FGH v NOP
[2023] WASCA 177
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: FGH -v- NOP [2023] WASCA 177
CORAM: BEECH JA
MULLINS AJA
SEAWARD J
HEARD: 20 SEPTEMBER 2023
DELIVERED : 13 DECEMBER 2023
FILE NO/S: CACV 90 of 2022
BETWEEN: FGH beneficiary of the estate of IJ
Appellant
AND
NOP
First Respondent
FGH as executor and trustee of the estate of IJ
Second Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: SOLOMON J
File Number : CIV 2174 of 2019
Catchwords:
Wills and estates - Family provision claim under s 6 of Family Provision Act 1972 (WA) - Where daughter claimant had debts substantially exceeding her assets - Where primary judge considered payment of a capital sum to claimant would not advance the objects of an award under s 6 - Whether s 6 empowers the court to order provision for a claimant by way of a discretionary trust the objects of which include other persons who are not successful claimants - Whether primary judge erred in the exercise of discretion under s 6
Legislation:
Family Provision Act 1972 (WA), s 6, s 7, s 13
Result:
Appeal dismissed
Category: A
Representation:
Counsel:
| Appellant | : | M Curwood SC & S R Pack |
| First Respondent | : | P J Ward & A L Spencer |
| Second Respondent | : | No appearance |
Solicitors:
| Appellant | : | Solomon Hollett Lawyers |
| First Respondent | : | Williams & Hughes |
| Second Respondent | : | No appearance |
Case(s) referred to in decision(s):
AB v FGH [2022] WASC 244
Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1
Australian Securities Investments Commission v Jones [2023] WASCA 130
Barns v Barns [2003] HCA 9; (2003) 214 CLR 169
Borebor v Keane [2013] VSC 35; (2013) 11 ASTLR 96
Caska v Caska [1999] NSWSC 289
Charisteas v Charisteas [2021] HCA 29; (2021) 273 CLR 289
CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) [2005] HCA 53; (2005) 224 CLR 98
Crime and Corruption Commission v Carne [2023] HCA 28
DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97
Director of Public Prosecutions (Cth) v Kinghorn [2020] NSWCCA 48; (2020) 379 ALR 345
Diver v Neal [2009] NSWCA 115
Diver v Neal [2009] NSWCA 54; (2009) 2 ASTLR 89
Estate of Cooper [1987] NZCA 198
Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [No 2] [2023] WASCA 108
Herszlikowicz v Czarny [2005] VSC 354
House v The King (1936) 55 CLR 499
In re Wilcox [1978] Tas SR 82
KSJ v GJA [2021] WASCA 98
Lemon v Mead [2017] WASCA 215; (2017) 53 WAR 76
Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672
Lowe Pty Ltd v Belgravia Nominees Pty Ltd [2020] WASCA 180
Mansfield v Director of Public Prosecutions (WA) [2006] HCA 38; (2006) 226 CLR 486
McCann v Ward [2012] VSC 63
McLeod v Johns [1981] 1 NSWLR 347
Minister for Immigration v Makasa [2021] HCA 1; (2021) 270 CLR 430
Minister for Immigration v Nystrom [2006] HCA 50; (2006) 228 CLR 566
Musasghi v Gebremariam [2022] WASCA 37
Northern Land Council v Quall [2020] HCA 33; (2020) 271 CLR 394
Offey v Bennett [1961] VR 264
Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306
Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 404
Popovski v Kenjar [2011] NSWSC 731
Queensland Building and Construction Commission v Groupline Constructions Pty Ltd [2020] QCA 245; (2020) 6 QR 390
Re Abram [1996] 2 FLR 379
Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282; affirmed (1841) Cr & Ph 240; (1841) 41 ER 482
Singer v Berghouse (1994) 181 CLR 201
Thayli Pty Ltd v Commissioner of Police [2021] WASCA 46
Varnel v Heyes [2008] NSWSC 978
Vigolo v Bostin [2005] HCA 11; (2005) 221 CLR 191
Wentworth v Wentworth (1995) 37 NSWLR 703
Wentworth v Wentworth (Unreported, NSWCA, 3 March 1992)
Wentworth v Wentworth (Unreported, NSWSC, 23 May 1994)
Table of Contents
Beech JA & Seaward J
Introduction
The primary reasons
Grounds of appeal
Ground 1: appellant's submissions
Ground 1: disposition
The proper construction of s 6
Section 13 of the Act: is the 'Anthony Hordern principle' engaged?
Ground 1: conclusion
Ground 2
Introductory observations
Appellant's submissions
The terms of the trust
The purpose of the primary judge's order
Why ground 2 fails
Conclusion
Mullins AJA
Grounds of appeal
Some relevant facts
The reasons
The discretionary trust
What are the limits of the power conferred by s 6(1) of the Act?
Did the primary judge err in law in exercising the discretion to order provision by imposing the discretionary trust on the fund set aside for the first respondent?
Orders
BEECH JA & SEAWARD J:
Introduction
The issues in this appeal concern the proper construction of, and proper exercise of discretion under, s 6 of the Family Provision Act 1972 (WA) (the Act).
We gratefully adopt the outline of the background, the relevant legislative provisions and the primary judge's unchallenged findings of fact in Mullins AJA's reasons. We will deal with those matters only so far as is necessary to explain our reasons.
The appellant and the first respondent (who is the only active respondent and to whom we will refer to as the respondent) are siblings. The primary proceedings concerned the estate of their mother who died on 13 January 2019 leaving a will. At the time the testator died, the net estate was valued for probate purposes at just under $6.5 million. Under the will, the respondent received $25,000 and some items of personal property. The bulk of the estate was left to a testamentary trust, with the appellant as trustee. The appellant and his daughter are the immediate beneficiaries of the trust.
In the primary proceedings, the respondent, who was joined as a defendant in proceedings commenced by her two sisters, brought a claim for provision under the Act. Claims brought by the respondent's sisters were settled. The judge found that the respondent's debts so overwhelmed her assets that payment of a capital sum to her directly would not advance the purpose of s 6 of the Act, as it would be absorbed by her creditors without materially improving her position. The primary judge ordered that provision be made by way of a trust of which the respondent was the primary beneficiary, with her children and grandchildren being the object of a discretionary power in the event that the trustees considered distribution of income or capital to the respondent not to be in her interests.
The appellant challenges the primary judge's decision on two grounds. First, he contends that the order exceeded the limits of the power in s 6, in that s 6 does not empower the court to make an order establishing a trust, the potential beneficiaries of which include a person (or persons) not eligible to make a claim under s 7(1) of the Act. Secondly, he contends that the judge erred in principle in that (i) the provision made for the respondent was structured as a discretionary trust for the evident purpose of quarantining the award from the respondent's creditors and (ii) in so structuring the award, the order benefited the respondent's children, who were not eligible applicants and whose needs had not been considered by the court.
For the reasons that follow, we would dismiss the appeal. Ground 1 fails because we do not accept that the limit in s 6 asserted by the appellant arises from its terms, or from another provision of the Act - s 13 - on which the appellant relies. The limits of the power in s 6 are apparent from its terms, namely:
(1)the application must be made by a person who is an eligible applicant under s 7;
(2)the court must form the opinion as to the inadequacy of the provision for the proper maintenance, support, etc, of that person; and
(3)the court's power thus being enlivened, its order must be for the purpose of making adequate provision for the proper maintenance, support, education or advancement of the successful applicant.
The primary judge's orders did not exceed those limits. The orders are properly characterised as made for the proper maintenance, support, education or advancement of the respondent. Indeed, the appellant does not submit otherwise. When the purpose of the primary judge's order is understood in this manner, ground 2 cannot succeed. The respondent's creditors had no entitlement to, nor even a reasonable expectation of, obtaining the fruits of an award under the Act in favour of the respondent.
It is convenient to outline the primary judge's approach to provide the context for consideration of the grounds of appeal.
The primary reasons
As none of the primary judge's factual findings is challenged, it is not necessary to outline his Honour's comprehensive findings of fact beyond what Mullins AJA has said.
The primary judge found that the respondent has no independent means of supporting herself, having no assets of any substance and no independent source of income. His Honour considered the respondent's prospects of future employment or income to be very poor.[1]
[1] AB v FGH [2022] WASC 244 (primary reasons) [94].
Significantly, his Honour found that the respondent has debts in the order of several million dollars. She owes approximately $3.5 million to her litigation funder, as well as owing her children approximately $500,000.[2]
[2] Primary reasons [88] ‑ [90].
It was not in dispute at trial that this was true of the respondent's financial position at the date of the testator's death as well as at trial.[3]
[3] Primary reasons [90].
His Honour then considered the various legal principles relevant to the case. In the course of doing so, his Honour gave detailed consideration to a number of cases bearing on the question of the impact of the respondent's dire financial circumstances on the extent of the court's powers and the proper exercise of its discretion.[4] His Honour distilled a number of principles from the cases, the most salient of which are set out in [118] of Mullins AJA's reasons.[5]
[4] Primary reasons [114] ‑ [190].
[5] Primary reasons [190].
The primary judge was satisfied that the will did not make adequate provision for the respondent's maintenance, support, education and advancement in life.[6] His Honour was satisfied that the breakdown in the relationship between the respondent and the testator did not preclude that conclusion.[7] These conclusions are not challenged.
[6] Primary reasons [191] ‑ [192].
[7] Primary reasons [192] ‑ [197].
The primary judge turned to the appellant's submission that there should be no favourable exercise of the discretion because the grant of any provision would simply flow through to creditors and that any attempt to craft a provision that quarantined the fruits of the provision from creditors would be an impermissible or inappropriate exercise of the statutory discretion. His Honour concluded that it was inappropriate to order payment of a capital sum to the respondent because her debts are so overwhelming that payment of the amount so provided would not achieve anything for her benefit, thereby not serving the statutory purpose of an order under the Act.
The primary judge considered that because the respondent is not and has never been a bankrupt, the grant of provision through a discretionary trust would achieve the object of the Act without disturbing any entitlement of the respondent's creditors. The creditors have no entitlement to the funds in the testator's estate and consequently, his Honour considered, they would not be deprived of anything to which they have at any time enjoyed an entitlement.[8]
[8] Primary reasons [200].
The respondent sought an order devising a sum to be paid on trust for the benefit of the respondent on terms requiring the trustees to apply such of the income or capital as they think fit for her maintenance, support, education or advancement in life but reserving to the trustees the power of accumulation of income.
The primary judge recorded the appellant's contention that the rule in Saunders v Vautier[9] would enable the respondent to require the transfer of the corpus of the trust to herself so that imposition of the trust achieves no better outcome than simply the payment of the capital sum to her. His Honour considered it doubtful that the rule in Saunders v Vautier could take effect in circumstances where a provision under the Act was expressly ordered by the court to take the form of a trust. However, his Honour considered it unnecessary to determine the issue because he proposed a trust under which the respondent's children and grandchildren would also be beneficiaries, thereby excluding the application of the rule in Saunders v Vautier.
[9] Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282; affirmed (1841) Cr & Ph 240; (1841) 41 ER 482.
