Re Luna
[2023] VSC 223
•1 May 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2022 03029
IN THE MATTER of section 15 of the Administration and Probate Act 1958
- and -
IN THE MATTER of the Will and Estate of Vincenza Luna, deceased
- and -
IN THE MATTER of the Will and Estate of Arturo Luna, deceased
| DOMENICO PASQUALE LUNA | Plaintiff |
| v | |
| ANTONIO LUNA | Defendant |
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JUDGE: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 April 2023 |
DATE OF JUDGMENT: | 1 May 2023 |
CASE MAY BE CITED AS: | Re Luna |
MEDIUM NEUTRAL CITATION: | [2023] VSC 223 |
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WILLS AND ESTATES – Application for passing over defendant and appointment of independent administrator – Application granted – In Estate of Potticary [1927] P 202; Re Estate of Crane (2005) 93 SASR 198; Re Chomley [2014] VSC 220; O’Halloran v Coffey (No 2) [2023] VSC 51.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N McComish | Katherine Moorhouse Perks |
| For the Defendant | Mr P Barton | DSA Law |
HIS HONOUR:
Vincenza Luna died on 13 April 2015 and her husband, Arturo Luna, died on 21 November 2021.[1] They each executed their final (‘mirror’) wills on 5 March 2004 (collectively, ‘the wills’), appointing the other as executor of their estate. They each appointed the defendant, one of their two children, as a substitute executor in the event that they were predeceased by the other, or the other was unwilling or unable to act.
[1]In the interests of clarity and without intending any disrespect to any person, in these reasons for judgment I refer to persons other than the parties by their first names.
Vincenza and Arturo’s other child is Pasquale Luna. Pasquale is not a beneficiary under either of the wills.
A grant of probate has not been made in respect of either of the wills. The plaintiff, one of Pasquale’s three children[2] and a beneficiary under both of the wills, seeks an order that the defendant – his uncle - be passed over as executor of both Vincenza and Arturo’s estates, and that an independent administrator be appointed in his place.
[2]The other children being Vincenza Luna Jr and Arturo Luna Jr.
At the conclusion of the trial of the proceeding, I indicated that I would grant the plaintiff’s application. These are my reasons for judgment.
The wills and background facts
Arturo suffered from dementia from about 2015. The defendant helped care for him and was his financial attorney. The defendant’s evidence was that in 2015 the dementia suffered by Arturo:
… was not so severe that it prevented him from showering, eating, dressing and going the toilet on his own. However, he was not capable of making complex decisions. In or around 2017-2018, I noticed that his dementia became more severe.
As I have noted, Vincenza died on 13 April 2015. It follows from the above undisputed evidence from the defendant that, by reason of Arturo’s dementia, Arturo was unable to act as executor of Vincenza’s will potentially from the date of her death in 2015, but at least by 2018. As a consequence, the defendant must be taken to have become the (substitute) executor for Vincenza’s estate by no later than 2018. In that regard, I note that the defendant advertised for probate of Vincenza’s will on 11 October 2018, but then took no further steps in relation to obtaining a grant before this proceeding was commenced on 9 August 2022.
Vincenza and Arturo were tenants in common in equal shares in a property in Massey Avenue, Reservoir (the Reservoir property). By her will dated 5 March 2004, Vincenza gifted all of her interest in the Reservoir property to Arturo. She also gave all of her interest in any overseas property to Pasquale’s children and the residue of her estate to Arturo.[3]
[3]Vincenza and Arturo’s wills also contained gifts of interests in a farm at Moorabool West Road, Ballan. It was common ground at trial that this properly was not part of their estates as it had been dealt with prior to their deaths.
By his will dated 5 March 2004, Arturo:[4]
[4]See further footnote 3 above.
(a) devised his interest in the Reservoir property as to 20% to the defendant, and as to 80% to Pasquale’s children;
(b) gave to the defendant any power of appointment that he had in the V&A Luna Family Trust, as well as any shares he had in V&A Luna Pty Ltd;[5]
[5]The trustee of the V&L Luna Family Trust.
(c) gave to the children of Pasquale any power of appointment that he had in the Artenza Family Trust, as well as any shares he had in Artenza Pty Ltd;[6]
[6]The trustee of the Artenza Family Trust.
(d) gave to Pasquale’s children all his interest in any overseas property;
(e) gave to the defendant all furniture, chattels and personal belongings; and
(f) gave 50% of the residue of his estate to the defendant, and 50% to Pasquale’s children as tenants in common in equal shares.
