New South Wales Supreme Court CITATION : Application of Philip Lewis Abigail [2002] NSWSC 556 FILE NUMBER(S) : SC 2363/02 HEARING DATE(S) : 11 June 2002 JUDGMENT DATE : 21 June 2002 PARTIES : Philip Lewis Abigail (Applicant) JUDGMENT OF : Master McLaughlin COUNSEL : P. Lever-Naylor (Applicant) SOLICITORS : Abigails Solicitors (Applicant) CATCHWORDS : Wills - Application by executor for judicial advice - Procedure not appropriate where controversial questions of fact or construction are involved - Testator was an undischarged bankrupt - Whether payment by insurer under a life policy forms an asset of the estate - If an asset, how should it be dealt with by executor - Appropriate procedure - Infant beneficiaries. LEGISLATION CITED : Insurance Contracts Act 1984 Trustee Act 1925 Bullas v Public Trustee [1981] 1 NSWLR 641 CASES CITED : Harrison v Mills [1976] 1 NSWLR 42 Wilcox v Poole [1974] 2 NSWLR 693 DECISION : (1). I decline to answer the questions asked in the Statement of Facts filed on 29 May 2002.; (2). I grant leave to the Plaintiff to file an amended summons, and to join additional defendants to the proceedings.; (3). I order that the costs of the proceedings to date be costs in the proceedings.; (4). I stand the proceedings over to 12 July 2002 before the Registrar. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER McLAUGHLIN Friday, 21 June 2002 2363/02 APPLICATION OF PHILIP LEWIS ABIGAIL ESTATE OF THE LATE JUDITH ANN MARSHALL JUDGMENT 1 MASTER: These proceedings were instituted by the filing on 22 April 2002 of a summons (described therein as "Summons for Directions"). 2 By that summons the Plaintiff, Philip Lewis Abigail, claims, firstly, relief in the following terms: A determination of a question arising under the will of the late Judith Ann Marshall dated 13 January 1995, probate of which was granted on 21 September 2001, Grant No. 114751/01, as to whether on the true construction of the said will and in the events which have happened, [there are then set forth two questions]. 3 The summons then seeks declaratory relief in the following terms, A declaration that the plaintiff as executor of the estate of the late Judith Ann Marshall be at liberty to distribute the estate, or that part of it still within his control in accordance with the determination of the Honourable Court in 1. above. 4 The summons also seeks directions as to service "upon and representation of the estate of the late Judith Ann Marshall and the beneficiaries thereof", and costs. There are three Defendants named to the summons. The Second Defendant has filed an appearance. 5 Despite the description of the originating process as "Summons for Directions" and despite the form of the substantive relief sought in prayer 1 thereof (which is more appropriate to a construction suit), it is apparent from the affidavit of the Plaintiff, Philip Lewis Abigail, sworn on 16 April 2002 in support of the summons, that the Plaintiff is seeking judicial advice pursuant to the provisions of section 63 of the Trustee Act 1925. 6 The Plaintiff is the executor named in the will dated 30 January 1995 (not 13 January 1995) of the late Judith Ann Marshall (to whom I shall refer as "the Deceased"), who died on 3 June 1999. Probate of that will was granted to the Plaintiff on 27 September 2001. 7 The matter has been before the Court on a number of occasions. It came before Master Macready on 7 May, 20 May and 3 June 2002. On 29 May 2002 there was filed on behalf of the Plaintiff a Statement of Facts (that document being filed, as I understand it, consequent upon a suggestion in that regard made by Master Macready on the occasions earlier in May when the matter was before the Master). 8 It will be appreciated that in proceedings for judicial advice pursuant to section 63 of the Trustee Act it is not usual for any Defendant to be named. Provision for the procedure to be adopted in respect to such proceedings is set forth in Division 2 of Part 70 of the Supreme Court Rules (in particular rule 3 thereof). 9 Both the relief sought in prayer 1 in the summons and the questions posed in the Statement of Facts relate to the proceeds of certain life insurance policies in respect to the life of the Deceased. 10 The questions asked in prayer 1 in the summons concerning those policies are whether (a) the three Life Insurance policies numbered respectively,… form part of the estate of the said Judith Ann Marshall in view of Section 48(4) of the Insurance Contracts Act 1984 (Commonwealth) and fall for administration by the executor and are available to meet funeral and testamentary expenses. Or (b) If not part of the estate whether the said 3 policies or any share in them should be distributed between the named beneficiaries or the fathers of the named beneficiaries, where they are minors, to be held on trust for those beneficiaries, and what protection should be provided for the beneficiaries' shares of the distributed Fund. 11 In the Statement of Facts the opinion, advice and direction of the Court is sought concerning the following questions: (A) Whether it is correct to treat the proceeds of the life insurance policies as not being part of the Testatrix's Estate but as funds arising from a contract between the insurer and the insured where there are