Re Buckingham
[2016] VSC 757
•9 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
IN THE MATTER of the Will and Estate of HENRY LAURIE BUCKINGHAM,
Deceased
S PRB 2014 05493
| STEPHEN LAURIE BUCKINGHAM (in his capacity as the Executor of the estate of the abovenamed deceased) | Applicant |
| v | |
| PETER BUCKINGHAM and ANNE BUCKINGHAM | Defendants |
S CI 2015 06146
| PETER BUCKINGHAM and ANNE BUCKINGHAM | Plaintiffs |
| v | |
| STEPHEN LAURIE BUCKINGHAM (who is sued as the Executor of the estate of the abovenamed deceased) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 August 2016, written submissions dated 25 August 2016, 5 and 8 September 2016 |
DATE OF JUDGMENT: | 9 December 2016 |
CASE MAY BE CITED AS: | Re Buckingham |
MEDIUM NEUTRAL CITATION: | [2016] VSC 757 |
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WILLS & ESTATES — Administration proceeding — Where beneficiaries of estate sought financial information from executor — Where executor failed to provide timely and adequate financial information —Beneficiaries seek administration account for estate — Beneficiaries seek costs against the executor personally — Executor seeks costs against plaintiffs — Supreme Court (General Civil Procedure) Rules 2015, r 63.07— Supreme Court Act 1986, s 24 — Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 (1993) 118 ALR 248
WILLS & ESTATES — Executor’s commission — Executor seeks commission at 2 per cent on gross value of estate — Administration and Probate Act 1958, s 65 — Supreme Court (Administration and Probate) Rules 2004, Order 10 — In the Estate of Stone (deceased); Patterson v Halliday [2003] VSC 298 — Hawkins v Barkley Brown [2010] NSWSC 48
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant/Defendant | Mr R Edmunds | McDonald Slater & Lay |
| For the Defendants/Plaintiffs | Ms U Stanisich | Lewis & Weir |
HER HONOUR:
Introduction
Henry Laurie Buckingham died on 17 December 2013. He was survived by his three children, Peter Buckingham (‘Peter’), Anne Buckingham (‘Anne’) and Stephen Buckingham (‘the executor’).
By his will dated 28 March 2013, the deceased left his property in Mordialloc and his personal chattels, save for his motor vehicle, to the executor and the residue of his estate to his three children in equal shares. Probate was granted to the executor on 15 April 2015.
The inventory of assets and liabilities of the deceased filed with the application for the grant disclosed assets valued at $6,100,000, comprising the Mordialloc property valued at $1,000,000, an amount of $3,801,608 in investments, shares valued at $1,285,422, a car valued at $5,000 and chattels valued at $10,000.
Significant disputes have occurred between Peter and Anne on the one hand and the executor on the other hand that culminated in these two proceedings. The parties have filed detailed affidavits in support of their positions taken in each proceeding.
The administration proceeding
The first proceeding arises from dissatisfaction by Peter and Anne with the executor’s administration of the estate. In December 2015, they issued a proceeding against the executor seeking an administration account and distribution of the assets of the estate (‘the administration proceeding’).
Peter and Anne seek orders that the executor, in his personal capacity, pay their costs on an indemnity basis and that the executor should have no right of reimbursement of his costs from the estate. The executor seeks orders that the costs of the administration proceeding be either paid by Peter and Anne, alternatively, by the estate on an indemnity basis.
The commission application
The second proceeding is the executor’s claim for commission originally claimed at $120,000 and after trial revised downwards to $101,976 pursuant to s 65 of the Administration and Probate Act 1958 (‘the commission application’). This application is opposed by Peter and Anne.
Background
On 14 April 2014, the executor filed an application for a grant of probate. On 23 April 2014, he provided a list of the assets of the estate to Peter and Anne.
On 10 June 2014, Peter served grounds of objection to the application for a grant of probate. After receiving and reviewing the deceased’s medical records and the solicitor’s files for the deceased which, through no fault of Peter, took some time he subsequently withdrew his caveat.
On 15 April 2015, a grant of probate was made to the executor. This was not made known to Peter and Anne despite an assurance by the executor’s solicitors in late March 2015 that they would do so. During the time the caveat remained on foot and before the grant of probate was made, the executor had contacted his father’s accountant regarding the details of the deceased’s shareholdings.
On 21 May 2015, the solicitors for Peter and Anne first asked the executor to account to them, including details of moneys held and interest earned, the legal costs of the executor to date and the position regarding recovery of moneys from Bendigo Bank. This request was followed up by the solicitors on 2 June 2015.
On 17 June 2015, a response was provided to various matters, with statements of account provided for certain assets, but no statement was given regarding estate liabilities, costs, the total amount held by the estate and no reason was given for a large sum of estate funds being held in the solicitor’s trust account or whether those funds would be invested. The deceased's accountant confirmed that the deceased's 2013 tax return had been completed and that he was updating the status on the capital gains tax on the shares in Broken Hill Limited.
