Hering & Anor v Wells
[2008] VSC 362
•16 September 2008
IN THE SUPREME COURT OF VICTORIA Do not send for reporting
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
IN THE MATTER of the Will and Estate of EDITH MATILDA HERING
No. 4471 of 2006
| GRAEME WALLIS HERING and ROSALIE ANNE VLEK (Executors of the estate of Edith Matilda Hering) | Plaintiffs |
| and | |
| JANNETTE RAE WELLS | Defendant |
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JUDGE: | Hollingworth J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 July 2008 (further submissions received in August 2008) | |
DATE OF RULING: | 16 September 2008 | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 362 | |
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Practice and procedure – Costs – Executors’ entitlement to certain legal costs out of estate
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | In person | |
| For the defendant | In person | |
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HER HONOUR:
Introduction
The parties to this proceeding are siblings. This application is the latest in a costly and long-running dispute between the parties, relating to the estate of their late mother, Edith Matilda Hering.
Until shortly before her death, Mrs Hering lived in South Australia. The defendant, Ms Wells, held a power of attorney for Mrs Hering from around January 2001 until some time in 2004. Around September 2004, Mrs Hering moved to Melbourne. The plaintiffs, Mr Hering and Ms Vlek, held Mrs Hering’s power of attorney from 2004 until her death on 9 June 2005.
On 22 September 2005, the plaintiffs were granted probate and became executors of the estate. Mrs Hering’s will divides her residual estate evenly between her three children, Mr Hering, Ms Vlek and Ms Wells.
On 3 February 2006, the executors issued this proceeding, seeking orders that Ms Wells account to the estate in relation to transactions entered into by her, on behalf of Mrs Hering, whilst she held power of attorney. They also sought a declaration that certain Queensland property, bought in Ms Wells’ name, was held on trust for the estate.
In their original affidavits, the executors alleged, amongst other things, that Ms Wells had misappropriated Mrs Hering’s funds and used them for her own benefit. Ms Wells filed her own affidavit material, rejecting all of the allegations of impropriety.
Over the next year, the proceeding went through various interlocutory steps. Shortly before a mediation in September 2006, the executors issued an application seeking further discovery from Ms Wells, which was adjourned several times. On 5 February 2007, Ms Wells’ then-solicitor filed an affidavit, stating that Ms Wells had provided some further documents to the executors under protest. It seems that the question of whether the executors should file and serve a statement of claim, setting out in detail their specific allegations, was first raised around this time.
On 8 March 2007, a master found that Ms Wells had provided adequate discovery, and the application for further discovery went no further. The master also refused an application by the executors for an order for the taking of accounts on an interlocutory basis. The executors filed a notice of appeal against the master’s refusal to order accounts; however, their appeal appears to have been abandoned.
On 1 May 2007, the executors’ solicitors, Harding & Co, filed a notice that they no longer acted for the executors. One or both of the executors appeared in person at subsequent directions hearings. On 16 August 2007, the executors’ new solicitors, Best Hooper, filed a notice that they had commenced to act.
On 25 May 2007, a master made orders on an application by Ms Wells that, if the executors did not file and serve a statement of claim by 27 August 2007, the proceeding would be dismissed. The executors did not deliver a statement of claim by that date. The executors’ claim was automatically dismissed on 27 August 2007.
Even though they have effectively abandoned their claim, because of a lack of any real evidence of wrongdoing by Ms Wells, the executors nevertheless persisted in making allegations of impropriety against their sister, in correspondence and before the court. Their persistence in making such allegations, in the face of a lack of evidence, and their unreasonable refusal to agree to pay Ms Wells’ legal costs, played a role in some of the past costs orders which I have made.
Costs of the proceeding
On 30 April 2008, Ms Wells filed a summons seeking orders that:
(a) The executors pay her costs of the proceeding, and those costs be applied out of their two-thirds share of the estate;
(b) The executors provide audited estate accounts; and
(c) The executors remove the caveats which they had placed on her Queensland properties the subject of the proceeding, at their own cost.
