Haertsch v Whiteway

[2020] NSWCA 133

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Haertsch v Whiteway [2020] NSWCA 133

Hearing dates:

20 May 2020

Decision date:

03 July 2020

Before:

Macfarlan JA; Meagher JA; Leeming JA

Decision:

(1) Allow appeal.

(2) Dismiss cross-appeal.

(3) Set aside orders 1, 2, 3, 4, 5, 6 and 7 made on 11 November 2016.

(4) Dismiss the amended statement of claim.

(5) Direct that if the parties cannot agree on the costs orders to be made in relation to the proceedings below and in this Court, they are to exchange and lodge with Meagher JA’s Associate within 14 days of the date of these orders written submissions as to the costs orders sought (those submissions not to exceed 5 pages). Those questions as to costs will then be dealt with on the papers.

Catchwords:

SUCCESSION – Family provision – Notional estate – Where property of the estate distributed – Where primary beneficiary deceased and her estate held by executor – Where notional estate order made by primary judge – Whether estate of deceased beneficiary able to be designated notional estate under Family Provision Act 1982 (NSW), s 24 – Appeal allowed.

SUCCESSION – Family provision – Claim by adult child – Proceedings not commenced within time – Where application made 12 and a half years out of time – Where primary beneficiary of testator now deceased – Where general assurances of a testamentary benefit given to applicant by deceased beneficiary – Whether sufficient cause shown to extend time – Whether primary judge erred in disregarding prejudice to deceased beneficiary and her estate in exercising discretion to extend time – Appeal allowed.

Legislation Cited:

Family Provision Act 1982 (NSW), ss 6(4), 6(5), 7, 8, 9, 16(1)(b), 16(2), 16(3)(b), 21, 22, 23, 24, 25, 27(2)

Interpretation Act 1987 (NSW)

Real Property Act 1900 (NSW), s 93

Succession Act 2006 (NSW), ss 57, 58, 59

Testator’s Family Maintenance and Guardianship of Infants Act 1916 (NSW), ss 5(1), 5(2A)

Cases Cited:

Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12; [1964] HCA 54

Davison v Staley (unreported, NSWSC, 21 August 1986)

Durham v Durham (2011) 80 NSWLR 335; [2011] NSWCA 62

Easterbrook v Younger (1977) 136 CLR 308; [1977] HCA 16

Ernst v Mowbray [2004] NSWSC 1140

House v The King (1936) 55 CLR 499; [1936] HCA 40

Kavalee v Burbidge (1998) 43 NSWLR 422

Light v Anderson [1992] NSWCA 136

Phillips v James (2014) 85 NSWLR 619; [2014] NSWCA 4

Prince v Argue [2002] NSWSC 1217

Public Trustee v Kidd [1931] NZLR 1

Richardson v Reardon [2006] NSWSC 1252

Stern v Sekers [2010] NSWSC 59

Vasconelos v Bonetig [2011] NSWSC 1029

White v Barron (1980) 144 CLR 431; [1980] HCA 14

Category:

Principal judgment

Parties:

Adrian Haertsch (as executor of the estate of Stephne Whiteway) (first appellant)
Adrian Haertsch (as executor of the estate of Donald Whiteway) (second appellant)
Elizabeth Whiteway (first respondent)
Jane French (second respondent)

Representation:

Counsel:
C Birch SC and J Brown (appellants)
J Mitchell (first respondent)

Solicitors:
Elyse White, Solicitor (appellants)
Bertollo Advisory (respondents)

File Number(s):

2019/387501

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Family Provision List

Citation:

[2019] NSWSC 266

Date of Decision:

08 November 2019

Before:

Lindsay J

File Number(s):

2017/206239

HEADNOTE

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

Elizabeth Whiteway, plaintiff in the proceedings below and first respondent in the appeal, sought family provision out of the estate of her father, Donald Whiteway. Donald had died on 14 July 2003 and, but for $25,000 left to each of Elizabeth and her sister, left the whole of his estate to his wife of his second marriage, Stephne Whiteway.

Stephne died without issue on 18 November 2016, having named Adrian Haertsch, her brother, as her executor in her final will. That will left $100,000 to each of Elizabeth and her sister, and the remainder of the estate to Stephne’s siblings and their children.

Not being eligible to make a provision claim against Stephne’s estate under the Succession Act 2006 (NSW), Elizabeth made an application for provision out of Donald’s estate under the Family Provision Act 1982 (NSW). For that purpose she sought an order under Family Provision Act, s 24 designating property in Stephne’s estate as the notional estate of Donald. As her claim was some 12 and a half years out of time, she also sought an extension of time in which to make an application, under Family Provision Act, s 16(2).

The primary judge granted an extension of time, designated $740,000 of Stephne’s estate, held by Mr Haertsch, as notional estate of Donald, and made an order for a further provision of $250,000 to be made for the plaintiff out of that notional estate.

The issues in the appeal were:   

(i) Whether property of Stephne’s estate was able to be designated notional estate of Donald under s 24.

(ii) Whether the primary judge erred in granting the plaintiff an extension of time in which to make her application under s 16(2).

The other issues raised by the appeal and by Elizabeth’s cross-appeal, which concerned the amount designated notional estate, the extent of the provision, and the order that 75% of the plaintiff’s costs be paid out of the estate, did not need to be considered in light of the Court’s conclusions on issues (i) and (ii).

Held, allowing the appeal (per Meagher JA, Macfarlan and Leeming JJA agreeing):

As to issue (i):      

1. In s 24, “the person” whose property may be designated notional estate is the “person” referred to in s 24(b), by whom property became held as a result of a distribution from the deceased’s estate: at [1] (Macfarlan JA), [18], [30] (Meagher JA), [78] (Leeming JA).

Stern v Sekers [2010] NSWSC 59, discussed.

2. There is no basis for reading “the person” as including the legal personal representative of the “person” referred to in sub-para (b): at [1] (Macfarlan JA), [49] (Meagher JA), [78] (Leeming JA).

Interpretation Act 1987 (NSW), referred to.

