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[2008] NSWSC 1427
Supreme Court of NSW
2008-12-16
Brereton J, Ms J, Mr J
Original judgment source is linked above.
CITATION : Wood v Inglis [2008] NSWSC 1427
HEARING DATE(S) : 16 December 2008 JURISDICTION : Equity Division
DECISION : Summons dismissed with costs
CATCHWORDS : SUCCESSION - executors and administrators - proceedings against executors and administrators - where Will provides for transfer of shares in trustee company to plaintiffs - where trust owes estate an undetermined sum - whether shares are held by executors as constructive trustees while other assets of estate remain held by the executors in their capacity as executors - where estate has not been fully administered - where plaintiffs have indicated that they will distribute trust assets if given control of trust company - where shares could be subject of potential (NSW) Family Provision Act 1984 application - whether Court should summarily order transfer of shares to plaintiffs
(NSW) Family Provision Act 1982 LEGISLATION CITED : (NSW) Trustee Act 1925, s 11 (NSW) Wills Probate and Administration Act 1898, s 84
Indyk v Wiernik [2006] NSWSC 868 Re Anderson (1953) 53 SR (NSW) 520 CASES CITED : Re Cowell (1895) 16 LR (NSW) B&P 51 Re Gannon (1915) 15 SR (NSW) 251 Re York (1894) 15 LR (NSW) B&P 24 Wood v Inglis [2008] NSWSC 1147
Pamela Ruth Wood (first plaintiff) PARTIES : Kathryn Margaret Clark (second plaintiff) Helen Margaret Inglis (defendant)
COUNSEL : Ms J A Needham SC (plaintiffs) Mr J E Thomson (defendant)
SOLICITORS : Wills & Estates Legal Service (plaintiffs) Michael C Smith (defendant)
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION
5774/08 Pamela Ruth Wood and anor v Helen Margaret Inglis JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiffs Mrs Pamela Ruth Wood and Ms Kathryn Margaret Clark are children of the first marriage of the deceased, Dr William Inglis, whose second wife and widow Mrs Helen Margaret Inglis is the defendant. Mrs Wood and Mrs Inglis are the executors of Dr Inglis' estate. Mrs Wood and Ms Clark seek an order pursuant to (NSW) Wills Probate and Administration Act 1898, s 84, for the transfer to them forthwith of four shares each of the eight shares that the deceased held in Inglis Research Pty Ltd, which is the trustee of a discretionary trust called the Inglis Research Trust. It is common ground that the shares in Inglis Research Pty Ltd have no commercial value. Their significance is that they carry with them control of the trustee company and thus of the trust, in circumstances where there is no appointor or custodian under the trust deed. 2 I do not accept that, apart from adoption of the procedure provided by the (NSW) Trustee Act 1925, s 11, an executor can become constructive trustee of specific estate assets to the exclusion of the other estate assets, while retaining executorial duties in relation to the remainder. Accordingly, I do not accept that it can be said that the shares are held by the executors, as constructive trustees and not as executors while other assets of the estate remain held by the executors in their capacity as executors. 3 The estate has not been fully administered - not least because a debt due from Inglis Research Pty Ltd as trustee of the Inglis Research Trust to the estate, the quantum of which is in dispute, remains unpaid.
4 In the present case, it is not in dispute that the estate is solvent and that the plaintiffs are entitled to have the shares transferred to them in due course. The question is whether, in circumstances that the estate has not been fully administered, the Court should, as a matter of discretion, order the transfer of the subject shares so as, in effect, to give the plaintiffs control of the trustee company and thus of the trust.
