Frederick John Von Stanke as Executor of the Estate of Frederick William Von Stanke (deceased) v O'Meara
[2007] SASC 410
•23 November 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
FREDERICK JOHN VON STANKE AS EXECUTOR OF THE ESTATE OF FREDERICK WILLIAM VON STANKE (DECEASED) v O'MEARA & ORS
[2007] SASC 410
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Anderson and The Honourable Justice White)
23 November 2007
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS - GENERALLY
PROCEDURE - MISCELLANEOUS PROCEDURAL MATTERS - DECLARATIONS
Appellant seeks permission to appeal in respect of contribution notice filed by respondent (Leonie Mary O'Meara) pursuant to r 37.07(1)(c) - whether issues in contribution notice and issues in main action are related and substantially the same - respondent permitted to amend contribution notice - amendments seeking removal of appellant as trustee and a declaration that appellant unfit to act as executor/trustee - allegations that appellant has conflict of interest as executor and trustee of family estates and as director of fishing companies in main action - whether amendments to contribution notice should have been allowed.
Held: No error in judge's reasoning allowing the filing of contribution notice - issues in main action related and substantially the same.
Further held: No adequate factual basis shown for allegations in paragraphs 74.1 and 74.4 - no order made in relation to paragraph 74.1 of contribution notice - paragraph 74.4 struck out - second defendant to consider alternate action for revocation of probate.
Supreme Court Rules 1987 r 37.07; Supreme Court Civil Rules 2006 s 45; Trustee Act 1936 (SA) s 36(1), referred to.
J N Taylor Holdings (In Liq) & Anor v Bond & Ors (1993) 59 SASR 432; AMP Fire & General Insurance Co Ltd v Dixon [1982] VR 833; Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43; H Stanke & Sons Pty Ltd & Anor v Frederick John Von Stanke & Ors [2007] SASC 51, discussed.
FREDERICK JOHN VON STANKE AS EXECUTOR OF THE ESTATE OF FREDERICK WILLIAM VON STANKE (DECEASED) v O'MEARA & ORS
[2007] SASC 410Full Court: Doyle CJ, Anderson and White JJ
DOYLE CJ: I agree with the orders proposed by Anderson J, and with his reasons. There is nothing that I wish to add.
ANDERSON J.
Introduction
This is an application for permission to appeal from a decision of a judge of this Court, who in turn dismissed an appeal from a master. The appeal involves matters raised in a contribution notice filed by the second defendant and subsequent amendments to the contribution notice allowed by the judge. The matter is still being handled in the interlocutory stages and managed by the judge.
In the contribution notice the second defendant, Leonie Mary O’Meara (Mrs O’Meara), has raised matters for determination which she asserts are substantially the same as issues arising in the principal action brought by the two plaintiff companies, H. Stanke & Sons Pty Ltd and Cape Banks Processing Co Pty Ltd (the fishing companies). That is the first issue on appeal. The second and third issues raise questions as to whether amendments to the contribution notice by the judge should have been allowed.
As far as I can ascertain, the pleadings in this matter are not complete because Frederick John Von Stanke (John) has not filed a defence. With the resolution of the matters raised in this appeal, it seems to me that he should be required to do so within a short time and that all pleadings should then be finalised as soon as possible. That will enable the parties to embark upon the discovery exercise and to prepare for trial.
The pleadings arguments so far have occupied an inordinate amount of time and have cost large sums of money. By and large, it seems that many pleadings rules have been ignored. The issues are clear. A big picture has now emerged regarding the central arguments put forward by the respective parties but this needs to be finalised by John’s defence. Each of the parties will then know the case to be presented by the other.
The trial is set for May 2008. The parties would be well advised to prepare for the trial rather than being distracted by the pleadings arguments which have followed as a matter of course, it seems, from the institution of proceedings.
Background
In the principal action the fishing companies sue various members of the Von Stanke family, including Mrs O’Meara. The relevant personnel are conveniently summarised by the learned judge at [1] of his reasons as follows:
[1]The present action is a long and complex action that is currently in its pre-trial stages. The plaintiffs are two companies each incorporated in the latter part of 1965. Frederick John von Stanke (“John”) is the son of Frederick William von Stanke (“Fred”), who died on 12 November 1995. John is the executor of Fred’s estate and, in his capacity as such, is the first defendant. In his personal capacity, he is named as the third defendant. Leonie MaryO’Meara (“Mrs O’Meara”) is the sister of John and is the second defendant. The first and second defendants are the sole living beneficiaries of Fred’s estate. Gwendoline Mary von Stanke (“Gwen”) was the wife of Fred and the mother of John and Mrs O’Meara. Gwen died on 3 April 2001. John is also the executor of Gwen’s estate, and John and Mrs O’Meara are the sole living beneficiaries of the estate.
It is not possible to shortly describe the background to this dispute. The Von Stanke family has a history which is long and complex. It involves the development of a large fishing empire which now includes many fishing vessels, a fish processing factory with all the associated infrastructure, numerous fishing licences and substantial holdings of real estate at Carpenter Rocks, which is near Mount Gambier in the south-east of South Australia.
