Fisher v Fisher
[2001] WASC 338
FISHER & ANOR -v- FISHER & ORS [2001] WASC 338
| Link to Appeal : |
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| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 338 | |
| Case No: | CIV:1211/1997 | 6-10 AUGUST 2001 | |
| Coram: | McLURE J | 14/12/01 | |
| 51 | Judgment Part: | 1 of 1 | |
| Result: | First plaintiff's claim successful Second plaintiff's claim unsuccessful | ||
| B | |||
| PDF Version |
| Parties: | BRIAN PETER FISHER KERRY ANNE GROVE NEIL DONALD FISHER SHIRLEY FRANCES FISHER SHIRLEY FRANCES FISHER and GEOFFREY ARCHIBALD FISHER as Executors and Trustees of the Will of DONALD ROBERT FISHER (Dec) FISHER (GLEN MUICK) NOMINEES PTY LTD as Trustee for the D R FISHER FAMILY TRUST |
Catchwords: | Inheritance action Adult daughter and son claimants Claims made many years after testator's death Farming assets Farm run by widow and nonclaimant son since testator's death Turns on own facts |
Legislation: | Income Tax Assessment Act Inheritance (Family Trust and Dependants Provisions) Act 1972, s 6(1), s 7(1)(c), s 7(2), s 8(1), s 8(2) Trustees Act, s 65(7), s 65(8) |
Case References: | Blore v Lang (1960) 104 CLR 124 Bondelmonte v Blanckensee [1989] WAR 305 Bosch v Perpetual Trustee Co Ltd [1938] AC 463 Coates v National Trustee Executors and Agency Co Ltd (1956) 95 CLR 494 Grey v Harrison (1997) 2 VR 359 Kitson v Franks [2001] WASCA 134 Lacey v Lacey, unreported; FCt SCt of WA; Library No 980359; 25 June 1998 Nelson v Nelson, unreported; FCt SCt of WA; Library No 990136A; 9 April 1999 Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24 Re Allen (Deceased); Allen v Manchester [1922] NZLR 218 Singer v Berghouse (1994) 181 CLR 201 Allardice v Allardice [1910] 29 NZLR 959 Anderson v Teboneras [1990] VR 527 Catt v Gmeiner and Leigh, unreported; SCt of WA (Nicholson J); Library No 7430; 16 December 1988 Collicoat v McMillan [1999] 3 VR 803 Davey v Fairhead & Ors, unreported; SCt of WA; Library No 960088; 1 March 1996 Dobra v Brennan [1999] WASC 98 Dun v Dun (1957) 99 CLR 325 Goodchild v James (1994) 13 WAR 229 Goodman v Windeyer (1980) 144 CLR 490 Hawkins v Prestage [1989] 1 WAR 37 Hughes v National Trustees Executors and Agency Company of Australasia (1979) 143 CLR 134 Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 Re Buckland [1966] VR 404 Re Leonard [1985] 2 NZLR 88 Roberts v Roberts (1992) 9 WAR 549 Sawiak v The Public Trustee, unreported; SCt of WA; Library No 930479; 3 September 1993 Talbot v Talbot, unreported; SCt of WA; Library No 960092; 22 February 1996 Triplett v Triplett, unreported; SCt of WA (Ipp J); Library No 8146; 16 March 1990 White v Barron (1980) 144 CLR 431 Young v Young, unreported; FCt SCt of WA; Library No 8175; 3 April 1990 Young v Young, unreported; SCt of WA; Library No 7626; 26 April 1989 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
AND
Estate of DONALD ROBERT FISHER (Dec)
BETWEEN : BRIAN PETER FISHER
- First Plaintiff
KERRY ANNE GROVE
Second Plaintiff
AND
NEIL DONALD FISHER
First Defendant
SHIRLEY FRANCES FISHER
Second Defendant
SHIRLEY FRANCES FISHER and GEOFFREY ARCHIBALD FISHER as Executors and Trustees of the Will of DONALD ROBERT FISHER (Dec)
Third Defendants
(Page 2)
- FISHER (GLEN MUICK) NOMINEES PTY LTD as Trustee for the D R FISHER FAMILY TRUST
Fourth Defendant
Catchwords:
Inheritance action - Adult daughter and son claimants - Claims made many years after testator's death - Farming assets - Farm run by widow and nonclaimant son since testator's death - Turns on own facts
Legislation:
Income Tax Assessment Act
Inheritance (Family Trust and Dependants Provisions) Act 1972, s 6(1), s 7(1)(c), s 7(2), s 8(1), s 8(2)
Trustees Act, s 65(7), s 65(8)
Result:
First plaintiff's claim successful
Second plaintiff's claim unsuccessful
Category: B
(Page 3)
Representation:
Counsel:
First Plaintiff : Mr M J Buss QC & Mr A P Hershowitz
Second Plaintiff : Mr D M Bruns
First Defendant : Mr J C Curthoys
Second Defendant : Mr J C Curthoys
Third Defendants : Mr J C Curthoys
Fourth Defendant : Mr J C Curthoys
Solicitors:
First Plaintiff : Pullinger Readhead Stewart
Second Plaintiff : Hoffmans
First Defendant : Kaeser Kroon
Second Defendant : Kaeser Kroon
Third Defendants : Kaeser Kroon
Fourth Defendant : Kaeser Kroon
Case(s) referred to in judgment(s):
Blore v Lang (1960) 104 CLR 124
Bondelmonte v Blanckensee [1989] WAR 305
Bosch v Perpetual Trustee Co Ltd [1938] AC 463
Coates v National Trustee Executors and Agency Co Ltd (1956) 95 CLR 494
Grey v Harrison (1997) 2 VR 359
Kitson v Franks [2001] WASCA 134
Lacey v Lacey, unreported; FCt SCt of WA; Library No 980359; 25 June 1998
Nelson v Nelson, unreported; FCt SCt of WA; Library No 990136A; 9 April 1999
Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24
Re Allen (Deceased); Allen v Manchester [1922] NZLR 218
Singer v Berghouse (1994) 181 CLR 201
(Page 4)
Case(s) also cited:
Allardice v Allardice [1910] 29 NZLR 959
Anderson v Teboneras [1990] VR 527
Catt v Gmeiner and Leigh, unreported; SCt of WA (Nicholson J); Library No 7430; 16 December 1988
Collicoat v McMillan [1999] 3 VR 803
Davey v Fairhead & Ors, unreported; SCt of WA; Library No 960088; 1 March 1996
Dobra v Brennan [1999] WASC 98
Dun v Dun (1957) 99 CLR 325
Goodchild v James (1994) 13 WAR 229
Goodman v Windeyer (1980) 144 CLR 490
Hawkins v Prestage [1989] 1 WAR 37
Hughes v National Trustees Executors and Agency Company of Australasia (1979) 143 CLR 134
Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9
Re Buckland [1966] VR 404
Re Leonard [1985] 2 NZLR 88
Roberts v Roberts (1992) 9 WAR 549
Sawiak v The Public Trustee, unreported; SCt of WA; Library No 930479; 3 September 1993
Talbot v Talbot, unreported; SCt of WA; Library No 960092; 22 February 1996
Triplett v Triplett, unreported; SCt of WA (Ipp J); Library No 8146; 16 March 1990
White v Barron (1980) 144 CLR 431
Young v Young, unreported; FCt SCt of WA; Library No 8175; 3 April 1990
Young v Young, unreported; SCt of WA; Library No 7626; 26 April 1989
(Page 5)
1 McLURE J:
Introduction
2 This is an application made by originating summons by Brian Fisher ("Brian") and his sister Kerry Anne Grove ("Kerry") pursuant to s 6 and s 8 of the Inheritance (Family Trust and Dependants Provisions) Act 1972 ("Act") for provision out of the estate of their late father, Donald Robert Fisher ("testator").
3 The testator died on 23 August 1983 aged 49. He left a will dated 28 June 1983. Probate of the will was granted on 11 October 1984.
4 The testator was survived by his wife Shirley Frances Fisher ("Shirley"), the second defendant, and by his three children, Neil Donald Fisher ("Neil"), the first defendant, Brian and Kerry. At the date of the testator's death, Shirley was 45, Kerry 22, Neil 18 and Brian 15.
5 The testator appointed Shirley and his brother Geoffrey Archibald Fisher ("Geoffrey") as the executors and trustees of his estate and in that capacity, Shirley and Geoffrey are the third defendants.
6 The fourth defendant is Fisher (Glen Muick) Nominees Pty Ltd (the "Company") as trustee of the D R Fisher Family Trust ("Family Trust").
7 At all material times before his death the testator was a farmer. The farming business was carried on by a partnership trading under the name "D R Fisher and Co" ("partnership"). At the date of the testator's death, the partners were the testator, Shirley, Neil and the Family Trust.
8 The farming business was carried out on a number of properties, some of which were co-owned by the testator and Shirley, some by the Family Trust and some by Neil.
9 Brian has no entitlement to any property under the testator's will. The testator bequeathed to Kerry the sum of $250,000 payable over 17 years, the size and timing of the payments being in the discretion of Shirley. As at the date of the hearing Kerry had not received any part of that legacy. However, pursuant to the will, a loan of $45,000 secured by a mortgage over Kerry's property at Como was repaid by the estate.
10 The relief sought by Brian and Kerry in the originating summons is for:
(Page 6)
- (i) an order under s 6(1) of the Act;
(ii) further or alternatively an order under s 8(1) of the Act that the Family Trust pay to Brian, alternatively Kerry, the sum of $249,822 ( and interest);
(iii) further or alternatively an order that Shirley and Geoffrey pay to Kerry the sum of $249,822 (and interest).
The Will
11 Clauses 2 to 8 of the will are relevant to these proceedings. They materially provide:
"2. I GIVE AND BEQUEATH the sum of two hundred and fifty thousand dollars ($250,000.00) to my Trustee UPON TRUST to pay the same to my daughter KERRY ANNE FISHER over a period of seventeen (17) years from the date of my death by instalments in such amounts and at such times as my said wife SHIRLEY FRANCES FISHER shall direct and determine or in the event of the death of my said wife prior to the expiration of the said period of seventeen (17) years then the said sum or the balance then remaining unpaid shall be paid to my said daughter by equal annual instalments free of interest over the balance of the said term.
3. I GIVE AND BEQUEATH all that my share and interest in the farming partnership known as 'D.R. Fisher and Co' to my Trustee UPON TRUST as follows:
(a) upon trust to pay such amount as shall be required to discharge the mortgage presently registered over the property situate at Como 'Villa' owned by my said daughter;
(b) Subject as aforesaid and to the provisions of Clause 6 hereof to hold the balance thereof upon trust for FISHER (GLEN MUICK) NOMINEES PTY LTD or other the Trustee for the time being of the D.R. FISHER FAMILY TRUST (hereinafter called 'the said trust') for the use and benefit of the said trust.
(Page 7)
- 4. I GIVE AND DEVISE all that my share and interest in the land and residence situate north of Hines Hill aforesaid and occupied by me at the date of my death to my Trustee UPON TRUST as follows:
(a) upon trust to permit my said wife SHIRLEY FRANCES FISHER to have the use occupancy and enjoyment thereof during her lifetime my said wife paying all rates and taxes or other similar outgoings payable in respect of the said property and keeping the same in a good and habitable state of repair fair wear and tear and damage by fire lightning earthquake flood and tempest excepted and keeping the same insured against fire lightning earthquake and tempest.