3. Section 24 is concerned with persons by whom property became held as a particular and direct consequence of a distribution. It does not invite a broader “chain of causation” inquiry: at [1] (Macfarlan JA), [30] (Meagher JA), [78] (Leeming JA).

Kavalee v Burbidge (1998) 43 NSWLR 422; Prince v Argue [2002] NSWSC 1217; Stern v Sekers [2010] NSWSC 59, discussed.

4. Mr Haertsch was not a person who held property “as a result of” the distribution to Stephne from Donald’s estate: at [1] (Macfarlan JA), [49] (Meagher JA), [78] (Leeming JA).

As to issue (ii):      

5. The general assurances of a testamentary benefit given to the plaintiff by Stephne were not “sufficient cause” for the application not having been made within time, as required by Family Provision Act, s 16(3)(b): at [1] (Macfarlan JA), [59]-[67] (Meagher JA), [78] (Leeming JA).

6. The primary judge erred in finding that there was no prejudice to Stephne or her estate in allowing the application out of time in circumstances where the strength of the plaintiff’s claim for provision was improved by Stephne’s death: at [1] (Macfarlan JA), [55]-[57], [68]-[74] (Meagher JA), [78] (Leeming JA).

Davison v Staley (unreported, NSWSC, 21 August 1986); Durham v Durham (2011) 80 NSWLR 335; [2011] NSWCA 62, applied; Vasconelos v Bonetig [2011] NSWSC 1029, discussed; White v Barron (1980) 144 CLR 431; [1980] HCA 14, referred to.

Judgment

1. MACFARLAN JA: I agree with Meagher JA.

2. MEAGHER JA: The appellant, Adrian Haertsch, is executor of the estates of his sister, Stephne Whiteway, who died on 18 November 2016, and her husband, Donald Whiteway, who died on 14 July 2003. In each of those capacities he appeals against orders of the primary judge (Lindsay J) made on 11 November 2019 granting Elizabeth Whiteway, as plaintiff, provision of $250,000 out of the estate of her father, Donald Whiteway, for which purpose his Honour designated $740,000 of the estate of Stephne Whiteway as notional estate. Those orders were made under the Family Provision Act 1982 (NSW), which continues to apply to Donald Whiteway’s estate because he died before the commencement of Ch 3 of the Succession Act 2006 (NSW) on 1 March 2009.

3. Donald Whiteway had two daughters with his first wife, Sheila, who died in 1985: Elizabeth Whiteway, who is the first respondent and cross-appellant in the appeal, and Jane French, who was the fourth defendant in the proceedings below and is now the second respondent. He married Stephne, some 27 years younger than himself, in 1987. There is no dispute that their marriage brought them both great happiness, and Elizabeth and Jane both supported that relationship. Donald died in July 2003 at the age of 74. He left $25,000 to each of his two daughters, and the residue of his estate (valued at $1.916 million) to his wife, Stephne, expecting her to outlive him for a significant period of time. Stephne died without issue in November 2016. Her gross estate was valued at $1.937 million for probate purposes. By her final will, dated 30 June 2016, she left $100,000 to each of Elizabeth and Jane, and the remainder to her own siblings and their children.

4. By a statement of claim filed 7 July 2017 (amended to refer to the Family Provision Act rather than the Succession Act on 12 March 2019 with retrospective effect) the plaintiff claimed that Stephne was estopped from denying that so much of her estate as passed to her from Donald was held on trust for the plaintiff and her sister, and sought an order for provision under the Family Provision Act against Donald’s estate, the plaintiff not being an eligible person under the Succession Act in respect of Stephne’s estate. The estoppel claim was dismissed by the primary judge and is not, save in respect of the cross-appeal as to costs, directly relevant to this appeal. The family provision claim was some 12 and a half years out of time (cf. Family Provision Act, s 16(1)) and accordingly could not be made without an extension of time.

5. The primary judge granted that extension of time, designated $740,000 of Stephne’s estate as notional estate of Donald, and made an order for a further provision of $250,000 to be made for the plaintiff out of that notional estate.

6. The primary judge also ordered that 75% of the plaintiff’s costs assessed on the ordinary basis be paid out of Donald’s estate, on the basis that the “claim for a trust arising from an allegation of estoppel really had no reasonable foundation”, the evidence relied upon in support of that claim was not the same as that relied on in support of the family provision claim, and “in any event there was a substantial amount of wastage” involved in pursuing it.

The appeal and amended cross-appeal

7. Mr Haertsch appeals from three principal orders of the primary judge. The first is the order designating $740,000, being part of the moneys of Stephne’s estate held on deposit, as notional estate of Donald (ground 1). The second is the order extending the time for the plaintiff to make her claim for provision from Donald’s estate from 14 January 2005, the date 18 months after his death, to 7 July 2017 (grounds 2 and 3). The third is the order that further provision be made for the plaintiff out of the notional estate of Donald in the sum of $250,000 (grounds 4 and 5).

8. Elizabeth Whiteway as cross-appellant also appeals from two of those orders, as well as the order that 75% of her costs be paid out of Donald’s estate. The first is the order designating the amount of the notional estate, it being contended that the amount should have been at least $990,000 (ground 1). The second is the order making further provision, it being submitted that a provision of up to $990,000 should have been made out of the notional estate (ground 2). In relation to the costs order, it is contended that all of the plaintiff’s costs should be paid out of Stephne’s estate (ground 3).

9. I will deal with the issues raised by these grounds of appeal and cross-appeal in the order in which they arise for consideration. The first is the designation of notional estate, all of the property in Donald’s estate having been distributed (s 6(4)).

Whether property of Stephne’s estate was available to be designated notional estate of Donald

The immediately relevant statutory provisions      

10. The notional estate provisions of the Family Provision Act are directed to enabling the making of orders where the deceased’s estate has been wholly or partially distributed or, taken to include assets controlled by the deceased during his or her lifetime, has been diminished by a “prescribed transaction”. A prescribed transaction is an actual or deemed transaction taking effect before, on or after the death of the deceased, for which full valuable consideration has not been given, and resulting in property which might otherwise have been held or controlled by the deceased being held by another person or subject to a trust. In such a transaction the “disponor” is the person deemed to have entered into the transaction and the “disponee” the person by whom the property becomes held, or for whom it is held as the object of a trust, in either case “as a result of the prescribed transaction” (ss 21, 22).

