O'Connor v James
[2019] VSCA 265
•20 November 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0139
| KYLIE MAREE O’CONNOR (in her capacity as litigation guardian for EMILY MAREE O’CONNOR, an infant) | Applicant |
| v | |
| SHANDEL LEA JAMES | Respondent |
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| JUDGES: | TATE, KYROU and EMERTON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 6 September 2019 |
| DATE OF JUDGMENT: | 20 November 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 265 |
| JUDGMENT APPEALED FROM: | Re Wood [2018] VSC 597 (McMillan J) |
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SUCCESSION LAW — Compromise of a probate proceeding — Application for approval of compromise on behalf of a minor — Minor a beneficiary under penultimate will — Minor objected to grant of probate for final will alleging that deceased lacked testamentary capacity — Terms of settlement executed prior to hearing of objection — Whether contested probate proceeding can be compromised where validity of the will in issue — Executors and other residuary beneficiary of penultimate will to be given notice of application for orders — Supreme Court (General Civil Procedure) Rules 2015 r 54.02(2)(c)(i) inappropriate where identity or authority of executor in issue — Dowling v St Vincent de Paul Society Victoria Inc [2003] VSC 454, applied — Supreme Court (General Civil Procedure) Rules 2015, r 15.08, r 54.01, r 54.02(2)(c)(i) — Trustee Act 1958, s 19(1)(f).
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J Rizzi | McKean Park Lawyers |
| For the Respondent | No appearance | No appearance |
| Amicus Curiae | Mr D Farrands |
TATE JA
KYROU JA
EMERTON JA:
Introduction
The applicant seeks leave to appeal from a decision of a judge in the Trial Division dismissing her application for approval of an infant compromise in a contested probate proceeding.
The probate proceeding concerns the estate of Dennis Edward Wood, who died on 24 January 2017 aged 86 leaving a property at 17 Farnsworth Street, Eaglehawk (‘Eaglehawk property’) and a small sum of money in the bank.
The deceased’s last will is dated 29 June 2016 (‘2016 will’). The deceased’s penultimate will is dated 4 August 2009 (‘2009 will’). The applicant is the litigation guardian of a minor (‘Emily’) who is a beneficiary under the 2009 will but not the 2016 will. Emily is the grand-niece of the deceased.
The 2009 will appointed the deceased’s niece, Kathleen Kendall, and her husband, Gordon Kendall, as executors and trustees of his estate. The deceased left ‘any tools and trailers owned at the time of [his] death’ to Gordon Kendall and ‘any car that [he might] own at the time of [his] death’ to Kathleen Kendall. The deceased’s sister-in-law, Lillian Elsie Geff, was permitted to remain as sole occupant of the Eaglehawk property until her death or departure for other reasons.[1] Pursuant to the 2009 will, when the Eaglehawk property was sold, the remaining monies were to be distributed equally between Emily and another grand-niece, Alana Heaft.
[1]In fact, Lillian Geff pre-deceased the testator.
The 2016 will is in entirely different terms. It appoints the deceased’s ‘good friend’, the respondent, as his executor and leaves the entire estate to her, with a gift over to the respondent’s daughter. The respondent was a neighbour of the deceased.
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, 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.[2]
[2]A number of the assets referred to in the 2009 will are not listed in the inventory of assets. The testator’s car was transferred to the respondent prior to his death and did not form part of his estate; it is not known what happened to any ‘tools and trailers’ owned by the deceased at the time of his death, but none appear in the inventory of assets.
On 29 May 2017, the Registrar of Probates gave the applicant notice of the respondent’s application for probate of the 2016 will.
In or about June 2017, the applicant filed her grounds of objection to the grant of probate. The grounds are that the deceased lacked testamentary capacity and did not know and approve of the contents of the 2016 will. The applicant alleges that the deceased lacked testamentary capacity when he made the 2016 will because he was elderly, experiencing end stage renal failure and in a state of physical and mental decline. Moreover, it is alleged that the 2016 will departed entirely from the 2009 will, the respondent had influence and authority over the deceased at the relevant time and the deceased changed his will to favour the respondent.
After the applicant’s grounds of objection were received by the respondent, the parties endeavoured to resolve the matter by an exchange of letters and telephone calls between their solicitors. On 24 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.
In short, the settlement provides for the applicant to withdraw the caveat in return for a payment of $20,000 from the estate and a second hand motor vehicle. The motor vehicle is not listed on the inventory of assets of the estate as it was transferred to the respondent before the death of the testator.
On 17 January 2018, the applicant filed a summons in the probate proceeding, seeking an order that, pursuant to O 15 of Chapter 1 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’), the compromise embodied in the Terms of Settlement be approved. Specifically, the summons sought orders that the applicant be joined as a defendant in the probate proceeding, that the compromise be approved, and that 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.[3]
[3]We note that the orders sought vary the mechanism for payments to be made to Emily from what was provided for in the Agreed Distribution.