(b) upon the death of my said wife the said property shall devolve in accordance with the provisions of Clause 5 hereof.
5. Subject to the provisions of Clause 6 hereof I GIVE DEVISE AND BEQUEATH:
(a) (Subject always to the provisions of Clause 4 hereof) all that my share and interest in any farming property or properties (other than the property referred to in Clause 7 hereof);
(b) all debts together with interest thereon owed to me at the date of my death from the sale of any farming property or properties -
to the said trust for the use and benefit of the said trust.
6. I DIRECT AND DECLARE that the bequests to the said trust in Clauses 3 and 5 of this my Will contained shall be subject to and charged with the payment of the bequest to my said daughter in the amounts and at the times and in the manner referred to in Clause 2 hereof.
7. I GIVE AND DEVISE all that my share and interest in Avon Location 11391 to my son BRIAN PETER FISHER for his sole use and benefit absolutely.
(Page 8)
- 8. Subject as aforesaid I GIVE DEVISE AND BEQUEATH all the rest and residue of my real and personal estate to my Trustee UPON TRUST to pay my debts funeral and testamentary expenses and all other expenses payable by reason of my death and to hold the balance of my estate (hereinafter called 'my residuary estate') UPON TRUST as to both capital and income for my said wife absolutely."
12 The gift of land to Brian in cl 7 of the will failed because the land had been purchased in the name of the Family Trust.
13 At the time of the testator's death, Neil and Brian were the primary beneficiaries of the Family Trust.
14 After the testator's death, Shirley assumed control of the Family Trust pursuant to the terms of the deed establishing the Family Trust. Shirley and Neil became directors of the Company. Prior to the commencement of the action, Shirley removed Brian as a primary beneficiary of the Family Trust and thereafter transferred control of the Family Trust to Neil. Up to the date of the hearing, the only persons to have received any financial benefit from the property owned or controlled by the testator at the date of his death are Shirley, Neil and Kerry, only to the extent of the payment out of the mortgage of her Como property.
Law - General Principles
15 Section 6(1) of the Inheritance (Family and Dependants Provisions) Act 1972 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 his 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 and advancement in life of any of the persons named in section 7 of this Act 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."
(Page 9)
16 Section 7(1)(c) of the Act includes amongst those eligible to apply under s 6(1), a child of the deceased living at the date of the death of the deceased.
17 On an application under s 6(1), the Court is required to carry out a two-stage process. The first stage calls for the determination of whether the disposition of the deceased's estate was not such as to make adequate provision for the proper maintenance, support, education and advancement in life of the applicant. This is described as the jurisdictional question which is to be determined as at the date of death of the testator. If that question is answered in the affirmative, the Court in exercising its discretion to make such provision as it thinks fit, must take into account the relevant facts as they exist at the time of making the order: Bondelmonte v Blanckensee[1989] WAR 305 per Malcolm CJ at 307; Singer v Berghouse (1994) 181 CLR 201 at 208 – 209.
18 Section 6(1) focuses attention on whether "adequate" provision has been made for the "proper" maintenance, support, education and advancement in life of the claimant. The terms "adequate" and "proper" were considered by Lord Romer in delivering the advice of the Privy Council in Bosch v Perpetual Trustee Co Ltd [1938] AC 463. He said (at 476):
"The use of the word 'proper' in this connection is of considerable importance. It connotes something different from the word 'adequate'. A small sum may be sufficient for the 'adequate' maintenance of a child, for instance, but, having regard to the child's station in life and the fortune of his father, it may be wholly insufficient for his 'proper' maintenance. So, too, a sum may be quite insufficient for the 'adequate' maintenance of a child and yet may be sufficient for his maintenance on a scale that is 'proper' in all the circumstances."
19 The majority of the High Court (Mason CJ, Deane and McHugh JJ) in Singer v Berghouse noted with approval Lord Romer's explanation in Bosch v Perpetual Trustee Co Ltd of the difference between "adequate" and "proper" and the interrelationship between "adequate provision" and "proper maintenance" etc. The majority in Singer v Berghouse continued (at 209 – 210):
"The determination of the first stage in the two-stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the
(Page 10)
- proper level of maintenance etc appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty.
The determination of the second stage should it arise, involves similar considerations. Indeed, in the first stage of the process, the Court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant."
20 Although the NSW legislation under consideration in Singer v Berghouse specifies the matters which must be taken into account at the first stage, they are equally applicable to s 6 of the Act: Kitson v Franks [2001] WASCA 134. What is "proper" in the circumstances must be determined in light of all the facts of the case: Bondelmonte v Blanckensee per Malcolm CJ at 308.
21 The jurisdictional question, though it involves the making of value judgments, is a question of objective fact to be determined by the Judge. The decision made at the second stage, by contrast, involves an exercise of discretion in the accepted sense: Singer v Berghouse per Mason CJ, Deane and McHugh JJ at 211.
22 A number of cases pose the question whether a testator had a moral, as opposed to legal, obligation to provide for a claimant thereby giving rise to a "moral claim" on the part of the claimant to a share of the testator's estate: see Blore v Lang (1960) 104 CLR 124 per Dixon CJ at 128; Bondelmonte v Blanckensee per Malcolm CJ at 308 – 309; Re Allen (Deceased); Allen v Manchester [1922] NZLR 218 per Salmond J at 220.
23 An oft cited and approved statement of the moral duty is that of Salmond J in Re Allen who said (at 13):
"The provision which the Court may properly make in default of testamentary provision is that which a just and wise father would have thought it was his moral duty to make in the interests of his widow and children had he been fully aware of all the relevant circumstances."
(Page 11)
24 However, the majority in Singer v Berghouse said (at 209) that references to "moral duty" or "moral obligation" may well be understood as amounting to a gloss on the statutory language.
25 The status of the moral obligation test has been subject to much debate since Singer v Berghouse. In Grey v Harrison (1997) 2 VR 359 the Full Court of the Victorian Supreme Court held that the comments of the High Court in Singer v Berghouse were obiter dictum and did not displace the law as it has traditionally been understood. In Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24 Kirby P and Sheller JA expressed the view that the dicta in Singer should be followed. Handley J (at 32 – 33) took a different view suggesting the statutory test can be equated with the notion of moral obligation.
26 The Full Court of the Supreme Court of Western Australia has considered s 6 of the Act on at least three occasions since Singer v Berghouse: Lacey v Lacey, unreported; FCt SCt of WA; Library No 980359; 25 June 1998; Nelson v Nelson, unreported; FCt SCt of WA; Library No 990136A; 9 April 1999; Kitson v Franks. It is clear from these authorities, particularly Kitson, that in this jurisdiction the Salmond J test in Re Allen continues to apply.
27 By s 8(1) of the Act, if a deceased's estate has been distributed to beneficiaries, either in whole or in part, the Court may make an order under s 65 of the Trustees Act in lieu of an order under the Act.
28 Section 65 of the Trustees Act enables the Court to make an order that a person to whom assets have been distributed pay to the applicant a sum not exceeding the value of those assets.
29 When the Court makes an order under s 65 of the Trustees Act, it has the same powers in respect of the order as it has under the Act: s 8(2) of the Act.
30 An applicant under s 65 of the Trustees Act must proceed directly against the recipient prior to exercising any remedies available against the trustee and there is a change of position defence available: s 65(7) and (8) of the Trustees Act.
Date of Application
31 Under s 7(2) of the Act, an application pursuant to s 6 must be made within six months from (in this case) the date on which probate was
(Page 12)
- granted. Accordingly, the application should have been made by March 1985. However, the Court is given a discretion to extend time.
32 On 28 February 1997 Brian and Kerry brought an application to extend the time for commencing proceedings under the Act. On 26 September 1997 Master Sanderson extended the time. I deal with the reasons for the very significant delay in making the application later in these reasons.
The Estate at the Date of Death
33 The assets and value of the Estate shown in the probate application are:
· Interest in partnership D R, S F and N D Fisher 234,981.00
· Commonwealth Savings Bank (including accrued interest) 471.12
· National Australia Bank (including accrued interest) 862.16
· Furniture and personal effects 5,000.00
· Farming assets "Glen Muick" Hines Hill 485,390.00
· Liabilities Nil
NET ASSETS $726,704.28
34 The plaintiffs' accounting expert, Mr Youngs, gave evidence concerning his estimate of the actual value of the Estate as at 23 August 1983. The only change from the probate application is that the value of the farming land was increased to $638,789. On that basis the net asset value of the estate as at the testator's death is $880,103, a figure not disputed by the defendants.
35 Shirley gave evidence that she received the testator's Wesfarmers' shares under the will. They are not mentioned in the probate application and there is no evidence of the number of shares or their value at the relevant time.
Other Property Controlled by the Testator and the Farming Property
36 At the time of his death the testator controlled other assets which were held by the Company as trustee for the Family Trust. In particular, the Family Trust owned Avon locations 18424, 14583, 11390, 14653, 14652 and 11391 comprising a total area of approximately 776 hectares.
(Page 13)
37 Further, prior to the testator's death, the Company on behalf of the Family Trust had entered into a terms contract to purchase Avon location 18403 comprising 556 hectares for $234,000 . Possession of this property was taken on 1 February 1983, at which time a deposit of $80,000 was paid. The balance of the purchase price was payable by 10 annual instalments of $15,400, together with interest at 16 per cent per annum.
38 In addition, up to the testator's death, the testator and Shirley owned Avon locations 21025, 12186 and 23050 as joint tenants comprising an area of approximately 466 hectares which Shirley obtained under the right of survivorship.
39 After the testator's death the Family Trust acquired Avon locations 27029, 12170, 27028, 14584 and 11393, together comprising an area of approximately 928 hectares.
40 At the time of the testator's death Avon locations 22032 and 21513 were in the testator's name. The transfer of the land to Neil was registered on the title in May 1987. However, the evidence establishes that the testator had no equitable interest in that land at the time of his death.
Brian's Position
41 Brian was born on 16 November 1967. He was 15 when his father died in 1983. At the time of the hearing he was unmarried with no dependants.
42 Brian had always wanted to be a farmer and attended a two-year residential agricultural course at the Cunderdin Agricultural College in 1983 and 1984. He was dux of his class in both years.
43 After the completion of his agricultural course he returned to the farm in November 1984 intending to commence his career as a farmer. However, Brian left the farm after approximately seven months because he and Neil had a poor relationship and were unable to work together. The parties did not attempt to establish the causes of, or attribute fault for, the poor relationship between Brian and Neil.
44 In November 1985 Brian became an apprentice auto electrician and completed his apprenticeship in November 1989. During this period Brian visited the farm regularly and for two years assisted with the harvest for which he was paid.
(Page 14)
45 After completing his apprenticeship Brian successfully applied to the International Agricultural Exchange Association to participate in an eight-month agricultural exchange program to the United States. In March 1990 he left for Montana and lived with a host family on a grain farm where he was employed as a farmhand.
46 After his return from the United States in November 1990 he stayed on the farm until June 1991. He did not work on the farm during this period. His relationship with Neil had not improved.
47 From July 1991 to December 1996 Brian worked in (or in industries associated with) the mining industry. During part of this period he spent rostered weeks and some days off at the farm. He assisted with the wheat harvest on two further occasions for which he was also paid.
