Bkassini v Sarkis
[2017] NSWSC 1487
•1 November 2017
|
New South Wales |
Case Name: | William Bkassini v Sonya Sarkis |
Medium Neutral Citation: | [2017] NSWSC 1487 |
Hearing Date(s): | 1-5 May 2017; final written submissions delivered on 28 June 2017. |
Decision Date: | 1 November 2017 |
Jurisdiction: | Equity |
Before: | Robb J |
Decision: | Refer to paragraphs 417 and 418. |
Catchwords: | SUCCESSION — Family provision — Application for family provision order — Application made out of time — Whether leave to make application out of time should be granted — Where deceased appointed daughter as trustee of discretionary trust — Where deceased executed a memorandum of wishes instructing daughter to pay income from trust to her father — Where daughter paid income to father for eight years — Where father remarried and daughter ceased making payments — Where father failed to lodge family provision application for a further two and a half years — Whether father can show sufficient cause. |
Legislation Cited: | Family Provision Act 1982 (NSW) ss 7, 9, 16, 24. |
Cases Cited: | Biviano v Natoli (1998) 43 NSWLR 695 |
Texts Cited: | JD Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s: Equity: Doctrines & Remedies (Lexis, 5 ed, 2014). |
Category: | Principal judgment |
Parties: | William Bkassini (plaintiff) |
Representation: | Counsel: G McNally SC (plaintiff) |
File Number(s): | 2015/27946 |
TABLE OF CONTENTS
Introduction_Toc496886484
The deceased’s will and memorandum of wishes_Toc496886485
The events leading to this application_Toc496886486
The claims made by the parties_Toc496886487
Money claims made by the parties_Toc496886488
William’s personal claim against Sonya_Toc496886489
Sonya’s personal claim against William_Toc496886490
Sonya’s claim for unauthorised drawings by William_Toc496886491
Sonya’s claim for reimbursement of expenses_Toc496886492
Sonya’s claims for shares in rent and lodger’s fees_Toc496886493
Sonya’s claim for an occupation fee from William_Toc496886494
Sonya’s personal claim against the assets of the trust_Toc496886495
Legal expenses paid by the parties_Toc496886496
Should William be granted leave to apply out of time?_Toc496886497
William’s explanation for the delay in commencing the application_Toc496886498
Prejudice_Toc496886499
Alleged failure of the William to disclose his assets_Toc496886500
The regime under the Family Provision Act_Toc496886501
Stage one: whether the provision made for William was inadequate_Toc496886502
Significance of the deceased’s memorandum of wishes_Toc496886503
Need for provision to be proper as well as adequate_Toc496886504
Appropriateness of testamentary discretionary trust_Toc496886505
The significance of William’s character and conduct_Toc496886506
Was the provision made for William in fact inadequate?_Toc496886507
Stage two: what provision (if any) ought to be made?_Toc496886508
Should notional estate orders be made?_Toc496886509
Proposed orders_Toc496886510
JUDGMENT
Introduction
Mrs Souad Bkassini (the deceased) died on 18 May 2005.
She left behind her husband William Bkassini and their three children: Sonya Sarkis, Assid (Sid) Bkassini, and Sam Bkassini.
With no disrespect intended, I will for convenience refer to the members of the family, other than the deceased, by their first names.
When the deceased died, her estate consisted primarily of a half interest in two neighbouring properties located in the Inner West of Sydney. For convenience I will refer to these properties simply as ‘No 93’ and ‘No 95’.
William and the deceased purchased No 95 as joint tenants in 1979. On 11 March 1994, the deceased executed a transfer that severed the joint tenancy so that she and William became tenants in common in equal shares.
William and the deceased purchased No 93 as tenants in common in equal shares in 1996. They leased out No 93 and continued to live in No 95 until the deceased’s death in 2005. William has continued to live at No 95 since that time.
The deceased’s will and memorandum of wishes
By her will dated 21 April 2005, the deceased appointed Sonya to be her executor and trustee. She gave substantially all of her property to Sonya to hold on the trusts created by the will. She left nothing to William. Schedule 1 of the will contained the operative provisions of her testamentary trust. The primary powers of the trustee were set out in clauses 2.2(c) and 2.5(a).
Clause 2.2(c) stated:
The Trustee may from time to time during the Year pay or apply the whole or part of the income to or for the benefit of any Income Beneficiary who is living or in existence at any time during the Year, in whatever shares and proportions that the Trustee in its absolute discretion determines…
Clause 2.5(a) stated:
…the Trustee will hold the Trust Fund for such of the Capital Beneficiaries who are living or in existence (as the case may be) on the Vesting Date, and in such proportions as the Trustee in its absolute discretion determines on or before the Vesting Date.
The ‘Vesting Date’ was defined in clause 13.1 as including ‘any date determined by the Trustee’. The ‘Income Beneficiaries’ were defined in the first schedule to include William and any child or remoter issue of the deceased. The ‘Capital Beneficiaries’ were defined in the second schedule as including any child or remoter issue of the deceased. William therefore was not a Capital Beneficiary.
These provisions make clear the broad nature of Sonya’s power to administer the trust and distribute its income and capital. The deceased did not include in her will specific directions to her trustee. Instead, she executed on the same day a memorandum of wishes, which provided as follows:
1. This Memorandum is made with a view to indicating to my Executor of my estate the manner in which she should exercise her powers as trustee of the discretionary testamentary trust created under my Will.
2. During the lifetime of WILLIAM BKASSINI, I require my Executor to administer the trust primarily for the benefit of William so that in using her discretions she ensures that the income is used for his benefit and also within her discretion that the capital is used for his benefit but so that capital is not distributed to him absolutely but preserved for the benefit of my children.
3. Following the death of William I wish my Executor to:
Pay the sum of $20,000 to my son SAM WILLIAM BKASSINI by way of acknowledgement that during my lifetime I provided financial assistance to my son ASSID BKASSINI and my daughter SONYA SARKIS and because I was not able to provide the same assistance to Sam.
Divide the remainder of the fund into 3 equal shares and to hold each of those shares for the following persons respectively:
(i) My son Assid Bkassini;
(ii) My son Sam William Bkassini; and
(iii) My daughter Sonya Sarkis.
4. I wish my Trustee, following the death of William Bkassini and the creation of the 3 individual family trusts, to consult with Assid and Sam as to whether they wish their one third share in the trust fund to be paid to them absolutely or to be dealt with in such other ways as they might agree with my trustee.
5. If Assid, Sam and Sonya wish to take their shares absolutely from the trust then the trust should be wound up and the trust fund distributed.
6. Once there has been a distribution to any of my children of their one third share in the trust fund, I would expect that my Trustee would not make any further distributions from the fund to that child or his children.
7. This Memorandum is signed in the knowledge that my Trustee will not be bound by the terms of this Memorandum but in expectation however that my Trustee will use her best endeavours to ensure that the terms of the Memorandum are implemented as nearly as may be possible and prudent in the light of circumstances generally pertaining at the time that she makes her decisions.
There is also evidence of the deceased’s testamentary intent in a letter dated 15 March 2005 written by her solicitor, Mr Kirk McKenzie, to the deceased with which he enclosed a draft will, a draft power of attorney and a draft enduring guardianship form. Mr McKenzie confirmed some of the instructions that he had been given by the deceased, including “… I note your instructions that your husband is to have a right to continue living in your home until his death or until he leaves those premises”.
The events leading to this application
Following the death of the deceased, William attended the offices of Mr McKenzie with Sonya. He said that he was not given a copy of the deceased’s will and that he was under the impression that he was the principal beneficiary of her estate. This, he explained, was why he did not think it was necessary to make any enquiry about claiming further provision from the deceased’s estate.
Sonya denied that the will was not explained to William, and called Mr McKenzie to give evidence in the proceedings. In an affidavit dated 8 April 2016, Mr McKenzie said that he did explain the operation of the deceased’s will to William and, when William said that he thought he would get the deceased’s shares in the two properties, told him that he may have rights under the Family Provision Act. Mr McKenzie added that he told William that, if he wished to challenge the will, he would have to obtain advice from another lawyer.
William responded to Mr McKenzie’s affidavit in his affidavit dated 24 April 2017. He stated that he has no recollection of the conversation Mr McKenzie described and that, if Mr McKenzie did talk to him about the Family Provision Act, he did not understand.
In cross-examination, Mr McKenzie agreed that William was not his client for the purpose of the conference, but said that he explained the effect of the will to William because Sonya asked him to. During re-examination, Mr McKenzie confirmed the evidence given in his affidavit and said that William appeared annoyed when he learned of the effect of the deceased’s will.
From the death of the deceased until May 2013, Sonya carried out her duties as trustee of the deceased’s testamentary trust in accordance with the memorandum of wishes.
In May 2013, what William described as a ‘falling out’ occurred between himself and Sonya. Sonya said that she and William argued on 7 May 2013, when she discovered that William’s fiancée, Ms Lijin Zhao, was living at No 95, when he had said that she was living with her family in Riverwood. William claimed that Sonya threw Ms Zhao out of No 95 and left her crying in the street. Sonya denied doing so but Ms Zhao gave evidence to the effect that Sonya had in fact acted in the manner described by William.
William said that he told Sonya that he was going to sell the properties, and that it was only then that he found out that she was trustee of the deceased’s share, because she told him that he could not sell them without her permission.
Following this argument, Sonya stopped William receiving the rent from No 93. She also stopped his receipt of board from the lodger at No 95. William changed the locks on No 95 so that Sonya could no longer use her key to enter the house on that property.
The claims made by the parties
William commenced proceedings against Sonya by summons filed on 29 January 2015. He sought orders under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for the sale of No 93 and No 95 and for related orders.
In response, Sonya sought judicial advice from the Supreme Court of New South Wales in her capacity as trustee. As part of the application for judicial advice, Sonya prepared a statement of facts in which she described sums exceeding $285,000 that she claimed that William owed to her and was obliged to repay.
Slattery J heard Sonya's application for judicial advice. Sonya appeared in her capacity as trustee and Sam appeared as a beneficiary of the trust. His Honour handed down judgment on 28 September 2015 (see Application by Sonya Sarkis [2015] NSWSC 1369). Slattery J made an order under s 63 of the Trustee Act 1925 (NSW) to the effect that Sonya was justified in bringing a cross claim against William in respect of the matters described at [67] of his reasons. That and the subsequent paragraph provided:
[67] In my opinion the trustee is justified in bringing a Cross Claim against William. The nature of the Cross Claim has been sufficiently explained above under the heading “The Conveyancing Act, s 66G Claim and the Cross Claim”. But the trustee would not be justified in including every one of her putative heads of claim in the Cross Claim, only the ones that appear to be reasonably maintainable, less the ones, such as (6) for which credit should be given. These would appear to be the following: (1) Trust’s share of Number 93 rent; (2) William’s 50 per cent share of outgoings; (3) reimbursement of William’s re-draws; (4) William’s retention of lodger fees; allowance for (6) the Trust’s 50 per cent share of mortgage repayments on Number 93; (8) occupation fee for Number 95. Thus of the original posited Heads of Claim in my view the trustee is justified in allowing for claim (6) and bringing all but claims number (5) and (7).
