Beard v Turkovic - [2020] WASC 248

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   BEARD -v- TURKOVIC [2020] WASC 248
CORAM:   TOTTLE J
HEARD:   24 JUNE 2020
DELIVERED          :   24 JUNE 2020
PUBLISHED           :   1 JULY 2020
FILE NO/S:   CIV 2362 of 2019
BETWEEN:   MARLENE DOROTHY BEARD AS BENEFICIARY OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
First Plaintiff
SUSAN CATHERINE NORVILAS AS BENEFICIARY OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
Second Plaintiff
AND
JURGEN MICHAEL TURKOVIC AS CO-EXECUTOR OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
First Defendant
ROLF FRANZ TURKOVIC AS CO-EXECUTOR OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
Second Defendant
KLAUS DIETER TURKOVIC AS BENEFICIARY OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
Third Defendant
ROLF FRANZ TURKOVIC AS BENEFICIARY OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
Fourth Defendant
JURGEN MICHAEL TURKOVIC AS BENEFICIARY OF THE ESTATE OF THE LATE MICHAEL TURKOVIC
Fifth Defendant

Catchwords:

Wills and estates - Probate - Application for revocation of grant of probate - Whether removal of co-executor necessary for due and proper administration of estate - Where evidence of total deterioration of relationship between co-executors - Where significant conflict between executor and beneficiaries - Whether court can be satisfied that executor will act in best interests of the estate - Turns on own facts

Legislation:

Supreme Court Act 1935 (WA), s 18

Result:

Grant of probate revoked

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr A P Heshowitz
Second Plaintiff	:	Mr A P Hershowitz
First Defendant	:	Mr R A Zilkens
Second Defendant	:	Mr T Darbyshire
Third Defendant	:	No appearance
Fourth Defendant	:	In person
Fifth Defendant	:	Mr R A Zilkens

Solicitors:

First Plaintiff	:	Rowe Bristol Lawyers
Second Plaintiff	:	Rowe Bristol Lawyers
First Defendant	:	Zilkens
Second Defendant	:	Kott Gunning
Third Defendant	:	No appearance
Fourth Defendant	:	In person
Fifth Defendant	:	Zilkens

Case(s) referred to in decision(s):

Tsaknis v Lilburne [2010] WASC 152
Woodley v Woodley [2017] WASC 94

TOTTLE J:

(This judgment was delivered extemporaneously on 24 June 2020 and has been edited from the transcript.)

Introduction

This application arises out of a dispute between siblings about the administration of the estate of their late father Michael Turkovic (the deceased). The two daughters of the deceased, the plaintiffs, Marlene Beard and Susan Norvilas, apply for an order that the grant of probate to their brother, the first defendant, Jurgen Michael Turkovic, be revoked and he be removed as an executor of the estate. Probate of the deceased's will was granted to the first defendant and his brother, the second defendant, Rolf Franz Turkovic. All of the deceased's children are beneficiaries under his will.
In these reasons, without intending any disrespect, I will refer to the family members by their first names, save that I will refer to the first defendant by the name by which he is known to family members, Mike. There is a fifth sibling, the third defendant, Klaus. Klaus has not entered an appearance or participated in these proceedings. Klaus has made a family provision claim against the estate

The evidence

Marlene and Susan rely on a number of affidavits sworn by them and by their solicitor.[1] There was no cross-examination on the affidavits relied on by them and no challenge to their evidence.
[1] Affidavit of Marlene Dorothy Beard sworn 1 August 2019; Affidavit of Susan Catherine Norvilas sworn 1 August 2019; Affidavit of Mark Alexander Kenneth Richards sworn 1 August 2019; Affidavit of Marlene Dorothy Beard sworn 15 October 2019; Affidavit of Susan Catherine Norvilas sworn 15 October 2019; Affidavit of Susan Catherine Norvilas sworn 14 April 2020.
Mike relied on an affidavit sworn by him on 17 September 2019. Mike was cross-examined. The cross-examination was conducted by audio‑visual link with Mike in the United States, where he lives.
Rolf relied on an affidavit sworn by him on 7 November 2019. Rolf's evidence was broadly consistent with, and corroborative of, the evidence adduced by Marlene and Susan. Rolf supports the application.
The evidence covered a number of aspects of the family history and the establishment of a trust (to which I will refer in more detail) that are of peripheral relevance to the issue to be resolved on this application. For that reason, it is unnecessary for me to reproduce much of the evidence adduced on the application.

