Executor Trustee Australia Ltd v Blum - [2007] SASC 329

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
EXECUTOR TRUSTEE AUSTRALIA LTD v BLUM & ORS
[2007] SASC 329
Judgment of The Honourable Justice Vanstone
12 September 2007
SUCCESSION - EXECUTORS AND ADMINISTRATORS - PROCEEDINGS BY EXECUTORS OR ADMINISTRATORS
Application by executor for advice and direction as to administration of an estate - whether executor should commence proceedings to recover monies arguably owed to estate - whether proceedings justified. Held: on basis of evidence before the court it would not be appropriate to commence proceedings.
Administration and Probate Act 1919 (SA), s 69; Supreme Court Civil Rules 1987 r 103; Inheritance (Family Provision) Act 1972 (SA); Trustee Act 1925 (NSW), s 63; Public Trustee Act 1941 (WA), referred to.
Re Atkinson, deceased [1971] VR 612; IOOF Trustees Australia Ltd and the Trustee Act 1936 (1999) 205 LSJS 98; Public Trustee re Estate of T [1999] NSWSC 1027; Re Estate of Vitalina Ferrari [1999] WASC 50, applied.
In the Estate of Hunter, deceased [1957] SASR 194, considered.

EXECUTOR TRUSTEE AUSTRALIA LTD v BLUM & ORS
[2007] SASC 329
Civil
VANSTONE J:
Introduction

The plaintiff, as executor of the estate of John James Jacob Blum (“the deceased”), applies to this court for advice and direction as to a matter connected with administration of the estate, pursuant to s 69 of the Administration and Probate Act 1919 (SA) (“the Act”). The question before the court is whether the executor should proceed to bring an action against John Graeme Blum, to recover money loaned to him by the deceased.
The proceedings
Section 69 of the Act relevantly provides that any executor shall, when in difficulty or doubt, “apply to a judge for advice or direction as to matters connected with the administration of any estate”. Upon hearing the application, the judge “may make any order, declaratory or otherwise, that he sees fit as to the administration of the estate” and also as to the costs of the application.
An order from this court that the plaintiff should, or should not, initiate proceedings, will protect and indemnify the executor against any claim for breach of trust, provided that the facts have been fully and fairly disclosed: In the Estate of Hunter, deceased [1957] SASR 194 at 196 per Napier CJ. See also Re Atkinson, deceased [1971] VR 612 at 615-616.
Section 69(2) allows the application to be made without notice to other parties, or alternatively upon a summons served upon any of the parties interested. Rule 103 of the Supreme Court Rules 1987 regulates the procedure. The beneficiaries of the estate need not be parties, but may be made so by the plaintiff: r 103.06. In the present matter the plaintiff proceeded by issuing a summons to John Graeme Blum and the beneficiaries, such that they became defendants to the application.
Background
The first defendant, John Graeme Blum (“the son”) is the son of the deceased and father of the second and third defendants, John Matthew Blum and Sahra Jane Blum (“the grandchildren”). The grandchildren were the only beneficiaries of the deceased’s will, which was executed on 2 May 1985. No provision was made for the son.
The deceased died on 17 December 2003 and probate was granted on 15 September 2004. The value of the estate was $1,660,063. A Statement of Assets and Liabilities of the estate made no mention of monies owed to the deceased by the son. I am advised that the delay in obtaining the grant of probate was due to efforts taken to locate a more recent will than the one mentioned. These efforts bore no fruit.
On 29 November 2004 the son filed an application under the Inheritance (Family Provision) Act1972 for provision from the deceased’s estate. Settlement of his claim, in April 2005, resulted in his receiving the deceased’s house property, valued at about $550,000. The balance of the estate went to the grandchildren in accordance with the will.
Since that settlement, a question has arisen as to whether the son was indebted to the father at the time of his death, and therefore owes money to the estate. At the time of the settlement negotiations it was known that in December 2001 the deceased advanced the sum of $80,000 to the son by way of loan. That was recorded in a loan agreement dated 13 December 2001. It was demonstrated that of that amount, $50,000 was repaid in May 2003. The son claimed, via a letter written by his solicitor, that the balance was forgiven by his father, orally, at that time. There was no confirmation of this, but in any event, in my view the issue of the outstanding $30,000 was clearly encompassed in the settlement.
