Re Ward; Peirce v Ward
[2020] VSC 467
•24 August 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
IN ITS PROBATE JURISDICTION
TRUSTS, EQUITY AND PROBATE LIST
S PRB 2015 00524
IN THE MATTER of the Will and Estate of JEFFREY JAMES WARD, deceased
- and –
IN THE MATTER of Section 65 of the Administration and Probate Act 1958
| DAVID COLIN PEIRCE (in the Will called DAVID PEARCE) | Applicant |
| v | |
| REBECCA WARD (as executor of the Will and Estate of LEE JEFFREY WARD, deceased) and JUSTIN JAMES WARD | Respondents |
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JUDGE: | Englefield JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 24 August 2020 |
CASE MAY BE CITED AS: | Re Ward; Peirce v Ward and Anor |
MEDIUM NEUTRAL CITATION: | [2020] VSC 467 |
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EXECUTORS COMMISSION – Long running administration – Alleged misconduct of executor – Building works undertaken to estate property – Loans to the estate – Capital gains tax exemption – Premature seeking of consent to commission – Retention of professional services – Executor receiving chattel from the estate – Hostility – Interim distributions and proper reserves for unascertained liabilities – Administration and Probate Act 1958 (Vic) s 65; s 65D.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | J McCoy | Armstrong Collins & DeLacy |
| For the Respondents | M Guthrie | Whitehead Summons Lawyers |
JUDICIAL REGISTRAR:
Introduction
Generally, claims for executors’ commission, in Victoria under s 65 of the Administration and Probate Act 1958 (Vic) (‘Act’), fall into one of two categories.
First, claims where consent cannot be given due to lack of legal capacity to consent, including estates left to charitable trusts not yet created. Second, claims where family conflict arises or pre-existed and the administration is dogged by that inter-personal disputation. This case falls into the ‘conflict’ category. For a claim seeking commission in the amount of $28,895.35, there have been seven affidavits, objections to evidence and multiple written submissions. It has been over five and half years since Jeffrey James Ward, deceased (‘deceased’), died. Two of the four beneficiaries have sadly also since died. One surviving adult child disputes the commission claim, the other supports it.
The practitioners are to be congratulated for seeking a determination ‘on the papers’ without a court hearing and so avoiding further expense and exacerbation of the family tensions.
For the reasons that follow, the executor will be allowed commission of $18,309.25, being 2 per cent of the capital and income of the estate.
The Estate
The deceased died on 20 October 2014, leaving a will dated 22 May 2014 (‘Will’).
The Will names the plaintiff, David Pearce, also known as David Colin Peirce, as executor (‘executor’). The executor obtained a grant of probate of the Will on 22 January 2015. The Will left effectively $150,000 and a right to reside in the deceased’s residence (82 Ebden Street, Kyneton (‘Kyneton property’)), for 12 months to the deceased’s domestic partner, Vicky Tyshing (‘Vicky’). The Will distributed residue equally between the deceased’s three children, Lee Jeffery Ward (in the Will called Lee Ward) (‘Lee’), Justin James Ward (in the Will called Justin Ward) (‘Justin’) and Jenna Adele Ward (in the Will called Jenna Ward) (‘Jenna’) and his step child, Luke McGrath (‘Luke’). Both Lee and Luke survived the deceased but subsequently died; Lee died on 30 May 2018 and Luke’s date of death has not been disclosed.
The inventory filed in the application for probate showed a net estate of approximately $923,100, including two real properties, the Kyneton property valued at $600,000 and another property in Chiltern valued at $150,000.
Summary of Administration
Family tension ran high from the start. Security guards were employed at the funeral, two separate wakes were held and the family disagreed about the disposal of the body (burial or cremation, then location of the remains).
The major asset of the estate, the Kyneton property, had been partially ‘renovated’ by the deceased some years prior to his death, without building approvals. It seems that these ‘renovations’ were neither legal or finished. Everyone agreed that the Kyneton property required substantial rectification, renovation and repair works prior to sale (‘building works’).[1]
[1]Affidavit of Justin James Ward sworn 11 February 2020, [2.6], Justin further deposed that the deceased also had said “it would benefit everyone if it [the Kyneton property] were done up prior to sale” (‘Justin’s Affidavit’).
The building works did not go smoothly.
