Paul Salter (in his capacity as the Executor) v Stephen William Hicks
[2014] VSC 45
•5 March 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PROBATE LIST
S PRB 2011 18090
IN THE MATTER of the Will of WILLIAM JOHN HICKS, deceased
BETWEEN:
| PAUL SALTER (in his capacity as the Executor of the Will of the Deceased) | Plaintiff |
| v | |
| STEPHEN WILLIAM HICKS | Defendant |
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JUDGE: | DALY AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 February 2014 | |
DATE OF JUDGMENT: | 5 March 2014 | |
CASE MAY BE CITED AS: | Paul Salter (in his capacity as the Executor) v Stephen William Hicks | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 45 | |
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ADMINISTRATION AND PROBATE - Application for probate - Application to pass over executor - Alleged conflict of interest.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Mitchell | GPZ Legal |
| For the Defendant | Ms C McOmish | Harwood Andrews |
HER HONOUR:
This proceeding concerns the administration of the estate of William John Hicks (“deceased”). The deceased died on 17 June 2011. The deceased’s last will was dated 28 February 2002 (“Will”), which named the plaintiff in this proceeding, Paul Salter, as executor. Paul Salter (“plaintiff”) is the grandson of the deceased’s second wife, Nellie Hicks. In the Will, the deceased left his trade tools to his son by his first wife, Stephen Hicks (“defendant), and his books, computer and family bibles to his daughter, Gillian Bouras. He left a life interest in the property he was residing in at the time (“Mulgrave property”) to Nellie Hicks, which was to be sold upon her death, and the proceeds to be distributed as follows:
(a) payments of $10,000 each to the defendant and Gillian Bouras; and
(b) the balance to be divided equally between Nellie Hicks’ children and the plaintiff.
Clause 9 of the Will stated as follows:
I declare that the reason my children the said Stephen Hicks and Gillian Bouras have not benefited more under this my will is because I have been very disappointed with the treatment I have received from them after the death of my first wife and their treatment towards me has made me feel that a normal father child relationship is not possible.
At the time the plaintiff sought a grant of probate in December 2011, the assets of the estate were said to be constituted by the sum of $335,273.61, being “funds held on the deceased’s behalf by his former administrator, Judge & Papaleo Pty Ltd.” In an amended inventory of assets and liabilities filed by the plaintiff on 11 January 2012, reference was made to the assets of the deceased’s estate including a chose in action in County Court proceeding CI-10-0376 brought by the deceased against Susan Ann Salter as executrix of the estate of Nellie Hicks (“County Court proceeding”), Nellie Hicks having died in November 2009. The claim in the County Court proceeding (which has been uplifted to this Court, but remains in abeyance pending the outcome of the current application) is for the recovery of debts said to be owing by the estate of Nellie Hicks to the deceased, along with a claim for further provision under Part IV of the Administration and Probate Act 1958 (Vic) (“Act”).
The sum of $569,205.78 claimed in the County Court proceeding as a debt owing to the estate of the deceased was said to have been constituted by the following amounts:
(a) a debt of $190,000.00 acknowledged in the Inventory of Assets and Liabilities in respect of the estate of Nellie Hicks;
(b) an amount of $179,988.00, being an accommodation bond refund from Balmoral Gardens Retirement Village paid to Nellie Hicks in 2009, and
(c) an amount of $199,217.78, being an accommodation bond from Cheltenham Manor nursing home paid to the estate of Nellie Hicks in 2009.
The executrix of Nellie Hicks’ estate is her daughter, Ms Susan Salter, who, along with her two brothers, is also a beneficiary of the estate of Nellie Hicks. Susan Salter is also a beneficiary of the deceased’s estate, and the mother of the plaintiff.
The combined effect of the testamentary dispositions of both the deceased and Nellie Hicks is that, regardless of whether the assets concerned are the deceased’s assets or Nellie Hicks’ assets, from a combined pool of well over half a million dollars, the deceased’s children from his first marriage stand to inherit $10,000 each, along with some chattels, with the lion’s share of the combined estates going to Nellie Hicks’ adult children from a previous marriage, and the plaintiff, her grandson. Both the defendant and Gillian Bouras have signalled an intention to bring claims under Part IV of the Act against the estate of the deceased. The size of the estate, along with the resources and competing claims of the other beneficiaries, will be relevant matters to be taken into account in the determination of any claim under Part IV of the Act against the estate of the deceased. In particular, the extent to which the deceased’s estate is able to recover monies from Nellie Hicks’ estate will determine the size of the asset pool against which the deceased’s children can make a claim. While it is difficult for the Court to make an assessment of the prospects of such a claim in the absence of evidence regarding the respective needs and resources of the various beneficiaries, one view is that the larger the size of the deceased’s estate, the better the prospects are that the Court would order further provision be made for the deceased’s children, at the expense of Nellie Hicks’ children and grandson.