48 Both Neil and Shirley gave evidence, and I find, that Brian refused a number of offers for him to return to the farm. However, there is no detail as to the terms and conditions of the offer to Brian.
49 In the financial years ending June 1994, 1995 and 1996 Brian had taxable incomes of $64,152, $68,173 and $55,712 respectively. For the financial year ending June 1997 Brian had a taxable income of $50,143.
50 From January 1997 until Christmas 1997 Brian worked as a farm manager on a farm in the Yuna district purchased by Kerry and her husband John via a trustee company. The farm is known as Mallee farm and it was purchased by Talmalmo Holdings Pty Ltd ("Talmalmo") as trustee for the Mallee Pastoral Trust.
51 Brian had lent Talmalmo the sum of $176,000 to assist with the purchase of the Mallee farm. Brian was made a director of Talmalmo and a primary beneficiary of the Mallee Pastoral Trust. When Kerry's husband returned from contract drilling to run the farm at the end of 1997, Brian's involvement ceased. Brian's loan was repaid and he ceased as a director of Talmalmo and as a primary beneficiary of the Mallee Pastoral Trust.
52 At the time of his father's death Brian did not have any assets apart from his personal belongings and savings of approximately $300 and had no liabilities. He was being supported by his parents.
53 In February 1997 Brian had net assets of $220,300, the primary asset being the debt owed by Talmalmo. After leaving Mallee farm at the end of 1997, Brian had casual work in the mining industry as well as seasonal
(Page 15)
- farming work. In early 2001 Brian commenced a business of buying and selling used farm machinery to hobby farmers called "Tractors and Tillage". In addition, he was cropping 12 hectares of oats in the Swan Valley and share-farming 14 acres with two neighbours. As at 30 June 2001, Brian had net assets of $166,586. At the time of the trial, his annual income was approximately $15,000.
54 Brian's intention and wish is to re-enter the agricultural industry permanently and to establish himself as a career farmer. His current financial position does not enable him to fulfil that ambition.
55 I turn now to the question of delay. It was Brian's evidence that he had believed he was entitled to a half share of the farming operation and that this belief had been fostered by what his father had said to him before his death. According to Brian, his father had said that the farming operations were being developed in order to enable Neil and Brian to farm them after his retirement in a viable manner independently of each other. It was only in 1995 (after reading advice from the farm accountant, Mr C T Ridley) that he became aware that his belief that he was entitled to a half share of the farming operations was misguided and he then decided to seek legal advice. He retained solicitors in August 1995 who obtained an opinion from counsel on the matter in May 1996. The opinion was to the effect that by reason of the provisions of the will and the deed establishing the Family Trust, Brian was left without a remedy. No mention was made of any possible remedy available under the Act.
56 Brian was unhappy with the advice he received and sought a second legal opinion. He instructed solicitors in August 1996 and received counsel's advice in October 1996. Counsel's advice raised for the first time the possibility of an application under the Act. The delay between receipt of counsel's advice and the commencement of the application for leave was as a result of Brian working at a mine site at Marvel Loch, some 400 kilometres from Perth. I accept Brian's evidence concerning the reasons for the delay in commencing proceedings.
57 In any event, there is authority for the proposition that in the event an order extending time is made, the duty of the Court disposing of the substantive application is to consider the matter on the merits without regard to the delay that has occurred: Coates v National Trustee Executors and Agency Co Ltd (1956) 95 CLR 494 per Dixon CJ at 505. Insofar as the jurisdictional question is concerned, that is obviously so as the question is determined as at the date of the testator's death. I do not understand the principle to prevent the Court having regard to relevant changes that have occurred between the testator's death and the date of the hearing, in the event the discretion to grant relief arises.
(Page 16)
Kerry
58 Kerry was born on 18 September 1960 and was 22 when her father died. After completing high school, she attended the University of Western Australia in 1978 and 1979 where she studied for a science degree.
59 In 1979 she returned to work on the farm until August 1980 when she became an internal auditor with the State Housing Commission. In January 1982 she returned to university to continue her science studies. She missed most of the second term of 1983 because she returned to the farm to assist in its operations while her father was in hospital.
60 Kerry finished her university degree in 1984 and worked in various positions from 1985 until 1993. Kerry married John Grove in September 1991 and at the time of the hearing had five children aged seven, six, four (twins), and one.
61 Although the testator had told Kerry of his proposed bequest of $250,000 prior to his death, Kerry did not see a copy of the will before 1993.
62 Kerry said at around the time of her marriage an arrangement was made by Neil for her to see an accountant from Bird Cameron. She was shown one page of Donald's will and a page of figures to demonstrate how badly the farm was doing. Neil told her that he wanted all of the estate or no part of it and Kerry heard him say to Shirley that he would withdraw from the farming operations unless he had his way. Neil said to Kerry there was no way in which the farm was going to be divided up. Neil also said that Kerry could not expect to receive any of the money her father had left her in his will and wanted her to sign a document to the effect that she wanted nothing. Kerry did not sign such a document.
63 In March 1993 Shirley offered Kerry an amount of $100,000 in full satisfaction of the legacy stating that if it was invested at that time, it would be worth the same amount as the bequest in the long run. Shirley also said that if Kerry expected to obtain the "ridiculous" amount left to her by her father, she would bankrupt the farm. It was at this stage she asked for a copy of her father's will, which was provided.
64 Kerry's evidence on these matters is supported by Geoffrey. According to Geoffrey, he had discussions with Shirley concerning her failure to make any payment to Kerry of her legacy. Geoffrey's evidence was that Shirley had told him she had no intention of paying Kerry
(Page 17)
- anything as she had already received the unit in Como and was not entitled to anything more. Shirley also said subsequently that the farm could not afford to make any payments to Kerry and that Neil's attitude was the same, namely, that he resented the bequest and that as far as he was concerned Kerry was not entitled to benefit from it.
65 According to Kerry, during 1993, 1994 and 1995 when she asked about how the farm was going, Shirley responded that it was going badly and Kerry was being unreasonable or greedy if she expected any money.
66 In May 1995 Kerry instructed solicitors to write to Geoffrey concerning the matter. Bird Cameron responded to the letter advising that Shirley had directed that no payments be made to Kerry pursuant to cl 2 of the will but that the executors planned to have the amount paid out within the required 17-year period. Kerry first became aware in October 1996 of the availability of claims under the Act.
67 Turning to Kerry's financial position. At the date of the testator's death Kerry was receiving a student allowance from the government and earning income during the holiday period. Her assets included a unit in Axford Street, Como and a motor vehicle acquired on hire purchase both of which were funded by the farming business. At the date of her father's death, Kerry had net assets of $35,306. The estate discharged the debt secured by the mortgage on the Como unit in 1988 by payment of the sum of $45,000.
68 I accept Kerry's evidence on the matters canvassed thus far. However, the evidence as to Kerry and her husband John's current financial position is not entirely satisfactory. Kerry and John are the sole directors and shareholders of Talmalmo. They are also directors of Loric Pty Ltd and Bovee Pty Ltd. Kerry and John own two of the 502 issued shares in Bovee, the balance of which are owned by Loric. Kerry and John own all the shares in Loric. Loric owns a property in Duggan Street, Kalgoorlie. Bovee carried on a contract drilling business.
69 Talmalmo purchased the Mallee farm in December 1996 for $1.5 million. The sum of $588,724 was paid at settlement on 17 January 1997, of which amount $270,000 was advanced by way of loan from Bovee Pty Ltd.
70 Evidence on aspects of Kerry and John's financial position is contained in her affidavit of 28 February 1997 (exhibit 1/2). Kerry's financial position in 1983, 1997 and July 2001 is also addressed in reports prepared by Mr Youngs (exhibits 2/14 and 3/20).
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71 Kerry's financial position in 1997 was affected by the financial positions of Bovee, Loric and the Mallee Pastoral Trust. Mr Youngs has included in his 1997 report on Kerry's financial position a balance sheet and estimated financial position of each of Loric, Bovee and the Mallee Pastoral Trust. Save for some market appraisals of real property and other miscellaneous confirmatory documents, the information used by Mr Youngs in the preparation of the statements for 1997 and 2001 was provided orally by Kerry. There is no information in Mr Youngs' report concerning John's financial position in 1997.
72 According to Mr Youngs, as at 30 June 1997 Kerry had net assets of $417,883. Included in her assets were a 50 per cent interest in loans to Loric, Bovee and the Mallee Pastoral Trust. Her liabilities in 1997 included a 50 per cent liability for loans from her father-in-law, William Grove ($50,000) and from her deceased sister-in-law ($110,000).
73 It is difficult to identify from the information in Kerry's 1997 affidavit or Mr Youngs' report the source of the funds which enabled Kerry and John (via Talmalmo) to pay a substantial amount of the purchase price of the Mallee Farm at settlement and service the borrowings associated with the purchase of the Mallee farm. Based on the tax returns of Kerry, John and Bovee, the combined average yearly income in the years ended 30 June 1994 to 1996 was $30,839.
74 Kerry leaves it to Mr Youngs to deal with her financial position as at June 2001. No attempt is made to identify her husband's assets or income position. Kerry is shown as having a net asset deficiency of $55,735 at 30 June 2001. The change in her asset position is primarily referable to:
(a) the disappearance without explanation from her assets of the indebtedness of the Mallee Pastoral Trust, Loric and Bovee;
(b) an approximately five-fold increase in her indebtedness to her husband's father.
75 In Loric's balance sheet and estimated financial position as at 30 June 2001 the loan previously shown (in the 1997 statements) as being owed to Kerry and John is now shown as being owed solely to John.
76 As to Bovee, the liability shown in the 1997 financial statements as being owed to Kerry and John is shown in 2001 as a loan owed solely to her husband. Further, a loan owing from the Mallee Pastoral Trust to Bovee is shown as having no value because of the financial position of the Mallee Pastoral Trust.
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77 According to a letter dated 12 July 2001 from the accountant for the Mallee Pastoral Trust (who was not called to give evidence), she was not in a position to complete the 2001 tax return and financials for the trust because she was not in receipt of all relevant information. However, she supplied a "statement of position, which is the best we can provide at this moment". That statement of financial position is annexed to Mr Youngs' affidavit, and shows a net asset deficiency of $2,326,100. In that statement, the only land identified is freehold land which is shown at cost at $855,312. Inter-group liabilities (to Bovee, B Grove and J Grove) exceed $1,842,000. The financial statements for the trust are for taxation purposes and no adjustments have been made to reflect the actual position.
78 The fact of a loan from William Grove to Kerry and John for the relevant amount is confirmed in a letter from Mr Grove annexed to Mr Youngs' affidavit. What is not made clear is the terms or purpose of the loan(s).
79 The picture painted by Kerry and Mr Youngs as to Kerry's financial position is inconsistent with information supplied by Kerry and John in finance applications made between 1998 and 2001. In a finance application to Wesfarmers Dalgety made in December 1998 signed by Kerry and John they state that the net asset position of Kerry, John and associated entities was $2,960,000.
80 In a finance application to AGC in September 1999 signed by Kerry and John they state the net assets to be $4,470,000. The value of the assets in this document are significantly higher than the value given to the same assets in the December 1998 application. For example, the Mallee farm was valued at cost in the December 1998 finance application ($1,500,000), whereas it is valued at $2,500,000 in the AGC application. This is to be contrasted with the statement of position of the Mallee Pastoral Trust as at 30 June 2001 annexed to Mr Youngs' report which refers to freehold land included at cost at $855,312, yet the evidence establishes that Mallee farm was purchased for $1.5 million. The explanation appears to be (from a finance application) that the Mallee farm includes pastoral leases.
