Rockman v IPR Nominees Pty Ltd (No 2)
[2018] VSC 270
•24 May 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2015 01263
IN THE MATTER of the 1965 IRVIN PETER ROCKMAN TRUST
-and-
IN THE MATTER of an application under Order 54 and of the Supreme Court (General Civil Procedure) Rules 2015 and ss 48 and 63A of the Trustee Act 1958
| ZACHARY PHILLIP ROCKMAN and RACHEL LILY ROCKMAN (who sues by her litigation guardian, LYNETTE ANNE ROCKMAN) | Plaintiffs |
| v | |
| I.P.R. NOMINEES PTY LTD (which is sued as the trustee of the 1965 IRVIN PETER ROCKMAN TRUST) & OTHERS (according to the Schedule attached) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 December 2017 |
DATE OF JUDGMENT: | 24 May 2018 |
CASE MAY BE CITED AS: | Rockman v IPR Nominees Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 270 |
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TRUSTS – Powers and duties of trustees – Power of trustee to compromise a claim – Where Court approval of compromise is sought – TrusteeAct 1958 s 19(1)(f) – Supreme Court (General Civil Procedure) Rules 2015 r 54.02.
PRACTICE AND PROCEDURE – Compromise of proceeding on behalf of a minor – Court approval of compromise - Supreme Court (General Civil Procedure) Rules 2015 r 15.08.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Dr KP Hanscombe QC Mr AP Dickenson | Lander & Rogers |
| For the Defendants | Mr P Anastassiou QC Mr J Smith | Strongman & Crouch |
HER HONOUR:
Before the Court are fifteen applications seeking approval of a compromise. If approved, seven separate proceedings surrounding the estate of Irvin Peter Rockman (‘the deceased’) and a trust with which he was previously associated, the 1965 Irvin Peter Rockman Trust (‘the 1965 Trust’), will be resolved.
The deceased died on 30 August 2010. He was survived by six children, two from each of his three marriages: Matthew, Edward, Rhett, Elle, Zachary and Rachel. Probate of an informal will (‘the informal will’) was granted to Mr John Fast, Mr Michael Schoenfeld and Mr Philip Brown (‘the executors’) in 2013. At that time, the net value of the deceased’s estate (‘the estate’) was estimated to be $10.78 million.
A number of entities previously associated with the deceased also held, and continue to hold, considerable wealth. Three entities of particular significance are IPR Nominees Pty Ltd (‘IPR Nominees’) as trustee for the 1965 Trust; Irvin Peter Holdings Pty Ltd (‘the Holdings trustee’) as trustee of the Irvin Peter Holdings Trust (‘the Holdings Trust’); and Willowsbend Pty Ltd as trustee for the Willowsbend Trust. The Holdings Trust and the 1965 Trust are included among the beneficiaries of the estate, as are five of the deceased’s children.
Since probate was granted, both the estate and the 1965 Trust have been the subject of considerable litigation. In August 2016, the various parties to the unresolved claims attended mediation. In November 2017, a deed of settlement (‘the compromise’) was executed. As a consequence of the compromise, the following applications have been made:
(a) three applications for the approval of entry into the compromise, pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’), brought by the executors;
(b) three applications for approval of entry into the compromise pursuant to r 54.02 of the Rules brought by IPR Nominees;
(c) three new originating motions commenced by the Holdings trustee, Willowsbend Pty Ltd, and Mr Fast, Mr Schoenfeld and Mr Brown as trustees of the Irvin Rockman Trust, the Zachary Rockman Trust and the Rachel Rockman Trust, for approval of entry into the compromise pursuant to r 54.02 of the Rules; and
(d) six applications pursuant to r 15.08 of the Rules for approval of the compromise brought by Rachel Rockman, the youngest child of the deceased, by her litigation guardian and mother, Lynette Rockman (‘Lyn’).
The key issues to resolve are whether each of the applications under rr 54.02 and 15.08 should be granted. On 11 December 2017, oral submissions were heard and on 28 March 2018, the Court granted each application, with written reasons to be delivered later and which are now provided to the parties.
Background
The 1965 Trust was established in August 1965, with Northrock Nominees Pty Ltd as the trustee. Under the terms of the relevant deed, the vesting day was the date of the deceased’s death and on that date, absent prior appointment, the trust fund was to be held for:
(a)if one primary beneficiary is named in the schedule in trust for such primary beneficiary absolutely and where two or more primary beneficiaries are so named in trust for such of the primary beneficiaries as attain the age of twenty-one years as tenants-in-common in equal shares…[1]
The primary beneficiaries are described in the schedule as the children of the deceased.[2]
[1]Deed of Settlement of the 1965 Irvin Peter Rockman Trust dated 12 August 1965, cls 1(5), 4(a) (‘1965 Trust Deed’).
