Zerella v Zerella
[2014] SASC 100
SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master)
ZERELLA & ORS v ZERELLA & ORS
[2014] SASC 100
Judgment of The Honourable Justice Bampton
4 August 2014
SUCCESSION - FAMILY PROVISION - PROPERTY WHICH MAY BE SUBJECT TO ORDER - WHAT CONSTITUTES ESTATE AND DISTRIBUTION
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PARTIES - JOINDER OF PARTIES
Appeal from an order of a Master ordering joinder of a trustee company as a defendant in Inheritance (Family Provision) Act 1972 (SA) proceedings – principal asset of the estate is a debt owed by Zerella Investment Trust – the plaintiff disputes the value of the debt owed and asserts that the true value of the debt includes the total of the four adjustments made reducing the amount owed – trustee company appeals Master’s order – whether the plaintiff has standing to seek order – whether the Court has power to make the order for joinder in Inheritance Family Provision proceedings.
Held: the value of the debt is a matter that is directly relevant to the value of the estate and therefore the subject matter of the Inheritance Family Provision proceedings – the Court has jurisdiction to determine the size and value of the estate in such proceedings – it is appropriate to order joinder of the trustee company for it to be bound by any finding as to value of the debt – appeal dismissed.
Inheritance (Family Provision) Act 1972 (SA) s 7, s 9, s 10; Supreme Court Civil Rules 2006 (SA) r 74, r 312; Administration and Probate Act 1919 (SA) s 69; Trustee Act 1936 (SA) s 91, referred to.
Goodman v Windeyer & Ors (1980) 144 CLR 490; In the Estate of Indran Sanmuganathan [2000] NSWSC 1214; Re Davis (Deceased) [1952] VLR 517; Mataska v Browne [2013] VSC 62; Wood v McLean [2010] VSC 550; Blore v Lang (1960) 104 CLR 124; Clarke & Ors v Edwards [2012] SASC 213, considered.
ZERELLA & ORS v ZERELLA & ORS
[2014] SASC 100Civil: Appeal from a Master
BAMPTON J: This is an appeal by Zerella Investments Pty Ltd (the appellant) against an order of a Master of this Court that it be joined as a defendant to these Inheritance (Family Provision) Act 1972 (SA) (the Act) proceedings.
The proceedings
Vito Zerella died on 18 September 2009. Vito Zerella’s only child by his first marriage, Paul Zerella (the respondent), received no legacy under his father’s will. The respondent’s three daughters are beneficiaries under the will to the sum of $200,000 each provided that the residuary estate is valued at not less than $3,000,000.
Vito Zerella’s widow, Silvana Zerella, and his sons by his second marriage to Silvana, Jim and Joseph Zerella, are each residuary beneficiaries under the will and executors of the estate.
The respondent is the initiating claimant who began these proceedings for provision out of his father’s estate pursuant to 6R 312 of the Supreme Court Civil Rules 2006 (SA).
Pursuant to 6R 312(8) the respondent is a plaintiff in the proceedings. As the executors of the estate, Silvana, Jim and Joseph Zerella are defendants pursuant to 6R 312(9). In accordance with 6R 312(10), Silvana, Jim and Joseph Zerella are also plaintiffs as separate individual claimants under the Act in their personal capacity.
On 28 June 2011, the executors filed an affidavit (FDN 18) pursuant to 6R 312(11)(a) deposing to the assets and liabilities of the estate and exhibiting a copy of the probate documents. The net estate disclosed for probate purposes was $2,026,042.20. The principal asset of the estate is a debt due to the deceased from Zerella Investments Pty Ltd as trustee of the Zerella Investment Trust of $2,062,000. Probate was granted to the executors on 7 December 2010.
On 6 September 2011 following an argument regarding disclosure, Judge Withers ordered disclosure of documents pertaining to the Zerella Investment Trust saying:
[20]There is little doubt that in an action of this nature the parties are expected to fully disclose their financial positions to enable the Court to assess the adequacy or otherwise of the testamentary provision made for any particular claimant.
On 18 November 2013, the respondent filed a Notice of Dispute (FDN 30) pursuant to 6R 312(11)(c) disputing the value of the loan account in the Zerella Investment Trust referred to in the statement of assets and liabilities exhibited to FDN 18.