Since the settlement it has come to light that there was another loan agreement dated 20 December 2001 in respect of a sum of $50,000. A balance sheet prepared by the deceased’s accountant for the financial year ending June 2003 records a loan to the son for $80,000 as a non-current asset. The same entry for the previous year shows an amount of $130,000. It is suggested that the figure of $80,000 represents the balance of the outstanding loan amounts after the $50,000 repayment. In response to being shown this balance sheet, the son’s solicitors wrote “there was an earlier payment to [the son] by the deceased of $50,000 … It was an inter vivos gift to [the son].”
It is only the advance of $50,000 that the plaintiff could realistically seek to recover in the District Court. Although at one point it was suggested that the balance of the first loan would also be the subject of the proposed proceedings, ultimately it was clear that only the second loan could be pursued.
There is also a profit and loss statement “for the period ended 17^thDecember 2003”. This statement shows interest of $1,600 received from the son during a period which I assume is from 1 July 2003 to 17 December 2003, and interest of $5,200 received in the previous year. I do not have before me the original documents upon which the profit and loss statement and balance sheets were based. The accountant has apparently indicated that he gave them to a family member of the deceased, and while he does not remember who that person was, he thinks it was, most likely, the son.
I said that these financial records had “come to light” since the settlement. That is so insofar as the grandchildren are concerned. However it appears that the plaintiff had this material from an earlier time but did not advert to it until after the settlement.
Positions of the parties
It is the plaintiff’s primary submission that this court should direct the executor that it is justified in taking proceedings against the son to recover the amount thought to be outstanding. However, counsel for the plaintiff acknowledged that on the material available it is open to the court to decide the contrary. This action was brought because the executor had some doubt about how to proceed.
Counsel for the grandchildren submits that while they are eager to pursue the matter, the court should direct the executor not to sue, at least until further information is obtained. It is put that there is insufficient evidence before the court to indicate that proceedings to recover the alleged loan would have a reasonable chance of success. Counsel argues that the executor should have investigated the matter more thoroughly before bringing the application.
The son has not responded in this court to the allegations that he is in debt to the estate. Rather, he argues that the plaintiff is prevented by the principle of res judicata, or at least is estopped, from bringing proceedings in relation to any such debt. It is put that the financial dealings between father and son were extensive and that the balance sheets and other documents are not necessarily correct and do not tell the whole story. The son relies on the fact that an agreement was reached as to distribution of the estate when the inheritance application was settled in April 2005 and that the executor had, then, as much information as it has now. It is submitted that the executor’s remedy (if it has one) is to apply to set aside the consent orders made at that time.
During submissions I asked counsel to estimate the total costs if this matter proceeded to trial in the District Court. While the estimates varied and will to some extent depend on the issues to be resolved, it can be expected that the litigation would cost not less than $30,000.
Approach of the court to the application
In Re Atkinson, deceased [1971] VR 612 Gillard J discussed the duty of the court where a direction such as this is sought. His Honour observed (at 616) that the court was not bound to investigate the evidence before it in order to make a finding as to whether the proposed proceedings would be successful, and had merely to determine whether the proceedings should be taken. The matter should, however, be sufficiently investigated to determine whether the proceedings would be “fruitless”.
Similarly, in IOOF Australia Trustees Ltd and the Trustee Act 1936 (1999) 205 LSJS 98 at 99, Debelle J observed that the application for advice and directions does not proceed to a final determination of the rights of the parties. The court’s role was only to determine whether the proposed course of action was lawful and proper. In some instances the court might determine what will be in the best interests of an estate, but would not go so far as to tell the trustee or executor how to exercise its discretion in, for example, making prudent commercial judgments (at 102-103).
