Karimalis v Kapodistrias
[2022] TASFC 10
•1 December 2022
[2022] TASFC 10
| COURT: | SUPREME COURT OF TASMANIA (FULL COURT) |
| CITATION: | Karimalis v Kapodistrias [2022] TASFC 10 |
| PARTIES: | KARIMALIS, Efterpi |
| v | |
| KAPODISTRIAS, Maria | |
| EGAN, Damian Francis | |
| in their capacity as executors of the estate of the late | |
| Theodoros Karimalis | |
| FILE NO: | 412/2021 |
| JUDGMENT | |
| APPEALED FROM: | Karimalis v Kapodistrias [2022] TASSC 25 |
| DELIVERED ON: | 1 December 2022 |
| DELIVERED AT: | Hobart |
| HEARING DATE/S: | 7 June 2022 |
| JUDGMENT OF: | Pearce J, Brett J, Porter AJ |
| CATCHWORDS: |
Succession – Family provision – Criteria for determining application – Generally – Circumstances to be considered – Relevance of applicant's independent means – Where testator had purchased residential property in wife's name for her exclusive use – Property rented out at the time of death – Proper to take that asset into account.
Singer v Berghouse (1994) 181 CLR 201, followed.
Testators Family Maintenance Act 1912, s 7(b).
Aust Dig Succession [1426]
Succession – Family provision – Criteria for determining application – Treatment of particular applicants – Quantum – Surviving spouse or partner – Where testator had purchased residential property in wife's name for her exclusive use – Property rented out at the time of death – Where widow wanted to continue living in the matrimonial home –First instance provision made for widow in the sum of $1.1m but realisation of that sum depended on sale of the rented property – Error established on appeal – Orders making provision by granting life interest in former matrimonial home and a capital sum of $650,000.
Gargano v Coves [2018] NSWSC 985; Hertzberg v Hertzberg [2003] NSWCA 311; Golosky v Golosky [1993]
NSWCA 111; Steinmetz v Shannon [2019] 99 NSWLR 687, considered.
Vigolo v Bostin [2005] 221 CLR 191, followed.
Aust Dig Succession [1436]
REPRESENTATION:
Counsel:
Appellant: K E Read SC Respondents: P G J Zeeman
Solicitors:
Appellant: Butler McIntyre & Butler Respondents: Murdoch Clarke
| Judgment Number: | [2022] TASFC 10 |
| Number of paragraphs: | 86 |
Serial No 10/2022 File No: 412/2021
EFTERPI KARIMALIS v MARIA KAPODISTRIAS AND DAMIAN FRANCIS
EGAN IN THEIR CAPACITY AS EXECUTORS OF THE ESTATE OF THE LATE
THEODOROS KARIMALIS
| REASONS FOR JUDGMENT | FULL COURT PEARCE J BRETT J PORTER AJ 1 December 2022 |
| Orders of the Court: |
1 Appeal allowed and the orders of the Associate Judge made on 19 May 2022 set aside.
2 In lieu, an order that clauses 2.1 to 2.7 of the will be substituted by directions to the respondents as executors and trustees that the testator's interest in the property situated at 32 Shepherd Street, Sandy Bay in Tasmania be held on trust for the appellant for her lifetime, and that they pay to her from the estate the sum of $650,000.
3 Directed that a certified copy of order no 2 be made upon the probate of the will and that the respondents bring into Court the grant of probate for that purpose.
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Serial No 10/2022 File No: 412/2021
EFTERPI KARIMALIS v MARIA KAPODISTRIAS AND DAMIAN FRANCIS
EGAN IN THEIR CAPACITY AS EXECUTORS OF THE ESTATE OF THE LATE
THEODOROS KARIMALIS
| REASONS FOR JUDGMENT | FULL COURT PEARCE J 1 December 2022 |
1 I agree with Porter AJ.
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Serial No 10/2022 File No: 412/2021
EFTERPI KARIMALIS v MARIA KAPODISTRIAS AND DAMIAN FRANCIS
EGAN IN THEIR CAPACITY AS EXECUTORS OF THE ESTATE OF THE LATE
THEODOROS KARIMALIS
| REASONS FOR JUDGMENT | FULL COURT BRETT J 1 December 2022 |
2 I agree with Porter AJ.
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Serial No 10/2022 File No 412/2021
EFTERPI KARIMALIS v MARIA KAPODISTRIAS AND DAMIAN FRANCIS
EGAN IN THEIR CAPACITY AS EXECUTORS OF THE ESTATE OF THE LATE
THEODOROS KARIMALIS
| REASONS FOR JUDGMENT | FULL COURT PORTER AJ 1 December 2022 |
| Introduction |
3 This is an appeal from a decision of Holt AsJ made on an application pursuant to the Testators Family Maintenance Act 1912 (the Act). The appellant was the applicant. She is the wife of the late Theodoros Karimalis who died on 26 September 2020, aged 79 years. They were then living together in a house in Shepherd Street, Sand Bay owned by the testator. The respondents are the executors and trustees of his estate. The first respondent is the deceased's daughter by a previous marriage.
4 Before his death the testator had purchased, in the appellant's name, a house in Coolabah Road, Sandy Bay. In his will, the testator made provision for the appellant by creating a "fund" to be administered by the trustees, consisting of one of three housing flats owned by the testator. The trustees were directed to pay to the appellant the net income of the fund so that the distribution was no less than the annual equivalent of an age pension payable to a single person. They could, however, use the capital to increase the income stream in certain circumstances.
5 At the hearing of the application, both the jurisdiction to make an order under the Act and the quantum of any further provision to be made out of the estate were in issue. In published reasons, Karimalis v Kapodistrias [2022] TASSC 25, Holt AsJ (the primary judge) found that the appellant had been left without adequate provision for her proper maintenance and support. He went on to determine that the appellant be given a life interest in the former matrimonial home in Shepherd Street, and by way of supplementing her income stream, that the appellant be given a capital amount out of the estate of $300,000, in substitution for the income stream from the flat as provided for in the will.