[68] But as the court’s analysis above shows, even these claims are in total less valuable than the plaintiff first anticipated. Leaving aside the smaller claims, and rounding the larger claims to the nearest thousand, and applying the logic to the claims that the court has set out above, the net position would appear to be as follows: the Trust could claim from William $29,000 for claim (1); $21,000 for claim (2); $31,000 for claim (3); and $26,000 for claim (8), making a total of $107,000. But from that an allowance against the Trust of $35,000 would need to be made in respect of claim (6). Thus the net potential claim is about $72,000. This is not a particularly large sum in the context of a Supreme Court action for the appointment of trustees for sale to two parcels of valuable real estate.
His Honour also noted that at [89] that:
The Court has now dealt with the matters for judicial advice. In doing so the Court has declined to give the trustee any advice about William’s threatened Family Provision Act proceedings. Such proceedings are not on foot. Any such advice would be theoretical.
As the application was made by Sonya under s 63 of the Trustee Act, Slattery J did not give Sonya any authorisation to cross claim against William in her personal capacity for any debt that she claimed William owed to her. Sonya did not need any authorisation to make such a claim, and any claim that she did make would be at her own risk. Nor in fact did Slattery J make any order concerning any claim that Sonya may have had as trustee for any fees or reimbursement out of the assets of the trust.
William received the statement of facts upon which Sonya based her application for judicial advice on 14 May 2015. By that means William learned that Sonya proposed to sue him to recover the amount of $285,000. That apparently caused William to think that the assets available to him would be inadequate if he only received the value of his half shares in No 93 and No 95 following their judicial sale.
On 21 May 2015, William’s solicitors wrote to Sonya's solicitors to inform them of his intention to seek leave to amend his summons in the 66G proceedings to add a claim for family provision.
On 22 May 2015, Sonya's solicitors replied and stated that Sonya would not consent to William filing an amended summons. Between May 2015 and February 2016, the parties attempted mediation and the matter made its way into the family provision list. It does not appear that William's amended summons was ever filed.
On 12 February 2016, Hallen J ordered that William’s application for family provision proceed by way of pleadings and granted William leave to file a statement of claim. William filed a statement of claim on 26 February 2016.
William made an application for provision out of the notional estate of the deceased pursuant to Part 2 of the Family Provision Act 1982 (NSW). The claim was made under the Family Provision Act rather than the Succession Act 2006 (NSW) because the deceased died before that Act commenced: see Succession Act 2006 (NSW) sch 1 s 11.
There may be some doubt as to whether the order for family provision that William seeks is the transfer of the deceased’s interest in No 95 to him absolutely (closing submissions par 1(c)) together with a grant of a life interest in the income from No 93, or whether in relation to No 95 William only seeks a portable Crisp order in relation to the deceased’s interest in that property (par 4). In later submissions, in response to a possibility raised by the court, William said that his preferred outcome is a “swap order”, which would lead to William becoming the owner of the fee simple in No 95, and Sonya becoming the sole owner of No 93, subject I assume to William having some right for life to the income of No 93.
William applied for family provision more than eight years after the expiry of the prescribed period of 18 months contained in s 16 of the Family Provision Act. As a result he must obtain the leave of the court to make the application. Sonya argues that William should not be granted leave and opposes William’s application for a family provision order.
As an alternative, if his application for a family provision order is unsuccessful, William maintains his application for orders under s 66G of the Conveyancing Act. William does not want an order that will lead to the sale of No 95 if, as a result of these proceedings, William will have the sole right to reside in that property. In respect of No 93, if that property would remain in co-ownership, William wants trustees for the sale of that property to be appointed.
In addition to these claims for relief, William makes a money claim against Sonya in her personal capacity. He claims that he paid Sonya $249,900 on 6 December 2004 and $70,000 on 24 July 2006, and seeks declarations that Sonya continues to hold those monies on trust for him, as well is an order that Sonya account to William for the sum of $319,900.
As an alternative to his trust claim, William claims that Sonya is indebted to him for the two sums and seeks an order for judgment against Sonya in those amounts together with interest.
Sonya filed a cross claim against William on 29 April 2016. She makes money claims against William in her personal capacity and as trustee of the testamentary trust established under the deceased's will. It will be convenient to defer the description of the claims made by Sonya in her cross claim until the following section, where I address the money claims made by the parties.
Money claims made by the parties
The parties made a number of money claims against each other throughout the course of the proceedings. William and Sonya both claimed against each other in their personal capacities, Sonya claimed against William in her capacity as trustee of the trust, William claimed against Sonya in her capacity as trustee of the trust, and Sonya claimed against the trust itself.
I will list the various claims in the order in which they will be considered by the court:
(1)William claims that he is entitled to be paid sums of $249,900 and $70,000 by Sonya in her personal capacity.
(2)Sonya claims that William is indebted to her personally in the sum of $267,555 (although the nature of that claim is contingent in a way that I will explain below).
(3)Sonya originally claimed in her capacity as trustee that William is obliged to pay her half of a number of unauthorized drawings that he made against a loan facility to which William and Sonya are joint borrowers, which is secured by a mortgage over No 93, plus half of the interest that has accrued in respect of the additional drawings.
(4)Sonya claims in her capacity as trustee that William it is obliged to pay her 50% of certain outgoings paid out of the trust assets in respect of No 93 and No 95.
(5)Sonya claims in her capacity as trustee that William is obliged to pay her half of the rent that he received from the lease of No 93 and lodger’s fees in respect of No 95 in excess of the amounts received by the trust from those sources.
(6)Sonya claims in her capacity as trustee that William is obliged to pay an occupation fee in respect of his occupation of No 95 on the basis that William allegedly ousted her from No 95 on about 8 May 2013.
(7)Sonya claims in her personal capacity that she is entitled to be reimbursed out of the assets of the testamentary trust for expenses paid on behalf of the trust out of her own pocket. The amount claimed is half of $112,110.98, being $56,055.49.
(8)Sonya claims in her personal capacity that she is entitled under the terms of the testamentary trust to be paid an administration fee, which Sonya has calculated by reference to evidence of commercial rates charged by trustees as being $168,162.50.
(9)Sonya claims in her personal capacity that she is entitled to be reimbursed out of the assets of the trust for the costs of the application for judicial advice that was determined by Slattery J that Sonya has borne personally, plus an additional amount for the legal fees of these proceedings.
The first six of the claims described above are properly capable of determination in these proceedings, as they are claims in respect of which William and Sonya are the only proper parties, even though Sonya has claimed in different capacities. The seventh to ninth claims are not properly capable of determination in these proceedings, as they are claims that Sonya makes personally on the basis that she is entitled to payment from the assets of the trust.
The claims that have been raised in the evidence by Sonya that she has a personal right to recover money out of the trust assets have not been pleaded. The proceedings are not properly constituted to determine the claims because Sonya has not joined all of the beneficiaries. However, the claims remain relevant because, to the extent that they are valid and will be pursued by Sonya, they may reduce the value of the assets of the trust and thus the potential notional estate of the deceased. The court will be required to form a view about the extent to which the assets of the trust may be depleted by these claims, even though it is not in a position to finally decide their validity or amount.
It is necessary to decide or assess these various claims before considering William’s application for a family provision order, as the claims may affect William’s financial position and also the size of the notional estate that may be available for distribution.
The parties have provided to the court a number of documents which will assist in simplifying the task of resolving or assessing the various claims.
First, Sonya provided a schedule called “Assets and Liabilities of the Testamentary Trust established pursuant to the last Will of the late Souad Bkassini”. This document first listed by value all of the uncontroversial assets of the trust, including the half share in No 93 and No 95. The total value stated is $1,693,634.89. It then listed five claims that Sonya has made against William in her cross claim as trustee of the trust. The total of these claims is $194,902.50. Finally, it listed additional liabilities of the trust, being $55,352 as the trust’s half share in the mortgage secured by No 93, and then three amounts to which Sonya claims to be entitled in her personal capacity to be reimbursed from the assets of the Trust. The total amount of the claims made by Sonya is $521,965.97. If all of the claims and obligations are valid, then the net value of the trust’s assets would be $1,311,219.42.
Secondly, the parties provided the court with a document called “Joint Supplementary Submission” (Joint Submission) in which the parties have attempted to address the sundry claims that require consideration for the purpose of reaching agreement where that is possible, and where not, focusing on and identifying the areas of disagreement.
To some extent the Joint Submission overlays the parties’ pleadings so that it informs the court as to the issues that have eventually been recognised by the parties and identifies the areas of agreement and dispute. It is a useful document in-so-far as it provides a proper basis for the court to elide a number of complexities and technical difficulties in assessing some of the evidence and submissions in relation to the issues raised by the pleadings.
Thirdly, the parties provided competing statements of William’s assets and liabilities to the court. Those statements exhibit some measure of agreement, and identify where the parties are at issue concerning William’s financial position.
William’s personal claim against Sonya
It is common ground between the parties that William paid two amounts to Sonya in her personal capacity: $249,900 on 6 December 2004 and $70,000 on 24 July 2006.
The former amount was received by William as a result of a successful claim under an insurance policy in relation to an injury suffered by William, and the latter was an amount received by William following the conclusion of an employment-related claim that he made.
William’s primary claim is that Sonya holds the two sums on express trust for him. He alleged in pars 11 and 13 of the statement of claim that each amount “was provided by the plaintiff to the defendant on the basis that the defendant would hold the money for the plaintiff, that it would remain the plaintiff’s money and that it would be returned when he needed it and requested its return”.
Alternatively, William claims that the two amounts were repayable as loans. However, William accepted at the hearing that if the two sums had been loaned to Sonya, they would have been repayable on demand. As William did not claim repayment until he filed his statement of claim on 12 February 2016, the loans would be statute-barred under s 14(a) of the Limitation Act 1969 (NSW), under which the limitation period for a cause of action founded on a simple contract is six years running from the date on which the cause of action first accrued to the claimant. Where a debt is repayable on demand, the right of action accrues when the loan is made, and it is that time from which the limitation period begins to run, rather than some later date upon which demand is actually made: see Fischer v Nemeske Pty Ltd [2015] NSWCA 6 (Barrett JA; Beazley P and Ward JA agreeing), following Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566; [1956] HCA 51.
Consequently, William adjusted his case at the hearing to claim that he and Sonya had a running account between them. William relied upon Meagher, Gummow and Lehane’s ‘Equity: Doctrines & Remedies’ (5 ed), where the learned editors say at [39-010]:
…When the nature of the dealings between the plaintiff and the defendant necessitates the keeping of an account, consisting of debts and credits, receipts and payments, on both sides, no question of set-off or counterclaim arises. It is only when a balance has been struck or ascertained, as the result of the taking of an account, that any sum is due by either party to the other. Set-offs and counterclaims have to do with counter veiling claims. No question of a countervailing claim can arise in the case of a running account.
