Reece v Reece HC Auckland CIV-2010-404-8071 [2011] NZHC 800 (22 June 2011)

Last Updated: 4 August 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2010-404-8071}

UNDER the Administration Act 1969

IN THE MATTER OF the Estate of Mary Elizabeth Hannah Reece

BETWEEN PETER STEPHEN REECE Applicant

AND JAMES GUY REECE AND PETER STEPHEN REECE

Respondents

Hearing: 22 June 2011

Appearances: Mr P J Reardon for Respondents

Mr J D McLeay for Applicant

Judgment: 22 June 2011

(ORAL) JUDGMENT OF LANG J

_{[re application for orders under the Administration Act 1969]}

REECE V REECE & ANOR HC AK CIV-2010-404-8071 22 June 2011

[1] In this proceeding the applicant, Mr Peter Reece, seeks an order appointing

Mr Warren Scotter as the administrator of the estate of his late mother, Mary Reece.

Facts

[2] Peter and James Reece are the sons of Roderick and Mary Reece. Roderick died on 13 October 1988 and Mary died on 20 December 2006. When Roderick died, he left all of his estate to Mary. Included within the estate were shares that Roderick owned in two companies by the name of Beacon Investments Limited (“BIL”) and City Equitable Loan and Finance Limited (“CEL”).

[3] Mary already owned 3050 shares in BIL in her own right, together with one share in CEL. In or about 1989 she transferred to James all of the shares that she inherited from Roderick’s estate. Up until recently there has been no explanation by James regarding the terms upon which he received the shares.

[4] When Mary died, she left all of her assets to a trust known as the Waikawa

Trust. Peter and James are the beneficiaries of that trust.

[5] Mary’s estate comprised three assets. They were a life insurance policy having a value of approximately $3000, and the shares that she owned in the two companies. The companies owned two small commercial properties in Palmerston North.

[6] After Mary died, James, who was then the sole director of both companies, decided to liquidate the companies. He passed the appropriate resolutions and appointed Ms Mason and Mr Meltzer, two well-known professional liquidators, to undertake the liquidation. The liquidators realised the assets owned by the two companies, and on 14 April 2008 they paid the estate’s entitlement to the net surplus assets of both companies into the trust account of Cooper Rapley. This comprised the sum of $29,040.16 in respect of CEL and the sum of $67,124.30 in respect of BIL. Those funds remain on interest bearing deposit in the name of the estate. It is intended that they will ultimately be transferred to the trust account in the name of the Waikawa Trust.

[7] Peter and James were named as executors under Mary’s will. Because Peter resides in Alaska, he left it to James to carry out the practical administration of the estate. He says that he always anticipated that James would apply for probate in what he understood to be the usual way. He left it to James to realise the assets of the estate and to pay the resulting proceeds to the Waikawa Trust in terms of his mother’s will.

[8] The present proceeding has arisen because James never applied for probate of Mary’s will. Instead, he carried out the administration of the estate without taking that step. The only practical step yet to be taken is the journal entry transferring the funds held in Cooper Rapley’s trust account in the name of the estate into the name of the trust.

[9] Peter takes issue with the manner in which James has administered the estate. First, he has always considered that James was required to apply for probate of his mother’s will, and is concerned at the fact that he has not done so. Second, he remains concerned that the circumstances surrounding the transfer to James of the shares formerly owned by Roderick have never been explained. Third, he is concerned that the liquidators of the companies repaid monies to James on the basis that he was an unsecured creditor of the companies. Peter has never been able to obtain details from the liquidators regarding the reasons underlying these payments. He considers that the executors of the estate ought to have investigated that matter further.

Jurisdiction

[10] Peter relies upon s 19 of the Administration Act 1969, which relevantly provides:

19 Proceedings where executor neglects to prove will

(1) In any case where any executor named in a will neglects or refuses to prove the will, or to renounce probate thereof, within 3 months from the death of the testator, the Court may, upon the application of any other executor or executors or of any person interested in the estate or of [Public Trust] or of the [Maori Trustee] or of any creditor of the testator, grant an order nisi calling upon the executor who so neglects or refuses to show cause why probate of the will should not be granted

to that executor alone, or with any other executor or executors or, in the alternative, why administration should not be granted to the applicant or some other person.

