Bassett v Atherley
[2011] WASC 117
•9 MAY 2011
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: BASSETT -v- ATHERLEY [2011] WASC 117
CORAM: REGISTRAR C BOYLE
HEARD: 3 & 4 DECEMBER 2009, 3 & 4 FEBRUARY, 18 MAY 2010
DELIVERED : 1 SEPTEMBER 2010
PUBLISHED : 9 MAY 2011
FILE NO/S: PRO 3801 of 2006
MATTER :The Estate of Mary Taylor Eva (Dec)
BETWEEN: GRAEME BASSETT
RICHARD BASSETT
JOHN WINCHESTER BOWRING
RODNEY WILLIAM BOWRING
TREVOR ALLAN BOWRING
BRUCE GEORGE EVA
DONALD EVA
GARY EVA
IAN MORGAN EVA
JAMES HENRY EVA
JOHN EVA
LINDSAY HERBERT EVA
ROBERT EVA
FLORENCE GIBSONE
HELEN LAYCOCK
LYNETTE PECH
BARBARA E POULTNEY
CORAL WALTON
JUDITH WILLIAMS
ApplicantsAND
ROBERT CHARLES ATHERLEY
Respondent
Catchwords:
Deceased estate - Executor's account - Principles - Basis of accounting - Accounting on basis of wilful default not available - Observations on process generally - Circumstances in which the Registrar should decline to pass particular items or classes of items
Legislation:
Administration Act 1903 (WA), s 8, s 45
Non-Contentious Probate Rules 1967 (WA), r 3(1), r 37
Public Trustee Act 1941 (WA), s 9
Result:
Accounts passed in part only and subject to disallowance
Passing of balance of accounts to await determination by other means
Category: B
Representation:
Counsel:
Applicants: Dr P MacMillan
Respondent: Ms L Randall & Mr K A Dundo
Solicitors:
Applicants: Maxim Litigation Consultants
Respondent: Q Legal
Case(s) referred to in judgment(s):
Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] 1 Ch 515
Byers v Overton Investments Pty Ltd (2001) 186 ALR 280
Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12
Estate of Beatrice Anne Instone (Unreported, NSWSC, 23 August 1993)
Gava v Grljusich [1999] WASC 13
Glazier v Australian Men's Health (No 2) [2001] NSWSC 6
Holborow v MacDonald Rudder [2001] WASCA 91
In the Will of Kerrigan (1935) 35 SR (NSW) 242
In the Will of Sir Robert Lucas-Tooth (No 2) (1932) 50 WN (NSW) 86
Lindon v Cameron [1999] WASC 37
McLauchlan v Prince [2001] WASC 43
Re The Full Board of the Guardianship and Administrator Board [2003] WASCA 268
Re Waterman; Lloyds Bank Ltd v Sutton [1952] 2 All ER 1054
TK, PB & LS v Australian Red Cross Society (1989) 1 WAR 335
REGISTRAR C BOYLE:
Mary Taylor Eva and Robert Charles Atherley
These are reasons on the passing of an executor's accounts under r 37 of the Non-Contentious Probate Rules 1967 (WA). It is not common to give comprehensive reasons at the conclusion of such a proceeding. It is done in this case because of the quantum of the payments objected to, the nature of the allegations against the executor, and the possible consequences for the executor of any adverse finding.
The estate is that of Mary Taylor Eva, who died on 17 August 2006. She left a will dated 16 May 1994. On 10 October 2006 the court granted probate of the will to Robert Charles Atherley, the institute executor.
The objectors are 19 of the 22 named beneficiaries of the estate.
Mr Atherley was the deceased's accountant during her lifetime. He became her attorney pursuant to an enduring power effective 29 November 1996. He continued to exercise that power after Ms Eva became incapable of managing her own affairs, and ultimately he became her executor.
Mr Atherley was thus in turn a professional adviser to the deceased; her attorney; and ultimately her executor. In each capacity he owed either the deceased or her estate fiduciary duties. The content of those duties varied according to the relationship. On this application the court is concerned only with Mr Atherley's conduct as executor. There was affidavit evidence from both sides about events during the lifetime of the deceased. During the course of the hearing Mr Atherley was cross‑examined at length and without objection from his counsel as to his dealings with Ms Eva during her lifetime. In my view, the evidence so adduced bears upon these proceedings in this way. The state of Ms Eva's affairs at the date of her death is relevant to judgments about the reasonableness or propriety (in the limited sense in which that is in issue here) of the executor's conduct. Mr Atherley came into his role as executor with the knowledge he had acquired in his previous roles. What it was reasonable or proper for Mr Atherley to do as executor depended not only on his knowledge of the affairs of the deceased during her lifetime, but also upon the fact that as executor he was dealing with a state of affairs to which he had contributed in his earlier capacities.
Broad principles of passing accounts
While there is a foundation of concurrence as to the nature of proceedings under r 37 for the taking of an executor's accounts, there is a difference between the objectors and the executor as to the availability of certain powers, and the consequences of a certificate under r 37 (10). It is therefore appropriate to review the law concerning the taking of an executor's accounts.
The executor's function
Neither on the death of the will-maker nor on the making of a grant of probate does an executor become trustee of the estate. Rather, the property of the estate that comes to the executor by virtue of that office comes 'in full ownership, without distinction between legal and equitable interests': Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12, 18.