In 1948 three brothers, Frederick William Von Stanke (Fred), Robert Charles Von Stanke (Bob) and John Hurtle Von Stanke (Jack), with the assistance of their father Hercules Carl Von Stanke, commenced a family fishing business at Carpenter Rocks. The primary operations of the business were situated on what is referred to as the Base Block where the fishing, processing and export of lobster took place.
When the Base Block at Carpenter Rocks was purchased, the site was undeveloped and surrounded by grazing land and scrubland. The location was isolated. The only buildings were basic iron sheds; there were no established roads and no infrastructure for water, sewage, power or telephone.
During 1948 houses were built on the block for Fred and Jack and their families. Later a house was built in 1950 for Bob and his family, with construction of a fish processing factory taking place the same year.
Between 1953 and 1965 the three brothers purchased the adjacent blocks of land and incorporated them into the activities of the family business.
From 1948 to 1965 the three brothers ran the family business in partnership. During this time they acquired several fishing vessels, which were moored in the bay adjacent to the Base Block when not fishing. They also stockpiled bait, provisions and equipment and established the headquarters for the business.
In 1965 the two fishing companies were formed, namely H. Stanke & Sons Pty Ltd and Cape Banks Processing Company Pty Ltd. The fishing companies took over the running of the family business. Simultaneously in 1965 three holding companies were also established, FWV Stanke Holdings Pty Ltd (FWV - Fred’s Company), RCV Stanke Estates Pty Ltd (RCV - Bob’s Company) and JHV Stanke Properties Pty Ltd (JHV - Jack’s Company). The holding companies each took an equal shareholding in the fishing companies and were established to represent the respective brothers’ interests.
The business presently trades as “Stanke Ociana Seafoods” and is owned by the two fishing companies.
H. Stanke & Sons Pty Ltd acquired Southern Zone Rock Lobster Fishery licences. As at 27 March 2006, the company owned nine licences, which endorsed a total of 639 Pot Entitlements. Various members of the Von Stanke family have used these licences and entitlements and continue to do so. FWV currently uses three licences, JHV currently uses one licence and RCV currently uses three licences. RCV previously used five licences but sold one and allows the use of another as a “floating licence” for use by other licence holders.
Mrs O’Meara, has had the benefit of a sub-licence granted by the fishing companies. Mrs O’Meara and her husband have used this sub-licence to derive their sole income and provide for their living expenses since 1984. They have also had the opportunity by virtue of their family connections, to acquire the skills, experience and qualifications required to carry out a commercial fishing venture. In addition to the foregoing benefits they were also at one time provided with a boat, the Cape Banks, which was owned by one of the fishing companies.
It is alleged by the fishing companies that certain family arrangements were established by the three brothers for the benefit of the business and the community of Carpenter Rocks. These family arrangements include the establishment of accommodation, the provision of employment, the use of boats and, when required, financial assistance. However, other than by way of “welfare assistance”, the fishing companies have never made a distribution of profits to their shareholders.
There are common directors of both fishing companies. The directors are Ian, who is Jack’s son, John, who is Fred’s son, Robert, Christopher, Martin and (until 2005) Stephen, who are all Bob’s sons. As can be seen, Mrs O’Meara has no say in the directorships of the fishing companies.
Both the fishing companies have issued three shares to each of FWV, RCV and JHV, the companies formed to represent the interests of the three brothers. The only assets held by FWV, RCV and JHV are the shares in the two fishing companies.
The FWV shareholders are as follows:
1. Fred’s estate holds one A class share equivalent to 100,000 votes.
2. Gwen’s estate holds one B class share equivalent to one vote.
3. John holds one C class share equivalent to one vote.
4. Mrs O’Meara holds one D class equivalent to one vote.
Fred died on 12 November 1995 leaving his son, Frederick John Von Stanke (John) as the sole executor and trustee of his will. John’s sister is Mrs O’Meara. She is a beneficiary named in the will, along with John. Fred’s wife Gwen died on 3 April 2001. John is also the sole executor and trustee of her will. Neither Fred’s estate nor Gwen’s estate has been administered and there are separate proceedings which are current in relation to the will. I will mention these proceedings briefly later in these reasons.
It can be seen that John and his cousins as the directors have the control and management of the fishing companies. Through FWV, the assets of the fishing companies are the largest assets of the estates of both Fred and Gwen. Because of the alleged family arrangement, it is said that the estates have no financial interest in the fishing companies. The directors have not and apparently will not exercise their powers to grant any financial benefit to the shareholders, including Mrs O’Meara, because of the alleged family arrangement.
Grounds of appeal
The grounds of appeal in this matter are as follows:
Contribution Notice – Rule 37.07 of the 1987 Rules
1.The learned judge erred in:
1.1 holding that the Second Defendant’s Amended Contribution Notice filed 3 January 2007 (“the Notice”) claims the determination of a question or issue which is substantially the same as some question or issue arising between the Plaintiffs and the Second Defendant;
1.2 not holding that the Notice does not claim any such question or issue and therefore does not comply with paragraph 37.07(1)(c) of the Supreme Court Rules 1987 (SA).