It was in this context that the defendant lodged a caveat against the grant of probate of the deceased’s estate to the plaintiff. In his amended Caveator’s Grounds of Objection filed on 14 August 2013, the defendant submitted that the plaintiff should be passed over as executor because he faces a conflict of interest in administering the estate by reason of the following matters:
(a) the deceased had a claim on foot at the time of his death under Part IV of the Act against the estate of Nellie Hicks, his late widow;
(b) the residuary beneficiaries of the estate of Nellie Hicks are the plaintiff’s mother Susan Salter, together with Susan Salter’s brothers Robert Salter and Alan Salter in equal shares;
(c) the residuary beneficiaries of the estate of the deceased are the same three persons as the residuary beneficiaries of the estate of Nellie Hicks together with the plaintiff in equal shares;
(d) the defendant and his sister Gillian Bouras are the son and daughter of the deceased and intend to bring claims under Part IV of the Act against his estate;
(e) the plaintiff will have an expectation of inheriting from the estate of his mother Susan Salter in the future, and thereby an incentive to maximise the value of his mother’s estate by ensuring the maximum inheritance is received by his mother from the estate of Nellie Hicks and the deceased;
(f) the estate of Nellie Hicks will be maximised by withdrawing the deceased’s Part IV claim as soon as possible;
(g) whilst the plaintiff is a residuary beneficiary of the estate of the deceased, it will be in his mother’s interest, and therefore his interest, to leave as much value in the estate of Nellie Hicks rather than shift that value to the estate of the deceased which is then exposed to the Part IV claims proposed by the defendant and Gillian Bouras;
(h) the plaintiff will face a conflict of interest in acting as executor of the deceased whilst his mother is a beneficiary of the estate of Nellie Hicks and the estate of the deceased faces Part IV claims by the defendant and Gillian Bouras; and
(i) the plaintiff will also face a conflict of interest in that a transfer of money from the deceased’s bank account, the plaintiff’s conduct of the deceased’s financial affairs as his attorney, and the merits of proceedings instituted by the deceased against the plaintiff’s grandmother merit careful investigation, and it can be assumed that the plaintiff will not undertake the requisite careful investigations.
It was conceded for the purposes of the current application that the defendant, as a named beneficiary of the deceased’s estate, has standing to make the application to pass over the plaintiff as the executor of the deceased’s estate. Arguably, there are grounds for submitting that the defendant does not have standing, on the basis that the defendant has received a bequest of a fixed sum, and there is no evidence to suggest that the assets of the estate cannot meet that bequest. As such, based upon the analysis of Sifris J in Wood v McLean,[1] the defendant only has a “contingent statutory claim,” and as such, arguably does not have standing. However, given the concession by the plaintiff, and the fact that, on the authorities, the position remains unsettled,[2] I am content to hear and determine the application on the presumption that the defendant does have standing by reason of being a named beneficiary under the Will, and a prima facie entitlement to provision from the deceased’s estate by reason of being the natural son of the deceased.[3]
[1](2010) 31 VR 12.
[2]Mataska v Browne [2013] VSC 62; Wood v McLean [2011] VSCA 37.
[3]Mataska v Browne [2013] VSC 62, at [51].
Counsel for the defendant conceded that the Court would only exercise its jurisdiction to pass over an executor in limited circumstances. However, counsel submitted in the circumstances of the current case, the Court should exercise its jurisdiction having regard to the due and proper administration of the estate and the interests of the parties beneficially entitled to the estate. In particular, counsel for the defendant submitted that neither the Court nor the defendant (and his sister, Gillian Bouras), could rely upon the plaintiff to diligently investigate and take appropriate action with respect to the following matters:
(a) prosecuting the County Court proceeding to recover the debts said to be owing by the estate of Nellie Hicks to the deceased, being primarily refunds of aged care accommodation bonds, and for further provision under part IV of the Act;
(b) the withdrawal, while the deceased was in hospital in 2001, of the sum of $25,000 from the bank account of the deceased, which was paid into an account of Salter Holdings Pty Ltd (“Salter Holdings”), a company controlled by the plaintiff and his mother, Susan Salter; and
(c) the sale by the deceased of the Mulgrave property to the plaintiff in 2002 for the sum of $230,000.