11. Sections 23 and 24 are set out below. They provide for the designation as notional estate of property which is “held by or on trust for” the disponee, in the case of a prescribed transaction (s 23), or the person by whom “property became held”, in the case of a distribution (s 24).

23   Notional estate—prescribed transactions

... if the Court is satisfied:

(a)  that an order for provision ought to be made on the application, and

(b)  that, at any time before death, the deceased person entered into a prescribed transaction:

[sub-paras (i), (ii) and (iii) describe different types of prescribed transaction depending on whether they took effect within a period of 3 years before death, 1 year before death, or on or after death]

the Court may, subject to sections 26, 27 and 28, make an order designating as notional estate of the deceased person such property as it may specify, being property which is held by, or on trust for the disponee or, where there is more than one disponee, any of the disponees, whether or not that property was the subject of the prescribed transaction.

24   Notional estate—distributed estate

... if the Court:

(a) is satisfied that an order for provision ought to be made on the application, and

(b) finds that, as a result of a distribution from the estate of the deceased person, property became held by a person (whether or not as trustee) or subject to a trust,

the Court may, subject to sections 27 and 28, make an order designating as notional estate of the deceased person such property as it may specify, being property which is held by, or on trust for, the person or the object of the trust, whether or not that property is the property distributed.

12. Section 25 confers power to make a notional estate order where the person against whom such an order might already be made has entered into a prescribed transaction:

25   Notional estate—subsequent prescribed transactions

(1) On an application in relation to a deceased person, if the Court:

(a) is satisfied that an order for provision ought to be made on the application,

(b) has power, under this or any other provision of this Act, to make an order designating as notional estate of the deceased person property which is held by, or on trust for, a person, and

(c) is satisfied that, since the prescribed transaction or distribution in respect of which that power arises was entered into or made, the person referred to in paragraph (b) entered into a prescribed transaction,

the Court may, subject to sections 26, 27 and 28, make, instead of or in addition to the order referred to in paragraph (b), an order designating as notional estate of the deceased person such property as it may specify, being property which is held by, or on trust for, the disponee in relation to the prescribed transaction entered into by the person referred to in paragraph (b), or where there is more than one such disponee, any of those disponees, whether or not that property was the subject of the prescribed transaction.

(2) The Court shall not make an order under subsection (1) unless it is of the opinion that there are special circumstances which warrant the making of the order.

13. Section 27(2) provides that in determining “what property should be designated as notional estate of a deceased person, the Court shall have regard” to the following:

(a)  the value and nature of property the subject of any relevant prescribed transaction or distribution from the estate of the deceased person,

(b)  where, in relation to any such prescribed transaction, consideration was given, the value and nature of the consideration,

(c)  any changes over the time which has elapsed since any such prescribed transaction was entered into, any such distribution was made or any such consideration was given in the value of property of the same nature as the property the subject of the prescribed transaction, the distribution or the consideration, as the case may be,

(d)  whether property of the same nature as the property the subject of any such prescribed transaction, any such distribution or any such consideration could, during the time which has elapsed since the prescribed transaction was entered into, the distribution was made or the consideration was given, as the case may be, have been applied so as to produce income, and...

The relevant facts

14. At the time of his death, the property owned by Donald consisted of real property at Greyleaves Avenue, Burradoo with an estimated value of $1,350,000, furniture and household items, money at bank, the benefit of life policies, and shares in an investment company(J [53]).

15. The Burradoo property had been transferred to Donald on 5 March 1987. As a result of the administration and distribution of his estate, Stephne became registered proprietor of that property (J [54]). The evidence does not indicate whether, as is likely, that occurred by a transmission application under Real Property Act 1900 (NSW), s 93 made following the grant of probate of Donald’s estate on 12 September 2003. Stephne sold the Burradoo property in March 2011 for $905,000. The net proceeds of that sale funded her purchase at the same time of a property in Banksia Street, Bowral for $740,000. Stephne continued to own that property at the time of her death, at which time Mr Haertsch (as her executor) became registered proprietor following a transmission application. In January 2017, Mr Haertsch sold the Bowral property for $990,000. That amount was paid into the estate’s bank account and forms part of the moneys in an investment account which as at January 2019 had a balance of $1.87 million.

The primary judge’s construction of s 24

16. The power to make a notional estate order under s 24 is subject to the court being “satisfied” as to the matter in par (a), and making a finding in accordance with para (b). Once that power is enlivened in respect of a particular person, any property held by or on trust for that person “whether or not that property is the property distributed” may be designated as notional estate of the deceased.

17. Subject to the satisfaction of par (a), the power is engaged where (1) there was “a distribution from the estate of the deceased person” and (2) “as a result of” that distribution, “property became held by a person”, or on trust for that person. Two preliminary questions of construction arise with respect to the language of par (b) and that conferring the power. The first is whether “the person” whose property may be the subject of the power is the “person” in par (b) by whom property became held as a result of the distribution, or that person and any other person who came to hold that property as a result of the distribution. The second and closely related question is whether the “property distributed”, in the closing language, is the property which “became held” as a result of a distribution.

16. As Ward J (as her Honour then was) observed in Stern v Sekers [2010] NSWSC 59 at [171], the use in s 24(b) of the indefinite article followed by the definite article is a fairly clear indication that the “person” against whom the order may be made is the person by whom property has become held under par (b). And that being the case is wholly consistent with the “property distributed” being the property held by that person as a result of the distribution.

17. In stating his conclusion at J [140], for reasons which followed, that he had power to make a designation order under s 24, the primary judge identified the following possible applications of s 24:

(a) each reference to “person” in section 24 may refer either to Stephne or to Adrian as her legal personal representative.

(b) if those references to “person” are to be taken to refer to Stephne then, having regard to the purpose and policy of the Family Provision Act, it is open to the Court to find that, property (as defined by section 6 of the Act) having “become held” by Stephne “as a result of a distribution from the estate of” the deceased, property (as defined by section 6) which is “held” by her legal personal representative is property “held by or on trust for” her.

