Chiro v Linton (No 2) - [2009] SASC 197

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
CHIRO v LINTON (No 2)
[2009] SASC 197
Reasons of Judge Lunn a Master of the Supreme Court
2 July 2009
SUCCESSION - WILLS, PROBATE AND ADMINISTRATION
Application by executor for trustee's commission under s 70 of the Supreme Court Act - Probate granted in 1970 - held defendant/executor at fault in not distributing the estate by no later than mid 1972 - sole beneficiary died in 1975 - partial distribution in 2004 and balance of estate paid into Court - held defendant only to be allowed commission up to mid 1972 - plaintiff to have costs of action on indemnity basis.

CHIRO v LINTON (No 2)
[2009] SASC 197
Reasons on defendant’s application for trustee’s commission and both parties’ applications for the costs of the action.

JUDGE LUNN: Floriano Bandiera was an Italian who had lived for many years in each of this State and the Northern Territory. He had a brother, Luigi Bandiera (“Luigi”), who had also lived for some years in this State, but who had returned to Italy, where he had married and had had a family. The deceased also had a sister, Teresa Doimo (“Mrs Doimo”), who lived in this State.
At the time of his death the deceased owned a house at Alberton and a block of shops at Sefton Park (“the shops”). He had few other assets.
Prior to about 1988 the defendant had carried on practice at Port Adelaide as a landbroker. He had dealings with the deceased and was employed by him to collect rents from the tenants of the shops. The defendant and his wife had lent money to the deceased which was secured by two mortgages over the shops.
On 16 December 1963 the defendant had prepared a will for the deceased. It was a short document which appointed the defendant as the executor and left the whole of the deceased’s estate to Luigi. There were no provisions in it allowing the defendant to charge for his work as executor or authorising any delay in the realisation or distribution of the assets of the estate.
The deceased died on 9 July 1969 in the Northern Territory. Mrs Doimo advanced sufficient money to the estate to enable payment of the funeral expenses. The defendant employed the late Dorothy Somerville as a solicitor to extract Probate of the will and to obtain succession duty clearances in this State and the Northern Territory. On 21 May 1970 this Court granted Probate over the deceased’s will to the defendant. On 31 July 1970 the Commissioner of Succession Duties in this State assessed duty of $1,125.38, which was paid by the defendant on 6 August 1970. Minimal succession duty was assessed on the small amount of the deceased’s estate in the Northern Territory.
On 7 September 1971 the defendant sold the Alberton house for $6,000. He continued to let out the shops and collect the rents from them on behalf of the estate. On 14 December 1971, presumably out of the proceeds of the sale of the Alberton house, he discharged the two mortgages over the shops to himself and his wife. The surplus moneys belonging to the estate were deposited by the defendant in various accounts with BankSA in the name of the estate. Although there was no record of it, apparently the defendant repaid to Mrs Doimo the money which she had advanced to the estate for the funeral expenses, but he did not pay any of the estate moneys to Luigi.
On 11 March 1975 Luigi died in Italy. He left a wife and young family. The defendant was provided with three different versions of the will of Luigi. He says he could not determine who were Luigi’s beneficiaries. Mrs Doimo sought legal advice about which was the valid will and apparently was advised by several lawyers that none of the three wills could be admitted to Probate in this State. The only estate of Luigi in this State was his interest in the deceased’s estate. The defendant did not apparently himself seek any legal advice about the problem of how he should distribute the deceased’s estate to the estate of Luigi. While Miss Somerville continued to act for the defendant in relation to the deceased’s estate until February 1980 there is nothing in her account to him to indicate that she gave any advice to him about his obligations to distribute the deceased’s estate. He did not apply to this Court under s 69 of the Administration and Probate Act 1919 for any directions. He did not attempt to communicate with Luigi’s family.
The defendant continued to collect the rents from the shops and to deposit the net proceeds after the payment of expenses into bank accounts in the name of the deceased’s estate. In June 1988, at about the time he retired as a landbroker, he sold the shops for $57,000 and deposited the net proceeds into the estate bank accounts.
Nothing further happened until 1996 when the defendant received correspondence from Dr Tartini, an Italian lawyer, who was acting for the beneficiaries of Luigi. There was an exchange of correspondence during that year, but it ceased without any distribution of the deceased’s estate being effected. The defendant continued to administer the estate by maintaining several bank accounts in the estate name with BankSA and allowing the interest earned, after payment of tax, to compound. He did not pay anything to himself.
Late in 2003 the plaintiff, a solicitor practising in Adelaide, was instructed to act for the Italian beneficiaries of Luigi’s estate. On 15 June 2004 this Court granted Letters of Administration to the plaintiff over the estate of Luigi in this State. On 29 October 2004, after considerable negotiation, the defendant made a partial distribution of the deceased’s estate of $160,000 to the plaintiff. This left him holding about $37,000 which he declined to distribute at that stage. (As at 23 July 2004 he had said the value of the estate was $197,257).
