Re Veerpold; Richards v Hughes
[2016] VSC 513
•30 August 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2016 01548
| JOHN RICHARDS | Plaintiff |
| v | |
| KEITH THOMAS BAGOT HUGHES and PETER DONALD MCKERRELL (both personally and as executors of the will of Jadwiga Veerpold, deceased) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 July 2016 |
DATE OF JUDGMENT: | 30 August 2016 |
CASE MAY BE CITED AS: | Re Veerpold; Richards v Hughes & Anor |
MEDIUM NEUTRAL CITATION: | [2016] VSC 513 |
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COSTS — Whether executors should be indemnified for their costs out of the estate — Whether defendants acted with prudence, care and diligence — Whether circumstances justify special costs order — Skaftouros v Dimos [2002] VSC 198 — Administration and Probate Act 1958, s 28
CALDERBANK OFFER — Rejection of defendants’ offer to settle proceeding — Whether rejection was unreasonable in the circumstances — Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R R Boaden | Lawson Hughes Peter Walsh |
| For the Defendants | Mr J K Arthur | Lennox Lawyers |
HER HONOUR:
Plaintiff’s application
By originating motion and summons filed 28 April 2016, the plaintiff seeks:
(a) an order that the defendants file and serve on the solicitors for the plaintiff and the Registrar of Probates a true and just account of their administration of the estate of the deceased;[1]
(b) a declaration that the defendants are not entitled to any executors’ commission; and
(c) an order that the defendants pay the plaintiff’s costs of the proceeding on an indemnity basis without being indemnified for those costs out of the estate.
[1]Pursuant to s 28 of the Administration and Probate Act 1958 and r 6.03 of the Supreme Court (Administration and Probate) Rules 2014.
By the time of the hearing, the plaintiff had received the administration account for the estate and had withdrawn his application for the declaration regarding executors’ commission. He seeks his costs of the proceeding against the defendants. The defendants oppose such orders, having originally sought orders that the plaintiff pay their costs and otherwise that the costs be paid out of the estate, and then, at the hearing, that the costs of the proceeding be paid out of the estate.
Background
The deceased died on 15 August 2014, leaving a will dated 17 March 2014. The deceased was survived by her two adult children: her daughter and the plaintiff. The deceased’s will made no provision for her daughter. Her will provided for a life interest to the plaintiff in a property in Blackburn, with the remainder interest to two friends, and the residue of the estate to the plaintiff. The plaintiff surrendered his life interest in the Blackburn property and the property has now been transferred to the remaindermen. As a result, the plaintiff is the sole beneficiary of the estate.
The deceased’s will was prepared by the first defendant, who practices as a solicitor under the firm name of Lennox Lawyers. The defendants are the executors of the will. The first defendant was the deceased’s solicitor and the second defendant was her accountant. Probate of the deceased’s will was granted to the defendants on 1 October 2014.
The assets of the deceased’s estate were valued for probate purposes at $5,376,956. Her estate comprised four properties, shares in publicly listed companies, money in the bank and an accommodation bond.
In March 2015, Lennox Lawyers moved offices from Whitehorse Road, Surrey Hills, to Doncaster Road, East Doncaster. The first defendant’s firm maintained a postal redirection for six months after the move for the firm’s post office box. After that time the first defendant considered that everyone would know the firm had moved and would be able to obtain the firm’s new postal address.
In July 2015, the defendants sold the estate properties, save for the Blackburn property, and made certain interim distributions to the plaintiff. Thereafter, the plaintiff says the administration of the estate appeared to stop.
By letter dated 6 August 2015, the defendants informed the plaintiff that they had decided to retain between $500,000 and $550,000 out of the estate for payment of tax and costs and expenses. The defendants say that payments totalling $3,352,003.90 were made to the plaintiff between 22 August 2014 and 10 August 2015 and that 95 per cent of the plaintiff’s entitlement has been paid to him.
On 6 October 2015, the plaintiff’s solicitors sent a letter to Lennox Lawyers at their address in Surrey Hills, enquiring when the estate would be finalised, and, in particular, when the transfers of the estate shares would take place. They sought an administration account for the estate and copies of the deceased’s tax returns up to and after the date of her death.
As there was no response to that letter, the plaintiff’s solicitors sent the same letter with a new date of 12 October 2015 to Lennox Lawyers’ post office box in Richmond and by email. After the move to East Doncaster, the stationery for Lennox Lawyers contained the same post office box in Richmond and email address as when the office was located in Surrey Hills.
On 21 October 2015, the plaintiff’s solicitors sent a further letter to the defendants referring to a rights issue in respect of some shares that the plaintiff was interested in taking up and requested information on any rights issues arising out of the estate’s shareholding.