In Public Trustee re Estate of T [1999] NSWSC 1027 at [7], Windeyer J formulated the question before the court as whether litigation was “justified”. That case involved an application under s 63 of the New South Wales Trustee Act 1925 for directions regarding the use of moneys held on trust for three infants to fund litigation on their behalf. That section was in similar terms to our s 69. Windeyer J found that on the evidence before him, it was not possible to say that the prospective claim would necessarily be in the best interests of the infants. Nor would spending the moneys on assessing the strength of possible claims. Therefore his Honour was not prepared to advise the Public Trustee that it should access the trust money for the nominated purpose.
Counsel for the grandchildren drew the court’s attention to Re Estate of Vitalina Ferrari [1999] WASC 50. There, the Public Trustee, acting as administrator of Mrs Ferrari’s assets, applied under the Public Trustee Act 1941 (WA) for a direction as to whether an action should be taken on her behalf to set aside the transfer of her house to her son, due to her being subject to undue influence. The legislation was in some respects different from that presently under consideration, but the question for decision was framed in similar terms. At [35] McKechnie J observed that the judge was required to assess whether there were sufficient prospects of success to justify the litigation. His Honour took into account that there was uncertainty as to whether the transaction could be set aside, and also that the costs of litigation might have to be paid out of an estate worth less than $10,000. His Honour concluded that the prospects of success were not so substantial as to justify the action and, as the legislation required, he gave a direction that the trustee should not take proceedings.
In order to provide the advice and direction sought by the plaintiff I must therefore assess the evidence establishing the claim and determine whether the executor would be justified in taking the proceedings.
Analysis
It appears that the accountant’s documents support two loans to the son totalling $130,000, only $50,000 of which was repaid. However, without the original documents it is hard to be sure. If the payment of $50,000 was in fact “an inter vivos gift”, then the loan agreement in that amount would appear to relate to another transaction which may or may not have been completed. Similarly, the payment of interest in the second half of 2003 would seem to support that there was ongoing indebtedness, but without the original documents the period to which the interest related cannot be known. The fact that there is no deed or contract which records forgiveness of the debt, whilst not decisive, does tend against the suggestion that the debt was forgiven.
On the evidence presently available I do not consider that the executor would be justified in taking proceedings against the son for recovery of the alleged debt.
There are several factors to which I have had regard in reaching that view. The evidence which tends to prove a loan of $50,000 amounts to the loan agreement itself, added to the admission by the son’s solicitors that there was an advance in that amount. However, that was accompanied by the assertion that such an advance was made earlier and was an inter vivos gift. Payment of interest in the last six months of the testator’s life tends towards a conclusion that a loan was still outstanding, but equally, it could have been referable to amounts which had accrued earlier. In any event, the accountant’s balance sheets and profit and loss statements would arguably be inadmissible at trial in circumstances where the original supporting documents were unavailable.
Then there is the foreshadowed estoppel argument. I am not in a position to evaluate its chances of success. Nor am I required to. But if, as it seems, the executor had available to it all documents which it now has when it filed a statement of assets of the estate – that is before the negotiations in relation to the inheritance claim occurred – then it might be that the son could, at least, claim that he was entitled to a belief that no claims would arise from the loan agreements and that belief might have informed his negotiations leading to settlement.
Whilst estimating the costs of action which might be incurred in pursuing the claim is problematic, I am not inclined to disregard that matter entirely. In my mind there is a real risk that the executor would lose the action and be left with, not only significant costs of its own, but also a costs order payable by the estate, the total amount of which would approach the size of the alleged debt. The estoppel argument would only extend the length of time required to complete the proceedings. If there is to be further investigation and subsequent consideration of pursuit of the claim then the factor of costs is one which the executor would need to carefully evaluate.
Conclusion
I agree with counsel for the grandchildren that it is unfortunate that more work was not done before this court’s advice was sought. The difficulty in reaching a decisive position is a direct result of the paucity of evidence presented about the loans. It may be that with the passage of time has gone any prospect of now making good the deficits.
I do not consider I can add to what I have said. There will be an order that upon the basis of the material presented to the court, the plaintiff is advised that it would not be appropriate to commence proceedings against John Graeme Blum to recover the amount of $50,000 said to be owed to the estate of John James Jacob Blum.