Estate Debt Owed Based on Loan Agreement

The Court declared that the estate of the deceased owes a debt of $275,000 to another estate based on a loan agreement made between the two parties. The decision was based on the Uniform Civil Procedure Rules 2005, r 54.3 and the Imperial Application Act 1969, s 13.

Supreme Court New South Wales

Medium Neutral Citation: The Estate of [NAME]; The Estate of [NAME] [2024] NSWSC 804 Hearing dates: 26 April 2024 and consideration on the papers. Date of orders: 28 June 2024 Decision date: 28 June 2024 Jurisdiction: Equity Before: Slattery J Decision: Declaration made that the estate of [NAME] owes the estate of [NAME] a debt of $275,000 arising out of loan agreement dated 30 July 2015 made between [NAME] and [NAME]. Directions made for parties to put immediate argument about costs. Catchwords: SUCCESSION — Administration of estates — dispute in relation to whether money is owed to the estate of [NAME] by the estate of [NAME] or vice versa – dispute has persisted throughout various attempts to pass estate accounts – Court has power under Uniform Civil Procedure Rule, 54.3 to grant relief on any question arising in the administration of an estate without general administration proceedings being commenced – dispute about debts owing to or by an estate could be determined in general administration proceedings – the need for finality in the estate administration favours the determination of the issue – whether a debt is owed to the estate or by the estate of [NAME]. Legislation Cited: Imperial Application Act 1969, s 13 Uniform Civil Procedure Rules 2005, r 54.3 Cases Cited: Darrington v Caldbeck (1990) 20 NSWLR 212 Category: Procedural rulings Parties: 2015/381877 [NAME] (Applicant) [NAME] (Respondent)

2020/140143 [NAME] (Applicant) [NAME] (Respondent) Representation: Counsel: [redacted] Ms T [NAME] (Respondents)

Solicitors: [redacted] [NAME] (Respondents) File Number(s): 2015/00381877; 2020/140143 Publication restriction: No

Judgment 1. [NAME] died on 22 December 2015 leaving an estate of approximately $600,000. Seven and a half years later, after contests in relation to her estate's accounts, her descendants are still fighting about the net value of her assets. [ADDRESS] offered in the Probate Motions List to resolve the merits of the transaction, on a final basis, to accelerate the completion of the administration of this estate.

2. The first point at issue is whether an amount advanced by [NAME] to her grandson, [NAME], before she died were a gift or a loan. [NAME] paid other monies, the sum of $275,000, to [NAME] shortly afterwards. [NAME] died some years later. Thus, a related question at issue is whether [NAME]'s estate owes that sum of $275,000 to [NAME]'s estate.

3. The issue was efficiently argued by the legal representatives of the parties in written submissions and in oral submissions on 26 April 2024. Ms T [NAME] of counsel, instructed by [NAME], appeared on behalf of the respondent, Mr [NAME]'s executor. Ms I [NAME] of counsel, instructed by [NAME], appeared on behalf of the applicant, Ms [NAME] (nee [NAME]).

4. The parties to these proceedings are all members of the [NAME] family and referred to one another by their first names. Without intending any disrespect to any person, the Court will adopt the same convention as the parties.

The administration of [NAME]'s estate – 2016 to 2024 1. [NAME] had two children, [NAME], and [NAME], and four grandchildren. [NAME]'s will dated 13 November 2015 provided a simple structure. After a number of legacies to her grandchildren, she gave the residue of her estate to [NAME] (as to 70%) and [NAME] (as to 30%). 2. [NAME]'s son, [NAME], had two children, [NAME] and [NAME]. By her last will [NAME] appointed neither her daughter, [NAME], nor her son, [NAME], as her executor. She appointed her grandson, [NAME], to be her executor. [NAME] applied for probate and administration of the estate. [NAME] swore an affidavit attaching an inventory of [NAME]'s estate on 22 February 2016 and probate was granted on 2 March 2016. 3. [NAME] did not survive his mother very long. He died on 20 September 2017. And [NAME] too was unable to complete the administration of the estate before he died on 4 April 2020. [NAME] appointed his brother, [NAME], as his executor and sole beneficiary. With his executorship of [NAME]'s estate, [NAME] inherited [NAME]'s role as executor of [NAME]'s estate: Darrington v Caldbeck (1990) 20 NSWLR 212 and Imperial Application Act 1969, s 13.

