Australian Unity Bank Ltd v JT Holdings (SA) Pty Ltd - [2019] SASC 49

SUPREME COURT OF SOUTH AUSTRALIA
(Testamentary Causes Jurisdiction)
IN THE ESTATE OF THORNTON (DECEASED); AUSTRALIAN UNITY BANK LTD v JT HOLDINGS (SA) PTY LTD
[2019] SASC 49
Judgment of The Honourable Justice Bampton
29 March 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DETENTION, INSPECTION AND PRESERVATION - RECEIVERS - APPOINTMENT OF RECEIVER
SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - GRANTS OF PROBATE AND LETTERS OF ADMINISTRATION - TO WHOM PROBATE GRANTED - PASSING OVER OF EXECUTOR AND OTHER MATTERS
Testamentary causes – application for passing over of sole executor and appointment of the substitute executor as administrator of the estate with will annexed – application for the appointment of a receiver without security to the property of two trusts and two companies – where deceased died leaving a will and possessed of, or with an interest in, various real property in South Australia.
Held, allowing the applications:
1. The sole executor named in the will of the deceased be passed over, and the substitute executor be appointed administrator of the estate with the will annexed;
2. It is just and convenient to appoint a receiver to protect the assets of the trusts and the corporate trustees.
Supreme Court Act 1935 (SA) s 18, s 29; Administration and Probate Act 1919 (SA); Corporations Act 2001 (Cth) s 420, referred to.
In Estate of Crane (2005) 93 SASR 198; Martyniuk v King [2000] VSC 319, applied.
Yunghanns v Candoora No. 19 Pty Ltd (No 2) [2000] VSC 300, considered.

IN THE ESTATE OF THORNTON (DECEASED); AUSTRALIAN UNITY BANK LTD v JT HOLDINGS (SA) PTY LTD
[2019] SASC 49
Testamentary Causes Jurisdiction

BAMPTON J: John Henry Thornton (“the deceased”) died on 22 April 2017. He is survived by two sons, John Anthony Thornton (“John”) and Andrew David Thornton (“Andrew”).
By his will made on 6 March 2002 (“the Will”), the deceased appointed John, to be the sole executor of his estate (“the Estate”). Andrew was appointed substitute executor in the event that John predeceased the deceased or did not survive him for 28 days.
Andrew now makes an application in the testamentary causes jurisdiction (“the probate action”) that John be passed over as the executor of the Estate.
Andrew makes application in the civil jurisdiction (“the civil action”) for the appointment of a receiver without security to the property of two companies and two trusts that were under the control of the deceased.
The probate action
By the Will, the deceased gifted his estate to John and Andrew in equal shares.
Mr Ower SC, counsel for Andrew, informed the Court in submissions that during his lifetime the deceased settled two discretionary trusts. On 16 November 2001, the deceased settled the Thornton Family Trust and the Thornton Property Trust (“the trusts”). The deceased named John and Andrew as specified beneficiaries of the trusts. The deceased also named John as holding offices described as “Appointer” and “Guardian”. The corporate trustees of the trusts are, or were:[1] JT Holdings (SA) Pty Ltd as trustee for the Thornton Family Trust and Thornton Property Pty Ltd as trustee for the Thornton Property Trust (“the corporate trustees”).
[1] See [11]-[12] below.
The deceased died possessed of, or with an interest in, various real property in South Australia. Andrew deposed in his affidavit affirmed on 27 June 2018 in support of the orders he seeks that it is not clear whether the properties are property of the corporate trustees in their own right or property of the trusts.
As at 13 March 2019, the deceased was recorded as the registered proprietor of properties at Emerald Drive, Ingle Farm and Pamela Drive, Para Hills. JT Holdings (SA) Pty Ltd is, or was, the registered proprietor of property at Yatala Vale Road, Fairview Park. Thornton Property Pty Ltd is, or was until 13 March 2019, the registered proprietor of the properties at: Gregory Street, Brahma Lodge; Linwood Crescent, Parafield Gardens; and Esplanade, Moana (“the six properties”).