As there was no response again, on 27 October 2015, the plaintiff’s solicitor called Lennox Lawyers and was answered by a message service that said a message would be forwarded to Lennox Lawyers by email. The plaintiff’s solicitor left a message asking Lennox Lawyers to return his call about the recent correspondence and about the rights issue. No return call was made to them.
On 30 October 2015, the plaintiff’s solicitors emailed a further letter to Lennox Lawyers requesting the information as a matter of urgency and noting that the lack of response may have a negative financial impact on the plaintiff.
There was no response and the plaintiff’s solicitors sent an email dated 11 November 2015 and informed Lennox Lawyers that unless they received an administration account by 17 November 2015, the plaintiff would institute proceedings against the defendants.
By letter dated 13 November 2015, the plaintiff’s solicitors referred to a letter dated 9 November 2015 sent by Lennox Lawyers direct to the plaintiff (in which they forwarded 17 share transfer forms for companies in which the deceased held shares, and advised that transfer forms for the remaining shares would be forwarded shortly) and informed the firm to direct future communications to them and repeated their request for an administration account of the estate. Despite this, Lennox Lawyers sent further transfer forms and other documents directly to the plaintiff.
By letter dated 2 December 2015 to Lennox Lawyers addressed to their post office box in Richmond, the plaintiff’s solicitors referred to previous correspondence and noted they had not received any acknowledgements whatsoever. They reiterated their request to send all future correspondence addressed to the plaintiff to them, returned various share transfers forms and advised that as the defendants had not provided an administration account as requested, they were instructed to institute proceedings. The defendants dispute receiving this letter.
In January 2016, the plaintiff’s solicitors prepared the documents necessary for an application to the Court for the defendants to provide an administration account for the estate. In order to avoid the expense of an application to Court, the plaintiff’s solicitors also asked the Registrar of Probates on 2 February 2016 to direct the defendants to file an administration account.
By letter dated 1 March 2016, the Registrar wrote to the defendants requiring them to file an administration account within 30 days pursuant to r 6.03 of the Supreme Court (Administration and Probate) Rules 2014. No account was filed by the defendants with the Registrar. Both defendants say they were unaware of this letter until they read the plaintiff’s affidavit. The first defendant confirmed with the staff of the Registrar of Probates that the Registrar’s letter was returned unopened to the Registry. This was because Lennox Lawyers had not updated its address with the Probate Office after their move to East Doncaster. The first defendant, who has practised as a solicitor since 1988, said when he has acted as either an executor of an estate or as the solicitor for an executor, he has not received any further correspondence from the Probate Office once he received a grant of probate. He did not think of notifying the Probate Office of his change of address in respect of this estate given that the grant was obtained on 1 October 2014 and the letter from the Registrar of Probates was dated 1 March 2016.
On 7 March 2016, the plaintiff’s solicitor wrote to Lennox Lawyers concerning an offer to shareholders in the Commonwealth Bank of Australia to invest in PERLS and requested information as to whether they had been notified of the offer and whether there were any estate funds available to take up the offer. No response was received to that letter.
On 28 April 2016, the plaintiff issued this proceeding seeking orders for an administration account for the estate. It was served on the second defendant but the plaintiff’s solicitors were unable to effect personal service on the first defendant.
On 16 June 2016, the plaintiff’s solicitors obtained an order for substituted service of the originating motion and summons on the first defendant, including orders that personal service of the application and supporting documents on the first defendant be dispensed with and that service by post to Lennox Lawyers’ Richmond post office box be sufficient service on the first defendant. The affidavit filed in support of the application set out the belief of the plaintiff’s solicitor that the first defendant would ‘take advantage of any opportunity to avoid personal service’.
A further affidavit filed in support of the substituted service application on 10 June 2016 set out the correspondence between the solicitors, including the letter of 2 December 2015 that the first defendant disputes that he ever received. It also referred to a letter dated 9 June 2016 from the first defendant on the letterhead of Lennox Lawyers stating that he was aware of the proceeding on the day after it was served on the second defendant on 29 April 2016, that service on him was therefore unnecessary and that, as the proceeding was by way of summons, he was of the belief that there was no requirement to file and serve a notice of appearance. The defendants say this letter acknowledges that the solicitor for the defendants will accept service of the proceeding and that the application for substituted service was needless and wasteful.
On 15 June 2016, the defendants filed an interim administration account for the estate and, by the time of the hearing of this application, the plaintiff had received the administration account for the estate.
