Re Finnie; Petrovska v Morrison
[2020] VSC 9
•29 January 2020 (given ex tempore, revised)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S ECI 2018 00174
IN THE MATTER of an application pursuant to Part IV of the Administration and Probate Act 1958
- and –
IN THE MATTER of the Will and Estate of JAMES FINLAY FINNIE, deceased
BETWEEN:
| VESNA PETROVSKA | Plaintiff |
| v | |
| JOHN ALEXANDER MORRISON (who is sued in his capacity as executor and trustee of the estate of James Finlay Finnie, deceased) | Defendant |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 January 2020 |
DATE OF RULING: | 29 January 2020 (given ex tempore, revised) |
CASE MAY BE CITED AS: | Re Finnie; Petrovska v Morrison |
MEDIUM NEUTRAL CITATION: | [2020] VSC 9 |
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TESTATOR FAMILY MAINTENANCE – Executor’s application for an approval of compromise – Non-consenting sui juris beneficiaries – Minor beneficiaries – Independent counsel - Hodge v De Pasquale [2014] VSC 413 - ExxonMobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd (2010) 29 VR 356 - Tritt v Hoskins & anor [2016] VSC 589 – Administration and Probate Act 1958 Pt IV – Supreme Court (General Civil Procedure) Rules 2015 O 54.02(2)(c), O 15 – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | No appearance | |
| For the Defendant | Mr A Cassidy | Coulter Roache |
| Independent Counsel | Mr T Mah |
HER HONOUR:
The plaintiff and the deceased, Mr James Finlay Finnie, were domestic partners. The deceased’s will did not make any provision for the plaintiff, rather it provided for the deceased’s children and grandchildren. In this proceeding, the plaintiff seeks provision from the deceased estate pursuant to Part IV of the Administration and Probate Act 1958 (‘the Act’). The children and grandchildren are not parties in the proceeding. The defendant is the executor and trustee of the estate of the deceased. The plaintiff and defendant have agreed to settle this proceeding and terms of compromise have been signed. However, approval of the Court is required to effect the compromise. Accordingly, the defendant has made an application for approval of the compromise.
The application to approve the compromise is made pursuant to r 54.02(2)(c) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’). The application is supported by the affidavits of Daniel James Black sworn 23 September 2019 and 17 January 2020, and the exhibits to those affidavits, including the opinion of counsel. The Court has also received an independent opinion of Mr Thomas Mah of counsel (‘Independent counsel’) regarding the minor grandchildren affected by the compromise reached.
The application is disallowed for the reasons explained below. In summary, the defendant trustee has failed to fairly consider the relevant issues. Further, the compromise is not in the best interests of the grandchildren beneficiaries who are minors.
Given the nature of the application, the plaintiff was excused from appearing today. The Independent counsel appeared as counsel for the grandchildren beneficiaries who are minors. Unfortunately, the beneficiaries of the will were not given notice of today’s hearing. They did not appear. There is evidence that the sui juris beneficiaries do not consent to the compromise.
Background
The deceased died on 12 September 2017. He made a will dated 25 June 1992 (‘the will’). On 8 January 2018, a grant of probate was obtained by the defendant. The defendant is not a beneficiary of the estate.
The will provided that the deceased estate be distributed to the four children of the deceased. It did not make any provision for the plaintiff. The deceased’s four children are named Kenneth, James, Veronica and Neil. The will provided that the estate be distributed in equal shares to them, as tenants in common. It also provided that should any children predecease the deceased, their child or children take their parent’s entitlement. Neil predeceased the deceased leaving three children who take his entitlement equally (‘the grandchildren’). Two grandchildren are minors (‘the minor beneficiaries’). Kenneth and Veronica reside in Scotland, James resides in a property of the estate. The minor beneficiaries reside with their maternal grandfather and his partner, in Australia.
The plaintiff and defendant entered into terms of settlement dated 15 August 2019 (‘terms’). The terms provide that the plaintiff would accept provision from the deceased estate in settlement of the proceeding.
The terms acknowledge that the beneficiaries have not consented to the compromise, that there are minor beneficiaries, and that approval of the compromise would be required by the Court to effect it.
Clause 4 of the terms provide that the terms are conditional upon:
(a)approval of compromise by the court in respect of the infant beneficiaries … [sic], and
(b)advice of independent counsel supporting the settlement in respect of the rights and entitlements of Kenneth James Veronica and Olivia, and approval of compromise by the court pursuant to order 54 of the Supreme Court (General Civil Procedure) Rules 2015 in respect of Kenneth James Veronica and Olivia, being adult beneficiaries who have not provided consent to the compromise,
which court approvals are hereinafter compendiously referred to as (‘Court Approval’).
The Court is informed that the gross estate is valued at approximately $948,000.00. From that, allowing for deduction of various costs, the amount left for distribution at this point is approximately $818,000.00.
