Supreme Court New South Wales

• Medium Neutral Citation: Saffron v Cowley & Anor; Estate of Saffron [2012] NSWSC 1108
• Hearing dates: 10 September 2012
• Decision date: 10 September 2012
• Jurisdiction: Equity Division - Probate List
• Before: White J

Decision

Refer to paras [49] and [50] of judgment.

• Catchwords: WILLS, PROBATE AND ADMINISTRATION - executor - obligations of executors - where executors are directors of trustee of trust to which balance of estate is paid - no order had been made for payment of commission - executors paid themselves purported advances on commission - one executor paid himself remuneration for professional work done for the estate as an accountant although no clause in will authorising such remuneration - executors as directors of residuary beneficiary purported to authorise payments of advances on commission - where conflict between personal interests of executors in receiving remuneration and duty to residuary beneficiary - where acting on legal advice - prompt steps taken to rectify defaults after taking further legal advice - undertaking to court for repayment of funds received; TRUSTS - beneficiaries - question as to who are beneficiaries of trust - where trustees power to appoint all or parts of the trust fund or income thereof to be held in trust for one or more persons to the exclusion of others - consideration of definition of "appointed class" - whether definition of "appointed class" so hopelessly wide so that trust is administratively unworkable - possibly that trust assets held for benefit of charities - referral of papers to Attorney-General; COSTS - indemnity costs - resistance to plaintiff's claim not reasonable
• Legislation Cited: Probate and Administration Act 1898; Civil Procedure Act 2005; Trustee Act 1925
• Cases Cited: Re Craig (1952) 52 SR (NSW) 265; Re Baden's Trust Deeds; McPhail v Doulton [1971] AC 424
• Texts Cited: Maclean, Trusts and Powers, Law Book Company, 1989
• Category: Principal judgment
• Parties: Alan Saffron (Plaintiff); Edwin Maxwell Cowley (1st Defendant); Victor Bogan (2nd Defendant)
• Representation: Counsel: M S White with B D Kaplan (Plaintiff); B Coles QC with A C Harding (Defendants); Solicitors: M + K Lawyers (Plaintiff); Tresscox Lawyers (Defendants)
• File Number(s): 2011/305017

Judgment

1 HIS HONOUR: The defendants are the executors of the will of Abraham Gilbert Saffron who died on 15 September 2006. The plaintiff is the son of the deceased. He has instituted separate proceedings for further provision out of the deceased's estate. Under the deceased's will he was entitled to a legacy of $500,000, which has been paid.

2 In these proceedings the plaintiff complained about payments that the defendants made to themselves out of the estate for what was described as advances against commission. These advances were said to have been approved by the residuary beneficiary of the estate.

3 On 21 December 2011 the defendants filed a notice of motion seeking an order that the plaintiff provide security for costs. He is resident outside the jurisdiction. The Registrar made an order for the provision of security. I was told that in the hearing before the Registrar no question was raised as to what the defendants' defence would be to the claim made in the summons that the executors repay the commissions. The order for provision of security did not specify a time by which the security was to be provided.

4 The matter came before me on 6 August 2012 on an application by the defendants for the proceedings to be dismissed. That application was put on two grounds. Namely, the failure to provide security for costs; and, secondly, that the plaintiff, being a legatee whose legacy had been paid, had no standing to complain about the payment of commission.

5 I dismissed that application on 6 August 2012 for reasons I then gave.

6 During the course of the hearing on that day I expressed concerns as to the payments that the executors had received from the estate. Those concerns were two-fold. They related both to the payment of purported commissions and also to the receipt by the first defendant of professional remuneration for his work done as an accountant for the estate. No order has been made pursuant to s 86 of the Probate and Administration Act 1898 for the payment of commission. The deceased's will does not include a clause authorising the payment of professional fees for the executors' work in relation to the estate.

7 The deceased's will provides for the payment of a number of pecuniary legacies. After making those gifts and other specific gifts, the will provides that the balance of the estate after the payment of debts, funeral and testamentary expenses is to be paid to the trustee of the Marshin Trust to be dealt with as though the balance of the residue of the estate forms part of the capital of that trust.

8 The defendants are two of the three directors of Marshin Holdings Pty Limited, the trustee of the Marshin Trust. Evidence was read on the previous hearing that in their capacity as the directors of the trustee the defendants approved the payments of commission to themselves. There was also evidence that those steps had been ratified by the remaining director of the trustee.

9 The obligations of executors should not be in doubt, either as to their entitlement to receipt of commission or to their entitlement to be paid remuneration for work done in a professional capacity.