In this instance, some of the charges and expenses relate to activity between the date of Ms Eva's death and the date of the grant. By s 9 of the Public Trustee Act 1941 (WA), the estate of a deceased person vests in the Public Trustee upon death and until a grant of administration. However, s 8 of the Administration Act 1903 (WA) provides that on the grant of probate the estate of the deceased vests in the executor as from the date of death. There is thus a certain retrospectivity, or post-fact ratification, about a grant. The meaning of the relationship between provisions such as s 9 of the Public Trustee Act and the retrospective vesting as from the date of death on the making of a grant was explained by the Full Court of the Federal Court of Australia in Byers v Overton Investments Pty Ltd (2001) 186 ALR 280 and see also Re The Full Board of the Guardianship and Administrator Board [2003] WASCA 268 [46]. The result is that, once a grant has been made, the executor is both fully empowered from the date of death and also accountable as an executor. There is deemed to have been no interregnum.
When it comes to accounting of payments made by the executor, they must fall into one of two categories to be legitimate. The first category is payments made in satisfaction of the will‑maker's commands as to disposition of the estate. The second is that the executor is entitled to charge the estate with the proper and reasonable expenses of administration.
In certain circumstances, the proper expenses of administration may include remuneration of the executor. There is no claim in this case by the executor for commission as that term is understood in the law of deceased estates. Nor was there any charging clause in the will of Ms Eva specifically authorising the executor to charge for his time. Rather, the executor relies upon s 98(5) of the Trustees Act.
A statutory provision such as that does not give an executor carte blanche to charge. The entitlement of Mr Atherley to charge for his services was limited to charges that were usually charged by others in his profession, and that were reasonable in the circumstances. Such charges may be moderated on the passing of the executor's accounts and may be disallowed on the basis that there are wholly unwarranted, or on the basis that they are excessive: In the Will of Sir Robert Lucas-Tooth (No 2) (1932) 50 WN (NSW) 86, 87.
Moderation is not taxation. In Estate of Beatrice Anne Instone (Unreported, NSWSC, 23 August 1993), Powell J held at [26] that when an executor who is a professional person seeks to have his or her charges allowed in the accounts, the amounts in question will not be allowed unless they are either small amounts, or the relevant bill or charges have been taxed or moderated. His Honour went on to explain the purposes of moderation, citing Jordan CJ in In the Will of Kerrigan (1935) 35 SR (NSW) 242:
… moderation is a process for determining what charges may properly be allowed to an executor against an estate. If an executor employs a solicitor, the solicitor renders him a bill of costs for any professional services and an account for any other services; … and the executor may have the bill taxed to determine what is payable as between him and the solicitor. But it is also necessary for the executor to pass his accounts in probate in order to justify, as between himself and the estate, any payment which he may make. It does not necessarily follow that, because a bill has been taxed as between the executor and the solicitor, the amount allowed to the solicitor on taxation will be allowed to the executor as a proper outgoing on moderation as between the executor and the estate .. I think that the Registrar is not bound by the taxation; but he will, no doubt, as a matter of comity, attach such weight to it as he thinks it deserves.
Accounts: the legislative framework
Rule 37 provides that it is a Registrar who takes an executor's accounts, and various sub‑rules confer particular powers associated with that function. These rules enliven and regulate a jurisdiction conferred by s 43(1)(b) of the Administration Act. The rules do not themselves confer jurisdiction: TK, PB & LS v Australian Red Cross Society (1989) 1 WAR 335, 340.
The objectors point to r 4(1) of the Non-Contentious Probate Rules, which provides that, with certain specified exceptions, the Registrar has the powers of a judge in chambers in relation to grants of probate and administration, including powers exercisable by a judge in chambers under the Administration Act, the Supreme Court Act 1935 (WA), and the Rules of the Supreme Court 1971 (WA).
The objectors then refer to Rules of the Supreme Court O 67 r 17, which provides:
Where an account or inquiry is directed to be taken or made by, or a matter is referred to, a Registrar or other officer of the court, the provisions of Orders 35, 45, 51, 60 and 61 shall apply, in so far as they are relevant and with the necessary modifications, to and in relation to any such account, inquiry or matter.
Order 45 is titled 'Accounts and Inquiries'. It refers to the principles of surcharge or error: r 7; and just allowances: r 8.
If the submissions of the objectors are correct, the effect of O 67 r 17, by its referral to O 60, is to invest a Registrar taking accounts under Non-Contentious Probate Rule 37 with all the powers of a judge in chambers under the Supreme Court Act: O 60 r 1(1) and (6) and (7).
In some proceedings, the issue may be whether a party has a liability to account. In the case of an executor, there is no doubt about that: there is a liability to account, the procedures for requiring that account have been invoked, and the remaining question is the procedure to be followed in taking an account.
The Registrar may hear evidence and allow cross‑examination. He or she may determine issues arising: Holborow v MacDonald Rudder [2001] WASCA 91; McLauchlan v Prince [2001] WASC 43; Civil Procedure WA [45.1.1] and [45.1.3].
The first question to be considered by a Registrar is whether the accounts show a legitimate disbursement out of the estate. If the objector disputes a disbursement, the onus is on the executor to prove its correctness: Gava v Grljusich [1999] WASC 13.
There is a dispute between the parties as to whether the taking of an account under Non-Contentious Probate Rule 37 is a proceeding for an account on the basis of common default only as the executor contends, or an account on the basis of wilful default as the objectors contend. Because the terminology of this area of the law is not intuitive to those not immersed in it, it is worth clarifying what are the bases of taking an account.