The summons seeking approval of the settlement was supported by the affidavit of James Daly, affirmed on 17 January 2018, which exhibited counsel’s advice regarding the merits of the proposed compromise for Emily.
However, on the return of the applicant’s summons on 16 March 2018, the judge raised a number of procedural and substantive issues affecting the approval of the compromise, including the threshold issue as to whether the probate proceeding could be settled at all prior to a grant of probate.
On 7 May 2018, the applicant filed a written submission addressing the issues raised by the judge and submitting, among other things, that it was common practice to settle proceedings concerning the validity of a will prior to the grant of probate. Usually such a compromise was premised upon the caveator withdrawing his or her caveat to allow the propounder of the will to complete the application for a grant to the Registrar of Probates. It was submitted that the mechanism for settlement in the probate proceeding followed this usual practice, that the Court’s power to approve the compromise came from r 54.02(2)(c)(i) of the Rules rather than from the grant of probate and that the Court could approve the compromise prior to the grant of probate.
By email dated 16 May 2018, the associate to the judge informed the parties that the judge was unable to consider the compromise until a grant of probate was made. Once a grant was made, any terms of compromise that had been properly executed by the parties with standing to do so could be brought before the Court for approval under r 54.02(2)(c)(i) of the Rules in a separate proceeding. Rule 54.02 of the Rules allows a proceeding to be brought for any relief that could be granted in an ‘administration proceeding’, being ‘a proceeding for the administration of an estate or the execution of a trust under the direction of the Court’.[4]
[4]Supreme Court (General Civil Procedure) Rules 2015 r 54.01.
On 29 May 2018, the applicant filed further submissions addressing the issues raised by the email, submitting that if the applicant were joined as a defendant to the probate proceeding, r 15.08 of the Rules could be used to approve the compromise. The submission argued that the decision of Nettle J in Dowling v St Vincent de Paul Society Victoria Inc[5] provided a way forward.
[5][2003] VSC 454 (‘Dowling’).
On 12 June 2018, the parties were informed that the judge would not make orders approving a compromise in circumstances where a grant of representation had not been made in the deceased’s estate.
On 18 June 2018, the respondent requested reasons for the decision. The judge published her reasons for refusing to approve the compromise on 9 October 2018.[6]
[6]Re Wood [2018] VSC 597 (‘Reasons’).
Judge’s Reasons
In the Reasons, the judge noted that pursuant to r 15.08 of the Rules, where a person under a disability is a party to a proceeding or has an interest affected by the proceeding, any settlement must be subject to, and then approved by the Court in order to be valid. When the Terms of Settlement were executed, the applicant was not a party to the proceeding. The compromise was reached before a determination of the applicant’s prima facie case to challenge the validity of the 2016 will. In seeking to challenge the 2016 will, the applicant, as caveator, bore the initial evidentiary burden of establishing a prima facie case.[7]
[7]Reasons [27].
In this context, the judge observed that the particulars in the grounds of objection included some facts and many broad allegations without the necessary causative link between the allegations and the grounds relied on to challenge the 2016 will. This necessitated a hearing of the applicant’s prima facie case to determine whether she should be joined as a party to the probate proceeding, as a caveator will not be joined as a defendant to a probate proceeding unless the particulars provide a sufficient factual basis to support the grounds of objection.[8]
[8]Reasons [28].
It is to be inferred from this part of the Reasons that the judge declined to approve the settlement on the ground that the application was premature and the applicant needed first to establish a prima facie case in order to be joined as a party to the probate proceeding.
The judge then identified three further matters preventing the approval of the proposed compromise.
First, the applicant had not notified the persons with an interest in the proceeding, namely, the executors and the other residuary beneficiary of the 2009 will, of her challenge to the 2016 will or the proposed compromise.[9] Secondly, there was a problem with the terms of the compromise so far as the assets of the estate were concerned as there was no evidence that the motor vehicle was an asset of the estate.[10] Thirdly, it remained in issue whether a contested probate proceeding could be compromised where the validity of the will was in issue.[11] The judge observed that the applicant relied on Dowling as support for an executor having power pursuant to s 19(1)(f) of the Trustee Act 1958 to enter into a compromise in anticipation of probate being granted, but stated that her understanding of the law in Dowling was that there was no power to compromise a proceeding contesting the validity of a will.[12]
[9]Reasons [29].
[10]Reasons [30].
[11]Reasons [31].
[12]Ibid, referring to GE Dal Pont & KF Mackie, Law of Succession (LexisNexis Butterworths, 2nd ed, 2017) 457 [13.29].
The judge rejected the applicant’s submission that the validity of the 2016 will was an issue to be ‘left to the Registrar of Probates, after the caveator’s caveat is withdrawn’, stating that the Court does not ‘rubber stamp’ a grant of probate, or any such changes to a testator’s dispositions that an administrator, executor, beneficiary or any other party may desire. The judge concluded:
By seeking the approval of the [Terms of Settlement], the [applicant] is requesting the Court to approve a distribution of the deceased’s estate that is beyond the power of the [respondent] 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.[13]
[13]Reasons [33], referring to Robinson v Jones (No 3) [2015] VSC 508 [36].
