Phillips v James - [2014] NSWCA 4

This decision has been amended. Please see the end of the decision for a list of the amendments.

Court of Appeal

New South Wales

Case Title: Phillips v James

Medium Neutral Citation: [2014] NSWCA 4

Hearing Date(s): 16 September 2013

Decision Date: 06 February 2014

Before: Beazley P at [1];
Basten JA at [112];
Meagher JA at [130]

Decision:
(1) Appeal allowed;

(2) Set aside the orders made by Stevenson J at first instance;

(3) Order that further provision be made in favour of Brian in the sum of $100,000 out of property to be designated as notional estate;

(4) Reserve the question of what property is to be designated as notional estate for the purposes of Order 3;

(5) Direct the respondents, Gaye James and Gary Phillips, to file written submissions by 25 February 2014 in respect of the property to be designated as notional estate and in respect of costs of the trial and the appeal;

(6) Direct the appellant Brian Phillips to file any submissions by 11 March 2014 in respect of the property to be designated as notional estate and in respect of the costs of the trial and the appeal;

(7) Direct that the questions of the property to be designated as notional estate and of the costs of the trial and the appeal be determined on the papers.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: SUCCESSION - family provision and maintenance - whether the allocation of the residue of the estate to the applicant was a failure by testator to make sufficient provision - diminishment of the residue by decisions benefiting the respondents.

SUCCESSION - family provision and maintenance - distribution of estate - whether an order for property to be designated as notional estate can be made regardless of whether that property is property into which the distributed asset can be traced - whether a notional estate order ought not be made on discretionary grounds - relevance of the executors distributing the estate, including to themselves, within the time in which an application may be made for an order for family provision to matters the Court is required to consider pursuant to the Succession Act 2006, s 87.

Legislation Cited: Family Provision Act 1982 (NSW), s 27
Succession Act 2006 (NSW), ss 59, 60, 79, 87, 89

Cases Cited: Andrew v Andrew [2012] NSWCA 308; 81 NSWLR 656
Charnock v Handley [2011] NSWSC 1408
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Durham v Durham [2011] NSWCA 62; 80 NSWLR 335
Ernst v Mowbray [2004] NSWSC 1140
Gersbach v Blake [2011] NSWSC 368
Golosky v Golosky (Court of Appeal (NSW) 10 October 1993, unreported)
Goodman v Windeyer [1980] HCA 31; 144 CLR 490
House v R [1936] HCA 40; 55 CLR 499
Keep v Bourke [2012] NSWCA 64
Petschelt v Petschelt [2002] NSWSC 706
Richardson v Rearden [2006] NSWSC 1252
Sammut v Kleemann [2012] NSWSC 1030
Singer v Berghouse [1994] HCA 40; 181 CLR 201
Vigolo v Bostin [2005] HCA 11; 221 CLR 191
White v Barron [1980] HCA 14; 144 CLR 431

Category: Principal judgment

Parties: Brian Phillips (Appellant)
Gaye James (First Respondent)
Gary Phillips (Second Respondent)

Representation

- Counsel: Counsel:
L Ellison SC; D Liebhold (Appellant)
P W Bates (Respondents)

- Solicitors: Solicitors:
D Stanefska & Associates (Appellant)
Needs Chan & Monahan (Respondents)

File Number(s): CA 2012/223379

Decision Under Appeal

- Court / Tribunal: Supreme Court

- Before: Stevenson J

- Date of Decision: 22 June 2012

- Citation: Phillips v James [2012] NSWSC 688

- Court File Number(s): 2010/420872

HEADNOTE

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

The appellant, a son of the deceased, Hazel Phillips, brought proceedings pursuant to the Succession Act 2006, s 59 for provision out of Hazel's estate. By her will, the deceased had devised her real property to the respondents, who were the applicant's siblings and the executors of the deceased's estate. The deceased bequeathed the residue of her estate to the appellant. Following the grant of probate, the real property was transmitted to each of the respondents and each subsequently sold the property and invested the proceeds of sale in other property.
At first instance, Stevenson J found that, at the time the court was considering the application, the provision for the appellant was inadequate. His Honour held however that there was no power under the Succession Act, s 79 to make the notional estate order sought and that even if there was, a notional estate order should not be made by reason of the matters required to be considered by s 87 of that Act.
On appeal to this Court, four issues arose for determination:
(i) whether the provision made for the appellant was adequate;
(ii) whether the primary judge erred in holding that the court lacked power to make a notional estate order;
(iii) whether, if the court had power, a notional estate order ought not to be made on discretionary grounds; and
(iv) if a notional estate order ought to be made, what property ought to be designated as notional estate.
The Court allowed the appeal.
Held per Beazley P, Basten JA and Meagher JA
In respect of (i):
(1) Stevenson J did not err in having regard to the manner in which the residue had been diminished by decisions that benefited the respondents: [60], [118], [130].
Considered: Succession Act 2006, ss 59, 60; Singer v Berghouse [1994] HCA 40; 181 CLR 201; Andrew v Andrew [2012] NSWCA 308
(2) There was no error, in accordance with House v R [1936] HCA 40; 55 CLR 499 in Stevenson J's finding that adequate provision had not been made, nor in his Honour's assessment of the amount of the provision that ought to have been made: [61], [118], [130].
In respect of (ii):
(1) The Succession Act, s 79 enables an order for property to be designated as notional estate, regardless of whether that property is property into which the distributed asset can be traced: [76], [121], [130].
Considered: Charnock v Handley [2011] NSWSC 1408; Richardson v Rearden [2006] NSWSC 1252
(2) The proceeding at first instance was conducted on the basis that the notional estate order being sought extended to the properties that the respondents had each purchased with the proceeds of sale of those two properties: [95], [122], [130]. Accordingly, Stevenson J erred in confining his determination of the appellant's claim to one based on his pleaded claim to the actual proceeds of sale of the real property bequeathed to each of the respondents: [95], [122], [130].
In respect of (iii):
(1) Stevenson J erred in refusing to make a notional estate order: [109], [127]-[128], [130].
(2) Beazley P and Meagher JA: The fact that the executors distributed the estate, including to themselves, within the time in which an application may be made for an order for family provision is relevant to matters the Court is required to consider pursuant to the Succession Act, s 87 including the importance of not interfering with reasonable expectations in relation to property and the substantial justice and merits involved in making or refusing an order: [107], [130]. See also Basten JA at [121], [123]-[125].
Considered: John v John [2010] NSWSC 937; Ernst v Mowbray [2004] NSWSC 1140; Petschelt v Petschelt [2002] NSWSC 706
In respect of (iv):
(1) The parties should be given the opportunity to address the terms of the final order: [110], [128]-[129], [131]
(2) Basten JA and Meagher JA expressed the view that the burden of further provision in favour of the appellant should be borne equally by the respondents: [127], [128] and [131].

JUDGMENT

BEAZLEY P: This appeal arises out of proceedings brought by Brian Phillips, the son of Hazel Florence Phillips (Hazel), pursuant to the Succession Act 2006, s 59 for family provision out of Hazel's estate.
Hazel was the widow of Edgar John Phillips, who died in July 2006. Hazel and Edgar had three children, Brian Phillips, Gaye James and Gary Phillips. I will refer to the family members by their first names for ease of identification.
Hazel and Edgar had made mutual wills in February 2003. Edgar died in 2006 and Hazel was entitled to his estate under his will. Hazel died on 7 April 2010. In her will, Hazel appointed Gaye and Gary as her executors. She devised her property at Cameron Street, Rockdale, to Gaye and her property at Gibbes Street, Rockdale, to Gary. She bequeathed the residue of the estate to Brian. Gibbes Street had been Edgar and Hazel's home. Cameron Street was an investment property.
Probate was granted to Gaye and Gary on 17 June 2010. Transmission Applications for the transfer of the Gibbes Street and Cameron Street properties to Gary and Gaye respectively were lodged on 9 July 2010 and those properties became registered in their names. A sum of $164,603.97 was distributed to Brian on 27 July 2010 by way of an "interim distribution". On 21 September 2010, Brian received a further $14,603.97 by way of the "final distribution" of the residue.
On 7 August 2010, Gaye entered into a contract to sell the Cameron Street Property for $695,000. The sale was completed on 18 October 2010. On 22 October 2010, Gaye exchanged contracts to purchase a property at Dora Creek for $565,000.
By letter dated 29 October 2010, Brian notified Gaye and Gary of his intention to make an application for an order for family provision pursuant to the Succession Act, s 59. Gary and Gaye did not become aware of that letter until 1 November 2010.
On 30 October 2010, Gary entered into a contract to sell Gibbes Street for $702,000. The purchaser was unable to fund the deposit and paid Gary $40,000 in compensation. Gary subsequently entered into a further contract to sell the Gibbes Street property for $670,000 on 16 November 2010. That sale was completed on 18 January 2011. On 18 March 2011, Gary and his wife Julie completed the sale of their jointly owned family home for $765,000. On 7 February 2011, they jointly purchased a property in Noosaville, Queensland, for $830,000. At the time of the hearing, Gary and his wife owned the Noosaville property and had funds totalling $664,000 in term deposits. The primary judge, at [16], stated that he inferred that "some part of the proceeds of sale of the Gibbes Street Property is represented in those term deposits".
Brian commenced proceedings for family provision by summons filed on 20 December 2010 and was thus within the 12 month period after the date of death of the deceased prescribed by the Succession Act, s 58 within which to bring proceedings.
The proceedings were heard at first instance by Stevenson J: Phillips v James [2012] NSWSC 688. Stevenson J gave judgment for Gaye and Gary. His Honour held, at [111]-[113], that although the bequest of the residue to Brian was not of itself an inadequate provision, it was not adequate at the time when the court was considering the application because the residuary estate was susceptible to being and had been diminished by decisions made by Gary and Gaye on Hazel's behalf during her lifetime. That being so, his Honour "would have been inclined" to make an order for additional provision in favour of Brian in the sum of $100,000. His Honour, at [143], held, however, that there was no power under the Succession Act, s 79, to make the notional estate order sought in the circumstances of this case and that even if there was, he would refuse to make a notional estate order by reason of the matters he was required to consider under s 87 of that Act.

