Re Kelly; Kelly v Denney
[2021] VSC 580
•17 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2018 01593
IN THE MATTER of ord 54 of the Supreme Court (General Civil Procedure) Rules 2015
and
IN THE MATTER of the will and estate of JOSEPH BERNARD KELLY, deceased
| PATRICK ANTHONY KELLY and BRENDAN JOHN KELLY (sued in their capacity as executors of the will and estate of JOSEPH BERNARD KELLY, deceased) | Plaintiffs |
| v | |
| MARIA ANNE DENNEY and CATHERINE MARY SKUDDER | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27–30 October, 23 November 2020 |
DATE OF JUDGMENT: | 17 September 2021 |
CASE MAY BE CITED AS: | Re Kelly; Kelly and Anor v Denney and Anor |
MEDIUM NEUTRAL CITATION: | [2021] VSC 580 |
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WILLS AND ESTATES – Judicial advice – Request for approval of sale of estate assets including to executors – Where persons under legal disability yet to receive settlement entitlements – Claim by executors for costs of administration and this proceeding on a trustee basis – Failure to provide adequate accounting in respect of estate – Judicial advice withheld.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms C Sparke QC | Pearce Webster Dugdales |
| For the Defendants | Mr M McKenzie | Wisewould Mahony |
HER HONOUR:
Introduction
The plaintiffs are the executors of the estate of Joseph Bernard Kelly (‘Bernie’) who died on 23 July 2008, leaving a will dated 31 March 2008 (‘Bernie’s will’).
By originating motion filed on 1 October 2018, pursuant to ord 54 of the Supreme Court (General Civil Procedure) Rules 2015, the plaintiffs seek a variety of directions in relation to Bernie’s estate, the details of which can only be understood from the multitude of facts and issues that emerged in more detail at trial.
While the proceeding was commenced only in relation to Bernie’s estate, it is also necessary to deal with the administration of the estate of Bernie’s wife, Anne Margaret Kelly (‘Anne’) who died on 8 March 2008 leaving a will dated 30 January 2002 (‘Anne’s will’).
During their lifetime, Anne and Bernie lived in Warrnambool and owned and operated a dairy farm in western Victoria.
They were survived by their ten children: Brendan John Kelly (‘Brendan’), Patrick Anthony Kelly (‘Patrick’), Elizabeth Marie Murphy (‘Elizabeth’), Catherine Mary Scudder (‘Catherine’), Maria Anne Denney (‘Maria’), Paul Gerard Kelly (‘Paul’), Jacinta Christine Berlingeri (‘Jacinta’), Clare Maree Cockayne (‘Clare’), Bernadette Therese Kelly (‘Bernadette’) and Matthew Kelly (‘Matthew’). They were also survived by Bernadette’s child, Michael Bernard Kelly (‘Michael’). Both Matthew and Michael suffer from a legal disability.
Maria and Catherine are the defendants in the proceeding.
On 16 March 2009, probate of Bernie’s will was granted to Brendan, Patrick and Neville Peter Smith (‘Mr Smith’), a solicitor who was also a friend of Bernie.
On 22 April 2009, probate of Anne’s will was granted to Brendan and Patrick.
Initially, Tait Leishman Taylor Lawyers in Warrnambool were engaged to assist with the administration of Anne’s estate. Bill Bradley (‘Mr Bradley’) of Bradley Lawyers in Balwyn North was engaged to assist with the administration of Bernie’s estate.
Anne’s will
After payment of debts, funeral and testamentary expenses, duties and costs, Anne’s will provided for gifts of her real and personal estate upon Bernie’s death, including:
(a) her interest in the property comprising about 138 acres being part of Allotments 62A and 62B Parish of Garvoc, to Patrick (cl 3(a));
(b) any interest in 500 acres comprising certain parcels of land,[1] to Brendan, subject to any mortgages owed in respect of any farm properties (cl 3(b));
[1]Certificates of Title Volume 8288 Folio 461, Volume 8108 Folio 799, Volume 8086 Folio 958, Volume 9590 Folio 790 and Volume 2358 Folio 586, being the ‘balance of the home property and including the property purchased by the JB Kelly Trust’.
(c) her interest in the property being Crown Allotments 42A and 42B Parish of Keilambete, Moyne Shire, to Brendan (cl 3(c));
(d) the house property at Raglan Parade, Warrnambool (‘398 Raglan Parade’), to Michael upon him attaining the age of thirty years (cl 3(d));
(e) the property at Clarence Street, Brunswick (‘Brunswick Property’), to Catherine, subject to her assuming liability for any mortgage (cl 3(e));
(f) her dwelling unit at Hervey Bay, Queensland to Jacinta (cl 3(f));
(g) her property known as ‘Charlies’ to Brendan and Patrick (cl 3(g));
(h) her property consisting of 430.87 acres known as ‘Clarkes’ to Brendan, Paul and Patrick, subject to any amounts owing thereon, providing that Paul have the first option of purchasing the land at any time within twelve months of the date of her death (cl 3(h)); and
(i) the rest residue and remainder of her real and personal estate (including her houses at Botanic Road, Warrnambool (‘Botanic’) and Peterborough to any of her surviving daughters as tenants in common in equal shares, provided that Bernadette’s share be held by the trustees upon her lifetime and the income be paid to her and upon her death her share be transferred to Michael (cl 3(i)).
Anne’s will also authorised her trustees in their absolute direction to sell the whole or any part of her estate either by public auction or private contract, without being liable for any consequential loss (cl 8).
Anne’s will also provides that if at the time of her death she owned a substantial number of shares in a trading company or in a company acting as trustee of any trust, then she directed her trustee to employ such shares to control the trust, to become a director of such company and to exercise the power, authorities and discretions granted by such shares, trusts and appointments to deal with the property contained in such companies and trusts as if it were part of her estate and in accordance with the provisions of her will (cl 10).
Bernie’s will
After payment of his debts, funeral and testamentary expenses, duties and costs, Bernie’s will provided for gifts of his real and personal estate, including:
(a) with certain exceptions, Bernie’s share in the livestock, plant and implements forming the assets of the farming business he previously conducted with Anne, to the extent that farming business was carried on, on Clarkes, to Brendan (cl 2);
(b) $5,000 to each of Bernie’s cousin and a friend (cl 3(a));
(c) $100,000 or its equivalent in shares forming part of the estate to three Catholic Parishes and Our Lady Help of Christians, Warrnambool to be shared equally (cl 3(b));
(d) Bernie’s investment property at 396 Raglan Parade, Warrnambool (‘396 Raglan Parade’), to Elizabeth and Catherine (cl 3(c));
(e) the property at Hopetoun Rd, Warrnambool (‘Hopetoun Road Property’), to Elizabeth and Catherine, with the wish that at an appropriate time it be transferred or bequeathed to Bernie’s daughter in law Denise Kelly (‘Denise’) (cl 3(d));
(f) subject to subdivision, any interest in the dwelling in the property known as ‘Nolans’, to Clare (cl 3(e));
(g) transfer of the property known as ‘Moores’ to Patrick, in exchange for $100,000 being part of the overall debt of the estate (cl 4(a));
(h) transfer of any interest in 500 acres of certain parcels of land,[2] to Brendan,[3] subject to any mortgages owed in respect of any of the farm properties,[4] but limited to the sum of $1,000,000, or if any such mortgages does not aggregate to that amount subject to a charge to the estate for the balance (cl 4(b));
[2]Certificates of Title Volume 8288 Folio 461, Volume 8108 Folio 799, Volume 8068 Folio 958, Volume 9590 Folio 790 and Volume 2358 Folio 586, being the ‘balance of the home property and including property purchased by the JB Kelly Trust’; and any interest in Allotments 42A and 42B Parish of Keilambete in Moyne Shire.
[3]To hold on trust for Brendan and his wife, children, nephews, nieces, or grandchildren, and any trust or company he may have an interest in.
[4]Except for Moores.
(i) the trustees to make available an amount for the future care, maintenance and well-being of Matthew, by way of contribution to superannuation, complying pension or otherwise, provided that they consult with other members of the family, in particular Elizabeth and Catherine (cl 4(c));
(j) application of all moneys in any banks or investments, with the exception of his Warrnambool Cheese & Butter Factory Company Holdings Ltd (‘WCBF’) shares, towards reduction of any mortgages affecting the land described in cls 4(a), 4(b) and 4(h) but subject to the provisions of those clauses (cl 4(d));
(k) transfer of 398 Raglan Parade to Michael for his lifetime and upon his death the property is to form part of the residuary estate (cl 4(e));
(l) transfer of the Brunswick Property to Catherine (cl 4(f));
(m) transfer of Charlies, Clarkes, Delahentys and ‘Keoghs’ to Brendan and Patrick subject to payment by them of the value of the land (cl 4(h));[5]
(n) division of his WCBF shares equally between Patrick, Maria, Catherine, Clare, Jacinta, Elizabeth and Michael, subject to the sale of such number of shares as necessary to repay amounts owing or mortgages affecting real estate at Hervey Bay, Queensland, Botanic Road, Warrnambool, Peterborough and two properties at Raglan Parade, Warrnambool and any shortfall in relation to cl 4(d) (cl 4(i)); and
(o) transfer of the rest residue and remainder of the estate (including his interest in Botanic and Peterborough and units in Hervey Bay, Queensland) to any of Bernie’s surviving daughters as tenants in common in equal shares, provided that Bernadette’s share be held by the trustees upon her lifetime and the income be paid to her and upon her death her share be transferred to Michael (cl 4(j)).
[5]Keoghs was not referred to during the trial. It does not appear to be part of Bernie’s estate and it is unclear who has benefit of the property.
Bernie’s will also authorised his trustees in their absolute direction to sell the whole or any part of his estate either by public auction or private contract, without being liable for any consequential loss (cl 8).
Bernie’s will further provided that if at the time of his death he owned a substantial number of shares in a trading company or in a company acting as trustee of any trust, then he directed the trustee to employ such shares to control the trust, to become a director of such company and to exercise the power, authorities and discretions granted by such shares, trusts and appointments to deal with the property contained in such companies and trusts as if it were part of his estate and in accordance with the provisions of his will (cl 10).
Inventories of assets and liabilities as at dates of death
As part of the applications for probate of Anne’s and Bernie’s wills, the respective executors filed inventories of assets and liabilities for each estate dated 3 March 2009.
Inventory of Anne’s estate
The inventory describes Anne’s estate as follows:
Real property in Victoria $243,250.00 Personal property in Victoria $2,495,705.38 Real property outside Victoria $115,000.00 Personal property outside Victoria $6,553.20 Liabilities $198,046.43 Net estate value $2,662,462.15
The assets listed in the inventory include:
(a) one half share in Crown Allotment C1 Parish of Garvoc;[6]
[6]Certificate of Title Volume 8068 Folio 958.
