New South Wales Supreme Court CITATION : Application of Ferdinando Scali [2010] NSWSC 1254 HEARING DATE(S) : 6 October 2010 JURISDICTION : Equity Division Duty Judge List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 6 October 2010 DECISION : The plaintiffs in their capacity as executors of the will of Ronald Francis Hoolahan deceased would be justified in continuing to defend proceedings 09/290797 in this Division of the Court. CATCHWORDS : EQUITY – Trusts and trustees – Applications to court for advice and authority – Petition or summons for advice – whether executors should settle or defend Family Provision proceedings where claimant and most but not all beneficiaries agreed on very generous settlement LEGISLATION CITED : (NSW) Family Provision Act 1982 (NSW) Trustee Act 1925 s 63 CATEGORY : Separate question Application of Richard Albarran; Harb v Harb [2010] NSWSC 1251 McMahon v McMahon [1985] NSWSC (Unreported, Young J, 2 August 1985) Re Brockbank [1948] Ch 206 CASES CITED : Re Fulop (1987) 8 NSWLR 679 Stephenson v Barclays Bank Trust Co Ltd (1975) 1 WLR 882 Szlazko v Travini [2004] NSWSC 610 Vasiljev v Public Trustee [1974] 2 NSWLR 497 TEXTS CITED : Anthony Dickey, Family Provision After Death (1992) Law Book Co PARTIES : Ferdinando Scali (first plaintiff/applicant) Rocco Vincenzo Scali (second plaintiff/applicant) FILE NUMBER(S) : SC 10/323771 COUNSEL : M Bradford (plaintiffs/applicants) Ms L Bedson (sol) (plaintiffs in 09/290797) SOLICITORS : Macpherson & Kelley Lawyers (Sydney) Pty Ltd (plaintiffs/applicants) TressCox (plaintiffs in 09/290797) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST BRERETON J Wednesday, 6 October 2010 2010/323771 Application of Ferdinando Scali JUDGMENT (ex tempore) 1 HIS HONOUR: The deceased Ronald Francis Hoolahan died on 24 February 2009 aged sixty-three years, leaving a will dated 19 October 2007, probate of which was granted to the present applicants Ferdinando Scali, a chartered accountant, and Rocco Vincenzo Scali, a life-long friend of the deceased, who are cousins, on 20 August 2009. His estate comprised about $16.5 million, excluding the former matrimonial home, worth about $1 million, which the deceased had occupied with his widow Juliana Elizabeth Hoolahan (Julie) and which passed to her by survivorship. By June 2010, the estimated value of the estate, after payment of some legacies and expenses, was approximately $15.9 million. A subsequent loss on an investment in stock has reduced its value to about $15.6 million. 2 As well as his widow Julie, all the deceased's children – his daughter Nicole Elizabeth Hochbaum (Nicole) aged thirty, his second daughter Danielle Elisa Hoolahan (Danielle) aged twenty-eight, his third daughter Caitlin Michelle Hoolahan (Caitlin) aged twenty-six, and his son Andrew Christopher Hoolahan (Andrew) aged twenty-five – also survive him. So too does his one-year-old grandson Lucas Ronald Hochbaum, a son of Nicole. 3 The relevant provisions of the deceased's will have the effect that his executors hold his estate on trust, first, to pay to Julie a lump sum of $100,000 indexed to the CPI; secondly, to pay annual cash payments to Julie according to a formula on a sliding scale of $45,000 per annum net of tax indexed to the CPI until Julie attains aged seventy, the $40,000 per annum net of tax indexed to the CPI until she attains seventy-five, and thereafter $35,000 per annum net of tax indexed to the CPI; thirdly, to pay all costs and expenses associated with Julie's principal residence; fourthly, to pay to each of his four children an annual cash payment of between $10,000 and $16,000 according to a formula indexed to the CPI and age dependent; fifthly, to pay to any grandchild of the deceased born before or within ten years from the date of his death (of which Lucas is presently the only one), an annual cash legacy of $10,000 (to be shared with any sibling of such grandchild) until attaining the age of twenty-one years; sixthly, to hold the residue of the estate in four testamentary trusts, one in respect of each of his four children, in respect of which the eligible beneficiaries are the nominated child, their children, and grandchildren, so that any of the capital or income of the trust can be distributed to any of the eligible beneficiaries at any time, at the absolute discretion of the executors as trustees. Each child can become sole trustee of his or her own trust, but only on attaining the age of forty-two; and if any child's trust fails then that trust, or the failed part of it, is to be distributed equally between the other children's trusts in existence at that time, or if any part of the estate is still incapable of being distributed under the provisions of the will, then to Julie, or if she is not alive at the relevant time, to the Cancer Council of New South Wales. 