[2]1965 Trust Deed, Schedule.
Matthew Rockman and Edward Rockman, two children of the deceased’s first marriage, were born in 1968 and 1969 respectively.
In 1970, IPR Nominees replaced Northrock Nominees Pty Ltd as trustee of the 1965 Trust.[3]
[3]Deed of Variation of the 1965 Irvin Peter Rockman Trust dated 22 July 1970.
In 1974, Rhett Rockman was born and Elle Rockman was born in 1986. Both were adopted by the deceased during his second marriage.
The deceased’s third marriage to Lyn commenced on 13 February 1997. Zachary Rockman, a child of that marriage, was born on 19 February 1999.
On 20 February 2003, by way of a deed of extension, IPR Nominees purported to extend the vesting date of the 1965 Trust beyond the date of death of the deceased to the earlier of 30 June 2045 or ‘twenty-one years after the date of the death of the last to die of the issue of His late Majesty King George the Sixth’ living on the date of execution of the deed (‘the 1965 Trust extension deed’).
Rachel Rockman, the second child of the deceased’s marriage to Lyn, was born on 5 April 2004.
The Willowsbend Trust was created on 27 April 2006 with a vesting day identified as 30 June 2085. Upon vesting, the corpus was to be held for such beneficiaries as Willowsbend Pty Ltd may appoint, or in the absence of appointment, the specified beneficiaries in equal shares. The specified beneficiaries were identified as the ‘children’ of the deceased, and ‘child’ is defined in cl 1.1(f) as meaning ‘the natural born issue of a beneficiary and an ex-nuptial child who has been or is acknowledged by one of that child’s parents (being a beneficiary) as a member of the parent’s family’.
The deceased’s mother, Suzie Rockman, died on 20 October 2007. Her will created, inter alia, the Zachary Rockman Trust, the Rachel Rockman Trust and the Irvin Rockman Trust (‘the testamentary trusts’).
On 3 June 2008, the Holdings Trust was established, with Matthew, Edward, Zachary and Rachel named as the specified beneficiaries. The class of general beneficiaries was defined broadly, including relatives of the specified beneficiaries. As with the Willowsbend Trust, upon vesting, in the absence of appointment, the corpus was to be held for the specified beneficiaries in equal shares. The vesting day provided was 30 June 2087.
The deceased and Lyn separated in October 2008. In that year, Lyn commenced property proceedings in the Family Court of Australia (‘the Family Court proceeding’).
On 28 July 2009, the following occurred:
(a) IPR Nominees purported to appoint that, from the death of the deceased until the vesting day, the corpus and income of the 1965 Trust would be held 59% for Zachary and Rachel as tenants in common in equal shares, 20.5% for Matthew and 20.5% for Edward (the ‘1965 Trust deed of appointment’), and on the vesting day, the trust funds would be applied in those proportions;
(b) deeds of appointment in the same terms were entered into by Willowsbend Pty Ltd, the Holdings Trustee and by the trustees of certain other trusts, including the Irvin Rockman Trust; and
(c) deeds of appointment were executed in relation to two other trusts, the IPR Gembrook Trust and the Crayfish Properties Trust, such that from the death of the deceased until the vesting day, the trust funds were to be split equally between Rachel and Zachary.
On 1 April 2010, the deceased signed a letter of wishes outlining how he anticipated certain trusts should be administered after his death.
In or about August 2010, the deceased instructed his solicitors, Kenna Teasdale Ltd (‘KTL’), to prepare his will. Although the informal will was drafted, it was not executed before the deceased died on 30 August 2010. The chief asset of the estate at that date was a $42.6 million debt owed by the 1965 Trust and the IPR Gembrook Trust.
The executors applied for a limited grant of administration in late 2010.[4] Having obtained the limited grant, in July 2011 they settled the Family Court proceeding on behalf of the estate. That settlement involved the trustee of the 1965 Trust making payments to Lyn in respect of the education, maintenance and advancement of Zachary and Rachel, pursuant to cl 6(c) of the 1965 Trust.
[4]Proceeding number S PRB 2010 14109.
