IMO the Will of Margaret Szadovszky, deceased
[2019] VSC 85
•5 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
IN ITS PROBATE JURISDICTION
S PRB 2017 00903
IN THE MATTER of the Will of MARGARET SZADOVSZKY, deceased
- and –
IN THE MATTER of an application under section 65 of the Administration and Probate Act 1958
APPLICATION BY:
| JOHN NICHOLAS ZIGOURAS | Plaintiff |
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JUDICIAL REGISTRAR: | Englefield JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 December 2018 |
DATE OF JUDGMENT: | 5 March 2019 |
CASE MAY BE CITED AS: | IMO the Will of Margaret Szadovszky, deceased |
MEDIUM NEUTRAL CITATION: | [2019] VSC 85 |
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EXECUTORS COMMISSION – Straightforward administration – Solicitor executor – Consent of beneficiary to payment of administration’s legal fees – Delay in issuing commission application – Disclosed opinion of counsel - Administration and Probate Act 1958 (Vic) s 65.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Cook | S.V. Winter & Co |
| For Frank Szadovsky, the sole beneficiary | Mr J Tohme, solicitor | Whiting Lawyers |
JUDICIAL REGISTRAR:
Introduction
By summons filed 9 August 2018, the plaintiff, John Nicholas Zigouras (‘executor’), seeks an order for executor’s commission pursuant to section 65 of the Administration and Probate Act 1958 (Vic) (‘Act’).
Margaret Szadovszky (‘deceased’), died on 26 November 2016, a widow, aged 92, who left one surviving child, a son, Frank John Szadovsky. By her last will, made on 14 January 2009, the deceased left the whole of her estate, valued at around $1.77 million, to her son.
The Claim
The executor seeks 1.5% of the capital and income of the estate, less the amount paid from the estate to the executor’s legal firm for professional services in obtaining the grant of probate and the estate administration, being $7,699.50.[1] The executor’s claim results in a figure of $26,542.90.
[1]The invoice, exhibit JZ-4 to the executor’s first affidavit, includes disbursements of $289.03.
The application was referred to me to hear and determine by order of His Honour Derham AsJ, made on 14 August 2018. [2]
[2]Pursuant to Rule 84.04(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
The executor relies on two affidavits, the first affirmed on 8 August 2018 (‘executor’s first affidavit’) and the second affirmed on 12 December 2018 (‘executor’s second affidavit’).
Pursuant to Orders made on 9 October 2018, the son filed grounds of objection on 30 November 2018 and two affidavits, one sworn by him on 29 November 2018 (‘the son’s affidavit) and one by his solicitor, David Edward Whiting, sworn 29 November 2018 (‘Whiting’s affidavit’).
Estate Administration
The key factor in this application was that the deceased died in the period after the sale of her home and the purchase another residential property, but prior to either settlement. The following chronology[3] may assist in understanding the sequence of events:
[3]Much of this chronology is taken from exhibit DEW-9 to Whiting’s affidavit, which was generally accepted by Counsel for the executor at the hearing: see Transcript of Proceedings, IMO the Will of Margaret Szadovszky, deceased (Supreme Court of Victoria, Englefield JR, 17 December 2018) (‘T’) T3,29 to T6,14.
8 June 2016 The son’s appointment as the deceased’s administrator under the Guardianship and Administration Act1986 (Vic) is reassessed and affirmed by the Victorian Civil and Administrative Tribunal (‘VCAT’) 21 June 2016 The VCAT makes an order authorising the son to sell the deceased’s home, at 28 Guildford Road Surrey Hills (‘Surrey Hills property’). 3 September 2016 The Surrey Hills property is sold for $2,009,000. 8 November 2016 The VCAT makes an order authorising the son to use the sale proceeds of the Surrey Hills property to apply up to $300,000 for the deceased’s aged care needs and up to $1,400,000 to purchase a property or two properties in the deceased’s ‘name’. 13 November 2016 The son signs a contract to purchase 3 South Seas Place, Patterson Lakes (‘Patterson Lakes property’) for $1,220,000.00. 26 November 2016 The deceased dies. 7 December 2016 The son’s solicitor wrote to the executor, providing copies of the documents for the sale and the purchase. 19 December 2016 The son’s solicitor wrote to the executor, providing copies of the orders of the VCAT made 21 June and 8 November 2016 (‘VCAT orders’). 20 December 2016 The son’s solicitor advises the executor of the extension of the settlement date of the Patterson Lakes property from 13 January to 13 March 2017, with a licence to occupy this property for the son and his family during this period from the vendor. 6 February 2017 Probate granted. 13 March 2017 The purchase of the Patterson Lakes property settles after payment of interim distribution of approximately $1,168,000.00 from the estate on 9 March 2017.
