Denise Hilda Burgess as administrator of the estate of Brian Michael Burgess v Burgess

[2018] WASC 279

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   DENISE HILDA BURGESS as administrator of the estate of BRIAN MICHAEL BURGESS -v- BURGESS [2018] WASC 279

CORAM:   KENNETH MARTIN J

HEARD:   17 AUGUST 2018

DELIVERED          :   6 SEPTEMBER 2018

FILE NO/S:   CIV 1322 of 2018

MATTER:   In the matter of the Administration Act 1903

BETWEEN:   DENISE HILDA BURGESS as administrator of the estate of BRIAN MICHAEL BURGESS

Plaintiff

AND

DENISE HILDA BURGESS

First Defendant

MICHAEL LEE BURGESS by guardian ad litem THE PUBLIC TRUSTEE

Second Defendant

LUKE TROY BURGESS by guardian ad litem THE PUBLIC TRUSTEE

Third Defendant

Catchwords:

Estates - Intestacy - Superannuation - Life benefit - Four policies - Payments to widow as dependant spouse rather than to estate - Potential conflict between administrator's duty to estate and personal interest as dependant spouse claimant - Conflict of interest - Account of profits - Constructive trust - Equitable charge priority for home loan repayments

Legislation:

Administration Act 1903 (WA)
Trustees Act 1962 (WA)

Result:

Orders issued

Category:    B

Representation:

Counsel:

Plaintiff	:	Ms M R Bloch
First Defendant	:	Ms M R Bloch
Second Defendant	:	Ms H J Finch
Third Defendant	:	Ms H J Finch

Solicitors:

Plaintiff	:	Merle Bloch Barrister & Solicitor
First Defendant	:	Merle Bloch Barrister & Solicitor
Second Defendant	:	Public Trustee
Third Defendant	:	Public Trustee

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

Boardman v Phipps [1967] 2 AC 46

Breen v Williams (1996) 186 CLR 71

Brine v Carter [2015] SASC 205

Bristol and West Building Society v Mothew [1998] Ch 1

Ievers v Superannuation Complaints Tribunal [2016] FCA 936

Keech v Sandford (1726) Sel Cas 61; 25 ER 223

McIntosh v McIntosh [2014] QSC 99

Reyburn [2002] WASCA 171

KENNETH MARTIN J:

Overview

1. The facts underlying the present application are relatively commonplace, but the problem they present is legally complex.

2. A 45-year-old man with few assets died on 31 May 2015 without leaving a will, but leaving a widow and two young boys (then aged 11 and seven) who were all dependent upon him.  The burden of looking after and raising these children then fell solely upon the widow, who consequently has had to increase her working hours as a child care educator at a care centre from 54 hours to between 70 and 75 hours a fortnight, earning $25.50 per hour, to make ends meet.

3. At the time of his death the man had been employed for some 11 months as a truck driver, working largely around the Perth metropolitan area.  But for substantial periods prior to that, the man had worked on a fly‑in‑fly‑out (FIFO) basis with a number of other employers.  That other employment had resulted in him being a member of four different superannuation funds over time with an entitlement to benefits thereunder, including death benefits.  Just after a year following the man's death his widow applied under the Administration Act 1903 (WA) to be appointed as the administrator of his estate. She was eligible for that appointment as a beneficiary of his estate: see Reyburn [2002] WASCA 171 and s 25(1)(a) of the Administration Act 1903.

4. The deceased man had made modest contributions to the four different superannuation funds during his periods of FIFO employment.  However, each fund carried the benefit for him of an associated life insurance policy, which was relevantly engaged upon his death.  The consequence was that upon the man's death, the trustee of each of the four superannuation funds then received reasonably substantial life insurance policy proceeds.

5. It is clear that as a matter of law an entitlement under a superannuation fund does not form part of the assets of a deceased estate.  A superannuation fund is effectively administered by a trustee who holds a discretion in terms of the persons who the trustee decides should receive the superannuation trust fund proceeds.  Generally speaking, eligible persons will be the deceased member's dependants.  The estate of a deceased member has no right to compel the payment to it of funds administered under a superannuation trust.  However, an estate does fall within the class of persons who are eligible to be an object of the exercise of the trustee's discretion - in terms of applying funds.  So it is open to the estate of the deceased member to apply to the trustee to be considered as a recipient of the funds under the trustee's exercise of discretion. 

6. Many superannuation funds are governed by trust deeds which enable a member to give a binding written direction (nomination) to the trustee of the superannuation fund during their lifetime - which would then bind a trustee to act in accordance with those communicated directions.

7. Regrettably, in present circumstances, the deceased man did not during his lifetime sign any nomination to any of his superannuation funds to give the trustee an instruction as to his wishes concerning the person or persons he wished to receive the benefits of the fund in the event of his death.

8. After the man's death in May 2015, two of the superannuation funds paid out the proceeds - to his widow.  She had made application to each fund to receive the proceeds of her late husband's superannuation entitlement, as an eligible dependant.  One of those two funds made its payment to her on 23 February 2016 - prior to her being appointed the administrator of her late husband's estate.  (The payment was in February 2016 and she was later appointed administrator on 27 June 2016.)

9. The second of the two funds made its payment to her just over six months after she had been appointed administrator.  That was on 30 December 2016.