The defendant relied upon an affidavit affirmed by him on 6 August 2013. In that affidavit he deposed, in summary, as follows:
(a) to some personal background, including the death of his mother in 1994 and the deceased’s marriage to Nellie Hicks in 1995;
(b) the terms of the deceased’s earlier will made on 16 July 2001, which left a life interest in the Mulgrave property to Nellie Hicks, the remainder interest in the Mulgrave property to the defendant and Gillian Bouras, and the residue to Nellie Hicks, the defendant and Gillian Bouras in equal shares;
(c) on or about that time the deceased executed an enduring power of attorney appointing the defendant as his attorney;
(d) also on or about that time the deceased wrote a letter to the defendant which, among other things, told him that the deceased had prepared his will, and that that will, the power of attorney and the title to the Mulgrave property were in the possession of his solicitor, Mr John Feldman, and asked the defendant not to disclose the location of these documents to anyone because if Nellie Hick’s family knew of the contents of that will “things could be very sticky” for him;
(e) on 9 October 2001 the deceased suffered a cardiac arrest while undergoing surgery for bowel cancer, followed by another cardiac arrest some six days later. He left hospital with a moderately severe acquired brain injury;
(f) while the deceased was in hospital Nellie Hicks transferred $25,000 from the deceased’s account to the account in the name of Salter Holdings Pty Ltd, a company controlled by the plaintiff and Susan Salter. Also during that period, Nellie Hicks lodged a caveat on the title to the Mulgrave property;
(g) on 20 November 2001, after his discharge from hospital, the deceased revoked the financial power of attorney given to the defendant;
(h) on 23 November 2001, the defendant and Gillian Bouras lodged an application with VCAT seeking an order that an administrator be appointed to manage the affairs of the deceased. This application was withdrawn after Dr Peter Dowling, a clinical neuropsychologist, provided a report which identified some particular deficiencies with the deceased’s memory and cognitive capacity, but otherwise concluded that at the time of Dr Dowling’s assessment the deceased had the capacity to manage his financial affairs;
(i) on 28 February 2002, the deceased executed a further revocation of power of attorney;
(j) on 28 February 2002, the deceased executed the Will, which was drawn up by Juliano Furletti & Scott, who were also Nellie Hicks’ solicitors;
(k) in June 2002, the deceased and Nellie Hicks moved to the Balmoral Gardens Retirement Village, although the defendant did not learn of this until sometime later;
(l) on 31 July 2002, the deceased transferred the Mulgrave property to the plaintiff for the sum of $230,000;
(m) in March 2006, the deceased was diagnosed as having dementia;
(n) in 2007, the deceased and Nellie Hicks left Balmoral Gardens, but the defendant and his sister did not know his location until 2008, when VCAT ordered the plaintiff to disclose the deceased’s location;
(o) on 23 April 2007, the deceased executed financial and medical powers of attorney appointing the plaintiff as attorney;
(p) Nellie Hicks died on 17 November 2009;
(q) in March 2010, the defendant and Gillian Bouras made an application to VCAT seeking revocation of the financial and medical powers of attorney granted by the deceased to the plaintiff and the appointment of the Office of the Public Advocate (“OPA”) as the guardian of the deceased;
(r) on 28 April 2010, VCAT dismissed the application for a guardianship order, revoked the financial enduring power of attorney in favour of the plaintiff, appointed FTP Judge & Papaleo Pty Ltd (“Judge & Papaleo”) as administrator of the deceased’s affairs, and adjourned the application for revocation of the medical power of attorney pending investigation by the OPA. During the course of the hearing the tribunal member questioned the plaintiff regarding the debt said to be owing to the deceased as set out in the inventory of assets and liabilities of the estate of Nellie Hicks, and the transfer of the Mulgrave property from the deceased to the plaintiff;
(s) on 7 September 2010, Judge & Papaleo issued the County Court proceeding with respect to the claims referred to in paragraph 4 above; and
(t) the defendant is concerned that the plaintiff will not prosecute the County Court proceeding on behalf of the deceased’s estate, or scrutinise other relevant transactions, or deal appropriately with the claims foreshadowed by the defendant and Gillian Bouras against the deceased’s estate under Part IV of the Act, owing to his conflict of interest and his acrimony towards the defendant and Gillian Bouras.
The defendant gave further evidence during the course of the trial as follows:
(a) he stated that the bank account from which the sum of $25,000 was withdrawn while the deceased was in hospital in October 2001 was in the sole name of the deceased, and was not a joint account of the deceased and Nellie Hicks;
(b) after he received the letter enclosing the deceased’s revocation of the power of attorney in his favour on or about 25 November 2001, he forwarded all papers relating to the deceased’s financial affairs to the deceased’s solicitors and took no further role in administering the deceased’s financial affairs;
(c) as such, he was in no position to either corroborate or dispute the plaintiff’s evidence that the sum of $25,000 withdrawn from the deceased’s account and paid to Salter Holdings Pty Ltd was refunded to the deceased’s account on or about 29 November 2001;
(d) he agreed that in March 2002 he wrote to various banks and insurance companies in the following terms:
My father’s capacity to manage his own affairs has been confirmed by independent medical examination. All matters relating to the above accounts should now be referred to him.