In essence, in the period immediately following the death of the deceased, the executor was concerned about the propriety of the son’s purchase of the Patterson Lakes property and potential claims against the estate; while the son was concerned to avoid loss of deposit or other costs associated with being unable to settle the sale and the purchase. There was some urgency in the situation. The son’s solicitor sensibly negotiated an extension of the settlement of the Patterson Lakes property and a license to occupy for the son from the vendor, which obviated the crisis. The executor promptly applied for probate and a grant was made on 6 February 2017, allowing him to gather the settlement proceeds of the Surrey Hills property from the deceased’s bank account and release the settlement sum for the purchase of the Patterson Lakes property on 9 March 2018, four days before the deferred settlement was due. Significant potential costs and disruption were avoided.
Legal Principles
9 Section 65(1) of the Act provides:
it shall be lawful for the Court to allow out of the assets of any deceased person to his executor ... such commission or percentage not exceeding Five per centum for his pains and trouble as is just and reasonable.
‘Pains’ is considered the ‘responsibility, anxiety, and worry’ connected to the role of executor, while ‘trouble’ is the actual practical work of the administration.[4]
[4]In the estate of Stone (deceased); Patterson v Halliday [2003] VSC 298; Re Buckingham [2016] VSC 757 (‘Re Buckingham’).
The general approach is that, unless an objector establishes otherwise, an administration will be presumed to be on proper lines and the executor will be granted commission.[5] In Atkins v Godfrey,[6] Le Miere J explained the policy principle underlying that general approach as follows:
It may be that in times gone by there were more people with the leisure and resources to take on unremunerated trusteeships. However, in contemporary times the payment of executors’ remuneration is conducive to the good administration of estates. An executor is more likely to be able to devote the time and resources to the proper administration of an estate if he or she is remunerated for doing so.
[5]Eric Vance, Executors Commission (Law Book Company, 1969) 150 (‘Vance’); adopted in Re Joe White, deceased; Tweedie v Attorney General [2003] VSC 433 per Kellam J and Re Buckingham per McMillan J.
[6][2006] WASC 83, [17].
In assessing commission, the responsibility of the role as executor needs to be sufficiently taken into account, as well as the performance and complexity of the various tasks required to complete the administration. This may be emphasised in the case of legal practitioners who act as executors, as set out by Her Honour Daly AsJ in IMO Foster[7] at [28]:
Section 65 of the Act recognises that the role of an executor is, of itself, a burden upon those who accept that responsibility. While a professional person such as a solicitor may be better equipped and supported than others to assume this responsibility, the converse argument is that professional people often lead busy, demanding lives. Assuming the responsibilities of an executor of an estate displaces time which an executor might be otherwise available to him or her to attend to their professional and private affairs. Executors who are solicitors who spend time and effort in the administration of an estate which is not adequately compensated for by the legal fees charged by their firms for work carried out on behalf of an estate, are just as entitled to compensation by way of commission as executors who are not legal practitioners.
[7]IMO Will and Estate of William Creswell Foster [2012] VSC 315.
However, where legal practitioners take on the role of executor and seek remuneration whether by way of legal fees or executor’s commission or both, principles relating to proper disclosure and avoiding conflicts of interest and duty have particular application. Following recommendations made by the Law Reform Commission of Victoria in its report on succession law in 2013, amendments to the Act were passed in September 2017.[8] Among other things, these amendments, gave the Court power to enquire into and reduce executors’ commission, legal fees and charges in certain circumstances.[9] While not applicable here, for wills executed on or after 1 November 2017, executors now have significantly enhanced duties of disclosure about legal fees and commission to both the testator and, later, the beneficiaries of the estate.[10]
[8]Administration and Probate and Other Acts Amendment (Succession and Related Matters) Act 2017 (Vic).
