Re Di Benedetto; Di Benedetto v Kobor [2015] VSC 472

2 The assets of the deceased's estate included a half share in a property at 2 Frances Street, Ascot Vale ('the Ascot Vale property') and shares in a company called Kilton Grange Pty Ltd ('Kilton Grange').

3 Kilton Grange is the trustee of the Green Gables Family Trust ('the Green Gables Trust') and its assets included land at 375 Riddell Road, Sunbury ('the Sunbury property') and at 4 and 40 Brasser Avenue, Dromana ('the Dromana properties'). The deceased was the appointor of the Green Gables Trust, and upon his death, Salvatore, as his legal personal representative became the appointor of the trust.[1]

4 Probate for the deceased's will dated 30 October 2009 ('the will') was granted to Salvatore on 29 July 2010.

(a) devised his half share of the Ascot Vale Property to his nephew, Joseph, who was the owner of the other half share of that property as a tenant in common with the deceased; and

(b) gave the residue of the estate to the respondent, which included the deceased's shares in Kilton Grange, subject to a condition that the respondent ensure that the Sunbury property be subdivided, and that one block from the subdivision be transferred to each of Joseph, Maria and Ginetta on the basis that they pay all of the costs in relation to the land's subdivisions, including surveyors' costs, stamp duty, transfer fees and any other costs relevant to the transfer.

6 On or about 16 September 2010, Salvatore, in a purported exercise of his power of appointment, removed Kilton Grange as trustee of the Green Gables Trust and purported to appoint Marjojen Pty Ltd ('Marjojen') as trustee in its place.

7 By originating motion filed 27 September 2010, the respondent commenced proceedings against Salvatore, in his capacity as the executor of the estate of the deceased, seeking further provision from that estate pursuant to Part IV of the Administration and Probate Act 1958.

8 By originating motion filed 6 October 2010, the respondent commenced further proceedings pursuant to O 54 of the Supreme Court (General Civil Procedure) Rules and s 48 of the Trustee Act 1958 against Salvatore, in his capacity as the executor of the estate of the deceased, as well as against Kilton Grange and Marjojen. The-se proceedings sought advice from the Court on the construction of the 'conditional' gift to the respondent of the residue of the estate. They also sought an order appointing Kilton Grange as trustee of the Green Gables Trust in place of Marjojen, effectively seeking to reverse Salvatore's purported appointment of Marjojen as trustee.

9 As a result of a mediation held on 21 October 2010, a deed of settlement was executed by the applicants, the respondent, Marjojen, Joseph, Maria, Ginetta, and Salvatore's wife, Maria Di Benedetto Senior ('the settlement deed'). [2]

10 The settlement deed provided for, inter alia, the future subdivision and distribution of the Sunbury property; the transfer of the shares in Kilton Grange to the respondent once the settlement terms had been complied with and for Kilton Grange to pay certain expenses associated with the Dromana properties, with the respondent to pay certain property expenses thereafter.

11 The current proceeding was commenced by originating motion filed 14 March 2014. It is not necessary to set out what relief was initially sought by the applicants, as the summons on originating motion has been amended twice since then. The applicants now seek, in outline, direction from the Court as to:

(a) the terms of the settlement deed that have not been carried out as contemplated;

(b) further expenses incurred by Salvatore and Maria (senior) in running the estate and Kilton Grange;

(c) further tax and other liabilities about which the settlement deed is silent; and

(d) the parties' inability to reach agreement about the burden of expenses.

12 In their Further Amended Summons on Originating Motion filed 14 May 2015, the applicants now seek the following relief:

(a) an order for the sale of the Sunbury property;

(b) orders entitling the applicants to deduct various expenses, most of which are liabilities of the deceased's estate, from the proceeds of sale of the Sunbury property;

(c) directions as to the manner in which various costs and expenses of the estate, Kilton Grange, and of Monte-Carlo Pty Ltd as trustee of the Luigi Di Benedetto Family Trust are to be paid;

(d) directions as to the manner in which the remaining assets of the estate and of Kilton Grange are to be distributed;

(e) construction of clauses 13 and 15 of the settlement deed, as to how the costs incurred should be paid in attempting to have the Sunbury property subdivided, and when the shares in Kilton Grange are to be transferred to the respondent;

(f) an order that Kilton Grange is entitled to sell other assets of the Green Gables Trust to satisfy liabilities said to be owed to the applicants, to the creditors of the trust, to the estate, to Monte-Carlo Pty Ltd and any entities in which the deceased held shares or was a director;

(g) an order that neither Salvatore nor Kilton Grange is in breach of the terms of the settlement deed; and

(h) costs in the proceeding against the respondent on an indemnity basis.

13 In respect of the Sunbury property, the parties have now accepted that the Sunbury property cannot be subdivided in the manner provided for by the settlement deed. Over the course of 2014, the parties agreed to place the Sunbury property on the market for sale, but it did not sell under the sale conditions agreed upon by them. The parties were in dispute as to the reasons for the Sunbury property not selling, and so several days before the hearing, the parties agreed to appoint an independent solicitor to have carriage of the sale for a period of six months. A 'floor' price of $680,000, a price significantly lower than originally sought for the property, has been agreed to by the parties.[3]

14 Given that the parties have now agreed as to a sale mechanism for the sale of the Sunbury property, no orders need to be made regarding it.

