Chen v Lu
[2014] NSWSC 1053
•06 August 2014
Supreme Court
New South Wales
Medium Neutral Citation: Chen v Lu [2014] NSWSC 1053 Hearing dates: 26, 27, 28 November 2013 (written submissions closed 11 December 2013) Decision date: 06 August 2014 Jurisdiction: Equity Division Before: Brereton J Decision: There should be (1) Judgment that the first defendant (as executrix of the estate of the late Hong Jie) pay the third plaintiff Hui Chen (as trustee of the Chen Superannuation Fund) the sum of $408,920; (2) Judgment for the second defendant An Shi Zheng on the third plaintiff's claim against him; (3) Order that by way of provision from the estate of the late Hong Jie Lu, the first plaintiff Hui Chen receive a legacy of $100,000; (4) Order that by way of provision from the estate of the late Hong Jie Lu, the second plaintiff Ella Chen receive a legacy of $225,000, such legacy to be held for her until she attains 18 years of age upon trust (by a trustee to be determined) to pay the tuition fees of her education at a private school, and such other proper costs of her maintenance education and advancement as the trustee may approve; (5) Order that the plaintiffs' costs assessed in the sum of $102,000 be paid out of the estate; (6) Order that the defendants' costs assessed in the sum of $58,000 be paid out of the residuary estate. Plaintiff to brng in short minutes to give effect thereto.
Catchwords: SUCCESSION - Family Provision - claims by estranged husband and by child of deceased - availability of real estate in China to satisfy order where deceased dies domiciled in NSW - eligibility of spouse where deceased dies before decree nisi becomes absolute Legislation Cited: (CTH) Family Law Act 1975, 90B
(NSW) Succession Act 2006, s 57, 59, 60, 64, 66Cases Cited: Andrew v Andrew (2012) 81 NSWLR 656
Balajan v Nikitin (1994) 35 NSWLR 51
Barder v Caluori [1988] AC 20; [1987] 2 All ER 440
Brown v Brown (1947) 64 WN (NSW) 28
In the Estate of the late Anthony Marras [2014] NSWSC 915
Fender v St John-Mildway [1938] AC 1
Re Fulop Deceased (1987) 8 NSWLR 679
Knowles v Knowles [1962] P 161
Hitchcock v Pratt [2010] NSWSC 1508
Luciano v Rosenblum [1985] 2 NSWLR 65
Re Mayo (deceased) and the TFM Act [1968] 2 NSWR 709
Singer v Berghouse (No 2) (1994) 181 CLR 201
Stewart v McDougall (NSWSC, Young J, 19 November 1987, unreported)
Taylor v Farrugia [2009] NSWSC 801
Vigolo v Bostin (2005) 221 CLR 191Category: Principal judgment Parties: Hui Chen (first plaintiff)
Ella Nalini Chen by her tutor Yen Chen (second plaintiff)
Hui Chen as trustee of the Chen Superannuation Fund (third plaintiff)
Hong Wei Lu as executor of the estate of the late Hong Jie Lu (first defendant)
An Shi Zheng (second defendant)Representation: Counsel:
Ms E. Cohen (plaintiffs)
Ms R. Winfield (defendants)
Solicitors:
Ren Zhou Lawyers (plaintiffs)
Access Legal Solicitors (defendants)
File Number(s): 2012/234639
Judgment
The deceased Hong Jie Lu (to whom for the sake of convenience I shall refer, without intending any disrespect, as Hong Jie) died, by suicide, on 29 February 2012, aged 41 years, leaving a will made 8 days earlier on 21 February 2012, probate of which was granted to her sister the first defendant Hong Wei Lu (to whom I shall likewise refer as Hong Wei) on 21 September 2012. By her will, Hong Jie (in the events which have happened) left the whole of her estate absolutely and beneficially to Hong Wei. By summons filed on 27 July 2012, the plaintiffs - Hong Jie's widower Hui Chen ("Mr Chen"), and their nine-year-old child Ella Nalini Chen ("Ella"), for whom no provision was made by the will - claim provision out of her estate and notional estate, and also an order for the return to Mr Chen in his capacity as trustee of the Chen Superannuation Fund of a sum of $300,000 allegedly paid by Hong Jie from the fund to the second defendant An Shi Zheng (who is Hong Wei's husband) on or about 11 April 2011.
Early history
Mr Chen was born in Cambodia on 24 April 1947, and is therefore now 67 years of age. He came to Australia on 18 March 1976, and thereafter established and carried on a practice in Chinese medicine.
At a time that the evidence does not disclose, but prior to December 1988, he and his then (first) wife Rose Houy Chen ("Rose") purchased 90 Nelson Street, Fairfield, which they occupied as their home. (The searches in evidence disclose its sale in 1989, and an on-sale in 2001; Mr Chen's affidavit evidence that he acquired the property in 1989 and sold it in 2001 appears to be an incorrect reconstruction from the documents, and an illustration of his unreliability. He admitted that his memory was poor, and my findings are generally based on the documentary record rather than the testimonial evidence).
On 7 December 1988, Mr Chen and Rose purchased vacant land at 44 Dalbertis Street, Abbotsbury for $68,000, subject to a mortgage. On 26 September 1989, they sold Nelson St, for $165,000, and discharged the mortgage. On 8 November 1991 Mr Chen and Rose purchased 136 Polding Street, Smithfield for $146,000, subject to a mortgage. This property remains an asset of Mr Chen today.
Mr Chen and Rose Chen were divorced on or about 9 May 2000, when orders were made in the Family Court at Parramatta by way of property adjustment between them, pursuant to which Rose on 18 August 2000 transferred to Mr Chen her interest in Polding St, and on 12 September 2000 her interest in Dalbertis St. Mr Chen thereupon refinanced both properties.
Hong Jie was born in China on 18 February 1971. She came to Australia in April 2001, sponsored by Mr Chen as a prospective partner. She had not by then accumulated any assets of significance.
Marriage
Mr Chen (then aged 54) and Hong Jie (then aged 30) were married on 9 June 2001. At that time, Mr Chen had the following property:
(1) his Chinese medical practice, which he had carried on since he first came to Australia in 1976, for some 24 years by the time of this marriage;
(2) Polding St, subject to a mortgage; and
(3) Dalbertis St, also subject to a mortgage.
Following their marriage, Mr Chen and Hong Jie lived in Polding St, from which Mr Chen also conducted his Chinese medicine practice. While there is no direct evidence of its financial performance until 2009, the circumstances that it was the family's only source of income and enabled the acquisition of properties and the servicing of mortgages, as well as funding domestic expenditure, suggests that it was prosperous, if not lucrative. Hong Jie did the bookkeeping for the practice, and some share trading (including for the superannuation fund following its establishment in 2007), but had no external employment and, so far as the evidence discloses, no independent income other than a modest wage for her work for the practice.
On 15 March 2002, Mr Chen purchased 209 The Horsely Drive, Fairfield East for $295,000, subject to a mortgage. On 8 August 2002, having built a house on Dalbertis St, Mr Chen sold it for $534,000, and discharged the mortgage. On 7 July 2003, Mr Chen completed the purchase of 31 Dale Street, Fairfield for $340,000, unencumbered, presumably funded from the proceeds of Dalbertis St. He and Hong Jie moved to Dale St, and Mr Chen thereafter conducted his practice from that address.
