Phillips v James
[2012] NSWSC 688
•22 June 2012
Supreme Court
New South Wales
Medium Neutral Citation: Phillips v James [2012] NSWSC 688 Hearing dates: 15 May &16 May, 13 June 2012 Decision date: 22 June 2012 Jurisdiction: Equity Division Before: Stevenson J Decision: Claim for family provision refused
Catchwords: SUCCESSION - family provision - application by adult son - application made after estate distributed - whether applicant consented in writing to distribution - notional estate - reasonable expectations as to property - justice and merits of making order for provision Legislation Cited: Succession Act 2006 Cases Cited: Cabban v Cabban [2010] NSWSC 1433
Foley v Ellis [2008] NSWCA 288
Gersbach v Blake [2011] NSWSC 368
Gorton v Parks (1989) 17 NSWLR 1
Lajcarova v Todorov [2011] NSWSC 522
McKenzie v Topp [2004] VSC 90
Singer v Berghouse (No 2) (1994) 181 CLR 201
The Pontifical Society for the Propagation of the Faith v Scales (1962) 107 CLR 9Category: Principal judgment Parties: Brian Phillips (plaintiff)
Gaye James (first defendant)
Gary Phillips (second defendant)Representation: Counsel:
S Galitsky (plaintiff)
P W Bates (defendants)
Solicitors:
D Stanefska & Associates (plaintiff)
Needs Chan & Monahan (defendants)
File Number(s): SC 2010/420872
Judgment
Introduction
This is an application by an adult son for family provision from the estate of his late mother.
As the whole of the estate has been distributed, provision can only be made from the deceased's notional estate.
Background
The proceedings concern the estate of the late Hazel Florence Phillips.
For convenience, and without intending any disrespect, I shall refer to the persons involved in these proceedings by their given names.
The deceased ("Hazel") died in April 2010. She was 89 years of age.
Hazel was the widow of Edgar John Phillips ("Edgar") who died in July 2006.
Hazel and Edgar had three children: -
(a) the plaintiff, Brian Phillips ("Brian") who is now aged 62;
(b) the first defendant, Gaye James ("Gaye") who is now aged 60; and
(c) the second defendant, Gary Phillips ("Gary") who is now aged 66.
Hazel left a will dated 4 February 2003 ("the Will"). Hazel appointed Gaye and Gary as her executors.
Pursuant to the Will Hazel left: -
(a) her property at Gibbes Street, Rockdale ("the Gibbes Street Property") to Gary;
(b) her property at Cameron Street, Rockdale ("the Cameron Street Property") to Gaye; and
(c) the residue of her estate ("the Residue") to Brian (together "the Estate").
The Will was admitted to probate on 17 June 2010.
By 20 September 2010, all but $2,280.66 of the Estate had been distributed.
As to the Gibbes Street Property and the Cameron Street Property, Transmission Applications were lodged with Land and Property Information on 9 July 2010. As a result, Gary became the registered proprietor of the Gibbes Street Property and Gaye became the registered proprietor of the Cameron Street Property as at that date.
The Residue (comprising cash totalling $164,603.97) was distributed to Brian. as to $150,000 on 27 July 2010 as an "interim distribution", and as to $14,603.97 on 21 September 2010 as a "final distribution".
Apart from the $2,280.66 referred to above, which will be consumed by costs, nothing remains in the Estate.
Not only has the Estate been distributed, but Gary and Gaye have now sold the Gibbes Street Property and Cameron Street Property, and used the proceeds of sale to purchase other properties.
As to Gary: -
(a) on 30 October 2010 he entered into a contract to sell the Gibbes Street Property for $702,000 ("the 30 October 2010 Contract");
(b) the purchaser was unable to fund the deposit, and on 16 November 2010 Gary entered into a further contract to sell the property for $670,000 ("the 16 November 2010 Contract");
(c) the purchaser under the 30 October 2010 Contract later paid Gary $40,000 by way of compensation:
(d) completion of the 16 November 2010 Contract took place on 18 January 2011;
(e) Gary and his wife, Julie, then sold their jointly owned home in Beverley Hills ("the Beverly Hills Property") for $765,000, completion taking place on 18 March 2011;
(f) by contract dated 7 February 2011 Gary and Julie jointly purchased a property at Noosaville, Queensland ("the Noosaville Property"), for $830,000. Gary and Julie used part of the proceeds of the Gibbes Street Property to purchase the Noosaville Property, and moved to Noosaville in March 2011;
(g) Gary and Julie now also hold some $664,000 on term deposits with Westpac Banking Corporation; I infer that some part of the proceeds of sale of the Gibbes Street Property is represented in those term deposits.
As to Gaye: -
(a) on 7 August 2010 she entered into a contract to sell the Cameron Street Property for $695,000;
(b) completion of the contract took place on 18 October 2010;
(c) On 22 October 2010, Gaye, and her husband Dennis, who were then living in rented accommodation, exchanged contracts to purchase a property at Dora Creek for $565,000 ("the Dora Creek Property"). Gaye and Dennis used the whole net proceeds of sale of the Cameron Street Property to purchase the Dora Creek Property.
By Summons filed on 20 December 2010, Brian seeks an order for family provision pursuant to s 59 of the Succession Act 2006 ("the Act").
