Executor Trustee Australia Ltd v McDougall - [2011] SASC 140

SUPREME COURT OF SOUTH AUSTRALIA
(Testamentary Causes Jurisdiction: Application)
EXECUTOR TRUSTEE AUSTRALIA LTD v MCDOUGALL & ORS
[2011] SASC 140
Judgment of The Honourable Justice Kourakis
30 August 2011
SUCCESSION - WILLS, PROBATE AND ADMINISTRATION - PROBATE AND LETTERS OF ADMINISTRATION - ALTERATION AND REVOCATION OF GRANTS - IN WHAT CIRCUMSTANCES - OTHER CASES
Application by executor for orders to revoke grant of probate and grant to remaining two executors alone - whether mere conflict of interest and duty requires revocation of probate - whether duty of executor conflicts with own interest as to impede proper administration of estate.
Held - application dismissed - more than conflict of interest and duty required before probate will be revoked - Court must evaluate circumstances and nature of conflict in determining whether to revoke probate - present conflict does not necessitate revocation of grant - best interests of the administration of the estate that applicant remain as executor.
Inheritance Tax Act 1984 (UK); Supreme Court Act 1935 (SA) s 18; Administration and Probate Act 1919 (SA) s 5, s 69; Foreign Judgments Act 1991 (Cth) s 3, referred to.
Morgan v McRae [2001] NSWSC 1017; Re Estate of Crane (2005) 93 SASR 198; Rutter v McCusker [2008] NSWSC 1289; The Uniting Church of Australia Property Trust (NSW) v Millane [2002] NSWSC 1070; Gorman v McGuire [2002] NSWSC 1089; Monty Financial Services Ltd v Delmo [1996] 1 VR 65; Upton v Downie [2007] NSWSC 1095; Her Majesty's Attorney-General in and for the United Kingdom v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30, discussed.
Re Blundell (1888) 40 ChD 370, considered.

EXECUTOR TRUSTEE AUSTRALIA LTD v MCDOUGALL & ORS
[2011] SASC 140

KOURAKIS J: The plaintiff, Executor Trustee Australia Ltd (ET Australia), is one of three executors of the last will of Elisabeth McDougall. The first and second defendants (the McDougall executors) are the other executors. On 11 November 2005 a grant of probate was made in this Court. ET Australia now seeks an order revoking that grant, and granting probate to the McDougall executors alone. ET Australia contends that it now finds itself in circumstances where its duty as an executor conflicts with its own financial interest to such an extent that its continuation in that office will impede the proper administration of the estate. The McDougall executors and the beneficiaries who, as a class, are separately represented, oppose ET Australia’s application. The McDougall estate comprised assets valued at in excess of ten million dollars. Most of the assets were situated in Australia but some were also located in England.
The application should be dismissed. I accept that ET Australia is, as an executor, now in a position of conflict. The McDougall executors and the beneficiaries have alleged that ET Australia was negligent in the provision of estate planning advice to the deceased. They allege that, by reason of the negligence of ET Australia, the estate may be levied for inheritance tax in England, assessed on the value of the entire estate. ET Australia contends that its interest in minimising its exposure to that liability may be advanced by dealing with the inheritance tax problem differently than its duty to the beneficiaries’ demands. However, there are other considerations which affect what would otherwise be ET Australia’s obligation, as a fiduciary, to immediately extricate itself from the position of conflict. In particular, the revocation of probate may leave the McDougall executors, or anyone else who becomes an executor or administrator of the estate, and the beneficiaries, to carry the administrative and financial burden of resolving the inheritance tax liability without the assistance of the professional services of the remunerated executor selected by the deceased. Even though it may eventually become necessary, even in the not too distant future, to grant the application, it is in the best interests of the administration of the estate that probate not be revoked at this stage. I elaborate on my reasons for so deciding below.
The Tax Problem
Miss McDougall was born in South Australia on 19 June 1920. ET Australia had been Miss McDougall’s attorney from 1996 until her death. On 5 April 2002 Miss McDougall executed a General and Enduring Power of Attorney in favour of ET Australia.