According to an application for finance to the St George Bank dated 30 October 2003, for a loan of $504,476 to fund the acquisition of land and construction of a home at Garment Street, Fairfield, to which Mr Chen and Hong Jie were both signatories, his income was $73,372 per annum from his practice and hers $900 per week from the same source, and their financial position was as follows:
Assets
$
ANZ Bank
3,012
Commonwealth Bank
32,581
Deposit paid (on Garment St)
13,000
31 Dale Street
400,000
209 Horsley Drive
470,000
136 Polding Street
370,000
Motor vehicles
37,000
Furniture
10,000
Commsec Account
51,056
CHESS holdings
206,705
Total
1,593,354
Less, liabilities
$
AIMS Home Loans (Polding St)
122,000
Homeside Lending (Horsley Dr)
296,000
Total
418,000
Summary
$
Total assets
1,593,354
Total liabilities
-418,000
Net distributable estate
1,175,354
Thus, after only a couple of years of a marriage to which Hong Jie had introduced no assets, when she had no source of income apart from Mr Chen's practice, and there was not yet any child, in excess of $1 million net had been accumulated, overwhelmingly attributable to Mr Chen's contributions.
On 30 January 2004, Mr Chen and Hong Jie completed the purchase in their joint names of land at 21 Garment St, Fairfield for $260,000. A home was built on the land; it was completed in March 2005, and became their family home until they separated. By 7 March 2005, although their mortgage loan from St George secured on Garment St had a limit of $504,476, it was drawn only to the extent of $407,725.
Ella was born on 8 October 2004 and is therefore now 9 years of age. She was the only child of the marriage. Hong Jie was her primary carer during the marriage.
Having caused Horsley Drive to be subdivided into two lots, Mr Chen transferred one lot to Irene Chen, a daughter of his first marriage, on or about 8 December 2004, nominally for $120,000 (but it is unlikely that any amount was actually paid), and sold the other lot on or about 17 March 2005 to third parties for $262,000. Although he said that this was in order to finance the building of the house at Garment St, that could not be so, as Garment St was by then complete; however, on 18 March 2005, $60,959 was paid off the St George loan, and that payment was probably sourced in the proceeds of Horsley Drive.
The Chen Superannuation Fund commenced on 7 May 2007. The trustees were Mr Chen and Hong Jie, who were also the members. It will be necessary to return to some aspects of the Superannuation Fund.
In the financial year 2008/09, Mr Chen's declared taxable income was $35,508, and Hong Jie's was $16,272.
On 8 July 2009, Mr Chen purchased in his own name Honda City Car HUI 88C for $28,900.
On 25 July 2009, Polding St was refinanced with St George.
In the financial year 2009/10, Mr Chen's declared taxable income was $16,998, and Hong Jie's was $12,417.
Unbeknownst to Mr Chen, Hong Jie operated accounts in her own name with the Bank of China, HSBC, St George and ANZ. In some she had term deposits, the ultimate disposal of which is described later. Large sums of money flowed through her HSBC accounts: the below table sets out a summary of the amounts deposited and withdrawn on annual basis (while I rejected, as evidence, the annexure to Mr Chen's affidavit of 12 November 2013 that contains a similar summary, using it as an aide-memoire I base the following on the source documents):
Year
Total deposits $
Total withdrawals $
2003
45,420
46,985
2004
73,750
50,504
2005
84,431
111,072
2006
95,220
107,400
2007
365,109
352,290
2008
154,528
169,708
2009
91,700
104,754
2010
30,108
24,749
Total
940,266
967,462
Although these cash flows seem quite disproportionate to the declared income of Mr Chen and Hong Jie, no suggestion was advanced that Hong Jie was receiving funds from some other source (although it may be that she was clearing cheques for others through her accounts: two payments out to Hong Wei in January 2007, of $15,000 and $10,881, appear to correspond with contemporaneous deposits). Save for $74,299 received on 21 March 2007, and $3,020 on 3 May 2007, apparently from her other sister Hong Yan, the evidence reveals no source of funds other than the income generated by the Chinese medicine practice, and the parties' properties.
Separation
Mr Chen and Hong Jie separated on 18 July 2010, but continued to reside under the one roof until 3 August 2011. Following their separation under the one roof on 18 July 2010, Hong Jie commenced to receive Centrelink payments.
On 2 January 2011, Hong Jie assaulted Mr Chen, and on 3 January, he made a statement to Police in relation to that assault. On 28 January 2011, an Apprehended Domestic Violence Order was made against Hong Jie, naming Mr Chen and Ella as the protected persons.
Hong Wei says that Hong Jie gave her, on or about 6 February 2011, a document containing an "agreement" between her and Mr Chen to divide their property to the following effect:
(a) Proceeds of sale of 31 Dale Street and 23 Garment Street to be divided 60% to Hong Jie and 40% to Mr Chen;
(b) 136 Polding Street to remain in co-ownership 40% to Hong Jie and 60% to Mr Chen, with Mr Chen to be responsible for all mortgage and interest payments;
(c) Upon sale of all shares, superfund to be divided 40% to Hong Jie and 60% to Mr Chen;
(d) Mr Chen to pay $450 per week living expenses, indexed to CPI annually; in default Hong Jie to get all the property from Mr Chen;
(e) Hong Jie to have no responsibility for any debts;
(f) Ella to be the beneficiary of 80% of Mr Chen's estate.
There is no evidence that this "agreement" was ever executed, let alone formally in a manner that would give it any binding effect under the (CTH) Family Law Act 1975; nor even that Mr Chen knew of or saw the document contemporaneously. However, between late 2010 and mid-2011 there was a de facto distribution of property between Mr Chen and Hong Jie, as summarised below.
Mr Chen retained his St George Freedom Offset account, which had a credit balance of $17,120 (as at 31 January 2011). Mr Chen also retained the Polding Street property, which at the hearing was agreed to be worth $510,000, subject to a mortgage to St George account number XXX XXX XXX securing $292,969 (as at 31 January 2011), representing a net amount to him of $217,031. Although it was contended that on 27 December 2010 Mr Chen lent to his then girlfriend Xiaodan Qui a sum of $9,000, the document tendered as proof of that transaction does not evidence a loan from Mr Chen, but a proposed loan from another lender.
On 17 December 2010, St George Term Deposit 035 005 1271, in the name of Hong Jie, was paid out, presumably in her favour, in the sum of $58,356. On 24 December 2011, $9,000 was withdrawn from HSBC online savings account 017-074980-412, in the name of Hong Jie. On 4 February 2011, HSBC term deposit account 017-074980-056, in the name of Hong Jie, was closed by a cheque payment, presumably to her, of $22,960. On 10 February 2011, ANZ Term Deposit Account 9893-31994, in the name of Hong Jie, was closed by a cheque payment, presumably to her, of $25,627. On 15 February 2011, ANZ Term Deposit Account 9679-99731, in the name of Hong Jie, was closed by a cheque payment, presumably to her, of $6,152.
On 12 May 2011, the sale of Garment St was completed, pursuant to contracts exchanged on 30 March 2011, for $775,000. $337,124 was repaid to the outgoing mortgagee St George Bank; this represented an amount of $340,000 which had been redrawn in November 2010 and deposited to the superannuation fund, but later (in April 2011) taken from it by Hong Jie in circumstances that will be described later. Hong Jie received $265,000, and Mr Chen received $92,902, from the balance purchase money; it is not clear what became of the deposit.
On 17 May 2011, Mr Chen signed a document acknowledging that he had received $10,000 from Hong Jie. Mr Chen denies having received a further $33,000 from Hong Jie on 20 June 2011, but his Freedom Offset account records a cheque deposit that day for $30,463.75, and a trace of cheque 62 for $30,000, drawn by Hong Wei, reveals that its final destination was Mr Hui Chen on 20 June 2011. It is likely that these two payments reflected some adjustment in light of the disproportionate share of the proceeds of Garment St initially received by Hong Jie.
On 24 June 2011, Mr Chen completed the sale of Dale Street for $410,000, to his brother and sister-in-law. $41,000 was deposited to his Freedom Offset account on 15 June, and $354,984 on 27 June 2011.
On 7 July 2011, Mr Chen transferred the registration of Honda motor vehicle HUI 88C to Hong Jie; it was later sold (by Hong Wei, as executrix) for $15,000.
