Ruschinek v Tiernan
[2016] VSC 197
•5 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2014 06298
| BEREK RUSCHINEK | Plaintiff |
| v | |
| DAMIEN TIERNAN (WHO IS SUED AS EXECUTOR OF THE WILL OF SCHAJA RUSCHINEK, DECEASED) | Defendant |
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JUDGE: | BONGIORNO JA |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13, 15 and 19 April 2016 |
DATE OF JUDGMENT: | 5 May 2016 |
CASE MAY BE CITED AS: | Ruschinek v Tiernan |
MEDIUM NEUTRAL CITATION: | [2016] VSC 197 |
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SUCCESSION — Administrators and executors – Alleged malfeasance by executor – Parties consented to be bound by forensic report – Whether beneficiary permitted to challenge report – Civil Procedure Act 2010 – Application refused – Whether breach of fiduciary duty by delay in transferring final assets of estate while proceedings unresolved – No breach of fiduciary duty.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr B Orow | David Davis & Associates |
| For the Defendant | Mr J L Smith | Strongman & Crouch |
15 APRIL 2016
HIS HONOUR:
I will commence by delivering the ruling as to paragraphs 1 and 2 of the summons.
Schaja Ruschinek died on 31 January 2008. His wife predeceased him so that in accordance with his will his entire estate went to his two children, a daughter Eva and a son Berek (or Ben), the plaintiff in this proceeding. The executor of the testator’s will and the defendant in this proceeding is Damien Tiernan, an estate agent and long-time friend of the deceased. The property of the testator at the time of his death comprised mainly rented real estate with only a small sum in personal estate; less than $8,000.
On 19 September 2008 the executor obtained a grant of probate of the testator’s will in this Court. He was familiar with the rented properties forming the bulk of the testator’s estate as a company, of which he has control, had acted as the testator’s letting agent for those properties for many years before he died. Those properties consisted of 11 residential properties and four shops.
The testator’s will was such as to dispose of his estate approximately equally in value between his two children: his former home and four adjoining flats to Eva absolutely, and six flats and four shops to Berek via a discretionary trust controlled by him.
Almost immediately after the testator obtained a grant of probate, then-solicitor Isaac Brott on behalf of Berek commenced a proceeding in this Court for revocation of that grant on the ground of alleged lack of testamentary capacity in the testator. Whilst the revocation proceeding was still on foot, on 3 June 2009 the plaintiff commenced another proceeding against the executor, this time seeking further provision for himself from the deceased’s estate pursuant to Part IV of the Administration and Probate Act 1958. These two proceedings were not finally disposed of by settlement until about April 2013.
The current proceeding was brought by originating motion on 27 November 2014 seeking a number of different orders: that the executor refund a sum of money to the estate; that the executor reimburse the plaintiff seven different money sums allegedly owing under terms of settlement between him and the executor signed in April 2013; that the executor transfer certain sums of money pursuant to the deceased’s will to the plaintiff and his sister; and that the executor provide the plaintiff with copies of certain documents and that he pay plaintiff’s costs.
The proceeding passed through a number of preparatory or interlocutory phases between the date of its commencement and 31 July 2015, when directions were given by McMillan J as to the filing of any affidavits of the defendant and the Sothertons Report by 14 August 2015 with answering material by the plaintiff by 28 August 2015.
On 11 September 2015, at another pre-trial hearing, the time for the plaintiff to file material was extended to 25 September. On 9 October, at another pre-trial hearing, orders were made by Her Honour striking out parts of the plaintiff’s affidavit and listing the proceeding for trial on 16 March 2016 on an estimate of one to three days.
On 3 February 2016 the plaintiff unsuccessfully sought leave of the Court of Appeal to appeal a number of orders and rulings made by McMillan J concerning the proceeding on 9 October 2015. The Court of Appeal judgment was published on 16 February 2016.[1] It should be read in conjunction with this ruling.
[1]Ruschinek v Tiernan [2016] VSCA 7.
Following the Court of Appeal judgment, on 26 February the plaintiff filed a summons seeking three substantive orders: one, that the plaintiff be permitted to adduce expert evidence as to the administration of the deceased’s estate; two, that the Sothertons Report be excluded on the ground that it does not comply with s 79 of the Evidence Act and does not comply with the order of McMillan J authenticated on 16 February 2014; and, three, that the plaintiff be permitted to adduce evidence at trial from lay persons.
At another directions hearing on 11 March 2016 before McMillan J this summons was adjourned to the trial of the originating motion, then fixed for 16 March. For administrative reasons the trial was subsequently postponed to 18 March and subsequently again to 13 April before me.
