Austrust Ltd and Anor as executors of the estate of Howard, Alice Marie, deceased v Estate of the late Herbert, Evan Schomburgk and Anor
[1998] FCA 1621
•16 DECEMBER 1998
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY – Administration under Bankruptcy Legislation of Estates of Deceased Persons – order made that costs of opponent to grant of probate be paid out of costs of estate – whether debt incurred by legal personal representative of deceased person – costs not paid – whether opponent may apply under s 244(1) of Bankruptcy Act for sequestration order against estate.
WORDS AND PHRASES – meaning of “a debt incurred by the legal personal representative of a deceased person”
Bankruptcy Act 1966 (Cth), ss 5(1), 244(1)(b), 244(13), Part XI
Bankruptcy Act 1924 (Cth), s 155
Acts Interpretations Act 1901 (Cth), s 15AA
Administration and Probate Act 1969 (NT), ss 51, 52
Bone v Commissioner of Stamp Duties (NSW) (1974) 132 CLR 38, considered
Bone v Commissioner of Stamp Duties (NSW) (1976) 135 CLR 223, considered
Re Coward, ex parte Heiser [1956] SR Qld 412, followed
Taylor v Taylor (1881) 6 P&D 29, followed
Twist v Tye [1902] P 92, followed
Public Trustee v Hall [1937] SASR 252, followed
Re Green, deceased; Lloyd v Green [1969] WAR 67, followed
Davies v Gregory (1873) LR 3 P&D 28, followed
Re Paravicini (1930) 3 ABC 15, considered
Supetina Pty Ltd v Lombok Pty Ltd (1984) 5 FCR 439, applied
AUSTRUST LIMITED (ACN 007 869 794) and RICHARD GILMORE HOWARD as Executors of the Estate of ALICE MARIE HOWARD, deceased v Estate of the late EVAN SCHOMBURGK HERBERT deceased and Estate of the late OSCAR SCHOMBURGK HERBERT deceased
SG 7079 of 1998
MANSFIELD J
ADELAIDE
16 DECEMBER 1998
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SG 7079 of 1998
IN THE MATTER OF:
AUSTRUST LIMITED (ACN 007 869 794) and
RICHARD GILMORE HOWARD
as Executors of the Estate of
ALICE MARIE HOWARD, deceasedAPPLICANT CREDITOR
AND:
Estate of the late
EVAN SCHOMBURGK HERBERT, deceased
and the Estate of the late
OSCAR SCHOMBURGK HERBERT, deceasedRESPONDENT DEBTOR
JUDGE:
MANSFIELD J
DATE OF ORDER:
16 DECEMBER 1998
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
A Sequestration Order be made against the Estate of the late Evan Schomburgk Herbert, deceased, and against the Estate of the late Oscar Schomburgk Herbert, deceased.
The applicant creditor’s costs be taxed and paid from the said estates in accordance with the Bankruptcy Act 1966.
Bruce James Carter of Ferrier Hodgson of Level 5, 81 Flinders Street, Adelaide in the State of South Australia be appointed as trustee of the Estate of the late Evan Schomburgk Herbert deceased, and the Estate of the late Oscar Schomburgk Herbert deceased.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SG 7079 of 1998
IN THE MATTER OF:
AUSTRUST LIMITED (ACN 007 869 794) and
RICHARD GILMORE HOWARD
as Executors of the Estate of
ALICE MARIE HOWARD, DeceasedAPPLICANT CREDITOR
AND:
Estate of the late
EVAN SCHOMBURGK HERBERT, Deceased
and the Estate of the late
OSCAR SCHOMBURGK HERBERT, DeceasedRESPONDENT DEBTOR
JUDGE:
MANSFIELD J
DATE:
16 DECEMBER 1998
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
The issue on this creditor’s petition concerns s 244(1) of the Bankruptcy Act 1966 (“the Act”). The issue is whether an order for costs in favour of the applicant creditor in proceedings in the Supreme Court of the Northern Territory that its costs be paid out of the two estates named as respondent debtor is “a debt incurred by the legal personal representative of a deceased person” under s 244(1)(b) of the Act, so as to entitle the applicant creditor to present this petition for an order for the administration of the two estates.
There is no dispute about the facts.