By an interlocutory application (FDN 28), the respondent sought an order that the trustee company, Zerella Investments Pty Ltd, be joined as a defendant. The order is sought so that the amount due to the estate from the Zerella Investment Trust can be determined as part of the Inheritance Family Provision proceedings (IFP proceedings).
FDN 28 is supported by an affidavit of the respondent’s solicitor sworn on 7 August 2013. Exhibited to that affidavit is a copy of a report of a forensic accountant relied on in support of the order sought. A copy of the proposed second statement of claim is also exhibited to the affidavit. The proposed second statement of claim pleads that:
-the accountant for the Zerella Investment Trust recorded after the deceased’s death four adjustments reducing the amount owed by the Zerella Investment Trust to the estate.
-the debt owed by the Zerella Investment Trust includes the additional amounts pertaining to each of the four adjustments.
-the true value of the debt owed to the estate by the Zerella Investment Trust is $6,086,915.90.
The Master’s decision
In his reasons for ordering joinder of Zerella Investments Pty Ltd, the Master stated that:
-the respondent, as trustee for three beneficiaries of the deceased’s estate, might have “standing in any event … to bring an action in respect of the estate’s value and to seek that the executors pursue the alleged shortfall in the estate but that is not an issue presently before me”.[1]
-the executors may be in a position of conflict of interest in assessing some of the adjustments that the respondent challenges, a matter affecting their apparent objectivity in determining whether or not it is appropriate for the action to be taken to remedy those adjustments.[2]
-the value of the estate may be agitated as part of the proceedings under the Act.[3] Even if the “value of that debt may not be equivalent to its legal liability or legal entitlement. The realistic value will be that which is properly recoverable having regard to the available assets of all concerned”.[4]
-the Court has permitted the value of an estate where a claim has been made under the Act to be agitated in IFP proceedings.
-the Court seeks to determine all issues in dispute between the parties in one action insofar as that is possible.
-the Court, for the purposes of the IFP claim, needs to ascertain the value of the estate by making a determination of the value of the debt owed by the Zerella Investment Trust.
[1] Zerella v Zerella & Ors (Unreported, Judge Withers, 31 January 2014) at [27].
[2] Zerella v Zerella & Ors (Unreported, Judge Withers, 31 January 2014) at [28].
[3] Zerella v Zerella & Ors (Unreported, Judge Withers, 31 January 2014) at [29].
[4] Zerella v Zerella & Ors (Unreported, Judge Withers, 31 January 2014) at [31].
The appellant’s submissions
The appellant argues that the Master did not directly address the submissions put by it and did not grapple with the central question of whether or not the Act permits an IFP claimant to advance the claims the respondent seeks to advance or whether the Court has jurisdiction to decide such claims as part of IFP proceedings. The appellant also complains that the Master considered that the question of the value of estate assets may be properly ventilated in the proceedings without grappling with the distinction between:
(1)a claim that the value (or worth) put on an asset acknowledged by the executors to be part of the estate is incorrect; and
(2)a claim that the assets of the estate include various claims against one or more third parties that the executors have not advanced;
against the proper construction of the provisions of the Act.
Further, the appellant claims that the Master drew a distinction between the value (or worth) of the debt and its recoverability.
The appellant submits it is for the executors to decide what is owed to the estate as they stand in the shoes of the deceased. It is their role to determine the value of the estate and it is only certain persons who can challenge what they do.
The appellant contends that the only means by which the respondent can challenge the administration of the estate is by commencing proceedings for devastavit. It is asserted that IFP claimants cannot interfere with the executor’s administrative duties; that IFP proceedings concern the distribution of assets and the Act is not a vehicle to police what the executors do.
The appellant refers to s 7(1) of the Act, which confers discretion to “… order that such provision as the Court thinks fit be made out of the estate of the deceased person for the maintenance, education or advancement of persons so entitled”. It is submitted that the Court may make limited ancillary orders but there is no power given to the Court to do anything else. In particular, it is submitted that the Act does not confer any general powers over estate assets or potential claims to assets, it is just a power to alter distribution of an estate by making an order for provision adjusting the existing distribution.