In a common account, accounts are lodged supported by vouchers. If an objecting party disputes an entry, that entry must be justified by the accounting party. If it is shown that the accounting party has received funds that are not itemised in the account, it is said that the objecting party has shown a surcharge on the account. If the objecting party shows that an entry is false or incorrect, that is said to falsify the account. As it was put in Glazier v Australian Men's Health (No 2) [2001] NSWSC 6 [38]:
The usual form of order, referred to as an order in common form or for common accounts, requires the defendant to account only for what he or she has actually received, and his or her disbursement and distribution of it. The defendant prepares accounts and it is open to the other parties to surcharge or falsify items in those accounts. A surcharge is the showing of an omission for which credit ought to have been given, while a falsification is the showing of a charge which has been wrongly inserted, the falsifying party alleging that money shown in the account as paid was either not paid or improperly paid: Parker's Practice in Equity (New South Wales) (2nd ed by GP Stuckey and CD Irwin, 1949), p 269.
There can be various reasons why an account is falsified. They may include a breach by the executor of trust or of fiduciary duty. Unsurprisingly, disbursements made in breach of fiduciary duty will be disallowed: Lindon v Cameron [1999] WASC 37 [5].
Where there is a finding on the taking of an account that the relevant is not owing or is unreasonable then such amount is to be disallowed.
Wilful default?
So much is essentially common ground. What is the accounting on wilful default that the objectors contend is available?
On an accounting on the basis of wilful default, the account is not only of what has been received, but also what would have been received had the executor or trustee discharged his or her duties properly. Wilful default therefore involves the executor not doing something which he ought to have done, as distinct from doing something which he ought not to have done: Bartlett v Barclays Bank Trust Co Ltd (Nos 1 & 2) [1980] 1 Ch 515, 546.
If there is a finding of wilful default, the court taking the account may order the accounting party to replenish funds wrongly depleted, and so make restitution: Glazier v Australian Men's Health (No 2) [2001] NSWSC 6 [39] ‑ [42]; McLauchlan v Prince [2001] WASC 43; Gava v Grljusich [1999] WASC 13.
The question of whether an accounting on the basis of wilful default is available is significant in the facts of this case. The objectors contend, for example, that the executor wrongly paid out a legacy of $100,000. If that is correct and there is available an accounting on the basis of wilful default, then in passing these accounts it would be open to me to order the executor not only to repay that money to the estate (from his own pocket if he could not recover it from the party to whom he had paid it) but also to compensate the estate for the lost opportunity to earn income from the funds during the interval between wrongful payment and recovery.
The answer to the question whether an accounting on the basis of wilful default is available must depend upon the nature of the jurisdiction conferred by s 43 of the Administration Act to order an accounting. In my view, the path travelled by the objectors does not convincingly lead to a conclusion that accounting on the basis of wilful default is available. That path, as outlined above, is effectively an argument that the reference in Non-Contentious Probate Rule 3(1) to the Rules of the Supreme Court means that every power found in the latter Rules on roughly comparable subjects is available. That line of reasoning, it seems to me, is contradicted by the explanation about the nature and function of rules of court set out in TK v Red Cross Society and the cases there cited.
The question is what kind of taking of accounts s 43(1)(b) of the Administration Act contemplates. That has to be understood in the historical context of the practice of the probate courts from which the jurisdiction presently being exercised is descended. Reference to the classical texts suggests that an accounting on the basis of wilful default was only available where it had been specifically sought in a statement of claim (which suggests contentious proceedings) and where specifically ordered. See, for example, Williams, Mortimer and Sunnucks, Executors, Administrators and Probate (16th ed) 767, where it is said that an accounting on the basis of wilful default may be ordered if pleaded in a contentious action, and not under the (English) O 43. In Re Waterman; Lloyds Bank Ltd v Sutton [1952] 2 All ER 1054, it was held that an executor could not be charged with wilful default where the objectors had not commenced proceedings by writ alleging such a breach of trust. Because the genesis of our rules is in older forms of the English statutes and rules, such authorities are to me persuasive. See also Glazier [36].
My conclusion is that an accounting on the basis of wilful default is only available where it has been expressly ordered, and not under the ordinary procedure of taking of accounts under r 37.
That conclusion is fortified by some of the submissions made on behalf of the executor. For example, the objectors contend for the availability of O 45 of the Rules of the Supreme Court. The executor points to O 67 r 17. While not conclusive, that seems to me to support the view that accounting on the basis of wilful default is only available where expressly ordered.
The Estate at death
The r 9B statement filed by the executor with the motion for a grant of probate showed gross assets as follows:
| OUTSIDE WA $ | INSIDE WA $ |
| Movable Property | |
| St George Bank Limited a/c 650076103 | 809,141 500 829,978 1,000,000 74,840 298,650 |
| TOTAL | 3,013,109 |
| Immovable Property in WA | |
| 37 Sharon Street Pingelly Furniture | 180,000 6,000 |
| TOTAL IMMOVABLE PROPERTY | 186,000 |
| TOTAL ASSETS IN WA | 3,199,109 |
There were no debts shown.
The treatment of the share portfolio is something to which I return later, as it was the subject of a great deal of evidence and argument. The various investments in Majorbay Pty Ltd and China China Pty Ltd were also controversial.
The history of these proceedings in outline
By letter dated 29 July 2008, the solicitors for the objectors raised concerns about the accounting of the estate. As a result of what was put in that letter, on 1 August 2008 the court issued a notice in standard form requiring the executor to file and then pass his accounts. It set a first return date for the passing of accounts as 15 October 2008. The executor filed an initial set of accounts on 15 September 2008, and on 8 October 2008 the objectors filed notice of objections verified by affidavit as required by r 37(6). Both the accounts and the objections have since evolved and been refined.
