Kellerman v Kellerman-Thornton
[2020] NZHC 2297
•4 September 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-250
[2020] NZHC 2297
UNDER Sections 21 and 44 of the Administration Act 1969 IN THE MATTER
of an application to remove an executor from office and ancillary orders
BETWEEN
BRENDAN EUGENE KELLERMAN
Applicant
AND
MARGARET YVONNE KELLERMAN- THORNTON
Respondent
Hearing: 13 August 2020 Appearances:
J J Pietras and B Sheehan for the Applicant T R Mounsey for the Respondent
Judgment:
4 September 2020
Reissued:
14 September 2020
JUDGMENT OF COOKE J
Table of Contents
Background [3]
The concerns giving rise to the applications [6]
Removal of executor [15]
Executor expenses and benefits [20]
Application to the facts of this case [26]
Airfares [29]
Hotel accommodation [32]
Meals [34]
The husband’s airfares, accommodation and meals [35]
What level of costs should be allowed? [36]
Claim for an account [41]
KELLERMAN v KELLERMAN-THORNTON [2020] NZHC 2297 [4 September 2020]
Application in the present case [48]
Should the executor be removed? [53]
The relevant considerations [54]
Two additional concerns [61]
Who should be the executor? [67]
Conclusion and orders [72]
[1]By application dated 22 May 2020 Brendan Kellerman seeks orders:
(a)Removing his sister, Margaret Kellerman-Thornton as executor of the estate of their father, the late John Kellerman, and appointing Perpetual Trust Ltd as replacement executor.
(b)Requiring Mrs Kellerman-Thornton to exhibit on oath an accurate inventory and account of Mr John Kellerman’s estate.
(c)Requiring Mrs Kellerman-Thornton to account for any expenses that were not properly incurred in her administration of Mr John Kellerman’s estate.
[2] Mrs Kellerman-Thornton has filed a notice of appearance for ancillary purposes dated 6 July 2020. In it she suggests that she does not oppose the orders and will abide the decision of the Court, but appears to be heard on certain specified matters. The specified matters question whether the grounds for granting the orders sought are established. Her affidavit, and her counsel’s submissions argue that they are not. In short she substantively opposes the orders notwithstanding the form of the notice she has filed.
Background
[3] Mr John Kellerman died on 30 December 2018. He was survived by Mrs Julianna Kellerman and his three children — the applicant Brendan, the respondent Margaret and their brother Alexander. Julianna and John were both Hungarian, and following his death Julianna has returned to Hungary. She was John’s third wife, and stepmother to the three children. They had been married for approximately 10 years.
[4] Brendan was estranged from his father. He explains in his affidavit that he had not been in contact with him before his death for about 20 years, which he says was due to his difficult upbringing. In addition Alexander has suffered significant health issues over his life. The evidence is not clear on the full circumstances, but it appears he suffered a further significant medical event after John’s death and has become significantly disabled as a consequence. Brendan and Margaret have been in dispute in the Family Court as to who should be appointed Alexander’s welfare guardian. By orders made by the Family Court on 22 June 2020 the Public Trust was appointed property guardian. By notice dated 12 August 2020 filed in this proceeding, counsel for the Public Trust indicates the Public Trust had been served with these proceedings and abides by the decision of the Court. The application concerning welfare guardian is yet to be determined.
[5] It is also relevant that a dispute arose when Brendan and Margaret’s mother died. At that stage Margaret brought a claim under the Family Protection Act 1955, the matter was settled by consent and Margaret’s costs were paid out of the estate. This provides some background to the significant disagreements that now exist between Brendan and Margaret.
The concerns giving rise to the applications
[6] Mr John Kellerman’s will is dated 17 September 2014. It is one page long. It appoints Margaret as executor. It leaves the sum of $70,000 to Julianna, together with an entitlement to reside at an address in Cumberland Street, Taupō for 12 months. The balance of the estate, after deducting the usual expenses, is to be divided in equal shares between Brendan, Alexander and Margaret. The primary assets of the estate are two properties in Taupō, both of which have been sold for just over $550,000.
[7] One of the issues about Margaret being the executor is that she lives in London. This was something that John was aware of when he made his will. She has been required to return to New Zealand to attend to her obligations as executor.
[8] There have been significant issues in relation to Margaret’s exercise of her duties as executor. The two primary issues have been the expenses that she has
charged to the estate, and the extent of her disclosure of information on request by Brendan.