There was a delay at the start due to Vicky’s 12 month right of residence, provided for in the Will, which was utilised to the last day. Then, for a period, Justin contemplated the purchase of the Kyneton property in its incomplete state and an independent valuation was obtained, but this process ended due to a lack of consent from other beneficiaries.[2] The building works on the Kyneton property then commenced and took about 13 months, this including two months when a ‘stop work’ notice, issued by the local council due to the absence of a building permit, was in force. A key tradesman resigned during the building works, he says due to conflicts on site. Finally, the sale process took 13 months and two separate real estate agents were appointed.
[2]Ibid.
The estate ran out of funds before the building works were completed. The executor unsuccessfully applied for finance then personally loaned the estate $12,000 (‘executor’s loan’). Justin also made loans to the estate totalling $37,000 for the cost of the building works (‘Justin’s loan’).
Justin, his wife, Angela Ward (‘Angela’), and Lee made significant contributions to work of the administration of the estate, in particular in organising and overseeing some of the building works at the Kyneton property. Indeed, it seems that Justin and Lee performed substantial amounts of manual labour in the course of the building works. Some physical work was done by the executor (including taking rubbish to the tip, planting and mulching the garden and painting the exterior), as well as supervision of works, contract administration and coordination. The executor estimates he made 50 trips to the Kyneton property over the course of the administration, which is a round trip of approximately 160 km from his home on each occasion. The respondents dispute the number of visits, but not the fact that the executor visited the site and gave hands-on help during the building works and preparation for sale.
The estate received a good return on its investment of approximately $150,000 for the costs of the building works. The pre-works valuation of the Kyneton property of $350,000 was turned into a sale price of $575,000, or $1.50 for every $1.00 spent. Further, it seems the Kyneton property was effectively unsaleable without the building works, as no warranty could be given for the illegal and incomplete works done by the deceased, under the Building Act 1993 (Vic) (‘Building Act’) any contract of sale may have been voidable and it would be ‘difficult’ to find a willing purchaser for an ‘incomplete dwelling’.[3]
[3]Affidavit of David Colin Peirce sworn 26 September 2019, exhibit ‘E’ [5] (‘First Peirce Affidavit’).
As the sale of the Kyneton property was completed more than two years after the date of death of the deceased, an exemption from capital gains tax (‘CGT’) applying to a principal place of residence had lapsed. The executor applied to the Australia Taxation Office (‘ATO’) for a private ruling extending the period of exemption.
An adverse ruling was given, but the executor’s objection was upheld and the capital gain on the sale of that property was ‘untaxed’ in the end.
In December 2018, the executor was informed by Lee’s mother that Lee was hospitalised with bone cancer and required funds for treatment.[4] On 21 December 2018, Justin’s loan was repaid, so he could supply funds to his brother, Lee. On the same day, the executor’s loan was also repaid. An interim distribution of $50,000 to each residuary beneficiary was made in March 2019. On 29 May 2019, the day before Lee died, further interim distributions of between $40,000 to $48,000 each was paid to each of Lee, Justin, Jenna and Luke’s estate.
[4]Affidavit of David Colin Peirce sworn 18 February 2020, exhibit ‘DCP-17’ (‘Second Peirce Affidavit’).
The respondents allege that a number of requests of the executor for an interim distribution to Lee, during the last period of his life, were ‘refused.’[5] The executor denies knowledge of Lee’s illness until December 2018 and regrets that he was unable to make a ‘substantial’ interim distribution after receiving the sale proceeds of the Kyneton property in July 2018 due to uncertainty about the CGT liability.[6]
[5]Justin’s Affidavit (n 1), [4].
[6]Second Peirce Affidavit (n 4), [30-1].
The family tension continues into this application for commission. For example, there is a dispute in this application as to the necessity for security guards at the funeral. Among other things, the respondents challenged the validity of Jenna’s consent to this claim and Jenna responded by affidavit sworn on 11 March 2020, emphatically rejecting this challenge and seeking to raise further matters, particularly against Justin. Objections to evidence were required to remove inadmissible material from the affidavits of a number of deponents. The executor submits that this was an onerous and long running administration, made more difficult by hostile beneficiaries, for which commission should properly be awarded. The respondents make a number of specific allegations of misconduct, for example, that there may have been a breach of the Building Act in the course of the building works, but the underlying theme of their submissions is that the executor caused his own additional pains and trouble, for which he should not be rewarded.
Factual Disputes
This hearing is being held on the papers. The parties’ representatives were requested by email to either confirm that there are no relevant facts in dispute, or set out as a series of short questions any relevant disputed fact. No disputed facts were put into issue by the parties.
