Bates v Cooke

[2015] NSWCA 278

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Bates v Cooke [2015] NSWCA 278
Hearing dates:	3 August 2015
Decision date:	16 September 2015
Before:	Meagher JA at [1]; Leeming JA at [2]; Sackville AJA at [14]
Decision:	1. Appeal dismissed. 2. The appellant pay the respondent’s costs of the appeal.
Catchwords:	SUCCESSION – family provision order – applicant claims a notional estate order from his mother’s estate – mother and applicant’s stepfather made mirror wills leaving their estates to each other and then to the applicant and four siblings equally – applicant has no immediate needs but claims that provision should have been made for his retirement – whether applicant should be precluded from claiming by reason of imprudent investment decisions – whether primary Judge erred in finding that there was little chance that the stepfather would change his will – whether primary Judge erred in rejecting the claim
Legislation Cited:	Family Provision Act 1982 (NSW), s 9 Succession Act 2006 (NSW), ss 57, 59, 60, 73, 87; Pt 3.2; Pt 3.3
Cases Cited:	Andrew v Andrew [2012] NSWCA 308; 81 NSWLR 656 Bates v Cooke [2014] NSWSC 1259 Bates v Cooke (No 2) [2014] NSWSC 1322 Burke v Burke [2015] NSWCA 195 Phillips v James [2014] NSWCA 4; 85 NSWLR 619 Poletti v Jones [2015] NSWCA 107 Re Dawson (decd) [1966] 2 NSWLR 211 Smilek v Public Trustees [2008] NSWCA 190 Verzar v Verzar [2014] NSWCA 45 Vigolo v Bostin [2005] HCA 11; 221 CLR 191
Category:	Principal judgment
Parties:	Bradley Bates (Appellant) Robert Henry Cooke (Respondent )
Representation:	Counsel: A Crossland (Appellant) BJ Skinner (Respondent)   Solicitors: Low Doherty & Stratford (Appellant) Djekovic, Hearne & Walker (Respondent)
File Number(s):	2014/308862
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2014] NSWSC 1259; [2014] NSWSC 1322 Date of Decision: 15 September 2014; 25 September 2014 Before: Kunc J File Number(s): 2013/341075

HEADNOTE

[This headnote is not to be read as part of the judgment]

The mother and stepfather (respondent) of the appellant made mirror wills in 2006, leaving their estates to each other and then to the appellant and his four siblings equally. The mother predeceased the stepfather. The appellant sought a family provision order out of his mother’s notional estate, most of which was property held by his stepfather. The appellant did not have immediate financial needs but wished to build a suitable amount of superannuation for his retirement.

The primary Judge rejected the appellant’s claim. On appeal, the appellant contended that the primary Judge erred in finding that:

(1) the appellant was precluded from claiming provision from the notional estate by reason of his own improvident investment decisions; and

(2) there was no real risk that the respondent would change his will to reduce the entitlement of the appellant as a beneficiary.

Held, dismissing the appeal:

In relation to (1)

It would be an error to apply a principle that disentitles an adult child whose needs are generated by well-intentioned but improvident investment decisions, even where the estate can alleviate the need without having a significant deleterious effect on any other relevant person. (Sackville AJA, Leeming and Meagher JJA agreeing)

The principle Judge erroneously applied the principle. (Sackville AJA, Leeming and Meagher JJA not deciding)

In relation to (2)

It was open to the primary Judge to accept the respondent’s evidence that there was not a real risk that he would change his will to reduce the entitlement of the appellant as a beneficiary. (Sackville AJA, Leeming and Meagher JJA agreeing)

If it had been necessary to re-exercise the Court’s discretion, the Court would have reached the same decision as the primary Judge. The evidence did not provide a sufficient foundation for the appellant’s claimed retirement needs.

Judgment

1. MEAGHER JA: I agree with Sackville AJA that this appeal should be dismissed with costs. I do so for the reasons his Honour gives subject only to the first of “matters of detail” referred to by Leeming JA with which I agree.

2. LEEMING JA: I agree with the orders proposed by Sackville AJA and, subject to the following two matters of detail, with his Honour’s reasons.

3. First, I agree that there was error in the “First Approach” adopted by the primary judge. I agree that an approach which disentitles an adult claimant whose need is generated from well-intentioned but improvident investment decisions where the estate can alleviate the need without having a significant deleterious effect on any other relevant person is unduly narrow. However, it may be that the primary judge should not be read as formulating a general principle to that effect, but instead as merely saying that in the facts of this case, having concluded that the investment decision was particularly improvident and the retention of the Katoomba property particularly unjustified, his claim would be denied. Little turns on this, because I agree with the primary judge and with Sackville AJA that the alternative “Second Approach” is a sufficient answer to the entire claim.

4. Secondly, I too would, had it been necessary to re-exercise the discretion under the Succession Act 2006 (NSW), have reached the same conclusion as the primary judge. I would have done so slightly differently from the way formulated by Sackville AJA at the conclusion of his judgment, because I would reject the premise of the claim.

5. The claimed need of the appellant which was said to result in there being inadequate provision made for him in his mother’s will was “topping up” his superannuation so that he could retire 22 years in the future with an amount of $700,000 (in current dollars). That was said to require a contribution of $190,000 now, on the basis that his present balance of superannuation of $60,000 would yield $322,000 in 22 years’ time, and a present balance of $250,000 would yield some $700,000 in the same period. Those calculations were based upon at least six erroneous integers.

6. The first was the use of an annual net superannuation growth of a mere 3% per year. Counsel candidly conceded that there was no evidence for this rate. It is lower than the usual chancery rate of 4% and the “mercantile rate” of 5%, discussed by Street J in Re Dawson (decd) [1966] 2 NSWR 211 at 217-220. Double digit real rates of return by superannuation trustees are far from unheard of, although I would immediately acknowledge that determining an average rate is a very different thing, which must recognise that there will be years when returns will be lower. However, given (especially) the concessional tax treatment of income of assets owned by superannuation trustees, the likely figure is much higher than 3%. Like most exercises involving compound interest, the calculation is highly sensitive to the rate used. If precisely the same methodology were applied, but a real after-tax rate of 5% were used, then rather than $60,000 increasing to $322,000 over 22 years, it will increase to some $445,000 over the same period.