The appellant relies on the decision of the New South Wales Supreme Court in In the Estate of Indran Sanmuganathan.[5] In that case, Young J said the Court’s power to restrain an executor from parting with assets of the estate pending Family Provision Act 1982 (NSW) proceedings is founded in the Court’s inherent power to preserve the subject matter of the action. However, his Honour stated that, “one cannot, in my view, reason by analogy from that line of authority that such a claimant has any right to interfere with the estate or its administration generally”. The appellant refers to there being no decided authority in this State regarding the orders a claimant can seek in IFP proceedings. The Court was referred to decisions of the Victorian Supreme Court where it has been held that an IFP claimant has no standing to make complaints about the administration of an estate.[6]
[5] [2000] NSWSC 1214 at [16] per Young J.
[6] Re Davis (Deceased) [1952] VLR 517.
In Re Davis (Deceased), the Court said:[7]
A practice would seem to have been growing up recently of raising problems of construction and administration for decision upon applications under Part V of the Administration and Probate Acts. This practice is undesirable because the procedure upon such applications is quite inappropriate for that purpose. In a case where problems of construction or administration arise in relation to the estate of a deceased person and an application is made in that estate … then, if the problems are material to the question whether adequate provision has been made for the applicant, the proper course is for the application under Part V to be adjourned pending the determination of the problems of construction or administration in appropriate proceedings.
[7] [1952] VLR 517 at 518.
The appellant also referred to the decision in Mataska v Browne where the Court said:[8]
…an applicant must establish that he or she has standing by virtue of having an interest in the estate of the deceased.
Plainly, it is not the case that anyone who contemplates a Part IV claim has an interest sufficient to interfere in the administration of an estate. However, in the present circumstances, there are strong grounds upon which to conclude that the plaintiff has a prima facie case for further provision from the estate.[9] In a claim made by an adult daughter for whom no provision has been made, in my view, there is a prima facie presumption that a deceased did have a responsibility to make provision for her. Such an applicant, without more, has a prima facie interest in the estate of a deceased.
Although it is correct to say that, at the time of the application before me, the plaintiff does not have a present interest or an actual existing interest in the estate, the fact that her Part IV claim, which would entitle her ultimately to be a beneficiary of the estate as at the death of the deceased, could be said to have a reasonable prospect of success suggests that she has a prima facie interest in the estate of the deceased. In that sense, she has a sufficient interest in the administration of estate. In my opinion, the principle enunciated by Sifris J in Wood v McLean, that a contingent interest cannot constitute a sufficient interest, is too broadly stated. A contingent Part IV interest, without more, is insufficient to support standing.
[8] [2014] VSC 62 at [48], [51], [53].
[9] However, the plaintiff need not set out to prove those facts at this stage.
In Wood v McLean,[10] Sifris J held that two plaintiffs who had made claims seeking provision under the Act did not have standing to bring an action to set aside an inter vivos transfer by the deceased to their sister.[11]
[10] [2010] VSC 550.
[11] [2010] VSC 550 [25].
It is contended that the forensic accounting report obtained by the respondent makes it clear that the subject matter of the report is a critique of each of the transactions the respondent criticises the executors for not advancing. It is submitted that complex accounting matters are involved and what is proposed by the respondent is a fully-fledged attack on accounting transactions under the guise of an IFP claim without employing proper procedures or protections for the estate or the trustee company.
The appellant argues that the Master erred in approaching the application on the basis that it concerned a dispute as to the true value placed on the deceased’s loan account with Zerella Investment Trust by the executors, as if the deceased’s estate claim against a third party were the equivalent of a house or chattel that the executors had identified as an estate asset but undervalued. It is submitted that, properly understood, the respondent is asserting four claims in devastavit.
In essence, the appellant argues that if a person with proper standing disagrees with the actions of an executor, they should pursue a claim for devastavit.
It is submitted that neither the Act nor the Rules give claimants for family provision standing to compel executors to advance debt claims and/or give the Court jurisdiction to determine such claims.
The appellant asks that the order for joinder of Zerella Investments Pty Ltd be set aside.
The respondent’s submissions
The respondent contends that the value of the estate is one of the issues that the Court needs to determine as part of its jurisdiction to determine the respondent’s claim for provision out of the estate of the deceased.
