Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Griffin v Matthews [2012] NSWCA 348 Hearing dates: 17, 23 October 2012 Decision date: 23 October 2012 Before: Allsop P at [1], [37], [47]; Basten JA at [2]; Tobias AJA at [43] Decision: (1) Grant the applicants leave to appeal against order (1) made by Davies J in the Equity Division on 14 September 2012. (2) Allow the appeal and set aside order (1) made in the Equity Division on 14 September 2012; (3) In place thereof, (a) order that the second defendant's notice of motion, in so far as it sought dismissal of the claim with respect to the pre-probate period against the second defendant, be dismissed, and (b) there be no order as to the costs of the second defendant's notice of motion; (4) Order that the respondent pay the applicants' costs in this Court; (5) Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: PROBATE - intermeddling in estate - primary asset of estate was single share in company - one executor appointed as director of company prior to grant of probate - evidence that other named executors approved appointment - whether conduct constitutes intermeddling PROCEDURE - appeal - leave to appeal from interlocutory decision - application for leave to appeal heard prior to substantive appeal - likely that Court would grant leave to appeal - final hearing of matter to commence in court below - desirability of disposing of appeal urgently PROCEDURE - summary dismissal - whether pleadings disclose reasonable cause of action - application for summary dismissal by one of three defendants - claim dismissed in part - whether potential for injustice if claim proceeds against other defendants - whether arguable claim - whether pleadings should be struck out - discussion of Wickstead v Browne (1962) 30 NSWLR 1 - Uniform Civil Procedure Rules 2005 (NSW), rr 13.4 and 14.28 Legislation Cited: Corporations Act 2001 (Cth), s 201F Uniform Civil Procedure Rules 2005 (NSW), rr 13.4, 14.28 Cases Cited: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125 Gleeson v Frederick J Arnold Pty Ltd (NSWSC, unrep, 6 June 1988 Howling v Kristofferson (unrep, NSWSC, Cohen J, 14 October 1992) The New York Breweries Company Limited v The Attorney General [1899] AC 62 (HL) Wickstead v Browne (1992) 30 NSWLR 1 Category: Principal judgment Parties: Liberty Teal Griffin by her tutor Shelley Candice Griffin (First Applicant) Max Edward Griffin by his tutor Shelley Candice Griffin (Second Applicant) Neil Sidney Matthews (Respondent) Representation: Counsel: Mr B A Coles QC/Mr M W Sneddon (Applicants) Mr D L Williams SC/Mr M F Newton (Respondent) Solicitors: CP White & Hetherington (Applicants) HWL Ebsworth Lawyers (Respondent) File Number(s): CA 2012/304938 Decision under appeal Jurisdiction: 9111 Citation: Griffin v Coe [2012] NSWSC 412 Date of Decision: 2012-09-14 00:00:00 Before: Davies J File Number(s): SC 2011/121962 Judgment 1ALLSOP P: I invite Basten JA to deliver the first judgment. 2BASTEN JA: At some time between 18 and 21 October 2007 Phillip Mark Griffin (the testator) died by his own hand. He left a will dated 18 May 2006. The will is not in evidence before this Court, but according to the primary judge the plaintiffs are two children of the testator and Shelley Candice Griffin, who is their mother and tutor for the purposes of the litigation. The plaintiffs are two of four residuary beneficiaries of the estate: Griffin v Coe [2012] NSWSC 412 at [3]. The will named three executors, being David Raymond Coe, Neil Sidney Matthews and Timothy John Christiansen. 3At the time of his death, the testator's estate included the sole share in a company, PMG Holdings Pty Ltd ("PMG Holdings"), of which the testator had also been the sole director. The assets of PMG Holdings included a share portfolio in which there was a parcel of 7,385,586 shares in Allco Financial Group Ltd. At the date of the testator's death, the value of Allco shares was $8.73 and the total value of the shareholding in PMG Holdings was thus approximately $64.5 million. 4The testator received the shares in Allco as part of a remuneration package for work undertaken for Allco in the UK. The agreement pursuant to which they were issued required that the shares be held in escrow, to be released in tranches, each being a third of the total. The first tranche was released from escrow within days of the testator's death. The second tranche was released on 30 September 2008 and the third tranche on 30 September 2009. By 19 September 2008, Allco's share price had fallen to $0.13 per share, although it later rose to $0.25. The third tranche was not available for disposal before Allco went into administration. 5Probate was granted to the executors on 22 May 2008. By that time, the value of an Allco share had declined to $0.48. On 18 and 19 September 2008 the executors sold approximately two million shares at a price of $0.13 per share. On 4 November 2008 administrators were appointed to Allco. The shares were thereafter deemed to be valueless and the company was delisted on 31 August 2009. The present proceedings, brought in the names of the two children against the executors, allege that each had committed a devastavit on the estate of the testator and sought compensation for losses variously estimated at $17.5 million and $731,000, in round figures. 6The causes of action relied upon divided broadly into two periods, namely losses caused prior to the grant of probate and losses caused thereafter. 7On 15 February 2012 one of the executors, Mr Neil Matthews, the second defendant in the proceedings, filed a notice of motion seeking to have the proceeding against him dismissed on the basis that no reasonable cause of action was disclosed (pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 13.4) or that the pleading be struck out (pursuant to r 14.28), on the same basis. 