The executors were granted probate of the deceased’s informal will on 6 March 2013 (‘the probate proceeding’).[5] At that time, the net value of the estate was estimated to be $10.78 million, after settlement of the Family Court proceeding.
[5]Proceeding number S PRB 2012 07166.
On 11 April 2013, Rhett commenced a claim for further provision from the estate under Part IV of the Administration and Probate Act 1958 (‘Rhett’s Part IV proceeding’).[6]
[6]Proceeding number S CI 2013 01852.
In association with the probate proceeding, Zachary and Rachel, by their litigation guardian, sought documents from the executors regarding, inter alia, the estate and the 1965 Trust. On 21 May 2013, the executors commenced a proceeding seeking guidance from the Court regarding their obligations to disclose the documents (‘the documents proceeding’).[7] The documents proceeding was dismissed on 12 August 2013 and costs orders were made against the executors personally. On that issue, the executors appealed unsuccessfully.
[7]Proceeding number S CI 2013 02554.
On 2 September 2013, Elle commenced a proceeding seeking further provision from the estate pursuant to Part IV of the Administration and Probate Act 1958 (‘Elle’s Part IV proceeding’).[8]
[8]Proceeding number S CI 2013 04570.
Relying upon s 48 of the Trustee Act 1958, on 3 December 2013, Zachary and Rachel, by their litigation guardian, commenced a proceeding seeking removal of IPR Nominees as trustee of the 1965 Trust (‘the removal application’).[9]
[9]Proceeding number S CI 2013 06257.
The trials of both Rhett’s Part IV proceeding and Elle’s Part IV proceeding commenced in October 2014 but were adjourned part heard pending an issue regarding the existence of a schedule referred to in the informal will, but not annexed to the probated informal will. On 24 October 2014, the executors subsequently commenced an application for rectification of the informal will (‘the rectification application’).[10]
[10]Proceeding number S PRB 2012 07166.
Having neither prosecuted nor discontinued the removal application, on 30 March 2015, Zachary and Rachel commenced a proceeding against IPR Nominees raising multiple issues, including a challenge to the 1965 Trust extension deed (‘the vesting dispute’) where they sought, inter alia:
(a) declarations that the 1965 Trust extension deed was beyond the power of the IPR Nominees and that the 1965 Trust vested upon the death of the deceased; and
(b) orders for the taking of accounts, and that the 1965 Trust funds be distributed to the children of the deceased in equal shares on each of them attaining 21 years; or
(c) alternatively, orders that the vesting day be brought forward to 2 August 2024, that IPR Nominees be removed as trustee and be replaced by Equity Trustees Limited, and that all documents of the 1965 Trust be delivered to Equity Trustees Limited.[11]
[11]Proceeding number S CI 2015 01263.
Following the hearing and determination of the rectification application, by orders made 27 August 2015, the schedule was incorporated by reference into the informal will (‘the rectification order’).[12] The executors were ordered to pay the costs of the rectification application personally. Subsequent appeals, by both the executors and Zachary and Rachel, were dismissed.
[12]Fast v Rockman [2015] VSC 337 (22 July 2015); Fast v Rockman (No 2) [2015] VSC 431 (27 August 2015).
By summons filed in the probate proceeding on 7 August 2015, the executors sought executors’ commission (‘the commission proceeding’), pursuant to s 65 of the Administration and Probate Act 1958. Affidavits have been filed by each of the executors detailing the work done in administering the estate.
On 21 April 2016, the executors, with the Holdings trustee, commenced a claim against their formers lawyers, KTL, seeking damages in relation to the personal costs orders made against them in the documents proceeding (and appeal), and the rectification application (’the negligence proceeding’).[13]
[13]Proceeding number S CI 2016 01462.
On 13 July 2016, Rhett commenced a proceeding seeking a declaration that the 1965 Trust deed of appointment is void; a declaration that the funds of the 1965 Trust are payable to the children of the deceased, and that he is entitled to received one-sixth of those funds (‘the deed of appointment proceeding’).[14]
[14]Proceeding number S CI 2016 02744.
On 15 and 16 August 2016, Matthew, Edward, Rhett, Elle, Zachary and Rachel (by their litigation guardian), Mr Fast, Mr Schoenfeld and Mr Brown, in their capacity as the executors and as the directors of IPR Nominees, and representatives of KTL attended mediation. It was agreed in principle to resolve all of the legal proceedings and crystallise the interests in the estate, the 1965 Trust, the Holdings Trust, the Willowsbend Trust and numerous other less significant trusts.