In putting his claim on this alternative basis, William appeared to seize upon a statement made by Sonya in cross-examination to the effect that she and William had a “running account”.
William did not plead a claim based upon the settlement of a running account between himself and Sonya. If it is available to him, it would not lead to an order that Sonya pay him $319,900. Rather, Sonya would be ordered to pay the balance after the account was settled, after allowing for any amount payable by William to Sonya.
In her defence, Sonya pleaded that there was no intention to create trusts in relation to either payment, she relied upon the presumption of advancement in relation to the payment of $249,900 and claimed that the payment of the $70,000 to her was the partial repayment of the debt owed by William and the deceased to her and her husband.
William gave the following evidence in his primary affidavit concerning the circumstances in which he made the payment of $249,900 to Sonya:
150. Shortly before I was to receive my compensation payout I investigated ways in which I might invest those monies. At the time I had wanted to purchase an investment unit. I had observed that I could buy a unit in Sydney for less than $250,000. I said to Sonya words to the following effect: “I can buy a unit with the amount I receive I would like to purchase an investment unit from the monies I have received from my claim. What do you think Sonya?” Sonya replied: “You cannot do that Dad because it will cause you to lose your compo payments”.
I also said: “I think then me and your mother should pay off the mortgage on 93 Frazer Street” but Sonya said to me, “You don’t want to do that, it is better to let it pay itself off. What about I hold it for you? I can use it to help pay off my mortgage. It will be your money and will get it back to you when you need it and I will pay you interest that is equal to what you would get from the Bank. That way I save on some interest and you still get the same rate that you would have got from the Bank”.
151. My wife and I agreed with that proposal and we then had a conversation with Sonya. I said to Sonya: “Your mother and I have decided to lend you this money to help you so that you can use it to pay off your mortgage. You can repay it when you are able to with interest at what we would get from the Bank.” Sonya then replied, “When you require the money back and I am in a position to repay you just tell me and I will return it to you with interest.”
Sonya said in par 116 of her 12 April 2016 affidavit that she had always treated the $249,900 as a gift and had always believed that it was a gift from William. She gave evidence of the assistance that she provided to her father in relation to the making of the claim that led to the receipt of the $249,900. Sonya gave evidence in par 118 of her primary affidavit of a conversation with her father and mother, which included:
118. … When I spoke to my parents, we had a conversation in both Arabic and English to the following effect:
I said: “Your policy is going to get paid out. You are going to get $250,000.”
Mum: “You’d better give it to her, because you promised you would.”
Dad: “Yes you can keep it. You’re the only one helping us and you deserve it. Just don’t tell anyone. What are you going to do with it?”
I said: “Put it on our home loan”…
Sonya gave evidence in par 119 of a conversation with her mother in which the deceased persuaded her to take the gift.
William’s and Sonya’s affidavits were both sworn over a decade after William made the two payments to Sonya. It is highly likely that the recollection of each witness concerning the precise circumstances in which each of the payments was made has diminished, and each witness may be influenced by the self-interested nature of the evidence they have given.
William did not seek to recover either sum until he filed his statement of claim on 12 February 2016, which was about a decade after he had made the payments to Sonya.
It is to be remembered that William’s evidence was that Sonya had agreed to hold the money and return it to William when he needed it and requested its return. William’s financial needs became acute after his falling out with Sonja in May 2013, when Sonya used her power as trustee of the testamentary trust to cut off much of William’s income. William’s need for money was so acute that he made unauthorized drawdowns under the loan facility that was secured by a mortgage over No 93 of $8675 on 12 December 2015 and $30,050 on 14 December 2015. Yet he did not demand repayment of the alleged loans until some months afterwards.
In relation to William’s claim that Sonya holds the two sums on an express trust for him, the relevant principles are as summarised by Pembroke J in McEvoy v McEvoy [2012] NSWSC 1494, where his Honour said:
[3] Where the existence of a trust is in issue, the principles are well established. The question is whether there is language or conduct which shows a sufficiently clear intention to create a trust. No formal or technical words are required: Registrar of the Accident Compensation Tribunal v FCT [1993] HCA 2; (1993) 178 CLR 145 at 165–166. Any apt expression of intention will be sufficient. In order to infer the relevant intention, the court may look to the nature of the transaction and the whole of the circumstances attending the relationship between the parties: Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; (2000) 202 CLR 588 at [33]–[34]. Subsequent conduct can be just as much an indicator of the coming into existence of a trust as it may be of the existence of an agreement: Reitano v Reitano [2012] NSWSC 1127 at [25]; Hyhonie Holdings Pty Ltd v Leroy [2004] NSWCA 72 at [46] (Hodgson JA, Mason P and Handley JA agreeing); Owens v Lofthouse [2007] FCA 1968 at [51] (Weinberg J); Strang v Strang [2009] NSWSC 760 at [68] (Nicholas J); Stillisano v Adami [2010] SASC 351 at [70] (White J).
[4] The overall question is whether in the circumstances of the case, and on the true construction of what was said or written, a sufficient intention to create a trust has been manifested. It is not necessary that the creator of the trust should know that the particular relationship intended to be created is in law a trust. A trust will be created whether or not the creator is precisely aware of so doing, provided that, in substance, the creator intends that his or her actions should have the legal effect of creating the relationship which is known in law as the trust. If the language and conduct is such that an intention to create such a legal effect is manifested, then a trust will be created whether or not the words “trust” or “trustee” are used: Jacobs’ Law of Trusts in Australia, 7th ed (2006), p 56; Owens v Lofthouse at [49]; Stillisano at [30].
[5] The objective nature of the question was emphasised in Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, where Heydon and Crennan JJ said at [114]:
The intention referred to is an intention to be extracted from the words used, not a subjective intention which may have existed but which cannot be extracted from those words. This is as true of unilateral declarations of alleged trusts as it is of bilateral covenants to create an alleged trust. It is as true of alleged trusts which are not wholly in writing as it is of alleged trusts which are wholly in writing. In relation to alleged trusts which are not wholly in writing, the need to draw inferences from circumstances in construing the terms of conversations may in practice widen the extent of the inquiry, but it does not alter its nature.
Although in his affidavit evidence extracted above William claimed that Sonya said “It will be your money”, he also said that Sonya said: “I will pay you interest”. The payment of interest is conventionally associated with loans. William’s evidence was that he said: “Your mother and I have decided to lend you this money” and that Sonya could “repay it” when she was able. William said that Sonya replied that upon request and when she was in a position to do so: “I will return it to you with interest”.
Considered as a whole, these are clearly words of loan and not trust. There was no suggestion of any agreement that Sonya would hold the money as a separate fund capable of being the basis of a trust. On the contrary, William said “you can use it to pay off your mortgage”.
I am not satisfied that the evidence establishes that Sonya agreed to hold the $249,900 on an express trust for William.
William paid the $249,900 to Sonya by cheque. William says that if an express trust was not created, the words spoken at the time of the transaction obliged Sonya to repay the amount, so that it was a loan. Sonya’s response is that, if the circumstances in which the money was paid to her were capable of giving rise to a resulting trust, in her case a presumption of advancement arose as she is William’s daughter, and the evidence does not satisfy William’s burden of establishing that he did not intend to make a gift when he paid the money to Sonya. The learned authors of Jacobs’ Law of Trusts in Australia (8th ed) consider at [12]-[21] the uncertain state of the law as to whether the principles concerning resulting trusts apply to voluntary transfers of personalty. It is not necessary in the present case to attempt to resolve any juridical uncertainty on this issue. For the reasons that follow, I am of the view that the payment is now irrecoverable by William.
If the making of the payment to Sonya took effect as a gift because, as a matter of law, this is not a circumstance where a resulting trust can arise, then the payment is plainly not recoverable. If the circumstances may give rise to a resulting trust, then the question will be whether William has rebutted the presumption of advancement in favour of his daughter. In the face of the starkly different versions given by William and Sonya as to the circumstances in which the $249,900 was paid by William to Sonya, I am not sufficiently persuaded that William’s version reflected reality to be satisfied that William has rebutted the presumption of advancement, assuming it to apply. Accordingly, I would find that William made a gift of the money to Sonya.
If that view of the evidence were wrong, then the consequence would be that William made a loan of the money to Sonya that was repayable on demand, and is now statute-barred for the reasons considered above.
The evidence does not establish that William and Sonya conducted a running account as that concept is known to the law, such that the payment of the $249,900 was intended by both William and Sonya to be a payment as part of an enforceable series of payments, with the effect that at any time the one was liable to the other according to what the balance of the account was. I do not accept that Sonya’s reference to a running account in the course of her cross-examination was sufficient to justify a finding that there was a legally enforceable running account between the parties, as opposed to an informal reckoning of where the parties were in a long-running exchange of benefits within the family. In any event, as William did not plead a claim based upon a running account, it would not be appropriate for the court to permit him to make such a case adventitiously out of the results of Sonya’s cross-examination.
As to the payment of the $70,000 to Sonya, William gave the following evidence:
157. The payment to Sonya was at her suggestion. Sonya said words to the effect of, “Dad, when you get your settlement monies from the Maritime Container Services case, pay it to me and then you don’t have to pay tax. Also, if it shows up in my account you will not have to declare it to WorkCover. I can give it back to you when you need it.” I agreed to give her the money on that basis, feeling confident that I could access that money at any time. I trusted her because she was my daughter who was also a solicitor who was giving me advice. I said to her, “Okay, if you think that is the best thing”.
158. I have advanced to Sonya about $320,000. I had thought that the monies were loaned to Sonya, but I have recently learned that it may be that the monies were actually held on trust for me by Sonya…
In her affidavit dated 12 April 2016, Sonya responded to William’s evidence concerning the $70,000 payment in the context of her evidence that she and her husband had loaned $267,555 to her parents. She said at par 49 that the $70,000 was a partial repayment of the loan.
The conversation that took place between William and Sonya at the time clearly contemplated, on William’s version, that he was making a loan to Sonya. William’s evidence was: “I had thought that the monies were loaned to Sonya, but I have recently learned that it may be that the monies were actually held on trust for me by Sonya”. That evidence implies that William himself thought that he made a loan, but he had recently received advice that a trust may have been created. In these circumstances, I could not be satisfied that Sonya agreed to hold the $70,000 on trust for William.
Sonya did not claim that William paid the $70,000 to her as a gift. She said that it was a partial repayment of a net debt that William and the deceased owed to Sonya and her husband at the time. I will consider Sonya’s claim that she made enforceable loans to William below.
