Mitchell v McLear
[2020] VSC 25
•6 February 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 05156
| GARY ERIC MITCHELL | Plaintiff |
| v | |
| DENNIS WALTER MCLEAR (who is sued in his capacity as the executor of the estate of JOHN MITCHELL, deceased) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 6 February 2020 |
CASE MAY BE CITED AS: | Mitchell v McLear |
MEDIUM NEUTRAL CITATION: | [2020] VSC 25 |
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WILLS AND ESTATES — Administration of estate — Failure by executor to account or distribute estate to beneficiaries of estate — Orders made for executor to pay the plaintiff his share of the estate with interest and costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms U Stanisich | Hentys Lawyers |
| For the Defendant | No appearance |
HER HONOUR:
Introduction
John Mitchell died on 25 April 2009 leaving a will dated 11 January 2006.
On 4 December 2009, probate of the deceased’s will was granted to the defendant, who is the named executor in the will.
The inventory of the estate’s assets and liabilities filed with the application for a grant of probate recorded the following:
House at 219 Macarthur Street, Sale (‘Sale property’)
$250,000.00
CBA Streamline Account No. 352610296258 (‘streamline account’)
$8,155.40
CBA Term Deposit Account No. 3526501712732 (‘term deposit account’)
$5,000.00
CBA MasterCard Credit Card No. 5353161801633704
($11.72)
Net Estate
$263,143.68
The plaintiff is the son of the deceased. The defendant is the son of the deceased’s second wife. The deceased was married to his third wife, Iris Lillian Mitchell (known as Lillian Mitchell), at the date of his death.
Pursuant to the deceased’s will, the estate was held on trust for sale and the residuary estate divided into four shares to be distributed equally between the plaintiff, the defendant, Lillian Mitchell, and the last share between the deceased’s ten grandchildren as survived the deceased and attain the age of 18 years as tenants in common in equal shares.
At the date of death of the deceased, the plaintiff resided in the United Kingdom. He was not notified of any entitlement under his father’s estate and he assumed the estate was left to the deceased’s third wife.
In January 2017, the plaintiff obtained a copy of the deceased’s will and discovered his entitlement to one quarter of the residue of the estate. No distribution has ever been made to the plaintiff. On 19 December 2017, the plaintiff sought orders that the defendant file a true and just account of the administration of the estate, and pay the sum of $65,785.92 pursuant to the plaintiff’s entitlement under the will and interest in accordance with s 39B of the Administration and Probate Act 1958.
Procedural history
On 31 August 2018, orders were made that by 21 September 2018 the defendant file a true and just account of the administration of the estate in the form prescribed by the Supreme Court (Administration and Probate) Rules 2014, together with all supporting documentation. Orders were also made for the parties to file and serve submissions in support of their respective positions by 19 October 2018, so that the proceeding could thereafter be considered on the papers.
The defendant provided an accounting dated 17 October 2018 (‘the accounting’) to the plaintiff. He failed to provide any supporting documentation, as required when acting as an executor of an estate. Further, the accounting was not filed with the Court.
On 15 November 2018, the plaintiff filed written submissions. By email correspondence to the defendant on 7 January 2019, 11 January 2019, 31 January 2019 and 22 February 2019, the Court enquired of the defendant when he would file and serve his submissions, or otherwise update the Court as to the status of the proceeding.
On 11 April 2019, the defendant’s then solicitors filed a summons seeking leave to file a notice of ceasing to act, pursuant to r 20.03(3)(a) of the Supreme Court (General Civil Procedure) Rules 2015 as the defendant resided outside of Victoria. On 30 May 2019, the defendant’s solicitors were granted leave to cease acting on behalf of the defendant.
On 12 August 2019, the Court provided further time for the defendant to file his submissions. The defendant did not file any submissions.
Consideration
As executor, the defendant acted in a fiduciary capacity vis-a-vis the estate. It has been observed that the executor of an estate is ‘bound by a most direct trust to deal properly with the assets and to apply them in due course of administration of the estate’.[1] A corollary of the defendant’s fiduciary duty to the estate is his duty to account to the beneficiaries under the will.[2] Accounts kept by an executor must be sufficiently accurate, unambiguous, clear and distinct as to provide the beneficiaries with sufficient information to inform them as to the state of the administration.[3] In keeping adequate accounts, it is necessary for an executor to maintain documentation such as receipts as evidence of each transaction.
[1]Re Marsden; Bowden v Layland (1884) 26 Ch D 783, 790 (Kay J), quoted in GE Dal Pont and KF Mackie, Law of Succession (LexisNexis Butterworths, 2nd ed, 2017), 423 [12.21].
[2]Dal Pont and Mackie, Law of Succession, 428 [12.30].
[3]Re Estate of Orre (Supreme Court of New South Wales, Powell J, 19 December 2001), 5; Hill v Roberts & Proctor (Supreme Court of Victoria, Ashley J, 27 October 1995), 32–3.