The primary judge concluded in the following terms:[10]
Taking all those circumstances into account I consider that a sum of $850,000 should be set aside from the estate as provision for the [respondent's] maintenance and support to be held on the terms of a discretionary trust in which the [respondent] is the primary beneficiary, and her issue are the class of general beneficiaries. The trust will thus continue after the death of the [respondent] but for the benefit of her issue. The trustees should include a professional person such as a lawyer or an accountant, preferably one that already had a professional relationship with the [respondent]. Otherwise, I accept that the trust should enjoy the powers and operate in the manner proposed by the [respondent].
[10] Primary reasons [217].
The terms of the trust ordered by the primary judge are summarised in Mullins AJA's reasons.
Grounds of appeal
The grounds of appeal are in the following terms:
1.The primary judge erred in law in finding that s 6(1) of the Family Provision Act 1972 (WA) ('FPA') permitted provision to be made by way of the establishment of a discretionary trust the potential beneficiaries of which included the first respondent ('applicant'), whose personal circumstances justified the provision, and the children and grandchildren of the applicant, that is, the testator's grandchildren and great-children, being persons who were not eligible to make a claim for provision under s 7(1) of the FPA, and whose financial and other circumstances were irrelevant for the determination of proper provision.
2.Alternatively, the primary judge erred in law in exercising the discretion under s 6(1) of the FPA to make provision for the applicant on the basis of a wrong principle, namely on the basis that:
(a)it is a permissible exercise of the statutory discretion to condition the provision in a way that benefits the claimant but in a manner that quarantines the provision from bona fide creditors; and
(b)the means by which provision can be made may include a discretionary trust in which the applicant is the primary but not the sole beneficiary and the other beneficiaries are the applicant's children and grandchildren, being persons who are not themselves eligible to make a claim under s 7(1) of the FPA, where such persons are not dependants of the applicant, no assessment was made of their individual needs or claim to provision (and who did not make a claim in the proceedings), and their inclusion as objects is predominantly for the purpose of insulating the funds from creditors.
Ground 1: appellant's submissions
The appellant submits that s 6 does not empower the court to make an order establishing a trust the potential beneficiaries of which include a person (or persons) not eligible to make a claim under s 7(1) of the Act.[11]
[11] Appellant's submissions [32] ‑ [43]; appeal ts 3, 9.
The appellant submits that this is because:[12]
(a)such a power would be inconsistent with the object and purpose of the [Act], being to give statutory force to certain moral claims but not to others, and to make provision only for those whose moral claims are given statutory force;
(b)such a wide interpretation of the general power in s 6(1) would render otiose the specific power in s 13(1), while also bypassing the specific limit found in s 13(1) that the beneficiaries of the trust established by the Court under that provision must be those who are eligible to make a claim for provision [citing Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1, 7 (Gavan Duffy CJ and Dixon J); Thayli Pty Ltd v Commissioner of Police [2021] WASCA 46 [34], [45] (Murphy, Mitchell and Beech JJA))];
(c)the Court would be empowered to make provision for the benefit of those not eligible to make a claim without any requirement it first consider whether such a person was in need of provision for their proper maintenance, support, education or advancement in life, and contrary to the precondition to making provision for a person who is entitled to make a claim under s 7(1); and
(d)the claimant having established a claim based on the totality of their relationship with the testator and their financial circumstances, the Court's purpose is to make proper provision for them, but, because of the discretionary nature of the trust, the effect of the court's orders may be that no provision is actually ever made to the claimant despite that being the only purpose for which the Court can make orders under s 6(1).
[12] Appellant's submissions [39]; see also appeal ts 5 - 6.
The appellant's contention in ground 1 is directed to the effect of the primary judge's order, not to its purpose. The appellant contends that s 6 does not empower the court to make an order with the effect identified in [22] above.[13]
[13] Appeal ts 9, 13, 25, 28 - 29.
Ground 1: disposition
The proper construction of s 6
The general principles concerning the process of statutory construction are well known. Statutory construction involves the attribution of meaning to the statutory text having regard to considerations of text, context and purpose.
The starting point is the text of s 6 of the Act.
As can be seen from the terms of the provision, and as has been said in many cases, the court's power under that provision depends upon it forming the opinion that the disposition of the deceased's estate effected by the will (or intestacy or both, as the case may be) is not such as to make adequate provision from the estate for the proper maintenance, support, education or advancement in life of an applicant who is a person mentioned in s 7 of the Act.[14] Thus, the court's powers arise only where, first, a person falling within the classes of person stipulated in s 7 has made an application under the Act, and secondly, the court forms the opinion just stated.
[14] See for example Singer v Berghouse (1994) 181 CLR 201, 208 ‑ 209; Vigolo v Bostin [2005] HCA 11; (2005) 221 CLR 191 [4] ‑ [6], [56].
If the court forms that opinion, the court may order such provision as the court thinks fit to be made out of the estate of the deceased for 'that purpose'. '[T]hat purpose' is the purpose of making adequate provision from the estate for the proper maintenance, support, education or advancement in life of the applicant(s) under s 7.
The text of s 6 thereby imposes an express limit on the power the provision confers. The power may be exercised only for the purpose of making adequate provision for the proper maintenance, support, education or advancement in life of the successful claimant(s). As this court held in Lemon v Mead, and as has been held in many cases, the power to make provision for a successful claimant can only be exercised for that purpose; that purpose controls and limits the court's power.[15]
[15] Lemon v Mead [2017] WASCA 215; (2017) 53 WAR 76 [222], [224], [227], [268]. See also Musasghi v Gebremariam [2022] WASCA 37 [113] and the cases referred to in Lemon v Mead [269].
In making an order for that purpose, the court may order 'such provision as [it] thinks fit'. Thus, the text of s 6 confers a broad power on the court in framing its order making provision for the successful applicant, so long as the provision is made for the purpose stipulated in s 6.
Therefore, the text of s 6 reveals the following three requirements for exercising the power it confers:
(1)the application must be made by a person who is an eligible applicant under s 7;
(2)the court must form the opinion as to the inadequacy of the provision for the proper maintenance, support, etc, of that person; and
(3)the court's power thus being enlivened, its order must be for the purpose of making adequate provision for the proper maintenance, support, etc, of the successful applicant.
Subject to those requirements, the text of s 6 is framed in language that is apt to confer a broad power: namely, 'such provision as the Court thinks fit'.
In our view, no further limitations on the power conferred by s 6 are apparent from the text of s 6.
The following two principles combine to suggest that, in construing s 6, the court should be slow to read into the provision limitations that are not apparent from its text.
First, as Gummow and Hayne JJ observed in Barns v Barns[16] in respect of like South Australian legislation, the Family Provision Act is remedial in character and so to be construed so as to give the most complete remedy which its phraseology permits.
[16] Barns v Barns [2003] HCA 9; (2003) 214 CLR 169 [44].
Secondly, as seven justices of the High Court observed in Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc,[17] in a passage that has been applied by this court many times,[18] it is inappropriate to read provisions conferring jurisdiction on or granting powers to a court by making implications or imposing limitations which are not found in the express words. That is because powers conferred on a court are powers which must be exercised judicially in accordance with legal principles. The necessity for the power to be exercised judicially tends in favour of the most liberal construction, because it denies the validity of considerations which might limit a grant of power to some different body including, for example, that the power might be exercised arbitrarily or capriciously or to work oppression or abuse.[19]
[17] Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 404, 421.
[18] See, for example, Lowe Pty Ltd v Belgravia Nominees Pty Ltd [2020] WASCA 180 [190]; KSJ v GJA [2021] WASCA 98; DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97; Australian Securities and Investments Commission v Jones [2023] WASCA 130.
[19] Mansfield v Director of Public Prosecutions (WA) [2006] HCA 38; (2006) 226 CLR 486 [10]; Lowe v Belgravia Nominees [190].
What we have said in [31] - [35] above creates substantial obstacles to acceptance of the appellant's construction of s 6.
The appellant accepts, rightly in our opinion, that an order could properly be made under s 6 to make provision for the proper maintenance, support, education or advancement in life of, for example, a spendthrift or an alcoholic with dependent children, by ordering funds to be held on trust for the benefit of that claimant and his or her children. The appellant accepts that in such circumstances, bearing in mind the claimant's obligations in relation to his or her children, the creation of the trust for objects that included the claimant's children could properly be seen to be for the benefit of the claimant and for the purpose of the claimant's maintenance, support, education or advancement in life.[20]
[20] Appeal ts 5 - 6, 7, 8 - 9.
Recognition of this exception is inconsistent with the construction of s 6 advanced by the appellant, as, on the appellant's construction, the power does not extend to authorising the establishment of a trust the potential beneficiaries of which include those not eligible to make a claim under s 7. That universal negative contention is inconsistent with the existence of any exception.[21]
[21] Appeal ts 8, 13.
The appellant does not articulate any principled or coherent basis for the adoption of his construction that accommodates the exception he rightly recognises. Insofar as s 13 is said to be the foundation of the limit the appellant seeks to imply in s 6, the appellant does not explain - and it is not apparent - how the exception could arise.
In our view, an order of the kind hypothesised in [37] above is not properly to be seen as an exception to the general limitation on the court's powers asserted by the appellant. Rather, the hypothesised example reveals the true nature of the limits of the power conferred by s 6, namely that the order must be made for the purpose stipulated in s 6. Once the preconditions to the making of an order are established - namely satisfaction of the precondition in respect of an applicant who is eligible under s 7 - the only limit on the court's power under s 6 is that the provision thereby made is for the purpose of the proper maintenance, support, education or advancement in life of the successful claimant.
For these reasons, subject to the effect of s 13, the appellant's construction of s 6 cannot be accepted.
In oral submissions, the appellant accepts that s 13 provided the primary textual foothold for reading s 6 as being limited in the manner he asserts.[22] We turn to consider the effect of s 13.
Section 13 of the Act: is the 'Anthony Hordern principle' engaged?
[22] Appeal ts 10.
In our view, s 13 of the Act does not detract from what we have said as to s 6. More particularly, s 13 does not sustain construing s 6 in the manner asserted by the appellant, namely as not authorising the establishment of a trust with beneficiaries beyond the successful claimant(s).
The appellant seeks to enlist the principle of statutory construction, often associated with the case of Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia,[23] that when a statute confers both a general power that is not subject to limitations and qualifications, and a special power that is subject to limitations and qualifications, the general power cannot be exercised to do that which is the subject of the special power.[24] As Gavin Duffy CJ and Dixon J said in Anthony Hordern,[25] when the legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it thereby excludes the operation of general instruments in the same instrument which might otherwise have been relied upon for the same power.[26]
[23] Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1, 7.
[24] Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672, 678; Northern Land Council v Quall [2020] HCA 33; (2020) 271 CLR 394 [61]; Minister for Immigration v Makasa [2021] HCA 1; (2021) 270 CLR 430 [54].
[25] Anthony Hordern (7).
[26] Leon Fink (678); Crime and Corruption Commission v Carne [2023] HCA 28 [66].
As Gummow and Hayne JJ observed in Minister for Immigration v Nystrom,[27] in a passage recently applied by this court in Thayli Pty Ltd v Commissioner of Police,[28] in order for that principle to be applicable:
it must be possible to say that the statute in question confers only one power to take the relevant action, necessitating the confinement of another apparently applicable power by reference to the restrictions in the former power.