4. Born of distrust between family members, the administration of [NAME]'s estate evolved into unnecessary procedural complexity, driven by conflict between [NAME] on the one side, [NAME] and ultimately [NAME] on the other. But that complexity may be compressed to expose the question now at issue.

5. The parties have been engaged in various unsatisfactory disputes concerning the passing of accounts in [NAME]'s estate. These have led to motions for the passing of accounts in [NAME]'s estate and [NAME] filing accounts. But [NAME] died before the administration of [NAME]'s estate was completed. [NAME] has continued to question those accounts after [NAME]'s death. [NAME], his executor, has sought to defend them. But the main complaint underlying the contest about the accounts is not an accounting issue but a factual and legal issue arising in the administration of [NAME]'s estate. 6. [ADDRESS] has power in general administration proceedings to decide a question of whether something is an asset or a liability of an estate, such as whether a debt is owed to or by [NAME]'s estate. [ADDRESS] is now empowered under Uniform Civil Procedure Rules 2005, r 54.3 to grant relief on any question arising in the administration of an estate without general administration proceedings being commenced.

7. When this matter came into the Probate List the Court offered to determine this issue and whether the monies advanced by [NAME] to [NAME] were a loan or a gift on a final basis. The parties expressly agreed to that course on the available evidence and materials filed in relation to the various disputes on the passing of accounts and without cross examination. This was a highly efficient and sensible course. The parties had defined the issues well in written submissions so oral submissions were able to be dealt with briefly. 8. [NAME] of [NAME] ("[NAME]") was [NAME]'s long-term solicitor. He had advised her since 2009 when she was 87 years old. His first legal task for her was to prepare a new will. [NAME] also acted for her son [NAME] in relation to various matters, including drafting his will and setting up a self-managed superannuation fund ("SMSF"). In 2014, [NAME] first met [NAME], when [NAME] wanted to change her will in 2009 to remove [NAME] as executor because of his diminished capacity and to replace him with his son [NAME] who was also appointed her attorney. 9. [NAME] is very clear that [NAME] did not have a good relationship with her daughter [NAME] at this time. The friction between [NAME] and her daughter, [NAME], was exacerbated when [NAME] commenced proceedings in the Guardianship Tribunal seeking that a financial manager and guardian be appointed in relation to [NAME]'s financial affairs. On 19 February 2015, the three-member Guardianship Tribunal found that [NAME] had capacity and that there was no substance in [NAME]'s allegations that [NAME] had mismanaged [NAME]'s affairs under the power of attorney granted to him.

10. The contemporaneous correspondence from [NAME] shows in the clearest terms that she was very displeased with [NAME] in bringing the Guardianship Tribunal proceedings. The contemporaneous evidence also clearly shows that throughout this period [NAME] remained in [NAME]'s affections. 11. [NAME] recalls and the Court accepts that he, [NAME] all met at his office on 23 February 2015 to develop a plan to ensure that [NAME] could not again attempt to come and take away control of [NAME]'s assets. A few days later, [NAME] instructed [NAME] that she had approximately $620,000 in cash in the bank, but she only needed $100,000 for her own purposes. According to [NAME] "wanted to gift the balance of approximately $520,000 to [NAME] when the term deposits in which funds were held expired". [NAME] explains that he received instructions to the effect that [NAME] was gifting monies to [NAME] but if [NAME] required funds in the future [NAME] was to return them to her. The documentation that followed commencing in early March 2015 basically follows these instructions although in the form of a loan.

12. On 15 March 2015, [NAME] wrote to [NAME] three letters in relation to 3 loans made by [NAME] to him. The purpose of the correspondence was to confirm the terms and conditions upon which the advances were being made to him by [NAME] following determinations of the Guardianship Tribunal in applications brought by [NAME]. The correspondence was also to confirm that a legal relationship was intended to exist between [NAME] by reason of the advances as set out in the terms and conditions in those letters.

13. The terms and conditions of the first loan ("the 6 March 2015 loan") in the sum of $330,645.24 advanced on 6 March 2015 recorded (clause 6) provided that the lender "may request a return of the funds within 10 years of the date of this document by written request" in the form annexed. The annexed form provided for a request for the return of the whole of the funds advanced within 90 days.

