Re Costa
[2024] VSC 776
•17 December 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2024 03369
| IN THE MATTER OF the Will and Codicil and Estate of FRANCIS ALOYSIUS COSTA (deceased) | |
| and | |
| IN THE MATTER OF an application pursuant to rule 54.02 of the Supreme Court (General Civil Procedure) Rules2015 | |
| and | |
| IN THE MATTER OF an applicant pursuant to s 63A of the Trustee Act 1958 (Vic) | |
| CARL CHRISTOPHER SCHOKMAN (in his capacity as the Executor of the Will and Codicil and Estate of the late FRANCES ALOYSIUS COSTA (and others according to the attached Schedule) | Plaintiffs |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 November 2024 |
DATE OF JUDGMENT: | 17 December 2024 |
CASE MAY BE CITED AS: | Re Costa |
MEDIUM NEUTRAL CITATION: | [2024] VSC 776 |
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TRUSTS AND TRUSTEES – Judicial advice – Settlement of proceedings under Part IV of Administration and Probate Act 1958 – Under the terms of settlement the grandchildren of the plaintiff in the Part IV proceedings excluded as beneficiaries of trusts – Plaintiff in Part IV proceedings agreed to establish trust for the benefit of her grandchildren and lineal descendants – Plaintiff undertook to transfer $5 million to trust – Proposed trust deed prohibits any distribution of capital during the first twenty years after the establishment of trust – Trustee’s decision to agree to the settlement of Part IV proceedings within power – Trustee acted in good faith when approving settlement – Establishment of trust by plaintiff in Part IV proceedings constitutes a benefit to minors – Settlement approved – Trustee Act 1958 s 63A – Supreme Court (General Civil Procedure) Rules 2015 r 54.02(2)(c)(i).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Pitt SC | KCL Law |
| For Gillian Costa-Holroyd, an interested party, the plaintiff in SECI 2023 00234 | Dr PT Vout KC | Maddocks Lawyers |
HIS HONOUR:
Introduction and background
The matters set out below are not contentious. Francis Aloysius Costa (‘Frank’) died on 2 May 2021. He was survived by his wife Shirley and their eight daughters. Probate of Frank’s last Will dated 13 May 2016 and Codicil dated 14 December 2017 was granted to Shirley, two of his daughters (Rona Reivers and Kate Colak) and Carl Schokman, on 27 July 2022.
Frank left an estate comprising assets of $25,253,586. One of Frank’s eight daughters is Gillian Costa-Holroyd. Under the terms of Frank’s Will Gillian’s entitlement is limited to $1,000 which was gifted to the Gillian Costa-Holroyd testamentary trust.
The Costa family group includes:
(a) fourteen family discretionary trusts (being the Costa trusts of which Gillian is an object and two other discretionary trusts of which Gillian is not an object);
(b) two superannuation funds; and
(c) various other companies and unit trusts whose shareholding and units are held by the Costa trusts and partnerships and joint ventures.
The overall value of the Costa family wealth is between $250 million and $300 million, comprising mainly assets of the Costa trusts and the value of Frank’s estate.
On 23 January 2023 Gillian commenced a testator’s family maintenance claim (‘TFM’), proceeding S ECI 2023 00234. The claim was brought pursuant to Part IV of the Administration and Probate Act 1958 (Vic) seeking further provision from Frank’s estate.
A judicial mediation in respect of Gillian’s TFM claim took place on 1 February 2024. At the mediation the parties reached a global settlement agreement recorded in a Deed of Settlement to resolve Gillian’s TFM claim and other current, foreshadowed and future disputes between Gillian and the Costa Group and family (‘the Settlement’). The Settlement is subject to approval by the Court because there are minors and unborn beneficiaries whose interests may be affected by the Settlement.
The principal terms of the Deed of Settlement are as follows:
(a) A capital distribution of $15 million is made by Shirley Costa Pty Ltd in its capacity as trustee of the Shirley Costa Trust to Gillian, as sole trustee of the Gillian Testamentary Trust, to be held by Gillian on the terms of the Gillian Testamentary Trust.