[27] Minister for Immigration v Nystrom [2006] HCA 50; (2006) 228 CLR 566 [59].
[28] Thayli Pty Ltd v Commissioner of Police [2021] WASCA 46.
These statements of principle make clear that this principle of statutory construction applies only when the two provisions - the general power and the special power - are being relied upon to do the same thing, namely that which is the subject of the special power. For the reasons in [49] below, that is not so in the present case.
Expressed another way, for the Anthony Hordern principle to apply, the two provisions must be 'with respect to the same subject matter'; or the 'general power must encroach upon the subject matter exhaustively governed by the special power', so that 'the ambit of the restricted power is ostensibly within the ambit of the general power'.[29]
[29] Minister for Immigration v Nystrom [59], [61]; Director of Public Prosecutions (Cth) v Kinghorn [2020] NSWCCA 48; (2020) 379 ALR 345 [106]; Queensland Building and Construction Commission v Groupline Constructions Pty Ltd [2020] QCA 245; (2020) 6 QR 390 [97].
For the following reasons, the two provisions - s 6 and s 13 - cannot be said to have the same subject matter.
Section 13 empowers the court to make an order providing for a class fund for the benefit of two or more persons who are eligible applicants under s 7 and who have each made out their respective claims under s 6, on terms conferring discretion on the trustee to determine, as between the successful applicants, how much if any income or capital to distribute. In our view, the subject-matter of s 13 is a quite specific situation involving two or more successful applicants, in which there is or may have been doubt as to whether the general power in s 6 encompassed a power to make a provision of the kind permitted by s 13. Section 6 would plainly empower the making of separate provision by the court for each of two (or more) successful applicants. However, there is doubt as to whether s 6 would permit the court to order the making of a single provision, by way of moneys being held on trust as a class fund, for both (or all) successful applicants on terms conferring discretion on the trustee to determine, as between the successful applicants, how much if any income or capital to distribute. Put shortly, s 13 permits a single discretionary trust which deals with both (or all) successful applicants rather than needing to make separate provision for different people.
In our view, s 13 does not reveal an intention to limit or confine the amplitude of the power conferred by s 6.
This conclusion is reinforced by consideration of the relevant legislative history. The Act was passed following a report of the Law Reform Commission of Western Australia of August 1970. That report contained a recommendation in the following terms:
50.Miscellaneous
…
4.Procedural: For the smoother working of the legislation, the Committee recommends that the following provisions should be included in the proposed statute -
…
(b)Power to be given to the court to order that an amount be set aside as a class fund for the benefit of applicants of a class whose future individual needs cannot at the time be assessed accurately. A trustee appointed by the court to have power, under the court's guidance, to use the money in whatever proportion appears reasonable for the benefit of the beneficiaries - see draft Bill, cl 7. New Zealand, Tasmania and the ACT have a similar provision. (emphasis added)
For these reasons, contrary to the appellant's submissions,[30] the broad construction of s 6 that we favour does not render otiose the specific power in s 13(1). Nor does it involve bypassing the limit found in s 13(1).
Ground 1: conclusion
[30] Appellant's submissions [39](b).
For the above reasons, we do not accept the construction of s 6 advanced by the appellant by ground 1. The ground fails accordingly.
Ground 2
Introductory observations
The primary judge's decision is discretionary in character. Consequently, it is basic, but nonetheless of fundamental importance, that the question on appeal is not whether this court would have exercised the discretion in the same manner. Rather, error of the kind referred to in House v The King[31] must be demonstrated before this court can interfere with a discretionary decision. As emphasised in Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [No 2],[32] the provision of proper grounds of appeal identifying material error by the primary court is fundamental to the exercise of this court's appellate function on appeal from a discretionary decision. Thus, in such an appeal, it is necessary for an appellant who asserts express error to identify both the species of error asserted - for example, acting on a wrong principle (or mistaking the facts or taking into account an irrelevant consideration) - and to identify with particularity the specific error of that species. Absent specific identification of the alleged error of principle, an assertion of error in principle may mask what is, in substance, an invitation to the appellate court to simply exercise the discretion in a different manner.
[31] House v The King (1936) 55 CLR 499.
[32] Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [No 2] [2023] WASCA 108 [238].
Ground 2 asserts that the judge acted on a wrong principle. For the reasons already given, it was incumbent on the appellant to identify with specificity the error of principle on which the judge was said to have acted.
The essential complaint made by ground 2, as expressed in the ground itself in its two paragraphs and in the appellant's submissions, is that the judge acted on a wrong principle in that the provision made for the respondent was structured as a discretionary trust for the evident purpose of quarantining the award from the respondent's creditors (par (a)) and, in so structuring the award, the order benefited the respondent's children, who were not eligible applicants, whose needs had not been considered by the court and were included as beneficiaries predominantly to insulate the trust property from the respondent's creditors (par (b)).[33]
Appellant's submissions
[33] Appellant's submissions [1], [44]; appeal ts 3 - 4, 16. See also the terms of ground 2 itself, which are set out in [21] above.
The appellant's principal submissions in support of this contention are as follows:
(1)The evident purpose of including the children as objects of the discretionary trust was to insulate the award from the respondent's creditors. The court should not lend its aid to the object of defeating creditors' interests by structuring the order to keep the benefit of the award away from bona fide creditors.[34]
(2)As submitted in support of ground 1, the primary judge's order benefits the respondent's children as objects of the discretionary trust without their needs having been considered by the court, a result contrary to the objects of the Act.[35]
(3)Because of the discretion vested in the trustees, the respondent may in fact not receive the benefit of the award, contrary to the object of an order under s 6.[36]
(4)The fact that when the respondent dies, what remains of the trust fund is then held on trust for the children reveals the nature of the trust as for the benefit of the children.[37]
[34] Appellant's submissions [67], [70] - [75], [77]; appeal ts 19.
[35] Appellant's submissions [67] - [69].
[36] Appeal ts 4 - 5, 14 - 15, 16.
[37] Appeal ts 19.
It is convenient to begin analysis by identifying the purpose of the primary judge's order, having regard to the terms of the trust the order creates.
The terms of the trust
As already noted, the appellant's submissions focus on the effect of the primary judge's orders.[38] As the bench observed in the course of argument without demur from the appellant,[39] the appellant does not submit that the purpose of the order made by the primary judge was other than the stipulated purpose, namely the proper maintenance, support, education or advancement in life of the respondent. Nor, in our view, given the terms of the order and the trust thereby constituted, could it be so submitted. We will summarise and construe the relevant terms of the trust in explaining why that is so.
[38] Appeal ts 9.
[39] Appeal ts 29.
The trust fund established under cl 17A of the will is to be held by the trustees on trust for the Beneficiaries: cl 2 of Annexure A of the will.
Primary Beneficiary is defined to mean the respondent. General Beneficiaries is defined to mean the respondent, her children and their children. Beneficiary is defined to mean one of the General Beneficiaries.
By cl 3 of Annexure A of the will, the trustees have a discretionary power to apply such of the trust fund's income as they think fit for any, or any combination of, the maintenance, support, education or advancement in life of the respondent. However, if the trustees consider, in their unfettered discretion, that such a distribution is not in the respondent's interests, the trustees may apply such of the trust fund's income as they think fit to one or more of the General Beneficiaries.
On a proper construction of cl 3, the trustees may apply income of the trust to General Beneficiaries only if they have first formed the view that there is no application of the trust fund for the maintenance, support, education or advancement in life of the respondent that is in the respondent's interests.
By cl 4 of Annexure A, the trustees have a corresponding discretion in relation to the capital of the trust fund.
By cl 5, the trustees may, in applying income or capital pursuant to cl 3 or cl 4, pay the income or capital for a Beneficiary's benefit to any third‑party providing housing, goods, services or care for a Beneficiary.
Thus, it is clear from cl 5 that, by way of example, the trustees could pay income or capital of the trust fund to discharge the respondent's liability for rent and/or other outgoings associated with her housing.
The trust vests on the earlier of the date of death of the last remaining Beneficiary, the date by which the trust fund has been exhausted by the trustees by applications of income and capital pursuant to cl 3 and cl 4, or the date prescribed by law as the last day of the perpetuities period for the purposes of the rules against perpetuities: cl 10 of Annexure A. Clause 11 governs the division of any remainder of the trust fund as at the vesting date.
The purpose of the primary judge's order
In our opinion, it is clear from these terms that the purpose of the primary judge's order is to make provision for the proper maintenance, support, etc, of the respondent. The trustee's power to distribute income or capital to any beneficiary other than the respondent is strictly conditioned on the formation by the trustees of the opinion that distribution to the respondent is not in her interests. While cl 3 provides that the trustees have an 'unfettered discretion' in deciding whether that is so, the requirement to so decide before distributing any income or capital to a beneficiary apart from the respondent reveals and reflects that the purpose of the trust is the proper maintenance, support, etc, of the respondent.
Thus, the trust constituted under the judge's orders is quite distinct from a conventional discretionary trust, under which a class of people are all the object of a broad discretionary power to apply income or capital for whoever, if any, of the beneficiaries as the trustee determines.
The inclusion, in the terms of the trust, of the power to apply income or capital of the trust fund to beneficiaries apart from the respondent in the limited circumstances we have described cannot be said to reveal that an animating purpose of the orders is to make provision for those other beneficiaries. Rather, the other beneficiaries are included in the context of the judge's conclusions, not challenged on appeal, that:
(i)the will did not make adequate provision for the respondent's maintenance, support, education and advancement in life;
(ii)in all the circumstances, including having regard to the breakdown in the relationship between the testator and the respondent, and to the competing calls on the testator's estate, substantial provision in favour of the respondent could and should be made from the estate, subject to the issue raised in (iii);
(iii)it was inappropriate to order payment of a capital sum to the respondent because her debts are so overwhelming that payment of the amount so provided would not achieve anything for her benefit; and
(iv)the imposition of a discretionary trust in favour of the respondent that had no other potential objects would also be inappropriate because the rule in Saunders v Vautier would at least arguably entitle creditors, through a trustee in bankruptcy, to terminate the trust.
In other words, notwithstanding the conclusions in (i) and (ii), payment of a capital sum to the respondent would not, and creation of a discretionary trust for the appellant with no other objects may not, serve the statutory purpose of an order under the Act.
In the context of those conclusions, the other beneficiaries were included in order to advance the respondent's interests, and thereby to achieve the statutory purpose, by ensuring that the provision by way of trust funds made for the respondent's maintenance, support, etc, in fact goes to the benefit of the respondent, rather than to the respondent's creditors.
Why ground 2 fails
In our opinion, once the purpose of the primary judge's order is understood in this manner, ground 2 cannot succeed.