Prior to the death of the deceased, JT Holdings (SA) Pty Ltd was the registered proprietor of two properties at Eusebio Drive, Salisbury East (“the Eusebio Drive properties”). As the mortgage over the Eusebio Drive properties had fallen into arrears due to default, the mortgagee Australian Unity Bank Ltd (the plaintiff in the civil action) took possession on 23 July 2018 and exercised its power of sale and sold the properties. The surplus of $100,687.45 following satisfaction of the mortgage, costs and interest was paid into Court by Australian Unity Bank Ltd on 4 February 2019 in the Civil action.
Andrew deposes that the six properties are at risk. Default notices were sent to John and the corporate trustees by lawyers acting on behalf of Bank SA on 12 June 2018. The default notices appear to record that the six properties have been cross-collateralised between the corporate trustees and the trusts to secure finance under a credit contract from Bank SA. The default notices record that the total amount of $1,030,379.60 was outstanding, with arrears outstanding of $64,006.29 as at 12 June 2018.
Andrew deposes that he believes that John may have appointed Thornton Enterprises Pty Ltd, a company controlled by John, as the new corporate trustee of the Thornton Family Trust and the Thornton Property Trust.
Andrew’s solicitor, Mark Peter Howard, in his affidavit affirmed on 19 March 2019 filed in the civil action deposes that he is instructed by Andrew that his belief regarding the appointment of a new corporate trustee is based upon statements made by his and John’s mother, Kay, in or about early 2018. Andrew does not have any documents in relation to this issue. There is also no direct evidence of any exercise of power of appointment by John in respect of the trusts.
The application to pass over John as executor in the probate action
Andrew makes an application in the probate action that John be passed over as executor of the Will and that he be appointed as administrator of the Estate with the Will annexed. In the alternative, he seeks an order that the Public Trustee be appointed as the administrator of the Estate with the Will annexed.
This Court has jurisdiction in limited circumstances to pass over an executor named in a will. As Besanko J noted in In Estate of Crane,[2] the jurisdiction is given to this Court by s 18 of the Supreme Court Act 1935 (SA) (“the Supreme Court Act”) and the provisions of the Administration and Probate Act 1919 (SA).
[2] (2005) 93 SASR 198 at 203 [23].
Andrew deposes in his affidavit that John purported to renounce his role as executor. Exhibited to Andrew’s affidavit is a copy of a renunciation of probate dated 7 December 2017, which has not been filed.
Andrew explains that the Will was in the possession of Genders and Partners, who are John’s former solicitors. Mr Genders wrote to the Registrar of Probates on 5 March 2018 stating that “after 31 years in legal practice specialising in Wills and Estates, I find myself in unchartered territory, and therefore write this letter to the Probate Registrar to place on record my position”. Mr Genders details a litany of difficulties he encountered in the four months he was acting for John from 5 May 2017 to 5 September 2017. He states that he ceased acting for John as he lost confidence in his ability to instruct him in a timely manner in the administration of the Estate, that he received no funds into trust and was subsequently informed by John after he had ceased to act for him that he had been in and out of prison during the four months he was acting for him. Mr Genders also states that he had subsequently received anecdotal information to the effect that John has numerous charges pending against him and that there was a prospect that he may serve additional time in prison.
Upon Genders and Partners being served with a subpoena issued at Andrew’s request, the Will was provided to the Registrar of Probates.
Andrew believes that John has failed to properly administer the Estate, has wasted the Estate, and has engaged in misconduct in relation to the Estate prior to, and since, renunciation. Andrew deposes that, on 27 March 2018, John sent him a text message saying, “Call me if you want executer of dad’s will” (sic). A screenshot of the text message is exhibited to Andrew’s affidavit. Andrew deposes that John has a serious drug problem, often presents with erratic behaviour, has threatened him, assaulted his mother, has been the subject of many intervention orders with respect to partners, has failed to comply with bail obligations, and has spent time in custody for breach of bail and other orders made by the Magistrates Court.
