Forfeiture Rule & the Testamentary Trust

In Australia, the Forfeiture Rule prevents a person who has unlawfully killed another person from inheriting from the victim’s estate or obtaining another financial benefit from the death, such as an insurance payment or proceeds from writing a memoir about the crime.

The forfeiture rule originated in the English Court of Appeal case of Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147, where the Court held that a woman convicted of murdering her husband was not entitled to the proceeds of her husband’s life insurance policy. The Court ruled that public policy in these cases should prevent 

“the person guilty of the death of the insured, or any person claiming through such person, from taking the money“.

The Australian High Court subsequently endorsed the English authorities and adopted an absolute forfeiture rule in the decision of Helton v Allen (1940) 63 CLR 691. Consequently, today, the common law rule applies regardless of the killer’s motivations, the nature of the killing (e.g., manslaughter), or any moral justification behind the killing (e.g., defensive homicide).

The NSW Court of Appeal’s decision of Troja v Troja (1987) 33 NSWLR 269 (29 March 1994) clarified the forfeiture rule further where the majority (Kirby P, Mahoney and Meagher JJA)took a strict approach, stating:

the law as laid down… is that all felonious killings are contrary to public policy and hence, one would assume, unconscionable. Indeed, there is something a trifle comic in the spectacle of Equity judges sorting felonious killings into conscionable and unconscionable piles.

Estate of Jakov Pavic [2024] ACTSC 414

Miryam Pavic (the applicant) is the estate administrator of the late Jakov Pavic (the deceased), who died in November 1976. His wife, Danijela Pavic (Danijela), son, Mark Pavic (Mark), and daughter (the applicant) survived him. He had no other children. The applicant seeks relief, including judicial advice, under s 63 of the Trustee Act 1925 (ACT) to allow for the final distribution of the estate.

Background

The deceased left a Will dated 28 June 1973 (1973 Will). On 20 September 1977, the Supreme Court of the Australian Capital Territory granted probate of the 1973 Will to Danijela and Murray Wilcox, the executors named in the Will. Murray Wilcox was a barrister when the deceased made the Will and subsequently a Federal Court of Australia judge from 1984 until 2006. He was also an additional judge of the Supreme Court of the Australian Capital Territory until his retirement in 2006.

Relevantly, for present purposes, the 1973 Will provided that:

(a)          a testamentary trust be established, comprised of money in the estate and other money received from the sale of real and personal property in the estate (Jakov’s Trust);

(b)          Jakov’s Trust was to pay the annual income of the trust to Danijela during her life, provided she did not re-marry; and

(c)          in the event of Danijela’s death or remarriage, the beneficiaries of Jakov’s Trust were to be Jakov’s child or children and, if more than one, were to benefit in equal shares.

Danijela died on or about 28 March 1985. Police found her body in Lake Burley Griffin. On 3 April 1985, police charged Mark with the murder of Danijela. Following a trial, the Court found Mark guilty of Danijela’s manslaughter and sentenced him to eight years imprisonment with a four-year non-parole period on 2 October 1985. These periods were in addition to the six months spent in custody on remand.

The remaining executor, Murray Wilcox, died in 2018. His executor, in turn, was his wife, Christina Wilcox, who survived him. By operation of s 43A of the Administration and Probate Act 1929 (ACT), she became the executor of Jakov’s estate

On 29 July 2022, Kennett J made orders discharging Christina Wilcox from the office of executor of Jakov’s estate and appointing Miryam as the administrator of Jakov’s estate.

On many occasions between 2017 and 2023, solicitors acting for Miryam attempted to locate and communicate with Mark. Ultimately, in May 2023, the solicitors contacted Mark, who provided him with information about the estate but declined to verify his identity. By letter dated 12 June 2023, he maintained his unwillingness to confirm his identity. In response to a letter indicating that the executor would take steps to finalise the matter and that any entitlement that he had may be forfeited or converted to unclaimed money, he responded by text message on 18 September 2023:

Do what you must, but exclude me from any consideration as I am not interested

Please discontinue communication with me for this matter.

The application in the proceeding filed on 11 October 2024 was served on Mark via text message under orders made by the Supreme Court on 8 November 2024. Mark did not appear on the notified date, 25 November 2024, when the matter was adjourned until 13 December 2024 and did not appear at the hearings on 13 and 19 December 2024.

Due to Danijela’s death, the terms of the 1973 Will would have the effect that Mark and Miryam became beneficiaries of Jakov’s Trust. However, that entitlement is subject to the forfeiture rule.

The forfeiture rule is a principle of public policy that prevents a person from benefiting from their wrongful act, such as unlawfully causing the death of another. In this case, Mark’s killing of his mother, Danijela, was found to preclude him from deriving any benefit from Jakov’s Trust, as Danijela’s death was a material factor in accelerating Mark’s interest in the trust.

