Re Butler; Kenny v Butler [2021] VSC 350

2 The deceased was survived by the defendant (his son) and the plaintiff's (three grandchildren from his daughter who predeceased him). Under the terms of the 2005 will, the defendant and the plaintiffs were to each receive half the residuary estate. Under the terms of the informal will, the defendant was to receive the whole residuary estate and the plaintiffs were to receive nothing.

3 On 9 October 2018, the defendant sought a grant of probate of the informal will. The plaintiffs filed a caveat objecting to the making of that grant.

4 On 8 April 2019, the parties signed terms of settlement ('the terms of settlement'), as detailed below. The plaintiffs subsequently removed their caveat.

5 On 18 September 2019, the Registrar of Probates refused the defendant's application for a grant of probate of the informal will.

6 On 20 November 2019, the defendant subsequently obtained a grant of probate of the 2005 will.[1] In support of his application for a grant of probate of the 2005 will, the defendant undertook to distribute the estate in accordance with the terms of settlement.

7 On 22 November 2019, the plaintiffs lodged a caveat against the deceased's property.

8 By originating motion filed 13 January 2020, the plaintiffs seek declarations pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('the Rules') to the effect that:

(a) the terms of settlement are no longer extant but lapsed on the refusal of the Registrar to admit the informal will to probate, or alternatively, void ab initio or void as from such date as the Court declares;

(b) in the alternative, the terms of settlement are unenforceable, the condition precedent having lapsed; and

(c) the plaintiffs are beneficiaries under the terms of the 2005 will and the claim in the caveat as to land and the interest claimed is good.

9 The plaintiffs also seek such further or other orders or declarations that this Court thinks fit and that the defendant pay the plaintiffs' costs on an indemnity basis.

10 The plaintiffs will not be granted leave to commence this proceeding by originating motion. In exercising its jurisdiction under r 54.02 of the Rules, the Court is essentially concerned with determining what ought to be done in the best interests of the estate or trust, rather than determining substantive issues and the rights of adversarial parties. In the present case, the plaintiff is effectively asking the Court to resolve a contractual dispute, albeit in the context of the administration of an estate. Such an issue should be determined by writ indorsed with a statement of claim served on all parties so that they have the opportunity to be heard. However, as the defendant in this proceeding was served with the originating motion, has filed submissions and the substantive issues raised are narrow, the Court will make an order under r 4.07 of the Rules that the proceeding continue as if it had been commenced by writ.

11 The parties consent to the application being determined on the papers.

12 The recitals to the terms of settlement relevantly include:[2]

1. Whereas on 9 October 2018 the [defendant] filed an application for a Grant of Probate of [the informal will]; and
2. Whereas the [defendant] has made an application under section 9 of the Wills Act 1958 for the Court to admit to probate the will of a deceased person a document which has not been executed in the manner in which a will is required to be executed by the said act; and

1. Whereas the [plaintiffs] have filed a caveat against the making of the said Grant of Representation; and

1. Whereas the [plaintiffs] are, in equal shares, 50% beneficiaries of the estate of the deceased, as the survivors of the deceased, pursuant to the terms of the [2005 will]; and
2. Whereas the [plaintiffs] have foreshadowed bringing a claim under Part IV of the Administration and Probate Act 1958; and

1. Whereas the parties hereto desire to resolve the various disputes between them[.]

13 The body of the terms of settlement is as follows:[3]

1. The parties hereto consent to a grant of representation being made to the [defendant] in respect of the informal will and to facilitate removal of the caveat.
2. Within six months and one week of the making of that grant of representation in respect of the informal will the [defendant], as executor of the estate of the deceased, will pay out of the estate of the deceased to the three defendants the sum of $210,000 ('the new bequest')[.] There will be an interim distribution, being part of the new bequest, of $100,000 made to the three [plaintiffs] approximately thirty days after the grant of representation.