7. Secondly, the calculations were based upon contributions of 9% of Mr Bates’ after-tax wage of around $70,000. But they should have been calculated on his pre-tax income of more than $100,000. Thirdly, the calculations should have been based upon contributions no less than 9.5%, and recognised the possibility of further increases in compulsory superannuation contributions.

8. The effect of the second and third errors will be to increase, by around 50%, the superannuation contributions each year, over a 22 year period. That will have a large effect upon the accumulation of wealth.

9. Fourthly, the calculations assume that Mr Bates’ real income will not increase over the balance of his working life. That was not explained and is prima facie unrealistic.

10. Fifthly, the calculations assumed that all superannuation contributions would be made on the last day of each year. That is unrealistic for a wage earner and (relatively slightly) understates the amount yielded.

11. Sixthly, the calculation has no regard to the $109,000 of existing superannuation of Mr Bates’ partner, and the effect of compound interest over 22 years on that sum even if no additional contributions are made. This was so, despite the proceedings being run at first instance and on appeal on the basis that the couple’s assets and liabilities should be considered together.

12. All of those errors understate the appellant’s likely financial position. It is difficult to reach any conclusion other than that each assumption was chosen so as to increase the apparent need to “top up” the appellant’s superannuation.

13. If I were re-exercising the discretion under the Act, I would conclude that the appellant had failed to demonstrate any need whatsoever for an order under the Act in order to “top up” his superannuation. In my opinion, the primary judge made a significant assumption in the appellant’s favour in taking the calculations relied on at face value. I would dismiss the claim on this basis alone.

14. SACKVILLE AJA: The appellant is the adult son of the late June Cooke (Deceased), who died on 9 January 2013 at the age of 62. The respondent was the husband of the Deceased and is the appellant’s stepfather. The respondent is the executor named in the Deceased’s will dated 10 June 2006 (Will). [1]

    1. At the date of the trial the respondent had not applied for a grant of probate of the Will. He gave an undertaking at the trial that he would file an application for administration of the Deceased’s estate.

15. The appellant sought a family provision order pursuant to Pt 3.2 of the Succession Act 2006 (NSW) (Succession Act). It was common ground at the trial that there were no significant assets in the Deceased’s estate, but that there were substantial assets which could be designated as notional estate of the Deceased pursuant to Pt 3.3 of the Succession Act. Accordingly, the appellant also sought an order designating property as notional estate for the purposes of the family provision order.

16. The application was heard by a Judge of the Equity Division (Kunc J) on 23 and 25 July 2014. On 15 September 2014, his Honour dismissed the appellant’s summons. [2] In a separate judgment, his Honour ordered the appellant to pay the respondent’s costs on the ordinary basis until 24 June 2014 (the date of an offer of compromise rejected by the appellant) and on an indemnity basis thereafter. [3]

    2. Bates v Cook [2014] NSWSC 1259 (Primary Judgment).

    3. Bates v Cook (No 2) [2014] NSWSC 1322.

The Appeal

17. The primary Judge identified the main issue for determination as whether provision should be made for the appellant to assist him in building a suitable amount of superannuation for his retirement. [4] His Honour rejected the appellant’s claim as he was not satisfied that the Will did not make adequate provision for the appellant’s maintenance or advancement in life. It followed that the appellant had not satisfied the threshold requirement in s 59(1)(c) of the Succession Act. [5] Even if the primary Judge had been satisfied in terms of s 59(1)(c), he would not have been prepared to make a family provision order in favour of the appellant. [6]

    4. Primary Judgment at [6].

    5. Reproduced at [21] below.

    6. Ibid.

18. The amended notice of appeal contains 12 separate grounds of appeal. The appellant relies, however, on two principal arguments. The first is that his Honour wrongly disregarded the appellant’s parlous financial position insofar as it was attributable to his decision (together with his partner) to invest in a property at Katoomba (Katoomba Property). The appellant says that the primary Judge erred in finding that the appellant had to accept the consequences of making a poor financial decision to invest in and retain the Katoomba Property. The appellant further says that his Honour was wrong to conclude that the appellant could not look to the Deceased’s estate or notional estate to retrieve losses he had brought upon himself.

19. The second major error is said to be that his Honour wrongly found that there was no real risk that the respondent would change his will to exclude the appellant as a beneficiary and, in any event, wrongly took into account the possibility that the appellant would benefit from the respondent’s will in due course. The appellant points out that although he is an “eligible person” in relation to the Deceased’s estate (and thus able to seek a family provision order in respect of her estate), under current law he will not be an eligible person in relation to the respondent’s estate when the respondent dies. [7]

    7. See at [40] below.

Statutory Framework

20. Part 3.2 of the Succession Act provides for family provision orders. An “eligible person” may apply to the Court for a family provision order in respect of the estate of a deceased person. [8] An eligible person includes a child of the deceased and a person who was wholly or partly dependent on the deceased and who was a member of the deceased’s household. [9]

    8. Succession Act, s 57(1).

    9. Succession Act, s 57(1)(c), (e).

21. Sections 59 and 60 of the Succession Act relevantly provide as follows:

“59   When a family provision order may be made

(1)    The Court may, on application under Division 1, make a family provision order in relation to the estate of a deceased person, if the Court is satisfied that:

(a)   the person in whose favour the order is to be made is an eligible person, and

…

(c)    at the time when the Court is considering the application, adequate provision for the proper maintenance, education or advancement in life of the person in whose favour the order is to be made has not been made by the will of the deceased person, … .

(2)   The Court may make such order for provision out of the estate of the deceased person as the Court thinks ought to be made for the maintenance, education or advancement in life of the eligible person, having regard to the facts known to the Court at the time the order is made.

…

60   Matters to be considered by Court

(1)   The Court may have regard to the matters set out in subsection (2) for the purpose of determining:

…

(b)    whether to make a family provision order and the nature of any such order.