Whether or not the payments that Sonya made to William and the deceased were legally recoverable, the evidence clearly establishes that Sonya made a substantial number of payments to or for the benefit of her parents. Either the $70,000 was a repayment of amounts loaned to William and the deceased, or it was effectively a gift and formed part of a series of reciprocal gifts made within the family. In either event, it would not now be recoverable by William.
If, on the contrary, the $70,000 was paid to Sonya as an enforceable loan, it was repayable on demand, and would now be statute-barred.
Consequently, William’s claim that he is now entitled to be paid $319,900 by Sonya fails.
It will be necessary to deal with the costs of this aspect of William’s claim below. It is not part of William’s claim for a family provision order, and in principle William should be required to bear his own costs of this aspect of his claim, and should be required to pay Sonya’s costs, which should have been borne by her personally rather than as trustee of the testamentary trust. I will return to this issue below.
Sonya’s personal claim against William
Sonya did not plead in her cross claim that William is indebted to her in her personal capacity. Nonetheless, she claimed in her 12 April 2016 affidavit that, as at that date, William was indebted to her and her husband jointly for the sum of $267,555. Sonya said that of this sum, $111,303.64 was advanced during the time that the deceased was alive. Sonya did not ask for an order that William repay the amount of the alleged debt, but only sought to rely upon her claim defensively as a set off against any indebtedness that William may succeed in establishing against her personally.
As William has failed in his claim against Sonya, the issue of whether Sonya has a right of set off does not strictly arise.
It is not in the circumstances necessary for the court to decide whether Sonya would have been permitted to rely upon this unpleaded set off claim.
However, I will explain why I would not have found that the evidence establishes that Sonya is entitled to enforce the repayment of the alleged debt claimed against William.
I accept that Sonya kept a record of payments that she and her husband made to or for the benefit of William and the deceased. Sonya said that she only recorded payments that were to be repaid, and had not recorded other payments that she accepted had been intended as gifts.
Sonya did not give evidence of specific conversations or other communications with William and the deceased that would be capable of establishing that there was an enforceable agreement that William and the deceased would be jointly liable in law to repay the amounts claimed by Sonya. The alleged debts are based on no more than assertions by Sonya as to the legal consequences of the payments having been made by Sonya and her husband.
I have noted that Sonya, in her 24 April 2017 affidavit, in which she provided supplementary evidence on various issues in support of her case, gave evidence in par 81 to explain why she did not include in her affidavit in support of her application for probate of the deceased’s will that the deceased owed a debt to Sonya and her husband. The explanation given was that after the deceased died, William said to her: “I will pay you the money we owe you”. If that statement was made by William it would not have had any effect on any debt legally owed by the deceased to Sonya and her husband. It was apparently a statement made after the payments relied upon by Sonya up to that time had been made. I do not consider that this statement, if made by William, would have imposed a legal obligation upon William to repay moneys paid by Sonya and her husband for the benefit of William and the deceased.
The legal consequences of the payments must be considered in the context that William made a gift to Sonya of $249,900 on 6 December 2004, and that the payment of $70,000 on 24 July 2006 was either a gift or a repayment of monies paid to or for the benefit of William and the deceased.
The evidence establishes that William and the deceased often relied upon Sonya to manage their affairs because of their limited command of English and their inexperience in financial dealings.
All of the payments that Sonya now seeks to recover were made when the relations between the members of the Bkassini family were reasonably amicable. Whatever may be the truth of the claims now made by Sonya concerning William’s conduct, the payments were made at times when family relations were sound.
Sonya did not seek to assert that the alleged debt was recoverable until she delivered her statement of facts in the application for judicial advice on 14 May 2015. That was some two years after her estrangement from William occurred, and appears to have been in response to the commencement of William’s application for orders under s 66G of the Conveyancing Act on 29 January 2015.
The High Court in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 laid down the following in relation to the issue of when the court should conclude that the parties to a transaction had an intention at the time they entered into it that the transaction would be enforceable at law as a binding contract:
[24] …Yet "[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts".
[25] Because the inquiry about this last aspect may take account of the subject-matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the "intention to create contractual relations" requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.
[26] In this context of intention to create legal relations there is frequent reference to "presumptions". It is said that it may be presumed that there are some "family arrangements" which are not intended to give rise to legal obligations and it was said in this case that it should not be presumed that there was an intention to create legal relations because it was a matter concerning the engagement of a minister of religion. For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition.
(References omitted).
I respectfully adopt the following observations of Pembroke J in McEvoy v McEvoy [2012] NSWSC 1494 concerning the applications of these principles in a family context:
[35] In this case, I do not think that the arrangement made between the first plaintiff and Bill McEvoy in relation to the acquisition and financing of the Jamberoo property amounted to a legally binding agreement. I am not satisfied that in the amicable family context that then existed, there was any contractual intention: Ashton v Pratt (No 2) [2012] NSWSC 3 at [32]. I repeat what I said in Conway v Critchley [2012] NSWSC 1405 at [6]:
The formation of a legally binding agreement requires something tangible. Among other things, there must be actual contractual intention by each participant as well as reasonable certainty of terms and subject matter. A loosely formed shared idea, based wholly or partly on common expectations, mutual optimism and misplaced enthusiasm, to which greed and the hope of financial gain may be added in varying degrees, is not a contract. Nor does a mere consensus amount to a contract: ABC v XIVth Commonwealth Games (1988) 18 NSWLR 540 at 548. It is of the essence of contract that there be a voluntary assumption by each participant of a legally enforceable duty: Ermogenous v Greek Orthodox Community [2002] HCA 8; (2002) 209 CLR 95 at 105. Even more formal arrangements may not amount to a contract if the requisite intention is absent: South Australia v Commonwealth [1962] HCA 10; (1962) 108 CLR 130 at 154.
I am not satisfied that the circumstances in which any payments were made by William to Sonya, or by Sonya and her husband to William and the deceased, justify a conclusion that objectively the parties to the transactions agreed that legally enforceable obligations to make repayments would arise. As I have said, Sonya acted as the informal financial manager for her parents. In aggregate, substantial amounts were paid each way. The payments that are the subject of dispute were all made at times when, at least at a practical level, the Bkassini family operated as a functioning family unit. I make that finding while fully acknowledging that there may have been an undercurrent of animosity that surfaced with intense open disputes from time to time. Intense, intermittent disputes within families are not necessarily inconsistent with families operating in a domestic fashion which is objectively intended by family members not to be subject to external legal enforcement.
I have concluded that in reality the maintenance by Sonya of lists of payments and receipts was no more than an orderly attempt to monitor the position from time to time as to the relativity of the payments made both ways to ensure some level of proportionality between what had been received and what had been given.
None of the conduct of the parties before 29 January 2015 is consistent with Sonya or William believing that they had made recoverable payments to the other.
If, contrary to my finding that the payments made by Sonya and her husband made to or for the benefit of William and the deceased were not objectively intended by the parties to be recoverable loans, those payments did give rise to enforceable debts, then the debts were all repayable on demand. As such, each individual debt will have become statute-barred if it was created more than six years before Sonya formally made a claim to recover it. It is in reality an artificial exercise in the circumstances of this case to attempt to determine a time when the limitation period ceased to run. Sonya has not pleaded a claim for the recovery of the payments that she says comprise the debt owed to her by William. At par 47 of her 12 April 2016 affidavit, Sonya asserted that she had lent her parents about $267,000, and in par 50 she said that she did not propose to sue William for the debt, and was prepared to offer a covenant not to sue. An exhibit to her affidavit contained a schedule of payments. William responded in par 2 of his 14 September 2016 affidavit by refuting Sonya’s claim. Sonya then in her 19 April 2017 affidavit asserted in par 5 an entitlement to rely upon the alleged debts owed by William as an “offsetting claim”, and an exhibit to her affidavit referred to evidence that the payments were made. In practical terms William subsequently joined issue with Sonya as to whether he owed her the debts claimed.
It is not necessary for the court to decide the issue of whether the limitation period has ceased to run, and if so when that occurred. It is sufficient to note that if Sonya is treated as having formally made a claim for repayment of the debt by relying upon it as an “offsetting claim” in her 19 April 2017 affidavit, and if William is treated by his response as having accepted that a claim was made on that date, then any of the debts that arose before 19 April 2011 will be statute-barred. According to my calculations, based upon the schedule of payments provided by Sonya in evidence, of the total alleged debts of $261,200.46, an amount of $243,966.73 of those debts arose before 19 April 2011. If my calculations are correct, the amount of Sonya’s claim which is not now statute-barred would only be $17,233.73.
In the circumstances, precision in calculation is not required. The point is that whatever may be the correct way to calculate how much of the total debt claimed by Sonya is now statute-barred, almost all of it is.
Sonya’s claim for unauthorised drawings by William
Sonya pleaded in her cross claim that William had made six unauthorised redraws for a total of $41,575 from the loan secured over No 93. In his defence William only admitted the last two transactions, which were for a total of $38,625. Half of that amount is $19,312.50. However, the parties agreed in the Joint Submission that the relevant amount was $20,857.50.
I interpret the Joint Submission to mean that the parties agreed that the interest on half of the unauthorised redraws was $2785.80, but William disagrees that he is obliged to pay any amount in respect of the interest. The basis of William’s position is expressed in the Joint Submission as: “As Sonya has frozen the account and William does not get the benefit of the monies, no interest should be payable”. I interpret Sonya’s response to be that, if the loan account has been frozen so that further redraws are not permitted, that is a result of a determination by the bank and not Sonya.
In my view, once William has agreed that he has made redraws on the loan account without the authority of Sonya as a joint debtor, and that half of the unauthorised redraws is $20,857.50, then, as well as the capital sum, William would be liable to account to Sonya for the interest on that amount that has been charged by the bank. It is irrelevant that for whatever reason William may no longer be permitted by the bank to make further redraws. He has received the benefit of the existing redraws, which have increased the aggregate amount of the loan, and accordingly the amount of interest that has been charged by the bank.
In her cross claim Sonya pleaded that William was liable immediately to account to her for these amounts, or alternatively that he was obliged to do so on the discharge of the mortgage. In his defence William did not admit this alternative claim by Sonya, but in his closing submissions he submitted that there would be a need for an adjustment for the two redraws when the mortgage was discharged. Nothing is said in the Joint Submission by William against the proposition that he is obliged to account for half of the amounts. He simply said: “Agreed”.
The nature of this aspect of Sonya’s claim changed after I reserved judgment. The court received a notification from counsel for Sonya that Sonya had reached an agreement with the bank that it would refund to her redraws made by William without authorisation of $38,625 (plus related interest and fees) and pay part of Sonya’s legal fees in connection with that dispute. Sonya’s position became that she no longer maintained this claim against William, but consequently his own financial resources would not be diminished by the need to meet this claim
Counsel for William responded to this development by acknowledging that the amount that William would be required to pay Sonya under her cross claim would be reduced. However, he submitted that the consequence would be that William would be liable to repay to the bank the amount by which Sonya’s claim had been reduced. Consequently, the total amount of William’s liabilities would remain unaltered. In principle, I accept that this submission is correct, although the evidence does not show what will happen concerning repayment of the bank.