Issues on the appeal

On the appeal, Brian submitted that the primary judge erred in holding:
(1) that the court lacked power to make a notional estate order; and
(2) that even if the court had had power to make a notional estate order, such an order ought not, on discretionary grounds, to be made.
By way of a notice of contention, Gaye and Gary contended that his Honour should have found that the provision made for Brian was adequate. They did not press a further contention that Brian consented to the distribution within the meaning of the Succession Act, s 94(3)(a).
As the first question on the appeal as to the jurisdiction to make a notional estate order does not arise if Gaye and Gary's contention is correct: see Keep v Bourke [2012] NSWCA 64 at [25]-[32] per Barrett JA, it is convenient to deal first with the contention issue, that is, whether Hazel had made adequate provision for Brian in her will.

The legislation

The Succession Act, s 59 provides, relevantly:
"59 When family provision order may be made
(1) The Court may, on application under Division 1, make a family provision order in relation to the estate of a deceased person, if the Court is satisfied that:
(a) the person in whose favour the order is to be made is an eligible person, and
...
(c) at the time when the Court is considering the application, adequate provision for the proper maintenance, education or advancement in life of the person in whose favour the order is to be made has not been made by the will of the deceased person, or by the operation of the intestacy rules in relation to the estate of the deceased person, or both."
Section 60(1) provides:
"60 Matters to be considered by Court
(1) The Court may have regard to the matters set out in subsection (2) for the purpose of determining:
(a) whether the person in whose favour the order is sought to be made (the applicant) is an eligible person, and
(b) whether to make a family provision order and the nature of any such order."
Brian is an eligible person, being a child of the deceased, for the purposes of s 59: see s 57(1)(c).
The matters specified in s 60(2)(a)-(p) relevantly include: the family relationship between the applicant and the deceased: para (a); the nature and extent of the obligations or responsibilities owed by the deceased to the applicant: para (b); the nature and extent of the deceased's property: para (c); the financial resources and needs of the applicant: para (d); the financial circumstances of a person with whom the applicant is cohabiting: para (e); any physical disability of the applicant: para (f); the age of the applicant at the time the application is being considered: para (g); any provision made for the applicant by the deceased during the deceased's lifetime or from the deceased's estate: para (i); the character and conduct of the applicant before and after the date of death of the deceased: para (m); the conduct of any other person before and after the date of death of the deceased: para (n); and any other matter that the court considers relevant: para (p).

Did Hazel make adequate provision for Brian by the bequest of the residuary estate?

Factual circumstances of the beneficiaries

The factual circumstances relevant to the adequacy of the provision were as follows.
Gary was the eldest of the siblings and was aged 66 at the time of the proceedings before Stevenson J. Brian was 62 and Gaye was 60. Brian, it seems, had far less contact with his family, including his parents, than Gaye and Gary.
Except for a period when he was conscripted into the Army, Gary had always worked with his father in a plumbing business, commencing as an apprentice. Gary had returned to work in the plumbing business after his discharge from the Army and took over the business in 1989. He continued working in the business until he retired due to ill health in 2004. Gary saw his parents nearly daily, even after he had purchased the plumbing business and Edgar accompanied him to work on most days.
Gary's wife also had a close relationship with Edgar and Hazel, seeing them on an almost daily basis. Gary had always attended to his parents' household bills and as Hazel became more frail in her later years, Gary's wife did most of the housework.
Gaye had less contact with her parents than Gary, because she lived in a country town. In the last decade of her parents' lives, she had moved to the Central Coast and brought her parents up to stay with her family on a monthly basis.
Brian had spent three years in prison between 1974 and 1977, when he was in his early twenties. He returned to live with his parents in 1978 and worked in Edgar's plumbing business for a number of years. Thereafter, he mostly lived away from Sydney, living for various periods in New Zealand, Queensland and country New South Wales. There was no evidence of contact during the periods when he lived out of Sydney and, in his affidavit evidence, he spoke only briefly of his relationship with Hazel, but made no reference to Edgar.
Edgar and Hazel had made provision in various ways for Brian during their lifetimes. In about 1984, they had given him $20,000 to purchase a house in a nearby suburb. On another occasion, they gave him $4,000 to invest in a business in Queensland. That business failed. On yet another occasion, they gave him $7,000 to purchase a motor vehicle and also paid out a car loan on which Brian had defaulted. Evidence of these payments was contained in a note in Edgar's handwriting, which stated "Monies lent spent and lost".
There was also in evidence a statutory declaration, found in Edgar's personal effects, sworn by Brian on 5 April 2000, which stated that he did not hold his father responsible for "any debt or guarantee incurred by me and any debt or loan I have incurred during this year 2000". Brian had no recollection of the circumstances in which he made the statutory declaration. The trial judge considered, at [74], that it was likely Edgar had required it because of a concern that Brian might seek to make him responsible for Brian's financial dealings, whatever they may have been.
Brian's financial position, at the time of making his application, was not particularly advantageous. He had had serious health problems, including throat cancer. This had required him to be off work for a significant period. He had resumed employment, on a casual basis, in early March 2012, at a hotel. He was living in rental accommodation with his de facto partner, who, at the time of hearing, was on sickness benefits and unable to work.
During the course of the hearing, there was considerable emphasis by Gaye and Gary on Brian's alleged lack of financial responsibility. The attack was based, in particular, on the manner in which he had used the residue that had been distributed to him. He had immediately given a total of $50,000, or approximately one third of the interim distribution, to his two sons. One son was in financial difficulties at the time. Brian said that he had made that provision for his sons because of his love for them. One son gave evidence that Brian had always said that he would look after them if he received anything from his parents' estate.
Brian also repaid a sum of $30,000 to St George Bank, being monies that he had borrowed partly to pay for his surgery and partly in relation to travel to New Zealand for his son's wedding. The balance of the residue paid to him, being an amount of approximately $66,000, was spent between September 2010 and April 2011; an average expenditure of $2,200 per week. This was despite his evidence that his weekly outgoings were approximately $1,080 per week. It was alleged against him during cross-examination that he had spent money on gambling. Brian denied this and the trial judge made no finding on this question.
It was apparent from the evidence that Edgar's personal philosophy was one based on hard work and thrift. The trial judge considered, at [77], that the provision made for Brian was likely to have reflected his parents' concern that he had not proved to be an effective manager of his money and, at least for that reason, had considered Gaye and Gary to be more worthy recipients of their estate.

Other factors relevant to the adequacy of the provision

(a) Gibbes Street property: Kristel's occupation

Gaye's daughter, Kristel, lived in the Gibbes Street property rent free, from shortly before Edgar died until some time in 2010. In 2006 Hazel went into a nursing home following a fall and remained there until her death in 2010. Kristel lived in the Gibbes Street property on her own after Hazel went to the nursing home. Although Kristel paid utilities, council rates were paid by Edgar and, after his death, by Hazel.
For part of the time that Kristel lived in Gibbes Street, she was in full time employment. There was a period of six months when she was ill with leukaemia, although it appears she was on sick leave and so still had an income. Although Kristel assisted her grandparents to some extent, she was not a full time carer. The property had a rental value of between $300-$400 per week in 2006. Gary accepted that the property could have generated $60,000 to $70,000 by way of income during this time, which would otherwise have been part of the residuary estate.
Gaye and Gary's evidence as to why Kristel was allowed to remain in the premises was because she was "part of the household" and because it would be beneficial for someone to occupy the house whilst Hazel was in the nursing home. Gary also gave evidence that it was Edgar's wish for her to stay there as long as she liked.