[9]Section 65A of the Act.
[10]Section 49A of the Wills Act 1997 (Vic); sections 65B, 65C, 65D and 106 of the Act.
The award of commission is discretionary. The task is first to determine the amount of commission that is adequate for the executor’s pains and troubles, then convert it to a percentage.[11] Therefore, where only a small amount of work is required in a simple administration, the percentage may be low.[12] The exercise of judgment, the extent of activities, the benefit to the beneficiaries and time involved all weigh into consideration, alongside the capacity of the estate to pay.
[11]Vance (n 5) 182.
[12]Re Estate of D A Lindsay [2004] NSWSC 578, [15].
Pains and Troubles
In many ways this was an extremely simple administration. There was no need to arrange the sale of the home, instruct at an auction, clear personal possessions, sort private papers, sell a car, re-home pets, ascertain uncertain financial or taxation information or even arrange the funeral. There was no litigation.
The pressure and responsibility of the role as executor in this estate essentially arose due to the fact that the deceased died when settlement of the sale of her home and the settlement of the purchase of a substitute property was pending.
The executor, the son and the son’s solicitor needed to act quickly to resolve the situation without loss to the estate, in the best interests of the son as its sole beneficiary. The executor was offered an opportunity to renounce, but took on the responsibility and burden of the role when he knew that a substantial early interim distribution was being sought and, had any meritorious claims being made against the estate beyond the balance retained in the estate, personal liability may have arisen.
The executor is an experienced, practising solicitor and, as a skilled professional, ought to be more able to bear the burden of urgency, initial uncertainty and undertake an assessment of the risks and obligations than person without such qualifications and experience. Nonetheless, this may be an estate where there was a greater burden in the ‘pains’ or responsibility, than in the ‘troubles’ or time and tasks undertaken.
The executor states he devoted more than 29 hours to the administration.[13] Despite affirming two affidavits, there are no details before the Court as to how this time was spent. No application was made to adjourn the hearing for further material.[14]
[13]Paragraph 14(10) of executor’s first affidavit.
[14]T 83,20 –T 85,6.
Seeking the Beneficiary’s Consent
All executors must seek the consent of fully capable, adult beneficiaries prior to making an application to the Court for commission. Indeed, under amendments to the Act (which do not apply here) there is a statutory requirement to seek ‘informed consent’ and the information required to be given to secure such informed consent is prescribed.[15]
[15]Sections 65C and 65D of the Act.
On 17 July 2017, the executor wrote to the son and, among other things, stated that the executor ‘will be charging’ executor’s commission of 1.5% of $2,015,214.05, or $30,228.21, and enclosed an administration account that subtracted that sum from the estate.[16] It was addressed to the son in circumstances where he was represented by a firm of solicitors. It did not advise him to seek independent advice nor did it explain section 65 of the Act. The form of this letter was impermissible and is not capable of producing any valid consent. Counsel for the executor submitted that any flaws in this letter were cured by the son obtaining independent advice from his solicitor. That may be correct, but legal practitioners who are executors should be particularly mindful of their obligations as fiduciaries when seeking consent to commission and must ensure that they fully and properly inform beneficiaries of their rights and options.[17] If section 65D(5) of the Act applied, different considerations would have arisen.
[16]Exhibit DEW-6 to Whiting’s affidavit.
[17]Re Estate of ZsuzannaGray [2010] VSC 173 (‘Gray’), [32]; Walker v D’Alessandro [2010] VSC 15.
The Legal Fees of the Administration
The executor’s legal firm acted in the administration of the estate and charged $7,699.50 in legal fees to the estate (‘legal fees’). The Will does not contain any clause permitting the executor to engage his own legal firm and to charge full professional legal fees, including a profit margin. The role of executor is a fiduciary one. Therefore, the executor, by retaining his firm, is in a fundamental conflict of interest and duty and would be unable to pay legal fees from the estate to his firm in the absence of fully informed consent of the beneficiary.[18] The son, represented by independent solicitors throughout the administration, has given fully informed consent to the legal fees.
