Fisher v Blue Sturt Nominees Pty Ltd and Anor No. Scciv-02-998

FISHER V BLUE STURT NOMINEES PTY LTD AND ANOR
[2002] SASC 300

JUDGE BURLEY. In this matter the plaintiff originally sought injunctive relief against Messrs Cowell Clarke, solicitors, in respect of the sum of $249,271.35 held by them in their trust account. Messrs Cowell Clarke is the second defendant in these proceedings. That firm has interpleaded in respect of the money held in its trust account and the argument before me on 16 August 2002 proceeded as an application for directions in relation to the interpleader. In particular, the plaintiff seeks an order that the money held by Messrs Cowell Clarke be paid into Court.
The background to this application is conveniently set out at the commencement of reasons published by me in Action No 333 of 1999 (Judgment No [2001] SASC 187) as follows:
“The plaintiff is the daughter of Lyle Phillip Barns who died on the 14th day of August 1998. By his Will dated 2 May 1996 the deceased made no provision for his daughter. The Will was admitted to Probate on 14 January 1999. The plaintiff has applied pursuant to the provisions of the Inheritance (Family Provision) Act 1972 (the Act) for an order for provision out of the estate on the ground that she has been left without adequate provision for her proper maintenance, education or advancement in life (Section 7(1)(b)).
The first defendant is the son of the deceased and is the executor of his estate. The second defendant is the widow of the deceased and is the sole beneficiary under his Will. There are two infant claimants, two of the children of the plaintiff, who also, pursuant to Section 7(1)(b) of the Act seek an order for provision out of the estate.
The claims made by the plaintiff and the claimants are resisted by the first defendant, not in his capacity as executor, but in his capacity as the beneficiary of the trust which, it is alleged, has arisen by virtue of a Deed between the deceased, the second defendant and the first defendant dated 2 May 1996 (the Deed) whereby the deceased and the second defendant covenanted to make mutual Wills leaving their estate to each other and that the survivor of them would leave his or her estate to the first defendant.
The second defendant also opposes the claims of the plaintiff and the claimants.
Apart from any other ground of defence that may be available to the defendants, they each maintain that because of the Deed of 2 May 1996, there is now no property in the estate of the deceased which may be the subject of an order by the Court for provision out of the estate. This ground of opposition was known to the plaintiff when she commenced the proceedings because she has dealt with it specifically in her statement of claim filed in support of her claim. The plaintiff (and the claimants) assert that the Deed was void because it is contrary to public policy and that consequently no trust can arise under the Deed in respect of the property forming the estate of the deceased. The plaintiff also contends that, even if a trust of the type relied upon by the defendants has arisen under the Deed, the Court may nevertheless make an order in favour of the plaintiff in respect of the property the subject of the trust if the Court has otherwise made out her claim pursuant to the provisions of the Act.
Prior to the trial, on the application of the parties, I directed that the issues relating to the validity of the Deed be heard and determined before any other issues in the action. The parties requested a trial on these preliminary points because, if the Court determined that the Deed was valid and that a trust thereby arose in favour of the first defendant which precluded the beneficial interest in the deceased’s property falling into the estate of the deceased, the question of the plaintiff’s and the claimants’ entitlement to an order would be determined without the parties having to participate in what otherwise would be a lengthy trial of all of the issues in dispute between the parties. It was thought that if the Court decided against the defendants on these issues, such a determination would assist the parties in any settlement negotiations that they might pursue after such a determination.”
Those proceedings have not yet been resolved. At first instance I decided that the deed was void, which had the consequence that the property held by the deceased as at the date of death fell into the estate. The matter went on appeal to the Full Court of the Supreme Court and my decision was reversed. The plaintiff subsequently obtained leave to appeal from the High Court and the appeal was recently argued before the High Court which has reserved its decision. The plaintiff has pursued this application on the basis that the High Court may declare the relevant deed to be void. One of the grounds of opposition to an order that the money be paid into Court is that, if the High Court upholds the Full Court decision, the money would never form part of the deceased’s estate.
