Executor Removed Due to Conflict of Interest and Insufficient Documentation

The grant of probate was revoked due to the executor's conflict of interest and lack of documentation supporting his claims. The court found the executor unfit to continue as administrator of the estate.

New South Wales Supreme Court

CITATION : [NAME] v [NAME] [2007] NSWSC 1095

HEARING DATE(S) : 13/09/07

JUDGMENT DATE : 4 October 2007

JUDGMENT OF : Gzell J

DECISION : Grant of probate to be revoked.

CATCHWORDS : SUCCESSION - Wills, Probate and Administration - Probate and Letters of Administration - Whether grant of probate should be revoked - [NAME] asserting debt against the estate and not gift - No documentation - Dependant upon assessment of his own veracity - No details of how $200,000 raised by [NAME] by mortgage at elderly age spent - Alleged agreement to transfer half interest in house upon payment of half purchase price and not an agreement for sale - Whether conflict of interest and duty makes [NAME] not a fit and proper person to continue as [NAME]

Family Provision Act 1982 LEGISLATION CITED : Wills, Probate and Administration Act 1898 Succession Act 1981 (Qld)

Mavrideros v Mack (1998) 45 NSWLR 80 Bates v Messner (1966) 67 SR (NSW) 187 In the Goods of Loveday [1900] P 154 CASES CITED : Baldwin v Greenland (2007) 1 Qd R 117 Morgan v MacRae [2001] NSWSC 1017 Monty Financial Services Ltd v Delmo [1996] 1 VR 65 Titterton v Oates (1998) 143 FLR 467 [NAME], Wills, Probate and Administration Law in New South Wales, LBC Information Services, Sydney, 1996

PARTIES : [NAME] - Plaintiff [NAME] - Defendant

FILE NUMBER(S) : SC 2695/07

COUNSEL : [redacted] [NAME] - Defendant

SOLICITORS : [redacted] [NAME] - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GZELL J

THURSDAY 4 OCTOBER 2007

2695/07 [NAME] v [NAME]