The informal will
Of the 29 clauses of the informal will, cl 5 relevantly refers to an attached schedule which lists various entities associated with the deceased, including family trusts. Clauses 6 to 14 bequeath the sum of $500,000 to each of Elle, Zachary, Rachel, Matthew and Edward. Clause 15, which is subject to cl 16, bequeaths any sum owing to the deceased or standing in his credit by each of the entities named in the schedule, to the Holdings Trust, to be held as an accretion to that trust fund absolutely. Clause 16 then makes a number of specific gifts, amounting to $1.71 million in total, to named individuals and the sum of $1 million each to two entities. In accordance with cl 17, the residue of the estate then falls to the 1965 Trust.
As at 30 June 2017, the net value of the estate was approximately $10.56 million.[15] A consequence of the rectification order was that the gifts of $500,000 to the five children will abate, such that in accordance with the informal will, Elle, Zachary, Rachel, Matthew and Edward each receive approximately $76,000. Additionally, the Holdings Trust receives $6 million, being the remainder of the debts owed to the estate by the entities in the schedule, less the gifts in cl 16.
[15]Deed of Agreement dated 24 November 2017, Schedule G (‘The Compromise’).
The trusts
A significant number of trusts are involved in the compromise. They include those that were created by deed during the lifetime of the deceased and the testamentary trusts. Of the trusts created by deed, particularly relevant are the 1965 Trust, the Holdings Trust and the Willowsbend Trust, which have a total net value of approximately $55 million.[16] Also involved in the compromise are two active trusts of which Zachary and Rachel are the specified beneficiaries, the Crayfish Properties Trust and the IPR Gembrook Trust; ten active but less significant trusts[17] and four inactive and insignificant discretionary trusts.[18]
[16]1965 Trust: $23,473,303; Holdings Trust, $14,977,576; Willowsbend Trust, net assets of $20,000,000. Included in the Willowsbend Trust assets of $36,314,000 are two shares in Cheap Home Loans (IPR) Pty Ltd, comprising the entirety of the issued shares. That company has net assets of $16,554,207.
[17]The Compromise, Schedule B.
[18]The Compromise, Schedule F.
The trusts created by deed are all similarly structured, with corporate trustees and discretionary objects including the deceased and his children. The directors of the corporate trustees are Mr Fast, Mr Schoenfeld and Mr Brown.
Since the death of the deceased, significant distributions of income have been made from the 1965 Trust to the trustee of the Rockman Home Loans Trust, which has then distributed the funds to Cheap Home Loans (IPR) Pty Ltd. Willowsbend Pty Ltd owns both of the issued shares in Cheap Home Loans (IPR) Pty Ltd.
The testamentary trusts subject to the compromise, the Irvin Rockman Trust, the Zachary Rockman Trust and the Rachel Rockman Trust, were created under the will of Suzie Rockman. The primary beneficiary of each is the person identified in the name of the trust, while the general beneficiaries are the relatives and other related entities of the primary beneficiaries.[19] The vesting dates are 79 years from the death of Suzie Rockman, or as otherwise appointed, and the trustees are Mr Fast, Mr Schoenfeld and Mr Brown.
[19]Irvin Rockman Trust, $765,091; Rachel Rockman Trust, $497,186; Zachary Rockman Trust, $497,186.
The compromise
The compromise involves crystallisation of interests in the trusts and distribution of the estate, the latter including payments to Rhett, Elle and the executors. From the perspective of the trusts, subsequent to Court approval, the following is to occur:
(a) each of the trusts will vest, including the 1965 Trust, the Holdings Trust, the Willowsbend Trust, the testamentary trusts, the Crayfish Properties Trust and the IPR Gembrook Trust;
(b) prior to vesting, the trustees of each of the trusts will distribute the corpus and income[20] to discretionary trusts nominated by the individuals identified in, and in the proportions reflected in, the deed of appointment, save for the funds of the Crayfish Properties Trust and the IPR Gembrook Trust being divided equally between Rachel and Zachary, and the Zachary Rockman Trust and the Rachel Rockman Trust being distributed 100% to Zachary and Rachel respectively.
[20]Save for the settled sum, or in the case of the Irvin Rockman Trust, $100.
Additionally, Edward, Zachary and Rachel are to receive certain unpaid distributions from the 1965 Trust,[21] the latter’s share of which is to be paid to the Senior Master, Funds in Court of the Supreme Court.
[21]The Compromise, cl 32.