10 In Re Craig (1952) 52 SR (NSW) 265 Roper J said (at 267-268):

"It is the duty of an executor and of a trustee to render accounts when properly called upon and to be constantly ready so to do (Freeman v. Fairlie (1817) 3 Mer. 24 at 43; 36 E.R. 10 at 17; Pearse v. Green (1819) 1 Jac. & W. 135 at 140; 37 E.R. 327 at 329). He is not bound, and indeed is not necessarily entitled, as against the estate to employ and pay an accountant to prepare them. Whether he is so entitled depends upon the nature of the accountants (Henderson v McIver (1818) 3 Madd. 275; 56 E.R. 510), and whether, acting with prudence, he would employ the accountant if the affairs of the estate were his own affairs (Trustee Act 1925-1942, s. 53). If then an executor who was not a professional accountant had, nevertheless, in an estate such as the one before me, personally kept the accounts at considerable pains and trouble to himself, it appears to me that the work involved would be work done by him in his office of executor and that the pains and trouble incurred should be taken into account in allowing him commission. I can see no reason for thinking that the law or practice is different when the executor who keeps the accounts happens to be a professional accountant and so the better qualified to keep them. In neither case can the executor charge the estate directly with remuneration for the work involved, but in both cases he is in my opinion entitled to have it taken into consideration in fixing his commission.

Apart from statute the position is clear. As to remuneration of executors where there is no provision in the will, the primary rule is that expressed in Robinson v. Pett (1734) 3 P. Wms. 249 at 251; 24 E.R. 1049, where Talbot L.C. said: 'It is an established rule that a trustee, executor, or administrator, shall have no allowance for his care and trouble.' From time to time efforts have been made to ingraft exceptions upon this rule in cases where an executor or trustee had a special professional qualification and did work for the estate in his special field. Generally these efforts were made where the qualification was that of a solicitor. To a strictly limited extent the efforts succeeded with the decision in Cradock v. Piper (1850) 1 Mac. & G. 664; 41 E.R. 1422, but in general they failed and the primary rule prevailed (see, e.g., Moore v. Frowd (1837) 3 My & Cr. 45; 40 E.R. 841, New v. Jones (1833) 1 Mac. & G. 668, n.; 41 E.R. 1429, and Broughton v. Broughton (1855) 5 De G.M. & G. 160; 43 E.R. 831). The primary rule, however, has been altered by s. 86 of the Act. The section does not operate to permit a professionally qualified executor to charge the estate directly for work done by him which required his professional skill but I think that it clearly empowers the Court to allow him a commission for his pains and trouble incurred in work requiring professional skill as well as in other matters. No executor or trustee, professionally qualified or not, can charge the estate directly with remuneration for work done by him whether the work required professional skill or not. It may be said that if a commission is allowed for his pains and trouble the estate is being charged indirectly for the work; but that is what the Act provides (cf. Nissen v. Grunden (1912) 14 C.L.R. 297 AT 312-315)."

11 The defendants had a clear conflict between their personal interest in receiving remuneration for what were described as advances of commission and their duty to the residuary beneficiary. In their capacity as directors of the trustee they could not properly cause the trustee to consent to their receipt of amounts by way of commission, except with the informed consent of the beneficiaries of the trust, assuming that there were identified beneficiaries who were sui juris who could give such consent.

12 The purported ratification of their acts by the third director of the trustee would be in no better position. The third director could not constitute a quorum of the board of the trustee. But, in any event, the third director was also obliged to act in the interests of the beneficiaries of the trust.

13 The question which arose on the last occasion then was who are the beneficiaries of the Marshin Trust. That question arose in the context of an inquiry as to whether those persons gave an informed consent to the defendants making payments of commissions to themselves.

14 The trust deed of the Marshin Trust provides in cl 3 that the trustee is to have the power to appoint all or any parts of the trust fund or the income thereof to be held upon trust for the benefit of any one or more, to the exclusion of others, of the "Appointed Class" in such proportions as the trustee might think fit.

15 The trust deed defines the "Appointed Class" as:

"(i) all eligible charities

(ii) such individual trusts or companies, if any, (not being Excluded Persons) as after the time being in existence before the Closing Date and are the subject of a nomination duly made and not withdrawn pursuant to cl 6."

16 "Eligible Charity" is defined as any corporation, body of persons or trust established for charitable purposes only.

17 Clause 6 purportedly empowers the trustee to nominate one or more individuals or companies (none of whom is an "Excluded Person") to be a member or members of the "Appointed Class". "Excluded Persons" are, in substance, any person who is or has been a trustee or a "Protector", or who has provided funds for the purposes of the settlement either directly or indirectly, or the spouses of such persons, or any company in which such persons hold beneficial interests as owners of shares or other securities.

