McCann v Ward & Burgess
[2012] VSC 63
•1 March 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2009 10650
IN THE MATTER of Part IV of the Administration and Probate Act 1958
and
IN THE MATTER of the Will and Estate of HAROLD DAVID FELLOWS WARD deceased
BETWEEN:
| LISA McCANN | Plaintiff |
| and | |
| HELEN MARGARET WARD and LYNNE MAREE BURGESS (who are sued as the Executrices of the Will of Harold David Fellows Ward deceased) | Defendants |
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JUDGE: | Hargrave J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8, 9, 16, 17 and 22 February 2012 | |
DATE OF JUDGMENT: | 1 March 2012 | |
CASE MAY BE CITED AS: | McCann v Ward & Burgess | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 63 | |
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TESTATOR’S FAMILY MAINTENANCE – Deceased survived by second wife, three children of his first marriage and two stepchildren – Stepdaughter’s claim – Large estate – Children of first marriage wealthy and well provided for in will - Whether moral responsibility to provide for stepdaughter – Whether stepfather’s will made adequate provision for stepdaughter – Relevance of bequests made in will of the surviving spouse – Whether deceased ought to have reasonably foreseen stepdaughter’s present need – Relevance of factors causing present need – Further provision ordered - Administration and Probate Act 1958 (Vic) ss 91, 96.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R B Phillips | Dandanis & Associates |
| For the Defendant | Ms K McMillan SC with Mr S T Pitt | Mills Oakley |
TABLE OF CONTENTS
Introduction and parties................................................................................................................... 2
Applicable law.................................................................................................................................... 7
Did David have a responsibility to make provision for Lisa?................................................. 10
Did David’s will make adequate provision for Lisa?................................................................ 26
What amount of provision (if any) should be ordered?........................................................... 26
HIS HONOUR:
Introduction and parties
Harold David Fellows Ward (‘David’) died on 24 April 2007, aged 77 years. He was survived by his second wife, Jill Ivy Ward (‘Jill’), who was then aged 78. David was also survived by three children of his first marriage: Lynne, Steven and Helen; and by Jill’s two daughters, David’s stepdaughters, Lisa and Giselle.
As he died before Jill, and consequently has no residuary estate, David’s will made no provision for his stepdaughter Lisa. In this proceeding, Lisa claims that David had a responsibility to make provision in his will for her proper maintenance and support. The defendants in the proceeding are Helen and Lynne in their capacity as executrices of David’s will. Unless it is necessary to refer to them individually, I will refer to contentions made on their behalf as being made by ‘the estate’. The estate contends that David had no responsibility to make provision for Lisa in his will. In particular, it is contended that David made adequate provision for Lisa in his lifetime, by giving substantial assets to Jill on the understanding that Jill would make provision for Lisa in her will; and that Jill has done so. Jill is still alive.
David died a wealthy man. His principal asset was 274 shares in HSK Ward Pty Ltd (‘the company’), a fifth generation Ward family company. That company conducts a substantial business involving packaging, marketing and selling commodity food products to supermarkets, wholesalers and manufacturers. The company had its origins in early Victoria, when William and Francis Ward arrived in Australia in 1852. The company has been family owned ever since. The company has gone through hard times but has survived. In particular, at a very vulnerable stage for the company in 1967, the company’s fortunes grew with the acquisition of the ‘McKenzie business’ at that time. David’s children, Helen, Steven and Lynne, all work for the company, as do Helen and Lynne’s husbands. David’s children also own substantial shareholdings in the company. The remaining shares are owned by other family members, including David’s brother Ian.
In the Inventory of Assets of David’s estate, David’s 274 shares were given an estimated market value of $30 million. At that time, no formal valuation was prepared. For the purposes of this proceeding, a formal valuation was obtained by the estate. The valuer reached a significantly different valuation. He valued David’s shares at the date of his death at only $6.8 million – less than a quarter of the value in the Inventory of Assets. Although ordered to do so, the estate initially refused to provide a current valuation of the 274 shares. Following further order, the estate put forward revised valuations: value at death $10.2 million; present value $14.8 million.
Lisa’s valuer agrees with the value at death, but contends that the present value is $15.5 million. The valuations contain significant discounts to take account of the fact that the 274 shares comprise a minority shareholding in a private company with transfer restrictions in the company’s constitution. Given the size of the estate, and the lack of any claim of need by any beneficiary, it is unnecessary to resolve the difference between the valuers as to the present value of the 274 shares. Submissions proceeded on the basis that the 274 shares were worth approximately $10 million at death and $15 million now. I will proceed on that basis.
The present shareholding structure of the company is as follows:
Issued shares Approx.
%Approx.
value at
deathApprox.
present
valueDavid’s estate 274 shares 24.9% $10M $15M Helen 128 shares 11.64% $4.7M $7M Lynne 128 shares 11.64% $4.7M $7M Steven 163 shares 14.82% $5.95M $8.9M Other Ward family members 407 shares 37% $14.85M $22.3M Total issued shares
1,100 shares
100%
$40M
$60M
The approximate values in the above table reflect the private company discounts. Accordingly, if the Ward family determined to sell the whole of the company to an outside party, it could transpire that the 274 shares have a significantly greater value because, in such circumstances, all or part of the private company discount may no longer be appropriate.
From about 1998, David restructured his financial affairs and assets. He transferred all of his assets other than his 274 shares, a holiday home in Goughs Bay and an investment fund to Jill. When David died, the Goughs Bay holiday home was valued at $265,000 and the investment fund comprised $173,000. Further, from about 1998, all of the dividend income on David’s shares in the company was paid to Jill. When further assets were acquired, they were also placed in Jill’s name. This process has resulted in Jill having present assets of approximately $7.5 million. Those assets will increase during the remainder of Jill’s life, as she suffers from dementia and her costs of living are reasonably stable. Her annual living costs at present are approximately $90,000. Her annual net income after tax for the year ended 30 June 2011 was approximately $310,000. Accordingly, Jill’s assets will continue to grow for the remainder of her life by approximately $220,000 per year.