(e) he agreed that, in accordance with the order made by VCAT on 28 April 2010, he received annual statements of account from Judge & Papaleo regarding the deceased’s affairs, and that it was apparent from those accounts that the sum of $190,000 had been repaid by the estate of Nellie Hicks to the deceased;
(f) he wanted the plaintiff to be passed over as executor so that there would be a trustworthy person dealing with the deceased’s estate;
(g) prior to the deceased’s hospitalisation in 2001, his solicitor was John Feldman, and after that time, it was Juliano, Furletti & Scott; and
(h) prior to the deceased making the Will, his relationship with the deceased was a “warm, open, normal relationship”.
The plaintiff relied upon affidavits sworn by him on 14 December 2011, 11 January 2012, 5 June 2013, 9 October 2013 and 7 February 2014 in support of his application for a grant of probate and in opposition to the defendant’s submissions that he be passed over as executor and an independent executor be appointed in his place. In his affidavits, he deposed to the following matters relevant to the controversy before the Court:
(a) the formalities required for a grant of probate in his favour, including a statement that the assets of the estate was comprised of funds held by Judge & Papaleo Pty Ltd of $335,273.61, and that the liabilities of the estate amounted to $8054.20;
(b) in his affidavit of 11 January 2012, he deposed that the Inventory of Assets and Liabilities filed on 14 December 2011 needed to be amended to include the claims in the County Court proceeding as an asset of the deceased’s estate, ascribing a value to that chose in action of $569,207.78. In his affidavit of 5 June 2013 he deposed that his failure to make reference to the chose in action in the County Court proceeding was as a result of an omission on the part of his solicitors;
(c) also in his affidavit of 5 June 2013, in response to the original version of the defendant’s grounds of objection, he deposed that, as a residuary beneficiary of the estate of the deceased, it was in his best interests to maximise the value of the deceased’s estate, as he has an immediate entitlement under the Will. In contrast, he is not a beneficiary of Nellie Hicks’ estate, and while he expects to be provided for out of his mother’s estate at some time in the future, (her Will provides for her estate to be equally divided between him and his brother), she is currently aged 62 and is in good health;
(d) he is aware of his obligations as an executor to bring in the assets of the deceased’s estate, and he intends to do so, including, if necessary, conducting the County Court proceeding in accordance with the advice of his solicitors;
(e) in relation to the matters raised in the defendant’s affidavit of 6 August 2013, he deposed that the $25,000 withdrawn by Nellie Hicks from the deceased’s bank account and paid to the account of Salter Holdings was repaid after the deceased returned home from hospital, that he did not have any access to the deceased’s documents in late 2001, he took no steps to prevent either the defendant or Gillian Bouras from seeing the deceased at Balmoral Gardens, and that the Mulgrave property was purchased by him at fair value;
(f) he denied that he harboured feelings of acrimony towards the defendant and Gillian Bouras; and
(g) in his affidavit of 7 February 2014, he exhibited bank statements of Salter Holdings Pty Ltd showing the deposit of $25,000 on 19 November 2001 drawn from the deceased’s bank account, and the withdrawal of the same amount on 29 November 2001, which he says was repaid to the deceased after the defendant’s power of attorney was revoked. He also exhibited two acknowledgements signed the deceased in respect of his transfer of the Mulgrave property to the plaintiff. The first acknowledgement, dated 14 June 2002 and addressed to Juliano, Furletti & Scott, stated as follows:
I, WILLIAM JOHN HICKS of 6 Shaftsbury Drive, Mulgrave, acknowledge that I have enquired about the sale and the value of the abovementioned property with at least two local Real Estate Agents, and have been advised that the value of such property to be between $230,000 and $250,000.
I have decided to sell the said property to my wife’s grandson, Paul Mark Salter, at the price of $230,000 taking into account that I will not be incurring any estate agents fees or advertising expenses, and the purchaser has ready funds and is prepared to accommodate any short settlement requirements.
During the course of his oral evidence at trial, the plaintiff was briefly cross-examined, and gave the following evidence:
(a)he did not recall how he came into possession of the acknowledgement documents referred to above; and
(b)Mr Pavlidis, a solicitor with Juliano, Furletti & Scott, acted for both him and the deceased with respect to the transfer of the Mulgrave property.