[9] For reasons that I will elaborate on below, I accept the submissions by Mr Pietras for Brendan that the expenses Margaret has sought to charge to the estate are unreasonable. This has included charging the estate for the costs of return business class airfares between New Zealand and the United Kingdom on three occasions, not only for her, but also for her husband. There is a fourth business class trip where Margaret says she has charged 25 per cent of her airfare. In addition when they were in New Zealand, she charged their accommodation expenditure, primarily at the Hilton Hotel Lake Taupō while they were here. In addition she has charged the costs of lunch and dinner (breakfast being included in the accommodation), again primarily at the Taupō Hilton for her and her husband during the total periods of their staying there. The periods of time covered are reasonably extensive being a first visit of 12 days, a second visit of 12 days, and a third visit of 20 days. In her affidavit Margaret says that “I have charged for 44 days accommodation and related subsistence”.
[10] There have also been associated issues concerning disclosure. Brendan has sought information in relation to Margaret’s administration of the estate, but that information has not been provided in a complete way. This raises an issue about the entitlement of beneficiaries to information, which is a matter that I will address in greater detail below. In addition to the non-provision of some information, I also accept Mr Pietras’ argument that some of the disclosures provided were misleading. In a letter dated 30 October 2019 Margaret sent Brendan’s lawyer a quarterly statement of assets and liabilities in relation to the administration of the estate. In the liabilities section she listed “flights”, “accommodation” and “subsistence”. The “flights” entry only covered the cost of her own flights. Her husband’s flights were accounted for under a separate entry entitled “Property clearance”. I understand that they were accounted for under that heading because of Margaret’s argument that her husband travelled business class from the United Kingdom, and was accommodated at the Taupō Hilton, to help clear out the properties, and that this was a less expensive way of attending to clearing out the properties than retaining third parties. That would not have been apparent to those reading these accounts. I understand that “accommodation” and “subsistence” costs included her husband’s costs, but that also
would not have been clear. Margaret has now filed a further affidavit dated 10 August 2020 providing a more detailed account. In this her husband’s flights are still under the heading “Property clearance” but now under the sub-heading “AGT & Others, expenses”. AGT is a reference to her husband’s initials.
[11] One of the related issues about disclosure is, as Margaret has explained at some length in her affidavit, clearing out the properties, and particularly the property at Bryce Street involved an extensive task. I accept from her evidence and particularly the photographs that she exhibited that this is so. She explained that this involved a lot of work of her and her husband going through the papers inside the house, and then clearing out the mess. She explained that their work was at no cost to the estate, and that for them to return to New Zealand by business class, accommodated at the Taupō Hilton was appropriate, and would have cost less than getting third parties involved to do the job.
[12] I do not accept this. The flights alone appear to cost something like $50,000, and the accommodation and food a further $17,000 odd. Going through the possessions to find any personal matters and relevant business records would have been necessary. Margaret would have needed to have done that. But the subsequent clearing out of the properties, readying them for sale, and the sale itself could have been done remotely with the assistance of contractors and professionals at less expense.
[13] There is also uncertainty about some of these costs. In the inventory there are significant property clearance costs. There is “labour to clear properties” at $6,532, “trees & gardens” at $4,278, “cleaning” at $3,948 and “skip hire” at $8,545. That is a total of $23,303. I assume that these are third party costs, but invoices have not been provided. They give rise to uncertainty as to what has been charged by third parties for the clearing out exercise in any event. In addition Margaret exhibits an email from a contractor dated 30 March 2019 in relation to Bryce Street “to remove all rubbish left after you have been through personally [sic] things will be $13,400 plus GST. Rubbish will be removed with skip bins and truck”. In her affidavit Margaret said that this was “just to clear up the outside of Bryce Street”.
[14]Together the “executor expenses” and “property clearance” costs come to
$97,976. The total expenses in the administration of the estate property stand at
$178,667 in relation to an estate with assets of $560,927. As I have already found, some of these expenses were not reasonably incurred in the administration of the estate.
Removal of executor
[15]Section 21 of the Administration Act 1969 provides:
21 Discharge or removal of administrator
(1)Where an administrator is absent from New Zealand for 12 months without leaving a lawful attorney, or desires to be discharged from the office of administrator, or becomes incapable of acting as administrator or unfit to so act, or where it becomes expedient to discharge or remove an administrator, the court may discharge or remove that administrator, and may if it thinks fit appoint any person to be administrator in his or her place, on such terms and conditions in all respects as the court thinks fit.
…
[16] The proper approach to the application of s 21 has been addressed by the Court of Appeal in Tod v Tod1 and Frickleton v Frickleton.2 Both decisions adopt the approach set out by Heath J in Farquhar v Nunns by reference to the following factors:3
(a)The starting point is the Court’s duty to see estates properly administered and trusts properly executed.
