McGrath v Troy

[2010] NSWSC 1470

CITATION:	McGrath v Troy as administratrix of the estate of the Late Warren Terence Wade [2010] NSWSC 1470
HEARING DATE(S):	22 and 23 November 2010
JUDGMENT DATE :	24 November 2010
JURISDICTION:	Equity
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	24 November 2010
DECISION:	Refer to paragraphs [122], [125] of judgment and Post Script
CATCHWORDS:	PROBATE – where deceased died intestate leaving only child and no spouse – where mother of deceased granted letters of administration – administrator aware of claim that plaintiff was deceased’s child prior to death – administrator advertised intended distribution of estate under s 92, Probate and Administration Act 1898 – whether administrator liable to restore moneys paid out as debts owed by deceased and distribution to deceased’s parents – whether intention to create legal relations in family context – whether breach of duty to pay statute-barred debts – whether administrator can rely on s 92 as answer to claim for having distributed estate – where claims not barred under s 93 – whether administrator received notice of plaintiff’s “claim” on estate under s 92 – whether administrator should be relieved from personal liability for breaches of duty under s 85, Trustee Act 1925 – whether court should accept administrator’s undertaking to give security in lieu of restitution – whether administrator to be removed – alternative application for provision under Family Provision Act 1982
LEGISLATION CITED:	Family Provision Act 1982 (NSW) Probate and Administration Act 1898 (NSW) Trustee Act 1925 (NSW) NSW Trustee and Guardian Act 2009 (NSW) Limitation Act 1969 (NSW) Births, Deaths and Marriages Registration Act 1995 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	Teen Ranch Pty Limited v Brown (1995) 87 IR 308 Darmanin v Cowan [2010] NSWSC 1118 In re Rownson; Field v White (1885) 29 Ch D 358 Re Owens; Jones v Owens (1882) 47 LT 61 Ludwig v Public Trustee [2006] NSWSC 890; (2006) 68 NSWLR 69 Re Land Credit Company of Ireland; Markwell's case (1872) 21 WR 135 Newton v Sherry (1876) 1 CPD 246 Scottish Equitable Life Assurance Society v Beatty [1889] 29 LR (Ir) 290 Guardian Trust & Executors Company of New Zealand Limited v Public Trustee of New Zealand [1942] AC 115 Bates v Messner (1967) 67 SR (NSW) 187 Mavrideros v Mack [1998] NSWCA 286; (1998) 45 NSWLR 80 Ministry of Health v Simpson [1951] AC 251 Nudd v Mannix [2010] NSWCA 127 ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193
TEXTS CITED:	LG Handler & K Neal, Succession Law and Practice New South Wales, (looseleaf) LexisNexis Butterworths R Geddes, C Rowland and P Studdert, Wills, Probate and Administration Law in New South Wales (1996) LBC Information Services
PARTIES:	Plaintiff: Austin Peter McGrath by his next friend Kym McGrath 1st Defendant: Carolyn Lesley Troy as Administratrix of the estate of the Late Warren Terence Wade 2nd Defendant: Terence Daniel Wade 3rd Defendant: Michelle Douglas
FILE NUMBER(S):	SC 2008/279648
COUNSEL:	Plaintiff: S Callan 1st Defendant: J Dupree 2nd Defendant: In person 3rd Defendant: In person
SOLICITORS:	Plaintiff: Mark Diggins, Solicitor 1st Defendant: Victor Bizannes, Solicitor 2nd Defendant: n/a 3rd Defendant: n/a

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Wednesday, 24 November 2010

2008/279648 Austin Peter McGrath by his next friend Kym McGrath v Carolyn Lesley Troy as Administratrix of the estate of the Late Warren Terence Wade

JUDGMENT

1 HIS HONOUR: This is a claim to compel an administratrix of a deceased estate to restore moneys wrongly distributed and to restore moneys paid as a debt or debts owed by the deceased. The plaintiff also seeks the removal of the administratrix. The plaintiff also sought an order requiring the second defendant (to whom part of the estate was distributed) to restore payments made to him. He also brings claims under the Family Provision Act 1982 (NSW).

2 The plaintiff is currently aged three. He was born on 11 December 2006. He sues by his mother as tutor. The plaintiff's mother, Ms Kym McGrath, and the deceased, Mr Warren Wade, had a sexual relationship from 2006. The deceased died on 25 January 2007, aged 36. He made no will. He had no wife, no de facto wife and no other children. He was survived by his parents, Carolyn Troy and Terence Wade, and by his sister Michelle Douglas.

3 His mother, Carolyn Troy, was granted letters of administration of the estate on 7 August 2007. She is the first defendant. The deceased's father, Mr Terence Daniel Wade, who received part of the distribution of the estate is the second defendant. The deceased's sister, Michelle Douglas, is the third defendant.

4 In 2007 the first defendant proposed dividing the estate three ways between herself, her daughter and her former husband. On 17 January 2008 the third defendant, Ms Douglas, submitted a claim to the first defendant's solicitor, Mr Bizannes, setting out a schedule described as cash loans, which he said had been made to the deceased. These totalled $42,330. She said that she calculated at least $40,000 was owing to her.

5 The only substantial asset in the estate available for distribution was the deceased's superannuation, which included a life insurance policy. The deceased owned real estate but it was heavily mortgaged. The first defendant said that she disclaimed the property. I assume that the mortgagee realised the property by sale. There was apparently no surplus. It is not known to me whether any debt remained payable to the mortgagee, but no issue was raised in the present proceedings concerning that.

6 In due course the first defendant received the deceased's superannuation and life insurance payment in the amount of $129,936.16. There is considerable confusion as to the amount of that estate and how it was distributed. On 10 December 2007 $20,000 was paid to the first defendant in circumstances to which I will refer in more detail later in these reasons.

7 That sum was paid to the first defendant on account of debts said to be owed by the deceased to her. Two payments each of $5,000 were paid from Mr Bizannes' trust account to the first and second defendants on 10 and 11 December 2007 for what were described as funeral expenses, although according to the first defendant's affidavit the funeral expenses totalled $8,217. Sums were also paid on account of legal costs.

8 On 1 February 2008 $40,000 was paid to Ms Douglas. After payment of legal costs these payments left the estate with a credit balance of $48,245.55. That sum was distributed on 28 July 2008 by three cheques, each drawn in the sum of $16,081.85 to the first, second and third defendants.

9 From before the deceased's death (and certainly from immediately after the deceased's death) the first defendant was aware of a claim made by Ms McGrath that her son, the plaintiff, was the deceased's child. The first defendant did not accept that contention. In due course, through her solicitor, she placed an advertisement in accordance with s 92 of the Probate and Administration Act 1898 (NSW) stating that any person having a claim on the estate must provide particulars of the claim within a month, after which time she might distribute the assets, having regard only to the claims of which, at the time of distribution, she had notice. The first defendant contends that although she was aware of the assertion of Ms McGrath that the plaintiff was the deceased's son, nonetheless she did not receive notice of a claim on the estate. I will deal with that contention later.

10 Proceedings were commenced on behalf of the plaintiff on 10 July 2008. In the proceedings as originally constituted, the plaintiff through his tutor sought an order for provision under the Family Provision Act. This claim was misconceived, at least as originally formulated. If the plaintiff were the deceased's son, he was entitled to the entire estate of the deceased as the deceased's only issue, pursuant to s 61B(4) of the Probate and Administration Act. If he were not the deceased's son, he was not an eligible applicant under the Family Provision Act.

11 In the course of these proceedings orders were made by consent for DNA testing. That testing established that the plaintiff is the deceased's child and that Ms McGrath's assertion to that effect had been correct. It is not now in issue that the plaintiff is the son of the deceased.