From the above, it is apparent that the combined present value of David’s estate and Jill’s net assets is approximately $23 million.
During his lifetime, David expressed the strong view that his shares in the company were, in Helen’s words, ‘to pass down the “bloodline” of the Ward family just as they had in past generations’. David was true to his word. In his will, he left his 274 shares on trust, to pay the dividend income to Jill during her lifetime, and then gave his shares to his children in the following proportions:
Helen – 147 shares, bringing her total shareholding to 275 shares (25%)
Steven – 112 shares, bringing his total shareholding to 275 shares (25%)
Lynne – 15 shares, bringing her total shareholding to 143 shares (13%)
Following Jill’s death and the transmission of David’s 274 shares, his children will own 63 per cent of the company. Assuming no other changes, the shareholding structure will then be:
Issued shares Approx.
%Approx.
present
valueHelen 275 shares 25%% $15M Steven 275 shares 25%% $15M Lynne 143 shares 13%% $7.8M Other Ward family members 407 shares 37% $22.3M Total issued shares
1,100 shares
100%
$60M
By his will, David left the Goughs Bay holiday home to Lynne and Giselle as tenants in common in equal shares; left $100,000 of the investment fund on trust for the repair and maintenance of the Goughs Bay holiday home; and gave the remainder of the investment fund to the Victorian Jazz Archive Inc, in recognition of his lifetime passion for and participation in jazz music.
As appears below, in the event that Jill had predeceased him, David’s estate would have included a unit in Noosaville, Queensland, which he would have given to Giselle.
David’s testamentary scheme can be summarised as follows:
(1) Give a life interest in the 274 shares to Jill, and on her death give the shares to his children.
(2) Give the Goughs Bay holiday home to Lynne and Giselle as tenants-in-common in equal shares.
(3) Give $100,000 of the investment fund to maintain the Goughs Bay holiday home.
(4) Give the balance of the investment fund to the Victorian Jazz Archive.
(5) If he survived Jill and inherited the Noosaville unit, give that unit to Giselle.
(6) If Jill survived him, give her his residuary estate.
(7) If he survived Jill, give his residuary estate to his children and stepdaughters equally.
As Jill survived David, the Noosaville unit remains in Jill’s ownership, and was not David’s to give. It was common ground that David left no residuary estate.
At the time of David’s death, Jill’s will provided that the whole of her estate would be left to David for life if he survived her and then, with exceptions, to the five children and stepchildren equally. That will had been made in 1999. The exceptions related to chattels and personal effects (not presently relevant) and to the Noosaville unit. That unit was left to Giselle. Following David’s death, Jill made two further wills: in July and December 2007. In the July will, she maintained the exceptions, but gave the Noosaville unit to Lisa. In the December will, the exception for the Noosaville unit was removed, and that unit will now form part of Jill’s residuary estate – to be divided equally among her children and stepchildren following her death. The December will cannot be altered, as Jill suffers from dementia.
On present values, each of the children and stepchildren will receive approximately $1.5 million under Jill’s will. It is not known when this will occur as, although suffering from dementia, Jill’s physical health is reasonably good for a woman aged 82 years. It is apparent that Jill receives excellent professional care. No evidence was called as to Jill’s life expectancy.
The effect of David and Jill’s wills is that, except for David’s specific bequests of his 274 shares, the Goughs Bay holiday home and the investment fund, which take effect whether or not he died before Jill, no child or stepchild is to receive any inheritance until both David and Jill have died. This structure makes more than adequate provision for David’s children, each of whom is in a very comfortable financial position and has no present need. Giselle’s financial position is unknown and she makes no claim for further provision from David’s estate. Lisa’s financial position is in stark contrast.
Although Lisa stands to inherit a very substantial sum under her mother’s will, she makes her application for further provision from her stepfather’s estate in circumstances of urgent financial need. She and her husband William (‘Billy’) have only one significant asset. They own their home in the Noosa hinterland in Queensland. The home was valued in February 2011 at $980,000. It is encumbered by two mortgages totalling approximately $580,000. Their income is insufficient to meet their current mortgage obligations. In addition, Lisa and her husband owe money to Helen ($25,000) and to Jill’s estate ($41,000). Accordingly, Lisa and Billy’s net equity in their home is approximately $330,000. They have no other significant assets. They are in immediate need of financial assistance if they are not to lose their home.
Against this factual background, I turn to consider the applicable law governing Lisa’s application for further provision.
Applicable law
The Court’s power to make an order for provision, or further provision, out of the estate of a deceased person is contained in s 91 of the Administration and Probate Act 1958 (Vic) (‘the Act’).
There are two jurisdictional requirements to the making of an order under s 91. First, it must be established that the deceased had responsibility to make provision for the proper maintenance and support of the applicant for the order: s 91(1). Secondly, if such responsibility is established, the court must be of the opinion that the will of the deceased does not make adequate provision for the proper maintenance and support of the applicant for the order: s 91(3).
By s 91(4) the court is commanded, in determining each of these two jurisdictional requirements, and also in determining the amount of any provision or further provision to be ordered if the two jurisdictional requirements are met, to have regard to the matters set out in paras 91(4)(e) to (o) of the Act and, under para 91(4)(p) to have regard ‘to any other matter the Court considers relevant’.
The mandatory command of the legislature to take account of the specified matters was introduced by the amendments to the Act in 1997. Prior to these amendments, the standard or test to be applied in determining the two jurisdictional requirements was that stated by Lord Romer, in delivering the judgment of the Privy Council in Bosch v Perpetual Trustee Company Ltd:[1]
Their Lordships agree that in every case the Court must place itself in the position of the testator and consider what he ought to have done in all the circumstances of the case, treating the testator for that purpose as a wise and just, rather than a fond and foolish, husband or father.
[1][1938] AC 463, 478-9.
