Sadri v Samian
[2009] VSC 99
•26 March 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6652 of 2006
| SEPIDEH SADRI | Plaintiff |
| v | |
| ALI REZA SAMIAN | Defendant |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 June and 1 July 2008 | |
DATE OF JUDGMENT: | 26 March 2009 | |
CASE MAY BE CITED AS: | Sadri v Samian | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 99 | |
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Trust and Trustees – Wife registered proprietor of house property – Wife declares trust of one-half of property for benefit of children of marriage pursuant to Family Court order – Terms of trust limited trustee’s power to encumber the children’s interest in property beyond level of the then existing mortgage – Trustee enabled to purchase a substitute property to which the terms of trust would apply – Breach of trust – Mortgage borrowing exceeding permitted level on children’s interest – Death of trustee – Liability of deceased and estate – Quantification – Uncertainty as to assets and value of estate – Administration of estate – Whether executor had knowledge of trust before distributing – Whether executor personally liable – Accounts and inquiries – Whether to order – Order limited to two items.
Administration and Probate – Executor – Administration of estate – Testator also trustee of one-half of her house property for her children – Terms of trust limited extent to which a borrowing could encumber children’s interest – Breach of trust subsisting at death – Quantification – Executor’s knowledge of breach – Whether executor personally liable to make good breach – Whether land in Iran owned by deceased and proceeds of sale thereof should be accounted to estate – Value of apartment and whether it should have been applied to pay liabilities of estate – Limited order for further evidence.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Perkins | David Perkins |
| The Defendant appeared in person |
HIS HONOUR:
The plaintiff in this proceeding claims relief as the beneficiary of a trust created by her late mother, Mona Samian (“the deceased”). She claims, amongst other things, declarations of breach of trust, orders for the reimbursement of trust money and orders for an accounting by the defendant, Ali Reza Samian, who is the executor of the estate of the deceased, and who is also the brother of the deceased. For reasons which will appear below, the defendant is sued in his capacity as executor and personally.
The plaintiff is the eldest of three children of the marriage of the deceased and Abdolreza Sadri. The plaintiff is now aged 24 years while her brothers Amir and Piam are now aged 22 and 17 years respectively. The marriage broke down and proceedings ensued in the Family Court of Australia. On 11 January 1999 the parties consented to orders whereby the deceased was ordered to transfer one-half of the title to a property she owned at 8 Highleigh Grove, Mooroolbark to herself as trustee for the three children. Accordingly, in early 1999 the deceased executed a Deed of Trust in which she declared that she held the Mooroolbark property on the terms of the trust, namely that:
(a)The deceased held one-half of the Mooroolbark property for herself absolutely, and the other one-half for the three children;
(b)The deceased would not encumber the interest of the three children beyond the level of the then existing mortgage;
(c)Any further borrowings secured against the Mooroolbark property would be secured only against the deceased’s one-half share thereof;
(d)The deceased was at liberty to sell the Mooroolbark property for the purpose of purchasing a substitute property, such substitute property to be held on the same trust as the Mooroolbark property;
(e)In the event the deceased sold the Mooroolbark property without purchasing a substitute property, the sum representing the interests of the three children shall be invested by the deceased in a trustee investment under the Trustee Act and paid to the children as they each turn 21 years of age.
At that time the Mooroolbark property was subject to a registered mortgage with an amount owing not exceeding $80,000.
On 4 February 1999 the deceased borrowed $229,500 from the State Bank of New South Wales secured by a mortgage registered over the Mooroolbark property. As the property was then valued at around $220,000[1], the amount borrowed was greater than the value of the deceased’s one-half share. It would seem that one of these figures is incorrect as it is unlikely that the mortgagee would have agreed to advance more than the value of the property. The 2001 sale price (referred to below) may suggest that the value was greater than $220,000, but I cannot resolve the difference.
[1]This was stated as the value in particulars to para 7 of the Amended Statement of Claim; the defence admitted the allegations in para 7, and the defendant did not advise me that he disputed the particulars.
Then, on or about 7 December 2000 the deceased undertook a further borrowing, this time from Westpac Banking Corporation, secured by a mortgage lodged for registration on 19 February 2001 and duly registered over the Mooroolbark property. This mortgage was stamped to secure advances of up to $178,000 and/or $216,000. In the absence of evidence to the contrary, it is reasonable to infer that when the Westpac mortgage was registered the earlier mortgage to the State Bank of New South Wales was discharged.
On or around 24 October 2001, by a transfer dated that day and registered on 1 November 2001, the deceased purchased 48 Furneaux Grove, Bulleen for $308,000, subject to a mortgage to Permanent Trustee Company Ltd stamped to secure advances of $292,000. The property was registered in the name of the deceased as sole proprietor, and she granted the mortgage in her sole name.
Around this time in late 2001 the deceased sold the Mooroolbark property for $255,000 according to the transfer which was registered on 5 November 2001, on which date also the Westpac mortgage was discharged. It is admitted on the pleadings that the deceased used the sale proceeds to discharge the mortgage and for her own purposes. The defence however did not admit the plaintiff’s further allegation (in the amended statement of claim) that the sale proceeds were also used to purchase the Bulleen property. I refer below to the defendant’s evidence concerning these matters.
Later in 2002 the deceased increased her borrowing from the mortgagee of the Bulleen property, for which purpose she granted a further mortgage over that property dated 21 June 2002, which mortgage was stamped to secure advances of $360,000. This mortgage was duly registered on 28 June 2002 at which time the earlier mortgage to Permanent was discharged.
There is reference in the evidence to the deceased having undertaken an earlier mortgage borrowing to secure $328,000 on 5 February 2002, and that this mortgage remained registered over the Bulleen property until it was discharged on 21 November 2003. It is unclear how the Bulleen property could have sustained both this mortgage and the June 2002 mortgage. There may well be an explanation but I do not have the evidence. The likelihood would seem to be that the June 2002 mortgage replaced the February 2002 mortgage; again, however, the evidence does not provide clarification.
At some time following her divorce from Mr Sadri, the deceased married Peter Kapoudoglais (called “Kay”).
The deceased and her children lived at the Bulleen home. So too did Mr Kapoudoglais although there is an unexplained statement in a codicil to her will that they had separated.
The deceased died on 2 June 2004 aged 38 years. She left a will dated 4 May 2004 and a codicil thereto dated 20 May 2004. The will appointed the defendant as executor and trustee and also appointed him and her sister Sara Samian to be the joint legal guardians of any infant children of the deceased. In fact the three children were aged under 21 at her death, the plaintiff being aged 20.
By her will the deceased disposed of her estate as follows:
(a)To her son Amir she bequeathed a Rolex necklace and bracelet; to her son Piam she left a set of framed nuggets; and to the plaintiff she left her Rolex watch and the remainder of her jewellery;
(b)To the defendant and her sister she bequeathed all monies held to her credit in her fixed term deposit account at the Commonwealth Bank;
(c)To the defendant she bequeathed her widescreen television;
(d)She directed that her furniture be stored for use by her children in the future;
(e)She left the residue of her estate on trust for sale and from the money arising to pay all debts and to hold the balance in trust in equal shares for her children upon attaining 21 years;
(f)She expressed the wish that the beneficiary of her superannuation scheme, Soroor Balooni, who is her mother, pay to her father, Alan Sam, $40,000 that the deceased owed him and use the balance to pay off all her credit cards;
(g)Finally, she directed her executor to appoint Oboodi Barristers and Solicitors to conduct the legal business of the estate.