12 On 2 May 2010 the summons was amended to join the second and third defendants. By the amendment the plaintiff sought orders that the first defendant restore moneys received by her out of the estate (said to be in the amount of $36,398), that the second defendant restore moneys said to have been received by him out of the estate (also said to be an amount of $36,398), and that the third defendant restore the moneys received out of the estate in the sum of $40,000 plus interest.

13 By the same amended summons the plaintiff sought a declaration that the first defendant had committed a breach of trust. An order was sought that the first defendant pay to the plaintiff damages the plaintiff sustained by reason of the alleged breach of trust.

14 Ultimately, and possibly as a result of directions I gave shortly before the hearing when the matter came before me for directions, the plaintiff's claim was formulated so as also to include a claim that he was entitled to the estate pursuant to s 61B(4) of the Probate and Administration Act. The plaintiff's claim for relief under the Family Provision Act was ultimately limited to a claim that would arise only if it were found that the first defendant were entitled to rely either on s 92 of the Probate and Administration Act, or was entitled to relief under s 85 of the Trustee Act 1925 (NSW), such that she was not liable to restore moneys to the estate. In that event, and that event only, the plaintiff claims that property of the first, second and third defendants should be designated as notional estate to the value of the amount of distributions each has received from the estate.

15 As is evident from that outline, the case involves a small estate. It is regrettable that the issues (which must have generated considerable legal costs) should have arisen at all. The issues to be resolved are as follows.

16 First, there is a question as to how the estate was distributed in payment of alleged debts and to supposed beneficiaries.

17 Secondly, whether the first defendant is liable to restore the sum of $20,000 paid to her on 10 December 2007 as a payment of debts allegedly owed by the deceased to her.

18 Thirdly, whether the first defendant is liable to restore to the estate the difference between $10,000 paid to her and the second defendant for funeral expenses and the expense incurred.

19 Fourthly, whether the first defendant is liable to restore the sum of $40,000 paid to the third defendant for debts allegedly owed by the deceased to the third defendant.

20 Fifthly, whether the first defendant is entitled to rely on s 92 of the Probate and Administration Act as an answer to the claim for her having distributed the estate to herself and the second defendant (and at their direction having distributed a portion of the estate to the third defendant). In this respect the question is whether the first defendant had notice of a "claim" on behalf of the plaintiff that the plaintiff was entitled to the estate as the deceased's only child.

21 The sixth issue is whether the first defendant should be relieved pursuant to s 85 of the Trustee Act from personal liability for any breaches of her duty in connection with the distribution of the estate.

22 Seventhly, if the first defendant is liable to restore moneys to the estate, there is an issue as to whether the court should accept an undertaking from her to give a second mortgage over her house to secure her liability in lieu of ordering her to make restitution.

23 The eighth issue is whether the first defendant should be removed as administrator and the NSW Trustee appointed in her stead pursuant to s 22 of the NSW Trustee and Guardian Act 2009 (NSW).

24 Ninthly, there is a question as to whether the second defendant is liable to repay moneys distributed to him. Although the amended summons and further amended summons seek an order that the third defendant restore the sum of $40,000 received by her out of the estate, that claim was not pressed. It was not included in the statement of claim ultimately relied on. The only claim maintained by the plaintiff against the third defendant was the claim for the designation of property as notional estate for a sum of up to $40,000.

25 The final issue is whether, if the first defendant is not liable to restore distributions out of the estate, assets of the first, second or third defendants should be designated as notional estate to the extent each received a distribution to which the plaintiff was entitled.

26 There is no cross-claim by the first defendant against the second or third defendants.

Distribution of the estate

27 The first issue of how the estate was distributed, and what the estate was, occupied a considerable portion of the hearing. This was unfortunate and unnecessary. The issue arose because it ultimately emerged that the first defendant's affidavit of 27 January 2009 in which she deposed to the assets and liabilities of the estate and as to how it was distributed, contained serious errors and omissions. The plaintiff's claims against the defendants had been formulated on the basis of the first defendant's evidence as to the quantum and distribution of the estate. These claims required reformulation in the course of closing submissions to deal with evidence which was adduced only after questions were raised in closing submissions as to the effect of documents tendered.

28 In her affidavit of 27 January 2009 the first defendant deposed that the deceased died leaving assets with a total estimated value of $291,346.58. These included real estate in Muswellbrook valued at $165,000 and superannuation including insurance payment of $124,346.58. The liabilities were recorded as being sums of $154,579.43 owed to Westpac. In addition, the first defendant deposed to having been notified by the third defendant of a claim for debts owed by the deceased to the third defendant. She deposed that $40,000 was paid in respect of that claim on 1 February 2008, reducing the net value of the estate to $96,767.15. She said that the amounts owing for funeral expenses were $8,217 and legal costs amounted to $6,572.24.

29 The first defendant deposed:

" 12. The net proceeds and distribution of the estate were as follows:
Net Proceeds

Australia Super	$127,585.55
Distribution
Terence Wade	$ 36,398.15
Carolyn Troy	$ 36.398.15
Michelle Douglas	$ 40,000.00
Funeral Expenses	$ 8,217.00
Legal Costs	$ 6,572.25
Total Distribution	$127,585.55”

30 In the course of the first defendant's evidence a letter was tendered dated 10 December 2007 from Mr Bizannes to the first defendant, in which Mr Bizannes enclosed a cheque payable to the first defendant for $20,000. In the course of final submissions a question was raised whether this was a distribution of the estate to the first defendant for which she had no protection under s 92 of the Probate and Administration Act because it was made before publication of the notice under that section. To answer that query, the first defendant was allowed to re-open her evidence. It then emerged for the first time that she had been paid $20,000 in respect of a debt which she claimed was owed to her by the deceased, or rather, in respect of various debts which were said to be owed to her. No such liability had been notified in her affidavit filed in connection with her application for the grant of letters of administration of 19 July 2007.

31 The first defendant also gave evidence as to how the estate had been distributed which was contrary to paragraph 12 of her affidavit. I directed Mr Bizannes to provide his trust account statement showing how the estate had been distributed. That was done. That statement shows that the estate was distributed in substance as the first defendant said orally in the witness box and not as set out in her affidavit. The starting point therefore for the issues can be identified as follows.

32 First, the payment of $20,000 made to the first defendant on 10 December 2007 was purportedly in payment of debts said to be owing to her by the deceased and not as a distribution of a balance of the estate after payment of all debts. Secondly, notwithstanding that her affidavit deposed that $8,217 was the amount owing for funeral expenses, a sum to which she adhered in her oral evidence, the sum of $10,000 was paid to the first and second defendants purportedly in reimbursement of that expense. Thirdly, $40,000 was paid to the first defendant on 1 February 2008. Fourthly, the amount paid for legal fees was not $6,572.24 but $11,588.88. Ultimately no submissions were made in relation to that discrepancy. Fifthly, the amount distributed after payment of debts was not $72,796.30 as appears from paragraph 12 of the first defendant's affidavit, but $48,245.55. Those moneys were paid to all three defendants in equal shares.

33 I accept the first defendant's evidence to the effect that the payment to the third defendant was by way of direction from the first and second defendants, that is to say, that they both agreed to a third of the moneys otherwise considered to be payable to them as persons entitled on intestacy to be paid to their daughter, so that each defendant received an equal sum. However, this is not material to the resolution of the remaining issues.

Payment of $20,000 as alleged debt owed to administratrix

34 I turn then to the second question, which is whether the first defendant is liable to restore the sum of $20,000.

35 The first defendant tendered a sheet of paper and some supporting documents in support of her claim that the deceased owed her a debt of approximately $19,000 or $20,000. She said - and I accept - that this paper and the documents in question were provided to her solicitor at the time, or shortly before the time, the payment was made. The summary of amounts said to be owing by the deceased was as follows:

“	Bank deposits	$2520.00
Holden Car End 2005	$9000.00
Transfer, insurance, registrarion	$1500.00
Legal fees house purchase	$1093.61
Electricity A/C 2007	$194.40
Phone A/C 2007	$85.69
Lawnmowing, house cleaning, rubbish removal 2007	$300.00
2006{	Groceries (12 x $150)	$1800.00
	Petrol (12 x $50	$600.00
	Pay Credit Card (6 x $50)	$300.00
	Purchase credit for mobile (6 x $50)	$300.00
	Cash given say	$2000.00
$19,693.70”

36 The first defendant provided receipts to support the payment of the electricity and telephone accounts. It is clear that these accounts were paid by her after the deceased's death and they are properly to be considered as testamentary expenses. There can be no criticism of the first defendant in receiving reimbursement for those amounts.

