Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar, the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand

Supreme Court of NSW|2020-04-03|Before: Ward CJ

Judgment

HER HONOUR: This is an application for judicial advice by summons filed on 6 February 2019 by Alfonso Italiano, the executor of the estate of the late Michele Italiano (the deceased), seeking judicial advice as to whether he would be justified in settling claims brought by Norolim Pty Limited (Norolim) against the estate for the sum of $90,000 (inclusive of costs) and entering into mutual releases.
The matter has quite some procedural history. The claim brought by Norolim against the estate is one that was commenced in the Common Law Division of this Court, transferred to the Equity Division, transferred back to the Common Law Division, and then transferred to the District Court of New South Wales. Norolim has sued Alfonso (in his capacity as executor) for the sum of $313,312 for payments allegedly made for the benefit of the deceased during the period up to his death and for payments made of $4,256.76 after his death (a total of $317,568.76), together with interest and costs. It is estimated that if the claim were to succeed in full then the interest up to 21 February 2020 at the rates prescribed by ss 100-101 of the Civil Procedure Act 2005 (NSW) would exceed $50,000.
Norolim filed an amended statement of claim on 15 November 2018. The executor has filed an amended defence on 18 February 2019 in which the executor does not admit the claimed debt, denies indebtedness to Norolim and claims a set-off (the set-off relating to claims provided for under a deed of settlement and release to which I refer below).
A settlement conference was held on 8 August 2019, directed by the Registrar of the District Court, pursuant to which settlement in principle was reached between the executor and Norolim by which the estate would pay to Norolim the sum of $100,000, inclusive of costs, and under which there would be mutual releases. Following that settlement in principle, additional evidence became available of a liability by Norolim to the estate of the deceased pursuant to cl 24 of the deed of settlement and release to which I have referred above. It would appear that the discovery of that amount led to the "in principle" agreement of $100,000 not proceeding.

Background

Before me on the present application (and marked as exhibit A) is a statement of facts dated 30 March 2020 prepared on behalf of the executor, in which there is an analysis of the various claims contained in a schedule of debts which lists approximately 200 payments and which forms the substance of the claim made by Norolim. The statement of facts raises issues as to various of the items in the schedule that are said not to be supported by any documentary evidence.
By way of background, as drawn from the statement of facts, I note the following. The deceased died in October 2016. Probate of the deceased's Will (made on 6 September 2016) was granted on 2 March 2018 to his son, Alfonso. The deceased, who was also known as Michael, was married to Giovanna Italiano, who died on 6 July 2009. The deceased was the executor named in Giovanna's Will, and probate of Giovanna's Will was granted to the deceased on 20 January 2011.
The deceased and Giovanna had five children: Alfonso, as well as Antonio, Stefano, Giuseppina (who is referred to as Pina), and Daniela. The deceased at the time of his death was estranged from his second wife (or de facto wife) Mary-Jean Cadiente, with whom the deceased had another son, Michael Stephen Italiano (Michael Junior). Michael Junior is a minor and lives with Mary-Jean.
Norolim is a company of which the shareholders are: the estate of the deceased, as to 25 per cent of the issued shares; Pina, as to 50 per cent of the issued shares; and Daniela, as to 25 per cent of the issued shares. Daniela has a pending claim to the effect that the 25 per cent of shares held by the estate are in fact held on trust for her.
Norolim conducts a child care and pre-school business in Fairfield Heights. Norolim is not a party to the judicial advice proceeding that is presently before me (although it was initially erroneously named as the defendant) but it is the plaintiff in the District Court proceedings in relation to which the settlement the subject of this judicial advice application is concerned.
The estate of the deceased consists of: 50 per cent of the proceeds of sale of land in Fairfield Heights; 25 per cent of the issued shares in Norolim (subject to the claim by Daniela); a minor amount in a Westpac bank account; and chattels valued at $1,000.
Following the appointment of trustees for sale pursuant to s 66G of the Conveyancing Act 1919 (NSW) on 10 August 2018, the house in Fairfield Heights was sold and the sum of $1,060,765.46 has since been held by the trustees for sale. The estate's share of the proceeds of sale is $530,382.73.
Pursuant to the Will of the deceased, the 50 per cent interest in the land at Fairfield Heights held by the estate is devised as to 10 per cent to Stefano, as to 45 per cent to Michael Junior, and as to 45 per cent in equal shares 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 Junior. It is said that it is unlikely that there will be any residual estate.
The other background fact to note (as adverted to above) is that there was a deed of settlement and release made on 15 November 2011 between, amongst others, Norolim and the deceased, which included certain releases between the parties.
Confidential Exhibit E on the application for judicial advice is the opinion of counsel for the executor as to the claims made by Norolim. Counsel is of the view, for the reasons there set out, that the executor is justified in entering into the compromise. Issues as to the release of any liability of Norolim to the estate are considered in that opinion. In particular, it is noted that: there are no other funds remaining in Giovanna's estate to sue Norolim for the money the subject of the claim there considered; that Giovanna's estate has been fully administered; that, since Pina is the primary shareholder and director of Norolim, it is unlikely that Pina will provide moneys to assist the executor to permit the estate to sue; and that, since Daniela has either a 25 per cent or a 50 per cent interest in Norolim, it is particularly unlikely that Daniela will assist in funding any proceedings.
It is the opinion of counsel for the executor that it is not an appropriate application of funds out of the deceased's estate for the executor to fund proceedings to sue for the sum of $53,336.95 where the estate would only recover half of the proceeds of the suit if it is successful, and would incur all of the costs if unsuccessful. Counsel for the executor is of the opinion that the nature and value of the cause of action held by the estate in that capacity does not justify not resolving the Norolim proceeding with a general release. Counsel for the executor has noted also that it is not available to the executor to resolve the Norolim proceeding on the basis of not including in the settlement a general release (that being a term of the in principle agreement).
Particularly in circumstances where, while there is doubt as to some of the amounts claimed in the schedule of debts, there is documentary evidence to support others of the amounts claimed in the schedule), I am satisfied (on the basis that it is likely that the matter would occupy at least two days of hearing time in the District Court and perhaps up to three to four days' hearing time) that additional costs will be incurred in the conduct of the proceeding if the settlement is not approved, and that, taken together with the time and delay in resolving the matter if it proceeds to a contested hearing, that the executor would now be justified in entering into the settlement that has been reached in principle.
Accordingly, I will give the executor judicial advice in the following terms: 1. Order that the executor be advised that the executor is justified in entering into a settlement of Norolim's claims for the sum of $90,000 inclusive of costs and entering into mutual releases.
It follows that it is not necessary to consider the further question which was predicated on the answer to the first question being in the negative.