There followed a series of hearings, at which the breadth and complexities of the concerns over the estate, and indeed the complexity of the estate itself, became increasingly apparent. Ultimately, there were four days of hearing on 3 and 4 December 2009 and 3 and 4 February 2010. There was a further appointment on 18 May 2010. Both parties filed thorough and helpful opening and closing submissions.
There is a long history of serious questions raised by the objectors concerning the executor's discharge of his duties. The major questions dealt with below were all raised early. Nothing that was put to Mr Atherley in his cross‑examination could possibly have come as a surprise to him. As the dates above indicate, there was a two‑month interval between the two‑day periods of evidence, during both of which Mr Atherley was cross‑examined. He had the opportunity in that interval to consider the available materials and provide explanations he could not provide from unaided memory.
Whatever may be the reasons for the executor's inability to provide explanations for his conduct, being taken by surprise cannot be one of them.
The objections
The objectors relied on amended consolidated heads of objection as at 5 October 2009, and the six affidavits identified in the objectors' amended outline of opening submissions of 15 October 2009.
The executor relied upon the affidavits identified in the executor's outline of submissions dated 16 October 2009. They included seven affidavits of the executor, and four bundles of vouchers. The principal affidavit of the executor was that sworn 29 January 2009. The final Form 4 statement of accounts is an attachment to that, and item numbers referred to in these reasons are item numbers in that statement.
The form of account required is prescribed under the Non‑Contentious Probate Rules. It is divided into parts. Part A is receipts and disbursements. The intention is that the accounts should provide an account on a cash flow basis of all moneys coming into the executor's hands, and all moneys he has paid out, whether as expenses of administration or in payment of legacies. That has not been followed in Mr Atherley's accounts. They show in Part E, the plan of distribution, amounts paid in satisfaction (or not) of the gifts of the will. The result is that the true total of payments made is the total of disbursements shown in Part A plus the distributions shown in Part E.
Expert evidence
Both sides relied on expert evidence. The objectors relied on two affidavits of Martin Paul Langridge, respectively affirmed 22 September 2009 and 30 November 2009. The executor relied on the affidavits of Robert Anthony Butler sworn 5 May 2009 and 13 October 2009.
Each of the experts was called.
Mr Langridge is a chartered accountant and a partner in the forensic practice of Deloitte Touche Tomatsu, chartered accountants. He has been a partner of the firm since July 1998. He was previously employed by Arthur Anderson from 1987 to 1996. His tertiary qualifications and professional memberships were outlined in an annexure to his first report of 22 September 2009. He has given expert evidence in the Federal Court, the Supreme Courts of Western Australia and the Northern Territory and the Administrative Appeals Tribunal.
Mr Butler is a certified practicing accountant, who has practised as an accountant since 1973. He is a partner of a practice that is a registered tax agent, and his primary duties involve financial accounting and business and taxation advisory services.
Both experts gave evidence about the reasonableness of the charges raised by Mr Atherley for his services as an accountant. Both were also questioned as to the nature of some services provided, particularly the 'portfolio reconstruction' issue.
Wherever there was any difference in opinion between these two gentlemen, I greatly prefer the evidence of Mr Langridge. That was for a number of reasons. First, he is more highly qualified. It was put by the executor that Mr Langridge's qualifications were less relevant to the nature of the accounting practice in which the executor was engaged than were those of Mr Butler. I do not accept that, by reason of the quality of Mr Langridge's reports and evidence. His conclusion were based upon objective research as to such matters as prevailing charge-out rates for various kinds of accounting services in the relevant periods. He showed an understanding of his responsibilities to the court as an expert witness, his opinions being expressed in careful, measured, objective terms. There was no hint in his reports of gratuitous criticism.
In preferring the evidence of Mr Langridge, I make no criticism of Mr Butler's character or endeavours. However, the fact is that he was simply much less prepared as an expert than was Mr Langridge. Mr Butler admitted that he had never previously given expert evidence. It also became apparent in the course of cross‑examination that he had assumed, for example, that the accounts that Mr Atherley had rendered to the estate had had attached to them printouts of the work charged for. It was clear from other evidence (including that of Mr Atherley himself) that that was not so. The absence from those accounts of the contemporaneous work in progress records is, as appears below, important. Mr Butler showed a willingness to rely on what Mr Atherley told him, without further enquiry, that reduced the value of his evidence.
The objections considered
In the course of the proceedings, some of the objections fell away. I deal only with those that were pursued. It is also possible to group some of the objections by subject matter and deal with them in that way, rather than by proceeding seriatim through the numbered objections.
Majorbay Pty Ltd and China China Pty Ltd
As the r 9B statement shows, a significant fraction of Ms Eva's wealth at the date of her death consisted in loans made to Majorbay Pty Ltd and China China Pty Ltd, and of shares in the latter company.
Ms Eva's investment in those companies was procured by Mr Atherley during her lifetime. Ms Eva was not counselled to take separate advice on the wisdom of those investments, and it appears she took none. Indeed, by the relevant time, she had probably lost capacity. It appears that it was in fact Mr Atherley as the attorney of Ms Eva who applied her funds to these investments.
The propriety of his doing so has been hotly contested by the objectors. Again, I emphasise that it is not my function to adjudicate on questions of whether Mr Atherley was in breach of his duties to Ms Eva during her lifetime. The connection between the probity of his conduct during the lifetime of the deceased and the passing of his accounts as executor is as follows. The investments appear to have been unsuccessful, although Mr Atherley maintains that one at least may return a profit. However, ultimately there may be significant losses to the estate. If Ms Eva's investment in these undertakings was procured by Mr Atherley in breach of his duties to her, then it seems to me that he cannot as executor profit from services provided in retrieving a situation that should never have been brought about. He commenced litigation in relation to one of these projects, and compromised a claim. Similarly, if Mr Atherley's conduct during the lifetime of Ms Eva after problems with these investments became apparent was improper, he cannot now profit by charging for his time.
