Italiano v Italiano

Background

1. Briefly, by way of background, the deceased (who was a widower when he died), had five children with his first wife (Giovanna). Stefano, the plaintiff in the present proceeding, is one of the five children. His brother, Alfonso, the defendant in the present proceeding, is the executor of the deceased's estate. In addition to Stefano and Alfonso, the deceased and his first wife had another son, Antonio, and two daughters, Daniela and Giuseppina (who is referred to as Pina). The deceased had another son (who is a minor), Michael Jnr, with his second wife (or de facto wife), Mary-Jean.
2. The claim brought by Stefano in the present proceeding was commenced by statement of claim filed on 15 January 2020. In essence, Stefano claims an entitlement in equity out of the estate of the deceased by reason of the following facts, matters and circumstances.
3. The deceased and Stefano owned properties adjacent to each other in Fairfield Heights. Stefano alleges that the deceased requested that he (Stefano) transfer a strip of land (of approximately 200 square metres) out of Stefano's property to the deceased. That strip of land was transferred to the deceased for nominal consideration of $1. The alleged agreement was: that Stefano would transfer the strip of land to the deceased; that the property was to stay in the deceased's name; and that the deceased would compensate Stefano, in a manner commensurate with his contribution.
4. Stefano claims that the deceased's property is now held on a constructive trust in his favour. The constructive trust is said, in the submissions filed for Stefano on the present application for judicial advice, to arise on various bases: as a common intention constructive trust (see Allen v Snyder [1977] 2 NSWLR 685 at 690-691 per Glass JA, 699 per Samuels JA); or a remedial constructive trust following the line of authority in Muschinski v Dodds (1985) 160 CLR 583 (at 614-620, per Deane J) and Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59 (at 147-148, per Mason CJ, Wilson and Deane JJ) (on the basis of a joint endeavour between the parties). It is submitted that, in the alternative, an express trust could be found, by reference to Dunphy v Russell [2018] NSWSC 721 (at [113]-[115]) where Sackville AJA referred to the High Court decision in Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62; [2015] HCA 6 (at [3], [7], per French CJ).
5. Further in the alternative, Stefano submits that a resulting trust would be found to exist in circumstances where he, in effect, advanced the purchase price of the property by giving it to his father for $1, but where there was an intention that they would share the beneficial ownership of the property (citing Calverley v Green (1984) 155 CLR 242 at 266-267, per Deane J; [1984] HCA 81).
6. Other ways by which it is said that Stefano might obtain relief of the kind that he seeks in the present proceeding are put forward in the submissions by his counsel, including: a claim based on proprietary estoppel (on the principles derived from Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404, per Mason CJ and Wilson J; [1988] HCA 7), or as an unjust enrichment claim (citing Pavey & Matthews Pty Limited v Paul (1987) 162 CLR 221 at 256-257, per Deane J; and at 269, per Dawson J; [1987] HCA 5). It is not clear to me that the claim, as presently framed in the statement of claim (filed 15 January 2020), has been pleaded in precisely those ways.
7. The proposed settlement of Stefano's claim is one which has been in principle agreed following discussions through the respective parties and their solicitors.
8. On the hearing of this application for judicial advice, I have read an affidavit sworn 27 March 2020 by the solicitor for Stefano (John Joseph Puleo), who has deposed as to the background to the claim (summarised above) and to other matters, including a valuation of the subject property that has been obtained. Mr Puleo deposes that nominal consideration of $1 was paid on the transfer of the property but that the land was valued at $60,000 for stamp duty purposes. Mr Puleo also deposes that his client paid for the valuation, the transfer costs, and the legal work necessary to complete the transaction, including for the subdivision of Stefano's property at Fairfield Heights to create the strip of land that was transferred to the deceased; and that the costs of the subdivision and the associated costs of the transfer were in the order of $21,000.
9. No defence has been filed (and unsurprisingly there has been no order yet made for the service of evidence in the proceeding).