Proposed grounds of appeal
The applicant has raised four proposed grounds of appeal:
1.The primary judge erred in failing to approve the proposed compromise in circumstances where all persons affected by the compromise consented.
2.The primary judge erred in failing to approve the compromise in circumstances where:
(a)an infant by her litigation guardian filed a caveat in a probate proceeding;
(b) the claim was sought to be compromised; and
(c)the proposed compromise was in the best interests of the minor.
3.In dismissing the application for compromise approval, the primary judge took into account two irrelevant considerations, being:
(a)the other residuary beneficiary under the 2009 Will had an interest in the compromise approval application; and
(b)the deceased’s former vehicle was part of the proposed compromise, but not an asset of the estate.
4.In dismissing the application for compromise approval, the primary judge failed to give effect to the overarching purpose of the Civil Procedure Act 2010 to facilitate the just, efficient, timely and cost-effective resolution of the dispute, in that the decision of the primary judge may lead to a multiplicity of proceedings.
The respondent did not participate in the appeal. However, in addition to the submissions of the applicant, the Court had the considerable benefit of submissions from Mr Farrands of counsel as amicus curiae on the first ground of appeal, which is closely related to the third ground.
Grounds 1 and 3
The judge gave as a reason for refusing to approve the compromise before any grant of probate her understanding from Dowling that there was no power to compromise a proceeding contesting the validity of a will. Both the applicant and Mr Farrands relied upon the decision of Nettle J in Dowling, but for different purposes and to achieve opposite outcomes.
It is convenient, therefore, to set out in some detail the facts of that case and Nettle J’s reasoning.
Dowling
In Dowling, the Court was asked to make a declaration that the executors of an estate had power pursuant to s 19(1)(f) of the Trustee Act to compromise a probate proceeding. Section 19(1)(f) of the Trustee Act provides that a trustee may, if and as he or she thinks fit —
(f)compromise, compound, abandon, submit to arbitration, or otherwise settle any debt, accounts, claim or thing whatever relating to the testator’s or intestate’s estate or to the trust;
Language in an equivalent English provision was said to be ‘very wide’ in Re Earl of Strafford, deceased.[14]In that case, in the English Court of Appeal, Buckley LJ, with whom Goff LJ agreed, said:
[I]t seems to me to be advantageous that trustees should enjoy wide and flexible powers of compromising and settling disputes, always bearing in mind that such a power, however wide, must be exercised with due regard for the interests of those whose interests it is the duty of the trustees to protect. I see nothing in the language of the section to restrict the scope of the power. Accordingly, any restriction must be found if anywhere, in the general law.[15]
[14][1980] 1 Ch 36, 47.
[15]Ibid.
Nettle J held that despite what had been said about the breadth of s 19(1)(f), it does not empower an executor to compromise a probate proceeding in which the validity of the will is contested. An attack upon the validity of a will is properly to be characterised as a claim relating to the executor’s entitlement to probate or as a claim relating to the validity of the last will, and as such it is outside the reach of the section.[16] The words in s 19(1)(f), ‘claims relating to … the estate’ are limited to claims upon or against the estate — be they from the outside world or as between the beneficiaries — and do not include proceedings to determine the title of the executor or trustee.[17]
[16]Dowling [2003] VSC 454 [20].
[17]Ibid [21].
The facts in Dowling were as follows.
In her last will, the testator made a number of specific legacies and directed that one-half of her residuary estate be paid to some of her relatives as tenants in common in equal shares and the other half of her residuary estate be paid to five named charities, one of which was a defendant in the probate proceeding. MC and his wife VC were residuary beneficiaries under the last will and stood to benefit in the event that the last will was proved, but they were also residuary beneficiaries under an earlier will (the penultimate will) and stood to benefit more under the penultimate will than under the last will. They contested the last will on the ground of testamentary incapacity. MC was joined as a defendant to the probate proceeding.
The probate proceeding was sent to mediation and the executors and MC reached agreement to settle, subject to two conditions:
(a) that the plaintiffs (the executors) ultimately obtain a grant of probate of the last will; and
(b) that the Court make orders in a separate proceeding confirming that the executors had power under s 19(1)(f) of the Trustee Act to enter into the agreement in anticipation of the grant of probate.
The proceeding in Dowling was the separate proceeding by which the executors sought a declaration that they had power pursuant to s 19(1)(f) of the Trustee Act to compromise the probate proceeding prior to the grant of probate. They also sought an order that the defendant represent all residuary beneficiaries under the will so as to bind all residuary beneficiaries to the terms of the declaration.
Nettle J therefore considered the power to compromise a probate proceeding in the context of a settlement between the executors of the last will and one of a number of beneficiaries of the last will who was also a beneficiary of the penultimate will and who contested the validity of the last will. Specifically, the question before the Court was whether s 19(1)(f) of the Trustee Act authorised the executors to enter into the compromise with MC in anticipation of a grant of probate.