6 As his Honour described it, the result was that the appellant "will be secure in the marital home with the capital fund (including the value of Coolabah Road) of about $1.1m". The formal orders require the distribution of the estate in accordance with substituted clauses of the will that reflect the determinations made: see s 9(3) of the Act. The appellant appeals to this Court, arguing that the exercise of the discretion in making proper provision miscarried in a number of respects. The primary issues are the size of the capital sum and the grant of a life interest in the matrimonial home, as distinct from the title in fee simple.
Further facts
7 The facts are fully set out in the primary judge's reasons. As the parties accept his Honour's outline as correct, what follows is largely taken from those reasons.
8 The estate is comprised of almost entirely of real estate having a value, at the date of the death of the testator, of about $3.6m. As at the date of the appeal it was about $4.3m. The assets included the marital home at Shepherd Street Sandy Bay in Tasmania, which at the date of death had a value of about $1.2m and a value as at January of this year of about $1.5m. The testator was aged about 63 years at
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the time of the commencement of his relationship with the appellant and there is no suggestion by the appellant that she directly or indirectly contributed to the acquisition, maintenance (other than undertaking home duties in the marital home) or improvement of any of the testator's assets.
9 The appellant met the testator in Greece in 2005. At the request of the testator she moved to Tasmania in 2006 in contemplation of marriage and immediately commenced co-habitation with him in the Shepherd Street home, where she has lived ever since. The couple were married on 10 June 2009, being the appellant's 60th birthday. The testator was then aged 66 years. It was the second marriage for both. The appellant has two adult children and the testator has one adult daughter, being the first respondent.
10 The appellant had owned two houses in Greece, one which she had inherited from her parents, and the other which she had acquired following the separation from her first husband. In the late 1990s she gave the houses, which were unencumbered, to her two daughters, leaving her with no assets of substance. In 2009 – the year of the marriage – the testator purchased, in the appellant's name, a house at Coolabah Road, Sandy Bay. The house has two levels, each set up for independent living and has been tenanted, rather than occupied by the appellant or the testator. At the time of the death of the testator it had a value of about $900,000 and was producing a net return, after outgoings and tax, of about $26,000 per annum. The appellant was and continues to be the recipient of a Greek pension of about $4,000 per annum.
11 In 2018 the appellant borrowed from one daughter the sum of $200,000, secured by a mortgage over the Coolabah Road property. She paid the money to her other daughter in exchange for that daughter agreeing that she would receive no inheritance from her mother's estate. The loan attracts interest at the rate of 2% above the ANZ variable home mortgage rate from time to time, with the interest accruing to be paid upon the sale of property unless upon sale a replacement property is purchased. In any event the principal and interest becomes payable upon the death of the appellant. The property has a current value of about $1.15m. The result is that if the property is sold in the near future and converted into cash, after the payment of the money secured by the mortgage and sale expenses and capital gains tax, the net proceeds will be about $750,000 to $800,000.
12 It might be inferred that the testator regarded the inter vivos gift of the Coolabah Road property to the appellant as substantially extinguishing his testamentary obligations to his wife. In his will, made 14 February 2012, he recorded that he did not make further provision for his wife as she had been "adequately provided for" during his lifetime including by way of the gift of the Coolabah Road property and because of the income steam created by the will's terms.
13 That income stream arose the creation of a fund to be administered by the trustees under which the appellant would receive the rental income from one of three housing flats (not divided by stratum titles) located at Shirley Boulevard, Lenah Valley. The income was to be no less than the annual equivalent of an aged pension payable to a single person under the Social Security Act 1991 or equivalent. The income produced at the date of death of the testator from the allocated housing flat was about $10,000 per annum and during 2021 the gross rental income was about $13,000 per annum.
14 The will provides that if the trustees considered that the income was "insufficient to maintain a proper standard of living" or the net income fell below the age pension equivalent, they could, in their discretion, use the capital value of the fund to make the income up to such sum as was considered sufficient. The three flats, which are all on the one title, had a value at the date of death of the testator of about $800,000 and a value as of January this year of about $950,000.
15 The result is that if the trustees decide, in their discretion, to sell the block of three flats at Shirley Boulevard about one third of the capital created, namely about $300,000, could be used to supplement the appellant's income. The appellant's Coolabah Road property could be converted into a
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cash investment of about $750,000 to $800,000 and would be available to the appellant to provide a
cash stream producing a total fund having a capital value of about $1.1m.16 The balance of the estate was left to the testator's natural daughter, being the first respondent.
17 The appellant has not held employment since moving to Australia. She had left school at aged 13 years and had worked in a factory and in fish and chip shops. She was working in the hospitality industry prior to her move to Australia, but had ceased that work as she found it difficult because of her age, heart surgery which she had undertaken and problems with her knees. At the date of death of the testator she was aged 71 years, and has no realistic prospect of returning to paid employment.
18 During the marriage the testator paid all living expenses and gave to the appellant the sum of $100 per week. The appellant has no assets of substance other than the Coolabah Road property. She has no superannuation, no motor vehicle (as she does not drive) and, at the date of death of the testator, she had about $40,000 in the bank ($15,000 in her name and $25,000 in a joint account with her daughter). Most of this cash reserve has since been spent on legal fees and disbursements associated with the present litigation.
19 The appellant wants to remain in the former marital home in Shepherd Street and to have a fund, independent of income derived from her Coolabah Road property, which is sufficient to maintain her reasonable living expenses and enable annual return trips to Greece to visit her family. She says the bequest in the will is insufficient to accommodate this and hence brought the application for further provision from the estate.
20 At first instance the appellant sought the grant of a fee simple title for the Shepherd Street property and $1.4m from the estate. Assuming that to be have been the outcome, the deceased's daughter, being the primary intended beneficiary, would only receive a little over one third of the estate likely to be comprised mostly of a commercial property at Augusta Road, Lenah Valley. That property had a value at the date of death of the testator of about $1.1m and a value as at November 2021 of about $1.2m. In this appeal, the appellant maintained the claim for a fee simple interest in Shepherd Street, while retaining Coolabah Road, but submitted that the capital fund should be $1.13 million.