At the hearing before me on 16 August 2002, I gave leave to Mr Malcolm Barns, the son of the deceased and brother of the plaintiff, to appear on behalf of the first defendant. He put submissions opposing the orders sought by the plaintiff.
The money the subject of the dispute is referred to in the affidavit of Ms Crichton, affirmed on 6 August 2002 (FDN 11). She has referred to a company called Barns Pastoral Pty Ltd, which is one of a group of companies in which the deceased had an interest as at the date of his death. Receivers and managers had been appointed to that company by the first defendant pursuant to the terms of the security held by the first defendant in respect of a debt allegedly owing by Barns Pastoral Pty Ltd to the first defendant. In her affidavit, Ms Crichton has stated that Messrs Cowell Clarke were instructed by the Receivers and Managers of Barns Pastoral. There were winding-up proceedings in Action 348 of 2002 in this Court. Directions were sought from the Court with regard to the payment of monies held by the liquidator of Barns Pastoral Pty Ltd. The parties negotiated a settlement in relation to those proceedings and a deed of settlement was entered into. As a result of the implementation of that deed of settlement the sum of $249,271.35 was retained by Messrs Cowell Clarke on the basis of an undertaking given by that firm on 10 July 2002 not to pay out the monies without first giving the plaintiff 14 days’ notice of their intention to do so. Such notice was given on 19 July 2002 and as a result the plaintiff commenced these proceedings. Since then, Messrs Cowell Clarke, with the agreement of the plaintiff and other interested parties, has paid out part of the funds held by them in their trust account to a firm of solicitors on account of legal fees. There is now approximately $220,000.00 held by Messrs Cowell Clarke in their trust account.
As part of their interpleader application, Messrs Cowell Clarke rely upon a statement of position which is Exhibit JSW1 to the affidavit of Mr Watts sworn on 13 August 2002. That document reads as follows:
“1Pursuant to Deed of Settlement dated 17 July 2002 signed by the plaintiff and defendant (and other parties) it was agreed that certain monies were to be paid into the Cowell Clarke Trust Account on account of the defendant (‘Deed Monies’).
2By letter dated 11 July 2002 from Cowell Clarke to Boltons Lawyers and letter dated 11 July 2002 from Boltons Lawyers to Cowell Clarke:
2.1    It was agreed that $60,000.00 of the Deed Monies would be paid to the defendant.
2.2    Cowell Clarke gave an undertaking to the plaintiff, the effect of which was that Cowell Clarke would give the plaintiff 14 days clear notice in writing (to her solicitors) of its intention to disburse or deal with the remainder of the Deed Monies.
3On 18 July 2002 and pursuant to the Deed, the amount of $249,271.35 was placed into Cowell Clarke’s Trust Account (‘Trust Monies’).
4On 2 August 2002 and with the consent of the parties, the amount of $30,105.70 of the Trust Monies was paid to Corsers Solicitors.
5Cowell Clarke has at the date of this pleading the sum of $219,165.65 in its Trust Account and holds the same as a stakeholder.
6In the within proceedings both the plaintiff and defendant claim an entitlement to some or all of the said Trust Money.
7The applicant, Cowell Clarke, (save for its claim in costs) has no interest in, or claim to, any part of the Trust Monies being the property in dispute between the parties.
8The applicant seeks the following orders:
8.1    That the Trust Monies be paid into Court to abide the outcome of the said proceedings.
8.2    That Cowell Clarke’s costs of and incidental to these proceedings be paid out of the Trust Monies.”
On the basis of that statement of position I am satisfied that Messrs Cowell Clarke have correctly interpleaded and that it remains for the Court to give directions pursuant to SCR 44. That was the nature of the hearing before me on 16 August 2002.
It is common ground that as at the date of death, the net worth of the deceased’s estate was approximately $2.1 million. By 30 June 1999, that had been reduced to about $1.6 million and by 31 March 2001, the net assets amounted to about $690,000.00.