10. The deceased's property in Fairfield Heights (as augmented by the transfer of the additional strip of land) has now been sold and the proceeds of that sale form part of the deceased's estate. Mr Puleo has deposed that his client did not receive any compensation or payment from his father in relation to the property that was transferred by Stefano.
11. The "in principle" agreement that has been reached for settlement of the claim is for payment of an amount of $101,000 plus costs. The agreement is expressed to be subject to judicial approval. It is Mr Puleo's understanding that the settlement figure has been arrived at on the basis of the August 2019 valuation of the strip of land (at $60,000), together with the costs of the subdivision and associated costs in relation to the transfer (claimed to be in the order of $21,000).
12. Exhibit A in this proceeding is the statement of facts that has been prepared on behalf of the executor and was annexed to the affidavit sworn 30 March 2020 by the executor's solicitor. The statement of facts describes the nature of the deceased's estate, which comprises: 50 per cent of the proceeds of sale of the deceased's Fairfield Heights property; 25 per cent of the issued shares in the company Norolim Pty Limited (those being subject to a claim by Daniela); a minor amount in a Westpac bank account; and some chattels valued at $1,000.
13. Pursuant to the Will of the deceased, the 50 per cent interest in the deceased's Fairfield Heights property is devised in the following proportions: 10 per cent to Stefano; 45 per cent to Michael Jnr; and 45 per cent to the executor and Antonio. The residue of the estate is divided as to 10 per cent to Stefano and the remaining 90 per cent is divided between Antonio, the executor, and Michael Jnr. However, it is said to be unlikely that there will be any residual estate.
14. Both Mary-Jean and Daniela have brought proceedings for family provision orders out of the estate of the deceased. (They have had notice of the present application.)
15. The statement of facts also sets out that the deceased's ownership of his Fairfield Heights property (which had been owned in his deceased's wife, Giovanna's, name) arose from the provisions of Giovanna's Will. Under Giovanna's Will, 50 per cent of the property was left to the deceased, 25 per cent to Pina, and 25 per cent to Daniela.

Present application

1. An issue that arose in the course of oral submissions in relation to the present application for judicial advice (which, as adverted to above, is one that was not made formally by way of a notice of motion in these proceedings but was made orally in circumstances where the matter was listed together with the Norolim proceeding), is as to what precisely is the judicial advice that is here being sought. In the statement of facts, it is said (at [15]) that: 15. The executor seeks judicial advice and directions as to: (a) whether or not the executor is justified in settling Stefano's claim for $101,000 together with costs as agreed or assessed; and (b) if the answer to that question is in the negative, whether the executor is justified by preparing and filing a defence and prosecuting such defence in response to the statement of claim.
2. In the confidential opinion of Counsel appearing for the executor which was prepared for the purposes of the application for judicial advice, an issue was raised as to whether there is, in fact, any substantial "compromise" of the present proceeding in circumstances where the proposed settlement sum is $101,000 together with costs. In that context, there was, during the course of submissions, a submission that judicial advice might be given as to the sufficiency of the evidence before the executor to enable the executor, pursuant to ss 49(1) and 49(2) of the Trustee Act 1925 (NSW) (Trustee Act), to enter into the settlement as a payment or allowance of the claim despite what is considered to be the "very limited degree of compromise" on the part of Alfonso.
3. As clarified in the course of submissions, however, what is ultimately here sought by the executor is two-fold: judicial advice as to whether the executor may properly avail himself of the process for which provision is made under s 49(1) or 49(2) of the Trustee Act as to the allowing of claims; and/or as to whether he would be justified in settling the proceedings.