1. Payment of the new bequest is inclusive of the [plaintiffs'] costs of and incidental to this proceeding.
2. These terms are entered in full satisfaction of any claim the [plaintiffs] may have against the Estate of the Deceased and the [defendant] arising out of:

(a) any claim they had, may now have, or in the future may have under the provision of Part IV of the Administration and Probate Act 1958; and

(b) otherwise against the estate of the deceased, or to participate in the distribution of the estate of the deceased, or in any other way whatsoever.

6. Upon payment of the new bequest in full:

(a) the [plaintiffs] will thereupon release and for ever discharge the [defendant] (both in his representative capacit and in his own personal capacity) from all claims, suits, demands and claims for costs arising out of or in relation to the matters subject of this proceeding and in relation to the claims the [plaintiffs] may have against the [defendant] referred to in paragraph 5 hereof.

(b) the [defendant] (both in his representative capacity and in his own personal capacity) will thereupon release the [plaintiffs] from all claims, suits, demands and claims for costs which he or the estate now has or may hereafter have arising out of or in relation to the matters the subject of this proceeding and in relation to the claims the [plaintiffs] may have against the [defendant] referred to in paragraph 5 hereof.

1. The parties will together make all reasonable endeavours to obtain a grant of representation of the informal will as soon as possible.

14 The principles that apply to the terms of settlement are the same as those that apply to other commercial contracts.

15 A term provides for a contingency if it makes the formation of a contract or the obligation to perform an existing contract dependent on the occurrence, or non-occurrence, of a particular event. If the formation of a contract or the obligation to perform is dependent on the occurrence of the event, its occurrence is a condition precedent. In Perri v Coolangatta Investments Pty Ltd ('Perri'),[4] Mason J explained:

There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.[5]

Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.[6]

17 A contingent condition will not be fulfilled if events occur that are contrary to what was contemplated by the condition. A contingent condition will also fail where the condition is not fulfilled within the period of time required by the contract. If no time is specified, the Court will construe the contract as requiring the condition to be fulfilled within a reasonable period of time.[7] Whether the fulfilment of a contingent condition is judged by an objective or subjective test will depend on the language of the condition. The condition may clearly refer to an objective fact or may depend on a discretionary judgment on the part of one of the parties.

18 Non-fulfilment of a contingent condition excuses performance. As Mason J noted in Perri, 'the expression of a provision in the form of a condition precedent endows it with the character of essentiality'.[8]

19 The consequences of non-fulfilment of a contingent condition are summarised in Principles of Contract Law as follows:

The consequences of a contingent condition not being fulfilled are determined as a matter of construction of the contract in question. However, some general principles may be discerned. If a contingent condition which related only to a particular obligation is not fulfilled, then generally the parties will be excused from performance of that obligation, although the contract will remain on foot. If a contingent condition relating to the performance of the whole of a contract is not fulfilled, the contract will generally be voidable. This means one or both of the parties may individually have a right to elect to terminate the contract. If neither party elects to do so, the contract will continue on foot ... In some cases the contract may provide that, upon non-fulfilment of a contingent condition, the contract will be 'deemed to' or will 'automatically' come to an end.[9]

20 As to whether the consequence of non-fulfilment is that the contract is void or voidable, Taylor, Menzies and Owen JJ said in Grange v Sullivan:[10]

Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of the courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end.[11]

21 Whether one or both parties can terminate a contract for non-fulfilment of a condition precedent also depends on the construction of the contract. Typically, both parties will be entitled to terminate.[12] However, if the condition was not fulfilled because of the default of one of the parties (for example, in failing to co-operate), that party will not be entitled to rely on the failure of the condition as a reason for terminating the contract.[13]

22 The general principles of contractual construction are summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining v Wright Prospecting Pty Ltd as follows:[14]

The rights and liabilities of parties under a provision of a contract are determined objectively,[15] by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.[16]

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[17] That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[18]

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[19]

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'.[20] It may be necessary in determining the proper construction where there is a constructional choice ...

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.[21]

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'.[22] Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.[23]

23 The plaintiffs submit that the grant of probate of the informal will was a condition precedent to the defendant's performance of his obligation under cl 2 to pay a new bequest of $210,000 out of the estate of the deceased.