81 In a further AGC finance application signed by Kerry and John the net asset position is shown as $4.628 million. In a finance application dated March 2001 to PIBA Equipment Finance signed by Kerry and John, the net asset position is stated to be $4,147,423.
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82 In a number of the finance applications Kerry and John valued land owned by them in Wattleup at $750,000. It was purchased in 1991 for $300,000. Kerry did not accept in cross-examination that $750,000 was an accurate estimate of its value at the time of the hearing because of a government decision to remove the Wattleup town site and replace it with heavy industry. Kerry's evidence was that she and her husband received a loan from Kerry's deceased sister-in-law for the purchase of the Wattleup property, which loan was required to be repaid within three years. It had not been repaid at the date of the hearing.
83 None of the finance applications record a loan from Kerry's father-in-law or deceased sister-in-law as a liability.
84 Further, it emerged in cross-examination that John had purchased a property called Waggrakine in Geraldton where Kerry lives during the week. It was purchased for $430,000 and was said to have been financed by a loan from an unidentified source.
85 The appropriate course in an application of this nature is for an applicant to make full disclosure of all relevant financial information. In this case, that means full disclosure of the financial position of Kerry, John and associated entities. I am not satisfied that full disclosure was made. Further, I am not satisfied on the evidence that Kerry's financial position at June 2001 is as stated in Mr Youngs' report (exhibit 3/20).
86 On the balance of probabilities, based on the information in the finance applications I conclude that as at the date of the hearing Kerry and John (directly and indirectly through associated entities) together have net assets exceeding $3 million allowing for some exaggeration and inexactitude having regard to the source of the information.
Neil's Position
87 Neil was 18 years old when his father died. He had been working on the farm for just over a year prior to his father's death. Thereafter, Neil took over the running of the farm.
88 Shirley played an active role in the farming operations in both a practical and business capacity. Shirley retired in 1996 and moved from the farm to live in Busselton. Neil has managed and conducted the farming business continuously from 1984 and still does. He is now 36.
89 Neil and his family live on the main homestead which is located on Avon location 21039, being part of the Estate land. He lives there with
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- his partner Catherine Flynn and their children. Catherine and her three children from a previous marriage (now aged 18, 15 and 13) moved to the farm in 1996. Catherine and Neil have two other children aged four and 17 months.
90 Neil was asked in cross-examination about the terms of the testator's will and why the Estate ceased to be a partner in 1985. Neil's understanding of these issues was flawed. He wrongly assumed he was a beneficiary under his father's will. Further, he did not know who decided that the Estate should cease to be a partner in 1985 and said the decision must have been taken in consultation with the farm's accountants. It is not clear where the initiative for the decision came from or whether the partners fully understood the reasons for the decision. However, it is established by the evidence that the farm accountants played a significant role in the financial and business aspects of the partnership and in drafting the testator's will.
91 The changes to the Family Trust deed were also made following discussions between Neil, Shirley and the farm accountants. According to Neil, he was made guardian and appointor under the Family Trust deed in 1995 as a result of concern to ensure that he had some security for what he described as the many years of hard labour on the farm and the fact that Shirley was getting to retirement age. Neil accepted what is obviously the case. He controls the distribution of income and capital of the Family Trust. He has made no application under the Act.
92 Neil also gave evidence concerning the budgeted drawings from the partnership for the period January 2001 to December 2001 and the approximate weekly expenses of his family unit (comprising himself, Catherine and the five children).
93 Neil said the budgeted drawings from the partnership were $1,500 per month for Neil, $1,000 per month for Shirley and $1,200 per month to Catherine for housekeeping. The farm pays for most fuel, gas, electricity, telephone, registration, vehicle maintenance, insurance, pharmaceutical and education expenses.
94 Neil calculated that the approximate weekly expenses for the family unit was $1,051. However, he accepted in cross-examination that there were mistakes in his estimate because he had failed to exclude the business portion of the expenses for gas, electricity and telephone. On Neil's figures, the expenses for electricity and telephone totalled approximately $9,880 per annum. Mr Youngs demonstrated that the
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- average personal usage of electricity and telephone over seven years was around $1,472 per year.
95 Further, it emerged in cross-examination that Catherine was the registered owner of two cars, one being a Holden Statesman purchased new in 1996 and used by Neil, and that Catherine owned a house in Alexander Heights from which she received rental income. Catherine was available to give evidence at the hearing but was not called by the defendants.
96 However, the evidence establishes that she had income of at least $1,655 per month ($400 per month child support from her former husband and $1,255 per month family allowance from Centrelink). This is in addition to the farm drawings of $1,200 per month for household expenses.
97 Neil's evidence, which is confirmed by the financial accounts, is that the farming business has struggled in the years since 1998 as a result of seasonal conditions. The rainfall figures for the farm for 1998, 1999 and 2000 are (respectively) 259 millimetres, 470 millimetres and 327 millimetres (an average of 352 millimetres per annum). The start to the 2001 season was also poor with well below average rainfall.
Shirley's Position
98 Shirley was born on 4 January 1938 and is 63 years old. Shirley and the testator purchased their first farming property in 1968/69 independently of the testator's father. Her evidence was that:
"There was much force and discussion between Donald and I in connection with the acquisition and the making of all necessary arrangements for the financing of this and subsequent properties we purchased on our own."
99 I am unable to determine on the evidence whether any, and if so what, proportion of the farming property was inherited by the testator. However, I infer that Shirley contributed significantly to the creation and development of the Estate's farming-related assets.
100 Shirley thought the legacy of $250,000 to Kerry was excessive. Shirley's evidence concerning the matter is in the following terms:
"Well, that $250,000 was an amount my husband just wrote down. I mean, we have never had that money and we had a big
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- farm debt to start with and I think he just sort of - I think he wasn't well when he made his will and that money was not available. So he just thought the farming would be really good over the following years, which it definitely wasn’t', and that was to be paid at my discretion; but I mean, we just didn't have any available finance.
You didn't think the cash legacy of $250,000 to Kerry was a good idea, did you?---Well, I thought it was rather excessive if you put it like that, because the farm had already bought a townhouse in Como for her and also a new car out of the farm account."
101 Shirley was involved in the variations to the deed establishing the Family Trust. The trust was established in 1976 and the settlor is Shirley's sister.
102 Under the trust deed as it stood at the date of the testator's death the trustee was (and remains) the Company, the primary beneficiaries were Neil and Brian and the guardian and appointor were the testator during his lifetime and on his death, Shirley during her lifetime.
103 The Family Trust is a discretionary trust. The vesting day can be brought forward but only by the trustee with the consent of the guardian. As from the vesting day, the trustee possesses the trust fund and the income thereof for such charities and/or general beneficiaries as the trustee, with the consent in writing of the guardian, appoints. However, if there is no guardian in existence at the time, the trustee has no power of appointment and the property is held for the primary beneficiaries (cl 4.1). Further, under cl 6.1 the trustee, with the consent of the guardian, may make payments out of capital under certain conditions. The right to remove or appoint a trustee or trustees is vested in the appointor. The general beneficiaries are defined to mean the primary beneficiaries and other specified persons.
104 The testator had control of the Family Trust during his lifetime and on his death control passed to Shirley. Between 1989 and 1995 a number of deeds of variation were executed. The first deed of variation is dated 29 December 1989 and is made between Shirley and her sister. The amendment (to add cl 6A) is to give the trustee the power to exclude any person as a beneficiary of the Family Trust.
105 The second deed of variation is dated 31 December 1989 and is made between the Company and Shirley. Pursuant to cl 6A, Brian is removed
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- as a primary beneficiary and is specifically named as a general beneficiary. The common seal of the company is affixed with the authority of Neil and Shirley as directors.
106 The third deed of variation is dated 8 November 1993 and is made between Shirley and her sister. It provides for a new clause (6B) giving the trustee with the consent of the guardian the power to appoint a successive guardian and appointor following the death of Shirley.
107 The fourth deed of variation is dated 9 November 1993 and is made between Shirley and the Company. Pursuant to this deed the guardian and appointor clauses were amended to provide that after the death of Shirley, Neil was to be the guardian and appointor of the Family Trust.
108 The final deed of variation is dated on 7 July 1995 and is made between Shirley, her sister and the Company. Pursuant to this deed the guardian and appointor provisions of the trust deed were again amended, this time to substitute Neil as the guardian and appointor of the Family Trust.
109 Shirley's explanation for her actions (contained in her affidavit and not challenged in cross-examination) is in the following terms:
"Brian had stated on numerous occasions following his departure from the farm that he did not intend to return. I considered that Neil was entitled to have security for his future given that Neil had continued to work on the farm and I intended retiring from the farm after 37 years. The Trust was varied to make Neil the primary beneficiary and Brian a general beneficiary of the Trust and to give control of the Trust to Neil."
110 Her affidavit evidence continues:
"Even before Donald's death, Neil had to take over the responsibility of working the farm and I helped him as much as I could. Neil has continued working on the farm ever since for his keep and drawing only occasion [sic] spending money. The farm was unable to pay Neil a wage as there was a large farm debt due to Donald and I having purchased extra farmland before Donald became ill. I would only draw money from the farm account for housekeeping expenses.
Brian finished agricultural school at about the end of November 1984 and came to help on the farm. Brian and Neil did have
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- disagreements and after only seven months Brian left the farm and went to Perth to work.
After Brian left it was very difficult for Neil and me. He left in the middle of crop seeding and we could not afford to employ a fulltime married couple - farmhand as we had always done in previous years. Neil and I had to employ single men for seasonal work who lived in our house with us and I did all their washing, cooking and cleaning up after them.
In 1989, I secured a job as Administration Officer at the local school for several years until it was closed. I contributed my wages towards paying for Kerry's wedding and also to purchase a reliable motor vehicle for myself.
Due to the farm struggling financially at the time of Donald's death, I contributed to the farm to keep it going the following:
(i) Two life insurance policy proceeds of $24,590.95 and $22,377.16 respectively;
(ii) Kellerberrin house which was owned by my late mother valued at $12,000.00;
(iii) A Mercedes motor vehicle valued at $62,500.00;
(iv) A Glasscraft boat valued at $9,600.00.
These funds were paid into the farm bank to help with the farm debt.
Neil has not received any set wages for his work on the farm ever since he has been managing the farm. Neil now supports me financially and I depend on him to do so as I have never ever received any financial support from either Kerry or Brian."
111 As at 30 June 2001, Neil owned 8750 shares in Wesfarmers Ltd valued at $237,212. The bulk of Neil's Wesfarmers shares were a gift from Shirley to Neil. According to Shirley, they were the testator's shares and she transferred them directly to Neil in one lot. Shirley said that the shares were left to her by the testator under his will (which must refer to the residuary clause) and they were transferred after probate of the will was granted. The Wesfarmers shares were not included in the testator's assets in the probate application.
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112 Shirley explained that she did not transfer any of the testator's Wesfarmers shares to Kerry or Brian because Neil was working on the farm and not being paid, so she felt he deserved some recompense for his work.