Administration Account
As noted in the Orders of the Court made 17 April 2020, there are no objections to the administration account[7] by the respondents. An administration account is an essential preliminary to an application for commission.[8] It must be considered by the Court to ensure that it is in order, shows a clear picture of the administration of the estate so as to determine the amount on which to allow commission. I am satisfied the administration account is comprehensive, accurate and well-prepared. The total capital receipts are $914,178.19 (not including Justin’s or the executor’s loans) and the total income receipts are $1,284.61. The sum of $75,000 is held in the executor’s solicitor’s trust account, pending the outcome of this application.
[7]Affidavit verifying administration account sworn by David Colin Peirce sworn 16 August 2019 and the exhibit to that affidavit; Administration Account filed 20 August 2019 (‘AA’).
[8]Supreme Court (Administration and Probate) Rules 2014 (Vic) r 10.03.
General Principles
Generally, commission is allowable out of an estate for an executor’s ‘pains and trouble’ as is just and reasonable.[9] That is, for both the pressure of the responsibility as well as the actual work involved in an administering the estate.[10] The availability of commission is ‘conducive to the good administration of estates.’[11] Unless an objector establishes otherwise, as a general principle, it will be presumed that the executor administered the estate properly and commission will be granted.[12]
[9]Administration and Probate Act 1958 (Vic) s 65 (‘Act’).
[10]Re Mountney [2017] VSC 364, [42] (‘Re Mountney’). Also see In the estate of Stone (deceased):Patterson v Halliday [2003] VSC 298, [30] (‘Patterson’); Re Buckingham [2016] VSC 757, [54] (‘Buckingham’).
[11]Peter Henry Atkins (as Executor of the Estate of Robert Charles Godfrey) v Godfrey & Ors [2006] WASC 83, [17].
[12]Eric Vance, The Law and Practice in Victoria and an Examination of the Case Law of Australia and New Zealand relating to Executors Commission (1969), 150 (‘Vance’) cited with approval in Re Mountney (n 10), [43], In Re White; Tweedie v Attorney General (2003) 7 VR 219, and Buckingham (n 10), [51].
However, where an executor is guilty of serious misconduct or fraud, commission may be refused. As stated by Derham AsJ in Re Mountney:[13]
[13]ReMountney (n 10), [45-6].
The Court may refuse commission where there has been some misconduct in the execution of the executor’s duties, particularly where the misconduct is serious or amounts to fraud. If the misconduct amounts to an honest or inadvertent breach of duty, commission may still be allowed. Commission may be reduced or, in serious cases, refused where there has been negligence in the carrying out of the executor’s duties.
In Atkins, Le Miere J reviews authorities where a serious breach of trust, or other misconduct amounting to fraud or dishonesty, was found to be disentitling conduct, regardless of the degree of loss to the estate. In one of those authorities, the trustee had purchased at auction an asset of the estate in the name of the trustee’s son at an undervalue, a clear breach of fiduciary duty. No commission was allowed. In that case, before remuneration was allowed, the executors had to show that their conduct of the affairs of the trust was free from any suspicion and that there has been no neglect on their part which has in any way prejudiced the estate.
Other cases reviewed by Le Miere J in Atkins show that it is not every lapse from correct conduct which is visited by Australian courts with forfeiture of commission. But it is important to recognise that every case turns on its own facts. The general position is that if the executor or trustee is found guilty of fraud or dishonesty, they will be refused commission, regardless of the loss to the estate. By contrast, acts or neglects falling short of fraud or dishonesty vary so much in degree and in character that there is no unanimity of result in the decisions given. In one case noted by Le Miere J the distinction envisaged between the types of conduct which would and would not disentitle an executor to a commission was stated, correctly in my view, as:
Where an executor has been guilty of negligence, mismanagement and breach of trust in his management of the estate, but there has been nothing of a dishonest or fraudulent character, and the losses resulting are capable of being compensated for and made good in money, the executor should not to be deprived of compensation.
(citations omitted).
The central thrust of the opposition to this claim by the respondents is that commission should be reduced or refused on the basis of mismanagement, misconduct and maladministration by the executor in the administration of this estate. A number of specific aspects of the administration are criticised and I will discuss each in turn.
Disputed Aspects of the Administration
First Builder
The executor engaged a person to undertake the building works[14] was not licensed or registered as a builder under the relevant regulations, did not have appropriate insurance cover and did not obtain a building permit prior to commencing work.