The matter came first before me in the Practice Court on 22 May 2008. All parties were self-represented. On that day, after lengthy discussion with the parties, I made orders by consent requiring the executors to remove the caveats and file a proper administration account, and Ms Wells to provide a spreadsheet of her legal costs and a copy of supporting documentation. Ms Wells’ application for costs was adjourned to 9 July 2008.
For a brief period between the 22 May and 9 July hearings, the executors obtained legal representation from Ann E Gambetta & Associates. However, on the day before the July hearing, the court was told that the executors’ solicitors were no longer acting; accordingly, all parties appeared in person on 9 July.
By 9 July, Ms Wells had provided the necessary spreadsheet and supporting documentation in relation to her legal costs. The executors had provided administration accounts, which indicated, amongst other things, that they had paid certain legal costs out of the estate, without any court order entitling them to do so. On 9 July, the executors also produced in court a large volume of estate accounting documents. At the May hearing, they had told the court that they did not have those documents, because they had been lost by one of their former solicitors. Because of the late production of those documents, there was no real opportunity for Ms Wells or the court to consider them on 9 July.
On 9 July, I made a number of orders regarding both sides’ legal costs being paid out of the estate. Those orders reflect the fact that, in essence, I regarded the executors as having acted reasonably up to the start of March 2007, and unreasonably thereafter. In saying that they acted reasonably, I am expressing no opinion as to the competing evidence about the underlying transactions; rather, I mean that as executors they were entitled to take certain steps to protect the estate, pending a full consideration of the underlying transactions.
By March 2007, the executors had obtained complete discovery from Ms Wells and should have abandoned their claim against her. Instead, presumably motivated by the personal antagonism which has been evident during my handling of this case, they continued to incur legal costs and were unable or unwilling to come to a sensible arrangement with respect to Ms Wells’ costs.
Relevantly for present purposes, I ordered that the executors’ legal costs up to 1 March 2007, in so far as they could be substantiated, be paid out of the estate on a full indemnity basis. Because Ms Wells had not had an opportunity to consider the estate documents before the hearing, and in order to avoid the estate being further reduced by the costs of taxation by the taxing master, I put in place the following procedure for determining which legal costs the executors were entitled to have paid out of the estate:
(a) By 22 July 2008, the executors provide Ms Wells with a copy of all invoices, accounts and any other supporting documentation upon which they rely to substantiate their legal costs of and incidental to the proceeding up to 1 March 2007;
(b) By 5 August 2008, Ms Wells inform the executors in writing whether she asserts that all or any part of the executors’ legal costs up to 1 March 2007 has not been substantiated (“Disputed Account”);
(c) By 19 August 2008, the executors:
(i) Inform Ms Wells and the court in writing whether they wish to pursue any Disputed Account, and, if so, on what basis; and
(ii) Provide to the court a copy of all correspondence between the parties, and all supporting documents, relating to any such Disputed Account.
(d) If the executors do not comply with order (c), the amount of any such Disputed Account must be repaid by the executors back into the estate, by 2 September 2008; and
(e) If the executors do comply with order (c), the court will determine, on the papers, whether any Disputed Account has been substantiated. If the court determines that any of the Disputed Accounts have not been substantiated, the executors are to repay any such amounts into the estate within 14 days of being advised of the court’s determination.
For the purpose of this procedure, I determined that legal costs would be considered to have been “substantiated” only if an account or supporting documentation was provided, which established that legal services have been rendered, the services related to the proceeding, the account has been paid, and the services were provided before 1 March 2007.
The Disputed Accounts
By letter dated 1 August 2008, Ms Wells advised the executors that she disputed a number of items in the administration accounts. Some of those items do not relate to legal costs, and are discussed below. By letter dated 13 August 2008, the executors responded to her claims.
Insofar as those claims are for legal costs, Ms Wells still disputes the following.
The sum of $1,100 paid to Macpherson & Kelley in 2005
In the administration accounts, the executors list the sum of $1,100 as having been paid to Macpherson & Kelley on 13 July 2005 “on account of legal costs”.