(b) rental of the Cameron Street property

The Cameron Street property was an investment property, which was rented for approximately $400 per week. These monies were paid into Hazel's account and were approximately sufficient to cover the shortfall between Hazel's pension and the cost of her care in the nursing home.

(c) renovation of the Gibbes Street and Cameron Street properties

The Cameron Street property, which was divided into two flats, was renovated before Hazel died. The renovations to each flat, which involved new kitchens, new carpet and painting, cost about $10,000 ($20,000 in total) and were paid for out of Hazel's monies.
Renovations, paid for out of Hazel's monies, were also effected to the Gibbes Street property. In addition, Hazel gave Gaye and Gary $5,000 each on account of the work they had done. His Honour considered that these renovations may have increased the value of the property but made no specific finding in that regard. His Honour noted, however, that the residuary estate was decreased "on a dollar for dollar basis" as a result of the renovations.

(d) other benefits

Gaye and Gary each received $10,000 from Hazel as a gift. Brian was also to receive $10,000, but Gary suggested to his mother that Brian's money be kept in a term deposit in Hazel's name, as Brian would otherwise "waste it away very quickly". Brian did not receive this money, except to the extent it formed part of the residuary estate.

Primary judge's reasons

The primary judge held, at [111], that a bequest of the residue, as opposed to some interest in the real estate, was not itself inadequate. Nor were the reasons why Edgar and Hazel had decided that Brian should receive less than his siblings, namely, because of what Brian had been given during their lifetime and his shortcomings as a financial manager, sufficient to establish that the provision was not adequate.
His Honour found, however, at [115], that the bequest was inadequate because it was susceptible to being diminished by reason of decisions made by Gary and Gaye, who were effectively in charge of Hazel's affairs. Specifically, those decisions were to allow Kristel to live in Gibbes Street rent free and to carry out renovations on Gibbes Street and Cameron Street.
His Honour found that those decisions resulted in a "significant diminution" of the general residue that would otherwise have been available for Brian in an amount of approximately $110,000, being $80,000 of rental income that had been forgone and $30,000 spent on the renovations. His Honour concluded, at [119], that to that extent, the provision made in Hazel's will for Brian was not adequate. Stevenson J considered what provision should be made and concluded that an appropriate order for provision would be $100,000, approximating the amount by which the residuary estate had been diminished.

The submissions

Gaye and Garry contended that the provision made for Brian was adequate "in accordance with perceived prevailing community standards of what is right and appropriate": Andrew v Andrew [2012] NSWCA 308; 81 NSWLR 656 at [16]. They submitted that this was so having regard to the following matters: the will was a mutual will; Hazel and Edgar were not under testamentary obligations to treat all three adult siblings equally: Gersbach v Blake; they were entitled to be preferred by their parents over Brian as "more worthy objects of their bounty"; and, as the primary judge found, correctly in their submission, Hazel had discharged her testamentary obligation by bequeathing Brian the general residue.
Gaye and Gary contended that the primary judge erred when he found that the general residue had been diminished after Edgar's death by allowing Kristel to live rent free at Gibbes Street and the decisions to renovate the Gibbes Street and Cameron Street properties. They submitted, contrary to his Honour's finding, that Hazel had no testamentary obligation to the appellant not to diminish the general residue between Edgar's death and her death.
Gaye and Gary argued that his Honour had failed to give weight to the proper use of the general residue, consistently with the other obligations and needs of Hazel, which had to be weighed against her testamentary obligations to Brian. Those needs included the cost of her care in the nursing home where she had stayed since her fall in 2006. In this regard, the evidence had established that there was a shortfall of approximately $1,000 per month as between Hazel's pension and the nursing home costs. They argued that his Honour did not take this into account.
Gaye and Gary submitted that Hazel and Edgar had separate moral testamentary obligations to Kristel: see Sammut v Kleemann [2012] NSWSC 1030, at [107]-[111], where it was held that a testator may, in a particular case, have a moral obligation to, for example, a grandchild, by reason of the care and affection provided by the grandchild to a grandparent or grandparents. They submitted that in this case, it was not unreasonable for Kristel to live rent free at the property, particularly in the period she had been diagnosed with cancer, and given that it had initially been expected that Hazel's admission to the nursing home was temporary and that she would be returning home after she recovered from her fall.
Brian contended that Gaye and Gary had to identify error in the exercise of the discretion conferred by the Succession Act: see House v R [1936] HCA 40; 55 CLR 499. He submitted the contention issue did not specify any of the historical factual narrative considered by the primary judge, before deciding that the provision was inadequate, as required by Durham v Durham [2011] NSWCA 62; 80 NSWLR 335. Brian also submitted that a concern that a person entitled to provision may not adequately be able to handle his or her finances was not a reason not to make provision, but might be relevant to the form in which provision might be made.

Resolution: did his Honour err in finding that adequate provision was not made?

