Pizzey v Pizzey
[2023] VSC 760
•18 December 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2021 03747
IN THE MATTER of sections 28 and 34 of the Administration and Probate Act 1958
- and –
IN THE MATTER of an application pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015
- and –
IN THE MATTER of the will and estate of JASON BENJAMIN PIZZEY, deceased
BETWEEN:
| BENJAMIN GEORGE PIZZEY (by his litigation guardian, SARAH JANE NIDDRIE) | Plaintiff |
| v | |
| GEOFFREY JAMES PIZZEY (as executor of the estate of JASON BENJAMIN PIZZEY, deceased) & ANOR (according to the attached Schedule) | Defendants |
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JUDICIAL OFFICER: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 June 2023 and 8 August 2023 |
DATE OF JUDGMENT: | 18 December 2023 |
CASE MAY BE CITED AS: | Pizzey v Pizzey |
MEDIUM NEUTRAL CITATION: | [2023] VSC 760 |
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WILLS & ESTATES – Application for approval of a proposed compromise – Where plaintiff as a minor is unable to consent – Where executor has a conflict of interest and duty – Where plaintiff as sole current beneficiary would receive less than 50% of the estate’s value under proposed compromise – Serious concern as to quantum of costs – Court unable to be satisfied that the proposed compromise is for the plaintiff’s benefit – Application dismissed – proceeding referred for determination on removal of the defendants as executors payment of money into Court and costs – Administration and Probate Act 1958 sections 28 and 34 – Supreme Court (General Civil Procedure) Rules 2015 Rule 15.08(1) – Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 – O’Connor v James [2019] VSCA 265 – O’Connor v James [2023] VSCA 274 – Elderfield v TAC (2010) 55 MVR 206 – Fisher v Marin [2008] NSWSC 1357 – Monty Financial Services vDelmo [1996] 1 VR 65.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Gannon | Saines & Partners |
| For the Defendants | Mr J Munro | Cornwalls |
HIS HONOUR:
Introduction
The Court has before it an unusual application for approval of a proposed compromise. The plaintiff, who is ten years of age, brings this proceeding by his mother and litigation guardian, Sarah Niddrie, against the executors of the estate of his father, Jason Pizzey. The executors are the first defendant, who is the deceased’s father, and the second defendant, who is a chartered accountant and who has been the first defendant’s accountant for about 25 years.
The plaintiff is the current sole beneficiary of the deceased’s estate under the deceased’s last will made on 22 May 2020. The first defendant asserts that he is owed $509,161.71 from the estate (the Executor’s Debt Claim), nearly 60% of the gross value of the estate approximately $859,948.10. By his originating motion the plaintiff seeks, in broad terms, an inquiry and ‘determination’ of the Executor’s Debt Claim and, ‘insofar as is necessary’, removal of the defendants as executors. The parties have entered into a deed of settlement which would conclude the proceeding and finalise this modest estate. Court approval of the proposed compromise is required because the plaintiff as a minor is unable to consent.[1]
[1]See r 15.08(1) of the Supreme Court (General Civil Procedure) Rules 2015.
The proposed compromise provides that, from the estate of $859,948.10 gross, the sum of $410,000 be paid into Court for the benefit of the plaintiff, the plaintiff’s legal costs of $62,000 be paid, and the remaining amount of approximately $387,000 be retained by the first defendant, essentially for the Executor’s Debt Claim, but also for some minor reimbursements, with the defendants to ‘bear their own costs’, of uncertain quantum, but said to be over $100,000.
For the reasons that follow, I will dismiss the application for approval and list the proceeding for a hearing on the questions of whether the defendants ought be removed as executors due to a conflict of interest and duty, whether they should pay from the estate into Court the amount of $410,000 to be held for the plaintiff’s benefit, and what costs orders ought be made in finalising the proceeding.
Summary of key facts
In 2019 the first defendant told his two sons, the deceased and his brother, Adrian Pizzey, that each of them could have up to $450,000.00 for the purchase of a home. At that time, neither the deceased nor his brother were homeowners.