Contrary to the appellant's submission in [57](1) above, neither the purpose nor the effect of the court's order was to 'defeat' creditors' interests. Even where a person has been made bankrupt, the right to apply for provision under the Act is personal in nature and does not vest in a bankrupt's trustee in bankruptcy.[40] But if the applicant obtains an order pursuant to which they receive money or property, if the money or property comes to the applicant in a form which the trustee in bankruptcy can reach, the trustee may claim on it.[41] In the present case, the respondent has not been subject to an order of bankruptcy at any material time. In particular, she was not bankrupt at the time the testator died nor when the primary orders were made. There was also no evidence of any bankruptcy proceedings having been commenced. The respondent's creditors had no entitlement to, nor even a reasonable expectation of, obtaining the fruits of an award under the Act in favour of the respondent. Given the judge's conclusions in (i) ‑ (iv) of [70] above, there was no scope for a proper exercise of discretion to result in any material benefit to the respondent's creditors. The choice for the primary judge was between declining to make an order in favour of the respondent and providing for the respondent through the mechanism of a trust primarily for her benefit. Either way, the respondent's creditors would not obtain any material benefit.
[40] Offey v Bennett [1961] VR 264, 266.
[41] Offey v Bennett (266); McLeod v Johns [1981] 1 NSWLR 347, 349.
In these circumstances and for these reasons, we are not persuaded that the primary judge's order offends against any public policy or undermines the objects of the Bankruptcy Act 1966 (Cth).
The position would be different if the effect of the court's order was to disturb an existing or vested entitlement of the respondent's creditors.[42]
[42] Popovski v Kenjar [2011] NSWSC 731.
For the reasons already given, we agree with the primary judge's conclusion that:[43]
Where the court is persuaded that provision from the estate is justified, it is a permissible exercise of the statutory discretion to condition that provision in a way that benefits the claimant so as to facilitate the person's maintenance, support, education or advancement in life but in a manner that quarantines the provision from creditors, provided it does not alter existing or vested entitlements so as to deprive creditors of funds to which they would otherwise be entitled.
[43] Primary reasons [190](h).
None of the cases to which the parties refer suggests or requires the upholding of ground 2. To the contrary, to the limited extent that some of the cases bear on ground 2, they support the approach we have outlined in [74] ‑ [76] above.
There are no appellate decisions which seem to us to shed any light on the resolution of ground 2. Neither of the appellate decisions in Diver v Neal are of assistance for present purposes. In the first decision,[44] Basten JA, with whom Allsop P and Ipp JA agreed, recognised the possibility that the legislation may permit the establishment of a trust so that the claimant could obtain benefits that were inaccessible to creditors. However, it was not necessary in that case to reach any final conclusion as to the availability or appropriateness of such an approach. In the second decision,[45] the court identified questions that might arise in making such an order but declined to grant leave to reopen the appeal, so that those questions did not arise.
[44] Diver v Neal [2009] NSWCA 54; (2009) 2 ASTLR 89.
[45] Diver v Neal [2009] NSWCA 115.
In Varnel v Heyes,[46] the court made provision for the claimant under the Family Provision Act 1982 (NSW) by way of a trust in her favour, in circumstances where the claimant owed a substantial sum to Centrelink. Recognising that payment of a lump sum to the claimant would enure to the benefit of Centrelink - which would not advance the object of the award - the court crafted an award by way of a trust for the benefit of the claimant.[47]
[46] Varnel v Heyes [2008] NSWSC 978.
[47] Varnel v Heyes [42] - [48].
As the primary judge in the present case explained, two first instance decisions in the long‑running series of decisions concerning the estate of George Wentworth provide some support for the approach adopted by his Honour. Both decisions were set aside on appeal, but on grounds that did not impugn the appropriateness of crafting orders, as each first instance judge had done, for the purpose of ensuring that an award under the Family Provision Act 1982 (NSW) was not available to the claimant's creditors.
In the first decision, Bryson J made orders in favour of the plaintiff, who was the daughter of the deceased. The judge found that it was appropriate that payment of provisions for the plaintiff be conditional upon those payments being actually applied for the plaintiff's maintenance, in circumstances where his Honour expressed a concern that the provision to her of a large sum of capital would be consumed in conflict and litigation and not used for the purpose for which the legislation authorised it to be awarded. Bryson J's orders provided for a sum to be paid on conditions that included that the plaintiff's entitlement not be assigned or released, and not be available for the benefit of any creditor. The plaintiff's appeal against the imposition of those conditions was allowed on the basis that the evidence and the judge's findings did not sustain and justify the imposition of the conditions.[48] The New South Wales Court of Appeal did not say anything as to the appropriateness, or otherwise, of the orders if a proper evidentiary foundation had existed.
[48] Wentworth v Wentworth (Unreported, NSWCA, 3 March 1992), 26 ‑ 27.
The plaintiff brought a claim for further provision under s 8 of the Family Provision Act 1982 (NSW), alleging a substantial detrimental change in circumstances. At first instance, Santow J accepted that a substantial detrimental change in the plaintiff's financial circumstances had occurred by reason of her liability for legal costs. Taking account of that liability, the plaintiff's financial position was, in substance, a negative net worth of more than $1.5 million. In delivering judgment on the plaintiff's application, Santow J foreshadowed making orders along the following lines:[49]
However, to ensure that any order made does not in fact lack utility, even if it cannot be said that it will inevitably do so, and to protect the funds made available to the Plaintiff from claims of creditors, so far as this may be legally possible, I will make orders incorporating the following approach:
(a) a protective trust should be set up in favour of the plaintiff within the meaning of s 45 of the Trustee Act, in a form approved by the Court,
(b) the trust should be capable of paying an indexed annuity for life of $35,000 per annum, indexed in the manner ordered by Bryson J on a two yearly basis, by purchasing or having vested in it an annuity in that amount, by the defendant paying for the same out of the estate or notional estate or both, and
(c) for an independent trustee company to be appointed as Trustee of such trust. (emphasis added)
[49] Wentworth v Wentworth (Unreported, NSWSC, 23 May 1994), 21.
Section 45 of the Trustee Act 1925 (NSW) is analogous to s 61 of the Trustees Act1962 (WA), the terms of which are set out in Mullins AJA's reasons.
In explaining this approach, Santow J observed that a protective trust is efficacious without offending the Bankruptcy Act 1966 (Cth).[50] Further, his Honour considered, a protective trust could not be said to offend a notion of being a highly artificial contrivance contrary to public policy of the kind which the court should not sanction. That is because, his Honour said, protective trusts of property which never belonged to the beneficiary in the first place could hardly offend any such policy. Further, the notion of any such offence is contradicted by the statutory recognition of such trusts in legislation such as the Trustee Act 1925 (NSW) and its counterparts in other States and in the United Kingdom.
[50] However, now see s 302B of the Bankruptcy Act, which was enacted subsequently to this decision.
On appeal, the Court of Appeal of New South Wales set aside the orders of Santow J, concluding that his Honour had erred in finding that the plaintiff had endured a substantial detrimental change in her circumstances. The Court of Appeal of New South Wales appeared to favour the view that there was an inadequate factual foundation for the imposition of the conditions of Santow J's orders, but otherwise the court did not comment on the appropriateness of the use of a protective trust.
Finally, the English decision in Re Abram[51] is also consistent with the approach adopted by the primary judge. In Re Abram, the claimant under the applicable family provision legislation in the UK had entered into an individual voluntary arrangement under the Insolvency Act 1986 (UK). Such an arrangement is a statutory mechanism providing an alternative to bankruptcy by which a debtor's approved repayment proposal binds creditors, preventing the bankruptcy of the debtor. The court considered that the provision of funds to pay off creditors would not be proper provision for maintenance, but that the appropriate form of relief was a settlement to be effected such that a proportion of the estate was settled on the claimant for life, with the remainder on trust on terms that if the claimant became bankrupt, his life interest would determine and be replaced by a discretionary trust for the claimant and his immediate family. The claimant had not sought relief along those lines from the court. That was readily explained by the terms of the claimant's individual voluntary arrangement, under which such an application by the claimant would have been a breach. Nevertheless, the court considered it appropriate to fashion the order so as to make provision for the claimant's maintenance.[52]
[51] Re Abram [1996] 2 FLR 379.
[52] Re Abram (396).
The appellant's submissions in [57](2) above fall away when the purpose of the primary judge's order is so understood. Given that the purpose of including beneficiaries in addition to the respondent was not to make provision for those other beneficiaries, it is beside the point that their needs were not considered by the court. Moreover, as already explained, the inclusion of the other beneficiaries advanced, rather than undermined, the objects of the Act.
For the above reasons, we reject the appellant's submissions in (1) and (2) of [57] above. The rejection of those submissions is fatal to ground 2, as those submissions capture the gravamen of the error asserted by the ground, as expressed in pars (a) and (b) of the ground: see [56] above. Further and in any event, the balance of the appellant's submissions does not sustain ground 2.
For the reasons explained in [63] and [68] above, the trustees' discretion to pay income or capital of the trust fund to a beneficiary other than the respondent is substantially confined. The existence of that discretion, so confined, does not undermine the conclusion that the purpose of the trust is the proper maintenance, support, etc, of the respondent. Thus, we reject the appellant's submission in [57](3) above.
As to the appellant's submission in [57](4) above, it may be accepted that providing for the trust to terminate on the respondent's death would be more consonant with the object sought to be advanced by the primary judge's order - namely to make adequate provision for the proper maintenance, support, etc, of the respondent. However, this specific aspect of the terms of the trust constituted by the primary judge's order does not deny its proper characterisation as explained in [68] ‑ [71] above and does not sustain the complaint asserted in ground 2, as summarised in [56] above.
For these reasons, ground 2 fails.
Conclusion
For the above reasons, we would dismiss the appeal.
We would hear from the parties as to the costs of the appeal.
MULLINS AJA:
The appellant is the son of the testator who died on 13 January 2019 aged 87 years leaving a will dated 17 December 2009. The testator's husband predeceased her in 2002. The son in his capacity as the executor and trustee of the testator's estate is the second respondent in this appeal but is not actively participating in the appeal in that capacity. The capacity in which he is the appellant is as a beneficiary under the will. The first respondent who was born in 1960 is the eldest daughter of the testator and was successful in her application under s 6 of the Family Provision Act 1972 (WA) (Act) in obtaining an order for provision from the testator's estate: AB v FGH [2022] WASC 244 (the reasons). The first respondent was the fourth defendant in the proceeding before the learned primary judge. The remaining two daughters of the testator were respectively the first and the second plaintiffs in the proceeding (and will be referred to by those designations).
At the date of the testator's death, the net estate was valued at $6,465,175. Under the will the first plaintiff received $300,000 and some chattels, the second plaintiff received $600,000 and some chattels and the first respondent received $25,000 and some chattels. A gift of $25,000 was given to each of the three children of the first respondent and to each of the two children of the second plaintiff. The residuary estate was left to a testamentary trust established under the will with the son as trustee and with the son and his daughter from his second marriage (the granddaughter) as the immediate beneficiaries. The granddaughter was 19 years old at the time of the trial. The first and second plaintiffs' claims under the Act in the proceeding were settled before the trial and they did not participate in the trial. At the time of the trial the net value of the residuary estate was approximately $3 million. The trial proceeded between the first respondent as the claimant and the son in both his capacities as the executor and trustee of the testator's estate and a beneficiary under the will.