Ms Wells claims that this sum was invoiced personally to the executors and that the charges relate to power of attorney issues, not legal costs of this proceeding.
The executors claim that the account was the result of consultations with Macpherson & Kelley in which they requested advice about their duties as executors in relation to Ms Wells’ actions when she was attorney. The executors say they sought legal advice from Macpherson & Kelley as to potential causes of action the estate may have against Ms Wells.
However, in support of their claim for this sum, the executors have not produced to the court any invoice or receipt for $1,100. They have only produced an invoice from Macpherson & Kelley, dated 29 March 2005, in the sum of $434.50. It is headed “advice in relation to power of attorney” and relates to work between 10 January 2005 and 29 March 2005. It is not clear from the invoice itself whether the advice relates to the power of attorney held by the plaintiffs, or the earlier one held by Ms Wells.
More importantly, the invoice is for legal services provided before Mrs Hering’s death in June 2005. March 2005 was approximately six months before the plaintiffs were appointed as executors and almost a year before this proceeding was commenced.
The executors have produced no documentary support for their claim for $1,100. Even if I were to treat this as a claim for $434.50, they cannot recover this as executors’ costs of and incidental to the proceeding, at a time when they were not executors and their mother was still alive.
It follows that the executors must repay the sum of $1,100 to the estate.
The sum of $3,228.50 paid to Harding & Co on 16 February 2006
The administration accounts refer to a payment on 16 February 2006, of an account dated 14 February 2006, in the sum of $3,228.50.
Ms Wells says she was not provided with any account or supporting documentation in relation to this payment.
In response, the executors produced to the court a copy of an invoice from Harding & Co, dated 14 February 2006, which they say they have previously provided to Ms Wells.
The invoice appears to cover legal costs relating to the issuing of this proceeding, the payment has been substantiated and the executors are entitled to retain this amount from the estate.
The sum of $3,371.50 paid to Harding & Co on 21 March 2006
The administration accounts refer to a payment on 21 March 2006, of an account in the sum of $3,371.50.
Ms Wells claims she was not provided with any account or supporting documentation in relation to this payment.
The executors say that their former solicitors, Harding & Co, were unable to provide a replacement copy of an invoice for this sum. However, they have produced a trust account statement showing the deduction of this sum from the estate funds held by Harding & Co. The statement is dated 28 February 2007, is headed “The Estate of Edith Matilda Hering”, and shows a deduction of that sum “To Harding & Co on account costs and disbursements”.
I am satisfied that the payment has been substantiated and the executors are entitled to retain this amount from the estate.
The sum of $3,168.00 paid to Harding & Co on 16 April 2007
The estate accounts show a payment of $3,168 to Harding & Co on 16 April 2007.
Ms Wells says that, because this sum relates to legal work completed after 1 March 2007, the executors are required to pay it personally.
The executors concede, and an examination of the invoice confirms, that the 16 April 2007 invoice does all relate to work done after 1 March 2007. The executors say that the sum has been paid back to the estate, less the discount that Mr Hering negotiated with the solicitors from the final account. The amount of the discount is $1,298.37. The executors have apparently repaid $1,869.63 to the estate account on 24 July 2008 (being $3,168 less the discount of $1,298.37).
There is a dispute as to whether the executors are entitled to the entire benefit of the discount, or whether it should be spread over other Harding & Co accounts, covering periods before and after 1 March 2007.
The following are the relevant facts:
(a) As at 16 April 2007, after taking into account certain credit amounts, a total sum of $17,298.37 was still owing to Harding & Co in respect of their invoices dated 21 November 2006 ($2,430.07), 28 February 2007 ($21,700.30) and 16 April 2007 ($3,168.00);
(b) Harding & Co rounded the final amount owing down to $16,000, thereby giving a discount of $1,298.37 in respect of those outstanding bills; and
(b) On or around 19 April 2007, Harding & Co were paid $16,000 in final settlement of the executors’ indebtedness.
The executors assert that the discount should be applied only against the 16 April 2007 invoice. But there is nothing, beyond the executors’ mere assertion in their letter to the court dated 13 August 2008, to suggest that the discount should be applied only to the 16 April 2007 invoice. In particular, there is no evidence from the solicitors that they treated or agreed to treat the discount that way.