(b) The licence plate (VIC No. 3) is transferred to Gillian.
(c) The Cunningham Pier sub-lease is terminated on terms outlined in a Deed of Surrender signed by the parties and annexed to the Deed of Settlement.
(d) The Gillian Parties (being Gillian, her husband Darren, their children and their entities) as set out in the Deed of Settlement:
(i) disclaim any interest as a beneficiary or a potential beneficiary of the deceased’s estate or the trust created by the deceased’s Will;
(ii) consent to being excluded as beneficiaries of the Costa Trusts and disclaim any interest as beneficiaries of the Costa Trusts;
(iii) relinquish possession of the property at 10 Federal Street, Aireys Inlet (being a property within the Costa Group at which the Costa family holiday);
(iv) agree that they will not make or bring any claim against Shirley’s future estate and acknowledge that the settlement sum of $15 million is paid in lieu of any entitlement in relation to Shirley’s estate;
(v) disclaim any interest as beneficiaries of the Superannuation Funds;
(vi) release the deceased’s estate and all other parties (as set out in the Deed of Settlement) (‘Estate Parties’) from claims and liability in respect of Gillian’s TFM, the deceased’s estate, the Will trusts, the Costa trusts, the Lease and the Superannuation Funds;
(vii) indemnify the Estate Parties in respect of all claims in connection with Gillian’s TFM, Frank’s estate, the Will trusts, the Costa trusts, the Superannuation Funds and Shirley’s future estate, made or maintained by Gillian, Darren, their children, their entities and the Descendants (as defined by the Deed of Settlement).
(e) The executors, the trustees of the Will trusts, the trustees of the Costa trusts and the trustees of the Superannuation Funds release the Gillian Parties from claims and liability in respect of Gillian’s TFM, Frank’s estate, the Will trusts, the Costa trusts, the Lease and the Superannuation Funds.
The Settlement extends wider than Frank’s estate and results in a severance of the ‘Gillian Parties’ (as defined in paragraph 1.9 of the Deed of Settlement) from the Costa trusts. This requires amendments to various Costa trust deeds. Consequently, the plaintiffs’ application also seeks relief and advice in respect of the Costa trusts.
This proceeding is brought by the plaintiffs for court approval and judicial advice as follows:
(a) by the first to fourth plaintiffs (‘estate plaintiffs’), for court approval of the compromise contained within the Deed of Settlement dated 27 April 2024 (‘Deed of Settlement’) pursuant to r 54.02(2)(c)(i) of the Supreme Court (General Civil Procedure) Rules2015 on the basis that the interests of minor beneficiaries are affected by the compromise; and
(b) by the fifth to sixteenth plaintiffs (‘trust plaintiffs’), for:
(viii) judicial advice that they were justified in executing the Deed of Settlement; and
(ix)Orders, pursuant to s 63A of the Trustee Act 1958, approving variations of various trusts in furtherance of the settlement scheme contained in the Deed of Settlement.
The plaintiffs’ originating motion was heard on 21 November 2024. The Court received into evidence the following affidavits:
(a) affidavit of Carl Christopher Schokman sworn 26 June 2024 and exhibits, including Exhibit CCS-2 which is a confidential memorandum prepared by Mr S Pitt SC providing an opinion on the appropriateness of the proposed compromise contained in the Deed of Settlement, by reference to applicable legal principles, and whether the Court should approve the compromise;
(b) affidavit of Gillian Frances Costa-Holroyd sworn 21 June 2024 and exhibits;
(c) affidavit of Paul Phillip Beasant sworn 30 July 2024 and exhibits;
(d) affidavit of Paul Phillip Beasant sworn 20 September 2024 and exhibits;
(e) affidavit of Paul Phillip Beasant sworn 7 October 2024 and exhibits; and
(f) affidavit of Gillian Frances Costa-Holroyd sworn 13 November 2024 and exhibits.