Despite significant personal struggles which prevented him from consistently fulfilling the usual demands of permanent employment, the deceased had been employed on favourable conditions for over 25 years in a business controlled by the first defendant. The business is operated by Amare Safety Pty Ltd (Amare Safety), of which the first defendant is the sole director. 99.99% of the shares in Amare Safety are held by the corporate trustee of a unit trust of which the first defendant is the sole director. The remaining shares are held by Afcon Pty Ltd, which is the trustee of the ‘GJ Pizzey Family Trust.’ The first defendant is the sole director of Afcon Pty Ltd.
On 4 October 2019, the deceased entered a contract to buy a house and land package for a total of $460,000.00 at Maddingley near Bacchus Marsh.
Less than a week later, on 11 October 2019, Adrian entered a contract to purchase an established home in Mulwala, New South Wales, for approximately $510,000. This purchase settled on 4 December 2019.
Unfortunately, in February 2020, the deceased was diagnosed with cancer at 44 years of age. By this time, the payments required in relation to the land at Maddingley were complete, totalling approximately $234,000.
On 18 May 2020, the deceased’s health suddenly deteriorated and he was admitted to the Intensive Care Unit at Sunshine Hospital (ICU).
On or about 20 May 2020, the second defendant spoke to a solicitor, Ken Davies of the firm Cornwalls, to relay the information that the deceased had requested the first defendant to arrange for a will and power of attorney to be prepared for him. Mr Davies and the first defendant were subsequently in communication and, at some point, the first defendant gave Mr Davies instructions for the drafting of an ‘acknowledgement of debt’ to be executed by the deceased (the acknowledgement).
The defendants visited the deceased in ICU on 22 May 2020. During the visit, the deceased signed the acknowledgement which had been drafted by Mr Davies and which was given to the deceased by the first defendant. The defendants witnessed the deceased sign the acknowledgement. The acknowledgement is addressed to the first defendant and is in the following terms:
Jason Benjamin Pizzey of 12/20 Somerton Court, Darley, 3340, acknowledges his indebtedness to you in the sum of $235,000 repayable to you without interest, upon receipt of written demand.
During the visit to ICU on 22 May 2020, the defendants also witnessed the deceased sign a will which had been drafted by Mr Davies (the Will). The Will appoints the defendants as executors and trustees, as well as Mr David Peter Golik, accountant, and, after payment of debts and expenses, leaves the whole of the estate to an ongoing testamentary trust, the Benjamin George Pizzey Trust, with the plaintiff and his subsequent issue and his and their spouses as beneficiaries (the Trust). The Trust vests upon the plaintiff attaining the age of 30 years. The defendants, as trustees, are given broad discretion as to the distribution of income and capital, including the potential to distribute capital to a beneficiary and to terminate the Trust.
The plaintiff’s originating motion specifically raises the question of the deceased’s contractual capacity on 22 May 2020. A significant portion of the evidence filed with the Court addresses this issue, including material returned under a subpoena to the Sunshine Hospital issued by the plaintiff.
The deceased died on 16 July 2020, leaving his only child, the plaintiff, then aged six. The plaintiff thereafter lost the benefit of child support payments which had previously been made by the deceased to his mother, the litigation guardian. The plaintiff continues to live in difficult financial and personal circumstances.
After the deceased’s death, three further payments, amounting to about $161,000, were made in respect of the cost of constructing a residence on the Maddingley property.
A total of $468,643.16 was paid for the deceased’s house and land purchase at Maddingley, as shown below:
LAND PAYMENTS 4 October 2019 $1,000.00 13 January 2020 $21,400.00 14 January 2020 $212,271.16 BUILDING PAYMENTS Date Amount 12 November 2019 $2,000.00 11 May 2020 $9,498.60 4 June 2020 $22,997.20 2 July 2020 $1,000.00 2 July 2020 $34,495.80 31 July 2020 $80,490.20 12 August 2020 $57,493.00 26 October 2020 $22,997.20 12 November 2020 (real estate agent’s fees) $3,000.00 TOTAL $468,643.16
Of the total amount of $468,643.16 which was paid in respect of the house and land package at Maddingley, all but $3,000 (which was paid by the first defendant) was paid by Amare Safety. According to Amare Safety’s long standing administration manager who processed and authorised these payments (as well as the approximately $510,000.00 paid in relation to Adrian Pizzey’s purchase of a home in Mulwala), ‘funds advanced to [the deceased] and Adrian are recorded as loans to Afcon in the general ledger of Amare Safety’. As I have noted, Afcon is the trustee of the GJ Pizzey Family Trust.