By the codicil the deceased gave to her husband “from whom I am separated” the property known as “Eureka Tower”, 3/9 Riverside Quay, Southbank. She stated that they had never jointly owned property.
Probate of the deceased’s will was granted to the defendant on 11 November 2004. Oboodi Barristers and Solicitors, having been duly appointed by the defendant to do so, acted for the estate.
In the inventory of assets and liabilities lodged in connection with the application for probate the following was disclosed –
Victorian Assets
Real estate
Bulleen property
$380,000
Personal estate
Commonwealth bank accounts
$2
$237
$10,031
Bank of Melbourne
$753
$391,023
Superannuation
(amount being ascertained)Assets outside Victoria
Nil
Liabilities
Victoria Legal Aid
$10,062
Contract of sale for purchase of apartment 1203, 3/9 Riverside Quay, Southbank
$25,500
Home Loan
$349,476
Commonwealth Bank
« Mastercard
$7,304
« Visacard
$3,557
Westpac
« Visacard
$13,867
$409,766
I note that the inventory in evidence did not state the net balance of the assets and liabilities of the estate.
I come later to refer to the defendant’s dealing with the deceased’s estate and the plaintiff’s allegations in that regard, but before then I mention some relevant events.
On the death of the deceased the question arose as to what should be done with her house. Her children were aged under 21 and not able to pay the outgoings on the property or the mortgage. But there was the question of the trust of which their father was aware. On 7 June 2004 he lodged a caveat on title in which Amir and Piam as caveators claimed an estate in fee simple on the basis of a Deed of Trust dated 11 January 1999 between Fatima Samian (the deceased) and Sepideh, Amir and Piam.
By a contract of sale dated 24 November 2004 the defendant sold the Bulleen property for $442,000. Costanzo Lawyers acted for the estate on the sale. It appears that the sale was settled on 18 February 2005.
In the meantime, on 21 December 2004 AB Natoli Pty, then acting for the children’s father, wrote to the defendant concerning the estate of the deceased. The letter referred (with details) to the Deed of Trust and the terms thereof and to the deceased’s subsequent dealings with the Mooroolbark and Bulleen properties. The letter concluded with a reference to future action in relation to the breach of trust to secure the children’s interest. Failing agreement to mediate, proceedings would be commenced to investigate the breaches of trust.
The defendant gave evidence that he sought advice from Costanzo Lawyers on the AB Natoli Pty letter, and that advice was given in a conference with the defendant and the deceased’s children. I deal with these matters below. In short, the defendant’s evidence is that Costanzo Lawyers advised that the trust ceased with the death of the deceased and was thus irrelevant. It seems that the AB Natoli Pty letter was ignored.
In order to settle the sale of the Bulleen property it was necessary to deal with the 7 June 2004 caveat. In circumstances to which I refer below, Sepideh, Amir and Piam signed an Acknowledgment and Authority dated 11 February 2005 by which they authorised their guardians (the defendant and his sister) to remove the caveat, and acknowledged that they made the authorisation voluntarily and of their own free will. As mentioned below, the caveat was removed or lapsed.
It is convenient to mention now that subsequently, on 20 February 2006, Abdolreza Sadri lodged another caveat on title, this time in the name of the plaintiff as caveator claiming an estate in fee simple on the basis of the Deed of Trust dated 11 January 1999. This caveat also was removed or lapsed.
Returning to the settlement of the sale of the Bulleen property, after adjustments of $1,222.83 the proceeds of sale were applied in payment of the costs and expenses of the sale (including agent’s “commission fees” of $12,327.20), as to $371,234.85 in discharge of the mortgage, as to $28,015.12 in payment of other debts and liabilities of the estate, and as to $18,061.72 to Victoria Legal Aid. That would have left something over $19,000. The amount of $19,948.10 has been held in the trust account of Costanzo Lawyers since November 2005, apparently not earning interest.
I refer later to other aspects of the administration of the deceased’s estate.
For the moment it is desirable to say something about the parties to the proceeding as it helps explain how the defendant dealt with the Bulleen property.
Initially, when the writ was filed on 5 June 2006, the defendants were the executor, the purchasers of the Bulleen property and their mortgagee the National Australia Bank Limited (“the NAB”). It was alleged that the purchasers and the NAB had lodged caveats on title dated 8 March 2006, and that the NAB’s caveat referred to a mortgage dated 12 January 2005. It was alleged that by reason of the caveats lodged by Sepideh and her brothers the purchasers and the NAB were on notice of their prior equity in the property arising under the trust. Accordingly, it was alleged, the interests of the purchasers and the NAB were subject to, and were postponed in priority to, the interest of the children, and declarations were sought accordingly.
In their defence the purchasers alleged that the purchase was settled on 18 February 2005, and that at settlement the NAB paid the balance of purchase monies and received the documents of title including a withdrawal of Amir and Piam’s caveat. It was alleged that that caveat and Sepideh’s caveat were removed from the title pursuant to s 89A of the Transfer of Land Act 1958 on or about 7 June 2006.
In its defence the NAB alleged a series of relevant dates, viz -
(a)The transfer to the purchasers and the mortgage to the NAB were lodged on 26 April 2006;
(b)The 7 June 2004 caveat of Amir and Piam and the 20 February 2006 caveat of Sepideh lapsed on 26 April 2006;
(c)On 17 July 2006 the transfer and mortgage of the Bulleen property were registered.
It was further alleged that the proceeds of the NAB mortgage were applied to discharge the deceased’s mortgage to Permanent Trustee Company Limited.
In December 2006, pursuant to leave granted by Master Lansdowne, the plaintiff discontinued the proceeding against the purchasers and the NAB, and the NAB discontinued its counterclaim. The only order for costs on these dispositions was that the plaintiff pay the NAB’s costs of the plaintiff’s proceeding.
Evidence
Counsel for the plaintiff did not call any person to give evidence. He relied on admissions in the pleadings to establish the plaintiff’s case for relief, and in a short opening tendered the probate with the will and codicil attached and a letter from the plaintiff’s former solicitor AB Natoli Pty to a solicitor acting for the defendant, Mr JD Crump dated 28 August 2007, the day after an unsuccessful mediation, and which referred to the need for the defendant to provide accounts and other information concerning the estate. The relief sought by counsel was, basically, orders for the taking of accounts to ascertain the disposition of the proceeds of sale of the Bulleen property and the amount that ought represent the value of the children’s interest under the trust, and as to the administration of the estate.
The defendant, who represented himself, gave evidence in substantiation of the written defence filed by Costanzo Lawyers on 27 February 2007. He was cross-examined in the course of which counsel for the plaintiff tendered a number of documents. The defendant called no other person to give evidence.
The Plaintiff’s Contentions in the Amended Statement of Claim
The above introduction discloses, among other things, that the deceased contravened the terms of the trust in favour of her children when she mortgaged the Mooroolbark property in 1999 and, I would infer, when she further mortgaged the property in December 2000. The plaintiff alleges that subsequently the deceased committed further breaches of trust; as to these it is convenient to refer to certain of the important contentions in the amended statement of claim. In the course of doing so I will refer to the defence.
Deceased’s breach of trust/fiduciary duties and defendant’s breach of trust
(a)The sale proceeds from the Mooroolbark property were used to purchase the Bulleen property (para 11); in his defence the defendant denied this allegation. The defence did admit the further allegations that the sale proceeds were used to discharge the Mooroolbark mortgage and for the deceased’s own purposes.