The respondents submit that as a result statutory or regulatory breaches occurred and warranties and ‘protections’ for the estate under the Building Act were not available. The executor acknowledges it was a mistake in not engaging a licensed builder from the outset but submits no loss was suffered by the estate.
[14]Justin D’Alfonso.
The first builder was paid a deposit on 20 April 2016[15] and the ‘stop work’ notice was issued two weeks later on 4 May 2016.[16] Construction plans were drawn up by 19 May 2016.[17] A second builder, who was licensed, was engaged by 4 June 2016. The second builder obtained domestic building insurance, provided the required warranty for the building work and supervised the building works. A permit for the building works was issued on 7 July 2016.[18] The first builder continued to work at the Kyneton property for a further six months after the permit was granted, before he resigned.
A Certificate of Final Inspection was issued on 10 May 2017.[19] It seems that the period lost to the ‘stop work’ notice was about eight weeks.
[15]AA (n 7), item 84.
[16]Justin’s affidavit (n 1), exhibit JJW-5.
[17]Ibid, exhibit JJW-9.
[18]First Peirce Affidavit (n 3), exhibit D.
[19]Ibid.
The respondents initially submitted that there was non-compliance with the Domestic Building Contracts Act 1995 (Vic) (‘DBC Act’) and the executor has committed offences under the Building Act with on-going adverse impact on the estate which should be treated as disentitling the executor from commission. In preparation for this hearing ‘on the papers’, the respondents’ solicitor confirmed that findings are not sought in this application as to ‘breach of duty, fraud, illegality, maladministration or serious impropriety.’[20] This is quite right, as a claim for commission may be associated with a related proceeding dealing with allegations of that nature, but such allegations cannot be determined within a claim for commission .[21] That is, I cannot make findings on whether the executor has committed any offence under the Building Act or consider whether the second builder’s contract complies with the DBC Act in this claim.
[20]Letter from Whitehead Summons dated 15 April 2020.
[21]Vance (n 12), 150.
Further, the respondents submit that commencing the building works without a licensed builder or proper building permit caused the ‘pains and trouble’ required to deal with the stop work notice. That is, they say the executor is the cause of this work and no commission should be awarded for it. However, engaging a licensed builder, getting plans and applying for a permit would have been required for a building project of this scope in any event. The fact that the executor took these steps after the ‘stop work’ notice rather than at the commencement of the building works does not alter the pains and trouble involved and these are matters that go to the quantum of his claim (however, it should be noted that Justin’s wife, Angela, gave helpful practical assistance to the executor in this process).
The respondents’ submissions refer to the first builder causing ‘structural damage’[22] or ‘destruction’[23] on the Kyneton property. However Justin’s affidavit does not provide any evidence of damage to the Kyneton property by the first builder, rather, it merely notes, among other works, that structural parts of the residence or support beams were removed as part of the ‘renovation’.[24] Further, the respondents submit that loss was caused to the estate as a result of damage to the structure of the Kyneton property,[25] but as there is no evidence of damage or destruction (as opposed to demolition), I am unable to find any related loss.
[22]Respondents ‘Written Submissions’ dated 11 March 2020, [22] (‘Respondents’ Written Submissions’).
[23]Respondents, ‘Further Written Submissions’, 14 May 2020 (‘Further Written Submissions’).
[24]Justin’s affidavit (n 1), [2.7.4, 2.7.7].
[25]Further Written Submissions (n 23).
Further, it is submitted that the first builder should have been terminated for removing a structural wall without a permit and that not terminating him may have caused loss due to ‘destruction’ caused by him and further that there is no evidence of work completed by him.[26] I am unable to find that retaining the first builder for a further six months, after the re-commencement of the building works, caused loss to the estate, as there is no evidence of destruction by him or that he failed to perform work, noting that the building works did advance during his retainer and Justin was frequently on site to observe.
[26]Ibid, [5].
The respondents submit that the first builder was known to the executor as a neighbour and, essentially, should not have been hired in the first place. The executor acknowledges the first builder is known to him as a neighbour. He submits that it is not uncommon for an executor to engage tradespeople or other service providers with whom they have an existing relationship, so long as they do so on commercial terms.[27] That is correct.[28]
[27]Applicant, ‘Applicant’s Submissions in Support of Application for Commission’, 12 March 2020, [22] (‘Applicant’s Submissions’).
