Caruana v Caruana
[2013] VSC 643
•21 November 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PROBATE LIST
No. 3928 of 2013
| JOHN CHARLES CARUANA, JOSEPH FRANCIS CARUANA, GEORGE CARUANA and MARY OLGA PAULA STOCKLASHA | Plaintiffs |
| v | |
| MARCEL ANGELO AUGUSTINE CARUANA | Defendant |
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JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 November 2013, 18 November 2013 | |
DATE OF JUDGMENT: | 21 November 2013 | |
CASE MAY BE CITED AS: | Caruana v Caruana | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 643 | |
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PROBATE — Application to remove executor — Conflict of interest and duty — Executor discharged
COSTS — Exceptions to the usual order as to costs in probate litigation — Litigation the fault of the defendant — Defendant to pay the costs of the administration of the estate — Defendant to pay the costs of the plaintiff
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Simon | Jonathan Kemp & Associates |
| For the Defendant | Mr T Mah | Belleli King & Associates |
HER HONOUR:
The plaintiffs seek the removal of the defendant as the executor and trustee of the estate of Marcel Caruana (‘the deceased’).
The deceased died on 31 August 2011 and was survived by his six adult children. He left a will dated 23 May 2006 in which he appointed his son, the defendant, as his executor and trustee and the residue of his estate equally to his six children. A grant of probate was made to the defendant on 11 October 2012.
The inventory of assets filed with the application for the grant of probate of the will listed the deceased’s assets at $277 053.66, which included a loan owed to the estate (of $170 0000 that was made by the deceased to the defendant and his wife (‘the loan’).
Background
The loan was made by the deceased to the defendant and his wife by way of contribution towards their purchase of their rented matrimonial property in Narre Warren (‘the Narre Warren property’) in August 2006 for $300 000. The loan amount effectively represented the sale proceeds of the deceased’s home sold by him in 2006. The deceased was not registered on the title to the Narre Warren property nor was there any documentation reflecting the loan arrangement.
In December 2006, the fourth plaintiff communicated her concern that the deceased was not registered on the title to the defendant in writing. The defendant responded to her enquiry in writing on 1 January 2007 acknowledging the loan and stating that, if it became necessary, he would sell the Narre Warren property and repay the funds, less expenses.
After the purchase of the Narre Warren property, the deceased lived with and was cared for by the defendant and his wife until he died in August 2011. In order for the deceased to live in the property, according to the defendant, it was necessary for the Narre Warren property to be made ‘wheelchair friendly’.
On 10 July 2012, the defendant’s solicitor wrote to the beneficiaries informing them that:
a)the deceased and the defendant and his wife had reached an agreement that, instead of the deceased paying an accommodation bond to enable him to live in a nursing home, the deceased make the contribution of the loan amount towards the purchase of the Narre Warren property;
b)the defendant and his wife had attended to the deceased’s daily needs for more than five years and that they would like this to be acknowledged in the calculation of the amount to be reimbursed by the defendant to the estate. Thereafter, the calculation of the amount to be deducted from the loan was set out as:
i) $138 000 for nursing fees at $2300 per month for five years ($530.76 per week),
ii)$7500 for renovations to the Narre Warren property to accommodate the deceased; and
iii)an allowance of $100 per week for weekly expenses totalling $26 000;
c)after subtracting these amounts, the defendant would repay the estate the sum of $50 500.
Enclosed with the letter to the beneficiaries was an administration account and distribution statement showing the amounts available they the beneficiaries for final distribution with a request that, if they were in agreement, to sign and return the document to the defendant’s solicitors and, if they had any queries, they send them in writing to the defendant’s solicitor.
Queries in relation to the assets of the estate were raised by two of the beneficiaries concerning:
a)an amount of cash the deceased provided to the defendant;
b)the sale of the deceased’s scooter; and
c)other items of furniture that were not accounted for by the defendant.