The state of the evidence and the available documents does not permit precision or certainty, but from the foregoing it appears that, of the joint matrimonial estate, following separation Mr Chen received or retained the benefit of a total of $763,037 (or 65%), and Hong Jie received or retained $402,095 (35%) of the total identified pool of $1,165,132 (excluding the China properties and the Chen Superannuation Fund, which require separate consideration).
On or about 2 June 2011, the purchase of 14 Irene Crescent, Eastwood was completed in the names of Hong Jie as to a 4/5 share and Hong Wei as to a 1/5 share, pursuant to a contract dated 14 May 2011, for $775,000, in which Hong Jie was the only named purchaser. Hong Wei says that she contributed $77,500, being the 10% deposit, and stamp duty and other amounts to bring her total contribution to $187,992. This is corroborated by cheque butts and bank statements, and I accept that she made such a contribution. The balance purchase price was provided by a bank cheque for $697,635.97 drawn on the Commonwealth Bank. There is no direct evidence of the source of these funds, but it can be inferred that it comprised the $265,000 received by Hong Jie from the proceeds of Garment St, at least some of proceeds of the deposits she had retained, and a sum of $300,000 she had taken from the Superannuation Fund on 11 April 2011. Hong Jie then spent about two months renovating Irene Crescent, while she and Ella continued to reside under the same roof as Mr Chen, in premises which he rented following the sale of Garment St.
On 3 August 2011, Mr Chen completed the acquisition of his present residence at Kihilla Street, Fairfield Heights, for $440,000. He paid the deposit of $42,900 from his Freedom Offset account on 30 June, borrowed $264,000 from Homeside on mortgage loan, and paid the balance purchase money of $150,356 on 2 August, essentially from the proceeds of Dale St. On the same date, Hong Jie, with Ella, moved to Irene Crescent.
On 15 August 2011, Mr Chen paid $80,000 from his Freedom Offset account to his then girlfriend Xiaodan Qui, to fund a kidney transplant for her. This was followed by a further $30,000 on 18 October.
Divorce and death
Mr Chen and Hong Jie filed a joint divorce application on 12 December 2011. A decree nisi for dissolution of their marriage was pronounced on 6 February 2012, but had not become absolute at the time of Hong Jie's death on 29 February 2012.
The summons in these proceedings was filed on 22 July 2012. Hong Wei filed a summons for probate on 31 August 2012, and was granted probate on 21 September 2012.
Mr Chen remarried, to Xiang Tian, on 2 March 2013, they having on 23 January 2013 entered into a binding financial agreement under Family Law Act, s 90B.
The Estate
The Estate was sworn at $928,561.19, said to comprise the following:
Assets
$
Commonwealth Bank of Australia account
941.59
St George Bank account
63.60
Share account with MAN Series 9 OM IP220 Ltd
50,097.05
50% interest in Commsec account OAC-186192 for Chen Superannuation Fund
156,000.00
80% interest as tenant-in-common in 14 Irene Crescent, Eastwood
624,000.00
Total
831,102.24
No liabilities were declared. However, it will immediately be apparent that the values attributed to the assets do not correspond with the total ($928,561.19) attributed to the estate. Moreover, there are issues in respect of some of those assets, and as to whether others assets should be treated as part of the estate or are liable to be designated as notional estate.
Irene Crescent. While Mr Chen alleges that Hong Jie may have provided the whole of the purchase price of the Irene Crescent property, and that the 20% interest held in the name of Hong Wei is liable be designated as notional estate, this is disputed by Hong Wei; as I have found above, I accept that Hong Wei provided the deposit of $77,500 and the stamp duty and other contributions, and while the history of financial dealings between Hong Jie and Hong Wei is unclear - with evidence of the transfer of substantial sums between them in Hong Jie's HSBC account - I am unable to be satisfied that Hong Wei's contributions to Irene Crescent were sourced in funds received from Hong Jie. Accordingly, I do not accept that Hong Wei's 20% interest is liable to be designated as notional estate.
Since the date of Hong Jie's death, the Irene Crescent property has appreciated; the estate's 80% share is now agreed to be worth $840,000 (as per the table of assets submitted by counsel following the hearing; although the appraisal in evidence suggested that it was worth $810,000). Hong Wei has let the property for rent, for about $1,500 per month; it is not clear what she has done with the rent received, for which she is liable to account to the estate. Allowing 24 months at $1,500 per month produces $36,000, of which 80% ($28,800) is attributable to the estate.
Honda. In July 2012, Hong Wei sold the Honda motor vehicle, which was not referred to in the inventory, and received $15,000 into her own personal account, for which she is also liable to account to the estate.
$20,000. Shortly after Hong Jie's death, Hong Wei gave Mr Chen $20,000 cash which Hong Jie had apparently set aside in a tin for that purpose, and said to him "This is for Ella". Mr Chen spent $7,430 on Hong Jie's funeral expenses and expended the balance on Ella. While it appears to be common ground that this was an estate asset, it has already been distributed, and the plaintiffs' current financial position reflects its receipt.
Safety deposit box. Hong Jie had a safety deposit box with the Commonwealth Bank at Fairfield. The bank records contain evidence of its having been "accessed by client" on 2 May 2012, but Hong Wei denies that she did so, as she was then in China. In any event, there is no evidence of its contents or their value.
Testamentary expenses. Hong Wei paid, she says from her own pocket, funeral and testamentary expenses of $14,830 (graveyard and tomb), $3,213 (funeral expenses), $759.60 (legal fees), $343.12 (ambulance), $112.00 (death certificate), and $36.95 (miscellaneous), and to that extent is a creditor of the estate for the sum of $19,924.67. She says that there are also debts due to former solicitors ($275.00) and costs and disbursements of obtaining probate ($4,576.00).
The Chen Superannuation Fund
In order to ascertain the position between the estate, the Superannuation Fund and the plaintiffs, it is necessary to review fund transactions from 2010/11.
According to the fund's financial statements, which were prepared by an account, Mr Tran, who gave evidence, as at 30 June 2010 the fund had net assets of $527,026, comprising shares in listed companies of $64,359, other investments of $443,430, cash at bank of $33,273, less income tax payable of $14,036. Mr Chen's member's account was $501,967, and Hong Jie's $25,059.
On 11 November 2010, $339,495 was redrawn from Mr Chen and Hong Jie's joint St George (Garment St) home loan account 105 088 600 (which by then had been reduced to a virtually nil balance), and deposited to Mr Chen's Freedom Offset account, from which $340,000 was withdrawn on 12 November 2010, and deposited on the same day to the credit of the Chen Superannuation Fund Direct Investment account 12359527 with the Commonwealth Bank. On 18 November, $300,000 was transferred from the Direct Investment account to the Fund's Commsec brokerage account OAC-186192, and on 8 December $30,000 was paid by cheque from the Direct Investment account, which I infer (from the corresponding amount shown as "benefits paid" in the annual accounts of the Fund for the year 2010/11) was the payment to Mr Chen of his "allocated pension". On 22 December, a further $10,529 was transferred from the Direct Investment account to the Commsec account.
On 31 January 2011, Hong Jie paid $3,200 from the Direct Investment account to herself. On 21 February 2011, she paid $10,000 from the Direct Investment account by cheque to Hong Wei.
As at 28 February 2011, the Commsec Account had a value of $712,713, comprising "Equities" of $37,042, "Global Cash Balance" of $1,309, and "Global Securities" of $674,362. On 8 April 2011, $305,794 was repaid from Commsec to the Direct Investment account. On 11 April, Hong Jie withdrew $5,800 from the Direct Investment account, and paid $300,000 from that account by cheque in favour of Dan Shi Zheng, who is the sister of Hong Wei's husband An Shi Zheng, the second defendant. This cheque was deposited to National Australia Bank account no 082-204 16-451-2766 in the name of Dan Shi Zheng on 11 April 2011. That account had been opened on 25 November 2009, while Dan Shi Zheng was visiting Australia for three months, between November 2009 and February 2010. Dan Shi Zheng authorised her brother An Shi Zheng to operate her accounts.