[28]J D Heydon and MJ Leeming, ‘Jacobs’ Law of Trust in Australia’ (LexisNexis Butterworths Australia, 2006), [1723] and [1731].
The first builder was paid $40,000 for work and materials prior to 17 January 2017[29] and he says that he resigned because of the behaviour of Justin and Lee toward him (which is denied by Justin). At the time of his resignation he had not been paid for over six months. He issued a final invoice for $8,490.00. The executor disputed this invoice. The dispute was resolved by non-payment of the invoice and retention of any materials left on-site. The respondents submit that this resolution lacked transparency and the executor should have engaged solicitors to deal with it. I do not find resolving this dispute by direct negotiation, with non-payment of the final invoice, was contrary to the interests of the estate.
[29]AA (n 7), items 84 and 97.
Running out of money to complete building works
By early 2017, the estate had insufficient cash at bank to complete the building works and funds were loaned to the estate by the executor and Justin. The respondents submit that this “cannot be due and proper administration” of the estate.[30]
[30]Respondents’ Written Submissions (n 22), [47].
On the probate inventory there was around $170,000 at bank. The Chiltern property was sold and sale proceeds in the sum of $173,353.45 were received on 1 October 2015. In the early days of the administration, a total of approximately $23,000 was paid for funeral, internment, final palliative care costs and the like. In September 2015, interim distributions of $10,000 was made to each of Vicky, Justin, Lee, Jenna and Luke’s estate. Vicky received another interim and final distribution of her legacy on 20 October 2015 (the day she was required to surrender vacant possession of the residence) totalling $140,000. After all this, it seems there may have been around $120,000 in cash reserves at the commencement of the building works. None of the payments out of the estate prior to commencing the building works appear remarkable.
The executor has a duty to gather, preserve the value and to transfer or properly sell the assets of the estate.[31] Generally, there is no duty on an executor to undertake costly renovations in an effort to increase the net sale proceeds of a real property held in the estate. A major domestic building project brings numerous risks, not only running out of cash in the estate or failing to achieve an increase in sale price that recoups expenditure. Here the executor was legally advised that sale of the Kyneton property ‘as was’ with incomplete, uninsured ‘renovations’ undertaken by the deceased would be in breach of the Building Act, make any contract of sale voidable and put the estate at risk of subsequent action by the purchaser, including under statutory warranties.[32] In this case, the building works undertaken by the executor were both necessary and beneficial. The residuary beneficiaries consented (indeed, Justin and Lee contributed by way of their time, effort and skills). It seems the executor has acted in good faith, in the interests of the beneficiaries, in taking on the risks, responsibility and stress of major domestic building project for the benefit of the estate, including the risk that the estate’s cash reserve was insufficient for the full cost of the building works.
[31]Depending on the terms of a will or the current statutory distribution under the Act (n 9) pt IA.
[32]First Peirce Affidavit (n 3), [14(h)].
The executor personally gave the executor’s loan to the estate when its cash reserves were exhausted. That loan was interest free for a period of nearly two years. Thankfully, Justin was able to provide Justin’s loan, interest free, by three payments over a similar period. These loans were made in the last three months of the building works prior to issuing of the Certificate of Final Inspection. An executor is not generally under a duty to loan or borrow to undertake projects like the building works. There is no evidence as to whether the essential structural work was complete and the Kyneton property was saleable at the time the loans were made to the estate. If not, the same imperative that arose before the commencement of the building works justifies the executor loaning and borrowing to complete them. If the Kyneton property was saleable by this time, Justin has not only consented to the further works (although there was no cash left in the estate) he has essentially funded those works himself and cannot now complain that the cost of the works exceeded the cash reserve of the estate.
The CGT exemption
The respondents concede that the CGT issue caused ‘great’ pains and trouble to the executor, but submits this was caused by the executor’s own failings in supervising the building works, resulting in the delay that lead to the need for a CGT exemption. On this basis, not only do the respondents seek the commission be reduced or denied, but all fees associated with obtaining the CGT exemption be offset against any commission that may be awarded.
The question of CGT liability arose as the settlement of the sale of the Kyneton property did not occur within two years of the deceased’s death. That is, had the settlement of the sale of the Kyneton property occurred by 20 October 2016, there would have been no need to apply for the CGT exemption. In fact, the settlement occurred 19 months later. A large part of the delay related to the 12 month right of residence (preventing the commencement of the building works) and the 13 month sale campaign. The building works took about 13 months. The period of the ‘stop work’ notice was eight weeks, in which time a licensed builder, plans, permit and insurance were arranged. Of course, the permit should have been obtained first, but the application for the permit would still have taken time whenever it was lodged. I cannot find that the executor caused the need to apply for the CGT exemption unless I find him responsible for the entire delay. That is, even if the residence might have been sold earlier, unless that earlier sale were complete prior to 20 October 2016, a CGT exemption application would still have been required.