(b) one half share in unit 2, 465 Esplanade, Hervey Bay, Queensland (‘unit 2 Hervey Bay’);
(c) $4,704.14 in an account with ANZ and $10,121.24 in an account with Southern Finance Ltd;
(d) 468,212 shares in WCBF;
(e) one share in Alchuringa Pty Ltd (‘Alchuringa’);
(f) 86 ordinary fully paid shares and 86 partially protected shares in Westfarmers Ltd; and
(g) $151,547.48 loan amount owed by the JB Kelly Settlement.
The liabilities listed in the inventory comprise:
(a) credit card debt owed to the NAB; and
(b) $178,130.68 loan amount owed to the JB & AM Kelly Partnership.
Inventory of Bernie’s estate
The inventory describes Bernie’s estate as follows:
Real property in Victoria $5,581,250.00 Personal property in Victoria $2,249,569.46 Real property outside Victoria $645,00.00 Personal property outside Victoria $0.00 Liabilities $22,208.49 Net estate value $8,453,610.97
The inventory describes Bernie’s real property assets as follows:
(a) Botanic;[7]
[7]93 Botanic Road, Warrnambool, Victoria – Certificates of Title Volume 06153 Folio 416 and Volume 06169 Folio 797.
(b) 396 Raglan Parade;[8]
[8]Certificates of Title Volume 10985 Folio 733 (Lot 3 on PS 523968J) and Volume 10985 Folio 732 (Lot 2 of PS 523968J, also known as 2 Hassett Lane).
(c) 398 Raglan Parade;[9]
[9]Certificate of Title Volume 10985 Folio 731 (Lot l PS523968J).
(d) Hopetoun Road Property;[10]
[10]44 Hopetoun Road, Warrnambool, Victoria – Certificate of Title Volume 10950 Folio 984 (Lot 1 TP 129262M).
(e) Delahentys;
(f) one half share as tenant in common in 151 Occupation Lane, Garvoc;[11]
[11]Certificate of Title Volume 08068 Folio 958.
(g) Occupation Lane, Garvoc;[12]
[12]Certificate of Title Volume 8288 Folio 461 (Lot 1 & 2, TP 243042P).
(h) 138 Occupation Lane, Garvoc;[13]
[13]Certificate of Title Volume 8108 Folio 799.
(i) Charlies;[14]
[14]1729 Ellerslie-Panmure Road, Panmure, Victoria – Certificate of Title Volume 09872 Folio 890 (Lot 1 LP2I4249H).
(j) Moores;[15]
[15]Ellerslie-Panmure Road, Framlingham, Victoria – Certificate of Title Volume 06652 Folio 391 (Lot 1 TP823282K).
(k) Clarkes;[16]
[16]Ellerslie-Panmure Road, Framlingham, Victoria – Certificates of Title Volume 10276 Folio 723 (Lot 2 PS 349585V) and Volume 9872 Folio 891 (Lot 2 LP214249H).
(l) Peterborough;[17]
[17]19 Hamilton Street, Peterborough, Victoria – Certificate of Title Volume 08907 Folio 622 (Lot 2 PS 93008).
(m) Brunswick Property;[18]
(n) 10/451 Esplanade, Hervey Bay, Queensland (‘unit 10 Hervey Bay’); and
(o) one half share as tenant in common in 2/465 Esplanade, Hervey Bay, Queensland (‘unit 2 Hervey Bay’).
[18]28 Clarence Street, Brunswick East, Victoria – Certificate of Title Volume 06291 Folio 174 (Lot 86 & 87 PS 1961).
There were two farms that were part of Bernie’s estate. One farm was operated at the three Occupation Lane properties at paras 21(f)–(h) above (‘main farm’). Those properties are contiguous and comprise a total of around 500 acres. Brendan gave evidence that he had been running the main farm day-to-day since he was 19 or 20. The other farm was run solely by Bernie and then a share farmer at Charlies, Clarkes and Delahentys, which are also contiguous properties (‘share farm’). Charlies comprises about 55 acres and Clarkes comprises two parts of around 250 acres (part 1 of Clarkes)[19] and 180 acres (part 2 of Clarkes).[20] Botanic was Bernie and Anne’s family home. Peterborough is the family holiday home.
[19]Certificate of Title Volume 10276 Folio 723 (Lot 2 PS 349585V).
[20]Certificate of Title Volume 9872 Folio 891 (Lot 2 LP214249H).
The inventory records Bernie’s personal estate as including:
(a) 469,000 shares in WCBF;
(b) 188 shares in Incitec Pivot Limited;
(c) $255,590.31 loan owed by the JB Kelly Settlement (Alchuringa acting as trustee);
(d) one ordinary share in Alchuringa; and
(e) $16,555.51 cash in NAB accounts.
The liabilities listed in the inventory comprise:
(a) Master Card account debt owed to NAB; and
(b) $2,294.43 owed to the JB & AM Kelly partnership.
Mortgages omitted from Bernie’s inventory
In an affidavit sworn 2 October 2019, the plaintiffs deposed that there were mortgage debts owed to NAB and Rural Finance Corporation (‘Rural Finance’) which existed at the date of Bernie’s death but which were not included in the inventory of his assets.
In the affidavit, the plaintiffs explained that the debts were likely those set out in the financial statements of the JB & AM Kelly Partnership for the year ended 30 June 2008, which were exhibited to the affidavit (‘2008 JB & AM Kelly Partnership accounts’). The plaintiffs depose that the statements record loans owing to the NAB totalling $426,958.74 (which the plaintiffs say were ‘non-farm property mortgages’) and loans owing to Rural Finance Corporation totalling $578,930.92 (which the plaintiffs say were ‘farm property mortgages’). Accordingly, the plaintiffs said that the inventory ought to have been described as:
Real property in Victoria $5,581,250.00 Personal property in Victoria $2,249,569.46 Real property outside Victoria $645,000.00 Personal property outside Victoria $0.00 Liabilities $1,028,097.23 Net Estate Value $7,447,722.23
There are at least two issues with these calculations. First, the accounts show a loan of $3,836.32 owing to the Bank of Melbourne, which seems to be included in the NAB total. Secondly, the liabilities should be $1,028,098.15 (being $578,930.92 plus $426,958.74 plus $22,208.49). This calculation appears to miss 92 cents owing to the Rural Finance loan. This would also change the net estate value.
During the trial, the Court asked the plaintiffs’ counsel whether the figures drawn from the partnership accounts for the year ended 30 June 2008 were accepted by the defendants. Counsel said she had understood the addition of the mortgages to be uncontroversial because no issue had been taken with them in the preparation of the joint trial document. The Court then put to the plaintiffs’ counsel that the accounts did not prove that there was a liability and that there needed to be proof. The plaintiffs’ counsel said that neither she nor her instructor had seen any source documents, and that she was not asking the Court to make a determination about the mortgages. When asked why the plaintiffs did not produce statements of accounts in respect of the mortgages, counsel said she had not anticipated that there was a difficulty in the establishment of the liabilities of the estate.
The defendants’ counsel indicated that the defendants did not take issue with the amount of the mortgages because the liability had been satisfied and the mortgages discharged.
Potentially incorrect loan amounts owing to or by the JB Kelly Settlement
The JB Settlement was a family trust. Alchuringa was its corporate trustee, although Patrick said he did not understand this role. As referred to above, Anne’s and Bernie’s estates own one share in Alchuringa each and they are the only shareholders.
Brendan was appointed as a director of Alchuringa on 23 July 2008, he says, with the consent of his co-executors.
In an affidavit sworn on the eve of the trial (’26 October 2020 affidavit’), the executors deposed that they had been informed by a tax lawyer, Mr John Young, that based on the financial statements for the JB Kelly Settlement for the period ended 23 July 2008, the inventories for Anne’s and Bernie’s estates ought to have included the following assets and liabilities:
·a loan of $732,381.04 owing by Anne and Bernie to the JB Settlement;
·a loan of $255,590.31 owing to Bernie by the JB Settlement;
·a loan of $196,999.28 owing to Anne by the JB Settlement;
·a further $15,147.99 owing to Anne’s estate by the JB Settlement.
While Mr Young’s email dated 16 November 2015 was exhibited to the affidavit, the financial statements were not, and have never been produced to the Court.
The loan of $732,381.04 said to be owed by Bernie and Anne was not included in either inventory. In cross-examination, Brendan said that he had tried to raise that loan earlier but no one would look at it ‘because it’s outside the will’ and that Mr Bradley of Bradley Lawyers had said, ‘Oh, that’s a different part. It’s not part of it’. Brendan said Mr Young drew up a deed of forgiveness, which he signed for Alchuringa and all his siblings signed, except Maria.
In cross-examination, Brendan also acknowledged there was a ‘mistake’ on Anne’s inventory, which showed a $151,547.48 loan owed to her by the JB Kelly Settlement. Rather, the inventory should have showed a loan of $196,990.28 plus $15,147.59 owing to her. When asked what he had done about collecting the amount which is in excess of $200,000 owing to Anne’s estate, Brendan said:
No, nothing, because, effectively, Mum and – Mum owes money back to Alchuringa. And I’ve been trying to get people to deal with it, but no one would look at it. They wouldn’t entertain me at all. They just said, ‘Oh, it’s outside the will. You don’t have to’. Then they – it’s not my – not my problem. This has been an ongoing battle of mine for 12 years.
Brendan said that accounts for the trust had not been done since 2008. He also said that the trust did not have bank accounts but prior to Bernie’s death it did. He said he did not know how much was in the bank accounts and that any money would have gone to Mr Bradley.
During the trial, the financial statements for the JB Kelly Settlement for the financial year ended 30 June 2007 were tendered. The statements record a $672,697.10 unsecured loan owed by ‘JB & AM Kelly’ to the JB Kelly Settlement and unsecured loans of $194,999.92 and $151,547.48 owing respectively to Bernie and Anne by the JB Kelly Settlement.
Also tendered was an annual general ledger for the JB Kelly Settlement for the financial year ended 30 June 2008. The ledger records a $732,381.04 unsecured loan owed by ‘JB & AM Kelly’ to the JB Kelly Settlement and unsecured loans of $255,590.31, $196,990.28 and $15,147.59 owing respectively to Bernie, Anne and Anne’s estate by the JB Kelly Settlement.
It also may be that the loan of $700,381.04 may have been owed by the JB & AM Kelly partnership, however, very little information was provided about the partnership and the partnership deed and accounts were not produced by the plaintiffs.