The primary judge's reasons
21 As a prelude to making a finding as to the jurisdictional fact, his Honour noted that the deceased's daughter – the first respondent – elected not to give any evidence of her own about her financial affairs, and drew the inference that she had no special claim other than the father/daughter relationship and that she had adequate resources of her own. His Honour's reasons for finding that the appellant had been left without adequate provision for her proper maintenance and support are as follows:
"20 The estate was large enough to make the applicant secure in the marital home and to provide an appropriate income stream for her. The primary beneficiary under the testator's will, being his adult daughter, has no special claim on the estate as I have inferred that she has sufficient financial resources independently of the bequests to her.
21 …
22 The provision made in the will leaves the applicant out of her long term home. It leaves a substantial part of the small income stream to be provided out of the estate to the discretion of the trustees. Even taking into account the income derived from the Coolabah Road property and the Greek pension the applicant would be left in impoverished circumstances and so left to make financial choices regarding what food she purchases, how much electricity she consumes on heating, how much she spends on medical needs and personal hygiene items and how often she ventures out, bearing
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in mind that she is dependent on public transport as she does not drive. The applicant has no realistic prospect of improving her financial position through paid employment.
23 Having regard to the size of the estate and the fact that the testator and the applicant were married and the lack of any competing claim which deserves priority, I am persuaded that, notwithstanding the applicant's financial resources existing independently of the estate, that she has been left without adequate provision for her proper maintenance and support."
22 His Honour's reasoning in arriving at the provision made was as follows:
•
Taking into account that the home was acquired before the commencement of the relationship and that the relationship was for 14 years, rather than for many decades, provided that the appellant has sufficient funds to maintain the home, all that is necessary is the provision of a life interest. A life interest only gives due weight to the importance of the testator's basic right to exercise freedom of testamentary disposition in that it simply defers, rather than extinguishes, the bequest of the property to the testator's daughter: [26].
•
The appellant could sell the Coolabah Road property and invest the capital derived from it of about $750,000 to $800,000 so that she could progressively draw down on the capital: [28].
•
Consideration of the appellant's living expenses and some lifestyle issues produced the result that an annual income of a little over $60,000 net was appropriate to satisfy her expenditure prediction, and to achieve that, a before tax income of about $70,000 to $75,000 was required: [30].
•
Actuarial tables as to life expectancy and the lump sum required to provide particular income depending upon investment return rates provide some guidance, but items and expenditure such as annual trips to Greece and money spent on entertainment will diminish with the appellant's advancing years. [32].
•
Inflation rates and income returns on investment are not possible to predict over the long term with accuracy, but the capital provided should be sufficient to give the applicant a buffer against adverse contingencies and to have sufficient funds to permit the applicant to take the aged care accommodation of her choice if and when the need or desire or need for such accommodation arises: [32].
•
Taking guidance from the actuarial tables provided, taking into account that the just and wise testator generally would not be expected to act on purely arithmetical calculation in settling an appropriate provision and taking into account that although ultimately the applicant, if she lived to a very old age would have the buffer of an Australian aged pension entitlement, the appellant should have a total capital fund of little over $1m: [33].
•
The appellant has $750,000 to $800,000 in the Coolabah Road property and so the amount to be paid by the estate will be $300,000: [33]. There should also be an order "giving the [appellant] a flexible life interest in the home at Shepherd Street … ": [34].
The grounds of appeal
23 The appellant asserts that the primary judge erred in the exercise of his discretion to make further provision out of the estate in three respects, stated as follows:
"a. His Honour failed to provide the Appellant with sum sufficient to 'give a buffer against adverse contingencies and to have sufficient funds to permit the applicant to
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take the aged care accommodation of her choice if and when the need or desire for such
accommodation arises' [32]; and
b. Contrary to community standards His Honour provided the Appellant with a life
interest in the matrimonial home rather than a title in fee simple [25, 26]; and
c. In calculating the capital asset His Honour took into account at [33] the applicant's
own assets."
24 The Act applies to a defined class of persons. Section 3(1) provides that where such a person is left without adequate provision of property maintenance and support, a Court or a judge may in the exercise of a discretion, order such provision be made as is thought proper. It is clear from this alone that the fixing of "proper" provision out of an estate under the Act involves an exercise of discretion. As it was put by Mason CJ, Deane and McHugh JJ in Singer v Berghouse (1994) 181 CLR 201 at 211, it is an exercise of the discretion "in the accepted sense".
25 It follows, as acknowledged by the appellant, that this appeal is governed by s 45 of the Supreme Court Civil Procedure Act 1932; in particular s 45(1)(b) and (c). On that basis, the appellant needs to establish that the primary judge proceeded on a wrong principle or otherwise contrary to law, on irrelevant or insufficient materials, or misapprehended the facts or failed to consider any material fact; further or alternatively, that the adjudication is founded wholly or in part on an erroneous finding of fact or erroneous determination in point of law.
26 As is entrenched law following House v The King (1936) 55 CLR 500 at 505, the nature of an error may not be discoverable but a court may infer from an unreasonable or plainly unjust outcome that the exercise of the discretion has miscarried. In the present context, the appellant will also succeed if she can show that the provision made was "an entirely erroneous estimate of what, in the circumstances, was an adequate provision … ": Singer v Berghouse at 212.
27 By virtue of the drafting of the notice of appeal, each of the grounds is given as an instance of an error in the exercise of the discretion. However, grounds 1 and 2 were not in reality argued as specific errors of law or fact as such but, in effect, as what makes the provision ordered plainly inadequate. As counsel for the appellant stated in argument, questions of giving to the appellant the title to the matrimonial home in fee simple and what might be a sufficient capital sum to sustain her, are interrelated. For those reasons, it is convenient to deal with ground 3 first, and then grounds 1 and 2 together.