At the time of the trial in August and October 2021, the first respondent's financial position was described (at [81] of the reasons) as 'complex' and 'dire' and it was estimated (at [90] of the reasons) that her liabilities exceeded her assets by between $2 million and $3 million. The primary judge found (at [197] of the reasons) that the testator did not make adequate provision for the first respondent's maintenance, support and advancement in life (which will be referred to as maintenance and support). The primary judge concluded (at [217] of the reasons) that a sum of $850,000 should be set aside from the estate as provision for the first respondent's maintenance and support to be held on the terms of a discretionary trust in which the first respondent is the primary beneficiary and her children and grandchildren are together with her the general beneficiaries. Formal orders were ultimately made on 1 September 2022 that amended the terms of the testator's will to accommodate the setting up of such a discretionary trust for the sum of $850,000 and otherwise to reflect the conclusion of the primary judge.
The first respondent had not sought the inclusion of her children and grandchildren as beneficiaries under any discretionary trust imposed on the provision made for the first respondent. No party had been heard by the primary judge on the inclusion of the first respondent's issue as beneficiaries under a discretionary trust imposed on the fund set aside to provide for the first respondent before the reasons were published. The primary judge's decision is not challenged on the basis that the appellant was not given an opportunity to make submissions on the inclusion of the first respondent's issue as general beneficiaries under the discretionary trust described at [207] and [217] of the reasons.
Grounds of appeal
The grounds of appeal are:
1.The primary judge erred in law in finding that s 6(1) of the Act permitted provision to be made by way of the establishment of a discretionary trust the potential beneficiaries of which included the first respondent, whose personal circumstances justified the provision, and the children and grandchildren of the first respondent, that is, the testator's grandchildren and great grandchildren, being persons who were not eligible to make a claim for provision under s 7(1) of the Act, and whose financial and other circumstances were irrelevant for the determination of proper provision.
2.Alternatively, the primary judge erred in law in exercising the discretion under s 6(1) of the Act to make provision for the first respondent on the basis of a wrong principle, namely on the basis that:
(a)it is a permissible exercise of the statutory discretion to condition the provision in a way that benefits the claimant but in a manner that quarantines the provision from bona fide creditors; and
(b)the means by which provision can be made may include a discretionary trust in which the first respondent is the primary but not the sole beneficiary and the other beneficiaries are the first respondent's children and grandchildren, being persons who are not themselves eligible to make a claim under s 7(1) of the Act, where such persons are not dependants of the first respondent, no assessment was made of their individual needs or claim to provision (and who did not make a claim in the proceedings), and their inclusion as objects is predominantly for the purpose of insulating the funds from creditors.
It is settled law that there is the two‑stage approach to the exercise of the statutory power (such as set out in s 6(1) of the Act) to make orders for family provision from a deceased's estate in favour of an applicant: Singer v Berghouse (1994) 181 CLR 201 at 208 ‑ 210. There is no challenge on the appeal to the primary judge's finding (at [197] of the reasons) that the first respondent had shown that adequate provision had not been made from the deceased's estate for her proper maintenance and support and therefore the first stage of the process under s 6(1), which is the jurisdictional question, was satisfied. There is also no challenge on the appeal to the quantum of the fund of $850,000 set aside for the first respondent's maintenance and support.
Both grounds of appeal concern the second stage of the process under s 6(1) of the Act which is the determination of whether any provision should be made for an applicant and, if so, what should be the amount and form of the provision, so that the applicant is provided with proper maintenance and support from the relevant deceased's estate.
Some relevant facts
The grounds of appeal are primarily directed to matters of principle. In order to deal with them, it is convenient to refer briefly to some of the facts found by the primary judge.
From 1964 the testator and her husband established a market garden on acreage and sold the produce at the Perth Markets and the whole family was involved in the family enterprise, but the son made the most significant contribution of the children of the family to the farm and then to assisting his parents in profitable commercial investments: see [21] ‑ [23] of the reasons.
The first respondent left the farm when she married in 1979 and she and her husband had three children born between 1981 and 1983: see [25] ‑ [26] of the reasons. The first respondent and her husband separated in 2005 and divorced in 2007 and the ensuing litigation between them had been protracted which had 'a destructive impact' on the first respondent's financial position and an impact on her application under the Act: see [27] of the reasons. Before the trial recommenced on 12 October 2021, the High Court handed down its decision in a proceeding arising from the first respondent's Family Court litigation: Charisteas v Charisteas [2021] HCA 29; (2021) 273 CLR 289.
The relationship between the first respondent and the testator had been reasonable until the early 1990s when tensions escalated between them from about 1990 until 1992 and there was no contact between them between 1992 until 1997: see [40] ‑ [41] of the reasons. In 1997 the appellant was undergoing a bitter divorce from his first wife and the testator contacted the first respondent and asked her to provide support to the appellant and relationships were resumed between the first respondent and the rest of the family for a short time: see [42] ‑ [43] of the reasons. There was then a further breakdown in the relationship between the first respondent and the appellant and the testator from later in 1997 until 2001 when her father was critically ill: see [44] of the reasons.
After the testator's husband's death, there was a family meeting on 27 April 2002 attended by the testator, the first respondent and her then husband, the other two daughters of whom one attended with her husband, and the family accountant. The appellant did not attend. This meeting was fraught: see [49] ‑ [65] of the reasons.
The first respondent's relationship with the testator ceased altogether after an incident at a memorial service in August 2002 for the testator's husband: see [66] of the reasons.
The primary judge found (at [79] of the reasons) that the dysfunction and estrangement in the relationship between the first respondent and the testator was significantly contributed to, and compounded by, the appellant.
The first respondent was not working at the time of the testator's death and at the time of trial she was living in accommodation with her son for which they shared the cost and her weekly income was derived from Centrelink and her children with the assistance from her children being in the form of a long‑term loan which the first respondent estimated to be $500,000: see [80] of the reasons.
The proceedings in the Family Court between the first respondent and her former husband were not resolved after 16 years and there was little prospect of the first respondent having success in the pursuit of maintenance from her former husband: see [82] ‑ [86] and [94] of the reasons. The first respondent had no assets other than those she may have expected from the Family Court proceedings and it was not possible to assess what, if any, financial benefit might ultimately be obtained from those proceedings: see [87] and [94] of the reasons.
Apart from the first respondent's debt to her children of some $500,000, her debts for legal costs and litigation funding at the time of the trial of the family provision application were recorded as being 'in the vicinity of $3.5 million and accruing interest daily': see [88] of the reasons. In 2006 the first respondent had borrowed from a lender $900,000 for legal fees and living expenses and the loan was guaranteed by the first respondent's daughters. The lender obtained a judgment against the first respondent and her daughters in January 2016 for $2.5 million and at the time of the trial the judgment had not yet been enforced: see [89] of the reasons.
The primary judge noted the agreement at the trial by counsel for the first respondent and the appellant that the first respondent's liabilities will exceed her assets 'by some, probably between two and three, million dollars': see [90] of the reasons. The first respondent's conduct was not responsible for the course of her Family Court proceedings and her present circumstances were not of her own making in any significant way: see [91] of the reasons.
The first respondent has no independent means of supporting herself and, irrespective of the outcome of the Family Court proceedings, it was highly probable that the first respondent's debts will greatly exceed her assets by an overwhelming amount: see [94] of the reasons.
Even though the first respondent has never been bankrupt and is not an undischarged bankrupt and there was no evidence before the primary judge of any bankruptcy proceeding having been commenced, she has significant debts and no capacity to satisfy them, so that if she were to receive any significant capital sum 'it is very likely that it will find its way to her creditors either by agreement or by legal process': see [95] of the reasons.
The reasons
At the trial before the primary judge, the first respondent recognised that if she were successful in obtaining an order for family provision by way of a lump sum, her financial circumstances meant that the money would go to her creditors and the first respondent therefore sought an order that the funds be placed into a trust so that payments could be made for her maintenance and advancement in a manner that protected and insulated the capital funds from her creditors: see [114] of the reasons. The first respondent conceded before the primary judge that 'in the usual case, the court's discretion ought not to be exercised in favour of an applicant if it will result in the funds from the estate flowing through to creditors': see [114] of the reasons.
The primary judge considered many family provision authorities where a successful applicant was either insolvent or financially vulnerable and the issues of the relationship between bankruptcy legislation and family provision legislation and the claims of creditors against an applicant for family provision were explored.
The primary judge analysed (at [122] ‑ [133] of the reasons) the judgments at first instance of Bryson J and Santow J from which there were successful appeals respectively in Wentworth v Wentworth (Unreported, NSWCA, 3 March 1992) and Wentworth v Wentworth (1995) 37 NSWLR 703. Despite Ms Wentworth's successes in having the orders of Bryson J and Santow J respectively set aside on appeal, the primary judge concluded that 'there was no suggestion in the history and analysis of the Court of Appeal that error lay in the fashioning of the relief in a manner designed to protect the funds from creditors': see [134] of the reasons.
The primary judge (at [171] of the reasons) placed particular reliance on the approach of the respective courts in Re Abram (deceased) [1996] 2 FLR 379, Herszlikowicz v Czarny [2005] VSC 354 and Varnel v Heyes [2008] NSWSC 978 in fashioning orders for further provision that prevented funds from becoming available to the applicant's creditors.
The primary judge set out (at [190] of the reasons) the summary of principles that the primary judge distilled from the cases discussed in the reasons. Paragraphs (h), (i), (j) and (k) of the summary are particularly relevant to the grounds of appeal:
(h)Where the court is persuaded that provision from the estate is justified, it is a permissible exercise of the statutory discretion to condition that provision in a way that benefits the claimant so as to facilitate the person's maintenance, support, education or advancement in life but in a manner that quarantines the provision from creditors, provided it does not alter existing or vested entitlements so as to deprive creditors of funds to which they would otherwise be entitled.
(i)The grant of such provision does not remove or disgorge something that would otherwise vest in or belong to the claimant so as to deprive creditors of funds they would otherwise be entitled to claim. The claimant is granted a benefit to which the claimant or the claimant's creditors did not have any right or entitlement. There is no relevant inconsistency with the Bankruptcy Act.
(j)The means by which that is to be achieved may include a discretionary trust in which the claimant is the primary but not the sole beneficiary and the other beneficiaries are members of the claimant's own family. Such a mechanism may reflect precisely what a just and wise testator would do in circumstances where a child is facing financial difficulties.
(k)A distinction may be observed in the authorities. One concern is to ensure that a claimant does not generate wasteful debt and unnecessary creditors by using the grant of provision to incur imprudent or extravagant expenditure. That course is illustrated by cases such as Herszlikowicz v Czarny and Carrol v Cowburn [[2003] NSWSC 248]. There is no doubt that in those circumstances the court may craft the grant of provision so as to inhibit the ability of a claimant to incur such expenditure. A related but separate concern is to avoid the grant of provision simply being absorbed by existing creditors. In my view, provided the court is not seeking to disgorge an asset or proprietary interest that has already vested in the claimant or the claimant's trustee in bankruptcy, the court is no less able to fashion the grant of provision so as to quarantine that provision from creditors.
