Zappia v Parelli & Anor;Ligon 116 Pty Limited & Parelli v Ligon 116 Pty Limited;Zappia & anor v Parelli & anor

[2007] NSWSC 972

CITATION:	Zappia v Parelli & Anor;Ligon 116 Pty Limited & Parelli v Ligon 116 Pty Limited;Zappia & anor v Parelli & anor [2007] NSWSC 972
HEARING DATE(S):	18, 19 and 20 July 2007
JUDGMENT DATE :	31 August 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Order for widow made. Claim by son dismissed. Order for registration of shares in name of executors.
CATCHWORDS:	FAMILY PROVISION AND MAINTENANCE - insufficient estate - claim by second wife/widow - estate probably insolvent - insolvency caused by costs in proceedings and Family Law proceedings continued after death - some doubt as to value of assets - order made on understanding probably ineffective - claim by son dismissed - comments on disproportionate costs - COSTS - Family Provision Act claim - amounts of costs - clear lack of proportionality - comments on amounts - order capping costs and requiring assessment of all costs and preventing agreement
LEGISLATION CITED:	Corporations Act 2001 (Cth) Family Provision Act 1983 (NSW)
CASES CITED:	Leeder v Ellis [1953] AC 52
PARTIES:	Shen Jie Zappia (Plaintiff in 5297/06, and Second Defendant in 6259/06) John Zappia (Plaintiff in 2147/07) Jason Parelli (First Defendant in 2147/07 and 5297/06 and First Plaintiff in 5259/06) Peter James Kernan (Second Plaintiff in 5259/06 and Second Defendant in 2147/07) Jian Ma (Third Defendant in 6259/06) Ligon 116 Pty Limited (First Plaintiff in 6259/06) Ligon 116 Pty Limited (First Defendant in 6259/06)
FILE NUMBER(S):	SC 5297/06; 6259/06; 2147/07
COUNSEL:	Mr M Broun QC (for Shien Jie Zappia and Jian Ma) Mr P Mendue (for John Zappia) Mr R Dubler SC (for Defendants in 2147/06 and 5297/06 and Plaintiffs in 6259/06
SOLICITORS:	Luminous Legal (for Shen Jie Zappia and Jian Ma) Penmans Solicitors (John Zappia) Kernans Solicitors (for Defendants in 2147/06 and 5297/06 and Plaintiffs in 6259/06)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

FRIDAY 31 AUGUST 2007

5297/06 SHEN JIE ZAPPIA V JASON PARELLI & ANOR
6259/06 LIGON 116 PTY LIMITED & ANOR V LIGON 116 PTY LIMITED & ORS
2147/07 JOHN ZAPPIA & ANOR V JASON PARELLI & ORS

JUDGMENT

1 This judgment concerns three matters involving the estate of Bernard Pete Zappia, who died on 8 October 2005 aged 80. These matters are (a) 5297 of 2006 in which Shen Jie Zappia (Mrs Zappia), the widow of the deceased, seeks an order for provision under the Family Provision Act 1983; (b) 2147 of 2007 in which John Zappia, the son of the deceased, also seeks such an order; and, (c) 6259 of 2006 which is an action under the Corporations Act 2001 whereby Ligon 116 Pty Ltd (Ligon) and the executors of the will of Bernard Zappia seek orders that the shares and units of the deceased in the company and in a unit trust known as the “Payless Terrigal Unit Trust” (Payless Unit Trust) be transferred to them. The Ligon company is also named as a defendant together with Mrs Zappia and her son Jian Ma. The action is wrongly constituted as Ligon should not be a plaintiff. The first action is the main one and when at times in this judgment I refer to the plaintiff, I mean Mrs Zappia.

2 There is another action before the Court, which was cross-vested by order dated 19 July 2007 to this Court from the Family Court of Australia. It was proceeding number SYF 3353 of 2005 in the Family Court Registry. In those proceedings the deceased sought property adjustment orders against his wife, specifically seeking that units held by her in the Payless Unit Trust, of which Ligon is the trustee, be transferred by her to him.

3 On 20 July 2007 I determined that the Family Court proceedings should be heard after the Family Provision Act proceedings. That was because if I held that an order should be made in favour of the widow then it was obvious that the Family Court proceedings would have to be brought to an end because it did not seem that there was any suggestion that any consideration was to be paid to the widow if she were ordered to transfer her units in the unit trust to the deceased. I should add that the executor of the will of the deceased was substituted for the deceased as applicant in the Family Court and the proceedings have continued, although they are presently in abeyance waiting the outcome of the other proceedings.