Estate accounts
The plaintiffs have not produced up-to-date accounts for Anne’s or Bernie’s estates, despite repeated requests from the Court during the trial.[21]
[21]Sinclair Wilson accounts for the year ended 30 June 2018 for Bernie’s estate were exhibited to plaintiffs’ affidavit sworn 3 May 2019 but were not referred to at trial. Sinclair Wilson accounts for year ended 30 June 2018 for Anne’s estate were attempted to be tendered during trial. Neither set of accounts is signed by the executors.
The plaintiffs’ counsel submitted that the directions being sought by the plaintiffs from the Court could be given conceptually, without the need for accounts. At a very high level, the plaintiffs seek directions which authorise them to sell certain assets of the estate to themselves or family members and directions in respect of the apportionment between the residuary estates of certain payments to be made. The relief sought by the plaintiffs is described in more detail below. The plaintiffs’ counsel submitted that the parties may be able to agree where debts ought to have fallen and it would be ‘regrettable to add another set of costs to this proceeding and having to pay an accountant to go through that task’.
During the trial, the plaintiffs relied on the following documents which counsel submitted were the ‘best that has been able to be put together’ in respect of Bernie’s estate:
(a) draft administration account, apparently prepared by Bradley Lawyers in 2016 for the purposes of a proceeding brought by Michael (as discussed below) but which was not filed (‘2016 draft administration account’);
(b) one page report produced by tax advisers, Robert J Nixon & Associates, dated 8 June 2012 (‘Nixon report’), which purports to record the values of Anne’s and Bernie’s residuary estates and to calculate a rating factor for each;
(c) reconstructed inventory of assets and estates as at Bernie’s date of death prepared by Pearce Webster Dugdales, including the mortgages (‘date of death reconstructed inventory’);
(d) administration account as at 30 September 2019 prepared by Pearce Webster Dugdales (‘2019 administration account’); and
(e) reconstructed inventory of assets and liabilities as at 30 September 2019 prepared by Pearce Webster Dugdales (‘2019 reconstructed inventory’).
However, these documents have numerous limitations, as set out below, and accordingly must be considered with great caution.
First, as the plaintiffs acknowledge, the 2016 draft administration account is riddled with errors. For example, there is some double-counting, the mortgages are not dealt with, there are incorrect dates, and some properties are included which are not owned by the estate (rather they are owned by a superannuation fund). No supporting documents, such as receipts or account statements, have been produced. Notwithstanding those errors, the plaintiffs maintain that the 2016 draft administration account contains the ‘best information’ as to the finances of the estate between 2008 and 31 March 2016 that they have available. Further, they say that it is useful for the present purposes, not so much for the assets, but because it records the money coming in and out of the estate.
Secondly, no instructions, supporting documents, valuations, or underlying calculations have been provided to the Court in relation to the Nixon report. There is a cross-reference to an ‘Annexure 11’, presumably a calculation of liabilities, but that has not been produced. A figure is simply recorded for Anne’s residue, without any breakdown.
Thirdly, it goes without saying that the documents prepared by Pearce Webster Dugdales were prepared by solicitors and not accounting professionals. Further, the documents were prepared only using documents in the executors’ possession — for reasons explained below, Pearce Webster Dugdales did not have access to Bradley Lawyers’ file. There is no evidence that the executors’ documents were verified and few, if any, supporting documents have been provided to the Court.
Fourthly, the values in the 2019 reconstructed inventory are based on either outdated valuations (Preston Rowe Peterson valuations as at 2016) or the outdated inventory values (as at 2008). Mr Smith did not think there were formal valuations done for the inventory, and their source is unclear.
Further, the plaintiffs have also only provided the Court with up to date valuations of Botanic and Clarkes, which are proposed to be sold. The plaintiffs’ counsel said that there had not been a valuation of the other properties because it ‘didn’t appear to be necessary’ in order to make the template directions about the division of the two estates and the ‘rateability question, which is at the heart of the dispute’. The plaintiffs’ counsel submitted that the plaintiff was not asking the Court to make any particular direction that the properties were worth a particular amount of money. She said that she anticipated the Court would provide directions ‘as to a formula’, a relevant point in time which the assets are to be valued that can then guide the executors as to what the task is in determining that proportionality. Counsel reiterated numerous times that money was not available for the valuations.
On an additional day of trial a month later, counsel for the plaintiffs indicated that she had since received a number of documents which dealt with the sale of the WCBF shares and a variety of account statements and trust account printouts. Counsel said that in her view the documents were not directly relevant to the matters before the Court, but which are relevant ultimately for determining specific calculations in relation to the estate. Counsel said that she raised this because the Court had expressed interest in the accounts, and these would, in some part, answer any queries but she did not seek to rely upon them in the proceeding.
It is convenient at this point to explain that the gravamen of the defendants’ complaint is that, for over ten years, they have being asking the plaintiffs to provide proper accounts of the estates and matters surrounding it, but those accounts have not been provided. In the absence of such information, they have not consented to the plaintiffs proposed sales of assets.
Affidavits from Maria and Catherine were tendered in which they deposed to their various concerns about the administration of the estates, including in particular the plaintiffs continued failure since 2009 to account properly for the identification and value of various estate assets and to identify the manner of payment of settlement funds in various proceedings, described in detail below, and the effect of such payments in relation to the proportionality as between the estates. Exhibited to Maria’s affidavit (with which Catherine agrees) is legal correspondence ranging over the period of administration in which their concerns are expressed.
At trial, Maria gave evidence that she and Catherine had been asking for accounts to find out what the debts were for over a decade, with no success. She said that they did not want any assets sold until they knew how Matthew and Michael were going to be cared for financially. Maria said as follows:
And they had already made financial decisions that they didn’t account for and disappeared all this money with no explanation and I thought, well, it makes no business sense at all to keep allowing them to sell more assets and keep pouring all this money into this black hole that they’ve created that they won’t account for. From a business sense that makes no – business point of view that makes no sense at all. From an ethical point of view it makes no sense at all to sell off everything that's not left to them to pay for debts that they’ve accrued. So I resisted in the hope that something would come to light somewhere along the line about how they had spent the moneys they had spent and how they had accrued the debts they’d accrued and I was always waiting for a plan of how they, as executors, proposed to financially care for Matt and Mick.
In cross-examination, it was put to Maria that she had been refusing to provide her consent to the executors being able to sell property as a means by which she could get accounts for the estate. Maria responded that she ‘felt it was necessary to get proper accounting before they sold anything further’.
In re-examination, Maria was asked what she required in order to enable property to be sold, debts paid and Matthew and Michael to be paid. She said ‘a proper accounting of where moneys had gone so – up to date’.
Catherine’s evidence was consistent with Maria’s evidence. The following exchange took place in examination-in-chief between Catherine and her counsel:
CounselSo once that had been sorted out, what Matt and Mick were going to get, and the circumstances in which they would receive assets from the estate in satisfaction of those claims, why was it that then there were – there was no agreement as to what would be sold and how those moneys would be applied? What caused the difficulty from the time Matt and Mick’s entitlements were identified and sorted out?
CatherineWell, I – I – again, um, you know, there was no clear transparent communication was one thing. Um, but also there was no proper information relating to what was in both estates, um, what – what the debts were, what the debts were linked to, how they came about, why were they so exorbitant. You know, even that document that was being shown before that shows the apportionment of, you know, um, what each beneficiary supposedly is supposed to pay. It – it was incorrect. So I felt that it was never, um, satisfactory to, um, to make a really informed decision and I just felt that enough – the shares had already been sold and I just felt that if we – if that pattern continued where things just kept getting sold to pay debt there would be nothing for Matt and Mick and let alone any other beneficiaries. So, to me, that was the huge barrier.
CounselAnd did you ever set out or have your solicitors set out what information was required in order to meet that call for proper accounts?
CatherineGosh, yeah. I think when, um, we first – when we – we – you started helping, Mitch, I think, was in 2010 when I became extremely concerned because, um, I became extremely concerned that, um, there was a danger that Matt and Mick would receive – not receive what they were entitled to and, um, that was when you started, um, helping and started writing letters. Yeah. So it's been just going on for years because I had– I couldn't get anywhere with – in my role as administrator I couldn’t get anywhere with, um, the executors, yeah, I felt.
In opening submissions, the defendants’ counsel said that he was ‘really fearful of the notion of getting a fresh set of accounting done’ and hoped the parties ‘would be able to agree on any matters of particular interest’ that are relevant to the Court’s contemplations, but that ‘may well not be enough’. In written closing submissions, the defendants maintained their call for proper estate accounts.
As a result of the plaintiffs’ failure to provide accurate and up to date information about the estate and surrounding matters, the defendants’ counsel spent a significant part of the trial trying to ascertain information from witnesses about the administration of both estates and status of assets and liabilities. Evidence was given by Brendan, Patrick, Mr Bradley, Mr Smith, Maria and Catherine. That evidence is set out below.
Evidence of the administration of the estates and surrounding matters
Payment of $100,000 to Bernie’s estate by Patrick
Brendan gave evidence that initially the executors were unable to access estate funds because upon Bernie’s death, the estate was frozen.
Patrick said that after the death of his parents, he borrowed $100,000 from Rural Finance, which he then paid into Bradley Lawyers’ trust account for Bernie’s estate. Brendan said that Patrick did this on the advice of Mr Bradley, so that day-to-day bills could be met and the farms could keep operating. The plaintiffs deposed that this payment occurred on 26 August 2008.
Day-to-day administration in the early years
The day-to-day administration of Bernie’s estate was managed by Mr Bradley.
Brendan said that on Mr Bradley’s advice everything went through the Bradley Lawyers’ trust account. Mr Bradley said that from the outset of the administration there were a lot of unpaid bills, and for a couple of years he made sure that the farming income was coming into the Bradley Lawyers trust account so that he could make payments to various suppliers. Mr Bradley said this was done so that a clear audit trail could be found through the trust account.
Brendan gave evidence that Mr Bradley held the estate’s chequebook for a number of years. Mr Bradley accepted that his firm managed the chequebook until at least 2010, but could not recall if the arrangement continued later than that.
Brendan said that after about three years, administration of Anne’s estate was transferred to Bradley Lawyers, and Mr Bradley held the chequebook for her estate and he accounted for moneys in and out of each of the two estates as one. Mr Bradley could not recall administration of Anne’s estate being transferred to his practice.
Running of the farms in the early years
The day-to-day running of the main farm was left to Brendan and Patrick, as they were the dairy farmers. Brendan said he continued to run it like he always had.
Brendan said that he was paid wages out of the estate by Mr Bradley for his work operating the main farm while it remained an estate asset. Brendan said he was paid $6,000 a month for anywhere between 80 and 90 hours a week, seven days a week. He said this was a $2,000 increase from what he was being paid before Bernie died, but less than $8,000 as suggested by Sinclair Wilson, an accounting firm in Warrnambool acting as the estate’s accountant.
