Permanent Trustee v Mills

Supreme Court of NSW|2007-04-05|Before: Hammerschlag J

Introduction 1 The plaintiff is the sole Executor and Trustee under the last Will and Testament dated 22 July 1949 ("the will") of Lucille Virginia Muir ("the deceased") who died on 7 November 1952. 2 By summons issued in this Court on 26 May 2006 the plaintiff brought proceedings to determine the proper construction of the will. Defendants in the proceedings include three potential beneficiaries under the will who are below the age of 18 years, each of which has been assisted in the proceedings by a tutor. 3 Subject to the approval of this Court, the proceedings have been settled and the plaintiff, supported by all the defendants (and in the case of the minors by their tutors) moves the Court by motion for orders intended to give effect to that settlement. 4 The first order sought is "[t]hat the settlement of these proceedings be and is hereby approved." 5 The order is sought because three of the proposed parties to the settlement are under legal incapacity by reason of their minority. 6 Two questions arise; firstly, what the nature and ambit is of the jurisdiction being invoked in seeking the approval of the Court, and secondly, depending on the answer to the first question, whether that approval should be given. 7 I shall deal with each matter in turn. The nature and ambit of the jurisdiction 8 Sections 75 and 76 of the Civil Procedure Act 2005 (NSW) ("the Act") which came into force on 15 April 2005 are enabling provisions empowering the Court to approve the compromise or settlement of claims and proceedings respectively where persons under legal incapacity are involved. A minor, that is a child under the age of 18 years, is a person under a legal incapacity by virtue of s 3(1) of the Act. Part 7 Rule 7.14(1) of the Uniform Civil Procedure Rules 2005 (NSW) provides that a person under legal incapacity may not commence or carry on proceedings except by his or her tutor. 9 There is, however, as will appear from what follows immediately below, a lacuna in the Act into which the position here falls. 10 Section 75 of the Act provides as follows: " 75 Settlement of claim made on behalf of, or against, person under legal incapacity (cf SCR Part 63, rule 13) (1) This section applies to any claim, enforceable by proceedings in the court, that is made by or on behalf of, or against , a person under legal incapacity. (2) If, before proceedings are commenced with respect to any such claim, an agreement for the compromise or settlement of the claim is made by or on behalf of the person under legal incapacity, the court may approve or disapprove the agreement. (3) An agreement disapproved by the court does not bind the person under legal incapacity. (4) An agreement approved by the court binds the person under legal incapacity as if he or she were of full capacity and (if it was made by some other person on his or her behalf) as if that other person had made the agreement as his or her agent." (emphasis added)

11 Section 76 of the Act provides as follows: " 76 Settlement of proceedings commenced by or on behalf of person under legal incapacity (cf Act No 25 1929, section 4) (1)This section applies to proceedings commenced by or on behalf of any of the following persons:

(a) a person under legal incapacity, (b) a person who, during the course of the proceedings, becomes a person under legal incapacity, (c) a person whom the court finds, during the course of the proceedings, to be incapable of managing his or her own affairs.

(2) The court may make a finding referred to in subsection (1) (c) only on the basis of evidence given in the proceedings in which it is made, and such a finding has effect for the purpose only of those proceedings. (3) Except with the approval of the court, there may not be:

(a) any compromise or settlement of any proceedings to which this section applies, or (b) any acceptance of money paid into court in any such proceedings, as regards the claim of a person referred to in subsection (1).

