Iacono v Iacono (No 2)
[2021] VSC 729
•9 November 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S ECI 2019 02401
IN THE MATTER of the Estate of SALVATORE IACONO, deceased
- and –
IN THE MATTER of Part IV of the Administration and Probate Act 1958 (Vic)
| ROSE GIOVANNA IACONO | Plaintiff |
| v | |
| GIOVANNI IACONO (who is sued as Executor of the Estate of SALVATORE IACONO, deceased) | First Defendant |
| EMANUELE IACONO | Second Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 September 2021, and written submissions filed by the parties on 5 September 2021, 6 September 2021, 7 September 2021, 17 September 2021, 19 September 2021, and 1 October 2021 |
DATE OF JUDGMENT: | 9 November 2021 |
CASE MAY BE CITED AS: | Iacono v Iacono & Anor (No 2) (Costs) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 729 |
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COSTS – Claim under Part IV of the Administration and Probate Act 1958 (Vic) – Whether plaintiff entitled to interest on legacy pursuant to s 39B of the Administration and Probate Act 1958 (Vic) – Where each party has a prima facie entitlement to costs – Apportionment of costs between beneficiaries not in need in proportion to their entitlements from the estate.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M C McKenzie | Constable Connor & Co Pty Ltd |
| For the First Defendant | Mr J Rizzi | Prompt Legal Services Pty Ltd |
| For the Second Defendant | Mr A P Dickenson | Bediaga Xavier & Ramon |
HER HONOUR:
On 30 July 2021, I delivered my reasons in respect of the plaintiff’s claims pursuant to Part IV of the Administration and Probate Act 1958 (Vic) (‘Act’) for further provision from her late father’s estate (‘estate’).[1] The plaintiff, Rose Iacono, was successful in establishing her claim for further provision, but not in the quantum and form sought by her. I ordered that further provision with a value of $690,000 be made to Rose, comprising the transfer of two units in Tullamarine (‘units 4 and 5’), together with the net rental income which had accrued in respect of units 4 and 5 since the death of the deceased, in addition to the $50,000 gifted to Rose in the deceased’s will (‘will’). The cash payments due to Rose (of around $100,000) are to be secured by a charge on the Tullamarine units given to her brother Emanuele (being units 2 and 3) in the will. Units 4 and 5 had been gifted to her other brother, John, in the will.
[1][2021] VSC 444 (‘July reasons’). References to defined terms and party names in these reasons are the same as in the July reasons.
The issues in the proceeding, and my findings in relation to those issues are set out in full in the July reasons. To recapitulate, claims were made against the estate by Rose, and her elder half‑sister, Maria, who resides in Italy. No provision was made for Maria in the will. Prior to the issue of this proceeding, the primary beneficiaries of the estate were the deceased’s widow, Rowena, his son, John (who is also the executor of the estate and the first defendant in this proceeding), and, to a lesser extent, Emanuele, and John’s children, (the deceased’s grandchildren). The claim by Maria (‘Maria’s proceeding’) was compromised by John in the hours prior to the commencement of the trial on 2 March 2021.
The proceeding was listed for a further hearing on 7 September 2021 to determine the final form of the orders and the question of costs, as the parties were unable to reach agreement regarding these matters in the period following the delivery of the July reasons.
In her submissions filed 5 September 2021, Rose submitted, in summary, as follows:
(a) units 4 and 5 should be transferred to her forthwith;
(b) the rental income from units 4 and 5 from the date of the July reasons should be paid to her forthwith;
(c) the $50,000 payable to her under the will (‘legacy’) should be paid to her forthwith;
(d) her reasonable legal costs should be paid by the estate; and
(e) penalty interest should run on the amount due to her in accordance with the July reasons from 1 August 2021 until the date the payments and transfers are actually made.
In his submissions filed on 7 September 2021, John submitted, in summary, as follows:
(a) given that the parties agree that the provision made for Rowena in the will should be quarantined, and given the practical difficulties involved in interfering with the provision made in the will for the deceased’s grandchildren, the only realistic source of the funding for the parties’ costs is from the investment properties gifted to John and Emanuele, and the net rental income derived from those properties since the date of the deceased’s death;
(b) the legacy should be paid towards the estate’s costs in this proceeding and Maria’s proceeding;
(c) Emanuele should pay 40 per cent and John pay 60 per cent of the balance of the estate’s costs, to be assessed on an indemnity basis;
(d) Emanuele should pay two-thirds and John pay one-third of Rose’s costs on the standard basis, to be taxed in default of agreement; and
(e) Emanuele should bear his own costs of this proceeding and Maria’s proceeding.