113 There is very little evidence concerning Shirley's financial position as at the testator's death. However, what evidence there is satisfies me that Shirley was dependent on the farm-related assets of the Estate (together with her and the Family Trust's farm assets) for her future maintenance and support.
114 Shirley said, and I accept, that she was not aware that the Estate ceased as a partner in 1985. She had no discussions with her co-executor and trustee Geoffrey as to whether the Estate should cease to be a partner. Further, she has no recollection of the purported transfer to the Family Trust by journal entry on 31 July 1992 of the partnership's liability to the Estate. She had no discussions with Geoffrey on that matter either. Geoffrey confirms that he had no knowledge of, or involvement in, these matters. Indeed, it was not in dispute that Geoffrey has not played an active part in the administration of the Estate.
115 Shirley lived on the farm until March 1996 when she retired and moved to Busselton. She has received no money from the farm since she left. However, she has been provided with a farm chequebook which she uses to pay all her expenses. Although she does not intend to have any active role in the farming operations, she is still a partner and will continue to use farm funds to pay her expenses.
The Testator's Intention
116 I have already mentioned Brian's evidence concerning his father's intention that the farming operations be developed in order to enable Neil and Brian to farm them after his retirement independently of each other.
117 Kerry's evidence was to the effect that two months before her father died and at a time when he knew the end was near, he told her that he had drawn up a will leaving the farming operations to Neil and Brian as an inheritance and leaving an amount of $250,000 to Kerry.
118 Geoffrey also gave evidence of discussions he had with his brother as to what the testator intended in relation to the farm. Geoffrey said that the testator had on numerous occasions said to him that the testator wanted to retire from full-time farming, leaving the farming operations to
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- Brian and Neil and only working during the busy times (such as crop seeding, harvesting and shearing). The testator had also told Geoffrey that as soon as Brian turned 16 he would receive a block of land similar to that given to Neil.
119 I accept the evidence of each of Brian, Kerry and Geoffrey concerning the testator's intention.
The Value of the Farm Land
120 The value of the farm land on which the partnership conducted its business is relevant to an assessment of the wealth of the relevant individuals and entities.
121 Mr Ferguson gave evidence for the plaintiffs. Mr Morcombe (and Mr Falconer) gave evidence for the defendants. Messrs Ferguson and Morcombe met prior to the hearing in an attempt to narrow the areas of disagreement between them. Agreement was reached on some matters. Mr Ferguson prepared a memorandum identifying those matters which was signed by both Messrs Ferguson and Morcombe (exhibit 13). Both men are qualified valuers.
122 It was agreed that the whole of the land owned by the testator, Shirley, the Family Trust and Neil on which the farming business was conducted at the time of the testator's death, including Avon location 18403, was valued as at August 1983 at $1.5 million.
123 The land owned at the date of the hearing which includes the additional land purchased by the Family Trust after the testator's death ("Fisher group properties") is geographically split into three parcels, being the northern, middle and southern parcels. Mr Morcombe refers in his reports to the southern parcel as the "main area".
124 The total area of the Fisher Group properties as at the time of the hearing was 5278.2118 hectares (13,034 acres). The land is situated approximately 245 kilometres east of Perth, 40 kilometres north-east of Kellerberrin and 45 kilometres north-west of Merredin and is located in the North Baandee area. For the purposes of their valuation, Mr Morcombe relied on an annual rainfall of around 300 millimetres in the general area, whereas Mr Ferguson relied on a rainfall of 325 millimetres.
125 The three parcels are in a north-south line. According to Mr Ferguson (supported in general terms by Mr Morcombe) the southern
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- parcel is the most established, better located, and has the stronger soil types. The middle parcel is a couple of kilometres further north and is also well-established with soils which are not as strong as the southern parcel. The northern parcel is a further 14 kilometres away from the southern parcel and is not as well developed or as well served by local roads. A significant part of the northern parcel is salt affected.
126 Mr Ferguson valued the Fisher group properties as at June 1997, June 1998 and June 2001. Mr Morcombe valued them as at June 1997, February 1998, March 2000 and July 2001. The valuations at the relevant times are as follows:
$M |
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127 I am primarily concerned in this case with the value of the farming land as at August 1983 (which is agreed) and at the date of the hearing (mid-2001). Mr Ferguson's valuation workings for each parcel of land as at June 2001 is as follows:
Mr Ferguson's Valuation Workings
Northern Parcel
Developed 348ha @ $350 $ 121,800
Salt Affected 332ha @ $ 5 $ 1,660
Buildings $ nil
Total Value $ 123,460
Say $ 125,000
Middle Parcel
Developed 997ha @ $380 $ 378,860
Buildings $ 17,500
Total Value $ 396,360
Say $ 395,000
Southern Parcel
Developed 3549ha @ $420 $1,490,580
Salt Creeks 50ha @ $ 5 $ 250
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Buildings $ 187,000
Total Value $1,677,830
Say $1,680,000
Aggregate Value $2,200,000
128 On the basis that the whole of the property was to be sold to one buyer, Mr Ferguson applied a 10 per cent discount reducing the value to $2,000,000. It is to be noted that Mr Ferguson valued the buildings on the Fisher group properties at $204,500.
129 The value of the land owned by each of the Estate, the Family Trust, Shirley and Neil, according to Mr Ferguson, is as follows:
• Estate $ 920,044
• Family Trust $ 822,241
• Shirley $ 407,843
• Neil $ 47,970
• TOTAL $2,198,098
130 The 10 per cent discount has not been applied to the values of each parcel.
131 Mr Ferguson valued the land by reference to a hypothetical willing buyer and a hypothetical willing seller with neither party being overanxious to sell and allowing a reasonable period for the sale taking into account the nature of the property and the state of the market.
132 In reaching his conclusion on value Mr Ferguson had regard to market information in relation to nine sales of farming property in the period between February 2000 and May 2001 (with five of those sales occurring in 2001). In relation to each of the sales, Mr Ferguson identified the price per arable hectare excluding buildings which ranged between a low of $343 per hectare (in March 2000) to a high of $532 per hectare (in May 2001).
133 Based on the market sales information Mr Ferguson concluded that there had been little movement in value over the previous two to three years in the locality. However, he pointed out that all the sales evidence relied on had occurred before the start of the then current cropping season. As the season had started off poorly in the locality of
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- the Fisher group properties and if the season continued on that course, a negative effect on values could be expected.
134 One of the recent sales relied on by Mr Ferguson was from Bakopak Pty Ltd to Alvro and both valuers agreed that was a key sale. According to Mr Ferguson, the property was 2858 hectares and sold for $1.1 million in November 2000 for a price per arable hectare excluding buildings of $422. In his comments Mr Ferguson notes that it had medium to heavy soils, 84 per cent of the land was arable and the property was subject to sale in December 1998 for $940,000. It emerged that the area sold in 1998 was greater than that sold in 2000. Mr Ferguson valued the additional land at $80,000 with the result that the price per hectare had remained stable.
135 Mr Morcombe valued the Fisher group properties at March 2000 at $1.785 million. The only recent (that is, within 12 months from the date of valuation) sales evidence he relied on was a sale by Ryan to Delacey at $494 per arable hectare excluding buildings. Mr Falconer disagreed with Mr Morcombe's March 2000 valuation but agreed with his July 2001 valuation. In both cases, Mr Falconer had inspected only one property the subject of the sales evidence. In the circumstances, I decline to place any weight on what are, in effect, reviews of other opinions.
136 Mr Morcombe valued the Fisher group properties in July 2001 at $1.54 million and his valuation calculations are as follows:
Mr Morcombe's Valuation Workings
(1) Northern Area
323.0000ha mostly arable @ $215CHXB = $ 69,445
357.5143ha uncleared and salt affected @ $2/ha = $ 715
680.5143ha $ 70,160
Round to: $ 70,000
(2) Middle Area
947.0000ha arable @ $310CHXB = $ 293,570
49.8372ha uncleared, salt affected
and non-arable @ $20/ha = $ 997
996.8372ha $ 294,567
Buildings (Estimated added value $ 3,000
$ 297,567
Round to: $ 300,000
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(3) Main Area
3276.0000ha arable @ $320CHXB = $1,048,320
324.8603ha uncleared, salt affected
and non-arable @ $15/ha = $ 4,873
3600.8603ha $1,053,193
Buildings (Estimated added value $ 118,000
$1,171,193
Round to: $1,170,000
137 Mr Morcombe separately identified the value of the land owned by the Estate, the Family Trust, Shirley and Neil as follows:
• Estate $829,000
• Family Trust $537,000
• Shirley $136,000
• Neil $ 38,000
138 The market evidence relied on by Mr Morcombe was seven sales, one in January 2001, one in each of March and November 2000 (Ryan to Delacey and Bakopak to Alvro respectively), one in each of January and February 1999 and one in each of October and December 1998.
139 Mr Morcombe did not refer to or rely on a number of recent sales referred to in Mr Ferguson's report, in particular Geraghty to Shadbolt (sold in March 2001 for $456 per arable hectare excluding buildings), Cole to Steber (sold in January 2001 for $438 per arable hectare excluding buildings), Cole to Nichols (sold in January 2001 at $419 per arable hectare excluding buildings), Higginson to Doheny (sold in May 2001 at a price of $532 per arable hectare excluding buildings), Stevens to Smith (sold in March 2000 for $343 per arable hectare excluding buildings) and a sale in November 2000 to unidentified parties of "Kwolynaa lot 19" for $530 per arable hectare excluding buildings.
140 In cross-examination Mr Morcombe said that properties in the Doodlakine area (of which there were five) were not comparable, that the sale from Higginson to Doheny was of a small area of land with better rainfall and that he excluded the sale from Geraghty to Shadbolt because the price per arable hectare paid was too high.
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141 Mr Morcombe referred to the very poor seasonal conditions at the commencement of the cropping season in 2001 and continued:
"With these seasonal conditions there are unlikely to be any current potential buyers for the subject properties, unless substantially discounted prices are being offered by a vendor. Farmers, who are forced to sell for financial reasons, would now face a weak market, where the risk of much lower land values in the short to medium term, is apparent.
Although there is no very recent sales evidence to provide guidance, it is my opinion that the current market value of the subject property is now lower than that which was assessed in March 2000."
142 The test of market value used by Mr Morcombe was:
"The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in a arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."
143 He equated compulsion with the parties not being overanxious. Mr Morcombe conceded that the reasons identified in the above passage were significant factors he had taken into account in reaching his conclusion as to the lower market value of the property. He also relied on the Valuer-General's rural value watch (exhibit 17) which shows that prices in the Kellerberrin Local Government area had fallen from a high per cleared hectare excluding buildings of $600 in 1998 and 1999 to $550 in 2000. Nothing is known about the basis for these calculations except that the figures are said to be based "on sales information from a number of sources, and a weighting of actual property sales in each Local Government area."
144 Mr Morcombe also relies on the Bakopak to Alvro sale in his July 2001 valuation. However, in his report he says that 95 per cent of the 2858 hectares sold was arable. This is to be compared with Mr Ferguson's assessment that 84 per cent of the land was arable. Mr Ferguson's assessment was based on aerial photographs. Mr Morcombe obtained his figure of 95 per cent after making inquiries with the purchaser and the Valuer-General's office. After Mr Morcombe examined the aerial photographs his value per cleared hectare excluding buildings went up to $403. Mr Morcombe's evidence was that the price per arable hectare for
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- the Fisher group properties would be less because he estimated the rainfall for the Bakopak property at about 320 millimetres (the basis of that estimation being unknown) and because it was closer to Merredin with a higher proportion of stronger soil.
