In the matter of the will of June Beryl Buckland
[2010] VSC 649
•4 May 2010
B
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
IN ITS PROBATE JURISDICTION
No. S CI 2009 00050P
IN THE MATTER of the Will of JUNE BERYL BUCKLAND (Deceased)
| Application by ANITA LOUISE SOUTH | Applicant |
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JUDGE: | Gardiner AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 March 2010 | |
DATE OF JUDGMENT: | 4 May 2010 | |
CASE MAY BE CITED AS: | In the matter of the will of June Beryl Buckland | |
CASE MAY BE CITED AS: | IMO Will of June Beryl Buckland | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 649 | |
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EXECUTOR’S COMMISSION ― Application pursuant to s 65 of Administration and Probate Act 1958(Vic) ― Award of commission opposed by two beneficiaries ― Criticism of executor in conduct of executorship ― Executor awarded commission.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr R. Cook | Hunts |
| For the Respondents | Mr S. McNab | Rigby Cooke |
HIS HONOUR:
On 24 February 2006, June Buckland died at the age of 81 years. She made a will dated 5 August 1985.
The plaintiff, Anita Louise South (‘Ms South”) and Lawrence John Buckland were named as executors in the will. Shortly after the death of the deceased, Lawrence Buckland, who was a cousin of Ms South and a nephew of the deceased, died. In September 2006, probate of the will of the deceased was granted to Ms South.
On 13 May 2009, Ms South made application by summons pursuant to s 65 of the Administration and Probate Act 1958 (Vic) (“the Act”) for executor’s commission. That section provides:
It shall be lawful for the Court to allow out of the assets of any deceased person to his executor, administrator or trustee for the time being such commission or percentage not exceeding five per centum for his pains and trouble as is just and reasonable.
Ms South’s application is supported by affidavits sworn by her on the following dates:
(a)5 May 2009.
(b)12 September 2009.
(c)18 March 2010.
On 25 June 2009, Evans AsJ made orders requiring Ms South to serve copies of the application and the affidavit material in support of her application on each of the beneficiaries of the deceased affected by the application for commission.
The will provides that, after payments of debts, expenses and taxes, the residuary estate be distributed to the deceased’s nephews and nieces, being Lawrence Buckland, Ms South, Victoria Hobby, Clive Buckland, Stephen Kentwell and Phillip Kentwell. The will also made bequests to Lawrence Buckland of a stereo system and phonograph records, and to Ms South of a grandfather clock. Ms South’s two children also received a specific bequest of an investment in Australian Guarantee Corporation Limited.
Two beneficiaries under the will, Stephen Alistair Kentwell and Phillip Charles Kentwell, have filed notices of appearance indicating that they objected to the application by Ms South. They rely on the following affidavits in support of this position:
(a)Stephen Alistair Kentwell sworn 13 August 2009.
(b)Phillip Charles Kentwell sworn 24 August 2009.
(c)Clive Buckland sworn 11 November 2009.
(d)Stephen Alistair Kentwell sworn 22 October 2009.
(e)Stephen Alistair Kentwell sworn 23 March 2010.
(f)Clive Buckland sworn 23 March 2010.
In the written submissions prepared by their counsel, Mr McNab, it is indicated that Messrs Kentwell are “prepared to see [Ms South] paid whatever commission is fair and reasonable in all the circumstances” but that… “a commission of 3% of an estate of this size [is] excessive in all the circumstances.”
Current accounts of the estate have been exhibited to the affidavit of Ms South sworn 18 March 2010. That document, Exhibit ALS-1 to that affidavit, states that there were corpus receipts of $2,817,779.53. Of that sum, $165,015.70 remains in a Westpac account. The balance has been distributed to the beneficiaries and creditors of the estate. The income account for the estate states there have been receipts of $2,203,872.49, from which there have been disbursements of $2,080,012.90.
The beneficiaries, other than Messrs Kentwell, do not actively oppose the application but they have not filed consents as contemplated by the Administration and Probate Rules 2004. They are apparently prepared to accept to any award of commission made by the Court.
The applicant’s evidence
The principal affidavit of Ms South, that sworn on 5 May 2009, sets out the work she has performed in her role as executor. She states that all the debts and liabilities of the estate have been paid except for the balance of accountants’ and solicitors’ fees, charges in respect of the present application and the amount, if any, to be awarded for executor’s commission and costs as a result of the present application.
Ms South details the “pains and trouble” involved in the administration of the estate. The assets were located in Victoria, New South Wales, South Australia and Western Australia. She arranged the deceased’s funeral, removed her personal effects from her room at the nursing home at which she resided, and cleaned and prepared the deceased’s house at East Brighton before its sale. She arranged for the sale of the house with estate agents and prepared an analysis as to which of the deceased’s assets were pre-capital gains and post-capital gains legislation acquisitions. She arranged for the sale of the estate’s investments of a value of approximately $1.7 million and re-invested those moneys and, in that process, liaised with the estate’s solicitor, sharebroker, financial adviser and financial institutions. She also arranged for the sale of the deceased’s books and paintings, and the payment of her accounts outstanding at the date of her death. As would be expected, she also liaised with the other beneficiaries of the estate.