After the deceased’s death, Adrian Pizzey signed a document dated 3 September 2020 addressed to the first defendant and which was similar to the acknowledgement. In January 2021, the first defendant registered a mortgage over Adrian’s property.
The deceased’s estate
Probate of the will was granted to the defendants as named executors on 22 December 2020.[2]
[2]Probate was granted to the defendants with leave reserved to the other named executor, David Golik.
The inventory filed by the defendants in support of the probate application recorded as assets the property at Maddingley, valued at $530,000, and a ‘Bank account, Australian and New Zealand Banking Group Limited, Smart Choice Super Account no 012 013 245 240 002’ (the superannuation account) with a value of $341,423.43. Together with other assets of nominal value, the inventory identified total assets of $874,738.43.
The inventory records total liabilities of $249,602.13 comprised of a ‘Personal loan, loan from Geoffrey James Pizzey (loan agreement dated 22/05/2020)’ with a value of $235,000.00, and ‘other, reimbursement to Geoffrey James Pizzey for expenses’ with a value of $14,602.13.
The net value of the deceased’s estate recorded in the probate inventory was accordingly $625,136.30.
The property at Maddingley was sold in December 2020, with settlement apparently occurring on 7 January 2021 for $530,000. ‘Net sale proceeds’ of $517,268.45 were paid into Cornwalls’ trust account on 7 January 2021.
On 15 March and 29 March 2021, receipts from ‘OnePath’ totalling $348,499.37 were received into a bank account opened by the first defendant for the estate. It is apparent that these were the funds held in the superannuation account (the superannuation funds).
Together with tax refunds and the like, the gross receipts of the estate are now said by the defendants to be $862,928.40. However, as considered further below, the administration accounts for the deceased’s estate are unsatisfactorily unclear.
The proceeding
This proceeding was commenced by the plaintiff by his litigation guardian on 11 October 2021. By his originating motion brought under ss 28 and 34 of the Administration and Probate Act 1958 and Order 54 of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules) , the plaintiff seeks the following relief:
(a) an order that the defendants file and serve an account of their administration of the deceased’s estate;
(b) ‘an inquiry and determination whether Jason Benjamin Pizzey knew, understood, approved and had capacity to execute’ the acknowledgment;
(c) a determination as to whether the acknowledgment gives rise to a binding debt against the deceased in favour of the first defendant;
(d) an inquiry and determination whether the first defendant is entitled to payment of sums totalling $509,161.71 from the deceased’s estate as claimed by the defendants’ solicitors;
(e) an inquiry and determination as to what, if any, sum the first defendant is entitled to be paid or reimbursed from the estate; and
(f) ‘insofar as is necessary’, an order that the defendants be removed as executors of the estate and the appointment of an independent person in their stead.
Before the application for approval of compromise was filed, some 11 substantive affidavits were filed in the proceeding and a mediation was conducted on 29 August 2022. It is a matter of great concern that the parties have incurred legal costs approaching $200,000.00 in this litigation, or about a third of the net value of the deceased’s estate.
Shortly prior to the mediation, an administration account was prepared by the defendants, dated 19 August 2022, signed only by the first defendant (the first administration account) which recorded:
(a) ‘net’ proceeds of sale of the property at Maddingley as a receipt, and agents commission and advertising as disbursements;
(b) approximately $124,000 in fees paid to Cornwalls and the second defendant’s accountancy business (although over $100,000.00 is legal fees); and
(c) post-death ‘payments’ from the estate for the property at Maddingley, totalling $160,980.40 (which accord with the timing and the amounts paid by Amare Safety, not the estate).
The first administration account represented that, as at the date of the mediation, a net estate of $548,101.70 ‘remained’, and that the defendants had disbursed $314,826.70 in administering the estate and paying legal and accounting fees.
Application for approval of compromise
The parties executed a deed of settlement on 30 November 2022 which includes mutual full releases and indemnities and the following key operative provisions:
3.2The defendants shall pay $410,000 to the Senior Master Funds in Court Office to be held for the plaintiff on the terms of The Benjamin George Pizzey Testamentary Trust within fourteen (14) days of the Court order.
3.3The defendants shall pay $62,000 to the plaintiff’s lawyers in respect of the plaintiff’s legal costs within fourteen (14) days of the Court order.