14. The terms and conditions of the 6 March 2015 loan were unusual and indicated a not entirely arm's length transaction typical of intra-family arrangements. Under the heading "Use of Funds" the lender stipulated that the borrower should leave the funds in any interest-bearing account held with the Commonwealth Bank of Australia in the name of the Borrower although the Funds may be mixed with other funds held by the borrower. Equally unusual and indicating a less than arm's length transaction was a term (clause 5) under the heading "Interest on Funds" that the Borrower may keep any interest on the Funds and spend such interest in his sole discretion. There was no provision for any interest to be paid to the Lender.

15. Another loan agreement for an advance of an additional $97,944 was executed between [NAME], about a month later on 7 April 2015 on identical terms and conditions to the 6 March 2015 loan ("the 7 April 2015 loan agreement").

16. Yet another loan agreement was executed between [NAME] on 24 April 2015 ("the 24 April 2015 loan agreement") on identically favourable terms for the advancement of the additional sum of $91,815.82.

17. These amounts added to the sum of advances from [NAME] to [NAME] of $520,405.06 (being $330,645.24 + $97,944 + $91,815.82). After a gap of three months a different transaction was agreed between [NAME]. He is recorded as loaning money to her at the same time as forgiving the loans constituted by these previous transactions.

18. On 30 July 2015, [NAME] wrote to [NAME] recording the terms of an advance which he said was the product of discussions between [NAME] "in relation to various funds advanced to you following termination of the Guardianship Tribunal applications brought by [NAME]". The letter recorded that [NAME] "understand the total of those advances to be $520,405.06". There appear to have been additional advances to [NAME] after the 6 March 2015 loan. 19. [NAME]'s 30 July 2015 letter then stated: "We also refer to discussions between [NAME] and yourself in relation to her preference to be accommodated at the Beechwood Aged Care facility and the costs of $275,000 requires a bond for the same ("Bond"). As you are aware, [NAME] requires the Bond to be paid but does not have sufficient money to do so (given the funds advanced to you). We are instructed by [NAME] that that you have provided/returned funds to her as and when requested to date and that, provided you agree to meet the cost of the Bond, she does not now require any of the other funds previously advance to you to be returned."

1. The 30 July 2015 letter went on to say that it was being forwarded on behalf of [NAME] to confirm "the terms and conditions upon which the previous advances made by [NAME] to you may be regarded", the terms and conditions "upon which an advance of $275,000 is to be made by you to [NAME] (or on her behalf)", and that a legal relationship is intended to exist as set out in the terms and conditions notwithstanding the family association between Lender and Borrower.

2. The terms and conditions of a signed loan agreement ("the 30 July 2015 loan agreement") were attached to the 30 July 2015 letter this time described [NAME] as "the Borrower" and [NAME] as "the Lender". In the 30 July 2015 loan agreement, the parties agreed (clause 3) as follows: "The parties agree that the Borrower has previously advanced funds totalling $520,405.06 to the Lender ("Funds"). The Borrower agrees that the funds may now be considered to have been advanced on the basis they are a gift to the Lender and, further thereto, specifically agrees not to request a return of the Funds at any time."

1. There is no challenge to the authenticity of the 30 July 2015 loan agreement. It was signed by [NAME]. Clause 3 appears very clearly to bind [NAME]'s estate to forgiving such of the previous advances of $520,405.06 as may be characterised as loans and re-characterising them as a gift.

2. The "Monies Advanced" are described in clause 4 of the 30 July 2015 loan agreement as "$275,000, to be advanced on or about 30 July 2015 ("Monies"). The use of the Monies is described (in clause 5) as for the payment of a bond for Beechwood Aged Care facility or any other purpose that the Borrower regards as appropriate "in her sole discretion".

3. The 30 July 2015 loan agreement provided (clause 7 – return of monies) an unusual clause in a loan agreement, as follows: "The Monies are repayable to the lender at the discretion of the borrower. The Lender may not request a repayment of the Monies by the Borrower at any time."

