Application of J & K

[2009] NSWSC 1453

CITATION:	Application of J & K [2009] NSWSC 1453
HEARING DATE(S):	30/11/09
JUDGMENT DATE :	2 December 2009
JURISDICTION:	Equity
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	2 December 2009
DECISION:	Counsel for the parties to bring in short minutes of order in accordance with reasons.
CATCHWORDS:	MENTAL HEALTH - management and administration of property – application for removal of NSW Trustee and Guardian as manager of estate of managed person and appointment instead of managed person’s father and sister – in best interests of managed person that his father and sister be entrusted with management of his estate
LEGISLATION CITED:	Protected Estates Act 1983 (NSW) NSW Trustee and Guardian Act 2009 (NSW) Interpretation Act 1987 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	MB v Protective Commissioner [2000] NSWSC 717; 50 NSWLR 24 Holt v Protective Commissioner (1993) 31 NSWLR 227 Re L [2000] NSWSC 721
PARTIES:	Application of J & K
FILE NUMBER(S):	SC P44/96
COUNSEL:	Applicants: L Ellison SC with J Velosky Respondent: J Trebeck
SOLICITORS:	Applicants: Marsdens Law Group Respondent: NSW Trustee and Guardian

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
PROTECTIVE LIST

WHITE J

Wednesday, 2 December 2009

P44/96 Application of J & K

JUDGMENT

1 HIS HONOUR: This is an application for the removal of the New South Wales Trustee and Guardian (“New South Wales Trustee”) as manager of the estate of a managed person (whom I will call “G”), and for the appointment of G's father and one of his sisters in its place. The New South Wales Trustee neither consents to nor opposes the application, but puts forward various matters material to it.

2 On 11 March 1989 G, then aged 29, was severely injured in a car accident. His injuries included injuries to his brain. He remains incapable of managing his estate. On 12 July 1996 the Protective Commissioner was appointed receiver and manager of G's estate until further order. On 19 November 1996 the Protective Commissioner received for G an amount of about $3,091,000 pursuant to a damages award or settlement.

3 On 24 June 1999 the appointment of the Protective Commissioner as receiver and manager of G's estate was terminated. An order was then made pursuant to s 13 of the Protected Estates Act 1983 (NSW) that G's estate be subject to management under that Act. An order was made pursuant to s 22 that the management of his estate was committed to the Protective Commissioner.

4 No issue is raised as to the power of the court to remove the New South Wales Trustee as manager of G's estate and to appoint the applicants in its stead. (See s 41(2) of the NSW Trustee and Guardian Act 2009 (NSW); s 47(1)(b) of the Interpretation Act 1987 (NSW); and MB v Protective Commissioner [2000] NSWSC 717; 50 NSWLR 24.) The power is to be exercised according to what the court perceives to be the best interests of G having regard to the general principles in s 39 of the NSW Trustee and Guardian Act. The welfare and interest of G is the paramount consideration. Also relevant to this case are the matters in s 39(d), (e), (f) and (g).

5 It is not necessary for the applicants to establish that the Protective Commissioner (now the NSW Trustee) has misconducted itself or has not acted competently in the management of the estate. (See Holt v Protective Commissioner (1993) 31 NSWLR 227 at 237-238.) No such charge is made against the NSW Trustee. In exercising the discretion in what I perceive to be the best interests of G, I bear in mind the considerations outlined by Kirby P in Holt v Protective Commissioner at 241-243.

6 G is of Indian descent and currently lives with his parents. His mother was also seriously injured in the accident and his father cares for them both. G was married at the time of the accident, but he and his wife separated in 1990 and were later divorced. In 2007 he remarried in India.

7 The applicant's father, (whom I will call “K”), is 75. G has various siblings. One of them is his sister, J, the other applicant. She is 44. K is an experienced businessman. He owned a profitable timber business and other businesses in India through which he was able to educate all of his children to tertiary level. J is a high school teacher. She teaches mathematics.

8 By at least 2001 or earlier the position was reached that G did not need carers from outside the family. His family, in particular his father, has provided unpaid care for him. That position is expected to continue.

9 At the suggestion of K, the Office of the Protective Commissioner purchased land at Denham Court for G for the purpose of building a large and purpose-built house. That house has now been built. In November 2008 G and his parents moved into it.

