Molnar v Butas (No 3)
[2017] VSC 711
•22 November 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 3738
IN THE MATTER of the Estate of ROZALIA WRIGHT, deceased
| ANDREAS MOLNAR | Plaintiff |
| v | |
| ZOLTAN BUTAS (in his capacity as the Executor of the Estate of Rozalia Wright, deceased) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 August 2017, 1 November 2017 |
DATE OF JUDGMENT: | 22 November 2017 |
CASE MAY BE CITED AS: | Molnar v Butas (No 3) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 711 |
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PROBATE — Application to remove executor — Allegation that executor in conflict between interest and duty — Miller v Cameron (1936) 54 CLR 572.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M S Goldblatt | Ian G Hone |
| For the Defendant | Ms U Stanisich | Griffin Law Firm |
HER HONOUR:
Rozalia Wright died on 5 September 2015, aged 78 years. She was survived by her son (‘the defendant’) and her half-brother (‘the plaintiff’). The estate of the deceased was left to the defendant, his wife and the plaintiff as tenants in common in equal shares. Probate of the deceased’s will dated 7 May 2006 was granted to the defendant on 15 September 2016.
The principal asset of the estate is the deceased’s home at 40 Ebony Drive, Bundoora (‘the Bundoora property’) valued for probate purposes at $550,000 with the remaining assets valued at $263,140 being money in the bank and money ($45,000) located in a safe.
In proceeding S CI 2017 03185, the plaintiff seeks, inter alia, a declaration that the Bundoora property is held on trust for him and an order that the defendant sell the property to him for one half of the market value of the property as at May 2015, pursuant to an oral agreement with the deceased during her lifetime (‘the trust proceeding’).
At the same time as the hearing of the plaintiff’s application for removal of the defendant as the executor of the estate, the Court also heard an application by the plaintiff for leave to amend his constructive trust claim in the trust proceeding.[1]
[1]Molnar v Butas (No 2) [2017] VSC 710 (22 November 2017).
Plaintiff’s application
By originating motion and summons filed 18 September 2017, the plaintiff seeks the removal of the defendant as the executor of the estate of the deceased and for Ms Suzanne Lyttleton to be appointed ‘as executrix’ of the estate. He also seeks that the defendant, as the executor of the estate, pay him the sum of $64,723.17 by way of interim distribution from the estate.
The plaintiff claims that the defendant is unfit to remain as the executor of the estate as he has placed himself in a position of conflict of interest. The alleged conflict of interest is that the defendant is living in the Bundoora property, treating it as his own property and has erected a fence along the driveway. The plaintiff contends that the defendant has an obligation to preserve the estate by generating income for the estate by way of, for example, leasing the property on commercial terms.
The plaintiff also claims that the defendant has acted with antagonism towards him as the defendant has failed to pay an interim distribution of $64,723.17 from the estate and has made numerous inconsistent statements and claims about the contents of a safe, which is the subject of litigation in the trust proceeding.
The plaintiff’s application is supported by an affidavit by the plaintiff sworn 15 September 2017, an affidavit by the plaintiff’s partner, Mrs Gerdov, sworn 15 September 2017 and an affidavit by Mr Abedin Aliu sworn 15 September 2015. Mr Aliu claims to be the plaintiff’s attorney, however, no documentary evidence has been filed to support this claim. These affidavits contain a substantial amount of hearsay, speculation and irrelevant material. For the purposes of the application, the substance of the affidavits is set out, however, the weight placed on their content is negligible, save that they demonstrate a robust and aggressive attitude taken by Mr Aliu towards the defendant.
The plaintiff deposes that the defendant is not properly carrying out his obligations as the executor of the estate of the deceased and says that insofar as Mr Aliu has deposed to matters relating to the plaintiff, those matters are true and correct. The plaintiff also refers to two affidavits filed in the trust proceeding, being an affidavit sworn by him on 19 June 2017 and an affidavit sworn by the defendant on 9 June 2016 and deposes that various matters in them ‘are directly relevant to the matters in issue’ in the removal proceeding.
Mrs Gerdov’s affidavit simply deposes that matters referred to in Mr Aliu’s affidavit that relate to her are true and correct.
Defendant treating the Bundoora property as his own
Mr Aliu deposes to being told by the plaintiff and Mrs Gerdov that they had seen the defendant and his wife ‘apparently now living’ in the Bundoora property. He then conducted an online search and concluded the defendant and his wife had sold their property in St Albans. Mr Aliu deposes that he then drove past the Bundoora property on a number of occasions. He noticed cars in the driveway, maintenance done on the property and a fence erected across the driveway. He asked a neighbour if anyone was living in the Bundoora property and was told that a couple had recently moved into the property. Mr Aliu was aware that the property had previously had a ‘For Sale’ sign on it that had been removed. Another search conducted by him revealed that the property was not for sale or rent.
