McKinnon v Samuels [2000] VSC 393

5. The plaintiff brought proceedings against the defendants, who are the executors of the will and trustees of the estate of Martin Victoria Samuel, who died on 30 December 1998. The plaintiff had for some years prior to the death lived with the deceased and bore him a child, Roger, who was born on 27 January 1996. The deceased was married to Veronika Elizabeth Richardson and was survived by two children of that marriage, Adrienne, born 2 July 1987, and Stephanie, born 5 February 1982.

8. The plaintiff by her action brought claims against the estate pursuant to Part 9 of the Property Law Act. Although in her action the plaintiff makes claims on her own behalf and the child Roger is not a party to the action, claims have been made less formally against the estate both on her own behalf and also on behalf of Roger.

11. At the same time, Veronika Richardson, on behalf of herself and her two children, had made claims against the estate and against the trustees (although proceedings have not been issued).

14. As a result of the mediation, all parties, including the executors/trustees, agreed to compromise the action and to compromise the various claims which had been made on the estate. All parties were represented by counsel and/or solicitors at the mediation. There existed tensions as between Rebecca McKinnon, the plaintiff, and Veronika Richardson which affected the manner in which the mediation was conducted. Separate terms of agreement were signed between the trustees and each of those two persons. Neither person was privy to the details of the terms of settlement agreed by the other. The terms of settlement between the trustees and Rebecca McKinnon are Exhibit B to the affidavit of Timothy John Mulvany dated 15 September 2000, and the terms of settlement between the trustees and Veronika Richardson are Exhibit C to that affidavit.

17. In his affidavit, Timothy John Mulvany, a solicitor and one of the trustees, said that his application was made "for orders to be made approving two sets of terms of settlement which have been entered into in order to resolve certain claims brought against the estate". In both instances the terms of settlement provided that they were "subject to the approval of the court of this agreement".

20. When the application first came before me, Mr Boaden, who appeared as counsel for the trustees, handed minutes of order to me which sought approval of "the agreement contained in each of the said terms of settlement". The plaintiff was represented by her solicitor, Ms McGalliard, who consented to the proposed orders.

23. Although in Victoria, unlike in other States, there is no statutory basis for an application for approval of a proposed compromise by trustees, I accept that I have such power in the inherent jurisdiction of the court: see Re Green [1972] VicRp 98; [1972] V.R. 848.

26. The estate of the deceased is very substantial. The totality of assets has a value in excess of $3m. By his will the deceased provided for bequests to each of his children upon them attaining 18 years, and the residue of his estate was to be held on trust to be shared between each of the children upon them attaining 30 years in one case, and in the case of Roger, until he attained his majority. No provision was made for the plaintiff or for Veronika Richardson.

29. The terms of settlement were very similar but not identical. In broad terms, they provided for interest-free loans to the two women which were repayable upon the vesting and possession of the entitlements of their children. There were also provisions for the payment of other sums for expenses. The trustees are making regular monthly payments for the maintenance and support of all three children. Once again, the precise arrangements are not known by one woman as to the other's arrangements.

32. The terms of settlement also contain some other provisions which have a different effect as to the children and as to the two women concerned. It is unnecessary that I be more precise than that, for reasons which I will explain. The children are not parties to the proceedings, and thus, for those of the children who are infants, I am not being asked to approve a compromise, as would be the case for infants in proceedings where such application was made under Rules of the Supreme Court O.15.08.

35. During the hearing I queried whether I was being asked to approve the wisdom and appropriateness of the trustee compromising the action, or whether I was being asked to make my own assessment and to approve as between the beneficiaries of the compromise whether, from their perspective, the compromise was fair and appropriate. I told Mr Boaden that if it was the latter, then I would require to know a great deal more about the case, and that I doubted whether it was appropriate that I adopt such a role in any event. Mr Boaden said that I was not being asked to approve the fairness or appropriateness of the compromise as between the various beneficiaries, but to approve the actions of the trustees in agreeing to the compromise. I sought further submissions as to my power and as to the appropriate approach which I should adopt, and I adjourned the matter until today so that might be done. I have had in the meantime the benefit of very helpful written submissions which have been provided by Mr Boaden.

38. As is clear from the affidavit of Mr Mulvany, the trustees had to consider a wide range of matters in determining whether to compromise these claims. I am satisfied that they were anxious to protect the estate from potentially costly actions which may have been successful, and to avoid any unnecessary diminution in the capital of the estate. They were concerned, too, to act fairly and - so far as was possible - equally with respect to all of the children. The mediation was no doubt difficult for all parties. The terms of settlement will have little adverse effect upon the rights of the children, save for a very modest initial diminution of capital.