10 At the time of the accident G was the registered proprietor of a property at Glenfield on which a house was built. J deposes that in 1986 the "family" purchased the block of land at Glenfield and later constructed a house on the property. She says that the property was purchased in the name of G as he was then the only family member in employment and the bank would only lend to someone employed. She deposes that the balance of the funds was provided by K, and the family contributed to the mortgage payments until 1996 when the balance of the mortgage, (she says of about $23,708), was discharged by the Protective Commissioner from G's compensation money. This evidence is corroborated in general terms by K and by G. K regards the Glenfield property as belonging to the family, but not to any single member of it.

11 A question is raised on this application as to what should happen to the Glenfield property. In 2006 the Protective Commissioner provided a report to the court that recommended that up to $1.3 million be spent on the construction of the residence at the Denham Court property, but that amount was recommended only on the basis that the Glenfield property be sold. The stated reason for that recommendation was that the estimated rental yield for the property was likely to be only 1.28 percent per annum, or $3,308 after rates, land tax (estimated to be $5,200 per annum), and maintenance (estimated to be $5,000 per annum).

12 A financial planner from the Office of the Protective Commissioner recommended that the proceeds of sale be used to acquire Australian and international shares. On 13 June 2006 the court approved the recommendation that the Protective Commissioner use the amount of up to $1.3 million for the construction of the residence at Denham Court, including all plans, construction, landscaping, pool, furniture and contingencies, on the basis that the property at Glenfield be sold.

13 The applicants seek a variation of that order by removing the requirement that the property be sold.

14 The estate is reasonably substantial. G's assets currently comprise the following. First, there is the Denham Court property which is valued at about $1.2 million, although its cost, including the cost of construction, is in the vicinity of $2 million. Next there is the Glenfield property to which the NSW Trustee attributes a value of $320,000. Other members of G's family claim to be beneficially entitled to up to two thirds of that property. There is also a little in excess of $440,000 invested in superannuation. There is cash in a trust account of a little over $119,000, and investment funds of about $1,225,000.

15 Those funds are currently invested in the proportion of about 30 percent in cash, bonds and fixed interest, and 70 percent in Australian and international shares. The total value of the investment portfolio has declined by about $810,000 since November 2008, no doubt due to payments towards construction costs. The current allocation of the investment portfolio includes no exposure to the property sector.

16 In the year to 30 June 2008, G derived a gross income from interest, distribution from trusts, capital gains and foreign source income of $165,500. He had deductions of $65,860, including a $50,000 personal superannuation contribution. After that contribution his income after tax, but allowing for franking credits, was about $90,000. Until February 2008 G was paid $1,000 per week. From that time his "allowance" has been increased to $1,500 per week or $78,000 per year. From that he pays all the outgoings for his house and provides food and groceries. This benefits his parents, but his father provides him with daily care without charge.

17 Thus the estate is a reasonably substantial one.

18 Whilst K is an experienced businessman, neither he nor J themselves have qualifications for investing. Nor do they have the qualifications or experience of the NSW Trustee. But they have sought and obtained the advice of a financial planner, a Mr Nonnenmacher, who has 28 years’ experience in that area. He or his firm have been recognised by the financial services industry by being nominated as a finalist in the Financial Planner of the Year Award in six of the last eight years.

19 Mr Nonnenmacher provided a detailed advice to J and his family on the management of the estate. His advice included the transfer of the investments and superannuation to investment and superannuation funds administered by the company or firm under the name Portfolio Care. That is the name of an administration service that provides access to a wide range of managed investment funds.

20 Mr Nonnenmacher's key recommendations were to change the proportion of growth and cash assets to 30 percent growth assets and 70 percent cash compared with the existing allocation of approximately 30 percent cash and 70 percent growth assets. He also recommended that G make a non-concessional superannuation contribution of $450,000 to a Portfolio Care Superannuation Fund into which the existing superannuation would also be rolled over. That fund would be invested in a mix of cash and growth assets, weighted to 70 percent cash and fixed interest, and would be used to provide a pension estimated at the time of the report to about $65,000 per annum. This would be possible, notwithstanding that G is not yet 60, if he is permanently disabled, which he would appear to be.