The Will and Estate Assets

4 The deceased left a will dated 21 June 2005, probate of which was granted to the executors, his grandson Jason Parelli and his solicitor, Mr Peter James Kernan, who are the defendants in the Family Provision Act claims.

5 Under clause 4 of the will the deceased left his shares in Ligon No 116 Pty Limited to,

his grandson Jason Parelli as to 31.4%

his grandson Matthew Parelli as to 29.4%
his daughter Deborah Zappia as to 19.6%
his son Bernard Zappia as to 19.6%

and he gave the residue of his estate to his daughter Deborah. Clause 5 of the will is as follows

5. I DECLARE that the intended purpose of Clause 4 of this my Will is for the beneficiaries referred to in that Clause to receive their nominated percentages of my fifty one percent (51%) ownership in the company known as Ligon No 116 Pty Ltd and consequently the same percentages of the units owned by that company in the Payless Unit Trust.

It has been accepted that the result of clause 5, in spite of its quite inappropriate wording, is that the units, in which of course the value is situated, are distributed by the previous clause. The company is purely a trust company. It has no assets

6 The assets of the deceased at the date of his death, with their estimated value, as set out for probate purposes, were as follows:

51% share in Ligon $ 21,779.00
(meaning 51% of the
units in the Payless
Unit Trust)
Motor vehicle ` $ 1,000.00
Household goods $ 5,000.00
(These have been
distributed to Deborah)
Westpac Bank Account $ 6,029.00
Loan to Ligon $101,483.00

The liabilities in the estate were $4,942.00 so that there was a net estate of $130,349.

7 The only difference at the present time is that the interest in Ligon and the Payless Unit Trust is now valued at $47,000 and the loan at $108,683, and there is now a claimed liability for moneys advanced for costs of these and the Family Court proceedings, which is said to be $185,000.

Historical Background

8 The deceased was born in 1924. The plaintiff, Mrs Zappia, was born in China in 1943. She has a son of an earlier marriage, Jian Ma (Jian), born in 1969. She was married to the deceased on 31 July 1996, having lived with him for some little time before that. This was her third marriage. It was the second marriage of the deceased. She had met him in 1992 at a time when her husband was dying of cancer and the deceased’s first wife was very ill. They commenced to live together at a house at 6 Junction Road, Terrigal in 1994, which had been purchased by the deceased and his first wife, Shirley.

9 In 1995 the deceased transferred his Terrigal property to his daughter, Deborah, but he and the plaintiff continued to live in that house. At this time the plaintiff and her son, Jian, owned a property at 57 Etra Street, Gosford as tenants in common in equal shares, the plaintiff having purchased that property with money she received from the estate of her first husband and with moneys borrowed from the bank which were repaid, she says, by her son.

10 From 1987 until the time of his death the deceased was involved in a Payless supermarket business at Terrigal. The business was purchased in the name of Ligon as trustee for the Payless Unit Trust. The original shareholders in Ligon were the deceased with 99 A class shares, and Deborah and her husband Mr Staines, each with one A class share, and Composite Buyers Pty Limited with 201 B class shares. The units in the trust were held as to 14,000 by Composite Buyers, and probably 45,000 by Mr Staines and 45,000 by the deceased. Mr Staines says that whatever units he held were held on trust for the deceased. There is however considerable confusion about this. Mr Staines said that he only went into the business to help the deceased as otherwise the deceased would not have been able to raise the necessary funds from the bank for purchases and the like. He said that he advanced $40,000 to the deceased to start the business which was never repaid. In any event a somewhat inappropriate deed was entered into between the deceased and the plaintiff, Mrs Zappia, on 22 October 2001 which acknowledged that Composite Buyers had no further interest, recited the trust documents had been lost, recited that Mr Staines had held his units (said in the deed to be 90,000) on trust for the deceased, and that the original trust was wound up and a new trust settled under which the deceased transferred 44,100 units to Mrs Zappia for the consideration of one dollar. The plaintiff, Mrs Zappia, says that Mr Staines was to be paid $250,000 for these units which was paid by cash payments over a period of time. Mr Staines denies that he received any such moneys and denies he ever had any beneficial interest in the units. I do not accept the evidence of the plaintiff as to this. It is contrary to the deed of 22 October 2001 which was entered into when all the parties seemed to be in a reasonable relationship. In some way the shareholding in Ligon was altered so that the deceased held 51% and the plaintiff 49% of the issued shares.

