Atkins v Godfrey
[2006] WASC 83
•17 MAY 2006
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: PETER HENRY ATKINS as Executor of the Estate of ROBERT CHARLES GODFREY -v- GODFREY & ORS [2006] WASC 83
CORAM: LE MIERE J
HEARD: 31 OCTOBER 2005
DELIVERED : 17 MAY 2006
FILE NO/S: CIV 2361 of 2004
MATTER :The Estate of Robert Charles Godfrey (Dec)
BETWEEN: PETER HENRY ATKINS as Executor of the Estate of ROBERT CHARLES GODFREY
Plaintiff
AND
KIRKE HILTON GODFREY
First DefendantEZZIE JANE SMITH
Second DefendantANNE GODFREY WEBER
Third Defendant
Catchwords:
Succession - Wills and estates - Executor's commission - Whether executor entitled to commission - Grounds for refusal of commission - Whether breach of fiduciary duty - Failure to exercise proper scrutiny over estate's legal fees to reduce but not disentitle commission - Quantum of commission - Application of Barr Smith scale - Turns on own facts
Legislation:
Inheritance (Family and Dependants Provision) Act 1972 (WA)
Trustees Act 1962 (WA), s 6, s 98
Result:
Commission allowed
Category: B
Representation:
Counsel:
Plaintiff: Mr P W Nichols
First Defendant : Mr J C Curthoys
Second Defendant : Ms W F Buckley
Third Defendant : Ms W F Buckley
Solicitors:
Plaintiff: Butcher Paull & Calder
First Defendant : Merle Bloch
Second Defendant : Anderson Kershaw
Third Defendant : Anderson Kershaw
Case(s) referred to in judgment(s):
Chan v Zacharia (1984) 154 CLR 178
Crout v Beissel [1909] VLR 207
Grunden v Nissen [1911] VLR 97
In Re Barr Smith [1920] SALR 380
In Re Darling [1925] SASR 262
In the Will of Greer (1911) 11 SR (NSW) 21
In the Will of Jenkins (1904) 4 SR (NSW) 625
In the Will of Sherringham (1901) 1 SR (NSW) (B&P) 48
In the Will of Wallace (1934) NSWWN 84
McClenaghan v Perkins (23) CLT 84
Nissen v Grunden (1912) 14 CLR 297
Re Chirnside [1956] VLR 295
Speight v Gaunt (1883) 9 App Cas 1
Case(s) also cited:
In Re Morish [1939] SASR 305
In Re Whitehead [1958] VR 143
In the Estate of Sargood (1878) 4 VLR (IP & M) 43
Kemp v Burn (1863) 66 ER 740
Patterson v Halliday [2003] VSC 298
Re The Will of Stratton [1981] WAR 58
Re Whitehouse [1982] Qd R 196
Spence v Spence [2003] NSWSC 1232
Wheeler v Hegarty, unreported; SCt of WA (Ng M); Library No 940437; 19 August 1994
LE MIERE J: Robert Charles Godfrey ("Dr Godfrey") died on 10 June 2000. By his Will, Dr Godfrey appointed the plaintiff, an old friend, executor and trustee. Probate of the Will was granted to the plaintiff on 14 September 2000.
The estate included three city properties, furniture and household effects, a share portfolio, two life insurance policies, a motor vehicle and money in a bank account. The statement of assets and liabilities filed by the plaintiff with the probate application stated that the gross value of the estate was $3,125,271. There were debts of $20,019.
By his Will Dr Godfrey gave a legacy of $25,000 to Joy Gepp and gave the rest of his estate to be divided equally between his three children who are the defendants in this action. The plaintiff is a retired solicitor. The Will contains a charging clause, that is a clause providing that the plaintiff is entitled to be paid all the usual professional fees for work done (as executor or trustee or both) by him or his firm on the same basis as if he were not executor but employed to act on behalf of the executor.
The plaintiff proceeded to gather in the assets and pay the debts of the estate. On 13 March 2001 Ms Gepp commenced proceedings in this Court under the Inheritance (Family and Dependants Provision) Act 1972 ("the Inheritance Act") claiming that adequate provision had not been made for her from the estate. Ms Gepp is described in one of the affidavits filed in this action as the alleged de facto wife of the deceased. There were negotiations to settle the Inheritance Act claim and the claim was settled by consent and orders were made in this Court on 10 December 2001. By June 2002 most of the assets of the estate had been distributed.
The plaintiff engaged two firms of solicitors to assist him in administering the estate and to represent him as executor in the Inheritance Act action by Ms Gepp. He first engaged Atkins Downie and later Butcher Paull & Calder. The plaintiff caused each of those firms to instruct his son, Digby Atkins ("Digby"), a barrister and solicitor, to act as counsel.
The plaintiff caused an accountant to prepare the estate's accounts. On 24 December 2002 the plaintiff's solicitor, Butcher Paull & Calder, forwarded a copy of the accounts to the solicitor for the first and second defendants. Butcher Paull & Calder referred to some further payments made by the plaintiff and a further amount received and stated that when all of the expenses had been agreed and the amount held by the plaintiff as executor could be stated exactly, the plaintiff would distribute the net amount held by him between the three beneficiaries. The accounts disclosed that the plaintiff, as executor of the estate, had paid $38,748.43 in legal fees in relation to the Inheritance Act action and the administration of the estate.
On 30 January 2003 the solicitor for the first and second defendant replied to the plaintiff's solicitor's letter of 24 December 2002. Through their solicitor the defendants expressed concern that the legal fees that the estate had paid were excessive and unreasonable. In particular, the defendants' solicitor referred to an account of Digby. The defendants' solicitor requested an itemised account. The defendants' solicitor also asked that the plaintiff advise the quantum of commission he claimed to be entitled to for the administration of the estate. After Butcher Paull & Calder initially refused to do so, Butcher Paull & Calder, Atkins Downie and Digby provided itemised accounts.
On 30 April 2003 the plaintiff's solicitors were requested to tax their costs. On 16 July 2003 Butcher Paull & Calder lodged their bills of costs for taxation. Atkins Downie lodged their bills for taxation on 30 October 2003. The bills of costs were taxed in this Court on 17 February 2004 and allowed in the total of $23,111.25, that is $15,637.18 less than the legal fees paid by the plaintiff as executor of the estate to Atkins Downie, Digby and Butcher Paull & Calder.