Ground three – the appellant's assets
28 As argued, this ground relates to the inclusion of Coolabah Road "to make up the sum necessary to provide capital from which an income can be drawn for life." For the proposition that it was an error to take into account the Coolabah Road asset, the appellant relies on the case of O'Loughlin v O'Loughlin [2003] NSWCA 99. The relevant passage is from the judgment of Davies AJA (with whom Mason P and Meagher JJA agreed) at [24]. In the context of a debate about provision to a widow who had substantial assets of her own but where the deceased left a large estate with the widow applicant being accustomed to a very comfortable lifestyle, his Honour said:
"[I]t was incumbent upon the deceased to provide a means by which the respondent could continue living in the … home in a lifestyle that was suited to the widow of a wealthy barrister. The deceased's estate was adequate to enable that provision to be made. There was no moral duty upon the respondent to use her own assets, of which only [a] unit and … shares were readily available for conversion into cash, for the purposes of paying all of those expenses which, during his lifetime, the deceased used to pay." [Emphasis added]
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29 In this case, the respondents argue that this is not a principle of law but was said in the context of the exercise of the discretion in the particular case. Indeed, earlier at [20] Davies AJA said it was undoubtedly true that there is no such thing as a "standard widow" and that every case must be determined on its own particular circumstances.
30 The appellant's submission seems contrary to what the majority in Singer v Berghouse (above) said at 210. Their Honours said the jurisdictional first stage required an assessment of a number of things, including "the applicant's financial position". They went on to say that the determination of the second stage "involves similar considerations". See also Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9 per Dixon CJ at 19. Moreover, neither party referred to s 7(b) of the Act which provides as follows:
"In granting or refusing any such application, and in affixing the amount of the provision to be made under this Act for any person who is entitled to make an application under subsection (1) of section three the Court or judge shall have regard, inter alia, to
(a) …
(b) whether any such person is entitled to independent means, whether secured by any convent, settlement, transfer, or other provision made by
the deceased during his life or derived by any source what soever".
31 That seems to be an answer to the appellant's complaint. The provision entitled the primary judge to take into account the appellant's assets. That the source of the particular asset was the testator during his lifetime is of itself relevant. It is the weight that was attributed to that factor that is the important question; that is, the way in which the consideration of those assets affected the outcome.
Grounds one and two – wholly inadequate provision?
The capital sum
32 The appellant accepts that the primary judge correctly stated the objectives of the fixing of the capital sum as being sufficient to give the appellant a buffer against adverse contingencies and to have sufficient funds to permit her to take the aged care accommodation of her choice if and when the need, or desire for such accommodation, arose but say the provision made achieved neither. In saying that, the appellant accepts as reasonable the primary judge's estimate that an annual income of little over $60,000 net satisfies expenditure predictions, and that to achieve this, a before tax income of $70,000 – $75,000 is required. It seems common ground that the primary judge used as "some guidance" the 3 per cent discount table. As the appellant notes, using a life expectancy of 17 years the capital sum at that rate to produce $73,000 per annum is $978,890. The evidence was that 2.51 per cent was the then current return on an invested capital sum.
33 Also said to be of relevance is the nature of the relationship between the appellant and her step- daughter – the first respondent. The appellant's unchallenged evidence was that she had become fearful and stressed by the first respondent and her husband loitering outside her home while purportedly there to collect the testator's mail despite requests from the appellant's lawyer not to do so. It is put that the relationship is not a good one involving a degree of animosity. In addition, counsel for the appellant heavily criticised the second respondent's performance in managing the estate, based on the evidence at first instance.
34 The argument is that, assuming for the moment the approach of requiring the sale of Coolabah Road to make up a capital sum of "a little over $1m" is correct, the award reveals an error as the fund allowed for reduces to zero in 17 years which was the appellant's life expectancy. The appellant argues the calculation fails to take into account a number of "real possibilities", meaning that the appellant
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cannot enjoy the standard of living she was used to and would not be free of the fear of insufficiency as she ages and her health deteriorates. I note that in fact the fund would be exhausted a little over one year beyond the projected date of death, but in any event, the appellant highlights the following:
• Should she live longer than the statistical average, her only income after the age of 87 would be the age pension. • Should capital expenditure for contingencies or aged care accommodation be needed, it would reduce the capital funds so that it would be exhausted before her statistical date of death. • Should the income be less than the predicted three percent, the fund would exhaust before her statistical date of death. 35 By way of a general observation, I refer to a passage from Re Crewe [1956] NZLR 315 at [323], quoted with approval in King v White [1992] 2 VR 417, which in turn was referred to with apparent approval by Blow J (as he then was) in Woolnough v Public Trustees [2005] TASSC 50 at [21]. The statement from Re Crewe is to the affect that the proper maintenance which a testator owes to his widow in cases where there are no claims of other depends, is such maintenance as will enable her, taken in conjunction with her own means, to live with comfort and without pecuniary anxiety in such state of life as she was accustomed to her in her husband's lifetime.
36 The appellant refers to a number of authorities in which courts have stressed the importance of proper allowance of the contingencies to create freedom from financial worry. The starting point is perhaps Worladge v Doddridge [1957] 97 CLR 1 at 12 where Williams and Fullagar AJ approved a statement in Re Harris [1936] SASR 497 at 501 to the effect that a provision "should be sufficient to free the mind from any reasonable fear of insufficiency as age increases and health and strength gradually fail". See also Lord v Lord [2002] TASSC 99 at [11].
37 In Luciano v Rosenblum (1985) 2 NSWLR 65 at 69-70, Powell J said that as a broad general rule, in the absence of special circumstances, the duty of a testator to a widow was, to the extent to which the assets permit, to ensure that she is secure in a home and "to ensure that she has income sufficient to permit her to live in a style to which she is accustomed, and to provide her with a fund to enable her to meet any unforeseen contingencies." [Emphasis added] Those remarks were referred to with approval by the Court in Gregory v Hudson [1999] NSWCA 221 at [8]-[9].