Miss McDougall died in South Australia on 30 July 2005; her last will was dated 12 March 1998. Probate was granted on 23 November 2005. The value of the estate exceeded ten million dollars and comprised real estate and personal goods in this State and an extensive portfolio of Australian and international shares and other securities. The English securities included shares in several corporations and units in the Fidelity International America Fund (the FIA units). The shares have been realised but the FIA units have not been brought into the estate. The approximate value of the FIA units at the time of Miss McDougall’s death was $157,000 AUD. When ET Australia took steps to realise the FIA units it was informed by its agents in the United Kingdom that the estate of the deceased was probably liable to pay inheritance tax pursuant to the provisions of the Inheritance Tax Act 1984 (UK) (the ITA).
In December 2005, ET Australia, on behalf of the executors, instructed Finlaysons to obtain a re-seal of the Australian probate in the United Kingdom in order to realise the FIA units. Finlaysons instructed a legal firm, Warners, in the United Kingdom.
In April 2006, Finlaysons advised ET Australia that, before Warners could proceed, it was necessary to establish whether Miss McDougall was deemed to be domiciled in the United Kingdom at the time of her death. They had instructed Miss McDougall’s former United Kingdom accountant, Chantery Vellacott DFK (Vellacott) to investigate. In August 2006 ET Australia was advised that, pursuant to the applicable legislation, Miss McDougall was probably deemed domicile in the United Kingdom and, that her entire estate (less a set band of £275,000.00 GBP) was subject to inheritance tax.
By September 2006, all of the assets of the estate had been distributed except $216,000.00 AUD and the FIA units.
On 6 September 2006, ET Australia wrote to the beneficiaries advising them that, if Miss McDougall was deemed to be domiciled in the United Kingdom at the time of her death, the estate may be liable to inheritance tax in the amount of £1,775,774.54 GBP ($4,349,190.64 AUD). ET Australia put the beneficiaries on notice that if the inheritance tax was payable they would be required to repay a proportion of the amounts distributed to them to discharge that liability.
On 13 March 2007, ET Australia wrote to Vellacott requesting confirmation of the position and additional information relating to the estate’s potential inheritance tax liability. In a detailed letter dated 26 October 2007, Vellacott confirmed that Miss McDougall would be deemed to have been domiciled in the United Kingdom for inheritance tax purposes. Vellacott also advised that in the United Kingdom executors were personally liable to pay the inheritance tax levied on estates, if it was not paid out of the estate.
On 12 June 2008, ET Australia reported to the McDougall executors that they would need to fully understand the likelihood of Miss McDougall being ‘deemed domicile’ in the United Kingdom before deciding whether to realise the FIA units for the benefit of the estate. On 22 August 2009, the McDougall executors replied to ET Australia that they considered that it was their obligation as executors to recover the assets in the United Kingdom and to lodge appropriate returns with the taxation authorities.
On the information disclosed in the advices given by Vellacott and senior counsel engaged by the McDougall executors, it is, in my view, quite possible that, by realising the shares in the companies listed in the United Kingdom, the executors are, even now, under an obligation to make a return for the purposes of an assessment of inheritance tax with respect to the entire estate. It may be that the executors are bound to make such a return simply because the estate included assets in the United Kingdom irrespective of their realisation. It also appears that, if no return is made by the executors, the beneficiaries, in whom any part of the previously realised United Kingdom assets have vested, may be under an obligation to do so. A person who fails to make a return is liable to pay the tax assessed and additional penalties. A person who deliberately chooses not to make a return commits the offence of cheating the public revenue.
ET Australia Accused
Understandably, the McDougall executors and the beneficiaries, are dismayed at the prospect of incurring a multimillion dollar liability for inheritance tax. The solicitors acting for the beneficiaries and the solicitors acting for the McDougall executors have, in correspondence, raised the prospect of legal proceedings against ET Australia and a related entity, Australian Executor Trustees Ltd (Australian ET).
The potential inheritance tax liability has arisen because the deceased resided in the United Kingdom for substantial periods in the 20 years preceding her death. For much of that time, and indeed from 1966, ET Australia was the deceased’s attorney. In that role, it gave the deceased advice from time to time. Since 1991, Australian ET has been responsible for the day to day performance of ET Australia’s trustee and estate management functions. Australian ET drew the last will of the deceased in March 1998.
