Background
David Simcocks died on 24 September 2006 leaving a Will executed in 1980. He was survived by his children, including the plaintiff, John Simcocks, whose capacity was in question. Both the executor named in the Will and the substitute executor predeceased the testator. Consequently, letters of administration with the Will annexed were granted to the deceased’s other children. The net value of the estate was assessed at over $7.5 million.
Subsequently, the plaintiff applied to remove the administrators, sought an administration account and to compel production of information concerning the estate and a related family trust. Given concerns at the plaintiff’s capacity, an administrator and litigation guardian were appointed to the plaintiff.
After prolonged settlement discussions, the beneficiaries each entered into a deed of settlement and family arrangement. This deed was entered into by the defendant children who were sui juris and otherwise conditionally on behalf of the plaintiff, who lacked capacity to give his informed consent to it. The proposed compromise included, amongst other things, the surrender by the plaintiff of his entitlements to a superannuation death benefit and to benefit under a family trust.
Application for Approval of Compromise
The conditional compromise was submitted to the Court for approval. The Deed recorded that it had been entered into in settlement of the proceeding and also to provide for:
- An agreed scheme for the administration and distribution of the remaining assets of the estate;
- The extent of the parties’ further entitlements by way of distribution from the estate of the deceased;
- Clarity and certainty as to the ongoing control and operation by the first defendant of the related family trust and the business operated through it;
- Settlement of any equitable claim raised by another party; and
- The ongoing arrangement for the management of the plaintiff’s financial and legal affairs by his administrator.
In order to achieve the purposes set out above, the deed involved a complex set of arrangements which affected the plaintiff’s personal, financial, taxation and legal affairs, and went beyond the relief sought in the plaintiff’s proceeding.
The Court held that in determining whether or not to approve the compromise of a person under a disability, it:
- Must be satisfied that the compromise will benefit that person;
- Is concerned only to protect the person under disability and exercise independent judgment on the question of whether or not the compromise is in the best interests of the person under disability;
- Will not decide whether the outcome of the compromise is one that would have been made had the matter proceeded to trial;
- Is assisted by those advising the person under disability in deciding whether a compromise is beneficial to, and in the best interests of, that person; and
- Will attach significant weight to the opinions provided by counsel, solicitors and, as appropriate, litigation guardians as to whether a proposed compromise is in the interests of a person under a disability.
In this case, after having considered the material filed in support of the compromise application, the Court held that the material provided insufficient information as to the financial position of the estate and insufficient analysis of the reasons for the compromise being in the best interests of the plaintiff – including how it could be said to be in the interests of the plaintiff to forego the nominated superannuation death benefit.
The Judge also went further and observed that since the proposed compromise included the payment of the parties’ legal costs out of the estate, detailed information was required as to those costs so that the Court could form a view as to whether or not those costs were reasonable and proportionate.
In the circumstances, the Court ordered further information be filed in support of the application. This included:
- Whether the Court had the power to approve a compromise encompassing substantially more than the issues in the proceeding;
- Whether any ongoing protective measures had been considered for any funds to be paid to the plaintiff;
- A full administration account of the deceased estate, including a schedule for all real property showing outgoings and income, valuations and any estimated taxation liabilities;
- A proper articulation and estimate of the residuary estate of the deceased; and
- The quantum of the costs to be paid pursuant to the Deed and a submission as to whether, pursuant to the Civil Procedure Act, they are reasonable and proportionate to the issues in dispute.
Implications for Approval Application
Whilst in this case, the applicants for approval of the compromise were granted leave to file further material addressing deficiencies in the initial application, it is important to keep in mind that such leave may not always be granted. There is a risk to executors and administrators who do not adequately prepare applications for approval that their applications will be rejected.
Rejection of an approval application can cause a significant detriment to the estate in terms of costs thrown away. For example, depending on the complexity of the particular proposed settlement, rejection of an application to approve terms of settlement may also require a further mediation and re-negotiation of a settlement.
This article was written by Simon Crawford, Partner, Angelia Liaskos, Senior Associate and Christian Teese, Senior Associate.