On 8 July 2015, the executor informed Peter and Anne that term deposits of $3.7 million had matured and were being held in the solicitor’s trust account. He invited comment from them as to possible better interest rates on the funds. He also said half of the funds could be distributed and half retained for the ‘grace’ period, which was taken by them to mean the period of six months from the date of the grant of probate.
On 16 July 2015, the solicitors for Peter and Anne again asked for a proper accounting of the current value of the estate.
On 22 July 2015, the solicitors for the executor provided a page headed ‘Distribution Statement’. This did not include dates or any details of estate expenses or liabilities, other than legal fees, and gave an approximate value of the shares. The amounts received were not broken down to show interest received and the amounts held in various Commonwealth Bank of Australia (‘CBA’) accounts were shown as a single sum with no breakdown of the amounts in each account. The distribution statement gave no details of the anticipated tax liabilities for the estate or whether any steps had been taken to ascertain the tax situation. The letter also stated that it was the executor’s intention to transfer the estate’s shares in specie to the beneficiaries in due course, although no reasons were given for this. In addition, the shares in the distribution statement were valued at approximately $1 million which was almost $300,000.00 less than the value attributed to them in the inventory of assets. There were other questions arising from a CommSec transaction history included with the letter, such as amounts in the history of deposits not included in any reporting by the executor, a withdrawal of an amount from the account and unexplained credit interest amounts. There was also no mention of other accounts in the transaction history letter.
At the time the distribution statement was provided, the executor made an interim distribution of $689,918.73 to each beneficiary.
On 3 August 2015, the solicitors for Peter and Anne requested a copy of the invoices referred to in the distribution statement, including an invoice for the executor’s solicitors, and an accounting of the interest earned on funds held at the CBA . They also sought answers regarding issues that arose from the distribution statement and transaction history, asked what action was being taken to sell the shareholdings, to advise about dividend payments and asked for details of any sale arrangements for the car and chattels.
On 9 September 2015, the solicitors for the executor answered some of these queries and provided the solicitors for Peter and Anne with some of the requested bank statements. They stated that dividends had been withheld due to ‘the absence of banking information being provided to the Share Registry’. There was no explanation as to who was responsible for providing this information or why it was not provided. The solicitors stated that the deposit into a Pensioner Security Account on 24 June 2014 of $16,545.29 had now been identified as a share dividend and a payment of $15,000 remained unidentified. This meant that share dividends had been paid into that account prior to it being closed without any consideration or investigation as to what payments were being made into it. Having been informed by the solicitors for Peter and Anne, the executor then received dividends of $37,583.55 that had been withheld pending the provision of new banking details. The executor’s solicitors also refused to provide a copy of their invoice referred to in the distribution statement on the basis that the ‘executor is not inclined to produce that information at this time’ and ‘may’ provide it if he makes an executor’s commission application.
On 9 October 2015, the solicitors for Peter and Anne reminded the solicitors for the executor that distribution should occur on 16 October 2015, being one day after the six month’s period from the date of the grant of probate and that an accounting would be expected at that time. No further distribution was made when the six month time limit ended. No explanation was given by the executor for failing to provide an accounting or to distribute the estate. These failures were noted by the solicitors for Peter and Anne on 28 October 2015 and the executor was informed that the solicitors had instructions to issue proceedings seeking an accounting and distribution of the estate.
On 13 November 2015, a draft distribution statement was sent to Peter and Anne. The statement did not include the amount of interest earned on funds invested by the executor, legal costs from the date of the last account to finalisation, costs associated with a lost title application for the Mordialloc property, the amount to be retained for preparation of tax returns and the payment of any tax, any dates or details of estate costs and expenses, the then current value of the shares, any information as to why the shares had not been sold or any indication as to when the executor was intending to distribute the estate.
No reasons were given by the solicitors for the executor for these matters not being included in the draft statement. Although unknown to Peter and Anne, it was only on 13 November 2015 that the executor instructed his solicitors to engage an accountant to finalise the estate income tax returns.
Other issues that arose in the administration of the estate included the failure of the executor to finalise arrangements for a headstone for the deceased, which so far as Peter and Anne were aware, remained outstanding at trial and the failure to make an application for the replacement of the lost certificate of title for the Mordialloc property before the principal place of residence exemption expired, with no inquiries made as to the whereabouts of the title prior to October 2015, save for an inquiry of the solicitors for Peter and Anne.
Despite having previously warned the executor that they would issue a proceeding, the executor failed to provide a proper account of the administration of the estate. Accordingly, Peter and Anne issued the administration proceeding and the documents in support of the application were sent to executor’s solicitors on 4 December 2015.
The executor then, without any explanation, made a further distribution to Peter and Anne on 23 December 2015. Two cheques for $600,000 described as ‘part distributions’ of the estate were delivered with a one page handwritten note to the solicitors of Peter and Anne. The cheques had been drawn from a Westpac account. This account had not previously been disclosed in any correspondence with the executor or his solicitors.
Following an order made on 12 February 2016, the executor provided an accounting of the estate to Peter and Anne. On 25 February 2016, the solicitors for Peter and Anne received documents, which included a share transfer, from the solicitors for the executor.