The facts

Many of the essential facts were not the subject of any material dispute. The following account is derived largely from the unchallenged evidence adduced by Marlene and Susan, and from Rolf's affidavit evidence.
The deceased died on 17 October 2017. In his will made on 25 August 2011 the deceased named Mike and Rolf as executors and trustees. Subject to the payment of a pecuniary legacy of $100 to Klaus, the deceased left his residuary estate to such of Mike, Rolf, Susan and Marlene as survived him, and if more than one in equal shares. The will contained the usual provision for substitutional gifts should any of the deceased's children predecease him leaving grandchildren who survived him.
Probate of the will was granted to Rolf and Mike on 12 February 2018. The statement of assets and liabilities prepared in support of the application for the grant of probate listed immovable property, comprising money in various bank accounts amounting to $204,893 and household items valued at $4,000 together with immovable property of $300,000. The immovable property comprised a one‑half share in the deceased's home in West Perth.
As will become apparent, there is an issue as to whether the statement of assets and liabilities recorded the composition and value of the deceased's estate accurately.
The deceased was married to Maria Turkovic, the mother of the parties to this application.
Maria died on 23 April 2008. The deceased and Maria had lived separately and independently for many years prior to her death. It is necessary to say something of Maria's circumstances in the years preceding her death. In July 1998 Maria was discharged from Swan Districts Hospital into the St David's Nursing Home. She was unable to look after herself due to the onset of dementia. Maria's home was sold and the proceeds of sale deposited into her bank account.
On 9 November 1999 a trust was established and each of the children were named as primary beneficiaries, each with an entitlement to a one‑fifth share of the trust fund (Maria was not a beneficiary of the trust). The trust fund was constituted by the proceeds of sale of Maria's property. The vesting date of the trust was the date of the death of Maria. The trustees were Rolf and Susan. The trust was named the Turx Trust.
It is unnecessary to recite the history of the dealings with the trust fund of the Turx Trust in any detail. It is sufficient to record that in about February 2000 Mike began running the financial affairs of the trust. A bank account for the Turx Trust was opened with St George Bank to which Mike and Rolf were the signatories. It appears a substantial amount of Maria's money was deposited into this bank account. The statements for the bank account were sent to Mike, who was living in Melbourne at the time. Rolf redirected to Mike any statements or other documents relating to the Turx Trust received by him. The money in the Turx Trust bank account was used to trade shares and at some stage trust monies were used to purchase an investment property.
On 5 May 2010 distributions were made from the trust bank account by Mike to each of the other beneficiaries. Mike asked the other beneficiaries to sign what he referred to as 'release letters'. Mike kept the trust bank account open and, from May 2010, used it as a bank account for what he described as his 'personal financial transactions'.
Marlene and Susan raised a number of issues about Mike's involvement in the deceased's financial affairs, specifically, whether he has accounted for all of the deceased's assets. It is only necessary to deal with two of the issues raised by Marlene and Susan. These concern money inherited by the deceased from his sister, Radmila, who lived in Serbia and died on 10 September 2008 and money inherited by the deceased from his cousin Ana Kostic. Ms Kostic lived in the United States and she died in about 2004. Before turning to the circumstances surrounding these inheritances I will relate how Marlene and Susan came to know of Mike's dealings with these inheritances.
For some years preceding the deceased's death Mike lived in the United States. That is where he continues to live. When the deceased died Mike returned to, and remained in, Australia between late October 2017 and early February 2018. Mike divided his time between Perth and Melbourne and when in Perth, Mike stayed in the deceased's house. Before leaving to return to the United States, Mike gave Rolf two boxes of documents relating to the Turx Trust. In turn, Rolf gave the boxes of documents to Marlene.
Later in February 2018, after Mike had returned to the United States, Marlene, her husband, Mr Ed Beard, and Susan attended the deceased's house to sort through his personal effects. They did so with permission from Rolf. In the course of doing so they found a further box of documents with the words 'Turx Trust' written on the outside.
On reviewing the contents of this box of documents Marlene and Susan found a number of bank statements and other bank documents relating to transfers of funds from Turx Trust bank account. The statements and other records were annotated by Mike with explanations as to the purpose of the transactions recorded in them. Relevantly, the documents recorded the money inherited by the deceased from his sister had been paid into the Turx Trust bank account. The annotations appeared to record, though this was strenuously denied by Mike when cross‑examined on the topic, that money from the Turx Trust bank account was used for the purchase of a property in Texas (the China Springs Property). Further, the documents and annotations appeared to disclose the money inherited by the deceased from Ms Kostic had been paid to Mike's wife and used for the purchase of another property in Texas, (the Groveshire Drive Property).
Mike does not dispute the deceased inherited $164,320 from his sister, Radmila, and that this sum was paid into the trust bank account on 15 October 2008.
In his affidavit evidence Mike said that the deceased asked him to hold the $164,320 for him. He deposed that he deposited the funds into the trust bank account and kept a ledger so to be able to keep separate track of the money that belonged to the trust and money that belonged to the deceased. In the course of cross-examination Mike said that the $164,320 had been used in paying expenses incurred by the deceased.
In the course of a meeting held on 27 October 2018 and attended by Mike, Rolf, Marlene, Susan, and Marlene's husband, Ed, Mike made a number of statements about the $164,320. With the consent of those present, the meeting was recorded and a transcript of the recording was prepared and included in Marlene and Susan's affidavit evidence. The transcript included statements to the effect that:
(a)The deceased wanted the funds to be distributed to his grandchildren.
(b)The deceased agreed that Mike should invest the money on his behalf. In this respect Mike said:
…[The deceased] and I spoke about it and I believe he understood what it was about, and I said, 'look, you have got a number of options. You can either declare it and lose your pension'; right? 'or I could put it into the Turx Trust and look for something to do with it'; right? I said, 'as long as it is not in your account, then you will get your - you will maintain your pension'. That is all it - what we were after.
Later in the meeting when Mike spoke about the investment of the $164,320 Rolf said:
We have discussed that. We understand what you are saying. So you have invested it in America so it would not affect his pension.
To which Mike replied:
It is protected.
(c)The China Springs Property was being sold 'probably on the first weekend of November'.
(d)The $164,320 would be refunded.
When the statements set out above, and other statements made by him in the course of the meeting on 27 October 2018, were put to him in cross-examination, the explanation Mike gave was to the effect that the statements were made in error by him. He explained the error was caused by the pressure he was under in the course of the meeting. Mike said that he had offered to provide a reconciliation of the funds he had held but this offer had not been accepted. In a letter sent by his then solicitors to Marlene's and Susan's solicitors on 4 February 2019, over three months after the 27 October 2018 meeting, Mike's account of having a discussion with the deceased about investing the $164,320 in the purchase the China Springs Property given at the meeting was confirmed. Mike's solicitors wrote:
After consultation with his father Mike invested the funds in the China Springs Property in the United States. That property has just been sold.
Marlene annexed to her affidavit a statement for the trust bank account for the period ended 31 May 2011 which recorded a debit of $130,841.12 described as 'overseas T/T' against which there is an annotation in the following terms 'Loan Mike Turkovic Purchase China Springs'.
In his affidavit evidence Mike did not make any statements about the application of the $164,320, or any part of it, in the purchase of the China Springs Property, nor did he make any statement about the sale of that property or accounting to the estate for the $164,320. There is no reference to the $164,320 in the statement of assets and liabilities prepared for the purposes of obtaining the grant of probate. In cross‑examination Mike said that all of the money inherited by the deceased from his sister had been used meeting the deceased's expenses and that, in fact, the deceased owed him money.
Mike did not deny the deceased inherited US$50,000 from the estate of Ms Kostic. Ms Kostic's estate had been the subject of probate litigation in the courts in the State of Illinois in the United States. Susan was involved in corresponding with the lawyer who acted in that litigation, as was Mike. Mike and the deceased attended the trial of the action that led to the determination of the deceased's entitlement to a share in Ms Kostic's estate. On 21 May 2010, US$49,978 (US$50,000 less a bank fee of $22) was paid into an account in the name of Mike's wife, Debra Turkovic, held at a branch of the Frost National Bank in Texas.
Marlene annexed to her affidavit records relating to the transfer from the Turx Trust bank account of $68,230.79 (US$56,980) to an account in the name of Debra Turkovic at the Frost National Bank. One of the documents was annotated with an 'Explanation' which suggested that US$56,980 and US$49,978 had been loaned to Mike for investment in the purchase of the Groveshire Drive Property. In cross‑examination Mike denied that his annotations contained or implied that the funds had been loaned to him.
In his affidavit evidence Mike deposed that the deceased had gifted to him the US$50,000 inherited from Ms Kostic. Mike deposed as follows:
I had a private conversation with my father where he gifted the money from Ana's estate to me. He did not mention it to any of the siblings. My father said: 'I am so proud of you because out of all the children you are the only one who has made so much effort. You took care of my sister and you have helped me with so much over many years and also made the effort to meet and visit everyone in the family and never asked for anything in return, I respect that. That is why I am gifting you the money from Ana, you deserve it.'
Mike also deposed that a separate sum of US$4,500 (less a wire transfer fee) was deposited into the trust bank account in June 2011.
At the meeting held on 27 October 2018 Mike did not mention that the US$50,000 was gifted to him by the deceased. His explanation was that the $50,000 had been used to meet the deceased's expenses. In response to Marlene saying to him:
And the estate of Ana Kostic that went into Debbie's account. We know that. That was the only way we could get Ana's money, because it had to go into an American bank account.
To which Mike replied:
Yes. And that was spent; right? There was roughly 50,000 spent on Dad's expenses.
Later in the meeting on 27 October 2018 Mike said
… There was 50,000 spent, on Dad, which was the first distribution out of Ana's estate; right?
And a few moments later:
There is something around, which I have to try and dig out, which did account for all Dad's money, the $50,000 that was spent out of that trust. So that is done and dusted its bona fides expenses; all right?
Again in the course of cross-examination Mike explained, in effect, that the statements set out above were made by him in error as a result of the pressure he was under at the meeting.
The Groveshire Drive Property was sold in March 2019 for the sum of approximately US$219,000.
Currently on the evidence before the court the principal matters that prevent finalisation of the administration of the estate are Klaus's family provision claim and the possible claims the estate may have against Mike, as identified by Marlene and Susan in their evidence and the submissions on this application. Mike contends that the estate has claims against Marlene and Susan in respect of items of the deceased's personal property misappropriated by them. Absent other evidence, some indication of the potential magnitude of these claims is provided by the amount specified in the statement of assets and liabilities for household items - $4,000.