Further, the respondents raise factual inaccuracies in the executor’s submissions to the ATO which are submitted to be ‘at best’ misleading and imperil the CGT exemption. Further, it is noted that it is an offence to give false or misleading statements to the ATO.[33]
[33]Further Written Submissions (n 23), [4].
In the executor’s submissions to the ATO,[34] his solicitor states, among other things, that a builder had a dispute with his business partner and lost his licence, then after these matters were resolved, terminated his contract in January 2017, requiring the executor to find an alternative builder and notes it is difficult to engage a builder to complete works started by someone else. It seems the solicitor is discussing the first builder, as the second builder has a building license[35] and did not terminate his contract. The resignation of the first builder on 21 January 2017 may have caused disruption to the building works, relevant to the length of delay and another person was engaged for carpentry work after the first builder left. However, the respondents also note that the solicitor’s submissions to the ATO do not mention the stop work order, erroneously refer to the date of the second builder’s contract when discussing the first builder and do not deal with the estimated completion date of the building works.[36] The rest of the submissions to the ATO for the CGT exemption are not challenged.
[34]First Peirce Affidavit (n 3), exhibit D.
[35]Affidavit of Charles William Summons sworn 5 May 2020.
[36]Further Written Submission (n 23), [4].
I am unable to determine whether this part of the executor’s submissions to the ATO is misleading or false, or if so, whether safe harbour or other ‘defences’ such as reasonable care or inadvertence apply, not only, but primarily because this application is not a prosecution under the Taxation Administration Act 1953 (Cth). As I cannot take this first step, I cannot take the second step of reducing or refusing commission based on assertions that material misstatements were made to the ATO.
Beneficiaries’ Consent
The respondents note that in a period spanning three and half years, correspondence was sent to Jenna and Luke’s estate by the executor’s solicitors inviting consent to commission but failing to recommend that those beneficiaries to seek independent legal advice. They argue that this failure is improper and seek to have the commission reduced as a result.
An executor who seeks consent to commission from the beneficiaries, as a fiduciary, must provide full disclosure. Only informed consent releases executors to take funds from an estate for themselves. The extent of what is required was described by T Forrest J in Walker & Ors v D’Alessandro:[37]
Whilst the extent of disclosure sufficient to procure an informed consent varies from case to case, it is never less than fulsome. Factors that impact on the degree of disclosure required include the relative sophistication of the beneficiaries, the need to explain the desirability of taking independent advice and the real possibility of conflict or indeed an actual conflict. It is also relevant to determine what services are required of a fiduciary. Where (for instance) a solicitor offers advice about the wisdom of a transaction he may be obliged to offer fuller disclosure than if he merely is engaged to carry out a conveyance within the transaction. (citations omitted)
[37][2010] VSC 15, [29].
Section 65D of the Act does not apply in this case,[38] but sets out the information now required to be provided to beneficiaries before an executor is entitled to commission. This section does not require referral to independent legal advice.
Instead, beneficiaries must be informed of their right to have the payment claimed or charged by the executor reviewed by the Court.[39]
[38]Act (n 9) s 106; Administration and Probate and Other Acts Amendment (Succession and Related Matters) Act 2017 (Vic) s 2(2).
[39]Act (n 9) s 65D(1)(d).
In essence, correspondence to beneficiaries regarding a claim for executor’s commission should:
(i) accord with s 65D of the Act (include basis of claim, method of calculation, value, right to Court review, advise of any substantial variation, communicate understandably and to an appropriate person for persons under disability);
(ii) provide estate accounts or statements, including charges by professionals;
(iii) set out work and responsibility of the administration, with particularity;
(iv) properly explain s 65 of the Act; and
(v) in appropriate circumstances, recommend independent legal advice.
Such correspondence should give accurate statements of the law. In particular, it should not imply that a greater amount will be awarded by the Court, that interim distributions will not be made or that cost and delay will be caused by any non-consenting beneficiary rather than being inherent in any application for commission.
