Clarke & Ors v Edwards - [2012] SASC 213

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
CLARKE & ORS v EDWARDS
[2012] SASC 213
Reasons of Judge Lunn a Master of the Supreme Court
16 November 2012
PROCEDURE
Application by plaintiffs in claim under Inheritance (Family Provision) Act 1973 that defendant executor and sole beneficiary obtain a valuation of the assets of a company in which the deceased was the major shareholder - extent of duty of executor to assist Court - whether the valuation could be ordered as a report under 6R 251(1) - whether any such valuation should be a current valuation or one at date of trial - duties of defendant to disclose estate assets under 6R 312(11) - whether that duty extends to stating the value of the estate assets - application refused.

CLARKE & ORS v EDWARDS
[2012] SASC 213
JUDGE LUNN:
Reasons on plaintiffs’ application for the defendant/executor to obtain a valuation of an estate asset
Abbreviations
“The deceased” is Michael Vincent Edwards, who died on 13 October 2008;
“the plaintiffs” are the adult children of the deceased by his first marriage;
“the defendant” is the second wife of the deceased, the executor of his will and the sole beneficiary of his estate;
“Micden” is Micden Pty Ltd, a company in which 65 of the issued shares were held by the deceased and the remaining 35 by the defendant, and in which they were both directors;
“the Albion” is the Albion Hotel/Motel in Casterton in Victoria;
“Negara” is Negara Pty Ltd, the trustee of the Augusta Hotel Trust. The deceased and the defendant each held 10 shares in it. It owns the land which is occupied by the Albion; and
“Hutchelle” is Hutchelle Pty Ltd, which is now in liquidation.
Background

In 2004 Micden purchased the business of the Albion and Negara purchased the land on which it was conducted. On 23 December 2005 Micden sold the business of Albion to Hutchelle for $250,000. On settlement on the sale, Micden gave vendor finance of $150,000 to Hutchelle, which was secured by a mortgage over the lease which Hutchelle took from Negara for the premises. At that time the deceased and the defendant ceased working in the Albion.
Hutchelle defaulted in the payment of interest on the loan from Micden and in its rental payments to Negara. After the death of the deceased, and in early 2009, Negara re-entered the leased premises and Micden took back the business of the Albion under an agreement in which it forwent payment of the balance of the monies owing on the loan from Hutchelle. Hutchelle went into liquidation on 3 August 2009. Since early 2009 Micden had conducted the business of the Albion. The defendant alleges that it has continued to trade at a loss. In June 2010 Micden was allocated entitlements for 14 gaming machines, but it is unclear on the evidence what, if any, part of their purchase price it has paid.
On 6 July 2010 this Court, in its Testamentary Causes Jurisdiction, granted probate over the last will of the deceased to the defendant. In support of her application for probate she lodged a statement of the assets and liabilities of the estate which showed assets totalling $59,857,[1] liabilities of $32,546 and thus a net estate of $27,310.
[1] In these Reasons all amounts are shown only in terms of dollars, without referring to any additional cents.
On 23 December 2010 the plaintiffs instituted this action seeking provision for themselves under the Inheritance (Family Provision) Act 1973 (“the Act”).
On 20 October 2011 the defendant filed an affidavit (FDN9) in opposition to the plaintiffs’ claim and in compliance with her obligation under 6R 312(11)(a).[2] In it she gave some revised figures for the assets and liabilities of the estate and deposed that its net value was $27,859.[3] Although they have not filed a formal notice under 6R 312(11)(c),[4] the plaintiffs have disputed the accuracy of FDN9. Their principal complaint has been that the 65 shares of the deceased in Micden were worth more than $82,677, which was the amount allowed for them in FDN9. In giving the revised figure for the value of these shares, the defendant was relying upon a report from the accountants for Micden, but much of the information on which the report was based had been given to the accountants by the defendant. The value attributed to the shares was merely an arithmetical calculation based on what was shown in the books of account of Micden and the information supplied by the defendant. No expert had been retained to formally value any of the assets of Micden. The plaintiffs’ primary complaint was that nothing was allowed in the valuation for the business and the goodwill of the Albion.[5]
[2]    It is quoted below.