The Court also received into evidence relevant parts of the affidavits (as relied upon by the plaintiffs) filed in S ECI 2023 00234 (Gillian’s Part IV claim):
(a) affidavit of Gillian Frances Costa-Holroyd sworn 23 January 2023 and exhibits GFCH-11 and GFCH-20;
(b) supplementary affidavit of Gillian Frances Costa-Holroyd sworn 11 April 2023;
(c) affidavit of Shirley Agnes Costa sworn 4 October 2023;
(d) affidavit of Gillian Frances Costa-Holroyd in reply sworn 23 October 2023; and
(e) affidavit of Paul Phillip Beasant sworn 17 November 2023 and pages 5–63 of exhibit bundle PPB-1.
On 11 July 2024 the plaintiffs, by their solicitors, wrote to the daughters of Shirley and Frank whose interests are affected by the Settlement:
(a) notifying them of this proceeding;
(b) providing them with copies of the documents filed in the proceeding; and
(c) notifying them of the directions dated 2 August 2024.
On 2 August 2024 Judicial Registrar Englefield made orders setting the matter down for hearing on 19 November 2024. No beneficiary appeared at the directions hearing or opposed the application.
On 20 September 2024 the plaintiffs, by their solicitors, wrote to the same beneficiaries who were notified on 11 July 2024:
(a) notifying them of the hearing date of 19 November 2024; and
(b) seeking their consent and the consent of their adult children to the relief sought in the application.
In response to this correspondence, consents were obtained to the relief sought in the proceeding from the daughters of Shirley and the deceased, namely Laurelle Cecic, Caroline Leng, Suzanne Costa, Geraldine Tripodi and Edwina Arto and, where applicable, their adult children. No opposition to the settlement of the proceeding has been received.
By affidavits sworn on 21 June 2024 and 13 November 2024 on approval of the Settlement, Gillian undertook to:
(a) cause the incorporation of a trustee company: G Costa-Holroyd NextGen Pty Ltd (‘NextGen Trustee’);
(b) settle a trust called the Gillian Costa-Holroyd NextGen Trust (‘NextGen Trust’); and
(c) transfer $5 million of the settlement sum of $15 million to the NextGen Trustee to be held on trust pursuant to the terms of the NextGen Trust with the specified beneficiaries of the NextGen Trust being the children, grandchildren and remoter issue of Gillian and her husband, Darren James Holroyd.
Gillian and her husband have four adult children who are the parents of minor beneficiaries whose interests are affected by the Deed of Settlement. There are presently seven minors whose interests are affected:
(a) Joshua’s children: Ella Mae and Emmett James;
(b) Daniel’s son: Oscar Frank;
(c) Ruby’s daughter: Heidi Frances; and
(d) Isaac’s children: Tex James, Ivy Lee and Raff Samuel.
The eldest grandchild (Tex) is aged five. The youngest (Emmett) is seven months old. Another grandchild is due in December 2024. The ‘lineal descendants’ will also include future unborn or unascertained beneficiaries, starting with the grandchild due in December 2024.
The Settlement provides for a capital distribution of $15 million by Shirley Costa Pty Ltd in its capacity as trustee of the Shirley Costa Trust to Gillian as sole trustee of the Gillian Testamentary Trust, to be held by Gillian on the terms of the Gillian Testamentary Trust. The Shirley Costa Trust is a discretionary trust. The Gillian minors are affected by the Settlement because under the terms of the Settlement they are to be excluded from the current pool of beneficiaries of the Costa Family Trusts.
There are two further classes of minors who are affected by the Settlement. First, three children of Shirley’s daughter Edwina: Alby Arto, born 6 April 2008; Teddy Arto, born 29 April 2010; and Fox Arto, born 9 August 2020.[1] Second, four children of Shirley’s daughter Kate: Francis Colak, born 9 April 2009; Joseph Colak, born 17 February 2011; Thomas Colak, born 26 February 2013; and Lukas Colak, born 2 February 2016.[2] I shall refer to these children as the ‘Edwina minors’ and the ‘Kate minors’. The interests of the Edwina minors and the Kate minors are affected because the capital of the Shirley Costa Trust (of which they are beneficiaries) is diminished by $15 million and by the gift of the licence plate to Gillian, which is worth approximately $4 million.