It seems to me that if there is a credible suggestion that the work done by Mr Atherley for the estate connected with the Majorbay Pty Ltd or China China Pty Ltd investments resulted from, or is coloured or conditioned by, breaches of Mr Atherley's duties to Ms Eva during her lifetime, I could not allow these expenses. I repeat again that I cannot rule on the probity of Mr Atherley's conduct towards Ms Eva, but it appears to me that there is a significant body of prima facie indications that there have been breaches of duty. These include the absence of separate advice; the fact that Mr Atherley himself and another accountant working in his practice were involved as co‑investors; and the fact that after the initial investment Mr Atherley caused Ms Eva to make a substantial further loan to one of the companies when it was in distress. Further, Mr Atherley was a director of China China Pty Ltd. His position in relation to these companies and the estate seems to be hopelessly conflicted.
In summary, I cannot consider passing any of these items in these accounts until I can be satisfied that they did not come about as a result of breaches by Mr Atherley of his duties to Ms Eva during her lifetime. I cannot determine that question, so it follows that the proper course is to decline to pass so much of accounts as relate to Majorbay Pty Ltd or China China Pty Ltd until those questions have been determined. Even if those questions were resolved in favour of Mr Atherley, I still think it unlikely he could be allowed any of these charges, because there would still be conflicts.
Objection 2: Share sales and dividends
This objection relates to items 1 to 67 of the executor's accounts, detailing share sales and dividends. The objectors claimed that their own enquiries suggested that there might be further issuer-sponsored Wesfarmers shares other than those referred to in the executor's Form 4. The evidence of the executor as to the number of Wesfarmers shares has been inconsistent. However, I accept the executor's closing submission that par 6 of the executor's affidavit of 5 May 2009, and the attachments referred to in that paragraph, are correct. The position is that the dividend statements for the half-year ended 31 December 2008 show 799 shares at that date. On that basis, the accounts as lodged and qualified by the later affidavit are allowed.
Objection 5: Item 99: Estate of Mr Budge
This item records a payment received from the estate of E Budge of $81,341.06. The deceased's will gave her sister Elizabeth Budge her house at 37 Sharon Street, Pingelly, furniture, jewellery, personal effects and the sum of $205,000, as well as a share of the residuary estate.
On 5 December 2006 the executor paid $81,341.06 to the Pingelly Aged Care Hostel on account of Ms E Budge: Item 221 of the executor's accounts.
The explanation of the executor for this payment, as summarised at par 92 of the executor's closing submissions, is that Elizabeth Budge was a sister of the deceased. After the death of the deceased, Mrs Budge needed nursing home care. The sum advanced was that required to obtain nursing home accommodation. The executor correctly determined that her entitlement as a beneficiary would be a sum greater than $81,341.06. The executor paid that sum to the nursing home on behalf of Mrs Budge. It was subsequently returned after Mrs Budge died. The estate of Mrs Budge remains a beneficiary of this estate.
The objectors seek an account on the basis of wilful default, saying that monies should not have been advanced to Mrs Budge in this way: the executor has no authority to make loans, particularly interest‑free loans. The executor says that he acted honestly and reasonably and did not breach his duties. That the amount paid was subsequently returned was for ease of administration of the affairs of the estate.
It seems to me that it would have been open to the executor to pay $81,341.06 to Mrs Budge or at her direction as an advance against her entitlements under the will. Had he accounted for the payment explicitly as an advance against the entitlements of that beneficiary, there can have been no question of the executor having to account for any foregone interest. It does not seem to me that the subsequent return of the money, albeit for the curious purpose of making the administration of the estate easier, can retrospectively alter the propriety of the payment. Money went out that could have gone out. It has now come back. There is no basis for claiming interest on it, because there was no real basis, if the situation were properly considered, to say that the original payment was incorrect.
The objection is not upheld. The item is allowed.
Objection 6: Items 103 to 145
Payments by the executor begin at Item 103 of the Form 4. This objection relates to accounting and financial planning fees paid to Atherleys. The total of the items objected to is $594,291 on the account, but the executors' accounts were shown to be incomplete. The agreed total of charges for the portfolio reconstruction was $614,306.
The question is whether the fees are proper and reasonable. The burden is on the executor to show that they were.
The portfolio reconstruction
The largest single area of objection to the executor's accounts concerned charges Mr Atherley's accounting firm had raised against the estate for what was called a 'portfolio reconstruction'. It is necessary to explain how that term was used in the course of the proceedings. Ms Eva had a substantial share portfolio, and the estate maintained it after her death. Mr Atherley did not directly manage this portfolio by giving instructions to a broker to buy or sell share investments. Instead, the portfolio was at all times under the management of an external 'platform provider'. The identity of the platform provider changed over time, and indeed a change in platform provider was the genesis for the work claimed under the invoices the subject of these objections.
Platform providers managing a share portfolio provide periodic statements as to the state of the investment. It is obvious that these statements must be accurate and informative. They must provide, for instance, the data from which an accountant can prepare tax returns for the estate. These data will include details of dividend income, but also details of the purchase and sale of shares.