As to the estate:
(a) liabilities will be discharged and legacies paid;
(b) executor’s commission paid;
(c) payments will be made to Rhett and Elle;
(d) the executors will be reimbursed for certain costs; and
(e) the residue will be paid to Matthew, Edward, Zachary and Rachel in the same proportions as the distributions of the 1965 Trust.
The Holdings Trust foregoes its $6 million entitlement under the informal will, and the 1965 Trust is obliged to top up the estate to enable the estate to make the required payments. In essence, the 1965 Trust and the Holdings Trust ensure that the estate has sufficient liquidity to meet its obligations under the terms of the compromise.
The proceedings to be resolved
In accordance with the compromise, the proceedings to be resolved are Rhett’s Part IV proceeding and Elle’s Part IV proceeding, which remain adjourned part heard, the commission proceeding, the negligence proceeding, the removal application, the vesting dispute (which appears to have subsumed the removal application) and the deed of appointment proceeding.
Although the compromise also resolves the negligence proceeding, an application for approval of compromise in that proceeding has not been filed.
Approvals pursuant to r 54.02 of the Rules
The executors have brought applications pursuant to r 54.02 in Rhett’s Part IV proceeding, Elle’s Part IV proceeding and the commission proceeding. IPR Nominees has similarly brought applications in the removal application, the vesting dispute and the deed of appointment proceeding, and originating motions seeking approval under r 54.02 have been commenced by the trustees of the Holdings Trust, the Willowsbend Trust and the testamentary trusts. The applications rely upon confidential affidavits of Mr Fast, Mr Schoenfeld, Mr Brown and their solicitor, Mr Joseph, as well as an affidavit of an accountant, Mr Arthur Topalidis. Exhibited to an affidavit of Mr Joseph is a confidential advice of counsel. Additionally, reliance is placed upon the joint statement of facts and trust deeds before the Court.
In accordance with r 54.02, executors and trustees are able to seek the Court’s approval regarding discrete issues that may arise in the administration of a trust or estate. The role of the Court in approving a compromise entered into by trustees is ‘not to consider the wisdom of the trustee’s exercise of discretion’,[22] rather, as summarised by Habersberger J in Exxonmobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd,[23] the role of the Court is to:
Grant the trustee’s application for an order approving the trustee’s agreement to the compromise, if the court is satisfied of the proprietary of the application. That involves 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.[24]
[22]Exxonmobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd (2010) 29 VR 356, 375 (‘Exxonmobil’).
[23]Ibid.
[24]Ibid; see also Gisborne v Gisborne (1877) 2 App Cas 300, 307; Re Green [1972] VR 848; McKinnon v Samuels [2000] VSC 393 (21 September 2000) [14]; Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACSR 1, 17.
Similarly, in IOOF Australia Trustees Ltd and the Trustee Act 1936,[25] Debelle J reasoned:
[w]here the court is being asked for advice and direction concerning a compromise of litigation, the court can do no more than consider whether it is proper for the trustee to consider a compromise. The terms of the compromise will be for the trustee to determine.[26]
[25][1999] SASC 461 (20 October 1999).
[26]Ibid [5].
Consideration of whether the trustee’s decision to agree to the compromise is within power includes identification of both the power to enter the compromise and the power to exercise the discretions that the compromise entails.[27]
[27]Hodge v De Pasquale [2014] VSC 413 (29 August 2014) [75]–[77]; see eg Brown-Sarre v Waddingham [2012] VSC 116 (30 March 2012) [25]; Re Centro Retail Australia Limited [2012] VSC 240 (8 June 2012) [26]–[27].
Consideration
Is the compromise within the power of each trustee?
Consistent with Exxonmobil, the first consideration is whether each trustee has the power to agree to the compromise.
The executors submit that s 19(1)(f) of the Trustee Act 1958 is applicable to each of IPR Nominees, the Holdings Trustee, Willowsbend Pty Ltd, and themselves, both as executors of the estate and as trustees of the testamentary trusts. That section empowers trustees and personal representatives to ‘compromise … any debt, account, claim or thing whatever relating to the testator’s or intestate’s estate or to the trust’.
In Dowling v St Vincent de Paul Society Victoria Inc,[28] the Court determined that s 19(1)(f) can be employed regarding claims upon or against the estate, ‘be they from the outside world or as between beneficiaries’,[29] and it is established that the provision should be broadly construed.[30] Such breadth, however, ‘does not confer power on a trustee to alter the terms of the trust to give effect to an agreement under s 19’.[31]
[28][2003] VSC 454 (20 November 2003).