That standard or test continues to apply to the determination of the two jurisdictional questions. The Court must consider, in light of the specified matters, what provision a wise and just testator would have thought it was his or her moral duty to make for the applicant.[2]
[2]Blair v Blair [2004] VSCA 149, [40]-[41]; Lee v Hearn (2005) 11 VR 270, [4]; Vigolo v Bostin (2005) 221 CLR 191, [11]-[25] per Gleeson CJ, [117]-[121] per Callinan and Heydon JJ.
In considering the two jurisdictional requirements, the question arises as to the time at which the relevant facts and circumstances must be considered. A temporal question also arises if the two jurisdictional requirements are satisfied, and the court reaches the stage of considering the amount of any provision which should be ordered and the terms of any such order. Both questions are dealt with by authority. In Prosser v Twiss,[3] Lush J said:
There is of course conclusive authority for the proposition that the question whether adequate provision has been made must be determined by a consideration of the facts existing and eventualities which might reasonably have been foreseen at the date of the testator’s death, whereas the question what order should be made is to be decided by reference to the state of facts existing at the time of the hearing by the court...
[3][1970] VR 225, 232 (Emphasis added). See also McKenzie v Topp [2004] VSC 90, [15], decided after s 91(4) of the Act came into force.
A related question in applications under s 91 is the knowledge which is to be attributed to the hypothetical wise and just testator in determining whether he or she has complied with his or her moral duty to make adequate provision for the proper maintenance and support of the applicant. In this regard, the conduct of the testator is to be considered on the basis that he or she was, at the time of death, fully aware of all the relevant circumstances,[4] including reasonably foreseeable eventualities existing at the date of death, whether or not actually known to the testator. [5]
[4]McKenzie v Topp [2004] VSC 90, [15], per Nettle J.
[5]Prosser v Twiss [1970] VR 225, 232.
In considering both the jurisdictional questions and the amount of any order to be made for further provision, each case depends upon its own facts. There are no inflexible rules.[6] For example, there is no rule that a widow’s life interest cannot be disturbed by an order for further provision.[7]
[6]Bladwell v Davis & Anor [2004] NSWCA 170.
[7]Ibid.
If the two jurisdictional requirements are established, the Court proceeds to consider what order for further provision (if any) should be made. The Court’s general approach to this task was conveniently summarised by Nettle J (as he then was) in McKenzie v Topp in the following terms:
Section 91 of the Act confers wide power to make such order as is thought fit in all the circumstances of the case. It is plain, however, that the discretion is not untrammelled or to be exercised according to idiosyncratic notions of what is thought to be fair or in such a way as to transgress unnecessarily upon the testatrix’s freedom of testation, but rather carefully and conservatively according to current community perceptions of the provision which would be made by a wise and just testatrix.[8]
[8][2004] VSC 90, [63].
Where a will does not make adequate provision for the proper maintenance and support of the particular applicant, and further provision for the applicant will not unduly prejudice other beneficiaries for whom the deceased had a responsibility to make provision, the Court adopts a reasonably generous approach. The cases include some colourful statements of this approach. For example, in Blore v Lang Fullagar and Menzies JJ stated that, in assessing the need of an applicant for further provision, that need may extend beyond ‘the bread and butter of life’ to include ‘a little of the cheese or jam that a wise and just parent would appreciate should be provided if circumstances permit’.[9]
[9](1960) 104 CLR 124, 135.
To similar effect is the approach in Worladge v Doddridge, where Williams and Fullagar JJ approved the following statement:
Proper maintenance is (if circumstances permit) something more than a provision to keep the wolf from the door – it should at least be sufficient to keep the wolf from pattering around the house or lurking in some outhouse in the backyard – it should be sufficient to free the mind from any reasonable fear of any insufficiency as age increases and health and strength gradually fail.[10]
[10](1957) 97 CLR 1, 12 – citing Re Harris (1936) 5 SASR 497, 501.
The authorities also permit the Court, where the size of the estate permits and there will be no serious prejudice to the rights of other beneficiaries, to order further provision beyond the immediate and likely future needs of the applicant. In addition, the Court should consider the contingencies of life and may provide for a ‘nest egg’ to guard against unforeseen events.[11]
[11]For example, Penn v Richards [2002] VSC 378, [33].
The relevance of the size of the estate as a significant consideration in determining applications for further provision was discussed by Debelle J in Bowyer v Wood & Ors.[12] In that case, while recognising that the size of the estate does not justify the Court in rewriting the will in accordance with its own ideas of justice and fairness, Debelle J noted the continued reference in the cases to the size of the estate as a relevant factor.[13]
[12](2007) 99 SASR 190.
[13]Ibid, [41].
The ‘relative urgency’ of an applicant’s need for provision is also a relevant factor.[14]
[14]McCosker v McCosker (1957) 97 CLR 566, 571-2.
Did David have a responsibility to make provision for Lisa?
During his lifetime, David acknowledged a responsibility to provide for Lisa and Giselle – by transferring substantial assets to Jill on the understanding that those assets would eventually be left to his children and stepchildren equally after both he and Jill had died. Helen recalled David saying words to this effect to her twice, in conversations in Jill’s presence in the family kitchen in 1998 and 2007. The 1998 conversation was in the context of David asking Helen for her assistance to transfer his loan account with the company to Jill, as part of the restructuring of his finances from that time by transferring assets to Jill. The 2007 conversation was in the context of David’s advanced cancer, at the time he made a codicil to his will shortly before his death in April 2007.
Helen said that David made it clear in both conversations that he intended the assets he transferred to Jill, or purchased in her name, would be left to his children and stepchildren equally. As appears above, there was one exception to this intention. Until David’s death, the Noosaville unit was to be left to Giselle. Following David’s death, Jill changed her mind about the disposition of the unit, first determining to leave it to Lisa (in her July 2007 will) and then finally deciding to leave it to the children and stepchildren equally (in her final will in December 2007).