Determination

1. Sub-sections 49(1) and 49(2) of the Trustee Act provide: 49(1) The trustee or the majority acting together, or a sole trustee where by the instrument, if any, creating the trust, or by statute, a sole trustee is authorised to execute the trusts and powers thereof, may, if and as the trustees or the majority, or the sole trustee, may think fit - (a) accept any property before the time at which it is made transferable or payable, (aa) sever and apportion any blended trust funds or property, (b) accept any composition or any security, real or personal, for any debt or for any property claimed, (c) allow any time for payment for any debt, (d) compromise, compound, abandon, submit to arbitration, or otherwise settle any debt, account, claim, or thing whatever relating to the estate or trust, (e) for any of those purposes enter into, give, execute, and do such agreements, instruments of composition or arrangements, releases, and other things, as to the trustees or the majority, or the sole trustee, seem expedient. 49(2) An executor or administrator may pay or allow any debt or claim on any evidence that the executor or administrator thinks sufficient, and may, if and as the executor or administrator may think fit, do any of the things mentioned in paragraphs (a) (b) (c) (d) and (e) of subsection (1).
2. In Jacobs' Law of Trusts (8th ed, 2016, LexisNexis) (Jacobs) at [20-47] that: [t]he effect of the sections conferring a right to compound debts would appear to be that an active exercise of the trustee's discretion in regard to any of the matters there mentioned would mean that the trustee was not liable to the beneficiaries unless the trustee had acted mala fides.
3. It is said, further, that it is a matter of good faith, not of prudence. The authors note that a trustee does not need to seek the approval of the court in order to compound a debt or to pay or allow a debt or claim, but that if, as a matter of precaution, the trustee desires the approval of the court, the trustee may in some circumstances make an application for judicial advice in that regard (as the executor here has now done).
4. I also note that in Jacobs at [20-48], when dealing with the power of a trustee to compromise a dispute with a beneficiary, the authors note that before there can be a compromise there must have been a claim but that it is not necessary to show (if the exercise of the power is challenged) that the claim would have succeeded, the authors there citing Re Ridsel [1947] Ch 597; 2 All ER 312. Jacobs further states that the general nature of a trustee's power to compromise (which was considered by the Court of Appeal in England in Re Earl of Strafford [1980] Ch 28; [1979] 1 All ER 513) establishes that the power is not to be construed narrowly and that in compromising a claim adverse to the trust the consent of the beneficiaries was not required. That statement in Jacobs was cited with approval by Graham J in Australian Reward Investment Alliance v Superannuation Complaints Tribunal [2008] 173 FCR 335; [2008] FCA 1548 at [88].
5. Counsel for Stefano has noted in his submissions the standard authority relied upon in judicial advice applications, namely Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar, the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 (Macedonian Church). Counsel for Stefano has also referred to Lindsay J's statements concerning the nature of proceedings pursuant to s 63 of the Trustee Act in Re Estate Late Chow Cho-Poon; Application for Judicial Advice [2013] NSWSC 844 (Chow Cho-Poon). It is noted that in Chow Cho-Poon Lindsay J set out the requirement that the matter must involve the management or administration of trust property (at [186], [194]); and that the matter there came before the court at an early stage due to the parties' ability to reach a settlement without recourse to further litigation, and it was in that context that the court was asked to consider the matter.
6. Counsel for Stefano also referred to the decision of Parker J in Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 2) [2019] NSWSC 1744 (Grain Technology) where his Honour was considering an application for judicial advice in terms of an approval of a settlement covering some of the claims in the proceeding where the application was made by the receiver and manager appointed by the Court. His Honour noted (at [20]): 20. By parity of reasoning, the question when judicial advice is sought for a settlement is whether settlement on the proposed terms is properly open to the trustee. The trustee does not "surrender his discretion" to the court nor does the court seek to determine whether settlement on the terms proposed is actually the proper decision in the circumstances. If the application succeeds, the court orders that the trustee "would be justified" in entering into the settlement but does not direct or order the trustee to do so. In the usual case where the trustee has obtained a legal opinion in favour of the proposed settlement, all the court decides is whether it is reasonable for the trustee to act on that opinion: see Re Perpetual Trustee Company Limited [2010] NSWSC 1403 at [18] per Ball J. This approach may also be contrasted with that of Debelle J in Re IOOF Australia Trustees Ltd [1999] SASC 461 (cited by Austin J in Mariconte at [74]) who said that all the court considers is whether it is proper for the trustee to consider a compromise, and the terms of the compromise are for the trustee to determine.