On 15 March 2004 the solicitor for the first and second defendants, Merle Bloch, wrote to the plaintiff's solicitors, Butcher Paull & Calder, requesting, with the authority of the third defendant, that the funds paid by the plaintiff in excess of the taxed costs be paid to Merle Bloch. Butcher Paull & Calder responded that any funds to be reimbursed to the estate would be paid directly to the executor.
On 23 June 2004 the first and second defendants commenced action CIV 1809 of 2004 in this Court against the plaintiff as executor of the estate and in his personal capacity. The first and second defendants sought orders that the plaintiff in his personal capacity pay to the estate the sum of $15,637.18 with interest at the rate of 6 per cent from 17 February 2004 until payment and that the plaintiff as executor of the estate account to the defendants for the balance of the residue of the estate from 24 December 2002 and distribute to the defendants in this action in equal shares the balance of the residue of the estate.
On 28 September 2004 the plaintiff commenced the present action for orders pursuant to s 98 of the Trustees Act 1962 (WA) that the Court make a determination of the executor's commission.
Issues for determination
The principal issues for determination are as follows:
1.Apart from any disentitling conduct, is the plaintiff entitled to remuneration for commission for his efforts in administering the estate?
2.Should the plaintiff incur a reduction or loss of remuneration altogether by reason of having performed badly or committed a breach or breaches of trust?
3.What rate or quantum of remuneration if any, should the plaintiff receive?
A minute of issues for determination filed by the plaintiff on 17 October 2005 lists further issues for determination. One such issue is whether the plaintiff, personally or as executor of the estate, is liable to pay the first and second defendants' interest in the sum of $15,637.18 at the rate of 6 per cent from 27 February 2004 to 22 June 2004. A further issue listed is whether the plaintiff, as executor of the estate, is to distribute any moneys remaining in the estate in accordance with the plan of distribution annexed to his affidavit sworn on 30 March 2005. Those issues arise in action 1809 of 2004 and do not arise in this action. I will say nothing more of them.
Entitlement to commission
The plaintiff claims remuneration pursuant to s 98(1) of the Trustees Act1962 which provides that the court may, out of property subject to any trust, allow to any person who is, or has been, a trustee thereof such commission or percentage for that person's services as is just and reasonable. Trustee is defined in s 6(1) to include a personal representative. Thus, s 98(1) confers on the court a discretion to allow an executor remuneration for that person's services as is just and reasonable. Subsection 98(2) provides that the remuneration allowed shall not exceed 5 per cent of the gross value of the trust property.
Historically equity regarded trusteeship as an honorary position, and in the absence of any special provision for remuneration the services of the trustee were to be provided gratuitously. The practice in the Court of Chancery was to never allow commission to executors except in two instances: where executors were dealing with estates in the East Indies or estates in the West Indies. In such cases commission was allowed because it had been the practice in those regions to do so.
The first Supreme Court in Australia was established in New South Wales by the Charter of Justice. By that Charter the Court had conferred upon it the jurisdiction of all the superior courts of England and, amongst other things, the Court was authorised "to allow to any executor, or administrator, of the effects of any deceased person, such commission or percentage out of their assets, as shall be just and reasonable, for their pains and trouble therein". The Crown, therefore, when creating courts of justice in Australia introduced the system that executors were to be paid for their trouble in administering estates if the court thought fit, notwithstanding the rule in England that they should not be paid for that trouble: Nissen v Grunden (1912) 14 CLR 297 per Griffith CJ at 304.
Section 98(1) of the Act provides that the court may allow to an executor remuneration for that person's services as is just and reasonable. The mere presence of s 98(1) in the Act indicates that it is appropriate in many instances for an executor to receive remuneration for carrying out their obligations. It may be that in times gone by there were more people with the leisure and resources to take on unremunerated trusteeships. However, in contemporary times the payment of executors' remuneration is conducive to the good administration of estates. An executor is more likely to be able to devote the time and resources to the proper administration of an estate if he or she is remunerated for doing so.
The details of work document that is Annexure PHA17 to the plaintiff's affidavit sworn 17 August 2004, shows that in the four year period from June 2000 to August 2004 the plaintiff spent about 210 hours on the administration of the estate. There is room for argument that some of that time was spent unnecessarily and that some of the work carried out by the plaintiff was of little or no value to the estate. Nevertheless, that document together with the evidence of the plaintiff shows that he rendered substantial services in the administration of the estate. The estate was substantial. It is just and reasonable that the plaintiff be allowed remuneration unless his conduct in or in connection with the administration of the estate disentitles him to such remuneration.
Refusal of commission
The court may refuse commission on a number of grounds where there has been some misconduct in the execution of the executor's duties. If the misconduct is serious or amounts to fraud, commission will probably be refused. If the misconduct amounts to an honest or inadvertent breach of duty, commission may still be allowed. Commission may be reduced or, in serious cases, refused where there has been negligence in the carrying out of the executor's duties: see E Vance "Executor's Commission" 1969 at p 219 and M Chapman "Executor's Commission" (1994) LIJ at 46 and the authorities there cited.
Principles relating to disentitlement to commission
The defendants say that commission should be refused in a number of circumstances. The first and second defendants submit that trustees will not be allowed commission unless their conduct is free of suspicion and there has been no neglect on their part which has in any way prejudiced the estate. The third defendant submits that a trustee should be refused commission where he has committed breaches of trust and it cannot be said that his conduct is "above board and not in any way reprehensible". The defendants rely upon the authority of In the Will of Sherringham (1901) 1 SR (NSW) (B&P) 48 and In the Will of Greer (1911) 11 SR (NSW) 21.