The December 2007 will was produced during the trial. The 1999 and July 2007 wills were produced after the trial, at the request of the Court. The 1999 and July 2007 wills ought to have been produced to Lisa’s lawyers in advance of the trial, so that they could determine whether they had any relevance to the determination of Lisa’s claim.[15] I was initially concerned that relevant evidence may have been withheld from the Court, particularly in circumstances where the estate is relying upon the terms of Jill’s will as a central plank in its contention that David had no responsibility to make provision for Lisa in his will. However, on reflection, the July 2007 will is irrelevant to the disposition of this proceeding. That will may be relevant in the context of a possible future dispute concerning Jill’s testamentary capacity in December 2007, but, although alluded to in evidence, that issue was not argued before the Court in this proceeding. For the purpose of this application only, the parties accepted Jill’s December 2007 will as governing the disposition of her estate.
[15]As should a current valuation of the 274 shares.
It was submitted on behalf of the estate that David had no responsibility to make provision for Lisa, for three principal reasons. First, because the relationship between David and Lisa was not one of parent and child, but parent and stepchild only. In this context, it was submitted that Lisa lived at home with David and Jill for approximately four years only, between the ages of 14 and 18; that she thereafter lived independently; that she and her husband moved to Queensland in 1992, and that Lisa only saw David and Jill occasionally from that time – with contact being limited to two or three telephone calls a month, principally between Lisa and her mother; and that Lisa did not maintain close relationships with her stepsisters and stepbrother, so as to be seen as being a continuous part of David’s family.
Second, reliance is placed upon the submission that Lisa and Billy’s current needs are their own fault, as they have resulted from financial mismanagement and lifestyle choices.
Third, it was submitted that David met any responsibility he had to make provision for Lisa by giving substantial assets to Jill during her lifetime, in the knowledge and with the intention that Jill would leave one-fifth of her assets to Lisa in her will.
Against the background of these three principal submissions, I turn to consider the matters set out in paras 91(4)(e) to (o) of the Act.
Section 91(4)(e) of the Act requires the Court to consider the relationship between David and Lisa. That relationship commenced in about December 1970, when Lisa and her mother moved into David’s home. Lisa was then aged 14 years. For a period of about four years, Lisa lived with David in his home and, together with her mother and, for a while, her sister Giselle, became part of David’s family and household. David treated Lisa kindly and generously. During this period, Lisa finished her schooling and attended business college where she completed a secretarial course. Lisa and Lynne did not get on, and Lisa’s relationship with Steven appears to have been ambivalent. However, it appears that Lisa’s relationship with Helen was closer, and they shared a flat together for about two years after they had both left home.
After completing her schooling and business college, and working for a short while, Lisa left home when she was aged 18 years. From that time, with the exception of about a three week period, she lived independently of David and her mother.
In 1984, Lisa married Billy. In 1992, when Lisa was aged 36 years, they moved to live in Queensland. In the 18 year period between the time Lisa left home and the time she and Billy moved to Queensland, Lisa remained in close contact with David and her mother. She visited them once or twice a week and spent many days and nights enjoying barbeques and dinners out. Lisa continued to participate in family gatherings at the family home, the family holiday home and her own home. She spent time with David and Jill on holidays, at Goughs Bay and on Billy’s parents’ houseboat. There are family photographs to support Lisa’s evidence in this regard.
After Lisa and her husband moved to Queensland, Lisa maintained regular telephone contact with her mother and David, principally her mother, by two or three telephone calls per month. In addition, there were occasional visits to Melbourne and, following purchase by David of the Noosaville unit in Jill’s name, he and Jill visited Lisa and her husband in Queensland once every year.
David lent $72,000 to Lisa and Billy when they were in severe financial difficulties in August 2000. This loan was given on strict conditions, with the obvious intention of endeavouring to instil some financial responsibility into Lisa and Billy for the future management of their affairs. When Billy asked for another loan of $8,000 in June 2001, David refused it; saying in a facsimile in response to the request: ‘you will just have to work it our for yourselves’. Counsel for the estate described the strict conditions on the $72,000 loan, and the later refusal of a further $8,000, as ‘tough love’ by David. I agree. In my opinion, this conduct evidenced a concern by David to help and mentor Lisa and Billy. It may have been tough conduct, but it revealed an underlying affection and genuine concern for Lisa’s welfare. This is further evidenced by the circumstances in which the loan was forgiven, as appears below.
Taking the evidence as a whole, I find that there was a warm relationship between David and Lisa, even though that warmth was tempered by David’s disapproval of the way Lisa and Billy conducted their financial affairs and his consequent desire to instil some sense of financial responsibility into them.
Section 91(4)(f) of the Act requires the Court to consider any obligations or responsibilities of the deceased to the applicant or other beneficiaries. In this case, the relevant obligations and responsibilities are those which David owed to Jill, his children and his stepdaughters. It is clear that David intended to provide for all of them. He gave Jill substantial assets during her lifetime and, in his will, a life interest in the income from his 274 shares in the company. He provided for his children by leaving the 274 shares to them after Jill’s death. He provided for Lynne and Giselle by giving each of them a half-interest in the Goughs Bay property and a fund to maintain it. In his lifetime, he expressed the wish to provide for both his children and his stepdaughters through Jill’s estate, which will be comprised of assets he gave to her during his lifetime. I am satisfied that David recognised that he had a moral responsibility to provide for Lisa.
Section 91(4)(g) of the Act requires the Court to consider the size and nature of the estate. For present purposes, the relevant date to value the estate is the date of death. At that time, the estate was sufficiently large to enable David to make provision for Jill, his children and his stepdaughters. The estate comprised the 274 shares valued at $10.2 million, the Goughs Bay holiday home valued at $265,000 and the $173,000 investment fund: approximately $10.6 million, together with the right to dividend income on the 274 shares (then about $165,000 per annum). The estate clearly had capacity to provide for Lisa without placing any other beneficiary in need.