Ms South, who is a practising pharmacist, states that she has lived in Adelaide for approximately 35 years. She was able to make most arrangements relating to the executorship of the estate by telephone, fax and email and, in addition, she made several visits to Melbourne attending to matters connected with the sale of the house at East Brighton.
The funeral arrangements could be made by telephone and facsimile, as were the formalities dealing with an autopsy. She objected to the conduct of the autopsy, as she considered that the deceased would not have wished this to take place and her medical history was documented. However, the relevant authorities overruled her wishes in that regard and an autopsy was carried out.
Because of the death of the co-executor named in the will, Lawrence Buckland, shortly after the deceased’s death, Ms South had to carry out her responsibilities without his assistance. Lawrence Buckland was an accountant and financial adviser who would have been able to bring these skills to the executorship. Ms South appointed the deceased’s solicitor and financial adviser to assist her in her role as executor, as they were familiar with the deceased’s affairs. Ms South had had occasion to be in contact with those persons in the period immediately leading up to the deceased’s death. She appointed her own accountant, Mr Hamish Claxton, to assist her with the accounting requirements of the estate.
Ms South did not, as if often the case, keep a diary during the period of time that she was executor, but she was able to make reference to her personal diary in order to detail the tasks she performed on the trips she made to Melbourne in connection with her executorship. In the first several months that she was executor, she states that she spent three or four hours, several times a week, in connection with the estate’s affairs. In relation to those activities, she maintained a spreadsheet of the tasks requiring attention.
The deceased had a library of over 400 gardening books, which Ms South catalogued and arranged for sale. She states that she only received $1,500 for these books, from which a number of the deceased’s outstanding accounts were paid. Those accounts exhausted all but some $19 of the amount realised from the sale of the books.
The estate also had some paintings. Two were by a well-known artist, Rick Amor, which were sold through an auction house. She states that the remaining paintings were apparently of little value, so rather than put them up for auction, she allowed close friends of the deceased to choose from them as a memento of her.
During the course of the executorship, Ms South states that she has used the telephone a great deal at some cost. These included telephone calls to the estate’s solicitor, sharebroker and the estate agent engaged for the sale of the house at Centre Road.
In the first several months of the executorship, Ms South states that she spent what she estimates as three or four hours a day, several times a week, searching through paperwork that she took back to Adelaide from Melbourne so as to be able to identify the shares owned by the estate and the date on which they were acquired. In the course of that activity, she states that she spent “much time” contacting people and companies by telephone, facsimile, email and post. The position in regard to the estate’s shares was complex, as there had been mergers and takeovers and not a great deal of the paperwork was available. Some of the details were available for examination on microfiche, a task that she describes in her affidavit as a “nightmare”. The deceased first acquired shares in the early 1980s and there were apparently little or no particulars as to the date or mode of acquisition.
Initially, Ms South considered that she would take a distribution in specie of her one sixth of the shares, and she wrote to the other beneficiaries to ascertain their attitude in that regard. There was apparently a good deal of correspondence, a sample of which is exhibited to the affidavit. Ultimately, she decided that the shares should be sold. At this juncture, she states that she was advised by the accountant to the estate that it would not be desirable to distribute the shares in specie because the effect of a ruling of the Australian Taxation Office was such that a higher incidence of taxation would be imposed if that course was adopted. Messrs Kentwell dispute this to be the actual position and it will be seen that they criticize her for acting on that advice. She states that she made arrangements to sell the shares when the ASX 200 index reached an historical high, and she says that, since that time, most of the shareholdings have decreased in value markedly. She took advice from the sharebroker as to the best method of liquidating the portfolio. She states in her affidavit that the shares were sold on a number of different trading days, i.e. they were not placed on the share market all at once. She states that she advised the beneficiaries of her decision to sell the shares some two weeks before she commenced doing so, and no beneficiary took issue with the ruling of the Australian Taxation Office, nor did they object to her decision to sell the shares rather than distribute them in specie.[1] She states that Stephen Kentwell, one of the objectors, urged her to sell the shares and Clive Buckland stated he understood her decision to sell them.
[1] See Exhibits AS-6 and AS-7 to Ms South affidavit of 5 May 2009.
As I have observed, there was a bequest to Ms South’s children, Sally and James South, of certain investments in AGC. At the time of the will, this bequest was worth approximately $40,000, some one quarter of the total value of the deceased’s assets at that time. By the time of the deceased’s death, the AGC bonds no longer existed. Ms South states that she carried out, some 21 years later, the exercise of tracing the destination of the funds after the deceased re-invested the money from the realisation of the bonds and she states that after communicating with the other beneficiaries, it was agreed that Sally and James South would have gifts of the substituted investment. Although the value of a quarter of the estate at the date of the deceased’s death was over $700,000, Sally and James South received only $28,311 each when they received their payments.