There is no dispute that, as Hazel's son, Brian is an "eligible person" to make such an application: see s 57(1)(c) of the Act.
Brian first notified Gaye and Gary, as executors of Hazel's estate, of his intention to make application for provision by his solicitor's letter of 29 October 2010.
Gary and Gaye did not become aware of that letter until the following Monday, 1 November 2010.
By 1 November 2010: -
(a) Gaye had sold the Cameron Street Property and, with Dennis, exchanged contracts to purchase the Dora Creek Property;
(b) Gary had contracted to sell the Gibbes Street Property, although, as we have seen, that contract did not proceed.
By the time Brian filed the Summons in December 2010, Gary had exchanged contracts to sell the Gibbes Street Property to its ultimate purchaser.
As the Estate has been distributed, Brian can only recover provision if he can establish a basis for the Court to make a notional estate order.
He seeks to do so under s 79 of the Act, to which I will return below.
The notional estate order Brian seeks, pursuant to s 79, is one designating the "proceeds of sale" of the Gibbes Street Property and the Cameron Street Property as notional estate.
Gary and Gaye, as executors, did not give a notice pursuant to s 93 of the Act of their intention to distribute the estate, although, as we will see, it is clear that Brian was aware that the estate was being distributed (including to him).
Issues
In these circumstances the following issues arise in the proceedings: -
(a) is Brian's claim defeated by reason of him having consented in writing to the distribution of the estate within the meaning of s 94(3) of the Act;
(b) if not, has adequate provision not been made for Brian within the meaning of s 59(c) of the Act;
(c) if so, what provision should be made for Brian (bearing in mind that provision can only be made out of Hazel's notional estate);
(d) can an order be made under s 79 of the Act in respect of the "proceeds of sale" of the Gibbes Street Property and the Cameron Street Property, bearing in mind that these proceeds have, in whole or in part, now been utilised by Gary and Gaye to purchase the Noosaville Property and the Dora Creek property; and
(e) should a notional estate order be denied by reason of the matters set out in subsections 87(a) and (b) of the Act, namely the "importance of not interfering with reasonable expectations in relation to property" and "the substantial justice and merits involved in making or refusing to make an order".
Subsection 94(3) of the Act
Subsection 94(3) is in the following terms: -
"No person who may have made or may be entitled to make an application under this Chapter is entitled to bring an action against the legal representative of the estate of a deceased person because the legal representative has distributed any part of the estate if the distribution was properly made by the legal representative after the person (being of full legal capacity) has notified the legal representative in writing that the person either:
(a) consents to the distribution, or
(b) does not intend to make any application under this Chapter that would affect the proposed distribution."
Gary and Gaye submit that Brian has consented "to the distribution" in writing because he has signed two documents, both called "Statement and Receipt of Beneficiary" dated 27 July 2010 and 21 September 2010.
In the 27 July 2010 document, Brian stated: -
"I acknowledge receipt of $150,000 on account of an interim distribution of the Estate."
In the 21 September 2010 document, Brian stated: -
"I acknowledge receipt of $14,603.97 on account of the final distribution of the Estate."
Subsection 94(3) is concerned with persons who "may have made or may be entitled to make" an application under Chapter 3 of the Act; that is a claim for provision under s 59 of the Act.
Further, the subsection is concerned with eligible persons who, but for the written notification of consent referred to, are entitled to bring an action against the legal representative of the estate "because the legal representative has distributed any part of the estate".
The subsection provides, relevantly to this case, that no such action can be brought if the legal representative has made the relevant distribution after the eligible person has consented in writing to "the distribution"; that is to the distribution which, otherwise, would have given rise to the eligible person's entitlement to bring action against the legal representatives.
I doubt that Brian's signature on the documents of 27 July 2010 and 21 September 2010 represented his consent to anything; rather he simply acknowledged receipt of the "interim" and "final" distribution of the residue to him.
At most, Brian's signature on those documents notified his consent to the distribution of the Residue to him.
Brian does not seek to challenge the distribution made by Gary and Gaye of the Residue to him.
Rather, in effect, Brian seeks to challenge the distribution Gary and Gaye have made of the Cameron Street Property and Gibbes Street Property to themselves.
In my opinion, on no view of the documents of 27 July 2010 and 21 September 2010, do they represent Brian's consent in writing to that distribution.
Further, Gaye and Gary, as executors, distributed the Cameron Street Property and the Gibbes Street Property to themselves on 9 July 2010; that is before Brian signed the Documents. Thus, any consent Brian gave was after that distribution.
For those reasons, my opinion is that neither Brian's signature on the Documents, nor the provisions of subsection 94(3), provide an answer to his claim.
Adequacy of provision
Any order for provision for Brian can only be out of Hazel's notional estate.
By reason of s 88(b) of the Act, the Court must not make a notional estate order unless satisfied that: -
"The deceased person's estate is insufficient for the making of the family provision order, or any order as to costs, that the court is of the opinion should be made".
Thus, before making a notional estate order, I must come to a conclusion as to what, if any, order for family provision should be made.
The relevant principles
This enquiry concerns the "first stage" of the two stage test set out in Singer v Berghouse (No 2) (1994) 181 CLR 201.