(b)This jurisdiction involves a large discretion which is heavily fact- dependent.
(c)The wishes of the testator/settlor (evidenced by the appointment of a particular executor or trustee) are to be given consideration, but ultimately the question is as to what is expedient in the interests of the beneficiaries.
(d)Expedience is a lower threshold than necessity, and imports considerations of suitability, practicality and efficiency. Misconduct, breach of trust, dishonesty, or unfitness need not be established.
1 Tod v Tod [2015] NZCA 501, [2017] 2 NZLR 145.
2 Frickleton v Frickleton [2016] NZCA 408, [2017] 2 NZLR 154.
3 Farquhar v Nunns [2013] NZHC 1670 at [13] (footnotes omitted).
(e)Hostility as between administrators/trustees and beneficiaries is not of itself a reason for removal, but hostility will assume relevance if and when it risks prejudicing the interests of the beneficiaries.
(f)The testator’s selection of the executor is important,4 but the interests of the beneficiaries must always be the focus.5
[17] Although each case turns on its own circumstances, Mr Pietras referred to cases where an executor had been removed. In St Clair v Wright the Court accepted that the grounds of removal were established.6 The Court found there had been misconduct.7 Assets had apparently been used for the personal benefit of the chosen executor, including expenditure on food and personal items.8 The Court held that there had not been proper accounting, there had been delays and the executor had stalled in providing even elementary accounts or details.9 Similarly in Crick v Wallace the High Court removed a professional trustee because of deep seated distrust of the executor.10 The Court did not make findings of misconduct as this would have required a more thorough forensic examination, but held that the executors continued administration of the estate was untenable.11
[18] In developing his submissions in the present case Mr Pietras focused on unfitness and expediency as alternative grounds and developed submissions in relation to this, seeking a judicial determination on the scope of the unfitness ground. I do not intend to adopt that approach. It seems to me that s 21(1) contemplates an overall assessment. The previous authorities have focused on the expediency ground, and have emphasised that the particular facts and circumstances of the case are important. I am not sure much is to be gained by an elaboration on what the section contemplates by way of unfitness.
[19] To address the application of these principles to the present case it is necessary to consider the allegations concerning unreasonable expenditure, and inadequate
4 Tod v Tod, above n 1, at [27](a); Frickleton v Frickleton, above n 2, at [31]; Crick v McIlraith
[2012] NZHC 1290 at [19]–[20].
5 Frickleton v Frickleton, above n 2, at [33].
6 St Clair v Wright [2017] NZHC 494.
7 At [22].
8 At [36].
9 At [22].
10 Crick v Wallace [2015] NZHC 2260.
11 At [49] and [56].
disclosure in greater detail. Given the requirement to do so I will first address the claims that expenditure is unreasonable and should be refunded, and the claim for an account be provided on oath. I will then return to the application to replace the executor.
Executor expenses and benefits
[20] Brendan contends that Margaret has acted improperly in charging the estate for the expenses that have been charged. He seeks orders that she pay back to the estate expenses that were not properly incurred. He also puts this forward as a reason why she should be removed.
[21] The starting point is that a trustee is obliged to act gratuitously.12 An executor will be able to charge for his or her time if that is authorised by a charging clause in the will, albeit even here the Courts have been “… astute to enforce the fiduciary of trustees not to profit from the trust property. The corollary is that charging clauses in trust instruments have been strictly construed.”13 When there is no charging clause there can be an agreement between the executor and the beneficiaries that charges may be made, and the Court can approve that agreement.14 There are also some circumstances where even in the absence of a charging clause or an agreement the Court could authorise remuneration.15
[22]Section 38 of the Trustee Act 1956 addresses trustee expenses. It provides:
38 Implied indemnity of trustees
…
(2)A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but, except as provided in this Act or any other Act or as agreed by the persons beneficially interested under the trust, no trustee shall be allowed the costs of any professional services performed by him in the execution of the trusts or powers unless the
12 See Spencer v Spencer [2013] NZCA 449, [2014] 2 NZLR 190 at [90]–[91].
13 At [91].
14 See Lindsay Breach (ed) Nevill’s Law of Trusts, Wills and Administration (13th ed, LexisNexis, Wellington, 2018) at 276.
15 Re Duke of Norfolk’s Settlement Trusts [1982] Ch 61, [1981] 3 All ER 220 (CA); Re Keeler’s Settlement Trusts [1981] 1 All ER 888 (Ch); and see as a recent example Gavriel v Davis [2019] EWHC 2446 (Ch).
contrary is expressly declared by the instrument creating the trust: provided that the court may on the application of the trustee allow such costs as in the circumstances seem just.