Ms South says that she kept the other beneficiaries informed regularly by email as to the progress of the executorship. She made several partial distributions, the first of which was $100,000 shortly after the sale of the house at East Brighton, and then two further distributions in April 2007 and December 2007 of $200,000 and $125,000 respectively. Ms South states that because of changes to the superannuation legislation which took place in 2007, the beneficiaries wished to have as much money as possible from the estate before 30 June 2007 in order to be able to contribute to such sums to their superannuation funds before the legislation changed on 1 July 2007. She states that she ascertained that it was appropriate to do so before making such distributions.
Ms South’s affidavit exhibits a number of documents. Exhibit AS-3 is a chronicle of the several trips she made to Melbourne in connection with her executorship and details the tasks she performed and which are referred above. This included preparing the house at East Brighton for sale, engaging an estate agent to conduct an auction and general tasks in connection with the winding up of the estate. Exhibit AS-4 is in spreadsheet form and deals with the process of realisation of the property of the estate including the shares, paintings and other personal property. Exhibit AS-5 is a bundle of telephone account invoices and calls made in connection with the executorship and are colour-coded to designate the party called. There are numerous calls. Exhibit AS-6 is a bundle of sample correspondence generated by Ms South and the other beneficiaries in connection with the estate. The final exhibit, AS-7 is an unsigned document in the nature of a testimonial from the accountant, Mr Hamish Claxton (which I do not consider to be admissible), which praises the work that Ms South did in connection with the estate.
The Respondents’ evidence
At the conclusion of the hearing of this matter, I requested Mr McNab, counsel for the objectors, to file a succinct submission setting out the basis of his clients’ discontent with Ms South’s performance as executor of the deceased’s estate. As I have noted, both objectors have filed affidavits in support of their opposition to the award. Stephen Kentwell has filed a 49-paragraph affidavit in that regard and Philip Kentwell has also sworn an affidavit in a similar vein, albeit a much shorter one. Because Mr McNab has distilled his clients’ grievances into the form of such further submissions, I shall not analyse the objectors’ affidavits in detail but I will nonetheless briefly survey their contents.
In his affidavit of 13 August 2009, Stephen Kentwell observes that the deceased’s will made no specific provision for the payment of executor’s commission and the only beneficiaries who receive specific bequests under the will are Ms South, her two children and the deceased co-executor. As observed above, Ms South received a grandfather clock and her children received a bequest of the deceased’s AGC debentures which by the time of her death no longer formed part of her estate. He asserts, without evidentiary support, that it was ‘generally understood among the residuary beneficiaries that the specific bequests were in lieu of executor’s commission.’ Section 65 of the Administration of Probate Act grants a discretion to award executor’s commission and the bequests do not, in my view, cut across that discretion.
There then follows a detailed criticism of the accounts of the estate which are Exhibit AS-2. Amongst the criticisms are what might be described as irregularities in expenses claimed such as expenses incurred prior to the deceased’s death in February 2006 and claims for loss of wages in respect of the period when Ms South was attending to her duties as executor.
Mr Kentwell asserts that having regard to the type and size of the deceased’s house, he doubts whether Ms South could have actually spent 40 days cleaning up the house and preparing it for sale. He states that he would have expected the deceased’s house to have been sold some time after she moved into the nursing home in October 2004 but does not elaborate as to why that should be the case. He says that as the property was vacant Ms South had the benefit of free accommodation whenever she and her husband visited Melbourne both before and after the deceased’s death in February 2006. Ms South was, prior to the death of the deceased, visiting Melbourne for the purpose of seeing the deceased. In her evidence, Ms South states that the visits to Melbourne after the death of the deceased were occasioned by her need to perform her duties as executor.
Mr Kentwell contends that as the applicant had been managing the deceased’s financial affairs since mid-2004 that he would have expected her to be quite familiar with her finances prior to her death. Ms South had apparently successfully challenged a decision of VCAT to appoint State Trustees as administrator of her aunt’s financial affairs and she thereupon became the deceased’s administrator instead of State Trustees. In my view, the estate could only benefit by such prior knowledge of the deceased’s financial affairs. The analysis of the manifest of assets to ascertain the history of the share portfolio took place after the death of the deceased when capital gains tax issues came to the fore.
The affidavit criticises of Ms South by reason of her decision to liquidate the share investments instead of distributing them in specie. Mr Kentwell contends that this decision resulted in the beneficiaries suffering liability for taxable capital gains which could have been avoided if there had been a distribution in specie. This decision also involved incurring brokerage and accountancy fees of just over $40,000. Mr Kentwell agrees with Ms South’s evidence that Ms South contacted the beneficiaries indicating that she was minded to take her share of the deceased’s shares in specie rather than sell them and receive the proceeds of their sale in cash. Mr Kentwell states that he indicated to her at the time that he needed more information about this. That information was provided approximately a fortnight later but he says that before he had a chance to make a decision, Ms South unilaterally decided to sell them. She had apparently received some advice from the estate’s accountant in respect to an obscure ruling by the Australian Taxation Office relating to capital gains tax in the context of shares held by deceased estates. In the event, she took the decision to sell all the shares, the capital gain was immediately realised and became taxable.