In Re Sherringham (supra) the assets of the estate included a property known as "Norwich Farm" which was mortgaged and the mortgage being in default the bank caused the property to be sold by public auction. At the auction one of the trustees purchased the property in the name of his son who was then in partnership with the trustee in a business. The price paid for the property was the amount then due under the mortgage. Proceedings were threatened by the beneficiaries to set aside this transaction as a breach of trust. It was subsequently arranged between the trustees and the beneficiaries that Norwich Farm should be sold to one of the beneficiaries and the other beneficiaries were each to receive a certain sum as their proportionate share in respect of the sale. Upon this arrangement being carried out a release was executed by the beneficiaries to the trustees discharging them from any liability in respect of what was admitted to be a breach of trust. Walker J refused the trustees commission. His Honour stated that before remuneration was allowed to trustees they must show that their conduct of the affairs of the trust is free from any suspicion and that there had been no neglect on their part which has in any way prejudiced the estate. His Honour held that the conduct of the trustees in relation to Norwich Farm disentitled them to commission. Walker J observed that not only had the trustee acted in breach of trust but when the transaction was questioned by the beneficiaries the trustee admitted the breach of trust and resold the premises at an enhanced price showing that he had bought it at a price which he knew was under the value of the property. Further, the purchase was not made openly but in the name of the son of the trustee. It was in that context that his Honour said:
"Under these circumstances the trustees are not in a position to say that they had done their duty and done it well. It is highly important that the trustees should show that their conduct is absolutely above‑board and not in any way reprehensible."
Re Greer also involved a conflict of interest. The estate included farming land. The executors subdivided the land into four blocks and sold them by auction. One of the executors purchased two of the blocks at auction. Street J refused the executors commission. His Honour said that the executors had deliberately chosen to disregard their duty in a most important particular. His Honour said that in doing so the executors had acted in a way which was reprehensible and the court should mark its sense of their disregard of the rules by which they ought to have been governed by depriving them of commission.
In the Will of Jenkins (1904) 4 SR (NSW) 625 was another decision of Walker J concerning the remuneration of executors. One of the trustees was a shareholder and director of a company carrying on business as auctioneers and estate agents. The trustee had paid just over £43 to the company for collecting rents and other moneys due to the estate of the deceased. Walker J referred to the equitable rule that a trustee shall not be allowed to make a profit out of his trust or place himself in a position where his interest may conflict with his duty. His Honour decided that the allowance to the trustees of the payments to the company was within the mischief struck at by the rule in equity. However, having eliminated the sums paid to the company from the debits against the estate, Walker J allowed the accounts and awarded to the trustees commission at the rate of 4 per cent.
In the Will of Wallace (1934) NSWWN 84, concerned an application by Melville for commission. Melville was a co‑executor with Blackmore. Blackmore had fraudulently misappropriated funds from the estate. It had been held in another action that Melville was liable to refund to the estate the moneys misappropriated by Blackmore. It had been held that whilst Melville had acted honestly he had been guilty of wilful default and neglect within the meaning of the Trustees Act (NSW) in that his failure to take proper and prudent steps for the safeguarding of the estate had caused loss to the estate. Melville had refunded the misappropriated moneys and now asked that commission be allowed to him. Street J observed that Melville had resisted the claim that he reimburse the estate for the misappropriated funds. When a court order was made he had fully complied with the order and refunded the amount of the deficiency. But Street J held that Melville had failed in his duty to administer the estate and the court should not allow him commission as if he had properly and faithfully carried out his fiduciary obligations. The application for commission was therefore dismissed.
In In Re Darling [1925] SASR 262, one of three trustees improperly appropriated £150 that had been received into the estate but to which the estate was not entitled. The payments were secret commissions paid by insurance companies and were used by the company of which the deceased had been chairman to effect insurances. These payments were held to be moneys received into the estate and for which the estate was liable to account to the company. Angus Parsons J held that the trustee was not disentitled to commission because of this impropriety, but required the trustee to replace the moneys taken, together with interest from the date of receipt until repayment when the moneys would then be repaid to the company. Nor was the trustee disentitled by another irregularity, namely that without an order of the court or sufficient consents the trustee had taken commission, a course about which the court expressed definite disapproval.
In "Executors' Commission" (1934) 8 ALJ 121 the author examines the various kinds of default which the courts had held to be sufficient either for withholding or for reducing executors' commission. The author says that as a common rule, where executors or trustees have been guilty of positive fraud or dishonesty in their office, the courts will refuse them commission. As to acts or neglects falling short of fraud or dishonesty, these vary so much in degree and in character that one would not expect to find an unanimity of result in the decisions given by the courts. The author notes that certain Canadian cases seemed to proceed on a view more favourable to an executor guilty of neglect without dishonesty than had been allowed to prevail in New South Wales. The author states that the distinction envisaged between the types of conduct which would and would not disentitle an executor to a commission was stated in McClenaghan v Perkins (23) CLT 84 to be that where an executor has been guilty of negligence, mismanagement and breach of trust in his management of the estate, but there has been nothing of a dishonest or fraudulent character, and the losses resulting are capable of being compensated for and made good in money, the executor is not to be deprived of compensation.
The author noted that the principle so enunciated had not at that time been applied in an Australian case so far as the reports show. However, the author noted that it is not every lapse from correct conduct which is visited by Australian courts with forfeiture of commission.
Courts do not punish defaulting trustees. Punitive damages are available for breach of fiduciary duty in Canada and New Zealand but in other jurisdictions it is generally accepted that punishment is not a possible consequence of a breach of equitable duty: see Birks and Pretto, "Breach of Trust" at p 34; Aitken "Developments in Equitable Compensation: Opportunity or Danger?" (1993) 67 ALJ 596 at 599. A fiduciary who is ordered to account for his profit will, at least if he has acted honestly, be held entitled to an allowance for his work and skill and, if he has been unassailably honest and unusually skilful, that allowance should be "liberal": Meagher, Gummow and Lehane, Equity Doctrines and Remedies 4th ed at [5 – 255].
Having regard to the approach of courts of equity to breaches of trust or fiduciary duty there is much to be said for the Canadian approach to the question of disentitlement to commission referred to in the article in vol 8 of the Australian Law Journal and summarised in the extract from McClenaghan v Perkins set out above. Section 98(1) of the Act confers upon the court a discretion to award an executor such commission for that person's services as is just and reasonable. It seems to be established and accepted that where executors have been guilty of positive fraud or dishonesty in their office the courts will refuse them commission. As to acts or neglects falling short of fraud or dishonesty, whether the executor's commission should be refused or reduced will depend upon the severity of the breach, assessed according to its consequences and the culpability of the executor.
The defendants submit that no commission should be ordered here because of various breaches of trust by the plaintiff as executor of the estate. The legal fees paid by the plaintiff are central to those allegations. I will first refer to the payment of those fees.