On 19 August 2007 the plaintiff instituted this action seeking the distribution of the balance of the deceased’s estate to him, an order for an account from the defendant and other relief. The action has had a tortuous history, largely due to the failure of the defendant to comply properly with the directions given by the Court. On 3 June 2008, under a direction which I had given, he paid $30,860 into Court which represented the balance of the estate then held by him. He declined to consent to this amount being distributed to the plaintiff on the grounds he had claims against the estate for his commission and apparently to protect himself against any possible other outstanding claims against the estate. (There is no evidence that there were any such claims, or even the possibility of such claims).
On 19 February 2009, on his third attempt, the defendant filed an account which was in a form acceptable to the plaintiff. I dealt with issues about items in that account in my Reasons No 1 published on 11 May 2009. On 27 April 2009 the defendant belatedly issued an interlocutory application seeking an allowance of trustee’s commission for himself in relation to his administration of the deceased’s estate. This was opposed by the plaintiff because of the alleged defaults of the defendant in not having distributed the deceased’s estate at the proper time.
The law on whether a trustee should be disentitled to commission under s 70 of the Administration and Probate Act 1919 is set out in the following passage from Angas Parsons J in re Darling [1925] SASR 262 at 265:
….. “that a trustee before he can obtain an order for commission or other remuneration from the Court must satisfy that tribunal that he has been faithful, honest and diligent in the performance of his trust.” In the Will of Henry Sherringham, (1901) 1 SR (NSW) 48, at p. 49, Walker J said: - ‘Under the English law trustees are bound to act gratuitously in their office, but under our law they can be allowed remuneration by the Court; before, however, remuneration is allowed them, trustees must shew that their conduct of the affairs of the trust is free from any suspicion, and that there has been no neglect on their part which has in any way prejudiced the estate ….. It is highly important that trustees should shew that their conduct is absolutely aboveboard and not in any way reprehensible.” This passage is quoted with approval by Street J in In the Will of James Greer, (1911) 11 SR (NSW) 21, at p. 23. In that case an executor, with the concurrence of his co-executor, purchased a portion of the trust property at auction. Commission was refused, and the learned Judge said: - “To allow commission would be equivalent to condoning or expressing approval of a transaction which, for aught that I can tell, may hereafter be successfully impeached by the infant beneficiary as prejudicial to his interests.”
The authorities are comprehensively reviewed in an article in (1934) 8 ALJ 121-124. (None of these authorities were cited to me in argument). As far as I can ascertain there is no reported case which deals with disentitlement to commission by reason of inordinate delay in distributing the estate.
The defendant was obliged to distribute the deceased’s estate to Luigi within a reasonable time: Mackie Principles of Australian Succession Law, para [13.30]. I accept that s 56 of the Administration and Probate Act 1919 does not apply to the defendant as he was an executor and not an administrator. The deceased’s will did not contain any provisions permitting postponement of distribution or creating trusts to operate once the administration of the estate should have been completed. The administration of an estate ends when the debts are paid and the assets are ready for distribution and after that time the executor holds them as a constructive trustee for the beneficiaries: Halsbury’s Laws of Australia, Vol 24, 395-4450. The administration was effectively completed by 1972, and possibly earlier. (The only matter holding up the completion of the administration from late 1970 to 1972 was the realisation of minor assets in the Northern Territory, which realised less than $60). Subject to any contrary direction from Luigi, the defendant’s reasonable time for distributing the estate had been reached by no later than mid-1972.
The defendant’s case on why the estate was not distributed before 1975 is contained in paragraphs 9-19 of his affidavit filed on 3 June 2009, which deposed:
9Floriano also had money in another name in Darwin with the Commonwealth Bank and the Public Trustee there were involved. I recall it taking about two years to get that issue resolved.
10I recall retaining the services of an auctioneer in Darwin to auction Floriano’s tools of trade and other chattels once they have been released by the Katherine Police. I would say that it took at least two and a half years to realise all the assets of the estate.
11I don’t recall precisely when I notified Lugi (sic) of the progress in the distribution of the estate. Luigi at that time lived in Italy and whilst he could speak some English, all correspondence has to get translated first. In the end, a translator at the Findon Library and the Woodville Council Office gave me assistance with the correspondence. In any event, I communicated on the issue with Luigi relatively soon after the death of Floriano and in that particular section of the Italian community, there was a good amount of communication between families. I cannot recall the specifics, but I can confidently say that Luigi was well aware of my work in respect to his brother’s estate at all times.
12I recall that Luigi did not want me to distribute Floriano’s estate and he specifically said so in one of his letters, which unfortunately I no longer have in my possession. The reasons was that Luigi was planning to return to Australia permanently and he did not know what he wanted to do with the assets at that time. There was discussion about him keeping the real estate rather than having me sell it.