38 In Gargano v Coves [2018] NSWSC 985 at [60] Hallen J also referred as, a broad and general rule, to the need for a fund sufficient to meet (among other objectives) "any unforeseen contingencies." His Honour went to say that generally speaking, the amount should be sufficient to free the surviving spouse's mind "from any reasonable fear of any insufficiency as she or he grows older and his or her health and strength fail (see Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24)." See also Hertzberg v Hertzberg [2003] NSWCA 311 per Einstein J at [45].
39 Additionally, both in Hertzberg at [45] and later in Gargano v Coves at [60] Einstein J and Hallen J respectively both referred with approval to the unreported judgment of Powell J in Langtry v Campbell 7 March 1991, in which his Honour referred to the importance of putting a widow in the position of where she is "mistress of her own life, and in which, for the remainder of her life, she is not beholden to executors, or trustees and, still less, to remaindermen."
40 The respondents submit that the primary judge properly considered the issue of a buffer for contingencies and nursing home accommodation. They note there was no evidence as to the cost of nursing home accommodation nor the time for which the need for that accommodation might arise, or if it were needed at all. They argue that the capital sum ordered is sufficient with the life interest in the Shepherd Street property enabling the appellant, if she so chose, to sell the property and invest the proceeds or otherwise deal with it as permitted by s 28 of the Settled Land Act 1884 (the SLA). That
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would include renting the property for the period during which she was in Greece, for which period she
lived rent free.41 In addition to that rental, the respondents assert that the appellant would have the rental from Coolabah Road. However, the effect of the provision made by the primary judge is self-evident. The figure of $1.1m that his Honour thought to be sufficient for the appellant's proper maintenance and support can only be arrived at by the appellant selling Coolabah Road for a net figure of $800,000.00.
Ground 2 – the life interest in Shepherd Street
42 As noted, the appellant's life interest in the matrimonial home is governed by the SLA. Section 28 authorises a tenant for life to enter into contacts regarding settled land; in particular there are powers of sale and leasing. Section 19 limits the uses to which capital money arising under the SLA can be put. Uses provided for include certain investments and the purchase of land in fee simple. Of some relevance is that the purchase of a bond or similar mechanism to secure a place in aged care accommodation is not an authorised investment. Section 20 provides that any capital money arising under the Act is to be paid to the trustees of the settlement (in this case the respondents), or into Court. It is to be invested or applied by the trustees, or under the direction of the Court, accordingly.
43 Another use is the carrying out of improvements to the land but any improvements must be authorised as provide for in s 23; see also the Settled Land Act 1911, s 11. Further, s 24 requires a tenant who wishes to apply capital money towards improvement may submit for approval to the trustees of the settlement, or to the Court, as the case may require, a scheme for the execution of the improvement showing the proposed expenditure.
44 Any differences between a tenant for life and the trustees of the settlement are to be resolved by the Court on the application of either party: s 41. The appellant argues that because of the problematic relationship between her and the respondents, all matters that arise under the SLA will have to be dealt with in that way. Additionally, the tenant for life, in exercising any power provided for in the SLA, must have regard to the interests of all parties entitled under the settlement, and is deemed to be in the position and to have the duties and liabilities of a trustee for those parties: s 48.
45 The appellants rely on something said by Kirby P (with whom Cripps JA agreed) in Golosky v Golosky [1993] NSWCA 111 at 10. His Honour noted that "it had been said that in the absence of special circumstances, it will normally be the duty of a testator to ensure that a spouse (or spouse equivalent) is provided with a place to live appropriate to that which he or she has been accustomed to … ", and continued:
"A mere right of residence will usually be an unsatisfactory method of providing for a spouses, [sic] accommodation to fulfil the foregoing normal presupposition. This is because a spouse may be compelled by sickness, age, urgent supervening necessity or otherwise, with good reason, to leave the residence. The spouse provided and will then be left without the kind of protection which is normally expected will be provided by a testator who is both wise and just. [sic] "
46 In addition, the appellant relies on "community expectation" that a testator would leave to a surviving spouse an interest in the matrimonial home in fee simple. In Hertzberg (above) at [34]-[35], McColl JA referred to a passage from an unreported judgment of Young J in Blackford v Salmon, 27 July 1994, in which his Honour noted that for a widow of a 30 year marriage who has lived in the house for some time and continues to wish to live there, the expectation in the community would be that a wise and just testator would have left her the house in fee simple.
47 In Hertzberg, her Honour continued:
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"His Honour recognised the community expectation that a testator should make provision for a widow to ensure that she can live an independent and dignified life. That prospect is diminished when the widow does not have the benefit of the fee simple, but rather a right of occupation of her home, with a provision for expenses associated with that right being left in the hands of the executors."
48 The respondents make the following points in support of the general submission that a fee simple interest, as compared to a life interest, is over and above what is sufficient to just discharge the obligation of the testator;
• The relationship was for a period of 14 years and not for decades; • It was a second marriage for both; • The matrimonial home was acquired before the relationship commenced, and was the matrimonial home of the testator and his first wife (now deceased); • An interest in fee simple defeats the testator's testamentary freedom to leave the property to his only daughter; • An interest in fee simple would not allow the appellant to transfer or bequeath the property to her own daughter;
49 Before going on, I note that although in both Golosky and Hertzberg the interest of the spouse was a mere right of residence, ss 46(2) and 53(1)(f) of the SLA combine to make such an interest a life tenancy governed by that Act: see Williams v Williams [2020] TASFC 9.
Discussion
50 First, I refer to s 8A of the Act, which enables the Court and or judge to have regard to the deceased's reasons, so far as they are ascertained, or for making the dispositions made, or for not making any provision or further provision, as the case may be. This provision relates to the testator's advantage in knowing the relevant facts that inform the decisions made and their ability to judge. It facilitates the operation of the principle that some respect needs to be shown to the judgment of a testator who has been shown to have duly considered the claims on the estate.