John submitted that the orders above should be made for the following reasons:
(a) of the remaining assets in the estate following the July reasons (which have a total value of $1,607,236), Emanuele stands to receive $640,000 (being 40 per cent) and John stands to receive $967,236 (being 60 per cent). It is fair and reasonable that the balance of the estate’s costs be paid rateably in accordance with the value of the assets received by Emanuele and John from the estate;
(b) further, as John was defending Rose’s claim in his capacity as executor of the estate, he would normally be entitled to be indemnified for his costs from the assets of the estate;
(c) while John made several attempts to settle Rose’s claims, Emanuele refused to contribute any amount to settle Rose’s claim. Emanuele also refused to contribute any amount to settle Maria’s proceeding. The compromise of Maria’s proceeding was made reluctantly for the benefit of the estate, and clearly saved the parties costs;
(d) Emanuele’s conduct in refusing to contribute to the settlement of either Maria’s proceeding or Rose’s claim was unreasonable, and in those circumstances it is appropriate that Emanuele pay a greater proportion of Rose’s costs than John; and
(e) Emanuele should bear his own costs, because he only joined the proceedings to protect his share of the estate, and was well aware of the costs risk he faced in being joined to the proceedings.
In his submissions filed on 6 September 2021, Emanuele submitted that John should pay the costs of both Rose and Emanuele, and bear his own costs, for the following reasons:
(a) he was joined to the proceeding on his own application so that he could make submissions regarding where the burden of any order for further provision to Rose should fall;
(b) the Court accepted his contention that the deceased’s gift of the Rosebud holiday home to John some years before his death was a relevant benefit for the purpose of considering which of the assets of the estate should bear the burden of further provision for Rose;
(c) at trial, John contended that Emanuele should bear 27 per cent of the burden of any further provision for Rose, but I found that Emanuele should bear 14.5 per cent, calculated by reference to the value of the estate, or 11.9 per cent, calculated by reference to the value of the estate plus the Rosebud holiday home, and therefore, within the limited scope of his joinder, Emanuele has been successful in this proceeding;
(d) John and his wife Maria have substantial assets, and John will receive significantly more from the estate than any other party;
(e) the net value of John’s gift is $1,244,000, comprising the Airport West property, unit 1 of the Tullamarine units, together with the rental income from those properties which has accrued since the death of the deceased, and the Holden Monaro;
(f) John’s children receive a remainder interest in the Essendon North home, valued at trial at $280,800;
(g) in comparison, the net value of Emanuele’s gift is $540,000, being the value of units 2 and 3 of the Tullamarine units, which are now subject to a charge in favour of Rose to secure payment of the net rental income from units 4 and 5 to her, being approximately $48,000, along with the legacy, which is now payable by Emanuele;
(h) Emanuele’s conduct in the proceeding was reasonable and proportionate, and the gift in the will to Emanuele, now diminished by the obligation to pay approximately $100,000 to Rose, should not be diminished further by Emanuele having to pay his own costs, or being required to contribute to Rose’s costs;
(i) Emanuele’s interests were not identical to John’s, and it was appropriate that Emanuele be a party to the proceeding; and
(j) an order that John pay the parties’ costs of the proceeding will still leave him as the primary beneficiary of the estate, and in circumstances where John has no financial need, that is the just outcome.