Murder v Manslaughter

The legal distinction between murder and manslaughter has sparked significant debate in the courts regarding the application of the forfeiture rule. In particular, Courts have differing views on whether they should apply this rule universally to all manslaughter cases. For instance, in Troja v Troja (1994) 33 NSWLR 269, the New South Wales Court of Appeal argued that the forfeiture rule should apply inflexibly. In contrast, the Victorian Court of Appeal in Edwards v State Trustees Ltd [2016] VSCA 28; 54 VR 1 suggested a more nuanced approach, asserting that manslaughter cases should be analysed individually, considering the offender’s level of culpability.

Mark’s culpability plays a crucial role in this discussion. Even considering Edwards’s flexible approach, factors such as his lack of remorse, callous behaviour, and eight-year prison sentence highlight Mark’s serious culpability. These elements support the conclusion that the forfeiture rule should apply in his case.

Furthermore, there has been contention surrounding the acceleration of benefits stemming from the forfeiture rule. Some authorities, like Batey & Anor v Potts & Ors [2004] NSWSC 606, suggest that the rule should only prevent benefits directly tied to the acceleration caused by the killing. However, rejecting this perspective led to the decision that Mark would be barred entirely from deriving any benefit from Jakov’s Trust.

The court also acknowledged that statutory provisions, such as the Forfeiture Act 1991 (ACT), could mitigate any perceived harshness of the forfeiture rule, which allows for modifications on a case-by-case basis and highlights the potential for legislative solutions to address concerns surrounding its application.

In conclusion, Mark’s killing of Danijela disqualified him from inheriting any part of Jakov’s Trust, aligning with the broader public policy against profiting from unlawful killings.

Saunders v Vautier Rule

The forfeiture rule prevents Mark from receiving any benefit under Jakov’s Trust. The key issue is whether Miryam, as the remaining beneficiary, has the right to terminate the trust and receive the remaining trust funds.

Under the rule in Saunders v Vautier (1841) 4 Beav 115; 41 ER 482, an adult beneficiary, or a group of beneficiaries acting together, who possess an absolute, vested, and indefeasible interest in the income and capital of trust property can demand the transfer of that property to themselves: CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; 224 CLR 98 at [47]. 

Where trust property is involved, multiple beneficiaries with indefeasible vested interests (without any legal disabilities) may combine to terminate the trust and receive immediate payment of the trust assets: Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406 at 410; CPT at [48]. The same principle applies to a sole beneficiary.

Due to the forfeiture rule, Miryam is the sole lawful beneficiary of Jakov’s Trust. She holds an absolute, vested, and indefeasible interest in the trust’s income and capital and is entitled to have the trust funds transferred to her.

In summary:

• (a) The forfeiture rule prevents Mark from receiving benefits under the 1973 Will and
• (b) Miryam, the sole remaining lawful beneficiary, is entitled to terminate the trust and claim the remaining trust funds.

The amended application sought a declaration and advice under s 63 of the Trustee Act. Although the relief sought differed from the initial application and was not served on Mark, the matter is appropriately addressed under s 63. This section allows for subsequent notification and an opportunity for any prejudiced beneficiary to apply to the court. The protections afforded under s 63 make an additional declaration unnecessary.

Costs

The applicant also requested costs from the estate. During submissions, the applicant’s counsel acknowledged that this was unnecessary given the executor’s entitlement to indemnification from the estate’s assets (In the Estate of Margaret Anne Cervo (administrator pendente lite appointed) [2024] ACTSC 253; 21 ACTLR 226 at [61]-[63]; A trustee is entitled to be indemnified for any debts and liabilities incurred while properly executing their duties under a trust, utilising trust assets for this purpose. This principle was reaffirmed in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 highlighting the rights of trustees in performing their roles. Additionally, under s 59(4) of the Trustee Act, a trustee has the right to reimburse themselves for expenses directly related to executing their trusts or powers.

In situations where actions taken to compel the production of documents are justifiable, the plaintiff can use estate funds to cover reasonable legal costs, including those associated with litigation. Although the statute provides for this reimbursement, the plaintiff sought a formal order to ensure clarity and protection, which the court subsequently issued as a precautionary measure.

Section 59(4) of the Trustee Act provides that no specific cost order is required since the application was successful and Miryam is both the executor and sole beneficiary.

Orders

The Court orders:

• (1) Under s 63 of the Trustee Act 1925 (ACT), Miryam Alexandra Pavic, administrator and sole lawful beneficiary of Jakov Pavic’s estate, is authorised to distribute all remaining assets to herself.
• (2) Leave granted to serve notice on Mark Pavic via SMS to the specified phone number.
• (3) Mark Pavic may apply under s 63(7) of the Trustee Act within 28 days of being served.
• (4) the trustee must refrain from making any distributions during these 28 days or while any application is pending.

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