Plaintiffs v Defendants

Supreme Court of Victoria|2009-10-30|Before: HARGRAVE J

ADMINISTRATION AND PROBATE - Mutual wills - Husband and wife - Three daughters and one son - Father predeceasing mother - Mother sole beneficiary under father's will - Son sole executor and trustee under father's will - Father left small estate - Allegations by daughters that father's estate diminished by undue influence or other improper conduct on the part of the son - Application by daughters for removal of son as executor - Whether daughters had standing to bring application - Held: daughters had standing - Application for summary dismissal of claim refused - Administration and Probate Act 1958 (Vic) s 34 - Birmingham v Renfrew [1937] HCA 52; (1937) 57 CLR 666 considered.

1 Norman Russo (the 'father') died on 15 April 2008 aged 92 years. He was survived by his wife of 59 years, Nancy Jean Russo (the 'mother'), who is the second defendant in this proceeding. He was also survived by the four children of the marriage; one son and three daughters. The son, John Joseph Russo, is the first defendant and the sole executor of the father's will. The three daughters, Nancy, Rosemary and Patricia, are the plaintiffs.

2 The father and mother executed mutual wills on 9 October 2002. On the same day, they signed a memorandum acknowledging and declaring that their wills were made in pursuance of an agreement between them that:

(1) during the lifetime of each of them they would not make a further testamentary disposition without the consent of the other; and

(2) after the death of the first of them to die the survivor would not make a further testamentary disposition.

I will refer to this memorandum as 'the mutual wills agreement'.

3 According to the inventory of assets and liabilities submitted to the Court by the son, the father's estate comprises only $62,315. The mother has sworn in an affidavit that, at the time of the father's death, they jointly owned extensive assets which do not form part of the father's estate. As the surviving joint proprietor, those assets are now solely owned by the mother by operation of law. Apart from the mother's reference to 'extensive joint assets', there is no material before the Court as to the identity of those assets.

4 The daughters contend that their father was a very wealthy man, with direct or indirect ownership of substantial real estate or the proceeds of sale of real estate. In affidavits sworn by the daughters, they make serious allegations against their brother, including that he exercised undue influence over the father, with the result that the father's assets were transferred to him.

5 In these circumstances, the daughters contend that their brother is in a position of conflict of interest and, accordingly, is unfit to remain as executor and trustee of their father's will. In this proceeding, they seek an order under s 34 of the Administration and Probate Act 1958 (Vic) ('the Act') that their brother be removed as executor and trustee and another suitable person be appointed in his place. They intend to seek to persuade a new trustee to take proceedings, on behalf of their father's estate, to recover substantial assets which they say have wrongfully been obtained by their brother.

6 With the support of his mother, the son has applied to the Court under rr 23.01 and 23.03[1] for summary dismissal of the proceeding.

7 A plaintiff should not be deprived of the opportunity to place his or her case before the Court in the ordinary way except in the clearest of cases.[2] This requires 'a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way'.[3] The application for summary dismissal is not based upon the contention that the allegations made by the daughters to justify removal of the son as executor and trustee are, if established, an insufficient basis upon which the Court could exercise its discretion to order that relief. The sole ground of contention is that the daughters lack standing.

Who is the sole beneficiary under the father's will?

8 It was submitted on behalf of the daughters that, upon its proper construction and in the absence of any order for rectification, the father's will left the whole of his estate to the daughter Nancy, and not the mother Nancy. I reject that submission. Viewed as a whole, and in its context, it is clear from the will that the father intended to leave the whole of his estate to the mother.

I GIVE DEVISE AND BEQUEATH to Nancy the whole of my estate but if Nancy shall fail to survive me then

4.1 I GIVE DEVISE AND BEQUEATH to John my interest in the matrimonial home of Nancy and me or (in the event that I or we do not own a matrimonial home a sum of money equal to the net proceeds of sale of the last such matrimonial home), the contents of our matrimonial home and any motor car or motor cars owned by me at the date of my death.

10 The difficulty arises because the will contains a dictionary defining the mother as 'my wife Nancy' and the daughter Nancy as 'Nancy'. In an obvious error, the will states that the father bequeaths the whole of his estate to 'Nancy', and not to 'my wife Nancy', in the event that she survives him. However, the will makes no sense unless the references to 'Nancy' in this bequest are read as 'my wife Nancy'. This is obvious from the face of the will. The same error appears in clause 4.1. It is a nonsense to speak of a devise of 'the matrimonial home of Nancy and me' if the dictionary definition of 'Nancy' in the will was intended. Further, the mother's will (in mutual terms), the mutual wills agreement, and the evidence of the mother and the solicitor who took instructions for and drew the mutual wills, all support a finding that the will contains an obvious error. In these circumstances, no proceeding for rectification is required. The matter can be dealt with as a matter of construction.[4]

11 Once this potential difficulty is explained, the mutual wills operate in the following way. Each of the father and the mother left the whole of their estate to the other if one pre-deceased the other and, if not, made the following bequests:

(1) The son was given the matrimonial home, its contents and any motor vehicles.