Trustee Act Amendments
2.The learned judge erred in:
2.1 holding that the proposed amendments to paragraphs 72 and 74.1 of the Notice (“the Trustee Act Amendments”) disclose a reasonably arguable cause of action; and
2.2 not holding that leave to make the Trustee Act Amendments should be refused because:
(a)the Notice does not otherwise allege that the First Defendant was the trustee of any item of property of the estate;
(b)the Notice does not otherwise allege that the Second Defendant knows and/or believes that there are assets of the estate, the existence of which have not been disclosed to her and which have been administered by the First Defendant;
(c)the Notice otherwise alleges that the First Defendant had not yet administered the estate and is therefore premised on the basis that the First Defendant was still an executor of all of the assets of the estate, and not a trustee; and
(d)the Trustee Act Amendments do not seek the appointment of a trustee to hold any items of property in relation to which the First Defendant is removed as trustee.
3.The learned judge erred in:
3.1 finding that it is implicit that the First Defendant may have acted as Trustee.
3.2 Notwithstanding that
(a)the Notice does not plead that the executor has ever acted as Trustee;
(b)the Second Defendant has never identified, whether by way of pleadings, correspondence between the parties or otherwise, there are assets of the estate, the existence of which have not been disclosed to her and which have been administered by the First Defendant; and
(c)the First Defendant by way of further evidence deposes to the fact that he holds no property or asset of the estate as Trustee;
(d)leave to make the Trustee Act Amendments should therefore be refused.
4.The learned judge erred in not holding that leave to make the Trustee Act Amendments should be refused as the Notice does not disclose any basis for making the allegation that the First Defendant is a trustee of any assets of the estate and therefore:
4.1 amounts to a fishing exercise for the purpose of trying to ascertain whether or not the Second Defendant has a claim against the First Defendant; and/or
4.2 considered in light of the history and context of the Action, together with the absence of any application for the revocation of probate or sufficient explanation as to why such an application has not been brought, amounts to an abuse of the processes of the Court.
5.In the alternative to paragraphs 2.2, 3 and 4 above, the learned judge erred in not holding that leave to make the Trustee Act Amendments in so far as they sought relief against Frederick John Von Stanke in a capacity in which he is not a party to the action (trustee of the estate of Gwendoline Mary Von Stanke) should be refused as they did not comply with r 37.07(1)(c) of the 1987 Rules.
The Declaration Amendments
6.The learned judge erred in
6.1 holding that the proposed amendments to paragraphs 73 and 74.4 of the Notice (“the Declaration Amendments”) would enliven the principles of res judicata and issue estoppel in any action for revocation of probate;
6.2 holdings that the Declaration Amendments disclosed a reasonably arguable cause of action;
6.3 not holding that leave to make the Declaration Amendments should be refused because:
(a)the Declaration Amendments would serve no useful purpose;
(b)the terms of the declaration sought do not purport to make an authoritative statement as to the law and/or the rights of the parties inter se, or to determine any legal controversy about rights, liabilities or interest created by law;
(c)the phrase “unfit to act” does not invoke any legal test under South Australian law, but rather is an uncertain factual standard; and
(d)alternatively, the Court does not have power under s.31 of the Supreme Court Act 1935 (SA) to grant declaratory relief concerning a grant or revocation of probate.
7.In the alternative to paragraph 6.3 above, the learned judge erred in not holding that leave to make the Declaration Amendments insofar as they sought relief against Frederick John Von Stanke in a capacity in which he is not a party to the action (executor of the estate of Gwendoline Mary Von Stanke) should be refused as they did not comply with r 37.07(1)(c) of the 1987 Rules.
8.The learned judge erred in finding that references in the Notice to “the executor” should not be interpreted as necessarily referring to the First Defendant solely in his capacity as executor to the exclusion of his role as Trustee or even to the exclusion of his personal capacity.
The remaining parts of the Contribution Notice
9.The learned judge erred in not holding that the Notice, (without the Trustee Act Amendments and the Declaration Amendments), did not disclose a reasonably arguable cause of action and should be struck out in its entirety because the Notice did not allege:
9.1 any profit being made by the First Defendant to support the claim for an account of profits; and
9.2 any loss to the estate of Frederick William Von Stanke to support the claim for equitable compensation.
The arguments presented reduced the number of issues to three. The first relates to the interpretation of r 37.07(1)(c) and the second and third relate to amendments to the contribution notice involving both an application to remove John as trustee and in addition a declaration as to John’s fitness to act as executor or trustee.
The first issue
The appeal to the judge involved the master’s interpretation of r 37.07(1)(c). Rule 37.07 of the 1987 Rules provides:
(1)A defendant within 7 days of filing the defence may without leave issue a contribution notice in Form 14 against any person who is already a defendant or a third or subsequent party to the action claiming:
(a) an entitlement to contribution or indemnity;
(b) relief related to or connected with the original subject matter of the action and substantially the same as some relief or remedy claimed by the plaintiff; or
(c) the determination of any question or issue relating to or connected with the original subject matter which is substantially the same as some question or issue arising between the plaintiff and a defendant and which should also be properly determined as between other parties.
The question before the master and the judge and now in this Court is whether the contribution notice filed by Mrs O’Meara raises matters which require the determination of issues substantially the same as questions or issues arising in the principal action. Rule 37.07(1)(c) permits the service of a contribution notice for the determination of an issue arising between two or more defendants if, first, the issue is related to the issues arising between the plaintiff and the defendants; secondly, the issue is substantially the same as an issue or issues arising between the plaintiff and at least one defendant; and finally, it is appropriate that the issue be determined at the same time as the issues arising in the main action between the plaintiff and the defendants.