On 13 April Dr Orow for the plaintiff sought to have the matters to be determined on the summons separated from the trial of the originating motion. He submitted that if the summons was dismissed ‘that will have no direct bearing on the trial unless the dismissal results in the same decisions made in the trial itself’.
In light of that submission I thought it necessary to make it clear that the decisions made in respect of the summons will pro tanto apply to the trial. I also made it clear in the course of the hearing that the trial would not be adjourned, save only for the time necessary to write this ruling concerning applications numbered 1 and 2 in the summons filed on 26 February 2016.
Application 1 seeks a ruling that the plaintiff be permitted to adduce expert evidence concerning the administration of the deceased’s estate. This squarely raises the status of the Sothertons Report, the subject of application 2. If, as the defendant contends, the report is final and binding on the parties to this litigation any expert evidence to the contrary would be irrelevant as not going to any contested issue. Thus it is necessary to examine the circumstances in which that report came into existence, its substance and whether it complies with the orders of McMillan J of 14 December 2014.
The order of this court of 5 December 2014 required the parties to engage Sothertons to produce a forensic report as to the administration of the deceased’s estate which report ‘shall be binding on the parties’. That that order was made by consent is not in issue.
But Dr Orow for the plaintiff contested the report’s validity in a number of different ways. First, he contested that it was not a forensic report so that it did not comply with the order of the court. He referred to dictionary definitions of the word ‘forensic’ as being nothing more than the preparation of a document in a format to be presented in court.
This definition did not assist the argument. This is precisely what the Sothertons Report is. It contains within itself an explanation of its scope and purposes, at [10] and [11]; it refers to the joint instructions its author, Mr Mark Lipson, received from solicitors for each of the parties concerned, at [1]; and in its 283 paragraphs it sets out the work performed, the methodology employed, the standards applied, the evaluations undertaken and the conclusions reached as to the defendant’s execution of his duty as executor of the deceased’s estate. It is a document in a format to be presented in court. It is a forensic report.
Secondly, he contends that it does not cover the ‘significant parts of the administration of the estate’ referring to the period between the date of the deceased’s death and the defendant’s grant of probate. But a close examination of the report demonstrates that this is not so.
In dealing with two of the plaintiff’s allegations, to which I will refer shortly, concerning the alleged understatement of rental income and alleged rental income not paid Mr Lipson was concerned with the period from the date of the deceased’s death to October 2008; see paragraphs 89 to 115. There is no basis for Dr Orow’s contention that this period was not adequately examined. That its examination was brought about partly at least as a consequence of the plaintiff having made a series of specific allegations against the executor, including allegations concerning rental income between the deceased’s death and the grant of probate, is not to the point. The plaintiff in effect ensured that the examination of the pre-grant period was undertaken in the report.
Thirdly, it was contended by Dr Orow that because the Sothertons Report was concerned with a number of allegations by the plaintiff of misfeasance by the executor in the administration of the estate, the report was in some way flawed. He said that Lipson had ventured into ‘impermissible territory, territory that falls outside the scope of the report’. He claimed it undermined the integrity of the report.
The report itself explains the interaction between Mr Lipson and the plaintiff; see [89]–[96] and following. The plaintiff attended upon Mr Lipson with his solicitor on 16 February 2015 and discussed with him a number of matters which he contended demonstrated malfeasance by the executor.
Mr Lipson’s function was to examine the executor’s administration of the estate. The plaintiff had serious allegations concerning that examination. It would have been a dereliction of his duty as an independent expert examining financial transactions of the estate to ignore serious allegations made by one of the beneficiaries with respect to those transactions.
As Dr Orow conceded, no complaint has ever been made to date that there was some impropriety in his client making the allegations he did or that his approaching Mr Lipson with those allegations in some way invalidated the report commissioned jointly by him and the executor. At all times the plaintiff was advised by a solicitor. His solicitor attended with him on Mr Lipson. The plaintiff voluntarily produced documents to Mr Lipson.
The parties to this proceeding selected the independent expert subsequently appointed by order of this Court. They provided him with the material upon which his report was based and they agreed to be bound by that report. That report including the parts of it concerned with the plaintiff’s allegations was a forensic report within the meaning of McMillan J’s order, drafted and consented to by the parties.
Dr Orow also contended that the forensic report did not comply with s 79 of the Evidence Act. This contention can be dealt with shortly. The plaintiff was a party to the engagement of Mr Lipson. It does not lie in his mouth now to argue that Mr Lipson is not qualified within the meaning of s 79 of the Evidence Act. The plaintiff’s consent to the order made by McMillan J carries an implied admission that the chosen expert is suitably qualified to perform the function mandated by that order. There is no merit whatsoever in this argument; nor, for similar reasons, is there any merit in the application to disqualify the report pursuant to s 135 of the Evidence Act; nor again is there any merit in an argument for confining the report in some way pursuant to s 136 of that Act.