Applicable principles
Order 54.02(2)(c) provides as follows:
Relief without general administration
…
(2) Without limiting paragraph (1), a proceeding may be brought for—
…
(c) an order—
(i)approving any sale, purchase, compromise or other transaction by an executor, administrator or trustee; or
(ii)directing any act to be done in the administration of an estate or in the execution of a trust which the Court could order to be done if the estate or trust were being administered or executed under the direction of the Court.
(emphasis added)
The application is not made pursuant to s 19(1)(f) of the Trustee Act 1958. However, for completeness I will make reference to it. It provides as follows.
Power to compound liabilities
(1)A personal representative, or two or more trustees acting together, or, subject to the restrictions imposed in regard to receipts by a sole trustee, not being a trustee company, a sole acting trustee where by the instrument (if any) creating the trust, or by statute a sole trustee is authorized to execute the trusts and powers reposed in him, may, if and as he or they think fit—
…
(f)compromise, compound, abandon, submit to arbitration, or otherwise settle any debt, account, claim, or thing whatever relating to the testator's or intestate's estate or to the trust;
I adopt the following principles outlined by McMillan J in Hodge v De Pasquale:[1]
[1][2014] VSC 413 (‘Hodge’).
64It is uncontroversial that family provision orders cannot be made by consent, as explained by Windeyer J in Hore v Perpetual Trustee Company Ltd:
As the power to make orders is governed by s 9(2) and s 7, the court cannot by consent, assume a wider jurisdiction. Parties cannot by consent, confer power upon the court to make orders which the court lacks power to make.
65As his Honour helpfully went on to explain, the ordinary procedure of the Court facilitates the settlement of Part IV claims, without acting as a rubber stamp:
Settlements of claims under the Family Provision Act are of course, very common. It is obviously in the interests of the parties and the court, to encourage settlement and in any week the Masters in the Equity Division may be asked to make a number of orders agreed between the parties in such actions. It such matters in my experience, the court looks quickly at the evidence, and is informed of the relevant facts by counsel or solicitor, and if the matter appears to be reasonable makes the orders. No detailed consideration of jurisdiction takes place as long as the plaintiff appears to have a proper basis for his or her claim. In cases where the interests of infants or unascertained classes of persons may be affected by the orders, then the proposed orders are considered in more detail, not usually on the jurisdictional question, but more often on relevant terms of the orders themselves, and the extent of the benefit provided by them. On occasions the court refuses to make the orders proposed, but this is unusual. At one stage it used to be thought that the reason why the court considered the proposed orders was to see whether or not they were being made purely for the purpose of the avoiding stamp duty on a conveyance pursuant to a deed of family arrangement, but really the question is one as to whether or not the court has jurisdiction.
In the three years during which I was a Master, I would have approved well over 100 such settlements, and I remember only two cases in which I refused to approve the proposed orders.
66 That practice is equally familiar to practitioners in Victoria.
…
68In a very different context in Daniels v Hall (No 2), considering the appropriate orders as to costs in a Part IV dispute, EM Heenan J recently made a number of remarks I consider apposite. His Honour noted that:
Unlike claims arising from commercial disputes, contracts, torts or property disputes, the power of the court to make or withhold an award to an applicant under this legislation does not depend on the ascertainment and enforcement of any pre-existing legal or equitable rights but, rather, upon a consideration of whether or not, under the statutory formula, the deceased has failed to make adequate provision for the proper maintenance and welfare of an applicant within a particular class of eligible family members.
69A claim for further provision is not a claim that the estate owes the claimant some debt or liability. The effect of an order under Part IV is not to recognise a debt or liability, it is in the form of a further legacy, normally a pecuniary legacy. It alters the beneficial entitlements under the trust. Legacies similarly are not debts or expenses of the estate. Beneficiaries cannot bring an action in debt to recover a legacy, but instead must bring an administration suit or the modern form thereof.
In respect of s 19 of the Trustee Act 1958, McMillan J stated:
81I would note that on the interpretation of s 19 that is in my view the correct interpretation, the efficient administration of justice and the obligations on parties to seek to resolve disputes expeditiously remain paramount. A trustee who, in good faith, believes an applicant for further provision has a strong claim or a claim that it would be cheaper to settle than to contest, may still settle the claim and may seek orders giving effect to that settlement by consent, or else by seeking the approval of all beneficiaries who are affected. Beneficiaries who wish to contest such a claim are entitled to be notified and appear, but as litigants are under the same obligations to promote the efficient administration of justice.[2]
[2]Hodge [81].
In Tritt v Hoskins & anor (‘Tritt’),[3] McMillan J, following the decision of ExxonMobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd (2010) 29 VR 356 (‘ExxonMobil’), outlined the factors to consider when deciding whether or not to approve the compromise. Her Honour said:
[3][2016] VSC 589 [15] citing ExxonMobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd (2010) 29 VR 356, 375 [86]-[87] (Habersberger J).