11 The plaintiff says that she borrowed two amounts each of $50,000 on the security of her Etra Street property, which she put into the business. If she did, it did not appear on the unit trust accounts and she does not list it as one of her assets. Without supporting evidence I am not prepared to find that the debt, if it was a debt, still exists. It does not seem to be claimed that it does.

12 It is not really necessary to go into the details of the management of the business, although it is the business around which these actions revolve. Jian was engaged as shop manager for some time, but was dismissed in disputed circumstances. I do not think it necessary to make any decision about this. After that, Jason Parelli, one of the defendants, became manager from December 2001 and he remains in that position.

13 If the plaintiff obtains an order under which she receives the deceased’s shares and units in the supermarket, it is accepted that Jason will be dismissed and probably Jian put in in his place. Corporations Law proceedings were brought to require the plaintiff, Mrs Zappia, as a director of the company, to register the executors as shareholders and unit holders. She has resisted this without good reason.

14 In October 2001 the plaintiff purchased a one bedroom unit in Burwood. She had been diagnosed as having breast cancer and underwent a mastectomy. She was being treated in Sydney and she said she needed to live somewhere nearby. Whatever the position, it is true to say that at least from 2003 on, she spent less time with the deceased than before, but she says that this was because he was undergoing treatment for cancer as was she and it was necessary to have periods of rest. By this time she and the deceased had moved out of the Junction Road property into another property owned by Deborah and her husband in Arnold Street, Terrigal.

15 According to the plaintiff, the defendant, Jason, paid to the deceased the sum of $3,000 in cash each week from December 2003 until April 2005. Jason denies this. He said that the figure was $1,000 which was subsequently reduced to $800. The plaintiff says that this $3,000 was used for her own purposes and those of her husband. She also says that in December 2004 Mr and Mrs Staines offered her $500,000 for her shares and units in Ligon. They deny that and I do not accept it. Neither do I accept the evidence about the $3,000, but one thing is clear, which is that if that amount was being paid, then the books of the company do not show any basis upon which it would have been possible to make that payment so that the Commissioner of Taxation may have a greater claim on the trust assets than anyone else.

16 The proceedings in the Family Court appear to have been started by a document called “application for final orders” which is dated 27 June 2005. This gives a date of separation as 11 April 2005. Mrs Zappia says that her previous solicitor advised her not to contest the question of separation, although she says that she did not agree that she and the deceased had ever been separated. The application, as I have said, sought an order that Mrs Zappia transfer to the deceased all her shares in Ligon and all the units in the Payless Unit Trust. It is clear that a vast amount of time and effort and more importantly cost has been incurred in the Family Court proceedings, partly in attempts to determine the value of the supermarket business.

Financial Position of the Parties

17 It is necessary now to set out the financial position of the various parties. So far as the estate is concerned I have set out the assets that have been disclosed. I will come to the supermarket shortly. So far as Mrs Zappia, the widow, is concerned, her assets are as follows:

Unit 2/33 Belmore Road, Burwood approx $350,000

One half share in 53 Etra Street Gosford $175,000

Volkswagen motor vehicle $ 9,000
Household contents $ 5,000
45% interest in the Payless Unit Trust if taken at
the only value put forward $ 45,000

Liabilities appear to be an amount owing to St George Bank secured over the Burwood and perhaps Gosford properties of $455,216 and perhaps an additional liability of $60,000 over the Gosford property. In other words the total liabilities are over $500,000 and exceed the assets. None of this is really clear. The mortgages at date of death were probably about $170,000, although this is not clear either. What is clear is that it is the costs of litigation which have brought about the deterioration in the position of the plaintiff since the death of the deceased.

18 Mr John Zappia lives in a house at Lisarow owned as to 40% by him and 60% by his daughter. He and his wife have an investment property at East Gosford. His separate interests are as follows:

Interest in Lisarow $ 200,000
Interest in Gosford $ 175,000
Truck and car $ 40,000
Bank account $ 4,000
Furniture ½ share $ 5,000

$ 424,000

His liabilities are

Share of mortgage over Lisarow $ 60,000
Share of mortgage over Gosford $ 85,000
Car loan $ 36,000
$ 181,000

Thus his net assets are $243,000, although the investment unit should be regarded as a safe joint asset. He is 62. He works as a truck driver.