1. The 30 July loan agreement also provided (in clause 8) for what would occur if either the Lender ([NAME]) or the Borrower ([NAME]) were to die or become incapacitated. If [NAME] were to pass away or become incapacitated his legal representative was prohibited from requesting the return of the monies and the clause 7 continued to apply (clause 8(a)). The same applied if the borrower became incapacitated (clause 8(b)). And finally, clause 8(c) provided for the possibility of the death of the Borrower, [NAME], the situation with which we are now faced, as follows: "Borrower pass away, the Lender shall be entitled to seek return of the monies from the estate of the borrower as the Lender may decide in his sole discretion at any time during which the estate of the borrower is liable to be taxed at concessional rates (being a period of three income years as at the date of document). It is noted in this regard that the Lender is likely to be the legal personal representative ("LPR") of the Borrower should she pass away or become incapacitated so should have control of the Funds and the Monies at all relevant times."

1. The net result of the transactions between [NAME] to this point according to these documents was that [NAME] owed [NAME] nothing, but he had loaned her $275,000.

2. The evidence of [NAME] confirms that [NAME] did in fact pay the $275,000 to [NAME] at the time of the 30 July 2015 loan agreement by cheque and that it was applied to satisfy the Refundable Accommodation Deposit (RAD) for [NAME] to enter the Beechwood Aged Care facility. [NAME]'s death, the Beechwood Aged Care facility refunded the RAD to [NAME]'s estate. But according to [NAME]'s evidence it was paid into [NAME]'s superannuation fund rather than to [NAME]'s estate. 3. [NAME] argues that the $275,000 advanced by [NAME] to [NAME] under the 30 July 2015 loan agreement is in fact a request by [NAME] as Lender under the first loan for repayment by [NAME] of that same sum. [NAME] further argues that had this sum been paid into [NAME]'s estate it would have been distributed as to 30% (that is $82,500) to her. Instead after [NAME]'s death this sum remained in his superannuation fund and was not collected by his estate and distributed to the beneficiaries. But [NAME] says the estate did not take control of this sum of $275,000 from [NAME]'s superannuation fund and the superannuation fund remained dormant. Ultimately, the Commonwealth of Australia collected the balance of the dormant superannuation fund as unclaimed superannuation monies, where the funds remain. They can be reclaimed from the Commonwealth if the person with proper title to the funds applies for their return. [NAME] says that because of maladministration of [NAME]'s estate the sum of at least $82,500 is still payable to her. 4. [NAME] relies upon [NAME]'s sworn inventory of property of [NAME]'s estate, which [NAME] claims supports her account. [NAME] swore an affidavit in support of his application for probate on 22 February 2016, two months after [NAME]'s death on 22 December 2015, He annexed a "statement of all assets of [NAME] of which I am presently aware" and he declared "I will disclose to the court any other asset which comes to my notice". The affidavit can only be taken as evidence of what he was aware of the time that he swore it. On the face of it, the inventory goes some way to supporting [NAME]'s case. It relevantly provides as follows in annexure C, the inventory of assets. "3. Loan to [NAME] (Net) $225,000 4. [COMPANY] – Bond $276,000" 1. [NAME] ultimately gave instructions to his solicitor, [NAME], inconsistent with this sworn inventory and more consistent with the authentic loan documents set out above. In the Court's view, the authentic loan documents set out above would on their own be enough to displace the contents of the inventory which was capable of formal amendment if required, although it was never formally amended.

2. But even before considering [NAME]'s and [NAME]'s evidence these sworn entries in the inventory of [NAME]'s estate assets are odd at several levels. The entry at line 3 would appear to indicate that there had been a larger loan to [NAME] which had been partly repaid, leaving a net loan of $225,000 owing to [NAME] and that [NAME] was additionally entitled to the bond or RAD from Beechwood Aged Care in the sum of $275,000 – the $1000 appears to be an error. But even allowing for that, it is difficult to reconcile where the $225,000 comes from. Rounding and correcting the figures, the difference between $520,000 and $225,000 is $295,000. It is not clear on any of the evidence that [NAME] ever paid [NAME] $295,000. Indeed, the 30 July 2015 loan agreement and covering correspondence is consistent only with the idea that the original $520,000 had not been repaid by that date and there was no reason to pay it after that date given the terms of that loan agreement. And if the $275,000 is deducted from $520,000 the difference is $245,000, another figure without obvious consistency with any of the other evidence. Thus, apart from its $1000 error in [NAME]'s advance, the sworn inventory looks to be untethered from the evidence of transactions with [NAME]. 3. [NAME] and, [NAME] before he died, both give affidavit evidence, which the Court accepts, that displace the accuracy of the inventory. [NAME] says in an executor's updating affidavit sworn on 14 August 2018 that "the asset listed as item 3 in the inventory pursuant to the grant of probate made on 2 March 2016 was a liability of the estate of $275,000 and not an asset of the estate of $225,000".