Payment of legal fees
The plaintiff's account of the administration of the estate to 28 September 2004 and passed by the court on 13 October 2004, disclose the following payments to legal practitioners:
22/12/00
Atkins Downie
Solicitors Fees
$3,630.00
22/6/01
D Atkins
Counsel Fees
$13,200.00
8/7/01
Atkins Downie
Solicitors Fees
$3,583.80
28/10/02
Butcher Paull & Calder
$10,084.63
18/12/02
Digby Atkins
Counsel Fees
$8,250.00
22/06/04
D F Atkins
A/c P H Atkins
$3,563.45
Total
$42,311.88
Atkins Downie and Butcher Paull & Calder subsequently prepared bills of costs for taxation that were taxed on 24 February 2004. Atkins Downie's bill of costs in respect of their work in relation to the Inheritance Act matter was for $8,924.60 including counsel fees to Digby of $5,830.00. The bill was taxed and allowed at $2,268.00. The whole of the counsel fees to Digby were disallowed. A perusal of the tax invoice rendered by Digby discloses that much, if not all, of the work there detailed might properly have been considered solicitor's work and to be allowed for within the amount allowed in the bill under Item 21 of the Legal Practitioners (Supreme Court) (Contentious Business) Determination of 1996, that is the allowance for an originating summons. The work was not directly related to the trial of the action or preparation for the trial and hence it was not for counsel fees.
Atkins Downie's bill of costs in respect of their work in relation to the administration of the estate was for $14,114.40 including counsel fees of $12,375.00 paid to Digby. The bill was allowed in the sum of $1,640.00 including counsel fees to Digby of $510.00. Digby's counsel fees consisted of a tax invoice of 22 September 2000 in the sum of $3,630.00 which was wholly disallowed and a tax invoice of 1 June 2001 in the sum of $8,745.00 of which $510.00 was allowed.
Butcher Paull & Calder's bill of costs in respect of their work in relation to the Inheritance Act matter was in the sum of $7,737.90 including counsel fees to Digby of $4,372.50. The bill was allowed at $4,872.00 including counsel fees of $2,255.00.
Butcher Paull & Calder's bill of costs in respect of their work in relation to the administration of the estate was for $17,094.00 including counsel fees to Digby of $2,502.50. That bill was allowed in the sum of $14,450.00 including counsel fees of $627.50.
The evidence of what happened after the taxation of the bills of costs is incomplete and confusing. The executor's account passed by the court on 13 October 2004 records that on 16 April 2004 the estate received $19,200.63 from Digby as a "fee refund". However, Butcher Paull & Calder wrote to Digby on 14 June 2004 in the following terms:
"We calculate the sum to be reimbursed to the estate as $15,637.18.
We calculate this sum as follows:
1.The total amount the estate is [sic] paid in legal fees is $38,748.43. This sum does not include Butcher Paull & Calder's account in the sum of $3,563.45.
2.Inclusive of taxation filing fee and taxing fee the four bills of costs were taxed and allowed in the total sum of $23,111.25.
3.The amount to be reimbursed to the estate is $38,748.43 minus $23,111.25 being $15,637.18.
We do not agree with your proposal that the sum of $15,637.18 should be reimbursed by you after all matters are dealt with. We request you reimburse the estate immediately and that you advise this office of the date payment is made."
In his affidavit of 17 August 2004 the plaintiff deposed that on 16 April 2004 the estate was reimbursed the sum of $19,200.63 by Digby but added that Butcher Paull & Calder agreed to write off their claim for $3,563.45 and a refund of that sum was made to Digby. The executor's account passed by this Court records that on 22 June 2004 $3,563.45 was paid to Digby. The notation "a/c P H Atkins" next to that item in the accounts was not explained.
In the course of the plaintiff's counsel's closing submissions the plaintiff was recalled to give evidence concerning the payment of $3,563.45 to Digby. The plaintiff had refreshed his memory from the documents and in particular the letter of 14 June 2004 from Butcher Paull & Calder to Digby, a copy of which had been sent to the plaintiff. The effect of the plaintiff's evidence is as follows. Digby had refunded $19,200.63 to the estate. When the plaintiff received a copy of Butcher Paull & Calder's letter of 14 June 2004 stating that the amount to be reimbursed by Digby was $15,637.18 he realised that Digby had paid too much by way of reimbursement. The plaintiff then paid to Digby $3,563.45, being the difference between the amount of $19,200.63 reimbursed by Digby to the estate and the sum of $15,637.18 stated by Butcher Paull & Calder to be the amount that Digby was required to reimburse the estate.
The executor's account shows that he paid $3,563.45 to Digby on 22 June 2004. That is consistent with the explanation given by the plaintiff in his evidence that he came to the view that Digby had overpaid the estate that sum after he received a copy of Butcher Paull & Calder's letter of 14 June 2004.
Earlier in his evidence the plaintiff said that Butcher Paull & Calder agreed to write off their account in the sum of $3,563.45. The plaintiff also said that there were negotiations concerning the amount to be repaid by Digby and that Digby's accounts were somehow mixed up with those of Butcher Paull & Calder and Butcher Paull & Calder agreed to contribute $3,500.00 to Digby's costs. That appears to explain why Butcher Paull & Calder required Digby to reimburse the estate $15,637.18 rather than the amount taxed off Digby's counsel fees at the taxation of the bills of costs.
The alleged breaches of trust or fiduciary duty – Payment to Digby
The first breach of fiduciary duty alleged by the first and second defendants is that the plaintiff authorised payment of $21,450.00 to his son, Digby, for alleged counsel fees. Those defendants submitted that the plaintiff "used the estate to channel funds to his son, Digby, for counsel fees that were grossly overstated". Those defendants further alleged that the plaintiff further violated that duty by paying the sum of $3,563.00 to Digby. Those defendants submit that an executor in the proper discharge of his duties could not retain his son as counsel and authorise payment of such grossly inflated fees. The third defendant also alleges that the executor's payment to Digby of the sum of $3,563.45 was a breach of trust.
I will deal first with the payment of $3,563.45 to Digby. I have set out above the circumstances in which the payment was made.