41. It is the trustees who have the absolute discretion to determine whether a compromise should be reached and as to what the terms of any compromise should be. The court can do no more than state whether it is proper for the trustees to exercise the powers of compromise as they intend. The terms of the compromise are solely the concern of the trustees. It is not proper for the court to approve the compromise in terms of assessing the wisdom of the terms of compromise, whether from the point of view of the trustees or those of any beneficiaries of the estate. What the court can properly be called upon to do is to advise the trustees whether it is proper for them to agree to the compromise and, if appropriate, to rule that they be at liberty to enter the agreements contained in the terms of settlement.

44. The relevant principles are very helpfully discussed in a recent decision of Debelle, J. in the South Australian Supreme Court in IOOF Australia Trustees Ltd v. the Trustee Act 1936 [1999] SASC 461. See, too, Re Green (supra) at 850 per Crockett, J. and the judgment of Lord Cairns cited by Crockett, J. in Gisborne v. Gisborne (1877) 2 App.Cas.300 at 307. In the case first mentioned, Debelle, J. was exercising statutory power to give advice and directions to a trustee, but I agree with the submissions of Mr Boaden that the same considerations apply when the court is exercising its inherent power as apply in the statutory regime with which Debelle, J. was concerned.

47. In Re Green, Crockett, J. adopted passages from the judgment of Lord Cairns in Gisborne v. Gisborne. Lord Cairns said this, at 307:

"My Lords, in a case like this, where the Court of Chancery recognises that the trustees, and not the court, are to be the judges of the quantum to be allowed, where the trustees are willing to exercise the discretion which they claim to exercise, and where the court allows and declares their right to exercise that discretion, I do not understand it to be the habit of the court to go on and express any opinion as to whether the exercise of the discretion by the trustees is a wise or an unwise exercise of that discretion. I understand that in such a case the Court of Chancery steps aside and recognises the trustees as the persons to exercise the discretion, and in its decree does nothing more than, with regard to payments which may be necessary, act upon the exercise of the discretion of the trustees so made."

In Re Green, Crockett, J. adopted that approach and held, at 850:

"However, wisdom or lack of it in relation to the proposed exercise of the discretion is not something upon which I have been asked in this originating summons to express an opinion. What I have been asked in the relevant part of question 4 is to say whether it is improper for the plaintiffs to exercise the power which they possess in the postulated manner. As to that, I think it is something on which the Court has jurisdiction to give an answer if it is in fact satisfied as to there being no impropriety. This much, I think, appears from what was said by Buckley J in Re Allen-Meyrick's Will Trusts [1966] 1 W.L.R. 499, at p.503."

In IOOF Australia Trustees Ltd & the Trustee Act 1936, Debelle, J. said this:

"It is important to note that the application for advice and directions does not proceed to a final determination of the rights of parties. The procedure is not available for the determination of substantive issues between parties: Re: Hunter (supra), and Re: Union Trustee Co. of Australia Ltd (1936) QWN 6. The procedure enables the court to advise the trustee whether it is lawful to exercise its discretion in a certain way but it cannot tell the trustee how to exercise that discretion or whether a proposed exercise of discretion is necessarily correct: see Gisborne v. Gisborne (1877) 2 App.Cas.300 per Lord Cairns at 307; Re: Osborne (1863) 2 SCR (NSW) Eq 89; Re: Driller and Nebneson [1972-1973] ALR 735; Re: Allen-Meyricks Will Trusts [1966] 1 WLR 499 at 503; and Re: Green [1972] VicRp 98; [1972] VR 848 at 850. There may be instances where the court will decide what will be in the best interests of the trust estate. Marley v. Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 is an example. But, where 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. One instance of the use of the procedure is where a trustee is faced with litigation, either as plaintiff or defendant, and desires advice whether he should institute proceedings or defend them: Re: Atkinson [1971] VicRp 73; [1971] VR 612, 615-616; Re: England's Settlement [1918] 1 Ch 24 at 31; and Chettiar v. Chettiar (No 2) [1962] UKPC 1; [1962] 2 All ER 238 at 245. If the trustee fails to obtain the advice of the court, the trustee is at risk of being personally liable to pay the costs: Re: Brogden (1888) 38 Ch D 546 at 556 and Re: Atkinson (supra). The power may be used also to approve a compromise or any other transaction. The court, therefore, has power to determine whether it is lawful or proper for a trustee to compromise litigation. It is, of course, a matter for the trustee as to what it is willing to accept by way of compromise. I have already mentioned that the procedure of seeking advice and direction enables the court to advise a trustee whether it is lawful to exercise its discretion in a certain way. The court does not go so far as to tell the trustee how to exercise that discretion. For that reason and for the reasons which follow, I do not think that it is proper for the court to approve the compromise. Instead, the function of the court is to advise IOOF whether, in its opinion, it is proper for IOOF to agree to the compromise, the terms of the compromise being a matter for IOOF to determine. The additional reasons for my conclusion are these. The court does not have available to it all of the evidence which the parties might adduce. It is not aware of all of the facts. Questions of law have not been argued. The question whether it is prudent to agree to the compromise is, therefore, a matter for IOOF to decide. IOOF has a better understanding of, and a better appreciation for, the factual issues and its prospects of success than the court could have at this stage. In deciding whether to agree to the compromise, IOOF will have regard to those matters as well as to other issues such as the uncertainty of and risks inherent in litigation, the length of the trial so far, the manner in which the trial has been conducted by the parties, the likely length of the trial, the costs which have been incurred, the costs yet to be incurred and, as well, any potential liability IOOF may have to pay part or all of the defendants' costs. The costs for all parties to this point have been very substantial. There is another very important factor, which in one sense overrides all others. The parties are, by terms of their commercial arrangements and, in particular, by the Tripartite Agreement, placed in a commercial relationship which must continue for a number of years yet. It is desirable that parties who must deal together almost on a daily basis be able to resolve their differences and reach an understanding as to the manner in which they will regulate their future dealings. In short, IOOF will be called upon to make a commercial judgment having regard to all of these factors. The court can do no more than examine whether IOOF has had regard to those factors. The responsibility for making the decision whether to agree to the compromise is a matter for IOOF and not the court. It is important to remember that the court exists to determine disputes which parties cannot themselves resolve. IOOF has decided that it is desirable to resolve this long and complex litigation on certain terms. It has been able to reach this compromise assisted by the services of a mediator. The court would be very reluctant to suggest that IOOF was wrong in agreeing to the compromise. For all of these reasons, I am satisfied that it is proper for IOOF to agree to a compromise of these actions. It is, however, for IOOF to determine what should be the terms of the compromise. The court should not descend to examine the question whether each of the separate terms of the compromise is an appropriate compromise of that particular aspect of the dispute. For all these reasons, I am satisfied that an order should be made that IOOF is at liberty to enter into the compromise."

55. I have cited extracts from the judgment of Debelle, J. at some length because they are, with respect, both helpful and entirely appropriate to the case before me. In this case I am quite prepared to approve the actions of the trustees on the basis discussed in the judgments cited.

58. I should stress that in noting that there are apparent differences between the two terms of settlement, and in my making observations during the course of the submissions of counsel that the differences could cause it to be contended by one or other of the parties, if they knew the provisions of both terms of settlement, that the compromise was less fair to one or other of the women, or to one or other of the children, I am not in fact saying that any such contention would be justified, at all. I am not making such a judgment, at all, nor would it be possible for me to do so, because I simply do not have the information which might provide any basis for my making a judgment of that kind.

61. In declining to make an order in the terms first proposed, and in requiring that further research and submissions be undertaken by counsel, I was concerned that it should be noted that the court is not in a position, and could not attempt, to make any value judgment as to the terms of settlement. Those are entirely matters for all of the parties concerned to form their own judgments and make their own decisions, acting on the advice that they have.

64. As a result of the further research counsel for the trustees no longer needs an order in the terms originally proposed. Having regard to the further submissions and to the matters which have been put to me, I am satisfied to make the orders which are contained in the minutes of proposed orders, with one small variation relating to the retention of the exhibits on the file. I think it should be declared expressly that they are not to be accessed except by an order of the court.

67. I will read out the terms of the order. I order:

1. The copy terms of settlement being Exhibit B and Exhibit C to the affidavit of Timothy John Mulvany sworn 15 September 2000 and filed herein, be retained on the court file and sealed and not to be opened except by order of a judge.

2. The defendants be at liberty to enter into the agreements contained in each of the said terms of settlement.

3. The costs of the plaintiff and of the defendants of this application be taxed as between solicitor and client in default of agreement and be paid or retained out of the estate of the abovenamed deceased.