3.4The balance of the estate funds held by the defendants shall be:
(a)first, used to pay any outstanding estate expenses,
(b)secondly, to reimburse the first defendant for estate expenses previously paid by him,
(c)thirdly, to reimburse the first defendant for building costs paid by him since the deceased’s death, and
(d)finally, to partly repay the first defendant the sums advanced by him to the deceased during the deceased’s lifetime.
The summons for approval of compromise was filed on 22 December 2022. Consistent with the requirements of r 15.08(4) of the Rules, the affidavit filed in support of the summons contained evidence of the date of the deed of settlement and the date of birth of the person under disability. The Court was also provided with counsel’s confidential opinion on the merits of the settlement as contained in the deed of release. In summary, counsel expressed the view that it would be proper for the Court to give approval to the compromise because there was a real risk that the plaintiff would not do better at trial than under the compromise, and a real possibility that the plaintiff’s position would be substantially worse at trial than under the deed of settlement. The plaintiff’s solicitor concurred in this view, expressing the opinion that the proposed compromise was in the plaintiff’s best interests for the reasons given by counsel, and because there appeared to be substantial issues of fact and law raised in the proceeding and a real risk that, if the matter proceeded to trial, the result would be less favourable to the plaintiff than the terms of the proposed compromise.
On 30 January 2023, orders were made referring the summons for approval for hearing and determination before a judicial registrar. On 27 April 2023, Keith JR referred the summons for approval back to a judge for hearing and determination.
The summons for approval was listed for hearing on 8 June 2023. The hearing was conducted ex parte to allow consideration of counsel for the plaintiff’s confidential opinion provided in support of the summons. In the course of the hearing, I raised with the plaintiff’s counsel various matters of concern in relation to the proposed compromise and suggested that he discuss those concerns with the defendant’s counsel. Orders were made at the conclusion of the hearing further adjourning the proceeding on the basis that, within a period of 6 weeks, the plaintiff was to inform my chambers as to the proposed further listing of the proceeding.
On 18 July 2023, my chambers requested that the parties indicate whether they wanted the summons for approval to be listed for further hearing. On 25 July 2023, the solicitors for the defendants informed the Court that they wished to be heard at a further hearing of the application for approval. The summons for approval was then relisted for hearing on 8 August 2023.
At the hearing of the summons on 8 August 2023, the Court was informed that the defendants’ legal costs were $115,000.00. As the plaintiff’s legal costs were disclosed as being $65,000.00, I raised the question of how nearly $200,000.00 in legal costs could be incurred in relation to what is a very modest estate. In the course of the hearing, significant uncertainty emerged about what costs and expenses had in fact been paid, by whom and when. For example, it became unclear whether the estate had in fact paid the building costs associated with the Maddingley property as apparently recorded in the first administration account. As a result of these concerns, I ordered an affidavit from the defendants’ solicitors to properly disclose their costs.
The lack of clarity and certainty in the defendants’ material also extended to the first defendant’s claim as a creditor of the estate. In particular, the defendants’ solicitors written submissions stated that either the first defendant or Amare Safety ‘loaned’ funds to the deceased and ‘[t]he total amount asserted [sic] as due and payable to the first-named defendant or Amare Safety is therefore $506,607.49.’ On its face, this is inconsistent with the acknowledgment and the probate inventory which both refer to a debt of $235,000 owed to the first defendant personally.
On 22 August 2023, the defendants filed a costs affidavit which exhibited various invoices and a further ‘administration account’ dated 21 August 2023 (the second administration account). The costs affidavit is unclear, but it appears that the total legal costs charged by the defendants for the administration and this proceeding are approximately $104,000.000. The second defendant has also charged in excess of $20,000.00 for accountancy fees.
The second administration account is not set out as required by the rules and does not assist my understanding of the administration of the estate. However, contrary to the first administration account, it represents that only $18,553.83 in legal costs have been paid to the date of the account, and it does not show building costs paid from the estate. It shows $859,948.10, as held in the estate.
In his affidavit filed on 22 August 2023, the defendants’ solicitor deposes that in April 2023, in reliance on the proposed compromise, but in advance of the determination of this application for approval, the first defendant withdrew the superannuation funds from the bank account in which they were held and closed that account. On 18 August 2023, the first defendant deposited another $353,164.55, into another bank account, which he now states represents the deceased’s life insurance and superannuation funds for the estate, as well as ‘sundry receipts’.