The plaintiff also relied upon an affidavit of Mr Pavlidis sworn on 6 June 2013. Mr Pavlidis, who was not required to attend for cross-examination, deposed, in summary, as follows:
(a)he has over thirty years’ experience as a solicitor in “making wills”;
(b)on 28 February 2002 he, along with one of his then staff members, witnessed the execution of the Will by the deceased;
(c)he first took instructions from the deceased on 20 November 2001, at which time the deceased told him that he wanted to leave his estate to his wife, or, in the event his wife pre-deceased him, to Susan Kyriakopoulos (Salter), Robert Salter, Alan Salter and the plaintiff, on the basis that they had been good to the deceased and had looked after him. The deceased told him that he was disappointed with the treatment he had received from the defendant and Gillian Bouras and wanted to ensure they received only little from his estate;
(d)on the day the deceased executed the Will, he made enquiries of the deceased, and was satisfied that:
(i)he was oriented in space and time;
(ii)he was aware of and appreciated the significance of the act of making a will;
(iii)he was aware in general terms of the character, extent and value of the estate with which he was dealing; and
(iv)he was aware of those who might reasonably haven been thought to have claims on his estate and the basis for, and the nature of those claims and that he had the ability to evaluate the discriminate between the respective strengths of those claims;
(e)also, on the day that the deceased executed the Will, he met with the deceased in the absence of Nellie Hicks, and asked him to read through a draft of the Will and confirm his instructions, in particular, the reasons he provided for leaving only limited bequests to the defendant and Gillian Bouras. Mr Pavlidis considered that to be prudent given the recent VCAT application; and
(f)at paragraph 9 of his affidavit, Mr Pavlidis deposed as follows:
In all discussions both in the prior conference and immediately prior to the execution of the Will, [the deceased] appeared lucid and spoke clearly and intelligibly and appeared to have all his faculties. I believe [the deceased] had testamentary capacity on the date of the execution of his Will.
Both parties were in agreement as to the applicable legal principles governing the court’s jurisdiction to pass over an executor named in a will.[4] In summary:
(a)the Court’s jurisdiction to pass over an executor is to be exercised only in special circumstances:
(b)generally, a person named in a will is entitled to a grant of probate;
(c)the jurisdiction is exercised having regard to the due and proper administration of the estate and the interests of the parties beneficially entitled to it;
(d)mere conflict of interest does not justify passing over an executor;
(e)if an estate has claims requiring careful investigation, they should be investigated; and
(f)if the Court is satisfied that the potential claim will not be investigated, it may be in the interests of the administration of the estate to pass over the executor.
[4]These principles are conveniently set out in the headnote to Re Crane [2005] SASC 379.
Counsel for the defendant submitted that the Court should pass over the plaintiff as executor of the estate, and appoint an independent party as executor of the estate, by reason of the following matters:
(a) the due and proper administration of the estate requires the ascertainment of the assets of the estate. That entails prosecuting the County Court proceeding, and making enquiries and determining whether the Mulgrave property and the $25,000 transferred to Salter Holdings in 2001 should be returned to the estate;
(b) it can be assumed that the plaintiff will not, if probate is granted to him, diligently prosecute the County Court proceeding as:
(i) his mother is the defendant to the proceeding;
(ii) payment of the accommodation bond refunds to Nellie Hicks and to her estate took place whilst the plaintiff was acting as the deceased’s attorney;
(iii) success in the County Court proceeding will deplete the assets of the estate of Nellie Hicks, of which the plaintiff’s mother is a beneficiary; and
(iv) success in the County Court proceeding is not in the interests of the plaintiff as it will make more assets available to meet the claims of the defendant and Gillian Bouras against the deceased’s estate under Part IV of the Act;
(c) the withdrawal of $25,000 from the bank account in the deceased’s name requires careful investigation, as:
(i) it was made by Nellie Hicks when the deceased was ill in intensive care;
(ii) the money was transferred to a company of which the plaintiff was director and he and Susan Salter were shareholders; and
(iii) there is no documentary evidence of the money being repaid to the deceased;
(d) it can be assumed that the plaintiff will not make careful investigations, as:
(i) he has a conflict; and
(ii) getting the money back into the estate is not in his interests as it will make it available to the defendant and Gillian Bouras in their Part IV claims;
(e) the purchase of the Mulgrave property by the plaintiff requires careful investigation, as:
(i) the acknowledgements dated 14 June 2002 and 19 July 2002 were drafted by a solicitor, John Pavlidis who not the deceased’s usual solicitor, and not signed in his presence.;
(ii) the defendant believes that John Pavlidis also acted for the plaintiff and Nellie Hicks and there is no evidence that the deceased received independent legal advice in relation to the transfer of the Mulgrave property;
(iii) the deceased was elderly, had moved into a retirement village in June 2002, and had no contact with the defendant and Gillian Bouras at the time he executed acknowledgments;
(f) it can be assumed that the plaintiff will not make careful investigations, as:
(i) he has a conflict in that he would be defendant to any proceedings seeking the return of the Mulgrave property to the estate based on undue influence or unconscionability; and
(ii) getting the Mulgrave property back into the estate is not in his interests as it will make more assets available to meet the claims of the defendant and Gillian Bouras against the deceased’s estate under Part IV of the Administration and Probate Act; and, finally,
(g) it is not appropriate that the alternative executor named in the will, Mr John Pavlidis be granted probate as he is conflicted, given that he acted for Nellie Hicks and acted in the transfer of the Mulgrave property to the plaintiff.
