We are excited to welcome new author Sandra Karabidian to our Victorian Courts service! Sandra is joining our General Editor, Gerard Nash QC, and authors John Leung and Fiona Cameron, to drive content enhancements to Victorian Courts.

Sandra is a barrister at the Victorian Bar. In addition to her commercial practice she has a specific interest in the areas of wills, estates and succession planning. Prior to being called to the Bar, Sandra acted as a research assistant for two senior barristers of the Victorian Bar.

In this month’s release, subscribers can expect to see Sandra’s rewritten chapter on Order 54 of the Supreme Court (General Civil Procedure) Rules 2005. Sandra provides some valuable insight into why executors of deceased estates should make use of Order 54 to approve settlements where a beneficiary disputes the settlement terms.

Read on for what Sandra has to say on the topic.

Hodge v De Pasquale: A cautionary tale for executors of deceased estates

The conflict which triggered the proceedings in Hodge v De Pasquale [2014] VSC 413 had innocuous beginnings. It began as any other claim for further provision from a deceased estate under Pt IV of the Administration and Probate Act 1958 (Vic): Pt IV proceedings were commenced, a mediation was held and terms of settlement were entered into. However, after a beneficiary disputed the executrix’s decision to enter into terms of settlement against the beneficiary’s interests, a dispute arose. This dispute resulted in court proceedings; at the end of which the executrix was found personally liable to repay the settlement sum to the estate.

Hodge v De Pasquale has become a cautionary tale for all executors caught up in acrimonious family disputes which threaten to derail settlement proceedings.

What went wrong?

In 2012 Giuseppe De Pasquale died leaving his second wife, Rosa De Pasquale and three daughters from his first marriage, Eleonora, Pia and Norina. The deceased’s will named Rosa as executrix. It made gifts of property to Rosa, Pia and Eleonora. Norina was to receive $500,000 or such lesser amount which remained after the debts of the estate had been paid.

Pia sought further provision from the estate under Pt IV of the Administration and Probate Act 1958 (Vic). Rosa, Pia and Eleonora attended mediation and entered into terms of settlement. Norina chose not to attend. The terms did not specify which part of the estate would bear the burden of the settlement amount.

After mediation, Rosa received advice from counsel that the settlement sum should be paid from Norina’s share. On learning the settlement sum was to be paid solely out of her entitlement, Norina demanded Rosa stop payment. With Pia insisting the terms of settlement be satisfied, Rosa paid.

Hodge v De Pasquale proceedings are commenced

Norina instituted proceedings against Rosa and Pia, demanding Pia repay the settlement sum into the estate. In the alternative Norina sought orders that Rosa pay Norina her full entitlement under the will as her decision to execute the terms was in breach of her duties as executrix.

Rosa defended her actions on the basis that compromising the Pt IV proceedings was within her powers as executrix. Her decision to settle Pia’s claim was in the best interests of the estate. Further, Rosa argued that because she acted in good faith and on the advice of legal representatives she was entitled to be personally indemnified for any loss occasioned to the estate by her execution of the settlement deed.

The decision

Justice McMillan found that Rosa, as executrix, had the power enter into terms of settlement to resolve Pia’s claim. However, due to the fact that Norina was an affected beneficiary who did not give her assent to the terms of settlement, Rosa did not have the power to finalise the settlement without the court’s approval.

Executors should obtain the approval of the court

This case clearly demonstrates why executors should make use of Order 54 to approve settlements where a beneficiary disputes the settlement terms. This underutilised provision enables executors to seek the advice and guidance of the court in administering deceased estates. This advice may consider whether the executor’s proposed course of action is within their powers as executor and should be pursued.

Trustees can use Order 54 to pose questions to the court to clarify issues arising out of the administration or distribution of a trust; or to seek an order approving any sale, purchase, compromise or other transaction by a trustee.

Order 54 is a mechanism that can also be used to the benefit of parties with an interest in the trust. Parties can seek orders that the trustee verify trust accounts, pay funds of the estate into court or abstain from doing any act.

A trustee who acts in good faith, appraises the court of all material circumstances and then follows the court’s advice can be indemnified by the court from being held personally liable to the estate for their actions.

How can an executor enforce the settlement and protect their position?

In this scenario, the executrix Rosa ought to have entered into the terms of settlement on the condition that she seek Norina’s consent. If Norina refused to do so then Rosa should have sought orders under Order 54 approving her intentions as executrix to enter into the settlement.

Justice McMillan considered this course of action to be in line with ordinary practice in these types of matters. Since Rosa failed to do so, she was found to be personally liable to repay the settlement sum into the estate. Further, Rosa was not entitled to be indemnified for the costs of the proceeding.

The moral of the story?

Hodge v De Pasquale places executors of deceased estates on notice that they run the risk of being held personally liable if they seek to enforce settlement proceedings against the wishes of affected beneficiaries. This liability is not merely confined to repaying monies into the estate but encompasses the costs of parties to the proceeding to recover monies paid in breach of an executor’s duties.

If faced with a beneficiary refusing to consent to a settlement which, in the executor’s considered opinion, is in the best interests of the estate, the executor should seek the court’s advice. Trustees who proceed without the protection of the court’s approval run the risk of being held personally liable to the estate and/or the affected beneficiaries, and becoming the next cautionary tale.

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