O'Connor v James

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0052

KYLIE MAREE O’CONNOR (IN HER CAPACITY AS LITIGATION GUARDIAN FOR EMILY MAREE O’CONNOR, AN INFANT)	Applicant
V
SHANDEL LEA JAMES (AS EXECUTOR OF THE ESTATE OF DENNIS EDWARD WOOD, DECEASED)	Respondent

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JUDGES:	NIALL, WHELAN and KAYE JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	1 November 2023
DATE OF JUDGMENT:	9 November 2023
MEDIUM NEUTRAL CITATION:	[2023] VSCA 274
JUDGMENT APPEALED FROM:	[2023] VSC 163 (McMillan J)

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PROBATE – Approval of compromise – Whether judge correct to refuse to approve infant compromise in relation to deceased estate – Approval turned on sole question of whether settlement benefited infant – Theoretical doubt about whether agreement would be performed did not preclude finding it in infant’s best interests – Approval of settlement has no effect on different question of validity of will – Critical focus on orders sought – Leave to appeal granted – Appeal allowed.

Supreme Court (General Civil Procedure) Rules 2015, r 15.08.

Dowling v St Vincent De Paul Society of Victoria Inc [2003] VSC 454, considered.

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Counsel
Applicant:		Mr J Rizzi with Mr PD Reynolds
Respondent:		No appearance
Solicitors
Applicant:	McKean Park
Respondent:	O’Farrell Robertson McMahon

NIALL JA
WHELAN JA
KAYE JA:

The issue in this application for leave to appeal is whether a judge of the Trial Division was correct to refuse to approve an infant compromise in relation to a deceased estate. The settlement was reached in October 2017, arose in the context of a very modest estate and was clearly for the benefit of the infant, but approval was refused by the judge on two occasions. The first refusal was upheld by the Court of Appeal and the second refusal is the subject of the present application.
The difficulty has arisen because of a perceived tension between expediency and the principles that apply to the administration of estates which have a broader public focus than that which applies to private litigation generally. As will appear, there is in fact no tension. The compromise should have been approved. At the conclusion of argument we granted leave to appeal, allowed the appeal and approved the infant compromise. What follows are our reasons for doing so.

