Re Simcocks
[2019] VSC 62
•14 February 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 01962
IN THE MATTER of ss 28 and 34 of the Administration and Probate Act 1958
-and-
IN THE MATTER of an application under rr 29.08, 54.02(2)(b)(i)-(iii) and 54.02(2)(c) of the Supreme Court (General Civil Procedure) Rules 2015 and r 6.03 of the Supreme Court (Administration and Probate) Rules 2014
-and-
IN THE MATTER of the Estate of DAVID EYRE SIMCOCKS, deceased
| JOHN THOMAS BERKELEY SIMCOCKS (by his litigation guardian, TIMOTHY JOHN MULVANY) | Plaintiff |
| v | |
| STEPHEN DAVID SIMCOCKS AND TRUDI JANE PATON (as executors of the Estate of Simcocks, deceased and in their personal capacity) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 November 2018 |
DATE OF RULING: | 14 February 2019 |
CASE MAY BE CITED AS: | Re Simcocks |
MEDIUM NEUTRAL CITATION: | [2019] VSC 62 |
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WILLS AND ESTATES —Application for approval of compromise — Where compromise encompasses rights interests assets and issues extraneous to the estate of the deceased — Where plaintiff is a person under a disability — Whether compromise is in the best interests of the plaintiff.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M McKenzie | Wisewould Mahony |
| For the Defendants | Mr R Wells | Hicks Oakley Chessell Williams |
HER HONOUR:
Introduction
David Eyre Simcocks died on 24 September 2006 leaving a will dated 27 May 1980. The deceased was survived by his four children, being the plaintiff, first defendant, second defendant and Andrea Diane Simcocks, and his domestic partner, Mavis Falls. The instituted executor and substituted executor both predeceased the deceased. On 29 May 2007, letters of administration with the will annexed were granted to the defendants.
The inventory of assets and liabilities filed with the application for the grant recorded the net value of the estate at $7,668,426.70.
Pursuant to the deceased’s will, the deceased’s passenger bus business was bequeathed to the plaintiff and first defendant in equal shares, his house in Longwarry Road, Garfield was devised to the first defendant and his farm property at Pitt Road, Catani, actually located at Humphries Road, Catani, was devised to the plaintiff. The residue of the estate was divided into three parts, with two thirds left to the deceased’s two daughters in equal shares and the remaining one third divided between the plaintiff and the first defendant in equal shares.
By originating motion filed 24 May 2017, the plaintiff sought removal of the executors of the estate, an administration account of the estate of the deceased and various accounts and other information concerning the estate and the David Simcocks Family Trust over many years.
On 4 January 2018, Timothy John Mulvany was appointed as the plaintiff’s administrator, pursuant to orders made in the Guardianship List of the Victorian Civil and Administration Tribunal (‘the VCAT’).
By orders made 19 February 2018, Timothy John Mulvany was appointed litigation guardian for the plaintiff in the proceeding. After prolonged settlement discussions the parties entered into a deed of family arrangement and settlement dated 5 September 2018 (‘the deed’), subject to the Court’s approval.
Plaintiff’s approval application
By summons filed 17 October 2018, pursuant to Order 15 of the Supreme Court (General Civil Procedure) Rules 2015, the plaintiff seeks orders that:
(a) the compromise be approved;
(b) the plaintiff receive by way of provision out of the estate of the deceased the sum calculated and arising from the completion of the deed of family arrangement and settlement;
(c) no order as to the costs of the plaintiff of this proceeding; and
(d) the costs and expenses of the defendant of and incidental to this proceeding be paid and retained out of the estate of the deceased.
The application for approval was supported by an affidavit of Genevieve Frances Knight, legal practitioner, sworn 16 October 2018. Ms Knight exhibited the deed and counsel’s advice in support of the compromise and deposed that in her opinion the proposed compromise is in the best interests of the plaintiff for the reasons set out in counsel’s opinion.
The defendants consented to the approval of the compromise as contained in the deed.
The deed
The deed involves a complex set of arrangements that will affect the plaintiff’s personal, financial, taxation and legal affairs. It travels well beyond the relief sought in the plaintiff’s proceeding and deals with issues and entities outside the estate of the deceased.
The signatories to the deed are the plaintiff, the defendants both personally and in their capacities as executors of the estate, Andrea Simcocks, and Tarenberg Pty Ltd as trustee of the David Eyre Simcocks Family Trust.
The parties to the deed acknowledge and agree that the passenger bus business referred to in the deceased’s will was not owned by the deceased at the date of his death but was owned and operated by Tarenberg Pty Ltd as trustee for the David Eyre Simcocks Family Trust.