JUDGMENT 1 By an amended summons, [NAME], the plaintiff, seeks an order revoking the grant of probate of the will of [NAME], to [NAME], the defendant. 2 [NAME] was married four times. [NAME] and [NAME] are the children of her first marriage. [NAME] is the only child of [NAME]'s second marriage. [NAME]'s fourth marriage was to [NAME]. 3 By her will, [NAME] granted a life interest in her house and [NAME] property at [NAME] in New South Wales to [NAME]. The residue of her estate is to be divided equally between [NAME] and [NAME]. [NAME] does not oppose the orders sought by [NAME]. 4 [NAME] raised five issues in support of his application. First, [NAME] mortgaged the [NAME] for advances of $100,000, $150,000 and $200,000 but showed no signs of wealth and no explanation was forthcoming from [NAME]. 5 Secondly, the will of [NAME], drawn by the solicitor friend of [NAME], was not produced following the death of [NAME]. On the assumption that [NAME] had died intestate, [NAME] caused advertisements to be placed of [NAME]'s intention to apply for letters of administration. After those advertisements had been placed, the will was produced by [NAME]. 6 Thirdly, [NAME] claims that the estate owes him approximately $271,000. There is no document recording a loan to [NAME] and, again, she showed no signs of wealth. Before his marriage to [NAME] mowed lawns for a living. 7 Fourthly, [NAME] alleges that assets of [NAME] were not included in the inventory of property. These comprised a [NAME] sports car, a Toyota motor vehicle, clothing and jewellery given by [NAME] to [NAME] and a number of [NAME] paintings and sketches. 8 Fifthly, [NAME] alleges that [NAME] is subject to a conflict of interest. [NAME]'s firm acts for [NAME] in these proceedings. He has made an application for provision out of the estate under the Family Provision Act 1982. [NAME] acts for him in those proceedings the defendants in which are [NAME] and [NAME]. [NAME] has made an application for provision out of the estate in which [NAME] is the defendant. [NAME] acts for him in those proceedings. Mortgages 9 [NAME] bought the [NAME] from [NAME] on 20 December 1998. [NAME] says the price was $570,000. [NAME] says that [NAME] told him that she had bought the house for $680,000. 10 [NAME] did not have all the funds available on settlement and [NAME] was happy to complete the transaction because of his long friendship with [NAME]. It was common ground that [NAME] mortgaged the property to [NAME] to secure the balance of purchase price of $70,000. The mortgage was not registered and no caveat was lodged. 11 On 27 February 2002 when [NAME] was 78 (she was born on [DATE]) she mortgaged the [NAME] to secure a loan of $100,000 repayable in two years' time. The mortgage was registered on 4 March 2002. 12 On 29 November 2002 [NAME] executed a new mortgage to secure a loan of $150,000 repayable in a year. It was registered and the discharge of the $100,000 mortgage was registered on 3 December 2002. 13 On 12 December 2003 [NAME] executed a new mortgage to [COMPANY] to secure a loan of $200,000 repayable in a year. It was registered and the discharge of the $150,000 mortgage was registered on 15 December 2003. The discharge of the $200,000 mortgage was registered on 24 December 2004. 14 Thus, on 27 February 2002 [NAME] raised $100,000 on the [NAME]. Upon refinancing in November 2002 she raised a further $50,000 and, likewise, upon refinancing in December 2003 she raised a further $50,000. 15 [NAME] said that these borrowings were entirely out of character for [NAME]. She was not a sophisticated business person and [NAME] observed no change in her lifestyle in this period. She did not go on any expensive holidays, she did not make any improvements to the [NAME], she did not acquire any large assets and she did not appear to have any more money at her disposal than what she had prior to February 2002. 16 [NAME] said that [NAME] made payments totalling $45,000 to [NAME]. But he could not account for how he and [NAME] spent the balance of the $200,000 raised by [NAME] on the [NAME]. 17 I find it difficult to accept [NAME]'s evidence that he has no recollection of how $155,000 of the $200,000 raised on the [NAME] was spent. 18 This may be a matter that needs to be investigated in the performance of executorial duties. It is difficult for [NAME] to perform this task. Discovery of the will 19 [NAME] said that [NAME] did not have a copy of [NAME]'s will and he applied for the grant of letters of administration. It was after the advertisement of his intention to apply for administration that he found the will. An application was then made for probate of the will, which was granted to him as [NAME]. 20 I do not think that this matter supports [NAME]'s application. [NAME] received one third of the residue of the estate under the will. The estate was valued at just over $1 million in the inventory of the property. Had there been an intestacy, [NAME] would have received more from the estate under the rules as to distribution of intestate estates in the Wills, Probate and Administration Act 1898. 21 [NAME]'s production of the will was against his interests, I fail to see how this incident should count against him in determining whether the grant of probate should be revoked thereby removing him as [NAME] of the estate. $271,000 debt 22 [NAME] said that before [NAME] purchased the [NAME] she had a conversation with him in the following terms: "[NAME]: "I think we should buy the property." [NAME]: "I don't have any money now but I expect to have some soon, I think I will be able to provide ½ the price." [NAME]: "When you do that I will transfer a half interest in the property to you." 23 [NAME] said he received a distribution of $100,000 from a third party estate and, in accordance with this conversation with [NAME], he directed a payment of $70,000 to [NAME] in February 1999 in discharge of his loan and [NAME] returned the unregistered mortgage. 