The facts

Dennis Edward Wood (‘the deceased’) died on 24 January 2017 aged 86, leaving a property at 17 Farnsworth Street, Eaglehawk (‘the Eaglehawk property’) and a small sum of money in the bank.
The deceased’s last will dated 29 June 2016 (‘the 2016 will’) appoints Shandel Lea James (‘the respondent’) as his executor and devises and bequeaths his estate to her, with a gift over to her daughter. The respondent was a neighbour of the deceased.
In 2009, the deceased made his penultimate will (‘the 2009 will’). The 2009 will appoints the deceased’s niece, Kathleen Kendall, and her husband, Gordon Kendall, as the executors and trustees of his estate. Under the 2009 will, the residue of the estate passes to Emily O’Connor (‘Emily’), a great-niece of the deceased, and Alana Heaft, a great‑niece of the deceased on his late partner’s side, in equal shares.
On 23 February 2017, the respondent caused to be published on the Supreme Court website a notice that after 14 days she would apply for a grant of probate of ‘the Will’ of the deceased.
On 14 March 2017, Kylie Maree O’Connor (‘the applicant’) lodged a caveat with the Registrar of Probates. The caveat is in conventional form, requesting that nothing be done to the will of the deceased without notice to the caveator.
By originating motion filed on 26 May 2017, the respondent sought a grant of probate of the 2016 will. The inventory of assets and liabilities filed with the respondent’s application values the estate at $210,115.62, comprising the Eaglehawk property, valued at $204,000, and $6,115.62 on deposit.
Following negotiation, on 4 October 2017, prior to the first directions hearing in the probate proceeding, the applicant and the respondent entered into terms of settlement (‘Terms of Settlement’). The relevant clauses in the Terms of Settlement are as follows:
1.These Terms of Settlement are subject to and conditional upon the approval of the Court pursuant to Order 15 of the Supreme Court (General Civil Procedure) Rules 2015.
2.Within 14 days of the Court’s approval of the proposed compromise, the [applicant] shall withdraw her caveat by filing a notice of withdrawal at the Office of the Registrar of Probates.
3.The [respondent] hereby consents to the withdrawal of the caveat and shall confirm her consent in a letter addressed to the Registrar of Probates in satisfaction of Rule 8.04(2)(b) of the Supreme Court (Administration and Probate) Rules 2014.
4.The [respondent], in her representative capacity, agrees to complete the administration of the estate by making the distributions or payments set out in the Schedule (‘the Agreed Distribution’).
5.The [applicant] agrees to accept the benefit of the Agreed Distribution in full satisfaction of all claims or rights which she had, now has, or may hereafter have against the estate of the Deceased or to participate in the distribution of the estate of the Deceased whether pursuant to the Will or any other will or the laws of intestacy, or in any other way whatsoever.
6.Upon the making of the Agreed Distribution the parties to these terms (and in the case of the [respondent] in both her personal and in her representative capacity) mutually agree to release and forever discharge each other and the estate of the Deceased, from all actions claims and demands which they had, now have, or may hereafter have, some of which are described in Paragraph 5 hereof.
The Schedule containing the Agreed Distribution provides that within 30 days of the Court’s approval of the proposed compromise, the respondent shall:
(a) pay the sum of $20,000 to the [applicant];
(b)grant a power of attorney to the [applicant] in accordance with Schedule 1 and [she] agrees not to revoke that power of attorney;
(c)execute a transfer for the deceased’s Holden vehicle, with registration number XYQ 869 (currently registered in the name of the [respondent], ‘the motor vehicle’) at the direction of the [applicant];
(d)make the vehicle available for collection by the [applicant] or the [applicant’s] representative in Bendigo, so that the [applicant] may sell the motor vehicle and the [applicant] then pay the net proceeds of sale to the trust account for the [applicant’s] solicitors, Daly Legal.
On 17 January 2018, the applicant filed a summons in the probate proceeding, seeking an order that, pursuant to O 15 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’), the compromise embodied in the Terms of Settlement be approved. Specifically, the summons sought orders that:
(a)the applicant be joined as a defendant in the probate proceeding;
(b)the compromise be approved; and
(c)the respondent pay $11,075.30 to the Senior Master of the Court to be invested for the benefit of Emily, and $8,924.70 to the applicant’s lawyers to cover her legal costs.
An order was also sought requiring the applicant, as Emily’s litigation guardian, to pay the proceeds from the sale of the motor vehicle into the Court, to be invested for the benefit of Emily.

Approval of the compromise is refused

A judge of the Court refused to approve the compromise.[1] In short, the judge reasoned as follows:
(a)the caveator was not a party to the probate proceedings, and as a caveator she had to establish a prima facie case before being made a defendant;[2]
(b)the caveator had not notified the persons with an interest in the proceeding, namely the executors and the other residuary beneficiary under the 2009 will, of her challenge to the 2016 will or the proposed compromise;[3] and
(c)there was no power in a putative executor to compromise a proceeding where the validity of a will is in issue.[4]
[1]Re Wood [2018] VSC 597.
[2]Ibid [27]–[28].
[3]Ibid [29].
[4]Ibid [31].
The judge further explained the last point by saying that the caveator was impermissibly requesting the Court to approve a distribution of the deceased’s estate that is beyond the power of the plaintiff to enter into and which purports to distribute the estate in a manner that does not reflect the provisions of whatever might be the last valid will of the deceased.[5] In doing so, the judge relied heavily on the reasoning of Nettle J (as he then was) in Dowling v St Vincent De Paul Society of Victoria Inc.[6]
[5]Ibid [33].
[6][2003] VSC 454 (‘Dowling’).