(2)    The following matters may be considered by the Court:

(a)    any family or other relationship between the applicant and the deceased person, including the nature and duration of the relationship,

(b)    the nature and extent of any obligations or responsibilities owed by the deceased person to the applicant, to any other person in respect of whom an application has been made for a family provision order or to any beneficiary of the deceased person’s estate,

(c)    the nature and extent of the deceased person’s estate (including any property that is, or could be, designated as notional estate of the deceased person) …

(d)    the financial resources (including earning capacity) and financial needs, both present and future, of the applicant, of any other person in respect of whom an application has been made for a family provision order or of any beneficiary of the deceased person’s estate,

(e)    if the applicant is cohabiting with another person-the financial circumstances of the other person,

…

(g)    the age of the applicant when the application is being considered,

…

(j)    any evidence of the testamentary intentions of the deceased person, including evidence of statements made by the deceased person,

…

(m)    the character and conduct of the applicant before and after the date of the death of the deceased person,

…

(p)    any other matter the Court considers relevant, including matters in existence at the time of the deceased person’s death or at the time the application is being considered.”

22. Section 61 provides that in determining an application for a family provision order, the Court may disregard the interests of any other person in respect of whom an application for an order may be made (other than a beneficiary of the deceased person’s estate), provided certain procedural requirements are satisfied.

23. Section 73(1) states that Part 3.2 of the Succession Act applies to property designated as part of the notional estate of a deceased person in the same way as it applies to property that is part of the estate of a deceased person.

24. Part 3.3 of the Succession Act provides for notional estate orders. The Court has power to make an order designating property as notional estate for the purpose of a family provision order to be made under Pt 3.2. [10] (As there is no dispute in this case about the property that can be designated as notional estate, it is not necessary to set out the provisions determining the property held that can be so designated.)

    10. Succession Act, s 78(1)(a).

25. Div 3 of Pt 3.3 of the Succession Act imposes restrictions relating to notional estate orders. Section 87(1) provides as follows:

“General matters that must be considered by Court

The Court must not make a notional estate order unless it has considered the following:

(a)    the importance of not interfering with reasonable expectations in relation to property,

(b)    the substantial justice and merits involved in making or refusing to make the order,

(c)    any other matter it considers relevant in the circumstances.”

Facts

26. The following account is based on the findings of the primary Judge and uncontroversial evidence.

27. The Deceased had two sons from her first marriage. They were the appellant, born in 1970 and his brother, Michael. [11] The appellant lived with his father after his parents separated when he (the appellant) was aged 12. Thus he never formed part of the respondent’s household, although he saw his mother on a regular basis after she married the respondent.

    11. I refer to some persons in this judgment by their first names. I intend no disrespect.

28. The respondent has two daughters from a previous relationship. In addition, the respondent and the Deceased, who appear to have been married for over 25 years, have a son, Benjamin.

29. The appellant’s siblings, [12] all of whom are adults, were notified of the proceedings, but none participated. (One of the curious features of the case is that there was no evidence as to the circumstances of the appellant’s siblings, notwithstanding that each is an “eligible person” in relation to the Deceased’s estate.)

    12. For convenience, I refer to the appellant, his brother, his half sisters and his half brother as “siblings”.

30. The Deceased and the respondent made what can be described as “mirror wills” on 10 August 2006. (Although the primary Judge referred to them as “mutual wills”, there is no suggestion that the respondent is under a binding obligation not to amend his will.) In summary, each left his or her entire estate to the other and, in default, to be divided equally between all five siblings. Thus the respondent is entitled to the assets (if any) in the Deceased’s estate. If the respondent does not alter his will prior to his death, each sibling who survives the respondent will inherit one fifth of his estate.

31. As has been noted, there was no dispute at the trial that the Deceased’s estate had no significant assets. However, immediately before her death, she and the respondent owned two properties as joint tenants, as follows:

• a property at Newstead, Tasmania, valued at $525,000 (Newstead); and

• a unit at Maianbar valued at $325,000 (Maianbar Unit).

The respondent and the Deceased were jointly liable under a fully drawn mortgage for $1,265,000 (NAB Mortgage), secured over the Maianbar Unit and the matrimonial home, of which the respondent was the sole registered proprietor. The value of the home at the date of the trial was agreed to be $1,300,000.

32. After the Deceased’s death, the respondent became entitled to both Newstead and the Maianbar Unit by right of survivorship. He also assumed sole liability under the NAB Mortgage.

32. At the time of her death, the Deceased was co-trustee with the respondent of the R & J Cooke Superannuation Fund (Fund). The Fund’s assets were:

• a 50 per cent interest in commercial premises at Sutherland, that interest having an agreed value of $1,500,000; and

• a second property at Maianbar valued at $650,000.

The case was conducted on the basis that the Deceased had a 50 per cent interest in the assets of the Fund and that interest had a value of $1,075,000.

34. During her lifetime, the Deceased made a non-binding nomination of the respondent as the beneficiary of her interest in the Fund on her death. At the date of the trial, the then trustees of the Fund (the respondent and Benjamin) had made no decision as to how the Deceased’s interest would be dealt with.

35. The appellant was aged 43 at the date of the hearing. For about a year he had worked full time as a shift electrician in an industrial kitchen. His after tax earnings for the year ended 30 June 2014 amounted to about $70,000. These earnings reflected considerable hours of regular overtime.

36. The appellant lived with his partner, Leanne. They had no dependants. Leanne did not work in paid employment, but attended to the Katoomba Property, which she ran as a bed and breakfast establishment.

37. The appellant and Leanne had the following assets:

• their home at Blacktown, which was jointly owned and valued at $460,000 (Blacktown);

• the Katoomba Property valued at $360,000;

• the appellant’s balance in his superannuation account of $61,000;

• Leanne’s balance in her superannuation account of $109,000.

38. The appellant and Leanne had the following debts for which they were jointly liable:

• a mortgage over Blacktown of $74,000;

• a mortgage over the Katoomba Property of $367,000;

• a further line of credit of $163,000 attributable to the Katoomba Property.

In addition, the appellant and Leanne had joint or separate credit card liabilities totalling $83,000.

39. Leanne’s mother died on 30 April 2014 and the primary Judge found that Leanne would receive a legacy of approximately $180,000 from her mother’s estate. His Honour also found that the appellant and Leanne would apply the legacy to reduce their credit card debts and to meet other expenses, including repairs of about $27,000 required in order to ready the Katoomba Property for sale. On that basis, the appellant and Leanne would have $35,700 to apply as they saw fit after paying their credit card debts and meeting other expenses.