(b)It was then alleged that in the premises the deceased held her interest in the Bulleen property for her children on the terms of the trust (para 12). The defence admitted these allegations. In particulars it was stated that the extent of the childrens’ interest was the value of a one-half share of the Mooroolbark property subject to the childrens’ share of the encumbrances in place on 11 January 1999 together with any proportional increase in value since then.
(c)Alternatively to para 12, the proceeds of the Mooroolbark property could be traced into the Bulleen property (para 13). The defence denied these allegations.
(d)Alternatively to paras 12 and 13, insofar as the deceased used the proceeds of the Mooroolbark property for her own purposes, the deceased held the proceeds, and any assets purchased with the proceeds, for her children on the terms of the trust. The defence denied these allegations and alleged that the deceased did not purchase assets from the proceeds of sale; rather, the deceased received approximately $29,000 from the proceeds of sale which she used to pay debts.
(e)It is alleged, and the defence admits, that by reason of the trust and the deceased “actually acting in receipt of the sale proceeds of the Mooroolbark property” the deceased owed her children fiduciary duties to:
(i)act in accordance with the terms of the trust,
(ii)act in the best interests of the children,
(iii)not place her interests in conflict with those of her children,
(iv)not mingle her funds with funds of the trust, and
(v)not act so as to diminish the funds of the trust.
(f)It was further alleged, and the defence admitted, that insofar as the deceased used the proceeds of sale of the Mooroolbark property for her own purposes or to discharge any part of the mortgage greater than the amount of the mortgage over the Mooroolbark property, the deceased had acted in breach of the trust and her fiduciary duty.
(g)It was further admitted that in entering into the February 1999 mortgage and the December 2000 mortgage the deceased acted in breach of the trust and her fiduciary duty.
(h)It was then alleged, and the defence admitted, that by reason of the above breaches the deceased had taken a personal profit which she was liable to disgorge, and had received the proceeds obtained by her on those breaches on constructive or resulting trust for her children.
(i)It was alleged that by reason of the breaches the children had suffered loss and damage. The loss and damage was the value of the one-half share of the Mooroolbark property subject to the children’s share of the encumbrances in place on 11 January 1999 together with any subsequent accretion in value. The defence did not admit the allegation.
(j)Then, turning to the defendant, it was alleged that as personal representative of the deceased and registered proprietor of, and actually dealing with, the Bulleen property, the deceased held the property subject to the terms of the trust. The defence did not admit these allegations.
(k)It was alleged that the defendant had had knowledge of the trust since prior to and shortly after the date of death of the deceased. In particulars to this plea it was stated that:
(i)The defendant was present at the Family Court when the orders for the trust were made;
(ii)In June 2004 the children’s father advised the defendant of the trust, at the home of a friend, and at the office of a solicitor, Mr Johnson;
(iii)In mid-2004, in a Magistrates’ Court proceeding at which the defendant attended and gave evidence, the existence of the trust was referred to;
(iv)Affidavits filed in the Family Court shortly after the deceased’s death referred to the trust;
(v)The 7 June 2004 caveat referred to the trust;
(vi)In a letter dated 21 December 2004 the plaintiff’s solicitor advised the defendant of the trust.
(l)It was alleged, but not admitted, that by reason of the Bulleen property being held on trust –
(i)the defendant was obliged to administer that property in accordance with the trust,
(ii)the proceeds of sale, and any income therefrom, was not available to meet debts, liabilities and claims of the estate.
(m)It was then alleged, and it was admitted, that the defendant had used the proceeds of sale of the Bulleen property to meet the debts, liabilities and claims of the estate. Particulars referred to a number of items of expenditure leaving, as mentioned above, an amount of $19,948.
(n)It was then alleged, and it is denied, that to the extent that the proceeds of sale have not been preserved in the trust the defendant personally has acted in breach of the trust by reason whereof he personally –
(i)is liable in damages for the breach of trust,
(ii)is obliged to reimburse the trust the sums applied out of the trust for non-trust purposes, and
(iii)is liable to account to the beneficiaries for all income and proceeds of the trust.
(o)Finally was an allegation, which is denied, that the defendant made representations to the plaintiff concerning the lifting of the 7 June 2004 caveat and that he would use the proceeds of sale of the Bulleen property to purchase another house for the children.
Estate assets
The next set of allegations concerned the defendant’s administration of the deceased’s estate. There were allegations as to what were the assets of the estate there being a particular reference in this respect to a property in Iran, which allegations were partly admitted and denied. It was then alleged, and it was denied, that the defendant had failed to provide a proper account of the assets of, and his administration of, the estate; that he had failed to get in the assets of the estate; that he had not administered the estate according to law; and by reason of which the plaintiff had suffered loss and damage. It was alleged that by reason of these matters the defendant in both his personal and representative capacity –
(a)Was liable to account for the use and whereabouts of all of the assets of the deceased’s estate;
(b)Was obliged to get in the proceeds of the Iran property and distribute them to the beneficiaries, including the plaintiff, under Iranian law;
(c)Was obliged to get in and sell the furniture, whitegoods and the like of the deceased; and
(d)Was obliged to ascertain whether any cash of the deceased is held by the deceased’s mother on trust for the children, or for the estate and if so to collect it.
Finally, it was alleged that the defendant was personally liable for damages for failing to administer the estate.
Relief
A raft of relief was claimed against the defendant as executor of the estate and personally. In essence, as I have said, the plaintiff seeks an accounting of the deceased’s dealing with the “trust property” and of the defendant’s dealings in relation to it and the estate. In his submissions counsel for the plaintiff sought only orders for the taking of accounts in order that the financial position may be clarified with a view to then considering ultimate relief.
Defence
The above references to matters admitted and denied in the defence is sufficient at this point to indicate the areas of contention. I make further reference to the pleadings in the following discussion of the facts. It is sufficient now to record that the defendant denied liability, contending (as stated in the defence) that he had “at all times acted in good faith, reasonably and on legal advice in administering the deceased’s estate and in the interests of the deceased’s three children”.
Some Findings of Fact
It is now convenient to deal with certain of the allegations of fact in the amended statement of claim.
Knowledge of trust
The first allegation is that the defendant knew of the trust since prior to and shortly after the death of the deceased. The allegation and the particulars on which it is based are referred to at [33](k) above. In the defence, the defendant denied that he had knowledge of the trust prior to the death of the deceased. As to knowledge since the death of the deceased, the defence alleged that the defendant first knew of the existence of the Trust Deed in approximately August 2004, but did not know of the contents until approximately June 2006. That being the pleadings, I now find as follows on the matters raised commencing with the particulars in the amended statement of claim. In this consideration it is to be borne in mind that the plaintiff and her father did not give evidence.
The first particular is that the defendant was present at the Family Court when the orders for the trust were made. This is not established. The defendant denied that he was so present and there is no evidence that could establish the contrary.
The second particular is that in June 2004 the children’s father advised the defendant of the trust, at the home of a friend and at the office of a solicitor, Mr Johnson. I deal with these allegations below.
The third particular is that the existence of the trust was referred to in a proceeding in the Magistrates’ Court in mid-2004, at which the defendant gave evidence. Again, this allegation is not established.
The fourth particular is that affidavits filed in the Family Court shortly after the deceased’s death referred to the trust. The allegation is non-specific as to any particular affidavit. Putting that aside, the fact is that no such affidavit was shown to have come to the attention of the defendant at any relevant time subsequent to the death of the deceased. The allegation is not established.