named beneficiaries with such funds to be paid directly to those so named. (B) Where the named beneficiaries are minors whether it is correct to pay any such proceeds to the minor's parents such that the funds can be used by the said parents for the purchase of real estate pursuant to section 14D of the Trustee Act on the basis that any such property is to be held on trust for such beneficiary pending their attaining their majority. (C) Noting that the Testatrix was an undisclosed [ sic ] bankrupt at the time of her death is it correct to apply the proceeds of the superannuation benefit including the death benefit paid by First State Super to the Executor initially towards the payment of the funeral and testamentary expenses of the Testatrix and thereafter the balance to be divided between the residual beneficiaries pursuant to clause 3(a)and (b) of the Will? If so, is it correct to pay the amount to which any infant beneficiaries is [ sic ] entitled to their respective father? 12 The affidavit of Philip Lewis Abigail sworn on 16 April 2002 and filed in support of the summons discloses that in respect to one of the three insurance policies referred to in the summons (being policy LX20550028), the insurer (AMP) paid to Mr Abigail as executor the sum of $286,308, plus accrued interest, and that he had invested that sum on a temporary basis with the National Australia Bank. There were three named beneficiaries in respect to that policy, only one of whom, Aaron Lewis, is over the age of eighteen. Although the ages of the other two beneficiaries are not disclosed either in the affidavit of Mr Abigail or in the Statement of Facts, it appears from evidence to which I shall refer that those two beneficiaries are Arden Marshall, who is presently aged eight, and Adam Dodd, who is presently aged seventeen. 13 The insurer also paid to Aaron Lewis the amount of $95,436, representing his one third share in the proceeds of that policy. 14 Although the relief sought in the summons and the questions posed in the Statement of Facts do not identify this point with any clarity, the impression appears to have been given to the Court on occasions when the matter was previously before the Court that one of the matters which was of concern to the executor was the consequence of the conduct of the insurer in making what appears, in effect, to have been a double payment in respect to one third of that insurance policy. However, when the matter came before me on 11 June 2002 I was informed by Counsel for the Plaintiff that that problem (if it had ever been a problem to the executor) had been resolved by the executor making a repayment to the insurer of the sum of $95,436 from the moneys which had earlier been paid by the insurer to the Plaintiff. 15 The essential concern of the executor now appears to be how he should administer the amount of $232.946.77 presently held by him (representing the sum of $286,308 paid to him by the insurer, less the sum of $95,436 which has now been repaid by him to the insurer, and a further sum, to which I will later refer, representing payment of a superannuation benefit. That concern arises from a number of factors, including the fact that the Deceased was an undischarged bankrupt at the time of her death, the fact that two of the three beneficiaries under the relevant insurance policy are infants, and the effect of section 48(4) of the Insurance Contracts Act 1984. 16 At the outset it should be recognised that the essential purpose of proceedings under section 63 of the Trustee Act is to provide protection for trustees, and that an application for judicial advice is inappropriate where controversial questions of fact or construction are involved. In those circumstances the more appropriate course is for the executor or trustee to take proceedings invoking the Court's inherent jurisdiction, for the administration of the trust (seeking against interested parties, as appropriate, declarations on construction of the trust instrument and the rights of parties): Harrison v Mills [1976] 1 NSWLR 42; Wilcox v Poole [1974] 2 NSWLR 693 at 698; Bullas v Public Trustee [1981] 1 NSWLR 641; see also the procedures available in respect to administration of estates and execution of trusts for which provision is made by Part 68 of the Supreme Court Rules. 17 The Plaintiff has annexed to the Statement of Facts a schedule of the current assets of the estate of the Deceased (consisting of moneys held in the Plaintiff's trust account ($702.93) and moneys invested in a term deposit account with the National Australia Bank ($232,243.84), totalling $232,946.77). 18 There was tendered in evidence (Exhibit A) at the hearing before me various documents relating to the relevant life insurance policy. Those documents included a document headed "Schedule A Amendment", bearing date 27 February 1998, which sets forth various details of the policy and also the identity of the nominated beneficiaries, to each of whom is ascribed a one third proportion of the death benefit. Those documents also include a document headed "GIO Personal Investment Services Ltd – Nomination of Beneficiary". That document contains the following, This facility is only available if the Owner and Life Insured is the same person. On the death of the Life Insured we will, providing the policy has not been assigned, in full settlement of our liabilities, pay the benefit amounts to the beneficiary or beneficiaries nominated below in the proportions nominated subject to the following conditions: (i) If a nominated beneficiary is a minor at the date of death of the Life Insured, the proportion of benefit that otherwise would have become due to that nominated beneficiary will be paid to the estate of the Life Insured. (ii) …. 