The McDougall executors and the beneficiaries claim that Australian ET should have advised Miss McDougall of the inheritance tax implications of her residence in the United Kingdom in the 20 years before her death.
On 5 March 2010, Australian ET (presumably as agent for ET Australia) together with the McDougall executors wrote to the beneficiaries warning them of the potential inheritance tax liability in the United Kingdom of about three million dollars. The letter claimed that, because the past distributions were made without taking into account that liability, there had been an over distribution of the estate. The letters sought to recoup from each beneficiary his or her proportion of the tax liability.
On 13 July 2010, solicitors for the beneficiaries responded, refusing to make any contribution towards the tax liability. They alleged that the liability was “a direct result of the failure of [Australian ET] to properly advise the deceased during her lifetime as to the risk of the tax liability and to arrange her financial affairs accordingly.” They requested Australian ET to deliver up its file and any documents in its possession. An application for pre-action discovery was threatened if the requests were not met. Solicitors for Australian ET responded on 16 August 2010 denying any liability and denying the beneficiaries’ entitlement to the documents they sought. On 26 August 2010, the solicitors for the beneficiaries repeated their claim that Australian ET had breached its duty of care “as the Deceased’s advisors during her lifetime”. The request for disclosure of documents was repeated. The solicitors took issue with the denial of liability, saying “we … take the position that given [Australian ET] have acted negligently in their capacity as advisor, their position as executor prevents them from adequately pursuing this matter on behalf of our clients and leaves our leaves our client no alternative course of action.”
On 18 October 2010, solicitors acting for the McDougall executors wrote to Australian ET in these terms:
We propose that [Australian ET] apply for the UK assessment, pay the assessment and provide our clients with an indemnity for the amount of the assessment, whatever it may be. [Australian ET] would then join with our clients in taking proceedings against the beneficiaries to recover the amount paid.
If [Australian ET] is not willing to pay the assessment and provide the indemnity, we expect to be instructed to bring proceedings against [Australian ET], due to [Australian ET’s] failure to provide advice regarding the Inheritance Tax position and in particular, for leaving our clients personally exposed to estate liabilities.
The McDougall executors’ solicitor corrected the erroneous description in that letter of the executor as Australian ET by further letter dated 25 March 2011 and continued:
We have advised our clients that the legal position is that regardless of anticipated legal action by any of the parties, the executors’ duties remain. The duty to collect the UK asset and pay the requisite tax continues and our clients are concerned that the longer it takes for this duty to be performed, the greater will be the fines and penalties which might accrue to the liability. We therefore request that [ET Australia] join with our clients in commencing the process of seeking an assessment of inheritance tax with the UK Inland Revenue Department.
If we do not have your agreement to do so within 14 days of the date of this letter, we expect to be instructed to bring our clients’ own application for advice and directions in the matter.
Jurisdiction to Revoke Probate
The Supreme Court has the like jurisdiction and authority in South Australia as was vested in or exercisable by the Court of Probate established in England under the Court of Probate Act 1857.[1] That power includes the power to revoke grants of probate.[2] Revocation of probate is the appropriate order where it is necessary, in the interests of the proper administration of the estate, to remove an executor.[3] Indeed, there does not appear to be any alternative statutory remedy available in South Australia.
[1]    Supreme Court Act 1935, s 18.
[2]    Supreme Court Act 1935, s 18; Administration and Probate Act 1919, s 5.
[3]    Morgan v McRae [2001] NSWSC 1017 [21]-[24].
Neither the mere desire of the executor nor the consent of all interested parties is a sufficient basis to revoke a grant of probate.[4] It is necessary to show that the grant has become ineffective and useless or that it obstructs the proper administration of the estate.[5]
[4] C Mortimer and H Coates, Mortimer on Probate Law and Practice (2^nd ed, 1927) at 428.
[5] R D’Costa, J Winegarten and T SYnak, Tristram and Coote’s Probate Practice (30^th ed, 2006) at 611 and 614.