24 [NAME] said that in 2004 a property he owned jointly with another person was sold and he received approximately $240,000 from which he discharged the $200,000 mortgage. He said that in accordance with his instructions, $201,201.75 was paid to Commonwealth Bank of Australia, $1,936.27 was paid to [NAME], the mortgagee, and $11,034.45 was paid to himself. 25 [NAME] pointed out that the payment to the Commonwealth Bank was unusual since [NAME] was the mortgagee. [NAME] said the payment was made at the direction of the solicitors for [NAME]. 26 This is a matter that an [NAME] of the estate might wish to investigate. Again, it is difficult for [NAME] to do so. 27 [NAME] maintained that he made the two payments in accordance with [NAME]'s undertaking to transfer a half interest in the [NAME] to him when he had paid half the purchase price. He said he did not make the payments as gifts to [NAME]. He claimed they were loans due to him by the estate. 28 There was no documentation with respect to the conversation with [NAME]. [NAME] accepted that in performing executorial duties the only evidence available to him was his own word. 29 There was no written loan agreement or any other document with respect to the $70,000 or with respect to the $201,000. There was no evidence of whether or not interest was payable. There was no evidence whether the loans were made for a term or to be paid on demand. [NAME] accepted that in the performance of his executorial duties all he had to act upon in determining whether there was a loan or a gift was his own word. [NAME] said that if he performed his executorial function of determining whether the amount was a gift or a debt owed to him, he would determine the claim as a valid one upon the estate. When it was put to [NAME] that he had to decide whether the estate owed him $201,000 or whether it did not, [NAME] said: "It certainly does." 30 [NAME]'s insistence that the estate owes him $271,000, the arrangement he says he had with [NAME] was not one of loan. The agreement he asserts was that [NAME] would transfer a half interest in the [NAME] to him upon his payment of half the purchase price. That may mean that [NAME] might establish an equitable interest in the [NAME], but it does not justify his insistence that he will admit his claim for $271,000 as a valid debt due by the estate to him. Missing Assets 31 [NAME] has not established that the [NAME] sports car belonged to [NAME]. His evidence was of a statement made to him by [NAME] when he and [NAME] were driving the motor vehicle: "Look at what I have bought your mother. It's a collector's item. It will increase in value for sure". In cross-examination, [NAME] agreed that he did not know where the money came from. He did not know in whose name the vehicle was registered. He had made no investigation as to the ownership of the vehicle. He did not know whether it was owned by his mother or not. He had never seen any documents that showed whether or not the car belonged to [NAME]. 32 [NAME] said the motor vehicle was purchased for $30,000 of which he paid $10,000 from the proceeds of sale of a tractor and took a finance lease of the vehicle for the balance. The lease was in evidence. [NAME] said the vehicle had always been registered in his name and was still registered in his name. A certificate of registration was in evidence. 33 [NAME] said that [NAME] had given estate property, being clothing and jewellery of [NAME], to [NAME]. [NAME] said that [NAME] had asked her to pack up her mother's chattels for safety. She said she packed her mother's clothes in plastic bags and placed them in the spare room. She has retained possession of her mother's jewellery for safety reasons until they could be later distributed. She produced a list. She said most of it was costume jewellery of no real value. There were only a few items of value. 34 I am not satisfied that [NAME] has disposed of the clothing and jewellery. 35 There was no further evidence in relation to the Toyota motor vehicle. 36 There was a deal of evidence in relation to the [NAME] paintings and drawings. [NAME] said there never were any original [NAME] paintings at [NAME]. There were some copy prints of [NAME] etchings that he said he and [NAME] agreed [NAME] could leave at the property. [NAME] said that as far as he was aware [NAME] never purchased a [NAME] work. He said that when he and [NAME] moved into the [NAME] premises, some [NAME] artworks were on walls that belonged to [NAME]. He said that he spoke to [NAME] shortly after [NAME]'s death and asked him to come and get the [NAME] paintings as people were showing a lot of interest in them. He said some time after this conversation [NAME] removed all the [NAME] works. 37 [NAME] said there were five [NAME] sketches signed by the artist not long after [NAME] and [NAME] moved into the house. [NAME] said she asked her mother who owned the [NAME] sketches to which her mother responded: "Yes, they are mine". [NAME] said that towards the end of her mother's illness she had a discussion with [NAME] at [NAME] when she said they were quite valuable and that at a recent auction sketches went for $20,000. She said that [NAME] told her that they belonged to [NAME]. There were four sketches. [NAME] informed her that [NAME] had already taken the fifth. 38 [NAME] gave evidence that [NAME] and [NAME] moved into the [NAME] on the day contracts were exchanged. [NAME] remained but usually stayed at an apartment he had in Darlinghurst during the week, returning to the [NAME] at weekends. He moved out in August 1999. He said [NAME] told him he could leave things at the [NAME] as long as he liked. He left facsimile etchings. He said he had bought them after the artist's death for $200 and had them framed. In addition he had purchased a cartoon by [NAME] entitled Magna Carta in Reverse. He also left a print of a [NAME] pen drawing of a boar hunt. The [NAME] paintings were removed to [NAME]'s son's place after the purchase settled. 