Costs

As to the question whether the executor should be indemnified out of the estate for this proceeding, I am of the view that it was an appropriate course for the executor to take to seek judicial advice as to whether he would be justified in entering into the settlement; and so it is appropriate for him to be indemnified for the cost of so doing.
The advice was properly sought pursuant to s 63 of the Trustee Act 1925 (NSW). In 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), Gummow ACJ, Kirby, Hayne, and Heydon JJ said (at [74]): 74. A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings. But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding. The two steps are not to be elided. In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings.
Further, in Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844, Lindsay J summarised the current position as follows (at [194]): 194. Semble, the propositions disclaimed by the High Court are propositions to the effect that: (a) the proper province of judicial advice is guidance for the future; (b) section 63 is intended to empower advice to be given to those who have the stewardship of property for the benefit of others; (c) section 63 does not empower advice in connection with litigation that concerns merely whether the trustee has, in the past, committed breaches of trust even if the litigation (to establish the alleged breach of trust) necessarily involves the proper construction of a trust instrument; (d) section 63 does not empower advice in connection with litigation that involves merely allegations of past misconduct on the part of the trustee that, if established, will entail personal liability for breach of trust or statutory wrongdoing (and where the trust property will, in no way, be protected or enhanced by defence of the claim); and (e) the provision to a trustee of an indemnity from trust assets should not be provided in advance under colour of private judicial advice.
Lindsay J nonetheless went on to caution (at [196]-[198]): 196. Not unnaturally, the High Court's observations [in Macedonian Church] have been taken as an encouragement to trustees to make a s 63 application whenever confronted by an element of doubt about steps to be taken in the due administration of a trust; as an encouragement to courts of first instance to exercise s 63 jurisdiction liberally; and as an encouragement to them not to withhold judicial advice by adoption of a restricted view of the operation of s 63. See, for example, 237 CLR 91 [63], 93 [69]-[70] and 94 [74]. 197. The High Court's judgment has served the beneficial purpose of opening to view the breadth and flexibility of the jurisdiction of this Court to aid the due administration of trusts by proceedings for relief falling short of a general administration order. 198. However, if the jurisdiction of the Court to aid the due administration of trusts is to be exercised fairly, efficiently and beneficially, care needs to be taken to ensure that an application to the Court is not made unnecessarily, prematurely or without due engagement of persons who may have an interest in the outcome of a s 63 application.
In this instance, the executor has acted to secure advice for the benefit of the estate and its beneficiaries; not to protect himself from claims of any past misconduct or for his personal gain. The executor has sought advice for guidance as to his ongoing stewardship of the estate for the benefit of its beneficiaries. Accordingly, on the basis of the principles set out above, I am of the view that it is appropriate also to make the following order: (2) Order that the executor's costs of the summons for judicial advice be borne out of the estate on an indemnity basis.
The executor has raised as an issue the fact that the District Court of New South Wales does not have jurisdiction to make an order for payment of costs out of the estate on the indemnity basis where the executor would be seeking his costs in connection with the proceeding brought by Norolim both when they were before this Court and transferred to the District Court. Accordingly, it is appropriate, in my opinion, here to record that, absent misconduct by the executor that would disentitle him to reimbursement out of the estate, in the ordinary course he would be entitled to reimbursement out of the estate of his costs of defending the Norolim proceedings brought against him in his capacity as executor of the estate (on an indemnity basis).

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