Fay Noble Dunn by her Tutor Monica Ross-Maranik v David Brenton Dunn

The plaintiff in these proceedings is a person under legal incapacity and is represented by her tutor. This judgment deals with an application brought in the Duty List for the approval of a settlement of the proceedings under s 76 of the Civil Procedure Act 2005 (NSW) (the Act) and for the payment of monies pursuant to that settlement under s 77 of the Act. There was no opposition to the approval of the settlement, which was plainly in the plaintiff’s best interests. In the ordinary course it might be approved with short, if any, reasons. However, one central aspect of the settlement – the payment of the substantial settlement into a private trust for the benefit of the plaintiff – has required particular attention.

The plaintiff and her tutor were represented by Ms PJ Muscat of Counsel. Mr C Birtles of Counsel appeared for the first defendant and the proposed second defendant. The Court particularly acknowledges its indebtedness to Ms Muscat’s detailed written opinion that was tendered on the application together with her careful oral exposition of the issues.

The plaintiff (Mrs Dunn) is 92 years old. Her tutor, Ms Monica Ross-Maranik, is a solicitor well known to the Court and an accredited specialist in wills and estates law.

Mrs Dunn and her late husband, Mr Adrian Dunn (who died on 25 November 2020), have two adult children. Without disrespect, I shall refer to them as David and Michelle. David is the defendant in these proceedings.

In these proceedings, Mrs Dunn seeks declaratory relief in relation to various itemised transactions, and alternative relief pursuant to s 59 of the Succession Act 2006 (NSW) (the SA) in respect of the estate and notional estate of Mr Dunn. The declaratory relief relates, in broad terms, to transactions in 2019 and 2020 whereby assets in which Mrs Dunn had an interest were transferred to David or to entities controlled by him (primarily a company controlled by him, Ironfury Pty Ltd (Ironfury)). David is a director and shareholder of Ironfury, and Ironfury is the trustee of the David Dunn Family Trust. There is no dispute, in the context of the resolution of these proceedings, that Mrs Dunn should be granted leave to file an amended statement of claim joining Ironfury as the second defendant in the proceedings.

Michelle is the plaintiff in two related proceedings in which she seeks, respectively, a statutory will for Mrs Dunn under s 18 of the SA and a family provision order, under s 59 of the SA, out of the estate and notional estate of Mr Dunn. These proceedings and the related proceedings are fixed for hearing before Parker J next month. These proceedings have resolved, subject to and conditional upon the approval of the Court, but Michelle’s proceedings remain on foot.

For the purposes of these reasons, the most significant elements of the proposed settlement in these proceedings, in addition to various releases, are:

There is no dispute that Mrs Dunn is a person under a legal incapacity for the purposes of s 76 of the Act. She currently suffers from moderate to severe advanced dementia.

Significantly for present purposes, there is no financial management order in place for Mrs Dunn, although she has executed an Appointment of Enduring Power of Attorney in which David and Michelle are jointly and severally appointed as her attorneys. She has also executed an Appointment of Enduring Guardian in favour of David and Michelle, again jointly and severally. Both documents were executed in December 2019.

The resolution of these proceedings proposed by the parties is premised upon the settlement of the Fay Noble Dunn Trust (the Trust). A draft of the proposed deed for the Trust (the Deed) was in evidence before me. The trustees are to be David, Michelle and Mr Andrew Skyring. Mr Skyring is an experienced accountant who has been deliberately included as a trustee to provide a disinterested and independent (of the family) voice in the affairs of the Trust. Mr Skyring will be the Appointor under the Deed and will have power to remove and appoint trustees.

The sole object of the Trust is Mrs Dunn and, subsequently, her estate. The Trust will vest upon her death, with the trust fund payable to her estate. The corpus of the trust will be the Settlement together with, if it is repaid during Mrs Dunn’s lifetime, the Accommodation Deposit.

The trustees of the Trust are to invest and apply the corpus and income of the Trust for the benefit of Mrs Dunn. The critical provision of the Deed is:

Ms Muscat’s opinion, which formed part of the evidence, set out the reasons why the proposed settlement is in Mrs Dunn’s best interests. There is also evidence that Ms Ross-Maranik, Mrs Dunn’s tutor and a very experienced solicitor in matters such as these, has also concluded for reasons which she has articulated, that the settlement is in Mrs Dunn’s best interests. I have reached the same conclusion for the reasons they have advanced. It is unnecessary for me to set these out in any detail. In short, the proposed settlement removes the uncertainty and delay over her affairs caused by this litigation and provides Mrs Dunn with a substantial sum sufficient for her maintenance for the rest of her life.

In both her opinion and submissions, Ms Muscat, entirely properly, drew the Court’s attention to differences in the authorities on the question of whether the Court can and should approve a settlement where the settlement funds are to be paid to a private trust. It is to that issue that I will now turn.

The Act provides:

The question for the Court’s consideration is whether it can and should exercise the power apparently given by s 77(3) for the Settlement to be paid “to such person as the court may direct”, in this case the trustees of the Trust.

In Smith bht Magnusson v NRMA Insurance Australia Ltd [2008] NSWDC 261, her Honour Judge Gibson in the District Court had to consider the approval of a settlement where the plaintiff’s tutor sought an order that the settlement funds be paid to the plaintiff’s two daughters who held a power of attorney for her and were her enduring guardians.