[23] There is no suggestion in the present case that Margaret has charged for her time. What is in issue is the claimed expenses. This involves an application of s 38(2). That section sets out the requirement that the expenses be reasonably incurred in the execution of the estate. In Butterfield v Public Trust the Court of Appeal said:16
[20] It is one of the fundamental rights of an honest express trustee that costs and expenses properly incurred in the administration of the trust are compensable out of the assets of the trust. As Danckwerts J explained in Re Grimthorpe:17
It is commonplace that persons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.
[24] The expenses in question must be properly and reasonably incurred. As Hammond J said in Re O’Donoghue:18
… Necessarily, given the principle, [the] cases all appear to be determinations on the factual position arising in a particular case. But the principle that expenses must be properly incurred necessarily requires a trustee, if called upon, to demonstrate that the expenses arose out of an act falling within the scope of his trusteeship; whether it was something that his or her obligations require the Trustee to undertake; and whether the expense incurred was, in all the circumstances, “reasonable”.
[25] Whilst I accept Mr Mounsey’s submissions that the applicant has a burden to show the expenditure is unreasonable, once a legitimate issue has been raised the trustee can be called upon to explain.19 The Court then assesses the position in light of the fact that “… excessive costs lie beyond the scope of indemnity. Every dollar pays in trustees’ expenses is a dollar denied to beneficiaries of the Trust”.20
16 Butterfield v Public Trust [2017] NZCA 367, [2017] NZAR 1439.
17 Re Grimthorpe [1958] Ch 615 (Ch) at 623. See also Turner v Hancock (1882) 20 Ch D 303 (CA) at 305.
18 Re O’Donoghue [1998] 1 NZLR 116 (HC) at 121.
19 See Triezenberg v Mason [2018] NZHC 186 at [8].
20 New Zealand Maori Council v Foulkes [2015] NZHC 489, (2015) 4 NZTR 25–003 at [31] (footnotes omitted).
Application to the facts of this case
[26] In the present case there was no charging clause in the will. Neither did Margaret make any attempt to obtain the consent of the beneficiaries to her expenses. Indeed there was a significant issue, which I address below, about her disclosure. I see the applications in relation to the provision of account, the disallowing of expenditure, and the replacement of the executor as being inherently interrelated in the facts and circumstances of the present case.
[27] Margaret was not only the executor, but she was one of the three residual beneficiaries of the estate, with her and her two brothers taking the residue in equal shares. That meant that she was inherently in a position of conflict. An executor is spending the beneficiaries money when claiming expenditure, and for that reason should exercise care. But here any expenditure covering Margaret’s expenses would be to the detriment of her two brothers as beneficiaries of the estate. In those circumstance she needed to proceed with some caution.
[28] There were then two other factors that reiterated this need for caution. First, Brendan was estranged from his father, and on the death of his mother, Margaret had brought a Family Protection Act claim. Secondly Alexander suffered from significant health issues. Both of those features made it clear that when Margaret spent the estate’s money on her expenses she needed to act with considerable care. I review the challenged expenditure against that background. I deal with the expenditure by category in light of the submissions of counsel.
Airfares
[29] I do not accept that it was necessary for Margaret to take four return journeys between the United Kingdom and New Zealand to fulfil her duty as executor.21 The choice made by Mr John Kellerman that an overseas executor be appointed must be respected, and this necessarily required travel to New Zealand for the purposes of the administration of the estate. But whilst the estate called for a large clearing out exercise, and making arrangements for Mrs Julianna Kellerman, it was generally
21 Noting that for the fourth trip only 25 per cent has been claimed.
straightforward. Julianna’s future living circumstances were inevitably involved, and this would have been a sensitive matter. There were two properties to be cleaned up, made ready for sale, and then sold. There was some residual property such as vehicles also to be disposed of. There were obviously significant issues about getting a proper picture of Mr Kellerman’s affairs, even to the point of locating a will amongst his scattered paperwork. But the job at a fundamental level was not complex. It may well be that third party contractors may have been required for the clearing up exercise, and that a solicitor may have needed to have been appointed in New Zealand to take certain steps, but it was not an onerous estate to administer.
[30] I do not accept that four return trips were required. It may be that not all arrangements could have been made on the first trip which occurred when John died. But arrangements could have been made to take all necessary steps requiring her attendance on a second trip. At the most I would have thought that only two return trips be all that was reasonably needed.
