Re Parris; Parris v Parris
[2020] VSC 504
•13 August 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUST, EQUITY AND PROBATE LIST
S ECI 2020 01661
IN THE MATTER of the will and estate of MALCOLM RONALD PARRIS, deceased
-and-
IN THE MATTER of an application pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015
BETWEEN:
| TIMOTHY MARK PARRIS (who sues by his litigation guardian MARK FRANCIS PARRIS) | Plaintiff |
| v | |
| NORMAN LINDSAY PARRIS (in his capacity as the executor of the estate of Malcolm Ronald Parris, deceased) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 13 August 2020 |
CASE MAY BE CITED AS: | Re Parris; Parris v Parris |
MEDIUM NEUTRAL CITATION: | [2020] VSC 504 |
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COSTS – Trustees indemnity – Where beneficiaries agreed on replacement of trustee – Where trustee proposed replacement with professional corporate trustee – Where conduct of defendant demonstrated a want of prudence and diligence – Defendant personally liable – Trustee Act 1958 (Vic) s 36(2); Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.26.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Mah | KCL Law |
| For the Defendant | Ms L Dawson | Ryans Law Offices |
HER HONOUR:
Introduction
Malcolm Ronald Parris died on 13 February 2019. He was survived by his wife Pamela O'Donnell-Parris and his five children.
The defendant is the deceased's brother. He is aged in his seventies, has a history of heart disease, and lives in Bali for eight months of the year and Melbourne for the remaining four months.
Probate of the deceased's will dated 19 August 2011 and codicil dated 6 June 2013 was granted to the defendant on 5 June 2019.
The will and codicil provide as follows:
(a) a legacy of $80,000 to Melbourne City Mission;
(b) the balance of his bank accounts and other investments and all of his superannuation entitlements that are paid into the estate to his natural grandchildren as tenants in common in equal shares;
(c) the balance to his wife.
The assets of the estate comprised money in the bank and benefits in a self-managed superannuation fund with assets comprising shares in public companies. A binding nomination by the deceased nominated $200,000 to be paid by the fund to his wife. The balance was to be paid into the estate. The share of each grandchild from the estate is approximately $118,000.
At the date of the deceased's death, the deceased's grandchildren were all minors. On 1 November 2019, the oldest grandchild ceased to be a minor. Of the minor grandchildren, the youngest turned two years on 26 March 2020, meaning that the role of trustee will continue for 16 years.
Plaintiff's application
The plaintiff is a minor grandchild of the deceased.
By originating motion filed 3 April 2020, the plaintiff, by his litigation guardian, sought orders for the entitlements of the minor grandchildren to be paid into Funds in Court and held for their benefit until they each turn 18 years. He also sought costs against the defendant without indemnity from the deceased's estate.
The plaintiff filed affidavits by the parents of the minor grandchildren: Mark Francis Parris sworn 2 April 2020, Christopher Paul Parris sworn 3 April 2020, Angela Margaret Brady sworn 3 April 2020; and Elizabeth Louise Reed sworn 3 April 2020. The plaintiff's solicitor, Hayley Hunter, also filed an affidavit on 28 April 2020, which exhibited the relevant testamentary documents and the correspondence between the respective solicitors.
The defendant filed an affidavit on 14 May 2020.
Resolution of issues between the parties
Shortly after the commencement of the proceeding, the parties agreed on orders directing that the entitlements of the minor grandchildren be paid into Funds in Court.
The parties were unable to agree on when the entitlements of the minor grandchildren would be paid into Court and the costs of the proceeding. They agreed that these issues would be determined on the papers.
The entitlements of the minor grandchildren were mostly held on term deposit, which was due to mature on 3 June 2020. The plaintiff sought that the entitlements be distributed by 15 July 2020.
The defendant sought payment upon finalisation of the estate, which was anticipated to be in September 2020 and sought a date of no later than 31 December 2020.
The plaintiff noted that the defendant's proposed finalisation time was well beyond the expiration of the executor's year on 14 February 2020.
On 14 July 2020, the Court directed the defendant to pay the entitlements of the minor grandchildren into Funds in Court forthwith.
