. I am satisfied, based on the evidence as to the nature of the work done referred to earlier, that this expenditure falls into the category identified by Mr Lucas.
In relation to the expenditure incurred by the defendant before grant of administration relating to the granny flat, these fall into two categories. First is expenditure on consultants' fees seeking to resolve the dispute with the Council regarding the demolition control order, including the application for a development consent. In my view this expenditure was reasonably and properly incurred because, on the evidence, it could have been expected that if the demolition control order was removed, or the development consent granted, this would improve the value of the Blacktown property. The evidence suggests that the estimated improvement in the value at the time was around $70,000. That it was an additional feature worthy of marketing to potential buyers (if a permitted use) is indicated by the marketing material used for the auction of the Blacktown property in November 2019.
The second category is the expenditure on making improvements to the granny flat. The evidence does not clearly indicate the amount of this expenditure (because the invoices do not clearly differentiate the building work for the granny flat compared to the main residence). However, the evidence indicates that the expenditure on improvements to the granny flat was incurred before the defendant was made aware that the granny flat was an unapproved dual occupancy, which was in around October or November 2019 when the plaintiff first raised it, not long before the first auction took place. It was not suggested that at the time the defendant incurred the expenditure on improvements to the granny flat she did not reasonably believe that it could be used as a dual occupancy, as the marketing material for the auction in November 2019 stated. In my view, in the circumstances, it was reasonable and proper for the administrator to incur the expenditure.
While all of this expenditure on the Blacktown property was made prior to the grant of administration, that of itself does not deny the defendant entitlement to an indemnity. Her title to the Blacktown property, as administrator, conferred by the grant of administration relates back to the death of the deceased.
Fourth, there are items relating to premiums paid by the defendant for home contents insurance for the Blacktown property which were initially based on an insured value for the home contents of $133,000, subsequently reduced to $100,000 in August 2019. The plaintiff points out the difficulty with these expense items in that the inventory states that the value of the deceased's household contents was only $1,000. No explanation has been given for why, if that was their true value, it was appropriate to insure the contents for $133,000 (or later, $100,000). Alternatively, if the true value of the home contents was the amount for which they were insured, then the defendant has given no explanation for what has come of those items. If they have been sold, then the sale proceeds should be brought in as an asset of the estate or, alternatively, if the defendant and her husband have acquired them following the sale of the Blacktown property, she needs to give an allowance to the other beneficiaries for those items, as a distribution of assets of the estate to her.
In my view, the defendant should be given an opportunity to put on an affidavit dealing with those expense items referred to above for which the evidence before the Court is insufficient to enable the determination of whether she is entitled to claim an indemnity in respect of that expenditure.
A further matter which needs to be attended to in order to finalise the administration of the estate is the lodgement of tax returns for the estate. In her evidence, the defendant acknowledged that no tax returns have been filed for the estate. Tax returns are required to return the income generated from the granny flat, and there is also a potential capital gain from the sale of the Blacktown property.
As noted earlier the defendant's accountant raised a capital gains tax (CGT) issue in relation to renting the Blacktown property during administration: see [36] above. The CGT issue is essentially that the estate will be taken to have acquired the Blacktown property at the deceased's death for a cost base equal to its market value on 23 March 2016. There would be a full exemption from CGT on a subsequent sale of the property regardless of whether the estate had rented it out if it was sold within two years of the deceased's death (or such longer period as the Commissioner of Taxation allows): ss 118-195 of the Income Tax Assessment Act 1997 (Cth) (Income Tax Assessment Act). As the sale of the Blacktown property will occur more than two years after the deceased's death, it will be necessary to obtain an extension of the two-year period from the Commissioner of Taxation. The use of the property for an income producing purpose within the two-year period would not affect the availability of the exemption, but the extent to which it has been used for an income producing purpose by renting it would be relevant to the exercise of the discretion to extend the two-year period: see PCG 2019/5, [17]. While the issue of renting the property is no longer relevant, it appears to be necessary for the administrator to apply to the Commissioner of Taxation seeking the favourable exercise of his discretion to extend the two-year period of the CGT exemption under ss 118-195 of the Income Tax Assessment Act. Otherwise there is a prospect that the estate will incur tax on a capital gain from the sale of the Blacktown property. The obtaining of advice regarding, and then making any necessary application for, an extension of time under ss 118-195 are matters which need to be attended to by the administrator urgently.

[22]

Conclusion on issue 3

In my view, for the reasons given above, the defendant has breached her duties as administrator in a number of significant ways, in particular intermingling her own assets (and those of her husband) with estate assets, and the breach of the self-dealing rule in relation to the main asset of the estate. The breach of the self-dealing rule occurred despite the defendant being aware (from the letter referred to at [32] above) that she would be able to bid for the Blacktown property if the prior approval of the court was obtained, but she did not follow that course. In all the circumstances, the due and proper administration of the estate has been put in jeopardy by the conduct of the defendant in these ways.
Various steps need to be taken to finalise the administration of the estate. In particular: (a) the Blacktown property will need to be placed on the market again for sale, subject to the outcome of any submissions which Mr Tripolone and Franco may wish to make pursuant to the leave which the court will give them; (b) tax returns will need to be lodged by the estate (none having been filed to date) and tax advice obtained regarding the CGT position on sale of the Blacktown property; and (c) the accounts of the estate will need to be finalised. In view of the animosity between the plaintiff and the defendant which makes it impossible for them to work together in a co-operative manner, it is necessary in my view that a new independent administrator be appointed to attend to these matters.
I note that the parties were not in agreement at the hearing that if a new administrator was to be appointed, who that person should be. While the plaintiff has put forward Mr McKinnon, he is not on the list of independent administrators maintained by the Law Society of New South Wales and there is no evidence before the court as to his expertise in relation to the administration of estates. Again, given the animosity between the parties, the preferable course is for one of the solicitors on that list to be appointed as the administrator in place of the defendant.

Turch v Tripolone

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Cases Cited (24)