Re Warner
[2019] VSC 656
•25 September 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S PRB 2018 17741
IN THE MATTER of the will of MARJORY ELLEN JANE WARNER, deceased
APPLICATION BY:
| ANN ELIZABETH WARNER, LYNETTE MARGARET IREDELL and NOEL REXLEIGH CURRAN | Plaintiffs |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 25 September 2019 |
CASE MAY BE CITED AS: | Re Warner |
MEDIUM NEUTRAL CITATION: | [2019] VSC 656 |
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ADMINISTRATION AND PROBATE — Where beneficiary seeks to pass over two executors of will — Where beneficiary alleges the two executors in position of conflict — Where one executor as donee of deceased’s enduring power of attorney transferred deceased’s properties to herself and other executor before deceased’s death — Where executors claim no conflict as relevant properties were devised to them under deceased’s will — Due and proper administration of estate — Re Estate of Crane (2005) 93 SASR 198.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Rizzi | Sinisgalli Foster Legal |
| For the Caveator | Mr AP Dickenson | Harwood Andrews |
HER HONOUR:
Introduction
Marjory Ellen Jane Warner died on 18 June 2018, aged 89 years. The deceased’s will dated 14 February 2013 appoints the plaintiffs as her executors. The first and second plaintiffs are the daughters of the deceased and the third plaintiff was a friend of the deceased.
The deceased was also survived by her adult son, Robert John Warner (‘Mr Warner’). Another son, William Malcolm Warner, predeceased the deceased on 20 April 2011.
The deceased’s husband, John Stanley Warner, predeceased the deceased on 22 October 2014. The wills of the deceased and her husband were mirror wills.
By her last will, the deceased bequeathed legacies to charities and her grandchildren and then:
(a) bequeathed her cattle and livestock to Mr Warner;
(b) declared that she had gifted and bequeathed all of her ‘entitlements share and interest in [her] farming plant and equipment and any farming livestock all from the Warner Konetta Pastoral Company Partnership’ to Mr Warner during her lifetime;
(c) bequeathed her shares in Wesfarmers, Origin Energy, Boral, Ansell, Commonwealth Bank, Bendigo Bank and Woolworths to Mr Warner;
(d) devised a farming property comprising 450 acres to the first plaintiff (‘the 450 acres’);
(e) bequeathed her shares in Konetta Pty Ltd (‘Konetta’) to the first plaintiff and appointed the first plaintiff as director of Konetta;
(f) devised a property in St Leonards to the first plaintiff;
(g) devised farming properties comprising 930 acres to the second plaintiff (‘the 930 acres’); and
(h) left her jewellery, personal and household effects, a property in Edenhope and the residue of the estate to the first and second plaintiffs as tenants in common in equal shares.
The deceased’s last will was the same as her penultimate will, dated 21 July 2011, save that the penultimate will: (a) appointed only the first and second plaintiffs as executors and trustees; and (b) appointed both the first and second plaintiffs as directors of Konetta and gave them the shares in Konetta equally, in the even the deceased’s husband predeceased.
The deceased’s antepenultimate will is dated 18 August 2009. It contains an identical declaration to the last will regarding the inter vivos bequest to Mr Warner,[1] and also contains a bequest of the deceased’s Woolworths shares to Mr Warner.
[1]See paragraph 4(b) above.
Application by plaintiffs
By originating motion filed 24 October 2018, the plaintiffs seek a grant of probate of the deceased’s will.
The inventory of assets and liabilities filed with the application valued the deceased’s estate at $2,246,497.53. The inventory of assets did not include the 450 acres or the 930 acres, as these properties had been transferred on 19 December 2017 by the first plaintiff as donee of the deceased’s enduring power of attorney, dated 18 August 2009, to the first plaintiff and the second plaintiff respectively.
By requisitions dated 25 October 2018, the Assistant Registrar of Probates required the plaintiffs to file medical evidence by way of affidavit from the deceased’s treating medical practitioner to establish the deceased’s testamentary capacity when the will was executed, noting that the death certificate indicates that the deceased was diagnosed with ‘dementia – 7 years’ with the will being executed in 2013.
Mr Warner’s objections to the plaintiffs’ application
On 29 October 2018, Mr Warner filed a caveat with the Registrar of Probates. On 8 November 2018, he filed grounds of objection alleging that the first and second plaintiffs were disqualified from applying for a grant on the basis that they held properties that belonged to the estate and, accordingly, faced a conflict between their own interests and the interests of the estate. Mr Warner did not object to a grant of probate to the third plaintiff.
