Brown and Murdoch and Ors (No. 2)

[2014] FamCA 618

FAMILY COURT OF AUSTRALIA

BROWN & MURDOCH AND ORS (NO. 2) [2014] FamCA 618

FAMILY LAW – INJUNCTIONS – Injunction against estate executors – Asset protection orders.

Family Law Act 1975 (Cth)

Bevan (2014) FLC 93-572
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Deputy Commissioner of Taxation and Kliman and Kliman [2002] FamCA 629

Stanford [2012] HCA 52
Waugh &  Waugh (2000) FLC 93-052

APPLICANT: Mr Savva and Mr Gould as Executors of the Estate of the late Mr Brown

RESPONDENT: Ms Murdoch

INTERVENERS: Ms B, Ms C, Mr D, Ms E and Mr F

FILE NUMBER: MLC 9886 of 2010

DATE DELIVERED: 5 June 2014

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 5 June 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr P Davis

SOLICITOR FOR THE APPLICANT: Kennedy Partners

COUNSEL FOR THE RESPONDENT: Mr Testart

SOLICITOR FOR THE RESPONDENT: Schetzer Constantinou

COUNSEL FOR THE INTERVENERS: Mr Bradshaw for Mr F and Mr Wraith for the proposed intervener Ms S

SOLICITOR FOR THE INTERVENERS: Tolhurst Druce & Emmerson

Orders

1. That the executors (Mr Gould and Mr Savva) of the Estate of the Late Mr Brown are restrained from injunction from distributing the proceeds of the estate without permission of this Court.

2. That the wife’s application for the injunction is otherwise dismissed.

As Between The Executors Of The Estate Of Mr Brown And Respondent Ms S
IT IS ORDERED

1. That BY CONSENT there be orders in accordance with the minutes of proposed orders marked Exhibit “A” sealed and attached hereto AND IT IS DIRECTED that such minutes remain upon the Court file.

2. That the solicitor for Ms S engross the minutes and deliver them by electronic transmission to my Associate within 7 days.

3. That the application by Mr D and Ms E to attend the trial by electronic communication means is refused.

4. That the reasons this day be transcribed and be placed on the Court file.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Brown & Murdoch and Ors (No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER:  MLC 9886 of 2010

Mr Savva and Mr Gould as Executors of the Estate of the late Mr Brown

Applicant

And

Ms Murdoch

Respondent

And

Ms B, Ms C, Mr D, Ms E and Mr F
Interveners

REASONS FOR JUDGMENT

1. Mr Brown, whom I will describe as the husband, died in May 2013.  He had executed a will less than a month before his death.  In it, he named Mr Gould and Mr Savva as his executors.  The executors are party to the property proceedings brought by Ms Murdoch who was married to the husband.  By an order of the Supreme Court of Victoria, the executors were authorised to administer the estate of the husband.  They have been substituted for the husband.

2. One of the assets of the husband was a parcel of shares in a company, T Pty Ltd.  T Pty Ltd ran a business known as Business Z.  Whilst the husband was the shareholder of T Pty Ltd, it seems he was not its director.  One of the orders of the Supreme Court was to authorise the executors to become shareholders, to not only get control of T Pty Ltd but also to run its various operations and eventually call in the assets of the estate.  The executors appear to have complied with the court’s orders.

3. In the will, in addition to appointing Mr Gould and Mr Savva as executors, the husband directed as follows:

   (a)Mr Savva was “able to charge the hourly rate of $100 for business for work done by him in connection with the provisions and trusts” arising from the will.  and,

   (b)Mr Gould “who may act in a professional capacity and shall be entitled to charge and be paid all professional and other charges for business or act done by him or that his firm or company in connection with the provisions and trusts hereof, including acts which the trustee could have done personally.”

4. There is an imminent trial in this court in the property proceedings but there are also the various other causes of action.  Over recent months attention has been on the sale of Business Z with various attempts to negotiate its sale.  Late last week the wife became aware that T Pty Ltd had sold the business.  The method by which that occurred was through the sale of its shares to the purchaser.

5. On Monday of this week, the wife sought an interlocutory injunction against the executors from distributing the proceeds of the sale.  The orders sought were that they be restrained from disposing of, applying and/or dealing with the proceeds of the sale of the issued shares and/or the Business Z business.  She also sought an order that the proceeds be held in the solicitor’s trust account pending further order.

6. The executors did not file any material in response but objected to the injunction on the basis that they had obligations to administer the estate amongst which obligations was their entitlement to be paid commissions arising out of the direction in the will as I have just described.  In addition to their own costs they maintained there were significant legal fees to be paid.  The wife’s evidence supporting the injunction was contained in her affidavit contemporaneously filed with the applicant.  It said she wanted to restrain the executors from dealing with the proceeds of sale of “matrimonial assets”.

7. Whilst that may have been infelicitously put, bearing in mind my description above, I understood the sentiment.  She later said that but for the sale, the ultimate ownership of the companies would have to be determined by the Court as part of the ultimate proceedings.  The affidavit went on to say that the wife was aware of the imminent sale.  She complained that the executors intended to apply a significant portion of the proceeds to pay alleged creditors of the estate.  She said that she had expressed opposition to that course and had made repeated requests for it not to occur.

8. The wife referred to the fact that the solicitors for the executors had advised that there were $550,000 worth of creditors which, in part, included the executors’ entitlements.  She pointed to a request that they prove their debts but the response had been that the executors would revert to her in due course.  To the extent that that was, indeed, the language of the executors, it too was infelicitous.