51 In the present case, as earlier noted, the testator gave reasons for what he did. Clause 9 reads
as follows:
"I HAVE purchased a property at 14 Coolabah Road, Sandy Bay in Tasmania for my wife … for her absolute benefit and use. I have not made any further provision for my wife …because she has adequately been provided for during my lifetime, including by way of the purchase of property at 14 Coolabah Road, Sandy Bay in Tasmania and because the provision of clause 2 will provide my wife … with a sufficient income stream to allow her to live in the standard of living which [6] she has been accustomed. Further, I wish the majority of my estate to be used to provide support to my daughter [the first respondent] ".
52 At this point, I think it is appropriate to put the purchase of Coolabah Road for the appellant in its context. The appellant's unchallenged evidence at the hearing was that when she met the testator in 2005 it was on the island of Lesbos where she was working as a cleaner in a hotel. The meeting came about because the testator told the manager of the hotel that he was looking for a wife as he wanted companionship and someone to share his life with. The manager suggested he introduce them to which the testator agreed. In the period that followed the two met for coffee on occasions. The testator told the appellant of the properties he owned in Hobart and described them. He also "went into great detail about his wealth." Among other things, he spoke of marriage and spending the rest of their lives
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together. He said that if he she agreed to travel with him to Australia he would immediately give her
three of his houses and would, in addition, give her allowance of $350 per week.53 Initially, the appellant resisted the offer. The testator prevailed on the appellant's daughter two or three times to persuade her mother to go to Australia. In light of changing personal circumstances the appellant ultimately decided to accept the proposal, arriving in Australia in May 2006. The understanding was that if after a period they found that they were not compatible, the testator would pay for her return to Greece. They started to co-habit and after several months found they were compatible and decided to marry. That did not happen until 2009. In the meantime, the appellant said that there was no mention of the three houses that the testator said he would give to her. The allowance paid was $100 a week.
54 After a time, the appellant decided to confront the testator about not honouring his promises. Ultimately, in the same year as the marriage, the testator bought Coolabah Road in her name. It was mortgaged at the time and the rental was used to defray mortgage payments and other expenses. The testator later paid out the mortgage loan.
55 Further, this may be more relevant to the first jurisdictional stage, but it is of some relevance that the testator, in the context of explaining the provision made for the appellant, stated a wish that the majority of his estate was to be used to support his daughter. Consideration of the testator's advantage leads to a consideration of the allied but different concept of "testamentary freedom", and the role it has to play in making provision under the Act. At [26] of his reasons, the primary judge said that only giving the appellant a life interest in Shepherd Street "gives due weight to the importance of the testator's basic rights to exercise freedom of testamentary disposition in that it simply defers, rather than extinguishes, the bequest of the property and the testator's daughter".
56 Although not the subject of argument, the role of "testamentary freedom" needs to be examined. There is authority for the proposition that the concept has a limited role to play in either stage of the process to be undertaken under s 3 of the Act. Section 60(2) of the Succession Act 2006 (NSW) sets out a number of matters to which the Court may have regard in determining whether to make provision, and the nature of such an order, ss (2)(j) is in not dissimilar in terms to s 8A of the Act.
57 In Steinmetz v Shannon [2019] NSWCA 114, 99 NSWLR 687 at [95] – [96], Brereton JA, with whom Simpson AJA generally agreed, pointed out that testamentary freedom is not one of the factors referred to in s 60(2). His Honour said:
"It may readily be accepted that the legislation does not authorise a redistribution of an estate according to indeterminate and unreliable concepts, such as 'fairness or equality', and that it authorises interference only to the extent of making adequate provision for proper maintenance, education and advancement in life."
58 His Honour said so much was recognised by McLelland J (as he then was) in Re Fulop Deceased (1987) 8 NSWLR 679 at 680: " … the Court should not interfere with the dispositions in the will except for the extent necessary to make adequate provision for the plaintiff's proper maintenance, education and advancement in life." Brereton JA went on to say that the Act is to be applied according to its terms, not confined by notions of reluctance to interfere with freedom of testation, later adding at [97] that the statute is to be given full operation according to its terms, notwithstanding it encroaches on testamentary freedom; " [such] freedom is constrained by the statutory jurisdiction, insofar as testators are obliged to make provision for whom according to community standards they are expected to provide." See also White JA at [52]-[53].
59 I do not think this is approach is heretical. It has long been recognised that the court's discretion is not untrammelled, nor is it to be exercised according to idiosyncratic notions of what is thought to be
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fair, or in such a way as to transgress, unnecessarily, upon the deceased's freedom of testation; see
McKenzie v Topp [2004] VSC 90 at [63].60 That brings me to the question of "community expectations" as relied on by the appellant in relation to the interest in Shepherd Street. There is a connection between the community expectations and the notion of "moral duty" about the utility of which, in this context, there has been considerable debate. It has been described as a gloss on the statutory language and of doubtful assistance: Singer at 209. In Vigolo v Bostin [2005] HCA 11, 221 CLR 191, a majority (Gleeson CJ; Callinan and Heydon JJ) confirm the applicability of the concept of moral duty to these types of applications. See Gleeson CJ at [12]-[25] and Callinan and Heydon JJ at [112]-[121].
61 At [25] Gleeson CJ said:
"In explaining the purpose of testator's family maintenance legislation, and making the value judgments required by the legislation, courts have found considerations of moral claims and moral duty to be valuable currency. It remains of value, and should not be discarded. Such considerations have a proper place in the exposition of the legislative purpose, and in the understanding and application of the statutory text. They are useful as a guide to the meaning of the statute. They are not meant to be a substitute for the text. They connect the general but value-laden language of the statute to the community standards which give it practical meaning. In some respects, those standards change and develop over time."
62 At [121] Callinan and Heydon JJ noted that for many years several justices of that Court had found it convenient and generally useful to resort to the concepts of a moral duty and a moral claim in deciding both whether, and how much provision, should be made to a claimant under the Act, adding that in their respectful opinion they had not been wronged to do so.