The fifth particular is that the defendant gained knowledge of the trust by reason that the trust was referred to in the 7 June 2004 caveat. It is convenient to deal with this particular together with the sixth particular, namely that the defendant gained knowledge of the trust from the AB Natoli Pty letter dated 21 December 2004.
The 7 June 2004 caveat was, of course, lodged within the week following the death of the deceased. The caveat clearly referred to a Deed of Trust made between the deceased and her children, and claimed an estate in fee simple. It is also important to note that it was lodged by the children’s father.
The defendant said in cross-examination that he received a copy of the caveat by mail in June 2004. He also said that within two or three weeks of the death of the deceased he approached an estate agent, Phillip Webb Real Estate, with a view to selling the Bulleen property. At that time he was talking to the children’s father about what to do with the property and they saw the agent. The defendant said that the children’s father was concerned as to what should happen with the monies, which, as I understood it, referred to the deceased’s house and estate. The defendant agreed that they had discussions about the protection of the children’s interests.
The defendant further said in cross-examination that he read the caveat. I accept that, and his above, evidence. The defendant impressed me as an intelligent and aware person and I have no doubt that he read the caveat when he received it and that on doing so he noticed the reference to the Deed of Trust.
As to whether the caveat was “part of what” he discussed with the children’s father, the defendant said “I don’t recall. Not the caveat”. While I bear in mind that the children’s father did not give evidence, yet in the circumstances the overwhelming probability is that the caveat was discussed. The children’s father had an understandable interest to see the trust honoured and performed – it was part of the marriage settlement, it was in the interests of his children, the speed with which he lodged the caveat reflected concern in that regard, the defendant was aware of the caveat, and he and the father were having discussions about the children. I considered the defendant’s initial answer “I don’t recall” to be evasive, and the addition of the comment “Not the caveat” to be self-serving and made up in his own interest. I find that the caveat was discussed, and that the discussion included reference to the Deed of Trust and the nature of the trust for the children. Accordingly, I reject the allegation in the defence that the defendant first knew of the existence of the Trust Deed in approximately August 2004.
With these findings I revert to the second particular referred to above. That had two parts, the first referring to a discussion at the home of a friend and the second to a discussion at the office of a solicitor. The first part is established as I have found that the children’s father advised the defendant of the trust.
As to the discussion at the solicitor’s office, the position is not so clear. I accept that at the request of the children’s father the defendant attended a meeting with the children’s father and the solicitor at the solicitor’s office on 29 June 2004. I find that the meeting was subsequent to the discussion concerning the caveat. In cross-examination the defendant said that he was not sure that anything was said about the trust at the meeting, that he did not hear anything about the trust. In view of the failure of the children’s father and the solicitor to give evidence, and notwithstanding the likelihood that the trust was referred to, the plaintiff’s allegation of advice of the trust at the meeting is not established.
The next leg in the plaintiff’s case is the letter to the defendant dated 21 December 2004. As mentioned earlier, the letter was written by AB Natoli Pty as solicitor for the children’s father. The defendant received the letter. In evidence in chief the defendant said that he referred the letter to his then solicitors, Costanzo Lawyers, “Without knowing or understanding any of the contents or reading it”. He said that Costanzo Lawyers gave advice about the letter, and that he ignored the letter. He said that subsequently Costanzo Lawyers had informed him that their advice was wrong. When he became aware of the bad advice he had to, and did, change solicitors.
In cross-examination the defendant said that he first became aware of the existence of the trust “on two occasions”. The first was the 21 December 2004 letter while the second was advice from counsel. As to these he said as follows.
As to the 21 December 2004 letter, he said that he could not understand it or make sense of it, so he took it to Costanzo Lawyers, who he saw with the children, to see what the letter was about, and they gave them advice upon the letter. This was towards the end of 2004. The second occasion was after the commencement of this case when counsel “explained it to me”. The proceeding was commenced in June 2006. However the defendant’s evidence did not establish the allegation in the defence that the defendant did not know of the contents of the Deed of Trust until approximately June 2006. That is, the date of counsel’s advice was not established.
It is necessary to make further reference to the defendant’s evidence concerning the 21 December 2004 letter and the advice of Costanzo Lawyers. Referring to the clear reference in the letter to the establishment of the trust, the defendant said that he could not understand what that had to do with the case after the deceased had died. Thus he sought advice from Costanzo Lawyers; he gave the solicitors the letter and met with the solicitors with the children. Before the meeting “we [meaning he and the children] discussed about this prior”, he mentioned there was an interested buyer for the house and that should “we need to sell the house” the “caveats” would need to be removed. (I interpolate that having regard to the fact that the second caveat was not lodged until 2006 the reference to caveats was erroneous as the evidence at this point was directed to late 2004/early 2005.) The defendant said that having given that explanation “we all attended Costanzo Lawyers”.
At that point in cross-examination the defendant was asked what his understanding was, at the time when he spoke to the plaintiff about the matter, of the terms of the trust. He replied “nothing”. He said that he never gave the plaintiff advice. The defendant acknowledged that when he asked the plaintiff to deal with the caveat he did not understand the importance of the Family Court orders for a trust; he said that was why he asked the children to attend the meeting. He wanted the solicitors to explain it. He said that the solicitor gave him, as executor, advice prior to the meeting about the effect of the trust; the advice was in writing and he did not have a copy but they would provide it if he took them to court. That, he explained, was “Because they believe they didn’t give me the right advice at the time”; Costanzo Lawyers had since told him that.
As to the advice actually given by Costanzo Lawyers, the defendant said that the solicitor advised that the caveat lodged by the children’s father “had no relevance to this case”. The defendant explained the solicitor’s advice as being that the trust was the cause of the caveat, that the trust was not relevant because when the deceased died “everything else died with it”, so the caveat would have to be removed. He said that the solicitors went through the letter. The solicitor said that if the caveats were not removed the house would not be sold and the mortgagee would take over. The solicitor asked the children if they had any more questions and they said “no” and they wanted the house sold otherwise the mortgagee would take over. It was in these circumstances that Costanzo Lawyers prepared, and the children signed, the Acknowledgment and Authority dated 11 February 2005 referred to earlier. The date of the document indicates that the meeting with the solicitors occurred no later than that date.
I accept that at the meeting with the defendant and the children, Costanzo Lawyers advised on the 21 December 2004 letter from AB Natoli Pty. It is to be observed that the letter was so clear that it spoke for itself. As to whether the solicitor advised that the trust died with the deceased and was thus of no relevance, I have only the defendant’s evidence. It is consistent with such advice having been given that the letter was ignored by the defendant and Costanzo Lawyers. That the letter was so ignored accords with the defendant’s evidence and with the letter from Costanzo Lawyers to AB Natoli Pty Ltd dated 8 March 2006. In that letter Costanzo Lawyers acknowledged “correspondence forwarded to our client dated 21 December 2004 and 27 February 2006” and stated they were “in the process of obtaining instructions from our client and will notify you in due course”. Those terms may suggest that the solicitors had not seen the 21 December 2004 letter before, but that is not necessarily so. I have no evidence of any subsequent response to the 21 December 2004 letter; indeed none was suggested.
On the other hand, it might have been expected that Costanzo Lawyers would have replied to AB Natoli Pty with a reasoned explanation in accordance with their apparent advice. But there was no response. And the solicitor did not give evidence. In the end the defendant asserted that he had acted throughout upon legal advice but all I have is his oral assertion as to this and the content of the advice. The other concerning fact is that the alleged advice was so wrong that it is hardly to be contemplated as being given by a lawyer. I can readily accept that advice was given as to the position of the registered mortgagee and the issues and cost involved in seeking to establish a priority of interest, but that is quite distinct from and does not explain advice that the trust died with the deceased and was thus irrelevant. Regarding the matter overall it is not established to my satisfaction on the balance of probabilities that Costanzo Lawyers qualified their explanation of the AB Natoli Pty letter with advice to the effect stated by the defendant.