Evan Schomburgk Herbert (“Evan”) died on 28 January 1974. Oscar Schomburgk Herbert (“Oscar”) died on 7 March 1974. They had each made identical wills on 1 October 1972, appointing Lawrence Cheong Ah Toy (“Mr Ah Toy”) and the survivor of Oscar or Evan as
executors and trustees. Under the wills, the real and personal estates of each of Evan and Oscar were to be held in trust for the surviving brother for life and, upon the death of that brother, for the use of Mr Ah Toy absolutely.
Austrust Ltd and Richard Gilmore Howard are executors of the estate of Alice Mary Howard deceased. I shall call them “the Howard Estate”.
The Howard Estate apparently lodged a caveat against the grant of probate of the wills of Evan and Oscar to Mr Ah Toy. They also challenged the validity of certain inter vivos dispositions of property by them to Mr Ah Toy. That led to proceedings in the Supreme Court of the Northern Territory. The first in time were proceedings 118 and 119 of 1980, brought by Mr Ah Toy to prove in solemn form the wills of Evan and Oscar (“the two probate actions”). The Howard Estate was a defendant to the two probate actions. Later, in proceedings 211 of 1998, the Howard Estate sought to challenge certain inter vivos dispositions (“the inter vivos action”) by Evan and Oscar to Mr Ah Toy and to Koolpinyah Station Pty Ltd.
On 14 July 1989, Nader J gave judgment in the two probate actions and the inter vivos action. His Honour granted probate of the wills of Evan and Oscar to Mr Ah Toy, and he rejected the challenge to the inter vivos dispositions. He made orders for costs in relation to those proceedings. On 28 November 1989, Nader J formally ordered that probate in solemn form of law of the wills of Evan and Oscar be granted to Mr Ah Toy.
There were appeals, and cross-appeals, from the decisions and orders. On 28 August 1990, the Full Court of the Supreme Court of the Northern Territory dismissed the appeals in the two probate actions and in the inter vivos action except in so far as they concerned the costs order made by Nader J in the two probate actions. The appeals on the questions of costs were in part successful. The Full Court ordered:
“2.The appeal against the judgment of 27 November 1989 in respect of the costs of the two probate actions Nos 118 and 119 of 1980 is allowed, the orders made on that day with respect to the costs of those actions are set aside, and in lieu thereof the following order is made:-
The respondent and the appellants are awarded their costs of the two probate actions out of the estates, to be assessed on an indemnity basis. Both respondent and appellants certified for more than one counsel.
3.The order made on 27 November 1989 that the costs of the trial be apportioned 50% to the two probate actions and 50% to the inter vivos action, is affirmed.
4.The order made on 27 November 1989 that the appellants pay the respondent’s costs of the inter vivos action No 211 of 1985, including reserved costs, is affirmed. Certified for more than one counsel, for the respondent.
5.The appellants are ordered to pay 50% of the respondents’ costs of the appeals. Certified for more than one counsel, for the respondents.”
That order was sealed on 14 September 1990. The effect of those orders, inter alia, was that the Howard Estate became entitled to its costs in the two probate actions, to be paid out of the estates of Evan and Oscar.
There was then an agreement as to the amount of costs to be paid. That agreement is recorded in a Deed of Settlement dated 25 July 1997 between the Howard Estate on the one hand, and Mr Ah Toy “as executor named” in the wills of Evan and Oscar on the other. Its recitals refer to the two probate actions, to the inter vivos action, and to the order for costs in the two probate actions in the following terms:
“A.The Howard Estate was Defendant in proceedings no 118 and 119 of 1980 commenced by Laurence Cheong Ah Toy (“Ah Toy”) as executor of the Estates of Evan Schomburgk and Oscar Schomburgk Herbert and was Plaintiff in proceeding no. 211 of 1985 against Ah Toy and Koolpinyah Station Pty Limited (“Koolpinyah”).
B.The Estates of Evan Schomburgk Herbert and Oscar Schomburgk Herbert were ordered by the Court of Appeal of the Northern Territory of Australia, by judgment dated 28th August1990, to pay the Howard Estates’ costs of proceeding numbers 118 and 199 of 1980.
C.The Howard Estate filed a Summons for Taxation and Bills of Costs of Messrs Cridland and Messrs Morgans in taxable form on 12th November 1992 in respect of the said Orders of 28th of August 1990.
D.The parties have agreed to compromise the Howard Estate’s said Bills of Costs on the basis set out herein.”