The deed recites, inter alia, as follows:
(a) the deceased was a member of the Tarenberg Pty Ltd Superannuation Fund and that the member’s balance at the date of his death stood at approximately $800,000;
(b) the deceased’s assets and liabilities at the date of his death were as set out in an attached schedule 1 to the deed, which is the inventory of assets and liabilities filed with the application for grant of probate;
(c) as at the date of the deed, the executors have made payments to beneficiaries in advance of their expectant share in the residuary estate as set out in an attached schedule 2 to the deed and the assets of the estate that are yet to be realised are also set out in schedule 2;
(d) for the purposes of adjusting the rights between the beneficiaries, the estate shall be deemed to include the deceased’s member’s balance of the superannuation fund.
Schedule 2 to the deed is in the form of undated spreadsheet and possibly records financial matters as around August 2017.
The deed records that the parties entered into the deed:
(a) in settlement of the proceeding;
(b) in order to set out an agreed scheme for the administration and distribution of the remaining assets of the estate;
(c) in order to set out with clarity the extent of the further entitlements that each of them have to share in the distribution of the estate of the deceased;
(d) in order to provide clarity and certainty as to the ongoing control and operation by the first defendant, through Tarenberg Pty Ltd of the David Eyre Simcocks Family Trust, and the business operated through it;
(e) in settlement of any equitable entitlement arising from allegations made by the first defendant that he has made a substantial contribution to the improvement and increase in value of the estate farm at Catani;
(f) in order to provide an ongoing arrangement for the management of the plaintiff’s personal financial and legal affairs by his administrator; and
In respect of the plaintiff, it is agreed that:
(a) he owns a farm in Longwarry Road, Catani, and upon its sale, subject only to stated provisions in the deed, he is entitled to receive the net proceeds of sale;
(b) he is entitled to receive out of the estate, the farm property at Humphries Road, Catani, and upon its sale, subject only to stated provisions in the deed, he is entitled to receive the net proceeds of sale;
(c) he has been overpaid the sum of $792,000 from the estate by reason of the fact that he has been paid all of the deceased’s superannuation and death benefit, which the parties agree form part of the estate;
(d) is indebted to Andrea Simcocks personally for the sum of $230,000;
(e) subject to the provisions in the deed, he is otherwise entitled to retain all prior distributions received by him to date out of the estate;
(f) he accepts that he will not receive any further payment or distribution as a residuary beneficiary of the estate;
(g) he is not entitled to receive any payment or distribution, now or anytime in the future from the David Eyre Simcocks Family Trust and disclaims all beneficial entitlements he may otherwise have therein and has no legal or beneficial interest in the trustee, Tarenberg Pty Ltd;
(h) he will be indemnified by the first defendant for any liability with or arising out of Tarenberg Pty Ltd and the David Eyre Simcocks Family Trust and any business operated by it.
Applicable principles
In determining whether to approve the compromise of a person under a disability, the Court must be satisfied that the compromise will benefit that person. The Court is concerned only with the best interests of the person under disability.[1] It is not the Court’s role to decide whether the outcome of the compromise is one that would have been made had the matter proceeded to trial. Rather, its role is to protect the person under a disability and to exercise its independent judgment on the question of whether or not to approve the compromise.[2]
[1]Re Barbour’s Settlement [1974] 1 All ER 1188, 1191; Gillespie v Alperstein [1964] VR 749; Stephens-Sidebottom v Department of Education and Early Childhood Development (Vic) [2011] FCA 893 (8 August 2011) [12].
[2]Fairhurst (bht NSW Trustee and Guardian) v Fairhurst [2012] NSWSC 388 (20 April 2012) [37].
The Court is assisted by those advising the person under disability in deciding whether a compromise is beneficial to, and in the best interests of, that person. Significant weight will be attached to the opinions provided by counsel, solicitors and, as appropriate, litigation guardians as to whether a proposed compromise is in the interests of a person under a disability. Generally, such persons have had the opportunity to become well-informed about the circumstances of the proceeding and have conducted extensive consideration of the proposed compromise, having regard to the attitude of the other parties and the apparent strengths and weaknesses of the respective claims. The affidavits in support of an approval of a compromise usually exhibit an opinion by counsel. The opinion, and the instructions on which it is based, should not be provided to the defendants or their advisers.
Consideration
A letter from the plaintiff’s litigation guardian’s to counsel dated 3 September 2018, sets out in considerable detail over nine pages his understanding of the compromise for all beneficiaries based on the current assets and liabilities and presuming that the realisation of the farm and the plaintiff’s own property would facilitate the repayment of certain debts. The litigation guardian sets out his understanding of the financial result of the settlement for the plaintiff and seeks counsel’s advice as to whether the compromise is in the best interests of the plaintiff.
Counsel’s opinion relies on the letter of instruction from the litigation guardian.