The statement of claim
In the amended statement of claim the fishing companies’ claims are based on what they term an assumption going back in time and honoured, it is alleged, by subsequent members of the family. I have referred to this earlier as the alleged family arrangement. This assumption commences with Fred’s conduct in relation to the acquisition and development of the Base Block. The amended statement of claim alleges that it is upon this piece of land that the main fishing operations are conducted by way of processing and the like, that the Base Block has been held by Fred since 1948, and that it was originally in the name of his father Hercules. Fred, as previously set out, had two brothers, Bob and Jack, who are all now deceased but their families are involved in the business.
John, in his capacity as executor of the estates of his parents, commenced an action (645 of 2005) in which he sought a construction of the wills of his parents. Mrs O’Meara has filed a counterclaim in that action which seeks orders removing John as executor and trustee of the estates. She also seeks an order for the appointment of an alternative administrator and trustee of the estates.
The contribution notice in these proceedings is in similar terms to that counterclaim. The same judge heard argument on the construction of the wills but has reserved judgment pending the outcome of these proceedings and also the proceedings in action 879 of 2006.
The statement of claim filed by the fishing companies asserts that it would now be unconscionable for the various defendants to act in any way contrary to the assumption upon which the whole business has been built. The assumption, as alleged, in simple terms, is that all assets and benefits derived from the operation of the fishing business should remain the companies’ because of the way the businesses were set up in 1965. As previously stated, in 1965 various companies were formed by the three brothers to manage the fishing business and also to provide for each of the three families. It is said therefore that in those circumstances it would be unconscionable to allow the companies’ assets to go to individual beneficiaries under the will when that was not the original assumption on which the whole fishing dynasty commenced and developed.
In the statement of claim declarations are sought as to the unconscionability of Fred’s personal representatives seeking to assert a position contrary to the beneficial ownership of the Base Block by the plaintiff companies. Similar declarations are sought in respect of all other land acquired by the businesses using the funds of the business. These declarations are sought against each of the respective groups of legal and personal representatives of the three deceased brothers.
So in summary therefore the fishing companies, set up by the brothers to run the fishing business on behalf of the families, are claiming against the potential beneficiaries that it would be unconscionable to throw away effectively the assumption upon which the business empire has grown and to allow assets of the business to go to the beneficiaries under the will.
The defence
Mrs O’Meara’s defence alleges that in July 2004 the solicitors for the fishing companies sent her a letter demanding that she vacate the house that had previously been occupied by her parents. The fishing companies were asserting a claim for exclusive possession of the property and intended to have Mrs O’Meara evicted. They planned to refurbish the house and convert it into office space. Later in 2004 the solicitors for Mrs O’Meara made inquiries as to what progress had been made in administering Fred’s estate. Fred had bequeathed his entire estate upon trust for his wife Gwen and his children John and Mrs O’Meara. Half was to be given to Gwen and the other half was to be divided equally between the two children. Upon her death, Gwen bequeathed two thirds of her estate and a property referred to as s409 of Kongorong to John and one third of her estate to Mrs O’Meara.
In her defence, Mrs O’Meara denies the alleged assumption. She disputes the details which are alleged in relation to the growth of the family business. She further alleges that the three brothers and their families worked as both sole traders in their own respective businesses but also in a partnership as “Stanke Brothers”. She alleges that this partnership of the brothers commenced prior to the incorporation of the plaintiff companies in 1965. She alleges that there are large loans which have been made from the partnership to the fishing companies.
Mrs O’Meara denies that the plaintiffs are entitled to the equitable relief they seek because she alleges they have not acted with clean hands. She asserts that the assets of the first plaintiff have been charged to enable the directors and their families to make private borrowings. She further alleges that other financial benefits have been bestowed upon the directors and their families without any like benefits to the other members of the family.
In general terms it is alleged in Mrs O’Meara’s defence that there has been no proper corporate governance in relation to the keeping of proper accounts and in relation to the distribution of profits to directors and their families. There is also a plea of laches and acquiescence.
John is named in these proceedings as the first defendant in his capacity as the executor of his father’s will, and as the third defendant in his personal capacity. He has not so far been represented in these proceedings in his personal capacity.
The contribution notice
Mrs O’Meara contends that the issues raised against John in the amended contribution notice are substantially the same as the matters raised in the statement of claim and in her defence in the principal action. That is the first issue in the appeal.
In her contribution notice Mrs O’Meara raises questions of alleged conflicts of interest by John as executor of their late father’s estate. She also asserts breaches of duty by John as an executor. She raises similar allegations in relation to the handling of the estate of their late mother Gwen. In the amended contribution notice Mrs O’Meara seeks declarations to support an order pursuant to s 36(1) of the Trustee Act 1936 that John be removed as trustee of the trusts created by the wills. She also seeks an order for equitable compensation or damages and an accounting of all profits or other benefits derived by John and his family. Finally she seeks a declaration that John is unfit to act in the capacity of executor or trustee.