Defendants’ submissions
Both defendants believe the estate has been properly administered with the plaintiff having received a substantial proportion of the estate. The first defendant says the estate cannot be finalised until the 2016 tax return has been filed. The second defendant also set out a history of the administration of the estate and said that he expects to finalise the administration of the estate in September 2016.
The defendants believe that the plaintiff became dissatisfied when they informed him on 6 August 2015 that they would retain a sum of approximately $500,000 to deal with the expected capital gains tax that would have to be paid following the filing of the various tax returns.
In respect of the Registrar of Probates addressing his letter dated 1 March 2016 to the Surrey Hills address of Lennox Lawyers, the defendants say it was incumbent on the plaintiff’s solicitors to inform the Registrar of the firm’s change of address because the plaintiff was aware that Lennox Lawyers had moved offices. Further, as the Registrar’s staff indicated to the first defendant that the letter had been returned to sender, there is proof that the letter was not received.[2]
[2]The defendants relied on CGU Workers' Compensation (Vic) Ltd v Carousel BarPty Ltd (1999) 151 FLR 270, 278 [73] (Gillard J) in this regard.
The first defendant acknowledges that he received the plaintiff’s first request for an administration account by the letter dated 6 October 2015. He acknowledges that the email dated 11 November 2015 threatens legal proceedings against the defendants. He says this was the only communication from the plaintiff’s solicitors that threatened legal proceedings prior to the issue of the proceeding in April 2016. The first defendant disputes receiving the 2 December 2015 letter which contains the same threat. The defendants submit that because there were no requests by the plaintiff for an administration account after November 2015, it was incumbent on the plaintiff to make a further unqualified demand on the defendants before issuing the proceeding, which would be consistent with good legal practice and the overarching obligations under the Civil Procedure Act 2010.
The defendants submit that the plaintiff’s application is misconceived because it is based on a misapprehension of the amounts he has already received from the estate and it is premature because the administration of the estate cannot be finalised until the 2016 tax return is finalised, executors’ commission is agreed upon or fixed by the Court and legal and accountancy fees are paid.
The defendants submit that the equitable remedy of account is a discretionary remedy that tends to be used as a last resort and will not be ordered if an account would serve no useful purpose.[3] They submit that this principle is equally applicable in the probate jurisdiction as it is in the equitable jurisdiction. The defendants submit that the plaintiff was requiring them to produce ‘little bits of accounts’ in circumstances where the administration had not been completed, referring to Adams v Bank of New South Wales, where the NSW Court of Appeal stated:
A party cannot, as it were, have little bits of accounts. There is one account and one account only and the issue is what is owed and what is not owed. The declaratory procedure cannot be used to get declarations about little bits of accounts because the proceedings may become, in relation to a total account, otiose.[4]
[3]Mulherin (atf The HD Mulherin Family Trust) v Quinn Villages Pty Ltd [2007] QSC 231 (31 August 2007) [22] (Muir J).
[4]Adams v Bank of New South Wales [1984] 1 NSWLR 285, 296 (Hutley JA), quoting Colin D Young Pty Ltd v Commercial and General Acceptance Ltd (Unreported, NSW Court of Appeal, Hope, Hutley and Glass JJA, 24 August 1982).
The defendants also relied on two Calderbank letters sent by Lennox Lawyers three days before the hearing date, both of which were rejected by the plaintiff. These letters were written in response to a letter from the plaintiff’s solicitors dated 18 July 2016 seeking that the defendants pay the plaintiff’s costs of and incidental to the proceeding on an indemnity basis, without being indemnified for such costs out of the estate. Their first letter dated 19 July 2016 proposed a compromise that allowed commission at the rate of 3.5 per cent on the gross value of the estate to the second defendant with each party bearing their own costs, rather than costs coming out of the estate. The plaintiff rejected this offer and reiterated his original proposal in respect of costs. The defendants’ second letter dated 20 July 2016 proposed that each party bear their own costs rather than costs coming out of the estate and that the defendants would make an application to the Court seeking commission. The defendants submit in the circumstances these letters should carry some weight on the issue of costs as they were a bona fide attempt by the defendants to avoid the proceeding.