Counsel describes his opinion as being:
in relation to the proposed settlement of the plaintiff’s claim in this proceeding and any other claims the plaintiff may have against the estate of the deceased and the defendants or others in respect of the way in which the estate has been handled and assets not otherwise in the estate have been dealt with.
Counsel advised he had read with care the basis on which the litigation guardian has decided to enter into the proposed settlement and acknowledged that the litigation guardian had dealings with the plaintiff in circumstances that led him to a better understanding of:
(a) the plaintiff’s capacity to give instructions;
(b) the need for the plaintiff to maintain an ongoing and meaningful relationship with his siblings;
(c) his reasons for the distribution of the estate being handled in the way it was; and
(d) the prospects of achieving any better outcome for the plaintiff by either a harder line in the negotiations or pursuing a different and more adversarial approach to the executors and treatment of the assets in question.
While counsel adopted and accepted the views of the litigation guardian concerning the terms of settlement and the benefit to the plaintiff, counsel’s opinion provides little or no independent analysis of the reasons for the compromise being in the best interests of the plaintiff. He does not provide an explanation of any benefit to the plaintiff by the compromise or what might be the legal basis, for example, for the plaintiff surrendering the superannuation death benefit and its consequences, or of surrendering an interest in the David Eyre Simcocks Family Trust.
An administration account for the estate of the deceased dated 9 June 2017 (‘the account’) is exhibited to an affidavit of the executors sworn 13 June 2017 and filed in compliance with orders of the Court made 2 May 2017. A one page spreadsheet titled ‘Estate of DE Simcocks’ was also annexed to the deed and records values of cash, shares, and distributions on two separate dates in August 2017. The account and spreadsheet are difficult to review as they do not clearly articulate the administration of the estate. By way of example, the documents may not include all of the deceased’s properties, do not outline with any specificity any rent received, how those funds may have been invested since 2007 and do not appear to provide any estimates of any taxation liabilities.
Further, schedule 2 to the deed notes that all four residuary beneficiaries are equally burdened with the further provision of $1.3 million paid to the deceased’s domestic partner in 2007, as well as ‘tax/expenses’ of $400,000. There are no reasons given for that burden not being divided in accordance with the same division as the residue of the estate under the deceased’s will.
The administration account and schedule 2 do not clarify the quantum of the residue of the estate with any certainty and the delay between the grant of probate in May 2007 and this proceeding is largely unexplained. The deed distributes what may be the remaining estate to the plaintiff’s three siblings, being the other residuary beneficiaries under the will, to the exclusion of the plaintiff.
Based on the details contained in the deed, there are a number of queries to be answered in the context of whether the compromise is in the best interests of the plaintiff.
The deceased’s superannuation benefits and the size of residue
The deed provides that the superannuation death benefit in the sum of $1,355,356 paid to the plaintiff by the trustee of the deceased’s superannuation fund be treated as if it had been paid into and forms part of residue of the estate. There is no basis given for the plaintiff surrendering the superannuation death benefit, other than it is ‘agreed’.
Taking into account the superannuation death benefit and distributions from the estate to the plaintiff, the parties believe that the plaintiff has received $1,932,707.52 since letters of administration were granted to the defendants (‘thepayments’). It appears from the approval documents that this figure is accruing by $50 per day (‘the recurring payments’). As at the date of the deed, the parties believe this figure includes overpayments to the plaintiff of $792,000 plus the recurring payments, both of which are purportedly above his entitlements under the will (‘the agreed overpayment’).
Neither the deed nor the schedules indicate the date to which the payments have been calculated. Assuming that the date is around the date of the deed, then based on the Court’s own calculations as to the amount of the residue of the estate, the payments minus the plaintiff’s entitlement to one sixth of the residuary estate, plus $50 per day from the compromise to 20 December 2018, suggests an overpayment of approximately $637,702 which is $150,000 to $160,000 below the agreed overpayment.
However, if the superannuation death benefit does not form a part of the estate, then based on the Court’s own calculations, the residue could be valued at approximately $6.44 million. If this is the case, the superannuation death benefit must be deducted from the payments, meaning that the plaintiff has received $577,351 (this being the same amount included in the account as to the plaintiff’s interim distribution). Accordingly, there is arguably no basis for claiming that the agreed overpayment is due to be paid back in part or full to the estate of the deceased.
Given these matters, a key question in approving the compromise is whether the superannuation death benefit forms part of the estate of the deceased. Without this being ascertained, the wider value of the residuary estate is not certain. Consequently, the effect of the compromise on the plaintiff, and whether the compromise is to his benefit, cannot be assessed by the Court.
Arrangements to fund the plaintiff’s ‘overpayment’ and debt
The deed provides that to recoup the overpayment, a property left to the plaintiff in clause 3 of the will, together with a property that he owns personally (‘the properties’) are to be sold with the reserve set by the real estate agent. All parties to the compromise are permitted to bid at an auction once the reserve is passed. From the net sale proceeds of the properties, the agreed overpayment and the debt of $230,000 owed by the plaintiff to his sister, Andrea Simcocks, are to be repaid.