24 However, the plaintiffs also submit that a reasonable person would understand the terms of settlement were entered into by the parties 'to create various rights' upon the grant of probate of the informal will and that 'no rights' were 'create[d]' unless that grant was made. In light of Mason J's observations as to the difference between parties' rights as result of a condition precedent to formation and a condition precedent to performance, this appears in essence to be a submission that the grant of probate was a condition precedent to the formation of the contract.

25 It is submitted by the plaintiffs that the grant of the 2005 will to the defendant rendered it 'impossible' for the condition precedent to be satisfied. As such, the defendant could not pay the sum of $210,000 to the plaintiffs out of the estate, cl 5 is unable to come into effect and the plaintiffs are unable to provide the releases under cl 6(a).

26 The defendant relies on cl 5, submitting that it is 'expressed unconditionally' with the objective intention to take effect immediately, and that it is 'indicative of the parties' intention to finally resolve all matters regarding the administration of the estate of the deceased by compromise'. The defendant says if it were not, then the 'bargain' of the compromise would be lost.

27 The defendant seeks a declaration that he be authorised to administer the estate of the deceased in accordance with the terms of settlement. In the alternative, the defendant says that the grant of probate of the 2005 will should be revoked as it was predicated on an undertaking that the defendant administer the will in accordance with the terms of compromise, and the defendant may then seek advice as to the prospects of obtaining a grant of representation of the informal will in solemn form.

28 The contract read as a whole does not compel a conclusion that the grant of probate of the informal will was a condition precedent to the formation of the terms of settlement. By cl 1, the parties consented to the grant of probate of the informal will and to facilitate removal of the caveat. By cl 8, the parties agreed to make all reasonable endeavours to obtain a grant of representation of the informal will. These were all steps to be taken prior to a grant of probate of the informal will. It cannot be that the parties had no right to enforce those clauses. To the contrary, it is clear that a binding contract came into existence immediately upon signature, and that from that moment the parties had obligations and rights capable of enforcement. The submission by the plaintiffs that no rights were created unless the grant of probate of the informal will was made is misguided.

29 To determine whether the grant of probate of the informal is a condition precedent to performance of the defendant's obligation to pay the new bequest pursuant to cl 2, however, it is necessary to consider the text of the clause, its context and the purpose of the terms of settlement.

30 Looking first at the text, cl 2 provides that the defendant has an obligation to pay the new bequest '[w]ithin six months and one week of the making of a grant of probate of the informal will'. This language is unambiguous. There is a specified time period for payment (within six months and one week) which commences by reference to a particular event (the grant of probate of the informal will).

31 Clause 2 also provides for an interim distribution to be made 'approximately thirty days after the grant of representation'. Again, there is a specified time period for payment (approximately thirty days) after a particular event (the grant of representation). The 'grant of representation' is clearly referable to the 'grant of probate of the informal will' described in the first half of the clause.

32 Turning next to context, there are numerous other specific and consistent references to the grant of probate of the informal will throughout the terms of settlement (and no references to a grant of probate generally). The recitals refer to the defendant's application for a grant of probate of the informal will, as do cls 1 and 8 referred to above.

33 A reasonable businessperson would understand the parties to have deliberately and specifically referred to the grant of probate of the informal will throughout the terms, and particularly in clause 2. The parties could have used a generic description or words, for example 'upon the making of a grant of the 2005 will or informal will' or 'upon the making of a grant of representation', but they did not.

34 Further, and critically, cl 6 provides that 'upon payment of the new bequest in full' the parties will release each other from the claims referred to in cl 5. Pursuant to cl 2, the payment of the new bequest is to occur within six months and one week from the grant of probate of the informal will.

35 The defendant submits that cl 2 and cl 5 are contradictory because cl 2 does not refer to cl 5, and cl 5 is to 'take effect immediately' and does not refer to the 'condition' in cl 2. As a result, the defendant says that an ambiguity arises and the Court can look to 'events, circumstances and things' external to the terms of settlement to inform the proper construction of its terms. While cls 2 and 5 do not specifically refer to each other, they are clearly linked by cl 6 which is the operative release clause. The plaintiffs are to release the defendant from the claims in cl 5 upon the payment of the new bequest, which is to be paid within six months and one week from the grant of probate of the informal will. This does not mean that cl 5 is not immediately binding with the effect that it contradicts cl 2. As set out above, there is no condition precedent to formation of the contract and the terms of settlement were immediately binding upon signature. However, if the grant of probate is a condition precedent to performance of the obligation to pay the new bequest, this may have consequences for the terms as a whole, including cl 5. This is expanded on below. Accordingly, there is no ambiguity and no need for the Court to look beyond the terms of settlement.