Sonya’s claim for reimbursement of expenses
In her cross claim, Sonya claimed that she in her capacity as trustee had paid expenses in relation to No 93 and No 95 for which she and William were equally liable, and sought a declaration that William is required to reimburse her for half of those expenses. Prayer 1 of the claims for relief shows that this claim is made by Sonya in her capacity as trustee.
The Joint Submission records, in Item 1 of Schedule A, a partial agreement between the parties as to the amount that William must reimburse Sonya as trustee. William agrees to an amount of $57,038.83 but Sonya asserts that the amount owing is $61,055.14. The difference arises because William claims to have paid $8030.62 of the expenses recorded in the schedule compiled by Sonya himself, and says that the amount that he must reimburse the trust should be reduced by half of that amount, being $4015.31.
William did not claim in his statement of claim that Sonya as trustee was obliged to reimburse him for expenses that he had paid. Yet Item 6 in Schedule A to the Joint Submission concerns an amount owed by Sonya as trustee to William. I must assume that the parties have agreed that this item should be taken into account in determining the balance owing between William and Sonya as trustee. Schedule B describes the amount as an excess in mortgage payments for No 93 paid by William compared to the payments made by Sonya. Sonya apparently accepts that she is obliged to pay William $46,752.40. William claims that the proper amount is $50,768.71. The increase claimed by William represents half of the $8030.62 referred to in the preceding paragraph above.
If William did pay the $8030.62 in expenses that he claims to have paid, he would be entitled to be reimbursed for half of that amount from Sonya as trustee. That would logically justify a reduction of $4015.31 from the amount that he is obliged to reimburse Sonya. It would not additionally justify an increase in the amount that Sonya is obliged to pay him, as that would involve double-counting.
William says in Schedule A that the payments that he made are listed in Schedule D. The reference should have been to Schedule C. That schedule contains a list of 11 items that total $8030.62, and are identified by reference numbers in Exhibit SS-03, which contains Sonya’s records that were tendered in support of her reimbursement claim.
Schedule C contains an explanation that I infer is intended to provide a summary of both William’s and Sonya’s submissions on this dispute (without clearly identifying which is which). I infer that William says that the 11 items are all contained in Exhibit SS-02, which lists all of the alleged loans by Sonya and her husband to William that comprise the total debt of $267,555 claimed by Sonya that I have already dealt with above. William says that he used these monies to pay for the listed items. The point appears to be that, even if the money for the payments was provided by Sonya, it was provided as part of the alleged loans that Sonya does not now seek to recover in these proceedings. I infer that Sonya’s response is to say that she initially included the items in the schedule in Exhibit SS-02, but subsequently realised that the payments ought to have been characterised by her as payments made in respect of the expenses of the properties for which William was liable to reimburse her for 50%. Sonya relies on par 14 of her affidavit dated 20 June 2016, where she swears that she made all of the payments listed in the schedule in Exhibit SS-03. The schedule and the associated records show that three of the items appear in Sonya’s Visa statements and six items are referred to in Sonya’s diary notes. I am satisfied on balance that each of the payments was made by Sonya in relation to one of the properties. Sonya has corrected the error that she originally made in relation to her description of the payments.
I find that William is obliged to reimburse Sonya as trustee for $61,055.14, and William is entitled to reimbursement of $46,752.40. The difference is a balance of $14,302.74 payable by William to Sonya as trustee.
Sonya’s claims for shares in rent and lodger’s fees
Sonya claimed in her cross claim that William had received and retained more rent from tenants of No 93 and more fees from lodgers at No 95 than Sonya had as trustee, and she claimed that William is liable to pay half of the difference to her.
The claim is based upon Sonya’s equal co-ownership of both properties. Sonya pleaded that, between 18 May 2005 and 11 April 2013, William received rent from the tenants of No 93 of $185,512.78. The total rent paid in the period from 18 May 2005 to 30 November 2015 was $285,680.82. Sonya says that William’s entitlement to half of the rent was $142,840.41, so that William had received $42,672.37 more than his half share.
This calculation is based on the fact that William received all of the rent up to 13 April 2013 and Sonya received all of the rent thereafter.
In his defence to the cross claim, William pleaded that the payments of rent to him in the period up to 11 April 2013 were retained by him with the consent of Sonya, and were distributions of income of the testamentary trust. Alternatively, William alleged that he was paid the rent with Sonya’s consent under a common assumption that he would retain and spend the rent at his discretion, so that he would now suffer detriment if he were required to repay his excess share.
Sonya pleaded in her cross claim that William had also received and retained $61,130 paid by lodgers staying at No 95, so that he was required to pay her $30,565.
William’s defence to this claim was in substance the same as his response to the claim for rent.
Schedule A of the Joint Submission suggests that the parties agree that the amount of Sonya’s rent claim is now $21,354.06 (as Sonya has been continuing to receive the rent for No 93 and retaining all of it, so that over time the original imbalance in favour of William has been decreasing). Half of the amount of lodger’s fees received by William is $36,274.25.
William asserted in Schedule A to the Joint Submission that Sonya had admitted under cross-examination at an unidentified point in the transcript that the retention of lodger’s fees was a distribution of income from the trust. That assertion was denied by Sonya by reference to pages 95 and 96 of the transcript (which had nothing to do with the issue). The relevant part of the transcript is T 193.37-195.25. Sonya initially accepted that she allowed William to keep all of the lodger’s fees up until about May 2003 “on the proviso that he would pay some bills”. She denied that she had made a distribution of income to William under the trust. Sonya said that there was no income. The evidence does not make it clear whether in fact the trust earned income in any year in the strict sense of receipts less expenditures. No accounts for the trust were included in the evidence.
Clause 2.4 of the deceased’s will empowered Sonya as trustee to pay or apply the income for the benefit of an Income Beneficiary, which included William. Clause 2.8 defined income, relevantly, as including receipts of money which is included in the assessable income of the trust for tax purposes, or is profit made by the trustee in accordance with the relevant taxation laws. It is likely, technically, that the gross amount of rent or lodger’s fees was not income for the purposes of the will, without a reduction being made for relevant expenses. Strictly, Sonya probably could not have applied the whole of the rent and lodger’s fees as distributions of income to William. The evidence does not permit a determination of whether any parts of the amounts paid to or retained by William could have been distributions of income (on the basis that the receipts exceeded relevant expenses). Clause 2.9 permitted Sonya to make determinations orally or by written instrument, but she was required to keep a written record of all determinations. There is no evidence of determinations to distribute income to William.
I find, however, that the reality of the matter is as set out in a letter from Sonya’s solicitors to William’s solicitors dated 10 October 2013 in which they said that: “Until recently our client remitted the entirety of this income to William, on the basis that William would use it to pay the utility bills on behalf of the Estate and retain any extra. His retention of these funds represents a discretionary payment of the income of the Estate to William by our client, in accordance with her powers under the trust deed…Our client continued with the arrangement despite the fact that William frequently failed to pay some utility accounts”. Sonya responded to this statement by her solicitors by insisting that there was no income, but she admitted that she approved the letter. Sonya insisted that she was not now claiming back the money that she had effectively paid to William as a discretionary payment.
Although Sonya’s solicitors’ letter did not contain the same description of the basis upon which William was initially permitted to keep and spend the rent from No 93, I am satisfied as a matter of fact that the same arrangement was agreed to between Sonya and William in respect of the rent. While William was in a position to collect lodger’s fees in cash in respect of No 95, he would not have been paid the rent for No 93 by the tenants or managing agent without the knowledge and consent of Sonya.
In my judgment Sonya allowed William to receive and spend the rent for No 93 and the lodger’s fees for No 95 until the schism between the parties that occurred in May 2013. I am satisfied that that arrangement was intended by Sonya to be an informal distribution of the income of the trust to William.
The evidence is unclear as to what, if any, agreement was reached concerning William paying outgoings in respect of the two properties out of the income that he received. In particular, the evidence does not permit with any confidence a determination of whether William had agreed to pay all of the outgoings. All that can be said is that, as a result of these proceedings, William will be required retrospectively to pay the balance of his half of the outgoings.
I am not satisfied in these circumstances that Sonya has established that William has a liability to repay to her half of the amounts of rent and lodger’s fees that William received before May 2013.
The evidence establishes, however, that between 7 May 2013 and 2 October 2013 William received $7000 in lodger’s fees for the period after his dispute with Sonya commenced. On balance, I am not satisfied that Sonya agreed that William could retain this money as if it were a distribution of income from the trust. William is liable to pay Sonya half of this sum, being $3500.
There is some evidence that William has been able to earn income from lodger’s fees after the period dealt with in the Joint Submissions. Although the amount received has not been quantified, William’s final written submissions refer to William’s capacity to earn $400 per week from taking in lodgers. In the absence of satisfactory evidence of the amount of any additional lodger’s fees received by William, I am unable to take any such receipts into account.
I note that in Item 8 of Schedule A to the Joint Submission, William claims an amount of $8000 as an adjustment in rent, which I understand relates to rent received by Sonya in respect of No 93 that has not been included in any of the other adjustment calculations. William did not plead an entitlement to this amount, and his claim is disputed by Sonya on the ground that any rent that was received by her has been used to pay expenses, including in relation to No 95. In the circumstances I do not accept that William has established an entitlement to this amount.
Sonya’s claim for an occupation fee from William
Sonya pleaded in par 14 of her cross claim that, on or around 8 May 2013, William excluded her from No 95 by changing the locks, putting a chain on the back door, and threatening to kill her if she went to the property.
Sonya claimed an occupation fee, or alternatively mesne profits, measured by reference to the market rent of the property being between $920 and $1040 per week. The amount claimed to 2 May 2017 was $88,850. Sonya claims $450 for each subsequent week. She gave evidence that she calculated the amount of the claim by taking half of the midpoint of the range given in a number of market rent appraisals that were received into evidence. The calculation took into account increases in the rent appraisals over time.
The amount claimed was based upon full market rent, and not the amount that a tenant could be expected to pay if the tenant was required to share occupation of No 95 with William as the co-owner of the property.
In his defence to the cross claim, William denied that he was liable to pay an occupation fee. He denied that he excluded Sonya. He alleged that Sonya had no genuine desire to occupy the property. He offered to make a key available to Sonya if she genuinely wished to occupy the property.
Principles governing entitlement of one co-owner to an occupation fee
The Court of Appeal in Callow v Rupchev [2009] NSWCA 148, in a joint judgment of Beazley and Basten JJA and Handley AJA, set out the traditional basis upon which an occupying co-owner may be ordered to pay an occupation fee to a co-owner not in possession in the following terms:
[31] The traditional grounds for charging an occupying co-owner with an occupation rent, for the benefit of a co-owner who was not in possession, were an actual ouster by the occupying co-owner which prevented the other co-owner from exercising his or her right to possession, a constructive ouster by denial of title, and a claim by the occupying co-owner to be recouped for his expenditure on permanent improvements which had increased the value of the property. The relevant principles, and the decisions on which they are based, were reviewed in Luke v Luke (1936) 36 SR (NSW) 310.