The relevant operative clauses of the deed were as follows:
“1.The parties hereby agree the amount of the Howard Estate’s costs pursuant to the said Order of 28th August 1990 shall be Three Hundred and Eighty Thousand Dollars ($380,000.00).
2.The said figure of Three Hundred and Eighty Thousand Dollars ($380,000.00) includes all items claimed in the Bills of Costs as filed together with the costs of and incidental to Cridlands’ and Morgans preparing for and attending for the taxation.
3.The said costs agreed in the said sum shall bear interest from 28 August 1990 in accordance with the Supreme Court judgment rate of interest from time to time.
4.In consideration of the aforesaid, the Howard Estate will discontinue or otherwise withdraw its Bills of Costs and undertakes never to seek to reinstate or in any other manner proceed with the taxation of the said costs.”
On 8 October 1997, the Howard Estate issued proceedings in the Supreme Court of Northern Territory in action number 226 of 1997 against the Estates of Evan and Oscar in respect of the costs payable under the Deed. On 2 December 1997, a default judgment was entered in that proceeding for $380,000 together with interest of $262,458.40 and costs of $545, making a total of $643,003.40 (“the judgment debt”).
The judgment debt has not been paid.
On 16 April 1998, the Howard Estate presented the petition (“the petition”) now before the Court for an order of administration in bankruptcy of the Estates of Evan and Oscar under s 244 of the Act in respect of the judgment debt against the Estates of Evan and Oscar. Mr Ah Toy as executor of their estates has appeared, and opposes the petition.
The opposition to the petition is that the debt alleged in the petition, namely the judgment debt, is not a debt to which s 244 applies. It is common ground that the relevant part of s 244 is subs (1)(b). Section 244 relevantly provides:
“244. (1) Subject to this section, where:
……
(b)a debt incurred by the legal personal representative of a deceased person of not less than $2,000 is owing to a creditor, or debts so incurred amounting in the aggregate to not less than that amount are owing to any 2 or more creditors,
……
the creditor or creditors to whom the debt or debts is or are owing may present a petition to the Court for an order for the administration of the estate of the deceased person (in this section referred to as “the deceased debtor”) under this Part.”
The critical question is whether the petition is based upon “a debt incurred by the legal personal representative of a deceased person” within the meaning of s 244(1)(b).
It is submitted for Mr Ah Toy that the obligation of the Estates of Evan and Oscar arises by reason of the order of the Full Court of the Supreme Court of the Northern Territory of 28 August 1990, in the two probate actions, and not from the Deed, or from the judgment debt, as the relevant order is that the costs be paid “out of the estates”. Thus, Mr Ah Toy contends, he is not required to pay those costs in his capacity as executor of the Estates of Evan and Oscar and he is not personally liable for them. The Deed does no more than quantify the amount of the costs.
Mr Ah Toy accepts that the Howard Estate is a creditor of the Estates of Evan and Oscar, and has an interest in his due administration of those estates. He contends that the remedy of the Howard Estate for non-payment of the costs on the judgment sum lies only in an application for his removal as executor of the Estates of Evan and Oscar or for due administration of those estates.
The Howard Estate submits that Pt XI of the Act entitled “Administration of Estates of Deceased Persons in Bankruptcy” is intended to provide a comprehensive code. Section 244 must, therefore, include reference to circumstances where a debt is owed by an estate arising from an order such as that presently in issue. As the costs order arose in proceedings in which Mr Ah Toy sought proof in solemn form of the wills of Evan and Oscar, the debt falls within the words of s 244(1)(b). Alternatively, it is contended, because the effect of the grant of probate was to vest in Mr Ah Toy the property of Evan and Oscar from the dates of death under s 52 of the Administration and Probate Act 1969(NT) (“the AP Act”), the costs order amounts to a debt falling under s 244(1)(b). As a further alternative, it is contended that the effect of the Deed or of the judgment debt is to lead to the existence of a debt falling under s 244(1)(b).
Section 244(1)(b) did not have a legislative ancestor in the Bankruptcy Act 1924 (Cth): see, s 155, Bankruptcy Act 1924. Section 244(1) contemplates that a petition may be presented in respect of debts of the estate incurred by the deceased person, or after that person’s death by the legal personal representative of the deceased person. It reflects the earlier provision in so far as it enables a petition to be presented without there having been an earlier act of bankruptcy, simply on the basis of the existence of the debt: ReParavicini (Deceased) (1930) 3 ABC 15.