Applicable principles
As a fiduciary, an executor owes a duty to the beneficiaries to administer the estate in accordance with the will and, subject to the provisions of the will, to act in the best interests of the beneficiaries. It is the duty of an executor to keep proper accounts and be ready to render such accounts and be able to provide information within a reasonable time when called upon to do so by the beneficiaries. The duty of an executor to maintain and provide accounts to beneficiaries was considered by Mandie J in Skaftouros v Dimos as follows:
In relation to the maintenance and provision of accounts, it has been rightly stated that it is fundamental to the good management of a deceased estate that proper records and accounts be maintained. Indeed, it is a duty of an executor to keep proper accounts and to be ready to render such accounts when called upon to do so. Good management apart, one set of reasons advanced for the existence of the duty is the need to be ready to provide such accounts within a reasonable time or to make them available for inspection or to provide information from them, upon the request of interested beneficiaries. In William v Stephens, Young J said:
Accordingly, the executor should be in such a position because of his duty to keep accounts that he can let the beneficiary or her solicitor know in a short space of time what the current situation is. If the beneficiary wishes to go further and obtain a copy of documents or wishes the executor to go to special trouble to produce information then the executor is not bound to supply it unless the reasonable cost therefor is tendered and paid. As Kekewich J held in Re Watson, the duty of an executor is threefold. First, he has a duty to keep accounts, second a duty to deliver accounts and thirdly a duty to vouch accounts but the considerations which apply to each of these three is not the same. The duty of a trustee to keep accounts is an essential duty, he must keep such accounts so as to be able to deliver a proper account within a reasonable time showing what he has received and paid. As to the duty of delivering accounts, different considerations apply. In the case of a very long account, the trustee may incur considerable expense, and he cannot be called upon to deliver accounts until his expenses have been guaranteed. As to the duty of vouching accounts, that cannot arise until after the accounts have been delivered.[5]
[5]Skaftouros v Dimos [2002] VSC 198 (29 May 2002) [11] (Mandie J) (citations omitted).
The failure by a personal representative or a trustee to provide accounts when requested may make the personal representative or trustee liable to pay the costs of proceedings instituted by the beneficiary to obtain the accounts.[6]
[6] In re Skinner [1904] 1 Ch 289.
Consideration
The affidavits filed by the defendants set out the history of their relationship with the deceased, which, if there had been a hearing on the merits, would have been the subject of extensive objections. These affidavits contain inadmissible statements concerning their belief as to the negative relationship between the deceased and the plaintiff, attempting to justify their entitlement to executor’s commission at a higher than usual percentage, in addition to the payment of their professional fees. For example, Ms Laurel Morgan deposed to a discussion between the deceased and the first defendant that normal fees would be charged by the defendants as lawyer and accountant, as well as executor’s commission. She then makes inadmissible statements as to the deceased’s understanding of this discussion. An affidavit by the first defendant’s wife refers to Ms Morgan’s statements and unhelpfully deposes that ‘as far as I am able to say [those statements] are true and correct’. The defendants’ belief as to the reasons for the plaintiff’s dissatisfaction with them and his retention of his own solicitor is also not admissible. The plaintiff’s evidence is that he retained his own solicitor to find out what was happening in the administration of the estate, particularly with regard to the rights issues in respect of the estate shares.
The first defendant’s explanation as to not receiving the letter dated 1 March 2016 from the Registrar of Probates is unconvincing. The fact that the first defendant did not receive the letter is a result of his own failure to meet his obligation to notify the Court of any change of address of his firm. The fact that the letter was not received by him is not an answer to the failure to provide the requested account where numerous requests for them were made by the plaintiff’s solicitors. In requesting the Registrar to send the letter, the plaintiff’s solicitor was following the appropriate procedure as set out in the Supreme Court (Administration and Probate) Rules 2014.
The first defendant’s management of his firm’s mail facilities as a result of his move from Surrey Hills to East Doncaster defies explanation. His assertion that he did not receive all the mail, particularly when his email address and post office box in Richmond remained the same, is inexplicable. His failure to accede to the request from the plaintiff’s solicitor to stop writing letters to the plaintiff directly also defies explanation and is in breach of his ethical obligations. The first defendant’s explanation as to why he was not able to be served personally, requiring the plaintiff to obtain orders for substituted service, is unfathomable and is rejected.
In resisting the plaintiff’s application for costs, the defendants fail to understand their obligations as executors to render an account of their administration of the estate when called upon to do so. The correspondence between the plaintiff’s solicitors and Lennox Lawyers in October and November 2015 establishes that the plaintiff sought this information on five occasions. Contrary to the defendants’ submissions that the estate was largely distributed by that time, the transfers of the deceased’s extensive shareholdings had not yet taken place. The failure of the defendants to provide information to the plaintiff caused significant concern and loss to the plaintiff with the loss of the benefit of a number of rights issues for shares held by the estate in public companies.