18 Thus, it appears that the "Appointed Class" is said to constitute bodies established for charitable purposes, and secondly, any individual or any company as might be nominated by the trustee, except those falling within the definition of "Excluded Persons".

19 Consideration of the trust deed raised a further question at the last hearing whether or not notice should be given to the Attorney-General as the protector of charities. It seemed to me there was a real question as to the validity of the trust as so constituted.

20 Prima facie the definition of the class of persons who might fall within para (ii) of the definition of the "Appointed Class" would satisfy the test of being able to say whether or not a person fell within or outside the class. But in Re Baden's Trust Deeds; McPhail v Doulton [1971] AC 424 Lord Wilberforce observed (at p 457) that there may be a case where, although the meaning of the words used is clear, the definition of beneficiaries is:

"so hopelessly wide as not to form 'anything like a class' so that the trust is administratively unworkable or in Lord Eldon LC's words one that cannot be executed (Morice v Bishop of Durham)" ((1805) 10 Ves 522 at 527)

(See also Maclean, Trusts and Powers, Law Book Company, 1989 at pp 5, 6 and 13-17.)

21 On the last occasion I dismissed the defendants' application for the proceedings to be struck out. I foreshadowed that I might make orders requiring the defendants to reimburse the estate for the moneys withdrawn for purported commission, or advances on commission, or payment of accountancy fees. I was persuaded not to make such orders on that day. I was also persuaded not to give reasons containing any adverse findings concerning the defendants' conduct until the defendants had a further opportunity to file and serve any affidavits in relation to those matters.

22 Such affidavits have now been provided.

23 In substance, the defendants say that they believed that they were entitled, with the consent of the residuary beneficiary, to pay the advances on commission that were paid. The first defendant also says that it was his understanding that as an accountant, if he was appointed to act as executor of the estate, he was entitled to charge his usual professional fees. Earlier wills, or drafts of wills, of the deceased had contained a provision to that effect. He was unaware that such a clause was missing in the last will, and unaware of the relevance to his position of the fact that there is no such clause in the deceased's last will.

24 Both defendants say that they acted on legal advice.

25 Since the last hearing the defendants have changed their legal advisers. Having taken further advice, they have both taken prompt steps to redress the position.

26 The second defendant was paid what was described as an advance on commission amounting to a sum in excess of half a million dollars. On 4 September 2012 he repaid to the estate the amount received by way of commission together with interest.

27 The first defendant received the same amount of commission and also received accountancy fees from the estate of in excess of $115,000. He has repaid $180,000 to the estate's bank account and has arranged for a loan facility from the National Australia Bank to be secured by a mortgage over his home to provide him with a further $525,740 which will enable him to repay both the amounts of commission and accountancy fees and also interest on the amounts that he has received.

28 The prompt steps taken by the defendants to rectify their defaults as executors after taking further legal advice are to be commended.

29 The first defendant proffers an undertaking to the court for the repayment of the further amount of $525,740 from the finance to be provided by the National Australia Bank.

30 The payments which the defendants have made and the further payment that the first defendant undertakes to make dispose of the plaintiff's claim for relief in the summons. Apart from noting the undertaking, it will not be necessary to make any further order on the summons except as to costs.

31 The plaintiff seeks an order for indemnity costs. He submits that the defendants' resistance to the relief sought in the summons was unreasonable.

32 The summons was filed on 22 September 2011. On 28 July 2011 the plaintiff's solicitor wrote to the defendants' then solicitor concerning draft estate accounts that had been recently received, noting that it appeared from those accounts that the defendants, without any order from the court, had paid to themselves commissions totalling in excess of $1,055,000. The plaintiff's solicitor noted that as the defendants controlled the trustee of the Marshin Trust they faced a conflict of interest when they purportedly gave consent to pay themselves as trustees of the estate large amounts of commission. That view was clearly right. It has been belatedly acknowledged by the defendants after they took further legal advice from a new firm of lawyers after the last hearing.

33 The reasonableness of the defendants' resistance to the relief sought by the plaintiff is to be considered objectively. I do not think it is an answer to the claim for indemnity costs that the defendants were acting until recently on legal advice which, as I understand their evidence, was to the effect that they were entitled to do what they did.

34 The defendants had been ordered in December 2011 to serve affidavits in response to the plaintiff's affidavit. They did not do so. Instead they sought the order for security for costs to which I have earlier referred. In my view, that was an act of unreasonableness resistance to the plaintiff's claim, because there was no defence to the plaintiff's complaint. It is a matter of regret that that was not recognised when the application for security for costs was determined by the Registrar.

35 Properly advised the defendants would never have withdrawn the amounts described as advances of commission and the first defendant would not have paid himself the professional fees for accountancy services. Properly advised, the defendants would have rectified the position at least upon receipt of the letter from the plaintiff's solicitor of 28 July 2011. Properly advised they would not have resisted the claims for relief in the summons.