(2) The residue of the estate was to be divided into 50 equal parts and distributed as follows:

(a) three parts were to be held for each of the three daughters absolutely, a total of nine parts;

(b) 13 parts were to be held for the son absolutely; and

(c) the remaining 28 parts were to be held for the grandchildren until they attain the age of 40 years, as tenants in common in equal shares.

12 Each will appointed the son as the sole executor and trustee.

13 Section 34(1)(c) of the Act relevantly provides that an executor may be removed by the Court where the executor 'is unfit to act in such office'. The Act contains no guidance as to the persons who may make an application for removal of an executor.

14 It was submitted on behalf of the daughters that they have a sufficient interest to apply for the removal of their brother as executor. Three grounds are relied upon.

15 First, that the will plainly states that the daughter Nancy is the sole beneficiary of her father's estate. It was submitted that rectification of the will was necessary to alter that result; as no such application has been made by the son, the daughter Nancy remains the sole beneficiary of her father's estate. For the reasons given above, I reject that submission.

16 Second, it was submitted that, upon the death of the father, a constructive trust arose in favour of the daughters over the assets comprised in his estate.

17 Third, it was submitted that the father's one-seventh interest in a property in Italy was sufficient to give the daughters an interest in this part of the father's estate.

Do the daughters have an interest under a trust?

18 It was submitted on behalf of the daughters that, in order to give effect to the mutual wills agreement, a constructive trust in their favour arose on their father's death. The son contends to the contrary. It was submitted on behalf of the son that no trust will arise in favour of the daughters until the death of their mother and that, in the meantime, the mother remains the only person with standing to apply to the Court for removal of the son as executor and trustee. Both parties relied upon the decision of the High Court in Birmingham v Renfrew[5] in support of their contentions.

19 Birmingham v Renfrew involved a husband and wife who made mutual wills leaving their entire estate to each other in the event that one pre-deceased the other, with the estate to then go to the benefit of the wife's relatives. There were no children of the marriage. After the wife's death, the husband revoked his will and made a new will benefiting persons other than the wife's relatives. Upon his death, the wife's relatives applied to enforce the mutual wills agreement against the husband's estate. The High Court held the trustee of the husband's estate held the assets of the estate upon a constructive trust for the wife's relatives.

20 Although the facts are different from this case, the judgments of the Court are relevant to the nature of any interest in the assets of the father's estate which is presently enjoyed by the daughters.

21 Latham CJ referred to the position arising upon the death of the wife, and before the death of the husband, in the following terms:

it is conceded by those seeking to enforce the agreement that it does not have the effect of preventing the husband from dealing during his lifetime with property which he received from his wife, so that any trust which was created can only be a kind of floating trust which finally attaches to such property as he leaves upon his death.[6]

22 Latham CJ said that, during the period of this 'floating trust', the husband could dispose of the assets devised to him under the wife's will in his discretion, provided that the dispositions were made bona fide. As to this proviso, Latham CJ referred with approval to the treatment of this issue by Dixon J in his separate judgment.[7]

23 Dixon J considered the position at three separate periods of time: between the making of mutual wills and before the death of the first spouse to die; between the death of the first spouse to die and the death of the surviving spouse; and from the death of the surviving spouse.

24 As to the first period, Dixon J said that the position is governed by the decision in Dufour v Pereira.[8] Dixon J quoted the following passage from that case with approval:

A mutual will is a revocable act. It may be revoked by joint consent clearly. By one only, if he give notice, I can admit. But to affirm, that the survivor (who has deluded his partner into this will upon the faith and persuasion that he would perform his part) may legally recall his contract, either secretly during the joint lives, or after at his pleasure; I cannot allow.[9]

25 As to the second period, between the date of the first spouse to die and the death of the surviving spouse, Dixon J said:

the object of the transaction is to put the survivor in a position to enjoy for his own benefit the full ownership so that, for instance, he may convert it and expend the proceeds if he choose. But when he dies he is to bequeath what is left in the manner agreed upon. It is only by the special doctrines of equity that such a floating obligation, suspended, so to speak, during the lifetime of the survivor can descend upon the assets at his death and crystallize into a trust.[10]

26 However, Dixon J stated that the right of the surviving spouse to use the assets bequeathed by the other spouse was not unqualified. Dispositions by a surviving spouse must be bona fide and not calculated to defeat the intention of the mutual wills agreement:

No doubt gifts and settlements, inter vivos, if calculated to defeat the intention of the compact, could not be made by the survivor and his right of disposition, inter vivos, is, therefore, not unqualified. But, substantially, the purpose of the arrangement will often be to allow full enjoyment for the survivor's own benefit and advantage upon condition that at his death the residue shall pass as arranged. [11]

27 As to the third period, from death of the surviving spouse, Dixon J, like Latham CJ, said that a constructive trust attached to the assets of the surviving spouse's estate in favour of the intended beneficiaries under the mutual wills agreement.[12] In the absence of the executor of the surviving spouse's estate dealing with the estate in accordance with that intention, the intended beneficiaries could enforce the constructive trust in equity.[13]

28 The submissions before the Court focussed upon the difference between the parties as to the time at which a constructive trust crystallised. The assumption underlying the submissions was that, unless the daughters could establish a direct beneficial interest in the estate of their father, they would have no standing.