Representations to the plaintiff
I now deal with the allegation referred to at [33](o) above that the defendant represented to the plaintiff that if she co-operated in lifting the 7 June 2004 caveat over the Bulleen property the defendant would use the proceeds of sale thereof to purchase another house for the children. In particulars it is stated that the representation was made orally by the defendant to the plaintiff. It is alleged that in reliance on the representation the plaintiff signed a withdrawal of caveat on 11 February 2005 and took no further step to secure her interest in the trust until lodging the 20 February 2006 caveat. It is then alleged that the representation was not true in that the defendant used the proceeds of sale to discharge debts and expenses of the estate, and not in or towards the purchase of a house. It is alleged that the representation was made knowing it not to be true and intending the plaintiff to act on it, and that the plaintiff had suffered loss and damage.
All of these allegations were denied in the defence. More importantly, the fundamental allegation of the representation was not supported by evidence from the plaintiff and was not squarely put to the defendant in cross-examination. It was suggested that the defendant told the children before the end of June 2004 that the house was going to be sold and that they would get money from the sale, which the defendant denied, but that was not the alleged representation. The defendant said that from the day the deceased died they (meaning he and the children) discussed the options with the house. He (the defendant) could not afford to pay the mortgage to keep the house going and nor could their father, so “they all agreed that we should sell the house”. He said that the children knew the amount of the mortgage and that the amount remaining after a sale would be distributed as per the will into the three equal shares. None of this supports the alleged representation which I conclude is not established.
Deceased Breaches the Trust
I turn now to the plaintiff’s case that the deceased acted in breach of the trust for her children.
When the trust was created the Mooroolbark property was subject to a registered mortgage. As the terms of trust required that the deceased not encumber the children’s interest “beyond the level of the then existing mortgage”, it is necessary to ascertain what that “level” was. In the first place, this requires ascertainment of the meaning of the expression “level of the then existing mortgage”. As to this, there are two possibilities, namely –
(a)that it refers to the dollar amount secured by the mortgage at the time when the trust was created, and as an encumbrance apportioned as to one-half of such amount to the one-half interest of the children; or
(b)the proportion that such apportioned amount bears to the value of the property or, more accurately, the value of the one-half share held for the benefit of the children.
While there is much to be said for each view I would prefer the latter as better reflecting the intention of the terms of the trust. It provides a measure of flexibility in allowing for an increase in value of the subject property and a greater borrowing on the security thereof rather than pegging the amount to the inhibiting monetary “level” at the time of creation of the trust. Thus understood, the latter view is seen as always securing the relative interest of the children, established at the creation of the trust, without unduly restricting the deceased’s ability to mortgage the property as security for a borrowing. I note also that the latter view is more favourable to the deceased, in the sense that it gave her greater scope to borrow within the terms of the trust.
On this understanding, the terms of trust required that if the deceased wished to mortgage the property to secure the borrowing of any amount greater than “the level of the then existing mortgage” such greater amount was required to be secured only against the one-half share held by the deceased for herself beneficially.
On this basis it is necessary to know the value of the Mooroolbark property and the mortgage amount when the trust was created. As to these matters, having regard to the pleadings and that the defendant raised no issue concerning these matters, the value of the property may reasonably be taken as $220,000 and the mortgage as in the order of $80,000. Of course, if necessary an inquiry could be had as to these and other such matters, but I consider that these findings are open and reasonably to be made in the circumstances. The finding as to the mortgage amount is most favourable to the defendant as the amount actually owing may have been less than $80,000. On this basis one-half of the mortgage encumbrance on the children’s interest was $40,000 or close enough to 18% of $220,000, or 36% of $110,000. As stated above, I consider that the correct measure of “level” for the purpose of the trust is that which represents 36% of the value of the one-half share of the property held beneficially for the children.
Of course it may be thought that a lender would require the deceased to provide security over the entire fee simple interest in the property. But the terms of the trust were agreed to and are what they are, and the deceased was obliged to act in accordance with them.
With this understanding of the meaning of the terms of the trust I turn to the question whether the deceased acted in breach. It is undoubtedly the case that she did and that she was liable to compensate her children in consequence[2].
[2]See, for instance, Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484.
First, the 4 February 1999 borrowing constituted a breach because it exceeded the “level” of 36% of the value of the children’s one-half share of the property being $110,000. Whereas 36% of the value of the one-half share was approximately $40,000, by reason of the mortgage encumbering the whole property, the mortgage secured a borrowing against each one-half share of $114,750.
Then, as to the 7 December 2000 borrowing, I know only that the borrowing was secured by a registered mortgage over the Mooroolbark property, and that the mortgage was stamped to secure advances of up to $178,500 and/or $216,000. It may be inferred that the mortgage was of the entire fee simple interest. However I do not have evidence of the value of the property at this time. Thus, while again it might be supposed that in undertaking this mortgage borrowing the deceased committed the same breaches of trust, further evidence or an inquiry is necessary to be able to make precise findings.
That brings the story to the sale of the Mooroolbark property and the purchase of the Bulleen property.
The earlier reference to these transactions (at [6] and [7] above) indicates that they occurred more or less contemporaneously. The defendant gave some evidence as to the timing of the transactions, and as to the denial in the defence (see at [33] above) that the deceased used the sale proceeds to purchase the Bulleen property. I should now refer to that evidence.
In his evidence in chief the defendant said that from the materials he “had in hand” he had “gathered” that proceeds from the Mooroolbark property were “not used or gone towards” the Bulleen property, adding that “… the property in Mooroolbark was in fact sold after the property was purchased in Bulleen”. He said that he could not remember the dates, but if he was “not mistaken from memory in the vicinity of about a month or so after … give or take a few days”. The defendant added that the Bulleen property was purchased by the deceased “getting … a separate mortgage”. And the proceeds of sale of the Mooroolbark property were used to discharge the mortgage on that property. That was the reason why he denied the plaintiff’s allegation that the proceeds were used to purchase the Bulleen property. The defendant said that he had seen the records that told him the amount received on the sale of the Mooroolbark property and the amount that remained after discharge of the mortgage. That amount was approximately $29,000. He believed the documents pertaining to the sale and the amount received had been discovered. However, he did see “that it had not gone into” the Bulleen property. It went into the deceased’s personal bank account. Stating that he was not sure what the deceased did with the $29,000, the defendant said that based on perusal of her account she used the money to pay expenses and debts.
In cross-examination the defendant referred to having taken custody of bank statements and accounts of the deceased, “some agreements of buying and selling houses” and Family Court documents. He said they had been discovered. He had not brought them to Court. During the cross-examination counsel for the plaintiff called on the defendant to bring the trust accounts and supporting documents to Court. The defendant did not do so, pointing to the practical difficulty and that they had been discovered in the course of the proceeding. I note that the plaintiff’s call did not specifically include documents pertaining to the sale and purchase and mortgaging of the Mooroolbark and Bulleen properties.