19 There are then set forth the name, address, date of birth and percentage of benefit in respect to each of the three aforementioned beneficiaries, being Aaron Lewis, Adam Dodd and Arden Marshall. That document is signed by the Deceased (described as "Owner") and is dated 23 February 1998. 20 The problem which emerges from the material which has been placed before the Court (but which has not been precisely articulated either in the relief sought in the summons or in the questions asked in the Statement of Facts) relates to the situation which has now arisen, where two of the nominated beneficiaries were minors at the date of the death of the Deceased. 21 If the literal reading of condition (i) in the Nomination of Beneficiary is applied, then it would appear that the insurer has agreed to pay the proportion of the benefit which would otherwise have become due to those beneficiaries (being sixty six and two thirds percent of the benefit) to the estate of the Deceased. 22 That is what the insurer has, in fact, done. (Indeed the insurer has done more than that, since the insurer has paid the totality of the benefit to the estate of the Deceased, and has also fulfilled its obligation by paying one third of the benefit to the adult beneficiary, Aaron Lewis. The Plaintiff has, at the request of the insurer, refunded to the insurer the amount of the payment which the insurer made directly to Aaron Lewis.) 23 The question which now confronts the Plaintiff is how he should deal with the moneys which have been paid to him in his capacity as executor of the estate of the Deceased. This situation would normally create little difficulty for an executor, upon whom rests the obligation to deal with the estate in accordance with the provisions of the will of the testator. 24 In the instant case, however, it has already been recorded that the Deceased was an undischarged bankrupt at the time of her death. Beyond that bare statement (which emerges from the statement contained in paragraph 2 of the Plaintiff's affidavit ("who died insolvent on 3 June 1999…The Deceased was declared bankrupt on 23rd December 1998 in Suit No. NSW 7016 of 1998/7…) and from the statement in paragraph 2 of the Statement of Facts ("On 23rd December 1998 the Testatrix was declared bankrupt")), no information has been placed before the Court concerning the details of the bankruptcy of the Deceased, the amount of her liabilities and the amount of her assets at the time when she was made bankrupt, whether any dividend has been paid in respect of her bankrupt estate, or the identity of her trustee in bankruptcy. In his affidavit the Plaintiff states that the grant of probate "was in respect of certain assets which were protected from claims of creditors pursuant to Subsection 116(2)(d) of the Bankruptcy Act 1966 (Commonwealth)". 25 It will be appreciated that if the two thirds of the death benefit under the subject policy has been properly paid to the estate of the Deceased, it is possible that the trustee in bankruptcy of the Deceased may have an interest in that asset. Further, even if the trustee in bankruptcy of the Deceased has no claim in respect to that asset, nevertheless, if it properly forms an asset in the estate of the Deceased, the Plaintiff as executor of that estate has a duty to administer the estate in accordance with the will of the Deceased. My preliminary view is that the effect of that will upon any asset which properly forms part of the estate is (as provided by clause 3 of the Will) to entitle the husband of the Deceased, Paul Marshall, to 80 percent of the balance of the estate (after receiving the contents owned by the Deceased in her principal place of residence at the time of her death), whilst the balance of 20 percent will be shared among those of four named children (being the three natural children of the Deceased and Benjamin John Courtney Marshall, who I gather to be a son of the Deceased's husband) who shall survive the Deceased and attain the age of eighteen years, in equal shares, as tenants in common. 26 In the foregoing event (that the moneys paid to the Plaintiff by the insurer form an asset in the estate), it will be appreciated that it would not be proper for the executor to distribute the amount which he holds to the two infant beneficiaries. They would be entitled only to receive (upon the attainment by them respectively at the age of eighteen) one quarter of 20 percent of that asset. 