At that time, ss 76 and 77 were relatively new. Her Honour considered the authorities and practice that applied prior to the Act. The critical part of her Honour’s reasoning was:

In declining to approve that part of the settlement proposal which provided for the settlement money to be paid to the plaintiff’s daughters, her Honour concluded:

Subsequently, it appears that in this Court, the proposed payment of settlement funds to family members or others acting as private trustees has been approached with hesitation as a matter of discretion, rather than reading down the words “to such person as the court may direct” in s 77(3) of the Act.

In AC v OC (a minor) [2014] NSWSC 53, Lindsay J was considering an application by the mother of a six-year-old boy that the approximately $1.7 million held in Court for damages paid to the child for personally injury suffered at birth should be paid out to her on trust for her son. Alternatively, the mother submitted that it would be in the interests of the child, and expedient, for her to be appointed as a private manager of the child’s estate under the NSW Trustee and Guardian Act 2009 (NSW). His Honour said:

His Honour concluded:

His Honour took a similar approach in Re X [2016] NSWSC 275. That case concerned a twenty-year-old plaintiff with a damages award of approximately $1 million. His Honour declined to approve the private trust arrangement advanced by the plaintiff and her parents, and instead appointed the parents of the plaintiff as joint managers of the estate of the plaintiff subject to the orders and directions of the NSW Trustee.

However, Ms Muscat also drew to attention a broader approach adopted by Hallen J in Rappard v Williams [2013] NSWSC 1279. In that case, the plaintiff, who was represented by her adult son as her tutor, agreed to a settlement of family provision proceedings whereby she was to receive an interest in the real property in which she had been living (valued at $180,000-$200,000), a lump sum of $185,000, such of the deceased’s furniture as she wished to receive, and an amount ($50,000) on account of her costs of the proceedings.

The plaintiff suffered from severe vision impairment, depression, insomnia and stress. In approving the settlement, whereby her son as tutor was to hold the property subject to the proposed family provision order upon trust for the plaintiff, his Honour said:

Ms Muscat’s fundamental submission is that proper consideration of both s 77(3) and the authorities lead to the conclusion that the Court’s exercise of its discretion is grounded in its view of what was in the best interests of the person under legal incapacity. This was a fact specific exercise where the Court’s role was a facultative one to be determined on the individual merits of each case.

In the present case, Ms Muscat drew attention to these features which she submitted supported the Court approving the Settlement being paid to be held on the terms of the Deed:

Mr Birtles, whose client joined in the application for approval, did not direct any specific submissions to this aspect of the application. I note that for completeness and certainly not as any criticism.

Notwithstanding the many authorities and long history which underpin the exercise of the Court’s discretion in matters such as these, in my respectful view the essential principles may be summarised as:

There can be no doubt that the Settlement is a very large sum. Subject to the resolution of the matters set out in paragraphs [32] to [37] below, and applying the principles referred to in the preceding paragraph, I accept Ms Muscat’s submissions that, notwithstanding it might be thought unusual to commit a sum as large as the Settlement to a private trust arrangement, it was in Mrs Dunn’s best interests to approve the settlement of these proceedings, including the payment of the Settlement to the Trust on the terms of the Deed.

The dispositive considerations in reaching that conclusion are:

During the course of argument there were four matters which I identified with Ms Muscat that needed to be attended to before the Court would make any orders.

First, I indicated to Ms Muscat that I would not make orders until the Trust had been settled. This would enable the Court to order payment of the Settlement to the trustees of the Trust in their capacity as such rather than passing through any intermediary.

Second, and related to the first point, I was of the view that all of the trustees, including Mr Skyring, should be parties to the proceedings. This was important for at least two reasons. First, any undertakings that they were to give or agreements between them which the Court would be asked to note would be given or made by them as parties to the litigation and therefore subject to the control of the Court. Second, joining them as parties would ensure that they could exercise the liberty reserved to any party to make any further application to the Court in relation to the working out of the orders giving effect to the settlement that the Court will make.

Third, as a matter of contract, the Accommodation Deposit was technically repayable to Mrs Dunn if that occurred in her lifetime. If, as was likely the case, this would be acquitted by the retirement village to Michelle and David as Mrs Dunn’s attorneys and guardians, there should be an express and binding obligation upon them to pay it into the Trust.

Fourth, the Deed as it was originally tendered in evidence to the Court provided for the exercise of the trustees’ powers by majority. Ms Muscat explained that the practical reason for this was that it was expected that there would be many unremarkable matters that, if Michelle and David agreed, could most simply be attended to in that way. While understanding the practical force of that position, my concern was to ensure that Mr Skyring could not be outvoted on any substantial matter. Some such protection was, in my view, essential to maintaining Mr Skyring’s role as a source of independent accountability in the management of the Trust.

Ms Muscat suggested that in the event of real difficulty Mr Skyring, as Appointor, could remove one or both of Michelle or David as a trustee. While that may be so, in my view a more practical protection would be provided by requiring some decisions to be made with Mr Skyring’s approval. This concern has now been met by the inclusion of this provision in the Deed as finally made by the parties:

The matters referred to in paragraphs [32] to [37] have now been resolved and evidence of that has been provided to me with the executed form of the Deed and other documents in chambers. This includes that the Trust has now been settled. Accordingly, I made orders in chambers approving the settlement of these proceedings in accordance with the form of short minutes provided by the parties, including that the Settlement be paid to the trustees of the Trust.