15 Clause 10 of the settlement deed provided that the Sunbury property was to be divided into two lots, with relative proportions of three-sevenths of the whole to go to the Di Benedettos (Maria Jnr, Joseph and Ginetta), and four-sevenths to go to the respondent. The respondent accepts that, as the division anticipated by the settlement deed is impossible or impractical, the Sunbury property should be sold and all reasonable, proper and necessary costs incurred by all parties in attempting to carry into effect the subdivision should be, as provided for by the settlement deed, deducted from the net proceeds of sale, along with all reasonable, proper and necessary costs incurred in selling the land. The balance of funds remaining should be distributed according to the relative proportions originally anticipated as applying to the subdivision.[4] The remaining issues concerning the Sunbury property are no longer the subject of dispute.

16 The applicants note that the expenses associated with the subdivision of the Sunbury property have already been paid, in part, personally by the executor and, in part, by Kilton Grange. Salvatore seeks reimbursement of the amount that he has paid from Kilton Grange. The respondent submits that any such costs should be deducted from the sale of the Sunbury property, if and when that occurs. In my view, the respondent's position provides an appropriate outcome in the circumstances with the amount being paid according to the relative proportions originally anticipated as applying to the subdivision.

17 There are also several small amounts claimed by the applicants, being rent of $2,400 for the Ascot Vale property and the reimbursement of various expenses of $6,600 paid by Maria Senior. These payments are authorised by clause 7 of the settlement deed and the respondent concedes that to be the case.[5]

18 The remainder of the dispute revolves around the burden of liability for certain costs and expenses - namely, the deceased's funeral expenses (amounting to the startlingly substantial sum of some $66,000), his purported tax liabilities and associated accounting expenses (as yet unquantified, though estimated by the applicants as being in the region of $100,000), and legal costs accrued from the time of the settlement deed up to 28 February 2015 totalling at least $225,000.[6] This amount does not include any costs associated with the Part IV application and the construction proceeding referred to in [7] and [8] above by reason of the provisions of the settlement deed. The applicants are also aware of, and anticipate, further debts, including rates and expenses relating to both lots of properties and the advertising costs of the sale of the Sunbury property.[7]

19 The applicants submit that in the usual course of things, the funeral costs, the deceased's tax and the costs and expenses of probate and administration would be paid from the residue of the estate, with the estate's costs of the legal proceedings being paid by the estate, and Kilton Grange's expenses, (that is, the liabilities associated with the Kilton Grange properties) being liabilities of Kilton Grange, with Kilton Grange being entitled to an indemnity from the assets of the Green Gables Trust. However, they submit that this usual burden of costs and expenses has been varied by the settlement deed.

20 In respect of the funeral costs, the applicants point first to a written agreement dated 8 February 2010 between Salvatore and the respondent stating that Salvatore would arrange the deceased's funeral and that all costs would be 'reimbursed to Sam' when 'monies are forthcoming from [the] estate', with the respondent paying interest on money borrowed ('the written agreement').[8] The applicants submit that this ought to be construed as a deed by the respondent to pay the funeral costs, either personally, or as the residuary beneficiary, as the document is otherwise silent as to who is to pay any associated costs. They also submit that if the costs in question were to be paid from the residue, there would be no need for a deed, as that is a right already available to the executor of an estate.

21 In response, the respondent notes that the written agreement upon which the applicants rely is dated a mere eight days after the death of the deceased; that it was apparently prepared without the benefit of solicitors and that the settlement deed signed later that same year makes no mention of it whatsoever. She argues that funeral costs - along with accountancy costs and personal taxation liabilities of the deceased and his estate - are the responsibility of the executor to be paid out of the estate of the deceased.

22 The respondent also refers to clauses 4 and 5 of the settlement deed, which she submits are mutual releases between the parties to the settlement deed. The clauses in question provide that the estate has no outstanding claims against any of the parties, and that the parties have no outstanding claims against the estate, save as provided for within the settlement deed itself. It is the respondent's contention that the purported release in the settlement deed specifically overrides any previous deed in existence in relation to the payment of the funeral costs.

23 In oral submissions, the applicants contended that the phrase 'outstanding claims' ought to be limited in scope such that it has no application to what was an existing debt relating to the funeral expenses.

24 In my view, the applicants' contentions should be rejected. The release in the settlement deed is clear in its terms: it releases the parties, and the estate, from any claims not yet determined between them, which are not provided for within the body of the deed itself. In clear language, the settlement deed releases the estate from any liability of the type alleged.

25 I also reject the argument that the respondent is liable in a personal capacity for the alleged debt. Clause 3 of the written agreement provides that:

[T]he said [respondent] agrees to the said monies being paid by [Salvatore] presently and confirms that all monies paid for the funeral arrangements including the Mausoleum and the Coffin will be reimbursed to [Salvatore] when monies are forthcoming from Luigi DiBenedetto's [sic] Estate.