The accounting listed the corpus account receipts as the sale proceeds of $227,000 from the Sale property in March 2011 as well as the sum of $8,155.40 held in the streamline account.
The defendant accepted these amounts, but noted that the corpus account failed to include the term deposit of $5,000 listed in the inventory that was filed with the probate application.
The accounting for the corpus disbursements totalled $21,775.41, which amount was accepted by the plaintiff.
The income receipts listed the rate adjustments at $526.40 and rental income for the Sale property from 18 January 2011 to 18 March 2011 at $2,160.00. An online search for the Sale property conducted by the plaintiff showed that the property was also rented for the periods September 2009 to March 2010 at $230 per week, with rental income totalling $5,980; March 2010 to January 2011 at $240 per week, with rental income totalling $10,320; and from 1 January 2011 until 17 January 2011 at $250 per week, with rental income totalling approximately $500. This additional rental income amounts to approximately $16,800 and has been omitted from the accounting.
The accounting of the income disbursements recorded two payments. The first is described as repayment of an alleged loan of $15,000 by Lillian Mitchell to the deceased. The second is a reimbursement to the defendant of $45,000 for alleged improvements and maintenance on the Sale property. The plaintiff does not accept the payment of these two amounts as the alleged loan was not included in the inventory and the defendant did not provide any documentation to support either disbursement.
The accounting for the portion of the estate distributed to the executor recorded the defendant as having received the amount of $216,493.16 on 18 March 2011. The plaintiff accepted that these funds were paid into the defendant’s bank account with the Commonwealth Bank of Australia, which appeared to be the defendant’s personal account. No bank statements were provided by the defendant showing the disbursement of estate funds from the personal account.
The accounting for the administration of the net sale proceeds recorded distributions of $35,000 to each of the defendant, Lillian Mitchell and one share divided among seven of the deceased’s ten grandchildren. The defendant failed to provide documentation to support the recorded payments or explain how the quantum of the payments was calculated. The accounting did not record any distribution to the plaintiff or the deceased’s remaining three grandchildren and did not explain his reason for not making the distributions.
In respect of the accounting and the deficiencies identified by the plaintiff, the estate accounting ought be amended by including the balance of the term deposit account of $5,000 as an asset of the estate and the rental income of $16,800.00 from the Sale property as income of the estate. The accounting should exclude the liabilities being the alleged loan by Lillian Mitchell of $15,000 to the deceased and the alleged reimbursement for improvements and maintenance on the Sale property.
Accordingly, the assets and liabilities of the estate should be recorded as follows:
Corpus Account Receipts Sale proceeds of the Sale property $227,000.00 Streamline account $8,155.40 Term deposit account $5,000.00 Corpus Account Disbursements ($21,775.41) Income Account Receipts Rates adjustment $526.40 Rental income for the Sale property from September 2009 to 18 March 2011 $18,960.00 NET ESTATE $237,866.39
The plaintiff’s entitlement to one quarter of the residuary of the estate, therefore, amounts to $59,466.60. Interest is payable on that amount at the rate of 5 per cent compounded annually from one year of the date of the deceased’s death to the date of distribution. If that distribution is not paid within seven days of the orders made in this proceeding, interest will be charged pursuant to the Penalty Interest Rate Act 1983.
Costs
The plaintiff has been successful in the proceeding and is entitled to an award of costs in his favour. The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court. A special costs order may be made where the proceeding exhibits a special or unusual feature or special circumstances. Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs.[4]
[4]Ugly TribeCo Pty Ltd v Sikola [2001] VSC 189, [7]–[8] (Harper J). See also Colgate-Palmolive Co v Cussons Pty Ltd [(1993) 46 FCR 225, Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399. The decision at first instance was affirmed by the appellate decision on the issue of special costs: Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors [2013] VSCA 237 [538]–[551].
The defendant has breached his fiduciary duties to the plaintiff. He failed to inform the plaintiff that he was a beneficiary of the estate and failed to account to him or pay him his entitlement under the deceased’s will. The accounting that was eventually provided was approximately 12 years after the deceased’s death and was inaccurate. Such conduct on the part of the defendant justifies orders that the defendant personally pay the plaintiff’s costs on an indemnity basis and that the defendant bear his own costs of the proceeding.
Orders
The Court will order as follows:
(a) By 28 February 2020, the defendant file a true and just account of the administration of the estate in Form 3–6AA of the Supreme Court (Administration and Probate) Rules 2014, incorporating the amendments outlined in these reasons.
(b) The defendant pay the plaintiff the sum of $59,466.60, being his entitlement under the terms of the will.
(c) Pursuant to s 39B(3) of the Administration and Probate Act 1958, the defendant pay interest on the amount of $59,466.60 at the rate of 5 per cent compounded annually from 25 April 2010 to the date of distribution.
(d) The defendant pay the plaintiff’s costs of and incidental to the proceeding on the indemnity basis, without recourse to the estate.
(e) The defendant bear his own costs of and incidental to the proceeding.
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