The defendant advertised for probate of Arturo’s will on 17 June 2022, but took no further steps to obtain a grant before the commencement of this proceeding.
Legal principles
In O’Halloran v Coffey (No 2),[7] I considered in detail the Court’s power in an appropriate case to pass over the executor of a deceased estate. The exercise of that power must be informed by an appreciation of the limited nature of the jurisdiction. In general, a person named as an executor by a testator is entitled to a grant of probate; the Court will not readily pass over a named executor. The jurisdiction is to be exercised having regard to the due and proper administration of the estate and the interests of the parties beneficially entitled to the estate. [8]
[7][2023] VSC 51, [52]-[73] (‘O’Halloran v Coffey (No 2)’).
[8]Ibid [100]-[105].
The jurisdiction has been exercised in a range of circumstances, including where an executor has neglected their duties[9] and where there is a conflict between a person’s private interests and their executorial responsibilities of such a nature or extent that, having regard to the interests of the beneficiaries and the proper administration of the estate, it is inappropriate for them to act as executor. [10]
[9] In Estate of Potticary [1927] P 202; O’Halloran v Coffey (No 2) (n 7).
[10]Re Estate of Crane (2005) 93 SASR 198; O’Halloran v Coffey (No 2) (n 7), [116]-[119].
Defendant to be passed over
In support of his application, the plaintiff relied on affidavits sworn by him on 5 August 2022 and 24 March 2023. I gave leave to the defendant to cross examine the plaintiff in relation to certain matters, and the defendant otherwise relied on affidavits sworn by him on 4 November 2022, 14 April 2023 and 18 April 2023, as well as an affidavit sworn by the plaintiff on 26 September 2022. As explained further below, the plaintiff placed significant reliance on particular aspects of the defendant’s affidavits.
Counsel for the plaintiff advanced some 20 reasons as to why the Court should exercise its jurisdiction to pass over the defendant. It is unnecessary to separately address all of these points as the matters to which I refer below lead inexorably to the conclusion that the due and proper administration of Vincenza and Arturo’s estates and the interests of all of the beneficiaries of their estates are best served by the Court exercising its jurisdiction to pass over the defendant as executor of the estates, and for an independent administrator to be appointed in his place.
On 20 October 2022, the Court made orders requiring the defendant to file and serve, by 4 November 2022, an affidavit deposing to all relevant matters regarding Vincenza and Arturo’s estates, including but not limited to ‘any bank accounts, cash, machinery and equipment’.
The defendant filed an affidavit on 4 November 2022 which dealt with various matters relating to the estates of Vincenza and Arturo; it did not, however, contain any reference to bank accounts.[11] In February and March 2023, the plaintiff’s solicitors made several written requests of the defendant’s solicitors for information in respect of bank accounts.
[11]Save in relation to the matter referred to in [23] below.
On 23 March 2023, the defendant’s solicitors provided the plaintiff’s solicitors with copies of the bank statements for Vincenza and Arturo’s joint bank account (the joint bank account). The statements recorded the following withdrawals from that account:
(a) $15,447.30 on 31 July 2015;
(b) $80,000 on 7 March 2016;
(c) $30,000 on 22 December 2017;
(d) $22,000 on 28 March 2018;
(e) regular amounts, usually of $2,500, between 28 May 2020 and 1 November 2021, for a total in excess of $100,000, with the withdrawals bearing the descriptions ‘Tony withdrawal’, ‘units account’ or ‘Arturo funds’; and
(f) three transfers to ‘units account’ after Arturo’s death on 21 November 2021 for a total of $2,666.68, after which the balance of the joint account was zero.
On 14 April 2023, two business days before the trial was fixed for hearing, the defendant filed a further affidavit in which he exhibited and referred to the bank statements for the joint account. He deposed as follows:
A perusal of the bank accounts indicates that the day to day living expenses of my parents were not taken from this bank account as I would fund my parents’ expenses on an as needed basis. My accountant Ahmad Mehboob has prepared a spread sheet (sic) that outlines all the expenditure that I have incurred for and on behalf of my parents. A copy of the spread sheet (sic) is attached at pages 57 to 66 of AL-2. I have as indicated in the abovementioned spread sheet (sic) expended approximately $532,000.00 on my parents but have only been reimbursed $262,931.29.