The allegations contained in the amendments to the contribution notice raise the second and third issues in this appeal concerning the executor’s conduct and whether he should be removed as the executor and trustee of any assets of the estates of either Fred or Gwen. I will deal with those matters under separate headings later in these reasons.
The judge’s reasons on rule 37
In relation to the first issue regarding the application of r 37.07(1)(c), the judge referred to the master’s reasons. After setting out the respective submissions of the parties, His Honour in his reasons at [57] gave instances of similarity of allegations relating to John’s conduct as executor which in turn went to the overall question of the beneficial ownership of the land. The judge referred to other comparisons between the issues raised in the statement of claim and the issues raised in the contribution notice. The judge then found at [70]:
The questions and issues arising in relation to the beneficial ownership of the land are substantially the same between the Claim and the Amended Contribution Notice. The pleaded facts in relation to the issue of the beneficial ownership of the land, in particular to the questions of inconsistent conduct by the plaintiffs and whether there has been a recent invention, are substantially the same as those pleaded in relation to whether the first defendant has breached his duties as executor and trustee by virtue of his involvement with the plaintiff companies. I have noticed above the parallels between paragraph 32 of the Amended Defence and paragraphs 15 to 22 of the Amended Contribution Notice.
The judge dealt in detail with the similar issues which arise in the contribution notice relating to John’s conduct as executor which are also related to the question of the beneficial ownership of the land.
It is sufficient to say, as the judge did, that the master had earlier focused on three main areas of similarity of issues, namely, the beneficial ownership of the land claimed by the plaintiffs but registered in the name of John as the executor of the estate of Frederick William Von Stanke; the whole ownership structure of the family business; and finally the ownership of the lobster pot licences.
The judge concluded that the questions and issues arising in relation to the beneficial ownership of the land are substantially the same in the statement of claim and in the amended contribution notice. It is really not necessary to go beyond this because the similarities are quite apparent from a reading of the pleadings. The issues in the contribution notice are related to the issues arising in the principal action and are substantially the same.
The same comment applies to the whole ownership structure of the family business. The issues on this topic in the contribution notice and in the principal action are related and again are substantially the same.
The third of the broad areas of similarity, namely, the ownership of the lobster pot licences, is a central theme which runs through both the issues in the statement of claim and in Mrs O’Meara’s contribution notice. They are clearly related and are substantially the same.
In my view the master and the judge were both correct in coming to the conclusions that they did in relation to the similarities that exist. There are obvious similarities.
The judge then went on to consider whether, in light of the similarities he found, the discretion should be exercised to allow the issues in the contribution notice to be determined at the same time. He gave five reasons at [73] why the discretion should be exercised in favour of Mrs O’Meara’s contentions.
In my view these are pragmatic and commonsense reasons for the exercise of a discretion in which an appeal court should be loath to interfere. As it turns out, I agree with the points raised by His Honour. It seems to me that there is a likelihood of a multiplicity of actions should Mrs O’Meara choose to institute separate proceedings if the contribution notice is struck out. That is a persuasive factor. It would then involve two sets of proceedings essentially canvassing the same facts in evidence, and in particular regarding John’s conduct. There is the potential for different findings by different judges if the matters are not determined at the same time. The evidence regarding John’s conduct is crucial to both matters. There will be no prejudice to any party and no delay in the commencement of the trial, and none of the other parties, who are also involved in the common issues, have opposed the issue of the contribution notice. These are all compelling factors influencing the exercise of the discretion.
It has not been shown that there is any error or that the judge has acted on any wrong principle in exercising his discretion. It is not without significance that the learned judge is managing the actions and has been for some time. He is also the designated judge for the trial of these matters in May 2008. The parties have now had reasoned decisions from both the master and the judge as to the construction of r 37.07(1)(c) and how they consider the rule should be applied to the facts of this matter. In those circumstances this Court, in my view, should not interfere in the absence of some demonstrable error. There is no such error in this case.
Whilst it is undesirable that interlocutory issues such as this are brought to this Court on appeal, for the purpose of disposing of the matter, I would grant permission to appeal, notwithstanding my earlier comments. This is because there are a number of complex issues which are all, in some way or other, intertwined and which require a final decision. I would however dismiss the appeal on that point for the reasons given.
The amendments to the contribution notice
The second and third issues arise as a result of the amendments to the contribution notice which were allowed by the judge. The orders and declarations sought in the amended contribution notice are as follows:
74.1An order pursuant to section 36(1) of the Trustee Act 1936 (SA) that Frederick john Von Stanke be removed as Trustee of the Trusts created by the Wills of Frederick William Von Stanke and Gwendoline Mary Von Stanke.
74.2An order that the executor pay equitable compensation or equitable damages to the estates of Fred and Gwen and/or Mrs O’Meara, the quantum to be assessed.
74.3That the executor account to Fred and Gwen’s estate and to Mrs O’Meara for all profits or other benefits derived by him and his immediate family.
74.4A declaration that Frederick John Von Stanke is unfit to act in the office of the executor or trustee of the Estates of Frederick William Von Stanke and Gwendoline Mary Von Stanke.
It can be seen therefore that par 74.1 seeks an order removing John as trustee pursuant to the Trustee Act, whilst par 74.4 seeks a declaration that John is unfit to act as executor or trustee. I will deal with each of these aspects in turn.