It is submitted that the value of the assets of the estate is an issue in an action under the Act having regard to the decisions in Blore v Lang[12] and Goodman v Windeyer & Ors,[13] and as recognised by the Rules of Court made in respect of actions under the Act.[14] The respondent also refers to the comments of Judge Lunn in Clarke & Ors v Edwards in support of this submission:[15]
If the amounts which the executor states as being the values are put in issue, then the parties have to adduce admissible expert evidence at the trial to prove the true values. The practice of executors stating such amounts in their affidavits is equivalent to a pleading alleging a particular value, but if it is put in issue under 6R 312(11)(c), then it must be proved at the trial.
[12] (1960) 104 CLR 124 at 138.
[13] (1980) 144 CLR 490 at 509.
[14] Supreme Court Civil Rules 2006 (SA) r 312.
[15] [2012] SASC 213 at [16].
There is no issue between the parties that the estate owns the property (the debt) or that in due course the executors should take action to recover the property in order to administer the estate. The respondent argues the issue between the parties is how much the debt is worth. The question of whether adequate provision has been made and whether any further provision should be made is dependent upon the size of the estate.
The respondent submits in response to the appellant’s concerns about protection for the executors, that there is no reason why the executors or the appellant as trustee could not seek the directions of the Court under s 69 of the Administration and Probate Act 1919 (SA) or s 91 of the Trustee Act 1936 (SA).
Analysis
The Act confers on the Court jurisdiction to decide a range of issues that arise in IFP proceedings. One such issue is the size and value of the estate. As submitted by the respondent, if the Court did not have jurisdiction to decide such an issue then an executor’s assertion as to the size of an estate would be decisive. Without this jurisdiction 6R 312(11) would serve no purpose. Section 7 of the Act empowers the Court to make an order in favour of an applicant who is left without adequate provision for maintenance out of an estate. Section 9 prescribes that every order for provision must “inter alia – (a) specify the amount and nature of the provision thereby made.” In considering whether to make an order for provision under s 7 and in order to comply with s 9, the Court needs to know and make a finding as to the value of the estate.
Pursuant to s 10 of the Act, an order for provision out of an estate operates and takes effect as a codicil to the will.[16] Once an order is made, it would then be a matter for the executors to get in the assets or to otherwise satisfy the terms of the order. It is at this juncture that any issues of devastavit may arise. The Court will need to determine the value of Vito Zerella’s estate and the value of the debt owed to the estate by the Zerella Investment Trust, whether or not Zerella Investments Pty Ltd is joined.
[16] Inheritance (Family Provision) Act 1972 (SA) s 10.
The respondent contends it sought to join Zerella Investments Pty Ltd so as to have a binding determination of the issue between the parties. While no relief is sought against the fourth defendant, the determination of the value will create an issue estoppel between the parties in their various capacities. Such that if there is a subsequent need for an action by the executors against Zerella Investments Pty Ltd for repayment of the debt or an action for devastavit or breach of fiduciary duty, the determination of the value of the debt will be binding upon Zerella Investments Pty Ltd. Accordingly, it is submitted that joinder of Zerella Investments Pty Ltd is permissible under 6R 74(1).
Conclusion
As the son of the deceased for whom no provision was made in his father’s will the respondent has a prima facie interest in the value of the estate.[17] I am satisfied the respondent is entitled to make the application to join Zerella Investments Pty Ltd.
[17] Mataska v Browne [2013] VSC 62.
The respondent does not seek to interfere with the administration of the estate. The proposed second statement of claim does not make any allegation of inappropriate dealings nor is it suggestive of “a fully-fledged attack on the accounting transactions” in pursuance of a pleaded cause of action. It does not seek any order or relief in respect of Zerella Investments Pty Ltd. It refers to the need for the total sum of the four adjustments to be added to the amount of the debt owed by the Zerella Investment Trust to the estate. The four adjustments are pleaded only for the purpose of the Court determining the value of the estate in order that it can determine the IFP claim.
The respondent has no standing to bring a claim in devastavit as he is not a beneficiary under the will. The value of the debt is a matter that is directly relevant to value of the estate and therefore the subject matter of IFP proceedings. As the Court has jurisdiction to determine the size and value of the estate in IFP proceedings, it is appropriate to order joinder of Zerella Investments Pty Ltd as trustee of the Zerella Investment Trust for it to be bound by any finding as to value.
I dismiss the appeal.
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