Their Honours added:
[46]Under the traditional principles an actual ouster by the occupying co-owner involved a civil wrong, either a trespass to the person by assault or battery, or a physical obstruction which prevented the absent co-owner from exercising his right to occupy the property: Jacobs v Seward (1872) LR 5 HL 464 at 472–3…
The principles had earlier been set out somewhat more fully by Beazley JA (as her Honour then was), with whom Stein JA agreed, in Biviano v Natoli (1998) 43 NSWLR 695 at 700, in the following terms:
A tenant in common is entitled to exercise acts of ownership over the whole of the common property without liability to be called upon to account in respect thereof: Luke v Luke (1936) 36 SR (NSW) 310. This general rule will be displaced, however, where a tenant in common has wrongfully excluded a co-tenant from exercising the right to occupation. At common law a co-tenant so excluded could sue for ejectment and for mesne profits: Goodtitle v Tombs (1770) 3 Wils KB 118; 95 ER 965, and could also bring a partition suit to charge the occupying co-tenant with an occupation rent: Pascoe v Swan (1859) 27 Beav 508; 54 ER 201. Long Innes CJ in Eq in Luke v Luke said at 314: “by excluding [a] co-owner from the exercise of his legal rights the tenant in common who so excluded his co-owner had committed a legal wrong".
Long Innes CJ in Eq rejected the proposition that a co-owner who remained in occupation of property was, by that circumstance alone, subject to an occupation fee. An entitlement to an occupation fee only arose where there was conduct sufficient for the court to infer a denial of the claimant's title: see Chieco v Evans (1990) 5 BPR 11,297; Jones v Jones at 441 per Lord Denning MR. In Forgeard v Shanahan (1994) 35 NSWLR 206 Meagher JA reiterated the principles which govern the right to claim an occupation fee. His Honour stated at 223:
... Turning to the liability of a co-owner in occupation to pay an occupation fee, the position at law is fairly clear. He was not liable unless he excluded his co-owner, in which case he rendered himself liable in ejectment and for mesne profits, or if he constituted himself a bailiff, in which event he would be liable in an action of account, like any other bailiff: Re Tolman's Estate (1928) 23 Tas LR 29 at 31; Rees v Rees [1931] SASR 78 at 80-81. Indeed, the whole bias of the law against making a co-owner in occupation liable to account is precisely based on the rationale that if such a liability were to exist a co-owner could, by abstaining from entering into occupation, turn his co-owner into an involuntary bailiff. As far as equity is concerned, an occupation fee will be exacted in at least two circumstances: first, in a partition suit (or related litigation): if there has been an exclusion, the tenant in occupation will be charged with an occupation fee (see, eg, Pascoe v Swan (1859) 27 Beav 508; 54 ER 201); this is an example of equity following the law; and secondly, if the owner in occupation claims an allowance in respect of improvements effected by him, equity will permit such an allowance only on terms that he is accountable for an occupation fee - this is an example of he who comes to equity having to do equity: see Teasdale v Sanderson (1864) 33 Beav 534; 55 ER 476.
There was no real dispute as to the correctness of these principles.
The Court of Appeal in Callow v Rupchev observed at [32] and [33] that the traditional grounds for determining when an occupation fee was payable became established in cases between siblings and other relatives, decided before significant changes in the law and cultural changes concerning home co-ownership between domestic couples, whether married or otherwise, after the Second World War. Their Honours then considered at [35] to [61] what they described as “‘new’ principles, based on cases dating from the 1970s” that “have established that a forceful ouster is not necessary where the domestic relationship has broken down and one co-owner, for practical reasons, can no longer live in the property with the other, and leaves”.
The Court of Appeal concluded the following:
[59] In McKay v McKay [2008] NSWSC 177, Brereton J reviewed a number of the authorities discussed above and concluded at [51]:
I, therefore, agree with Purchas J in Dennis v McDonald and Beazley JA in Biviano v Natoli, that the basic principle that a tenant in common is not liable to pay an occupation rent by virtue merely of his being in sole occupation of the property does not apply in the case where a matrimonial or similar relationship has broken down and one party is, for practical purposes, excluded from the family home. Upon breakdown of a domestic relationship, if it becomes no longer reasonable or practicably sensible to expect the partners to co-occupy the one property, the one who remains in possession may be taken to do so to the exclusion of the other, and to be liable to pay an occupation fee. At present, however, Biviano would seem to restrict that to a case in which the exclusion was not authorised by a court order — whether under matrimonial legislation or an [apprehended personal violence order].
[60] This statement of principle may be accepted, subject to the qualification that, viewed in the context of the broader authorities, Biviano should not be seen as restricting the allowance of a notional occupation fee to those cases where the exclusion was not required or authorised by a court order. That conclusion accords with the statement of the law set out by K Gray and SF Gray, Elements of Land Law (5th ed, OUP, 2009) at [7.4.44] in the following terms:
To this basic common law principle of rent-immunity between co-tenants there emerged, over the years, a number of overlapping exceptions, most of which involved some trauma in the personal or family relationship of the co-owners. It came to be accepted, for instance, that an occupation rent is payable by a co-tenant whose sole occupation was achieved by the intentional ouster or violent exclusion of another co-tenant or where termination of a personal relationship made it “unreasonable” to expect continued joint occupation. Likewise a co-tenant who claimed credit for improvements, repairs or mortgage outgoings paid on the co-owned land was normally required to give credit for a notional rent to be assessed in respect of any sole occupation which he had enjoyed.
The development in the law that recognises an entitlement in a co-owner in a domestic context to receive an occupation fee when forced to leave because of the breakdown in the relationship with the co-owner, and without the need to establish forceful ouster, reflects the reasonable expectation of the co-owners to enjoy equal and complete occupation of the property and the real loss and cost to the excluded co-owner from the fact of exclusion from the enjoyment of the expectation.
Sonya relied upon the authorities that have established the ‘new’ principles that I have considered, but those principles will not usually be appropriate for the situation where a domestic co-owner is not forced to leave the property held in common, but the co-owner dies and their interest in the property devolves to a party other than the remaining co-owner.
The nature of the problem may be illustrated having regard to the decision of the House of Lords in Jacobs v Seward (1872) 5 LR HL 464, which the Court of Appeal in Callow v Rupchev cited at [46] as authority for the traditional principles governing actual ouster. The House of Lords held that, where there were two co-tenants of fields used to grow grass for hay under leases from different co-owners, one co-tenant could not sue the other in trespass where the other grew grass on the whole of the land held in co-tenancy, and harvested and removed the grass for use as hay. That was so as long as the defendant co-tenant did nothing to exclude the plaintiff, and only used the land for its proper purpose, and did not in any way destroy the common property. The only action available to the plaintiff was a statutory action for an account in relation to the profits from the use of the common property.
It is not warranted that the court be required to engage in a minute examination of all of the allegations made by Sonya and the responses of William concerning the relationship between William and the deceased over the many years covered by the evidence. It will be sufficient to consider the principal aspects of that evidence.
Evidence of Sonya and her witnesses
In her affidavit dated 12 April 2016, Sonya gave evidence that William and the deceased were ‘separated under the same roof’ and she exhibited a Social Security Job Search Allowance Claim made by the deceased in 1993 in which the deceased ticked a box stating her marital status as ‘separated’. She said that there were many incidents of domestic violence in their family home and that she observed William physically striking, pushing, and pulling the hair of the deceased. She recounted an incident during 2005 when William pushed the deceased and screamed at her ‘I can’t wait until you die and in the ground so I can be done with you’.
To support her claim Sonya provided a copy of a letter dated 25 September 1991, provided to her by a constable at the Marrickville Police Station. In the letter, the constable said that the Marrickville Police had attended No 95 on several occasions for domestic violence problems.
Sonya also gave evidence of William being unfaithful to the deceased with a woman named Layla, and suggested that William may have had an affair with a woman named Linda Khoury.
In response to the assertion made by William and several of his witnesses that William looked after the deceased when she became ill, Sonya acknowledged that William assisted the deceased with ‘some home care’ and visits to the hospital and to the doctors, but said that William was only at the deceased’s bedside in hospital when he came with her or visited at her specific request.
Sonya’s account of the relationship between William and the deceased is supported by her brother, Sid Bkassini. Sid gave evidence of William being unfaithful to the deceased and being violent towards her on many occasions, including one incident where he hit her in the face with a closed hand and left her lying on the floor bleeding.
Mary Rose Barber, a solicitor who was the daughter of a friend of the deceased, gave evidence in her affidavit dated 26 May 2015 that the deceased often sought refuge from William in her parents’ house. She said that she had seen the deceased in a distressed state, crying uncontrollably and bruised on various parts of her body. She described two occasions upon which she saw bald patches in the deceased’s hair, and claimed that the deceased told her that William had pulled her hair so hard that it came out by the roots. She also said that the deceased told her that William said that he wished she would “hurry up and die” because he had Chinese women waiting for him.
Ms Barber said that she advised the deceased on how to unilaterally sever the joint tenancy of No 95 with William after the deceased “pleaded” with her for advice about how to protect her share of the property for the children. She said that she prepared the relevant documentation for the deceased and met with both the deceased and Sonya in early 1994, but did not lodge the document for registration. Sonya in her affidavit dated 12 April 2016 stated that she herself completed the registration.
Evidence of William and his witnesses
In his affidavit dated 14 September 2016, William admitted to having an affair in 1977 but said that he was never unfaithful to the deceased again. He said that he and the deceased were never estranged or separated. He described how he helped the deceased dress herself and get to appointments when she became sick, and did things around the house such as washing up. In response to Sonya’s claim that he told the deceased that he could not wait for her to die, William said: “I strongly deny ever saying such a thing…”
As to the allegations of abuse, William denied that he was violent towards his wife other than one “incident in South Hurstville some 40 years ago”. He said that the only times that an ambulance was called to their home in South Hurstville were to take the deceased to hospital when she was about to give birth and when she experienced a miscarriage.
During cross-examination, counsel for Sonya asked William whether he hit the deceased with a closed fist during the incident in South Hurstville. William denied hitting his wife with a closed fist during that incident and indicated that he hit her with the back of his hand.
Counsel for Sonya also asked William if he remembered an apprehended domestic violence order in 1992. William said that he remembered and said that he often got into fights with his children. Counsel then asked him if he hit or slapped the deceased when these fights occurred. William said that he pushed the deceased when she intervened in the fights.
Sam Bkassini, in his affidavit dated 13 September 2016, gave evidence that he never witnessed William lay a hand on the deceased and went so far as to say that he “personally would have attacked him had he done so as would have Sid”. He also gave evidence that he was aware of the affair that William had with a woman named Layla, and that William had said that it was a mistake of which he was not proud. He said that William had always denied having an affair with Linda Khoury.