Mr Smith believed that Brendan was being paid to run the main farm while Bernie was alive. He said that he would have agreed to Brendan being paid a wage and did not recall raising with his co-executors or Mr Bradley about the right of an executor to take a payment of that sort.
Maria said she was not involved in any discussion or gave any consent for Brendan’s payment to increase.
Brendan said that he had nothing to do with the share farm, which Michael had been using for milking. Brendan said that after Bernie’s death a sharefarmer ran that farm for a few years. Following that, they paid some workers to keep the operation going with Michael. Some years later Patrick sent his son up to work there but that also did not work out. Brendan said that Patrick’s son was paid personally by Patrick for the work he did on the share farm and that Michael was paid by Bernie’s estate.
Brendan gave evidence that at times the farms made money, but also made losses because of price falls, severe droughts and lack of feed. Brendan said they kept running the farm for a number of reasons, including that it was seasonal and the price of milk was going to turn around. However, Brendan said the biggest reason why the farm was not making any money was because Mr Bradley’s legal fees and other fees were getting included as farm bills, which they were not. Brendan said that some of the bills that Mr Bradley was charging were ‘just obscene’.
Bernadette’s settlement
In 2009, Bernadette expressed an intention to issue a claim for provision pursuant to Part IV of the Administration and Probate Act 1958 (Vic) against both Anne’s and Bernie’s estates.
On 28 July 2009, the executors of Anne’s and Bernie’s estates executed terms of settlement with Bernadette, which included that:
(a) the executors would forthwith ascertain the value of Anne’s and Bernie’s residuary estates and the value of the one-sixth share directed by Anne’s and Bernie’s wills to be held on trust to pay the income for life to Bernadette with the remainder to Michael;
(b) the executors would, within 30 days, pro rata out of both residuary estates:
(i) pay the sum of $500,000 to Bernadette;
(ii) invest the balance of Bernadette’s shares of the residuary estates in accordance with the wills, and if the total of the shares was less than $250,000 then the executors would make the total of those shares up to that amount from the other assets of the residuary estates;
(c) Bernadette would release the estates from any further claim.
Maria gave evidence that on the day of the settlement, she received a phone call ‘out of the blue’ from the executors asking her if she would agree. She said she had no background information and no warning, other than knowing in principle they were trying to come to an arrangement. She said the executors put Grant Ezie, the solicitor at the time for Anne’s estate, on the phone who assured her that Bernadette would get no more and no less than any of the other female beneficiaries, and on that basis she agreed to the amount that Bernadette settled on.
Although not in evidence, there is reference on page 392 of the Court book that an order was made by the Court approving the settlement on 16 November 2009 and authenticated on 24 November 2009.
It appears that there was an issue with the wording of the order, which required amendment to remove the possibility that Bernadette could still claim her expectation under the wills. It further appears that there was a delay in obtaining the amended order, through no fault of the parties, and that the amended order was made on 6 August 2010. Again, the orders are not in evidence but Mr Smith gave oral evidence about this and a letter from Mr Bradley refers to it.
Payment of $1,000,000 by Brendan to Bernie’s estate and use of funds
In an affidavit, the plaintiffs deposed that on Brendan’s behalf, Rural Finance advanced $1,000,000 to Bernie’s estate in three tranches on 15 December 2009, 19 March 2010 and 23 March 2010. In a different affidavit, the plaintiffs deposed that in about late 2009, Bernie’s estate paid $500,000 to Bernadette, and set aside $250,000 in an account at the Warrnambool NAB, from which the interest has been paid to Bernadette.
At trial, Brendan gave evidence that ‘the courts’ had given the estate 30 days to raise Bernadette’s money and that the executors tried to sell some assets but they were ‘blocked’ by Maria and Catherine. He said time was running out so he borrowed $1,000,000 from Rural Finance and moved it at different stages towards the estate; the first lot was done in December 2010. He said that $500,000 went to Bernadette as payment for her Part IV claim, $250,000 went to Bradley Lawyers’ trust account to be held for Bernadette and Michael pursuant to the settlement and that Bernie still owed Rural Finance $250,000 or thereabouts, so that was paid out. The following exchange took place between the defendants’ counsel and Brendan:
Counsel And you paid a million dollars?
Brendan Yes.
CounselAnd you knew how that money was to be applied. You know where that was going? It was – it was to pay out Bernadette?
BrendanYes. Yes. Yes.
CounselAnd you also knew that when you paid that you would have to get the mortgages on the properties, on the acreage you were to get, to also be paid out; is that right?
BrendanI beg your pardon. Can you repeat that, please.
CounselYou also knew when you put in that million dollars that it was to be used firstly to pay out all the mortgage debts on the farm properties. All of them, not just the one you took?
BrendanIt was – well, the circumstances changed in the estate. The circumstances changed in the estate, didn’t they. We were given 30 days by the courts to find money for Bernadette, right, and we – we had nowhere to go. Nowhere at all.
CounselSo you borrowed the money from Rural Finance?
BrendanYes. Which are now Rural Bank.
CounselAnd primarily to pay out $750,000 to Bernadette?
BrendanAs it turns out, yes.
CounselWhen you say as it turns out, that's actually why you paid the million dollars in, in any event, wasn't it, otherwise you would have been perfectly happy to keep running the farm and not pay your million dollars and keep on operating the way you had since your father died?
BrendanI – I paid my million dollars per the will.
CounselYes?
BrendanPer the will.
CounselBut you only paid it at that time because Bernadette had put in her claim and you had to have $750,000 available to pay her out. So the reason why you took your holding and paid the million dollars into the estate was primarily to pay her the 750; is that right?
BrendanWe had – it’s like I said before and I, sort of, get offended that I have to keep repeating myself. The estate was in a position where we had nowhere to go. The Court had given us 30 days to come up with this money. Now, we – you cannot borrow – dead people cannot borrow so we couldn’t borrow any money. We couldn’t sell any shares. We couldn’t sell any real estate because we were blocked. So this was the only way around it and it was agreed on by Neville. It was agreed on by Bill. And – and Pat, my brother and myself and it was the only way forward. And that was the decision that was made at the time.
Patrick gave evidence that at the time Bernadette’s claim was made and settled, the estate did not have enough liquidity to pay out the claim. The following exchange took place between the defendants’ counsel and Patrick:
CounselAnd when [Brendan] paid his $1 million, as I understand your evidence, that was on fairly short notice in order to pay out the $750,000 that was due to Bernadette?
Patrick:Yes. But that was only to pay out at the start. It was to be worked out later on where it should have gone – not should have gone – the money.
CounselSo you’re saying that the $1 million came in and you realised that that $1 million might be applied for other purposes at some stage?
PatrickThe $1 million was supposed to be applied to other purposes, but there was nowhere – save the estate – the Court – the estate was ordered by the courts to come up with the money in 30 days. There was no other way to do it. And, I mean, you might like to take it up with the solicitors, Mr McKenzie, at the time. They’d probably know more about it.
CounselI’ll just phrase the question quite simply and directly. Your memory is that when the order came through and Bernadette's $750,000 was approved and the view was taken by the Court that it didn’t adversely affect Michael or Mick’s expectation under the will that then there had to be $750,000 raised promptly under Court order within 30 days. And what was done was at that stage, Brendan went – arranged the funds and paid that money into the estate. And that was firstly applied to pay out the $750,000 that was required to pay Bernadette?
PatrickYes. Well, if that’s what's happened, that’s what happened.
CounselAnd in respect of the balance of it, there’s a further $250,000 or thereabouts, and I will use round figures where possible. I understand that that was to be then applied to pay off the farm mortgages on the property that Brendan was going to get. Is that what happened?
PatrickI’m not sure, Mr McKenzie, if it was a farm Brendan was going to get. It might have been just debt in general or farm debt in general. It may not be the debt was against Brendan’s farm. It could have been against other farms. So I just – I’m not sure.
CounselSo I understand you’re saying you’re not sure whether that 270 [sic] was actually paid to general debt or – and some other obligation. Were you aware that under the terms of the will, when Brendan paid the $1 million, it said that he should apply that firstly to pay off the farmland debts?
PatrickI’m aware of that, Mr McKenzie. But we were just guided by the solicitors on what had to be done.
CounselAnd do you know, in ballpark figures, how much was the farmland debts?
PatrickNo. I don’t know what was farmland and what was property. I just know there was the general figure of debt overall.
Initially, Mr Smith could not recall anything about Bernadette’s settlement. Mr Smith recalled that pursuant to Bernie’s will, the $1,000,000 paid by Brendan was to be used to pay off farm mortgages. He said that he did not think the mortgages were all paid off and he thought ‘maybe money was used to pay Bernadette’ but he did not know.
The 2016 draft administration account and 2019 administration accounts record disbursements to Bernadette of $752,500 and to Rural Finance in three tranches of $427,655.54, $113,517 and $72,928.
Discharge of the mortgages
The 2016 draft administration account records a receipt of $780,903.25 by Southern Finance Ltd dated 23 November 2010, with the notation ‘Balance of Bridging Finance’. Mr Bradley gave evidence that the NAB mortgage was refinanced through Southern Finance Ltd.
The 2019 draft administration account records that ‘subject to verification, it is believed’ that the disbursements include the discharge of mortgages K555373 and U359655A (being the NAB mortgages) on 2 September 2010 ($1,558,660) and discharge of mortgage T371977Q (being the Rural Finance mortgage) on 14 December 2010 ($559,279.54).
Transfer of main farm properties to Brendan
Mr Smith said that ‘eventually it became obvious’ that the estate could not keep the farm going, and that is why the main farm properties were transferred to Brendan.
In an affidavit, the plaintiffs deposed that on 14 December 2010, pursuant to clause 4(b) of Bernie’s will, the main farm properties were transferred to Brendan. The plaintiffs say that at the date of the transfer these properties were valued at $1,093,750.
However, at trial, Brendan said a number of times that he received the properties in 2011. In particular, the following exchange between defence counsel and Brendan took place:
CounselAnd you continued to run [the main farm] from the date of your father's death until late 2010 when you paid the million dollars and then you ran it as your own property from thereafter; is that right?
BrendanYes. Ah, no. When I received it in November 2011.
CounselI put it to you that you in fact paid the money in late 2010 and you got the property in early 2011?
BrendanNo, I got the property in November 2011. November 1st.
Brendan said he stopped receiving a salary after the properties were transferred to him. He said that he has been running the main farm ever since.
Transfer of Moores to Patrick
It is common ground that Moores was subsequently transferred to Patrick. Patrick could not remember exactly when the title was registered in his name, but said that it was probably in late 2010. In an affidavit, the plaintiffs deposed that Moores was transferred to Patrick on 2 December 2010.
Patrick gave evidence that no valuation of Moores was done at the time that he obtained the land, because the terms of the will did not require a valuation.