The particulars of Mr Warner’s grounds allege as follows:
(a) On 19 December 2017, the first plaintiff, as donee of the deceased’s enduring power of attorney dated 18 August 2009, signed transfers of land that transferred the deceased’s interests in the 450 acres to the first plaintiff and in the 930 acres to the second plaintiff at a time when the deceased:
(i) lacked capacity; and
(ii) did not have knowledge of, or give approval for, the transfers –
thereby substantially diminishing the value of the deceased’s estate.
(b) The deceased owed him money arising out of a farming partnership between him and a trust controlled by the deceased.
(c) Mr Warner has an entitlement to provision under Part IV of the Administration and Probate Act 1958.
(d) Mr Warner had commenced a proceeding in the Guardianship and Administration List of the Victorian Civil and Administrative Tribunal against the first plaintiff seeking ‘restoration’ by the first plaintiff of the 430 acres and the 950 acres transferred on the ground of breach of her obligations as attorney for the deceased.
On 26 June 2019, Mr Warner amended his grounds of objection by adding a further ground that the plaintiffs’ evidence did not establish that the deceased had testamentary capacity on the date she executed her will.
The plaintiffs filed further affidavits as to the testamentary capacity of the deceased as at the date of death of the deceased. By her affidavit filed 17 June 2019, the second plaintiff exhibited a letter from the deceased’s treating doctor, Dr Bade. The letter indicates that in 2011 the deceased’s memory was a concern and he considered that she had early Alzheimer’s disease and also that her son had died in April 2011. Dr Bade considered that the deceased would have known the value of her assets and how she would have liked to dispose of them. She was still driving her car and caring for herself. Dr Bade was aware that, at that time, a member of her family had taken a share of the family estate, causing a lot of pain to her and her husband. Dr Bade considered that the deceased was capable of making the logical decisions she made in her will dated 21 July 2011.
By his affidavits filed 5 and 9 August 2019, the deceased’s solicitor, Nicholas John Lucas, set out details of his dealings with the deceased and her husband in respect of the deceased’s last three wills. Mr Lucas deposes that the deceased was of sound mind and clear in her instructions for her 2011 will and that he is of the opinion that she had testamentary capacity at that time. He also deposes that the deceased understood her last will and that it properly expressed her testamentary wishes and intentions. He explained and gave detailed reasons for his opinion as to the testamentary capacity of the deceased at the time she signed her 2011 will and her last will.
Subsequently, Mr Warner withdrew his ground of lack of testamentary capacity.
Applicable principles
The principles with respect to the Court’s jurisdiction to pass over an executor named in a will are summarised by Besanko J in Re Estate of Crane as follows:
(a) A court will not readily pass over a named executor and, in general, a named executor is entitled to a grant of probate.[2]
[2](2005) 93 SASR 198, 203 [24].
(b) The circumstances in which a court will exercise the jurisdiction are limited, and a court must have regard to the due and proper administration of the estate and the interests of the beneficiaries.[3]
(c) In the ordinary case, a potential conflict of interest will not suffice to justify the exercise of the jurisdiction.[4]
(d) If a court is satisfied that the potential claim will not be investigated, it may be in the interests of the administration of the estate to pass over the executor.[5]
[3]Ibid, 203–4 [24].
[4]Ibid 206 [40]
[5]Ibid 205 [31], 207 [41].
The circumstances in Re Estate of Crane provide a clear example of the application of these principles. In that case, the deceased appointed his two sons as his executors and both were beneficiaries under his will. The plaintiff sought orders that his brother be passed over as executor of the estate on the basis of three transactions that occurred shortly before the deceased’s death. He asserted that the deceased sold certain properties valued at approximately $400,000 and a caravan to the defendant for $100 and that these transactions were legally ineffective on the grounds of undue influence or unconscionable conduct. He also asserted that the defendant owed the estate the sum of $150,000 relating to another transaction. The plaintiff claimed that because these disputes would only be resolved by legal proceedings, the defendant would be in a position of conflict of interest and duty and should not be permitted to assume the office of executor of the estate.
His Honour applied the guiding principles set out above, stating:
[The defendant] has made it clear that he maintains that the [first two] transactions ... are legally effective and that he owes no money to the estate. There is every reason to think that he will continue to maintain that position until a court determines otherwise. If made an executor, I think that it can be said with a high level of confidence that he will not consent to the estate asserting rights in relation to the three assets. In that event, an application to the court for the estate to bring or defend proceedings would be almost inevitable.