10. A third superannuation fund paid out the proceeds of the man's superannuation fund entitlement, but that was paid to the estate on 26 October 2016.  It was a relatively modest amount and, because it was paid to the estate rather than to the widow personally, it is of no present concern. 

11. I point out that in pragmatic terms the consequence of a payment to the estate in circumstances where there was no will meant that under the relevant application of provisions under s 14 of the Administration Act 1903 regarding entitlements upon an intestacy - the proceeds of the intestate estate were to be distributed on the basis of a first tranche amount of $50,000 from the proceeds of the estate, being the prior entitlement of the widow (plus some interest) and then, any residue of the estate's funds being divided on a one‑third equal basis as between the widow, sharing equally with each of her two young children.

12. A fourth superannuation fund has not yet rendered a decision concerning the exercising of that trustee's discretion as regards the object(s) of payment of the deceased member's entitlement.  What happens with those funds will depend upon the outcome of the present application. 

13. This application throws up an issue concerning the likely conflict of interest between the position of a widow seeking that her late husband's superannuation funds all be paid to her in the capacity as the spousal dependant of the fund's deceased member - in contrast to the fiduciary duties the widow is bound by and must observe in her capacity as the administrator (ie, trustee) of an estate, where that estate must be administered not only for her interests but also in the interests of her two young children as the other beneficiaries of the intestate estate.

14. On the present application, the widow seeks, pursuant to s 45 of the Administration Act, that the court issue orders settling questions which arise in the administration of the estate.  In particular, she asks the court to resolve whether she must (as administrator) call upon herself to repay and thereby to account to the estate for all funds which she has received and used from superannuation funds in her own right.

15. At the outset, I observe that the unfortunate circumstances posed for resolution could have been avoided if the deceased man had done two things differently prior to his death.  First, if he had executed a will, then the undesirable scenario for his surviving family of dealing with an intestacy situation would have been avoided.  Preferably, his will would have said in explicit terms that there was no difficulty for his widow, if she was appointed as his executor, in acting exclusively in her own interests by applying to receive personally and receiving the full entitlement to any superannuation fund proceeds to which he might be or become entitled in the event of his death. 

16. Secondly, if the man had signed and presented a binding nomination document to the trustees of the four superannuation funds in which he held entitlements (including any life benefits), then such an instruction would ordinarily have bound the trustee to distribute those funds, say, on a 100% basis to his widow (rather than to his estate) if so directed, rather than leaving the distribution decision wholly to the trustee's own discretion.

17. Regrettably, neither of those two events happened here.  Hence, the present problems arise in rather adverse underlying factual circumstances, which might otherwise have been easily avoided.  In a less than optimal factual scenario, I need to bear in mind the aphorism that 'hard cases make bad law'.  The implications of any decision rendered towards these facts could carry wider implications later for less worthy facts. 

18. That wider precedential concern is reinforced by the primary submission put on behalf of the widow.  It was to the effect that some other first instance decisions rendered by other superior courts should be distinguished and not followed.  In particular, an intestacy scenario considered by Atkinson J in McIntosh v McIntosh [2014] QSC 99 was drawn to my attention - but on the basis that the decision should, in effect, be either distinguished or not followed. Similarly treated was another South Australian decision in Brine v Carter [2015] SASC 205 by Blue J, which followed McIntosh. 

19. Brine v Carter was a case of four executors, one of whom was the surviving de facto partner of the deceased.  She was held to be in a conflict of interest position in obtaining for herself 100% of the superannuation fund's entitlement of her deceased partner -rather than acting in the interests of the estate (administered by all executors).  In reaching that decision, Blue J referred with evident approval to observations in McIntosh v McIntosh as regards conflicts of interest, although the South Australian facts are less directly on point, given it was a case of executorship under a will, rather than an intestacy:  see [138] and [139].

20. Since the suggestion of me not following McIntosh v McIntosh forms a central feature of the submissions put, it will be necessary to very closely consider the aspects of the reasoning of Atkinson J and its overall potential implications for the present circumstances.  Before that, however, I need to more precisely identify the participants to the present application and the three affidavits read and relied upon by the plaintiff in support of her application.  I also will indicate the neutral position taken by the Public Trustee who appeared as guardian ad litem for each of the widow's two young children and assisted the court through brief submissions.  I will return to that in due course.

The participants

1. The plaintiff widow (Mrs Burgess) brings the present proceedings as the administrator of the estate of her late husband, Brian Michael Burgess.  Mr Burgess died intestate on 31 May 2015.  Mrs Burgess was appointed the administrator of his estate by this court on 27 June 2016.

2. Mrs Burgess is also named as the first defendant to this litigation on the present application - in her personal capacity.  As indicated, that arises out of the potential conflict situation she finds herself in as a personal recipient of funds paid to her as a dependant of her late husband by two of his four relevant member superannuation funds. 

3. The first fund in question (Prime Super) made a payment of $85,017.73 to Mrs Burgess on 23 February 2016.  But that payment was some four months before she was appointed as the administrator of her late husband's estate.  Therefore, a conflict problem had not presented at that time for her.  Subsequent to that, on 30 December 2016, Mrs Burgess received, personally, an amount of $338,607.33 paid to her by the second industry fund (REST).  There is a fourth superannuation fund (AMP) which holds funds in the order of approximately $160,000 - but in respect of which no payment has yet been made either to Mrs Burgess personally, or to her acting as administrator for the estate of her late husband.