The Sothertons Report is relevant and admissible as to the matters with which it is concerned. Further, it is binding on the parties; that is to say, it cannot be impugned either by other evidence such as that of another expert or by cross-examination of the maker of it. By agreeing as they did to a procedure which should have expedited the resolution of this proceeding the parties were accepting that the ordinary processes of an adversarial trial would be modified in the interests of expedition and economy. That that has not occurred is unfortunate and may result in cost consequences at the end of the trial.
The Civil Procedure Act 2010 encourages agreement between the parties to a civil dispute; see s 7, particularly s 7(2)(b)(i). Such agreement is not limited to an ultimate settlement. It can include agreement as to procedural and like matters. That the parties in this case agreed, as they did, to be bound by the Sothertons Report was an excellent example of the sort of co-operation encouraged by that legislation. That one party, now dissatisfied with the result of that co-operation, should be permitted to resile from the agreement with the other party would be entirely contrary to the spirit and effect of the legislation.
In conclusion, for the avoidance of doubt, I make it clear that the ruling brought about by the summons of the plaintiff filed on 26 February also applies to the trial of the plaintiff’s originating motion which is being conducted simultaneously with the hearing of that summons. The Sothertons Report is an exhibit to the affidavit of the executor. As such, it is or will be received as evidence in this trial with that affidavit. Applications 1 and 2 in the summons are both dismissed.
19 APRIL 2016
HIS HONOUR:
Following my ruling on Friday 15 April to the effect that the Sothertons Report was admissible in evidence in this case and binding on the parties so that no evidence which impugned that report could be tendered and no cross-examination to a similar effect could be permitted, Dr Orow told the court that there were no longer any issues concerning claims numbered 1, 2 and 4 of the plaintiff’s originating motion to be litigated, but he reserved claim number 3, stating that that claim raised an issue of breach of fiduciary duty by the executor of the estate.
The claim as articulated by Dr Orow concerned the alleged failure of the executor to transfer the four shop properties in Cromwell Street to the plaintiff when it is said he ought to have done so. The beneficiary sought relief pursuant to order 54.02 of the Supreme Court (General Civil Procedure) Rules 2005. It is not in issue that the four properties have not been transferred. However, they have already been the subject of orders made by this court on two previous occasions: 24 October 2014 and 5 December 2014.
On 24 October a consent order was made by McMillan J ordering the executor to transfer the four properties to the plaintiff. It also ordered him to transfer other properties to the plaintiff’s sister, Eva. The transfers to Eva were effected but those to the plaintiff were not. A few days after the orders were made, on 31 October, the plaintiff claimed that there was a discrepancy in the administration of the estate in the sum of $330,000. The executor explains in his affidavit before this court that he was concerned that there was some potential for such a discrepancy to deplete the estate. He said he was reluctant in the circumstances to transfer the last significant assets of the estate to the plaintiff.
A month later, on 27 November 2014, the plaintiff filed the originating motion with which the Court is now concerned, making the claims which were dismissed by the court last Friday and seeking again the transfer of those properties. Although not described in the originating motion as such, Dr Orow for the plaintiff now argues that the executor’s failure to transfer the properties was a breach of fiduciary duty, notwithstanding his concern to ensure that the liabilities of the estate, which include the costs of litigation and executor’s commission, would be able to be met.
However, the story does not end there. On 5 December, at the same time as the Court made the order concerning the Sothertons Report, a number of other orders were made which included an order that the executor pay to the plaintiff all rent received in respect of those four properties from 24 October, the date of the order already referred to. Obviously, that order and the consent orders of 24 October, that the executor transfer the four properties to the plaintiff, are inconsistent with each other. The second order concerning the rent of the four properties must be construed as being a modification of the earlier order with the effect that it is no longer binding according to its terms in respect of those properties.
A perusal of the transcript of 5 December confirms that the orders made that day were not contested and that the only matter still in contest between the parties was said to be the sum of $524,000-odd, which issue has now been determined adversely to the plaintiff. It is clear that there was at that time no issue between the parties concerning the transfer of the properties. The interim solution whereby the plaintiff receives the rent of those properties pending a final winding up of the estate when he would, subject to the satisfaction of any outstanding liabilities, have the properties transferred to him was clearly assented to by all parties, including the plaintiff and the executor.