In determining whether there was error in the primary judge's decision that adequate provision had not been made for Brian (the jurisdictional question), this Court must have regard to the principles that govern the determination of the jurisdictional question as well as the principles governing appellate review of the primary judge's determination of that question.
The principles governing the jurisdictional question were stated by the High Court in Singer v Berghouse [1994] HCA 40; 181 CLR 201 at 209-10. The majority at, 208-209, identified a two stage inquiry, as follows:
"It is clear that, under these provisions, the court is required to carry out a two-stage process. The first stage calls for a determination of whether the applicant has been left without adequate provision for his or her proper maintenance, education and advancement in life. The second stage, which only arises if that determination be made in favour of the applicant, requires the court to decide what provision ought to be made out of the deceased's estate for the applicant. The first stage has been described as the 'jurisdictional question' ..."
Their Honours observed, at 211, that the words 'adequate' and 'proper' in the legislation were "relative" and there were no fixed standards by which those words were to be adjudged. Rather, the court was required "to form opinions upon the basis of its own general knowledge and experience of current social conditions and standards": see Goodman v Windeyer [1980] HCA 31; 144 CLR 490 per Gibbs J at 502, cited with approval in Singer v Berghouse at 211.
In Singer v Berghouse, at 209-210, the majority elaborated upon each of the stages in the following terms:
"...The determination of the first stage in the two-stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the proper level of maintenance etc. appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty.
The determination of the second stage, should it arise, involves similar considerations. Indeed, in the first stage of the process, the court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant. In saying that, we are mindful that there may be some circumstances in which a court could refuse to make an order notwithstanding that the applicant is found to have been left without adequate provision for proper maintenance. Take, for example, a case like Ellis v. Leeder ([1951] HCA 44; 82 CLR 645.), where there were no assets from which an order could reasonably be made and making an order could disturb the testator's arrangements to pay creditors." (emphasis added)
In Vigolo v Bostin [2005] HCA 11; 221 CLR 191 Callinan and Heydon JJ, at [122], observed that:
"We do not therefore think that the questions which the Court has to answer in assessing a claim under the Act necessarily always divide neatly into two. Adequacy of the provision that has been made is not to be decided in a vacuum, or by looking simply to the question whether the applicant has enough upon which to survive or live comfortably. Adequacy or otherwise will depend upon all of the relevant circumstances ... The age, capacities, means, and competing claims, of all of the potential beneficiaries must be taken into account and weighed with all of the other relevant factors." (emphasis added)
That there may not be a strict or bright line division between each stage of the process was recognised in Singer v Berghouse in the emphasised portion of the passage set out above.
A question has been raised in this Court whether the two stage approach identified in Singer v Berghouse applies to the provisions of the Succession Act 2006. It would be fair to say that there has continued to be general acceptance of the two stage approach, particularly at first instance, but also in this Court: see Keep v Bourke. However, in Andrew v Andrew Basten JA observed, at, inter alia, [41], that the language of the Succession Act was not consistent with the two stage enquiry that was a feature of prior legislation. His Honour had earlier, at [26]-[28], identified the differences in the statutory provisions that led him to his view in relation to the appropriateness of the two stage enquiry. His Honour noted the difference in the language of s 59 as compared to the language under the previous legislation. His Honour also referred to the listing of factors in s 60(2) that the court may take into account in determining whether to make an order for family provision and, if so, the nature of the order that should be made.
The matters specified in s 60(2) involve a statutory iteration of matters that had always been considered relevant in the determination of claims for provision by persons claiming an entitlement under a testator's will. However, as Basten JA observed in Andrew v Andrew, the factors identified in s 60(2) provide a more focussed direction to the Court as to relevant matters to which regard may be had. His Honour was of the view that the statutory list invites consideration of a broader range of factors than was previously the case. Whether or not that is so, the important matter is that the Court is required to have regard to the circumstances, including those specified in s 60(2), that it considers relevant in determining whether to make an order for family provision and the nature of any such order.
In Andrew v Andrew, his Honour observed, at [42], that in the case before the Court, the outcome would not have been different regardless of whether the determination had been based upon a two stage inquiry. Allsop P (as his Honour then was), at [6], accepted that the language of the Succession Act, s 59 was "subtly different from the previous legislation", but also observed that whether the court's task under s 59 could still be described as involving a two stage process "may be an analytical question of little consequence". Barrett JA considered, at [94], that the two stage approach ought to be adhered to.
As I have indicated, the High Court itself has recognised that under the prior legislation the two stage approach is not necessarily a strictly divisible task.
The question whether a testator made adequate provision for an applicant is a question of objective fact to be determined as at the date of hearing. Although an objective fact, the determination of whether adequate provision has been made nonetheless involves an evaluative judgment: Singer v Berghouse at 210, 211; White v Barron [1980] HCA 14; 144 CLR 431 at 434-5; 443; 448-9.
Given the evaluative nature of the exercise, the principles governing appellate review of discretionary determinations apply: House v R at 504-5; Singer v Berghouse at 212; Vigolo v Bostin at [82]-[83]. This restraint on appellate review of the jurisdictional question reflects the importance of the finality of litigation in an area that has been described as "troublesome" and is also directed at circumscribing challenges to testamentary dispositions which can place a heavy or unfortunate cost burden upon an estate: see Golosky v Golosky (Court of Appeal (NSW) 10 October 1993, unreported) per Kirby P; Singer v Berghouse at 212.
Although Gaye and Gary drew attention to the question as to whether a two stage approach was required under the Succession Act, they submitted that on either approach, the primary judge erred in his finding that Hazel had not made adequate provision for Brian in her will. They also contended that his Honour erred in provisionally assessing the provision that ought to have been made in the sum of $100,000.
The central challenge, however, was to his Honour's determination, at [115], that the bequest of the residue to Brian was inadequate because the residue was susceptible to erosion during Hazel's lifetime. Gaye and Gary contended that Brian had no vested right in a particular quantum of the residue whilst Hazel was alive. Rather, the residue did not crystallise until her death and in the meantime was available for her use as she saw fit, including the payment of nursing home fees and other living and property expenses.
Whilst Gaye and Gary are correct to say that Brian, as the beneficiary of Hazel's residuary estate, had no entitlement to a specific sum and that the residue was available to Hazel for her use during her lifetime, that is not an answer to the question posed by the legislation. Rather, the court may make a family provision order if, at the time of determining the application, adequate provision for the applicant had not been made by the will of the deceased. That requires the court to determine whether the provision, in this case, of the residue, constituted adequate provision, assessed as at the date of the hearing.
As the primary judge acknowledged, the fact of a bequest of the residue did not of itself bespeak inadequacy. In this regard, his Honour clearly had in mind that a testator is not obliged to make equal provision for those who are entitled to share in his or her estate. His Honour's reference to the principles summarised in Gersbach v Blake [2011] NSWSC 368, which the respondents accepted as correct, is testament to that. However, his Honour was entitled to conclude that at the time of his determination, having regard to the amount that was left in the residuary estate, that provision was not adequate.
In my opinion, his Honour did not err in having regard to the manner in which the residue had been diminished. His Honour did not seek to "reinstate" the residue to what it would have been had there been no diminution of it at all. Thus, he did not seek to assess the amount that had been spent by or on behalf of Hazel in respect of her nursing home and living expenses. To do so would have been an error. However, his Honour was entitled to have regard to the extent to which the respondents had benefited from monies that would otherwise have formed part of the residue. He was also entitled to have regard to the fact that Gaye's daughter had lived in the property rent free for a number of years. Those matters were all relevant circumstances for the purpose of s 60(2).
It was a matter for his Honour as to how he took these various matters into account. He chose to do so by engaging in a mathematical assessment of what had been expended on the renovations and what had been foregone by way of rent. Whilst his Honour did not link the inadequacy of provision to any particular need that Brian had, the evidence established that his financial and personal circumstances were such, as at the date of his Honour's determination, that adequate provision for him had not been made in the will. There was no error, in a House v R sense, therefore, in finding that adequate provision had not been made, nor in his Honour's assessment of the amount of the provision that ought to have been made.

Did his Honour err in not making a notional estate order?

As the estate had been fully distributed at the time of the proceedings before the primary judge, a family provision order in Brian's favour could only be made in relation to property designated as notional estate by a further order under Pt 3.3 of the Succession Act. See the Succession Act, s 63(5).

The legislation relating to the notional estate

The legislation relating to the making of provision out of property designated as notional estate of a deceased person is, relevantly, ss 79 and 87. Those sections provide:
"79 Notional estate order may be made where property of estate distributed
The Court may, on application by an applicant for a family provision order or on its own motion, make a notional estate order designating property specified in the order as notional estate of a deceased person if the Court is satisfied that on, or as a result of, a distribution of the deceased person's estate, property (whether or not the subject of the distribution) became held by a person (whether or not as trustee) or subject to a trust."
It is to be noted that the power to make a notional estate order is discretionary. Section 87, contained in "Division 3 Restrictions and protections relating to notional estate order", provides:
"87 General matters that must be considered by Court
The Court must not make a notional estate order unless it has considered the following:
(a) the importance of not interfering with reasonable expectations in relation to property,
(b) the substantial justice and merits involved in making or refusing to make the order,
(c) any other matter it considers relevant in the circumstances."

Section 89, also contained in Div 3, provides that:
"89 Determination of property to be subject to notional estate order
(1) In determining what property should be designated as notional estate of a deceased person, the Court must have regard to the following:
(a) the value and nature of any property:
(i) the subject of a relevant property transaction, or
(ii) the subject of a distribution from the estate of the deceased person or from the estate of a deceased transferee, or
(iii) held by the legal representative of the estate of any deceased transferee in his or her capacity as legal representative of the estate of the deceased transferee,
(b) the value and nature of any consideration given in a relevant property transaction,
(c) any changes in the value of property of the same nature as the property referred to in paragraph (a), or the consideration referred to in paragraph (b), in the time since the relevant property transaction was entered into, the distribution was made, the property became held by the legal representative of the estate of the deceased transferee or the consideration was given,
(d) whether property of the same nature as the property referred to in paragraph (a), or the consideration referred to in paragraph (b), could have been used to obtain income in the time since the relevant property transaction was entered into, the distribution was made, the property became held by the legal representative of the estate of the deceased transferee or the consideration was given,
(e) any other matter it considers relevant in the circumstances.
(2) The Court must not designate as notional estate property that exceeds that necessary, in the Court's opinion, to allow the provision that should be made, or, if the Court makes an order that costs be paid from the notional estate under section 99, to allow costs to be paid as ordered, or both."