On 4 August 2020, the Court ordered that the defendant personally pay the plaintiff's costs of and incidental to the proceeding, and his own costs of and incidental to the proceeding, without indemnity from the estate of the deceased.
The parties were also informed that written reasons would be provided if required by the parties. The following reasons are provided to the parties.
Factual background
Prior to retaining solicitors, the parents of the grandchildren asked the defendant for information concerning the administration of the estate, however, received little response from the defendant.
The parents then retained solicitors (‘KCL’). On 28 May 2019, KCL wrote to the defendant, requesting, inter alia, a copy of the will, a copy of the inventory of assets and liabilities filed with the application for probate, and other information concerning progress as to the estate administration.
The defendant's application for a grant of probate was the subject of requisitions by the Registrar of Probates. Subsequently, on 5 June 2019, probate was granted to the defendant.
On 6 June 2019, the defendant's solicitors (‘Ryans’) informed KCL that they acted for the defendant and enclosed a copy of the will and the inventory of assets and liabilities filed with the probate application.
Subsequent communications occurred between the practitioners in July 2019 concerning the content of the inventory of assets and liabilities.
On 15 August 2019, the defendant filed a supplementary inventory of assets with the Registrar of Probates. This amended the net estate to $1,306,582 from the amount of $401,421 in the inventory. The increase in the net estate was the result of the inclusion of the estate’s benefit in the self-managed superannuation fund.
On 25 September 2019, KCL proposed that, upon the completion of the administration of the estate and the creation of the testamentary trusts, the defendant resign as trustee of each of the trusts and a parent of each minor grandchild be appointed as trustee of the respective entitlement of each minor grandchild to be held on trust for each of them. Multiple reasons were set out for the proposal, including the best interests of the grandchildren, the number and various ages of grandchildren meaning the role of trustee would continue for another 17 years, as well as the defendant residing overseas for much of the year.
On 10 October 2019, Ryans advised that the defendant was considering the proposal and that he had also had preliminary discussions with Australian Unity regarding the appointment of a trustee company.
On 25 October 2019, KCL informed Ryans that their clients vehemently opposed the appointment of a professional trustee, in particular, a trustee company. They indicated that if the defendant proceeded with such an appointment, they would expect that he would seek direction from the Court.
On 12 November 2019, Ryans informed KCL that the defendant proposed using Australian Unity as trustee of the trusts and attached an ‘Australian Unity Trustees Proposal’ for their perusal, which included the trustee’s costs structure. The proposal was based on a fund of approximately $2.5 million with an establishment fee of $27,500 and annual fees of $27,500, plus 1.1 per cent of any amount invested in certain common funds or managed funds.
On 15 November 2019, KCL again objected to the appointment of a trustee company, noting the high costs involved, and again requested a response to their proposal of appointing the parents as trustees of the separate trusts.
Ryans did not respond to the email dated 15 November 2019.
Accordingly, on 6 December 2019, KCL again sought information concerning the assets of the estate and noted the defendant’s lack of response to their proposal. KCL then enquired whether the defendant had considered payment of the entitlements of the minor beneficiaries into Funds in Court.
On 19 December 2020, Ryans stated that the defendant felt it was inappropriate to appoint the parents as trustees given the deceased's intentions as set out in his will and subsequent conversations with the defendant. It was further stated that payment into Funds in Court was not an appropriate resolution to the dispute. The defendant undertook ‘not to distribute any funds this year’.
Without informing the parents, on 3 January 2020, the defendant invested the entitlements of the minor grandchildren and the adult grandchild in a term deposit with the ANZ bank, which was due to mature on 3 June 2020.
The executor's year expired on 14 February 2020.
On 2 March 2020, KCL advised that they also acted on behalf of Emilie Brady, the beneficiary who had recently turned 18 years. KCL enquired on her behalf as to when the defendant expected to distribute her entitlement and asked for a proposed distribution statement and statement of account of the estate.
On 4 March 2020, KCL wrote to the Registrar of Probates seeking that the defendant be directed to file an administration account.