On the same day, the solicitors for Peter and Anne advised that before seeking instructions as to whether their clients would take an in specie transfer of the shares they required an urgent response to the following questions:
(a) where in the will does it say that the shares are to be transferred in specie;
(b) where have our clients agreed to accept a transfer in specie;
(c) why is your client still holding shares when others have been sold to realise cash and these have not;
(d) why did your client not sell these shares at the same time as other shares were sold by him; and
(e) in light of the timeframe which has passed, what advice did your client seek in relation to capital gains tax issues surrounding these shares.
The questions arose due to the possibility that the shares would be subject to a capital gains tax liability as they were not sold within two years of the deceased’s death. At the time of trial, this was conceded not to be in issue as the shares were purchased prior to 1983 and, therefore, did not attract capital gains tax.
On 2 March 2016, the solicitors for Peter and Anne advised the solicitors for the executor that their clients were not interested in taking an in specie transfer. They raised their concerns regarding the significant drop in value of the shares and asked what advice the executor had taken given he had had the power to sell the shares almost a year ago. The solicitors also made inquiries about the tax issues regarding the estate as there did not appear to be a tax file number for the estate. Ultimately, as detailed in their affidavits, Peter and Anne were forced to accept a transfer of the shares in specie in an attempt to make the best of a bad situation.
In his affidavit sworn 3 March 2016, the solicitor for the executor, Mr Peter Edmund Thompson deposed that the reason for the insistence on an in specie transfer of the shares was because the executor ‘was not inclined to sell the shares’ until the six month period had elapsed but rather to keep them as an investment. He also deposed that ‘our advice is that the shares were predominantly, if not all, pre capital gains tax shares and selling those shares would likely change the capital gains tax status’. If the shares had been sold, there would be no capital gains issue as they would be converted to cash with no capital gains tax liability and the beneficiaries would receive a cash distribution. He deposed that the executor ‘considered it reasonable to allow the beneficiaries to take a transfer of the shares in specie’. This was despite the beneficiaries not wanting a transfer in specie and despite it being against the terms of the will.
After the executor was ordered to file an accounting of the estate on 12 February 2016, further orders were made on 4 March 2016 and the proceeding was also before the Court on 22 April 2016 and 10 June 2016. By the date of trial on 22 August 2016 there remained problems with the clarity of the administration account. As set out below in the commission application, an amended administration account was provided after trial and it raised further issues concerning the accounting for the administration of the estate.
Applicable costs principles in the administration proceeding
The power of the Court to order costs under s 24 of the Supreme Court Act 1986 is exercised subject to and in accordance with Order 63 of Supreme Court (General Civil Procedure) Rules 2015.
Costs in civil litigation are in the discretion of the court.[1] Costs generally follow the event, so that the unsuccessful party pays the successful party’s costs.
[1]Supreme Court Act 1986, s 24(1); Supreme Court (General Civil Procedure) Rules 2015, r 63.23.
In respect of costs of trustees, they are ordinarily entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred.[2] The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence.[3] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercised power ‘with an absence of care and diligence that a person or ordinary prudence should exercise’ are not caught by the right of indemnity and should be borne by the trustee personally.[4]
[2]Trustee Act 1958, s 36(2); Supreme Court (General Civil Procedure) Rules 2015, r 63.26.
[3]Dal Pont, Equity and Trusts in Australia (Lawbook Co, 5th ed, 2011) 689, 679 citing Turner v Hancock (1882) 20 Ch D 303, 305; Re Beddoe [1893] 1 Ch 547, 558; Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 303–10 (Ormiston JA); Dimos v Skaftouros[2004] VSCA 141 (20 August 2004). Dodds-Streeton AJA referred to National Trustees Executors & Agency Company of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268.
[4]G E Dal Pont, ‘Equity and Trusts in Australia’ (Lawbook Co, 5th ed, 2011) 679–80 [23.135] citing Re O’Donogue [1998] 1 NZLR 116, 121; Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566, 606; Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287.
Where a trustee fails in litigation, his or her costs may be allowed out of the estate. Where a trustee succeeds, his or her costs would ordinarily be allowed out of the estate. At the same time, any ‘indemnity must be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred’.[5]
[5]Wales & Ors v Wales & Ors[2014] VSCA 101 (27 May 2014) [72].
Although the prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, r 63.28 of the Supreme Court (General Civil Procedure) Rules 2015 provides that the Court has discretion to award costs other than on the standard basis. A special costs order will only be made where the proceeding exhibits a special or unusual feature or special circumstances. The authorities concerning the principles to be applied when a court, in the proper exercise of its discretion, may depart from the making the usual order for costs on a standard basis are well known and set out in cases such as Colgate-Palmolive Co v Cussons Pty Ltd;[6] Ugly Tribe Co Pty Ltd v Sikola[7] and Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[8]
[6](1993) 118 ALR 248.
[7][2001] VSC 189 (14 June 2001).
[8][2010] FCA 359 (12 April 2010).
Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs. Special costs orders are generally reserved for cases where the losing party has engaged in unmeritorious or deliberate improper conduct such as to justify the Court showing its disapproval and at the same time preventing the successful party being left out of pocket.[9]
[9]Yara Australia Pt Ltd v Oswal (2013) 41 VR 302 [57] (Redlich and Priest JJA and Macaulay AJA).
Consideration of the costs of the administration proceeding
Peter and Anne sought an account of the administration of the estate from as early as 21 May 2105. The executor was the deceased’s attorney at the date of death and should have had a good understanding of the deceased’s assets. The assets of the estate were not complex, consisting of the Mordialloc property, money in the bank, shares and chattels. The residuary estate comprises money in the bank and shares and is to be divided equally between the executor, Peter and Anne. Throughout the administration of the estate, the executor retained solicitors and accountants who did a substantial amount of the work and charged fees for that work.
The factual background referred to sets out generally the many enquiries and requests for information made by Peter and Anne concerning the administration and the answers provided to them. It demonstrates that throughout the administration, there were a lack of adequate responses to inquiries made by Peter and Anne and what responses were made often raised further queries.
By July 2015, the executor indicated that the estate would be distributed at the end of the six months after the date of the grant of probate, that is, on 16 October 2015. Despite being reminded in early October 2015 that distribution of the estate should occur on 16 October 2015 and that an accounting would be expected at that time, the executor failed to distribute the estate and failed to provide any explanation for this.
By 28 October 2015 the executor was on notice that Peter and Anne had given instructions to their solicitors to issue proceedings seeking an accounting and distribution of the estate. A draft distribution statement was sent to Peter and Anne in mid November 2015 but this did not include many matters dealing with the administration and no explanation for that was given by the executor.
The administration proceeding was issued in December 2015 after which orders were made for the executor to file an administration accounting for the estate. Whilst an administration account was filed, ongoing and drawn out issues with the accuracy of the account continued, including after trial as well. Despite having the assistance of his solicitors and an accountant, the executor has not provided proper responses to queries as to the administration of the estate and has not distributed the estate promptly.
These failures have caused significant concern to Peter and Anne, particularly in regard to the disposition of the deceased’s shares where they were forced to accept a transfer in specie rather than receive them by way of sale. If they had been sold in a timely manner, the proceeds of sale would have paid much earlier they would not have suffered the significant loss in value on the shares. By recourse to the values of the shares over the relevant time period, Peter and Anne estimated the value of the shares had dropped approximately $425,713 from the date of the inventory to the time of the transfers in specie to them. The executor dismissed their complaints about their loss asserting that as the shares remain in specie with the benefit of being virtually all acquired pre capital gains tax, it is unknown what profit or loss may crystallise until they are sold. This is not an answer to the complaints made by Peter and Anne on this issue.
The primary role of an executor is to administer the estate in accordance with the will for the benefit of the beneficiaries. As executor, he is under a fiduciary duty to do so. He is also bound to keep proper accounts and render such accounts when called upon to do so.[10] A failure to do so, or a lengthy delay in doing so, is a serious matter rendering the usual indemnification from the estate inappropriate and leaving him liable to pay the costs of the proceedings.[11]
[10]Skaftouros v Dimos [2002] VSC 198 (29 May 2002) [11] (Mandie J).
[11]In re Skinner [1904] 1 Ch 289.
The administration proceeding would have been unnecessary if the executor had managed the estate properly, provided a proper accounting and distributed the estate in a timely manner. Instead, the administration of the estate was a lengthy and drawn out process and it was neither efficient nor timely and has caused substantial loss to Peter and Anne. The executor has conducted the administration of the estate and the administration proceeding with a lack of prudence and diligence, as well as maintaining a combative attitude towards Peter and Anne, with little regard to their interests as beneficiaries of the estate. To allow the executor any indemnity for the costs of the administration proceeding from the estate would reduce further the beneficial entitlements of Peter and Anne. I also consider the executor’s conduct in the administration of the estate has been wasteful and caused delay. Such conduct falls within the scope of the circumstances described in the authorities concerning an award for indemnity costs and justifies a special costs order being made in favour of Peter and Anne for their costs of the administration proceeding.
Orders
Accordingly, I will order that the executor in his personal capacity pay the costs of Peter and Anne of and incidental to the administration proceeding on an indemnity basis, to be taxed in default of agreement, and the executor has no right of reimbursement for his costs from the estate of the deceased.
The executors’ commission application
The executor’s final quantum of his commission claim was $101,797 and was based on a revised administration account filed after the trial, the details of which are set out at [73].
Applicable principles
There is no automatic entitlement to executor’s commission. An executor is generally expected to act gratuitously and, in most cases, an executor will act gratuitously, especially where he or she is also a beneficiary under the will.
The exceptions to an executor acting gratuitously are where the will includes a clause entitling the executor to commission, the affected beneficiaries agree to the payment of commission or where an application is made to Court for commission pursuant to s 65 of the Administration and Probate Act 1958 (‘the Act’).
The deceased’s will does not include a charging or commission clause and no agreement has been reached with the beneficiaries. Any commission made to the defendant for his pains and troubles in administering the estate, therefore, needs to made by order of the Court.