4. I should note that there has not been the slightest suggestion of any misdealing conduct or misappropriation of any of the superannuation payment funds received by Mrs Burgess to date.  Since her late husband's death in 2015, she appears to have sensibly used the funds she received to acquire a house and land in the Perth suburb of Camillo for the purpose of residing there with her children.  She says she purchased that property for $320,000 with assistance of a home loan from the Commonwealth Bank of $145,013.25 - which was the full extent of funds that a lending institution was prepared to advance based on her income and assets.  She paid off the joint debts of herself and her late husband in the amount of $21,245.57.  She purchased a modest car for the family's needs, banked some funds and made contributions to trust accounts for her two sons, Michael and Luke, by depositing amounts of $45,000 for each of her young sons into Commonwealth Bank Youth Saver accounts.

5. Mrs Burgess's unchallenged evidence on the application is found in two affidavits she has sworn and which were read on her behalf on the present application.  Her first affidavit was sworn and filed on 23 February 2018 and a further affidavit containing the superannuation trust deeds for Prime Super, REST and AMP, was sworn on 17 May 2018 and filed on 24 May 2018.  Mrs Burgess also relies upon what is, in effect, an affidavit providing expert legal opinion about superannuation matters from a Ms Michele Kershaw of 23 May 2018.  I will refer to the text of that expert evidence separately.

6. On the present application Mrs Burgess's two children, Michael and Luke, who are now aged 15 and 10 years of age respectively, participate through the Public Trustee, acting as the guardian ad litem for them both.  The children, so represented, are the second and third defendants, respectively. 

7. I should say that the evidence discloses that with the benefit of earlier legal advice, Mrs Burgess, in order to obtain a grant of letters of administration, accepted that she needed to establish that her children's interests would be protected. That advice led to the establishment of a trust for them. At pars 13 and 14 of her first affidavit, Mrs Burgess relates she did not have anyone who she could ask for guarantees to ensure that her children's interests would be protected. Consequently, her solicitor identified the Public Trustee. The Public Trustee was prepared to act under a trust settled for the children. That trust deed is appended to Mrs Burgess's first affidavit as annexure G. It expresses itself as a deed vesting estate assets pursuant to s 17A of the Administration Act.  The Public Trustee is identified as the relevant trustee, with Mrs Burgess identified as the applicant.  Under cl 5 of its recitals it says:

   The Public Trustee WA ('The Trustee') agrees to receive the Beneficiaries' entitlements to that part of the Estate of the Deceased that is distributable under the law of Western Australia on each Beneficiary's behalf on the terms contained in this Deed.

8. In terms of its operative covenants, cl 3 of the deed, under the heading Vesting of Estate, says:

   Upon the grant of Letters of Administration in the estate of the Deceased being obtained by the Applicant and the administration of the Western Australian estate being completed the Applicant vests the Beneficiaries entitlements in those parts of the Estate of the Deceased which is distributable under the law of Western Australia in the Trustee on the Beneficiaries behalves for the Trustee to hold those shares in trust for each of the Beneficiaries.

Relief sought

1. It is necessary to turn specifically to the declaration and orders sought upon the present application by Mrs Burgess pursuant to s 45 of the Administration Act and s 75 of the Trustees Act 1962 (WA).

2. Paragraphs 1, 2 and 3 of the originating summons seek relief in equivalent terms to that seen under pars 4, 5 and 6 of the originating summons.  However, pars 1, 2 and 3 relate to the fund payment by Prime Super whereas pars 4, 5 and 6 relate to the fund payment by REST.  I will set out pars 4, 5, 6 (and 7) below shortly, to make matters clearer. 

3. The relief sought by pars 1, 2 and 3 relates to a fund payment of $85,017.73 received by Mrs Burgess on 23 February 2016.  That was at a time some four months before she was actually appointed as the administrator of her late husband's estate.  In those circumstances, I see no basis for any conflict of interest concerns as regards her receipt of those funds at that time as a dependant of her late husband, under an exercise of the discretion of the trustee of the Prime Super fund.  Consequently, I will in the end declare, as per par 2, that Mrs Burgess 'did not breach her fiduciary duty when [she] applied in her capacity as the spouse of the [late Michael Lee Burgess] for the Prime Super funds to be paid to her'.

4. More difficult issues surround the amount of $338,607.33 which was paid by the REST industry fund to Mrs Burgess on 30 December 2016 -being some six months after she had been appointed as the administrator of her late husband's estate. 

5. From the evidence, it is not clear when Mrs Burgess actually made an application for that payment to herself, but clearly she did at some point.  Nor is it entirely clear whether the REST industry fund had been made aware of the potential rival claimant interests from a claim by the estate of the late Mr Burgess - although it would seem extraordinary if that fund had not been aware of the existence of the late Mr Burgess's estate.  I think it also likely that the fund would have, prior to December 2016, been appraised about the existence of the interests of Michael and Luke as infant beneficiaries of Mr Burgess's intestate estate.  The trustee of that fund in the exercise of its discretion as to the recipient(s), chose to pay all the proceeds to the widow, Mrs Burgess, personally.

6. As mentioned, Mrs Burgess has not yet sought any AMP superannuation and death benefits under that policy.  That fund stands to deliver funds in the extent of $160,000, to whoever the trustee of that policy decides is the appropriate recipient/dependant in the exercise of the trustee's discretion. 