Primary Judgment

40. The primary Judge recorded that the appellant’s counsel had frankly acknowledged that the application for a family provision order was motivated by a concern that there was no guarantee that the respondent would adhere to his intention to divide his estate equally among the five siblings. [13] If the respondent changed his will, the appellant would be unable to make a family provision claim in relation to the respondent’s estate since the appellant would not be an “eligible person” within s 57(1) of the Succession Act. [14]

    13. Primary Judgment at [17].

    14. The appellant would not be an eligible person because he is not the respondent’s child and was never a member of the respondent’s household: see Succession Act, s 57(1)(c), (e).

41. The primary Judge, after recounting the circumstances of the appellant and Leanne and of the respondent, addressed the “jurisdictional question” which he identified as follows:[15]

“whether the Court is satisfied, at the time when the Court is considering the application, that the [p]rovision for [the appellant] is not adequate for his proper maintenance, education or advancement in life”.

15. Primary Judgment at [42].

42. The appellant had initially submitted that orders should be made which, in effect, secured a one fifth interest in the “assets of the marriage”. When the primary Judge pointed out the difficulties with this submission, the appellant modified his claim to seek provision from the Deceased’s notional estate to enable him to build a suitable amount of superannuation. [16] His Honour recorded that it was common ground that the Deceased’s interests as joint tenant of Newstead and the Maianbar Unit and as a beneficiary of the Fund were potentially available as notional estate, pursuant to Pt 3.3 of the Succession Act.

    16. Primary Judgment at [18]-[20].

43. The primary Judge summarised the appellant’s principal contentions as follows:[17]

“(1)   [The appellant] and Leanne were in considerable debt, had only a modest pool of assets and had been able to make only limited provision for their retirement.

(2)   [The appellant’s] ability to provide for his retirement was unlikely to increase or greatly increase.

(3)   There was a real risk that [the respondent] would change his will in a way that reduced or removed [the appellant’s] entitlement so that there was a real risk that [the appellant] would ultimately receive nothing from the estate in circumstances where [the appellant] would not be an "eligible person" in relation to [the respondent’s] estate.

(4)   [The Deceased’s] estate was not a small one if the notional estate was taken into account.

(5)   The ‘net assets of the marriage’ were approximately $3,000,000 and a provision of approximately one fifth would still leave [the respondent] with substantial assets.

(6)   Under the mutual [sic] wills [the appellant] was ultimately to receive 20% of the ‘assets of the marriage’.”

17. Primary Judgment at [46].

44. The primary Judge gave reasons for not accepting “some of [the appellant’s] submissions”, including the following:[18]

“(1)   Leanne's inheritance of $180,000 from her late mother will substantially eliminate most of the liabilities which are causing [the appellant] and Leanne financial difficulty and meet [the appellant’s] identified needs save for the question of a supplement to his superannuation. Any remaining drain on his financial resources (including an inability to supplement his superannuation) is a product of their own decision to retain the Katoomba Property rather than to sell it and ‘cut their losses’.

(2)   The evidence does not support [the appellant’s] submission that there is a real risk that [the respondent] will change his will in a way that reduces or removes [the appellant’s] entitlement under it. On the contrary, the Court accepts [the respondent’s] evidence that he has no present intention to change his will and that, at least at the moment, he intends to honour the arrangement between him and [the Deceased] that their five children should ultimately benefit equally. However, the Court also recognises (as did [the respondent]) that for entirely proper reasons, including the possibility of re-marriage, circumstances may change. Furthermore, the Court accepts that to the extent there was a binding agreement for mutual wills, [the respondent] remains absolutely entitled to deal with the assets during his lifetime as he sees fit …

…

(4)   Contrary to [the appellant’s] submission, the fact that there is a real prospect that he will ultimately receive 20% of [the respondent’s] estate is a factor to be taken into account which weighs against the making of any provision for him from [the Deceased’s] estate.”

18. Primary Judgment at [51].

45. The primary Judge noted that if Leanne’s legacy of $180,000 was applied as the appellant had indicated, and if the Katoomba Property was sold for $360,000, their financial position would be as follows:[19]

• they would own their Blacktown home valued at $460,000; and

• they would have debts of $244,000, comprising the mortgage debt on the home ($74,000) and the balance of the debts referable to the Katoomba Property ($170,000). [20]

  19. Primary Judgment at [54].

  20. The primary Judge said (at [54]) that the total debt would be $214,000. This, however, appears to be a mathematical error.

46. The primary Judge continued as follows:

“[55]   [A] substantial part of [the appellant’s] (and Leanne's) financial predicament - including, the Court finds, [the appellant’s] inability to make a larger contribution towards his superannuation - extends from their expenditure on and continuing commitment to the Katoomba Property. That predicament could be significantly eased if they decided to sell the Katoomba Property, even in the current market. However, they continue to wish to spend money on and incur interest in relation to an investment which, while it may have brought them some tax benefits, has always run at a loss and failed to achieve any capital appreciation in twelve years.

[56]   While they are entitled to do with their income and assets as they wish, viewed objectively their decision to retain the Katoomba Property is economically questionable and has the effect of making [the appellant’s] financial position much worse than it otherwise would be. That raises the question of how the Katoomba Property and its impact upon [the appellant’s] financial position should be treated for the purposes of determining whether adequate provision was not made for [the appellant] under [the Deceased’s] will.

[59]   … [T]he the impact of [the appellant] and Leanne's decision to retain the Katoomba Property is captured in this question: did [the Deceased] fail to meet the obligation, which the community would expect in terms of maintenance and advancement, for [the appellant] to the extent that [the appellant’s] financial need is the product of [his] own economic decisions including where [he] could significantly ameliorate his financial position by selling the Katoomba Property but has advisedly decided not to do so? In this case the Court concludes that the answer to the question thus posed is ‘No’.

[60]   In other words, I am firmly of the view that insofar as [the appellant’s] (and Leanne's) financial position is attributable to their expenditure on and continuing commitment to the Katoomba Property, provision that would be considered right and proper according to contemporary community standards would not extend to provision to alleviate the need generated by what the Court finds is a deliberate but economically risky course of action on the part of [the appellant] and Leanne. While respecting the right of [the appellant] and Leanne to organise their financial affairs as they wish, in the case of the Katoomba Property the Court considers that those standards would reflect a community expectation that as a competent adult [the appellant] should take responsibility for and accept the consequences of the investment decision rather than look to provision out of [the Deceased’s] estate to ameliorate those consequences. Those consequences are both a significant debt and interest burden and a commensurate inability to build up his superannuation.”