[31] Claiming business class airfares for such trips is unreasonably extravagant. Margaret would be entitled to claim standard airfares. She could decide to travel business class for the additional comfort involved, but not at her brothers’ expense. I find some of her explanations for why the business class travel was necessary for the administration of the estate unpersuasive. For example she says that business class offered lounge facilities with unlimited wi-fi access which allowed her to deal with any work matters pending in the United Kingdom while travelling.22 She also explained that she had to carry masses of her father’s paperwork with the business class baggage allowance being more generous. But there are many other ways of arranging for documents to be remotely available or transported overseas. As a former executive assistant she would know that. These types of matters do not justify the estate paying for business class fares.
22 Precisely what her work commitments are is unclear. She previously worked as an executive assistant, but now has a BSc (Hons) in Nutrition and Food Science and describes herself as a “Practitioner, helping people to improve their lifestyle practices”. She does not otherwise describe how she actually works (as an employee, consultant or otherwise).
Hotel accommodation
[32] The same is so for the period of accommodation charged to the estate, and the accommodation chosen. The accommodation expenses claimed involve 44 days at a total cost of $13,948. It would appear Margaret had nowhere to stay when in Taupō, although it seems she owns a house there. But even if accommodation needed to be paid for, given it involved staying for longer periods it seems to me that a motel would have been a more reasonable approach.
[33] In terms of the standard of accommodation chosen Margaret has emphasised the Hilton Lake Taupō had unlimited wi-fi, hot water, toiletries and fresh towels which “were essential given the daily work conditions”. I have no doubt that the clearing out job was difficult. I also accept that the initial going through of material would had to have been undertaken by family members because of the potential for sensitive material. It would also have been an emotional task, including because of the presence of Julianna. But I do not accept that these expenses were essential. Margaret claims that the motel option was attempted but involved a great deal of time being spent on grocery shopping/preparing food which interfered with the working days which she described as being very long. I do not accept her explanation. Even with a large job cleaning out one of the houses I do not understand how Margaret can have been so time constrained that going to the supermarket, or preparing meals was not possible such that she was required to stay at the Hilton Lake Taupō with fresh towels and wi- fi. I have no hesitation in concluding that the expenses are unreasonable.
Meals
[34] The same is so for the charges for lunch and dinner at restaurants, primarily the Hilton Lake Taupō during the periods of her stay. Based on her affidavit this involves 44 days of meal costs totalling $3,212. She and her husband would need to eat wherever they were and whatever they were doing. So I do not accept that they were a cost incurred in the execution of the estate at all, and even if they were I do not accept that eating at restaurants every day at the estate’s expense was reasonable.
The husband’s airfares, accommodation and meals
[35] The most obviously unreasonable expenditure involves all of Margaret’s husband’s return business class airfares (three trips) and his accommodation and meal costs. I have no doubt that he was of considerable help to Margaret in the extensive job that was required. I also accept that having him do that work meant that costs of a contractor were potentially avoided. But the task of cleaning out two houses (one of which is a very messy state) does not reasonably require flying a person business class from the United Kingdom three times, accommodating them in the Hilton Lake Taupō and paying all their meal costs in the restaurant for a significant period.
What level of costs should be allowed?
[36] Whilst I have little difficulty in identifying that the claimed costs that are unreasonable, there is an associated exercise that is more difficult.
[37] It seems to me that Margaret was entitled to claim expenditure in some of the categories I have addressed. As I have already said, she may be entitled to claim airfares for up to two return trips. Based on the information I presently have she would also be entitled to some accommodation costs. I do not accept that she is entitled to claim any meal costs, as she would have needed to feed herself wherever she was, and I do not accept that any costs for her husband were reasonably charged to the estate.
[38] Some partial allowance of the claimed costs accordingly seems appropriate. As I indicated to counsel at the hearing, however, the Court does not have the advantage of full information in order to make such decisions. I only have what has been put forward in the affidavits. For example, I am not sure how easy it would be to identify how long accommodation should reasonably have been allowed for Margaret in Taupō, and what a reasonable room rate for that period would be. I also find it difficult to be clear about the extent of the work, and what use of contractors was actually involved.
[39] The task is not impossible, and the Court could do it on the basis of the information that it has. But it seems to me that it would be more appropriate for that
assessment to be undertaken by a person who is able to have greater information, the ability to inquire into it, and has more experience in this kind of activity.
[40] Accordingly the application to disallow such costs in their entirety may not be the appropriate way forward. The findings I have made above may be sufficient given the orders ultimately made below. I return to that issue below.
Claim for an account
[41] Brendan makes an application that Margaret provide an account of the estate verified on oath. Section 44 of the Administration Act 1969 provides:
Administrator may be required to exhibit inventory
Every administrator shall, when required by the court so to do, exhibit on oath in the court a true and perfect inventory and account of the estate of the deceased; and the court shall have power as heretofore to require administrators to bring in inventories.