I consider that, as executor, Ms South was entitled to proceed to liquidate the shares held by the estate under the terms of the will. An incidence of her decision to sell the shares was to crystallise a liability that became due and payable rather than postpone it to a later date when the capital gain was realised where there was a sale of the shares.
Mr Kentwell then makes reference to Ms South’s assertion that the ASX 200 Index reached an historical high of 5389 in the period of October to November 2006. He says that by the end of March 2007 the ASX 200 Index was nearly 600 points higher at 5995. He says that if Ms South had waited until March 2007 to sell the estate’s shares, she would have avoided the brokerage and other costs associated with the purchase and sale of the income notes and securities and the share sales would have generated approximately $300,000 more than they did when they were sold in May 2006.
I do not consider that this is a justifiable criticism. The share market is a notoriously volatile investment environment and fortunes are made and lost with the vagary of the market even when those involved act on conservative expert advice. As it happens, the financial crisis in 2008-2009 resulted in the ASX 200 plummeting. I do not regard the criticism made as at all valid. I adopt the same view in regard to the need for the residuary beneficiaries to include in their 2007 income tax return a net capital gain of $77,299 each. That was an incidence of the earlier decision to sell the shares when she did which I consider was a course of action open to her.
Mr Kentwell then criticises the process by which the shares were sold which he says took place in alphabetical order i.e. not according to a thoughtful and structured sale process. It will be recalled that Ms South stated in her affidavit that the shares were not all sold on the one day but the sale process was spread out over a number of days from October to December 2006. He states that it is unclear why the three shareholdings in the last tranche were sold in such small parcels over numerous trading days but he does not demonstrate that this in itself caused a loss or was otherwise impeachable and I reject that criticism. Mr Kentwell states that the decision by Ms South to place the proceeds of sale of the investments once they were sold into income securities and notes was unduly risky and labour intensive and resulted in unnecessary costs and losses. The moneys were apparently placed with Macquarie Bank, National Bank and Woolworths, not investments which would normally be regarded as being particularly perilous.
Mr Kentwell complains of Ms South’s involvement in the “replacement” of the bequest to her children by reason of the AGC investments ceasing to exist. Ms South wrote to the residuary beneficiaries in September 2006 detailing her investigations as to the tracing of the funds consequent on the ademption of the asset the subject of the bequest. The children were originally entitled to a bequest of the order of $40,000 in 1980s values, apparently approximately a quarter of the then value of the estate but, by agreement of the residuary beneficiaries, they agreed to gift the children $56,622.02. Although criticism could perhaps be made of the potential for conflict in putting this position forward on behalf of her children, I do not see it as affecting her position to apply for an award of commission. Mr Kentwell does not develop by any evidence exactly what mischief ensued in the circumstances by reason of the conduct complained of and the beneficiaries did not complain when informed of it.
In my view, while Mr Kentwell makes some valid criticisms of certain decisions that Ms South made in the course of her executorship, they are not in my view of the type or magnitude which would affect my decision whether or not to award commission. However they have some minor influence on the percentage which would otherwise be awarded.
Mr Philip Kentwell’s affidavit of 24 August 2009 also voices criticisms of certain items in the estate’s accounts which are mentioned in Mr Stephen Kentwell’s affidavit and which I have already considered.
The applicant’s affidavits in reply
Ms South swore an affidavit in reply to Messrs Kentwells’ affidavits on 12 September 2009. As regards the alleged inappropriate use of the deceased’s Mastercard in January and February 2006 she details the relevant items. They include rates, house insurance, a fan for the deceased at the nursing home, a subscription to The Age for the deceased, care hire costs for Ms South’s two visits to the deceased in January and February before the death of the deceased, gas and electricity and airfares to Melbourne. The airfares were incurred when Ms South travelled with her husband to Melbourne for the funeral for the deceased. She states that she was upset at the time and unthinkingly used the Mastercard to pay. Ms South states that when the accountant for the estate drew up the accounts and pointed this out to her she repaid the estate the amount of the airfares plus interest. She says that as a result no personal expenses are included in the payments on the Mastercard account for January and February 2006 as the balance of the expenditure was for the benefit of the deceased, albeit before her death.
As regards the complaint by Stephen Kentwell that there were withdrawals from the estates account in February, March and April 2006 totalling $4,000 said to be for “withdrawals for anticipated property expenses on 4 Centre Road”, she states that after the deceased died, the neighbours at 2 Centre Road foreshadowed replacement of the fence between the two adjoining properties and the removal of a tree. She states that she withdrew this money to pay those costs, however the works did not eventuate and when the accountant prepared the accounts of administration, he pointed this transaction out to her and she repaid the money to the estate with interest.