The decision to sell the properties is a financial decision. Depending on the income that could be earned, the overpayment and the debt owed to the plaintiff’s sister it may, for example, be funded by mortgage, or by the sale of only one of the properties. There may be taxation implications on the sale of the properties.
The plaintiff appears to be a member of the ‘Yes You Can Super Fund’ (‘the fund’) and is one of three directors of the trustee, John Simcocks Superfund Pty Ltd. The litigation guardian, as the plaintiff’s administrator, proposes to replace the existing directors of the trustee and operate the fund for plaintiff’s benefit. On the material it is uncertain whether the fund has any other members. An account statement for the fund suggests the plaintiff’s superannuation balance has dramatically reduced since 2015. It is not clear whether the litigation guardian is satisfied that the fund has been properly run or whether he proposes to ascertain it is fully compliant before releasing the existing directors of the trustee. Further, a decision to retain the fund and its investments is a financial decision and should be made on proper financial advice and specialist legal advice may also be required on these proposed changes.
Surrender of interest in David Eyre Simcocks Family Trust
The deed also provides that the plaintiff surrenders all his rights and interest in the David Eyre Simcocks Family Trust. It is not possible to determine what benefit, if any, this release has to the plaintiff as his entitlements are unknown.
Distributions to the plaintiff under the deed
The plaintiff suffers from various psychiatric conditions. His capacity is fluid and he can be stable and fully capable for long periods. He also suffers from a severe gambling addiction. If the compromise were approved, the plaintiff would have a home in Archer Road, Garfield, the sum of $810,000 in the fund and an amount as surplus funds following the sale of the properties as already set out. It is not clear from the affidavit and opinion whether the litigation guardian considered some form of protection for the plaintiff, such as holding the funds on trust or paying them into funds in Court, given his conditions.
Costs of the parties to the proceeding and the parties to the deed
The deed provides that the plaintiff bear his own costs. No information is provided as to the reasonableness of the plaintiff’s costs in terms of the proceeding, which consists of an application and multiple adjournments and concluding with the mediation.
The deed also provides that ‘all parties’ bear their own legal costs save for the defendants ‘who shall be entitled to have their costs of and incidental to the matters set out in this paid out of the estate on the usual trustee basis’. The parties to the deed include the plaintiff, the defendants in their capacities as administrators of the estate and in their personal capacities, the plaintiff’s sister, Andrea Simcocks, and Tarenburg Pty Ltd.
Pursuant to the Civil Procedure Act 2010, costs must be reasonable and proportionate to the issues in dispute in the proceeding. The deed purports to deal with matters not in the proceeding. The quantum of any costs and what issues they might cover in the proceeding or otherwise require explanation, particularly in light of the practitioners and litigants overarching obligations under the Civil Procedure Act 2010.
Conclusions
Given these difficulties, the compromise cannot be approved on the basis of the evidence currently before the Court. The following further information must be provided to enable the Court to assess the compromise:
(a) a further opinion by counsel that addresses the issues raised in this ruling, including whether the Court has the power to approve the compromise considering that it encompasses substantially more than the issues in the proceeding;
(b) a full administration account of the estate of the deceased estate, including a schedule for all real property, showing all outgoings and income, valuations and any estimated taxation liabilities, such as capital gains tax;
(c) a proper articulation and estimate of the residuary estate of the deceased;
(d) an outline of the distribution of the estate under the deceased’s will as well as pursuant to the deed, including the effect of the superannuation death benefit, if it is retained by plaintiff or otherwise forms part of the estate of the deceased;
(e) a copy of the resolution of the trustees of the deceased’s superannuation fund that the superannuation death benefit be paid to the plaintiff, and how the funds were invested, alternatively, the facts or documents that are said to support an obligation on the plaintiff to pay the superannuation death benefit back to the estate of the deceased;
(f) the financial statements and trust deed for the David Eyre Simcocks Family Trust and a clear articulation of the rights and entitlements that the plaintiff would surrender as a result of the deed and why relinquishing his rights under that trust would be for the plaintiff’s benefit;
(g) the audited accounts and trust deed of the Yes You Can Super Fund;
(h) an explanation as to the delay by the defendants in administering the deceased’s estate;
(i) an explanation and the reasons for the parties seeking the Court to assess causes of action that are either outside of the proceeding or hypothetical; and
(j) the quantum of the costs claimed and whether that is reasonable and proportionate to the issues in dispute as well as how they are quantified.
Orders
The parties are to provide a minute of proposed orders by 21 February 2019 for the filing of the further information required by the Court.
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