Andrew considers that John has appropriated, for his own benefit, money belonging to the Estate. He asserts that John has obtained personally or directed to his personal account rent from properties forming part of the Estate and has not accounted for any of that money.
Andrew alleges that John has failed to insure or properly manage any of the six properties and the Eusebio Drive properties, has failed to pay rates or make arrangements with rating authorities, has failed to liaise with mortgagees with respect to the properties, and, at present, due to the default position across the six properties with banks, there is a real risk that first mortgagees will foreclose and that this needs to be addressed urgently.
In Crane, Besanko J identified two general principles governing the Court’s discretion in an application to pass over an executor:[3]
1A court will not readily pass over a named executor and, in general, a person who is named as executor by a testator is entitled to a grant of probate; and
2When a court does exercise the jurisdiction, it does so having regard to the due and proper administration of the Estate and the interests of the parties beneficially entitled to the Estate.
[3] (2005) 93 SASR 198 at 203-204 [24].
I am satisfied that the due and proper administration of the Estate has been put in jeopardy, or prevented, by the acts or omissions of John in his capacity as executor. The evidence before the Court points to John’s conduct as having led to waste, loss, and unnecessary burden to the Estate.
There is evidence that John has neglected his duties as an executor by failing:
1to collect in the assets of the Estate;
2to determine whether the assets fall into the trusts or the Estate (through the corporate trustees);
3to liaise with the creditors of the Estate including the mortgagees of the Estate properties;
4to satisfy the creditors of the Estate including the mortgagees of the Estate properties;
5to manage any of the Estate properties;
6to maintain the Estate properties;
7to pay rates or apply to have statutory debts put into abeyance;
8to insure Estate properties; and
9to make efforts to call in, administer, or distribute the Estate since the deceased’s death to date;
and has caused waste to the Estate as:
1he did not insure the Estate properties;
2he has not liaised with creditors in order to satisfy outstanding debts against the Estate, any such debts will now have accrued interest;
3the properties are losing value due to lack of maintenance; and
4he appears to be residing in one of the Estate properties and, therefore, precluding the ability for the Estate to benefit from rental income.
I agree that the need to pass over John is exceptional in that John has wholly failed to administer the Estate and has caused loss to it. If he is not passed over, both the trust and estate properties are in danger of further loss due to the cross-collateralised nature of securities between the properties.
Pursuant to r 33 of the Probate Rules 2015 (SA), if John is passed over, Andrew assumes equal priority for grant. The evidence before me establishes that John is not a fit and proper person to take the grant. I am of the view that orders should be made that Andrew be granted letters of administration with the Will annexed. Accordingly, in the probate action, I make orders in terms of the draft minutes of order marked “A”, initialled by me and dated 29 March 2019 as follows:
1.The First Defendant, John Anthony Thornton, be passed over as executor of the will of John Henry Thornton, … deceased (“the Deceased”).
2.The Plaintiff, Andrew David Thornton, be appointed as administrator of the estate of the Deceased with the will dated 6 March 2002 annexed.
3.The Plaintiff’s costs of and incidental to this application be paid out of the estate of the Deceased, to be adjudicated or agreed on a solicitor-client basis.
The civil action
On 13 March 2019, I made orders that Andrew be joined to the civil action as the first other party and that Thornton Property Pty Ltd be joined as the second other party. Andrew subsequently made an application for orders pursuant to s 29 of the Supreme Court Act that a receiver (“the receiver”) be appointed without security of the property of the companies and the trusts.
The interlocutory application and affidavit in support affirmed by Mr Howard on 19 March 2019 was served on John on 20 March 2019 and on the defendant, JT Holdings (SA) Pty Ltd, and the second other party, Thornton Property Pty Ltd, by prepaid mail to their respective registered offices.