On 13 April 2011, $295,000 was transferred from that account to National Australia Bank account no 082-204 16-451-2942, also in the name of Dan Shi Zheng, whence it was expended over the next fortnight in about 15 internet banking transfers, typically of $20,000 each, to an undisclosed recipient or recipients. An Shi Zheng says that he was unaware of these transactions at the time, but that he had since ascertained from his sister that they had been performed by her at the request of Hong Jie, and that the $300,000 was transferred to buy the house - meaning Irene Crescent. The timing of those transactions - shortly before the completion of the purchase in early June 2011 - and the absence of any other apparent source of funds for the purchase price, tend to support that explanation.
On 19 May 2011, Hong Jie withdrew a further $8,200 from the Direct Investment account, which thereafter had a virtually nil balance.
The financial statements for the Fund as at 30 June 2011 prepared by Mr Tran showed net assets of $452,910, said to comprise shares in listed companies of $64,359, other investments of $385,408, and cash at bank of $81. The balance of Mr Chen's account was $429,282 (after the payment of $30,000 benefits, and the impact of capital losses). Mr Tran did not include the $340,000 deposited in November 2010 in the 2011 accounts, because its status was unclear after its subsequent withdrawal by Hong Jie, consequent upon advise from him to her that there was no taxation benefit in a contribution of $340,000 to the superannuation fund for that year. He said that it would be necessary to lodge an amended return if it were decided that those moneys were an asset of the fund, but that as Mr Chen's interest was in the payment phase and the deposit was by way of undeducted contribution on his behalf, it would have no taxation implications.
The Fund's accounts as at 30 June 2012 show net assets of $453,034, comprising shares in listed companies of $64,359, other investments of $385,408, and cash at bank of $177 (practically no change from the preceding year). Mr Chen's account balance was $429,372, and Hong Jie's was $23,662.
Orders were made in these proceedings on 13 November 2012 that:
(7) The Plaintiff be permitted and these orders shall act as authority for him to draw such allocated pension from the Chen Superannuation Fund as he shall be entitled to draw within the provisions of the relevant superannuation and taxation legislation and the First Defendant sign all such documents as may be necessary to enable the Plaintiff to operate the said fund.
(8) The Plaintiff be permitted and these orders shall act as authority for him to operate the Chen Superannuation Fund within the provisions of the relevant superannuation and taxation legislation and the First Defendant sign all such documents as may be necessary to enable the Plaintiff to operate the said fund.
On 12 December 2012, Mr Chen withdrew $301,683 from the Fund - apparently the proceeds of sale of its shares - and deposited it to his Freedom Offset account with St George, whence it has been expended in a manner to which reference will later be made. So far as the evidence reveals, the Fund had no further assets. How only about $300,000 remained of what according to the accounts was $450,000 as at 30 June 2012 is unexplained. However, on 22 June 2012, Mr Chen had drawn a cheque for $313,630 on the Chen Superannuation Fund, and deposited it to his Freedom Offset account; but this was returned on 25 June, for reasons which the evidence also does not explain. The sum of $156,000 referred to in the inventory of property filed with Hong Wei's probate application in August 2012, which corresponds closely with (half of) the amount that Mr Chen apparently attempted to draw on 22 June, appears to be 50% of the balance remaining in the Commsec account at that point, which suggests that, despite what the accounts state, the Commsec account may have fallen to $313,630 by mid-2012; perhaps it was not reflected in the accounts if the losses had not yet been realised. From the fund's net assets as at 30 June 2012, Mr Chen has received payment of at least $301,683, which it would seem exhausted the remaining assets of the fund. The value of the investments as reflected in the 30 June 2012 accounts cannot have been fully realised. The reduction in the value of the assets would have eliminated the member account balances.
While the Constitution and Rules of the Fund were, in large part, in evidence, they were incomplete; in particular, most of the "definitions" section was missing. Submissions did not address in detail the rights, obligations and liabilities of the parties. Doing the best I can with the material available, it seems to me that (1) it was open to the trustees to pay Mr Chen's benefit to him, inter alia by way of "allocated pension", on retirement or once he attained 65 years of age (rules 3.2, 16.2(4)); and (2) Hong Jie was not entitled to receive any benefit until age 65, except in case of death or disablement.
Accordingly, there was no basis on which Hong Jie was entitled to a payment from the fund when she took the $300,000 in April 2011. The circumstance that the accountant Mr Tran may have advised her that the contribution was "unnecessary" - apparently on the basis that the practice did not need a deduction in that year - is beside the point. She could not, consistently with her duties as a trustee, authorise such a payment from the fund - a fortiori without the concurrence of her co-trustee. The payment was made by her, and received by her, in breach of trust and she (and her estate) is liable to account to the Fund for it, and interest. The same applies to the payments of $3,200 to herself on 31 January 2011 and $10,000 to Hong Wei on 21 February 2011, and the withdrawals of $5,800 on 11 April 2011 and of $8,200 on 19 May 2011. I allow interest in the sum of $81,720.56 (to 4 August 2014). In all, the estate is liable to account to the superannuation fund for $408,920.56 (inclusive of interest).
Mr Tran did not include the $340,000 in the accounts, because it had been withdrawn. However, it was contributed to the fund by Mr Chen, with the intention that it be an undeducted contribution, and became an asset of the fund; it is now transformed into a debt due from Hong Jie's estate.
The amount due from Hong Jie's estate is the Fund's only remaining asset and, as a contribution made by Mr Chen (directly from his St George Freedom Offset account), is credited to his member account balance, with the result that he now has a balance of $408,920. The estate has no asset in the Fund, but is liable to it for $408,920.
Originally, Mr Chen in his capacity as trustee of the Chen Superannuation Fund claimed an order that the second defendant An Shi Zheng return to the Fund the sum of $300,000 and interest. An Shi Zheng, though he was a signatory to the account in his sister's name, denied any contemporaneous knowledge of those transactions, and no evidence sheeted home knowledge or participation to him. Counsel for the plaintiff ultimately accepted that a case against him could not be sustained. There must be judgment for the second defendant on the claim against him.
The China properties
In an affidavit sworn on 12 March 2013, Hong Wei disclosed that there were three properties in China held in the name of Hong Jie, which had not been referred to in inventory of property because she believed that they belonged beneficially to Hong Jie's and her parents and family in China. For convenience they are described as Hua Cheng (an owner-occupied residential property), Tian Mao (a commercial property), and Wan Cheng (also a commercial property). According to appraisals tendered by the plaintiff, their total value is now approximately equivalent to $700,000. Hong Wei has transferred those properties into her name - she says to give effect to her obligations to her parents, presumably as trustee. Mr Chen alleges that moneys from his Chinese medicine practice must have provided the purchase price for the properties, as Hong Jie handled all of his financial affairs and he is aware of no other source of funds.
While it appears uncontroversial that the China properties were held in the name of Hong Jie, the admissible evidence as to their acquisition is very unsatisfactory; there are some documents in Chinese characters, which have not been translated; and much hearsay was tendered and rejected. What survives, which is largely given by Hong Wei, can be summarised as follows. Hong Jie had three siblings: her brother Lin Feng born 1973, Hong Yan born 1965, and Hong Wei born 1968. Lin Feng, his wife Lili Zhai and their 10-year old child live with his parents. After 1999, the parents were looking for a replacement home. They told Hong Wei that Hong Jie found the Hua Cheng property for them in 2006, and because Lin Feng was gambling, were going to put it in Hong Jie's name, "so Lin Feng can't touch it"; they said that they were concerned that if it were in their own names, Lin Feng could mortgage or sell the properties behind their backs and without their consent; and they told Hong Wei that they used their retirement savings, and compensation received for the resumption of their former property, to finance the purchase. Hua Cheng was purchased in April 2006 for the equivalent of about $100,000. They thereafter occupied it as their home.