In Re Estate of Crane,[6] Besanko J identified nine well-accepted grounds for the revocation of a grant of probate:[7]
[6]    Re Estate of Crane (2005) 93 SASR 198.
[7]    Re Estate of Crane (2005) 93 SASR 198 at [25].
There are a large number of English cases where the Court of Probate has passed over an executor or revoked a grant of probate. That has been done on various grounds of which the following are examples:
1The executor was of bad character, had been convicted of manslaughter in relation to the death of the testator and was in prison: In the Estate of S Decd [1968] P 302.
2      The executor had neglected his duties: In the Estate of Potticary [1927] P 202.
3The executor had intermeddled in the estate and refused to take a grant: In the Estate of Biggs, Decd [1966] P 118.
4      The executor was absent abroad: In the Goods of William Taylor [1892] P 90.
5The executor was suffering from ill-health: In the Goods of Galbraith [1951] P 422.
6      The executor was of unsound mind: In the Goods of Atherton [1892] P104.
7The executor was not competent to take probate: In the Goods of Stewart (1875) LR 3 P and D 244.
8      The executor had disappeared: In Re Sawtell (1862) 2 Sw and Tr 448.
9 The estate was insolvent: In the Estate of Leguia; Ex parte Ashworth [1934] P 80.
The existence of a conflict of interest may be a sufficient basis on which to revoke a grant of probate, but only “as a very last resort when there is no other appropriate method of dealing with a problem that may have emerged.”[8] Revocation will only be ordered where it is clear “that the due and proper administration is put in jeopardy or has in fact been prevented or frustrated by the executor”.[9]
[8] Morgan v MacRae [2001] NSWSC 1017 at [24].
[9] Rutter v McCusker [2008] NSWSC 1289 at [22].
It is relatively common for an executor to be burdened by a conflict between his duty as an executor and his interest as a beneficiary. However, generally, that will not be a sufficient basis upon which to revoke probate if the conflict results from the very terms of the will by which the executor was appointed. The appointment of a particular executor by a testator must not be lightly set aside.[10]
[10] Rutter v McCusker [2008] NSWSC 1289 at [24].
In The Uniting Church in Australia Property Trust (NSW) v Millane,[11] Windeyer J, in a case in which there was no more than an allegation that the executor had procured real property from the testator during his life by unconscionable means, said:[12]
Thus the fact that there could be some conflict of interest does not in itself justify passing over a named executor who wishes to take a grant. Many executors named and appointed have some conflict such as being a debtor to the estate. That does not justify their being passed over.
...
The proper course in proceedings such as this is, in ordinary circumstances, to assume that a person named by a deceased person as his or her executor will act properly and that the testator expects that person will do so. The proper course is not to have some prior determination of proceedings which will properly arise in the administration of the estate of the deceased person. It is my view that the proceedings as constituted are bound to fail and ought to be dismissed.
[11] The Uniting Church in Australia Property Trust (NSW) v Millane [2002] NSWSC 1070.
[12] The Uniting Church in Australia Property Trust (NSW) v Millane [2002] NSWSC 1070 at [8], [9].
More than a mere allegation is involved where, for example, an executor disputes a debt which the beneficiaries claim is owed to the estate, or an executor claims a debt from the estate which the beneficiaries deny. The crystallised conflict in such cases may be sufficient reason to revoke probate.[13]
[13] Rutter v McCusker [2008] NSWSC 1289 at [26].
In Gorman v McGuire,[14] the plaintiff was an executor of the estate of his mother. The plaintiff and his mother had carried on a business together which the plaintiff continued to operate with the joint assets after her death. It was, therefore, necessary that there be an accounting of the profits so derived by the plaintiff. In addition, the plaintiff’s father had brought a claim against the estate pursuant to the Family Provision Act 1982 (NSW). Palmer J described the plaintiff’s circumstances as “a hopeless position of conflict of interest and duty”. He concluded:[15]
In the present case I am satisfied that the due and proper administration of the deceased's estate will be placed in jeopardy unless the Plaintiff is released from his executorial duties and is removed from his office. This is not because of any delinquency on the part of the Plaintiff but rather it is because, as a matter of practicality, he cannot now discharge his duties as executor in attempting to administer the affairs of the estate without breaching his fiduciary duty not to place himself in a position of conflict and duty. If the Plaintiff is not removed from that difficulty, the administration of the estate may be stultified and an appropriate and beneficial settlement of all issues affecting the estate may be frustrated.