47. In his Honour’s view, this was sufficient to justify dismissing the appellant’s summons. [21]

    21. Primary Judgment at [61].

48. An alternative approach was to look at the appellant’s financial circumstances excluding the impact of the Katoomba Property. This approach produced the same result for slightly different reasons:[22]

    22. Primary Judgment at [62].

“[63]   This alternative approach clearly raises the issue of whether or not some provision should be made to ensure he has adequate superannuation for his retirement. Although there was no expert evidence to this effect, I will accept for the purposes of this part of the argument [the appellant’s] submission that an amount of $700,000 at retirement will be adequate for [the appellant] and that a current superannuation account balance of $250,000 would, with 9% annual contributions based on his current wage, yield approximately the desired amount of superannuation by 2036 (when [the appellant] will be 66). This result would be achieved by making a provision for [the appellant] of $189,000, given that he currently has superannuation of $61,000.

[64]   There is no doubt that, in appropriate cases, ensuring that an adult son has sufficient funds for retirement is a proper matter for an order for provision under the Act. In the present case the extent of [the Deceased’s] notional estate means that such a provision could be made with minimal impact on both [the respondent’s] lifestyle and the overall scheme of the mutual [sic] wills to the intention that [the respondent’s] estate is to go to [the appellant] and his siblings equally.

[65]   However, even granting all of the matters referred to in the preceding paragraph, the Court is of the view that community standards would not have required [the Deceased] to have made provision for [the appellant] to assist in building up his superannuation. Rather, those standards would, in the circumstances of this case, respect the overall testamentary intention demonstrated by [the Deceased’s] will made in mutual terms with [the respondent] to the effect that [the respondent] was to have the benefit of her estate and then everything was to pass to [the appellant] and his siblings equally.

[66]   The features of this case which lead to the conclusion in the preceding paragraph are:

(1)   On the assumption that [the appellant] retires at 65, he has 21 years of productive working life ahead of him. He is currently employed and employable and enjoys good health. While it is always possible he may become unemployed, the evidence does not support the conclusion that there is any particular risk of this.

(2)   He has $61,000 superannuation and Leanne has $109,000 superannuation. He will continue to add to that over his working life.

(3)   [The appellant] and Leanne have no dependents and own their own home with a "modest" and "manageable" mortgage..

(4)   There is no impediment to Leanne seeking paid employment if she wished to do so.

(5)   Assessing the situation at the date of the hearing, the Court is satisfied that [the respondent] intends to honour his agreement with [the Deceased] that their combined estate should pass to [the appellant] and his four siblings equally. The Court reaches that conclusion taking into account the possibility of innocent reasons why that might not occur and that the size of that estate may be depleted in the ordinary course of meeting [the respondent’s] needs for the rest of his life. However, the Court concludes that the prospect of the reasons which motivated [the appellant] in bringing these proceedings becoming a reality is more theoretical than real.

[67]   For these reasons, even when the Katoomba Property and its financial consequences for [the appellant] are taken out of consideration, the same conclusion is reached to the effect that, while no provision has been made for [the appellant] in [the Deceased’s] will, the Court is not satisfied that [the Deceased] has not made adequate provision for [the appellant’s] proper maintenance and advancement in life.”

49. It followed that the Court’s discretion to make a family provision order had not been enlivened. [23] The primary Judge recorded that, in any event, in the exercise of his discretion he would not have made any provision for the appellant.

    23. Primary Judgment at [68].

The Appellant’s Submissions

50. The appellant recognised that the primary Judge rejected his claim on two separate grounds, each of which his Honour regarded as a sufficient answer to the claims. Mr Crossland who appeared for the appellant, therefore accepted that the appellant had to show that each of the two grounds, which Mr Crossland designated as the First Approach and the Second Approach respectively, was flawed. He also accepted that it was necessary to demonstrate in each case an error of the kind that would justify setting aside a discretionary decision.

51. Mr Crossland submitted that the First Approach miscarried because the primary Judge applied an incorrect principle, namely that a family provision order should not be made in favour of a claimant whose financial needs have been created by a deliberate and economically risky course of action. Mr Crossland contended that it is inconsistent with community standards for a parent to make no provision out of his or her estate for an adult child:

• to meet the lifelong contingencies (including superannuation needs) of the adult child, where the estate is large enough to provide for the surviving spouse;

• to cover the risk that the adult child will receive no benefit from the mirror will of the surviving spouse; or

• to satisfy the financial needs of the adult child merely because those needs resulted from the child’s conduct, especially where the conduct consisted of good faith, if unsuccessful, attempts to improve his or her financial position.

52. Mr Crossland submitted that the Second Approach miscarried principally because the primary Judge wrongly found that the prospect of the respondent changing his will so as to reduce the appellant’s entitlement was “more theoretical than real”. Even accepting the respondent’s evidence as to his intentions (as his Honour did), Mr Crossland contended that there was clearly a substantial risk that the respondent would change his mind. The respondent might live for many years and circumstances might change dramatically, as indeed the respondent himself accepted. Therefore it was wrong for the primary Judge to determine that the Deceased had made adequate provisions for the appellant’s proper maintenance or advancement in life on the basis that he was likely to receive a one fifth share of the respondent’s estate upon the respondent’s death.

Reasoning

Principles

53. Neither Mr Crossland nor Mr Skinner, who appeared for the respondent, submitted that the primary Judge had misstated the principles governing the circumstances in which a court may make a family provision order in relation to the estate of a deceased person. Nonetheless, it is useful to restate some propositions concerning the Court’s task under ss 59 and 60 of the Succession Act.

54. In Andrew v Andrew,[24] Basten JA pointed to three respects in which the Succession Act differs from its predecessor, the Family Provision Act 1982 (NSW) (Family Provision Act). The first is that the condition precedent to the exercise of the power to make a family provision order is expressed slightly differently. Section 59(1) of the Succession Act provides that the Court may make such an order if satisfied that adequate provision for the proper maintenance, education or advancement in life of the claimant has not been made by the will of the deceased. Section 9(2) of the Family Provision Act stated that the court “shall not make an order … unless is it satisfied” at the relevant time that the provision is inadequate. The amended language involves a subtle change of emphasis and may confer a wider discretion on the court than the previous law. [25]

    24. [2012] NSWCA 308; 81 NSWLR 656.