7. Relief sought under pars 4 through 6 of the originating summons of Mrs Burgess as administrator is in the following terms:

   4.that the plaintiff may not call upon the first defendant to account for the proceeds of the superannuation and death benefit received by the first defendant from the REST Industry Fund;

   5.that the plaintiff did not breach her fiduciary duty when the plaintiff applied in her capacity as a spouse of the deceased for the REST Industry Fund to be paid to her;

   6.alternatively, if the plaintiff did breach her fiduciary duty when the plaintiff applied in her capacity as a spouse of the deceased for the REST Industry Fund to be paid to her, then the plaintiff is excused from the breach of trust and is relieved from personal liability for the breach;

8. Prayer for relief 7 under the terms of the plaintiff's originating summons concerns the AMP superannuation death benefit funds not yet paid out.  Paragraph 7 seeks:

   7.that the plaintiff shall not apply for the AMP superannuation and death benefit to be paid to the estate of the deceased and if upon the application of the first defendant the AMP superannuation and death benefit is paid to the first defendant then the plaintiff may not call upon the first defendant to account for the proceeds received by the first defendant from AMP.

The facts collected

1. I will set out below a short chronology of relevant events, some of which I have already canvassed or alluded to.  Nevertheless, it is helpful to collect a factual narrative chronologically at one place for present purposes.

2 March 1991	Brian and Denise Burgess married
10 June 2003	Michael Lee Burgess born
31 March 2008	Luke Troy Burgess born
Financial year ending June 2014	Brian Burgess works as truck driver on FIFO basis
June 2014 - May 2015	Brian Burgess works around Perth metropolitan area
31 May 2015	Brian Burgess dies intestate
23 February 2016	$85,017.73 is paid to Denise Burgess personally by Prime Super
20 April 2016	Denise Burgess and the Public Trustee enter trust deed to facilitate Mrs Burgess's application to be appointed administrator of her late husband's estate
27 June 2016	Denise Burgess appointed administrator of her late husband's estate under a grant of letters of administration
26 October 2016	$5,162.66 paid to Brian's estate by IOOF super fund
30 December 2016	$338,607.33 paid to Denise Burgess personally from REST industry fund
2017/2018 financial year	Amounts of $45,000 each paid into Commonwealth Bank Youth Saver accounts established for Michael and Luke - see interest amounts in 2017/2018 financial year indicating receipt of these funds at that time
Application not yet made	Approximately $160,000 in AMP superannuation policy available

Section 75 of the Trustees Act 1962 (WA)

1. Since excusal relief is sought for Mrs Burgess as administrator, by reference to this provision, I will set it out below as a matter of convenience. Section 75 provides:

   If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is, or may be, personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the manner in which he committed the breach, then the Court may relieve him either wholly or partly from personal liability for that breach.

2. This provision looked to be relevant to the relief sought by par 6 of Mrs Burgess's present application.

Mrs Burgess's written submissions

1. Given the funds paid by the IOOF super fund were paid to the estate and that the amount paid by the Prime superannuation fund was paid out and received prior to Mrs Burgess being appointed the administrator of her late husband's estate, I am essentially untroubled from a conflict of interest or breach of trust excusal perspective towards those two amounts.  Rather, the significant concern upon the present application is the $338,607.33 received by Mrs Burgess personally from the REST industry superannuation fund in December 2016, roughly six months after she had been appointed administrator.  Correlatively, I am concerned, via par 7 of the relief sought under the originating summons, with the undistributed AMP superannuation and death benefit amount which presents as being in the likely order of some $160,000.

2. With all that in mind, I can direct attention at the written submissions filed on behalf of Mrs Burgess. 

3. As mentioned, those written submissions either seek to have me distinguish or ask that I not follow a key 2014 decision of the Supreme Court of Queensland in McIntosh v McIntosh for various reasons.  The overall flavour of the position advanced for Mrs Burgess is that the McIntosh line of authority is inconvenient or unjust, particularly for Western Australia where, unlike Queensland, there are constraints against who might be appointed as an administrator of an intestate estate, see Reyburn [2002] WASCA 171 and s 25 of the Administration Act 1903 (WA). In Western Australia the application to be appointed as an administrator is ordinarily brought by a beneficiary. Therefore, it is said that a beneficiary of an estate would always suffer from a potential conflict of interest, in so far as the administrator is also a beneficiary of the deceased estate and that this embedded or normative conflict situation in Western Australia should not be overlooked.

4. Three particular paragraphs found within Mrs Burgess's submissions deserve particular mention.  The first is the commencing paragraph which reads in terms:

   It cannot be the case that beneficiaries of an estate can receive a windfall simply by virtue of the fact that the administrator of the estate is a person who would receive superannuation following the death of the deceased.

5. With respect, I am not attracted by this outcome driven argument.  First, the term 'windfall' is misapplied.  If the terms of the Administration Act provide for entitlements to persons upon an intestacy, then such an event is not properly characterised as a windfall.  The outcome is a direct result of the legislative intent expressed towards circumstances where a deceased has failed to indicate by a testamentary instrument (ie, will) how they wished to have their property distributed upon their death.  Secondly, the embedded assumption made in the opening submission is that the fund recipient otherwise holds an entitlement to receive superannuation moneys and is disadvantaged by a 'windfall result'.  That is an overstatement since, absent a binding nomination being given to a superannuation fund trustee by the member in their lifetime, then, as here, the entitlement of the member's potential dependants is left to be the product of an exercise of the superannuation trustee's complete discretion.