(c) alternatively, the “property”(as defined by section 6 of the Family Provision Act) which is “held” by Stephne’s legal personal representative includes property (as defined by section 6) which “became held” by him “as a result of a distribution from the estate of” the deceased.

20. The construction and application of s 24 which his Honour finally adopts is explained at J [170]:

[170] As a result of a distribution from the estate of the deceased, “property” became held by Stephne, and in due course, by Adrian in his capacity as her legal personal representative. That “property” became (and remains) held by Adrian in his capacity as the legal personal representative of Stephne “as a result of a distribution from the estate” of the deceased no less than it became held by Stephne “a result of a distribution” from the deceased’s estate. Stephne’s death did not, of itself, break the causal link between the deceased and the property. “Property” emanating from the deceased’s estate, identifiably, included the deceased’s house at Burradoo, the proceeds of sale of which ($900,000) funded the purchase of Stephne’s home unit at Bowral (for $740,000), the net proceeds of sale of which by her estate have yet to be distributed.

21. The primary judge’s reasoning appears to rest on two alternative applications of s 24. Neither of them treat the property held by Mr Haertsch as executor of Stephne’s estate as “held by or on trust for” Stephne (cf. J [140(b)] extracted above; and see Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12 at 17; [1964] HCA 54 as to the nature of the duties and interests arising in an unadministered estate, none of which involve or include an interest held by or on trust for the deceased).

22. The first takes the “person” in par (b) as being Mr Haertsch in his capacity as executor of Stephne’s estate. The required causal relation between a distribution of property from Donald’s estate to Stephne and property becoming held by Mr Haertsch in that capacity is said to be satisfied because at least some of that property would not have become held by him but for the distribution of property, and specifically the Burradoo property, to Stephne. This application construes the “person” in par (b) as not limited to the person to whom property was distributed, gives a broad construction to the causal relation “as a result of”, and construes the “property” that “became held” in par (b) as not limited to the “property distributed”, it being capable of including property “emanating” from that property.

23. The second application, which is not so obvious, appears to take the “person” in par (b) as being Stephne and the “person” whose property may be the subject of an order as Mr Haertsch in his capacity as executor of her estate. This application would accommodate a narrow construction of the causal relation in par (b), and either does not accept that the notional estate order may only be made against the “person” to whom the distribution was made or treats the personal representative of that person as “the person”.

24. Mr Haertsch submits that his Honour erred in construing s 24. The references to a or the “person” are to the person by whom the “property distributed” became held as a direct result of the distribution from Donald’s estate. Mr Haertsch was not a person to whom property was distributed from Donald’s estate, and in his capacity as Stephne’s personal representative is not, in law, Stephne or equivalent to Stephne.

The meaning of “distribution” in s 24

25. Easterbrook v Young (1977) 136 CLR 308; [1977] HCA 16 concerned the meaning of “distribution” in s 5(2A) of the Testator’s Family Maintenance and Guardianship of Infants Act 1916 (NSW) (Testator’s Family Maintenance Act), which empowered the court to extend the time for an application for provision under the Act unless “the final distribution of the estate” had taken place, although “no distribution of any part of the estate” already made was to be disturbed by reason of an order made on such an application. However, on an application commenced within time, full or partial distribution would “not place the asset beyond the reach of the court’s power” to order provision (at 316).

26. The estate of John Easterbrook, who had died intestate, had been administered. The only asset of consequence, the family home, had been transferred into the name of the administrator, one of his two sons, who had published a notice of intention to distribute the estate between himself, his brother and their widowed mother in equal shares. The issue was whether, the administrator now holding on trust for those entitled in intestacy, there had been a “distribution” within the meaning of s 5(2A) which would preclude an order in favour of the widowed mother on her application made after the administration of the estate. Barwick CJ, Mason and Murphy JJ concluded that there had been no distribution, because the word was used (at 317):

not in the sense of a change in the capacity in which the personal representative held the asset, but clearly in the sense of a physical parting with the asset and its placing in the hands or name of an intended beneficiary. It is, in our opinion, only when the personal representative has parted with all the assets which came to his hands by the grant of probate or letters of administration that there has been a final distribution of the estate of the testator or intestate.

27. In the course of considering a number of authorities, the Court approved (at 319) the conclusion of Adams J in Public Trustee v Kidd [1931] NZLR 1 that there is a “distribution” where an executor takes property “in part satisfaction of his residuary bequest”, notwithstanding that in that case the executor remained trustee of so much of the estate as had yet to be paid over. On the other hand, the Court was of the view that an amount set aside by executors to satisfy an annuity, although “technically held on trust on the terms of the will”, had not been distributed so as to prevent an order for provision out of the capital sum (at 321).

28. Subject to Family Provision Act, s 6(5), which provides that where property becomes held by an executor or administrator as trustee, it will be distributed (only) once an interest has vested in the beneficiary, there is no reason not to adopt the same construction of “distribution” in that Act. What is required for a “distribution from an estate” is a “parting with the asset” and its placement, legally or beneficially, “in the hands” of another.

29. Consistent with Easterbrook, it is clear that there may be a “distribution” by executors to themselves with the result that provision out of the property so distributed can only be made if that property is designated notional estate: see Light v Anderson [1992] NSWCA 136 at 10; and, in relation to the Succession Act 2006 (NSW), Phillips v James (2014) 85 NSWLR 619; [2014] NSWCA 4 at [121]. (Subject to the possibility, if the distribution was made within the period for the making of an application for provision, of the executor being ordered personally to restore the property received from the estate: Ernst v Mowbray [2004] NSWSC 1140 at [64], [65].) Accordingly, and unsurprisingly, Stephne’s taking as residuary beneficiary under Donald’s will involved a “distribution”.