On 16 March 2020, the Registrar of Probates required the defendant to file an administration account within 30 days.
On 23 March 2020, Ryans informed KCL that the superannuation fund would be wound up at the end of the financial year and, in the interim, the funds were invested in a term deposit until 6 June 2020. They also stated that, prior to COVID-19, the defendant had had a meeting scheduled in the upcoming month with Australian Unity 'to ensure that the funds can be dealt with as soon as practicable'. They indicated that the meeting may be delayed due to recently imposed travel bans and quarantine measures.
On 26 March 2020, KCL again objected to the appointment of Australian Unity and repeated the proposal made on 6 December 2019 that the entitlements of the minor grandchildren be paid into Court. KCL stated that the defendant had not yet responded to the proposal and noted that if the defendant did not provide his consent to the proposal by 30 March 2020 their instructions were to make an application to the Court for directions.
On 30 March 2020, Ryans emailed KCL stating that the defendant would not make a transfer until the issues were resolved, but that the defendant required a few days to issue a detailed response and asked that KCL withhold making an application until he had sought the advice of counsel.
On 31 March 2020, KCL stated to Ryans that there had been ample opportunity since 6 December 2019 for the defendant to respond to the proposal to pay the entitlements of the minor grandchildren into Funds in Court. KCL stated that they had instructions to proceed and were preparing the affidavits in support of the application.
The plaintiff filed its originating motion on 3 April 2020.
On 6 April 2020, Ryans informed KCL that the defendant agreed that the best course of action 'should he retire as trustee' was to pay the funds into Court. He proposed to proceed to finalise the estate and initiate the process to pay the balance less costs into Court 'when and if he intends to retire as trustee'.
Also on 6 April 2020, Ryans provided the Registrar of Probates with a signed but not witnessed administration account for the estate. The signature was not witnessed as the defendant was in isolation in Bali. The account fails to include any dates for any transactions, including sale of shares, which had been specifically requested by KCL. The account showed that $1,111,457 remained in the superannuation fund and no distributions had been made to the grandchildren or Melbourne City Mission.
The plaintiff served the application on 8 April 2020.
On 15 April 2020, Ryans wrote to KCL, stating that the plaintiff's proceeding was premature and misconceived, and inviting the plaintiff to discontinue the proceeding forthwith, otherwise the defendant would seek costs against the plaintiff. The letter set out the defendant's proposed steps in furtherance of his duties. This included partial payment to the adult grandchild, payment of a substantial part of the entitlements of the minor grandchildren into Funds in Court within seven days of the maturity of the term deposit on 3 June 2020, provided there were no travel restrictions and the defendant was able to travel to Australia and was no longer in quarantine, or at a time reasonable when he returned to Australia, and otherwise holding the remaining part of the term deposit to pay outstanding liabilities. It was anticipated that the final distributions be made once the superannuation was fully wound up and all liabilities of the estate paid. The letter stated that the defendant considered this was a reasonable resolution to the disputed matters, while also upholding the deceased's wishes that his children not act as trustees of the various trusts.
Defendant's submissions
The defendant submitted that the plaintiff's action in commencing the proceeding was ill-considered and made in unnecessary haste. This was because the plaintiff knew the funds for the grandchildren were not maturing until 3 June 2020, knew the defendant was seeking counsel's advice, and knew that transfer of the entitlements would not occur until the issue was resolved. In these circumstances, the plaintiff should have waited until after he received counsel's advice so that further discussion could occur between them.
The defendant submitted the break in communication between the parties between January to March 2020 was of little weight in the assessment of whether it was reasonable to incur the costs of the proceeding when the plaintiff was on notice that the defendant was seeking counsel's advice.
The defendant submitted it was unreasonable to expect him to respond to the plaintiff within short turnarounds in the period before the proceeding commenced as the circumstances did not demand haste. Further, the plaintiff's requests for accounts and demands for payment of the funds into Court within short timeframes were unreasonable, even in the absence of the current COVID-19 pandemic climate.