[3]    By a letter of 10 August 2012 the defendant accepted that the debt of $150,000 from Hutchelle should have been disclosed as an asset of the deceased at the date of his death. Whether that debt was then worth more than the value of the business of the Albion which Micden took back from Hutchelle is unknown.
[4]    It is quoted below.
[5]    At the time, the business of the Albion was owned by Hutchelle and not Micden.   The loan from Micden to Hutchelle was not treated as an asset of Micden.
Application for valuation
On 30 August 2012 the plaintiffs took out an application (FDN18) which was subsequently amended and became FDN20. In FDN20 the plaintiffs sought the following orders:
1.That the defendant, in her capacity as executor of the estate of Michael Vincent Edwards deceased, cause to be prepared and filed with the Court a report from an independent expert valuer as follows:
1.1    A report as to the current valuation, and valuation as at the date of death of the deceased, of the assets of Micden Pty Ltd (ACN 062 494 939) (‘Micden’) consisting of:
1.1.1The leasehold business of the Albion Hotel Motel at 25 Henty Street Casterton Victoria 3311 (‘Business’);
1.1.2The plant, equipment and other assets of Micden comprised in or used in the Business; and
1.1.3The gaming machine entitlement allocation of Micden …
1.3    That the valuer be selected by agreement between the parties, and failing agreement the parties are to apply for further directions from the Court.
2.In the alternative to paragraph 1, that the plaintiffs have permission to obtain, and the plaintiffs be granted an extension of the time within which they may obtain, a report from an independent expert valuer as to the current valuation, and valuation as at the date of death of the deceased, of the assets of Micden …
3.That for the purposes of the plaintiffs obtaining the report, the defendant:
3.1    provide such reasonable assistance as the valuer appointed by the plaintiffs may require by permitting the valuer to have access to the premises of the Business and to the books and records of the Business to enable the valuer to prepare the report; and
3.2    disclose to the valuer, and permit the valuer to copy, such documents of Micden or of the defendant in relation to the Business as the valuer may reasonably require in order to enable the valuer to prepare the report.
The defendant opposed the orders in paragraph 1, but consented to the alternative orders in paragraphs 2 and 3. In his reply on the argument on paragraph 1, counsel for the plaintiffs abandoned the application for a valuation as at the date of death and confined the application to one for a current valuation.
There is undisputed evidence from the defendant’s solicitors that the cost of a formal valuation in the terms of paragraph 1.1 of FDN20 would be between about $10,000 and $20,000.[6] The real dispute between the parties on FDN20 is which party has to bear initially the substantial expense of obtaining an expert valuation of the business of the Albion. If the defendant is correct in her assertion that the net value of the estate is only $27,859, incurring a valuation expense of $10,000-$20,000 is out of all realistic proportion to what is at stake. It would almost certainly mean that the costs of the action, including the valuation expense, would exceed the value of the estate. The plaintiffs no doubt hope that a valuation will attribute substantial worth to the business of the Albion and thus significantly increase the size of the distributable estate. If an order is only made in terms of paragraphs 2 and 3 of FDN20, it remains to be seen whether the plaintiffs will incur the valuation expense themselves in the hope that it will show that the net estate is much larger than that stated by the defendant.
[6] Nothing was said about the amount by which this might be reduced for only a current valuation without a valuation also at the date of death, but, as the Albion was not an asset of Micden at the date of death, any reduction on this head is probably not great.
Valuations of businesses such as leasehold country hotels are notoriously difficult exercises. It cannot be assumed that whatever valuation is obtained initially for the Albion will be accepted by all parties, and indeed by the Court. It may be that a further valuation for a different amount will be obtained from another valuer and the Court will have to decide upon the true value.