Both par 74.1 and par 74.4 raise the question of the capacity in which John is acting. It is argued by Ms Nelson QC for John as executor, that the capacity in which John is acting has been confused in the allegations made in the contribution notice and in the orders sought.
Removal as trustee
The contribution notice does not allege that any particular trusts have been created by the wills. Ms Nelson argued that the amendments under the Trustee Act should be struck out because they are both inconsistent with the rest of the allegations and do not disclose any cause of action.
Ms Nelson argued that the contribution notice spoke for itself inasmuch as it only alleged matters against John in his capacity as executor. The further amended contribution notice alleges in par 1 that John is sued in his capacity as executor and also in his capacity as a beneficiary named in his late father’s will. After reciting various clauses of the will, the contribution notice proceeds to deal under different headings with allegations against the executor. It commences with the executor’s conflicts of duty and interest. These are pleaded in some detail. It then proceeds to a general allegation that the executor has preferred the companies’ interests to those of the estate. Again this goes into some detail in the allegations which are made. The next heading in the contribution notice is the executor’s unconscionable delay in administering Fred’s estate. It then turns to the executor’s breaches of duty in connection with the affidavit of assets and liabilities of Fred’s estate. Next it deals with other breaches of duty alleged against the executor. Allegations are then made in relation to Gwen’s estate. Again these allegations relate to John’s role as executor of her estate. Finally, before dealing with the basis upon which relief is claimed, allegations are made in relation to the executor’s unconscionable conduct.
It is with those background allegations that the contribution notice then pleads the legal basis for relief as follows:
72.As a result of the totality of the executor’s conduct pleaded herein, the executor is liable to be removed as the trustee of any asset of the estates of Fred and Gwen pursuant to s 36(1) of the Trustee Act 1936 (SA)
and
73.As a result of the totality of the executor’s conduct pleaded herein, the executor is unfit to hold office as an executor or trustee of either of the estates of Fred or Gwen.
It is then that the orders and declarations are sought which I have referred to earlier.
The history of this particular claim is that the master disallowed an amendment to what was then paragraph 72.1 of the amended contribution notice. Paragraph 72.1 at that time read as follows:
An order that the executor be removed as executor and trustee of each of Fred and Gwen’s estates and that Bruce James Carter or some other appropriately qualified and independent person be appointed in his place.
The master was concerned that the court lacked the necessary power to remove an executor to whom probate had already been granted in the Probate jurisdiction of the court. He considered that the removal of the executor could not take place without revoking the grant of probate. Because there was no application made to revoke probate, the master struck out the old paragraph 72.1.
The master then made some concluding remarks which are set out within the judge’s reasons at [89]:
If the 2nd defendant now seeks to pursue the removal of the 1st defendant by a revocation of his probate, it will produce major procedural complications. What I now say is put forward for the consideration of the parties, but is not an adjudication by me on the points.
Any proceeding to revoke the probate would be a “probate action” under s 18 of the Supreme Court Act, R 104 of the 1987 Rules and R 205 of the Supreme Court Civil Rules 2006. If such a probate action was added into the existing contribution notice, it would be governed by R 104. Although I have not researched the point, I have serious doubts whether it is possible to pursue a probate action in a contribution notice. (S 23 of the Supreme Court Act giving the power to mount third party claims is limited to equitable and legal causes of action.) If the 2nd defendant seeks to pursue a probate action against the 1st defendant by a new action, it would be governed by R 205 of the 2006 Rules.
Section 36 of the Trustee Act had not been pleaded in the proceedings at the time they were dealt with by the master, although an argument, based on the section, was put forward as an alternative. As a result of the decision by the master Mrs O’Meara, rather than appealing against that part of the decision, sought to amend the amended contribution notice to seek an order pursuant to s 36 of the Trustee Act. That was part of the amendment application heard by the judge. Section 36 gives the court power to remove or replace a trustee and to appoint a new trustee but it does not apply to an executor.
The master in his reasons published on 20 February 2007 – H. Stanke & Sons Pty Ltd & Anor v Frederick John Von Stanke & Ors [2007] SASC 51 – traced the history of the Supreme Court’s Probate jurisdiction and analysed relevant decisions at [35] to [39].
The judge’s reasons on removal as trustee
The learned judge held at [94]:
It is clear, therefore, that s 36 enables the removal, appointment or replacement of a trustee of a trust, but not of an executor. An executor may only be removed by a revocation of the probate.
The learned judge reasoned that the question as to whether someone was acting as executor or trustee was a question of fact and had to be determined with respect to each item of property in the estate. The learned judge pointed out that the amended contribution notice does not make it sufficiently clear in what capacity relief is sought against the first defendant. His Honour then makes this finding at [114]:
The fact that the Trustee Act does not empower the Court to remove or appoint an executor is not determinative of whether the application should be allowed. The second defendant does not seek the removal of an executor. The second defendant seeks the removal of the first defendant as the trustee of the trusts created by the wills of Fred and Gwen. The Court does have the power to make such an order under s 36 of the Trustee Act and pursuant to its inherent jurisdiction.