This first stage is a question of fact, namely whether Hazel has made adequate provision for Brian's proper maintenance, education and advancement in life.
The aim of the first stage is to assess whether the Court can make an order for provision.
As Hallen AsJ said in Lajcarova v Todorov [2011] NSWSC 522: -
"Unless the court comes to the conclusion that inadequate provision has been made, it is not empowered to make an award. This is commonly referred to as "the jurisdictional question". At this stage, the court will consider whether it can make an order for provision for the maintenance, education and advancement in life of a particular applicant." (at [79]; emphasis in original)
This requires a finding of fact, which Basten JA has described as "multi-faceted evaluative judgment" (Foley v Ellis [2008] NSWCA 288 at [3]). Such judgment is to be made having regard to the facts as at the date on which the Court is considering the application: s 59(1)(c) of the Act.
The guiding principles were recently summarised by Hallen AsJ in Gersbach v Blake [2011] NSWSC 368 at [94-96] as follows: -
(a) it is not appropriate to endeavour to achieve a "fair" disposition of the deceased's estate;
(b) it is not part of the court's role to achieve some kind of equity between the various claimants;
(c) the court's role is not to reward an applicant, or to distribute the deceased's estate according to notions of fairness or equity;
(d) rather, the court's role is of a specific type and goes no further than a making of "adequate" provision in all the circumstances for the "proper" maintenance, education and advancement in life of an applicant (see also Bryson J in Gorton v Parks (1989) 17 NSWLR 1 at 6);
(e) the court's discretion is untrammelled, or to be exercised according to idiosyncratic notions of what is thought to be fair, or is such a way as to transgress, unnecessarily, upon the deceased's freedom of testation (see also The Pontifical Society for the Propagation of the Faith v Scales; (1962) 107 CLR 9, per Dixon CJ at 19 and McKenzie v Topp [2004] VSC 90 at [63]; and
(f) freedom of testamentary disposition remains a prominent feature of the Australian legal system; see also Lajcarova v Todorov at [91].
In relation to a claim under the Act by an adult child, Hallen AsJ said in Gersbach v Blake at [98]: -
"(a) The relationship between parent and child changes when the child leaves home. However, a child does not cease to be a natural recipient of parental ties, affection or support, as the bonds of childhood are relaxed.
(b) It is impossible to describe in terms of universal application, the moral obligation, or community expectation, of a parent in respect of an adult child. It can be said that, ordinarily, the community expects parents to raise, and educate, their children to the very best of their ability while they remain children; probably to assist them with a tertiary education, where that is feasible; where funds allow, to provide them with a start in life - such as a deposit on a home, although it might well take a different form. The community does not expect a parent, in ordinary circumstances, to provide an unencumbered house, or to set their children up in a position where they can acquire a house unencumbered, although in a particular case, where assets permit and the relationship between the parties is such as to justify it, there might be such an obligation [McGrath v Eves [2005] NSWSC 1006; Taylor v Farrugia [2009] NSWSC 801].
(c) Generally, also, the community does not expect a parent to look after his, or her, child for the rest of the child's life and into retirement, especially when there is someone else, such a spouse, who has a prime obligation to do so. Plainly, if an adult child remains a dependent of a parent, the community usually expects the parent to make provision to fulfil that ongoing dependency after death. But where a child, even an adult child, falls on hard times and where there are assets available, then the community may expect a parent to provide a buffer against contingencies; and where a child has been unable to accumulate superannuation or make other provision for their retirement, something to assist in retirement where otherwise they would be left destitute: Taylor v Farrugia .
(d) There is no the need for an adult child to show some special need or some special claim: McCosker v McCosker (1957) 97 CLR 566; Kleinig v Neal (No 2) [1981] 2 NSWLR 532; Bondelmonte v Blanckensee [1989] WAR 305; and Hawkins v Prestage (1989) 1 WAR 37 per Nicholson J at 45".
The provision made
Hazel and Edgar made mutual wills. Each left all their estate to the other, and provided that the survivor would leave the Gibbes Street Property to Gary, the Cameron Street Property to Gaye and the Residue to Brian.
Edgar predeceased Hazel, and accordingly it is Hazel's will that is to be considered.
Clearly, Brian received considerably less from his parents, than did Gary and Gaye.
However, as the authorities to which I have referred make clear, that is the beginning, not the end of the enquiry and does not, itself, provide a basis upon which to find that adequate provision has not been made.
The role played by Brian, Gary and Gaye in their parents' lives
In their adult years, Gary and Gaye played a far more prominent role in their parents' lives, than did Brian. This may well explain the bequests made by Edgar and Hazel.
Gary
Gary commenced working with Edgar in Edgar's plumbing business as an apprentice as soon as he left school. Gary was conscripted into the army in 1966 and returned to work with Edgar in the plumbing business on his discharge from the army.
Gary took over the plumbing business in 1989 and carried on that business until he was obliged to retire, for reasons of ill health, in 2004. Throughout that period he was in virtual daily contact with his parents, particularly Edgar who, even after Gary purchased the plumbing business, accompanied Gary to work most days.
Gary and his wife, Julie, saw Hazel and Edgar almost every day. For about 20 years, Gary paid his parents' household bills. After Hazel's eyesight deteriorated, and she became more frail, Julie helped with most of the housework.