It needs to be kept in mind that the issue in this case is the value of the assets of the deceased’s estate. It is not the value of the assets of Micden, except insofar as those assets are relevant to the value of the 65 shares in Micden which are part of the deceased’s estate.
Duty of an executor
The issue here is not the failure of the defendant to disclose assets, but allegedly not to have adduced proper evidence as to their value. The assets of the estate included the 65 shares in Micden and they have been disclosed. The issue of non-disclosure is whether all the assets of Micden were taken into account in the value placed on those shares in the defendant’s affidavit FDN9.
The plaintiffs’ counsel primarily relied upon the duty of an executor to provide all possible assistance to the Court in proceedings under the Act.[7] However, this must be subject at least to limitations of reasonableness. He cited the following passage from the decision of the New South Wales Court of Appeal in Fiorentini v O’Neil[8] where it was stated:
The judgment makes plain that the learned judge fully appreciated that the onus rested upon the respondent to establish her claim under the Act. The appellant bore no onus. … And, most importantly she was his chosen beneficiary. However, she was also the executrix and defendant in the proceedings. As such, she should have given the Court more assistance than she did in identifying as fully and early as possible the actual and notional estate, its condition and value at date of trial.
[7] Re Newell deceased (1932) 49 WNSW 181 at 182.
[8] 4 December 1998, [1998] NSWCA 79, BC9804451.
One of the authorities cited by the Court of Appeal in support of this proposition was Dijkhuijs v Barclay[9] where an earlier Court of Appeal said:
It is the duty of an executor to place all relevant evidence before the court. If there is evidence in the possession of the executor relevant, whether positively or negatively, to “factors which warrant the making of the application” under the Act, I see nothing in the procedure envisaged by s 9(1) of the Act which will relieve the executor of the duty to provide that evidence to the court … I believe that the terms of the sub-section reinforce the duty of the executor to “place before the court … evidence which might have any bearing on any issues … raised by the applicant’s evidence or which might arise at the hearing” … The object of the Act can only be attained if the determination required by s 9(1) … is made upon relevant evidence. The executor, defending the will, will often be in the best position to provide that evidence. It has long been held to be his duty to do so.
This suggests that the duty is limited to information which is available to the executor. This statement of the duty may also depend upon the terms of the sections and rules applying to the proceedings in New South Wales.
[9] (1988) 13 NSWLR 639 at 654.
Counsel for the plaintiffs also cited a passage from the reasons of Windeyer J in Blore v Lang[10] where he stated:
Moreover, by the rules made under the Act, it is the duty of the executor to file an affidavit “setting out the nature and amount of the estate”.
However, this would appear to turn upon the express requirement of a Rule which has no equivalent in this State. He also cited from Aickin J in Goodman v Windeyer[11] where he said:
It cannot, however, be regarded as satisfactory for the executors not to provide current valuations for the remaining assets or estimates thereof when, as the authorities established, the question of the quantification of any further provision must be made on the basis of value estimated at the date of the hearing.
This passage suggests that there is an alternative of an estimate which is what the defendant has given in this matter.
[10] (1960) 104 CLR 125 at 138.
[11] (1980) 144 CLR 508 at 509.
