Australian Executor Trustees Ltd v Lee

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   AUSTRALIAN EXECUTOR TRUSTEES LTD -v- LEE [2020] WASC 463
CORAM:   ALLANSON J
HEARD:   24 SEPTEMBER 2020
DELIVERED          :   25 SEPTEMBER 2020
PUBLISHED           :   15 DECEMBER 2020
FILE NO/S:   CIV 1780 of 2020
BETWEEN:   AUSTRALIAN EXECUTOR TRUSTEES LTD (AS ADMINISTRATOR OF THE ESTATE OF THE LATE RONALD WILLIAM LEE)
Plaintiff
AND
FAY EILEEN LEE
First Defendant
JOHN ANTHONY CAMPBELL LEE
Second Defendant
SHANA FRANCINNE RUSSELL
Third Defendant
NERIDA JAYNE PUANGKHAM
Fourth Defendant

Catchwords:

Trusts and Trustees - Where trustee seeks direction regarding settlement of claims against trust property prior to trial

Legislation:

Administration Act 1903 (WA), s 14
Trustees Act 1962 (WA), s 92

Result:

Application for advice refused

Category: B

Representation:

Counsel:

Plaintiff	:	M Mckenna
First Defendant	:	T O Coyle
Second Defendant	:	M Curwood
Third Defendant	:	M A Maclennan
Fourth Defendant	:	M A Maclennan

Solicitors:

Plaintiff	:	Gilbert + Tobin
First Defendant	:	Solomon Hollett Lawyers
Second Defendant	:	Croftbridge
Third Defendant	:	Bennett + Co
Fourth Defendant	:	Bennett + Co

Case(s) referred to in decision(s):

Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247
Australian Executor Trustees Ltd v Attorney General (WA) [2015] WASC 439
Hodges v Waters (No 7) [2015] FCA 264
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66
Stanford v DePuy International Ltd (No 6) [2016] FCA 1452

ALLANSON J:

Background

This is an application by the Trustee of the Estate of the late Ronald William Lee for advice pursuant to s 92 of the Trustees Act 1962 (WA). The application was heard on 24 September 2020. On 25 September 2020, I gave my decision, refusing to give the advice sought, with full reasons to be published after the completion of the proceedings to which the proposed advice related. These are my reasons.
Ronald Lee died intestate on 26 July 2016. He was survived by his widow, Fay Eileen Lee, and three children: John Anthony Campbell Lee, Shana Francinne Russell, Nerida Jayne Puangkham. For clarity in these reasons I will follow the practice of the parties and refer to each of the family members by their given name.
Australian Executor Trustees Limited (AET) is Trustee of the Estate under letters of administration granted in April 2018.
By s 14 of the Administration Act 1903 (WA):
(1)Fay is entitled (in addition to the household chattels) to the sum of $50,000, absolutely, together with interest on that sum in accordance with s 14(4), and to one third of the residue;
(2)John, Shana and Nerida are entitled to the other two-thirds of the residue.
In civil proceedings CIV 2856 of 2018 (the Estoppel Proceedings), John claims against AET, as Trustee of the Estate, and Fay. Fay has counterclaimed against AET; and AET has cross‑claimed against Fay.
The action is set down for trial commencing on 12 October 2020.
Shana and Nerida are not parties to the Estoppel Proceedings.
John and Fay are beneficiaries of the Estate, but they do not bring their claims as beneficiaries. John claims the entirety of a farm in Bullsbrook and the cattle, farming equipment and vehicles on it, on the basis of a proprietary estoppel. By counterclaim, Fay claims 50% of each of the farm and a property in Midland, on the basis that they are property of a joint endeavour with her late husband.
AET cross‑claims against Fay on the basis that the joint endeavour, if established, includes property owned by Fay at the time of Ron's death so that the Estate is entitled to a 50% interest in that property.
The parties to the Estoppel Proceedings entered into a settlement agreement, dated 26 June 2020, subject to conditions including (if necessary) approval being given by the court.[1]
[1] See affidavit of Ryan John Eaton, affirmed 17 July 2020, RJE 9 (first affidavit of Mr Eaton).
The terms of the settlement had regard to, and were informed by, the entitlements of the beneficiaries under the Administration Act, presumably to encourage agreement by all beneficiaries. But the settlement agreement was not a settlement or arrangement of the interests of the beneficiaries in the Estate. The action ‑ including the counterclaim and cross‑claim ‑ will determine what property is in the Estate for distribution to the beneficiaries. It is only when that is determined that effect can be given to the entitlements of the beneficiaries under s 14 of the Administration Act.
Shana and Nerida were asked to agree to the arrangement, but refused.