5 Section 84 provides a summary procedure for a legatee to obtain payment or transfer without being put to the expense, trouble and delay of a full administration suit [Re York (1894) 15 LR (NSW) B&P 24; Re Gannon (1915) 15 SR (NSW) 251]. Proceedings under s 84 are not to be used as a substitute for an administration suit and are available only where the matter is free from doubt [Re Cowell (1895) 16 LR (NSW) B&P 51; Re Anderson (1953) 53 SR (NSW) 520; Re Gannon], especially where what is sought is an interim distribution [Indyk v Wiernik [2006] NSWSC 868, [22]-[24]]. 6 Whereas in many cases a controller will rely on the power to appoint and remove the trustee as a means of controlling a trust, in this case the deceased relied on his holding eight out of the ten issued shares in the trustee company to exercise control. By his Will, he plainly intended that in due course the control he exercised during his lifetime pass to the plaintiffs, but "in due course" does not exclude due administration. During the administration of the estate - while the assets are got in and realised, the liabilities paid and the surplus distributed - the executors would, in the ordinary course, succeed to the shareholding, and thus have control of the trust. Importantly, that would enable the executors to prevent the trustee from taking actions inimical to the interests of the estate, until the estate is fully administered. 7 Consequent upon the deceased's death, by means which are not fully covered in the evidence before me, the plaintiffs procured that they became registered as shareholders of the deceased's shares in Inglis Research. Subsequently that company, as trustee of the trust, adopted a resolution to distribute about $2 million of its assets amongst the four children of the deceased's first marriage, apparently inconsistently with a Memorandum of Wishes in which the deceased had expressed a wish that the assets be distributed amongst those four children, and a fifth child (of his second marriage). 8 Barrett J has since held that the registration of the plaintiffs as shareholders and subsequent acts of the directors were invalid [Wood v Inglis [2008] NSWSC 1147]. The order presently sought by the plaintiffs for transfer of the shares to them would restore the position which prevailed immediately prior to Barrett J's decision - that is, that the plaintiffs would once again be the shareholders in Inglis Research, and thus have control of the trust. The plaintiffs have frankly indicated to the Court that if the order they seek is made, they will then exercise their powers as shareholders, either directly, or indirectly through the directors that they would appoint to ratify the earlier resolution of the trustee to distribute assets among the four children of the first marriage. 9 The defendant objects that this is inimical to the position of the estate because it could facilitate a transaction by which assets to the order of $2 million will be removed from the trust - which may jeopardise the trust's ability to pay the debt which it owes to the estate, depending on the amount at which that debt is subsequently qualified. At the very least, the defendant says that it will place an additional hurdle in the way of the estate's ability to recover that debt, in circumstances where to this point there has been no legal distribution of the trust assets. That submission is correct: the transfer of the shares will enable the plaintiffs, as they have indicated that they wish to do, to ratify the previous resolution and thus procure a distribution of trust assets to them which may reduce the trust's ability to satisfy its obligations to the estate. That would not merely maintain the status quo, but alter it in a manner detrimental to the interests of the estate. 10 By a cross-claim brought in related proceedings, Mrs Inglis claims relief to the effect that Inglis Research pay to the estate the debt which she asserts is due, and indemnities in that respect from the beneficiaries of the trust to whom distributions have been made. On basic principles, the trustee company is personally liable to the estate for the amount of the debt, but is entitled to be indemnified out of the trust assets. A creditor of the trustee is entitled to be subrogated to the trustee's right of indemnity against the trust assets and, at least arguably, where there has been a distribution of those assets, to trace those assets into the hands of the beneficiaries. On that basis, it is at least arguable that the estate has a claim against the beneficiaries to whom distributions have purportedly been made, including the two present plaintiffs. If that is so, then it is also at least arguable that the estate has a right to retain assets otherwise distributable to those beneficiaries as security for the obligations of the beneficiaries to make good the estate. 11 A further matter raised by Mrs Inglis is that two children of the deceased -one of the children of the first marriage, and the child of the second marriage - have foreshadowed the claims under (NSW) Family Provision Act 1982 for provision out of the estate. Whether such claims will ever be brought cannot be known at this stage. The time within which they must be brought does not expire until April next year, 2009. There are, however, a number of ways in which such an application might affect the shares the subject of the present application. The Court might conclude that the assets of the trust were notional estate of the deceased, in which case a designating order might be made in respect of some or all of the assets of the trust. More significantly for present purposes, however, it is at least theoretically possible that the shares the subject of this application could themselves be used to satisfy the Family Provision Act claim. It is beside the point that they have no commercial value: coupled with the interest of a potential beneficiary in the discretionary trust, they give the person who holds them the ability, directly or indirectly, to bring about trust distributions in favour of that person. Thus, if in lieu of the current provisions of the Will five shares were given to one of the potential claimants (who already holds one share) he would have control of the trust and be able to bring about distributions in his favour in that way. Although it is only a possibility, it can thus be seen that, theoretically at least, the shares the subject of this application could be used to satisfy a Family Provision Act claim by being given in whole or in part to one of the potential claimants, as well as, or in lieu of, to the two children to whom they are presently given. 12 Accordingly, I do not think the present case is sufficiently clear-cut to justify resort to relief under s 84. Moreover, there is going to have to be an administration suit of sorts in any event, to ascertain the quantum of the debt due from Inglis Research to the estate, and to work out the payment of legacies (which provoked the institution of the related proceedings). While there is potential detriment to the estate from making the order sought, in the way that I have outlined, there is no apparent pressing need for the affairs of the trustee company to be resolved on an urgent basis. It is not necessary that the company be put in a position to contradict Mrs Inglis' claims. There are plenty of persons in a position to contradict those claims. It is not necessary that its affairs be put in order to comply with any order of the Court: even though the directors may be at loggerheads, if an order of the Court is made, then as officers of the company the directors will be bound to comply with an order of the Court, subject to the usual sanctions for non-compliance. 13 The only real perceptible urgency is that, as 30 June approaches, it might become necessary for the trustee to make some determination so far as distribution of income for the year is concerned. If that happens without the other issues in the proceedings being first resolved, some interim measures can then be put in place. 14 For those reasons, in my view it is inappropriate to make an order under s 84. 15 I order that the summons be dismissed with costs. **********
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Wood
Inglis