The defendant’s counsel relied primarily upon the defendant’s duty to disclose the assets of the estate being confined to what is expressly required by 6R 312(11), which provides:
(a)within 21 days after filing a notice of address for service, the executor or administrator must file an affidavit—
(i)    stating the assets and liabilities of the estate; and
(ii)     exhibiting a copy of the probate or letters of administration;
(iii)    stating any error believed to exist in the affidavit filed under subrule (2);
(b)not more than 35 days and not less than 14 days before the date appointed for trial, the executor or administrator must file a further affidavit stating any changes to the financial position of the estate since the affidavit filed under paragraph (a);
(c)if a party disputes a statement made in an affidavit filed under paragraph (a) or (b), the party must file a notice of dispute identifying the matter in dispute;
It is significant that the terms of this rule do not require the executor to state the value, or a monetary amount, for the non-monetary assets of the estate.[12] While it is usual practice for executors in their affidavits under 6R 312(11)(a) and (b) to state monetary amounts for the various assets, often they will not be in a position personally to give admissible expert evidence of those values. Where they cannot give admissible expert evidence of value, the amounts which they state can only be treated as estimates. In Scott v Johnson[13] White J, in considering 6R 312(11), referred to the “need [of] evidence of the estimated value of the estate as at the date of hearing”. He did not suggest, in what was a very large estate, that there was any onus on the executor to adduce admissible expert evidence of value of the estate assets. If the amounts which the executor states as being the values are put in issue, then the parties have to adduce admissible expert evidence at the trial to prove the true values. The practice of executors stating such amounts in their affidavits is equivalent to a pleading alleging a particular value, but if it is put in issue under 6R 312(11)(c), then it must be proved at the trial. If executors do have reasonably available to them the means to adduce expert evidence of the value of the estate assets, presumably their executorial duty would require them to put it forward, but it would have to be reasonably available to them. The plaintiffs could not cite any authority showing that a Court had ever ordered an executor to expend a significant proportion of the estate funds on obtaining expert evidence to fulfil a duty to provide admissible expert evidence of value to the Court.
[12] Counsel for the defendant also made a similar point about s 121A of the Administration and Probate Act 1919 and Rule 8.01 of the Probate Rules 2004.
[13] 17 September 2012, [2010] SASC 276 at [26].
By 6R 312(11) and the authorities referred to, I consider that the obligation of the executor to adduce admissible expert evidence of the value of the estate asset is limited to where that evidence is reasonably available to the executor. I do not accept that the duty is such that it requires an executor to expend significant amounts of the estate assets to obtain such a valuation.
Order under 6R 251
The plaintiffs’ counsel submitted that the order sought in paragraph 1 of FDN20 could be made under 6R 251, which relevantly states:
251—Orders for accounts or report
(1)The Court may, on its own initiative or on application by a party, order that accounts or a report relevant to a question in issue in an action be prepared and filed in the Court.
(2)The order may provide for preparation of the accounts or report by a party, an independent expert or other person.
(3)The Court may, in the same or a later order, give directions about the nature and extent of the inquiry to be carried out for the preparation of the account or report.
Example—
The Court might (for example) give directions about the extent to which the person preparing the accounts or report is required to inquire into the adequacy of existing accounts or records.
(4)The Court may order the examination of a party or other person on accounts or a report filed under this rule.
I do not agree. 6R 251 is the successor to O15 and 33 of the Supreme Court Rules 1947 and 87R 85.02, and many earlier rules which dealt with, inter alia, inquiries ordered by the Court.[14] Accounts and inquiries was a composite expression used to describe a special procedure to deal with ancillary issues in an action which were not suited to being resolved by a formal trial. I can find no exposition of precisely what was meant by “accounts” and what by “inquiries”. In general, the practice seems to have been to have designated as accounts issues which were expressed in monetary terms and as inquiries any non-monetary issues. Thus traditionally the term “inquiry” was used for the ascertainment of factual issues such as who are the next of kin or creditors, who are the beneficiaries of a trust, what damage resulted from a particular cause or the like. In my view “report” in sub-r 251(1) and (3) means a report on inquiries as traditionally understood.
[14] For a history of inquiries ordered by Courts see Atkin’s Court Forms Second Edition Volume 33, 1989 pp 260 et seq.
Historically, it seems accounts and inquiries were directed to be taken by a judgment after a trial which resolved the major issues in the action. However, the practice developed of allowing them to be ordered before trial (eg O15 of the Supreme Court Rules 1947) where it was clear they would be ordered and it was expedient to take them before trial.