Consideration
In accordance with r 15.08(1) of the Rules, the approval of the Court is required before any proposed compromise or settlement of a proceeding is binding on a person under a disability, including a child. This is a distinct and important power designed to protect the interests of persons under a legal disability.[3]
[3]O’Connor v James [2023] VSCA 274, [40].
In considering the summons for approval of the compromise filed by the plaintiff, the Court’s task is to determine whether the proposed compromise is for the plaintiff’s benefit. In undertaking that task, the major consideration is the degree to which the person under a disability is at risk that, if the proceeding goes to trial the result will be less favourable than what is offered in the settlement.[4] In resolving that question, the Court will attach significant weight to the opinions of the person’s legal advisers[5] and will have regard to the merits of the claim in considering the risk to the person under a disability in proceeding with the claim.[6]
[4]O’Connor v James [2019] VSCA 265, [59].
[5]Ibid.
[6]Ibid [65].
In Elderfield v TAC,[7] Robson J approved the following statement by Rothman J in Fisher v Marin[8] where his Honour was asked to approve a compromise of a claim of an infant by her tutor in a negligence case:[9]
The jurisdiction of the Court is protective in nature and the overriding principle is that the Court will base the approval or disapproval upon the formation of an opinion that the agreement is or is not beneficial to the interests of the person under the incapacity. It is for the Court, not the parties, to determine whether the compromise will be beneficial to the person under an incapacity: …
[7](2010) 55 MVR 206 (‘Elderfield v TAC’).
[8][2008] NSWSC 1357, [29].
[9]Elderfield v TAC (n 7), [17], citations omitted.
Justice Robson concluded that the test:[10]
… is whether it would be in the interests of the plaintiff to reject the compromise and continue the action in the hope of receiving a larger amount. In my view that question is relevantly answered by deciding whether or not, in my opinion, the certainty of obtaining the compromise sum is significantly outweighed by the uncertain prospect of obtaining more by rejecting the compromise after taking into account the risk of obtaining less.
[10]Ibid [20].
The Court of Appeal has recently observed that the task of determining whether a compromise is in the best interests of a person under a disability depends on the particular circumstances of the case.[11] This observation is particularly apposite to this proceeding because, unlike Elderfield v TAC and Fisher v Marin referred to above, it does not involve a claim for damages for personal injury. The nature of the plaintiff’s claims means that a singular focus on whether ‘the certainty of obtaining the compromise sum is significantly outweighed by the uncertain prospect of obtaining more by rejecting the compromise after taking into account the risk of obtaining less’, is not well adapted to determining whether the proposed compromise is for the plaintiff’s benefit.
[11]O’Connor v James [2019] VSCA 265, [38].
As the sole current beneficiary of the deceased’s estate, the plaintiff has a right to have the estate properly administered in accordance with the duties of the executors[12] who are in a fiduciary relationship with him.[13] The proper administration of the deceased’s estate which the defendants are obliged to undertake for the plaintiff’s benefit includes, amongst other things, the production of accounts and the payment of the deceased’s debts with due diligence.[14] By commencing this proceeding, the plaintiff has, in effect, sought to vindicate his right to have the estate properly administered in these respects, including in relation to the Executor’s Debt Claim, by seeking a determination as to whether the acknowledgment gives rise to a binding debt against the deceased in favour of the first defendant, and an inquiry and determination as to whether the first defendant is entitled to payment of $509,161.71 from the deceased’s estate.
[12]Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306, 314.
[13] Brooks v Young (2018) 131 SASR 365 [93].
[14]Monty Financial Services vDelmo [1996] 1 VR 65, 82 (‘Monty Financial Services v Delmo’); Re Tankard [1942] Ch. 69, 72.
In circumstances where the plaintiff has put in issue the veracity of the Executor’s Debt Claim and/or its quantum, it is self-evident that the first defendant is profoundly conflicted between his duty as an executor and his interest as a claimed creditor of the estate. His position is analogous to Mr Delmo in Monty Financial Services v Delmo.[15] Mr Delmo was the executor and a beneficiary of his mother’s estate. He also claimed to be a creditor of the estate because of funds he had provided to undertake renovations to the estate property. Justice Ashely (as he then was) ordered that Mr Delmo be removed as executor of the estate because:[16]
… in the particular circumstances of this case there is a conflict of duty and interest, the conflict necessarily requiring a decision by the executor whether to accept or reject his own truthfulness. A critical question to be resolved is not simply whether Mr Delmo spent money on the Kew property. It is whether the money spent was a gift or a loan.