I emphasise that at this stage I am not determining the merits of the claims, but at the same time I have reached the conclusion that, on the face of it, the claims require careful investigation, and, as near as one can tell at this stage, litigation in relation to one or more claims is likely. In the particular circumstances of this case, I think the order sought should be made.[6]
[6]Ibid 206 [40], 207 [41].
Mr Warner’s submissions
Mr Warner submits that the first and second plaintiffs face a conflict between their own interests and their duties as executors to claim assets on behalf of the estate of the deceased. He contends that the first plaintiff holds the 450 acres and the second plaintiff holds the 930 acres transferred to them prior to the deceased’s death on constructive trust for the estate and as executors they have a duty to restore those properties to the estate or to compensate the estate for the value of the two properties estimated in total at approximately $3.4 million. Mr Warner did not set out any basis to support these values.
Mr Warner referred to the enduring power of attorney dated 18 August 2009 under which the deceased appointed the first plaintiff as her attorney. Pursuant to s 125B of the Instruments Act 1958, as it stood at the time,[7] the first plaintiff signed a statement of acceptance by which she undertook, inter alia, to protect the interests of the deceased and ‘to avoid acting where there is any conflict of interest between the interests of the donor and [her] interests’.[8] Mr Warner submits that, as the deceased’s attorney, the first plaintiff owed fiduciary duties to the deceased and was therefore subject to the ‘no profit’ rule, which prohibited her from using the power under the enduring power of attorney to make a profit for herself.
[7]See now Powers of Attorney Act 2014 (Vic) pt 6.
[8]See Instruments Act 1958 (Vic) s 125B.
Mr Warner says that it is not clear if the third plaintiff will ‘restore’ the 450 acres and the 930 acres to the estate of the deceased given he has sworn the affidavit of assets and liabilities of the estate in conjunction with the first and second plaintiffs, and that affidavit does not include these properties. Mr Warner submits that unless the third plaintiff undertakes to investigate the affairs of the estate and take advice on the claims regarding the properties, he should also be passed over as executor of the deceased’s estate.
In his written submissions, but not in the particulars of his grounds of objection, Mr Warner also refers to events that he alleges took place before the transfer of the two properties to the first and second plaintiffs. He alleges that prior to the date of the transfers, the first and second plaintiffs leased those properties from the deceased but did not always pay the rent and, arguably, owe arrears of rent to the estate and deprived the estate of income. Apart from these statements, Mr Warner did not set out any factual basis to support these claims.
Mr Warner alleges that the first plaintiff managed aspects of the deceased’s farming business and sold most of her livestock in the last few years of the deceased’s lifetime. According to Mr Warner, the proceeds from the sale of the livestock amounted to $416,969 and reduced the stock on hand from 242 in 2009 to 24 in 2018. The proceeds of the sale of the stock were paid into the deceased’s bank account, which was bequeathed to the first and second plaintiffs under the deceased’s will. Mr Warner did not set out any factual basis to support these claims
Mr Warner also alleges that over the last few years of the deceased’s lifetime, the first plaintiff paid herself a livestock management fee of approximately $20,000 per year as part of managing the deceased’s farming interests. He alleges that these fees became excessive when the deceased’s livestock diminished as a result of the sales between 2009 and 2018. Mr Warner did not set out any factual basis to support these claims.
In his written submissions, Mr Warner stated that he intends to make a claim for further provision from the deceased’s estate under Part IV of the Administration and Probate Act 1958 based on, amongst other matters, his contribution to his parents’ farming business over 30 years and promises made by his parents. He says that during that period he was underpaid but encouraged to work on the farm on the basis that a substantial part of the farm would be given to him.
Submissions of the first and second plaintiffs
The first and second plaintiffs acknowledge a conflict of interest but submit that the conflict is technical only because the deceased’s will specifically devises the 450 acres to the first plaintiff and the 930 acres to the second plaintiff. They also refer to the deceased’s 2011 will, which also devises the 450 acres to the first plaintiff and the 930 acres to the second plaintiff. They submit that, in the circumstances, an independent administrator would be unlikely to seek to reverse the transfers of the properties.
They also refer to the fact that, under the deceased’s will, the residue of the estate passes to the first and second plaintiff, and if Mr Warner succeeds in recovering any funds for the estate, those funds would fall into the residue of the estate. They submit that an independent administrator would be unlikely to waste funds in attempting to claw back funds to the estate only for those funds to be paid to the first and second plaintiffs as the residuary beneficiaries.