15On 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. (emphasis added)
Where there are beneficiaries who are minors, as is the case here, the Court must be satisfied that the compromise is in the best interests of those beneficiaries. Citing again from Tritt:[4]
16Applications for the Court’s approval of a compromise are generally supported by an advice as to the reasons for the compromise and why it is in the best interests of the parties, particularly where there are minors, persons under a disability or representatives for a class of beneficiaries. This is because the Court must be satisfied that the compromise is in the best interests of persons falling within one or more of those categories. It is assumed that persons outside of those categories are sufficiently capable of representing their own interests such that the Court can rely on their consent to a compromise in approving the terms of that compromise. In this case, as both the plaintiff and the first defendant have deposed, none of the persons affected by the terms of the compromise of 15 September 2015 fall within any of the categories that attract the Court’s protection. Accordingly, the Court has not been provided with an advice as to the reasons why the compromise is in the best interests of the parties. (emphasis added)
[4][2016] VSC 589 [16].
As an aside, I observe that the Court has published A Guide to Practitioners: Applications for Approval of Compromises in Testators Family Maintenance (TFM) Cases and it states:[5]
The test for an approval under O 54 is similar but not identical [to an application under O 15]. That is because the defendant has capacity to enter the compromise and is seeking the Court’s approval of this decision, rather than of the underlying compromise itself. Therefore, the approval will be granted if the Court is satisfied that the defendant’s decision to agree to the compromise was within power; there is no impropriety in the defendant’s decision; it was made in good faith; and the defendant gave fair consideration to the relevant issues. This difference does not change the expected content of counsel’s opinion. A fully reasoned opinion is required showing why the compromise is in the best interests of the person under disability, as compared to continuing the litigation in the hope of a better outcome. (citations omitted)
[5]Supreme Court of Victoria, A Guide to Practitioners: Applications for Approval of Compromises in Testators Family Maintenance (TFM) Cases (29 January 2020) [16].
The defendant referred to Rockman v IPR Nominees Pty Ltd (No 2) (‘Rockman’).[6] In that case, McMillan J applied the ExxonMobil factors referred to above in Tritt, and approved the compromise. An application to approve a compromise had been made by a litigation guardian on behalf of a minor. Having regard to the confidential advice of counsel, the Court was satisfied that although the minor would forego a specific gift in the informal will, she would receive 29.5 per cent of the assets in various trusts. That is, her interests under the trust would crystallise. McMillan J stated:
68If the compromise is not approved and the proceedings progress to trial, there is a risk that the 1965 Trust may not vest for a number of years and upon vesting, [the minor beneficiary] could potentially receive one sixth (16.7%) of the relevant funds, albeit absolutely. In the Court’s view, the risk of such an outcome, which is less favourable than the terms of the compromise, leads to the conclusion that the compromise should be approved. As such, the applications brought on [the minor beneficiary]’s behalf should be granted.[7]
Here, the facts are very different to those in Rockman. In Rockman, the minor would receive 29.5 per cent of trust assets. Here, the proposed compromise would leave the minors each with a miniscule percentage of the estate.
[6][2018] VSC 270 (‘Rockman’).
[7]Rockman [68].
Parties’ submissions
The defendant made the following key submissions:
(a) it was the intention of the parties that by clause 4 of the terms independent counsel was to represent the interests of the minors and provide a confidential opinion to the Court. In effect, varying the extant terms. This submission is supported by Independent counsel;
(b) the plaintiff is not impecunious and has significant assets;
(c) the sui juris beneficiaries appear to be in very difficult circumstances and have no real assets;
(d) the estate is small and valued at approximately $818,000. The reduction of the beneficiaries’ interests is significantly less than what they would have received under the will;[8]
[8]Given the nature of this application, the precise amounts and percentages contained in the terms are not stipulated here.
(e) the terms are conditional upon two matters, approval on behalf of the minor beneficiaries, and the defendant’s obligation to compromise, if at all possible. In consideration of the latter question, there is propriety in the trustee’s decision:
(i) the defendant was fully aware of the weight the will must be given, and the practice to protect testator's intentions as far as possible;
(ii) the question in dispute between the parties is solely one of quantum of the plaintiff’s provision from the deceased estate; the threshold obligation to provide for the plaintiff is not disputed. Some provision will need to be made because of the depth, strength and duration of the relationship between the plaintiff and deceased. This submission is supported by Independent counsel;
(iii) the defendant weighed up the nature of the plaintiff’s application, including whether to enter into the terms;
(iv) the defendant has had difficulty in communicating with the sui juris beneficiaries of the deceased estate. This has included difficulties in obtaining direct, rather than potentially hearsay evidence, as to their personal and financial circumstances going towards their question of need which counsel described as ‘exigent’;
(v) the effect of costs of a trial, that may be 3-4 days, could be significant due to numerous factors the defendant must consider, including the possibility evidence is required, including from the sui juris beneficiaries.