(2) Upon proof (whether by affidavit or otherwise) of service of the order, or upon the Court dispensing with service of the order, if the executor who is so called upon does not appear or upon cause being shown, the Court may make such order for the administration of the estate, and as to costs, as appears just.

...

[11] Peter contends that, in failing to obtain probate, James refused or neglected to do so in terms of s 19(1) of the Act. He also contends that the executor needs to address his other concerns, and James has shown himself to be unable or unwilling to undertake that task. He submits that these factors should persuade the Court to exercise its discretion in his favour by substituting Mr Scotter as sole executor of his mother’s estate.

Did James have an obligation to apply for probate of his mother’s will?

[12] Peter does not now maintain his stance that James had a legal obligation to apply for probate of Mary’s will. This argument appears to have been advanced on the basis that, because Mary’s estate had a value of more than $15,000, James had a legal obligation to apply for probate.

[13] The Administration Act 1969 does not, however, contain any express provision to that effect. Peter’s misconception regarding this issue may arise from his view regarding the effect of s 65 of the Act which provides as follows:

65 Payment without administration

(1) In this section,—

[Bank means a bank within the meaning of the Banking Act 1982; and includes the Reserve Bank of New Zealand and Post Office Bank Limited:]

(2) In the event of the death of any person to whom any sum of money not exceeding [$15,000] is payable by the trustees of a superannuation fund, a society, a bank, an employer of the deceased person at or within 6 months before the date of his death, a local authority, a trustee corporation, [Housing New Zealand Corporation], [the Accident Compensation Corporation] ..., [the chief executive of the department for the time being responsible for the administration of the

Social Security Act 1964] ... or the Crown respectively, whether the death occurred before or after the commencement of this section, it shall be lawful for the trustees of the superannuation fund, society, bank, employer, local authority, trustee corporation, [Housing New Zealand Corporation], [the Accident Compensation Corporation] ... [the chief executive of the department for the time being responsible for the administration of the Social Security Act 1964], ... or the Crown, as the case may be, without requiring administration of the estate of that deceased person to be obtained in New Zealand, and on receiving such evidence as it considers satisfactory that the person has died and that administration of his estate has not been obtained in New Zealand, to pay the sum or any part thereof to any of the following persons:

(a) The widow, widower, [surviving civil union partner,] or children of the deceased person:

(aa) a surviving de facto partner of the deceased person:]

(b) The persons beneficially entitled to the estate of the deceased person under the will or on the intestacy of that person:

(c) Any person appearing to be entitled to obtain administration of the estate of the deceased person in New Zealand:

...

(5) Where, by virtue of a policy or policies of insurance within the meaning of the Life Insurance Act 1908, a sum of money not exceeding [$15,000] (including profits but not including any money that may be payable to or deductible by the company liable under the policy or policies) has become payable to the administrator of a deceased person, whether before or after the commencement of this section, it shall be lawful for the company, without requiring administration of the estate of the deceased person to be obtained in New Zealand, and upon receiving such evidence as it considers satisfactory that the person has died and that administration of his estate has not been obtained in New Zealand, to make payment of the sum or any part thereof to any of the persons to whom payment may be made under paragraphs (a) to (e) of subsection (2) of this section.

(6) Any payment made in good faith pursuant to this section to a person to whom the maker of the payment has reasonable grounds to believe that payment may be made under this section shall be valid against all persons whomsoever, and the maker of the payment shall be absolutely discharged from all liability in respect of money paid by him under this section.

(7) Every person to whom money is paid pursuant to this section shall be liable to apply the money in due course of administration, and the maker of the payment may, if he thinks fit, without being liable to see to the application of the money, require any such person to give sufficient undertakings, by bond or otherwise, that the money so paid will be so applied.

[14] Peter appears to have interpreted s 65(2) as imposing an obligation on an administrator to apply for probate in any case where the assets of the estate amount to more than $15,000. Plainly, however, that is not the meaning of the section. As counsel for the estate points out, the section is designed to protect persons who make payments to the executor from having to sight probate provided the amount involved does not exceed $15,000. It remains open, however, to any such person to make a payment to the executor for more than the prescribed amount. If they do so, however, they will not be able to avail themselves of the statutory protection provided by s 65(6).