The defendant responded to these queries by saying that:
a)he used the cash to pay $17 286 for the funeral expenses of deceased’s wife (who died in 2003) and a memorial for the deceased and his wife;
b)the scooter had been sold for $1500 and this sum would now be included in the distribution between the beneficiaries; and
c) he had attempted to sell the items of furniture without success.
On 14 August 2012, the defendant’s solicitors sent the beneficiaries a further distribution statement that included the sale proceeds for the scooter and $2400 for the sale of some furniture, and asked them to sign and return the document to him.
In September 2012, the plaintiffs retained solicitors to act on their behalf to finalise the distribution of the deceased’s estate. The defendant’s solicitor was informed that the plaintiffs did not agree with the adjustments in the proposed distribution statement and that the plaintiffs required the defendant to apply for a grant of probate.
A grant of probate was made to the defendant on 12 October 2012.
Thereafter, further but limited correspondence took place between the solicitors for the plaintiff and the defendant, the substance of which was that the plaintiffs did not agree with the defendant’s adjustments made to the debt of $170 000 owed to the estate.
By 15 April 2013, no advice had been received from the defendant concerning the impasse and the plaintiffs’ solicitors informed the defendant’s solicitors that, unless they received the defendant’s response by 16 April 2013, the plaintiffs would issue an application seeking to remove the defendant as the executor of the estate.
A response was received from the defendant’s solicitors advising that such an application would be resisted by the defendant and, if he was successful, the defendant would seek orders for costs against the plaintiffs personally.
Again, further correspondence ensued which raised, amongst other matters, that the defendant was in a position of conflict between interest and duty. This was denied by the defendant and the defendant reiterated that he would seek costs against the plaintiffs personally if the application for removal were issued against him.
The Application for Removal of the Defendant As Executor of the Estate
By originating motion and summons filed 30 July 2013, the plaintiffs sought the removal of the defendant as the executor of the estate and consequential orders.
The defendant and his sister, Angela Bungard filed affidavits in response to the application. These affidavits set out some background matters concerning the deceased and his family, the care that he and his wife took of the deceased over the five year period he lived with them at the Narre Warren property, and the claim for contribution for that care. It was also contended in these affidavits that the beneficiaries had agreed to the distribution statements forwarded to them.
The plaintiffs filed answering affidavits, and amongst other matters, disputed the defendant’s contention that there was agreement as to the distribution of the estate. There was also a further allegation made by the fourth plaintiff that the deceased told her that he had given the defendant the sum of $27 000, which had been stored under his former house, so that the defendant and his wife could purchase the Narre Warren property.
The defendant and Angela Bungard responded to these answering affidavits. In response to the further allegation concerning the sum of $27 000, the defendant disputed that this amount had been given to him by the deceased. He said that the relevant amount was $20 000 that the deceased had told him to deposit into the defendant’s bank account, which he did, and that the deceased had left it to the defendant to decide what to do with those funds. The defendant contends that he kept the money because he had already spent his own funds in getting the Narre Warren property ready for the deceased to live there, and that he and his wife were also looking after the deceased and incurring expenditure in so doing.
Applicable Principles
In exercising the jurisdiction to remove executors or trustees, the general rule and guiding principle is the welfare of the beneficiaries and the welfare of the trust estate as a whole. This depends on the facts of each case and such a judgment is largely discretionary. In Miller v Cameron, Dixon J stated:
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorize the Court to act, the delicate question whether it should act and proceed to remove the trustee is one upon which the decision of a primary Judge is entitled to especial weight.[1]
[1](1936) 54 CLR 572, 580–1. See also Passingham v Sherborne (1846) 9 Beav 424; 50 ER 407; Letterstedt v Broers (1884) 9 App Cas 371, 385–6; Monty Financial Services Ltd v Delmo[1996] 1 VR 65, 82; Manocchio v Wilson [2012] VSC 76 (8 March 2012).