Copies of the Thornton Family Trust and the Thornton Property Trust are exhibited to Mr Howard’s affidavit. By reference to cl 6 of the schedule of the Thornton Family Trust and cl 6 of the schedule of the Thornton Property Trust, Andrew is a specified beneficiary. Andrew’s standing to make the application in the civil action is as a specified beneficiary of the trusts.
Section 29 of the Supreme Court Act empowers me to appoint a receiver by interlocutory order in all cases in which it appears to be just and convenient to do so. Further, I am empowered to make any such order either unconditionally or upon such terms and conditions as I think fit.[4] As submitted, the power of the Court to appoint a receiver is an equitable remedy which may be exercised whenever the Court considers it just or convenient to do so in accordance with s 29.
[4] Supreme Court Act 1935 (SA) s 29(2).
During oral submissions, I was taken to the decision of Warren J in Yunghanns v Candoora No. 19 Pty Ltd (No 2),[5] where her Honour stated:[6]
The general legal principle is that if misconduct, waste, or improper disposition of assets can be shown, or if it appears that the trust property has been improperly managed, or is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of duty there is a sufficient foundation for the appointment of a receiver: Kerr on Receivers, 17^th Ed. at pp.13-14.
[5] [2000] VSC 300.
[6] [2000] VSC 300 at [64].
It is submitted that the appointment of a receiver would preserve trust and/or estate property until there is a determination of how the property should be distributed.
As set out above, Andrew has established that the trusts and/or estate properties have been neglected and are in jeopardy, or the risk of jeopardy, in that the properties are in poor condition and have not been maintained since the death of the deceased.
Australian Unity Bank Ltd as mortgagee exercised its power of sale of the Eusebio Drive properties. The six cross‑collateralised properties are in danger of being sold by the mortgagee due to continuing default by John or the corporate trustees.
The appointment of a receiver is necessary to safeguard the properties of the trust and Estate assets for the benefit of the beneficiaries. It is submitted that John, being the directing mind of Thornton Enterprises Pty Ltd, is not a fit and proper person to manage the corporate trustee of the trusts in that he has neglected to maintain, administer, or manage the trust properties; causing loss, waste and damage. Further, two of the six properties are currently occupied. Those in occupation are paying money directly to John or another, and not accounting to the trust.
It is submitted that it may be the case that the companies are no longer trustees of the trust and it may be that John has lawfully acted as appointor in replacing one, or both of them, with Thornton Enterprises Pty Ltd. It is also submitted that even if that were the case the present companies would have a right of indemnity and exoneration in respect of the property of the trusts in respect of debts incurred by them as trustees.
I am satisfied that it is just and convenient to appoint a receiver to protect the assets of the corporate trustees and the trusts because it is necessary to preserve the wellbeing of the trusts which are in a state of disarray.[7] Further, the trust property is in jeopardy of loss and waste due to the cross‑collateralised securities and the failure to satisfy the corporate loan.
[7] Martyniuk v King [2000] VSC 319 at [14]-[16].
It will be the role of the receiver to protect the properties in the trust from further loss or waste, to investigate the actions of the corporate trustees and Thornton Enterprises Pty Ltd, to assist in determining whether the properties are properties of the corporate trustees in their own right or of the trusts and to do all things necessary to realise the properties of the trusts through sales.
Mr Ower SC points out that it is not possible to precisely define the powers required by the receiver. Such imprecision is caused by the lack of information available to Andrew relating to the trusts and the corporate trustees. In the circumstances, the receiver ought have the powers prescribed by s 420(1) and (2) of the Corporations Act 2001 (Cth) to avoid further application to the Court to extend powers. It is to be noted that the orders sought by Andrew restrict the distribution of assets without further approval of the Court.