Section 91(4)(h) of the Act requires the Court to consider the financial resources and needs of the applicant and of any other beneficiary of the estate ‘at the time of the hearing and for the foreseeable future’. The financial resources of David’s children are large. They each have substantial existing shareholdings in the company, own real estate and, together with their spouses, earn very substantial incomes and annual bonuses from the company.[16] On Jill’s death, they will each receive a portion of David’s 274 shares. David’s children have no need.
[16]In the last financial year, Helen, her husband, Steven and Lynne’s husband were each paid an annual salary of approximately $160,000 and received, in addition, a bonus of $400,000. Further, the company has very substantial undistributed profits which are available, subject to working capital requirements, to distribute to shareholders on a fully franked basis.
Jill has about $7.5 million in assets and income of approximately $220,000 more than her current needs.
Giselle’s resources and needs are unknown, and she makes no claim for further provision.
As appears above, and expanded upon below, Lisa’s financial resources are scarce and she needs urgent financial assistance to save her home, to provide for reasonable living expenses for the foreseeable future and to cater for life’s contingencies. As things stand, her immediate financial future is bleak, unless her mother dies soon. However, as appears above, Jill is physically well and there is no evidence of her life expectancy.
Paragraphs 91(4)(i) and (j) of the Act require the Court to consider the health and age of the applicant and other beneficiaries of the estate. Lisa is 55 years old. Her health is good, with the exception of an eye condition which flares up from time to time and disables her for a few days when it does. She is able to manage the condition by self-administering medication when needed. She has not received medical advice concerning this condition for a few years. This eye condition does not prevent Lisa from conducting her small business supplying animal herbs. On the evidence, she does not intend to work in any other capacity. Helen is aged 50 years. Steven is aged 51 years. Lynne is aged 55 years. Giselle is aged 58 years. None of them have put forward any relevant health issues.
Section 91(4)(k) of the Act requires the Court to consider any contribution (not for adequate consideration) of the applicant to the building up of the estate or to the welfare of the deceased. This matter is not relevant.
Section 91(4)(l) of the Act requires the Court to consider any benefits previously given by the deceased to the applicant or any beneficiary. In that regard, David provided $72,000 financial assistance to Lisa and Billy in late 2000 when they were in financial difficulties. He later forgave that loan. This issue is considered further below in the context of the submissions made on behalf of the estate that the present financial needs of Lisa and her husband are the result of their own financial mismanagement, principally by living beyond their means. Further, it is relevant in this regard to consider the benefits given by David to his children and some of their spouses, by involving them in the company as employees where they earn substantial income.
Section 91(4)(m) of the Act requires the Court to consider whether the applicant was being maintained by the deceased before death and the extent to which the deceased had assumed any responsibility for that maintenance. This matter is not relevant.
Section 91(4)(n) of the Act requires the Court to consider the liability of any other person to maintain the applicant. In that regard, Lisa’s husband Billy has an obvious moral obligation to contribute to her maintenance. However, he has no significant capacity to do so. Lisa’s mother Jill has a liability to make provision for Lisa in her will, and has done so. But that is of little comfort to Lisa in her current state of extreme and urgent financial need.
Section 91(4)(o) of the Act requires the Court to consider the character and conduct of the applicant or any other person. On behalf of the estate, reliance was placed upon the conduct of Lisa and Billy in the mismanagement of their financial affairs. Further, this matter was relied upon under s 91(4)(p), which requires the Court to have regard to any other matter that it considers relevant. I will deal with that issue under this heading.
In order to understand the submission, it is necessary to set out some of the history of financial mismanagement by Lisa and Billy of their joint financial affairs, particularly since 1992 when they moved to Queensland.
Prior to moving to Queensland in 1992, Lisa and Billy appeared to work hard and earn sufficient income to be self-sufficient. Lisa worked as a model until about 1989 when she was aged 33 years. Billy worked as a real estate agent and also bought, renovated and sold investment houses. When Lisa ceased modelling, she assisted him in the house renovation business. There was no evidence as to the profitability of that business. Taking the evidence as a whole, however, I infer that it was not very successful and that any profit was spent. Lisa and Billy lived in their own home in Prahran, which was mortgaged. They sold that home for $480,000 when they moved to Queensland. After the mortgage, they were left with between $130,000 and $150,000 only. I infer that, in the period to 1992, Lisa and Billy were not savers but spenders; a pattern which continued.
Lisa and Billy were unable to have children. Although unfortunate for them, it did mean that they had no responsibility to provide for children.
In 1991, Billy’s father died. He left a substantial estate. Billy’s inheritance was approximately $1.25 million, which was paid to Billy over a period of time. Billy gave inconsistent evidence as to whether he had received the whole of his inheritance, or only part, at the time he and Lisa moved to Queensland. Nothing turns on this inconsistency.
Upon moving to Queensland, Lisa and Billy purchased 36 acres of land at Tinbeerwah for $185,000. The land was purchased and developed with the equity in the Prahran home and Billy’s inheritance. They began building a substantial house, together with stables and dressage areas for Lisa’s horses. At one stage, Lisa had 11 horses.
At this time, Billy ceased being a real estate agent and commenced his own excavation and earth moving business. This required the purchase of expensive machinery.
It is probable that the completion of all improvements to the Tinbeerwah property, and the purchase of the necessary equipment for Billy’s earth moving business, exhausted all or a very substantial part of Billy’s inheritance. In addition, Billy bought and sold four units in Noosa Heads, but it appears they were unsuccessful investments.
Within a few years, Billy’s business started to go bad. He and Lisa put this down to a combination of increased competition and unseasonally high rainfall for a continuous 12 month period. By the mid 1990s the seeds of their financial collapse were well and truly sown. Their home was placed on the market and an offer of $1.25 million was received but refused in the hope of a higher price. As events transpired, nothing like that amount was offered again. After six or seven years of endeavours to sell, Lisa and Billy sold the Tinbeerwah property in January 2002, for only $700,000. By this time, a combination of business losses and expensive lifestyle choices, particularly in respect of Lisa’s horses, had swelled their debts to about $650,000. They cleared only $50,000 from the sale.