In respect of the complaint that she reimbursed herself for expenses prior to the deceased’s death totalling $15,228, Ms South states that after the deceased’s health began to decline during 2002 she began to visit her more frequently and when her cognitive impairment was worsening she increased her visits. She states from mid‑2004 she started to stay with the deceased for six day periods every four weeks in order to assist her and organise matters to enable her to stay in her own home for as long as possible. While there, she attended to matters such as pruning and watering and removal of a spruce tree and she kept in contact with her cousins after the visits as they rarely saw her as she wanted to keep them aware of the deceased’s situation. She states that in October 2004 she received an email from Stephen Kentwell, which culminated in the comment that she should make a careful record of the expenses so that she could be compensated fairly in due course. The $15,228 is made up of travel costs, increased telephone costs and loss of wages. She states that she genuinely thought that her cousins expected her to withdraw such monies from the estate and she told them of this in emails in September 2006 and February 2007 with no-one commenting. Nonetheless, they are not expenses incurred by her as executor.
Mr Kentwell in paragraph 6(e) of his affidavit objects to Ms South reimbursing herself for executor’s expenses of $6,235.39. Of that sum, $2,324 is in respect of lost wages which were said to have been incurred by Ms South having to pay other pharmacists to cover her weekend hours when she was required to visit Melbourne. Those expenses seem to have been incurred after the death of the deceased. As regards the disposal of the contents of the deceased’s house, Ms South states that the items were basically worthless. A similar work of the painting of R Miljkovic had recently sold on e-bay for $9.95. There are other items such as ironing boards, irons, portable radios and bedside lamps which have no value. The deceased’s lounge suite has been disposed of at the Salvation Army as have quite a number of the deceased’s personal effects.
As to the accusation by Stephen Kentwell that he doubts that Ms South and her husband could have spent 40 days in Melbourne cleaning out the house at East Brighton and at the nursing home, she confirms her previous evidence. She states that Stephen Kentwell rarely visited his aunt at home and could not be expected to remember much about the deceased’s home of 20 years.
In respect of the observation by Stephen Kentwell that the deceased’s house should have been sold after she moved into a nursing home in October 2004, rather than retained until she died in February 2006, she states that her only right to do so would have been pursuant to her power of attorney. She considers that the deceased would have been devastated had she taken such a course. She states that while in the nursing home the deceased often asked about her house and garden and asked if she would bring her something “from home”. She states that no family member requested her to arrange for the sale of the house and, in any event, it increased in value substantially during this period. I accept the position she puts in this regard.
Ms South responds to the complaint regarding the sale of shares and the investment of the proceeds rather than a distribution of them in specie to the residuary beneficiaries. She repeats her evidence that there was pressure from the beneficiaries to liquidate the shares so that a distribution could be made prior to 30 June so that such funds could be placed into superannuation investments. As to the criticism of the purchase of the income notes, she states there were several reasons for making this investment, one of which was to generate regular income for the estate, the other because of their liquidity. She states that she took this step on the advice of the estate’s stockbroker and any loss on the income notes was a tax loss. Against that relevantly small loss about $35,000 was earned in interest for the estate.
In response to the criticism concerning the contention that unnecessary cost and loss in terms of capital gains tax have been incurred by reason of the sale of the shares, she states that CGT would have been incurred on the sale of her aunt’s investments at some juncture, whether by the beneficiaries or the estate. She states that if the shares were transferred to the beneficiaries in specie the beneficiaries would have had to pay capital gains tax when they eventually sold the shares. She states that in an email of 11 October 2006, Stephen Kentwell wrote “there would be a distinct advantage in getting the main remittances done a while before Costello’s 30 June 2007 cut off for superannuation contributions”. As to the brokerage charges of $28,672 including GST, Ms South states that they were incurred in the context of transactions of a total of nearly $4,000,000. As to his criticism of the rates paid for brokerage, she states that she believed that the average rate charged was 0.7 percent, which included provision of advice. She states that that rate was reasonable.
The criticisms made in respect of the fees charged by the estate’s accountant Mr Claxton of $13,310 were addressed in paragraph 16 of her affidavit. The breakup of that account is detailed in Schedule B. That document states that in addition to the income tax return the accountant was charging for work in respect of estate matters generally although it seems that a greater part of the total amount charged was in respect of the income tax return.
In response to the criticism made regarding the sale of shares and that Ms South “unilaterally decided to sell the entire share portfolio” she denies this to be the case and says that on 27 September 2006 she informed the beneficiaries that she proposed to sell the shares. The first sale did not take place until a fortnight later on 11 October 2006. The sale of the shares took place over a period of nearly six weeks and no objection was made by Stephen Kentwell during that period. She quotes an email from him of 15 October 2006 in response to being informed of the sale of the shares where he states that “the share prices seem to have done well over the last month”. She states that originally she was the only one minded to keep the shares rather than sell them but in reliance on the tax ruling which was referred to and the superannuation deadline and the lack of opposition to her selling the shares resulted in the decision she made. When the shares were sold the prices were higher than they ever had been and they were sold on the advice received from the stockbroker. The stockbroker charged a rate of only 0.5 percent despite the advice received from him as to the manner in which the shares should be sold.