(4) If an agreement for the compromise or settlement of any matter in dispute in any such proceedings is made by or on behalf of a person referred to in subsection (1), the court may approve or disapprove the agreement. (5) An agreement disapproved by the court does not bind the person by whom or on whose behalf it was made. (6) An agreement approved by the court binds the person by whom or on whose behalf it was made as if he or she were of full capacity and (if it was made by some other person on his or her behalf) as if that other person had made the agreement as his or her agent." (emphasis added) 12 Section 75(2) of the Act applies before proceedings are commenced. That is not this case because proceedings have commenced in this case. 13 Section 76(1) of the Act provides that that section applies to proceedings commenced by or on behalf of a person under legal incapacity. That is also not this case because these proceedings have been commenced against, and not by, the persons under legal incapacity. 14 There was no such lacuna under the provisions of the Supreme Court Rules 1970 (NSW) ("SCR") as they stood immediately prior to the Act coming into force. The Supreme Court Rules (Amendment No 405) Act 2005 (NSW) repealed SCR Pt 63 including rr 11(1), (2) and (3) which provided as follows: " Compromise, etc of matter in suit 11 (1) Where proceedings have been commenced , and afterwards an agreement is made by the tutor in the proceedings of a disable person for the compromise or settlement of any matter in dispute in the proceedings, the Court may approve or disapprove the agreement. (2) An agreement approved by the Court under subrule (1) is as binding on the disable person as if the disable person were not a disable person and his tutor were his agent to make the agreement. (3) An agreement disapproved by the Court under subrule (1) is not binding on the disable person." (emphasis added) 15 This rule made no distinction between the case where the disable person brought the proceedings and where the proceedings were brought against the disable person. There is no rational reason why such a distinction ought to have been made. 16 SCR Pt 63 r 13(1), which was also repealed by the Supreme Court Rules (Amendment No 405) Act (NSW), provided as follows: " Compromise etc before suit 13 (1) Where a claim enforceable by proceedings in the Court is made by or on behalf of, or against, a disable person and, before proceedings are commenced to enforce the claim, an agreement is made by or on behalf of the disable person for the compromise or settlement of the claim, the Court may approve or disapprove the agreement." (emphasis added) 17 Whilst SCR Pt 63 r 13(1) was, in substance, re-enacted in s 75 of the Act, there was no re-enactment of a provision in the terms of SCR Pt 63 r 11(1) not distinguishing between a case where the disable person is the plaintiff and one where that person is the defendant in proceedings. 18 For no apparent or rational reason s 76 only applies to where proceedings have been brought by or on behalf of the disable person. 19 SCR Pt 63 rr 11 and 13 as well as ss 75 and 76 are provisions intended to facilitate the obtaining of the Court's approval. The substantive principles which underpin those provisions are the following: a this Court has parens patriae jurisdiction which in general terms is exercised when there is some risk to a child's welfare and which supports a great variety of orders, including orders related to protection of property: AMS v AIF (1999) 199 CLR 160 at 189 per Gaudron J; b when a claim of an infant or other person under disability is before the Court, the Court needs, for the purpose of protecting his or her interests, full control over any settlement compromising his or her claim: Dietz v Lennig Chemicals Ltd [1969] 1 AC 170 at 189 per Lord Pearson; c in an action by an infant by means of a best friend or tutor whatever is done must be for the benefit of the infant, and if, in the opinion of the Court it is not so, the infant is not bound: Rhodes v Swithenbank (1889) 22 QBD 577 at 578-579. Concomitantly, the Court will not enforce a compromise against the opinion of the tutor and his or her advisers: Re Birchall (1880) 16 Ch D 41. 20 As is set out above, the requirement for a tutor applies to both where the minor is plaintiff and defendant. 21 Section 75 of the Act also applies to a claim either by or against a minor. 22 The existence of the supervisory jurisdiction of the Court with respect to minors does not, and could not, depend on the happenstance that the minor is a plaintiff rather than a defendant. 23 In a case like the present, although the minors are defendants, in a real sense they are claimants or potential claimants because what is sought to be determined under the construction summons are their entitlements. They could just as easily have been plaintiffs or there could be the simple artifice of a cross-claim for declaratory relief to reflect the construction of the will for which they would contend. 24 There is no indication that ss 75 and 76 of the Act were intended to interfere with the Court's long-established supervisory jurisdiction which depends on the subject's incapacity, not the side of the record onto which he or she falls. There would have to be a clear expression by the legislature of any such intention: Davern v Messel (1984) 155 CLR 21 at 31 per Gibbs CJ. 25 In any event, the provisions are facultative and provide a machinery for the obtaining of approval. They do not regulate or circumscribe the jurisdiction to give or withhold it. There is an inherent jurisdiction to do so, which is being invoked here. 26 In Dietz v Lennig Chemicals Ltd (at 189 - 190) the House of Lords gave consideration to the form of the then newly revised rule in England being RSC Order 80 Rule 12(1) (corresponding to SCR Pt 63 r 13(1) and s 75 of the Act) which facilitated approval by the Court before proceedings had begun. The rule facilitated approval "before proceedings in which a claim for money is made by or on behalf of a person under a disability…" The notes of the Annual Practice 1964, which are set out in the report at page 189 stated that:

"This Rule is new, and its object is to make the procedure for obtaining the approval of the court to the settlement or compromise of a claim of an infant or patient simpler and cheaper. Where such a settlement or compromise is arrived at, before proceedings are begun , this Rule enables the approval of the court to be obtained and directions for the control of the money recovered to be given on an originating summons to which no appearance is required to be entered. It is no longer necessary to issue a writ and then to take out a summons in the action for such approval and directions." 27 It seems to me that there is simply a drafting deficiency in the machinery embodied in ss 75 and 76 in so far as they do not cover approval for a defendant's compromise in proceedings. 28 Additional support for this conclusion is to be found in the Explanatory Notes to the Civil Procedure Bill 2005 (NSW), the commentary to Clause 76 of which is as follows: "Clause 76 applies to persons under legal incapacity, persons who (during the course of proceedings) become persons under legal incapacity and persons whom the court finds (during the course of proceedings) to be incapable of managing their affairs. Once proceedings by or against any such person have commenced, the proceedings cannot be compromised or settled, and money paid into court may not be accepted, except with the approval of the court. The clause also empowers a court to approve or disapprove an agreement for the compromise or settlement of proceedings commenced by or on behalf of such a person. An agreement that is approved will bind the person, an agreement that is disapproved will not." (emphasis added) 29 The principle is that for the Court to grant approval for a compromise to be entered into by the disable person it must form the view that it is beneficial to his or her interests. The compromise should be assented to by the tutor and there should be opinions from his or her legal advisers that they consider it to be so: Re Birchall. The Court will consider for itself whether the compromise will be beneficial to the disable person: Re Ley's Trusts [1964] 1 WLR 640. Approval 30 The deceased appointed Geoffrey William Thornton and the plaintiff to be the Executors and Trustees under the will. Mr Thornton died on 8 February 1971. 31 By the will the deceased gave her residuary estate to her Executors upon trust for her daughter in the following terms: " I GIVE DEVISE AND BEQUEATH to my Executors hereinafter appointed UPON TRUST to pay the rents income and profits arising therefrom to my daughter LUCILLE ROBERTA MILLS during her lifetime and on her death or IN THE EVENT of her pre-deceasing me TO DIVIDE my residuary estate in equal shares between the said Michael John Farnhill and any other issue of the said Lucille Roberta Mills living at the time of her death or such one or more of them as shall be living at such time if more than one then in equal shares and proportions per capita IN THE EVENT of the said Michael John Farnhill predeceasing me leaving issue then I DIRECT that the share and interest under this my Will to which the said Michael John Farnhill would have been entitled had he survived the said Lucille Roberta Mills shall go to such of the issue of the said Michael John Farnhill as shall survive him if more than one then in equal shares and proportions and IN THE EVENT of my said daughter predeceasing me and of the said Michael John Farnhill surviving me then I DIRECT that my Executors shall have the same powers as to the application of the income and corpus during his minority as are hereinbefore provided in respect of the bequest to him." 32 Michael John Farnhill was born on 15 June 1939 and died on 3 September 1949. The next of kin of the deceased were her husband Robert John Muir, who died on 3 February 1969 and her daughter Lucille Roberta Mills who died on 29 May 2005. 33 On the death of Lucille Roberta Mills (that is the daughter of the deceased) she was survived by her two children Paul Michael Muir Mills (the first defendant) and Virginia Lucille Muir Shirley (the second defendant) and five grandchildren and two great granddaughters. Her granddaughter Stephanie Roxana Paula Mills was born on 6 April 1990, and her great granddaughters Chloe Rebecca Beytagh and Olivia Lucille Beytagh were born on 16 January 2003 and 22 May 2005 respectively. The latter three are accordingly yet to attain the age of majority. Stephanie's mother Mirjana James has consented in these proceedings to act as her tutor. Simone Tyler a friend of Chloe and Olivia's father Aaron Beytagh (the sixth defendant) has consented to act for them as their tutor. 34 It is readily apparent that the will throws up a number of somewhat difficult questions of construction. The principal one is whether there was a gift of one-half of the residue to Michael John Farnhill and a gift of the other half to the issue of Lucille Roberta Mills living at the time of her death or such one or more of them as should be living at that time. 35 Given that Michael John Farnhill predeceased the deceased, if, on a proper construction of the will, there was a gift to Michael John Farnhill of half of the residuary estate, there would be an intestacy as regards that half. 36 A second question of construction which arises irrespective of the answer to the principal one is how the word "issue" is to be construed; that is, is it restricted to the children of Lucille Roberta Mills or does it extend to the grandchildren and great grandchildren of the deceased? 37 The answer to the second question determines who shares in the estate; the answer to the first question determines what the shares are. 38 If there was a gift to Michael John Farnhill as aforesaid and issue means children, the first defendant would receive half of the residue and share the other half equally with the second defendant. If there was a gift and issue means descendants of Lucille Roberta Mills, the first defendant will take one-half of the residue and the remaining half will be shared amongst him and the other defendants in equal shares. 39 If the residue was left to a class comprising Michael John Farnhill and any other issue, and issue means children, the residue falls to be shared equally between the first defendant and the second defendant. If the residue was left to such a class, but issue means descendants the residue is shared in equal shares by all defendants. 40 The estate is substantial. As at 26 March 2007 trust moneys of approximately $3,896,958 were being held by the plaintiff.