The Court of Appeal

This Court dismissed an appeal from the judge’s refusal to approve the compromise.[7]
[7]O’Connor v James [2019] VSCA 265 (‘Appeal Reasons’).
The Court observed that where a court is asked to approve an infant compromise, the central issue is whether the compromise is in the best interests of the infant. The Court said that if the compromise ‘could be removed from its context of a probate proceeding involving a challenge to the validity of the will that is sought to be propounded, then the issue before the Court would be a limited one: whether the proposed compromise benefits’ the infant.[8] The Court acknowledged that ‘There was (and is), in our view, a basis for the Court to be satisfied that the settlement is of benefit to Emily’.[9]
[8]Ibid [59].
[9]Ibid [62].
The Court concluded that whether the issue of approval could be divorced from questions concerning the validity of a will depended on the form of orders that are sought.[10] The orders that had been sought before the judge went beyond ‘mere approval’ and sought orders for the distribution of the estate by the respondent in her capacity as executor under the 2016 will but as modified by the terms of the compromise. The vice identified by this Court was that the orders, if made, would pre-empt the grant of probate and truncate the rights of others to challenge the grant.[11]
[10]Ibid [65].
[11]Ibid [70].
In reaching that conclusion the Court made two points of present significance.
First, the Court rejected the proposition that the approval sought was purely a matter between the sole beneficiary of the 2016 will (the respondent) and the applicant, and that it did not involve the respondent acting in her capacity as executor of the 2016 will. The Court regarded it to be clear that the proposed orders applied to the respondent in her capacity as executor of the 2016 will and required her to distribute the estate in that capacity.
The second point was based on Dowling. The Court said that the principles explained in Dowling prevented the Court from making orders requiring payments from the estate to Emily unless the ‘affected parties’ were given notice and joined to the proceeding.[12]
[12]Ibid [74].
In the result, the Court found no error in the judge refusing to make the orders sought in the summons. That was because, if made, those orders would have required the distribution of the estate in accordance with the compromise but in the absence of affected parties or without their consent.