The plaintiff paid $38,748.43 to Atkins Downie, Butcher Paull & Calder and Digby for legal fees. Those costs were taxed and allowed in the sum of $23,111.25. The legal practitioners were obliged to refund the sum of $15,637.18 to the estate. That sum is less than the total of Digby's counsel fees taxed off at the taxation. That is because the legal fees allowed to Atkins Downie and Butcher Paull & Calder on the taxation of their bills of costs exceeded the amounts that had been paid to them by the plaintiff as executor of the estate. Subsequently there were negotiations between Butcher Paull & Calder and Digby. The outcome of those negotiations can be seen from Butcher Paull & Calder's letter of 14 June 2004 to Digby and the plaintiff's evidence that Butcher Paull & Calder wrote off their outstanding account. In effect, Butcher Paull & Calder agreed that Digby should refund $15,637.18 to the estate and they wrote off their outstanding account or fees.
The plaintiff received a copy of Butcher Paull & Calder's letter of 14 June 2004 to Digby. Butcher Paull & Calder wrote off their outstanding account or fees. It is apparent from the plaintiff's evidence that he left it to Butcher Paull & Calder to calculate the refund of legal fees that was due to the estate and accepted the outcome of the negotiations between Butcher Paull & Calder and Digby as to how that refund should be effected. There is nothing improper about that. The plaintiff engaged Butcher Paull & Calder as solicitors for the estate. That firm, on the plaintiff's instruction, engaged Digby to do work on behalf of the estate. Digby's invoices were rendered to Atkins Downie and Butcher Paull & Calder. A solicitor who engages counsel on the instructions of his client is entitled to, in effect, pay part of the sum paid to him in discharge of his fees to counsel. The plaintiff was entitled to act on the agreement between Butcher Paull & Calder and Digby that Digby would refund $15,637.18 to the estate and Butcher Paull & Calder would write off its outstanding account or fees.
Digby had paid $19,200.63 to the estate. In view of the arrangement between Digby and Butcher Paul & Calder he was only required to pay $15,637.18 to the estate and was entitled to be refunded $3,563.45. The payment by the plaintiff to Digby of that amount on 22 June 2004 was properly made. The outcome of the payment of $19,200.63 by Digby to the estate and the repayment of $3,563.45 by the plaintiff to Digby was that the estate was reimbursed $15,637.18. That was the amount that the estate was required to be reimbursed as a result of the taxation of costs. There was no breach of trust by the plaintiff in paying the sum of $3,563.45 to Digby nor was it misconduct for the plaintiff to make that payment. To the contrary, Digby was entitled to that payment as a result of the arrangement between him and Butcher Paull & Calder. The plaintiff understood that Butcher Paull & Calder had satisfied itself that the sum of $3,563.45 was to be retained by Digby. There was no overpayment of legal fees by the estate.
The next allegation by the first and second defendants is that the plaintiff breached his duties by retaining his son as counsel and authorising payment of such grossly inflated fees.
In the course of cross‑examination of the plaintiff counsel for the first and second defendants put to the plaintiff that he had treated Digby in the way he had because he is the plaintiff's son. That was denied by the plaintiff. I find that the plaintiff did not act dishonestly in paying, or authorising payment, to Digby. The plaintiff required assistance in the administration of the estate. Digby was a legal practitioner and had known the late Dr Godfrey. The plaintiff considered that that circumstance made Digby a suitable legal practitioner to assist with the administration of the estate and to assist in the conduct of the Inheritance Act matter.
I do not consider that the plaintiff was guilty of any conflict of interest in engaging, or causing to be engaged, Digby. A trustee is bound by the so‑called profit and conflict rules: see Chan v Zacharia (1984) 154 CLR 178 per Deane J at 198. The first is that a trustee, like other fiduciaries, is not in general allowed to retain a benefit acquired or profit made by him from the use of trust property in the course of and by virtue of his trusteeship. The second rule is that a trustee, like other fiduciaries, is not allowed to place himself in a position where his personal interest, or interest in another fiduciary capacity, conflicts or possibly may conflict with his duty.
The plaintiff did not make any benefit or acquire any profit from the legal fees paid to Digby. The plaintiff's duty in relation to the payment of legal fees to Digby was to see that Digby was paid his proper fees for work that he had done and no more. The plaintiff had no interest that conflicted with that duty.
Alleged breach of duty – Payment of legal bills before taxation
The defendants submit that the plaintiff paid legal bills totalling $38,748.43 which were excessive having regard to the fact that they were subsequently allowed at taxation in the sum of $23,111.25. The defendants submit, in effect, that the plaintiff should not have paid the bills rendered to the estate and should have caused the bills to be taxed.
The plaintiff was entitled to pay the legal practitioners their proper fees for their work. He had a duty to ensure that the estate paid only proper fees for the work done. Having considered the affidavits sworn by the plaintiff and his cross‑examination I find that the plaintiff engaged solicitors to assist him and carry out the work and paid their accounts believing that they were properly due.
In cross‑examination the plaintiff rejected the proposition that he should have required the legal practitioners to tax their costs before he paid their invoices. He said:
"I have never asked a person and when a professional person renders an account to me, the way we practised when I was in practice, I wouldn't have queried it."
When it was put to the plaintiff that he failed to monitor the overall level of costs charged by Atkins Downie and by Digby he replied:
"I don't quite know how I monitor. The work was – I thought the work was all done, it was – and I made the mistake I think that I accepted it as an item which wasn't – shouldn't have been rendered at the time that's a mistake I made."
The defendants' principal attack was on the accounts rendered by Digby. In his affidavit Digby deposed that he assisted the plaintiff in his duties as executor of the estate. Digby annexed to his affidavit the invoices that he rendered for the work he carried out. He deposes that all the work set out in his accounts was carried out by him and that his accounts contain an accurate description of the work done. Digby was not cross‑examined on his affidavit. In those circumstances, I accept that Digby carried out all of the work detailed in his invoices. I find that the plaintiff believed that the amounts claimed by Digby were for work properly carried out and were properly due. The plaintiff acted in good faith in paying, or causing to be paid, those accounts.
An executor and trustee owes a duty of care to the estate. The specifics of the trustee's duty of care are found in the terms of the trust and in the requirements for the proper conduct of the trust as they arise from time to time. As a general rule a trustee sufficiently discharges his duty of care if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own: Speight v Gaunt (1883) 9 App Cas 1, per Lord Blackburn at 19.