Counsel for the defendant submitted that the transfer of $25,000 from the deceased’s bank account to Salter Holdings and the transfer of the Mulgrave property to the deceased are transactions which may well be capable of being set aside on the grounds of undue influence and/or unconscionable conduct. At the time that the transfer of $25,000 took place, the deceased was seriously ill, and at the time the transfer of the Mulgrave property took place, he was in a nursing home and had no contact with his children. Thus, there is a basis for investigating whether the relationship between the deceased and the plaintiff gave rise to a presumption of undue influence, or whether the deceased was under a special disadvantage vis-à-vis the plaintiff.
Other matters which counsel for the defendant submitted would give rise to suspicions regarding the propriety of these transactions, in particular the transfer of the Mulgrave property, was that the deceased was not provided with independent legal advice, and indeed, the fact that the deceased executed two “acknowledgments” in respect of the transaction is indicative of a solicitor “covering his or her own back”. The transaction took place at a time when the deceased was moving into a nursing home and may have been unsettled and disoriented, and he was not in contact with his children. There is evidence that the deceased himself was concerned regarding the “covetous” attitude of Nellie Hicks’ family towards his assets.
Counsel for the plaintiff submitted that the defendant had not, on the basis of admissible evidence, made out sufficient or any grounds for passing over the plaintiff as executor. He submitted that while full proof of any asserted claims is not necessary, the applicant in a case such as the current proceeding must show that there is sufficient evidence of the existence of a claim to justify careful investigation, and, importantly, the Court must be satisfied that the named executor will not undertake that investigation.
Counsel for the plaintiff emphasised, while not conceding that the plaintiff did have a conflict of interest, that a mere conflict of interest does not of itself justify the passing over of a named executor. The Court should ordinarily assume that an executor will act properly, and that a mere pleading, allegation, or concern about the potential for misconduct, without more, is insufficient to warrant passing over a named executor.
Counsel for the plaintiff identified four issues arising out of the defendant’s grounds for objection and the defendant’s affidavit sworn on 6 August 2013, being:
(a)a potential claim arising out of the transfer of $25,000 from the deceased’s bank account to the account of Salter Holdings while the deceased was ill in hospital in 2001;
(b)a potential claim arising out of the transfer of the Mulgrave property to the plaintiff in 2002;
(c)the assertion that the plaintiff will not actively and properly prosecute the County Court proceeding; and
(d)the allegations that the plaintiff’s conduct of the deceased’s financial affairs while holding a power of attorney warrants scrutiny.
In relation to the claim concerning the transfer of $25,000 to Salter Holdings, counsel for the plaintiff submitted that:
(a) the best evidence is that the funds were repaid to the account of the deceased shortly after the deceased returned home from hospital; and
(b) even if the funds had not been repaid, any claim became statute barred in 2007, when the deceased was alive and in control of his own affairs.
In relation to the claim in relation to the transfer of the Mulgrave property from the deceased to the plaintiff, the best evidence is that the plaintiff paid fair value for the Mulgrave property. Even if the preconditions for considering whether the transaction attracted the doctrines of undue influence and unconscionable conduct were made out (which was denied), there is no evidence that the plaintiff purchased the Mulgrave property at an undervalue, and as such, there are no grounds for impugning the validity of the transaction.
In relation to the allegation that the plaintiff will not actively prosecute the County Court proceeding, the plaintiff has given evidence that, conscious of his duties as executor, he will seek and act in accordance with legal advice. Further, contrary to the submissions of the defendant, the plaintiff has an interest in maximising the size of the deceased’s estate, in that he is a direct beneficiary of that estate, which will be distributed in the next year or so, but only an indirect benefit from the estate of Nellie Hicks, in that he has an expectation that he will ultimately receive half of her estate. Also, no evidence has been advanced which would enable the Court to assess the merits of any claim by the defendant and Gillian Bouras under Part IV of the Act.
Finally, in relation to the allegation that the plaintiff’s conduct of the deceased’s financial affairs warrants scrutiny, counsel for the plaintiff submitted that the defendant has not identified any improper transaction which warrants scrutiny, and notes that an independent administrator, Judge & Papeleo, was in control of the deceased’s affairs for more than a year before he died.