Primary judge's reasons

The notional estate order sought by Brian was one "designating as notional estate, the 'proceeds of sale' of the Gibbes Street and Cameron Street Properties". His Honour declined to make a notional estate order. There is a question whether he refused to do so because he considered there was no power to make a notional estate order in the circumstances of this case or whether he rejected the claim because of the manner in which it had been pleaded.
His Honour accepted, at [133], that s 79 contemplated the possibility that a notional estate order might be made in respect of property into which the distribution from the estate has been invested. It was necessary, however, on his Honour's view, to find a "causal connection" between the property that had been distributed from the estate of the deceased, and "property" (whether that be property from the deceased person's estate or not) "becoming" held at the date of the notional estate order. His Honour noted, at [134], that the property did not have to be held by the person to whom the property from the estate was distributed.
His Honour considered that the remoteness of the current 'holding' of assets to the distribution would have a bearing on the exercise of the discretion under s 79 but nonetheless held, at [135], that he had jurisdiction to make an order under s 79 notwithstanding that the proceeds of the distribution of the estate had been reinvested by Gaye and Gary. His Honour noted, however, at [137]-[138], that s 87 provided safeguards to where the proceeds of distribution had been dealt with.
His Honour's reasoning at [142]-[145] comprised his conclusion on the question whether there was jurisdiction to make a notional estate order and is also the source of the confusion to which I referred above at [66]. Accordingly, I will set those paragraphs out in full:
"142 Mr Bates accepted, in argument, that an order could be made under s 79 if either Gary or Gaye still held the proceeds of sale of the Gibbes Street Property and the Cameron Street Property, for example in a bank account. He submitted, however, that now that the proceeds of sale of the properties have been reinvested, there is no jurisdiction to make any order in respect of those proceeds.
143 I accept that submission.
144 If a notional estate order were to be made, it could only be in respect of the properties into which those proceeds of sale have been invested; namely the Dora Creek and Noosaville Properties. That is what was considered in Cabban v Cabban [2010] NSWSC 1433: at [25].
145 But that is not the order sought on Brian's behalf."
Stevenson J considered, at [146], that even if such an order had been sought, "it would have been necessary to consider how the proceeds of sale ... were used". His Honour noted, at [147], that Gaye's Dora Creek property was, it seemed, "funded entirely by the proceeds of sale from the Cameron Street property". However, Gary's Noosaville Property was funded by a combination of funds from the sale of Gibbes Street and the sale of Gary's own home owned jointly with his wife. The balance of funds had presumably been deposited into a number of Westpac term deposits totalling $664,000. In respect of Gary, his Honour concluded, at [149], that "any notional estate [relating to the Gibbes St property] is some unidentified part of the Noosaville Property and some, also unidentified, part of the Westpac term deposits". His Honour, at [150], considered however that the "paucity of evidence [about the use of the proceeds of sale], alone" was a further discretionary basis for refusing to make a notional estate order, had one been sought relating to the Dora Creek or Noosaville Properties.

Was there property in respect of which a notional estate order could be made?

The first question on this aspect of the appeal was whether there was property that could be the subject of a notional estate order. All parties accepted that a notional estate order could be made in respect of property consisting of funds that had been reinvested following the distribution of assets from a deceased estate. All parties also accepted that a notional estate order could be made where a devisee has property, regardless of whether that property was related or unrelated to the property of the deceased distributed under the will: see Charnock v Handley [2011] NSWSC 1408.
However, Gaye and Gary contended that the only order sought by Brian was that the proceeds of sale of the Gibbes and Cameron Street properties be specified as notional property and those proceeds no longer existed. The primary judge was, therefore, on their argument, correct in finding that Brian had not proved that there existed property which could be designated as notional estate in the form he had claimed, viz, "the proceeds of sale" of the Gibbes and Cameron Street properties.
Three questions thus emerge for consideration. The first is whether a notional estate order can be made in respect of property consisting of assets of a person who has received a distribution from the estate where that property was not the subject of the distribution. If so, the second question is whether, in this case, Brian should be confined to his pleaded claim as identifying the relevant property as 'proceeds of sale'. If that question is answered in Brian's favour, the third question is whether the discretion to make an order should have been exercised in his favour.
In Charnock v Handley, Hallen AsJ (as his Honour then was) considered, at [190], that there was nothing in s 79 that required the property designated as notional estate to be the same property as the distributed property. Nor did the section require that there be property into which the distributed property could be traced. Indeed, his Honour saw no requirement in s 79 that property designated as notional estate, "be linked to the property held 'on or as a result of a distribution'". The consequence of this construction of s 79 was, as Hallen AsJ stated, at [191], that if a person had received a distribution from a deceased estate, it was possible to designate as notional estate property of that person, "even if that property is not something into which it would be possible to trace any specific property of the deceased".
Hallen AsJ considered that this construction was supported by the case law relating to the Family Provision Act 1982, s 24, the predecessor provision to s 79. Thus, in Richardson v Rearden [2006] NSWSC 1252, Campbell J (as his Honour then was) observed, at [22], that the power of the court to designate notional estate related to property held by a person who had received a distribution from the estate, "whether or not that property is the property distributed". Campbell J continued, at [23], that the effect of s 24 was that if a person had received a benefit from a deceased estate, it was possible to designate as notional estate an asset of that person, even if that asset was not something in to which it would be possible to trace any specific asset of the testator. His Honour remarked that this enabled the Court to do "practical justice" as between the persons entitled to benefit from a deceased's estate, so as to ensure that the deceased's testamentary obligations were appropriately fulfilled.
I agree with this construction of s 79. The section enables an order for property to be designated as notional estate, regardless of whether that property is property into which the distributed asset can be traced. It follows that I would respectfully disagree with the primary judge to the extent that he construed s 79, at [134], to mean that there had to be a "causal connection" between the distributed property and property "becoming" held by a person.
The next question which arises is whether Brian is confined to seeking an order relating to the proceeds of sale of the Gibbes and Cameron Street properties by the manner in which he pleaded and conducted the case at first instance. Gaye and Gary urged this position on the Court and submitted that it explained the primary judge's observation that there was a paucity of evidence as to whether there were any such proceeds of sale in respect of which an order could be made. They submitted that s 89 required that the property to be designated as notional estate be specified and that Brian had been clearly directed by the primary judge to commit himself to the specific notional estate that he claimed. The primary judge had then dealt with the matter on the basis upon which it had been pleaded.
It is necessary to have regard to the manner in which the matter proceeded at trial to determine whether Gaye and Gary's submission should be upheld.
Brian, in his amended summons, sought, relevantly, the following orders:
"1. Order that provision be made for [the appellant] pursuant to Section 59 of the Succession Act 2006 out of the estate and notional estate of Hazel Florence Phillips, late of 132 Gibbes Street, Rockdale in the State of New South Wales.
1A. Order pursuant to Section 79 of the Succession Act designating the property in the Schedule hereto, as notional estate of the deceased.
2. Any further or other order the Court deems fit.
3. An order for costs.
SCHEDULE
1. Property situate at 132 Gibbes Street Rockdale, being the whole of the land referred to in FI61/2/1677.
2. Property situate at 97 Cameron Street Rockdale, being the whole of the land comprised in FI 11132/245."
Gaye and Gary, in their outline of submissions filed the day before the hearing at first instance, sought that parts of the amended summons be struck out, including the words "and notional estate" in prayer 1, the whole of prayer 1A and the Schedule, as neither property was one in which either had an interest. At the commencement of the hearing, Brian sought leave to further amend the summons by inserting the words "proceeds of sale of the" properties identified in the Schedule. Counsel for Gaye and Gary objected to the amendment on the ground that an application for a notional estate order was not "a tracing exercise". Counsel also submitted that the amendment "may be futile", to which his Honour said, "[w]ell, that's his problem". Counsel replied to this as follows:
"Well, if he's prepared to limit himself to that ... I'm content to take my chances but I don't want a moving feast of potential properties ... there are no actual proceeds left that could be ..."
The following exchange then occurred (Mr Bates appeared for Gaye and Gary and Mr Galitsky for Brian):
"HIS HONOUR: ... What if I were to find - I form no view of this - adequate provision has not been made, I should make provision, I order provision be made? It's the executors who would have to find the money. If they can't, because they're distributing the property in this case to themselves without giving a notice, isn't it at their risk?
BATES: In my respectful submission, no, your Honour, because--
HIS HONOUR: Well, you just said no notional estate no case. I'm just wondering whether that is right.
BATES: Well your Honour, certainly in terms of my friend's submissions he's certainly accepted that contention.
HIS HONOUR: So under section 79 what the court can do is make a notional estate designating 'property specified in the order' as notional estate. So, Mr Galitsky, it's up to you to pin your colours to a mast and - do you want to give that some consideration?
GALITSKY: Yes.
HIS HONOUR: I suppose it's important to get this right now, isn't it, because it might alter the way in which one or both of you ask questions of witnesses, and it might alter the inquiry you say I should embark upon.
GALITSKY: Well, your Honour, I think all I can do at this stage is to take your Honour to the words of section 79.
HIS HONOUR: I know what they say. The question is what words do you want to--
GALITSKY: The words I want are precisely those I told your Honour, that the proceeds of sale are the notional estate."
Counsel for Gaye and Gary maintained his objection on the ground that "the proceeds no longer exist".
On appeal, when questioned as to why they had not informed the primary judge that the amendment was futile, as there were no proceeds of sale, Gaye and Gary explained that their position was that they had "no case yet to meet" and that they had squarely raised the issue of the notional estate in a strike out application. They submitted that parties are bound by the way that they conduct their cases and that it was not the estate's position to advise Brian how to frame his case.
Notwithstanding this stance, counsel for Gaye and Gary did not object to questions directed to ascertaining how the proceeds of sale had been expended and, in particular, the extent to which they had been used in the purchase of the Dora Creek and Noosaville properties. These questions were irrelevant if Brian was to be strictly confined to a claim that the only notional property was the proceeds of sale of the Gibbes and Cameron Street properties. Counsel for Gaye and Gary said, however, that he had already objected to the amendment to the summons and been overruled, and that he was not going to cavil with the primary judge's ruling. Counsel also submitted that Brian's questions were directed to trying to establish the factual proposition that the proceeds of sale existed and not that there was other notional property.
Gaye and Gary's submissions at trial reflected their position that the primary judge could not make an order in favour of Brian having regard to the pleaded case. In particular, during the course of oral argument, Mr Bates submitted that the proceeds of sale existed on the day of settlement of each of the properties, but that Brian had not established that those proceeds still existed, as they had to as at the date the court made any order. This was emphasised in the following exchange:
"HIS HONOUR: You say I could not make an order because although the proceeds were once held by her they are now gone completely.
BATES: My friend has not shown it. He has the onus. I don't have to show they are gone. My friend has to show they still exist.
HIS HONOUR: 'As proceeds' or some language like that?
BATES: Yes. That was why my friend was invited and given leave to amend exactly.
HIS HONOUR: Okay. Well they are your knock out points. That is where you have the onus. I will go to Mr Galitsky and see what he has to say about all the other questions."
Mr Galitsky's response was, inter alia, as follows:
"Now your Honour, getting back to my friend's submission, I really don't know what to say in answer to my friend's submission that there is no notional estate, because the section begins on the premise that property is distributed and after that you look at what happened to the distribution."
Mr Galitsky then referred to the evidence relating to Gaye's use of the proceeds of Cameron Street to purchase the Dora Creek property. The following exchange occurred:
"HIS HONOUR: So, do you say, looking at section 79, that the passage you just emphasised, which is 'on, or as a result of, a distribution'--
GALITSKY: Yes.
HIS HONOUR: --means that the section contemplates looking at money held by a person not just on settlement, to use Mr Bates' example--
GALITSKY: Yes.
HIS HONOUR: --but--
GALITSKY: --as a result of--
HIS HONOUR: --as a result of settlement, which might include what Gaye describes in the paragraph you've just taken me to?
GALITSKY: Yes. And as I've said in my submission, money is a vulnerable commodity. In normal conveyancing transactions you don't get a physical bundle of notes or a bag of coins, certainly not these days with stringent cash transaction reporting requirements. So what you're going to have is either a bank cheque or an electronic flow of funds.
Now if my friend says, well, once it's been through one process of transmogrification you lose track of it, well, what work is there for section 79 to do? Is it so easy, your Honour, to avoid the intentions of Parliament and make a monkey of section 79?
We know with [Gaye] the money was ultimately invested in a house, she had some surplus, and over at page 158 she tells you about how she could only have gone to Dora Creek if she had received the gift from Mum. That's at page 21.
HIS HONOUR: Paragraph 21.
GALITSKY: Yes, 21. And over the page at 159 she sets out the assets they now hold. The property at Dora Creek is owned in joint names with the husband. But we certainly know that it was causally linked to receiving the gift. And what [Gaye] has now is a home, some savings in the bank of about $48,000, and some assets in the form of a motor car and that sort of thing.
Now putting aside the motor car, it's tolerably clear that the things that come to be owned by her now are things she has a result of the inheritance.
Now the house that she purchased is a thing acquired as a result of the distribution. That's what she says.
Now one of course wouldn't want to attack the asset structure of a beneficiary unless one can avoid doing so. What I suggest is your Honour would look to see what other liquid fund is available in this case."
Mr Galitsky then undertook a similar analysis of what Gary had done with the proceeds of sale.
His Honour then raised questions relating to the exercise of his discretion, having regard to the "reasonable expectations that [Gary and Gaye may have] had". His Honour continued:
"Could I just say this. This is a difficult case because there's no result, on one view, that I can deliver that isn't harsh on somebody.
Either I, it's assumed, am with you on the notional estate point but say you can't get over the section 87 let's say (a) hurdle, that would leave Brian with nothing, which on one view is unfair; on the other hand, if I'm with you and I make orders which oblige Gary and Gaye to somehow find the money, which is what it all amounts to, that's pretty harsh too."
His Honour then observed, during the course of further discussion with counsel, that he had first to answer the jurisdictional question, that is, whether Hazel had made adequate provision for Brian. Depending on the answer to that question, he would then be required to determine what the appropriate provision was and then how that provision ought to be satisfied. In the course of these exchanges, the operation of s 87 and question of the reasonable expectations of the parties was discussed between his Honour and counsel.