No particular provision of s 244 appears specifically to be focussed upon what may constitute debts incurred by the legal personal representative. Section 244(13) clearly refers to administration suits, in the following terms:
“Where proceedings have been commenced in a court for the administration of a deceased person’s estate under a law of a State or Territory, a petition for an order under this section in relation to the estate shall not be presented by a creditor except by leave of the Court and on such terms and conditions (if any) as the Court thinks fit.”
It does not specifically address the present problem, namely whether an order for costs to be payable out of the estate in issue, made in such proceedings, is capable of constituting a debt under s 244 so as to entitle one person in whose favour an order for costs is made to petition for an order for an administration of the estate.
There is no dispute that the costs order, quantified by the Deed, and now reflected in the judgment, is a debt as defined in s 5(1) of the Act: Re Coward, ex parte Heiser [1956] SR (Qld) 412.
There is either a hiatus in the scope of the operation of s 244, which Mr Ah Toy contends, or the costs order made in the administration proceedings is, or by virtue of the Deed or the judgment has become, a debt incurred by Mr Ah Toy as the legal personal representative of the Estates of Evan and Oscar.
Mr Ah Toy is the legal personal representative of Evan and Oscar. Upon the grant of probate of their wills he became able, in a practical sense, to exercise his rights in that capacity. As there was an issue as to whether probate of the wills of Evan and Oscar would be granted to him, an administrator pendente lite of their personal estates and a receiver of their real estates were earlier appointed under s 32 of the AP Act until the resolution of the two probate actions. The administrator pendente lite so appointed was Public Trustee, but the appointment was only with respect to the inter vivos action as there was a perceived conflict of interest in the roles of Mr Ah Toy in his capacity as the named executor in their wills on the one hand, and as a recipient of certain inter vivos transactions on the other. In addition, under s 51 of the AP Act, an estate vests in Public Trustee upon death until it vests in some other person. Section 52 of the AP Act provides:
“52. Upon the grant of representation of the estate of any deceased person, all the property whether real or personal which the person has left within the Territory, and which is unadministered at the date of the grant, shall, as from the death of that person, pass to and become vested in the executor to whom probate has been granted or the administrator (as the case may be) for all his estate and interest therein in the manner following, that is to say:-
(a) on testacy, in the executor or administrator with the will annexed;”
Thus, upon the acceptance of proof of the wills in solemn form by Nader J (and upon the affirmation of that order by the Full Court of the Supreme Court of the Northern Territory on 28 August 1990: cp. Taylor v Taylor (1881) 6 P&D 29), the property in the Estates of Evan and Oscar so far as it had not been administered by Public Trustee vested in Mr Ah Toy, and did so from the respective dates of death. In Williams, Mortimer and Sunnucks On Executors, Administrators and Probate (Stevens & Sons, 1993) at 83 there is a convenient summary of that position at common law:
“Where an executor is appointed by a will, he derives title from the will, and the property of the deceased vests in him from the moment of the testator’s death, so that probate is said to have relation to the time of the testator’s death.”
That seems to have been reflected in s 52 of the AP Act.
However, Mr Ah Toy contends that the proper construction of s 52 of the AP Act means that the point of time at which the formal sealed order of the Court occurs, rather than the time of pronouncing judgment, is the critical time. He refers to the definition of “representation” in s 6 of that Act. He says there is no grant of representation until that point, and not per se by the announcing of judgment: Bone v Commissioner of Stamp Duties (NSW) (1974) 132 CLR 38 at 46 and 54. The Howard Estate responds that s 6 of the AP Act should not limit the proper scope of operation of s 244(1)(b) of the Act. It points to the terms of the costs order. On this particular aspect, it also submits that the advice of the Privy Council overruled the decision of the High Court: Commissioner of Stamp Duties (NSW) v Bone (1976) 135 CLR 223 at 227-228 in relevant respects. For reasons which appear below, I do not think that that contention by Mr Ah Toy is really to the point. I do not need to address the High Court decision and the advice of the Privy Council in Bone.
In my judgment, the effect of the costs order is to create a debt “incurred by the legal representative” of Evan and Oscar, so as to entitle the Howard Estate to present the petition under s 244(1)(b) of the Act.