Mr Atherley claimed that he had learned that the statements being provided by the platform provider before Ms Eva died were seriously and systematically in error. It was therefore necessary, he asserted, to engage in what he called a 'portfolio reconstruction'. By this he meant that it was necessary to go through the reports provided by the platform provider, and check the accuracy of the information in them. Over the course of some months commencing shortly before Ms Eva died but ending after her death, Mr Atherley and others in his firm - but mostly Mr Atherley -worked over 900 hours of professional time in order to find and correct these errors. It is the invoices raised for this work that are the subject of objection. They were all raised after the date of death.
For the reasons that follow, I propose to disallow all of the items objected to so far as they relate to the portfolio reconstruction.
First I find the reasons given as to why this work was supposedly necessary unconvincing. That finding, in turn, breaks down into two subsidiary findings.
The first of the subsidiary findings is that there is no evidence of systematic or systemic or even recurrent error in the reports being provided by the estate. When pressed to give examples, Mr Atherley produced one example of a statement that related to a holding of Wesfarmers shares. The error he claimed was that the price shown for the acquisition of the shares was clearly wrong, because it was lower than any price at which Wesfarmers shares had traded in the period in question. However, a closer examination showed that Mr Atherley was incorrect. Although the form of the statement is not intuitively easy for the uninitiated to follow, careful examination shows that the figure Mr Atherley was looking at was not the purchase price of the shares: it was in fact the cost base for capital gains tax purposes. The shares had been bought at a higher price, but there had been a return of capital in the period in question. The figure shown was the purchase price less the return of capital. It was thus the cost base that would be used in calculating capital gains tax on sale of the shares.
The second subsidiary issue as to whether this reconstruction was necessary is this: if these reports, being provided by the third‑party commercial organisations whose business it was to provide them and which were charging substantial fees for doing so, were riddled with errors, why not go back to those organisations and demand that they fix the reports? This proposition was put in a number of ways to Mr Atherley in the course of his cross‑examination. I found his answers unconvincing. If there was a problem such as he contends with the reports, it was his obligation as executor to take that up vigorously with the provider. He did not do so.
Secondly, I find as a fact that the work claimed to have been done was not done. There are several reasons I so find. First is the absence of reliable contemporaneous records as to exactly what was done. Mr Atherley's evidence was that he and others in his practice kept records of work in progress. I found Mr Atherley's evidence as to the exact nature of these time records vague. It does not appear that there were paper timesheets that were then entered into a computerised accounting system: there seem to have been records entered directly into the computing system by the people doing the work. The evidence of Mr Atherley was that these work in progress records were in his computer. A printout is attachment 'RCA9' to his affidavit of 3 February 2009. It is described as an amended spreadsheet in par 3 of the affidavit. The form of this record provides no assurance that is an authentic contemporaneous record of work done.
There was no contemporaneous evidence in the form of working documents of any kind that could show, even in general terms, the nature of the work undertaken. The evidence of Mr Atherley was that the working practices in his firm were not such as to generate paper documents while such work was being done. Rather, the work consisted of making entries in a large spreadsheet. That spreadsheet was entirely lost when the computer on which the records of the financial planning section of his practice were kept crashed.
There was no corroboration of this evidence of computer malfunction. Mr Atherley said that his son, who has relevant expertise, tried to recover the data but could not. There was no evidence from anyone other than Mr Atherley of the occurrence or causes or consequences of this claimed computer malfunction.
The claim of lost data is not a convincing reason why Mr Atherley cannot explain in detail what he did, or why. One would have thought that a professional person who had put months of work into such a task would be able to provide more examples from memory, especially after refreshing himself by looking at the reports so criticised.
The claim is that an extraordinary amount of work was done, almost exclusively by Mr Atherley, in a period of some months. He said that he did most of this work at weekends, in addition to his normal professional practice workload.
Mr Atherley was cross‑examined at length on his account of the portfolio reconstruction. I observed him closely when he was giving evidence. I found his evidence unconvincing. I found it extraordinary that a man who claimed to have spent so many hours over several months on a project of such intensity could recall no detail at all. Of course, it is only to be expected that the vast body of detail would have passed from memory but one would expect particular instances to be remembered as anecdotes, and general outlines to be remembered. There was none of that. Mr Atherley's demeanour as a witness did not persuade me that there was truth to his improbable story.
One would have thought that the bills rendered by the accounting practice to the estate might have provided some contemporaneous evidence of the work being done. That proved not to be so. The bills were what would be called in legal parlance lump sum bills that carry a reference to an accompanying printout of work done. However, none of the bills rendered by Mr Atherley's accounting and financial planning practices to this estate had work in progress printouts or any other form of detailed explanation of the work charged for attached to them. I found Mr Atherley's reasons for this practice unconvincing. He attributed it to a desire to reduce the amount of paper and, as with so much else to do with his accounting for his stewardship, be thought it was 'not necessary' to attach details of the work done to the invoices.
At page 34 of the report of Mr Langridge dated 22 September 2009 (it is numbered page 36 as an attachment to an affidavit) is a graph that shows the relationship between work in progress recorded by Mr Atherley, and the cumulative amounts invoiced to the estate for the period from 23 March 2006 to 23 November 2008. That shows a dramatic accumulation of work in progress from $0 to $400,000 between 23 March 2006 and the date of death of Ms Eva, followed by a much slower and essentially constant increase in the total after that date. The invoices, however, do not begin until after the date of death, and then mount rapidly up in a way such that there is no obvious relationship either to the total of the work in progress recorded at any time, nor to the pattern of its recording. It is not the case that there is simply a lag between the recording of work in progress and its being invoiced: there is no correlation between the curves. The amount invoiced ultimately exceeds the amount recorded for work in progress, which in itself is curious.
