Supreme Court New South Wales Medium Neutral Citation: Pascoe as Administrator of the Estate of Kut Sze Tu [2019] NSWSC 817 Hearing dates: 11 May 2019 Date of orders: 01 July 2019 Decision date: 01 July 2019 Jurisdiction: Equity Before: Robb J Decision: (1) Each question posed in par 40 of the further amended statement of facts filed on 21 May 2019 is answered in the affirmative. (2) The plaintiff is entitled to be reimbursed and exonerated out of the assets held in the Estate of the late Kut Sze Tu for his costs, charges and expenses incurred in conducting this proceeding. Catchwords: SUCCESSION – Executors and administrators – Application for judicial advice regarding whether the executor is justified in defending certain proceedings on behalf of the estate Legislation Cited: Trustee Act 1925 (NSW) Category: Principal judgment Parties: Scott Darren Pascoe as Administrator of the Estate of Kut Sze Tu (plaintiff) Representation: Counsel: J Stoljar SC/Z Hillman (plaintiff) Solicitors: Hall & Wilcox (plaintiff) File Number(s): 2019/59677 Judgment 1. Mr Scott Darren Pascoe is the administrator of the estate of the late Kut Sze Tu. As at 22 February 2019, Mr Pascoe held $3,243,104.20 in estate assets. 2. Mr Pascoe, in his capacity as administrator of the estate, is the first defendant in two proceedings, which have been called the Partnership Proceeding and the FC Chow Proceeding. 3. The Partnership Proceeding involves an inquiry to determine what (if any) monies the plaintiffs in those proceedings are entitled to from the deceased by way of an account of profits after taking into account any relevant just allowances. The inquiry is to occur by order of the Court of Appeal made on 23 December 2014. Mr Pascoe will hold the amount payable to the plaintiffs as a result of the inquiry as constructive trustee for the plaintiffs, instead of as administrator for the beneficiaries of the estate. 4. The Court has been informed by Mr Pascoe that the amount claimed by the plaintiffs in the Partnership Proceeding is greater than the funds held in the estate. 5. In essence, the FC Chow Proceeding involves a similar claim against the estate to that made in the Partnership Proceeding, but there are particular legal grounds that may have the effect that the FC Chow Proceeding is barred. 6. The two proceedings are being case-managed by Emmett AJA. Mr Pascoe has provided evidence in the nature of expert evidence in each proceeding. It is expected that the proceedings will be listed to be heard together shortly, and that evidence in one will be evidence in the other. 7. For reasons that do not require elaboration, the plaintiffs in each proceeding have an interest in contesting the claim made by the plaintiffs in the other proceeding. If each set of plaintiffs assured Mr Pascoe that they would act as contradictors of the claim of the plaintiffs in the other case, then Mr Pascoe could safely adopt a neutral position in both proceedings, without risking being in breach of his duties as administrator of the estate to the beneficiaries. That would save a substantial amount in respect of Mr Pascoe's remuneration and legal costs. 8. By summons dated 22 February 2019, Mr Pascoe sought advice pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act), or alternatively pursuant to the Court's inherent jurisdiction. In essence, the nature of that advice was whether Mr Pascoe would be justified in taking a non-active role in both proceedings, save in-so-far as he may be required to give expert evidence or assist the Court. 9. At the time Mr Pascoe commenced his claim for judicial advice, he understood that the respective plaintiffs would be prepared actively to contradict the claim made by the plaintiffs in the other proceeding. 10. However, on the eve of the hearing by the Court of Mr Pascoe's claim for judicial advice, Mr Pascoe learned that the plaintiffs in the FC Chow Proceeding would not act as contradictors in the Partnership Proceeding. 11. The plaintiffs in each proceeding have informed Mr Pascoe that they object to him acting as contradictor in the proceedings they have commenced, but they expect Mr Pascoe to defend the proceeding commenced by the other plaintiffs. 12. These developments have caused Mr Pascoe to change his position to one being that it is necessary in the interests of the beneficiaries of the estate that the Partnership Proceeding be defended properly, and that he is the only person realistically available to take on that role. 13. Mr Pascoe consequently formed the opinion that, as the two proceedings are to be heard together, with evidence in one being evidence in the other, and as the subject matters of the proceedings are inextricably linked, if he is to defend the Partnership Proceeding, he should also defend the FC Chow Proceeding. 14. By reason of the change in circumstances not known to Mr Pascoe when he filed the summons, Mr Pascoe filed an amended summons on 13 March 2019, by which he sought the opinion, advice and direction of the Court pursuant to s 63 of the Trustee Act on the questions set out in an accompanying amended statement of facts. 