21 This course would provide considerable tax advantages, both in relation to income tax and capital gains tax.

22 Mr Nonnenmacher has the appropriate expertise and probity. He provides an outline plan as to how a secure income for G would be obtained in the long term, both by taking legitimate advantage of the taxation benefits of superannuation and by addressing likely growth rates for the projected classes of investment assets. His approach is not a "complicated scheme" to minimise tax (compare Re L [2000] NSWSC 721). Nor is the contrary suggested.

23 It is entirely proper that a financial planner consider the taxation implications of different modes of investment. Indeed, on 11 September 2007 a financial planner with the Office of the Protective Commissioner recommended that G commence to draw an allocated pension, albeit in an amount of $19,000, reflecting the then lower level of superannuation investments available to be applied for that purpose. To qualify for such a pension a medical certificate from G's doctor certifying his permanent disability is required. It appears that the appropriate form was sent to G's family prior to 5 March 2009 and again on that date, but is yet to be completed.

24 With that background, I address the principal matters which appear to me to be relevant to determining whether it is in G's best interest to change financial managers. They are:

first, the inherent advantages in a managed person's estate being managed by family members with appropriate advice or expertise rather than by a statutory body;

secondly, whether the applicants are fit, proper and competent persons to be appointed;

thirdly, conflicts which have developed between the Office of the NSW Trustee and members of G's family;

fourthly, whether the applicants have conflicts of interest which preclude or militate against their appointment;

fifthly, whether the proposed more conservative investment strategy is in G's best long-term interests;

sixthly, the higher level of charges involved in the retention of the services of a financial planner such as Mr Nonnemacher; and

seventhly, other advantages to G from the involvement of his family as managers of his estate.

25 As to the first matter, in Holt v the Protective Commissioner, Kirby P (as his Honour then was), with whom Sheller JA and Windeyer AJA agreed, identified the advantages to a protected person of having a family member appointed as manager of his estate as including:

“ (b) to the appointment of a family member, the following advantages:
...
(ii) the capacity of the protected person, if disabled, to interact with his or her manager so that, so far as possible, within the disability which has led to the appointment, such person may remain in charge of, or at least able to influence, the broad directions of the management of the estate;
(iii) the ingredient of love and affection and unquestioning devotion to the protected person which an appropriate family member can add to the task of management. Whilst the office of manager is, by its definition, concerned with proprietary and financial matters and involves the prudent control of the property and like interests of the protected person, in the nature of things the manager of the estate of a protected person is more likely than a general trustee or receiver to become involved in decisions which affect the protected person's quality of life. A lifetime knowledge of the person and a devotion to his or her interest may contribute to that quality. It may more readily be secured by the appointment as manager of a family member with the requisite knowledge and motivation. ”

26 His Honour also said (at 239) that it was in the normal and natural order of things where a family member is found incapable of managing his or her own affairs that other members of the family step in.

27 It is relevant in this case that members of the family did not seek to manage G's estate at the time he was to receive the compensation for his accident. Rather K and G's oldest brother and sister at that time requested that the Office of the Protective Commissioner be appointed as manager. At that time K was emotionally upset by the injuries to his wife and son. He was in the process of selling his business in India and did not feel able to cope with managing G's money. With the passage of time he is now confident of his ability to do so.

28 As to the second matter, there are testimonials to the integrity, prudence and frugality of both applicants. Whilst neither deposes to expertise in managing the substantial sums involved, I accept that with appropriate advice, and having regard to their education and to K’s business experience, they are competent for the task.

29 K is 75. Despite his injuries, G has the normal life expectancy of a 50-year-old man. Assuming nothing untoward happens to G, it is likely that K will die or become incapacitated before G dies. In that event it is likely that another person should be appointed jointly with J as manager. But those eventualities are no reason for refusing K’s appointment at this time.

30 As to the third matter, apart from the natural advantages arising from the appointment of a family member, I think there is an additional reason for such an appointment in this case. There have been conflicts between the NSW Trustee, (or the Office of the Protective Commissioner as it was), and G's family in relation to the construction of the Denham Court home. It is unnecessary to go too far into the details, and it is not possible to say where the rights and wrongs of the dispute lie. I will mention some of the details because they are relevant to a later matter.