Following the graph, Mr Langridge goes on to say (omitting footnote references):
•I make the following observations in relation to Graph 2:
-no invoices were issued between 23 March 2006 and 24 August 2006
-a cumulative WIP balance of $428,457.50 existed as at 24 August 2006, seven days after the date of death, at which time an invoice for $7,300 was issued
-notwithstanding Atherley's comment that Atherleys CPA does 'not charge clients until the conclusion of the work undertaken'
-invoices of varying amounts are issued from this date
-invoice timing is irregular
-the invoiced amounts do not correspond to the balance of the cumulative WIP
-the total amount invoiced exceeds the cumulative WIP balance from 7 January 2008
•I am unaware of any reason why invoices would have been issued in this matter
•as I have not been provided with details of Atherleys CPA invoicing to other clients, I am unable to contrast this account with the general practice of Atherleys CPA
•between August 2006 and June 2008 the invoices are sequentially numbered with five exceptions; between July 2008 and December 2008 invoices were sequentially numbered with ten exceptions
•over a period of approximately 28 months from August 2006 to December 2008 the invoice sequence rendered to the Deceased appears to have only 15 numbers missing numbers. These missing invoice numbers may represent invoices to other Atherley clients
•in the absence of any information regarding invoices issued to other clients of Atherleys CPA I am unable to comment any further. I note however that the apparent absence of invoices to other clients over this period may indicate a potential self-interest threat wherein Atherleys CPA is overly reliant on the fees charged to the Deceased
•two invoices in this period are out of date sequence
•invoice numbering appears to change in July 2008.
Mr Langridge went on to analyse the pattern of payment of these invoices in this way:
•invoices were paid by Atherley
•$375,470 in invoices (including GST or $341,336 excluding GST) are outlined as having been paid between 18 August 2006 and 15 September 2008 in Annexure A to Form 4 Accounts of Executors and Administrators
•RCA 1 and 2
•Form 4 Accounts of Executors and Administrators dated 29 January 2009
•RCA5 indicates that $544,820 (excluding GST) was invoiced with $540,264 (excluding GST) paid between 24 August 2006 and 5 September 2008. I note that this invoiced amount corresponds to the invoices I have seen. In the absence of further information as to transactions appearing in the Estate bank statements I am unable to confirm the amount paid to Atherleys CPA or correspond bank transactions to the invoices
•I am unaware of the cause of these variances between these reports.
In the absence of persuasive explanation from Mr Atherley, I regard the matters identified by Mr Langridge as the hallmarks of fabrication. See also the first report of Mr Langridge at items 5.3 and 5.4.
The third major reason for finding that this work was not done is that there is no evidence that it produced any result. Even if it were to be accepted that Mr Atherley's evidence about the loss of his working documents in a computer crash is correct, then one would have expected there to be available some evidence that these labours had some effect. One might have expected, for example, that Mr Atherley would be able to produce 'before' and 'after' snapshots of the state of the investment portfolio, and point to differences that must have been produced by the work he had done. He was not able to do so. Again, given the importance of these reports for the purpose of preparing tax returns, one might have expected Mr Atherley to point to tax returns that had been amended as a result of information gleaned during this reconstruction. There was no such evidence.
Taking together those factors of:
(a)the vague and unconvincing explanation of why the work was necessary;
(b)the lack of contemporaneous record of work done;
(c)the inability of Mr Atherley to remember any significant detail of the work he claims to have done; and
(d)the absence of any demonstrated outcome of all the work,
I am compelled to the conclusion that this work was never done. The work in progress records are, in my view, a reconstruction. The invoices objected to should be disallowed on that basis.
I would add that, even if I completely wrong and this work was done by Mr Atherley, there remains the irreducible fact that there is no evidence whatever that the estate obtained any benefit from it. Mr Atherley's duty to the estate as executor precluded him from treating the estate as simply another source of billable hours to be exploited for his profit. Even if Mr Atherley the accountant really had done all this work, there was no justification for charging the estate with it, because the estate obtained no benefit from it. If Mr Atherley commanded himself to do pointless work, he cannot profit from it.
Finally, as already noted, the total charges $614,036. The disproportion is obvious.
Objection 7: Items 146 to 204
These objections relates to administration fees and adviser fees paid to Asgard.
These fees were paid between 8 September 2006 (item 146) and 8 October 2008 (item 204) those designated administration fees, items 146 to 147, total $5,924.99. Those designated adviser fees, items 172 to 204, total $34,023.60. The total is thus $39,948.59.
There should have been no need for intensive management of Ms Eva's share portfolio following her death. In particular, in the circumstances of this estate there was no need to manage the portfolio with an eye to the long term. The will makes a limited number of specific gifts (none of them shares) and then disposes of the residue. The proper administration of this estate should have involved a prompt liquidation of its assets, followed by payment of specific and residuary gifts after meeting the expenses. One would have thought that a year to 18 months would have been sufficient time, allowing for the preparation of final tax returns and the like. Had that happened, there would have been no question of incurring continuing fees for management of the share portfolio. There is a suspicion that the reasons for delaying the administration are not good ones. One of them is the illiquidity in the estate caused by the Majorbay Pty Ltd and China China Pty Ltd investments.
I tend to the view that these fees ought ultimately to be disallowed because the need for continued management of the share portfolio ultimately derived from the problems with the Majorbay Pty Ltd and China China Pty Ltd investments. For that reason, I think the better course is to decline to allow these items. If the suspicions as to the Majorbay and China China investments are shown to be incorrect, then it may well have been reasonable for the executor to incur some expenses (although of what quantum I cannot say) for the maintenance of the share portfolio. I therefore decline to pass items 146 to 204 inclusive.