Property becoming held “as a result of” a distribution      

30. In its terms s 24(b) does not invite a chain of causation inquiry to determine whether property held by any person or subject to a trust would not have been so held by that person were it not for the distribution to Stephne of the Burradoo property or other property forming part of Donald’s residuary estate. Rather, par (b) identifies a single event, involving the personal representative parting with an asset, and inquires whether, as a result of its occurrence, and nothing else, “property became held by a person”. If a finding is made to that effect, the power is enlivened in respect of property of that person, including, without limitation, property acquired through the disposition of the property that “became held” or its proceeds. So formulated the question posed by par (b) is only concerned with whether there was a particular and direct consequence of the distribution, and the identification of the relevant person and property.

31. That conclusion is not contradicted by the requirement in s 24(b) that the Court make a finding as to that matter rather than reach a state of satisfaction, as is required for the other conditions for the exercise of the powers under ss 23 and 24. Whereas each of those three conditions is likely to involve an evaluative assessment or judgment in the course of reaching the required state of satisfaction, the condition in s 24(b) calls for a much more straightforward factual inquiry as to which a finding might be made.

32. The Explanatory Note accompanying the Family Provision Bill, 1982 (NSW) confirms that this is how s 24(b) is to be understood:

Clause 24 allows the Court to make an order designating as notional estate of a deceased person property of a person who has received property distributed from the estate of the deceased person.

33. That construction of para (b) is wholly consistent with the remaining language of s 24, and gives s 24 an operation which is in harmony with that of the other provisions dealing with the designation of notional estate.

34. The power to designate property as notional estate is conferred where “property”, a very broadly defined term, which was owned or otherwise controlled by the deceased becomes held by or for the benefit of a person as a result of a prescribed transaction or a distribution from the deceased’s estate. The former, by definition, is a transaction in which full valuable consideration has not been given (s 22(1)(b)).

35. The property which may be the subject of the order under s 23 is property of a “disponee”, meaning the person by whom property becomes held or who becomes the object of a trust “as a result of the prescribed transaction”. Where that person has in turn entered into a subsequent prescribed transaction as a result of which property becomes held by a subsequent disponee, property of that disponee may also be designated as notional estate (s 25).

36. Whether, as a result of a prescribed transaction, property becomes held by a person as disponee (s 21) is to be answered by reference to the language of s 22(1)(a), which provides that property may become so held “as a result of” the doing “directly or indirectly” of, or omission to do, any act, “whether or not the property becomes in either case so held immediately”. The meaning and application of this provision was in issue in Kavalee v Burbidge (1998) 43 NSWLR 422. Notwithstanding that there was a difference in the views of the majority, Mason P and Meagher JA (at 446-447, 457), and Handley JA (at 460-461) as to the breadth of any causal relation required by that language, it was not suggested that s 23 invites a causation inquiry which extends beyond identifying the person by whom the property to which the prescribed transaction relates becomes held.

37. That the property which may be designated as notional estate may include the property that “was the subject of the prescribed transaction” (s 23) or the “property distributed” (s 24) indicates that the relevant causal inquiry is directed only to the outcome of the prescribed transaction or distribution. Taken alone, that consideration might not be decisive. But s 27(2), which sets out a series of mandatory considerations for the exercise of the powers in ss 23-25, plainly presumes that a person whose property may be designated notional estate at some point in time held property which was “the subject” of the relevant prescribed transaction or distribution. Those considerations include the “value and nature of property” the subject of the relevant prescribed transaction or distribution (s 27(2)(a)) and, but only in relation to a prescribed transaction, where “consideration was given, the value and nature of the consideration” (s 27(2)(b)).

38. There are two first instance decisions in which ss 23 and 24 have been construed as applying to the person to whom property passed directly as a result of a prescribed transaction or distribution. In Prince v Argue [2002] NSWSC 1217, the prescribed transaction was the deceased’s omission during his lifetime to sever a joint tenancy. As his wife, the relevant disponee, had since died, Macready AsJ concluded at [88], there being no “property which is held by, or on trust for the disponee” (s 23), that there was no subject matter in respect of which a notional estate order could be made. In Stern v Sekers, Ward J, having formulated (at [184]) a relevant issue as being “whether ‘disponee’, on its proper construction in s 23 (or ‘the person’ in s 24) is limited to the first recipient of the property in question”, observed at [189]:

The wording of section 23 makes it clear that, relevantly, the court’s power to designate property as notional estate arises only in respect of property held by a person “as a result of” a particular act or omission of the deceased. It does not seem to me that the section can readily be construed as applying to property held by a subsequent person as a result of a separate or further act or omission made not by the deceased but by the person to whom the property in question initially passed.

39. That this construction is plainly to be preferred is confirmed by the problems produced by the plaintiff’s approach.

40. If the language of par (b) is construed as engaging a “but for” inquiry, and the “property” which must have become held need not be the property distributed, s 24 could apply to persons who are arbitrarily remote from the deceased. For example, the purchasers of the Burradoo property from Stephne would satisfy s 24(b), thereby conferring a power to make a notional estate order against property of those persons notwithstanding that they did not receive any distribution from Donald’s estate and gave consideration for the acquisition of that property.

41. Counsel for the plaintiff suggested in argument that there was an implied limitation preventing an order designating as notional estate the property of persons who took property for value and without notice. That is most unlikely, particularly where s 27(2)(b) requires the Court have regard to whether consideration was given, but only in respect of a prescribed transaction. The obvious explanation for the absence of a similar provision in relation to property held as a result of a distribution is that no question of consideration should arise where, on its proper construction, the power conferred by s 24 is limited to the first and direct recipient of the property in question.

42. Further, it is difficult to construe “as a result of” so as to exclude the purchasers of the Burradoo property but include Mr Haertsch. The Bowral property, now sold, became held by Mr Haertsch only through a number of mediating events: (1) Stephne took the Burradoo property as residuary beneficiary of Donald’s estate (the distribution); (2) Stephne sold the Burradoo property, and (3) purchased the Bowral property with its proceeds; (4) Stephne named Mr Haertsch as executor in her final will, and (5) subsequently died; and (6) Mr Haertsch, after obtaining probate, lodged a transmission application under Real Property Act, s 93 (and thereafter “held” the Bowral property). Performing the same analysis for the purchasers of the Burradoo property reveals them to be less rather than more remote from the initial distribution to Stephne.