31 G's family alleged that an adviser to the Protective Commissioner allowed the builder to charge an excessive price by letting it be known how much money the court had authorised be spent on the construction of the Denham Court property. They also alleged that the adviser encouraged the builder to quote a higher price and held out to the family that that price was needed for the necessary insurance to be obtained. The family says, and there is some objective support for this, that they were told to negotiate with the builder, and did negotiate with the builder, for a refund of part of the purchase price. They say that they were repaid $32,000 by the builder, who had agreed to repay a further $68,000, but has not done so.

32 The disputes over the cost of construction have been a lingering sore. I think the fact of the dispute is a matter in favour of terminating the existing management, irrespective of whether the Protective Commissioner or its adviser was at fault in any way. The dispute, not only in relation to that matter, but in relation to the choice of builders, also tends to corroborate other evidence of the applicants’ care over expenditure.

33 As to the fourth matter, three potential conflicts of interest are identified. The most obvious is the claim by members of G's family to be entitled beneficially to up to two-thirds of the ownership of the Glenfield property. The merits of that claim cannot presently be determined. There is no doubt that the claim is genuinely raised. Whilst the Glenfield property remains unsold, there is no crystallised dispute. The applicants depose that all the family members are content that the property be let and that all of the net rentals be credited to G. The applicants are willing to consent to a direction to that effect until further order. G and his family wish to keep the house in the family. Unless the house should be sold, the conflict of interest is managed, so long as all of the net income from the property is applied for G's benefit.

34 On 13 June 2006 the court adopted the report of the proposal of the Protective Commissioner that up to $1.3 million could be used for the construction of the residence at Denham Court on the basis that the Glenfield property be sold. The applicants seek a discharge of the order directing or authorising the sale of that property. No reasons were given for that order and I infer that it was based on the matters raised in the report of officers of the Protective Commissioner.

35 As noted earlier, the reasons of a financial planner from that office for proposing the sale of that property included a projected low income yield from the property of a mere $3,308 per annum, or a yield of 1.28 percent per annum based on the property's then estimated value of $258,000. That estimate appears excessively low. It was based upon projected expenditure of $5,000 per annum on maintenance of the property; and this for a projected gross rental of $15,600. The projection also included as an expense for land tax an amount of $5,200 per annum, although in 2006 the land tax threshold was land value of $352,000. No reasons were given for these apparent anomalies. By contrast, Mr Nonnemacher projects an initial net rental income of $17,680 per annum.

36 The report of the financial planner from the Office of the Protective Commissioner dated 29 March 2006 opined that there was a, "reduced likelihood of strong capital growth in the short-term". As I have said, the Protective Commissioner then estimated the value of the property at $258,000. It is now estimated to be worth $320,000. No reason is advanced for thinking that the value of the Glenfield property would not vary in accordance with market conditions in the area.

37 If the Glenfield property were sold there is the potential that the dispute as to ownership would be triggered. That is not in G's interests. He accepts that he is not the full beneficial owner of the property, but his evidence if the matter came to litigation, might carry little weight. Nonetheless, there is at least a serious prospect that it might be found that payments made by other family members towards the purchase of the property were not gifts and that the property was held by G on a resulting trust as to part for other family members. Such a result would mean that G would not receive all of the proceeds of sale as the report of the Protective Commissioner assumed. No doubt substantial moneys would be spent on legal costs if a negotiated settlement could not be arrived at.

38 These considerations seriously diminish the perceived advantage of sale, namely, that all of the proceeds could be applied to diversify G's investment exposure. If the management of the estate is changed there will in any event be a reallocation of assets, with a higher proportion of G's assets being invested in cash and fixed interest securities. I do not consider that the interests of diversification of the portfolio outweigh the risk that a sale would precipitate claims by other family members to the property, that such claims might succeed, and that in any event the proceeds of sale would be substantially eroded by the costs of such a dispute. It is preferable that G receive the net income of the property.

39 It follows that this undoubted conflict of interest arising from the claims of the applicants and other family members to a beneficial interest in the Glenfield property can be managed by the applicants’ undertaking, or being directed, to credit all of the net rental income to G.

40 Another suggested potential source of conflict was the receipt I earlier noted of $32,000 from the builder. However, it appears that these moneys have been duly credited to G's bank account. I do not consider that there is any conflict in relation to these moneys.

