NBD (Review of Administrator)
[2010] TASGAB 20
•18 October 2010
GUARDIANSHIP AND ADMINISTRATION BOARD
HOBART
NBD - Proceedings pursuant to section 63(4) – (6) of the Guardianship and Administration Act 1995 against former Administrator, HSD
Neutral citation: NBD (Review of Administrator) [2010] TASGAB 20
Anita Smith (President)
Elizabeth Dalgleish (Member)
Andrea Schiwy (Member)
Administration – review of actions by an administrator – administrator mixing represented person’s interests with his own – failure to control the represented person’s spending – administrator’s liability for loss to the estate
Guardianship and Administration Act 1995 sections 6, 63
Background to the Proceedings:
On 26 March 2009, HSD was appointed as administrator for NBD. NBD was the victim of a motor cycle accident on 14 December 2002 and his solicitors, Ogilvie Jennings, sought the appointment of HSD so that damages of approximately $600,000.00 could be paid in settlement of a claim against the Motor Accidents Insurance Board. One of the conditions of HSD’s appointment was:
“That the administrator prepare a Plan of Management of the represented person’s estate and forward the plan to the Board within 6 months of the date of this order.”
When the Plan of Management received on 2 October 2009 did not meet the Board’s expectations and the administrator failed to respond to correspondence from the Board, the Board convened a review hearing on 12 March 2010 to discuss the administrator’s actions. The Public Trustee was appointed on that date as administrator under an interim order and was directed to conduct an audit of the estate pursuant to section 63 of the Guardianship and Administration Act 1995.
Reasons for the audit included concerns by the Board that:
(a) The Plan of Management that the Board did receive on 2 October 2009 noted that the administrator decided to ignore financial advice from Raulston Financial Services and Westpac Financial Services in favour of the purchase of a block of land upon which they were building a ‘spec’ home and were looking for another block to build on.
(b) The “plan” gave no indication of assets, income or expenses in the estate and was less than 1 page in length.
(c) The “plan” did not detail any of the costs of property, building or associated issues, nor was there any projections indicating whether the venture would be profitable.
Various attempts by the Board’s officer to contact the administrator failed, so on 23 February 2010 the administrator was given notice of an application to review the order of the Board’s own motion on 12 March 2010.
The Public Trustee provided reports dated 22 April 2010, 10 June 2010 and 2 September 2010 (the latter was received following the hearing on 3 September 2010). Of particular concern was the information that while the represented person had funded the purchase of the land in Hobart, the title showed that the property was jointly held between HSD, ED and NBD. The Public Trustee reports noted the following items which the Board considered were relevant for investigation pursuant to section 63:
Table 1.:
| Date: | Expenditure: | Amount: | |
| A | 15 May 2009 | Transfer to NBD’s Westpac Account | $50,000.00 |
| B | 15 May 2009 | Retention by HSD | $50,099.01 |
| C | 1 July 2009 | Loan to MT | $20,010.00 |
| D | 27 August 2009 | Purchase of Land – Hobart | $109,549.78 |
| F(sic) | 18 November 2009 | Transfer to NBD’s Westpac Account | $10,000.00 |
| G | 9 February 2010 | Transfer to HSD for Building Materials | $100,000.00 |
| H | 9 February 2010 | Transfer to NBD’s Westpac Account | $10,000.00 |
| I | 19 February 2010 | Loan to EE | $4,000.00 |
| J | 10 March 2010 | Transfer to NBD’s Westpac Account | $10,000.00 |
| K | 16 Jun 2010 | (Liability for) Company | $9,000.00 |
| L | 16 June 2010 | (Liability for) Company 2 | $4,400.00 |
| TOTAL: | $377,058.79 |
These reports were provided to HSD indicating that the Board could disallow certain items of expenditure, making the former administrator personally liable for those expenditures and that the Board must not disallow an item of expenditure unless it first gives the administrator the opportunity to appear before the Board and be heard on the matter.
Prior to the hearing, HSD did not avail himself of an opportunity to respond in writing to the Board’s questions dated 6 September 2010. Nor did he offer any written explanation as to:
· Why he decided to record the represented person’s share of property in Hobart as a joint tenancy with HSD and ED rather than as a tenant in common with a 50% share.
· Why he decided not to pursue the investment options provided by financial advisors? and What factors he took into account in making that decision? or
· Why he did not follow the procedures set out in the Handbook for Private Administrators regarding gifts, loans and settlements and conflicts of interests?
On 14 October 2010 the Board convened a hearing and provided HSD an opportunity to be heard on each of the expenditures in Table 1.