[14] Gorman v McGuire [2002] NSWSC 1089.
[15] Gorman v McGuire [2002] NSWSC 1089 at [11].

An executor, who also claimed to be a creditor of the estate, was removed as an executor in Monty Financial Services Ltd. v Delmo.[16]Ashley J explained: [17]
It is not every conflict of duty and interest which should result in the removal of an executor. The intention of the testator that the executor be a particular person should not lightly be set aside – whether before or after grant. Again, the will itself may show that the testator was aware that his or her executor would face a potential conflict of duty and interest. In such a case – as may arise, for example, where an executor is also one of the beneficiaries – it would not be right, without more, to remove the executor.
[16] Monty Financial Services Ltd v Delmo [1996] 1 VR 65.
[17] Monty Financial Services Ltd v Delmo [1996] 1 VR 65 at 83.
In Upton v Downy,[18] Gzell J ordered the revocation of a grant of probate where the executor pressed his claim for payment of a disputed debt against the estate and was implicated in the unexplained loss of a substantial amount of money borrowed by the deceased shortly before his death on a mortgage over the real property of the estate. The executor had also made a claim under the Family Provision Act 1982 (NSW) against the estate. Gzell J put the Family Provision Act 1982 (NSW) claim aside because the conflict was capable of being addressed and resolved procedurally in the Family Provision Act claim.[19]
[18] Upton v Downie [2007] NSWSC 1095.
[19] Upton v Downie [2007] NSWSC 1095 at [42].
However, Gzell J revoked the grant of probate because:[20]
[53]   Not only does Mr Downie rely solely on his own assertion that he is owed a loan and did not make a gift of the moneys in question but also there is his unsatisfactory evidence that he cannot recall how the bulk of the $200,000 raised on the Glenorie property was expended. That raises an issue whether the estate should pursue any cause of action against him.
[54]   Furthermore, there is no reason to suppose that the deceased was aware of the potential conflict. The conversation attributed to her had nothing to do with a loan. It had to do with the transfer of a half interest in the property to Mr Downie when he had paid half the purchase price. He had not done so at the time of her death.
[55]   In my view it is inappropriate that these questions be determined by Mr Downie. Because of the conflict of interest and duty he has in their determination, Mr Downie is not a fit and proper person to continue as executor of the estate. The grant of probate should be revoked.
[20] Upton v Downie [2007] NSWSC 1095 at [53]-[55].
In both Morgan v MacRae[21] and Upton v Downie,[22] the following passage from Wills, Probate and Administration Law in New South Wales was approved:[23]
A mere conflict of interest and duty will not result in a restraint or a removal of the personal representative. It must be shown that the personal representative prefers interest to duty, and intends to neglect duty.
(Emphasis added)
[21] Morgan v MacRae [2001] NSWSC 1017 at [25].
[22] Upton v Downie [2007] NSWSC 1095 at [48].
[23] R Geddes, C Rowland and P Studdert, Wills, Probate and Administration Law in New South Wales (1996) at 330 [40D.15].
In my respectful opinion, that proposition needs some qualification. I accept that the test is properly so stated where the conflict arises from the very terms of the will and the testator must, therefore, have appreciated the extent of the conflict. It is, in the context of conflicts of that nature, that the passage is cited in both cases. However, in those cases where the conflict does not arise from the terms of the will itself, and is unlikely to have been anticipated by the testator, the approach taken by Palmer J in Gorman v McGuire in the above-cited passage is, in my view, to be preferred.
The Conflict
It is important to identify as precisely as possible the interest of ET Australia which is alleged to conflict with its duty as a trustee and to consider the significance of the distinction drawn by the defendants between ET Australia and Australian ET.