Whilst that statement is correct, the fact that there is no claim to remove John as executor despite the numerous allegations against him in that capacity is, in my view, embarrassing. Ms Nelson argued that it was embarrassing because, whilst relief is being sought against John in his capacity as trustee pursuant to the Trustee Act, there is no sufficient plea of the extent to which he has acted in the capacity of trustee in respect of any assets of the trust, and secondly of how it is alleged that he has acted in breach of his obligations as trustee. At the same time although Mrs O’Meara does not seek an order removing John as executor she does seek a declaration that he is unfit to act in that capacity.
Ms Nelson referred to Jacobs Law of Trusts in Australia (7th ed 2006, par 240) where the authors state:
… although there are great similarities between the two offices, it is not possible to identify the position of an executor with that of a trustee. … If a testator appoints the same person as executor and trustee, which is usual nowadays, then that person acts as executor when performing executorial duties, and thereafter while continuing to hold the property is a trustee.
Mr O’Bryan SC for Mrs O’Meara argues that the amended contribution notice makes allegations against John in all of the capacities in which he is sued. It was suggested that he was defined as the executor as a matter of convenience and it was not the intention thereby to limit the capacity in which allegations are made against him or the capacity in which relief is sought against him. Mr O’Bryan referred to par 1 of the document.
Paragraph 1 of the further amended contribution notice states:
1.To Frederick John Von Stanke (“the executor”), who is sued in the main proceeding as the first defendant in his capacity as the executor of the estate of Frederick William Von Stanke (“Fred”) and as the third defendant in his capacity as a beneficiary named in Fred’s last Will and Testament dated 8 July 1992 (“Fred’s Will”).
Whilst that may be correct in relation to the actual words used in par 1 of the amended contribution notice, it is certainly not the flavour of the whole document. Clear and detailed allegations are made against John in his capacity as executor. The allegations, looked at as a whole, are clearly directed against John in his capacity as executor. I deal with these allegations in par [57] of these reasons.
The judge says that there are certain paragraphs in the amended contribution notice in which it is implicit that John may have been acting as trustee (see par 105, reasons). There remains, however, the hiatus arising from the absence of allegations that John was trustee of any particular items comprising the assets of the estate. As I have already indicated, the breaches alleged all appear to relate to alleged failures by John in his capacity as executor as distinct from any acts done as a trustee.
Mr O’Bryan argued that there are general pleas as to the duty owed as trustee in par 10 of the amended contribution notice. This is a wrapped up allegation under the heading of “The executor’s conflicts of Duty and Interest”, and while it does include the words “trustee” in the general allegations, the specific allegations which follow clearly relate to the executor’s role in collecting and “getting in” the assets. I do not believe that this adds anything to the argument of Mrs O’Meara.
The judge describes the pleas elsewhere in the notice as not clearly defining the roles of executor or trustee in his reasons. He also later describes the pleas as confusing the matters. I agree with both these comments.
The judge then concludes in his reasons at [106]:
However, it is clear that references in the contribution notice to “the executor” should not be interpreted as necessarily referring to the first defendant solely in his capacity as executor to the exclusion of his role as trustee, or even to the exclusion of his personal capacity.
The judge then found, at [110], that the contribution notice was not premised on the first defendant acting solely as executor.
The judge considered that because the line between John acting in his capacity as executor on the one hand, and as trustee on the other hand, was blurred and because there are questions of fact to be determined, the amendments to the contribution notice should be allowed.
With respect, I do not agree with that approach. The confusion created by the pleadings and the blurring of the line in relation to the capacity in which John is alleged to be in breach of his obligations is too important a matter to allow the pleading to stand, at least while it raises the only issues between the parties.
It is my view that when the further amended contribution notice is considered by itself, no factual basis has been laid for the order sought in par 74.1. Therefore I agree with Ms Nelson that there is no reasonable cause of action disclosed in relation to the claim to have John removed as trustee. On the face of it therefore par 74.1 should be struck out.
However, I would not make an order striking out par 74.1 at this stage. It seems to me that the plea in par 74.1 really derives from Mrs O’Meara’s concerns about the conduct by John of his executorship of his parents’ estates. An application for revocation of the grant of probate to John in relation to his parents’ estates can be pursued only in the Probate jurisdiction of this Court. While Mrs O’Meara does not make such an application, the plea in par 74.1 is, in my opinion, inappropriate. However, if Mrs O’Meara was to institute proceedings seeking revocation of probate, the position would be different. Those proceedings could be heard and determined at the same time as the contribution proceedings. This would enable all issues relating to John’s executorship and trusteeship of his parents’ estates and their assets to be determined at the one time.
In the interests of moving this matter along, I consider that an order striking out par 74.1 should not be made at this time. Instead, Mrs O’Meara should be given an opportunity to consider whether she will seek revocation of the grants of probate in proceedings properly instituted in the Probate jurisdiction. If Mrs O’Meara does give an undertaking to institute such proceedings, making allegations similar to those in the contribution proceedings, then par 74.1 can remain. My expectation is that the judge could order both sets of proceedings to be heard and determined at the one time.
It may seem quite undesirable to introduce yet another action into this already over complicated set of proceedings, but in the interests of having all matters determined at the one time, I would allow the plea to remain but only if the undertaking is given.
The declaration sought in par 74.4
The declaration sought is that John is unfit to act in the office of the executor or trustee of the estates of his parents.