Patrick said that he only used and occupied Moores since the time it was transferred to him, not when he paid the $100,000. He said that prior to that, the share farm used to run cattle over it from time to time and the proceeds went into the estate.
Patrick said that since he acquired it he had made improvements including fencing, getting rid of weeds, fertilising, sowing new grass and subdividing and building gateways.
Transfer of Brunswick Property to Catherine
Exhibited to Maria’s affidavit was a title history search statement for the Brunswick Property. It records that the Brunswick Property was transferred from the executors to Catherine on 14 December 2010 and that mortgage T371977Q (being the Rural Finance mortgage) over the property was discharged that same day.
In cross-examination, Brendan was taken to the 2019 reconstructed inventory which recorded a ‘notional’ value of $1,050,000 for the Brunswick Property. The defendants’ counsel put to Brendan that the Brunswick Property was always Catherine’s — that is, she paid for it, organised it, met the mortgage and Bernie asked her to leave it in his name so he could borrow against it. Brendan said the he found that ‘hard to stomach’ as Bernie had many assets so he did not need that house in his name. Brendan said that Bernie bought the house for Catherine, and that it was not transferred to her while Bernie was alive because she refused to pay the capital gains tax. Brendan said he did not challenge the transfer of the Brunswick Property to Catherine, and that as a family they all knew it was Catherine’s house.
Patrick accepted that the Brunswick Property was always acknowledged by the family as being Catherine’s property. He said that he and Brendan never recognised it as being Bernie’s, and he imagined that it was only in the inventory because it was in Bernie’s name.
Mr Bradley gave evidence that the Brunswick Property was bought on an unwritten bare trust for her. Mr Bradley said he had not seen any proof but Catherine claimed that she paid all the expenses and treated it at all time as hers and that on Bernie’s death it was to be transferred to her without any capital gains tax or stamp duty.
Evidence was not led from Catherine about the Brunswick Property as the plaintiffs’ counsel indicated that her clients did not take issue with the fact that Catherine had an equitable entitlement to the Brunswick Property.
Sale of the WCBF shares
During the trial, a statement from RBS Morgans Limited for the period 1 January 2011 to 29 November 2012 and sell confirmation notices in respect of Bernie’s WCBF shares were tendered. These documents show that between 24 June 2011 and 13 October 2011, 481,500 WCBF shares owned by Bernie were sold in tranches for a total amount of $1,900,139.91.
Sell confirmation notices for Anne’s WCBF shares were exhibited to the plaintiffs’ affidavit sworn 3 May 2019. Those documents show that between 21 September 2011 and 13 October 2011, 455,712 WCBF shares owned by Anne were sold in tranches for a total amount of $1,769,867.17.
Brendan gave evidence that Bernie’s WCBF shares were sold because there were a lot of outstanding bills. He said that they were given permission from Mr Bradley to sell the shares. Brendan and Patrick also gave evidence that Mr Bradley gave them advice to sell Anne’s shares and that Mr Bradley never provided any advice that they could not sell the shares, or any part of the shares. Patrick said they had tried to sell property rather than the shares and that selling the shares was not their preferred option.
Brendan and Patrick both said that the proceeds went to Bradley Lawyers’ trust account. When asked if he or Brendan received any of the funds from the sale of the shares, Patrick said ‘absolutely not’.
The defendants’ counsel put to Patrick that Anne’s WCBF shares were sold in order to provide cash to Bernie’s estate, however Patrick did not remember that occurring.
In examination-in-chief, Mr Bradley could not recall the circumstances of the sale of the WCBF shares in detail. He said that Brendan arranged the sale of the shares in a number of transfers when a reasonable price in Brendan’s view could be reached. He did not recall how the funds were applied by each of the estates.
In cross-examination, however, Mr Bradley was taken to an email, said to be written by him, which stated that ‘We recommend the executors sell shares or other assets of the estate by the end of June 2011. This will enable payment out of the debts of the estate, setting up of the trust fund to Bernadette and the two disabled beneficiaries and the finalisation of the estate’. Mr Bradley accepted it may have reflected the advice he gave. He also recalled that there had been an upturn in the share price which made it an attractive idea. He accepted that at the time the shares were sold he did not provide any advice to the executors to say they could not sell them. He said that all decisions that were driving the sale of the shares arose from the need to make funds available within the estate.
In re-examination, Mr Bradley could not recall why, as an available alternative to selling the WCBF shares, funds were not raised against the estate. He said the only explanation he could offer was that the increasing price of the shares made the executors desirous of selling them. He did not recall any advice given by him to Brendan about the shares and the terms of the will.
Mr Smith said that he thought the shares were sold by the plaintiffs through a broker and he had no contact with the broker. He said he was not involved in the way that the proceeds were applied and that would have been handled by Mr Bradley.
In examination-in-chief, Brendan said that about $250,000 had to be paid in taxes by both estates on the sale of the shares. In cross-examination, Brendan said his recollection was that the tax had to be paid before the end of the 2012 financial year, and that it was rather on the dividends received rather than capital gains tax on sale, and that it would be in the trusts ledger which were controlled by Mr Bradley.
Patrick recalled two ‘horrific’ bills, but he did not recall if they were for capital gains taxes. He thought they might have been around $250,000-$300,000 for each estate. Patrick did not know the tax status of the dividends from the WCBF shares, and suggested asking Sinclair Wilson.
Maria said she had asked the executors to give her an accounting for the application of the $1.9 million received from the sale of Bernie’s WCBF shares, but such an accounting was not provided. Catherine also said she had not been given any accounting as to how the $1.9 million arising from the sale of Bernie’s WCBF shares had been applied.
At CB 368 there is a copy of a cheque dated 26 June 2011 for $57,611.39 in the name of ‘Est Anne M Kelly’ but which was sent to Est Joseph Kelly at Bradley Lawyers’ address. This amount matches a payment on 28 June 2011 out of Bernie’s RBS Morgans account, see statement in Exhibit P7. This suggests the proceeds of the sale of at least this portion of Bernie’s shares was paid to Anne’s estate, however, this was not referred to at the trial and it is not clear why this was done.
Furthermore, the 2019 reconstructed inventory records that the $1,842,528.52 received in the sale of the WCBF shares, as set out in the 2016 draft administration account, had been expended yet there is no explanation of the expenditure. The difference between the $1,900,139.91 received from the sale of Bernie’s share and $1,842,528.52 is $57,611.39, which is the amount paid to Anne’s estate as explained above.
VCAT hearings in respect of administrators for Matthew and Michael
After Anne and Bernie died, Catherine was sole administrator and guardian for Matthew and joint administrator and guardian with Patrick for Michael.
Catherine was asked why something had not been done to pursue a Part IV claim for Michael and Matthew within the normal six month period. Catherine said that within the first year, she tried to talk to the executors and Bradley Lawyers to understand the details of both Matthew’s and Michael’s inheritance, but as time went on she was not getting that information.
Maria said that back in 2010 she became concerned that there was no formalised plan for how Matthew and Michael were to be cared for financially. Catherine said her and Maria’s focus was to ensure that Matthew and Michael were looked after.
Maria said the arrangements for Matthew and Michael ended up before VCAT. Catherine said that there were about 10 or 12 hearings at VCAT. Maria and Catherine gave evidence that they could never get proper information about the estate to give to VCAT so that VCAT could be satisfied about Matthew’s and Michael’s entitlements from the estates.
Catherine said that in 2012 VCAT appointed Mr Tim Mulvaney as administrator for Matthew and Mr Geoffrey Dillon as administrator for Michael. This was because Catherine and Patrick were beneficiaries and this was seen as a possible conflict of interest. She said that they were then able to take the pathway of putting in claims to ensure that Michael and Matthew would receive something from the estate.
Family meetings in 2011 and 2013
Brendan recalled that family meetings had started in 2011 in which he expressed concerns that there was ‘a lot of money getting chewed up with legal expenses’.
He recalled a particular meeting in 2011 at Sinclair Wilson in Warrnambool attended by Mr Bradley, Mr Smith and family members. He said he told the family members that ‘the will, the way it is, is unworkable’, ‘the estate is bleeding’ and ‘as a family, we need to work this out’. Brendan said ‘the upshot of the meeting was all the siblings bar Maria and Catherine agreed that it was bleeding out and something had to be rectified and they all wanted to do it. But Catherine and Maria disagreed.’ Brendan acknowledged that Catherine was not at that meeting.
Brendan also recalled a meeting in 2013 chaired by Mr Mulvaney (Matthew’s appointed administrator). He said ‘Once again, all the family members, bar Maria and Catherine, agreed to sell up and move on and wind the estate up’. Brendan said that Catherine was at that meeting, having come from New Zealand.
Maria recalled a family meeting at Sinclair Wilson in 2013. She said she was concerned that there had been no progress on subdividing the house on Nolans for Clare, as required in Bernie’s will.
Catherine said she was at the meeting with Mr Mulvaney and that an agreement was reached but it was on the condition that the executors would supply a ‘proper accounting of the estate to tell us what’s there, what debts there were, what were the debts connected to and all of that’. She said that because the information was not forthcoming then the agreement could not go ahead.
Termination of Bradley Lawyers’ engagement
Brendan said that he could see, for a long time, that the estate was not going anywhere. He said by 2015 or 2016 he was ‘very disgruntled with the way it was all happening’.
Brendan said he removed the cheque books from Mr Bradley because Mr Bradley was paying himself but not paying the bills. Brendan said that the cheque books were taken back to NAB and Sinclair Wilson. The bills would come to Brendan’s place, and he would go through them and send them to Sinclair Wilson to pay.
Mr Bradley’s retainer was ultimately terminated by the executors around 2016 and the executors engaged Pearce Webster Dugdales.
Matthew’s and Michael’s Part IV claims
In 2016, Matthew and Michael commenced claims against Bernie’s estate pursuant to Part IV of the Administration and Probate Act 1958 (Vic).
The claims settled in October 2016 and this Court made orders approving the compromise on 5 October 2017 (Compromise Approval orders). In essence, the Compromise Approval orders provided that:
(a) by 22 December 2017, $700,000 be paid out of Bernie’s estate for the benefit of Matthew;
(b) by 22 December 2017, 398 Raglan Parade and Delahentys (and a water allocation) be transferred to Michael and $270,000 be paid out of Bernie’s estate for Michael’s benefit; and
(c) Matthew’s and Michael’s legal costs be taxed on the standard basis and paid out of the estate.
The following exchange occurred between the plaintiffs’ counsel and Patrick:
CounselAt the time you settled up with Matthew and Michael, there was – apart from transferring properties, there would need to be found something in the order of $1 million to pay out the two of them?
PatrickRight.
CounselYou remember that?