The matter returns to the Trial Division

After the dismissal of the appeal, the applicant filed a second summons in the probate proceeding seeking an order pursuant to O 15 of the Rules that the compromise embodied in the ‘conditional terms of settlement be approved’. That application came before McMillan J and was determined on the papers. Once again, the judge refused to approve the compromise.[13] As already noted, it is from that order that the applicant seeks leave to appeal.
[13]Re Wood (No 2) [2023] VSC 163 (‘Second Reasons’).
In support of the summons the applicant relied on three affidavits of service[14] on the executors to the 2009 will (Mr and Ms Kendall) and Ms Heaft (the other residuary beneficiary under the 2009 will in additional to the applicant). The judge recorded the substance of the affidavit evidence as follows:
Specifically Ms Sarvanis deposes that McKean Park sent a letter dated 18 January 2021 to the executors of the 2009 will enclosing: the inventory of assets and liabilities dated 17 May 2017; a copy of the 2009 will; a copy of the 2016 will; the caveator’s grounds of objection dated 26 June 2017; the terms of settlement dated 24 October 2017; the primary judgment; the appeal judgment and a draft affidavit seeking consent to the intended compromise. The letter gave notice of the intended compromise and asked them to sign an affidavit confirming their consent to the intended compromise.
Mr Brett’s affidavit exhibits a letter dated 19 January 2021 in reply, by which the executors of the 2009 will said they did not consent to the proposed compromise, did not want anything from the estate and they did not wish to be contacted again.
Mr Bennett-Mitrovski deposes to unsuccessful attempts made to contact Ms Heaft on Facebook via Facebook messaging and exhibits an electoral [roll] search which confirms an address for her in South Australia. Ms Sarvanis deposes that on 18 January 2021 McKean Park sent by express post a letter to Ms Heaft to her address in South Australia, enclosing: the inventory of assets and liabilities dated 17 May 2017; a copy of the 2009 will; a copy of the 2016 will; the caveator’s grounds of objection dated 26 June 2017; the terms of settlement dated 24 October 2017; the primary judgment; the appeal judgment and a draft affidavit seeking consent to the intended compromise. The letter gave notice of the intended compromise and asked Ms Heaft to sign an affidavit confirming her consent to the intended compromise. Ms Heaft did not respond to McKean Park’s letter.[15]
[14]Affidavit of Nicola Sarvanis (an employee of McKean Park, solicitors for the applicant) affirmed 16 April 2021; affidavit of David Brett (a solicitor employed by McKean Park) sworn 16 April 2021; and affidavit of Tom Bennett-Mitrovski (a solicitor employed by McKean Park) affirmed 18 April 2021.
[15]Second Reasons, [20]–[22].
The judge set out the applicable principles by reference to Mortimer on Probate Law and Practice,[16] Re Levy [No 2],[17] In the Estate of Szylowicz[18] and Dowling. It will be necessary to return to those authorities shortly.
[16]Herbert C Mortimer and Hamish H H Coates, The law and practice of the Probate Division of the High Court of Justice: with appendices of statutes, stamp duties, rules, instructions and memoranda, fees, costs, forms, and precedents of pleading (Sweet & Maxwell, 2^nd ed, 1927) 610 (‘Mortimer on Probate Law and Practice’).
[17][1957] VR 662 (‘Re Levy [No 2]’).
[18](1978) 19 SASR 263 (‘In the Estate of Szylowicz’).
The judge said that the application for approval of the infant compromise and the grant of probate of the 2016 will are ‘interdependent under the terms of settlement’ and would require the court to be satisfied on the evidence that the 2016 will is valid.[19]
[19]Second Reasons, [38].
Next the judge noted that the affected persons, who included the executors of the 2009 will, Ms Heaft and the applicant were not parties to the proceeding. In respect of the applicant, the judge noted that as a caveator the applicant was not entitled to be added as a defendant unless she had shown a prima facie case to overturn the 2016 will.
The judge then turned to the terms of settlement, which she observed required the respondent:
(a)as executor, to administer the estate in a manner inconsistent with the 2016 will, that is, by varying the beneficial interests; and
(b)to realise funds from the real property or otherwise obtain a loan, given that the deceased’s personal estate comprised less than $20,000.[20]
[20]Ibid [47].
Based on those matters the judge concluded that it was ‘implicit’ in the orders sought that the 2016 will was valid.[21] Accordingly, the proposed order approving the compromise would amount to an impermissible compromise that determined the validity of the 2016 will, and require a payment to be made that was inconsistent with the 2016 will without the affected persons having been joined or providing their consent.
[21]Ibid [50].

Proposed grounds of appeal

There are three proposed grounds of appeal:
1. The trial judge erred in holding that the persons with an interest under the 2009 will needed to be notified before the compromise could be approved.
2. The trial judge erred in holding that the Court had to be satisfied that the 2016 will was duly executed, before the compromise could be approved.
3. The trial judge erred in holding that the Court could not approve the compromise because the applicant had not been joined as a party.

Submissions

Under cover of proposed grounds 1 and 2, the applicant submits that approval of the compromise was the only order sought and should be made because the settlement was for Emily’s benefit. Approving the settlement would not entail any judicial determination of the validity of the will and the obligations that were imposed under the settlement were conditional on probate being granted and the respondent being in a position to administer the estate in accordance with the terms of settlement and otherwise in accordance with the 2016 will.
Proposed ground 3 was concerned with the question whether O 15 was available in relation to a caveator. The ground was advanced against the possibility that the judge had determined that O 15 had no application unless the applicant had been joined as a party and this could not occur unless she had established a prima facie case that the 2016 will was invalid.
It is submitted that on its plain terms, r 15.08 is available where a person under a disability makes a claim in a proceeding. The applicant says this is broad enough to encompass non-parties, including a caveator in probate proceedings.
We note that the respondent did not contest the appeal.