145 At the meeting between the valuers it was agreed that:
"Market evidence is prior to current seasonal problems. We agree that current values may now differ, however there are no clear indications from the market as to what that variation might be.
[Mr Morcombe] has adjusted his current value downwards to reflect his opinion of these affects on current values.
[Mr Ferguson] opinion is that values are based on longer term potential and do not significantly drop from season to season."
147 I prefer the land valuation evidence of Mr Ferguson to that of Mr Morcombe. I do so for a number of reasons. Of particular significance is the failure of Mr Morcombe in 2000 and 2001 to identify in his reports comparable or arguably comparable sales in reaching his valuation opinion. His failure to correctly identify the arable or cleared land the subject of the Bakopak to Alvro sale also reflects a failure to give proper attention to the identification of relevant details. Further, although Mr Morcombe expressed a test of market value which was in substance the same as that of Mr Ferguson, the factors on which he placed particular significance lead me to conclude that he did not apply the test of the hypothetical willing but not "overanxious" vendor and buyer.
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The Current Financial Position of the Estate, the Family Trust, Neil and Shirley
148 The plaintiffs and the defendants adduced expert evidence concerning the financial position as at 30 June 2001 of the Estate, the Family Trust, Neil and Shirley. Mr Youngs was called by the plaintiffs and Mr Ridley by the defendants. Mr Youngs and Mr Ridley each prepared three expert reports.
149 Mr Youngs and Mr Ridley met prior to the hearing for the purpose of attempting to narrow the areas of disagreement between them. They were able to achieve a significant measure of agreement. Following the meeting, Mr Youngs prepared a memorandum identifying the areas of agreement and disagreement (exhibit 9) which Mr Ridley accepted was accurate. Mr Youngs incorporated the agreed changes in amended tables (exhibit 10) which are to be read with his July 2001 report (exhibit 3/23). Mr Ridley did not update his equivalent report (exhibit 4/30).
150 The differences between the assessments by Mr Youngs and Mr Ridley relate to an adjustment of $249,822 between the assets of the Family Trust and the assets of the Estate and the value of the farming land and improvements. In relation to the value of the farming land and improvements, Mr Youngs relied on Mr Ferguson's valuation report dated 25 July 2001 (using figures incorporating the 10 per cent discount) and Mr Ridley relied on Mr Morcombe's valuation report dated 12 July 2001.
151 The adjustment between the Family Trust and the Estate arises in this way. The Estate was a partner from the date of the testator's death to 30 June 1985. The Estate was allocated its share of the partnership income in the partnership accounts up to the end of June 1985. It was not in dispute that the Estate ceased as a partner at the end of June 1985. Thereafter, the Estate's interest in the partnership is shown as a current liability of $249,822 in the partnership balance sheet until the end of the financial year June 1993. However, on 31 July 1992 the amount of $249,822 was transferred by journal entry to the Family Trust and thereafter is shown in the Family Trust accounts as a gift from the Estate. There is a dispute as to whether the transfer of the Estate's interest to the Family Trust was effective.
152 I am not satisfied on the evidence that the purported transfer of the Estate's property, being the debt owed by the partnership to the Estate was authorised by either of the executors, Shirley or Geoffrey. Accordingly, the purported transfer of the debt to the Family Trust was ineffective.
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153 In order to determine the financial position of the Estate, the Family Trust, Neil and Shirley it was necessary for the experts to determine the financial position of the partnership and of a company called Bali Enterprises Pty Ltd as at 30 June 2001.
154 Bali Enterprises is a beneficiary of the Family Trust. All its issued shares are divided equally between Neil and Shirley. The relevant books of account show that Bali Enterprises has received distributions from the Family Trust. Shirley and Neil's equity in Bali Enterprises as at 30 June 2001 is just over $95,470 each.
155 Mr Youngs says the net equity of the partnership at 30 June 2001 was $537,381 of which the sum of $249,822 belonged to the Estate. Mr Ridley says that amount was transferred to the Family Trust.
156 As to the Family Trust, Mr Youngs says it has net assets as at 30 June 2001 of $533,962. That figure excludes the figure of $249,822. Mr Youngs shows the value of the land owned by the Family Trust as $704,018. Mr Ridley includes the figure of $249,822 as an asset of the Family Trust but shows the value of the relevant land at cost in the sum of $511,378. On my mathematics that would put Mr Ridley's value of the Family Trust at approximately $591,144.
157 Mr Youngs values the net assets of the Estate at $1,077,861 which is the total of the figure of $249,822 together with the value of the land in which the Estate has an interest at $828,039. This figure represents the value of the Estate land less the 10 per cent discount applied by Mr Ferguson. Mr Ridley values the Estate at the land value only, which in his report is shown as $829,000.
158 Mr Youngs calculates that as at 30 June 2001, Neil had net assets of $598,528. The only difference between Mr Youngs and Mr Ridley is that Mr Ridley uses a valuation of $38,000 for Neil's farming land and improvements, whereas Mr Youngs uses a figure of $43,173.
159 Mr Youngs' assessment of Shirley's financial position as at 30 June 2001 is that she had net assets of $1,465,884 which includes farming land valued at $367,058. The only difference between Messrs Youngs and Ridley is that Mr Ridley uses a figure valuing Shirley's interests in the farming lands at $136,000.
160 As the transfer of the Estate's property to the Family Trust was ineffective and I prefer Mr Ferguson's valuation evidence to that of Mr Morcombe, it follows that I accept Mr Youngs' evidence concerning
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- the net value as at 30 June 2001 of the assets of the Estate, the Family Trust, Neil and Shirley. The values are:
• Estate $1,077,861
• Family Trust $ 533,962
• Neil $ 598,528
• Shirley $1,465,884
161 Mr Youngs was also asked to identify the amounts received by Neil and Shirley during the years 1994 to 2001. Mr Youngs prepared a report (exhibit 4/29) and subsequently updated the schedules when further information became available. The updated schedules are exhibit 11.
162 Exhibit 11 is intended to reflect the cash available to Neil and Shirley in that period. Mr Youngs' figures include, partnership income, interest, dividends, trust receipts and share sale income. Book entries are disregarded and payments for income tax and legal expenses are deducted. Mr Youngs' tables show that the average annual cash paid to or for Neil over the eight-year period (after excluding income tax and legal expenses) was $62,919 and to Shirley was $37,034.
163 The only significant point of contention with Mr Youngs' analysis related to a sum of $70,000 in the year 2000 which represented funds placed into a Farm Management Deposit for tax-planning purposes. The Income Tax Assessment Act requires these deposits to be made in the name of individual partners. On an occasion in 1998 a sum of $90,000 was placed into an Income Equalisation Deposit and that payment (less tax) was redeemed by Neil in the year 2000 and deposited back into the farm account. Although there is no obligation to put the moneys back into the partnership, if he did so in relation to the $70,000, the annual average cash payments to or for Neil would reduce to approximately $54,169.
164 Messrs Youngs and Ridley agreed that the $70,000 Farm Management Deposit (and the Income Equalisation Deposit before that) was treated as an advance to Neil from the partnership (with a corresponding decrease in his equity) and when it was redeemed and deposited back into the farm, would be shown as an advance to the partnership (with a corresponding increase in his equity in the partnership).
165 Mr Ridley undertook a similar analysis, save that Mr Ridley identified the direct net financial benefit received by Neil in his capacity as a partner only and over an 18 year period from 1 July 1983 to 30 June
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- 2001. The average annual benefit over that period was $31,940. Mr Ridley's analysis fails to bring to account the benefits received by Neil from, inter alia, the Family Trust which at all material times had a 50 per cent share in the partnership.
166 Mr Ridley also considered the impact on the partners' equity position had Neil received remuneration for his management of the farming enterprise operated by the partnership. He used a current salary level of $80,000 discounted by two per cent each year as representing a reasonable salary for Neil. That approach dramatically alters the equity of Neil, Shirley, the Family Trust and the Estate in the partnership.
167 According to Mr Youngs (and supported by the other relevant experts), all the entities are regarded as a family business comprising one economic unit, as a result of which rent is not paid by the partnership for the use of the farming land. Mr Youngs identified the reasons for using different entities such as partnerships, trusts and companies for what is regarded as a single economic unit. Some years ago it was because of probate but in modern times the purpose is to isolate the farm's assets from the trading entity so that the assets are not jeopardised in the event the trading entity incurs a legal liability to a third party. So too, Mr Youngs said it is very rare in a family farming business for a person to be paid a management salary of any kind and that partnership drawings usually vary according to the particular needs of a partner at the relevant time or stage of their life. In this case the amount of cash actually available to Neil from the partnership was significantly higher than the cash available to his mother in the eight-year period from 1994 to 2001.
Farm Viability
168 The parties adduced evidence concerning the minimum viable farm size to support the partnership, that is, the minimum farm size whereby the farming business would be able to meet all its operating costs, its plant replacement costs, debt servicing and personal and taxation costs and still have a reasonable surplus. Mr Johnston from Bedbrook Johnson gave evidence for the plaintiffs and Mr Falconer from Planfarm gave evidence for the defendants.
169 Both experts had prepared a number of reports. They met before the hearing to attempt to narrow the areas of disagreement between them. A large measure of agreement was reached. After the meeting Mr Falconer prepared an amended report (exhibit 18) which Mr Johnston responded to in writing (exhibit 15).
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170 Before going to the evidence in detail some preliminary matters need to be explained. It was not in dispute that the industry standard for a reasonable surplus is five per cent of farm income. In that case the business is considered to be viable.
171 The experts undertook a year-in year-out budget analysis. That is a tool used in the industry to determine the future viability of a farm business. It is based on figures extracted from an historical analysis of farm income and farm operating costs. The difference between farm income and farm operating costs is called the farm operating surplus. The purpose of the historical analysis is to remove the variability arising from changes in, inter alia, commodity prices, interest rates, plant replacement timing and other similar matters to extract a theoretical year based on average figures. The average is obtained over a five or seven year period.
172 In this case Mr Falconer did an analysis of the partnership profit and loss for the years 30 June 1995 to 30 June 2001 (seven years) and calculated the farm operating surplus ("FOS") per hectare over a seven-year average, seven-year average less extremes and the average over the last five and three years (appendix A of exhibit 18). Mr Falconer also identified the same averages from what is known as the Planfarm survey of income, costs and FOS.
173 Planfarm consults to the agricultural industry (as does Mr Johnston's firm, Bedbrook Johnston). Planfarm, using information obtained from its clients and the clients of other consulting practices, extracts the average farm income, the average operating costs and the average FOS per hectare for farming operations in different rainfall zones. It enables individual farmers to do a comparative analysis of their performance against the performance of an average farm in a particular rainfall zone.
174 At the time of the hearing Mr Johnston and Mr Falconer disagreed on three points of principle. Firstly, Mr Falconer calculated the seven-year average less extremes for both the partnership and the Planfarm survey by having regard to different years for each of farm income, operating expenses and the FOS. According to Mr Johnston, the correct treatment is to exclude the two extreme years identified by reference to the FOS and then average the farm income and operating expenses from the remaining five years. However, for the purpose of the year-in year-out budget analysis of farm viability by reference to size (both for the partnership and from the Planfarm survey) Mr Falconer used the seven-year average. Accordingly, the issue is academic and does not have to be ruled on.