The hearing was attended by:
· NBD
· HSD and his legal representative, Mr David Wallace
· Mr Tim Levis and Mr Justin Clifford from the Public Trustee
· BD, father of NBD and HSD
Although he supplied a brief written statement at the hearing, HSD did not offer the Board any information to the effect that he acted with reasonable care in making the expenditures. In all of his answers he demonstrated that despite his assurances to the Board at the time of appointment, he had no understanding of the role and responsibilities of an administrator. His approach to investing in a speculative building project was that this is his area of work and expertise and that he expected that the project would yield a significant profit, better than those predicted by financial advice. He had not ‘fully’ read the Handbook provided to him upon appointment and had not seen the need to seek advice from the Board about any of the transactions, even though such transactions have lead to a direct conflict of interest in his position as administrator.
The Board will now consider each of the items of expenditure in turn:
The Speculative Building Project:
| Date: | Expenditure: | Amount: | |
| D | 27 August 2009 | Purchase of Land – Hobart | $109,549.78 |
| G | 9 February 2010 | Transfer to HSD for Building Materials | $100,000.00 |
HSD advised that the plan regarding the speculative building project was that the represented person would fund the purchase of the property and all costs, with labour being supplied by HSD and ED. The profit upon sale of the house would then be split 50% to the represented person and the remaining 50% to HSD and ED. The nomination on title to the property being jointly owned by all three was considered by him to be a mistake by the lawyer.
To date the speculative building project appears to have cost $209,549.78 (these expenses being noted in Table 1 as items D and G). HSD believes that there will be at least a further $110,000.00 required to complete the project. Upon sale he projects a profit of between $70,000.00 - $100,000.00. At 50% for the represented person this will yield $35,000.00 - $50,000.00. He has received no formal advice to verify these predictions.
The Public Trustee representative indicated that costs to completion of the house may be significantly higher, partly depending upon whether they retain HSD to complete the project or retain new builders. They have also obtained a professional valuation that shows the value of the completed property to be around $320,000.00. Upon their costings and valuation, the decision to invest in a speculative building project has already made a significant loss. The Public Trustee noted that there may be negligence actions lying against the former administrator for any losses made by that project.
The Board finds that the decision to purchase land in Hobart as a joint venture to speculatively build a home for sale was a decision that was made without reasonable care or attention to the basic duties of an administrator. It put the former administrator in a position of direct conflict of interests. It also resulted in the misrepresentation of the represented person’s ownership of the property on the title. Added to this, the accounting for the expenses on the property has been tardy at best, meaning that the Public Trustee is unable to completely verify that all expenses in item G of Table 1 were expenses for building purposes at the land in Hobart, although the Public Trustee’s representative stated he believed that it was likely.
The Board finds that the decision to purchase land in Hobart and commence a speculative building project was made without reasonable care and accordingly disallows all expenditure associated with those decisions.
Items A. F, H and J in Table 1.:
HSD indicated that the following items were payments directly to the represented person for spending money:
| Date: | Expenditure: | Amount: | |
| A | 15 May 2009 | Transfer to NBD’s Westpac Account | $50,000.00 |
| F | 18 November 2009 | Transfer to NBD’s Westpac Account | $10,000.00 |
| H | 9 February 2010 | Transfer to NBD’s Westpac Account | $10,000.00 |
| J | 10 March 2010 | Transfer to NBD’s Westpac Account | $10,000.00 |
It appears that the represented person spent $80,000.00 on personal expenditure in approximately 10 months. The majority was allocated on the first occasion which was characterised as money to celebrate the end of legal proceedings. When asked whether the sustained level of expenditure worried the former administrator, he indicated that it worried him a great deal, but he could not withstand the pressure from the represented person and gave in when asked for money. He admitted that if he was unable to stand such pressure he should have resigned the role, but he did not do so.
The represented person indicated at the hearing that he did not seek the return of any of these personal spending funds and appeared to have been smug about the manner in which he has spent the funds.
It is noted that final expenditure was made two days before the Public Trustee was appointed, at a time when the administrator was aware his actions would be scrutinised by the Board. It is possible that, had the Public Trustee acted more quickly as administrator, some of those funds may have been recoverable.
The Board is concerned that the administrator completely failed in his role to protect the represented person from the excessive leakage of funds from his estate for discretionary items. While some celebration may have been called for; $80,000.00 expenditure in approximately 10 months is an enormous expenditure and shows a disregard for the usual responsibilities of an administrator to ensure that a large lump sum payout provides for the represented person’s needs in the longer term. These expenses were not made with reasonable care by the administrator and should be disallowed.
Loans:
| Date: | Expenditure: | Amount: | |
| C | 1 July 2009 | Loan to MT | $20,010.00 |
| I | 19 February 2010 | Loan to EE | $4,000.00 |
EE is a close friend of the represented person and he used the funds to accompany the represented person to an AC/DC concert in Brisbane. According to the represented person he has paid the sum back directly and in full to the represented person.