4 To date, the executors have paid the legacy of $103,797 to Julie on 27 November 2009, and also the first annuity of $47,939 on 19 February 2010. They have also made the initial payments of annuities to each of the four children – $17,045 to Nicole, $10,563 to Danielle, $10.563 to Caitlin and $10,563 to Andrew on 19 February 2010. They increased Lucas' annuity of $7,863 for him on the same date, and have also paid relevant expenses associated with Julie's principal residence have been paid. 5 By summons filed on 2 October 2009, Julie has sought further provision from the deceased's estate. The present plaintiffs, as executors of the estate, are the defendants in those proceedings, which are listed for a two day hearing in the Family Provision running list commencing 25 October 2010. 6 One of the children provided an affidavit, at the request of the present plaintiffs, in aid of the defence of the Family Provision proceedings. However more recently Julie and the four children have executed a form of consent order in respect of the Family Provision proceedings which proposes that, in lieu of all the dispositive provisions of the will, Julie receive the whole of the estate; that there be no order as to Julie's costs, to the intent that she bear her own costs; that the executors' costs be paid out of the estate on an indemnity basis; and that the Court note an agreement that any moneys distributed before 1 September 2010 to any child or grandchild are to be retained by that child. 7 Julie's solicitors wrote to the executors' solicitors on 16 September 2010, advising that she had reached agreement "with the beneficiaries of the will to finalise her claim on the estate of her late husband", enclosing the consent orders signed by Julie and the beneficiaries, and seeking the executors' agreement to the proposed orders for purposes of resolution of the proceedings. They added: In circumstances where the beneficiaries agree on the resolution of a case it is not appropriate for the executors who are not beneficiaries to proceed with the litigation. To do so would be a waste of the estate's resources and contrary to the beneficiaries' wishes. We therefore request that the defendants sign the orders enclosed and forward a copy to our office within the next seven days. If we do not receive the agreement of the defendants and the signed orders by such time we will approach the Court for the appropriate relief including costs. 8 By summons filed in the present proceedings on 29 September 2010, the executors seek, pursuant to (NSW) Trustee Act 1925, s 63, the opinion and advice and direction of the Court as to: 1. Whether, in the light of the proposed consent orders, they were justified in defending the proceedings in the Family Provision proceedings. 2. If not, whether they should give their consent to those orders and, if not, what further and/or other steps should they take to reach a settlement of the substantive proceedings. 3. Costs out of the estate on an indemnity basis. 9 The proceedings first came before me, ex parte, on 29 September 2010. The widow's solicitors had requested the executors' solicitors to notify them if judicial advice were to be sought and, on 29 September, the Court directed that notice of the application be served on the widow, by her solicitors, so that they might appear today, and make submissions on the hearing of the application for judicial advice. 10 It is well established that, in proceedings under the (NSW) Family Provision Act 1982, the primary duty of the executor as defendant is to uphold the will and to put before the Court any necessary material that can reasonably be found to assist the Court [see Anthony Dickey, Family Provision After Death (1992) Law Book Co, Vasiljev v Public Trustee [1974] 2 NSWLR 497]. No doubt this does not mean that the proceedings must be defended as if they were a murder trial, and it does not deny that the executor must exercise a due sense of proportionality in the conduct of any such defence and seek to compromise a claim, if at all possible, in a way that would save both the plaintiff and the other beneficiaries' costs [see Szlazko v Travini [2004] NSWSC 610]. Thus, the duty of executors to uphold the will does not extend to doing so where it is of no commercial benefit to anyone, and regard should be had to the extent to which upholding the will would benefit beneficiaries [Szlazko v Travini]. 