Gaye
In the early years, Gaye had less contact with her parents, as she lived with her husband and children in Manila, near Tamworth.
In the last decade of her parents' lives, Gaye lived with her family in Wangi Wangi, on the Central Coast and saw her parents more often. On a monthly basis she would travel to Sydney to arrange to drive her parents to stay with her family in Wangi Wangi and otherwise saw them very regulary.
Brian
On the other hand, the evidence suggests that Brian had far less contact with his family.
He was in prison for three years from 1974. Thereafter he returned to live with his parents until about 1978 and worked in the plumbing business with Edgar for several years.
Thereafter, for the most part, Brian lived away from Sydney. He lived in New Zealand between 1980 and 1984, in Queensland from 1986 to 1996 and in Orange from 2004 to 2005.
In his affidavit evidence he spoke briefly of his relationship with Hazel. He made no reference at all to his relationship with Edgar.
Provision made for Brian during his parents' life
Hazel and Edgar made provision for Brian during their lives.
In approximately 1984 Edgar and Hazel gave Brian $20,000 to purchase a cottage at Narwee.
At a later stage Edgar and Hazel gave Brian $4,000 for investment in a bamboo blinds business in Queensland, which evidently failed.
At another time, Hazel and Edgar gave Brian $7,000 to purchase a motor vehicle.
In 1987 Brian apparently defaulted on a car loan as a result of which Edgar paid out that loan in the sum of $2,962.88.
There is in evidence a note made by Edgar headed "Brian" which lists these amounts and states: -
"Monies lent spent and lost".
On 5 April 2000, Brian swore a statutory declaration in the following terms:-
"In no way do I hold my father Edgar John Phillips responsible for any debt or guarantee incurred by me and any debt or loan I have incurred during this year 2000".
Brian professed to have no recollection concerning the circumstances in which he made this statutory declaration. However, it seems probable from the fact that the declaration was found in Edgar's effects, and from its terms, that Edgar was concerned that Brian might seek to make him responsible for Brian's debts and required Brian to make the declaration to make clear that Edgar was not accepting such responsibility.
Brian agreed that his parents thought it was important that people work and save money.
Mr Bates, who appeared for Gary and Gaye, submitted that a wise parent was entitled to take into account ingrained personality characteristics of a child, such as an inability to effectively manage finances, when disposing of their estate by their wills.
It seems likely that the provision that both Edgar and Hazel made for Brian in their wills reflected their view that Brian had not proved to be an effective manager of his money and that, for this reason (and perhaps amongst other reasons) Gary and Gaye were more worthy objects of their bounty.
If this was the only factor at play in this case, the principles outlined above compel the conclusion that this, without more, would not provide a basis for the Court to intervene.
The use made by Brian of his legacy
Within a week of receiving the "interim distribution" of $150,000, Brian gave $25,000 from that distribution to each of his two sons; that is a total of $50,000, or one third of the interim distribution.
Brian said that this was because one of his sons was in financial difficulty and "because I loved my sons".
One of Brian's sons, Zechariah Phillips ("Zechariah"), gave evidence and said: -
"It was an absolute gift. He has always wanted to help me and my brother out and never had the funds. He always said if he ever got any [money] from pop he would make sure that my brother and I were looked off".
Seven months after receiving the final distribution of $14,603.97, Brian swore an affidavit stating that his savings were then $18,000.
In the meantime, Brian had also repaid to St George Bank approximately $30,000 for borrowings which were partly in respect of necessary surgery, and partly in relation to Brian's travel to New Zealand for his son's wedding.
Brian spent the balance, approximately $66,000, between September 2010 and April 2011.
This represents expenditure in the order of $2,200 a week, compared to the weekly expenses deposed to by Brain in his affidavit of 27 April 2011 of something in the order of $1,080.
In cross-examination, Brian was not able to give an adequate explanation for the discrepancy. Mr Bates put to Brian, and submitted that I should find, that the difference can be explained by Brian's gambling activities. Brain denied this, and I am not able to reach any conclusion about that matter. However, what is clear is that Brian has somehow dissipated the funds to this extent, otherwise than in relation to the weekly expenses to which he deposed.
Thus Brian gave almost one third of his legacy to his sons, and has spent a further two fifths of the legacy in a manner he could not explain, and otherwise than in respect of his stated weekly expenses.
Assuming that Brian's evidence as to his weekly financial needs is accurate, this evidence suggests that Brian did not have an immediate need for approximately seventy per cent of his legacy which, to use Edgar's words, has been "spent and lost".
Brian's financial position
As at April 2011, Brian was living in rental accommodation with his de facto partner.
He has not enjoyed good health. He has had throat cancer and, in July 2010 had chemotherapy, and then radiation therapy for that condition.
Brian's cancer is now in remission.
Brian's partner is on sickness benefits and cannot work at the moment.
In or around early March 2012, Brian resumed employment, and is now a handyman, working on a casual basis at a hotel in Woolloomooloo.
Susceptibility of residue to diminution
Gaye and Gary knew, for many years prior to the death of their parents, that the effect of their parents' wills was to be that, eventually, Gaye would be left the Cameron Street Property, Gary would be left the Gibbes Street Property, and Brian would receive such cash as was in the residue of their parents' estates.
