ESTATE J DECEASED No. SCGRG-99-80 Judgment No. S364

[1999] SASC 364

ESTATE J DECEASED

[1999] SASC 364

1 WILLIAMS J. This is an application by the administrator of the estate of the deceased for variation of an order dated 5 June 1996 for reduction of penalty on the administration bond. That order was made pursuant to s32 of the Administration and Probate Act, 1919.
2 The applicant is the widower of the deceased who died intestate five years ago or thereabouts.  The deceased was also survived by her infant children.  In preparing these reasons I have avoided any reference which will identify the children.
3 The deceased’s nett estate at death was $13,567,234.  Applying the rules of intestacy, the value at death of the applicant’s share was $6,788,617 and the value of the shares of the infant children totalled $6,778,617. The abovementioned order provided that letter of administration issue on an administration bond of $6,800,000 with one surety in a penalty of that amount.
4 The cost of maintaining the surety has proved to be onerous.  Accordingly,  the administrator now seeks further relief as to the terms of the bond.
5 Section 31(2) of the Administration and Probate Act requires (inter alia) a person taking a grant of letters of administration to enter into an administration bond (with one or more sureties) in accordance with s31(1) if any person who is not sui juris is entitled to participate in the distribution of the estate.
6 Section 32 provides:

1. Such bond shall be in a penalty of the amount under which the estate of the deceased is sworn; but the Court may reduce the amount of such penalty in any case, and may also order that more bonds than one be given, so as to limit the liability of any surety to such amount as to the Court seems reasonable."

For present purposes that section should be read with s33:

1. A Judge may, upon being satisfied by affidavit that it is beneficial or expedient so to do, order that administration issue without any administration bond being given.

1. Such order may be obtained ex parte on the application of the person entitled to obtain administration."

7 The legislation does not expressly say that the Court may dispense with sureties although (pursuant to s33) a bond may itself be entirely dispensed with and (pursuant to s32) the amount of the liability of a surety may be limited. Bearing in mind these express powers, I consider that Parliament must have intended a comprehensive legislative scheme under which a bond might be required but without sureties.
8 By way of comparison I note the terms of s65 of the New South Wales Wills, Probate and Administration Act 1898 which provides that the Court may "in any case dispense with the bond or with one or both of the sureties or direct that such penalty be reduced in amount".  Section 81 of The Probate Act (England) 1857 (upon which much of the case law is based) provides for an administration bond "...and if the Court of Probate shall require with one or more sureties" (see 20 and 21 Vic Ch 77).
9 The old English practice did not allow dispensation from the administration bond but that is no longer the case in South Australia (see s33 abovementioned).
10 In re Rushworth (1908) 25 TLR 128 the English Court of Probate (relying on s81 of the Probate Act) dispensed with sureties in circumstances where a widow as administratrix wished to carry on a metal working business to enable her to support herself and her six children. Having regard (apparently) to the hazards of business, no surety could be found (see also re Corey [1903] P62 cited in argument.)
11 This appears to be an example of a special situation where in rare cases the Court exercises a discretion to dispense with sureties in the case of an application by a widow with minor children (see Mason and Handler-Wills Probate and Administration Service NSW Par1341.1). However, there are other situations where the Court in special circumstances has required a bond but dispensed with sureties. In re King of Siam (1912) 107 LT 589 the King’s English envoy and attorney was permitted to take a grant in respect of the very large English estate of the late King of Siam upon a bond without sureties.
12 According to Mortimer on Probate Law and Practice (2nd ed) at 458 the Court will dispense with sureties "...where the Court desired to allow the administratrix a free hand in the management of the estate" (citing re Corey [1903] P62 and re Rushworth (1908) 25 TLR 128 supra). However, the Court will not dispense with sureties by reason of the estate being large and the risk small (Mortimer supra at 485).
13 In the Goods of Goold (deceased) 164 ER 1422 provides authority for an order for the delivery out from the Probate Registry of a bond for cancellation upon the execution of a fresh bond conditioned to meet changed circumstances.
14 An administration bond is said to achieve four purposes:
(a)     It repeats, albeit in vague and general terms, the duties of the administrator.