39 [NAME]'s son, [NAME], gave evidence of his earliest memories of [NAME] pictures on the walls of his parents' home. He said that when he moved into his father's home at [NAME] there were three or four paintings, one or two original etchings and some other artworks by [NAME], together with about seven facsimile etchings that were framed. He said he took with his father's approval some framed [NAME] pencil drawings to a house he had purchased. He said that he assisted his father to remove the original [NAME] artworks to his house. 40 In cross-examination, [NAME] accepted that the [NAME] paintings had not been in any of the homes that [NAME] had lived in prior to moving to the house at [NAME]. He never asked his mother whether she bought the paintings and she never told him that she had. 41 The preponderance of evidence favours the finding, that I make, that the [NAME] works were not the property of [NAME] but were the property of [NAME]. Conflict of interest 42 In his claim under the Family Provision Act 1982 against the estate of which he is [NAME] has a conflict of interest that is not solved by confining the suit to individuals who might oppose any provision out of the estate. But that matter can be addressed in those proceedings. It would be wrong to assume that the conflict may not be resolved. 43 In relation to the present proceedings, however, there is a clear conflict of interest between [NAME] acting for the estate and [NAME] pressing his claim for payment of $271,000. There is also a potential conflict in any executorial investigation of whether there is any claim by the estate with respect to the $200,000 raised by way of mortgage on the [NAME]. Legal principles 44 The inherent jurisdiction of a court of equity to revoke a grant of probate was considered by the Court of Appeal in Mavrideros v Mack (1998) 45 NSWLR 80. It was not a case of conflict of interest. It was a case of inexcusable delay in administering the estate. Reference was made to what Asprey JA had said in Bates v Messner (1966) 67 SR (NSW) 187 of the judgment of [NAME] in In the Goods of Loveday [1900] P 154 at 156. Asprey JA said at 191-192: "I am of the opinion that the essential basis of the exercise of the court's inherent jurisdiction to revoke a grant of probate is that emphasised by [NAME], namely, that the real object which the court must always keep in view is the due and proper administration of the estate in the interests of the parties beneficially entitled thereto on the part of the person to whom and by whose oath as to the faithful performance of his duties the court has been induced to entrust the office of [NAME]. The terms used in some of the previously decided cases with relation to the circumstances which have given rise to the exercise of the jurisdiction of revocation, such as "aborted", "inefficient", "useless" or "ineffectual", are simply descriptive of a situation in which the court has been persuaded to the view that its grant, which was predicated on the oath of [NAME] named in the will that "he will pay all the just debts and legacies of [NAME] so far as the estate of [NAME] will extend and the law shall bind him, and that he will otherwise well and faithfully administer the said estate according to law; and that he will render a just and true account of his administration" has been circumvented by a breach of that oath which is in effect an undertaking to the court making the grant. I shall make no attempt to define all circumstances which may attract the exercise of the court's jurisdiction, but where circumstances clearly appear to have arisen after a grant of probate which impel the court to the firm conclusion that the due and proper administration of an estate has either been put in jeopardy or has been prevented either by reasons of acts or omissions on the part of [NAME] or by virtue of matters [NAME] to him, for example, mental infirmity, ill health, or by virtue of the proof of other matters which establish that [NAME] is not a fit and proper person to carry out the duties which he has sworn to the court that he will perform, the court may exercise its inherent jurisdiction to revoke the grant." 45 In Mavrideros, the judge at first instance had adopted the approach that the inherent jurisdiction should not be exercised unless one was getting close to the position of the grant being useless. [ADDRESS] of Appeal stated this to be too narrow an approach. At 108, Sheller JA, with whom the other members of the Court of Appeal agreed, said: "For present purposes this interpretation of Bates v Messner was too narrow. The question was, to adapt the language of Asprey JA (at 192), whether the due and proper administration of an estate had either been put in jeopardy or had been prevented either by reasons of acts or omissions on the part of [NAME] or by virtue of matters [NAME] to him, for example, mental infirmity, ill health, or by virtue of the proof of other matters which established that [NAME] was not a fit and proper person to carry out the duties he had sworn to perform. His Honour applied a far too rigid test by saying that one had to get close to the position of the grant being useless." 46 This passage was cited with approval recently by the [ADDRESS] of Appeal in Baldwin v Greenland (2007) 1 Qd R 117 at 129-130. That court has statutory power to revoke a grant of probate under the Succession Act 1981 (Qld), s 6(1). At 130 [44], Jerrard JA, with whom the other members of the court agreed, went on to say: "The jurisdiction, both statutory and inherent, is a supervisory and a protective one. It is always appropriate and necessary for a court asked to exercise it to have regard to [NAME]'s wishes as to the identity of an [NAME] or trustee. [NAME]'s choice may be based on loyalty, or on respect, or on necessity, or on the profession of [NAME], or on other matters [NAME] knew about [NAME]; the reason for the choice might never be clear to a court. The overriding assumption must be that [NAME] thought the person [NAME] was worthy of trust, even when well aware when making a choice of existing hostility (from family members) toward the [NAME] or trustee, or of other grounds for doubt about the wisdom of the choice." 