[15] The practical effect of the section is demonstrated by what occurred in the present case. The life insurance company had no difficulty in paying out the proceeds of the insurance policy to James without sighting probate because the policy was only worth approximately $3000. Similarly, the liquidators were prepared to pay the estate its pro rata entitlement to the net assets of the two companies without sighting probate. In doing so, however, they took the risk that they were paying the wrong person. For that reason they would not have been entitled to the protection afforded by s 65(6).

[16] There is therefore nothing in Peter’s original argument that James had a legal obligation to apply for probate because the value of the estate was more than

$15,000.

Is there an issue relating to the circumstances in which James received the shares that formerly belonged to Roderick?

[17] James has very recently sworn and filed an affidavit in which he confirms that his mother transferred to him the CEL shares formerly owned by his father free of consideration. As a result, he has no legal obligation to pay any debt to the estate arising out of the transaction.

[18] Counsel for the estate had advanced several arguments in opposition to

Peter’s submission in relation to this issue. It is not necessary to consider those

further, because Peter now accepts that James was not required to make any payment to the estate in respect of the shares that he received from his mother.

Is there an issue relating to the payments that James received from the liquidators as an unsecured creditor of both companies?

[19] This leaves the final issue, which relates to the payments that James received from the liquidators of the two companies as an unsecured creditor. Peter remains convinced that this is an issue that the executors of the estate should consider carefully, because the liquidators’ decision effectively deprived the estate of a significant sum of money.

[20] Peter wishes Mr Scotter to investigate the matter further in order to determine whether James was truly an unsecured creditor of the companies as he claimed. If Mr Scotter reaches the conclusion that the liquidators should not have made the payments to James, he would be entitled to apply to the Court for an order under s

284(1)(b) of the Companies Act 1993 reversing the liquidators’ decision.

[21] That may sound simple, but it will not be an easy task. The liquidators made the payments to James in or about April 2008. Thereafter the companies were struck off the register, and the liquidators have ceased their duties. As a result, it will be necessary as a first step for the companies to be reinstated to the register, and for the liquidation to be resumed. If Mr Scotter wishes to advance the matter further, he will also need to file proceedings against the liquidators (and probably James) seeking an order reversing the decisions to pay the funds out to James. All of this will inevitably be a costly and time-consuming exercise.

[22] I accept that the fact that James received the payments from the liquidators potentially placed him in a position where he had a conflict of interest given his position as an executor of his mother’s estate. He could not be expected to cast an objective and critical eye over the payments that the liquidators made when he was receiving the benefit of those payments. However, the cost and time involved in resurrecting the issue at this stage means that the potential benefit to the estate (and Peter) needs to be considered carefully. It would be pointless making the order that

Peter seeks only to discover (after spending a large amount of money) that it is unlikely to produce a worthwhile result.

[23] On the information currently available, it appears that James received approximately $45,000 from the liquidators of each company. Mary’s estate has no effective interest in CEL, so there would be no benefit to the estate in Mr Scotter investigating the payment that the liquidators of that company made to James.

[24] The estate holds approximately 40 per cent of the shares in BIL. This means that, in the unlikely event that the liquidators were able to recover the full sum of

$45,000 from James together with all costs expended in doing so, the estate would receive approximately 35 per cent of that sum. That would enable the estate to make a further payment to the Waikawa Trust in the sum of approximately $16,000. Peter’s share of that sum would be approximately $8,000.

[25] In my view it is completely unrealistic for the estate to go to the expense of engaging Mr Scotter to investigate this issue when the potential return to the estate, and Peter, is so insignificant. The reality here is that the investigation that Peter wants Mr Scotter to undertake will be a barren exercise.

[26] For that reason, even though Peter may have established grounds for the issue to be considered further, I do not consider that the Court should exercise its discretion under s 19 of the Act to grant the application. The parties need to move forward in the knowledge that the administration of the estate is now effectively complete.

Result

[27] The application is dismissed.

Costs

[28] Ordinarily costs would follow the event. In this case, however, it is clear that

Peter’s concerns have arisen largely out of the fact that he feels that he has not been

provided with proper information regarding the way in which the estate has been administered. The issue in relation to the circumstances in which the shares came to be transferred to James has also only recently been clarified. In those circumstances I consider that justice will be done if costs lie where they fall. Counsel for the estate will, of course, be entitled to be indemnified from the estate in respect of the costs

_{and disbursements incurred in relation to the present proceeding.}

Lang J

Solicitors:

Chatwin Legal Ltd, Hamilton

Cooper Rapley, Palmerston North