John relied upon an affidavit sworn by his solicitor, Mr Daniel Gazzard on 7 September 2021. Mr Gazzard deposed, in summary, as follows:
(a) on 28 November 2019, John made an offer to Rose to compromise her claim, in which Rose was offered unit 1 of the Tullamarine units plus the sum of $200,000 inclusive of her legal costs, with Rose foregoing the legacy. Rose did not accept this offer;
(b) on 19 February 2021, John made a further offer to Rose, comprising of her choice of one of the Tullamarine units plus a lump sum payment of $201,000 and a payment of $30,000 for her legal costs, subject to the following conditions:
(i) all beneficiaries agreeing on their respective contributions to the property and cash to be paid and transferred to Rose; or
(ii) the Court approving the compromise and authorising John to enter into the compromise pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic); or
(iii) the Court making an order pursuant to Part IV of the Act giving effect to the compromise;
(c) Rose did not accept this offer;
(d) on 26 February 2021, a few days prior to the commencement of the trial, John made a further offer to Rose, in which Rose was offered units 1 and 4 of the Tullamarine units, with Rose to retain the legacy, with the offer being inclusive of legal costs. Rose did not accept this offer;
(e) on 4 March 2021 (when the trial was part-heard), John made another offer to Rose, in which Rose was offered $601,000, plus her legal costs on a standard basis, to be taxed in default of agreement, with Rose foregoing the legacy. Rose did not accept this offer;
(f) on 31 October 2019, John’s solicitors sent a letter to Emanuele’s solicitor headed ‘without prejudice save as to costs’, stating that the Court would be likely to order that John and Emanuele make contributions to settle Maria and Rose’s claims proportionate to the gifts to them in the will, that negotiations with Maria and Rose had stalled due to Emanuele’s refusal to contribute any amount to settle their claims, and John intended to seek a costs order in relation to legal costs incurred as a result of Emanuele’s refusal to participate in any compromise; and
(g) on 26 February 2021, John’s solicitors spoke with Emanuele’s solicitors with respect to Maria’s proceeding.[2] After that conversation, John agreed to compromise Maria’s proceeding, with the payment of $150,000 to Maria to come from his share of the estate.[3]
[2]Counsel for Emanuele submitted that the evidence concerning the substance of this communication is inadmissible by reason of s 131 of the Evidence Act 2008 (Vic). I agree.
[3]The sum was paid to Maria on 14 April 2021.
Following the hearing on 7 September 2021, I made the following orders (‘7 September orders’):
1.Pursuant to s 91 of the Administration and Probate Act 1958 (Vic), provision be made for the plaintiff from the estate of the deceased by the first defendant, as executor of the estate of the deceased:
a.transferring the estate’s interests in units 4 and 5 at 23 Broadmeadows Road, Tullamarine, Victoria being the land contained in Certificates of Title Volume 9379 Folios 026 and 027 absolutely (‘units 4 and 5’);
b.paying the plaintiff the net rental income which has accrued in respect of units 4 and 5 until they are transferred to the plaintiff (‘net rental’);
c.paying the plaintiff the $50,000 due to her pursuant to the Will;
within 14 days of the return of the Grant from the Court to the first defendant with an authenticated copy of this Order annexed days of this order.
2.The net rental shall be calculated by the accountant of the estate by deducting all relevant expenses from the gross rental received by the estate on units 4 and 5 from the date of the deceased death until the date of transfer to the plaintiff.
3.The payments to the plaintiff required by orders 1(b) and 1(c) above shall:
a.be made from the second defendant’s share of the estate or by the second defendant personally; and
b.charged against units 2 and 3 at 23 Broadmeadows Road, Tullamarine, Victoria being the land contained in Certificates of Title Volume 9379 Folios 024 and 025, being the units devised to the second defendant under the Will.
4.The plaintiff have her costs of the proceeding to date, including the costs of the hearing today, on a standard basis, to be taxed in default of agreement.
…
I reserved for determination on the papers the question of who should bear the costs of the estate, Emanuele and Rose, insofar as they exceeded the balance of the cash in the estate after meeting the other liabilities of the estate.
In his supplementary costs submissions filed on 17 September 2021, Emanuele submitted, in summary, as follows:
(a) while he has been ordered to pay the legacy, it would be patently unfair for him to be ordered to pay interest on the legacy in circumstances where:
(iv) it was John’s obligation as executor to pay the legacy to Rose irrespective of the outcome of the proceeding;
(v) there is no evidence that Rose ever sought payment of the legacy; and
(vi) an order for the payment of legacy interest by Emanuele was not contemplated by the July reasons, and such an order would fundamentally alter the balancing of the parties’ rights and obligations undertaken in the July reasons;
(b) John’s submissions regarding the relative value of the assets retained by him and Emanuele as a result of the July reasons do not account for the rental income John will receive from unit 1 of the Tullamarine units and the Airport West property, or that two of the Tullamarine units retained by Emanuele are charged with payment of approximately $100,000 to Rose;
(c) John also seeks to deduct capital gains tax (‘CGT’) payable with respect to the Airport West property upon its sale from the value to be attributed to the Airport West property for the purposes of determining the net benefit to him from the estate, in circumstances where John’s evidence at trial was that he did not plan to sell the Airport West property;
(d) John’s submissions regarding hypothetical outcomes in the proceeding had Emanuele offered to contribute to the sums offered by John to Maria and Rose should be rejected, along with John’s submission that it was appropriate to settle Maria’s proceeding, in circumstances where the Court has not heard evidence regarding Maria’s claim, and when Emanuele disputes whether Maria in fact had a valid claim for any provision from the estate;
(e) John defended this proceeding to protect his personal interests, and those of his children, which is why Emanuele needed to be joined to the proceeding, and there is no basis for any order that Emanuele contribute to John’s costs. John has received a significantly greater share of the estate than Emanuele, and it would be unjust in those circumstances to order that Emanuele’s provision be further reduced by paying any of John or Rose’s costs; and
(f) alternatively, if the Court determines that Emanuele should bear any proportion of Rose’s costs, such burden should be assessed in accordance with the assessment of the burden of the orders of further provision to Rose made in the July reasons.