In addition r 27.32 of the High Court Rules 2016 provides:
27.32 Inventory and account filed by administrator
(1)A person interested in a deceased’s estate may apply for an order that the administrator of the estate file the following documents:
(a)an accurate inventory of the estate; and
(b)an account of the estate that—
(i) is accurate; and
(ii) states the dates and details of all receipts and disbursements; and
(iii) states which of the receipts and disbursements were on capital account and which were on revenue account.
…
[43]Mr Mounsey relied on Elishua v Freeland where Collins J held:23
[20] Section 44 is designed to ensure the proper administration of estates and by implication requires administrators to maintain proper estate
23 Elishua v Freeland [2019] NZHC 398.
accounts.24 The section is not designed as “a vehicle for challenging the actions of the executors”.25 At common law, beneficiaries do not have a right to access all trust documents and information.26 Equally, under s 44, there are limits to what information the Court will order administrators to provide. The extent of information it is necessary to provide will depend on the circumstances of the particular estate, including its size.27
[44] Collins J’s observation that s 44 is not a vehicle for challenging actions of the executor arises from Simon France J’s judgment in Jay v Gilbert where the applicant had following up accounts provided pursuant to a s 44 order and then applied for further information, effectively challenging those accounts, again under s 44. Simon France J held that “any further application under s 44 must be limited to asking the Court to ensure the original order was complied with and is not a vehicle for challenging the actions of the executors”.28
[45] In Erceg v Erceg the Supreme Court emphasised beneficiary rights to receive information.29 The Court said:
[51] We see the starting point as being the obligation of a trustee to administer the trust in accordance with the trust deed and the duty to account to beneficiaries. A beneficiary who seeks such an account may seek access to documentation necessary to assess whether the trustee has acted in accordance with the trust deed. That can be expected to be the basis on which the beneficiary will seek disclosure of trust documentation.
[46] The Court then set out a number of considerations relevant to assessing a request for information.30
[47] The obligation of an executor to account to the beneficiaries is a fundamental one, and is reflected in s 44. The need for an executor to do so will be particularly relevant when there is any dispute, particularly where an executor is also a beneficiary and seeks to claim his or her expenses as costs against the estate. In those circumstances an account would normally be justified when it is sought.
24 Apatu v Apatu HC Napier CIV-2007-441-515, 10 May 2011 at [140].
25 Jay v Gilbert [2015] NZHC 1791 at [6].
26 See Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 2 AC 709 at [67]; and Foreman v Kingstone [2004] 1 NZLR 841 (HC).
27 See Apatu v Apatu, above n 24, at [135] and [151].
28 Jay v Gilbert, above n 25, at [6].
29 Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320.
30 At [56]; and see Jacomb v Jacomb [2020] NZHC 1764 at [12] for the relevance of the new Trusts Act 2019.
Application in the present case
[48] In the present case I accept Mr Pietras’ submissions that there has been a degree reluctance on Margaret’s behalf to respond fully to requests for information. She did provide quarterly accounts, but these raised questions and when requests for clarification were made the answers were delayed, or not provided. For the reasons I have already addressed at [10] above, the accounts included misleading statements. It is not clear from the entries what some of the expenditure was, and whether or how it was justified. Some information has subsequently been provided. For example Brendan now has copies of the receipts from the Hilton Lake Taupō, albeit subject to redactions. But there remain uncertainties arising from the material, including for reasons I have already addressed, and notwithstanding that Margaret has now provided a reasonably long affidavit explaining how demanding her job as executor has been.
[49] Nevertheless I accept Mr Mounsey’s submission that providing an account on oath under s 44 is now redundant. Margaret has now provided an affidavit dated 10 August 2020 which attaches a statement of the assets and liabilities of the estate, and in which she provides an explanation of changes since the earlier reports. I accept this is effectively what would be provided under an s 44 order.
[50] There are other allegations relating to the failure to provide information, and even that documents were falsely created. I do not intend to address those allegations. What is more important is a proper understanding of the assets and liabilities of the estate, and the adequate provision of information to check the reasonableness of the entries in those accounts.
[51] There is now a further stage pursuant to which the claims set out in the accounts are potentially assessed. That may require the production of underlying documentation, such as receipts, for the reasons explained by the Supreme Court in Erceg.31 For example, as I understand it the receipts for the property clearance costs have not been provided, and these may have significance in assessing the reasonableness of other expenses claimed, including the claimed expenses for
31 Erceg v Erceg, above n 29.
Margaret and her husband. But I do not accept that there is any point in now making a further order requiring an account be provided. That has now been done.