The Estate

In his first affidavit, Mr Eaton deposed that the Estate is the sole registered proprietor of:
(a)a commercial property at 320 Great Eastern Highway, Midland, Western Australia 6056 (the Midland property);
(b)farming land at 101 Morley Road, Bullsbrook, Western Australia 6084, (on five certificates of title, collectively, the Bullsbrook Farm).[2]
[2] First affidavit of Mr Eaton [14].
The Estate also owns livestock, plant and equipment on the Bullsbrook Farm, which has been conducted as an ongoing business.[3]
[3] First affidavit of Mr Eaton [16].
In a second affidavit, affirmed 21 September 2020, Mr Eaton attached a statement of the assets and liabilities of the Estate as at 21 September 2020.[4] In summary, aside from the real property referred to above, and the cattle business conducted on the Bullsbrook Farm, the Estate holds cash assets of approximately $116,000.
[4] Affidavit of Ryan John Eaton, affirmed 21 September 2020, RJE 22 (second affidavit of Mr Eaton).
The Estate's present outstanding liabilities (not including anticipated legal fees in the Estoppel Proceedings) are more than $460,000. The liabilities include legal fees (unbilled work in progress) owed to AET's solicitors. Those fees do not include the whole of the costs associated with this application, and no allowance has been made for costs of other parties in this application, should an order be made for those costs to be paid out of the Estate.
The estimate does not include AET's anticipated services fee, anticipated conveyancing costs, property expenses or farm management expenses.[5] It does not include the costs of marketing and sale of the Midland property.
[5] All of which are recorded as TBD.
Mr Eaton deposed that the Midland property is untenanted, and has been so for the entire period AET has been the administrator of the Estate.[6] The Estate continues to incur holding expenses in respect of the Midland property.
[6] Second affidavit of Mr Eaton [14].
The settlement agreement provides for tax liability on the farming business on and from 1 July 2020, but the statement of assets and liabilities does not disclose whether there is an existing tax liability or provision made for that liability.
AET estimates its anticipated costs of the Estoppel Proceedings at $300,000. That estimate does not take into account any adverse costs orders, should Fay or John succeed in their claims. Nor does it take into account any costs orders that might be made in favour of the Estate should either claim fail.
The cash resources available to the Estate fall far short of the estimated liabilities. The Estate's cash assets are depleting, and sale of non-cash assets will be required in the near term to maintain cash flow and fund legal expenses.
The Bullsbrook Farm was valued in 2018 and again in 2020. In 2018, it was valued at $5,260,000 on the basis of a single sale of the five lots. In 2020, the valuation was $6,060,000 if sold as a whole, or $7,255,000 if sold as individual titles.
The Midland property was valued in 2018 at $1,435,000, and the proposed settlement adjustments refer to that valuation. At the time of valuation, the Midland property was leased and used in part for a retail shop (vintage clothing) and in part for a residence. From its location, it may be suitable for future development. But, at least in the short to medium term, the court cannot ignore the uncertainty in the commercial property market resulting from the COVID‑19 pandemic.
Both the Bullsbrook Farm and the Midland property are currently subject to caveats lodged on behalf of Fay.
The cattle and farm equipment on the Bullsbrook Farm have been valued at about $470,000.

The Trustees Act proceedings

By an application filed 17 July 2020, AET applied for an order that it is justified in settling the claims the subject of the Estoppel Proceedings on the terms agreed. The four beneficiaries entitled under the Administration Act are defendants to the application.
On the day before the hearing, John, Fay and AET made a 'Deed of settlement and release',[7] which formalises the earlier agreement but also modifies and adds to it in some important ways. At the hearing of the application, the originating summons was amended to seek the advice of the court that AET is justified in settling the claims on the terms set out in the Deed.
[7] Affidavit of Danielle Jade Lukic sworn 23 September 2020, DJL1.
The application was supported by an affidavit of Ryan John Eaton, Senior Legal Counsel of AET, affirmed 17 July 2020. Mr Eaton has subsequently filed a second affidavit, dated 21 September 2020, and a confidential affidavit which attaches the opinion of senior counsel. That affidavit has been made available to Shana and Nerida and their legal representatives, but not to Fay and John as litigants in the Estoppel Proceedings. Fay and John have had access, however, to AET's analysis of the parties' prospects in the Estoppel Proceedings. A letter setting out that analysis is part of the first (unrestricted) affidavit of Mr Eaton.[8]
[8] First affidavit of Mr Eaton, RJE 10.