Billy gave most unsatisfactory evidence concerning the failure of his earthmoving business. The evidence demonstrated that he has no financial skills. Billy said that he did not appreciate that his business was losing money for some years, because he ‘was too busy looking at turnover rather than profit’. Accordingly, he continued to run a loss-making business for years while wondering where all the money was going. He endeavoured to explain this by reference to the fact that he ‘was a real estate person’, and said that because ‘the turnover was good; it was only in hindsight that [I] was able to look at it and realise there wasn’t as much profit as I thought there was.’ Taking his evidence as a whole, it is clear that Billy is incapable of managing money in any prudent manner. As to Lisa, she frankly acknowledged that she left all of the money management to Billy and simply signed whatever documents he asked her to sign. Many of these documents must have been loan agreements supported by mortgages over their home.
Although not fully comprehending why their financial situation was spiralling downward, Lisa must have appreciated the need for some more income. In the mid 1990s she began a business of supplying herbs for animals, in particular horses. That business continues. It is a very modest business, currently earning a profit of approximately $16,000 per annum.
By 2000, Lisa and Billy could not afford to pay their mortgage. They needed some money urgently, to make mortgage payments. Billy approached David and Jill for a loan. They agreed to assist with a loan of approximately $70,000, but subject to conditions. They set those conditions out in a facsimile letter dated 12 August 2000. As I have said, the conditions had the evident purpose of endeavouring to instil some sense of financial responsibility into Lisa and Billy. The facsimile letter containing the conditions speaks for itself:
12 August 00
To Billy and Lisa
Re Billy’s request for a loan of $70,000.
The time has now come for a decision re above. Now that the bank has made it very clear that you have to clear all arrears by next Friday or hand in your keys. Although this action may not be in their best interests we do not think that they are being unreasonable.
Jill and I have serious reservations about your ability to earn sufficient income to meet the repayments and the expenses of running your property. So before we give an answer we need to be convinced of your commitment to any undertakings you both give us and the plan you have for generating such income.
We want you both to draw up a list of your anticipated expenses from 1/9/00 to 31/8/01 on a monthly basis including your bank repayments and compare it to a list of your estimated individual net incomes for the same period. This will give you and us an idea of your estimated position on 31/8/01. Do your very best to be as accurate as possible – and the time has long passed for blaming someone or something.
Jill and I hope that together you will be able to show us that you can together work your way out of your financial trouble and we will do what we can to help you. But that does not mean merely putting off the day when you lose control of your house and property.
I hope that you see this letter as constructive and helpful and that you will both sit down and do your very best to produce an achievable set of figures to support your hopes and aspirations which Billy has conveyed to me over the phone.
This is your last chance to recover from what must have been a nightmare over the last few years.
Time is now short so I will need your reply by a.m. this Monday as I will have to set up a joint bank account, transfer the money and pay your bank by Friday.
Love
David and Jill[17]
[17]Emphasis added.
Lisa and Billy complied with the conditions. Billy ceased his earth moving business and re-commenced working in real estate. He was employed on a commission only basis, with no retainer. Some money was also borrowed from Billy’s brother and sister at this time. A request for a further loan from David was refused in June 2001.
As I have said, the Tinbeerwah property was sold for $700,000, and Lisa and Billy netted about $50,000 equity. Billy said that this equity was principally used to pay stamp duty and acquisition costs on 54 acres of land at Cooroy, a property in the vicinity of Tinbeerwah. The Cooroy property was purchased in January 2002 for about $150,000 - $160,000 with mortgage finance. Lisa and Billy borrowed about $300,000 to acquire the land and to commence building works. While fencing the land and building a house, Lisa and Billy lived in a shed on the Cooroy property. They had no water, no toilet and only a camp shower. While they were living in these conditions, David and Jill visited. They were appalled at their living conditions and, as a result, David forgave the $72,000 loan.
Over time, Lisa and Billy substantially improved the Cooroy property. There is a substantial home, a shed which has been made into stables and a dressage area for Lisa’s horses. Over time, Lisa and Billy also increased the mortgage debt over the Cooroy property. By the time David died in April 2007, the mortgage debt exceeded $500,000. At this time, the property market around Noosa was buoyant. Further, Billy said he was earning commissions of approximately $100,000 a year at this time and, ever the optimist, said that he expected to make more in the following year. In his words: ‘things looked rosy’. In fact, Billy’s gross income for the financial year ended 30 June 2007 was $93,791, and his taxable income for that year was only $70,877 after deductions. His taxable income for the year ended 30 June 2008 was about $100,000. From that time, the real estate slump in the surrounding area has ravaged his income. His taxable income was only $31,573 in the year ended 30 June 2009, $16,649 in the year ended 30 June 2010 and $39,462 in the year ended 30 June 2011. He has earned a paltry sum since that time, and lost his job as a commission sales agent during the trial. Lisa’s taxable income from her animal herb business was only $15,767 for the year ended 30 June 2011.
Money has been so tight that Billy has withdrawn all of his superannuation to make mortgage payments and pay debts.
In mid 2009, Billy arranged for a second mortgage loan over the Cooroy property in the sum of $45,000 at an interest rate of 20 per cent. Billy has also borrowed money from Helen personally, and from Jill’s estate, in an endeavour to make mortgage payments and pay debts. Lisa and Billy’s current mortgage commitments total approximately $5,300 per month.
Lisa and Billy have some old motor vehicles and a horse float. They do not have significant value.
Billy’s brother paid for Lisa and Billy’s airfares and accommodation to come to Melbourne for the trial of the proceeding.
Taking the evidence of this sorry tale as a whole, I find that Lisa and Billy are in urgent financial need. The cause of this situation is simple. Until recently, Lisa has left all of the management of their financial affairs to Billy. He has mismanaged their financial affairs. In addition, they have an entrenched habit of living beyond their means.
