Mullins-Trnovsky v Adams

Case [2014] SASC 116

SUPREME COURT OF SOUTH AUSTRALIA

(Testamentary Causes Jurisdiction: Civil)

MULLINS-TRNOVSKY v ADAMS

[2014] SASC 116

Reasons for Decision of The Honourable Justice Gray

21 August 2014

SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - JURISDICTION AND DISCRETION OF COURT - SOUTH AUSTRALIA

SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - ALTERATION AND REVOCATION OF GRANTS - GENERALLY

SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - ALTERATION AND REVOCATION OF GRANTS - CIRCUMSTANCES - OTHER CASES

SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - PROCEDURE - SOUTH AUSTRALIA - OTHER MATTERS

Application to give effect to the purported resignation of an executor of a deceased estate.  The beneficiaries commenced proceedings for the removal of all three executors of the estate, namely Michael Cowan Garrett, Trevor Paul Edmond, and Peter Grant Adams.  Mr Garrett purported to resign to address a perceived conflict of interest arising out of the provision of allegedly negligence tax advice to the estate and had refused to take any further part in the administration of the estate.  His application to give effect to his resignation was not opposed.

Whether grounds made out to warrant an order for the removal of Mr Garrett.  Whether the court can effect the removal of an executor by amending, rather than revoking, the grant of probate.  Whether amending, rather than revoking, the grant of probate is the more appropriate form of order.

Held per Gray J (granting the application):

1.  Mr Garrett cannot continue to effectively administer the estate given the seriousness of the conflict of interest.

2.  Mr Garrett, by refusing to administer the estate, has prevented the grant of probate from functioning on the basis that it was originally intended, namely, that the estate would be administered by three executors.

3.  In all the circumstances, it is appropriate to make an order for the removal of Mr Garrett. 

4.  The court has the power to remove an executor by amending the grant of probate.  However, there are compelling reasons to continue with the traditional practice of giving effect to the removal of an executor by revoking the grant of probate.

5.  Grant of probate to Michael Cowan Garrett, Trevor Paul Edmond and Peter Grant Adams revoked.

6.  Grant of probate issued to Trevor Paul Edmond and Peter Grant Adams.

Income Tax Assessment Act 1936 (Cth) Div 7A; Trustees Act 1936 (SA) s 15; Administration and Probate Act 1919 (SA) s 5 and s 69; Supreme Court Act 1935 (SA) s 18; Supreme Court (Civil) Rules 2006 (SA) r 131 and r 205; Probate Rules 2004 (SA) r 51 and r 88, referred to.
Morgan v MacRae [2001] NSWSC 1017; Tsagouris & Anor v Bellairs & Ors [2010] SASC 147; Estate Kouvakas; Lucas v Konakas [2014] NSWSC 786; Young v Holloway [1895] P 87; Mavrideros v Mack (1998) 45 NSWLR 80; In the Estate of Crane (2005) 93 SASR 198; In the Estate of Potticary [1927] P 202; In the Goods of William Taylor [1892] P 90;

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Mullins-Trnovsky v Adams [2014] SASC 116
Case
[2014] SASC 116
Decision Date

CaseChat Overview and Summary

In the Supreme Court of South Australia, Mullins-Trnovsky and others have brought an application against Adams and others, seeking to remove Michael Cowan Garrett from his role as an executor of Barbara Wanda Mullins' estate and replace him with a professional administrator. Mullins died on 20 February 2012 and a grant of probate in common form was issued on 13 June 2012 in favour of three executors, including Garrett. The plaintiffs allege that the executors have poorly administered the estate and potentially exposed it to significant tax liabilities under Division 7A of the Income Tax Assessment Act 1936 (Cth). Garrett has purportedly resigned from his role as executor and trustee of Mullins' will trust on 17 December 2013 and has taken no part in the administration of the estate since that time. The Court was required to determine whether it had the power to remove Garrett from his role as an executor of Mullins' estate and if so, what form the order should take. The Court found that an executor may apply to the Court for directions and orders relating to the administration of an estate under section 69 of the Administration and Probate Act 1919 (SA). The Court may revoke an inoperative grant and make a fresh grant if it turns out that the person appointed will not or cannot administer the estate. In this case, the Court found that issuing a fresh grant would be easier than amending the existing grant, which would involve the grant being manually amended. The Court concluded that it had the power to remove Garrett from his role as an executor and directed that a new grant of probate be issued to Peter Grant Adams and Trevor Paul Edmond.

The Court allowed the application to remove Michael Cowan Garrett as an executor and revoked the grant of probate. A new grant of probate was to be issued to Peter Grant Adams and Trevor Paul Edmond. The Court found that issuing a fresh grant would be easier than amending the existing grant, which would involve the grant being manually amended. Making a fresh grant obviates the need to make separate vesting orders for the property of the estate, and provides the remaining executors with a new set of documents which they can use to administer the estate without the difficulties that may arise when engaging with organisations which may not accept on its face a copy of a manually amended document.