The Deed of settlement and release

The parties to the Deed are John, Fay, and AET.
The parties agree to settle their dispute on the terms set out, with John and Fay agreeing to pay to AET an amount described as the Settlement Sum, Fay agreeing to cause caveats over properties to be withdrawn, and, by cl 2.4:
Upon payment of the Settlement Sum and withdrawal of the Caveats, AET agrees to do all things necessary to cause to be transferred to [Fay] and [John] ownership of the:
(i)Bullsbrook Farm;
(ii)Cattle;
(iii)Farm Equipment; and
(iv)Farm Vehicles.
The parties agree as soon as is reasonably practicable to take steps necessary to finalise the proceedings on the basis that they are dismissed with no order as to costs.[9]
[9] Deed, cl 2.5.
Each party agrees it must not commence any new legal proceedings or make any claim or demand relating in any way or arising out of the dispute.[10]
[10] Deed, cl 2.6.
Upon Completion, each of Fay and John relinquish and disclaim any and all claims they have in respect of the Estate, the Midland property or the Settlement Sum, with the Estate to be distributed to Shana and Nerida in equal shares.[11]
[11] Deed, cl 3.
Clause 3.2 provides for Fay and John to contribute to the Administration Fees of AET in the proportion of Fay 1/3 and John 2/9. The parties agree that the calculation of that quantum shall be on the basis that the Estate consists of property, including the whole of the Bullsbrook Farm, the Cattle, Farm Equipment, and Farm Vehicles which otherwise pass out of the Estate pursuant to the Deed.
Clause 6 provides for mutual releases between the parties to the Deed. Fay and John release AET 'from all actions, proceedings, accounts, rights, claims, demands, liabilities, costs and Expenses, wherever and however arising, known or unknown, arising out of or relating in any way to the Dispute or the Administration (with the exception of a claim or action for breach or enforcement of this deed)'. AET provides a corresponding release for matters relating to 'the Dispute or the Estate'.
By cl 6.3, the Deed may be pleaded as a full and complete defence to any demand, claim, action or proceeding 'by or on behalf of any other party … relating to any matter in respect of which the parties have been released under this deed'.
The Settlement Sum is defined in the schedule:
Settlement Sum means $523,287.30, which comprises:
$371,637 in respect of the agreed balancing adjustment for the value of the Bullsbrook Farm gained by [Fay] and [John], net of their interest in the Midland Property, plus
$103,598 in respect of the agreed balancing adjustment for the value of the Cattle and the Farm Equipment ($350,900) plus the value of the Farm Vehicles ($120,000), plus
$24,912.90 in respect of the adjustment for personal expenses paid from Ron Lee's Westpac bank account to [Fay] after the date of death; and
$23,389.40 in respect of the adjustment for personal expenses paid from Ron Lee's Westpac bank account to [John] after the date of death.
In summary, the Estate transfers to Fay and John all of its interest in the Bullsbrook Farm, and cattle and equipment on it, and releases Fay and John from any claims relating in any way to the Estate. Following the completion of the agreement, the sole assets of the Estate will be the Midland property, the Settlement Sum, and any existing cash assets. The Estate retains its current outstanding liabilities which would substantially, if not wholly, consume the Settlement Sum.