In around April 2006, Hazel broke her hip and moved out of the Gibbes Street Property into a nursing home. Edgar remained living at the Gibbes Street Property but died a short time later.
At around that time, Hazel appointed Gary as her attorney under power.
Prior to Hazel moving out of the Gibbes Street Property, Gaye's daughter, Kristel had, for some years, lived at the Gibbes Street Property. Kristel paid no rent but assisted her grandparents (both by then quite frail) although not as a full time carer.
After Edgar's death, Kristel remained at the Gibbes Street Property, rent-free, until September 2010. During the whole of this period, Kristel was in full time employment as a police officer (she is now a detective). Although Kristel suffered from leukaemia during some of that period, there is no suggestion in the evidence that this caused any interference with her receipt of income. Gaye said in evidence that one reason why Kristel enjoyed rent-free accommodation at the Gibbes Street Property was because "it was dad's wishes for her to stay there as long as she wanted".
Whilst Hazel was in the nursing home, Gary and Gaye caused renovations to be effected to the two flats comprised in the Cameron Street Property. This renovation cost approximately $10,000 for each flat. The funds to effect these renovations came from Hazel's bank account. Hazel also gave both Gaye and Gary a further $5,000 each on account of the work they had done in relation to the renovations.
Less extensive renovations were also effected at the Gibbes Street Property.
Further, Hazel gave each of Gary, Gaye and Brian $10,000 as a gift. Gaye and Gary received their $10,000 in cash.
As to Brian's $10,000, Gary said he had the following conversation with his mother: -
Gary: "I think Brian's share is best saved for him and you know that if he were to get his money now, he'd just waste it away very quickly. How about we put the $10,000 into the term deposit [in Hazel's name] since he is getting that cash eventually and it can earn interest and be safe".
Hazel: "Yes, that's true, put it to the term deposit for him".
Each of these matters had the effect of diminishing the residue of Hazel's estate, which was bequeathed to Brian.
Gary agreed that the market rent of the Gibbes Street Property, during Kristel's rent-free occupation of it, was in the order of $400 per week. If a commercial tenant, rather than Kristel, had occupied the Gibbes Street Property after Edgar's death, the Residue received by Brian would be correspondingly increased.
Further, had the renovations not been effected to the Cameron Street Property and the Gibbes Street Property, the amount expended (including the amounts paid to Gaye and Gary for the work they did) would have remained in the Residue and gone to Brian.
There is no suggestion in the evidence that any of the renovations were urgently required. Doubtless the two flats at the Cameron Street Property in particular were improved by the work done. The improvements may well have increased, to some extent, the value of the properties.
What is certain is that the funds expended decreased, on a dollar for dollar basis, the amount available to Brian as residual legatee.
Both Gary and Gaye were conscious that all liquid funds in Hazel's estate were bequeathed to Brian, and that money expended from Hazel's accounts, and income foregone by Hazel were, in effect, at Brian's expense.
Gary was quite candid about the matter. He gave the following evidence: -
"Q: Your attitude to Brian, I suggest, was that you weren't going to put yourself out to do him any favours, were you?
A: Not particularly
...
Q: And you weren't going to put yourself out to try and maximise what was left over for Brian, were you?
A: No.
Q: So that if it was a choice between giving Kristel rent-free accommodation or putting something aside for Brian you would ignore Brian's claim, wouldn't you?
A: Yes
...
Q: And it was fairly clear to you, sir, wasn't it, that at the end of the day Brian was going to be paid his share as residue of what was left in the bank?
A: Yes.
Q: And Brian's residue would be affected by decisions that you made about how that bank account was to be used?
A: To a certain extent, yes.
Q: Well, when you say 'to a certain extent', what do you mean by that?
A: Well, he was going to receive what he was going to receive.
Q: And what he was going to receive was to be entirely governed by what you left in that account or those accounts?
A: Yes.
Q: So it's not a matter of to a certain extent; you absolutely controlled what he was going to get out of it?
A: Yes.
Q: And it was your own decision which would control what he received?
A: Yes."
Earlier in his evidence Gary had asserted that Brian "had his fair whack of mum and dad over the years" and that "he was well looked after throughout his life".
Conclusion as to adequacy of provision
In all these circumstances, I am not able to conclude that the provision to Brian of the Residue, as opposed to a share in one or more of the Cameron Street Property or Gibbes Street Property, was itself not adequate.
In appears clear that both Edgar and Hazel decided that, in view of what had been given to Brian by them during their lives, and Brian's shortcomings as a financial manager, he should get less than his siblings. The evidence suggests that Edgar and Hazel took the view that industry and thrift should be rewarded, and that as Brian had manifested these attributes less clearly than his siblings, they should receive the bulk of the Estate.
I cannot conclude, from these matters alone, that the provision made for Brian was not adequate.
Further, the manner in which Brian has used the legacy given to him, points to the conclusion that he remains a poor financial manager, and that he did not consider he needed to preserve what was left to him to meet his stated financial commitments.
However, the bequest of the Residue to Brian was inadequate in the sense that such bequest was susceptible to erosion by reason of decisions that, in effect, Gary and Gaye made on Hazel's behalf; namely Kristel's rent-free occupation of the Gibbes Street Property, and the renovation of the Cameron Street Property and the Gibbes Street Property.