63 With that in mind, I turn to what is meant by "community expectations". In Slack v Rogan [2013] NSWSC 522, 85 NSWLR 253 at [125] White J said he knew no way of determining what the community would expect or what it standards are, or values would be. He said that he did not know, but suspected, that the expectations of individual members of the community would vary widely. His Honour went on to comment that the only guiding light for the identification of community standards was that reflected in the legislation. He observed "To say that the court itself is the spokesman for the fair and reasonable man or woman in the community…. is to acknowledge that in true fair there is no ascertainable external community standard to guide the decision." These passages were quoted with approval in Burke v Burke [2013] NSWCA 195 at [101], [124].
64 This was also a matter discussed in Steinmetz. In the context of the jurisdictional first stage, White JA at [40] acknowledged that the weight of authority endorsed the proposition that a consideration was whether a testator had failed in their moral duty to provide adequate provision by reference to what the community – or fair and reasonable members of the community – would expect. His Honour continued:
"41 My first difficulty is in understanding what is meant by community standards or community expectations. Does it refer to the community generally or to a more particular community of which the deceased and his family and the applicant form part, informed by particular cultural, ethnic, religious or social values? Would evidence of [expectations of a particular cultural, ethnic, social or religious community] be an answer to an otherwise worthy claim? I would answer that question in the negative, but that is because I do not consider the references to community standards or community expectations are to be an externally provable fact. In Goodman v Windeyer (1980) 144 CLR 490 Gibbs J said at (502):
'….the words "adequate" and "proper" are always relative. There are no fixed standards and the court is left to form opinions on the basis of its own general knowledge and experience of current social conditions and standard.'
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…….
43 It is the court's perception of what fair and reasonable members of the community would expect a testator to provide for the applicant, not something that is to be proved as a standard against which the court's judgment is to be made, that is relevant."
65 I respectfully agree with those observations. His Honour went on to state his agreement with Brereton JA (at [109]) "that if one is forced to use concepts of 'moral duty' or 'community standards', the former is preferable." What Brereton JA said was that he preferred to use the traditional concept of moral duty "which, despite its disapproval in Singer v Berghouse was rehabilitated" in Vigolo v Bostin (above).
66 In this case, the respondent says that restraint is required in the exercise of the jurisdiction, both at first instance and at an appellate level. The following points are made: First, the legislation is not designed to allow the Court or a judge to re-write a will without restraint so as to impose what the judge's view of how the testamentary power should have been exercised: Pontifical Society for the Propagation of the Faith v Scales (above) at 19. Next, appellate courts must show restraint in disturbing the evaluative determinations of primary decision makers as otherwise they will inevitably invite appeals to a different evaluation which, objectively speaking, may be no better than the first; second opinions in such cases would be bought at the cost of diminishing the finality of litigation in a troublesome area: Golosky (above) per Kirby P at 8.
67 It is appropriate, if not necessary, to bear those things in mind.
| Resolution |
68 Bearing in mind all the relevant principles and considerations, I am persuaded that the primary judge's determination is plainly erroneous. Assuming the grant of only the life interest in Shepherd Street to be unassailable viewed in isolation, ground 1 succeeds and the appeal should be allowed. My reasons are as follows.
69 First, as I noted earlier, the provision made is dependent on the sale of Coolabah Road. That in itself creates significant uncertainty of outcome for the appellant in terms of both the fact of sale and the result. The property may have the stated notional value attributed to it, the eventual outcome depends on market conditions. That property was one which the appellant had owned since 2009 – in the circumstances previously described – with full control over what she did with it, and as an asset and source of income it was part of a standard of living to which she had become accustomed. It also provided her with a sense of security.
70 Somewhat paradoxically, compelling the sale of that property to make up the bulk of the required capital sum requires the appellant to forego an annual net income of about $26,000 a year. That reduces the level of independent income but increases the appellant's expenses.
71 Second, while there are countervailing contingencies such as early death without preceding increased health care costs, I do not think it is reasonable to establish a capital fund that is based on expected annual expenditure and designed to be exhausted as at the statistically based date of expected death, even accepting a "buffer" of about a year beyond that. That is particularly so because the provision made operates in such a way that the only asset the appellant would have to provide for contingencies is the life interest in Shepherd Street. There are many scenarios which involve greater expenditure before the anticipated date of death. If the appellant simply lived beyond the date when the fund is exhausted, that would force reliance on the age pension, and there are various costly health and accommodation issues that may well arise.
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72 To obtain a regular income from Shepherd Street one way or another, involves finding alternative accommodation. Living in Coolabah Road means the loss of income from that property. Requiring the appellant to obtain income from leasing the settled land is not very satisfactory, particularly in the face of the finding that as the appellant gets older, her trips to Greece will diminish in number. Other dealings with the settled land to provide a capital sum from which income can be derived involves dealings with the trustees and the real possibility of applications to the Court being required.
73 It follows that the determination should be set aside. Neither party sought to persuade the Court that in that event, it should do otherwise than to determine the matter on the material presently before it. I have already pointed out that similar considerations to those involved in the first stage apply to the second stage: Singer at 210. The words "adequate" and "proper" in s 3 of the Act connote different things. A small sum may be adequate provision but in the circumstances of the case, may not be proper, and the converse applies: Bosch v Perpetual Trustee Co Ltd [1938] AC 463 at 476. In Worladge v Doddridge (above) Williams and Fullagar JJ said it is clear that the claim of widow, where the estate is a considerable value and there are no competing claims of children (as in this case) "should not be disposed of in any niggardly manner." See also O'Loughlin (above) at [20].
74 Given the assets of the estate and of the appellant, there are various options available in order to make proper provision. The appellant submits that, in addition to the fee simple interest in Shepherd Street, a capital sum of $1.13 million is appropriate. That figure is arrived at as follows. The required annual figure for expenses put to the primary judge was $90,500 which, over the life expectancy at 3 per cent, is $1.213 million. Noting that the appellant is very good health, a claim of $1.4 million was made. It is now accepted that $73,000 a year is the appropriate figure which is about 80 per cent of $90,500. Eighty percent of $1.4 million is said to be $1.13 million. (It is actually $1.12 million.)