    25. Andrew v Andrew at [27] (Basten JA); see also at [6] (Allsop P).

55. Secondly, the Family Provision Act did not specify the factors that were to be taken into account in determining whether the court was satisfied that the provision made by the will was inadequate for the proper maintenance and advancement in life of the claimant. Consequently, the court was left with “value laden” general terms such as “inadequate” and “proper”,[26] although it could take into account the more specific statutory criteria identified as relevant to the second stage of the process (that is, determining what order should be made in favour of an eligible person).

    26. Vigolo v Bostin [2005] HCA 11; 221 CLR 191 at [6] (Gleeson CJ).

56. By contrast, s 60(2) of the Succession Act specifies the matters to which the court may have regard for the purpose of determining whether or not to make a family provision order. The factors are stated in broad terms and include “any other matter the court considers relevant”. Thus the court is still required to make an evaluative determination by reference to criteria that are underpinned by social and community values. [27]

    27. Andrew v Andrew at [12] (Allsop P).

57. Thirdly, the list of statutory criteria has been expanded. Section 60(2) of the Succession Act specifies 15 matters, in addition to any other matter the Court considers relevant, that the Court may take into account in determining whether to make a family provision order and in deciding upon the terms of that order. Section 9(3) of the Family Provision Act identified only two matters, in addition to “circumstances existing before and after the death of the deceased” and any other matter considered relevant. It has been suggested that the expanded list of criteria provides a “more focused direction to the court”. [28] On the other hand, it has also been said that the task of the court remains “infused” with “moral notions”, [29] and that the court, in applying the statutory standards, should be guided by its perceptions of “prevailing community standards of what is right and appropriate”. [30]

    28. Phillips v James [2014] NSWCA 4; 85 NSWLR 619 at [51] (Beazley P, Meagher JA agreeing).

    29. Andrew v Andrew at [11] (Allsop P).

    30. Phillips v James at [113] (Basten JA), citing Andrew v Andrew at [16] (Allsop P).

53. There has been some debate about whether the changes introduced by the Succession Act mean that the “two-stage process” required under the Family Provision Act is no longer mandatory. [31] In particular, it has been suggested that since the same statutory criteria now apply both to whether an order should be made and to the content of any order, the Succession Act does not involve a two-stage process. It is not necessary in the present case to deal with this issue which, in any event, may be “an analytical question of little consequence”. [32]

    31. See Burke v Burke [2015] NSWCA 195 at [17]-[22] (Ward JA, Meagher and Emmett JJA agreeing).

    32. Andrew v Andrew at [6] (Allsop P).

54. There is, however, no debate about the approach that is to be taken by the appellate court to a determination of the kind made in the present case. The approach was explained by Beazley P in Phillips v James: [33]

“[54]   The question whether a testator made adequate provision for an applicant is a question of objective fact to be determined as at the date of hearing. Although an objective fact, the determination of whether adequate provision has been made nonetheless involves an evaluative judgment.

[55]   Given the evaluative nature of the exercise, the principles governing appellate review of discretionary determinations apply. This restraint on appellate review of the jurisdictional question reflects the importance of the finality of litigation in an area that has been described as ‘troublesome’ and is also directed at circumscribing challenges to testamentary dispositions which can place a heavy or unfortunate cost burden upon an estate.” (Citations omitted.)

33. at [54]-[55].

60. It follows that in order to succeed an appellant must show: [34]

“an error of principle; a material error of fact; a failure to take into account some material consideration, or the converse; or that the result is unreasonable or plainly unjust so as to bespeak error of such a kind.”

34. Burke v Burke at [40] (Ward JA).

61. Despite the need to demonstrate error of this kind and the words of caution in Phillips v James, experience with the appellate authorities on the Succession Act suggest that it is by no means uncommon for the evaluative judgment of a trial court to be overturned by the Court of Appeal, as in Phillips v James itself. [35]

    35. Appeals were also allowed, for example, in Andrew v Andrew and Poletti v Jones [2015] NSWCA 107.

The First Approach – Was there Error?

62. In the course of explaining the First Approach to the appellant’s claim, the primary Judge quoted a passage from the judgment of this Court in Verzar v Verzar. [36] That passage recognises that in order to determine whether the will of a deceased person has made adequate provision for an eligible person’s proper maintenance or advancement in life, it is necessary to make:

“as assessment of the applicant’s financial position, the size and nature of the deceased’s estate, the relationship between the applicant and the deceased and other persons who have legitimate claims upon his or her bounty”.

36. [2014] NSWCA 45 at [39] (Meagher JA, Macfarlan and Barrett JJA agreeing).

63. The primary Judge accepted that the size of the notional estate was substantial and that a provision of, say, $189,000 to increase the appellant’s current superannuation entitlements to $250,000 could be made without any adverse effect on the respondent. [37] His Honour also appeared to accept that the appellant was in something of a “financial predicament”[38] and that his financial position was “much worse” than it would have been by reason of the decision to retain the Katoomba Property. [39]

    37. Primary Judgment at [49].

    38. Primary Judgment at [55].

    39. Primary Judgment at [56].

64. The primary Judge also referred to the prospect that the appellant might receive 20 per cent of the respondent’s estate in due course. But it is clear from his reasons that he considered the critical question to be whether the Deceased had failed:[40]

“to meet the obligation, which the community would expect in terms of maintenance and advancement, for [the appellant] to the extent that [his] financial need is the product of [his] own economic decisions”.

40. Primary Judgment at [59].

65. The firm answer given by his Honour was that insofar as the appellant’s financial position was attributable to his (and Leanne’s) expenditure on and continuing commitment to the Katoomba Property, the community would not consider it right and proper to alleviate the need generated by a “deliberate but economically risky course of action”. [41] In his Honour’s view, the community would expect the appellant to take responsibility for and accept the consequences of his own investment decisions.