They submit that the real motivation for Mr Warner’s caveat is to pursue his foreshadowed claim for further provision from the deceased’s estate. They submit that the value of the deceased’s estate absent the 450 acres and the 930 acres is sufficient to satisfy any foreshadowed family provision claim and also note that Mr Warner receives certain bequests of the deceased’s shares under the deceased’s will valued at approximately $81,000. They submit that Mr Warner’s financial circumstances would preclude a claim for further provision as either he or a trust controlled by him holds approximately 5,500 acres.
The plaintiffs refer to Mr Warner’s written submissions concerning lease payments not being paid to the deceased during her lifetime and state there is no evidence to substantiate the submission.
Consideration
In deciding whether to exercise its jurisdiction to pass over the first and second plaintiffs as executors of the estate of the deceased, the Court must have regard to the due and proper administration of the deceased’s estate and the interests of the persons entitled to the estate. While many executors have some conflict of interest, in the ordinary case, those conflicts will not always justify their being passed over.[9]
[9]Uniting Church v Millane [2002] NSWSC 1070, [8] (Windeyer J); Re Estate of Crane (n 4).
Of the many issues relied on by Mr Warner in his grounds of objection and written submissions, most do not justify the conclusion that the first and second plaintiffs should be passed over. The most significant basis of objection is the transfer of the 430 acres to the first plaintiff and the 950 acres to the second plaintiff in December 2017 by the first plaintiff as the deceased’s enduring attorney. No reasons for the transfers being made in December 2017 have been articulated by the first plaintiff. The first plaintiff must be taken to have been aware of her fiduciary duties as the deceased’s enduring attorney as she undertook to protect the interests of the deceased and to avoid acting in conflict between the deceased’s interests and her own interests.
The plaintiffs’ reliance on the fact that the properties in question were devised to them under the deceased’s will is misconceived. After the date of the execution of the transfers, the deceased lived for a further six months. Although she did not execute a further and different will in that time frame, the possibility existed that she may have wished to change her testamentary dispositions, including in respect of the 450 acres and the 930 acres. Prima facie, the first plaintiff acted inconsistently with the interests of the deceased and placed herself in a position of conflict between the interests of her mother and her own interests. The transfers now place the first and second plaintiffs in a position of conflict between their own interests and their duties as executors of the deceased’s will.
It must be stressed that the Court is not determining the merits of Mr Warner’s grounds. However, the actions of the first plaintiff in the exercise of her role as the deceased’s enduring attorney warrant careful investigation.[10] Mr Warner has already initiated an application in the VCAT concerning the enduring power of attorney and production of the deceased’s accounts and documents relating to the first plaintiff’s exercise of the power, and litigation in relation to other claims is likely to occur. As the first and second plaintiffs take the view that the conflict is merely technical on the basis that they are ultimately entitled to the two properties under the deceased’s will, it is unlikely that they would undertake a careful investigation of the circumstances surrounding the transfers of the two properties to themselves. Their attitude gives little confidence that the transfers, which the first and second plaintiffs accept give rise to a conflict of interest, would be the subject of scrutiny by them.
[10]See Gray v Johnston (1868) LR 3 HL 1; Perpetual Trustee Co Ltd v Gibson [2013] NSWSC 276. It will suffice to note that an attorney who exercises a power of attorney owes fiduciary duties to their principal. An attorney who misapplies their principal’s property becomes a constructive trustee of that property. See also Chan v Zacharia (1984) 154 CLR 178. In such circumstances, the attorney must account to the principal for any benefit or gain that the attorney obtained or received ‘in circumstances where a conflict or significant possibility of conflict existed’ between the attorney’s fiduciary duty and their personal interest in receiving that benefit or gain: at 199 (Deane J).
Conclusions
It is in the interests of the due administration of the estate of the deceased and of those beneficially entitled to the estate, that the first and second plaintiffs be passed over as executors of the estate.
The third plaintiff is the remaining executor of the estate. Mr Warner’s application for passing over was not directed to the third plaintiff. In his written submissions, Mr Warner submitted that the third plaintiff should be passed over if he failed to undertake an investigation of the transfers of the properties to the first and second plaintiffs. It is not for Mr Warner to dictate how the third plaintiff should carry out his executorial duties if he decides to seek a probate of the deceased’s will.
Orders
The Court orders that the first and second plaintiffs be passed over as the executors of the deceased’s will dated 14 February 2013.
If the parties are not in agreement on costs, short written submissions are to be forwarded to the Court by 9 October 2019.
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