[29]Ibid [21].
[30]Hodge v De Pasquale [2014] VSC 413 (29 August 2014) [72]–[73]; see also Robinson v Jones (No 3) [2015] VSC 508 (20 November 2015).
[31]Hodge v De Pasquale [2014] VSC 413 (29 August 2014) [77].
Additionally of significance in relation to s 19(1)(f) is that the power the provision affords depends upon ‘the existence of a claim to be compromised. If rights are undisputed or easily enforced, there is no justification in compromising’.[32] In the current circumstances, while there is substantial dispute and disharmony associated with the estate and the trusts that hold significant wealth, the Court is particularly conscious of the involvement of trusts that have otherwise avoided contention. The estate and the 1965 Trust are the subject of litigation, and the parties agree that the deeds of appointment purportedly executed by the Holdings Trustee, Willowsbend Pty Ltd and Mr Fast, Mr Schoenfeld and Mr Brown in relation to the Irvin Rockman Trust are disputed. In relation to the estate and those trusts, the Court is satisfied that s 19(1)(f) provides the executors and relevant trustees with the power to enter the compromise. There is no dispute, however, surrounding rights under the Rachel Rockman Trust or the Zachary Rockman Trust. As such, the power afforded in s 19(1)(f) is not applicable, however, the Court is satisfied that Mr Fast, Mr Schoenfeld and Mr Brown are able to enter into the compromise in their capacity as the trustees of those trusts by Part 2, cl 9.1 of the will of Suzie Rockman.[33]
[32]Dowling v St Vincent de Paul [2003] VSC 454 (20 November 2003) [33]; see also Chapman v Chapman [1954] AC 429, 457; Re Hoobin [1957] VR 341.
[33]The clause provides that, subject to any specific provision to the contrary of this trust, the trustees: 9.1.1 in the administration of this trust; and 9.1.2 in the investment of and other dealings with the trust fund; shall have all of the powers and legal capacity of a natural person.
Looking beyond the decision to enter into the compromise, the terms of the compromise also require the trustees of the trusts to exercise their discretion in distributing both the trust income and capital, and altering the vesting date. The Court has considered the confidential joint opinion of counsel and the trust deeds of the 1965 Trust, the Holdings Trust and the Willowsbend Trust, in addition to cls 11, 1.15, 4.2 and 5.1 of Part 2 of the will of Suzie Rockman.[34] The Court accepts the advice to the effect that in relation to each of the trusts, the trustee has the power to both make the requisite distributions and alter the vesting date. Insofar as the power to alter the vesting day in the deeds of the Holdings Trust and Willowsbend Trust is subject to the restriction of cl 10.1(d)(ii),[35] the Court is satisfied that that condition is met.[36]
[34]As to the 1965 Trust: cl 21 and possibly the definition of ‘vesting day’, cl 6; as to the Holdings Trust: cls 3.1, 6(a) and 1.1(x)(i)B, subject to cl 10.1(d)(ii); as to the Willowsbend Trust: cls 3.1, 6(a) 1.1(x)(i)B.
[35]Clause 10.1(d)(ii) provides that where there ceases to be a guardian, the trustee shall not exercise the restricted powers (including setting a vesting day earlier than the vesting day appointed pursuant to cl 1.1(x)(ii)) in such a manner as to impair or diminish the expectations of any specified beneficiary or of any other person or persons upon whom in the events which happen or pursuant to any appointment validly made pursuant to cl 4 the Trust Fund is to devolve on the Vesting Day.
[36]As to the Willowsbend Trust, the submission that cl 1.1(x)(ii) is met seems to be based on the assumption or acceptance that Rhett and Elle do not fall within the definition of ‘child’ and, therefore, are not specified beneficiaries. This appears appropriate and, in any event, Rhett and Elle have consented, so that there is consent from all those affected by the interpretation.
Of some significance, acceptance of the ability of IPR Nominees to alter the vesting date overlaps with the issues raised in the vesting dispute. The Court notes, however, that all of the parties to the vesting dispute are also parties to the compromise. As such, subject to the Court’s approval under r 15.08 of the Rules in relation to Rachel, this overlap does not preclude the compromise.
Additionally of significance is the discretion of the Holdings Trustee to forego its gift amounting to $6 million under the informal will. While not expressly covered in the submissions, it is apparent that the Holdings Trustee has the power to forego the specific gift from the estate under s 19(1)(f) of the Trustee Act 1958, the common law[37] and the Holdings Trust deed of trust.[38]
[37]Blue v Marshall (1735) 24 ER 1110; Forshaw v Higginson (1857) 44 ER 609.