The primary judge found (at [199] of the reasons) that it was not appropriate to grant the first respondent a capital sum from the estate, as her debts were so overwhelming that the funds would achieve nothing other than reducing her debts which would not serve the statutory purpose embodied in the Act. The primary judge then concluded (at [200] of the reasons) that as the first respondent was not, and never had been, an undischarged bankrupt, the grant of provision through a discretionary trust would achieve the object of the Act without disturbing any entitlement of the first respondent's creditors, as the creditors had no entitlement to the funds of the estate.
An issue before the primary judge was whether the rule in Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282; affirmed (1841) Cr & Ph 240; (1841) 41 ER 482 would permit the first respondent to bring the discretionary trust to an end and require the transfer of the trust property to herself, if the first respondent were the sole beneficiary of a trust imposed in respect of the lump sum ordered by way of further provision with the trustees having power to apply the income or the capital as they thought fit for the first respondent's maintenance and support with a reservation to the trustees of the power of accumulation of the income in any year. As noted by the primary judge (at [204] of the reasons), the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) [2005] HCA 53; (2005) 224 CLR 98 at [47] referred to the modern formulation of the rule to the effect that 'an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation'.
At the trial the parties differed on whether the rule in Saunders v Vautier applied to a court ordered trust. The primary judge considered (at [206] of the reasons) that it was doubtful that the rule in Saunders v Vautier could take effect in circumstances where provision under the Act was expressly ordered to take the form of a trust, but (at [207]) decided it was not necessary to determine that issue because under the trust proposed by the primary judge the first respondent's issue would also be beneficiaries, so that the rule in Saunders v Vautier could not apply.
The discretionary trust
The discretionary trust was described as Annexure A in clause 17A that was inserted in the testator's will by the primary judge's orders and Annexure A was attached to the orders. A son‑in‑law of the first respondent and an independent accountant were appointed the trustees. Under clause 2 of the trust, the trustees received the gift of $850,000 under clause 17A of the will upon the trusts for the beneficiaries. Clauses 3 and 4 of the trust state:
3.Until the Trust is wound up, the Trustees may apply such of the income of the trust fund as they think fit for any, or any combination of, the maintenance, support, education or advancement in life of the Primary Beneficiary and the Trustees may, if the Trustees consider in their unfettered discretion that such a distribution is not in the interests of the Primary Beneficiary for any reason whatsoever, apply such of the income of the trust fund as they think fit to one or more of the General Beneficiaries.
4.The Trustees may in their unfettered discretion at any time and from time to time apply so much of the capital of the trust fund as they consider necessary or desirable for the purposes of clause 3 of this Annexure A and the whole of the capital may even be applied for these purposes.
Under clause 5 of the trust, the trustees may pay income or capital for a beneficiary's benefit to any third party providing housing, goods, services or care for a beneficiary. Clause 5 does not expressly state that the trustees' decision to pay a third party for providing those services for a beneficiary is subject to the same hierarchy of decision making that applies to clauses 3 and 4 of the trust. As clause 5 is concerned with a payment of income or capital that is otherwise regulated by clauses 3 and 4 of the trust, it is implicit that the same hierarchy of decision making applies to any payment of income or capital to a third party for the benefit of a beneficiary. Under clause 6 of the trust, the trustees are not bound in any year or years to distribute any income or capital and may accumulate the excess income of any year ending 30 June and apply it as income for a future year. The vesting date for the trust set out in clause 10 is the earlier of the date of the death of the last remaining beneficiary, the date of the complete depletion of the trust fund, or the date prescribed by law as being the last day of the perpetuities period for the purposes of the rule against perpetuities.
What are the limits of the power conferred by s 6(1) of the Act?
The first ground of appeal raises the issue of the construction of s 6(1) of the Act and whether it extends to the making of provision by way of a discretionary trust where the potential beneficiaries under the discretionary trust include persons not eligible to make a claim for provision under s 7(1) of the Act.
Section 6(1) of the Act provides:
If any person (in this Act called the deceased) dies, then, if the Court is of the opinion that the disposition of the deceased's estate effected by his will, or the law relating to intestacy, or the combination of his will and that law, is not such as to make adequate provision from his estate for the proper maintenance, support, education or advancement in life of any of the persons mentioned in section 7 as being persons by whom or on whose behalf application may be made under this Act, the Court may, at its discretion, on application made by or on behalf of any such person, order that such provision as the Court thinks fit is made out of the estate of the deceased for that purpose.
In determining the breadth of the power to make orders for further provision under s 6(1) of the Act, subsections (3) and (4) of s 6 are relevant:
(3)The Court may attach such conditions to the order as it thinks fit, or may refuse to make an order in favour of any person on the ground that his character or conduct is such as in the opinion of the Court to disentitle him to the benefit of an order, or on any other ground which the Court thinks sufficient.
(4)In making any such order the Court may, if it thinks fit, order that the provision may consist of a lump sum or a periodical or other payment.
Section 7(1) of the Act sets out the categories of persons who are eligible to apply under the Act for provision out of the estate of any deceased person.
An argument advanced by the appellant on the appeal that was not advanced before the primary judge was that the general power in s 6(1) of the Act does not extend to authorise the establishment of a trust fund under which the potential beneficiaries include those who were not eligible to make a claim under s 7(1) of the Act. The appellant argues such a wide interpretation of the general power would render otiose the specific power in s 13(1) of the Act and the specific limit found in s 13(1) that the beneficiaries of the trust established by the court under that provision must be those who are eligible to make a claim for provision.
Subsections (1) and (2) of s 13 of the Act provide:
(1)The Court may, if it thinks fit, order that an amount specified in the order shall be set aside out of the estate and held on trust as a class fund for the benefit of 2 or more persons specified in the order, being persons for whom provision may be made under this Act.
(2)Where an amount is ordered to be held on trust as a class fund for any persons under subsection (1), that amount shall be invested and the trustee may at his discretion, but subject to such directions and conditions as the Court may give or impose, apply the income and capital of that amount, or so much thereof as the trustee from time to time thinks fit, for or towards the maintenance, support or education (including past maintenance, support or education provided after the death of the deceased) or the advancement or benefit of those persons, or any one or more of them to the exclusion of the other or others of them in such shares and proportions and generally in such manner as the trustee from time to time thinks fit; and may so apply the income and capital of that amount notwithstanding that only one of those persons remains alive.
The Act was enacted in response to the recommendations in the report of the Law Reform Commission of Western Australia (LRC) on The Protection to be given to the Family and Dependants of a Deceased Person (August 1970). Section 6 of the Act is based on s 5 of the draft bill included in the report and s 13 of the Act is based on s 7 of the draft bill. Recommendation 50(4)(b) of the report is that for 'the smoother working of the legislation':
Power to be given to the court to order that an amount be set aside as a class fund for the benefit of applicants of a class whose future individual needs cannot at the time be assessed accurately. A trustee appointed by the court to have power, under the court's guidance, to use the money in whatever proportion appears reasonable for the benefit of the beneficiaries ‑ see draft Bill, cl. 7. New Zealand, Tasmania and the A.C.T. have a similar provision.
Somers J in Estate of Cooper [1987] NZCA 198 at 3 observed that the equivalent provision in New Zealand empowered the establishment of a class fund to recognise the possibility that there may be cases where distinctions between the needs of two (or more) claimants were neither possible nor practicable such as a claim by infants. It is apparent from the LRC's report that s 13(1) was included in the Act to expand the powers of the court and to provide an exception to the approach under s 6(1) of the Act that an order for family provision is made for the specific needs of each applicant. Section 13(1) is not about limiting the circumstances in which further provision can be imposed by way of a trust but about providing for an exceptional circumstance in which the court can order a class fund for two or more claimants without determining the individual needs of each claimant. It is therefore not a proper approach to the construction of the Act to use s 13(1) to read down the broad discretion given to the court under s 6(1) of the Act to make such provision as the court considers fit for an applicant who satisfies the jurisdictional question of not being left adequate provision from a deceased's estate for the applicant's proper maintenance and support. The construction argument raised by the appellant based on s 13(1) must be rejected.
That leaves the question to be answered in respect of ground 1 of whether s 6(1) is wide enough on its terms to permit provision to be made by way of a discretionary trust where the primary beneficiary is the applicant for further provision but the discretionary trust includes as potential beneficiaries persons who were not eligible to make a claim for provision under s 7(1) of the Act.
It will assist in dealing with this question to consider the authorities where further provision has been imposed by way of a trust or on conditions or the possibility of doing so has been considered.
The primary judge analysed Re Abram at [135] ‑ [140] of the reasons. The applicant in Re Abram succeeded in showing that he had a good claim for further provision under the Inheritance (Provision for Family and Dependants) Act 1975 (UK) (the UK Act) from his late mother's estate. After he commenced the proceeding, he entered into an individual voluntary arrangement (IVA) under the Insolvency Act 1986 (UK). It was a condition of the IVA that he was allowed to continue the proceeding but he had to pay to his creditors any moneys received from the proceeding. The mother's estate had been left to charities. The court considered (at 396) that a capital sum with the object of paying off the debts under the IVA was not appropriate as the applicant would not receive the benefit of the intended maintenance. Even though the applicant was prevented by the IVA from asking for any provision other than payment of moneys, the court decided (at 396) that an order could be made that was 'right' for the applicant's maintenance and, as it was a large estate, the most obvious method of maintenance was by way of income.
It was open to the court in Re Abram to make any of the orders by way of further provision set out in s 2 of the UK Act, including under s 2(1)(d) for 'an order for the settlement for the benefit of the applicant of such property comprised in that estate as may be so specified'. The court therefore decided to order 50% of the estate net of everything except inheritance tax to be settled on the applicant for life on protective trusts with the remainder on the trusts of the will. The court noted the consequences of such an order at (396 ‑ 397):
What is called a 'protected' life interest necessarily imports the statutory trusts under s 33 of the Trustee Act 1925; this means that the income is, all other things being equal, paid to Mr Abram for life (what he does with the income is his own business) but if he either goes bankrupt or seeks to alienate his interest the life interest determines and is replaced by a discretionary trust for Mr Abram and his immediate family ‑ in the ordinary way trustees are likely to go on by exercising their discretion in favour of the principal beneficiary, but they do not have to and the other discretionary objects have no vested right to the income at all.
The primary judge's extensive analysis of Herszlikowicz is set out at [148] ‑ [153] of the reasons. In Herszlikowicz, Hargrave J proposed making provision for the defendant by imposing a discretionary trust pursuant to s 96(2) of the Administration and Probate Act 1958 (Vic) (the Victorian Act) on the basis (at [183] ‑ [184] of the reasons) that a trust was necessary in order to protect the plaintiff from himself and that 'a wise and just testator would have thought it proper that any provision which he made for the plaintiff would, in all the circumstances of the case, ensure for the benefit of the plaintiff's wife and children'. There is no equivalent provision under the Act to s 96(2) of the Victorian Act which provides:
The Court may in making any order under this Part impose such conditions, restrictions and limitations whether to prevent, restrict or defeat any alienation or charge of or upon the benefit of any provision made under such order or otherwise as it thinks fit.