The result of those decisions was a significant diminution in the value of the Residue left to Brian.
Gary estimated that the market rent of the Gibbes Street Property during the period of Kristel's occupation of it was in the order of $1,600 per month. It follows that, for the 50 month period during which Kristel occupied the Gibbes Street Property following Edgar's death, rental foregone was in the order of 50 x $1,600 = $80,000.
If the funds spent on renovation of the Cameron Street Property and Gibbes Street Property are added, a further sum in excess of $30,000 has reduced the value of the Residue.
In those circumstances, my conclusion is that, to the extent that the value of the residual estate was adversely effected by the decision to renovate, and to allow Kristel to continue rent-free occupation of the Gibbes Street Property, the provision made in Hazel's will for Brian was not adequate.
What provision should be made?
Having concluded that, at the time that I am considering Brian's application, adequate provision has not been made by Hazel in the Will for his proper maintenance, education and advancement in life, I must now consider what order should be made for such provision.
This is the second stage of the two stage test referred to in Singer v Berghouse.
The object of the second stage involves an exercise of discretion. The Court must assess whether provision should be made in Brian's favour.
The object of the second stage is to assess whether the Court should make an order for provision. As Hallen AsJ said in Lajcarova v Todorov: -
"At the second stage, the court determines whether it should make an order, and if so, the nature of any such order, having regard to the facts known to the court at the time the order is made. The fact that the court has a discretion means that it may refuse to make an order even though the jurisdictional question has been answered in the applicant's favour." (at [84]; emphasis in original)
Section 60(2) of the Act sets out the matters to which the Court may have regard when determining whether to make a family provision order.
However, in the particular circumstances of this case, the only factor that I consider to be relevant is the extent to which Brian's residual share of the estate has been diminished by the circumstances that I have outlined above, namely Kristel's rent-free accommodation of the Gibbes Street Property, and the renovations affected to both properties.
In all the circumstances, but for the matters to which I shall refer to below, concerning the injustice of now making an order in Brian's favour out of the residual estate, I would have been inclined to make an order for provision in Brian's favour in the sum of $100,000. This sum approximates the extent to which the residual estate has been diminished by the events to which I have referred.
Can a notional estate order be made under s 79 of the Act?
Nonetheless, provision can only be made for Brian if a notional estate order is made. Brian seeks such an order under s 79 of the Act.
Section 79 of the Act is in the following terms: -
"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."
As I have mentioned, the notional estate order Brian seeks, pursuant to s 79, is one designating as notional estate, the "proceeds of sale" of the Gibbes Street and Cameron Street Properties.
The section confers upon the Court discretion to make a notional estate order "designating" property as the estate of the deceased person.
I read the word "designating" as meaning no more than "specifying" property as notional estate.
Relevantly to this case, the circumstances in which the Court can exercise that discretion is if it is satisfied that "on" a distribution of a deceased person's estate, or "as a result of" the distribution of a deceased person's estate, property "became held by a person".
The section gives the Court jurisdiction to make a notional estate order if property "became held" (not "is held") by a person "on" or "as a result of" a distribution of the deceased person's estate, even if that property is not, itself, the property that was distributed from the estate. The section thus contemplates the possibility that a notional estate order might be made in respect of property into which the distribution from the estate has been invested.
What the section calls for is a causal connection between the distribution of property from a deceased person's estate, and "property" (whether that be property from the deceased person's estate or not) "becoming" held (at the date the order is made) by a person (and whether or not that "person" was the person to whom the property from the estate was distributed).
There is, in my opinion, jurisdiction to make an order under s 79 notwithstanding the fact that the proceeds of the distribution of the estate in question have been reinvested. The Court has made a notional estate order in such circumstances: Cabban v Cabban [2010] NSWSC 1433 per Macready AsJ (where a legatee of a property sold that property and reinvested its proceeds in another property).
No doubt the remoteness of the current "holding" of the person in question from the estate distribution would have a bearing on the inclination of the Court to exercise its discretion to make an order under s 79.
In that regard, the Act provides safeguards to persons who have dealt with the proceeds of the distribution.
A safeguard relevant to the circumstances of this case is to be found in s 87, which I shall consider below.
Mr Bates submitted that, on the proper construction of s 79, property cannot be designated as notional estate under the section unless that property still exists.
Thus Mr Bates submitted that in order for a notional estate order to be made under s 79 concerning the "proceeds of sale" of the Gibbes Street Property and the Cameron Street Property, "there must currently exist net proceeds of sale".
Mr Bates further submitted that "it is not a tracing exercise" and that the onus was on Brian "to satisfy the Court that there is any current net proceeds of either sale of the former estate properties that still exists, and the quantum".
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.
I accept that submission.
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: at [25].
But that is not the order sought on Brian's behalf.
And even if such an order had been sought, it would have been necessary to consider how the proceeds of sale of the Gibbes Street and Cameron Street Properties were used.