[1]Transcript of proceedings (‘T’) 3 L 15–16.
[2]Ibid L 17-20.
The test to be applied to the Court on an application under r 54.02(2)(c)(i) is well settled. In Tritt v Hoskins[3] McMillan J stated:
On an application for approval of a compromise pursuant to r 54.02(2)(c)(i), the Court’s role is not to consider the wisdom of a trustee’s exercise of discretion but to grant the trustee’s application for an order approving the trustee’s agreement to the compromise, if the Court is satisfied of the propriety of the application. That involves the Court considering whether:
(a) the trustee’s decision to agree to the compromise was within power;
(b) there was any impropriety in the trustee’s decision;
(c) the trustee exercised its discretion in good faith; and
(d) the trustee gave fair consideration to the relevant issues.[4]
[3][2016] VSC 589.
[4]Ibid at 3 [15] (McMillian J).
The trust plaintiffs also seek orders pursuant to s 63A of the Trustee Act approving variations of various Costa family trusts in furtherance of the settlement scheme contained in the Deed of Settlement. Section 63A is engaged because the deeds of variation remove the Gillian minors from the class of beneficiaries of all Costa family trusts. Before granting approval under s 63A the Court must be satisfied of two things. First, that the carrying out of the arrangement would be for the benefit of the relevant person. Second, that the arrangement is a proper and fair one.[5]
[5]Re The Pickering Family Trusts [2024] VSC 5 at 2 [5], 3-4 [10], 4 [11] and 7-8 [24] (Lyons JA).
Before considering the application of the principles set out above it is necessary to address the terms of the proposed trust deed for the NextGen Trust.
The originating motion was heard on 21 November 2024. On 13 November 2024 Gillian filed an affidavit exhibiting an updated version of a proposed trust deed for the NextGen Trust. The terms of the proposed trust deed did not restrict distributions of capital. Consequently, the NextGen Trustee could distribute all of the corpus of the trust to Gillian’s adult children with the consequence that the Gillian minors would not receive any distribution of income or capital from the trust. During the hearing on 21 November 2024 I expressed concerns that if the trust deed permitted a distribution of capital to Gillian’s adult children this would not be to the benefit of the Gillian minors.
Dr Vout KC, who had been granted leave to appear on behalf of Gillian, sought an adjournment of proceedings to provide Gillian with an opportunity to file a further proposed trust deed addressing the concerns which had been raised during the hearing on 21 November 2024. On 28 November 2024 Gillian filed a further affidavit exhibiting a third proposed trust deed (‘third Proposed Trust Deed’).
Clause 12.2 of the third Proposed Trust Deed prohibits any distribution of capital from the NextGen Trust in its first 20 years. In addition, provisions which would otherwise have permitted the trustee to treat capital as income, thereby circumventing the prohibition under clause 12.2, are now subject to the prohibition on distribution of capital for the first 20 years: clauses 8.2, 10.1, 12.1, 13.8, 13.19. 13.26 and 13.29.
Clause 40 of the previous version of the proposed trust deed, which permitted the creation and holding of a fixed interest in a portion of the Proposed Trust absolutely ‘for any one or more Beneficiaries or a group of beneficiaries for a period to be nominated’, in lieu of a simple distribution of capital, has been deleted.
The categories of persons and relationships included in the definition of ‘General Beneficiaries’ in clause 1.14 have been reduced to ‘spouses’, ‘widows and widowers’. Distributions cannot be made to Gillian’s sisters and their spouses, who would have qualified as ‘aunts’ and ‘uncles’ of Specified Beneficiaries under the previous, wider definition, but who are intended by the Deed of Settlement to be permanently separated financially from Gillian and her branch of the Costa family and vice versa. Further, ‘cousins’ has been removed, since cousins of Specified Beneficiaries would have included the children of Gillian’s sisters and their husbands.