Ms South deals with the complaint in respect of the reinvestment of the proceeds of the shares sales in income securities and notes. She states that the notes were sold after the estate had received two interest payments from each company in response to a request from the beneficiaries who wished to place the funds into superannuation by 30 June 2007. She states that she placed the investments into income security and notes because no fixed term deposits were available at the time with anything like the interest rate available with income notes. Brokerage of $12,000 was charged in respect of transactions with a total value of $2.1 million.
As to the criticism made by Mr Kentwell regarding the payment of the cheque in respect of the sale of the gardening books into Ms South’s own account, she states that at that time she had not set up a separate bank account for the estate. She repeats she used those funds to pay some of the smaller estate bills until it had all but run out.
Finally in response to the grievance in respect of the disposal of the deceased’s paintings, she says that Stephen and Clive Kentwell were overseas at the time the deceased died; Stephen lived in Japan as he has for most of his life and Phillip Kentwell was employed by the Department of Foreign Affairs and Trade and working at various posts around the world. She states that Clive Kentwell’s children came and chose a few of the deceased’s belongings but chose not to take any of the paintings.
The respondent’s further affidavits in opposition
On 22 October 2009, Stephen Kentwell swore a further affidavit, which seeks to take issue with matters referred to by Ms South in her affidavit of 12 September. The affidavit continues in much the same vein as Mr Kentwell’s earlier affidavit.
The affidavit maintains the criticism made in a previous affidavit relating to the general conduct of the executorship by Ms South, detailing what are contended to be irregularities in the accounts and a criticism of decisions made resulting in the estate and beneficiaries incurring avoidable revenue liability and professional costs and revisits the issue of the paintings and personal effects not being offered to Stephen Kentwell and his family. It is obvious from the content and tone of the affidavit that Mr Kentwell is most unhappy with the manner in which the applicant has administered the estate.
Clive Buckland swore a further affidavit on 23 March 2010. Again, his was a much shorter affidavit. In paragraph 3 of the affidavit he states that a painting by the artist Keith Martin was sold in 1997 for the sum of $250 whereas a painting by that artist which formed part of the estate was said by the applicant to be of “little value”. I do not regard that statement as being of any probative value on the issue of the paintings generally, relating as it did to a different painting sold some ten years before.
The submissions of the applicant
In his submissions Mr Cook referred to the decision of Smith J in Re Will and Estate of Stone (deceased; Patterson) v Halliday[2] where his Honour stated at [27]:
[2][2003] VSC 298
“In assessing commission it was common ground that the Master had to consider at least the following:
(a)the work and judgment involved in the realisation of assets and earning income,
(b)the extent of administrative activities,
(c)the responsibility generally,
(d)the amount of work done not reflected in financial terms,
(e)how long the estate was administered,
(f)the size of the estate and its capacity to pay,
(g)the work of a non-professional character not undertaken by the applicant and performed by professionals, and
(h)executors’ pains and troubles relative to the result.”
As is often the case where a senior judge considering the matter lists a series of factors which he or she has taken into account in exercising a discretion, there is a tendency for such lists or criteria to later take on a formal status and be regarded as if they were legislatively prescribed. Nonetheless, Smith J’s criteria are more than just a useful guide to the exercise of the discretion as they seem to cover what would be regarded as the relevant criteria.
As to these criteria in the present context, Mr Cook stated that in these particular circumstances the works undertaken by Ms South were not simple in the sense of merely distributing the assets of the estate in specie. Rather, it involved the sale of the house, the much-criticised sale of the shares and the other matters referred to above. He submitted that all of the assets of the estate had to be realised or distributed in a manner that involved the exercise of skill, care, responsibility or “simple toil” in regard to the sale of the personal effects in the house. He said that there were a ”large number of beneficiaries” interests to be considered and consulted and that the work undertaken was carried out largely by Ms South with assistance from the estate’s solicitor and accountant carrying out professional duties relating to their expertise. He says that the records of the deceased’s shareholdings were in a poor state and required reconstruction over many hours. The sale of the house was undertaken expeditiously and required cleaning of the house and the removal of the deceased’s personal effects.
Mr Cook submitted that there was no “disentitling conduct” on the part of Ms South in the executorship. He referred to the decision of Peter Henry Atkins as executor of the estate of Robert Charles Godfrey v Godfrey & Ors[3]. One of the issues considered in that case was conduct which could result in disentitlement to commission. At paragraph 19 Le Miere J stated:
The Court may refuse commission on a number of grounds where there has been some misconduct in the execution of the executor’s duties. If the misconduct is serious or amounts to fraud, commission will probably be refused. If the misconduct amounts to an honest or inadvertent breach of duty, commission may still be allowed. Commission may be reduced or, in serious cases, refused where there has been negligence in the carrying out of the executor’s duties; see E Vance ‘Executor’s Commission’ (1969) page 219 and M Chapman ‘Executor’s Commission’ (1994) LRJ at 46 and the authorities there cited.