37 The first defendant also provided bank deposit slips which corroborate the payments totalling $2,520 made by her to the deceased's bank account over a period from about 2005 to shortly before his death. There was no documentary corroboration in respect of any other payment.

38 The first defendant maintained that she always considered that the first defendant had a liability to repay the moneys lent to him or paid on his behalf. She said that from time to time the deceased told her that the moneys would be repaid. I do not doubt that the deceased did look to his mother and to his sister for financial assistance. Nor do I doubt that that financial assistance was provided. Nor do I doubt that from time to time he said that he would repay the moneys provided to him or paid on his behalf, although I do not think that any such promise can be shown specifically to have been made in relation to any particular debt.

39 It is clear that the first defendant paid money for her son's benefit or made payments to him because she feared that if she did not come to his aid her son might harm himself. That fear was well based as the deceased died by his own hand. But it does not follow that because the deceased said he would repay his mother (for example, that he would make repayment when he sold his property at Muswellbrook and returned to Sydney) that there was any intention between the parties to create legal relations. There is a presumption that arrangements made in a family relationship are not intended to create legal relations. (See Teen Ranch Pty Limited v Brown (1995) 87 IR 308 at 315; and Darmanin v Cowan [2010] NSWSC 1118 at [205]-[215].)

40 In Darmanin v Cowan, Ward J said (at [213]) that:

“ In determining whether the presumption has been rebutted, account is taken of the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances. Regard is also had to the consideration for the promise(s) in question and the certainty with which the parties have expressed their agreement. " (Citation of authority omitted.)

41 In relation to the subject matter of the promises there seems to have been no defined terms for repayment. The payments were made as an act of aid or assistance by the first defendant to her son. There was no record of any loan or of any debt created and there was no demand for repayment. In relation to the status of the parties to the arrangement, the status was that of mother and son. No other surrounding circumstances are identified that would rebut the presumption that such an arrangement is not intended to create legal relations. To the contrary, it appears to me that that presumption was confirmed by the first defendant's affidavit sworn in support of her application for the grant of letters of administration, to which I earlier referred.

42 On 19 July 2007 the first defendant deposed that:

" The liabilities of the deceased of which I am presently aware [are] as follows: 1 ^st mortgage to Westpac Bank, approximately $154,579.43. "

43 That is a clear admission that as at July 2007 the first defendant did not consider that the deceased had any liability to her. Hence it confirms the presumption that moneys which she paid on her son's behalf were not intended to create a legal liability on him to repay. Accordingly, I conclude that the only debts which were properly payable to the first defendant from the estate were the testamentary expenses, including the electricity and phone accounts. There were also testamentary expenses for house cleaning and rubbish removal of $300. The sums in question total $580.09.

44 The first defendant is liable to restore the difference of $19,419.91 plus interest from 10 December 2007.

45 It is relevant to the sixth issue that the sheet submitted by the first defendant claiming debts amounting to $19,693.70 did not in any event justify payment of a sum of $20,000.

Payment of $10,000 purportedly as reimbursement of funeral expenses

46 I turn to the third issue concerning the payment of the two sums of $5,000. No argument was raised in the course of submissions concerning these payments. The issue only emerged very late through the evidence tendered after the plaintiff's counsel had made her submissions in chief, and in the course of the submissions of counsel for the first defendant. In the circumstances I think I am justified in dealing with the issue which arises on the face of the documents.

47 For the reasons I have already given, as stated in the first defendant's affidavit that the amount of funeral expenses was $8,217, the payment of two sums totalling $10,000 on that account amounted to a distribution of the estate to the first and second defendants of $1,783. That was a distribution before publication of any notice under s 92. Notice under that section could not possibly be an answer to the first defendant's obligation to restore the difference. She is liable to restore the sum of $1,783 plus interest from 11 December 2007.

Payment of $40,000 to the third defendant

48 The fourth issue concerns the payment of $40,000 to the third defendant. On 17 January 2008 the third defendant sent a letter to Mr Bizannes. She stated that for family reasons she had held off making a claim earlier in order to minimise her mother's distress. She advised that she required a refund of moneys advanced to the deceased while he was alive, which she said were always in the way of loan payments. She said that this involved her giving the deceased regular payments from time to time to cover his own expenses, particularly in moving to Muswellbrook, and larger amounts when he got into trouble with his payments. She calculated that at least $40,000 was due and owing and made a formal claim. She attached a schedule called "Schedule of Cash Loans" set out below:

SCHEDULE OF CASH LOANS
DESCRIPTION	AMOUNT
Car 1	8,000.00
Car 2	4,500.00
Rent	4,800.00
Rent (Arrears)	2,275.00
Groceries	2,000.00
Removalist/Moving	1,500.00
Solicitors Fees	3,200.00
Rehabilitation	2,400.00
Washing Machine Repairs	250.00
Cash Loans	6,000.00
Vet Bill	800.00
Shoes	80.00
Car Insurance	800.00
Mortgage Repayments	2,500.00
Electricity/Phone	600.00
Vodafone	325.00
Lawn Mower Repairs	300.00
Mechanical Repairs	985.00
Panel Beating	1,015.00
Total	$42,330.00

49 It was submitted for the plaintiff (and raised in cross-examination of the first defendant) that the submission by the third defendant of a claim for repayment of alleged debts was no more than a way in which the parties hoped to justify an equal three-way distribution of the estate. At the time the distribution was made it had not been established that the plaintiff was the deceased's child and therefore entitled to the estate. The first defendant and the other parties were evidently proceeding on the basis that the estate could be distributed to the deceased's parents, the first and second defendants. In a letter of 10 December 2007 from Mr Bizannes to the first defendant, Mr Bizannes referred to an agreement that "residue" be divided three ways.

50 I do not accept the contention for the plaintiff that the third defendant's submission of her claim for debt had no factual foundation and was merely a means of creating an appearance which would justify an approximately equal division of the estate. Indeed, the fact that ultimately the sum of $48,245.55 was divided three ways and that the third defendant was also paid $40,000 on account of the claimed debts shows that that analysis is not correct.

51 There was no real corroboration of the third defendant's claim that she had paid moneys by way of loan to the deceased or had paid the moneys on his behalf. There were no receipts. There were no invoices. There were no cheques. The payments were said to have been made by cash. But the nature of the parties' relationship was such that no documentary corroboration was likely to be available. The first defendant said, and I accept, that she knew from her own knowledge that her daughter had been making payments for the deceased's benefit or lending money to him.

52 The present claim is against the first defendant for wrongly applying assets of the estate in payment of the claimed debt. Unlike the question in relation to the first defendant's claimed debt, the question is not whether the third defendant was in fact owed $42,330 by the deceased. If that were the question before me I would answer it in the negative. On the evidence before me, the presumption against the intention to create legal relations was not rebutted in the case of the third defendant. But that is not the present question on the claim against the first defendant. The question is rather whether the first defendant breached her duty as administratrix in paying $40,000.

53 It is an administrator's duty not to waste an estate which he or she is administering for the benefit of others by paying claims against the estate unless they may properly be paid (In re Rownson; Field v White (1885) 29 Ch D 358 at 361, 363, 364).

54 Under s 49(2) of the Trustee Act an executor or administrator may pay, allow or compromise any debt or claim on any evidence the administrator thinks sufficient. In making that judgment, an executor or administrator must exercise his or her duties of honesty and reasonable care.