On 12 September 2017 at 2.40 pm, Mr Aliu attended at the Bundoora property, parked his car outside the driveway of the property and took photographs of the front of the house. The defendant came out of the house and angrily confronted Mr Aliu telling him to leave. Mr Aliu deposes to being surprised by what he described as the defendant’s ‘erratic and nonsensical behaviour and exhibition of rage’. Mr Aliu said that initially he did not approach the defendant or the property but as he felt threatened, he stepped onto the driveway and told the defendant he would call the police. The defendant told Mr Aliu to get off the property or he would call the police. Ultimately, Mr Aliu got into his car but, before doing so, he told the defendant that he should talk with the plaintiff and settle the case and that the plaintiff was old and not in good health. According to Mr Aliu, the altercation lasted for two minutes. Mr Aliu disputes that his behaviour was ‘intimidating’.
Mr Aliu deposes that from his observations since the plaintiff vacated the Bundoora property in December 2015, the defendant had not rented out the property until he moved into it with his wife in about July 2017. He deposes that in the premises, the defendant is not properly carrying out his obligations as the executor of the estate of the deceased.
Defendant’s failure to pay an interim distribution to the plaintiff
The plaintiff relies on his affidavit filed in the trust proceeding and his affidavit sworn 15 September 2017 in this proceeding. On 27 May 2016, the then solicitors for the estate sent a cheque for $64,723.17 ‘representing 1/3rd of the current assets’ to the plaintiff. The plaintiff deposited the cheque with his bank on 18 November 2016, being the same date on which the then solicitors for the estate filed a notice of solicitor ceasing to act in the trust proceeding on the instructions of the defendant executor, who was on that day defending an application by the plaintiff that the then solicitors were in a position of conflict.[2] By letter dated 21 November 2016, estate’s then solicitors informed him that the cheque for $64,723.17 was stopped. He says the letter informed him the cheque had been cancelled as ‘it had not been presented for more than six months’. After initially promising to forward a new cheque, the estate’s then solicitors said they could not proceed to distribute the moneys held until further instructions were received from the defendant’s new solicitors.
[2]The then solicitors for the estate had also sent the plaintiff’s solicitors an unfiled copy of the notice by email at 12.42 pm on 17 November 2016, advising that they had received instructions from the defendant to cease to act and that the applications was now unnecessary and should be withdrawn to avoid unnecessary costs.
Plaintiff’s claims regarding the contents of the safe
The plaintiff relies on his affidavit filed in the trust proceeding. The plaintiff claims that cash and jewellery were left in a safe. In his proposed amended statement of claim, he alleges the defendant has taken property belonging to him. The plaintiff claims the defendant has given multiple explanations of how he dealt with the $45,000 that the plaintiff says was in the safe, but the defendant has failed to provide any receipts or documentary evidence and that some the explanations are at odds with his defence and counterclaim. The plaintiff refers to a letter dated 18 April 2016 from the estate’s former solicitors stating there was no safe at the Bundoora property as the plaintiff had removed it and various correspondence between the solicitors for the parties to demonstrate the conflicts in the evidence on this issue.
Affidavit filed on behalf of the defendant
The defendant’s wife, Mrs Butas, filed an affidavit sworn 31 October 2017. Mrs Butas deposes that in February 2016 the Bundoora property was listed for sale. Since the death of the deceased, the defendant and Mrs Butas have maintained the property and met all the outgoings. In doing this, they spent several days a week at the property. The property was not rented as under the deceased’s will it was to be sold and the proceeds of sale divided between her, the defendant and the plaintiff.
In June 2016, the plaintiff lodged a caveat on the title to the Bundoora property claiming an interest in the property by way of a constructive trust. In August 2016, he issued the trust proceeding.
Mrs Butas deposes that while the property was vacant, the neighbours reported unknown people lingering around the property and she and the defendant feared the property might be damaged or people might squat in it, and that their ability to obtain insurance over the property was limited given it was vacant. Around this time, the garage door was kicked in to force entry into the property. After that, they changed the locks on the property.