It is not apparent from the decision in Herszlikowicz as to the final orders made by Hargrave J but it is implicit that Hargrave J considered there was power under the Victorian Act to impose a discretionary trust by way of further provision. Under s 91(1) of the Victorian Act, the eligible applicants were any person for whom the deceased had responsibility to make provision, but under s 91(2), the court must not make an order for provision in favour of a person unless that person has applied for the order or another person has applied for the order on behalf of that person. The discretionary trust to benefit the plaintiff and his wife and children was proposed in Herszlikowicz on the basis that it was the plaintiff (and not his wife and children) who was the applicant. No issue of construction of s 91(1) or s 96(2) of the Victorian Act was canvassed in the judgment as to whether the power to order further provision extended to ordering the funds be held on a discretionary trust where there were beneficiaries other than the plaintiff.
The primary judge's detailed consideration of Varnel is set out at [156] ‑ [160] of the reasons. In Varnel, the plaintiff de facto partner of Mr Heyes was left a legacy of $50,000 under his last will and the residue of the estate was left to Mr Heyes' son who was the executor and the defendant to the claim. The plaintiff had met Mr Heyes about 10 years before he died. She moved in with him 18 months later. The plaintiff had a debt to Centrelink in the sum of about $86,000, as a result of her failure to disclose she was residing with Mr Heyes. Her liability to her solicitors for costs exceeded her legacy of $50,000. It was noted (at [42]) that the evidence disclosed that Centrelink intended to recover the debt by instalments out of the plaintiff's pension payments at a rate of 14% of her pension payment but the evidence did not address Centrelink's attitude if the plaintiff received a lump sum payment from the estate. Macready AsJ inferred (at [42]) that Centrelink would require repayment of the debt from a lump sum payment 'which would defeat the object of the award'. Macready AsJ concluded at [47] ‑ [48]:
It seems to me that an additional award of $100,000 upon trust to be applied to supplement her expenses to rent premises or provide for other accommodation would be of assistance. It would not be her property which could be used to repay her Centrelink debt and the amount would not greatly affect her pension.
Such provision would be for the plaintiff's future benefit and would not be contrary to public policy. She will still be required to pay for her misdeeds by reduction of her pension.
In Diver v Neal [2009] NSWCA 54; (2009) 2 ASTLR 89, the stepdaughter of the testator was given a legacy under the will of $20,000 where the estate realised over $650,000. The judge at first instance had concluded that the applicant was not left without adequate provision. It was noted by Basten JA (with whom Allsop P & Ipp JA agreed) (at [44]) that the judge at first instance had come to a pessimistic view about the appellant's financial circumstances and that, even if the appellant had otherwise established her claim for provision, no order should be made because 'any additional provision which might be made for the Plaintiff would have the practical effect, not of providing for the Plaintiff's advancement in life, but of benefiting the creditors of the Plaintiff and her husband'. It was held on appeal (at [63]) that the judge's view about the appellant's financial circumstances was a critical element in the assessment of adequate provision and had been given little or no weight and (at [64]) the court on appeal assessed that the provision made out of the testator's estate was inadequate. Further provision of $60,000 was ordered in addition to the legacy of $20,000.
Basten JA noted (at [68]) the judge's reliance on Caska v Caska [1999] NSWSC 289 at [14], [15] and [23]. (The relevant applicant in Caska was found not to have a need for provision for maintenance out of his father's estate, so that it was unnecessary for Bryson J to consider whether provision ought to be ordered. Bryson J considered that, in any case, the applicant would not succeed at the second stage of the two‑stage process as the likelihood was that any provision would go to the benefit of the applicant's creditors.) Basten JA observed (at [68]) that if any provision were likely to be vulnerable to the claims of creditors, s 15 of the Family Provision Act 1982 (NSW) 'may permit the establishment of a trust so that the applicant may obtain benefits from the relevant provision which will then be inaccessible to creditors' and referred to Varnel. Basten JA reserved (at [68]) the question of the availability or appropriateness of payment of provision into a trust, as no application was made for further provision in that form. Basten JA then stated at [69]:
The dicta in Caska should not be treated as establishing any general principle. A financial benefit in circumstances where an applicant's business interests require an injection of capital may be of great assistance in permitting advancement in life. The fact that the benefit goes to paying off creditors, thereby saving the loss of an asset or reducing ongoing liabilities, does not diminish the benefit to the applicant. Different considerations may apply where it has been shown that the applicant is insolvent at the date of the trial, but that is not this case and the relevance of such a finding should be left to a case in which the point arises.
The reference in the above quote to the 'dicta in Caska' is a reference to the indication by Bryson J that, if it had been necessary to consider the second stage of the two‑stage process, no provision would have been ordered because of the likelihood that it would go to the benefit of creditors.
In addition to agreeing with Basten JA in Diver, Allsop P added the following observations at [1]:
Care needs to be taken in the use of Caska v Caska [1999] NSWSC 289. As Basten JA says, the dicta in Caska should not be treated as establishing any general principle. One could envisage a particular predicament of an eligible person whereby it would be relevant to consider that any order in his or her favour would diminish the estate to meet the claims of others to no appreciable (financial or social) benefit to him or her in his or her debt‑ridden condition. That is not to say, however, that relief from indebtedness may not be of significant benefit to an eligible person. A small bequest to someone with considerable debts may make the difference (as Mr Micawber said) between happiness and misery.
It is therefore apparent from Diver that the dicta in Caska should be confined to the circumstances of the relevant applicant in that case and not applied more generally.
After judgment was delivered in Diver, the appellant applied for an additional order seeking that the full sum of $80,000 be placed in a discretionary trust to be formed, so that the $80,000 would be kept out of the hands of the appellant's creditors. The court dismissed the application (Diver v Neal [2009] NSWCA 115) (Diver No 2) for procedural reasons (at [13]) on the basis that the question of an order for further provision by way of trust should have been raised on the substantive appeal. The court stated at [14] ‑ [15]:
There is no doubt that the Court has power under s 15 to make an order to protect the assets or bequest in a way for the plaintiff's future benefit in life. This is particularly important in cases where the plaintiff is a minor, or is suffering from some other form of legal incapacity, or has displayed an improvidence or weakness in some aspect of his or her life which might see any bequest endangered. However, taking the bequest out of the reach of creditors is another matter entirely. This was not the aim of the orders in the three cases referred to by the appellant: Herszlikowicz v Czarny[2005] VSC 354; Varnel v Heyes[2008] NSWSC 978 and Stares v Public Trustee[2005] NSWSC 37.
Certainly as to the first $20,000, which was the bequest by the testator, there appears to be no reason why the act of the testator should be interfered with to impose a discretionary trust on the bequest which he made. As to the additional $60,000 we would not permit the reopening of the appeal to place this money in a discretionary trust out of the hands of creditors. The matter should have been addressed in the context of the totality of the arguments as to the operation of the Act. The degree of protection of any bequest may have had a bearing upon the totality of the orders made. Secondly, important questions of conformance of the operation of State law and the procedures of this Court in the context of the Bankruptcy Act and the policy underlying the Bankruptcy Act would arise. These matters would require careful consideration and argument. A relisting and full reargument of this appeal would be required to ventilate those issues. It would be unfair on the Estate to have this additional burden placed upon it in circumstances where the matter could and should have been raised at the appeal.
The primary judge also analysed both Diver and Diver No 2 at [161] ‑ [169] of the reasons. As the primary judge recognised (at [169]), the court in the Diver decisions left open the question of the availability or appropriateness of ordering further provision by way of a discretionary trust to be determined in a case where that was raised.
The stepdaughter of the deceased was successful in her application for further provision from his estate in McCann v Ward [2012] VSC 63. The deceased died before his wife who was the applicant's mother. Hargrave J concluded (at [92]) that the deceased had a responsibility to make adequate provision for the contingency that the applicant would be in financial need if he died before his wife. In order to ensure that the funds ordered by way of further provision were 'not squandered' by the applicant, Hargrave J concluded (at [96]) that the whole of the legacy should be paid to a trustee for the applicant who could make sound financial decisions in her best interests. Hargrave J ordered that the applicant must not, until final distribution of her mother's estate, borrow money or sell or encumber any interest owned by her in any real property without the prior written consent of her trustee. Hargrave J also noted (at [96]) that the court was authorised to make such orders under s 96 of the Victorian Act.
The applicant for provision in Borebor v Keane [2013] VSC 35; (2013) 11 ASTLR 96 who was 26 years old was treated by the testator during his lifetime as if she were his daughter and she qualified as an applicant for family provision under the Victorian Act on the basis that the testator had a responsibility to make provision for her in his will. Because the applicant was vulnerable to the claims of others, Hargrave J concluded (at [115]) that a protective trust should be imposed by the court as a condition of the order for provision. Hargrave J's proposal (at [116] ‑ [117]) was that the amount of the further provision be paid to the Associate Justice who was the Senior Master to be held and managed as trustee in accordance with the terms of the trust and the reasons including that the trust be imposed for a period of 20 years and that the trustee should require proof that the moneys were being expended for the approved purposes.
None of the Australian cases in which a trust has been imposed by way of further provision since Herszlikowicz resulted in the imposition of a discretionary trust but no authority has been identified where the use of a discretionary trust for the fund set aside for family provision for an applicant has been disapproved.
The Act is remedial legislation where the power to make provision is conferred in wide terms which should be liberally construed to give effect to the purpose of the legislation: Barns v Barns [2003] HCA 9; (2003) 214 CLR 169 at [44]. The form that the provision takes and the amount of the provision is, however, constrained by the parameters found in the terms of s 6(1) of the Act. This was explained by Buss P in Lemon v Mead [2017] WASCA 215; (2017) 53 WAR 76 at [58]:
In particular, the words 'for that purpose' at the end of s 6(1) refer to the purpose identified earlier in s 6(1), namely ensuring that 'adequate' provision is made from the deceased's estate for the claimant's 'proper' maintenance, etc. The text and purpose of s 6(1) qualify the court's power at the second stage. The power is confined by the text and purpose to the making of orders which will ensure that 'adequate' provision is made from the deceased's estate for the claimant's 'proper' maintenance, etc.
Mitchell and Beech JJA (the other members of the court in Lemon v Mead) made similar observations at [267] ‑ [268], noting that the power to make adequate provision for the proper maintenance, support, education or advancement in life of the plaintiff 'can only be exercised for that purpose' and 'that purpose controls and limits the power'.
The appellant identified that ground 1 of the appeal is focused on the question of the court's power under s 6(1) of the Act, as a matter of construction, to impose a discretionary trust by way of an order for further provision for an applicant where beneficiaries who were not eligible applicants under s 7(1) were included as beneficiaries under the discretionary trust, in addition to the applicant for further provision. Apart from the construction argument based on s 13(1) of the Act, the appellant did not advance as a separate ground that further provision could not be made for an applicant under s 6(1) by way of a discretionary trust. The appellant pursued ground 1 of the appeal on the basis that the inclusion of the first respondent's children and grandchildren as additional beneficiaries under the discretionary trust when they were not eligible applicants in respect of the testator's estate under s 7(1) precluded the imposition of the discretionary trust as the form in which provision could be made for the first respondent.