Nicholas David Cooper, a registered liquidator, has consented to act as the receiver. As Mr Cooper is an official liquidator the giving of security may be dispensed with.[8] Andrew is unaware of the assets of the trust and the corporate trustees. He applies, therefore, for costs, expenses, and remuneration incurred by the receiver in his appointment to be paid, firstly, from the assets of the trusts; secondly, if they be insufficient, from the from the assets of the companies; and thirdly, if they too be insufficient, from the assets of the deceased as a testamentary expense; with the quantum of such costs, expenses, and remuneration to be approved by the Court.
[8] LexisNexis, Civil Procedure South Australia, vol 1, 6124 [253.40].
Andrew gives the usual undertaking as to damages, but only on the basis that he gives it in his capacity as the administrator of the Estate and does not attract personal liability. Any undertaking would, therefore, be limited to the assets of the Estate.
Noting the terms of the undertaking as to damages set out in the draft minutes of order marked “B” and noting that the undertaking is given on the basis that Andrew should not attract personal liability in an attempt to remedy the loss and waste caused by John’s acts or omissions; that he is not aware of the true status of the corporate trustees, the Estate or the trust as John has not provided him with sufficient information; and his attempts to protect the property of the Estate and the trusts from waste and loss caused by John; the Estate should bear the onus of the undertaking. If Andrew acts improperly as administrator of the Estate, he will attract personal liability in any event and be precluded from being indemnified by the assets of the Estate.

I am satisfied that it is appropriate, in the civil action, to make orders in terms of the draft minutes of order marked “B”, initialled by me and dated 29 March 2019 as follows:
UNDERTAKING:
Andrew David Thornton (in his capacity as the administrator of the estate of John Henry Thornton, deceased (“Estate”) and not in his personal capacity) undertakes that he will:
(a)submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) of the order or undertaking; and
(b)pay the compensation referred to in (a) to the person or persons referred to in the order,
to the extent that any payment of compensation for which he may be liable be limited to the amount that he may be indemnified from the assets of the Estate.
THE COURT ORDERS that:
1.Pursuant to s. 29 of the Supreme Court Act 1935 (SA), NICHOLAS COOPER of … (“the Receiver”) be appointed receiver without security of the property of:
1.1     JT HOLDINGS (SA) PTY LTD in its own capacity; and
1.2     THORNTON PROPERTY PTY LTD in its own capacity; and
(“the Companies”)
1.3     the Thornton Family Trust, established by trust dated 16 November 2001; and
1.4     the Thornton Property Trust, established by deed dated 16 November 2001
(“the Trusts”).
2.Subject to order 4, and noting that the Receiver shall have power in respect of the property of the Companies under s. 420 of the Corporations Act 2001 (Cth), the Receiver will have the following powers:
2.1     The power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to the attainment of the objectives for which the Receiver is appointed.
2.2 The general and specific powers referred to in s. 420(2) of the Corporations Act 2001 (Cth), provided that: wherever in section 420 the word “corporation” appears it shall be taken that those powers extend to the Trusts.
3.The amount of $100,687.45 paid into Court by the Plaintiff, Australian Unity Bank Ltd, on 4 February 2009, together with any interest accrued thereon, shall be paid out to the Receiver to hold as property of JT HOLDINGS (SA) PTY LTD or the Thornton Family Trust, as the case may be.
4.The Receiver shall not distribute the net assets of the Companies and the Trusts without further direction of the Court.
5.The Receiver shall file an account of the receivership within six months of the date of this Order, and every twelve months thereafter, until the discharge of the receivership.
6.The costs, expenses and remuneration incurred by the Receiver in acting as receiver be paid:
6.1     First, from the assets of the Trusts; and
6.2     Secondly, if they be insufficient, from the assets of the Companies; and
6.3     Thirdly, if they too be insufficient, from the assets of the estate of the late John Henry Thornton as a testamentary expense;
with the quantum of such costs, expenses and remuneration to be approved by the Court.
7.The First Other Party’s costs of this application be paid from the assets of the Trusts, and if they be insufficient, the assets of the estate of the late John Henry Thornton as a testamentary expense.
8.Liberty to any person to apply.