6. Second, and more significant, was a concluding submission found under par 39 of the plaintiff's written submissions.  It, as I read it, is made directly against a position as was expressed in McIntosh v McIntosh.  Paragraph 39 reads:

   It is submitted that the duty of the administrator is to disclose to the superannuation trustee that the administrator is the administrator of the estate.  The duty of the administrator is to provide any information requested by the superannuation trustee so that the trustee may exercise its discretion in terms of the Deed.

7. That limited scope of duty to the estate submission makes it necessary to examine the reasons in McIntosh v McIntosh more closely. 

8. Third, there was a citation of authority found within the plaintiff's written submissions in these terms at par 14:

   Payment of the whole of the superannuation to a spouse who is the sole dependant at the date of death 'is a legitimate and sensible exercise of a discretion (by the superannuation trustee).  It is difficult to see that any other decision could or should have been taken.'

9. The citation refers to a Federal Court of Australia decision Ievers v Superannuation Complaints Tribunal [2016] FCA 936, a decision of McKerracher J. Of significance, however, on my reading of the extract above, is the reference to a spouse being the 'sole dependant at the date of death'.

10. I do not assess that extract as wholly apposite to present circumstances, where at the date of the late Mr Burgess's death his dependants certainly included his spouse, Mrs Burgess, but also included his two young children.  If the citation of Ievers was intended to support a submission that the only legitimate and sensible exercise of a discretion by a trustee of a superannuation fund towards the present circumstances would be to distribute the entirety of the funds to the surviving spouse, rather than to dependant surviving children or the estate, then I do not accept the submission.  The facts in Ievers (see [55]) show that the surviving de facto partner was the only claimant with a potential entitlement as a dependant, ie, there were no dependant children in that case.

11. I need next to set out some uncontroversially adduced expert evidence about superannuation from the affidavit of Ms Kershaw.  Then I will set out the position of the Public Trustee, taken on the present application for the two infant children - which, in short, is to not consent to but, on the other hand, to not oppose the relief sought under the present originating summons by their mother.

The expert evidence of Michele Kershaw

1. Ms Kershaw is a solicitor admitted to practice in 1994, practising in the areas of wills and deceased estates for 15 years.  Commencing at par 3 of her affidavit, Ms Kershaw relates the following:

   3.My advice in relation to deceased estates frequently includes advice regarding making a claim for the superannuation and death benefits arising from the death of the deceased.

   4.While each superannuation company has their own forms and process of managing claims, there is a common procedure which is followed if the superannuation trustee deed gives the superannuation trustee a discretion as to whom payment is to be made.

   5.If the superannuation trustee has a discretion, it must be exercised in favour of the superannuation dependant as defined in s 10 and s 10A of the Superannuation Industry (Supervision) Act 1993.

   6.On the death of a member of a fund, a claim form needs to be completed either by the executor or administrator or by a superannuation dependant.

   7.The form elicits the identity of superannuation dependants including details about the estate of the deceased.

   8.The superannuation company will ask for information about whether there is a Will or whether the deceased died intestate, whether an application for a grant will be made or has been made, whether any people were financially dependent on the deceased, and whether are there [sic] any inter-dependency claims.

   9.The potential superannuation dependants are then contacted by the superannuation fund to provide information to the superannuation trustee and usually asked to advise the trustee whether they are seeking that part or the whole of the superannuation and death benefits are to be paid to them or alternatively, whether they do not seek that any of the funds be paid to them.

   10.The trustee makes a decision which is notified to all superannuation dependents.

   11.The trustee invites any objections to be made within 28 days.

   12.If objections are received the trustee reconsiders its decision and then makes a final decision.

   13.A person aggrieved by that final decision must then make an application to the Superannuation Complaints Tribunal.

   14.If the superannuation trustee determines that payment will be made to a dependent (other than the estate) then the trustee will make payment directly to the recipient.

2. That evidence as submitted was not challenged.  I will proceed on the basis that it is correctly stated.  It supports a conclusion that the likely enquiry processes of the four superannuation funds prior to making any discretionary payments to a dependant, would almost certainly have revealed the existence of the intestate estate of the late Mr Burgess and the existence of his two infant children as the likely estate beneficiaries along with their mother.

The submissions of the Public Trustee

1. Albeit first expressed only as submissions on behalf of the second defendant, this was clarified at the hearing to make it plain that the submission was made by the Public Trustee on behalf of both Burgess children - for whom it acts as guardian ad litem on the present application.

2. The Public Trustee's submissions of 15 August 2018 were brief.  They read:

   The Public Trustee as guardian ad litem … makes no specific submissions in relation to the plaintiff's application.

   (1)It does not consent to the application, because the share of the Second (and third) Defendants in the estate will decrease if it is successful, and in view of the cases of McIntosh v McIntosh and Brine v Carter, it is not certain that it will be successful.

   (2)On the other hand it does not oppose the application, because it considers that the Plaintiff's affidavit evidence sufficiently shows that the Second (and third) Defendants will receive some indirect benefit through the Plaintiff if her application is successful.

   (3)The Plaintiff's Outline brings the cases of McIntosh v McIntosh and Brine v Carter to the attention of the Court for its consideration and there are no other points the Public Trustee wishes to bring to its attention on behalf of the Second (and third) Defendants.