43. If the plaintiff’s construction of “as a result” were adopted in both s 24 and the definition of “disponee” in s 21, s 25 would be largely otiose. Section 25 enables the court to respond to cases in which a person whose property might be designated notional estate under ss 23, 24 or 25 has entered into a prescribed transaction as disponor. If the plaintiff is correct, the disponee in relation to a prescribed transaction entered into by a person caught by s 24 would in many cases also be a person by whom property became held as a result of a distribution, and accordingly subject to both s 24 and s 25.

44. To illustrate the difficulties which might arise from the simultaneous application of ss 24 and 25, take the following example. Suppose a woman leaves her entire estate, including a portrait of herself of great sentimental value to her children, to her surviving spouse, and that the woman’s daughter then purchases the portrait at a substantial undervalue. Section 24 would apply to property of the surviving spouse. The sale of the portrait would be a prescribed transaction entered into by the spouse with the daughter as disponee, and her property would be subject to s 25. On the plaintiff’s construction, s 24 would also apply in respect of the property of the daughter. But the Court would then be subject to conflicting instructions in applying ss 24, 25 and 27.

45. First, the more specific power in s 25, conferred by reason of the distribution to the surviving spouse and the subsequent purchase by the daughter at an undervalue, is to make an order “instead of, or in addition to” an order against the surviving spouse. Such an order under s 25 could only be made in “special circumstances” (s 25(2)), but no such requirement would apply to an order under s 24 and accordingly to the daughter.

46. Secondly, s 27(2)(a) would require that, in deciding what property of the daughter should be designated notional estate, the Court have regard to “the value and nature of property the subject of any relevant prescribed transaction or distribution” (emphasis added). The subject of the relevant prescribed transaction was only the portrait, while the subject of the relevant distribution was the entirety of the mother’s estate. Doing justice to the daughter would require that the value of the distribution to the surviving spouse not be a consideration, but there is no obvious basis in the language of s 27(2) for disregarding it. Finally, s 27(2)(b) would require the Court to have regard to the value of the consideration provided by the daughter, but only in relation to the prescribed transaction; there would remain a question whether, in making an order under s 24 without any reference to s 25, the value of that consideration would be a mandatory consideration.

47. Those difficulties cannot have been intended. As the Explanatory Note accompanying the 1982 Bill explains, s 25 is the provision applicable to the property of persons who receive benefits from the deceased person “indirectly”:

Clause 25 allows the Court to make an order designating as notional estate of a deceased person property of a person who, by means of another prescribed transaction to which he was a party, benefited indirectly from a prescribed transaction entered into by the deceased person or a distribution from the estate of the deceased person.

Conclusion

48. In the result, bearing in mind the definition of “property” in s 6(1), the persons whose property may be designated notional estate by reason of s 24 are those who have “received a benefit from [the] deceased estate”: Richardson v Reardon [2006] NSWSC 1252 at [23] (Campbell J, as his Honour then was). His Honour then observed of the notional estate provisions:

[They give] the court a fairly wide power to do practical justice, and make sure that the assets of a deceased estate end up, so far as at least their value is concerned, in the hands that the court decides are the appropriate ones to enable the deceased to fulfil his or her obligations.

49. It follows that the primary judge erred when construing and applying s 24. Mr Haertsch as Stephne’s personal representative did not become a legal or beneficial owner of property as a result of a distribution from Donald’s estate, and was not a person within par (b) whose property held in that capacity might be designated as notional estate of Donald. There is nothing in the language of the Family Provision Act or the Interpretation Act 1987 (NSW) which suggests that “person”, when used in s 24, includes that person’s personal representative.

50. Ground 1 of Mr Haertsch’s appeal should be upheld. His success on that ground is dispositive of the appeal and amended cross-appeal. Although the plaintiff’s amended summons seeks an order for provision to be made out of the estate or notional estate of Donald, it is accepted that Donald’s estate has been fully administered and distributed. Accordingly there is no estate from which provision could be made in the absence of the designation of property as notional estate (see s 6(4)).

51. Notwithstanding the foregoing, I propose to deal relatively briefly with grounds 2 and 3 of Mr Haertsch’s appeal, which are that his Honour erred in extending the time for the making of the plaintiff’s application for provision by 12 and a half years and, in doing so, in finding that there was no material prejudice to Stephne or her estate.

Whether the granting of an extension of time under s 16(2) involved error

The relevant principles

52. The Family Provision Act, s 16(1)(b) provides that claims should be made within 18 months of the death of the deceased. The power to extend that period “having regard to all the circumstances of the case” may not be exercised unless “sufficient cause is shown for the application not having been made within that period” (ss 16(2), (3)(b)). Where a successful application has been brought, either within the 18 month period or in that period as extended, a further application may be made if the Court is satisfied that there has been, since the last order was made, “a substantial detrimental change in the circumstances of the eligible person” (s 8). That condition would not be satisfied by a change in the circumstances of a competing beneficiary, such as occurred on Stephne’s death.

53. As White J (as his Honour then was) observed in Vasconelos v Bonetig [2011] NSWSC 1029 at [16], an applicant for extension of time must show “sufficient cause” for the application not having been made within the prescribed period. If such cause is shown, the Court then has a discretion to extend the time for the making of an application. His Honour continued:

The expression “sufficient cause” means sufficient explanation or sufficient justification or excuse for the application not having been made within the prescribed period. If there is such a sufficient explanation then other factors relevant to the exercise of discretion under s 16(2) include any prejudice to the beneficiaries, whether the plaintiff has been guilty of unconscionable conduct by lulling the beneficiaries into a false sense of security, and the strength of the plaintiff’s case... [citations omitted but see Dare v Furness (1998) 44 NSWLR 493 at 500].