Objection 8: Items 233 to 256
These objections relate to legal fees paid by the executor to Q Legal.
I note the objectors' opening submissions at pars 96 to 101, and closing submissions at 9.1 to 9.24.
There are two aspects of this portion of the executor's accounts that are characteristic. One is that it has been a long process of trying to pin down the executor on exactly what he has spent and uncertainties remain: see objectors' closing submissions at 9.4 to 9.10.
The second is that there once again seems to be a close connection with the Majorbay investment, in particular. Again, I think that the reasonableness of the legal costs incurred by the executor cannot be determined until it has been established by other means whether the executor was in breach of his duties during the lifetime of Ms Eva. I therefore decline to pass items 233 to 256 inclusive.
Objection 11
This objection relates to Part C of the Form 4, dealing with the portion of the estate retained or remaining uncollected. The Form 4 shows an amount of $3,110.29 remaining to be collected from the Western Australian Department of Treasury and Finance.
The sum referred to was unclaimed monies the property of the estate advertised in a newspaper on 22 November 2008. At the last date of hearing, the executor had still not submitted the necessary documents to recover this money.
This is an item on which the objectors claim that the executor should account on the basis of wilful default. As I have already stated the view that it is not open to a Registrar on a passing of accounts under Non‑Contentious Probate Rule 37 to order an accounting on the basis of wilful default, I think the proper course is to decline to pass this item of the accounts.
Objection 12
This objection relates to Part D of the Form 4, referring to monies and securities held by the executor. The particular objection is to items D1 and D2. There are said to be amounts held as initial balances in specified accounts at St George Bank and Westpac Banking Corporation respectively. The objection is that in relation to the St George Bank account, Mr Atherley in an earlier version of his Form 4 annexed to his affidavit of 15 September 2008, listed receipts of $809,141 into this account. No evidence of the receipt or statements of accounts had been provided. In the Form 4 annexed to his affidavit of 29 January 2009, receipts into the account are said to be $109,098.43. No explanation has been provided.
I decline to pass this item of the accounts.
Objection 13
This item relates to items D5 and D6, dealing with China China Pty Ltd shares and loan.
For the reasons already given as to the entire history of dealings with Majorbay Pty Ltd and China China Pty Ltd, I decline to pass these items of the accounts.
Objection 14
This relates to item 2 of Part E the plan of distribution. While it is thus styled, in fact it shows payments that have already been made, purportedly in satisfaction of the terms of the will.
Item 2 is a payment on 15 August 2007 to Nancy Shepherd of $100,000.
The will of the deceased relevantly provides:
I give and bequeath to my cousin George Shepherd of 149 Kissing Point Road, Turramarra Sydney the sum of one hundred thousand dollars ($100,000).
It is accepted that George Shepherd predeceased the deceased. It seems quite obvious that as matter of law in these circumstances the gift lapsed and the sum fell into residue. Notwithstanding that, Mr Atherley took it upon himself to pay the $100,000 to Mr George Shepherd's widow Nancy.
This has been an item to which the objectors took strong exception from the very beginning of these proceedings. Over the course of numerous hearings, I awaited the development of some explanation justifying the payment. At an earlier hearing, counsel then appearing for the executor foreshadowed the development in argument of a justification of some legal novelty. In the end, none was forthcoming. It would be pointless to canvass in detail the evidence of the executor when he was pressed about this point, because the bottom line is that he was unable to give any justification that sounds in law. He was pressed as to why he had taken no steps to recover this sum from the widow, and could only say that he would do so only if the Court ordered him to do so. I found Mr Atherley's obduracy on this point inexplicable. The item is disallowed.
Conclusions, Certificate and Costs
My findings on the major heads of objection can be summarised as follows.
1.All charges by the executor in relation to the 'portfolio reconstruction' are disallowed.
2.Other professional fees charged by Mr Atherley (to the extent that they relate to items I am not declining to pass, or otherwise disallowing) I find to have been excessive. They are to be reduced by 40%. I accept the evidence of Mr Langridge as to Mr Atherley's charge rates. They were plainly excessive, and not even supported by Mr Butler's evidence.
3.The payment of $100,000 to the widow of the beneficiary Mr Shepherd is disallowed.
4.The payments to Asgard I decline to pass.
5.The claims for legal costs, so far as they relate to the passing of these accounts, are disallowed. So far as they relate the Majorbay Pty Ltd and China China Pty Ltd I decline to pass them.
Non-Contentious Probate Rule 37(9) provides that the costs of the accounting party and objectors are in the discretion of the Registrar. That discretion is to be exercised in accordance with the usual principles governing awards of costs. While I will hear the parties, it seems to me to follow necessarily that the executor ought not to be allowed any costs relating to the passing of accounts. The executor (not the estate) should pay the objector's costs. Given (if it not be already plain) that I have found that the executor has been guilty of sustained and serious breaches of his duty to account, it seems to me that costs should be ordered on an indemnity basis. Before making such an order, however, I would need to be satisfied that any costs agreements between the objectors and their legal representatives are reasonable. It would be helpful to have an indication what the objector's costs are to date, and the basis on which they have been calculated. If this information is not immediately available (which would not be unreasonable) it may be necessary to reserve the question of costs for further argument.
A draft certificate in accordance with r 37(10) is provided to the parties with these reasons. I will hear submissions as to the precise form of the certificate.
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