In his oral submissions in reply, Mr Bates stated at the outset that he would not address his Honour further on "the knock out issues". He then moved to the question of adequate provision. Later in his reply, Mr Bates addressed the discretionary issues, should his submission, that Brian had not established that adequate provision had not been made, not be accepted. In doing so, he stated:
"Your Honour, first of all, although I maintained that the notional estate has not been identified, but if your Honour's against me on that, if one goes back to Hallen AsJ's approach in Gersbach's case, one has to work out what the remaining net proceeds are.
...
... it's quite futile to make any order in favour of the applicant, because basically in the circumstances realistically any order would have to be I think restricted in the circumstances to the cash reserves, and that would all just go in costs. It would be totally unfair at this stage to be expecting Gaye and her husband to be selling the house."
Submissions were also made in respect of Gary's property which were not recorded.
In oral submissions before this Court, counsel for Gaye and Gary submitted that if different notional property had been sought, he may have asked different questions of the respondents in re-examination, may have had different objections and may have raised an issue of prejudice. In this regard, counsel submitted that if the Noosaville property had been specified as the notional estate, instructions and evidence would have had to be obtained from Gary's wife, Julie, who had an independent inheritance of approximately $281,000, as to whether that money had been used to primarily purchase Noosaville. Gaye and Gary submitted that it would be a denial of procedural fairness if any order was made against Gary that impacted on Julie's rights.
Gaye and Gary submitted that Gaye's husband would be in a similar position, although he had given evidence in the proceedings, whereas Julie had not. They also referred to the Succession Act, s 84 which provides that a person's rights are extinguished to the extent that they are effected by a notional estate order. Gaye and Gary submitted that this provision indicated why, if any order was sought against jointly owned property, the party who may not have received a distribution should be joined as a party to the application.
In my opinion, the primary judge was in error in, apparently, confining his determination of Brian's claim to one based on a claim to the actual proceeds of sale of the Gibbes and Cameron Street properties. Although the pleading was dealt with ineptly, the matter was conducted on the basis that an order was being sought that extended to the properties that Gaye and Gary had purchased with the proceeds of sale of those two properties. Evidence was led and there was cross-examination in respect of those purchases. There were submissions by Brian on the basis that a notional estate order could be made in respect of either or both the Dora Creek or Noosaville properties. His Honour raised questions during the course of oral address based on that possibility. More importantly, counsel for Gaye and Gary acknowledged in his oral submissions before the primary judge that his contention that Brian should be confined to the order sought, may not be accepted.
In these circumstances, this is a not a case where the principles in Coulton v Holcombe [1986] HCA 33; 162 CLR 1 are engaged. There has been no relevant unfairness or prejudice, in my opinion, to Gaye and Gary, in permitting Brian's claim to extend to the Dora Creek or Noosaville property or to other property held by the respondents.

Should a notional estate order be made?