[52] For these reasons I accept that an account has now been provided, and that it provides a basis for further steps to assess the assets and liabilities so set out. I decline the application for an order under s 44.
Should the executor be removed?
[53] I now return to what I apprehend to be the key issue, which is whether Margaret should be removed as an executor and replaced by an independent executor. I have already outlined the approach to be adopted at paragraph [15] to [19] above. For the reasons set out below I have decided that that step should be taken.
The relevant considerations
[54] The first relevant consideration is the importance of the decision made by Mr John Kellerman that Margaret be his executor. That choice has significance. He also knew that she was based overseas, and accordingly that there would be some costs involving her returning to New Zealand to deal with his estate. It is also apparent that he intended a family member to undertake the exercise, knowing that there had been an earlier Family Protection Act claim in relation to his former wife’s estate.
[55] A second important consideration is that the administration of the estate is nearly completed. Almost all of the assets have been liquidated, including the two properties. There is one remaining claim that the estate has which may require proceedings, although the evidence is that it may end up involving judgment by default. On the face of it, therefore, the estate is close to being distributed. Mr Mounsey also emphasised that appointing a new professional executor would add a further layer of costs on the administration of the estate.
[56] These two factors would normally suggest that the Court would not remove the executor, and replace her with an independent executor. But there are further considerations.
[57] First, Margaret has been placed in a position of inherent conflict, and has failed to act with the required caution given those circumstances. I have already made findings on the reasonableness of the expenditure claimed. Margaret has charged expenses to the estate in a manner that has involved preferring her own interests over her duties to the beneficiaries. She has then maintained her stance notwithstanding Brendan’s objection and sought to justify those expenses in her affidavit. In those circumstances I do not think it appropriate that she continue in her role. She has not exhibited an ability to appropriately manage the position of conflict.
[58] The second point is that it is now necessary to conduct a review of the expenses she has claimed, and the scope of the work reasonably required in the administration of the estate to properly assess what expenses should be allowed. As I have indicated, the Court could attempt to engage in that exercise itself, but an appropriately experienced independent executor would be better placed to do so. This could involve obtaining further information, asking further questions, and applying knowledge and experience. As in the case of St Clair v Wright, the appointment of a new executor will achieve a proper administration of the estate.32 Mr Mounsey accepted that any replacement executor would have the duty to consider the expense claims made by Margaret to assess what should be allowed. For the avoidance of doubt I direct the new executors undertake that function.
[59] The next factor is closely related. The current account that has been provided by Margaret on oath raises a number of questions. Some of the entries may require further information or documents to be provided in order that they be properly understood. It would come at considerable cost to the beneficiaries if the review of the items was undertaken by the Court itself. Again it is more appropriate that a new court appointed and independent executor to engage in that exercise.
[60] These factors alone mean that Margaret should be replaced as executor. But there are two additional concerns that suggest to me that a new independent executor should be appointed so those concerns can be investigated, or at least considered.
32 St Clair v Wright, above n 6, at [42].
Two additional concerns
[61] First, under the will Mrs Julianna Kellerman was bequeathed $70,000, and one year’s rent free accommodation only. Yet her marriage to Mr John Kellerman was of some 10 years length. In her affidavit Margaret explains the steps that she took to deal with Julianna’s position, including by assisting her returning to Hungary. Mr Mounsey explained that Julianna had agreed to her distribution, and that a translator from Hungary had been involved by telephone. I was told that she had elected to accept her entitlement under the will pursuant to s 61 of the Property (Relationships) Act 1976, and she had received independent advice when she did so.33 Margaret also explained in her affidavit that Julianna signed a distribution and indemnity document with the assistance of an interpreter.
[62] These circumstances give me some cause for disquiet. It may be that on further investigation there is no concern. The new executor’s role is not to pursue Julianna’s interests. But it may be appropriate for the executor to check that there was nothing untoward in these events. Mrs Julianna Kellerman appears to have been in a position of some vulnerability. She had limited English, she had lost her husband, and she then made the decision to return to Hungary. She elected to take her share under the will against that background. On the face of it that share seems modest. It seems to me that this is something that an independent executor should now check to ensure everything has been undertaken appropriately.
[63] A second concern arises from the fact that there was, in fact, another property that had been owned by Mr John Kellerman in Heuheu Street. There is no evidence about this before the Court. Brendan was estranged and does not know about the property. Nothing has been mentioned about it in Margaret’s affidavit. I was informed from the bar that the property had a registered value of something in the order of
$560,000, and that Mr John Kellerman had sold the property some months before his death. I was also informed that the purchaser was Margaret.