I agree with counsel for the plaintiff that the defendant has not established that, first, there are prima facie claims on the part of the estate in relation to the transfer of $25,000 to Salter Holdings in 2001, the transfer of the Mulgrave property in 2002, or any unparticularised allegations of financial misconduct against the plaintiff in the period in which he was the deceased’s attorney; and secondly, that there is a real and substantial risk that the plaintiff would not adequately investigate any claims. While I agree that it is not necessary for present purposes for the defendant to prove that any claims on behalf of the deceased estate would be made out at a trial, I also agree that it is necessary to advance some evidence in order to establish at least a prima facie claim which warrants investigation.[5] It is not sufficient to advance mere allegations and suspicions. As stated by Windeyer J in Uniting Church v Millane:[6] “Proved misconduct is very different from pleaded misconduct”.
[5]See Re Crane [2005] SASC 379, where Besanko J stated that while it was not his place to decide the merits of the respective claims, he must make an assessment of the merits in order to determine the application to pass over the executor.
[6][2002] NSWSC 1070, at [7].
Further, while the authorities do not set out an express test for assessing whether, in all of the circumstances, an executor is likely to fail to fulfil his or her duties to undertake what is reasonably necessary to bring in the assets of the estate, it is clear from the authorities that, generally speaking, a named executor is entitled to apply for a grant of probate and would only be passed over in special circumstances.[7] Accordingly, it seems that there must be a real and substantial risk that a named executor would not fulfil his or her executorial obligations. I do not consider that it is necessary for me to determine whether the bar is so high as to require a party such as the defendant in the current case to show that it is more likely than not that an executor would not perform his or her duties. However, the tenor of the authorities makes it clear that mere suspicions or “concerns” are insufficient to justify passing over a named executor.
[7]Ibid, at [6].
In the case of the transfer of $25,000 to Salter Holdings, the best evidence available is that, first, Nellie Hicks was authorised to undertake transactions on the deceased’s bank account, and secondly, that the money was repaid to the deceased’s account after the deceased revoked the defendant’s power of attorney. In relation to the transfer of the Mulgrave property, there is simply no evidence in support of a proposition that is a necessary pre-condition to pursuing a claim based upon undue influence and/or unconscionable dealing, that is, that the transfer of the Mulgrave property was at an undervalue, and thus an improvident transaction from the deceased’s perspective. While I can understand that the defendant may have faced some difficulty in obtaining evidence about transactions which took place on the deceased’s bank account, it would have been a relatively straightforward matter for the defendant to obtain an expert opinion as to the approximate value of the Mulgrave property at the time of the transfer, and, in the event that such evidence suggested that the transfer was not for a fair value, put it before the Court in order to establish a basis for a potential claim against the plaintiff in regard to that transaction.
The contention of the defendant that the deceased was in a vulnerable and disadvantaged position in 2001 and 2002 (and thereafter), and therefore susceptible to any undue influence or unconscionable conduct on the part of the plaintiff (or other members of Nellie Hicks’ family) needs to be approached with some caution. While it is correct that the deceased was seriously ill in late 2001, which caused his hospitalisation and may have resulted in a moderate brain injury, the weight of evidence, in particular the report of Dr Dowling relied upon by the defendant, is that the deceased was well and truly capable of managing his own affairs, and his cognitive capacity was only mildly impaired by his illness. Further, the letter sent by the deceased to the defendant in 2001, and relied upon by the defendant for the purposes of this application, where the deceased expressed some concern about the “covetous” attitude of Nellie Hicks’ family towards his assets, suggests that, if anything, the deceased would have been alert to any efforts on the part of members of that family to manipulate him or take advantage of him.
Finally, I agree that vague, unparticularised allegations of misconduct in the deceased’s financial affairs are insufficient to make out a finding that the estate of the deceased would have a prima facie claim against the plaintiff with respect to his role as the deceased’s attorney between 2007 and 2010.
The lack of evidence to support a finding that there are potential claims by the estate of the deceased which warrant further investigation is also borne out by the apparent failure of the deceased’s former administrators, Judge & Papaleo, to take any action in respect of these matters. The evidence of the defendant is that during the course of the VCAT hearing resulting in the appointment of Judge & Papaleo as the administrator of the deceased’s affairs the allegations regarding the transfer of the Mulgrave property were squarely before the tribunal, and no doubt Judge & Papaleo were made aware of this matter. There can be no suggestion that Judge & Papaleo, well known for their experience and expertise in this field, were not proactive in pursuing the deceased’s interests: indeed, they took the trouble to instruct solicitors to initiate the County Court proceeding, with experienced counsel briefed to draw a detailed statement of claim making claims against Nellie Hicks’ estate. There cannot be too much doubt that if the deceased had viable claims against the plaintiff, Judge & Papaleo would have taken action in the event they considered it viable and appropriate to do so.