Nettle J accepted that executors derive their title from the will by which they are appointed[18] and confirmed that an executor may do all the acts which are an incident of his or her office even before the will is proved.[19] Nonetheless, he held that s 19(1)(f) of the Trustee Act does not authorise an executor to compromise a probate proceeding in which the validity of the will is contested.[20] The first and principal function of the executor is to carry out the wishes of the testator as expressed in the will and thereby protect the interests of the beneficiaries as determined by the testator.[21] Nettle J found unpersuasive the submission, later echoed by the applicant here, that concerns for the interests of the beneficiaries were misplaced because, as the settlement was conditional upon the executors later obtaining a grant of probate, the Court would still have to decide whether the disputed will was valid and the interests of the absent beneficiaries would thereby be protected.[22] He distinguished between (a) a determination that a will is valid; and (b) a determination 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 the beneficial interests, stating that the Court may well decide question (a) when a grant of probate is sought but, other things being equal, there will be no call to deal with question (b).[23]
[18]Ibid [26].
[19]Ibid [24].
[20]Ibid [27].
[21]Ibid.
[22]Ibid [28].
[23]Ibid, citing Re Levy [1957] VR 622, 666.
However, Nettle J recognised that a probate proceeding may be compromised with the consent of all affected beneficiaries. He said:
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 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 on them.[24]
[24]Ibid [31].
Nettle J therefore concluded that in order that a compromise be binding on absent beneficiaries, it would be necessary to make ‘all affected beneficiaries’ parties to the proceeding.[25] He concluded that s 19(1)(f) of the Trustee Act did not authorise an executor to compromise a dispute as to the validity of a will without the consent of affected parties or an order of the court that binds them.[26]
[25]Ibid [32].
[26]Ibid [37].
Submissions
The applicant relied on the decision in Dowling to advance the proposition that where all persons interested in a contested probate proceeding consent to a compromise, a binding compromise may be reached. According to the applicant, the judge misapplied Dowling when she determined that a contested probate proceeding cannot be compromised where the validity of the will remains in issue, notwithstanding that all persons affected by the compromise have consented to the compromise. She submitted that while s 19(1)(f) of the Trustee Act does not authorise a person or representative to impose a compromise upon interested persons without their consent, that is not what occurred here. The respondent is the executor of the 2016 will and also the sole beneficiary under the will. As the sole beneficiary, the respondent is able to compromise the probate proceeding, even where the validity of the will remains in issue.
According to the applicant, the other beneficiary of the 2009 will, Alana Heaft, has had the opportunity to challenge the grant of probate for the 2016 will: the application for probate was advertised on the Supreme Court Probate on-line advertising system on 23 February 2017 and, as a relative of the deceased, Ms Heaft would have been aware of his death. The applicant submits that only if Ms Heaft sought to challenge the validity of the 2016 will would she become interested in the approval application and affected by the proposed compromise. Ms Heaft has not challenged the application for probate. As a result, so the applicant contends, the applicant and the respondent are the only two persons affected by the compromise. They are therefore in a position to settle the applicant’s claim between them, notwithstanding that the validity of the 2016 will remains in issue.
The applicant characterises as misconceived the judge’s holding that it was beyond the power of the respondent as executor to enter into the compromise because she had not yet obtained a grant of probate for the 2016 will. The applicant submits that, in general, an executor obtains authority to act in relation to the estate from the will, not from any grant of probate.[27] It follows that the executor’s power to enter into a compromise comes from the will itself, rather than from the grant of probate. If the 2016 will confers on the respondent the power to compromise a claim on the estate and the respondent has the consent of those affected by the compromise, then she has power to settle with the applicant before the grant of probate.
[27]Chetty v Chetty [1916] AC 603, 608–9; Dowling [2003] VSC 454 [18], [26]; GE Dal Pont & KF Mackie, Law of Succession (LexisNexis Butterworths, 2nd ed, 2017) 381 [11.79]; Ross A Sundberg, Griffith’s Probate Law and Practice in Victoria (The Law Book Company, 3rd ed, 1983) 10.
The applicant points out that the settlement is not expressed to be conditional upon a grant of probate but is subject only to the Court approving the compromise on behalf of Emily. The Terms of Settlement contemplate that once the compromise is approved, the applicant will withdraw her caveat and the respondent’s application for probate will proceed in the normal way, that is, for a grant in common form, relieved of the applicant’s challenge to its validity. As a result, so the applicant contends, the approval of the compromise in no way imposes upon the Court a requirement to determine the validity of the 2016 will.
In his oral submissions, counsel for the applicant emphasised the distinction between a grant of probate in ‘common form’ and a grant in ‘solemn form’, and submitted that only if the Court were asked to make a grant of probate in solemn form would the beneficiaries of the 2009 will be affected. As the Court is only asked to approve the withdrawal of a caveat, the beneficiaries of the 2009 will are not affected. The approval of the compromise focusses on the interests of Emily and does not involve the Court determining that the 2016 will is the will that ought to be propounded. The proposed compromise is only binding on the applicant and the respondent.