It is clear that there is no absolute requirement to refer beneficiaries to independent legal advice. Often, it may be unnecessary to refer a beneficiary for independent advice, say where the cost and delay involved would exceed the amount involved, unlike say family law agreements or finance guarantees. In this case each of the four beneficiaries were initially asked to consent to a one quarter share of 2 per cent of the sale price of the Kyneton property.[40] The actual amount was less than $3,000 each. The amount involved allows me to excuse the absence of a referral to independent legal advice in this case. Further, the letter to Luke’s estate was sent to a firm of solicitors, so an opportunity to obtain independent advice was created by the letter itself.
[40]Second Peirce Affidavit (n 4), exhibits DCP-1-3; Justin’s Affidavit (n 1), exhibit JJW 1-2.
The issue that concerns me is that the first letter was sent to the beneficiaries on 7 September 2016, together with a form of consent to sign and return. The proposed commission was set against the sale price of a property not yet sold (indeed, the building works still had eight months to run). The quality of the executor’s administration of the estate, the degree of his pains and trouble and the value of his work were all prospective. It is a simple impossibility for beneficiaries to give informed consent about something that is yet to happen, as the information on which to base their decision has not yet to come into existence. For example, more than 10 pages of the administration account deal with payments after the date of this letter. In the context of the family disharmony and the difficulties of this administration, any advice that may have given by the executor’s solicitors that this was an appropriate time to raise another issue between the family regarding this estate may have been ill-considered. The executor’s decision to improperly seek consent to commission too early in the administration reduces his claim.
Engaging Professionals
The respondents note that the executor had professionals deal with property sales, legal and taxation matters. It is submitted that the work of these professionals reduced the executor’s direct pains and trouble and the supervision of their work was routine. In particular, litigation foreshadowed by Vicky during the period of her right of residence under the Will did not eventuate (discussed later in this judgment) and negotiations were handled by the estate solicitors.
In most estates, professionals are engaged to handle property sales, legal and taxation matters. An executor’s efforts in dealing with the professionals, making decisions in the light of the advice provided, and supervising the professionals who have been engaged, is relevant for the purposes of determining the amount of commission.[41] Indeed, in most cases dealing with such matters without professional assistance may not be in the interests of the estate. It is only where the executor delegates some of the administration work to professionals who charge for that service, that such work is not taken into account in determining the executor’s pains and trouble, as the estate should not pay twice for the same services.
[41]Richards v Richards [2015] VSC 335, [29]; Re will and estate ofMacleod [2017] VSC 67, [48]; ReMountney (n 10), [49].
Far from routine, the pains and trouble of this administration was extraordinary.
The engagement of professionals was appropriate and required a significant amount of supervision, particularly those professionals engaged in the building works, the CGT issue, foreshadowed litigation by Vicky and the long sales campaign.
The executor’s claim is enhanced rather than reduced by his retention and supervision of professionals in this case.
Lawn Mower
The deceased left a lawn mower which was not included in the inventory.
The respondents assert it has a value of $7,000 and that Justin gifted it to the executor prior to knowing about the commission claim. The executor says the mower is 15 years old, in poor condition and only valued at $1,000. The respondents submit that the executor should produce evidence that the other three beneficiaries also consented to the gift of the lawn mower. I am content to rely on their lack of objection during the course of this application as the issue is well ventilated in the written material. I do not take the mower into account in quantifying the claim.
Further Issues Arising
Interim distributions
As noted, Justin’s affidavit states that in the lead up to Lee’s death several requests of the executor were made by Lee, personally, and individuals on his behalf for an interim distribution and they were ‘refused’.[42] The executor in reply states that he regrets that he was unable to release any ‘substantial’ interim distribution due to uncertainty about the CGT liability. The sale of the Kyneton property settled in July 2018. On 13 December 2018, the executor sent an email to his solicitors, setting out Lee’s circumstances and stating “I think that regardless of the potential for capital gains tax both Justin & myself should be reimbursed for our personal contributions now. Can you please give this some thought and let me know your thoughts.”[43] The email makes clear that the suggested reimbursement to Justin was intended to give him funds to give to his dying brother. The executor took prompt action and asked for advice, however the lack of a prompt interim distribution to Lee on becoming aware that he was terminally ill and required access to funds for medical and personal needs is concerning. There should be no doubt that acting in good faith and in the best interests of the beneficiaries requires prompt payment of any available interim distribution in such circumstances. The executor is entitled to reserve sufficient funds for taxation and other expenses (including the executor’s own fees or commission) and to be indemnified for these costs out the estate.[44] However, CGT is usually only a proportion of the capital gain received, which itself is a proportion of the sale proceeds. Uncertainty regarding CGT should not ordinarily result in the entire estate being held back. That is, the executor, as a fiduciary, holds the estate for its beneficiaries, subject to a proper reserve for expenses and liabilities, but no more than that proper reserve. If the administration of the estate is sufficiently advanced that an interim payment can be made, then in the circumstances of extreme need such as medical and personal needs arising from a diagnosis of terminal illness, it ought be made. I am not satisfied that the executor was justified in not making any interim distribution at all to Lee from December 2018 until the resolution of the CGT ruling. This claim will be reduced on this basis.