Entries in a Chinese bank account in the name of Lili Zhai evidencing a deposit of RMB420,000 (equivalent to about $65,000) into an account on 1 December 2006 and the withdrawal of the same amount on 20 October 2007 were tendered by Hong Wei as "a copy of the bank statement registering the transfer of funds from my sister in law Lili Zhai's account ...". However, there is nothing to indicate the source of the RMB420,000. It is to say the least curious that Lili Zhai should be involved in handling the purchase moneys in this way when it was supposedly to keep the funds out of the reach of her husband Lin Feng that the property was to be placed in Hong Jie's name. Moreover, given that the funds were not withdrawn until October 2007, it is not possible that they provided the purchase moneys for the Hua Cheng property in 2006. It is more likely that they were applied to the purchase of Tian Mao in October 2007.
Mr Chen gave no evidence of his knowledge of this property, which is somewhat surprising since it was his wife's parents' place of residence, which he would presumably have visited when in China - although he did say that he was unaware of any property interest of Hong Jie in China other than Tian Mao.
According to Mr Chen, in 2008, he and Hong Jie travelled to China where they inspected a commercial property (shop) in Chang Chun called Tian Mao, and he agreed to her purchasing it for the approximate equivalent of A$200,000. According to Hong Wei, her parents told her in 2008 that they had decided to purchase Tian Mao for RMB1,287,300 (approximately equivalent to $200,000), of which RMB400,000 (about $60,000) was borrowed from Lili Zhai's mother Ning Yun Huan, RMB468,833 from their bank account, and the balance of about RMB400,000 in cash. There is a loan agreement with Ning Yun Huan dated 1 May 2007, for RMB400,000, which identifies the purchase of Tian Mao as the purpose of the loan. The mother's bank deposit book with the Industrial and Commercial Bank of China evidences withdrawals totalling RMB377,833: RMB232,618 on 27 October and RMB145,215 on 1 November. However, these were immediately preceded by a deposit of RMB392,350 (approximately $60,000) made on 5 October, which correlates with a transfer made by Hong Jie from her HSBC account to China through an intermediary Fang Yuan International on 2 October. Hong Jie made two further withdrawals of $50,000 each by cheque from her HSBC account on 5 October and 9 October, which could have been a source of the alleged "cash", though there is no other evidence that they were.
According to Hong Wei, her parents told her in July 2010 that they had decided to purchase Wan Cheng or RMB242,618 (the approximate equivalent of $37,000), and had "paid the purchase moneys from the family funds (on one version), and "from rental from the investment property" (on another). Yet a single entry in Lili Zhai's bank account - a withdrawal of RMB250,000 on 9 July 2010 - is tendered as evidence; there is nothing to show how that sum was accumulated. Mr Chen said he was unaware of this property.
Although Hong Wei's report of what her parents had told her was not directly challenged in cross-examination, she did agree that all three properties were now in her name; that she had informed the relevant Chinese authorities that they belonged to Hong Jie and that she was entitled to them under her will; and that no-one else had made a claim on them. The father is now deceased, and no attempt was made to adduce evidence from the mother (who is in her seventies and in China).
The explanation that the properties were purchased in Hong Jie's name to protect them from Ling Fen seems most unlikely: first, it is not apparent how they would be any better protected by being in her name than in the parents' names, since if (which itself appears improbable) he could sell or encumber it behind their backs if in their name, it is not apparent why he could not equally do so if in Hong Jie's name; and secondly, the apparent involvement of Lili Chai in handling purchase moneys is hardly consistent with the supposed fear that her husband's gambling might jeopardise the properties. The suggestion that RMB420,000 passed through Lili Zhai's account to fund acquisition of Hua Cheng is, on the dates of the bank transactions, not possible. Contrary to Hong Wei's version, at least $60,000 of the purchase price for Tian Mao was provided, not by the parents, but by Hong Jie, who was involved in finding each of the three properties. Hong Wei concedes that no-one else has made a claim on the properties.
While I am satisfied that Hong Jie contributed $60,000 towards the purchase of Tian Mao, and while there is evidence that she made other transfers to China (at least three through the Bank of China), particulars of which are not in evidence, I cannot on the state of the evidence be satisfied that she provided any other part of the purchase moneys for any of the China properties. That said, it being established that they were in the name of Hong Jie and are now in the name of her executrix, those who would contend that beneficial ownership resides elsewhere bear the onus, and where the properties are not claimed by any other person, and the explanation advanced for their having been held in Hong Jie's name and the account of their acquisition provided by Hong Wei is not credible, that onus is not discharged. Accordingly, I conclude that the China properties are assets of the estate, but - save as to $60,000 - I am unable to conclude that they were purchased with funds derived from Mr Chen.
The distributable estate
The plaintiffs' solicitor has estimated their costs at $102,000, excluding $66,000 provided for potential litigation in China, which I would not allow. The defendants' solicitor has estimated their costs at $62,578. While this includes costs in China, they are presumably in connection with the transmission of the properties into Hong Wei's name. It also includes the costs of probate, which have already been allowed as an estate liability. I propose to allow them at $58,000. In addition, it may be anticipated that there will be additional expenses associated with the sale of Irene Crescent and the administration of the estate, but they should not exceed, and may well be less than, $25,000.
Accordingly, the net distributable Australian estate should be regarded as follows:
Assets
$
Commonwealth Bank of Australia account
941
St George Bank account
63
Share account with MAN Series 9 OM IP220 Ltd
50,097
Interest in Chen Superannuation Fund
0
80% interest as tenant-in-common in 14 Irene Crescent, Eastwood
840,000
Debt due from executrix in respect of Honda motor vehicle
15,000
Debt due from executrix in respect of rent
28,800
Total
934,901
Less, liabilities
$
Hong Wei for moneys paid
19,924
Legal fees to former solicitors
275
Costs and disbursements of obtaining probate
4,576
Chen Superannuation Fund
408,920
Plaintiffs' costs
102,000
Defendants' costs
58,000
Provision for additional estate expenses
15,000
Total
608,695
Summary
$
Total assets
934,901
Total liabilities
-608,695
Net distributable estate
326,206
Accordingly, the net distributable estate in Australia is about $325,000.
In addition, there are the China properties worth about $700,000. (NSW) Succession Act 2006, s 64, provides that a family provision order may be made in respect of property situated in or outside New South Wales when, or at any time after, the order is made, whether or not the deceased person was, at the time of death, domiciled in New South Wales. In so far as this purports to make amenable to a family provision order property outside the State of a testator who dies domiciled outside the State, it has no sufficient connection with the State to be a valid exercise of the State's legislative power and, to that extent, is invalid [Balajan v Nikitin (1994) 35 NSWLR 51, 56; Hitchcock v Pratt [2010] NSWSC 1508, [12]-[17]]. However, in this case, Hong Jie died domiciled in New South Wales, and to the extent that s 64 extends the reach of the Act to immovables outside New South Wales of testators who die domiciled in New South Wales, it is not in excess of power [Balajan v Nikitin, 60-61; Hitchcock v Pratt, [19]]. No relief was in fact sought in respect of the China properties, but their existence as an asset of the estate may nonetheless inform the extent to which those having claims on the deceased's testamentary bounty have received and will receive provision, and thus what order should be made in respect of assets within the jurisdiction [cf Taylor v Farrugia [2009] NSWSC 801, [26]]. They also provide an asset to which Hong Wei can resort to meet the estate's costs, and thus can be relevant to what order is made in respect of costs [cf Taylor v Farrugia, [26], [74]].
The Will
By her will dated 21 February 201, Hong Jie gave the whole of her real and personal estate to Hong Wei "absolutely and beneficially" upon her surviving the testator by 30 days and appointed her as her sole Executrix. If Hong Wei did not survive for the said 30-day period, An Shi Zheng was appointed executor and given the estate upon trust to pay debts funeral and testamentary expenses and then to give the residue to Ella after she attains 18 years of age.