In written submissions filed by Dr Vout which accompanied the third Proposed Trust Deed he submitted that if the Court approved the Deed of Settlement and the terms of the third Proposed Trust Deed, Gillian will, by her counsel or directly, undertake to the Court to:
(a) instruct her solicitor, Mr Philip Jones of Maddocks Lawyers, to incorporate the proposed corporate trustee of the Proposed Trust, G Costa-Holroyd NextGen Pty Ltd;
(b) instruct Mr Jones to settle the trust on the proposed trustee on the terms of the third Proposed Trust Deed; and
(c) upon receipt of the Settlement Sum, transfer $5 million thereof to, and settle the same upon, the trustee of the Proposed Trust.
I am satisfied that under the terms of the third Proposed Trust Deed the capital of the NextGen Trust will not be dissipated during the first 20 years following its establishment. After 20 years all of Gillian’s grandchildren, as well as the grandchild due in December 2024, will have reached their majority and will be able to approach the Court to challenge any distribution of capital in breach of the NextGen Trust and/or the fiduciary duties of the trustee.
The establishment of the NextGen Trust with $5 million confers a benefit on the Gillian minors and unborn descendants which outweighs any detriment arising from their exclusion from Frank’s estate and the Costa trusts.
In light of the significant amendments contained in the third Proposed Trust Deed, it is not necessary to appoint a contradictor to advance submissions on behalf of the Gillian minors. I am satisfied that any concerns which might have been raised by a contradictor regarding the risk of dissipation of the trust have been addressed by the third Proposed Trust Deed.
I am satisfied that the Settlement is of benefit to the Gillian minors. The sum of $5 million is effectively quarantined for their benefit. This is a direct benefit arising out of the Settlement. Under the Costa trusts as they presently stand, the minor beneficiaries are entitled to be considered as an object of the Costa trusts when distributions are made, but that right could be removed if Gillian’s siblings decide to vest the trusts early, after Shirley dies, as contemplated by a Letter of Wishes signed by Frank on 13 May 2016. The Letter of Wishes provides that the Costa trusts and the Costa Group can be wound up after Shirley’s death and divided equally among Frank and Shirley’s daughters, provided at least six of them consent. The third Proposed Trust Deed confers a significant benefit of certainty that $5 million capital, (which would not be available if the Costa trusts and Costa Group are wound up) will be available for the benefit of the Gillian minors. I am also satisfied that there is a significant non-financial benefit to be gained by the minor and unborn beneficiaries in not having their parents and grandparents engaged in litigation.
I am also satisfied that the Settlement is of benefit to the Edwina minors and the Kate minors. The settlement sum of $15 million, together with the licence plate Vic No. 3, represents a relatively small proportion of the wealth in the Costa family trusts. That wealth will be available for the benefit of the Kate minors and the Edwina minors in the future.
As to the relief claimed by the trust plaintiffs pursuant to r 54.02:
(x) the trust plaintiffs’ decision to agree to the Settlement was within power by virtue of s 19 of the Trustee Act 1958;
(xi)there was no impropriety associated with the Trustee’s decision to approve the Settlement;
(xii) the trust plaintiffs acted in good faith when approving the Settlement; and
(xiii) when approving the Settlement the trust plaintiffs gave fair consideration to the relevant issues.
As to s 63A of the Trustee Act:
(xiv) the establishment of the NextGen Trust into which the $5 million will be paid constitutes a direct benefit to the Gillian minors;
(xv) there is significant non-financial benefit to be gained by the minor and unborn beneficiaries in not having their parents and grandparents engaged in litigation; and
(xvi) the variation of the Costa trusts to exclude the Gillian minors as beneficiaries is a necessary part of the overall agreement to resolve Gillian’s TFM claim and any further potential litigation concerning the Costa trusts. The Settlement brings certainty and finality to the litigation presently on foot.
Subject to Gillian proffering undertakings in the terms set out above in paragraph 27, I propose to order as follows:
1.Until further order of the Court, pursuant to rr 28.05(4) and 28A.06 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) exhibit ‘CCS–2’ to the affidavit of Carl Christopher Schokman sworn on 26 June 2024 being the opinion of Simon Pitt SC dated 21 June 2024 remain confidential and not be inspected or copied by any person, other than the plaintiffs, Gillian Frances Costa-Holroyd and their respective legal representatives.