Sam Bkassini’s wife, Maria Bkassini, gave evidence in her affidavit dated 13 September 2016 that the deceased never mentioned being separated from William and that William helped his wife in the kitchen and around the house, and with getting out of bed, after she became ill.
William’s remaining witnesses consisted of various other relatives and friends. These witnesses included: Camille Hawa, the brother-in-law and second cousin of the deceased; Gaby Hawa, Mr Hawa’s daughter and a niece of the deceased; Hanna Nader, one of Mr Hawa’s nieces and a family friend of the Bkassinis; and Elias Sarkis, William’s first cousin. Each of these witnesses gave evidence that they never knew the deceased and William to have separated and that William looked after the deceased when she became ill. Ms Nader and Mr Sarkis in particular gave evidence that they never recalled hearing or seeing William being violent or abusive to the deceased.
William also called George Ghossein, the brother of Mary Barber. Mr Ghossein gave evidence in his affidavit dated 14 September 2016 that he never witnessed or heard of William being violent or abusive towards the deceased. In response to Ms Barber’s claim in her affidavit that she witnessed the deceased in a distressed state, Mr Ghossein said that he never saw the deceased in such a state, and never witnessed the deceased crying or bruised.
Parties’ submissions
William submitted that his “relationship with the deceased was not as bad as claimed by the defendant”.
William acknowledged that there was an incident where he assaulted his wife in 1978, but submitted that Sonya and Sid, who gave evidence of the event, were respectively three and five years old at the time. William also acknowledged that an apprehended violence order was taken out against him in 1992.
William submitted that Sonya embellished her evidence to portray his relationship with the deceased as worse than it was. He relied upon the evidence outlined above to support his claim that he and the deceased were never separated, and that he looked after her during the course of her terminal illness. William said that Sonya, if she had been honest, would have originally included the details of her parents’ relationship in the later years of the deceased’s life that she disclosed in cross examination.
Sonya submitted that the history of violence could be well established on any reading of the evidence as a whole. She referred to formal documents in which the deceased stated that she and the plaintiff were separated and the apprehended personal violence order in 1992.
Sonya drew attention to the fact that, in cross examination, William denied hitting the deceased with a closed hand but did not appear to deny hitting her with an open hand. She relied upon the evidence given by Mary Barber and by Sid. She said that Sam “had a significant interest in the outcome” of the case, appearing to suggest that he coloured his evidence for that reason. She also said that the court could infer that William was violent to the deceased from his admission that he hit Sid when he was fourteen or fifteen years of age.
Both parties also submitted that the relationship between William and deceased should be characterised by having regard to the wishes of the deceased contained in her will and memorandum of wishes. William submitted that the memorandum of wishes establishes that the deceased wished to provide for William. Sonya submitted that the deceased “plainly made a deliberate decision to put the binding part of her testamentary intention in the Will and the rest in an expressly non-binding memorandum of wishes”.
In closing oral submissions, counsel for Sonya submitted that the testamentary disposition of the deceased should be viewed through the prism of the deceased intentionally giving the defendant the power to determine how her estate should be administered. The will, he argued, was the true expression of the deceased’s testamentary disposition, and the memorandum of wishes was intentionally executed to be non-binding. Sonya’s argument in essence was that the deceased did not intend to leave any property to William and intended to give Sonya the power to decide the circumstances in which William should be provided for.
I concluded earlier that the deceased did want William to enjoy the benefit of her estate during his life but wanted to ensure that he did so in a manner that preserved her capital for the benefit of her children. I have not accepted Sonya’s argument that the essence of the deceased’s testamentary intention was that William should only enjoy such benefits from her estate as Sonya for her own reasons determined from time to time were suitable.
It is necessary to put the evidentiary dispute between the parties as to William’s conduct and its significance to his application for a family provision relief into a proper context.
In the usual case, the significance of the applicant’s character and conduct towards the deceased will arise at both stages of the process of determining the applicant’s claim, in circumstances where the applicant’s case is that the testator has made a provision for the applicant that is less than the provision that is adequate for the proper maintenance, education and advancement in life of the applicant and in circumstances where that outcome is what was intended by the testator. In that context the question will be whether the testator was justified in making the provision that he or she did by reason of the testator’s consideration of the significance of the applicant’s character and conduct. If that is the issue, it may generally not be necessary for the court to engage in a thorough investigation of the character and conduct of the applicant over a period that may run into decades. Speaking generally, it may be sufficient if relatively isolated examples of character and conduct are established that are judged to be sufficient to support the testamentary determination made by the testator.
In my view the issue of William’s character and conduct has been raised in the present case in a different context. That context is whether William’s character and conduct in relation to the deceased was so reprehensible as to disentitle him from any family provision order, and to leave him to survive on the adequacy of his own resources, notwithstanding that the deceased expressed an intention that he enjoy the whole of her estate during his lifetime, without having access to the capital, subject to the discretionary judgment of her trustee to be exercised on the expressed wish that she would use her best endeavours to implement the memorandum of wishes.
The difference may be thought to be subtle, but in my view the forensic consequences are significant. The question is not whether there is sufficient evidence of bad character or conduct to justify the provision made by the testator and to decline to alter the effect of the will. The question is whether the character and conduct is sufficiently reprehensible to deny the applicant what the testator intended.
Quite apart from the fact that the testator will almost always be the best judge of this question, with whose judgment the court should be loath to interfere, it is not likely to be a realistic subject-matter for reliable forensic judgment on the part of the court. The evidence covered a period of at least 14 years between the matters referred to in the Marrickville Police letter dated 29 September 1991 and the death of the deceased on 18 May 2005. It would be necessary for the court to conduct a far reaching and detailed enquiry before it could make balanced findings concerning the nature of William’s conduct in relation to the deceased.
There is no reason for the court to reject the evidence of any of the witnesses entirely, and I do not understand the parties to have submitted that the court should do so. I broadly accept that all of the witnesses have attempted to give honest evidence of their recollections, but the court has no means of judging the extent to which individual recollections have been coloured by personal relationships and the passing of time. William admitted to one incident of infidelity many years before the deceased’s death, and the evidence before the court does not justify a positive finding that William engaged in further infidelity. William did not deny that there were instances of domestic violence, and it is likely that he has minimised the frequency and seriousness of his violent conduct. The court has no real basis for judging the extent to which William’s recollection is genuine, even if it is false. It is probable that there were a significant number of serious cases of violence that would individually be described as reprehensible. However, this conduct should be measured against the evidence of the many witnesses who gave what I accept to be genuine evidence that over long periods of time they had not experienced or become aware of improper conduct by William in his relationship with the deceased. I cannot see how the court can make any sound judgment about the overall seriousness of the delinquent conduct engaged in by William, balanced against the long passages of time when the many people close to him and the deceased did not experience that improper conduct.
That is why I have come to the view that the proper judge of this issue can only be the deceased.
Relationship between deceased and other persons who have claims upon her bounty
This is not a case where William’s claim must be measured against strong and deserving competing needs of other eligible beneficiaries. The evidence establishes that Sonya and her husband are relatively well off. Sonya has not made a case that she has exercised her trustee’s discretionary powers in the manner that she has because of some unexpected change in the circumstances of the beneficiaries of the trust that has caused her to decide that it would be proper for her to distribute part of the trust to the other beneficiaries in preference to William. Sonya has given no evidence of any plan to distribute the assets of the trust to any other beneficiaries during William’s lifetime.
Sam gave evidence that he does not want to receive any distribution from the trust in preference to his father.
Sid gave evidence of his circumstances in an affidavit dated 22 April 2017. Sid said that he and his wife currently owe the defendant and her husband about $35,000, and said that his home requires a lot of repairs and improvement. He said that two of the motor vehicles he owns require repairs, and that about three to four years ago the Child Support Agency determined that he should pay his wife, from whom he has been separated from time to time, $300-400 per week in child support.
Sid also gave evidence that he found it difficult to work due to being morbidly obese, having pain in his knees from arthritis, having high blood pressure and suffering from depression. He also gave evidence that he needs extensive dental work. A statement of his and his wife’s fortnightly income annexed to his affidavit described Sid as earning an estimated $1400 per fortnight, his wife earning $2387.15 per fortnight, and the two of them receiving $643.28 in allowances from the government. Their net income was listed as $4,430 per fortnight and their net expenditure as $5,137.96.
However, for present purposes it is significant that there is no evidence that Sonya has used her trustee’s power to distribute any of the trust’s assets to Sid at any time after the death of the deceased in 2005, or that she has any proposal to do so.
Adequacy of the provision made for William
The question is whether, for the purposes of s 9(2) of the Family Provision Act, the provision made in favour of William by the deceased out of the deceased’s estate is, at the present time, inadequate for the proper maintenance and advancement in life of William.
That question requires an affirmative answer for two reasons. First, given the length of time that William has lived in No 95, and the effort that he must have made in concert with the deceased to acquire the unencumbered title to that property, I am satisfied that William will not be able to acquire a new residence that is proper in the circumstances and still have an adequate buffer of capital to provide for future contingencies and to supplement his income, if a family provision order is not made.
The effect of the deceased’s will is that William has a half interest in each of No 93 and No 95 worth a total of $1,645,000. If a family provision order is not made and both properties are sold, William will have realisable net assets valued at about $1,352,000. This amount comprises William’s $1,645,000 interest in the properties minus expenses of approximately $293,000 (being the $397,500 in liabilities and expenditures referred to in par 340_Ref496342412 minus the $104,500 in repairs to No 95 referred to in par 338_Ref496343625, which will not be necessary if No 95 is sold). William will also have some prospect of realising the value of his Lebanon properties, income from his pension, and some benefit in sharing living costs with Ms Zhao. He has no prospect of receiving any further distributions by Sonya as trustee of the trust. In my view, this is not an adequate outcome for William’s proper maintenance and advancement in life, given the total original value of the net assets of William and the deceased, which they had accumulated over many years of mutual and strenuous effort.
Secondly, the measure of what would be the proper provision for William’s maintenance and advancement in life is the statement by the deceased in her memorandum of wishes and her instruction to her solicitor to the effect that William should be entitled to live in No 95 for his lifetime or as long as he chooses to live there, and that the income of the testamentary trust that the deceased established should be used for William’s benefit.
The deceased’s wishes should be given paramount effect in preference to the wishes of Sonya who, I am satisfied, has exercised her trustee’s discretion for her own reasons after many years of compliance with the wishes expressed by the deceased.
Stage two: what provision (if any) ought to be made?