The authorities also demonstrate that a trustee will not necessarily be removed because of a position of conflict between duty and interest; but in some cases it may be sufficient. In Monty Financial Services Ltd v Delmo, Ashley J concluded that proof of actual misconduct is not necessarily required for the removal of a trustee and that a conflict of duty and interest may suffice.[2]
[2][1996] 1 VR 65, 82.
In Manocchio v Wilson, Habersberger J dealt with an application to remove a co-executor on the ground of unfitness to act, owing to a conflict of interest and duty. He said:
Unfitness to act can be constituted not only by ‘matters such as unwarranted delay in administration of the estate, failure to communicate with beneficiaries, failure to account, and unreasonable delay in paying beneficiaries their entitlement’ but also by ‘a situation in which an executor has a conflict of duty and interest in carrying out his executorial duties’. Not every conflict of duty and interest should result in removal of an executor. An executor’s conflict of duty and interest of a kind likely ‘to affect the efficient and satisfactory administration of the estate is a proper basis for removing an executor’.[3]
[3][2012] VSC 76 (8 March 2012) [38] (citations omitted).
In Fysh v Coote, which concerned the removal of an executor, Ormiston JA (with Batt and Chernov JJA agreeing) relied on the statements of principle of Ashley J in Monty Financial Services Ltd v Delmo, the Privy Council in Letterstedt v Broers and Dixon J in Miller v Cameron.[4] In particular, His Honour noted Ashley J’s comment that unfitness to be an executor could be constituted
by matters such as unwarranted delay in administration of the estate, failure to communicate with beneficiaries, failure to account, and unreasonable delay in paying beneficiaries their entitlement
and that unfitness comprehends a situation in which an executor has a conflict of duty and interest in carrying our his executorial duties.[5]
[4]Fysh v Coote [2000] VSCA 150 (21 August 2000) [20].
[5]Monty Financial Services Ltd v Delmo [1996] 1 VR 65, 73, 82.
In addition, friction or hostility between trustees and the immediate possessor of the trust estate is not of itself a reason for the removal of trustees. But where the hostility is grounded on the mode in which the trust has been administered, where it has been caused wholly or partially by substantial overcharges against the trust estate, it is certainly not to be disregarded.[6]
[6]Letterstedt v Broers (1884) 9 App Cas 371, 389.
The Trial and Orders Made
The application for the removal of the executor and the consequential orders was listed for trial on 15 November 2013. The trial was conducted by way of affidavit evidence only and no deponent was cross-examined.
At the commencement of the hearing, the defendant consented to his resignation as the executor and trustee of the deceased’s estate. In his written submissions, he sought an independent person, such as a solicitor, to be appointed in his stead. At trial, the defendant recanted from the appointment of a solicitor as the administrator and instead contended for the appointment of a trustee company, claiming that a trustee company would provide more independence than a solicitor, although accepting that such an appointment would be more expensive.
The plaintiffs filed particulars of a proposed administrator to be appointed, Mr Kimpton John Harris, a solicitor experienced in the probate jurisdiction since his admission in 1988 and who would charge fees for the administration of the estate on the basis of the Practitioner Remuneration Order (January 2013). The defendant did not provide any details of an appropriate solicitor to be appointed as administrator.
The main issue in contention in this proceeding is the amount of the loan to the defendant and his wife owing to the estate. In the inventory of assets of the deceased at the date of death and filed in the application for the grant of probate, the full amount of $170 000 is referred to as a loan owed to the estate. Although claimed prior to the filing of the inventory, the defendant did not include in the inventory his claimed adjustments to the loan amount.
It was common ground at the trial that, even on the defendant’s position taken as to the distribution of the estate, he has not paid any part of the loan to the estate, an amount of $50 500. Counsel for the defendant stated that his instructions were that these funds were in the defendant’s bank account, although no evidence was produced to substantiate this assertion.