8The motion was heard over three days in April, August and September 2012 by Davies J, sitting in the Equity Division. Judgment was delivered on 14 September 2012. The following orders were made: "(1) The claim made in respect of the pre-probate period against the Second Defendant is dismissed pursuant to r 13.4 UCPR; (2) The Statement of Claim in respect of the Second Defendant is otherwise struck out pursuant to r 14.28 UCPR; (3) Leave is granted to the Plaintiffs to re-plead the post-probate claim against the Second Defendant, and such Amended Statement of Claim is to be filed and served by 28 September 2012." 9The applicants (the plaintiffs in the Court below) sought leave to appeal from the first order, dismissing their claim against Mr Matthews in respect of the pre-probate period. No objection was taken to the second and third orders, although no amended statement of claim has yet been filed and served pursuant to order (3). 10The summons seeking leave to appeal was filed on 2 October 2012. The matter has been considered by this Court as a matter of urgency because the proceedings are presently listed for final hearing before Bergin CJ in Eq for 10 days from 12 November 2012. If leave were to have been refused, it would have been desirable that that step should have been taken promptly, so as to avoid an unnecessary vacation of the hearing dates. On the other hand, if leave were to be granted, there would have been merit in determining the outcome of the appeal promptly, again so that, if possible, vacation of the hearing dates could be avoided. 11The leave application was originally listed for hearing before two judges. However, the desirability of disposing of the matter entirely, if possible, in circumstances where it appeared likely that leave would be granted, led to the Court sitting a bench of three. Although the issues raised were considered on a more thorough basis than would have been necessary for a leave application heard alone, the respondent was not in a position to deal with the full argument as on a concurrent hearing. 12The factors which rendered it likely that leave would be granted were twofold, arising from the somewhat incongruous result of the order disposing of the proceedings in part, as against Mr Matthews only. On the one hand, the proceedings against Mr Matthews were to continue, although limited to post-probate conduct. On the other hand, the cause of action with respect to pre-probate conduct was to continue, but against only two of the three executors. 13As noted above, the amounts of the losses incurred were assessed, in the alternative, in two disparate amounts. The higher figure of $17.5 million was based upon a sale of available shares on or about 8 November 2007, well prior to the grant of probate. The lower figure was based on a failure to sell the remaining available shares in the week ending 4 October 2008, when the price had appreciated from $0.13 to $0.25 per share. By far the most valuable claim arose in respect of the pre-probate period. If the plaintiffs were to be successful on their cause of action in respect of that period, there was a potential for injustice in so far as the claim succeeded against the two remaining executors but not against the third, unless it could be said that the remaining executors had acted alone or jointly, but without the involvement of Mr Matthews. Although their roles differed (partly as a result of their different professional involvements with the testator) the primary judge made no finding that, as between the three, Mr Matthews was to be treated differentially. 14At the conclusion of the hearing on 17 October 2012, the Court granted leave to appeal and fixed the hearing of the appeal for Tuesday, 23 October 2012. Directions were given with respect to the filing of written submissions for the appeal. Findings made by primary judge 15So far as the appeal itself is concerned, the primary judge dealt with the matter in three stages, formulated in part as questions: (1) Did Mr Matthews intermeddle in the estate? (2) Is Mr Matthews liable for devastavit prior to the grant? (3) If the answer to the latter question is no, should the cause of action be struck out? 16It is not necessary for present purposes to consider whether it is technically correct to ask whether a person appointed as an executor, who takes steps in relation to the assets of the estate, is properly described as "intermeddling". It is sufficient to note the finding made by the primary judge at [26]: "The combination of the acts with which Mr Matthews was involved ... may well have resulted in his not being able to renounce had he sought to do so. Advertising, conferring with the co-executors about what can reasonably be inferred were matters preliminary to the obtaining of a grant and letters to other solicitors concerning what the executors were doing towards obtaining of a grant may in total be described as intermeddling, as some cases would describe it. On one view the decision in Howling would suggest otherwise ..., but Cohen J seems there to be directing attention to the incurring of liability to creditors or beneficiaries rather than whether the acts simply amounted to intermeddling. I accept, nevertheless, that Mr Matthews' acts may be regarded as intermeddling." 