[15]Monty Financial Services vDelmo (n 14).
[16]Ibid 83.
Justice Ashley’s reasoning was approved by the Court of Appeal in Fysh v Coote[17] and in Dimos v Skaftouros.[18] Of course, it does not follow from the analogy with Monty v Delmo that the first defendant will be removed as executor of the deceased’s estate. The first defendant would be entitled to be heard in respect of the matter and not every conflict between duty and interest will result in the removal of an executor; the discretion to remove an executor must be exercised having regard to all the relevant circumstances of the case. However, because the first defendant as executor of the deceased’s estate is in the position of accepting or rejecting his own claims as a creditor, I consider that the plaintiff has a strong claim for his removal as executor, being a head of relief sought by the plaintiff in the originating motion. Although the second defendant has not asserted a personal claim as a creditor, because co-executors are bound by the acts of any one executor,[19] it would ordinarily follow that, if circumstances warrant the removal of the first defendant, it also would not be appropriate that the second defendant remain in place as an executor.
[17][2000] VSCA 150, [20] (Ormiston JA, with whom Batt and Chernov JJA agreed).
[18](2004) 9 VR 584, 606.
[19]Union Bank of Australia v Harrison (1910) 11 CLR 492, 500, 510–11; Simmons v Ross [2018] VSC 306, [74]; Deputy Commissioner of Taxation & Anor v Bourke & Williams [2018] VSC 113, [47].
With these matters in mind, I am unable to be satisfied that the proposed compromise embodied in the deed of release is for the plaintiff’s benefit. Under the proposed compromise, the plaintiff will stand to directly benefit only in the amount of $410,000 from an estate which, on the face of the second administration account, apparently has a total value of $859,948.00. Given the modest size of the estate and the plaintiff’s very young age, this result, being less than 50% of the estate’s value, is, on its face and absent good reason, a poor outcome for the plaintiff who is the sole current beneficiary of the estate.
It may be that, upon proper examination of the merit of the Executor’s Debt Claim, this result can be said to be for the plaintiff’s benefit in that the certainty of obtaining $410,000 is significantly outweighed by the uncertain prospect of the plaintiff obtaining more by rejecting the compromise. An appraisal of the Executor’s Debt Claim as being well-founded and meritorious would be central to any such conclusion. The critical flaw in the present application is the absence of a reliable assessment of that claim which, on the material before the Court, I consider to be at least contestable and to not be of so obvious merit as to readily warrant such a substantial discount in the plaintiff’s entitlements under the Will as is proposed by the proposed settlement.
As the first defendant is profoundly conflicted between his executorial duties and personal interests as a creditor, the Court can have no confidence that the proposed compromise is premised upon an objective assessment of the merit of the Executor’s Debt Claim. The proposed compromise relieves the first defendant of the burden of properly establishing a claim as a creditor of the estate and releases both defendants from their responsibilities to the plaintiff, as the sole current beneficiary, and provides for the making of a substantial payment to the first defendant personally from the estate, without a clear basis.
By contrast, in the event that the defendants are removed as executors of the deceased’s estate, an independent administrator appointed in their stead would need to deal with the Executor’s Debt Claim in administering the estate. In that event, if the first defendant does not promptly present a clear basis for his claim, a simple process is available to any incoming administrator by s 30 of the Administration and Probate Act 1958 to give the first defendant a period of three months to issue a proceeding, and if not, to obtain orders shutting him out. Consideration of the Executor’s Debt Claim by an independent administrator whose perspective would be untainted by any conflict of interest is in the best interests of the plaintiff in ensuring that the estate is properly administered because it would enable a reliable and properly informed assessment of the merits of the claim which the first defendant would be at liberty to submit to the administrator. This would provide the necessary foundation in assessing whether any proposed compromise of the Executor’s Debt Claim would be for the plaintiff’s benefit.