75 Counsel for the appellant noted that with Shepherd Street being valued at $1.5 million, the total value of that provision to the appellant amounts to $2.63 million, as against the present value of the total estate of $4.3 million. The submission assumes the retention of the ownership of Coolabah Road. It is the overall effect of the provision made that is important but it is sensible to approach the matter by reference to these contentions. The respondents did not assert that the estate was insufficient or that it was otherwise not possible to provide a capital sum in the order of the appellant's claim.
76 I will begin with Shepherd Street. I accept that the respondent's observations about the history of the property as the matrimonial home have weight. My perception of what fair and reasonable members of the community would expect is that there is no requirement for the appellant to be granted an estate in fee simple. The testator provided the appellant with a capital asset in the form of a residence during the marriage, and that history of her occupancy of the home must be taken into account.
77 This case can be distinguished from those in which the matrimonial home was jointly acquired – in one sense or the other – with long term occupancy as a couple. In my view, the appellant has sufficient security of accommodation in the home in which she wishes to live. I do not think the requirements of the SLA are such that they compel giving her a fee simple interest.
78 What is proper provision is then to be determined on that basis. In my view, the appellant should be left with her interest in Coolabah Road together with payment of an appropriate capital sum. Ignoring the fate of Shepherd Street, the structure of leaving the appellant with that interest, and providing her with an income stream reflects the approach of the testator. Leaving the appellant's interest in Coolabah Road unaffected provides her with an asset which is a buffer against adverse contingencies. She could, as was required by the primary judge's approach, sell it. Alternatively, it can be used for the continuation of an income stream.
79 A life interest in Shepherd Street does provide the appellant with additional flexibility in terms of a buffer against adverse contingencies in that it can be used, one way or another, to provide income.
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The appellant could use Coolabah Road as alternative accommodation if she wanted to do something with her interest in Shepherd Street, although as I have noted, selling or leasing the that property and occupying the former herself, would provide an income stream but at the loss of the rental. I would, as did the primary judge, provide for a life interest in Shepherd Street.
80 Proceeding on the basis of what I see to be the appropriate fate of the properties in the exercise, I turn to the question of what further provision should be made. The holding of the interests in real estate has a bearing on what might be an appropriate capital sum. There are costs that are attached to the holding of those interests. Both houses are in need of some repairs or refurbishment. I note that leaving the appellant with the interest in Coolabah Road gives her, on present figures, a rental return of about $44,700 a year, with a net income of about $26,000. The difference of the $18,700 does not seem to have been broken down, but generally consists of outgoings on the property and income tax. The outgoings on Shepherd Street are included in the annual expense figure of $73,000 and amount to about $5,700.
81 In any case, ownership of Coolabah Road means the $73,000 a year total expenses, accepted by the appellant, falls to $47,000 when offset by the net income. The primary judge did not expressly include this in his assessment process, but taking full account of the Greek pension of $4,000 per annum reduces the annual sum required to $43,000. That figure calculated on a weekly basis at 3 per cent from the appellant's present age (73) over the life expectancy of 16 years (a multiplier of 665.2) is about $550,000. Of course, that assumes the continual renting of Coolabah Road over the entire period for at least the current rental, and the continuation of the Greek pension at the same level.
82 Although providing useful guidance, an arithmetical approach must yield to one of impression and broad judgment. In that respect, I refer to comments made by Campbell JA (Allsop P and Young JA agreeing) in Tchadovitch v Tchadovitch [2010] NSWCA 316. The Court was considering a ground of appeal alleging an error in not relying on 3% discount tables in assessing a lump sum. After considering the adoption of the 3% tables in personal injuries claims before statutory intervention, his Honour noted that the task of a court in assessing damages at common law is to provide fair compensation, while that of assessing the amount of provision that should be made under family provision legislation is to ascertain such provision as the court thinks ought to be made in all of the circumstances; quantum is a matter for the exercise of a judicial discretion.
83 At [54], his Honour continued:
"There are insurmountable difficulties in carrying out an accurate calculation of the amount that will make proper provision for certain needs of a person for the rest of their life. As well as the impracticability of future inflation rates and taxation regimes … [family provision] claims concerning a claimant who is to be provided for the rest of his or her life have an additional complexity arising from the uncertainty of the length of that person's life. That dimension of uncertainty does not appear with quite the same acuteness in calculation of damages for personal injury. … In an estate that is large enough to satisfy all the claims upon it, it will be a significant detraction from the adequacy of the provision made for a widow that left her at risk of not being properly provided for if she were to live for longer than the statistical average for a woman of her age."
84 In my view, the contingencies of significant ill health before the expiry of statistical life expectancy, living beyond statistical life expectancy with deteriorating health, the need to find more suitable accommodation and other adverse contingencies are to be measured against the possibility of early death. The provision must be such that it achieves the objectives of the legislation, in accordance with the well-established approach to cases of this general type. In this case, as stated, I have resolved to leave the appellant in a position to keep her own capital asset in the form of Coolabah Road and to provide her with a life interest in Shepherd Street. The various interests in real estate provide a fair degree of flexibility in creating an income stream and raising capital. Making the further provision out
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of the estate that I propose will in my view, allow the appellant to live free of stress and anxiety as to
what the future may hold, and in accordance with the style to which she had become accustomed.
Conclusion
85 I determine that in addition to the life interest in Shepherd Street, provision should be made out of the estate for the appellant to be provided with a capital sum of $650,000.
86 I would order that the appeal be allowed, the orders of the Associate Judge made on 19 May 2022 be set aside. In lieu, I would make an order to the effect that clauses 2.1 to 2.7 of the will be substituted by directions to the respondents, as executors and trustees, that the testator's interest in the property situated at 32 Shepherd Street, Sandy Bay in Tasmania be held on trust for the appellant for her lifetime, and that they pay to her from the estate the sum of $650,000. In accordance with s 9(2) of the Act, there should also be an appropriate direction as to the making of a certified copy of that order upon the probate of the will.
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