I do not think that an ordinary prudent man of business would, in managing his own affairs, require his solicitor to tax his costs as a matter of course. An ordinary prudent man of business should peruse the invoices rendered by his solicitor to ensure, so far as he can, that the work for which the solicitor charges was done and that the charges are proper. There is no suggestion that any of the legal practitioners charged for work they had not done. In particular, as I have already found, Digby carried out all of the work detailed in his invoices. However, the plaintiff did not scrutinise the invoices rendered to the estate to see if the amounts charged were appropriate and proportionate to the tasks undertaken by the legal practitioners. The plaintiff's attitude appears to have been that he did not consider it appropriate to question an account rendered by a professional person. Most solicitors are honourable people and only render accounts which they believe to be appropriate and justified. However, an ordinary prudent man of business would scrutinise an invoice rendered to him by a solicitor at least to the extent of ensuring that all of the work charged for had, so far as the client knew, been done and the amounts charged were proportionate and appropriate for the tasks undertaken. The plaintiff did not do that.
When the defendants requested that the legal practitioner's invoices be taxed there was a delay in that happening. The delay appears to have been attributable to the solicitors. Atkins Downie did not file their bill of costs for taxation until six months after the solicitors for the first and second defendants had requested that the solicitors tax their costs. Butcher Paull & Calder initially declined to tax their costs and subsequently that firm and Atkins Downie took a long time to do so. When the defendants raised their objections to the legal fees paid by the estate and requested that the costs be taxed the plaintiff should have done something to satisfy himself that the costs charged were no more than were properly payable or instructed the legal practitioners to tax their costs. He did neither. In effect he left it to the legal practitioners to resolve the matter when and in the manner they saw fit.
The costs were taxed on 24 February 2004 and allowed in a sum $15,637.18 less than the legal fees paid by the estate. The obligation of the plaintiff was then to recover the overpayment from the legal practitioners or to reimburse the estate for any shortfall. The plaintiff's duty was discharged when Digby refunded to the estate $19,200.63 on 16 April 2004. The estate suffered a loss in the form of the interest that would have been earned by the estate on the amount of the overpayment between the time of the initial payment and the reimbursement on 16 April 2004. It is difficult to reconcile the amounts paid to the legal practitioners with the costs allowed at the taxation of costs. The bills of costs were allowed in the total sum of $23,111.25. The payments made to Atkins Downie on 22 December 2000 and 8 July 2001 and to Digby on 22 June 2001 were less than $23,111.25. That sum was exceeded when Butcher Paull & Calder were paid $10,084.63 on 28 October 2002. A broad approach to the matter shows that the estate suffered a loss of interest from about October 2002 to April 2004 on the amount of the overpayment, that is $15,637.18.
An executor is paid such commission as is just and reasonable for services rendered to the estate. Where the executor's lack of diligence or care and attention causes a loss to the estate it is appropriate that the commission that otherwise would be allowed to the executor be reduced to reflect that loss to the estate. In this case, some modest reduction should be made from the commission that would otherwise be allowed to the plaintiff to reflect the loss to the estate to which I have referred.
Alleged breach of duty – Delay in finalising estate
The third breach of trust alleged by the third defendant in her written submissions is the failure of the plaintiff to bring his claim for executor's commission promptly or to apply to settle the accounts promptly so as to enable distribution of the estate in a timely fashion.
The plaintiff has offered no substantial explanation for the delay in the administration of the estate. The Inheritance Act claim caused an initial delay. However, the claim was settled and orders were made by consent in this Court on 10 December 2001. The executor's account of 30 March 2005 shows that an amount of $111,500.00 was paid to Ms Gepp by way of settlement on 4 January 2002. Thus, it would appear that the Inheritance Act matters were concluded by January 2002.
The disposition of the estate is summarised by the first defendant in his affidavit affirmed 13 March 2005. The three real estate properties comprised in the estate were transferred by the plaintiff to the defendants as tenants in common in equal shares in or about February 2002. The furniture and contents of the late Dr Godfrey's home were the subject of contention between the defendants but the matter was resolved between them and the plaintiff was advised of the resolution of the matter in or about April 2002. Some of the furniture and contents were distributed between the defendants and the balance was sold by the auctioneer who remitted the proceeds of sale to the plaintiff. The executor's account shows that various payments were received by the estate from Donelly Auctions Pty Ltd in June and October 2002.
Part of the estate comprised of a portfolio of shares managed during the deceased's lifetime by Perpetual Trustees WA Ltd. The shares were distributed in specie to the defendants. That was completed in or about June 2002.
From my examination of the evidence, including the executor's accounts, it appears that all of the property of the estate had been got in and realised or distributed and the debts of the estate paid by about October 2002. That is of course outside of the executor's year, the deceased having died on 10 June 2000 and probate having been granted on 14 September 2000. However, having regard to the property of the estate and the conflict between the third defendant and the first and second defendants there was no undue delay in the administration of the estate before October 2002.
The delay in the finalisation of the estate after October 2002 arose from the conflict between the plaintiff and the defendants concerning the payment by the plaintiff of legal fees. In or about December 2002 correspondence commenced between the plaintiff's solicitors, Butcher Paull & Calder, and Merle Bloch, the solicitor representing the first and second defendants, concerning the administration of the estate. On 30 January 2003 Merle Bloch requested itemised accounts of legal fees paid by the estate and the quantum of commission claimed by the plaintiff executor. On 7 February 2003 Butcher Paull & Calder wrote to Merle Bloch declining to provide itemised accounts. Subsequently, Atkins Downie and Butcher Paull & Calder provided itemised accounts. On 30 April 2003 the defendants requested Atkins Downie and Butcher Paull & Calder to tax their costs. Butcher Paull & Calder lodged their bills for taxation on 16 July 2003. Atkins Downie provided their bills of costs for taxation on 30 October 2003. The bills were not taxed until 17 February 2004. On 23 June 2004 the first and second defendants commenced action 1809 of 2004 in this Court to which I have referred.
In cross‑examination of the plaintiff counsel for the first and second defendants put to the plaintiff that by about June 2002, apart from a taxation of costs and the passing of accounts, the estate was all but wound up but that the plaintiff did not provide estate accounts until 24 December 2002. The plaintiff responded in essence that the matter was in the hands of solicitors. The executor's account shows that he received payments from the auctioneers in October 2002. It was then necessary for him to draw up accounts to finalise the estate. He chose to engage accountants to do that. It was reasonable for him to do so. The draft accounts were ready in December 2002.