By letter dated 12 April 2011, the solicitors for ET Australia advised of the application they had made for revocation of probate and that:
That application has been made by our client because it considers that it now has a conflict of interest in duty in relation to the administration of the estate. Because of the conflict in which it finds itself, our client considers that it would be inappropriate for it to take any further steps in relation to the assessment of inheritance tax in the United Kingdom until the present application has been determined.
Mr Page, an officer of Australian ET, deposed to his understanding of the nature of that conflict in an affidavit sworn on 21 December 2010 and received by me on the hearing of this matter. I do not find it useful to resolve this matter by an analysis of Mr Page’s perception of the conflict. This Court’s decision to revoke probate must be made on its evaluation of the conflict, if any, arising from the objective facts and circumstances proved on the application. The nature of the conflict for which ET Australia’s counsel contends, on the material before me, is wider than the conflict identified by Mr Page. The way in which ET Australia puts its case caused neither surprise nor prejudice to the McDougall executors and the beneficiaries. There has been no application for an adjournment. There is, therefore, no reason to limit my consideration to the conflict as it was perceived by Mr Page.
It is first necessary to consider the relationship between ET Australia and Australian ET. The affidavit of Mr Page and his testimony satisfies me that, in broad terms, ET Australia has performed its duties as attorney and executor through the employees, officers and agents of Australian ET. There is no writing evidencing that arrangement; ET Australia appears to lead the most spartan of corporate existences. I will nonetheless proceed on the basis that ET Australia is directly responsible, as a principal, for any act or default of the officers and servants of Australian ET in the performance of functions and duties which pertain to ET Australia’s executorship of the McDougall will.
Even if Australian ET has incurred a potential liability, other than as the agent of ET Australia, Australian ET may be entitled to be indemnified by ET Australia for any liability it has incurred. ET Australia would, in those circumstances, be burdened by any liability which fell on Australian ET. Finally, both ET Australia and Australian ET are wholly owned subsidiaries of IOOF Holdings Limited and the two subsidiaries therefore have a common interest in minimising any liability to the beneficiaries.
Turning to the conflict implications of the potential tax liability, I first observe that it has precipitated a conflict between the interests of all three executors and the interests of the beneficiaries quite independently of the potential liability of ET Australia for giving negligent advice. The executors carry the primary risk of civil and criminal liability if the tax exposure is not resolved or discharged. If the possible liability of ET Australia for giving negligent advice is put to one side, it is in the executors’ interests to have the issue resolved, even on the basis of payment of the full amount of the estimated liability. As executors they have, in general terms, a right to recover from the beneficiaries any tax payment they make for the estate. The executors will seek assurances that they will be reimbursed and, if necessary, may seek orders from this Court indemnifying them for any payment they make, or are liable to make. In this respect, the McDougall executors and ET Australia are in the same position. In contrast, the beneficiaries, who may have been overpaid, have an interest in retaining the proceeds of the distribution and ignoring the tax liability. The beneficiaries might, for that reason, take the position that the executors should let sleeping dogs lie and should not make any tax return in the United Kingdom. That course of inaction would leave the executors vulnerable should the bulldog ever wake from its slumber.
How do these competing interests stand with the executors’ duties? The executors plainly have a duty to advance the interests of the beneficiaries. Ordinarily, their duty would require them to bring in the remaining assets in the United Kingdom if the matter were uncomplicated by the inheritance tax liability. However, if the potential tax liability was not caused by ET Australia’s negligence, the beneficiaries’ interest may not be best served by bringing in the FIA units. Even then, the interests of the beneficiaries may vary as between themselves. For example, if a beneficiary holds assets in the United Kingdom, he or she might fear that the entire tax will be collected from his or her assets situated within that jurisdiction. In that situation, the executors would have to consider the competing interests of the beneficiaries before determining what to do about the FIA units. The personal interests of the executors may also be affected by any decision they make. For example, if the executors have assets in the United Kingdom or if they intend to travel or reside in the United Kingdom, they may be concerned about their potential civil and criminal liability for the estate’s tax liability. In the ordinary course, executors are not required to carry the estate’s liability for the benefit of the beneficiaries. If the inheritance tax is properly payable in the United Kingdom then the estate and the beneficiaries must bear that burden. In the ordinary course, the beneficiaries could not, in conscience, keep the benefit of the over distribution and insist that the executors carry the burden of tax liability personally.