Decision

With respect to the learned judge, her Honour mischaracterised the order that was being sought and that led her to erroneously refuse to approve the compromise.
The obligations imposed on the respondent to pay the settlement sum and otherwise administer the estate in accordance with the 2016 will were conditional on the respondent obtaining a grant of probate on the 2016 will. In our view that represents the correct reading of the terms as a whole. As this Court observed in the Appeal Reasons, a feature of the Terms of Settlement was to bind the respondent in her representative capacity[22] and it was contemplated that apart from some specific terms, the estate would be administered under the 2016 will. For her part, the applicant agreed to withdraw the caveat, which to that point was the only known impediment to a grant of probate.
[22]As was expressly provided for in cl 4 of the Terms of Settlement.
Whether the conditions just identified would be fulfilled, and payment thereby become unconditional, could not be known at the time of settlement but, it must be thought, was highly likely. The executors of the 2009 will were on notice and wished to take no further part. The attempts to serve Ms Heaft were extensive and she had not responded to that notice or to the application for probate of the 2016 will. The sole beneficiary of the 2016 will was the respondent, who had agreed to the terms.
Approving the settlement turned on the sole question whether the settlement benefited Emily. It did not require the Court to resolve any question about the validity of the 2016 will or about the capacity of the respondent to enter into the Terms of Settlement. The fact that there may exist some doubt about whether the agreement would be performed, which in this case was theoretical at most, did not preclude a finding that the terms were in her best interests.