As to ground 3, the applicant submits that Ms Heaft has no interest in the compromise approval and that her interest is therefore not a relevant consideration. She submits that it remains open to Ms Heaft to challenge the validity of the 2016 will in order to become interested in the probate proceeding, but she has not sought to do so. Because she is still able to file her own caveat and grounds of objection, the compromise does not derogate from her current position. As for the motor vehicle, it was transferred to the respondent shortly before the testator’s death. It was not an asset of the estate and the respondent was entitled to deal with it as she chose.
Mr Farrands, as amicus curiae, submitted that the primary judge was correct to refuse to approve the compromise, because the beneficiaries of the 2009 will were not given notice of the compromise.
Mr Farrands submitted that in light of the challenge to the validity of the 2016 will, the critical issue is the identification of the persons with an interest in its validity. The judge considered the executors and the beneficiaries of the 2009 will to be persons interested in the validity of the 2016 will. According to Mr Farrands, Dowling is authority for the proposition that compromises that vary beneficial interests and/or affect ‘absent beneficiaries’ are not authorised by s 19(1)(f) of the Trustee Act and that the consent of affected parties is required.[28] In Re Levy[29] the Court described the processes by which beneficiaries of an earlier will should be notified of a challenge to a later will.[30]
[28]Ibid [32].
[29][1953] VLR 652.
[30]Ibid 661.
Mr Farrands submitted that, in substance, the application to approve the compromise is an application to propound the 2016 will in solemn form. If the validity of a will is called into question, then it is necessary to consider whether the will should be propounded in solemn form. On this basis, all potential beneficiaries should be notified, including the beneficiaries under the 2009 will.
Furthermore, Mr Farrands submitted, the compromise cannot be given effect unless the executor is a party to it, qua executor. Two beneficiaries (even if they are the only beneficiaries) cannot adjust the assets of the estate among themselves unless they do so through the executor. In this case, in light of the challenge to the validity of the 2016 will, until the grant of probate is obtained it cannot be known with certainty that the named executor is the testator’s personal representative. If the challenge to the validity of the 2016 will is successful, the executor — as the party purporting to compromise the proceeding — has no power to treat with the assets of the estate. Had the two wills named the same person as executor, this might not have presented a difficulty, but that is not the case. Only if the executors and the beneficiaries are one and the same can the distribution of the assets of the estate be adjusted without a grant of probate.
It follows, Mr Farrands submitted, that when the respondent, as the primary beneficiary under the 2016 will, entered into the settlement, she also entered into it in her capacity as executor. As executor, the only power that she could have relied upon to enter into the compromise was the power conferred by s 19(1)(f) of the Trustee Act. It is therefore not possible to put that provision and its limitations to one side.
According to Mr Farrands, this is the effect of the decision in Dowling. If the validity of a will is challenged and it is therefore uncertain who is the executor, it must follow that there is no power to deal with the estate. In this case, two people are attempting to treat with the estate without other potential beneficiaries knowing about it and there is a question mark as to who is the person at law who can deal with the assets of the estate. That is why notice to the parties interested in the 2009 will is required. In this context, Mr Farrands asked rhetorically:
How can it be that the [respondent], as the principal beneficiary of the 2016 will, can keep the lion’s share of that will, carving off a piece for only one of the beneficiaries of the 2009 will and then say, ‘by the way, after that is done, it is up to you to challenge the 2016 will because you may have rights under the 2009 will’?
Based on the argument made by Mr Farrands that ground 1 must fail, the interest of the other residual beneficiary of the 2009 will (Ms Heaft) is not an irrelevant consideration as asserted in ground 3.
Before turning to our analysis, we observe that in Re Irismay Holdings Pty Ltd,[31] Lee J took a broader view of the equivalent to s 19(1)(f), stating that no limitations can be implied into the section that do not arise from its language and that it is absurd to construe the section in a way that results in the existence of the trustee’s power to compromise being made to depend on the resolution of the very question which is sought to be compromised — such a conclusion would defeat the manifest purpose of the provision.[32] Nettle J referred to this passage but disagreed with it. None of the submissions before us urged us to follow Irismay Holdings.
[31][1996] 1 Qd R 172.
[32]Ibid 174-5.
Analysis
The applicant argued that her application to the Court in the probate proceeding was for a simple approval under r 15.08 of the Rules to compromise a claim made by a minor. As a result, the Court was only concerned to determine whether the compromise of the claim was for the benefit of the minor. Had the settlement not involved a minor, so it was contended, the approval of the Court would not have been required and the distribution of the estate in accordance with the 2016 will, as modified by the Agreed Distribution in the Terms of Settlement, would have flowed as a matter of course: the caveat would have been withdrawn, removing any existing challenge to the validity of the 2016 will; the probate application would have proceeded in the normal way before the Registrar of Probates; a grant of probate would have been made in common form; and the respondent, as executor, would have distributed the estate in accordance with the 2016 will as modified by the Agreed Distribution. None of this would have required the Court to adjudicate on the testamentary capacity of the testator or to make a determination about the validity of the 2016 will that was binding on the executors and beneficiaries of the 2009 will. They would retain their right to challenge the 2016 will.