55 An administrator is not guilty of wilful neglect or default and is not liable for losses sustained to the estate if he or she, having exercised reasonable diligence makes an honest judgment, that it is in the interests of the estate to delay collecting debts due to the deceased, as distinct from merely standing by and doing nothing at all to collect the debts (Re Owens; Jones v Owens (1882) 47 LT 61). In the same way an administrator is not chargeable if, after the exercise of due diligence he or she forms an honest judgment that the deceased owed a debt and pays the same, rather than defending the claim. Nor is an administrator chargeable if, after the exercise of due diligence, he or she forms an honest judgment that it would be in the best interests of the estate to pay the claim rather than to incur expense and delay in defending a claim whose outcome is doubtful.

56 The law formerly allowed an exception to the general rule that it was a devastavit for an executor or administrator to pay a debt that need not be paid. A debt barred by the Statute of Limitations could be paid, although the statute would provide a good defence. The exception was recognised to be anomalous and was not to be extended. The rationale for the exception was that the Statute of Limitations did not destroy the debt but only the remedy (In re Rownson; Field v White at 364). More elaborately, it was thought that the plea of the Statute of Limitations was unconscionable and that an executor had a liberty not to plead it (In re Rownson; Field v White at 362). That latter rationale was also, it seems to me, based upon the Statute of Limitations not destroying the debt.

57 The basis for this anomalous exception no longer exists. Section 63 of the Limitation Act 1969 (NSW) now extinguishes the debt on the expiry of the limitation period. That is so notwithstanding that if any question arises in any judicial proceeding whether the debt has been extinguished, the party claiming extinction must plead the statute (s 68A).

58 I agree with the view expressed in LG Handler & K Neal, Succession Law and Practice New South Wales, (looseleaf) LexisNexis Butterworths at [1249.2.5] that the earlier decisions permitting a personal representative to pay a statute barred debt are no longer authoritative in New South Wales in light of s 63 of the Limitation Act. Accordingly, an administrator who pays a statute-barred debt will be liable to make good the estate, unless the debt was paid after the administrator, having exercised due diligence and honest judgment, formed the view that the debt was not extinguished, perhaps because there was an answer to a limitation defence, or, if the administrator, having exercised due diligence and honest judgment, formed the view that the costs of defending the claim, or the delay in completing the administration whilst the claim is adjudicated, meant it was in the best interests of the estate to pay or compromise the claim.

59 As I have said, if I were to decide the third defendant's claim on the materials before me, I would not accept it. It does not follow that the first defendant was in breach of duty in accepting the claim. But there are two separate questions. One is whether she was guilty of breach of duty in accepting the claim on materials provided by the third defendant and her own knowledge; and secondly, whether she was in breach of duty in paying claims extinguished by s 63 of the Limitation Act.

60 I do not conclude that the first defendant breached her duty by making any payment of the claims. Notwithstanding the paucity and generality of the material provided, I think she could reasonably have assessed that the sums claimed by the third defendant were due to her. She could reasonably have done so notwithstanding that there is a presumption against there being an intention to create legal relations. However, the case is different in respect of those debts which are statute-barred.

61 The first defendant was aware that the claim of $8,000 for what was called a loan in relation to “car 1” was paid over the last 10 or 15 years and may have been in the 1990s. The third defendant said that the payment was made sometime between 1995 and 1997. The third defendant said that various of the other payments were made from about 1990 up to about 2002 or 2003. She said that the payments she made on behalf of her brother tapered around 2002 or 2003 because of her own circumstances.

62 Some payments were unquestionably made after 25 January 2001. These included costs of removalist when the deceased moved from Sydney to Muswellbrook, which was in 2004. Others included mortgage repayments on the deceased's house in Muswellbrook. In addition, there were some undifferentiated parts of cash loans which are said to have been made in the 10 years up to 2002. Other expenses, such as rent, groceries, electricity and perhaps other miscellaneous expenses, would appear to span periods both before and after January 2001.

63 It was submitted for the first defendant that it was reasonable for her to compromise and pay the claim because there were potentially available defences to the operation of the Limitation Act. In particular, counsel submitted that had the third defendant brought proceedings to recover the claimed debts and had the first defendant pleaded s 14 of the Limitation Act, that plea might have been defeated by a confirmation falling within s 54. Counsel submitted that the onus would be on the first defendant to negate the existence of any such confirmation. I do not accept that submission. In any event, the evidence was quite clear that there was no document to confirm the claims made by the third defendant. Confirmation, to be effective under s 54, must not only be made before the expiry of the limitation period, but must be in writing and signed.

64 It does not appear that any due diligence was carried out by the first defendant in relation to the question of how much of the debts claimed by the third defendant were barred by the Limitation Act. This is not a personal criticism of the first defendant. It seems that she had legal advice. Nonetheless, and subject to her claim for relief under s 85 of the Trustee Act, she must make good those parts of the debts which have been extinguished by s 63 of the Limitation Act.

65 It is very difficult to know what those debts are. I think that where the first defendant failed to address the question, the onus is on her to show how much of the claim could properly have been admitted. Doing the best I can, it seems to me that the first defendant could properly have admitted the claims for $1,500 for removalist expenses, $2,500 for mortgage repayments and, as I have said, some undifferentiated sum for part of the cash loans, rent, groceries, electricity and perhaps some of the other miscellaneous expenses.

66 It does seem, however, that the bulk of the claim relates to periods prior to 25 January 2001 which would be statute-barred. Doing the best I can, I think it reasonable to assess that at least a further $3,000 in addition to the two sums totalling $4,000 that I have mentioned may have been paid by the third defendant to the deceased or for his benefit after 25 January 2001, which would not be statute-barred. This would make a total of $7,000. I conclude that the first defendant must restore to the estate $33,000, being an amount which she allowed to be paid to her daughter in breach of her duty not to waste the estate in payment of debts not payable, together with interest from 1 February 2008.

Did the administratrix have notice of the plaintiff’s claim for purposes of s 92 of the Probate and Administration Act?

67 I turn to the fifth question concerning the distributions made after the publication of notice. At the relevant time ss 92 and 93 of the Probate and Administration Act provided as follows:

“ 92 Distribution of assets after notice given by executor or administrator

(1) The executor or administrator of the estate of a testator or an intestate may distribute the assets, or any part of the assets, of that estate among the persons entitled having regard to the claims of beneficiaries (including children conceived but not yet born at the date of the death of the testator or intestate), creditors and other persons in respect of the assets of the estate of which the executor or administrator has notice at the time of distribution if:
(a) the assets are distributed at least 6 months after the testator’s or intestate’s death, and
(b) the executor or administrator has given notice in the form approved under section 17 of the Civil Procedure Act 2005 that the executor or administrator intends to distribute the assets in the estate after the expiration of a specified time, and
(c) the time specified in the notice is not less than 30 days after the notice is given, and
(d) the time specified in the notice has expired.
(2) An executor or administrator who distributes the assets or any part of the assets of the estate of a testator or an intestate in accordance with subsection (1) is not liable in respect of those assets or that part of those assets to any person who has a claim in respect of those assets or that part unless the executor or administrator had notice of the claim at the time of the distribution or the distribution was not made in the circumstances described in subsection (2) (a) or (b) of section 28 (Protection of personal representatives who distribute as if will had not been rectified) or section 125 (Sharing between spouses) or 126 (Distribution orders) or Part 4.4 (Indigenous persons’ estates) of the Succession Act 2006.
(3) In relation to a distribution of the assets of a testator or intestate dying after the commencement of the Children (Equality of Status) Act 1976, an executor or administrator referred to in subsection (2) shall be deemed to have notice of the claim of any person whose entitlement to the assets or to any part of them would have become apparent if the executor or administrator had applied for and obtained a certificate under section 50 of the Births, Deaths and Marriages Registration Act 1995.
...
93 Claims barred against executor or administrator in certain cases

(1) When the executor or administrator of the estate of a testator or an intestate has published the notices referred to in section 92 (1) and a claim in respect of the assets of that estate is submitted to the executor or administrator, the executor or administrator may, if the executor or administrator disputes the claim, serve on the person by whom or on whose behalf the claim was submitted a notice calling on the person to take proceedings to enforce the person’s claim within a period of 3 months from the date of service of the notice and to prosecute the person’s claim.
(2) If, after a notice has been served on a person in accordance with subsection (1) and the period of 3 months referred to in the notice has expired, that person does not satisfy the Court that the person is prosecuting the person’s claim, the Court may, on an application in that behalf made by the executor or administrator:
(a) make an order barring the claim of that person as against the executor or administrator, subject to such conditions (if any) as it thinks just and equitable, or
(b) make such other order in respect of the application as it thinks just and equitable, having regard to the circumstances of the case.