I determining this matter, I have carefully considered counsel’s confidential advice provided in support of the approval application. I do not agree with the advice. It is sufficient for me to record that I found it to be of little assistance because it does not take into account or give proper regard to the critical matters to which I have referred: the plaintiff’s right to have the estate properly administered in accordance with the proper discharge by the executors of their duties; the first defendant’s fundamentally conflicted position; and the capacity of the plaintiff to readily seek the removal of the defendants as executors of the estate in line with the relief claimed in the originating motion. Regrettably, rather than promptly pressing the Court for this relief, which applications are ordinarily dealt with expeditiously, the plaintiff, presumably on the advice of his legal advisers, has been drawn into a lengthy and very costly contest with profoundly conflicted defendants about the merit of the Executor’s Debt Claim.
The summons for approval will accordingly be dismissed. I will refer the proceeding to the Trusts Equity and Probate List for allocation to another judge for hearing in relation to the relief sought in paragraph seven of the originating motion. I will also make orders giving the defendants an opportunity to show cause why orders for their removal as executors of the deceased’s estate should not be made.
Additional matters
In addition to the question of whether the defendants should be removed as executors, I will also refer for determination before the same judge the issue of costs and the question of whether the defendants, regardless of the outcome of this proceeding, should be required to pay into Court the amount of $410,000. I make the following observations about these matters for the assistance of the parties and to identify some aspects of this proceeding which raise matters of serious concern, including in relation to the parties’ current legal representation.
Payment into Court
Although the Court has refused the application for approval of the compromise, there is no obvious reason why the defendants should not pay into Court $410,000 as provided by the proposed compromise. In entering into the deed of settlement, the defendants committed the estate, subject to the Court’s approval, to paying $410,000.00 into Court for the benefit of the plaintiff as a child. The first defendant, individually and as the sole director of the two companies that might be the source of funds for the Maddingley house and land purchase, may be viewed as having bound himself and those entities, as potential creditors, to releasing himself and the second defendant (in their capacities as executors) from any potential claims against the estate in excess of the remaining value of the estate after the payment into Court, had the Court’s approval been given.
The first defendant does not approach the Court in his role as a potential creditor. The defendants are fiduciaries with binding obligations to the plaintiff, as the sole current beneficiary of the estate. The defendants, as executors, may be taken to have determined that the net estate is no less than $410,000.00 (setting aside for a moment the $62,000.00 in legal costs also to be paid out of the estate by the proposed compromise). If this amount, at least, is the net estate as determined by the defendants as executors, they are obliged to hold it on trust for the beneficiaries on the terms of the Will. Paying this amount into Court pending the finalisation of the estate would be prudent and would provide for prompt access to much needed support for the plaintiff in his difficult immediate personal circumstances.
The Court will provide the defendants with an opportunity to show cause why orders should not be made providing for payment into Court from the deceased’s estate of the amount of $410,000 to be held for the plaintiff’s benefit.
Costs
I expressed serious concern about the quantum of Cornwalls’ costs at the hearing of the approval application. Subject to the views of the judge who will be responsible for the further hearing of this proceeding, I consider that further consideration of the quantum of these costs should await the determination of the removal question as the resolution of that question may affect the identification of who should be liable for the payment of those costs.
As a matter of general principle, an executor is entitled to be indemnified out of an estate for the costs incurred in the estate’s administration and distribution. The right of indemnity is, however, confined to costs and expenses properly incurred.[20] Legal costs incurred by an executor in furtherance of a personal interest will not be properly incurred.[21] As explained by Austin J in Drummond v Drummond:[22]
Executors who pursue personal interests in litigation are 'not fighting for the estate any more than if they were not executors at all': Skrimshire v Melbourne Benevolent Asylum (1894) 20 VLR 13, 18 per Madden CJ. An executor who prosecutes or defends proceedings in the capacity of, say, creditor or beneficiary of the estate rather than in the capacity as executor cannot expect to recoup the costs of litigation from the estate simply on the basis that he or she is also an executor. In Miller v Cameron Latham CJ took the view that a trustee who defended an action for his removal was thereby representing his own interests and not those of the trust estate. In Plimsoll v Drake Zeeman J reached a similar conclusion where a trustee unsuccessfully asserted the right to demand a release before distributing the trust estate to the beneficiaries.