Mrs Butas deposes that she and the defendant were concerned that potential tenants may damage the property and also that they did not expect the finalisation of the trust proceeding to take so long. Mrs Butas and the defendant are now living in the property to protect it from any potential damage and to maintain its ‘pristine condition’ pending the trial of the trust proceeding. Mrs Butas deposes that she and the defendant understand that the plaintiff may seek an adjustment from them at the end of the proceeding but in the interim they consider that their occupation of the Bundoora property will result in a greater benefit for the estate.
Mrs Butas disputes the allegations made by Mr Aliu and says his behaviour was captured on CCTV. After Mr Aliu’s attendance at the Bundoora property and the altercation with the defendant, the defendant’s solicitor wrote to Mr Aliu complaining about his trespasses on the property on several occasions and his intimidating behaviour. The correspondence warned Mr Aliu that if his behaviour continued an application would be made to restrain Mr Aliu or his agents from attending the property without permission. Mrs Butas deposes that an interim personal safety order was granted in their favour preventing Mr Aliu from engaging in ‘further intimidatory and related behaviour’.
Applicable principles
A court may remove an executor at its discretion pursuant to s 34 of the Administration and Probate Act 1958. Under s 34, the grounds for removal in a contested application are that an executor has been absent from Victoria for two years or refuses to act or is unfit to act.[3] On any removal application, the Court should have regard to a testator’s wishes as to the identity of an executor or trustee.
[3]Administration and Probate Act 1958, s 34(1)(a), (c).
Ultimately the decision to remove an executor depends on all the facts of the particular case and is a determination to be made at the discretion of the Court after consideration of the interests of the beneficiaries, the security of estate property, the efficient and satisfactory exercise of the trusts, and a faithful and sound exercise of the powers by an executor or trustee.[4]
[4]Miller v Cameron (1936) 54 CLR 572, 580–1 (Dixon J).
In Manocchio v Wilson, Habersberger J dealt with an application to remove a co- executor on the ground of unfitness to act based on an alleged conflict of interest and duty and stated:
Unfitness to act can be constituted not only by “matters such as unwarranted delay in administration of the estate, failure to communicate with beneficiaries, failure to account, and unreasonable delay in paying beneficiaries their entitlement” but also by “a situation in which an executor has a conflict of duty and interest in carrying out his executorial duties”. Not every conflict of duty and interest should result in removal of an executor. An executor’s conflict of duty and interest of a kind likely “to affect the efficient and satisfactory administration of the estate is a proper basis for removing an executor…”.[5]
[5][2012] VSC 76 (8 March 2012) [38] (citations omitted).
The authorities demonstrate that an executor or trustee will not necessarily be removed where there is a conflict between duty and interest, but in some cases it may be sufficient. Proof of actual misconduct is not required for the removal of a trustee. Examples of cases where executors or trustees have not been removed when in a position of conflict between duty and interest can be seen in McKenna v Lowe[6] and Porteous v Rinehart.[7] Examples of cases where a trustee has been removed when in a position of conflict between duty and interest are Passingham v Sherborn,[8] Hunter v Hunter,[9] Titterton v Oates,[10] Hill v Fry[11] and Hobkirk v Ritchie.[12] These examples demonstrate that each case depends on the facts and it is a matter of what is best for the welfare of the trust or estate as a whole.
[6](1878) 1 SCR (NSW) Eq 10.
[7](1998) 19 WAR 495.
[8](1846) 9 Beav 424; 50 ER 407.
[9][1938] NZLR 520.
[10](1998) 143 FLR 467.
[11][2008] VSC 13 (7 February 2008).
[12](1934) 29 Tas LR 14.
Consideration
The plaintiff referred the Court to a number of cases concerning applications for the removal of an executor of an estate. In particular, he referred to the decision of Fysh v Coote[13] as an example of a similar application to the plaintiff’s application. In Fysh v Coote, the Court determined to remove the sole remaining executrix primarily because her conduct and attitude towards her former co-executrix and the beneficiaries placed her in a position of such conflict as between her own interests, the interests of the estate and the interests of those beneficiaries as to make it impracticable for her to administer the estate.[14] The relevant conflicts included the executrix’s desire to buy out the interests of other beneficiaries in a property but she could not agree on an appropriate purchase price and her failure to account to the estate for the rent owed for her extended free occupation of the property.[15] The Court concluded that the executrix did not recognise the problems with her continued rent-free occupation of the property and the delays in the administration of the estate brought on by her strong desire to purchase the property at the lowest possible price.[16] These and other matters were contrary to the welfare of the beneficiaries. Thus, it can be seen that while the circumstances in Fysh v Coote bear some similarities with the circumstances of this application, it also has significant differences. The case of Fysh v Coote is simply an example of a successful removal application on the ground of conflict between interest and duty and highlights the fact that each case depends on the facts and circumstances before the Court.