36 In my view, the plaintiff is entitled to an order that the costs be paid on the indemnity basis.

37 It may be that the defendants would be entitled to an order pursuant to s 99(2)(c) of the Civil Procedure Act 2005 directing that they be indemnified by their former lawyer or lawyers against the costs payable by them to the plaintiff. If any application for such an order is to be made, the legal practitioner or practitioners affected must be given a reasonable opportunity to be heard. I will give liberty to the defendants to apply in that respect.

38 The order for costs will provide that the defendants are not entitled to reimburse themselves out of the estate in respect of the costs to be paid to the plaintiff.

39 The questions concerning the validity of the Marshin Trust are such that I will refer the relevant papers to the Attorney General to consider what, if any, steps he might take to protect the interests that charitable bodies might have to the assets of the Marshin Trust.

40 The first defendant deposes that the Marshin Trust has never operated as a trust for charitable purposes. That may be so, but it is not a reason for not referring the papers to the Attorney General for that purpose. Quite the contrary. If the trust is valid insofar as it is a trust for charitable purposes, that is to say a trust for eligible charities, and only valid to that extent, then the fact that no distribution to any charity has ever been made is a very good reason as to why the papers should be referred to the Attorney General.

41 Other questions may arise if it is found that the trusts established by the trust deed of 3 June 1985 are wholly or partially invalid. There may be questions as to whether the assets of the Marshin Trust are held for the persons who settled property on the trustee, that is to say whether the assets are held on a resulting trust.

42 The first defendant deposes that the Marshin Trust was used by the deceased as a vehicle for holding and distributing his assets and income. If that is so, then it is possible that if the trusts declared by the trust deed are invalid the trust property might be held on a resulting trust for the persons entitled to the deceased's estate. That might result in the assets of the Marshin Trust being held for those who would be entitled on intestacy.

43 Questions might also arise if the trustees are minded to exercise a power of variation of the trust deed.

44 It is desirable that such questions, if they need to be resolved, be resolved reasonably promptly, particularly as they are prima facie relevant to the claim brought by the plaintiff for a family provision order.

45 I am assured by senior counsel appearing now for the defendants that these are matters which the defendants will closely consider with the benefit of advice. I understand that if necessary and thought appropriate that appropriate proceedings might be commenced for the determination of those questions.

46 One purpose of referring the relevant papers to the Attorney-General will be so that the Attorney-General can also consider what, if any, application might be brought in the interests of charities.

47 Having raised these last matters, I do not consider that I need make any orders to seek to crystallise such disputes. Those issues will be raised either on application by the Attorney-General, or, I understand, on an appropriate application that may be brought by the defendants, or, in any event, it is likely that the plaintiff will seek to amend his present claim for a family provision order to raise an alternative claim that he may be one of the persons entitled to the assets of the Marshin Trust on intestacy.

48 If any proceedings are brought by the defendants, for example for judicial advice under s 63 of the Trustee Act 1925, or by the plaintiff by amendment to the family provision proceedings in relation to the issue I have identified, the Attorney-General should be added as a party.

49 For these reasons I make the following orders:

1. Note the undertaking given by the first defendant to the court in the document signed by the first defendant and dated today, which I initial for the purposes of identification and will place with the papers.

2. Order that the defendants pay the plaintiff's costs of the proceedings number 305017 of 2011 on the indemnity basis and without recourse to the assets of the Estate.

3. Give the defendants liberty to apply for an order pursuant to s 99(2) of the Civil Procedure Act 2005.

4. Order that the Registrar provide to the Attorney-General for the purposes of his considering what, if any, steps should be taken in the interests of Eligible Charities in relation to the Marshin Trust, a copy of these reasons for judgment, when available, together with the affidavits and exhibits, read on this application and the application dealt with on 6 August 2012.

5. Order that the order made by the Registrar on 16 March 2012 that the plaintiff pay the defendants' costs of the notice of motion filed on 21 December 2011 be discharged.

6. Give the parties liberty to apply in relation to the undertaking of the first defendant of 10 September 2012.

50 I should deal with one further matter as a matter for clarification concerning costs. On 6 August 2012 I ordered the defendants to pay the plaintiff's costs of the defendants' notice of motion of 9 May 2012. That order for costs was made on the ordinary basis. In making the order for indemnity costs of the proceedings, I do not intend a variation of the costs order made on 6 August 2012.

Amendments

18 September 2012 - Counsel for defendants and plaintiffs incorrect (around the wrong way). Corrected.
Amended paragraphs: Cover sheet

Decision last updated: 18 September 2012