(3) Where:
(a) in its capacity as executor or administrator, the NSW Trustee or a trustee company:
(i) disputes any claim upon an estate (whether the claimant claims to be a creditor or to have a beneficial interest in the estate), and
(ii) has served on the claimant a notice in accordance with subsection (1), and
(b) the claimant has not, within the period of 3 months referred to in the notice served in accordance with subsection (1), commenced proceedings to enforce the claim,
the NSW Trustee or the trustee company may serve a further notice on the claimant that unless, within the period of 2 months from the date of service of that further notice, the NSW Trustee or the trustee company is duly served with process of court issued in proceedings to enforce the claim, the NSW Trustee or the trustee company will distribute the estate without regard to the claim.
(4) If, within the period of 2 months referred to in a notice served on a claimant in accordance with subsection (3), the NSW Trustee or a trustee company has not been duly served with process as referred to in that subsection, the claimant’s claim shall thereupon be barred and become irrecoverable as against the NSW Trustee or the trustee company and the NSW Trustee or the trustee company may proceed to distribute the estate without regard to the claim.
(5) The NSW Trustee or a trustee company may, if it thinks fit, waive any objection which it might, by virtue of subsection (4), take to proceedings commenced by a claimant after the expiration of the period of 2 months referred to in a notice served on the claimant in accordance with subsection (3).
(6) The powers conferred on the NSW Trustee or a trustee company by subsections (3) and (4) are in addition to the powers exercisable under subsection (2). ”

68 No proceeding was brought by the first defendant under s 93 to bar a claim. The question, as I have said, is whether the first defendant had notice at the time of distribution of the estate on 28 July 2008 of a claim made on behalf of the plaintiff that the plaintiff was the deceased's child.

69 Ms McGrath's pregnancy was confirmed in about May 2006. She discussed her pregnancy with the deceased. After her pregnancy had been confirmed she received a telephone call from the first defendant, who said to her words to the effect:

" You shouldn't have another child ... You should really think about this. "

70 I infer that prior to the plaintiff's birth, the first defendant was on notice (by inference from her son) that the plaintiff was pregnant with a child she claimed to be the deceased's. After the plaintiff was born and prior to the deceased's death Ms McGrath invited the first defendant as well as the deceased to see the plaintiff. The first defendant declined. Again, that was notice to her that Ms McGrath contended the plaintiff was the deceased's son.

71 Ms McGrath telephoned the first defendant after the deceased's death to ask about the funeral. The conversation took place to the following effect:

“ Ms McGrath: Where is Warren's funeral?

First Defendant: What do you need to know that for?

Ms McGrath: Well, I'd like to go to his funeral. After all, I have his son here.

First Defendant: Well, you're going to have a hard time proving that, aren't you? "

72 This evidence was given by Ms McGrath. She was not cross-examined. When put to the first defendant in cross-examination, she denied it. She also denied it in her affidavit. However, in her defence it was asserted for the first defendant that between 27 January and 4 February 2007 Ms McGrath did make the allegation that the plaintiff was a child of herself and the deceased.

73 I do not accept the first defendant's denial of this conversation. Ms McGrath's evidence to this effect is corroborated by a file note from the offices of Mr Bizannes of 31 January 2007. According to the first defendant, the solicitor she consulted at that office was Mr Bizannes. His file note of 31 January 2007 states:

“ Discuss the situation with Nella from Genetic Technologies. She advised that it is possible to perform grandparentage tests in order to establish whether warren was the father of the baby.
Alternatively, if an autopsy was performed Carolyn an authorised any blood or other tissue sample to be picked up and stored by Genetic Technologies. This would cost $440 plus $55 per year after that. If a test was performed this would cost $825 and the storage fee would be offset against this. An eyebrow hair would be sufficient.
TT Carolyn. She did not want any of this done. She requested advice as to her rights and those of the ‘mother’, and whether in the event of a dispute she and warrants [sic] father could be ordered to supply DNA samples.
Carolyn also advised that Warrens [sic] funeral will take place on Friday in Sydney. The lady from Muswellbrook has been making a nuisance of herself. She has rung Carolyn three times in the last couple of days to find out where the funeral was to be held. Carolyn advised her that the funeral was a private affair and that she was not welcome to attend. The lady advised that she wanted to attend the funeral as warren was her baby’s father. Carolyn since found out that she had also spoken to others to try to find out the funeral arrangement information. ”

74 In cross-examination the first defendant did not accept what was contained in the file note, but I have no hesitation in accepting that the file note is an accurate summary of what was discussed. There would be no reason for it to be otherwise. This clearly establishes that both the first defendant and her solicitor knew of a claim that the plaintiff was the deceased's child.

75 On 9 February 2007 Ms McGrath registered notice of the plaintiff's birth with the Registrar-General. The father's name and details were left blank. This was because after coming home from hospital with her son, Ms McGrath asked the deceased for his details. She said that the birth would have to be registered in a reasonable time. The deceased said:

" I'm not signing anything until I have a DNA test. "

76 Ms McGrath said that that was fine by her for the test to be done, but the deceased refused.

77 Ms McGrath could not have recorded the deceased as the plaintiff's father in these circumstances, at least during the deceased's lifetime. Nor could she have done so after the deceased's death, as the reason why he did not join in the application was not due to his death, but to his earlier refusal to do so. (See ss 15 and 18 of the Births, Deaths and Marriages Registration Act 1995 (NSW).)

78 On 20 June 2007 the first defendant received a call on her mobile telephone from a Mr Carl Boyd. He is and was then a barrister. Prior to April 2007 he had practised as a solicitor. He acted for Ms McGrath in some family law proceedings, the details of which are not before me. Mr Boyd took instructions from Ms McGrath and telephoned the defendant on her mobile phone number, which Ms McGrath gave him. In that conversation, having identified himself, Mr Boyd said he had been asked to advise Ms McGrath concerning the possibility of making a claim on the deceased's estate because she was the mother of the deceased's son.

79 In the conversation the first defendant said on a number of occasions:

" Look, my son is dead. This woman claims he was the father of a baby. No-one will ever be able to prove it. "

80 In cross-examination the first defendant admitted that statement. Mr Boyd said that with DNA testing it would be possible to prove or disprove paternity. The first defendant refused to provide her surname or full name or address or the full name of her son or the date of his birth.

81 Eight days after this conversation the first defendant published notice of her intention to apply for a grant of letters of administration. The application for the grant was filed on 23 July 2007. In her supporting affidavit of 19 July 2007 the defendant deposed without any qualification that she and her former husband were the only persons entitled to the distribution of the estate.