29 Counsel for the son submitted that, in the absence of any trust crystallising, the only person with standing to apply under s 34 of the Act was the mother, as the sole beneficiary. It was submitted on behalf of the mother that the daughters have no standing to apply for the removal of their brother as executor unless they can establish an 'immediate interest in the estate', such as to be regarded as a beneficiary of the estate. In this regard, reliance was placed upon cases which indicate that, in exercising its discretion as to whether an executor should be removed, the paramount concern of the Court is the protection of the interests of beneficiaries of the estate.[14]

30 I accept that the paramount concern of the Court in determining an application for the removal of an executor is the interests of the beneficiaries. However, I do not accept that the Court's discretion is limited so that, in every case, regard may only be had to the interests of immediate or direct beneficiaries. In Miller v Cameron,[15] Dixon J said:

The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and a sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.[16]

31 The daughters' application to remove their brother as executor and trustee is based upon serious allegations against him. They contend that, as a result, the father's assets were substantially diminished prior to his death. In these circumstances, the daughters seek removal of their brother so that an independent trustee can investigate their claims, take advice and determine whether the estate should bring proceedings to recover property taken from the father. If such claims are brought and established, they will swell their father's estate and will, in all probability, also swell their mother's estate upon her death. In these circumstances, the daughters have a real financial interest to ensure that the execution of their father's estate is not infected with conflict of interest. In my opinion, that is a sufficient interest to give them standing to apply for their brother's removal as executor and trustee.

32 My opinion does not depend upon crystallisation of a constructive trust in favour of the daughters prior to the death of their mother. The existence of the 'floating obligation' or 'floating trust' described by Latham CJ and Dixon J in Birmingham v Renfrew, combined with the qualification that their mother may only use the assets of their father's estate (and her own assets) bona fide without any intention to defeat the mutual wills agreement, provides a sufficient, albeit indirect, interest in their father's estate.

33 This conclusion is supported by the following statement from Dufour v Pereira, which was given express approval by Dixon J in Birmingham v Renfrew:

The mutual will is in the whole and every part mutually upon condition, that the whole shall be the will. There is a reciprocity, that runs throughout the instrument. The property of both is put into a common fund, and every devise is the joint devise of both. This is a contract. [17]

Is the daughters' interest in the Italian land sufficient to give them standing?

34 The inventory of assets and liabilities filed by the son with the Court states that the father's estate includes a one-seventh interest in a stone cottage on the island of Alicudi, Aeloien Islands, Italy. The stone cottage presently stands in the name of the father's own deceased father, the paternal grandfather of the daughters. The son has valued this one-seventh interest at $36,747.

35 On the day before the hearing, the daughters' solicitor swore and served an affidavit in which he gave hearsay opinion evidence. In that affidavit, the solicitor swore that he had spoken with another solicitor who has extensive experience in Italian law. He swore that he had been informed by the solicitor that Italian succession law mandates that the interests of persons owning Italian land devolve according to a formula. Under that formula, the interest of a deceased person in Italian land must devolve to any spouse of the deceased landowner as to one-quarter, to the deceased's next-of-kin as to another quarter, with the remaining half to be divided amongst the deceased's children. On that basis, the solicitor swore that he believes the daughters have a direct interest in the father's estate.

36 The affidavit was objected to on the grounds that it was late, there was no opportunity to reply to it, and the Court should not accept hearsay opinion evidence of this kind. I accept that submission.

37 Were it not for the conclusion which I have reached on the second ground, to the effect that the mutual wills agreement gives rise to a sufficient interest to give the daughters standing, an adjournment may have been necessary; to enable proper evidence to be given concerning the issues surrounding Italian succession law and for further submissions to be made.

38 For the above reasons, the application for summary dismissal of the proceeding is refused. The defendants should pay the plaintiffs' costs. I will hear the parties as to any directions which they seek to enable the proceeding to continue.

[2] Batistatos v RTA (NSW) [2006] HCA 27; (2006) 226 CLR 256, [44]-[46].

[4] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-7; Meagher, Gummow & Lehane's Equity Doctrines & Remedies (4th Edition), [26-040].

[8] (1769) Dick 419; 21 ER 332.

[9] Birmingham v Renfrew [1937] HCA 52; (1937) 57 CLR 666, 686.

[14] For example, Leo Dimos v Skaftouros & Ors [2004] VSCA 141, [13]; Fysh v Coote & Ors [2000] VSCA 150, [20].

Court (General Civil Procedure) Rules 2005

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