[38]Trust Deed of the Irvin Peter Holdings Trust, dated 3 June 2008, cls 7(g), 7(y), 7(z).
From the perspective of the estate, while s 19(1)(f) affords the executors the power to enter into the compromise, the compromise can only be given effect with the consent of all of the affected beneficiaries, or by order of the Court.[39] In this regard, the Court is satisfied that, subject to the approval of Rachel’s applications under r 15.08, all of the beneficiaries affected by the compromise have consented to its terms. While consent has not be obtained from the individuals or entities identified in cl 16 of the informal will, the compromise does not impact upon their interests in the estate.
[39]Hodge v De Pasquale [2014] VSC 413 (29 August 2014).
Are the trustees acting in good faith and without impropriety?
None of the evidence suggests that any of the executors, IPR Nominees, the Holdings Trustee nor Willowsbend Pty Ltd are acting otherwise than in good faith. The overall impression is that, in good faith, all of the trustees are focused upon finally resolving the longstanding and complicated disputes in a manner that reflects, as best as possible, the wishes of the deceased and the interests claimed by the deceased’s children. No other motivation, or suggestion of impropriety, is apparent.
Have the trustees given fair consideration to the relevant factors?
The confidential affidavits of Mr Fast, Mr Schoenfeld and Mr Brown demonstrate that they have, in their capacity as the executors, the trustees of the testamentary trusts, and as the directors of IPR Nominees, the Holdings trustee and Willowsbend Pty Ltd, considered the relevant factors, including the advice of Mr Joseph and counsel.
Regarding the estate, they have considered the wishes of the deceased declared both in the informal will and the letters of wishes. They have also reviewed advice as to the issues arising in each of Rhett’s Part IV proceeding, Elle’s Part IV proceeding and the negligence proceeding. The application for executor’s commission is based upon detailed affidavits where the particular ‘pains and troubles’ have been detailed.
Insofar as the trusts are concerned, the issues raised in the vesting dispute, removal application and deed of appointment proceeding are also the subject of advice from counsel which has been considered by Mr Fast, Mr Schoenfeld and Mr Brown. That advice includes matters that arise in relation to the planned distributions of the trusts. Particular regard has been had to the discretionary beneficiaries of the 1965 Trust, Holdings Trust, Willowsbend Trust and Irvine Rockman Trust who will not strictly benefit from the trust distributions in accordance with the compromise. Namely, Rhett and Elle, as discretionary beneficiaries of the 1965 Trust, the Holdings Trust and testamentary trusts do not benefit from the distribution of those trusts. Additionally, the current and future grandchildren of the deceased, who are unrepresented, do not benefit from the distribution of the Holdings Trust, Willowsbend Trust and Irvin Rockman Trust. The Court is satisfied, however, that the interests of the grandchildren have been appropriately considered and that the appointment of separate legal representation is not justified in the circumstances.
The obligations of the trustee of the 1965 Trust for the payments to Zachary and Rachel as a result of the settlement of the Family Court proceeding are the subject of an express release in the compromise and any residual rights that may otherwise have remained under the settlement of the Family Court proceeding have effectively merged into the compromise.[40]
[40]The Compromise, cl 20.1(a)(xxiii).
Of importance in relation to all of the r 54.02 applications, Mr Fast, Mr Schoenfeld and Mr Brown have considered the current and future legal costs associated with the claims and the significant risk of ongoing conflict. To date, the proceedings have been numerous and complicated, and the negotiating process itself has been described as ‘long and arduous’.[41] There is a clear interest in the parties avoiding ongoing litigation and adopting a process that finally separates their interests in the estate and the trusts.
[41]Transcript of Proceedings, Rockman v IPR Nominees Pty Ltd (Supreme Court of Victoria, S CI 2015 01263, McMillan J, 11 December 2017) 4.
Ultimately, it is apparent that Mr Fast, Mr Schoenfeld and Mr Brown, as the executors, the trustees of the testamentary trusts, and directors of IPR Nominees, Willowsbend Pty Ltd and the Holdings trustee, have turned their minds to the relevant considerations. As each trustee has acted within power, in good faith and absent impropriety regarding the compromise, in the Court’s view, all of the applications pursuant to r 54.02 should be approved.