In her submissions filed 19 September 2021, Rose submitted, in summary, as follows:
(a) section 39B(3) of the Act provides that a beneficiary entitled to a pecuniary legacy is entitled to interest on that legacy or any part of it that is not paid within twelve months of the deceased’s death for the period it remains unpaid after that twelve months period at the legacy interest rate;
(b) the Court has no discretion as to Rose’s entitlement to interest being due on the legacy;
(c) Emanuele’s submissions concerning the obligation upon John as executor to pay the legacy is misconceived, and the obligation to pay the legacy interest should fall on the party charged with the payment of the legacy, being Emanuele;
(d) in Mitchell v McLear,[4] McMillan J found that a delay in payment of money overdue attracted the penalty interest rate, and Rose submitted that penalty interest should be charged from 14 September 2021, being seven days after the 7 September orders;
[4][2020] VSC 25.
(e) the accumulated rental income for units 4 and 5 is akin to a pecuniary legacy, and the estate or Emanuele should also pay interest on that sum;
(f) Emanuele’s submission to the effect that the CGT liability with respect to the Airport West property should not be taken into account is misconceived, as, if developed, the Airport West property will attract a CGT liability which will eventually have to be met;
(g) section 97(1) of the Act establishes a default position that the burden of provision ordered falls on the persons beneficially entitled to the estate in the proportion of the value received from the estate; and
(h) the appropriate outcome in the current case is that the costs burden fall on John and Emanuele based on the contribution made by each to the further provision for Rose. In John’s case, that is the value of units 4 and 5, being $640,000, and Emanuele as to approximately $100,000.[5]
[5]If this submission is to be accepted, then John would be liable to pay 86.5 per cent of Rose’s costs, and Emanuele 13.5 per cent.
Finally, in his submissions filed on 1 October 2021, John submitted that the following costs orders are appropriate:
(a) the estate’s costs and expenses of the administration of the estate, and of this proceeding and of Maria’s claim ought be paid on an indemnity basis first from the legacy and the net rental income received from units 4 and 5 since the date of the death of the deceased;
(b) Emanuele should pay 37 per cent and John pay 63 per cent of the balance of the estate’s costs of this proceeding and of Maria’s proceeding on an indemnity basis;
(c) Emanuele should pay two-thirds and John pay one-third of Rose’s costs of the proceeding on a standard basis;
(d) the payments required to be made by Emanuele be made from Emanuele’s share of the estate or by Emanuele personally, and be charged against units 2 and 3 of the Tullamarine units (that is, the units gifted to Emanuele under the will); and
(e) there should be no orders as to Emanuele’s costs of this proceeding and of Maria’s proceeding.
John submitted that interest ought not be payable on the legacy for the following reasons:
(a) Rose did not seek payment of the legacy at any time during the administration of the estate;
(b) the question of legacy interest was not raised until after the publication of the July reasons;
(c) had the issue of legacy interest been raised by Rose at the appropriate time, the Court may have taken into account any legacy interest payable to Rose when determining the further provision to be awarded to Rose from the estate; and
(d) it would be unfair to Emanuele to be required to pay interest on the legacy given that he was not required to pay the legacy until the 7 September orders.