Further in cross-examination, the defendant said that he had made no inquiry into the circumstances in which the deceased increased the borrowing on the Mooroolbark property from $80,000. Nor had he calculated what would have been the entitlements of the children if the trust had not been breached. He said that he did not know about the trust or understand it, all he considered and used as his guide was the will and codicil and the lawyer’s advice. Later in the cross-examination, the defendant repeated that the money from the Mooroolbark property did not go to the Bulleen property. He denied the suggestion that the deceased “chose a process which made the equity dealt with by the trust appear to disappear”.
Upon this evidence, including the absence before me of the documents pertaining to the sale and purchase of the properties, I am unable to be satisfied, on the balance of probabilities, that any specific part of the proceeds of sale of the Mooroolbark property were directly applied to the purchase price of the Bulleen property. Nevertheless, that conclusion does not mean that I accept the defendant’s evidence as to the timing between the two transactions. For one thing, from what appears of the deceased’s asset position, it is unlikely that the deceased could have undertaken the additional borrowing on the Bulleen property without selling the Mooroolbark property, upon which sale the mortgagee thereof would have applied the proceeds of sale in discharge of the mortgage. Then, the proximity in time of the transfers reflects a contemporaneity of transactions. Regarding the matter overall, I would incline to the view that the purchase depended on, and was enabled by, the sale.
I have dealt with this aspect as it seemed to me that the defendant was somehow seeking to establish a cut-off point on the sale of the Mooroolbark property with the effect that the Bulleen property was not affected by the trust. If that was the point of the defence, as distinct from raising an issue of fact as to whether any part of the sale proceeds went to the purchase price, it has no substance. The fact is, I would find, that there was a nexus between the two transactions, as I have mentioned. Furthermore, the Bulleen property clearly being a substitute for the Mooroolbark property, the terms of trust had the effect that the Bulleen property was held on the same trust. And so much was recognised by the admission in the defence that the deceased held her interest in the property for the children on the terms of the trust. In my view the effect of the trust was that the extent to which the deceased might encumber the one-half interest of the children continued to be determined as I have earlier indicated. That is, the determination of the “level of the then existing mortgage” did not commence afresh on the basis of the new Bulleen mortgage without regard to what had gone before. I should say that I heard no argument on this point, but it seems to me clear that this must be the effect of the terms of the trust.
Proceeding on that basis, the extent of the borrowing over the Bulleen property at the time of purchase constituted a considerable excess over that permitted by the trust. There is no reason to suppose that at any subsequent time the level of encumbrance fell within the permitted level. Indeed, having regard to the evidence of value at those times, to the home loan liability at the date of death, and the sale price in 2004, it is reasonable to conclude that at all times including death the permitted level was exceeded.
The product of these conclusions is that prior to and at her death the deceased was in breach of the trust in favour of her children. As counsel for the plaintiff observed, however, as his underlying submission, it is difficult to know the precise measure of that breach, as at death, in dollar terms. It was for that reason that he submitted that the appropriate disposition of the proceeding was an order or orders for the taking of an account or an inquiry to ascertain such amount.
If matters were to stand thus at the point of the death of the deceased the question would be whether the children could not recoup the monetary expression of the breach from the deceased’s one-half interest in the Bulleen property. If not, it is axiomatic that the deceased, as the defaulting trustee, would personally have been liable for the default. Not only did she breach the trust in encumbering the children’s interest beyond the relevant “level”, but she did so to her own advantage. As to these matters I refer to the various admissions in the defence.
It was in these circumstances that, regrettably, the deceased died. Of course the apparent legal advice that the trust died with the deceased was wrong. The trust and the liability occasioned by its breach remained. In short, the liability was a liability upon the estate of the deceased and as such to be taken into account in the administration of the estate. Of course it was not so taken into account, notwithstanding the defendant’s awareness of the trust in June 2004, as I have found, and the further advice of the trust by the 21 December 2004 letter of AB Natoli Pty.
At this point it is convenient to refer to what occurred in the administration of the estate.
Administration of the Estate
I have referred above to the assets and liabilities of the deceased disclosed in the inventory lodged in connection with the application for probate. On the pleadings there are issues as to several items –
Land in Iran
The statement of claim alleged that the estate included a piece of land in Iran of unknown value. It is to be noted that the inventory stated that assets outside Victoria were “Nil”. As to the requirements for an inventory, the affidavit in support of an application for probate is required to exhibit an inventory of assets of the estate of the testator in Victoria and elsewhere setting out the gross value of all known assets; see Supreme Court (Administration and Probate) Rules 2004, rule 2.04(2)(d)(iii).
The defence denied the allegation and alleged further that in approximately April 1999 the deceased agreed to transfer the Iranian land to her father in full satisfaction of her debt to him of $15,800 and provided him with a power of attorney no. 21845 dated 18 April 1999 to enable him to sell the land. The defence further alleged that the land was sold by the deceased’s father on 27 June 2004 for approximately $15,000.
The defendant was cross-examined on this matter. He said that he advised Oboodi Barristers and Solicitors that the land was in the deceased’s name but that the solicitor considered it was not appropriate to refer to the land in the inventory. The defendant said that he did not know the solicitor’s reason for that view. The defendant denied that he had concealed the land from the solicitors. He said that he had not seen the land and did not know its size but had “handed in” documents that gave all the information. He had submitted statutory declarations and powers of attorney from the deceased to her father “to say that the land was passed on to him for part of the loans she had to him”. He believed that those documents said that the land was originally given to the deceased by her father, and that it was returned to him. He believed that perhaps the solicitor “knowing of those facts and those documents … thought it not appropriate to mention [the land] in the probate matter”. I note that counsel for the plaintiff did not call for production of the documents referred to during this evidence and, for all I know, they may have been discovered. The solicitor, of course, did not give evidence to explain the inventory or any related matter.
As to the date of the sale, the defendant agreed in cross-examination that his father left Australia soon after the deceased’s death and went to Iran to sell the land. The defendant said that that (the land) was an issue that had to be dealt with. The deceased’s father returned to Australia on 15 August 2004. It seemed that the Department of Immigration records did not include the father’s departure date for Iran, but nevertheless the evidence of the defendant confirming the pleaded date of 27 June 2004 may be accepted. That was, of course, only 25 days after the death of the deceased.
The defendant was cross-examined as to the steps he took to obtain a “proper valuation” from a person with relevant knowledge of the Iran land prior to his father going to Iran. He said that personally he took no steps, he left it to his father. His father advised him that he “contacted a few real estate agents there”, who gave different valuations, and that he (the deceased’s father) advised the agents that he would be willing to pursue the highest valuation, and should there be a buyer “we would be taking the offer”.
I had the clear impression that when the deceased died the land in Iran stood in her name. It is possible, on the defendant’s evidence, that there was an intended but incomplete transaction whether by way of gift or otherwise. But, without more, the evidence appeared to indicate that the land should have been included in the inventory. It is possible that the defendant’s suggested reason for the solicitors not including it was correct, but in the absence of evidence of relevant matters including of the solicitor’s actual reason, I cannot so find.
I note further that the defendant was not asked, and did not state, whether he received the proceeds of sale of the Iranian land as executor of the deceased’s estate and, if so, how he dealt with them. It is however, a reasonable inference from his evidence that his father had retained the proceeds of sale for himself to the exclusion of the estate.