13Both Luigi and Floriano were keen owners of real estate and I recall their attitude being that once you owned real estate you kept it for life. Further to that, Luigi would from time to time change his mind about what he was going to do with the real estate – at one point, he sent me a Will and a Power of Attorney which effectively gave his sister control over the real estate and bequeathed it to her in his Will, but nothing further in respect of the real estate was done by either Luigi or his sister.
14I recall writing a couple of long letters to Luigi, which again I no longer have in my possession. One of them is referred to in a letter to me from an Italian representative of the estate of Luigi, Francesco Tartini, as exhibited to my affidavit of 20 February 2008 …..
15In one of my letters to Luigi, I told him that the problem with keeping the real estate was firstly that there was a mortgage on it to be paid and secondly his sister was owed $1,000.00 for re-imbursement for the funeral costs and for returning Floriano’s body to Italy.
16I recall that the position was that the real estate was to be rented to cover expenses. As previously deposed to in my other affidavits, I attended to the collection of the rent and the maintenance of the real estate and I respectfully seek an allowance for those tasks from this Honourable Court for the time, trouble and expense of my doing so.
17Eventually one parcel of real estate was sold and the remaining parcels of real estate were kept until about 1988, at which point they were also sold.
18I do not remember whether Luigi’s sister ended up getting paid the $1,000.00, but I recall that some of the money raised at the auction of Floriano’s good and chattels was used to cover expenses.
19The situation therefore between 1970 and 1975 was that Floriano’s estate was called in but remained largely (un)distributed for the above reasons. I did a lot of work for the estate during that time in establishing what the assets were, managing the real estate, obtaining probate and calling in the assets. I have never teen paid for any of it, with the exception of the deductions I made for collecting rent on the belief that I was entitled to do so.
The defendant was cross-examined on this affidavit. He was an unimpressive witness. As he told the Court on several occasions, he was an old man (in his 86^th year). He was hard of hearing and appeared not to be in very good health. I find that he did not have a good recollection of his dealings with the Luigi and Mrs Doimo prior to Luigi’s death. Of particular significance is that no copies of any correspondence from this period were able to be put into evidence. It is clear from the correspondence in 1996 there were at least two letters which were sent by the defendant to Luigi and his wife before Luigi’s death. The defendant claims there were other letters, but neither they, nor copies of them, can be produced and the defendant could only give his general recollection of what they contained. The onus is on the defendant to show on the balance of probabilities that his failure to distribute the deceased’s estate to Luigi before Luigi’s death was authorised by Luigi. I do not find that any such authorisation has been proved. The Power of Attorney dated 10 March 1971, which Luigi gave in Italy to Mrs Doimo for her to deal with his assets in South Australia being his interest in the deceased’s estate, is some evidence that Luigi intended that the control of those assets should pass from the defendant to Mrs Doimo. As a trustee the defendant had an obligation to keep proper records of trust business which should have included copies of the letters which he had sent to Luigi and any letters which he had received from Luigi. Apparently, due to the passage of time he is now unable to produce such documents. Insofar as his case is defeated by a lack of evidence which he should have kept, he has contributed to this by not seeking to execute the constructive trust and passively waiting for Luigi’s estate to bring the matter to a head. (From 1978 until 2003 he did not initiate any communication with Luigi’s family in Italy in an effort to finalise the matter). In 1978, when it had become apparent that there was uncertainty about who was entitled to the distribution of Luigi’s estate, the defendant should have applied under s 69 of the Administration and Probate Act for advice and directions from this Court about how he should deal with the trust moneys and assets which he was then holding. If he had made such an application, the necessary directions would have then been given which would have brought his trust to an end.
The evidence of the defendant was to the effect that the only alternatives available to him before 1975 in relation to the shops were either to sell them or to keep them in his name and to continue to rent them out. However, there was apparently no reason why an intermediate position could not have been adopted of transferring the shops into the name of Luigi, even if Luigi did not then wish them to be sold. Either the defendant or Mrs Doimo could have then continued to manage them for Luigi. If the defendant had sought s 69 directions at that point, it is likely that he would have been directed to have taken that course. Insofar as the defendant was holding money for the estate at that time, being the surplus from the sale of the Alberton property and accumulated rents from the shops, there seems no reason why it could not have been then paid out to Luigi in Italy or alternatively, to Mrs Doimo under the Power of Attorney.
Prior to the discharge of the mortgages over the shops in December 1971 the defendant was in a position of a conflict of interest in that he was both the mortgagor and the mortgagee of the shops. (This led him to overcharging the estate for interest on the discharge of the mortgages - see [7] of my Reasons of 11 May 2009). A prudent trustee in that situation should have transferred the shops into the name of Luigi as soon as practicable after Probate had been granted.