54. Under the Testator’s Family Maintenance Act 1916, s 5(1), no application for provision in relation to a deceased person was to be heard unless it was made within 12 months of the date of the grant of probate or administration or an extension of time was granted under s 5(2A)(a) (subject to the limitation considered in Easterbrook). On an application under that Act, the question of the inadequacy of provision was to be determined by reference to the circumstances existing at the date of the testator’s death; but if that question was answered in the affirmative, the court was to exercise its discretion by reference to the circumstances existing at the date of the order: see White v Barron (1980) 144 CLR 431 at 437 (Barwick CJ, dissenting, but not in this respect) and 441 (Mason J); [1980] HCA 14.

55. In Davison v Staley (Supreme Court (NSW), Bryson J, 21 August 1986, unrep) Bryson J was not persuaded to grant an extension of time under s 5(2A)(a). There the delay was 32 years. The following two observations of his Honour in reviewing and evaluating the relevant facts and circumstances are presently relevant. Each concerns the nature and extent of the prejudice to other beneficiaries which may arise where there is significant delay. The first is in the consideration of what might have happened had the application for provision proceeded within time. The passage (at p 9) containing the following statement is extracted and applied in Durham v Durham (2011) 80 NSWLR 335; [2011] NSWCA 62 at [37]:

... it seems to me quite likely that the benefit to flow to the plaintiff from a successful application would be very significantly greater than the benefit she would have received had her case been heard in a timely way. I am reluctant to grant an extension of time which may have the effect of improving her position in comparison with that in which she would have stood had she proceeded in a timely way.

56. Secondly, in considering the beneficial effects of time limitations on litigation, Bryson J observed (at p 18) that “expectations which have been long held acquire some claim of justice in themselves”. His Honour then addressed the position of two of the beneficiaries, who were brothers of the plaintiff who sought the extension of time. Having noted that they had conducted their affairs and lived their lives on assumptions “formed around the provisions” of their father’s will, Bryson J continued:

There was no challenge during [one of the brother’s] entire lifetime, which continued for about a quarter of a century after his father's death, to his entitlement. The probability is that not only persons directly interested under the will of the testator but also another body of persons who claim under them have expectations of benefits, either to the ownership of property or to the exercise of benevolence, and these have been formed around the provisions of this will. It is not unheard of for legal rights to be disturbed after such a long period by judicial decisions, but it is quite unusual.

57. Durham concerned an application for an extension of time under the Family Provision Act, made more than 20 years out of time. In the period between the death of the applicant’s father and the making of the application in respect of his estate, the applicant had lived with and cared for his mother, the testator’s widow, until she died, some 20 years after the death of the testator. Notwithstanding that under that Act the question of the inadequacy of provision was to be determined at the time of the order (s 9(2)), the Court accepted (at [41]) that an applicant for provision should not derive an advantage from changed circumstances as a result of their delay in bringing a claim, at least where that advantage results primarily from the changed position of other beneficiaries, rather than from any detrimental change in the applicant’s own position, who also sustain a corresponding detriment as a consequence of the applicant’s stronger position.

The asserted errors of the primary judge

58. Mr Haertsch contends that the primary judge erred in being satisfied that “sufficient cause” was shown for the application not having been made within time and when assessing whether the granting of the application would result in prejudice to the beneficiaries of Donald’s will.

Whether there was “sufficient cause”

59. The primary judge’s reasoning supporting his conclusion that the plaintiff had demonstrated “sufficient cause” for not making her application within 18 months after Donald’s death, and for delaying thereafter until Stephne’s death, is summarised as follows (J [123]):

The plaintiff’s delay in making her application is sufficiently explained by: (a) her reasonable expectation of benefit from Stephne’s estate as compensation for any disappointment attending administration of the deceased’s estate in the interests of Stephne; (b) the respect she paid to the deceased’s concern for Stephne’s wellbeing, and for her ongoing relationship with Stephne, by deferring any claim she might have had against the deceased’s estate until the death of Stephne; and (c) the consistent assurances of future benefit she received from Stephne (in due course acted upon by Stephne), articulated by reference to a common bond with the deceased.

60. This conclusion has to be considered in the light of his Honour’s earlier findings as to the assurances of future benefit given by Stephne to the plaintiff. The evidence of those assurances is at J [100]. The principal statements relied on were made in 2005 and 2011.

61. The plaintiff had discussions with her sister, Jane, about a statement made by Stephne in 2005 that “when I pass away everything will come to you and Jane”. At J [103], the primary judge found, in relation to the plaintiff’s report of that statement to her sister:

... [Jane’s] evidence is that the plaintiff explained its meaning by saying to her: “You might get a financial benefit at some time in the future”. This explanation, equally applicable to any gift to the plaintiff as it might have been to a gift to the fourth defendant, suggests that, whatever may have been Stephne’s precise words, the plaintiff did not construe them literally but, rather took them as a general expression of goodwill. “You might get a financial benefit at some time in the future” is not an explanation which sits comfortably with an alleged representation to found an estoppel, or with reliance upon such a representation.

62. His Honour concluded, in relation to all of these statements, at J [105]:

... I am not satisfied that, whatever may have been said by Stephne, it was said with a degree of certainty that could reasonably be relied upon by the plaintiff as a representation of a future entitlement to property. Viewing them in the aggregate, Stephne’s statements appear to have been directed to nothing more than the type of testamentary provision for the plaintiff (and the fourth defendant) which her successive wills contemplated: a choice of sentimental items and a substantial pecuniary legacy. I am not persuaded that the plaintiff (who always hoped for more) viewed them otherwise.

63. Stephne made eight wills and codicils between August 2003 and 30 June 2016 (her final will) (J [82]). In the July 2015 and December 2015 wills, and the final will, the provisions made for the plaintiff and her sister were limited to a legacy of $100,000 each.

64. His Honour’s findings describe general assurances of a money provision, which might have been satisfied by a legacy of $100,000, understood as indications only that the plaintiff might receive such a financial benefit from Stephne’s estate.

65. Ultimately, the plaintiff’s position was that she had at some time contemplated making a claim on her father’s estate, but “thought that it was not something to take action on, because I had assurances”. In late 2012, the plaintiff was diagnosed with severe hypertension, depression and stress, which she was still being treated for after Stephne’s death. Her position remained that she would never have challenged her father’s will after he died “out of respect for Stephne”, but that nevertheless it was, as she conveyed to a lawyer in early 2013, “good to know Stephne’s assurances count for something”.