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175 Secondly, Mr Johnston was of the opinion that the appropriate allowance for drawings was a constant figure of $30,000 regardless of farm size. Mr Falconer, on the other hand, allowed a minimum of $30,000 for a 2000 hectare farm increasing by $2000 for each 500 hectare increment. He did so on the basis that larger farms have higher personal drawings because of greater disposable income. However, as Mr Johnston adopted the same figures for drawings as Mr Falconer in determining viability it is also unnecessary to resolve this issue.
176 Thirdly, Mr Falconer increased farm operating costs by 2.5 per cent for each 500 hectare reduction in size of the farm on the basis that there is an increase in operating costs per hectare on smaller farms. This is disputed by Mr Johnston. This disagreement has very significant consequences on the size at which a farm would be viable.
177 Mr Falconer's calculation of the surplus from farms of different sizes using the seven-year average figure from the Planfarm survey is as follows:
Falconer Calculation of Surplus from Planfarm Survey
Farm Size
(Effective Ha) 4547 4000 3500 3000 2500 2000
Farm Income $899,715 791,480 692,545 593,610 494,675 395,740
Operating Costs $621,620 560,511 502,409 440,890 375,953 307,598
Plant Replacement $ 50,000 46,500 43,000 39,500 36,000 32,500
Debt Servicing $ 50,000 47,222 44,271 41,109 37,683 33,915
Taxation $ 44,649 32,076 21,425 11,838 6,011 1,804
Personal $ 40,000 38,000 36,000 34,000 32,000 30,000
Total Expenses $806,269 724,310 647,105 567,337 487,646 405,816
Surplus/Deficit $ 93,446 67,170 45,440 26,273 7,029 (10,076)
S/D AS %
FARM INCOME 10.4% 8.5% 6.6% 4.4% 1.4% -2.5%
178 Mr Johnston's calculation of the surplus from farms of different sizes using the seven-year average figure from the Planfarm survey is as follows:
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Johnston Calculation of Surplus from Planfarm Survey
4547 4000 3500 3000 2500 2000
Farm Income 899,715 791,480 692,545 593,610 494,675 395,740
Operating Costs 621,620 546,840 478,485 410,130 341,775 273,420
Plant 50,000 46,500 43,000 39,500 36,000 32,500
Debt 50,000 47,222 44,271 41,109 37,683 33,915
Taxation 44,649 37,440 29,120 21,008 13,104 7,488
Personal 40,000 38,000 36,000 34,000 32,000 30,000
Total Expenses 806,269 716,002 630,876 545,747 460,562 377,323
Surplus/Deficit 93,446 75,478 61,669 47,863 34,113 18,417
% 10.4% 9.5% 8.9% 8.1% 6.9% 4.65%
179 Each of Messrs Falconer and Johnston did a similar analysis using the seven-year average figure from the partnership. Mr Falconer's calculation is as follows:
Falconer Calculation of Surplus from Partnership Figures
Farm Size
(Effective Ha) 4547 4000 3500 3000 2500 2000
Farm Income $753,938 663,240 580,335 497,430 414,525 331,620
Operating Costs $504,808 455,182 407,999 358,040 305,305 249,795
Plant Replacement $ 50,000 46,500 43,000 39,500 36,000 32,500
Debt Servicing $ 50,000 47,222 44,271 41,109 37,683 33,915
Taxation $ 35,960 25,204 16,086 8,569 4,395 730
Personal $ 40,000 38,000 36,000 34,000 32,000 30,000
Total Expenses $680,768 612,108 547,356 481,217 415,383 346,939
Surplus/Deficit $ 73,171 51,132 32,979 16,213 (858) (15,319)
S/D AS %
FARM INCOME 9.7% 7.7% 5.7% 3.3% -0.2% -4.6%
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4547 4000 3500 3000 2500 2000
Farm Income $753,938 663,240 580,335 497,430 414,525 331,620
Operating Costs $504,808 444,080 388,570 333,060 277,550 222,040
Plant $ 50,000 46,500 43,000 39,500 36,000 32,500
Debt $ 50,000 47,222 44,271 41,109 37,683 33,915
Taxation $ 35,960 29,120 23,088 15,808 9,776 4,992
Personal $ 40,000 38,000 36,000 34,000 32,000 30,000
Total Expenses $680,769 604,922 534,929 463,477 393,009 323,447
Surplus/Deficit $ 73,170 58,318 45,406 33,953 21,516 8,173
% 9.7% 8.8% 7.8% 6.8% 5.2% 2.5%
180 Based on Mr Falconer's figures, a five per cent surplus is achieved based on the Planfarm survey figures and the partnership figures between 3000-3500 hectares. However, based on Mr Falconer's calculation, the partnership performs below average and the five per cent surplus figure would be achieved by the partnership higher in the range.
181 Based on Mr Johnston's figures, a five per cent surplus is achieved on the Planfarm survey figures and the partnership figures at between 2000-2500 hectares. However, as with Mr Falconer's calculation, Mr Johnston's figures show that the partnership performs below average and the five per cent surplus figure would be achieved by the partnership higher in the range.
182 The only differences between the input data in the Johnston tables and the Falconer tables is that Mr Johnston keeps his operating costs per hectare constant at $111.02 per hectare, whereas Mr Falconer increases his costs by 2.5 per cent per 500 hectares reduction in size. As a result, there is a consequential difference in the taxation figures. Mr Johnston used Mr Falconer's figures for drawings.
183 Mr Falconer also calculated the effect on the surplus on the partnership figures if the partnership debt was increased by $250,000 (which corresponds with the amount owing by the Estate to Kerry). The figures are done on the basis that the $250,000 was borrowed. The calculation is as follows:
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- 4,547 4,000 3,500 3,000 2,500 2,000
Surplus/Deficit
(Above) $73,171 51,132 32,979 16,213 12,464 7,074
Deduct annual
Loan cost $43,750 43,750 43,750 43,750 43,750 43,750
Add Tax Saving $ 8,126 8,126 7,450 4,605 4,395 730
REVISED
SURPLUS $37,547 15,508 (3,321) (22,932) (26,891) (35,946)
SURPLUS AS %
FARM INCOME INC 4.98% 2.34% -0.57% -4.61% -6.49% -10.84% 184 It was not in dispute that the analysis by Mr Johnston and Mr Falconer does not differentiate between the contribution made by different sections of the Fisher group properties to the generation of farm income.
185 The sensitivity of the results to changes in the costs figures is obvious. Mr Falconer said he increased the costs by 2.5 per cent for each 500 hectare reduction in size in reliance on Planfarm survey figures which he said show an increase in operating costs per hectare on smaller farms (relying on appendix G to his final report). He said that was due to marketing and purchasing disadvantages as well as diseconomies of scales. Appendix G is a graph from the 2000 Planfarm survey on which the vertical axis is the costs per hectare and the horizontal axis is the effective farm area. The "effective" area is the total of the arable area (suitable for growing crops) and the land suitable for grazing. The graph plots a number of dots (representing individual farms) and a line showing that costs per hectare increased as farm size decreased.
186 Mr Falconer and Mr Johnston agreed that there are a number of costs for which the cost per hectare is higher for smaller farms, such as fertilizer and herbicide costs. The smaller the order, the higher the average cost per tonne. The costs are significant.
187 Mr Falconer was referred in cross-examination to the 1999 Planfarm survey which contains a graph showing the relationship between operating
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- surplus and effective farming area. The operating surplus is shown on the vertical axis and the effective area on the horizontal axis. The commentary states:
"Are the top performers achieving higher surpluses through efficiencies derived from greater farm size? It would appear not. [graph inserted]
The failure to identify a positive relationship here would imply that any scale advantages from bulk purchases of inputs such as fertilizer, are being lost on operational inefficiencies. This re-emphasises the point that it is good management rather than farm size that is required to generate a high operating surplus."
189 I understand Mr Falconer's point to be that a significant factor in relation to operating surplus is the standard of the management of the farm rather than just farm size. Different people with different skill and ability will produce different operating surpluses regardless of size and any cost savings associated with size alone.
190 When Mr Falconer was cross-examined about appendix G (the graph comparing costs and farm size) he said the line through the dots showing that costs per hectare decreased as farm size increased was calculated by a computer formula about which he was not able or qualified to comment on. However, Mr Falconer's evidence was that for 40 years he had been looking at the effect of subdividing large farms into smaller farms or aggregating smaller farms into large farms and his experience had shown him without question that there is an inverse relationship between area and operating costs.
191 I do not understand Mr Johnston to disagree with that basic proposition. Mr Johnston's evidence was as follows:
"In isolation there is some validity to that claim in that obviously farmers do get, if they are purchasing 20,000 tonnes of fertilizer versus 200, they will get a better discount … but I believe there is also a significant variation in farm income with farm size and effectively what happens in my belief is that when farmers are operating on a large scale and they come back to a
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- smaller scale, farm income also increases so that there is variability in farm income as well as farm operating costs."
192 He referred to the 1999 Planfarm survey to support his position. He says that if operating costs per hectare decrease with an increase in size, there would be an increase in operating surplus per hectare which is not supported by the 1999 Planfarm survey. However, as Mr Falconer correctly pointed out, the graph relates to different farms of different sizes managed by different people. There are a number of other variables involved in addition to operating costs and size.
193 I accept Mr Falconer's evidence that there is an inverse relationship between area and operating costs. However, Mr Falconer was not asked about Mr Johnson's evidence that when a farm is reduced in size, farm income per hectare increases. I am left to speculate about the basis for Mr Johnston's opinion (such as perhaps, using the same plant and equipment for a smaller farm). In those circumstances, I prefer the evidence of Mr Falconer.
First Stage – Jurisdiction
194 The jurisdictional question is to be answered by reference to, inter alia, the size and nature of the testator's estate, the applicant's financial position, the totality of the relationship between the applicant and the deceased and other persons who have legitimate claims upon the testator's bounty: Singer v Berghouse at 209; Kitson v Franks.
195 The focus when considering what is "adequate" and "proper" involves a consideration of what is necessary or appropriate for the future: Coates v National Australia Executors per Dixon CJ at 508; Blore v Lang (1960) 104 CLR 124 per Windeyer J at 137.
196 Like Coates, this is also an unusual case. In Coates the Court was considering the application more than 10 years after the death of the testatrix. In this case, the application for the extension was made 12 years after the testator's death and the matter is being determined some 18 years after his death.
197 As the jurisdictional question is to be determined as at the date of the testator's death, that involves determining what is necessary or appropriate prospectively having regard to reasonably foreseeable contingencies. As to the relevance of events as they actually occurred, Dixon CJ in Coates said (at 508):
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- "When a Court is called upon to consider [the jurisdictional] question many years after the date as at which the Court must take its stand, all the advantage is available of knowing the events that have occurred. The intervening events may be taken into consideration because they suggest or tend to show what antecedently might have been expected. But they must not be outside the range of reasonable foresight. If all contingencies that might reasonably have been anticipated have been taken into account, it would be difficult to say that the actual occurrence of some event which antecedently no-one could reasonably have foreseen shows that the maintenance or support was not proper or the provision therefore was not adequate. It is therefore impossible to treat actual intermediate occurrences as more than evidentiary facts."