47 His Honour went on to say that where circumstances arise before a grant of probate that impel a court to a firm conclusion that the due and proper administration of an estate would be put in jeopardy if a [NAME] were [NAME] or trustee, it can properly exercise the jurisdiction to remove that person as either. 48 A similar view as to the limited circumstances in which a mere conflict of interest will impel a court to exercise its inherent jurisdiction is made in [NAME], Wills, Probate and Administration Law in New South Wales, LBC Information Services, Sydney, 1996 at 330 [40D.15]: "A mere conflict of interest and duty will not result in restraint or removal of a [NAME] representative. It must be shown that the [NAME] representative prefers interest to duty, and intends to neglect duty." 49 That passage was cited with approval by Young CJ in Eq in Morgan v MacRae [2001] NSWSC 1017 at [25], his Honour pointing out at [26] that one reason for this in the case of an [NAME] is that [NAME] by choosing [NAME] and knowing the relationship must appreciate that there will be a conflict between interest and duty. 50 Monty Financial Services Ltd v Delmo [1996] 1 VR 65 concerned a statutory power to remove an [NAME] or administrator if the [NAME] representative refused or was unfit to act in that office. In dealing with the concept of unfitness to act, Ashley J concluded, at 82-83, that it might include the case of conflict of duty and interest but it was not every conflict of duty and interest that would result in removal of an [NAME]. The intention of [NAME] that [NAME] be a [NAME] should not be lightly set aside. The will itself might show that [NAME] was aware that [NAME] would face a potential conflict of duty and interest as, for example, where [NAME] was also a beneficiary. It would not be correct, without more, to remove [NAME]. 51 In Titterton v Oates (1998) 143 FLR 467 at 475-476, Crispin J declined to follow one aspect of the decision in [NAME]. That aspect does not concern Ashley J's conclusion that unfitness to act might be constituted by conflict of duty and interest. Resolution 52 In [NAME], Ashley J had to consider a situation not dissimilar to the instant circumstances. [NAME] was the son of [NAME]. He maintained that he had expended money on his mother's house and claimed a debt from the estate. There was no documentation. He probably did expend the moneys forming part of the asserted debt and his assertion of a debt was known to others before his mother's death. Ashley J approached the question of unfitness by reference only to the question of conflict of interest and duty (at 70). His Honour concluded (at 83) that the critical question whether the money spent was a gift or a loan would be determined if [NAME] remained in office by reference to his own veracity and that conflict required the removal of [NAME]. His Honour said (at 83): "In my opinion an order for the removal of [NAME] is required. It is not required because he is at once [NAME] and a beneficiary. It is required because in the [NAME] circumstances of this case there is a conflict of duty and interest, the conflict necessarily requiring a decision by [NAME] whether to accept or reject his own truthfulness. A critical question to be resolved is not simply whether [NAME] spent money on the Kew property. It is whether the money spent was a gift or a loan. About that, there is no documentation. [NAME] is silent. The only direct witnesses to any conversation who are alive, it seems, are [NAME] and his sister. In circumstances where any benefit [NAME] receives will go to her creditors, some challenge to her veracity (if she was to speak in support of her brother's account) could be expected. Then there is the question of interest on the assumed loan. Similar considerations apply. This is not to say that [NAME] and his sister (and [NAME]'s former wife, if she is able to provide relevant information) ought not be accepted. But it seems to me wrong, in the [NAME] circumstances, that [NAME] resolve this conflict of duty and interest. It could only sensibly be inferred, I should add, that [NAME] expressed any intention that [NAME] hold office despite the conflict of duty and interest concerning the asserted loan." 53 Not only does [NAME] rely solely on his own assertion that he is owed a loan and did not make a gift of the moneys in question but also there is his unsatisfactory evidence that he cannot recall how the bulk of the $200,000 raised on the [NAME] was expended. That raises an issue whether the estate should pursue any cause of action against him. 54 Furthermore, there is no reason to suppose that [NAME] was aware of the potential conflict. The conversation attributed to her had nothing to do with a loan. It had to do with the transfer of a half interest in the property to [NAME] when he had paid half the purchase price. He had not done so at the time of her death. 55 In my view it is inappropriate that these questions be determined by [NAME]. Because of the conflict of interest and duty he has in their determination, [NAME] is not a fit and proper person to continue as [NAME] of the estate. The grant of probate should be revoked. 56 I am not satisfied, however, that it is appropriate to appoint [NAME] as the [NAME] representative of [NAME]. There are elements of a family dispute about this matter that might be exacerbated by his determinations if granted executorial or administrative powers. It seems to me appropriate that an independent person be appointed. 57 But I will hear the parties on the appropriate terms of orders. For the present, I merely indicate that I will make an order revoking the grant of probate. I direct the parties, consequent upon further submission, to bring in short minutes of order reflecting my reasons.

**********

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.