15. Mr Pascoe filed a further amended summons on 21 May 2019, in response to an issue raised by the Court during a hearing for the relief sought in the amended summons, concerning the issue of the payment of Mr Pascoe's remuneration and legal costs, if, at the hearing of the Partnership Proceeding, the Court finds that Mr Pascoe, as administrator of the estate, has to account to the plaintiffs in that proceeding for an amount that will not leave sufficient funds in the estate to pay his remuneration and legal costs. 16. The questions that now fall for determination by the Court, as posed in Mr Pascoe's further amended statement of facts filed on 21 May 2019 are: First Question: FC Chow Proceeding 1. Whether Mr Pascoe would be justified in his capacities as: a. administrator of the estate of the late Kut Sze Tu; and b. constructive trustee of the trusts declared by the Court of Appeal on 23 December 2014 in defending the FC Chow Proceeding? Second Question: Partnership Proceeding 2. Whether Mr Pascoe would be justified in his capacities as: a. administrator of the estate of the late Kut Sze Tu; and b. constructive trustee of the trusts declared by the Court of Appeal on 23 December 2014 in defending the Partnership Proceeding? 1. Mr Pascoe also seeks the following order in his further amended summons in relation to the present proceedings: 3. The plaintiff be entitled to be reimbursed and exonerated out of the assets held in the Estate of the late Kut Sze Tu for his costs, charges and expenses incurred in conducting this proceeding. 1. The facts that give rise to the questions the subject of Mr Pascoe's application for the Court's advice are set out in the further amended statement of facts filed on 21 May 2019. The Court has had the benefit of oral and written submissions made by counsel for Mr Pascoe, in relation to Mr Pascoe's prospects of success in defending the two proceedings, and as to the significance of Mr Pascoe being constructive trustee in favour of the plaintiffs in the Partnership Proceeding, by reason of the judgment of the Court of Appeal, while at the same time he is a trustee of the assets in the estate as the deceased's administrator. If the plaintiffs in the FC Chow Proceeding were to succeed, the consequence would be that Mr Pascoe would also be made a constructive trustee of some assets in the estate in favour of those plaintiffs. 2. Mr Pascoe has not waived privilege in respect of counsel's opinions and they have been marked as confidential exhibits in the proceedings. 3. Without the Court fully endorsing the opinions expressed by counsel, as the Court does not have the benefit of all of the knowledge of the facts and circumstances of the two proceedings known to counsel, I am satisfied from my reading of the opinions that it is reasonable and appropriate for the Court to accept that it will be in accordance with Mr Pascoe's duties to act in accordance with the advice given. 4. If Mr Pascoe does not actively defend the Partnership Proceeding, and, as expected, no other interested party does, then at the least the arguments available to reduce the amount for which the estate will have to account to the plaintiffs in that proceeding will not be put, and there is a possibility that the estate will be wholly denuded of assets, in circumstances where that outcome may be inconsistent with the real legal rights of the estate, to the disadvantage of the beneficiaries generally. 5. It is clear, in my view, that the Court should give an affirmative answer to Question 2(a). 6. The problem is that the Court of Appeal has already held that Mr Pascoe is a constructive trustee for the plaintiffs in the Partnership Proceeding of a presently unidentified portion of the estate. It will not be in the interests of the beneficiaries of the constructive trust, if the effect of Mr Pascoe defending that claim is that he becomes entitled to remuneration and incurs legal costs that do not leave sufficient assets in the estate to allow payment to the plaintiffs of the full amount that is found to be held on constructive trust for them, plus their recoverable legal costs. 7. The evidence does not permit the Court to assess the likelihood that the plaintiffs in the Partnership Proceeding will be deprived of any funds to which they may be found entitled, if Mr Pascoe defends that proceeding, and a moment's reflection reveals that there is no realistic basis upon which the Court could make a judgment as to that likelihood, whatever material was placed before it. 8. Realistically, the Court has, by grant of administration, appointed Mr Pascoe as the administrator of the estate, and the duties so imposed upon him oblige him to take all reasonable steps to protect the estate. The existence of that obligation puts Mr Pascoe in the position where, in order to protect the beneficiaries of the estate, he cannot avoid becoming entitled to remuneration and incurring legal costs that may, in what may be a relatively unlikely eventuality, have the consequence that insufficient funds remain in the estate to pay fully the amount to which the plaintiffs in the Partnership Proceeding may be found to be entitled, together with their legal costs. 