Relevant legal principles

In the exercise of the court's jurisdiction in probate matters under s 18 of the Supreme Court Act 1935 (WA) the court has power to revoke a grant of probate to an executor which results in the removal of that executor. There is no doubt that the court also has inherent jurisdiction to remove an executor by the revocation of the grant of probate to him or her or to pass over a named executor who seeks a grant of probate.
The considerations that guide the exercise of the court's jurisdiction to revoke a grant of probate or pass over an executor were helpfully canvassed and explained by EM Heenan J in Tsaknis v Lilburne[2] and by Pritchard J in Woodley v Woodley [No 2][3] and the principles outlined in the following paragraphs are derived from their Honours' judgments in those cases.
[2] Tsaknis v Lilburne [2010] WASC 152 [51] - [62].
[3] Woodley v Woodley [No 2] [2017] WASC 94 [45] - [57].
The primary concern of the court is to ensure that the estate of a deceased person will be duly and properly administered according to the terms of the will in the interests of the parties beneficially entitled to the estate.
The test is whether the due and proper administration of the estate has been put in jeopardy or prevented, either by reason of acts or omissions on the part of the executor, or by virtue of matters personal to him or her, or by virtue of the proof of other matters which establish that the executor is not a fit and proper person to carry out the duties of an executor.
There are a great variety of circumstances in which a named executor may be passed over, or in which a grant of probate to an executor will be revoked on the basis that the executor cannot, or should not be permitted to, continue to undertake that role. A number of examples were given by EM Heenan J in Tsaknis.
Executors have been passed over, or the grant of probate to them revoked, where their relationship with the other executors has deteriorated to the point where there is no realistic expectation that they will be able to work together in the interests of the estate. And, if it has shown that a history of past family conflict, or bitter relations between executors or trustees of an estate, and the beneficiaries of the estate, is likely to impact on the decisions made by the executor or trustee, and to leave the beneficiaries with the suspicion that the trustee's decisions will be tainted by the trustee's emotions or self-interest, that may also warrant the removal of the executor or trustee.