The judge considers the general nature of declaratory orders and refers to the decision of King CJ in J.N. Taylor Holdings (In Liq) & Anor v Bond & Ors (1993) 59 SASR 432. The reference to that decision was for the purpose of illustrating that the discretion to grant declaratory relief is very wide: see particularly King CJ at 435 and 436. However, there are circumstances where the relief should not be granted, particularly where the declaration sought is hypothetical, academic or lacks utility. Such an instance is the decision in AMP Fire & General Insurance Co Ltd v Dixon [1982] VR 833 at 837, in the context of determining indemnity by an insurer in advance of determining a defendant’s liability to a plaintiff in a personal injuries action.
In Bond King CJ referred to in Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43 at 61 where Huntley JA said that a declaration will not be made except in matters “which have a real legal concept, and to the determination of which the Court’s procedure is apt”.
Ms Nelson argued that here the proposed declaration would not determine any legal issue between the parties. That is because there is no cause of action alleged against John as trustee, although relief is sought against him in that capacity. The allegations which are made against John are made in the capacity of him acting as executor. As I have already mentioned, he is, for instance, alleged to owe a duty to “get in” the assets of the estate and administer them. He is further alleged not to have acted in accordance with that duty.
The only allegations which could even be regarded as potentially relevant to any duty as trustee are allegations relating to an alleged sale of harness racing horses which were part of Fred’s estate and a motor vehicle referred to in the affidavit of assets signed by John. His Honour at [105] refers to these matters in the context of leaving open the question of in which capacity John was acting. These bare allegations are in my view insufficient to justify a claim against John in his capacity as trustee.
Ms Nelson argues that the amendments which were allowed by the judge are speculative and involve a fishing expedition. The declaration sought claims that John is unfit to act in the office of executor or trustee. The concept of “unfitness to act”, whilst the subject of determinations in applications to revoke probate, does not carry with it any general standard by which a court acting in its ordinary jurisdiction can adequately assess the matter. Ms Nelson therefore argues that there is no useful purpose in the declaration sought because it would not resolve any legal issues between the parties. She argues that whatever standard or text were used to make a declaration of “unfitness to act” it would not bind any later decision made in the Probate jurisdiction of this Court in an application for revocation of probate.
I agree with that submission. Any question of unfitness to act should be determined in the Probate jurisdiction of the court within an application for revocation of probate.
The judge finally concluded at [128]:
The fact that the removal of the executor could only be effected in an action seeking revocation of the probate, and could not be effected by a declaration in this action, may ultimately be a basis for refusing to make such a declaration. However, in my view, it is not a basis for precluding the second defendant from seeking that relief in a contribution notice at a stage of proceedings when pleadings have not been completed.
It seems to me that the question which must first be asked is whether there is any sufficient basis on what has been pleaded to make the declaration sought. I have concluded that the answer to that question is no. Therefore in my view the amendment should not have been allowed.
As I have already indicated, the plea is defective. There is no cause of action properly pleaded against the trustee. The matter is confused in that allegations are made only against the executor but nevertheless relief is claimed against the trustee. The claim for a declaration is effectively asking the Court to give a declaratory judgment on a theoretical possibility and should not be encouraged.
It seems to me that if it is the case that John has not held or dealt with any property in his role as trustee, the court would be embarking upon an inquiry for no reason.
I would give permission to appeal on this ground and allow the appeal and order that par 74.4 be struck out.
In relation to Mrs O’Meara’s notice of contention, once again it seems to me that this is an unnecessary complication as well. In my view, for the reasons already expressed, the Court should not be ruling on the question raised in the notice of contention as to whether the first defendant as executor is the proper party to answer the claim of contribution. That again lacks utility.
The conduct of this matter generally
While it is not normally the role of this Court to give procedural directions, it seems to me, now that I have had the opportunity of hearing argument in this matter and also in another Von Stanke appeal, [2007] SASC 413, a time has now been reached in these proceedings where consideration should be given as to when a line should be drawn in relation to all future pleadings arguments.
With respect, it seems to me that serious consideration could be given, once the defence of John is filed and replies are filed, to making an order under r 45 of the 1987 rules that the issues between the parties have been sufficiently defined for the parties to be required to prepare a statement of issues. Hopefully the matter could then proceed to trial in an orderly fashion, without any further concern about pleadings. Those issues would include any claim made in the Probate jurisdiction, should Mrs O’Meara choose to proceed in that way.
On the basis of these reasons I would reject grounds 1 and 9 of the notice of appeal. In relation to grounds 2, 3, 4 and 5 it is not necessary to deal with these grounds if Mrs O’Meara gives the undertaking as suggested in the reasons. I would uphold the appeal on grounds 6, 7 and 8.
Proposed orders
1.Permission to appeal granted.
2.Par 74.4 of the further amended contribution notice filed by Leonie Mary O’Meara be struck out.
3.Subject to Leonie Mary O’Meara undertaking to institute proceedings for the revocation of the grant of probate to Frederick John Von Stanke as executor of the estate of Frederick William Von Stanke and as executor of the estate of Gwendoline Mary Von Stanke on the grounds raised in the further amended contribution notice, I would otherwise dismiss the appeal.
I would hear the parties as to costs.
WHITE J: I agree with the orders proposed by Anderson J. I also agree with his reasons.
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