With the proceeds of sale of the Cameron Street Property, it is easy to see that the whole of those proceeds were applied to purchase the Dora Creek Property. Gaye and Dennis exchanged contracts to purchase the Dora Creek Property four days after the sale of the Cameron Street Property was completed. The purchase price of the Dora Creek Property was $130,000 less than sale price of the Cameron Street Property. It appears clear that the Dora Creek Property purchase was funded entirely by the proceeds of sale from the Cameron Street Property.
The position is less clear with the proceeds of sale of the Gibbes Street Property. The purchase by Gary and Julie of the Noosaville Property was funded by a combination of the proceeds of sale of Gibbes Street Property, and of the Beverly Hills Property. The total proceeds of sale of those properties exceeded, by a considerable margin, the purchase price of the Noosaville Property. Presumably, some part of the proceeds of the Gibbes Street Property was used by Gary and Julie to fund the purchase of the Noosaville Property. The surplus is, presumably, represented by the Westpac term deposits referred to above at [16(g)]. But there is no evidence before me as to whether it was the proceeds of the Gibbes Street Property, or of the Beverly Hills Property, that were used to provide the bulk of the Noosaville Property purchase price, nor as to what proceeds now comprise the bulk of the Westpac term deposits.
So far as concerns the proceeds of sale of the Gibbes Street Property, any notional estate is some unidentified part of the Noosaville Property and some, also unidentified, part of the Westpac term deposits.
That paucity of evidence, alone, provides a further basis to refuse making any notional estate order (even if one had been sought concerning the Dora Creek or Noosaville Properties).
The s 87 factors
In any event, I would refuse to make a notional estate order, and thus any order for provision, by reason of the matters I must consider under s 87 of the Act.
Section 87 of the Act provides that the Court "must not" make a notional estate order unless it has considered: -
(a) the importance of not interfering with reasonable expectations in relation to property; and
(b) the substantial justice and merits involved in making or refusing to make the order.
My consideration of both these matters causes me to conclude that I should not make any notional estate order and, for that reason alone, should dismiss Brian's application.
My reasons for coming to this conclusion arise from Brian's delay in bringing these proceedings, notwithstanding the fact that the proceedings were brought within the 12 month period specified by s 58(2) of the Act.
Shortly after Hazel's death in April 2010, Brian contacted Gaye and asked:-
"When am I going to receive my money from mum's estate?"
Brian said that, when he asked Gaye this question, he "had no idea at all what I was going to get at that stage".
He said that Hazel had "always said" that she had left provision for Brian "but she never ever mentioned an amount of money".
The 10 June 2010 meeting
On 10 June 2010 Brian attended a meeting ("the 10 June 2010 meeting") at the offices of Needs, Chan & Monahan Lawyers, the solicitors acting for Gary and Gaye as executors of Hazel's will. Present at the meeting were Brian, Gary, Gaye, Gaye's husband Dennis, Brian's son Zechariah, and Terence Choi, the partner at Needs, Chan & Monahan Lawyers, handling Hazel's estate.
There is a conflict in the evidence as to exactly what happened at this meeting.
However, each of Gaye, Gary, Dennis and Zechariah agree that Mr Choi read out Hazel's will.
Gary, Gaye and Dennis gave evidence to the effect that, after Hazel's will was read out, Mr Choi left the room for a moment and that the following conversation took place: -
Gary: "Brian, do you understand, the house in Gibbes Street goes to me, the house in Cameron Street goes to Gaye and you get the monies left which is the term deposit of $150,000 and what is left in the retirement savings cheque account, a total of about $170,000."
Brian: "I understand."
Each of Gary, Gaye and Dennis agree that, after the meeting, on the street in front of the building of the offices of Needs, Chan & Monahan Lawyers, a further conversation took place as follows: -
Gary: "Brian, you're getting about $170,000 as your share of the estate. Are you clear?"
Brian: "Yes I know."
Again, there was a dispute as to whether this conversation took place. Both Brian and Zechariah disputed Gary's evidence.
Both Gary and Gaye accepted that, during the meeting, Brian looked "confused" and looked "blank", and said that this was why Gary had the further conversation with Brian outside Mr Choi's office.
It is not necessary to resolve the conflicting evidence about the 10 June 2010 meeting because, even on Brian's account of it, he understood very soon after the meeting that he was to receive $170,000 under Hazel's will.
Brian agreed that, after the 10 June 2010 meeting, he rang Gaye on a number of occasions and asked "When am I going to get my money?"
He agreed that when he asked that question, he had in mind that the amount of money he was to get was in the vicinity of $170,000.
As I have mentioned above, on 27 July 2010, Brian received an interim distribution of $150,000.
He agreed that, on that date, he knew that the Gibbes Street Property had been transferred to Gary and the Cameron Street Property had been transferred to Gaye.
It also occurred to Brian that, before he received the interim distribution of $150,000, that he should seek legal advice about his position. He said "I queried it a bit in my own mind".
Brian underwent chemotherapy from 12 July to 18 July 2010, followed by radiotherapy. However, he did not assert that this treatment interfered with his understanding of the distribution of Hazel's estate or his appreciation that he should get legal advice about his position.
Around the time that Brian received the interim distribution on 27 July 2010, he had a conversation with his landlord who "told me of his experience with the administration of the estate of a member of his family". Brian said that his landlord said: -
"If you are unhappy about it maybe you should go and get legal advice" and "challenge the Will".