26 This clause clearly does not anticipate that the respondent would become personally liable for the moneys in question, absent any indication as to what the total amount would be; rather, it represents an acknowledgement that Salvatore was to claim the expenses of the funeral against the estate, as is the usual practice. That acknowledgement was, as I have already made clear, superseded by the terms of the settlement deed.

27 The applicants also argue that the terms of the settlement deed alter the usual burden of costs and expenses. They submitted that the settlement deed provides for Kilton Grange to be transferred to the respondent but grants her a very limited ability to spend Kilton Grange funds prior to her taking control of Kilton Grange, and that it provides that she will, either personally or through Kilton Grange, receive the benefit of the remaining real estate and meet all future expenses associated therewith. Although provision is made in the settlement deed for the respondent's interest in Kilton Grange to be transferred to her, this has not yet occurred.

28 Clause 13 of the settlement deed provides that the expenses associated with the sub-division of the Sunbury property are to be paid personally by the Di Benedetto beneficiaries and the respondent in their relevant proportions, with future rates, taxes and costs of the real property provided for in clause 3 as follows:

[The respondent] undertakes to pay any future rates taxes and liabilities which are charged to the estate in relation to any real estate of which she is the registered proprietor...

29 The present and future tax on the estate, and other entities, does not appear to be provided for by the settlement deed.

30 The respondent relies, again, upon clauses 4 and 5 of the settlement deed to argue that the tax liabilities associated with the estate - which are, as yet, unquantified, but which it is determined will arise due to the deceased's failure to lodge any returns for a period of some 17 years prior to his death - cannot be claimed from the estate.

31 The applicants argue, however, that because the liabilities in question were unknown at the time that the settlement deed was drafted, they are to be treated differently to the funeral expenses, in that they will be subject to the rules which apply when an executor, despite the fact that assets have been distributed, becomes aware of a previously unknown liability and is entitled to recoup it from the beneficiary in receipt of the asset against which the liability exists. As such, the applicants argue that the tax liabilities ought to be recoverable from the respondent, in her capacity as the recipient of the residue of the estate.

32 A further issue also arises, in the alternative, as to whether tax liabilities can constitute 'outstanding claims' in accordance with the terms of the settlement deed or whether they can be more properly characterised as future claims which had not yet crystallised at the date of the creation of the settlement deed.

33 At the mediation which culminated in the signing of the settlement deed, it was expressly acknowledged by the accountant retained to deal with the estate's finances that no quantification of the tax liabilities could be given as yet, and correspondence leading up to the mediation acknowledged that the deceased's tax affairs were in a state of disorder, and would need to be dealt with.

34 Although the quantum of the liabilities had not been established at the time of mediation - and indeed, appears still to be unknown - the fact that a large amount of tax would be payable on the estate would have been contemplated by all the parties at that time, not least because correspondence preceding the mediation demonstrates an awareness that the deceased's tax affairs were in a state of disarray, and would need to be worked through.

35 In my view, whilst the quantum of the deceased's personal tax liabilities out-standing at his death was unknown, as well as those of his estate, it could not be said that they were 'unknown' liabilities such that they are not captured by the release in clauses 4 and 5 of the settlement deed.

36 I also reject the contention that the tax liabilities did not constitute an 'outstanding claim' in the terms of the settlement deed. Such an interpretation would make a nonsense of the stated purpose of the settlement deed, and of other instruments like it, to eliminate uncertainty and finally determine the issues in dispute. Further, although the bill for the tax liabilities in question had not arrived by that stage, this does not mean that the amounts in question were not outstanding. Tax is, in the usual course of things, payable on the conclusion of each financial year; a failure to discharge one's tax obligations for a period of 17 years represents a steady accrual of liabilities. The same conclusions apply to the accountants' costs associated with organising the deceased's tax affairs.

37 These reasons finalise most of the relief sought by the applicants in the Further Amended Summons on Originating Motion filed by the applicants.

38 I will order that, on or before 25 September 2015, the parties forward minutes of proposed orders reflecting these findings and further directions for any issue that remains to be determined.

[1] Pursuant to clause 26 of the deed for the Green Gables Trust.

[2] Affidavit of Salvatore Di Benedetto sworn 31 January 2014, exhibit SD-5.

[3] Although in their Further Amended Summons, the applicants included an order that the Dromana properties be sold, it seems that a further summons was filed on 20 April 2015 in relation to the sale of the Dromana properties. In effect, this summons proposed that, if the Sunbury property does not sell within a reasonable time, the debts and liabilities payable by Kilton Grange ought to be met by selling one or both of those properties, as opposed to preserving the Dromana properties, to the sole benefit of the respondent. Any issue concerning the sale of the Dromana properties is not for determination on this application.

[4] Applicant's submissions, fn 1: it appears that modifications including drainage and land stabilisation would need to be carried out before the projected subdivision could take place. The exact cost of those works has not been ascertained, but will apparently be substantial.

[5] Applicants' submissions, [35]; respondent's summary.

[6] The figure in question is an estimate of costs up to 28 February 2015.

[8] Affidavit of Salvatore Di Benedetto sworn 31 January 2014, exhibit SD-45.