36 It is also possible to ascertain the purpose of the terms of settlement from the document alone. Recitals A, B and C directly are concerned with the defendant's application for probate of the informal will and the plaintiffs' caveat against that grant. Recital E refers to a foreshadowed claim under Part IV of the Administration and Probate Act 1958 (Vic) by the plaintiffs, presumably because the plaintiffs would receive no bequest if the informal were admitted to probate. The recitals are consistent with the operative clauses in the terms of settlement, including cls 1 and 8 referred to above. Further, cl 4 provides that payment of the new bequest is to be inclusive of the plaintiffs costs of 'this proceeding', being the contested probate proceeding. The terms of settlement themselves also include the court header for the probate proceeding. It is evident from the plain and unambiguous meaning of the document that its purpose was to settle the contested probate proceeding and facilitate the admission of the informal will to probate.

37 There is nothing in the terms of settlement which supports the defendant's submission that the 'true purpose' of the compromise was 'not to settle on which document would be admitted to probate, but rather to determine how the estate would be distributed between the parties once probate had been granted'. Any evidence of the defendant's subjective intention or expectation to this effect would be inadmissible. Notably, the defendant did not made any claim for rectification of the terms of settlement.

38 In light of the text of clause 2, its context and the purpose of the terms of settlement, a reasonable businessperson would understand the grant of probate of the informal will to be a condition precedent to the defendant's obligation to pay the new bequest out of the estate to the plaintiffs.

39 It is an objective fact that probate of the informal will has not been granted to the defendant. The Registrar of Probates rejected the defendant's application for probate of the informal will, the defendant made a forensic decision to apply for probate of 2005 will and accordingly probate of the 2005 will was granted to the defendant. It is clear that events contrary to the condition precedent have occurred with the result that the condition precedent has not been fulfilled. While the defendant says that the Court can revoke the grant of probate of the 2005 will and the defendant may then apply for a grant of probate of the informal will in solemn form, a reasonable time has lapsed in which the condition precedent might be expected to be fulfilled.

40 The consequence of non-fulfilment of the condition precedent is to be determined as a matter of construction of the terms of settlement. Clearly, payment of the new bequest is an essential term. The determinative question is whether the condition precedent relates only to payment of the new bequest, in which case the defendant would be excused from performance of that obligation but the contract would remain on foot, or if the condition precedent related to performance of the whole contract, in which case the contract may be voidable. The short but critical point is that the releases to be provided pursuant to cl 6 (including releases in respect of the claims the subject of cl 5) are themselves conditional on payment of the new bequest, which is conditional upon the grant of probate of the informal will. The releases are only effective '[u]pon payment of the new bequest in full'. Further, cls 3 and 4 relate to payment of the new bequest. Given the interlinkage between the obligation to pay the new bequest and the balance of the terms of settlement, the defendant cannot be excused from performance of that obligation while the terms of settlement remain on foot. Rather, the consequence of the non-fulfilment of the condition precedent is that the whole of the terms of settlement were voidable, consistent with the authorities described above.

41 The defendant submits that the effect of this construction means that the 'bargain' of the compromise would be lost. The defendant says that the defendant's application involved risks for both sides: if the application was granted the defendant would take the whole estate and if the application was dismissed the plaintiffs would share in the estate pursuant to the terms of the 2005 will. The defendant submits that he 'achieved nothing by way of compromise other than a reduction of his entitlements under the informal will' and 'would have been better off taking his chances at trial on the validity of the informal will'. Plainly, this is not so. The defendant received the benefit of the removal of the plaintiffs' caveat and avoided a contested trial. Further, as the defendant points out in his own submissions, objectively it must be assumed that the parties knew that the validity of the testamentary document could not be determined by consent of the parties and so the defendant must have been aware of the risk that probate of the informal will might not be granted. It is not the function of the Court to relieve the defendant from a bad bargain.[24]

42 Non-fulfilment of the condition precedent was not the fault of either of the parties. Further, the rights and obligations of both parties are effected by the non-fulfilment. In such circumstances, and in the absence of any contrary intention in the terms of settlement, both parties were entitled to avoid the terms of settlement.