So much may be accepted. It was submitted, correctly, that the only thing that has made an adjudication by a judge of the Court necessary in this case is the fact that the challenge to the 2016 will was brought on behalf of a minor and the approval of the Court is required by the Rules if a minor’s claim is to be compromised.
If the matter could be limited to the approval of an infant compromise, that is, if it 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 Emily.[33] The major consideration in an application under r 15.08 of the Rules is the degree to which the person under a disability is at risk that, if the proceeding goes to trial, the result will be less favourable than what is offered in settlement. In reaching its decision, the Court will attach significant weight to the opinions of the person’s legal advisers.[34]
[33]See, eg, Gillepie v Alberstein [1964] VR 749, 751-2.
[34]Re Barbour’s Settlement [1974] 1 WLR 1198.
In this case, the applicant filed an affidavit exhibiting the advice of counsel about the merits of the compromise. The memorandum of advice, dated 14 December 2017, concludes that the compromise is appropriate and in the best interests of Emily, having regard to the relevant factors: the size of the estate; Emily’s interest in the estate under the 2009 will; the amount and cost of the legal work that would be required to have her claim adjudicated by the Court; its prospects of success; and the potential costs consequences if the claim is unsuccessful. The memorandum concludes that the compromise is appropriate and in Emily’s best interests because:
(a) it provides [Emily] with a certain fixed sum of money;
(b)it saves the further costs [Emily] would have incurred in running the proceeding to mediation and then trial;
(c)it mitigates the risk that [Emily] might have been unsuccessful in the proceeding;
(d)it mitigates the risk of [Emily] paying [the respondent’s] costs of the proceeding.
In addition, we note that the judge had doubts about the strength of Emily’s claim, observing that it failed to articulate the necessary causative link between the allegations and the grounds relied upon to challenge the 2016 will.[35]
[35]Reasons [28].
There was (and is), in our view, a basis for the Court to be satisfied that the settlement is of benefit to Emily.
If the Court’s inquiry is confined to whether Emily will benefit from the compromise, the persons interested in the 2009 will (its executors and the other residuary beneficiary) will have nothing to say. They are not in a position to make submissions on the benefit of the settlement to Emily. There is no reason to require them to be given notice of the approval application to enable them to be heard on the question of benefit to Emily arising from the compromise.
The question is whether the Court’s inquiry is so limited.
Deciding whether the settlement benefits Emily for the purposes of r 15.08 of the Rules does not necessarily require the Court to make a determination about the validity of the 2016 will, depending on the form of orders sought. As discussed, the task is to assess the risk to the person under a disability in proceeding with the claim. In considering this risk, the Court will have to have regard to the merits of the claim, which, in this case, is founded on the proposition that the 2016 will is invalid by reason of testamentary incapacity. However, the Court is not required to make any definitive findings about the capacity of the testator in order to assess the risk to Emily.
Furthermore, as the applicant submitted, the 2016 will remains amenable to challenge by others both before and after the grant of probate, notwithstanding that the grant of probate will be proof of the validity of the will that the respondent seeks to propound.[36] Nothing in the approval process under r 15.08 of the Rules involves or requires the grant of probate in solemn form. If the caveat is withdrawn as proposed, the respondent’s application for probate will proceed in common form. A grant of this kind is generally made by the registrar (in Victoria and elsewhere) pursuant to a delegated power.[37] This type of grant is by its nature a default or interlocutory order and it is thus revocable on application by a person whose interests are adversely affected by the grant.[38]
[36]Re Sanders [2016] VSC 694 [72] citing Whicker v Hume [1858] EngR 991, 7 HLC 124 and Ex parte Brown (1869) 8 SCR 332. 1. To this end, s 92(1)(b) of the Evidence Act 2008 provides that a grant of probate of a will is evidence of the due execution of the will.
[37]See eg, Administration and Probate Act 1958 s 12.
[38]Re Egan (deceased) [1963] VR 318, 320.
Although it was suggested that the caveat and grounds of objection filed by the applicant somehow transformed the respondent’s application for probate of the 2016 will into an application for a grant in solemn form, we do not consider that the approval of the compromise per se would have this effect. Subject to what we say below, it would remain open to the executors and the other beneficiary of the 2009 will to contest the validity of the 2016 will.
However, the applicant seeks orders that go well beyond mere approval of the settlement for Emily. She seeks orders that themselves effect the distribution of the estate by the respondent, in her capacity as executor of the 2016 will. Thus, it is proposed that the Court order the respondent, as the plaintiff in the probate proceeding, to realise the assets of the estate and pay $11,075.30 to the Senior Master of the Court to be invested for the benefit of Emily and $8,924.70 to her lawyers.