82 In an affidavit filed on 1 August 2007 (which I infer was filed as a result of a requisition as it did not accompany the original application), the first defendant deposed:

“ 4. As per the standard form provided on the internet setting out details of de facto relationships under section 4 which I reproduce herewith and section 5A Family relationship I make the following statement:
There was no such relationship and there are no children whatsoever who have been born to the deceased, my son, Warren Terence Wade.
5. As his mother I was in close contact with my son for the past twenty years and frequently saw him and no ongoing relationships arose between him and any other person of an enduring nature and no children were ever born or adopted or otherwise brought within his household. ”

83 The first defendant was then well aware of the possibility that the plaintiff was the deceased's child. The affidavit, if not directly untrue, was not the whole truth. The true position was that the first defendant was aware that Ms McGrath asserted the plaintiff to be the deceased's child. Although the first defendant did not believe this to be true, she did not know the assertion to be untrue. She had not taken any steps to ascertain by way of DNA testing whether the plaintiff was the deceased's child, although advised such tests were available and could prove or disprove paternity. I infer, from her failure to tell the whole truth in the affidavit, that she feared that Ms McGrath's affidavit was true and made no further inquiries in case she learned what she would rather not know. Persons who deliberately shut their eyes, that is, who wilfully fail to make inquiries for fear of learning what they would rather not know, are treated in law as having actual knowledge of the fact.

84 On 25 January 2008 Mr Boyd wrote to the first defendant as follows:

“ I note that you were granted Letters of Administration of your late son’s estate on 7 August 2007 by the Supreme Court.
In the past I was a Solicitor representing Kym McGrath of Scone, the mother of the child Austin born at Scone Hospital on 11 December 2006. It is contended by Ms McGrath that Warren is Austin’s father. I note from the Statement of Assets and Liabilities attached to the Letters of Administration that your son left an estate with a nett value in excess of $100,000.00. No provision was made in the estate, apparently, for the child and I anticipate that Ms McGrath will instruct Newcastle lawyers shortly to make a claim on behalf of the child against the estate.
I note that late last year a payout was made to you as legal personal representative of Warren in the sum of almost $130,000.00.
...
When I contacted Mr Wade’s last employers, Thomas & Coffey in July they sent me a cheque payable to the estate being, apparently, due wages. That cheque and a copy of the letter from Thomas & Coffey are attached. ”

85 This letter was received by the first defendant, who gave it to her solicitor. There was no reply. Neither the first defendant nor her solicitor received any further communication from anyone on behalf of the plaintiff prior to the distribution of the estate.

86 On 18 June 2008 Mr Bizannes published advertisement of the intended distribution of the estate.

87 On 2 July 2008 Mr Bizannes wrote to the first defendant as follows:

“ We enclose a photocopy of the Sydney Morning Herald tear sheet notifying creditors to make their claims within 14 days which expires today the 2 ^nd July.
No notifications have been received and we believe that it would be reasonable now to consider winding up the estate without the fear of further litigation.
In doing so we are aware of circumstances that have concerned you for some time but feel that it is appropriate to deal with the matter in this way. Should an application come from a source under the Family Provision Act there is provision for filling [sic] out of the nominated time of 18 months from the date of death, but the circumstances disclosed to us show how unlikely it would be for a party to be able to establish paternity on the part of your son.
Please contact us to discuss making orderly arrangements for finalization of monies held in our trust account. ”

88 It is not clear what photocopy tear sheet Mr Bizannes was referring to in that letter but that is not of present relevance.

89 The summons in these proceedings was filed on 10 July 2008 seeking an order for provision under the Family Provision Act. Personal service was attempted on the first defendant, but could not be effected. Service was not effected on her until about November 2008. As I have said, on 28 July 2008 the balance of the estate after payment of legal costs was distributed. The first defendant argues that at that time she did not have notice of a claim the plaintiff was the deceased's son. She deposed that after receiving Mr Boyd's letter of 28 January 2008:

“ 15. I did not believe there was any substance to any claims against my son and I was aware from conversations with him that she was a person of low moral repute with problems of substance abuse which had figured in evidence in court proceedings with other persons.
16. I heard nothing further and did not receive any communication from Newcastle lawyers or any other persons and presumed that the claim alleging paternity of my son for the plaintiff’s child had been abandoned.
17. I proceeded with the administration which was concluded in due course without notification of any interested parties whatsoever despite the fact that publication of notices had been administered in the conventional fashion both at the outset of the administration and at the end of the administration without any reply whatsoever. ”

90 The first defendant's position was articulated in a letter from Mr Bizannes to the plaintiff’s solicitor of 13 October 2010 as follows:

“ The Estate of the Late Warren Terence Wade was distributed well and truly before receipt of notification of the existence of these proceedings as you should be well aware by now.
The monies that were disposed of was considerably less than the gross amount received from the superannuation payment which was the only asset and was applied by all three towards reducing their mortgages or payment to household effects.
Had your firm notified this office as it could well have done for over a year before the distribution then we could have advised our clients to retain a portion of the monies of the superannuation but this never happened.
No letter was ever received, no correspondence identifying the applicant, whom you claim was known to our client, but this is not the case according to our instructions. You relied upon a telephone call by a rogue barrister who has now deposed in the proceedings with a telephone call in which he effectively sought to implicate our client in a situation of acknowledging the existence of an illegitimate child of which she had no proof.
Our client never received any correspondence to identify the person, have an address provided to alert her to the potential of the suit other than the calls coming from an unemployed person she does not know and a telephone call which came out of the blue.
We note from the birth certificate records of the child that at the time of birth and notification given your client failed to record the name of the putative father.
No supporting evidence was ever produced to show the paternity of the child until well into the proceedings when at this late stage your client obtained the evidence required through a DNA procedure well after the estate had been distributed.
It was never a large estate and the effective amounts received by the parties were after payment of debts due both the mother and the sister brought it well under $70,000. ”

91 I will return to that letter in due course.

92 The first defendant submitted that the first notice of the claim she received was in the plaintiff's summons not served until November 2008. Counsel submitted that prior notifications were not notices of a claim within the meaning of s 92, but mere "assertions" or "conjectures". The dictionary meaning of "claim" in the Macquarie Dictionary includes an assertion of a right or alleged right and includes the assertion of something as a fact. To make an assertion is to make a claim.

93 I do not accept that the communications from Ms McGrath or from Mr Boyd on behalf of the plaintiff could properly be characterised as mere conjectures by them that the plaintiff might be the deceased's son. They were assertions that he was.

94 I was referred to the decision of Campbell J (as his Honour then was) in Ludwig v Public Trustee [2006] NSWSC 890; (2006) 68 NSWLR 69 in relation to the operation of ss 92 and 93. His Honour's judgment includes a valuable discussion of the background and history of the sections which were the predecessors to ss 92 and 93 of the Probate and Administration Act. However, the issue in Ludwig v Public Trustee was not an issue as to what amounts to, or does not amount to, notice of a claim. More assistance on that question is to be gained from the cases referred to in R Geddes, C Rowland and P Studdert, Wills, Probate and Administration Law in New South Wales (1996) LBC Information Services at [92.04] and [92.06]. The learned authors say (at [92.04]):

“ Under section 60(4) of the Trustee Act 1985 [which is analogous to s 92 of the Probate and Administration Act] the notice of claims submitted to the executor need not be formal, and the fact that the executor does not receive particulars of the claim will not relieve her or him of the duty of providing for it. ”

95 The case cited in support of that proposition is Re Land Credit Company of Ireland; Markwell's case (1872) 21 WR 135. There the deceased was liable as a contributory for shares which were not fully paid. The executrix advertised for claims, the liquidator did not submit a claim. She settled the estate assets. The report states:

“ Lord Romilly MR, was of opinion that Mrs Markwell had notice of the liquidator's claim, and could not avoid satisfying it by the mere publication of advertisements, and consequently she must be on the list of contributories as executrix. ”

96 In Newton v Sherry (1876) 1 CPD 246 the deceased died intestate in 1871. She had a daughter who had left England for America in 1857 without notice to her relatives and who had changed her name. The executrix published notice of intention to distribute the estate in accordance with the provision which is the predecessor of s 92. No notice of any claim was received by the daughter and the estate was duly distributed. After the daughter's return to England in 1874 the daughter commenced proceedings in relation to that distribution, and the question was whether the administratrix was protected by having issued the notice.