Having regard to all of the matters that I have canvassed I conclude that from about December 2002 to July 2004 the plaintiff failed to pursue the finalisation of the estate with the expedition he should have. Much of the time seems to have passed in correspondence between solicitors concerning the amount of legal fees paid by the estate and the taxation of those fees. The plaintiff said: "Once you get into the hands of lawyers, you've got to [go] back and read Dickens". Be that as it may, the plaintiff appears to have simply left the matter in the hands of the solicitors and done nothing to see that the conflict over the legal fees was resolved with the expedition that should have been undertaken. The plaintiff allowed the administration of the estate to drag on longer than it should have. That does not amount to a breach of trust but it was a failure by the plaintiff to pursue the administration of the estate with due expedition.
The plaintiff's details of work document shows that most of the work done by the plaintiff in the administration of the estate was done before December 2002. The commission allowed to the plaintiff should reflect that fact and should reflect the fact that the estate should have been finalised earlier than it has been.
Alleged breach of duty – Use of estate funds by plaintiff
In the course of cross‑examination of the plaintiff counsel for the first and second defendants raised another alleged breach of trust or fiduciary duty. The breach is said to be that the plaintiff used estate funds to fund this action in which he seeks commission as executor.
The evidence is that the plaintiff paid the fee of $558.20 for filing the originating summons in this action out of estate funds. A fee of $251.90 paid to a process server for serving the originating summons was also paid out of estate funds. On 10 August 2005 counsel fees in the sum of $3,000.00 were paid out of the estate funds. Those fees were in relation to these proceedings. On 10 August 2005 an amount of $840.00 was paid for the entering fee and daily hearing fee in respect of this action and again paid out of estate funds.
In cross‑examination the plaintiff did not accept that those amounts should have been paid by the plaintiff out of his own funds. He considered that the bringing of this action was all a part of his duty as executor to see that the executor is paid.
In Crout v Beissel [1909] VLR 207, a'Beckett J held that an executor is not entitled to retain commission without an order of the court. In Grunden v Nissen [1911] VLR 97, a'Beckett J at 107, explained his decision in Crout v Beissel (supra):
"In Crout v Beissel at p. 213, I expressed the opinion, which I still hold, that executors cannot safely help themselves to commission, and I shall do here what I did there – make them repay, with interest, the difference between what they took without authority and that which I allow to them. The headnote to Crout v Beissel, in the Victorian Law Reports, declares the taking to be a breach of trust. I did not so describe it in my judgment, nor did I so describe expending trust money in bringing land with a bad title under the Transfer of Land Statute. I simply disallowed the expenditure. Every unauthorized expenditure out of trust funds may be called a breach of trust, but so calling it does not necessarily impute any moral culpability. In Crout v Beissel I said the trustees had acted honestly but unwisely. I have referred at length to what I said in that case because its effect appears to have been misunderstood. The executors in the present case were clearly wrong in calculating their commission on the gross takings … The carrying on of the business has been most beneficial to the persons interested, and its proper supervision entails more than ordinary trouble. I shall allow commission at 5 per cent upon past profits and future profits."
The dicta of a'Beckett J in Grunden v Nissen appears to be the established approach. An executor is not entitled to pay themselves commission without a court order. If an executor does so, even while acting honestly, they will be allowed commission but will be made to repay the difference between what they took without authority and that which they are allowed by the court.
In this case, the executor has not purported to take commission in advance of a court order. He has paid out of the estate the costs incurred in applying to this court for commission.
In 1934, the Acting Chief Justice of Victoria published a practice note in (1934) VLR 43, on the subject of the costs of an originating summons by executors seeking to be allowed commission. The note includes the following:
"It seems desirable to make some observations for the information of the profession with reference to originating summonses by executors and others seeking to be allowed commission.
Formerly, executors and trustees seeking to be allowed commission under an order of the court did so at their own expense; but for some years now the court has recognised the right of executors and trustees to treat their costs of applying for an order for liberty to pass their accounts and to be allowed commission, as part of the costs of administration."
The plaintiff has already applied to the court to pass his accounts. The costs of that application have been allowed to the plaintiff. This application is for his commission alone and is contested by the beneficiaries of the estate. That is, the application is solely for the benefit of the plaintiff. Nevertheless, applying for an order that the executor be allowed commission is part of the administration of the estate and the executor does not commit a breach of trust or fiduciary duty by paying the costs of the application out of the estate. In any event I am satisfied that the plaintiff acted honestly in doing so. He honestly believed that the application for executor's commission was part of the administration of the estate and it was proper to treat his costs in applying for commission as part of the costs of administration of the estate. In those circumstances the plaintiff's action in paying the costs of the application out of the estate does not disentitle him to commission. However, the plaintiff must repay the difference, if any, between the costs he paid out of the estate and the costs he is allowed by the court.
Entitlement to commission – Conclusion
The plaintiff has not committed a breach of trust or duty disentitling him to commission. However, the commission that I would otherwise have allowed him will be reduced to take into account his failure to exercise the scrutiny over the legal fees that he should have exercised and for his failure to ensure that the estate was finalised earlier.
Factors relevant to quantum of commission
It should not be assumed that an executor will, as a matter of course, or in the usual case, on applying to the court, be awarded 5 per cent commission. The rate of 5 per cent is fixed by the Act as a maximum rate and should only be granted where the difficulties of administration have been very great, or the financial benefit to the estate of the executor's activities very considerable.
There are a number of factors to be considered in determining what commission or percentage for the plaintiff's services to the estate is just and reasonable.
The amount and rate of remuneration should be determined by the nature and the extent of the activities carried out by the executor and the work and judgment involved in administering the estate rather than the size of the estate. In this case the activities undertaken by the plaintiff were not complex or extensive. For example, there was no difficulty interpreting the Will or ascertaining the assets or the beneficiaries. Most of the assets of the estate were distributed in specie. The plaintiff did not have to go to the pain and trouble of realising the assets.
The plaintiff availed himself, at the expense of the estate, of the services of agents, solicitors and accountants. He is entitled to do this but nonetheless the fact that he has had this skilled assistance, paid for out of the estate, is to be taken into consideration in assessing the amount of his commission.