Based on the defendant’s proposed ‘final administration and distribution statement’ dated 21 May 2013, the balance available for distribution to the six beneficiaries is $141 369.25 (which amount allows for $6000 for further anticipated costs). The amount of $141 369.25 assumes the payment of $50 500 by the defendant to the estate. The distribution statement also provided for a partial distribution of $15 000 to each beneficiary. On the basis that the partial distribution was made, this leaves the amount of $51 369.25 remaining in the estate plus the amount of $6000 in estate funds held by the defendant’s solicitors. Of course, these are notional figures only because the defendant has not paid $50 500 to the estate.
Because the amount of the loan to the estate is in contention and needs to be investigated and properly assessed by the administrator, my view is that the full amount of the loan should be paid to the administrator. It is a loan that has always been acknowledged by the defendant and this was repeated by counsel for the defendant before the Court on 15 November 2015.
In addition to the main issue of the loan, there are also the issues of the cash amounts of $20 000 and $17 286 that require further investigation and assessment by the administrator.
Accordingly, the orders formulated on 15 November 2013 were on the basis that the full amount of $170 000 was to be paid to the administrator. I stood the matter down so that the appropriate orders could be prepared by counsel. Late in the afternoon, I was informed by counsel for the defendant that the form of orders as to the payment of $170 000 could not be resolved as the defendant needed more time to consider when he could repay the loan. I adjourned the further hearing of the proceeding until 2.15pm on 18 November 2013.
On 18 November 2013, the defendant filed a short affidavit concerning payment of the loan to the administrator of the estate. The defendant deposed that he could pay the sum of $50 000 on or before 22 November 2013 with the balance of $120 000 to be paid on or before 30 December 2013. The reason given by the defendant for this proposal was that he needed to borrow the amount required with the Narre Warren property securing the borrowing. In addition, counsel for the defendant informed the Court that the amount held in trust was $5 328.73, not $6000 as previously deposed. Finally, on 20 November 2013, counsel for the defendant informed that Court that on 18 November the defendant transferred the sum of $50 500 to his instructing solicitors.
Whilst the proposal for the repayment of $120 000 is not satisfactory, I allowed further time in the orders made in this proceeding on the basis that the defendant’s proposal be noted under ‘Other Matters’ of the orders and that the defendant could thereafter deal with the administrator concerning the repayment and, if necessary, the administrator could seek further directions from the Court.
Costs of the Proceeding
The defendant submits that the parties’ costs should be paid from the estate, relying on the fact that the proceeding has settled without adjudication as to the merits of the claim,[7] and that in general, an executor or trustee has a right of indemnity out of an estate in respect of litigation concerning a deceased’s estate if his or her conduct has been honest but mistaken.[8] In this regard, the defendant relied on the fact that the proceeding concerns the administration of an estate, the defendant was acting in accordance with the distribution agreement reached between the beneficiaries and has not mismanaged the estate.
[7]Referring to Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214, [44]–[47].
[8] Miller v Cameron (1936) 54 CLR 572, 578.
The plaintiffs resist the orders sought by the defendant and contend that the costs of the application and the administration of the estate, including the plaintiff’s costs, should be paid by the defendant personally.
Applicable Principles as to Costs
Orders in respect of costs in probate litigation are in the discretion of the Court, which, of course, must be exercised in accordance with established principle. In Gray v Hart [No 2], White J succinctly summarised the position as follows:
[If] the testator is properly seen as the cause of the litigation, the usual order is that costs be paid out of the estate. It is where the testator is not the cause of the litigation, but an investigation is reasonably called for, that there is usually no order as to the unsuccessful party’s costs. Of course if there is no reasonable cause for investigation, that is, if the unsuccessful party has not acted reasonably, then he or she will pay the costs.[9]
[9][2012] NSWSC 1562 (11 December 2012) [19].
Findings as to Costs
In my view, the defendant’s position reflects a clear case of conflict of interest and duty whereby he preferred his own interests to that of the estate. This, in turn, has created hostility and friction between the parties with a consequent failure by him to administer the estate of the deceased.