The defendant submitted that, given the wishes of the deceased and his own reluctance to abdicate as trustee, he should not be criticised for his response of 6 April 2020 that he intended to pay the entitlements into Court if and when he retired and little weight should be given to any alleged 'equivocation'.
Applicable principles
A trustee is ordinarily entitled as of right to indemnity out of the trust for expenses properly incurred — that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred.[1] The concept of proper expenditure excludes costs that are of an unreasonable amount, have been unreasonably incurred, or have been incurred as a result of conduct that demonstrates want of prudence or diligence.[2] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercising power 'with an absence of the care and diligence that a person of ordinary prudence should exercise' are not caught by the right of indemnity and should be borne by the trustee personally.[3]
[1] Trustee Act 1958 (Vic) s 36(2); Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.26.
[2]GE Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 7th ed, 2019) 682 [23.135], citing Turner v Hancock (1882) 20 Ch D 303, 305 (Jessel MR); Re Beddoe [1893] 1 Ch 547, 558 (Lindley LJ); Nolan v Collie (2003) 7 VR 287, 303–10 (Ormiston JA) .
[3]Nolan v Collie (2003) 7 VR 287, 308 (Ormiston JA).
In Dimos v Skaftouros,[4] Dodds-Streeton JA referred to National Trustees Executors & Agency Company of Australasia Ltd v Barnes,[5] where the High Court affirmed that a trustee is entitled to indemnity out of the trust for all proper expenses, which may include the defence of an application to remove the trustee.[6] But although a trustee who fails in litigation might be indemnified for costs, the question is whether the expenses were properly incurred. Hence, a trustee may not be entitled to indemnity where resistance to removal was not justified.[7]
[4](2004) 9 VR 584.
[5](1941) 64 CLR 268.
[6](2004) 9 VR 584, 617.
[7]Ibid 618–19.
Obstinacy or unreasonableness in resisting or defending a claim may disentitle a trustee to costs not properly incurred, as they were incurred not only without regard to the wishes of the beneficiaries but directly contrary to their wishes.[8]
[8]Holding and Management Ltd v Holding and Investment Trust Plc [1989] 1 WLR 1313 (Nicholls J).
In certain circumstances, mere obstinacy in pursuing a claim, even though the trustee honestly believes the claim to be well founded, may amount to misconduct.[9] Further, a lack of reasonableness in defending a claim may disentitle a trustee of costs. This was the case in Re Beddoe,[10] where a trustee was not allowed to retain costs out of the trust in defending an action where there was no reasonable cause for defending it and he had neglected to ask leave to defend it.
[9]JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016), citing Re Knox's Trusts [1895] 2 Ch 483; McGregor v McGregor (No 2) [1919] NZLR 286; Mead v Watson (2005) 23 ACLC 718.
[10][1893] 1 Ch 547.
Consideration
By the time the proceeding commenced in early April 2020, the parents had been communicating with the defendant since 25 September 2019 on the issue of the payment of the entitlements of the grandchildren. Their first proposal was for the defendant to resign as trustee and for a parent of each child to be appointed as trustee of the respective trusts.
On 10 October 2019, the defendant did not address the first proposal other than to say he was considering it. He informed the parents that he had had preliminary discussions with Australian Unity regarding the appointment of a trustee company in respect of the entitlements. Subsequently, on 12 November 2019, the defendant informed the parents that he proposed using Australian Unity.
The parents vehemently opposed the proposal of Australian Unity or any trustee company being appointed as trustee. Their reasons are set out in letters dated 25 October, 15 November and 6 December 2019. In this last letter, the parents enquired whether the defendant had considered payment of the entitlements into Court.
The defendant's response dated 19 December 2019 set out reasons for rejecting the first proposal and also stated that payment of the funds into Court was not an appropriate resolution of the dispute. His letter dated 23 March 2020 did not address the parents' second proposal at all and instead indicated that he had arranged a meeting with Australian Unity.