As for the question of costs, John submitted, in summary, as follows:
(a) in the usual course, the executor of an estate would be entitled to be indemnified for their costs from the assets of the estate;
(b) in the 7 September orders, the Court deliberately freed up approximately $100,000 to pay costs, made as follows:
(vii) the legacy is now to be paid to Rose by Emanuele; and
(viii) the net rental income due to Rose on units 4 and 5, being $54,684 up to 30 June 2021, is to be paid to Rose by Emanuele;
(c) the estate’s costs should be paid rateably according to the value of the assets received by John and Emanuele following the 7 September orders;
(d) he accepted that in his earlier submissions he did not take into account the rental income that he will receive for unit 1 and the Airport West property, or the fact that the two units retained by Emanuele are charged with payment of approximately $100,000 to Rose;
(e) he maintained that it is appropriate to deduct any CGT liability from the value of the Airport West property because the Airport West property is “impregnated” with CGT, and there is a possibility that it may be sold in future. Any CGT liability carried by the Airport West property does not disappear simply because the property is not sold, it is merely deferred;
(f) of the remaining assets in the estate, Emanuele stands to receive $588,454, being 37 per cent of the assets in the estate after provision has been made for the other beneficiaries of the estate (being $1,596,682), including Rose and Maria, and John stands to receive $1,008,228, being 63 per cent of the remaining assets in the estate;
(g) accordingly, Emanuele should pay 37 per cent of the balance of the estate’s costs and John should pay 63 per cent of the balance of the estate’s costs;
(h) he repeated his earlier submissions that two-thirds of Rose’s costs should be paid by Emanuele and one-third by John, and noted that Emanuele’s submissions appear to accept that he should pay his own costs personally;
(i) alternatively, Rose’s costs should be paid rateably according to the value of Emanuele and John’s respective shares of the estate, being 37 per cent and 63 per cent respectively; and
(j) it would be unjust to order that John pay Rose’s costs without a significant contribution from Emanuele, in circumstances where John has surrendered units 4 and 5 to Rose’s claim, and it was accepted that he was a good and dutiful son throughout the life of the deceased.
John relied upon a further affidavit of Mr Gazzard sworn on 1 October 2021, in which Mr Gazzard deposed, in summary, as follows:
(a) on 30 September 2021, the accountant for the estate prepared draft tax returns containing the net rental income attributable to each investment property of the estate and the estate’s liability to pay tax;
(b) the following table shows the net rental income per investment property per financial year according the schedules in the estate tax returns;
John
Emanuele
Emanuele
Rose
Rose
John
Year ended
Unit 1
Unit 2
Unit 3
Unit 4
Unit 5
Victory Rd
Annual
30-Jun-18
$1,103.00
$1,103.00
$1,035.00
$0.00
$451.00
$0.00
$3,692.00
30-Jun-19
$4,536.00
$8,369.00
$8,184.00
$11,617.00
$8,623.00
$587.00
$41,916.00
30-Jun-20
$11,248.00
$9,458.00
$10,719.00
$6,285.00
$9,056.00
$8,897.00
$55,663.00
30-Jun-21
$12,114.00
$6,949.00
$6,321.00
$9,894.00
$7,758.00
$2,507.00
$45,543.00
TOTAL
$29,001.00
$25,879.00
$26,259.00
$27,796.00
$25,888.00
$11,991.00
$146,814.00
(c) he prepared a summary setting out the expenses incurred for the purpose of the administration of the estate, which total $60,258.67; and
(d) he deposed that the estate’s legal costs of this proceeding and Maria’s proceeding are estimated to be $182,000.[6]
[6]This was subsequently revised to $193,000 as at 4 November 2021.
Discussion
Accordingly, the issues for determination in order to finalise this proceeding are as follows:
(a) whether Rose is entitled to interest on the gifts under the will, as amended by the 7 September orders;
(b) given that the balance of the cash in the estate (after providing Rowena with her entitlements) is approximately $100,000, who should bear the burden of the balance of costs payable to Rose;
(c) who should bear the burden of the costs of the estate; and
(d) who should bear the burden of Emanuele’s costs?
In summary, my conclusions are as follows:
(a) Rose should receive legacy interest upon the legacy, but not on any further provision ordered for her in the 7 September orders;
(b) the outstanding expenses of the estate (including any taxation liabilities and administration costs), the legacy interest, and the reasonable legal costs incurred by each of Rose, John and Emanuele ought be treated as liabilities of the estate;
(c) the remaining cash in the estate (after payment to Rowena of her entitlements) be applied:
(ix)first to the outstanding expenses and liabilities with respect to the administration of the estate;
(x) in part payment of Rose’s reasonable legal costs;
(d) the balance of the liabilities of the estate, being:
(i) the remainder of Rose’s legal costs;
(ii) the reasonable legal costs of John (in his capacity as the executor of the estate); and
(iii) the reasonable legal costs of Emanuele;
be paid by John and Emanuele in the ratio of 63:37.
My reasons follow.
Rose’s claim for interest
Section 39B(3) of the Act provides as follows:
A beneficiary entitled to a pecuniary legacy is entitled to interest on that legacy or any part of it that is not paid to the beneficiary within 12 months of the date of the deceased’s death for the period that it remains unpaid calculated after that 12 months at the legacy interest rate.