3. I now turn to examine more closely the decision in McIntosh v McIntosh.

McIntosh v McIntosh [2014] QSC 99

1. The facts of the application considered by the court in McIntosh were different in some respects to the present application.  There, a deceased man, James McIntosh, was the son of the applicant, Elizabeth McIntosh, and the respondent, John McIntosh.  James had died without a will in July 2013.  His biological parents had been divorced and their relationship was perpetually acrimonious. 

2. At the time of his death, James was unmarried and had no issue.  Under the terms of the Queensland intestacy legislation his estate would be divided equally as between his surviving parents as his closest living relatives.  At the time of his death, James' mother, Elizabeth McIntosh, said that she was a dependant of her son.  She said that they had lived together for some 30 years of his 40 years of life.  She related that they had shared household bills, that he depended on her, and that James had been bipolar since the age of 22 years, and also suffered a significant hip disease. 

3. Ordinarily, there would have been a joint appointment of Elizabeth McIntosh and her estranged husband as the joint administrators of their late son's estate.  But it would appear that, in the end, only Mrs McIntosh applied to be appointed administrator (with the knowledge of her ex‑husband).  Mrs McIntosh was then appointed as administrator on 24 September 2013. 

4. James left an intestate estate worth about $80,000.  However, there was, arising out of James's employment, a significant amount of member superannuation benefits from three funds available outside James's estate - in the total amount of $453,748.69. 

5. Mrs McIntosh applied for the entire superannuation proceeds from Intrust Super in September 2013.  She received the entire proceeds on 22 January 2014.  She also received the entire proceeds of James' Hostplus superannuation death benefit on 16 December 2013, followed then by the entire proceeds of his Hesta benefits on 12 February 2014.  Mr McIntosh complained about this.  He contended that Mrs McIntosh, in effect, had preferred her personal interests over those of the estate - to whom she as administrator (trustee) owed an exclusive duty of fidelity and loyalty - and in particular the duty not to act in her own interests to the detriment of her trust beneficiaries.

6. As related by Atkinson J, Mrs McIntosh had conceded ([57]) that once she was appointed administrator she was, from then, in a fiduciary relationship with the beneficiaries of her late son's estate.  That included the interests of her ex‑husband.  But Mrs McIntosh's defence as recorded by the judge was:

   … she argued that given the content of the fiduciary duty in the circumstances of this case she did not breach any such duty.

7. Mrs McIntosh's argument was that her duty to collect the real and personal assets of the estate of the deceased did not extend to include 'the inchoate right to compel the trustee of the superannuation fund to exercise its discretion according to the trust deed'.  Mrs McIntosh argued further that:  see [59]:

   … an application for payment of the superannuation benefits to the estate did not form part of the Administrator's duties.

8. The contrary was put by Mrs McIntosh's ex-husband.  He submitted that as administrator and personal representative, Mrs McIntosh was under a positive duty to collect the assets of the estate.  She was under a fiduciary duty not to allow any conflict as between her personal interest and her duty to the estate to occur.  It was argued by Mr McIntosh that:

   Seeking a payment of the superannuation benefit to herself personally, without also doing so on behalf of the estate or, otherwise, not informing [her ex-husband] so that he could do so, breached those duties.

9. Mr McIntosh submitted that the usual remedy for breaching a fiduciary duty in circumstances of conflict was an account of profits, so he argued that Mrs McIntosh ought be directed that she was obliged to account to the estate for the superannuation fund moneys which she had received: see [61].

10. Atkinson J, in effect, accepted Mr McIntosh's arguments.  In resolving the differing positions, Atkinson J first distinguished, as regards conflict scenarios, a position of an appointed executor, as against that of the duties following upon the administrator of an intestate estate.  At [62] she observed upon this distinction:

    The testator may appoint someone whom the testator knows is a creditor or debtor of the testator or whom the testator has designated as the sole named beneficiary under a non-binding nomination of the testator's superannuation fund.  These are examples of circumstances where the testator has nominated a legal personal representative who has a known conflict and must be taken to have accepted that conflict.  This is an exception to the general rule that no-one who has fiduciary duties is allowed to enter into engagements in which the fiduciary has or may have a personal interest conflicting with the interests of those whom the fiduciary is bound to protect.

11. There had also been an element of non-disclosure or quasi‑deceit (equitable fraud) present in McIntosh on its facts.  At [67] Atkinson J observed:

    [Mrs McIntosh] did not disclose that she intended to apply to the superannuation funds for the funds to be paid to her personally.  There was certainly not sufficient disclosure by her for the court to infer that she would be placed in a position of conflict nor for the respondent to give his informed consent to that position of conflict.

12. In contradistinction to the McIntosh facts, there is no such concern here about any failure to fully disclose all the facts to the court, or a potential misleading of anyone.  Here, Mrs Burgess has involved the Public Trustee at an early stage.  She has deposited funds to the extent of $90,000 into trust accounts for the long term benefit of her two children.  There is no doubt also that in purchasing a residence for the family, taking out a personal loan secured by a mortgage that she is paying off and generally providing ongoing care to her two boys, as explained in her affidavits, the underlying facts are very different to the deceitful circumstances found in McIntosh.

13. Atkinson J had noted at [68]:

    In this case, the applicant [Mrs McIntosh] did not make an application to any of the superannuation funds until 30 September 2013 which was after the order was made on 24 September 2013 that Letters of Administration be granted to her.  After that order she acquired the fiduciary duties which are reposed in the office of Administrator.