198 The persons with legitimate claims upon the testator's bounty as at the date of his death were Shirley and the testator's children. Thus, I start with the question whether there was a breach by the testator of his duty as a wise and just husband and father to make adequate provision for the proper maintenance, education or advancement in life of Shirley, Kerry, Neil and Brian. The framing of the question to include all legitimate claimants is deliberate. Brian and Kerry's claims cannot be determined in isolation. What is "proper" provision for them will be significantly affected by Shirley's position.
199 Of particular significance in this case is the nature of the estate. It comprised primarily farming land and an interest in a farming business. What the testator did, in effect, was set out the parameters which dictated the minimum value of Kerry's legacy, gave Shirley the right to use, occupy and enjoy during her lifetime the estate farm land and left Shirley in control (through her control of the Family Trust) of the farming business and the ultimate destination of the farming related property owned or controlled by the testator at his death. Neil had no entitlement under the will. Brian had no (effective) entitlement under the will. Both were dependent on their mother as to what benefit, if any, they would receive from the testator's estate.
200 However, based on the scheme of the testator's will and the evidence of Kerry as to the testator's intentions (which I accept), I find the testator's expectations for the future were that:
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- (i) the estate land and the other land which he and Shirley owned and/or controlled would be retained and farmed by Shirley, Neil and Brian;
(ii) the farming business would provide financial support for Shirley during her lifetime;
(iii) Kerry would receive her legacy in instalments according to the capacity of the farming business to pay but, in any event, at the expiration of 17 years;
(iv) on Shirley's death (or before by agreement which would no doubt include the boys continuing to make proper provision for Shirley's financial support), the farm land and the farming business would belong to Neil and Brian in equal shares.
201 I infer it was because the testator's expectations may not be fulfilled in whole or in part that he left his farming-related assets to Shirley or in her control. However, it is for the Court to decide what a wise and just spouse and parent would have done in all the circumstances of the case, not what the testator assessed would be proper provision.
202 Although the value judgment is not without its difficulty, I have concluded that, having regard to the nature and value of the estate, a wise and just testator would have made provision from his estate for Shirley and each of his three children. That is, I conclude that Brian (and Neil) should have had an entitlement under the will.
203 The person with the primary claim on the testator as at the date of his death was Shirley in view of, inter alia, her status (spouse), her age (45) and her contribution to the creation and development of the testator's estate. It may be said that the provisions of the testator's will reflect what is adequate and proper for Shirley. She was relatively young and dependent on the farm related assets for income for her future maintenance and support. She would need assistance to run the farm. She may need control of the assets to secure that assistance if it was not provided unconditionally. However, I have concluded that the moral duty to Shirley would be satisfied by giving her use and control of the Estate's farming assets, being the farm land and interest in the partnership, for her life or until she voluntarily relinquished use or control of the assets. Those assets, together with Shirley's ownership of some of the farm land and her control of the other trust property, would be sufficient to secure the source of the financial benefits required for her proper maintenance, support and advancement in life.
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204 However, a wise and just testator would after Shirley's death or her earlier retirement, leave the Estate's interest in the farm land ("Estate farm land") to such of his children who, at the date of his death, intended to be farmers (reflected in their education and training and no doubt influenced by family expectation) and if more than one, in equal shares. Such children would have an incentive to work together with Shirley. On the evidence in this case only Neil and Brian fall within this category. The value of a 50 per cent interest in the Estate farm land in 1983 was around $319,000.
205 Kerry had, for whatever reason, taken a different path. That being the case, a wise and just testator would have made other provision for Kerry. Under the will, the mortgage of her Como unit was to be discharged by payment of the moneys owing and she was to receive $250,000 by instalments over 17 years free of interest. At the date of the testator's death she was 22, single, had assets of $35,306 and was part way through a university degree.
206 Kerry's personal circumstances have to be considered in the context of the size and nature of the estate and the legitimate claims of Shirley and her brothers. What is "proper" provision is relative. The moral duty of a testator is not confined to making provision for those who fall below a minimum financial standard: Bosch v Perpetual Trustee Co Ltd [1938] AC 463; Nelson v Nelson per Kennedy J at 6.
207 There is no evidence as to the minimum value of the legacy of $250,000, being the value in 1983 of the legacy if paid in its entirety at the end of 17 years. It is reasonable to infer that it would be considerably less than its face value. However, having regard to the benefits provided to Kerry during the testator's lifetime (the Como unit and a car) and the primacy of Shirley's claim as previously discussed, I find that that testator made adequate and proper provision for Kerry in his will, save in one respect. The size and timing of the instalment payments which were to be sourced from income generated by the farm, should have been determined by reference to the financial capacity of the partnership to make annual or other periodic payments.
208 A requirement to pay the legacy by equal annual instalments and an entitlement to interest in the event an instalment was not paid would, in my assessment, be inconsistent with the testator's primary duty to Shirley having regard to the nature of the estate property. Shirley was dependent on income from the farm. She would need assistance to run the farm.
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- Those who assisted would be funded from farm income. Farm income can fluctuate significantly.
209 Further, having regard to the likely timing of receipt of the benefits, there would be a reasonable correlation in the value of the provision made for each of the children.
The Discretionary Stage
210 A change in financial fortune in the period between the date of death and the date of the determination of the application is a relevant factor in the exercise of the discretion: Coates v National Australia Executors. In Coates Dixon CJ said (at 509):
"The discretion conferred by these words is of course limited by the purpose and scope of the legislation. … But it would not be a proper exercise of discretion if the facts as they exist at the time the order is made were left out of account. If a child, through some accession of fortune, had ceased before the hearing of the application to require any further provision for his maintenance or support it would not be a proper exercise of discretion to make an order in his favour on the ground that it was only after his father's death that his needs were thus met. It is not a discretion to give more than what is adequate for proper maintenance in the circumstances as they have come to exist."
211 As to Kerry's legacy, there is little evidence on whether there would be any financial difference if the legacy of $250,000 had been paid in instalments determined by reference to the partnerships capacity to pay.
212 I am satisfied that Shirley disagreed with the amount the testator provided for Kerry in his will and Shirley's failure to exercise her discretion in Kerry's favour was guided primarily by her personal view that the legacy was excessive rather than the capacity of the partnership to progressively fund the legacy. Although it is difficult from the evidence to identify when and to what extent payments could have been made, there were some occasions when it would have been possible. For example, the partnership generated sufficient funds to enable the trust to purchase further farming land after the testator's death. In such circumstances, provision could be made for the payment of interest by the Estate from say 1994 based on Mr Youngs' evidence.
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213 However, I do not find it necessary to resolve this matter. The discretion is to make adequate and proper provision in "the circumstances as they have come to exist". On the facts as I have found them to be, Kerry is in a very comfortable financial position. In those circumstances, the absence of proven requirements (present or contingent) which she is unable to meet from her own resources is a relevant consideration at the jurisdictional and discretionary stage: Singer v Berghouse at 213. Accordingly, as a result of the significant improvement in Kerry's financial fortunes between the testator's death and the date of the hearing, I decline in the exercise of my discretion to make further provision for Kerry under s 6 of the Act.
214 Brian's financial position at the date of the hearing is such that he is not in a financial position to fulfil his continuing ambition to farm on his own account in a viable wheat and sheep farming operation. I accept (and find) that Brian has not utilised his full income earning potential since 1997. He is a qualified auto electrician whose ability to earn income does not depend on a significant capital base. However, that does not disentitle him from receiving what I have determined was adequate and proper provision for his future at the time of his father's death.
215 Brian does not have the ability from his own resources to establish a viable broadacre farming operation. Although there is no evidence as to the amount of capital required to establish himself in such a position, I infer from the valuers' evidence and the farm consultant's evidence on viability that Brian would require more than what he could expect to receive from the Estate having regard to its size and the legitimate claims of others.
216 However, there have been significant developments since the testator's death. Neil has managed and worked on the farm for 18 years for an average annual net benefit from the partnership (drawings and advances) of approximately $32,000. Of course, that figure fails to bring to account the distributions to Neil from the Family Trust, which has at all material times since the testator's death had a 50 per cent interest in the partnership. Neil alone of the three children assumed the responsibility, with Shirley's assistance, to generate the income for Shirley's maintenance and support. The farm is continuing to pay Shirley's expenses following her retirement in 1996. Shirley has rewarded Neil by giving him control of the Family Trust, which has net assets of around $534,000 and her Wesfarmers' shares currently conservatively valued at around $237,212. Neil has not made an application under the Act because as it stands, he
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- will, in effect, inherit all of the Estate's farming assets via the Family Trust.
217 However, the outcome at the discretionary stage in relation to Brian's application is largely determined by my conclusion at the jurisdiction stage. That is, I formed the view that it was the moral duty of the testator to provide primarily for Shirley during her lifetime or until her retirement from the farm. This was achieved in part by Shirley being in control of the Family Trust and in a position to reward those who worked together with her in their joint interests. I do not regard it as appropriate to increase Brian's proposed 50 per cent share of the Estate farm land because Neil has been compensated by his mother (even if generously) for his efforts following the death of his father. On the other hand, except in relation to improvements to the Estate farm land, there is nothing that Neil has done since the testator's death which justifies a reduction in the provision for Brian. Neil and Shirley have had sole regard to their joint financial interests in that period. Neil has received or has control over income and capital benefits from the partnership and the Family Trust. The remaining 50 per cent share of the Estate farm land will continue to go to the Family Trust.
218 I have concluded in the exercise of my discretion that Brian should be entitled to the value of a 50 per cent interest in the Estate farm land less the value of improvements to that land. It would be inappropriate for Brian to be left as a co-owner of the Estate farm land. Such an outcome may result in further straining of an already difficult relationship and result in further costly and unproductive litigation. In addition, Neil's home is on Estate farm land.
219 Mr Ferguson, whose evidence I have accepted, valued the Estate farm land at $920,044. However, as Neil has worked the farm for over 18 years, Brian should not get the benefit of any increase in value as a result of the improvements on that land, which Mr Ferguson values at $143,500. Mr Ferguson's 10 per cent reduction (adopted by Mr Youngs in his evidence of the value of the Estate farm land) should continue to apply because of the size of the relevant land and as a reflection of the uncertainty referred to by Mr Ferguson occasioned by the poor start to the current season. The current value of the relevant land is $684,540 (being $920,044 less 10 per cent and less a further $143,500) fifty per cent of which is $342,270.
220 It was suggested in closing but not put to Neil (or Shirley) that any award could be funded in part from the sale of the partnership wool on
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- hand which was valued at $505,158. However, the Estate, which must fund the payments to Kerry and Brian, has no entitlement to partnership assets. Whether Shirley and Neil wish to avoid the sale of the Estate farm land is a matter for them. If it is necessary to sell some of the land in which the Estate has an interest to pay Brian's entitlement, that will not on the evidence of the experts render the existing farm business unviable.
221 The amount of $342,270 is to be paid by the Estate to Brian in two equal instalments of $171,135, the first instalment to be paid by 30 June 2002 and the second by 30 June 2003. The timing will enable the Estate to take the necessary measures to fund the payments.
222 Accordingly, I propose to order that:
1. Kerry's claim be dismissed.
2. Brian be paid from the Estate the sum of $342,270 in two equal instalments payable on 30 June 2002 and 2003.
3. The interests of Shirley and the Family Trust in the Estate's farm land are both subject to the payment of the Estate's liability to Brian.
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