In cases involving proof of a will in solemn form, it has long been recognised that the normal rules as to costs apply: Twist v Tye [1902] P92, namely that costs follow the event. In that case an unsuccessful proponent of a disputed will was ordered to pay the costs of the proceeding. In Public Trustee v Hall [1937] SASR 252, an unsuccessful proponent to the proof of a will in solemn form was ordered to pay costs. An illustration is provided by ReGreen, deceased; Lloyd v Green [1969] WAR 67. There have been cases where the costs of the unsuccessful opponent have been ordered to be paid out of the estate, where it has been concluded that the conduct of the testator has in some way warranted that opposition: see the discussion of that principle by Sir J Hannen in Davies v Gregory (1873) LR 3 P&D 28 at 32-33, and by Gorell Barnes J in Twist at 93-94. In that latter case, his Lordship appears to have extended the scope of the principle by reference to the reasonableness of the opponent’s attitude in the circumstances.
What is apparent is that the order for costs is not the product of some peculiar rule of principle or practice. It is the result of the application of a judicial discretion generally exercised in inter partes litigation, but exercised in the particular circumstances of the case. It does not attract a characterisation which warrants it being regarded as special, for the purposes of the general law, including the Act. There is no reason why, as a liability of the estates of Evan and Oscar, it ought not be treated as recoverable in the normal way. Upon the making of the costs order, Mr Ah Toy became responsible to give effect to it. His conduct in agreeing the quantum of that entitlement by the Deed reflects that responsibility.
In those circumstances, rather than accept a hiatus in the scope of operation of s 244(1)(b) of the Act, in my judgment it is more appropriate to interpret the expression “incurred by the legal personal representative” as including a debt which the legal personal representative of the deceased person becomes liable to pay in the capacity as legal personal representative. It is not necessary to interpret “incur” to require some deliberate act on the part of the legal personal representative on behalf of the estate. Of course, that will commonly be the circumstance giving rise to a debt to which s 244(1)(b) applies. But “incur” is also capable of describing the circumstance of finding oneself subject to a liability or consequence (SOED, Vol 1, 1993, page 1344). That is the effect of the costs order. The use of the word “by” in conjunction with the word “incurred” in the context serves only to indicate that the debt is, in reality, the debt of the estate so that it is the legal personal representative in that capacity, rather than in a personal capacity, who is responsible to pay that debt.
In my view, that approach reflects the legislative mandate in s 15AA of the Acts Interpretation Act 1901 (Cth): Supetina Pty Ltd v Lombok Pty Ltd (1984) 5 FCR 439 at 442. The purpose of s 244(1)(b) is, in my view, to enable a person who is owed money recoverable from an estate, as a result of events which took place after the death of the deceased, and which the legal personal representative of the estate should pay from the estate (as distinct from having a personal liability to pay), to take steps in respect of that debt under the Act. It is complementary to the rights which s 244(1)(a) and (c) provide, in respect of debts which existed as at the date of death or which come into existence after the date of death by reason of events which occurred before that date.
Accordingly, I conclude that the petition is properly brought under s 244(1)(b) of the Act.
I am satisfied on the material before me that the formal and substantive requirements of the Act have been met. No evidence, or submission, was proffered to indicate that there were particular matters which warranted the Court, as a matter of its discretion, declining to make the order sought. There was no evidence that the estates of Evan and Oscar were solvent, or that Mr Ah Toy would, or could, make payment of the judgment debt within any particular period of time. There is no submission that I should not appoint the person whose consent has been procured to act as trustee, in the event that I make orders under s 244(1)(b) of the Act.
Accordingly, I order:
That a Sequestration Order be made against the Estate of the late Evan Schomburgk Herbert, deceased, and the Estate of the late Oscar Schomburgk Herbert, deceased.
That the applicant creditor’s costs be taxed and paid from the estate of the respondent debtors in accordance with the Bankruptcy Act 1966.
That Bruce James Carter of Ferrier Hodgson of Level 5, 81 Flinders Street, Adelaide in the State of South Australia be appointed as trustee of the Estates of the late Evan Schomburgk Herbert, deceased, and of the Estate of the late Oscar Schomburgk Herbert deceased.
I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield
Associate:
Dated:
Counsel for the Applicant: Mr N Morcombe QC
with him
Mr D MorganSolicitor for the Applicant: Morgans Counsel for the Respondent: Mr S Milazzo Solicitor for the Respondent: Ward Keller Date of Hearing: 18 September 1998 Date of Judgment: 16 December 1998
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