That then leads to the question whether a notional estate order ought to have been made. The primary judge dealt with that question at [151] ff, concluding that he would, in any event, have refused to make a notional estate order, having regard to the matters specified in s 87.
The primary judge proceeded to examine the factual circumstances following Hazel's death and the distribution of the estate. His Honour found, at [185], that "from and after ... 10 June 2010 ... Brian was aware of the manner in which Hazel had chosen to distribute her Estate". His Honour found that when Brian received the interim distribution on 27 July 2010:
"... he knew of the distribution of the real estate to his siblings and, in the case of the Cameron Street Property, knew that [Gaye] had put the property on the market for sale."
The primary judge observed, at [186], that "[a]t around this time, Brian also became conscious of the need to get legal advice about his situation". Nonetheless, Brian did not do anything until 29 October 2010, at which point Gaye had committed to selling Cameron Street and to the purchase of the Dora Creek property. His Honour considered, at [187], that:
".. at the time [Gaye] (together with her husband) contracted to purchase the Dora Creek Property on 22 October 2010, she had an entitlement to have, and in fact had, a 'reasonable expectation' that she was free to deal with her legacy."
His Honour recognised, at [189], that Brian was entitled to make a claim for provision up until April 2011: s 58(2) of the Succession Act. His Honour found, however, at [190], that
"... the accumulation of the events comprising the 10 June 2010 meeting, Brian's repeated enquiries thereafter as to when he would 'get my money' and his acceptance, without demur, of the interim, and then the final distribution of the Residue, entitled Gaye to believe that she was free to deal with the proceeds as she wished."
The primary judge also found that making the order would cause a substantial injustice. His Honour identified that Gaye's assets, held jointly with her husband, comprised the Dora Creek Property and $47,815 in a savings account. His Honour noted that Gaye was not working and received a carer's pension, and that her husband was on a disability pension. His Honour considered that were a notional estate order to be made, "Gaye would have to either utilise the only savings that she and [her husband] have, and/or sell the Dora Creek Property". His Honour concluded, at [194], with respect to Gaye that:
"... it would work a substantial injustice to Gaye were that to happen and would interfere with her 'reasonable expectations in relation to property' comprised by her understanding that she was free to deal with her legacy, including to purchase a home for herself and her husband."
The primary judge described Gary's position, at [196], as "not quite as difficult as Gaye's". His Honour found, at [197], that:
"... by the time Gary received the proceeds of sale of the Gibbes Street Property, and, with Julie, decided to sell the Beverly Hills Property, he knew that Brian had commenced these proceedings. Thus, in a sense, he took the risk that Brian's application for provision might be successful. The injustice of his situation, and his 'reasonable expectations' must be considered in that light."
His Honour noted, at [198], that if an order was to be made:
"... the practical result would be that, in view of Gaye's financial position, Gary would, in all probability, have to bear the burden of any such order."
His Honour stated, at [199], that he did not think it would be just to make a notional estate order in those circumstances.
The question as to what constitutes "reasonable expectations" for the purpose of the Family Provision Act 1982, s 27(1)(a) was considered by Ward J (as her Honour then was) in John v John [2010] NSWSC 937, where her Honour stated:
"117 Section 27(1)(a) of the Family Provision Act requires the court, before making an order in relation to notional estate, to consider (among other things) the importance of not interfering with reasonable expectations in relation to property.
118 What amounts to 'reasonable expectations in relation to property' was considered in Petschelt v Petschelt [2002] NSWSC 706, at [68], by McLaughlin M (as the Associate Justice then was), who said:
That phrase does not, however, indicate the person by whom those reasonable expectations are held. Clearly the Court must consider the reasonable expectations of the First Defendant in relation to property. By the same token, however, the Court should also consider the reasonable expectations of the Deceased herself in relation to property, and also, possibly, the reasonable expectations of the Plaintiff. (my emphasis)"
There is also a line of authority indicating that executors who have distributed property to themselves prior to the period in which any claim upon the estate might be made by an eligible person ought to be required to restore the monies to the estate: see Ernst v Mowbray [2004] NSWSC 1140 per Young CJ in Eq, especially at [64].
Although his Honour found that it would work a substantial injustice to Gaye and would interfere with her "reasonable expectations in relation to property": see s 87, that finding has to be made in the context that Gaye, as one of the executors of Hazel's estate, saw fit to distribute the estate, including to herself, within the time an application may be made under the Succession Act for an order for family provision. In my opinion, that is relevant to determining the importance of not interfering with her reasonable expectations of being able to use the proceeds of the sale of the Cameron Street property without regard to any potential claim by Brian. It is also relevant to the consideration of the substantial justice and merits in either making or not making a notional estate order. In this regard, the evidence established that prior to Hazel's death, Gaye was cognisant that Brian may be dissatisfied with the provision that had been made for him, and that at the time of Hazel's death, there was a possibility that he would contest the will.
Insofar as Gary is concerned, as the primary judge recognised, he proceeded to deal with the Gibbes Street property and its proceeds in full knowledge that Brian had made a claim for provision from the estate. It appears that his Honour did not make a finding that Gary's "reasonable expectations" were interfered with. However, his Honour observed, at [198], that the notional estate order would, in all probability, fall on Gary.
In my opinion, his Honour erred in refusing to make a notional estate order. There is a question, however, as to what property ought to be designated as notional estate and whether the Court should order, pursuant to the Succession Act, s 99 that the costs of these proceedings be paid out of the notional estate.
At the conclusion of the hearing on the appeal, the question arose as to whether the Court should proceed to make a notional estate order at the time of giving its judgment. As it is possible that Gaye and Gary may advance differing arguments in respect of the property that should be designated as notional estate for the purposes of satisfying the order to be made in favour of Brian, the Court should accede to that suggestion. The parties ought also to have an opportunity to make submissions as to the costs of the trial and of the appeal.
Accordingly, I would propose the following orders:
(1) Appeal allowed;
(2) Set aside the orders made by Stevenson J at first instance;
(3) Order that further provision be made in favour of Brian in the sum of $100,000 out of property to be designated as notional estate;
(4) Reserve the question of what property is to be designated as notional estate for the purposes of Order 3;
(5) Direct the respondents, Gaye James and Gary Phillips, to file written submissions by 25 February 2014 in respect of the property to be designated as notional estate and in respect of costs of the trial and the appeal;
(6) Direct the appellant Brian Phillips to file any submissions by 11 March 2014 in respect of the property to be designated as notional estate and in respect of the costs of the trial and the appeal;
(7) Direct that the questions of the property to be designated as notional estate and of the costs of the trial and the appeal be determined on the papers.
BASTEN JA: Courts have long struggled with applications by disappointed family members seeking a redistribution of a testator's estate. The present statutory regime requires a court considering whether to make a "family provision order in relation to the estate of a deceased person" to consider whether "adequate provision" for the "proper" maintenance, education or advancement in life of the applicant has not been made: Succession Act 2006 (NSW), s 59(1). If so satisfied, the court is empowered to make such order as it thinks "ought to be made": s 59(2).
As discussed by Allsop P in Andrew v Andrew [2012] NSWCA 308; 81 NSWLR 656 at [16], one can say little more as to the standards and values to be applied than that the court should be guided by its perception of "prevailing community standards of what is right and appropriate". Views will undoubtedly vary within the community as to the weight to be given to a testator's wishes as expressed in the will: Andrew v Andrew at [35]. However, there is probably a reasonable level of acceptance for the view that, other things being equal, siblings should be treated broadly equally. Unfortunately, other things rarely are equal. One sibling may have shown devotion and care to the testator over a long period; another may have had minimal contact of any kind during his or her adult life. One sibling may have acted responsibly in relation to his or her own family, another as a wastrel.
The latter example highlights a particular difficulty: the responsible sibling (who may have been favoured by the testator) may be better off than the other and less in need than the other who has made nothing of whatever opportunities were available. One approach in the latter case is to say that the wastrel should not expect more, despite being in greater need, than a proportionate share of the estate. In relation to the former case, involving the inattentive or distant sibling, a less than equal share may be thought appropriate. Both these stereotypical examples arise in the present case, the facts of which are fully explained by Beazley P. The applicant was less attentive to his parents' needs, especially in their later years, than his siblings. He also failed to establish himself in life: unlike the respondents, he owned no house. Thus, despite his greater need, he should not be entitled to (nor did he seek) more than one-third of the estate. Because of his distance from the family, he could not have complained if he had received a lesser share. He was, indeed, not cut out of his mother's will; he obtained the not insignificant sum of almost $180,000, being the value of the residuary estate.
The properties left to each of the respondents were roughly equal in value. Neither wanted to keep the property distributed in kind, but immediately realised the cash value. The sister sold her property for $695,000; her brother obtained $710,000. They thus enjoyed 44% each of the estate, leaving the applicant with 11.4%.
The applicant's claim, based on his relationship with his family, could reasonably have been valued at half that of each of his siblings: thus, if he had been left a share of $300,000, the respondents' share of the estate ($640,000 each) would have been 40.5% each and the applicant's share 19%. This result would have been fair and equitable from his perspective: would it have been fair and equitable from that of the respondents?
The answer to this question must be yes, and is reflected in the reasoning of the trial judge. The applicant's sister's family had benefited from her daughter living in the house she inherited, rent-free, prior to the death of the testator and thus at an expense of approximately $80,000, as notional income lost to the estate.
The applicant's brother had benefited by the expenditure of some $30,000 on renovations on the property, which no doubt improved its value, at the expense of the residuary estate. Accordingly, as the trial judge accepted, the respondents benefited and the residuary estate was diminished in a manner which the testator would not necessarily have anticipated when writing her will. An adjustment of $110,000 in favour of the applicant would therefore have been an appropriate outcome; however, the trial judge expressed a tentative view that additional provision of $100,000 would have been appropriate, a figure from which this Court was not invited to depart and which should be accepted.
It may be inferred that when the applicant's sister contracted to purchase her current home in Dora Creek, four days after settling the sale of the Cameron Street property which she had inherited, she intended to pay for the purchase out of the proceeds of the sale. The sale price ($695,000) comfortably exceeded the purchase price ($565,000), the difference being $130,000. Seven days after exchange of the contract to purchase Dora Creek (and well before settlement) the applicant's sister had notice of his claim.
The applicant's brother sold the property he had inherited by a contract entered into a fortnight after he received notice of the applicant's claim. At the time of trial he held a significant sum, equivalent to the sale price, in term deposits.
In these circumstances, neither respondent had any reasonable basis for resisting an adjustment of the order proposed above in favour of the applicant. Accordingly the trial judge should have ordered payment to the applicant of a sum of $100,000 to be borne equally from the proceeds of sale of the two properties in the estate. If either respondent had invested the proceeds beyond ready recall with notice of the applicant's claim, they should nevertheless bear the burden of meeting the proposed order. However, the estate having been distributed, a notional estate order must be made.
So far as the respondents resisted such an order on the basis of a lack of particularity in the pleading, the objections should be dismissed for the reasons explained by the President. The matter is therefore within the discretion of the Court.
The Court must not make a "notional estate order", the whole of the estate having been distributed, unless it has considered "the importance of not interfering with reasonable expectations in relation to property": s 87(a). The predecessor to s 87(a) was s 27(1)(a) of the Family Provision Act 1982 (NSW). In considering the operation of that provision, Master McLoughlin stated in Petschelt v Petschelt [2002] NSWSC 706 at [68]:
"That phrase does not, however, indicate the person by whom those reasonable expectations are held. Clearly the Court must consider the reasonable expectations of the First Defendant in relation to property. By the same token, however, the Court should also consider the reasonable expectations of the Deceased herself in relation to property, and also, possibly, the reasonable expectations of the Plaintiff."
In Petschelt, the first defendant was the former husband of the deceased who took the family home, held in joint tenancy, by survivorship. After the death of his former wife, he sold the property and bought a new property jointly with the second defendant. The plaintiff was the child of the deceased and the first defendant.
While it remains true that the section (which has not changed from the 1982 Act) is silent as to whose "reasonable expectations" must be considered, the requirement is a constraint on the making of a notional estate order. It is not sensibly construed as referring to the reasonable expectations of the applicant who wants a share of, but does not own, the property. Nor does it sensibly refer to the expectations of the deceased person, because the court must already have determined that an adjustment in the distribution effected by the will was appropriate: s 89(2). Since a notional estate order will only be made in relation to property which never was, or no longer is, part of the estate, it is unlikely to refer to the expectations of any person other than the person who is the present holder of an interest in the property. To the extent that it held otherwise, the reasoning in Petschelt should not be followed.