    41. Primary Judgment at [60].

66. In some respects the primary Judge’s reasoning is ambiguous. His Honour was critical of the appellant both for his past investment decisions and his determination to retain the Katoomba Property until market conditions improved. The judgment does not always clearly distinguish between the two matters, although they raise different questions. For example, if the decision to retain the Katoomba Property until market conditions improved was thought to be unduly risky, the risk could be effectively eliminated (as the primary Judge did later in the judgment) by assessing the appellant’s financial position on the assumption that the Katoomba Property could be sold at its estimated value. The past investment decisions made by the appellant were in a different category because they could not simply be assumed away. The appellant’s financial circumstances, whatever their causes, were factual matters that the Court might be expected to take into account in making the determination required by s 59(1) of the Succession Act. [42]

    42. Cf Succession Act, s 60(2)(d).

67. This does not mean, of course, that an adult child whose financial resources are limited will necessarily succeed in a family provision claim, even if the estate is relatively large. But the Court should not be deflected from considering the circumstances of the case and the words of the statute by applying a constraint that does not find its source in the Succession Act. It was on this basis that the majority in Andrew v Andrew concluded that the trial judge in that case had erred. He had done so by holding that it was “essential for the maintenance of the integrity of the process” that the Court acknowledge the entitlement of a deceased person to make no provision for his or her estranged adult child. [43]

    43. Andrew v Andrew at [17]-[18] (Allsop P); at [46], [54] (Basten JA).

68. The difficulty with the primary Judge’s First Approach is that it elevates a matter that might properly be weighed in the mix of factors to be considered into a principle that effectively disqualifies an adult claimant. His Honour interpreted community expectations to disentitle an adult child with financial needs from claiming a family provision order, if those needs were created by well-intentioned but improvident investment decisions. On his Honour’s approach, as I read the judgment, an adult claimant is disentitled even if the estate is sufficient to alleviate his or her needs without having a significant deleterious effect on any other relevant person.

69. The criteria in the Succession Act make it inevitable, as the authorities recognise, that a court will have to take into account “community values” at some level. This is so notwithstanding that, in the absence of empirical evidence, reasonable people, including reasonable judges, are likely to differ as to what those values are and how they should be applied in a particular case. But the fact that community values must play some part in the decision-making process does not, in my view, justify elevating a particular interpretation of community values into a disqualifying principle.

70. For these reasons I think that the First Approach involved an error that vitiated the exercise of the primary Judge’s evaluative judgment.

The Second Approach – Was there Error?

71. The primary Judge’s Second Approach excluded the Katoomba Property from the appellant’s financial circumstances. [44] His Honour did not explain precisely what he meant by “excluding the impact of the Katoomba Property”. However, the most plausible interpretation of the Second Approach is that his Honour regarded as irrelevant any poor investment decisions that had contributed to the appellant’s “financial predicament” and assumed that the Katoomba Property could be sold for its estimated value of $360,000. On this basis, as his Honour had previously found,[45] the appellant and Leanne had net assets of $216,000 (a home worth $460,000 and total debts of $244,000), plus their superannuation entitlements ($61,000 and $109,000 respectively).

    44. Primary Judgment at [62].

    45. Primary Judgment at [54].

72. His Honour accepted that “in appropriate cases” ensuring that an adult son has sufficient funds for retirement is a proper matter for a family provision order. He repeated his earlier finding that such a provision could be made with minimal impact on the respondent’s lifestyle and the overall scheme of the mirror wills. [46]

    46. Primary Judgment at [64].

73. However, the primary Judge identified a number of features of the case that led him to conclude that “community standards would not have required [the Deceased] to have made provision for [the appellant] to build up his superannuation”. [47] The features his Honour took into account were the appellant’s age, his employment status, his good health, the absence of dependants, the “manageable” mortgage, the ability of Leanne to seek employment if she wished and their superannuation entitlements. [48] His Honour took into account that he was satisfied that the respondent intended to honour the (unenforceable) agreement with the Deceased that their combined estate should ultimately pass to the siblings equally. It was in that context that the primary Judge observed that the proposal which motivated the appellant to bring the claim was more theoretical than real.

The Prospect of a Legacy

47. Primary Judgment at [65].

48. Primary Judgment at [66].

74. The appellant’s submissions appeared to attack both the finding that the respondent intended to honour the understanding embodied in the mirror wills, subject to the contingencies of life, and the weight the primary Judge attached to that finding. The passage in the respondent’s cross-examination bearing on his testamentary intentions is as follows:

“Q.   You say in your affidavit that you have no present intention of changing the Will; remember that?

A.   I would have been asked a specific question. Why would I have any intention to change my Will?

Q.   You don’t tell his Honour that you might not change it in the future; do you?

A.   I’m quite happy to say I won’t change my Will. What if I re-marry? It’s pretty silly to give that sort of commitment. I don’t know what’s in the future. I don’t have any prospects to re-marry but I’m not Houdini and I don’t have a crystal ball. I can deal with what’s the facts really.

Q.   You may well change your Will in the future?

A.   I may well, I may well leave everything to Bradley.

Q.   It’s fairly unlikely that you would leave everything to Bradley?

A.   It’s fairly [unlikely] I’d leave everything to any one child because I’m not like that.

Q.   You don’t fill [sic] well disposed towards Bradley now?

A.   You’ve taken care of that. You and your legal friend behind you. How would you feel being attacked every day of the week for the last 18 months when you’re trying to grieve your wife. You wouldn’t take it too kindly. Believe it or not, I will not hold that against Bradley. I know he’s a better person that that and he’s not the vehicle.

Q.   The answer is that you don’t feel well disposed towards Bradley?

A.   I don’t feel any animosity either. Don’t put words into my mouth please.

Last time I saw Bradley, I suggested to him that he come and live with me rent free for a couple of years till he gets on his feet if he’s having trouble financially. Why would I suggest that if I had any animosity towards Bradley. Do you think I would want to live with someone I didn’t like?”

75. It was open to the primary Judge to accept the respondent’s evidence, which was neither implausible nor seriously challenged. His Honour stated the effect of the evidence accurately earlier in his judgment. [49] He recognised (as did the respondent) that although the respondent did not intend to alter his will, if circumstances changed he might do so. He also recognised that the size of the respondent’s estate might be depleted during the latter’s lifetime.

    49. Primary Judgment at [51(2)], reproduced at [44] above.

76. When read in context, in my opinion the primary Judge was saying no more than that, as matter stood, there was a good prospect that some time in the future, perhaps at about the time of the appellant’s retirement, he would receive a substantial legacy under the respondent’s will. His Honour was taking into account that the appellant did not claim that he had an immediate need that enlivened an obligation on the Deceased to provide for his maintenance and advancement in life. His case was that he wished to build up his superannuation for his retirement, expected to be some 20 years in the future.