Section 3(1) of the Act provides that the “legacy interest rate” means the rate that is 2 per cent above the cash rate last published by the Reserve Bank of Australia before 1 January in the calendar year in which interest begins to accrue. In the current case, any interest accruing on the legacy began to accrue on 11 June 2019, so that the applicable legacy interest rate would be 3.5 per cent per annum.
I agree with the submissions advanced on behalf of Rose that s 39B does not confer any discretion upon the Court to determine whether Rose is entitled to interest on the legacy. Further, it is not entirely clear to me as to whether it is necessary for Rose to have made a demand for the legacy in order to trigger her entitlement to legacy interest. Further, while I accept that Rose’s entitlement to legacy interest may have influenced the amount I would have ordered by way of further provision, the time for any reassessment has passed following the making of the 7 September orders.
In any event, the amount of the legacy interest is modest: by my calculations, as at the date of these reasons, the amount of legacy interest would be slightly in excess of $4,000. As for the question of who should pay the legacy interest, in my view, it should be included as a liability of the estate to be apportioned between John and Emanuele in the same proportions as applicable to the other unpaid liabilities of the estate, as set out in paragraph 18 above.
However, I do not accept Rose’s submissions that she should be entitled to legacy interest upon the net rental income from units 4 and 5 which has accumulated since the death of the deceased. In my view, the net rental income is not a pecuniary legacy within the meaning of s 5(1) of the Act.[7] Rather, the rental income is an incidental entitlement arising out of the transfer of units 4 and 5 to Rose in specie as a consequence of the 7 September orders. While it is a monetary benefit to Rose, it is not a gift of a sum of money to Rose in the will.
[7]“Pecuniary legacy” is defined as “a gift of a sum of money in a will”, and includes a gift “… payable out of a deceased’s general estate and not attached to a specific asset or fund belonging to the deceased”.
Costs
It is not necessary for present purposes to consider in any depth the principles governing the question of where the burden of costs should fall in a proceeding of the current kind, particularly given that the further provision for Rose exceeded the quantum of the highest offer made to her, and there has been no relevant disentitling conduct (that is, in connection with the conduct of the proceeding) on the part of any of the parties to the proceeding. In that regard, I reject the submission advanced by John to the effect that Emanuele acted unreasonably in refusing to contribute to any of the offers made by John to settle the claims made by Maria and Rose, given the disproportionate share of the estate that went to John, and what I consider to have been Maria’s limited prospects of success in Maria’s proceeding.
Rather, the main difficulty with respect to the question of costs is the lack of sufficient cash in the estate to meet what are meritorious claims for costs by each of Rose, John and Emanuele. Further, the quantum of the costs do not appear to be exorbitant, at least in the context of multi‑party proceedings and a four‑day trial in this Court. Finally, there is no dispute as to Rose’s entitlement to be paid her reasonable costs: any requirement that she bear part or all of her legal costs would compromise what I have determined to be adequate provision for her proper maintenance and support. Accordingly, a pragmatic approach should be taken to the question of costs, having regard to the outcome of the proceeding, and the constraints imposed by the undisturbed gifts in the will and the cash available in the estate to meet the parties’ claims for costs.
Further, I consider that, had there been sufficient funds within the estate to do so, each of John and Emanuele would be entitled to have their costs borne by the estate. In relation to John, as the executor, he would prima facie be entitled to recover his reasonable legal costs from the estate. Further, while I accept that in defending the will, he was, in effect, defending his interests and the interests of him and his children, he was also defending Rowena’s entitlement under the will. And, having reviewed the evidence in Maria’s proceeding prior to the commencement of the trial, while I share Emanuele’s scepticism as to the prospects of success of Maria’s claim for provision from the estate, I accept that, having regard to all of the circumstances, it was not unreasonable for John to compromise Maria’s proceeding, given the costs involved in proceeding to judgment in Maria’s proceeding,[8] although it could arguably be said that the amount paid was on the high side. Further, while the further provision ordered in favour of Rose exceeded the value of the final offer made by John on 4 March 2021, the final offer was not terribly far short of the provision ultimately made for her in the 7 September orders.
[8]Given the factual issues involved in Maria’s proceeding, including the lack of clarity regarding the financial position of Maria and her family, and the likelihood that Maria would need to give evidence with the assistance of an interpreter, the compromise of Maria’s proceeding likely saved two days of hearing time.