PatrickYes, yes.
CounselYes. And so where did you – what did you anticipate was going to need to happen in order to raise that money?
PatrickWe were going to have to sell the property. If there’s nothing left, we would have had to sell property.
CounselDid you have a particular property in mind that would need to be sold?
PatrickNo, not really. No. We’re always so – through the whole entire world, we’re reluctant to – for use of a better word – muck around with things that our parents had directly left to people. If they specifically said they’d like someone to have something, we were reluctant to change that, if that makes sense, I’m sorry. And we were guided by the solicitors all the time. We never went against advice.
CounselSo when you say the solicitors, is that Mr Bradley?
PatrickIf he was still there – whoever was there at the time.
CounselAll right. And what about Mr Smith?
PatrickYes, yes. He was – yes.
Removal of Mr Smith as trustee and executor
Brendan said that by 2016 his relationship with Mr Smith had soured because he had stopped Mr Smith receiving executor’s commission.
Mr Smith said there was a ‘misunderstanding’ that the residuary beneficiaries had agreed to paying him executor’s commission and that once the issue was raised he ceased receiving the commission. A settlement agreement with Mr Smith records that he received about $108,064 in commission.
Mr Bradley admitted that he had paid executor’s commission to Mr Smith and said that he ‘obviously, didn’t understand it sufficiently at that particular time when that was done to, ah, know that I had to have, um, approval of both the, ah, executors and the beneficiaries or approval of a court’.
On 18 May 2016, Mr Smith filed a proceeding seeking orders amongst other things, for him to be removed as trustee and executor of the estate.
On 31 August 2017, this Court made orders removing Mr Smith as executor and entitling him to his costs of the removal proceeding on an indemnity basis.
Mr Smith subsequently lodged caveats on ten estate properties to secure payment of the costs and then filed a proceeding seeking taxation of costs.
On 29 August 2018, the plaintiffs and Mr Smith entered into terms of settlement by which the plaintiffs agreed to pay Mr Smith the sum of $187,500 in settlement of his claim for costs, to be paid on the settlement of the sale of Botanic, or Charlies and Clarkes or expiry of six months from the date of settlement, with interest accruing. Mr Smith was to withdraw his caveat over 398 Raglan Parade within seven days and remove the remainder of his caveats upon payment of the settlement sum.
It appears that on 13 September 2018, Mr Smith withdrew his caveat over 398 Raglan Parade.
Bradley Lawyers’ costs and file
Around 2018, Mr Bradley and the executors entered into terms of settlement in respect of Mr Bradley’s outstanding legal costs. The agreement was for payment of a total of $56,000 in full and final settlement, firstly by payment of $10,000 upon which Mr Bradley would deliver various title certificates and then $46,000 upon which Mr Bradley would release the remaining certificate of titles and his files. The $10,000 was paid, however the $46,000 remains outstanding.
Brendan gave evidence that Mr Bradley had asserted a lien over his books and records for $46,000 in unpaid fees. It was put to Brendan that some of the $250,000 said to be owing to Pearce Webster Dugdales would have included fees for work done reconstructing the accounts and for $46,000 he could have access to Mr Bradley’s documents. Brendan replied that Mr Bradley had already charged the estate $1,000,000 and had achieved nothing. Brendan denied the defendants’ counsel’s proposition that Mr Bradley was not pursued for the files and only insisted a lien over the titles.
Mr Bradley gave evidence that he had not been asked by the estates’ new solicitors to make his files available. He said he offered to make them available but received no answer. When asked if the files would be available if the executors called for them, Mr Bradley said that he would want to do an audit and that he would want to have the costs paid in the vicinity of $56,000 that he had been waiting for three years. He also pointed to more practical arrangements that would need to happen such as copying and compiling and removing file notes.
Closure of share farm
Brendan said he and Patrick had made the decision to close the dairy side of the share farm about two years ago, being late 2018. He said that ‘Michael had had enough anyway; he was totally spent and worn out. And we had an obligation to his mental health to, um, keep that inside as well, because he wasn't coping at all’.
Maria said she was first informed that the executors had ceased to farm estate land when she received the 26 October 2020 affidavit.
Sale of Charlies to Patrick and application of proceeds
Patrick purchased Charlies for $280,000, with the transaction settling on 14 September 2020. At trial, Brendan said that the sale was done with the consent of the defendants.
The proceeds of sale were applied as follows:
(a) $221,878.36 was paid to Mr Smith’s lawyers, Aitken Partners, for his legal fees, which included interest and further costs;
(b) $56,970.43 was paid to Herd Legal Services Pty Ltd for outstanding body corporate fees, interests and costs for unit 10 Hervey Bay; and
(c) small amounts were paid in respect of PEXA fees and council rates.
In the 26 October 2020 affidavit, the plaintiffs deposed that they had instructed the estate’s solicitor to take the necessary steps to remove Mr Smith’s caveats from all the remaining estate titles, and they understood that the paperwork would be lodged shortly.
Maria gave evidence that she first became aware that the property had been sold when she read the 26 October 2020 affidavit. She said she was not otherwise told about the possible application of the funds.
Catherine said she was ‘quite surprised’ to see that the sale had gone ahead and was ‘absolutely amazed’ at the debt related to Queensland.
In cross-examination, when questioned about why he did not tell the defendants how the proceeds were going to be applied, Brendan said that the estate was being sued by Mr Smith and the body corporates, who were going to appoint an administrator, so the money was directed in those areas first. Brendan accepted that the information had not been ‘forthcoming’ but that they had ‘nothing to hide’ because it was ‘all straightforward and above the books, as everything else has been’. Brendan was then asked about why the figure paid to Mr Smith’s lawyers had increased from $185,000 as recorded in the 2019 administration account. Brendan gave evidence that the increased amount was a result of interest charged because payment was not met by a certain time. He said that they had tried to sell assets to meet the obligation but the defendants would not agree to that.
Brendan was also asked in cross-examination about when he found out the $57,000 had to be paid to Herd Legal Services, as the obligation did not appear in the 2019 administration account. Brendan said interest had built up but could not recall how long the amount had been outstanding.
Agistment of estate land
In cross-examination, Brendan said that he had agisted his stock on the estate property for a period of five months. He said he calculated that on a per head per day basis of the amount of cattle, and that the standard rate is a dollar per head per day. Brendan said he discussed it with Patrick as his co-executor. In cross-examination, he denied being aware that in taking the step of agisting the farm property to himself in his personal capacity he might have a conflict of interest. He said it was for a short period of time and there was not a lot of cattle, and any money that he paid was paid into the JB Kelly account with the NAB in Warrnambool, of which he had records.
Maria said she was not told that Brendan was utilising estate assets for his own purposes by agisting stock.
JB Kelly Settlement and Nolans
Brendan gave evidence that the assets of the JB Kelly Settlement included a parcel of land called Nolans comprising about 145 acres including a house. Nolans does not appear to be included in Bernie’s inventory. Brendan said he estimated its value to be around $500,000.
He said the JB Kelly Settlement had not operated since Bernie died, but he has been farming the Nolans land in conjunction with the rest of his business. Brendan said that if there was a profit or loss made he was permitted to pay it to himself under the terms of the trust.
Brendan said that there was an agreement with Clare to subdivide Nolans and transfer the house to her, in accordance with Bernie’s will, despite Nolans not being estate property. In cross-examination, Brendan accepted that the transfer had not been done yet but said that he had ‘full intention of fulfilling Bernie’s wishes’ and had been looking into it.
Brendan said that he had recently contacted Mr Young and Sinclair Wilson about the transfer. He said that the accountant at Sinclair Wilson said that an up-to-date tax return for the JB Kelly Settlement was needed before the property was subdivided. He said he was in the ‘process of addressing it’ and ‘it will be done in the foreseeable future’.
Brendan said that a tenant was living in the house at the present, and that rent was paid to Clare.
In cross-examination, Brendan was asked whether one of the reasons he had not progressed the transfer to Clare was because he wanted a ‘signoff’ in relation to the debts and obligations appearing in the accounts of the JB Kelly Settlement, presumably in the 2008 accounts. Brendan said that there was a ‘stalemate’ because Maria would not sign off on the accounts and there was the issue of moneys owed from the estate back to the trust, so he was advised to hold onto the asset until such matters were sorted out. He said he had been ‘trying to sort these matters out for 12 years, but no one would listen to me’.
Patrick agreed that he wanted to respect his father’s wishes and said that as long as Brendan looks after Clare, he is ‘happy for them to do what they wanted’. Patrick was not aware that there was an Alchuringa share in Anne’s estate and Bernie’s estate, or that the shares were not left to any particular individual. He said he was not sure if he was ever told that the share in Anne’s estate was going to be transferred to his and Brendan’s names as executors and trustees. However, he appreciated that owning the Alchuringa shares gave Brendan and Clare the opportunity to use and enjoy Nolans along with what was written in Bernie’s will, to honour Bernie’s wishes.
Mr Smith said he had a recollection that Bernie’s share in Alchuringa may have been transferred to Brendan. He said all he could recall is that the trust property that was involved with the family farm went to Brendan, but he did not think Nolans was separately dealt with in the will.
Maria said that over the years Clare would ring her, getting increasingly agitated that nothing had occurred. She said that in the last 18 months Brendan had assured her that once Maria signed a deed of forgiveness he would sign the house on Nolans to Clare.
JB & AM Kelly Superannuation Fund and Hammonds
In cross-examination, Brendan was asked about the JB & AM Kelly Superannuation Fund. The following exchange occurred during cross-examination:
Her Honour …What assets were in the super fund?
BrendanOh, yeah, right. So how much was in that. In the superannuation – in the superannuation fund there was a property called Hammonds, there was 348 acres in that lot, and that was, um, outside the will, along with the trust.
Her Honour Who’s got that?
BrendanI have.
CounselAnd how did you get that?
BrendanAs per the terms of the – of the will, so – or – or what was said in the will.
CounselNow, Mr Kelly, having been told that the will didn’t affect the land, because the land wasn’t part of Bernie's estate, you have chosen to deal with the superannuation fund on the basis that your father's wishes will be carried out and you’ll take that property yourself; is that right?
BrendanOh, for the first – for the first five years after my father died, I – I only had half of it, as it was written in the will and this is what my late father wanted, then after that, yes, I have had full use of it as agreed to by the executors and Bill Bradley.
Counsel And who’s the trustee of the superannuation fund?
BrendanAh, they – I don't know. I can’t – I can’t answer that question, sorry.
Her Honour Is it a company?
Brendan No. No. No.
Status of the remaining estate assets
Botanic
As referred to above, Botanic was the family home in Warrnambool before Anne and Bernie died. It appears that Michael has been living at Botanic since 1996 and continues to live there now.