41 The final identified potential conflict concerns debts claimed against G. Mr Keogh, a Client Service Officer with the NSW Trustee, referred to a letter written by K in February 1997 setting out debts claimed against G's estate. Some related to moneys claimed to have been paid for the purchase of the Glenfield property and the construction of the house on it. Others related to various miscellaneous expenses including medical reports. Mr Keogh deposes that none of the claimed debts has been paid. This does not suggest any conflict.

42 Leaving aside the claims in respect of moneys spent on the Glenfield property, which I have already dealt with, it appears that the claims for other expenditure have not been pressed. There is nothing to suggest that those claims were not genuine. The claims would be long since statute-barred.

43 More recently, in September this year, G wrote to the NSW Trustee stating that he needed to pay his sister for various expenditure in connection with the Denham Court property and needed to pay his father for tiles, garden lights and other expenditure in relation to that property. Provided that there are receipts for those expenditures, there appears to be no reason why the money should not be reimbursed. I do not regard these matters as giving rise to conflict, provided K and J acknowledge that moneys of the estate would only be applied in reimbursement of such expenses on production of receipts.

44 As to the fifth matter, it is not possible to say that the investment strategy propounded by the NSW Trustee's financial planners involving a higher concentration of growth assets, and concomitant higher risk of loss, is to be preferred to Mr Nonnenmacher's more conservative strategy. G's income tax returns for 2008 show there is ample income to meet his current needs and to provide capital appreciation by investment in superannuation. A more conservative investment philosophy with a lower risk of capital loss does not appear to me to be contrary to G's interests.

45 As to the sixth matter, although the applicants will not charge for their services, they propose to use the services of Mr Nonnenmacher. After taking into account the charges that would in any event be due to the NSW Trustee under clause 38(1)(c) of the NSW Trustee and Guardian Regulation, it was common ground that the recurrent additional cost of using Mr Nonnenmacher's (or his firm's) services, over the charges of the NSW Trustee, was approximately $12,000 per annum. I do not consider this to be an excessive charge for the additional services that would be provided.

46 Finally, and importantly, it is G's wish that the management of his estate be transferred to his father and sister. The medical evidence is clear that he is incapable of making the necessary decisions to manage his estate for himself. His intellectual capacity remains severely impaired. But that is not to say that he has no understanding of, and no interest in, the management of his own estate. To the contrary, he reads the financial and other press and has an interest in his own affairs. He will have a greater opportunity to be involved in the management of his affairs than he does presently, if his father and sister are the managers of his estate. That will be of benefit to him. I do not think that his father and sister will allow their own judgment to be compromised because G will have greater scope to have an input to the management of his affairs.

47 Finally, there is a question as to whether G might be exploited if there is a change of management. The evidence is that K and J have devoted and continue to devote considerable time and care towards G. They have done so without reward. I do not think that there is any risk of such exploitation.

48 For these reasons I consider it in G's best interests that his father and sister be entrusted with the management of his estate. I will also discharge the order of 13 June 2006 insofar as it might require the sale of the Glenfield property.

49 In coming to these conclusions, I have regard to the undertakings proffered by K and J that the net income of the Glenfield property will be applied solely for the benefit of G until further order, that they will provide annual accounts to the NSW Trustee, and that, except in order to reallocate assets in accordance with the advice of Mr Nonnenmacher, they will not enter into any transaction involving the disposition of an asset worth more than $50,000 without notice to the NSW Trustee.

50 There should also be a direction that if either applicant dies or becomes incapacitated, the other applicant is to apply to the court for directions with respect to the management of G's estate on notice to the NSW Trustee.

51 Once an order is made for the appointment of private managers, the NSW Trustee has power under ss 65 and 66 of the NSW Trustee and Guardian Act to make orders and to give directions which it thinks desirable for the care and management of G's estate. Counsel invited me to stand the matter down, if I thought that the orders sought in the notice of motion should be made, in order for the parties to consider what further orders, directions or undertakings should be made or provided.

52 I will do that. This will give the NSW Trustee the opportunity of putting before me what orders or directions it would, in any event, propose under ss 65 and 66 of the Act. That will be relevant to what additional orders need be made.

53 I will, therefore, stand the matter over to a convenient time to allow short minutes to be brought in. For the reasons I have given, I propose to make orders to the effect of those sought in the amended notice of motion. The costs of the application of both parties will be paid out of G's estate.

54 I stand the matter over to 9.30am on 11 December 2009.

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