Section 65 of the Administration and Probate Act (1958) provides:
(1) It shall be lawful for the Court to allow out of the assets of any deceased person to his executor ... such commission or percentage not exceeding Five per centum for his pains and trouble as is just and reasonable.
In In Re White; Tweedie v Attorney General,[12] Kellam J (as his Honour then was) adopted the views expressed by Eric Vance his seminal book on executor’s commission that:
generally speaking, ... the principle to be adopted is that unless ... [a]n objector establishes otherwise ... [an] administration will be presumed to be on proper lines and the executor will be granted commission. [13]
[12](2003) 7 VR 219.
[13]Eric Vance, The Law and Practice in Victoria and an Examination of the Case Law of Australia and New Zealand relating to Executors Commission (1969) (‘Vance’) 150.
Kellam J held that if the Court is satisfied that there has been no impropriety or maladministration, ‘in a proper case’ as a matter of statutory construction ‘[s 65] grants [the Court] an unfettered discretion to allow such remuneration as is fair, just and reasonable in all of the circumstances of the case’. [14]
[14](2003) 7 VR 219, 230.
An executor is required to file an affidavit in support of a claim for commission, which should set out fully the ‘pains and troubles’ he or she incurred in administering the estate. The Court will only grant commission for an executor’s past conduct and not his or her future ‘pains and troubles’.
In Re Will and Estate of Stone (deceased); Paterson v Halliday, Smith J cited with approval the following passage from Vance:
the expressions ‘pains’ and ‘trouble’ have been defined in the New Zealand case of re Allan McLean deceased, ‘pains’ – as responsibility, anxiety and worry, and ‘trouble’ – as covering the work done.[15]
[15][2003] VSC 298 (18 August 2003) [30] (Smith J).
In Re Will and Estate of Stone (deceased); Paterson v Halliday, Smith J set out the following factors that a court will consider in assessing executorial commission:
(a) the work and judgment involved in the realisation of assets and earning income;
(b) the extent of administrative activities;
(c) the responsibility generally;
(d) the amount of work done not reflected in financial terms;
(e) how long the estate was administered;
(f) the size of the estate and its capacity to pay;
(g) the work of a non-professional character not undertaken by the applicant and performed by professionals; and
(h) executors’ pains and troubles relative to the result.[16]
[16][2003] VSC 298 (18 August 2003), [30] (Smith J).
The affidavit should also set out what proportion of work has been delegated to accountants and lawyers and has already been paid for by the estate. If an executor has delegated some of his responsibilities to professionals and these services have been paid for, the delegated work will not be taken into account for the purposes of determining the executor’s pains and troubles.[17] Where the corpus or income is got in and realised with the assistance of professional agents or solicitors, the Court may reduce the amount of commission as the estate should not pay twice for services rendered and performed and charged to the estate. However, an executor’s actions in dealing with and making decisions in relation to the advice of these professionals is relevant for the purposes of determining the amount of commission.[18]
[17]Vance, 143.
[18]Hawkins v Barkley Brown [2010] NSWSC 48 (8 February 2010) [60].
Other factors that may be taken into account are whether there has been any litigation, such as family provision claims against the estate, and whether there is conflict in relation to some of the distribution of the assets of the estate.[19] However, as Slattery J stated in Hawkins v Barkley Brown:
The fact that the executor is involved in supervising the professionals involved in the litigation to maintain the estate’s interests in the litigation is a relevant consideration in assessing the proper percentage commission, provided the litigation is a necessary step in the administration of the estate.[20]
[19]Ibid [53]. See also, Atkins v Godfrey [2006] WASC 83 [86],[94] (Le Miere J); Hawkins v Barkley-Brown [2010] NSWSC 48 [72]-[73] (Slattery J).
[20]Hawkins v Barkley Brown [2010] NSWSC 48 (8 February 2010) [53].
Where there has been delay in the administration of the estate, such conduct may disentitle or reduce an executor’s commission, such as no commission on certain assets after the date when distribution should have occurred.[21] The executor will not be awarded commission for his ‘pains’ in administering the estate if the executor has been the cause of the anxiety.[22]
Quantum of remuneration awarded
[21]Chiro v Linton (No 2) [2009] SASC 197 (2 July 2009).
[22] Re Estate of Zsuzanna Gray [2010] VSC 173 at [29]-[30]
In past times, Victorian courts had followed the Barr Smith scale in determining the quantum of executor’s commission. The Barr Smith scale was laid down in the South Australian case of In re Barr Smith[23] and its formula has been followed in Victoria.[24] However, there is no fixed scale for work and the Barr Smith scale is now used as a very general guide as the figures are now fairly old. The Barr Smith Scale allows for different rates of commission on the following categories:
[23][1920] SALR 380.
[24]Re Chirnside [1956] VLR 295.