Where numerous requests were made by the plaintiff for the accounts of the estate and the executors failed to provide any accounts at all despite those requests, the plaintiff is entitled to seek an administration account as a matter of right. The plaintiff’s solicitors informed the defendants that they would institute a proceeding if the accounts were not provided. The defendants’ submission as to there being, in their view, only one threat to institute proceedings, putting the plaintiff in breach of the Civil Procedure Act 2010, is misconceived. The defendants were put on notice that proceedings would be instituted and they ignored the warning, thereby failing to fulfil their fiduciary duties to the plaintiff. It is not a defence to this proceeding or any justification for their failures more broadly to assert that a further letter regarding the issuing of the proceeding should have been sent to them in such circumstances.
The defendants’ reliance on the equitable remedy of account as being a remedy of last resort and not being ordered if it would serve no useful purpose is also misconceived. Courts routinely make orders for the taking of accounts of the administration of an estate by an executor pursuant to s 28 of the Administration and Probate Act 1958 and r 6.03 of the Administration and Probate Rules 2014, as well as for the taking of accounts upon the dissolution of a partnership, or of the administration of property by a mortgagee in possession, or of a trust fund such as a solicitor's trust account. The usual form of order requires the defendant to account only for what he or she has actually received, as well as his or her disbursements and distribution of the relevant fund.[7]
[7]Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (No 2) [2001] NSWSC 6 (22 January 2001) [36]–[38] (Austin J); Northey v Juul [2005] NSWSC 933 (16 September 2005) (Macready AsJ).
The defendants’ failure to provide an administration account for the estate when requested by the plaintiff’s solicitors after the letters dated 6 and 12 October 2015 and the letter dated 11 November 2015 was unreasonable. The defendants should have acted promptly and provided an account of their administration to date and it should not have been necessary for the plaintiff to issue this proceeding at all. By doing so, they would have complied with their fiduciary duties and their own overarching obligations under the Civil Procedure Act 2010.
Trustees are 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. The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence.[8] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercising power ‘with an absence of care and diligence that a person of ordinary prudence should exercise’ are not caught by the right of indemnity and shall be borne by the trustee personally.[9]
[8]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); Dimos v Skaftouros (2004) 9 VR 584, 617 (Dodds-Streeton AJA, citing National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268).
[9]Re O’Donogue [1998] 1 NZLR 116, 121 (Hammond J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 606 (Finkelstein J); Nolan v Collie (2003) 7 VR 287.
If the defendants had acted promptly, as requested by the plaintiff and as required by their duty as executors, the costs of and incidental to this proceeding would have been avoided. The defendants as executors of the estate have shown an absence of care and diligence and, for these reasons, should not be permitted to take advantage of the usual right of indemnity for their costs. There is no basis for the costs of the proceeding to be paid out of the estate. Such an order would mean that the plaintiff, as the sole beneficiary, would pay all of the costs of the proceeding.
The plaintiff also seeks his costs be paid by the defendants on an indemnity basis. The authorities concerning the principles to be applied when a court, in the proper exercise of its discretion, may depart from making the usual order for costs on a standard basis are well known and conveniently set out in cases such as Colgate-Palmolive Co v Cussons Pty Ltd,[10] Ugly Tribe Co Pty Ltd v Sikola[11] and Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[12]
[10]Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225.
[11]Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 (14 June 2001).
[12]Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399 (14 September 2012) [12]–[18] (Croft J). The decision at first instance was affirmed by the Court of Appeal on the issue of special costs: Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237 (6 September 2013) [538]–[551] (Warren CJ, Osborn JA and Macaulay AJA).
The defendants also place some reliance on their Calderbank letters to resist an order for costs, including indemnity costs. When considering the effect of a Calderbank offer, the correct approach is to treat the rejection of it as a matter to which the court should have regard when considering whether to order indemnity costs. The critical question is whether the rejection of the offer is sufficient to establish an order for indemnity costs being made, with the answer to this question depending upon whether the rejection of the offer was unreasonable in the circumstances.[13]
[13]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435.
In my view, the failure of the defendants to account to the plaintiff promptly when called upon to do so not only necessitated the proceeding to be issued, but has caused delay in the administration of the estate and wasted costs on the part of the plaintiff. As such, it falls within the scope of the circumstances described in the cases dealing with orders for indemnity costs and warrants a special costs order in favour of the plaintiff. The defendants’ Calderbank offers do not alter this conclusion. They were delivered in the days just before the hearing. It is misconceived to describe them as a bona fide attempt to avoid the proceeding. They did not offer a realistic compromise of the proceeding and were made at a time when most of the costs had already been incurred by the plaintiff.
Orders
I will make the following orders:
(a) The defendants pay the plaintiff’s costs of and incidental to the proceeding, including any reserved costs, on an indemnity basis and without being indemnified for those costs out of the estate.
(b) The defendants bear their own costs of and incidental to the proceeding personally and without being indemnified for those costs out of the estate.
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