[13][2000] VSCA 150 (21 August 2000).
[14]Ibid [21].
[15]Ibid [21]–[23].
[16]Ibid [24].
In the trust proceeding the defendant, as the executor of the deceased’s estate, has been defending the plaintiff’s constructive trust and estoppel claims issued against the estate in August 2016. Those claims are based on an alleged agreement made in March 2015 with the deceased. The plaintiff seeks a declaration that he is entitled to purchase the Bundoora property for an agreed price being half of its market value and that the estate holds the whole of the Bundoora property on trust for the plaintiff pending settlement.
The beneficiaries of the deceased’s estate are the plaintiff, the defendant and the defendant’s wife, Mrs Butas. The Bundoora property represents approximately 68 per cent of the estate at the probate valuations.
As the executor of the estate, the defendant should administer the estate in accordance with the deceased’s wishes as contained in her will. In retaining solicitors to advise him in relation to the plaintiff’s claims against the estate, the defendant has acted prudently and reasonably. The defendant had every reason to defend the claim. The plaintiff’s claim as pleaded was the subject of an application for summary dismissal by the defendant. If that application had been heard, it would have succeeded. Realising this, the plaintiff brought an application to amend his statement of claim in the trust proceeding and it was heard at the same time as this application.[17]
[17]Molnar v Butas (No 2) [2017] VSC 710 (22 November 2017).
After the deceased’s death, the defendant made arrangements to sell the Bundoora property. It was placed on the market for sale by public auction. In June 2016, the plaintiff lodged a caveat over the Bundoora property. In August 2016, he commenced the trust proceeding. The consequences of the plaintiff’s actions were that the proposed auction was postponed, then when the proceeding became prolonged, it was cancelled. While the trust proceeding remains on foot the plaintiff’s caveat cannot be removed and until the trust proceeding is resolved by agreement or court order, the Bundoora property cannot be sold. A further consequence of the cancellation of the auction is that the estate incurred approximately $6,000 in fees.
The defendant, as the executor of the estate, must protect and secure the Bundoora property until the finalisation of the trust proceeding which currently remains in its first stages after more than 14 months since it was issued. Until finalisation of the proceeding, it is not appropriate nor practical to rent out the Bundoora property as no rental terms can be certain. The defendant could not have anticipated the undue delay incurred in the proceeding due to the plaintiff’s conduct. In the interim, the defendant has maintained and protected the property and enabled the property to be insured as it is no longer vacant. Taking the interests of the defendant and Mrs Butas as beneficiaries, they are entitled to two thirds of the deceased’s estate. They also understand that certain adjustments may need to be made as between themselves and the plaintiff on the finalisation of the trust proceeding.
In the circumstances, I am satisfied that the defendant has acted prudently and reasonably in defending the trust proceeding as it has been formulated to date and in occupying and protecting the Bundoora property for the benefit of the beneficiaries, and that he is not in a position of conflict of interest and duty. Any perceived conflict as articulated by the plaintiff has been caused by the plaintiff in issuing the trust proceeding.
The plaintiff’s allegation that the defendant has failed to pay an interim distribution of $64,723.17 is misconceived. The interim distribution was sent to the plaintiff before the plaintiff lodged a caveat on the title to the Bundoora property and before the trust proceeding was issued against the estate. The plaintiff did not present the cheque at the bank until six months later. It is reasonable that the defendant’s then solicitors stopped the cheque on 27 October 2017 when it had not been banked and in refusing to reissue the cheque when they no longer acted for the estate and did not have instructions from the defendant’s new solicitors to do so.
The plaintiff cannot rely on his own failures as a ground to remove the defendant as the executor of the estate. While the trust proceeding remains unresolved and significant costs have now been incurred by the estate in defending the proceeding, the interim distribution should not be made to the plaintiff.
The plaintiff’s grounds concerning the contents of the safe relies on the factual dispute concerning its contents, with the defendant giving three contradictory versions of events and the defendant’s handling of trust property, and that the defendant should not be believed on this issue. Untested evidence must be resolved by a trial or otherwise by agreement. The plaintiff’s grounds are not a proper basis for removal of the defendant as an executor of the estate.
Conclusion
The grounds relied upon by the plaintiff for the removal of the defendant as the executor of the estate are contrived and without substance. There is no proper basis for the removal of the defendant. Accordingly, the plaintiff’s application is dismissed.
If the parties are unable to agree on the costs of the application, short written submissions are to be filed by 4 December 2017.
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