7. Parker J went on to say (at [25]-[27]) that: 25. Usually the fundamental reason (and it is a legitimate one) for seeking judicial advice is to ensure that the propriety of the trustee's action is finally determined and cannot be reopened in subsequent proceedings. The Receiver's approach therefore left me, initially, with some doubt about what the point of the application was. But the Deed of Settlement requires that there be "an approval by the Court" and the Receiver needs this to effect the settlement. Ultimately, it seemed to me that, given that nobody's interests would be prejudiced, the Court could and should, if satisfied that the settlement is a proper one, give the Receiver (and thus the parties) the approval they seek. 26. The requirement of "approval from the Court" created a difficulty with the wording of the order sought. As we have seen, the Receiver has entered into the Deed of Settlement, and strictly speaking, cannot seek the Court's advice that he "would be justified" in doing something he has already done. The Court has express power to approve a settlement by a trustee under UCPR Part 54, but no express power to approve a settlement by a receiver. 27. Ultimately the problem was solved by the parties agreeing that, if I was otherwise satisfied that the settlement was proper, I should give a direction that the Receiver would be justified in entering into a settlement in the form of the Deed of Settlement, but excluding any condition of the Court's approval. The parties also agreed that a direction in this form would constitute "approval by the Court" for the purposes of the Deed of Settlement.
8. Counsel for the executor has given an opinion that, for the reasons set out in the confidential opinion, the executor would be justified in entering into the settlement. I have taken those matters into account, as well as the matters that quite properly have been raised in the confidential opinion as to difficulties in the way in which it is perceived that the claim currently has been pleaded. It is not necessary here to set out those matters.
9. In the circumstances, and having considered the material put forward in submissions by both counsel for the executor and counsel for Stefano, and noting the likely saving to the estate of costs if the proceeding is compromised at an early stage, I am of the view that, albeit that the element of compromise would appear to be relatively small (in essence being only the difference between party-party costs and solicitor-client costs), that it would be appropriate for the executor to settle the claim on the terms proposed.
10. At the very least, it is clear that there is power under s 49(1) of the Trustee Act for a trustee, if the trustee thinks fit, to compromise or settle claims relating to the estate; and, pursuant to s 49(2), to pay or allow any debt or claim on any evidence that the executor or administrator thinks sufficient. There is material before me to set out the factual allegations that have been made and it is apparent that, at least to some extent, the executor has personal knowledge of the agreement that forms the basis for Stefano's claims. In the circumstances, provided that the executor is acting in good faith in allowing that claim, it would seem to me that there is power to do so.
11. In those circumstances, I will give judicial advice as follows: 1. Order that the executor be advised that, if the executor is satisfied, acting in good faith, as to the sufficiency of the factual allegations that have been made to support the claim by Stefano Italiano in the statement of claim filed 15 January 2020 (namely, as to the alleged oral agreement between Stefano Italiano and the deceased entered into prior to the execution of the transfer of the strip of land in question), then pursuant s 49(2) of the Trustee Act 1925 (NSW) the trustee has the power to allow that claim.
12. Further, in circumstances where the settlement that has been reached between the parties expressly contemplates, or is subject to, judicial approval (and having regard to the observations of Parker J in the Grain Technology as to the nature of any judicial advice that ought to be given), I will also advise the executor as follows: (2) Order that the executor be advised that, if the executor is satisfied that the settlement commenced by Stefano Italiano on the terms identified in the statement of claim is in the interests of the estate, the executor would be justified in entering into that settlement.
13. In those circumstances, it is not necessary to consider the question as to whether the executor would be justified in preparing and filing a defence and prosecuting that defence in response to the statement of claim.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 April 2020