Although from the evidence it is impossible to quantify it, I am satisfied that the failure of the defendant to distributed the estate of the deceased to Luigi in about 1972 has been likely to result in significant loss and prejudice to the beneficiaries of Luigi’s estate. Although the problems about Luigi’s wills were not the fault of the defendant, the problems they subsequently caused in the distribution of the deceased’s estate would have been avoided if it had been distributed to Luigi at the proper time. While there is no suggestion that the shops were not sold for proper value in 1988, it is probable that the beneficiaries of Luigi’s estate could have benefited themselves to a greater extent than merely by investing the moneys on fixed deposit and compounding the interest if those assets had been made available to Luigi before his death.
Paragraph 15 of the defendant’s affidavit, quoted above, can only have been correct up until the sale of the Alberton house in September 1971. The mortgages on the shops were discharged shortly afterwards and the estate then had cash reserves.
For these reasons I consider that the delay of the defendant in distributing the deceased’s estate was conduct which disentitles him to commission under s 70 of the Administration and Probate Act. I accept that he has not been fraudulent or guilty of any breach of trust. However, if he had done what he should have done when he should have done it, the beneficiaries of Luigi’s estate are likely to have been much better off financially. In reaching this decision I do not have regard to the defendant having taken commission himself for the collection of rents from the shops. (See [5] and [6] of the Reasons of 11 May 2009).

Although I am not aware of any reported decision directly on point, there are analogous decisions where delay by a trustee has resulted in a reduction of commission rather than a complete disentitlement to it. These cases are conveniently summarised in the ALJ article, quoted above, at P 124 as follows:
The principle so enunciated had not in terms been applied in an Australian case, so far as the reports show. Though cited, it was not applied in Wallace’s Case (supra). To the other authority on neglect apart from dishonesty, we may add that delay in performing his duties, including duties, of account, may in a sufficiently bad case deprive an executor of commission: In re Horn (9 WN (NSW) 71) – no accounts filed for 7 years after distribution; In re Hickey (3 QLJ 162) – delay for 9 years; though in general the Courts have rather reduced than refused commission on this ground: Re King (2 QLJ 156); Hayes v Wilson (11 VLR 640); Will of Bye (50 WN (NSW) 226).
I consider it is an appropriate exercise of the Court’s discretion under s 70 to allow to the defendant a capital commission on the assets of the estate on their values as shown in the succession duty returns and commission on the income up to and including the 1972 financial year, but no commission on income thereafter or on the actual realised values of the assets. I will hear the parties on the calculation of such commission. I am also prepared to allow to the defendant as commission under s 70 the amount of the commission which he took from July 1972 until the shops were sold for collecting the rent on those shops.
Costs of the action.
The defendant’s counsel submitted that the plaintiff had acted unreasonably in instituting this action. He contended that a letter of 13 August 2007 from the defendant’s solicitors was a proper reply to the plaintiff’s letter of 12 July 2007 threatening action. I do not accept this. The history of the dealings between the parties from 2003 onwards belies the defendant’s contention in the letter of 13 August 2007 that an amicable resolution of the matter could be negotiated between the parties. It has taken almost two years to resolve these proceedings, and only after the plaintiff had brought numerous interlocutory applications. The defendant has shown a marked reluctance to co-operate and to facilitate an expeditions resolution of the action. By a letter of 6 September 2004 his solicitor said that he would apply to the Court for an allowance of trustee’s commission, but the application was not made until 27 April 2009. It could, and should, have been made much earlier. The defendant’s requirement in the letter of 31 August 2004 that the distribution of the estate should be delayed until there was advertising under the Trustee Act, the Inheritance (Family Provision) Act and the Family Relationships Act can only be seen as an attempt to delay distribution of the estate. If those steps were to be taken, they should have been taken in about 1970, but there was no justification whatsoever for first raising them in 2004. In view of the inability or reluctance of the defendant to provide a proper and full account of his administration of the estate, I consider the plaintiff was quite justified in instituting these proceedings.
The plaintiff has substantially succeeded in the proceedings in that he has obtain the account and an order for most of the moneys which are held in Court. I consider that an order for indemnity costs is justified as the defendant’s failure to comply adequately with several orders for the giving of a proper and full account have put the plaintiff to additional expense and on the evidence before me the defendant had no reasonable grounds to contend that a sum of anything like $30,000 should be held in Court pending his belated giving of his account and the determination of his last minute application for trustee’s commission.
As the defendant finally only gave his account of his administration of the estate under the compulsion of an order of the Court, the costs of giving that account are part of the overall costs of this action. For the reasons given above, he is not to be allowed his costs of the account insofar as it relates to the affairs of the estate after 30 June 1972 and he will have to bear those costs himself. I will hear the parties on what amount should be properly allowed out of the estate for giving the account up until 30 June 1972.
The parties should now bring in minutes to give effect to these reasons.