19 Jason Parelli is married with two children. He lives in rented accommodation. He relies on his wage from the supermarket of $1,000 per week to live. No other beneficiaries gave evidence of their financial position so it can be accepted they have no claim to set up against those made.

Estate Assets

20 I turn now to the supermarket business. As I have said the only evidence about this matter is a valuation of a Ms Delbridge-Bailey, chartered accountant, valuing the whole of the Payless Unit Trust at $92,000 after taking into account a loan account of the deceased with the trust of $108,683. It follows from this that the plaintiff’s interest in the trust on those figures is $45,000 and that of the deceased $47,000. To that $47,000 must be added the sum of $108,683 due by the trust to the deceased so that his interest in that business together with the loan due to him is $155,683. The rest of the assets in the estate are really of no significance.

21 A great deal of the time during the hearing was taken up with evidence and cross-examination and submissions about the value of the supermarket business. Mr M D Broun QC, for the plaintiff, in opening submissions, seemed to accept the valuation because he said nothing else could be proved. On the other hand, as I have said, a great deal of the cross-examination went to trying to establish that the turnover of the business was much greater than was disclosed. It is fair to say that this was not proved and to the extent that there is some doubt about it, it is more likely than not that any additional amounts would be owing to the Deputy Commissioner of Taxation. The fact that the plaintiff’s whole aim is to obtain control of the business and the deceased’s units in the unit trust and that the clear aim of the defendants, and particularly Mr Jason Parelli and his aunt Deborah, is to obtain control of the plaintiff’s units in that trust is borne out by the continuation of the proceedings in the Family Court and by an open offer made during the hearing by the executors which was an offer to purchase the plaintiff’s units for $200,000 on the basis the proceedings would be otherwise settled with no order as to costs. At least $100,000 of the estate’s estimated costs has been funded by Deborah and her husband. Various attacks were made on the evidence of Mr Jason Parelli and on his credit. While some attacks on credit were successful and while some of his admitted methods of making business payments through various accounts he held might give rise to some doubts about the accuracy of the business figures, nothing was actually proved.

Costs

22 The most alarming thing about this matter is the evidence given by both sides of the estimated costs of the Family Court proceedings, these proceedings and the Corporations proceedings. So far as the plaintiff is concerned the estimated costs to date of the Family Court proceedings is $53,447 and her estimated costs of the Family Provision Act proceedings is $197,494 making a total of $253,941. When the amounts at issue are taken into account those amounts would appear to be exorbitant and almost scandalous. So far as the executors are concerned, the position is just as bad. Their costs in connection with the Family Provision proceedings of Mrs Zappia are estimated at $100,866; their estimate of the costs in the Corporations Act proceedings are $5,820 and the estimate of the costs in the proceedings by Mr John Zappia are $2,420, making a total cost in those three proceedings of $109,106. In addition to that there appears to be an additional amount of about $80,000 in connection with the Family Court proceedings. Finally, the evidence of the costs of Mr John Zappia for his action are estimated to be $45,770. Even that last figure is very difficult to comprehend in view of the very small amount of work which appears to have been done in connection with his claim.

23 The result of all of this is that I am told that the deceased’s and the estate’s costs in the Family Court and in these proceedings come to over $185,000, which is more than the value of the estate, and the plaintiff widow has total costs of over $250,000. If the costs of Mr John Zappia are added to this then the court is being informed of total costs at $480,000, some of which involves a claim for property adjustment in the Family Court of assets said to be worth $45,000 and the balance involved with claims under the Family Provision Act for an estate worth $155,000. If that is the position, then the estate is now insolvent, and had little value at the start of the Family Provision Act proceedings and, so far as the plaintiff is concerned, her position is far worse than it would have been had she taken no action at all and just continued to receive the income from the units which she holds. As against that I accept that she was placed in a position that she had to fight to retain her interest in the business because the Family Court proceedings were an attempt to take those units away from her.

24 It will be obvious from the transcript that on a number of occasions I drew to the attention of the parties and their lawyers the fact that the estate was insolvent so that all that was being done was to incur further costs for no possible purpose and that I considered what was happening was outrageous. That achieved nothing and the case continued for three days in an effort to establish some worth in the business which counsel at the beginning stated could not be proved.