Section 91(4)(p) of the Act requires the Court to have regard to any other matter that it considers relevant. In this regard, in addition to Lisa and Billy’s financial mismanagement, the estate relies upon the fact that Jill has made significant provision for Lisa in her will, likely to be approximately $1.5 million, and that her will cannot be changed because she suffers from dementia.
I return to the principal grounds relied upon by the estate in support of the submission that David had no responsibility to make provision for Lisa in his will. I do not accept that those grounds relieved David of his responsibility.
As to the first ground, that Lisa was a stepchild who did not develop a close relationship with David or his children; for the reasons given above, I find that there was a warm and close relationship between Lisa and David. It was sufficient for David to recognise a moral responsibility to provide for Lisa. I accept that, as the years have gone by, Lisa has not maintained any close or continuing connection with any of David’s children, and that David must have known that.
As to the second ground, I accept that the current parlous state of Lisa and Billy’s finances is largely their own fault, and that this is a relevant factor. However, for the following reasons, that conduct did not relieve David of his moral responsibility to provide for Lisa.
First, because the fault appears to be overwhelmingly Billy’s. Indeed, Billy went so far as to say that he was ‘brought up that the men did everything and the women weren’t told anything’.
Second, because the assets which Billy has lost were almost all his own and Lisa’s; from their own work and Billy’s inheritance from his father. Apart from the $72,000 loan, Lisa and Billy received no financial assistance from David during his lifetime.
Third, although David obviously took a dim view of the way Billy managed the family finances, and probably of Lisa’s idle approach to life, there was no relevant conduct in this regard directed towards David. His disappointment in Billy and Lisa’s financial mismanagement and lifestyle choices did not, in my opinion, relieve him of any responsibility to make provision for Lisa. Indeed, he acknowledged such a responsibility. I accept, however, that the issue of financial irresponsibility has relevance to the amount and framing of any order for further provision for Lisa.[18]
[18]Cf Herszlikowicz v Czarny [2005] VSC 354, [120]-[125].
Nor do I accept the third ground relied upon by the estate, that David had no obligation to provide for Lisa in his will because he transferred sufficient assets to Jill to enable her to provide for Lisa in her will. On this issue, argument focussed on whether Lisa’s current need could have been reasonably foreseen by a wise and just testator in David’s position at the time of his death, with knowledge of all relevant facts.
It was submitted on behalf of the estate that David could not have reasonably foreseen Lisa and Billy’s present parlous financial position because, at the time of his death: (a) Lisa and Billy were living in an established home; (b) Billy appeared to be gainfully employed in the real estate industry; (c) Lisa had commenced her animal herb business to supplement their income; and (d) they had not asked David for financial assistance since June 2001. I do not accept the submissions made on behalf of the estate in this regard.
First, in considering whether David had an obligation to provide for Lisa in his will, he must be taken to have known the relevant facts existing at the date of his death. This is so, whether or not he in fact knew all the relevant facts. Accordingly, in assessing David’s responsibility to provide for Lisa in his will, the following relevant facts must be considered:
(1) Billy was in charge of his and Lisa’s financial affairs. Lisa did not wish to be involved and simply signed whatever loan and mortgage documents Billy put before her to sign. Billy’s practice of not involving Lisa in their finances was a deliberate practice in which Lisa acquiesced. It was part of their family dynamic.
(2) Through a combination of factors including: (a) foolishly continuing to run a loss–making business for many years while the mortgage debt over the Tinbeerwah property was rising to fund both business losses and lifestyle; (b) allowing Lisa to participate in a very expensive recreational pursuit (keeping horses and participating in horse riding events) when finances did not rationally or prudently permit; and (c) spending money on other non-essential lifestyle assets, Billy had by August 2000 managed to lose all or nearly all of his and Lisa’s assets, including an inheritance of approximately $1.25 million, in the space of only eight or nine years.
(3) Billy and Lisa needed to borrow $72,000 from David, and a similar amount from Billy’s brother and sister, to avoid a mortgagee sale of the Tinbeerwah property in August 2000. Notwithstanding the $72,000 loan from David and the loans from Billy’s brother and sister, Billy sought a further loan of $8,000 from David in June 2001. David refused. He obviously took a very dim view of the way in which Billy was managing his and Lisa’s financial affairs, and for that reason endeavoured to instil some financial responsibility in them.
(4) Following the sale of the Tinbeerwah property, Billy and Lisa were insolvent. After repaying Billy’s brother and sister,[19] they cleared only $50,000 from the sale. At this time, they still owed $72,000 to David.
[19]But not David’s $72,000 loan.
(5) Billy and Lisa borrowed $300,000 to purchase the Cooroy property. This finance enabled them to purchase the land, fence the property, construct a dressage area for Lisa’s horses and build a house to lock-up stage. While building the house, Billy and Lisa lived in a shed with no running water, toilet or bathroom facilities. When David and Jill saw this, they realised the extent of Billy and Lisa’s financial problems, and forgave the $72,000 loan. From this time, during 2002, Billy did not seek any further financial assistance from David.
(6) The Cooroy house was built to lock-up stage by some time in 2003. By this time, Billy was back working as a real estate agent, a condition imposed by David for making the $72,000 loan. In the period of approximately four years before David’s death, Billy and Lisa increased the mortgage over the Cooroy property by approximately $230,000. They refinanced the property on 2 May 2007 for $530,000, very shortly after David’s death. With the extra $230,000, they had completed the house, decorated and furnished it, and performed landscaping works including a swimming pool.
(7) At the time of David’s death, the real estate market in the surrounding area was buoyant. This had a positive effect upon the value of the Cooroy property at the time, and upon Billy’s optimism for his commission earnings as a real estate agent. Billy described his financial outlook at the time in optimistic terms:
And then I was earning around $100,000 year and things looked rosey, after all these years. It was two or three years when I was earning the $100,000. It looked like it would keep going and get better. That 100,000 or whatever it was, that was earned in six months in the last year before the slump came and then it was virtually nothing. So it was going to be a $200,000 year.