There are no limits to the grounds upon which an applicant for probate may be passed over or the grant of probate to an executor may be revoked, and every case must depend upon its facts and be decided on its own merits
It is, however, a serious matter either to revoke a grant of probate or pass over an applicant for a grant who is an executor named by the deceased because it is to be presumed the deceased has made his or her choice of executors with the knowledge of the person concerned and such a person is generally entitled to a grant of probate. Consequently, the exclusion of the named executor requires special or stringent grounds.
The testator's choice of designated person to be executor or co-executor implies that the deceased reposed trust in that person and considered him or her to have been suitable and capable of performing the duties required. Especially in relation to family affairs where it might be suggested that there is, or might be, a conflict between the executor named in the due administration of the estate, it is necessary to bear in mind that the deceased can be expected to have known of relationships in circumstances existing during his lifetime which might create or lead to any expectation of any such conflict of interest and, to have made the choice of an executor in the light of that knowledge. This approach, however, cannot be taken in relation to conduct or circumstances which have arisen since the death of the testator or about matters which the testator could not have been expected to have had knowledge.
Revocation of a grant of probate in the case of a conflict of interest will often be 'a last resort when there is no other appropriate method of dealing with the problem that may have emerged'. However, where the executor finds him or herself in a position of an irreconcilable conflict between his or her duties to the estate and his or her personal interests or duties, and especially when that conflict is something about which the deceased could not have been aware (such as where the executor is, or is likely to be, sued by the estate for negligence in the administration of the estate), the proper administration of the estate may require the executor to be removed.

Disposition

I have concluded that it is necessary for the due and proper administration of the deceased's estate for Mike to be removed as an executor. The matters that have contributed to me forming this conclusion are as follows.
First, Marlene and Susan have raised concerns, which I find to be of substance, concerning Mike's disclosure of the assets of the estate and his accounting for them. It is neither possible nor appropriate for me to comment on the merits of the estate's potential claims against Mike beyond observing there is credible evidence the money inherited by the deceased from his sister and cousin (or property which was purchased with money from those sources), formed part of the deceased's estate at the date of his death, alternatively that Mike was indebted to the deceased at the date of death or that Mike was the deceased's trustee in respect of the money inherited or property bought with it.
Second, the concerns and potential claims raised by Marlene and Susan constitute an irreconcilable conflict of interest for Mike.
Third, a number of factors taken in combination lead me to conclude that Mike is not capable of dealing with the administration of the estate in a manner unaffected by his perception of his own interest and with the level of candour required for the proper discharge of his duties. Those factors are:
(a)Mike did not disclose his dealing with the deceased's inheritance from his sister to Marlene, Susan and Rolf.
(b)The absence of any reference by Mike in his affidavit evidence to the explanations given by him at the 27 October 2018 meeting for his dealing with the $164,320 and the conflict between the statements made by Mike at the meeting and his evidence given in cross-examination.
(c)The conflicting accounts given by Mike in respect of the US$50,000 inherited by the deceased from Ms Kostic.
(d)Mike has not taken positive steps to account to the estate for his dealings with the $164,320 or the proceeds of sale of the China Springs Property.
(e)In response to the first formal letter of demand from Marlene and Susan's solicitors, Mike, in an email sent on 4 January 2019, in which he adopted a position foreshadowing him withdrawing his support for the estate in the family provision claim advanced by Klaus, and supporting Klaus's claim for a one-fifth interest in the estate. This position was inconsistent with his duties as an executor and appears to have been adopted in direct response to the claims foreshadowed against him by Marlene and Susan.
(f)I have reflected upon Mike's explanation for why he made the statements at the meeting on 27 October 2018 to which reference has been made in the course of these reasons concerning the inherited money. The statements were made in quite unequivocal terms and, at least the statements made about the deceased's intentions in relation to the money inherited from his sister, were repeated by Mike in the course of the meeting. The existence of prior inconsistent statements established by credible evidence create an obvious forensic issue. Of most importance however, for the purposes of this case, is the conflict between, the statements made by Mike at the meeting on 27 October 2018 about the $164,320 which were confirmed in a material respect by his solicitors' letter of 4 February 2019 on the one hand, and the evidence given in cross-examination. This conflict gives me real concern about Mike's candour.
Fourth, although Mike is one of the two persons chosen by the deceased to act as executor, the matters which provide the most powerful support for this application (though they have their origins in events that occurred before the deceased's death) involve Mike's conduct in the period after the date of death. These are not matters which could have been foreseen by the deceased.
Fifth, for the reasons already given, Mike cannot be involved in any way in the estate's considerations of its potential claims against him. I consider the existence of those potential claims would be likely to affect Mike's consideration of Klaus's family provision claim because the value and composition of the deceased's estate are factors relevant to the disposition of that claim. In effect, Mike is unable to participate in either of the two principal matters to be completed in the administration of the estate.
Sixth, there has been no suggestion that Rolf is not capable of dealing with the administration of the estate without Mike's assistance.
Seventh, in a practical sense, the relations between Mike and Rolf are so strained that it would be impossible for them to co-operate in the administration of the estate. I have no doubt the relationship would deteriorate even further if Rolf commenced proceedings against Mike on behalf of the estate.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to the Honourable Justice Tottle
1 JULY 2020