As for Emanuele, it could not be said that his involvement in the proceeding was unnecessary, given the estrangement between him and John, the discrepancy between the gifts to him and the gifts to John under the will, particularly if one has regard to the gift of the Rosebud property to John in 2013, and the provision in the will for John’s children. It was therefore reasonable for Emanuele to be joined to the proceeding to assert that the burden of further provision should fall entirely upon John. While he was not completely successful in that regard, it was not an entirely unreasonable position for him to take. Further, he adopted a constructive and pragmatic position with respect to Rose’s claim, and his participation in the proceeding did not unduly add to the time and the costs of the trial. It is also fair to say that Emanuele’s involvement in the proceeding may have led to a more critical evaluation of John’s evidence regarding his financial position than would have been undertaken had Emanuele not been a party to the proceeding. Accordingly, if there were surplus funds to pay Emanuele’s reasonable legal costs, I would have ordered that he receive part or all of his legal costs from the assets of the estate.
Given the fact that each party has a prima facie entitlement to their legal costs, and it is only the cash position of the estate which hampers the ability of the estate to meet those costs, what I propose to do is as follows:
(a) treat the reasonable legal costs of all of the parties, and the unpaid costs and expenses of the estate (including any liability of the estate to pay tax) and the legacy interest payable to Rose (the total of which is approximately $500,000) as liabilities of the estate;
(b) order that the liabilities of the estate be paid in the following order of priority:
(iv) the unpaid costs and expenses associated with the administration of the estate (including any liability to pay tax);
(v) Rose’s legacy interest and her reasonable legal costs; and
(vi) John and Emanuele’s reasonable legal costs; and
(c) insofar as any of the above liabilities remain unpaid, they should be paid by John and Emanuele in the ratio 63:37.
In determining the respective burden to be borne by John and Emanuele, I have had regard to the following matters:
(a) section 97(2) of the Act provides that:
Unless the Court otherwise orders the burden of any [further provision] shall as between the person beneficially entitled to the estate of the deceased be borne by those persons in proportion to the values of their respective estates and interests in such estate…
(b) while the terms of s 97(2) do not fetter the Court’s discretion with respect to costs, this provision provides a useful guide as to how the Court, in circumstances of the current kind, should deal with the question of where the burden of costs should fall, in the absence of any disentitling conduct on the part of any parties to the proceeding. In my view, given that the gifts to Rowena and grandchildren under the will have not been disturbed by the 7 September orders, and the further provision to Rose should not be compromised by an order that she pay part or all of her reasonable legal costs, any apportionment of the liabilities of the estate (including, for present purposes, the parties’ legal costs) must take place between John and Emanuele;
(c) as a matter of general principle, I agree that the burden of the liabilities of the estate (insofar as the residue of the estate falls short of meeting those liabilities) should be borne rateably by John and Emanuele in accordance with their entitlements under the will, as modified by the compromise of Maria’s proceeding and the 7 September orders. I do not accept Emanuele’s submission that he should have no obligation to contribute to those liabilities, or alternatively, that his obligation should be calculated in accordance with the relative contribution I ordered he make for further provision for Rose. The relative burden of the further provision for Rose ordered to be borne by Emanuele is relevant to the question of his entitlement to have his legal costs treated as a liability of the estate. However, it does not necessarily inform the question of who should bear the burden of the liabilities of the estate, and in what proportions; and
(d) further, it is necessary to resolve the dispute between Emanuele and John regarding the net value of the benefits received by each of them from the estate.
In that regard, as a result of the July reasons, John retains the following assets:
(a) unit 1 of the Tullamarine units, valued at trial at $315,000, plus $29,001 net rental from unit 1 since the date of death of the deceased;
(b) the Airport West property, valued at trial at $840,000, plus net rental income of $11,991 since the date of the death of the deceased. However, the Airport West property carries a potential CGT liability of approximately $140,000[9] should John (contrary to his evidence at trial) sell the Airport West property;
(c) the Holden Monaro vehicle, which was valued for the purposes of the trial at $80,000; and
(d) John is obliged to pay (and has paid) the sum of $150,000 to Maria, leaving what John says is a net benefit of $985,292.
[9]The estimate of $140,000 was provided by the estate’s accountant. However, this estimate does not take into account the costs of any improvements to the Airport West property prior to the death of the deceased. While the value of such improvements is likely to be modest, John gave evidence that he carried out some refurbishments to the Airport West property in the mid 1990s, the cost of which could presumably be added to the cost base for the purpose of calculating any CGT payable upon the sale of the Airport West property.