41 I was provided with a helpful table (based on an assumption of an estate of $3,950,466) setting forth the possible outcomes in financial terms depending on the ultimate construction of the various provisions. 42 Opinions from respected counsel were obtained by the plaintiff, the first defendant and the third, fourth and fifth defendants with respect to the proper interpretation of the will. The difficulties in construing the will are emphasised by the fact that advice obtained by the plaintiff reaches a different conclusion to that obtained on behalf of the first defendant and to that obtained on behalf of the third, fourth and fifth defendants. In addition, the third and fourth defendants, the sixth defendant and the seventh defendant have received advice from their respective solicitors that there are a number of possible interpretations of the will. 43 Against this background all of the parties have come to a settlement. 44 Having regard to the intricacies of construction, the respective risks attendant upon the proceedings being prosecuted to finality and to the costs which would be involved in bringing about a curial resolution which may include any appeal, the settlement appears to me to be eminently reasonable and sensible. On the construction most favourable to the minors, they would each receive $439,940 (on the assumed estate value referred to above). On the construction that there is a gift of one-half of the residue to Michael John Farnhill and the remainder is to be divided amongst all of the defendants, they would receive $219,470. On two of the possible constructions open, the minors would get nil, that is, if issue means children in any case. 45 The settlement entails each of the third, fourth, fifth, sixth, seventh, eighth, and ninth defendants receiving a certain sum of $240,000. It also involves a compromise between the first and second defendants whose shares are adjusted accordingly to take account of payments to the other recipients. 46 The fifth defendant's tutor believes the settlement is proper and reasonable and is for the benefit of the fifth defendant, and the tutor of the eighth and ninth defendants likewise supports the settlement. 47 In my view, the settlement is to the benefit of the fifth, eight and ninth defendants. 48 By a motion dated 30 March 2006 the plaintiff, supported by all defendants, seeks orders giving effect to the settlement. Written submissions in support of the settlement were made on behalf of the plaintiff, the first defendant and the third, fourth, and fifth defendants. 49 Order 1 sought is in the following terms "[t]hat the settlement of these proceedings be and is hereby approved." This form of order reflects the same substance as the form of the order considered by the House of Lords in Dietz v Lennig Chemicals Ltd. The settlement is only intended to have effect upon approval by the Court. 50 That approval is required both as a matter of substantive law, with respect to the minor defendants, and as a condition of the settlement between all the parties coming into effect. 51 Given that I consider this settlement to be in the interests and to the benefit of each of the fifth, eighth and ninth defendants, it is approved. 52 The orders will be as contained in the document entitled Short Minutes of Orders which I have initialled and placed with the papers. **********

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Supreme Court Rules (Amendment No 405) Act 2005(NSW)

CITATION : Permanent Trustee v Mills [2007] NSWSC 336

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