77. There were many imponderables that might affect the appellant’s future superannuation entitlements or his financial position generally, some potentially working to his advantage and some to his disadvantage. The prospect of a legacy from his stepfather during or after the period leading to the appellant’s projected retirement was a factor material to determining whether the Court was satisfied that the Will had not made adequate provision for the appellant’s maintenance or advancement in life.

78. The primary Judge did not treat the prospect of the appellant receiving a legacy from the respondent as determinative of the appellant’s entitlement to a family provision order. It was one element in the evaluation assessment which had to be weighed with the other elements identified by the primary Judge, both in favour and against the making of a family provision order. While not all judges might have accorded the prospect of a legacy the significance accorded by the primary Judge, his Honour’s approach did not involve any error that vitiated his evaluative judgment.

Other Challenges to Findings

79. The further amended notice of appeal challenged other findings made by the primary Judge relevant to the Second Approach, specifically the findings that:

• the appellant was not at any particular risk of unemployment; and

• there was no impediment to Leanne seeking paid employment if she wished.

80. Mr Crossland submitted that the primary Judge had overlooked the fact that the appellant had been made redundant in 2008 and that he had only been able to secure full-time employment (as a shift electrician in an industrial kitchen). This should have led to a finding, so Mr Crossland argued, that the appellant was at particular risk of unemployment in the future.

81. In his first affidavit, dated 11 November 2013, the appellant said that he had only been working in his full-time job for two months and that “he was not certain that the job would last”. In a supplementary affidavit, dated 12 June 2014, he stated that he had continued to be employed in the same position and earned $6,300 per month, after tax. In his cross-examination he said that this was the first full-time work that he had been able to secure in years. But there was no evidence of what efforts he had made during the lengthy period when he was evidently self-employed. While his taxable income in some of these years was relatively low, the taxation return themselves were not in evidence and it is unclear how far the appellant’s taxable income was reduced by losses from the Katoomba Property and other permissible deductions.

82. The primary Judge recognised that it was possible that the appellant, like virtually all persons employed in the private sector, might become unemployed in the future. The finding that the appellant was at no particular risk of unemployment was consistent with the evidence.

83. The basis of the challenge to the finding that there was no impediment to Leanne seeking employment was obscure. The evidence supported the finding.

84. The appellant further submitted that the primary Judge should have taken into account the possibility that the appellant might not always enjoy good health. The primary Judge merely found that the appellant “currently” enjoyed good health (as the appellant agreed in his evidence). His Honour was clearly aware of the ever-present possibility that the appellant’s good health might not continue. The finding that the appellant enjoyed good health and that he was likely to have 21 years of productive life ahead of him subject to the ordinary vicissitudes of life, was soundly based on the evidence.

A Hypothetical Re-exercise of the Evaluative Judgment

85. Since the primary Judge’s Second Approach withstands the appellant’s attack, it is not necessary to consider what order would be made if this Court had to make the evaluative judgment required by s 59(1) of the Succession Act. However, I should record that I would have reached the same conclusion as the primary Judge, although not for precisely the same reasons.

86. I would have approached the question, as did the primary Judge, on the basis that the concept of “advancement in life” is a broad one and can include adequate provision for a claimant’s retirement. [50] I would also accept that the appellant should not be disadvantaged by any responsibility he had for the losses flowing from the investment in the Katoomba Property. I would assume, consistently with the appellant’s evidence, that the Katoomba Property would be sold within a short time for its estimated value of $360,000. I would approach the prospect of the appellant receiving a legacy from the respondent cautiously. I would regard a legacy as a “real chance” rather than a likelihood and give the prospect some, but limited weight.

    50. Smilek v Public Trustees [2008] NSWCA 190 at [27] per curiam.

87. As I have explained, the appellant’s case rests entirely on his need and desire to build up his superannuation benefits. The evidence establishing and quantifying that need was scanty. The figure of $700,000 selected by the primary Judge as the sum that should be available to the appellant on his retirement appears to have been derived from the appellant’s evidence that “I would probably need $700,000 in superannuation to retire comfortably in total with myself and my partner”. The basis of this estimate is not clarified in the evidence. Nor is it clear whether the figure was intended to be in 2014 dollars or an adjusted figure to take account of inflation.

88. A chart attached to the appellant’s written submissions at the trial purported to show that in order to produce a balance in his superannuation account of about $670,000 by about the date of his expected retirement, the current balance should be about $250,000. The chart assumed, without explanation, that the appellant’s net superannuation balance, apart from compulsory contributions, would increase by 3 per cent per annum, apparently in nominal terms. The chart also assumed that the appellant’s wage would remain at $70,000 per annum for the entire period leading to his retirement and that compulsory annual contributions to superannuation would be 9 per cent of that figure. No explanation was given as to why the appellant’s net wage, rather than his gross wage, was chosen as the reference point for compulsory superannuation contributions. Finally, the chart took no account of Leanne’s superannuation entitlement assessed by the primary Judge at $109,000.

89. The circumstances of each case vary. In some cases it may be obvious that the claimant requires substantial provision from the deceased estate to be reasonably secure in retirement. But in more finely balanced cases, a claim for an order to build up superannuation entitlements should ordinarily have a solid foundation in the evidence. The appellant’s claim lacks such a foundation. Specifically, the evidence does not establish that the appellant requires approximately $189,000 (being $250,000 less his superannuation balance at the trial of $61,000) to provide adequately for his retirement.

85. The absence of more detailed evidence as to the appellant’s retirement needs is not necessarily fatal to his claim. But the assessment required by s 59(1)(c) of the Succession Act requires the Court to take account of the matters identified by the primary Judge. They include the appellant’s earning capacity in view of his current employment and state of health; [51] the financial burdens that would be removed if the Katoomba Property was sold; the ability of Leanne to re-enter the paid workforce after the sale of the Katoomba Property (bearing in mind that their continuing debts have been incurred jointly); and their current superannuation entitlements.

    51. In Smilek v Public Trustee, by contrast, the claimant faced the likelihood of redundancy: Smilek v Public Trustee at [30].

86. Having regard to these matters, I would not be satisfied that the Will did not make adequate provision for the appellant’s maintenance and advancement in life.

Orders

92. The appeal must be dismissed. The appellant must pay the respondent’s costs.

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Endnotes

Decision last updated: 16 September 2015