9. The executors have obligations as parties to this court to provide full and frank information.  None of the wife’s assertions were contested by counsel for the executors so I am determining this on the basis of uncontested facts.  I made holding orders pending consideration of the positions of each of the parties. 

10. The jurisdiction of the court is not controversial.  In Deputy Commissioner of Taxation and Kliman and Kliman [2002] FamCA 629 the Full Court said that:

    The source of the power to grant an asset preservation order might not only be in s 114, but also s 34 of the Act. 

11. The Full Court referred with approval to Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 and Waugh &  Waugh (2000) FLC 93-052. Thus, although the wife did not spell out the source of the power, I have no doubt that it could lie in either of the two sections mentioned. Counsel for the executors stressed that in s 114, the test was whether it was proper to make the injunctive order. With that submission, I agree.

12. The order sought here is interlocutory in nature.  As such, it must be designed to protect the ultimate judgment.  The wife’s position was somewhat vague but by referring to her unresolved complaint about what the executors had calculated as their entitlements, as well as what they intended to pay, she asserted her interests might be prejudiced if the executors were not temporarily restrained.

13. The wife’s evidence seems to be that she was making a claim against the T Pty Ltd shareholdings, not only as to a portion but also as to ownership.  As had been mentioned by me in discussion with counsel, the first step in a property settlement hearing process is to decide whether it is just and equitable to make an order at all.  (See Stanford [2012] HCA 52 and Bevan (2014) FLC 93-572). I therefore understand that the wife was indicating that she was intending to make a claim against the shareholding in T Pty Ltd, notwithstanding that during her relationship with the husband, no such arrangement had been made. Thus I am satisfied that she has put in issue the entitlement to that property.

14. I accept without any hesitation that the executors have a responsibility to administer the husband’s estate but it is not appropriate that they presume that because the legal title to the shareholdings belonged to the husband, that this court might not alter that if the wife established some equitable interest.  Counsel for the executors raised the question of whether the wife or the estate has priority and emphasised that there are ample other assets to satisfy the interests of both parties. 

15. However, the executors can only administer the estate of what belonged to the husband.  That is therefore a basis to injunct the executors on an interim basis until they know what it is that they have to administer.  To the extent that they have a need to be paid and to pay creditors, they have ample opportunity to seek this court’s permission to do so if the matter remains disputed.  In addition to those matters, all of the estate issues are before the court as part of the property proceedings. 

16. Under order 54 of the Supreme Court General Civil Procedure Rules 2005, proceedings may be brought seeking orders to determine any question arising out of the administration of an estate. The executors and, indeed, the wife could have used that process to sort out whether, and if so what, the executors could do if the primary beneficiary of the estate – in this case, the wife – challenged their due administration. So too the wife has a right to bring an application to have the appropriateness of the due administration of the estate determined.

17. What concerns me here is the apparent lack of responsiveness by the executors to a legitimate request of the wife, not so much to hold the funds but to explain how the creditors arose and to the extent that they included the legal fees and commissions, how they were calculated.  The executors do not have the right to simply ignore the wife based upon the matters that I have described.  Absent such an application by either the wife or the executors, I am of the view that the wife has raised in evidence a dispute over the entitlement to ownership of the shares in T Pty Ltd and that a distribution of the funds arising from those shares may prejudice her. 

18. Because I do not know the extent of that prejudice and the executors have not said more to the wife than that they are intending to distribute, it is proper for that course of action to be restrained until the issues of entitlement and prejudice can be determined.  Accordingly I will order that until further order the executors are restrained from distributing the proceeds of the sale arising from the shares in T Pty Ltd.

    RECORDED  :  NOT TRANSCRIBED

19. This is an application by two parties to these proceedings to attend by electronic communication.  This trial has been set down for some considerable period of time and, in fact, if my memory is correct, it was listed in February and at that stage, it was taken out of a list and refixed now.

20. The application by Mr D is based upon the fact that he is currently living in the United Arab Emirates and is unable to travel to Australia to give evidence due to family responsibilities and work obligations.  He is the husband of Ms C who will be attending.  He and Ms C have twin children aged five and he will have the care of those children.  He is also in an executive position in a business run by his partner.

21. The other applicant is Ms E who seeks also to attend by telephone or Skype communications.  She is the sister of Ms C and she also lives in the United Arab Emirates and has two children aged eight and six years.  She says because of those children she cannot attend the trial in person.  She is employed by the company of her sister, as a manager, and because of the sister’s absence she will have additional responsibilities for work to demand her attention.  She also says she can’t afford the cost of airfares.

22. The main parties otherwise are the executors and the wife.  The executors’ position is that they have always objected to this being dealt with in the fashion sought by the applicants.  There are issues of credit in this case and that seems very clear.  It is well known that one of the issues associated with credit is the opportunity for the court to observe the witnesses.  To add to that problem is the one raised by counsel for the wife which is that he says that there will be documents, including emails, to be put to the witness.  That makes it almost impossible to do.  I say almost because that means that we could still have the documents emailed or faxed but that would mean the stopping of the trial.

23. The significant part about this case is that the executors are obviously costing the estate significant sums of money and the wife is ultimately the primary beneficiary of the estate.  It seems to me that I would be disadvantaged if the two parties were not present throughout these proceedings, although that is their choice, but certainly in the most critical part of the case, relating to contested evidence about their claims it would make my task so much more difficult if I was not able to assess their demeanour where credit is the issue.  On that basis the applications are declined.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 5 June 2014.

Associate: 

Date:  4 August 2014