66. Having regard to his Honour’s findings as to the nature of those “assurances”, and how they were understood by the plaintiff, they did not provide a reason for the plaintiff not having made a claim for provision within time, or for having brought a claim after Stephne’s death. His Honour’s reasons at J [123] do not take account of his earlier findings. The plaintiff had in no sense decided to defer a claim that she might otherwise have pursued and, as his Honour held, Stephne’s statements did not reasonably justify an expectation that the plaintiff was to receive any greater provision from her estate than she in fact did (J [106]).

67. For these reasons in my view his Honour erred in concluding that “sufficient cause” was shown for the application not having been made within the time provided.

Prejudice to other beneficiaries

68. When considering whether the granting of an extension of time would result in any prejudice to the beneficiaries of Donald’s estate, the primary judge concluded at J [126]:

There is no material prejudice to any person in the Court’s entertaining the plaintiff’s application for family provision relief “out of time”. The deceased limited the provision which he might otherwise have made for his daughters out of a concern for the wellbeing of Stephne; Stephne’s death removes concern about her wellbeing from the equation. [Jane] ... supports the plaintiff’s claim. Any expectation any other beneficiary named in the will of Stephne might have had must have been contingent upon no application for family provision relief being made against Stephne’s estate within the time prescribed by section 58 of the Succession Act, within which period the plaintiff commenced these proceedings.

69. His Honour erred in treating Stephne’s death as meaning that there could be no material prejudice to her and the persons who claim under her, if the plaintiff was permitted to make a claim to provision from Donald’s estate 14 years after his death.

70. In so proceeding, the primary judge did not take account of the prejudice to Stephne during her lifetime and to her estate arising from the departure from what his Honour later described as her reasonable expectations as to the ownership of property and entitlement to make testamentary provisions from that property for friends and family, as well as the plaintiff and her sister. At J [177], when addressing the matter in s 27(1)(a), the primary judge recognised that during her lifetime Stephne might reasonably have expected that she could sufficiently discharge any moral obligation she had to make testamentary provision for the plaintiff by leaving her no more than a pecuniary legacy of $100,000, which then allowed “her to make provision for a broad array of family and friends beyond her shared experience with the deceased’s daughters” (J [176]). Indeed, the mere fact of the number of wills and codicils she made after Donald’s death confirms that Stephne had such an expectation.

71. Furthermore, in assessing the degree of that prejudice, his Honour did not take account of the extent to which the plaintiff’s position would be improved at the expense of Stephne’s estate by permitting her application to be made years after Donald’s death and after Stephne had died. As his Honour acknowledged, the sole rationale for Donald’s limiting the provision he made by his will for his daughters must be swept aside if the question of adequate provision was to be addressed by reference to the circumstances as they existed after Stephne’s death (J [115]). Notwithstanding that both the plaintiff’s personal health and finances had deteriorated somewhat since her father’s death, the fundamental factor relied on as justifying a substantial provision now being made was that Stephne was no longer a competing claimant.

72. Whereas an application made in 2003 was described as likely to result in a “modest grant of provision in addition to her $25,000 legacy” from Donald’s estate (J [132]), if an extension of time were granted the plaintiff was able to assert a claim that was to be considered without any concern of the deceased “for the wellbeing of Stephne” and in the absence of any claim from her elder sister (J [126]). No assessment was made as to the extent to which that claim would exceed the likely outcome of the claim if made within time.

73. Notwithstanding that his Honour did not assess the extent of the prejudice to Stephne and her estate, he recognised that the change in circumstances as a result of the plaintiff’s delay affected not only the strength of her claim, but also its nature. As the primary judge observed, “[i]n substance, the plaintiff asserts a claim against Stephne’s estate” (at [124]), brought within the time period which would have been applicable had she brought a provision claim against Stephne directly (Succession Act 2006, s 58(2)). However, the plaintiff was not an eligible person with respect to Stephne’s estate and could not have brought such a claim.

74. In the result, the primary judge erred in concluding that the condition in s 16(3)(b) for the making of an extension order was satisfied, and in exercising that discretion. In the latter respect, the relevant House v The King (1936) 55 CLR 499; [1936] HCA 40 error was in failing to identify and take into account the prejudice to Stephne and Stephne’s estate in assessing whether there should be an extension of time. Grounds 2 and 3 (specifically para (a)) should be upheld.

Conclusion

75. In the light of these conclusions there is little point in addressing the remaining grounds of appeal and cross-appeal directed to the merits of the plaintiff’s application and his Honour’s order providing for payment of 75% of the plaintiff’s costs.

76. Because the costs orders made by the primary judge were made on the basis that a notional estate order had been made, it is necessary that the parties address and attempt to agree the costs orders, both at first instance and in this Court, which should follow from the allowing of the appeal and dismissal of the cross-appeal. If those orders cannot be agreed those issues will be resolved on the papers following the receipt of written submissions.

77. The orders which should be made are as follows:

1. Allow appeal.

2. Dismiss cross-appeal.

3. Set aside orders 1, 2, 3, 4, 5, 6 and 7 made on 11 November 2016.

4. Dismiss the amended statement of claim.

5. Direct that if the parties cannot agree on the costs orders to be made in relation to the proceedings below and in this Court, they are to exchange and lodge with Meagher JA’s Associate within 14 days of the date of these orders written submissions as to the costs orders sought (those submissions not to exceed 5 pages). Those questions as to costs will then be dealt with on the papers.

78. LEEMING JA: I agree with Meagher JA.

**********

Amendments

03 November 2020 - [4], [6] - "Family Provision" to "family provision"

[7] - "monies" to "moneys"

[13] - "is to" to "shall" in excerpt of s 27

[25] - corrected reference to Easterbrook v Young

[29] - referred to Caselaw page numbering of Light v Anderson [1992] NSWCA 136

[46] - inserted "(emphasis added)" and removed "the" from "the property"

[53] - "prescribed time" to "prescribed period"

Decision last updated: 03 November 2020