It is apparent from the terms of the discretionary trust that it is primarily for the benefit of the first respondent. The trustees under clause 3 of the trust must first apply any income of the trust fund as they think fit for the maintenance and support of the first respondent but secondly, if the trustees consider in their unfettered discretion that such a distribution is not in the interests of the first respondent, they can apply such of the income as they think fit to one or more of the other general beneficiaries. Clause 4 of the trust which gives the trustees an unfettered discretion from time to time to apply the capital of the trust fund for the purposes of clause 3 of the trust means the same hierarchy of decision making applies to the capital of the trust and the trustees must first consider applying any part of the capital as they consider necessary or desirable to do so for the maintenance and support of the primary beneficiary and secondly, where such a distribution is not in the interests of the first respondent, may consider applying any part or all of the capital for one or more of the other general beneficiaries.
Consistent with s 10 of the Act, the order made by the primary judge took effect as an alteration to the will of the testator, as if it were a codicil executed immediately before the testator's death. The establishment of the discretionary trust was not ordered by the court but the result of an order of the court that took effect as if it had been made as a codicil to the testator's will. Even though the primary judge (at [206] of the reasons) was doubtful that the rule in Saunders v Vautier could apply to the order of the court making provision for the first respondent, there is no reason in principle for why the rule in Saunders v Vautier should not apply to a discretionary trust established under the testator's last will.
If the first respondent had been the only beneficiary under the discretionary trust as had been proposed by the first respondent to the primary judge and she became bankrupt, her trustee in bankruptcy would have been able to rely on the rule in Saunders v Vautier to bring the trust to an end and take the capital for meeting the claims of the first respondent's creditors in the bankruptcy. The purpose of the provision for the first respondent's maintenance and support would thereby be defeated.
One way to provide for the first respondent, having regard for her financial circumstances at the time of the trial and potential bankruptcy, was to include her issue as additional beneficiaries under the discretionary trust in whose favour the trustees could elect to make distributions, if desirable to do so, when it was not in the interests of the first respondent for such a distribution of income or capital to be made to the first respondent. The purpose of doing so was to ensure that the discretionary trust was effective to make provision for the first respondent as the primary beneficiary under the discretionary trust.
It is not unusual that an applicant for family provision may have an affliction or be in circumstances that warrant further provision being made on conditions that maximise the prospects that the applicant will, in fact, benefit from the further provision. It may mean that provision is provided by way of an annuity or income payments rather than a lump sum payment. This opens the possibility of a protective trust of the income being imposed to which s 61 of the Trustees Act 1962 (WA) (TA) which provides as follows would apply:
(1)Where any income, including an annuity or other periodic income payment, is directed to be held on protective trusts for the benefit of any person (in this section called the principal beneficiary) for the period of his life or any less period, then during that period (in this section called the trust period) that income shall, without prejudice to any prior interest, be held on trust as by this section provided.
(2)The income to which this section refers shall be held on trust for the principal beneficiary during the trust period or until, whether before or after the termination of any prior interest ‑
(a)the principal beneficiary does, or attempts to do, or suffers, any act or thing; or
(b)any event, other than an advance under any statutory or express power, happens,
whereby, if the income were payable during the trust period to the principal beneficiary absolutely during that period, he would be deprived of the right to receive it or any part of it; and, in any of those cases, as well as on the termination of the trust period, whichever first happens, this trust of the income shall fail and determine.
(3)Where the trust, to which subsection (2) refers, fails or determines during the subsistence of the trust period, then, during the remainder of that period, the income to which that subsection refers shall be held upon trust for the application thereof for the maintenance, education, advancement or benefit of all, or any one or more exclusively of the other or others, of ‑
(a)the principal beneficiary and his, or her, spouse or de facto partner (if any) and his, or her, children or more remote issue (if any); or
(b)where there is no spouse or de facto partner or issue of the principal beneficiary in existence, the principal beneficiary and the persons who would, if he were dead, be entitled to the trust property or the income thereof or the annuity fund (if any) or arrears of the annuity,
as the trustee, in his absolute discretion and without being liable to account for the exercise of that discretion, thinks fit.
(4)This section does not apply to trusts coming into operation before the commencement of this Act, and has effect subject to any variation, contained in the instrument creating the trust, of the trusts declared by subsections (2) and (3).
(5)Nothing in this section operates to validate any trust that would, if contained in the instrument creating the trust, be liable to be set aside.
The history and purpose of provisions such as s 61 of the TA were explained by Green CJ in In re Wilcox [1978] Tas SR 82 at 84. The Tasmanian provision equivalent to s 61 of the TA was described as doing 'no more than provide a convenient means for testators to set up protective trusts by reference to standard form provisions which do not need to be set out in full in the will', as the origin of the provision was the equivalent English legislation that reflected clauses that were commonly found in settlements in England. The effect of such a protective trust would be that if the principal beneficiary did an act or was subject to an event that deprived the principal beneficiary of the right to receive the income or any part of it, the trust of the income would fail and determine and the statutory trust under s 61(3) of the TA would be implemented in favour of the principal beneficiary, his or her partner and his or her children or remoter issue. There would be a statutory substitution of beneficiaries of the income who may not have been eligible applicants under s 7(1) of the Act.
Since the enactment of s 302B of the Bankruptcy Act 1966 (Cth) which came into force on 16 December 1996, a protective trust will not determine on the bankruptcy of the principal beneficiary. Section 302B deems a provision of a trust deed to be void to the extent that it has the effect of cancelling, reducing or qualifying the beneficiary's interest, if the beneficiary becomes a bankrupt, commits an act of bankruptcy or executes a personal insolvency agreement under the Bankruptcy Act.
Particularly when an applicant for family provision has obligations to support a partner and children, a discretionary trust that benefits the partner and children is consistent with providing the further provision to the applicant. Counsel for the appellant appropriately conceded on the hearing of the appeal that, if a trust were created for further provision for an applicant who was an alcoholic or drug addicted that allowed for distributions for the support of the applicant's dependent children, such a trust would be within the power conferred by s 6(1) of the Act for making provision for an applicant.
In determining whether the power for making provision for the first respondent under s 6(1) of the Act has been exceeded, it is relevant to consider that the general beneficiaries (other than the first respondent) were not included as beneficiaries under the subject discretionary trust for the purpose of providing for them from the testator's estate. Their inclusion was incidental to, and facilitated, the purpose of making provision for the first respondent and did not detract from that purpose. The fact that the other general beneficiaries were not eligible applicants under s 7(1) in respect of the testator's estate was not determinative of the exercise of the power, as their inclusion was merely for ensuring that the provision for the first respondent was effective in her financial circumstances in achieving the purpose for which provision could be made under s 6(1) for the first respondent.
The appellant has not shown the power conferred by s 6(1) of the Act cannot be exercised to make provision for an applicant by way of a discretionary trust where there are beneficiaries additional to the applicant who were not eligible applicants themselves but whose inclusion makes the discretionary trust an effective structure for making provision for the applicant. The appellant fails on the construction issue raised by ground 1 of the appeal.
Did the primary judge err in law in exercising the discretion to order provision by imposing the discretionary trust on the fund set aside for the first respondent?
There are two aspects of the exercise of the discretion by the primary judge that are the focus of the appellant's submissions. They were fashioning the order to prevent the funds from becoming available to the first respondent's bona fide creditors and making provision for the appellant's children and grandchildren as the general beneficiaries under the discretionary trust.
The first aspect raises a policy question as to whether it is appropriate for the court to structure an order for family provision under s 6(1) of the Act to insulate the provision from the possible bankruptcy of the first respondent.
The short answer to that policy question is that it is appropriate to do so. It is not until a person becomes bankrupt that the Bankruptcy Act regulates the administration of the bankrupt's estate: see Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 314. As the first respondent was not a bankrupt when the testator died or at the time the primary judge made the order in her favour under s 6(1) of the Act, it was an appropriate exercise of the discretion for the court to structure the provision, so that it reduced the risk of her creditors' succeeding to the funds set aside for the provision for the first respondent for the purpose permitted under s 6(1). As the primary judge concluded (at [199] of the reasons), the purpose of providing for further provision for the first respondent's maintenance and support (that was necessitated by her financial circumstances) would not be achieved, if the provision were made by way of a capital sum that would be used to reduce her 'overwhelming' debts or would encourage the first respondent's creditors to bankrupt her and take the benefit of the provision.
The second aspect raises for consideration the possible orders for provision that were open to the primary judge in considering the second stage of the process under s 6(1) of the Act. The payment of a capital sum direct to the first respondent or to a discretionary trust fund set up with only the first respondent as the beneficiary are not included as neither was a feasible outcome for fulfilling the purpose of s 6(1) in the case of the first respondent. Without suggesting that they were all appropriate orders for the primary judge to make or that the following is an exhaustive list, the possible outcomes included:
(a)making no order for provision for the first respondent on the basis that her bankruptcy was imminent;
(b)setting up a trust fund for the life of the first respondent for the payment to the first respondent of the income from the trust fund subject to a protective trust under s 61 of the TA (which would not be effective in protecting the income, if the first respondent became bankrupt) with the fund reverting to the testator's residuary estate on the first respondent's death;
(c)making provision by way of a discretionary trust in the form that was the subject of the primary judge's orders;
(d)making provision by way of a discretionary trust in the form that was the subject of the primary judge's orders with other general beneficiaries substituted for the first respondent's children and grandchildren, such as the appellant and the granddaughter.
The first respondent's established need and her 'complex' and 'dire' financial position limited the possible outcomes of her application. The first respondent would gain the benefit of any provision made for her only if it were insulated from her creditors. That was not only a relevant but it was a most significant consideration for the exercise of the primary judge's discretion. The inclusion of additional beneficiaries to make the discretionary trust an effective form of provision for the first respondent by insulating the funds from her creditors was an appropriate response to the first respondent's financial circumstances.
The appellant's second aspect also challenges the selection of the first respondent's children and grandchildren as general beneficiaries under the discretionary trust on the basis that they were not applicants for provision themselves from the testator's estate and not on the basis that there were other more appropriate persons who could have been included as the general beneficiaries to avoid the rule in Saunders v Vautier. In that circumstance, the primary judge's selection of the first respondent's children and grandchildren as the additional beneficiaries with the first respondent of the discretionary trust imposed on the fund set aside for the first respondent for the purpose of making the discretionary trust effective as a means to provide for the first respondent rather than for the purpose of providing benefits to those children and grandchildren was not an inappropriate exercise of the primary judge's discretion at the second stage of the process under s 6(1) of the Act.
There was therefore no error in the summary of principles set out (at [190] of the reasons) that guided the primary judge's exercise of discretion at the second stage of the process under s 6(1) of the Act. Paragraph (j) of the summary points to the solution which the primary judge selected to grant provision to the first respondent by way of the discretionary trust. As indicated in the possible outcomes that were available to the primary judge set out above, the selection of members of the claimant's own family to be the additional beneficiaries under the discretionary trust was not the only alternative for making the discretionary trust as effective as it could be in the first respondent's circumstances for the purpose under s 6(1).
The appellant has failed to show that the exercise of the discretion by the primary judge was not appropriate in all the circumstances that pertained to the first respondent for making adequate provision for her maintenance and support.
The appellant fails on the discretion issue raised by ground 2 of the appeal.
Orders
The appeal should be dismissed. The parties should be given an opportunity to be heard on costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RL
Research Associate to the Honourable Justice Beech
13 DECEMBER 2023
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