The question whether a conditional agreement is in the best interests of an infant depends on the particular circumstances. Here the agreement, albeit subject to the conditions we have identified, was plainly in Emily’s best interests. The estate was very modest in size. A challenge to the 2016 will on the basis of testamentary capacity would be an expensive exercise relative to the size of the estate. Such a challenge would have carried the risk that either the estate would be entirely exhausted by the process or, in the event the challenge was unsuccessful, may have led to adverse costs orders against the applicant’s litigation guardian. A confidential memorandum from counsel for the applicant amply supported the appropriateness of the settlement.
It is apparent that the judge considered that the court was being asked to go further than determining the question whether the settlement should be approved. That was not the case and the judge was in error to regard the approval sought as ‘implicitly’ determining the validity of the 2016 will.[23] Approval of the settlement would not have had any effect, directly or indirectly, on the different question as to whether the 2016 will was valid. As the Appeal Reasons make clear, in determining the issues that a court is being invited to determine, the critical focus must be on the orders that are sought.[24] The first summons sought orders for the payment of money to the applicant and otherwise the distribution of the estate in accordance with the 2016 will consequent upon approval. Plainly that would have entailed the determination of issues that presupposed the validity of the will. The second summons did not. An order of the court was necessary in order to give effect to the settlement because the applicant is a minor, but such an exercise of judicial power is separate from any distribution of the estate.
[23]Second Reasons, [50].
[24]Appeal Reasons, [65], [68], [74], [78], all of which are predicated on the form of orders sought.
In the usual case there will be no occasion for an order of the court to be made outside of the determination of the probate proceeding, which will require as a first step the pronouncement of the will. However, in the circumstances of this case, the court was asked to exercise a distinct and important power designed to protect the interests of persons under a legal disability and that did not require any determination of the validity of the will or the authority of the respondent as executor. The power was anterior to and independent of the court’s powers to determine whether probate ought to be granted.
There are two passages in the reasons of Nettle J in Dowling that require mention:
[Counsel] contended that inasmuch as the settlement is conditional upon the executors later obtaining a grant of probate, the court will still have to decide whether the disputed will is valid and that the interests of absent beneficiaries will thereby be protected. But I do not find that submission to be particularly persuasive. It is one thing to decide that a will is valid. It could be quite another to determine that it is in order to compromise a claim of invalidity on terms that may allow something in favour of the claimant (and thereby vary beneficial interests). The court may well decide the former question when a grant of probate is sought. But other things being equal, there will be no call to deal with the latter; at least in Victoria. If [counsel] were correct about the construction which is to be placed upon s 19(1)(f), the compromise would be binding on absent beneficiaries even though the will were proved.
…
Certainly, there is no question that a probate proceeding may be compromised, or that parties to the probate proceeding may be bound by an order made in the proceeding as a result of the compromise, so long as the compromise is an order in relation to the issues before the court. Practically speaking there is no limit to the terms upon which parties may agree to compromise a probate proceeding and thus it has been said that parties may in effect even make a new will for the testator. An executor may agree that the will which he propounds shall be admitted to probate but that he will administer the estate in accordance with the provisions of a revoked will. But the court retains the power itself to decide what are the valid testamentary dispositions. Thus while a probate proceeding may be compromised and the parties to the proceeding and their privies may be bound by the compromise, they will be bound as parties or privies and not because of any power under s 19(1)(f) to impose a settlement upon them.[25]
[25][2003] VSC 454, [28], [31] (citations omitted).
The first paragraph might be taken to suggest that the court cannot make any order that proceeds on the assumption that a will was valid and leave that question for later consideration in a probate proceeding. The paragraph however must be read in the context of both the issues in the case and the second quoted paragraph.
In Dowling the executors sought a declaration that they had the power under s 19(1)(f) of the Trustee Act1958 to settle the probate proceeding, subject to two conditions. In order to grant the declaration the court would first have to be satisfied that the executors were, in fact and law, the executors of the estate, which in turn would require the court to determine the validity of the will which was the source of their authority. The declaration, if made, would not be made on an assumption, but would carry with it the determination by court order of that anterior question. Seen that way, it was no answer to say that the issue might be reconsidered later in the probate proceedings. Ultimately, the proposed declaration would determine the question of validity and the reasoning is consistent with this Court’s reasoning in the Appeal Reasons.
It will be recalled that in the Appeal Reasons this Court upheld the judge’s refusal to make orders on the first summons because they sought, in terms, the administration of the estate. Those orders, if made, would have determined any legal question concerning the validity of the will and the title of the respondent to the estate.
It follows that the first paragraph from Dowling is not relevant to the present circumstances.
The second paragraph is important. In it, Nettle J reinforced the point that a probate proceeding may be compromised. When and how the compromise is reached may be important. Prior to the grant of probate, a party to a settlement (and their privies) may enter into a binding settlement even though the validity of the will may remain in issue. Mortimer on Probate Law and Practice, Re Levy [No 2], In the Estate of Szylowicz and Dowling all either state or assume that a probate proceeding in which the validity of a will is in issue can be compromised on terms binding on the parties to that compromise prior to probate being granted.
For completeness we note that because the order sought did not trench upon the validity of the will or the authority of the respondent, there was no need for an affected person to consent or be joined as a party. In any event we are satisfied that all affected persons under the 2009 will and the 2016 will are on notice. In the event that the caveat is withdrawn there would be no occasion to join any of the persons named in the 2009 will in the absence of a claim made by one or more of them that challenges the 2016 will.
Finally, it is necessary to address ground 3. We do not understand the judge to have determined this question adversely to the applicant, although her Honour was of the view that in order to determine the validity of the 2016 will the applicant would need to be joined as a party, which she considered could only occur by showing a prima facie case. Given that we are being asked to exercise the power in r 15.08 to approve the settlement, we should first satisfy ourselves that it is available.
In our opinion, the lodgement of the caveat constituted the making of a claim in a proceeding for the purpose of r 15.08. Accordingly that claim could only be compromised with the approval of the court. The language of r 15.08 is broad, its purpose is protective and there is no reason to read it down. The practice that a caveator will generally not be permitted to become a party in order to challenge a will in the absence of a prima facie case is directed to a different issue, namely the protection of an estate from baseless claims.[26] That principle does not call for a narrow reading of r 15.08.
[26]Gardiner v Hughes (2017) 54 VR 394, 417–18 [93]–[95]; [2017] VSCA 167.

Conclusion

For these reasons we granted the application for leave to appeal, allowed the appeal and approved the settlement.
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[2023] VSCA 274

9 November 2023