[3][2006] WASC 83
His Honour surveyed over the next several paragraphs various authorities dealing with the issue of disentitlement. The terms of s 98 of the West Australian Trustees Act 1962 are somewhat similar in its terms to the Victorian provision. Section 98(1) conferred on the Court a discretion to allow an executor remuneration for that person’s services as is just and reasonable. Section 98(2) provides that the remuneration allowed shall not exceed five percent of the gross value of the trust property. At [29] of the judgment, Le Miere J stated:
… section 98(1) of the Act confers upon the court a discretion to award an executor sub-commission for that person’s services as is just and reasonable. It seems to be established and accepted that where executors have been guilty of positive fraud or dishonesty in their office the court will refuse them commission. As to acts or neglects falling short of fraud or dishonesty, whether executors’ commission should be refused or reduced will depend upon the severity of the breach, assessed according to its consequences and the culpability of the executor.
The conduct complained of in Godfrey which was asserted to disentitle the applicant to commission was the failure to monitor the level of legal fees incurred by the estate and to ensure that the estate was not finalised earlier. In the result the court considered there had been no breach of trust or duty disentitling the applicant to commission but reduced the amount that might otherwise have been awarded by reason of the conduct complained of.
Mr Cook, relying on the decision of Re Estate of Celestino Ghidella[4] contended that the fact that Ms South had received a bequest under the will[5] did not disentitle her to commission. In Re Ghidella, Jones J considered the decision of Re Lack[6] where McPherson J of the Queensland Supreme Court dealt with the issue of whether an executor who receives a benefit under the will is additionally entitled to commission. In Re Lack, McPherson J in turn considered the decision of the Full Court in Re Murphy[7] which held that where a testator gives a legacy to an executor or a trustee stating that it is for his services in that capacity the executor is not entitled to anything more than he has been given under the will. Where however the testator’s intention to that effect has not been expressed or cannot be determined, the jurisdiction to allow a commission in addition to the benefit exists.
[4][2005] QSC 106
[5]The grandfather clock
[6](1983) 2 Qd R 613
[7](1928) St R. Qd 1
In my view there is nothing in the terms of the will which betray an intention on the deceased’s part that the award of the specific bequest meant that Ms South could not make application for executor’s commission.
Submissions of Stephen and Phillip Kentwell in opposition to the application
At the conclusion of the hearing I requested Mr McNab to provide a succinct statement of the bases as to why Ms South’s entitlement commission should be reduced and this was done in final form on 31 March 2010. Mr Cook sought and was given an opportunity to respond to that latter document.
Mr McNab says on behalf of Messrs Kentwell that they are prepared to see the applicant paid whatever commission is fair and reasonable but that a commission of 3 percent on an estate of this size is excessive. It is submitted that the estate was not a complicated one. The executorship involved the organisation of the funeral, the sale of the house, the cleaning out of the house and the deceased’s room at the nursing home where she died, sale of her personal possessions, the identification of the assets and debts, the dealing with the share portfolio, the investment of the net proceeds of sale of the estate and the discharge of the deceased’s revenue obligations. It is said that Ms South, who had been the deceased’s attorney was already well familiar with the deceased’s affairs at the time of her taking on the role of executor. Further, significant accounting fees have been charged and the particulars of these expenses have not been properly detailed.
Mr McNab referred to the criticisms detailed above, in particular the drawing of expenses in connection with matters which occurred prior to the death of the deceased and the claim made for wages forgone. It is said that such expenditure should be taken into account in the fixing of commission but should not be the subject of reimbursement for wages as it appears in the accounts. Ms South was criticised for the failure to obtain legal advice in respect of the adempted legacy to her children. The submissions also rehearse in detail the matters complained of in Stephen Kentwell’s affidavit regarding the sale of the shares and the incurring of CGT liability. He observed that there is an element of double counting involved.
Mr McNab submits that there is a rough rule of thumb in Victoria that with an average estate as to amount realised and difficulty of administration capital commission is reckoned to be in the range of two to three percent. He says that in this particular case having regard to the size of the corpus that that range is inappropriate. I agree with his view that the scale set out in the text by Master Vance and the guidelines in the South Australian case of Re Barr Smith[8] are obsolete because of the dramatic decline in the value of money. That is also the view of Windeyer J in Estate of Creer; Estate of Peters[9] where he makes similar observations in regard to the Vance text and the case of Barr Smith at para [29]. In his submissions Mr McNab surveyed a number of Victorian and interstate authorities and sought to draw out the particular percentage of commission awarded according to different factual situations.
[8](1920) SALR 380
[9][2000] WSC 1291
While this was an interesting and edifying document, when I come to exercise my discretion under the section, the approach is to review what work was done by the executor, what difficulties were encountered and the length of time it took. This is because the section requires recompense for “pains and trouble”.