(b)     It affords an aggrieved creditor or beneficiary an additional remedy against a defaulting administrator.

(c)     Where there are sureties it affords an aggrieved creditor or beneficiary a remedy against the sureties in the event of default by the administrator.

(d)     In the case of a grant to a creditor as such it is used as a device to exclude the administrator’s rights of retainer and preference.

(see re Sopru (1992) 165 LSJS 132 at 134 per Legoe J citing 22nd Report of SA Law Reform Committee, 1972.)

15 I note that in England, Western Australia and Queensland administration bonds have now been abolished.
16 In its 22nd Report the Law Reform Committee at pp5-6 comments:
"It is frequently difficult to get private persons to act as sureties for obvious reasons and in many cases an insurance company acts as surety.  The premiums on the policy are by no means insignificant and the policy has to be renewed and a fresh premium paid for each year or part of a year that the administration continues.

In our experience there are very few cases in which it is necessary to enforce the bond against the sureties and in any case of course executors have never been subject to such a liability."

And at p6:

"We think it is a matter for government policy whether a surety or sureties ought to be required in very large estates-say those over $100,000."

(This statement was made in 1972).

17 In the present case a Bank is acting as surety upon existing bond at an annual fee of $34,000.  The Bank has also required a company in a group associated with the estate to maintain minimum cash deposits with the Bank in the sum of $6,800,000.  Therefore, not only is there the direct annual cost of the bond but there is an indirect cost in lost opportunities for investment by reason of cash funds being tied up.  The administrator has made numerous enquiries within Australia and overseas but has been unable to secure a surety upon better terms.  The premium apparently reflects a "going rate".  There is nothing in the circumstances of the estate to suggest that the risk is in any way out of the ordinary.
18 The value of the infants’ interest in the estate is estimated to have grown to $12,597,800 as at 30 June 1999.
19 The Administrator is himself worth about $2,520,000 in his own right, having settled other assets for the benefit of himself and his children since the death of his late wife.
20 The bulk of the deceased’s estate (from the infants’ point of view) comprises shares in three family companies (forming part of a group) which are controlled by the deceased’s mother, father and brothers.  As at 30 June 1999 all but $302,800 is so invested.  The consolidated accounts show a wide spread of investments between listed companies, long term and short term deposits, farms, viticultural and winery interests and other sundries.  Upon the last accounts about 64% of the investments were in listed companies.  The Group history under its current management shows it to be in capable, prudent and successful hands.
21 After hearing counsel for the applicant and Public Trustee respectively I concluded that there were better ways of protecting the infant beneficiaries than the maintenance of the existing bond - which has been in force since 29 July 1996.  The estate’s debts have been paid and the bulk of the estate remains locked up in shares having only restricted rights of transfer.
22 It seemed to me that (in lieu of requiring a surety on the bond) the interests of the infant beneficiaries would be sufficiently protected by the engagement of an independent investigating accountant who should be required to provide periodic reports to the Court and the Public Trustee.  The company group is prepared to meet the relevant accountancy fees and has given an appropriate undertaking.
23 Upon this basis I have now made an unusual order dispensing with the surety.  The order is tailored to meet the exigencies.
24 In so proceeding I take into account the following:

1. The estate liabilities have been discharged.  The administrator is not carrying on a business.  The principal assets remaining unadministered are reflected by shareholdings which can be expected to remain undisturbed for the foreseeable future.  In the absence of something extraordinary, it is unlikely that any dealing with the assets could be expected.  The shares are subject to restricted rights of transfer.

1. The administrator is himself a person of means.  He will, of course remain personally liable despite the absence of a surety.

1. The nature of the principal assets are such that the administrator can himself do little to influence the affairs of the estate as the management of the company group remains under the control of his late wife’s family.  However, the administrator remains responsible for investment of income, payment of income tax and the maintenance of estate accounts.  He is also required as a shareholder to keep abreast of the affairs of the group.