17In relation to the second question, the primary judge found that he would be liable for devastavit only to the extent that he was liable to account for assets which he had "taken into his possession or dealt with": at [28]. Although he concluded that obtaining valuations of assets for the purposes of an application for probate did not involve taking assets into possession or dealing with them - at [44] - he nevertheless concluded at [55]: "The material in Mr Christiansen's affidavit (the truth of which must be accepted for the purpose of the present motion) shows that Mr Matthews was privy to Mr Christiansen's decision to appoint himself as a director of PMG Holdings. It might, therefore, be argued that the decision was one made by all of the executors and that they (as opposed to Mr Christiansen only) thereby took into their possession the estate asset constituted by the share in PMG Holdings." 18Despite that finding, the primary judge returned to the decision in Howling v Kristofferson (unrep, NSWSC, Cohen J, 14 October 1992) and noted at [59]: "The distinction between intermeddling (which may result in an inability to renounce) and acts done before probate which may render an executor liable to creditors and/or beneficiaries was re-affirmed by Rein J in Mangraviti v Donato [2009] NSWSC 1258 at [36] where he followed Howling." 19His Honour then concluded at [60]: "I do not consider that the involvement of Mr Matthews in agreeing to Mr Christiansen's appointment as a director of PMG Holdings was an act that amounted to a devastavit nor an act that rendered him liable to creditors or beneficiaries of the estate." 20In answering the second question, the primary judge held that there were "no factual issues involved in this conclusion": at [61]. That statement appeared to assume that the only act of Mr Matthews which could render him liable to creditors was agreeing to the appointment of his co-executor as a director of PMG Holdings. Accepting for present purposes that the primary judge was correct to assume that there was no other evidence which might become available with respect to the conduct of the executors generally during the period prior to 22 May 2008, it is nevertheless doubtful whether the conclusion reached was the only one available as a matter of law. Issues on appeal (a) procedure 21The applicants contended that the matter was dealt with on a false procedural basis, namely, a failure to follow the approach identified by Handley and Cripps JJA in Wickstead v Browne (1992) 30 NSWLR 1 at 11F-G. The plaintiff in that case had brought proceedings against various officers of the Trustees Executors and Agency Co Ltd, which had converted funds placed with it in trust, prior to its collapse. One of the defendant officers, Mr Browne, successfully sought to have the proceedings against him struck out on the basis that there was no evidence that he had had any dealings with the funds of the plaintiffs. (The case of one plaintiff was pursued as a test case.) Mr Wickstead appealed. The joint reasons, after reference to the principle established in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125, stated: "The respondent submitted that the appellants had failed to adduce any evidence or any admissible evidence on a number of issues and that the appeals should therefore be dismissed. Again it seems to us that those submissions misconceived the nature of the court's jurisdiction to dismiss summarily a plaintiff's action. By launching such an application a defendant undertakes the burden of establishing that there is no triable issue. On such an application the defendant bears the onus of proof and where the facts are peculiarly within the defendant's knowledge the plaintiff's action should not be dismissed because of gaps in the case if the necessary evidence might be obtained as a result of discovery or interrogatories." 22That principle, the applicants contended, was applicable in the present case. There was no affidavit or oral evidence from the second defendant in support of the application. The only affidavit read on behalf of Mr Matthews on the motion and referred to by the primary judge was one annexing the advertisement for probate, which did not address the substantive issues in the dispute. The application may have got off on the wrong foot, because counsel for the applicants, responding to the strike out application, insisted that the motion should not even be entertained until discovery had been given: Tcpt, 27/04/12, p 6(40). That approach may have suggested, implicitly, that the applicants bore some burden to adduce evidence. 23The next passage in the joint reasons in Wickstead stated at pp 11-12: "However for another reason, which was first raised by the Court, the respondent as one of a number of defendants cannot be entitled to summary dismissal before trial because of evidentiary deficiencies in the plaintiff's case. If at the close of the plaintiff's case at the trial there was no evidence against this respondent he would not be entitled at that stage to judgment if any of the other defendants intended to go into evidence .... At the close of the plaintiff's case there may be evidence against some defendants but not against others. The court will not entertain a motion for judgment by some only of the defendants because any gaps in the plaintiff's case against those defendants may be filled when the other defendants go into evidence. ... If the respondent would not be entitled to succeed on a no evidence point at the trial until all the evidence has been called, including that from other defendants, it is clear that there can be no such entitlement on an application by one of several defendants for summary dismissal." 24To the extent that the primary judge assumed that there could be no evidence relevant to the claim against Mr Matthews at the trial, the basis for that assumption was unclear. It appears, as the applicants asserted, to be inconsistent with the approach adopted in Wickstead. 