The defendant submits that while the factors in s 91A of the Act are given primacy (some of which are alluded to above), another factor is a consideration, following the decision of Nettle J in McKenzie v Topp [2004] VSC 90, that the children of the deceased would have a claim on the plaintiff's estate upon her passing.
Both counsel submit that the legal test applicable in relation to the sui juris beneficiaries is outlined in ExxonMobil (and referred to above). Further:
(a) the defendant submits that it was appropriate for him to compromise the proceeding and that the critical and operative limb of ExxonMobil factors is whether the trustee has given fair consideration to the relevant issues. R 54.02(2)(c)(i) of the Rules, or s 19 of the Trustee Act 1958 could be relied upon and, in effect, reflect this ExxonMobil factor. Further, it is a test of the proper exercise of discretion;
(b) Independent counsel agrees and submits that there are also other considerations, such as the inconvenience of a matter proceeding to trial are relevant.
Independent counsel submits that the application was required as the sui juris beneficiaries do not consent to the compromise, and therefore Court approval is required in line with Hodge, and minors were affected.
Independent counsel submits that the legal test, with respect to the minor beneficiaries, is whether the compromise is in their best interests. (He submits that this is identical, if not analogous to the consideration for approval of a compromise pursuant to O 15 of the Rules). Further, central to this test is a comparison as to what the minors beneficiaries receive under the terms verses what they may receive at trial.
As indicated above, Independent counsel made some submissions in Court with the defendant’s counsel present. Independent counsel went onto make further submissions with respect to the minor beneficiaries in a closed Court; those submissions will not be repeated in this ruling given the nature of the application and that there will be determination of the relevant issues at trial.
Analysis
I will disallow the application to approve the compromise. Although it is not in dispute between the parties that the deceased had an obligation to provide for the plaintiff and did not do so, the proposed terms do not reflect a fair consideration by the trustee of the relevant issues. Importantly, the compromise is not in the best interests of the minor beneficiaries.
Turning now to the reasons why.
The compromise is based on terms which provide for the advice of independent counsel in respect of the rights and entitlements of the minor beneficiaries. I have read and considered the confidential independent opinion provided by Independent counsel that is dated 5 September 2019. Having regard to it, and his oral submissions made in camera, I accept his conclusion that the proposed settlement is not in the best interests of the minor beneficiaries.
Section 91A of the Act requires the Court to have regard to the deceased’s will. Here, the will provides that the deceased intended to benefit his children and grandchildren. The terms do not appear to have sufficient regard to that given that the vast bulk of the estate (that remains for distribution) would now be given to the plaintiff.
Further, s 91A of the Act requires that the obligations and responsibilities of the deceased to beneficiaries must be considered. The deceased had an obligation, at least to his children, to provide for them given their circumstances. On the available evidence, it appears that some or all of the beneficiaries are in desperate need. On the parties’ own agreed joint trial document, all of the beneficiaries are destitute. They largely have, no cash or property and, in some cases, have dependents.[9] On the other hand, on the evidence it appears that the plaintiff has significant available assets. This is a relevant factor pursuant to s 91A(2)(d) of the Act.
[9]Agreed joint trial document filed 30 April 2019, [74]-[95].
There is evidence that two of the adult beneficiaries may have health issues.[10] This is a relevant factor pursuant to s 91A(2)(e) of the Act. On the other hand, although the plaintiff refers to some health issues, they appear to be controlled, and there is no evidence as to them having any financial impact. In particular, no evidence that they prevent her from continuing to work and earn income.
[10]Affidavit of Margaret Turner Cantell sworn 4 February 2019 [11]-[13].
Notwithstanding the factors above, the terms provide that the plaintiff would receive the vast bulk of the deceased estate.
For completeness, on the material before me, I find the defendant’s submission regarding the possibility of a potential claim by beneficiaries on the estate of the plaintiff to be speculative.
The trial has been estimated on a four day duration. On the material before me, I suggest a more likely estimate of trial is one-two days. There is a comprehensive statement of agreed facts, and it is agreed between the parties that the deceased had an obligation to provide for the plaintiff. Accordingly, the only issue is quantum. Any further delay in this matter should be insignificant given that affidavit material has already been filed. Given this, the costs, uncertainty, delay and inconvenience of trial do not outweigh the concerns I have outlined above concerning the compromise.
Given the above, it is unnecessary to determine whether or not there has been compliance with clause 4(b) of the terms.
Orders will be made referring the proceeding for pre-trial directions and for confidentiality of the material filed in support of the defendant’s the application.
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