9. The position in which Mr Pascoe finds himself is, in practical terms, inescapable, because the judgment of the Court of Appeal established that the plaintiffs in the Partnership Proceeding are beneficiaries of a constructive trust, but the subject of the trust was not identified. There is a necessity for judicial identification of the property held on constructive trust by Mr Pascoe. Mr Pascoe inescapably has two conflicting roles. The identification of the property that he holds on constructive trust is reasonably contestable, and it is Mr Pascoe's duty, in the absence of any other contradictor, to contest the plaintiffs' claim. That conflict cannot in practical terms be resolved by Mr Pascoe being replaced in one of his two capacities, because the conflict is inherent in the estate, which cannot be split between one person holding part of the estate on trust for the plaintiffs, and another holding the balance of the estate on trust for the beneficiaries. That is because the very issue is that the two portions of the estate are yet to be identified. Put another way, Mr Pascoe does not have a personal conflict, but he has an inescapable practical conflict in the interests of others, by reason of the fact that he is at the one time trustee of separate but unidentified parts of the one estate for different persons. 10. Consequently, in my opinion, it is reasonable for Mr Pascoe in his capacity as constructive trustee of the trusts declared by the Court of Appeal on 23 December 2014 to defend the Partnership Proceeding, because that defence is a necessary and unavoidable step in identifying the part of the estate (if any) which he holds on a constructive trust for the plaintiffs. Until the inquiry is completed, in practical terms the plaintiffs will receive nothing. The risk that their entitlement will be reduced by the costs of the defence is a necessary aspect of the identification of their entitlement. 11. Therefore, Question 2(b) should be answered in the affirmative. 12. In relation to the FC Chow Proceeding, I am clearly satisfied on the basis of the further amended statement of facts and the relevant opinion of counsel that Mr Pascoe is justified in defending that proceeding, in his capacity as administrator of the estate. Consequently, Question 1(a) should be answered in the affirmative. 13. The Court of Appeal's order only had the effect that Mr Pascoe is constructive trustee for a presently unidentified part of the estate for the plaintiffs in the Partnership Proceeding, and not the plaintiffs in the FC Chow Proceeding. It may be that, if the plaintiffs in the latter proceeding succeed, the effect will be that Mr Pascoe will become a constructive trustee for some part of the estate for those plaintiffs. That part is also presently unidentified. However, at present Mr Pascoe's only relevant capacity is as administrator of the estate. In that capacity, it is reasonable for him to defend the FC Chow Proceeding in the interests of the beneficiaries, as, if he is successful, there will be no order that he holds any part of the estate on a constructive trust for the plaintiffs in the FC Chow Proceeding. Accordingly, Question 1(b) should be answered affirmatively, a fortiori in comparison to the Partnership Proceeding. 14. I note that Mr Pascoe has acknowledged that the Court in these proceedings is not asked to make any ruling on the entitlement of Mr Pascoe to his remuneration and legal costs in relation to the Partnership Proceeding or the FC Chow Proceeding, but is only asked to give the advice sought in the questions posed. That advice may be relevant to the entitlement of Mr Pascoe to his remuneration and legal costs out of the estate in various eventualities that do not now require consideration. 15. It is appropriate that the Court make the order set out in par 17 above, as it was reasonable for Mr Pascoe to have sought the advice the subject of these proceedings; in large measure the need for the proceedings and their complexity has been caused by stances taken by other parties in the two proceedings, and it has been necessary for Mr Pascoe to address difficult questions raised by the Court. 16. I accordingly make the following orders: 1. Each question posed in par 40 of the further amended statement of facts filed on 21 May 2019 is answered in the affirmative. 2. The plaintiff is entitled to be reimbursed and exonerated out of the assets held in the Estate of the late Kut Sze Tu for his costs, charges and expenses incurred in conducting this proceeding. ********** 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: 05 July 2019