For completeness, however, I do not accept the submissions of counsel for the plaintiff that when determining this application I should disregard any potential claims by the estate of the deceased against the plaintiff and/or Salter Holdings on the grounds that they are or are likely to be statue barred. Setting aside the fact that claims for equitable relief do not automatically attract the statutory limitations periods applicable to common law claims, and that there is always scope to seek extensions of time, it should be borne in mind that the expiry of a limitation period does not of itself bar the making of a claim. Rather, it is a matter to plead in defence of a claim. Further, an executor seeking to resist an application that he or she be passed over as an executor would be on shaky ground if the only answer to a claim made against them or a related entity was their entitlement to rely upon a limitation defence. However, that is not the position here.
Finally, in relation to the question of whether the plaintiff has a conflict of interest in prosecuting the County Court proceeding, I would make two observations: first, the plaintiff has deposed, on oath, to his intention to seek and rely upon legal advice in determining how to prosecute the County Court proceeding, and secondly, it appears to me that the question of whether in fact the plaintiff has a vested interest in maximising the value of Nellie Hicks’ estate is far more complicated than that contended for by the defendant.
In relation to the question of the plaintiff’s intentions, the plaintiff was not cross-examined in relation to his statement that he was alert to his duties as executor and would rely upon legal advice. I can understand why counsel for the defendant did not cross-examine the plaintiff in relation to the claims alleged against him, on the basis that there was no need in the current application to conduct a “trial within a trial” in relation to those claims. However, the allegation that the plaintiff would not adequately prosecute the County Court claim is directly relevant to the matters at issue in this application, and no contrary facts or allegations were put to him during the course of the hearing.
In relation to whether the plaintiff cannot or should not be able to undertake his role as an executor on the basis that his interest as an indirect beneficiary of his mother’s estate conflict (and, by implication, overcome) his interests as a beneficiary of the deceased’s estate, such that he will be unwilling to take actions to maximise the value of the deceased’s estate, I do not consider that the position is so clear cut as contended for on behalf of the defendants. As the plaintiff says, he has, subject to the outcome of any Part IV claims by the defendant and Gillian Bouras, an immediate interest in a quarter share of the residuary estate of the deceased. His evidence in relation to Nellie Hicks’ estate is that he expects to ultimately inherit a half share of his mother’s estate (his mother having a one third share in Nellie Hicks’ estate, and a one-quarter share of the deceased’s estate), but that his mother is aged 62 and is in good health, and accordingly, his immediate pecuniary interest is consistent with maximising the value of the deceased’s estate.
Further, it was argued on behalf of the defendant that, regardless of whether the plaintiff had an immediate interest in maximising the value of the deceased’s estate, it was in his interests to limit the pool of assets against which the defendant and Gillian Bouras could make a claim under Part IV of the Act. However, given that Nellie Hicks’ children, including the plaintiff’s mother, are beneficiaries of both the deceased’s estate and Nellie Hicks’ estate, it is most unlikely that, given the matters that a court is required to and likely to consider in claims under Part IV of the Act, the entitlements of Nellie Hicks’ children as beneficiaries of her estate will be ignored in any assessment of the competing claims to the deceased’s estate. Indeed, all other things being equal, and in the absence of any evidence regarding the financial needs of the relevant parties, one can imagine a court taking a sympathetic view to the claims of the defendant and Gillian Bouras to the estate of the deceased, especially if it was found that the assets of Nellie Hicks’ estate had been augmented by assets of the deceased which could not otherwise be recovered from the estate of Nellie Hicks by the deceased’s estate.
Further, in the event that the deceased’s estate is unable to recover funds from the estate of Nellie Hicks (if, for example, no debt could be proved, or there was a finding that the deceased made a gift to Nellie Hicks), there is nothing in the Act which would prevent the defendant and Gillian Bouras making an application under Part IV of the Act against Nellie Hicks’ estate. If the circumstances were such that the assets of the estate of Nellie Hicks had been augmented by funds which would otherwise be assets of the estate of the deceased, it is quite possible that any claim by the defendant and Gillian Bouras would have some merit.
Accordingly, the defendant’s assertion that the plaintiff has a conflict of interest because he has an interest in maximising the assets of the estate of Nellie Hicks at the expense of the deceased’s estate is, in my view, far too simplistic. Certainly the position and interests of the parties in the current case is far more complex and nuanced than that of the protagonists in the matter of Mataska v Browne, where the executor’s conflict of interest as, effectively, the recipient of a gift of the deceased’s major asset shortly prior to the death of the deceased was quite clear cut.
Accordingly, I shall dismiss the defendant’s application to pass over the plaintiff as executor of the estate of the deceased, and I shall hear further from counsel as to the form of orders and the question of costs.
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