14. Atkinson J recognised as regards the duties of an administrator of an intestate estate the well-established fiduciary duties of loyalty and fidelity that are owed by a trustee, as had been classically explained by Lord Millett in BristolandWest Building Society v Mothew [1998] Ch 1, 18.

15. Applying well‑known conflict avoidance and non‑profit principles to the McIntosh facts, Atkinson J then rendered these observations at [70]:

    In this case there was a clear conflict of duty and interest contrary to her fiduciary duties as administrator.  When the applicant made applications to each of the superannuation funds for the moneys to be paid to her personally rather than to the estate, she was preferring her own interests to her duty as legal personal representative to make an application for the funds to be paid to her as legal personal representative.  She was in a situation of conflict which she resolved in favour of her own interests.  As such she acted … in breach of her fiduciary duty … (my emphasis in bold)

1. Her Honour continued, [71]:

   An administrator of an intestate estate has a duty to apply for payment of superannuation funds to the estate.  The administrator has no proprietary right to the funds but has standing to compel the trustees of the fund to exercise their discretion to pay out the funds …  (my emphasis in bold)

   Atkinson J referred to the Superannuation Industry (Supervision) Regulations 1994 (SIS Act Regulations), reg 6.22 and, later, to the definition of 'dependant' found under s 10 of the Superannuation Industry (Supervision) Act 1993 (Cth).

2. Her Honour continued at [73]:

   It is axiomatic that the legal personal representative would, if he or she did not have a conflict, make an application for the payment of the superannuation to the deceased member's legal personal representative.  That application would be made as part of the administrator's duty to get in the estate.  Unless the application is made and is successful the funds do not become part of the estate.  (my emphasis in bold)

3. Continuing at [74]:

   The trustee of the superannuation fund may make the payment to either or both of the legal personal representative or the member's dependants.  This discretion resides in the trustee but is one which the deceased member's personal representative must be under a duty to call on the trustee to exercise.

4. Atkinson J went on to distinguish the scenario of the duties falling upon a trustee of a superannuation fund, where a binding nomination has been made by the member, where the governing rules of the superannuation fund enable the member to do that, referring to reg 6.17A(4) of the SIS Act Regulations. 

5. She held, in conclusion, that there had been a breach of fiduciary duty by Mrs McIntosh by reason of a clear failure to act in the best interests of the estate.  The appropriate remedy for such a breach of duty by a trustee or fiduciary, applying Breen v Williams (1996) 186 CLR 71, 135 (per Gummow J), was to order the taking of an account.

6. Atkinson J concluded as regards relief against Mrs McIntosh at [80]:

   … She must therefore account to the estate for the benefit which she gained for herself in breach of that duty.  In this case that means transferring the payments received from the three superannuation funds from herself to the estate of James McIntosh.

Implications of McIntosh

1. Applying the McIntosh reasoning to present circumstances would carry a necessary conclusion that Mrs Burgess in the future should make an application on behalf of Mr Burgess's estate to the AMP fund trustee for payment of all member benefits to the estate, rather than to any other potential rival dependant (such as herself).  Consequently, the relief sought by Mrs Burgess under par 7 of the originating summons would not be granted, in effect, to enable her to apply personally and receive the AMP benefits herself if the AMP fund trustee exercised its discretion in her favour. 

2. From a perspective of her potential liability to account for funds received, or to be excused in that respect (under the relief sought under pars 4, 5 and 6 of the originating summons) that relief would, essentially, only concern the $338,607.33 moneys as received by Mrs Burgess personally from REST industry super on 30 December 2016.

3. I have earlier mentioned the 2015 South Australian decision of Blue J in Brine v Carter concerning the position of a defaulting executor when acting for her own interests in a position of conflict, as regards that executor seeking and then receiving the entirety of her late partner's superannuation proceeds.  I do not need to say more about that decision which, effectively, applied as a matter of principle the same approach seen in McIntosh v McIntosh (see [139]) in the face of a clear breach of fiduciary duty.

The issue

1. The major question is whether Mrs Burgess should be asked to account to the estate in respect of the funds received from the REST industry fund on 30 December 2016.  There was no real attempt to put forward an argument that Mrs Burgess was not in a position of conflict of interest, once she was appointed as the administrator of her late husband's intestate estate.  A conflict arose as between the fiduciary duty owed by her, in effect, as a trustee of the estate, clashing against her personal interest as her late husband's surviving dependant spouse in personally claiming the member benefits under his superannuation. 

2. As I understood the argument put on Mrs Burgess's behalf as administrator at the hearing, it was essentially that her duty to the estate as administrator did not go beyond the mere obligation to disclose to the superannuation fund trustee that although she was seeking payment to be made to her personally as the member's surviving spouse and dependant, she was also appointed and acting as the administrator for her late husband's estate (and presumably in that capacity would also disclose the estate beneficiary interests of her two dependant children).

Discussion and resolution

1. Undoubtedly, the underlying factual circumstances here are more benign than those which underlay the decision in McIntosh v McIntosh.  There is no question Mrs Burgess has been acting in what she sees as the best interests of her children.  To that extent, she has engaged the Public Trustee at an early point to protect and advance their interests.  As seen, the Public Trustee does not consent to, nor actively oppose the present application brought by Mrs Burgess, which seeks that she not be required to account in respect of the REST industry superannuation fund moneys received and since expended.