[20]Wales v Wales [2015] VSCA 345, [41].
[21]Miller v Cameron (1936) 54 CLR 572, 578-579 (‘Miller v Cameron’); Re Jones [1897] 2 Ch 190, 197-198.
[22][1999] NSWSC 923, [47].
It follows from these principles that, if the defendants are found to have incurred legal costs in pursuit of the Executors’ Debt Claim, rather than in protection of the estate assets, they may face adverse costs orders, including that they pay their own costs personally without recourse to the estate.
Further, in certain circumstances, an executor may be ordered to pay the legal costs of a beneficiary who has commenced a proceeding against the executor. For example, where a trustee resisting removal ‘failed to show that his interests coincide with the interests of the trust estate’, [23] it may be quite proper that the trustee pay the costs of the person seeking their removal. This principle may ultimately be enlivened in this proceeding so as to give rise to a liability on the part of the defendants for the plaintiff’s costs.
[23]Miller v Cameron (n 21), 579 (Latham CJ).
There is also an open question as to whether the defendants ought enjoy an indemnity for the legal costs of the administration of the estate prior to the issuance of this proceeding, in circumstances where they were legally represented and where one of them seeks to make a claim as creditor. As I have noted, Mr Davies, of Cornwalls solicitors, drafted the acknowledgment. The same firm of solicitors acted in the application for probate, so were in a position to advise, even before they took instructions on the inventory, as to the suitability of the defendants to act as executors in the interests of the estate.
Parties’ future legal representation
Cornwalls acted for the first defendant in advising on and preparing the acknowledgement, and now act for the estate where the sole current beneficiary’s interests are in scrutinising the existence of any debt said to be owed to the first defendant. Cornwalls’ practitioners appear to have failed to appreciate the conflict of client interests arising from the firm acting for a purported creditor and for a purported debtor, in litigation concerned with that very debt. The firm appears in Court for the defendants as executors where it must act in the interests of the estate and the current minor beneficiary. Yet, much of the material filed by the defendants and their conduct of the proceeding gives an unfortunate impression that Cornwalls may have accepted instructions from the first defendant, or Amare Safety, or both, as purported creditor.
For the above reasons, I am concerned that Cornwalls may be in breach of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (Solicitors’ Conduct Rules). Cornwalls should immediately re-assess its position in respect of its compliance with these professional and ethical obligations and whether it is appropriate for it to continue to act for the defendants. Separately, Cornwalls should in any event consider whether it is appropriate to continue to act for the defendants given my above observations in relation to costs.
Consideration should also be given to whether the interests of the defendants may diverge such that they may require separate representation. It is a matter of considerable concern that an otherwise simple estate has incurred over $20,000.00 in respect of accountancy fees. Under the Will, the second defendant is permitted to charge for professional fees for ‘professional services rendered in connection with the administration of [the] estate.’ It is not apparent that he is permitted to charge for time spent performing executorial functions such as paying bills and signing documents; he is only permitted to charge for professional accountancy services for the estate. The second defendant may require separate advice about the payment from the estate of his fees, or the fees of his accountancy firm. The defendants may also have different interests in relation to their personal exposure to any adverse costs orders which might be made in this proceeding.
The plaintiff’s current legal practitioners should also consider whether they can continue to act for the plaintiff in this proceeding. At least two issues arise. First, if the defendants are ordered to pay the plaintiff’s costs, the defendants may raise issues about the conduct of the proceeding by the plaintiff’s current practitioners. In that event, the plaintiff’s interests may diverge from the interests of his current legal practitioners. Secondly, to the extent that costs are ordered from the estate or the litigation guardian, the plaintiff, if independently advised, may seek to raise issues regarding the quantum of his current practitioners’ costs, or the manner in which the proceeding has been conducted, or both.
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SCHEDULE OF PARTIES
| S ECI 2021 03747 | |
| BETWEEN: | |
| BENJAMIN GEORGE PIZZEY (by his litigation guardian, SARAH JANE NIDDRIE) | Plaintiff |
| - v - | |
| GEOFFREY JAMES PIZZEY (as executor of the estate of JASON BENJAMIN PIZZEY, deceased) | First Defendant |
| KRISTIAN WILLIAM LUNARDELLO (as executor of the estate of JASON BENJAMIN PIZZEY, deceased) | Second Defendant |
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