Botanic remains an asset of the estate. It was valued at $500,000 as at 20 October 2020 by Rowe Preston Peterson.
The plaintiffs deposed that several family members have expressed an interest in purchasing Botanic at valuation. They propose to offer the property to the family members (but not themselves) to purchase, and then subject to Court approval, sell it to one of the family members and failing that sell it on the open market. The plaintiffs say a sale to a family member is beneficial for the estate because it saves the costs of advertising and agents commission and any other costs of a public sale.
396 Raglan Parade
396 Raglan Parade remains an asset of the estate. As referred to above, pursuant to cl 3(c) of Bernie’s will, it is to be transferred to Elizabeth and Catherine with the wish that they transfer or bequeath it to Denise at an appropriate time.
398 Raglan Parade and Delahentys
These properties and water rights associated with Delahentys are to be transferred to Michael pursuant to the settlement of his Part IV claim, so are not available to meet any debts or to apply to residuary beneficiaries.
Patrick did not think that there was any tenant in the 398 Raglan Parade property and thought that it was in need of repair.
Clarkes
As referred to above, farming stopped on Clarkes in late 2018. The land has been laying unused since (except for the agistment by Brendan). Brendan said that there were blue flowers on it which were very poisonous to cattle so it could not be used effectively. Patrick said that he sprayed it last year on his own cost but it came back so he would need to get advice on how to get rid of it.
Prior to trial, Patrick proposed to purchase part 2 of Clarkes[22] for its current value, said to be $500,000 by Rowe Preston Peterson in a valuation carried out on 20 October 2020. Patrick also proposed to purchase the associated water rights at the sworn value, which can be determined by a valuer at the date of sale. The defendants apparently consent to this sale and say that if the water rights are associated with the property they should be tidied up in the same instance, but invite an up-to-date valuation in the appropriate manner.
[22]Certificate of Title Volume 09872 Folio 891 (Lot 2 LP214249H).
The plaintiffs depose that such a purchase is permitted under Bernie’s will and that it will save the estate the costs associated with marketing and agents fees and any costs of the sale. They say the proceeds would be applied to the payment of estate liabilities, including the Part IV claims.
During the trial, Patrick also expressed interest in buying part 1 of Clarkes[23] and associated water rights.
Peterborough
[23]Lot 2 PS 349585V, Certificate of Title Volume 10276 Folio 723.
As referred to above, Peterborough is the family holiday home. It is used regularly by the siblings and, in particular, to take Matthew on holiday.
Peterborough remains an asset of the estate. Brendan said that ‘if it has to be sold, it has to be sold, but the girls should make the call on that, not the executors’.
Patrick said that Maria had asked him to carry out some maintenance to the property, and he did not recall her asking him to do that previously. He said he has not done anything in response, other than try to fix the gates and cut the lawn once.
Maria said that she has used Peterborough every summer for a minimum of two weeks since Bernie and Anne died, and that for the first few years she would go down at other times during school holidays but that has been reduced to the odd long weekend now. She said that Clare uses the house for ten days every summer as well. Matthew would stay with Maria at Peterborough for as long as he wanted. She thought that Jacinta may have used it once or twice for a couple of weeks.
Unit 2 Hervey Bay
The plaintiffs have produced a statement of income and expenses for unit 2 Hervey Bay for the period 1 July 2019 to 30 June 2020. It records income of $13,374.20 and expenses of $8,813.93.
In cross-examination, Brendan accepted that Anne’s half interest in unit 2 Hervey Bay had not yet been transferred to Jacinta, but could not explain why.
Brendan accepted that property could not just be sold because Jacinta was entitled to half the property.
Unit 10 Hervey Bay
The plaintiffs have also produced a statement of income and expenses for unit 10 Hervey Bay for the period 1 July 2019 to 30 June 2020. It records income of $25,865,29 and expenses of $25,645.1.
The plaintiffs propose that unit 10 Harvey Bay be put on the market for sale. A formal valuation has not been carried out, but the plaintiffs deposed that they anticipated that the property would realise approximately $400,000. On the first day of the trial, the defendants consented to the sale.
Other shares
Brendan gave evidence that as far as he knows Anne’s shares in Wesfarmers have not been sold.
It does not appear that Bernie’s shares in Incitec Pivot Limited have been sold.
Loan account with JB Kelly Settlement
Patrick was asked about the $255,590.31 loan account with the JB Kelly Settlement recorded in the 2019 reconstructed inventory. Patrick said he ‘was never really across’ the JB Kelly Settlement and that he ‘left this stuff’ to the accountants and solicitors because it was ‘hard’ and ‘fairly complex’. He said that ‘no one would acknowledge it’ and ‘no one wanted to deal with it’. Patrick said the executors ‘never called upon it’ and ‘it got too technical for [him], so [he] left it to the professionals’.
Mr Smith said that he did not believe the executors made a call on the JB Kelly Settlement for the $255,590.31 said to be owing to Bernie’s estate.
Reimbursement from Anne’s estate
The 2019 reconstructed inventory also recorded a $394,159.50 reimbursement due from Anne’s estate. The defendants’ counsel suggested to Brendan that this figure represented Anne’s estate’s share of the $750,000 paid by Bernie’s estate to satisfy Bernadette’s settlement based on the rates in the Nixon report.
Status of estate liabilities
In cross-examination, Brendan and Patrick were taken through the liabilities listed in the 2019 reconstructed inventory.
Pearce Webster Dugdales’ fees
Brendan and Patrick were asked if the $250,000 recorded as owing to Pearce Webster Dugdales was still correct. After being directed to the 26 October 2020 affidavit, they agreed that amount had increased by $150,000. The plaintiffs deposed that the legal costs have included dealing with this proceeding, dealing with the debt of Bradley Lawyers and Mr Smith’s lawyers debt.
Bradley Lawyers’ fees
Brendan confirmed that the $46,000 recorded as owing to Bradley Lawyers was still owing. Mr Bradley said this amount was made at a costs mediation and there was agreement that it would be paid on the sale of Botanic, which had not yet occurred.
Mr Smith’s costs
The next recorded liability was the $185,000 owing to Mr Smith’s lawyers, which Brendan earlier explained had been satisfied with the proceeds from the sale of Charlies by Patrick (amounting to $221,878.36 with interest).
Trade creditors
In respect of the $317,119.72 recorded as being owed to trade creditors, Brendan explained that there were various bills owed to various people, including around $50,000 owed to Sinclair Wilson.
Loans owed to Brendan and Patrick
Brendan was taken to the loan of $5,000 from him and his wife recorded in the 2019 reconstructed inventory. Brendan said that amount has ‘changed a lot since then’. In the 26 October 2020 affidavit, Brendan claimed reimbursement of an additional $76,032.98 for ‘council rates, power bills, water rates/consumption and property insurance’. In cross-examination, he said he had paid numerous accounts for the estate including in excess of $20,000 to the Warrnambool City Council because they were suing the estate, insurance, power and water bills so that Michael could stay in his house, an electrician bill and power bills incurred for the dairy farm that he was operating as executor at Delahentys. Brendan said he had to ‘pick up’ the bills along the way to keep the estate out of court and getting sued, and that he had records of all the bills. He said that some of the bills he paid were to local community people who had done work, and that he was ‘embarrassed that the accounts were the way they were’. Brendan said that it had been ‘very tough’ trying to pay the accounts and juggle his own business at the same time.
Patrick was taken to the loan of $11,800 from him and his wife recorded in the 2019 reconstructed inventory. In the 26 October 2020 affidavit, Patrick claimed reimbursement of an additional $32,970.97 for ‘estate farm expenses, hay for the farm, legal expenses, farm utilities and the current sworn valuation for [Botanic] and [Clarkes]’.
Loans owed to Anne’s estate
The next item in the 2019 reconstructed inventory was a loan to Anne’s estate of $1,079,104.73. Brendan said that his recollection was that Bernie’s estate borrowed money from Anne’s estate to keep functioning, and that Mr Bradley kept an itemised running ledger. He said that as far as he knew there was no interest on such loans.
Patrick thought there might be a loan agreement but was not sure and did not know if there was interest on any loan. He said they relied on Sinclair Wilson and solicitors’ advice on ‘those sort of things’.
Mr Smith had some recollection that Bernie’s estate borrowed some money from Anne’s estate following the sale of her WCBF shares. He recalled that the loan was recorded in the accounts but did not think there was a formal agreement or any discussion about interest.
Maria said she had never been told how it was proposed that the indebtedness is to be sorted out between the two estates.
Matthew’s and Michael’s claims and legal fees
The funds to be paid out of the estate for Matthew’s and Michael’s benefits have not been paid.
Patrick did not know if there was any interest to be paid on the funds owing to Michael and Matthew. He said that he would need to get advice on that as Michael had been living at the Botanic property.
It does not appear that Matthew’s and Michael’s legal costs have been taxed. The plaintiffs’ counsel says that each of their litigation guardians have now done a bill of costs in taxable form, but none of them has readily available funds to take it to taxation and as a result the bills have been modified so are different to the figures that were in the 2019 September spreadsheet. Those revised figures are apparently $83,225.20 and $128,276.47.
Loan from Alchuringa
The 2019 reconstructed inventory records a $110,106.21 loan from Alchuringa. Patrick was asked about whether that loan should net out because of the earlier amount owing to Bernie by the JB Kelly Settlement. Patrick said he did not have a ‘good understanding of it’ and he was not sure.
The plaintiffs’ position
On 1 October 2018 the plaintiffs commenced this proceeding by originating motion brought pursuant to ord 54 of the of the Supreme Court (General Civil Procedure) Rules 2015. In their originating motion, the plaintiffs seek a variety of directions in respect of Bernie’s estate.