[18]Chan v Zacharia (1984) 154 CLR 178; Boardman v Phipps [1967] 2 AC 134.
However, an executor is not permitted to charge legal fees and seek commission for the same work.[19] The son’s solicitor made numerous requests for an itemised bill of costs to ensure that there was no ‘double dipping’, i.e. seeking commission for pains and trouble already remunerated by way of legal fees. [20]
[19]Gray [38]; Richards v Richards [2015] VSC 335, [29] (‘Richards’);Re will and estate ofMacleod [2017] VSC 67, [48]; Re Mountney [2017] VSC 364, [49].
[20]Paragraph 18 of Whiting’s affidavit.
The executor properly conceded that the full amount of the legal fees ought to be deducted from any commission that might be ordered, including the charges for such things such as the application for probate itself. This was quite right as the executor could not seek any apportioning of his firm’s fees between legal work and executorial tasks in circumstances where he had failed to produce an itemised bill despite numerous requests to his solicitors.[21] Similarly, the son withdrew his demand for an itemised bill, as the question of ‘double dipping’ had been neutralised by the sensible concession of the executor. The son expressly maintained his consent to the quantum of these costs.[22]
[21]The executor had an independent firm of solicitors represent him in this application from July 2017.
[22]T 60,28-T 61,28.
The legal fees were charged pursuant to the Practitioners Remuneration Order 2016 (‘PRO’), which allowed attendances requiring the exercise of skill or legal knowledge at $51.50 to $95.10 per quarter hour. Taking a broad brush approach, the total bill equates to roughly 20 to 37 hours, if it were all attendances. As a percentage of the gross estate collected by the executor, the legal fees amounts to 0.43%. However, as well as the application for probate, the legal fees includes charges for work such as the preparation for the cheques for the settlement of the purchase of the Patterson Lakes property. If to any degree subtracting the entire bill acts to the executor’s disadvantage, this is acceptable as it is a direct result of the executor’s own failure to provide an itemised bill.
Counsel’s Opinion
The executor obtained a written opinion from counsel with experience in this field, dated 8 February 2018 (‘opinion’), and provided it to the son and to the Court.[23] Unfortunately, it is unclear whether counsel was briefed with copies of the VCAT orders authorising the sale of the Surrey Hills property and the purchase of the Patterson Lakes property, as the orders are not referred to in the opinion. The opinion describes the son’s sale of his mother’s home and committing to the purchase of another property as ‘reckless’ and describes the son as ‘the author’ of significant pains and troubles, without reference to the son’s authorisation by the VCAT.
[23]Exhibit JNZ-1 to the executor’s second affidavit.
Nonetheless, the opinion concludes that the executor may not expect commission at 1.5% of the estate. Instead, the opinion gives a range of .5% to 1%, and possibly less than .5%. Further, the opinion says that the estate was valued at $2,015,214, which is the inventory value. In fact, the estate that passed through the executor’s hands is valued at $1,777,226.34 in the administration account dated 26 June 2018. Finally, the opinion states that there was ‘no doubt’ that charging legal costs of ‘nearly $8,000’ would reduce the quantum of commission.
Clearly, the range given by the opinion must be discounted when the VCAT orders are taken into account.
Criticisms of the conduct of this Application
The son makes a number of criticisms of the executor that may more properly relate to the conduct of this application, rather than being objections to the manner in which the executor administered the estate.
The executor’s first affidavit contains factual errors which required correction so that the son’s material was longer and more detailed than it would otherwise need to be. These errors were against the interest of the executor. For example, reading the executor’s first affidavit leaves the impression that the settlement of the purchase of the Patterson Lakes property may have been disrupted. In fact, the executor had, once he had acquainted himself fully with the situation, acted cooperatively and promptly in the administration of the estate.
The son also criticised the executor for failing to provide full instructions on the VCAT orders in the brief to obtain the opinion. Unless the brief to counsel were read, it is impossible to be certain who is a at fault, did counsel who gave the opinion misread the brief, did the executor’s independent solicitors fail to give proper instructions to advise, or was the executor otherwise responsible? The opinion was obtained for the executor personally and its cost will be borne by the executor and not from the estate. Finally, despite not dealing with the VCAT orders, the opinion should still have been helpful to the executor in respect to the quantum of his claim for commission.