Furniture and personal effects
The statement of claim alleged that the estate also included furniture and personal effects of a value of approximately $80,000. The plaintiff called no evidence to support this plea. I note that the inventory made no reference to such items. However, the defence alleged that furniture and personal effects were an asset of the estate to an approximate value of $21,000. The defendant affirmed the correctness of the defence which also included the further allegation that in or about February 2005 the children agreed on the distribution of the furniture and that the plaintiff took her share to her unit. In cross-examination various suggestions were made to the defendant as to furniture being taken or used by persons other than the children, and contrary to the defence, all of which suggestions the defendant denied. The defendant also denied a suggestion that the plaintiff had received no “money or specific gifts made in the will”. The defendant said that the plaintiff had received what was stated in the defence. He said that he had distributed everything in his possession. As the plaintiff did not give evidence I had no contrary evidence from her on these matters.
Jewellery
The statement of claim alleged that the estate included jewellery although without stating a value. The inventory did not disclose jewellery. However the defence admitted that the estate did include items of jewellery which the children had divided between themselves in accordance with the list set out by way of particulars. The list ascribed a value to each item. The total values being $6,540 for the plaintiff, $6,950 for Amir and $5,750 for Piam. In cross-examination the defendant said that a jeweller valued items of jewellery he collected from the deceased’s safety deposit box at the Commonwealth Bank. He denied a suggestion that the plaintiff had not been given anything from the deceased’s estate, and affirmed the defence. Again, I have no contrary evidence from the plaintiff on these matters.
Cash
The statement of claim alleged that the estate included an amount of cash of an unknown value. This of course meant cash in addition to the bank accounts referred to in the inventory. The defence, which the defendant affirmed, denied the allegation.
Deposit paid on Southbank unit
The statement of claim alleged that an asset of the estate was a deposit paid on a unit at Southbank. This was undoubtedly a reference to the unit referred to in the codicil. The defence denied the allegation on the following basis, that while the deceased had paid a deposit of $28,500 on the unit, by the codicil she gave the unit to her husband and he had been the registered proprietor since 24 March 2005. In other words, the gift, being unconditional as to the deposit, carried the benefit of the deposit. As I have said, in cross-examination the defendant affirmed the defence.
Another matter – superannuation
I mention this because the defendant was cross-examined on the matter. It will be recalled that the will referred to the deceased’s mother as the beneficiary of the deceased’s superannuation. The defendant was cross-examined as to whether he had taken steps to ensure that the children received the superannuation. He said that he had written to the superannuation trustee asking that the money be distributed into three equal shares for the children, and that had happened. He said that the plaintiff and the deceased’s husband each wanted the whole amount but he wanted it distributed in three equal shares. It seems from Exhibit K that the estate received a superannuation payment of $9,000. I do not understand any part of this to have been paid to the children, but it may be that the matter has simply not been explained to me.
Defendant’s position
In a nutshell, the defendant’s position is that he had administered the estate in the interests of the children and that at all times he acted in good faith, reasonably and on legal advice. However with the mortgage on the house and various debts and liabilities to pay, and after distributing the deceased’s furniture, personal effects and jewellery to the children, the amount remaining in the estate was the sum of $19,948 held by Costanzo Lawyers. I note four things about this:
(a)The defendant said that he had used his own funds to pay debts and liabilities (as to which see Exhibit K);
(b)As residue, the $19,948 is payable to the children equally. In evidence the defendant said that that had been his intention but he now desired that the money be applied for the welfare and education of the youngest son Piam. That, however, is precluded by the will cl 10 of which permits the trustee, during the minority of any infant beneficiary, to apply the whole or part of the expectant or contingent share of such infant for his or her maintenance for any purpose whatsoever. It is thus plain that the defendant’s desired application of the whole of the fund, as distinct from one-third, is precluded by the will unless the plaintiff and Amir were to consent to such application.
(c)The amount of $19,948 should have been placed in an interest bearing account.
(d)The proceeds of sale of the Iranian land have not been accounted for.
Plaintiff’s pleaded contentions
The statement of claim alleged that the defendant:
(a)Had not provided a proper account of the assets of, and of his administration of, the estate in that –
•He had failed to disclose assets in the inventory.
•He had permitted furniture to be taken to the home of a person who was not a beneficiary; this was denied by the defendant and the plaintiff called no evidence to establish the allegation.
•He had not accounted for the use of estate funds.
(b)Had failed to collect estate assets, namely –
•The Iranian land.
•Furniture removed to a person not a beneficiary; as to this, see above.
•Cash held by the deceased’s mother; this was not established on the evidence.
(c)Had failed to properly administer the estate in that –
•He permitted the Iranian land to be sold and had not got into the estate proceeds of sale to be dealt with under the will and in accordance with law, in particular no part of the proceeds had been paid to the children.
•Furniture and other chattels had been given to a person not a beneficiary, and the jewellery had not been distributed according to the will; these matters have been discussed above.
The statement of claim then alleged that by reason of the defendant’s breaches of duty the plaintiff has suffered loss and damage, being:
(a)Her entitlement under Iranian law to a portion of the Iranian land or the proceeds of sale thereof.
(b)Diminution of the plaintiff’s share by reason of not collecting estate assets.
(c)The jewellery gifted to her by the will had not been given to her by the deceased.
It is then alleged that by reason of these matters the defendant:
(a)Is liable to account for the use and whereabouts of the estate assets.
(b)Is obliged to collect and distribute the proceeds of the Iranian property.
(c)Is obliged to get in and sell the deceased’s furniture and chattels.
(d)Is obliged to ascertain whether any cash of the deceased is held by her mother on trust for the children and the estate and, if so, to collect it.
Alternatively, it is alleged that the defendant is personally liable for damages for failing to properly administer the estate. These damages were the plaintiff’s share in the value of the Iranian land, the value of the deceased’s furniture and the amount of any cash held by the deceased’s mother for the deceased.
Of the several matters relied on in these allegations it can be said on the evidence that the unanswered matter is that of the Iranian land. Notwithstanding the defendant’s protestations that he had discovered all documents and had provided an account, his position on the Iranian land was unconvincing. I can, of course, only go on what was before me. The facts bespoke a need for explanation and account and I did not receive it. I was left with an abiding concern that the Iranian land had not been dealt with by the defendant as it ought to have been in accordance with his duties as executor of the deceased’s estate.
The defendant and his father moved quickly in dealing with the Iranian land. That is one thing but it must reasonably soon have become apparent that the estate had a number of debts which might operate to the substantial diminution of that which might be received by the children. And, as to this, in June 2004, within weeks of death, the defendant became aware of the trust, which was plainly a matter of significance to which regard should be had and to be drawn to the attention of the estate solicitor. Further, although the need to deal with the problem of the mortgage was of immediate concern, the estate being what it was the question of a claim by one or other of the children for compensation for breach of trust or under Part IV of the Administration and Probate Act1958 must have been within contemplation by the solicitors, reasonably informed. As to the latter possibility, the Administration and Probate Act 1958 allowed the children six months, or such further time as the Court might allow, in which to commence an application for further provision out of the estate[3], and the defendant could bear personal responsibility if he distributed before then[4]. There was no suggestion in the evidence that the children were informed, by the defendant or the estate solicitors or Costanzo Lawyers or otherwise, as to the right to apply for provision under Part IV. I find that they were not so aware. None of this is to suggest that the plaintiff or her solicitors had a claim under Part IV, and, indeed, the size of the estate as presented by the defendant would preclude a claim. But these considerations serve to emphasise the importance to the children of compensation for the breach of trust as a liability of the deceased and thus the estate. In other words, it was important that the executor properly investigate the matter of the breach and do what he could to obtain compensation for the children for the breach of trust, and attend to this prior to distributing the estate, and not make distribution until the position on this aspect, as with other debts and liabilities, had been clarified. The Iranian land was in the same position, and thus it was important to establish whether it was an asset of the estate.