It would probably be open under 6R 251 for the Court to order an inquiry in this action, if it was otherwise appropriate to do so, as to the true value of the shares in Micden. However, the Court would then have to give directions about how that inquiry was to be conducted. That would usually involve the appointment of a valuer who would be an officer of the Court for the purpose. The Court would also give directions about the payment of the fees of the valuer. The usual practice would be that they would be ordered to be paid initially by the party requesting the inquiry. It is possible that the Court could order that they be paid out of the estate. For the reasons to be given later, that would be most unlikely where there were no funds readily available in the estate for the payment of the fees and the fees could represent a significant proportion of the estate. Once the valuer had reported to the Court, the Court would then consider the report and whether it was to be adopted. If it was ordered to be adopted, it would become a binding judicial determination of the issue as between the parties and could not be contradicted by them at the trial.

Paragraph 1 of FDN20, in its context of its supporting affidavits, is not a request for a judicial determination of the issue of the value of the shares of Micden, but an attempt to have valuation evidence produced which would then be available for use at the trial if either party chose to tender it. That is not a permissible use of 6R 251. In any event, there is no justification at this stage of the action for any order to be made for a report as to value under 6R 251. At present it is a matter to be determined at the trial of the action.
The plaintiff also relied upon 6R 117(1) as a head of power for an order in terms of paragraph 1 of FDN20. There is no precedent for it. Here it would not be in the interests of justice to make such an order.
Request for a current valuation
6R 312(11)(a) and (b) only require an executor to file affidavits about the assets of the estate shortly after the action is instituted[15] and shortly before the trial. The intent of sub-r (11)(b) is clearly to have an up-to-date statement of the assets of the estate available for use at the trial, as any order to be made under the Act will be based on the assets of the estate, and their values, as at the date of trial.[16] Sub-rr (11)(b) and (c) can cause difficulties if any disputes under sub‑r (11)(c) are raised too close to trial. If that is a possibility, it may be that the time for the filing of the sub-r (11)(b) affidavit may need to be brought forward, to allow a greater time between its filing and the trial.[17] However, no such order can be contemplated until a trial date is known. None has been set in this matter and it is impossible to anticipate when it might be.
[15] I leave open the question of whether sub-r (11)(a) requires a statement of the assets at the date of death, or at the date of the affidavit.
[16] Re Borthwich [1948] Ch 645 at 651.
[17] Scott v Johnson, above, at [29].
I accept the submission of the defendant’s counsel that a valuation of the shares in Micden at this point in time may be of little utility. On the plaintiffs’ case the value of those shares will depend to a significant extent upon the present state of the Albion business. That may materially change between when the valuation is obtained and the trial. While there is nothing to prevent the plaintiffs seeking an expert valuation at this point in time, it would not seem to be a prudent expenditure of estate funds now to incur a very substantial valuation fee. There may be significant changes in the affairs of Micden before the trial.[18] Accordingly, there is no justification for requiring the estate now to bear the cost of a current valuation of the Albion business.
[18] This is illustrated by what has already occurred here. A valuation at the date of death, when Micden was not operating the Albion, may well have been of little assistance in determining the true value of the Micden shares currently or at the date of trial when Micden had resumed running the Albion.
Insofar as the order sought in paragraph 1 may be discretionary, that discretion would be exercised against the plaintiffs in any event because there is no money available in the estate to pay for the valuation. The defendant has sworn in her affidavit (FDN23) that the estate does not have funds available. There was no application to cross-examine her on this part of her affidavit. It is not sufficient for the plaintiffs to point to other assets of Micden which may be able to be realised and so to produce some cash. The asset of the estate is the shares in Micden and not the assets of Micden. The defendant should not be required, even if it was possible, to reorganise the affairs of Micden so that it can either lend the necessary money to the estate or pay it to the estate as a dividend.
I have today made the following orders:
1Paragraph 1 of FDN20 is dismissed.
2Orders in terms of paragraphs 2 and 3 of FDN20.
3Costs of paragraph 1 of FDN20 and of FDN18 to be the defendant’s costs.
4Paragraph 1 of FDN20 certified fit for counsel.
5Next directions hearing to be held on 31 January 2013 at 10.40am.