The son objected to the amount retained in the estate pending finalisation of the taxation and this claim. The executor had distributed over $1.72 million by 26 July 2017. On 25 June 2018, a further $12,777.83 was distributed and a final amount of $54,000 is held pending this claim. The son says the amount of $12,777.83 should not have been retained until 25 June 2018, but distributed over a year earlier. An executor is entitled to retain an amount sufficient for a claim for commission at the end of the administration. Commission is an expense of the estate, payable out of assets like any other expenses, and is incapable of being paid if the estate is fully distributed.[24] Neither the retention of the $12,777.83 nor its subsequent release is explained. If the executor formed the view that he retained an amount in excess of what was required for this claim and taxation, then releasing it to the beneficiary was the proper course. The executor is permitted some margin for error, without reduction in commission, where an irregularity is not flagrant and has not caused loss to the estate.[25] In the circumstances, I do not consider the retention of this sum for the period of 11 months as significant.
[24]Vance (n 5) 9, 221.
[25]Vance (n 5) 219 - 221.
The appalling failure to produce an itemised bill despite six written requests to the executor’s solicitors, is more a criticism of the conduct of this application than of the administration of the estate, especially as the quantum of the legal fees remains agreed. While the son may not have been the ‘client’ or a ‘third party payer’ under the usual costs regime, an itemised bill should have been provided in accordance with the obligations imposed by the Civil Procedure Act 2010 (Vic), as without an itemised bill it is impossible to assess whether or not there was any ‘double dipping’ in this claim. In addition, failing to provide details of the legal fees to a beneficiary is a breach of the duty to keep the beneficiary informed and to act in good faith.[26] If section 65D of the Act applied, the executor would have been obliged to volunteer full details of any fees and the right to review under the Act.[27] However, this aspect of the claim was resolved by mutual concessions, as discussed above at [24].
[26]Richards [116]; Gray [33].
[27]Section 65A(2)(a)(i) of the Act.
Delay in issuing this application was rightly criticised. The executor should have made prompt application. This claim was issued 12 months after it was foreshadowed.[28] However, the administration of the estate itself was fully completed within nine months of the date of death of the deceased, well within the executor’s year. The delay in issuing this application will be taken into account in exercise of the discretion to award commission. It is not acceptable to hold up the finalisation of the estate, without excuse over an extended period, for the sake of a claim for the personal benefit of the executor.
[28]Exhibit DEW-8 to Whiting’s affidavit.
The executor’s material in this application seeks to amplify the claim for commission on the basis of various allegations about the son’s behaviour and its impact on the professional executor. These descriptions of the son’s behaviour are rejected. The son was placed in a highly stressful situation by the unfortunate timing of his mother’s death, but I find that both he and his legal representative acted reasonably throughout.
The Open Offer
By letter from his solicitor dated 25 July 2017, the son made an ‘open offer’ of $5,000.00 to the executor as commission, in addition to the retention of the legal fees, ‘solely’ to avoid costs and expenses to the son of a commission claim.[29] This was rejected by letter from the executor’s independent solicitors by letter dated 2 August 2017, which foreshadowed this application.[30] This open offer is relevant to the question of the costs of this application.
[29]Paragraph 11 of Whiting’s affidavit.
[30]Exhibit DEW-8 to Whiting’s affidavit.
Conclusion
The central requirement of section 65 of the Act is that commission be ‘just and reasonable’. This was a straightforward administration, once the settlement date for the Patterson Lakes property was extended. The executor has received remuneration for his personal time and efforts by way of charging legal fees, which total an amount roughly equivalent to .43% of the gross value of the estate. In all the circumstances, I determine that the application for commission be dismissed.
In my preliminary view, the executor ought bear his own costs personally and pay the son’s costs, taxed in default of agreement. I will, nevertheless, give the parties an opportunity to make submissions as to the costs in the event there is any matter that affects my preliminary view.
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