The evidence is confusing in part because there has been a failure to make a distinction between assets falling into the estate, which could only occur if the original deed was declared to be void, as opposed to the assets of the deceased being the subject of a trust in favour of the widow and Malcolm Barns arising from the original deed. Be that as it may, it is clear that much of the property held by the deceased, either directly or indirectly and solely or jointly, has been sold. The plaintiff contends that the money held by Cowell Clarke in reality belongs to the estate of the deceased and should not be paid to the first defendant at least until there has been a determination as to whether or not some or all of that fund forms part of the estate of the deceased. The first defendant has argued that the money should not be paid into Court. It should be paid to the first defendant as a creditor of Barns Pastoral Pty Ltd.
It is common ground that the deceased held one of three issued shares in the first defendant. The other two are held respectively by the widow and by Mr Malcolm Barns.
If it were not for the complication of the claim under the Inheritance (Family Provision) Act by the plaintiff and her children in respect of the estate of the deceased, it is at least arguable that the monies held by Cowell Clarke are due to the first defendant as a debt owing by Barns Pastoral Pty Ltd to the defendant. If the deceased’s property, upon his death, fell into the estate, as opposed to forming the subject matter of a trust in favour of the widow and Malcolm Barns, the only interest that the estate has in the defendant is to realize the third share of the assets of that company arising from the one share in that company to which the estate is entitled. This means that the estate does not have a direct interest in the monies and no order should be made directing payment into Court.
It is necessary to state that, at this stage of the interpleader proceedings, it is not my function to determine finally who is entitled to the money. The first step to be taken, in respect of which submissions were made on 16 August 2002, is to determine whether there is a serious question to be tried as to the ownership of the money. If both the plaintiff and the defendant have an arguable claim, the money should be paid into Court and directions should be given as to how final determination is to be arrived at. If the plaintiff cannot establish an arguable basis for the contention that the money, or at least some of it, belongs to the estate of the deceased, the money should be paid to the defendant.
It seems to me that the only basis upon which it might be said that the estate, arguably, has an entitlement to the money, is that the net worth of the estate, of which Malcolm Barns is executor, has decreased from about $2.2 million to about $700,000.00 since probate was granted. (Again, such a statement is based on an assumption that the deceased’s property fell into the estate as opposed to being the subject of a trust arising from the original deed.) The plaintiff asserts that this indicates that the executor has wrongly dealt with the assets in the estate when it was known to him that the plaintiff and her children were pursuing a claim under the Act. Notice of that claim was given on 10 December 1998. The Will was admitted to probate on 14 January 1999.
The plaintiff has argued that, under Section 14 of the Act, Malcolm Barns may be personally liable if he has wrongly distributed or diminished the value of the estate. Reliance has also been placed on Section 14(3) of the Act which permits the Court to order provision out of the estate after it has been distributed.
Malcolm Barns denies that he has administered the deceased’s estate so as to avoid or diminish whatever entitlement the plaintiff and her children may have. He says that the estate has been diminished to the extent that it has because of the litigation that has arisen from the disputes relating to the administration of the estate. It is clear that extensive litigation has been engaged in. The costs incurred must have been considerable.
Mr Barns also asserts that the orderly realization of the deceased’s assets has been impossible so that extra interest and costs have had to be paid to creditors and the full value of assets has not been realized.
It is not possible, on the basis of the affidavit evidence before me, to know where the truth lies. This is an unsatisfactory state of affairs. I cannot rule out the reasonable possibility that, upon a full examination of the facts in law, that the money held by Cowell Clarke is an asset of the estate.
Both parties have relied upon a mixture of facts and assertion. The only opportunity the parties will have to put their respective contentions in full, with a view to obtaining a final determination, is in the inheritance proceedings brought by the plaintiff and her children. There would be no point in attempting to obtain a final determination in this action because its subject matter is limited to the funds held by Cowell Clarke.
In all the circumstances I consider that the money should be paid into Court pending a final resolution of the inheritance proceedings.

[2002] SASC 300

3 September 2002