The effect of the executors’ accounting treatment is to give them the full benefit of the discount, by reducing the amount they have to repay to the estate for post-March legal fees.
Given the lack of supporting evidence, I agree with Ms Wells that fairness dictates the discount should be applied to all three Harding & Co accounts listed in the 16 April statement, which total $27,298.37, not merely to post-March amounts.
The 16 April 2007 invoice amount of $3,168.00 is 11.6% of the total amount of the final three invoices. If the same percentage is applied to the discount, that means that only $150.61 of the discount is attributable to the post-March account; the remainder of the discount, $1,147.76, will be treated as applied against the pre-March invoices.
This means that the executors must repay $1,147.76 of the discount to the estate.
Conclusion on legal costs
In summary, the court will order that the executors repay to the estate, within 14 days of being advised of this determination, the following sums:
(a) The sum of $1,100.00, being the amount claimed in respect of the 2005 Macpherson & Kelley fees; and
(b) Any remaining balance of the sum of $3,017.39 in respect of the Harding & Co invoice dated 16 April 2007. As the executors have in fact already repaid the sum of $1,869.63, then they must only repay the additional sum of $1,147.76, being that portion of the discount to which they were not entitled.
Other claims
In her letter to the court dated 1 August 2008, Ms Wells asks that the executors be required to refund to the estate certain bank fees, a refund from Whitecross Care Group, and withdrawal of caveat fees from the Queensland Land Titles Office. These sums total almost $1,200.00.
Ms Wells says that, through the executors’ delay in finalising Mrs Hering’s estate, the estate has incurred an unnecessary tax liability, which she believes the executors should pay. She also asserts that certain accountant’s fees are excessive and possibly a duplication. In her letter dated 20 August 2008, Ms Wells asks the court to consider making an order that the executors pay personally the estate’s tax liability and accountant’s fees incurred after 1 March 2007.
Through a document titled “notice to produce” annexed to her 1 August letter, Ms Wells also asks the executors to account for the whereabouts of various amounts withdrawn from estate accounts.
In their letter to the court dated 13 August 2008, the executors respond to Ms Wells’ claims in relation to the estate’s tax liability and the accountant’s fees. They say that Ms Wells’ claims are beyond the scope of the orders made on 9 July 2008.
If the court is prepared to consider Ms Wells’ further claims, the executors ask that the court also consider a claim that they be allowed from the estate bank fees from the date of death to 31 May 2008, and $852.71 for the purchase and installation of an air conditioner used by Mrs Hering before her death. They have also asked the court for advice as to when they should pay the estate’s tax liability.
In asking the court to adjudicate on these sorts of items (except for the fees for the removal of the caveats), the parties have fundamentally misunderstood the court’s role in this proceeding. This is not a proceeding relating to general supervision of the estate and the executors’ actions in relation to it, or to the parties’ entitlement to amounts paid before their mother’s death. It is a proceeding relating only to the executors’ specific claims against Ms Wells.
I have effectively ruled that the executors acted reasonably in relation to this proceeding up until 1 March 2007, including by placing the initial caveats to protect the estate. The costs of removing those caveats, once it became apparent they could not be sustained, should also be paid out of the estate.
Otherwise, it is not the court’s role in this proceeding to assess, and then approve or reject, individual payments in respect of the estate, save in so far as they relate to the legal costs of and incidental to the current proceeding. Nor can the court give advice as to when tax should be paid. Accordingly, I will not be ruling in relation to any of those other items or any similar disputes that may arise.
Given that the parties no longer have legal representation, I wish to make a final observation, intended to be for the benefit of both sides. It is obvious that there is a deep and long-standing antagonism between the parties. Unfortunately, that has resulted in much of their mother’s estate being spent on legal fees, fighting each other. The amounts which are still in dispute between the parties are not substantial. I strongly urge the parties to try to negotiate a sensible commercial resolution to their outstanding disputes, rather than spending more money on legal proceedings.
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