(a) special assets got in and realised, such as cash and money in bank accounts — 1.5 per cent on the first $2,000; 1 per cent on amounts from $2,000 to $200,000 and 0.75 per cent on amounts over $200,000;
(b) other assets (such as land) got in and realised — 5 per cent on the first $2,000; 2.5 per cent on amounts over $2,000;
(c) assets (other than cash) distributed in specie — 1.25 per cent on the first $20,000; 0.75 per cent on amounts over $20,000; and
(d) income — 5 per cent of the first $2,000 per year; 2.5 per cent on amounts over $2,000.
More recently, the courts have moved away from the Barr Smith Scale, not only because it is out-dated, but also because the scale does not take into account the non-financial factors identified by the courts as being relevant to the quantum of commission.
In Creer v Estate of Peter, Windeyer J referred to the out-dated nature of the scale and their lack of relevance in 2007:
In considering a proper remuneration for executors in such cases and taking into account what has been the percentage allowed for capital collections and income collections ... the figures can seem very large, due to inflationary pressures over the last 20 or 30 years. To a large extent this has been dealt with by reducing the commission percentages which would have been allowed 25 or 30 years ago to bring about a reasonable result. However, it must also be borne in mind that inflation has depreciated money value in the same way over those 25 years. In most estate accounts there is no problem about this and deciding what is reasonable. ... Scales of the type called the Bar Smith scale ... or those set out in Vance ... [in 1969] have very limited relevance in 2007.[25]
[25][2007] NSWSC 1291 (19 November 2007) [29].
In Atkins v Godfrey,[26] Le Miere J said that the ‘proper approach’ under the equivalent West Australian provision for commission was to ‘form an overall assessment of what remuneration is just and reasonable rather than apply the Barr Smith scale’. In that case, his Honour held that he would have:
allowed an amount slightly more than the amount calculated by application of the Barr Smith scale ... because of the additional responsibilities and difficulties imposed upon the plaintiff by reason of the Inheritance Act matter and conflict between the defendants in relation to the distribution of some of the assets of the estate.
[26][2006] WASC 83 [89]
In Szmulewicz v Recht, Mukhtar AsJ considered that 3.5 per cent of corpus tends to be at the ‘top end of the scale’.[27]
[27][2010] VSC 447 (6 October 2010) [18].
In Re Estate of D A Lindsay commission was fixed at the rate of 1 per cent where the administration of the estate by the executor was at the ‘simple end of estate administration’.[28]
[28][2004] NSWSC 578 (28 June 2004) [15].
In Hawkins v Barkley Brown[29] Slattery J rejected an argument that commission should be assessed on an hourly rate and reinforced the discretionary nature of an award for commission. His Honour stated that it is not limited by any statutory requirement that it be justified according to a schedule of rates.[30] His Honour also alluded to the difficulties in quantifying, in monetary terms, the skills of a non-professional executor. In this regard, his Honour said that the hourly rate argument seeks to reduce the exercise of a subtle discretion to mere economics.[31]
Costs of making a claim for commission
[29]Hawkins v Barkley Brown [2010] NSWSC 48 (8 February 2010).
[30]Ibid [64].
[31]Ibid [65].
Rule 10.10 of the Rules provides the executor’s costs and those of ‘any other person’ shall be ‘in the discretion of the court’ and ‘may be allowed out of the estate’. In Victoria, the general costs order appears to be that the executor’s costs, and those of any other party, be taxed as between solicitor and client and paid out of the estate.[32] However, despite the ‘general cost order’ an executor or their legal representatives should not utilise estate funds in making an application for executor’s commission.
[32] Condon v Miller [1981] VR 465, 468; Re White; Tweedie v Attorney General (2003) 7 VR 219, 235.
In Re Estate of Zsuzanna Gray, Daly AsJ said:
… utilising the funds of the estate for the payment of his legal costs to bring his claim for executor’s commission in the absence of the consent of the parties or an order of the Court was inappropriate in all the circumstances ... . Making a claim for commission is not of itself an executorial function in respect of which costs should automatically be borne by the estate. Ultimately, the liability for costs of any such application is and should be a matter for the Court, and no party should presume that the Court will invariably order that such costs would be recoverable from the estate. The question of costs is always a matter for the discretion of the Court, having regard to all of the circumstances of the case.[33]
The executor’s original claim for commission
[33][2010] VSC 173 [34]
The executor filed accounts for the commission application which he relied on at trial. His claim for commission at trial was $120,000 and said to be approximately 2 per cent of the gross value of the estate at $6 million as contained in the inventory of assets filed with the application for the grant of probate, alternatively, he claimed such commission that the Court deems proper.
As is well established, an application for commission is assessed on an executor’s pains and troubles after the administration has been completed. Accordingly, there is no basis for the executor to claim commission on the gross value of the estate as at the commencement of the administration of the estate. This would also give the executor a financial windfall in the circumstances of this claim because the gross value of the shares in the inventory is well over $400,000 more than at the completion of the administration of the estate.
The executor’s claim for commission at trial also included the value of the Mordialloc property which was specifically devised to him. In the inventory filed with the application for a grant, the Mordialloc property was valued at $1 million. At trial, the executor accepted that the property was valued in the vicinity of $1.5 million. Based on the property alone, the executor has received $1.5 million more than Peter and Anne from the estate. There is no basis for claiming commission for work done in administering assets that pass exclusively to him under the will. The executor could not explain why he claimed commission on the capital value of this asset when he received it as a specific devise under the will.