Trustees Act s 92

The power in s 92 is enlivened in this case because AET, as Trustee, applies to the court for directions concerning property the subject of the trust.[12]
[12] Trustees Act s 92(1), and see Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66.
The authorities on s 92, and its equivalent in other Australian jurisdictions, have set out the principles to be applied in considering an application for advice.[13]
[13] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar [54] - [74].
The authorities are more often concerned with applications for advice as to whether a trustee would be justified in prosecuting or defending proceedings, thereby potentially putting trust funds at risk. But the trustee's power to seek the advice of the court has also been invoked where a trustee seeks advice regarding a proposed settlement.[14]
[14] See, for example, Hodges v Waters (No 7) [2015] FCA 264.
The procedure under s 92 is summary in nature and not for the purpose of determining the issues that are to be agitated in the Estoppel Proceedings. The application for judicial advice 'is founded upon the facts stated to the court by the trustee, untested by adversarial procedure, and assumed by the court to be true', although only for the purpose of the application.[15] The court must consider whether, on those facts, AET has taken proper advice and given full consideration to all relevant matters before arriving at a reasoned and appropriate decision to settle. The court will endeavour to act in the best interests of all beneficiaries, and, 'where appropriate, will take account of the views of those beneficiaries'.[16]
[15] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar [79].
[16] Australian Executor Trustees Ltd v Attorney General (WA) [2015] WASC 439 [33].
In this application, I had regard to the statutory context in which AET acts as Trustee, and the requirement that it distribute the residue of the Estate in accordance with the beneficiaries' entitlements under the Administration Act. But the primary question precedes the operation of the Administration Act, as the Estoppel Proceedings will determine what property falls within the Estate.

Consideration of the proposed settlement

AET has a duty to protect and preserve the estate for the benefit of the beneficiaries. In deciding whether it is in the best interests of the beneficiaries to resolve potential disputes on the terms of the proposed settlement, rather than requiring them to be resolved by litigation, it must exercise a commercial judgment regarding the risk to the trust property.
In the analogous circumstance of a court being called upon to approve settlement of a representative proceeding, Wigney J said:
Where settlement is reached prior to judicial determination, the assessment of the proposed settlement must be undertaken mindful of the unpredictability of the applicant's and group members' fate. In those circumstances, the settlement must be viewed as a pragmatic compromise to the relevant claims. In that regard, the Court should be mindful of the fact that the parties and their legal representatives are often in a better position to appreciate the risks, and also mindful of the fact that different parties and their lawyers will have different appetites for risk: Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323 at [74].
… approval of a settlement should not be approached as if there is a single outcome that may be seen to be fair and reasonable. Reasonableness is a range, and the question is whether the proposed settlement falls within that range having regard to the known facts and circumstances, not whether it is the best outcome which the Court considers might have been achieved...[17]
[17] Stanford v DePuy International Ltd (No 6) [2016] FCA 1452 [116] ‑ [117].
AET submits that, on the material available, the court should be satisfied that AET has given 'sufficient consideration' to the interests of all beneficiaries and to be satisfied that AET:
(1)sought a legal opinion in respect of the facts and propositions relied upon in the proposed settlement; and
(2)properly informed itself, having regard to that advice, of its prospects of successfully defending the claims against the trust property.
AET submits that the court should not exercise its jurisdiction so as to usurp the role and responsibility of the trustee; the court is not assessing either the correctness of the trustee's decision or the reasonableness of the settlement as a decision in its discretion;
Rather, the court will be concerned to ensure that the trustee has taken proper advice and given full consideration to all relevant matters before arriving at a reasoned and appropriate decision. If satisfied of those matters, in appropriate cases the court will give the directions sought and thereby confer protection upon a trustee taking action in accordance with those directions.[18]
[18] Australian Executor Trustees Ltd v Attorney-General (WA) [33].
To the extent that AET relies upon the opinion of counsel in this application, that opinion 'must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable'.[19] The court is not in any way determining the merits of the principal proceedings.
[19] Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 [80] (Palmer J).
AET has considered the cost of proceeding to trial. I accept that the cost to the Estate of going to trial on the Estoppel Proceedings will be substantial - AET estimates its own costs at $300,000. But the cost of proceeding must be considered against the amount in issue.
AET does not accept that the settlement disproportionately benefits Fay and John. The solicitors for AET describe the agreement as preserving the collective interest of Shana and Nerida in the Bullsbrook Farm by the effect of Fay and John relinquishing their interest in the Midland property and making the 'balancing payments' which are now included in the Settlement Sum.[20]
[20] The second balancing payment is increased in the Deed, and supplemented by the further payments in the Settlement Sum.
It is a clear attraction of the settlement that it might bring finality to disputes within this family which have already resulted in six actions in this court (including the Estoppel Proceedings and this application).