In other words, the proposed orders provide for the distribution of the estate by its putative executor. They require ‘the plaintiff’ — as the person who seeks to propound the 2016 will — to make payments intended to implement the Terms of Settlement, which are expressed to relate to the administration of the estate.
The settlement is an agreement entered into by the executor of the 2016 will providing for the distribution of the assets of the estate. The proposed orders assume that the executor of the 2016 will is the person entitled to administer the estate by distributing its assets. Even though the executor and the sole beneficiary of the 2016 will are the same person, and we are told that she consents to the re-distribution of the assets of the estate in her capacity as the sole beneficiary, the orders that the Court is asked to make in order to approve the settlement are directed to her qua executor under the 2016 will and require her in this capacity to distribute the assets of the estate otherwise than in accordance with either of the testator’s wills. The orders, if made, would pre-empt the grant of probate and truncate the rights of others to challenge the grant.
Accordingly, we reject the proposition that the approval sought is purely a matter between the sole beneficiary of the 2016 will (the respondent) and the applicant, and that it does not involve the respondent acting in her capacity as executor of the 2016 will. In our view, it is clear that the proposed orders apply to the respondent in her capacity as executor of the 2016 will and require her to distribute the estate in that capacity.
As discussed, in Dowling Nettle J concluded that in order that a compromise be binding on absent beneficiaries, it would be necessary to make ‘all affected beneficiaries’ parties to the proceeding.[39] Section 19(1)(f) of the Trustee Act did not authorise an executor to compromise a dispute as to the validity of a will without the consent of affected parties or an order of the court that binds them.[40] A court order will not bind absent beneficiaries unless joined as parties to the proceeding. This would require the giving of notice as contended by Mr Farrands.
[39]Ibid [32].
[40]Ibid [37].
We consider that we should adopt the reasoning of Nettle J in Dowling to the following extent. Although the executor of the 2016 will has not made application for approval of the compromise (the application to the Court having being made on behalf of Emily only), in the absence of a court order binding on all ‘affected parties’, the proposed compromise requires the executor to exercise the power conferred by s 19(1)(f) of the Trustee Act in the circumstances of a challenge to the validity of the 2016 will and therefore also to her authority as executor. Until the challenge is withdrawn, or a grant of probate obtained, the respondent’s authority as executor is compromised. What appears at first blush to be a relatively simple application requiring the Court to consider only the position of the minor, in fact carries with it a raft of assumptions about the availability of powers to distribute the estate that cannot, on a proper analysis, be sustained. These difficulties are highlighted by the form of the orders sought in the summons, which themselves effect the distribution of the estate through the agency of the respondent as executor.
In our view, if the Court is to make orders requiring payments from the estate to Emily, ‘affected parties’ must be given notice of the proposed orders and joined as defendants to the proceeding so that they are bound by the orders. The option of obtaining the consent of affected parties to the compromise has been overtaken by the form of the orders that are sought.
The question that is not expressly answered in Dowling is who the ‘affected parties’ are where there is a contest between a last and a penultimate will. In Dowling, MC, who was a beneficiary under both wills, was on notice and obviously consented to the compromise. It is clear that the other beneficiaries of the last will needed to be given notice of the proposed adjustment to the dispositions in the last will and that their consent was required in the absence of an order of the Court. The question remains whether the beneficiaries of the penultimate will were entitled to the same consideration. We consider it to be tolerably clear from Nettle J’s reasoning that they were.
We are persuaded that the same requirement arises in this case, where the Court is asked to make orders distributing the assets of the deceased’s estate assuming the validity of the 2016 will, prior to any grant of probate. Accordingly, we accept Mr Farrands’ submission that the executors and the other beneficiary of the 2009 will should be given notice of the approval application and the proposed orders with a view to being joined as parties to the proceeding.
We are mindful that the Supreme Court (Administration and Probate) Rules2014 contain a regime for making applications for probate which includes a notice requirement and the caveat procedure. We do not wish to graft onto these requirements a further procedural requirement that is applicable more generally than in the circumstances of this case, where the Court is asked to make orders distributing the assets of the estate via its putative executor prior to the grant of probate in circumstances where the validity of the will pursuant to which the distribution is proposed to be made is challenged.
However, we consider that the Court could not make the orders sought without notifying the persons interested in the 2009 will and, if appropriate, joining them as defendants to the probate proceeding. The orders sought affect the rights of persons interested in the 2009 will, who are entitled to challenge the validity of the 2016 will, both up to the grant of probate and beyond.