2.In respect of all plaintiffs, pursuant to r 54.02(2)(c)(i) of the Rules, the Court approves the Compromise contained within the Deed of Settlement dated 27 April 2024 on the basis that, in all the circumstances of the case and in the events that have happened, they were justified in executing the Deed and entering into the Compromise.
3.In respect of the 5th to 16th plaintiffs, pursuant to s 63A of the Trustee Act 1958, the Court approves the arrangements contained within the Compromise and annexed to the Deed which – in furtherance of the settlement scheme represented by the Deed – have the result of varying the respective trusts.
4.An authenticated copy of this order may be annexed to the grant of probate of the deceased’s last will made 13 May 2016 and codicil made 14 December 2017.
5.The costs of and incidental to this proceeding, including any reserved costs, are to be paid or retained from the Estate and Trust on an indemnity basis as follows:
(a)from the Estate as to 50%; and
(b)from the Trust named as the 5th to 16th defendants as to 50%.
6.The proceeding otherwise be dismissed.
7.As to proceeding S ECI 2023 00234:
(a)the costs of the Part IV defendants (including any reserved costs) be paid or retained out of the Estate on an indemnity basis; and
(b)there otherwise be no order as to costs; and
(c)the proceeding is otherwise dismissed.
S C H E D U L E O F P A R T I E S
S ECI 2024 03369
CARL CHRISTOPHER SCHOKMAN in his capacity as the Executor of the Will and Codicil and Estate of Francis Aloysius Costa
First Plaintiff
KATE LOUISE COLAK in her capacity as the Executor of the Will and Codicil and Estate of Francis Aloysius Costa
Second Plaintiff
RONA ANN REIVERS in her capacity as the Executor of the Will and Codicil and Estate of Francis Aloysius Costa
Third Plaintiff
SHIRLEY AGNES COSTA in her capacity as the Executor of the Will and Codicil and Estate of Francis Aloysius Costa
Fourth Plaintiff
COSTA PROPERTY ELEVEN PTY LTD (ACN 111 278 490) in its capacity as trustee for the COSTA PROPERTY ELEVEN DISCRETIONARY TRUST
Fifth Plaintiff
COSTA PROPERTY ONE PTY LTD (ACN 102 263 258) in its capacity as trustee for the COSTA PROPERTY ONE TRUST
Sixth Plaintiff
COSTA PROPERTY THREE PTY LTD (ACN 103 197 208) and its capacity as trustee for the COSTA PROPERTY THREE TRUST
Seventh Plaintiff
COSTA PROPERTY TWO PTY LTD (ACN 102 956 687) in its capacity as trustee for the COSTA PROPERTY TWO TRUST
Eighth Plaintiff
F COSTA PTY LTD (ACN 131 370 744) in its capacity as trustee for the FRANK COSTA BESTFRESH TRUST
Ninth Plaintiff
FRANK COSTA FINANCE PTY LTD (ACN 111 959 687) in its capacity as trustee for the FRANK COSTA FINANCE TRUST
Tenth Plaintiff
HOXTON PTY LTD (ACN 059 300 766) in its capacity as trustee for the FA & SA COSTA FAMILY TRUST
Eleventh Plaintiff
JORDAN PARK PTY LTD (ACN 097 363 276) in its capacity as trustee for the FA AND SA COSTA PROPERTY TRUST
Twelfth Plaintiff
JUST ANOTHER PROPERTY ONE PTY LTD (ACN 121 872 517) in its capacity as trustee for the COSTA BAY VIEWS FAMILY TRUST
Thirteenth Plaintiff
MARBLE SPRING PTY LTD (ACN 081 845 963) in its capacity as trustee for the FA & SA COSTA INVESTMENT TRUST
Fourteenth Plaintiff
POINT COOK LAND PTY LTD (ACN 131 956 486) in its capacity as trustee for the POINT COOK DISCRETIONARY TRUST
Fifteenth Plaintiff
SHIRLEY COSTA PTY LTD (ACN 661 909 235) in its capacity as trustee for the SHIRLEY COSTA TRUST
Sixteenth Plaintiff
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