97 The Court held that s 29 of the Lord St Leonards Act (the predecessor to s 92) provided protection against claims of beneficiaries and next of kin as well as claims of creditors. On the question of whether the administratrix had notice of the daughter's claim (no claim in the sense of a demand or assertion having been submitted), the Court held that the question was whether the administratrix had notice or knowledge before distribution of the assets that the deceased's daughter was alive. On further inquiry, that question was answered in the negative and the daughter's claim was dismissed. Had the administratrix had notice that the daughter was alive, she would have been held to have had notice of a claim within the meaning of the section, although no claim in the sense of a demand was made. The administratrix would have had notice that the daughter had a claim on the estate by virtue of being entitled to it on intestacy.

98 In Scottish Equitable Life Assurance Society v Beatty [1889] 29 LR (Ir) 290, Fitzgibbon LJ said (at 298):

“ The Act is intended to protect honest administration carried out in ignorance, not to enable representatives to get rid of demands within their knowledge. On the face of section 29 itself the discharge from liability is confined to claims of which the executor has no notice at the time of distribution. Therefore any notice up to the time of parting with the assets is enough. ”

99 The Act does not protect against claims or demands of which the administrator has notice or knowledge. If the administrator knows or has notice of facts which entitle a person to distribution of the estate, or knows or has notice of a demand, then he or she distributes at his or her peril. If an administrator wishes to bar a claim of which he or she has notice, then he or she must proceed under s 93.

100 It is no part of the function of a fiduciary with notice of a claim to disregard it because he or she honestly believes that the claim is without substance (Guardian Trust & Executors Company of New Zealand Limited v Public Trustee of New Zealand [1942] AC 115 at 128).

101 It seems to me to be unarguably clear that the first defendant had notice of a claim that the plaintiff was the deceased's son. She may not have believed it, or wanted to believe it, but that is not to the purpose. Having notice of the claim, she distributed the estate at her peril of having to restore it. It was not incumbent on Ms McGrath or those acting for Ms McGrath to give further notices of the claim. A claim does not have to take any particular form.

102 Returning to the letter from Mr Bizannes of 13 October 2010, in the first quoted paragraph, he says that the estate was distributed before receipt of notification of the existence of these proceedings. That fact was irrelevant. The third quoted paragraph states that had Mr Diggins (the solicitor for Ms McGrath and the plaintiff) notified Mr Bizannes' office, he could have advised his clients to retain a portion of the moneys of the superannuation, but this did not happen. There was no basis upon which any of the superannuation could properly have been paid over, otherwise than in payment of just debts, given the notice the first defendant and, I might add, her solicitor, had of the claim that the plaintiff was the deceased's son.

103 In the next quoted paragraph Mr Bizannes stated that no letter was ever received or correspondence identifying the applicant. In fact, a letter was sent by Mr Boyd. It was undoubtedly received by the first defendant and she gave evidence that that letter was provided to her solicitor. Mr Bizannes next made a reference, which I can only characterise as personal, scurrilous abuse. Such language between solicitors is to be deplored. There is simply no excuse for such rudeness. When such intemperate correspondence comes to the notice of the Court, it is the Court's duty to condemn it in the plainest possible terms. I do so.

104 In the next quoted paragraph Mr Bizannes asserted that the first defendant had not received any correspondence to identify "the person" (who might have been Mr Boyd or perhaps Ms McGrath), nor received any address for such a person. The fact is that Mr Boyd provided his address in his correspondence and the address of Ms McGrath, if it was not already known to the first defendant, was apparent on the birth certificate which is referred to in the next paragraph. Mr Bizannes then said that no evidence had been produced to show paternity of the child until well into the proceedings when DNA evidence was obtained. The fact is that as early as January 2007, he had advised the first defendant of the possibility of establishing or disproving the claimed paternity of the plaintiff through DNA testing and the first defendant had declined to pursue that course. There is no substance to any of the quoted contentions.

105 As the first defendant had notice of the plaintiff's claim before making the distribution, she is liable to restore the distributed amount to the estate, namely $48,245.55 with interest from 28 July 2008.

Section 85 of the Trustee Act

106 The sixth issue is whether the first defendant should be relieved of her liability with respect to s 85 of the Trustee Act. As pleaded, the claim is made in respect of that part of the estate which was "distributed" with notice of the plaintiff's claim. However, the pleading also states:

"7. The Cross claimant is the registered proprietor of the property known as [xx xxxxxxxxx xxxxx] , Glenwood NSW ...
8. The Cross claimants [sic] property is of value ... "

It is then pleaded that the property is secured by a first mortgage in a sum much less than the property's value. It is then stated:

“ In the circumstances of the Court finding that the Cross claimant has committed a devastavit in respect of the estate of the late Warren Terrance [sic] Wade the Cross claimant seeks to make good any such devastavit by securing such sum of money as the Court should find as monies secured against the Cross claimants [sic] property in trust for Austin Peter McGrath. "

107 I understand this contention to be raised both in respect of a claim for relief under s 85 of the Trustee Act and otherwise as a matter which the court in its discretion should take into account in deciding what remedy should be provided in respect of breaches of trust for which the first defendant is not entitled to relief under that section.

108 The reference to the commission of a "devastavit" suggests that the claim for relief under s 85 is made not only in relation to distributions out of the estate to the purported beneficiaries but in relation to the payment of moneys for purported debts.

109 Section 85(1) and (2) of the Trustee Act provides:

“ 85 Excusable breaches of trust

(1) Where a trustee is or may be personally liable for any breach of trust, the Court may relieve the trustee either wholly or partly from personal liability for the breach.
(2) The relief may not be given unless it appears to the Court that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in the matter in which the trustee committed the breach. ”

110 "Trust" is defined to include the duties incident to the office of a person or legal representative of a deceased person and "trustee" has a corresponding meaning. Hence, it is possible for the first defendant to seek relief under the section both in respect of the payment of debts to herself that were not due, or to her daughter which had been extinguished, as well as to the distribution of the estate.

111 The requirements of s 85(2) are cumulative. The strongest ground for granting relief under the section is that the first defendant appears at all times to have acted on the advice of her solicitor. As I have said, the first defendant's claim was submitted to him on or around 10 December 2007. He paid $20,000 from the estate to the first defendant and I accept the first defendant's evidence that she submitted to her solicitor the documents on which she relies for that claim.

112 On 2 July 2008 the first defendant's solicitor provided the advice which I have set out earlier in these reasons, to the effect that it was reasonable to wind up the estate. However, the fact that the first defendant acted on legal advice which has been shown to be inadequate is not sufficient to warrant her being excused from liability under the section.

113 First, s 85 should not be used to protect the first defendant from reimbursing moneys which she has received personally and to which she was not entitled. Indeed, I do not think that the first defendant contended to the contrary.

114 Secondly, to obtain the protection of the section the first defendant must have acted honestly and reasonably. The first defendant did not, in all respects, act honestly. Had she made a full and frank disclosure in her affidavits in support of her application for a grant of letters of administration, she may well not have obtained the grant at all.

115 Thirdly, the first defendant did not act reasonably in the sense that she did not act as a trustee should act in admitting the whole of the third defendant's debt, including that which was statute-barred. Nor did she act reasonably in distributing the estate when she had been advised that means were available to determine whether the plaintiff was or was not the deceased's child, and hence had been advised that means were available to determine whether or not the plaintiff was the beneficiary of the estate.

116 Nor ought the first defendant fairly to be excused for her breaches of trust and fiduciary duty, where to do so would be to deprive the plaintiff of an estate of small value which is likely to be needed for his future maintenance, education and advancement in life. I will dismiss the cross-claim claiming relief under s 85.