It is relevant to have regard to the amount of work done which is not reflected in the executor's account. This includes dealing with family disputes and conflict concerning the administration of the estate. The details of work document prepared by the executor shows that he undertook considerable activity associated with conflict. There was conflict between the plaintiff and the defendants after 2002 but I do not think that should be taken into account because it arose largely out of the way in which the plaintiff had dealt with the payment of legal fees by the estate.
The amount of work undertaken by the plaintiff is relevant. The plaintiff's details of work show that in the five year period from June 2000 to 2005 the plaintiff spent about 210 hours on the administration. The details of work document shows that the plaintiff had spent more than 170 hours on estate matters by the end of December 2002. The third defendant submitted that some of the time claimed with respect to the work demonstrates a leisurely approach to the administration. Those matters were not explored in detail in cross‑examination. It is not appropriate that the plaintiff's remuneration be assessed by applying an hourly rate to the number of hours that the plaintiff spent on the administration of the estate. However, I take into account that the plaintiff spent a substantial amount of time on the affairs of the estate.
Counsel for the plaintiff submitted that Digby's professional fees should be included within the assessment of the executor's commission. It was submitted that Digby's work was reasonable and necessary in the administration of the estate and if Digby had not undertaken this work the executor would have had to undertake that work himself. His work related to both the administration of the estate and the Inheritance Act claim made against the estate by Ms Gepp.
Digby was engaged by Atkins Downie and subsequently by Butcher Paull & Calder to provide legal services for the estate. He rendered invoices for his professional work. The costs charged by Digby were included in the bills of costs taxed by Atkins Downie and Butcher Paull & Calder. The greater part of Digby's fees were disallowed on taxation. The evidence does not establish why the fees were disallowed. I have observed earlier that a perusal of the tax invoices rendered by Digby shows that much of the work which he undertook might have been considered by the taxing officer not to be counsel work but rather in the nature of solicitor's work. The costs allowed to Butcher Paull & Calder on the taxation of costs exceeded the amount of the invoices rendered by that firm. Later, the legal practitioners negotiated as to how the legal costs allowed on taxation should be dealt with amongst themselves. In the circumstances I consider that the work done by Digby has been taken into account in the costs allowed to the legal practitioners on the taxation of costs. In any event, it is not appropriate that the work undertaken by Digby be taken into account in determining the executor's commission. The executor was entitled to engage the services of legal practitioners. It was in that capacity that Digby undertook and billed the work he did for the estate. It should not be taken into account in determining the quantum of the executor's commission.
The responsibility generally involved in administering the estate is relevant. The estate was relatively large, having a gross value of in excess of $3,000,000.00. The plaintiff was responsible for the conduct of the Inheritance Act matter brought by Ms Gepp against the estate. Those matters involved responsibility notwithstanding that the plaintiff availed himself, at the expense of the estate, of the service of solicitors.
A further factor to be taken into account is the duration of the administration of the estate and hence of the executor's responsibility. I have previously found that the plaintiff should have taken steps to ensure that the estate was finalised earlier. The estate was effectively in a position to be finalised in December 2002. The prolonged administration of the estate beyond that time is not a matter for which the plaintiff should be remunerated.
The capacity of the estate to pay is a relevant factor. The plaintiff should not be awarded commission in excess of the funds remaining in the estate.
Re Barr Smith
Each of the parties referred to the South Australian case of In Re Barr Smith [1920] SALR 380 in which the South Australian Supreme Court discussed in considerable detail the principles and scale on which commission should be granted. The formula set out in Re Barr Smith has been followed in Victoria: Re Chirnside [1956] VLR 295.
The proper approach required by s 98(1) of the Act is to form an overall assessment of what remuneration is just and reasonable rather than apply the Barr Smith scale. Nevertheless, the Barr Smith scale is helpful in this case in forming a view as to what remuneration is just and reasonable.
The plaintiff calculated the commission payable applying the Re Barr Smith scale to be $71,570.86. The defendants say that the plaintiff has not properly applied the Barr Smith scale. The third defendant submits that the commission payable applying the Barr Smith scale is $20,659.00.
Briefly, the formula used in the Barr Smith case allows differential rates of commission on the following categories of assets or income:
(a)Special assets got in and realised, such as cash, money in bank accounts, life assurance policies and other similar sorts of assets;
(b)other assets (such as land) got in and realised;
(c)assets (other than cash) distributed in specie;
(d)income got in.
The difference between the parties arises principally from their treatment of commission in relation to the real properties. The plaintiff treats the properties at Douglas Avenue, Subiaco, Roberts Road, Subiaco and Irwin Street, Peppermint Grove, as assets in category (b) being assets got in and realised. The properties were not realised by the plaintiff. The three properties were transferred by the plaintiff to the defendants as tenants‑in‑common in equal shares in or about February 2002. That is, they were distributed in specie and should be included in category (c). The commission payable in relation to category (b) assets is 5 per cent on the first $2,000 and 2.5 per cent on the balance. The commission payable on category (c) assets is 1.5 per cent on the first $20,000 and 1 per cent on the balance. I accept that the third defendants' calculation is the correct application of the Barr Smith scale. The other differences are not significant and it is not necessary to resolve them.
If it were not for the matters calling for a reduction in commission, I would have allowed the plaintiff commission in an amount slightly more than the amount calculated by the application of the Barr Smith scale. That is because of the additional responsibilities and difficulties imposed upon the plaintiff by reason of the Inheritance Act matter and the conflict between the defendants in relation to the distribution of some of the assets of the estate. I reduce the commission I would otherwise have allowed to take into account the plaintiff's failure to exercise the scrutiny over the legal fees that he should have exercised and for his failure to ensure that the estate was finalised earlier.
Conclusion
Section 98(1) of the Act provides for the court to allow such commission or percentage for the executor's services as is just and reasonable. So as to ensure that the remuneration received by the executor is just and reasonable the court should fix a rate which is a projection of what the court considers, in all the circumstances, to be a proper award. In all the circumstances the remuneration to the plaintiff that is just and reasonable for his services to the estate is a commission or percentage of 0.6 per cent of the gross value of the estate, that is 0.6 per cent of $3,293,230.35 which is $19,759.00.
Costs
In general, an executor's costs of applying to be allowed commission should be treated as part of the costs of administration. The costs of each of the parties, including the plaintiff, should be paid out of the estate. Of course, the plaintiff will have to bring into account the sums which have already been paid out of the estate towards his costs of this application for commission.
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