Brian said that the conversation with his landlord "coincided with my seeing an advertisement for the auction of the property at Cameron Street".
Thus, around the time he received a suggestion from his landlord that he should seek legal advice about challenging the Will, Brian not only knew that the properties had been distributed to his siblings, but also knew that Gaye had taken steps to sell the Cameron Street Property.
Ultimately, Brian made an appointment to see his current solicitor on 29 October 2010 leading to the letter sent that day and referred to at [20] above.
In cross-examination, Brian suggested that the reason for the delay was that he was "too ill to follow on with anything". However this is inconsistent with his affidavit evidence. In his affidavit he said that after his radiotherapy he became "motivated to follow up on the estate" and that his conversation with his landlord, and the occasion of seeing the advertisement for the sale of the Cameron Street Property occurred thereafter.
As I have set out above, by the time Brian did give notification of his intention to make a claim, Gaye had not only sold the Cameron Street Property but, with Dennis, had exchanged contracts to purchase the Dora Creek Property.
Gary had reached a less advanced position at this stage. Although he had contracted to sell the Gibbes Street Property just prior to receiving notice of Brian's solicitor's letter of 29 October 2010, that sale did not proceed. Gary exchanged contracts for the sale of the Gibbes Street Property with his ultimate purchaser on 16 November 2010.
In these circumstances, I turn to consider the matters specified in subsection 87(a) and (b).
Gaye (and Dennis) exchanged contracts to purchase the Dora Creek Property on 22 October 2010; almost two weeks before Gaye knew that Brian had foreshadowed making a claim for family provision.
Gaye gave the following affidavit evidence: -
"I relied on the gift in my mum's Will to me which has meant that Dennis and I have been able to buy our own home. We are not in a position where we could afford to even be able to get a mortgage because we do not work and rely on disability and carer's pensions for our living.
Our move to Dora Creek could only have happened with the gift mum left me and Dennis and I would not have made the decision to move here had we known the Plaintiff would make such a claim. It would cause us a lot of problems to now to unravel our life. Brian (the Plaintiff) should have said something to Gary and I earlier instead of waiting until he had the money mum left him then telling us he wanted to claim. At least then we would not have made the plans we did and be left in this position where we do not know what future we have. This adds to the stress and worry I have as Dennis has been very sick and needed a liver transplant. Dennis will need ongoing medical treatment relating to his liver transplant and condition for the rest of his life."
Gary gave the following evidence: -
"I relied on the estate being distributed according to mum [sic] wishes in her Will which were also dad's wishes as stated in his Will. Julie and I made our plans relying on that. If we had known there was a chance that the Plaintiff would make a claim like he has on the Estate we would not have been able to make the decision that we did and would not have made the decision. We cannot reverse our decision as our home is sold and moving back anywhere else would just not be right. We sold our home of 31 years to move up to Noosaville, Queensland. It was a big decision to make. I retired from work due to my ill-health caused by depression."
Hazel's estate was distributed relatively promptly after her death in April 2010; probate was granted on 7 June 2010; the Gibbes Street Property and the Cameron Street Property were transmitted to Gary and Gaye respectively on 9 July 2010; and the cash residue was distributed to Brian on 27 July and 21 September 2010.
Further, as I have mentioned (see [27] above) Gary and Gaye did not give Brian a notice under s 93 of the Act of their intention to distribute the estate.
However, I am satisfied that from and after the 10 June 2010 meeting, Brian was aware of the manner in which Hazel had chosen to distribute her Estate. Further, I am satisfied that, about the time he 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 his sister had put the property on the market for sale.
At around this time, Brian also became conscious of the need to get legal advice about his situation.
Nonetheless he did nothing until 29 October 2010. By then, Gaye had committed herself to the sale of the Cameron Street Property and to the purchase of the Dora Creek Property.
In my opinion, at the time she (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.
It is true that the time by which Brian was entitled to make a claim for provision would not expire until April 2011: s 58(2) of the Act.
But the accumulation of the events comprising the 10 June 2010 meeting, Brian's repeated enquires 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.
Gaye's assets, which she holds jointly with Dennis, now comprise the Dora Creek Property together with $47,815 in a savings account with the Commonwealth Bank of Australia.
Gaye is not working. She is a carer for Dennis, who is on a disability pension, and receivers a carer's pension.
Were a notional estate order now to be made in respect of the "proceeds of sale" of the Cameron Street Property, Gaye would have to either utilise the only savings that she and Dennis have, and/or sell the Dora Creek Property.
In my opinion, 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.
For those reasons I would not be prepared to make a notional estate order in respect of what has become of the proceeds of sale of the Cameron Street Property.
Gary's position is not quite as difficult as Gaye's. Gary and Julie had the proceeds of sale of their Beverly Hills Property, as well as the proceeds of sale of the Gibbes Street Property to invest in the Noosaville Property and in the monies now on deposit with the Westpac Banking Corporation.
Further, 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.
However, were a notional estate order to made of the kind sought by Brian, 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.
I do not think it would be just to make a notional estate order in those circumstances, even if I was otherwise able to make one.
Conclusion
I refuse to make an application for provision in Brian's favour.
The Amended Summons should be dismissed.
I will hear the parties as to costs.
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Decision last updated: 25 June 2012
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