While not exhaustive, it appears that the plaintiffs seek a variety of directions in respect of the estates of Anne and Bernie, summarised as follows:
(a) that the plaintiffs be permitted to sell any part of Clarkes and Charlies to either one of them pursuant to Bernie’s will;
(b) that the plaintiffs be authorised to sell part 2 of Clarkes to Patrick for market value being $500,000 and associated water rights to Patrick for the market value;
(c) that the plaintiffs be authorised to sell part 1 of Clarkes and associated water rights to Patrick for market value;
(d) that the plaintiffs be authorised to sell Botanic to a family member for $500,000 or more on normal commercial terms, and if not sold to a family member then to sell by public sale;
(e) that any sale proceeds be applied to meet the liabilities of the estate, including payments to Matthew and Michael;
(f) that the executors are permitted to extend the time of 22 December 2017 to comply with the Compromise Approval orders by making the transfers to Michael of 398 Raglan Parade and Delahentys before a certain date and making the payments for the benefit of Michael and Matthew within 30 days of the settlement of the sale of any estate property to the extent possible;
(g) that the plaintiffs may pay the amount due to Bradley Lawyers and account for the payment of Mr Smith’s costs from the residuary estate;
(h) that the Bernadette’s settlement be apportioned between the residuary estates of Anne and Bernie, which are to be calculated as follows:
Anne’s residuary estate
oDate of death value of WCBF shares
oValue of any loan owed to Anne’s estate (by Alchuringa, if verified)
oAny residuary income received by the estate
Less
oDebts, liabilities and expenses actually paid by Anne’s estate or for which it is liable
oProper debts liabilities and expenses yet to be paid (including to Alchuringa, if verified)
Bernie’s residuary estate
oDate of death value of the residue assets
o$1,000,000 from Brendan less the amount used to discharge farm mortgages
o$100,000 from Patrick
o$280,000 from the sale of Charlies
oAny residuary income received by the estate
Less
othe charity gifts which are yet to be paid
othe debts, liabilities and expenses actually paid for Bernie’s estate
othe portion of funds which the residue of Bernie’s estate will bear in meeting the payments to be made to Michael and Matthew
othe plaintiffs’ costs of defending the proceedings
othe legal costs of Matthew and Michael
othe plaintiffs’ costs of administration (including the costs of various other proceedings) and the plaintiffs’ costs of these proceedings; less
othe proper estate debts yet to be paid;
(i) that for the purposes of apportioning the burden of payments to be made to Michael and Matthew rateably across Bernie’s estate, the interests of Michael, Matthew and Bernadette are to be disregarded and the property received by the plaintiffs is to be valued as at the date of death.
The plaintiffs also seek orders that they be entitled to their legal costs of the administration of Bernie’s estate and the costs of this proceeding from Bernie’s residuary estate on a trustee basis.
Further, in joint documents dated 10 December 2019 and 29 April 2020 respectively, the parties set out certain agreed facts and raised further legal issues to be determined.
In the plaintiffs’ closing submissions, the joint document filed 10 December 2019 sets out the agreed issues to be determined as follows:
(a) the date on which the assets disposed of to various beneficiaries ought to be valued for the purpose of determining each beneficiary’s share of contribution to the payment of liabilities;
(b) the basis on which the payment of Bernadette’s claim is to be apportioned between the estates of Anne Kelly and Joseph Kelly;
(c) the proportionality of the fees of Mr Smith in seeking removal as co-executor and the burden of payment of those fees.
The joint document filed 29 April 2020 sets out the agreed legal issues as follows:
(a)the burden of payment of sums to Neville Smith and to Bradley Lawyers;
(b) the burden of payment of Bernadette’s claim across the two estates;
(c) for the purposes of calculating the rateable contribution of Patrick and Brendan, as beneficiaries of the estate, how are the values of the property transfers to the beneficiaries to be apportioned as against the entitlements of all beneficiaries including the residue of both estates?
(d) how were the proceeds of sale of the WCBF shares applied to the discharge of the debts of the estates of both Anne and Bernie, as well as their application to clause 4(i) of Bernie’s will?
(e) how was the $1 million paid into the estate by the executor, Brendan John Kelly, applied to the debts and liabilities of the estates of Anne and Bernie? Also, how was the $100,000 paid into the estate by Patrick applied to the estate and the payment of estate debts and liabilities (if so applied)?
(f) how were the debts referred to in clause 3(b) of the estate of Anne dealt with in relation to the discharge of the mortgage on Certificate of Title Volume 8068, Folio 958, known as Reids and were the funds properly used in the administration of the estate?
(g) orders and directions as to the sale of estate property, including immediate sale of property at 93 Botanic Road, Warrnambool;
(h) orders and directions permitting the executor, Patrick, to purchase part of the land known as Clarkes and Charlies from the estate.
As stated, the plaintiffs submit that the Court is not required in this proceeding to make any findings about the actual assets and liabilities of the estate as a whole. The plaintiffs say that on receiving the Court’s directions and files from Mr Bradley and Sinclair Wilson they will have to account to the beneficiaries for the receipt of assets and payment of liabilities in the estate.
The plaintiffs say that it is not a matter before the Court but some comment needs to be made in response to criticisms levelled at the plaintiffs by the defendants. The plaintiffs submit that they were legally represented and have relied upon the assistance of Bradley Lawyers and Mr Smith as a professional trustee. The plaintiffs ask how, if their legal representatives were unable to answer accounting questions to the satisfaction of the defendants, they as lay executors are to do any better.
The plaintiffs submit that the defendants have not made any application for orders for accounts, for any other order in the administration of the estate, or in relation to the assets of the superannuation fund or Nolans. The plaintiffs say the defendants have had the opportunity to do so, and have not done so. The plaintiffs say these matters go beyond those set out in the originating motion or the issues agreed in the joint trial document and they have not put into evidence other matters in relation to their ongoing administration of the estate generally, being outside the issues apparent on those documents.
Applicable principles
Order 54 of the Supreme Court (General Civil Procedure) Rules 2015 enables the Court to do all things that it could previously do in a general administration proceeding, without the need for such a proceeding. Although the power conferred by the order is broad and extends to directing a personal representative or trustee ‘to do or abstain from doing any act’,[24] the Court is confined within the limits of the trust.[25]
[24] Supreme Court (General Civil Procedure) Rules 2005, r 54.02(2)(b)(iii).
[25] Gonzales v Claridades (2003) 58 NSWLR 211, 218 (Mason P).
Pursuant to r 54.02, an executor or trustee is able to seek the Court’s opinion, advice or direction on questions relating to the management or administration of trust property or a question respecting the interpretation of the trust instrument. The procedure is a summary procedure that allows for disputes to be resolved cheaply and simply, rather than by the usual adversarial manner.
Under r 54.02 the Court has a broad jurisdiction and power to advise and direct trustees and executors in relation to the performance of their trusts and, where appropriate, to approve their entering into and performance of any transaction. In Hornsby v Playoust (No 2), Mandie J said:
The Court has undoubted jurisdiction and power to advise and direct trustees and executors in relation to the performance of their trusts and, where appropriate, to approve their entering into and performance of a transaction — for example see Re Green deceased [1972] VR 848, 850 and see the discussion in Templeton v Leviathan Pty Ltd (1921) 30 CLR 34, 41, 74 and what was said by Gillard J in Re Atkinson deceased [1971] VR 612, 615.[26]
[26][2005] VSC 125, [10] (Mandie J).
In Macedonian Orthodox Community Church v His Eminence Petar, a majority of the High Court considered that it was appropriate to consider the principles relevant to the application of equivalent English rules of Court as they ‘may provide useful guidance in considering how the powers given by s 63 of the [Trustee Act 1925] should be exercised in a particular case’.[27] Section 63(1) of the Trustee Act 1925 (NSW) is a similar provision to ord 54 of the Rules and provides that:
A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.
[27](2008) 237 CLR 66, 86 (Gummow A-CJ, Kirby, Hayne and Heydon JJ).
Before seeking the Court’s advice or directions, a trustee must give consideration to the issues sought to be presented to the Court and, where necessary, should obtain legal or other advice, such as accounting and valuation advice, in order to determine a course of action before obtaining judicial advice about that course of action.[28]
[28]In the Application of NSW Trustee and Guardian (2014) 12 ASTLR 513, [25] (Kunc J).
In Avert v Manno Derham AsJ set out the principles to be applied in such applications and, importantly, stated:
The summary nature of the procedure is important to an understanding of the evidence the Court is entitled to rely upon in giving its advice. That evidence is ordinarily untested. The extent of the information available to the Court and its apparent reliability are factors going to the exercise of the discretion to give the advice. That is:
…while the time and cost involved in giving judicial advice at an early stage of litigation, when the issues involved in disputes about rights may not be fully sharpened and it may not be possible for the factual position to be as efficiently exposed as in a trial, may be factors relevant to a decision not to grant judicial advice but to let the matter be examined in conventional litigation, they are not factors which either automatically bar judicial advice or are so weighty as generally to compel the Court not to grant the advice.
The executor or trustee generally places all relevant circumstances before the Court and seeks an opinion, advice or direction that in those circumstances the trustee would be justified in taking a certain course. It is a mistake to think that, on an application for judicial advice, a trustee must necessarily ‘prove’ facts according to a certain standard of proof to enable findings of fact to be made as in the case of adversarial litigation.[29]
[29][2020] VSC 605; see also Re The Macedonian Orthodox Church Community ‘Saint Dimitrij Solunski’ Springvale Inc [2020] VSC 274 (Derham AsJ).
Consideration
Bernie and Anne died in 2008. Over the years the defendants objected to the plaintiffs’ various proposals because they were not provided with proper or adequate financial information by the plaintiffs. This proceeding commenced in 2018 and was adjourned a number of times between the commencement of the proceeding and the trial some two years later. Over that time, the list of issues sought to be included in the proceeding increased as set out at paras [197]–[201]. The plaintiff’s position that the Court should not make findings about the actual assets and liabilities of the estate for the purpose of giving advice is rejected. While the procedure is summary in nature and the evidence is ordinarily untested, the extent of the information available and its reliability are factors that affect the exercise of the discretion to give the advice. Where the defendants have legitimate questions about the assets and liabilities of the estate, they are entitled to raise those questions rather than conforming to the plaintiffs’ proposal that they account to the beneficiaries after receiving the advice.
Despite being informed throughout the trial that proper accounts were necessary before any advice or directions could be made, the plaintiffs continued to press their proceeding over five days relying on the documents set out at para [42] even though those documents contained many limitations as set out at paras [44]–[50]. Further, the additional information presented at the trial highlighted and raised further issues in relation to Anne’s estate, the JB Kelly Settlement, Alchuringa and the JB & AM Kelly Superannuation Fund. Overall, the defendants’ submissions identify at least 17 significant issues that require consideration as a result of the inability of the plaintiffs to provide proper accounts for both estates. The probability of further issues emerging must also be high. The presentation of the evidence relied on by the plaintiffs and the many flaws in that evidence substantiate and justify the concerns of the defendants.
From the information that is before the Court, it may be that the plaintiffs have received significant financial benefits from the estate to the detriment of the defendants and the remaining beneficiaries, in particular, Michael and Matthew, who are yet to receive their settlement entitlements approved in late 2017. Without proper information before the Court, it cannot give any advice regarding the plaintiffs selling certain estate assets, some to themselves by way of private sale, rather than by public auction, or that they repay themselves for unverified debts.
Overall, the information concerning the estates and other related entities raises serious concerns in respect of the administration of both estates. If the Court is to provide judicial advice, proper and accurate accounts for the period of the administration of both estates must be provided, as well as accurate accounts for all other related entities referred to at the trial and current valuation advice. The proceeding will be adjourned for one month to enable the parties to consider appropriate further directions in the proceeding.
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