2. A submission made orally at the application on Mrs Burgess's behalf accepted, in effect, an existence of a conflict of interest as between Mrs Burgess's position as administrator of the estate, and own personal interest as a fund claimant as a dependant surviving spouse.  Acceptance of the conflict position was correct.  The nature of an administrator's fiduciary position is such that it requires the fiduciary's undivided loyalty in pursuing exclusively the interests of beneficiary parties - to the exclusion of all other rival interests.  The rigour of the fidelity required of trustees and those who discharge equivalent positions by courts of equity over centuries has never diminished.  Across time, celebrated prior cases such as Keech v Sandford (1726) Sel Cas 61; 25 ER 223 and Boardman v Phipps [1967] 2 AC 46 provide merely two of many examples of situations where what on the face of it might otherwise be regarded as a harsh result taken against the actions of a trustee, was necessary to preserve the integrity of the office of trustee. In Keech it was a market leasehold interest that was taken for himself by that trustee and which on the facts could not have been taken by the infant beneficiary in any event.  Nevertheless, that was no excuse.  In Boardman v Phipps it was undisputed that the takeover skill and acumen of a trustee solicitor, Mr Boardman, had benefited and profited all concerned, including estate beneficiaries as well as himself.  That was not good enough. 

3. In an age of increasing moral ambivalence in western society the rigour of a court of equity must endure.  It will not be shaken as regards what is a sacred obligation of total and uncompromised fidelity required of a trustee.  Here, that required the administrator not just to disclose the existence of the (rival) estate interest when claiming the superannuation moneys in her own right from the fund trustee.  It required more.  It required her to apply as administrator of the estate for it to receive the funds in any exercise of the fund trustee's discretion.

4. On my analysis, the approach of Atkinson J taken in McIntosh cannot be faulted as a matter of law.  I would respectfully apply it here, even though the underlying facts are different.  The interests of a deceased estate require a 'champion' who cannot be seen (even if they are not) to be acting half‑heartedly, or with an eye to achieving outcomes other than an outcome that thoroughly advances the interests of the estate - to the exclusion of other claimants. 

5. Consequently, I cannot grant the relief sought under pars 4 and 5 of the originating summons, as regards the REST industry super fund moneys received by Mrs Burgess.  Nor am I persuaded, much as I personally do sympathise with her position as a sole parent left looking after two young boys, that it is appropriate to excuse a breach of trust to relieve her from personal liability (in effect, towards her children at some possible time in the future) - in circumstances where she has legally acquired the Camillo property for $320,000 (and associated costs) and continues to hold that property legally and beneficially.  It is true, of course, that the Camillo property is encumbered by a secured debt and mortgage of $145,000 or thereabouts and it is clear Mrs Burgess is solely bearing the responsibility for meeting repayments over time. 

6. Mrs Burgess should be properly advantaged and protected in going about paying off that secured debt. 

7. On my analysis, the responsibility of Mrs Burgess to account to the estate of her late husband in respect of the REST funds she received can be met by a declaration of a constructive trust over the Camillo property reflecting the estate's proportionate interests in that property (including, of course, her own).  But as I have said, appropriate recognition should also be given to the mortgage debt which she is meeting herself over that property and thereby increasing her overall equity in that property.  That interest can be appropriately recognised by an equitable charge in her favour which has a first priority over the estate's following equitable interest under the constructive trust.

8. Beyond that, a way of achieving a possible tolerable outcome for the Burgess family in these less than optimal factual circumstances might be for the $160,000 from the AMP policy to be paid first to the estate, if the AMP trustee would do that, and then the funds distributed in accord with the s 14 Administration Act allocation breakdown as between the estate beneficiaries.  In the process, Michael and Luke would also need to give credit for the $45,000 sums which have already been received and which are held in trust for them as against a further distribution to them of a one-third share after the payment to their mother of the first $50,000 from the AMP funds plus interest.  The deficiency left from the AMP amount as regards Mrs Burgess's receiving her one-third of the AMP interest, would be the subject of a reduction against her REST industry obligation amount.  Following that deduction, her repayment to the estate of the REST industry amount would be effectively apportioned one-third each, as between Mrs Burgess and her two sons.  The constructive trust over the Camillo property would protect the interests of the estate.  As Mrs Burgess over time pays off her $145,000 secured mortgage debt over the Camillo property, the value of her prior equitable charge ranking in priority to that of the estate's constructive trust should increase, to be eventually set off against any amounts left remaining due to the children by the accounting in respect of the proportion of the REST industry super moneys repayment obligation.  Over time, her set-off obligation to the children's estate interest may reduce to close to zero. 

9. There are, of course, many other ways of achieving the same accounting result which might be considered as well.

10. The result is, of course, messy for the family and less clear cut than might otherwise have been desired.  However, that is a result of wider trustee integrity policy principles of the law which take effect and prevail.  They are of vital importance and are applicable to universal circumstances extending well beyond the present rather regrettable factual situation.  The present is a situation, I reiterate, that might have been avoided by the two measures I earlier mentioned. 

11. I shall provide these reasons to the parties to consider prior to my issue of final orders.  There should also issue as well the declaration that I mentioned earlier as regards the fund payment to Mrs Burgess before she was appointed administrator and which is not of concern.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

TG
RESEARCH ASSOCIATE TO THE HONOURABLE JUSTICES KENNETH MARTIN AND CORBOY

6 SEPTEMBER 2018