In addition, the administration account at trial was unclear with the executor not being able to articulate a clear basis for his commission claim, other than by the general description of the work based on unsubstantiated estimates of hours spent by him as set out in his affidavit filed in support of his claim, the details of which are set out below. There was a lack of clarity over the legal fees charged for the administration of the estate, the income was included in the capital account and there was no identification of the pains and troubles incurred by the passive receipt of dividends and interest into the estate.
As a result, orders were made at trial for the executor to provide an accurate accounting after the trial. An amended administration account was provided by email to the Court on 25 August 2016 with a supplementary outline of the executor’s position.[34]
The executor’s amended administration account and revised commission claim
[34]The amended account erroneously recorded that it was filed pursuant to an order of the Court on 22 April 2016 whereas the order was made at trial on 22 August 2016.
The executor’s revised calculation for commission after the trial was $101,976. This amount was said to be 2 per cent on the total of the corpus receipts, (excluding the shares and the Mordialloc property), and income and shares distributed in specie at the date of transfer. This means that no commission was claimed on the capital value of the Mordialloc property but commission was claimed on the transfer of the shares as at the date of the transfer rather than the gross value in the inventory of assets, including shares that passed to him.
Peter and Anne provided responding submissions in respect of the amended claim and amended administration account, pointing out that these documents raised further and substantial questions or queries requiring further investigation. Peter and Anne concluded that the amended account confirmed that the administration of the estate had been mismanaged, that significant professional fees have been incurred in the administration of a simple estate and further questions arose as to whether some legal costs have been improperly deducted from the estate.
In response to the submissions from Peter and Anne, the executor filed a reply dated 8 September 2016 that sought to clarify the queries and questions raised by Peter and Anne. This is clearly an unsatisfactory process for the executor to adopt at this stage in the context of making a claim for commission.
The executor’s claim for his pains and troubles
The executor’s affidavit sworn 13 May 2016 set out what he considered were his pains and troubles in performing his executorial duties. He deposed to an unsubstantiated estimate of 111.25 hours of work undertaken by him. Of the estimated hours, the executor deposed that he spent 63.25 hours in the administration of the estate and in excess of 30 hours in the preparation, giving instructions, attending three hearings at court and compiling paperwork associated with his claim and a further amount in excess of 18 hours in relation to his claim for commission. At trial, the executor conceded that he was not claiming commission on the 18 hours spent for his commission claim, thereby making the total number of hours to be 93.25.
On the basis that the estimate of time spent by the executor is approximately 93 hours, his original claim of $120,000 converts to an hourly rate of $1,290 and his revised claim of $101,976 this converts to an hourly rate of $1,096. There is no basis for calculating commission based on an estimate of hours. As stated by Slattery J in Hawkins v Barkley Brown, it reduces a discretionary exercise of assessing pains and troubles by the Court to mere economics.
The executor’s description of his pains and troubles
The executorial work includes attending the coroner, identifying the deceased’s body and subsequently receiving an email attaching the coroner's report. It was not disputed that these matters arose because the executor made certain allegations against Peter that he was somehow involved in the death of the deceased, which the coroner found to be baseless.[35]
[35]The allegations were described by counsel for Peter and Anne as scurrilous allegations. This description was not rejected or commented upon by counsel for the executor.
His description of work undertaken also includes obtaining a death certificate, arranging a headstone and assisting in the organisation of the deceased’s funeral. The issue of the headstone was unknown to Peter and Anne until after the trial. In the executor’s response dated 8 September 2016, it was stated that the headstone was not recorded in the revised account but was paid out of estate funds. The funeral expenses do not show up in any of the accounts, save for another reference after trial in the response dated 8 September 2016 that the funeral expenses were paid out of the deceased’s account following his death and pre-dated the closure of the account that was recorded in the inventory of assets. The executor did not refer to the facts that the funeral arrangements were originally made by Peter but the funeral was put off because of the executor’s baseless allegations against his brother causing the coroner’s inquiry into the death of the deceased. Peter organised his own memorial service for his father, rather than attend the funeral. The executor said that almost two years after the death of the deceased he attended personally at Le Pine Funerals in August 2015 for 45 minutes to confirm the amount paid for funeral expenses. He has not referred to a receipt for the funeral or the reason for confirming this some two years later. Claims for arranging funerals and headstones and the like would not ordinarily attract commission in circumstances where an executor is a son of the deceased and a beneficiary who also receives a significant share of the estate. Such claims might be appropriate if made by an independent executor and where there are no children available to make the arrangements. In the circumstances in this estate, this work is not the type that would justify being described as pains and troubles.
The executor refers to emails regarding a hearing in the VCAT, locating documents relating to a VCAT hearing, and scanning them through to the solicitor. These matters are not relevant to the administration of the estate and would have been in his possession as the attorney of the deceased.