33 Since the hearing Mr Mounsey has filed a memorandum advising that, contrary to his advice at the hearing, a notice of election was not filed with the application for probate. I am unclear whether he means that there was, in fact, no notice of election executed.
[64] There is no reference to this property in the account that has been provided by Margaret. That would be understandable if the property had earlier been sold. But there is also no asset of the estate reflecting any sale proceeds. I was informed that there was a mortgage that may have discharged. In addition, Mr Mounsey made the point that funds in a joint account would have passed by survivorship to Mrs Julianna Kellerman and not accounted for as part of the estate.
[65] These circumstances give me further cause for disquiet. When I asked Mr Pietras what relevance it may have if, for example, Mr John Kellerman had gifted this property to Margaret prior to his death, he said that it might be relevant to Brendan considering a Family Protection Act claim. I do not want to suggest any encouragement of such further litigation. But again an independent executor may consider it appropriate to find out more about these circumstances, to establish who has benefited from this property interest, and make any disclosure to beneficiaries as the executor sees fit.
[66] I note in this respect that it is not only the interests of Brendan that are engaged. There are also Alexander’s interests, and he is in care. Margaret describes him as being in a high dependency unit in October 2019 and that he is suffering mental health issues. The Public Trust represents his property interests, but who is to be responsible for his welfare interests is the subject of an argument between Brendan and Margaret in the Family Court. For this additional reason it would be appropriate for the executor to make sure that everything has been handled in an appropriate way.
Who should be the executor?
[67] For these reasons I accept that it is appropriate for the Court to make orders under s 21 of the Administration Act 1969 to remove Margaret as executor, and to appoint a replacement executor.
[68] The application was advanced on the basis that Perpetual Trust Ltd be the replacement executor. Margaret objected to this. I see no reason why Perpetual Trust Ltd, an established corporate trustee firm, would be inappropriate. But given the considerations I have referred to above it seems to me that it is important that the Court identify a new executor who has an established reputation in this area. There are some
difficult issues, and the exercise of sound judgment applied with the benefit of experience may be called for.
[69] During the course of the hearing I raised with counsel for the potential of someone like Mr Greg Kelly being appointed as executor in these circumstances. Neither counsel took objection to that approach if the Court concluded that the replacement of Margaret under s 21 was appropriate. Since the hearing I have asked the Registrar to make enquiries of Mr Kelly to see if he would be prepared to take on this role. He was provided with a copy of the will and the notice of originating application. The Registrar advised him that, should the Court reach the position where it was of the view that a replacement executor be appointed, the circumstances would be outlined in the Court’s judgment.
[70] Mr Kelly has replied advising he is available to take appointment as replacement executor trustee of this estate. He has explained that his usual practice in these situations is for the appointment to be for him and his business partner, Ms Colette McKenzie jointly for practical reasons. I confirm their joint appointment. I direct that their reasonable charges may be paid out of the assets of the estate.
[71] In my view appointing Mr Kelly and Ms McKenzie is the appropriate step. Mr Kelly has an acknowledged reputation in this field, and would be able to address the questions that arise as outlined in this judgment. In the circumstances I reserve leave for him, and the parties, to apply for any further directions in relation to his appointment. That should not be taken as an invitation for the Court to provide running advice on the administration of the estate. Rather it is a residual leave to apply to deal with any ancillary or consequential matters.
Conclusion and orders
[72]Accordingly for the reasons outlined above:
(a)The application for orders that some of the executor’s expenses should be disallowed as unreasonable is granted in part to the extent that certain expenses have been found to be unreasonable as detailed in this judgment.
(b)The application that the executor provide an account on oath under s 44 of the Administration Act is declined.
(c)The application for the removal of Mrs Margaret Kellerman-Thornton as executor is granted.
(d)Mr Greg Kelly and Ms Colette McKenzie are appointed executors of the estate of Mr John Kellerman in place of Mrs Margaret Kellerman- Thornton.
(e)I direct that Mr Kelly is to review the expenses incurred by Mrs Margaret Kellerman-Thornton to determine which expenses were reasonably incurred in the execution of the estate, and that such expenses may be allowed.
(f)Leave is reserved to the parties, and Mr Kelly and Ms McKenzie, to address any ancillary or consequential matters associated with his appointment.
Both parties asked to be heard on the question of costs. If they cannot be resolved the applicant is to file any memorandum in relation to costs within 15 working days of the release of this judgment, with any response by way of memorandum filed by counsel for the respondent within 10 working days of being served with that memorandum. Both memoranda should be limited to 10 pages, although schedules may be attached.
Cooke J
Solicitors:
ARL Lawyers, Lower Hutt for the Applicant MMC Law Ltd, Taupō for the Respondent
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