The former administrator considered that this loan was acceptable as it was to a ‘mate’ and ‘that is what mates do.’ He said that as he had not read the Handbook provided to him as administrator he had not known it to be improper and did not realise it was a breach of his responsibilities.
With respect to the loan to MT, the administrator said that he was pressured into making this loan by his brother and father and that he did not agree with the loan. The fact that he did so means that he had no concept of the role of an administrator and was unsuitable for the role. It also means that the action was clearly made without reasonable care and should also be disallowed. However, the Board notes the unchallenged but unverified evidence of the represented person, that EE has repaid the loan and does not believe that recovery should lie against the former administrator for the $4000.00 to EE. In essence, the amount of the loan to EE became additional spending money provided to the represented person.
Payment to HSD:
| Date: | Expenditure: | Amount: | |
| B | 15 May 2009 | Retention by HSD | $50,099.01 |
The former administrator states that approximately $36,000.00 of this amount was paid off a joint business loan held between himself, the represented person and their father in a former concreting business that they held. No written evidence was tendered to support that contention. When asked why he did not offer up that information at the original hearing when the prohibition of mixing funds between administrator and represented person was mentioned, he said that the Board had simply not asked the right questions.
In any event the action of the former administrator in allocating some of the MAIB payout for his own purposes is completely inexcusable and totally contrary to the role and responsibilities of an administrator. This amount is disallowed and the former administrator is personally liable to the represented person’s estate for that amount. This expense should by the subject of further investigation by the Public Trustee to ascertain whether HSD should be reported to the Police for breaches of Chapter XXX of the Criminal Code Act 1924 or similar offences.
Building expenses 16 June 2010:
| Date: | Expenditure: | Amount: | |
| K | 16 Jun 2010 | (Liability for) Company | $9,000.00 |
| L | 16 June 2010 | (Liability for) Company 2 | $4,400.00 |
As pointed out by Mr Wallace at the hearing, the expenses in K and L were not made by the former administrator but the current administrator. Although they were derived from the decision to speculatively build a home for sale, they are not strictly expenditures that the former administrator made although he did engage those services. Such expenses, however, might be included in any assessment of damages if there was a negligence action against the former administrator. Items K and L are not disallowed.
Table 2 - Total Disallowance:
| Date: | Expenditure: | Amount: | |
| A | 15 May 2009 | Transfer to NBD’s Westpac Account | $50,000.00 |
| B | 15 May 2009 | Retention by HSD | $50,099.01 |
| C | 1 July 2009 | Loan to MT | $20,010.00 |
| D | 27 August 2009 | Purchase of Land – Hobart | $109,549.78 |
| F | 18 November 2009 | Transfer to NBD’s Westpac Account | $10,000.00 |
| G | 9 February 2010 | Transfer to HSD for Building Materials | $100,000.00 |
| H | 9 February 2010 | Transfer to NBD’s Westpac Account | $10,000.00 |
| J | 10 March 2010 | Transfer to NBD’s Westpac Account | $10,000.00 |
| Total | $359,658.79 | ||
In addressing each of the items, the Board has disallowed the items in Table 2 above with a total of $359,658.79. This means that the former administrator is liable to the represented person’s estate for that amount.
The Board notes that $80,000.00 of this may include some expenses which had some value for the represented person. Additionally, if MT repaid the loan to the represented person’s estate, that the represented person would be double-dipping had the former administrator also repaid that liability. Finally, some of the costs may be recouped if the speculative house and land are sold at a profit.
Mr Wallace and HSD both informed the Board that without the house sale, he has no unencumbered assets that could meet the liability to the represented person and pursuing those debts may render the former administrator insolvent.
The Board notes that the Public Trustee as administrator is responsible for the recovery of any liabilities owed to the represented person. Therefore, it is likely to exercise prudent discretion with regard to recovery of liabilities. That discretion would extend to deciding the proportion to which the represented person may have benefited from $80,000.00 of personal spending and also the effect of any repayment by MT to the represented person’s estate. The Board does not, at this stage, wish to offer any direction as to the manner of recouping the liabilities.
Conclusion:
This is a case where the administrator believed that pressures from family members and friends were more important than meeting his legal responsibilities as an administrator. The consequences of that are clear. He owes the represented person’s estate $359,658.79 and may attract additional future liabilities for negligence in his role as administrator if the represented person loses money on the sale of the speculative building project. He may also face investigation for criminal offences. This case should serve as a warning to future administrators who undertake to manage large sums of money without paying attention to their legal responsibilities.
18 October 2010
On behalf of:
Anita Smith Elizabeth Dalgleish Andrea Schiwy
PRESIDENT MEMBER MEMBER
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