Shana and Nerida submitted that the proposed settlement is not in the best interests of the Estate because:
(1)it is vague and uncertain and is incapable of effecting a complete resolution of the administration of the Estate;
(2)does not reflect the current market value of the Bullsbrook Farm;
(3)several matters they have raised affecting the proper administration of the Estate do not appear to have been investigated fully, if at all;
(4)AET's assessment of the 'reasonableness' of the proposed settlement, is based on factors which, when examined properly, do not support a conclusion that the proposed settlement is reasonable or in the best interests of the trust property.
In particular, counsel submitted that the opinion of counsel, on which AET relies, largely recited the statement of facts in his brief and did not enter into any analysis of either the facts or the law relied upon for the conclusions regarding the prospects of the litigation.
In particular, Shana and Nerida submitted that AET has not taken into account all potentially available evidence, including evidence that Shana may have been in a position to provide, directed to 'critical elements' of the proposed evidence of Fay and John at trial. I am not satisfied that the submission regarding the proposed evidence of Shana is sound. The forensic decisions for the purposes of trial are for AET and its legal advisers.
The submission regarding the vagueness and uncertainty of the terms of the settlement has been largely overtaken by the formalisation of the terms in the Deed, and in particular by the extensive and express mutual releases. The settlement is now less vague and uncertain, although considerable uncertainty remains about the extent of matters which are now caught by the releases.
The submission regarding the use of the 2018 valuation as the market value of the Bullsbrook Farm for the purposes of the settlement was largely directed to showing the difference in the net positions of the various beneficiaries from three perspectives:[21] the 2018 valuation; the 2020 valuation based on sale as a whole; the 2020 valuation based on individual sales of the five lots. The settlement is structured on the assumption that Fay would be successful in her claim for 50% of the Bullsbrook Farm, and John would be successful in his claim for a 50% interest in the assets of the farming business (cattle, equipment and vehicles), but that otherwise all claims would fail.
[21] All assuming that Fay would be successful in her claim to a 50% interest in the Bullsbrook Farm.
First, as I have earlier stated, the litigation to which the settlement is directed concerns the logically and practically anterior question of what assets are properly to be regarded as forming the Estate.
Second, the comparison undertaken is based on a limited view of the settlement. The significance of settlement is that it results in an immediate in specie distribution of the Bullsbrook Farm, and cattle, equipment and vehicles on it. It also results in a mutual release of all claims, known and unknown, between Fay, John, and the Estate. There is scant evidence before the court regarding any consideration of those further claims.
Third, following the settlement, the sole assets of the Estate would be the Midland property and any cash assets (including the Settlement Sum), to the extent to which any cash has not been wholly consumed by existing liabilities. There is no information before the court regarding the marketability of the Midland property in the current climate.
The advice of counsel has been of limited assistance. I do not intend to be critical of counsel who was provided with a brief on 17 September 2020 and required to provide written advice by 21 September 2020. I do not know why counsel was only briefed so late, when the application was filed in July.
Ultimately, having regard to the following factors, I am not satisfied that I should exercise my discretion to give the advice sought:
(1)the value of the property in issue in the Estoppel Proceedings and in the settlement, both in absolute terms and in proportion to the total assets possibly available to the Estate;
(2)the likely cost of the Estoppel Proceedings in comparison with the significance of those proceedings to the Estate;
(3)the present position of the Estate, and the depletion of its cash assets;
(4)the fact that the settlement would result in cash coming into the Estate, sufficient to meet current liabilities, although perhaps no more than that;
(5)the consequences of the litigation and the proposed settlement to the beneficiaries;
(6)the significant disparity in the valuations for the Bullsbrook Farm ‑ even on the basis of a sale of the land as a whole, which, for the purposes of my conclusion, I have regarded as the appropriate comparison;
(7)the lack of information regarding the marketability of the Midland property which would remain the sole asset of the estate;
(8)the complexity of the matters to be raised in the Estoppel Proceedings;
(9)in light of that complexity, the limitations of the opinion of counsel as a basis for the court to be satisfied that there has been the necessary consideration of the propositions of law relied upon, and the factual basis of the actions, in arriving at the terms of the settlement;
(10)the fact that two of the four beneficiaries oppose the settlement; and
(11)the position of those opposing beneficiaries, who on completion of the settlement would bear the whole of the risk of the market for the Midland property and the liabilities of the Estate.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CG
Associate to the Honourable Justice Allanson
15 DECEMBER 2020

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established