The approach of the executors to the inheritance tax liability in the United Kingdom may well be determined by their assessment of whether the beneficiaries will willingly indemnify them and, if they will not do so willingly, by the prospects of recovery against the beneficiaries. ET Australia’s and the McDougall executors’ right to indemnification for the tax liability is not conditional on them first making that payment.[24] The executors may bring an action seeking an indemnity for such liability as they can prove they have incurred pursuant to the provisions of the applicable English legislation. They may, therefore, bring an action for an indemnity before, or at the same time as, they take steps in the United Kingdom to crystallise and quantify the tax liability. Even if there is some doubt over when precisely the tax liability accrues, a declaratory remedy would be available to the executors even before a demand for payment was made by the English taxation authorities. It is in the context of any action for recovery from the beneficiaries, that ET Australia’s conflict becomes more acute. If it were to bring proceedings against the beneficiaries claiming an indemnity for its liability to pay the inheritance tax, it would be met by defences or cross-claims based on the negligence that the beneficiaries have alleged against it. It is ET Australia’s potential liability to the beneficiaries which causes the respective interests of ET Australia and the McDougall executors to diverge. That is because if the McDougall executors or the beneficiaries must pay inheritance tax, they will look to ET Australia to compensate them for the liability which, they contend, was caused by its negligence.
[24] Re Blundell (1888) 40 ChD 370 at 376-7.
Paradoxically then, to minimise any loss to the beneficiaries, for which it may be found liable, ET Australia may take the view that no steps should be taken which might crystallise the tax liability in the United Kingdom. On the other hand, the beneficiaries, confident of their claim against ET Australia or Australian ET might advocate an active approach to resolving the tax liability. These positions of ET Australia and the beneficiaries respectively are the converse of the positions they might have been expected to take but for the potential liability in negligence of ET Australia.
True it is that, ultimately, ET Australia might also favour actively resolving the tax liability in order to protect its good corporate name as a trustee, and indeed its continuing authority to act as a trustee. However, it is not to the point that ET Australia might yet take a position which an executor, like either of the McDougall executors, might choose to take unburdened by its peculiar self-interest. Nor is it to the point that, on one view, the interests of the beneficiaries might be better served by ignoring the potential tax liability in the United Kingdom. The point is that ET Australia has interests which might be served by taking a position which conflicts with its duty as an executor.
Ultimately, the position that ET Australia takes may well be influenced by the perceived strength of the case against it for negligent advice which resulted in the inheritance tax liability. The stronger ET Australia perceives the case against it to be, the more likely it is to advocate for a course which, in effect, abandons the remaining English assets and hopes that no steps are taken by the Revenue Commissioners to collect the tax or penalties. If that course is adopted, the damages for which ET Australia will be liable may be limited to the value of the FIA units.
On the other hand, if ET Australia perceives the case against it for negligent advice to be weak, then it will be less concerned by the option of seeking a resolution of the tax liability in the United Kingdom because it will be in a better position to recover any payment from the beneficiaries.
The existence of a conflict is not determined by predicting how the person who is burdened by the conflict will resolve it. The conflict exists because ET Australia has an independent interest of its own which is extraneous to its position as an executor of the McDougall estate. That interest is to minimise any liability for the professional negligence asserted by the beneficiaries and McDougall executors. If, contrary to its financial interests, ET Australia were to accept that it was liable, the potential tax dilemma would easily be resolved in the beneficiaries’ favour by a decision to discharge the executorial duty to realise and distribute the remainder of the estate. The interest of ET Australia, therefore, conflicts with the performance of its duty to the beneficiaries.
Applications for Directions
Before determining the merits of ET Australia’s application to have the grant of probate revoked, it is necessary to consider the facility afforded to executors to obtain directions on the administration of an estate from this Court. Section 69 of the Administration and Probate Act 1919 allows any executor in the case of any difficulty or doubt to apply to a judge for advice or direction as to matters connected with the administration of an estate. On an executor’s application a judge may make an order, declaratory or otherwise, as to the proper administration of the estate. Any such order binds the executor and beneficiaries and protects an executor acting in accordance with it in the same way as if the order had been made in an action where all parties concerned were represented.