25Given the potential for anomalous results, should the proceedings go to trial in respect of both pre-probate and post-probate claims, but excluding Mr Matthews only in respect of the pre-probate claims, it would require an exceptional case to warrant the exercise of the Court's discretion in thus removing one claim against one co-executor. In the circumstances outlined above, that step should not have been taken. For this reason, the proper order was to dismiss the motion brought by the second defendant. (b) an arguable claim 26The company having one shareholder and one director (being in each case the testator) the terms of s 201F of the Corporations Act 2001 (Cth) were engaged. That section relevantly provided: "201F Special rules for the appointment of directors for single director/single shareholder proprietary companies (1) The director of a proprietary company who is its only director and only shareholder may appoint another director by recording the appointment and signing the record. (2) If a person who is the only director and the only shareholder of a proprietary company: (a) dies; or (b) cannot manage the company because of the person's mental incapacity; and a personal representative or trustee is appointed to administer the person's estate or property, the personal representative or trustee may appoint a person as the director of the company." 27The applicants submitted that the power to appoint a director under this provision followed from the legal entitlement with respect to the share, which was part of the person's estate. Accordingly, to the extent that the executors named in the will purported to exercise that power, it constituted an appropriation to themselves of so much of the estate as involved ownership of the share in the company. While the applicants acknowledged that the respondent was not the executor so appointed, there is evidence that the appointment of Mr Christiansen was agreed to by the three executors. There is also evidence that Mr Christiansen consulted with other executors in making decisions with respect to the management of the company. 28To the extent that Mr Christiansen, as director, thus became the de facto manager of the company and its assets, it was submitted that he owed duties to the company in circumstances where a failure to perform those duties might lead to a loss in the value of the share, which could give rise to a claim in waste (or devastavit) by a beneficiary. 29Counsel for the respondent submitted, by reference to cases where this had occurred, namely The New York Breweries Company Ltd v The Attorney General [1899] AC 62 (HL) and Gleeson v Frederick J Arnold Pty Ltd (1988) 13 ACLR 606 (Waddell CJ in Eq), that the only way to take possession of a share was by transmission or receipt of title to the share. That this might well constitute intermeddling may be accepted; that it was the only way in which intermeddling can occur should not. The use of the share to achieve ends available only to the holder of the share may arguably involve the exercise of a level of control over the share sufficient to constitute intermeddling with the share, it being an asset of the estate. 30The following matters appear to be factually and legally open to argument as triable issues, so to make it wrong to have summarily dismissed the applicants' pre-probate claims. (a) The three named executors agreed to have one of their number take the office of sole director of PMG Holdings. (b) That course of action was taken to enable them, through the appointed director's exercise of power, to manage the affairs of PMG Holdings. (c) That course of action directly affected the value of the share in PMG Holdings (the estate asset) as its value depended on the value of PMG Holdings' assets, including its share portfolio. (d) In acting as director Mr Christiansen was fulfilling his executorial duties. (e) By taking control of PMG Holdings, the asset (the PMG Holdings share) was placed under the control of the executors, at least as to value, by the power of Mr Christiansen to sell PMG Holdings' assets, as he in fact did with respect to one parcel of shares (in an unrelated company) sold pursuant to a direction given by him on 5 March 2008. (f) Mr Christiansen was obliged as a director (a capacity he held because he was an executor) to act in the best interests of the company, being, in the absence of creditors, the estate. (g) Messrs Coe and Matthews were obliged to consider Mr Christiansen's conduct as a director, they having appointed him and thus deprived anyone else of the opportunity to exercise power over PMG Holdings' assets for the benefit of the value of the PMG Holdings share, in the interests of the estate. 31Precisely how those matters were articulated in a pleading might be a matter of some importance in the running of the trial; it is sufficient for present purposes to say that they give rise to an arguable claim against both Mr Christiansen and his co-executors, in respect of steps taken or not taken after he became a director of the company. 32Whatever action was taken or not taken might have required consultation with the co-executors, but it was at least open to the possibility that the failure to dispose of shares in circumstances where they were in the control of one executor might, if a relevant level of neglect were demonstrated, render each of the executors, including the respondent, liable to the estate. 