[3]Section 99.
[4]Section 99A.
Submissions
As mentioned above, counsel for the plaintiff sought only orders for the taking of accounts for the purpose of clarifying the financial position with a view to then considering relief.
In his submissions counsel concentrated on the breach of trust case. As I have made findings on the defendant’s knowledge and awareness of the trust it is not necessary to refer to counsel’s submissions on that matter. He submitted that whatever reason the defendant had “for not seeking to enforce the trust” was not an appropriate reason. He submitted that there “had to be at some point a question arise between who should take priority where the assets were limited, and in the event that the bank took priority in relation to one transaction the tracing provided for by the trust … came into effect; and we haven’t had any explanation to where the equity belonging to the children has gone. It wasn’t open to the deceased to deal with it. If she purported to do so and an issue arises with a third party such as the bank, it’s incumbent on the executor to take proper steps to deal with the matter. And, in my submission, court ordered protection of the three children has in these circumstances been ignored and it’s a situation in which it would be appropriate to make orders for the taking of accounts. The question of entitlements that might follow really depends on the taking of accounts that occurs”.
Counsel said that the purpose of the accounts was to establish the value of the trust estate and the amount of the encumbrance thereon. Counsel said that the accounts should establish “how the equity which ate into the children’s equity was used”. The accounts should permit the current value of the children’s equity to be quantified. He also said that “there should be an identification of parties who have taken advantage of the children’s asset, [being their equity] in the property, in obtaining or creating other assets”. As to “parties who have taken advantage of the children’s asset”, counsel speculated, by way of example, that the equity had been used to purchase the property in which the defendant and his parents lived, but he immediately conceded there was no evidence to support that speculation and that he could not contend that that happened. He then said that the accounts would provide information about “the actual use of the money which was borrowed on the [deceased’s] property”, that is, what did the deceased do with the money she borrowed on the security of the property?
At the conclusion of his submissions I asked counsel to submit a draft of the orders he sought. He said that he would but subsequently indicated he would not as he considered it inappropriate to submit a draft order that differed from the prayer for relief.
The defendant also addressed submissions the substance of which I have mentioned above. He added that he had “submitted everything” – meaning documents – pertaining to the deceased’s expenditure.
Decision
It is important to bear in mind what was established on the evidence when considering whether to make any, and if so what, order for the taking of an account. To start with, it is clear and admitted that the deceased acted in breach of trust when she encumbered her properties. Then, of course, an inquiry could be had to determine value and amounts at relevant times. In addition to such an inquiry, the prayer for relief sought:
(a)An inquiry as to the extent to which the deceased used the funds of the trust for her own purposes;
(b)An account and inquiry of the defendant’s administration of the Bulleen property including the proceeds of sale, any income received relating to the property and any debts or liabilities paid;
(c)That the defendant file an account of his administration of the estate. This could be ordered under r 6.03(1) of the Supreme Court (Administration and Probate) Rules 2004.
The accounts and inquiries contemplated by these orders are of wide and general compass. The question is whether orders for such accounts and inquiries are warranted on the evidence and in the circumstances of the case. In my view, and having regard to the evidence and my findings, the real issues concern the breach of the trust and the Iranian land.
As to ordering accounts and inquiries on the other matters raised by the plaintiff, in my view, when regard is had to the evidence and my findings, the costs and vexation involved in having such accounts and inquiries undertaken, and the financial position of the estate, the order is not warranted and ought not be made.
On this basis the question is whether the matters of the breach of trust and the Iranian land warrant an order for accounts and inquiries to ascertain the facts concerning them. I deal with each in turn.
In relation to the breach of trust, an account and inquiry would, or should, serve to identify the relevant “level” of encumbrance for the purpose of the terms of the trust, and thus ascertainment of the quantum of the breach. As to that, I have ventured some figures which are sufficient for the purpose of demonstrating that the amount may be relatively substantial.
Then, each property was subject to a mortgage. It is necessary only to refer to the mortgage with the Bulleen property. There is no reason to suppose, and it is not suggested, that the mortgagee made the subject advance and granted the mortgage with notice of the trust. In accordance with the prohibition in s 37 of the Transfer of Land Act 1958, the trust would not have been recorded in the Register of land. Furthermore, on registration of its mortgage the mortgagee acquired paramountcy of title subject only to prior recorded encumbrances and the limited exceptions provided in ss 41, 42 and 43 of the Transfer of Land Act1958. There is no basis on which to suppose, and it is not suggested, that any of these exceptions was applicable here as against the mortgagee to the deceased. Accordingly, as against the trust the registered mortgagee had paramountcy of title. That paramountcy or indefeasibility of title was not affected by the death of the deceased or notice of the 7 June 2004 caveat. Hence, following the death of the deceased the mortgagee could have exercised its power of sale (assuming entitlement to do so) notwithstanding any notice of the trust given by caveat or otherwise following the registration of its mortgage. Then, s 43 of the Transfer of Land Act 1958 provides that except in the case of fraud a purchaser from the registered mortgagee takes title unaffected by a trust even if the purchaser had notice of the trust.
What happened, however, was that the defendant himself contracted to sell the land in November 2004, several months after lodgement of the 7 June 2004 caveat. It is not necessary to repeat the facts concerning the transaction. The defendant took the view that as executor he lacked the financial resources to do other than sell the property. In my opinion, he acted reasonably in taking that view, for the estate was unable to bear the burden of the mortgage. Then, after settlement and payment of the mortgage and some debts and liabilities the estate holds $19,948.
It is then necessary to point out that this amount would be less if the defendant had recouped himself for amounts he advanced from his own pocket. Of course the proceeds of sale of the Iranian land would inflate the amount in hand, assuming that that land truly was an asset of the estate. But, pausing at that point, the deceased’s estate was insufficient in value to satisfy the children’s equity. The executor had no more than he had. Assuming the amount required to satisfy the children’s equity was an appreciable amount as I have discussed, and were the amount to be included as a liability of the estate, the question would arise as to whether the estate was not insolvent. This would seem to depend on the value of the Southbank unit and the Iranian land, assuming the Iranian land to be an asset of the estate. The Southbank unit was of course amenable to application to pay the debts and liabilities of the estate, but as I lack evidence as to its net value I cannot take that aspect of the matter further.
This analysis would indicate that further evidence is required concerning the Southbank unit and the Iranian land in order to determine the value of the former and whether the latter was an estate asset and, if so, how it and the proceeds of sale should have been dealt with.
No question of personal liability in the defendant could arise, or be determined, until the financial position of the estate is clarified in these respects. If the estate was financially unable to make good the breach of trust then the defendant cannot bear a personal responsibility to do so. For in that circumstance he as executor could never have had the funds to meet the claim as a debt or liability of the estate. And, to the extent that he did have funds it is the application or wrongful application of those funds or the relevant part thereof that is called in to question.
In these circumstances it seems to me that further evidence is required on:
(a)The market value of the Southbank unit and the amount owing thereon, including the relevant contract of sale and any financing documents, at the date of death and, say, six months thereafter.
(b)The deceased’s ownership of the Iranian land, including documents pertaining to its sale, the receipt and disposition of the proceeds of sale, and the law of Iran relating to distribution of the land and its proceeds.
I will hear the parties as to these matters and the terms of the orders to be made. I would not make a general order for accounts and inquiries as the plaintiff seeks. I consider such orders to be unwarranted by the evidence, beyond the occasion and unjustifiable in terms of cost.
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