We acknowledge that this requirement makes it cumbersome for the parties to the compromise to give effect to it, and represents a significant burden having regard to the relatively small size of the estate. We accept that there are real benefits to the timely compromise of disputes over testamentary dispositions and that compromises are frequently entered into at an early stage to the benefit of all concerned. So much was recognised by Jacobs J in In the Estate of Szylowicz,[41] where he referred to the following passage from the second edition of Mortimer, Probate Law and Practice, published in 1927:
As soon as the writ has been issued but not before, the parties may come to terms, and these terms may be filed and made a rule of the Court, binding upon the parties to the compromise and enforceable in the same way as any other order of the Court. But if a compromise is to be made a rule of the court, the terms of the compromise must contain an agreement to that effect.
There is practically no limit to the terms upon which parties may agree to compromise: they may in effect make a new will for the testator. Thus an executor may agree that the will he propounds shall be admitted to probate, but that he will administer the estate in accordance with the provisions of a revoked will; or where a will has been invalidly executed, the persons interested on an intestacy may agree that the will shall be pronounced against, but that they will administer the estate in accordance with its provisions; and, provided all parties interested are of full age and are parties to the compromise, such terms would be made a rule of the Court.
But if it is part of the terms of the compromise that a will shall be pronounced for or pronounced against, the Court must be satisfied by evidence that the will was duly executed, or is invalid, before it will pronounce its decree.[42]
[41][1978] SASR 263.
[42]Ibid 269 - 70.
The last paragraph qualifies the power to approve a compromise. Although it is not part of the Terms of Settlement that the 2016 will be ‘pronounced for’, it is implicit in the orders sought that the 2016 will is valid and that the respondent is the executor authorised to administer the estate, notwithstanding that the challenge to the will’s validity is extant.
In our view, grounds 1 and 3 are not made out. The judge did not err in declining to approve the compromise, albeit that the respondent ‘consented’ to the Agreed Distribution. Furthermore, the interest of the other residuary beneficiary of the 2009 will was not an irrelevant consideration.
The fact that the deceased’s former vehicle was not part of the estate was not a reason to dismiss the application to approve the compromise, but this was not a material factor in the judge’s decision.
Grounds 2 and 4
Grounds 2 and 4 assert, in tandem, that the judge should have approved the compromise under one or other of the powers available to the Court to approve a compromise and that it is contrary to the overarching purpose of the Civil Procedure Act 2010 to require a multiplicity of proceedings in order to resolve the issues thrown up by the approval application, as suggested in the Court’s email (recited in the Reasons[43]).
[43]At [21].
The applicant relied on her written submissions in relation to grounds 2 and 4. These submissions largely address the judge’s first reason for refusing to give approval to the infant compromise, which was that the applicant was not a party to the probate proceeding.
According to the applicant, the judge had power to approve the compromise under r 15.08 of the Rules, even though the applicant had not been formally joined as a party to the probate proceeding, because the applicant had ‘an interest affected by the proceeding’ for the purposes of r 15.08. Alternatively, the applicant submitted that the Court had the power to join her to the probate proceeding and should have done so if joinder stood as an impediment to the approval of the compromise.
The applicant submits that r 15.08 of the Rules may apply to a party to a proceeding or to a person who has an interest affected by the proceeding. The phrase ‘where in a proceeding a claim is made’ is wide enough to encompass a claim challenging the validity of a will. She argues that in Re Gooriah,[44] McMillan J approved a compromise of a contested probate proceeding that affected an infant, prior to a grant of probate and used r 15.08(1).[45]
[44][2016] VSC 659.
[45]Ibid [39].
We have already explained that the orders sought in the application for approval under r 15.08 effect the distribution of the estate in accordance with the Agreed Distribution and that the judge was correct to decline to make those orders in circumstances where the validity of the will and the identity of the executor remained in issue. The applicant’s arguments under these grounds do not overcome this difficulty.
Furthermore, Re Gooriah is not on all fours with the present matter. It concerned an intestacy. The minor was the infant child of the deceased who was represented by his or her mother, the widow of the deceased and the plaintiff in the estate proceeding. The caveator was an adult relative who, pursuant to the compromise, withdrew her caveat to permit letters of administration to be granted to the plaintiff. As a result, the plaintiff was granted letters of administration of the estate. The Court subsequently approved the compromise under r 15.08 of the Rules. There was therefore no issue about the plaintiff’s capacity to administer the estate.
The applicant submitted, in the alternative, that the Court had power to approve the settlement in the exercise of its parens patriae jurisdiction or pursuant to its power to approve any compromise by ‘an executor, administrator or trustee’ under r 54.05(2)(c)(i) of the Rules.
We do not consider that r 54.05(2)(c)(i) of the Rules or the existence of the Court’s inherent jurisdiction in respect of the protection of children aids the applicant in this case. Rule 54.05 may operate in a proceeding ‘for the administration of an estate’, but its use is inapposite where the identity or authority of the executor is in issue. Moreover, in exercising its parens patriae jurisdiction in this case, the Court could not ignore the difficulties identified above in making the orders sought.
The Civil Procedure Act provides no answer to these difficulties.
Grounds 2 and 4 are not made out.
Disposition
None of the proposed grounds of appeal have been made out.
Leave to appeal will be granted, but the appeal will be dismissed.
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