The McDougall executors have, in correspondence with ET Australia, indicated their intention to apply for directions on the question of dealing with the inheritance tax liability. On such an application the interests of ET Australia and the McDougall executors to ensure that they are protected against personal civil, and perhaps criminal, liability under the ITA, will undoubtedly be a relevant consideration. The enforceability against the executors of any judgment obtained in the United Kingdom will need to be fully considered. In that respect, I do no more than observe that the definition of enforceable money judgment in s 3 of the Foreign Judgments Act 1991 (Cth) excludes a judgment for an amount payable in respect of a tax, fine or penalty.
On the other hand, the interests of the Revenue Commissioners of the United Kingdom are not, necessarily, a relevant consideration. It is a long recognised principle of international law that “in general, courts will not adjudicate upon the validity of acts and transactions of a foreign sovereign State within that sovereign’s own territory”.[25] That principle may not be strictly applicable on the proposed application for directions. Nonetheless, as much as it is counter-intuitive to entertain the notion that the estate should be administered ignoring any tax liability in the United Kingdom, the extent to which the interests of the general revenue of a foreign State should detract from the private equitable interests of those persons concerned in an Australian estate or trust will require careful consideration.
[25] Her Majesty’s Attorney-General in and for the United Kingdom v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 at 40-1.
There are a range of directions which might be given on an application brought by the McDougall executors. A direction may be given to realise the FIA units and make a return in accordance with the ITA. Alternatively, a direction may be given that the executors enter into negotiations with the Revenue Commissioners which might be limited to negotiating a release from any liability in exchange for the proceeds of such English assets as remain. On the other hand, a direction may be given allowing the trustees to, in effect, abandon the English assets.
Does the Conflict Necessitate Revocation
In my view, the application for directions, which the McDougall executors will almost certainly make, will, to a large extent, alleviate the risk to the proper administration of the estate posed by the conflict. An application for directions is plainly necessary in this matter for reasons quite independent from ET Australia’s position of conflict. This will not be a case where ET Australia’s conflict will require close supervision by this Court which would not otherwise have been necessary. The McDougall executors will propound the directions they deem appropriate on that application. If ET Australia does not contend for any alternative direction and abides the event, their conflict will not impede the proper administration of the estate. Alternatively, if ET Australia takes a position which differs from the McDougall executors, its contentions will be assessed by this Court on their merits. Plainly, it will not be open to ET Australia to openly advocate one course over another on the grounds that it will better protect it from the beneficiaries’ foreshadowed claim. To the extent that ET Australia supports a submission by reference to the proper duties and responsibilities of an executor, its position will be assessed on its merits. The court will undertake that assessment, well aware of ET Australia’s underlying self-interest.
A wide range of orders may be made on the proposed application for directions. It is not impossible to imagine a direction which would win the support of the beneficiaries, the McDougall executors and ET Australia. If that is not so, and radically different courses are contended for by interested parties on the application for directions, consideration might again have to be given to the question of revocation. Revocation may also be necessary if inter-partes proceedings are brought which raise, as part of the controversy, the beneficiaries’ claim of professional mismanagement. However, at this stage, in my view, the conflict does not necessitate revocation of the grant of probate.
Other Considerations
There are further considerations which militate against revoking probate to relieve ET Australia from its conflict at this stage. The predicament faced by the estate has come about as a result of decisions which were made whilst ET Australia was a remunerated attorney. Whether or not it is ultimately found to be negligent, it is I think, unfair, in a broad sense, to the McDougall executors and the beneficiaries to now release ET Australia from any obligation to resolve the problem. Importantly, revocation of probate will significantly increase the burden on the McDougall executors. They alone would bear any tax liability until such time as they could recover it from the beneficiaries in accordance with their right to an indemnity. They would also be left to deal with the administration of a complex problem without the assistance of the professional, remunerated executor appointed by the testator. There is an element of “cutting and running” in ET Australia’s application.
Conclusion

I dismiss the application of ET Australia.