4. This is quite justifiable. Accepting the 30 July 2015 loan agreement as genuine, it makes a debt of $275,000 payable by [NAME]'s estate to [NAME]. 5. [NAME], in an affidavit sworn on 5 February 2024 explains the change to [NAME]'s 2016 executor's affidavit in August 2018. [ADDRESS] accepts [NAME]'s evidence that in 2016 [NAME] initially instructed [NAME] to treat the monies given to him by [NAME] in 2015 as a loan which explains [NAME]'s first inventory of property. He says that the loan amount should have been $245,000, which is the difference between two loans, one of $520,000 from [NAME] to [NAME] and another of $275,000, from [NAME] to [NAME]. This makes sense if they were both to be treated as loans. 6. [NAME] explains that because of [NAME]'s peculiar conduct at his father [NAME]'s funeral, [NAME] said that he had been incorrect to have instructed [NAME] to treat the money from [NAME] as a loan rather than a gift. And then in January 2015 [NAME] instructed [NAME] "that the monies advanced to him from [NAME] in 2015 were a gift are not a loan" and should be so treated for the purposes of the administration of [NAME]'s estate. 7. [NAME]'s account of the change of instructions was first clearly set out in a letter dated 15 January 2018 which he sent to the solicitors acting for [NAME] concerning [NAME]'s estate. Under the heading "Updated Instructions" he said, "We understand that, prior to the death of [NAME] had a discussion with your client [[NAME]] in which the steps taken by [NAME] to protect herself following what she regarded as unwarranted applications to the Guardianship Tribunal were referred to, in particular that [NAME] held substantive funds. Although the fact that there was documentation executed and the precise terms and conditions upon which advances were made were not revealed, your client was on notice regarding the importance of [NAME] to [NAME]. We are instructed that [NAME] is no longer prepared to regard the advances by [NAME] to him as an interest-free loan but, rather, to treat those monies is a gift that does not form part of the Estate. We further instructed that [NAME] regards the advances by him to [NAME] as a loan for recovery. We profess no view as to that approach save to note it appears to have an arguable basis based on the documentation pursuant to which the various advances were made." 1. [NAME] went on to say to [NAME]'s solicitors that based upon these updated instructions there had been an overpayment to [NAME] of approximately $40,500 and an overpayment to [NAME] of approximately $272,000.

2. With this background of findings, [NAME]'s case, that the original inventory of property showing a from [NAME] to [NAME]'s estate should be given effect, should be dismissed. It is inconsistent with the evidence and the Court's findings.

3. The various accounting disputes that have taken place on the passing of accounts have not sought to determine the underlying facts of these transactions based on all the evidence as this current hearing has now done. 4. [NAME] challenges [NAME]'s evidence as containing different characterisations of these loans. But his evidence is quite consistent with the probabilities and the contemporaneous documents, including correspondence from [NAME] about her attitude to [NAME] in 2015 and the four loan agreements. The change in the inventory is also consistent with the validity of the last loan agreement. [ADDRESS] finds that the original inventory was incorrect and should have been amended as [NAME] states in his updating affidavit and as [NAME] confirms.

5. Although the Court has not done the precise calculation, on the basis of these findings [NAME]'s argument about payment of the $275,000 RAD apparently by mistake into [NAME]'s SMSF makes no difference to any distribution from [NAME]'s estate to [NAME]. This is because the Court's present findings mean that the estate has an equivalent debt of $275,000, neutralising the position so far as distributions to [NAME] are concerned.

Conclusions and Orders 1. The cost consequences of this are not yet clear. The parties will be given an opportunity to argue about costs so that this long-running estate dispute can be ended.

2. These reasons the Court will make orders and a declaration to the following effect:

1. DECLARE that the estate of the late [NAME] owes the sum of $275,000 to the estate of [NAME] by reason of terms of the loan agreement made between [NAME] and [NAME] dated 30 July 2015.

2. DIRECT the parties to put arguments about costs orally as soon as convenient consequent upon these reasons.

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Amendments 04 July 2024 - Typographical errors amended at [5], [9], [14], [24] and [42]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 July 2024