The executor set out his time spent in relation to the Mordialloc property, including searching for the lost certificate of title, making enquiries with his solicitor, providing information about the property to the council regarding his father's death, work done in respect of land tax issues to do with the property, correspondence from the State Revenue Office about land tax, reading letters from his solicitor about the property and an application for the lost title. He read through the application, advised on the changes to be made and enclosed a rate notice and instructed his solicitor about a requisition regarding the transfer of property. This work relates to the Mordialloc property that the executor receives under the will and none of it comprises executorial duties or general administration matters for which commission may be claimed.
The executor claims a substantial number of hours for doing things that would not ordinarily attract commission, for example, he claims five or more hours searching and looking through his father’s papers. He was his father’s attorney prior to his father's death, should have known his father’s solicitors and contacted them to see if it was necessary to make the claimed searches.
The executor also refers to contacting his solicitor to make an appointment, receiving mail, reconciling accounts and bills at an early stage of the administration, returning an emergency alarm oxygen generation system, cancelling the telephone and gas and asking for his father's chequebook. The administration account does not show any liabilities or payments of bills having been made and the other work said to be undertaken cannot be described as onerous such as to fall within pains and troubles.
The executor refers to his dealings with legal and accounting professionals in connection with the estate. It is apparent from the matters set out in his affidavit that he relied heavily on legal and accounting professionals in undertaking the work administering the estate. Most of his work relates to the approval of work undertaken by lawyers and accountants, such as correspondence to the solicitors for Peter and Anne, signing of documentation relating to the cash investments and shares, and accountants and perusal of documentation. He also claims for time taken in contacting his lawyers, accountants and financial institution although none of these claims are supported by contemporaneous documentation and prima facie involve the usual contact one would have with professionals engaged to undertake work of this type in the usual course.
In respect of the deceased’s car, the executor estimates that he spent ten hours arranging for and selling the deceased’s car. Assessed at an hourly rate of $1,096 this means that the executor is claiming $10,960 to sell an estate asset worth $6,500. This claim in particular highlights the inappropriateness of attempting to assess pains and trouble on an hourly basis.
The executor also claims commission for time spent in relation to the administration proceeding, such as reading the claim, attending, making appointments on his solicitor, making distributions to the beneficiaries after the administration proceeding was issued and instructing his solicitor to brief counsel regarding the administration proceeding. He also says that as executor he has suffered stress due to the conflict and allegations made against him in the administration proceeding.
Consideration of the executor’s claim for commission
In the executor’s claim for commission at trial, the accounts remained incomplete and the commission claim was based wrongly on the gross value of the estate as set out in the inventory of the estate. The amended account provided after the trial compounded the problems as it raised further and significant queries that have not been adequately answered by the executor’s response dated 8 September 2016.
The evidentiary basis for the executor’s claim for commission is untenable, being made without any proper basis or evidence to support his claim. The executor fails to address the fact that as attorney for the deceased he would have been familiar with the deceased’s estate. He is the major beneficiary of the estate and a son of the deceased. His share of the estate has increased with the Mordialloc property having increased by $500,000 since the date of the inventory value of $1 million. He has made improper claims for his pains and troubles in that he has claimed for work in relation to the Mordialloc property and for matters that as a son should have been done freely and without any claim for commission.
He relies on unsubstantiated estimates of hours spent in the administration of the estate that describe attending to matters that have nothing to do with the administration of the estate or results from his failure to administer the estate in a proper manner. The description of his work that does relate to the estate shows that his solicitors and accountants attended to the majority of the administration. He fails to address the significance of the loss caused to the estate by not selling the shares in a timely manner and the fact that he has been the cause of the delay in the administration of the estate.
His failure to administer the estate has caused delay and significant losses to Peter and Anne, not only in relation to the shares but also as a result of them being forced to issue the administration proceeding to finalise the administration of the estate. The executor is oblivious to the significant amount of stress that he has caused Peter and Anne, starting from the death of their father with his baseless allegations concerning his death and continuing with his administration of the estate.
Any alleged stress suffered by the executor that he claims to have suffered is the result of his own conduct in his management of the estate, commencing from the death of the deceased and his failure to administer it in a timely manner.
Conclusions
Generally, there would be some pains and troubles to justify an executor claiming commission when dealing with the administration of an estate, such as telephone calls or emails to solicitors or accountants or considering correspondence in respect of estate matters. In this estate, however, most of the administration work has been done by professionals who have charged fees. It is inappropriate and unreasonable to expect that such work would be remunerated twice from the estate. There have also been significant losses caused by the executor in his administration of the estate, significant difficulties caused by him as a result of his failure to account properly and significant claims relied on by him that do not relate to the administration of the estate.
In these circumstances, the executor ought not be rewarded for his administration of the estate as it includes substantial delays, withholding of information concerning the administration of the estate, providing confusing and inaccurate administration accounts, claiming for a significant amount of time for work done for his own benefit and failing to administer the estate in a timely and cost effective manner, causing significant financial loss to Peter and Anne. The combination of all of these factors removes any basis for the executor receiving even a small amount by way of commission.
Orders
Accordingly, I order that the executor’s claim for commission be dismissed.
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