1. The scrutiny of the independent accountant will provide a degree of protection.

1. Periodic accounts will continue to be supplied to Public Trustee in accordance with an undertaking given by the administrator when the order of 5 June 1996 was made.

25 I have examined several possible ways in which the current situation might be alleviated.  However, at the end of the day I consider that the order which I now propose contains the best solution.  I have not overlooked the possibility that something might go wrong in the administration.  However, Public Trustee will continue to scrutinise the accounts and the Court will have the opportunity to review the situation periodically.  The administrator has intimated that he does not propose to claim trustee’s commission but his right to do so will be preserved and he will be required to review his position every two years.
26 Mr GH Parsons, Chartered Accountant and a partner in BDO Nelson Parkhill has agreed to accept responsibility as investigating accountant at a fee of about $1500 per annum in the first instance.
27 I am proposing an order nunc pro tunc to take effect as at the commencement of the present financial year.
28 A series of directions has been appended to the order including a direction which will prohibit general access to the file.  I am of the opinion that the affairs of the company group should be entitled to commercial confidentiality.  I am further of opinion that it is not in the interests of the infant children that their circumstances and identity be known.
29 Subject to a series of undertakings I will allow the existing bond with surety to be replaced by a new bond without surety; the amount of the penalty will remain unchanged.
30 The undertakings which have been given and orders based thereon will be as follows:
UNDERTAKINGS:

(A)    BY the Applicant that:

1. Geoffrey Herbert Parsons of BDO Nelson Parkhill, Chartered Accountants and Consultants 248 Flinders Street Adelaide South Australia 5000 be appointed as independent accountant to investigate the affairs of the estate each year whilst any child of the deceased is under 18 years of age ("the relevant period").

1. If the said Geoffrey Herbert Parsons becomes unwilling or unable to act as investigating accountant, the Applicant will forthwith engage another investigating accountant with similar qualifications and experience to Geoffrey Herbert Parsons in his place or stead, but subject to first obtaining the approval of this Court to such engagement.

1. The Applicant will bring the reports referred to in paragraph 4 below before a Judge not later than 31 December 2001 and thereafter at intervals of not more than 24 months together with any application for trustee’s commission which the Applicant may wish to make.

(B)    BY the said Mr Geoffrey Herbert Parsons that:-

1. As investigating accountant, he will file a report (as at 30 June) with this Court and with Public Trustee not later than 30 November each year during the relevant period, the first of such reports being filed not later than 30 November 2000 certifying:

4.1    the assets comprising the estate at the conclusion of the reporting period;

4.2    any movements or changes in the estate assets during the course of the reporting period;

4.3 whether in his opinion, the estate is being administered by the Administrator in accordance with the law including but not limited to the Trustee Act 1936;

4.4    whether procedures suitable for the due administration of the estate are in place and whether the estate is administered in accordance with those procedures.

(C)    BY the principal officer of the abovementioned Group Companies.

1. that the Group Companies will accept responsibility for and pay the reasonable fees of Mr Parsons or his successor (if any) any out of pocket expenses he incurs in obtaining independent legal advice in connection with his said reports and the costs of this application and order.

THE COURT ORDERS:

1. That upon a bond without surety in the penalty of $6,800,000 being filed in the Probate Registry the original bond be delivered out to the Applicant’s solicitors to be cancelled.

1. That this order be entered and bear date the 1st day of July 1999.

1. That the Applicant and Public Trustee and any other person interested be at liberty to apply generally as they may be advised.

31 I give the following supplementary directions:
(a)     I direct that this order be settled in the Probate Registry;

(b)     that the heading of the proceedings be amended by deleting "Testamentary Causes Jurisdiction";

(c)     that the bi-annual reviews which I have ordered take place within these proceedings to the intent that they be brought forward upon the summons which originated these proceedings;

(d) that there be suppressed from publication the whole of the material on this file to the intent that s131(2)(b) of the Supreme Court Act 1935 should be applicable thereto.