As a result of the July reasons, Emanuele retains the following assets:
(a) units 2 and 3 of the Tullamarine units, valued at trial at $640,000, plus $52,138 in net rental income from units 2 and 3 since the date of the death of the deceased; and
(b) the sum of $103,684 needs to be deducted from the sum in (a), being Emanuele’s contribution to the further provision ordered for Rose, leaving a net return to Emanuele from the estate of $588,454.
According to John, the net benefits due to him from the estate amount to 63 per cent of the asset pool, and Emanuele will receive 37 per cent of the asset pool. However, Emanuele submitted that the CGT liability should not be deducted from the value of the Airport West property, as John’s evidence at trial was that he does not intend to sell the Airport West property. Emanuele also contended that the Rosebud property (valued at approximately $500,000) should be brought into account when determining the value of the assets gifted to John.
Turning first to the valuation of the asset pool, I make the following findings:
(a) the rental income received by John for unit 1 and the Airport West property needs to be brought into account when determining the value of the assets John has received from the estate;
(b) similarly, Emanuele’s asset share needs to be adjusted to take into account the rental income received for units 2 and 3, less the value of the charge over units 2 and 3 in favour of Rose;
(c) the quantum of the CGT which may be payable on the Airport West property should be taken into account when assessing the benefits John has received from the estate;
(d) however, the Rosebud holiday house should not be taken into account in determining the net benefit to John from the estate;
(e) notwithstanding my reservations regarding the strength of Maria’s claim, I accept that the sum paid to her should be taken into account when determining the quantum of John’s benefit from the estate, given that the further provision to Rose has also been factored into this analysis.
I accept that the Airport West property carries with it a liability to pay CGT. While there is evidence to the effect that John intends to develop the Airport West property to construct two residences, and to use the rental income from those units to pay off the cost of construction and to generate an income stream, rather than sell the units, his position may well change given the reduction in the assets available to him by reason of the 7 September orders, and, as observed by counsel for Rose in his submissions, the CGT liability does not disappear, it may only be deferred.
As for the Rosebud holiday home, I do not consider that this property should be taken into account when determining the net benefit to John from the estate. While I accept that, had it formed part of the estate, the Rosebud holiday home would have been an asset of significant value in the context of the estate as a whole, there is no reliable evidence of the value of the Rosebud holiday home at the time of its transfer to John in 2013, or at the time of the trial. Accordingly, for the purposes of the present analysis, the valuation of the Rosebud holiday home is too imprecise and, while the property was transferred to John for no consideration, it is difficult for me to measure the extent to which the gift was made by the deceased as a means of compensating John for the work he had done on the deceased’s properties over many years. Further, while s 91A(4) of the Act provides that the extent to which John had received benefits from the deceased during the lifetime of the deceased is a relevant consideration in determining the extent of any further provision for Rose, and where the burden of such provision should fall, the Court’s discretion with respect to costs, while informed by the relevant provisions of the Act, is not confined by the provisions of the Act.
Accordingly, the net value of the benefits John has received from the estate are as follows:
(a) unit 1 of the Tullamarine units: $315,000;
(b) rental income from unit 1: $29,001;
(c) the Airport West property: $700,000;
(d) rental income from the Airport West property: $11,991; and
(e) the Holden Monaro: $80,000.
Total value: $1,135,992, less $150,000 paid to Maria, being $985,992.
The net benefit to Emanuele from the estate is as follows:
(a) units 2 and 3 of the Tullamarine units: $640,000;
(b) rental income from units 2 and 3: $52,138; and
(c) less the value of the charge in favour of Rose: $103,684.
Total value: $588,454.
Accordingly, after taking into account the cash payments to Rose and Maria, which have been borne by Emanuele and John respectively, John has received 62.6% of the assets of the estate. Accordingly, I will order that, insofar as the liabilities of the estate (being the administration expenses and any taxation liabilities of the estate, the legacy interest, and the reasonable legal costs of the parties to this proceeding) exceed the remaining funds in the estate, they should be borne by John and Emanuele in the ratio 63:37.
Accordingly, based upon the estimates provided by the parties regarding the legal costs incurred by them, the net result will be to the effect that Emanuele will be required to bear his own costs of this proceeding and Maria’s proceeding, and to make a modest contribution to Rose’s costs and the costs of the estate.
I request that the parties confer upon the appropriate form of order to give effect to these reasons and to finalise this proceeding and Maria’s proceeding.
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