Orders

Orders of the court

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Background

Background to the litigation

This is an application to give effect to the purported resignation of an executor of a deceased estate.Background By her will dated 15 February 2012, Barbara Wanda Mullins appointed Peter Grant Adams, Michael Cowan Garrett and Trevor Paul Edmond as her executors and trustees. Ms Mullins died on 20 February 2012 and a grant of probate in common form was made on 13 June 2012 in favour of the named executors. A majority of the residuary beneficiaries of Ms Mullins’ estate have commenced proceedings in this Court seeking to have the executors removed and replaced by a professional administrator. The plaintiffs allege, inter alia, that they have been prejudiced by the “inordinate and inexcusable delay” of the executors in the administration of the estate. The plaintiffs further allege that the executors, by their poor administration of the estate, have potentially exposed the estate to a significant tax liability under Division 7A of the Income Tax Assessment Act 1936 (Cth).[1] Ms Mullins’ estate is substantial and includes a share portfolio, loans and real property in a number of States. The plaintiffs’ complaints, which are outlined in voluminous affidavits, primarily concern the alleged delay of the executors in dealing with the various assets of the estate, the amount of information the executors have provided in relation to the administration of the estate and their failure to make interim distributions.[1] Division 7A of the Income Tax Assessment Act 1936 (Cth) is an anti-avoidance measure intended to prevent tax avoidance arising from private companies providing loans to their shareholders or their “associates”, as defined in section 318 of the Act. The provisions impose strict liability, subject to section 109RB of the Act. Insofar as Mr Garrett and his accounting firm, BDO, were responsible for the provision of tax advice concerning the administration of the estate, and were allegedly negligent in the provision of that advice, the plaintiffs claim that Mr Garrett cannot now continue to act as an executor due to a conflict between his duty, as executor, to investigate a potential claim for negligence and his personal interest in defending any such claim against him or BDO. Mr Garrett purported to resign as an executor of Ms Mullins’ estate and a trustee of her will trust on 17 December 2013 and has taken no part in the administration of the estate since that time. Mr Garrett has indicated that he does not intend to take any further part in the administration of the estate. In his affidavit of 7 May 2014, Mr Garrett denies the plaintiffs’ allegations against him and explains that he resigned as an executor of the estate to avoid the perception of a conflict of interest. Mr Garrett’s resignation as a trustee is evidenced by a deed dated 17 December 2013 pursuant to section 15(1) of the Trustees Act 1936 (SA). Mr Garrett’s application to be removed as an executor is not opposed. Power to Remove an ExecutorJurisdiction and Procedure

Evidence

Evidence Before The Court

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Decision

Reasons for decision

GRAY J
Issuing a fresh grant would also be easier than amending the existing grant, which would involve the grant being manually amended. Making a fresh grant obviates the need to make separate vesting orders for the property of the estate, and provides the remaining executors with a new set of documents which they can use to administer the estate without the difficulties that may arise when engaging with organisations which may not accept on its face a copy of a manually amended document. By way of example, it is the practice of the Probate Registry of this Court to only re-seal a grant of probate from another State that this Court would itself have sealed. If other States or countries do not recognise the validity of an amended grant of probate, this would put the executors at a costly inconvenience when attempting to transact business in other jurisdictions. Further, the cost of amending the grant is likely to be just as expensive, if not more expensive, than the cost of revoking the grant and issuing a fresh grant.Conclusion I allow the application to remove Michael Cowan Garrett as an executor. I revoke the grant of probate and direct that a new grant of probate be issued to Peter Grant Adams and Trevor Paul Edmond.

Ratio Decidendi

Legal Principle Established

Established by: GRAY J

An executor may apply to the Court for directions and orders relating to the administration of an estate under section 69 of the Administration and Probate Act 1919 (SA), which provides:(1)The Public Trustee shall, and any trustee, executor, or administrator may, when in difficulty or doubt, apply to a Judge for advice or direction as to matters connected with the administration of any estate, or the construction of any will, deed, or document.(2)Such application may be made either without notice to or upon summons served upon any of the parties interested.(3)Any person interested in any estate, who is dissatisfied with the conduct of the Public Trustee in any matter connected with the management or administration thereof, may apply to a Judge by summons to be served upon the Public Trustee to review such conduct.(4)A Judge may, upon the hearing of an application under this section, make any order, declaratory or otherwise, that he sees fit as to the administration of the estate, or the construction of the will, deed, or document, which is the subject of the application, and also as to the costs of the application.(5)Any such order made in the absence of an interested party shall have the same effect, or be of the same force or validity, so far as regards protection to the Public Trustee, or other trustee, or the executor, or administrator, as if the same had been a decree or order made in an action where all parties concerned were represented.(6)The Judge may refer any question of law arising on an application under this section for the opinion of the Supreme Court, or may direct an issue to be tried by, or an action to be instituted in, the Supreme Court.[Emphasis added.]An application under section 69 would be made pursuant to rule 88 of the Probate Rules. In this proceeding, however, Mr Garrett sought an order giving effect to his resignation by way of an interlocutory application pursuant to rule 131 of the Supreme Court (Civil) Rules 2006 (SA). This approach was appropriate as the removal of Mr Garrett formed an essential part of the relief sought by the plaintiffs.Removal of an Executor – General Principles In In the Goods of Loveday, Jeune P identified the object of the court’s power over the administration of an estate:[5]After all, the real object which the court must always keep in view is the due and proper administration of the estate and the interests of the parties beneficially entitled thereto; and I can see no good reason why the court should not take fresh action in regard to an estate where it is made clear that its previous grant has turned out abortive or inefficient. If the court has in certain circumstances made a grant in the belief and hope that the person appointed will properly and fully administer the estate, and if it turns out that the person so appointed will not or cannot administer, I do not see why the court should not revoke an inoperative grant and make a fresh grant.[5] In the Goods of Loveday [1900] P 154, 156.