11 But it is also to be born in mind that, just because all the parties to the Family Provision Act agree between themselves on the order to be made, the Court will not necessarily make that order: although, in general, if asked by consent to make an order, the Court ordinarily does so, the legislation casts a duty on the Court to see that an order is only made in appropriate circumstances, so that it must itself consider the facts and circumstances [see McMahon v McMahon [1985] NSWSC (Unreported, Young J, 2 August 1985)]. In all these cases, it is important to bear in mind that freedom of testamentary capacity is a prominent feature of our legal system and that there is therefore a silent and sometimes overlooked third party, namely, the testator. Except to the extent proper provision needs to be made for an eligible person, a testator is entitled to expect that his or her will will be upheld. Thus it has often been said that the Family Provision Act does not authorise the Court to remake the deceased's will, but only to modify it to the extent necessary to make proper provision for the plaintiff [Re Fulop (1987) 8 NSWLR 679]. 12 The effect of the proposed consent orders would be to confer upon the widow, who is already beneficially entitled (as a result of the operation of the laws of survivorship) to a $1,000,000 home, to the residual estate of $15.6 million. I am not aware of any case in which an order has been made under the Family Provision Act which approaches that quantum. In my mind, it defies imagination that proper provision for a widow could be said to require provision out of an estate, even of this size, of something like $15 million in addition to an unencumbered home. 13 Moreover, the proposed consent orders simply do not represent the agreement of all the persons interested in the estate. There are other outstanding interests, including in particular Lucas, who is alive, and such other grandchildren as may be born in the next eight or nine years. I can see no basis upon which the executors ought, in those circumstances, disregard Lucas' interests. The order proposed to be made would affect not only the interests of the children, who apparently consent to it, but also of the grandchild (and of such other grandchildren as may be born within ten years after the deceased's death). 14 As not all the beneficiaries are of full age and capacity, the consent of the four children would not protect the executors from a departure from their duty. Even if there were a consent of all the relevant beneficiaries, that would not compel the executors to act in a manner upon which they agreed [Re Brockbank [1948] Ch 206, Stephenson v Barclays Bank Trust Co Ltd (1975) 1 WLR 882, Application of Richard Albarran; Harb v Harb [2010] NSWSC 1251]. 15 Next, from the evidence put before the Court on this application, it appears that the testator had his reasons for structuring his will as he did. The sufficiency of those reasons, as to the structure of the provision made for his widow, will no doubt be examined in the Family Provision proceedings; but it is clear on the material put before me that the testator structured his will as he did by way of protective trusts in order to ensure that not all the benefit of his estate could be speedily expended by some about whose ability in financial management he entertained some concerns. 16 For the foregoing reasons, and bearing in mind the prima facie duty of executors to uphold the will, the circumstances that the quantum of the proposed consent orders appears – at least at first sight – to provide much more than proper provision for the widow, and that to do so would disregard the interests of Lucas and any other eventual grandchildren, the size of the estate, and the deceased's apparent concerns to have in place a protective structure, the executors would be justified in continuing to defend the proceedings notwithstanding the consent orders. 17 Pursuant to the (NSW) Trustee Act, s 63, I advise that the plaintiffs in their capacity as executors of the will of Ronald Francis Hoolahan deceased would be justified in continuing to defend proceedings 2009/290797 in this Division of the Court, notwithstanding the proposed consent orders comprised in annexure J to the statement of facts. 18 I order that the plaintiffs' costs of these proceedings be paid out of the deceased's estate on an indemnity basis. 19 I order that the exhibits remain on the file. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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