Restoration of estate

117 The next issue concerns the first defendant's proposal outlined above that rather than being required to restore the moneys wrongly paid and distributed, the first defendant should be permitted to grant a mortgage to secure that liability. No authority has been cited and I am aware of none which would justify that course. It seems to me to be inconsistent with principle that a trustee liable to restore an estate should be permitted to defer that liability for an indefinite period on security. I reject that claim.

Removal of first defendant as administratrix

118 The eighth issue is whether the first defendant should be removed as administratrix. The question is whether the circumstances compel a firm conclusion that the due and proper administration of the estate has been put in jeopardy or has been prevented by reason of acts or omissions on the part of the administrator or that there are other matters which establish that she is not a fit and proper person to carry out the duties which she swore she would perform (Bates v Messner (1967) 67 SR (NSW) 187 at 191-192 applied in Mavrideros v Mack [1998] NSWCA 286; (1998) 45 NSWLR 80).

119 Breaches of duty have been established which show that the proper administration of the estate is in jeopardy. The first defendant has not offered to remedy those breaches by restoring the estate, but only by offering security for such a remedy. The grant of letters of administration was obtained with affidavits which did not tell the whole truth. The first defendant's affidavit sworn in these proceedings of 27 January 2009 in relation to the assets and liabilities of the estate and how it was distributed was, as events have proved, manifestly erroneous. I think this is a clear case for the revocation of the grant. Section 22 of the NSW Trustee and Guardian Act confers power to appoint the NSW Trustee in the first defendant's place.

Personal claim against second defendant

120 Ultimately the personal claim brought by the plaintiff against the second defendant, that he restore the moneys paid out to him, was not pressed. Such a claim would only be available if the plaintiff first exhausted his remedy against the first defendant. That remedy has not yet been exhausted. I express no view as to whether or not the claim could be maintained against the second defendant if the plaintiff is ultimately not able to obtain satisfactory redress from the first defendant. As matters presently stand, that claim cannot proceed (Ministry of Health v Simpson [1951] AC 251 at 267; Nudd v Mannix [2010] NSWCA 127 at [26]).

Family Provision Act claims

121 The claims under the Family Provision Act were ultimately only maintained if the plaintiff failed to obtain redress against the first defendant because the first defendant might be entitled to rely upon s 92 of the Probate and Administration Act or s 85 of the Trustee Act. The defences under those sections have been rejected. It follows that the claims under the Family Provision Act do not arise.

122 For these reasons I make the following orders:

(1) Order that the grant made to the first defendant on 7 August 2007 of letters of administration of the estate of Warren Terence Wade late of Muswellbrook, New South Wales, be revoked.

(2) Order that letters of administration of the said estate be granted to the NSW Trustee.

(3) Refer the proceedings to the Registrar to complete the grant to the NSW Trustee.

(4) Order that the first defendant pay the following amounts to the NSW Trustee, to be held by it on the statutory trust for the plaintiff in accordance with the former section 61B(4) of the Probate and Administration Act 1898:

(a) $19,419.91 plus interest at the rates prescribed pursuant to schedule 5 to the Uniform Civil Procedure Rules 2005 from 10 December 2007;
(b) $1,783 plus interest at the said prescribed rates from 11 December 2007;
(c) $33,000 plus interest at the prescribed rates from 1 February 2008;
(d) $48,245.55 plus interest at the prescribed rates from 28 July 2008.


(5) Order that the plaintiff's claims for relief against the second and third defendants be dismissed and that the plaintiff's claims against the first defendant be otherwise dismissed.

(6) Order that the cross-claim be dismissed.

(7) I direct that the exhibits be dealt with in accordance with part 51 rr 51.24 and 51.43 of the Uniform Civil Procedure Rules.

123 I will hear the parties on costs.

124 In due course I will also invite the first defendant's solicitor to make submissions as to whether or not I should refer this matter for investigation by the Law Society Council or the Legal Services Commissioner. I am concerned in particular with the affidavit of the first defendant in these proceedings of 27 January 2009, and her affidavits on the application for the grant of letters of administration of 19 July 2007 and 1 August 2007. As Young J (as his Honour then was) said in ERS Engines Pty Ltd v Wilson (1994) 35 NSWLR 193 at 197:

“ It cannot be emphasized too greatly that one's obligation in making an affidavit is the same as when one is giving evidence in the witness box. One is to tell the truth and the whole truth. It is completely unacceptable for a solicitor to prepare an affidavit in which a witness gives a half truth ... "

[The parties addressed on costs.]

125 I make no order for costs as between the plaintiff and the second and third defendants.

126 The plaintiff initially sought an order for indemnity costs against the first defendant from 26 May 2010 on the basis of a letter expressed to be a Calderbank offer of that day, and subsequently submitted that there should be an order for indemnity costs from 12 July 2010 on the basis of a letter of that date expressed to be an offer of compromise made under r 20.26 of the Uniform Civil Procedure Rules. Counsel for the plaintiff did not press for an order for indemnity costs on the basis of the letter of 26 May 2010. That offer sought an order that the defendants pay $80,000 to Ms McGrath. I have not ordered payment to Ms McGrath and no such order could properly have been made, in my view, unless Ms McGrath had been appointed as administratrix. There was no basis for making such an order.

127 The second offer of 12 July 2010 was that:

“... we have instructions to make an offer accepting $60,000.00 plus costs being made up of $20,000 contributions from each Defendant to be held in Trust by the Public Trustee for the benefit of our client in final settlement of this matter. "

128 The reference to "our client" is clearly to the plaintiff. That offer was that $20,000 be paid by each defendant. The second and third defendants were not liable to make such payments as the plaintiff had not exhausted his remedy against the first defendant. It was not an offer to accept $60,000 from the first defendant. It might be construed as an offer to accept $20,000 from the first defendant but, if so, its acceptance would be conditional upon $20,000 being offered by each of the other defendants and, as I have said, they were not liable. In my view an order for indemnity costs is not warranted on the basis of either letter.

129 Counsel for the first defendant submits that as the plaintiff has not succeeded on his Family Provision Act claim, an order should be made in respect of that issue that each party his and her own costs. I do not agree. I think that the question of costs should be assessed having regard to the litigation as a whole. The plaintiff has been successful against the first defendant. The appropriate order is that the first defendant pay the plaintiff's costs of the proceedings on the ordinary basis. I so order.

130 I will stand the matter over to a convenient time to deal with the question I have raised as to whether or not there should be a referral of the matter for investigation by the Law Society Council or the Legal Services Commissioner.

Post-script on Publication of Reasons: 16 December 2010

Since making these orders, it has come to my attention that schedule 5 of the Uniform Civil Procedure Rules was repealed by the Uniform Civil Procedure Rules (Amendment No 32) 2010 (made under the Civil Procedure Act ) from 1 July 2010.

Accordingly it may be that order 4 does not provide for interest to be payable after 1 July 2010. That was not my intention. If schedule 5 had not been repealed or amended, interest from 1 July 2010 would be payable at the rate of 9 per cent per annum.

The court can correct errors in orders pursuant to r 36.17 of the Uniform Civil Procedure Rules (the “slip rule”) on its own motion. To give effect to my intention, I make the following further order:

1. Discharge order 4 and in its place substitute the following:

Order that the first defendant pay the following amounts to the NSW Trustee, to be held by it on the statutory trust for the plaintiff in accordance with the former s 61B(4) of the Probate and Administration Act 1898:
(a) $19,419.91 plus interest at the rates prescribed pursuant to schedule 5 to the Uniform Civil Procedure Rules 2005 from 10 December 2007 up to 1 July 2010 and thereafter at 9 per cent;


(b) $1,783 plus interest at the said rates from 11 December 2007;

(c) $33,000 plus interest at the said rates from 1 February 2008;

(d) $48,245.55 plus interest at the said rates from 28 July 2008.

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