In fact, as appears above, Billy’s gross income for the year ended 30 June 2007 was only $93,791, and his net taxable income was only $70,877. There is no evidence that Billy ever had two or three years when he earned a net income of $100,000. The only year which fits that description is 2007/08,[20], which is after David’s death and therefore not relevant to David’s knowledge at the time of his death. In the above-quoted evidence, Billy’s facts were askew and his optimism misplaced.
(8) Billy’s income was commission only without any fixed retainer. Accordingly, his income was subject to the vagaries of the local property market, and likely to fluctuate. Further, when Billy’s income or assets were high, experience had shown that increased spending on lifestyle would follow, with little if any endeavour being made to reduce the mortgage debt beyond making the minimum monthly payments.
[20]Billy earned $99,926 taxable income in that year.
Armed with this knowledge, a wise and just testator in David’s position would have readily foreseen that Billy’s optimism was misplaced. The prospect that there may be a slump in real estate prices and activity in the area in which Billy was employed, with the consequence that Billy’s income would reduce to a level placing him and Lisa in the position where they were unable to meet their mortgage commitments and pay their living expenses, was a real one.[21] In these circumstances, having regard to his wealth, a wise and just testator in David’s position ought in my opinion to have made some provision for Lisa in the event that he pre-deceased Jill.
Did David’s will make adequate provision for Lisa?
[21]As appears above, that contingency has occurred.
David having died before Jill, his will makes no provision for Lisa – as there is no residuary estate. For the reasons given above, taking the facts and reasonably foreseeable eventualities at the time of David’s death, David’s will does not make adequate provision for Lisa.
What amount of provision (if any) should be ordered?
The establishment of the two jurisdictional requirements for the making of an order for provision out of David’s estate does not mean that the Court is required to order provision be made. The making of an order for provision out of a deceased estate is discretionary. The legislature has expressly countenanced the refusal to order provision, even where the jurisdictional requirements are met. Accordingly, s 91(4)(c) of the Act speaks in terms of the Court determining ‘the amount of provision (if any)’.
For the reasons given above, I have concluded that David had a responsibility to make provision for Lisa. That responsibility was to make adequate provision for the contingency that Lisa would be in financial need if David died before Jill. That contingency has eventuated. I am satisfied that an order for provision should be made in Lisa’s favour. In final submissions, counsel for both sides proceeded on the basis that, in fixing the amount of any order for further provision, I should take account of the likelihood that Lisa will inherit, on present values, about $1.5 million under Jill’s will at an unknown future time. I will proceed on that basis.
In final submissions, counsel debated whether any order for provision should be in the nature of a periodic entitlement, to enable Lisa to bring the mortgages up to date and make the required minimum payments until distribution of Jill’s estate, or whether a legacy of a fixed amount should be ordered. There was also debate as to whether any order for further provision should be accompanied by an order imposing a trust, to ensure that the money is not squandered by Lisa and Billy.
It was submitted on behalf of the estate that a fixed legacy should not be ordered because the estate has no cash, only an entitlement to dividends which is impressed with a trust to pay the dividends to Jill during her life. Reliance was placed upon the fact that the 274 shares would be difficult to sell, given the restrictions in the company’s constitution and the need to preserve, if possible, David’s wish that the shares remain in the Ward family. I do not accept those submissions. The estate is large and the principal beneficiaries are very wealthy. Where an order for further provision is justified in those circumstances, it is for the estate and those standing to benefit from it to organise the wherewithal to comply with the Court’s order.
In all the circumstances, it is in my view appropriate to order that the estate pay Lisa a legacy of $750,000. On my calculations, the mortgage debts approximate $580,000, and another $65,000 is owing to Helen and the estate, making the total debts approximately $645,000. The debts will likely increase before the legacy is paid. The remaining amount of approximately $100,000 can be used as a fund for any other existing debts, living expenses and contingencies over the next year.
I would not, however, impose any condition requiring the legacy to be used in this way. Instead, having regard to the evidence as a whole, it is in my opinion appropriate that the whole of the legacy be paid to a trustee for Lisa, who can make sound financial decisions in her best interests. Billy’s brother, Michael, a chartered accountant and official liquidator of this Court, has offered to act trustee. Notwithstanding his obvious conflict as Billy’s brother, I am confident that he can, as an officer of the Court, make decisions in Lisa’s best interests. Her interests are, after all, linked to Billy’s. I will make orders for his appointment. I will also order that Lisa must not, until final distribution of Jill’s estate, borrow money, or sell or encumber any interest owned by her in any real property, without the prior written consent of her trustee. In my opinion, these orders are protective of Lisa’s best interests, and are of a kind likely to have been imposed by David had he turned his mind to providing for the foreseeable eventuality that Lisa would be in a position of need at his death. The Court is authorised to make such orders under s 96 of the Act.
The $750,000 legacy includes an approximate amount of $100,000 for living expenses and contingencies. For the following reasons, that may be insufficient: (a) Billy’s future income is unpredictable; (b) Lisa’s income from her small business is modest; (c) it is unlikely that Lisa would now be able to obtain outside employment, given her long absence from the workforce; and (d) Jill’s life expectancy is unknown. In all the circumstances, I will also order that the estate pay Lisa an annual amount until final distribution of Jill’s estate. The first annual payment should be made on 1 March 2013, in the sum of $50,000. That sum should increase annually by 10 per cent. The estate can fund the annual payment from the dividends on the 274 shares, or otherwise as Helen and Lynne see fit.
The above orders are designed to make adequate provision for Lisa’s proper maintenance and support in the period until final distribution of Jill’s estate. Lisa’s entitlements under her mother’s estate will then provide her with a fund to provide for her proper maintenance and support, including a nest egg for contingencies.
I will hear the parties as to the form of orders and as to costs.
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