33The applicants' counsel accepted that the pleading presently overlooked and even confused the separate roles and obligations of the executors, including inter se, and Mr Christiansen's role as a director of PMG Holdings. No doubt for that reason, the applicants did not challenge the order striking out the amended statement of claim, but sought leave to replead. It follows from the conclusion that the pre-probate claim should not have been dismissed that the claim will need to be repleaded. However, the timing and conditions of a grant of leave to replead will have consequences for the time specified in relation to repleading the post-probate claim (see order (3)), other procedural steps which may precede the trial and the trial dates. These issues should be addressed by directions in the trial Court. Costs 34The second defendant remains partly successful in respect of his motion, orders (2) and (3) made by the primary judge not having been challenged. Accordingly, there should be no order as to the costs of the motion below. However, having been unsuccessful on appeal he should pay the applicants' costs in this Court. 35On 17 October 2012 the Court made the following order: (1) Grant the applicants leave to appeal against order (1) made by Davies J in the Equity Division on 14 September 2012. 36This Court should now make the following further orders: (2) Allow the appeal and set aside order (1) made in the Equity Division on 14 September 2012; (3) In place thereof, (a) order that the second defendant's notice of motion, in so far as it sought dismissal of the claim with respect to the pre-probate period against the second defendant, be dismissed, and (b) there be no order as to the costs of the second defendant's notice of motion; (4) Order that the respondent pay the applicants' costs in this Court; (5) Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the appeal. 37ALLSOP P: I agree with those reasons and the proposed orders. I would add the following. 38Two difficulties arise from the course taken by the primary judge in making order 1 that he did. First, it risked difficult and complex issues of law being visited on the parties by reference to concepts of estoppel and res judicata. There may well be matters arising that could give rise to asserted liability sufficiently close to devastavit as to be covered by such principles. This is stated on the assumption of acceptance of the narrower concept of devastavit propounded by the respondent which would, in the respondent's submissions, be called the proper limit of devastavit. 39This raises the question adverted to by Basten JA under the heading "arguable claim" involving the relationship between executorial office and directorial office and duties. There is a basis to argue, it seems to me, that the executors' agreement to place one of their number in control of the affairs of the company under s 201F was sufficiently close to control of the value of the estate asset as to make principles of executorial duty applicable. 40That may or may not require a development of the law of devastavit and of executorial function. It may require the application of cognate principles. That closeness of the issues of principle might well give rise to questions of estoppel and difficulties flowing from it if the claim as presently framed is dismissed in the manner that it has been. 41The second issue arising from what has occurred relates to the above. It involves a risk in the stifling of the development of the law. If I may say so respectfully, the wisdom of what Master Allen (as that judicial officer, so highly experienced in matters of practice and procedure, then was) said in Hospitals Contribution Fund v Hunt (1982) 44 ALR 365 at 373-374, should be noted. 42I should add that the matters raised by Basten JA under arguable claim were, in my view, embedded as necessary considerations to deal with in submissions in this Court. Whether they were so clearly enunciated before the primary judge may be open to doubt, nevertheless the essential nature of the claim as pleaded always involved this duality of function and tension of the persons named as executors. 43TOBIAS AJA: I agree with the orders proposed by Basten JA for the reasons that he has given and I also agree with the additional remarks of the President. I would, however, add the following. 44The core of the respondent's case, as I understood it, is that there is no devastavit for which he could be made liable because, first, he had no executorial duties pre-probate with respect to the only relevant asset, namely, the share in PMG Holdings and, secondly, he neither took that share into his possession nor otherwise dealt with it, especially given that he was not a director of PMG Holdings, although his co-executor Mr Christiansen was. These propositions were sourced in the authorities referred to by the primary judge at [28] of his reasons for judgment. However, devastavit may be constituted by a mismanagement of an asset in the estate contrary to the duty imposed on an intermeddling executor. 45It seems to me that it is at least arguable that both Mr Christiansen, as the sole director and controller of the assets of PMG Holdings, and the respondent, who agreed to him taking that role, could be held not only to have intermeddled in the estate of the testator but also to have had a duty arising out of the role and status of each as an executor and to have mismanaged the testator's share in PMG Holdings, the value of which was under the control or influence of Mr Christiansen directly and the respondent at least indirectly. 46In these circumstances it cannot be said that the appellant's case against the respondent is so clearly untenable that it cannot possibly succeed: see Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [55]. 47ALLSOP P: The orders of the Court are as proposed by Basten JA. ********** 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. Decision last updated: 30 October 2012