The second stage of the two-stage process is to determine what provision (if any) ought to be made. As noted earlier, s 9(3) of the Act stated that:
(3) In determining what provision (if any) ought to be made in favour of an eligible person out of the estate or notional estate of a deceased person, the Court may take into consideration:
(a) any contribution made by the eligible person, whether of a financial nature or not and whether by way of providing services of any kind or in any other manner, being a contribution directly or indirectly to:
(i) the acquisition, conservation or improvement of property of the deceased person, or
(ii) the welfare of the deceased person, including a contribution as a homemaker,
(b) the character and conduct of the eligible person before and after the death of the deceased person,
(c) circumstances existing before and after the death of the deceased person, and
(d) any other matter which it considers relevant in the circumstances.
As envisaged by the majority in Singer v Berghouse, I have addressed many of these matters in my consideration of the first stage of the process. It is not in my view necessary in the circumstances of this case for me to repeat my consideration of these matters.
Once all of the issues raised by the parties in this case have been dealt with, as I have attempted to do above, the final question of what family provision order should be made in William’s favour becomes a relatively simple one.
First, I am satisfied that an adequate provision for the proper maintenance and advancement in life of William should include that William be entitled to live in No 95 for his lifetime if he chooses to do so, or in equivalent accommodation if he becomes unable to.
Secondly, the wishes stated by the deceased that William should be able to live at No 95 for life, and that her capital should be used for his benefit, should be respected, but so should her wish that her capital should be preserved for the benefit of her children. Consequently, the family provision order should not involve a gift of the deceased’s half interest in No 95 to William. It should be in the nature of a Crisp order. A Crisp order is an order that ensures that a person who is granted a life estate is not disadvantaged if they have to leave the property that is subject to the life estate, for example, if through old age they become unable to maintain the property and need to move into something smaller or into an aged care facility. In Dimic v Djekovic [2014] NSWSC 1502, Hallen J described the effect of a Crisp order as follows:
[172] What is described in the cases as a “Crisp order” is an order of the kind made by Holland J in Crisp v Burns Philp Trustee Co Ltd (Supreme Court (NSW), Holland J, 18 December 1979, unrep), except in part, in L G Handler and R Neal, Mason and Handler’s Succession Law and Practice in New South Wales (1985, LexisNexis Butterworths) at p 13580, at [9433]). Such an order gives an applicant an interest for life in real property, or in an interest in real property, with the right to it (should the need arise) for the purposes of securing, for the applicant’s benefit, more appropriate accommodation. That type of order is intended to provide flexibility, by way of a life estate, the terms of which could be changed to cover the situation of the applicant moving from her own home to retirement village to nursing home to hospital. The flexibility provided by such an order underlies the notion that a “Crisp order“ confers a “portable life interest“: Court v Hunt (Supreme Court (NSW), Young J, 14 September 1987, unrep), cited with approval by Ipp JA in Milillo v Konnecke [2009] NSWCA 109, at [47]–[48].
It will be appropriate for the parties’ legal representatives to give careful attention to any special terms of the order that should be included to accommodate the fact that William will own half of the title to No 95 outright, and be entitled only to a portable life interest in the balance.
As it is now inevitable that orders will need to be made for the sale of No 93, in order to pay the costs of the proceedings and to meet various other expenses, William will by virtue of his half ownership of that property retain an amount of capital without the need for any family provision order in that respect. I have estimated the amount that William will retain after various payments have been made to be $432,500, but the actual amount may be more or less depending upon what occurs, including the actual sale price obtained for No 93, and whether William is ultimately successful in realising the value of the properties in Lebanon. The amount of capital that William is able to maintain will provide some buffer for him against contingencies, and give him access to a capital amount for some level of discretionary spending.
William will receive income in periods during which he can find lodgers to live in No 95. William will retain an entitlement to receive a pension the amount of which will be affected from time to time by his additional capital, income from that capital, and income from licensing part of No 95 to lodgers.
That will be a reasonable outcome for William, but it will not have the effect that he will be able to live a prosperous life.
The value of the deceased’s half interest in No 95 will be retained for the benefit of the deceased’s children upon William’s death in accordance with her will.
William submitted that the family provision order should have the effect that he should receive the income from what remains of the deceased’s share in No 93 after it is sold. As I have explained above at par 329_Ref496344245, if the assessment of the trust’s financial position after the completion of these proceedings and the completion of all obligations occurs is approximately correct, the net assets will be reduced to about $55,000. There is no point in making an order that William be entitled to the income from that amount during his life, and in any event in my view it will be appropriate for the court not to make a family provision order in William’s favour that further limits the effectiveness of the testamentary trust created by the deceased. While it is true that the deceased stated her wish that the income of the trust be applied for the benefit of William, she also made the trust a discretionary one which gave Sonya power even in conformity with the deceased’s wishes to apply the assets of the trust for the benefit of beneficiaries other than William. It is appropriate that the deceased’s intention in this respect be implemented. It is most unfortunate that the assets of the trust have been depleted to the extent that they have, largely by the costs of this litigation.
I should record that during the parties’ submissions I raised the possibility that the court may be able to make orders that had the effect that William would become the sole owner of No 95, and Sonya would become the sole owner of No 93, by reason of a family provision order being made that transferred the deceased’s interest in No 95 to William on condition that he transferred his interest in No 93 to Sonya.
William supported that suggestion, but it was rejected by Sonya on the basis that unnecessary obligations to pay CGT and stamp duty would be triggered, and in any event the trust would not be left with any cash and would be required to sell No 93 to meet the costs of the proceedings and other expenses. I accept that when the effect of all of the transactions and obligations that I have considered above are taken into account there is no virtue in pursuing what the parties have called a swap order.
The result is that the only orders that I propose to make under the Family Provision Act that will affect the assets of the trust are a Crisp order in favour of William in respect of the trust’s half ownership of No 95, as well as an order that Sonya pay an appropriate portion of William’s costs of the proceedings on the ordinary basis, after an allowance is made for his failed claim against Sonya personally.
Should notional estate orders be made?
There will be no assets available to meet those orders unless the court is able to make notional estate orders against an appropriate part of the assets of the trust.
Essentially the whole of the estate of the deceased has been distributed to Sonya as trustee of the trust. Section 24 of the Family Provision Act has the effect that, if the court is satisfied that an order for provision ought to be made on the application, and finds that, as a result of the distribution, property became held by a person as trustee, or subject to a trust, the court may, subject to ss 27 and 28, make an order designating as notional estate of the deceased such property as the court may specify, being property which is held by, or on trust for, the person. It follows from the conclusions that I have reached above, that the conditions for the making of a notional estate order are satisfied in this case, subject to the question of whether ss 27 and 28 of the Family Provision Act are satisfied.
I do not understand Sonya by her submissions to have contested the fact that the requirements ss of 27 and 28 are satisfied in this case. In any event, I find that they are satisfied. The family provision order that I propose to make will not interfere with the reasonable expectations of any person in relation to property, as the combined effect of the deceased’s will and her memorandum of wishes is that the proposed order falls substantially within the benefits that the deceased contemplated would be enjoyed by William in the execution of the trust, so the other beneficiaries should have expected this outcome to occur: see s 27(1)(a). Nothing has been suggested to the effect that there will be any substantial injustice or lack of merit in making a family provision order in relation to the deceased’s interest in No 95: see s 27(1)(b). No other relevant matter has been suggested in opposition to such a notional estate order being made: see s 27(1)(c). The provisions in s 27(2) that concern prescribed transactions are not material in this case, and having regard to the value and nature of the deceased’s interest in No 95, there is no reason why the proposed notional estate order should not be made in relation to that property see s 27(2)(a).
In finding that the proposed notional estate orders will not interfere with the reasonable expectations of any person, I have proceeded on the basis of my understanding that William has not submitted that such orders should be made in respect of any part of the assets of the trust if the effect would be to deprive Sonya of the ability to recover any amount that she would otherwise be entitled to recover from the assets. In calculating the value of the assets in the trust that will be available to meet any family provision order made in favour of William, I have attempted first to exclude all amounts that the evidence suggests may be required to meet legitimate claims made by Sonya.
Section 28(1)(a) is satisfied because there are no assets in the deceased’s estate that would now allow the proposed family provision order to be made. The proposed notional estate order is not in excess of that necessary to enable the proposed family provision order to be made, as the two are coextensive: see s 28(2).
As William is only entitled to make the present application by virtue of an order made by the court under s 16(2) of the Family Provision Act, s 28(5) of that Act has the effect that the court may not make the proposed notional estate order unless it is satisfied that the assets of the deceased’s estate that have been distributed to Sonya as trustee are held by her as trustee only and that no part of the property to be the subject of the notional estate order has vested in interest in any beneficiary under the trust. It has not been suggested that any of the assets of the trust have become vested in interest in any beneficiary.
It will therefore be appropriate for the court to make a notional estate order under s 24 of the Family Provision Act in respect of the deceased’s interest in No 93 or its proceeds of sale to support the proposed family provision order in favour of William in respect of that interest.
It will also be necessary to make a notional estate order in relation to so much of the net proceeds of sale of No 93 as is necessary to support the proposed order in favour of William for an appropriate part of his costs of these proceedings. I am satisfied by parity of reasoning with that set out above that the court will be authorised by the Family Provision Act to make that notional estate order.
Proposed orders
Given the complexity of the issues dealt with in this judgment I will require the parties to confer and to prepare short minutes of order to give effect to the determinations that I have made.
In summary, it will be necessary for the orders to deal with the following matters:
(1)each of the findings that I have made in relation to the claims made by and against William and Sonya, and in Sonya’s case whether personally against William or as trustee of the trust;
(2)an order should be made under s 16(2) of the Family Provision Act that has the effect of extending the time for William to make his application under that Act up to the date when he filed the pleading in which he made that claim;
(3)a Crisp order should be made under s 7 of the Family Provision Act in favour of William in respect of the deceased’s interest in No 95;
(4)a notional estate order should be made under s 24 of the Family Provision Act in respect of the deceased’s interest in No 95 to support the Crisp order;
(5)an order should be made in favour of Sonya that an appropriate amount of her costs of contesting William’s application for a family provision order should be payable out of the assets of the trust on the indemnity basis;
(6)an order should be made in favour of William that an appropriate amount of his costs of his application for a family provision order should be payable by Sonya on the ordinary basis;
(7)a notional estate order should be made under s 24 of the Family Provision Act in respect of the net balance of the trust’s interest in the sale price of No 93 to support William’s order for costs;
(8)appropriate orders will be required to deal with the costs of the individual money claims;
(9)an order must be made under s 66G of the Conveyancing Act to provide for the sale of No 93 by trustees for sale (having regard to the fact that Sonya has withdrawn her interest in personally bidding for that property so long as it adjoins No 95 which will be William’s residence).
In-so-far as this list of matters to be dealt with in the court’s orders deals with issues of costs it may be regarded as provisional, as the present matter raises unusual costs issues in relation to which the parties have not yet made submissions. I will hear the parties on the question of the costs orders that should be made.
I will hear the parties on these outstanding matters, but they should proceed on the basis that the court will not welcome any continued unreasonable or unnecessary disputation.
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