Provision should be made by way of a legacy of $100,000. The Court should designate appropriate property held by the applicant's brother as notional estate of the late Hazel Florence Phillips and order that the applicant receive out of it a legacy of $50,000. The notional estate could be either real or personal property held by him (whether jointly with his wife or otherwise).
A similar order should be made with respect to the applicant's sister. If she does not have other assets from which the payment can be made, it would be appropriate that the property at Dora Creek be designated notional estate of the deceased. (The evidence did not reveal how the excess of the proceeds of sale of the inherited property had been expended, though no doubt some went to payment of stamp duty and other expenses of the purchase.)
The respondents sought an opportunity to identify appropriate notional estate to bear the burden of any order made by the Court, in the event that the appeal was upheld. They also sought an opportunity to make submissions on costs. In the absence of particular considerations not presently known to the Court, the respondents would be expected to pay the applicant's costs of the trial and the appeal. They would be entitled to seek a certificate under the Suitors' Fund Act 1951 (NSW) with respect to the costs of the appeal.
In accordance with the basis on which the matter was left on the hearing of the appeal, they should be given an opportunity to make submissions with respect to the final orders. The Court should now make orders allowing the appeal and setting aside the orders made by the trial judge. The Court should give directions in the form proposed by the President.
MEAGHER JA: I agree that the orders and directions proposed by Beazley P should be made and, subject to one matter, I agree with the reasons that her Honour gives for the making of those orders and directions.
In my view, for the reasons given by Basten JA (at [119] to [121]), the burden of a further provision in favour of Brian of $100,000 should be borne equally by Gaye and Gary and accordingly out of property of each designated for that purpose as notional estate. However, I accept that the respondents should be given the opportunity to further address that question having regard to the request which was made by their counsel, and acceded to, that they have a further opportunity to make additional submissions concerning proposed order 5 in the notice of appeal (Tcpt 16/09/13, pp 66-67). That order addresses the property which should be designated as notional estate and does so in a way which leaves open the question whether the provision should be satisfied out of property of one or both of the respondents. One of the reasons underlying counsel's request for that opportunity was that the interests of the respondents are not likely to be the same in relation to the answer which may be given to that question.
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Amendments

12 Aug 2014 typographical errors amended Paragraphs: 15, 28, 42, 100, 112, 114, 117, 128

Case Title:	Phillips v James
Medium Neutral Citation:	[2014] NSWCA 4
Hearing Date(s):	16 September 2013
Decision Date:	06 February 2014
Before:	Beazley P at [1]; Basten JA at [112]; Meagher JA at [130]
Decision:	(1) Appeal allowed; (2) Set aside the orders made by Stevenson J at first instance; (3) Order that further provision be made in favour of Brian in the sum of $100,000 out of property to be designated as notional estate; (4) Reserve the question of what property is to be designated as notional estate for the purposes of Order 3; (5) Direct the respondents, Gaye James and Gary Phillips, to file written submissions by 25 February 2014 in respect of the property to be designated as notional estate and in respect of costs of the trial and the appeal; (6) Direct the appellant Brian Phillips to file any submissions by 11 March 2014 in respect of the property to be designated as notional estate and in respect of the costs of the trial and the appeal; (7) Direct that the questions of the property to be designated as notional estate and of the costs of the trial and the appeal be determined on the papers. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	SUCCESSION - family provision and maintenance - whether the allocation of the residue of the estate to the applicant was a failure by testator to make sufficient provision - diminishment of the residue by decisions benefiting the respondents. SUCCESSION - family provision and maintenance - distribution of estate - whether an order for property to be designated as notional estate can be made regardless of whether that property is property into which the distributed asset can be traced - whether a notional estate order ought not be made on discretionary grounds - relevance of the executors distributing the estate, including to themselves, within the time in which an application may be made for an order for family provision to matters the Court is required to consider pursuant to the Succession Act 2006, s 87.
Legislation Cited:	Family Provision Act 1982 (NSW), s 27 Succession Act 2006 (NSW), ss 59, 60, 79, 87, 89
Cases Cited:	Andrew v Andrew [2012] NSWCA 308; 81 NSWLR 656 Charnock v Handley [2011] NSWSC 1408 Coulton v Holcombe [1986] HCA 33; 162 CLR 1 Durham v Durham [2011] NSWCA 62; 80 NSWLR 335 Ernst v Mowbray [2004] NSWSC 1140 Gersbach v Blake [2011] NSWSC 368 Golosky v Golosky (Court of Appeal (NSW) 10 October 1993, unreported) Goodman v Windeyer [1980] HCA 31; 144 CLR 490 House v R [1936] HCA 40; 55 CLR 499 Keep v Bourke [2012] NSWCA 64 Petschelt v Petschelt [2002] NSWSC 706 Richardson v Rearden [2006] NSWSC 1252 Sammut v Kleemann [2012] NSWSC 1030 Singer v Berghouse [1994] HCA 40; 181 CLR 201 Vigolo v Bostin [2005] HCA 11; 221 CLR 191 White v Barron [1980] HCA 14; 144 CLR 431
Category:	Principal judgment
Parties:	Brian Phillips (Appellant) Gaye James (First Respondent) Gary Phillips (Second Respondent)
Representation
- Counsel:	Counsel: L Ellison SC; D Liebhold (Appellant) P W Bates (Respondents)
- Solicitors:	Solicitors: D Stanefska & Associates (Appellant) Needs Chan & Monahan (Respondents)
File Number(s):	CA 2012/223379
Decision Under Appeal
- Court / Tribunal:	Supreme Court
- Before:	Stevenson J
- Date of Decision:	22 June 2012
- Citation:	Phillips v James [2012] NSWSC 688
- Court File Number(s):	2010/420872