In his work, “Executor’s Commission”, Master Vance interpreted the expression “pains and trouble” as meaning respectively responsibility, anxiety and worry and work done, citing the New Zealand authority of Alan McLean deceased[10]. Master Vance stated at page 182 of his work:
The correct approach to the matter of quantum recognises the fact that the Master’s task and objective is, initially, not that of finding the appropriate percentage rate. It is rather, to determine the amount of commission adequate to recompense the executor for his pains and trouble. The amount of commission will depend upon the extent of the pain and troubles expended, not just only ‘ in realisation of the particular assets of the testator, but in the general administration of the estate.
The question of percentage comes into consideration only after the Master has fixed an amount in his mind, which he wishes to translate into percentage terms. The necessity for this arises from the requirement in the Act that the amount of commission is not to exceed five percent.
[10][1912] 31 NZLR 139 at 144
Mr McNab says that if the amounts referable to expenditure incurred before the deceased died, the capital assets passing through the hands of Ms South amount to $2,801,214 and the income received over the time of the administration of the estate, disregarding the capital reinvestment figures and only including actual income received, is $209,745. Mr McNab submits that an appropriate amount is 1.25 percent on the corpus resulting in an award of commission of $35,015 which rewards Ms South’s efforts of 352 hours at $100 an hour. As regards the income, he states that an award of 2 percent on the $209,745 figure is appropriate resulting in commission of $4,194.90. He concludes that an appropriate award of commission is $40,000.
Discussion
The document submitted by Mr McNab in response to my request to detail his client’s grievances with regard to the conduct of the estate, while detailing certain valid criticisms of Ms South’s conduct of the estate falls short of convincing me that I should significantly reduce amount of commission that I might otherwise be minded to award. The decisions made in regard to the sale of the share portfolio (and the resultant incurring of capital gains tax liability) and to investing in income notes do not amount in my view to negligent administration of the estate. The decision as to whether or not to sell shares in what was at the time a very volatile environment was a judgment which Ms South was entitled to make. She did so after apparently taking the advice of a stockbroker in that regard. The effect as regards capital gains tax liability was that the recipients were forthwith obliged to meet their liability in that regard rather than when the shares were subsequently sold. The value of shares, even so called “blue chip” shares, is notoriously unstable over the medium term and Mr Stephen Kentwell has the luxury of hindsight.
The criticisms in respect of Ms South paying personal expenses prior to and subsequent to the death of the deceased and the delay in paying funds back into the accounts of the estate have some validity. While it is not totally exculpatory, the materials reveal that Ms South had much more to do with monitoring the welfare of the deceased than did Messrs Kentwell who were largely absent overseas during the latter part of the deceased’s life. The large amount of material filed in support of and in opposition to this application reveal that Ms South communicated often and at length with the beneficiaries.
Mr McNab contends that the level of legal and accounting fees charged would reveal that professional advisors have carried out a good deal of the work. The fees charged were not modest but it has to be remembered that the estate is a relatively large one and Ms South was entitled to seek professional advice in regard to the legal and accounting position of the estate. I do not consider that the evidence reveals that this was a situation as is sometimes the case whereby the legal and accounting advisors of the estate have effectively done much of the work and the executor is “double dipping” by making an application for commission.
Mr McNab contends that Ms South, having been the deceased’s attorney for two years before her death, would have had a good working knowledge of her affairs. I do not agree that this was necessarily the case. Much of the work involving ascertaining the date of purchase and like information only arose when considerations of capital gains tax liability arose after the death of the deceased.
As to the complaints regarding the disposal of the deceased’s personal effects my view is that the criticisms of Ms South are not founded.
Mr McNab renews his contention that to include the full purchase price of the reinvestment notes and their sale price leads to double counting and I agree with him in that regard.
Conclusion
The administration of the deceased’s estate was not an overly complicated one but I accept that Ms South applied herself conscientiously over many hours in performing her responsibilities. It was a relatively large estate in terms of amount realised and therefore involved considerable responsibility. The estate was administered in an acceptable timeframe. She did not delegate work to professionals inappropriately so as to expose the estate to unnecessary expense. The executorship involved her in some personal and professional inconvenience by reason that she did not live in Melbourne. The criticisms made of certain transactions preceding and post dating the death of the deceased regarding the brewery expenses have some validity but they are not such as to disentitle Ms South to commission. I consider that some small deduction should be taken into account when fixing the amount of commission.
I consider that an appropriate amount to award on the corpus of $2,801,214 is $56,000, which is approximately 2 per cent of the corpus. I agree with Mr McNab’s “double counting” argument in respect of the income passing through the hands of Ms South and I consider that she should be awarded commission of $4000 on the $209,745 of income passing through her hands, slightly less than 2 per cent of that figure . This results in an award of commission of $60,000.
I will hear the parties on the question of costs.
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