Succession Act - Family provision
Applications such as these for provision out of the estate of a deceased person have been described by the High Court of Australia (in the context of the (NSW) Family Provision Act 1982) in Singer v Berghouse (No 2) (1994) 181 CLR 201 as involving a two stage approach. The first requires the determination of the jurisdictional fact whether the applicant has been left without adequate provision for his or her proper maintenance, education and advancement in life, and the second - which arises only if the first is resolved affirmatively - involves the discretionary assessment of what provision ought to be made out of the estate for the applicant. However, as the High Court explained, similar considerations inform both stages of the process:
The determination of the first stage in the two stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the proper level of maintenance, et cetera, appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty. The determination of the second stage, should it arise, involves similar considerations. Indeed, in the first stage of the process, the Court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant.
Although there have been suggestions that subtle changes in the language now used in Succession Act, s 59, may have affected this [Andrew v Andrew (2012) 81 NSWLR 656], the prevalent view is that there is no change to the conventional two-stage approach [In the Estate of the late Anthony Marras [2014] NSWSC 915 [15] (Bergin CJ in Eq)]. That said, because the considerations relevant to both stages overlap, consideration of a family provision application does not always divide neatly into the two questions, as Callinan and Heydon JJ pointed out in Vigolo v Bostin (2005) 221 CLR 191, 192. Nonetheless, in an application under the Act, the Court must consider, first, whether the plaintiff is an eligible person; secondly, whether the plaintiff has been left with inadequate provision for his or her proper maintenance, education and advancement in life; and thirdly, if so, what (if any) provision or further provision ought to be made out of the estate for those purposes. The relevant principles and considerations were summarised by McLelland CJ in Eq, in Re Fulop Deceased (1987) 8 NSWLR 679, 679:
In making these determinations, the following principles apply: First, the Court should not interfere with the dispositions in the will except to the extent necessary to make adequate provision for the plaintiff's proper maintenance, education and advancement in life. Secondly, the expression 'proper' in this context connotes a standard appropriate to all the circumstances in the case, and thirdly, the Court may take into consideration any matter (whether existing or occurring before or after the death of the deceased which it considers relevant in the circumstances, including (a) the nature and quality of the relationship between the plaintiff and the deceased, (b) the character and conduct of the plaintiff, (c) the nature and extent of the plaintiff's present and reasonably anticipated future needs, (d) the size and nature of the estate of the deceased, (e) the nature and relative strength of the claims to testamentary recognition by the deceased of those taking benefits under the will of the deceased, and (f) any contribution, financial or otherwise, direct or indirect, by the plaintiff to the property or welfare of the deceased.
It is important also to bear in mind the principle articulated by Young J, as he then was, in Stewart v McDougall (NSWSC, Young J, 19 November 1987, unreported), in explaining that the Court's role is limited to making adequate provision for an eligible person's proper maintenance and advancement:
It is important to state what the Family Provisions Act permits a Court to do and what it does not permit a Court to do. The Act recognises that Australians have freedom to leave their property by their will as they wish with one exception. The exception is that a person must fulfil any moral duty to make proper and adequate provision for those whom the community would expect such provision to be made before they can leave money as they wish. Thus, in these cases, one does not ask if the will is fair, one does not ask if the testatrix divided her property equal, one does not as a judge ask how would I have made a will had I been the testatrix. What must be asked is did the testatrix fail in her moral duty to those who have a claim on her. Even if the Court comes to the view that the question should be answered in the affirmative, the Court still does not remake the will, but only alters it to the extent adequate provision is made for the eligible person in respect of whom the testatrix failed in her moral duty.
Mr Chen
Notwithstanding that Mr Chen and Hong Jie were separated and a decree nisi of divorce had been pronounced, the decree had not become absolute when Hong Jie died, and thus never did. Although it was faintly suggested that he was no longer eligible as a spouse under s 57(1)(a) but only as a former spouse under s 57(1)(d) - in which case an order could be made only if there were "factors which warrant the making of the application" within s 59(1)(b) - it is clear that only a decree absolute, and not a decree nisi, terminates the matrimonial relationship [Fender v St John-Mildway [1938] AC 1, 16, 45-6; Brown v Brown (1947) 64 WN (NSW) 28, 30; Knowles v Knowles [1962] P 161, 167], and that where a person dies after a decree nisi is pronounced but before it becomes absolute, the marriage continues to exist at the time of death [Re Mayo (deceased) and the TFM Act [1968] 2 NSWR 709]. Accordingly, Mr Chen remained the husband of Hong Jie at the date of her death, and is eligible as such under s 57(1)(a); he does not have to establish that there are "factors which warrant the making of the application" within s 59(1)(b).
Mr Chen is 67 years of age. He continues to work in his Chinese medicine practice; although he had earlier expressed an intention to retire by mid-2012, and wishes to do so, he says he has no choice but to continue to work, in order to provide for himself and Ella, who is dependent upon him. Mr Chen is assisted by his daughter Irene in caring for Ella while he is working; Irene is a university student in part-time employment, and Mr Chen provides her with a car so that she can drive Ella to and from school.
The only evidence of Mr Chen's income is to be gleaned from his income tax returns, according to which in FY2008/09, the gross income of the practice was $156,356, less expenses of $91,589 (including interest of $18,601, depreciation of $13,119, motor vehicle expenses of $7,577, and $9,880 wages paid to Hong Jie), leaving net practice income of $64,767. In 2009/10, gross practice income was $129,982, less expenses of $117,744 (including depreciation of $20,115, superannuation of $20,550, interest of $10,338, motor vehicle expenses of $6,454, repairs and maintenance of $3,405 and wages paid to Hong Jie of $10,400), resulting in net practice income of $12,238. In 2010/11, gross practice income was $125,122, less expenses of $166,544 (including wages paid to Hong Jie of $15,760, interest of $18,156, depreciation of $28,115, motor vehicle expenses of $27,989 and repairs and maintenance of $23,635), resulting in a net loss of $41,422. In FY2011/12, gross practice income was $149,412, less expenses of $91,239 (including depreciation of $16,024, motor vehicle expenses of $5,580 and rent of $18,200), resulting in net practice income of $58,173.
The tax returns do not appear to have been prepared on a consistent basis, as interest is claimed in earlier years but rent in 2011/12; presumably the rent paid in that year from the practice was in turn rental income for the investment properties. The depreciation claimed appears to relate principally to a motor vehicle which is said to be attributable only 15% to private use; the motor vehicle expenses are presumably calculated on a similar basis. However, taking into account that (1) depreciation is a notional expense only, (2) given that his superannuation fund is now in the payment phase Mr Chen will not likely be making future contributions to it, (3) the discrepant result in 2010/11 appears to be attributable to unusually high motor vehicle expenses and repairs and maintenance, (4) as it appears that Mr Chen continues to conduct his practice from Dale St, which is now owned by his niece and her husband, some provision for rent seems appropriate, and doing the best I can with the available material, the Chinese medicine practice appears to generate (before tax) financial benefits of in the order of $75,000 per annum, say $50,000 after tax.
In addition, in FY2008/09, he received net rents of $9,976 from Polding St and $1,096 from Dale St. In 2009/10, net rents were $17,438. In 2010/11, net rents were $15,569. In FY2011/12, gross rents were $16,033, but there was a net loss from investment properties of $2,856, after providing for interest on loans of $15,425. Currently, he receives rents of $310 per week from Polding St ($16,120 per annum) (before agent's commission and mortgage payments). Monthly repayments on the Polding St loan are $1,298.39 (or $15,580 per annum); accordingly Mr Chen has no net income from Polding St, which is his sole remaining investment property.