43 On 22 November 2019 the plaintiffs' solicitor sent a letter to the defendant's solicitor which referred to the grant of probate of the 2005 will to the defendant on 20 November 2020 and stated:

our clients do not consider themselves bound by the Terms of Settlement dated 9 April 2019.

Our clients disagree that the Terms of Settlement entertain the possibility of either Will being admitted to Probate. They advise that the Terms of Settlement were entered into in contemplated of only the Informal Will being admitted to Probate. As such condition precedent is unable to satisfied [sic], it is our view that the Terms of Settlement cannot be given effect.

... we have this day lodged Caveat against Title to the Deceased's property at 1270 McDonalds Track Nyora in order to protect our Clients' interest.

44 By this letter and the reference to the lodging of a caveat, the plaintiffs sufficiently evidenced their intention to avoid the terms of settlement. Accordingly, the terms of settlement were void from 22 November 2020.

45 It is not necessary to deal with the plaintiffs' submissions as to public policy or the defendant's submissions on the role of the Court to give effect to a compromise of a contested probate proceeding.

46 The declarations sought in (a) and (b) of the originating motion are misguided for a number of reasons. First, in respect of (a), there is reference to the terms of settlement having lapsed. Lapse generally applies in the context of an offer and would not be considered as a valid way for a contract to come to an end, and certainly not in the context of a condition precedent. Secondly, while the alternative in (a) is for a declaration that the terms are void, the condition precedent does not say that, it simply says on refusal of Registrar to admit. As determined above, the condition precedent was void upon election by the plaintiffs. Thirdly, in respect of (b), it explicitly refers to a condition precedent but seeks that there be a declaration that the terms are unenforceable. As explained above, the relief for non-fulfilment of a condition precedent is that the contract can be voided, not that it is unenforceable.

47 In light of these matters, the appropriate declarations should be that:

(i) the terms of settlement were void from 22 November 2020;

(ii) the defendant is released from his undertaking to distribute the deceased's estate in accordance with the terms of settlement;

(iii) distribution of the deceased's estate is to be made in accordance with the terms of the 2005 will;

(iv) the defendant pay the plaintiffs' costs on a standard basis.

TREVOR EDWARD BUTLER (who is sued as the executor of the will of ERNEST EDWARD BUTLER, deceased, and personally)

[1] With leave reserved to another named executor, Anthony John Mahon.

[2] Any errors are as they appear in the original text.

[4] (1982) 149 CLR 537 ('Perri').

[9] Andrew Robertson and Jeannie Patterson, Principles of Contract Law (Lawbook Co, 6th ed, 2020) 461-2 [20.40] (citations omitted).

[10] [1966] HCA 55; (1966) 116 CLR 418.

[12] Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 441; Perri (n 4) 546.

[14] [2015] HCA 37; (2015) 256 CLR 104, 116-7 [46]-[51].

[15] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, 656 [35] ('ECG').

[16] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 350 ('Codelfa'), citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995-6 ('Reardon Smith').

[19] Codelfa (n 16) 352.

[20] ECG (n 15), citing Codelfa (n 16), in turn citing Reardon Smith (n 16).

[21] Codelfa (n 16) 352; Reardon Smith (n 16).

[22] ECG (n 15), citing Re Golden Key Ltd [2009] EWCA Civ 636, [28].

[23] Ibid, citing Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530, 559 [82].

[24] See AMEV-UDC Finance Ltd v Austin [1986] HCA 63; (1986) 162 CLR 170 at 184 (Mason and Wilson JJ), citing Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 WLR 399, 402-3.