[42]Justin’s affidavit (n 1), [4].
[43]Second Peirce Affidavit (n 4) exhibit DCP-17.
[44]CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360.
The executor made the last interim distributions on 29 May 2019 and presently only holds $75,000 in the estate pending the outcome of this application. However, Jenna and Luke’s estate received a larger amount than Justin and Lee ($48,163.83 each compared to $40,663.84 each). The solicitor’s letter accompanying the payment states that this was done to allow for the possibility of the Court ordering the costs of the application be borne by the ‘non-consenting’ beneficiaries.[45] An executor has a duty to act impartially between beneficiaries. Unequal treatment arising from non-consent to a claim made in the executor’s personal interests does not accord with that duty. Further, while Lee was alive on the day of this interim distribution, he died the next day. There is no grant of representation in Lee’s estate,[46] so there can be no consent to commission from that ‘beneficiary’ in any event.[47] Nor is it clear why it was thought that costs may be ordered against Lee’s estate in all the circumstances. Commission must be reduced for such a significant misstep.
[45]Second Peirce Affidavit (n 4), exhibit DCP-4.
[46]Applicant’s Submissions (n 27), [4].
[47] Re Pittas [2019] VSC 380, [29].
Hostility
There is clear and overwhelming evidence that conflict or hostility existed between individuals involved with the estate over the period of its administration.
The presence of hostility heightens the executor’s claim, as it makes all of tasks and responsibilities more onerous.[48] Indeed, it is to the credit of the executor, Justin and Lee that a cooperative working relationship survived the ‘stop work’ notice, the walk off by the first builder and the termination of the first real estate agent. These three men, with able assistance from Justin’s wife, Angela, achieved the completion and sale of the Kyneton property in the interests of the estate despite difficulties in interpersonal relationships and the challenges of the process.
[48]Patterson (n 10), [33]-[34].
Foreshadowed Litigation
As noted above, the deceased’s domestic partner foreshadowed litigation against the estate during her period of the occupation of the Kyneton property. In the assessment of executors’ commission, litigation is treated in much the same way as any other estate asset or liability which needs to be administered. An executor may be compensated through an award of commission for his role as executor in an atmosphere of hostility and stress generated by litigation.[49] The fact that an executor supervises the professionals involved in the litigation to maintain the estate’s interests is a relevant consideration in assessing the commission, provided the litigation is a necessary step in the administration of the estate. Dealing with a foreshadowed claim and avoiding litigation in the interests of the estate also amplifies a claim for commission, even though the litigation was avoided.
[49]Ibid.
Additional Pains and Trouble
In addition to all the matters discussed above, I note that the executor had the additional pains and trouble of a disputed distribution of chattels, a disputed request by a beneficiary to purchase the Kyneton property and the general work of administration that arises in any estate.
Conclusion
The relatively small overall size of the estate is such that any commission will result in a low amount for the extraordinary work, stress, disputation, responsibility and duration of the administration of this estate, all undertaken beneath a cloud of hostility and conflict. The building works significantly enhance the claim for commission, especially the making of the executor’s loan, dealing with CGT and the responsibilities of a large building project located in regional Victoria. In this context, the impact of the ‘stop work’ notice is minimal on this aspect of the executor’s pains and trouble. Ordinarily, an executor who has successfully administered an estate with this level of consistent difficulty over such an extended period to the clear benefit of the estate could expect a relatively high level of commission. However, seeking consent to commission prematurely, failing to respond to urgent requests for an interim distribution to a terminally ill beneficiary and unequal treatment of beneficiaries in the last interim distribution, all tend toward reduction of commission. In all the circumstances, I determine that it is fair and reasonable that the executor be allowed 2 per cent of capital and income of the estate, which is the sum of $18,309.25.
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