As already noted, Mr Chen remarried on 2 March 2013. His wife Xiang Tian is 25 years of age. Despite his affidavit evidence that she had no assets and was totally dependent on him, it emerged once their Binding Financial Agreement was produced that she owns a home unit and attached car space in China, which Mr Chen had visited. She is attending an accountancy course, for which Mr Chen is paying the fees of approximately $4,000 per annum. She will complete this course in mid-2015, and thereafter should have the capacity to generate an income and contribute to family expenditure, although at present she is dependent on Mr Chen.
It was submitted, for the defendants, that the pattern of Mr Chen's expenditure during the period December 2012 to August 2013 was inconsistent with his means being as limited as he suggests. Having received $301,000 from the superannuation fund on 12 December 2012, he had expended all but $37,000 of it by August 2013, including $79,000 for a new motor vehicle on 3 June 2013, a $35,000 cash withdrawal on 13 June, and a transfer (to an unspecified account) of $80,000 on 17 June (this may have been for legal costs). In addition, there were significant deposits during this period - including $41,000 proceeds of sale of his previous motor vehicle, and deposits of $30,000 on 6 June and $20,000 on 20 August. In all, his Freedom Offset account showed a credit balance of $18,085 as at 1 December 2012, total deposits between then and 31 August 2013 of $532,799, and total withdrawals of $485,779, leaving a closing balance of $65,101. When taxed with this level of expenditure, Mr Chen said that he had to repay two loans each month, and purchased the new motor vehicle. There were also a number of substantial purchases of jewellery and watches for his new wife, and a trip to Cairns. Subsequently, he explained that this was an extraordinary period for him - he said he had to pay $60,000 to $70,000 legal expenses, and that he got married and had wedding banquets in Australia and in China and took a honeymoon to Korea. But while I do not think this really justifies the level of expenditure, particularly in the context of his professed concern to provide for Ella - the motor car explains only net $38,000, and the banquets appear to have cost only a couple of thousand dollars - it does not bespeak the existence of additional resources: the source of the expenditure was the $301,000 distributed to him from the superannuation fund.
Mr Chen estimated his recurrent annual expenditure at $88,719 on the costs of living - including food, accommodation and clothing, and private motor vehicle use - for himself, his current wife and Ella. That estimate was not challenged as unreasonable. It provides only $6,000 for home loan repayments, although they are said to be $1,500 per month; however, other evidence establishes that monthly repayments on the Kihilla St loan are in the order of $1,040 (or $12,480 per annum); substitution of the correct amount results in total annual expenditure of $95,199. It includes $33,800 for food and household supplies (including replacements), $9,696 for motor vehicle expenditure (some at least of which must overlap with that claimed by the practice), $7,200 for holidays and travel, and $9,496 for Ella's school fees. It does not include expenditure associated with the Polding St property, presumably because it is subtracted from the rental income generated by it. Removing the school fees (because I propose to deal with them separately), apportioning the motor vehicle expenses and moderating slightly the holiday expenses and food and household supplies, I assess his reasonable annual personal expenditure at $75,000, including his costs of supporting Ella (other than school fees) and Xiang Tian.
Mr Chen's current assets and liabilities appear to be as follows:
Assets
$
Kihilla Street Fairfield Heights
470,000
136 Polding Street Fairfield
510,000
Loan to friend for kidney transplant
110,000
Toyota motor vehicle
7,000
New Mercedes motor vehicle
79,000
Complete Freedom Offset account (as at 8 November 2013)
33,586
Chen Superannuation Fund
204,456
Total
1,414,042
Less, liabilities
$
Homeside (Kihilla Street Fairfield Heights)
264,000
St George Bank (136 Polding Street Fairfield)
278,737
ANZ Credit Card
9,429
Total
552,166
Summary
$
Total assets
1,414,042
Total liabilities
-552,166
Net assets
861,876
In addition, he retains the Chinese medicine practice, but although it appears to have been historically prosperous, there is no evidence that it has any marketable goodwill value.
Ella
There is no question as to Ella's eligibility, as a child of Hong Jie, under s 57(1)(b).
Ella is nine years old. She was living with and dependent on Hong Jie at the time of her death.
While she is generally in good health, she suffers from a condition called "Primary Hypoaldosteronism", a salt deficiency, which requires regular medication and assessment at The Children's Hospital at Westmead, and is likely to be a lifelong condition.
While she lived with Hong Jie she attended a public school in Eastwood, but Mr Chen has enrolled her at a primary school at Fairfield, which she has attended since year 1, and was in year 3 in 2013. Her school reports, while satisfactory, are unremarkable, but her year 3 NAPLAN results were superior, and generally well above the expected level of achievement for year 3 students. She enjoys ice-skating and dancing, and wishes to undertake dancing lessons.
Hong Wei
The sole beneficiary of the estate is Hong Jie's sister, Hong Wei. She, of course, does not have to establish a claim. However, while Hong Jie had no obligation to support her, it is clear that there was a close relationship between them. Notably, Hong Wei provided support and assistance to Hong Jie in connection with the acquisition of Irene Crescent, but she was compensated for that by being granted a 20% interest in the property.
Hong Wei has adduced no evidence of her financial circumstances, and does not contend that they provide any reason for declining to make orders in favour of the plaintiffs if it is otherwise appropriate to do so. Moreover, she will retain her 20% interest in Irene Crescent, and the China properties.
Evaluation
Mr Chen's claim is one by a surviving spouse. It is based on a marriage of some ten years, substantial contributions to Hong Jie's estate, his age and the need to provide for his retirement, and his responsibility for the care and maintenance of Ella. His counsel referred to the well known description by Powell J of the obligation of a testator to a surviving spouse in Luciano v Rosenblum [1985] 2 NSWLR 65 (at 69):
...in the absence of special circumstances, the duty of a testator to his widow is, to the extent to which his assets permit him to do so, to ensure that she is secure in her home, to ensure that she has an income sufficient to permit her to live in the style to which she is accustomed, and to provide her with a fund to enable her to meet any unforeseen contingencies.
The applicability of that approach may often be affected where the parties have separated and there has been a division of property between them. But in this case, Hong Jie's death, and the consequent reallocation to Mr Chen of primary responsibility for the care and support of Ella, are significant subsequent changes of circumstances, which undermined the basis on which the de facto distribution of property had taken place [cf Barder v Caluori [1988] AC 20; [1987] 2 All ER 440]. While Hong Jie lived and had care responsibility for Ella, Mr Chen's contribution-based entitlement and provision for his reasonable needs were eroded by the imperative of providing for Hong Jie's needs; her death wrought a radical change in that situation. No longer is there any warrant to reduce Mr Chen's contributions-based claim on account of her needs and her ongoing responsibility for Ella; to the contrary, Mr Chen's needs are increased as he now has that responsibility. Although Mr Chen and Hong Jie had separated and there had been a de facto distribution of property between them, it was an informal one and therefore, legally, inconclusive.
Mr Chen has a strong contribution-based claim (s 60(2)(h)). So far as the evidence reveals, the assets that comprise the estate were substantially generated by his contributions. There is no evidence that Hong Jie had any separate source of funds, other than her modest wage for the bookkeeping and banking work that she performed for Mr Chen's practice. Her contribution was that of homemaker and parent, of one child; bookkeeping for the business; and managing the family finances. As has been seen, Mr Chen had already accumulated significant assets at the date of marriage, which he introduced to the marriage. The relative significance of Mr Chen's contributions is emphasised by the circumstance that $1,175,354 had been accumulated by October 2003. In addition, the China estate reflects his contributions at least to the extent of $60,000.
While it was necessary and appropriate, while Hong Jie lived and, in particular, had primary care responsibility for Ella, to provide for her needs, it is Mr Chen who now, consequent upon her death, has the full responsibility of supporting, educating and accommodating their nine-year-old child. Although he continues to work - he says because he has to - Mr Chen is of an age where his expressed wish to retire is an entirely reasonable one. At age 67, he has a life expectancy of 18 years. Ella will be dependant on him at least for another nine years until she attains 18, and he also has the responsibility of supporting his current wife, although she should be able to generate an income and contribute to family finances in the not too distant future, from about mid-2015.