In respect of the claimed adjustment to the loan amount, at no stage did the defendant put forward any supporting material for his claimed adjustments, yet he purposefully pursued his position with the clear intent of reducing the amount that he and his wife were required to pay back to the estate. His attempts unilaterally to reduce the loan amount commenced 11 months after the death of the deceased and have continued ever since. In addition, the explanation concerning the two cash amounts received by him from the deceased in 2003 and 2006 is contradictory and confusing and requires investigation by the administrator of the estate.
In respect of the defendant’s submission on adjudication of the merits of the proceeding, the Court is in a position to adjudicate on the merits. All the evidence was before the Court and no deponent was cross-examined. Although the defendant consented to resigning as the executor and trustee of the estate of the deceased, it was appropriate in the circumstances that the order be made that he be discharged.
Insofar as the defendant justifies his actions in the administration on the basis of agreement with the distribution statement, that justification is ill-conceived. Based on the evidence, I would not conclude that there was agreement by the beneficiaries to the distribution statement. The plaintiffs have clearly stated that they do not agree to it and their reasons for not doing so.
By his conduct, the defendant has caused unnecessary costs to what should have been a straightforward administration of a small estate. The assets of the deceased’s estate are not of the type where a grant of probate was required for the estate to be administered. The expense and prolongation of the administration of the estate of the deceased has been caused by the defendant.
In my view, the conduct of the defendant in the administration of the estate and the proceeding takes the matter outside and beyond the usual circumstances where the costs would be ordered to be paid by the estate. This is a case where the defendant is the cause of the litigation and unreasonably so. In such circumstances, he should not be entitled to be reimbursed from the estate for his costs of this proceeding or for the costs of obtaining a grant of probate.
Accordingly, the costs, including the plaintiffs’ costs of the application and the administration of the estate of the deceased, should be paid by the defendant personally.
The formal orders of the Court are:
1.Pursuant to s 34(1)(c) of the Administration and Probate Act1958, the defendant be discharged as the executor of the will of Marcel Caruana, deceased, dated 23 May 2006.
2.Pursuant to s 48(1) of the Trustee Act1958, the defendant be removed as the trustee of the estate of the deceased.
3.Kimpton John Harris be appointed as:
a)administrator with the will annexed of the will and estate of the deceased; and
b)trustee of the estate of the deceased.
4.The requirement of a security guarantee be dispensed with.
5.Pursuant to s 51 of the Trustee Act1958, the property and asset of the estate vest in Kimpton John Harris as the administrator of the estate of the deceased.
6.By 22 November 2013 the defendant deliver to the Registrar of Probates the Grant of Probate granted to him by this Honourable Court on 11 October 2012.
7.By 22 November 2013 the defendant to file and serve on the plaintiffs and Kimpton John Harris a true and just account of his administration of the estate of the deceased in accordance with r 6.03 of the Supreme Court (Administration and Probate) Rules 2004 as at:
a)the date of the deceased’s death; and
b)15 November 2013.
8.By 22 November 2013 the defendant’s solicitors, Belleli King & Associates, transfer to Kimpton John Harris as the administrator of the estate:
a)the sum of $50 500 being part payment of the outstanding loan owed by the defendant to the estate of the deceased;
b)the sum of $5328.73 held in the trust account of Belleli King & Associates as at 18 November 2013 being the balance of the funds held by them on behalf of the estate of the deceased; and
c)any interest earned on these said amounts.
9.The defendant to pay personally:
a)The plaintiff’s costs of this proceeding;
b)his costs of this proceeding; and
c)to the administrator, the costs of the administration of the estate already incurred by the defendant being the amount of $2 262.60 paid to Belleli King & Associates according to the administration and distribution statement dated 21 May 2013, which is exhibit MOS-13 to the affidavit of Mary Stoklahsa sworn 20 July 2013.
10.Liberty to apply.
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