27 Both in the question asked in prayer 1 in the summons and in paragraph 11 of the Statement of Facts there is reference to section 48(4) of the Insurance Contracts Act 1984. That subsection provides, Where a contract of life insurance effected by a person upon his own life is expressed to be for the benefit of a person specified or referred to in the contract, whether by name or otherwise, that second-mentioned person has a right to recover the moneys payable under the contract from the insurer in accordance with the contract notwithstanding that the second-mentioned person is not a party to the contract, and moneys payable under the contract do not form part of the estate of the person whose life is insured and are not subject to his debts. 28 As I understand it, it is submitted on behalf of the Plaintiff that the effect of the foregoing statutory provision is to preclude the moneys payable to any of the nominated beneficiaries from forming "part of the estate of" the Deceased. It is submitted, therefore, that there is an apparent inconsistency, or even conflict, between the statutory provisions of the foregoing subsection and the conduct of the insurer in making a payment to the estate. 29 My preliminary view in regard to such an asserted apparent conflict is that the right given to the nominated beneficiaries (each of whom is encompassed by the phrase "that second-mentioned person") is a right to recover the moneys payable under the contract from the insurer in accordance with the contract notwithstanding that each such beneficiary is not a party to the contract. That is, it would appear that the right to each of the three nominated beneficiaries is a right to payment from the insurer in accordance with the contract. But, in the instant case the contract itself provides for the situation where any of those persons is a minor at the date of death of the Deceased. That is, the contract provides that the benefit payable to those persons shall be payable to the estate of the Deceased, and the provision of the statute recognises that such a contractual provision may exist. 30 For present purposes, it is not necessary for me to express any concluded views concerning the various matters to which I have herein adverted. 31 Suffice it to say, however, that it is obvious that the rights of various persons are significantly affected by the situation which has arisen. Those persons include at least the husband of the Deceased and two infant beneficiaries and possibly also the trustee in bankruptcy of the Deceased. 32 It is quite inappropriate that there be any determination of those rights in an application to the Court for judicial advice under section 63 of the Trustee Act. 33 It will be appreciated, further, that it is not appropriate to consider such matters as whether or not funds to which an infant beneficiary are entitled may be paid to the parent of such a beneficiary, for the purchase of real estate pursuant to section 14D of the Trustee Act (or, indeed, for any other purpose), until the question of the entitlement of those beneficiaries is first established. 34 The Statement of Facts also refers to an accrued superannuation benefit which was paid to the Plaintiff as executor of the Deceased by the trustees of First State Super, and raises the question as to how the proceeds of that superannuation benefit should be dealt with by the Plaintiff. 35 Once again, it is possible that that money may constitute an asset of the Deceased to which her trustee in bankruptcy may have a claim. It is inappropriate, therefore, that the Court should give judicial advice in that regard, without the trustee in bankruptcy having an opportunity to be heard. 36 For the foregoing reasons, I do not consider that the relief sought in the summons or the questions asked in the Statement of Facts are appropriate to the circumstances of this case. 37 The problems which confront the Plaintiff in his capacity as executor of the estate of the Deceased should not be resolved by way of an application made by him to the Court for judicial advice. They should be resolved only after all persons who may have a claim to the various assets which are held by the executor have an opportunity of asserting any entitlement to those assets. 38 I consider that the appropriate course is that I should decline to answer the questions posed in the Statement of Facts. However, I consider that it is appropriate that I should grant leave to the Plaintiff to amend the summons, firstly by adding additional Defendants thereto (in this regard, I note that the husband of the Deceased and the two adult residuary beneficiaries have already been named as Defendants), and also by amending the relief sought in the summons. 39 I do not consider that it is appropriate that the Court should formally give to the Plaintiff judicial advice concerning the procedure to be adopted by him, or concerning the nature of the relief which he should seek in the amended summons or concerning the identity of additional parties to the proceedings. 40 I will merely publish these reasons, and stand the matter over to a future date before the Registrar. 41 I make the following orders, (1). I decline to answer the questions asked in the Statement of Facts filed on 29 May 2002. (2). I grant leave to the Plaintiff to file an amended summons, and to join additional defendants to the proceedings. (3). I order that the costs of the proceedings to date be costs in the proceedings. (4). I stand the proceedings over to 12 July 2002 before the Registrar. ********** Last Modified: 12/17/2002 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.