Approval under r 15.08
In accordance with Order 15 of the Rules, where a claim is brought on behalf of a minor, compromise of that claim must be given Court approval in order to be valid. The Court’s role is protective, ensuring that the compromise is for the minor’s benefit.[42] Of particular relevance is the risk that the minor will not obtain a more favourable outcome at trial in the event that the compromise is not approved. Other considerations may include the cost and stress of ongoing litigation.[43]
[42]Elderfield v Transport Accident Commission [2010] VSC 116 (12 April 2010) [16]–[17] citing Fisher v Marin [2008] NSWSC 1357 (16 December 2008) and Gillespie v Alperstein [1964] VR 749, 751; Institoris by his next friend Maria Institoris v Falconer [2012] NSWCA 298 (6 September 2012) [2].
[43]Herbert (by her tutor Meehan) v Tamworth City Council [2015] NSWSC 103 (23 February 2015) [28]; Tsirigotis v The Ivanhoe Girls Grammar School [2017] FCA 1064 (7 September 2017) [18].
Rachel is the only child of the deceased who is still a minor. By her litigation guardian, she has applied for approval of the compromise in Rhett’s Part IV proceeding, Elle’s Part IV proceeding, the removal application, the vesting dispute, the commission proceeding and the deed of appointment proceeding (‘the proceedings’). She relies upon two affidavits of her litigation guardian’s solicitor, Ms Leigh Formica, and two confidential memoranda of advice from counsel, one providing advice as to compromise of the proceedings and the other directed toward certain tax consequences of the compromise.
Consideration
The Court has had regard to the confidential advice of counsel and is satisfied that, in each of the proceedings, the compromise is for the benefit of Rachel. Particularly significant are the terms of the compromise that result in a discretionary trust nominated by Rachel receiving 29.5% of the assets of the 1965 Trust, the Holdings Trust, the Willowsbend Trust and the Irvin Rockman Trust. In effect, Rachel’s interests under the existing trusts are crystallised in the proportions nominated in the deed of appointment, consolidated and transferred to a single trust of which she is currently the only specified beneficiary. The risks, costs and emotional strain associated with ongoing litigation are avoided. Although under the terms of the compromise, Rachel forgoes her specific gift in cl 8 of the informal will, potentially contributes funds to the estate if necessary, and agrees to payments being made to the executors, and to Rhett and Elle, these factors do not detract from the overall benefit in her favour.
Insofar as the transfer of Rachel’s interest to a new discretionary trust has tax consequences, the Court has considered and accepts the advice of counsel specialised in tax.
If 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, Rachel 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 Rachel’s behalf should be granted.
Conclusion
Mr Fast, Mr Schoenfeld and Mr Brown, in their capacity as executors, trustees of the testamentary trusts, and directors of the relevant corporate trustees, have acted within power, in good faith and without impropriety. They have carefully considered the numerous relevant issues in relation to the compromise. Consequently, the applications brought under r 54.02 by the executors, IPR Nominees, Willowsbend Pty Ltd, the Holdings trustee, and by Mr Fast, Mr Schoenfeld and Mr Brown as trustees of the testamentary trusts should be granted.
Further, having considered the evidence and advice of counsel, the Court is satisfied that the compromise is for Rachel’s benefit. The risk exists that if the matters proceed to trial she would receive an overall outcome less favourable than the terms of the compromise. That risk is such that the compromise should be approved.
For completeness, it is noted that:
(a) these reasons are applicable to the following proceedings: S CI 2013 01852; S CI 2013 04570; S CI 2013 06257; S CI 2015 01263; S CI 2016 02744; S PRB 2012 07166; S CI 2017 04793; S CI 2017 04794; S CI 2017 04795; and
(b) pursuant to r 28.05(2)(a) of the Rules, the affidavits and exhibits are to be kept in a sealed envelope on the Court file and marked confidential, and to be unsealed only upon order of the Court.
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SCHEDULE OF PARTIES
| S CI 2015 01263 | |
| ZACHARY PHILLIP ROCKMAN | First Plaintiff |
| RACHEL LILY ROCKMAN (who sues by her litigation guardian LYNETTE ANNE ROCKMAN) | Second Plaintiff |
| -and- | |
| I.P.R NOMINEES PTY LTD (which is sued as the trustee of The 1965 Irvin Peter Rockman Trust) | First Defendant |
| MATTHEW MYER ROCKMAN | Second Defendant |
| EDWARD JACOB ROCKMAN | Third Defendant |
| RHETT NATHAN ROCKMAN | Fourth Defendant |
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