Executor and trustee receives jail time for acting badly

A series of recent decisions of the Supreme Court of Victoria in Fahey v Bird¹ highlights:

• the importance for executors and trustees to keep adequate and accurate financial records of their administration of estates and trusts respectively;
• executors have a positive duty to respond to beneficiaries’ requests for information; and
• the dire consequences that might ensue when such duties are breached.

In this article, Marcus Schivo reflects on the various judgments which considered the behaviour of the executor and more particularly the breaches which resulted in him being jailed.

Background

Pauline Tyson died on 11 December 2003, having executed her last Will shortly before her death. By her last Will, Pauline:

• appointed her brother Howard as executor and trustee of her estate;
• gifted $65,000 to her daughter Wendy, together with the contents of her home and all other personal items;
• left other gifts of relatively small sums of money to her sister, brother-in-law, grandson, and granddaughter, respectively, with such gifts totalling $30,000; and
• left the balance of her estate equally to Howard and her granddaughter Chloe, who was Howard’s niece, upon Chloe attaining 21 years of age.

Probate of Pauline’s Will was granted to Howard on 30 April 2004, while the residue of her estate was valued at approximately $332,000 in 2004.

Chloe’s requests for information from Howard

After turning 20 years of age in 2022, Chloe attempted to contact Howard seeking information as to how he had invested her share of Pauline’s estate together with the value of her trust. At the time, Chloe was unemployed, in receipt of Youth Allowance, living in a shared rental property, and suffering from significant financial difficulty.

Chloe tried calling Howard three times a week for six weeks at his place of work, sent emails to both his work and personal email addresses, and sent him text messages, as well as messages on Facebook. Howard never responded to any of Chloe’s emails or messages.

Chloe retained solicitors who wrote to Howard and:

• advised that she was suffering from severe financial hardship, required funds for her accommodation, and was unable to meet her financial commitments;
• requested information concerning her trust and how it had been invested since it was established;
• sought immediate payment of her trust in full; and
• threatened him with a court application in the event of non-compliance.

Howard failed to respond to the letter, so Chloe’s solicitors requested the Registrar of Probates to exercise her discretion pursuant to rule 6.03 of the Supreme Court (Administration and Probate) Rules 2023 and demand him to file an Administration Account with the Probate Office. Howard failed to respond to the Registrar’s demands, together with all subsequent follow-ups by the Probate Office.

Chloe’s Supreme Court application

Chloe then filed an application with the Supreme Court of Victoria seeking the following:

• that Howard furnish and verify accounts of his administration of Pauline’s estate;
• a declaration that her trust be terminated; and
• that Howard transfers all trust property to Chloe immediately.

Chloe’s application was personally served on Howard at his workplace.

The orders of Associate Justice Mukhtar

On 9 September 2022, Associate Justice Mukhtar ordered that:

• Chloe was entitled at law to terminate her trust by directing Howard to pay her entire beneficial interest to her presently, and without her having to attain 21 years of age, contrary to the clause in Pauline’s Will requiring her to do so; and
• Howard produces an account of his administration of both Pauline’s estate and Chloe’s trust to Chloe’s solicitors by 22 September 2022.

Howard failed to comply with these orders, so Chloe sought to enforce them by threatening Howard that she would seek to have him imprisoned and fined as a consequence. Chloe filed a summons with the Court, and Howard represented himself in Court at the subsequent hearing.

Howard indicated to the Court his understanding of the seriousness of the charges and the potential consequences that could follow if he continued his non-compliance with the orders, including the imposition of both fines and imprisonment.

Howard failed to appear at the subsequent Court hearings and as a consequence, the Court ordered that a warrant be issued to the Sheriff to arrest Howard and bring him before the Court.

Justice Moore’s initial judgment

On 9 May 2023, Howard pleaded guilty to two charges of contempt given his refusal to comply with Associate Justice Mukhtar’s orders. Howard was informed by the Court of the opportunity to purge his contempt by filing an account of his administration of the estate and in response, Howard told the Court that he would do so within four weeks. Howard failed to do this, the Court gave him more opportunities to do so and once again he failed to comply.

Justice Moore considered that Howard’s failure to comply with the undertakings he’d provided to the Court, together with the Court orders, were wilful acts that rendered his contempt of the Court as criminal in character, despite him being fully aware of such breaches.

Howard had sought, and was granted, various opportunities to purge his contempt and file the required material with the Court but had done nothing. These failures, together with the numerous Court hearings that Howard didn’t attend and combined with a lack of explanation for such failures, were considered a serious and deliberate defiance of judicial authority.

On 12 September 2023, Justice Moore ordered that Howard serve a prison sentence of four months with such sentence suspended for 28 days to allow him one final opportunity to comply with his previously provided undertakings and the Court’s orders. Howard was also ordered to pay Chloe’s costs of her application on an indemnity basis, the most punitive.

Justice Moore’s further judgment

Howard failed to comply with his undertakings and the previous orders of the Court and on 26 October 2023, a warrant was issued for his arrest. On 21 March 2024, Howard was taken into custody.

On 22 March 2024, Howard’s solicitor filed an affidavit with the Court setting out the steps that Howard had subsequently taken to purge his contempt and end his prison sentence. This included Howard having engaged a forensic accountant to prepare an expert report detailing his administration of Pauline’s estate. Howard applied to the Court seeking to be discharged from prison only four days after being taken into custody. This application was not opposed by Chloe.

As Howard had substantially complied with the Court’s orders via the filing of the forensic accountant’s report, Justice Moore was satisfied that Howard had suffered punishment proportionate to his contempt and that the interests of the State would not be significantly prejudiced if he were discharged from his sentence early.

Conclusion

These decisions highlight the following:

• the importance of executors and trustees maintaining accurate records of their administration of deceased estates and trusts for the lifetime of the trust and not just the preceding 7 years;
• the need for executors of estates and trustees to respond to beneficiaries’ requests for information and to produce accounts when properly required to do so; and
• the importance of complying with court orders, and the consequences that may follow in the event of non-compliance.

Contact us

Rigby Cooke Lawyers’ Wills, Trusts & Estates team can assist executors and trustees in complying with their duties and the administration of deceased estates and trusts. Similarly, we can advise and represent the beneficiaries of deceased estates and trusts in connection with their entitlements.

If you wish to discuss how we can assist you, please contact a member of our Wills, Trusts and Estates team.
_References

^{1. Fahey v Bird [2022] VSC 533; Fahey v Bird (No 2) [2023] VSC 540; Fahey v Bird (No 3) [2024] VSC 148}