On 26 March 2020, the parents again objected to the appointment of Australian Unity, repeated their second proposal and stated that if the defendant did not consent by 30 March 2020, an application would be made to Court. By this time, the parents had objected on at least four occasions to the appointment of Australian Unity or a trustee company, yet the defendant never explained why the appointment was preferable to the parent of the minors acting as trustee, or to the funds being paid into Court, save that he wished to honour the deceased's testamentary wishes.
The defendant did not respond to the second proposal until 6 April 2020, which was before he was served with the application. By that time, he had obtained counsel's advice, which is referred to in his affidavit. This advice appeared to be that payment into Court was appropriate if he decided to retire. However, the defendant said he was concerned to honour the deceased's wishes and considered that payment into Court was appropriate when he decided to retire. As at the date of his letter, he wanted to complete the process and, all things being equal, was prepared to continue as trustee both in the short term and possibly in the long term, if it was in the interests of the estate. His response to KCL was that he did not consent to the payment into Court and intended to remain as trustee and, only if he should retire, did he consider the best course was to pay the entitlements into Court. Otherwise, he proposed to finalise the estate.
After service of the proceeding, the defendant's letter dated 15 April 2020 stated that the funds would be paid into Court upon finalisation of the administration of the estate, which was anticipated by him to be in September 2020. In his submissions, he sought a date no later than 31 December 2020 for the funds to be paid into Court.
The plaintiff was successful in obtaining the substantive relief, being the second proposal that the entitlements of the minor grandchildren be paid into Funds in Court and in obtaining an order that this be done forthwith, rather than the defendant's proposed date of no later than 31 December 2020.
As trustee, the defendant was required to act in the best interests of the beneficiaries. The parents of the minor grandchildren, who are well placed to determine the best interests of their children, were united in their view as to the course that should have been taken. They provided clear reasons to underlie each of their two proposals, and were equally clear in their reasons for rejecting the defendant's proposal to appoint Australian Unity.
The defendant's rejection of the parents’ first proposal was based on the defendant's statement that the deceased's wishes were that his children not act as trustees. While this may be an understandable sentiment on an emotional level, the defendant, as trustee, was still required to act in the best interests of the minor grandchildren and not stubbornly adhere to his position in the face of an alternative proposal that may better serve the beneficiaries’ future financial needs. Regardless, the parents’ second proposal removed the defendant's objection to the parents being appointed trustees.
The defendant's proposal for the appointment of Australian Unity carried with it the considerable costs and administrative burdens of a professional trustee. Whilst in other circumstances, use of a professional trustee is an acceptable course of action, the issues identified by the parents and the alternative courses of action available should have caused the defendant to resile from his position.
Faced with the defendant's continued opposition to pay the funds into Court and his equivocation on whether he would remain as trustee, the plaintiff commenced the proceeding.
The substantive issue between the parties had been the subject of correspondence since 25 September 2019, and since 6 December 2019 as regards the payment of funds into Court. This provided more than adequate time for the defendant to obtain advice from his solicitors and counsel and to respond to the parents' requests before the commencement of the proceeding. The defendant's delay in responding adequately to the first proposal, his persistence with his discussions with Australian Unity, and his equivocation on the second proposal meant the proceeding was necessary to resolve the issues.
The parents’ concerns with the timely administration of the estate were very reasonable, given the defendant's correspondence and decision-making as trustee. For example, the term deposit that contained most of the funds for the grandchildren matured on 3 June 2020, having been invested on 3 January 2020. The executor's year ended on 14 February 2020, which is an approximate timeframe within which an estate of this type should be finalised. While the defendant lives in Bali for much of the time, this should not have prevented him from administering the estate. He does not need to be physically present in Melbourne to administer the estate and has been able to communicate electronically with his solicitors, despite the COVID-19 pandemic. It remains unclear why the defendant placed the funds for the grandchildren on term deposit. With the funds having matured, it was then unreasonable to seek to extend the finalisation of the estate to the end of the year.
The Court was satisfied that the costs of the proceeding have been incurred as a result of the conduct of the defendant, which demonstrates a want of prudence and diligence on his part. His opposition to the first and second proposals was not justified, was unreasonable and was directly contrary to the interests of the minor grandchildren.
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