After the resolution of claims 1, 2 and 4 in the originating motion last Friday, Dr Orow sought to pursue clause number 3 as a claim for breach of fiduciary duty, although no such claim was apparent on the notice of motion itself. In an attempt to finalise this litigation, I permitted argument on this issue, although I regarded the pleading of it as somewhat specious. Dr Orow’s argument was that the executor’s failure to transfer the relevant properties over the period between about April 2013 and about October 2014 constituted a breach of fiduciary duty. He referred to a number of cases where executors were removed pursuant to s 34 of the Administration and Probate Act 1958 on one of the grounds there provided.
In this case, the executor has provided a detailed account as to the reasons for the delay in finalising this estate in his affidavit of 14 August 2015. He was cross-examined by Dr Orow and has stated on oath that he will transfer the relevant properties as soon as the administration of the estate is finalised. Dr Orow’s argument was to the effect that the plaintiff was entitled to a declaration that the executor had been in breach of his fiduciary duty in failing to finalise the estate more promptly. He frankly conceded that his client, the plaintiff, had suffered no loss as a result of any delay there might have been, culpable or otherwise, but argued that a breach of fiduciary duty would affect the order for costs which will undoubtedly be sought at the end of this litigation.
Having reached the conclusion I have, there is no need to pursue further whether the delay alleged might have constituted a breach of fiduciary duty. The allegation of undue delay by the executor must be rejected. The plaintiff has gone nowhere near establishing misfeasance by the executor. His conduct, in the circumstances, was not unreasonable. Even if there had been a breach of fiduciary duty, in the absence of any loss to the beneficiaries, as conceded by counsel, there would be no efficacy in granting the declaration sought. It is not suggested that costs have been incurred which were unnecessary because of any delay. There would, therefore, seem to be no cogent argument why cost orders would be affected, even if such a declaration was made, although I will determine that matter after hearing argument from counsel.
The plaintiff’s claim that the executor was in breach of his fiduciary duty is rejected. Thus, all claims made in the originating motion have now failed, so that the motion itself should be dismissed in its entirety.
22 APRIL 2016
On Tuesday 19 April, 2016, I delivered a final ruling on this matter commenced by originating motion filed 27 November 2014. That ruling resulted in the originating motion being totally dismissed. The remaining question of the costs of the proceeding was then the subject of further debate. Dr Orow for the plaintiff tendered a letter from the plaintiff’s solicitors to the defendant’s solicitors dated 16 March 2016 containing an offer to settle the claims made by the plaintiff in the originating motion. The offer contained three parts:
(1)the plaintiff’s claim for $524,377 would be abandoned;
(2)the defendant would transfer all four of the Cromwell Street properties to the plaintiff; and
(3)the defendant would retain the $50,000 that the plaintiff had paid into court as security for costs.
Some correspondence seeking clarification of this offer ensued, but ultimately the offer was rejected. Dr Orow now contends that this offer represents a better position that the defendant achieved by proceeding to judgment. That contention cannot be accepted.
As the letter from the defendant’s solicitors to the plaintiff’s a few days after the offer was made points out, the defendant’s costs were likely to be in the order of $190,000 excluding costs still being incurred.
Currently the four properties that will be ultimately transferred to the plaintiff, subject to the liabilities of the estate, are held by the estate subject to the order made by McMillan J on 5 December 2014 for the plaintiff to receive the rent from those properties.
Despite Dr Orow’s vigorous advocacy to the contrary, his argument that his client’s Calderbank offer if accepted, would have been a more advantageous result for the estate than would the dismissal of all the claims against it, cannot be accepted. Accordingly, the Calderbank offer has no bearing on the issue of costs.
The issues with which the now-dismissed notice of motion, and the summons which was argued before or with it, concerned only the plaintiff and the estate. It is not appropriate that any part of the estate which would otherwise be distributed to the plaintiff’s sister, Eva, be used to indemnify the executor in respect to the costs incurred in defending these proceedings. The order for costs against the estate should be met from the plaintiff’s share of the estate. No argument was advanced by Dr Orow against the orders sought by Mr Smith for the defendant, other than as already referred to.
Accordingly the order as to costs will be as follows:
(1)The defendant be indemnified as to his costs of the proceedings from the plaintiff’s share of the estate assets;
(2)Upon taxation of the said cost or agreement between the parties, the senior master pay the sum of $50,000 held by way of security for the defendant’s costs pursuant to the order for security of costs made on 18 February 2016 be paid to the defendant.
To make it absolutely clear, the costs are the costs of the originating motion and the summons that was issued and argued before or with it.
Finally, the following orders are made:
(3)The documents produced to the Prothonotary in response to the plaintiff’s subpoena issued 9 March 2016 be returned forthwith; and
(4)The related proceeding, S CI 2014 05202, be listed for further directions before the Judge in Charge of the Trusts, Equity & Probate list at a time to be fixed.
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