The defendant stated that the withdrawals from the joint account referred to above were ‘payments partially repaying me for funds advanced to my mother and father’, but that ‘the amount owed to me by the estate exceeds the amount withdrawn from the [deceased’s] bank account by approximately $269,068.71 ($532,000 minus $262,931.29)’.
The plaintiff does not accept the legitimacy of the above transactions in the joint account effected by the defendant and notes that they occurred in a period when Arturo was suffering dementia and when he was being cared for by the defendant who was his appointed attorney.
The defendant’s claim that the estates are indebted to him in an amount of $269,068.71 leaves him hopelessly conflicted between his interests as a claimed creditor of the estate and his responsibilities as executor. The situation is far removed from the ordinarily uncontroversial situation where there may be a conflict of interest between, for example, the performance of an executor’s duties and their interests as a debtor to the estate. In circumstances where there is conflict and distrust between the defendant and the plaintiff and other members of the Luna family, it is manifestly untenable for the defendant to seek to administer the estates in the interests of all beneficiaries, including by calling in the assets of the estate, while at the same time asserting that the estate is indebted to him personally in a significant sum and where the existence of that debt is controversial. For this reason alone, the due and proper administration of Vincenza and Arturo’s estates and interests of all the beneficiaries justifies the defendant being passed over.
There are, however, further compelling reasons why the defendant should be passed over.
By his conduct, the defendant has demonstrated that he is unfit to act as executor of the deceased’s estate. As explained above, the defendant failed to comply with the orders of the Court for the provision of an affidavit deposing to all relevant matters regarding the estates of Arturo and Vincenza including any bank accounts. And only upon the eve of the trial did the defendant reveal for the first time his claim that the estates are indebted to him by an amount in excess of $250,000.
There is a further specific matter which leaves me with serious reservations about the defendant’s suitability to act as executor. By her will Vincenza gifted her interest in any overseas property to Pasquale’s children.[12] There is in evidence a cheque dated 31 August 2015, being about four months after Vincenza’s death, drawn on an Italian bank account for the amount of €5,2000 and made payable to the benefit of the defendant. The defendant maintained that there is no record of those funds having been received by him. I reject this evidence as it is contrary to the extensive documentary evidence which is before the Court in relation to this transfer. I find that those funds were transferred into the defendant’s bank account.
[12]See above at [7].
The evidence does not, however, permit me to make any finding about whether those funds comprised part of Vincenza’s overseas property. I therefore do not make any finding that the defendant wrongly transferred Vincenza’s funds to himself contrary to the terms of her will. Nevertheless, his sworn evidence that these funds, whatever their source, did not reach his bank account, lacks all credibility and gives me no confidence that he would honestly and faithfully discharge his responsibilities as executor.
The defendant has also demonstrated a profound lack of understanding about the obligations of an executor of a deceased estate. One foundational duty is to administer the estate in accordance with the deceased’s wishes as expressed in their will. In the case of the Reservoir property, Vincenza gifted all of her interest in that property to Arturo, and Arturo in turn devised the property in the proportions of 20% to the defendant and 80% to Pasquale’s children. Despite this, in about December 2021, the defendant told the plaintiff he would not sell or transfer the Reservoir property and would ‘buy out the beneficiaries’. Although the defendant’s previous solicitors informed the plaintiff’s solicitors in September 2022 that he ‘intends to sell the real estate after a grant is obtained’, in an affidavit filed in November 2022, the defendant recounts his conversation with the plaintiff in December 2021 in which he said that he would not sell the Reservoir property and wanted to ‘buy out’ the beneficiaries’ and states that ‘I am merely carrying out my mother’s wishes’. He also reiterates that his mother did not want to sell the Reservoir property.
Despite the disputation which has ensured, the above statements indicate that the defendant remains very reluctant to sell the Reservoir property and that his preference remains to ‘buy out’ the beneficiaries. Such a scenario, if it was to eventuate, would involve the defendant acting as both vendor and purchaser and would offend the rule against self-dealing.[13]
[13]See Re Chomley [2014] VSC 220, [8], [9], [19]-[20].
In determining to exercise the Court’s jurisdiction to pass over the defendant, I also give weight to the failure of the defendant to obtain a grant of probate in respect of the wills in a timely fashion. Although the defendant has belatedly, after this proceeding was commenced, stated that he will obtain a grant in respect of Vincenza’s estate, the fact remains that Vincenza died about seven years ago and the defendant failed to apply for a grant notwithstanding that he became responsible as executor for her estate since at least 2018. This constitutes a serious neglect by the defendant of his executorial duties.