The claims

25 It is necessary to deal briefly with the strength of the claim of Mrs Zappia. I find that she did provide considerable assistance to the deceased in the supermarket business. There is nothing to show that they did not have a perfectly happy relationship during the first period of their married life. The fact that the deceased organised the transfer of 49% of the units in the unit trust to the plaintiff tends to indicate that they had a close relationship. It is clear that they saw less of each other after the plaintiff purchased the Burwood property, but there was at least some reason given for this and on 28 November 2004 the widow organised an 80th birthday party for the deceased, attended by many members of his family and at which it is accepted they seemed happy together. That could not have happened if there had not had been a reasonably good relationship at that time. It is also clear that the deceased’s health began to deteriorate in 2005. In April 2005 allegations were made about a breakdown of the marriage and in June 2005 the Family Court proceedings were commenced. The fact is, however, that the plaintiff remained the wife of the deceased and I find that there was not a true breakdown of marriage. Had there been no legal proceedings at all, and having regard to firstly, the more recent facts as to the relationship, and secondly, the interests of the plaintiff in the Burwood property, her half interest in the Gosford property and her interest in the supermarket business through the trust, I would have considered that the plaintiff was left without adequate provision and a reasonable claim would have been for an order in the vicinity of $100,000, to make her safe in the Burwood home with income from the trust. That figure would have been about the amount of the debt owing by the unit trust company to the deceased.

26 In the events which have happened it seems to be almost certain that the supermarket business will have to be sold because otherwise there will be no way in which the estate liabilities can be paid, let alone any costs of Mrs Zappia. In general it would not be appropriate to make an order for provision out of an insolvent estate as the order cannot be satisfied. That seems to have been accepted by the Privy Council in Leeder v Ellis [1953] AC 52 at 64. As there remains some doubt about the value of the estate, and as it is possible that the supermarket business may turn out to be more valuable than the evidence at present indicates, and as, to some extent, the Family Court proceedings and the Family Provision Act proceedings are necessarily entwined, I have come to the conclusion that the appropriate order should be that which I originally envisaged, namely that Mrs Zappia should have an order for $100,000 and costs out of the estate, understanding as I do that on the evidence the estate at the present time is insufficient to pay that amount. The executors will be entitled to their costs out of the estate as well, but those costs should be costs as assessed and not costs as agreed. The plaintiff’s costs should also be assessed, and I propose to make an order that they be capped at a figure of $100,000. I can only say again that the parties and their solicitors seem to have lost all sense of proportion in this matter and have engaged in a dispute brought about by the dislike of Mrs Zappia by Jason and Deborah and perhaps the deceased’s other children apart from John. However, that is an unfortunate fact which happens reasonably regularly in the case of second or third marriages. I should say I find the costs even more concerning when one of the executor defendants is the solicitor for the estate.

27 So far as the Corporations Act proceedings are concerned the executors have always been entitled to have the shares and the units held by the deceased registered in their name. They are entitled to orders to that effect and they are entitled to an order for costs against Mrs Zappia.

28 So far as the claim of Mr John Zappia is concerned, the fact is that, bearing in mind the other claims, there is just not sufficient money in the estate to make any order in his favour, even if it were appropriate to do so, which, on the facts, I do not think it is. He had not seen his father from 1994 until shortly before his father’s death, and his financial position is not such that an order could be made in his favour as the estate does not allow it. His application should be dismissed with no order as to costs. In submissions costs orders were not sought against him.

29 So far as the Family Court proceedings are concerned, I said when I was hearing the matter that if an order were made in favour of the plaintiff those proceedings would have to be dismissed with no order as to costs, but the parties can address the court further on this.

Proposed orders

1. Order that the plaintiff receive further provision from the estate of Bernard Pete Zappia in the sum of $100,000.

2. Order that the assessed costs of the plaintiff up to an amount of $100,000 be paid out of the estate.

3. Order that the assessed costs of the defendants on the indemnity basis be paid out of the estate, such costs not to be agreed by the executors.

1. Order the summons be dismissed.

2. No order as the plaintiff’s costs.

3. Order the assessed costs of the defendants on the indemnity basis be paid out of the estate of the deceased.

1. Order that Ligon 116 Pty Ltd be removed as a plaintiff.

2. Make the declaration sought in paragraph 5 of the originating summons.

3. Make the order as sought in paragraph 6 of the originating summons.

4. Originating process otherwise dismissed.

5. Order that the second defendant pay the plaintiffs’ costs of the proceedings.

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