A wise and just testator in the position of Hong Jie would have provided, to the extent that she was able to do so, for Mr Chen to be able to retire in the near future, maintain a reasonable lifestyle having regard to that which he had hitherto enjoyed, and support Ella through her childhood. Even on his current income and expenditure, there is a deficiency of about $25,000 per annum, and the position will deteriorate markedly on his retirement. To provide for his retirement, he has the Polding St investment property, his interest in the superannuation fund of about $408,000, and potentially $110,000 due from Xiaodan Qui, but its recoverability is doubtful. By selling Polding St, Mr Chen could practically discharge both mortgages, and reduce his expenses (by the mortgage payments of $12,000 per annum) to about $63,000. That would leave him with the superannuation interest of about $400,000, which (on the 3% tables) would produce an annual income of $28,556 for his life expectancy of 18 years, which remains well short of his expenses of $63,000. Before long, however, Xiang Tian should be able to support herself and contribute to family expenses. Ella, however, will remain dependent on him for another nine years until she attains 18 years of age and leaves school. While a post-retirement annual income of $28,556 is probably adequate to meet Mr Chen's personal expenditure, it is insufficient to meet the additional expenditure (not including school fees) associated with supporting Ella, for which purpose he reasonably requires an additional $14,000 per annum for the nine years until she attains 18. The sum required to produce $14,000 per annum for nine years (on the 3% tables) is about $100,000. He has, therefore, been left with inadequate provision for his proper maintenance.
Proper provision for Ella, in the circumstances, includes her maintenance during her childhood, her primary and secondary education, provision for contingencies (including medical contingencies), and some allowance to assist with her tertiary education and/or a "start in life". Ella's claim necessarily overlaps to an extent with that of her surviving parent and principal carer, as Mr Chen's recurrent expenditure includes the cost of supporting Ella. Ordinarily, the best way to provide for a child is through ensuring that the surviving parent is properly enabled and funded to care for the child. I have adopted that approach in considering Mr Chen's claim, above, and his claim includes provision for Ella's maintenance (but not her education) until age 18.
However, it does not include provision for Ella's school fees, contingencies or tertiary education. Mr Chen aspires for her to attend a well-known private school for girls, where the tuition fees range from $17,680 in year 4 to $24,768 in years 9 through 12; the annual average is approximately $22,000. There has been no suggestion that that is an unreasonable proposal. The fund required to produce $22,000 per annum for 9 years (on the 3% tables) is approximately $175,000. To cover contingencies (which might include medical treatment beyond the ordinary), and provide a sum to assist with her tertiary education and/or provide her a start in life, a total fund of $225,000 would be appropriate. To that extent, Ella has been left with inadequate provision.
The net distributable estate is sufficient to provide for those needs. There are no competing claims: nothing has been advanced on behalf of Hong Wei that would make her circumstances a reason for not making provision for the two plaintiffs. She will in any event retain her 20% interest in the Irene Crescent property, and the China properties. In particular, Hong Wei does not oppose provision being made for Ella, but seems to suggest that she will do so in due course - whenever that may be - by transferring to her the estate's interest in Irene Crescent.
Mr Chen proposes that there be a separate trust fund for Ella, so that it is available lest anything happen to him, and that he or Ella's tutor be the trustee. However, I am disinclined to appoint Mr Chen as the sole trustee of such a fund, as his recent profligacy does not give me comfort that he would be responsible in respect of expenditure and rigorously prefer Ella's interests in respect of the trust fund to his own. Nor am I presently satisfied that understands the responsibilities of a trustee. On the other hand, I do not think Hong Wei should be the sole trustee, as her antipathy to Mr Chen, and her dealings with the estate, leave me in doubt that she would properly discharge such responsibilities. If it were possible for Mr Chen and Hong Wei to co-operate, they could be joint trustees, and that would provide balance and comfort as each would be subject to the scrutiny of the other, while avoiding the cost of a professional trustee. Otherwise, an independent professional trustee may have to be found. However, I will hear the parties as to this.
Mr Chen and Ella, having substantially succeeded, are entitled to their costs out of the estate. Mr Chen as trustee of the Superannuation Fund failed against An Shi Zheng, but succeeded on substantially the same allegations against the estate. An Shi Zheng's affidavit of 28 September 2012 contained a bare denial of receipt of the $300,000, and none of the exonerating elaboration that emerged in his oral evidence. His joinder was occasioned by the Hong Jie's dealings with the assets of the superannuation fund and, to the extent that any additional costs were incurred as a result, should be born by the estate. While the Australian estate should be sufficient to cover the costs of the defendants, I propose to make them payable only out of the residual estate, bearing in mind that if the Australian estate proves insufficient, the China properties remain available.
Conclusion
For the foregoing reasons, I have reached the following conclusions.
The estate must restore to the Chen Superannuation Fund the sums subtracted from it by Hong Jie which, with interest, amount to $408,920.
Hong Jie contributed $60,000 towards the purchase of Tian Mao, but I am not satisfied that she provided any other part of the purchase moneys for any of the China properties. However, the onus of establishing that their beneficial ownership resides elsewhere than with those legally entitled has not been discharged. Accordingly, the China properties, worth about $700,000, are assets of the estate.
The net distributable Australian estate (excluding the Chinese properties, and after repayment of the moneys taken by Hong Jie from the Chen Superannuation Fund, and provision for costs), is about $325,000.
In light of the changes wrought by Hong Jie's death, in particular in relation to care responsibility for Ella, Mr Chen has been left with inadequate provision for his proper maintenance in his retirement, in that while he will have a superannuation interest of about $400,000 generating an annual income of about $28,000 for his life expectancy of 18 years, and while Xiang Tian can be expected to become self-supporting in the not too distant future, he will require a further $14,000 per annum for nine years to cover the additional cost of supporting Ella while she remains dependent on him. A legacy of $100,000 is required to provide for his proper maintenance in that respect.
In addition, proper provision for Ella's maintenance, education and advancement requires an additional legacy of $225,000 to cover the costs of private school education, contingencies, and contribute to her tertiary education and/or a start in life. This sum should be held in trust, by a trustee or trustees to be determined, given that I have reservations about either Mr Chen or Hong Wei being the sole trustee.
Subject to any further submissions, the plaintiff's costs of $102,000 should be paid out of the estate, and the defendants' costs of $58,000 should be paid out of the residuary estate.
Accordingly, there should be judgment and orders to the following effect:
(1) Judgment that the first defendant (as executrix of the estate of the late Hong Jie) pay the third plaintiff Hui Chen (as trustee of the Chen Superannuation Fund) the sum of $408,920.
(2) Judgment for the second defendant An Shi Zheng on the third plaintiff's claim against him.
(3) Order that by way of provision from the estate of the late Hong Jie Lu, the first plaintiff Hui Chen receive a legacy of $100,000.
(4) Order that by way of provision from the estate of the late Hong Jie Lu, the second plaintiff Ella Chen receive a legacy of $225,000, such legacy to be held for her until she attains 18 years of age upon trust (by a trustee to be determined) to pay the tuition fees of her education at a private school, and such other proper costs of her maintenance education and advancement as the trustee may approve.
(5) Order that the plaintiffs' costs assessed in the sum of $102,000 be paid out of the estate.
(6) Order that the defendants' costs assessed in the sum of $58,000 be paid out of the residuary estate.
However, it may be that the parties would wish an opportunity to be heard in respect of the proposed costs orders. It will also be necessary to hear the parties on the identity of the proposed trustee, and potentially to receive the requisite consents and affidavits of fitness. Further, the parties may wish to consider orders (including orders under s 66(1)(b), (c), (d), (g), (h) and (i)) to implement the above proposed orders.
Accordingly, the Court directs that the plaintiffs bring in short minutes to give effect to this judgment, on a date to be fixed.
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Decision last updated: 07 August 2014
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