I am also affirmed in deciding to pass over the defendant because that course is supported by all of the beneficiaries of Vincenza and Arturo’s estates, save for the defendant himself.
The Court will appoint Jennifer Maher as the independent administrator of the estates of Vincenza Luna and Arturo Luna. Ms Maher is a legal practitioner of twenty years’ experience and an accredited specialist in wills and estates. She has provided a written consent to act as administrator. The defendant did not nominate any other person for appointment.
Costs
At the conclusion of the trial of this proceeding, I ordered that: (a) the plaintiff’s costs of and incidental to this proceeding be paid by the defendant from the defendant’s share of Vincenza and Arturo’s estates; and (b) the defendant bear his own costs of the proceeding without reimbursement or indemnity from the estates. I provided my reasons for making these orders at the conclusion of the trial.
The plaintiff also sought an order that the legal costs of the independent administrator in administering the estates be paid by the defendant. The defendant opposed such an order and submitted that those costs should be paid out of the estates. I reserved my judgment on this question.
The plaintiff submitted that the costs of the independent administrator would not have been incurred but for the defendant’s conduct which was described as egregious. Reference was made to the belated claimed indebtedness of the estates to the defendant and the emptying of the joint bank account in the days after Arturo’s death,[14] which was said to have most likely to have been effected by the defendant and without authority, given that his power of attorney would have lapsed upon Arturo’s death.
[14]See [16(f)] above.
The plaintiff also submitted that the estates were relatively modest, principally comprised of the Reservoir property, but that the defendant had rendered them more complicated, likely necessitating an investigation into the debts he alleges he is owed by the estates, as well as his conduct as attorney. But for the defendant’s conduct, an administrator would not be required: Vincenza’s estate should have been administered quickly and simply in 2015, and likewise Arturo’s estate in 2022. In the circumstances it was unreasonable that the costs of the independent administrator be borne by the estates, which will be borne by residue, of which half was left to Pasquale’s children.
I accept the plaintiff’s submission that the Court has jurisdiction to order that the defendant pay the independent administrator’s costs of administering the estates. Section 24(1) of the Supreme Court Act 1986 gives the Court a general discretion, to be exercised judicially, to determine by whom and to what extent ‘the costs of and incidental to all matters in the Court, including the administration of estates and trusts’ are to be paid. The costs of the independent administrator are a cost incidental to the present application which concerns the administration of an estate.
However, in exercising that discretion, I do not consider that it is just or appropriate to make the order sought by the plaintiff.
First, the amount of the legal costs which the independent administrator will incur in administering the estates is presently unknown. As the plaintiff submitted, those costs may be substantial. It is inappropriate to exercise the discretion in respect of costs on an uncertain and speculative basis.
Secondly, the plaintiff’s submissions assume wrongdoing by the defendant in his dealings with Vincenza and Arturo’s estates. Although I have found that the defendant was hopelessly conflicted in acting as executor and that he had neglected and did not properly appreciate his duties as executor, I have not made any findings about the propriety or otherwise of his underlying conduct upon which the plaintiff’s application for the costs of the independent administrator rests, in particular, the indebtedness of the estates as asserted by the defendant and the payments made by the defendant from the joint account. The propriety of the defendant’s conduct in acting as executor of the estates is a matter which the independent administrator may examine.
Thirdly, the discretion in respect of costs is to be exercised in the circumstances which have occurred. Those circumstances include the administration of Vincenza and Arturo’s affairs by the defendant as I have described. Without making any findings about the appropriateness of the defendant’s conduct relating to his withdrawals from the joint bank account and his status as a creditor of the estates, properly advised, he ought not to have proceeded to act as executor of the estates of Arturo and Vincenza because of a clear conflict of interest. Although the defendant should properly have renounced probate, I also agree with the submission made on his behalf that it would most likely have been inappropriate for another beneficiary to act as executor of the estates because of the existence of essentially the same underlying conflict of interests. Accordingly, in the circumstances which occurred, an independent administrator was in any event likely required to administer the estates because it is most unlikely that any of the beneficiaries could have appropriately discharged that task given the underlying conflict of interests and familial disputation. Once this is acknowledged, it would be unjust to now fix the administration costs on the defendant alone.
I will order that the costs of the independent administrator be paid by the estates.
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